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]

Download as PDF 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 (http://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 (http://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 VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 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 http://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 PO 00000 CFR 200.30–3(a)(12). Frm 00161 Fmt 4703 Sfmt 4703 9869 2 17 E:\FR\FM\08FEN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 08FEN1 9870 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices 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 asabaliauskas on DSK3SPTVN1PROD with NOTICES 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. VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 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 $.05. See Exchange Rule 510. 12 See PO 00000 Frm 00162 Fmt 4703 Sfmt 4703 price protection instructions, the order’s price protection limit can be considered either ‘‘more aggressive’’ (equal to or higher than the order’s effective limit price for a buy order or equal to or lower than the order’s effective limit price for a sell order) or ‘‘less aggressive’’ (lower than the order’s effective limit price for a buy order or higher than the order’s effective limit price for a sell order) than the order’s effective limit price. When an order’s price protection limit is equal to or more aggressive than its effective limit price, the order’s effective price protection limit will be the order’s limit price, as an order will never trade through its limit price on the Exchange. Market Orders Non-routable market orders to sell are managed in accordance to Rule 515(d)(2). For purposes of evaluating orders under the proposed price protection process outlined in this Rule, the Exchange is proposing to consider the effective limit price of a market order to buy to be the maximum price currently permitted by the Exchange’s System,17 and the effective limit price for a market order to sell to be one (1) MPV above zero ($.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 E:\FR\FM\08FEN1.SGM supra note 15. Exchange Rule 510. 08FEN1 asabaliauskas on DSK3SPTVN1PROD with NOTICES Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices (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 VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 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 PO 00000 Frm 00163 Fmt 4703 Sfmt 4703 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 E:\FR\FM\08FEN1.SGM supra note 15. 08FEN1 9872 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES 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 VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 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 PO 00000 Frm 00164 Fmt 4703 Sfmt 4703 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 08FEN1 asabaliauskas on DSK3SPTVN1PROD with NOTICES 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 PO 00000 Frm 00165 Fmt 4703 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 (http://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 (http://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). E:\FR\FM\08FEN1.SGM 08FEN1 9874 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 08FEN1

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]


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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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal 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 http://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.
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    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.
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    \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.
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    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.
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    \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 $.05. See 
Exchange Rule 510.
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Limit Orders
    For purposes of this Rule 515(c), the Exchange is proposing to 
consider the effective limit price of a limit order to be the limit 
price of the order. Depending upon the NBBO at the time of receipt by 
the System, and the order's price protection instructions, the order's 
price protection limit can be considered either ``more aggressive'' 
(equal to or higher than the order's effective limit price for a buy 
order or equal to or lower than the order's effective limit price for a 
sell order) or ``less aggressive'' (lower than the order's effective 
limit price for a buy order or higher than the order's effective limit 
price for a sell order) than the order's effective limit price. When an 
order's price protection limit is equal to or more aggressive than its 
effective limit price, the order's effective price protection limit 
will be the order's limit price, as an order will never trade through 
its limit price on the Exchange.
Market Orders
    Non-routable market orders to sell are managed in accordance to 
Rule 515(d)(2). For purposes of evaluating orders under the proposed 
price protection process outlined in this Rule, the Exchange is 
proposing to consider the effective limit price of a market order to 
buy to be the maximum price currently permitted by the Exchange's 
System,\17\ and the effective limit price for a market order to sell to 
be one (1) MPV above zero ($.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\
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    \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.
---------------------------------------------------------------------------

    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 (http://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 (http://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