[Federal Register Volume 84, Number 216 (Thursday, November 7, 2019)]
[Notices]
[Pages 60117-60119]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24253]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87440; File No. SR-MIAX-2019-45]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Exchange Rule 518, Complex Orders
November 1, 2019.
Pursuant to 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 October 22, 2019, Miami International Securities Exchange, LLC
(``MIAX Options'' or ``Exchange'') filed with the Securities and
Exchange Commission (``Commission'') a proposed rule change
[[Page 60118]]
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.
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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 518,
Complex Orders.
The text of the proposed rule change is available on the Exchange's
website at http://www.miaxoptions.com/rule-filings/ at MIAX Options'
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 subsection (c)(2)(iii) of Exchange
Rule 518, Complex Orders, to remove the provision which provides that a
component of a complex order \3\ that legs into the Simple Order Book
\4\ may not execute at a price that is outside the NBBO.\5\
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\3\ 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), 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. 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. See Exchange Rule 518(a)(5).
\4\ The ``Simple Order Book'' is the Exchange's regular
electronic book of orders and quotes. See Exchange Rule 518(a)(15).
\5\ 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''). See Exchange Rule 518(a)(14).
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Currently, subsection (c)(2)(iii) provides that 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 \6\
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.
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\6\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100.
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The Exchange now proposes to remove the provision of the rule which
stipulates that a component of a complex order that legs into the
Simple Order Book is not executed at a price that is outside of the
NBBO. The Exchange believes removing this provision will improve
liquidity on the Exchange's Strategy Book \7\ and increase
opportunities for execution of complex orders. Under the Exchange's
proposal each component leg of a complex order may be executed at a
price equal to or better than the MBBO \8\ for that leg, but only if
the net strategy price is not through the Complex MIAX Price Collar
(``MPC'') Price \9\ for the complex order.
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\7\ The ``Strategy Book'' is the Exchange's electronic book of
complex orders and complex quotes. See Exchange Rule 518(a)(17).
\8\ The term MBBO means the best bid or offer on the Simple
Order Book. See Exchange Rule 518(a)(13).
\9\ The MPC price protection feature is an Exchange-wide
mechanism under which a complex order or complex eQuote to sell will
not be displayed or executed at a price that is lower than the
opposite side cNBBO bid at the time the MPC is assigned by the
System (i.e., upon receipt or upon opening) by more than a specific
dollar amount expressed in $0.01 increments (the ``MPC Setting''),
and under which a complex order or eQuote to buy will not be
displayed or executed at a price that is higher than the opposite
side cNBBO offer at the time the MPC is assigned by the System by
more than the MPC Setting (each the ``MPC Price''). See Exchange
Rule 518.05(f).
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The Exchange notes that at least one other competing options
exchange allows component legs of a complex order to trade outside of
the NBBO for the component leg. Specifically, BOX Exchange Rule
7240(b)(3)(iii)(A) provides that ``[i]f an inbound Complex Order is
executable (against either opposite side Complex Orders on the Complex
Order Book or interest on the BOX Book) on BOX, BOX will determine if
the potential execution price is equal to or better than both Extended
cNBBO and cBBO. If so, the inbound Complex Order will be executed to
the extent possible according to the priority described in [BOX
Exchange] Rule 7240(b)(3)(i).'' \10\
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\10\ See Securities Exchange Act Release No. 80917 (June 13,
2017), 82 FR 27920 (June 19, 2017) (SR-BOX-2017-20).
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The BOX Exchange Extended cNBBO is similar to the MIAX Options MPC
price protection and is intended to mitigate the potential risk of
executions at prices that are extreme or potentially erroneous. The
Extended cNBBO is the maximum net bid and offer execution price for a
Complex Order Strategy.\11\ Under Box Exchange Rule 7240(a)(5), the
Extended cNBBO is calculated by subtracting the Extended cNBBO Limit
\12\ from the cNBB \13\ and adding the Extended cNBBO Limit to the
cNBO.\14\ In calculating the Extended cNBBO, each side of the Extended
cNBBO is rounded to the nearest penny within the Extended cNBBO (i.e.
the cNBB is rounded up to the nearest penny and the cNBO is rounded
down to the nearest penny). The Extended cNBBO Limit is a percentage or
an amount, whichever provides the less restrictive range (i.e. the
widest range) when calculating the Extended cNBBO.\15\
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\11\ The term ``Complex Order Strategy'' or ``Strategy'' means a
particular combination of components of a Complex Order and their
ratios to one another. See BOX Exchange Rule 7240(a)(9).
\12\ The term ``Extended cNBBO Limit'' means a percentage or an
amount, whichever provides for the greatest chance of execution
(i.e. the widest range) when calculating the Extended cNBBO. The
Extended cNBBO Limit for all classes will be a minimum of 3% and a
maximum of 50% of the cNBB or cNBO as applicable; or a minimum
amount of $0.00 and a maximum amount of $1.00. The default Extended
cNBBO Limit for all classes will be 5% of the cNBB or cNBO as
applicable, or $0.05. The Exchange will communicate the Extended
cNBBO Limit with prior notice to Participants via Circular. The
Exchange may modify the Extended cNBBO Limit on all classes with
prior notice to Participants via Circular. See BOX Exchange Rule
7240(a)(6).
\13\ The term ``cNBB'' means the best net bid price for a
Complex Order Strategy based on the NBBO for the individual options
components of such Strategy. See BOX Exchange Rule 7240(a)(2).
\14\ The term ``cNBO'' means the best net offer price for a
Complex Order Strategy based on the NBBO for the individual options
components of such Strategy. See BOX Exchange Rule 7240(a)(4).
\15\ See supra note 12.
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The Exchange will announce the implementation date of the proposed
rule change by Regulatory Circular to be published no later than 90
days following the operative date of the proposed rule. The
implementation date will be no later than 90 days following the
issuance of the Regulatory Circular.
[[Page 60119]]
2. Statutory Basis
MIAX believes that its proposed rule change is consistent with
Section 6(b) of the Act \16\ in general, and furthers the objectives of
Section 6(b)(5) of the Act \17\ 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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\16\ 15 U.S.C. 78f(b).
\17\ 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 provision
that prevents a component of a complex order that legs into the Simple
Order Book from executing at a price that is outside the NBBO. The
Exchange believes that removing this provision will result in increased
opportunities for the execution of complex orders, leading to increased
liquidity on the Strategy Book, which benefits all Exchange
participants by providing more trading opportunities. Further, although
the proposal will allow component legs of a complex order to execute
outside of the NBBO for that component, the Exchange believes that the
MPC price protection feature will mitigate the potential risk of
executions occurring at prices that are extreme or potentially
erroneous. Moreover, the proposed rule change is consistent with rules
regarding complex order handling and execution on at least one other
exchange.\18\
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\18\ See BOX Exchange Rule 7240(b)(3)(iii)(A).
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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. The proposed rule change is
designed to increase liquidity on the Exchange's Strategy Book by
removing the provision that prevents a component of a complex order
that legs into the Simple Order Book from executing at a price that is
through the NBBO for that component. Implementation of the proposed
rule change will facilitate additional executions and enable greater
competition among other competing exchanges that provide similar
complex order handling.
The Exchange does not believe that the proposed rule change will
impose any burden on intramarket competition as the proposed rule
change applies equally to all Exchange Members. All Exchange Members
who submit complex orders to the Exchange may benefit from the
proposal.
The Exchange does not believes that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act, conversely the
Exchange believes that its proposal will increase intermarket
competition.
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 after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to 19(b)(3)(A) of the Act \19\ and Rule 19b-4(f)(6) \20\
thereunder.
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\19\ 15 U.S.C. 78s(b)(3)(A).
\20\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file 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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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 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- MIAX-2019-45 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-2019-45. 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 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-MIAX-2019-45 and should be submitted on
or before November 29, 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. 2019-24253 Filed 11-6-19; 8:45 am]
BILLING CODE 8011-01-P