[Federal Register Volume 85, Number 189 (Tuesday, September 29, 2020)]
[Notices]
[Pages 61051-61053]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-21405]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89969; File No. SR-PEARL-2020-15]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, to Exchange Rule 
1014, Imposition of Fines for Minor Rule Violations

September 23, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on September 8, 2020, MIAX PEARL, LLC (``MIAX PEARL'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. On 
September 22, 2020, the Exchange filed Amendment No. 1 to the proposed 
rule change, which supersedes the original filing in its entirety.\3\ 
The Commission is publishing this notice to solicit comments on 
Amendment No. 1 from interested persons and approving the proposal, as 
modified by Amendment No. 1, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange clarifies which fine 
amounts apply to violations of various provisions of Exchange Rule 
2202.
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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 change to add certain rules applicable to 
the trading of equity securities to the list of minor rule violations 
in Rule 1014.
    The text of the proposed rule change is available on the Exchange's 
website 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
    On December 13, 2016, the Commission issued an order granting the 
Exchange's application for registration as a national securities 
exchange.\4\ On February 6, 2020, the Commission published for public 
comment an Exchange proposal to adopt rules governing the trading of 
equity securities.\5\ On August 14, 2020, the Commission approved the 
Exchange's proposal to adopt rules governing the trading of equity 
securities.\6\ MIAX PEARL anticipates to begin trading equity 
securities on September 25, 2020. On December 21, 2017, the Commission 
issued an order declaring effective the Exchange's MRVP.\7\ The 
Exchange now proposes to add certain rules applicable to the trading of 
equity securities to the list of minor rule violations in Exchange Rule 
1014.
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    \4\ See Securities Exchange Act Release No. 79543 (December 13, 
2016), 81 FR 92901 (December 20, 2016) (File No. 10-227).
    \5\ See Securities Exchange Act Release No. 88132 (February 6, 
2020), 85 FR 8053 (February 12, 2020) (SR-PEARL-2020-03).
    \6\ See Securities Exchange Act Release No. 89563 (August 14, 
2020), 85 FR 51510 (August 20, 2020) (``Approval Order'').
    \7\ See Securities Exchange Act Release No. 82385 (December 21, 
2017), 82 FR 61613 (December 28, 2017) (File No. 4-715).
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    Exchange Rule 1014 sets forth the list of rules under which a 
Member may be subject to a fine. Exchange Rule 1014 permits the 
Exchange to impose a fine of up to $5,000 on any member or a person 
associated with or employed by a member for a minor violation of an 
eligible rule. The Exchange proposes to amend Exchange Rule 1014 to add 
certain rules applicable to the trading of equity securities to the 
list of rules eligible for disposition pursuant to a minor fine under 
Exchange Rule 1014.\8\
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    \8\ FINRA's maximum fine for minor rule violations under FINRA 
Rule 9216(b) is $2,500. The Exchange will apply an identical maximum 
fine amount for eligible violations to achieve consistency with 
FINRA and also to amend its minor rule violation plan to include 
such fines. Like FINRA, the Exchange would be able to pursue a fine 
greater than $2,500 for violations of Rules 2202, 2606(a)(1), 2623, 
2624, and 2104 in a regular disciplinary proceeding or Letter of 
Consent under Rule 1003 as appropriate. Any fine imposed in excess 
of $2,500 or not otherwise covered by Rule 19d-1(c)(2) of the Act 
would be subject to prompt notice to the Commission pursuant to Rule 
19d-1 under the Act.
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    The Exchange proposes that, as set forth in proposed Exchange Rule 
1014(d)(15), violations of the following rules would be appropriate for 
disposition under the MRVP: Rule 2202 and Interpretations thereunder 
(requiring the submission of responses to Exchange requests for trading 
data within specified time period); Rule 2623 (requirement to identify 
short sale orders as such); Rule 2624 (requirement to comply with 
locked and crossed market rules); Rule 2104 (Communications with the 
Public); Rule 2202 and Interpretations thereunder (related to the 
requirement to furnish Exchange-related order, market and transaction 
data, as well as financial or regulatory records and information); and 
Rule 2606(a)(1) (requirements for Equities Market Makers to maintain 
continuous two-sided quotations).\9\
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    \9\ MEMX, LLC's (``MEMX'') proposal to adopt a MRVP includes 
MEMX Rule 12.11 Interpretations and Policy .01 and Exchange Act Rule 
604 (failure to properly display limit orders) MEMX Rules 4.5 
through 4.16 (Consolidated Audit Trail Compliance Rules). See 
Securities Exchange Act Release No. 89485 (August 5, 2020), 85 FR 
48577 (August 11, 2020) (File No. 4-764). The Exchange notes that it 
recently amended Exchange Rule 1014 to include Chapter XVII, its 
Consolidated Order Trail Compliance Rule. See Securities Exchange 
Act Release No. 89166 (June 26, 2020), 85 FR 39943 (July 2, 2020) 
(SR-PEARL-2020-07). The Exchange Rules does not include a rule 
identical to MEMX Rule 12.11.01 that could be included in this 
proposal. The Exchange notes that MEMX Rule 12.11.01 simply refers 
to their member's existing obligations under Exchange Act Rule 604 
and a similar rule is also not included in Long Term Stock Exchange, 
Inc.'s (``LTSE'') MRVP. See Securities Exchange Act Release Nos. 
87415 (October 29, 2019), 84 FR 59427 (November 4, 2019) (File No. 
4-753).
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    Violations of Exchange Rules 2202, Preamble (requiring the 
submission of responses to Exchange requests for trading data within 
specified time period), 2623, 2624, and 2104 would be subject to the 
following fines:

------------------------------------------------------------------------
                 Occurrence *                    Individual  Member firm
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First time fined..............................         $100         $500
Second time fined.............................          300        1,000
Third time fined..............................          500        2,500
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* Within a ``rolling'' 12-month period.

    Violations of Exchange Rules 2202, Interpretation .01 (related to 
the requirement to furnish Exchange-related order, market and 
transaction data, as well as financial or regulatory records and 
information) and 2606(a)(1) would be subject to fines $100 per 
violation. The Exchange notes that these proposed fine levels are based 
on those approved for LTSE and proposed by MEMX.\10\
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    \10\ Id.

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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\11\ in general, and furthers the objectives of Section 
6(b)(5),\12\ in particular, because 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 mechanism 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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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    Minor rule fines provide a meaningful sanction for minor or 
technical violations of rules when the conduct at issue does not 
warrant stronger, immediately reportable disciplinary sanctions. The 
inclusion of a rule in the Exchange's MRVP does not minimize the 
importance of compliance with the rule, nor does it preclude the 
Exchange from choosing to pursue violations of eligible rules through a 
Letter of Consent if the nature of the violations or prior disciplinary 
history warrants more significant sanctions. Rather, the Exchange 
believes that the proposed rule change will strengthen the Exchange's 
ability to carry out its oversight and enforcement responsibilities in 
cases where full disciplinary proceedings are unwarranted in view of 
the minor nature of the particular violation. Rather, the option to 
impose a minor rule sanction gives the Exchange additional flexibility 
to administer its enforcement program in the most effective and 
efficient manner while still fully meeting the Exchange's remedial 
objectives in addressing violative conduct. Specifically, the proposed 
rule change is designed to prevent fraudulent and manipulative acts and 
practices because it will provide the Exchange the ability to issue a 
minor rule fine for violations of certain rules related to the trading 
of equity securities where a more formal disciplinary action may not be 
warranted or appropriate consistent with the approach of other 
exchanges for the same conduct.
    In connection with the fine level specified in the proposed rule 
change, adding language describing the fine levels would further the 
goal of transparency and add clarity to the Exchange's rules. Adopting 
the same caps as MEMX and LTSE for minor rule fines in connection with 
the included rules applicable to the trading of equity securities would 
also promote regulatory consistency across self-regulatory 
organizations.
    The Exchange further believes that the proposed amendments to Rule 
1014 are consistent with Section 6(b)(6) of the Act,\13\ which provides 
that members and persons associated with members shall be appropriately 
disciplined for violation of the provisions of the rules of the 
exchange, by expulsion, suspension, limitation of activities, 
functions, and operations, fine, censure, being suspended or barred 
from being associated with a member, or any other fitting sanction. As 
noted, the proposed rule change would provide the Exchange ability to 
sanction minor or technical violations of certain rules applicable to 
the trading of equity securities pursuant to the Exchange's rules.
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    \13\ 15 U.S.C. 78f(b)(6).
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    Finally, the Exchange also believes that the proposed changes are 
designed to provide a fair procedure for the disciplining of members 
and persons associated with members, consistent with Sections 6(b)(7) 
and 6(d) of the Act.\14\ Rule 1014 does not preclude a member or a 
person associated with or employed by a member from contesting an 
alleged violation and receiving a hearing on the matter with the same 
procedural rights through a litigated disciplinary proceeding.
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    \14\ 15 U.S.C. 78f(b)(7) and 78f(d).
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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 proposed rule change is 
not intended to address competitive issues but rather is concerned 
solely with making certain equity related rules eligible for a minor 
rule fine disposition, thereby strengthening the Exchange's ability to 
carry out its oversight and enforcement functions and deter potential 
violative conduct.

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. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 1 
to 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-2020-15 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-2020-15. This file 
number should be included on the 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-PEARL-2020-15 and should be submitted on 
or before October 20, 2020.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change, as Modified by Amendment No. 1

    The Commission finds that the proposed rule change, as modified by 
Amendment No. 1, is consistent with the requirements of the Act and the 
rules and regulations thereunder

[[Page 61053]]

applicable to a national securities exchange.\15\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\16\ which requires that the rules of an 
exchange be designed to promote just and equitable principles of trade, 
to remove impediments and to perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest. The Commission also believes that 
the proposal is consistent with Sections 6(b)(1) and 6(b)(6) of the Act 
\17\ which require that the rules of an exchange enforce compliance 
with, and provide appropriate discipline for, violations of Commission 
and Exchange rules. Finally, the Commission finds that the proposal is 
consistent with the public interest, the protection of investors, or 
otherwise in furtherance of the purposes of the Act, as required by 
Rule 19d-1(c)(2) under the Act,\18\ which governs minor rule violation 
plans.
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    \15\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \16\ 15 U.S.C. 78f(b)(5).
    \17\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
    \18\ 17 CFR 240.19d-1(c)(2).
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    As stated above, the Exchange proposes to amend Exchange Rule 1014 
to add certain rules applicable to the trading of equity securities to 
the list of rules eligible for disposition pursuant to a minor fine 
under Exchange Rule 1014. The Commission believes that the amended MRVP 
will permit the Exchange to carry out its oversight and enforcement 
responsibilities as a self-regulatory organization (``SRO'') more 
efficiently in cases where full disciplinary proceedings are not 
necessary due to the minor nature of the particular violation.
    In declaring the Exchange's amended MRVP effective, the Commission 
in no way minimizes the importance of compliance with Exchange rules 
and all other rules subject to the imposition of sanctions under 
Exchange Rule 1014. The Commission believes that the violation of an 
SRO's rules, as well as Commission rules, is a serious matter. However, 
Exchange Rule 1014 provides a reasonable means of addressing violations 
that do not rise to the level of requiring formal disciplinary 
proceedings, while providing greater flexibility in handling certain 
violations. The Commission expects that the Exchange will continue to 
conduct surveillance and make determinations based on its findings, on 
a case-by-case basis, regarding whether a sanction under the amended 
MRVP is appropriate, or whether a violation requires formal 
disciplinary action.
    For the same reasons discussed above, the Commission finds good 
cause, pursuant to Section 19(b)(2) of the Act,\19\ for approving the 
proposed rule change, as modified by Amendment No. 1, prior to the 
thirtieth day after the date of publication of the notice of the filing 
thereof in the Federal Register. The proposal merely amends Exchange 
Rule 1014 to add certain rules applicable to the trading of equity 
securities to the current list of rules eligible for disposition 
pursuant to a minor fine under Exchange Rule 1014. In addition, the 
Commission notes that the proposal is consistent with the minor rule 
violation plans of other SROs.\20\ Accordingly, the Commission believes 
that a full notice-and-comment period is not necessary before approving 
the proposal.
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    \19\ 15 U.S.C. 78s(b)(2).
    \20\ See Securities Exchange Act Release Nos. 87415 (October 29, 
2019), 84 FR 59427 (November 4, 2019) (File No. 4-753) (order 
declaring effective the LTSE MRVP); and 89485 (September 11, 2020), 
85 FR 58081 (September 17, 2020) (File No. 4-764) (order declaring 
effective the MEMX MRVP).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\21\ and Rule 19d-1(c)(2) thereunder,\22\ that the proposed rule change 
(SR-PEARL-2020-15), as modified by Amendment No. 1, be, and hereby is, 
approved on an accelerated basis.
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    \21\ Id.
    \22\ 17 CFR 240.19d-1(c)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-21405 Filed 9-28-20; 8:45 am]
BILLING CODE 8011-01-P