[Federal Register Volume 81, Number 165 (Thursday, August 25, 2016)]
[Notices]
[Pages 58770-58801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-20213]



[[Page 58769]]

Vol. 81

Thursday,

No. 165

August 25, 2016

Part IV





Securities and Exchange Commission





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











 Self-Regulatory Organizations: Notice of Filing of a Proposed Rule 
Change by Miami International Securities Exchange, LLC To Adopt New 
Rules To Govern the Trading of Complex Orders on the Exchange; Notices

  Federal Register / Vol. 81 , No. 165 / Thursday, August 25, 2016 / 
Notices  

[[Page 58770]]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78620; File No. SR-MIAX-2016-26]


Self-Regulatory Organizations: Notice of Filing of a Proposed 
Rule Change by Miami International Securities Exchange, LLC To Adopt 
New Rules To Govern the Trading of Complex Orders on the Exchange

August 18, 2016.
    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on August 8, 2016, Miami International Securities 
Exchange LLC (``MIAX'' or the ``Exchange'') filed with the Securities 
and Exchange Commission (``Commission'') a proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the Exchange. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt new rules to govern the trading of 
complex orders on the Exchange.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.miaxoptions.com/filter/wotitle/rule_filing, at 
MIAX's principal office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to adopt new rules that describe the trading 
of complex orders on the Exchange. Proposed new Rule 518, Complex 
Orders, details the functionality of the MIAX System \3\ in the 
handling of complex orders on the Exchange. The proposed rules are 
based substantially on similar rules of other exchanges.\4\ The 
Exchange believes that the similarity of its proposed complex order 
rules to those of other exchanges will allow the Exchange's proposed 
complex order functionality to fit seamlessly into the greater options 
marketplace and benefit market participants who are already familiar 
with similar functionality offered on other exchanges.
---------------------------------------------------------------------------

    \3\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \4\ See, e.g., Chicago Board Options Exchange, Inc. (``CBOE'') 
Rule 6.53(C)[sic]; International Securities Exchange LLC (``ISE'') 
Rule 722; NYSE MKT Rule 980NY; BOX Options Exchange LLC (``BOX'') 
Rule 7240; NASDAQ OMX PHLX LLC (``PHLX'') Rule 1098; NYSEArca Rule 
6.91.
---------------------------------------------------------------------------

    Additionally, the Exchange is proposing to amend Exchange Rule 516, 
Order Types Defined, to add a cross-reference to Rule 518 stating that 
complex order types are defined in Rule 518 and that, specifically, 
derived orders (as discussed below) are defined in Rule 518(a)(9). The 
Exchange is also proposing to amend Exchange Rules 519A, Risk 
Protection Monitor, to include complex orders in the rule; 521, 
Nullification and Adjustment of Options Transactions Including Obvious 
Errors, to establish the process for handling complex order obvious 
errors, and 605, Market Maker Orders, to add certain complex orders to 
the enumerated orders in which Exchange Market Makers may place orders 
on the Exchange, as described below.
Definitions
    Proposed Rule 518(a) provides definitions of terms that apply to 
the trading of complex orders, and such terms are used throughout this 
proposed rule change.
    The term ``ABBO'' means the best bid(s) or offer(s) disseminated by 
other Eligible Exchanges (defined in Rule 1400(f)) \5\ and calculated 
by the Exchange based on market information received by the Exchange 
from OPRA.
---------------------------------------------------------------------------

    \5\ ``Eligible Exchange'' means a national securities exchange 
registered with the SEC in accordance with Section 6(a) of the Act 
that: (1) Is a Participant Exchange in OCC (as that term is defined 
in Section VII of the OCC by-laws); (2) is a party to the OPRA Plan 
(as that term is described in Section I of the OPRA Plan); and (3) 
if the national securities exchange is not a party to the Options 
Order Protection and Locked/Crossed Markets Plan, is a participant 
in another plan approved by the Commission providing for comparable 
Trade-Through and Locked and Crossed Market protection. See Exchange 
Rule 1400(f).
---------------------------------------------------------------------------

    The Complex National Best Bid or Offer (``cNBBO'') is calculated 
using the NBBO for each component of a complex strategy to establish 
the best net bid and offer for a complex strategy. For stock-option 
orders (described below), the cNBBO for a complex strategy will be 
calculated using the NBBO in the individual option component(s) and the 
NBBO in the stock component.
    A ``Complex Auction'' is an auction of a complex order as set forth 
in proposed Rule 518(d), described below.
    A ``Complex Auction-eligible order'' is an order that meets the 
requirements of proposed Rule 518(d)(1), as described below.
    A ``complex order'' is any order involving the concurrent purchase 
and/or sale of two or more different options in the same underlying 
security (the ``legs'' or ``components'' of the complex order),\6\ for 
the same account, in a ratio that is equal to or greater than one-to-
three (.333) and less than or equal to three-to-one (3.00) and for the 
purposes of executing a particular investment strategy. Mini-options 
may only be part of a complex order that includes other mini-
options.\7\ Only those complex orders in the classes designated by the 
Exchange and communicated to Members via Regulatory Circular with no 
more than the applicable number of legs, as determined by the Exchange 
on a class-by-class basis and communicated to Members via Regulatory 
Circular, are eligible for processing.
---------------------------------------------------------------------------

    \6\ The different options in the same underlying security that 
comprise a particular complex order are referred to as the ``legs'' 
or ``components'' of the complex order throughout this proposal.
    \7\ This definition is consistent with other options exchanges. 
See e.g., CBOE Rule 6.53C(a)(1). See also PHLX Rule 1098(a)(i); NYSE 
MKT Rule 900.3NY(e); and BOX Rule 7240(a)(5).
---------------------------------------------------------------------------

    A complex order can also be a ``stock-option order'' as described 
further, and subject to the limitations set forth, in proposed 
Interpretations and Policies .01 of proposed Rule 518. A stock-option 
order is an order to buy or sell a stated number of units of an 
underlying security (stock or Exchange Traded Fund Share (``ETF'')) or 
a security convertible into the underlying stock (``convertible 
security'') coupled with the purchase or sale of options contract(s) on 
the opposite side of the market representing either (i) the same number 
of units of the underlying security or convertible security, or (ii) 
the number of units of the underlying stock necessary to create a delta 
neutral position, but in no case in a ratio greater than eight-to-one 
(8.00), where the ratio represents the total number of units of

[[Page 58771]]

the underlying security or convertible security in the option leg to 
the total number of units of the underlying security or convertible 
security in the stock leg. Only those stock-option orders in the 
classes designated by the Exchange and communicated to Members via 
Regulatory Circular with no more than the applicable number of legs as 
determined by the Exchange on a class-by-class basis and communicated 
to Members via Regulatory Circular, are eligible for processing.\8\
---------------------------------------------------------------------------

    \8\ This is substantially similar to the definition of a stock-
option order on other exchanges. See, e.g., CBOE Rule 6.53C(a)(2) 
and PHLX Rule 1098.
---------------------------------------------------------------------------

    The term ``complex strategy'' means a particular combination of 
components and their ratios to one another. New complex strategies can 
be created as the result of the receipt of a complex order, or by the 
Exchange for a complex strategy that is not currently in the System. 
The Exchange may limit the number of new complex strategies that may be 
in the System at a particular time and will communicate this limitation 
to Members via Regulatory Circular.
    A ``complex quote'' is a Market Maker complex Standard quote or 
complex eQuote for a complex strategy as set forth in Interpretations 
and Policies .02 of proposed Rule 518, described below.
    The Displayed Complex MIAX Best Bid or Offer (``dcMBBO'') is 
calculated using the best displayed price for each component of a 
complex strategy from the Simple Order Book. For stock-option orders, 
the dcMBBO for a complex strategy will be calculated using the 
Exchange's best displayed bid or offer in the individual option 
component(s) and the NBBO in the stock component.
    A ``derived order'' is an Exchange-generated limit order on the 
Simple Order Book that represents either the bid or offer of one 
component of a complex order resting on the Strategy Book that is 
comprised of orders to buy or sell an equal quantity (with a one-to-one 
ratio) of two option components.\9\ This order type is also used on 
other exchanges in the trading of complex orders. Derived orders will 
not be routed outside of the Exchange regardless of the price(s) 
disseminated by away markets. The Exchange will determine on a class-
by-class basis to make available derived orders and communicate such 
determination to Members via a Regulatory Circular. The purpose of this 
provision is to carefully manage the number of derived orders being 
generated so that they do not negatively impact system capacity and 
performance. Derived orders are firm orders (i.e., if executed, firm 
for the disseminated price and size) that are included in the MBBO (as 
defined below).\10\
---------------------------------------------------------------------------

    \9\ The Exchange notes that a derived order is the equivalent of 
a similar order type on other exchanges. See, e.g., PHLX Rule 
1098(f)(iii)(C) (Legging Orders). Like a MIAX derived order, a 
Legging Order on PHLX may be generated for one leg of a Complex 
Order at a price: (i) That matches or improves upon the best PHLX 
displayed bid or offer; and (ii) at which the net price can be 
achieved when the other leg is executed against the best displayed 
bid or offer on PHLX. The PHLX rule governs situations in which a 
Legging Order will not be created; the proposed MIAX rule states 
that a derived order will not be displayed at a price that locks or 
crosses the best bid or offer of another exchange, and that a 
derived order will not be created at a price increment less than the 
minimum established by MIAX Rule 510, whereas the PHLX rule states 
that Legging Orders may be generated and executed in an increment 
other than the minimum increment for that series and will be ranked 
on the order book at its generated price and displayed at a price 
that is rounded to the nearest minimum increment for that series. 
The rules also differ slightly in the manner and circumstances in 
which derived or Legging Orders may be removed from the Simple Order 
Book. See infra note 19.
    \10\ The derived order type is also firm on other exchanges. 
See, e.g., ISE Rule 715(k), which states that ``Legging'' orders are 
firm orders that are included in the ISE's displayed best bid or 
offer. See also, e.g., BOX Rule 7240(c), which states that a 
``Legging Order'' is a firm order that is included in the BBO if it 
is equal to, or better than, the existing BBO.
---------------------------------------------------------------------------

    A derived order may be automatically generated for one or more legs 
of a complex order at a price that matches or improves upon the best 
displayed bid or offer in the affected series on the Simple Order Book 
and at a price at which the net price of the complex order on the 
Strategy Book can be achieved when the other component(s) of the 
complex order is (are) executed against the best displayed bid or offer 
on the Simple Order Book. A derived order will not be displayed at a 
price that locks or crosses the best bid or offer of another exchange 
(the ``ABBO'').\11\ In such a circumstance, the System will display the 
derived order on the Simple Order Book at a price that is one Minimum 
Price Variation (``MPV'') \12\ away from the current opposite side best 
bid or offer of such other exchange, and rank the derived order on the 
Simple Order Book according to its actual price. A derived order will 
not be created at a price increment less than the minimum established 
by Rule 510.
---------------------------------------------------------------------------

    \11\ This is similar to the rules of another exchange. BOX rules 
state that a ``Legging Order'' that would lock or cross opposite 
side NBBO will be ranked on the BOX Book at the locking price and 
displayed at one minimum trading increment below the current NBO 
(for bids) or one minimum trading increment above the current NBB 
(for offers) for the applicable series (``display-price sliding''). 
See BOX Rule 7240(c)(2)(i).
    \12\ For a complete description of MPVs, see Exchange Rule 510.

Example--Derived order adjusted so as not to lock (cross) the ABBO
    MIAX--Mar 50 Put 1.00 (10)--1.20 (20)
    MIAX--Mar 55 Call 1.00 (10)--1.20 (20)
    ABBO--Mar 50 Put 1.00 (10)--1.05 (10)
    ABBO--Mar 55 Call 1.00 (10)--1.20 (10)

The Exchange receives a Priority Customer buy order to purchase 1 Mar 
50 put and purchase 1 Mar 55 call for a 2.25 debit, 10 times. The order 
is not designated as Complex Auction-on-Arrival (cAOA) and will not 
initiate an auction upon arrival even if it equals or improves the Upon 
Receipt Improvement Percentage (``URIP,'' as defined in proposed Rule 
518, Interpretations and Policies .04[sic](b)).

The icMBBO \13\ is 2.00 debit bid, 10 times at 2.40 credit offer, 20 
times
---------------------------------------------------------------------------

    \13\ The Implied Complex MIAX Best Bid or Offer (``icMBBO'') is 
a calculation that uses thebest [sic] price from the Simple Order 
Book for each component of a complex strategy including displayed 
and non-displayed trading interest. For stock-option orders, the 
icMBBO for a complex strategy will be calculated using the best 
price (whether displayed or non-displayed) on the Simple Order Book 
in the individual option component(s), and the NBBO in the stock 
component. See proposed Rule 518(a)(11), described below.
---------------------------------------------------------------------------

The dcMBBO is 2.00 debit bid, 10 times at 2.40 credit offer, 20 times
The URIP Percentage is 60% of the bid ask spread or 0.24

There is no offsetting complex order to sell and the complex order 
cannot leg into the Simple Order Market because the icMBBO offer for 
the complex order on the MIAX Simple Order Book is offered at 2.40.
A derived order to buy the Mar 50 put for 1.05 (calculated by 
determining the component price that achieves the net price (2.25 
debit) that can execute against the best displayed price on the Simple 
Order Book), 10 times would lock the ABO if displayed at $1.05 and 
therefore be in violation, so the derived order will instead be created 
at 1.05 and displayed at 1.00, one MPV inside of the ABO, in this case 
joining the MIAX's best bid for the Mar 50 put of 1.00; while managed 
at a non-displayed price on the Simple Order Book to buy at 1.05:

Mar 50 Put 1.00 (20) (10 derived order displayed at 1.00 and booked at 
1.05)--1.20 (20)
Mar 55 Call 1.00 (10)--1.20 (20)

The new icMBBO is 2.05 debit bid, 10 times at 2.40 credit offer, 20 
times

    If a marketable order to sell Mar 50 put 1 or more times is 
received, it will execute against the derived order to buy the Mar 50 
put at the non-displayed price for 1.05 1 or more times and the

[[Page 58772]]

System will automatically execute the other leg of the complex order 
against the Simple Order Book offer for the Mar 55 call at 1.20 for the 
same quantity. As a result, the net price of 2.25 is achieved for the 
complex order (buy the Mar 50 put for 1.05 and buy Mar 55 call for 1.20 
= 2.25 net price).
    A derived order will be handled in the same manner as other orders 
on the Simple Order Book except as otherwise provided in proposed Rule 
518, and will be executed only after all other executable orders 
(including orders subject to the managed interest process as described 
below) and quotes at the same price are executed in full. When a 
derived order is executed, the other component of the complex order on 
the Strategy Book will be automatically executed against the best bid 
or offer on the Exchange.\14\ The Exchange believes that a derived 
order, created for the execution of a complex order, should not be 
afforded priority over resting orders and quotes on the Simple Order 
Book, and therefore has determined to protect the priority on the 
Simple Order Book of such resting orders and quotes.
---------------------------------------------------------------------------

    \14\ See Note 11.

Example--Derived order is last in priority on the Simple Order Book
    MIAX--Mar 50 Call 2.00 (10)--2.10 (60)
    MIAX--Mar 55 Call 1.00 (20)--1.10 (80)

The Exchange receives a Priority Customer complex order to buy 1 Mar 50 
call and sell 1 Mar 55 call for a 1.00 debit, 5 times. The order is not 
designated as cAOA and will not initiate a Complex Auction upon arrival 
even if it equals or improves the URIP. There is no Customer interest 
resting on the Strategy Book.

The icMBBO is 0.90 debit bid, 10 times at 1.10 credit offer, 20 times
The dcMBBO is 0.90 debit bid, 10 times at 1.10 credit offer, 20 times
The URIP Percentage is 60% of the bid ask spread or 0.12

    There is no offsetting complex order to sell and the complex order 
cannot leg into the Simple Order Market because the icMBBO offer for 
the complex order on the MIAX Simple Order Book is offered at 1.10. A 
derived order to buy the Mar 50 call for 2.00, 5 times may be 
automatically generated by the System without violating protected 
quotations at away markets for either leg. The derived buy order will 
join the MBB for the March 50 call and will not change the MIAX's 
icMBBO price.

Mar 50 Call 2.00 (15 total, 5 from derived order)--2.10 (60)
The new icMBBO is 0.90 debit bid, 15 times at 1.10 credit offer, 20 
times

If a marketable order to sell Mar 50 call 15 times or more is received, 
it will execute first against the order on the Simple Order Book and 
then against the derived order to buy the Mar 50 call for 2.00 5 times 
and the System will automatically execute the other leg of the complex 
order against the Simple Order Book bid for the Mar 55 call at 1.00 5 
times. As a result, the net price of 1.00 is achieved for the complex 
order (buy the Mar 50 call for 2.00 and sell the Mar 55 call at 1.00 = 
1.00 net price).
    A derived order is automatically removed from the Simple Order Book 
if (i) the displayed price of the derived order is no longer at the 
displayed best bid or offer on the Simple Order Book, (ii) execution of 
the derived order would no longer achieve the net price of the complex 
order on the Strategy Book when the other component of the complex 
order is executed against the best bid or offer on the Simple Order 
Book, (iii) the complex order is executed in full, (iv) the complex 
order is cancelled, or (v) any component of the complex order resting 
on the Strategy Book that is used to generate the derived order is 
subject to a Simple Market Auction or Timer (``SMAT'') Event,\15\ a 
wide market condition,\16\ or a halt \17\ (each as described 
below).\18\ This is similar to the functionality regarding derived 
order equivalents on other exchanges.\19\

    \15\ A SMAT Event is defined as any of the following: A PRIME 
Auction (pursuant to Exchange Rule 515A); a Route Timer (pursuant to 
Exchange Rule 529); or a liquidity refresh pause (pursuant to 
Exchange Rule 515(c)(2)). See proposed Rule 518(a)(16).
    \16\ A ``wide-market condition'' is defined as any individual 
component of a complex strategy having, at the time of evaluation, 
an MBBO quote width that is wider than the permissible valid quote 
width as defined in Rule 603(b)(4). See proposed Rule 518, 
Interpretations and Policies .05(e).
    \17\ See Exchange Rule 504.
    \18\ See proposed Rule 518(a)(9).
    \19\ Respecting the removal of derived orders from the Simple 
Order Book, PHLX Rule 1098(f)(iii)(C) lists additional scenarios 
under which a PHLX ``legging'' Order on PHLX is automatically 
removed from the regular order book: (i) If the price of the legging 
Order is no longer at the Exchange's displayed best bid or offer on 
the regular limit order book, (ii) if execution of the legging Order 
would no longer achieve the net price of the Complex Order when the 
other leg is executed against the Exchange's best displayed bid or 
offer on the regular limit order book (other than another legging 
Order), (iii) if the Complex Order is executed in full or in part 
(this differs from proposed Rule 518(a)(9)(vi)(C), which states that 
a derived order will be removed if executed in full), (iv) if the 
Complex Order is cancelled or modified (proposed Rule 
518(a)(9)(vi)(D) states that the derived order will be removed if 
cancelled but not if modified). Similarly, a legging order on ISE is 
automatically removed from the regular limit order book if: (i) The 
price of the legging order is no longer at the displayed best bid or 
offer on the regular limit order book, (ii) execution of the legging 
order would no longer achieve the net price of the complex order 
when the other leg is executed against the best displayed bid or 
offer on the regular limit order book, (iii) the complex order is 
executed in full or in part (again unlike proposed Rule 
518(a)(9)(vi)(C) which only include a derived order executed in 
full) against another complex order on the complex order book, or 
(iv) the complex order is cancelled or modified (unlike Rule 
518((a)(9)(vi)(C)[sic] which does not include a provision for 
modification). See also, ISE Rule 715(k), which states that a 
legging order is automatically removed from the regular limit order 
book if: (i) The price of the legging order is no longer at the 
displayed best bid or offer on the regular limit order book, (ii) 
execution of the legging order would no longer achieve the net price 
of the complex order when the other leg is executed against the best 
displayed bid or offer on the regular limit order book, (iii) the 
complex order is executed in full or in part against another complex 
order on the complex order book, or (iv) the complex order is 
cancelled or modified. See also, BOX Rule 7240(c) respecting BOX 
``legging'' Orders.
---------------------------------------------------------------------------

Example--Derived order is cancelled when a component of a complex order 
is subject to a SMAT Event \20\
---------------------------------------------------------------------------

    \20\ This example describes a PRIME Auction in any one of the 
components used to generate the derived order. The example could 
apply to such a component that is subject to any SMAT Event.
---------------------------------------------------------------------------

    MIAX--Mar 50 Put 1.00 (10)--1.20 (20)
    MIAX--Mar 55 Call 1.00 (10)--1.20 (20)
    ABBO--Mar 50 Put 1.05 (10)--1.20 (10)
    ABBO--Mar 55 Call 1.00 (10)--1.20 (10)

The Exchange receives a Priority Customer complex order to buy 1 Mar 50 
put and purchase 1 Mar 55 call for a 2.25 debit, 10 times. The order is 
not designated as cAOA and will not initiate an auction upon arrival 
even if it equals or improves the URIP.

The icMBBO is 2.00 debit bid, 10 times at 2.40 credit offer, 20 times
The dcMBBO is 2.00 debit bid, 10 times at 2.40 credit offer, 20 times
The URIP Percentage is 60% of the bid ask spread or 0.24

There is no offsetting complex order to sell and the complex order 
cannot leg into the Simple Order Market because the icMBBO offer for 
the complex order on the MIAX Simple Order Book is offered at 2.40.
Derived orders to buy the Mar 50 put for 1.05, 10 times and the Mar 55 
call for 1.05, 10 times may be automatically generated by the System 
without violating protected quotations at away markets for either leg, 
improving the MIAX's best bid for each of the Mar 50 put and the Mar 55 
call to 1.05:

Mar 50 Put 1.05 (10) (Derived order)--1.20 (20)
Mar 55 Call 1.05 (10) (Derived order)--1.20 (20)


[[Page 58773]]


If in the Simple Order Book, a PRIME Auction (or other SMAT Event) were 
to start in either the Mar 50 put or the Mar 55 call, the System will 
automatically cancel the derived order to buy the Mar 50 put while 
simultaneously cancelling the derived order to buy the Mar 55 call.

Example--Derived order is created resulting in the execution of a 
complex order and simultaneous cancellation of the other unneeded 
derived order.
MIAX--Mar 50 Put 1.00 (10)--1.20 (20)
MIAX--Mar 55 Call 1.00 (10)--1.20 (20)
ABBO--Mar 50 Put 1.05 (10)--1.20 (10)
ABBO--Mar 55 Call 1.00 (10)--1.20 (10)

The Exchange receives a Priority Customer complex order to buy 1 Mar 50 
put and buy 1 Mar 55 call for a 2.25 debit, 10 times. The order is not 
designated as cAOA and will not initiate an auction upon arrival even 
if it equals or improves the URIP.

The icMBBO is 2.00 debit bid, 10 times at 2.40 credit offer, 20 times
The dcMBBO is 2.00 debit bid, 10 times at 2.40 credit offer, 20 times
The URIP Percentage is 60% of the bid ask spread or 0.24

There is no offsetting complex order to sell and the complex order 
cannot leg into the Simple Order Market because the icMBBO offer for 
the complex order on the MIAX Simple Order Book is offered at 2.40.
Derived orders to buy the Mar 50 put for 1.05, 10 times and the Mar 55 
call for 1.05, 10 times may be automatically generated by the System 
without violating protected quotations at away markets for either leg, 
improving the MIAX's best bid for each of the Mar 50 put and the Mar 55 
call to 1.05:

Mar 50 Put 1.05 (10) (derived order)--1.20 (20)
Mar 55 Call 1.05 (10) (derived order)--1.20 (20)

The new icMBBO is 2.10 debit bid, 10 times at 2.40 credit offer, 20 
times. If a marketable order to sell Mar 50 put 10 times or more is 
received, it will execute against the derived order to buy the Mar 50 
put for 1.05 10 times and the System will automatically execute the 
other leg of the complex order against the Simple Order Book offer for 
the Mar 55 call at 1.20 while simultaneously cancelling the now 
unneeded derived order to buy the Mar 55 call for 1.05. As a result, 
the net price of 2.25 is achieved for the complex order (buy the Mar 50 
put for 1.05 and buy Mar 55 call for 1.20 = 2.25 net price).
    Finally, proposed Rule 518(a)(9)(vii) provides that a derived order 
that is locked (i.e., if the opposite side MBBO locks the derived 
order) will be executed if the execution price is at the NBBO.
    The Exchange believes that derived orders will significantly 
enhance the Strategy Book by enabling greater interaction of multi-
legged orders with the Simple Order Book. This functionality should 
tighten spreads on the MIAX Simple Order Book, resulting in better 
executions for complex orders and for regular orders.
    The term ``free trading'' means trading that occurs during a 
trading session other than: (i) At the opening or re-opening for 
trading following a halt, or (ii) during the Complex Auction Process 
(as described below and in proposed Rule 518(d)).
    The Implied Complex Best Bid or Offer (``icMBBO'') is a calculation 
that uses the best price from the Simple Order Book for each component 
of a complex strategy including displayed and non-displayed trading 
interest. For stock-option orders, the icMBBO for a complex strategy 
will be calculated using the best price (whether displayed or non-
displayed) on the Simple Order Book in the individual option 
component(s), and the national best bid or offer (``NBBO'') in the 
stock component.
    Certain Market Maker complex Standard quotes and complex eQuotes 
(as defined below) will qualify as ``Market Maker Priority Interest for 
Complex'' on the Strategy Book (as defined below) if the criteria 
described herein have been met.\21\ For purposes of the proposed Rule, 
Market Maker Priority Interest for Complex is established at the 
beginning of a Complex Auction (as described in proposed Rule 518(d) 
below), or at the time of execution in free trading.
---------------------------------------------------------------------------

    \21\ Market Maker complex quotes may be entered as either 
complex Standard quotes or complex eQuotes. A complex eQuote is 
either a Complex Auction or Cancel eQuote (``cAOC eQuote'') or an 
``Immediate or Cancel eQuote'' (``cIOC eQuote'') A cAOC eQuote is an 
eQuote submitted by a Market Maker that is used to provide liquidity 
during a specific Complex Auction with a time in force that 
corresponds with the duration of the Complex Auction. A cIOC eQuote 
is a complex eQuote with a time-in-force of IOC that may be matched 
with another complex quote or complex order for an execution to 
occur in whole or in part upon receipt into the System. cIOC eQuotes 
will not: (i) Be executed against individual orders and quotes 
resting on the Simple Order Book; (ii) be eligible to initiate a 
Complex Auction or join a Complex Auction in progress; or (iii) rest 
on the Strategy Book. Any portion of a cIOC eQuote that is not 
executed will be immediately cancelled. See proposed Rule 518, 
Interpretations and Policies .02.
---------------------------------------------------------------------------

    If complex Standard quoting is engaged for a complex strategy,\22\ 
a Market Maker complex Standard quote or complex eQuote will qualify as 
Market Maker Priority Interest for Complex if the Market Maker has a 
complex Standard quote in the complex strategy that equals or improves 
the dcMBBO on the opposite side from the incoming complex order or 
quote at the time of evaluation (a ``Complex priority quote'').\23\ The 
Exchange's proposal to adopt Market Maker Priority Interest for Complex 
in the Strategy Book is substantially based upon principles and rules 
currently operative on the Exchange respecting the Simple Order 
Book.\24\ While the priority and trade allocation method for the 
Strategy Book, described below, distinguishes among Market Maker 
Priority Interest and Market Maker non-Priority Interest,\25\ the 
proposed rules concerning complex priority are not novel, and have 
simply emerged from the priority rules already in existence on the 
Exchange.
---------------------------------------------------------------------------

    \22\ Complex Standard quoting will be engaged by the Exchange 
for complex strategies on a strategy-by-strategy basis. The 
strategies for which complex Standard quoting is engaged will be 
communicated to Members via Regulatory Circular. See proposed Rule 
518, Interpretations and Policies .02. Among the criteria used in 
determining the classes for which complex Standard quoting will be 
engaged are average daily volume in the class, number of expiration 
months and strike prices in the class, number of strike prices at or 
near the money in the class, and input from Members. This differs 
slightly from ISE, which states merely that market makers may enter 
quotes for complex order strategies on the complex order book in 
their appointed options classes. See ISE Rule 722, Supplementary 
Material .03.
    \23\ The Exchange notes that, unlike the continuous quoting 
requirements in the simple order market, there are no continuous 
quoting requirements respecting complex orders. This is similar to 
ISE, where market makers are not required to enter quotes on the 
complex order book. Quotes for complex orders are not subject to any 
quotation requirements that are applicable to market maker quotes in 
the regular market for individual options series or classes. See ISE 
Rule 722, Supplementary Material .03.
    \24\ The Exchange currently follows the established hierarchy 
that generally affords priority to Priority Customer Orders, then to 
Market Makers with priority quotes, followed by Professional 
Interest at the same price. See Exchange Rule 514.
    \25\ See proposed Rule 518(c)(3)(ii).
---------------------------------------------------------------------------

    The term ``MBBO'' means the best bid or offer on the Simple Order 
Book (as defined below) on the Exchange, and the term ``NBBO'' means 
the national best bid or offer as calculated by the Exchange based on 
market information received by the Exchange from the appropriate 
Securities Information Processor (``SIP'').\26\
---------------------------------------------------------------------------

    \26\ All U.S. exchanges and associations that quote and trade 
exchange-listed securities must provide their data to a centralized 
SIP for data consolidation and dissemination. See 15 U.S.C. 78c 
(22)(A).
---------------------------------------------------------------------------

    The ``Simple Order Book'' is the Exchange's regular electronic book 
of orders and quotes.
    A Simple Market Auction or Timer (``SMAT'') Event is defined as a 
PRIME

[[Page 58774]]

Auction (pursuant to Rule 515A); \27\ a Route Timer (pursuant to Rule 
529); \28\ or a liquidity refresh pause (pursuant to Rule 
515(c)(2)).\29\ Complex orders and quotes will be handled during a SMAT 
Event as described in proposed Interpretations and Policies .05(e)(2) 
of proposed Rule 518, as discussed below.
---------------------------------------------------------------------------

    \27\ The MIAX Price Improvement Mechanism (``PRIME'') is a 
process by which a Member may electronically submit for execution 
(``Auction'') an order it represents as agent (``Agency Order'') 
against principal interest, and/or an Agency Order against solicited 
interest. See Exchange Rule 515A.
    \28\ The Exchange may automatically route orders to other 
exchanges under certain circumstances (``Routing Services''). In 
connection with such services, one of two Route Mechanisms, 
Immediate Routing or the Route Timer, will be used when a Public 
Customer order is received and/or reevaluated that is both routable 
and marketable against the opposite side ABBO upon receipt and the 
Exchange's disseminated market is not equal to the opposite side 
ABBO, or is equal to the opposite side ABBO and of insufficient size 
to satisfy the order. For those initiating Public Customer orders 
that are routable, but do not meet the additional criteria for 
Immediate Routing, the System will implement a Route Timer not to 
exceed one second (the duration of the Timer will be announced to 
Members through a Regulatory Circular), in order to allow Market 
Makers and other participants an opportunity to interact with the 
initiating order. See Exchange Rule 529.
    \29\ The System will pause the market for a time period not to 
exceed one second to allow additional orders or quotes refreshing 
the liquidity at the MBBO to be received (``liquidity refresh 
pause'') when at the time of receipt or reevaluation of the 
initiating order by the System: (A) Either the initiating order is a 
limit order whose limit price crosses the NBBO or the initiating 
order is a market order, and the limit order or market order could 
only be partially executed; (B) a Market Maker quote was all or part 
of the MBBO when the MBBO is alone at the NBBO; and (C) and the 
Market Maker quote was exhausted. See Exchange Rule 515(c)(2).
---------------------------------------------------------------------------

    The ``Strategy Book'' is the Exchange's electronic book of complex 
orders and complex quotes.\30\
---------------------------------------------------------------------------

    \30\ This definition is consistent with that of another options 
exchange. See BOX Rule 7240(a)(6). The BOX rule differs from 
proposed Rule 518(a)(16), which defines the Strategy Book, in that 
BOX refers to the book as the ``Complex Order Book'' and also refers 
to the BOX Trading Host.
---------------------------------------------------------------------------

Types of Complex Orders
    Proposed Rule 518(b), Types of Complex Orders, describes the 
various types and specific times-in-force for complex orders handled by 
the System.
    As an initial matter, proposed Rule 518(b)(1) states that the 
Exchange will issue a Regulatory Circular listing which complex order 
types, among the complex order types set forth in the proposed Rule, 
are available for use on the Exchange. Additional Regulatory Circulars 
will be issued as additional complex order types, among those complex 
order types set forth in the proposed Rule, become available for use on 
the Exchange. Regulatory Circulars will also be issued when a complex 
order type that had been in usage on the Exchange will no longer be 
available for use. This is substantially similar to, and based upon, 
the manner in which the Exchange determines the available order types 
in the Simple Order Book.\31\ The purpose of this provision is to 
enable the Exchange to modify the complex order types that are 
available on the Exchange as market conditions change. The Exchange 
believes that this enhances its ability to remain competitive as 
markets and market conditions change and evolve.
---------------------------------------------------------------------------

    \31\ See Exchange Rule 516.
---------------------------------------------------------------------------

    Among the complex order types that may be submitted are limit 
orders, market orders, Good `til Cancelled (``GTC'') orders, or day 
limit orders as each such term is defined in Rule 516,\32\ or Complex 
Auction-on-Arrival (``cAOA'') orders, Complex Auction-or-Cancel 
(``cAOC'') orders, or Complex Immediate-or-Cancel (``cIOC'') orders, as 
such terms are defined below.
---------------------------------------------------------------------------

    \32\ For a complete description of these order types, see 
Exchange Rule 516. The Exchange is not proposing to offer fill-or-
kill complex orders, as currently offered on other exchanges. The 
Exchange does not believe that a fill-or-kill order is a critical 
order type for effective complex order trading. See e.g., CBOE Rule 
6.53C(b), which differs slightly from proposed Rule 518(b) in that 
the CBOE rule states that orders may also be entered as fill-or-kill 
or as all-or-none (the Exchange does not accept all-or-none orders); 
and BOX Rule 7240(b)(4)(i), which differs slightly from proposed 
Rule 518(b) in that the BOX rule states that orders may also be 
entered as fill-or-kill or as ``Session'' orders.
---------------------------------------------------------------------------

    Complex orders will be considered ineligible to initiate a Complex 
Auction upon receipt unless designated as Complex Auction-on-Arrival 
(``cAOA'') orders.\33\ Proposed Rule 518(b)(2)(i) defines a cAOA order 
as a complex order designated to be placed into a Complex Auction upon 
receipt or upon evaluation. Complex orders that are not designated as 
cAOA will, by default, not initiate a Complex Auction upon arrival, but 
except as described herein will be eligible to participate in a Complex 
Auction that is in progress when such complex order arrives or if 
placed on the Strategy Book may participate in or may initiate a 
Complex Auction, following evaluation conducted by the System (as 
described below). Complex orders that are designated as cIOC or cAOC 
are not eligible for cAOA designation, and their evaluation will not 
result in the initiation of a Complex Auction either upon arrival or if 
eligible when resting on the Strategy Book.
---------------------------------------------------------------------------

    \33\ The Exchange believes that this gives market participants 
extra flexibility to control the handling and execution of their 
complex orders by the System by giving them the additional ability 
to determine not to have their complex order initiate a Complex 
Auction by electing not to designate it as a cAOA order. This 
differs slightly from CBOE Rule 6.53[sic](d)(ii)(B), which requires 
CBOE Trading Permit Holders to affirmatively request, on an order-
by-order basis, that a COA-eligible order with two legs not be 
placed into a CBOE Complex Order Auction (a ``do-not-COA'' request). 
The MIAX System considers an order not designated as cAOA to be 
ineligible to initiate an auction by default.
---------------------------------------------------------------------------

    A complex order may also be submitted as a cAOC order. A cAOC order 
is a complex limit order used to provide liquidity during a specific 
Complex Auction with a time in force that corresponds with that event. 
cAOC orders are not displayed to any market participant, and are not 
eligible for trading outside of the event.
    Additionally, a complex order may be submitted as a Complex 
Immediate-or-Cancel or ``cIOC'' order, which is a complex order that is 
to be executed in whole or in part upon receipt. Any portion not so 
executed is cancelled.
Trading of Complex Orders and Quotes
    Proposed Rule 518(c), Trading of Complex Orders and Quotes, 
describes the manner in which complex orders will be handled and traded 
on the Exchange. The Exchange will determine and communicate to Members 
via Regulatory Circular which complex order origin types (i.e., non-
broker-dealer customers, broker-dealers that are not Market Makers on 
an options exchange, and/or Market Makers on an options exchange) are 
eligible for entry onto the Strategy Book.\34\ The rule also states 
that complex orders will be subject to all other Exchange Rules that 
pertain to orders generally, unless otherwise provided in proposed Rule 
518.
---------------------------------------------------------------------------

    \34\ See Proposed Rule 518(c). See also CBOE Rule 6.53C(c)(i), 
which states that CBOE will determine which classes and which 
complex order origin types (i.e., non-broker-dealer public customer, 
broker-dealers that are not Market-Makers or specialists on an 
options exchange, and/or Market-Makers or specialists on an options 
exchange) are eligible for entry into the Complex Order Book.
---------------------------------------------------------------------------

    Proposed Rule 518(c)(1) provides that bids and offers on complex 
orders and quotes may be expressed in $0.01 increments, and the 
component(s) of a complex order may be executed in $0.01 increments, 
regardless of the minimum increments otherwise applicable to individual 
components of the complex order,\35\ and that if any component of a 
complex strategy would be executed at a price that is equal to a 
Priority Customer bid or offer on the Simple Order Book, at least one 
other component of the complex strategy must

[[Page 58775]]

trade at a price that is better than the corresponding MBBO.\36\
---------------------------------------------------------------------------

    \35\ See Proposed Rule 518(c)(1). See also ISE Rule 722(b)(1), 
which is slightly distinguished from proposed Rule 518(c)(1) because 
it states that bids and offers on complex orders may be expressed in 
any decimal price, and the leg(s) of a complex order may be executed 
in one cent increments, regardless of the minimum increments 
otherwise applicable to the individual legs of the order.
    \36\ See Proposed Rule 518(c)(1)(ii). See also, ISE Rule 
722(b)(2), which states that in this situation at least one leg must 
trade at a price that is better by at least one minimum trading 
increment, and PHLX Rule 1098(c)(iii), requiring in this situation 
that at least one option leg is executed at a better price than the 
established bid or offer for that option contract and no option leg 
is executed at a price outside of the established bid or offer for 
that option contract.
---------------------------------------------------------------------------

    Additionally, respecting execution pricing, proposed Rule 
518(c)(1)(iii) states generally that a complex order will not be 
executed at a net price that would cause any component of the complex 
strategy to be executed: (A) At a price of zero; or (B) ahead of a 
Priority Customer order on the Simple Order Book without improving the 
MBBO of at least one component of the complex strategy. The Exchange 
will never trade through Priority Customer orders, thus protecting the 
priority that is established in the Simple Order Book.
Execution of Complex Orders and Quotes
    Proposed Rule 518(c)(2) describes the process of the opening of the 
Strategy Book (and reopening after a halt) for trading, prices at which 
executions may occur on the Exchange for complex strategies, execution 
of complex orders against the individual components or ``legs'' on the 
Simple Order Book, the automatic generation of derived orders, and the 
process of evaluation that is conducted by the System on an ongoing 
basis respecting complex orders.
    Proposed Rule 518(c)(2)(i) states that complex orders and quotes do 
not participate in the opening process for the individual option legs 
conducted pursuant to Rule 503.\37\ At the beginning of each trading 
session, and upon reopening after a halt, once all components of a 
complex strategy are open, an initial evaluation will be conducted in 
order to determine whether a complex order is a Complex Auction-
eligible order, using the process and criteria described in 
Interpretations and Policies .03(a) of proposed Rule 518 regarding the 
Initial Improvement Percentage (``IIP''). The IIP is used to calculate 
a percentage of the dcMBBO bid/ask differential at or within which the 
System will determine to initiate a Complex Auction when the Strategy 
Book opens for trading.\38\ If a Complex Auction-eligible order is 
priced equal to, or improves, the IIP value and is also priced equal 
to, or improves, other complex orders and/or quotes resting at the top 
of the Strategy Book, the complex order will be eligible to initiate a 
Complex Auction.
---------------------------------------------------------------------------

    \37\ This is similar to the opening of complex orders on other 
exchanges. Complex Orders on PHLX will not open for trading until 
each option component of a Complex Order Strategy has opened or 
reopened following a trading halt. See PHLX Rules 1098(d)(i) and 
(ii). Similarly, complex orders on NYSE MKT do not participate in 
the opening Auction Process for individual component option series 
legs conducted pursuant to Rule 952NY. The NYSE MKT Complex Matching 
Engine will not process an Electronic Complex Order until all of the 
individual component option series that make up a complex order 
strategy have opened. See NYSE MKT Rule 980NY(c)(i)(A).
    \38\ Similarly, as discussed more fully below, the System will 
also calculate an Upon Receipt Improvement Percentage (``URIP'') 
value to determine whether a complex order is priced equal to, or 
improves, the URIP value upon receipt when the complex strategy is 
open for trading, and a Re-evaluation Improvement Percentage 
(``RIP'') value, to determine whether a complex order resting at the 
top of the Strategy Book is priced equal to, or improves, the RIP 
value. If so, in either case, the complex order will be Complex 
Auction-eligible. See Proposed Rule 518, Interpretations and 
Policies .03(b) and (c).
---------------------------------------------------------------------------

    The purpose of this provision is to ensure that a complex order 
will not initiate a Complex Auction if it does not improve the current 
complex bid or offer by at least a defined percentage (i.e., the IIP) 
where it is not reasonable to anticipate that it would generate a 
meaningful number of RFR Responses such that there would be improvement 
of the complex order's limit price. Promoting the orderly initiation of 
a Complex Auction is essential to maintaining a fair and orderly market 
for complex orders; otherwise, the initiation of Complex Auctions that 
are unlikely to result in price improvement might result in a 
disproportionate amount of quote and message activity that could affect 
the orderliness of the market. The Exchange believes that the use of 
the IIP in this manner ensures that a Complex Auction will be conducted 
when there is a meaningful opportunity for price improvement, and 
accordingly will benefit participants and investors that submit complex 
orders to the Exchange by limiting unnecessary activity on the 
Exchange.
    The System will also evaluate the eligibility of complex orders and 
quotes (as applicable) to participate in the managed interest process 
for complex orders as set forth in proposed Rule 518(c)(4) and 
described below; if they are eligible for full or partial execution 
against a complex order or quote resting on the Strategy Book or 
through Legging with the Simple Order Book as set forth in proposed 
Rule 518(c)(2)(iii) and described below; whether the complex order or 
quote should be cancelled; and whether all or any remaining portion of 
the complex order or quote should be placed on the Strategy Book. This 
evaluation process is ongoing and is designed to handle complex orders 
in the most efficient manner possible as market conditions change. The 
various outcomes are determined at the time of evaluation based on 
then-existing market conditions, which are continually evolving and 
require such evaluation for determination of the System's handling of 
complex orders.
    The Strategy Book will open for trading, or reopen for trading 
after a halt, with a Complex Auction if it is determined that one of 
the following conditions is present: (A) A complex order with no 
matching interest on the Strategy Book equals or improves the IIP, (B) 
matching interest exists at a price that is equal to or through the 
IIP, or (C) a size imbalance exists where the price at which the 
maximum quantity that can trade is equal to or through the IIP. If the 
Strategy Book contains matched interest or a size imbalance exists 
where the price at which the maximum quantity can trade is not equal to 
or through the IIP, the Strategy Book will open for trading with a 
trade and a Complex Auction will not be initiated. The remaining 
portion of any complex order for which there is a size imbalance will 
be placed on the Strategy Book. If the Strategy Book contains no 
matching interest or interest equal to or through the IIP, the complex 
strategy will open without a trade and a Complex Auction will not be 
initiated.
    Proposed Rule 518(c)(2)(ii) describes the manner in which the 
System determines the price of execution of complex orders and quotes. 
Incoming complex orders and quotes will be executed by the System in 
accordance with the provisions below, and will not be executed at 
prices inferior to the icMBBO or at a price that is equal to the icMBBO 
when there is a Priority Customer Order (as defined in Rule 100) \39\ 
at the best icMBBO price. Complex orders will never be executed at a 
price that is outside of the individual component prices on the Simple 
Order Book. Furthermore, the net price of a complex order executed 
against another complex order on the Strategy Book will never be 
inferior to the price that would be available if the complex order 
legged into the Simple Order Book. The purpose of this provision is to 
prevent a component of a complex order from being executed at a price 
that is inferior to the best-priced contra-side orders or quotes on the

[[Page 58776]]

Simple Order Book (on which the icMBBO is based) and to prevent a 
component of a complex order from being executed at a price that 
compromises the priority already established by a Priority Customer on 
the Simple Order Book. The Exchange believes that such priority should 
be protected and that such protection should be extended to the 
execution of complex orders on the Strategy Book.\40\
---------------------------------------------------------------------------

    \39\ The term ``Priority Customer'' means a person or entity 
that (i) is not a broker or dealer in securities and (ii) does not 
place more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial accounts(s). The term 
``Priority Customer Order'' means an order for the account of a 
Priority Customer. See Exchange Rule 100.
    \40\ Other exchanges protect Priority and Public Customer 
priority. ISE Priority Customer Orders on the Exchange shall have 
priority over Professional Orders and market maker quotes at the 
same price in the same options series. See ISE Rule 713(c). See 
also, CBOE Rule 6.45A(a)(i)(1), which states that CBOE Public 
customer orders in the electronic book have priority, and NYSE MKT 
Rule 964NY(b)(2)(A), which provides that bids and offers in the 
Consolidated Book for Customer accounts have first priority over 
other bids or offers at the same price.
---------------------------------------------------------------------------

    Incoming complex orders that could not be executed because the 
executions would be priced (A) outside of the icMBBO, or (B) equal to 
or through the icMBBO due to a Priority Customer Order at the best 
icMBBO price, will be cancelled if such complex orders are not eligible 
to be placed on the Strategy Book. Complex orders and quotes will be 
executed without consideration of any prices for the complex strategy 
that might be available on other exchanges trading the same options 
contracts provided, however, that such complex order price may be 
subject to the Implied Exchange Away Best Bid or Offer (``ixABBO'') 
Protection set forth in Interpretations and Policies .05(d) proposed 
Rule 518.\41\
---------------------------------------------------------------------------

    \41\ The ixABBO price protection feature is a price protection 
mechanism under which, when in operation as requested by the 
submitting Member, a buy order will not be executed at a price that 
is higher than each other single exchange's best offer, and under 
which a sell order will not be executed at a price that is lower 
than each other single exchange's best bid for the complex strategy. 
The ixABBO is calculated using the best net bid and offer for a 
complex strategy using each other exchange's displayed best bid or 
offer on their version of the Simple Order Book. For stock-option 
orders, the ixABBO for a complex strategy will be calculated using 
the BBO for each component on each individual away options market 
and the NBBO for the stock component. The ixABBO price protection 
feature must be engaged on an order-by-order basis by the submitting 
Member and is not available for complex Standard quotes, complex 
eQuotes, or cAOC orders. The Exchange believes that these 
limitations on the execution price provide a price protection option 
for Members that choose to place the ixABBO protection in operation.
---------------------------------------------------------------------------

    Proposed Rule 518(c)(2)(iii) describes the Legging process through 
which complex orders, under certain circumstances, are executed against 
the individual components of a complex strategy on the Simple Order 
Book. Complex orders up to a maximum number of legs (determined by the 
Exchange on a class-by-class basis as either two or three legs and 
communicated to Members via Regulatory Circular) may be automatically 
executed against bids and offers on the Simple Order Book for the 
individual legs of the complex order (``Legging''), provided the 
complex order can be executed in full or in a permissible ratio by such 
bids and offers, and provided that the execution price of each 
component is not executed at a price that is outside of the NBBO.\42\
---------------------------------------------------------------------------

    \42\ See proposed Rule 518(c)(2)(iii). This is similar to CBOE 
Rule 6.53C(c)(ii)(1), which states that complex order in the COB 
will automatically execute against individual orders or quotes 
residing in the EBook provided the complex order can be executed in 
full (or in a permissible ratio) by the orders and quotes in EBook; 
see also BOX Rule 7240(b)(3)(ii) providing that Complex Orders will 
be automatically executed against bids and offers on the BOX Book 
for the individual legs of the Complex Order to the extent that the 
Complex Order can be executed in full or in a permissible ratio by 
such bids and offers. Legging is not available on the Exchange for 
cAOC orders, complex Standard quotes, complex eQuotes, or stock-
option orders.
---------------------------------------------------------------------------

    Legging is not available for cAOC orders, complex Standard quotes, 
complex eQuotes, or stock-option orders. The benefit of Legging against 
the individual components of a complex order or quote on the Simple 
Order Book is that complex orders can access the full liquidity of the 
Exchange's Simple Order Book, thus enhancing the possibility of 
executions at the best available prices on the Exchange.
    Notwithstanding the foregoing, the Exchange is proposing to 
establish, in proposed Rule 518(c)(2)(iii), that complex orders that 
could otherwise be eligible for Legging will only be permitted to trade 
against other complex orders in the Strategy Book in certain 
situations.
    Specifically, proposed Rule 518(c)(2)(iii) would provide that 
complex orders with two option legs where both legs are buying or both 
legs are selling and both legs are calls or both legs are puts may only 
trade against other complex orders on the Strategy Book and will not be 
permitted to leg into the Simple Order Book. Similarly, proposed Rule 
518(c)(2)(iii) would impose a similar restriction by stating that 
complex orders with three option legs where all legs are buying or all 
legs are selling may only trade against other complex orders on the 
Strategy Book (regardless of whether the option leg is a call or a 
put).\43\ The System will not generate derived orders for these complex 
orders.
---------------------------------------------------------------------------

    \43\ This is substantially similar to ISE Rules 722(b)(3)(ii)(A) 
and (B), which state that Complex orders with 2 option legs where 
both legs are buying or both legs are selling and both legs are 
calls or both legs are puts may only trade against other complex 
orders in the complex order book. The trading system will not 
generate legging orders for these complex orders, and complex orders 
with 3 or 4 option legs where all legs are buying or all legs are 
selling may only trade against other complex orders in the complex 
order book. See also, Securities Exchange Act Release No. 73023 
(September 9, 2014), 79 FR 55033 (September 15, 2014)(SR-ISE-2014-
10). This differs slightly from the Exchange's proposal because the 
Exchange's proposal applies to complex orders with two option legs 
in the same manner as the ISE rule, but applies to complex orders 
with three option legs (instead of three or four legs) where all 
legs are buying or all legs are selling, regardless of whether the 
option leg is a call or a put.
---------------------------------------------------------------------------

    Currently, Market Makers in the Simple Order Book are protected 
from undue risk of executions by way of the Aggregate Risk Manager 
(``ARM'') \44\ by limiting the number of contracts they execute in an 
option class on the Exchange within a specified time period (a 
``specified time period''). ARM automatically cancels and removes the 
Market Maker's Standard quotes from the Exchange's disseminated 
quotation in all series of a particular option class when it has 
determined that a Market Maker has traded a number of contracts equal 
to or above a percentage of their quotations (the ``Allowable 
Engagement Percentage'' or ``AEP'') during the specified time period. 
The purpose of ARM is to allow Market Makers to provide liquidity 
across potentially hundreds of options series without executing the 
full cumulative size of all such quotes before being given adequate 
opportunity to adjust the price and/or size of their quotes.
---------------------------------------------------------------------------

    \44\ See Exchange Rule 612.
---------------------------------------------------------------------------

    All of a Market Maker's quotes in each option class are considered 
firm until such time as the AEP threshold has been equaled or exceeded 
and the Market Maker's quotes are removed by ARM in all series of that 
option class.\45\ Thus the Legging of complex orders presents higher 
risk to Market Makers as compared to simple orders being entered in 
multiple series of an options class in the simple market, as it can 
result in Market Makers exceeding their established AEP by a greater 
number of contracts. Although Market Makers can limit their risk 
through the use of ARM, the Market Maker's quotes are not removed until 
after a trade is executed. As a result, because of the way complex 
orders leg into the regular market as a single transaction, Market 
Makers may end up trading more than the cumulative AEP they have 
established, and are therefore exposed to greater risk. The Exchange 
believes that Market Makers may be compelled to change their quoting 
and trading behavior to account for this additional risk by widening 
their quotes and reducing the size associated with their quotes, which

[[Page 58777]]

would diminish the Exchange's quality of markets and the quality of the 
markets in general.
---------------------------------------------------------------------------

    \45\ See Exchange Rule 612(c).
---------------------------------------------------------------------------

    The purpose of the limitations in proposed Rule 518(c)(2)(iii) is 
to minimize the impact of Legging on single leg Market Makers by 
limiting a potential source of unintended Market Maker risk when 
certain types of complex orders leg into the Simple Order Book. The 
Exchange believes that the proposed limitation on the availability of 
Legging to (i) complex orders with two option legs where both legs are 
buying or both legs are selling and both legs are calls or both legs 
are puts, and (ii) complex orders with three option legs where all legs 
are buying or all legs are selling regardless of whether the option leg 
is a call or a put, should serve to reduce the risk of Market Makers 
trading above their risk tolerance levels.
    Proposed Rule 518(c)(2)(iv) states that derived orders, as 
described above, may be automatically generated on behalf of complex 
orders so that they are represented at the best bid or offer on the 
Exchange for the individual legs, and shall be executed as provided in 
proposed Rule 518(a)(9), described above.
    Proposed Rule 518(c)(2)(v) sets forth the process for evaluation of 
complex orders and quotes, and the Strategy Book, on a regular basis 
and for various conditions and events that result in the System's 
particular handling and execution of complex orders and quotes in 
response to such regular evaluation, conditions and events. The System 
will evaluate complex orders and quotes initially once all components 
of the complex strategy are open as set forth in proposed Rule 
518(c)(2)(i) as described above, upon receipt as set forth in proposed 
Rule 518(c)(5)(i) as described below, and continually as set forth in 
proposed Rule 518(c)(5)(ii) as described below.\46\
---------------------------------------------------------------------------

    \46\ Other exchanges' systems conduct evaluations as well. For 
example, PHLX conducts an opening ``COOP Evaluation'' to determine, 
for a Complex Order Strategy, the price at which the maximum number 
of contracts can trade, taking into account Complex Orders marked 
all-or-none (which will be executed if possible) unless the maximum 
number of contracts can only trade without including all-or-none 
orders. See, e.g., PHLX Rule 1098(d)(ii)(C).
---------------------------------------------------------------------------

    The purpose of the evaluation process for complex orders and quotes 
is to determine (A) their eligibility to initiate, or to participate 
in, a Complex Auction as described in proposed Rule 518(d)(1) below; 
(B) their eligibility to participate in the managed interest process as 
described in proposed Rule 518(c)(4) below; (C) whether a derived order 
should be generated or cancelled; (D) if they are eligible for full or 
partial execution against a complex order or quote resting on the 
Strategy Book or through Legging with the Simple Order Book (as 
described in proposed Rule 518(c)(2)(iii) above); (E) whether the 
complex order or quote should be cancelled; and (F) whether the complex 
order or quote or any remaining portion thereof should be placed or 
remain on the Strategy Book.
    The Exchange notes that, while the rules of other exchanges do not 
include descriptions of the evaluation process with the same level of 
detail and specificity as the rules concerning the evaluation process 
in proposed Rule 518, such a process occurs on trading systems on other 
exchanges. For example, the CBOE system evaluates its book in a similar 
manner to the proposed evaluation of the Strategy Book when determining 
how to execute complex orders.\47\ PHLX evaluates the opening price and 
whether or not a trade can take place.\48\ ISE evaluates price limits 
for complex orders and quotes both on ISE and on away exchanges, 
outside of which they will either not be executed or will be rejected 
outright before entering the ISE system.\49\ The evaluation process is 
thus not a novel or unique concept; the Exchange is simply codifying it 
so that Members will know precisely how their complex orders are 
evaluated and handled by the System. The Exchange believes that this 
transparency provides Members with the necessary details concerning the 
manner in which the Strategy Book and their complex orders are 
evaluated.
---------------------------------------------------------------------------

    \47\ A similar evaluation takes place in that a complex order in 
the CBOE Complex Order Book will automatically execute against 
individual orders or quotes residing in the EBook (simple orders) 
provided the complex order can be executed in full (or in a 
permissible ratio) by the orders and quotes in EBook; complex orders 
in the COB that are marketable against each other will automatically 
execute. See CBOE Rules 6.53[sic](c)(ii)(1) and (2).
    \48\ Upon expiration of the Complex Order Opening Process Timer, 
the PHLX system will conduct a COOP Evaluation to determine, for a 
Complex Order Strategy, the price at which the maximum number of 
contracts can trade, taking into account Complex Orders marked all-
or-none (which will be executed if possible) unless the maximum 
number of contracts can only trade without including all-or-none 
orders. The PHLX will open the Complex Order Strategy at that price, 
executing marketable trading interest, in the following order: 
first, to non-broker-dealer customers in time priority; next to Phlx 
electronic market makers on a pro rata basis; and then to all other 
participants on a pro rata basis. The imbalance of Complex Orders 
that are unexecutable at that price are placed on the CBOOK. If at 
the end of the COOP Timer the System determines that no market or 
marketable limit Complex Orders or COOP Sweeps, Complex Orders or 
COOP Sweeps that are equal to or improve the cPBBO, and/or Complex 
Orders or COOP Sweeps that cross within the cPBBO exist in the 
System, all Complex Orders received during the COOP Timer will be 
placed on the CBOOK. If at the end of the COOP Timer the System 
determines that there are market or marketable limit Complex Orders 
or COOP Sweeps, Complex Orders or COOP Sweeps that are equal to or 
improve the cPBBO, and/or Complex Orders or COOP Sweeps that cross 
within the cPBBO in the System, the System will do the following: if 
such interest crosses and does not match in size, the execution 
price is based on the highest (lowest) executable offer (bid) price 
when the larger sized interest is offering (bidding), provided, 
however, that if there is more than one price at which the interest 
may execute, the execution price when the larger sized interest is 
offering (bidding) is the midpoint of the highest (lowest) 
executable offer (bid) price and the next available executable offer 
(bid) price rounded, if necessary, down (up) to the closest minimum 
trading increment. If the crossing interest is equal in size, the 
execution price is the midpoint of lowest executable bid price and 
the highest executable offer price, rounded, if necessary, up to the 
closest minimum trading increment. Executable bids/offers include 
any interest which could be executed at the net price without 
trading through residual interest or the cPBBO or without trading at 
the cPBBO where there is non-broker-dealer customer interest at the 
best bid or offer for any leg, consistent with Rule 1098(c)(iii). 
See PHLX Rule 1098(d)(ii)(C).
    \49\ ISE evaluates, among other things, prices at which complex 
orders are eligible or ineligible for execution. The legs of a 
complex order may be executed at prices that are inferior to the 
prices available on other exchanges trading the same options series. 
Notwithstanding, the ISE System will not permit any leg of a complex 
order to trade through the NBBO for the series by a configurable 
amount calculated as the lesser of (i) an absolute amount not to 
exceed $0.10, and (ii) a percentage of the NBBO not to exceed 500%, 
as determined by the Exchange on a class or series basis. A Member 
can also include an instruction on a complex order entered on the 
complex order book that each leg of the complex order is to be 
executed only at a price that is equal to or better than the 
national best bid or offer for the options series or any stock 
component, as applicable. The ISE System evaluates complex orders 
for rejection. ISE will reject any complex order strategy where all 
legs are to buy if it is entered at a price that is less than the 
minimum price, which is calculated as the sum of the ratio on each 
leg of the complex order multiplied by $0.01 per leg (e.g., an order 
to buy 2 calls and buy 1 put would have a minimum price of $0.03). 
See ISE Rule 722, Supplementary Material .07.
---------------------------------------------------------------------------

    The continual and event-triggered evaluation process ensures that 
the System is monitoring and assessing the Strategy Book for incoming 
complex orders and quotes, and changes in market conditions or events 
that cause complex orders to become due for execution or Complex 
Auction-eligible, and conditions or events that result in the 
cancellation of complex orders on the Strategy Book. This ensures the 
integrity of the Exchange's System in handling complex orders and 
results in a fair and orderly market for complex orders on MIAX.
Complex Order Priority
    Proposed Rule 518(c)(3) describes how the system will establish 
priority for complex orders. The proposed complex order priority 
structure is based generally on the same approach

[[Page 58778]]

and structure currently effective on MIAX respecting priority of orders 
and quotes in the simple market as established in Exchange Rule 
514.\50\ A complex order may be executed at a net credit or debit price 
with one other Member without giving priority to bids or offers 
established in the marketplace that are no better than the bids or 
offers comprising such net credit or debit; provided, however, that if 
any of the bids or offers established in the marketplace consist of a 
Priority Customer Order, at least one leg of the complex order must 
trade at a price that is better than the corresponding bid or offer in 
the marketplace by at least a $0.01 increment.\51\ Under the 
circumstances described above, if a stock-option order has one option 
leg, such option leg has priority over bids and offers established in 
the marketplace by Professional Interest (as defined in Rule 100) \52\ 
and Market Makers with priority quotes \53\ that are no better than the 
price of the options leg, but not over such bids and offers established 
by Priority Customer Orders. If a stock-option order has more than one 
option leg, such option legs may be executed in accordance with 
proposed Rule 518(c)(3)(i).
---------------------------------------------------------------------------

    \50\ Exchange Rule 514, Priority of Quotes and Orders, describes 
among other things the various execution priority, trade allocation 
and participation guarantees generally applicable to the Simple 
Order Book. Some sections of Exchange Rule 514 are cross-referenced 
herein and will apply as noted to complex orders, as the context 
requires.
    \51\ See Proposed Rule 518(c)(3). See also, ISE Rule 722(b)(2), 
which states that in this situation at least one leg must trade at a 
price that is better by at least one minimum trading increment, and 
PHLX Rule 1098(c)(iii), requiring in this situation that at least 
one option leg is executed at a better price than the established 
bid or offer for that option contract and no option leg is executed 
at a price outside of the established bid or offer for that option 
contract.
    \52\ The term ``Professional Interest'' means (i) an order that 
is for the account of a person or entity that is not a Priority 
Customer or (ii) an order or non-priority quote for the account of a 
Market Maker. See Exchange Rule 100.
    \53\ See Exchange Rule 517(b)(1).
---------------------------------------------------------------------------

    Regarding execution and allocation of complex orders, proposed Rule 
518(c)(3)(ii) establishes that complex orders will be automatically 
executed against bids and offers on the Strategy Book in price 
priority. Bids and offers at the same price on the Strategy Book will 
be executed pursuant to the following priority rules: (A) Priority 
Customer complex orders resting on the Strategy Book will have first 
priority to trade against a complex order. Priority Customer complex 
orders resting on the Strategy Book will be allocated in price time 
priority; (B) Market Maker Priority Interest for Complex will 
collectively have second priority. Market Maker Priority Interest for 
Complex will be allocated on a pro-rata basis as defined in Rule 
514(c)(2); (C) Market Maker non-Priority Interest for Complex will 
collectively have third priority. Market Maker non-Priority Interest 
for Complex will be allocated on a pro-rata basis as defined in Rule 
514(c)(2); (D) Non-Market Maker Professional Interest orders resting on 
the Strategy Book will collectively have fourth priority. Non-Market 
Maker Professional Interest orders will be allocated on a pro-rata 
basis as defined in Rule 514(c)(2).\54\
---------------------------------------------------------------------------

    \54\ In contrast, PHLX rules state that an incoming marketable 
Complex Order that does not trigger a COLA Timer will execute first 
against quotes or orders on the limit order book for the individual 
components of the order (whereas, under the instant proposal, 
outside of a Complex Auction the Exchange will first execute bids 
and offers at the same price on the Strategy Book), second, against 
non-broker-dealer customer Complex Orders and non-market maker 
broker-dealer Complex Orders resting in the CBOOK in price priority 
and, at the same price, against (i) non-broker-dealer customer 
Complex Orders in the order in which they were received; (ii) SQTs, 
RSQTs, non-SQT ROTs, specialists and non-PHLX market makers on 
another exchange on a size pro rata basis (whereas, under the 
instant proposal, the Exchange does not bundle all Market Makers in 
the same priority tier, and instead distinguishes between Market 
Maker Priority Interest, which is executed and allocated on a pro 
rata basis before Market Maker non-Priority Interest, which is 
thereafter executed and allocated on a pro rata basis); and (iii) 
non-market-maker broker-dealer Complex Orders on a size pro rata 
basis. See PHLX Rule 1098(f)(iii).
---------------------------------------------------------------------------

Managed Interest Process for Complex Orders
    In order to ensure that complex orders (which are non-routable) 
receive the best executions on the Exchange, proposed Rule 518(c)(4), 
sets forth the price(s) at which complex orders will be placed on the 
Strategy Book. The managed interest process is initiated when a complex 
order that is eligible to be placed on the Strategy Book cannot be 
executed against either the Strategy Book or the Simple Order Book 
(with the individual legs) at the complex order's net price, and is 
intended to ensure that a complex order to be managed does not result 
in a locked or crossed market on the Exchange. Once initiated, the 
managed interest process for complex orders will be based upon the 
icMBBO.\55\
---------------------------------------------------------------------------

    \55\ A complex order for which the ixABBO protection is engaged 
will be managed to the ixABBO as described below and in proposed 
Rule 518, Interpretations and Policies .05(d).
---------------------------------------------------------------------------

    Under the managed interest process, a complex order that is resting 
on the Strategy Book and is either a complex market order as described 
in proposed Rule 518(c)(6) and discussed below, or has a limit price 
that locks or crosses the current opposite side icMBBO when the icMBBO 
is the best price, may be subject to the managed interest process for 
complex orders as discussed herein. Complex Standard quotes are not 
eligible for inclusion in the managed interest process. An unexecuted 
complex Standard quote with a limit price that would otherwise be 
managed to the icMBBO will be cancelled. If the order is not a Complex 
Auction-eligible order as defined in proposed Rule 518(d)(1) and 
described below, the System will first determine if the inbound complex 
order can be matched against other complex orders and/or quotes resting 
on the Strategy Book at a price that is at or inside the icMBBO 
(provided there are no Priority Customer orders on the Simple Order 
Book at that price). Second, the System will determine if the inbound 
complex order can be executed by Legging against individual orders and 
quotes resting on the Simple Order Book at the icMBBO. A complex order 
subject to the managed interest process will never be executed at a 
price that is through the individual component prices on the Simple 
Order Book. Furthermore, the net price of a complex order subject to 
the managed interest process that is executed against another complex 
order on the Strategy Book will never be inferior to the price that 
would be available if the complex order legged into the Simple Order 
Book. When the opposite side icMBBO includes a Priority Customer Order, 
the System will book and display such booked complex order on the 
Strategy Book at a price (the ``book and display price'') that is $0.01 
away from the current opposite side icMBBO.
Example--Complex order managed interest when Priority Customer Interest 
at the icMBBO is Present

    MIAX--LMM quote Mar 50 Call 6.00-6.50 (10x10)
    MIAX--LMM quote Mar 55 Call 2.00-2.30 (10x10)
    MIAX Priority Customer order Mar 55 Call 2.10 bid (1)

The Exchange receives an Initiating Customer buy complex order to 
purchase 1 Mar 50 Call and sell 2 Mar 55 Calls for a 2.30 debit, 100 
times. The cAOA instruction is not present on this order, so the order 
will not initiate an auction upon arrival regardless of its 
relationship to the Improvement Percentage.

icMBBO is 1.40 debit bid at 2.30 credit offer

Since the Mar 55 call is 2.10 bid for only one contract (the MIAX 
Priority Customer order), the complex order cannot be legged against 
the Simple Order Book at a 2.30 debit as a 2.30 debit would require 
selling two March 55 Calls at 2.10 while buying one March 50 Call at 
6.50. Since there is Priority

[[Page 58779]]

Customer interest on one leg of the complex order on the Simple Order 
Book, the inbound complex order cannot trade at this price by matching 
with other complex liquidity. Thus, the order is managed for display 
purposes at a price one penny inside of the opposite side icMBBO, 2.29 
and is available to trade with other complex liquidity at 2.29. Since 
there is no managed interest on the Simple Order Book, the icMBBO is 
equal to the dcMBBO in this case and remains 1.40 debit bid at 2.30 
credit offer. The combination of the Simple Order Book and the Strategy 
Book will be a one penny wide market of 2.29 debit bid at 2.30 credit 
offer. If additional interest were to arrive on the Mar 55 Call 2.10 
bid, the inbound complex order would be re-evaluated and would in this 
example become eligible to leg with the Priority Customer interest on 
the Simple Order Book at the 2.30 credit offer.
    When the opposite side icMBBO does not include a Priority Customer 
Order and is not available for execution in the ratio of such complex 
order, or cannot be executed through Legging with the Simple Order 
Book, the System will place such complex order on the Strategy Book and 
display such booked complex order at a book and display price that will 
lock the current opposite side icMBBO because it is a price at which 
another complex order or quote can trade.
Example--Complex Market order managed interest when Priority Customer 
Interest at the icMBBO is Present

    MIAX--LMM quote Mar 50 Call 6.00-6.50 (10x10)
    MIAX--LMM quote Mar 55 Call 2.00-2.30 (10x10)
    MIAX Priority Customer order Mar 55 Call 2.10 bid (1)

The Exchange receives an Initiating Customer buy complex order to 
purchase 1 Mar 50 Call and sell 2 Mar 55 Calls for a market debit, 100 
times. The cAOA instruction is not present on this order, so the order 
will not initiate an auction upon arrival regardless of its 
relationship to the IIP.

The icMBBO is 1.40 debit bid at 2.30 credit offer
The dcMBBO is 1.40 debit bid at 2.30 credit offer

Since the Mar 55 call is 2.10 bid for only one contract (the MIAX 
Priority Customer order), the complex order cannot be legged against 
the Simple Order Book at a 2.30 debit (the complex market order's 
assigned dcMBBO price), because a 2.30 debit would require selling two 
March 55 Calls at 2.10 while buying one March 50 Call at 6.50. Since 
there is Priority Customer interest on one leg of the complex order on 
the Simple Order Book, the inbound complex order cannot trade at this 
price by matching with other complex liquidity. Thus, the complex order 
is managed for display purposes at a price one penny inside of the 
opposite side icMBBO, 2.29 and is available to trade with other complex 
liquidity at 2.29. Since there is no managed interest on the Simple 
Order Book, the icMBBO is equal to the dcMBBO in this case and remains 
1.40 debit bid at 2.30 credit offer. The combination of the Simple 
Order Book and the Strategy Book will be a one penny wide market of 
2.29 debit bid at 2.30 credit offer.
    If additional interest were to arrive on the Mar 55 Call 2.10 bid, 
the resting complex order would be re-evaluated and would in this 
example become eligible to leg with the icMBBO or dcMBBO since they are 
equal, which includes Priority Customer interest on the Simple Order 
Book at the 2.30 credit offer.
Example--Complex order managed interest when the ratio to allow Legging 
does not exist, and there is no Priority Customer Interest

    MIAX--LMM quote Mar 50 call 6.00-6.50 (10x10)
    MIAX--LMM quote Mar 55 call 2.00-2.30 (10x10)
    MIAX Professional order Mar 55 Call 2.10 bid (1)

The Exchange receives an Initiating Customer buy complex order to 
purchase 1 Mar 50 call and sell 2 Mar 55 calls for a 2.30 debit, 100 
times.
The icMBBO is 1.40 debit bid at 2.30 credit offer

The cAOA instruction is not present on this complex order, so the 
complex order will not initiate an auction upon arrival regardless of 
its relationship to the URIP.
    Since the Mar 55 call is 2.10 bid for only one contract (the MIAX 
Professional order), the complex order cannot be legged against the 
Simple Order Book at a 2.30 debit, as a 2.30 debit would require 
selling two March 55 Calls at 2.10 while buying one March 50 Call at 
6.50. Although the inbound complex order cannot trade at this time 
because there is insufficient interest to buy the March 55 Call, there 
is no Priority Customer interest on either side of the 2.30 credit 
offer and therefor the order will be able to trade at that price when 
sufficient interest exists. Thus, the order is managed for display 
purposes at a price locking the opposite side icMBBO 2.30 and is 
available to trade against other complex interest at 2.30. Since there 
is no managed interest on the Simple Order Book, the icMBBO is equal to 
the dcMBBO and remains 1.40 debit bid at 2.30 credit offer. The 
combination of the Simple Order Book and the Strategy Book will be a 
locked market of 2.30 debit bid at 2.30 credit offer.
Example--Complex Market order managed interest when the ratio to allow 
Legging does not exist, and there is no Priority Customer Interest

    MIAX--LMM quote Mar 50 call 6.00-6.50 (10x10)
    MIAX--LMM quote Mar 55 call 2.00-2.30 (10x10)
    MIAX Professional order Mar 55 Call 2.10 bid (1)

The Exchange receives an Initiating Customer buy complex order to 
purchase 1 Mar 50 call and sell 2 Mar 55 calls for a market debit, 100 
times.

The icMBBO is 1.40 debit bid at 2.30 credit offer
The dcMBBO is 1.40 debit bid at 2.30 credit offer

The cAOA instruction is not present on this order, so the order will 
not initiate an auction upon arrival regardless of its relationship to 
the URIP.
Since the Mar 55 call is 2.10 bid for only one contract (the MIAX 
Professional order), the complex order cannot be legged against the 
Simple Order Book at a 2.30 debit (the complex market order's assigned 
dcMBBO price), as a 2.30 debit would require selling two March 55 Calls 
at 2.10 while buying one March 50 Call at 6.50. Although the inbound 
complex order cannot trade at this time because there is insufficient 
interest to buy the March 55 Call, there is no Priority Customer 
interest on either side of the 2.30 credit offer and therefor the order 
will be able to trade at that price when sufficient interest exists. 
Thus, the complex order is managed for display purposes at a price 
locking the opposite side icMBBO which is equal to the dcMBBO at 2.30 
and is available to trade against other complex interest at 2.30. Since 
there is no managed interest on the Simple Order Book, the icMBBO is 
equal to the dcMBBO and remains 1.40 debit bid at 2.30 credit offer. 
The combination of the Simple Order Book and the Strategy Book will be 
a locked market of 2.30 debit bid at 2.30 credit offer.
    Should the icMBBO change, the complex order's book and display 
price will continuously re-price to the new icMBBO until (A) the 
complex order has been executed in its entirety; (B) if not executed, 
the complex order has been placed on the Strategy Book at prices up to 
and including its limit price or, in the case of a complex market 
order, at the

[[Page 58780]]

new icMBBO; (C) the complex order has been partially executed and 
remaining unexecuted contracts have been placed on the Strategy Book at 
prices up to and including their limit price or, in the case of a 
complex market order, at the new icMBBO; or (D) the complex order or 
any remaining portion of the complex order is cancelled. If the 
Exchange receives a new complex order or quote for the complex strategy 
on the opposite side of the market from the managed complex order that 
can be executed, the System will immediately execute the remaining 
contracts from the managed complex order to the extent possible at the 
complex order's current book and display price, provided that the 
execution price is not outside of the current icMBBO. If unexecuted 
contracts remain from the complex order on the Strategy Book, the 
complex order's size will be revised and disseminated to reflect the 
complex order's remaining contracts at its current managed book and 
display price.
    The purpose of using the calculated icMBBO is to enable the System 
to determine a valid trading price range for complex strategies and to 
protect orders resting on the Simple Order Book by ensuring that they 
are executed when entitled. Additionally, the managed interest process 
is designed to ensure that the System will not execute any component of 
a complex order at a price that would trade through an order on the 
Simple Order Book or that would disrupt the established priority of 
Priority Customer interest resting on the Simple Order Book.\56\ The 
Exchange believes that this is reasonable because it prevents the 
components of a complex order from trading at a price that is inferior 
to a price at which the individual components may be traded on MIAX and 
it maintains the priority for Priority Customers resting on the Simple 
Order Book.
---------------------------------------------------------------------------

    \56\ For a complete description of priority in the Simple Order 
Book, see Exchange Rule 514.
---------------------------------------------------------------------------

Evaluation Process
    Proposed Rule 518(c)(5) describes how and when the System 
determines to execute or otherwise handle complex orders in the System. 
As stated above, the System will evaluate complex orders and quotes and 
the Strategy Book on a regular basis and to respond to the existence of 
various conditions and/or events that trigger an evaluation. Evaluation 
results in the various manners of handling and executing complex orders 
and quotes as described herein. The System will evaluate complex orders 
and quotes initially once all components of the complex strategy are 
open as set forth in proposed Rule 518(c)(2)(i) as described above, 
upon receipt as set forth in proposed Rule 518(c)(5)(i) as described 
below, and continually as set forth in proposed Rule(c)(5)(ii) as 
described below.
    Proposed Rule 518(c)(5)(i) describes the evaluation process that 
occurs upon receipt of complex orders and quotes once a complex 
strategy is open for trading. After a complex strategy is open for 
trading, all new complex orders and quotes that are received for the 
complex strategy are evaluated upon arrival. The System will determine 
if such complex orders are Complex Auction-eligible orders, using the 
process and criteria regarding the Upon Receipt Improvement Percentage 
(``URIP'') as described below.\57\ The System will also evaluate (A) 
whether such complex orders or quotes are eligible for full or partial 
execution against a complex order or quote resting on the Strategy 
Book; (B) whether such complex orders or quotes are eligible for full 
or partial execution through Legging with the Simple Order Book (as 
described in proposed Rule 518(c)(2)(iii) and discussed above); (C) 
whether all or any remaining portion of a complex order or quote should 
be placed on the Strategy Book; (D) whether a derived order should be 
generated or cancelled; (E) the eligibility of such complex orders and 
quotes (as applicable) to participate in the managed interest process 
as described above; \58\ and (F) whether such complex orders should be 
cancelled.
---------------------------------------------------------------------------

    \57\ See proposed Rule 518, Interpretations and Policies .03(b).
    \58\ See proposed Rule 518(c)(4).
---------------------------------------------------------------------------

    Proposed Rule 518(c)(5)(ii) describes the System's ongoing regular 
evaluation of the Strategy Book. The System will continue to evaluate 
complex orders and quotes on the Strategy Book to determine if such 
complex orders are Complex Auction-eligible orders, using the process 
and criteria described in Proposed Rule 518, Interpretations and 
Policies .03(c) regarding the Re-evaluation Improvement Percentage 
(``RIP'') described below. The System will also continue, on a regular 
basis, to evaluate the factors listed in (A)-(F) above.
    The System will also continue to evaluate whether there is a SMAT 
Event as defined above, a wide market condition (as described in 
Proposed Rule 518, Interpretations and Policies .05(e)(1) and discussed 
below), a halt (as described in proposed Rule 518, Interpretations and 
Policies .05(e)(3) and discussed below) affecting any component of a 
complex strategy. Complex orders and quotes will be handled during such 
events in the manner set forth in proposed Rule 518, Interpretations 
and Policies .05(e), as discussed below.
    Proposed Rule 518(c)(5)(iii) states that if the System determines 
that a complex order is a Complex Auction-eligible order (described 
below), such complex order will be submitted into the Complex Auction 
process as described in proposed Rule 518(d) and discussed below.
    Proposed Rule 518(c)(5)(iv) describes the handling of orders that 
are determined not to be Complex Auction-eligible. If the System 
determines that a complex order is not a Complex Auction-eligible 
order, such complex order may be, as applicable, immediately matched 
and executed against a complex order or quote resting on the Strategy 
Book; executed against the individual components of the complex order 
on the Simple Order Book through Legging (as described in proposed Rule 
518(c)(2)(iii) above; placed on the Strategy Book and managed pursuant 
to the managed interest process as described in proposed Rule 518(c)(4) 
and discussed above; or cancelled by the System if the time-in-force 
(i.e., IOC) of the complex order does not allow it to rest on the 
Strategy Book.
    The Exchange is proposing to establish complex orders that may be 
submitted as market orders. Proposed Rule 518(c)(6) states that complex 
orders may be submitted as market orders and may be designated as cAOA. 
The proposed rule distinguishes between complex market orders 
designated as cAOA and those that are not so designated.
    Proposed Rule 518(c)(6)(i) states that complex market orders 
designated as cAOA may initiate a Complex Auction upon arrival or join 
a Complex Auction in progress. The Complex Auction process is set forth 
in proposed Rule 518(d) and discussed below. Proposed Rule 
518(c)(6)(ii), Complex Market Orders not Designated as cAOA, states 
that complex market orders not designated as cAOA will trade 
immediately with any contra-side complex orders or quotes, or against 
the individual legs, up to and including the dcMBBO, and may be subject 
to the managed interest process, and the Evaluation Process, each as 
described above.
Complex Auction Process
    Proposed Rule 518(d), Complex Auction Process, describes the 
process for determining if a complex order is

[[Page 58781]]

eligible to begin a Complex Auction, and to participate in a Complex 
Auction that is in progress. Certain option classes, as determined by 
the Exchange and communicated to Members via Regulatory Circular, will 
be eligible to participate in a Complex Auction (an ``eligible 
class''). Upon evaluation as described above, the Exchange may 
determine to automatically submit a Complex Auction-eligible order 
(defined below) into a Complex Auction (as described below). Upon entry 
into the System or upon evaluation of a complex order resting at the 
top of the Strategy Book, Complex Auction-eligible orders may be 
subject to an automated request for responses (``RFR''), as described 
below.
    Proposed Rule 518(d)(1) defines and describes the handling of a 
Complex Auction-eligible order. A ``Complex Auction-eligible order'' 
means a complex order that, as determined by the Exchange, is eligible 
to initiate or join a Complex Auction based upon the order's 
marketability (i.e., if the price of such order is equal to or within a 
specific range of the current dcMBBO) as established by the Exchange, 
number of components, and complex order origin types (i.e., non-broker-
dealer customers, broker-dealers that are not market makers on an 
options exchange, and/or market makers on an options exchange as 
established by the Exchange and communicated to Members via Regulatory 
Circular).\59\ Exchange Market Makers have an obligation to provide 
liquidity on the Exchange, and the Exchange believes that it is not 
appropriate for Exchange Market Makers to submit orders intended to 
initiate Complex Auctions, and instead that they should provide 
liquidity via RFR Responses (described below) during the Response Time 
Interval (described below). Other exchanges also have limited auction 
eligibility for complex orders based on order origin type.\60\
---------------------------------------------------------------------------

    \59\ See also NYSE MKT Rule 980NY(e)(1), which lists Customers, 
broker-dealers that are not Market-Makers or specialists on an 
options exchange, and/or Market-Makers or specialists on an options 
exchange.
    \60\ See id. See also, e.g., CBOE Regulatory Circular RG14-143 
(October 14, 2014), limiting Complex Order Auction (``COA'') 
eligibility to non-broker-dealer public customer orders and 
professional customer orders.
---------------------------------------------------------------------------

    In order to initiate a Complex Auction upon receipt, a Complex 
Auction-eligible order must be designated as cAOA and must meet the 
criteria described in proposed Rule 518, Interpretations and Policies 
.03(b) regarding the URIP as described below. A complex order not 
designated as cAOA (i.e., a complex order considered by default to be 
``do not auction on arrival'' by the System) may (i) join a Complex 
Auction in progress at the time of receipt; (ii) become a Complex 
Auction-eligible order after resting on the Strategy Book and may then 
automatically join a Complex Auction then in effect for the complex 
strategy; or (iii) initiate a Complex Auction if it meets the criteria 
described in proposed Rule 518, Interpretations and Policies .03(a) 
regarding the IIP or .03(c) regarding the RIP.
    A complex order not designated as cAOA will still have execution 
opportunities. A complex order not designated as cAOA is deemed to be 
``do not auction on arrival'' by the System by default. Such a complex 
order will still have the opportunity to execute upon entry into the 
System without initiating a Complex Auction. For example, such an order 
may execute automatically upon entry into the System by matching with 
complex orders and/or quotes resting on the Strategy Book at a price 
that is at or inside the icMBBO, or via Legging against the Simple 
Order Book to the extent they are marketable. Additionally, such an 
order on the opposite side of, and marketable against, a Complex 
Auction-eligible order may trade against the Complex Auction-eligible 
order if the System receives the order while a Complex Auction 
ongoing.\61\
---------------------------------------------------------------------------

    \61\ A MIAX complex order not designated as cAOA will not be 
considered a Complex Auction-eligible order by default. The Exchange 
believes that this gives market participants extra flexibility to 
control the handling and execution of their complex orders by the 
System by giving them the ability to determine affirmatively to have 
their complex order initiate a Complex Auction by way of the cAOA 
designation. In contrast, CBOE Rule 6.53C (d)(ii)(B) expressly 
states that Trading Permit Holders may request on an order by order 
basis that an incoming COA eligible order with two legs not COA (a 
``do not COA'' request).
---------------------------------------------------------------------------

    Complex orders processed through a Complex Auction may be executed 
without consideration to prices of the same complex interest that might 
be available on other exchanges.
    Proposed Rule 518(d)(2) describes the circumstances under which a 
Complex Auction is begun. Upon receipt of a Complex Auction-eligible 
order or upon an evaluation by the System indicating that there is a 
Complex Auction-eligible order resting on the Strategy Book, the 
Exchange may begin the Complex Auction process by sending an RFR 
message. The RFR message will be sent to all subscribers to the 
Exchange's data feeds that deliver RFR messages. The RFR message will 
identify the complex strategy, the price, quantity of matched complex 
quotes and/or orders at that price, imbalance quantity, and side of the 
market of the Complex Auction-eligible order. The inclusion of the 
quantity of matched complex quotes and/or orders at the price included 
in the RFR message is intended to inform participants considering 
submitting an RFR Response of the number of contracts for which there 
is matched interest, and the purpose of including the imbalance 
quantity in the RFR message is to inform such participants of the 
number of contracts that do not have matched interest. The Exchange 
believes that this level of detail should provide such participants 
with specific information about a Complex Auction in which they may 
decide to participate. The sum of the matched interest quantity and the 
imbalance quantity is equal to the size of the initiating Complex 
Auction-eligible order that is being auctioned.\62\ The price included 
in the RFR message will be the limit order price, unless that price is 
through the opposite side dcMBBO or the Complex Auction is initiated by 
a complex market order, in which case such price will be the dcMBBO.
---------------------------------------------------------------------------

    \62\ See also NYSE MKT Rule 980NY(e)(2), which differs slightly 
because it includes size, but does not include an imbalance quantity 
or matched quantity, but states similarly that RFR messages will 
identify the component series and side of the market of the order 
and any contingencies.
---------------------------------------------------------------------------

    The Exchange may determine to limit the frequency of Complex 
Auctions for a complex strategy (i.e., establish a minimum time period 
between Complex Auctions initiated for complex orders in that strategy 
resting on the Strategy Book). The duration of such limitation will be 
established on an Exchange-wide basis and communicated to Members via 
Regulatory Circular.\63\ The Exchange will not change the duration of 
the minimum time period on an intra-day basis during any trading 
session. The purpose of this limitation is to safeguard the integrity 
of the System and to ensure an orderly market on the Exchange. The 
Exchange believes that it is possible that there could be multiple 
Complex Auctions commencing and in progress at any particular time, and 
that without such a limitation the Exchange could be inundated with 
Complex Auctions and that an unusually large number of simultaneous 
Complex Auctions could be disruptive to the orderly function of the 
System. Despite this limitation respecting orders resting on the 
Strategy Book, however, a new

[[Page 58782]]

complex order received by the System during such limitation that 
ordinarily triggers a Complex Auction will still trigger a Complex 
Auction upon receipt.
---------------------------------------------------------------------------

    \63\ The frequency of auctions for complex orders is also 
limited on another exchange. See, e.g., CBOE Rule 6.53C, 
Interpretations and Policies .04, which states that CBOE may also 
determine on a class-by-class and strategy basis to limit the 
frequency of COAs initiated for complex orders resting in COB.
---------------------------------------------------------------------------

    Proposed Rule 518(d)(3) defines the amount of time within which 
participants may respond to an RFR message. The term ``Response Time 
Interval'' means the period of time during which responses to the RFR 
may be entered. The Exchange will determine the duration of the 
Response Time Interval, which shall not exceed 500 milliseconds, and 
will communicate it to Members via Regulatory Circular.\64\
---------------------------------------------------------------------------

    \64\ Unlike other exchanges, the Exchange is not proposing a 
minimum Response Time Interval (see NYSEArca Rule 6.91, which 
establishes a minimum Response Time Interval of 500 milliseconds and 
a maximum of 1 second), and is limiting the Response Time Interval 
to a maximum of 500 milliseconds, whereas other exchanges have a 
maximum Response Time Interval of 100 milliseconds (see BOX Rule 
7245(f)(1)) and others have a Response Time Interval of up to 3 
seconds (see CBOE Rule 6.53C(d)(iii)(2)). The Exchange believes that 
500 milliseconds is a reasonable amount of time within which 
participants can respond to an RFR message.
---------------------------------------------------------------------------

    Proposed Rule 518(d)(4) states that Members may submit a response 
to the RFR message (an ``RFR Response'') during the Response Time 
Interval. RFR Responses may be submitted in $0.01 increments. RFR 
Responses must be a cAOC order or a cAOC eQuote \65\ (discussed below), 
and may be submitted on either side of the market. RFR Responses 
represent non-firm interest that can be modified or withdrawn at any 
time prior to the end of the Response Time Interval. At the end of the 
Response Time Interval, RFR Responses are firm (i.e., guaranteed at the 
RFR price and size). All RFR Responses and other complex orders and 
quotes on the opposite side of the Complex Auction-eligible order are 
also firm with respect to other incoming Complex Auction-eligible 
orders that are received during the Response Time Interval. Any RFR 
Responses not executed in full will expire at the end of the Complex 
Auction.\66\
---------------------------------------------------------------------------

    \65\ A ``Complex Auction or Cancel eQuote'' or ``cAOC eQuote'' 
is an eQuote submitted by a Market Maker that is used to provide 
liquidity during a specific Complex Auction with a time in force 
that corresponds with the duration of the Complex Auction. See 
proposed Rule 518, Interpretations and Policies .02(c)(2)[sic]. cAOC 
eQuotes are not displayed to any market participant, are not 
included in the MBBO and therefore are not eligible for trading 
outside of the event (in this case the Complex Auction). A cAOC 
eQuote does not automatically cancel or replace the Market Maker's 
previous Standard quote or eQuote. See Exchange Rule 517(a)(2)(ii). 
The Exchange notes that any orders or quotes received by the System 
during the Complex Auction that are not cAOC orders or cAOC eQuotes 
will be treated as unrelated trading interest. In addition, the 
Exchange notes that a cAOC order or a cAOC eQuote could trade at a 
price inferior to the away market if it is a part of an exempt 
transaction. See Exchange Rule 1402.
    \66\ This differs slightly from, but has the same effect as, the 
language in CBOE Rule 6.53C(d)(vii), which states that any RFR 
Responses not accepted in whole or in a permissible ratio will 
expire at the end of the Response Time Interval.
---------------------------------------------------------------------------

    Proposed Rule 518(d)(5) describes how Complex Auction-eligible 
orders are handled following the Response Time Interval.
    At the end of the Response Time Interval, Complex Auction-eligible 
orders (and other complex orders and quotes) may be executed in whole 
or in part. Complex Auction-eligible orders will be executed against 
the best priced contra side interest, and any unexecuted portion of a 
Complex Auction-eligible order remaining at the end of the Response 
Time Interval will either be evaluated to determine if it may initiate 
another Complex Auction, or placed on the Strategy Book and ranked 
pursuant to proposed Rule 518(c)(3) as discussed above.
    The Complex Auction will terminate at the end of the Response Time 
Interval without trading when any individual component of a complex 
strategy in the Complex Auction process is subject to a wide market 
condition as described in proposed Rule 518, Interpretations and 
Policies .05(e)(1), or to a SMAT Event as described in proposed Rule 
518(a)(16) and proposed Interpretations and Policies .05(e)(2), or 
immediately without trading if any individual component or underlying 
security of a complex strategy in the Complex Auction process is 
subject to a halt as described in proposed Rule 518, Interpretations 
and Policies .05(e)(3). Upon the conclusion of these condition(s) or 
process(es), an affected complex order will be evaluated and may 
initiate a new Complex Auction if such complex order is determined to 
be a Complex Auction-eligible order.
Example--Complex Auction termination without trading due to a SMAT 
Event (a PRIME Auction) followed by a new Evaluation upon resolution of 
the PRIME Auction.

    MIAX--LMM Mar 50 Call 6.00-6.50 (10x10)
    MIAX--LMM Mar 55 Call 3.00-3.30 (10x10)

The Exchange receives an Initiating Customer buy complex order to 
purchase 1 Mar 50 call and sell 1 Mar 55 call for a 3.20 debit, 1000 
times. The cAOA instruction is present on this order, so the order will 
initiate an auction upon arrival if it equals or improves the URIP.

    The icMBBO is 2.70 debit bid at 3.50 credit offer
    The dcMBBO is 2.70 debit bid at 3.50 credit offer
    The URIP Percentage is 60% of the bid/ask spread or 0.48

Since the order price exceeds the URIP requirement (2.70 + 0.48 = 3.18) 
to initiate an auction upon arrival, an RFR is broadcast to all 
subscribers showing price, the quantity of matched complex quotes and/
or orders at that price, imbalance quantity, and side, and a 500 
millisecond Response Time Interval is started.
    The System starts the auction at the Initiating Priority Customer 
price bidding 3.20 to buy 1000 contracts. The following responses are 
received:

 @ 50 milliseconds BD1 response, cAOC Order @ 3.10 credit sell 
of 1000 arrives
 @ 150 milliseconds MM1 response, cAOC eQuote @ 3.00 credit 
sell of 500 arrives
 @ 200 milliseconds MM3 response, cAOC eQuote @ 3.20 credit 
sell of 500 arrives
 @ 250 milliseconds MM4 response, cAOC eQuote @ 3.10 credit 
sell of 250 arrives
 @ 350 milliseconds BD2 submits an unrelated complex order @ 
2.70 credit sell of 200 arrives and joins the Complex Auction
 @ 400 milliseconds a PRIME Auction begins in either the Mar 50 
Call or the Mar 55 Call

The Complex Auction process will continue until the Response Time 
Interval ends. When the 500 millisecond Response Time Interval 
ends,\67\ the Complex Auction ends without a trade, because one 
component is in a PRIME Auction. All RFR Responses, cAOC orders and 
eQuotes are cancelled. The unrelated complex order to sell @ 2.70 
credit is placed on the Strategy Book. If at the conclusion of the SMAT 
Event (PRIME Auction), the initiating Customer buy complex order to 
purchase 1 Mar 50 call and sell 1 Mar 55 call for a 3.20 debit is 
resting on the Complex book and available upon the next evaluation 
following the PRIME Auction an evaluation and a new Complex Auction can 
be initiated. Upon evaluation the initiating Customer complex order to 
buy 1000 @ 3.20 is now crossing the BD2 complex order to sell 200 @ 
2.70. Because there is an imbalance the best price of the imbalance is 
used to determine if the

[[Page 58783]]

imbalance price equals or improves the Re-evaluation Improvement 
Percentage (RIP).
---------------------------------------------------------------------------

    \67\ The Exchange will determine the duration of the Response 
Time Interval, which shall not exceed 500 milliseconds, and will 
communicate it to Members via Regulatory Circular. See proposed Rule 
518(d)(3). All examples in this proposal assume a 500 millisecond 
Response Time Interval unless otherwise indicated.

MIAX--LMM Mar 50 Call 6.00-6.50 (10x10)
MIAX--LMM Mar 55 Call 3.00-3.30 (10x10)
The icMBBO is 2.70 debit bid at 3.50 credit offer
The dcMBBO is 2.70 debit bid at 3.50 credit offer
The URIP Percentage is 60% of the bid/ask spread or 0.48

Since the best order price on the imbalance side exceeds the RIP 
requirement (2.70 + 0.48 = 3.18) to initiate a new Complex Auction, an 
RFR message is broadcast to all subscribers showing the price, quantity 
of matched complex quotes and/or orders at that price, the imbalance 
quantity, and side and a 500 millisecond Response Time Interval is 
started.
    The System starts the auction at the best imbalance price, in this 
case the Initiating Priority Customer price bidding 3.20 to buy 1000 
strategies. In addition to the existing crossed interest of BD2 complex 
order to sell 200 @ 2.70 credit, the following responses are received:

 @ 50 milliseconds BD1 response, cAOC Order @ 3.20 credit sell 
of 400 arrives
 @ 150 milliseconds MM1 response, cAOC eQuote @ 3.10 credit 
sell of 200 arrives
 @ 200 milliseconds MM3 response, cAOC eQuote @ 3.15 credit 
sell of 200 arrives

The Complex Auction process will continue until the Response Time 
Interval ends. When the 500 millisecond Response Time Interval ends, 
the Complex Auction price determination will find the maximum quantity 
that can trade. In this case a single price of 3.20 satisfies the 
maximum quantity of 1000 and becomes the final auction price.

 Trade 1,000 at $3.20
 Customer buys 400 from BD1
 Customer buys 200 from BD2
 Customer buys 200 from MM1
 Customer buys 200 from MM3
Complex Auction Pricing
    Proposed Rule 518(d)(6) describes the manner in which the System 
prices and executes complex orders and quotes at the conclusion of the 
Response Time Interval.
    The proposed Rule initially states the broader pricing policy and 
functionality of all trading of complex orders in the System (whether a 
trade is executed in the Complex Auction process or in free trading). 
Specifically, a complex strategy will not be executed at a net price 
that would cause any component of the complex strategy to be executed: 
(A) At a price of zero; or (B) ahead of a Priority Customer order on 
the Simple Order Book without improving the MBBO on at least one 
component of the complex strategy by at least $.01.
    At the conclusion of the Response Time Interval, using $0.01 inside 
the current icMBBO as the boundary (the ``boundary''), the System will 
calculate the price where the maximum quantity of contracts can trade 
and also determine whether there is an imbalance. The purpose of using 
a boundary of $.01 inside the icMBBO as the Complex Auction price in 
this situation is to protect the Simple Order Book and to ensure that 
executions following the Response Time Interval are not blocked by a 
bid or offer on the Simple Order Book on the opposite side of the 
market for a component of a Complex strategy that will not satisfy the 
requisite ratio for the complex order.
Example--Complex Auction takes place $.01 inside of the icMBBO to avoid 
a situation where nothing can trade and the incoming order cannot be 
satisfied at the Complex Auction price.

    MIAX--LMM Mar 50 Call 0.99-1.05 (10x10)
    MIAX--LMM Mar 55 Call 0.80-0.95 (10x10)
    MIAX Priority Customer order to buy a Mar 50 Call for 1.00 (2)

The Exchange receives an initiating Priority Customer complex order to 
sell 3 Mar 50 calls and buy 2 Mar 55 calls at a 1.10 credit, 100 times. 
The cAOA instruction is present on this complex order, so the complex 
order will initiate a Complex Auction upon arrival if it equals or 
improves the URIP.

The icMBBO is 1.10 debit at 1.55 credit
The dcMBBO is 1.10 debit at 1.55 credit
The URIP Percentage is 60% of the bid/ask spread or 0.27
Since the initiating Priority Customer order price exceeds the URIP 
requirement (1.55-0.27=1.28) to initiate a Complex Auction upon 
arrival, an RFR is broadcast showing price, the quantity of matched 
complex quotes and/or orders at that price, imbalance quantity, and 
side and a 500 millisecond Response Time Interval is started.
The System starts the Complex Auction at the initiating Priority 
Customer price offering to sell 100 strategies at 1.11. The following 
responses are received:

 @ 50 milliseconds MM1 response, cAOC eQuote to buy 100 @ 1.10 
debit arrives
 @ 150 milliseconds MM4 response, cAOC eQuote to buy 50 @ 1.11 
debit arrives
 @ 500 milliseconds the Response Time Interval expires, the 
Complex Auction ends and the trade is allocated against initiating 
Priority Customer using the single best price at which the greatest 
quantity can trade in the following manner:
1. 50 trade vs. MM4 @ 1.11
2. Nothing can trade at 1.10 due to the presence of Priority Customer 
interest in the March 50 Call on the Simple Order Book at 1.00 in 
insufficient quantity to meet the ratio required by the Priority 
Customer order. Therefore, the 1.10 cAOC response by MM1 expires 
untraded at the end of the Complex Auction and the balance of the 
initiating Priority Customer complex order to sell is placed on the 
Strategy Book at a managed and displayed price of 1.11

    The Exchange begins Complex Auctions at a price that is $.01 inside 
of the icMBBO to protect the integrity of the Simple Order Book and to 
eliminate the possibility of beginning a Complex Auction at a price at 
which the order cannot execute.
No Imbalance at End of Response Time Interval
    If there is no imbalance, and a single price satisfies the maximum 
quantity criteria, that single price is used as the Complex Auction 
price. If two or more prices satisfy the maximum quantity criteria, the 
System will calculate the midpoint of the lowest and highest price 
points that satisfy the maximum quantity criteria, such midpoint price 
is used as the Complex Auction price. For orders with ixABBO Price 
Protection, as described above, (``price protection''), the midpoint 
pricing will use the price protection range selected by the Member at 
the end of the Complex Auction. If the midpoint price is not in a $0.01 
increment, the System will round toward the midpoint of the dcMBBO to 
the nearest $0.01. If the midpoint of the highest and lowest prices is 
also the midpoint of the dcMBBO and is not in a $0.01 increment, the 
System will round the price up to the next $0.01 increment.
Example--Complex Auction Pricing when there is no imbalance and the 
maximum quantity at a single price is used as the Complex Auction price

    MIAX--LMM Mar 50 Call 6.00-6.50 (10x10)
    MIAX--LMM Mar 55 Call 3.00-3.30 (10x10)

The Exchange receives an Initiating Customer buy complex order to

[[Page 58784]]

purchase 1 Mar 50 call and Sell 1 Mar 55 call for a 3.20 debit, 1000 
times. The cAOA instruction is present on this order, so the order will 
initiate an auction upon arrival if it equals or improves the URIP.

The icMBBO is 2.70 debit bid at 3.50 credit offer
The dcMBBO is 2.70 debit bid at 3.50 credit offer
The URIP Percentage is 60% of the bid/ask spread or 0.48 (60% x 0.80 = 
0.48)

Since the order price exceeds the URIP requirement (2.70 + 0.48 = 3.18) 
to initiate an auction upon arrival, an RFR is broadcast to all 
subscribers showing price, the quantity of matched complex quotes and/
or orders at that price, imbalance quantity, and side is sent and a 500 
millisecond Response Time Interval is started.
The System starts the auction at the Initiating Priority Customer price 
bidding 3.20 to buy 1000 strategies. The following responses are 
received:

 @ 50 milliseconds BD1 response, cAOC Order @ 3.20 credit sell 
of 500 arrives
 @ 150 milliseconds MM1 response, cAOC eQuote @ 3.10 credit 
sell of 250 arrives
 @ 200 milliseconds MM3 response, cAOC eQuote @ 3.15 credit 
sell of 250 arrives

The Complex Auction process will continue until the Response Time 
Interval ends. When the 500 millisecond Response Time Interval ends, 
the Complex Auction price determination will find the maximum quantity 
that can trade. In this case a single price of 3.20 satisfies the 
maximum quantity of 1000 and becomes the final auction price.

 Trade 1,000 at $3.20
 Customer buys 500 from BD1
 Customer buys 250 from MM1
 Customer buys 250 from MM3

Example--Complex Auction Pricing when there is no imbalance and the 
maximum quantity at two or more prices is used as the Complex Auction 
price.

    MIAX--LMM Mar 50 Call 6.00-6.50 (10x10)
    MIAX--LMM Mar 55 Call 3.00-3.30 (10x10)

The Exchange receives an Initiating Customer buy complex order to 
purchase 1 Mar 50 Call and Sell 1 Mar 55 Call for a 3.20 debit, 1000 
times. The cAOA instruction is present on this order, so the order will 
initiate an auction upon arrival if it equals or improves the URIP.

The icMBBO is 2.70 debit bid at 3.50 credit offer
The dcMBBO is 2.70 debit bid at 3.50 credit offer
    The URIP Percentage is 60% of the bid/ask spread or 0.48 (60% x 
0.80 = 0.48). Since the order price exceeds the URIP requirement 
(2.70+0.48=3.18) to initiate an auction upon arrival, an RFR is 
broadcast to all subscribers showing price, the quantity of matched 
complex quotes and/or orders at that price, imbalance quantity, and 
side is sent and a 500 millisecond Response Time Interval is started.

The System starts the auction at the Initiating Priority Customer price 
bidding 3.20 to buy 1000 strategies. The following responses are 
received:

 @ 50 milliseconds BD1 response, cAOC Order @ 3.10 credit sell 
of 500 arrives
 @ 150 milliseconds MM1 response, cAOC eQuote @ 3.10 credit 
sell of 250 arrives
 @ 200 milliseconds MM3 response, cAOC eQuote @ 3.10 credit 
sell of 250 arrives

The Complex Auction process will continue until the Response Time 
Interval ends. When the 500 millisecond Response Time Interval ends, 
the Complex Auction price determination will find the maximum quantity 
that can trade. In this case the maximum quantity of 1000 can trade at 
or within the prices of 3.10 and 3.20. To find the final trade price 
the process will continue by taking the midpoint between the highest 
and lowest price points that satisfy the maximum quantity, in this case 
is 3.15.

 Trade 1,000 at $3.15
 Customer buys 500 from BD1
 Customer buys 250 from MM1
 Customer buys 250 from MM3

Example--Complex Auction Pricing when there is no imbalance and the 
maximum quantity at two or more prices is used as the Complex Auction 
price. If the midpoint price is not in a $0.01 increment, the System 
will round toward the midpoint of the dcMBBO to the nearest $0.01.

    MIAX--LMM Mar 50 Call 6.00-6.50 (10x10)
    MIAX--LMM Mar 55 Call 3.00-3.30 (10x10)

The Exchange receives an Initiating Customer buy complex order to 
purchase 1 Mar 50 Call and Sell 1 Mar 55 Call for a 3.19 debit, 1000 
times. The cAOA instruction is present on this order, so the order will 
initiate an auction upon arrival if it equals or improves the URIP.

The icMBBO is 2.70 debit bid at 3.50 credit offer
The dcMBBO is 2.70 debit bid at 3.50 credit offer

Midpoint of dcMBBO is the difference between the bid and offer divided 
by 2 added to the dcMBB or subtracted from the dcMBO:
 2.70 + ((350-2.70) *.5) = 3.10 or
 3.50-((3.50-2.70 *.5) = 3.10
The URIP Percentage is 60% of the bid/ask spread or 0.48 (60% x 0.80 = 
0.48)
Since the order price exceeds the URIP requirement (2.70 + 0.48 = 3.18) 
to initiate an auction upon arrival, an RFR is broadcast to all 
subscribers showing price, the quantity of matched complex quotes and/
or orders at that price, imbalance quantity, and side is sent and a 500 
millisecond Response Time Interval is started.

The System starts the auction at the Initiating Priority Customer price 
bidding 3.19 to buy 1000 strategies. The following responses are 
received:

 @ 50 milliseconds BD1 response, cAOC Order @ 3.10 credit sell 
of 500 arrives
 @ 150 milliseconds MM1 response, cAOC eQuote @ 3.10 credit 
sell of 250 arrives
 @ 200 milliseconds MM3 response, cAOC eQuote @ 3.10 credit 
sell of 250 arrives

The Complex Auction process will continue until the Response Time 
Interval ends. When the 500 millisecond Response Time Interval ends, 
the Complex Auction price determination will find the maximum quantity 
that can trade. In this case the maximum quantity of 1000 can trade at 
or within the prices of 3.10 and 3.19. To find the final trade price 
the process will continue by taking the midpoint between the highest 
and lowest price points that satisfy the maximum quantity, in this case 
is 2.70 + ((3.19-3.10) *.5) = 3.145. Because the midpoint price is not 
0.01 increment the trade price is rounded toward 3.10 the midpoint 
price of the dcMBBO to the nearest 0.01.

 Trade 1,000 at $3.14
 Customer buys 500 from BD1
 Customer buys 250 from MM1
 Customer buys 250 from MM3
Example--Complex Auction Pricing when there is no imbalance and the 
maximum quantity at two or more prices is used as the Complex Auction 
price. If the midpoint of the highest and lowest prices is also the 
midpoint of the dcMBBO and is not in a $0.01 increment, the System will 
round the price up to the next $0.01 increment.

    MIAX--LMM Mar 50 Call 6.00-6.50 (10x10)

[[Page 58785]]

    MIAX--LMM Mar 55 Call 3.01-3.30 (10x10)

The Exchange receives an Initiating Customer buy complex order to 
purchase 1 Mar 50 Call and Sell 1 Mar 55 Call for a 3.18 debit, 1000 
times. The cAOA instruction is present on this order, so the order will 
initiate an auction upon arrival if it equals or improves the URIP.

The icMBBO is 2.70 debit bid at 3.49 credit offer
The dcMBBO is 2.70 debit bid at 3.49 credit offer

Midpoint of dcMBBO is the difference between the bid and offer times 
0.5 added to the dcMBB or subtracted from the dcMBO:

 2.70 + ((3.49-2.70) * 0.5) = 3.095 or
 3.49-((3.49-2.70 * 0.5) = 3.095

The URIP Percentage is 60% of the bid/ask spread or 0.47 (60% x 0.79 = 
0.47)
Since the order price exceeds the URIP requirement (2.70 + 0.47 = 3.17) 
to initiate an auction upon arrival, an RFR is broadcast to all 
subscribers showing price, the quantity of matched complex quotes and/
or orders at that price, imbalance quantity, and side is sent and a 500 
millisecond Response Time Interval is started.

The System starts the auction at the Initiating Priority Customer price 
bidding 3.18 to buy 1000 strategies. The following responses are 
received:

 @ 50 milliseconds BD1 response, cAOC Order @ 3.01 credit sell 
of 500 arrives
 @ 150 milliseconds MM1 response, cAOC eQuote @ 3.00 credit 
sell of 250 arrives
 @ 200 milliseconds MM3 response, cAOC eQuote @ 3.00 credit 
sell of 250 arrives

The Complex Auction process will continue until the Response Time 
Interval ends. When the 500 millisecond Response Time Interval ends, 
the Complex Auction price determination will find the maximum quantity 
that can trade. In this case the maximum quantity of 1000 can trade at 
or within the prices of 3.01 and 3.18. To find the final trade price 
the process will continue by taking the midpoint between the highest 
and lowest price points that satisfy the maximum quantity, in this case 
is 3.01 + ((3.18-3.01) * .5) = 3.095. Because the midpoint of the 
highest and lowest price is also the midpoint of the dcMBBO and is not 
0.01 increment the trade price is rounded up to the next 0.01 
increment.

 Trade 1,000 at $3.10
 Customer buys 500 from BD1
 Customer buys 250 from MM1
 Customer buys 250 from MM3
Size Imbalance at End of Response Time Interval
    If there is a size imbalance, and if a single price satisfies the 
maximum quantity criteria, that single price is used as the Complex 
Auction price. If two or more prices satisfy the maximum quantity 
criteria, the System will price the execution at the price on the 
opposite side of the size imbalance that meets the maximum quantity 
criteria, while also respecting limit prices and the pricing boundaries 
which include the price protection boundary of $0.01 inside of the 
icMBBO and the price protection range (if any) selected by the Members 
whose interest makes up the order imbalance.

Example--Complex Auction Pricing when there is an imbalance and the 
maximum quantity at two or more prices are used as the Complex Auction 
price

    MIAX--LMM Mar 50 Call 6.00-6.50 (10x10)
    MIAX--LMM Mar 55 Call 3.00-3.30 (10x10)

The Exchange receives an Initiating Customer buy complex order to 
purchase 1 Mar 50 Call and Sell 1 Mar 55 Call for a 3.20 debit, 1000 
times. The cAOA instruction is present on this order, so the order will 
initiate an auction upon arrival if it equals or improves the URIP.

The icMBBO is 2.70 debit bid at 3.50 credit offer
The dcMBBO is 2.70 debit bid at 3.50 credit offer
The URIP Percentage is 60% of the bid/ask spread or 0.48 (60% x 0.80 = 
0.48)

Since the order price exceeds the URIP requirement (2.70 + 0.48 = 3.18) 
to initiate an auction upon arrival, an RFR is broadcast to all 
subscribers showing price, the quantity of matched complex quotes and/
or orders at that price, imbalance quantity, and side is sent and a 500 
millisecond Response Time Interval is started.
The System starts the auction at the Initiating Priority Customer price 
bidding 3.20 to buy 1000 strategies. The following responses are 
received:

 @ 50 milliseconds BD1 response, cAOC Order @ 3.15 credit sell 
of 500 arrives
 @ 150 milliseconds MM1 response, cAOC eQuote @ 3.10 credit 
sell of 200 arrives
 @ 200 milliseconds MM3 response, cAOC eQuote @ 3.15 credit 
sell of 200 arrives

The Complex Auction process will continue until the Response Time 
Interval ends. When the 500 millisecond Response Time Interval ends, 
the Complex Auction price determination will find the maximum quantity 
that can trade. In this case the maximum quantity of 900 can trade at 
or within the prices of 3.15 and 3.20. Because there is more quantity 
to buy than to sell, this creates an imbalance therefore the final 
trade price does not use the midpoint and instead will be at the price 
on the opposite side of the size imbalance, in this case 3.20. After 
the Auction process has terminated, the remaining bid for a size of 100 
will be placed on the Strategy Book at its limit price of 3.20.

 Trade 900 at $3.20
 Customer buys 500 from BD1
 Customer buys 200 from MM1
 Customer buys 200 from MM3
 Post $3.20 bid for 100
    If, after trading the maximum quantity at the execution price, 
Complex Auction interest remains with a managed price that locks or 
crosses the opposite side icMBBO, the System will execute the 
individual legs of eligible remaining Complex Auction eligible orders 
and quotes against orders and quotes resting on the Simple Order Book 
that were present prior to the beginning of the Complex Auction at the 
icMBBO if available in the proper ratio and at or within the NBBO of 
each component of the complex order.
    After executing the imbalance side interest to the extent possible 
at the icMBBO, and if Priority Customer interest at the icMBBO that is 
not in the proper ratio remains, the System will place such remaining 
imbalance side interest on the Strategy Book and manage such interest 
pursuant to proposed Rule 518(c)(4). If no Priority Customer interest 
at the icMBBO remains, the System will execute Complex Auction interest 
with any available complex orders, complex Standard quotes or complex 
eQuotes priced at the icMBBO, and then with any orders or quotes on the 
Simple Order Book at the icMBBO that were received or modified after 
the beginning of the Response Time Interval.
    If after trading the maximum quantity at the initial icMBBO all 
interest at the initial icMBBO has been executed, including through 
Legging with the Simple Order Book (as described in proposed Rule 
518(c)(2)(iii) above), and Complex Auction interest remains with a 
managed price that crosses the exhausted icMBBO or dcMBBO (if the next 
opposite side icMBBO is also the dcMBBO), or locks or crosses the next 
opposite side icMBBO or dcMBBO (if the next opposite side icMBBO is 
also the dcMBBO), the System will repeat the process for a size 
imbalance

[[Page 58786]]

described in proposed Rule 518(d)(6)(i)(B)(1)-(3) above. At each icMBBO 
price level the System will repeat this process at the end of the 
Response Time Interval until reaching the dcMBBO price. If the Complex 
Auction price is equal to or crosses the dcMBBO and the dcMBBO is 
exhausted, the System will place any remaining Complex Auction interest 
on the Strategy Book and manage the interest that is eligible to rest 
on the Strategy Book pursuant to subparagraph (c)(4) to the exhausted 
dcMBBO price, cancel Complex Auction interest, including remaining 
complex order cAOC interest, that is not eligible to rest on the 
Strategy Book, and cancel any complex Standard quotes that are locking 
or crossing the exhausted dcMBBO price. The System will then 
immediately initiate a re-evaluation of the remaining interest from the 
Complex Auction and may initiate a new Complex Auction without regard 
to the RIP.
Example--Remaining Complex Auction interest after trading the maximum 
quantity, that locks or crosses the opposite side icMBBO will leg 
against interest resting on the Simple Order Book

    ABBO--Mar 50 Call 6.20-6.30
    MIAX--LMM Mar 50 Call 6.00-6.20 (10x100) managed offer
    MIAX--LMM Mar 50 Call 6.00-6.30 (10x100) displayed offer
    MIAX--LMM Mar 55 Call 3.00-3.30 (100x10)

The Exchange receives an Initiating Customer buy complex order to 
purchase 1 Mar 50 Call and Sell 1 Mar 55 Call for a 3.40 debit, 1000 
times. The cAOA instruction is present on this order, so the order will 
initiate an auction upon arrival if it equals or improves the URIP.

The icMBBO is 2.70 debit bid at 3.20 credit offer
The dcMBBO is 2.70 debit bid at 3.30 credit offer
The URIP Percentage is 60% of the bid/ask spread or 0.36 (60% x 0.60 = 
0.36)

Since the order price exceeds the URIP requirement (2.70 + 0.36 = 3.06) 
to initiate an auction upon arrival, an RFR is broadcast to all 
subscribers showing price, the quantity of matched complex quotes and/
or orders at the Complex Auction price, imbalance quantity, and side is 
sent and a 500 millisecond Response Time Interval is started.
The System starts the auction at the Initiating Priority Customer price 
bidding 3.30 to buy 1000 strategies. The following responses are 
received:

 @ 50 milliseconds BD1 response, cAOC Order @ 3.15 credit sell 
of 500 arrives
 @ 150 milliseconds MM1 response, cAOC eQuote @ 3.10 credit 
sell of 200 arrives
 @ 200 milliseconds MM3 response, cAOC eQuote @ 3.15 credit 
sell of 200 arrives

The Complex Auction process will continue until the Response Time 
Interval ends. When the 500 millisecond Response Time Interval ends, 
the Complex Auction price determination will find the maximum quantity 
that can trade. In this case the maximum quantity of 900 can trade at 
or within the prices of 3.15 and 0.01 inside the icMBBO, which results 
in a boundary price of 3.19. Because there is more quantity to buy than 
to sell, this creates an imbalance therefore the final trade price does 
not use the midpoint and instead will be at the price on the opposite 
side of the size imbalance, in this case 3.19.
The remaining balance of 100 to buy at 3.40 will execute by Legging 
against interest resting on the Simple Order Book at the icMBBO price 
of $3.20 buy 100 of the LMM Mar 50 Call at 6.20 and sell 100 of the LMM 
Mar 55 Call at 3.00 for a net debit of 3.20.

 Trade 900 at $3.19
 Customer buys 500 from BD1
 Customer buys 200 from MM1
 Customer buys 200 from MM3
 Leg the balance against the $3.20 icMBBO
 Customer buys 100 of the Mar 50 Call at 6.20 from the LMM
 Customer sells 100 of the Mar 55 Call at 3.00 to the LMM

    If the trading described above was not at the dcMBBO, the System 
will follow the same procedure at the dcMBBO. If after trading the 
maximum quantity at the dcMBBO, interest at the dcMBBO remains, the 
System will place any remaining Complex Auction interest on the 
Strategy Book and manage the interest that is eligible to rest on the 
Strategy Book pursuant to proposed Rule 518(c)(4), and cancel Complex 
Auction interest, including remaining complex order cAOC interest, that 
is not eligible to rest on the Strategy Book.
Example--Complex Auction interest trades the maximum quantity at the 
initial icMBBO, and additional remaining interest locks or crosses the 
next opposite side icMBBO or dcMBBO (if the next opposite side icMBBO 
is also the dcMBBO) the system will repeat the process for a size 
imbalance

    MIAX--LMM Mar 50 Call 6.00-6.20 (10x10) managed offer
    MIAX--LMM Mar 50 Call 6.00-6.30 (10x100) displayed offer
    MIAX--LMM Mar 55 Call 3.00-3.30 (1000x10)

The Exchange receives an Initiating Customer buy complex order to 
purchase 1 Mar 50 Call and Sell 1 Mar 55 Call for a 3.40 debit, 1000 
times. The cAOA instruction is present on this order, so the order will 
initiate an auction upon arrival if it equals or improves the URIP.

The icMBBO is 2.70 debit bid at 3.20 credit offer
The dcMBBO is 2.70 debit bid at 3.30 credit offer
The URIP Percentage is 60% of the bid/ask spread or 0.36 (60% x 0.60 = 
0.36)

Since the order price exceeds the URIP requirement (2.70+0.36=3.06) to 
initiate an auction upon arrival, an RFR is broadcast to all 
subscribers showing price, the quantity of matched complex quotes and/
or orders at that price, imbalance quantity, and side is sent and a 500 
millisecond Response Time Interval is started.

The System starts the auction at the Initiating Priority Customer price 
bidding 3.30 (the opposite side dcMBBO) to buy 1000 strategies. The 
following responses are received:

 @ 50 milliseconds BD1 response, cAOC Order @ 3.15 credit sell 
of 500 arrives
 @ 150 milliseconds MM1 response, cAOC eQuote @ 3.10 credit 
sell of 200 arrives
 @ 200 milliseconds MM3 response, cAOC eQuote @ 3.15 credit 
sell of 200 arrives

The Complex Auction process will continue until the Response Time 
Interval ends. When the 500 millisecond Response Time Interval ends, 
the Complex Auction price determination will find the maximum quantity 
that can trade. In this case the maximum quantity of 900 can trade at 
or within the prices of 3.15 and 0.01 inside the icMBBO, which results 
in a boundary price of 3.19. Because there is more quantity to buy than 
to sell, this creates an imbalance therefore the final trade price does 
not use the midpoint and instead will be at the price on the opposite 
side of the size imbalance, in this case 3.19.

The remaining balance of 100 to buy at 3.40 will execute by Legging 
against interest resting on the Simple Order Book at the icMBBO that 
was present prior to the beginning of the Complex Auction. The complex 
order will in this case buy 10 of the LMM Mar 50 Call at 6.20 and sell 
10 of the LMM Mar 55 Call at 3.00 for a net debit of 3.20 fully 
executing the initial icMBBO. With all interest at the initial icMBBO 
of 3.20 credit executed, Complex Auction

[[Page 58787]]

interest remains to buy 90 at 3.40, and will follow the process for a 
size imbalance as described above and trade at the next icMBBO or in 
this case the dcMBBO since the next opposite side icMBBO is also the 
dcMBBO. The complex order will execute against by Legging interest 
resting on the Simple Order Book at the dcMBBO, in this case buy 90 of 
the LMM Mar 50 calls at 6.30 and sell 90 of the LMM Mar 55 calls at 
3.00 for a net debit of 3.30.

 Trade 900 at $3.19
 Customer buys 500 from BD1
 Customer buys 200 from MM1
 Customer buys 200 from MM3
 Leg 10 against the $3.20 icMBBO
 Customer buys 10 of the Mar 50 calls at 6.20 from the LMM
 Customer sells 10 of the Mar 55 calls at 3.00 to the LMM
 Leg 90 against the $3.30 dcMBBO
 Customer buys 90 of the Mar 50 calls at 6.30 from the LMM
 Customer sells 90 of the Mar 55 calls at 3.00 to the LMM

Example--When the icMBBO is also the dcMBBO, remaining Complex Auction 
interest that locks or crosses the opposite side dcMBBO will leg 
against interest resting on the Simple Order Book exhausting interest 
at the dcMBBO and then will be evaluated

    MIAX--LMM Mar 50 call 6.00-6.20 (10x10)
    MIAX--LMM Mar 55 call 3.00-3.30 (1000x10)

    The Exchange receives an Initiating Customer complex order to buy 1 
Mar 50 call and Sell 1 Mar 55 call for a 3.30 debit, 1000 times. The 
cAOA instruction is present on this order, so the order will initiate 
an auction upon arrival if it equals or improves the URIP.

The icMBBO is 2.70 debit bid at 3.20 credit offer
The dcMBBO is 2.70 debit bid at 3.20 credit offer
The URIP Percentage is 60% of the bid/ask spread or 0.30 (60% x 0.50 = 
0.30)

Since the order price exceeds the URIP requirement (2.70+0.30=3.00) to 
initiate an auction upon arrival, an RFR is broadcast to all 
subscribers showing price, the quantity of matched complex quotes and/
or orders at that price, imbalance quantity, and side is sent and a 500 
millisecond Response Time Interval is started.

The System starts the auction at the Initiating Priority Customer price 
bidding 3.20 (the opposite side dcMBBO) to buy 1000 contracts. The 
following responses are received:

 @ 50 milliseconds BD1 response, cAOC Order @ 3.15 credit sell 
of 500 arrives
 @ 150 milliseconds MM1 response, cAOC eQuote @ 3.10 credit 
sell of 200 arrives
 @ 200 milliseconds MM3 response, cAOC eQuote @ 3.15 credit 
sell of 200 arrives
 @ 225 milliseconds MM2 complex Standard quote bidding @ 3.20 
debit buy of 200 arrives
 @ 400 milliseconds MM2 response, cAOC eQuote @ 3.40 credit 
sell of 200 arrives

The Complex Auction process will continue until the Response Time 
Interval ends. When the 500 millisecond Response Time Interval ends, 
the Complex Auction price determination will find the maximum quantity 
that can trade. In this case the maximum quantity of 900 can trade at 
or within the prices of 3.15 and 0.01 inside of the icMBBO, which 
results in a buy imbalance. Because there is more quantity to buy than 
to sell, this creates an imbalance therefore the final trade price does 
not use the midpoint and instead will be at the price on the opposite 
side of the size imbalance, in this case 3.19.

A portion of the remaining balance of 100 to buy at 3.30 will execute 
by Legging against interest resting on the Simple Order Book at the 
combined icMBBO/dcMBBO that was present prior to the beginning of the 
Complex Auction. The complex order will in this case buy 10 of the LMM 
Mar 50 Call at 6.20 and sell 10 of the LMM Mar 55 Call at 3.00 for a 
net debit of 3.20, exhausting the dcMBBO.

Once the dcMBBO has been exhausted and Auction interest remains, all 
unexecuted cAOC eQuotes or orders and any unexecuted complex Standard 
quotes that are locking or crossing the exhausted dcMBBO price are 
cancelled. This results in the cancellation of MM2's 3.40 credit cAOC 
response and MM2's 3.20 debit complex Standard quote bid.
Since the dcMBBO has been exhausted, the remaining balance of 90 
contracts from the Initiating Priority Customer order will then be 
placed on the Strategy Book at the exhausted dcMBBO price.

The new Simple Market quotes after exhausting the original icMBBO/
dcMBBO are:

MIAX--LMM Mar 50 Call 6.10-6.40 (10x10)
MIAX--LMM Mar 55 Call 2.90-3.00 (10x10)
The icMBBO is 3.10 debit bid at 3.50 credit offer
The dcMBBO is 3.10 debit bid at 3.50 credit offer
The RIP Percentage is 60% of the bid/ask spread or 0.24

Regardless of the fact that the order's limit price does not meet or 
exceed the RIP requirement (3.10+0.24=3.34) to initiate an Auction upon 
reevaluation, an RFR is broadcast to all subscribers showing price, the 
quantity of matched complex quotes and/or orders at that price, 
imbalance quantity, and side is sent and a 500 millisecond Response 
Time Interval is started.

The System starts the Auction at the Initiating Priority Customer's 
limit price bidding 3.30 to buy 90 contracts. The following responses 
are received:

 @ 50 milliseconds BD1 response, cAOC Order @ 3.25 credit sell 
of 100 arrives
 @ 150 milliseconds MM1 response, cAOC eQuote @ 3.30 credit 
sell of 100 arrives
The Complex Auction process will continue until the Response Time 
Interval ends. When the 500 millisecond Response Time Interval ends, 
the maximum quantity of 90 contracts will trade at 3.25[sic]
    If all interest at the dcMBBO has been exhausted and Auction orders 
with a managed or limit price that locks or crosses the exhausted 
dcMBBO price remain, the System will place any remaining Complex 
Auction interest on the Strategy Book and manage the interest that is 
eligible to rest on the Strategy Book pursuant to proposed Rule 
518(c)(4) to the exhausted dcMBBO price, cancel Complex Auction 
interest (including remaining complex order cAOC interest) that is not 
eligible to rest on the Strategy Book, and cancel any complex Standard 
quotes that are locking or crossing the exhausted dcMBBO price. The 
System will then immediately initiate a reevaluation of the remaining 
interest from the Complex Auction and may initiate a new Complex 
Auction without regard to the RIP.
    The System will place any eligible remaining non-marketable Complex 
Auction orders and quotes on the Strategy Book, cancel any remaining 
Complex Auction interest that is not eligible to rest on the Strategy 
Book, and cancel complex Standard quotes that would otherwise require 
management because of their price as described in proposed Rule 
518(c)(4) above if placed on the Strategy Book.
Trade Allocation Following the Complex Auction
    Proposed Rule 518(d)(7) describes the allocation of complex orders 
and quotes that are executed in a Complex Auction. Once the Complex 
Auction is complete

[[Page 58788]]

(at the end of the Response Time Interval), such orders and quotes will 
be allocated first in price priority based on their original limit 
price, and thereafter as stated herein.
    Individual orders and quotes in the leg markets resting on the 
Simple Order Book prior to the initiation of a Complex Auction and that 
have remained unchanged during the Auction have first priority, 
provided the complex order can be executed in full (or in a permissible 
ratio) against orders and quotes on the Simple Order Book, provided 
that the prices of the components on the Simple Order Book are at or 
within the NBBO for each component. Orders and/or quotes resting on the 
Simple Order Book that execute against a complex order will be 
allocated pursuant to Rule 514(c). The Exchange believes that unchanged 
orders and quotes resting on the Simple Order Book should retain their 
established priority when Legging against a complex order.
    Priority Customer complex orders resting on the Strategy Book 
before, or that are received during, the Response Time Interval, and 
Priority Customer RFR Responses, collectively have second priority and 
will be allocated in price-time priority. This is consistent with the 
handling of Priority Customers on other exchanges \68\ and on the MIAX 
Simple Order Book \69\
---------------------------------------------------------------------------

    \68\ Similarly, on PHLX, after attempting to trade with the PHLX 
simple limit order book for the individual components, customer 
marketable Complex Orders on the PHLX CBOOK (their equivalent of the 
Strategy Book) have priority over non-public customer Complex 
Orders. See PHLX Rule 1098(e)(vi). CBOE also affords priority to 
public customer complex orders after attempting to trade the complex 
order against the individual components, followed by non-public 
customer orders resting in the CBOE Complex Order Book. See CBOE 
Rule 6.53C(d)(v). This is slightly distinguished from the MIAX 
System which seeks first to match complex orders resting on the 
Strategy Book.
    \69\ When the Priority Customer Overlay is in effect, the 
highest bid and lowest offer shall have priority except that 
Priority Customer Orders shall have priority over Professional 
Interest and all Market Maker interest at the same price. If there 
are two or more Priority Customer Orders for the same options series 
at the same price, priority shall be afforded to such Priority 
Customer Orders in the sequence in which they are received by the 
System. See Exchange Rule 514(d)(1). Other exchanges have similar 
allocation models for the simple market. For example, ISE Priority 
Customer Orders have priority over Professional Orders and market 
maker quotes at the same price in the same options series. See ISE 
Rule 713(c). Similarly, on CBOE, Public customer orders in the 
electronic book have priority. See CBOE Rule 6.45A(a)(i)(A)(1). PHLX 
allocates contracts to non-public customers only after public 
customer market and marketable limit orders have been executed. See 
PHLX Rule 1014(g)(vii).
---------------------------------------------------------------------------

    Market Maker Priority Interest for Complex and RFR Responses from 
Market Makers with Priority Interest for Complex collectively have 
third priority and will be allocated on a pro-rata basis as defined in 
Rule 514(c)(2).
    Market Maker non-Priority Interest for Complex and RFR Responses 
from Market Makers with non-Priority Interest for Complex collectively 
have fourth priority and will be allocated on a pro-rata basis as 
defined in Rule 514(c)(2).
    Non-Market Maker Professional Interest complex orders resting on 
the Strategy Book, non-Market Maker Professional Interest complex 
orders placed on the Strategy Book during the Response Time Interval, 
and non-Market Maker Professional Interest RFR Responses will 
collectively have fifth priority and will be allocated on a pro-rata 
basis as defined in Rule 514(c)(2).
    Finally, individual orders and quotes in the leg markets that are 
received or changed during the Complex Auction will collectively have 
sixth priority and will be allocated pursuant to Rule 514(c)(2).\70\
---------------------------------------------------------------------------

    \70\ This differs slightly from the execution of orders on other 
exchanges. ISE may designate on a class basis whether bids and 
offers at the same price on the complex order book will be executed 
either in time priority; pursuant to ISE Rule 713(e) regarding 
priority in the ISE simple order book, or pro-rata based on size. 
See ISE Rule 722(b)(3)(i). Additionally, CBOE establishes priority 
for the Complex Order Book based upon the rules of trading priority 
otherwise applicable to incoming electronic orders in the individual 
component legs or another electronic matching algorithm in the CBOE 
rules. See CBOE Rule 6.53C(c)(ii)(2).
---------------------------------------------------------------------------

    The following examples illustrate the manner in which complex 
orders and quotes are allocated at the conclusion of the Complex 
Auction.\71\

    \71\ The Exchange notes that in all examples in the filing, a 
Market Maker response should be considered from a Market Maker that 
does not have a priority quote, unless the example specifically 
states that the response is from a Market Maker with a priority 
quote.
---------------------------------------------------------------------------

Example--Priority Customer has priority over other responding 
participants

    MIAX--LMM Mar 50 Call 6.00-6.50 (10x10)
    MIAX--LMM Mar 55 Call 3.00-3.30 (10x10)

The Exchange receives an Initiating Customer buy complex order to 
purchase 1 Mar 50 call and Sell 1 Mar 55 call for a 3.20 debit, 1000 
times. The cAOA instruction is present on this order, so the order will 
initiate a Complex Auction upon arrival if it equals or improves the 
URIP.

The icMBBO is 2.70 debit bid at 3.50 credit offer
The dcMBBO is 2.70 debit bid at 3.50 credit offer
The URIP Percentage is 60% of the bid/ask spread or 0.48

Since the initiating order price exceeds the URIP requirement 
(2.70+0.48=3.18) to initiate an auction upon arrival, an RFR is 
broadcast to all subscribers showing price, the quantity of matched 
complex quotes and/or orders at that price, imbalance quantity, and 
side is sent and a 500 millisecond Response Time Interval is started.
The System starts the auction at the Initiating Priority Customer price 
bidding 3.20 to buy 1000 contracts. The following responses are 
received:

 @ 50 milliseconds MM1 response, cAOC eQuote @ 3.10 credit sell 
of 2000 arrives
 @ 150 milliseconds MM4 response, cAOC eQuote @ 3.00 credit 
sell of 500 arrives
 @ 200 milliseconds MM3 response, cAOC eQuote @ 3.20 credit 
sell of 500 arrives
 @ 250 milliseconds Priority Customer response, cAOC Order @ 
3.10 credit sell of 250 arrives
 @ 500 milliseconds the Response Time Interval ends, the 
Complex Auction ends and the trade is allocated against the initiating 
Priority Customer using the single best price at which the greatest 
quantity can trade in the following manner:
1. 500 trade vs. MM4 @ 3.10 (MM4 achieved price priority by offering at 
3.00)
2. 250 trade vs. the Priority Customer response @ 3.10 (The Priority 
Customer has priority over the MM1 offering at the same price)
3. 250 trade vs. MM1 @ 3.10

Example--Market Maker with priority quotes has priority over Market 
Makers without priority quotes
    MIAX--LMM Mar 50 Call 6.00-6.50 (10x10)
    MIAX--LMM Mar 55 Call 3.00-3.30 (10x10)

The Exchange receives an Initiating Customer buy complex order to 
purchase 1 Mar 50 call and Sell 1 Mar 55 call for a 3.20 debit, 1000 
times. The cAOA instruction is present on this order, so the order will 
initiate an auction upon arrival if it equals or improves the URIP.

The icMBBO is 2.70 debit bid at 3.50 credit offer
The dcMBBO is 2.70 debit bid at 3.50 credit offer
The URIP Percentage is 60% of the bid/ask spread or 0.48

Since the order price exceeds the URIP requirement (2.70+0.48=3.18) to 
initiate an auction upon arrival, an RFR is broadcast to all 
subscribers showing price, the quantity of matched complex quotes and/
or orders at that price, imbalance quantity, and side is sent and

[[Page 58789]]

a 500 millisecond Response Time Interval is started.
The System starts the auction at the Initiating Priority Customer price 
bidding 3.20 to buy 1000 contracts. The following responses are 
received:

 @ 50 milliseconds MM1 non-priority response, cAOC eQuote @ 
3.10 credit sell of 2000 arrives
 @ 150 milliseconds MM4 non-priority response, cAOC eQuote @ 
3.00 credit sell of 500 arrives
 @ 200 milliseconds MM3 non-priority response, cAOC eQuote @ 
3.20 credit sell of 500 arrives
 @ 250 milliseconds MM5 with priority quotes response, cAOC 
eQuote @ 3.10 credit sell of 500 arrives
 @ 500 milliseconds the Response Time Interval ends, the 
Complex Auction ends and the trade is allocated against the initiating 
Priority Customer using the single best price at which the greatest 
quantity can trade in the following manner:
1. 500 trade vs. MM4 @ 3.10 (MM4 has price priority over the other MMs)
2. 500 trade vs. MM5 @ 3.10 (MM5 has price priority over MM3 and has 
priority by virtue of priority quoting over MM1)

Example--Professional Interest starts Auction, joined by Priority 
Customer Interest to show Priority Customer allocation priority

    MIAX--LMM Mar 50 Call 6.00-6.50 (10x10)
    MIAX--LMM Mar 55 Call 3.00-3.30 (10x10)

The Exchange receives an initiating broker-dealer complex order to buy 
1 Mar 50 call and Sell 1 Mar 55 call for a 3.20 debit, 1000 times. The 
cAOA instruction is present on this order, so the order will initiate 
an auction upon arrival if it equals or improves the URIP.

The icMBBO is 2.70 debit bid at 3.50 credit offer
The dcMBBO is 2.70 debit bid at 3.50 credit offer
The URIP Percentage is 60% of the bid/ask spread or 0.48

Since the order price exceeds the URIP requirement (2.70+0.48=3.18) to 
initiate an auction upon arrival, an RFR is broadcast to all 
subscribers showing the price, quantity of matched complex quotes and/
or orders at that price, imbalance quantity, and side is sent and a 500 
millisecond Response Time Interval begins.
The System starts the auction at the initiating broker dealer price 
bidding 3.20 to buy 1000 contracts. The following responses are 
received:

 @ 50 milliseconds Priority Customer #1 unrelated order buy 750 
@ 3.20 debit arrives
 @ 150 milliseconds Priority Customer #2 unrelated order buy 
500 @ 3.20 debit arrives
 @ 200 milliseconds MM3 response, cAOC eQuote @ 3.20 credit 
sell of 500 arrives
 @ 250 milliseconds Priority Customer #3 response, cAOC Order @ 
3.20 credit sell of 500 arrives
 @ 500 milliseconds the Response Time Interval ends, the 
auction ends and the trade (including unrelated interest from Priority 
Customer #s 1 and 2) is allocated against Initiating Customer using the 
single best price at which the greatest quantity can trade in the 
following manner:
1. 500 trade Priority Customer #1 buys (Priority Customer #1 has origin 
type priority over the Broker-Dealer and time priority over Priority 
Customer #2). Priority Customer #3 sells @ 3.20 (Priority Customer #3 
has priority over MM3 offering at the same price).
2. 250 trade Priority Customer #1 buys (Priority Customer #1 has origin 
type priority over the Broker-Dealer and time priority over Priority 
Customer #2). MM3 sells @ 3.20 (MM3 is now alone at 3.20 since Priority 
Customer #3 is filled.
3. 250 trade Priority Customer #2 (which is an unrelated order) buys 
(Priority Customer #2 has origin type priority over the Broker-Dealer). 
MM3 sells @ 3.20, and the balance of 250 is placed on the Strategy 
Book.
Processing of Unrelated Complex Orders
    The Complex Auction is designed to work effectively with the 
Strategy Book and is designed to maintain priority of all resting 
quotes and orders and any RFR Responses received before the end of the 
Response Time Interval. Proposed Rule 518(d)(8) describes the manner in 
which the System handles incoming unrelated complex orders and quotes 
that are eligible to join a Complex Auction and are received during the 
Response Time Interval for a Complex Auction-eligible order. Such 
incoming unrelated complex orders and quotes will simply join the 
Complex Auction, will be ranked by price, and will be allocated as 
described above.\72\
---------------------------------------------------------------------------

    \72\ The Exchange proposes to include eligible unrelated 
incoming complex orders and quotes in the Complex Auction Process. 
This is similar to another exchange. Specifically, PHLX incoming 
Complex Orders that were received during the COLA Timer (equivalent 
to the MIAX Response Time Interval) for the same Complex Order 
Strategy as the COLA-eligible order that are on the same side of the 
market will join the COLA. See PHLX Rule 1098(e)(viii)(B). Incoming 
PHLX Complex Orders on the opposite side of the market from the 
COLA-eligible order will join the COLA or be executed after the COLA 
under various circumstances described in the rule. Other exchanges 
permit certain orders to join a complex auction under limited 
circumstances, and other unrelated complex orders will terminate the 
auction process. For example, on CBOE incoming complex orders that 
are received prior to the expiration of the Response Time Interval 
for the original COA that are on the opposite side of the market and 
are marketable against the starting price of the original COA-
eligible order will cause the original COA to end. Incoming COA-
eligible orders are on the same side of the market, at the same 
price or worse than the original COA-eligible order and better than 
or equal to the starting price will join the original COA. See CBOE 
Rule 6.53C(d)(viii). NYSE MKT distinguishes the processing of 
unrelated complex orders by side of market. See NYSE MKT Rule 
980NY(c)[sic](8).
---------------------------------------------------------------------------

    The ability for unrelated marketable orders to join and be executed 
in a Complex Auction enhances the liquidity in the Complex Auction and 
thus increases opportunities for execution of complex orders and quotes 
on both sides of the market, all to the benefit of investors and to the 
marketplace as a whole.
Example--Arrival of an unrelated marketable complex order on the 
opposite side.

    MIAX--LMM Mar 50 Call 6.00-6.50 (10x10)
    MIAX--LMM Mar 55 Call 3.00-3.30 (10x10)

The Exchange receives an Initiating Customer buy complex order to 
purchase 1 Mar 50 call and Sell 1 Mar 55 call for a 3.20 debit, 1000 
times. The cAOA instruction is present on this order, so the order will 
initiate an auction upon arrival if it equals or improves the URIP.

The icMBBO is 2.70 debit bid at 3.50 credit offer
The dcMBBO is 2.70 debit bid at 3.50 credit offer
The URIP Percentage is 60% of the bid/ask spread or 0.48

Since the order price exceeds the URIP requirement (2.70+0.48=3.18) to 
initiate an auction upon arrival, an RFR is broadcast to all 
subscribers showing the price, quantity of matched complex quotes and/
or orders at that price, imbalance quantity, and side is sent and a 500 
millisecond Response Time Interval is started.

The System starts the auction at the initiating Priority Customer price 
bidding 3.20 to buy 1000 contracts. The following responses are 
received:

 @ 50 milliseconds BD1 response, cAOC Order @ 3.10 credit sell 
of 1000 arrives
 @ 150 milliseconds MM1 response, cAOC eQuote @ 3.00 credit 
sell of 500 arrives
 @ 200 milliseconds MM3 response, cAOC eQuote @ 3.20 credit 
sell of 500 arrives

[[Page 58790]]

 @ 250 milliseconds MM4 response, cAOC eQuote @ 3.10 credit 
sell of 250 arrives
 @ 350 milliseconds BD2 submits an unrelated complex order @ 
2.70 credit sell of 200 arrives
 @ 500 milliseconds the Response Time Interval ends, the 
Complex Auction ends and the trade is allocated against the initiating 
Priority Customer using the single best price at which the greatest 
quantity can trade in the following manner:
1. 200 trade vs. unrelated complex order @ 3.10 (BD2 achieved price 
priority by offering at 2.70)
2. 500 trade vs. MM1 @ 3.10 (MM1 achieved price priority by over the 
other responses by offering at 3.00)
3. 250 trade vs. MM4 @ 3.10 (MM4 achieved price priority over MM3 by 
offering at 3.10 and origin type priority over BD1)
4. 50 trade vs. BD1 @ 3.10 (BD1 achieved price priority over MM3 by 
offering at 3.10)
Example--Arrival of unrelated marketable complex order on the same side
    MIAX--LMM Mar 50 Call 6.00-6.50 (10x10)
    MIAX--LMM Mar 55 Call 3.00-3.30 (10x10)

The Exchange receives an Initiating Priority Customer buy complex order 
to purchase 1 Mar 50 call and Sell 1 Mar 55 call for a 3.20 debit, 1000 
times. The cAOA instruction is present on this order, so the order will 
initiate an auction upon arrival if it equals or improves the URIP.

The icMBBO is 2.70 debit bid at 3.50 credit offer
The dcMBBO is 2.70 debit bid at 3.50 credit offer
The URIP Percentage is 60% of the bid/ask spread or 0.48

Since the order price exceeds the URIP requirement (2.70+0.48=3.18) to 
initiate an auction upon arrival, an RFR is broadcast to all 
subscribers showing the price, quantity of matched complex quotes and/
or orders at the Exchange's disseminated price, imbalance quantity, and 
side is sent and a 500 millisecond Response Time Interval is started.

The System starts the auction at the Initiating Priority Customer price 
bidding 3.20 to buy 1000 contracts. The following responses are 
received:
 @ 50 milliseconds BD1 response, cAOC Order @ 3.10 credit sell 
of 1000 arrives
 @ 150 milliseconds MM1 response, cAOC eQuote @ 3.00 credit 
sell of 500 arrives
 @ 200 milliseconds MM3 response, cAOC eQuote @ 3.20 credit 
sell of 500 arrives
 @ 250 milliseconds MM4 response, cAOC eQuote @ 3.10 credit 
sell of 250 arrives
 @ 350 milliseconds BD2 submits an unrelated complex order @ 
3.20 debit buy of 200 arrives
 @ 500 milliseconds the Response Time Interval ends, the 
Complex Auction ends and the trade is allocated against the initiating 
Broker-Dealer using the single best price at which the greatest 
quantity can trade in the following manner:
1. Initiating Priority Customer buys 500 vs. MM1 @ 3.10 (The Priority 
Customer initiating order has origin type priority over BD2. MM1 
achieved price priority over other responses by offering at 3.00)
2. Initiating Priority Customer buys 250 vs. MM4 @ 3.10 (The Priority 
Customer initiating order has origin type priority over BD2. MM4 
achieved price priority over MM3 by offering at 3.10 and origin type 
priority over BD1)
3. Initiating Priority Customer buys 250 vs. BD1 @ 3.10 (The Priority 
Customer initiating order has origin type priority over BD2. BD1 
achieved price priority over MM3)
4. BD2 buys 200 vs BD1 @ 3.10 (The Priority Customer initiating order 
is filled. BD1 achieved price priority over MM3)

    Proposed Rule 518(d)(9) states that a complex order not designated 
as cAOA will either be (i) executed in full at a single price or at 
multiple prices up to its limit price, with remaining contracts placed 
on the Strategy Book; (ii) executed until the order exhausts the 
opposite side dcMBBO, at which time the order will be placed on the 
Strategy Book and evaluated for Complex Auction eligibility; or (iii) 
cancelled.
    Proposed Rules 518(d)(10), (11) and (12) each describe the 
effect(s) of certain market conditions on the Complex Auction. Proposed 
Rule 518[sic](10) provides that a change in the best bid or offer of 
the leg markets will not affect the processing of the Complex Auction. 
Any such changed bid or offer will be included in the evaluation at the 
end of the Response Time Interval.
    Proposed Rule 518(d)(11) states that if the underlying security of 
a Complex Auction-eligible order that is a market order enters a Limit 
State or Straddle State, as defined in Rule 530 the Complex Auction 
will end upon such underlying security's entering of the Limit or 
Straddle State if such market order is the only trading interest 
remaining on that side of the Complex Auction, in which case the 
remaining portion of such market order will be cancelled. If there are 
orders and/or quotes other than such market order on that side of the 
Complex Auction, such market order will be cancelled and the Complex 
Auction will continue. Any remaining complex orders and/or quotes that 
joined the Complex Auction will continue to be processed according to 
proposed Rule 518(d) as discussed above.
    Proposed Rule 518(d)(12), states that if, during a Complex Auction, 
the underlying security and/or any component of a Complex Auction-
eligible order is subject to a wide market condition, a SMAT Event or a 
trading halt, the Complex Auction will be handled as set forth in 
proposed Rule 518, Interpretations and Policies .05(e) as described in 
detail below.
    The Exchange believes that the provisions regarding the Complex 
Auction provide a framework that will enable the efficient trading of 
complex orders in a manner that is similar to other options exchanges 
as stated above, and in some ways enhances the processing of unrelated 
complex orders that join the Complex Auction process seamlessly. 
Further, this clarity in the operation of the Complex Auction and its 
consistency with other exchanges will help promote a fair and orderly 
options market. As described above, the Complex Auction is designed to 
work in concert with the Strategy Book and with a priority of 
allocation that will be similar to the allocation of simple orders and 
quotes on MIAX. If orders are received by the Exchange during the 
Response Time Interval, such orders will be eligible to participate in 
the Complex Auction, subject to the process above. If orders received 
are not executed in the Complex Auction, the time stamps they received 
will be used to determine time priority for their execution outside of 
the auction.
Interpretations and Policies
    The Exchange also proposes several Interpretations and Policies to 
proposed Rule 518.
Stock-Option Orders
    Proposed Interpretations and Policies .01 Special Provisions 
Applicable to Stock-Option Orders provides additional detail regarding 
the trading and regulation of stock-option orders on the Exchange. The 
Exchange will determine when stock-option orders will be made available 
for trading in the System and communicate such determination to Members 
via Regulatory Circular.
    As set forth in proposed Rule 518, Interpretations and Policies 
.01(a), stock-option orders may be executed

[[Page 58791]]

against other stock-option orders through the Strategy Book and Complex 
Auction. Stock-option orders will not be legged against the individual 
component legs, and the System will not generate a derived order based 
upon a stock-option order. A stock-option order shall not be executed 
on the System unless the underlying security component is executable at 
the price(s) necessary to achieve the desired net price.
    Members may only submit stock-option orders if such orders comply 
with the Qualified Contingent Trade Exemption from Rule 611(a) of 
Regulation NMS \73\ under the Act. Members submitting such complex 
orders represent that such orders comply with the Qualified Contingent 
Trade Exemption.
---------------------------------------------------------------------------

    \73\ 17 CFR 242.611(a).
---------------------------------------------------------------------------

    To participate in stock-option order processing, a Member must give 
up a Clearing Member previously identified to, and processed by the 
Exchange as a Designated Give Up for that Member in accordance with 
Rule 507 and which has entered into a brokerage agreement with one or 
more Exchange-designated broker-dealers that are not affiliated with 
the Exchange to electronically execute the underlying security 
component of the stock-option order at a stock trading venue selected 
by the Exchange-designated broker-dealer on behalf of the Member.
    Proposed Rule 518, Interpretations and Policies .01(b) sets forth 
the process by which stock-option orders, including inbound and those 
resting on the Strategy Book, will be handled. When a stock-option 
order is received by the Exchange, the System will validate that the 
stock-option order has been properly marked as required by Rule 200 of 
Regulation SHO under the Act (``Rule 200'').\74\ Rule 200 requires all 
broker-dealers to mark sell orders of equity securities as ``long,'' 
``short,'' or ``short exempt.'' Accordingly, Members submitting stock-
option orders must mark the underlying security component (including 
ETF) ``long,'' ``short,'' or ``short exempt'' in compliance with Rule 
200. If the stock-option order is not so marked, the order will be 
rejected by the System. Likewise, any underlying security component of 
a stock-option order sent by the Exchange to the Exchange-designated 
broker-dealer shall be marked ``long,'' ``short,'' or ``short exempt'' 
in the same manner in which it was received by the Exchange from the 
submitting Member.
---------------------------------------------------------------------------

    \74\ 17 CFR 242.200.
---------------------------------------------------------------------------

    If the stock-option order is properly marked, the System will 
determine whether the stock-option order is Complex Auction-eligible. 
If the stock-option order is Complex Auction-eligible, the System will 
initiate the Complex Auction Process described in paragraph (d) of this 
Rule. Any stock-option order executed utilizing the Complex Auction 
Process will comply with the requirements of Rule 201 of Regulation SHO 
under the Act (``Rule 201'') \75\ as discussed further below.
---------------------------------------------------------------------------

    \75\ 17 CFR 242.201.
---------------------------------------------------------------------------

    When the short sale price test in Rule 201 is triggered for a 
covered security,\76\ a ``trading center,'' \77\ such as the Exchange, 
an Exchange-designated broker-dealer, or a stock trading venue, as 
applicable, must comply with Rule 201. Rule 201 requires a trading 
center to establish, maintain, and enforce written policies and 
procedures reasonably designed to prevent the execution or display of a 
short sale order of a covered security at a price that is less than or 
equal to the current national best bid \78\ if the price of that 
covered security decreases by 10% or more from the covered security's 
closing price as determined by the listing market \79\ for the covered 
security as of the end of regular trading hours on the prior day; \80\ 
and impose these requirements for the remainder of the day and the 
following day when a national best bid for the covered security is 
calculated and disseminated on a current and continuing basis by a plan 
processor pursuant to an effective national market system plan.\81\ A 
trading center such as the Exchange, an Exchange-designated broker-
dealer and a stock trading venue, as applicable, on which the 
underlying security component is executed, must also comply with Rule 
201(b)(1)(iii)(B),\82\ which provides that a trading center must 
establish, maintain, and enforce written policies and procedures 
reasonably designed to permit the execution or display of a short sale 
order of a covered security marked ``short exempt'' \83\ without regard 
to whether the order is at a price that is less than or equal to the 
current national best bid.\84\
---------------------------------------------------------------------------

    \76\ For purposes of this proposal, the term ``covered 
security'' shall have the same meaning as in Rule 201(a)(1) of 
Regulation SHO. The term ``covered security'' is defined in Rule 
201(a)(1) as any NMS stock as defined in Rule 600(b)(47) of 
Regulation NMS. See also 17 CFR 242.600(b)(47).
    \77\ Rule 201(a)(9) states that the term ``trading center'' 
shall have the same meaning as in Rule 600(b)(78). Rule 600(b)(78) 
of Regulation NMS defines a ``trading center'' as ``a national 
securities exchange or national securities association that operates 
an SRO trading facility, an alternative trading system, an exchange 
market maker, an OTC market maker, or any other broker or dealer 
that executes orders internally by trading as principal or crossing 
orders as agent.'' See 17 CFR 242.600(b)(78). The definition 
encompasses all entities that may execute short sale orders. Thus, 
Rule 201 will apply to any entity that executes short sale orders.
    \78\ The term ``national best bid'' is defined in Rule 
201(a)(4). 17 CFR 242.201(a)(4).
    \79\ The term ``listing market'' is defined in Rule 201(a)(3). 
17 CFR 242.201(a)(3).
    \80\ 17 CFR 242.201(b)(1)(i).
    \81\ 17 CFR 242.201(b)(1)(ii).
    \82\ 17 CFR 242.201(b)(1)(iii)(B).
    \83\ 17 CFR 242.200(g)(2).
    \84\ Since the underlying security component of a stock-option 
order is not displayed by the Exchange, the exception in Rule 
201(b)(1)(iii)(A) is not available. 17 CFR 242.201(b)(1)(iii)(A).
---------------------------------------------------------------------------

    If the stock-option order is not Complex Auction-eligible, the 
System will determine if it is eligible to be executed against another 
inbound stock-option order or another stock-option order resting on the 
Strategy Book. If eligible, the System will route both sides of the 
matched underlying security component of the stock-option order as a 
Qualified Contingent Trade (``QCT'') to an Exchange-designated broker-
dealer for execution on a stock trading venue. The stock trading venue 
will then either successfully execute the QCT or cancel it back to the 
Exchange-designated broker-dealer, which in turn will either report the 
execution of the QCT or cancel it back to the Exchange. While the 
Exchange is a trading center pursuant to Rule 201, the Exchange will 
neither execute nor display the underlying security component of a 
stock-option order. Instead, the execution or display of the underlying 
security component of a stock-option order will occur on a trading 
center other than the Exchange, such as an Exchange-designated broker-
dealer or other stock trading venue.
    If the Exchange-designated broker-dealer or other stock trading 
venue, as applicable, cannot execute the underlying security component 
of a stock-option order in accordance with Rule 201, the Exchange will 
not execute the option component(s) of the stock-option order and will 
either place the unexecuted stock-option order on the Strategy Book or 
cancel it back to the submitting Member in accordance with the 
submitting Member's instructions (except that cAOC and cIOC stock-
option orders and eQuotes will be cancelled). Once placed back onto the 
Strategy Book, the stock-option order will be handled in accordance 
with Proposed Rule 518, Interpretations and Policies .01(b) as 
described herein.
    The execution price of the underlying security component must be 
also within the high-low range for the day in the underlying security 
at the time the

[[Page 58792]]

stock-option order is processed and within a certain price from the 
current market, which the Exchange will establish and communicate to 
Members via Regulatory Circular. If the underlying security component 
price is not within these parameters, the stock-option order is not 
executable.
    If the stock-option order is not Complex Auction-eligible and 
cannot be executed or placed on the Strategy Book, it will be cancelled 
by the System. Otherwise, the stock-option order will be placed on the 
Strategy Book.
    As set forth in proposed Rule 518, Interpretations and Policies 
.01(c) regarding the option component of a stock-option order, the 
option leg(s) of a stock-option order shall not be executed (i) at a 
price that is inferior to the Exchange's best bid (offer) in the option 
or (ii) at the Exchange's best bid (offer) in that option if one or 
more Priority Customer Orders are resting at the best bid (offer) price 
on the Simple Order Book in each of the option components and the 
stock-option order could otherwise be executed in full (or in a 
permissible ratio). If one or more Priority Customer Orders are resting 
at the best bid (offer) price on the Simple Order Book, at least one 
option component must trade at a price that is better than the 
corresponding bid or offer in the marketplace by at least $0.01. The 
option leg(s) of a stock-option order may be executed in a $0.01 
increment, regardless of the minimum quoting increment applicable to 
that series.\85\
---------------------------------------------------------------------------

    \85\ See also CBOE Rule 6.53C.06(b), which states that the 
option leg(s) shall not be executed at a price that is (i) at a 
price that is inferior to the Exchange's best bid (offer) in the 
series or (ii) at the Exchange's best bid (offer) in that series if 
one or more public customer orders are resting at the best bid 
(offer) price on the Ebook in each of the component option series 
and the stock-option order could otherwise be executed in full (or 
in a permissible ratio). The option leg(s) of a stock-option order 
may be executed in a one-cent increment, regardless of the minimum 
quoting increment applicable to that series.
---------------------------------------------------------------------------

    Proposed Rule 518, Interpretations and Policies .01(d) provides 
that stock-option orders and quotes on the Strategy Book that are 
marketable against each other will automatically execute, subject to 
price and priority provisions described in the above paragraph relating 
to the option component of the stock-option order. Orders and quotes 
may be submitted by Members to trade against orders on the Strategy 
Book.\86\
---------------------------------------------------------------------------

    \86\ See also CBOE Rule 6.53C.06(c), which differs slightly, 
stating that orders and quotes may be submitted by market 
participants to trade against orders in the COB except that the N 
second group timer shall not be in effect for stock-option orders. 
MIAX does not have an ``N-second group timer.''
---------------------------------------------------------------------------

    Proposed Rule 518, Interpretations and Policies .01(e) provides 
that stock-option orders executed via Complex Auction shall trade in 
the sequence set forth in proposed Rule 518(d)(5) described above 
except that the provision regarding individual orders and quotes in the 
leg markets resting on the Simple Order Book prior to the initiation of 
a Complex Auction will not be applicable and such execution will be 
subject to the conditions noted above concerning the price of the 
option leg(s), together with all applicable securities laws.
    Proposed Rule 518, Interpretations and Policies .01(f) provides 
that the underlying security of a stock-option order is in a limit up-
limit down state as defined in Rule 530, such order will only execute 
if the calculated stock price is within the permissible Price Bands as 
determined by SIPs \87\ under the Plan to Address Extraordinary Market 
Volatility Pursuant to Rule 608 of Regulation NMS, as it may be amended 
from time to time (the ``LULD Plan'').
---------------------------------------------------------------------------

    \87\ See supra note 26.
---------------------------------------------------------------------------

Market Maker Complex Quotes
    Proposed Rule 518, Interpretations and Policies .02 describes the 
manner in which the Exchange will determine to allow Market Maker 
quotes in complex strategies.\88\ Market Maker complex quotes may be 
entered as either complex Standard quotes or complex eQuotes, as 
defined in proposed Rule 518, Interpretations and Policies .02(a).\89\
---------------------------------------------------------------------------

    \88\ ISE permits market maker complex quotes. See supra note 23.
    \89\ A complex Standard quote is defined as a complex quote 
submitted by a Market Maker that cancels and replaces the Market 
Maker's previous complex Standard quote for that side of the 
strategy, if any. A complex eQuote is defined as a complex quote 
submitted by a Market Maker with a specific time in force that does 
not automatically cancel and replace the Market Maker's previous 
complex Standard quote or complex eQuote.
---------------------------------------------------------------------------

    The Exchange will determine, on a class-by-class basis, the complex 
strategies in which Market Makers may submit complex Standard quotes, 
and will notify Members of such determination via Regulatory Circular. 
Market Makers may submit complex eQuotes in their appointed options 
classes.
    A ``Complex Auction or Cancel eQuote'' or ``cAOC eQuote'' is an 
eQuote submitted by a Market Maker that is used to provide liquidity 
during a specific Complex Auction with a time in force that corresponds 
with the duration of the Complex Auction. cAOC eQuotes will not: (i) Be 
executed against individual orders and quotes resting on the Simple 
Order Book; (ii) be eligible to initiate a Complex Auction, but may 
join a Complex Auction in progress; (iii) rest on the Strategy Book; or 
(iv) be displayed.
    A ``Complex Immediate or Cancel eQuote'' or ``cIOC eQuote'' is a 
complex eQuote with a time-in-force of IOC that may be matched with 
another complex quote or complex order for an execution to occur in 
whole or in part upon receipt into the System.\90\ cIOC eQuotes will 
not: (i) Be executed against individual orders and quotes resting on 
the Simple Order Book; (ii) be eligible to initiate a Complex Auction 
or join a Complex Auction in progress; (iii) rest on the Strategy Book; 
or (iv) be displayed. Any portion of a cIOC eQuote that is not executed 
will be immediately cancelled.
---------------------------------------------------------------------------

    \90\ This is based on the Exchange's current IOC eQuotes in the 
simple market. See Exchange Rule 517(a)(ii)[sic](iv).
---------------------------------------------------------------------------

    Market Maker complex quotes are executed in the same manner as 
complex orders but will not be executed against bids and offers on the 
Simple Order Book via Legging as described in proposed Rule 
518(c)(2)(iii). Market Maker complex Standard quotes may rest on the 
Strategy Book and are not subject to the managed interest process 
described in proposed Rule 518(c)(4). An unexecuted complex Standard 
quote with a limit price that would otherwise be managed to the icMBBO 
will be cancelled.
    Market Makers are not required to enter complex quotes on the 
Strategy Book. Quotes for complex strategies are not subject to any 
quoting requirements that are applicable to Market Maker quotes in the 
simple market for individual options series or classes. Volume executed 
in complex strategies is not taken into consideration when determining 
whether Market Makers are meeting quotation obligations applicable to 
Market Maker quotes in the simple market for individual options.\91\
---------------------------------------------------------------------------

    \91\ See Proposed Rule 518, Interpretations and Policies .02. 
This is substantially similar to complex quoting functionality 
currently operative on another exchange. Specifically, ISE market 
makers may enter quotes for complex order strategies on the complex 
order book in their appointed options classes. Market Maker quotes 
for complex order strategies are executed in the same manner as 
orders as provided in other ISE rules but will not be automatically 
executed against bids and offers on the Exchange for the individual 
legs. Just as with the proposed MIAX rules, ISE market makers are 
not required to enter quotes on the complex order book. Quotes for 
complex orders are not subject to any quotation requirements that 
are applicable to ISE market maker quotes in the regular market for 
individual options series or classes, nor is any volume executed in 
complex orders taken into consideration when determining whether ISE 
market makers are meeting quotation obligations applicable to market 
maker quotes in the regular market for individual options series. 
See ISE Rule 722, Commentary [sic] .03.

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

[[Page 58793]]

Improvement Percentages
    Proposed Rule 518, Interpretations and Policies .03 establishes the 
method by which the Exchange will determine whether complex order 
interest is qualified to initiate a Complex Auction. Such qualification 
is contingent on three categories of ``improvement percentages'' that 
are used to determine the complex order's marketability at the time of 
the System's evaluation.\92\
---------------------------------------------------------------------------

    \92\ This is similar to the manner in which other exchanges 
determine a complex order's eligibility to initiate an auction for 
complex orders. CBOE rules state that a ``COA-eligible order'' means 
a complex order that, as determined by the Exchange on a class-by-
class basis, is eligible for a COA considering the order's 
marketability (defined as a number of ticks away from the current 
market). See CBOE Rule 6.53C(d)[sic](2). Respecting complex orders 
resting on the CBOE Complex Order Book (``COB''), for each class 
where COA is activated, CBOE may also determine to activate COA for 
complex orders resting in COB. For such classes, any non-marketable 
order resting at the top of the COB may be automatically subject to 
COA if the order is within a number of ticks away from the current 
derived net market. See CBOE Rule 6.53C, Interpretations and 
Policies .04. This differs from proposed Rule 518, Interpretations 
and Policies .03, which would make such a determination based upon 
the percentage by which a complex order (a potential Complex 
Auction-eligible order) improves the market at the time of 
evaluation.
---------------------------------------------------------------------------

    For complex orders received prior to the opening of all individual 
components of a complex strategy, the System will calculate an IIP 
value, which is a defined percentage of the current dcMBBO bid/ask 
differential once all of the components of the complex strategy have 
opened. Such percentage will be defined by the Exchange and 
communicated to Members via Regulatory Circular. If a Complex Auction-
eligible order is priced equal to or improves the IIP value and is also 
priced equal to, or improves, other complex orders and/or quotes 
resting at the top of the Strategy Book, the complex order will be 
eligible to initiate a Complex Auction.

Example--Initial Improvement Percentage (IIP)
    Option quotes immediately after entering free trading are as 
follows
    MIAX--LMM quote Mar 50 Call 6.00-6.50 (10x10)
    MIAX--LMM quote Mar 55 Call 2.00-2.30 (10x10)
    The strategy is buy 1 Mar 50 calls and sell 2 Mar 55 calls
    The dcMBBO is 1.40 debit bid at 2.50 credit offer
    The IIP has been set by the Exchange at 60%
    The bid/ask spread is 1.10 wide (2.50 - 1.40 = 1.10)
    The IIP value is 1.10 * 60% = 0.66

Buy orders received before the strategy components are all open must be 
bid at a level that equals or crosses a 2.06 (1.40+0.66) debit in order 
to initiate a Complex Auction when the components enter free trading.
    Sell orders received before the strategy components are all open 
must be offered at a level that equals or crosses a 1.84 (2.50-0.66) 
credit in order to initiate a Complex Auction when the components enter 
free trading.
    Upon receipt of a complex order when the complex strategy is open, 
the System will calculate an Upon Receipt Improvement Percentage 
(``URIP'') value, which is a defined percentage of the current dcMBBO 
bid/ask differential. Such percentage will be defined by the Exchange 
and communicated to Members via Regulatory Circular. If a Complex 
Auction-eligible order is priced equal to or improves the URIP value 
and is also priced to improve other complex orders and/or quotes 
resting at the top of the Strategy Book, the complex order will be 
eligible to initiate a Complex Auction.

Example--Upon Receipt Improvement Percentage (URIP)
    Option quotes upon arrival of a cAOA designated complex order
    MIAX--LMM quote Mar 50 Call 6.00-6.50 (10x10)
    MIAX--LMM quote Mar 55 Call 2.00-2.30 (10x10)
    The strategy is buy 1 Mar 50 call and sell 2 Mar 55 calls
    The dcMBBO is 1.40 debit bid at 2.50 credit offer
    The URIP has been set by the Exchange at 60%
    The bid/ask spread is 1.10 wide (2.50 - 1.40 = 1.10)
    The URIP value is 1.10 * 60% = 0.66

Buy orders designated as cAOA must be bid at a level that equals or 
crosses a 2.06 (1.40+0.66) debit in order to initiate a Complex Auction 
upon receipt.
    Sell orders designated as cAOA must be offered at a level that 
equals or crosses a 1.84 (2.50-0.66) credit in order to initiate an 
Auction upon receipt.
    Upon evaluation of a complex order resting at the top of the 
Strategy Book, the System will calculate a Re-Evaluation Improvement 
Percentage (``RIP'') value, which is a defined percentage of the 
current dcMBBO bid/ask differential. Such percentage will be defined by 
the Exchange and communicated to Members via Regulatory Circular. If a 
complex order resting at the top of the Strategy Book is priced equal 
to, or improves, the RIP value, the complex order will be eligible to 
initiate a Complex Auction.

Example--Re-Evaluation Improvement Percentage (RIP)
    Option quotes upon re-evaluation
    MIAX--LMM Mar 50 Call 6.00-6.50 (10x10)
    MIAX--LMM Mar 55 Call 2.00-2.30 (10x10)
    The strategy is Buy 1 Mar 50 call and Sell 2 Mar 55 calls
    The dcMBBO is 1.40 debit bid at 2.50 credit offer
    The RIP has been set by the Exchange at 70%
    The bid/ask spread is 1.10 wide (2.50-1.40 = 1.10)
    The RIP value is 1.10 * 70% = 0.77

Buy orders must be bid at a level that equals or crosses a 2.17 
(1.40+0.77) debit in order to initiate a Complex Auction upon re-
evaluation.
    Sell orders must be offered at a level that equals or crosses a 
1.73 (2.50-0.77) credit in order to initiate a Complex Auction upon re-
evaluation.
    Proposed Rule 518, Interpretations and Policies .04 is a regulatory 
provision that prohibits the dissemination of information related to 
Complex Auction-eligible orders by the submitting Member to third 
parties. Such conduct will be deemed conduct inconsistent with just and 
equitable principles of trade as described in Exchange Rule 301.
Price and Other Protections
    Proposed Interpretations and Policies .05 establishes Price 
Protection standards that are intended to ensure that certain types of 
complex strategies will not be executed outside of a preset standard 
minimum and/or maximum price limit.
    First, the proposal establishes a price protection program for 
Vertical Spreads and Calendar Spreads by establishing a Vertical Spread 
Variance (``VSV'') and Calendar Spread Variance (``CSV''). VSV will 
apply only to Vertical Spreads, and CSV will apply only to Calendar 
Spreads.\93\
---------------------------------------------------------------------------

    \93\ A ``Vertical Spread'' is a complex strategy consisting of 
the purchase of one call (put) option and the sale of another call 
(put) option overlying the same security that have the same 
expiration but different strike prices. See proposed Rule 518, 
Interpretations and Policies .05(a). The proposed MIAX VSV and CSV 
price protections are substantially similar to the price protections 
that are currently operative on other exchanges. For example, the 
PHLX Strategy Price Protection (``SPP'') is a feature of the System 
that prevents certain Complex Order Strategies from trading at 
prices outside of pre-set standard limits. The PHLX SPP for Vertical 
and Time (Calendar) spreads is virtually the same as the proposed 
MIAX VSV and CSV price protections, except that the PHLX rule refers 
to a ``Time Spread'' instead of a ``Calendar Spread.'' ISE's 
Vertical and Calendar Spread price protections differ slightly in 
that the ISE system will (i) prevent the execution of a vertical 
spread order at a price that is less than zero; (ii) reject a 
vertical spread order when entered with a net price greater than the 
value of the higher strike price minus the lower strike price (plus 
a pre-set value) (iii) prevent the execution of a vertical spread 
order at a price that is greater than the value of the higher strike 
price minus the lower strike price (plus a pre-set value) when 
entered as a market order to buy; (iv) reject a calendar spread 
order (i.e., an order to buy a call (put) option with a longer 
expiration and to sell another call (put) option with a shorter 
expiration in the same security at the same strike price) when 
entered with a net price of less than zero (minus a pre-set value), 
and will prevent the execution of a calendar spread order at a price 
that is less than zero (minus a pre-set value) when entered as a 
market order to sell. See ISE Rule 722, Supplementary Material 
.07(c).

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

[[Page 58794]]

    The VSV establishes minimum and maximum trading price limits for 
Vertical Spreads. The maximum possible trading price limit of the VSV 
is the difference between the two component strike prices plus a pre-
set value. For example, a Vertical Spread consisting of the purchase of 
one January 30 call and the sale of one January 35 call would have a 
maximum trading price limit of $5.00 plus a pre-set value. The minimum 
possible trading price limit of a Vertical Spread is always zero minus 
a pre-set value. The pre-set value will be uniform for all option 
classes traded on the Exchange as determined by the Exchange and 
communicated to Members via Regulatory Circular.
    A ``Calendar Spread'' is a complex strategy consisting of the 
purchase of one call (put) option and the sale of another call (put) 
option overlying the same security that have different expirations but 
the same strike price. The CSV establishes a minimum trading price 
limit for Calendar Spreads. The CSV establishes a minimum trading price 
limit for Calendar Spreads. The maximum possible value of a Calendar 
Spread is unlimited, thus there is no maximum price protection for 
Calendar Spreads. The minimum possible trading price limit of a 
Calendar Spread is zero minus a pre-set value. The pre-set value will 
be uniform for all option classes traded on the Exchange as determined 
by the Exchange and communicated to Members via Regulatory Circular.
    If the execution price of a complex order would be outside of the 
limits established in the VSV or the CSV, such complex order will be 
placed on the Strategy Book and will be managed to the appropriate 
trading price limit as described in proposed Rule 518(c)(4) above. 
Orders to buy below the minimum trading price limit and orders to sell 
above the maximum trading price limit (in the case of Vertical Spreads) 
will be rejected by the System.
    Another feature in the System that is designed to protect investors 
from executions that are outside of the price on any individual market 
is the Implied Away Best Bid or Offer (``ixABBO'') price protection 
feature. The ixABBO price protection feature is a price protection 
mechanism under which, when in operation as requested by the submitting 
Member, a buy order will not be executed at a price that is higher than 
each other single exchange's best displayed offer for the complex 
strategy, and under which a sell order will not be executed at a price 
that is lower than each other single exchange's best displayed bid for 
the complex strategy. The ixABBO is calculated using the best net bid 
and offer for a complex strategy using each other exchange's displayed 
best bid or offer on their simple order book. For stock-option orders, 
the ixABBO for a complex strategy will be calculated using the BBO for 
each component on each individual away options market and the NBBO for 
the stock component. The ixABBO price protection feature must be 
engaged on an order-by-order basis by the submitting Member and is not 
available for complex Standard quotes, complex eQuotes, or cAOC orders.

Example--Complex order with ixABBO Protection Requested
    MIAX--quote Mar 50 Call 6.00-6.50 (10x10)
    MIAX--quote Mar 55 Call 2.00-2.30 (10x10)
    GEM Mar 50 Call 6.00-6.50 (10x10)
    GEM Mar 55 Call 2.00-2.10 (10x10)
    BOX Mar 50 Call 6.00-6.50 (10x10)
    BOX Mar 55 Call 2.10-2.30 (10x10)

The Exchange receives an Initiating Customer order to buy 1 Mar 50 call 
and sell 2 Mar 55 calls for a 2.50 debit x 100, with ixABBO protection 
requested.

The icMBBO is 1.40 debit bid at 2.50 credit offer
The ixABBO is 1.80 debit bid (GEM) at 2.30 credit offer (BOX)

The cAOA instruction is not present on this order, so the order will 
not initiate an auction upon arrival regardless of its relationship to 
the Improvement Percentage. The ABBO Price Protection instruction which 
instructs the Exchange to apply ixABBO protection is present, so the 
Exchange will protect the order to the best bid for the strategy or 
best offer for the strategy available from any single exchange's 
protected quotation in the Simple Order Market, including the MIAX. 
Since the ixABBO protection has been selected, the inbound order cannot 
be legged against the Strategy Book for a 2.50 debit (the strategy is 
offered at 2.30 on BOX). In order to display the order at its maximum 
tradable price, the inbound order is managed on the Strategy Book and 
displayed at its protected limit of 2.30 debit bid. While the MIAX 
icMBBO remains 1.40 debit bid at 2.50 credit offer, the combination of 
the Simple Order Book and the Strategy Book becomes 2.30 debit bid at 
2.50 credit offer.
    The BOX then updates their protected Simple Order Market quotation 
while all other Simple Market quotations remain the same:

BOX Mar 50 Call 6.00-6.50 (10x10)
BOX Mar 55 Call 2.20-2.40 (10x10)
The ixABBO is now 1.80 debit (GEM) at 2.10 credit (BOX)

The MIAX System will now re-evaluate the order and will apply the new 
ixABBO protection. The order will now be managed on the Strategy Book 
and displayed at its protected limit of 2.10 debit bid. While the MIAX 
icMBBO remains 1.40 debit bid at 2.50 credit offer, the combination of 
the Simple Order Book and the Strategy Book becomes 2.10 debit bid at 
2.50 credit offer. The BOX again updates their protected Simple Order 
Market quotation while all other Simple Market quotations remain the 
same:

BOX Mar 50 Call 6.00-6.50 (10x10)
BOX Mar 55 Call 2.10-2.30 (10x10)
The ixABBO is now 1.80 debit bid (GEM) at 2.30 credit offer (BOX)

The MIAX System will now re-evaluate the order and will apply the new 
ixABBO protection. The order will now be managed on the Strategy Book 
and displayed at its protected limit of 2.30 debit bid. While the MIAX 
icMBBO remains 1.40 debit bid at 2.50 credit offer, the combination of 
the Simple Order Book and the Strategy Book once again becomes 2.30 
debit bid at 2.50 credit offer.
Wide Market Conditions, SMAT Events and Halts
    The Exchange is proposing to establish rules for additional 
investor protections when external market events occur that affect 
complex orders and quotes on the Exchange. These external events and 
additional investor protections, and the manner in which the System 
responds to them, are defined and specified in proposed Rule 518, 
Interpretations and Policies .05(e). First, a ``wide market condition'' 
is defined as any individual component of a complex strategy having, at 
the time of evaluation, an MBBO quote width that is wider than the 
permissible valid quote width as defined in Rule 603(b)(4).\94\
---------------------------------------------------------------------------

    \94\ A Market Maker on the Exchange is expected to price option 
contracts fairly by, among other things, bidding and offering so as 
to create differences of no more than $5 between the bid and offer 
(``bid/ask differentials'') following the opening rotation in an 
equity option contract. The Exchange may establish differences other 
than the bid/ask differentials described above for one or more 
option series or classes. See Exchange Rules 603(b)(4)(i) and (ii).

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

[[Page 58795]]

    Proposed Rule 518, Interpretations and Policies .05(e)(1)(i), 
describes how the System functions when there is a wide market 
condition during free trading (i.e., when there is not a Complex 
Auction in progress). Specifically, if a wide market condition exists 
for a component of a complex strategy, trading in the complex strategy 
will be suspended. The Strategy Book will remain available for Members 
to enter and manage complex orders and quotes. New Complex Auctions 
will not be initiated and incoming Complex Auction-eligible orders that 
could have otherwise caused an auction to begin will be placed on the 
Strategy Book. Incoming complex orders with a time in force of IOC will 
be cancelled.
    The System will continue to evaluate the Strategy Book. If a wide 
market condition exists for a component of a complex strategy at the 
time of evaluation, complex orders or quotes that could have otherwise 
been executed will not be executed until the wide market condition no 
longer exists. When the wide market condition no longer exists, the 
System will again evaluate the Strategy Book and will use the process 
and criteria respecting the RIP as described in proposed 
Interpretations and Policies .03(c) to determine whether complex order 
interest exists to initiate a Complex Auction, or whether to commence 
trading in the complex strategy without a Complex Auction.
    Proposed Rule 518, Interpretations and Policies .05(e)(1)(ii), 
describes how the System functions when there is a wide market 
condition during a Complex Auction. If, at the expiration of the 
Response Time Interval, a wide market condition exists for a component 
of a complex strategy in the Complex Auction, trading in the complex 
strategy will be suspended, and any RFR Responses will be cancelled. 
Remaining Complex Auction-eligible orders will then be placed on the 
Strategy Book. When the wide market condition no longer exists, the 
System will evaluate the Strategy Book pursuant to proposed Rule 
518(c)(5)(ii), and will use the process and criteria respecting the RIP 
as described in proposed Interpretations and Policies .03(c) to 
determine whether complex order interest exists to initiate a Complex 
Auction, or whether to commence trading in the complex strategy without 
a Complex Auction.
    The purpose of the rule and functionality concerning a wide market 
condition is to limit the trading of complex orders when one or more of 
the components of a complex strategy are wider than the defined valid 
width in the simple market \95\ as this has the potential to create 
unnaturally wide spreads in the complex strategy, which in turn could 
result in a less than optimal execution price. The Exchange believes 
that the rule and functionality are essential in protecting customers 
submitting complex orders from extreme market conditions in the simple 
market respecting the components of such complex orders.
---------------------------------------------------------------------------

    \95\ Id.
---------------------------------------------------------------------------

    Proposed Rule 518, Interpretations and Policies .05(e)(2) sets 
forth the functionality of the System if a Simple Market Auction or 
Timer (``SMAT'') Event (defined above as a PRIME Auction, a Route 
Timer, or a liquidity refresh pause) \96\ exists for a component of a 
complex strategy.
---------------------------------------------------------------------------

    \96\ See proposed Rule 518(a)(16).
---------------------------------------------------------------------------

    If a SMAT Event exists during free trading for a component of a 
complex strategy, trading in the complex strategy will be suspended. 
The Strategy Book will remain available for Members to enter and manage 
complex orders and quotes. New Complex Auctions may be initiated for 
incoming Complex Auction-eligible orders that meet the requirements of 
the URIP (as described in proposed Rule 518, Interpretations and 
Policies .03(b) above). Incoming complex orders and quotes that could 
otherwise be executed during the SMAT Event(s) without entering the 
Complex Auction process will be placed on the Strategy Book. Incoming 
complex orders received during a SMAT Event with a time in force of IOC 
will be cancelled by the System.
    The System will continue to evaluate the Strategy Book. When the 
SMAT Event(s) no longer exist(s), the System will evaluate the Strategy 
Book, and will use the process and criteria respecting the RIP to 
determine whether complex order interest exists to initiate a Complex 
Auction, or whether to commence trading in the complex strategy without 
a Complex Auction.
    Proposed Rule 518, Interpretations and Policies .05(e)(2)(ii) 
describes what happens when a SMAT Event occurs during a Complex 
Auction. If, at the end of the Response Time Interval, a component of a 
complex strategy is in a SMAT Event, trading in the complex strategy 
will be suspended and all RFR Responses will be cancelled. Remaining 
Complex Auction-eligible orders will then be placed on the Strategy 
Book. When the SMAT Event(s) no longer exist(s), the System will 
evaluate the Strategy Book pursuant to proposed Rule 518(c)(5)(ii), and 
will use the process and criteria respecting the RIP as described in 
Interpretations and Policies .03(c) of this Rule to determine whether 
complex order interest exists to initiate a Complex Auction, or whether 
to commence trading in the complex strategy without a Complex Auction.
    SMAT Events represent temporary interruptions of free trading in 
one or more components of a complex strategy. The temporary suspension 
of trading in complex orders during a SMAT event is intended to enhance 
continuity, trade-through protection, and orderliness in the simple 
markets and to protect complex order components from being executed at 
prices that could be better following a SMAT Event or a wide market 
condition. Once a SMAT Event is concluded or resolved, the System will 
evaluate the Strategy Book as described above to provide the previously 
suspended complex orders with more opportunities to be executed.
Halts
    Proposed Rule 518, Interpretations and Policies .05(e)(3) describes 
the System's functionality when there is a halt in trading for the 
underlying security or a component of a complex order. If a trading 
halt exists for the underlying security or a component of a complex 
strategy, trading in the complex strategy will be suspended.
    The Strategy Book will remain available for members to enter and 
manage complex orders and quotes. Incoming complex orders and quotes 
that could otherwise be executed or initiate a Complex Auction in the 
absence of a halt will be placed on the Strategy Book. This is similar 
to functionality that is currently operative on another exchange.\97\ 
Incoming complex orders and quotes with a time in force of IOC will be 
cancelled.
---------------------------------------------------------------------------

    \97\ See, e.g., PHLX Rule 1098(c)(ii)(C), which states that 
complex orders will not trade on the PHLX system during a trading 
halt for any options component of the Complex Order.
---------------------------------------------------------------------------

    When trading in the halted component(s) and/or underlying security 
of the complex order resumes, the System will evaluate the Strategy 
Book as described in proposed Rule 518(c)(2)(i), and will use the 
process and criteria respecting the IIP as described in proposed Rule 
518, Interpretations and Policies .03(a) to determine whether complex 
order interest exists to initiate a Complex Auction, or whether to 
commence trading in the complex strategy without a Complex Auction.
    Proposed Interpretations and Policies .05(e)(3)(ii) describes what 
happens

[[Page 58796]]

when there is a halt during a Complex Auction. Unlike during a wide 
market condition or a SMAT Event, where a Complex Auction will end 
without trading at the end of the Response Time Interval, if during a 
Complex Auction any component or the underlying security of a Complex 
Auction-eligible order is halted, the Complex Auction will end early 
without trading \98\ and all RFR Responses will be cancelled. Remaining 
complex orders will be placed on the Strategy Book if eligible, or 
cancelled. When trading in the halted component(s) and/or underlying 
security of the complex order resumes, the System will evaluate the 
Strategy Book pursuant to proposed Rule 518(c)(2)(i) above, and will 
use the process and criteria respecting the IIP as described in 
Interpretations and Policies .03(a) of this Rule to determine whether 
marketable complex order interest exists to initiate a Complex Auction, 
or whether to commence trading in the complex strategy without a 
Complex Auction.
---------------------------------------------------------------------------

    \98\ This is the only circumstance under which a Complex Auction 
on MIAX would end early. In all other circumstances described in 
proposed Rule 518 that would disrupt trading during a Complex 
Auction, the Complex Auction will end after the Response Time 
Interval without trading.
---------------------------------------------------------------------------

    Another investor protection proposed by the Exchange is described 
in Interpretations and Policies .06 of proposed Rule 518, the MIAX 
Order Monitor for Complex Orders (``cMOM'').\99\
---------------------------------------------------------------------------

    \99\ cMOM is substantially similar to the Exchange's MIAX Order 
Monitor (``MOM'') protection for the Simple Order Book. See Exchange 
Rule 519.
---------------------------------------------------------------------------

    cMOM defines a price range outside of which a complex limit order 
will not be accepted by the System. cMOM is a number defined by the 
Exchange and communicated to Members via Regulatory Circular. The 
default price range for cMOM will be greater than or equal to a price 
through the cNBBO for the complex strategy to be determined by the 
Exchange and communicated to Members via Regulatory Circular. Such 
price will not be greater than $2.50. A complex limit order to sell 
will not be accepted at a price that is lower than the cNBBO bid, and a 
complex limit order to buy will not be accepted at a price that is 
higher than the cNBBO offer, by more than cMOM. A complex limit order 
that is priced through this range will be rejected.
    cMOM includes complex order size protections, open complex order 
protection, and open complex contract protection. Respecting complex 
order size protections, the System will prevent certain complex orders 
from executing or being placed on the Strategy Book if the size of the 
complex order exceeds the complex order size protection designated by 
the Member. If the maximum size of complex orders is not designated by 
the Member, the Exchange will set a maximum size of complex orders on 
behalf of the Member by default. Members may designate the complex 
order size protection on a firm wide basis. The default maximum size 
for complex orders will be determined by the Exchange and announced to 
Members via Regulatory Circular.
    Under the open complex order protection, the System will reject any 
complex orders that exceed the maximum number of open complex orders 
held in the System on behalf of a particular Member, as designated by 
the Member. Members may designate the open complex order protection on 
a firm wide basis. If the maximum number of open complex orders is not 
designated by the Member, the Exchange will set a maximum number of 
open complex orders on behalf of the Member by default. The default 
maximum number of open complex orders will be determined by the 
Exchange and announced to Members via Regulatory Circular.
    Open complex contract protection provides that the System will 
reject any complex orders that exceed the maximum number of open 
complex contracts represented by complex orders held in the System on 
behalf of a particular Member, as designated by the Member. Members may 
designate the open complex contract protection on a firm wide basis. If 
the maximum number of open complex contracts is not designated by the 
Member, the Exchange will set a maximum number of open complex 
contracts on behalf of the Member by default. The default maximum 
number of open complex contracts will be determined by the Exchange and 
announced to Members via Regulatory Circular.
    The cMOM protections will be available for complex orders as 
determined by the Exchange and communicated to Members via Regulatory 
Circular.
    The Exchange is also proposing to amend Exchange Rule 519A to state 
that complex orders will participate in the Risk Protection Monitor. 
The Risk Protection Monitor maintains a counting program (``counting 
program'') for each participating Member that will count the number of 
orders entered and the number of contracts traded via an order entered 
by a Member on the Exchange within a specified time period that has 
been established by the Member, and will reject orders that exceed a 
Member-designated ``Allowable Order Rate'' and an ``Allowable Contract 
Execution Rate.'' \100\
---------------------------------------------------------------------------

    \100\ For a complete description of the Risk Protection Monitor, 
see Securities Exchange Act Release No. 74496 (March 13, 2015), 80 
FR 14421 (March 19, 2015) (SR-MIAX-2015-03).
---------------------------------------------------------------------------

Obvious and Catastrophic Errors
    The Exchange proposes to adopt Rule 521(c)(5) to address the manner 
in which obvious errors in complex order transactions will be handled 
in situations where one or more components of a complex order is 
eligible to be adjusted or nullified pursuant to Exchange Rule 
521(c)(4).\101\
---------------------------------------------------------------------------

    \101\ Exchange Rule 521(c)(4) describes the actions to be taken 
by the Exchange when a transaction resulting from an obvious error 
(as defined elsewhere in Rule 521) has occurred, depending upon who 
the parties to the transaction are.
---------------------------------------------------------------------------

    Specifically, if a complex order executes against another complex 
order on the Strategy Book and one or more components of the 
transaction is deemed eligible to be adjusted or nullified, the entire 
trade (all components) will be nullified, unless both parties agree to 
adjust the transaction to a different price within thirty (30) minutes 
of being notified by the Exchange of the decision to nullify the 
transaction. Additionally, if a complex order executes against orders 
or quotes on the Simple Order Book, each component of the complex order 
will be reviewed and handled independently in accordance with Exchange 
Rule 521.\102\
---------------------------------------------------------------------------

    \102\ This differs slightly from rules on other exchanges. For 
example, ISE rules provide that if both parties to a trade that is 
one component of a complex order execution are parties to all of the 
trades that together comprise the execution of a complex order at a 
single net debit or credit, then if one of those component trades 
can be nullified under ISE rules, all component trades that were 
part of the same complex order shall be nullified as well. See ISE 
Rule 720, Commentary [sic] .04. PHLX rules also include this 
provision. See PHLX Rule 1092, Commentary .01. This differs slightly 
from the rules of other exchanges.
---------------------------------------------------------------------------

    The Exchange also proposes a minor change to Exchange Rule 605, 
Market Maker Orders, to codify in Rule 605(a) that, in addition to the 
other order types specified in the rule, Market Makers may place 
complex orders in option classes to which they are appointed respecting 
cAOC complex orders.
    Because of the technology changes associated with this rule 
proposal, the Exchange will announce the implementation date of the 
proposal in a Regulatory Circular to be published no later than 90 days 
after the publication of the approval order in the Federal Register. 
The implementation date will be no later than 90 days following 
publication of the Regulatory Circular

[[Page 58797]]

announcing publication of the approval order in the Federal Register.
2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \103\ in general, and furthers the objectives 
of Section 6(b)(5) of the Act \104\ in particular, in that it is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanisms of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest. The Exchange believes in 
particular that its proposal regarding executions of complex orders 
against the Simple Order Book is consistent with the Act and furthers 
the objectives of Section 6(b)(5) of the Act \105\ because it provides 
greater liquidity to the marketplace as a whole by fostering the 
interaction between the components of complex orders on the Strategy 
Book and the Simple Order Book. This should enhance the opportunity for 
executions of both complex orders and simple orders.
---------------------------------------------------------------------------

    \103\ 15 U.S.C. 78f(b).
    \104\ 15 U.S.C. 78f(b)(5).
    \105\ Id.
---------------------------------------------------------------------------

    The Exchange believes the proposed rule change will result in more 
efficient trading and reduce the risk that complex orders fail to 
execute for investors by providing additional opportunities to fill 
complex orders, and that the changes are consistent with the Act. The 
Exchange believes that increased interaction, where possible, on a 
continuous and real-time basis of the bids and offers on each component 
of a complex strategy with the bids and offers on the corresponding 
complex strategy and vice versa, through derived orders and Legging, 
will benefit market participants and investors. The proposed rule 
change will allow complex orders to interact with interest on the MIAX 
Simple Order Book and, conversely, allow interest on the MIAX Simple 
Order Book to interact with complex orders in an efficient and orderly 
manner.
    The Exchange also believes the interaction of orders will benefit 
investors by increasing the opportunity for complex orders to receive 
execution, while also enhancing execution quality for orders on the 
MIAX Simple Order Book. Generally, the options industry rules for the 
execution of complex orders provide that two complex orders may execute 
against one another if the execution prices of the component legs 
result in a net price that is better than the best customer limit order 
available for the individual component legs. This permits an exchange, 
when executing two complex orders against one another, to execute each 
component leg on the market's best bid or offer so long as the 
execution does not trade ahead of customer interest.
    The Exchange believes it is reasonable to permit complex orders 
that are subject of this rule change to leg into the Simple Order Book. 
The proposed rule concerning Legging will facilitate the execution of 
more complex orders, and will thus benefit investors and the general 
public because complex orders will have a greater chance of execution 
when they are allowed to leg into the simple market and thereby 
increase the execution rate for these orders, thus providing market 
participants with an increased opportunity to execute these orders on 
MIAX. The prohibition against the Legging of complex orders with two 
option legs where both legs are buying or both legs are selling and 
both legs are calls or both legs are puts, and on complex orders with 
three option legs where all legs are buying or all legs are selling 
regardless of whether the option leg is a call or a put, protects 
investors and the public interest by ensuring that Market Makers 
providing liquidity do not trade above their established risk tolerance 
levels.
    The Exchange believes it is reasonable to limit the types of 
complex orders that are eligible to leg into the Simple Order Book. The 
Exchange believes that the vast majority of complex orders sent to the 
Exchange will be unaffected by this proposed rule. Moreover, the 
Exchange believes that the potential risk of offering legging 
functionality for complex orders such as those impacted by the proposed 
rule could limit the amount of liquidity that Market Makers are willing 
to provide in the Simple Order Book. In particular, Market Makers, 
without the proposed limitation, are at risk of executing the 
cumulative size of their quotations across multiple options series 
without an opportunity to adjust their quotes. Market Makers may be 
compelled to change their quoting and trading behavior to account for 
this additional risk by widening their quotes and reducing the size 
associated with their quotes, which would diminish the Exchange's 
quality of markets and the quality of the markets in general. The 
limitations in proposed Rule 518(c)(2)(iii) substantially diminish a 
potential source of unintended Market Maker risk when certain types of 
complex orders leg into the Simple Order Book, thereby removing 
impediments to and perfecting the mechanisms of a free and open market 
and a national market system and, in general, protecting investors and 
the public interest by adding confidence and stability in the 
Exchange's marketplace. This benefit to investors far exceeds the small 
amount of potential liquidity provided by the few complex orders to 
which this aspect of the proposal applies.
    Additionally, investors will have greater opportunities to manage 
risk with the new availability of trading in complex orders. The 
proposed adoption of rules governing complex order auctions will 
facilitate the execution of complex orders while providing 
opportunities to access additional liquidity and fostering price 
improvement. The Exchange believes the proposed rules are appropriate 
in that complex orders are widely recognized by market participants as 
invaluable, both as an investment, and a risk management strategy. The 
proposed rules will provide an efficient mechanism for carrying out 
these strategies. In addition, the proposed complex order rules promote 
equal access by providing Members that subscribe to the Exchange's data 
feeds that include auction notifications with the opportunity to 
interact with orders in the Complex Auction. In this regard, any Member 
can subscribe to the options data provided through the Exchange's data 
feeds that include auction notifications.
    The Exchange believes that the general provisions regarding the 
trading of complex orders provide a clear framework for trading of 
complex orders in a manner consistent with other options exchanges. 
This consistency should promote a fair and orderly national options 
market system. The Exchange believes that the proposed rules will 
result in efficient trading and reduce the risk for investors that 
complex orders could fail to execute by providing additional 
opportunities to fill complex orders.
    The proposed execution and priority rules will allow complex orders 
to interact with interest in the MIAX Simple Order Book and, 
conversely, interest on the MIAX Simple Order Book to interact with 
complex orders in an efficient and orderly manner. Consistent with 
other exchanges and with well-established principles of customer 
protection, the proposed rules state that a complex order may be 
executed at a net credit or debit price with one other Member without 
giving priority to bids or offers established in

[[Page 58798]]

the marketplace that are no better than the bids or offers comprising 
such net credit or debit; provided, however, that if any of the bids or 
offers established in the marketplace consist of a Priority Customer 
Order, at least one leg of the complex order must trade at a price that 
is better than the corresponding bid or offer in the marketplace by at 
least a $0.01 increment.\106\ Additionally, before executing against 
another complex order, a complex order on MIAX will execute first 
against orders on the MIAX Simple Order Book (except in the limited 
circumstance described in proposed Rule 518(c)(2)(iii)) if the net 
price of such orders is equal to the best price on the Strategy Book if 
any of the bids or offers established in the simple marketplace consist 
of a Priority Customer Order.
---------------------------------------------------------------------------

    \106\ See proposed Rule 518(c)(3)(i).
---------------------------------------------------------------------------

    For the reasons set forth above, the Exchange believes the proposed 
rule change regarding complex order execution is consistent with the 
goals of the Act to remove impediments to and to perfect the mechanism 
of a free and open market and a national market system, and to protect 
investors and the public interest.
Market Maker Priority Interest for Complex
    The Exchange believes that affording priority in the Strategy Book 
to Market Makers with complex Standard quotes that are priced at or 
inside the dcMBBO further perfects the mechanisms of a free and open 
market and a national market system and, in general, protects investors 
and the public interest, by providing Market Makers with additional 
incentive to submit complex Standard quotes at the best price in the 
Strategy Book.
    Certain Market Maker complex Standard quotes and complex eQuotes 
will qualify as ``Market Maker Priority Interest for Complex'' on the 
Strategy Book at the beginning of a Complex Auction, or at the time of 
execution in free trading. Affording priority in the Strategy Book to 
Market Makers with a Complex priority quote should provide incentive to 
MIAX participants to submit complex quotes at the best prices.
    Moreover, the Exchange believes that this treatment of Market 
Makers is a suitable reward for Market Makers quoting in the Strategy 
Book at the best price in the complex strategy. The Exchange believes 
this furthers the objectives of Section 6(b)(5) of the Act \107\ 
because it provides greater depth and liquidity in the Strategy Book, 
all to the benefit of investors. The Exchange believes its proposal to 
afford priority in the Strategy Book to certain Market Maker quotes on 
the Strategy Book will result in enhanced liquidity on the Exchange, 
and thus further perfects the mechanisms of a free and open market and 
a national market system, consistent with the Act.
---------------------------------------------------------------------------

    \107\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Derived Orders
    The Exchange believes the generation of derived orders as set forth 
in proposed Rule 518(a)(9) is consistent with the goals of the Act to 
remove the impediments to and perfect the mechanism of a free and open 
market because their addition to the marketplace should facilitate 
additional transactions and interaction between orders on the Strategy 
Book and orders on the Simple Order Book. The Exchange believes the 
addition of derived orders to the MIAX market will benefit Market 
Makers, traders, and retail investors trading on MIAX by enhancing 
execution quality and the likelihood and efficiency of trade execution. 
In the absence of the proposed rule, complex orders that could 
otherwise execute against interest on the Simple Order Book would not 
trade.
    A derived order is automatically removed from the Simple Order Book 
if the displayed price of the derived order is no longer at the 
displayed best bid or offer on the Simple Order Book; if execution of 
the derived order would no longer achieve the net price of the complex 
order on the Strategy Book when the other component of the complex 
order is executed against the best bid or offer on the Simple Order 
Book; if the complex order is executed in full; if the complex order is 
cancelled, or if any component of the complex order resting on the 
Strategy Book that is used to generate the derived order is subject to 
a SMAT Event, a wide market condition, or a halt. Until such removal, 
derived orders provide additional likelihood and efficiency of trade 
execution in furtherance of the goals of the Act. Applying these 
limitations, the Exchange will closely monitor the generation of 
derived orders to ensure they do not negatively impact system capacity 
and performance, thus removing these potential impediments to, and 
perfecting the mechanism of, a free and open market.
    The Exchange further believes that the automatic generation of 
derived orders will provide additional execution opportunities for 
complex orders and interest on the MIAX Simple Order Book, and thus 
enhance execution quality for investors on MIAX. The Exchange believes 
the additional opportunities for potential execution through the 
interaction of orders on the Strategy Book and orders on the Simple 
Order Book as achieved through derived orders, and the potential for 
enhanced execution quality, as outlined above, promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanism of a free and open market, are in the public interest and, 
therefore, consistent with the Act.
    The Exchange believes that the availability of derived orders will 
provide additional execution opportunities for complex orders without 
negatively impacting any investors in the simple market. The 
availability of derived orders may enhance the quality of execution for 
investors on the MIAX Simple Order Book by improving the price and/or 
size of the MBBO and by providing additional execution opportunity for 
resting interest on the MIAX Simple Order Book. The Exchange also 
believes that derived orders are compliant with Rule 602 of Regulation 
NMS \108\ because each derived order is included in the MBBO if it is 
equal to or better than the otherwise existing MBBO.
---------------------------------------------------------------------------

    \108\ 17 CFR 242.602.
---------------------------------------------------------------------------

Types of Complex Orders
    The Exchange proposes that complex orders may be submitted as limit 
orders, market orders, IOC orders, GTC orders, or day limit orders as 
each such term is defined in Exchange Rule 516, or as a cAOA order, or 
cAOC order.\109\ In particular, the Exchange believes that limit 
orders, IOC orders, GTC orders and day limit orders all provide 
valuable limitations on execution price and time that help to protect 
MIAX participants and investors in both the Simple Order Book and in 
the proposed Strategy Book. The Exchange believes that permitting 
complex orders to be entered with these varying order contingency types 
will give MIAX participants greater control and flexibility over the 
manner and circumstances in which their orders may be executed, 
modified, or cancelled, and thus will provide for the protection of 
investors and contribute to market efficiency.
---------------------------------------------------------------------------

    \109\ See proposed Rule 518(b).
---------------------------------------------------------------------------

Evaluation
    The Exchange believes that the regular and event-driven evaluation 
of the Strategy Book for the eligibility of complex orders or, as 
appropriate, complex quotes, to initiate or participate in a Complex 
Auction, and to determine their eligibility to participate in the 
managed interest process, whether a

[[Page 58799]]

derived order should be generated or cancelled, if they are eligible 
for full or partial execution against a complex order or quote resting 
on the Strategy Book or through Legging with the Simple Order Book, 
whether the complex order or quote should be cancelled; and whether the 
complex order or quote or any remaining portion thereof should be 
placed on the Strategy Book are consistent with the principles of the 
Act to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanisms of a free and open market and a national market system and, 
in general, to protect investors and the public interest.
    Evaluation of the executability of complex orders and quotes and 
for the determination as to whether a complex order is Complex Auction-
eligible is central to the removal of impediments to, and the 
perfection of, the mechanisms of a free and open market and a national 
market system and, in general, the protection of investors and the 
public interest. The evaluation process ensures that the System will 
capture and act upon complex orders and quotes that are due for 
execution or placed in a Complex Auction. The regular and event-driven 
evaluation process removes potential impediments to the mechanisms of 
the free and open market and the national market system by ensuring 
that complex orders and quotes are given the best possible chance at 
execution at the best price, evaluating the availability of complex 
orders and quotes to be handled in a number of ways as described in 
this proposal. Any potential impediments to the order handling and 
execution process respecting complex orders and quotes are 
substantially removed due to their continual and event-driven 
evaluation for subsequent action to be taken by the System. This 
protects investors and the public interest by ensuring that complex 
orders and quotes in the System are continually monitored and evaluated 
for potential action(s) to be taken on behalf of investors that submit 
their complex orders and quotes to MIAX.
Complex Auction Process
    The Complex Auction process is also designed to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system and, in general, to protect 
investors and the public interest.
    Following evaluation, a Complex Auction-eligible order may begin a 
Complex Auction or may join a Complex Auction in progress.\110\ The 
Complex Auction process promotes just and equitable principles of 
trade, fosters cooperation and coordination with persons engaged in 
facilitating transactions in securities, removes impediments to and 
perfects the mechanisms of a free and open market and a national market 
system and, in general, protects investors and the public interest by 
ensuring that eligible complex orders and quotes are given every 
opportunity to be executed at the best prices against an increased 
level of contra-side liquidity responding to the RFR message. This 
mechanism of a free and open market is designed to enhance liquidity 
and the potential for better execution prices during the Response Time 
Interval, all to the benefit of investors on MIAX, and thereby 
consistent with the Act.
---------------------------------------------------------------------------

    \110\ A cAOC eQuote will not initiate a Complex Auction but may 
join a Complex Auction in progress; an IOC eQuote will not initiate 
or join a Complex Auction in progress. See proposed Rule 518, 
Interpretations and Policies .02(c)(1) and (2).
---------------------------------------------------------------------------

    The Exchange believes that the determination to initiate a Complex 
Auction using the IIP, URIP or RIP value, as applicable, removes 
impediments to, and perfects the mechanisms of, a free and open market 
and a national market system and, in general, protects investors and 
the public interest, by ensuring that a Complex Auction is conducted 
for a complex order only when there is a reasonable and realistic 
chance for price improvement through a Complex Auction. The IIP, URIP 
and RIP are used to calculate a percentage of the dcMBBO bid/ask 
differential at or within which the System will determine to initiate a 
Complex Auction. If a complex order is priced equal to, or improves, 
the IIP, URIP or RIP value, the complex order will be eligible to 
initiate a Complex Auction.
    The purpose of this provision is to ensure that a complex order 
will not initiate a Complex Auction if it is priced through the bid or 
offer at a point (i.e., outside of the IIP, URIP or RIP) where it is 
not reasonable to anticipate that it would generate a meaningful number 
of RFR Responses such that there would be price improvement of the 
complex order's limit price. Promoting the orderly initiation of a 
Complex Auction is essential to maintaining a fair and orderly market 
for complex orders; otherwise, the initiation of Complex Auctions that 
are unlikely to result in price improvement might result in unnecessary 
activity in the marketplace when there is no meaningful opportunity for 
price improvement. The Exchange believes that the IIP, URIP and RIP 
remove this potential impediment to the MIAX market and to the 
marketplace as a whole.
    If a complex order is not priced equal to, or better than, the IIP, 
URIP or RIP value, the Exchange believes that it is not reasonable to 
anticipate that it would generate a meaningful number of RFR Responses 
such that there would be price improvement of the complex order's limit 
price. Promoting the orderly initiation of Complex Auctions is 
essential to maintaining a fair and orderly market for complex orders; 
otherwise, the initiation of Complex Auctions that are unlikely to 
result in price improvement could affect the orderliness of the 
marketplace in general.
    The Exchange believes that this removes impediments to and perfects 
the mechanisms of a free and open market and a national market system 
by promoting the orderly initiation of Complex Auctions, and by 
limiting the likelihood of unnecessary Complex Auctions that are not 
expected to result in price improvement.
    The Exchange believes the proposed maximum 500 millisecond Response 
Time Interval promotes just and equitable principles of trade and 
removes impediments to a free and open market because it allows 
sufficient time for Members participating in a Complex Auction to 
submit RFR Responses and would encourage competition among 
participants, thereby enhancing the potential for price improvement for 
complex orders in the Complex Auction to the benefit of investors and 
public interest. The Exchange believes the proposed rule change is not 
unfairly discriminatory because it establishes a Response Time Interval 
applicable to all MIAX participants participating in a Complex Auction.
    The proposed Complex Auction process is designed to protect the 
integrity of the System and of the MIAX marketplace for the protection 
of investors and the public interest by, among other things, limiting 
the number of Complex Auctions that may be initiated within a given 
time period. Multiple Complex Auctions may be in progress at any 
particular time across multiple strategies, but only one Complex 
Auction per strategy may be in progress at any particular time. Without 
such a limitation, investors could be faced with an unusually large 
number of simultaneous Complex Auctions in the same strategy, which in 
turn could

[[Page 58800]]

impact the orderly function of the markets. The Exchange believes that 
this limitation is consistent with the Act because it is designed to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system by ensuring orderliness in the 
Complex Auction process.
    The Complex Auction Process also protects investors and the public 
interest by creating more opportunities for price improvement of 
complex orders, all to the benefit of MIAX participants and the 
marketplace as a whole.
Complex Order Price Protections
    The Exchange believes that the proposed complex order price 
protections will provide market participants with valuable price and 
order size protections in order to enable them to better manage their 
risk exposure when trading complex orders. The VSV will ensure that a 
Vertical Spread will not trade at a net price of less than the minimum 
possible value minus a pre-set price setting an acceptable range or 
greater than the maximum possible value plus a pre-set price setting an 
acceptable range. The CSV will ensure that a Calendar Spread will not 
trade at a price of less than zero (minus a pre-set price setting an 
acceptable range). Orders to buy below the minimum price and orders to 
sell above the maximum price will be rejected by the System.
    cMOM defines a price range outside of which a complex limit order 
will not be accepted by the System. A complex order that is priced 
through this range will be rejected. This is intended to provide a fair 
and orderly market in complex orders on the Exchange by filtering and 
rejecting inbound complex orders at prices that could be erroneous and/
or disruptive.
Other Protections
    The Exchange is proposing to suspend and in some cases restart 
trading in complex orders and quotes, to remove certain complex orders 
from the Strategy Book, and to end a complex Auction either early or at 
the end of the Response Time Interval when there is a wide market 
condition, SMAT Event and/or a halt in the underlying security of, or 
in an individual component of, a complex order. This protection is 
intended to protect investors and the public interest by causing the 
System not to execute during potentially disruptive conditions or 
events that could affect customer protection, and to resume trading in 
complex orders and quotes to the extent possible upon the conclusion or 
resolution of the potentially disruptive condition or event.
    The System's proposed functionality during a wide market condition 
protects investors and the public interest by ensuring that the 
execution of complex orders and quotes on behalf of investors and the 
public will only occur at times when there is a fair and orderly 
market.
Risk Protection Monitor
    The proposed amendment to Exchange Rule 519A, Risk Protection 
Monitor, to reject complex orders that exceed a Member-designated 
``Allowable Order Rate'' and an ``Allowable Contract Execution Rate'' 
is designed to protect investors and the public interest by assisting 
Members submitting complex orders in their risk management. Members are 
vulnerable to the risk from system or other error or a market event 
that may cause them to send a large number of orders or receive 
multiple, automatic executions before they can adjust their order 
exposure in the market. Without adequate risk management tools, such as 
the Risk Protection Monitor, Members could reduce the amount of order 
flow and liquidity that they provide to the market. Such actions may 
undermine the quality of the markets available to customers and other 
market participants. Accordingly, the proposed amendments to the Risk 
Protection Monitor should instill additional confidence in Members that 
submit orders to the Exchange that their risk tolerance levels are 
protected, and thus should encourage such Members to submit additional 
order flow and liquidity to the Exchange with the understanding that 
they have this protection respecting all orders they submit to the 
Exchange, including complex orders, thereby removing impediments to and 
perfecting the mechanisms of a free and open market and a national 
market system and, in general, protecting investors and the public 
interest.
Obvious and Catastrophic Errors
    The proposed amendment to Exchange Rule 521, Nullification and 
Adjustment of Options Transactions Including Obvious Errors protects 
investors and the public interest by extending the obvious error 
process for complex orders.
    Under the proposal, if a complex order executes against another 
complex order on the Strategy Book and one or more components of the 
transaction is deemed eligible to be adjusted or nullified, the entire 
trade (all components) will be nullified, unless both parties agree to 
adjust the transaction to a different price within thirty (30) minutes 
of being notified by the Exchange of the decision to nullify the 
transaction. If a complex order executes against orders or quotes on 
the Simple Order Book, each component of the complex order will be 
reviewed and handled independently in accordance with Rule 521.
    This addition to Exchange Rule 521 should help add more certainty 
to the obvious/catastrophic error process and reduce the price risk to 
parties trading on the Exchange, and mitigate risk for the parties to a 
complex order where all or one or more components of the complex order 
traded at an erroneous price. Parties to complex trades on MIAX will 
have less trading risk because all of the components will be nullified 
under the proposal.
    This additional risk protection for parties to a complex trade 
promotes just and equitable principles of trade and is designed to 
protect investors and the public interest, by providing additional 
mechanisms through which investors may nullify or adjust erroneous 
trades, and is therefore consistent with the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange notes that it 
operates in a highly competitive market in which market participants 
can readily direct order flow to competing venues who offer similar 
functionality. The Exchange believes that the proposal to offer the 
ability to execute complex orders on the Exchange is pro-competitive by 
providing market participants with the opportunity to execute complex 
orders in a manner that is similar to that allowed on other options 
exchanges.
    The Exchange believes that the proposal will enhance competition 
among the various markets for complex order execution, potentially 
resulting in more active complex order trading on all exchanges.
    The Exchange notes that as to intramarket competition, its proposal 
is designed to treat all Exchange participants in the same category of 
participant equally. The Exchange believes that it is equitable and 
reasonable to afford trade allocation priority to certain categories of 
participants. The proposal to establish first priority to Priority 
Customer complex orders resting on the Strategy Book is consistent with 
the long-

[[Page 58801]]

standing policies of customer protection found throughout the Act. 
Allocating thereafter to Market Maker Priority Interest for Complex is 
justified because Market Maker Priority Interest for Complex only 
applies if the Market Maker has a complex Standard quote in the complex 
strategy that equals or improves the dcMBBO. The Exchange's proposal to 
afford such a Market Maker priority in the Strategy Book is not new 
conceptually; Market Makers are afforded priority on the Exchange in 
the Simple Order Book in certain situations.\111\ Thus, the Exchange 
believes that a Market Maker whose quoting activity qualifies for 
Market Maker Priority Interest for Complex is justifiably afforded 
priority with respect to such quoting activity.
---------------------------------------------------------------------------

    \111\ For example, after executions resulting from Priority 
Overlays when the pro-rata allocation method applies, if there is 
other interest at the NBBO, after all Priority Customer Orders (if 
any) at that price have been filled, executions at that price will 
be first allocated to other remaining Market Maker priority quotes, 
which have not received a participation entitlement, and have 
precedence over Professional Interest. See Exchange Rule 
514(e)(i)[sic].
---------------------------------------------------------------------------

    The Exchange also believes that affording priority to them (after 
Priority Customer complex orders) is reasonable in light of the 
liquidity they provide, which other MIAX participants such as non-
Market Maker Professional Interest participants are not required to 
provide.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-MIAX-2016-26 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-MIAX-2016-26. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-MIAX-2016-26, and should be 
submitted on or before September 15, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\112\
---------------------------------------------------------------------------

    \112\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-20213 Filed 8-24-16; 8:45 am]
 BILLING CODE 8011-01-P