[Federal Register Volume 87, Number 247 (Tuesday, December 27, 2022)]
[Notices]
[Pages 79406-79408]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-28086]



[[Page 79406]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96551; File No. SR-PEARL-2022-57]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change by MIAX PEARL, LLC To Amend 
Exchange Rule 519C Mass Cancellation of Trading Interest

December 20, 2022.
    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 December 8, 2022, MIAX PEARL, LLC (``MIAX Pearl'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 Rule 519C.
    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
    The Exchange proposes to amend Interpretations and Policies .01 of 
Exchange Rule 519C, Mass Cancellation of Trading Interest, to provide 
Members \3\ the option of having the Exchange cancel all orders, 
including GTC Orders,\4\ if the Exchange detects a loss of 
communication on a FIX Order Interface (``FOI'') Session.
---------------------------------------------------------------------------

    \3\ The term ``Member'' means an individual or organization 
approved to exercise the trading rights associated with a Trading 
Permit. Members are deemed ``members'' under the Exchange Act. See 
Exchange Rule 100.
    \4\ A Good `til Cancelled or ``GTC'' Order is an order to buy or 
sell which remains in effect until it is either executed, cancelled 
or the underlying option expires. See Exchange Rule 516(i).
---------------------------------------------------------------------------

    MIAX PEARL Members may connect to the System using the MEO 
Interface \5\ and/or the FIX Interface. These two connection protocols 
are not mutually exclusive and Members, specifically Market Makers 
(``MMs'') \6\ on the Exchange, primarily use the MEO Interface for 
providing liquidity to the Exchange via their Market Making activities, 
while Electronic Exchange Members (``EEMs'') \7\ primarily use the FIX 
Interface for submitting orders.\8\
---------------------------------------------------------------------------

    \5\ The term ``MEO Interface'' means a binary order interface 
used for submitting certain order types (as set forth in MIAX PEARL 
Rule 516) to the MIAX Pearl System. See Exchange Rule 100.
    \6\ 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.
    \7\ 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.
    \8\ The term ``order'' means a firm commitment to buy or sell 
option contracts. See Exchange Rule 100.
---------------------------------------------------------------------------

    These interface ports provide the mechanism by which Members 
maintain a connection to the Exchange and through which a Member 
communicates its quotes and/or orders to the System.\9\ Market Makers 
may submit quotes \10\ to the Exchange from one or more MEO ports. 
Similarly, Members may submit orders to the Exchange from one or more 
FIX ports.
---------------------------------------------------------------------------

    \9\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \10\ The term ``quote'' or ``quotation'' means 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. When 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. See Exchange Rule 100.
---------------------------------------------------------------------------

FIX Connections
    Members connect to their assigned FIX port using the MIAX PEARL FIX 
Orders Interface (``FOI'') which is a flexible interface that uses the 
FIX protocol for both application and session level messages. As per 
the FIX protocol, a connection is established by the Member submitting 
a logon message to the Exchange. This logon message establishes the 
Heartbeat interval that will be used by the session. The Exchange 
relies on heartbeat \11\ messages to determine the status of the 
connection to ensure bi-directional communication remains intact. Upon 
missing a single heartbeat, FOI will send a Test Request message \12\ 
to the Member to check the status of the connection. Upon missing a 
certain number of heartbeats,\13\ FOI will send a logout message and 
terminate the connection. The Exchange currently offers Members certain 
order handling risk protection options in this scenario.
---------------------------------------------------------------------------

    \11\ A ``Heartbeat'' message is a communication which acts as a 
virtual pulse between the Exchange System and the Member's system. 
The Heartbeat message sent by the Member and received by the 
Exchange allows the Exchange to continually monitor its connection 
with the Member. See Interpretations and Policies .02(i) of Exchange 
Rule 519C.
    \12\ The test request message is a FIX Protocol message that 
forces a heartbeat from the opposing application. The test request 
message checks sequence numbers or verifies communication line 
status. The opposite application responds to the Test Request with a 
Heartbeat containing the Test Request ID. Financial Information 
Exchange Protocol (FIX), Version 4.2 with errata. May 1, 2001.
    \13\ The Exchange notes that the current System setting is two 
(2) heartbeats, and that any change to this setting will be 
determined by the Exchange and communicated to Members via 
Regulatory Circular.
---------------------------------------------------------------------------

    Specifically, when a Loss of Communication is detected on a FOI 
connection the System will logoff the Member's session and (i) cancel 
all eligible orders for the FIX Session if instructed by the Member 
upon login, or (ii) cancel all eligible orders identified by the 
Member. Following a disconnection, a reconnection will not be permitted 
for a certain period of time (``yy'' seconds). The Exchange shall 
determine the appropriate period of (``yy'' seconds) and shall notify 
Members of the value of ``yy'' seconds via Regulatory Circular. In no 
event shall ``yy'' be less than one (1) second or greater than ten (10) 
seconds.\14\
---------------------------------------------------------------------------

    \14\ See Exchange Rule 519C(c)(2).
---------------------------------------------------------------------------

    At the time the Exchange adopted this functionality the Exchange 
created an exception for Good `Til Cancel Orders in Interpretations and 
Policies .01, which stated, Good `Til Cancelled (``GTC'') orders, as 
defined in Rule 516 and PRIME Orders, as defined in Rule 515A, are not 
eligible for automatic cancellation under paragraph (c) of Rule 
519C.\15\
---------------------------------------------------------------------------

    \15\ See Interpretations and Policies .01 of Exchange Rule 519C.

---------------------------------------------------------------------------

[[Page 79407]]

Proposal
    The Exchange now proposes to amend Interpretations and Policies .01 
to allow GTC orders to also be eligible for cancellation when the 
Exchange detects a Loss of Communication.
    As proposed, if the Exchange determines that there is a Loss of 
Communication, the Exchange will cancel the orders as described above, 
additionally, if elected, the Exchange proposes to cancel all GTC 
orders submitted through that FIX Session. As proposed, Members would 
need to contact the Exchange's Help Desk,\16\ in a form and manner to 
be determined by the Exchange and communicated via Regulatory Circular, 
to have this optional order protection (cancellation of GTC orders) 
configured.
---------------------------------------------------------------------------

    \16\ 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.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with section 6(b) of the Act \17\ in general, and furthers the 
objectives of section 6(b)(5) of the Act \18\ 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 mechanisms of a free and open market and a national market 
system and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The disconnect feature of FIX connections is mandatory, however 
Members have the option to enable the cancellation of all orders for an 
entire session or select orders for cancellation on an order-by-order 
basis, which would result in the cancellation of orders submitted over 
a FIX Session when such session disconnects. The Exchange believes it 
is appropriate to offer an additional option for Members to have the 
Exchange cancel GTC orders from the order book when there is a 
communication issue between the Member and the Exchange, as a 
communication issue may or may not be quickly resolved.
    Offering to cancel all orders (including GTC orders) allows the 
Member to customize Exchange risk protection functionality to align to 
a Member's business needs. Offering this type of order cancellation 
functionality to Members is consistent with the Act because it enables 
Members to have greater control over the execution of their orders in 
the event there is a communication issue with the Exchange. The 
proposed order cancellation functionality is designed to mitigate the 
risk of a missed execution associated with a loss of communication with 
the Exchange. The proposed rule change is not unfairly discriminatory 
among market participants, as it is available equally to all market 
participants utilizing a FOI connection to the Exchange.
    The Exchange believes that the proposed rule change will assist 
with the maintenance of a fair and orderly market by providing Members 
with greater control over their resting orders. The Exchange's proposal 
is consistent with the Act because it will mitigate the risk of 
potential erroneous or unintended executions associated with a loss of 
communication which protects investors and the public interest. 
Additionally, the proposed rule adds another level of risk protection 
for Members and protects investors and the public interest by 
increasing the risk protection options available to Members of the 
Exchange.

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 change to 
provide an additional risk protection imposes any burden on intra-
market competition that is not necessary or appropriate in furtherance 
of the purposes of the Act. The Exchange believes that adding an 
optional risk protection benefits all Members on the Exchange that use 
a FOI connection as any Member with a FOI connection can elect to use 
the risk protection described in the proposed rule.
    The Exchange does not believe the proposed rule change will impose 
any burden on inter-market competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. For all the 
reasons stated, the Exchange does not believe that the proposed rule 
change will impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.

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 \19\ and Rule 19b-4(f)(6) \20\ 
thereunder.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 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.
---------------------------------------------------------------------------

    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-2022-57.

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-2022-57. This file 
number should be included on the

[[Page 79408]]

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-2022-57, and should be submitted on or before January 17, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-28086 Filed 12-23-22; 8:45 am]
BILLING CODE 8011-01-P