82 FR 57799 - Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend MIAX PEARL Rules 517A, Aggregate Risk Manager for EEMs (“ARM-E”), and 517B, Aggregate Risk Manager for Market Makers (“ARM-M”)

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 234 (December 7, 2017)

[Federal Register Volume 82, Number 234 (Thursday, December 7, 2017)]
[Notices]
[Pages 57799-57803]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-26321]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82197; File No. SR-PEARL-2017-37]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend MIAX 
PEARL Rules 517A, Aggregate Risk Manager for EEMs (``ARM-E''), and 
517B, Aggregate Risk Manager for Market Makers (``ARM-M'')

December 1, 2017.
    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4

[[Page 57800]]

thereunder,\2\ notice is hereby given that on November 28, 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 Rules 517A, 
Aggregate Risk Manager for EEMs (``ARM-E''), and 517B, Aggregate Risk 
Manager for Market Makers (``ARM-M'').
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.miaxoptions.com/rule-filings/pearl at MIAX 
PEARL's principal office, and at the Commission's Public Reference 
Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Exchange Rule 517A, ARM-E, to add 
additional detail to subsection (b), and to adopt new rule text in 
Interpretations and Policies .01, to state that immediate-or-cancel 
(``IOC'') Orders \3\ are not EEM ARM Eligible Orders.\4\ The Exchange 
also proposes to amend Exchange Rule 517B, ARM-M, to add additional 
detail to subsection (b), and to adopt new rule text in Interpretations 
and Policies .02, to state that immediate-or-cancel (``IOC'') Orders 
are not MM ARM Eligible Orders.\5\
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    \3\ An immediate-or-cancel order is an order that is to be 
executed in whole or in part upon receipt. Any portion not so 
executed is cancelled. See Exchange Rule 516(e).
    \4\ See Exchange Rule 517A(a).
    \5\ See Exchange Rule 517B(a).
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ARM-E
    ARM-E protects MIAX PEARL Electronic Exchange Members (``EEMs'') 
\6\ and assists them in managing risk by maintaining a counting program 
(``EEM Counting Program'') \7\ for each participating EEM who has 
submitted an order in an EEM Specified Option Class \8\ using a 
specified market participant identifier (``MPID'') \9\ of the EEM and 
delivered via the MEO Interface \10\ (an ``EEM ARM Eligible Order''). 
The EEM Counting Program counts the number of contracts executed by an 
EEM from an EEM ARM Eligible Order (the ``EEM ARM Contracts'') within a 
specified time period that has been established by the EEM (the ``EEM 
Specified Time Period'').\11\ The EEM Specified Time Period cannot 
exceed 15 seconds.\12\ The Exchange currently provides that contracts 
executed as a result of an immediate-or-cancel (``IOC'') order 
submitted by such EEM are not included in a specific EEM's EEM Counting 
Program.\13\
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    \6\ 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.
    \7\ See Exchange Rule 517A(a).
    \8\ An ``EEM Specified Option Class'' is a class which the EEM 
has designated as a class to be protected via ARM-E. See Exchange 
Rule 517A(a).
    \9\ The term ``MPID'' means unique market participant 
identifier. See Exchange Rule 100.
    \10\ The term ``MEO Interface'' means a binary order interface 
used for submitting certain order types (as set forth in Rule 516) 
to the MIAX PEARL System. See Exchange Rule 100.
    \11\ See Exchange Rule 517A(a).
    \12\ Id.
    \13\ See Exchange Rule 517A, Interpretations and Policies .01.
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    The EEM may also establish for each EEM Specified Option Class an 
EEM Allowable Engagement Percentage (the ``EEM Allowable Engagement 
Percentage''),\14\ which is a number of contracts, divided by the size 
of the orders, executed within the Specified Time Period, equal to or 
over which the ARM-E will be triggered. When an execution of an EEM ARM 
Contract from an EEM ARM Eligible Order occurs, the System \15\ will 
look back over the EEM Specified Time Period to determine whether the 
sum of contract executions from such EEM ARM Eligible Order during such 
EEM Specified Time Period triggers the ARM-E.\16\
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    \14\ See Exchange Rule 517A(c).
    \15\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \16\ See Exchange Rule 517A(c).
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    The System will engage the ARM-E in a particular EEM Specified 
Option Class when the EEM Counting Program has determined that an EEM 
has executed during the EEM Specified Time Period a number of EEM ARM 
Contracts from an EEM ARM Eligible Order equal to or above their EEM 
Allowable Engagement Percentage. ARM-E will then, until the EEM sends a 
notification to the System of the intent to reengage and submits a new 
order in the EEM Specified Option Class: (i) Automatically cancel the 
EEM ARM Eligible Orders in all series of that particular EEM Specified 
Option Class and (ii) reject new orders by the EEM in all series of 
that particular EEM Specified Option Class submitted using the MEO 
Interface.\17\
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    \17\ See Exchange Rule 517A(b).
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    The Exchange now proposes to allow EEMs to submit orders with a 
time in force of immediate-or-cancel to the Exchange during the time 
that the ARM-E is engaged by amending Interpretations and Policies .01 
to adopt new rule text to state, ``[i]mmediate-or-Cancel (``IOC'') 
Orders submitted by an EEM using the MEO Interface are not EEM ARM 
Eligible Orders.'' The Exchange also proposes to remove the existing 
text in Interpretations and Policies .01 in its entirety which states, 
``[t]he System does not include in a specific EEM's EEM Counting 
Program contacts executed as a result of an immediate-or-cancel 
(``IOC'') order submitted by such EEM.'' By adopting text that 
explicitly states that IOC orders submitted by an EEM using the MEO 
Interface are not EEM ARM Eligible Orders, there is no longer a need to 
indicate that contracts executed as a result of an IOC order submitted 
by an EEM are not included in the Counting Program, as only EEM ARM 
Eligible Orders will be included in the EEM Counting Program.
    Additionally, Rule 517A(b) provides that when the ARM-E is engaged, 
the System will, (i) automatically cancel the EEM ARM Eligible Orders 
in all series of that particular EEM Specified Option Class and (ii) 
reject new orders by the EEM in all series of that particular EEM 
Specified Option Class submitted using the MEO Interface. The Exchange 
now proposes to amend subsection (b)(ii) to state that the System will 
reject EEM ARM Eligible Orders submitted by the EEM, thereby allowing 
IOC orders to be submitted to the Exchange for trading when ARM-E is 
engaged.

[[Page 57801]]

ARM-M
    ARM-M protects MIAX PEARL Market Makers \18\ and assists them in 
managing risk by maintaining a counting program (``MM Counting 
Program'') for each Market Maker who has submitted an order in an 
option class (an ``MM Option Class'') delivered via the MEO Interface 
(an ``MM ARM Eligible Order'').\19\ The MM Counting Program counts the 
number of contracts executed by a Market Maker from an MM ARM Eligible 
Order (the ``MM ARM Contracts'') within a specified time period that 
has been established by the Market Maker or as a default setting, as 
defined below (the ``MM Specified Time Period'').\20\ The MM Specified 
Time Period cannot exceed 15 seconds whether established by the Market 
Maker or as a default setting.\21\ The Exchange currently provides that 
contracts executed as a result of an immediate-or-cancel (``IOC'') 
order submitted by such MM are not included in a specific MM's MM 
Counting Program.\22\
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    \18\ 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 the MIAX 
PEARL Rules. See Exchange Rule 100.
    \19\ See Exchange Rule 517B(a).
    \20\ Id.
    \21\ Id.
    \22\ See Exchange Rule 517B, Interpretations and Policies .02.
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    The Market Maker may also establish for each MM Option Class an MM 
Allowable Engagement Percentage. When an execution of an MM ARM 
Contract from an MM ARM Eligible Order occurs, the System will look 
back over the MM Specified Time Period to determine whether the sum of 
contract executions from such MM ARM Eligible Order during such MM 
Specified Time Period triggers the ARM-M.\23\
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    \23\ See Exchange Rule 517B(c).
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    The System will engage the ARM-M in a particular MM Option Class 
when the MM Counting Program has determined that a Market Maker has 
executed during the MM Specified Time Period a number of MM ARM 
Contracts from an MM ARM Eligible Order equal to or above their MM 
Allowable Engagement Percentage. The ARM-M will then, until the Market 
Maker sends a notification to the System of the intent to reengage and 
submits a new order in the MM Option Class: (i) Automatically cancel 
the MM ARM Eligible Orders in all series of that particular MM Option 
Class and (ii) reject new orders by the Market Maker in all series of 
that particular MM Option Class submitted using the MEO Interface.\24\
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    \24\ See Exchange Rule 517B(b).
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    The Exchange now proposes to allow Market Makers to submit orders 
with a time in force of immediate-or-cancel to the Exchange during the 
time that the ARM-M is engaged by amending Interpretations and Policies 
.02 to state, ``[i]mmediate-or-Cancel (``IOC'') Orders submitted by a 
Market Maker using the MEO Interface are not MM ARM Eligible Orders.'' 
The Exchange also proposes to remove the existing text in 
Interpretations and Policies .02 in its entirety which states, ``[t]he 
System does not include in a specific MM's MM Counting Program contacts 
executed as a result of an immediate-or-cancel (``IOC'') order 
submitted by such MM.'' By adopting text that explicitly states that 
IOC orders submitted by a Market Maker using the MEO Interface are not 
MM ARM Eligible Orders, there is no longer a need to indicate contracts 
executed as a result of an IOC order submitted by a Market Maker are 
not included in the Counting Program, as only MM ARM Eligible Orders 
will be included in the MM Counting Program.
    Additionally, Rule 517B(b) provides that when the ARM-M is engaged, 
the System will (i) automatically cancel the MM ARM Eligible Orders in 
all series of that particular MM Option Class and (ii) reject new 
orders by the Market Maker in all series of that particular MM Option 
Class submitted using the MEO Interface. The Exchange now proposes to 
amend subsection (b)(ii) to state that the System will reject new MM 
ARM Eligible Orders submitted by the Market Maker, thereby allowing IOC 
orders to be submitted to the Exchange for trading when ARM-M is 
engaged.
    ARM-E and ARM-M are designed to mitigate the exposure risk of 
resting orders on the Exchange. In the Exchange's experience an IOC 
order is an order that is designed to target specific, identifiable 
liquidity resting on the Book \25\ that the entering Member desires to 
trade with. Thus, a Member entering an IOC order does not require the 
risk management protection of either the ARM-E or ARM-M, as the Member 
entering the IOC order has made an affirmative decision to attempt to 
execute that transaction. The Exchange believes Members should not be 
prevented from submitting these types of orders to the Exchange during 
the time that the Aggregate Risk Manager is engaged as contracts 
executed using these types of orders are not included in either the EEM 
or MM Counting Program.\26\
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    \25\ The term ``Book'' means the electronic book of buy and sell 
orders and quotes maintained by the System. See Exchange Rule 100.
    \26\ See supra note 11 and 19.
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    The Exchange believes this proposal will allow Members to continue 
to be protected from the risks that the Aggregate Risk Manager is 
designed to mitigate, and also allow Members to continue to submit 
certain orders which Members desire to submit even during the time that 
the Aggregate Risk Manager is engaged. The Exchange believes allowing 
Members the ability to send IOC orders to the Exchange will improve 
liquidity and order execution on the Exchange.
    The Exchange notes that the proposed rule change is similar to a 
rule that is currently operative on the Exchange's affiliate, MIAX 
Options Exchange (``MIAX Options''). Specifically, Interpretations and 
Policies .01 to MIAX Options Rule 612, Aggregate Risk Manager, states 
that eQuotes \27\ will remain in the System available for trading when 
the Aggregate Risk Manager is engaged. IOC Orders on MIAX PEARL are 
analogous to eQuotes on MIAX Options as eQuotes also have limited time-
in-force durations. For example, eQuotes on MIAX Options \28\ may be 
Auction or Cancel (``AOC''),\29\ Opening Only (``OPG''),\30\ Immediate 
or Cancel (``IOC''),\31\ or Fill or Kill (``FOK'').\32\ MIAX PEARL and 
MIAX

[[Page 57802]]

Options have a number of common Members and where feasible the Exchange 
strives to provide consistency between the markets so as to avoid 
confusion among Members.
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    \27\ An eQuote is a quote with a specific time in force that 
does not automatically cancel and replace a previous Standard quote 
or eQuote. An eQuote can be cancelled by the Market Maker at any 
time, or can be replaced by another eQuote that contains specific 
instructions to cancel an existing eQuote. See MIAX Options Exchange 
Rule 517(a)(2).
    \28\ MIAX Options provides for a Day eQuote in its rules, 
however this type of eQuote has not yet been enabled for trading on 
the MIAX Options Exchange. See MIAX Options Exchange Rule 517(a)(i).
    \29\ An Auction or Cancel or ``AOC'' eQuote is a quote submitted 
by a Market Maker to provide liquidity in a specific Exchange 
process . . . with a time in force that corresponds with the 
duration of that event and will automatically expire at the end of 
that event. See MIAX Options Exchange Rule 517(a)(2)(ii). The 
Exchange notes the current length of an auction on MIAX Options is 
100 milliseconds and that the duration of an auction may be no less 
than 100 milliseconds and no more than 1 second. See MIAX Options 
Exchange Rule 515A(a)(2)(i)(C).
    \30\ An opening only or ``OPG'' eQuote is a quote that can be 
submitted by a Market Maker only during the Opening . . . OPG 
eQuotes will automatically expire at the end of the Opening Process. 
See MIAX Options Exchange Rule 517(a)(2)(iii).
    \31\ An immediate or cancel or ``IOC'' eQuote is an eQuote 
submitted by a Market Maker that must be matched with another quote 
or order for an execution in whole or in part upon receipt into the 
System. Any portion of the IOC eQuote not executed will be 
immediately canceled. See MIAX Options Exchange Rule 517(a)(2)(iv).
    \32\ A fill or kill or ``FOK'' eQuote is an eQuote submitted by 
a Market Maker that must be matched with another quote or order for 
an execution in its entirety at a single price upon receipt into the 
System or will be immediately cancelled. See MIAX Options Exchange 
Rule 517(a)(a)(v).
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    The Exchange will announce the implementation date of the proposed 
rule change by Regulatory Circular to be published no later than 60 
days following the operative date of the proposed rule. The 
implementation date will be no later than 60 days following the 
issuance of the Regulatory Circular.
2. Statutory Basis
    MIAX PEARL believes that its proposed rule change is consistent 
with Section 6(b) of the Act \33\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \34\ 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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    \33\ 15 U.S.C. 78f(b).
    \34\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that its proposal would promote just and 
equitable principles of trade by permitting Members to use an order 
type that is not an ARM Eligible Order during the time that the ARM is 
engaged. Additionally, the Exchange believes this proposal will promote 
just and equitable principles of trade by allowing Members to continue 
to be protected from the risks that the Aggregate Risk Manager is 
designed to mitigate, and also allow Members to continue to submit 
certain orders which Members desire to submit even during the time the 
Aggregate Risk Manager is engaged. ARM-E and ARM-M are designed to 
mitigate the exposure risk of resting orders. An IOC order is an order 
that is designed to target specific, identifiable liquidity resting on 
the Book that the entering Member desires to trade with and thus the 
Member entering the IOC order does not require the risk management 
protection of either the ARM-E or ARM-M, as the Member entering the IOC 
order has made an affirmative decision to attempt to execute that 
transaction. Therefore, the Exchange believes Members should not be 
prevented from submitting these types of Orders to the Exchange during 
the time that the Aggregate Risk Manager is engaged. The Exchange 
believes allowing Members the ability to send IOC orders to the 
Exchange while the Aggregate Risk Manager is engaged promotes just and 
equitable principles of trade by improving liquidity and order 
execution on the Exchange.
    The Exchange believes its proposal will result in increased 
liquidity on the Exchange which will contribute to the operation of a 
fair and orderly market. The proposed treatment of IOC orders during 
the time that the ARM is engaged is substantially similar to the 
treatment of eQuotes on the Exchange's affiliate, MIAX Options.\35\
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    \35\ See MIAX Options Rule 612, Interpretations and Policies 
.01.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
the proposed rule change will foster competition on the Exchange by 
providing EEMs and Market Makers with the ability to submit IOC orders 
during the time that the ARM is engaged and compete for executions.
    The Exchange does not believe the proposed rule change will impact 
inter-market competition as the proposal is not designed to address 
competitive issue and is limited in scope to the behavior of Members of 
the Exchange.
    For 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, and 
believes the proposed change will enhance 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 \36\ and Rule 19b-4(f)(6) \37\ 
thereunder.
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    \36\ 15 U.S.C. 78s(b)(3)(A).
    \37\ 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-2017-37 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-2017-37. 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

[[Page 57803]]

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. Persons submitting comments are cautioned that we do 
not react 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-2017-37 and should be submitted on or before December 28, 2017.
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    \38\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-26321 Filed 12-6-17; 8:45 am]
 BILLING CODE 8011-01-P