82 FR 22708 - Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 519C

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 94 (May 17, 2017)

Page Range		22708-22711
FR Document		2017-09929
Federal Register, Volume 82 Issue 94 (Wednesday, May 17, 2017)
[Federal Register Volume 82, Number 94 (Wednesday, May 17, 2017)]
[Notices]
[Pages 22708-22711]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-09929]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80659; File No. SR-PEARL-2017-21]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 
519C

May 11, 2017.
    Pursuant to 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 May 5, 2017, MIAX PEARL, LLC (``MIAX PEARL'' or ``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 is filing a proposal to amend Exchange Rule 519C.
    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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 519C, Mass Cancellation of 
Trading Interest, to adopt new section (c) entitled ``Detection of Loss 
of Communication,'' to codify the use of current functionality in the 
Exchange's System \3\ which is designed to assist Members \4\ in the 
event of a loss of communication with either their assigned MIAX 
Express Orders Interface (``MEO Interface'' or ``MEO'') \5\ port or 
Financial Information eXchange Interface (``FIX Interface'' or ``FIX'') 
\6\ port due to a loss of connectivity. This functionality is designed 
to protect Members from inadvertent exposure to excessive risk. The 
Exchange also proposes to adopt new Interpretations and Policies .01 
and .02 as discussed below. Additionally, the Exchange proposes to make 
minor non substantive changes to Rule 100, Definitions, as described 
below. The Exchange notes that this filing is substantially similar in 
all material respects to a recent filing by the Exchange's affiliate, 
Miami International Securities Exchange, LLC (``MIAX Options'').\7\
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    \3\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \4\ The term ``Member'' means an individual or organization that 
is registered with the Exchange pursuant to Chapter II of MIAX PEARL 
Rules for the purpose 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.
    \5\ As proposed, 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 proposed Exchange 
Rule 100.
    \6\ As proposed, the term ``FIX Interface'' means the Financial 
Information Exchange interface used for submitting certain order 
types (as set forth in MIAX PEARL Rule 516) to the MIAX PEARL 
System. See proposed Exchange Rule 100.
    \7\ See Securities Exchange Act Release No. 80151 (March 3, 
2017), 82 FR 13146 (March 9, 2017) (SR-MIAX-2017-08).
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    MIAX PEARL Members may connect to the System using the MEO 
Interface and/or the FIX Interface. These two connection protocols are 
not mutually exclusive and Members, specifically Market Makers 
(``MMs'') \8\ on the Exchange, primarily use the MEO Interface for 
providing liquidity to the Exchange via their Market Making activities, 
while Electronic Exchange Members (``EEMs'') \9\ primarily use the FIX 
Interface for submitting orders.\10\
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    \8\ 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.
    \9\ 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.
    \10\ The term ``order'' means a firm commitment to buy or sell 
option contracts. See Exchange Rule 100.
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    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. Market Makers may 
submit quotes \11\ to the Exchange from one or more MEO ports. 
Similarly, Members may submit orders to the Exchange from one or more 
FIX ports. When the System detects a loss of communication with a 
Member, the System has the capability to remove the Member's quotes 
and/or orders, if so elected and configured by the Member. The Exchange 
notes that this functionality is mandatory for Members using MEO and 
optional for Members using FIX, as discussed in more detail below.
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    \11\ 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.
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MEO Connections
    Members connect to their assigned MEO port using the MIAX Session 
Management Protocol (``SesM''). The SesM protocol uses Heartbeat \12\ 
packets to detect link failures between the Member and the Exchange. 
The SesM protocol requires that the Exchange must send a Heartbeat 
packet anytime more than one (1) second has passed since the Exchange 
last sent any data. Further, the SesM protocol requires that the Member 
must send a Heartbeat packet anytime more than one (1) second has 
passed since the Member last sent any data. If a certain number of 
consecutive Heartbeats are missed,\13\ or if the Member fails to send 
data or Heartbeats within ``xx'' period of time (``Heartbeat 
Interval''), the System will automatically close the connection and 
listen for the Member to establish a new connection. The default 
Heartbeat

[[Page 22709]]

Interval setting is determined by the Exchange and configured directly 
into the System.\14\ Any change to these settings will be communicated 
to Members accordingly.
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    \12\ 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.
    \13\ The Exchange notes that the current setting is three (3) 
Heartbeats.
    \14\ The Exchange notes that the current setting is three (3) 
seconds.
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    The Exchange offers Members three different types of MEO port 
connections. A Full Service Port Bulk (``FSPB'') which 
supports all message types and binary bulk order entry, a Full Service 
Port Single (``FSPS'') which supports all MEO input message 
types and binary order entry on a single order by order basis (no bulk 
orders), and a Limited Service Port (``LSP''), which supports all MEO 
input message types, but does not support bulk order entry and only 
supports IOC/ISO order types. The Exchange limits Members to two (2) 
Full Service Ports and allows up to eight (8) Limited Service Ports per 
MIAX PEARL matching engine.\15\ All Ports can have ``Cancel on 
Disconnect'' enabled. By default, Cancel on Disconnect functionality 
will be triggered upon establishing a loss of communication to the 
Member's last MEO Full Service Port connection to a matching engine. 
When Cancel on Disconnect is triggered, the System will close the 
session and remove the Member's quotes and orders from the Exchange, 
for the impacted matching engine only.
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    \15\ A ``matching engine'' is a part of the MIAX PEARL 
electronic system that processes options quotes and trades on a 
symbol-by-symbol basis.
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    Members have the ability to group MEO ports together by port and/or 
Market Participant ID (``MPID'') for the purpose of establishing groups 
of connections to tailor Cancel on Disconnect functionality to the 
Member's business needs.
    Examples for illustration purposes are provided below.
    Example 1: Default Behavior.
    Group 1: MEO Full Service Ports: MEO Port 1 & MEO Port 2.
    Scenario 1: MEO Port 1 disconnects, (MEO Port 2 connected) no 
quotes removed.
    Scenario 2: MEO Port 2 disconnects, (MEO Port 1 connected) no 
quotes removed.
    Scenario 3: MEO Port 1 disconnects, MEO Port 2 disconnects, Cancel 
on Disconnect triggered.
    Scenario 4: MEO Port 2 disconnects, MEO Port 1 disconnects, Cancel 
on Disconnect triggered.
    Example 2: A Member requiring a configuration which separates their 
orders, Mass-Cancel or Notifications to a separate port.
    Group 1: MEO Full Service Ports: MEO Port 1 & MEO Port 2.
    Group 2: MEO Limited Service Port: MEO Port 3.
    Group 1 is configured for Cancel on Disconnect; Group 2 is not.
    Assuming that the Firm is connected on all ports:
    Scenario 1: MEO Port 1 disconnects, no quotes removed.
    Scenario 2: MEO Port 1 and Port 2 disconnect, Cancel on Disconnect 
triggered, quotes removed.
    Scenario 3: MEO Port 3 disconnects, no quotes removed.
    Scenario 4: MEO Port 1 and Port 3 disconnect, no quotes removed.
    Example 3: A Member requiring a configuration to divide the ports 
to separate computers or traders.
    Group 1: MEO Full Service Port: MEO Port 1; MEO Limited Service 
Port: MEO Port 2
    Group 2: MEO Full Service Port: MEO Port 3; MEO Limited Service 
Port: MEO Port 4
    Group 1 MPIDs: MPID_1, MPID_2, MPID_3
    Group 2 MPIDs: MPID_3, MPID_4, MPID_5
    Both groups are configured for Cancel on Disconnect, and MPID_3 is 
in both groups.
    Assuming the Member is connected on all ports:
    Scenario 1: MEO Port 1 disconnects, no quotes removed.
    Scenario 2: MEO Port 1 and Port 2 disconnect, Cancel on Disconnect 
triggered for MPID_1, MPID_2, and MPID_3.
    Scenario 3: MEO Port 3 disconnects, no quotes removed.
    Scenario 4: MEO Port 1 and MEO Port 3 disconnect, Cancel on 
Disconnect triggered for all MPIDs.
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. This value must be 
greater than zero seconds and the same value must be used by both the 
Member and the Exchange.
    Within the logon message a Member can enable ``Auto Cancel on 
Disconnect'' for all orders sent through a session by setting a flag in 
the logon message. This would result in all eligible orders \16\ 
submitted through the FIX connection to be canceled upon a loss of 
communication. Alternatively, a Member can identify individual orders 
on a per order basis that are to be considered for Auto Cancel on 
Disconnect treatment.
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    \16\ Good `Til Cancelled (``GTC'') orders are not eligible for 
Auto Cancel on Disconnect. A 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).
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    Upon missing a single Heartbeat, FOI will send a Test Request 
message \17\ to the Member to check the status of the connection. Upon 
missing a certain number of Heartbeats,\18\ FOI will send a logout 
message and terminate the connection. When FOI detects a disconnection 
for any reason it will trigger the Auto Cancel on Disconnect process, 
whereby, if enabled, FOI will cancel all eligible orders. If Auto 
Cancel on Disconnect is not enabled for the session or for any orders, 
FOI will simply disconnect the FIX session and not cancel any orders. 
Once disconnected, a FIX user would have to commence a new session to 
add, modify, or cancel its orders. After a disconnect FOI will not 
accept connections from the Member for a pre-configured period of 
time.\19\ This allows the Exchange to cancel orders without the Member 
being able to reconnect and attempt to interact with an order in the 
process of being canceled. Any change to this setting will be 
communicated to Members accordingly.
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    \17\ 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.
    \18\ The Exchange notes that the current setting is two (2) 
Heartbeats.
    \19\ The Exchange notes that the current setting is five (5) 
seconds.
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    The Auto Cancel on Disconnect functionality is designed to react to 
external connection loss scenarios only. Therefore, it does not cancel 
orders in the event of a MIAX PEARL system failure. The execution 
reports resulting from cancels or trades during the period a Member is 
disconnected can be received upon a subsequent reconnection by the 
Member on the same trading day.
    The Exchange also proposes to adopt new Interpretations and 
Policies .01 to enumerate order types that are not eligible for removal 
by the Auto Cancel on Disconnect functionality. Proposed Interpretation 
and Policies .01 will state that Good `Til Cancelled (``GTC'') \20\ 
orders are not eligible for automatic cancellation.
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    \20\ See Exchange Rule 516.

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[[Page 22710]]

    The Exchange also proposes to adopt new Interpretations and 
Policies .02 to define (i) what a ``Heartbeat'' message is and how it 
used by the Exchange, and (ii) the requirements for establishing a 
``Loss of Communication'' on the Exchange.
    Additionally, the Exchange proposes amending the definition of 
``MEO Interface'' and ``FIX Interface,'' in Rule 100, to clarify the 
function and capability of each interface.
    The functionality discussed above is designed to mitigate potential 
risks associated with a loss of communication to the Exchange. In 
today's market, Market Makers' quotes are rapidly changing and can have 
a lifespan of only milliseconds. Therefore, if a Member is disconnected 
for any period of time, and its quotes remained in the System, it is 
very possible that the quotes would be stale by the time the Member was 
able to reestablish connectivity. Consequently, any resulting execution 
of such quotes is more likely to be erroneous or unintended. 
Conversely, the Exchange notes that orders tend to be static in nature 
and often rest on the Book. Certain orders, such as GTC orders are 
intended to rest on the Book for an extended period of time. As such, 
there is a lower risk of erroneous or unintended executions resulting 
from orders that remained in the System after a Member experienced a 
loss of communication.
    The Exchange believes that while information relating to 
connectivity and loss of communication is already available to Members 
via technical specifications, codifying this information in the rule 
text will provide additional transparency and further reduce the 
potential for confusion.
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 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.
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    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
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    The proposed rule will remove impediments to and perfect the 
mechanism of a free and open market and a national market system and 
protect investors and the public interest by providing Market Makers 
with a mechanism by which quotes may be removed in the event of a loss 
of connectivity with the System. Market Makers provide liquidity to the 
market place and have obligations unlike other Members.\23\
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    \23\ See Exchange Rule 604.
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    This risk protection feature is important because it will enable 
Market Makers to avoid risks associated with inadvertent executions in 
the event of a loss of communication with the Exchange. The proposed 
rule change is not unfairly discriminatory among Members, as it is 
available equally to all Members utilizing MEO. The obligation of 
Market Makers on the Exchange to provide continuous two-sided quotes in 
their assigned series on a daily basis \24\ is not diminished by the 
removal of such quotes triggered by the disconnect. The Exchange will 
not be prohibited from taking disciplinary action against a Market 
Maker for failing to meet its continuous quoting obligation each 
trading day as a result of disconnections.
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    \24\ See Exchange Rule 604(a)(1).
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    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 port when such port disconnects. It is appropriate to offer two 
different removal features to all Members utilizing FIX, as these 
Members may desire that their orders remain on the order book despite a 
technical disconnection, so as not to miss any opportunities for 
execution of such orders while the FIX session is disconnected. 
Offering to cancel all orders, specifically selected orders, or no 
orders, upon disconnect allows the Member to customize the 
functionality to align to its business needs. Offering this type of 
order cancellation functionality to Members is consistent with the Act 
because it enables Members to avoid risks associated with inadvertent 
executions in the event of a loss of communication with the Exchange. 
The order cancellation functionality is designed to mitigate the risk 
of missed and/or unintended executions associated with a loss in 
communication with the Exchange. The proposed rule change is not 
unfairly discriminatory among Members, as it is available equally to 
all Members utilizing FIX.
    The disconnect feature is mandatory under the FIX protocol. The 
Exchange will disconnect Members from the Exchange and not cancel 
orders if the Auto Cancel on Disconnect functionality is not enabled. 
This feature is consistent with the Act because it provides FIX users 
the ability to disconnect from the Exchange and assess the current 
market conditions to make a determination concerning their risk 
exposure. The Exchange notes that in the event Auto Cancel on 
Disconnect functionality is not enabled and such orders need to be 
cancelled after a disconnection occurs, an Exchange participant can 
contact Exchange staff to have its orders cancelled from the 
System.\25\ The Exchange believes requiring a disconnect when a loss of 
communication is detected to be a rational course of action for the 
Exchange to alert the Member of the technical connectivity issue.
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    \25\ See Exchange Rule 519C.
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    The Exchange believes that the proposed rule change will assist 
with the maintenance of a fair and orderly market by codifying risk 
protections for orders and quotes. The Exchange's proposal is 
consistent with the Act because it adds another risk protection tool 
for Members that may mitigate the risk of potential erroneous or 
unintended executions associated with a loss in communication which 
protects investors and the public interest. Further, the Exchange 
believes clarifying the definition of each interface type provides 
clarity and transparency in the Exchange's Rules. The Exchange believes 
codifying existing functionality by rule will remove impediments to and 
perfect the mechanisms of a free and open market by adding precision 
and ease of reference to the Exchange's Rules, thus promoting 
transparency and clarity for Members.

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 believes the 
proposed rule change will not impose any burden on intra-market 
competition because every Member of the Exchange has the opportunity to 
benefit from the functionality described in the proposed rule.

[[Page 22711]]

    The Exchange provides two separate and distinct mechanisms for 
communicating with the Exchange, MEO and FIX. MEO Ports support the 
submission of quotes to the Exchange and are used primarily by Market 
Makers who have heightened quoting obligations because of their role. 
Members are provided the ability to configure their MEO Ports to 
leverage the functionality provided by the Exchange to remove quotes 
and orders to align to their risk tolerance. Because of the volume of 
series that a Market Maker is obligated to quote, the Exchange believes 
that removing all quotes for an affected matching engine on behalf of a 
Market Maker who has lost its last MEO connection to that engine to be 
in the best interest of both the Market Maker, to mitigate risk; and 
the Exchange, to ensure a fair and orderly market.
    FIX users may set a timeframe for disconnection that is appropriate 
for their risk tolerance. Offering functionality to cancel all, some, 
or none, of the orders in the System upon establishing a loss of 
communication does not create an undue burden on intra-market 
competition as Members do not equally bear the same risks of potential 
erroneous or unintended executions. Further, FIX users have greater 
control over their orders and may designate a number of different Time 
in Force instructions which can be used to determine the duration an 
order rests on the Book, from Immediate-or-Cancel, which is executed in 
whole or part upon receipt, with any unexecuted portion being 
cancelled; to a Good `Til Cancelled order, which may rest on the Book 
until it is executed, cancelled by the user, or until the underlying 
option expires.
    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. The Exchange 
notes that other option exchanges offer similar functionality.\26\ 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.
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    \26\ See BOX Rule 8140; CBOE Rule 6.23C; NASDAQ BX Chapter VI, 
Section 6; NASDAQ PHLX Rule 1019; and MIAX Options Rule 519C.
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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 \27\ and Rule 19b-4(f)(6) \28\ 
thereunder.
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    \27\ 15 U.S.C. 78s(b)(3)(A).
    \28\ 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-2017-21 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-2017-21. 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 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-2017-21 and should be 
submitted on or before June 7, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-09929 Filed 5-16-17; 8:45 am]
BILLING CODE 8011-01-P
22710 Federal Register / Vol. 82, No. 94 / Wednesday, May 17, 2017 / Notices

The Exchange also proposes to adopt general, to protect investors and the proposed rule change is not unfairly
new Interpretations and Policies .02 to public interest. discriminatory among Members, as it is
define (i) what a ‘‘Heartbeat’’ message is The proposed rule will remove available equally to all Members
and how it used by the Exchange, and impediments to and perfect the utilizing FIX.
(ii) the requirements for establishing a mechanism of a free and open market The disconnect feature is mandatory
‘‘Loss of Communication’’ on the and a national market system and under the FIX protocol. The Exchange
Exchange. protect investors and the public interest will disconnect Members from the
by providing Market Makers with a Exchange and not cancel orders if the
Additionally, the Exchange proposes
mechanism by which quotes may be Auto Cancel on Disconnect
amending the definition of ‘‘MEO
removed in the event of a loss of functionality is not enabled. This
Interface’’ and ‘‘FIX Interface,’’ in Rule
connectivity with the System. Market feature is consistent with the Act
100, to clarify the function and
Makers provide liquidity to the market because it provides FIX users the ability
capability of each interface.
place and have obligations unlike other to disconnect from the Exchange and
The functionality discussed above is Members.23 assess the current market conditions to
designed to mitigate potential risks This risk protection feature is make a determination concerning their
associated with a loss of communication important because it will enable Market risk exposure. The Exchange notes that
to the Exchange. In today’s market, Makers to avoid risks associated with in the event Auto Cancel on Disconnect
Market Makers’ quotes are rapidly inadvertent executions in the event of a functionality is not enabled and such
changing and can have a lifespan of loss of communication with the orders need to be cancelled after a
only milliseconds. Therefore, if a Exchange. The proposed rule change is disconnection occurs, an Exchange
Member is disconnected for any period not unfairly discriminatory among participant can contact Exchange staff to
of time, and its quotes remained in the Members, as it is available equally to all have its orders cancelled from the
System, it is very possible that the Members utilizing MEO. The obligation System.25 The Exchange believes
quotes would be stale by the time the of Market Makers on the Exchange to requiring a disconnect when a loss of
Member was able to reestablish provide continuous two-sided quotes in communication is detected to be a
connectivity. Consequently, any their assigned series on a daily basis 24 rational course of action for the
resulting execution of such quotes is is not diminished by the removal of Exchange to alert the Member of the
more likely to be erroneous or such quotes triggered by the disconnect. technical connectivity issue.
unintended. Conversely, the Exchange The Exchange will not be prohibited The Exchange believes that the
notes that orders tend to be static in from taking disciplinary action against a proposed rule change will assist with
nature and often rest on the Book. Market Maker for failing to meet its the maintenance of a fair and orderly
Certain orders, such as GTC orders are continuous quoting obligation each market by codifying risk protections for
intended to rest on the Book for an trading day as a result of orders and quotes. The Exchange’s
extended period of time. As such, there disconnections. proposal is consistent with the Act
is a lower risk of erroneous or The disconnect feature of FIX because it adds another risk protection
unintended executions resulting from connections is mandatory, however tool for Members that may mitigate the
orders that remained in the System after Members have the option to enable the risk of potential erroneous or
a Member experienced a loss of cancellation of all orders for an entire unintended executions associated with
communication. session or select orders for cancellation a loss in communication which protects
on an order-by-order basis, which investors and the public interest.
The Exchange believes that while would result in the cancellation of Further, the Exchange believes
information relating to connectivity and orders submitted over a FIX port when clarifying the definition of each
loss of communication is already such port disconnects. It is appropriate interface type provides clarity and
available to Members via technical to offer two different removal features to transparency in the Exchange’s Rules.
specifications, codifying this all Members utilizing FIX, as these The Exchange believes codifying
information in the rule text will provide Members may desire that their orders existing functionality by rule will
additional transparency and further remain on the order book despite a remove impediments to and perfect the
reduce the potential for confusion. technical disconnection, so as not to mechanisms of a free and open market
2. Statutory Basis miss any opportunities for execution of by adding precision and ease of
such orders while the FIX session is reference to the Exchange’s Rules, thus
MIAX PEARL believes that its disconnected. Offering to cancel all promoting transparency and clarity for
proposed rule change is consistent with orders, specifically selected orders, or Members.
Section 6(b) of the Act 21 in general, and no orders, upon disconnect allows the
furthers the objectives of Section 6(b)(5) Member to customize the functionality B. Self-Regulatory Organization’s
of the Act 22 in particular, in that it is to align to its business needs. Offering Statement on Burden on Competition
designed to prevent fraudulent and this type of order cancellation The Exchange does not believe that
manipulative acts and practices, to functionality to Members is consistent the proposed rule change will impose
promote just and equitable principles of with the Act because it enables any burden on competition that is not
trade, to foster cooperation and Members to avoid risks associated with necessary or appropriate in furtherance
coordination with persons engaged in inadvertent executions in the event of a of the purposes of the Act. The
regulating, clearing, settling, processing loss of communication with the Exchange believes the proposed rule
information with respect to, and Exchange. The order cancellation change will not impose any burden on
nlaroche on DSK30NT082PROD with NOTICES

facilitating transactions in securities, to functionality is designed to mitigate the intra-market competition because every
remove impediments to and perfect the risk of missed and/or unintended Member of the Exchange has the
mechanisms of a free and open market executions associated with a loss in opportunity to benefit from the
and a national market system and, in communication with the Exchange. The functionality described in the proposed
rule.
21 15 U.S.C. 78f(b). 23 See Exchange Rule 604.
22 15 U.S.C. 78f(b)(5). 24 See Exchange Rule 604(a)(1). 25 See Exchange Rule 519C.

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Federal Register / Vol. 82, No. 94 / Wednesday, May 17, 2017 / Notices 22711

The Exchange provides two separate C. Self-Regulatory Organization’s subject line if email is used. To help the
and distinct mechanisms for Statement on Comments on the Commission process and review your
communicating with the Exchange, Proposed Rule Change Received From comments more efficiently, please use
MEO and FIX. MEO Ports support the Members, Participants, or Others only one method. The Commission will
submission of quotes to the Exchange Written comments were neither post all comments on the Commission’s
and are used primarily by Market solicited nor received. Internet Web site (http://www.sec.gov/
Makers who have heightened quoting rules/sro.shtml). Copies of the
obligations because of their role. III. Date of Effectiveness of the submission, all subsequent
Proposed Rule Change and Timing for amendments, all written statements
Members are provided the ability to
Commission Action with respect to the proposed rule
configure their MEO Ports to leverage
Because the foregoing proposed rule change that are filed with the
the functionality provided by the
change does not: (i) Significantly affect Commission, and all written
Exchange to remove quotes and orders communications relating to the
to align to their risk tolerance. Because the protection of investors or the public
interest; (ii) impose any significant proposed rule change between the
of the volume of series that a Market Commission and any person, other than
Maker is obligated to quote, the burden on competition; and (iii) become
operative for 30 days after the date of those that may be withheld from the
Exchange believes that removing all public in accordance with the
the filing, or such shorter time as the
quotes for an affected matching engine provisions of 5 U.S.C. 552, will be
Commission may designate, it has
on behalf of a Market Maker who has available for Web site viewing and
become effective pursuant to 19(b)(3)(A)
lost its last MEO connection to that printing in the Commission’s Public
of the Act 27 and Rule 19b–4(f)(6) 28
engine to be in the best interest of both thereunder. Reference Room, 100 F Street NE.,
the Market Maker, to mitigate risk; and At any time within 60 days of the Washington, DC 20549 on official
the Exchange, to ensure a fair and filing of the proposed rule change, the business days between the hours of
orderly market. Commission summarily may 10:00 a.m. and 3:00 p.m. Copies of the
temporarily suspend such rule change if filing also will be available for
FIX users may set a timeframe for
it appears to the Commission that such inspection and copying at the principal
disconnection that is appropriate for
action is necessary or appropriate in the office of the Exchange. All comments
their risk tolerance. Offering received will be posted without change;
functionality to cancel all, some, or public interest, for the protection of
investors, or otherwise in furtherance of the Commission does not edit personal
none, of the orders in the System upon identifying information from
establishing a loss of communication the purposes of the Act. If the
Commission takes such action, the submissions. You should submit only
does not create an undue burden on information that you wish to make
intra-market competition as Members do Commission shall institute proceedings
to determine whether the proposed rule available publicly. All submissions
not equally bear the same risks of should refer to File Number SR–
should be approved or disapproved.
potential erroneous or unintended PEARL–2017–21 and should be
executions. Further, FIX users have IV. Solicitation of Comments submitted on or before June 7, 2017.
greater control over their orders and Interested persons are invited to For the Commission, by the Division of
may designate a number of different submit written data, views, and Trading and Markets, pursuant to delegated
Time in Force instructions which can be arguments concerning the foregoing, authority.29
used to determine the duration an order including whether the proposed rule Eduardo A. Aleman,
rests on the Book, from Immediate-or- change is consistent with the Act. Assistant Secretary.
Cancel, which is executed in whole or Comments may be submitted by any of [FR Doc. 2017–09929 Filed 5–16–17; 8:45 am]
part upon receipt, with any unexecuted the following methods: BILLING CODE 8011–01–P
portion being cancelled; to a Good ‘Til
Electronic Comments
Cancelled order, which may rest on the
Book until it is executed, cancelled by • Use the Commission’s Internet SECURITIES AND EXCHANGE
the user, or until the underlying option comment form (http://www.sec.gov/ COMMISSION
expires. rules/sro.shtml); or
[Investment Company Act Release No.
• Send an email to rule-comments@ 32635; File No. 812–14698]
The Exchange does not believe the sec.gov. Please include File Number SR–
proposed rule change will impose any PEARL–2017–21 on the subject line. RiverNorth DoubleLine Strategic
burden on inter-market competition that Opportunity Fund, Inc. and RiverNorth
is not necessary or appropriate in Paper Comments
Capital Management LLC
furtherance of the purposes of the Act. • Send paper comments in triplicate
The Exchange notes that other option to Secretary, Securities and Exchange May 12, 2017.
exchanges offer similar functionality.26 Commission, 100 F Street NE., AGENCY: Securities and Exchange
For all the reasons stated, the Exchange Washington, DC 20549–1090. Commission (‘‘Commission’’).
does not believe that the proposed rule All submissions should refer to File ACTION: Notice.
change will impose any burden on Number SR–PEARL–2017–21. This file
Notice of an application under section
competition not necessary or number should be included on the
6(c) of the Investment Company Act of
appropriate in furtherance of the 1940 (‘‘Act’’) for an exemption from
nlaroche on DSK30NT082PROD with NOTICES

27 15 U.S.C. 78s(b)(3)(A).
purposes of the Act. section 19(b) of the Act and rule 19b–
28 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give 1 under the Act to permit a registered
the Commission written notice of its intent to file closed-end investment company to
the proposed rule change at least five business days make periodic distributions of long-term
prior to the date of filing of the proposed rule
26 See BOX Rule 8140; CBOE Rule 6.23C;
change, or such shorter time as designated by the capital gains more frequently than
NASDAQ BX Chapter VI, Section 6; NASDAQ Commission. The Exchange has satisfied this
PHLX Rule 1019; and MIAX Options Rule 519C. requirement. 29 17 CFR 200.30–3(a)(12).

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Document Created: 2017-05-17 01:42:08
Document Modified: 2017-05-17 01:42:08
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		82 FR 22708