Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Adopt a Minimum Execution Quantity Instruction for Orders, 14974-14980 [2021-05674]
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14974
Federal Register / Vol. 86, No. 52 / Friday, March 19, 2021 / Notices
accordance with the ICE Trade Vault
schedule of fees and charges, to
reimburse ICE Trade Vault for its
reasonable expenses in producing data
in response to such request or
requirement as such expenses are
incurred.111 Similarly, ICE Trade Vault
may require a user to pay all reasonable
expenses associated with producing
records relating to its transactions
pursuant to a court order or other legal
process, as those expenses are incurred
by ICE Trade Vault, whether such
production is required at the instance of
such user or at the instance of another
party with authority to compel ICE
Trade Vault to produce such records.112
F. Disclosure
ICE Trade Vault publishes a
disclosure document to provide a
summary of information regarding its
service offerings and the SBS data it
maintains.113 Specifically, the
disclosure document sets forth a
description of the following: (i) criteria
for access to the ICE Trade Vault service
and SBS data; (ii) criteria for connection
and linking to ICE Trade Vault; (iii)
policies and procedures to safeguard
SBS data and operational reliability; (iv)
policies and procedures to protect the
privacy of SBS data; (v) policies and
procedures on ICE Trade Vault
commercial and non-commercial use of
SBS data; (vi) ICE Trade Vault data
accuracy and dispute resolution
procedures; (vii) ICE Trade Vault
services; (viii) ICE Trade Vault pricing;
and (ix) ICE Trade Vault governance
arrangements.114
G. Regulatory Reporting and Public
Dissemination
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As a registered SDR, ICE Trade Vault
would carry out an important role in the
regulatory reporting and public
dissemination of SBS transactions. As
noted above, ICE Trade Vault has stated
that it intends to rely on the no-action
statement included in the ANE
Adopting Release for the period set forth
in the ANE Adopting Release with
respect to the credit derivatives asset
class.115 Therefore, ICE Trade Vault
does not need to include materials in its
application explaining how it would
comply with the provisions of the SBS
Reporting Rules noted in the no-action
111 See id.; see also Swap Data Repository
Rulebook, Security-Based Swap Data Reporting
Annex, Ex. HH.2, sec. 7.1.
112 See id.
113 See Security-Based SDR Service Disclosure
Document, Ex. V.2.
114 See id.
115 See supra note 29 and accompanying text.
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statement.116 Instead, ICE Trade Vault
may rely on its discussion about how it
complies with comparable CFTC
requirements pertaining to regulatory
reporting and public dissemination of
swap transactions.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning ICE Trade Vault’s
Form SDR, including whether ICE Trade
Vault has satisfied the requirements for
registration as an SDR and as a SIP.
Commenters are requested, to the extent
possible, to provide empirical data and
other factual support for their views.
Comments may be submitted by any of
the following methods:
Electronic comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/proposed.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number
SBSDR–2021–01 on the subject line.
Paper comments
• Send paper comments to Secretary,
Securities and Exchange Commission,
100 F Street NE, Washington, DC
20549–1090. All submissions should
refer to File Number SBSDR–2021–01.
To help the Commission process and
review your comments more efficiently,
please use only one method of
submission. The Commission will post
all comments on the Commission’s
internet website (https://www.sec.gov/
rules/other.shtml).
Copies of the Form SDR, all
subsequent amendments, all written
statements with respect to the Form
SDR that are filed with the Commission,
and all written communications relating
to the Form SDR 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 Section, 100 F Street, NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m.
116 However, the ICE Trade Vault application
includes provisions explaining how it would
require users to identify SBS, as required by Rule
901(c)(1) of Regulation SBSR. See Security-Based
SDR Service Disclosure Document, Ex. N.5 (fields
146–148). The ICE Trade Vault application also
includes a provision explaining how it would
comply with a condition to the no-action statement
included in the ANE Adopting Release. See
Security-Based SDR Service Disclosure Document,
Ex. N.4, sec. 3.5 (providing, in the case of a credit
security-based swap, for dissemination of a capped
notional size of $5 million if the true notional size
of the transaction is $5 million or greater).
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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 SBSDR–2021–01 and
should be submitted on or before April
9, 2021.
By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–05744 Filed 3–18–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91323; File No. SR–
PEARL–2021–07]
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change to Adopt a Minimum
Execution Quantity Instruction for
Orders
March 15, 2021.
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 March 1,
2021, MIAX PEARL, LLC (‘‘MIAX
PEARL’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposed rule
change to amend Exchange Rule 2614,
Orders and Order Instructions, to adopt
the Minimum Execution Quantity
instruction.
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.
1
2
15 U.S.C. 78s(b)(1).
17 CFR 240.19b-4.
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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
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1. Purpose
The purpose of the proposed rule
change is to amend Exchange Rule 2614,
Orders and Order Instructions, to adopt
the Minimum Execution Quantity
(‘‘MEQ’’) instruction that would be
available to orders in equity securities
traded on the Exchange’s equity trading
platform (referred to herein as ‘‘MIAX
PEARL Equities’’). An MEQ instruction
would enable a User 3 to specify a
minimum share amount at which the
order will execute. An order to buy
(sell) with an MEQ instruction would
not execute unless the volume of orders
to sell (buy) meets or exceeds the order
to buy (sell)’s designated minimum
quantity condition. The proposed MEQ
instruction is based on similar
functionality offered at other
exchanges.4
The Exchange understands that some
market participants avoid sending large
orders to MIAX PEARL Equities out of
concern that such orders may interact
with small orders entered by
professional traders, possibly adversely
impacting the execution of their larger
order. Institutional orders are often
much larger in size than the average
order in the marketplace. To facilitate
3 Exchange Rule 1901 defines the term ‘‘User’’ as
‘‘any Member or Sponsored Participant who is
authorized to obtain access to the System pursuant
to Exchange Rule 2602.’’
4 See, e.g., Cboe BYX Exchange, Inc. (‘‘BYX’’) and
Cboe BZX Exchange, Inc. Rules 11.9(c)(5), Cboe
EDGA Exchange, Inc. (‘‘EDGA’’) and Cboe EDGX
Exchange, Inc. (‘‘EDGX’’, collectively with BYX,
BZX, and EDGA, the ‘‘Cboe Equity Exchanges’’)
Rules 11.6(h), New York Stock Exchange LLC
(‘‘NYSE’’) Rule 7.31(i)(3), NYSE Arca, Inc. (‘‘NYSE
Arca’’) Rule 7.31–E(i)(3), NYSE American LLC
(‘‘NYSE American’’, collectively with NYSE and
NYSE Arca, the ‘‘NYSE Exchanges’’) Rule
7.31E(i)(3), Investors Exchange, Inc. (‘‘IEX’’) Rule
11.190(h)(11), The NASDAQ Stock Market LLC
(‘‘NASDAQ’’) Rule 4703(e), and MEMX LLC
(‘‘MEMX’’) Rule 11.6(f).
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the liquidation or acquisition of a large
position, market participants tend to
submit multiple orders into the market
that may only represent a fraction of the
overall institutional position to be
executed. Various strategies used by
institutional market participants to
execute large orders are intended to
limit price movement of the security at
issue. Executing in small sizes may
impact the market for that security such
that the additional orders the market
participant has yet to enter into the
market may be more costly to execute.
If an institution is able to execute in
larger sizes, the contra-party to the
execution is less likely to be a
participant that reacts to short term
changes in the stock price, and as such,
the price impact to the stock may be less
acute when larger individual executions
are obtained.5 As a result, these orders
are often executed away from the
Exchange in dark pools or other
exchanges that offer the same
functionality as proposed herein,6 or via
broker-dealer internalization.
To attract larger orders, the Exchange
proposes to add new optional
functionality in the form of the MEQ
instruction. The proposed MEQ
instruction would be described under
new paragraph (c)(7) of Exchange Rule
2614 and described as an instruction a
User may attach to a non-displayed
order requiring the System to execute
the order only to the extent that a
minimum quantity can be satisfied.
Accordingly, the Exchange also
proposes to amend Exchange Rule
2614(a) to specify that the MEQ
instruction may be attached to a nondisplayed Limit Order,7 a Market Order,
and a Midpoint Peg Order.
14975
Operation Upon Entry
The proposed MEQ instruction would
operate differently upon entry than
when resting on the MIAX PEARL
Equities Book.8 Proposed Exchange Rule
2614(c)(7)(A) would describe the
operation of the MEQ instruction upon
entry and provide that an order with an
MEQ will execute upon entry against
individual orders resting on the MIAX
PEARL Equities Book that each satisfy
the order’s minimum quantity
condition. Subparagraph (c)(7)(A)(i) to
Exchange Rule 2614 would provide that
a User may alternatively specify that the
incoming order’s minimum quantity
condition need not be satisfied by each
individual resting order and that the
order’s minimum quantity condition be
satisfied by one or multiple orders
resting on the MIAX PEARL Equities
Book that in the aggregate satisfy the
order’s minimum quantity condition.9
Subparagraph (c)(7)(A) to Exchange
Rule 2614 would also provide that if
there are orders that satisfy the
minimum quantity condition, but there
are also orders that do not satisfy the
minimum quantity condition, the order
with the MEQ instruction will execute
against orders resting on the MIAX
PEARL Equities Book in accordance
with Rule 2616, Priority of Orders, until
it reaches an order that does not satisfy
the minimum quantity condition, and
then the remainder of the order with an
MEQ instruction will be posted to the
MIAX PEARL Equities Book or
cancelled in accordance with the terms
of the order.10
The following example illustrates
when a User elects for an order with an
MEQ instruction to execute upon entry
against any number of smaller contraside orders that, in aggregate, meet the
order’s minimum quantity condition.
Assume there are two orders to sell at
$10.00 resting on the MIAX PEARL
Equities Book—the first for 300 shares
and a second for 400 shares, with the
300 share order having time priority
ahead of the 400 share order. If a User
entered an order with an MEQ
instruction to buy 700 shares at $10.00
with a minimum quantity of 500 shares,
5 The Commission has long recognized this
concern: ‘‘[a]nother type of implicit transaction cost
reflected in the price of a security is short-term
price volatility caused by temporary imbalances in
trading interest. For example, a significant implicit
cost for large investors (who often represent the
consolidated investments of many individuals) is
the price impact that their large trades can have on
the market. Indeed, disclosure of these large orders
can reduce the likelihood of their being filled.’’ See
Securities Exchange Act Release No. 42450
(February 23, 2000), 65 FR 10577, 10581 (February
28, 2000) (SR–NYSE–99–48).
6 See supra note 4.
7 Unlike the Cboe Equity Exchanges and MEMX,
the Exchange will not permit displayed Limit
Orders with a time-in-force of Immediate-or-Cancel
(‘‘IOC’’) to include a minimum quantity condition.
See, e.g., EDGX Rule 11.8(b)(3). See also MEMX
Rule 11.8(b)(2).
8 Exchange Rule 1901 defines the term ‘‘MIAX
PEARL Equities Book’’ as ‘‘the electronic book of
orders in equity securities maintained by the
System.’’
9 The Exchange notes that this functionality is
similar to that of the Cboe Equity Exchanges with
the exception of the proposed default behavior. The
CBOE Equity Exchanges default orders with a
minimum execution quantity to execute against
multiple aggregated contra-side orders upon entry.
See, e.g., EDGX Rule 11.6(h). The NYSE Exchanges
and NASDAQ provide both alternatives but do not
provide a default. See, e.g., NYSE Rule 7.31(i)(3)
and NASDAQ Rule 4703(e). The Exchange also
notes that MEMX only allows orders with a
minimum execution quantity to execute against a
single order that satisfies the orders minimum
quantity condition upon entry and does not provide
for multiple contra-side orders to be aggregated to
meet the order’s minimum quantity condition. See
MEMX Rule 11.6(f).
10 This behavior is identical to that of the Cboe
Equity Exchanges and MEMX. See, e.g., EDGX Rule
11.6(h) and MEMX Rule 11.6(f).
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Federal Register / Vol. 86, No. 52 / Friday, March 19, 2021 / Notices
and the order was marketable against
the two resting sell orders for 300 and
400 shares, the System would aggregate
both sell orders for purposes of meeting
the minimum quantity, thus resulting in
executions of 300 shares and then 400
shares respectively.
Following from the above example,
assume, however, that the User did not
make an affirmative election that their
order with an MEQ instruction execute
against multiple contra-side orders that,
in aggregate, meet the order’s minimum
quantity condition, such that the order
with an MEQ instruction will execute
against only individual contra-side
orders upon entry that each satisfy the
minimum quantity condition. Assume
further that the User elected a minimum
quantity condition at 400 shares. The
order with an MEQ instruction would
not execute against the two sell orders
because the 300 share order with time
priority at the top of the MIAX PEARL
Equities Book is less than the incoming
order’s 400 share minimum quantity
condition. The order with an MEQ
instruction would then be cancelled or
posted to the MIAX PEARL Equities
Book, non-displayed, when
encountering an order with time priority
that is of insufficient size to satisfy its
minimum quantity condition.
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Operation When Resting on the MIAX
PEARL Equities Book
Proposed Exchange Rule 2614(c)(7)(B)
would describe the operation of orders
with an MEQ instruction when resting
on the MIAX PEARL Equities Book.
Specifically, proposed Exchange Rule
2614(c)(7)(B) would provide that where
there is insufficient size to satisfy an
incoming order’s minimum quantity
condition, that incoming order with an
MEQ instruction and a time-in-force of
Regular Hours Only (‘‘RHO’’) 11 will not
trade and will be posted on the MIAX
PEARL Equities Book. Subparagraph
(c)(7)(B)(i) of Exchange Rule 2614 would
provide that when posted on the MIAX
PEARL Equities Book, the order may
only execute against individual
incoming orders with a size that
satisfies the minimum quantity
condition.12
Subparagraph (c)(7)(B)(i)(1) of
Exchange Rule 2614 would provide that
an order with an MEQ instruction cedes
execution priority when it would lock
or cross an order against which it would
otherwise execute if it were not for the
minimum quantity condition.13 The
Exchange Rule 2614(b)(2).
This behavior is identical to that of the Cboe
Equity Exchanges and MEMX. See, e.g., EDGX Rule
11.6(h) and MEMX Rule 11.6(f).
13 Id.
11
12
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following example illustrates this
behavior. Assume the NBBO is $10.00
by $10.10 and no orders are resting on
the MIAX PEARL Equities Book. A nondisplayed order to sell 100 shares at
$10.10 is entered and posted to the
MIAX PEARL Equities Book (‘‘Order
A’’). A non-displayed order to buy 700
shares at $10.10 with a minimum
quantity condition to execute against a
single order of 500 shares is then
entered and posted to the MIAX PEARL
Equities Book (‘‘Order B’’). Order B does
not execute against Order A because
Order A does not satisfy Order B’s
minimum quantity condition of 500
shares. As a result, Order A is posted to
the MIAX PEARL Equities Book at
$10.10, creating an internally locked
book. An order to buy 100 shares at
$10.10 is then entered and executes
against Order A at $10.10 for 100 shares
ahead of Order B because Order B’s
minimum quantity condition of 500
shares requires it now execute against a
single incoming order that is of
sufficient size to satisfy its minimum
quantity condition.
Subparagraph (c)(7)(B)(i)(2) of
Exchange Rule 2614 would provide that
if a resting non-displayed sell (buy)
order did not meet the minimum
quantity condition of a same-priced
resting order to buy (sell) with an MEQ
instruction, a subsequently arriving sell
(buy) order that meets the minimum
quantity condition will trade ahead of
such resting non-displayed sell (buy)
order at that price. The following
example illustrates this behavior.
Assume the NBBO is $10.00 by $10.10
and no orders are resting on the MIAX
PEARL Equities Book. A non-displayed
order to buy 700 shares at $10.10 with
a minimum quantity condition to
execute against a single order of 500
shares is entered and posted to the
MIAX PEARL Equities Book (‘‘Order
A’’). A non-displayed order to sell 100
shares at $10.10 is then entered and
posted to the MIAX PEARL Equities
Book (‘‘Order B’’). Order B does not
execute against Order A because Order
B does not satisfy Order A’s single
minimum quantity condition of 500
shares. As a result, Order B is posted to
the MIAX PEARL Equities Book at
$10.10, creating an internally locked
book. An order to sell 500 shares at
$10.10 is then entered and executes
against Order A at $10.10 for 500 shares
because the incoming order is of
sufficient size to satisfy Order A’s
minimum quantity condition of 500
shares.
To reduce the occurrences of an
internally crossed non-displayed
market, the Exchange proposes to reprice incoming orders with an MEQ
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instruction where that order would be
posted at a price that may cross a
displayed order posted on the MIAX
PEARL Equities Book. Subparagraph
(c)(7)(B)(ii) of Exchange Rule 2614
would provide that where there is
insufficient size to satisfy the minimum
quantity condition of an incoming order
to buy (sell) and that incoming order, if
posted at its limit price, would cross a
displayed order to sell (buy) resting on
the MIAX PEARL Equities Book, the
order to buy (sell) with the Minimum
Execution Quantity instruction will
have a working price equal to the price
of the displayed order to sell (buy).14
For example, an order to buy at $11.00
with a minimum quantity condition of
500 shares is entered and there is a
displayed order resting on the MIAX
PEARL Equities Book to sell 200 shares
at $10.99. The resting order to sell does
not contain sufficient size to satisfy the
incoming order’s minimum quantity
condition of 500 shares. The price of the
incoming buy order, if posted to the
MIAX PEARL Equities Book, would
cross the price of the resting sell order.
In such case, to avoid an internally
crossed book, the System will re-price
the incoming buy order to $10.99, the
locking price.
As discussed above, proposed
subparagraph (c)(7)(B)(ii) of Exchange
Rule 2614 seeks to prevent incoming
orders with an MEQ instruction from
being posted to the MIAX PEARL
Equities Book at a price that crosses
resting displayed contra-side orders by
re-pricing the order with an MEQ
instruction to the locking price.
However, once resting on the MIAX
PEARL Equities Book, it is possible that
an incoming order may be of
insufficient size to satisfy the resting
order’s minimum quantity condition,
and therefore, post on the MIAX PEARL
Equities Book at a price that crosses the
resting order with a minimum quantity
condition, resulting in an internally
crossed non-displayed book. To address
intra-market priority in such a scenario,
the Exchange proposes to adopt
subparagraph (c)(7)(B)(iii) of Exchange
Rule 2614 to describe when an order
with an MEQ instruction would not be
eligible to trade to prevent executions
from occurring that may be inconsistent
14 The Exchange notes that this behavior
proposed by the Exchange was previously adopted
by the Cboe Exchanges. See e.g., Securities
Exchange Act Release No. 81457 (August 22, 2017),
82 FR 40812 (August 28, 2017) (SR-BatsEDGX–
2017–34). The Cboe Equity Exchanges subsequently
amended this functionality to cancel an order with
a minimum quantity condition where, if posted, it
would lock or cross the displayed price of an order
on their book. See, e.g., Securities Exchange Act
Release No. 82943 (March 23, 2018), 83 FR 13574
(March 29, 2018) (SR-CboeEDGX–2018–008).
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with intra-market price priority or
would result in a non-displayed order
trading ahead of a same-priced, sameside displayed order. The Exchange
would not permit an order with an MEQ
instruction that crosses other displayed
or non-displayed orders on the MIAX
PEARL Equities Book to trade at prices
that are worse than the price of such
contra-side orders. The Exchange would
also not permit a resting order with an
MEQ instruction to trade at a price
equal to a contra-side displayed order.
Specifically, proposed Exchange Rule
2614(c)(7)(B)(iii) would provide that an
order to buy (sell) with an MEQ
instruction that is posted to the MIAX
PEARL Equities Book will not be
eligible to trade: (1) At a price equal to
or above (below) any sell (buy)
displayed orders that have a ranked
price equal to or below (above) the price
of such order with a Minimum
Execution Quantity instruction; or (2) at
a price above (below) any sell (buy) nondisplayed order that has a ranked price
below (above) the price of such order
with a Minimum Execution Quantity
instruction.15
Subparagraph (c)(7)(B)(iv) of
Exchange Rule 2614 would provide that
an order with an MEQ instruction that
crosses an order on the MIAX PEARL
Equities Book may execute at a price
less aggressive than its ranked price
against an incoming order so long as
such execution is consistent with the
above restrictions. The Exchange notes
that this behavior is consistent with that
of other exchanges.16
The following examples describe the
proposed operation of an order with a
Minimum Execution Quantity during an
internally crossed market. This first
example addresses intra-market priority
amongst an order with an MEQ
instruction and other non-displayed
orders in an internally crossed market as
well as when an execution may occur at
prices less aggressive than the resting
order’s ranked price. Assume the NBBO
is $10.10 by $10.16. A Midpoint Peg
Order to buy with a minimum quantity
condition to execute against a single
order of 100 shares is resting on the
MIAX PEARL Equities Book at $10.13,
the midpoint of the NBBO (‘‘Order A’’).
A non-displayed order to sell 50 shares
at $10.12 is then entered (‘‘Order B’’).
Because Order A’s minimum quantity
condition cannot be met, Order B will
not trade with Order A and will be
This behavior is identical to that of the Cboe
Equity Exchanges, MEMX, and the NYSE
Exchanges. See, e.g., EDGX Rule 11.6(h), MEMX
Rule 11.6(f), and NYSE Rule 7.31(i)(3)(C).
16 This behavior is identical to that of the Cboe
Equity Exchanges and MEMX. See, e.g., EDGX Rule
11.6(h) and MEMX Rule 11.6(f).
15
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posted and ranked on the MIAX PEARL
Equities Book at $10.12, its limit price.
The Exchange now has a non-displayed
buy order crossing a non-displayed sell
order on the MIAX PEARL Equities
Book. Then a non-displayed order to
sell 25 shares at $10.11 is entered
(‘‘Order C’’). Like was the case for Order
B, Order C does not satisfy Order A’s
minimum quantity condition and Order
C is posted and ranked on the MIAX
PEARL Equities Book at $10.11, its limit
price. The Exchange now has a nondisplayed buy order crossing both nondisplayed sell orders on the MIAX
PEARL Equities Book. If the Exchange
then receives an order to sell for 100
shares at $10.11 (‘‘Order D’’),17 although
Order D would be marketable against
Order A at $10.13, it would not trade at
$10.13 because it is above the price of
all resting sell orders. Order D will
instead execute against Order A at
$10.11, receiving price improvement
relative to the midpoint of the NBBO.
This second example addresses intramarket priority amongst displayed
orders, non-displayed orders with an
MEQ instruction and other nondisplayed orders. The Exchange notes
that the below behavior is not unique to
an internally crossed market as the
Exchange’s priority rule, 2616(a),
currently prohibits non-displayed
orders, which would include nondisplayed orders with an MEQ
instruction, from trading ahead of samepriced, same-side displayed orders.
Assume the NBBO is $10.00 by $10.04.
A non-displayed order to buy 500 shares
at $10.00 is resting on the MIAX PEARL
Equities Book (‘‘Order A’’). A displayed
order to buy 100 shares at $10.00 is then
entered and posted to the MIAX PEARL
Equities Book (‘‘Order B’’). The
Exchange receives a non-displayed
order to sell 600 shares at $10.00 with
a minimum quantity condition to
execute against a single order of 500
shares (‘‘Order C’’). Although Order A
satisfies Order C’s minimum quantity
condition and has time priority ahead of
Order B, no execution occurs because
Order B is a displayed order and has
execution priority over Order A, a nondisplayed order. Order C does not
execute against Order B because Order
B does not satisfy Order C’s minimum
quantity condition. Order C is then
posted to the MIAX PEARL Equities
Book at $10.00, non-displayed.
Partial Executions
Proposed Exchange Rule 2614(c)(7)(C)
would describe the handling of orders
17 The Exchange understands that on the NYSE
Exchanges, Order D will be posted to the book at
$10.11 and not execute against Order A at $10.13.
PO 00000
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Fmt 4703
Sfmt 4703
14977
with an MEQ instruction that are
partially executed either upon arrival or
when resting on the MIAX PEARL
Equities Book. Specifically,
subparagraph (c)(7)(C) of Exchange Rule
2614 would provide that an order with
an MEQ instruction may be partially
executed so long as the execution size
of the individual order or aggregate size
of multiple orders, as applicable, is
equal to or exceeds the minimum
quantity condition provided in the
instruction. Subparagraph (c)(7)(C)(i) of
Exchange Rule 2614 would provide that
any shares remaining after a partial
execution will continue to be executed
at a size that is equal to or exceeds the
quantity provided in the instruction.
Subparagraph (c)(7)(C)(ii) of Exchange
Rule 2614 would provide that where the
number of shares remaining are less
than the minimum quantity condition
provided in the instruction, the
minimum quantity condition shall be
equal to the number of shares
remaining.18
Routing
An order with an MEQ instruction
would be non-routable. Proposed
Exchange Rule 2614(c)(7)(D) would
provide that orders that include an MEQ
instruction would not be eligible to be
routed to an away Trading Center in
accordance with Exchange Rule
2617(b).19
Operation of Order With an MEQ
Instruction Pre-Open and During the
Opening and Re-Opening Processes
Currently, Exchange Rule 2600(a)
provides that the Exchange will not
accept orders designated as Post Only
with a time-in-force of RHO, ISOs, and
all orders with a time-in-force of IOC
prior to 9:30 a.m. Eastern Time.
Likewise, Exchange Rule 2600(a) would
be amended to also provide that orders
with an MEQ instruction will not be
accepted prior to 9:30 a.m. Eastern
Time.20
Orders with an MEQ instruction will
also not be eligible to participate in
either the opening or re-opening process
described under Exchange Rule 2615.
Specifically, the Exchange proposes to
18 The Exchange notes that this behavior is
identical to that of the Cboe Equity Exchanges. See,
e.g., EDGX Rule 11.6(h) (stating that ‘‘[w]here the
number of shares remaining after a partial execution
are less than the quantity provided in the
instruction, the Minimum Execution Quantity shall
be equal to the number of shares remaining’’). See
also IEX Rule 11.190(h)(11)(G)(ii)(b).
19 This behavior is identical to that of the Cboe
Equity Exchanges and MEMX. See, e.g., EDGX Rule
11.6(h) and MEMX Rule 11.6(f).
20 The Exchange notes that this is similar to the
Cboe Equity Exchanges. See, e.g., EDGX Rule
11.1(a)(1).
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amend subparagraph (a)(1) of Exchange
Rule 2615 to provide that orders with an
MEQ instruction are not eligible to
participate in the opening process and
subparagraph (e) of Exchange Rule 2615
would provide that orders with an MEQ
instruction that are to participate in the
re-opening process will be cancelled or
rejected.21
jbell on DSKJLSW7X2PROD with NOTICES
Implementation
Due to the technological changes
associated with this proposed change,
the Exchange will issue a trading alert
publicly announcing the
implementation date of this proposed
rule change. The Exchange anticipates
that the implementation date will be in
either the second or third quarter of
2021.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the
Act,22 in general, and furthers the
objectives of Section 6(b)(5),23 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. The
proposed rule change would remove
impediments to and promote just and
equitable principles of trade because it
would provide market participants,
including institutional firms who
ultimately represent individual retail
investors in many cases, with optional
functionality that would provide them
with better control over their orders.
Therefore, the proposal would also
provide them with greater potential to
improve the quality of their order
executions.
As discussed above, the functionality
proposed herein would enable Users to
avoid transacting with smaller orders
that they believe ultimately increases
the cost of the transaction. Because the
Exchange does not have this
functionality, the Exchange believes that
market participants, such as large
institutions that transact a large number
of orders on behalf of retail investors,
have avoided sending large orders to the
Exchange to avoid potentially more
The Exchange notes that this is similar to the
Cboe Equity Exchanges. See, e.g., EDGX Rule
11.7(a)(2) and (e)(1).
22 15 U.S.C. 78f(b).
23 15 U.S.C. 78f(b)(5).
21
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expensive transactions.24 In this regard,
the Exchange notes that the proposed
new optional MEQ instruction may
improve the Exchange’s market by
attracting more order flow. Such new
order flow will further enhance the
depth and liquidity on the Exchange,
which supports just and equitable
principles of trade. Furthermore, the
proposed MEQ instruction is consistent
with providing market participants with
greater control over the nature of their
executions so that they may achieve
their trading goals and improve the
quality of their executions.
Furthermore, the Exchange believes
its proposal promotes just and equitable
principles of trade because the proposed
operation of the MEQ instruction is
based on similar functionality at other
exchanges.25 As described further
below, while the operation varies in
certain ways from that of other
exchanges, no aspect of the proposed
MEQ instructions operation is unique to
the Exchange and is already in place at
other exchanges that offer minimum
trade size functionality.
The proposal allows Users to
designate the minimum individual
execution size upon entry or
alternatively designate a minimum
acceptable quantity on an order that
may aggregate multiple executions to
meet the minimum quantity
requirement. The Exchange notes this
proposed default behavior is the only
area where the proposal differs from
that of other exchanges. Most other
equity exchanges provide their members
the option for their order with a
minimum execution quantity
instruction to execute upon entry
against a single order or multiple orders
in the aggregate. The CBOE Equity
Exchanges default orders with a
minimum execution quantity to execute
against multiple aggregated orders upon
entry. NASDAQ, the NYSE Exchanges,
and IEX do not provide a default and
require that their members make an
election upon entry. MEMX is the only
exchange that does not provide both
options and only allows orders with a
minimum execution quantity to execute
against a single contra-side order upon
entry. The Exchange believes this
difference is immaterial as, like most
other exchanges, both options will
continue to be available to Users. The
Exchange believes its proposal to
default orders with an MEQ instruction
24 As noted, the proposal is designed to attract
liquidity to the Exchange by allowing market
participants to designate a minimum size of a
contra-side order to interact with, thus providing
them with functionality available to them on dark
markets.
25 See supra note 4.
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Fmt 4703
Sfmt 4703
to execute against individual orders that
each meet minimum quantity condition
upon entry promotes just and equitable
principles of trade because it based on
discussions with market participants
and would enable Users to avoid
interacting with small orders entered by
professional traders without making an
affirmative election to do so, possibly
adversely impacting the execution of
their larger order. Once posted to the
MIAX PEARL Equities Book, the MEQ
instruction operates like that of other
exchanges where the order would only
be eligible to execute against a single
contra-side order.26
The Exchange also believes that repricing incoming orders with an MEQ
instruction where that order may cross
a displayed order posted on the MIAX
PEARL Equities Book promotes just and
equitable principles of trade because it
enables the Exchange to avoid an
internally crossed book. The proposed
re-pricing is also similar to how the
Exchange currently reprices nondisplayed orders that cross the Protected
Quotation of an external market.27 The
Exchange notes that this behavior was
previously adopted by the Cboe
Exchanges.28 In addition, both IEX and
NASDAQ also re-price minimum
quantity orders to avoid an internally
crossed book. In certain circumstances,
NASDAQ re-prices buy (sell) orders to
one minimum price increment below
(above) the lowest (highest) price of
resting orders that do not satisfy the
minimum quantity condition.29 IEX reprices non-displayed orders, such as
minimum quantity orders, that include
a limit price more aggressive than the
midpoint of the NBBO to the midpoint
of the NBBO.30 Moreover, the proposed
optional aggregation functionality for
the MEQ instruction is substantially
similar to that offered by NASDAQ and
IEX, both of which have been approved
by the Commission.31
26 See EDGX Rule 11.6(h) and MEMX Rule
11.6(f).
27 See Exchange Rule 2614(g)(2).
28 See, e.g., Securities Exchange Act Release No.
81457 (August 22, 2017), 82 FR 40812 (August 28,
2017 (SR-BatsEDGX–2017–34). The Cboe Equity
Exchanges subsequently amended this functionality
to cancel an order with a minimum quantity
condition where, if posted, it would lock or cross
the displayed price of an order on their book. See,
e.g., Securities Exchange Act Release No. 82943
(March 23, 2018), 83 FR 13574 (March 29, 2018)
(SR-CboeEDGX–2018–008).
29 See NASDAQ Rule 4703(e). For example,
NASDAQ Rule 4703(e) provides that if there was an
order to buy at $11 with a minimum quantity
condition of 500 shares, and there were resting
orders on the NASDAQ Book to sell 200 shares at
$10.99 and 300 shares at $11, the order would be
repriced to $10.98 and ranked at that price.
30 See IEX Rule 11.190(h)(2).
31 See Securities Exchange Act Release No. 73959
(December 30, 2014), 80 FR 582 (January 6, 2015)
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The proposed rule change also
removes impediments to and perfects
the mechanism of a free and open
market and a national market system
because it would ensure that there
would not be an execution of a resting
order with an MEQ instruction that
either would be inconsistent with intramarket price priority or would result in
a non-displayed order trading ahead of
a same-side, same-priced displayed
order. Specifically, the proposed rule
change would protect displayed orders
by preventing an order with an MEQ
instruction from executing where it is
locked by a contra-side displayed order.
The proposed rule change also protects
intra-market price priority by preventing
a resting order with an MEQ instruction
from executing where it is crossed by
either a displayed or non-displayed
order on the MIAX PEARL Equities
Book. The Exchange also believes it is
reasonable for: (i) An order with an
MEQ instruction to cede execution
priority when it would lock or cross an
order against which it would otherwise
execute if it were not for the minimum
quantity condition; and (ii) a resting
non-displayed order to cede execution
priority to a subsequently arriving sameside order where that order is of
sufficient size to satisfy a resting contraside order’s minimum quantity
condition because doing so in both
cases facilitates executions in
accordance with the terms and
conditions of each order. This portion of
the proposed rule change is also
substantially similar to minimum
execution functionality on the Cboe
Equity Exchanges and MEMX.32
jbell on DSKJLSW7X2PROD with NOTICES
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 will enable the Exchange to
(order approving new optional functionality for
Minimum Quantity Orders). See IEX Rule
11.190(b)(11) and Supplementary Material .03
(defining Minimum Quantity Orders and MinExec
with Cancel Remaining and MinExec with AON
Remaining). See also Securities Exchange Act
Release No. 78101 (June 17, 2016), 81 FR 41141
(June 23, 2016) (order approving the IEX exchange
application, which included IEX’s Minimum
Quantity Orders). The Exchange also notes that a
letter was submitted in strong support of NASDAQ
at the time they proposed similar changes to the
operation of their Minimum Quantity order
attribute under NASDAQ Rule 4703(e). See letter to
the Commission from James J. Angel, Associate
Professor of Finance, Georgetown University, dated
November 26, 2014.
32 See supra note 4.
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19:13 Mar 18, 2021
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offer functionality substantially similar
to that offered by the Cboe Equity
Exchanges, the NYSE Exchanges,
NASDAQ, MEMX, and IEX.33 As noted
above, the Exchange believes its lack of
this functionality has put it at a
competitive disadvantage as market
participants, such as large institutions
that transact a large number of orders on
behalf of retail investors, have avoided
sending large orders to the Exchange to
avoid potentially more expensive
transactions. This proposal is designed
to allow the Exchange to directly
compete with other exchanges that offer
similar minimum quantity functionality.
The proposal would therefore promote
competition because it is designed to
attract liquidity to the Exchange by
allowing market participants to
designate a minimum size of a contraside interest to interact with, thus
providing them with functionality
available to them on dark markets and
other exchanges.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to 19(b)(3)(A)
of the Act 34 and Rule 19b–4(f)(6) 35
thereunder.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
Id.
15 U.S.C. 78s(b)(3)(A).
35 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
33
34
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14979
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–2021–07 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–2021–07. 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 the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
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–2021–07, and
should be submitted on or before April
9, 2021.
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Federal Register / Vol. 86, No. 52 / Friday, March 19, 2021 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.36
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–05674 Filed 3–18–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91322; File No. SR–
NYSEArca–2021–17]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Relating to Listing and
Trading of Shares of the T. Rowe Price
U.S. Equity Research ETF Under NYSE
Arca Rule 8.601–E
March 15, 2021.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on March 8,
2021, NYSE Arca, Inc. (‘‘NYSE Arca’’ or
the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade shares of the following under
NYSE Arca Rule 8.601–E: T. Rowe Price
U.S. Equity Research ETF. The proposed
rule change is available on the
Exchange’s website at www.nyse.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
jbell on DSKJLSW7X2PROD with NOTICES
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
self-regulatory organization 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 those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
17 CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
36
1 15
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19:13 Mar 18, 2021
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set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange has adopted NYSE
Arca Rule 8.601–E for the purpose of
permitting the listing and trading, or
trading pursuant to unlisted trading
privileges (‘‘UTP’’), of Active Proxy
Portfolio Shares, which are securities
issued by an actively managed open-end
investment management company.4
Commentary .01 to Rule 8.601–E
requires the Exchange to file separate
proposals under Section 19(b) of the Act
before listing and trading any series of
Active Proxy Portfolio Shares on the
Exchange. Therefore, the Exchange is
submitting this proposal in order to list
and trade shares (‘‘Shares’’) as Active
Proxy Portfolio Shares of the T. Rowe
Price U.S. Equity Research ETF (the
‘‘Fund’’) under Rule 8.601–E.
Key Features of Active Proxy Portfolio
Shares
While funds issuing Active Proxy
Portfolio Shares will be activelymanaged and, to that extent, will be
similar to Managed Fund Shares, Active
Proxy Portfolio Shares differ from
Managed Fund Shares in the following
important respects. First, in contrast to
4 See Securities Exchange Act Release No. 89185
(June 29, 2020), 85 FR 40328 (July 6, 2020) (SR–
NYSEArca–2019–95). Rule 8.601–E(c)(1) provides
that ‘‘[t]he term ‘‘Active Proxy Portfolio Share’’
means a security that (a) is issued by a investment
company registered under the Investment Company
Act of 1940 (‘‘Investment Company’’) organized as
an open-end management investment company that
invests in a portfolio of securities selected by the
Investment Company’s investment adviser
consistent with the Investment Company’s
investment objectives and policies; (b) is issued in
a specified minimum number of shares, or
multiples thereof, in return for a deposit by the
purchaser of the Proxy Portfolio and/or cash with
a value equal to the next determined net asset value
(‘‘NAV’’); (c) when aggregated in the same specified
minimum number of Active Proxy Portfolio Shares,
or multiples thereof, may be redeemed at a holder’s
request in return for the Proxy Portfolio and/or cash
to the holder by the issuer with a value equal to
the next determined NAV; and (d) the portfolio
holdings for which are disclosed within at least 60
days following the end of every fiscal quarter.’’ Rule
8.601–E(c)(2) provides that ‘‘[t]he term ‘‘Actual
Portfolio’’ means the identities and quantities of the
securities and other assets held by the Investment
Company that shall form the basis for the
Investment Company’s calculation of NAV at the
end of the business day.’’ Rule 8.601–E(c)(3)
provides that ‘‘[t]he term ‘‘Proxy Portfolio’’ means
a specified portfolio of securities, other financial
instruments and/or cash designed to track closely
the daily performance of the Actual Portfolio of a
series of Active Proxy Portfolio Shares as provided
in the exemptive relief pursuant to the Investment
Company Act of 1940 applicable to such series.’’
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Frm 00116
Fmt 4703
Sfmt 4703
Managed Fund Shares, which are
actively-managed funds listed and
traded under NYSE Arca Rule 8.600–E 5
and for which a ‘‘Disclosed Portfolio’’ is
required to be disseminated at least
once daily,6 the portfolio for each series
of Active Proxy Portfolio Shares will be
publicly disclosed within at least 60
days following the end of every fiscal
quarter in accordance with normal
disclosure requirements otherwise
applicable to open-end management
investment companies registered under
the Investment Company Act of 1940
(the ‘‘1940 Act’’).7 The composition of
the portfolio of each series of Active
Proxy Portfolio Shares would not be
available at commencement of Exchange
listing and trading. Second, in
connection with the creation and
redemption of Active Proxy Portfolio
Shares, such creation or redemption
may be exchanged for a Proxy Portfolio
5 The Commission has previously approved
listing and trading on the Exchange of a number of
issues of Managed Fund Shares under NYSE Arca
Rule 8.600–E. See, e.g., Securities Exchange Act
Release Nos. 57801 (May 8, 2008), 73 FR 27878
(May 14, 2008) (SR–NYSEArca–2008–31) (order
approving Exchange listing and trading of twelve
actively-managed funds of the WisdomTree Trust);
60460 (August 7, 2009), 74 FR 41468 (August 17,
2009) (SR–NYSEArca–2009–55) (order approving
listing of Dent Tactical ETF); 63076 (October 12,
2010), 75 FR 63874 (October 18, 2010) (SR–
NYSEArca–2010–79) (order approving Exchange
listing and trading of Cambria Global Tactical ETF);
63802 (January 31, 2011), 76 FR 6503 (February 4,
2011) (SR–NYSEArca–2010–118) (order approving
Exchange listing and trading of the SiM Dynamic
Allocation Diversified Income ETF and SiM
Dynamic Allocation Growth Income ETF). The
Commission also has approved a proposed rule
change relating to generic listing standards for
Managed Fund Shares. Securities Exchange Act
Release No. 78397 (July 22, 2016), 81 FR 49320
(July 27, 2016 (SR–NYSEArca–2015–110)
(amending NYSE Arca Equities Rule 8.600 to adopt
generic listing standards for Managed Fund Shares).
6 NYSE Arca Rule 8.600–E(c)(2) defines the term
‘‘Disclosed Portfolio’’ as the identities and
quantities of the securities and other assets held by
the Investment Company that will form the basis for
the Investment Company’s calculation of net asset
value at the end of the business day. NYSE Arca
Rule 8.600–E(d)(2)(B)(i) requires that the Disclosed
Portfolio will be disseminated at least once daily
and will be made available to all market
participants at the same time.
7 A mutual fund is required to file with the
Commission its complete portfolio schedules for the
second and fourth fiscal quarters on Form N–CSR
under the 1940 Act. Information reported on Form
N–PORT for the third month of a fund’s fiscal
quarter will be made publicly available 60 days
after the end of a fund’s fiscal quarter. Form N–
PORT requires reporting of a fund’s complete
portfolio holdings on a position-by-position basis
on a quarterly basis within 60 days after fiscal
quarter end. Investors can obtain a fund’s Statement
of Additional Information (‘‘SAI’’), its Shareholder
Reports, its Form N–CSR, filed twice a year, and its
Form N–CEN, filed annually. A fund’s SAI and
Shareholder Reports will be available free upon
request from the Investment Company, and those
documents and the Form N–PORT, Form N–CSR,
and Form N–CEN may be viewed on-screen or
downloaded from the Commission’s website at
www.sec.gov.
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]]>Agencies
[Federal Register Volume 86, Number 52 (Friday, March 19, 2021)]
[Notices]
[Pages 14974-14980]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-05674]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91323; File No. SR-PEARL-2021-07]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change to Adopt a
Minimum Execution Quantity Instruction for Orders
March 15, 2021.
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 March 1, 2021, MIAX PEARL, LLC (``MIAX PEARL'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposed rule change to amend Exchange
Rule 2614, Orders and Order Instructions, to adopt the Minimum
Execution Quantity instruction.
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.
[[Page 14975]]
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 amend Exchange Rule
2614, Orders and Order Instructions, to adopt the Minimum Execution
Quantity (``MEQ'') instruction that would be available to orders in
equity securities traded on the Exchange's equity trading platform
(referred to herein as ``MIAX PEARL Equities''). An MEQ instruction
would enable a User \3\ to specify a minimum share amount at which the
order will execute. An order to buy (sell) with an MEQ instruction
would not execute unless the volume of orders to sell (buy) meets or
exceeds the order to buy (sell)'s designated minimum quantity
condition. The proposed MEQ instruction is based on similar
functionality offered at other exchanges.\4\
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\3\ Exchange Rule 1901 defines the term ``User'' as ``any Member
or Sponsored Participant who is authorized to obtain access to the
System pursuant to Exchange Rule 2602.''
\4\ See, e.g., Cboe BYX Exchange, Inc. (``BYX'') and Cboe BZX
Exchange, Inc. Rules 11.9(c)(5), Cboe EDGA Exchange, Inc. (``EDGA'')
and Cboe EDGX Exchange, Inc. (``EDGX'', collectively with BYX, BZX,
and EDGA, the ``Cboe Equity Exchanges'') Rules 11.6(h), New York
Stock Exchange LLC (``NYSE'') Rule 7.31(i)(3), NYSE Arca, Inc.
(``NYSE Arca'') Rule 7.31-E(i)(3), NYSE American LLC (``NYSE
American'', collectively with NYSE and NYSE Arca, the ``NYSE
Exchanges'') Rule 7.31E(i)(3), Investors Exchange, Inc. (``IEX'')
Rule 11.190(h)(11), The NASDAQ Stock Market LLC (``NASDAQ'') Rule
4703(e), and MEMX LLC (``MEMX'') Rule 11.6(f).
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The Exchange understands that some market participants avoid
sending large orders to MIAX PEARL Equities out of concern that such
orders may interact with small orders entered by professional traders,
possibly adversely impacting the execution of their larger order.
Institutional orders are often much larger in size than the average
order in the marketplace. To facilitate the liquidation or acquisition
of a large position, market participants tend to submit multiple orders
into the market that may only represent a fraction of the overall
institutional position to be executed. Various strategies used by
institutional market participants to execute large orders are intended
to limit price movement of the security at issue. Executing in small
sizes may impact the market for that security such that the additional
orders the market participant has yet to enter into the market may be
more costly to execute. If an institution is able to execute in larger
sizes, the contra-party to the execution is less likely to be a
participant that reacts to short term changes in the stock price, and
as such, the price impact to the stock may be less acute when larger
individual executions are obtained.\5\ As a result, these orders are
often executed away from the Exchange in dark pools or other exchanges
that offer the same functionality as proposed herein,\6\ or via broker-
dealer internalization.
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\5\ The Commission has long recognized this concern: ``[a]nother
type of implicit transaction cost reflected in the price of a
security is short-term price volatility caused by temporary
imbalances in trading interest. For example, a significant implicit
cost for large investors (who often represent the consolidated
investments of many individuals) is the price impact that their
large trades can have on the market. Indeed, disclosure of these
large orders can reduce the likelihood of their being filled.'' See
Securities Exchange Act Release No. 42450 (February 23, 2000), 65 FR
10577, 10581 (February 28, 2000) (SR-NYSE-99-48).
\6\ See supra note 4.
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To attract larger orders, the Exchange proposes to add new optional
functionality in the form of the MEQ instruction. The proposed MEQ
instruction would be described under new paragraph (c)(7) of Exchange
Rule 2614 and described as an instruction a User may attach to a non-
displayed order requiring the System to execute the order only to the
extent that a minimum quantity can be satisfied. Accordingly, the
Exchange also proposes to amend Exchange Rule 2614(a) to specify that
the MEQ instruction may be attached to a non-displayed Limit Order,\7\
a Market Order, and a Midpoint Peg Order.
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\7\ Unlike the Cboe Equity Exchanges and MEMX, the Exchange will
not permit displayed Limit Orders with a time-in-force of Immediate-
or-Cancel (``IOC'') to include a minimum quantity condition. See,
e.g., EDGX Rule 11.8(b)(3). See also MEMX Rule 11.8(b)(2).
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Operation Upon Entry
The proposed MEQ instruction would operate differently upon entry
than when resting on the MIAX PEARL Equities Book.\8\ Proposed Exchange
Rule 2614(c)(7)(A) would describe the operation of the MEQ instruction
upon entry and provide that an order with an MEQ will execute upon
entry against individual orders resting on the MIAX PEARL Equities Book
that each satisfy the order's minimum quantity condition. Subparagraph
(c)(7)(A)(i) to Exchange Rule 2614 would provide that a User may
alternatively specify that the incoming order's minimum quantity
condition need not be satisfied by each individual resting order and
that the order's minimum quantity condition be satisfied by one or
multiple orders resting on the MIAX PEARL Equities Book that in the
aggregate satisfy the order's minimum quantity condition.\9\
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\8\ Exchange Rule 1901 defines the term ``MIAX PEARL Equities
Book'' as ``the electronic book of orders in equity securities
maintained by the System.''
\9\ The Exchange notes that this functionality is similar to
that of the Cboe Equity Exchanges with the exception of the proposed
default behavior. The CBOE Equity Exchanges default orders with a
minimum execution quantity to execute against multiple aggregated
contra-side orders upon entry. See, e.g., EDGX Rule 11.6(h). The
NYSE Exchanges and NASDAQ provide both alternatives but do not
provide a default. See, e.g., NYSE Rule 7.31(i)(3) and NASDAQ Rule
4703(e). The Exchange also notes that MEMX only allows orders with a
minimum execution quantity to execute against a single order that
satisfies the orders minimum quantity condition upon entry and does
not provide for multiple contra-side orders to be aggregated to meet
the order's minimum quantity condition. See MEMX Rule 11.6(f).
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Subparagraph (c)(7)(A) to Exchange Rule 2614 would also provide
that if there are orders that satisfy the minimum quantity condition,
but there are also orders that do not satisfy the minimum quantity
condition, the order with the MEQ instruction will execute against
orders resting on the MIAX PEARL Equities Book in accordance with Rule
2616, Priority of Orders, until it reaches an order that does not
satisfy the minimum quantity condition, and then the remainder of the
order with an MEQ instruction will be posted to the MIAX PEARL Equities
Book or cancelled in accordance with the terms of the order.\10\
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\10\ This behavior is identical to that of the Cboe Equity
Exchanges and MEMX. See, e.g., EDGX Rule 11.6(h) and MEMX Rule
11.6(f).
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The following example illustrates when a User elects for an order
with an MEQ instruction to execute upon entry against any number of
smaller contra-side orders that, in aggregate, meet the order's minimum
quantity condition. Assume there are two orders to sell at $10.00
resting on the MIAX PEARL Equities Book--the first for 300 shares and a
second for 400 shares, with the 300 share order having time priority
ahead of the 400 share order. If a User entered an order with an MEQ
instruction to buy 700 shares at $10.00 with a minimum quantity of 500
shares,
[[Page 14976]]
and the order was marketable against the two resting sell orders for
300 and 400 shares, the System would aggregate both sell orders for
purposes of meeting the minimum quantity, thus resulting in executions
of 300 shares and then 400 shares respectively.
Following from the above example, assume, however, that the User
did not make an affirmative election that their order with an MEQ
instruction execute against multiple contra-side orders that, in
aggregate, meet the order's minimum quantity condition, such that the
order with an MEQ instruction will execute against only individual
contra-side orders upon entry that each satisfy the minimum quantity
condition. Assume further that the User elected a minimum quantity
condition at 400 shares. The order with an MEQ instruction would not
execute against the two sell orders because the 300 share order with
time priority at the top of the MIAX PEARL Equities Book is less than
the incoming order's 400 share minimum quantity condition. The order
with an MEQ instruction would then be cancelled or posted to the MIAX
PEARL Equities Book, non-displayed, when encountering an order with
time priority that is of insufficient size to satisfy its minimum
quantity condition.
Operation When Resting on the MIAX PEARL Equities Book
Proposed Exchange Rule 2614(c)(7)(B) would describe the operation
of orders with an MEQ instruction when resting on the MIAX PEARL
Equities Book. Specifically, proposed Exchange Rule 2614(c)(7)(B) would
provide that where there is insufficient size to satisfy an incoming
order's minimum quantity condition, that incoming order with an MEQ
instruction and a time-in-force of Regular Hours Only (``RHO'') \11\
will not trade and will be posted on the MIAX PEARL Equities Book.
Subparagraph (c)(7)(B)(i) of Exchange Rule 2614 would provide that when
posted on the MIAX PEARL Equities Book, the order may only execute
against individual incoming orders with a size that satisfies the
minimum quantity condition.\12\
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\11\ Exchange Rule 2614(b)(2).
\12\ This behavior is identical to that of the Cboe Equity
Exchanges and MEMX. See, e.g., EDGX Rule 11.6(h) and MEMX Rule
11.6(f).
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Subparagraph (c)(7)(B)(i)(1) of Exchange Rule 2614 would provide
that an order with an MEQ instruction cedes execution priority when it
would lock or cross an order against which it would otherwise execute
if it were not for the minimum quantity condition.\13\ The following
example illustrates this behavior. Assume the NBBO is $10.00 by $10.10
and no orders are resting on the MIAX PEARL Equities Book. A non-
displayed order to sell 100 shares at $10.10 is entered and posted to
the MIAX PEARL Equities Book (``Order A''). A non-displayed order to
buy 700 shares at $10.10 with a minimum quantity condition to execute
against a single order of 500 shares is then entered and posted to the
MIAX PEARL Equities Book (``Order B''). Order B does not execute
against Order A because Order A does not satisfy Order B's minimum
quantity condition of 500 shares. As a result, Order A is posted to the
MIAX PEARL Equities Book at $10.10, creating an internally locked book.
An order to buy 100 shares at $10.10 is then entered and executes
against Order A at $10.10 for 100 shares ahead of Order B because Order
B's minimum quantity condition of 500 shares requires it now execute
against a single incoming order that is of sufficient size to satisfy
its minimum quantity condition.
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\13\ Id.
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Subparagraph (c)(7)(B)(i)(2) of Exchange Rule 2614 would provide
that if a resting non-displayed sell (buy) order did not meet the
minimum quantity condition of a same-priced resting order to buy (sell)
with an MEQ instruction, a subsequently arriving sell (buy) order that
meets the minimum quantity condition will trade ahead of such resting
non-displayed sell (buy) order at that price. The following example
illustrates this behavior. Assume the NBBO is $10.00 by $10.10 and no
orders are resting on the MIAX PEARL Equities Book. A non-displayed
order to buy 700 shares at $10.10 with a minimum quantity condition to
execute against a single order of 500 shares is entered and posted to
the MIAX PEARL Equities Book (``Order A''). A non-displayed order to
sell 100 shares at $10.10 is then entered and posted to the MIAX PEARL
Equities Book (``Order B''). Order B does not execute against Order A
because Order B does not satisfy Order A's single minimum quantity
condition of 500 shares. As a result, Order B is posted to the MIAX
PEARL Equities Book at $10.10, creating an internally locked book. An
order to sell 500 shares at $10.10 is then entered and executes against
Order A at $10.10 for 500 shares because the incoming order is of
sufficient size to satisfy Order A's minimum quantity condition of 500
shares.
To reduce the occurrences of an internally crossed non-displayed
market, the Exchange proposes to re-price incoming orders with an MEQ
instruction where that order would be posted at a price that may cross
a displayed order posted on the MIAX PEARL Equities Book. Subparagraph
(c)(7)(B)(ii) of Exchange Rule 2614 would provide that where there is
insufficient size to satisfy the minimum quantity condition of an
incoming order to buy (sell) and that incoming order, if posted at its
limit price, would cross a displayed order to sell (buy) resting on the
MIAX PEARL Equities Book, the order to buy (sell) with the Minimum
Execution Quantity instruction will have a working price equal to the
price of the displayed order to sell (buy).\14\ For example, an order
to buy at $11.00 with a minimum quantity condition of 500 shares is
entered and there is a displayed order resting on the MIAX PEARL
Equities Book to sell 200 shares at $10.99. The resting order to sell
does not contain sufficient size to satisfy the incoming order's
minimum quantity condition of 500 shares. The price of the incoming buy
order, if posted to the MIAX PEARL Equities Book, would cross the price
of the resting sell order. In such case, to avoid an internally crossed
book, the System will re-price the incoming buy order to $10.99, the
locking price.
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\14\ The Exchange notes that this behavior proposed by the
Exchange was previously adopted by the Cboe Exchanges. See e.g.,
Securities Exchange Act Release No. 81457 (August 22, 2017), 82 FR
40812 (August 28, 2017) (SR-BatsEDGX-2017-34). The Cboe Equity
Exchanges subsequently amended this functionality to cancel an order
with a minimum quantity condition where, if posted, it would lock or
cross the displayed price of an order on their book. See, e.g.,
Securities Exchange Act Release No. 82943 (March 23, 2018), 83 FR
13574 (March 29, 2018) (SR-CboeEDGX-2018-008).
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As discussed above, proposed subparagraph (c)(7)(B)(ii) of Exchange
Rule 2614 seeks to prevent incoming orders with an MEQ instruction from
being posted to the MIAX PEARL Equities Book at a price that crosses
resting displayed contra-side orders by re-pricing the order with an
MEQ instruction to the locking price. However, once resting on the MIAX
PEARL Equities Book, it is possible that an incoming order may be of
insufficient size to satisfy the resting order's minimum quantity
condition, and therefore, post on the MIAX PEARL Equities Book at a
price that crosses the resting order with a minimum quantity condition,
resulting in an internally crossed non-displayed book. To address
intra-market priority in such a scenario, the Exchange proposes to
adopt subparagraph (c)(7)(B)(iii) of Exchange Rule 2614 to describe
when an order with an MEQ instruction would not be eligible to trade to
prevent executions from occurring that may be inconsistent
[[Page 14977]]
with intra-market price priority or would result in a non-displayed
order trading ahead of a same-priced, same-side displayed order. The
Exchange would not permit an order with an MEQ instruction that crosses
other displayed or non-displayed orders on the MIAX PEARL Equities Book
to trade at prices that are worse than the price of such contra-side
orders. The Exchange would also not permit a resting order with an MEQ
instruction to trade at a price equal to a contra-side displayed order.
Specifically, proposed Exchange Rule 2614(c)(7)(B)(iii) would
provide that an order to buy (sell) with an MEQ instruction that is
posted to the MIAX PEARL Equities Book will not be eligible to trade:
(1) At a price equal to or above (below) any sell (buy) displayed
orders that have a ranked price equal to or below (above) the price of
such order with a Minimum Execution Quantity instruction; or (2) at a
price above (below) any sell (buy) non-displayed order that has a
ranked price below (above) the price of such order with a Minimum
Execution Quantity instruction.\15\
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\15\ This behavior is identical to that of the Cboe Equity
Exchanges, MEMX, and the NYSE Exchanges. See, e.g., EDGX Rule
11.6(h), MEMX Rule 11.6(f), and NYSE Rule 7.31(i)(3)(C).
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Subparagraph (c)(7)(B)(iv) of Exchange Rule 2614 would provide that
an order with an MEQ instruction that crosses an order on the MIAX
PEARL Equities Book may execute at a price less aggressive than its
ranked price against an incoming order so long as such execution is
consistent with the above restrictions. The Exchange notes that this
behavior is consistent with that of other exchanges.\16\
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\16\ This behavior is identical to that of the Cboe Equity
Exchanges and MEMX. See, e.g., EDGX Rule 11.6(h) and MEMX Rule
11.6(f).
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The following examples describe the proposed operation of an order
with a Minimum Execution Quantity during an internally crossed market.
This first example addresses intra-market priority amongst an order
with an MEQ instruction and other non-displayed orders in an internally
crossed market as well as when an execution may occur at prices less
aggressive than the resting order's ranked price. Assume the NBBO is
$10.10 by $10.16. A Midpoint Peg Order to buy with a minimum quantity
condition to execute against a single order of 100 shares is resting on
the MIAX PEARL Equities Book at $10.13, the midpoint of the NBBO
(``Order A''). A non-displayed order to sell 50 shares at $10.12 is
then entered (``Order B''). Because Order A's minimum quantity
condition cannot be met, Order B will not trade with Order A and will
be posted and ranked on the MIAX PEARL Equities Book at $10.12, its
limit price. The Exchange now has a non-displayed buy order crossing a
non-displayed sell order on the MIAX PEARL Equities Book. Then a non-
displayed order to sell 25 shares at $10.11 is entered (``Order C'').
Like was the case for Order B, Order C does not satisfy Order A's
minimum quantity condition and Order C is posted and ranked on the MIAX
PEARL Equities Book at $10.11, its limit price. The Exchange now has a
non-displayed buy order crossing both non-displayed sell orders on the
MIAX PEARL Equities Book. If the Exchange then receives an order to
sell for 100 shares at $10.11 (``Order D''),\17\ although Order D would
be marketable against Order A at $10.13, it would not trade at $10.13
because it is above the price of all resting sell orders. Order D will
instead execute against Order A at $10.11, receiving price improvement
relative to the midpoint of the NBBO.
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\17\ The Exchange understands that on the NYSE Exchanges, Order
D will be posted to the book at $10.11 and not execute against Order
A at $10.13.
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This second example addresses intra-market priority amongst
displayed orders, non-displayed orders with an MEQ instruction and
other non-displayed orders. The Exchange notes that the below behavior
is not unique to an internally crossed market as the Exchange's
priority rule, 2616(a), currently prohibits non-displayed orders, which
would include non-displayed orders with an MEQ instruction, from
trading ahead of same-priced, same-side displayed orders. Assume the
NBBO is $10.00 by $10.04. A non-displayed order to buy 500 shares at
$10.00 is resting on the MIAX PEARL Equities Book (``Order A''). A
displayed order to buy 100 shares at $10.00 is then entered and posted
to the MIAX PEARL Equities Book (``Order B''). The Exchange receives a
non-displayed order to sell 600 shares at $10.00 with a minimum
quantity condition to execute against a single order of 500 shares
(``Order C''). Although Order A satisfies Order C's minimum quantity
condition and has time priority ahead of Order B, no execution occurs
because Order B is a displayed order and has execution priority over
Order A, a non-displayed order. Order C does not execute against Order
B because Order B does not satisfy Order C's minimum quantity
condition. Order C is then posted to the MIAX PEARL Equities Book at
$10.00, non-displayed.
Partial Executions
Proposed Exchange Rule 2614(c)(7)(C) would describe the handling of
orders with an MEQ instruction that are partially executed either upon
arrival or when resting on the MIAX PEARL Equities Book. Specifically,
subparagraph (c)(7)(C) of Exchange Rule 2614 would provide that an
order with an MEQ instruction may be partially executed so long as the
execution size of the individual order or aggregate size of multiple
orders, as applicable, is equal to or exceeds the minimum quantity
condition provided in the instruction. Subparagraph (c)(7)(C)(i) of
Exchange Rule 2614 would provide that any shares remaining after a
partial execution will continue to be executed at a size that is equal
to or exceeds the quantity provided in the instruction. Subparagraph
(c)(7)(C)(ii) of Exchange Rule 2614 would provide that where the number
of shares remaining are less than the minimum quantity condition
provided in the instruction, the minimum quantity condition shall be
equal to the number of shares remaining.\18\
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\18\ The Exchange notes that this behavior is identical to that
of the Cboe Equity Exchanges. See, e.g., EDGX Rule 11.6(h) (stating
that ``[w]here the number of shares remaining after a partial
execution are less than the quantity provided in the instruction,
the Minimum Execution Quantity shall be equal to the number of
shares remaining''). See also IEX Rule 11.190(h)(11)(G)(ii)(b).
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Routing
An order with an MEQ instruction would be non-routable. Proposed
Exchange Rule 2614(c)(7)(D) would provide that orders that include an
MEQ instruction would not be eligible to be routed to an away Trading
Center in accordance with Exchange Rule 2617(b).\19\
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\19\ This behavior is identical to that of the Cboe Equity
Exchanges and MEMX. See, e.g., EDGX Rule 11.6(h) and MEMX Rule
11.6(f).
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Operation of Order With an MEQ Instruction Pre-Open and During the
Opening and Re-Opening Processes
Currently, Exchange Rule 2600(a) provides that the Exchange will
not accept orders designated as Post Only with a time-in-force of RHO,
ISOs, and all orders with a time-in-force of IOC prior to 9:30 a.m.
Eastern Time. Likewise, Exchange Rule 2600(a) would be amended to also
provide that orders with an MEQ instruction will not be accepted prior
to 9:30 a.m. Eastern Time.\20\
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\20\ The Exchange notes that this is similar to the Cboe Equity
Exchanges. See, e.g., EDGX Rule 11.1(a)(1).
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Orders with an MEQ instruction will also not be eligible to
participate in either the opening or re-opening process described under
Exchange Rule 2615. Specifically, the Exchange proposes to
[[Page 14978]]
amend subparagraph (a)(1) of Exchange Rule 2615 to provide that orders
with an MEQ instruction are not eligible to participate in the opening
process and subparagraph (e) of Exchange Rule 2615 would provide that
orders with an MEQ instruction that are to participate in the re-
opening process will be cancelled or rejected.\21\
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\21\ The Exchange notes that this is similar to the Cboe Equity
Exchanges. See, e.g., EDGX Rule 11.7(a)(2) and (e)(1).
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Implementation
Due to the technological changes associated with this proposed
change, the Exchange will issue a trading alert publicly announcing the
implementation date of this proposed rule change. The Exchange
anticipates that the implementation date will be in either the second
or third quarter of 2021.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\22\ in general, and furthers the objectives of Section
6(b)(5),\23\ 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. The proposed rule change
would remove impediments to and promote just and equitable principles
of trade because it would provide market participants, including
institutional firms who ultimately represent individual retail
investors in many cases, with optional functionality that would provide
them with better control over their orders. Therefore, the proposal
would also provide them with greater potential to improve the quality
of their order executions.
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\22\ 15 U.S.C. 78f(b).
\23\ 15 U.S.C. 78f(b)(5).
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As discussed above, the functionality proposed herein would enable
Users to avoid transacting with smaller orders that they believe
ultimately increases the cost of the transaction. Because the Exchange
does not have this functionality, the Exchange believes that market
participants, such as large institutions that transact a large number
of orders on behalf of retail investors, have avoided sending large
orders to the Exchange to avoid potentially more expensive
transactions.\24\ In this regard, the Exchange notes that the proposed
new optional MEQ instruction may improve the Exchange's market by
attracting more order flow. Such new order flow will further enhance
the depth and liquidity on the Exchange, which supports just and
equitable principles of trade. Furthermore, the proposed MEQ
instruction is consistent with providing market participants with
greater control over the nature of their executions so that they may
achieve their trading goals and improve the quality of their
executions.
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\24\ As noted, the proposal is designed to attract liquidity to
the Exchange by allowing market participants to designate a minimum
size of a contra-side order to interact with, thus providing them
with functionality available to them on dark markets.
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Furthermore, the Exchange believes its proposal promotes just and
equitable principles of trade because the proposed operation of the MEQ
instruction is based on similar functionality at other exchanges.\25\
As described further below, while the operation varies in certain ways
from that of other exchanges, no aspect of the proposed MEQ
instructions operation is unique to the Exchange and is already in
place at other exchanges that offer minimum trade size functionality.
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\25\ See supra note 4.
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The proposal allows Users to designate the minimum individual
execution size upon entry or alternatively designate a minimum
acceptable quantity on an order that may aggregate multiple executions
to meet the minimum quantity requirement. The Exchange notes this
proposed default behavior is the only area where the proposal differs
from that of other exchanges. Most other equity exchanges provide their
members the option for their order with a minimum execution quantity
instruction to execute upon entry against a single order or multiple
orders in the aggregate. The CBOE Equity Exchanges default orders with
a minimum execution quantity to execute against multiple aggregated
orders upon entry. NASDAQ, the NYSE Exchanges, and IEX do not provide a
default and require that their members make an election upon entry.
MEMX is the only exchange that does not provide both options and only
allows orders with a minimum execution quantity to execute against a
single contra-side order upon entry. The Exchange believes this
difference is immaterial as, like most other exchanges, both options
will continue to be available to Users. The Exchange believes its
proposal to default orders with an MEQ instruction to execute against
individual orders that each meet minimum quantity condition upon entry
promotes just and equitable principles of trade because it based on
discussions with market participants and would enable Users to avoid
interacting with small orders entered by professional traders without
making an affirmative election to do so, possibly adversely impacting
the execution of their larger order. Once posted to the MIAX PEARL
Equities Book, the MEQ instruction operates like that of other
exchanges where the order would only be eligible to execute against a
single contra-side order.\26\
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\26\ See EDGX Rule 11.6(h) and MEMX Rule 11.6(f).
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The Exchange also believes that re-pricing incoming orders with an
MEQ instruction where that order may cross a displayed order posted on
the MIAX PEARL Equities Book promotes just and equitable principles of
trade because it enables the Exchange to avoid an internally crossed
book. The proposed re-pricing is also similar to how the Exchange
currently reprices non-displayed orders that cross the Protected
Quotation of an external market.\27\ The Exchange notes that this
behavior was previously adopted by the Cboe Exchanges.\28\ In addition,
both IEX and NASDAQ also re-price minimum quantity orders to avoid an
internally crossed book. In certain circumstances, NASDAQ re-prices buy
(sell) orders to one minimum price increment below (above) the lowest
(highest) price of resting orders that do not satisfy the minimum
quantity condition.\29\ IEX re-prices non-displayed orders, such as
minimum quantity orders, that include a limit price more aggressive
than the midpoint of the NBBO to the midpoint of the NBBO.\30\
Moreover, the proposed optional aggregation functionality for the MEQ
instruction is substantially similar to that offered by NASDAQ and IEX,
both of which have been approved by the Commission.\31\
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\27\ See Exchange Rule 2614(g)(2).
\28\ See, e.g., Securities Exchange Act Release No. 81457
(August 22, 2017), 82 FR 40812 (August 28, 2017 (SR-BatsEDGX-2017-
34). The Cboe Equity Exchanges subsequently amended this
functionality to cancel an order with a minimum quantity condition
where, if posted, it would lock or cross the displayed price of an
order on their book. See, e.g., Securities Exchange Act Release No.
82943 (March 23, 2018), 83 FR 13574 (March 29, 2018) (SR-CboeEDGX-
2018-008).
\29\ See NASDAQ Rule 4703(e). For example, NASDAQ Rule 4703(e)
provides that if there was an order to buy at $11 with a minimum
quantity condition of 500 shares, and there were resting orders on
the NASDAQ Book to sell 200 shares at $10.99 and 300 shares at $11,
the order would be repriced to $10.98 and ranked at that price.
\30\ See IEX Rule 11.190(h)(2).
\31\ See Securities Exchange Act Release No. 73959 (December 30,
2014), 80 FR 582 (January 6, 2015) (order approving new optional
functionality for Minimum Quantity Orders). See IEX Rule
11.190(b)(11) and Supplementary Material .03 (defining Minimum
Quantity Orders and MinExec with Cancel Remaining and MinExec with
AON Remaining). See also Securities Exchange Act Release No. 78101
(June 17, 2016), 81 FR 41141 (June 23, 2016) (order approving the
IEX exchange application, which included IEX's Minimum Quantity
Orders). The Exchange also notes that a letter was submitted in
strong support of NASDAQ at the time they proposed similar changes
to the operation of their Minimum Quantity order attribute under
NASDAQ Rule 4703(e). See letter to the Commission from James J.
Angel, Associate Professor of Finance, Georgetown University, dated
November 26, 2014.
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[[Page 14979]]
The proposed rule change also removes impediments to and perfects
the mechanism of a free and open market and a national market system
because it would ensure that there would not be an execution of a
resting order with an MEQ instruction that either would be inconsistent
with intra-market price priority or would result in a non-displayed
order trading ahead of a same-side, same-priced displayed order.
Specifically, the proposed rule change would protect displayed orders
by preventing an order with an MEQ instruction from executing where it
is locked by a contra-side displayed order. The proposed rule change
also protects intra-market price priority by preventing a resting order
with an MEQ instruction from executing where it is crossed by either a
displayed or non-displayed order on the MIAX PEARL Equities Book. The
Exchange also believes it is reasonable for: (i) An order with an MEQ
instruction to cede execution priority when it would lock or cross an
order against which it would otherwise execute if it were not for the
minimum quantity condition; and (ii) a resting non-displayed order to
cede execution priority to a subsequently arriving same-side order
where that order is of sufficient size to satisfy a resting contra-side
order's minimum quantity condition because doing so in both cases
facilitates executions in accordance with the terms and conditions of
each order. This portion of the proposed rule change is also
substantially similar to minimum execution functionality on the Cboe
Equity Exchanges and MEMX.\32\
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\32\ See supra note 4.
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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 will enable the Exchange to offer functionality
substantially similar to that offered by the Cboe Equity Exchanges, the
NYSE Exchanges, NASDAQ, MEMX, and IEX.\33\ As noted above, the Exchange
believes its lack of this functionality has put it at a competitive
disadvantage as market participants, such as large institutions that
transact a large number of orders on behalf of retail investors, have
avoided sending large orders to the Exchange to avoid potentially more
expensive transactions. This proposal is designed to allow the Exchange
to directly compete with other exchanges that offer similar minimum
quantity functionality. The proposal would therefore promote
competition because it is designed to attract liquidity to the Exchange
by allowing market participants to designate a minimum size of a
contra-side interest to interact with, thus providing them with
functionality available to them on dark markets and other exchanges.
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\33\ 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 after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to 19(b)(3)(A) of the Act \34\ and Rule 19b-4(f)(6) \35\
thereunder.
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\34\ 15 U.S.C. 78s(b)(3)(A).
\35\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-PEARL-2021-07 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-2021-07. 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 the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. 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-2021-07, and should be submitted
on or before April 9, 2021.
[[Page 14980]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
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\36\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-05674 Filed 3-18-21; 8:45 am]
BILLING CODE 8011-01-P
