[Federal Register Volume 85, Number 128 (Thursday, July 2, 2020)]
[Notices]
[Pages 39943-39945]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14233]
[[Page 39943]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89166; File No. SR-PEARL-2020-07]
Self-Regulatory Organizations; MIAX PEARL, LLC.; Notice of Filing
and Order Granting Accelerated Approval of a Proposed Rule Change, As
Modified by Amendment No. 1, To Add the Consolidated Audit Trail
Industry Member Compliance Rules to Exchange Rule 1014, Imposition of
Fines for Minor Rule Violations
June 26, 2020.
On June 18, 2020, MIAX PEARL, LLC (``MIAX PEARL'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to add the Consolidated Audit Trail Industry
Member Compliance Rules to Exchange Rule 1014. On June 23, 2020, the
Exchange filed Amendment No. 1 to the proposed rule change, which
partially amended the proposed rule change. The proposed rule change,
as modified by Amendment No. 1, is 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, as modified by Amendment No. 1, from interested
persons, and is approving the proposed rule change, as modified by
Amendment No. 1, on an accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. The Exchange's Description of the Proposed Rule Change, as Modified
by Amendment No. 1
The Exchange is filing a proposal to add the Consolidated Audit
Trail (``CAT'') industry member compliance rules to the list of minor
rule violations in Rule 1014.
The text of the proposed rule change is available on the Exchange's
website at http://www.miaxoptions.com/rule-filings/pearl at MIAX
PEARL's principal office, and at the Commission's Public Reference
Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to add its CAT industry member compliance
rules (the ``CAT Compliance Rules'') to the list of minor rule
violations in Rule 1014. This proposal is based upon the Financial
Industry Regulatory Authority, Inc. (``FINRA'') filing to amend FINRA
Rule 9217 in order to add FINRA's corresponding CAT Compliance Rules to
FINRA's list of rules that are eligible for minor rule violation plan
treatment.\3\ This proposal is also based upon the New York Stock
Exchange, Inc. (``NYSE'') filing to amend NYSE Rule 9217 in order to
add NYSE's corresponding CAT Compliance Rules to NYSE's list of rules
that are eligible for minor rule violation plan treatment.\4\
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\3\ See Securities Exchange Act Release Nos. 88870 (May 14,
2020), 85 FR 30768 (May 20, 2020) (SR-FINRA-2020-013).
\4\ See SR-NYSE-2020-51.
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Proposed Rule Change
The Exchange recently adopted the CAT Compliance Rules under
Chapter XVII in order to implement the National Market System Plan
Governing the Consolidated Audit Trail (the ``CAT NMS Plan'' or
``Plan'').\5\ The CAT NMS Plan was filed by the Plan Participants to
comply with Rule 613 of Regulation NMS under the Exchange Act,\6\ and
each Plan Participant accordingly has adopted the same compliance rules
in the Exchange's Chapter XVII. The common compliance rules adopted by
each Plan Participant are designed to require industry members to
comply with the provisions of the CAT NMS Plan, which broadly calls for
industry members to record and report timely and accurately customer,
order, and trade information relating to activity in NMS Securities and
OTC Equity Securities.
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\5\ See Securities Exchange Act Release No. 80256 (March 15,
2017), 82 FR 14526 (March 21, 2017) (SR-PEARL-2017-04).
\6\ 17 CFR 242.613.
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Rule 1014 sets forth the list of rules under which a member may be
subject to a fine. Rule 1014 permits the Exchange to impose a fine of
up to $5,000 on any member or a person associated with or employed by a
member for a minor violation of an eligible rule. The Exchange proposes
to amend Rule 1014 to add the CAT Compliance Rules under Chapter XVII
to the list of rules eligible for disposition pursuant to a minor fine
under Rule 1014.\7\
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\7\ FINRA's maximum fine for minor rule violations under FINRA
Rule 9216(b) is $2,500. The Exchange will apply an identical maximum
fine amount for eligible violations of Chapter XVII to achieve
consistency with FINRA and also to amend its minor rule violation
plan (``MRVP'') to include such fines. Like FINRA, the Exchange
would be able to pursue a fine greater than $2,500 for violations of
Chapter XVII in a regular disciplinary proceeding or Letter of
Consent under Rule 1003 as appropriate. Any fine imposed in excess
of $2,500 or not otherwise covered by Rule 19d-1(c)(2) of the Act
would be subject to prompt notice to the Commission pursuant to Rule
19d-1 under the Act. As noted below, in assessing the
appropriateness of a minor rule fine with respect to CAT Compliance
Rules, the Exchange will be guided by the same factors that FINRA
utilizes. See text accompanying notes 9-10, infra.
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The Exchange is coordinating with FINRA and other Plan Participants
to promote harmonized and consistent enforcement of all the Plan
Participants' CAT Compliance Rules. The Commission recently approved a
Rule 17d-2 Plan under which the regulation of CAT Compliance Rules will
be allocated among Plan Participants to reduce regulatory duplication
for industry members that are members of more than one Participant
(``common members'').\8\ Under the Rule 17d-2 Plan, the regulation of
CAT Compliance Rules with respect to common members that are members of
FINRA is allocated to FINRA. Similarly, under the Rule 17d-2 Plan,
responsibility for common members of multiple other Plan Participants
and not a member of FINRA will be allocated among those other Plan
Participants, including to the Exchange. For those non-common members
who are allocated to the Exchange pursuant to the Rule 17d-2 Plan, the
Exchange and FINRA entered into a Regulatory Services Agreement
(``RSA'') pursuant to which FINRA will conduct surveillance,
investigation, examination, and enforcement activity in connection with
the CAT Compliance Rules on the Exchange's behalf. We expect that the
other exchanges would be entering into a similar RSA.
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\8\ See Securities Exchange Act Release No. 88366 (March 12,
2020), 85 FR 15238 (March 17, 2020) (File No. 4-618).
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In order to achieve consistency with FINRA and the other Plan
Participants, the Exchange proposes to adopt fines up to $2,500 in
connection with minor rule fines for violations of the CAT Compliance
Rules under Chapter XVII
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under Rule 1014 and the Exchange's MRVP.
FINRA, in connection with its proposed amendment to FINRA Rule 9217
to make FINRA's CAT Compliance Rules MRVP eligible, has represented
that it will apply the minor fines for CAT Compliance Rules in the same
manner that FINRA has for its similar existing audit trail-related
rules.\9\ Accordingly, in order to promote regulatory consistency, the
Exchange plans to do the same. Specifically, application of a minor
rule fine with respect to CAT Compliance Rules will be guided by the
same factors that FINRA referenced in its filing. However, more formal
disciplinary proceedings may be warranted instead of minor rule
dispositions in certain circumstances such as where violations prevent
regulatory users of the CAT from performing their regulatory functions.
Where minor rule dispositions are appropriate, the following factors
help guide the determination of fine amounts:
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\9\ See SR-FINRA-2020-013; see also FINRA Notice to Members 04-
19 (March 2004) (providing specific factors used to inform
dispositions for violations of OATS reporting rules).
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Total number of reports that are not submitted or
submitted late;
The timeframe over which the violations occur;
Whether violations are batched;
Whether the violations are the result of the actions of
one individual or the result of faulty systems or procedures;
Whether the firm has taken remedial measures to correct
the violations;
Prior minor rule violations within the past 24 months;
Collateral effects that the failure has on customers; and
Collateral effects that the failure has on the Exchange's
ability to perform its regulatory function.\10\
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\10\ See id.
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Upon effectiveness of this rule change, the Exchange will publish a
regulatory bulletin notifying its member organizations of the rule
change and the specific factors that will be considered in connection
with assessing minor rule fines described above.
For the foregoing reasons, the Exchange believes that the proposed
rule change will result in a coordinated, harmonized approach to CAT
compliance rule enforcement across Plan Participants that will be
consistent with the approach FINRA has taken with the CAT rules.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\11\ in general, and furthers the objectives of Section
6(b)(5),\12\ 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 facilitating transactions in securities, to
remove impediments to, and perfect the mechanism of, a free and open
market and a national market system and, in general, to protect
investors and the public interest.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
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Minor rule fines provide a meaningful sanction for minor or
technical violations of rules when the conduct at issue does not
warrant stronger, immediately reportable disciplinary sanctions. The
inclusion of a rule in the Exchange's MRVP does not minimize the
importance of compliance with the rule, nor does it preclude the
Exchange from choosing to pursue violations of eligible rules through a
Letter of Consent if the nature of the violations or prior disciplinary
history warrants more significant sanctions. Rather, the Exchange
believes that the proposed rule change will strengthen the Exchange's
ability to carry out its oversight and enforcement responsibilities in
cases where full disciplinary proceedings are unwarranted in view of
the minor nature of the particular violation. Rather, the option to
impose a minor rule sanction gives the Exchange additional flexibility
to administer its enforcement program in the most effective and
efficient manner while still fully meeting the Exchange's remedial
objectives in addressing violative conduct. Specifically, the proposed
rule change is designed to prevent fraudulent and manipulative acts and
practices because it will provide the Exchange the ability to issue a
minor rule fine for violations of the CAT Compliance Rules under
Chapter XVII where a more formal disciplinary action may not be
warranted or appropriate consistent with the approach of other Plan
Participants for the same conduct.
In connection with the fine level specified in the proposed rule
change, adding language that minor rule fines for violations of the CAT
Compliance Rules under Chapter XVII shall not exceed $2,500 would
further the goal of transparency and add clarity to the Exchange's
rules. Adopting the same cap as FINRA for minor rule fines in
connection with the CAT Compliance Rules would also promote regulatory
consistency across self-regulatory organizations.
The Exchange further believes that the proposed amendments to Rule
1014 are consistent with Section 6(b)(6) of the Act,\13\ which provides
that members and persons associated with members shall be appropriately
disciplined for violation of the provisions of the rules of the
exchange, by expulsion, suspension, limitation of activities,
functions, and operations, fine, censure, being suspended or barred
from being associated with a member, or any other fitting sanction. As
noted, the proposed rule change would provide the Exchange ability to
sanction minor or technical violations of Chapter XVII pursuant to the
Exchange's rules.
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\13\ 15 U.S.C. 78f(b)(6).
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Finally, the Exchange also believes that the proposed changes are
designed to provide a fair procedure for the disciplining of members
and persons associated with members, consistent with Sections 6(b)(7)
and 6(d) of the Act.\14\ Rule 1014 does not preclude a member or a
person associated with or employed by a member from contesting an
alleged violation and receiving a hearing on the matter with the same
procedural rights through a litigated disciplinary proceeding.
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\14\ 15 U.S.C. 78f(b)(7) and 78f(d).
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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. The proposed rule change is
not intended to address competitive issues but rather is concerned
solely with making the CAT Compliance Rules under Chapter XVII eligible
for a minor rule fine disposition, thereby strengthening the Exchange's
ability to carry out its oversight and enforcement functions and deter
potential violative conduct.
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. Solicitation of Comments on the Proposed Rule Change, as Modified
by Amendment No. 1
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing,
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including whether the proposed rule change is consistent with the Act.
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-PEARL-2020-07 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-2020-07. 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 (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for 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-2020-07 and should be submitted on
or before July 23, 2020.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change, as Modified by Amendment No. 1 \15\
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\15\ In Amendment No. 1, the Exchange revised the Exhibit 5 to
reflect that the proposed text adding the Exchange's Consolidated
Audit Trail industry member compliance rules under Chapter XVII to
the list of minor rule violations would be included under paragraph
(14) to Exchange Rule 1014, rather than paragraph (15). Further, the
revised Exhibit 5 reflects that no changes are proposed to be made
to paragraphs (1) through (13) of Exchange Rule 1014.
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The Commission finds that the proposed rule change, as modified by
Amendment No. 1, is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
exchange.\16\ In particular, the Commission finds that the proposed
rule change, as modified by Amendment No. 1, is consistent with Section
6(b)(5) of the Act,\17\ which requires that the rules of an exchange be
designed to promote just and equitable principles of trade, to remove
impediments and to perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest. The Commission also believes that the proposal, as
modified by Amendment No. 1, is consistent with Sections 6(b)(1) and
6(b)(6) of the Act \18\ which require that the rules of an exchange
enforce compliance with, and provide appropriate discipline for,
violations of Commission and Exchange rules. Finally, the Commission
finds that the proposal, as modified by Amendment No.1, is consistent
with the public interest, the protection of investors, or otherwise in
furtherance of the purposes of the Act, as required by Rule 19d-1(c)(2)
under the Act,\19\ which governs minor rule violation plans.
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\16\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\17\ 15 U.S.C. 78f(b)(5).
\18\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
\19\ 17 CFR 240.19d-1(c)(2).
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As stated above, the Exchange proposes to add the CAT Compliance
Rules to the list of minor rule violations in Rule 1014 to be
consistent with the approach FINRA has taken for minor violations of
its corresponding CAT Compliance Rules.\20\ The Commission has already
approved FINRA's treatment of CAT Compliance Rules violations when it
approved the addition of CAT Compliance Rules to FINRA's MRVP.\21\ As
noted in that order, and similarly herein, the Commission believes that
Exchange's treatment of CAT Compliance Rules violations as part of its
MRVP provides a reasonable means of addressing violations that do not
rise to the level of requiring formal disciplinary proceedings, while
providing greater flexibility in handling certain violations. However,
the Commission expects that, as with FINRA, the Exchange will continue
to conduct surveillance with due diligence and make determinations
based on its findings, on a case-by-case basis, regarding whether a
sanction under the rule is appropriate, or whether a violation requires
formal disciplinary action. Accordingly, the Commission believes the
proposal, as modified by Amendment No. 1, raises no novel or
significant issues.
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\20\ As discussed above, the Exchange has entered into a Rule
17d-2 Plan and an RSA with FINRA with respect to the CAT Compliance
Rules. The Commission notes that, unless relieved by the Commission
of its responsibility, as may be the case under the Rule 17d-2 Plan,
the Exchange continues to bear the responsibility for self-
regulatory conduct and liability for self-regulatory failures, not
the self-regulatory organization retained to perform regulatory
functions on the Exchange's behalf pursuant to an RSA. See
Securities Exchange Release No. 61419 (January 26, 2010), 75 FR 5157
(February 1, 2010) (SR-BATS-2009-031), note 93 and accompanying
text.
\21\ See supra note 3.
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For the same reasons discussed above, the Commission finds good
cause, pursuant to Section 19(b)(2) of the Act,\22\ for approving the
proposed rule change, as modified by Amendment No. 1, prior to the
thirtieth day after the date of publication of the notice of the filing
thereof in the Federal Register. The proposal merely adds the CAT
Compliance Rules to the Exchange's MRVP and harmonizes its application
with FINRA's application of CAT Compliance Rules under its own MRVP.
Accordingly, the Commission believes that a full notice-and-comment
period is not necessary before approving the proposal, as modified by
Amendment No. 1.
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\22\ 15 U.S.C. 78s(b)(2).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\23\ and Rule 19d-1(c)(2) thereunder,\24\ that the proposed rule change
(SR-PEARL-2020-07), as modified by Amendment No. 1, be, and hereby is,
approved on an accelerated basis.
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\23\ 15 U.S.C. 78s(b)(2).
\24\ 17 CFR 240.19d-1(c)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14233 Filed 7-1-20; 8:45 am]
BILLING CODE 8011-01-P