Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 2618, Risk Settings and Trading Risk Metrics, 61053-61057 [2020-21407]
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Federal Register / Vol. 85, No. 189 / Tuesday, September 29, 2020 / Notices
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applicable to a national securities
exchange.15 In particular, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,16 which requires that
the rules of an exchange be designed to
promote just and equitable principles of
trade, to remove impediments and to
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest. The
Commission also believes that the
proposal is consistent with Sections
6(b)(1) and 6(b)(6) of the Act 17 which
require that the rules of an exchange
enforce compliance with, and provide
appropriate discipline for, violations of
Commission and Exchange rules.
Finally, the Commission finds that the
proposal is consistent with the public
interest, the protection of investors, or
otherwise in furtherance of the purposes
of the Act, as required by Rule 19d–
1(c)(2) under the Act,18 which governs
minor rule violation plans.
As stated above, the Exchange
proposes to amend Exchange Rule 1014
to add certain rules applicable to the
trading of equity securities to the list of
rules eligible for disposition pursuant to
a minor fine under Exchange Rule 1014.
The Commission believes that the
amended MRVP will permit the
Exchange to carry out its oversight and
enforcement responsibilities as a selfregulatory organization (‘‘SRO’’) more
efficiently in cases where full
disciplinary proceedings are not
necessary due to the minor nature of the
particular violation.
In declaring the Exchange’s amended
MRVP effective, the Commission in no
way minimizes the importance of
compliance with Exchange rules and all
other rules subject to the imposition of
sanctions under Exchange Rule 1014.
The Commission believes that the
violation of an SRO’s rules, as well as
Commission rules, is a serious matter.
However, Exchange Rule 1014 provides
a reasonable means of addressing
violations that do not rise to the level of
requiring formal disciplinary
proceedings, while providing greater
flexibility in handling certain violations.
The Commission expects that the
Exchange will continue to conduct
surveillance and make determinations
based on its findings, on a case-by-case
basis, regarding whether a sanction
under the amended MRVP is
15 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
16 15 U.S.C. 78f(b)(5).
17 15 U.S.C. 78f(b)(1) and 78f(b)(6).
18 17 CFR 240.19d–1(c)(2).
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appropriate, or whether a violation
requires formal disciplinary action.
For the same reasons discussed above,
the Commission finds good cause,
pursuant to Section 19(b)(2) of the
Act,19 for approving the proposed rule
change, as modified by Amendment No.
1, prior to the thirtieth day after the date
of publication of the notice of the filing
thereof in the Federal Register. The
proposal merely amends Exchange Rule
1014 to add certain rules applicable to
the trading of equity securities to the
current list of rules eligible for
disposition pursuant to a minor fine
under Exchange Rule 1014. In addition,
the Commission notes that the proposal
is consistent with the minor rule
violation plans of other SROs.20
Accordingly, the Commission believes
that a full notice-and-comment period is
not necessary before approving the
proposal.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act 21 and Rule
19d–1(c)(2) thereunder,22 that the
proposed rule change (SR–PEARL–
2020–15), as modified by Amendment
No. 1, be, and hereby is, approved on an
accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–21405 Filed 9–28–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89971; File No. SR–
PEARL–2020–16]
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Exchange
Rule 2618, Risk Settings and Trading
Risk Metrics
September 23, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
19 15
U.S.C. 78s(b)(2).
Securities Exchange Act Release Nos.
87415 (October 29, 2019), 84 FR 59427 (November
4, 2019) (File No. 4–753) (order declaring effective
the LTSE MRVP); and 89485 (September 11, 2020),
85 FR 58081 (September 17, 2020) (File No. 4–764)
(order declaring effective the MEMX MRVP).
21 Id.
22 17 CFR 240.19d–1(c)(2).
23 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
20 See
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61053
notice is hereby given that on
September 14, 2020, MIAX PEARL, LLC
(‘‘MIAX PEARL’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange is filing a proposed rule
change to provide Equity Members 3
certain optional risk settings under
Exchange Rule 2618 when trading
equity securities on the Exchange’s
equity trading platform (referred to
herein as ‘‘MIAX PEARL Equities’’).
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/pearl at MIAX PEARL’s principal
office, and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to provide Equity Members
certain optional risk settings under
Exchange Rule 2618 when trading
equity securities on MIAX PEARL
Equities.4 To help Equity Members
3 See Exchange Rule 1901 for the definition of
Equity Member.
4 The proposed rule changes are substantially
similar to a recent rule amendment by Cboe BZX
Exchange, Inc. (‘‘BZX’’) and Cboe EDGX Exchange,
Inc. (‘‘EDGX’’). See Interpretation and Policy .03 to
BZX Rule 11.13 and Interpretation and Policy .03
to EDGX Rule 11.10. See Securities Exchange Act
Nos. 88599 (April 8, 2020) 85 FR 20793 (April 14,
2020) (the ‘‘BZX Approval’’); and 88783 (April 30,
2020), 85 FR 26991 (May 6, 2020) (the ‘‘EDGX
Notice’’). See also Securities Exchange Act Release
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manage their risk, the Exchange
proposes to offer optional risk settings
that would authorize the Exchange to
take automated action if a designated
limit for an Equity Member is breached.
Such risk settings would provide Equity
Members with enhanced abilities to
manage their risk with respect to orders
on the Exchange. Proposed paragraph
(a)(2) of Rule 2618 5 sets forth the
specific risk control the Exchange
proposes to offer. Specifically, the
Exchange proposes to offer the
following risk setting:
• The ‘‘Gross Notional Trade Value’’,
which refers to a pre-established
maximum daily dollar amount for
purchases and sales across all symbols,
where both purchases and sales are
counted as positive values. For purposes
of calculating the Gross Notional Trade
Value, only executed orders are
included.6
The Gross Notional Trade Value risk
setting is similar to credit controls
measuring gross exposure provided for
in paragraph (a)(1)(A) of Exchange Rule
2618 and allow limits to be set at the
Market Participant Identifier (‘‘MPID’’),
session, and firm level.7 Therefore, the
proposed risk management functionality
would allow an Equity Member to
manage its risk more comprehensively
and across various level settings.
Further, like our existing credit controls
measuring gross exposure, the proposed
risk setting would also be based on a
notional execution value. The Exchange
notes that the current gross notional
control noted in paragraph (a)(1)(A) of
Exchange Rule 2618 will continue to be
available in addition to the proposed
risk setting.
Nos. 89032 (June 9, 2020), 85 FR 36246 (June 15,
2020) (SR–CboeBZX–2020–44); and 89000 (June 3,
2020), 85 FR 35344 (June 9, 2020) (SR–CboeEDGX–
2020–023).
5 The Exchange proposes to renumber the current
paragraph (2) under Exchange Rule 2618 as
paragraph (7) to account for proposed paragraphs
(a)(2) through (6) described in this proposed rule
change.
6 One difference between this proposed rule
change and those of BZX and EDGX is that the
Exchange does not propose at this time to offer a
net credit risk setting, which refers to a preestablished maximum daily dollar amount for
purchases and sales across all symbols, where
purchases are counted as positive values and sales
are counted as negative values. See supra note 4.
The Exchange will submit a separate proposed rule
change with the Commission to adopt a ‘‘Net
Notional Trade Value’’ in the future.
7 Another difference between this proposed rule
change and those of BZX and EDGX is that both
BZX and EDGX only allow the gross credit risk
limits to be set at the MPD Level or to a subset of
orders identified within that MPID (the ‘‘risk group
identifier’’ level). See supra note 4. The Exchange
believes allowing for limits to be set at the MPID,
session, or firm level provides Equity Members
greater flexibility in managing their risk exposure.
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Proposed paragraph (a)(4) of Exchange
Rule 2618 provides that an Equity
Member that does not self-clear may
allocate and revoke 8 the responsibility
of establishing and adjusting the risk
settings identified in proposed
paragraph (a)(2) of Exchange Rule 2618
to a Clearing Member that clears
transactions on behalf of the Equity
Member, if designated in a manner
prescribed by the Exchange.
Specifically, Exchange Rule 2620(a): (i)
Defines the term ‘‘Clearing Member’’; 9
(ii) outlines the process by which a
Clearing Member shall affirm its
responsibility for clearing any and all
trades executed by the Equity Member
designating it as its Clearing Firm; and
(iii) provides that the rules of a
Qualified Clearing Agency shall govern
with respect to the clearance and
settlement of any transactions executed
by the Equity Member on the Exchange.
By way of background, Exchange Rule
2620(a) requires that all transactions
passing through the facilities of the
Exchange shall be cleared and settled
through a Qualified Clearing Agency
using a continuous net settlement
system.10 As reflected on Exchange Rule
2620(a), this requirement may be
satisfied by direct participation, use of
direct clearing services, or by entry into
a corresponding clearing arrangement
with another Member that clears
through a Qualified Clearing Agency
(i.e., a Clearing Member). If an Equity
Member clears transactions through
another Equity Member that is a
Clearing Member, such Clearing
Member shall affirm to the Exchange in
writing, through letter of authorization,
letter of guarantee or other agreement
acceptable to the Exchange, its
agreement to assume responsibility for
clearing and settling any and all trades
executed by the Member designating it
as its clearing firm.11 Thus, while not all
Equity Members are Clearing Members,
all Equity Members are required either
to clear their own transactions or to
8 As discussed below, if an Equity Member
revokes the responsibility of establishing and
adjusting the risk settings identified in proposed
paragraph (a), the settings applied by the Equity
Member would be applicable.
9 The term ‘‘Clearing Member’’ refers to a Member
that is a member of a Qualified Clearing Agency and
clears transactions on behalf of another Member.
See Exchange Rule 2620(a).
10 The term ‘‘Qualified Clearing Agency’’ means
a clearing agency registered with the Commission
pursuant to Section 17A of the Act that is deemed
qualified by the Exchange. See Exchange Rule 1901.
The rules of any such clearing agency shall govern
with the respect to the clearance and settlement of
any transactions executed by the Member on the
Exchange.
11 An Equity Member can designate one Clearing
Member per MPID associated with the Equity
Member.
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have in place a relationship with a
Clearing Member that has agreed to
clear transactions on their behalf in
order to conduct business on the
Exchange. Therefore, the Clearing
Member that guarantees the Member’s
transactions on the Exchange has a
financial interest in the risk settings
utilized within the System 12 by the
Member.
Paragraph (a) of Rule 2620 allows
Clearing Members an opportunity to
manage their risk of clearing on behalf
of other Equity Members, if authorized
to do so by the Equity Member trading
on MIAX PEARL Equities. Such
functionality is designed to help
Clearing Members to better monitor and
manage the potential risks that they
assume when clearing for Equity
Members of the Exchange. An Equity
Member may allocate or revoke the
responsibility of establishing and
adjusting the risk settings identified in
proposed paragraph (a)(2) of Exchange
Rule 2618 to its Clearing Member in a
manner prescribed by the Exchange. By
allocating such responsibility, an Equity
Member cedes all control and ability to
establish and adjust such risk settings to
its Clearing Member unless and until
such responsibility is revoked by the
Equity Member, as discussed in further
detail below. Because the Equity
Member is responsible for its own
trading activity, the Exchange will not
provide a Clearing Member
authorization to establish and adjust
risk settings on behalf of an Equity
Member without first receiving consent
from the Equity Member. The Exchange
considers an Equity Member to have
provided such consent if it allocates the
responsibility to establish and adjust
risk settings to its Clearing Member in
a manner prescribed by the Exchange.
By allocating such responsibilities to its
Clearing Member, the Equity Member
consents to the Exchange taking action,
as set forth in proposed paragraph (a)(6)
of Exchange Rule 2618, with respect to
the Equity Member’s trading activity.
Specifically, if the risk setting(s)
established by the Clearing Member are
breached, the Equity Member consents
that the Exchange will automatically
block new orders submitted and cancel
open orders until such time that the
applicable risk setting is adjusted to a
higher limit by the Clearing Member. An
Equity Member may also revoke
responsibility allocated to its Clearing
Member pursuant to this paragraph at
any time in a manner prescribed by the
Exchange.
12 See Exchange Rule 100 for a definition of
‘‘System.’’
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Proposed paragraph (a)(3) Exchange
Rule 2618 provides that either an Equity
Member or its Clearing Member, if
allocated such responsibility pursuant
to proposed paragraph (a)(4) of
Exchange Rule 2618, may establish and
adjust limits for the risk settings
provided in proposed paragraph (a)(2) of
Exchange Rule 2618. An Equity Member
or Clearing Member may establish and
adjust limits for the risk settings in a
manner prescribed by the Exchange.
The risk management web portal page
will also provide a view of all
applicable limits for each Equity
Member, which will be made available
to the Equity Member and its Clearing
Member, as discussed in further detail
below.
Proposed paragraph (a)(5) of Exchange
Rule 2618 would provide optional alerts
to signal when an Equity Member is
approaching its designated limit. If
enabled, the alerts would generate when
the Equity Member breaches certain
percentage thresholds of its designated
risk limit, as determined by the
Exchange. Based on current industry
standards, the Exchange anticipates
initially setting these thresholds at
seventy-five or ninety percent of the
designated risk limit. Both the Equity
Member and Clearing Member 13 would
have the option to enable the alerts via
the risk management tool on the web
portal and designate email recipients of
the notification. The proposed alert
system is meant to warn an Equity
Member and Clearing Member of the
Equity Member’s trading activity, and
will have no impact on the Equity
Member’s order and trade activity if a
warning percentage is breached.
Proposed paragraph (a)(6) of Exchange
Rule 2618 would authorize the
Exchange to automatically block new
orders submitted and cancel all open
orders in the event that a risk setting is
breached. The Exchange will continue
to block new orders submitted until the
Equity Member or Clearing Member, if
allocated such responsibility pursuant
to proposed paragraph (a)(4) of
Exchange Rule 2618, adjusts the risk
settings to a higher threshold. The
proposed functionality is designed to
assist Equity Members and Clearing
Members in the management of, and
risk control over, their credit risk.
Further, the proposed functionality
would allow the Equity Member to
seamlessly avoid unintended executions
that exceed their stated risk tolerance.
13 A Clearing Member would have the ability to
enable alerts regardless of whether it was allocated
responsibilities pursuant to proposed paragraph
(a)(4) of Exchange Rule 2618.
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The Exchange does not guarantee that
the proposed risk settings described in
proposed paragraphs (a)(2) through (6)
are sufficiently comprehensive to meet
all of an Equity Member’s risk
management needs. Pursuant to Rule
15c3–5 under the Act,14 a broker-dealer
with market access must perform
appropriate due diligence to assure that
controls are reasonably designed to be
effective, and otherwise consistent with
the rule.15 Use of the Exchange’s risk
settings included in proposed
paragraphs (a)(2) through (6) of
Exchange Rule 2618 will not
automatically constitute compliance
with Exchange or federal rules and
responsibility for compliance with all
Exchange and SEC rules remains with
the Equity Member.
Lastly, as the Exchange currently has
the authority to share any of an Equity
Member’s risk settings specified in
paragraph (a) of Exchange Rule 2618
under Exchange Rule 2620(f) with the
Clearing Member that clears
transactions on behalf of the Equity
Member. Existing Exchange Rule 2620(f)
provides the Exchange with authority to
directly provide Clearing Members that
clear transactions on behalf of an Equity
Member, to share any of the Equity
Member’s risk settings set forth under
paragraph (a) of Exchange Rule 2618.16
The purpose of such a provision under
Exchange Rule 2620(f) was
implemented to reduce the
administrative burden on participants
on MIAX PEARL Equities, including
both Clearing Members and Equity
Members, and to ensure that Clearing
Members receive information that is up
to date and conforms to the settings
active in the System. Further, the
provision was adopted because the
Exchange believed such functionality
would help Clearing Members to better
monitor and manage the potential risks
that they assume when clearing for
Equity Members of the Exchange.
Paragraph (f) of Exchange Rule 2620
would further authorize the Exchange to
share any of an Equity Member’s risk
settings specified in proposed paragraph
14 17
CFR 240.15c3–5.
Division of Trading and Markets,
Responses to Frequently Asked Questions
Concerning Risk Management Controls for Brokers
or Dealers with Market Access, available at https://
www.sec.gov/divisions/marketreg/faq-15c-5-riskmanagement-controls-bd.htm.
16 By using the optional risk settings provided in
paragraph (a)(1) of Exchange Rule 2618, an Equity
Member opts-in to the Exchange sharing its risk
settings with its Clearing Member. Any Equity
Member that does not wish to share such risk
settings with its Clearing Member can avoid sharing
such settings by becoming a Clearing Member. See
Securities Exchange Act Release No. 89563 (August
14, 2020), 85 FR 51510 (August 20, 2020) (SR–
PEARL–2020–03) (‘‘Equities Approval Order’’).
15 See
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61055
(a)(2) to Exchange Rule 2618 with the
Clearing Member that clears
transactions on behalf of the Equity
Member.
The Exchange notes that the use by an
Equity Member of the risk settings
offered by the Exchange is optional. By
using these proposed optional risk
settings, an Equity Member therefore
also opts-in to the Exchange sharing its
designated risk settings with its Clearing
Member. The Exchange believes that its
proposal to offer an additional risk
setting will allow Equity Members to
better manage their credit risk. Further,
by allowing Equity Members to allocate
the responsibility for establishing and
adjusting such risk settings to its
Clearing Member, the Exchange believes
Clearing Members may reduce potential
risks that they assume when clearing for
Equity Members of the Exchange. The
Exchange also believes that its proposal
to share a Member’s risk settings set
forth under proposed paragraph (a)(2) to
Exchange Rule 2618 directly with
Clearing Members reduces the
administrative burden on participants
on the Exchange, including both
Clearing Members and Equity Members,
and ensures that Clearing Members are
receiving information that is up to date
and conforms to the settings active in
the System.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the
Act,17 in general, and furthers the
objectives of Section 6(b)(5),18 in
particular, because it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Specifically, the Exchange believes
the proposed amendment will remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because it
provides additional functionality for an
Equity Member to manage its credit risk.
In addition, the proposed risk setting
could provide Clearing Members, who
have assumed certain risks of Equity
Members, greater control over risk
tolerance and exposure on behalf of
their correspondent Equity Members, if
17 15
18 15
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U.S.C. 78f(b)(5).
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allocated responsibility pursuant to
proposed paragraph (a)(4) of Exchange
Rule 2618, while also providing an alert
system that would help to ensure that
both Equity Members and its Clearing
Member are aware of developing issues.
As such, the Exchange believes that the
proposed risk settings would provide a
means to address potentially marketimpacting events, helping to ensure the
proper functioning of the market.
In addition, the Exchange believes
that the proposed rule change is
designed to protect investors and the
public interest because the proposed
functionality is a form of risk mitigation
that will aid Equity Members and
Clearing Members in minimizing their
financial exposure and reduce the
potential for disruptive, market-wide
events. In turn, the introduction of such
risk management functionality could
enhance the integrity of trading on the
securities markets and help to assure the
stability of the financial system.
Further, the Exchange believes that
the proposed rule will foster
cooperation and coordination with
persons facilitating transactions in
securities because the Exchange will
provide alerts when an Equity Member’s
trading activity reaches certain
thresholds, which will be available to
both the Equity Member and Clearing
Member. As such, the Exchange may
help Clearing Members monitor the risk
levels of correspondent Equity Members
and provide tools for Clearing Members,
if allocated such responsibility, to take
action.
The proposal will permit Clearing
Members who have a financial interest
in the risk settings of Equity Members
to better monitor and manage the
potential risks assumed by Clearing
Members, thereby providing Clearing
Members with greater control and
flexibility over setting their own risk
tolerance and exposure. To the extent a
Clearing Member might reasonably
require an Equity Member to provide
access to its risk settings as a
prerequisite to continuing to clear trades
on the Equity Member’s behalf, the
Exchange’s proposal to share those risk
settings directly reduces the
administrative burden on participants
on the Exchange, including both
Clearing Members and Equity Members.
Moreover, providing Clearing Members
with the ability to see the risk settings
established for Equity Members for
which they clear will foster efficiencies
in the market and remove impediments
to and perfect the mechanism of a free
and open market and a national market
system. The proposal also ensures that
Clearing Members are receiving
information that is up to date and
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conforms to the settings active in the
System. The Exchange believes that the
proposal is consistent with the Act,
particularly Section 6(b)(5),19 because it
will foster cooperation and coordination
with persons engaged in facilitating
transactions in securities and more
generally, will protect investors and the
public interest, by allowing Clearing
Members to better monitor their risk
exposure and by fostering efficiencies in
the market and removing impediments
to and perfect the mechanism of a free
and open market and a national market
system.
Finally, the Exchange believes that
the proposed rule change does not
unfairly discriminate among the
Exchange’s Members because use of the
risk settings is optional and are not a
prerequisite for participation on the
Exchange. The proposed risk settings
are completely voluntary and, as they
relate solely to optional risk
management functionality, no Member
is required or under any regulatory
obligation to utilize them.
The proposed rule change is based on
Interpretation and Policy .03 of EDGX
Rule 11.10 and Interpretation and Policy
.03 of BZX Rule 11.13, with four minor
differences.20 First, both BZX and EDGX
only allow the gross credit risk limits to
be set at the MPID level or to a subset
of orders identified within that MPID
(the ‘‘risk group identifier’’ level) while
the Exchange proposes to allow the risk
limits to be set at the MPID, session, and
firm level. Second, the Exchange only
proposes to adopt a Gross Notional
Trade Value risk setting while EDGX
and BZX adopted both gross notional
and net notional risk settings. Third,
EDGX proposed additional changes to
its Rule 11.13(a) to allow their clearing
members access to its members risk
settings. The Exchange does not need to
include similar changes in this proposal
as Exchange Rule 2620(a) already
provides Clearing Members this ability
and includes text identical to that which
EDGX recently adopted.21 Lastly, the
Exchange notes that it proposes to
generate alerts when the Equity Member
breaches certain percentage thresholds
of its designated risk limit, as
determined by the Exchange. Based on
current industry standards, the
Exchange anticipates initially setting
these thresholds at seventy-five or
ninety percent of the designated risk
limit. The Exchange notes that EDGX
stated these thresholds would be set at
fifty, seventy, or ninety percent.
19 15
U.S.C. 78f(b)(5).
supra note 4.
20 See
21 Id.
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. In fact, the
Exchange believes that the proposal may
have a positive effect on competition
because it would allow the Exchange to
offer risk management functionality that
is comparable to functionality that has
been adopted by other national
securities exchanges.22 Further, by
providing Equity Members and their
Clearing Members additional means to
monitor and control risk, the proposed
rule may increase confidence in the
proper functioning of the markets and
contribute to additional competition
among trading venues and brokerdealers. Rather than impede
competition, the proposal is designed to
facilitate more robust risk management
by Equity Members and Clearing
Members, which, in turn, could enhance
the integrity of trading on the securities
markets and help to assure the stability
of the financial system.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 23 and Rule 19b–
4(f)(6) thereunder.24
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 25 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 26
permits the Commission to designate a
22 Id.
23 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of 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.
25 17 CFR 240.19b–4(f)(6).
26 17 CFR 240.19b–4(f)(6)(iii).
24 17
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Federal Register / Vol. 85, No. 189 / Tuesday, September 29, 2020 / Notices
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has asked
the Commission to waive the 30-day
operative delay so that the Exchange
may implement the proposed risk
controls on the anticipated launch date
of MIAX PEARL Equities on September
25, 2020. The Exchange states that
waiver of the operative delay would
allow Equity Members to immediately
utilize the proposed functionality to
manage their risk. For this reason, the
Commission believes that waiver of the
30-day operative delay is consistent
with the protection of investors and the
public interest. Accordingly, the
Commission hereby waives the 30-day
operative delay and designates the
proposed rule change operative upon
filing.27
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
change should be approved or
disapproved.
only one method. The Commission will
post all comments on the Commission’s
internet website (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 website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–PEARL–2020–16, and
should be submitted on or before
October 20, 2020.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
J. Matthew DeLesDernier,
Assistant Secretary.
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–2020–16 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
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–2020–16. 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
27 For purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
VerDate Sep<11>2014
18:14 Sep 28, 2020
Jkt 250001
[FR Doc. 2020–21407 Filed 9–28–20; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–89970; File No. SR–
CboeEDGX–2020–045]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend the
Fee Schedule
September 23, 2020.
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
September 11, 2020, Cboe EDGX
Exchange, Inc. (the ‘‘Exchange’’ or
‘‘EDGX’’) filed with the Securities and
Exchange Commission (the
‘‘Commission’’) the proposed rule
28 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
PO 00000
Frm 00103
Fmt 4703
Sfmt 4703
61057
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) is filing with
the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change to amend the fee
schedule. The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/edgx/),
at the Exchange’s Office of the
Secretary, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
fee schedule applicable to its equities
trading platform (‘‘EDGX Equities’’) by:
(1) Amending certain standard rates; (2)
adding a new fee code; (3) updating the
Non-Displayed Add Volume Tiers; and
(4) including a Remove Volume Tier.3
The Exchange first notes that it
operates in a highly competitive market
in which market participants can
readily direct order flow to competing
venues if they deem fee levels at a
particular venue to be excessive or
incentives to be insufficient. More
specifically, the Exchange is only one of
13 registered equities exchanges, as well
as a number of alternative trading
3 The Exchange initially filed the proposed fee
changes on September 1, 2020 (SR–CboeEDGX–
2020–044). On September 11, 2020, the Exchange
withdrew that filing and submitted this proposal.
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[Federal Register Volume 85, Number 189 (Tuesday, September 29, 2020)]
[Notices]
[Pages 61053-61057]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-21407]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89971; File No. SR-PEARL-2020-16]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange
Rule 2618, Risk Settings and Trading Risk Metrics
September 23, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on September 14, 2020, MIAX PEARL, LLC (``MIAX PEARL'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange is filing a proposed rule change to provide Equity
Members \3\ certain optional risk settings under Exchange Rule 2618
when trading equity securities on the Exchange's equity trading
platform (referred to herein as ``MIAX PEARL Equities'').
---------------------------------------------------------------------------
\3\ See Exchange Rule 1901 for the definition of Equity Member.
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxoptions.com/rule-filings/pearl at MIAX
PEARL's principal office, and at the Commission's Public Reference
Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to provide Equity
Members certain optional risk settings under Exchange Rule 2618 when
trading equity securities on MIAX PEARL Equities.\4\ To help Equity
Members
[[Page 61054]]
manage their risk, the Exchange proposes to offer optional risk
settings that would authorize the Exchange to take automated action if
a designated limit for an Equity Member is breached. Such risk settings
would provide Equity Members with enhanced abilities to manage their
risk with respect to orders on the Exchange. Proposed paragraph (a)(2)
of Rule 2618 \5\ sets forth the specific risk control the Exchange
proposes to offer. Specifically, the Exchange proposes to offer the
following risk setting:
---------------------------------------------------------------------------
\4\ The proposed rule changes are substantially similar to a
recent rule amendment by Cboe BZX Exchange, Inc. (``BZX'') and Cboe
EDGX Exchange, Inc. (``EDGX''). See Interpretation and Policy .03 to
BZX Rule 11.13 and Interpretation and Policy .03 to EDGX Rule 11.10.
See Securities Exchange Act Nos. 88599 (April 8, 2020) 85 FR 20793
(April 14, 2020) (the ``BZX Approval''); and 88783 (April 30, 2020),
85 FR 26991 (May 6, 2020) (the ``EDGX Notice''). See also Securities
Exchange Act Release Nos. 89032 (June 9, 2020), 85 FR 36246 (June
15, 2020) (SR-CboeBZX-2020-44); and 89000 (June 3, 2020), 85 FR
35344 (June 9, 2020) (SR-CboeEDGX-2020-023).
\5\ The Exchange proposes to renumber the current paragraph (2)
under Exchange Rule 2618 as paragraph (7) to account for proposed
paragraphs (a)(2) through (6) described in this proposed rule
change.
---------------------------------------------------------------------------
The ``Gross Notional Trade Value'', which refers to a pre-
established maximum daily dollar amount for purchases and sales across
all symbols, where both purchases and sales are counted as positive
values. For purposes of calculating the Gross Notional Trade Value,
only executed orders are included.\6\
---------------------------------------------------------------------------
\6\ One difference between this proposed rule change and those
of BZX and EDGX is that the Exchange does not propose at this time
to offer a net credit risk setting, which refers to a pre-
established maximum daily dollar amount for purchases and sales
across all symbols, where purchases are counted as positive values
and sales are counted as negative values. See supra note 4. The
Exchange will submit a separate proposed rule change with the
Commission to adopt a ``Net Notional Trade Value'' in the future.
---------------------------------------------------------------------------
The Gross Notional Trade Value risk setting is similar to credit
controls measuring gross exposure provided for in paragraph (a)(1)(A)
of Exchange Rule 2618 and allow limits to be set at the Market
Participant Identifier (``MPID''), session, and firm level.\7\
Therefore, the proposed risk management functionality would allow an
Equity Member to manage its risk more comprehensively and across
various level settings. Further, like our existing credit controls
measuring gross exposure, the proposed risk setting would also be based
on a notional execution value. The Exchange notes that the current
gross notional control noted in paragraph (a)(1)(A) of Exchange Rule
2618 will continue to be available in addition to the proposed risk
setting.
---------------------------------------------------------------------------
\7\ Another difference between this proposed rule change and
those of BZX and EDGX is that both BZX and EDGX only allow the gross
credit risk limits to be set at the MPD Level or to a subset of
orders identified within that MPID (the ``risk group identifier''
level). See supra note 4. The Exchange believes allowing for limits
to be set at the MPID, session, or firm level provides Equity
Members greater flexibility in managing their risk exposure.
---------------------------------------------------------------------------
Proposed paragraph (a)(4) of Exchange Rule 2618 provides that an
Equity Member that does not self-clear may allocate and revoke \8\ the
responsibility of establishing and adjusting the risk settings
identified in proposed paragraph (a)(2) of Exchange Rule 2618 to a
Clearing Member that clears transactions on behalf of the Equity
Member, if designated in a manner prescribed by the Exchange.
Specifically, Exchange Rule 2620(a): (i) Defines the term ``Clearing
Member''; \9\ (ii) outlines the process by which a Clearing Member
shall affirm its responsibility for clearing any and all trades
executed by the Equity Member designating it as its Clearing Firm; and
(iii) provides that the rules of a Qualified Clearing Agency shall
govern with respect to the clearance and settlement of any transactions
executed by the Equity Member on the Exchange.
---------------------------------------------------------------------------
\8\ As discussed below, if an Equity Member revokes the
responsibility of establishing and adjusting the risk settings
identified in proposed paragraph (a), the settings applied by the
Equity Member would be applicable.
\9\ The term ``Clearing Member'' refers to a Member that is a
member of a Qualified Clearing Agency and clears transactions on
behalf of another Member. See Exchange Rule 2620(a).
---------------------------------------------------------------------------
By way of background, Exchange Rule 2620(a) requires that all
transactions passing through the facilities of the Exchange shall be
cleared and settled through a Qualified Clearing Agency using a
continuous net settlement system.\10\ As reflected on Exchange Rule
2620(a), this requirement may be satisfied by direct participation, use
of direct clearing services, or by entry into a corresponding clearing
arrangement with another Member that clears through a Qualified
Clearing Agency (i.e., a Clearing Member). If an Equity Member clears
transactions through another Equity Member that is a Clearing Member,
such Clearing Member shall affirm to the Exchange in writing, through
letter of authorization, letter of guarantee or other agreement
acceptable to the Exchange, its agreement to assume responsibility for
clearing and settling any and all trades executed by the Member
designating it as its clearing firm.\11\ Thus, while not all Equity
Members are Clearing Members, all Equity Members are required either to
clear their own transactions or to have in place a relationship with a
Clearing Member that has agreed to clear transactions on their behalf
in order to conduct business on the Exchange. Therefore, the Clearing
Member that guarantees the Member's transactions on the Exchange has a
financial interest in the risk settings utilized within the System \12\
by the Member.
---------------------------------------------------------------------------
\10\ The term ``Qualified Clearing Agency'' means a clearing
agency registered with the Commission pursuant to Section 17A of the
Act that is deemed qualified by the Exchange. See Exchange Rule
1901. The rules of any such clearing agency shall govern with the
respect to the clearance and settlement of any transactions executed
by the Member on the Exchange.
\11\ An Equity Member can designate one Clearing Member per MPID
associated with the Equity Member.
\12\ See Exchange Rule 100 for a definition of ``System.''
---------------------------------------------------------------------------
Paragraph (a) of Rule 2620 allows Clearing Members an opportunity
to manage their risk of clearing on behalf of other Equity Members, if
authorized to do so by the Equity Member trading on MIAX PEARL
Equities. Such functionality is designed to help Clearing Members to
better monitor and manage the potential risks that they assume when
clearing for Equity Members of the Exchange. An Equity Member may
allocate or revoke the responsibility of establishing and adjusting the
risk settings identified in proposed paragraph (a)(2) of Exchange Rule
2618 to its Clearing Member in a manner prescribed by the Exchange. By
allocating such responsibility, an Equity Member cedes all control and
ability to establish and adjust such risk settings to its Clearing
Member unless and until such responsibility is revoked by the Equity
Member, as discussed in further detail below. Because the Equity Member
is responsible for its own trading activity, the Exchange will not
provide a Clearing Member authorization to establish and adjust risk
settings on behalf of an Equity Member without first receiving consent
from the Equity Member. The Exchange considers an Equity Member to have
provided such consent if it allocates the responsibility to establish
and adjust risk settings to its Clearing Member in a manner prescribed
by the Exchange. By allocating such responsibilities to its Clearing
Member, the Equity Member consents to the Exchange taking action, as
set forth in proposed paragraph (a)(6) of Exchange Rule 2618, with
respect to the Equity Member's trading activity. Specifically, if the
risk setting(s) established by the Clearing Member are breached, the
Equity Member consents that the Exchange will automatically block new
orders submitted and cancel open orders until such time that the
applicable risk setting is adjusted to a higher limit by the Clearing
Member. An Equity Member may also revoke responsibility allocated to
its Clearing Member pursuant to this paragraph at any time in a manner
prescribed by the Exchange.
[[Page 61055]]
Proposed paragraph (a)(3) Exchange Rule 2618 provides that either
an Equity Member or its Clearing Member, if allocated such
responsibility pursuant to proposed paragraph (a)(4) of Exchange Rule
2618, may establish and adjust limits for the risk settings provided in
proposed paragraph (a)(2) of Exchange Rule 2618. An Equity Member or
Clearing Member may establish and adjust limits for the risk settings
in a manner prescribed by the Exchange. The risk management web portal
page will also provide a view of all applicable limits for each Equity
Member, which will be made available to the Equity Member and its
Clearing Member, as discussed in further detail below.
Proposed paragraph (a)(5) of Exchange Rule 2618 would provide
optional alerts to signal when an Equity Member is approaching its
designated limit. If enabled, the alerts would generate when the Equity
Member breaches certain percentage thresholds of its designated risk
limit, as determined by the Exchange. Based on current industry
standards, the Exchange anticipates initially setting these thresholds
at seventy-five or ninety percent of the designated risk limit. Both
the Equity Member and Clearing Member \13\ would have the option to
enable the alerts via the risk management tool on the web portal and
designate email recipients of the notification. The proposed alert
system is meant to warn an Equity Member and Clearing Member of the
Equity Member's trading activity, and will have no impact on the Equity
Member's order and trade activity if a warning percentage is breached.
Proposed paragraph (a)(6) of Exchange Rule 2618 would authorize the
Exchange to automatically block new orders submitted and cancel all
open orders in the event that a risk setting is breached. The Exchange
will continue to block new orders submitted until the Equity Member or
Clearing Member, if allocated such responsibility pursuant to proposed
paragraph (a)(4) of Exchange Rule 2618, adjusts the risk settings to a
higher threshold. The proposed functionality is designed to assist
Equity Members and Clearing Members in the management of, and risk
control over, their credit risk. Further, the proposed functionality
would allow the Equity Member to seamlessly avoid unintended executions
that exceed their stated risk tolerance.
---------------------------------------------------------------------------
\13\ A Clearing Member would have the ability to enable alerts
regardless of whether it was allocated responsibilities pursuant to
proposed paragraph (a)(4) of Exchange Rule 2618.
---------------------------------------------------------------------------
The Exchange does not guarantee that the proposed risk settings
described in proposed paragraphs (a)(2) through (6) are sufficiently
comprehensive to meet all of an Equity Member's risk management needs.
Pursuant to Rule 15c3-5 under the Act,\14\ a broker-dealer with market
access must perform appropriate due diligence to assure that controls
are reasonably designed to be effective, and otherwise consistent with
the rule.\15\ Use of the Exchange's risk settings included in proposed
paragraphs (a)(2) through (6) of Exchange Rule 2618 will not
automatically constitute compliance with Exchange or federal rules and
responsibility for compliance with all Exchange and SEC rules remains
with the Equity Member.
---------------------------------------------------------------------------
\14\ 17 CFR 240.15c3-5.
\15\ See Division of Trading and Markets, Responses to
Frequently Asked Questions Concerning Risk Management Controls for
Brokers or Dealers with Market Access, available at https://www.sec.gov/divisions/marketreg/faq-15c-5-risk-management-controls-bd.htm.
---------------------------------------------------------------------------
Lastly, as the Exchange currently has the authority to share any of
an Equity Member's risk settings specified in paragraph (a) of Exchange
Rule 2618 under Exchange Rule 2620(f) with the Clearing Member that
clears transactions on behalf of the Equity Member. Existing Exchange
Rule 2620(f) provides the Exchange with authority to directly provide
Clearing Members that clear transactions on behalf of an Equity Member,
to share any of the Equity Member's risk settings set forth under
paragraph (a) of Exchange Rule 2618.\16\ The purpose of such a
provision under Exchange Rule 2620(f) was implemented to reduce the
administrative burden on participants on MIAX PEARL Equities, including
both Clearing Members and Equity Members, and to ensure that Clearing
Members receive information that is up to date and conforms to the
settings active in the System. Further, the provision was adopted
because the Exchange believed such functionality would help Clearing
Members to better monitor and manage the potential risks that they
assume when clearing for Equity Members of the Exchange. Paragraph (f)
of Exchange Rule 2620 would further authorize the Exchange to share any
of an Equity Member's risk settings specified in proposed paragraph
(a)(2) to Exchange Rule 2618 with the Clearing Member that clears
transactions on behalf of the Equity Member.
---------------------------------------------------------------------------
\16\ By using the optional risk settings provided in paragraph
(a)(1) of Exchange Rule 2618, an Equity Member opts-in to the
Exchange sharing its risk settings with its Clearing Member. Any
Equity Member that does not wish to share such risk settings with
its Clearing Member can avoid sharing such settings by becoming a
Clearing Member. See Securities Exchange Act Release No. 89563
(August 14, 2020), 85 FR 51510 (August 20, 2020) (SR-PEARL-2020-03)
(``Equities Approval Order'').
---------------------------------------------------------------------------
The Exchange notes that the use by an Equity Member of the risk
settings offered by the Exchange is optional. By using these proposed
optional risk settings, an Equity Member therefore also opts-in to the
Exchange sharing its designated risk settings with its Clearing Member.
The Exchange believes that its proposal to offer an additional risk
setting will allow Equity Members to better manage their credit risk.
Further, by allowing Equity Members to allocate the responsibility for
establishing and adjusting such risk settings to its Clearing Member,
the Exchange believes Clearing Members may reduce potential risks that
they assume when clearing for Equity Members of the Exchange. The
Exchange also believes that its proposal to share a Member's risk
settings set forth under proposed paragraph (a)(2) to Exchange Rule
2618 directly with Clearing Members reduces the administrative burden
on participants on the Exchange, including both Clearing Members and
Equity Members, and ensures that Clearing Members are receiving
information that is up to date and conforms to the settings active in
the System.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\17\ in general, and furthers the objectives of Section
6(b)(5),\18\ in particular, because it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Specifically, the Exchange believes the proposed amendment will
remove impediments to and perfect the mechanism of a free and open
market and a national market system because it provides additional
functionality for an Equity Member to manage its credit risk. In
addition, the proposed risk setting could provide Clearing Members, who
have assumed certain risks of Equity Members, greater control over risk
tolerance and exposure on behalf of their correspondent Equity Members,
if
[[Page 61056]]
allocated responsibility pursuant to proposed paragraph (a)(4) of
Exchange Rule 2618, while also providing an alert system that would
help to ensure that both Equity Members and its Clearing Member are
aware of developing issues. As such, the Exchange believes that the
proposed risk settings would provide a means to address potentially
market-impacting events, helping to ensure the proper functioning of
the market.
In addition, the Exchange believes that the proposed rule change is
designed to protect investors and the public interest because the
proposed functionality is a form of risk mitigation that will aid
Equity Members and Clearing Members in minimizing their financial
exposure and reduce the potential for disruptive, market-wide events.
In turn, the introduction of such risk management functionality could
enhance the integrity of trading on the securities markets and help to
assure the stability of the financial system.
Further, the Exchange believes that the proposed rule will foster
cooperation and coordination with persons facilitating transactions in
securities because the Exchange will provide alerts when an Equity
Member's trading activity reaches certain thresholds, which will be
available to both the Equity Member and Clearing Member. As such, the
Exchange may help Clearing Members monitor the risk levels of
correspondent Equity Members and provide tools for Clearing Members, if
allocated such responsibility, to take action.
The proposal will permit Clearing Members who have a financial
interest in the risk settings of Equity Members to better monitor and
manage the potential risks assumed by Clearing Members, thereby
providing Clearing Members with greater control and flexibility over
setting their own risk tolerance and exposure. To the extent a Clearing
Member might reasonably require an Equity Member to provide access to
its risk settings as a prerequisite to continuing to clear trades on
the Equity Member's behalf, the Exchange's proposal to share those risk
settings directly reduces the administrative burden on participants on
the Exchange, including both Clearing Members and Equity Members.
Moreover, providing Clearing Members with the ability to see the risk
settings established for Equity Members for which they clear will
foster efficiencies in the market and remove impediments to and perfect
the mechanism of a free and open market and a national market system.
The proposal also ensures that Clearing Members are receiving
information that is up to date and conforms to the settings active in
the System. The Exchange believes that the proposal is consistent with
the Act, particularly Section 6(b)(5),\19\ because it will foster
cooperation and coordination with persons engaged in facilitating
transactions in securities and more generally, will protect investors
and the public interest, by allowing Clearing Members to better monitor
their risk exposure and by fostering efficiencies in the market and
removing impediments to and perfect the mechanism of a free and open
market and a national market system.
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Finally, the Exchange believes that the proposed rule change does
not unfairly discriminate among the Exchange's Members because use of
the risk settings is optional and are not a prerequisite for
participation on the Exchange. The proposed risk settings are
completely voluntary and, as they relate solely to optional risk
management functionality, no Member is required or under any regulatory
obligation to utilize them.
The proposed rule change is based on Interpretation and Policy .03
of EDGX Rule 11.10 and Interpretation and Policy .03 of BZX Rule 11.13,
with four minor differences.\20\ First, both BZX and EDGX only allow
the gross credit risk limits to be set at the MPID level or to a subset
of orders identified within that MPID (the ``risk group identifier''
level) while the Exchange proposes to allow the risk limits to be set
at the MPID, session, and firm level. Second, the Exchange only
proposes to adopt a Gross Notional Trade Value risk setting while EDGX
and BZX adopted both gross notional and net notional risk settings.
Third, EDGX proposed additional changes to its Rule 11.13(a) to allow
their clearing members access to its members risk settings. The
Exchange does not need to include similar changes in this proposal as
Exchange Rule 2620(a) already provides Clearing Members this ability
and includes text identical to that which EDGX recently adopted.\21\
Lastly, the Exchange notes that it proposes to generate alerts when the
Equity Member breaches certain percentage thresholds of its designated
risk limit, as determined by the Exchange. Based on current industry
standards, the Exchange anticipates initially setting these thresholds
at seventy-five or ninety percent of the designated risk limit. The
Exchange notes that EDGX stated these thresholds would be set at fifty,
seventy, or ninety percent.
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\20\ See supra note 4.
\21\ Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. In fact, the Exchange
believes that the proposal may have a positive effect on competition
because it would allow the Exchange to offer risk management
functionality that is comparable to functionality that has been adopted
by other national securities exchanges.\22\ Further, by providing
Equity Members and their Clearing Members additional means to monitor
and control risk, the proposed rule may increase confidence in the
proper functioning of the markets and contribute to additional
competition among trading venues and broker-dealers. Rather than impede
competition, the proposal is designed to facilitate more robust risk
management by Equity Members and Clearing Members, which, in turn,
could enhance the integrity of trading on the securities markets and
help to assure the stability of the financial system.
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\22\ Id.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \23\ and Rule 19b-
4(f)(6) thereunder.\24\
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\23\ 15 U.S.C. 78s(b)(3)(A).
\24\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of 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 \25\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \26\ permits the
Commission to designate a
[[Page 61057]]
shorter time if such action is consistent with the protection of
investors and the public interest. The Exchange has asked the
Commission to waive the 30-day operative delay so that the Exchange may
implement the proposed risk controls on the anticipated launch date of
MIAX PEARL Equities on September 25, 2020. The Exchange states that
waiver of the operative delay would allow Equity Members to immediately
utilize the proposed functionality to manage their risk. For this
reason, the Commission believes that waiver of the 30-day operative
delay is consistent with the protection of investors and the public
interest. Accordingly, the Commission hereby waives the 30-day
operative delay and designates the proposed rule change operative upon
filing.\27\
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\25\ 17 CFR 240.19b-4(f)(6).
\26\ 17 CFR 240.19b-4(f)(6)(iii).
\27\ For purposes only of waiving the 30-day operative delay,
the Commission also has 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 change 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 [email protected]. Please include
File Number SR-PEARL-2020-16 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-2020-16. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-PEARL-2020-16, and should be submitted
on or before October 20, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-21407 Filed 9-28-20; 8:45 am]
BILLING CODE 8011-01-P
