[Federal Register Volume 84, Number 163 (Thursday, August 22, 2019)]
[Notices]
[Pages 43829-43833]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-18075]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86699; File No. SR-EMERALD-2019-30]
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Exchange Rule 520, Limitations on Orders
August 16, 2019.
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 7, 2019, MIAX Emerald, LLC (``MIAX
Emerald'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') a proposed rule change as described in
Items I and II 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend Exchange Rule 520,
Limitations on Orders, to remove certain order entry restrictions
prohibiting Electronic
[[Page 43830]]
Exchange Members \3\ from effectively operating as Market Makers \4\ on
the Exchange.
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\3\ The term ``Electronic Exchange Member'' or ``EEM'' means the
holder of a Trading Permit who is not a Market Maker. Electronic
Exchange Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100.
\4\ The term ``Market Makers'' refers to ``Lead Market Makers'',
``Primary Lead Market Makers'' and ``Registered Market Makers''
collectively. See Exchange Rule 100.
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The text of the proposed rule change is available on the Exchange's
website at http://www.miaxoptions.com/rule-filings/emerald at MIAX
Emerald'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 amend Exchange Rule 520, Limitations on
Orders, to remove certain order entry restrictions prohibiting EEMs
from effectively operating as Market Makers on the Exchange. The
proposed rule change is similar to the recent filing submitted by the
Exchange's affiliate, Miami International Securities Exchange, LLC
(``MIAX'').\5\ Currently, subsection (a)(1) of Exchange Rule 520
provides that the Exchange shall designate classes in which EEMs may
enter into the System,\6\ as principal or as agent, buy and sell limit
orders in the same option series, for the account or accounts of the
same or related beneficial owners. Currently, subsection (a)(2) of
Exchange Rule 520 provides that, in all other classes, EEMs shall not
enter into the System, as principal or agent, limit orders in the same
options series, for the account or accounts of the same or related
beneficial owners, in such a manner that the EEM or the beneficial
owner(s) effectively is operating as a market maker by holding itself
out as willing to buy and sell such option contract on a regular or
continuous basis. Subsection (a)(2) further provides that in
determining whether an EEM or beneficial owner effectively is operating
as a Market Maker, the Exchange will consider, among other things: The
simultaneous or near-simultaneous entry of limit orders to buy and sell
the same option contract; the multiple acquisition and liquidation of
positions in the same options series during the same day; and the entry
of multiple limit orders at different prices in the same options
series.
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\5\ See Securities Exchange Act Release No. 86534 (July 31,
2019), 84 FR 38316 (August 6, 2019(SR-MIAX-2019-33).
\6\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
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The Exchange now proposes to amend Exchange Rule 520(a) to delete
current subsection (a)(1) and to modify current subsection (a)(2) such
that, for all option classes, the restrictions prohibiting EEMs from
effectively operating as Market Makers will only be applicable to
Priority Customer Orders \7\ since Priority Customer Orders have
priority at any price over the bids and offers of non-Priority Customer
Orders. Current Exchange Rule 520(a)(2) was adopted to limit the
ability of Members that are not Market Makers to compete on
preferential terms within the Exchange's System. Because Priority
Customer Orders are provided with certain benefits such as priority of
bids and offers, the Exchange believes that Priority Customer Orders
should continue to be subject to the restrictions set out in current
Exchange Rule 520(a)(2). However, because broker-dealer orders do not
have priority over bids and offers of Market Makers, the Exchange no
longer believes it is necessary to impose the restrictions set out in
current Exchange Rule 520(a)(2) on the entry of broker-dealer orders.
Similarly, because Voluntary Professional orders do not have priority
over bids and offers of Market Makers, the Exchange does not believe it
is necessary to impose the restrictions set out in current Exchange
Rule 520(a)(2) on Voluntary Professional orders.\8\
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\7\ The term ``Priority Customer Order'' means an order for the
account of a Priority Customer. See Exchange Rule 100. 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 account(s). The number of orders shall
be counted in accordance with Interpretation and Policy .01 of
Exchange Rule 100.
\8\ The Exchange notes that this rule change would only
eliminate the restrictions of Exchange Rule 520(a)(2) in the manner
proposed. Members would continue to remain subject to the
requirements of MIAX Rule 303, incorporated by reference into the
MIAX Emerald Rulebook (which requires Members to establish, maintain
and enforce written policies and procedures reasonably designed,
taking into consideration the nature of such Member's business, to
prevent the misuse of material, nonpublic information by such Member
or persons associated with such Member); MIAX Rule 301,
Interpretation and Policy .02, also incorporated by reference into
the MIAX Emerald Rulebook (which considers it conduct inconsistent
with just and equitable principles of trade for any person
associated with a Member who has knowledge of all material terms and
conditions of: (a) An order and a solicited order, (b) an order
being facilitated, or (c) orders being crossed, the execution of
which are imminent, to enter, based on such knowledge, an order to
buy or sell an option for the same underlying security as any option
that is the subject of the order, or an order to buy or sell the
security underlying such class, or any order to buy or sell any
related instrument until (1) the terms of the order and any changes
in the terms of the order of which the person associated with the
Member has knowledge are disclosed to the trading crowd, or (2) the
trade can no longer reasonably be considered imminent in view of the
passage of time since the order was received); and Exchange Rule
520(b) (which provides that EEMs may not execute as principal orders
they represent as agent unless (i) agency orders are first exposed
on the Exchange for at least one (1) second, (ii) the EEM has been
bidding or offering on the Exchange for at least one (1) second
prior to receiving an agency order that is executable against such
bid or offer, or (iii) the EEM utilizes the MIAX Emerald PRIME or
the PRIME Solicitation Mechanism pursuant to Rule 515A); and
Exchange Rule 520(c) (which provides that EEMs may not execute
orders they represent as agent on the Exchange against orders
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 (1) second, or the EEM utilizes the
MIAX Emerald PRIME or the PRIME Solicitation Mechanism pursuant to
Rule 515A).
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Pursuant to this proposal, the Exchange will allow EEMs to enter
buy and sell limit orders in the same options series for the account or
accounts of the same beneficial owners, other than for the account(s)
of Priority Customers, and will no longer need to designate specific
classes for EEMs to engage in this type of activity. Accordingly, the
Exchange believes that subsection (a)(1) of the current rule is no
longer necessary and is redundant. Therefore, the Exchange proposes to
delete subsection (a)(1). Similarly, the Exchange proposes to delete
the beginning text of subsection (a)(2), which states ``In all other
classes,'' as this rule text is no longer necessary in accordance with
the Exchange's proposal to also delete subsection (a)(1).
Additionally, the Exchange proposes to insert text into the first
sentence of current Exchange Rule 520(a)(2) to specify that Priority
Customer Orders would continue to be subject to the restrictions of
that subsection. The Exchange proposes to delete the text in the first
sentence of current subsection (a)(2) regarding limit orders entered by
EEMs as principal or agent to clarify that all Priority Customer Orders
are
[[Page 43831]]
subject to the restrictions of that subsection. The Exchange also
proposes to amend the hierarchical scheme in the first sentence of
current subsection (a)(2) to insert romanettes ``(i)'' and ``(ii)'' to
clarify the two conditions that must exist for the entry of Priority
Customer Orders to be subject to the restrictions of current subsection
(a)(2). The Exchange further proposes to delete the text in the first
sentence of current subsection (a)(2) that states ``or related'' when
referring to the account or accounts of the same beneficial owner. The
purpose of this change is to remove outdated rule text and to align the
Exchange's proposed rule with a competing options exchange that has a
rule consistent with this proposal.\9\ The Exchange believes this is a
non-substantive change and is consistent with the Exchange's proposal
to delete subsection (a)(1) of the rule. The Exchange does not believe
that deleting the text ``or related'' will have any impact to Members
as the remaining text continues to apply to ``the account or accounts
of the same beneficial owner(s).'' The Exchange also proposes to
capitalize the term ``Market Maker'' throughout current subsection
(a)(2) to harmonize the rule text to the definition of Market Maker in
Exchange Rule 100 and clarify that the rule text of current subsection
(a)(2) refers to Market Makers on the Exchange. The Exchange proposes
to delete the term ``Electronic Exchange Member'' in the second
sentence of current subsection (a)(2) as the purpose of this proposed
rule change is to remove the restrictions of current subsection (a)(2)
as they currently pertain to EEMs effectively operating as Market
Makers. Additionally, the Exchange proposes to replace the term
``option contract'' throughout current subsection (a)(2) with the term
``security'' or ``securities,'' where appropriately used in the
singular or plural. The purpose of these proposed changes are to align
the Exchange's proposed rule with competing options exchanges that have
rules consistent with this proposal as well as with the Exchange's
affiliate, MIAX.\10\
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\9\ See Cboe Exchange, Inc. Rules, CHAPTER VI. DOING BUSINESS ON
THE EXCHANGE FLOOR, Rule 6.8, Prohibition Against Customers
Functioning as Market-Makers; Securities Exchange Act Release No.
59700 (April 2, 2009), 67 FR 16246 (April 9, 2009)(SR-CBOE-2009-009)
(Order Approving a Proposed Rule Change To Amend its Rules
Prohibiting Members From Functioning as Market Makers).
\10\ See id.; see also Nasdaq ISE, LLC, Options 3 Options
Trading Rules, Section 22(a); Securities Exchange Act Release No.
63017 (September 29, 2010), 75 FR 61795 (October 6, 2010)(SR-ISE-
2010-95); see also MIAX Rule 520(a).
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Further, Exchange Rule 520(a)(2) currently provides that, in
determining whether an EEM or beneficial owner effectively is operating
as a Market Maker, the Exchange will consider, among other things: The
simultaneous or near-simultaneous entry of limit orders to buy and sell
the same option contract; the multiple acquisition and liquidation of
positions in the same options during the same day; and the entry of
multiple limit orders at different prices in the same options series.
The Exchange proposes to remove the second condition pertaining to the
multiple acquisition and liquidation of positions from its list of
factors used for determining whether an EEM or beneficial owner is
operating as a Market Maker. In light of the proliferation of day
trading activity and the fact that such a prohibition does not exist on
other markets,\11\ the Exchange no longer believes this activity should
be considered a factor in determining whether an EEM or beneficial
owner is effectively acting as a Market Maker.
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\11\ See id.
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With the proposed changes, Exchange Rule 520(a) would be amended to
state as follows:
Electronic Exchange Members shall not enter into the System
Priority Customer Orders in the same options series if (i) the
orders are limit orders for the account or accounts of the same
beneficial owner(s) and (ii) the limit orders are entered in such a
manner that the beneficial owner(s) effectively is operating as a
Market Maker by holding itself out as willing to buy and sell such
securities on a regular or continuous basis. In determining whether
a beneficial owner effectively is operating as a Market Maker, the
Exchange will consider, among other things, the simultaneous or
near-simultaneous entry of limit orders to buy and sell the same
security and the entry of multiple limit orders at different prices
in the same security.
Accordingly, the restrictions contained in current Exchange Rule
520(a)(2) against entering limit orders into the System would no longer
be applicable to EEMs, except when entering Priority Customer Orders
for account of the same beneficial owner. Further, current Exchange
Rule 520(a)(1) would be deleted in its entirety.
2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with Section 6(b) of the Act \12\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \13\ 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 regulating,
clearing, settling, processing information with respect to, and
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.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
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The Exchange believes its proposal promotes just and equitable
principles of trade, 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 removing the prohibition
on EEMs from entering limit orders in such a manner to effectively
operate as Market Makers will more freely permit the entry of orders by
EEMs, resulting in more orders on the Exchange. The increase in more
orders on the Exchange should increase liquidity on the Exchange, which
would benefit all market participants.
The Exchange believes its proposal to prohibit EEMs from entering
Priority Customer Orders for the account of the same beneficial owner
such that the beneficial owner is effectively operating as a Market
Maker continues to promote just and equitable principles of trade
because Priority Customer Orders have priority over the bids and offers
of non-Priority Customer Orders. Because Priority Customers are
provided with certain benefits such as priority of bids and offers, the
Exchange believes its proposal to continue to subject Priority Customer
Orders to the restrictions of current Exchange Rule 520(a)(2) will
protect investors and the public interest. The Exchange believes its
proposal to remove the restrictions of current subsection (a)(2) on
EEMs entering broker-dealer and Voluntary Professional orders in such a
manner that the EEM is effectively operating as a Market Maker promotes
just and equitable principles of trade because those orders do not
receive the same benefits as Priority Customer Orders, such as priority
of bids and offers.
Similarly, the Exchange believes its proposal to delete subsection
(a)(1) and specific text in subsection (a)(2) promotes just and
equitable principles of trade, 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 removing
provisions of the rule text that no longer apply in light of the
Exchange's proposal to allow EEMs to
[[Page 43832]]
enter buy and sell limit orders in the same options series for the
account or accounts of the same beneficial owners, other than for the
account(s) of Priority Customers. Accordingly, the Exchange will no
longer need to designate specific classes for EEMs to engage in this
type of market making activity pursuant to subsection (a)(1). This
proposed change will provide greater clarity to Members and the public
regarding the Exchange's rules and it is in the public interest for
rules to be accurate and concise so as to eliminate the potential for
confusion.
The Exchange believes its proposal to remove the second condition
pertaining to the multiple acquisition and liquidation of positions
from its list of factors used for determining whether an EEM or
beneficial owner is operating as a Market Maker promotes just and
equitable principles of trade, 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 because of the
proliferation of day trading activity and the fact that such a
prohibition does not exist on other markets.\14\
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\14\ See supra notes 9 and 10.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
Intra-Market Competition
Specifically, the Exchange believes that removing the prohibition
on EEMs from entering limit orders such that EEMs may enter limit
orders in such a manner to effectively operate as Market Makers will
further promote competition on the Exchange, increase order flow and
liquidity, leading to tighter, more efficient markets to the benefit of
all market participants.
The Exchange believes that the prohibition on EEMs from entering
Priority Customer Orders for the account of the same beneficial owner
such that the beneficial owner is effectively operating as a Market
Maker does not impose any burden on competition that is not necessary
or appropriate because Priority Customers are provided with certain
benefits such as priority of bids and offers that are not shared by
other market participants.
Inter-Market Competition
The Exchange believes that its proposal to remove the prohibition
on EEMs from entering limit orders such that EEMs may enter limit
orders in such a manner to effectively operate as Market Makers will
not impose any burden on intermarket competition not necessary or
appropriate in furtherance of the purposes of the Act because of the
proliferation of day trading activity and the fact that such a
prohibition does not exist on other markets.\15\
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\15\ Id.
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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
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-
4(f)(6) thereunder.\17\
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \18\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \19\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has requested that the Commission waive the 30-day operative delay so
that the proposed rule change may become operative upon filing. Waiver
of the operative delay would allow the Exchange to immediately
harmonize with similar rules on other exchanges that allow EEMs to
effectively operate as Market Makers. Therefore, the Commission
believes that waiver of the 30-day operative delay is consistent with
the protection of investors and the public interest. Accordingly, the
Commission hereby waives the operative delay and designates the
proposed rule change operative upon filing.\20\
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\18\ 17 CFR 240.19b-4(f)(6).
\19\ 17 CFR 240.19b-4(f)(6)(iii).
\20\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
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-EMERALD-2019-30 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-EMERALD-2019-30. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official
[[Page 43833]]
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of
the filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change. Persons submitting comments are cautioned that we do
not redact or edit personal identifying information from comment
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
EMERALD-2019-30, and should be submitted on or before September 12,
2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-18075 Filed 8-21-19; 8:45 am]
BILLING CODE 8011-01-P