Notice2023-03335
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 2618 To Add Optional Risk Control Settings
Primary source
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Published
February 17, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 33 (Friday, February 17, 2023)</title>
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[Federal Register Volume 88, Number 33 (Friday, February 17, 2023)]
[Notices]
[Pages 10391-10394]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-03335]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96905; File No. SR-PEARL-2023-03]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange
Rule 2618 To Add Optional Risk Control Settings
February 13, 2023.
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 February 3, 2023, MIAX PEARL, LLC (``MIAX Pearl'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``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 amend Exchange Rule 2618(a)(2) to offer two additional
optional risk settings to Equity Members, called the Gross Notional
Open and Trade Value and Net Notional Open and Trade Value.
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 purpose of the proposed rule change is to provide Equity
Members additional risk settings when trading equity securities on MIAX
Pearl Equities. To help Equity Members manage their risk, the Exchange
currently offers risk settings that authorize the Exchange to take
automated action if a designated limit for an Equity Member is
breached. Such risk settings provide Equity Members with enhanced
abilities to manage their risk when trading on the Exchange. The
Exchange now proposes to amend Exchange Rule 2618(a)(2) to offer two
additional optional risk settings to Equity Members, called the Gross
Notional Open and Trade Value and Net Notional Open and Trade Value.
Each of these new risk settings seeks to combine certain existing risk
settings into a single risk setting and are described below.
Exchange Rule 2618(a)(2) sets forth the specific cumulative risk
settings the Exchange offers and include Gross Notional Trade Value,
Net Notional Trade Value, Gross Notional Open Value, and Net Notional
Open Value.\3\ Gross Notional Trade Value is a pre-established maximum
daily dollar amount for purchases and sales across all symbols, where
both purchases and sales are counted as positive values. Net Notional
Trade Value is a pre-established maximum daily dollar amount for
purchases and sales across all symbols, where purchases are counted as
positive values and sales are counted as negative values. For purposes
of calculating the Gross Notional Trade Value and Net Notional Trade
Value, only executed orders are included.
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\3\ See Securities Exchange Act Release Nos. 89971 (September
23, 2020), 85 FR 61053 (September 29, 2022 [sic]) (SR-PEARL-2020-
16); 90478 (November 23, 2022 [sic]), 85 FR 76630 (November 30,
2020) (SR-PEARL-2020-26); and 96205 (November 1, 2022), 87 FR 67080
(November 17 [sic], 2022) (SR-PEARL-2022-43).
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The Gross Notional Open Value is a pre-established maximum daily
dollar amount for open buy and sell orders across all symbols, where
both open orders to buy and sell are counted as positive values. For
purposes of calculating the Gross Notional Open Value, only unexecuted
orders are included. The Net Notional Open Value is a pre-established
maximum daily dollar amount for open buy and sell orders across all
symbols, where open orders to buy are counted as positive values and
open orders to sell are counted as negative values. For purposes of
calculating the Net Notional Open Value, only unexecuted orders are
included, just like the Gross Notional Open Value risk control.
For both the Gross Notional Open Value and Net Notional Open Value
risk settings, the open orders calculation only includes Limit Orders
and Pegged Orders resting on the MIAX Pearl Equities Book and Limit
Orders that have been routed to an away exchange for execution.\4\
Limit Orders and Pegged Orders are included at their limit price.
Market Orders are not included.\5\ Each of the above risk settings is
completely optional and is not applied where the
[[Page 10392]]
Equity Member does not set the applicable threshold.
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\4\ Pegged Orders are not eligible for routing pursuant to
Exchange Rule 2617(b). See Exchange Rule 2614(a)(3)(E).
\5\ See Securities Exchange Act Release No. 96205 (November 1,
2022), 87 FR 67080 (November 17 [sic], 2022) (SR-PEARL-2022-43).
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Based on Equity Member demand, the Exchange proposes to adopt the
following two additional cumulative risk settings that take into
account both trades, as well as open, unexecuted orders, Gross Notional
Open and Trade Value and Net Notional Open and Trade Value. The
proposed risk settings combine each of the above two gross calculated
risk settings into a single risk control and the two net calculated
risk settings also into a single risk setting. Specifically, the Gross
Notional Open and Trade Value would be a combination of the Gross
Notional Open Value and Gross Notional Trade Value risk settings and
include both purchases and sales as well as open buy and sell orders
across all symbols. Like the existing gross calculated risk settings,
purchases, sales, open orders to buy, and open orders to sell would be
counted as positive values and a combination of executed and unexecuted
orders would be included. Meanwhile, the Net Notional Open and Trade
Value would be a combination of the Net Notional Open Value and Net
Notional Trade Value risk settings and also include purchases and sales
as well as open buy and sell orders across all symbols. Like the
existing net calculated risk settings, where purchases and open orders
to buy would be counted as positive values and sales and open orders to
sell would be counted as negative values and, like above for the Gross
Notional Open and Trade Value risk control, both executed and
unexecuted orders would be included.
Each of these above proposed risk settings would be codified under
Exchange Rule 2618(a)(2). Proposed Exchange Rule 2618(a)(2)(E) would
provide that the ``Gross Notional Open and Trade Value'' is a pre-
established maximum daily dollar amount for purchases and sales, as
well as open buy and sell orders across all symbols, where purchases,
sales, open orders to buy, and open orders to sell are counted as
positive values. Proposed Exchange Rule 2618(a)(2)(E) would further
provide that for purposes of calculating the Gross Notional Open and
Trade Value, executed and unexecuted orders would be included. Proposed
Exchange Rule 2618(a)(2)(F) would provide that the ``Net Notional Open
and Trade Value'' would be a pre-established maximum daily dollar
amount for purchases and sales, as well as open buy and sell orders
across all symbols, where purchases and open orders to buy are counted
as positive values, and sales and open orders to sell are counted as
negative values. Proposed Exchange Rule 2618(a)(2)(F) would further
provide that for purposes of calculating the Net Notional Open and
Trade Value, executed and unexecuted orders would be included.
Like for both the Gross Notional Open Value and Net Notional Open
Value risk settings, the open orders calculation portion of both the
proposed Gross Notional Open and Trade Value and Net Notional Open and
Trade Value risk settings would only include Limit Orders and Pegged
Orders resting on the MIAX Pearl Equities Book and Limit Orders that
have been routed to an away exchange for execution.\6\ Limit Orders and
Pegged Orders would be included at their limit price. Market Orders
would not be included. Like the existing risk settings set for in
Exchange Rule 2618(a)(2), each of the proposed risk settings would be
completely optional and would not be applied where the Equity Member
does not set the applicable threshold.
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\6\ See Securities Exchange Act Release No. 96205 (November 1,
2022), 87 FR 67080 (November 17 [sic], 2022) (SR-PEARL-2022-43).
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Exchange Rule 2618(a)(4) provides that an Equity Member that does
not self-clear may allocate and revoke \7\ the responsibility of
establishing and adjusting the Gross Notional Trade Value, Net Notional
Trade Value, Gross Notional Open Value, and Net Notional Open Value
risk settings to a Clearing Member \8\ that clears transactions on
behalf of the Equity Member, if designated in a manner prescribed by
the Exchange. The Exchange proposes that the same would be true for the
new Gross Notional Open and Trade Value and Net Notional Open and Trade
Value risk settings.
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\7\ As discussed below, if an Equity Member revokes from its
Clearing Member the responsibility of establishing and adjusting the
risk settings identified in paragraph (a)(2), the settings applied
by the Equity Member would be applicable.
\8\ The term ``Clearing Member'' refers to a Member that is a
member of a Qualified Clearing Agency and clears transactions on
behalf of another Member. See Exchange Rule 2620(a). Exchange Rule
2620(a) also outlines the process by which a Clearing Member shall
affirm its responsibility for clearing any and all trades executed
by the Equity Member designating it as its Clearing Firm, and
provides that the rules of a Qualified Clearing Agency shall govern
with respect to the clearance and settlement of any transactions
executed by the Equity Member on the Exchange.
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By way of background, Exchange Rule 2620(a) allows Clearing Members
an opportunity to manage their risk of clearing on behalf of other
Equity Members, if authorized to do so by the Equity Member trading on
the Exchange. Such functionality is designed to help Clearing Members
better monitor and manage the potential risks that they assume when
clearing for Equity Members of the Exchange. An Equity Member may
allocate or revoke the responsibility of establishing and adjusting the
risk settings identified in paragraph (a)(2) of Exchange Rule 2618 to
its Clearing Member in a manner prescribed by the Exchange. By
allocating such responsibility, an Equity Member cedes all control and
ability to establish and adjust such risk settings to its Clearing
Member unless and until such responsibility is revoked by the Equity
Member. Because the Equity Member is responsible for its own trading
activity, the Exchange will not provide a Clearing Member authorization
to establish and adjust risk settings on behalf of an Equity Member
without first receiving consent from the Equity Member. The Exchange
considers an Equity Member to have provided such consent if it
allocates the responsibility to establish and adjust risk settings to
its Clearing Member in a manner prescribed by the Exchange.
Exchange Rule 2618(a)(3) provides that either an Equity Member or
its Clearing Member, if allocated such responsibility pursuant to
Exchange Rule 2618(a)(4), may establish and adjust limits for the risk
settings provided in Exchange Rule 2618(a)(2). An Equity Member or
Clearing Member may establish and adjust limits for the risk settings
in a manner prescribed by the Exchange. This includes use of the
Exchange's online portal. The online portal page also provides a view
of all applicable limits for each Equity Member, which will be made
available to the Equity Member and its Clearing Member, as currently
discussed in Exchange Rule 2618(a)(4). The proposed new risk settings
would be incorporated into the Exchange's online portal.
* * * * *
The Exchange does not guarantee that the risk settings in this
proposal are sufficiently comprehensive to meet all of an Equity
Member's risk management needs. Pursuant to Rule 15c3-5 under the
Act,\9\ a broker-dealer with market access must perform appropriate due
diligence to assure that controls are reasonably designed to be
effective, and otherwise consistent with the rule.\10\ Use of the
Exchange's risk settings included in Exchange Rule 2618 will not
automatically constitute compliance with Exchange or federal rules and
responsibility for compliance with all
[[Page 10393]]
Exchange and SEC rules remains with the Equity Member.
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\9\ 17 CFR 240.15c3-5.
\10\ See Division of Trading and Markets, Responses to
Frequently Asked Questions Concerning Risk Management Controls for
Brokers or Dealers with Market Access, available at <a href="https://www.sec.gov/divisions/marketreg/faq-15c-5-risk-management-controls-bd.htm">https://www.sec.gov/divisions/marketreg/faq-15c-5-risk-management-controls-bd.htm</a>.
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Implementation
Due to the technological changes associated with this proposed
change, the Exchange will issue a trading alert publicly announcing the
implementation date of the proposed enhancements to its risk settings
set forth herein. The Exchange anticipates that the implementation date
will be in the second or third quarter of 2023.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\11\ in general, and furthers the objectives of Section
6(b)(5),\12\ in particular, because 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 mechanism 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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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
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Specifically, the Exchange believes the proposed risk settings will
remove impediments to and perfect the mechanism of a free and open
market and a national market system because they provide additional
functionality for an Equity Member to manage its risk. The Exchange
notes that the proposed risk settings are entirely optional. The
Exchange believes that the proposed risk settings under Exchange Rule
2618(a)(2) are designed to protect investors and the public interest
because the proposed additional functionality is a form of risk
mitigation that will aid Equity Members and Clearing Members in
minimizing their financial exposure and reduce the potential for
disruptive, market-wide events. In turn, the introduction of such risk
management functionality could enhance the integrity of trading on the
securities markets and help to assure the stability of the financial
system. The proposed rule change would provide an additional option for
Equity Members seeking to further tailor their risk management
capability while transacting on the Exchange.
The proposed Gross Notional Open and Trade Value and Net Notional
Open and Trade Value risk settings under Exchange Rule 2618(a)(2) would
further permit Equity Members and Clearing Members who have a financial
interest in the risk settings of Equity Members to better monitor and
manage their potential risks, including those assumed by Clearing
Members, thereby providing Equity Members and Clearing Members with
greater control and flexibility over setting their own risk tolerance
and exposure. In addition, the proposed additional risk settings under
Exchange Rule 2618(a)(2) could provide Clearing Members, who have
assumed certain risks of Equity Members, greater control over risk
tolerance and exposure on behalf of their correspondent Equity Members,
if allocated responsibility pursuant to Exchange Rule 2618(a)(4), while
also providing an alert system under Exchange Rule 2618(a)(5) that
ensures that both Equity Members and Clearing Members are aware of
developing issues. As such, the Exchange believes that the proposed
risk settings would provide additional means to address potentially
market-impacting events, helping to ensure the proper functioning of
the market. To the extent a Clearing Member might reasonably require an
Equity Member to provide access to its risk settings as a prerequisite
to continuing to clear trades on the Equity Member's behalf, the
Exchange's sharing of those risk settings directly reduces the
administrative burden on participants on the Exchange, including both
Clearing Members and Equity Members. Moreover, providing Clearing
Members with the ability to see the risk settings established for
Equity Members for which they clear fosters efficiencies in the market
and removes impediments to and perfects the mechanism of a free and
open market and a national market system. The Exchange believes that
the proposed new risk settings under Exchange Rule 2618(a)(2) are
consistent with the Act, particularly Section 6(b)(5),\13\ because they
would foster cooperation and coordination with persons engaged in
facilitating transactions in securities and more generally, will
protect investors and the public interest, by allowing Equity Members
and Clearing Members to better monitor their risk exposure and by
fostering efficiencies in the market and removing impediments to and
perfect the mechanism of a free and open market and a national market
system.
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\13\ 15 U.S.C. 78f(b)(5).
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In addition, the proposed Gross Notional Open and Trade Value and
Net Notional Open and Trade Value risk settings under proposed Exchange
Rule 2618(a)(2)(E) and (F), respectively, are similar to the existing
net and gross calculated controls under Exchange Rules 2618(a)(2)(A),
(B), (C), and (D) and simply seeks to combine the features of each
existing gross and net calculated risk settings into a single risk
setting as described above. Proposed Gross Notional Open Value and Net
Notional Open Value risk settings under proposed Exchange Rule
2618(a)(2)(E) and (F) are also reasonably designed to provide Equity
Members and Clearing Members (if allocated responsibility pursuant to
Exchange Rule 2618(a)(4)) additional opportunity to monitor and manage
the potential risks of an execution that exceeds their certain risk
appetite, as well as to provide Clearing Members with greater control
over their risk tolerance and exposure on behalf of their correspondent
Equity Members.
* * * * *
Finally, the Exchange believes that the proposed risk settings do
not unfairly discriminate among the Exchange's Equity Members because
use of the risk settings is optional and are not a prerequisite for
participation on MIAX Pearl Equities. The proposed risk settings are
completely voluntary and, as they relate solely to optional risk
management functionality, no Equity Member is required or under any
regulatory obligation to utilize them.
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. In fact, the Exchange
believes that the proposal may have a positive effect on competition
because it would provide Equity Members and their Clearing Members
additional means to monitor and control risk, thereby potentially
increasing confidence in the proper functioning of the markets and
contribute to additional competition among trading venues and broker-
dealers. Rather than impede competition, the proposal is designed to
facilitate more robust risk management by Equity Members and Clearing
Members, which, in turn, could enhance the integrity of trading on the
securities markets and help to assure the stability of the financial
system. The proposal would impose no burden on intra-market competition
because use of the proposed risk settings is optional and each risk
setting is available to all Equity Members equally.
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.
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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 \14\ and Rule 19b-4(f)(6) \15\
thereunder.
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 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#ef9d9a838ac28c8082828a819b9caf9c8a8cc1888099"><span class="__cf_email__" data-cfemail="186a6d747d357b7775757d766c6b586b7d7b367f776e">[email protected]</span></a>. Please include
File Number SR-PEARL-2023-03 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-2023-03. 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 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 such 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-2023-03 and should be submitted on
or before March 10, 2023.
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\16\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03335 Filed 2-16-23; 8:45 am]
BILLING CODE 8011-01-P
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