Notice2024-24363
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Both an Early and Late Trading Session on its Equity Trading Platform
Primary source
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Published
October 22, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 204 (Tuesday, October 22, 2024)</title>
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[Federal Register Volume 89, Number 204 (Tuesday, October 22, 2024)]
[Notices]
[Pages 84406-84423]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-24363]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101358; File No. SR-PEARL-2024-47]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Adopt Both an
Early and Late Trading Session on its Equity Trading Platform
October 16, 2024.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that on October 3, 2024, MIAX PEARL, LLC (``MIAX Pearl'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II 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\ 15 U.S.C. 78a.
\3\ 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 both an early and late trading
session on its equity trading platform (referred to herein as ``MIAX
Pearl Equities'').
The text of the proposed rule change is available on the Exchange's
website at <a href="https://www.miaxglobal.com/markets/us-equities/pearl-equities/rule-filings">https://www.miaxglobal.com/markets/us-equities/pearl-equities/rule-filings</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 currently operates one trading session which operates
during Regular Trading Hours, i.e., 9:30 a.m. until 4:00 p.m. Eastern
Time.\4\ Exchange Rule 2600(a) provides that Equity Members \5\ may
enter orders into the System \6\ from 7:30 a.m. until 4:00 p.m. Eastern
Time (or such earlier time as may be designated by the Exchange on a
day when MIAX Pearl Equities closes early). Exchange Rule 2600(a)
further provides that orders entered between 7:30 a.m. and 9:30 a.m.
Eastern Time are not eligible for execution until the start of Regular
Trading Hours.
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\4\ The term ``Regular Trading Hours'' means the time between
9:30 a.m. and 4:00 p.m. Eastern Time. See Exchange Rule 1901.
\5\ The term ``Equity Member'' is a Member authorized by the
Exchange to transact business on MIAX Pearl Equities. See id.
\6\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
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The Exchange now proposes to expand its hours of operations by
adopting both an Early and Late Trading Session. The proposed Early
Trading Session would operate from 4:00 a.m. until 9:30 a.m. Eastern
Time. Then the existing Regular Trading Hours \7\ would follow, which
currently operates from
[[Page 84407]]
9:30 a.m. until 4:00 p.m. Eastern Time. Within Regular Trading Hours,
the Exchange also operates the existing Regular Trading Session,\8\
which operates from the completion of the Exchange's Opening Process
described in Exchange Rule 2615 until 4:00 p.m. Eastern Time. The
proposed Late Trading Session would follow and operate from 4:00 p.m.
until 8:00 p.m. Eastern Time.
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\7\ See Exchange Rule 1901.
\8\ See id.
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From the Equity Members' operational perspective, the Exchange's
goal is to permit trading for those that choose to trade, without
imposing burdens on those that do not. Thus, for example, the Exchange
will not require any Equity Member to participate in the Early or Late
Trading Sessions, including not requiring Equities Market Makers \9\ to
make two-sided markets outside of Regular Trading Hours. The Exchange
will minimize Equity Members' preparation efforts to the greatest
extent possible by allowing Equity Members to trade during the Early
and Late Trading Sessions with the same equipment, connectivity, order
types, and data feeds they currently use from 9:30 a.m. Eastern Time
onwards.
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\9\ The term ``Equities Market Maker'' shall mean an Equity
Member that acts as a Market Maker in equity securities, pursuant to
Chapter XXVI of the Exchange's rules. See id.
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The Exchange will route orders to away markets during the Early and
Late Trading Sessions, just as it does today during the Regular Trading
Session. All routing strategies set forth in Exchange Rule 2617(b) will
remain otherwise unchanged, performing the same instructions they do
during Regular Trading Hours today. Order processing will operate
beginning at 4:00 a.m. just as it does today beginning at 9:30 a.m.
There will be no changes to the ranking, display, and execution
processes or rules. Trades executed outside of Regular Trading Hours
will be reported to the appropriate network processor with the ``.T''
modifier, just like other exchanges report trades during the same
timeframes. The Exchange's commitment to high-quality regulation at all
times will extend to the Early and Late Trading Sessions. The Exchange
will offer all surveillance coverage currently performed by the
Exchange's surveillance systems, which will launch by the time trading
starts at 4:00 a.m.
To accommodate the proposed Early and Late Trading Sessions, the
Exchange proposes to amend its rules to define the Early and Late
Trading Sessions, adopt new Time-in-Force (``TIF'') instructions, and
modify the operation of its Opening Process. Specifically, the Exchange
proposes to amend Exchange Rules 1901, Definitions, 2600, Hours of
Trading and Trading Days, 2614, Orders and Order Instructions, 2615,
Opening Process for Equity Securities, 2617, Order Execution and
Routing, 2618, Risk Settings and Trading Risk Metrics, 2621, Clearly
Erroneous Executions, and 2900, Unlisted Trading Privileges. The
Exchange also proposes to adopt new Exchange Rule 2120, Customer
Disclosures, regarding trading during the Early and Late Trading
Sessions. Each change is based on the rules of other national equity
exchanges and, therefore, do not present any new or novel issues not
already considered by the Commission.
Exchange Rule 1901, Definitions
Exchange Rule 1901, Definitions, would be amended to include
definitions of the terms ``Early Trading Session'' and ``Late Trading
Session''. Exchange Rule 1901 would define the ``Early Trading
Session'' as ``the time between 4:00 a.m. and 9:30 a.m. Eastern Time.''
\10\ Exchange Rule 1901 would also define the ``Late Trading Session''
as ``the time between 4:00 p.m. and 8:00 p.m. Eastern Time.'' \11\ The
Exchange also proposes to amend the definition of the ``Regular Trading
Session'' to account for the proposed re-adoption of the Contingent
Open under Exchange Rule 2615 and described in more detail below. The
amended definition of the term ``Regular Trading Session'' would be
``the time between the completion of the Opening Process or Contingent
Open as defined in Exchange Rule 2615 and 4:00 p.m. Eastern Time.'' The
change is described below under the section entitled, Exchange Rule
2615, Opening Process for Equity Securities.
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\10\ See, e.g., NYSE Arca, Inc. (``NYSE Arca'') Rule 7.34-
E(a)(1) and (2) (providing that the Early Trading Session will begin
at 4:00 a.m. Eastern Time and conclude at the commencement of the
Core Trading Session and that the Core Trading Session will begin
for each security at 9:30 a.m. Eastern Time).
\11\ See, e.g., MEMX LLC (``MEMX'') Rule 1.5 (defining the
``Post-Market Session'' as the ``time between 4:00 p.m. and 8:00
p.m. Eastern Time.''); and NYSE Arca Rule 7.34-E(a)(2) and (3)
(providing that the Late Trading Session will begin following the
conclusion of the Core Trading Session and conclude at 8:00 p.m.
Eastern Time and that the Core Trading Session will end at the
conclusion of Core Trading Hours or the Core Closing Auction,
whichever comes later).
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Exchange Rules 2600, Hours of Trading
Exchange Rule 2600 sets forth when orders may be entered into the
System and during which timeframes orders are eligible for execution.
Exchange Rule 2600 currently provides that orders may be entered into
the System from 7:30 a.m. until 4:00 p.m. Eastern Time (or such earlier
time as may be designated by the Exchange on a day when MIAX Pearl
Equities closes early). Today, the Exchange begins to accept orders at
7:30 a.m. Eastern Time and Exchange Rule 2600 provides that orders
entered between 7:30 a.m. and 9:30 a.m. Eastern Time are not eligible
for execution until the start of Regular Trading Hours.
The Exchange proposes to amend Exchange Rule 2600 to account for
the addition of the Early and Late Trading Sessions.\12\ First, the
Exchange proposes to begin to accept orders at 3:30 a.m. Eastern Time.
The Exchange, therefore, proposes to amend Exchange Rule 2600 to expand
the timeframe during which orders may be entered into the System from
7:30 a.m. until 4:00 p.m. Eastern time to 3:30 a.m. until 8:00 p.m.
Eastern Time (or such earlier time as may be designated by the Exchange
on a day when MIAX Pearl Equities closes early).\13\
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\12\ The proposed amendments to Exchange Rule 2600 are generally
based on Cboe EDGX Exchange, Inc. (``Cboe EDGX'') Rule 11.1(a). Any
slight differences are explained below.
\13\ Cboe EDGX Rule 11.1(a)(1) allows for the acceptance of
orders beginning at 2:30 a.m. Eastern Time, but, like the Exchange
proposes herein, no order becomes eligible for execution until 4:00
a.m. Eastern Time.
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Amended Exchange Rule 2600 would also provide that orders entered
between 3:30 a.m. and 4:00 a.m. Eastern Time would not be eligible for
execution until the start of the Early Trading Session or Regular
Trading Session,\14\ depending on the TIF selected by the User.\15\
Exchange Rule 2600(a) would also provide that at the commencement of
the Early Trading Session, orders entered between 3:30 a.m. and 4:00
a.m. Eastern Time will become eligible for execution and will
[[Page 84408]]
be handled in time sequence, beginning with the order with the oldest
time stamp, and placed on the MIAX Pearl Equities Book,\16\ routed,
cancelled, or executed in accordance with the terms of the order.\17\
Lastly, Exchange Rule 2600(a) provides that the Exchange will not
accept Intermarket Sweep Orders (``ISOs''), and all orders with a TIF
of Immediate-or-Cancel (``IOC'') prior to 9:30 a.m. Eastern Time. The
Exchange proposes to amend this provision in Exchange Rule 2600(a) to
account for the Early Trading Session and to include additional order
types and modifiers. Therefore, as amended, Exchange Rule 2600(a) would
provide that the Exchange would not accept all orders with a TIF
instruction of Fill-or-Kill (``FOK''),\18\ in addition to ISOs and
orders with a TIF instruction of IOC, prior to 4:00 a.m. Eastern Time.
The Exchange also proposes to amend Exchange Rule 2600(a) to specify
that it would not accept Market Orders (other than Market Orders that
include a TIF of RHO that are to be routed to the primary listing
exchange's opening process pursuant to the PAC routing option under
Rule 2617(b)(5)(ii)) prior to 9:30 a.m. Eastern Time. This is because
Market Orders would only be eligible to participate in the Regular
Trading Session and the Exchange does not think it is appropriate to
accept and hold Market Orders prior to the commencement of the Regular
Trading Session due to the nature of the orders type--i.e., it seeks an
immediate execution at the then available PBBO or better.\19\ During
the Early Trading Session, the Exchange would continue to accept Market
Orders that include a TIF of RHO that are to be routed to the primary
listing exchange's opening process pursuant to the PAC routing option
under Rule 2617(b)(5)(ii). This is consistent with current
functionality where such Market Orders are routed to the primary
listing market's opening process upon receipt and are not eligible for
execution because the Exchange currently does not offer pre-market
trading.\20\ Adding this provision regarding Market Orders that are
coupled with both a TIF of RHO and the PAC routing option adds clarity
to the Exchange's Rules and would avoid any potential confusion by
market participants.
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\14\ Cboe EDGX Rule 11.1(a)(1) provides that orders entered
between 2:30 a.m. and 4:00 a.m. Eastern Time would not be eligible
for execution until the start of the Early Trading Session or
Regular Trading Hours, depending on the TIF selected by the User.
The Exchange notes that it proposes for orders to not become
eligible for execution until the start of the Regular Trading
Session, rather than Regular Trading Hours, as is the case on Cboe
EDGX. On the Exchange, the Regular Trading Session commences at the
conclusion of the Exchange's Opening or Contingent Opening Process
set forth under Exchange Rule 2615, which is shortly after the
commencement of Regular Trading Hours at 9:30 a.m. Eastern Time. The
Exchange, therefore, believes this is not a material difference
since Equity Members are free to select the TIF of their choosing
which would determine when their order would become eligible for
execution. Further, generally, any orders with a TIF of Regular
Hours Only (``RHO'') are eligible to participate in the Exchange's
Opening or Contingent Opening Process as described in Exchange Rule
2615.
\15\ The term ``User'' shall mean any Member or Sponsored
Participant who is authorized to obtain access to the System
pursuant to Exchange Rule 2602. See Exchange Rule 1901.
\16\ The term ``MIAX Pearl Equities Book'' means the electronic
book of orders in equity securities maintained by the System. See
Exchange Rule 1901.
\17\ But for the start time, this provision mirrors Cboe EDGX
Rule 11.1(a)(1).
\18\ The Exchange also proposes herein to adopt a new TIF known
as FOK, which is based on the rules of other exchanges, and
described in more detail below. Unlike Cboe EDGX, the Exchange would
accept orders with a Post Only instruction and orders with a Minimum
Execution Quantity instruction that also include a TIF instruction
of RHO prior to 4:00 a.m. Eastern Time. See Exchange Rule 2614(c)(2)
for a description of Post Only instruction and Exchange Rule
2614(c)(7) for a description of Minimum Execution Quantity
instruction.
\19\ See Cboe EDGX Rule 11.8(a)(5) and Exchange Rule
2614(a)(2)(ii).
\20\ Exchange Rule 2617(b)(5)(B)(1)(i) provides that a Market
Order designated as RHO received before the security has opened on
the primary listing market will be routed to participate in the
primary listing market's opening process upon receipt.
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Exchange Rule 2614, Orders and Order Instructions
The Exchange proposes to amend Exchange Rule 2614 to account for
the addition of the proposed Early and Late Trading Sessions, adopt new
TIF instructions, and to describe which TIF instructions are available
with each order type.
Time-in-Force Instructions
The Exchange currently offers two TIF instructions, IOC and RHO,
the operation of each are described under Exchange Rule 2614(b)(1) and
(2), respectively. Equity Members entering orders into the System may
designate such orders to remain in effect and available for display
and/or potential execution for varying periods of time. Unless
cancelled earlier, once these time periods expire, the order (or
unexecuted portion thereof) is cancelled. In sum, IOC is a TIF
instruction that provides for the order to be executed in whole or in
part as soon as such order is received. The portion not executed
immediately on the Exchange or another Trading Center \21\ is treated
as cancelled and is not posted to the MIAX Pearl Equities Book. RHO is
a TIF instruction that designates the order for execution only during
Regular Trading Hours, which includes the Opening Process for equity
securities.
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\21\ The term ``Trading Center'' shall have the same meaning as
in Rule 600(b)(95) of Regulation NMS. See Exchange Rule 100.
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The Exchange now proposes to add the following four additional TIF
instructions under Exchange Rule 2614(b), Time-in-Force Instructions,
to account for the addition of the Early and Late Trading Sessions:
Day, FOK, Good-`til Time (``GTT''), and Good-`til Extended Day
(``GTX'').\22\ Each of these proposed TIF instructions are described as
follows:
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\22\ Each of these proposed TIF instruction are based on Cboe
EDGX Rule 11.6(q)(2)-(5).
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<bullet> Day. Exchange Rule 2614(b)(3) would describe the Day TIF
as an instruction the User may attach to an order stating that an order
to buy or sell which, if not executed, expires at the end of Regular
Trading Hours. Exchange Rule 2614(b)(3) would further provide that any
Day order entered into the System before the opening for business on
the Exchange as determined pursuant to Exchange Rule 2600, or after the
closing of Regular Trading Hours, will be rejected.
<bullet> FOK. Exchange Rule 2614(b)(4) would describe the FOK TIF
as an instruction the User may attach to an order stating that the
order is to be executed in its entirety as soon as it is received and,
if not so executed, cancelled. Exchange Rule 2614(b)(4) would further
provide that an order with a FOK instruction is not eligible for
routing away pursuant to Exchange Rule 2617(b).
<bullet> GTT. Exchange Rule 2614(b)(5) would describe the GTT TIF
as an instruction the User may attach to an order specifying the time
of day at which the order expires. Exchange Rule 2614(b)(5) would
further provide that any unexecuted portion of an order with a TIF
instruction of GTT will be cancelled at the expiration of the User's
specified time, which can be no later than the close of the Late
Trading Session.
<bullet> GTX. Exchange Rule 2614(b)(5) would describe the GTX TIF
as an instruction the User may attach to an order to buy or sell which,
if not executed, will be cancelled by the close of the Late Trading
Session.
Order Types and New Time-in-Force Instructions
The Exchange currently offers the following order types, Limit
Orders, Market Orders, and Pegged Orders. Pegged Orders consist of
Primary Peg Orders and Midpoint Peg Orders. Under the description of
each order type in Exchange Rule 2614(a), the Exchange enumerates which
TIF instructions that order type may be combined with. The Exchange
proposes to amend these provisions in the description of each order
type under Exchange Rule 2614(a) to account for the proposed TIF
instructions described above as follows:
<bullet> Limit Orders. Exchange Rule 2614(a)(1)(ii) currently
provides that a Limit Order may include a TIF of IOC or RHO. As
amended, Exchange Rule 2614(a)(1)(ii) would also provide that a Limit
Order may include a TIF of FOK, Day, GTT, or GTX. Exchange Rule
2614(a)(1)(ii) also currently provides that a Limit Order is eligible
to participate in the Regular Trading Session. The Exchange proposes to
amend this sentence of Exchange Rule 2614(a)(1)(ii) to specify that a
Limit Order would also be eligible to
[[Page 84409]]
participate in the Early and Late Trading Sessions.\23\
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\23\ The Exchange also proposes to amend the rule text for Limit
Order Price Protection described in Exchange Rule 2614(1)(ix), which
changes will be described in detail below.
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<bullet> Market Orders. Exchange Rule 2614(a)(2)(ii) currently
provides that a Market Order may include a TIF of IOC. A Market Order
may only include a TIF of RHO when it is to be routed pursuant to the
PAC routing option under Rule 2617(b)(5)(ii). As amended, Exchange Rule
2614(a)(2)(ii) would also provide that a Market Order may include a TIF
of FOK. Market Orders would not be able to include a TIF of Day, GTT,
or GTX.\24\ Exchange Rule 2614(b)(5)(ii) also currently provides that a
Market Order is eligible to participate in the Regular Trading Session.
Market Orders would not be eligible to participate in the Early and
Late Trading Sessions. Therefore, the Exchange proposes to amend this
sentence of Exchange Rule 2614(b)(5)(ii) to specify that a Market Order
is only eligible to participate in the Regular Trading Session.
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\24\ Exchange Rule 2614(a)(1)(iii) also provides that a Market
Order may only include a TIF of RHO when it is to be routed pursuant
to the PAC routing option under Rule 2617(b)(5)(ii) and that all
other Market Orders that include a TIF of RHO will be rejected.
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<bullet> Pegged Orders. Exchange Rule 2614(a)(3)(iii) currently
provides that a Pegged Order may include a TIF of IOC or RHO. As
amended, Exchange Rule 2614(a)(3)(iii) would also provide that a Pegged
Order would also be able to include a TIF of FOK, Day, GTT, or GTX.
Exchange Rule 2614(a)(3)(iii) also currently provides that a Pegged
Order is eligible to participate in the Regular Trading Session. The
Exchange proposes to amend this sentence of Exchange Rule
2614(a)(3)(iii) to specify that a Pegged Order would also be eligible
to participate in the Early and Late Trading Sessions.
Primary Peg Orders During Early and Late Trading Session
The Exchange proposes to amend Exchange Rule 2614(a)(3)(iii) to
restrict the TIF instruction that a displayed Primary Pegged Order with
a Primary Offset Amount may have to RHO, or if entered during Regular
Trading Hours, a TIF instruction of RHO or the proposed TIF instruction
of Day. Exchange Rule 2614(a)(3)(i)(B) describes a Pegged Order as a
Limit Order to buy (sell) that is assigned a working price pegged to
the Protected Best Bid (Protected Best Offer),\25\ subject to its limit
price. Exchange Rule 2614(a)(3)(i)(B)3. states that a User may, but is
not required to, select an offset equal to or greater than one minimum
price variation (``MPV'') for the security, as defined in Exchange Rule
2612 (``Primary Offset Amount''). The Primary Offset Amount for a
displayed Primary Pegged Order to buy (sell) must result in the working
price of such order being inferior to or equal to the PBB (PBO), i.e.,
result in the price of such order being inferior to or equal to the
inside quote on the same side of the market.
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\25\ With respect to the trading of equity securities, the term
``Protected NBB'' or ``PBB'' shall mean the national best bid that
is a Protected Quotation, the term ``Protected NBO'' or ``PBO''
shall mean the national best offer that is a Protected Quotation,
and the term ``Protected NBBO'' or ``PBBO'' shall mean the national
best bid and offer that is a Protected Quotation. See Exchange Rule
1901.
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Other exchanges have observed that displayed Primary Pegged Orders
with non-aggressive Primary Offset Amounts that remain active after the
end of Regular Trading Hours may be pegged to and repriced off of each
other during extended hours trading when no other reference price is
available due to orders expiring or being cancelled at 4:00 p.m.
Eastern Time.\26\ To prevent this from occurring, the Exchange proposes
to restrict the TIF instruction that a displayed Primary Pegged Order
with a Primary Offset Amount may have to RHO, or, if entered during
Regular Trading Hours, a TIF instruction of Day or RHO. Doing so would
cause displayed Primary Pegged Orders resting on the MIAX Pearl
Equities Book to be eligible for execution from 9:30 a.m. to 4:00 p.m.
Eastern Time. Limiting the TIF instructions to RHO and Day only for
displayed Primary Pegged Orders with Primary Offset Amounts would
ensure that these orders are eligible for execution during Regular
Trading Hours, which is the most liquid portion of the trading day,
thereby significantly decreasing the possibility that such orders may
re-price off similar orders entered on away exchanges in the absence of
additional liquidity at the NBB or NBO. The proposed rule change would
cause displayed Primary Pegged Orders with Primary Offset Amounts to
expire at the end of Regular Trading Hours when a vast majority of
orders expire and do not participate in extended hours trading. As
amended, Exchange Rule 2614(a)(3)(iii) would be amended to state that a
displayed Primary Pegged Order with a Primary Offset Amount shall only
include a TIF of RHO or, if entered during Regular Trading Hours, a TIF
instruction of Day or RHO.\27\ Users may enter displayed Primary Pegged
Orders with Primary Offset Amounts and TIF instructions of RHO
beginning at 3:30 a.m. Eastern Time. However, those orders would not be
eligible for execution until 9:30 a.m. Eastern Time, the start of
Regular Trading Hours. Displayed Primary Peg orders with Primary Offset
Amounts and a TIF of Day will be rejected if entered prior to 9:30 a.m.
Eastern Time, the start of Regular Trading Hours. Primary Pegged orders
that do not include a Primary Offset Amount or that are not displayed
on the MIAX Pearl Equities Book would have no restrictions on the TIF
instructions that may be attached to the order.
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\26\ See, e.g., Securities Exchange Act Release No. 82304
(December 12, 2017), 82 FR 60075 (December 18, 2024) (SR-CboeBZX-
2017-008).
\27\ See, e.g., Cboe BZX Exchange, Inc. (``Cboe BZX'') Rule
11.9(c)(8)(A).
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ISOs and New Time-in-Force Instructions
ISO is an order instruction that may be attached to an incoming
Limit Order. The operation of ISOs will be described in proposed
Exchange Rule 2614(d) and is consistent with the description of the ISO
exception in Rules 600(b)(30) and 611(b)(5) of Regulation NMS.\28\
Proposed Exchange Rule 2614(d) provides that the System will accept
incoming ISOs (as such term is defined in Rule 600(b)(31) of Regulation
NMS).
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\28\ 17 CFR 242.600(b)(30), 611(b)(5).
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To be eligible for treatment as an ISO, the order must be: (A) a
Limit Order; (B) marked ``ISO''; and (C) the User entering the order
must simultaneously route one or more additional Limit Orders marked
``ISO,'' as necessary, to away Trading Centers to execute against the
full displayed size of any Protected Quotation for the security as set
forth below. Such orders, if they meet the requirements of the
foregoing sentence, may be immediately executed at one or multiple
price levels in the System without regard to Protected Quotations at
away Trading Centers consistent with Regulation NMS (i.e., may trade
through such quotations and will not be rejected or cancelled if it
will lock, cross, or be marketable against an away Trading Center).
Exchange Rule 2614(d)(1) provides that an ISO may include a TIF of
IOC or RHO and the operation of an ISO will differ depending on the TIF
selected. An ISO that includes a TIF of IOC will immediately trade with
contra-side interest on the MIAX Pearl Equities Book up to its full
size and limit price and any unexecuted quantity will be immediately
cancelled. An ISO that includes a TIF of RHO, if marketable on arrival,
will also immediately trade with contra-side interest on the MIAX Pearl
Equities Book up to its full size and limit price. However, any
unexecuted quantity of a RHO ISO will be displayed
[[Page 84410]]
at its limit price on the MIAX Pearl Equities Book and may lock or
cross a Protected Quotation that was displayed at the time of arrival
of the RHO ISO. The Exchange proposes to amend Exchange Rule 2614(d)(1)
to provide that an ISO may include a TIF of RHO, Day, GTT, or GTX.\29\
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\29\ See, e.g., Cboe EDGA Rule 11.9(c)(1) and Cboe EDGX Rule
11.9(c)(1).
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Exchange Rule 2614(d)(1) would also provide that incoming ISOs
would not be able to include a TIF instruction of FOK.\30\ The Exchange
also proposes to amend Exchange Rule 2614(d)(1) to provide that an
incoming ISO with a Displayed, Post Only, and TIF instruction of RHO,
Day, GTT, or GTX will be cancelled without execution if, when entered,
it is immediately marketable against a displayed order resting on the
MIAX Pearl Equities Book unless such order removes liquidity pursuant
to Rule 2614(c)(2).\31\ This provision is consistent with current
Exchange functionality that prevents a displayed locked or crossed
market.\32\ This provision would provide additional specificity
regarding the operation of incoming ISOs with a Displayed, Post Only,
and TIF instruction of Day, GTT, or GTX that is also similar to other
exchanges' rules.\33\
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\30\ See, e.g., id.
\31\ Exchange Rule 2614(c)(2) provides that an order designated
as Post Only will only remove liquidity from the MIAX Pearl Equities
Book when: (A) the order is for a security priced below $1.00; or
(B) the value of such execution when removing liquidity equals or
exceeds the value of such execution if the order instead posted to
the MIAX Pearl Equities Book and subsequently provided liquidity
including the applicable fees charged or rebates provided. To
determine at the time of a potential execution whether the value of
such execution when removing liquidity equals or exceeds the value
of such execution if the order instead posted to the MIAX Pearl
Equities Book and subsequently provided liquidity, the Exchange will
use the highest possible rebate paid and highest possible fee
charged for such executions on the Exchange.
\32\ See Exchange Rule 2617(a)(4)(iii) (providing, in sum, that
``the System will never display a locked or crossed market'').
\33\ See, e.g., Cboe EDGA Rule 11.9(c)(1) and Cboe EDGX Rule
11.9(c)(1). The Exchange notes, however, that the Cboe EDGA and Cboe
EDGX Rules do not account for an ISO with a Displayed instruction.
The Exchange proposes to specify in proposed Exchange Rule
2614(d)(1) that an incoming ISO could include a Displayed
Instruction to provide additional specificity. This addition should
make clear that this provision would require an ISO with a
Displayed, Post Only, and TIF instruction that would be posted at a
price that would lock or cross displayed contra-side interest
resting on the MIAX Pearl Equities Book to be cancelled. Doing so,
is intended to avoid the Exchange displaying a locked or crossed
market as a result of the ISO with a Displayed instruction. See
Exchange Rule 2617(a)(4)(iv) (not allowing for a displayed locked or
crossed market). The Exchange notes that a non-displayed ISO with a
Post Only instruction that is not fully executed upon entry may lock
or cross contra-side interest resting on the MIAX Pearl Equities
Book and the Exchange would handle such orders in accordance with
Exchange Rule 2617(a)(4)(iii) and (iv). The Exchange believes this
order handling is consistent with Cboe EDGA and Cboe EDGX Rules
which also do not allow for a displayed locked or crossed market as
well as the same order handling for when they experience a non-
displayed locked or crossed book. See Cboe EDGA Rule 11.10(a)(4)(C)
and (D) and Cboe EDGX Rule 11.10(a)(4)(C) and (D). This
functionality is also consistent with MEMX Rules 11.10(a)(4)(C) and
(D). See also MEMX Rule 11.8(b)(3) and (5) (providing that Limit
Order may include a Displayed, Non-Displayed, or ISO instruction and
including similar rule text as Cboe EDGA, Cboe EDGX, and as the
Exchange proposes herein). See also Nasdaq Rule 4703(j) (stating
that ``[u]pon receipt of an ISO, the System will consider the stated
price of the ISO to be available for other Orders to be entered at
that price, unless the ISO is not itself accepted at that price
level (for example, a Post-Only Order that has its price adjusted to
avoid executing against an Order on the Nasdaq Book) or the ISO is
not Displayed'').
---------------------------------------------------------------------------
Exchange Rule 2614(d)(1)(i) provides that a User entering an ISO
with a TIF of IOC represents that such User has simultaneously routed
one or more additional Limit Orders marked ``ISO,'' if necessary, to
away Trading Centers to execute against the full displayed size of any
Protected Quotation for the security with a price that is superior to
the ISO's limit price. Exchange Rule 2614(d)(1)(ii) provides that a
User entering an ISO with a TIF of RHO makes the same representation
but further represents that it simultaneously routed one or more
additional Limit Orders marked ``ISO,'' if necessary, to away Trading
Centers to execute against the full displayed size of any Protected
Quotation for the security with a price that is equal to its limit
price. The Exchange proposes to amend Exchange Rule 2614(d)(1)(ii) to
include ISOs with a TIF instruction of Day, GTT, or GTX. Orders with a
TIF of Day or RHO both expire at the end of Regular Trading Hours.
Because the Exchange did not initially offer a TIF of Day, it proposed
to handle ISOs with a TIF of RHO the same as Day ISOs are handled on
other equity exchanges. The Exchange now proposes to amend Exchange
Rule 2614(d)(1)(ii) to include the TIF of Day.\34\
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\34\ See Cboe EDGX Rule 11.9(c)(1) and Cboe EDGA Rule
11.9(c)(1).
---------------------------------------------------------------------------
The Exchange also proposes to amend Exchange Rule 2614(d)(1)(ii) to
include the TIF instructions of GTT or GTX. Each of these TIF
instructions are similar to Day and RHO because they each allow an
order to rest on the MIAX Pearl Equities Book for a period of time.
While both Day and RHO expire at the end of Regular Trading Hours, GTX
allows for the order to expire at the end of the Late Trading Session
at 8:00 p.m. Eastern Time. Meanwhile, GTT allows for a User to select a
time at which the order would expire, which may be before or after the
end of Regular Trading Hours but must be during the same trading day. A
User entering an ISO with a TIF of Day, RHO, GTT, or GTX would make the
same representations, i.e., that it simultaneously routed one or more
additional Limit Orders marked ``ISO,'' if necessary, to away Trading
Centers to execute against the full displayed size of any Protected
Quotation for the security with a price that is equal to its limit
price. The portion of the ISO with a TIF of Day, GTT, or GTX that is
not executed upon entry, would rest on the MIAX Pearl Equities Book
like an ISO with a TIF of RHO may do so today (or an ISO with a TIF of
Day does so on other equity exchanges).
Exchange Rule 2615, Opening Process for Equity Securities
The Exchange will not offer an opening process at 4:00 a.m. Eastern
Time. Instead, at 4:00 a.m., the System will ``wake up'' by loading all
open trading interest entered after 3:30 a.m. Eastern Time in time
sequence, beginning with the order with the oldest timestamp onto the
MIAX Pearl Equities Book. Such orders are then cancelled, executed, or
routed to away Trading Centers in accordance with the terms of the
order. Also at 4:00 a.m., the Exchange will open the execution system
and accept new eligible orders. Equity Members will be permitted to
enter orders beginning at 3:30 a.m. Eastern Time. Market Makers will be
permitted, but not required, to open their quotes beginning at 4:00
a.m. Eastern Time in the same manner they open their quotes today
beginning at 9:30 a.m. Eastern Time.
Exchange Rule 2615(b) provides that during the Opening Process, the
Exchange attempts to match eligible buy and sell orders at the midpoint
of the NBBO. All orders eligible to trade at the midpoint are processed
in time sequence, beginning with the order with the oldest timestamp.
The Opening Process concludes when no remaining orders, if any, can be
matched at the midpoint of the NBBO. At the conclusion of the Opening
Process, the unexecuted portion of orders that were eligible to
participate in the Opening Process are placed on the MIAX Pearl
Equities Book in time sequence, cancelled, executed, or routed to away
Trading Centers in accordance with the terms of the order.
Pursuant to Exchange Rule 2615(c), the Exchange calculates the
midpoint of the NBBO as follows. When the primary listing exchange is
the New York Stock Exchange LLC (``NYSE'') or NYSE American LLC (``NYSE
American''), the
[[Page 84411]]
Opening Process is priced at the midpoint of the: (i) first NBBO
subsequent to the first reported trade and first two-sided quotation on
the primary listing exchange after 9:30:00 a.m. Eastern Time; or (ii)
then prevailing NBBO when the first two-sided quotation is published by
the primary listing exchange after 9:30:00 a.m. Eastern Time, but
before 9:45:00 a.m. Eastern Time if no first trade is reported by the
primary listing exchange within one second of publication of the first
two-sided quotation by the primary listing exchange. For any other
primary listing exchange, such as The Nasdaq Stock Market LLC
(``Nasdaq''), NYSE Arca, LLC (``NYSE Arca''), and Cboe BZX, the Opening
Process is priced at the midpoint of the first NBBO subsequent to the
first two-sided quotation published by the primary listing exchange
after 9:30:00 a.m. Eastern Time.
Where a security has not begun to trade on the primary listing
market, a Contingent Open serves an important purpose of prescribing an
end to the early trading session and beginning of the regular trading
session on that non-primary listing exchange. A Contingent Open allows
a non-primary listing exchange that provides an early trading session
to transition to a regular trading session in a timely manner where a
security has not opened for trading on the primary listing market.\35\
---------------------------------------------------------------------------
\35\ See, e.g., Securities Exchange Act Release Nos. 72676 (July
25, 2014), 79 FR 44520 (July 31, 2014) (Notice); and 73468 (October
29, 2014), 79 FR 65450 (November 4, 2014) (Notice of Filing of
Amendment Nos. 1 and 3 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment Nos. 1 and 3, To
Amend EDGX Rule 1.5 and Chapter XI Regarding Current System
Functionality Including the Operation of Order Types and Order
Instructions) (SR-EDGX-2014-18).
---------------------------------------------------------------------------
Now that the Exchange proposes to offer an Early Trading Session,
the Contingent Open would serve as a transition from the Early Trading
Session to the Regular Trading Session. Exchange Rule 2615 previously
provided for a Contingent Open. Because it did not previously offer an
early trading session, the Exchange proposed in December 2023 to remove
references to the Contingent Open from its Rules.\36\ In sum, the
Exchange proposes to reverse those changes it made to its Rules by
amending Exchange Rule 2615(d) to provide for a Contingent Open at 9:45
a.m. Eastern Time. Exchange Rule 2615(d) would again describe the
Contingent Open and provide that if the conditions to establish the
price of the Opening Process described above do not occur by 9:45:00
a.m. Eastern Time, the Exchange will handle all orders in time
sequence, beginning with the order with the oldest timestamp, and be
placed on the MIAX Pearl Equities Book, cancelled, executed, or routed
to away Trading Centers in accordance with the terms of the order. The
earlier version of the Contingent Open that the Exchange removed in
December 2023 provided that the Exchange will conduct a Contingent Open
and match all orders eligible to participate in the Opening Process at
the midpoint of the then prevailing NBBO. Instead, due to the likely
lack of liquidity in the security and other factors that would cause it
to not open on the primary listing exchange, the Exchange proposes to
simply feed any orders it may have received in time sequence onto the
MIAX Pearl Equities Book, just as it proposes to do at 4:00 a.m.
Eastern Time when the Early Trading Session would begin.
---------------------------------------------------------------------------
\36\ See Securities Exchange Act Release No. 99203 (December 18,
2023), 88 FR 88689 (December 22, 2023) (SR-PEARL-2023-71).
---------------------------------------------------------------------------
Exchange Rule 2615(d) would further provide that if the midpoint of
the NBBO is not available for the Contingent Open, all orders are
handled in time sequence, beginning with the order with the oldest
timestamp, and are placed on the MIAX Pearl Equities Book, cancelled,
executed, or routed to away Trading Centers in accordance with the
terms of the order. The Exchange also proposes to make a corresponding
change to reinsert a reference to the Contingent Open in the definition
of Regular Trading Session in Exchange Rule 1901.
Next, the Exchange proposes to describe in Exchange Rule 2615 which
orders may be eligible for execution in the time between the start of
Regular Trading Hours at 9:30 a.m. and the Exchange's Opening Process
or Contingent Opening Process. During this time, ISOs designated as RHO
and all other orders without a TIF instruction of RHO may execute
against eligible Early Trading Session contra-side interest resting on
the MIAX Pearl Equities Book in the time period between the start of
9:30 a.m. Eastern Time and the Exchange's Opening Process or a
Contingent Open. Any unexecuted portion of an ISO that is designated
RHO will be converted into a non-ISO and be queued for participation in
the Opening Process. This provision would be set for under Exchange
Rule 2615(a)(1) and the subsequent paragraphs would be renumbered
accordingly.\37\
---------------------------------------------------------------------------
\37\ See, e.g., Cboe BZX Rule 11.24(a)(1).
---------------------------------------------------------------------------
Lastly, the Exchange proposes to adopt Exchange Rule
2615(e)(1)(iii) to describe how the Exchange would re-open a security
following a halt during the Early and Late Trading Sessions.
Specifically, proposed Exchange Rule 2615(e)(1)(iii) would provide that
during the Early Trading Session and Late Trading Session, the Re-
Opening Process will occur at the midpoint of the NBBO after one second
has passed following: (i) for Tape A securities, the Exchange's receipt
of the first NBBO following the resumption of trading after a halt,
suspension, or pause; or (ii) for Tape B and C securities, the
publication of the first two-sided quotation by the listing exchange
following the resumption of trading after a halt, suspension, or pause.
The Exchange believes it is reasonable to have different standards for
Tape A securities that Tape B and C securities for the following
reason. Tape A securities are listing on the NYSE, which is only open
during Regular Trading Hours and, therefore, the Exchange believes it
is appropriate to look for the first NBBO, which may comprise of quotes
from other exchanges that are open for trading outside of Regular
Trading Hours. Meanwhile, Tape B and C securities are listing on
exchanges that engage in trading outside of Regular Trading Hours and
may disseminate a two-sided quotation that may be used to calculate the
midpoint of the NBBO. This proposed rule change is identical to the
rules of at least one other national securities exchange \38\ and would
provide clarity to market participants on how the Exchange would re-
open a security that was halted during the Early and Late Trading
Sessions.
---------------------------------------------------------------------------
\38\ See, e.g., Cboe BZX Rule 11.24(e)(1)(C).
---------------------------------------------------------------------------
Exchange Rule 2617, Order Execution and Routing
Regulation NMS Compliance
Exchange Rule 2617(a)(2), Compliance with Regulation NMS and Trade-
Through Protections, includes subparagraph (i), which provides that for
any execution to occur during Regular Trading Hours, the price of an
order to buy (sell) must be equal to or lower (greater) than the PBO
(PBB), unless the order is marked ISO or the execution falls within
another exception set forth in Rule 611(b) of Regulation NMS. To
address the addition of the Early and Late Trading Sessions, the
Exchange proposes to add subparagraph (ii) to Exchange Rule 2617(a)(2).
Proposed subparagraph (ii) to Exchange Rule 2617(a)(2) would be
identical to
[[Page 84412]]
the rules of other national securities exchanges,\39\ and provide for
any execution to occur during the Early Trading Session and Late
Trading Session, the price must be equal to or better than the highest
Protected Bid or lowest Protected Offer, unless the order is marked ISO
or a Protected Bid is crossing a Protected Offer. The addition of
Exchange Rule 2617(a)(2)(ii) would align the Exchange's rules with
other national securities exchanges and provide investors certainty
that the Exchange would execute orders consistent with Regulation NMS's
Trade Through protections during the Early and Late Trading Sessions.
---------------------------------------------------------------------------
\39\ See, e.g., Cboe EDGX Rule 11.10(a)(2) and IEX Rule
11.230(a)(2)(B).
---------------------------------------------------------------------------
PAC Routing Option
The Exchange offers the PAC routing option that enables an Equity
Member to designate that their order be routed to the primary listing
market to participate in the primary listing market's opening, re-
opening or closing process. Specifically, Exchange Rule 2617(b)(5)(ii)
describes PAC as a routing option for Market Orders and displayed Limit
Orders designated with a TIF of RHO that the entering firm wishes to
designate for participation in the opening, re-opening (following a
regulatory halt, suspension, or pause), or closing process of a primary
listing market if received before the opening, re-opening, or closing
process of such market. Exchange Rule 2617(b)(5)(B)2. provides that if
a Limit Order designated as IOC is entered after the security has
opened on the primary listing market, the Exchange will check the
System for available shares and then route the remaining shares
pursuant to the PI routing option described under Exchange Rule
2617(b)(5)(iii). Any shares that remain unexecuted after routing will
be cancelled in accordance with the terms of the order. The Exchange
proposes to amend Exchange Rule 2617(b)(5)(B)2. to describe how the
Exchange would handle Limit Orders designated as IOC and coupled with
the PAC routing option received during the Early and Late Trading
Session. Specifically, the Exchange proposes to handle such Limit
Orders as it would if not coupled with the PAC routing option by
checking the System for any available shares and any shares that remain
unexecuted would be cancelled in accordance with the terms of the
order. Limit Orders with a time-in-force of IOC that are not designated
as ``Do Not Route'' pursuant to Exchange Rule 2614(c)(1) and that
cannot be executed when reaching the Exchange will be eligible for
routing away pursuant to Exchange Rule 2617(b). Exchange Rule
2617(b)(5)(B)2. would, therefore, be amended to provide that if a Limit
Order designated as IOC is entered during the Early or Late Trading
Sessions, the Exchange will check the System for available shares and
any shares that remain unexecuted will be routed pursuant to Exchange
Rule 2617(b)(4)(ii) or cancelled in accordance with the terms of the
order.
Amendments to Risk Controls
To help Equity Members manage their risk, the Exchange currently
offers the Trading Collar, Limit Order Price Protection, and other risk
controls that authorize the Exchange to take automated action if
certain conditions are met. Such risk controls provide Equity Members
with enhanced abilities to manage their risk when trading on the
Exchange. All of the Exchange's existing risk controls would be
available during the proposed Early and Late Trading Sessions. To
account for the different trading environment that occurs during
trading outside of Regular Trading Hours described above, the Exchange
proposes to adopt one new risk control and to augment the operation of
Limit Order Price Protection under Exchange Rule 2614(a)(1)(ix) and
Trading Collars under Exchange Rule 2618(b)(1) to provide Equity
Members with the proper tools to manage their risk and control their
order flow during these times. Each of these changes are described
below.
Trading Collar
The Exchange prevents all incoming orders, including those marked
as Intermarket Sweep Orders (``ISO''), from executing at a price
outside the Trading Collar price range as described in Exchange Rule
2618(b). The Trading Collar prevents buy orders from trading or routing
at prices above the collar and prevents sell orders from trading or
routing at prices below the collar.
The Exchange's default behavior is to calculate the Trading Collar
price range for a security by applying the numerical guidelines for
Clearly Erroneous Executions or a specified dollar value established by
the Exchange.\40\ The result is added to the Trading Collar Reference
Price to determine the Trading Collar Price for buy orders, while the
result is subtracted from the Trading Collar Reference Price to
determine the Trading Collar Price for sell orders. Exchange Rule
2618(b)(1)(B) provides that the Trading Collar Reference Price is equal
to the following: (i) consolidated last sale price disseminated during
the Regular Trading Hours on trade date; or (ii) if (i) is not
available, the prior day's Official Closing Price identified as such by
the primary listing exchange, adjusted to account for events such as
corporate actions and news events. Exchange Rule 2618(b)(1)(F) provides
Equity Members the ability to override the Exchange's default behavior
and provides that Equity Members may select a dollar value lower,
higher, or equal to the Exchange-specified percentages and dollar value
on an order-by-order basis.\41\ In other words, Equity Members may
select a dollar value equal to, more, or less conservative than the
Exchange's specified percentages and dollar value.
---------------------------------------------------------------------------
\40\ Although the Exchange applies the numerical guidelines for
Clearly Erroneous Executions, no order would be executed outside of
the prescribed Price Bands pursuant to the Plan to Address
Extraordinary Market Volatility.
\41\ See Securities Exchange Act Release No. 99954 (April 12,
2024), 89 FR 27824 (April 18, 2024) (SR-PEARL-2024-17). See also
MIAX Pearl Equities Exchange Regulatory Circular 2024-10, Changes to
Certain Risk Controls on MIAX Pearl Equities, dated July 1, 2024,
available at <a href="https://www.miaxglobal.com/sites/default/files/circular-files/MIAX_Pearl_Equities_RC_2024_10.pdf">https://www.miaxglobal.com/sites/default/files/circular-files/MIAX_Pearl_Equities_RC_2024_10.pdf</a>.
---------------------------------------------------------------------------
The Exchange proposes to amend Exchange Rule 2618(b)(1)(B) to
update the hierarchy of reference prices used by the Exchange for
Trading Collars due to the adoption of the Early and Late Trading
Sessions. Each of the below proposed changes are based on the rules of
another national securities exchange.\42\ First, the Exchange proposes
to amend Exchange Rule 2618(b)(1)(B) to provide that the Trading Collar
Reference Price is equal to the most current of the references prices
outlined in the Rule. As a result of this change, the Exchange proposes
to remove language from current Exchange Rule 2618(b)(1)(B)(ii) that
provides that the prior day's Official Closing Price identified as such
by the primary listing exchange, adjusted to account for events such as
corporate actions and news events, would be used where the consolidated
last sale price disseminated during the Regular Trading Hours on trade
date under Exchange Rule 2618(b)(1)(B)(i) is unavailable. The Exchange
notes that this change does not amend existing functionality because
the sequence of reference prices to be used to calculate the Trading
Collar would remain the same and the proposed language is simply
intended to align the Exchange's Rule with that of another national
securities exchange. This proposed change provides clarity that the
Exchange would use a reference price that is most current and reflects
the
[[Page 84413]]
trading behavior of the security at the time the Trading Collar is to
be applied.
---------------------------------------------------------------------------
\42\ See IEX Rule 11.190(f)(1)(A).
---------------------------------------------------------------------------
The Exchange proposes to amend the current hierarchy to add an
additional data point that may be used as a reference price that is
used by at least one other exchange that offers Limit Order Price
Protection and trading outside of Regular Trading Hours.\43\
Specifically, the Exchange proposes to amend Exchange Rule
2618(b)(1)(B) to add new paragraph (ii) to provide that the Exchange
may use the last trade price for the security on trade date that
occurred outside of Regular Trading Hours (Form T, as communicated by
the relevant SIP) on trade date which other than for the Form T
designation would have been considered a valid last sale price as the
reference price. Current Exchange Rule 2618(b)(1)(B)(ii) would be
renumbered to paragraph (iii) to reflect the above addition and
continue to provide that the prior day's Official Closing Price
identified as such by the primary listing exchange, adjusted to account
for events such as corporate actions and news events may be used as a
reference price.
---------------------------------------------------------------------------
\43\ See IEX Rule 11.190(f)(1)(B).
---------------------------------------------------------------------------
The Exchange also proposes to make a related change to Exchange
Rule 2618(b)(1)(A). Exchange Rule 2618(b)(1)(A) describes when the
Trading Collar would not be applied and specifically provides that,
upon entry, any portion of an order to buy (sell) that would execute at
a price above (below) the Trading Collar price range \44\ is cancelled,
unless: (i) the prior day's Official Closing Price identified as such
by the primary listing exchange, i.e., the price listed under Exchange
Rule 2618(b)(1)(B)(iii) described above, is to be applied and a
regulatory halt has been declared by the primary listing market during
that trading day; (ii) or if no consolidated last sale price has been
disseminated following the conclusion of a regulatory halt declared by
the primary listing market on that trading day. The Exchange proposes
to amend Exchange Rule 2618(b)(1)(A)(ii) to further provide that, upon
entry, any portion of an order to buy (sell) that would execute at a
price above (below) the Trading Collar Price would not be cancelled
where no last trade price for the security that occurred outside of
Regular Trading Hours (Form T, as communicated by the relevant SIP) on
trade date, which other than for the Form T designation would have been
considered a valid last sale price, has been disseminated following the
conclusion of a regulatory halt declared by the primary listing market
on that trading day. This proposed change would ensure that the Trading
Collar is not applied where the applicable Trading Collar Reference
Price is unavailable. Again, each of the above changes are based on the
rules of another national securities exchange.\45\
---------------------------------------------------------------------------
\44\ The Exchange proposes to make a clarifying change to
Exchange Rule 2618(b)(1)(A) to change the term ``Price'' to ``price
range'' to more accurately reflect the price at which an order
priced outside the Trading Collar would be cancelled.
\45\ See IEX Rule 11.190(f)(1)(A).
---------------------------------------------------------------------------
Exchange Rule 2618(b)(1)(E) sets forth the numerical guidelines
used in the Trading Collar Price calculation to account for the
proposed Early and Late Trading Sessions. Specifically, Exchange Rule
2618(b)(1)(E) provides the following numerical guidelines table used in
the Trading Collar Price calculation:
------------------------------------------------------------------------
Regular trading
Trading collar reference price hours numerical
guidelines (%)
------------------------------------------------------------------------
Greater than $0.00 up to and including $25.00........ 10
Greater than $25.00 up to and including $50.00....... 5
Greater than $50.00.................................. 3
------------------------------------------------------------------------
The Exchange proposes to amend the explanatory paragraph below the
numerical guidelines table in Exchange Rule 2618(b)(1)(E) to provide
the default dollar and percentage values will be subject to a
multiplier established by the Exchange during the Early and Late
Trading Sessions (the ``Extended Hours Multiplier''). Exchange Rule
2618(b)(1)(E) provides that the specified dollar values will be posted
to the Exchange's website and the Exchange will announce in advance any
changes to the dollar value via a Regulatory Circular. Similarly, the
Exchange proposes to amend Exchange Rule 2618(b)(1)(E) to also provide
that the amount of the Extended Hours Multiplier would also be posted
to the Exchange's website and the Exchange will announce in advance any
changes to the Extended Hours Multiplier via a Regulatory Circular. To
start, the Exchange would establish the value of the Extended Hours
Multiplier to be 2, which make its numerical guideline to be applied
during the Early and Late Trading Sessions identical to that of another
national securities exchange.\46\ Further, the Exchange notes that
applying a multiplier to a risk protection outside of Regular Trading
Hours is not unique and currently in place on at least one other
national securities exchange.\47\ Doing so enables the Exchange to
better tailor its Trading Collar to reflect the trading conditions that
are in place outside of Regular Trading Hours and provide necessary
protections to Equity Members without unnecessarily preventing an
otherwise acceptable execution. Furthermore, as discussed above,
Exchange Rule 2618(b)(1)(F) provides Equity Members the ability to
override the Exchange's default behavior and provides that Equity
Members may select a dollar value lower, higher, or equal to the
Exchange-specified percentages and dollar value on an order-by-order
basis. Therefore, Equity Members would have the ability to tailor the
Trading Collar to consider the Extended Hours Multiplier in line with
their risk appetite during the Early and Late Trading Sessions.
---------------------------------------------------------------------------
\46\ The proposed numerical guidelines for the Early and Late
Trading Sessions are based on IEX Rule 11.190(f)(1)(D).
\47\ The proposed Extended Hours Multiplier is based on the
similar functionality offered by NYSE Arca utilized outside of
Regular Trading Hours. See NYSE Pillar Risk Controls Manual
(document version 4.0), Section 5.5, available at <a href="https://www.nyse.com/publicdocs/nyse/NYSE_Pillar_Risk_Controls.pdf">https://www.nyse.com/publicdocs/nyse/NYSE_Pillar_Risk_Controls.pdf</a> (``Arca
Risk Controls Manual'') (Early/Late Trading Multiplier (optional;
Equities Markets)--may be configured to apply a double-wide price
check to orders that first become eligible to trade in the Early or
Late Trading Sessions (calculated as Price Protection Limit x Early/
Late Trading Multiplier)).
---------------------------------------------------------------------------
Limit Order Price Protection
Limit Order Price Protection is set forth under Exchange Rule
2614(a)(1)(ix) and provides for the rejection of Limit Orders priced
too far away from a specified reference price at the time the order
first becomes eligible to trade. A Limit Order entered before Regular
Trading Hours that becomes eligible to trade during Regular Trading
Hours (e.g., a Limit Order that contains a TIF of RHO) will be subject
to Limit
[[Page 84414]]
Order Price Protection at the time Regular Trading Hours begins.\48\
---------------------------------------------------------------------------
\48\ Further, a Limit Order in a security that is subject to a
trading halt becomes first eligible to trade when the halt is lifted
and continuous trading has resumed. See Exchange Rule
2614(a)(1)(ix)(C).
---------------------------------------------------------------------------
Currently, Exchange Rule 2614(a)(1)(ix)(A) provides that a Limit
Order to buy (sell) will be rejected if it is priced at or above
(below) the greater of a specified dollar and percentage away \49\ from
the following: 1. PBO for Limit Orders to buy, the PBB for Limit Orders
to sell; 2. if the PBBO is unavailable, then the consolidated last sale
price disseminated during the Regular Trading Hours on trade date; or
3. if neither 1. nor 2. are available, then the prior day's Official
Closing Price identified as such by the primary listing exchange,
adjusted to account for events such as corporate actions and news
events.
---------------------------------------------------------------------------
\49\ See MIAX Pearl Equities Regulatory Circular 2020-06, Limit
Order Price Protection Default Values (dated September 14, 2020),
available at <a href="https://www.miaxglobal.com/sites/default/files/circular-files/MIAX_PEARL_Equities_RC_2020_06.pdf">https://www.miaxglobal.com/sites/default/files/circular-files/MIAX_PEARL_Equities_RC_2020_06.pdf</a> (providing default
specified dollar and percentage values for Limit Order Price
Protection in the event that Equity Members do not customize the
dollar and percentage values on a per session basis).
---------------------------------------------------------------------------
The Exchange now proposes to amend Exchange Rule 2614(a)(1)(ix)(A)
to amend the hierarchy of reference prices that would be used to
account for the Early and Late Trading Sessions and align with the
changes to the Trading Collar reference prices under Exchange Rule
2618(b)(1)(B) described above. The Exchange proposes to amend the
current hierarchy to add an additional data point that may be used as a
reference price that is used by at least one other exchange that offers
trading outside of Regular Trading Hours.\50\ First, the Exchange
proposes to amend Exchange Rule 2614(a)(1)(ix)(A) to include the
language in subparagraph 1. and provide that a Limit Order to buy
(sell) will be rejected if it is priced at or above (below) the greater
of a specified dollar and percentage away from the PBO for Limit Orders
to buy, the PBB for Limit Orders to sell. As a result of this change,
the Exchange proposes to renumber Exchange Rule 2614(a)(1)(ix)(A)2. as
Exchange Rule 2614(a)(1)(ix)(A)1. Exchange Rule 2614(a)(1)(ix)(A) would
further be amended to provide that if the PBBO is unavailable, a Limit
Order to buy (sell) will be rejected if it is priced at or above
(below) the greater of a specified dollar and percentage away from the
most current of the following prices currently set forth in the Rule:
the consolidated last sale price disseminated during Regular Trading
Hours on trade date described under Exchange Rule 2614(a)(1)(ix)(A)1.;
or the prior day's Official Closing Price identified as such by the
primary listing exchange, adjusted to account for events such as
corporate actions and news events described under Exchange Rule
2614(a)(1)(ix)(A)2. (proposed to be renumbered as subparagraph 3.
Described immediately below). The Exchange proposes to further amend
Exchange Rule 2614(a)(1)(ix)(A) to include an additional price under
subparagraph 2. that would align the prices used for Limit Order Price
Protection with those to be used for the Trading Collar during the
Early and Late Trading Sessions. Specifically, Exchange Rule
2614(a)(1)(ix)(A)2. would provide that the last trade price for the
security on trade date that occurred outside of Regular Trading Hours
(Form T, as communicated by the relevant SIP) on trade date which other
than for the Form T designation would have been considered a valid last
sale price would be applied where is it more current than the prices
set forth under Exchange Rule 2614(a)(1)(ix)(A)1. and 3. described
above. Again, each of the above changes are based on the rules of
another national securities exchange \51\ and other than using the
PBBO, are designed to align the waterfall of reference prices with the
changes proposed herein to the Trading Collar risk protection under
Exchange Rule 2618(b)(1)(B), described above.
---------------------------------------------------------------------------
\50\ See IEX Rule 11.190(f)(1)(A).
\51\ See IEX Rule 11.190(f)(1)(A).
---------------------------------------------------------------------------
As a result of the above proposed changes, the Exchange proposes to
remove language from current Exchange Rule 2614(a)(1)(ix)(A)2. and 3.
that the reference price set forth in each Rule would be applied where
a preceding reference price is unavailable. The Exchange notes that
this change does not amend existing functionality because the sequence
of reference prices to be used to calculate Limit Order Price
Protection would remain the same and the proposed language is simply
intended to align the Exchange's Rule with that of another national
securities exchange and to account for the addition of the Early and
Late Trading Sessions. The proposed change provides clarity that the
Exchange would use a reference price that is most current and reflects
the trading behavior of the security at the time Limit Order Price
Protection is to be applied and is consistent with the same change
proposed above for the Exchange's Trading Collar risk protection.
The Exchange believes its use of the amended reference price
waterfall is reasonable because it would ensure that Limit Order Price
Protection would continue to be applied when one or more reference
prices are unavailable. Unlike on other exchanges,\52\ this would
provide added protections to Equity Members when trading outside of
Regular Trading Hours. The Exchange also believes it is reasonable to
use the last trade price for the security on trade date that occurred
outside of Regular Trading Hours as a reference price when the PBO
(PBB) and consolidated last sale are unavailable because it would
ensure that the Exchange is using a reference price that most
accurately reflects the security's current trading behavior. Without
this ability, the Exchange would use the prior day's official closing
price as a reference price, which may be unrelated to the security's
current trading behavior, especially during the Late Trading Session
due to the official closing price and application of Limit Order Price
Protection being separated by almost a complete trading day.
---------------------------------------------------------------------------
\52\ See NYSE Arca Rule 7.31-E(a)(2)(B)(ii) (stating that
``[d]uring the Early and Late Trading Sessions, Limit Order Price
Protection will not be applied to an incoming Limit Order to buy
(sell) if there is no NBO (NBB)'').
---------------------------------------------------------------------------
Next, the Exchange proposes to amend Exchange Rule
2614(a)(1)(ix)(B) regarding specified percentage elections for Limit
Order Price Protection. Exchange Rule 2614(a)(1)(ix)(B) provides that
Equity Members may customize the Limit Order Price Protection specified
dollar and percentage values on an MPID and/or per session basis. If an
Equity Member does not provide MIAX Pearl Equities specified dollar and
percentage values for their order(s), default specified dollar and
percentage values established by the Exchange will be applied.\53\
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\53\ The default specified dollar and percentage values are
posted to the Exchange's website. See supra note 6. The Exchange
will announce in advance any changes to those dollar and percentage
values via a Regulatory Circular.
---------------------------------------------------------------------------
Like the proposed changes described above for the Trading Collar
under Exchange Rule 2618(b)(1)(B), the Exchange proposes to apply a
multiplier to the Limit Order Price Protection specified dollar and
percentage values during the Early and Late Trading Sessions.
Specifically, the Exchange proposes to amend Exchange Rule
2614(a)(1)(ix)(B) to provide that during the Early Trading Session and
Late Trading Session, the default dollar and percentage values will be
subject to a multiplier established by the Exchange (referred to as the
``LOPP Extended Hours Multiplier''). This functionality is available on
at least one other national
[[Page 84415]]
securities exchange.\54\ Exchange Rule 2614(a)(1)(ix)(B) would further
provide that the default amount of the LOPP Extended Hours Multiplier
will be posted to the Exchange's website and the Exchange will announce
in advance any changes to the LOPP Extended Hours Multiplier via a
Regulatory Circular, which is the case today for the default specified
dollar and percentage established by the Exchange.
---------------------------------------------------------------------------
\54\ The proposed LOPP Extended Hours Multiplier is based on the
similar functionality offered by NYSE Arca during its early and late
trading sessions. See NYSE Pillar Risk Controls Manual (document
version 4.0), Section 5.5, available at <a href="https://www.nyse.com/publicdocs/nyse/NYSE_Pillar_Risk_Controls.pdf">https://www.nyse.com/publicdocs/nyse/NYSE_Pillar_Risk_Controls.pdf</a> (``Arca Risk Controls
Manual'') (Early/Late Trading Multiplier (optional; Equities
Markets)--may be configured to apply a double-wide price check to
orders that first become eligible to trade in the Early or Late
Trading Sessions (calculated as Price Protection Limit x Early/Late
Trading Multiplier)).
---------------------------------------------------------------------------
Lastly, Exchange Rule 2614(a)(1)(ix)(B) would also provide that
Equity Members may select a LOPP Extended Hours Multiplier that is
higher than, equal to, or lower than the default LOPP Extended Hours
Multiplier established by the Exchange. This proposed rule change would
allow Equity Members to select their own LOPP Extended Hours
Multiplier, enabling them to customize Limit Order Price Protection
based on their own risk appetite during the Early and Late Trading
Sessions. Importantly, the proposed rule change would not only allow
Equity Members to select a LOPP Extended Hours Multiplier more
aggressive than the Exchange's defaults, but also more conservative in
cases where they seek to apply a tighter Limit Order Price Protection
thresholds in line with their risk appetite. The ability to override
the Exchange's LOPP Extended Hours Multiplier would be completely
voluntary and all orders would continue to be subject to other risk
protections provided by the Exchange.
Lastly, the Exchange proposes to amend Exchange Rule
2614(a)(1)(ix)(C) regarding when Limit Order Price Protection would be
applied to account for the addition of the Early and Late Trading
Sessions as well as align with the reference prices set forth under
amended Exchange Rule 2614(a)(1)(ix)(B) described above. Currently,
Exchange Rule 2614(a)(1)(ix)(C) provides that Limit Order Price
Protection will not be applied if: the prices listed under paragraphs
(a)(1)(ix)(A)1., 2., or 3 of Exchange Rule 2614 are unavailable; or 2.
the price listed under paragraph (a)(1)(ix)(A)3. of Exchange Rule 2614.
is to be applied and a regulatory halt has been declared by the primary
listing market during that trading day; or 3. if no consolidated last
sale price or the last trade price for the security has been
disseminated following the conclusion of a regulatory halt declared by
the primary listing market during that trading day. The Exchange
proposes to delete Exchange Rule 2614(a)(1)(ix)(C)3. and remove
references to subparagraphs 1., 2., and 3. of Exchange Rule
2614(a)(1)(ix)(A) to account for the above changes and the result that
Limit Order Price Protection would not be applied when any of the
prices listed under Exchange Rule 2614(a)(1)(ix)(A) are not available.
Deleting Exchange Rule 2614(a)(1)(ix)(C)3. is not a substantive change
because Exchange Rule 2614(a)(1)(ix)(C)1. accounts for there being no
consolidated last sale price (or even no last trade price for the
security on trade date that occurred outside of Regular Trading Hours).
These changes to Exchange Rule 2614(a)(1)(ix)(C) would align it with
the reference prices set forth under Exchange Rule 2614(a)(1)(ix)(B),
as well as when the Trading Collar would be applied under Exchange Rule
2618(b)(1)(A), both of which are described above.
Early/Late Trading Session Pre-Order Risk Control
The Exchange offers Equity Members the ability to establish certain
risk control parameters that assist Equity Members in managing their
market risk on a per order basis. These optional risk controls are set
forth under Exchange Rule 2618(a)(1) and offer Equity Members
protection from entering orders outside of certain size and price
parameters, and selected order type and modifier combinations, as well
as protection from the risk of duplicative executions. The Exchange
also permits Equity Members to block new orders, to cancel all open
orders, block both new orders and cancel all open orders, and
automatically cancel all orders to the extent the Equity Member loses
its connection to MIAX Pearl Equities.\55\ The risk controls are
available to all Equity Members, but are particularly useful to Equity
Market Makers, who are required to continuously quote in the equity
securities to which they are assigned.
---------------------------------------------------------------------------
\55\ See Exchange Rule 2618(a)(7)(a) (proposed herein to be
renumbered as Exchange Rule 2618(a)(7)(A)). The Exchange also
proposes to renumber Exchange Rule 2618(a)(7)(b) as Exchange Rule
2618(a)(7)(B).
---------------------------------------------------------------------------
Pursuant to Exchange Rule 2618(a)(1)(C), the risk controls include,
among others, controls related to the order types or modifiers that can
be utilized (including short sales and ISOs). The Exchange proposes to
amend Exchange Rule 2618(a)(1)(C) to include pre-market and post-market
in the list of risk controls for certain orders and is based on the
rules of another national securities exchange.\56\ With the proposed
change, Equity Members would have the ability to instruct the Exchange
to block any orders entered during the proposed Early and Late Trading
Sessions.\57\ Use of this pre-order risk control would be completely
voluntary. Equity Members who do not wish to trade outside of Regular
Trading Hours may use this risk control to ensure that an order that
they may have inadvertently entered during the Early or Late Trading
Sessions would be rejected by the Exchange.
---------------------------------------------------------------------------
\56\ The inclusion of pre-market and post-market in the list of
risk control settings is based on EDGX Rule 11.10(c).
\57\ The configuration to block/reject orders from the proposed
Early and Late Trading Sessions is also based on a similar
configuration available on NYSE Arca. See the Arca Risk Controls
Manual, Section 5.3 (Order Restriction), supra note 52.
---------------------------------------------------------------------------
* * * * *
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,\58\ 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.\59\ Use of the
Exchange's risk settings will not automatically constitute compliance
with Exchange or federal rules and responsibility for compliance with
all Exchange and Commission rules remains with the Equity Member.
---------------------------------------------------------------------------
\58\ 17 CFR 240.15c3-5.
\59\ 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>.
---------------------------------------------------------------------------
Exchange Rule 2621, Clearly Erroneous Executions
Clearly Erroneous Trade Processing. The Exchange will process trade
breaks beginning at 4:00 a.m. pursuant to amended Exchange Rule 2621,
Clearly Erroneous Executions. The Exchange proposes to amend Exchange
Rule 2621 to account for the Early and Late Trading Sessions by
adopting provisions that are substantially identical with those of
other equity exchanges, all of which adopted and enforce identical
rules regarding clearly erroneous executions.\60\ This includes
amending the title of Exchange Rule 2621(c)(2) and
[[Page 84416]]
subparagraphs (A), (B), (C), and (D) to include the Early and Late
Trading Sessions, as well as further amending subparagraph (A) to
include numerical guidelines for the Early and Late Trading Sessions,
which are identical to those of other equities exchanges.\61\ This also
includes amending Exchange Rule 2621(d)(3) to mirror other equities
exchange by including the Early and Late Trading Sessions.\62\
---------------------------------------------------------------------------
\60\ See, e.g., Cboe BZX Rule 11.17 and MEMX Rule 11.15.
\61\ Id.
\62\ Id.
---------------------------------------------------------------------------
Exchange Rule 2120, Customer Disclosures
The Exchange proposes to adopt new Exchange Rule 2120, Customer
Disclosures, which require Equity Members to make certain disclosures
regarding the risk of trading outside of Regular Trading Hours.
Proposed Exchange Rule 2120 is substantially identical to the rules of
other equity exchanges,\63\ and includes provisions requiring
disclosures concerning the risk of lower liquidity, high volatility,
changing prices, unlinked markets, news announcement, wider spreads,
and the lack of calculation or dissemination of underlying Index Values
or Intraday Indicative Values (``IIV'').
---------------------------------------------------------------------------
\63\ See, e.g., Cboe BZX Rule 3.21 and MEMX Rule 3.21.
---------------------------------------------------------------------------
Exchange Rule 2900, Unlisted Trading Privileges
Exchange Rule 2900(a) provides that the Exchange may extend
unlisted trading privileges (``UTP'') to any security that is an NMS
Stock that is listed on another national securities exchange or with
respect to which unlisted trading privileges may otherwise be extended
in accordance with Section 12(f) of the Act \64\ and any such security
shall be subject to all Exchange rules applicable to trading on the
Exchange, unless otherwise noted. Pursuant to Exchange Rule 2900(n)(1),
the Exchange distributes an information circular prior to the
commencement of trading in each such UTP Exchange Traded Product that
generally includes the same information as is contained in the
information circular provided by the listing exchange, including (a)
the special risks of trading the new Exchange Traded Product, (b) the
Exchange Rules that will apply to the new Exchange Traded Product, and
(c) information about the dissemination of value of the underlying
assets or indices. The Exchange proposes to amend Exchange Rule
2900(b)(1) to provide that the information circular distributed by the
Exchange also include risk of trading during the Early Trading Session
(4:00 a.m.-9:30 a.m. Eastern Time) and Late Trading Session (4:00 p.m.-
8:00 p.m. Eastern Time) due to the lack of calculation or dissemination
of the Intraday Indicative Value (``IIV'') or a similar value. The
proposed text is identical to the rules of at least one other national
securities exchange.\65\
---------------------------------------------------------------------------
\64\ 17 CFR 78l.12(f).
\65\ See, e.g., Cboe EDGX Rule 14.1(c)(1).
---------------------------------------------------------------------------
Exchange Rule 2900(b)(3) provides that the Exchange will halt
trading in a UTP Exchange Traded Product as provided for in Exchange
Rule 2622. The Exchange proposes to amend Exchange Rule 2900(b)(3) to
include language that is identical to at least one other national
securities exchange \66\ that describes how the Exchange would halt or
continue trading during its proposed extended hours trading sessions.
First, the Exchange proposes to add subparagraph (A) to Exchange Rule
2900(b)(3) entitled, Early Trading Session and Late Trading Session,
which would provide that if a UTP Derivative Security begins trading on
the Exchange in the Early Trading Session or Late Trading Session and
subsequently a temporary interruption occurs in the calculation or wide
dissemination of the IIV or the value of the underlying index, as
applicable, to such UTP Derivative Security, by a major market data
vendor, the Exchange may continue to trade the UTP Derivative Security
for the remainder of the Early Trading Session and Late Trading
Session. Then, the Exchange proposes to add subparagraph (B) to
Exchange Rule 2900(b)(3), entitled, Late Trading Session and Next
Business Day's Early Trading Session. Proposed subparagraph (i) to
Exchange Rule 2900(b)(3)(B) would provide that if the IIV or the value
of the underlying index became unavailable during the Early Trading
Session or Regular Trading Hours and continues not to be calculated or
widely available after the close of Regular Trading Hours, the Exchange
may trade the UTP Derivative Security in the Late Trading Session only
if the listing market traded such securities until the close of its
regular trading session without a halt. Lastly, proposed subparagraph
(ii) of Exchange Rule 2900(b)(3)(B), subsection (ii) would provide that
if the IIV or the value of the underlying index became unavailable as
discussed under proposed paragraph (A) of proposed Exchange Rule
2900(b)(3) discussed above and continues not to be calculated or widely
available as of the commencement of the Early Trading Session on the
next business day, the Exchange shall not commence trading of the UTP
Derivative Security in the Early Trading Session that day. If an
interruption in the calculation or wide dissemination of the IIV or the
value of the underlying index continues, the Exchange may resume
trading in the UTP Derivative Security only if calculation and wide
dissemination of the IIV or the value of the underlying index resumes
or trading in the UTP Derivative Security resumes in the listing
market.
---------------------------------------------------------------------------
\66\ See, e.g., Cboe EDGX Rule 14.1, Interpretations and
Policies .01(a) and (b).
---------------------------------------------------------------------------
Again, each of the above proposed changes to Exchange Rule 2900 are
identical to those of at least one other national securities exchange.
Codifying these provisions in its rules would ensure that the
Exchange's rules are aligned with other national securities exchanges
and describe that the Exchange will continue to disseminate information
circulars for, and halt trading in, UTP Derivative Securities in
accordance with industry practice.
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 controls
set forth herein. The Exchange anticipates that the implementation date
will be in the first or second quarter of 2025.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\67\ in general, and furthers the objectives of Section
6(b)(5),\68\ 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. Specifically, the Exchange
believes the proposed amendments will remove impediments to and perfect
the mechanism of a free and open market and a national market system
because it would provide market participants an additional pool of
liquidity outside of Regular Trading Hours. The Exchange simply
proposes to expand the hours
[[Page 84417]]
during which trading occurs on the Exchange as well as expand
functionality and risk controls in a manner that either mirrors or is
substantially similar to what is currently available on other
exchanges. The Exchange also believes that the proposed rule change is
non-discriminatory as it would apply to all Equity Members uniformly.
In other words, any Equity Member that wishes to participate in the
proposed Early or Late Trading Sessions may do so equally. The proposed
rule change in whole is designed to attract more order flow to the
Exchange between 4:00 a.m. and 9:30 a.m. Eastern Time and 4:00 p.m. and
8:00 p.m. Eastern Time. Increased liquidity during these times should
lead to improved price discovery and increased execution opportunities
on the Exchange, therefore, promoting just and equitable principles of
trade, and removing impediments to and perfecting the mechanism of a
free and open market and a national market system.
---------------------------------------------------------------------------
\67\ 15 U.S.C. 78f(b).
\68\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Early and Late Trading Sessions
The Exchange believes its proposal to adopt the Early and Late
Trading Sessions 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, prevents fraudulent and
manipulative acts and practices, and, in general, protects investors
and the public interest. The Exchange believes that the Early and Late
Trading Sessions will benefit investors, the national market system,
Equity Members, and the Exchange market by increasing competition for
order flow and executions, and thereby spur product enhancements and
lower prices. The Early and Late Trading Sessions will benefit Equity
Members and the Exchange market by increasing trading opportunities
between 4:00 a.m. and 9:30 p.m. and 4:00 p.m. and 8:00 p.m. Eastern
Time without increasing ancillary trading costs (telecommunications,
market data, connectivity, etc.) and, thereby, decreasing average
trading costs per share. The Exchange notes that trading during the
proposed Early and Late Trading Session is currently available on MEMX,
NYSE Arca, and elsewhere and its proposed definitions under Exchange
Rule 1901 are based on the rules of these exchanges.\69\ The Exchange
believes that the availability of trading between 4:00 a.m. and 9:30
p.m. and 4:00 p.m. and 8:00 p.m. Eastern Time has been beneficial to
market participants including investors and issuers on other markets.
Introduction of the Early and Late Trading Sessions on the Exchange
will further expand these benefits.
---------------------------------------------------------------------------
\69\ See supra notes 9 and 10.
---------------------------------------------------------------------------
Additionally, the Exchange Act's goal of creating an efficient
market system includes multiple policies such as price discovery, order
interaction, and competition among markets. The Exchange believes that
offering competing trading sessions will promote all of these policies
and will enhance quote competition, improve liquidity in the market,
support the quality of price discovery, promote market transparency,
and increase competition for trade executions while reducing spreads
and transaction costs. Additionally, increasing liquidity during the
Early and Late Trading Sessions will raise investors' confidence in the
fairness of the markets and their transactions, particularly due to the
lower volume of trading occurring prior to opening.
The expansion of trading hours through the creation of the Early
and Late Trading Sessions promotes just and equitable principles of
trade by providing market participants with additional options in
seeking executions on the Exchange. The Exchange will report the best
bid and offer on the Exchange to the appropriate network processor and
via the Exchange's proprietary data feeds beginning at 4:00 a.m.
Eastern Time.\70\ The proposal will, therefore, facilitate a well-
regulated, orderly, and efficient market during a period of time that
is currently underserved.
---------------------------------------------------------------------------
\70\ See, e.g., 17 CFR 242.603(a).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices because all
surveillance coverage currently performed by the Exchange's
surveillance systems will launch by the time trading starts at 4:00
a.m. Eastern Time and continue until 8:00 p.m. Eastern Time. Proposed
Exchange Rule 2120 is substantially identical to the rules of other
equity exchanges,\71\ and includes provisions requiring disclosures
concerning the risk of lower liquidity, high volatility, changing
prices, unlinked markets, news announcement, wider spreads, and the
lack of calculation or dissemination of underlying Index Values or IIV.
The Exchange believes that the proposed rule change will protect
investors and the public interest because the Exchange is adopting
customer disclosure requirements under proposed Exchange Rule 2120 to
prohibit equity Members from accepting an order from a customer for
execution in the Early and Late Trading Session without disclosing to
their customer that extended hours trading involves material trading
risks, including the possibility of lower liquidity, high volatility,
changing prices, unlinked markets, an exaggerated effect from news
announcements, wider spreads and any other relevant risk.
---------------------------------------------------------------------------
\71\ See, e.g., Cboe BZX Rule 3.21 and MEMX Rule 3.21.
---------------------------------------------------------------------------
Exchange Rules 2600, Hours of Trading
The Exchange believes its proposed amendments to Exchange Rule 2600
promote just and equitable principles of trade and remove impediments
to and perfect the mechanism of a free and open market and a national
market system. Exchange Rule 2600 sets forth when orders may be entered
into the System and during which timeframes orders are eligible for
execution. The Exchange proposes to amend Exchange Rule 2600 to account
for the addition of the Early and Late Trading Sessions and is based on
the rules of other exchanges,\72\ with slight immaterial differences.
For example, Cboe EDGX Rule 11.1(a)(1) provides that orders entered
between 2:30 a.m. and 4:00 a.m. Eastern Time would not be eligible for
execution until the start of the Early Trading Session or Regular
Trading Hours, depending on the TIF selected by the User. The Exchange
notes that, in addition to becoming eligible for execution at the start
of the Early Trading Session, it proposes to state that orders may also
become eligible for execution at the start of the Regular Trading
Session, rather than Regular Trading Hours, as is the case on Cboe
EDGX. On the Exchange, the Regular Trading Session commences at the
conclusion of the Exchange's Opening or Contingent Opening Process set
forth under Exchange Rule 2615, which is shortly after the commencement
of Regular Trading Hours at 9:30 a.m. Eastern Time. The Exchange,
therefore, believes this is not a material difference since Equity
Members are free to select the TIF of their choosing which would
determine when their order would become eligible for execution.
Further, generally, any order with a TIF of RHO becomes eligible for
execution at the start of Regular Trading Hours at 9:30 a.m. Eastern
Time \73\ and is eligible to participate in the Exchange's Opening or
Contingent Opening Process as described in Exchange Rule 2615.
---------------------------------------------------------------------------
\72\ Cboe EDGX Rule 11.1(a) and (a)(1).
\73\ See, e.g., proposed Exchange Rule 2615(a)(1).
---------------------------------------------------------------------------
[[Page 84418]]
Exchange Rule 2600(a) would also provide that the Exchange would
not accept all orders with a TIF instruction of FOK, in addition to
ISOs and orders with a TIF instruction of IOC, prior to 4:00 a.m.
Eastern Time. Unlike Cboe EDGX, the Exchange would accept orders with a
Post Only instruction and orders with a Minimum Execution Quantity
instruction that also include a TIF instruction of RHO prior to 4:00
a.m. Eastern Time.
Exchange Rule 2600(a) would also provide that the Exchange would
not accept Market Orders (other than Market Orders that include a TIF
of RHO that are to be routed to the primary listing exchange's opening
process pursuant to the PAC routing option under Rule 2617(b)(5)(ii))
prior to 9:30 a.m. Eastern Time. The Exchange believes this is
reasonable because Market Orders would only be eligible to participate
in the Regular Trading Session and the Exchange does not think it is
appropriate to accept and hold Market Orders prior to the commencement
of the Regular Trading Session due to the nature of the orders type--
i.e., it seeks an immediate execution at the then available PBBO or
better.\74\ Also unlike Cboe EDGX, the Exchange would continue to
accept Market Orders that include a TIF of RHO during the Early Trading
Session that are to be routed to the primary listing exchange's opening
process pursuant to the PAC routing option under Rule 2617(b)(5)(ii).
The Exchange again believes that this difference is immaterial. The
proposal to continue to accept Market Orders that are coupled with both
a TIF of RHO and the PAC routing option is consistent with current
functionality where such Market Orders are routed to the primary
listing market's opening process upon receipt and are not eligible for
execution because the Exchange currently does not offer pre-market
trading.\75\ Adding this provision in Exchange Rule 2600 regarding
Market Orders that are coupled with both a TIF of RHO and the PAC
routing option generally repeats what is already set forth in Exchange
Rule 2617(b)(5)(ii)(A)1. This proposed change would add clarity to the
Exchange's Rules as well as would avoid any potential confusion by
market participants.
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\74\ See Cboe EDGX Rule 11.8(a)(5) and Exchange Rule
2614(a)(2)(ii).
\75\ Exchange Rule 2617(b)(5)(B)(1)(i) provides that a Market
Order designated as RHO received before the security has opened on
the primary listing market will be routed to participate in the
primary listing market's opening process upon receipt.
---------------------------------------------------------------------------
Today, the Exchange also does not accept orders with a Post Only
instruction and orders with a Minimum Execution Quantity instruction
that also include a TIF instruction of RHO prior to 9:30 a.m. Eastern
Time, the time after which the Exchange would conduct its Opening
Process and begin to execute orders. At such time, the Exchange would
begin to accept Post Only instruction and orders with a Minimum
Execution Quantity instruction that also include a TIF instruction of
RHO. The Exchange is simply updating its Exchange Rule 2600 to reflect
the new time it would begin to execute orders and at which it would
begin to accept Post Only instruction and orders with a Minimum
Execution Quantity instruction that also include a TIF instruction of
RHO. Doing so would provide market participants seeking to utilize
those order types during the Early Trading Session with an additional
exchange to send those orders for potential execution.
Exchange Rule 2614, Orders and Order Instructions
The Exchange proposes to amend Exchange Rule 2614 to account for
the addition of the proposed Early and Late Trading Sessions, adopt new
TIF instructions, describe which TIF instructions are available with
each order type, and adopt other similar functionality as other
exchanges that provide trading outside of Regular Trading Hours. Each
of these changes remove impediments to and perfect the mechanism of a
free and open market and a national market system because they would
allow the Exchange to provide efficient trading modifiers and
functionality that is in place on other exchanges and would provide for
efficient executions and order interactions during the Early and Late
Trading Sessions.
Time-in-Force Instructions
The Exchange believes its proposed TIF instructions promote just
and equitable principles of trade, and remove impediments to and
perfect the mechanism of a free and open market and a national market
system. The Exchange believes that the proposed TIF instructions will
benefit investors by providing them with greater control over their
orders. The proposed TIF instructions simply provide market
participants with additional functionality they may use to instruct the
Exchange when their orders may be or are to become eligible for
execution.
In addition, Equity Members will maintain the ability to cancel or
modify the terms of their order at any time, including during the Early
and Late Trading Sessions. As a result, an Equity Member who utilizes
the proposed TIF instructions, but later determines that market
conditions favor execution during another trading session, such as
Regular Trading Hours, can cancel the order resting on the MIAX Pearl
Equities Book and enter a separate order with a TIF instruction that
would provide that the order be eligible for execution during the
trading session(s) they prefer.
The ability to select the trading sessions or time upon which an
order is to be eligible for execution is not novel and is currently
available on the Exchange and other market centers. For example, on the
Exchange, a User may currently enter an order starting at 7:30 a.m.
Eastern Time and select that such order not be eligible for execution
until 9:30 a.m., the start of Regular Trading Hours, using TIF
instructions of Regular Hours Only.\76\ In addition, each of the
proposed TIF instructions are well established in the equities markets
and available on most other national securities exchanges.\77\
---------------------------------------------------------------------------
\76\ See Exchange Rule 2600(a). See also Nasdaq Rule 4703(a)
(outlining TIF instructions that do not activate orders until 9:30
a.m. Eastern Time).
\77\ Each of these proposed TIF instruction are based on Cboe
EDGX Rule 11.6(q)(2)--(5).
---------------------------------------------------------------------------
Primary Peg Orders During Early and Late Trading Session
The proposed rule change removes impediments to and perfects the
mechanism of a free and open market and a national market system by
ensuring that Primary Pegged Orders with Primary Offset Amounts
displayed on the MIAX Pearl Equities Book do not inadvertently re-price
off similar orders on away exchanges in absence of other liquidity
creating the illusion of aberrant prices for the security. The proposed
rule change would restrict the use of the order type to Regular Trading
Hours only, the most liquid part of the trading day, thereby
significantly decreasing the possibility of such orders re-pricing off
of each other in the absence of additional liquidity. The Exchange does
not propose to amend or alter the operation of Primary Pegged Orders in
any other manner. The proposed rule change also promotes just and
equitable principles of trade by limiting the times at which such
orders are active so as to ensure that the order pegs to prices that
reflect the true NBBO of the security and not the Primary Offset Amount
of a pegged order in the absence of other liquidity. The proposed rule
change also removes impediments to and perfects the mechanism of a free
and open market and a national market system because also it aligns
with
[[Page 84419]]
similar functionality availability on other national securities
exchanges.\78\
---------------------------------------------------------------------------
\78\ See, e.g., Securities Exchange Act Release No. 82304
(December 12, 2017), 82 FR 60075 (December 18, 2024) (SR-CboeBZX-
2017-008).
---------------------------------------------------------------------------
Exchange Rule 2615, Opening Process for Equity Securities
Opening and Re-Opening Processes. The Exchange believes its
proposed amendments to Exchange Rule 2615(a)(1) 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.
Amended Exchange Rule 2615(a)(1) would provide market participants
clarity as to how the Exchange would handle orders between 9:30 a.m.
Eastern Time and its Opening or Contingent Opening Process. This
proposal is also identical to the rules of at least one other national
securities exchange \79\ and would, therefore, provide for consistent
functionality across exchanges.
---------------------------------------------------------------------------
\79\ See, e.g., Cboe BZX Rule 11.24(a)(1).
---------------------------------------------------------------------------
Likewise, the Exchange believes its proposal to adopt Exchange Rule
2615(e)(1)(iii) to describe how the Exchange would re-open a security
following a halt during the Early and Late Trading Sessions promotes
just and equitable principles of trade because it would provide clarity
to market participants on how the Exchange would re-open a security
that was halted during the Early of Late Trading Sessions. This
proposal is also identical to the rules of at least one other national
securities exchange \80\ and would, therefore, provide for consistent
functionality across exchanges.
---------------------------------------------------------------------------
\80\ See, e.g., Cboe BZX Rule 11.24(e)(1)(iii).
---------------------------------------------------------------------------
Contingent Open. The Exchange believes its proposed amendments to
Exchange Rule 2615(d) to reinstate the Contingent Opening Process
promotes just and equitable principles of trade because a Contingent
Open serves an important purpose of prescribing an end to the early
trading session and beginning of the regular trading session on that
non-primary listing exchange where a security has not begun to trade on
the primary listing market. A Contingent Open allows a non-primary
listing exchange that provides an early trading session to transition
to a regular trading session in a timely manner where a security has
not opened for trading on the primary listing market.
Because it did not previously offer an early trading session, the
Exchange proposed in December 2023 to remove references to the
Contingent Open from its Rules.\81\ Now that the Exchange proposes to
offer an Early Trading Session, the Contingent Open would serve as a
transition from the Early Trading Session to the Regular Trading
Session. Also, other exchanges that provide for pre-market trading also
conduct a Contingent Open.\82\
---------------------------------------------------------------------------
\81\ See Securities Exchange Act Release No. 99203 (December 18,
2023), 88 FR 88689 (December 22, 2023) (SR-PEARL-2023-71).
\82\ See, e.g., Securities Exchange Act Release Nos. 72676 (July
25, 2014), 79 FR 44520 (July 31, 2014) (Notice); and 73468 (October
29, 2014), 79 FR 65450 (November 4, 2014) (Notice of Filing of
Amendment Nos. 1 and 3 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment Nos. 1 and 3, To
Amend EDGX Rule 1.5 and Chapter XI Regarding Current System
Functionality Including the Operation of Order Types and Order
Instructions) (SR-EDGX-2014-18).
---------------------------------------------------------------------------
The Exchange notes, however, that the earlier version of the
Contingent Open that the Exchange removed in December 2023 provided
that the Exchange will conduct a Contingent Open and match all orders
eligible to participate in the Opening Process at the midpoint of the
then prevailing NBBO. The Exchange no longer proposes to do so and
rather, in cases where the conditions to establish the price of the
Opening Process described in Exchange Rule 2615(c) do not occur by
9:45:00 a.m. Eastern Time, handle all orders in time sequence,
beginning with the order with the oldest timestamp, and be placed on
the MIAX Pearl Equities Book, cancelled, executed, or routed to away
Trading Centers in accordance with the terms of the order. The Exchange
proposes this change to simply feed any orders it may have received in
time sequence onto the MIAX Pearl Equities Book due to the likely lack
of liquidity in the security and other factors that would cause it to
not open on the primary listing exchange by 9:45 a.m. Eastern Time.
This change is not material because it would be identical to how the
Exchange proposes to handle orders at 4:00 a.m. Eastern Time when the
Early Trading Session would begin as well as how other non-primary
listing exchanges that do not perform an opening process handle orders
when they commence trading. Therefore, the Exchange's proposal to
reinstitute the Contingent Opening Process, as proposed, is consistent
with the Act because it would allow for orders to be fed onto the MIAX
Pearl Equities Book in a consistent manner when the Exchange does not
conduct an Opening Process because the conditions in Exchange Rule
2615(c) have not been satisfied.
Exchange Rule 2617, Order Execution and Routing
Regulation NMS Compliance
The Exchange believes its proposed adoption of Exchange Rule
2617(a)(2)(ii) promotes just and equitable principles of trade and
removes impediments to and perfects the mechanism of a free and open
market and a national market system because provide investors certainty
that the Exchange would execute orders consistent with Regulation NMS's
Trade Through protections during the Early and Late Trading Sessions.
It is also identical to the rules of other national securities
exchanges \83\ and would, therefore, align the Exchange's rules with
other national securities exchanges, thereby avoiding potential
investor confusion by providing for consistent rules across exchanges.
---------------------------------------------------------------------------
\83\ See, e.g., Cboe EDGX Rule 11.10(a)(2) and IEX Rule
11.230(a)(2)(B)
---------------------------------------------------------------------------
PAC Routing Option
The Exchange believes its proposal to amend Exchange Rule
2617(b)(5)(B)2. to describe how the Exchange would handle Limit Orders
designated as IOC and coupled with the PAC routing option received
during the Early and Late Trading Session promotes just and equitable
principles of trade and removes impediments to and perfects the
mechanism of a free and open market and a national market system. The
Exchange simply proposes to handle such Limit Orders as it would if not
coupled with the PAC routing option by checking the System for any
available shares and any shares that remain unexecuted would either be
routed or cancelled in accordance with the terms of the order, and not
in a different manner.
Adding this provision in Exchange Rule 2617(b)(5)(B)2. generally
repeats what is already set forth in Exchange Rule 2614(b)(1) which
describes the TIF instruction of IOC. Amending Exchange Rule
2617(b)(5)(B)2. to include the treatment of an order coupled with a TIF
instruction of IOC, albeit also coupled with the PAC routing option,
would provide added clarity to the Rule to the benefit of investors and
national market system by seeking to avoid potential investor
confusion.
Amendments to Risk Controls
The proposed changes to select risk controls during the Early and
Late Trading Session are consistent with Section 6(b) of the Act,\84\
in general, and further the objectives of Section
[[Page 84420]]
6(b)(5),\85\ in particular, because they are 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.
---------------------------------------------------------------------------
\84\ 15 U.S.C. 78f(b).
\85\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Specifically, the Exchange believes the proposed changes will
remove impediments to and perfect the mechanism of a free and open
market and a national market system because they provide additional
functionality that is calibrated to account for the different trading
environment so that Equity Members may appropriately manage their risk
during the Early and Late Trading Sessions. The Exchange believes that
the proposed changes would protect investors and the public interest
because the proposed additional functionality is a form of risk
mitigation that will aid Equity Members in minimizing their financial
exposure and reduce the potential for disruptive, market-wide events
during the Early and Late Trading Sessions. In turn, the application 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, particularly during the Early and Late Trading
Sessions. The proposed rule changes would provide an additional option
for Equity Members seeking to further tailor their risk management
capability while transacting on the Exchange outside of Regular Trading
Hours.
Trading Collars
The Exchange's proposal to amend Exchange Rule 2618(b)(1)(B) to
update the hierarchy of reference prices used by the Exchange for
Trading Collars due to the adoption of the Early and Late Trading
Sessions perfects the mechanism of a free and open market and a
national market system because it would provide clarity within Exchange
Rule 2618(b)(1)(B) and align the Exchange's Rule with that of another
national securities exchange.\86\ This proposed change does not amend
existing functionality as the sequence of reference prices to be used
to calculate the Trading Collar would generally remain the same. The
proposed rule change would also provide consistent rules across
exchanges on how the Trading Collar and like risk controls would
operate. The proposed rule change, therefore, removes impediments to
and perfects the mechanism of a free and open market and a national
market system.
---------------------------------------------------------------------------
\86\ See IEX Rule 11.190(f)(1)(A).
---------------------------------------------------------------------------
The Exchange believes its proposal to amend Exchange Rule
2618(b)(1)(B) to update the current hierarchy to add an additional data
point that may be used as a reference price for Trading Collars removes
impediments to and perfects the mechanism of a free and open market. To
account for the addition of the Early and Late Trading Sessions, the
Exchange proposes to also use the last trade price for the security on
trade date that occurred outside of Regular Trading Hours on trade date
as the Trading Collar Reference Price in the scenario where it was the
most current price as compared to the consolidated last sale price
disseminated during Regular Trading Hours on trade date and the prior
day's Official Closing Price. This proposed change removes impediments
to and perfects the mechanism of a free and open market by providing
the Exchange with a more recent reference price to use for Trading
Collars outside of Regular Trading Hours, where reference prices may be
more stale using the two data points outlined in current Exchange Rule
2618(b)(1)(B). This proposed change will also align the Exchange's Rule
with that of another national securities exchange \87\ and, therefore,
avoid potential investor confusion regarding how the Trading Collar and
like risk controls would be calculated.
---------------------------------------------------------------------------
\87\ See IEX Rule 11.190(f)(1)(A).
---------------------------------------------------------------------------
The Exchange also believes its proposal to make a related change to
Exchange Rule 2618(b)(1)(A) regarding when the Trading Collar would not
be applied perfects the mechanism of a free and open market and a
national market system because it would ensure that the Trading Collar
is not applied where the applicable Trading Collar Reference Price is
unavailable as set forth under amended Exchange Rule 2618(b)(1)(B)
described above. As amended, both Exchange Rules 2618(b)(1)(A) and (B)
would be consistent and not apply the Trading Collar where there is not
only no Official Closing Price or consolidated last sale price, but no
last trade price for the security on trade date that occurred outside
of Regular Trading Hours on trade date following the conclusion of a
regulatory halt on that trading day. In such cases, there would be no
reference price to use to calculate the Trading Collar and, therefore,
the Trading Collar should not be applied. Again, each of the above
changes are based on the rules of another national securities
exchange.\88\
---------------------------------------------------------------------------
\88\ See id.
---------------------------------------------------------------------------
The Exchange believes its proposal to provide an Extended Hours
Multiplier for the Trading Collar Reference Price calculation to be
used during the proposed Early and Late Trading Sessions also removes
impediments to and perfects the mechanism of a free and open market,
and promotes just and equitable principles of trade because it provides
appropriate risk setting parameters to be applied outside of Regular
Trading Hours under Exchange Rule 2618(b)(1)(E). Today, Exchange Rule
2618(b)(1)(E) provides that the specified dollar values are posted to
the Exchange's website and the Exchange announces in advance any
changes to the dollar value via a Regulatory Circular. Similarly,
amended Exchange Rule 2618(b)(1)(E) would also provide that the amount
of the Extended Hours Multiplier would be posted to the Exchange's
website and the Exchange will likewise announce in advance any changes
to the Extended Hours Multiplier via a Regulatory Circular. Doing so
enables the Exchange to better tailor its Trading Collar to reflect the
trading conditions that are in place outside or Regular Trading Hours
and provide necessary protections to Equity Members without
unnecessarily preventing an otherwise acceptable execution.
Furthermore, as discussed above, Exchange Rule 2618(b)(1)(F) provides
Equity Members the ability to override the Exchange's default behavior
and provides that Equity Members may select a dollar value lower,
higher, or equal to the Exchange-specified percentages and dollar value
on an order-by-order basis. Therefore, Equity Members would have the
ability to tailor the Trading Collar to consider the Extended Hours
Multiplier in line with their risk appetite during the Early and Late
Trading Sessions.
The Exchange notes that applying a multiplier to a risk protection
outside of Regular Trading Hours is not unique and currently in place
on at least one other national securities exchange.\89\ Therefore, like
the above changes, this
[[Page 84421]]
proposed change will also align the Exchange's Rule with that of
another national securities exchange, and therefore, avoid potential
investor confusion regarding how the Trading Collar and like risk
controls would be calculated outside of Regular Trading Hours.
---------------------------------------------------------------------------
\89\ The proposed Extended Hours Multiplier is based on the
similar functionality offered by NYSE Arca utilized outside of
Regular Trading Hours. See NYSE Pillar Risk Controls Manual
(document version 4.0), Section 5.5, available at <a href="https://www.nyse.com/publicdocs/nyse/NYSE_Pillar_Risk_Controls.pdf">https://www.nyse.com/publicdocs/nyse/NYSE_Pillar_Risk_Controls.pdf</a> (``Arca
Risk Controls Manual'') (Early/Late Trading Multiplier (optional;
Equities Markets)--may be configured to apply a double-wide price
check to orders that first become eligible to trade in the Early or
Late Trading Sessions (calculated as Price Protection Limit x Early/
Late Trading Multiplier)).
---------------------------------------------------------------------------
The Exchange believes that the proposed Extended Hours Multiplier
to be used during Early and Late Trading Sessions for Trading Collars
is designed to protect investors and the public interest because it is
an additional risk setting parameter and form of risk mitigation that
can aid Equity Members in minimizing their financial exposure and
reduce the potential for disruptive, market-wide events during
irregular trading hours. In turn, this enhances the integrity of
trading on the securities markets during the Early and Late Trading
Sessions and helps to assure the stability of the financial system.
Limit Order Price Protection
The Exchange's proposal to amend Exchange Rule 2614(a)(1)(ix)(A) is
also designed to protect investors and the public interest because it
would align the Exchange's Rule with that of another national
securities exchange \90\ and is consistent with the same change
proposed above for the Exchange's Trading Collar risk protection.
---------------------------------------------------------------------------
\90\ The proposed Extended Hours Multiplier is based on the
similar functionality offered by NYSE Arca utilized outside of
Regular Trading Hours. See NYSE Pillar Risk Controls Manual
(document version 4.0), Section 5.5, available at <a href="https://www.nyse.com/publicdocs/nyse/NYSE_Pillar_Risk_Controls.pdf">https://www.nyse.com/publicdocs/nyse/NYSE_Pillar_Risk_Controls.pdf</a> (``Arca
Risk Controls Manual'') (Early/Late Trading Multiplier (optional;
Equities Markets)--may be configured to apply a double-wide price
check to orders that first become eligible to trade in the Early or
Late Trading Sessions (calculated as Price Protection Limit x Early/
Late Trading Multiplier)).
---------------------------------------------------------------------------
The Exchange believes its proposal to amend Exchange Rule
2614(a)(1)(ix)(A) to update the current hierarchy and to add an
additional data point that may be used as a reference price for Limit
Order Price Protection removes impediments to and perfects the
mechanism of a free and open market. Each of these proposed changes are
based on the rules of another national securities exchange \91\ and
other than using the PBBO, are designed to align the waterfall of
reference prices with the changes proposed herein to the Trading Collar
risk protection under Exchange Rule 2618(b)(1)(B), described above.
---------------------------------------------------------------------------
\91\ See IEX Rule 11.190(f)(1)(A).
---------------------------------------------------------------------------
The Exchange would continue to reject a Limit Order to buy (sell)
that is priced at or above (below) the greater of a specified dollar
and percentage away from the PBO for Limit Orders to buy, the PBB for
Limit Orders to sell. To account for the addition of the Early and Late
Trading Sessions, the Exchange proposes to then use as the Limit Order
Price Protection Reference Price the most current of the: (i)
consolidated last sale trade price for the security disseminated during
Regular Trading Hours on trade date; (ii) the last trade price for the
security that occurred outside of Regular Trading Hours on trade date;
or (iii) the prior day's Official Closing Price. The proposed reference
price waterfall would ensure that the Exchange uses the most recent
reference price that most accurately reflects the security's current
trading behavior. Without this ability, the Exchange may use a stale
reference price and possibly not reflective of the security's current
trading behavior. The proposed change to Exchange Rule
2614(a)(1)(ix)(A)2. removes impediments to and perfects the mechanism
of a free and open market by providing the Exchange with a more recent
reference price to use for Limit Order Price Protection outside of
Regular Trading Hours, where reference prices may be more stale using
the two data points outlined in current Exchange Rule
2614(a)(1)(ix)(A). This proposed change will also align the Exchange's
Rule with that of another national securities exchange \92\ and,
therefore, help mitigate potential investor confusion regarding how the
Limit Order Price Protection and like risk controls would be calculated
in light of the proposed addition of the Early and Late Trading
Sessions. Unlike on other exchanges who do not apply Limit Order Price
Protection when certain reference prices are unavailable and allow
trades to occur at prices that would otherwise been prevented,\93\ the
Exchange's proposal would provide added reasonable protections to
Equity Members when trading outside of Regular Trading Hours, which
perfects the mechanism of a free and open market.
---------------------------------------------------------------------------
\92\ See IEX Rule 11.190(f)(1)(A).
\93\ See NYSE Arca Rule 7.31-E(a)(2)(B)(ii) (stating that
``[d]uring the Early and Late Trading Sessions, Limit Order Price
Protection will not be applied to an incoming Limit Order to buy
(sell) if there is no NBO (NBB)'').
---------------------------------------------------------------------------
This proposed change also aligns the waterfall of reference prices
with the changes described above for the Trading Collar risk protection
under Exchange Rule 2618(b)(1)(B). The proposed changes also provide
clarity that the Exchange would use a reference price that is most
current and reflects the trading behavior of the security at the time
Limit Order Price Protection is to be applied and is consistent with
the same change proposed above for the Exchange's Trading Collar risk
protection.
The Exchange believes its proposal to establish the LOPP Extended
Hours Multiplier during the proposed Early and Late Trading Sessions
removes impediments to and perfects the mechanism of a free and open
market, and promotes just and equitable principles of trade because it
provides additional risk setting parameters during irregular trading
hours. The Exchange notes that Equity Members may select a LOPP
Extended Hours Multiplier that is higher than, equal to, or lower than
the default LOPP Extended Hours Multiplier established by the Exchange.
The Exchange believes its proposal is designed to protect investors and
the public interest because the proposed additional risk setting
parameters are forms of risk mitigation that can aid Equity Members in
minimizing their financial exposure and reduce the potential for
disruptive, market-wide events outside of Regular Trading Hours. In
turn, this enhances the integrity of trading on the securities markets
during the Early and Late Trading Sessions and help to assure the
stability of the financial system. This functionality is also available
on at least one other national securities exchange.\94\
---------------------------------------------------------------------------
\94\ The proposed LOPP Extended Hours Multiplier is based on the
similar functionality offered by NYSE Arca during its early and late
trading sessions. See NYSE Pillar Risk Controls Manual (document
version 4.0), Section 5.5, available at <a href="https://www.nyse.com/publicdocs/nyse/NYSE_Pillar_Risk_Controls.pdf">https://www.nyse.com/publicdocs/nyse/NYSE_Pillar_Risk_Controls.pdf</a> (``Arca Risk Controls
Manual'') (Early/Late Trading Multiplier (optional; Equities
Markets)--may be configured to apply a double-wide price check to
orders that first become eligible to trade in the Early or Late
Trading Sessions (calculated as Price Protection Limit x Early/Late
Trading Multiplier)).
---------------------------------------------------------------------------
As described above, Exchange Rule 2614(a)(1)(ix)(B) would provide
that the default amount of the LOPP Extended Hours Multiplier will be
posted to the Exchange's website and the Exchange will announce in
advance any changes to the LOPP Extended Hours Multiplier via a
Regulatory Circular, which is the case today for the default specified
dollar and percentage established by the Exchange. The Exchange
believes its proposal to allow Equity Members to select a LOPP Extended
Hours Multiplier that is higher than, equal to, or lower than the
default LOPP Extended Hours Multiplier established by the Exchange
promotes just and equitable principles of trade because it would
provide Equity Members with additional flexibility in constructing a
Limit Order Price Protection range (tighter or wider) that better suits
their risk appetite when trading outside of
[[Page 84422]]
Regular Trading Hours. Importantly, the proposed rule change would not
only allow Equity Members to select a LOPP Extended Hours Multiplier
more aggressive than the Exchange's defaults, but also more
conservative in cases where they seek to apply a tighter Limit Order
Price Protection thresholds in line with their risk appetite. The
ability to override the Exchange's LOPP Extended Hours Multiplier would
be completely voluntary and all orders would continue to be subject to
other risk protections provided by the Exchange. Market participants'
ability to adjust risk settings to a more restrictive range is not
unique and was recently proposed for Trading Collars in another
proposed rule change filed with the Commission that will be effective
shortly.\95\
---------------------------------------------------------------------------
\95\ See Securities Exchange Act Release No. 99954 (April 12,
2024), 89 FR 27824 (April 18, 2024) (SR-PEARL-2024-17). See also
MIAX Pearl Equities Exchange Regulatory Circular 2024-10, Changes to
Certain Risk Controls on MIAX Pearl Equities, dated July 1, 2024,
available at <a href="https://www.miaxglobal.com/sites/default/files/circular-files/MIAX_Pearl_Equities_RC_2024_10.pdf">https://www.miaxglobal.com/sites/default/files/circular-files/MIAX_Pearl_Equities_RC_2024_10.pdf</a>.
---------------------------------------------------------------------------
Early/Late Trading Session Pre-Order Risk Control
The Exchange believes its proposal to amend Exchange Rule
2618(a)(1)(C) to include pre-market and post-market in the list of risk
controls for certain orders is designed to protect investors and the
public interest. With the proposed change, Equity Members would be able
to instruct the Exchange to block any orders from it entered during the
proposed Early and Late Trading Sessions. The Exchange believes this
aspect of the proposal provides a risk mitigation tool that can aid
Equity Members in minimizing their financial exposure and ensure that
an order that they may have inadvertently entered during the Early or
Late Trading Session would be rejected by the Exchange. Use of this
pre-order risk control would be completely voluntary and is based on
the rules of another national securities exchange.\96\
---------------------------------------------------------------------------
\96\ The inclusion of pre-market and post-market in the list of
risk control settings is based on EDGX Rule 11.10(c).
---------------------------------------------------------------------------
Exchange Rule 2621, Clearly Erroneous Executions
The Exchange believes its proposed changes to Exchange Rule 2621
promote just and equitable principles of trade removes impediments to
and perfects the mechanism of a free and open market and a national
market system because they would amend Exchange Rule 2621 to account
for the Early and Late Trading Sessions by adopting provisions that are
substantially identical with those of other equity exchanges, all of
which adopted and enforce identical rules regarding clearly erroneous
executions.\97\ Doing so would also protects investors and the public
interest by setting forth in the Exchange's rules the Clearly Erroneous
Execution the standards for how potentially erroneous executions would
be handled outside of Regular Trading Hours when LULD price protections
are not in effect.
---------------------------------------------------------------------------
\97\ See, e.g., Cboe BZX Rule 11.17 and MEMX Rule 11.15.
---------------------------------------------------------------------------
Exchange Rule 2900, Unlisted Trading Privileges
The Exchange believes its proposed changes to Exchange Rule 2900
promote just and equitable principles of trade and removes impediments
to and perfects the mechanism of a free and open market and a national
market system because they would codify in its rules provisions that
provide for the Exchange including a description of the risk of trading
UTP Derivative Securities outside of Regular Trading Hours in its
information circulars, and describe when the Exchange would halt
trading in a UTP Derivative Security that is consistent with industry
practice. The proposed changes would also ensure the Exchange's rules
are identical to and aligned with other national securities
exchanges.\98\
---------------------------------------------------------------------------
\98\ See, e.g., Cboe EDGX Rule 14.1(c)(1). See also, e.g., Cboe
EDGX Rule 14.1, Interpretations and Policies .01(a) and (b).
---------------------------------------------------------------------------
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 its proposal will not impose any burden on
inter-market competition, but rather foster it by providing an
additional pool of liquidity outside of Regular Trading Hours for
investors and other market participant to access. The Exchange believes
that the proposed rule change will benefit investors and the national
market system by increasing competition for order flow and executions
during outside of Regular Trading Hours, thereby spurring product
enhancements and potentially lowering prices. The Exchange believes the
proposed Early and Late Trading Sessions would enhance competition by
enabling the Exchange to directly compete for order flow and executions
outside of Regular Trading Hours with other national securities
exchanges that provide extended hours trading. In addition, the
proposed functionality during the Early and Late Trading Session, such
the as the proposed TIF instructions, will enhance competition by
enabling the Exchange to offer functionality to that of other national
securities exchanges. The fact that the extending of the proposed Early
Trading Session and related functionality are themselves a response to
the competition provided by other markets and is evidence of the
proposals pro-competitive nature.
The Exchange believes its proposal will not impose any burden on
intra-market competition because all Equity Members would be able to
trade during the Early and Late Trading Session and may choose to do so
based on their own business decisions and risk appetite. All of the
proposed functionality would be available to all Equity Members who
choose to participate in the proposed Early and Late Trading Sessions.
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 from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to Section 19(b)(3)(A) of the Act and Rule
19b-4(f)(6) thereunder.\99\
---------------------------------------------------------------------------
\99\ 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.
---------------------------------------------------------------------------
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.
[[Page 84423]]
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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#2250574e470f414d4f4f474c5651625147410c454d54"><span class="__cf_email__" data-cfemail="89fbfce5eca4eae6e4e4ece7fdfac9faeceaa7eee6ff">[email protected]</span></a>. Please include
file number SR-PEARL-2024-47 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-2024-47. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-PEARL-2024-47 and should be
submitted on or before November 12, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\100\
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\100\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-24363 Filed 10-21-24; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on October 22, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.