[Federal Register Volume 82, Number 69 (Wednesday, April 12, 2017)]
[Notices]
[Pages 17700-17702]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-07304]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80384; File No. SR-PEARL-2017-16]


Self-Regulatory Organizations: MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend MIAX 
PEARL Rules 504 and 516

April 6, 2017.
    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on April 3, 2017, MIAX PEARL, LLC (``MIAX PEARL'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change'') a proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the Exchange. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend Exchange Rules 504 and 
516.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.miaxoptions.com/rule-filings/pearl at MIAX 
PEARL's principal office, and at the Commission's Public Reference 
Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Exchange Rule 516, Order Types, to 
make changes to paragraph (j) related to Post-Only Order \3\ handling 
on the Exchange to simplify order entry and enhance liquidity available 
at the open. Additionally, the Exchange proposes to amend Exchange Rule 
504, Trading Halts, to remove Interpretations and Policies .05.
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    \3\ See Exchange Rule 516(j).
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    Currently, by definition, Post-Only Orders on MIAX PEARL do not 
participate in the Opening Process,\4\ and Post-Only Orders received 
before the Opening Process, during a trading halt, or after the market 
close, are rejected.\5\ Additionally, Post-Only Orders that remain on 
the Book \6\ after a trading halt under Rule 504 are cancelled.\7\ 
Post-Only Orders are designed to be liquidity providing orders, as a 
Post-Only Order by definition is one that will not remove liquidity 
from the Book.\8\
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    \4\ See Exchange Rule 503(a)(2) and Rule 516(j).
    \5\ See Exchange Rule 516(j).
    \6\ The term ``Book'' means the electronic order book of buy and 
sell orders and quotes maintained by the System. See Exchange Rule 
100.
    \7\ See Exchange Rule 504.05.
    \8\ See Exchange Rule 516(j).
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    The Exchange now proposes to amend certain aspects of its handling 
of Post-Only Orders to allow them to participate in the Opening Process 
and to also allow Post-Only Orders to be received by the Exchange prior 
to the commencement of the Opening Process or during a trading halt, 
and to remain on the Book after a trading halt, where they may 
participate in the next Opening Process.\9\
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    \9\ The Exchange notes that a single Opening Process is used for 
Openings and Re-Openings on the Exchange. See Exchange Rule 
503(a)(1).
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    The Exchange proposes to amend Exchange Rule 516 (j) to allow Post-
Only Orders to participate in the Opening Process by ignoring the Post-
Only instruction on the order during this period. This will allow Post-
Only Orders to participate in the Opening Process by removing the prior 
restriction that a Post-Only Order not remove liquidity from the Book. 
As proposed, during the Opening Process, Post-Only Orders will be 
accepted and provide additional liquidity as orders are matched for 
execution based on price-time priority.\10\ The Exchange believes that 
removing the prohibition against Post-Only Orders participating in the 
Opening Process will serve as a catalyst for Members \11\ to submit 
orders during the opening and improve the liquidity available during 
the Exchange's Opening Process which may also improve prices at the 
opening.
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    \10\ See Exchange Rule 503(b)(2)(ii).
    \11\ The term ``Member'' means an individual or organization 
that is registered with the Exchange pursuant to Chapter II of the 
MIAX PEARL Rules for purposes of trading on the Exchange as an 
``Electronic Exchange Member'' or ``Market Maker.'' Members are 
deemed ``members'' under the Exchange Act. See Exchange Rule 100.
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    The Exchange has two classes of Members, Market Makers \12\ and 
Electronic Exchange Members.\13\ Market Makers are the primary users of 
Post-Only Orders on the Exchange as discussed in more detail below. 
Currently, in order to provide liquidity during the Opening Process, 
Market Makers must use regular orders, as orders marked Post-Only will 
be rejected. After the Opening Process has concluded, Market Makers 
switch over to marking orders as Post-Only Orders. Market Makers use 
Post-Only Orders to provide two-sided quotes to meet their quoting 
obligations as described in more detail below. The Exchange believes 
that its proposal to accept Post-Only Orders before the Opening Process 
will simplify the operation of the Exchange and reduce complexity for 
Members that submit orders during the Opening Process and that switch 
to submitting Post-Only Orders during regular trading. Permitting Post-
Only Orders to participate in the Opening will simplify the operational 
complexity for Market Makers that wish to provide liquidity during the 
Opening Process and thereby improve prices at the open.\14\
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    \12\ The term ``Market Maker'' or ``MM'' means a Member 
registered with the Exchange for the purpose of making markets in 
options contracts traded on the Exchange and that is vested with the 
rights and responsibilities specified in Chapter VI of MIAX PEARL 
Rules. See Exchange Rule 100.
    \13\ The term ``Electronic Exchange Member'' or ``EEM'' means 
the holder of a Trading Permit who is a Member representing as agent 
Public Customer Orders or Non-Customer Orders on the Exchange and 
those non-Market Maker Members conducting proprietary trading. 
Electronic Exchange Members are deemed ``members'' under the 
Exchange Act. See Exchange Rule 100.
    \14\ The Exchange notes that the proposal may primarily benefit 
Market Makers as they are the largest users of Post-Only Orders. 
However, Post-Only Orders are available for all Members and the 
Exchange does not believe that the proposal raises any concerns for 
EEMs as the change will benefit any Member that uses Post-Only 
Orders.
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    Market Makers have a heightened obligation on the Exchange to 
maintain a two-sided market, pursuant to Rule 605(d)(1), in those 
option series in which the Market Maker has registered to trade.\15\ 
Exchange Rule 605, Market Maker Quotations, details various 
requirements associated with a Market

[[Page 17701]]

Maker's quotes, such as ``Size Associated with Quotes'', ``Firm 
Quotes'', and ``Continuous Quotes''.\16\ A quote on the Exchange is 
defined as, ``. . . a bid or offer entered by a Market Maker as a firm 
order that updates the Market Maker's previous bid or offer, if any . . 
. .'' \17\ The Exchange's definition of a quote further provides that, 
``[w]hen the term order is used in these Rules and a bid or offer is 
entered by the Market Maker in the option series to which such Market 
Maker is registered, such order shall, as applicable, constitute a 
quote or quotation for purposes of these Rules.'' \18\ Market Makers 
self-assign the series for which they choose to act as a Market Maker 
and may register daily for these series.\19\ A Market Maker could 
easily have an obligation to provide continuous quotes for a large 
number of series. Eliminating the need for Market Makers to switch from 
sending regular orders during the Opening Process to Post-Only Orders 
after the Opening Process is complete will allow Market Makers to more 
efficiently provide liquidity during the Opening Process and seamlessly 
transition to regular trading.
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    \15\ See Exchange Rule 604(a)(1).
    \16\ See Exchange Rule 605.
    \17\ See Exchange Rule 100.
    \18\ See Exchange Rule 100.
    \19\ See Exchange Rule 602.
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    Additionally, the Exchange proposes to amend Rule 516(j) to state 
that Post-Only Orders are valid during the Opening Process and that 
Post-Only Orders received before the Opening Process or during a 
trading halt may participate in the next Opening Process. The Exchange 
notes that Post-Only Orders received after the market close will 
continue to be rejected.
    At the completion of the Opening Process, the Exchange re-
introduces orders that did not execute or that were priced through the 
Opening Price.\20\ The Exchange now proposes to also re-introduce Post-
Only Orders that participated in the Opening Process but were not 
executed. The Post-Only instruction on such re-introduced Post-Only 
Orders will be recognized and the orders will be treated in the same 
manner as Post-Only Orders received during a regular trading session, 
wherein such orders may not remove liquidity, in accordance with the 
existing rule.
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    \20\ See Exchange Rule 503(b)(2)(iii).
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    Finally, Exchange Rule 504.05 currently provides that Post-Only 
Orders that are on the Book will be cancelled when trading in an option 
on a security has been halted pursuant to Rule 504. The Exchange now 
proposes to eliminate this paragraph in its entirety. As discussed 
above, the Exchange is proposing to amend its handling of Post-Only 
Orders and will include them in the Opening Process, therefore it is 
not necessary to remove Post-Only Orders from the Book when an option 
has been halted pursuant to Rule 504, as they may participate in the 
next Opening Process.
2. Statutory Basis
    MIAX PEARL believes that its proposed rule change is consistent 
with Section 6(b) of the Act \21\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \22\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanisms of a free and open market and a national market system and, 
in general, to protect investors and the public interest.
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    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change will simplify 
its market structure, minimize unnecessary complexity, and encourage 
liquidity during the Opening Process. The Exchange believes this change 
will make the transition from the opening to regular trading more 
efficient and thus promote just and equitable principles of trade and 
serve to protect investors and the public interest.
    Additionally, the proposed rule change is consistent with the 
current rules of another options exchange.\23\
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    \23\ See Nasdaq Options Rules, Chapter VI, Section 1(e)(11).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
    The Exchange does not believe that the proposed rule changes will 
impose any burden on intra-market competition as the Rules apply 
equally to all Exchange Members.
    The Exchange does not believe that the proposed rule change will 
impose any burden on inter-market competition as the proposal is 
designed to simplify the complexity of order entry at the open, and 
could result in more competitive order flow to the Exchange at the 
open.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \24\ and Rule 19b-4(f)(6) \25\ 
thereunder.
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    \24\ 15 U.S.C. 78s(b)(3)(A).
    \25\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-PEARL-2017-16 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-PEARL-2017-16. This file 
number should be included on the

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subject line if email is used. To help the Commission process and 
review your comments more efficiently, please use only one method. The 
Commission will post all comments on the Commission's Internet Web site 
(http://www.sec.gov/rules/sro.shtml). Copies of the submission, all 
subsequent amendments, all written statements with respect to the 
proposed rule change that are filed with the Commission, and all 
written communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for Web site viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE., Washington, DC 20549, on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
the filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-PEARL-2017-16 and should be submitted on or before May 
3, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-07304 Filed 4-11-17; 8:45 am]
 BILLING CODE 8011-01-P