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, 76630-76635 [2020-26281]
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Federal Register / Vol. 85, No. 230 / Monday, November 30, 2020 / Notices
is ‘‘willing’’ to work if willing to accept
and perform for hire such work as is
reasonably appropriate to his or her
employment circumstances. A claimant
is ‘‘ready’’ for work if he or she (1) is
in a position to receive notice of work
and is willing to accept and perform
such work, and (2) is prepared to be
present with the customary equipment
at the location of such work within the
time usually allotted.
Under RRB regulation 20 CFR 327.15,
a claimant may be requested at any time
to show, as evidence of willingness to
work, that reasonable efforts are being
made to obtain work. In order to
determine whether a claimant is; (a)
available for work, and (b) willing to
work, the RRB utilizes Forms UI–38, UI
Claimant’s Report of Efforts to Find
Work, and UI–38s, School Attendance
and Availability Questionnaire, to
obtain information from the claimant
and Form ID–8k, Questionnaire—
Reinstatement of Discharged or
Suspended Employee, from the union
representative. One response is
completed by each respondent. The RRB
proposes the following changes to the
Forms UI–38 and UI–38s. The RRB
proposes no changes to Forms UI–38,
UI–38s, and ID–8k.
ESTIMATE OF ANNUAL RESPONDENT BURDEN
Annual
responses
Form No.
Burden
(hours)
UI–38s (in person) * .....................................................................................................................
UI–38s (by mail) * ........................................................................................................................
UI–38 ...........................................................................................................................................
ID–8k ............................................................................................................................................
59
119
3,485
6,461
6
10
11.5
5
6
20
668
538
Total ......................................................................................................................................
10,124
........................
1,232
Additional Information or Comments:
To request more information or to
obtain a copy of the information
collection justification, forms, and/or
supporting material, contact Kennisha
Tucker at (312) 469–2591 or
Kennisha.Tucker@rrb.gov. Comments
regarding the information collection
should be addressed to Brian Foster,
Railroad Retirement Board, 844 North
Rush Street, Chicago, Illinois 60611–
1275 or emailed to Brian.Foster@rrb.gov.
Written comments should be received
within 60 days of this notice.
Brian D. Foster,
Clearance Officer.
[FR Doc. 2020–26414 Filed 11–27–20; 8:45 am]
BILLING CODE 7905–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meetings
Notice is hereby given,
pursuant to the provisions of the
Government in the Sunshine Act, Public
Law 94–409, that the Securities and
Exchange Commission Asset
Management Advisory Committee
(‘‘AMAC’’) will hold a public meeting
on Tuesday, December 1, 2020 at 9:00
a.m.
PLACE: The meeting will be conducted
by remote means. Members of the public
may watch the webcast of the meeting
on the Commission’s website at
www.sec.gov.
STATUS: The meeting will begin at 9:00
a.m. and will be open to the public by
webcast on the Commission’s website at
www.sec.gov.
TIME AND DATE:
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Time
(minutes)
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On
November 9, 2020, the Commission
issued notice of the meeting (Release
No. 34–90376), indicating that the
meeting is open to the public and
inviting the public to submit written
comments to AMAC. This Sunshine Act
notice is being issued because a majority
of the Commission may attend the
meeting.
The meeting will include a discussion
of matters in the asset management
industry relating to (1) the Private
Investments Subcommittee; (2) the ESG
Subcommittee, including a discussion
of potential recommendations from that
Subcommittee; and (3) the Diversity and
Inclusion Subcommittee, including a
panel discussion on improving diversity
and inclusion.
The meeting will also include a
discussion of AMAC’s administrative
matters during a portion of the meeting
that will not be open to the public.
MATTERS TO BE CONSIDERED:
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90478; File No. SR–
PEARL–2020–26]
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
November 23, 2020.
CONTACT PERSON FOR MORE INFORMATION:
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 November
13, 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.
For further information, please contact
Vanessa A. Countryman from the Office
of the Secretary at (202) 551–5400.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
Dated: November 24, 2020.
Vanessa A. Countryman,
Secretary.
The Exchange is filing a proposed rule
change to provide Equity Members 3 the
Net Notional Trade Value risk setting,
an additional optional risk setting under
Exchange Rule 2618 when trading
equity securities on the Exchange’s
equity trading platform (referred to
herein as ‘‘MIAX PEARL Equities’’). The
Exchange also proposes to make a non-
[FR Doc. 2020–26413 Filed 11–25–20; 11:15 am]
BILLING CODE 8011–01–P
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1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Exchange Rule 1901 for the definition of
Equity Member.
2 17
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substantive technical clarifications to
paragraphs (a)(5) and (6) of Exchange
Rule 2618.
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 adopt the ‘‘Net Notional
Trade Value’’ risk setting, which would
provide Equity Members an additional
optional risk setting under Exchange
Rule 2618 when trading equity
securities on MIAX PEARL Equities.4
The Exchange also proposes to make a
non-substantive technical clarifications
to paragraphs (a)(5) and (6) of Exchange
Rule 2618.
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Net Notional Risk Setting
The Exchange recently adopted the
Gross Notional Trade Value risk setting
to help Equity Members manage their
risk.5 In that proposal, the Exchange
also proposed to allow an Equity
Member that does not self-clear the
ability to allocate and revoke 6 the
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 See Securities Exchange Act Release No. 89971
(September 23, 2020), 85 FR 61053 (September 29,
2020) (SR–PEARL–2020–16).
6 As discussed below, if an Equity Member
revokes the responsibility of establishing and
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responsibility of establishing and
adjusting the risk settings identified in
proposed paragraph (a)(2) of Exchange
Rule 2618, which presently only
includes the Gross Notional Trade Value
risk setting, to a Clearing Member 7 that
clears transactions on behalf of the
Equity Member, if designated in a
manner prescribed by the Exchange.8
The Exchange now proposes to offer
Net Notional Trade Value, an additional
optional risk setting that would
authorize the Exchange to take
automated action if a designated limit
for an Equity Member is breached. Like
Gross Notional Trade Value, Net
Notional Trade Value would provide
Equity Members with enhanced abilities
to manage their risk with respect to
orders on the Exchange. The Exchange
proposes to set forth Net Notional Trade
Value under paragraph (a)(2) of Rule
2618 as follows:
• The ‘‘Net Notional Trade Value’’
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. For purposes of calculating the
Net Notional Trade Value, only
executed orders are included.
Like Gross Notional Trade Value, the
proposed Net Notional Trade Value risk
setting is similar to credit controls
measuring net 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.9 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
adjusting the risk settings identified in proposed
paragraph (a), the settings applied by the Equity
Member would be applicable.
7 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). Exchange Rule 2620(a)
also: (i) 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 (ii) 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 See supra note 5.
9 One difference between this proposed rule
change and those of BZX and EDGX is that both
BZX and EDGX only allow the net 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). 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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notional execution value. The Exchange
notes that the current gross notional
control noted in paragraph (a)(2)(A) of
Exchange Rule 2618 will continue to be
available in addition to the proposed
risk setting.
Like for the Gross Notional Trade
Value risk setting,10 the processes set
forth under existing paragraphs (a)(3)
through (6) of Exchange Rule 2618
would also apply to the Net Notional
Trade Value Risk Setting and are further
described below.
Equity Members that do not self-clear
may, pursuant to paragraph (a)(4) of
Exchange Rule 2618, allocate and
revoke 11 the responsibility of
establishing and adjusting the Net
Notional Trade Value risk settings to a
Clearing Member that clears
transactions on behalf of the Equity
Member in the identical manner as they
may do today for the Gross Notional
Trade Value risk setting.12
By way of background and as
explained in its proposal to adopt the
Gross Notional Trade Value risk
setting,13 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.14 As
reflected in 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 Equity 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 Equity Member
10 See
supra note 5.
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.
12 See supra note 5.
13 Id.
14 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 As
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designating it as its clearing firm.15
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 Equity
Member’s transactions on the Exchange
has a financial interest in the risk
settings utilized within the System 16 by
the Equity 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. Like it does
today for the Gross Notional Trade
Value risk setting, an Equity Member
may allocate or revoke the responsibility
of establishing and adjusting the risk
settings for the Net Notional Trade
Value risk setting 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 the Net Notional
Trade Value risk setting 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
paragraph (a)(6) of Exchange Rule 2618,
with respect to the Equity Member’s
trading activity. Specifically, like for the
Gross Notional Trade Value risk setting,
if the Net Notional Trade Value risk
settings established by the Clearing
Member are breached, the Equity
15 An Equity Member can designate one Clearing
Member per MPID associated with the Equity
Member.
16 See Exchange Rule 100 for a definition of
‘‘System.’’
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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 (a)(6)
of Exchange Rule 2618 at any time in a
manner prescribed by the Exchange.
Like for the Gross Notional Trade
Value risk setting, paragraph (a)(3)
Exchange Rule 2618 provides that either
an Equity Member or its Clearing
Member, if allocated such responsibility
pursuant to paragraph (a)(4) of Exchange
Rule 2618, may establish and adjust
limits for the Net Notional Trade Value
risk setting. An Equity Member or
Clearing Member may establish and
adjust limits for the risk setting 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.
Paragraph (a)(5) of Exchange Rule
2618 provides 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,
including the proposed Net Notional
Trade Value risk setting, as determined
by the Exchange. Based on current
industry standards, in its proposal to
adopt the Gross Notional Trade Value
risk setting, the Exchange initially set
these thresholds at seventy-five or
ninety percent of the designated risk
limit.17 These thresholds would also
apply to the Net Notional Trade Value
risk setting. Both the Equity Member
and Clearing Member 18 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.
17 See
supra note 5.
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.
18 A
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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.
Like it did for the Gross Notional
Trade Value risk setting,19 the Exchange
does not guarantee that the proposed
Net Notional Trade Value risk setting
and the processes described in
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,20 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.21
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 2618.22
The purpose of such a provision under
Exchange Rule 2620(f) was
19 See
supra note 5.
CFR 240.15c3–5.
21 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-riskmanagement-controls-bd.htm.
22 By using the optional risk settings provided in
paragraph (a) 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,
e.g., Securities Exchange Act Release No. 89563
(August 14, 2020), 85 FR 51510 (August 20, 2020)
(SR–PEARL–2020–03) (‘‘Equities Approval Order’’).
20 17
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TKELLEY on DSKBCP9HB2PROD with NOTICES
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
further authorizes the Exchange to share
any of an Equity Member’s risk settings
specified in paragraph (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 sharing a
Member’s risk settings set forth under
paragraph (a)(2) to Exchange Rule 2618,
including the proposed Net Notional
Trade Value risk setting, 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.
Non-Substantive Clarification
The Exchange proposes to clarify that
paragraphs (a)(5) and (6) of Exchange
Rule 2618 apply only to the existing
Gross Notional Trade Value and
proposed Net Notional Trade Value risk
setting set forth under paragraph (a)(2)
of Exchange Rule 2618.23 This is
consistent with the rules of other
exchanges, but the Exchange believes
this clarification is necessary due to the
different structure of the Exchange Rule
2618. The Exchange does not propose to
make any other changes to paragraphs
(a)(5) and (6) of Exchange Rule 2618.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the
Act,24 in general, and furthers the
objectives of Section 6(b)(5),25 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.
Net Notional Trade Value
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.
Like for the Gross Notional Trade Value
risk setting,26 the processes set forth
under existing paragraphs (a)(3) through
(6) of Exchange Rule 2618 would also
apply to the Net Notional Trade Value
Risk Setting. 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 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
24 15
23 See,
e.g., Interpretation and Policy .03 to EDGX
Rule 11.13.
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U.S.C. 78f(b).
U.S.C. 78f(b)(5).
26 See supra note 5.
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),27 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
25 15
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U.S.C. 78f(b)(5).
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TKELLEY on DSKBCP9HB2PROD with NOTICES
76634
Federal Register / Vol. 85, No. 230 / Monday, November 30, 2020 / Notices
Exchange. The proposed risk settings
are completely voluntary and, as they
relate solely to optional risk
management functionality, no Equity
Member is required or under any
regulatory obligation to utilize them.
Like for the Gross Notional Trade
Value risk setting, the processes set
forth under existing paragraphs (a)(3)
through (6) of Exchange Rule 2618,
which were previously filed with the
Commission for immediate
effectiveness, would also apply to the
Net Notional Trade Value risk setting.28
The proposed rule change is also based
on Interpretation and Policy .03 of
EDGX Rule 11.10 and Interpretation and
Policy .03 of BZX Rule 11.13, with a few
minor differences.29 First, both BZX and
EDGX only allow the net 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, 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.30 Also unlike
EDGX, the Exchange’s proposed Net
Notional Trade Value and existing
credit controls measuring net exposure
are both based on notional execution
value. The controls noted in paragraph
(h) of Interpretation and Policy .03 of
the EDGX Rules are applied based on a
combination of outstanding orders on
the EDGX book and notional execution
value, while their Net Credit Risk Limit
is based on notional execution value
only, as the Exchange proposes herein
and currently does so for its Gross
Notional Trade Value risk setting. 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. These
differences also exist in the Exchange’s
proposal to adopt the Gross Notional
Trade Value risk setting, which was
previously filed for immediate
effectiveness and published by the
Commission.31
Non-Substantive Clarifications
The Exchange also believes its nonsubstantive, technical clarifications to
paragraphs (a)(5) and (6) of Exchange
Rule 2618 is consistent with Section
6(b)(5) 32 because they will remove
impediments to and perfect the
mechanism of a free and open market
and a national market system. The
proposed clarification to paragraphs
(a)(5) and (6) of Exchange Rule 2618 that
is applies only to the existing Gross
Notional Trade Value and proposed Net
Notional Trade Value risk setting set
forth under paragraph (a)(2) of Exchange
Rule 2618 33 is consistent with the rules
of other exchanges, but the Exchange
believes this clarification is necessary
due to the different structure of the
Exchange Rule 2618. These changes to
Exchange Rule 2618(a)(5) and (6)
promote just and equitable principles of
trade by making the Exchange’s rules
clearer and easier to understand,
thereby avoiding potential investor
confusion.
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.34 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. Lastly, the
proposed clarifications to Exchange
Rule 2618(a)(5) and (6) simply seek to
make the Exchange’s rules clearer and
easier to understand, and, therefore, do
31 See
supra note 5.
U.S.C. 78f(b)(5).
33 See, e.g., Interpretation and Policy .03 to EDGX
Rule 11.13.
34 Id.
32 15
28 See
29 See
supra note 5.
supra note 4.
30 Id.
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they impose any burden on competition
that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
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 35 and Rule 19b–
4(f)(6) thereunder.36
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 rule-comments@
sec.gov. Please include File Number SR–
PEARL–2020–26 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
35 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.
36 17
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Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–PEARL–2020–26. 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–2020–26, and
should be submitted on or before
December 21, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.37
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–26281 Filed 11–27–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
TKELLEY on DSKBCP9HB2PROD with NOTICES
[Release No. 34–90492]
Statement on Central Counterparties
Authorized Under the European
Markets Infrastructure Regulation
Seeking To Register as a Clearing
Agency or To Request Exemptions
From Certain Requirements Under the
Securities Exchange Act of 1934
Securities and Exchange
Commission.
AGENCY:
37 17
CFR 200.30–3(a)(12).
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ACTION:
Policy statement; guidance.
The Securities and Exchange
Commission (‘‘SEC’’) is issuing a policy
statement and guidance regarding future
applications from a central counterparty
(‘‘CCP’’) authorized under the European
Market Infrastructure Regulation
(‘‘EMIR’’) and based in the European
Union (an ‘‘EU CCP’’) that is seeking to
register as a clearing agency with the
SEC under the Securities Exchange Act
of 1934 (‘‘Exchange Act’’) and future
requests by EU CCPs for exemptions
from certain SEC requirements.
DATES: The Commission’s policy
statement is effective November 30,
2020.
FOR FURTHER INFORMATION CONTACT:
Matthew Lee, Assistant Director;
Stephanie Park, Senior Special Counsel;
or Claire Noakes, Special Counsel; at
202–551–7000 in the Division of
Trading and Markets, U.S. Securities
and Exchange Commission, 100 F Street
NE, Washington, DC 20549.
SUPPLEMENTARY INFORMATION: The SEC
regulates as clearing agencies two EU
CCPs authorized under EMIR that
provide CCP services for security-based
swaps.1 Where an EU CCP has been
authorized under EMIR, it is subject to
requirements that are generally
consistent with the same international
standards for CCPs as are the SEC’s
requirements for CCPs. Based on these
factors, the SEC is issuing this policy
statement and guidance to describe the
processes for EU CCPs seeking to
register as clearing agencies or to
request exemptions from SEC
requirements. To provide transparency
into SEC processes and to highlight
efficient ways that EU CCPs can comply
with SEC rules, this policy statement
and guidance identifies the information
that an EU CCP can provide in its
registration application and provides a
summary of the factors that the SEC will
consider, as applicable, with respect to
future requests for exemptions.
Specifically, with respect to the
registration process, EU CCPs can use
preexisting materials, including selfassessments, in their applications to
demonstrate compliance with EMIR and
consistency with SEC requirements for
CCPs. Such materials and selfassessments could facilitate both the EU
SUMMARY:
1 The
Commission has based this statement, in
part, on its experience regulating EU CCPs for
security-based swaps, and therefore this release
primarily discusses the Commission’s processes for
registration as a clearing agency and for requesting
exemptions with respect to such CCPs. However,
the Commission notes that the policy and guidance
set forth in this statement, by its terms and as set
forth below, also applies to an EU CCP that clears
securities other than security-based swaps.
PO 00000
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76635
CCP’s efficient preparation of the
application and the SEC’s review of
applications for registration. With
respect to requests for exemptions, the
SEC identifies below specific factors
that it will consider if relevant to a
particular future request for an
exemption by an EU CCP. As an
example of one such factor, an EU CCP
may request an exemption because it
has determined that the application of
SEC requirements would impose
unnecessary, duplicative, or
inconsistent requirements in light of
EMIR requirements to which it is
subject. Issuing this policy statement
and guidance is relevant to the SEC’s
ongoing dialogue with the European
Commission (‘‘EC’’) regarding the EC’s
consideration of whether to find the
SEC’s regulatory framework for CCPs
equivalent to EMIR.
Table of Contents
I. Introduction
II. Background
A. SEC Requirements for CCPs
B. EMIR Requirements for CCPs
C. SEC-Registered Clearing Agencies Based
in the EU
III. SEC Process for Review of Applications
for Registration as a Clearing Agency and
Requests for Exemptions by EU CCPS
A. Applications for Registration as a
Clearing Agency
B. Requests for Exemptions
IV. Conclusion
I. Introduction
The SEC regulates centralized
clearance and settlement systems for
securities, including those provided by
CCPs and central securities depositories
(‘‘CSDs’’). As part of the Securities Acts
Amendments of 1975 (‘‘1975
Amendments’’), Congress directed the
SEC to facilitate the establishment of a
national system for the prompt and
accurate clearance and settlement of
securities transactions.2 Since the
enactment of the 1975 Amendments, the
SEC has given regular consideration to
how non-U.S. clearing agencies fit
within the SEC’s regulatory framework
under the Exchange Act.3 The SEC also
acted to facilitate the central clearing of
credit default swaps by permitting
certain entities that performed CCP
services to clear and settle credit default
2 See 15 U.S.C. 78q–1(a)(2); see also Report of the
Senate Committee on Banking, Housing & Urban
Affairs, S. Rep. No. 94–75, at 4 (1975) (stating that
‘‘[t]he Committee believes the banking and security
industries must move quickly toward the
establishment of a fully integrated national system
for the prompt and accurate processing and
settlement of securities transactions’’).
3 See Release No. 34–11904 (Dec. 5, 1975), 40 FR
57872 (Dec. 12, 1975) (considering requests for
exemptions from non-U.S. clearing agencies).
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]]>Agencies
[Federal Register Volume 85, Number 230 (Monday, November 30, 2020)]
[Notices]
[Pages 76630-76635]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26281]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90478; File No. SR-PEARL-2020-26]
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
November 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 November 13, 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\ the Net Notional Trade Value risk setting, an additional
optional risk setting under Exchange Rule 2618 when trading equity
securities on the Exchange's equity trading platform (referred to
herein as ``MIAX PEARL Equities''). The Exchange also proposes to make
a non-
[[Page 76631]]
substantive technical clarifications to paragraphs (a)(5) and (6) of
Exchange Rule 2618.
---------------------------------------------------------------------------
\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 adopt the ``Net
Notional Trade Value'' risk setting, which would provide Equity Members
an additional optional risk setting under Exchange Rule 2618 when
trading equity securities on MIAX PEARL Equities.\4\ The Exchange also
proposes to make a non-substantive technical clarifications to
paragraphs (a)(5) and (6) of Exchange Rule 2618.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
Net Notional Risk Setting
The Exchange recently adopted the Gross Notional Trade Value risk
setting to help Equity Members manage their risk.\5\ In that proposal,
the Exchange also proposed to allow an Equity Member that does not
self-clear the ability to allocate and revoke \6\ the responsibility of
establishing and adjusting the risk settings identified in proposed
paragraph (a)(2) of Exchange Rule 2618, which presently only includes
the Gross Notional Trade Value risk setting, to a Clearing Member \7\
that clears transactions on behalf of the Equity Member, if designated
in a manner prescribed by the Exchange.\8\
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 89971 (September 23,
2020), 85 FR 61053 (September 29, 2020) (SR-PEARL-2020-16).
\6\ 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.
\7\ 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). Exchange Rule
2620(a) also: (i) 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 (ii) 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\ See supra note 5.
---------------------------------------------------------------------------
The Exchange now proposes to offer Net Notional Trade Value, an
additional optional risk setting that would authorize the Exchange to
take automated action if a designated limit for an Equity Member is
breached. Like Gross Notional Trade Value, Net Notional Trade Value
would provide Equity Members with enhanced abilities to manage their
risk with respect to orders on the Exchange. The Exchange proposes to
set forth Net Notional Trade Value under paragraph (a)(2) of Rule 2618
as follows:
The ``Net Notional Trade Value'' 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. For purposes of calculating the Net
Notional Trade Value, only executed orders are included.
Like Gross Notional Trade Value, the proposed Net Notional Trade
Value risk setting is similar to credit controls measuring net 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.\9\ 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)(2)(A) of Exchange Rule 2618 will continue to be available in
addition to the proposed risk setting.
---------------------------------------------------------------------------
\9\ One difference between this proposed rule change and those
of BZX and EDGX is that both BZX and EDGX only allow the net 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).
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.
---------------------------------------------------------------------------
Like for the Gross Notional Trade Value risk setting,\10\ the
processes set forth under existing paragraphs (a)(3) through (6) of
Exchange Rule 2618 would also apply to the Net Notional Trade Value
Risk Setting and are further described below.
---------------------------------------------------------------------------
\10\ See supra note 5.
---------------------------------------------------------------------------
Equity Members that do not self-clear may, pursuant to paragraph
(a)(4) of Exchange Rule 2618, allocate and revoke \11\ the
responsibility of establishing and adjusting the Net Notional Trade
Value risk settings to a Clearing Member that clears transactions on
behalf of the Equity Member in the identical manner as they may do
today for the Gross Notional Trade Value risk setting.\12\
---------------------------------------------------------------------------
\11\ 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.
\12\ See supra note 5.
---------------------------------------------------------------------------
By way of background and as explained in its proposal to adopt the
Gross Notional Trade Value risk setting,\13\ 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.\14\ As reflected in
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 Equity 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 Equity Member
[[Page 76632]]
designating it as its clearing firm.\15\ 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 Equity Member's transactions on the Exchange
has a financial interest in the risk settings utilized within the
System \16\ by the Equity Member.
---------------------------------------------------------------------------
\13\ Id.
\14\ 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.
\15\ An Equity Member can designate one Clearing Member per MPID
associated with the Equity Member.
\16\ 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. Like it does today for the
Gross Notional Trade Value risk setting, an Equity Member may allocate
or revoke the responsibility of establishing and adjusting the risk
settings for the Net Notional Trade Value risk setting 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 the Net
Notional Trade Value risk setting 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 paragraph (a)(6) of
Exchange Rule 2618, with respect to the Equity Member's trading
activity. Specifically, like for the Gross Notional Trade Value risk
setting, if the Net Notional Trade Value risk settings 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 (a)(6) of
Exchange Rule 2618 at any time in a manner prescribed by the Exchange.
Like for the Gross Notional Trade Value risk setting, paragraph
(a)(3) Exchange Rule 2618 provides that either an Equity Member or its
Clearing Member, if allocated such responsibility pursuant to paragraph
(a)(4) of Exchange Rule 2618, may establish and adjust limits for the
Net Notional Trade Value risk setting. An Equity Member or Clearing
Member may establish and adjust limits for the risk setting 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.
Paragraph (a)(5) of Exchange Rule 2618 provides 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, including
the proposed Net Notional Trade Value risk setting, as determined by
the Exchange. Based on current industry standards, in its proposal to
adopt the Gross Notional Trade Value risk setting, the Exchange
initially set these thresholds at seventy-five or ninety percent of the
designated risk limit.\17\ These thresholds would also apply to the Net
Notional Trade Value risk setting. Both the Equity Member and Clearing
Member \18\ 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.
---------------------------------------------------------------------------
\17\ See supra note 5.
\18\ 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.
---------------------------------------------------------------------------
Like it did for the Gross Notional Trade Value risk setting,\19\
the Exchange does not guarantee that the proposed Net Notional Trade
Value risk setting and the processes described in 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,\20\ 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.\21\ 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.
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\19\ See supra note 5.
\20\ 17 CFR 240.15c3-5.
\21\ 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.
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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.\22\ The purpose of such a
provision under Exchange Rule 2620(f) was
[[Page 76633]]
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 further authorizes the
Exchange to share any of an Equity Member's risk settings specified in
paragraph (a)(2) to Exchange Rule 2618 with the Clearing Member that
clears transactions on behalf of the Equity Member.
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\22\ By using the optional risk settings provided in paragraph
(a) 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, e.g., Securities Exchange Act Release No.
89563 (August 14, 2020), 85 FR 51510 (August 20, 2020) (SR-PEARL-
2020-03) (``Equities Approval Order'').
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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 sharing a Member's risk settings set forth under
paragraph (a)(2) to Exchange Rule 2618, including the proposed Net
Notional Trade Value risk setting, 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.
Non-Substantive Clarification
The Exchange proposes to clarify that paragraphs (a)(5) and (6) of
Exchange Rule 2618 apply only to the existing Gross Notional Trade
Value and proposed Net Notional Trade Value risk setting set forth
under paragraph (a)(2) of Exchange Rule 2618.\23\ This is consistent
with the rules of other exchanges, but the Exchange believes this
clarification is necessary due to the different structure of the
Exchange Rule 2618. The Exchange does not propose to make any other
changes to paragraphs (a)(5) and (6) of Exchange Rule 2618.
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\23\ See, e.g., Interpretation and Policy .03 to EDGX Rule
11.13.
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\24\ in general, and furthers the objectives of Section
6(b)(5),\25\ 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.
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\24\ 15 U.S.C. 78f(b).
\25\ 15 U.S.C. 78f(b)(5).
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Net Notional Trade Value
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. Like for
the Gross Notional Trade Value risk setting,\26\ the processes set
forth under existing paragraphs (a)(3) through (6) of Exchange Rule
2618 would also apply to the Net Notional Trade Value Risk Setting. 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 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.
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\26\ See supra note 5.
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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),\27\ 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.
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\27\ 15 U.S.C. 78f(b)(5).
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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
[[Page 76634]]
Exchange. The proposed risk settings are completely voluntary and, as
they relate solely to optional risk management functionality, no Equity
Member is required or under any regulatory obligation to utilize them.
Like for the Gross Notional Trade Value risk setting, the processes
set forth under existing paragraphs (a)(3) through (6) of Exchange Rule
2618, which were previously filed with the Commission for immediate
effectiveness, would also apply to the Net Notional Trade Value risk
setting.\28\ The proposed rule change is also based on Interpretation
and Policy .03 of EDGX Rule 11.10 and Interpretation and Policy .03 of
BZX Rule 11.13, with a few minor differences.\29\ First, both BZX and
EDGX only allow the net 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, 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.\30\ Also unlike
EDGX, the Exchange's proposed Net Notional Trade Value and existing
credit controls measuring net exposure are both based on notional
execution value. The controls noted in paragraph (h) of Interpretation
and Policy .03 of the EDGX Rules are applied based on a combination of
outstanding orders on the EDGX book and notional execution value, while
their Net Credit Risk Limit is based on notional execution value only,
as the Exchange proposes herein and currently does so for its Gross
Notional Trade Value risk setting. 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. These
differences also exist in the Exchange's proposal to adopt the Gross
Notional Trade Value risk setting, which was previously filed for
immediate effectiveness and published by the Commission.\31\
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\28\ See supra note 5.
\29\ See supra note 4.
\30\ Id.
\31\ See supra note 5.
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Non-Substantive Clarifications
The Exchange also believes its non-substantive, technical
clarifications to paragraphs (a)(5) and (6) of Exchange Rule 2618 is
consistent with Section 6(b)(5) \32\ because they will remove
impediments to and perfect the mechanism of a free and open market and
a national market system. The proposed clarification to paragraphs
(a)(5) and (6) of Exchange Rule 2618 that is applies only to the
existing Gross Notional Trade Value and proposed Net Notional Trade
Value risk setting set forth under paragraph (a)(2) of Exchange Rule
2618 \33\ is consistent with the rules of other exchanges, but the
Exchange believes this clarification is necessary due to the different
structure of the Exchange Rule 2618. These changes to Exchange Rule
2618(a)(5) and (6) promote just and equitable principles of trade by
making the Exchange's rules clearer and easier to understand, thereby
avoiding potential investor confusion.
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\32\ 15 U.S.C. 78f(b)(5).
\33\ See, e.g., Interpretation and Policy .03 to EDGX Rule
11.13.
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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.\34\ 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. Lastly, the
proposed clarifications to Exchange Rule 2618(a)(5) and (6) simply seek
to make the Exchange's rules clearer and easier to understand, and,
therefore, do they impose any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
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\34\ 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 \35\ and Rule 19b-
4(f)(6) thereunder.\36\
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\35\ 15 U.S.C. 78s(b)(3)(A).
\36\ 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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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-2020-26 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange
[[Page 76635]]
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-PEARL-2020-26. 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-2020-26, and should be submitted
on or before December 21, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
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\37\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-26281 Filed 11-27-20; 8:45 am]
BILLING CODE 8011-01-P
