[Federal Register Volume 81, Number 244 (Tuesday, December 20, 2016)]
[Notices]
[Pages 92901-92916]
[FR Doc No: 2016-30538]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79543; File No. 10-227]

In the Matter of the Application of MIAX PEARL, LLC for
Registration as a National Securities Exchange; Findings, Opinion, and
Order of the Commission

December 13, 2016.

I. Introduction

    On August 12, 2016, MIAX PEARL, LLC (``MIAX PEARL'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``Commission'') an application for Registration as a National
Securities Exchange (``Form 1 Application'') under Section 6 of the
Securities Exchange Act of 1934 (``Exchange Act''), seeking
registration as a national securities exchange under Section 6 of the
Exchange Act.\1\ Notice of the Form 1 Application was published for
comment in the Federal Register on September 14, 2016,\2\ and the
Commission received no comments.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78f.
    \2\ See Securities Exchange Act Release No. 78793 (September 8,
2016), 81 FR 63238 (``Notice'').

---------------------------------------------------------------------------

II. Statutory Standards

    Under Sections 6(b) and 19(a) of the Act,\3\ the Commission shall
by order grant an application for registration as a national securities
exchange if the Commission finds, among other things, that the proposed
exchange is so organized and has the capacity to carry out the purposes
of the Act and to comply, and to enforce compliance by its members and
persons associated with its members, with the provisions of the Act,
the rules and regulations thereunder, and the rules of the exchange.
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78f(b) and 15 U.S.C. 78s(a), respectively.
---------------------------------------------------------------------------

    As discussed in greater detail below, the Commission finds that
MIAX PEARL's application for exchange registration meets the
requirements of the Act and the rules and regulations thereunder.
Further, the Commission finds that the proposed rules of MIAX PEARL are
consistent with Section 6 of the Act in that, among other things, they
assure a fair representation of the Exchange's members in the selection
of its directors and administration of its affairs and provide that one
or more directors will be representative of issuers and investors and
not be associated with a member of the exchange, or with a broker or
dealer; \4\ and that they are designed to prevent fraudulent and
manipulative acts and practices, promote just and equitable principles
of trade, foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities, and remove impediments to
and perfect the mechanisms of a free and open market and a national
market system and, in general, protect investors and the public
interest and are not designed to permit unfair discrimination between
customers, issuers, or broker-dealers.\5\ Finally, the Commission finds
that MIAX PEARL's proposed rules do not impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of the Act.\6\
---------------------------------------------------------------------------

    \4\ See 15 U.S.C. 78f(b)(3).
    \5\ See 15 U.S.C. 78f(b)(5).
    \6\ See 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

III. Discussion

A. Governance of MIAX PEARL

1. MIAX PEARL Board of Directors
    The board of directors of MIAX PEARL (``Exchange Board'' or ``MIAX
PEARL Board'') will be its governing body and will possess all of the
powers necessary for the management of its business and affairs,
including governance of MIAX PEARL as a self-regulatory organization
(``SRO'').\7\
---------------------------------------------------------------------------

    \7\ See MIAX PEARL By-Laws, Section 2.1. See also MIAX PEARL LLC
Agreement, Section 8(b).
---------------------------------------------------------------------------

    Under the By-Laws of MIAX PEARL (``MIAX PEARL By-Laws''): \8\
---------------------------------------------------------------------------

    \8\ The MIAX PEARL By-Laws are included in the Amended and
Restated Limited Liability Company Agreement of MIAX PEARL (``MIAX
PEARL LLC Agreement'').
---------------------------------------------------------------------------

     The Exchange Board will be composed of not less than ten
directors; \9\
---------------------------------------------------------------------------

    \9\ See MIAX PEARL By-Laws, Article II, Section 2.2(a).
---------------------------------------------------------------------------

     One director will be the Chief Executive Officer of MIAX
PEARL; \10\
---------------------------------------------------------------------------

    \10\ See MIAX PEARL By-Laws, Article II, Section 2.2(b).
---------------------------------------------------------------------------

     The number of Non-Industry Directors,\11\ including at
least one Independent Director,\12\ will equal or exceed the sum of the
number of Industry Directors \13\ and Member Representative Directors;
\14\ and
---------------------------------------------------------------------------

    \11\ ``Non-Industry Director'' means a Director who is an
Independent Director or any other individual who would not be an
Industry Director. See MIAX PEARL By-Laws, Article I(aa).
    \12\ ``Independent Director'' means a ``Director who has no
material relationship with [MIAX PEARL] or any affiliate of [MIAX
PEARL], or any [MIAX PEARL member] or any affiliate of any such
[MIAX PEARL member]; provided, however, that an individual who
otherwise qualifies as an Independent Director shall not be
disqualified from serving in such capacity solely because such
Director is a Director of [MIAX PEARL] or [Miami Holdings].'' See
MIAX PEARL By-Laws, Article I(p).
    \13\ An ``Industry Director'' is, among other things, a Director
that is or has served within the prior three years as an officer,
director, employee, or owner of a broker or dealer, as well as any
Director who has, or has had, a consulting or employment
relationship with MIAX PEARL or any affiliate of MIAX PEARL within
the prior three years. See MIAX PEARL By-Laws, Article I(r). This
definition is consistent with what the Commission has approved for
other exchanges. See Securities Exchange Act Release Nos. 68341
(December 3, 2012), 77 FR 73065 (December 7, 2012) (File No. 10-207)
(order granting the registration of MIAX Exchange) (``MIAX Order'');
58375 (August 18, 2008), 73 FR 49498 (August 21, 2008) (File No. 10-
182) (order granting the registration of BATS Exchange, Inc.)
(``BATS Order''); and 66871 (April 27, 2012), 77 FR 26323 (May 3,
2012) (File No. 10-206) (order granting the registration of BOX
Options Exchange LLC) (``BOX Order'').
    \14\ See MIAX PEARL By-Laws, Article II, Section 2.2 (b)(i).
``Member Representative Director'' means a Director who has been
appointed by Miami International Holdings, Inc. as an initial
Director pursuant to Section 2.5 of the MIAX PEARL By-Laws to serve
until the first annual meeting or who ``has been elected by the
Miami International Holdings, Inc. after having been nominated by
the Member Nominating Committee or by an Exchange Member pursuant to
[the] By-Laws and confirmed as the nominee of Exchange Members after
majority vote of Exchange Members, if applicable. A Member
Representative Director may, but is not required to be, an officer,
director, employee, or agent of an Exchange Member.'' See MIAX PEARL
By-Laws, Article I(x). See also MIAX PEARL By-Laws Article II,
Section 2.5.
---------------------------------------------------------------------------

     At least 20% of the directors on the Exchange Board will
be Member Representative Directors.\15\
---------------------------------------------------------------------------

    \15\ See MIAX PEARL By-Laws, Article II, Section 2.2(b)(ii).
---------------------------------------------------------------------------

    For the interim board (discussed below), and subsequently at the
first annual meeting and each annual meeting thereafter, Miami
International Holdings, Inc. (``Miami Holdings''), as the sole LLC
Member of MIAX PEARL, will elect the MIAX PEARL Board pursuant to the
MIAX PEARL By-Laws.\16\ In addition, Miami Holdings will appoint the
initial Nominating Committee \17\ and Member Nominating Committee,\18\
consistent with each committee's compositional requirements,\19\ to
nominate candidates for election to the Exchange Board. Each of the
Nominating Committee and Member Nominating Committee, after completion
of its respective duties for nominating directors for election to the
Board for that year, shall nominate candidates to serve on the
succeeding year's Nominating Committee or Member Nominating Committee,
as applicable. Additional candidates for the Member Nominating
Committee may be nominated and elected by MIAX PEARL members pursuant
to a petition process.\20\
---------------------------------------------------------------------------

    \16\ See MIAX PEARL By-Laws, Article II, Section 2.4. See also
MIAX PEARL LLC Agreement, Section 9(a).
    \17\ The Nominating Committee will be comprised of at least
three directors, and the number of Non-Industry members on the
Nominating Committee must equal or exceed the number of Industry
members. See MIAX PEARL By-Laws, Article V, Section 5.2. See also
MIAX PEARL By-Laws, Article IV, Section 4.2(a).
    \18\ The Member Nominating Committee will be comprised of at
least three directors, and each member of the Member Nominating
Committee shall be a Member Representative member and shall not be
required to be a Director of the Exchange. See MIAX PEARL By-Laws,
Article V, Section 5.3. See also MIAX PEARL By-Laws, Article IV,
Section 4.2(a). Pursuant to MIAX PEARL By-Laws, Article I(y), a
``Member Representative member'' is a member of any committee or
hearing panel appointed by the Exchange Board who has been elected
or appointed after having been nominated by the Member Nominating
Committee pursuant to the By-Laws and who is an officer, director,
employee, or agent of an Exchange Member.
    \19\ See MIAX PEARL By-Laws, Article V, Section 5.1.
    \20\ See id.
---------------------------------------------------------------------------

    The Nominating Committee will nominate candidates for each director
position, and Miami Holdings, as the sole LLC Member, will elect those
directors. For Member Representative Director positions, the Nominating
Committee will nominate those candidates submitted to it, and approved,
by the Member Nominating Committee.\21\ Additional candidates,

however, may be nominated for the Member Representative Director
positions by MIAX PEARL members pursuant to a petition process.\22\ If
no candidates are nominated pursuant to a petition process, then the
initial nominees submitted by the Member Nominating Committee will be
nominated as Member Representative Directors by the Nominating
Committee. If a petition process produces additional candidates, then
the candidates nominated pursuant to the petition process, together
with those nominated by the Member Nominating Committee, will be
presented to MIAX PEARL members for a run-off election to determine the
final slate of candidates for the vacant Member Representative Director
positions.\23\ In the event of a contested run-off election, the
candidates who receive the most votes will be nominated as the final
slate of Member Representative Director candidates by the Nominating
Committee.\24\ Miami Holdings, as the sole LLC Member, is obligated to
elect the final slate of the Member Representative Director candidates
that are nominated by the Nominating Committee.\25\
---------------------------------------------------------------------------

    \21\ The Member Nominating Committee will solicit comments from
MIAX PEARL members for the purpose of approving and submitting names
of candidates for election to the position of Member Representative
Director. See MIAX PEARL By-Laws, Article II, Section 2.4(b).
    \22\ See MIAX PEARL By-Laws, Article II, Section 2.4(c). The
petition must be signed by executive representatives of 10% or more
of the MIAX PEARL members. No MIAX PEARL member, together with its
affiliates, may account for more than 50% of the signatures
endorsing a particular candidate. See id.
    \23\ See MIAX PEARL By-Laws, Article II, Sections 2.4(e) and
(f). Each MIAX PEARL Member shall have the right to cast one vote
for each available Member Representative Director nomination,
provided that any such vote must be cast for a person on the List of
Candidates and that no MIAX PEARL member, together with its
affiliates, may account for more than 20% of the votes cast for a
candidate. See MIAX PEARL By-Laws, Article II, Section 2.4(f).
    \24\ See MIAX PEARL By-Laws, Article II, Section 2.4(f).
    \25\ See id.
---------------------------------------------------------------------------

    The Commission believes that the requirement in the MIAX PEARL By-
Laws that 20% of the directors be Member Representative Directors and
the means by which they will be chosen by MIAX PEARL members provide
for the fair representation of members in the selection of directors
and the administration of MIAX PEARL and therefore is consistent with
Section 6(b)(3) of the Act.\26\ The Commission notes that this
requirement helps to ensure that members have a voice in the use of
self-regulatory authority by MIAX PEARL.\27\
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78f(b)(3).
    \27\ See, e.g., MIAX Order, supra note 13, at 73067; Securities
Exchange Act Release Nos. 76998 (January 29, 2016), 81 FR 6066, 6068
(February 4, 2016) (File No. 10-221) (order granting exchange
registration of ISE Mercury, LLC) (``ISE Mercury Order''); 70050
(July 26, 2013), 78 FR 46622, 46624 (August 1, 2013) (File No. 10-
209) (order granting the exchange registration of ISE Gemini, LLC)
(``ISE Gemini Order''); 53128 (January 13, 2006), 71 FR 3550, 3553
(January 23, 2006) (granting the exchange registration of Nasdaq
Stock Market, Inc.) (``Nasdaq Order''); and BATS Order, supra note
13.
---------------------------------------------------------------------------

    In addition, with respect to the requirement that the number of
Non-Industry Directors, including at least one Independent Director,
will equal or exceed the sum of the number of Industry Directors and
Member Representative Directors, the Commission believes that the
proposed composition of the Exchange Board satisfies the requirements
in Section 6(b)(3) of the Act,\28\ which requires in part that one or
more directors be representative of issuers and investors and not be
associated with a member of the exchange, or with a broker or dealer.
The Commission notes that the inclusion of public, non-industry
representatives on exchange oversight bodies is an important mechanism
to support an exchange's ability to protect the public interest.\29\
Further, the presence of public, non-industry representatives can help
to ensure that no single group of market participants has the ability
to systematically disadvantage other market participants through the
exchange governance process. The Commission believes that public, non-
industry directors can provide unique, unbiased perspectives, which are
designed to enhance the ability of the Exchange Board to address issues
in a non-discriminatory fashion and foster the integrity of the
Exchange.\30\
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78f(b)(3).
    \29\ See, e.g., Regulation of Exchanges and Alternative Trading
Systems, Securities Exchange Act Release No. 40760 (December 8,
1998), 63 FR 70844, 70882 (December 22, 1998) (``Regulation ATS
Release'').
    \30\ See MIAX Order, supra note 13, at 73067; BATS Order, supra
note 13, at 49501; and Nasdaq Order, supra note 27, at 3553.
---------------------------------------------------------------------------

2. Interim Exchange Board
    Prior to commencing operations, Miami Holdings will appoint an
interim Exchange board of directors (``Interim Exchange Board''), which
will include interim Member Representative Directors.\31\ With respect
to the selection of the interim Member Representative Directors for the
Interim Exchange Board, prior to the commencement of operations as an
exchange, Miami Holdings will submit the names of its nominees for the
interim Member Representative Directors positions to persons that have
begun the process of becoming members in the new Exchange.\32\ Such
persons and firms will be allowed 14 days to submit the names of
alternative candidates.\33\ Voting will occur no sooner than 5 days
after the interim election notice is delivered to confirm the final
slate of candidates to become an interim Member Representative
Director.\34\ All other interim directors, except for the interim
Member Representative Directors, will be appointed and elected by Miami
Holdings, and must meet the MIAX PEARL board composition requirements
as set forth in the MIAX PEARL By-Laws.\35\ Once these interim Member
Representative Directors are seated on the Interim Exchange Board, then
the Interim Exchange Board will meet the board composition requirements
set forth in the governing documents of MIAX PEARL.
---------------------------------------------------------------------------

    \31\ See MIAX PEARL By-Laws, Section 2.5.
    \32\ See MIAX PEARL By-Laws, Section 2.5(b). Specifically, Miami
Holdings will submit the names of its nominees for the interim
Member Representative Director positions to persons who have
submitted the initial documents for membership in the Exchange who
would meet the qualifications for membership. See MIAX PEARL By-
Laws, Section 2.5(b). MIAX PEARL additionally represents that the
initial members of MIAX PEARL will consist substantially of the
current group of persons and firms that have begun the membership
application process with MIAX PEARL. See MIAX PEARL Form 1
Application, Exhibit J.
    \33\ See MIAX PEARL By-Laws, Section 2.5(b).
    \34\ See MIAX PEARL By-Laws, Section 2.5(d).
    \35\ See MIAX PEARL By-Laws, Section 2.5(a).
---------------------------------------------------------------------------

    The Interim Exchange Board will serve until the first initial
Exchange Board is elected pursuant to the full nomination, petition,
and voting process set forth in the MIAX PEARL By-Laws.\36\ MIAX PEARL
will complete such process within 90 days after its application for
registration as a national securities exchange is granted by the
Commission.\37\
---------------------------------------------------------------------------

    \36\ See MIAX PEARL By-Laws, Sections 2.2(e) and 2.5(a).
    \37\ See MIAX PEARL By-Laws, Sections 2.5(a). The 90-day period
is consistent with what the Commission recently approved for ISE
Mercury, LLC. See ISE Mercury Order, supra note 27, at 6068
(allowing ISE Mercury, LLC to appoint an initial interim board to
enable it to commence operations as a registered exchange). See also
MIAX Order, supra note 13, at 73067; and BOX Order, supra note 13,
at 26325.
---------------------------------------------------------------------------

    The Commission believes that the process for electing the Interim
Exchange Board, as proposed, is consistent with the requirements of the
Act, including that the rules of the exchange assure fair
representation of the exchange's members in the selection of its
directors and administration of its affairs.\38\ As noted above, MIAX
PEARL represents that the initial members of MIAX PEARL will consist
substantially of the current group of persons and firms that have begun
the membership

application process with MIAX PEARL.\39\ MIAX PEARL will engage these
persons and firms in the interim board election process by, prior to
the commencement of operations as an exchange, providing each of them
with the opportunity to participate in the selection of interim Member
Representative Directors consistent with the MIAX PEARL By-Laws.
Further, MIAX PEARL represents that it will complete the full
nomination, petition, and voting process as set forth in the MIAX PEARL
By-Laws, which will provide persons that are approved as members after
the effective date of this Order with the opportunity to participate in
the selection of the Member Representative Directors, within 90 days of
when MIAX PEARL's application for registration as a national securities
exchange is granted.\40\ Therefore, the Commission believes that MIAX
PEARL's initial interim board process is consistent with the Act,
including Section 6(b)(3), in that it is designed to provide
representation among the persons and firms likely to become members
when MIAX PEARL commences operations and is sufficient to allow MIAX
PEARL to commence operations for an interim period prior to going
through the process to elect a new Exchange Board pursuant to the full
nomination, petition, and voting process set forth in the MIAX PEARL
By-Laws.
---------------------------------------------------------------------------

    \38\ See 15 U.S.C. 78f(b)(3).
    \39\ See supra note 32.
    \40\ MIAX PEARL's proposed timeline for the interim board
process follows a process identical to what the Commission recently
approved for ISE Mercury, LLC. See ISE Mercury Order, supra note 27,
at 6068.
---------------------------------------------------------------------------

3. Exchange Committees
    In the MIAX PEARL By-Laws, the Exchange proposed to establish
several standing committees, which would be divided into two
categories: Committees of the Board (composed of MIAX PEARL directors)
and Committees of the Exchange (composed of a mixture of MIAX PEARL
directors and persons that are not MIAX PEARL directors).\41\ The
standing Committees of the Board would be the Audit, Compensation,
Appeals, and Regulatory Oversight Committees.\42\ In addition, the
Exchange Chairman, with approval of the Exchange Board, may appoint an
Executive Committee and a Finance Committee, which also would be
Committees of the Board.\43\
---------------------------------------------------------------------------

    \41\ See MIAX PEARL By-Laws, Section 4.1.
    \42\ See MIAX PEARL By-Laws, Section 4.1(a).
    \43\ See MIAX PEARL By-Laws, Section 4.5(e) and (f),
respectively.
---------------------------------------------------------------------------

    The Audit Committee will consist of three or more directors, a
majority of which will be Non-Industry Directors.\44\ Each of the
Compensation and Regulatory Oversight Committees will consist of three
or more directors, all of which will be required to be Non-Industry
Directors.\45\ The Appeals Committee will consist of one Independent
Director, one Industry Director, and one Member Representative
Director.\46\ If established, the Finance Committee will consist of at
least three persons (who may, but are not required to, be directors) a
majority of whom will be Non-Industry Directors.\47\ The Executive
Committee, if established, will consist of at least three directors.
Because the Executive Committee will have the powers and authority of
the Exchange Board in the management of the business and affairs of the
Exchange between meetings of the Exchange Board, its composition must
reflect that of the Exchange Board. Accordingly, the number of Non-
Industry Directors on the Executive Committee must equal or exceed the
number of Industry Directors and the percentages of Independent
Directors and Member Representative Directors must be at least as great
as the corresponding percentages on the Exchange Board as a whole.\48\
---------------------------------------------------------------------------

    \44\ See MIAX PEARL By-Laws, Section 4.5(b). A Non-Industry
Director shall serve as Chairman of the Committee. See id. See also
MIAX PEARL By-Laws, Section 4.2(a) (requiring that each committee be
comprised of at least three people).
    \45\ See MIAX PEARL By-Laws, Section 4.5(a) and 4.5(c).
    \46\ See MIAX PEARL By-Laws, Section 4.5(d).
    \47\ See MIAX PEARL By-Laws, Section 4.5(f). See also MIAX PEARL
By-Laws, Section 4.2(a) (providing that except as otherwise provided
in the MIAX PEARL By-Laws, committees may include persons who are
not members of the Board).
    \48\ See MIAX PEARL By-Laws, Section 4.5(e).
---------------------------------------------------------------------------

    With respect to Committees of MIAX PEARL, the Exchange has proposed
to establish a Nominating Committee \49\ and a Member Nominating
Committee.\50\ As discussed above, these committees will have
responsibility for, among other things, nominating candidates for
election to the Exchange Board. On an annual basis, the members of
these committees will nominate candidates for the succeeding year's
respective committees to be elected by Miami Holdings, as the sole LLC
Member.\51\ In addition, MIAX PEARL has proposed to establish a Quality
of Markets Committee,\52\ which will provide advice and guidance to the
Exchange Board on issues related to the fairness, integrity, efficiency
and competiveness of the information, order handling and execution
mechanisms of the Exchange from the perspective of individual and
institutional investors, retail and market making firms, and other
market participants. The Quality of Markets Committee will include a
broad representation of participants in the Exchange. Additionally, at
least 20% of the members of the committee will be Member Representative
members, and the number of Non-Industry members must equal or exceed
the total number of Industry and Member Representative members. MIAX
PEARL also has proposed to establish a Business Conduct Committee,
which shall be appointed by the Chairman of the Exchange Board.\53\
Specifically, the Business Conduct Committee, which will not be a Board
committee, will have a minimum of three members and will be composed of
a number of individuals as determined by the Exchange Chairman, none of
whom shall be Directors of MIAX PEARL. In addition, at least one member
of the Business Conduct Committee and any panel thereof must be an
officer, director or employee of a MIAX PEARL member.
---------------------------------------------------------------------------

    \49\ See MIAX PEARL By-Laws, Article V, Section 5.2, and supra
note 17.
    \50\ See MIAX PEARL By-Laws, Article V, Section 5.3, and supra
note 18.
    \51\ See MIAX PEARL By-Laws, Article V, Section 5.1, and supra
note 20. Additional candidates for the Member Nominating Committee
may be nominated and elected by MIAX PEARL members pursuant to a
petition process. See supra note 22 and accompanying text.
    \52\ See MIAX PEARL By-Laws, Article IV, Section 4.6.
    \53\ See MIAX PEARL By-Laws, Article IV, Section 4.7.
---------------------------------------------------------------------------

    The Commission believes that MIAX PEARL's proposed committees,
which are similar to the committees maintained by other exchanges,\54\
are designed to help enable MIAX PEARL to carry out its
responsibilities under the Act and are consistent with the Act,
including Section 6(b)(1), which requires, in part, an exchange to be
so organized and have the capacity to carry out the purposes of the
Act.\55\
---------------------------------------------------------------------------

    \54\ See, e.g., MIAX Order and BATS Order, supra note 13, and
ISE Mercury Order, ISE Gemini Order, Nasdaq Order, supra note 27.
    \55\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

B. Regulation of MIAX PEARL

    When MIAX PEARL commences operations as a national securities
exchange, the Exchange will have all the attendant regulatory
obligations under the Act. In particular, MIAX PEARL will be
responsible for the operation and regulation of its trading system and
the regulation of its members. Certain provisions in the MIAX PEARL and
Miami Holdings governance documents are designed to facilitate the
ability of MIAX PEARL and the Commission to fulfill their regulatory
obligations. The

discussion below summarizes some of these key provisions.
1. Ownership Structure: Ownership and Voting Limitations
    MIAX PEARL will be structured as a Delaware limited liability
company, which will be wholly owned by the sole member of the LLC,
Miami Holdings. The Miami Holdings' proposed Amended and Restated
Certificate of Incorporation (``Miami Holdings Certificate'') includes
restrictions on the ability to own and vote shares of capital stock of
Miami Holdings.\56\ These limitations are designed to prevent any Miami
Holdings shareholder from exercising undue control over the operation
of MIAX PEARL and to assure that MIAX PEARL and the Commission are able
to carry out their regulatory obligations under the Act.
---------------------------------------------------------------------------

    \56\ These provisions are consistent with ownership and voting
limits approved by the Commission for other SROs. See, e.g., ISE
Mercury Order and ISE Gemini Order, supra note 27; MIAX Order and
BATS Order, supra note 13. See also Securities Exchange Act Release
Nos. 62158 (May 24, 2010), 75 FR 30082 (May 28, 2010) (CBOE-2008-88)
(``CBOE Demutualization Approval Order''); 53963 (June 8, 2006), 71
FR 34660 (June 15, 2006) (SR-NSX-2006-03) (``NSX Demutualization
Order''); 51149 (February 8, 2005), 70 FR 7531 (February 14, 2005)
(SR-CHX-2004-26) (``CHX Demutualization Order''); and 49098 (January
16, 2004), 69 FR 3974 (January 27, 2004) (SR-Phlx-2003-73) (``Phlx
Demutualization Order'').
---------------------------------------------------------------------------

    In particular, for so long as Miami Holdings (directly or
indirectly) controls MIAX PEARL, no person, either alone or together
with its related persons,\57\ may beneficially own more than 40% of any
class of capital stock of Miami Holdings.\58\ There would be a more
conservative restriction for MIAX PEARL members, wherein MIAX PEARL
members, either alone or together with their related persons, are
prohibited from beneficially owning more than 20% of shares of any
class of capital stock of Miami Holdings.\59\ If any stockholder
violates these ownership limits, Miami Holdings would redeem the shares
in excess of the applicable ownership limit at their par value.\60\ In
addition, no person, alone or together with its related persons, may
vote or cause the voting of more than 20% of the voting power of the
then issued and outstanding capital stock of Miami Holdings.\61\ If any
stockholder purports to vote, or cause the voting of, shares that would
violate this voting limit, Miami Holdings would not honor such vote in
excess of the voting limit.\62\
---------------------------------------------------------------------------

    \57\ See Miami Holdings Certificate, Article NINTH (a)(ii)
(defining ``related persons'').
    \58\ See Miami Holdings Certificate, Article NINTH (b)(i)(A).
    \59\ See Miami Holdings Certificate, Article NINTH (b)(i)(B).
    \60\ See Miami Holdings Certificate, Article NINTH (e). Any
shares which have been called for redemption shall not be deemed
outstanding shares for the purpose of voting or determining the
total number of shares entitled to vote. Once redeemed by Miami
Holdings, such shares shall become treasury shares and shall no
longer be deemed to be outstanding. See id. Furthermore, if any
redemption results in another stockholder owning shares in violation
of the ownership limits described above, Miami Holdings shall redeem
such shares. See id.
    \61\ See Miami Holdings Certificate, Article NINTH (b)(i)(C).
    \62\ See Miami Holdings Certificate, Article NINTH (d). The
Miami Holdings Certificate also prohibits the payment of any stock
dividends and conversions that would violate the ownership and
voting limitations. See Miami Holdings Certificate, Article FOURTH
A.(b) and (e), and D.7.
---------------------------------------------------------------------------

    Any person that proposes to own shares of capital stock in excess
of the 40% ownership limitation, or vote or grant proxies or consents
with respect to shares of capital stock in excess of the 20% voting
limitation, must deliver written notice to the Miami Holdings board to
notify the Board of its intention.\63\ The notice must be delivered to
the Board not less than 45 days before the proposed ownership of such
shares or proposed exercise of such voting rights or the granting of
such proxies or consents.\64\ The Miami Holdings board may waive the
40% ownership limitation and the 20% voting limitation, pursuant to a
resolution duly adopted by the Board of Directors, if it makes certain
findings,\65\ except that the Miami Holdings board cannot waive the
voting and ownership limits above 20% for MIAX PEARL members and their
related persons.\66\ Any such waiver would not be effective unless and
until approved by the Commission pursuant to Section 19 of the Act.\67\
---------------------------------------------------------------------------

    \63\ See Miami Holdings Certificate, Article NINTH (b)(iv).
    \64\ See id.
    \65\ See Miami Holdings Certificate, Article NINTH (b)(ii)(B).
The required findings include determinations that (A) such waiver
will not impair the ability of MIAX PEARL to carry out its functions
and responsibilities under the Act and the rules and regulations
promulgated thereunder, (B) such waiver is otherwise in the best
interests of MIAX PEARL and Miami Holdings, (C) such waiver will not
impair the ability of the Commission to enforce the Act and (D) the
transferee in such transfer and its related persons are not subject
to any applicable ``statutory disqualification'' (within the meaning
of Section 3(a)(39) of the Act). See Miami Holdings Certificate,
Article NINTH (b)(ii)(B) and (b)(iii). The Commission has previously
approved the rules of other exchanges that provide for the ability
of the exchange to waive the ownership and voting limitations
discussed above for non-members of the exchange. See, e.g., ISE
Mercury Order and ISE Gemini Order, supra note 27; MIAX Order, supra
note 13; and Securities Exchange Act Release No. 61698 (March 12,
2010), 75 FR 13151 (March 18, 2010) (order approving DirectEdge
exchanges) (``DirectEdge Exchanges Order'').
    \66\ See Miami Holdings Certificate, Article NINTH (b)(ii)(B).
These provisions are generally consistent with waiver of ownership
and voting limits approved by the Commission for other SROs. See,
e.g., ISE Mercury Order, supra note 27; MIAX Order, supra note 13;
BATS Order, supra note 13; NSX Demutualization Order, supra note 56;
CHX Demutualization Order, supra note 56; and Securities Exchange
Act Release No. 49718 (May 17, 2004), 69 FR 29611 (May 24, 2004)
(SR-PCX-2004-08).
    \67\ See Miami Holdings Certificate, Article NINTH (b)(ii)(B).
---------------------------------------------------------------------------

    The Miami Holdings Certificate also contains provisions that are
designed to further safeguard the ownership and voting limitation
described above, or are otherwise related to direct and indirect
changes in control. Specifically, any person that, either alone or
together with its related persons owns, directly or indirectly, of
record or beneficially, 5% or more of the capital stock of Miami
Holdings will be required to immediately notify Miami Holdings in
writing upon acquiring knowledge of such ownership.\68\ Thereafter,
such persons will be required to update Miami Holdings of any increase
or decrease of 1% or more in their previously reported ownership
percentage.\69\
---------------------------------------------------------------------------

    \68\ See Miami Holdings Certificate, Article NINTH(c)(i). The
notice will require the person's full legal name; the person's title
or status; the person's approximate ownership interest in Miami
Holdings; and whether the person has power, directly or indirectly,
to direct the management or policies of Miami Holdings. See id.
    \69\ See Miami Holdings Certificate, Article NINTH(c)(ii).
Changes of less than 1% must also be reported to Miami Holdings if
they result in such person crossing a 20% or 40% ownership
threshold. See id. In addition, the MIAX PEARL rules also impose
limits on affiliation between MIAX PEARL and a member of MIAX PEARL.
See MIAX PEARL Rule 201(g) (``Without prior Commission approval, the
Exchange or any entity with which it is affiliated shall not
directly or indirectly through one or more intermediaries acquire or
maintain an ownership interest in an Exchange Member. In addition,
without prior Commission approval, no Member shall be or become
affiliated with (1) the Exchange; or (2) any affiliate of the
Exchange. Nothing herein shall prohibit a Member from acquiring or
holding an equity interest in (i) Miami International Holdings, Inc.
that is permitted by the Certificate of Incorporation of Miami
International Holdings, Inc. or (ii) Miami International Securities
Exchange, LLC that is permitted by the Amended and Restated Limited
Liability Company Agreement of Miami International Securities
Exchange, LLC.'').
---------------------------------------------------------------------------

    The MIAX PEARL LLC Agreement does not include change of control
provisions that are similar to those in the Miami Holdings Certificate;
however the MIAX PEARL LLC Agreement explicitly provides that Miami
Holdings is the sole LLC Member of MIAX PEARL.\70\ Thus, if Miami
Holdings ever proposes to no longer be the sole LLC Member of MIAX
PEARL (and therefore no longer its sole owner), MIAX PEARL would be
required to amend the MIAX PEARL LLC Agreement and the MIAX

PEARL By-Laws. Any changes to the MIAX PEARL LLC Agreement or the MIAX
PEARL By-Laws, including any change in the provisions that identify
Miami Holdings as the sole owner of MIAX PEARL, must be filed with, or
filed with and approved by, the Commission pursuant to Section 19 of
the Act, as the case may be.\71\ Further, pursuant to the MIAX PEARL
By-Laws, Miami Holdings may not transfer or assign, in whole or in
part, its ownership interest in MIAX PEARL, unless such transfer is
filed with and approved by the Commission pursuant to Section 19 of the
Act.\72\
---------------------------------------------------------------------------

    \70\ See MIAX PEARL LLC Agreement and MIAX PEARL By-Laws,
Article I(v) (both of which define ``LLC Member'' to mean Miami
Holdings, as the sole member of MIAX PEARL).
    \71\ See 15 U.S.C. 78s. See also MIAX PEARL LLC Agreement,
Section 28(b).
    \72\ See MIAX PEARL By-Laws, Article III, Section 3.4.
---------------------------------------------------------------------------

    As described above, the provisions applicable to direct and
indirect changes in control of Miami Holdings and MIAX PEARL, as well
as the voting limitation imposed on owners of Miami Holdings who also
are MIAX PEARL members, are designed to help prevent any owner of Miami
Holdings from exercising undue influence or control over the operation
of MIAX PEARL. In addition, these limitations are designed to address
the conflicts of interests that might result from a member of a
national securities exchange owning interests in the exchange. A
member's interest in an exchange, including an entity that controls an
exchange, could become so large as to cast doubts on whether the
exchange may fairly and objectively exercise its self-regulatory
responsibilities with respect to such member.\73\ A member that is a
controlling shareholder of an exchange could seek to exercise that
controlling influence by directing the exchange to refrain from, or the
exchange may hesitate to, diligently monitor and conduct surveillance
of the member's conduct or diligently enforce the exchange's rules and
the federal securities laws with respect to conduct by the member that
violates such provisions. As such, the Commission believes that these
voting and ownership limitations are designed to minimize the potential
that a person or entity can improperly interfere with or restrict the
ability of MIAX PEARL to effectively carry out its regulatory oversight
responsibilities under the Act.
---------------------------------------------------------------------------

    \73\ See, e.g., ISE Mercury Order, supra note 27; MIAX Order,
supra note 13; BATS Order, supra note 13; and DirectEdge Exchanges
Order, supra note 65.
---------------------------------------------------------------------------

    The Commission believes that MIAX PEARL's and Miami Holding's
proposed governance provisions are consistent with the Act, including
Section 6(b)(1), which requires, in part, an exchange to be so
organized and have the capacity to carry out the purposes of the
Act.\74\ In particular, these requirements are designed to minimize the
potential that a person could improperly interfere with or restrict the
ability of the Commission or MIAX PEARL to effectively carry out their
regulatory oversight responsibilities under the Act.
---------------------------------------------------------------------------

    \74\ 15 U.S.C. 78f(b)(1). See also ISE Mercury Order, supra note
27; MIAX Order, supra note 13; and BOX Order, supra note 13.
---------------------------------------------------------------------------

2. Regulatory Independence and Oversight
    Although Miami Holdings will not itself carry out regulatory
functions, its activities with respect to the operation of MIAX PEARL
must be consistent with, and must not interfere with, MIAX PEARL's
self-regulatory obligations. In this regard, MIAX PEARL and Miami
Holdings propose to adopt certain provisions in their respective
governing documents that are designed to help maintain the independence
of the regulatory functions of MIAX PEARL. These proposed provisions
are substantially similar to those included in the governing documents
of other exchanges that recently have been granted registration.\75\
Specifically:
---------------------------------------------------------------------------

    \75\ See, e.g., DirectEdge Exchanges Order, supra note 65, and
BATS Order, supra note 13. See also Securities Exchange Act Release
No. 61152 (December 10, 2009), 74 FR 66699 (December 16, 2009) (``C2
Order'').
---------------------------------------------------------------------------

     The directors, officers, employees, and agents of Miami
Holdings must give due regard to the preservation of the independence
of the self-regulatory function of MIAX PEARL and must not take actions
that would interfere with the effectuation of decisions by the MIAX
PEARL Board relating to its regulatory functions or that would
interfere with MIAX PEARL's ability to carry out its responsibilities
under the Act.\76\
---------------------------------------------------------------------------

    \76\ See Amended and Restated By-Laws of Miami Holdings (``Miami
Holdings By-Laws''), Article VII, Section 1.
     Similarly, Article II, Section 2.1(d) of the MIAX PEARL By-Laws
requires the MIAX PEARL Board to, when managing the business and
affairs of MIAX PEARL and evaluating any proposal, consider the
requirements of Section 6(b) of the Act. Section 2.1(e) also
requires the MIAX PEARL Board, when evaluating any proposal to take
into account (among other things and to the extent relevant), the
potential impact on the integrity, continuity and stability of the
national securities exchange operated by MIAX PEARL and the other
operations of MIAX PEARL, on the ability to prevent fraudulent and
manipulative acts and practices and on investors and the public, and
whether such would promote just and equitable principles of trade,
foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect
to and facilitating transactions in securities or assist in the
removal of impediments to or perfection of the mechanisms for a free
and open market and a national market system. See, e.g., Fourth
Amended and Restated By-Laws of BATS, Article III, Section 1.
---------------------------------------------------------------------------

     Miami Holdings must comply with federal securities laws
and the rules and regulations promulgated thereunder, and agrees to
cooperate with the Commission and MIAX PEARL pursuant to, and to the
extent of, their respective regulatory authority. In addition, Miami
Holdings' officers, directors, employees, and agents must comply with
federal securities laws and the rules and regulations promulgated
thereunder and agree to cooperate with the Commission and MIAX PEARL in
respect of the Commission's oversight responsibilities regarding MIAX
PEARL and the self-regulatory functions and responsibilities of MIAX
PEARL.\77\
---------------------------------------------------------------------------

    \77\ See Miami Holdings By-Laws, Article VII, Section 4.
---------------------------------------------------------------------------

     Miami Holdings, and its officers, directors, employees,
and agents are deemed to irrevocably submit to the jurisdiction of the
U.S. federal courts, the Commission, and MIAX PEARL, for purposes of
any action, suit, or proceeding pursuant to U.S. federal securities
laws, and the rules and regulations thereunder, arising out of, or
relating to, MIAX PEARL activities.\78\
---------------------------------------------------------------------------

    \78\ See Miami Holdings By-Laws, Article VII, Section 5.
---------------------------------------------------------------------------

     All books and records of MIAX PEARL reflecting
confidential information pertaining to the self-regulatory function of
MIAX PEARL (including but not limited to disciplinary matters, trading
data, trading practices, and audit information) shall be retained in
confidence by MIAX PEARL and its personnel and will not be used by MIAX
PEARL for any non-regulatory purpose and shall not be made available to
persons (including, without limitation, any MIAX PEARL member) other
than to personnel of the Commission, and those personnel of MIAX PEARL,
members of committees of MIAX PEARL, members of the MIAX PEARL Board,
or hearing officers and other agents of MIAX PEARL, to the extent
necessary or appropriate to properly discharge the self-regulatory
function of MIAX PEARL.\79\
---------------------------------------------------------------------------

    \79\ See MIAX PEARL By-Laws Article X, Section 10.4. The
Commission notes that the Miami Holdings By-Laws also provide that
all books and records of MIAX PEARL reflecting confidential
information pertaining to the self-regulatory function of MIAX PEARL
will be subject to confidentiality restrictions. See Miami Holdings
By-Laws Article VII, Section 2. The requirement to keep such
information confidential shall not limit the Commission's ability to
access and examine such information or limit the ability of
officers, directors, employees, or agent of Miami Holdings to
disclose such information to the Commission. See id.
---------------------------------------------------------------------------

     The books and records of MIAX PEARL and Miami Holdings
must be

maintained in the United States \80\ and, to the extent they are
related to the operation or administration of MIAX PEARL, Miami
Holdings books and records will be subject at all times to inspection
and copying by the Commission.\81\
---------------------------------------------------------------------------

    \80\ See MIAX PEARL By-Laws, Article X, Section 10.4; and Miami
Holdings By-Laws, Article VII, Section 3.
    \81\ See Miami Holdings By-Laws, Article VII, Section 3.
---------------------------------------------------------------------------

     Furthermore, to the extent they relate to the activities
of MIAX PEARL, the books, records, premises, officers, directors,
employees, and agents of Miami Holdings will be deemed to be the books,
records, premises, officers, directors, employees, and agents of MIAX
PEARL, for purposes of, and subject to oversight pursuant to, the
Act.\82\
---------------------------------------------------------------------------

    \82\ See Miami Holdings By-Laws, Article VII, Section 3.
---------------------------------------------------------------------------

     Miami Holdings will take necessary steps to cause its
officers, directors, employees, and agents, prior to accepting a
position as an officer, director, employee or agent (as applicable) to
consent in writing to the applicability of provisions regarding books
and records, confidentiality, jurisdiction, and regulatory obligations,
with respect to their activities related to MIAX PEARL.\83\
---------------------------------------------------------------------------

    \83\ See Miami Holdings By-Laws, Article VII, Section 6.
---------------------------------------------------------------------------

     Miami Holdings Certificate and By-Laws require that, so
long as Miami Holdings controls MIAX PEARL, any changes to those
documents be submitted to the MIAX PEARL Board, and, if such change is
required to be filed with the Commission pursuant to Section 19(b) of
the Act and the rules and regulations thereunder, such change shall not
be effective until filed with, or filed with and approved by, the
Commission.\84\
---------------------------------------------------------------------------

    \84\ See Miami Holdings Certificate, Article VIII; and Miami
Holdings By-Laws, Article XII, Section 1.
---------------------------------------------------------------------------

    The Commission believes that the provisions discussed in this
section, which are designed to help maintain the independence of MIAX
PEARL's regulatory function and help facilitate the ability of MIAX
PEARL to carry out its regulatory responsibilities and operate in a
manner consistent with the Act, are appropriate and consistent with the
requirements of the Act, particularly with Section 6(b)(1), which
requires, in part, an exchange to be so organized and have the capacity
to carry out the purposes of the Act.\85\ Whether MIAX PEARL operates
in compliance with the Act, however, depends on how it and Miami
Holdings in practice implement the governance and other provisions that
are the subject of this Order.
---------------------------------------------------------------------------

    \85\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

    Further, Section 19(h)(1) of the Act \86\ provides the Commission
with the authority ``to suspend for a period not exceeding twelve
months or revoke the registration of [an SRO], or to censure or impose
limitations upon the activities, functions, and operations of [an SRO],
if [the Commission] finds, on the record after notice and opportunity
for hearing, that [the SRO] has violated or is unable to comply with
any provision of the Act, the rules or regulations thereunder, or its
own rules or without reasonable justification or excuse has failed to
enforce compliance'' with any such provision by its members (including
associated persons thereof).\87\ If Commission staff were to find, or
become aware of, through staff review and inspection or otherwise,
facts indicating any violations of the Act, including without
limitation Sections 6(b)(1) and 19(g)(1), these matters could provide
the basis for a disciplinary proceeding under Section 19(h)(1) of the
Act.
---------------------------------------------------------------------------

    \86\ See 15 U.S.C. 78s(h)(1).
    \87\ See id.
---------------------------------------------------------------------------

    The Commission also notes that, even in the absence of the
governance provisions described above, under Section 20(a) of the Act,
any person with a controlling interest in MIAX PEARL would be jointly
and severally liable with and to the same extent that MIAX PEARL is
liable under any provision of the Act, unless the controlling person
acted in good faith and did not directly or indirectly induce the act
or acts constituting the violation or cause of action.\88\ In addition,
Section 20(e) of the Act creates aiding and abetting liability for any
person who knowingly provides substantial assistance to another person
in violation of any provision of the Act or rule thereunder.\89\
Further, Section 21C of the Act authorizes the Commission to enter a
cease-and-desist order against any person who has been ``a cause of'' a
violation of any provision of the Act through an act or omission that
the person knew or should have known would contribute to the
violation.\90\ These provisions are applicable to all entities'
dealings with MIAX PEARL, including Miami Holdings.
---------------------------------------------------------------------------

    \88\ 15 U.S.C. 78t(a).
    \89\ 15 U.S.C. 78t(e).
    \90\ 15 U.S.C. 78u-3.
---------------------------------------------------------------------------

3. Regulation of MIAX PEARL
    As a prerequisite to the Commission's granting of an exchange's
application for registration, an exchange must be so organized and have
the capacity to carry out the purposes of the Act.\91\ Specifically, an
exchange must be able to enforce compliance by its members, and persons
associated with its members, with the Act and the rules and regulations
thereunder and the rules of the exchange.\92\ The discussion below
summarizes how MIAX PEARL proposes to structure and conduct its
regulatory operations.
---------------------------------------------------------------------------

    \91\ See Section 6(b)(1) of the Act, 15 U.S.C. 78f(b)(1).
    \92\ See id. See also Section 19(g) of the Act, 15 U.S.C.
78s(g).
---------------------------------------------------------------------------

a. Regulatory Oversight Committee
    The regulatory operations of MIAX PEARL will be monitored by the
Regulatory Oversight Committee of the Exchange Board. The Regulatory
Oversight Committee will consist of at least three directors, all of
whom will be Non-Industry Directors. The Regulatory Oversight Committee
will be responsible for overseeing the adequacy and effectiveness of
MIAX PEARL's regulatory and SRO responsibilities, assessing MIAX
PEARL's regulatory performance, and assisting the Exchange Board (and
committees of the Exchange Board) in reviewing MIAX PEARL's regulatory
plan and the overall effectiveness of MIAX PEARL's regulatory
functions.\93\
---------------------------------------------------------------------------

    \93\ See MIAX PEARL By-Laws, Article IV, Section 4.5(c). The
Regulatory Oversight Committee is responsible for reviewing MIAX
PEARL's regulatory budget, and also will meet regularly with the
Chief Regulatory Officer. See id.
---------------------------------------------------------------------------

    Further, a Chief Regulatory Officer (``CRO'') of MIAX PEARL will
have general day-to-day supervision over MIAX PEARL's regulatory
operations.\94\ The Regulatory Oversight Committee also will be
responsible for recommending compensation and personnel actions
involving the CRO and senior regulatory personnel to the Compensation
Committee of MIAX PEARL for action.\95\ The CRO will report to the
Regulatory Oversight Committee.\96\
---------------------------------------------------------------------------

    \94\ See MIAX PEARL By-Laws, Article VI, Section 6.10.
    \95\ See MIAX PEARL By-Laws, Article IV, Section 4.5(c).
    \96\ See MIAX PEARL By-Laws, Article VI, Section 6.10.
---------------------------------------------------------------------------

b. Regulatory Funding
    To help assure the Commission that it has and will continue to have
adequate funding to be able to meet its responsibilities under the Act,
MIAX PEARL represents in its Form 1 Application that, prior to
beginning operations as a national securities exchange, Miami Holdings
will provide sufficient funding to MIAX PEARL for the exchange to carry
out its

responsibilities under the Act.\97\ Specifically, MIAX PEARL represents
that Miami Holdings has allocated sufficient operational assets to
enable its operation and that prior to launching operations, Miami
Holdings will make a capital contribution of not less than $5,000,000
into MIAX PEARL's capital account, in addition to any previously-
provided in-kind contributions, such as legal, regulatory, and
infrastructure-related services.\98\ MIAX PEARL represents that such
cash and in-kind contributions by Miami Holdings will be adequate to
begin operation of the Exchange, including the regulation of the
Exchange.
---------------------------------------------------------------------------

    \97\ See MIAX PEARL Form 1 Application, Exhibit I.
    \98\ See id.
---------------------------------------------------------------------------

    MIAX PEARL also represents in its Form 1 application that there is
a written agreement between MIAX PEARL and Miami Holdings that requires
Miami Holdings to provide adequate funding for MIAX PEARL's ongoing
operations, including the regulation of MIAX PEARL. This agreement
provides that MIAX PEARL will receive all fees, including regulatory
fees and trading fees, payable by MIAX PEARL's members, as well as any
funds received from any applicable market data fees and OPRA tape
revenue. The agreement further provides that Miami Holdings will
reimburse MIAX PEARL for its costs and expenses to the extent MIAX
PEARL's assets are insufficient to meets its costs and expenses.\99\
---------------------------------------------------------------------------

    \99\ See id.
---------------------------------------------------------------------------

    Further, any revenues received by MIAX PEARL from fees derived from
its regulatory function or regulatory penalties will not be used for
non-regulatory purposes.\100\ Any excess funds, as determined by MIAX
PEARL, may be remitted to Miami Holdings, however ``Regulatory Funds''
will not be remitted to Miami Holdings.\101\
---------------------------------------------------------------------------

    \100\ See MIAX PEARL By-Laws, Article IX, Section 9.4.
    \101\ See MIAX PEARL Form 1 Application, Exhibit I. See also
MIAX PEARL LLC Agreement, Section 16; and MIAX PEARL By-Laws,
Article IX, Section 9.4. MIAX PEARL By-Laws, Article 1(gg) defines
``Regulatory Funds'' as ``fees, fines, or penalties derived from the
regulatory operations of [MIAX PEARL]'', but such term does not
include ``revenues derived from listing fees, market data revenues,
transaction revenues, or any other aspect of the commercial
operations of [MIAX PEARL], even if such revenues are used to pay
costs associated with the regulatory operations of [MIAX PEARL].''
This definition is consistent with the rules of other SROs. See,
e.g., By-Laws of MIAX Exchange, Article I(ll); By-Laws of NASDAQ
PHLX LLC, Article I(ii); and By-Laws of NASDAQ BX, Inc., Article
I(ii).
---------------------------------------------------------------------------

c. Rule 17d-2 Agreements; Regulatory Contract With FINRA
    Unless the SRO is relieved of this responsibility pursuant to
Section 17(d) or Section 19(g)(2) of the Act,\102\ Section 19(g)(1) of
the Act, among other things, requires every SRO registered as a
national securities exchange, absent reasonable justification or
excuse, to enforce compliance by its members and persons associated
with its members with the Act, the rules and regulations thereunder,
and the SRO's own rules.\103\ Section 17(d) of the Act and Rule 17d-2
thereunder permit SROs to propose joint plans to allocate regulatory
responsibilities among themselves for their common rules with respect
to their common members.\104\ These agreements, which must be filed
with and declared effective by the Commission, generally cover areas
where each SRO's rules substantively overlap, including such regulatory
functions as personnel registration and sales practices. Without this
relief, the statutory obligation of each individual SRO could result in
a pattern of multiple examinations of broker-dealers that maintain
memberships in more than one SRO.\105\ Such regulatory duplication
would add unnecessary expense for common members and their SROs. A 17d-
2 plan that is declared effective by the Commission relieves the
specified SRO of those regulatory responsibilities allocated by the
plan to another SRO.\106\ Many SROs have entered into Rule 17d-2
agreements.\107\
---------------------------------------------------------------------------

    \102\ 15 U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2), respectively.
    \103\ 15 U.S.C. 78s(g)(1).
    \104\ See Section 17(d)(1) of the Act and Rule 17d-2 thereunder,
15 U.S.C. 78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the
Act allows the Commission to relieve an SRO of certain
responsibilities with respect to members of the SRO who are also
members of another SRO. Specifically, Section 17(d)(1) allows the
Commission to relieve an SRO of its responsibilities to: (i) Receive
regulatory reports from such members; (ii) examine such members for
compliance with the Act and the rules and regulations thereunder,
and the rules of the SRO; or (iii) carry out other specified
regulatory responsibilities with respect to such members.
    \105\ Section 17(d) was intended, in part, to eliminate
unnecessary multiple examinations and regulatory duplication with
respect to Common Members. See Securities Exchange Act Release No.
12935 (October 28, 1976), 41 FR 49091 (November 8, 1976).
    \106\ See id.
    \107\ See, e.g., Securities Exchange Act Release Nos. 77321
(March 8, 2016), 81 FR 13434 (March 14, 2016) (File No. 4-697)
(Financial Industry Regulatory Authority, Inc. (``FINRA'')/ISE
Mercury, LLC), 73641 (November 19, 2014), 79 FR 70230 (November 25,
2014) (File No. 4-678) (FINRA/MIAX Exchange); 70053 (July 26, 2013),
78 FR 46656 (August 1, 2013) (File No. 4-663) (FINRA/ISE Gemini,
LLC); 59218 (January 8, 2009), 74 FR 2143 (January 14, 2009) (File
No. 4-575) (FINRA/Boston Stock Exchange, Inc.); 58818 (October 20,
2008), 73 FR 63752 (October 27, 2008) (File No. 4-569) (FINRA/BATS
Exchange, Inc.); 55755 (May 14, 2007), 72 FR 28087 (May 18, 2007)
(File No. 4-536) (National Association of Securities Dealers, Inc.
(``NASD'') (n/k/a FINRA) and Chicago Board of Options Exchange, Inc.
concerning the CBOE Stock Exchange, LLC); 55367 (February 27, 2007),
72 FR 9983 (March 6, 2007) (File No. 4-529) (NASD/International
Securities Exchange, LLC); and 54136 (July 12, 2006), 71 FR 40759
(July 18, 2006) (File No. 4-517) (NASD/The Nasdaq Stock Market LLC).
---------------------------------------------------------------------------

    A 17d-2 plan that is declared effective by the Commission relieves
the specified SRO of those regulatory responsibilities allocated by the
plan to another SRO.\108\ MIAX PEARL has represented to the Commission
that it intends to become a party to the existing multiparty options
Rule 17d-2 plans concerning sales practice regulation and market
surveillance.\109\ MIAX PEARL has also represented that it will enter
into a bi-lateral 17d-2 agreement to allocate regulatory responsibility
to FINRA for common rules of dual members between MIAX PEARL and FINRA.
Under these agreements, the examining SROs will examine firms that are
common members of MIAX PEARL and the particular examining SRO for
compliance with certain provisions of the Act, certain rules and
regulations adopted thereunder, and certain MIAX PEARL Rules.
---------------------------------------------------------------------------

    \108\ See supra notes 104-105.
    \109\ See MIAX PEARL Form 1 Application, Exhibit L. See also
Securities Exchange Act Release No. 68363 (December 5, 2012), 77 FR
73711 (December 11, 2012) (File No. S7-966) (notice of filing and
order approving and declaring effective an amendment to the
multiparty 17d-2 plan concerning options-related sales practice
matters); and 68362 (December 5, 2012), 77 FR 73719 (December 11,
2012) (File No. 4-551) (notice of filing and order approving and
declaring effective an amendment to the multiparty 17d-2 plan
concerning options-related market surveillance).
---------------------------------------------------------------------------

    In addition, MIAX PEARL has represented that it will enter into a
Regulatory Services Agreement (``RSA'') with FINRA, under which FINRA
will perform certain regulatory functions on behalf of MIAX PEARL.\110\
Pursuant to the RSA, FINRA, in its capacity as service provider to MIAX
PEARL, will perform various services on MIAX PEARL's behalf, including
assisting MIAX PEARL with member registration and related
administrative support services; certain cross-market surveillance
services; certain options trading examinations; at MIAX PEARL's
request, investigating potential violations of enumerated MIAX PEARL
market rules, as well as federal securities laws, and rules and
regulations thereunder, related to MIAX PEARL market activity;
performing examinations of options, including routine and for cause
examinations of

MIAX PEARL members under certain MIAX PEARL rules and federal
securities laws; bringing formal disciplinary actions, including
hearing officer services; and providing arbitration, mediation, and
other dispute resolution services to MIAX PEARL member firms.\111\
Notwithstanding the RSA, MIAX PEARL, as an SRO, has the ultimate legal
responsibility for the regulation of its members and market.
---------------------------------------------------------------------------

    \110\ See MIAX PEARL Form 1 Application, Exhibit L.
    \111\ See id.
---------------------------------------------------------------------------

    The Commission believes that it is consistent with the Act for MIAX
PEARL to contract with other SROs to perform certain examination,
enforcement, and disciplinary functions.\112\ This regulatory structure
would be consistent with that of other SROs.\113\ These functions are
fundamental elements of a regulatory program, and constitute core self-
regulatory functions. The Commission believes that FINRA, as an SRO
that provides contractual services to other SROs, should have the
capacity to perform these functions for MIAX PEARL.\114\ However, MIAX
PEARL, unless relieved by the Commission of its responsibility,\115\
bears the ultimate responsibility for self-regulatory responsibilities
and primary liability for self-regulatory failures, not the SRO
retained to perform regulatory functions on MIAX PEARL's behalf. In
performing these regulatory functions, however, the SRO retained to
perform regulatory functions may nonetheless bear liability for causing
or aiding and abetting the failure of MIAX PEARL to perform its
regulatory functions.\116\ Accordingly, although FINRA will not act on
its own behalf in carrying out these regulatory services for MIAX
PEARL, as the SRO retained to perform certain regulatory functions,
FINRA may have secondary liability if, for example, the Commission
finds that the contracted functions are being performed so inadequately
as to cause a violation of the federal securities laws by MIAX PEARL.
---------------------------------------------------------------------------

    \112\ See, e.g., Regulation ATS Release, supra note 29. See also
Securities Exchange Act Release Nos. 50122 (July 29, 2004), 69 FR
47962 (August 6, 2004) (SR-Amex-2004-32) (order approving rule that
allowed Amex to contract with another SRO for regulatory services)
(``Amex Regulatory Services Approval Order''); 57478 (March 12,
2008), 73 FR 14521 (March 18, 2008) (SR-NASDAQ-2007-004) (``NOM
Approval Order''); Nasdaq Order, supra note 27; and BATS Order,
supra note 13.
    \113\ For example, MIAX Exchange, ISE Mercury, EDGA Exchange,
Inc., EDGX Exchange Inc., and BATS have entered into 17d-2 Plans and
RSAs with FINRA.
    \114\ See, e.g., Amex Regulatory Services Approval Order, supra
note 112; NOM Approval Order, supra note 112; and Nasdaq Order,
supra note 27. The Commission notes that the RSA is not before the
Commission and, therefore, the Commission is not acting on them.
    \115\ See supra note 104.
    \116\ For example, if failings by the SRO retained to perform
regulatory functions have the effect of leaving an exchange in
violation of any aspect of the exchange's self-regulatory
obligations, the exchange will bear direct liability for the
violation, while the SRO retained to perform regulatory functions
may bear liability for causing or aiding and abetting the violation.
See, e.g., Nasdaq Order, supra note 27; BATS Order, supra note 13;
and Release No. 42455 (February 24, 2000), 65 FR 11388 (March 2,
2000) (File No. 10-127) (approval of registration of International
Securities Exchange Act, LLC (``ISE'') as a national securities
exchange).
---------------------------------------------------------------------------

C. Trading System

1. Access to MIAX PEARL
    Access to MIAX PEARL will be granted to individuals or
organizations who are approved to become Members.\117\ Approved Members
will be issued Trading Permits that grant the Member the ability to
transact on MIAX PEARL through its electronic systems.\118\ Trading
Permits will not convey upon Members any ownership interest in MIAX
PEARL, and they will not be transferable except in cases where a Member
experiences a change in control or corporate reorganization.\119\
Membership will be open to any broker-dealer that: (1) Is registered
under Section 15 of the Act; \120\ and (2) has and maintains membership
in another registered options exchange (other than the MIAX Exchange)
or FINRA.\121\ As explained below, a holder of a MIAX Exchange trading
permit will not be required to submit a full application for membership
on MIAX PEARL.\122\ There will be no limit to the number of Trading
Permits that MIAX PEARL can issue, although MIAX PEARL could determine
in the future a limit or decrease in the number of Trading Permits
issued.\123\ Members of MIAX PEARL may be Market Makers,\124\ or they
may be EEMs.\125\
---------------------------------------------------------------------------

    \117\ A ``Member'' is defined as an individual or organization
that is registered with the Exchange pursuant to Chapter II of the
MIAX PEARL Rules for purposes of trading on the Exchange as an
``Electronic Exchange Member'' (``EEM'') or ``Market Maker.''
Members are deemed ``members'' under the Exchange Act. See MIAX
PEARL Rule 100.
    \118\ See MIAX PEARL Rule 200(a). MIAX PEARL represents that it
has designed its systems to allow its Members to individually
determine the best method for accessing the Exchange, whether by
using customized front-end software using protocols determined by
the Exchange or through third-party vendors who route orders to MIAX
PEARL through a front-end or service bureau configuration. See MIAX
PEARL Form 1 Application, Exhibit E.
    \119\ See MIAX PEARL Rule 200(e).
    \120\ See MIAX PEARL Rule 200(b).
    \121\ See MIAX PEARL Rule 200(d). If such other options exchange
has not been designated by the Commission to examine Members for
compliance with financial responsibility rules, then the broker-
dealer must have and maintain a membership in FINRA. Id.
    \122\ See MIAX PEARL Rule 200(c) and infra notes 127-128 and
accompanying text.
    \123\ See MIAX PEARL Rule 200(a). MIAX PEARL would announce in
advance any limitation or decrease it plans to impose pursuant to
Rule 200(a). See id. In the event that MIAX PEARL imposes a
limitation or decrease, MIAX PEARL, in doing so, may not eliminate
the ability of an existing member to trade on the Exchange unless
MIAX PEARL is permitted to do so pursuant to a rule filing submitted
to the Commission under Section 19(b) of the Act. See id. In
addition, MIAX PEARL's exercise of authority under proposed Rule 200
would be subject to the provisions of Section 6(c)(4) of the Act.
See id. See also Chicago Board Options Exchange, Incorporated
(``CBOE'') Rule 3.1(a)(vi) and MIAX Exchange Rule 200(a) (concerning
limiting or reducing the number of trading permits). Further, MIAX
PEARL's exercise of authority under proposed Rule 200 would be
subject to the provisions of Section 6(b)(2) of the Act, which
requires the rules of an exchange to provide that any registered
broker or dealer or any natural person associated with a registered
broker or dealer may become a member of such exchange and any person
may become associated with a member thereof. See 15 U.S.C.
78f(b)(2).
    \124\ See MIAX PEARL Rule 600. Market Maker registration is
discussed in greater detail below, infra Section III.C.3.
    \125\ See supra note 117.
---------------------------------------------------------------------------

    A holder of a MIAX Exchange trading permit in good standing will be
eligible to receive one MIAX PEARL Trading Permit.\126\ MIAX Exchange
member applicants will not be required to submit a full application for
membership on MIAX PEARL, but rather will only need to complete
selected MIAX PEARL forms concerning their election to trade on MIAX
PEARL, consent to MIAX PEARL's jurisdiction, and other operational
matters.\127\ This waive-in application process is similar to
arrangements in place at other exchanges.\128\
---------------------------------------------------------------------------

    \126\ See MIAX PEARL Rule 200(c)(1).
    \127\ See id.
    \128\ See, e.g., C2 Options Exchange, Inc. Rule 3.1(c)(1)
(containing similar expedited waive-in membership process for
members of CBOE) and ISE Mercury, LLC Rule 302(a) (containing
similar expedited waive-in membership process for members of the ISE
and ISE Gemini, LLC).
---------------------------------------------------------------------------

    Non-MIAX Exchange members seeking to become members of MIAX PEARL
would submit a full application in accordance with procedures
established by the Exchange.\129\ Entities that become members, and
their associated persons, will be required to meet and maintain certain
qualification and registration criteria similar to what is required by
other options exchanges.\130\ In addition, MIAX PEARL proposes further
requirements on members that seek to do business with

the public.\131\ Applicants who are denied membership may appeal MIAX
PEARL's decision pursuant to MIAX PEARL's rules governing Hearings,
Review, and Arbitration.\132\ Every Member will be subject to MIAX
PEARL's regulatory jurisdiction, including MIAX PEARL's disciplinary
jurisdiction.\133\
---------------------------------------------------------------------------

    \129\ See MIAX PEARL Rule 200(c)(2).
    \130\ See MIAX PEARL Rules Chapter II. Such criteria include,
but are not limited to, capital maintenance requirements. See, e.g.,
MIAX Exchange Rule 200 Series and C2 Options Exchange, Inc. Rules
3.1 and 3.2 (containing similar criteria).
    \131\ See MIAX PEARL Rules Chapter XIII (incorporating by
reference Chapter XIII of the MIAX Exchange Rules). Chapter XIII of
the MIAX Exchange Rules also are similar to the rules of other
exchanges. See, e.g., ISE Rules Chapter 6.
    \132\ See MIAX PEARL Rules Chapter XI (incorporating by
reference Chapter XI of the MIAX Exchange Rules).
    \133\ See MIAX PEARL Rule 200(g). For MIAX PEARL's rules
concerning discipline, see Chapter X of the MIAX PEARL Rules.
---------------------------------------------------------------------------

    The Commission finds that MIAX PEARL's proposed membership rules
are consistent with the Act, including Section 6(b)(2) of the Act,
which requires the rules of an exchange to provide that any registered
broker or dealer or natural person associated with a broker or dealer
may become a member of such exchange or associated with a member
thereof.\134\ MIAX PEARL's proposed rules with respect to exchange
membership are substantively similar to the rules of other exchanges.
---------------------------------------------------------------------------

    \134\ 15 U.S.C. 78f(b)(2).
---------------------------------------------------------------------------

    The Commission notes that pursuant to Section 6(c) of the Act,\135\
an exchange must deny membership to any person, other than a natural
person, that is not a registered broker or dealer, any natural person
that is not, or is not associated with, a registered broker or dealer,
and registered broker-dealers that do not satisfy certain standards,
such as financial responsibility or operational capacity. As a
registered exchange, MIAX PEARL must independently determine if an
applicant satisfies the standards set forth in the Act, regardless of
whether an applicant is a member of another SRO.\136\
---------------------------------------------------------------------------

    \135\ 15 U.S.C. 78f(c).
    \136\ See, e.g., ISE Mercury Order, supra note 27, at 6076; ISE
Gemini Order, supra note 27, at 46633; MIAX Order, supra note 13, at
73074; BOX Order, supra note 14, at 26337; BATS Order, supra note
13, at 49502; and Nasdaq Order, supra note 27, at 3555.
---------------------------------------------------------------------------

    In addition, Members may enter into arrangements with other
parties, including non-Members and other Members, to provide
``Sponsored Access'' to trading on MIAX PEARL.\137\ Members who provide
such Sponsored Access will be responsible for all trading conducted
pursuant to the access agreement, and to the same extent as if the
Member were trading directly.\138\ Accordingly, Members that provide
Sponsored Access must maintain and implement policies and procedures to
supervise and monitor sponsored trading activity.\139\ Additionally,
non-Members who seek to trade on MIAX PEARL through Sponsored Access
agreements will need to agree to comply with all applicable federal
securities laws and rules and Exchange rules.\140\ MIAX PEARL's rules
governing Sponsored Access arrangements are similar to the rules of
other exchanges.\141\
---------------------------------------------------------------------------

    \137\ See MIAX PEARL Rule 210.
    \138\ See MIAX PEARL Rule 210(b).
    \139\ See MIAX PEARL Rule 210(b)-(c).
    \140\ See MIAX PEARL Rule 210(b). See also, e.g., 17 CFR
240.15c3-5.
    \141\ See, e.g., MIAX Exchange Rule 210 and NASDAQ Stock Market
LLC Rule 4615.
---------------------------------------------------------------------------

2. Linkage
    MIAX PEARL intends to become a participant in the Plan Relating to
Options Order Protection and Locked/Crossed Markets or any successor
plan (``Linkage Plan'').\142\ If admitted as a participant to the
Linkage Plan, other plan participants would be able to send orders to
MIAX PEARL in accordance with the terms of the plan as applied to the
Exchange. The MIAX PEARL Rules include relevant definitions, establish
the conditions pursuant to which members may enter orders in accordance
with the Linkage Plan, impose obligations on the Exchange regarding how
it must process incoming orders, establish a general standard that
members and MIAX PEARL should avoid trade-throughs, establish potential
regulatory liability for members that engage in a pattern or practice
of trading through other exchanges, and establish obligations with
respect to locked and crossed markets.
---------------------------------------------------------------------------

    \142\ See MIAX PEARL Form 1 Application, Exhibit E. See also
Securities Exchange Act Release No. 60405 (July 30, 2009), 74 FR
39362 (August 6, 2009) (File No. 4-546) (order approving the
national market system Plan Relating to Options Order Protection and
Locked/Crossed Markets Submitted by the Chicago Board Options
Exchange, Incorporated, ISE, The NASDAQ Stock Market LLC, NASDAQ OMX
BX, Inc., NASDAQ OMX PHLX, Inc., NYSE Amex LLC, and NYSE Arca,
Inc.).
---------------------------------------------------------------------------

    The Commission believes that MIAX PEARL has proposed rules that are
designed to comply with the requirements of the Linkage Plan.\143\
Further, as provided below, before MIAX PEARL can commence operations
as a national securities exchange, it must become a participant in the
Linkage Plan.
---------------------------------------------------------------------------

    \143\ See Chapter XIV of the MIAX PEARL Rules (incorporating by
reference Chapter XIV of the MIAX Exchange Rules).
---------------------------------------------------------------------------

3. Market Makers
a. Registration of Market Makers
    MIAX PEARL Members may register as Market Makers for the purpose of
making markets in options contracts traded on the Exchange.\144\ Market
Makers are entitled to receive certain benefits and privileges in
exchange for fulfilling certain affirmative and negative market-making
obligations. To begin the process of registering as a Market Maker, a
Member will be required to file a written application with MIAX
PEARL.\145\ MIAX PEARL will consider an applicant's market making
ability and other factors it deems appropriate in determining whether
to approve an applicant's registration.\146\ All Market Makers will be
designated as specialists on MIAX PEARL for all purposes under the Act
and rules thereunder.\147\ The Exchange will not place any limit on the
number of entities that may become Market Makers.\148\ The good
standing of a Market Maker may be suspended, terminated or otherwise
withdrawn if the conditions for approval cease to be maintained or the
Market Maker violates any of its agreements with MIAX PEARL or any
provisions of the MIAX PEARL Rules.\149\ A Member that has qualified as
a Market Maker may register to make markets in individual series of
options.\150\
---------------------------------------------------------------------------

    \144\ See MIAX PEARL Rule 600.
    \145\ See MIAX PEARL Rule 600(a).
    \146\ See id. The provision permitting MIAX PEARL to consider
``such other factors as [it] deems appropriate'' must be applied in
a manner that is consistent with the Act, including provisions that
prohibit an exchange from acting in an unfairly discriminatory
manner. See 15 U.S.C. 78f(b)(5); see also C2 Order, supra note 75.
    \147\ See MIAX PEARL Rule 600.
    \148\ See MIAX PEARL Rule 600(c).
    \149\ See MIAX PEARL Rule 603(b).
    \150\ See MIAX PEARL Rule 602(a).
---------------------------------------------------------------------------

    The Commission finds that the MIAX PEARL qualification requirements
are consistent with the Act. MIAX PEARL's rules provide an objective
process by which a Member could become a Market Maker on MIAX PEARL.
The Commission notes that MIAX PEARL's proposed Market Maker
qualification requirements are similar to those of other options
exchanges.\151\
---------------------------------------------------------------------------

    \151\ See, e.g., Bats BZX Exchange, Inc. (``Bats BZX'') Rules
22.2, 22.3 and 22.4, and NASDAQ Options Market Rules, Chapter VII,
Sections 2, 3, and 4.
---------------------------------------------------------------------------

b. Market Maker Obligations
    Pursuant to MIAX PEARL rules, there will be one class of Market
Makers. All Market Makers will be subject to a number of general
obligations. In particular, the transactions of a Market Maker must
constitute a course of dealings reasonably calculated to contribute to
the maintenance of a fair and orderly market.\152\ Among other things,
a Market Maker must: (1)

Maintain a two-sided market during trading hours, in a manner that
enhances the depth, liquidity, and competitiveness of the market; (2)
engage in dealings for its own account when there is a lack of price
continuity, a temporary disparity between the supply of (or demand for)
a particular option contract, or a temporary distortion of the price
relationships between option contracts of the same series; (3) compete
with other market makers; (4) make markets that will be honored for the
number of contracts entered; (5) update quotations in response to
changed market conditions; and (6) maintain active markets.\153\ Market
Makers must provide continuous two-sided quotes throughout the trading
day 90% of the time in 75% of the series in which the Market Maker is
registered.\154\ Further, a Market Maker may be called upon by MIAX
PEARL to submit a single bid or offer or maintain continuous bid and
offers in one or more series to which it is registered whenever, in the
judgment of the Exchange, it is necessary to do so in the interest of
fair and orderly markets.\155\ In addition, Market Makers must maintain
minimum net capital in accordance with the federal securities
laws.\156\ In options classes other than to which it is registered, the
total number of contracts executed during a quarter by a Market Maker
in series in which it is not registered may not exceed 25% of the total
number of all contracts executed by such Market Maker.\157\ If MIAX
PEARL finds any failure by a Market Maker to properly perform as a
Market Maker, such Market Maker may be subject to suspension or
termination of registration.\158\
---------------------------------------------------------------------------

    \152\ See MIAX PEARL Rule 604(a).
    \153\ See MIAX PEARL Rule 604(a).
    \154\ See MIAX PEARL Rule 605(d)(1) and (d)(3). Immediate-or-
Cancel Orders from Market Makers will not be counted for the
continuous quoting obligations of Market Makers. See MIAX PEARL Rule
605, Interpretations and Policies .01.
    \155\ See MIAX PEARL Rule 605(d)(2).
    \156\ See MIAX PEARL Rule 608.
    \157\ See MIAX PEARL Rule 605(e). See also Bats BZX Rule 22.6(e)
and NASDAQ Options Market Rules, Chapter VII, Section 6(e).
    \158\ See MIAX PEARL Rule 600(b).
---------------------------------------------------------------------------

    Market Makers will receive certain benefits in return for
satisfying their responsibilities.\159\ For example, a broker-dealer or
other lender may extend ``good faith'' credit to a member of a national
securities exchange or registered broker-dealer to finance its
activities as a market maker or specialist.\160\ In addition, market
makers are excepted from the prohibition in Section 11(a) of the
Act.\161\ The Commission believes that a market maker must be subject
to sufficient and commensurate affirmative obligations, including the
obligation to hold itself out as willing to buy and sell options for
its own account on a regular or continuous basis, to justify favorable
treatment.\162\ The Commission further believes that the rules of all
U.S. options markets need not provide the same standards for market
maker participation, so long as they impose affirmative obligations
that are consistent with the Act.\163\ Market Makers on MIAX PEARL will
not receive special trading allocations or similar rights vis-[agrave]-
vis other Members.\164\ The Commission believes that MIAX PEARL's
Market Maker participation requirements impose sufficient affirmative
obligations on MIAX PEARL's Market Makers and, accordingly, that MIAX
PEARL's requirements are consistent with the Act. The Commission
believes that while Market Makers may become an important source of
liquidity on MIAX PEARL, they will likely not be the only source as
MIAX PEARL is designed to match buying and selling interest of all MIAX
PEARL participants. Therefore, the Commission believes that MIAX
PEARL's proposed structure is consistent with the Exchange Act.
---------------------------------------------------------------------------

    \159\ See, e.g., NOM Approval Order, supra note 112, at 14526
and Securities Exchange Act Release No. 61419 (January 26, 2010), 75
FR 5157, 5159 (February 1, 2010) (``BATS Options Approval Order'')
(discussing the benefits and obligations of market makers).
    \160\ See 12 CFR 221.5 and 12 CFR 220.7; see also 17 CFR
240.15c3-1(a)(6) (capital requirements for market makers).
    \161\ 15 U.S.C. 78k(a). See also, infra Section III.C.5.
    \162\ See NOM Approval Order, supra note 112, at 14526 and BATS
Options Approval Order, supra note 159, at 5159.
    \163\ See id.
    \164\ See MIAX PEARL Rule 514; see also MIAX PEARL Form 1
Application, Exhibit E at 2.
---------------------------------------------------------------------------

4. Order Display, Execution, and Priority
    MIAX PEARL will operate a fully automated electronic options
marketplace. Liquidity will be derived from orders to buy and orders to
sell, including orders from Market Makers,\165\ submitted to MIAX PEARL
electronically by its members from remote locations. There will be no
physical trading floor. Options traded on the Exchange will be subject
to Minimum Price Variations (``MPV'') that will begin at $0.05 for
option contracts trading at less than $3.00 per option, and $.10 for
option contracts trading at $3.00 per option or higher.\166\ In
addition, MIAX PEARL will participate in the penny pilot program
pursuant to which it will permit certain options with premiums under $3
(as well as heavily traded options on certain indices) to be quoted and
traded in increments as low as $.01.\167\
---------------------------------------------------------------------------

    \165\ The definition of ``quote'' or ``quotation'' means a bid
or offer entered by a Market Maker as a firm order that updates the
Market Maker's previous bid or offer, if any. An order entered by
the Market Maker in the options series to which such Market maker is
registered shall, as applicable, constitute a quote or quotation on
MIAX PEARL. See MIAX PEARL Rule 100.
    \166\ See MIAX PEARL Rule 510(a).
    \167\ See MIAX PEARL Rule 510, Interpretations and Policies .01.
MIAX PEARL has established a scheduled expiration date of December
31, 2016. However, MIAX PEARL may not be operational before December
31, 2016, thus the Exchange may need to file a proposed rule change
under Section 19(b) of the Exchange Act to update this proposed
rule.
---------------------------------------------------------------------------

    Orders submitted to MIAX PEARL will be displayed unless the order
is an immediately marketable order or is a contingent order, such as an
immediate or cancel order. Additionally, orders may have a non-
displayed price that is different than the displayed price, as further
described below. Displayed orders and quotes will be displayed on an
anonymous basis at a specified price. Non-displayed prices associated
with orders will not be displayed to any participant.
    Members may submit the following types of orders: Market;
Marketable Limit; Cancel-Replacement; Immediate-or-Cancel; Intermarket
Sweep; Do Not Route; Day Limit; Good `Til Cancelled; and Post-
Only.\168\ All of these order types are based on similar order types
available on other options exchanges.\169\ The Commission believes that
these order types are substantially similar to order types approved by
the Commission on other exchanges and thus raise no new regulatory
issues.
---------------------------------------------------------------------------

    \168\ See MIAX PEARL Rule 516 for a description of each of the
order types. MIAX PEARL notes that some of these order types will be
valid only during certain portions of the trading day (e.g., after
the opening). MIAX PEARL further notes that not all order types will
be available for use on each of the MEO interface and the FIX
interface, and that the Exchange will issue a Regulatory Circular
listing which order types, among the order types listed above, are
available for delivery via the MEO interface and which are available
for delivery via the FIX interface.
    \169\ See, e.g., Bats BZX Rule 21.1(d)(8) (Post Only Order);
NASDAQ Options Market Rules, Chapter VI, Section 1(e)(8)
(Intermarket Sweep Order) and (1)(e)(1) (Cancel-replacement Order);
NASDAQ PHLX LLC Rule 1080(m)(iv)(A) (Do Not Route Order and
Immediate or Cancel Order); NYSE MKT LLC Rule 900.3NY(m) (Day Order)
and (n) (Good-Til-Cancelled Order).
---------------------------------------------------------------------------

    After the opening, trades will execute on MIAX PEARL when a buy
order and a sell order match one another on the MIAX PEARL order book
(``MIAX PEARL Book'' or ``Book''). The MIAX PEARL system will
continuously and automatically match orders pursuant to price-time
priority.\170\ The highest bid

and lowest offer shall have priority on the Exchange. Within each price
level, if there are two or more orders at the best price, trading
interest will be executed in time priority.\171\ MIAX PEARL proposes to
make available order processing and matching features, which are based
on those features available on MIAX Exchange.\172\ MIAX PEARL's system
will automatically execute incoming orders that are executable against
orders in its system, provided that such incoming orders will not be
executed at prices inferior to the NBBO.\173\ MIAX PEARL Rule 515 sets
forth how the MIAX PEARL system will handle incoming orders that cannot
be executed in part or in full. In particular, MIAX PEARL Rule 515
specifies a ``price protection process,'' a Managed Interest Process,
and a Post Only Process, each discussed more fully below.
---------------------------------------------------------------------------

    \170\ See MIAX PEARL Rule 514(b).
    \171\ See id.
    \172\ See infra discussion of MIAX PEARL's proposed price
protection process and managed interest process, which are based on
substantially similar order processing and matching features on MIAX
Exchange.
    \173\ See MIAX PEARL Rule 515(a) and (b).
---------------------------------------------------------------------------

    The MIAX PEARL system offers a ``price protection'' process for all
orders.\174\ Price protection prevents an order from being executed
beyond the price designated in the order's price protection
instructions (``the price protection limit''). The price protection
limit is expressed in units of MPV away from the national best bid and
offer (``NBBO'') at the time of the order's receipt, or the MIAX PEARL
Best Bid and Offer (``PBBO'') if the best bid or offer on away markets
(``ABBO'') is crossing the PBBO.\175\ When triggered, price protection
will cancel an order or the remaining contracts of an order. The MIAX
PEARL system will not execute such orders at prices inferior to the
current NBBO.\176\
---------------------------------------------------------------------------

    \174\ See MIAX PEARL Rule 515(c).
    \175\ See MIAX PEARL Rule 515(c). The Exchange will publish a
Regulatory Circular setting a minimum and maximum number of MPVs
away from the NBBO (or PBBO if the ABBO is crossing the PBBO) that a
market participant may designate for its price protection limit. The
Exchange will also set, and announce by Regulatory Circular, a
default price protection limit within 1 to 5 MPVs away from the NBBO
(or PBBO if the ABBO is crossing the PBBO).
    \176\ See MIAX PEARL Rule 515(c).
---------------------------------------------------------------------------

    The MIAX PEARL price protection process is substantially similar to
that adopted by MIAX Exchange.\177\ The Commission believes that this
price protection functionality can benefit all market participants.
---------------------------------------------------------------------------

    \177\ See MIAX Exchange Rule 515(c)(1). The MIAX Exchange price
protection process applies only to non-market maker orders, whereas
the MIAX PEARL price protection process applies to all market
participants, including market makers. The Commission believes that
this is consistent with the price protection rules of other
exchanges. See, e.g., NYSE Arca, Inc. Rules 6.60 (Price Protection--
Orders) and 6.61 (Price Protection--Quotes).
---------------------------------------------------------------------------

    The Exchange's rules also provide for a ``Managed Interest
Process'' that would apply to non-routable orders \178\ that would
either lock or cross the current opposite side NBBO where the PBBO is
inferior to the NBBO.\179\ The MIAX PEARL system will not execute such
orders at prices inferior to the current NBBO.\180\ The managed order
would be displayed at one MPV away from the current opposite side NBBO
and placed on the MIAX PEARL Book at a price equal to the opposite side
NBBO.\181\ Should the NBBO price change to an inferior price level, the
order's displayed price will continue to re-price so that it is
displayed one MPV away from the new NBBO, and the order's Book price
will continuously reprice to lock the new NBBO.\182\ Such re-pricing
will continue until the managed order is fully executed, reaches its
limit price, reaches its price protection limit, or is cancelled.\183\
---------------------------------------------------------------------------

    \178\ Non-routable orders would include, for example, orders
marked ``Do Not Route'' or Post-Only orders being handled under the
Managed Interest Process.
    \179\ See MIAX PEARL Rule 515(d)(2).
    \180\ See MIAX PEARL Rule 515(d)(2).
    \181\ See MIAX PEARL Rule 515(d)(2)(ii). See also MIAX Exchange
Rule 515(c)(1)(ii) (providing for the same Managed Interest Process
on MIAX Exchange).
    \182\ See id.
    \183\ See id.
---------------------------------------------------------------------------

    During the Managed Interest Process, if the Exchange receives a new
order or quote on the opposite side of the market from the managed
order that could be executed, the MIAX PEARL system will immediately
execute the remaining contracts to the extent possible at the
initiating order's current booked bid or offer price, provided that it
does not trade through the current NBBO.\184\
---------------------------------------------------------------------------

    \184\ See MIAX PEARL Rule 515(d)(2)(iii)(A). See also MIAX
Exchange Rule 515(c)(1)(ii).
---------------------------------------------------------------------------

    The Commission believes that the MIAX PEARL's Managed Interest
Process is consistent with the managed interest process that the
Commission approved for MIAX Exchange.\185\ With regard to the
treatment of Post-Only Orders under MIAX PEARL's Managed Interest
Process, the Commission believes that the rules are consistent with
rules that have been adopted by other exchanges governing the execution
of Post-Only Orders.\186\
---------------------------------------------------------------------------

    \185\ See MIAX Exchange Rule 515(c)(1)(ii).
    \186\ See, e.g., Bats BZX Rule 21.1(h) and Securities Exchange
Act Release No. 77818 (May 12, 2016), 81 FR 31283 (May 18, 2016)
(SR-BatsBZX-2016-16).
---------------------------------------------------------------------------

    MIAX PEARL will have a process for the handling of certain Post-
Only Orders (``POP Process'').\187\ The POP Process will apply to Post-
Only Orders where the limit price of the Post-Only Order locks or
crosses the current opposite side PBBO where the PBBO is the NBBO
(i.e., locks or crosses an order on the MIAX PEARL Book).\188\ The MIAX
PEARL system will display and book such Post-Only Orders one MPV away
from the current opposite side PBBO.\189\ Should the PBBO price change
to an inferior price level, the Post-Only Order's Book price and
displayed price would continuously re-price to one MPV away from new
PBBO until Post-Only Order is fully executed, reaches its limit price,
reaches its price protection limit, or is cancelled.\190\
---------------------------------------------------------------------------

    \187\ See MIAX PEARL Rule 515(g).
    \188\ Post-Only Orders that lock or cross the current opposite
side NBBO and the PBBO is inferior to the NBBO would be handled
through the Managed Interest Process under Rule 515(d)(2) as
described above.
    \189\ See MIAX PEARL Rule 515(g)(ii).
    \190\ Id.
---------------------------------------------------------------------------

    Under the POP Process, if the Exchange receives a new order or
quote on the opposite side of the market from the Post-Only Order that
could be executed, the MIAX PEARL system will immediately execute the
remaining contracts to the extent possible at the Post-Only Order's
current booked bid or offer price, provided that it does not trade
through the current NBBO.\191\ If the Exchange receives a new Post-Only
Order on the opposite side of the market from a Post-Only Order being
managed under the POP Process, and the new Post-Only Order locks or
crosses the book price of the resting Post-Only Order, the Exchange
will book and display the new Post-Only Order one MPV away from the
current opposite side PBBO.\192\
---------------------------------------------------------------------------

    \191\ See MIAX PEARL Rule 515(g)(iii)(A).
    \192\ See MIAX PEARL Rule 515(g)(iii)(B).
---------------------------------------------------------------------------

    The POP Process under MIAX PEARL's rules is substantially similar
to the Managed Interest Process described above for MIAX PEARL and that
the Commission approved for the MIAX Exchange.\193\ The primary
difference is that, under the POP Process, Post-Only Orders are booked
and displayed at the same price--one MPV away from the current opposite
side PBBO. This aspect of the POP Process is consistent with the
treatment of Post-Only Orders on other exchanges.\194\
---------------------------------------------------------------------------

    \193\ See MIAX PEARL Rule 515(d)(2) and MIAX Exchange Rule
515(c)(1)(ii).
    \194\ See, e.g., Bats BZX Rule 21.1(i) (Price Adjust) (providing
that an order that, at the time of entry, would lock or cross a
protected quotation of another options exchange or Bats BZX will be
ranked and displayed by the Bats BZX system at one MPV below the
current NBO (for bids) or to one MPV above the current NBB (for
offers)); NASDAQ Options Market Rules, Chapter VI, Section 1(e)(11)
(providing that if a Post-Only Order would lock or cross an order on
the NASDAQ Options Market system, the order will be re-priced to
$.01 below the current low offer (for bids) or above the current
best bid (for offers) and displayed at one MPV below the current low
offer (for bids) or above the current best bid (for offers)).

---------------------------------------------------------------------------

    The Commission believes that MIAX PEARL's proposed display,
execution, and priority rules discussed above in this section are
consistent with the Act. In particular, the Commission finds that the
proposed rules are consistent with Section 6(b)(5) of the Act,\195\
which, among other things, requires that the rules of a national
securities exchange be designed to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating 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, and to not permit unfair discrimination between
customers, issuers, or dealers. The Commission also finds that the
proposed rules are consistent with Section 6(b)(8) of the Act,\196\
which requires that the rules of an exchange not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. The trading rules of MIAX PEARL are substantially
similar to the current trading rules of MIAX Exchange and other
exchanges, as noted above, which were filed with and approved by the
Commission (or otherwise became effective) pursuant to Section 19(b) of
the Act.\197\ Therefore, the Commission believes that these rules raise
no new regulatory issues and are consistent with the Act.
---------------------------------------------------------------------------

    \195\ 15 U.S.C. 78f(b)(5).
    \196\ 15 U.S.C. 78f(b)(8).
    \197\ Many of MIAX Exchange's rules were approved at the time
that MIAX Exchange's registration as a national securities exchanged
was granted. See MIAX Order, supra note 13.
---------------------------------------------------------------------------

5. Section 11(a) of the Act
    Section 11(a)(1) of the Act \198\ prohibits a member of a national
securities exchange from effecting transactions on that exchange for
its own account, the account of an associated person, or an account
over which it or its associated person exercises investment discretion
(collectively, ``covered accounts''), unless an exception applies. The
Exchange has represented that it has analyzed its rules proposed
hereunder, and believes that they are consistent with Section 11(a) of
the Act and rules thereunder.\199\ For the reasons set forth below,
based on MIAX PEARL's representations, the Commission believes that
MIAX PEARL's order execution algorithm will allow members to meet the
requirements of Rule 11a2-2(T) for executions on MIAX PEARL.
---------------------------------------------------------------------------

    \198\ 15 U.S.C. 78k(a)(1).
    \199\ See Letter from Barbara J. Comly, EVP, General Counsel and
Corporate Secretary, Miami Holdings, to Brent J. Fields, Secretary,
Commission, and John C. Roeser, Associate Director, Office of Market
Supervision, Division of Trading and Markets, Commission, dated
November 4, 2016 (``MIAX PEARL 11(a) Request Letter'').
---------------------------------------------------------------------------

    Rule 11a2-2(T) under the Act,\200\ known as the ``effect versus
execute'' rule, provides exchange members with an exemption from the
Section 11(a)(1) prohibition. Rule 11a2-2(T) permits an exchange
member, subject to certain conditions, to effect transactions for
covered accounts by arranging for an unaffiliated member to execute the
transactions on the exchange. To comply with Rule 11a2-2(T)'s
conditions, a member: (i) May not be associated with the executing
member; (ii) must transmit the order from off the exchange floor; (iii)
may not participate in the execution of the transaction once it has
been transmitted to the member performing the execution; \201\ and (iv)
with respect to an account over which the member or an associated
person has investment discretion, neither the member nor its associated
person may retain any compensation in connection with effecting the
transaction except as provided in the Rule.
---------------------------------------------------------------------------

    \200\ 17 CFR 240.11a2-2(T).
    \201\ This prohibition also applies to associated persons. See
15 U.S.C. 78f(b)(8). The member may, however, participate in
clearing and settling the transaction. See Securities Exchange Act
Release No. 14563 (March 14, 1978), 43 FR 11542 (March 17, 1978)
(regarding the NYSE's Designated Order Turnaround System) (``1978
Release'').
---------------------------------------------------------------------------

    In a letter to the Commission,\202\ MIAX PEARL requested that the
Commission concur with its conclusion that MIAX PEARL members that
enter orders into the MIAX PEARL trading system satisfy the
requirements of Rule 11a2-2(T). For the reasons set forth below, the
Commission believes that MIAX PEARL members entering orders into the
MIAX PEARL trading system will satisfy the conditions of Rule 11a2-
2(T).
---------------------------------------------------------------------------

    \202\ See MIAX PEARL 11(a) Request Letter, supra note 199.
---------------------------------------------------------------------------

    First, Rule 11a2-2(T) requires that orders for covered accounts be
transmitted from off the exchange floor. MIAX PEARL will not have a
physical trading floor, and like other automated systems, the MIAX
PEARL trading system will receive orders from members electronically
through remote terminals or computer-to-computer interfaces. In the
context of other automated trading systems, the Commission has found
that the off-floor transmission requirement is met if a covered account
order is transmitted from a remote location directly to an exchange's
floor by electronic means.\203\ Since the MIAX PEARL trading system
receives all orders electronically through remote terminals or
computer-to-computer interfaces, the Commission believes that the MIAX
PEARL trading system satisfies the off-floor transmission requirement.
---------------------------------------------------------------------------

    \203\ See, e.g., Securities Exchange Act Release Nos. 59154
(December 23, 2008), 73 FR 80468 (December 31, 2008) (SR-BSE-2008-
48) (order approving proposed rules of BX); 49068, (January 13,
2004), 69 FR 2775 (January 20, 2004) (establishing, among other
things, BOX as an options trading facility of BSE); 44983 (October
25, 2001), 66 FR 55225 (November 1, 2001) (approving the PCX's use
of the Archipelago Exchange as its equity trading facility); 29237
(May 24, 1991), 56 FR 24853 (May 31, 1991) (regarding NYSE's Off-
Hours Trading Facility). See 1978 Release, supra note 201. See also
Securities Exchange Act Release No. 15533 (January 29, 1979), 44 FR
6084 (January 31, 1979) (regarding the American Stock Exchange
(``Amex'') Post Execution Reporting System, the Amex Switching
System, the Intermarket Trading System, the Multiple Dealer Trading
Facility of the Cincinnati Stock Exchange, the PCX Communications
and Execution System, and the Philadelphia Stock Exchange Automated
Communications and Execution System) (``1979 Release'').
---------------------------------------------------------------------------

    Second, Rule 11a2-2(T) requires that the member not participate in
the execution of its order once it has been transmitted to the member
performing the execution. MIAX PEARL has represented that the MIAX
PEARL trading system will at no time following the submission of an
order allow a member or an associated person of such member to acquire
control or influence over the result or timing of an order's
execution.\204\ According to MIAX PEARL, the execution of a member's
order is determined solely by what orders, bids, or offers are present
in the MIAX PEARL trading system at the time the member submits the
order and the order priority based on MIAX PEARL rules.\205\
Accordingly, the Commission believes that a MIAX PEARL member will not
participate in the execution of its order submitted into the trading
system.
---------------------------------------------------------------------------

    \204\ See MIAX PEARL 11(a) Request Letter, supra note 199.
Members may change or cancel an order or quote at any time before
the order is executed on the Exchange. See MIAX PEARL Form 1
Application, Exhibit E. The Commission has stated that the non-
participation requirement is satisfied under such circumstances, so
long as such modifications or cancellations are also transmitted
from off the floor. See 1978 Release, supra note 201 (stating that
the ``non-participation requirement does not prevent initiating
members from canceling of modifying orders (or the instructions
pursuant to which the initiating member wishes orders to be
executed) after the orders have been transmitted to the executing
member, provided that any such instructions are also transmitted
from off the floor'').
    \205\ See MIAX PEARL 11(a) Request Letter, supra note 199.
---------------------------------------------------------------------------

    Rule 11a2-2(T)'s third condition is that the order be executed by
an

exchange member who is unaffiliated with the member initiating the
order. The Commission has stated that the requirement is satisfied when
automated exchange facilities, such as the MIAX PEARL trading system,
are used, as long as the design of these systems ensures that members
do not possess any special or unique trading advantages over non-
members in handling their orders after transmitting them to the
Exchange.\206\ MIAX PEARL has represented that the design of its
trading system ensures that no member has any special or unique trading
advantage over non-members in the handling of its orders after
transmitting its orders to MIAX PEARL.\207\ Based on MIAX PEARL's
representation, the Commission believes that the MIAX PEARL trading
system satisfies this requirement.
---------------------------------------------------------------------------

    \206\ In considering the operation of automated execution
systems operated by an exchange, the Commission noted that while
there is no independent executing exchange member, the execution of
an order is automatic once it has been transmitted into each system.
Because the design of these systems ensures that members do not
possess any special or unique trading advantages in handling their
orders after transmitting them to the exchange, the Commission has
stated that executions obtained through these systems satisfy the
independent execution requirement of Rule 11a2-2(T). See 1979
Release, supra note 203.
    \207\ See MIAX PEARL 11(a) Request Letter, supra note 199.
---------------------------------------------------------------------------

    Fourth, in the case of a transaction effected for an account with
respect to which the initiating member or an associated person thereof
exercises investment discretion, neither the initiating member nor any
associated person thereof may retain any compensation in connection
with effecting the transaction, unless the person authorized to
transact business for the account has expressly provided otherwise by
written contract referring to Section 11(a) of the Act and Rule 11a2-
2(T).\208\ MIAX PEARL members trading for covered accounts over which
they exercise investment discretion must comply with this condition in
order to rely on the rule's exemption.\209\
---------------------------------------------------------------------------

    \208\ 17 CFR 240.11a2-2(T)(a)(2)(iv). In addition, Rule 11a2-
2(T)(d) requires a member or associated person authorized by written
contract to retain compensation, in connection with effecting
transactions for covered accounts over which such member or
associated person thereof exercises investment discretion, to
furnish at least annually to the person authorized to transact
business for the account a statement setting forth the total amount
of compensation retained by the member in connection with effecting
transactions for the account during the period covered by the
statement. See 17 CFR 240.11a2-2(T)(d). See also 1978 Release, supra
note 201 (stating ``[t]he contractual and disclosure requirements
are designed to assure that accounts electing to permit transaction-
related compensation do so only after deciding that such
arrangements are suitable to their interests'').
    \209\ See MIAX PEARL 11(a) Request Letter, supra note 199.
---------------------------------------------------------------------------

D. Discipline and Oversight of Members

    As noted above, one prerequisite for the Commission's grant of an
exchange's application for registration is that a proposed exchange
must be so organized and have the capacity to be able to carry out the
purposes of the Act.\210\ Specifically, an exchange must be able to
enforce compliance by its members and persons associated with its
members with the Act and the rules and regulations thereunder and the
rules of the exchange.\211\
---------------------------------------------------------------------------

    \210\ See 15 U.S.C. 78f(b)(1).
    \211\ See id.
---------------------------------------------------------------------------

    MIAX PEARL's rules codify MIAX PEARL's disciplinary jurisdiction
over its members, thereby facilitating its ability to enforce its
members' compliance with its rules and the federal securities
laws.\212\ MIAX PEARL's rules permit it to sanction members for
violations of its rules and violations of any provision of the Exchange
Act or the rules and regulations promulgated thereunder, by, among
other things, expelling or suspending members; limiting members'
activities, functions, or operations; fining or censuring members;
suspending or barring a person from being associated with a member; or
any other fitting sanction in accordance with MIAX rules.\213\
---------------------------------------------------------------------------

    \212\ See MIAX PEARL Rule 1000.
    \213\ See id. See also MIAX Rule 1000, CBOE Rule 17.1(a), and
ISE Rule 1600(a) (containing similar provisions).
---------------------------------------------------------------------------

    MIAX PEARL's disciplinary and oversight functions will be
administered in accordance with Chapter X of the MIAX PEARL rules,
which governs disciplinary actions. Unless delegated to another SRO
pursuant to the terms of any effective 17d-2 plan,\214\ MIAX PEARL
regulatory staff (including regulatory staff of another SRO that may be
acting on MIAX PEARL's behalf pursuant to a regulatory services
agreement) will, among other things, investigate potential securities
laws violations and initiate charges pursuant to MIAX PEARL rules.\215\
---------------------------------------------------------------------------

    \214\ See supra Section III.B.3.c (concerning the 17d-2 plans to
which MIAX PEARL has committed to join).
    \215\ See MIAX PEARL Rules 1002 and 1004. As noted above, MIAX
PEARL has entered into an RSA with FINRA under which FINRA will
perform certain regulatory functions on behalf of MIAX PEARL. See
MIAX PEARL Rule 1015.
---------------------------------------------------------------------------

    Upon a finding of probable cause of a violation within the
disciplinary jurisdiction of MIAX PEARL and where further proceedings
are warranted,\216\ MIAX PEARL will conduct a hearing on disciplinary
matters before a professional hearing officer \217\ and two members of
the Business Conduct Committee \218\ (the ``Panel'').\219\ The MIAX
PEARL member (or their associated person) or the MIAX PEARL regulatory
staff may petition for review of the decision of the Panel by the MIAX
PEARL Board.\220\ Any review would be conducted by the MIAX PEARL Board
or a committee thereof composed of at least three Directors of the MIAX
PEARL Board \221\ (whose decision must be ratified by the MIAX PEARL
Board) and such decision will be final.\222\ In addition, the MIAX
PEARL Board on its own motion may order review of a disciplinary
decision.\223\
---------------------------------------------------------------------------

    \216\ See MIAX PEARL Rule 1004.
    \217\ See MIAX PEARL Rule 1015, Interpretation and Policy .01.
    \218\ See MIAX PEARL By-Laws, Article IV, Section 4.7.
    \219\ See MIAX PEARL Rule 1006.
    \220\ See MIAX PEARL Rule 1010.
    \221\ Specifically, the Chairman of the MIAX PEARL Board, with
the approval of the Board, shall appoint an Appeals Committee to
preside over all appeals related to disciplinary and adverse action
determinations. See note 46 and accompanying text (detailing the
composition of the Appeals Committee). If the Independent Director
serving on the Appeals Committee recuses himself or herself from an
appeal, due to conflict of interest or otherwise, the Independent
Director may be replaced by a Non-Industry Director for purposes of
the applicable appeal if there is no other Independent Director able
to serve as the replacement. See MIAX PEARL By-Laws, Article IV,
Section 4.5(d). See also MIAX Exchange Amended and Restated By-Laws,
Article IV, Section 4.5(d).
    \222\ See MIAX PEARL Rule 1010.
    \223\ See id.
---------------------------------------------------------------------------

    Appeals from any determination that impacts access to MIAX PEARL,
such as termination or suspension of membership, will be instituted
under, and governed by, the provisions in the Chapter XI of the MIAX
PEARL Rules which incorporates by reference Chapter XI of the MIAX
Exchange Rules. MIAX PEARL's Chapter XI applies to persons economically
aggrieved by any of the following actions of MIAX PEARL including, but
not limited to: (a) Denial of an application to become a Member; (b)
barring a person from becoming associated with a Member; (c) limiting
or prohibiting services provided by MIAX PEARL or services of any
exchange member.\224\
---------------------------------------------------------------------------

    \224\ See MIAX PEARL Rule 1100 (which incorporates by reference
MIAX Exchange Rule 1100). As noted above, MIAX PEARL has entered
into a RSA with FINRA under which FINRA will perform certain
regulatory functions on behalf of MIAX PEARL. MIAX PEARL may perform
some or all of the functions specified in the Chapter XI of the MIAX
PEARL Rules, which incorporates by reference Chapter XI of the MIAX
Exchange Rules. See supra note 110. See also MIAX PEARL Rule 1106
(which incorporates by reference MIAX Exchange Rule 1106).

---------------------------------------------------------------------------

    Any person aggrieved by an action of MIAX PEARL within the scope of
Chapter XI may file a written application to be heard within thirty
days \225\ after such action has been taken.\226\ Applications for
hearing and review will be referred to the Business Conduct Committee,
which will appoint a hearing panel of no less than three members of
such Committee.\227\ The decision of the hearing panel made pursuant to
Chapter XI of the MIAX PEARL rules is subject to review by the MIAX
PEARL Board, either on its own motion within 30 days after issuance of
the decision, or upon written request submitted by the applicant or the
President of MIAX PEARL within 15 days after issuance of the
decision.\228\ The review would be conducted by the MIAX PEARL Board or
a committee of the MIAX PEARL Board composed of at least three
directors.\229\
---------------------------------------------------------------------------

    \225\ An applicant may file for an extension of time as allowed
by the Chairman of the Business Conduct Committee within thirty days
of MIAX PEARL's action. An application for an extension will be
ruled upon by the Chairman of the Business Conduct Committee, and
his ruling will be given in writing. Rulings on applications for
extensions of time are not subject to appeal. See MIAX PEARL Rule
1101 (which incorporates by reference MIAX Exchange Rule 1101).
    \226\ The application must include: (1) The action for which
review is sought; (2) the specific reasons for the applicant's
exception to such action; (3) the relief sought; and (4) whether the
applicant intends to submit any documents, statements, arguments or
other material in support of the application, with a description of
any such materials. See MIAX PEARL Rule 1101(a) (which incorporates
by reference MIAX Exchange Rule 1101(a)).
    \227\ See MIAX PEARL Rule 1102 (which incorporates by reference
MIAX Exchange Rule 1102). The decision of the hearing panel will be
made in writing and sent to the parties to the proceedings. See MIAX
PEARL Rule 1103(d) (which incorporates by reference MIAX Exchange
Rule 1103(d)).
    \228\ See MIAX PEARL Rule 1104(a) (which incorporates by
reference MIAX Exchange Rule 1104(a)). The MIAX PEARL Board, or a
committee of the MIAX PEARL Board, will have sole discretion to
grant or deny either request. See id.
    \229\ See MIAX PEARL Rule 1104(b) (which incorporates by
reference MIAX Exchange Rule 1104(b)). The MIAX PEARL Board or its
designated committee may affirm, reverse, or modify in whole or in
part, the decision of the hearing panel. The decision of the MIAX
PEARL Board or its designated committee would be final, and must be
in writing and would be sent to the parties to the proceeding. See
MIAX PEARL Rule 1104(c) (which incorporates by reference MIAX
Exchange Rule 1104(c)).
---------------------------------------------------------------------------

    The Commission finds that MIAX PEARL's proposed disciplinary and
oversight rules and structure, as well as its proposed process for
persons economically aggrieved by certain MIAX PEARL actions, are
consistent with the requirements of Sections 6(b)(6) and 6(b)(7) of the
Act \230\ in that they provide fair procedures for the disciplining of
members and persons associated with members. The Commission further
finds that the proposed MIAX PEARL rules are designed to provide MIAX
PEARL with the ability to comply, and with the authority to enforce
compliance by its members and persons associated with its members, with
the provisions of the Act, the rules and regulations thereunder, and
the rules of MIAX PEARL.\231\ The Commission notes that MIAX PEARL's
proposed disciplinary and oversight rules and structures are similar to
the rules of other exchanges.\232\
---------------------------------------------------------------------------

    \230\ 15 U.S.C. 78f(b)(6) and (b)(7), respectively.
    \231\ See Section 6(b)(1) of the Act, 15 U.S.C. 78f(b)(1).
    \232\ See, e.g., ISE Mercury Order, supra note 27, ISE Gemini
Order, supra note 27 and MIAX Order, supra note 13.
---------------------------------------------------------------------------

E. Listing Requirements

    MIAX PEARL does not intend to initially list or trade common stock
or non-option securities of operating companies but rather intends to
initially only trade option contracts that meet the options listing
standards of the Exchange.\233\
---------------------------------------------------------------------------

    \233\ See MIAX PEARL Form 1 Application, Exhibit H. MIAX PEARL's
listing rules, including the criteria for the underlying securities
of the options to be traded, are substantially similar to the
listing rules of MIAX Exchange. See MIAX PEARL Rules Chapter IV
(Option Contracts Traded on the Exchange); MIAX Exchange Rules
Chapter IV. See also ISE Gemini LLC Rule 500 Series and BOX Options
Exchange LLC Rule 5000 Series.