02.11.2020
By John D'Antona

MIAX PEARL Files with SEC to Trade Equities

Stock trading could soon be coming to MIAX’s PEARL Exchange.

The options exchange has filed formally filed with the Securities and Exchange Commission to adopt rules to trade equity securities.

According to MIAX Perl’s website, “PEARL is required to submit to the SEC pursuant to Section 19 of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 19b-4 thereunder, proposed rule changes. MIAX PEARL is required to post its rule filings on its website within two business days after submission. Rule filings are not effective until approved by the SEC, with the exception of certain types of rule filings that may take effect upon filing with the SEC if they meet the conditions specified under Section 19 of the Exchange Act and Rule 19b-4 thereunder. MIAX PEARL will post below pending rule filings submitted by the Exchange, followed by rule changes that have been approved by the SEC or became immediately effective pursuant to the Exchange Act.”

Within the filing with the SEC, PEARL plans to operate an electronic trading system developed to trade equity securities and “leveraging” the Exchange’s technology platform. The fundamental premise of the proposal is that the Exchange will operate its equity market in a manner similar to that of other equity exchanges, with a suite of order types and deterministic functionality that will provide much needed competition to the existing three dominant exchange groups.

“The proposed functionality for PEARL Equities is similar to that offered by other equity exchanges, such as the Cboe BYX Exchange, Cboe BZX Exchange, Cboe EDGA Exchange,Cboe EDGX Exchange, IEX, the New York Stock Exchange, NYSE Arca and the Nasdaq Stock Market LLC. However, other than where described below, the text of each of the proposed rules described in this proposal may differ from the rules of the other equity exchanges to provide additional specificity or to conform to the proposed structure of the PEARL Equities rule set.”

Also, all Exchange Members will be eligible to participate in PEARL Equities, MIAX said, provided that the Exchange has specifically authorized them to trade in the System. The system will provide a routing service for orders when trading interest is not available on PEARL Equities, and will comply with all applicable securities laws and regulations, including 3 Regulation NMS,3 Regulation SHO,4 and the Plan to Address Extraordinary Market Volatility.

MIAX PEARL will authorize any Exchange Member who meets certain enumerated qualification requirements to obtain access to PEARL Equities. There will be two basic types of Equity Members: Equity Order Entry Firms and Equities Market Makers. OEFs will be those Equity Members representing orders as agent on PEARL Equities and non-market maker participants conducting proprietary trading as principal. Equities Market Makers are Equity Members registered with the Exchange as Equities Market Makers.

Furthermore, an unlimited number of Equities Market Makers may be registered in each equity security unless the number of Market Makers registered to make a market in a particular equity security should be limited whenever, in the Exchange’s judgement, quotation system capacity in an equity security is not sufficient to support additional Market Makers in such equity security. The Exchange will not restrict access in any particular equity security until such time the Exchange has submitted objective standards for restricting access to the Commission for its review and approval.

Additionally, MIAX PEARL proposed exchange Rule 2606(a)(8) will specify that Equities Market Markers will not be precluded from quoting at price levels that are closer to the NBBO than the levels required by proposed Exchange Rule 2606(a). Proposed exchange Rule 2606(a)(9) will specify that the minimum quotation increment for quotations of $1.00 or above in all Equity Securities shall be $0.01. The minimum quotation increment in the System for quotations below $1.00 in Equity Securities shall be $0.0001.

In order to entice market makers, PEARL Equities Market Makers will receive certain benefits for carrying out their duties. For example, a lender may extend credit to a broker-dealer without regard to the restrictions in Regulation T of the Board of Governors of the Federal Reserve System if the credit is to be used to finance the broker-dealer’s activities as a specialist or market maker on a national securities exchange. Thus, an Equities Market Maker has a corresponding obligation to hold itself out as willing to buy and sell equities for its own account on a regular and continuous basis to justify this favorable treatment.

Data Feeds

Trading is all about data. In its filiing, MIAX PEARL’sProposed Exchange Rule 261325 identifies the data feeds it will utilize for the handling, execution and routing of orders in equity securities, as well as for surveillance necessary to monitor compliance with applicable securities laws and Exchange Rules. PEARL will use direct feeds as it primary source for BYX, BZX, EDGA, EDGX, Nasdaq, Nasdaq BX, Nasdaq PHLX, NYSE, NYSE American, and NYSE Arca. The Exchange will utilize data from the responsible single plan processor as its secondary source of data for these markets. The Exchange will utilize data from the responsible single plan processor as its primary source of data for FINRA’s Alternative Display Facility (ADF), IEX, the Long Term Stock Exchange, Inc., NYSE Chicago, and NYSE National.

PEARL Equities will operate a fully automated, price/time priority execution model, and offer a suite of conventional order types and deterministic functionality that is designed to provide for an efficient, robust, and transparent order matching process.

PEARL Equities will begin to accept orders at 7:30 a.m., Eastern Time, as described below. The System will operate between the hours of 9:30 a.m. Eastern Time and 4:00 p.m. Eastern Time,17 with all orders being available for execution during that timeframe.

The entire SEC filing is available right here: https://www.sec.gov/rules/sro/pearl/2020/34-88132.pdf

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