Notice2022-09961
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
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
May 10, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 90 (Tuesday, May 10, 2022)</title>
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[Federal Register Volume 87, Number 90 (Tuesday, May 10, 2022)]
[Notices]
[Pages 28077-28080]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[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 <a href="http://www.miaxoptions.com/rule-filings/pearl">http://www.miaxoptions.com/rule-filings/pearl</a> 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
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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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#aad8dfc6cf87c9c5c7c7cfc4ded9ead9cfc984cdc5dc"><span class="__cf_email__" data-cfemail="582a2d343d753b3735353d362c2b182b3d3b763f372e">[email protected]</span></a>. Please include
File Number SR-PEARL-2022-15 on the subject line.
Paper Comments
<bullet> 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
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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
(<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>). 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
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