Notice2025-23809
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing of a Proposed Rule Change To Allow Post-Only Orders in Sub-Dollar Securities
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
December 29, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 245 (Monday, December 29, 2025)</title>
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[Federal Register Volume 90, Number 245 (Monday, December 29, 2025)]
[Notices]
[Pages 60807-60819]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-23809]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104462; File No. SR-PEARL-2025-50]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
of a Proposed Rule Change To Allow Post-Only Orders in Sub-Dollar
Securities
December 19, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on December 10, 2025, MIAX PEARL, LLC (``MIAX Pearl'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend subparagraph (c)(2) of Exchange Rule
2614, Orders and Order Instructions, to allow the Post Only order
instruction to be applied to orders in securities priced below $1.00 on
its equity trading platform (referred to herein as ``MIAX Pearl
Equities'').\3\ The Exchange also proposes to adopt Exchange Rule
2614(c)(2)(i)(A) to reprice non-displayed orders in securities priced
below $1.00 to the locking price to help reduce the occurrence of an
internally crossed book. Additionally, the Exchange proposes to make a
related change to subparagraph (a)(4)(iv) of Exchange Rule 2617, Order
Execution and Routing, to also apply to orders in securities priced
below $1.00 with a Post Only order instruction to help alleviate an
internally locked or crossed book in the rare event they do occur.
These proposed changes are designed to allow the Exchange to better
compete with other exchanges with like functionality for order flow in
securities trading below $1.00 while also seeking to attract more
liquidity in securities that trade below $1.00 onto an exchange, where
those orders may benefit from price discovery and improved market
transparency.
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\3\ All references to the ``Exchange'' in this filing refer to
MIAX Pearl Equities. Any references to the options trading facility
of MIAX PEARL, LLC will specifically be referred to as ``MIAX Pearl
Options.''
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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.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, MIAX Pearl 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. MIAX Pearl has prepared summaries, set forth in sections
A, B, and C below, of the
[[Page 60808]]
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
Currently, with the exception of the Post Only instruction
(described below), all order types and order instructions are available
to orders in all securities regardless of price. Only the Post Only
instruction is currently limited to securities priced at or above
$1.00. The Exchange proposes to remove this exception and amend
subparagraph (c)(2) of Exchange Rule 2614, Orders and Order
Instructions, to allow the Post Only order instruction to be applied to
orders in securities priced below $1.00 on MIAX Pearl Equities. As
explained below, this portion of the proposal is currently available on
other equities exchanges. This proposal is, therefore, designed to
increase competition among exchanges for order flow in securities
priced below $1.00 and to make all order types and order instructions
available equally to orders in all securities regardless of the order's
price.
This proposal is not intended to encourage an increase in the
overall volume or order flow in sub-dollar securities. Trading in sub-
dollar securities both on- and off-exchange has grown significantly
since the Exchange adopted Exchange Rule 2614(c)(2) and launched
operations in September 2020. For example, average daily sub-dollar
trading volume comprised approximately 9% of the overall daily volume
in September 2025. In fact, the Exchange found that overall volume in
sub-dollar securities has been slowly decreasing since June 2025 from
approximately 14% to 9% in September 2025. Meanwhile, off-exchange
market share in sub-dollar securities remained high averaging over
60%.\4\
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\4\ See MEMX LLC's December 2024 Exchange Highlights, dated
January 10, 2025, available at <a href="https://memx.com/exchange-highlights-key-trading-trends-that-defined-another-banner-year-in-the-markets/">https://memx.com/exchange-highlights-key-trading-trends-that-defined-another-banner-year-in-the-markets/</a>.
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There are numerous other factors that contribute to sub-dollar
trading volumes, the majority of which occurs off-exchange.\5\ The
Exchange believes this proposal will increase exchange competition by
allowing the Exchange to provide functionality that would allow it to
attract a greater slice of the current volume in sub-dollar securities
by encouraging market participants to send their sub-dollar trading
volume to an exchange-level pool of liquidity, rather than the opaque
off-exchange trading venues (i.e., dark pools), which are less
transparent. In addition, various Equity Members \6\ have recently
requested the Exchange modify its functionality to allow the Post Only
instruction to be available for orders in securities priced below
$1.00.
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\5\ The increase in sub-dollar trading volume has not been due
to any new or novel exchange order types, but rather increased
retail participation, especially since the Covid-19 pandemic and
social media-fueled hype; rise of off-exchange trading, including
dark pools; reverse stock splits; and high market volatility causing
prices to fall and making them prone to trading below $1.00. See,
e.g., U.S Equities Volume Drivers: Retail Trading in Subdollar
Securities, dated November 24, 2024, available at <a href="https://www.cboe.com/insights/posts/u-s-equities-volume-drivers-retail-trading-in-subdollar-securities/">https://www.cboe.com/insights/posts/u-s-equities-volume-drivers-retail-trading-in-subdollar-securities/</a>; and Off Exchange Trading Increases
Across all Types of Stocks, dated February 13, 2025, available at
<a href="https://www.nasdaq.com/articles/exchange-trading-increases-across-all-types-stocks#">https://www.nasdaq.com/articles/exchange-trading-increases-across-all-types-stocks#</a>:~:text=The%20rise%20is%20largely%20driven,ATS%20trades%20prin
ted%20off%2Dexchange.
\6\ The term ``Equity Member'' is a Member authorized by the
Exchange to transact business on MIAX Pearl Equities. See Exchange
Rule 1901.
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The Exchange notes that differences exist between the market
structures for securities priced at or above $1.00 and those below
$1.00 that impact how the Post Only order instruction may function.
This includes different fee levels and minimum price increments which
allow for both an internally locked or crossed market to be caused by
an order with a Post Only instruction priced below $1.00. Meanwhile,
these different fee levels and minimum price increments allow for only
an internally locked market to be caused by an order with a Post Only
instruction priced at or above $1.00.
The Exchange reviewed its data and found that internally locked and
crossed markets are rare events and should continue to be rare under
this proposal. Based on the Exchange's data for securities priced at or
above $1.00, an internally non-displayed locked or crossed market
caused by an order that includes a Minimum Execution Quantity (``MEQ'')
instruction (described below) or an internally non-displayed locked
market caused by an order with a Post Only instruction (also described
below) is extremely rare.\7\ For securities priced at or above $1.00,
the Exchange reviewed a sampling of data that included high volume
securities with increased usage of the Post Only and MEQ instructions
on active trading days. The selected securities also experienced an
increased usage of the MEQ and/or Post Only instructions. Based on this
sampling, the Exchange experienced an internally locked book for the
selected securities priced at or above $1.00 in approximately 1.00% of
all order book updates and an internally crossed book in approximately
0.10% of all order book updates.
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\7\ The Exchange notes that it reviewed these two order
instructions because they are the only instructions available on the
Exchange that may cause an internally non-displayed locked or
crossed book.
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The Exchange conducted a similar review for securities priced below
$1.00 but focused on a sampling of data that included high volume sub-
dollar securities on active trading days that experienced an increased
usage of the MEQ instruction. Unlike the above review of securities
priced at or above $1.00, the Exchange could not review securities
priced below $1.00 with a Post Only instruction because the Exchange
does not currently offer such functionality and proposes to do so
herein. Based on this review, the Exchange found that an internally
non-displayed locked or crossed book in sub-dollar securities caused by
an order that includes an MEQ instruction did not occur during a
sampling of active trading days in any of the high volume sub-dollar
securities the Exchange observed.\8\ Based on the Exchange's expertise
and experience, the differing uses of the Post Only instruction and MEQ
instruction, as well as other external factors, the Exchange does not
anticipate that expanding the Post Only instruction to sub-dollar
securities would cause a disproportionate increase in the use of the
Post Only instruction as compared to the MEQ instruction with orders in
securities priced below $1.00 that could result in anything other than,
at most, a potential de minimis increase of internally non-displayed
locked or crossed markets on the Exchange. Based on the Exchange's
observations and experience, in the rare event they do occur, an
internally non-displayed locked or crossed book is typically alleviated
almost immediately or within an extremely short period of time of their
initial occurrence.
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\8\ The Exchange will not file a proposed fee change with the
Commission to amend its fee structure for securities priced below
$1.00 to levels that may cause more than a de minimis increase in
the occurrence of an internally non-displayed locked or crossed
market on the Exchange.
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Nonetheless, the Exchange has mechanisms to both avoid an
internally crossed market and to alleviate an internally locked or
crossed market, in the rare event they occur. First, the Exchange
proposes to adopt Exchange Rule 2614(c)(2)(i)(A) to reprice non-
displayed orders in securities priced below $1.00 to the locking price
of the displayed order resting on the MIAX Pearl Equities Book to help
reduce the occurrence of an internally crossed
[[Page 60809]]
book.\9\ Proposed Exchange Rule 2614(c)(2)(i)(A) is based on Exchange
Rule 2617(a)(4)(iv), which describes similar re-pricing of orders with
an MEQ instruction that cross a contra-side displayed order.
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\9\ The Exchange notes that this functionality would also apply
to orders in securities priced at or above $1.00 in the unlikely
event that an incoming order in a security priced at or above $1.00
with a Post Only instruction would post to the MIAX Pearl Equities
Book and result in an internally non-displayed crossed market.
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In addition, should an internally locked or crossed market occur,
the Exchange has a current mechanism under Exchange Rule 2617(a)(4)(iv)
to alleviate those occurrences while honoring intra-market price
priority. Specifically, Exchange Rule 2617(a)(4)(iv) provides that, for
securities priced equal to or greater than $1.00, in the case where a
non-displayed order to sell (buy) is posted on the MIAX Pearl Equities
Book at a price that locks or crosses a displayed order to buy (sell),
an Aggressing Order \10\ or an incoming order to buy (sell) that is a
Market Order \11\ or a Limit Order \12\ priced more aggressively than
the order to buy (sell) displayed on the MIAX Pearl Equities Book will
execute against the non-displayed order to sell (buy) resting on the
MIAX Pearl Equities Book at one-half minimum price variation greater
(less) than the price of the resting displayed order to buy (sell).
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\10\ The term ``Aggressing Order'' is an order to buy (sell)
that is or becomes marketable against sell (buy) interest on the
MIAX Pearl Equities Book. A resting order may become an Aggressing
Order if its working price changes, if the PBBO or NBBO is updated,
because of changes to other orders on the MIAX Pearl Equities Book,
or when processing inbound messages. See Exchange Rule 1901.
\11\ An order to buy (sell) a stated amount of a security that
is to be executed at the PBO (PBB) or better. A Market Order shall
not trade through a Protected Quotation. See Exchange Rule
2614(a)(2).
\12\ An order to buy or sell a stated amount of a security at a
specified price or better. A ``marketable'' Limit Order to buy
(sell) will trade with all orders to sell (buy) priced at or below
(above) the PBO (PBB) for the security. Once no longer marketable,
the Limit Order will be ranked on the MIAX Pearl Equities Book
pursuant to Exchange Rule 2616. An incoming Limit Order may be
designated as ISO. See Exchange Rule 2614(a)(1).
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The Exchange proposes to expand this mechanism under Exchange Rule
2617(a)(4)(iv) to securities priced below $1.00, which would allow for
consistent treatment of all securities during an internally locked or
crossed market, regardless of price. Expanding the re-pricing mechanism
described in Exchange Rule 2617(a)(4)(iv) would allow the Exchange to
treat orders in securities priced below $1.00 in the same manner as
orders in securities priced at or above $1.00. This change would also
ensure that intra-market price priority continues to be honored by
treating all orders with a Post Only instruction in a similar manner
regardless of price. Therefore, this portion of the proposal would
facilitate transactions in securities as well as remove impediments to
and perfect the mechanism of a free and open market and a national
market system in accordance with the Act. This functionality has also
been considered by the Commission numerous times and does not raise any
new or novel issues.\13\
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\13\ See Securities Exchange Act Release Nos. 89563 (August 14,
2020), 85 FR 51510 (August 20, 2020) (SR-PEARL-2020-03) (Order
Approving a Proposed Rule Change, as Modified by Amendment No. 1, to
Establish Rules Governing the Trading of Equity Securities); 88806
(May 4, 2020), 85 FR 27451 (May 8, 2020) (File No. 10-237) (In the
Matter of the Application of MEMX LLC for Registration as a National
Securities Exchange; Findings, Opinion, and Order of the
Commission); 102650 (March 13, 2025), 90 FR 12590 (March 18, 2025)
(File No. 10-247) (In the Matter of the Application of MX2 LLC for
Registration as a National Securities Exchange; Findings, Opinion,
and Order of the Commission). See also LTSE Rule 11.230(a)(4)(D);
Cboe BZX Rule 11.13(a)(4)(D); Cboe EDGX Rule 11.10(a)(4)(D).
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Each of these changes proposed herein are described in more detail
below.
Expanding Post Only Instruction to Sub-Dollar Securities
Exchange Rule 2614(c)(2) describes the Post Only order instruction
and provides that an order designated as Post Only is a non-routable
order that is ranked and executed on the MIAX Pearl Equities Book
pursuant to Exchange Rule 2616 and Exchange Rule 2617(a)(4). Exchange
Rule 2614(c)(2) further 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; \14\ 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 paid.\15\ An order designated as
Post Only is subject to the price sliding processes set forth in
Exchange Rule 2614(g), unless otherwise instructed by the User \16\
(i.e., the User elects that the order be cancelled rather than subject
to a price sliding process). The Post Only instruction is available for
Limit Orders \17\ and Pegged Orders only.\18\
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\14\ The Exchange notes that an order in a security priced below
$1.00 that includes the Post Only instruction will not remove
liquidity when there is no marketable contra-side liquidity resting
on the MIAX Pearl Equities Book, either due to the limit price of
the resting and incoming orders or there being no contra-side
liquidity available.
\15\ 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. The
Exchange provides for a maker/taker fee structure. For displayed
orders in securities priced at or above $1.00, the highest possible
fee is currently $0.00300 for removing liquidity and the highest
possible rebate is currently ($0.0037) for providing liquidity,
requiring at least $0.0067 of price improvement. See MIAX Pearl
Equities Fee Schedule, Section 1)a). For non-displayed orders in
securities priced at or above $1.00, the highest possible fee is
currently $0.00300 for removing liquidity and the highest possible
rebate is currently ($0.00200) for providing liquidity, requiring at
least $0.005 of price improvement. Id.
\16\ 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.
\17\ See Exchange Rule 2614(a)(1)(iv).
\18\ See Exchange Rule 2614(a)(3)(v).
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The Exchange now proposes to provide the Post Only instruction to
orders in securities priced below $1.00. To effectuate this change, the
Exchange proposes to delete subparagraph (2)(i)(A) of Exchange Rule
2614(c) that limits the availability of the Post Only instruction to
securities priced at or above $1.00. As a result, Exchange Rule
2614(c)(2) would provide that an order designated as Post Only will
only remove liquidity from the MIAX Pearl Equities Book when 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 paid.\19\ The Exchange believes this
proposal is reasonable because it is competitive in nature, designed to
attract additional liquidity and quoting on the Exchange, and provides
Equity Members with consistent order handling of all their orders,
regardless of price.
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\19\ See supra note 15. The Exchange provides for a maker/taker
fee structure. For both displayed and non-displayed orders in
securities priced below $1.00, the highest possible fee is currently
0.20% of the trade's dollar value for removing liquidity and the
highest possible rebate is currently (0.15%) of the trade's dollar
value for providing liquidity, requiring at least 0.35% of the
trade's value as price improvement. See MIAX Pearl Equities Fee
Schedule, Section 1)a).
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In sum, the Post Only instruction provides Equity Members with the
ability to increase the likelihood that their order will add liquidity
to the order book and will not remove liquidity unless certain price
improvement requirements are satisfied. This effectively guarantees
that the order will only trade at a price better than its limit price
when removing liquidity, while potentially receiving rebates for adding
liquidity to the
[[Page 60810]]
market. This is designed to incentivize market participants to post
aggressively priced liquidity and improve price discovery. By adding
orders to the order book, orders with a Post Only instruction
contribute to improved liquidity, market depth and, if displayed, price
transparency.
The Exchange believes this proposed rule change to expand Post Only
functionality to orders in sub-dollar securities would provide an
additional exchange-level pool of liquidity for market participants
that utilize Post Only functionality for sub-dollar securities. As
such, the proposed rule change may encourage market participants to
send additional sub-dollar trading volume to an exchange, rather than
off-exchange marketplaces (i.e., dark pools), which provide less
transparent pricing. In general, the Post Only instruction allows for
an order to be posted to the MIAX Pearl Equities Book at its limit
price and, therefore, serves to improve on-exchange liquidity, which
benefits all market participants by providing more trading
opportunities. Orders with a Post Only instruction entered onto an
exchange may also serve to improve price transparency if the entering
firm elected such order to be displayed and made available via an
exchange's data feeds and disseminated by the applicable Securities
Information Processor (``SIP''). This proposal serves to benefit market
participants by expanding existing functionality available to orders in
securities priced at or above $1.00 to orders in securities priced
below $1.00, with no functional difference.
The Exchange initially adopted its Post Only order instruction
behavior as part of its broader proposal to adopt rules governing
trading of equity securities, in which it sought to operate its equity
market in a manner similar to that of other equity exchanges that it
based its rules and functionality upon several years ago. This included
adopting functionality that limited the functionality of the Post Only
instruction to orders in securities priced at or above $1.00. The
Exchange did not adopt this limitation due to fear of some potential
nefarious activity in sub-dollar securities trading, but rather due to
lack of interest by market participants in such functionality at the
time MIAX Pearl Equities was being developed and had filed its initial
rule set with the Commission for approval.
Applying Post Only treatment to sub-dollar securities is also not
unique. Today, a number of other equities exchanges allow securities
priced below $1.00 to be treated as ``post only.'' For example, The
Nasdaq Stock Market LLC (``Nasdaq'') provides a Post Only Order, which
offers market participants the ability to submit an order that is not
eligible for routing to away markets and posts to the Nasdaq book at
prices below $1.00.\20\ Specifically, Nasdaq's Post Only Order acts
like the Exchange's Post Only order instruction in securities priced at
or above $1.00 and provides, in sum, that a ``Post-Only Order will be
posted, ranked, and displayed at its limit price; provided, however,
the Post-Only Order will execute if it is priced at $1.00 or more and
the value of price improvement associated with executing against an
Order on the Nasdaq Book equals or exceeds $0.01 per share.'' \21\
Nasdaq applies the same behavior to Post-Only Orders in securities
priced below $1.00 and provides that the Post-Only Order would execute
if ``the value of price improvement associated with executing against
an Order on the Nasdaq Book (as measured against the original limit
price of the Order) equals or exceeds the sum of fees charged for such
execution and the value of any rebate that would be provided if the
Order posted to the Nasdaq Book and subsequently provided
liquidity''.\22\ This is identical to the functionality that the
Exchange proposes herein and is also available on Nasdaq's affiliate
exchanges that trade equity securities.\23\ The New York Stock Exchange
LLC (``NYSE'') and its affiliate exchanges also provide similar ``post
only'' functionality in the form of Add Liquidity Only (``ALO'')
orders, which is also available to securities priced below $1.00.\24\
This proposal would expand the population of exchanges that offer
``post only'' treatment for securities priced below $1.00 and would not
only allow the Exchange to compete with exchanges that currently offer
such functionality to sub-dollar securities, but also enable the
Exchange to provide an additional exchange-level pool of liquidity
where market participants may send such orders.
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\20\ See Nasdaq Equity 4, Rule 4702(b)(4) (``Post-Only Order'').
\21\ Id. See also supra note 15 for a description of the
Exchange's price improvement requirements for orders priced at or
above $1.00 with a Post Only instruction.
\22\ Nasdaq provides for Minimum Quantity Orders, which, like a
Post Only instruction, may result in an internally non-displayed
locked or crossed market, as discussed herein. See Nasdaq Equity 4,
Rule 4703(e) (``Minimum Quantity Order'').
\23\ See Nasdaq BX, Inc. Equity 4, Rule 4702(b)(4)(A) (``Post-
Only Order''). See also Nasdaq PHLX, Inc. Equity 4, Rule
3301A(b)(4)(A) (``Post-Only Order'').
\24\ See, e.g., NYSE Rule 7.31(e)(2).
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Expanding Existing Functionality To Avoid or Alleviate Internally
Locked or Crossed Markets to Securities Priced Below $1.00 With a Post
Only Instruction
As mentioned above, differences exist between the market structures
for securities priced at or above $1.00 and those below $1.00, such as
differing fee levels and minimum price increments. Due to these
differences, orders in securities priced at or above $1.00 that contain
a Post Only instruction do not result in an internally crossed market
because the minimum tick increments allows the order to receive the
required amount of price improvement to execute against a contra-side
order. On the contrary, the minimum price increments and different fee
levels for securities priced below $1.00 would not always ensure that
an order with a Post Only instruction would receive the necessary price
improvement to execute. As a result, unlike an order in a security
priced at or above $1.00, an order in a security priced below $1.00
with a Post Only instruction may post at a price that results in an
internally crossed market. According to the data discussed above, the
Exchange does not expect a material increase in internally locked and
crossed markets due to this proposal. However, should they occur, the
Exchange has mechanisms in place today to avoid or alleviate an
internally locked and crossed market that it proposes to expand to
locked or crossed markets that may result from an order priced below
$1.00 with a Post Only instruction.
First, the Exchange proposes to adopt Exchange Rule
2614(c)(2)(i)(A) to reprice non-displayed orders in securities priced
below $1.00 to the locking price of the displayed order to help reduce
the occurrence of an internally crossed book.\25\ As mentioned above,
proposed Exchange Rule 2614(c)(2)(i)(A) is based on Exchange Rule
2617(a)(4)(iv), which describes similar re-pricing of orders with an
MEQ instruction that cross a contra-side displayed order.
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\25\ The Exchange notes that this functionality would also apply
to orders in securities priced at or above $1.00 in the unlikely
event that an incoming order in a security priced at or above $1.00
with a Post Only instruction would post to the MIAX Pearl Equities
Book and result in an internally non-displayed crossed market.
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Second, the Exchange proposes to make a related change to Exchange
Rule 2617(a)(4)(iv) to treat securities priced below $1.00 in the same
manner as it currently treats securities priced at or above $1.00
during an internally locked or crossed market. Expanding Exchange Rule
2617(a)(4)(iv) as proposed herein
[[Page 60811]]
would allow the Exchange to treat orders in securities priced below
$1.00 with a Post Only order instruction the same as orders in
securities priced at or above $1.00 by allowing an execution at one-
half minimum price variation greater (less) than the price of the
resting displayed order to buy (sell) as set forth in the Rule.
Both of these proposals are an expansion of existing functionality
and Exchange Rules, and, therefore, do not raise any new or novel
issues. Each of these changes are described separately below.
Re-Pricing Non-Displayed Orders to the Locking Price To Decrease the
Occurrence of an Internally Crossed Market
As discussed above, if this proposal is approved, an order
designated as Post Only in a security priced below $1.00 may post to
the MIAX Pearl Equities Book at a price that results in an internally
crossed market.\26\ However, the Exchange will never post a displayed
or non-displayed order to the MIAX Pearl Equities Book at a price that
would cross a contra-side displayed order.
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\26\ One byproduct of the Post Only order instruction is that it
may result in the order for a security priced at or above $1.00
posting to the MIAX Pearl Equities Book at a price that results in
an internally locked market on the Exchange. The Exchange notes that
due to its fee structure, an incoming order in a security priced at
or above $1.00 designated as Post Only that crosses a contra-side
order resting on the MIAX Pearl Equities Book will execute upon
entry because it would receive the necessary amount of price
improvement in accordance with Exchange Rule 2614(c)(2). Therefore,
such orders will not post to the MIAX Pearl Equities Book and cause
an internally crossed market in securities priced at or above $1.00.
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In keeping with this principle, the Exchange proposes to reprice
non-displayed orders in securities priced below $1.00 in a similar
scenario to help reduce the occurrence of an internally crossed
book.\27\ As proposed, Exchange Rule 2614(c)(2)(i)(A) would describe
how a resting displayed order and an incoming non-displayed order
designated as Post Only would be re-priced. Specifically, Exchange Rule
2614(c)(2)(i)(A) would provide that a non-displayed order designated as
Post Only to buy (sell) that does not remove liquidity pursuant to
Exchange Rule 2614(c)(2)(i), and that incoming non-displayed order, if
posted at its limit price, would cross a displayed order to sell (buy)
resting on the MIAX Pearl Equities Book, the non-displayed order will
have a working price equal to the price of the displayed order to sell
(buy). Proposed Exchange Rule 2614(c)(2)(i)(A) would also describe how
a resting non-displayed order that would be crossed by an incoming
displayed order with a Post Only instruction would be re-priced to have
a working price equal to the locking price of the incoming displayed
order. Specifically, proposed Exchange Rule 2614(c)(2)(i)(A) would
provide that where a displayed order designated as Post Only to buy
(sell) does not remove liquidity pursuant to Exchange Rule
2614(c)(2)(i), and that displayed order, if posted at its limit price,
would cross a non-displayed order to sell (buy) resting on the MIAX
Pearl Equities Book, the non-displayed order will have a working price
equal to the price of the displayed order to sell (buy).
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\27\ The Exchange notes that this functionality would also apply
to orders in securities priced at or above $1.00 in the unlikely
event that an incoming order in a security priced at or above $1.00
with a Post Only instruction would post to the MIAX Pearl Equities
Book and result in an internally non-displayed crossed market.
---------------------------------------------------------------------------
The Exchange notes that this portion of the proposal is consistent
with how it currently re-prices orders with an MEQ instruction in the
same circumstances. Specifically, for orders with an MEQ instruction,
Exchange Rule 2614(c)(7)(B)(ii) provides that where there is
insufficient size to satisfy the minimum quantity condition of an
incoming order to buy (sell) and that incoming order, if posted at its
limit price, would cross a displayed order to sell (buy) resting on the
MIAX Pearl Equities Book, the order to buy (sell) with the MEQ
instruction will have a working price equal to the price of the
displayed order to sell (buy). The Exchange proposes to apply the same
behavior to other non-displayed orders as described herein.
Not only is proposed Exchange Rule 2614(c)(2)(i)(A) similar to how
the Exchange re-prices orders with an MEQ instruction under Exchange
Rule 2614(c)(7)(B)(ii), it is also similar to how the Exchange
currently reprices non-displayed orders that cross the Protected
Quotation of an external market.\28\ Both IEX and Nasdaq re-price non-
displayed orders to avoid an internally crossed market. In certain
circumstances, Nasdaq re-prices non-displayed orders to buy (sell) to
one minimum price increment below (above) the lowest (highest) price of
resting orders to avoid an internally crossed market.\29\ Likewise, IEX
re-prices non-displayed orders that include a limit price more
aggressive than the midpoint of the NBBO to the midpoint of the NBBO to
prevent such orders from being posted at a price that crossed their
midpoint of the NBBO.\30\
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\28\ See Exchange Rule 2614(g)(2).
\29\ See Nasdaq Rule 4703(e). For example, Nasdaq Rule 4703(e)
provides that if there was an order to buy at $11 with a minimum
quantity condition of 500 shares, and there were resting orders on
the Nasdaq Book to sell 200 shares at $10.99 and 300 shares at $11,
the order would be repriced to $10.98 and ranked at that price.
\30\ See IEX Rule 11.190(h)(2).
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The Exchange believes that this portion of the proposal is
consistent with the Act because it enables the Exchange to avoid an
internally crossed book. Proposed Exchange Rule 2614(c)(2)(i)(A) is
also not new or novel as it is based on existing functionality in place
on the Exchange and other equity exchanges to avoid internally crossed
markets. The Exchange also believes re-pricing a non-displayed order as
proposed herein is not unfairly discriminatory because it seeks to
avoid an abnormal market condition, i.e., an internally crossed book,
in favor of an order with Post Only instruction that could represent
more aggressively priced liquidity and price improvement opportunities
for other contra-side orders. Like the Exchange provides today for
orders with an MEQ instruction, Equity Members would be immediately
notified if their order is re-priced as proposed herein and may re-
enter such order with a new price if they choose to do so.
The following examples illustrate this proposed functionality.
Example No. 1
A non-displayed order with a Post Only instruction to buy at
$0.8009 (``Order 1'') is entered and there is a displayed order resting
on the MIAX Pearl Equities Book to sell at $0.8008 (``Order 2''). Order
1 does not remove liquidity upon entry pursuant to the Exchange's
economic best interest functionality under Exchange Rule 2614(c)(2)
because it would not receive the requisite price improvement. The price
of Order 1, if posted to the MIAX Pearl Equities Book, would cross the
price of Order 2. In such case, to avoid an internally crossed book,
the System will re-price Order 1 to $0.8008, the locking price of the
displayed order resting on the MIAX Pearl Equities Book.
Example No. 2
A non-displayed order to buy at $0.8009 is resting on the MIAX
Pearl Equities Book (``Order 1''). A displayed order with a Post Only
instruction to sell at $0.8008 is entered (``Order 2''). Order 2 does
not remove liquidity upon entry pursuant to the Exchange's economic
best interest functionality under Exchange Rule 2614(c)(2) because it
would not receive the requisite price improvement. The price of Order
2, if
[[Page 60812]]
posted to the MIAX Pearl Equities Book, would cross the price of Order
1. In such case, to avoid an internally crossed book, the System will
re-price Order 1 to $0.8008, the locking price of the incoming
displayed order.
Example No. 3
The following example describes when an incoming non-displayed
order with a Post Only instruction is re-priced to the locking price
pursuant to proposed Exchange Rule 2614(c)(2)(i)(A). Assume the PBBO is
$0.50 by $0.53. A non-displayed Limit Order to buy at $0.5003 is
entered and placed on the MIAX Pearl Equities Book (``Order 1''). Then,
a non-displayed Limit Order to sell with a Post Only instruction at
$0.5001 (``Order 2'') is entered. Order 2 cannot execute against Order
1 and remove liquidity upon entry pursuant to the Exchange's economic
best interest functionality under Exchange Rule 2614(c)(2) because it
would not receive the requisite price improvement.\31\ Therefore, Order
2 will be re-priced and posted to the MIAX Pearl Equities Book and be
non-displayed at $0.5003, the price of the displayed contra-side order,
Order 1, pursuant to proposed Exchange Rule 2614(c)(2)(1)(A) discussed
above, resulting in an internally non-displayed locked book. Then, a
displayed Limit Order to buy at $0.5004 (``Order 3'') is entered and
executes against Order 2 at $0.50035, providing one-half minimum price
increment of price improvement as compared to the price the order was
posted at of $0.5003. However, if Order 3 was an order to sell at
$0.5003, it would execute against Order 1 at $0.5003, Order 1's
displayed price. If Order 3 was an order to sell at $0.5004, it would
not execute because there is no marketable contra-side interest, and
would be posted to the MIAX Pearl Equities Book at $0.5004.
---------------------------------------------------------------------------
\31\ See supra note 15. Price improvement of $0.0004 does not
exceed the required 0.35% of the trade's value for there to be an
execution pursuant to the Exchange's economic best interest
functionality under Exchange Rule 2614(c)(2).
---------------------------------------------------------------------------
Expanding Current Internally Locked or Crossed Book Order Handling To
Alleviate an Internally Locked or Crossed Market to Securities Priced
Below $1.00
By way of background, Exchange Rules 2617(a)(4)(i) and (ii)
describe the process for matching incoming and Aggressing Orders for
execution against contra-side orders resting on the MIAX Pearl Equities
Book.\32\ An Aggressing Order and an incoming order to buy (sell) will
be automatically executed to the extent that it is priced at an amount
that equals or exceeds (is less than) any order to sell (buy) on the
MIAX Pearl Equities Book and is executable. Such order to buy (sell)
will be matched for execution against sell (buy) orders resting on the
MIAX Pearl Equities Book according to the price-time priority ranking
of the resting orders.
---------------------------------------------------------------------------
\32\ Exchange Rules 2617(a)(4)(i)-(ii) are based on NYSE Rule
7.37(a), Cboe BZX and Cboe BYX Rules 11.13(a)(4)(A)-(B), and Cboe
EDGA and Cboe EDGX Rules 11.10(a)(4)(A)-(B).
---------------------------------------------------------------------------
Exchange Rule 2617(a)(4)(iii) provides that certain orders, based
on their operation and User instructions, are permitted to post and
rest on the MIAX Pearl Equities Book at prices that lock or cross
contra-side liquidity, provided, however, that the System \33\ will
never display a locked or crossed market.\34\ Exchange Rule
2617(a)(4)(iii) further provides that if an Aggressing Order or an
incoming order to buy (sell) would execute upon entry against an order
to sell (buy) at the same or worse price as a displayed order to buy
(sell), the Aggressing Order or incoming order to buy (sell) would be
cancelled or posted to the MIAX Pearl Equities Book and ranked in
accordance with Exchange Rule 2616.
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\33\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\34\ Exchange Rule 2617(a)(4)(iii) is based on Cboe BZX and Cboe
BYX Rules 11.13(a)(4)(C), and Cboe EDGA and Cboe EDGX Rules
11.10(a)(4)(C).
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Again, one byproduct of the Post Only order instruction, and the
MEQ instruction discussed above, is that they may result in the order
posting to the MIAX Pearl Equities Book at a price that results in an
internally locked or crossed market on the Exchange where one or both
of the locking or crossing orders are non-displayed.\35\ In the context
of an order with a Post Only instruction, this may happen where an
order does not remove all contra-side marketable resting liquidity
pursuant to the Exchange's economic best interest functionality under
Exchange Rule 2614(c)(2) and is, therefore, posted to the MIAX Pearl
Equities Book.
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\35\ The Exchange notes that its rules and the Act prohibit the
Exchange from displaying a locked or crossed market and an order
that would create a displayed locked or crossed market on the
Exchange would be rejected, if incoming, or cancelled, if resting.
See, e.g., Exchange Rules 2617(a)(4) (providing that ``[a]n order
will be cancelled back to the User if, based on market conditions,
User instructions, applicable Exchange Rules and/or the Act and the
rules and regulations thereunder, such order is not executable,
cannot be routed to another Trading Center pursuant to paragraph (b)
of this Exchange Rule 2617 below and cannot be posted to the MIAX
Pearl Equities Book''); 2617(a)(4)(iii) (stating that ``that the
System will never display a locked or crossed market''); and 2624(b)
(stating that ``the System shall not make available for
dissemination, and Users shall reasonably avoid displaying, and
shall not engage in a pattern or practice of displaying, any
quotations that lock or cross a Protected Quotation, and any Manual
Quotations that lock or cross a quotation previously disseminated
pursuant to an Effective National Market System Plan''). See also
Rules 610 and 611 of Regulation NMS.
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As discussed above, based on the Exchange's expertise, experience
and data set forth above, the Exchange does not anticipate that
expanding the Post Only instruction to sub-dollar securities would
cause anything other a potential de minimis increase, if any, of
internally non-displayed locked or crossed markets on the Exchange.
Based on the Exchange's observations and experience, in the rare event
that an internally non-displayed locked or crossed book on Exchange
does occur, such instances are typically alleviated almost immediately
or within extremely short period of time of their initial occurrence.
In the rare occurrence an internally non-displayed locked or
crossed market does occur, the Exchange has method to resolve such
instances in a manner that honors intra-market price priority. This
mechanism is set forth under Exchange Rule 2617(a)(4)(iv), which
governs the price at which a non-displayed order is executable when
there is a contra-side displayed order at a price that results in an
internally locked or crossed book. Today, for securities priced equal
to or greater than $1.00 per share, in the case where a non-displayed
order to sell (buy) is posted on the MIAX Pearl Equities Book at a
price that locks a displayed order to buy (sell) pursuant to Exchange
Rule 2617(a)(4)(iii) described above, an Aggressing Order or an
incoming order to buy (sell) described in Exchange Rules 2617(a)(4)(i)
and (ii) that is a Market Order or a Limit Order priced more
aggressively than the order to buy (sell) displayed on the MIAX Pearl
Equities Book, that Aggressing Order or incoming order will execute
against the non-displayed order to sell (buy) resting on the MIAX Pearl
Equities Book at one-half minimum price variation \36\ greater (less)
than the price of the resting displayed order to buy (sell).\37\ The
Exchange proposes to
[[Page 60813]]
amend Exchange Rule 2617(a)(4)(iv) to remove the phrase ``for
securities priced equal to or greater than $1.00 per share'' and,
therefore, provide the same behavior for bids or offers in securities
priced below $1.00 per share as the Exchange does today for securities
priced at or above $1.00 when executing orders during times when the
Exchange is experiencing a non-displayed internally locked or crossed
book.
---------------------------------------------------------------------------
\36\ See Exchange Rule 2612, Minimum Price Variations. Exchange
Rule 2612(a) provides that bids, offers, orders or indications of
interests in securities traded on the Exchange shall not be made in
an increment smaller than: (1) $0.01 if those bids, offers or
indications of interests are priced equal to or greater than $1.00
per share; or (2) $0.0001 if those bids, offers or indications of
interests are priced less than $1.00 per share.
\37\ This functionality is well established and has been
previously approved by the Commission. See Securities Exchange Act
Release No. 89563 (August 14, 2020), 85 FR 51510 (August 20, 2020)
(SR-PEARL-2020-03) (adopting rules for MIAX Pearl Equities,
including Exchange Rule 2617(a)(4)). See also, e.g., Cboe EDGA and
Cboe EDGX Rules 11.10(a)(4) and Cboe BYX and Cboe BZX Rules
11.13(a)(4).
---------------------------------------------------------------------------
Exchange Rule 2616 sets forth the priority among orders resting on
the MIAX Pearl Equities Book and there is no priority relationship
between an incoming order and a same side resting order up to and until
each order is resting on the MIAX Pearl Equities Book.\38\ It is also
well established that in the case of both an incoming order or between
resting orders (as in the case when one order is an Aggressing Order)
that, to comply with intra-market price priority, a resting order to
buy (sell) will not be eligible to trade: (1) at a price equal to or
above (below) any sell (buy) displayed orders that have a ranked price
equal to or below (above) the price of such resting buy (sell) order;
or (2) at a price above (below) any sell (buy) non-displayed order that
has a ranked price below (above) the price of such resting buy (sell)
order.\39\ This behavior also allows the Exchange to manage an
internally locked book while continuing to honor each order's
instructions while working to alleviate this infrequent, but abnormal
market occurrence, and maintain a fair and orderly market.
---------------------------------------------------------------------------
\38\ See generally Exchange Rules 2616 and 2617(a)(4).
\39\ See, e.g., Exchange Rule 2614(c)(7)(ii)(C), NYSE Rule
7.31(i)(3)(C), and Cboe EDGX Rule 11.6(h) for a description of
intra-market price priority in the context of a non-displayed locked
or crossed market created by minimum execution quantity order
types).
---------------------------------------------------------------------------
In keeping with the above principles, the Exchange would apply the
same standards to securities priced below $1.00 as it does today for
securities priced at or above $1.00 under Exchange Rule 2617(a)(4)(iv).
In doing so, the Exchange would honor intra-market price priority by
preventing an incoming or Aggressing Order from executing at the same
price as a same-side displayed order on the MIAX Pearl Equities Book.
This portion of the proposal is an expansion of existing rules and
functionality available to securities priced at or above $1.00, and
therefore, does not raise any new or novel issues not already
considered by the Commission.\40\
---------------------------------------------------------------------------
\40\ See supra note 13.
---------------------------------------------------------------------------
* * * * *
The following examples illustrate: (i) how the Exchange currently
handles securities priced at or above $1.00 pursuant to Exchange Rule
2617(a)(4)(iv); and (ii) how the Exchange would handle securities
priced below $1.00 pursuant to expanded Exchange Rule 2617(a)(4)(iv),
as proposed to be amended herein. For each example, assume there are no
orders resting on the MIAX Pearl Equities book.
Securities Priced at or Above $1.00 (Current Behavior)
The following examples illustrate how the Exchange handles
securities priced at or above $1.00 pursuant to Exchange Rule
2617(a)(4)(iv) for both incoming orders as well as when the Exchange
reevaluates the MIAX Pearl Equities Book due to an external event, such
as a change to the Limit Up-Limit Down (``LULD'') Price Bands and an
Aggressing Order executes against contra-side interest.
Incoming Order
Assume the PBBO was $16.10 by $16.11 resulting in a midpoint of
$16.105. An order to buy at $16.11 is resting non-displayed on the MIAX
Pearl Equities Book (``Order 1''). A displayed Limit Order to sell at
$16.11 designated as Post Only is subsequently entered (``Order 2'').
Assume that Order 2 will not remove any liquidity upon entry pursuant
to the Exchange's economic best interest functionality under Exchange
Rule 2614(c)(2), and will post to the MIAX Pearl Equities Book and be
displayed at $16.11. The display of Order 2 will, in turn, make the
resting Order 1 not executable at $16.11. An incoming order to sell at
$16.10 is then entered (``Order 3''). Order 3 will execute against
Order 1 at $16.105 per share upon entry, thus providing a half-penny of
price improvement as compared to the Order 1's limit price of
$16.11.\41\
---------------------------------------------------------------------------
\41\ The Exchange notes that internally locked or crossed
markets may occur on Nasdaq due to orders with a minimum quantity
requirement or where one side of the market is non-displayed. In the
scenario set forth in the above example, as well as similar scenario
set forth in the below examples, the Exchange understands that
during an internally locked or crossed market Nasdaq would execute
Orders 1 and 3 at the locking price of $16.11. The Exchange believes
it is preferential to execute these orders at a price other than the
locking price because doing so honors the first principle of intra-
market price priority, namely that a resting order to buy (sell)
will not be eligible to trade: (i) at a price equal to or above
(below) any sell (buy) displayed orders that have a ranked price
equal to or below (above) the price of such resting buy (sell)
order, as discussed above.
---------------------------------------------------------------------------
The following example describes where the execution occurs at a
sub-penny price that is not at the midpoint of the PBBO. Assume the
PBBO is $16.08 by $16.10 resulting in a midpoint of $16.09. An order to
sell at $16.08 is resting non-displayed on the MIAX Pearl Equities Book
(``Order 1''). A displayed Limit Order to buy at $16.08 designated as
Post Only is subsequently entered (``Order 2''). Assume that Order 2
will not remove any liquidity upon entry pursuant to the Exchange's
economic best interest functionality under Exchange Rule 2614(c)(2),
and will post to the MIAX Pearl Equities Book and be displayed at
$16.08. The display of Order 2 will, in turn, make Order 1 not
executable at $16.08. An incoming order to buy at $16.09 is entered
(``Order 3''). Order 1 will execute against Order 3 at $16.085 per
share, thus providing a half-penny of price improvement as compared to
the Order 1's limit price of $16.08.
Re-Evaluation of MIAX Pearl Equities Book Due to External Event
Assume the PBBO is $50.00 by $53.00, and the LULD Price Bands
disseminated by the applicable SIP are $49.00 by $50.00. A non-
displayed Limit Order to sell at $50.07 is entered and placed on the
MIAX Pearl Equities Book (``Order 1''). Then, a displayed Limit Order
to buy at $50.07 with a Post Only instruction is entered (``Order 2'').
Order 2 cannot execute against Order 1 and remove liquidity upon entry
because of the LULD Price Bands, which result in Order 2 being posted
to the MIAX Pearl Equities Book and re-priced to $50.00, the upper LULD
Price Band pursuant to Exchange Rule 2622(h)(2)(A)5.b. The Exchange BBO
is now $50.00 by $50.07. Then, a displayed Limit Order to buy at $50.08
is entered and is also re-priced to $50.00, the upper LULD Price Band
pursuant to Exchange Rule 2622(h)(2)(A)5.b (``Order 3''). The LULD
Price Bands disseminated by the applicable SIP are then updated to
$48.00 by $51.00, causing the Exchange to evaluate its book for
potential executions. First, Order 2 is re-priced to $50.07, resulting
in an internally non-displayed locked book. Order 2, the Aggressing
Order, cannot execute against Order 1 and remove liquidity upon entry
pursuant to the Exchange's economic best interest functionality under
Exchange Rule 2614(c)(2). Order 3 is then evaluated and executes
against Order 1 at $50.075, providing one-half minimum price increment
of price
[[Page 60814]]
improvement as compared to the order's limit price of $50.07.
Securities Priced Below $1.00 (Proposed)
As stated above, the Exchange proposes to treat all securities the
same pursuant to Exchange Rule 2617(a)(4)(iv) regardless of price. The
following example illustrates this behavior and describes how the
Exchange would handle securities priced below $1.00 in the same manner
as securities priced at or above $1.00 pursuant to amended Exchange
Rule 2617(a)(4)(iv) for both incoming orders as well as how an
Aggressing Order would behave when the Exchange reevaluates the MIAX
Pearl Equities Book due to an external event, such as a change to the
Limit Up-Limit Down Price Bands.
Incoming Order
The following examples illustrates how the Exchange handles
securities priced below $1.00 pursuant to Exchange Rule 2617(a)(4)(iv).
Example No. 1
Assume the PBBO is $0.500 by $0.502 resulting in a midpoint of
$0.501. A Midpoint Peg Order to sell at $0.501 is resting non-displayed
on the MIAX Pearl Equities Book at $0.501, which is also the midpoint
of the PBBO (``Order 1''). A displayed Limit Order to buy 50 shares at
$0.501 designated as Post Only is subsequently entered (``Order 2'').
Order 2 is an odd lot size and does not result in an update to the
PBBO. Order 2 will not remove any liquidity upon entry pursuant to the
Exchange's economic best interest functionality under Exchange Rule
2614(c)(2) because it would not receive the requisite price
improvement, and will post to the MIAX Pearl Equities Book and be
displayed at $0.501. The display of this order will, in turn, result in
an internally locked book and make Order 1 not executable at $0.501. If
an incoming order to buy is entered into the MIAX Pearl Equities Book
at a price of $0.5011 (``Order 3''), Order 1, originally priced at
$0.501, will execute against Order 3 at $0.50105 per share, thus
providing one-half minimum price increment of price improvement as
compared to the order's pegged price (i.e. midpoint of PBBO), which
also equaled its limit price, of $0.501.
Example No. 2
The following example is a variation of the above example. Assume
the PBBO is $0.50 by $0.53. A non-displayed Limit Order to sell at
$0.5003 is entered and placed on the MIAX Pearl Equities Book (``Order
1''). Then, a displayed Limit Order to buy with a Post Only instruction
at $0.5007 (``Order 2'') is entered. Order 2 cannot execute against
Order 1 and remove liquidity upon entry pursuant to the Exchange's
economic best interest functionality under Exchange Rule 2614(c)(2)
because it would not receive the requisite price improvement.\42\
Therefore, Order 2 will post to the MIAX Pearl Equities Book and be
displayed at $0.5007. As a result, Order 1 will be re-priced to
$0.5007, the price of the displayed contra-side order, Order 2,
pursuant to proposed Exchange Rule 2614(c)(2)(1)(A) discussed above,
resulting in an internally non-displayed locked book. Then, a displayed
Limit Order to buy at $0.5008 is entered and executes against Order 1
at $0.50075, providing one-half minimum price increment of price
improvement as compared to the order's limit price of $0.5007. However,
if Order 3 was an order to sell, it would execute against Order 2 at
$0.5007, Order 2's displayed price.
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\42\ See supra note 15. Price improvement of $0.0004 does not
exceed the required 0.35% of the trade's value for there to be an
execution pursuant to the Exchange's economic best interest
functionality under Exchange Rule 2614(c)(2).
---------------------------------------------------------------------------
Example No. 3
The following example describes when the execution occurs at a sub-
penny price that is not at the midpoint of the PBBO. Assume the PBBO is
$0.5000 by $0.5030 resulting in a midpoint of $0.5015. An order to sell
at $0.5020 is resting non-displayed on the MIAX Pearl Equities Book. A
displayed Limit Order to buy at $0.5020 designated as Post Only is
subsequently entered. Assume that the displayed order to buy designated
as Post Only will not remove any liquidity upon entry pursuant to the
Exchange's economic best interest functionality under Exchange Rule
2614(c)(2), and will post to the MIAX Pearl Equities Book and be
displayed at $0.5020. The display of this order will, in turn, result
in an internally non-displayed locked book and make the resting non-
displayed order to sell not executable at $0.5020. If an incoming order
to buy is entered into the MIAX Pearl Equities Book at a price equal to
or greater than $0.5021, the resting non-displayed order to sell
originally priced at $0.5020 will execute against the incoming order to
buy at $0.50205 per share, thus providing one-half minimum price
increment of price improvement as compared to the order's limit price
of $0.5020.
Example No. 4
The following example describes when the execution occurs when the
Exchange is experiencing an internally crossed market due to two
contra-side non-displayed orders. Assume the PBBO is $0.5000 by $0.5030
resulting in a midpoint of $0.5015. An order to buy at $0.5003 is
resting non-displayed on the MIAX Pearl Equities Book (``Order 1''). A
non-displayed Limit Order to sell at $0.5000 designated as Post Only is
subsequently entered (``Order 2''). Assume Order 2 will not remove any
liquidity upon entry pursuant to the Exchange's economic best interest
functionality under Exchange Rule 2614(c)(2), and will post to the MIAX
Pearl Equities Book non-displayed at $0.5000. This will, in turn,
result in an internally non-displayed crossed book of $0.5003 by
$0.5000. An incoming order to sell is entered into the MIAX Pearl
Equities Book at a price equal to or less than $0.5000 will execute
against Order 1 at $0.5003.
Re-Evaluation of MIAX Pearl Equities Book Due to External Event
Assume the PBBO is $0.50 by $0.53, and the LULD Price Bands
disseminated by the applicable SIP are $0.49 by $0.50. A non-displayed
Limit Order to sell at $0.5003 is entered and placed on the MIAX Pearl
Equities Book (``Order 1''). Then, a displayed Limit Order to buy with
a Post Only instruction to buy at $0.5007 (``Order 2''). Order 2 cannot
execute against Order 1 due to the LULD Price Bands which cause Order 2
to be posted to the MIAX Pearl Equities Book and re-priced to $0.50,
the upper LULD Price Band pursuant to Exchange Rule 2622(h)(2)(A)5.b.
The Exchange BBO is now $0.50 by $0.5003. Then, a displayed Limit Order
to buy at $0.5008 is entered and is also re-priced to $0.50, the upper
LULD Price Band pursuant to Exchange Rule 2622(h)(2)(A)5.b (``Order
3''). The LULD Price Bands disseminated by the applicable SIP are then
updated to $0.48 by $0.51, causing the Exchange to evaluate its book
for potential executions. First, Order 2 is re-priced to $0.5007 and
cannot execute against Order 1 and remove liquidity pursuant to the
Exchange's economic best interest functionality under Exchange Rule
2614(c)(2). As a result, Order 1 will be re-priced to $0.5007, the
price of the displayed contra-side order, Order 2 pursuant to proposed
Exchange Rule 2614(c)(2)(1)(A) discussed above, resulting in an
internally non-displayed locked book. Order 2, the Aggressing Order,
cannot execute against Order 1 and remove liquidity upon entry pursuant
to the Exchange's economic
[[Page 60815]]
best interest functionality under Exchange Rule 2614(c)(2). Order 3
executes against Order 1 at $0.50075, providing one-half minimum price
variation of price improvement as compared to the order's limit price
of $0.5007.
Implementation
Should the Commission approve this proposal, the Exchange will
issue a trading alert publicly announcing the implementation date of
the proposed amendments.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Act,\43\ in general, and furthers the objectives of
Section 6(b)(5),\44\ in particular, because it is designed to prevent
fraudulent and manipulative acts and practices, promote just and
equitable principles of trade, foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, remove impediments to and perfect the mechanism of a free
and open market and a national market system, and, in general, protect
investors and the public interest.
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\43\ 15 U.S.C. 78f(b).
\44\ 15 U.S.C. 78f(b)(5).
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Expanding Post Only Instruction to Sub-Dollar Securities
In sum, the Exchange believes the proposed amendments to Exchange
Rule 2614(c)(2) to extend the Post Only instruction to securities
priced below $1.00 will remove impediments to and perfect the mechanism
of a free and open market and a national market system because it would
provide for similar treatment to all orders in all securities
regardless of price. This portion of the proposal also promotes just
and equitable principles of trade because it will allow Equity Members
to utilize the Post Only instruction on an order for a security at any
price, rather than being limited to securities priced at or above
$1.00. The Post Only instruction is an important tool in U.S. equities
markets because it allows Equity Members to post aggressively priced
liquidity, and provides certainty as to the fee or rebate that will be
applied by the Exchange if their order is executed. Without such
ability, the Exchange believes that certain Equity Members would simply
post less aggressively priced liquidity, and prices available for
market participants, including retail investors, may be adversely
impacted. Orders with a Post Only instruction contribute to improved
liquidity, market depth and, if displayed, price transparency.
Expanding Post Only functionality to orders in sub-dollar securities
would provide an additional exchange-level pool of liquidity for market
participants that utilize Post Only functionality for sub-dollar
securities. As such, the proposed rule change may encourage market
participants to send additional sub-dollar trading volume to the
Exchange, rather than the off-exchange marketplace, and, therefore,
serve to improve on-exchange liquidity and price transparency in sub-
dollar securities. Orders with a Post Only instruction entered on the
Exchange could improve price transparency if the entering firm elected
such order to be displayed and made available via an Exchange's data
feeds and disseminated by the applicable SIP. Allowing an order in a
security priced below $1.00 to contain a Post Only instruction would
also deepen the Exchange's pool of available liquidity in sub-dollar
securities, which is a growing area of trading, particularly for retail
investors. A deeper and more liquid market supports the quality of
price discovery, promotes market transparency, and improves market
quality for all investors.
As noted above, the Exchange adopted its current Post Only behavior
as part of its broader proposal to adopt rules governing trading of
equity securities, in which it sought to operate its equity market in a
manner similar to that of other equity exchanges that it based its
rules and functionality upon several years ago. This included adopting
functionality that limited the availability of the Post Only
instruction to orders in securities priced at or above $1.00. Again,
and importantly, the Exchange did not adopt this limitation due to fear
of some potential nefarious activity in sub-dollar securities trading,
but rather due to lack of interest by market participants in such
functionality at the time MIAX Pearl Equities was being developed and
filing its initial rule set with the Commission for approval.
This portion of the proposal also does not raise any new or novel
issues as identical functionality is available on other equities
exchanges. As discussed above, Nasdaq and their affiliated markets
provide Post Only Orders to all securities regardless of price, which
are posted, ranked, and displayed or posted non-displayed, as
applicable, at their limit price upon entry. However, Nasdaq permits a
Post-Only Order to execute upon entry if ``the value of price
improvement associated with executing against an Order on the Nasdaq
Book (as measured against the original limit price of the Order) equals
or exceeds the sum of fees charged for such execution and the value of
any rebate that would be provided if the Order posted to the Nasdaq
Book and subsequently provided liquidity''.\45\ This is analogous to
the Exchange's current behavior for orders with a Post Only instruction
in securities priced at or above $1.00 as well as the Exchange's
proposed changes described herein for securities priced below $1.00.
The NYSE and its affiliate exchanges also provide similar ``post only''
functionality in the form of ALO orders, which is also available to
securities priced below $1.00.\46\ This portion of the Exchange's
proposal would remove impediments to and perfect the mechanism of a
free and open national market system because it seeks to expand the
population of exchanges that offer ``post only'' treatment for
securities priced below $1.00 by allowing the Exchange to provide an
additional exchange-level pool of liquidity where market participants
may send such orders.
---------------------------------------------------------------------------
\45\ See Nasdaq Equity 4, Rule 4702(b)(4).
\46\ See, e.g., NYSE Rule 7.31(e)(2).
---------------------------------------------------------------------------
This proposal is designed to facilitate transactions in securities
by increasing competition among exchanges for the currently available
order flow in securities priced below $1.00 by ensuring that all order
types and order instructions are available equally to all securities
regardless of the order's price. As explained above, providing ``post
only'' treatment in securities priced below $1.00 should not increase
the overall volume or order flow in sub-dollar securities but could
encourage more aggressively priced liquidity, improve liquidity, market
depth and, if displayed, price transparency in such securities. The
Exchange believes this proposal will facilitate transactions in sub-
dollar securities by increasing exchange competition by allowing the
Exchange to provide functionality that would allow it to attract a
greater slice of the current volume in sub-dollar securities, while
also encouraging market participants to send their sub-dollar trading
volume to an exchange-level pool of liquidity, rather than opaque off-
exchange trading venues (i.e., dark pools), which are less transparent.
Therefore, the Exchange believes this proposal will enhance exchange
competition, facilitate transactions in sub-dollar securities, and not
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
[[Page 60816]]
This proposal is not intended to encourage an increase in the
overall volume or order flow in sub-dollar securities. Trading in sub-
dollar securities both on- and off-exchange has grown significantly
since the Exchange adopted Exchange Rule 2614(c)(2) and launched
operations in September 2020. For example, average daily sub-dollar
trading volume comprised approximately 9% of the overall daily volume
in September 2025. In fact, the Exchange found that overall volume in
sub-dollar securities has been slowly decreasing since June 2025 from
approximately 14% to 9% in September 2025. Meanwhile, off-exchange
market share in sub-dollar securities remained high averaging over
60%.\47\
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\47\ See MEMX LLC's December 2024 Exchange Highlights, dated
January 10, 2024, available at <a href="https://memx.com/exchange-highlights-key-trading-trends-that-defined-another-banner-year-in-the-markets/">https://memx.com/exchange-highlights-key-trading-trends-that-defined-another-banner-year-in-the-markets/</a>.
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As mentioned above, there are numerous factors that have
contributed to the increase in sub-dollar trading volumes and approval
of this proposal, alone, would not further encourage or contribute to
an increase in sub-dollar trading volumes. Rather, the Exchange
believes this proposal will remove impediments to a free and open
market by increasing inter-market competition. The proposed changes
will allow the Exchange to provide functionality to attract a greater
slice of the current volume in sub-dollar securities by encouraging
market participants to send their sub-dollar trading volume to another
exchange-level pool of liquidity, rather than the opaque off-exchange
trading venues (i.e., dark pools), which are less transparent. In
addition, Equity Members recently requested the Exchange modify its
Post Only instruction as proposed. The Exchange, therefore, believes
this portion of the proposal is consistent with the Act.
In addition, amended Exchange Rule 2614(c)(2) is not unfairly
discriminatory, but rather promotes equal treatment of all Equity
Members, as it will permit the Post Only instruction to be used by all
Equity Members that submit orders for securities at any price and the
order instruction will no longer be limited to securities priced at or
above $1.00.
Expanding Existing Functionality To Avoid or Alleviate Internally
Locked or Crossed Markets to Securities Priced Below $1.00 With a Post
Only Instruction
As discussed above, differences exist between the market structures
for securities priced at or above $1.00 and those below $1.00 that
impact how the Post Only order instruction may function. This includes
different fee levels and minimum price increments which could allow an
order with a Post Only instruction to only result in an internally
locked market in securities priced at or above $1.00 and both an
internally locked or crossed market in securities priced below $1.00.
Also, as discussed above, the Exchange reviewed its own data and found
that internally locked and crossed markets are rare events and should
continue to be rare under this proposal. Based on the Exchange's
expertise and experience, the Exchange anticipates that expanding the
Post Only instruction to sub-dollar securities would cause at most, a
potential de minimis, if any, increase of internally non-displayed
locked or crossed markets on the Exchange. Also, based on the
Exchange's observations and experience, in the rare event such
instances do occur, an internally non-displayed locked or crossed book
is typically alleviated almost immediately or within extremely short
period of time of their initial occurrence.
Nonetheless, in the rare event they do occur, the Exchange has well
established mechanisms to both avoid an internally locked or crossed
market and to alleviate an internally locked or crossed market. This
includes expanding current re-pricing functionality by adopting
Exchange Rule 2614(c)(2)(i)(A) to reprice non-displayed orders in
securities priced below $1.00 to the locking price of the displayed
order resting on the MIAX Pearl Equities Book to help reduce the
occurrence of an internally crossed book.\48\ In addition, should an
internally locked or crossed market occur, the Exchange has a current
mechanism under Exchange Rule 2617(a)(4)(iv) to alleviate those
occurrences while honoring intra-market price priority. Expanding this
mechanism under Exchange Rule 2617(a)(4)(iv) to securities priced below
$1.00 would allow for the Exchange to alleviate an internally locked or
crossed book and would provide for the consistent treatment of all
securities during an internally locked or crossed market, regardless of
price.
---------------------------------------------------------------------------
\48\ The Exchange notes that this functionality would also apply
to orders in securities priced at or above $1.00 in the unlikely
event that an incoming order in a security priced at or above $1.00
with a Post Only instruction would post to the MIAX Pearl Equities
Book and result in an internally non-displayed crossed market.
---------------------------------------------------------------------------
Re-Pricing Non-Displayed Orders to the Locking Price To Decrease the
Occurrence of an Internally Crossed Market
The Exchange believes proposed Exchange Rule 2614(c)(2)(i)(A) to
re-price non-displayed orders to the locking price, including those
with a Post Only instruction that would cross a contra-side displayed
order promotes just and equitable principles of trade because it would
serve to decrease the occurrence of the Exchange experiencing an
abnormal market condition in the form of a non-displayed internally
crossed book. The Exchange will never post a displayed or non-displayed
order to the MIAX Pearl Equities Book at a price that would cross a
contra-side displayed order.
In addition, proposed Exchange Rule 2614(c)(2)(i)(A) is analogous
to how the Exchange currently reprices orders with an MEQ instruction
pursuant to Exchange Rule 2614(c)(7)(B)(ii).\49\ The Exchange believes
utilizing this re-pricing mechanism for sub-dollar securities with a
Post Only instruction promotes just and equitable principles of trade
because this functionality would be consistent with how the Exchange
currently reprices orders with a MEQ instruction, which has previously
been considered by the Commission.\50\ This proposal simply seeks to
expand such functionality without raising new discrimination concerns
among orders below and above (or at) $1.00. Re-pricing non-displayed
orders with a Post Only instruction to the locking price of the
displayed order, as proposed, is appropriate and necessary to avoid an
internally crossed market. Doing so in favor of the displayed order
allows the displayed order to continue to contribute to price discovery
at that price level while the non-displayed order does not provide
[[Page 60817]]
like pre-trade price transparency. The Exchange's rules would be clear
as to when a non-displayed order may be re-priced to the locking price
when there is contra-side displayed interest resting on the MIAX Pearl
Equities Book and, thus, avoid an internally crossed market. Market
participants who do not want their orders to be re-priced may enter the
non-displayed order with a limit price that would prevent the order
from being re-priced to an undesirable price level or those market
participants may immediately cancel such order if they choose to do so.
Equity Members are also free to choose which trading venues to route
orders to and those that seek to avoid this functionality are free to
route their non-displayed orders to another exchange.
---------------------------------------------------------------------------
\49\ Exchange Rule 2614(c)(7)(B)(ii) provides that where there
is insufficient size to satisfy the minimum quantity condition of an
incoming order to buy (sell) and that incoming order, if posted at
its limit price, would cross a displayed order to sell (buy) resting
on the MIAX Pearl Equities Book, the order to buy (sell) with the
MEQ instruction will have a working price equal to the price of the
displayed order to sell (buy).
\50\ This functionality is not unique and is similar to the
Exchange's current Non-Displayed Price Sliding Process where the
Exchange re-prices a non-displayed order to buy (sell) that would
cross the PBO (PBB) of an away Trading Center to the locking price.
See Exchange Rule 2614(g)(2). The only difference being that the
Exchange would re-price a non-displayed order, like it currently
does for an order with a Minimum Execution Quantity instruction,
that crosses the PBO (PBB) of the Exchange in addition to the PBO
(PBB) of an away Trading Center. The Exchange also notes that both
NASDAQ and IEX also re-price orders with a minimum quantity
condition upon entry. See NASDAQ Rule 4703(e) and IEX Rule
11.190(h)(2).
---------------------------------------------------------------------------
This is also analogous to the Exchange's current Non-Displayed
Price Sliding Process set forth under Exchange Rule 2614(g)(2) where
the Exchange would also reprice a non-displayed order to the locking
price. Pursuant to Exchange Rule 2614(g)(2), to avoid potentially
trading through Protected Quotations of an away Trading Center, a non-
displayed, non-routable order to buy (sell) that, upon entry or due to
a change in the PBO (PBB), would cross the PBO (PBB) of an away Trading
Center will be assigned a working price by the System equal to the PBO
(PBB). Both IEX and Nasdaq re-price non-displayed orders to avoid an
internally crossed market. In certain circumstances, Nasdaq re-prices
non-displayed orders to buy (sell) to one minimum price increment below
(above) the lowest (highest) price of resting orders to avoid an
internally crossed market.\51\ Likewise, IEX re-prices non-displayed
orders that include a limit price more aggressive than the midpoint of
the NBBO to the midpoint of the NBBO to prevent such orders from being
posted at a price that crossed their midpoint of the NBBO.\52\ The
Exchange, therefore, believes that this portion of the proposal is
consistent with the Act because it enables the Exchange to avoid an
internally crossed book and is based on existing functionality in place
on the Exchange and other equity exchanges to avoid internally crossed
markets. The Exchange also believes re-pricing a non-displayed order as
proposed herein promotes just and equitable principles of trade because
it seeks to avoid an abnormal market condition, i.e., an internally
crossed book, in favor of an order with the Post Only instruction that
could represent more aggressively priced liquidity and price
improvement opportunities for other contra-side orders. Like the
Exchange provides today for orders with an MEQ instruction, Equity
Members would be immediately notified if their order is re-priced as
proposed herein and may re-enter such order with a new price if they
choose to do so. The Exchange, therefore, believes the proposed changes
do not raise any new or novel issues not already considered by the
Commission.
---------------------------------------------------------------------------
\51\ See Nasdaq Rule 4703(e). For example, Nasdaq Rule 4703(e)
provides that if there was an order to buy at $11 with a minimum
quantity condition of 500 shares, and there were resting orders on
the Nasdaq Book to sell 200 shares at $10.99 and 300 shares at $11,
the order would be repriced to $10.98 and ranked at that price.
\52\ See IEX Rule 11.190(h)(2).
---------------------------------------------------------------------------
The Exchange believes it is appropriate and not unfairly
discriminatory to reprice the non-displayed order as proposed above,
and consistent with how it currently reprices orders with a MEQ
instruction, which has previously been considered by the
Commission.\53\ This proposal simply seeks to expand such functionality
without raising new discrimination concerns. Re-pricing non-displayed
orders with a Post Only instruction to the locking price of the
displayed order, as proposed, is appropriate and necessary to avoid an
internally crossed market. Doing so in favor of the displayed order
allows the displayed order to continue to contribute to price discovery
at that price level while the non-displayed order does not provide like
pre-trade price transparency. The Exchange's rules would be clear as to
when a non-displayed order may be re-priced to the locking price when
there is contra-side displayed interest resting on the MIAX Pearl
Equities Book and, thus, avoid an internally crossed market. Market
participants who do not want their orders to be re-priced may enter the
non-displayed order with a limit price that would prevent the order
from being re-priced to an undesirable price level or those market
participants may immediately cancel such order if they choose to do so.
Equity Members are also free to choose which trading venues to route
orders to and those that seek to avoid this functionality are free to
route their non-displayed orders to another exchange.
---------------------------------------------------------------------------
\53\ This functionality is not unique and is similar to the
Exchange's current Non-Displayed Price Sliding Process where the
Exchange re-prices a non-displayed order to buy (sell) that would
cross the PBO (PBB) of an away Trading Center to the locking price.
See Exchange Rule 2614(g)(2). The only difference being that the
Exchange would re-price a non-displayed order, like it currently
does for an order with a Minimum Execution Quantity instruction,
that crosses the PBO (PBB) of the Exchange in addition to the PBO
(PBB) of an away Trading Center. The Exchange also notes that both
NASDAQ and IEX also re-price orders with a minimum quantity
condition upon entry. See NASDAQ Rule 4703(e) and IEX Rule
11.190(h)(2).
---------------------------------------------------------------------------
Expanding Current Internally Locked or Crossed Book Order Handling To
Alleviate an Internally Locked or Crossed Market to Securities Priced
Below $1.00
The occurrence of a non-displayed internally locked or crossed
market on the Exchange is an extremely rare occurrence, and the
Exchange does not anticipate that this proposal would cause anything
more than a potential de minimis increase, if any. Should they occur,
the Exchange has an effective mechanism in place today for securities
priced at or above $1.00 that it simply seeks to expand to securities
priced below $1.00 to alleviate an internally locked or crossed book.
Specifically, expanding Exchange Rule 2617(a)(4)(iv) to securities
priced below $1.00 would facilitate transactions in securities during
the extremely rare occurrence of a non-displayed internally locked or
crossed market where a resting contra-side displayed order would
otherwise prohibit such order from execution against an incoming or
Aggressing Order by allowing an execution at one-half minimum price
variation greater (less) than the price of the resting displayed order
to buy (sell), as set forth in the Rule. In doing so, the proposal
would also provide that all orders, regardless of price, are executable
at the applicable one-half minimum price increment during a non-
displayed internally locked or crossed market, while also ensuring that
the Exchange continues to honor the intra-market price priority of all
orders in such circumstances.
As discussed above, the principle of intra-market price priority
provides that, in the case of both an incoming order or between resting
orders that a resting order to buy (sell) will not be eligible to
trade: (1) at a price equal to or above (below) any sell (buy)
displayed orders that have a ranked price equal to or below (above) the
price of such resting buy (sell) order; or (2) at a price above (below)
any sell (buy) non-displayed order that has a ranked price below
(above) the price of such resting buy (sell) order.\54\ The Exchange
proposes to apply the same intra-market price priority standards to
securities priced below $1.00 as it does today for securities priced at
or above $1.00 under Exchange Rule 2617(a)(4)(iv). Doing so would
ensure the Exchange continues to
[[Page 60818]]
honor intra-market price priority in securities priced below $1.00 by
preventing an incoming or resting order from executing at the same or
better price as a displayed order or same price as a non-displayed
order resting on the MIAX Pearl Equities Book. In doing so, the
Exchange would not violate intra-market price priority for sub-dollar
securities when trading out of an internally locked or crossed market.
---------------------------------------------------------------------------
\54\ See, e.g., Exchange Rule 2614(c)(7)(ii)(C), NYSE Rule
7.31(i)(3)(C), and Cboe EDGX Rule 11.6(h) for a description of
intra-market price priority in the context of a non-displayed locked
or crossed market created by minimum execution quantity order
types).
---------------------------------------------------------------------------
This portion of the proposal would allow the Exchange to treat
orders in securities below $1.00 in a similar manner as securities
priced at or above $1.00, thereby providing market participants with
consistent handing of all orders regardless of price. This order
handling is necessary in order to address specific conditions that are
present on the MIAX Pearl Equities Book when an order containing a Post
Only instruction is displayed opposite the ranked price of a non-
displayed order resulting in an internally locked or crossed book. The
proposal would also facilitate transactions in securities by making
orders eligible for execution where a resting contra-side displayed
order would otherwise prohibit such order from execution against an
incoming or Aggressing Order.
In sum, this would allow all orders to be treated in a similar
manner, regardless of price by providing, under limited circumstances,
a resting order priced below $1.00 that would otherwise be non-
executable due to the presence of a displayed order, including a
displayed order containing a Post Only instruction. Pursuant to
Exchange Rule 2617(a)(4)(iv) an order that is currently unable to
execute at the locking price due to the presence of a contra-side
displayed order would be eligible to execute against an incoming order
priced more aggressively than the contra-side displayed order at one-
half minimum price increment above (below) the locking price.
For the reasons set forth above, the Exchange believes amended
Exchange Rule 2617(a)(4)(iv) is consistent with the Act because it
would allow the Exchange to facilitate transactions in securities,
honor intra-market price priority, and alleviate an internally non-
displayed locked or crossed book that may occur due to expanding the
availability of the Post Only instruction to securities priced below
$1.00. The current one-half minimum price increment functionality for
securities priced at or above $1.00 under Exchange Rule 2617(a)(4)(iv)
has in fact been approved repeatedly by the Commission in the past and
that identical functionality should be expanded to cover securities
priced below $1.00.\55\ The Exchange simply seeks to expand this
functionality to securities priced below $1.00, therefore, believes its
proposal is consistent with Section 6(b)(5) of the Act.
---------------------------------------------------------------------------
\55\ See, e.g., Securities Exchange Act Release Nos. 88806 (May
4, 2020), 85 FR 27451 (May 8, 2020) (File No. 10-237) (Approving
MEMX LLC's exchange application which included MEMX Rule
11.10(a)(4)); 73468 (October 29, 2014), 79 FR 65450 (November 4,
2014) SR-EDGX-2014-18 (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, which included Cboe
EDGX Rule 11.10(a)(4)) (SR-EDGX-2014-18); and 73592 (November 13,
2014), 79 FR 68937 (November 19, 2014) (SR-EDGA-2014-20) (``Notice
of Filing of Amendment Nos. 1 and 2 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1
and 2, To Amend EDGA Rule 1.5 and Chapter XI Regarding Current
System Functionality Including the Operation of Order Types and
Order Instructions, which included Cboe EDGA Rule 11.10(a)(4)). See
also, e.g., Cboe EDGA Rule 11.10(a)(4). See also Cboe BYX and Cboe
BZX Rules 11.13(a)(4).
---------------------------------------------------------------------------
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.
Intra-Market Competition
The Exchange does not believe that the proposed rule change will
impose any burden on intra-market competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The proposed
changes to Exchange Rule 2614(c)(2) will apply equally to all Equity
Members and all Equity Members will be eligible to utilize the Post
Only instruction for securities priced below $1.00, just as they do
today for securities priced at or above $1.00.
Similarly, the proposed change to Exchange Rule 2617(a)(4)(iv)
applies similarly to all Equity Members because the proposed order
handling behavior changes abide by the principles of intra-market price
priority and will treat all securities in a similar fashion, regardless
of price. Each proposed change is designed to expand an existing
Exchange order instruction and existing order handling behavior to
securities priced below $1.00, with no change, due to the growth in
sub-dollar trading volumes that the Exchange has experienced since in
launched operations in September 2020.
Proposed Exchange Rule 2614(c)(2)(i)(A) to re-price to the locking
price of non-displayed orders, including those with a Post Only
instruction, that would cross a contra-side displayed order is similar
to how the Exchange currently reprices orders with a MEQ instruction
pursuant to Exchange Rule 2614(c)(7)(B)(ii). This portion of the
proposal simply seeks to provide consistent treatment of similarly
situated orders and should not impose any burden on intra-market
competition that is not necessary or appropriate in furtherance of the
purposes of the Act.
Overall, the Exchange believes its proposal will not impose any
burden on intra-market competition because the proposed functionality
would be available to all Equity Members who may choose to utilize the
proposed change based on their own business decisions and trading
behaviors.
Inter-Market Competition
The Exchange similarly does not believe that the proposed rule
change will impose any burden on inter-market competition that is not
necessary or appropriate in furtherance of the purposes of the Act. In
fact, the Exchange notes other national equities exchanges already
offer identical ``post only'' treatment of orders priced below
$1.00.\56\ There are numerous other factors that contribute to sub-
dollar trading volumes, the majority of which occurs off-exchange.\57\
This proposal would expand the population of exchanges that offer
``post only'' treatment for securities priced below $1.00 and would not
only allow the Exchange to compete with exchanges that currently offer
such functionality to sub-dollar securities, but also enable the
Exchange to provide an additional exchange-level pool of liquidity
where market participants may send such orders. The Exchange believes
this proposal will increase exchange competition by allowing the
Exchange to provide functionality that would allow it to attract a
greater slice of the current volume in sub-dollar securities
[[Page 60819]]
by encouraging market participants to send their sub-dollar trading
volume to an exchange-level pool of liquidity, rather than the opaque
off-exchange trading venues (i.e., dark pools), which are less
transparent. The Exchange believes its proposal to expand the use of
the Post Only instruction to securities priced below $1.00 will promote
competition between the Exchange and other exchanges for volume in sub-
dollar securities.
---------------------------------------------------------------------------
\56\ See supra notes 22, 23, and 24.
\57\ The increase in sub-dollar trading volume has not been due
to any new or novel exchange order types, but rather increased
retail participation, especially since the Covid-19 pandemic and
social media fueled hype; rise of off-exchange trading, including
dark pools; reverse stock splits; and high market volatility causing
prices to fall and making them prone to trading below $1.00. See,
e.g., U.S. Equities Volume Drivers: Retail Trading in Subdollar
Securities, dated November 24, 2024, available at <a href="https://www.cboe.com/insights/posts/u-s-equities-volume-drivers-retail-trading-in-subdollar-securities/">https://www.cboe.com/insights/posts/u-s-equities-volume-drivers-retail-trading-in-subdollar-securities/</a>; and Off Exchange Trading Increases
Across all Types of Stocks, dated February 13, 2025, available at
<a href="https://www.nasdaq.com/articles/exchange-trading-increases-across-all-types-stocks#">https://www.nasdaq.com/articles/exchange-trading-increases-across-all-types-stocks#</a>;:~:text=The%20rise%20is%20largely%20driven,ATS%20trades%20pri
nted%20off%2Dexchange.
---------------------------------------------------------------------------
The Exchange similarly believes that its proposal to amend Exchange
Rule 2617(a)(4)(iv) does not impose a burden on inter-market
competition as the change is not designed to address any competitive
issue, but rather to address order handling behavior in a similar
manner to how the Exchange treats orders priced at or above $1.00 while
continuing to abide by the above stated principles of intra-market
price priority.
Proposed Exchange Rule 2614(c)(2)(i)(A) to re-price to the locking
price of a non-displayed orders, including those with a Post Only
instruction, that would cross a contra-side is similar to how the
Exchange currently reprices orders with a Minimum Execution Quantity
instruction pursuant to Exchange Rule 2614(c)(7)(B)(ii). This portion
of the proposal simply seeks to provide consistent treatment of
similarly situated orders and should not impose any burden on inter-
market competition that is not necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. by order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="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#89fbfce5eca4eae6e4e4ece7fdfac9faeceaa7eee6ff"><span class="__cf_email__" data-cfemail="582a2d343d753b3735353d362c2b182b3d3b763f372e">[email protected]</span></a>. Please include
file number SR-PEARL-2025-50 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-2025-50. 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 filing 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-2025-50 and should be submitted on
or before January 20, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\58\
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\58\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-23809 Filed 12-23-25; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on December 29, 2025.
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.