Self-Regulatory Organizations: Notice of Filing and Immediate Effectiveness of a Proposed Rule Change by MIAX PEARL, LLC To Amend Exchange Rule 521, Nullification and Adjustment of Options Transactions Including Obvious Errors, 2954-2958 [2022-00878]
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Federal Register / Vol. 87, No. 12 / Wednesday, January 19, 2022 / Notices
competition among the options
exchanges. For these reasons, the
Exchange believes that the proposed
rule change reflects this competitive
environment and does not impose any
undue burden on intermarket
competition.
Paper Comments
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
All submissions should refer to File
Number SR–EMERALD–2022–01. 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–EMERALD–2022–01 and
should be submitted on or before
February 9, 2022.
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 16 and Rule 19b–4(f)(6) 17
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.
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
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• 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–
EMERALD–2022–01 on the subject line.
15 U.S.C. 78s(b)(3)(A).
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.
• Send paper comments in triplicate
to Vanessa Countryman, Secretary,
Securities and Exchange Commission,
100 F Street NE, Washington, DC
20549–1090.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–00875 Filed 1–18–22; 8:45 am]
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93965; File No. SR–
PEARL–2022–02]
Self-Regulatory Organizations: Notice
of Filing and Immediate Effectiveness
of a Proposed Rule Change by MIAX
PEARL, LLC To Amend Exchange Rule
521, Nullification and Adjustment of
Options Transactions Including
Obvious Errors
January 12, 2022.
Pursuant to the provisions of Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
on January 7, 2022 MIAX PEARL, LLC
(‘‘MIAX Pearl’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) a
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
to make a technical amendment to
Exchange Rule 521, Nullification and
Adjustment of Options Transactions
Including Obvious Errors.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/pearl at MIAX PEARL’s principal
office, and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
1 15
1817
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange is proposing to amend
Exchange Rule 521, Nullification and
Adjustment of Options Transactions
Including Obvious Errors, to improve
the operation of the Rule. Following
discussions with other exchanges and a
cross-section of industry participants
and in coordination with the Listed
Options Market Structure Working
Group (‘‘LOMSWG’’) (collectively, the
‘‘Industry Working Group’’), the
Exchange proposes: (1) To amend
section (b)(3) of the Rule to permit the
Exchange to determine the Theoretical
Price 3 of a Customer 4 option
transaction in a wide market so long as
a narrow market exists at any point
during the 10-second period after an
opening or re-opening; and (2) to amend
section (c)(4)(B) of the Rule to adjust,
rather than nullify, Customer
transactions in Obvious Error situations,
provided the adjustment does not
violate the limit price.
Proposed Change to Section (b)(3)
Exchange Rule 521 has been part of
various harmonization efforts by the
Industry Working Group.5 These efforts
have often centered around the
Theoretical Price for which an options
transaction should be compared to
determine whether an Obvious Error has
occurred. For instance, all options
exchanges have adopted language
comparable to Interpretations and
Policies .03, Exchange Determining
Theoretical Price,6 which explains how
an exchange is to determine Theoretical
Price at the open, when there are no
valid quotes, and when there is a wide
quote. This includes at times the use of
a singular third-party vendor, known as
a TP Provider (currently CBOE Livevol,
LLC).
Similarly, section (b)(3) of Rule 521
was previously harmonized across all
options exchanges to handle situations
where executions occur in markets that
are wide (as set forth in the rule).7
Under that section, the Exchange
determines the Theoretical Price if the
NBBO 8 for the subject series is wide
3 See
Exchange Rule 521(b).
purposes of Rule 521, the term ‘‘Customer’’
means a Priority Customer as defined in Rule 100.
See Exchange Rule 521(a)(1).
5 See e.g., Securities Exchange Act Release No.
81324 (August 7, 2017), 82 FR 37618 (August 11,
2017) (SR–PEARL–2017–33).
6 Id.
7 See supra note 5.
8 The term ‘‘NBBO’’ means the national best bid
or offer as calculated by the Exchange based on
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immediately before execution and a
narrow market (as set forth in the rule)
existed ‘‘during the 10 seconds prior to
the transaction.’’ The rule goes on to
clarify that, should there be no narrow
quotes ‘‘during the 10 seconds prior to
the transaction,’’ the Theoretical Price
for the affected series is the NBBO that
existed at the time of execution
(regardless of its width).
In recent discussions, the Industry
Working Group has identified proposed
changes to section (b)(3) of Rule 521 that
would improve the Rule’s functioning.
Currently, section (b)(3) does not permit
the Exchange to determine the
Theoretical Price unless there is a
narrow quote 10 seconds prior to the
transaction. However, in the first
seconds of trading, there is no 10second period ‘‘prior to the
transaction.’’ Further, the Industry
Working Group has observed that prices
in certain series can be disjointed at the
start of trading. Accordingly, the
Exchange proposes to provide
additional protections to trading in
certain circumstances immediately after
the opening before liquidity has had a
chance to enter the market. The
Exchange proposes to amend section
(b)(3) to allow the Exchange to
determine the Theoretical Price in a
wide market so long as a narrow market
exists at any point during the 10-second
period after an opening or re-opening.
Specifically, the Exchange proposes
that the existing text of section (b)(3)
would become subsection ‘‘(A).’’ The
Exchange proposes to add the following
heading and text as subsection ‘‘(B)’’:
(B) Customer Transactions Occurring
Within 10 Seconds or Less After an
Opening or Re-Opening:
(i) The Exchange will determine the
Theoretical Price if the bid/ask
differential of the NBB and NBO for the
affected series just prior to the
Customer’s erroneous transaction was
equal to or greater than the Minimum
Amount set forth in paragraph A above
and there was a bid/ask differential less
than the Minimum Amount during the
10 seconds prior to the transaction.
(ii) If there was no bid/ask differential
less than the Minimum Amount during
the 10 seconds prior to the transaction,
then the Exchange will determine the
Theoretical Price if the bid/ask
differential of the NBB and NBO for the
affected series just prior to the
Customer’s erroneous transaction was
equal to or greater than the Minimum
Amount set forth in paragraph A above
and there was a bid/ask differential less
than the Minimum Amount anytime
market information received by the Exchange from
OPRA. See Exchange Rule 100.
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during the 10 seconds after an opening
or re-opening.
(iii) If there was no bid/ask
differential less than the Minimum
Amount during the 10 seconds
following an Opening or Re-Opening,
then the Theoretical Price of an option
series is the last NBB or NBO just prior
to the Customer transaction in question,
as set forth in paragraph (b) above.
(iv) Customer transactions occurring
more than 10 seconds after an opening
or re-opening are subject to paragraph A
above.
The following examples illustrate the
functioning of the proposed rule change.
Consider that the NBBO of a series
opens as $0.01 at $4.00. A marketable
limit order to buy one contract arrives
one second later and is executed at
$4.00. In the third second of trading, the
NBBO narrows from $0.01 at $4.00 to
$2.00 at $2.10. While the execution
occurred in a market with wide widths,
there was no tight market within the 10
seconds prior to execution. Accordingly,
under the current rule, the trade would
not qualify for obvious error review, in
part due to the fact that there was only
a single second of trading before the
execution. Under the proposal, since a
tight market existed at some point in the
first 10 seconds of trading (i.e., in the
third second), the Exchange would be
able to determine the Theoretical Price
as provided in Interpretations and
Policies .04.
As another example, the NBBO for a
series opens as $0.01 at $4.00. In the
seventh second of trading, a marketable
limit order is received to buy one
contract and is executed at $4.00. Five
seconds later (i.e., in the twelfth second
of trading), the NBBO narrows from
$0.01 at $4.00 to $2.00 at $2.10. While
the execution occurred in a market with
wide widths, there was no tight market
within 10 seconds prior to execution.
Accordingly, under the current rule, the
trade would not qualify for obvious
error review. Under the proposal, since
no tight market existed at any point
during the first 10 seconds of trading
(i.e., the narrow market occurred in the
twelfth second), the trade would not
qualify for obvious error review.
The proposed rule change would also
better harmonize section (b)(3) with
section (b)(1) of the Rule. Under section
(b)(1), the Exchange is permitted to
determine the Theoretical Price for
transactions occurring as part of the
opening auction process (as described in
Exchange Rule 503) if there is no NBB
or NBO for the affected series just prior
to the erroneous transaction. However,
under the current version of section
(b)(3), a core trading transaction could
occur in the same wide market but the
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Exchange would not be permitted to
determine the Theoretical Price.
Consider an example where one second
after the Exchange opens a selected
series, the NBBO is $1.00 at $5.00. At
9:30:03, a customer submits a
marketable buy order to the Exchange
and pays $5.00. At 9:30:03, a different
exchange runs an opening auction that
results in a customer paying $5.00 for
the same selected series. At 9:30:06, the
NBBO changes from $1.00 at $5.00 to
$1.35 at $1.45. Under the current
version of section (b)(3), the Exchange
would not be able to determine the
Theoretical Price for the trade occurring
during core trading. However, the trade
on the other exchange could be
submitted for review under (b)(1) and
that exchange would be able to
determine the Theoretical Price. If the
proposed change to section (b)(3) were
approved, both of the trades occurring at
9:30:03 (on the Exchange during core
trading and on another exchange via
auction) would also be entitled to the
same review regarding the same
Theoretical Price based upon the same
time.
The proposal would not change any
obvious error review beyond the first 10
seconds of an opening or re-opening.
Proposed Change to Section (c)(4)(B)
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The Exchange proposes to amend
section (c)(4)(B)—the ‘‘Adjust or Bust’’
rule for Customer transactions in
Obvious Error situations—to adjust
rather than nullify such orders,
provided the adjustment does not
violate the Customer’s limit price.
Currently, the Rule provides that in
Obvious Error situations, transactions
involving non-Customers should be
adjusted, while transactions involving
Customers are nullified, unless a certain
condition applies.9 The Industry
Working Group has concluded that the
treatment of these transactions should
be harmonized under the Rule, such
that transactions involving Customers
may benefit from adjustment, just as
non-Customer transactions currently do,
except where such adjustment would
violate the Customer’s limit price; in
that instance, the trade would be
nullified.
Specifically, the Exchange proposes to
amend the text of section (c)(4)(B) to
add that where at least one party to the
9 Specifically, the current Rule provides at section
(c)(4)(C) that if any Member has 200 or more
Customer transactions under review concurrently
and the orders resulting in such transactions were
submitted during the course of 2 minutes or less,
where at least one party to the Obvious Error is a
non-Customer, then the Exchange will apply the
non-Customer adjustment criteria set forth in
(c)(4)(A) for such transactions.
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Obvious Error is a Customer, ‘‘the
execution price of the transaction will
be adjusted by the Official pursuant to
the table immediately above. Any
Customer Obvious Error exceeding 50
contracts will be subject to the Size
Adjustment Modifier defined in
subparagraph (a)(4) above. However, if
such adjustment(s) would result in an
execution price higher (for buy
transactions) or lower (for sell
transactions) than the Customer’s limit
price,’’ the trade will be nullified. The
‘‘table immediately above’’ referenced in
the proposed text refers to the table at
current Section (c)(4)(A), which
provides for the adjustment of prices a
specified amount away from the
Theoretical Price, rather than adjusting
the Theoretical Price.
The Exchange proposes no other
changes at this time.
Implementation Date
The proposed rule change will
become operative no sooner than six
months following the approval of the
NYSEArca proposal 10 to coincide with
implementation on other option
exchanges. The Exchange will announce
the implementation date to its Members
via Regulatory Circular.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 11 in general, and furthers the
objectives of Section 6(b)(5) of the Act 12
in particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in securities, to remove impediments to
and perfect the mechanisms of a free
and open market and a national market
system and, in general, to protect
investors and the public interest and
because it is not designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange believes the proposed
rule change to section (b)(3) of the Rule
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, protect
investors and the public interest
because it provides a method for
addressing Obvious Error Customer
10 See Securities Exchange Act Release No. 93818
(December 17, 2021), 86 FR 73009 (December 23,
2021) (SR–NYSEArca–2021–91) (Order Approving a
Proposed Rule Change to Amend Rule 6.87–O).
11 15 U.S.C. 78f(b).
12 15 U.S.C. 78f(b)(5).
PO 00000
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transactions that occur in a wide market
at the opening of trading. Generally, a
wide market is an indication of a lack
of liquidity in the market such that the
market is unreliable. Current section
(b)(3) recognizes that a persistently wide
quote (i.e., more than 10 seconds)
should be considered the reliable
market regardless of its width, but does
not address transactions that occur in a
wide market in the first seconds of
trading, where there is no preceding 10second period to reference. Accordingly,
in the first 10 seconds of trading, there
is no opportunity for a wide quote to
have persisted for a sufficiently lengthy
period such that the market should
consider it a reliable market for the
purposes of determining an Obvious
Error transaction.
The proposed change would rectify
this disparity and permit the Exchange
to consider whether a narrow quote is
present at any time during the 10second period after an opening or reopening. The presence of such a narrow
quote would indicate that the market
has gained sufficient liquidity and that
the previous wide market was
unreliable, such that it would be
appropriate for the Exchange to
determine the Theoretical Price of an
Obvious Error transaction. In this way,
the proposed rule harmonizes the
treatment of Customer transactions that
execute in an unreliable market at any
point of the trading day, by making
them uniformly subject to Exchange
determination of the Theoretical Price.
The Exchange believes that the
proposed change to section (c)(4)(B) of
the Rule would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system and enhance the protection of
investors by harmonizing the treatment
of non-Customer transactions and
Customer transactions under the Rule.
Under the current Rule, Obvious Error
situations involving non-Customer
transactions are adjusted, while those
involving Customer transactions are
generally nullified, unless they meet the
additional requirements of section
(c)(4)(C) (i.e., where a Member has 200
or more Customer transactions under
review concurrently and the orders
resulting in such transactions were
submitted during the course of 2
minutes or less.) The proposal would
harmonize the treatment of nonCustomer and Customer transactions by
providing for the adjustment of all such
transactions, except where such
adjustment would violate the
Customer’s limit price.
When the current rule was proposed
in 2015, the MIAX Options Exchange
believed there were sound reasons for
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treating non-Customer transactions and
Customer transactions differently. At
the time, the MIAX Options Exchange
stated its belief that ‘‘Customers are not
necessarily immersed in the day-to-day
trading of the markets, are less likely to
be watching trading activity in a
particular option throughout the day,
and may have limited funds in their
trading accounts,’’ and that nullifying
Obvious Error transactions involving
Customers would give Customers
‘‘greater protections’’ than adjusting
such transactions by eliminating the
possibility that a Customer’s order will
be adjusted to a significantly different
price. The MIAX Options Exchange also
noted its belief that ‘‘Customers are . . .
less likely to have engaged in significant
hedging or other trading activity based
on earlier transactions, and thus, are
less in need of maintaining a position at
an adjusted price than nonCustomers.’’ 13
Those assumptions about Customer
trading and hedging activity no longer
hold. The Exchange and the Industry
Working Group believe that over the
course of the last five years, Customers
that use options have become more
sophisticated, as retail broker-dealers
have enhanced the trading tools
available. Pursuant to OCC data,
volumes clearing in the Customer range
have expanded from 12,022,163 ADV in
2015 to 35,081,130 ADV in 2021. This
increase in trading activity underscores
the greater understanding of options by
Customers as a trading tool and its use
in the markets. Customers who trade
options today largely are more educated,
have better trading tools, and have
better access to financial news than any
time prior.14 The proposed rule would
extend the hedging protections
currently enjoyed by non-Customers to
Customers, by allowing them to
maintain an option position at an
adjusted price, which would in turn
prevent a cascading effect by
maintaining the hedge relationship
between the option transaction and any
other transactions in a related security.
The Exchange believes that extending
such hedging protections to Customer
transactions would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system and
enhance the protection of investors by
providing greater certainty of execution
for all participants to options
13 See Securities Exchange Act Release No. 74918
(May 8, 2015), 80 FR 27781 (May 14, 2015) (SR–
MIAX–2015–35).
14 Dan Raju, Retail Traders Adopt Options En
Masse, by Dan Raju, (Dec 8, 2020) available at
https://www.nasdaq.com/articles/retail-tradersadopt-options-en-masse-2020-12-08.
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transactions. Under the current Rule, a
Customer that believes its transaction
was executed pursuant to an Obvious
Error may be disincentivized from
submitting the transaction for review,
since during the review process, the
Customer would be uncertain whether
the trade would be nullified, and if so,
whether market conditions would still
permit the opportunity to execute a
related order at a better price after the
nullification ruling is finalized. In
contrast, under the proposed rule, the
Customer would know that the only
likely outcomes of submitting a trade to
Obvious Error review would be that the
trade would stand or be re-executed at
a better price; the trade would only be
nullified if the adjustment would violate
the order’s limit. Similarly, under the
current Rule, during the review period,
a market maker who traded contra to the
Customer would be uncertain if it
should retain any position executed to
hedge the original trade, or attempt to
unwind it, possibly at a significant loss.
Under the proposed rule change, this
uncertainty is largely eliminated, and
the question would be whether the
already-executed and hedged trade
would be adjusted to a better price for
the Customer, or if it would stand as
originally executed. In this way, the
proposed rule enhances the protection
of investors and removes impediments
to and perfects the mechanism of a free
and open market and a national market
system.
The proposed rule also addresses the
concern the MIAX Options Exchange
cited in its 2015 filing that adjusting,
rather than nullifying, Customer
transactions could lead to a Customer’s
order being adjusted to a significantly
different price. To address that concern,
the proposed rule would prevent
Customer transactions from being
adjusted to a price that violates the
order’s limit; if the adjustment would
violate a Customer’s limit, the trade
would instead be nullified. The
Exchange believes it is in the best
interest of investors to expand the
availability of adjustments to Customer
transactions in all Obvious Error
situations except where the adjustment
would violate the Customer’s limit
price.
Further, the Exchange believes that,
with respect to such proposed
adjustments to Customer transactions, it
is appropriate to use the same form of
adjustment as is currently in place with
respect to non-Customer transactions as
laid out in the table in section (c)(4)(A).
That is, the Exchange believes that it is
appropriate to adjust to prices a
specified amount away from the
Theoretical Price rather than to adjust
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2957
the Theoretical Price, even though the
Exchange has determined a given trade
to be erroneous in nature, because the
parties in question should have had
some expectation of execution at the
price or prices submitted. Also, it is
common that by the time it is
determined that an Obvious Error has
occurred, additional hedging and
trading activity has already occurred
based on the executions that previously
happened. The Exchange believes that
providing an adjustment to the
Theoretical Price in all cases would not
appropriately incentivize market
participants to maintain appropriate
controls to avoid potential errors, while
adjusting to prices a specified amount
away from the Theoretical Price would
incentivize such behavior.
The Exchange believes that the
proposal is not designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers.
The proposed change to section (b)(3)
would apply to all instances of a wide
market occurring within the first 10
seconds of trading followed by a narrow
market at any point in the subsequent
10-second period, regardless of the
types of market participants involved in
such transactions. The proposed change
to section (c)(4)(B) would harmonize the
treatment of Obvious Error transactions
involving Customers and nonCustomers, no matter what type of
market participants those parties may
be.
For these reasons, the Exchange
believes that the proposal is consistent
with the Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange believes that the
proposal will not impose any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of Section 6(b)(8) of the Act.15
The Exchange anticipates that the other
options exchanges will adopt
substantively similar proposals, such
that there would be no burden on
intermarket competition from the
Exchange’s proposal. Accordingly, the
proposed change is not meant to affect
competition among the options
exchanges. For these reasons, the
Exchange believes that the proposed
rule change reflects this competitive
environment and does not impose any
undue burden on intermarket
competition.
15 15
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U.S.C. 78f(b)(8).
19JAN1
2958
Federal Register / Vol. 87, No. 12 / Wednesday, January 19, 2022 / Notices
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 16 and Rule 19b–4(f)(6) 17
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.
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–2022–02 on the subject line.
jspears on DSK121TN23PROD with NOTICES1
Paper Comments
• Send paper comments in triplicate
to Vanessa Countryman, Secretary,
Securities and Exchange Commission,
100 F Street NE, Washington, DC
20549–1090.
All submissions should refer to File
Number SR–PEARL–2022–02. This file
16 15
U.S.C. 78s(b)(3)(A).
17 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.
VerDate Sep<11>2014
16:58 Jan 18, 2022
Jkt 256001
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–2022–02 and
should be submitted on or before
February 9, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–00878 Filed 1–18–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93954; File No. SR–MEMX–
2021–20]
Self-Regulatory Organizations; MEMX
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend Exchange Rule
15.1(e) Regarding FINRA Registration
and Processing Fees
January 12, 2022.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
18 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00213
Fmt 4703
Sfmt 4703
29, 2021, MEMX LLC (‘‘MEMX’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (the
‘‘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
(a) The Exchange is filing with the
Commission a proposed rule change to
amend Exchange Rule 15.1(e) to reflect
adjustments to the Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’)
Registration and Processing Fees related
to the Central Registration Depository
System (‘‘CRD system’’), which will be
collected by FINRA. While the changes
proposed herein are effective upon
filing, the Exchange has designated the
amendments become operative on
January 3, 2022.3 The text of the
proposed rule change is provided in
Exhibit 5.
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
Today, Exchange Rule 15.1(e)
provides a list of FINRA Registration
and Processing Fees that will be
collected and retained by FINRA via the
CRD system. The Exchange does not
collect or retain these fees. The
Exchange is proposing to amend
Exchange Rule 15.1(e) to reflect
adjustments to FINRA’s Registration and
Processing Fees related to the CRD
3 See Securities Exchange Act Release No. 90176
(October 14, 2020), 85 FR 66592 (October 20, 2020)
(SR–FINRA–2020–032) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change
To Adjust FINRA Fees To Provide Sustainable
Funding for FINRA’s Regulatory Mission) (the
‘‘FINRA Fee Filing’’).
E:\FR\FM\19JAN1.SGM
19JAN1
]]>Agencies
[Federal Register Volume 87, Number 12 (Wednesday, January 19, 2022)]
[Notices]
[Pages 2954-2958]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-00878]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93965; File No. SR-PEARL-2022-02]
Self-Regulatory Organizations: Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change by MIAX PEARL, LLC To Amend
Exchange Rule 521, Nullification and Adjustment of Options Transactions
Including Obvious Errors
January 12, 2022.
Pursuant to the provisions of Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on January 7, 2022 MIAX PEARL, LLC (``MIAX Pearl''
or the ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') a 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposed rule to make a technical
amendment to Exchange Rule 521, Nullification and Adjustment of Options
Transactions Including Obvious Errors.
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxoptions.com/rule-filings/pearl at MIAX
PEARL's principal office, and at the Commission's Public Reference
Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
[[Page 2955]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is proposing to amend Exchange Rule 521, Nullification
and Adjustment of Options Transactions Including Obvious Errors, to
improve the operation of the Rule. Following discussions with other
exchanges and a cross-section of industry participants and in
coordination with the Listed Options Market Structure Working Group
(``LOMSWG'') (collectively, the ``Industry Working Group''), the
Exchange proposes: (1) To amend section (b)(3) of the Rule to permit
the Exchange to determine the Theoretical Price \3\ of a Customer \4\
option transaction in a wide market so long as a narrow market exists
at any point during the 10-second period after an opening or re-
opening; and (2) to amend section (c)(4)(B) of the Rule to adjust,
rather than nullify, Customer transactions in Obvious Error situations,
provided the adjustment does not violate the limit price.
---------------------------------------------------------------------------
\3\ See Exchange Rule 521(b).
\4\ For purposes of Rule 521, the term ``Customer'' means a
Priority Customer as defined in Rule 100. See Exchange Rule
521(a)(1).
---------------------------------------------------------------------------
Proposed Change to Section (b)(3)
Exchange Rule 521 has been part of various harmonization efforts by
the Industry Working Group.\5\ These efforts have often centered around
the Theoretical Price for which an options transaction should be
compared to determine whether an Obvious Error has occurred. For
instance, all options exchanges have adopted language comparable to
Interpretations and Policies .03, Exchange Determining Theoretical
Price,\6\ which explains how an exchange is to determine Theoretical
Price at the open, when there are no valid quotes, and when there is a
wide quote. This includes at times the use of a singular third-party
vendor, known as a TP Provider (currently CBOE Livevol, LLC).
---------------------------------------------------------------------------
\5\ See e.g., Securities Exchange Act Release No. 81324 (August
7, 2017), 82 FR 37618 (August 11, 2017) (SR-PEARL-2017-33).
\6\ Id.
---------------------------------------------------------------------------
Similarly, section (b)(3) of Rule 521 was previously harmonized
across all options exchanges to handle situations where executions
occur in markets that are wide (as set forth in the rule).\7\ Under
that section, the Exchange determines the Theoretical Price if the NBBO
\8\ for the subject series is wide immediately before execution and a
narrow market (as set forth in the rule) existed ``during the 10
seconds prior to the transaction.'' The rule goes on to clarify that,
should there be no narrow quotes ``during the 10 seconds prior to the
transaction,'' the Theoretical Price for the affected series is the
NBBO that existed at the time of execution (regardless of its width).
---------------------------------------------------------------------------
\7\ See supra note 5.
\8\ The term ``NBBO'' means the national best bid or offer as
calculated by the Exchange based on market information received by
the Exchange from OPRA. See Exchange Rule 100.
---------------------------------------------------------------------------
In recent discussions, the Industry Working Group has identified
proposed changes to section (b)(3) of Rule 521 that would improve the
Rule's functioning. Currently, section (b)(3) does not permit the
Exchange to determine the Theoretical Price unless there is a narrow
quote 10 seconds prior to the transaction. However, in the first
seconds of trading, there is no 10-second period ``prior to the
transaction.'' Further, the Industry Working Group has observed that
prices in certain series can be disjointed at the start of trading.
Accordingly, the Exchange proposes to provide additional protections to
trading in certain circumstances immediately after the opening before
liquidity has had a chance to enter the market. The Exchange proposes
to amend section (b)(3) to allow the Exchange to determine the
Theoretical Price in a wide market so long as a narrow market exists at
any point during the 10-second period after an opening or re-opening.
Specifically, the Exchange proposes that the existing text of
section (b)(3) would become subsection ``(A).'' The Exchange proposes
to add the following heading and text as subsection ``(B)'':
(B) Customer Transactions Occurring Within 10 Seconds or Less After
an Opening or Re-Opening:
(i) The Exchange will determine the Theoretical Price if the bid/
ask differential of the NBB and NBO for the affected series just prior
to the Customer's erroneous transaction was equal to or greater than
the Minimum Amount set forth in paragraph A above and there was a bid/
ask differential less than the Minimum Amount during the 10 seconds
prior to the transaction.
(ii) If there was no bid/ask differential less than the Minimum
Amount during the 10 seconds prior to the transaction, then the
Exchange will determine the Theoretical Price if the bid/ask
differential of the NBB and NBO for the affected series just prior to
the Customer's erroneous transaction was equal to or greater than the
Minimum Amount set forth in paragraph A above and there was a bid/ask
differential less than the Minimum Amount anytime during the 10 seconds
after an opening or re-opening.
(iii) If there was no bid/ask differential less than the Minimum
Amount during the 10 seconds following an Opening or Re-Opening, then
the Theoretical Price of an option series is the last NBB or NBO just
prior to the Customer transaction in question, as set forth in
paragraph (b) above.
(iv) Customer transactions occurring more than 10 seconds after an
opening or re-opening are subject to paragraph A above.
The following examples illustrate the functioning of the proposed
rule change. Consider that the NBBO of a series opens as $0.01 at
$4.00. A marketable limit order to buy one contract arrives one second
later and is executed at $4.00. In the third second of trading, the
NBBO narrows from $0.01 at $4.00 to $2.00 at $2.10. While the execution
occurred in a market with wide widths, there was no tight market within
the 10 seconds prior to execution. Accordingly, under the current rule,
the trade would not qualify for obvious error review, in part due to
the fact that there was only a single second of trading before the
execution. Under the proposal, since a tight market existed at some
point in the first 10 seconds of trading (i.e., in the third second),
the Exchange would be able to determine the Theoretical Price as
provided in Interpretations and Policies .04.
As another example, the NBBO for a series opens as $0.01 at $4.00.
In the seventh second of trading, a marketable limit order is received
to buy one contract and is executed at $4.00. Five seconds later (i.e.,
in the twelfth second of trading), the NBBO narrows from $0.01 at $4.00
to $2.00 at $2.10. While the execution occurred in a market with wide
widths, there was no tight market within 10 seconds prior to execution.
Accordingly, under the current rule, the trade would not qualify for
obvious error review. Under the proposal, since no tight market existed
at any point during the first 10 seconds of trading (i.e., the narrow
market occurred in the twelfth second), the trade would not qualify for
obvious error review.
The proposed rule change would also better harmonize section (b)(3)
with section (b)(1) of the Rule. Under section (b)(1), the Exchange is
permitted to determine the Theoretical Price for transactions occurring
as part of the opening auction process (as described in Exchange Rule
503) if there is no NBB or NBO for the affected series just prior to
the erroneous transaction. However, under the current version of
section (b)(3), a core trading transaction could occur in the same wide
market but the
[[Page 2956]]
Exchange would not be permitted to determine the Theoretical Price.
Consider an example where one second after the Exchange opens a
selected series, the NBBO is $1.00 at $5.00. At 9:30:03, a customer
submits a marketable buy order to the Exchange and pays $5.00. At
9:30:03, a different exchange runs an opening auction that results in a
customer paying $5.00 for the same selected series. At 9:30:06, the
NBBO changes from $1.00 at $5.00 to $1.35 at $1.45. Under the current
version of section (b)(3), the Exchange would not be able to determine
the Theoretical Price for the trade occurring during core trading.
However, the trade on the other exchange could be submitted for review
under (b)(1) and that exchange would be able to determine the
Theoretical Price. If the proposed change to section (b)(3) were
approved, both of the trades occurring at 9:30:03 (on the Exchange
during core trading and on another exchange via auction) would also be
entitled to the same review regarding the same Theoretical Price based
upon the same time.
The proposal would not change any obvious error review beyond the
first 10 seconds of an opening or re-opening.
Proposed Change to Section (c)(4)(B)
The Exchange proposes to amend section (c)(4)(B)--the ``Adjust or
Bust'' rule for Customer transactions in Obvious Error situations--to
adjust rather than nullify such orders, provided the adjustment does
not violate the Customer's limit price.
Currently, the Rule provides that in Obvious Error situations,
transactions involving non-Customers should be adjusted, while
transactions involving Customers are nullified, unless a certain
condition applies.\9\ The Industry Working Group has concluded that the
treatment of these transactions should be harmonized under the Rule,
such that transactions involving Customers may benefit from adjustment,
just as non-Customer transactions currently do, except where such
adjustment would violate the Customer's limit price; in that instance,
the trade would be nullified.
---------------------------------------------------------------------------
\9\ Specifically, the current Rule provides at section (c)(4)(C)
that if any Member has 200 or more Customer transactions under
review concurrently and the orders resulting in such transactions
were submitted during the course of 2 minutes or less, where at
least one party to the Obvious Error is a non-Customer, then the
Exchange will apply the non-Customer adjustment criteria set forth
in (c)(4)(A) for such transactions.
---------------------------------------------------------------------------
Specifically, the Exchange proposes to amend the text of section
(c)(4)(B) to add that where at least one party to the Obvious Error is
a Customer, ``the execution price of the transaction will be adjusted
by the Official pursuant to the table immediately above. Any Customer
Obvious Error exceeding 50 contracts will be subject to the Size
Adjustment Modifier defined in subparagraph (a)(4) above. However, if
such adjustment(s) would result in an execution price higher (for buy
transactions) or lower (for sell transactions) than the Customer's
limit price,'' the trade will be nullified. The ``table immediately
above'' referenced in the proposed text refers to the table at current
Section (c)(4)(A), which provides for the adjustment of prices a
specified amount away from the Theoretical Price, rather than adjusting
the Theoretical Price.
The Exchange proposes no other changes at this time.
Implementation Date
The proposed rule change will become operative no sooner than six
months following the approval of the NYSEArca proposal \10\ to coincide
with implementation on other option exchanges. The Exchange will
announce the implementation date to its Members via Regulatory
Circular.
---------------------------------------------------------------------------
\10\ See Securities Exchange Act Release No. 93818 (December 17,
2021), 86 FR 73009 (December 23, 2021) (SR-NYSEArca-2021-91) (Order
Approving a Proposed Rule Change to Amend Rule 6.87-O).
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \11\ in general, and furthers the objectives of Section
6(b)(5) of the Act \12\ in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanisms of a
free and open market and a national market system and, in general, to
protect investors and the public interest and because it is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes the proposed rule change to section (b)(3) of
the Rule would remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general,
protect investors and the public interest because it provides a method
for addressing Obvious Error Customer transactions that occur in a wide
market at the opening of trading. Generally, a wide market is an
indication of a lack of liquidity in the market such that the market is
unreliable. Current section (b)(3) recognizes that a persistently wide
quote (i.e., more than 10 seconds) should be considered the reliable
market regardless of its width, but does not address transactions that
occur in a wide market in the first seconds of trading, where there is
no preceding 10-second period to reference. Accordingly, in the first
10 seconds of trading, there is no opportunity for a wide quote to have
persisted for a sufficiently lengthy period such that the market should
consider it a reliable market for the purposes of determining an
Obvious Error transaction.
The proposed change would rectify this disparity and permit the
Exchange to consider whether a narrow quote is present at any time
during the 10-second period after an opening or re-opening. The
presence of such a narrow quote would indicate that the market has
gained sufficient liquidity and that the previous wide market was
unreliable, such that it would be appropriate for the Exchange to
determine the Theoretical Price of an Obvious Error transaction. In
this way, the proposed rule harmonizes the treatment of Customer
transactions that execute in an unreliable market at any point of the
trading day, by making them uniformly subject to Exchange determination
of the Theoretical Price.
The Exchange believes that the proposed change to section (c)(4)(B)
of the Rule would remove impediments to and perfect the mechanism of a
free and open market and a national market system and enhance the
protection of investors by harmonizing the treatment of non-Customer
transactions and Customer transactions under the Rule. Under the
current Rule, Obvious Error situations involving non-Customer
transactions are adjusted, while those involving Customer transactions
are generally nullified, unless they meet the additional requirements
of section (c)(4)(C) (i.e., where a Member has 200 or more Customer
transactions under review concurrently and the orders resulting in such
transactions were submitted during the course of 2 minutes or less.)
The proposal would harmonize the treatment of non-Customer and Customer
transactions by providing for the adjustment of all such transactions,
except where such adjustment would violate the Customer's limit price.
When the current rule was proposed in 2015, the MIAX Options
Exchange believed there were sound reasons for
[[Page 2957]]
treating non-Customer transactions and Customer transactions
differently. At the time, the MIAX Options Exchange stated its belief
that ``Customers are not necessarily immersed in the day-to-day trading
of the markets, are less likely to be watching trading activity in a
particular option throughout the day, and may have limited funds in
their trading accounts,'' and that nullifying Obvious Error
transactions involving Customers would give Customers ``greater
protections'' than adjusting such transactions by eliminating the
possibility that a Customer's order will be adjusted to a significantly
different price. The MIAX Options Exchange also noted its belief that
``Customers are . . . less likely to have engaged in significant
hedging or other trading activity based on earlier transactions, and
thus, are less in need of maintaining a position at an adjusted price
than non-Customers.'' \13\
---------------------------------------------------------------------------
\13\ See Securities Exchange Act Release No. 74918 (May 8,
2015), 80 FR 27781 (May 14, 2015) (SR-MIAX-2015-35).
---------------------------------------------------------------------------
Those assumptions about Customer trading and hedging activity no
longer hold. The Exchange and the Industry Working Group believe that
over the course of the last five years, Customers that use options have
become more sophisticated, as retail broker-dealers have enhanced the
trading tools available. Pursuant to OCC data, volumes clearing in the
Customer range have expanded from 12,022,163 ADV in 2015 to 35,081,130
ADV in 2021. This increase in trading activity underscores the greater
understanding of options by Customers as a trading tool and its use in
the markets. Customers who trade options today largely are more
educated, have better trading tools, and have better access to
financial news than any time prior.\14\ The proposed rule would extend
the hedging protections currently enjoyed by non-Customers to
Customers, by allowing them to maintain an option position at an
adjusted price, which would in turn prevent a cascading effect by
maintaining the hedge relationship between the option transaction and
any other transactions in a related security.
---------------------------------------------------------------------------
\14\ Dan Raju, Retail Traders Adopt Options En Masse, by Dan
Raju, (Dec 8, 2020) available at https://www.nasdaq.com/articles/retail-traders-adopt-options-en-masse-2020-12-08.
---------------------------------------------------------------------------
The Exchange believes that extending such hedging protections to
Customer transactions would remove impediments to and perfect the
mechanism of a free and open market and a national market system and
enhance the protection of investors by providing greater certainty of
execution for all participants to options transactions. Under the
current Rule, a Customer that believes its transaction was executed
pursuant to an Obvious Error may be disincentivized from submitting the
transaction for review, since during the review process, the Customer
would be uncertain whether the trade would be nullified, and if so,
whether market conditions would still permit the opportunity to execute
a related order at a better price after the nullification ruling is
finalized. In contrast, under the proposed rule, the Customer would
know that the only likely outcomes of submitting a trade to Obvious
Error review would be that the trade would stand or be re-executed at a
better price; the trade would only be nullified if the adjustment would
violate the order's limit. Similarly, under the current Rule, during
the review period, a market maker who traded contra to the Customer
would be uncertain if it should retain any position executed to hedge
the original trade, or attempt to unwind it, possibly at a significant
loss. Under the proposed rule change, this uncertainty is largely
eliminated, and the question would be whether the already-executed and
hedged trade would be adjusted to a better price for the Customer, or
if it would stand as originally executed. In this way, the proposed
rule enhances the protection of investors and removes impediments to
and perfects the mechanism of a free and open market and a national
market system.
The proposed rule also addresses the concern the MIAX Options
Exchange cited in its 2015 filing that adjusting, rather than
nullifying, Customer transactions could lead to a Customer's order
being adjusted to a significantly different price. To address that
concern, the proposed rule would prevent Customer transactions from
being adjusted to a price that violates the order's limit; if the
adjustment would violate a Customer's limit, the trade would instead be
nullified. The Exchange believes it is in the best interest of
investors to expand the availability of adjustments to Customer
transactions in all Obvious Error situations except where the
adjustment would violate the Customer's limit price.
Further, the Exchange believes that, with respect to such proposed
adjustments to Customer transactions, it is appropriate to use the same
form of adjustment as is currently in place with respect to non-
Customer transactions as laid out in the table in section (c)(4)(A).
That is, the Exchange believes that it is appropriate to adjust to
prices a specified amount away from the Theoretical Price rather than
to adjust the Theoretical Price, even though the Exchange has
determined a given trade to be erroneous in nature, because the parties
in question should have had some expectation of execution at the price
or prices submitted. Also, it is common that by the time it is
determined that an Obvious Error has occurred, additional hedging and
trading activity has already occurred based on the executions that
previously happened. The Exchange believes that providing an adjustment
to the Theoretical Price in all cases would not appropriately
incentivize market participants to maintain appropriate controls to
avoid potential errors, while adjusting to prices a specified amount
away from the Theoretical Price would incentivize such behavior.
The Exchange believes that the proposal is not designed to permit
unfair discrimination between customers, issuers, brokers, or dealers.
The proposed change to section (b)(3) would apply to all instances of a
wide market occurring within the first 10 seconds of trading followed
by a narrow market at any point in the subsequent 10-second period,
regardless of the types of market participants involved in such
transactions. The proposed change to section (c)(4)(B) would harmonize
the treatment of Obvious Error transactions involving Customers and
non-Customers, no matter what type of market participants those parties
may be.
For these reasons, the Exchange believes that the proposal is
consistent with the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposal will not impose any burden
on competition that is not necessary or appropriate in furtherance of
the purposes of Section 6(b)(8) of the Act.\15\ The Exchange
anticipates that the other options exchanges will adopt substantively
similar proposals, such that there would be no burden on intermarket
competition from the Exchange's proposal. Accordingly, the proposed
change is not meant to affect competition among the options exchanges.
For these reasons, the Exchange believes that the proposed rule change
reflects this competitive environment and does not impose any undue
burden on intermarket competition.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(b)(8).
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[[Page 2958]]
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 \16\ and Rule 19b-4(f)(6) \17\
thereunder.
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 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-2022-02 on the subject line.
Paper Comments
Send paper comments in triplicate to Vanessa Countryman,
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-PEARL-2022-02. 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-2022-02 and should be submitted on
or before February 9, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-00878 Filed 1-18-22; 8:45 am]
BILLING CODE 8011-01-P
