[Federal Register Volume 87, Number 90 (Tuesday, May 10, 2022)]
[Notices]
[Pages 28077-28080]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-09961]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94851; File No. SR-PEARL-2022-15]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Adopt Exchange 
Rule 532, Order Price Protection Mechanisms and Risk Controls

May 4, 2022.
    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 21, 2022 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. 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 proposes to adopt new Exchange Rule 532, Order Price 
Protection Mechanisms and Risk Controls, and a new Max Put Price 
Protection feature in new proposed Rule 532.
    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

[[Page 28078]]

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 adopt new Exchange Rule 532, Order Price 
Protection Mechanisms and Risk Controls. The Exchange proposes to adopt 
a new Managed Protection Override feature, and a new Max Put Price 
Protection feature in new proposed Rule 532.
Proposal
Max Put Price Protection (``MPPP'')
    The Exchange proposes to adopt a new price protection for put \3\ 
options by establishing a maximum price at which a put option may 
trade.\4\ To determine the maximum price the Exchange will add a pre-
set value of $0.10 to the strike price of the put option. Buy orders 
from an Electronic Exchange Member (``EEM'') \5\ that are priced 
through the maximum trading price limit will trade up to, and 
including, the maximum trading price limit, and will then be placed on 
the Book \6\ and managed to the appropriate trading price limit as 
described in Rule 515(d)(2), or cancelled if the Managed Protection 
Override (``MPO'') (as described below) is enabled. Sell orders from an 
EEM that are priced higher than the maximum trading price limit will be 
rejected.
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    \3\ The term ``put'' means an option contract under which the 
holder of the option has the right, in accordance to the terms and 
provisions of the option, to sell to the Clearing Corporation the 
number of units of the underlying security covered by the option 
contract. See Exchange Rule 100.
    \4\ The Exchange notes its affiliate Exchange, the MIAX Options 
Exchange, recently adopted this protection. See Securities Exchange 
Act Release No. 94353 (March 3, 2022), 87 FR 13339 (March 9, 2022) 
(SR-MIAX-2021-58).
    \5\ 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.
    \6\ The term ``Book'' means the electronic book of buy and sell 
orders and quotes maintained by the System. See Exchange Rule 100.
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    Buy orders from a Market Maker (``MM'') \7\ that are priced through 
the maximum trading price limit will trade up to, and including, the 
maximum trading price limit, then will be placed on the Book and 
managed to the appropriate trading price limit as described in Rule 
515(d)(2). Sell orders from a Market Maker that are priced higher than 
the maximum trading price limit will be displayed.
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    \7\ The term ``Market Maker'' or ``MM'' means a Member 
registered with the Exchange for the purposes of making markets in 
option contracts traded on the Exchange and that is vested with the 
rights and responsibilities specified in Chapter VI or the MIAX 
Pearl Rulebook. See Exchange Rule 100.
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Example Max Put Price Protection for a Buy Market Order
    An order to buy 10 XYZ Jan 5 Put @market \8\ is received from an 
EEM.
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    \8\ A market order is an order to buy or sell a stated number of 
option contracts at the best price available at the time of 
execution. A Market Maker may not submit a market order. See 
Exchange Rule 516(b).
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    The current market is:

PBBO \9\ 0.50 (10) x 5.50 (10)
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    \9\ The term ``PBBO'' means the best bid or offer on MIAX Pearl. 
See Exchange Rule 100.

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    The price protection is:

Put Price Variance (PPV) = $0.10
Max Put Price Protection = (Strike + PPV) = $5.10

    The Max Put Price Protection establishes the maximum trading price 
limit at which an order can trade. Because the buy order is priced 
through the Max Put Price Protection of $5.10, the order is subject to 
management pursuant to 515(d)(2) and is posted to the Book at $5.10.

PBBO 5.10 (10) x 5.50 (10)

Example Max Put Price Protection for a Sell Limit Order
    An order to sell 10 XYZ Jan 5 Put @$5.25 is received from an EEM.
    The current market is:

PBBO 0.50 (10) x 5.50 (10)

    The price protection is:

Put Price Variance (PPV) = $0.10
Put Option = XYZ Jan 5 Put
Max Put Price Protection = (Strike + PPV) = $5.10

    Because the sell order is priced higher than the Max Put Price 
Protection of $5.10, the order is rejected.
    For the purposes of the Max Put Price Protection, the Exchange 
treats an order to sell a put option priced above the maximum trading 
price limit received from Electronic Exchange Members differently than 
a similar order received from a Market Maker. Members that are Market 
Makers have a heightened obligation on the Exchange and are obligated 
to maintain a two-sided market in those option series in which the 
Market Maker is registered to trade.\10\ Further, Market Makers are 
required to submit continuous bids and offers for the options series in 
their appointed classes for a certain percentage of time in each 
trading session.\11\ As such, the Exchange treats Market Maker orders 
differently than EEM orders, and will not reject an order to sell a put 
option from a Market Maker that is priced higher than the maximum 
trading price limit.
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    \10\ See Exchange Rule 604(a)(1).
    \11\ See Exchange Rule 605.
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Managed Protection Override (``MPO'')
    The Exchange proposes to adopt a new Managed Protection Override 
feature which will work in conjunction with the Max Put Price 
Protection. Members must contact the Exchange's Help Desk \12\ to 
enable the Managed Protection Override feature. When the Max Put Price 
Protection is triggered, and if the Managed Protection Override feature 
has been enabled, the order subject to the Max Put Price Protection 
will be cancelled. The Managed Protection Override is currently only 
available for the Max Put Price Protection proposed herein.
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    \12\ The term ``Help Desk'' means the Exchange's control room 
consisting of Exchange staff authorized to make certain trading 
determinations on behalf of the Exchange. The Help Desk shall report 
to and be supervised by a senior executive officer of the Exchange. 
See Exchange Rule 100.
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    The Exchange believes that offering Members the option to have 
their orders either managed by the Exchange or cancelled when the Max 
Put Price Protection is triggered gives Members greater flexibility and 
control over their orders while retaining the risk protection 
functionality. If the Managed Protection Override is enabled the 
Exchange will return the unexecuted order to the Member for further 
analysis and evaluation. If the Managed Protection Override is not 
enabled the Exchange will manage the unexecuted order on behalf of the 
Member.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \13\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \14\ 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 regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in, securities, to remove impediments to and 
perfect the

[[Page 28079]]

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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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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Max Put Price Protection
    The Exchange believes that the Max Put Price Protection feature 
promotes just and equitable principles of trade, removes impediments to 
and perfects the mechanism of a free and open market and a national 
market system and, in general, protects investors and the public 
interest by providing a risk protection mechanism to prevent trades 
from occurring at potentially unwanted or erroneous prices. The 
Exchange believes that the Max Put Price Protection feature promotes a 
fair and orderly market by mitigating the potential risks associated 
with orders trading at potentially erroneous prices.
    The Exchange believes that its proposal to accept and display a 
Market Maker order to sell a put that is priced higher than the maximum 
trading price limit promotes a free and open market and national market 
system as Market Makers on the Exchange have heightened obligations on 
the Exchange that Electronic Exchange Members do not, that requires 
Market Makers to submit continuous bids and offers in the series to 
which they are appointed in order to enhance the depth, liquidity, and 
competitiveness of the market.\15\
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    \15\ See supra notes 10 and 11.
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Managed Protection Override
    The Exchange believes that the Managed Protection Override feature 
promotes just and equitable principles of trade, removes impediments to 
and perfects the mechanism of a free and open market and a national 
market system and, in general, protects investors and the public 
interest by providing a mechanism by which Members may determine the 
way their orders are handled when a risk protection is triggered. The 
Exchange believes that it has an effective way to manage orders on the 
Exchange so that they do not execute at potentially erroneous prices, 
however the Exchange believes that giving Members the option to have 
their orders cancelled if a risk protection is triggered protects 
investors and the public interest. When the Exchange cancels an order, 
a Member can make a decision on what to do with that order based on the 
then current market conditions and may choose to re-submit the order at 
the same or different limit price. Specifically, the Exchange believes 
the proposed change will remove impediments to and perfect the 
mechanism of a free and open market by providing market participants 
with the option to either manage their own orders or have the Exchange 
manage their orders when a price protection is triggered which will 
promote fair and orderly markets, increase overall market confidence, 
and promote the protection of investors.
    The Exchange believes that offering Members the option to have 
orders either managed by the Exchange or cancelled when the Max Put 
Price risk protection is triggered gives Members greater flexibility 
and control over their orders to buy puts while retaining the risk 
protection functionality. If the Managed Protection Override is enabled 
the Exchange will return the unexecuted order to the Member for further 
analysis and evaluation. If the Managed Protection Override is not 
enabled the Exchange will manage the unexecuted order on behalf of the 
Member.

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.
    Specifically, the Exchange does not believe that the proposed 
changes will impose any burden on intra-market competition as the rules 
of the Exchange apply equally to all MIAX Pearl Members. The Max Put 
Price Protection is applicable to all MIAX Pearl Members that submit an 
order to buy a put option. Additionally, any MIAX Pearl Member may 
elect to enable the Managed Protection Override functionality to allow 
the Exchange to cancel their order when the Max Put Price Protection 
risk protection is triggered.
    The Exchange does not believe that its proposal to provide 
dissimilar treatment for sell put orders priced above the maximum 
trading price limit submitted by EEMs and MMs will impose any burden on 
intra-market competition as Market Makers have heightened obligations 
on the Exchange and are required to submit continuous bids and offers 
in the series to which they are appointed.
    In addition, the Exchange does not believe the proposal will impose 
any burden on inter-market competition as the proposal is intended to 
protect investors by providing additional price protection 
functionality. The Exchange's proposal may promote inter-market 
competition as the Exchange's proposal adds additional price protection 
features and functionality that may attract additional order flow to 
the Exchange, thereby promoting inter-market competition.

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 \16\ and Rule 19b-4(f)(6) \17\ 
thereunder.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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-2022-15 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-2022-15. This 
file number should be included on the

[[Page 28080]]

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-2022-15, and should be submitted on or before May 31, 2022.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-09961 Filed 5-9-22; 8:45 am]
BILLING CODE 8011-01-P