Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 515, Execution of Orders and Quotes, 9869-9874 [2017-02551]
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Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 37
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. In its filing with the
Commission, the Exchange has asked
the Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest. The
Commission notes that waiver of the
operative delay will allow the proposed
rules to become operative before the
Exchange intends to commence
operations as a national exchange on
February 6, 2017. The Commission
notes that the proposed rule change is
based on substantively identical rules of
MIAX Options and thus raises no new
novel or substantive issues.
Accordingly, the Commission hereby
waives the operative delay and
designates the proposal operative upon
filing.38
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–PEARL–2017–03. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
PEARL–2017–03 and should be
submitted on or before March 1, 2017.
IV. Solicitation of Comments
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.39
Robert W. Errett,
Deputy Secretary.
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
asabaliauskas on DSK3SPTVN1PROD with NOTICES
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
PEARL–2017–03 on the subject line.
[FR Doc. 2017–02552 Filed 2–7–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting; Additional Item
FEDERAL REGISTER CITATION OF PREVIOUS
ANNOUNCEMENT: To be published.
Paper Comments
PREVIOUSLY ANNOUNCED TIME AND DATE OF
THE MEETING: Thursday, February 9,
• Send paper comments in triplicate
to Secretary, Securities and Exchange
CHANGES IN THE MEETING:
37 17
CFR 240.19b–4(f)(6)(iii).
purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
38 For
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2017.
The following
matter will also be considered during
the 2 p.m. Closed Meeting scheduled for
Thursday, February 9, 2017: Exemption
Relief Order.
CONTACT PERSON FOR MORE INFORMATION:
For further information and to ascertain
what, if any, matters have been added,
deleted or postponed, please contact the
Office of the Secretary at (202) 551–
5400.
Dated: February 3, 2017.
Lynn M. Powalski,
Deputy Secretary.
[FR Doc. 2017–02636 Filed 2–6–17; 11:15 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79946; File No. SR–
PEARL–2017–05]
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Exchange
Rule 515, Execution of Orders and
Quotes
February 2, 2017.
Pursuant to the provisions of Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
on January 31, 2017, MIAX PEARL, LLC
(‘‘MIAX PEARL’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal rule
change to amend Exchange Rule 515,
Execution of Orders and Quotes.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://www.miaxoptions.com/filter/
wotitle/rule_filing, at MIAX’s principal
office, and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
1 15
39 17
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9869
2 17
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U.S.C. 78s(b)(1).
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Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The purpose of the proposal is to
amend Exchange Rule 515(c) to
implement a new procedure for certain
orders on the Book 3 and to clarify how
price protection is established for orders
in various market states. The proposal
will (i) propose a new behavior of the
price protection process to remove
certain orders immediately following
the commencement of a trading halt and
at the end of each trading session, (ii)
clarify the method for establishing a
price protection limit for orders
received prior to the opening, and (iii)
clarify the method for establishing a
price protection limit for orders
remaining on the Book from a prior
trading session, either from the prior
day’s trading session or before a trading
halt.
The Exchange provides a price
protection process for all orders as part
of its commitment to providing risk
protection for Member’s 4 orders.5 The
price protection process prevents an
order from being executed beyond the
price designated in the order’s price
protection instructions (the ‘‘price
protection limit’’).6 The starting point
for establishing an order’s price
protection limit is the NBBO 7 at the
time the order is received by the
System,8 or the PBBO 9 if the ABBO 10
is crossing the PBBO at the time of
3 The term ‘‘Book’’ means the electronic book of
buy and sell orders and quotes maintained by the
System. See Exchange Rule 100.
4 The term ‘‘Member’’ means an individual or
organization that is registered with the Exchange
pursuant to Chapter II of the MIAX PEARL Rules
for purposes of trading on the Exchange as an
‘‘Electronic Exchange Member’’ or ‘‘Market Maker.’’
Members are deemed ‘‘members’’ under the
Exchange Act. See Exchange Rule 100.
5 See Exchange Rule 519, 519A, and 519B, for
additional order protections.
6 See Exchange Rule 515(c).
7 The term ‘‘NBBO’’ means the national best bid
or offer as calculated by the Exchange based on
information received by the Exchange from OPRA.
See Exchange Rule 100.
8 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
9 The term ‘‘PBBO’’ means the best bid or offer
on the PEARL Exchange. See Exchange Rule 100.
10 The term ‘‘ABBO’’ or ‘‘Away Best Bid or Offer’’
means the best bid(s) or offer(s) disseminated by
other Eligible Exchanges (defined in Rule 1400(f))
and calculated by the Exchange based on market
information received by the Exchange from OPRA.
See Exchange Rule 100.
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receipt. The Exchange refers to this
value internally as the initial reference
price (‘‘IRP’’). The Member may
determine the number of Minimum
Price Variations (‘‘MPVs’’) 11 away from
the IRP that it wants to use to establish
its price protection limit. If the order is
a ‘‘buy,’’ some number of MPVs, either
as designated by the Member or as
defaulted by the Exchange, is added to
the IRP to establish the order’s price
protection limit. If the order is a ‘‘sell,’’
some number of MPVs, either as
designated by the Member or defaulted
by the Exchange, is subtracted from the
IRP to establish the order’s price
protection limit. When an order’s price
protection limit is triggered, the order
(or the remaining contracts of an order)
is canceled by the System.
Except as discussed below, orders can
be received by the Exchange either prior
to or after completion of the Opening
Process.12 Orders may have a limit price
(‘‘limit orders’’) 13 or be priced to buy or
sell at the market price (‘‘market
orders’’).14 A market order represents a
willingness to buy or sell at the best
price available at the time of execution.
A market order to buy could execute at
the maximum price permitted by the
Exchange,15 whereas a market order to
sell could execute at the lowest price
permitted by the Exchange, or one (1)
MPV above zero.16 When orders are
received after the Opening Process is
complete and when the market is in a
regular trading state, the price
protection process tethers the order’s
price to the current NBBO, (or PBBO if
the ABBO is crossing the PBBO at the
time of receipt), and provides protection
(based on the number of MPVs supplied
by the Member or defaulted by the
Exchange) for orders that are priced
through the NBBO.
Limit Orders
For purposes of this Rule 515(c), the
Exchange is proposing to consider the
effective limit price of a limit order to
be the limit price of the order.
Depending upon the NBBO at the time
of receipt by the System, and the order’s
11 See
Exchange Rule 510.
Exchange Rule 503(a)(1).
13 A limit order is an order to buy or sell a stated
number of option contracts at a specified price or
better. See Exchange Rule 516.
14 A market order is an order to buy or sell a
stated number of option contracts at the best price
available at the time of execution. See Exchange
Rule 516.
15 The Exchange notes that the maximum price at
which an order may execute at in the System is
$1,999.99.
16 A market order to sell could execute at $.01 in
an option class quoted and traded in increments as
low as $.01; or at $.05 in an option class quoted and
traded in increments as low as $.05. See Exchange
Rule 510.
12 See
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price protection instructions, the order’s
price protection limit can be considered
either ‘‘more aggressive’’ (equal to or
higher than the order’s effective limit
price for a buy order or equal to or lower
than the order’s effective limit price for
a sell order) or ‘‘less aggressive’’ (lower
than the order’s effective limit price for
a buy order or higher than the order’s
effective limit price for a sell order) than
the order’s effective limit price. When
an order’s price protection limit is equal
to or more aggressive than its effective
limit price, the order’s effective price
protection limit will be the order’s limit
price, as an order will never trade
through its limit price on the Exchange.
Market Orders
Non-routable market orders to sell are
managed in accordance to Rule
515(d)(2). For purposes of evaluating
orders under the proposed price
protection process outlined in this Rule,
the Exchange is proposing to consider
the effective limit price of a market
order to buy to be the maximum price
currently permitted by the Exchange’s
System,17 and the effective limit price
for a market order to sell to be one (1)
MPV above zero ($.01 for options
quoted and traded in increments as low
as $.01, or $.05 for options quoted and
traded in increments as low as $.05).18
Depending upon the NBBO at the
time of receipt by the System, and the
order’s price protection instructions, the
order’s price protection limit can either
be more aggressive (equal to or higher
than the order’s effective limit price for
a buy order or equal to or lower than the
order’s effective limit price for a sell
order) or less aggressive (lower than the
order’s effective limit price for a buy
order or higher than the order’s effective
limit price for a sell order) than the
order’s effective limit price.
For both limit and market orders,
when the order’s price protection limit
is triggered, the order, or the remaining
contracts of the order, will be canceled.
Under the current rule, this cancellation
will only occur during regular trading
and can possibly result in an order not
receiving an execution at the price
anticipated by the Member when the
order was submitted, as a result of a
price protection limit that is less
aggressive than the order’s effective
limit price. Under the current rule, an
order with a price protection limit less
aggressive than the order’s effective
limit price will persist throughout the
course of an entire trading day,
including through a trading halt,
17 See
18 See
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supra note 15.
Exchange Rule 510.
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(provided the order’s price protection
limit isn’t triggered).
The Exchange now proposes to
evaluate orders at the conclusion of
each trading session (including after a
trading halt as defined in Rule 504), to
identify those orders that have a price
protection limit that is less aggressive
than the order’s effective limit price, in
addition to current functionality. The
Exchange believes it is in the best
interest of its Members to proactively
identify orders on the Book that have a
price protection limit that is less
aggressive than the order’s effective
limit price at the conclusion of each
trading session when the market is not
in a regular trading state. Given that
these orders will never trade to their
effective limit price, the Exchange
proposes to cancel these orders from the
Book so that Members can benefit from
an increase in the amount of time
available to re-evaluate the current
market conditions prior to resubmitting
the order to the Exchange.
The following examples demonstrate
how the proposed process would work
for non-routable limit orders.
Option MPV = $.01
PBBO: $1.00 × $1.05
ABBO: $1.01 × $1.03
NBBO: $1.01 × $1.03
Order #1 Received: Buy @$1.08 GTC,
Price Protection MPVs: 2
1. Order is managed to the ABBO
2. Effective limit price: $1.08 (bid)
3. Display price: $1.02 (bid)
4. Book price: $1.03 (bid)
5. Price protection limit: $1.05 [(IRP +
2 MPVs) or ($1.03 + $.02)]
6. The order’s price protection limit
($1.05) is less aggressive than the
order’s effective limit price ($1.08)
Order #2 Received: Buy @$1.04 GTC,
Price Protection MPVs: 2
1. Order is Managed to the ABBO
2. Effective limit price: $1.04
3. Display price: $1.02 (bid)
4. Book price: $1.03 (bid)
5. Price protection limit: $1.05 [(IRP +
2 MPVs) or ($1.03 + $.02)]
6. The order’s price protection limit
($1.05) is more aggressive than the
order’s effective limit price ($1.04)
The Market closes (or Halts as per
Rule 504).
• Order #1 is canceled as the order’s
price protection limit ($1.05) is less
aggressive than its effective limit price
($1.08). Under proposed Interpretations
and Policies .02, the System will cancel
a buy order when the order’s price
protection limit is lower than the order’s
effective limit price.
• Order #2 is maintained on the Book
as the order’s price protection limit
($1.05) is more aggressive than its
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effective limit price ($1.04). Under
proposed Interpretations and Policies
.02, the System will not cancel a buy
order when the order’s price protection
limit is higher than the order’s effective
limit price.
The following examples demonstrate
how the proposed process would work
for non-routable market orders.
Option MPV = $.01
PBBO: $1.00 × $1.05
ABBO: $1.01 × $1.03
NBBO: $1.01 × $1.03
Order # 3 Received: Buy @the Market
GTC, Price Protection MPVs: 2
1. Order is Managed to the ABBO
2. Effective limit price: $1,999.99
(Exchange Maximum)
3. Display price: $1.02 (bid)
4. Book price: $1.03 (bid)
5. Price protection limit: $1.05 [(IRP +
2 MPVs) or ($1.03 + $.02)]
6. The order’s price protection limit
($1.05) is less aggressive than the
order’s effective limit price
($1,999.99)
Option MPV = $.01
PBBO: $.00 × $.15
ABBO: $.05 × $.15
NBBO: $.05 × $.15
Order #4 Received: Sell @the Market,
Price Protection MPVs: 2
1. Order is managed to the ABBO
2. Effective limit price: $.01
3. Display price: $.06 (offer)
4. Book price: $.05 (offer)
5. Price protection limit: $.03 [(IRP ¥
2 MPVs) or (.05 ¥ $.02)]
6. The order’s price protection limit
($.03) is less aggressive than the
order’s effective limit price ($.01)
Order #5 Received: Sell @ the Market,
Price Protection MPVs: 4
1. Order is managed to the ABBO
2. Effective limit price: $.01
3. Display price: $.06 (offer)
4. Book price: $.05 (offer)
5. Price protection limit: $.01 [(IRP ¥
4 MPVs) or ($.05 ¥ $.04)]
6. The order’s price protection limit
($.01) is equal to the order’s
effective limit price ($.01)
The Market closes (or Halts as per
Rule 504).
• Order #3 is canceled as the order’s
price protection limit ($1.05) is less
aggressive than the orders effective limit
price ($1,999.99). Under proposed
Interpretations and Policies .02, the
System will cancel a buy order when
the order’s price protection limit is
lower than the order’s effective limit
price.
• Order #4 is canceled as the order’s
price protection limit ($0.03) is less
aggressive than its effective limit price
($0.01). Under proposed Interpretations
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9871
and Policies .02, the System will cancel
a sell order when the order’s price
protection limit is higher than the
order’s effective limit price.
• Order #5 is maintained on the Book
as the order’s price protection limit
($0.01) is equal to its effective limit
price ($0.01). Under proposed
Interpretations and Policies .02, the
System will not cancel a sell order when
the order’s price protection limit is not
higher than the order’s effective limit
price.
The Exchange believes that its
proposal to cancel orders at the end of
a trading session, when the order’s price
protection limit is less aggressive than
the order’s effective limit price, will
afford market participants the
opportunity to evaluate whether to resubmit their orders and/or establish a
different price and/or price protection
instructions, based on then-current
market conditions, prior to the opening
of the next trading session. Given that
the Exchange can discern when an order
may not fill at the price levels
anticipated, (based on an order having
a price protection limit that is less
aggressive than the order’s effective
limit price), the Exchange believes the
most prudent course of action in these
circumstances is to return the order to
the Member for analysis and evaluation,
while the market is not in a regular
trading state, (e.g., a Member submitting
a non-routable market order to sell in an
option class quoting in $.01 increments,
when the PBBO is $0.00 × $0.15 and the
NBBO is $0.05 × $0.15, could expect to
sell at every price increment down to
$.01. However, if the Exchange default
price protection instruction is 2 MPVs,
the order would receive a price
protection limit of $0.03. When the
price protection limit is triggered, the
order, or the remaining contracts of the
order, would be canceled, and the order
would not execute at $0.02 or $0.01).
Specifically, the Exchange proposes to
adopt new Interpretations and Policies
.02, to state that the System will cancel
certain orders from the Book
immediately following the
commencement of a trading halt
pursuant to Rule 504, and at the end of
each trading session, when the order’s
price protection limit is less aggressive
than the order’s effective limit price.
Interpretations and Policies .02 further
states that, for the purposes of this Rule,
the effective limit price of a limit order
will be the order’s limit price; the
effective limit price of a market order to
buy, will be the maximum price
currently permitted by the Exchange; 19
and the effective limit price of a
19 See
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market order to sell, will be one (1) MPV
as established by Rule 510, either $.01
for option classes quoted and traded in
increments as low as $.01, or $.05 for
option classes quoted and traded in
increments as low as $.05.
Additionally, the Exchange also
proposes to clarify the method for
establishing a price protection limit for
orders that are received prior to the
opening and for those orders remaining
on the Book from a prior trading
session, either from the prior day’s
trading session or before a trading halt.
For orders received prior to the opening
that are priced through the Opening
Price, the System will assign an IRP
equal to the Opening Price.20 This
process differs from the process on
MIAX Options as MIAX PEARL and
MIAX Options have significantly
different opening processes due to
differences in the underlying market
structure of each Exchange.21 The most
significant difference is the fact that
orders that are priced through the
opening price on MIAX Options are
canceled,22 whereas orders on MIAX
PEARL that are priced through the
Opening Price are re-introduced after
the opening process is complete.23 The
Exchange believes its Opening Price to
be the most reliable reference price
given the requirements that must be
satisfied to establish the Opening Price
under the opening process.24 As these
orders are being reintroduced to the
market and may be managed,25 the
Exchange will use the Opening Price as
the IRP and apply the Exchange default
MPV protection, or the MPV protection
designated by the Member, to establish
the order’s price protection limit.
Orders that are received prior to the
opening that are not priced through the
Opening Price and not executed during
the Opening Process will be booked and
managed at their limit price without
additional price protection. The most
appropriate price protection limit for a
non-routable order that is not executed
during the Opening Process and that is
not priced through the Opening Price is
the order’s effective limit price. The
price available to these orders during
the Opening Process is effectively
bound at the Opening Price and these
orders can only execute at a price equal
to, or better than, the Opening Price and
20 See
Exchange Rule 503(b)(2)(i).
Securities Exchange Act Release No. 79543
(December 13, 2016), 81 FR 92901 (December 20,
2016) (File No. 10–227) (order approving
application of MIAX PEARL, LLC for registration as
a national securities exchange.)
22 See MIAX Options Rule 503(f)(2)(vii)(B)(5).
23 See Exchange Rule 503(b)(2)(iii).
24 See Exchange Rule 503(b).
25 See Exchange Rule 515(d)(2).
21 See
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equal to, or better than, the order’s limit
price. An order with a price protection
limit more aggressive than its effective
limit price is managed to its limit price,
as an order on the Exchange will never
trade through its limit price. By default,
orders received prior to the opening that
are not priced through the opening
price, will have a price protection limit
that is more aggressive than the order’s
limit price, therefore, booking and
posting these orders at their limit price
affords them the same price protection
as the price protection process would
have provided.
As proposed, orders that are carried
over from a prior day’s trading session
or that remain on the Book from before
a trading halt will be booked and
managed at the order’s limit price.
During a regular trading session, if an
order’s price protection limit is equal to
or more aggressive than its effective
limit price, the order will trade or post
to its limit price and no further; if the
order’s price protection limit is less
aggressive than its effective limit price,
or if the order is a market order, the
price protection process will cancel the
order, or the remaining contracts of the
order, when the price protection limit is
triggered, which in all cases will be
before the order has a chance to trade
or post to its limit price. If at the end
of a trading session an order remains on
the Book with a price protection limit
less aggressive than its effective limit
price, the new proposed behavior of the
price protection process will remove the
order from the Book. Therefore, any
order carried over from either the prior
day’s trading session, or that remains on
the Book from before a trading halt, will
by necessity have a price protection
limit which is more aggressive than the
order’s effective limit price. Given the
fact that an order will never trade
through its limit price 26 on the
Exchange, the Exchange believes that an
order carried over from a prior day’s
trading session, or that remains on the
Book from before a trading halt, has
exhausted its need for price protection,
as per the aforementioned processes,
and can now be booked and managed by
its limit price.
2. Statutory Basis
MIAX PEARL believes that its
proposed rule change is consistent with
Section 6(b) of the Act 27 in general, and
furthers the objectives of Section 6(b)(5)
of the Act 28 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
26 See
Exchange Rule 515(d)(2)(i).
U.S.C. 78f(b).
28 15 U.S.C. 78f(b)(5).
27 15
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promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanisms of a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
The Exchange believes that its
proposal to remove orders with a price
protection limit less aggressive than the
order’s effective limit price at the
conclusion of a trading session (or after
a trading halt as defined in Rule 504) to
be in the best interest of the investor as
these orders will never fill to their
effective limit price. The price
protection process will cancel an order,
or the remaining contracts of an order,
when the price protection limit is
triggered during regular trading. The
Exchange believes it is in the best
interest of investors for the Exchange to
return an order with a price protection
limit which is less aggressive than the
order’s effective limit price to the
Member, while the market is not in
regular trading, so that the Member has
more time to evaluate whether to resubmit the order and/or establish a
different price and/or different price
protection instructions, based on the
then-current market conditions.
Specifically, the Exchange believes the
proposed change will remove
impediments to and perfect the
mechanism of a free and open market by
providing market participants with
more time to evaluate their orders
which will promote fair and orderly
markets, increase overall market
confidence, and promote the protection
of investors.
The Exchange proposes to clarify the
method for establishing a price
protection limit for orders received prior
to the opening that are priced through
the Opening Price. The Exchange has a
rigorous opening process and believes
that using the Opening Price as the
order’s IRP to be the best price available
for use as a benchmark in establishing
an order’s price protection level. The
Exchange believes this proposal would
assist with the maintenance of a fair and
orderly market by ensuring that orders
being re-introduced to the market have
a reasonable price protection limit and
an adequate level of risk protection.
The Exchange believes that clarifying
the method for establishing a price
protection limit for orders that are
received prior to the opening that are
not priced through the Opening Price
and for orders that remain on the book
from a prior day’s trading session, or
from before a trading halt, provides
E:\FR\FM\08FEN1.SGM
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Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices
transparency and clarity in the
Exchange’s rules. The Exchange believes
that booking and posting these orders at
their limit price provides the same level
of protection as the price protection
process, as an order will never trade
through its limit price on the Exchange.
The Exchange believes it is in the
interest of investors and the public to
accurately describe the behavior of the
Exchange’s System in its rules as this
information may be used by investors to
make decisions concerning the
submission of their orders.
Transparency and clarity are consistent
with the Act because it removes
impediments to and perfects the
mechanism of a free and open market
and a national market system, and, in
general, protects investors and the
public interest by accurately describing
the behavior of the Exchange’s System.
The Exchange believes its proposal to
add new Interpretations and Policies .02
protects investors and the public
interest by clearly stating in the
Exchange’s rules the method by which
the Exchange is evaluating orders for
removal by the System. Further, the
Exchange believes that providing the
definition of effective limit price
provides clarity and transparency in the
Exchange’s rules. Additionally, the
Exchange’s proposal to remove orders
where the price protection limit for a
buy order is lower than the order’s
effective limit price; and where the
price protection limit for a sell order is
higher than the order’s effective limit
price, contributes to the maintenance of
a fair and orderly market by returning
orders that would not fill to their
effective limit price to the market
participant for re-evaluation while the
market is not in a regular trading state.
Market participants can evaluate the
current market conditions and consider
re-submitting their order with a new
price and/or new price protection
instructions while the market is not
active.
The Exchange believes this proposal
will provide MIAX PEARL participants
with a better understanding of the
Exchange’s price protection process.
The description of the System’s
functionality is designed to promote just
and equitable principles of trade by
providing a clear and accurate
description to all participants of how
the price protection process is applied
and should assist investors in making
decisions concerning their orders.
Further, the Exchange believes that the
price protection process provides
market participants with an appropriate
level of risk protection on their orders
and contributes to the maintenance of a
fair and orderly market.
VerDate Sep<11>2014
17:36 Feb 07, 2017
Jkt 241001
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 not
necessary or appropriate in furtherance
of the purposes of the Act. Specifically,
the Exchange believes the proposed
changes will not impose any burden on
intra-market competition because it
applies to all MIAX PEARL participants
equally. In addition, the Exchange does
not believe the proposal will impose
any burden on inter-market competition
as the proposal is intended to protect
investors by providing further
enhancements and transparency
regarding the Exchange’s price
protection functionality.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to 19(b)(3)(A)
of the Act 29 and Rule 19b–4(f)(6)
thereunder.30
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 31 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 32
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. In its filing with the
Commission, the Exchange has asked
the Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest. The
29 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
31 17 CFR 240.19b–4(f)(6).
32 17 CFR 240.19b–4(f)(6)(iii).
30 17
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Sfmt 4703
9873
Commission notes that waiver of the
operative delay will allow the proposed
rules to become operative before the
Exchange intends to commence
operations as a national exchange on
February 6, 2017. The Commission
further believes that the proposal
provides additional clarity concerning
the behavior of the Exchange’s price
protection process. Accordingly, the
Commission hereby waives the
operative delay and designates the
proposal operative upon filing.33
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
PEARL–2017–05 on the subject line.
Paper Comments
• 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–2017–05. 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 Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
33 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
PEARL–2017–05 and should be
submitted on or before March 1, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017–02551 Filed 2–7–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations; Bats
BZX Exchange, Inc.; Notice of Filing of
a Proposed Rule Change To Adopt
Rules 4.5 Through 4.16 To Implement
the Compliance Rule Regarding the
National Market System Plan
Governing the Consolidated Audit Trail
asabaliauskas on DSK3SPTVN1PROD with NOTICES
February 2, 2017.
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 January
30, 2017, Bats BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by the Exchange.3 The Commission is
publishing this notice to solicit
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 The Exchange originally filed this proposed rule
change on January 17, 2017 under File No. SR–
BatsBZX–2017–04, and the Exchange subsequently
withdrew that filing on January 30, 2017 and filed
this proposed rule change.
1 15
VerDate Sep<11>2014
17:36 Feb 07, 2017
Jkt 241001
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to
adopt Rules 4.5 through 4.16 to
implement the compliance rule
(‘‘Compliance Rule’’) regarding the
National Market System Plan Governing
the Consolidated Audit Trail (the ‘‘CAT
NMS Plan’’ or ‘‘Plan’’).4
The text of the proposed rule change
is available at the Exchange’s Web site
at www.bats.com, at the principal office
of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant parts of such
statements.
(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[Release No. 34–79927; File No. SR–
BatsBZX–2017–08]
34 17
comments on the proposed rule change
from interested persons.
1. Purpose
Bats BYX Exchange, Inc., Bats BZX
Exchange, Inc., Bats EDGA Exchange,
Inc., Bats EDGX Exchange, Inc., BOX
Options Exchange LLC, C2 Options
Exchange, Incorporated, Chicago Board
Options Exchange, Incorporated,
Chicago Stock Exchange, Inc., Financial
Industry Regulatory Authority, Inc.,
International Securities Exchange, LLC,
Investors’ Exchange LLC, ISE Gemini,
LLC, ISE Mercury, LLC, Miami
International Securities Exchange LLC,
MIAX PEARL, LLC, NASDAQ BX, Inc.,
NASDAQ PHLX LLC, The NASDAQ
Stock Market LLC, National Stock
Exchange, Inc., New York Stock
Exchange LLC, NYSE MKT LLC, and
NYSE Arca, Inc. (collectively, the
‘‘Participants’’) filed with the
Commission, pursuant to Section 11A of
the Exchange Act 5 and Rule 608 of
Regulation NMS thereunder,6 the CAT
4 Unless otherwise specified, capitalized terms
used in this rule filing are defined as set forth
herein or in the CAT NMS Plan.
5 15 U.S.C. 78k–1.
6 17 CFR 242.608.
PO 00000
Frm 00166
Fmt 4703
Sfmt 4703
NMS Plan.7 The Participants filed the
Plan to comply with Rule 613 of
Regulation NMS under the Exchange
Act. The Plan was published for
comment in the Federal Register on
May 17, 2016,8 and approved by the
Commission, as modified, on November
15, 2016.9
The Plan is designed to create,
implement and maintain a consolidated
audit trail (‘‘CAT’’) that would capture
customer and order event information
for orders in NMS Securities and OTC
Equity Securities, across all markets,
from the time of order inception through
routing, cancellation, modification, or
execution in a single consolidated data
source. Each Participant is required to
enforce compliance by its Industry
Members, as applicable, with the
provisions of the Plan, by adopting a
Compliance Rule applicable to their
Industry Members.10 As is described
more fully below, the Proposed Rules
4.5 through 4.16 set forth the
Compliance Rule to require Industry
Members to comply with the provisions
of the CAT NMS Plan. The Proposed
Rules 4.5 through 4.16 include twelve
Proposed Rules covering the following
areas: (1) Definitions; (2) clock
synchronization; (3) Industry Member
Data reporting; (4) Customer
information reporting; (5) Industry
Member information reporting; (6) time
stamps; (7) clock synchronization rule
violations; (8) connectivity and data
transmission; (9) development and
testing; (10) recordkeeping; (11) timely,
accurate and complete data; and (12)
compliance dates. Each of these
Proposed Rules are discussed in detail
below.
(i) Definitions
Proposed Rule 4.5 (Consolidated
Audit Trail—Definitions) sets forth the
definitions for the terms used in the
Proposed Rules 4.5 through 4.16. Each
of the defined terms in Proposed Rule
4.5 is discussed in detail in this section.
(A) Account Effective Date
(I) Customer Information Approach
SEC Rule 613 requires that numerous
data elements be reported to the CAT to
7 See Letter from the Participants to Brent J.
Fields, Secretary, Commission, dated September 30,
2014; and Letter from Participants to Brent J. Fields,
Secretary, Commission, dated February 27, 2015.
On December 24, 2015, the Participants submitted
an amendment to the CAT NMS Plan. See Letter
from Participants to Brent J. Fields, Secretary,
Commission, dated December 23, 2015.
8 Securities Exchange Act Rel. No. 77724 (Apr.
27, 2016), 81 FR 30614 (May 17, 2016).
9 Securities Exchange Act Rel. No. 79318 (Nov.
15, 2016), 81 FR 84696 (Nov. 23, 2016) (‘‘Approval
Order’’).
10 See SEC Rule 613(g)(1).
E:\FR\FM\08FEN1.SGM
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]]>Agencies
[Federal Register Volume 82, Number 25 (Wednesday, February 8, 2017)]
[Notices]
[Pages 9869-9874]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02551]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79946; File No. SR-PEARL-2017-05]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange
Rule 515, Execution of Orders and Quotes
February 2, 2017.
Pursuant to the provisions of Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on January 31, 2017, MIAX PEARL, LLC (``MIAX
PEARL'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') a proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal rule change to amend Exchange
Rule 515, Execution of Orders and Quotes.
The text of the proposed rule change is available on the Exchange's
Web site at https://www.miaxoptions.com/filter/wotitle/rule_filing, at
MIAX's principal office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The
[[Page 9870]]
Exchange has prepared summaries, set forth in sections A, B, and C
below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposal is to amend Exchange Rule 515(c) to
implement a new procedure for certain orders on the Book \3\ and to
clarify how price protection is established for orders in various
market states. The proposal will (i) propose a new behavior of the
price protection process to remove certain orders immediately following
the commencement of a trading halt and at the end of each trading
session, (ii) clarify the method for establishing a price protection
limit for orders received prior to the opening, and (iii) clarify the
method for establishing a price protection limit for orders remaining
on the Book from a prior trading session, either from the prior day's
trading session or before a trading halt.
---------------------------------------------------------------------------
\3\ The term ``Book'' means the electronic book of buy and sell
orders and quotes maintained by the System. See Exchange Rule 100.
---------------------------------------------------------------------------
The Exchange provides a price protection process for all orders as
part of its commitment to providing risk protection for Member's \4\
orders.\5\ The price protection process prevents an order from being
executed beyond the price designated in the order's price protection
instructions (the ``price protection limit'').\6\ The starting point
for establishing an order's price protection limit is the NBBO \7\ at
the time the order is received by the System,\8\ or the PBBO \9\ if the
ABBO \10\ is crossing the PBBO at the time of receipt. The Exchange
refers to this value internally as the initial reference price
(``IRP''). The Member may determine the number of Minimum Price
Variations (``MPVs'') \11\ away from the IRP that it wants to use to
establish its price protection limit. If the order is a ``buy,'' some
number of MPVs, either as designated by the Member or as defaulted by
the Exchange, is added to the IRP to establish the order's price
protection limit. If the order is a ``sell,'' some number of MPVs,
either as designated by the Member or defaulted by the Exchange, is
subtracted from the IRP to establish the order's price protection
limit. When an order's price protection limit is triggered, the order
(or the remaining contracts of an order) is canceled by the System.
---------------------------------------------------------------------------
\4\ The term ``Member'' means an individual or organization that
is registered with the Exchange pursuant to Chapter II of the MIAX
PEARL Rules for purposes of trading on the Exchange as an
``Electronic Exchange Member'' or ``Market Maker.'' Members are
deemed ``members'' under the Exchange Act. See Exchange Rule 100.
\5\ See Exchange Rule 519, 519A, and 519B, for additional order
protections.
\6\ See Exchange Rule 515(c).
\7\ The term ``NBBO'' means the national best bid or offer as
calculated by the Exchange based on information received by the
Exchange from OPRA. See Exchange Rule 100.
\8\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\9\ The term ``PBBO'' means the best bid or offer on the PEARL
Exchange. See Exchange Rule 100.
\10\ The term ``ABBO'' or ``Away Best Bid or Offer'' means the
best bid(s) or offer(s) disseminated by other Eligible Exchanges
(defined in Rule 1400(f)) and calculated by the Exchange based on
market information received by the Exchange from OPRA. See Exchange
Rule 100.
\11\ See Exchange Rule 510.
---------------------------------------------------------------------------
Except as discussed below, orders can be received by the Exchange
either prior to or after completion of the Opening Process.\12\ Orders
may have a limit price (``limit orders'') \13\ or be priced to buy or
sell at the market price (``market orders'').\14\ A market order
represents a willingness to buy or sell at the best price available at
the time of execution. A market order to buy could execute at the
maximum price permitted by the Exchange,\15\ whereas a market order to
sell could execute at the lowest price permitted by the Exchange, or
one (1) MPV above zero.\16\ When orders are received after the Opening
Process is complete and when the market is in a regular trading state,
the price protection process tethers the order's price to the current
NBBO, (or PBBO if the ABBO is crossing the PBBO at the time of
receipt), and provides protection (based on the number of MPVs supplied
by the Member or defaulted by the Exchange) for orders that are priced
through the NBBO.
---------------------------------------------------------------------------
\12\ See Exchange Rule 503(a)(1).
\13\ A limit order is an order to buy or sell a stated number of
option contracts at a specified price or better. See Exchange Rule
516.
\14\ A market order is an order to buy or sell a stated number
of option contracts at the best price available at the time of
execution. See Exchange Rule 516.
\15\ The Exchange notes that the maximum price at which an order
may execute at in the System is $1,999.99.
\16\ A market order to sell could execute at $.01 in an option
class quoted and traded in increments as low as $.01; or at $.05 in
an option class quoted and traded in increments as low as $.05. See
Exchange Rule 510.
---------------------------------------------------------------------------
Limit Orders
For purposes of this Rule 515(c), the Exchange is proposing to
consider the effective limit price of a limit order to be the limit
price of the order. Depending upon the NBBO at the time of receipt by
the System, and the order's price protection instructions, the order's
price protection limit can be considered either ``more aggressive''
(equal to or higher than the order's effective limit price for a buy
order or equal to or lower than the order's effective limit price for a
sell order) or ``less aggressive'' (lower than the order's effective
limit price for a buy order or higher than the order's effective limit
price for a sell order) than the order's effective limit price. When an
order's price protection limit is equal to or more aggressive than its
effective limit price, the order's effective price protection limit
will be the order's limit price, as an order will never trade through
its limit price on the Exchange.
Market Orders
Non-routable market orders to sell are managed in accordance to
Rule 515(d)(2). For purposes of evaluating orders under the proposed
price protection process outlined in this Rule, the Exchange is
proposing to consider the effective limit price of a market order to
buy to be the maximum price currently permitted by the Exchange's
System,\17\ and the effective limit price for a market order to sell to
be one (1) MPV above zero ($.01 for options quoted and traded in
increments as low as $.01, or $.05 for options quoted and traded in
increments as low as $.05).\18\
---------------------------------------------------------------------------
\17\ See supra note 15.
\18\ See Exchange Rule 510.
---------------------------------------------------------------------------
Depending upon the NBBO at the time of receipt by the System, and
the order's price protection instructions, the order's price protection
limit can either be more aggressive (equal to or higher than the
order's effective limit price for a buy order or equal to or lower than
the order's effective limit price for a sell order) or less aggressive
(lower than the order's effective limit price for a buy order or higher
than the order's effective limit price for a sell order) than the
order's effective limit price.
For both limit and market orders, when the order's price protection
limit is triggered, the order, or the remaining contracts of the order,
will be canceled. Under the current rule, this cancellation will only
occur during regular trading and can possibly result in an order not
receiving an execution at the price anticipated by the Member when the
order was submitted, as a result of a price protection limit that is
less aggressive than the order's effective limit price. Under the
current rule, an order with a price protection limit less aggressive
than the order's effective limit price will persist throughout the
course of an entire trading day, including through a trading halt,
[[Page 9871]]
(provided the order's price protection limit isn't triggered).
The Exchange now proposes to evaluate orders at the conclusion of
each trading session (including after a trading halt as defined in Rule
504), to identify those orders that have a price protection limit that
is less aggressive than the order's effective limit price, in addition
to current functionality. The Exchange believes it is in the best
interest of its Members to proactively identify orders on the Book that
have a price protection limit that is less aggressive than the order's
effective limit price at the conclusion of each trading session when
the market is not in a regular trading state. Given that these orders
will never trade to their effective limit price, the Exchange proposes
to cancel these orders from the Book so that Members can benefit from
an increase in the amount of time available to re-evaluate the current
market conditions prior to resubmitting the order to the Exchange.
The following examples demonstrate how the proposed process would
work for non-routable limit orders.
Option MPV = $.01
PBBO: $1.00 x $1.05
ABBO: $1.01 x $1.03
NBBO: $1.01 x $1.03
Order #1 Received: Buy @$1.08 GTC, Price Protection MPVs: 2
1. Order is managed to the ABBO
2. Effective limit price: $1.08 (bid)
3. Display price: $1.02 (bid)
4. Book price: $1.03 (bid)
5. Price protection limit: $1.05 [(IRP + 2 MPVs) or ($1.03 + $.02)]
6. The order's price protection limit ($1.05) is less aggressive
than the order's effective limit price ($1.08)
Order #2 Received: Buy @$1.04 GTC, Price Protection MPVs: 2
1. Order is Managed to the ABBO
2. Effective limit price: $1.04
3. Display price: $1.02 (bid)
4. Book price: $1.03 (bid)
5. Price protection limit: $1.05 [(IRP + 2 MPVs) or ($1.03 + $.02)]
6. The order's price protection limit ($1.05) is more aggressive
than the order's effective limit price ($1.04)
The Market closes (or Halts as per Rule 504).
Order #1 is canceled as the order's price protection limit
($1.05) is less aggressive than its effective limit price ($1.08).
Under proposed Interpretations and Policies .02, the System will cancel
a buy order when the order's price protection limit is lower than the
order's effective limit price.
Order #2 is maintained on the Book as the order's price
protection limit ($1.05) is more aggressive than its effective limit
price ($1.04). Under proposed Interpretations and Policies .02, the
System will not cancel a buy order when the order's price protection
limit is higher than the order's effective limit price.
The following examples demonstrate how the proposed process would
work for non-routable market orders.
Option MPV = $.01
PBBO: $1.00 x $1.05
ABBO: $1.01 x $1.03
NBBO: $1.01 x $1.03
Order # 3 Received: Buy @the Market GTC, Price Protection MPVs: 2
1. Order is Managed to the ABBO
2. Effective limit price: $1,999.99 (Exchange Maximum)
3. Display price: $1.02 (bid)
4. Book price: $1.03 (bid)
5. Price protection limit: $1.05 [(IRP + 2 MPVs) or ($1.03 + $.02)]
6. The order's price protection limit ($1.05) is less aggressive
than the order's effective limit price ($1,999.99)
Option MPV = $.01
PBBO: $.00 x $.15
ABBO: $.05 x $.15
NBBO: $.05 x $.15
Order #4 Received: Sell @the Market, Price Protection MPVs: 2
1. Order is managed to the ABBO
2. Effective limit price: $.01
3. Display price: $.06 (offer)
4. Book price: $.05 (offer)
5. Price protection limit: $.03 [(IRP - 2 MPVs) or (.05 - $.02)]
6. The order's price protection limit ($.03) is less aggressive
than the order's effective limit price ($.01)
Order #5 Received: Sell @ the Market, Price Protection MPVs: 4
1. Order is managed to the ABBO
2. Effective limit price: $.01
3. Display price: $.06 (offer)
4. Book price: $.05 (offer)
5. Price protection limit: $.01 [(IRP - 4 MPVs) or ($.05 - $.04)]
6. The order's price protection limit ($.01) is equal to the
order's effective limit price ($.01)
The Market closes (or Halts as per Rule 504).
Order #3 is canceled as the order's price protection limit
($1.05) is less aggressive than the orders effective limit price
($1,999.99). Under proposed Interpretations and Policies .02, the
System will cancel a buy order when the order's price protection limit
is lower than the order's effective limit price.
Order #4 is canceled as the order's price protection limit
($0.03) is less aggressive than its effective limit price ($0.01).
Under proposed Interpretations and Policies .02, the System will cancel
a sell order when the order's price protection limit is higher than the
order's effective limit price.
Order #5 is maintained on the Book as the order's price
protection limit ($0.01) is equal to its effective limit price ($0.01).
Under proposed Interpretations and Policies .02, the System will not
cancel a sell order when the order's price protection limit is not
higher than the order's effective limit price.
The Exchange believes that its proposal to cancel orders at the end
of a trading session, when the order's price protection limit is less
aggressive than the order's effective limit price, will afford market
participants the opportunity to evaluate whether to re-submit their
orders and/or establish a different price and/or price protection
instructions, based on then-current market conditions, prior to the
opening of the next trading session. Given that the Exchange can
discern when an order may not fill at the price levels anticipated,
(based on an order having a price protection limit that is less
aggressive than the order's effective limit price), the Exchange
believes the most prudent course of action in these circumstances is to
return the order to the Member for analysis and evaluation, while the
market is not in a regular trading state, (e.g., a Member submitting a
non-routable market order to sell in an option class quoting in $.01
increments, when the PBBO is $0.00 x $0.15 and the NBBO is $0.05 x
$0.15, could expect to sell at every price increment down to $.01.
However, if the Exchange default price protection instruction is 2
MPVs, the order would receive a price protection limit of $0.03. When
the price protection limit is triggered, the order, or the remaining
contracts of the order, would be canceled, and the order would not
execute at $0.02 or $0.01).
Specifically, the Exchange proposes to adopt new Interpretations
and Policies .02, to state that the System will cancel certain orders
from the Book immediately following the commencement of a trading halt
pursuant to Rule 504, and at the end of each trading session, when the
order's price protection limit is less aggressive than the order's
effective limit price. Interpretations and Policies .02 further states
that, for the purposes of this Rule, the effective limit price of a
limit order will be the order's limit price; the effective limit price
of a market order to buy, will be the maximum price currently permitted
by the Exchange; \19\ and the effective limit price of a
[[Page 9872]]
market order to sell, will be one (1) MPV as established by Rule 510,
either $.01 for option classes quoted and traded in increments as low
as $.01, or $.05 for option classes quoted and traded in increments as
low as $.05.
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\19\ See supra note 15.
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Additionally, the Exchange also proposes to clarify the method for
establishing a price protection limit for orders that are received
prior to the opening and for those orders remaining on the Book from a
prior trading session, either from the prior day's trading session or
before a trading halt. For orders received prior to the opening that
are priced through the Opening Price, the System will assign an IRP
equal to the Opening Price.\20\ This process differs from the process
on MIAX Options as MIAX PEARL and MIAX Options have significantly
different opening processes due to differences in the underlying market
structure of each Exchange.\21\ The most significant difference is the
fact that orders that are priced through the opening price on MIAX
Options are canceled,\22\ whereas orders on MIAX PEARL that are priced
through the Opening Price are re-introduced after the opening process
is complete.\23\ The Exchange believes its Opening Price to be the most
reliable reference price given the requirements that must be satisfied
to establish the Opening Price under the opening process.\24\ As these
orders are being reintroduced to the market and may be managed,\25\ the
Exchange will use the Opening Price as the IRP and apply the Exchange
default MPV protection, or the MPV protection designated by the Member,
to establish the order's price protection limit.
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\20\ See Exchange Rule 503(b)(2)(i).
\21\ See Securities Exchange Act Release No. 79543 (December 13,
2016), 81 FR 92901 (December 20, 2016) (File No. 10-227) (order
approving application of MIAX PEARL, LLC for registration as a
national securities exchange.)
\22\ See MIAX Options Rule 503(f)(2)(vii)(B)(5).
\23\ See Exchange Rule 503(b)(2)(iii).
\24\ See Exchange Rule 503(b).
\25\ See Exchange Rule 515(d)(2).
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Orders that are received prior to the opening that are not priced
through the Opening Price and not executed during the Opening Process
will be booked and managed at their limit price without additional
price protection. The most appropriate price protection limit for a
non-routable order that is not executed during the Opening Process and
that is not priced through the Opening Price is the order's effective
limit price. The price available to these orders during the Opening
Process is effectively bound at the Opening Price and these orders can
only execute at a price equal to, or better than, the Opening Price and
equal to, or better than, the order's limit price. An order with a
price protection limit more aggressive than its effective limit price
is managed to its limit price, as an order on the Exchange will never
trade through its limit price. By default, orders received prior to the
opening that are not priced through the opening price, will have a
price protection limit that is more aggressive than the order's limit
price, therefore, booking and posting these orders at their limit price
affords them the same price protection as the price protection process
would have provided.
As proposed, orders that are carried over from a prior day's
trading session or that remain on the Book from before a trading halt
will be booked and managed at the order's limit price. During a regular
trading session, if an order's price protection limit is equal to or
more aggressive than its effective limit price, the order will trade or
post to its limit price and no further; if the order's price protection
limit is less aggressive than its effective limit price, or if the
order is a market order, the price protection process will cancel the
order, or the remaining contracts of the order, when the price
protection limit is triggered, which in all cases will be before the
order has a chance to trade or post to its limit price. If at the end
of a trading session an order remains on the Book with a price
protection limit less aggressive than its effective limit price, the
new proposed behavior of the price protection process will remove the
order from the Book. Therefore, any order carried over from either the
prior day's trading session, or that remains on the Book from before a
trading halt, will by necessity have a price protection limit which is
more aggressive than the order's effective limit price. Given the fact
that an order will never trade through its limit price \26\ on the
Exchange, the Exchange believes that an order carried over from a prior
day's trading session, or that remains on the Book from before a
trading halt, has exhausted its need for price protection, as per the
aforementioned processes, and can now be booked and managed by its
limit price.
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\26\ See Exchange Rule 515(d)(2)(i).
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2. Statutory Basis
MIAX PEARL believes that its proposed rule change is consistent
with Section 6(b) of the Act \27\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \28\ in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, to remove impediments to and perfect the
mechanisms of a free and open market and a national market system and,
in general, to protect investors and the public interest.
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\27\ 15 U.S.C. 78f(b).
\28\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that its proposal to remove orders with a
price protection limit less aggressive than the order's effective limit
price at the conclusion of a trading session (or after a trading halt
as defined in Rule 504) to be in the best interest of the investor as
these orders will never fill to their effective limit price. The price
protection process will cancel an order, or the remaining contracts of
an order, when the price protection limit is triggered during regular
trading. The Exchange believes it is in the best interest of investors
for the Exchange to return an order with a price protection limit which
is less aggressive than the order's effective limit price to the
Member, while the market is not in regular trading, so that the Member
has more time to evaluate whether to re-submit the order and/or
establish a different price and/or different price protection
instructions, based on the then-current market conditions.
Specifically, the Exchange believes the proposed change will remove
impediments to and perfect the mechanism of a free and open market by
providing market participants with more time to evaluate their orders
which will promote fair and orderly markets, increase overall market
confidence, and promote the protection of investors.
The Exchange proposes to clarify the method for establishing a
price protection limit for orders received prior to the opening that
are priced through the Opening Price. The Exchange has a rigorous
opening process and believes that using the Opening Price as the
order's IRP to be the best price available for use as a benchmark in
establishing an order's price protection level. The Exchange believes
this proposal would assist with the maintenance of a fair and orderly
market by ensuring that orders being re-introduced to the market have a
reasonable price protection limit and an adequate level of risk
protection.
The Exchange believes that clarifying the method for establishing a
price protection limit for orders that are received prior to the
opening that are not priced through the Opening Price and for orders
that remain on the book from a prior day's trading session, or from
before a trading halt, provides
[[Page 9873]]
transparency and clarity in the Exchange's rules. The Exchange believes
that booking and posting these orders at their limit price provides the
same level of protection as the price protection process, as an order
will never trade through its limit price on the Exchange. The Exchange
believes it is in the interest of investors and the public to
accurately describe the behavior of the Exchange's System in its rules
as this information may be used by investors to make decisions
concerning the submission of their orders. Transparency and clarity are
consistent with the Act because it removes impediments to and perfects
the mechanism of a free and open market and a national market system,
and, in general, protects investors and the public interest by
accurately describing the behavior of the Exchange's System.
The Exchange believes its proposal to add new Interpretations and
Policies .02 protects investors and the public interest by clearly
stating in the Exchange's rules the method by which the Exchange is
evaluating orders for removal by the System. Further, the Exchange
believes that providing the definition of effective limit price
provides clarity and transparency in the Exchange's rules.
Additionally, the Exchange's proposal to remove orders where the price
protection limit for a buy order is lower than the order's effective
limit price; and where the price protection limit for a sell order is
higher than the order's effective limit price, contributes to the
maintenance of a fair and orderly market by returning orders that would
not fill to their effective limit price to the market participant for
re-evaluation while the market is not in a regular trading state.
Market participants can evaluate the current market conditions and
consider re-submitting their order with a new price and/or new price
protection instructions while the market is not active.
The Exchange believes this proposal will provide MIAX PEARL
participants with a better understanding of the Exchange's price
protection process. The description of the System's functionality is
designed to promote just and equitable principles of trade by providing
a clear and accurate description to all participants of how the price
protection process is applied and should assist investors in making
decisions concerning their orders. Further, the Exchange believes that
the price protection process provides market participants with an
appropriate level of risk protection on their orders and contributes to
the maintenance of a fair and orderly market.
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 not necessary or appropriate in
furtherance of the purposes of the Act. Specifically, the Exchange
believes the proposed changes will not impose any burden on intra-
market competition because it applies to all MIAX PEARL participants
equally. In addition, the Exchange does not believe the proposal will
impose any burden on inter-market competition as the proposal is
intended to protect investors by providing further enhancements and
transparency regarding the Exchange's price protection functionality.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to 19(b)(3)(A) of the Act \29\ and Rule 19b-4(f)(6)
thereunder.\30\
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\29\ 15 U.S.C. 78s(b)(3)(A).
\30\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \31\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \32\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. In its filing
with the Commission, the Exchange has asked the Commission to waive the
30-day operative delay so that the proposal may become operative
immediately upon filing. The Commission believes that waiving the 30-
day operative delay is consistent with the protection of investors and
the public interest. The Commission notes that waiver of the operative
delay will allow the proposed rules to become operative before the
Exchange intends to commence operations as a national exchange on
February 6, 2017. The Commission further believes that the proposal
provides additional clarity concerning the behavior of the Exchange's
price protection process. Accordingly, the Commission hereby waives the
operative delay and designates the proposal operative upon filing.\33\
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\31\ 17 CFR 240.19b-4(f)(6).
\32\ 17 CFR 240.19b-4(f)(6)(iii).
\33\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-PEARL-2017-05 on the subject line.
Paper Comments
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-2017-05. 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 Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written
[[Page 9874]]
communications relating to the proposed rule change between the
Commission and any person, other than those that may be withheld from
the public in accordance with the provisions of 5 U.S.C. 552, will be
available for Web site viewing and printing in the Commission's Public
Reference Room, 100 F Street NE., Washington, DC 20549, on official
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of
the filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-PEARL-2017-05 and should be submitted on or before March
1, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-02551 Filed 2-7-17; 8:45 am]
BILLING CODE 8011-01-P
