[Federal Register Volume 84, Number 125 (Friday, June 28, 2019)]
[Notices]
[Pages 31127-31128]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-13763]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86183; File No. SR-EMERALD-2019-19]


Self-Regulatory Organizations; MIAX Emerald, LLC; Order Approving 
a Proposed Rule Change To Amend Exchange Rule 515A Concerning the PRIME 
Price Improvement and Solicitation Mechanisms and Rules 516 and 517 
Regarding Post-Only Orders and Post-Only Quotes

June 24, 2019.

I. Introduction

    On April 29, 2019, MIAX Emerald, LLC (``MIAX Emerald'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposal to address Post-Only trading interest in the context of the 
MIAX Emerald Price Improvement Mechanism (``PRIME'' or ``PRIME 
Auction''). The proposed rule change was published for comment in the 
Federal Register on May 10, 2019.\3\ The Commission did not receive any 
comment letters on the proposed rule change. This order approves the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 85783 (May 6, 2019), 
84 FR 20665 (May 10, 2019) (``Notice'').
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II. Description of the Proposed Rule Change

    PRIME is a process by which an Exchange member may submit for 
execution an order it represents as agent (``Agency Order'') against 
principal interest or solicited interest.\4\ Currently, resting Post-
Only Orders \5\ and Post-Only Quotes \6\ (collectively referred to as 
``Post-Only OQs'') may not participate in a PRIME Auction and are 
rejected if received during a PRIME Auction.\7\ Additionally, if 
trading interest on the MIAX Emerald Book (``Book'') \8\ is subject to 
the Managed Interest Process,\9\ or there is a Post-Only OQ on the Book 
on the same side of the market as the Agency Order, the Agency Order 
will be rejected by the System \10\ and a PRIME Auction will not 
commence.\11\
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    \4\ See Exchange Rule 515A(a).
    \5\ ``Post-Only Orders'' are orders that, by their terms, will 
not remove liquidity. See Exchange Rule 516(m).
    \6\ ``Post-Only Quotes'' are quotes that, by their terms, will 
not remove liquidity. See Exchange Rule 517(a)(1)(i).
    \7\ See Exchange Rule 515A(a)(1)(iv).
    \8\ The term ``Book'' means the electronic book of buy and sell 
orders and quotes maintained by the Exchange's system. See Exchange 
Rule 100.
    \9\ See Exchange Rule 515(c)(1)(ii).
    \10\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \11\ See Exchange Rule 515A(a).07. The Exchange proposes to 
delete current Interpretation and Policy .07 and adopt new 
Interpretation and Policy .08 to Rule 515A, to state that if trading 
interest exists on the MIAX Emerald Book that is subject to the 
Managed Interest Process pursuant to Rule 515(c) or the Post-Only 
price process (``POP Process'') pursuant to Rule 515(i) for the 
option on the same side of the market as the Agency Order, then the 
Agency Order will be rejected by the System prior to initiating a 
PRIME Auction or Solicitation Auction. The proposed new 
Interpretation and Policy .08 makes no substantive changes but 
simply clarifies that a Post-Only OQ may be handled under the 
Managed Interest Process or the POP Process.
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A. Post-Only OQs Resting on the Same Side as the Agency Order

    With respect to the initiation of a PRIME Auction, the Exchange 
proposes that for both single price submissions and auto-match, if the 
EBBO \12\ on the same side of the market as the Agency Order represents 
a limit order on the Book or a Post-Only Quote subject to the POP 
Process,\13\ the Agency Order must be stopped at a price that is at 
least $0.01 increment better than the Book price.\14\
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    \12\ The term ``EBBO'' means the best bid or offer on the 
Exchange. See Exchange Rule 100.
    \13\ See Exchange Rule 515(i)(3).
    \14\ See Exchange Rule 515A(a)(2)(i)(A).
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B. Post-Only OQs Received During the PRIME Auction

    As described in more detail in the Notice,\15\ the Exchange 
proposes to no longer reject Post-Only OQs that it receives when the 
System is conducting a PRIME Auction. Instead, the System will accept 
Post-Only OQs received during a PRIME Auction and will treat them in 
the same manner as other unrelated interest received during a PRIME 
Auction.\16\ Accordingly, Post-Only OQs now will participate in a PRIME 
Auction and be eligible to execute against the Agency Order.\17\
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    \15\ See Notice, supra note 3.
    \16\ Post-Only Orders and Post-Only Quotes, by their terms, do 
not remove liquidity. Under the proposal, a PRIME Auction may 
conclude earlier than the end of the Request for Responses (``RFR'') 
period upon receipt by the System of an unrelated order, including a 
Post-Only Order that is received: (i) On the opposite side of the 
market from the RFR responses, that is marketable against either the 
NBBO, the initiating price, or the RFR responses; or (ii) on the 
same side of the market as the RFR responses, that is marketable 
against the NBBO. See Exchange Rule 515A(a)(2)(ii)(B) and (C). A 
PRIME Auction also may conclude early if the System receives an 
unrelated limit order, including a Post-Only Order, on the opposite 
side of the market from the Agency Order that improves any RFR 
response. See Exchange Rule 515A(a)(2)(ii)(D). Additionally, a PRIME 
Auction would conclude for any of the other reasons provided for in 
Rule 515A. See Exchange Rule 515A(a)(2)(ii). If the same-side Post-
Only interest remains on the Book at the conclusion of a PRIME 
Auction, it will be subject to the POP Process. See Notice, supra 
note 3, at 20667.
    \17\ To implement this change, the Exchange proposes to amend 
Exchange Rules 515A(a)(1)(iv) (PRIME), 516(m) (Order Types Defined) 
and 517(a)(1)(i) (Quote Types Defined) to delete sentences from the 
rule text stating that Post-Only Quotes may not participate in a 
PRIME Auction and are rejected if received during a PRIME Auction.
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C. Automatic Execution of Agency Order Against Opposite Side Post-Only 
Interest on the Book

    Next, the Exchange proposes, before commencing a PRIME Auction, to 
have trading interest on the opposite side of the market as the Agency 
Order that is subject to the POP Process automatically execute against 
the Agency Order if the execution would be at a price $0.01 inside the 
EBBO.\18\ For an Agency Order to buy, the execution price would need to 
be $0.01 higher than the EBB, and for an Agency Order to sell, the 
execution price would need to be $0.01 lower than the EBO. If the 
Agency Order was not fully executed after the trading interest subject 
to the POP Process is fully exhausted, then a PRIME Auction would be 
initiated for the balance of the Agency Order. Further, with respect to 
any portion of an Agency Order that is automatically executed against 
interest subject to the POP Process, the exposure requirements 
contained in Exchange

[[Page 31128]]

Rule 520(b) \19\ and (c) \20\ would not be satisfied just because the 
member utilized the PRIME.\21\ A similar provision currently exists for 
interest in the Book that is subject to the Managed Interest Process 
pursuant to Exchange Rule 515(c), and the proposed rule change extends 
this functionality to interest that is subject to the POP Process.
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    \18\ See Exchange Rule 515A Interpretation and Policy .07.
    \19\ Exchange Rule 520(b) provides that members may not execute 
as principal orders they represent as agent unless (i) agency orders 
are first exposed on the Exchange for at least one second, (ii) the 
member has been bidding or offering on the Exchange for at least one 
second prior to receiving an agency order that is executable against 
such bid or offer, or (iii) the member utilizes the PRIME.
    \20\ Exchange Rule 520(c) provides that members may not execute 
orders they represent as agent on the Exchange against order 
solicited from members and non-member broker-dealers to transact 
with such orders unless the unsolicited Order is first exposed on 
the Exchange for at least one second, or the member utilizes the 
PRIME or PRIME Solicitation Mechanism.
    \21\ See Notice, supra note 3, at 20666 (for examples 
illustrating how Post-Only interest resting on the Book is handled).
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D. cPRIME Auction

    Currently, a cPRIME Agency Order will be rejected at the time of 
receipt if any component of the strategy involves an option that is 
subject to the Managed Interest Process described in Rule 
515(c)(1)(ii).\22\ The Exchange now proposes to also reject a cPRIME 
Agency Order at the time of receipt if any component of the strategy 
involves an option that is subject to Exchange Rule 515(d) (which 
describes the management process for Market Maker order and quotes) or 
the POP Process.
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    \22\ See Exchange Rule 515A Interpretation and Policy 
.12(b)(iii).
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act,\23\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.\24\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\25\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest and that the 
rules are not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \23\ 15 U.S.C. 78f.
    \24\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \25\ 15 U.S.C. 78f(b)(5).
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    Regarding PRIME Auction eligibility and the stop price when 
considering existing interest resting on the Book, the proposal 
provides that Post-Only Quotes will now also be considered (in addition 
to considering resting limit orders) in determining the Auction's 
Agency Order stop price, which must be at least $0.01 better than the 
Book price if the EBBO represents a limit order on the Book or a Post-
Only Quote subject to the POP Process on the same side as the Agency 
Order. The Commission finds that, as revised, these PRIME eligibility 
requirements are consistent with the Act in that they protect the 
priority of resting limit orders on the Book when members seek to 
initiate a PRIME Auction and thus they are consistent with the 
protection of investors and the public interest.
    The Commission finds that the proposal to permit participation in a 
PRIME Auction by incoming Post-Only OQs received during a PRIME Auction 
may increase the potential liquidity available to trade with an Agency 
Order during a PRIME Auction and thus provide additional opportunities 
for price improvement to the Agency Order, thereby removing impediments 
to and perfecting the mechanism of a free and open market in a manner 
consistent with the protection of investors. The Commission notes that 
the participation of Post-Only interest in the PRIME Auction is 
limited. Specifically, Post-Only OQs may participate in a PRIME Auction 
if they are received during the RFR period, though they may not be 
submitted as responses to an RFR.\26\ Further, Post-Only OQ may not 
participate in PRIME as an Agency Order, principal interest, or 
solicited interest.\27\ The proposal to permit resting trading interest 
on the Book subject to the POP Process on the opposite side as the 
Agency Order to execute automatically against the Agency Order (before 
the System initiates a PRIME Auction) at a price $0.01 inside the EBBO 
is designed to accommodate within the PRIME process the presence of a 
preexisting, resting Post-Only OQ on the opposite side of the Agency 
Order, while allowing members to submit customer interest to the PRIME 
mechanism for potential price improvement.\28\ As such, this provision 
is designed to provide a further opportunity for a liquidity-taking 
Agency Order to receive both a timely execution and meaningful price 
improvement. As such, it is designed in a manner that is consistent 
with the protection of investors.
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    \26\ See Exchange Rule 515A(a)(2)(i)(D) (stating RFR responses 
shall be an Auction-or-Cancel (``AOC'') order or an AOC eQuote).
    \27\ See Exchange Rule 515A(a)(1)(iv).
    \28\ See also supra notes 19 and 20 (concerning the 
applicability of exposure requirements).
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    Finally, the Commission finds that the proposal to reject a cPRIME 
Agency Order, and thus not commence a PRIME Auction, if any component 
of the complex order on the Book is subject to the POP Process is 
substantially similar to the current rule that provides that a cPRIME 
Agency Order will be rejected at the time of receipt if any component 
is subject to the Managed Interest Process. The Exchange intends for 
this provision to protect the integrity of the Book. The Commission 
finds that extending this protection to include interest subject to the 
POP Process is designed to support efficient trading in both the simple 
market and the complex market and remove impediments to and perfect the 
mechanism of a free and open market.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\29\ that the proposed rule change (SR-EMERALD-2019-19) be, and 
hereby is, approved.
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    \29\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).

J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 2019-13763 Filed 6-27-19; 8:45 am]
 BILLING CODE 8011-01-P