Notice2022-28086
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
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Published
December 27, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 247 (Tuesday, December 27, 2022)</title>
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[Federal Register Volume 87, Number 247 (Tuesday, December 27, 2022)]
[Notices]
[Pages 79406-79408]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-28086]
[[Page 79406]]
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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.
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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
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 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.
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\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).
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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\
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\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.
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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.\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.
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\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.
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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.
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\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.
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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\
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\14\ See Exchange Rule 519C(c)(2).
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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\
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\15\ See Interpretations and Policies .01 of Exchange Rule 519C.
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[[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.
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\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.
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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.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
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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 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.
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\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.
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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#5c2e293039713f3331313932282f1c2f393f723b332a"><span class="__cf_email__" data-cfemail="1260677e773f717d7f7f777c6661526177713c757d64">[email protected]</span></a>. Please include
File Number SR-PEARL-2022-57.
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-2022-57. 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
(<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-2022-57, 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\
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\21\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-28086 Filed 12-23-22; 8:45 am]
BILLING CODE 8011-01-P
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