[Federal Register Volume 85, Number 131 (Wednesday, July 8, 2020)]
[Notices]
[Pages 41079-41082]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14629]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89206; File No. SR-MIAX-2020-19]


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 and 
Exchange Rule 515A, MIAX Price Improvement Mechanism (``PRIME'') and 
PRIME Solicitation Mechanism

July 1, 2020.
    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 June 22, 2020, Miami International Securities 
Exchange, LLC (``MIAX Options'' or ``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 is filing a proposal to amend Exchange Rule 518, 
Complex Orders; and Exchange Rule 515A, MIAX Price Improvement 
Mechanism (``PRIME'') and PRIME Solicitation Mechanism.
    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 Interpretations and Policies .05 of 
Exchange Rule 518 to exclude cPRIME orders from the Complex MIAX 
Options Price Collar Protection provided to complex orders as described 
in paragraph (f)(1) of the Rule. Additionally, the Exchange proposes to 
amend Interpretations and Policies .12 of Exchange Rule 515A to remove 
the provision that precludes last priority in allocation from being 
available to Initiating Members \3\ that submit cPRIME Agency Orders.
---------------------------------------------------------------------------

    \3\ An ``Initiating Member'' initiates a PRIME Auction. See 
Exchange Rule 515A(a)(1). 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.
---------------------------------------------------------------------------

Background
    In October of 2016, the Exchange adopted rules governing the 
trading in, and detailing the functionality of the MIAX Options System 
\4\ in the handling of, complex orders on the Exchange.\5\ In order to 
further support the trading of complex orders on the Exchange, the 
Exchange adopted an additional price protection feature for complex 
orders, the Complex MIAX Price Collar (``MPC'') in February of 2017.\6\ 
The MPC price protection feature is designed to help maintain a fair 
and orderly market by helping to mitigate the potential risk of 
executions at prices that are extreme and potentially erroneous.
---------------------------------------------------------------------------

    \4\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \5\ See Securities Exchange Act Release No. 79072 (October 7, 
2016), 81 FR 71131
    (October 14, 2016) (SR-MIAX-2016-26).
    \6\ See Securities Exchange Act Release No. 80089 (February 22, 
2017), 82 FR 12153 (February 28, 2017) (SR-MIAX-2017-06).
---------------------------------------------------------------------------

    More specifically, the MPC price protection feature is an Exchange-
wide price protection mechanism under which a complex order or eQuote 
to sell will not be displayed or executed at a price that is lower than 
the opposite side cNBBO \7\ 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'').\8\ All complex orders, together with 
cAOC eQuotes and cIOC eQuotes (as defined in Interpretations and 
Policies .02(c)(1) and (2) of Exchange Rule 518) (collectively, 
``eQuotes''), are subject to the MPC price protection feature.\9\
---------------------------------------------------------------------------

    \7\ The 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, 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. See Exchange Rule 
518(a)(2).
    \8\ See Exchange Rule 518 Interpretations and Policies .05(f).
    \9\ See Exchange Rule 518. Interpretations and Policies 
05(f)(1).
---------------------------------------------------------------------------

    In July of 2017 the Exchange adopted three new complex order types: 
Complex Customer Cross (``cC2C''), Complex Qualified Contigent Cross 
(``cQCC''), and cPRIME,\10\ which, by definition, became subject to the 
MPC price protection. In August of 2017, the Exchange amended its rules 
to remove these three new complex order types from certain pre-existing 
price protection features available on the Exchange.\11\ Specifically, 
the Exchange modified Interpretation and Policy .05(d) of Rule 518 to 
state that the Implied Away Best Bid or Offer (``ixABBO'') Price 
Protection feature is not available for cPRIME Orders, cC2C Orders, and 
cQCC Orders. In its filing the Exchange stated that the ixABBO 
protection will not be available because this type of protection isn't 
necessary for these new complex order types. Specifically, with respect 
to cPRIME Orders, a cPRIME Agency Order is received by the Exchange 
accompanied by, and guarantees an execution against, a contra-side 
order at a single price or

[[Page 41080]]

at multiple prices with a ``stop'' price outside of which the cPRIME 
Agency Order, the contra-side order, and auction responses will not be 
executed.'' \12\
---------------------------------------------------------------------------

    \10\ See Securities Exchange Act Release No. 81131 (July 12, 
2017), 82 FR 32900 (July 18, 2017) (SR-MIAX-2017-19).
    \11\ See Securities Exchange Act Release No. 81229 (July 27, 
2017), 82 FR 36023 (August 2, 2017) (SR-MIAX-2017-34).
    \12\ See id.
---------------------------------------------------------------------------

    The Exchange also excluded cPRIME orders, cC2C Orders and cQCC 
Orders from the MIAX Order Monitor for Complex Orders (``cMOM'') 
stating in its filing, ``that cPRIME Orders, cC2C Orders and cQCC 
Orders are all guaranteed an execution at a price or prices determined 
by the participants, and cPRIME Orders are subject to further price 
improvement. Therefore, the cMOM price protection feature isn't 
necessary for these complex order types, and thus these complex orders 
types will not be rejected based upon cMOM price parameters.'' \13\
---------------------------------------------------------------------------

    \13\ See id.
---------------------------------------------------------------------------

    For similar reasons, the Exchange now proposes to exclude cPRIME 
Orders \14\ from the MPC protection by amending Interpretations and 
Policies .05(f)(1) of Exchange Rule 518 to provide that, all complex 
orders (excluding cPRIME Orders), together with AOC eQuotes and cIOC 
eQuotes (as defined in Interpretations and Policies .02(c)(1) and (c) 
of Exchange Rule 518) (collectively ``eQuotes''), are subject to the 
MPC price protection feature.
---------------------------------------------------------------------------

    \14\ The Exchange notes that while cPRIME, cQCC, and cC2C Orders 
are all paired orders, the proposal is limited in scope to cPRIME 
Orders only.
---------------------------------------------------------------------------

    A cPRIME Order is a paired order with an established minimum 
execution price that must meet certain defined internal criteria to be 
eligible to participate in a cPRIME Auction. Specifically, the 
initiating price for a cPRIME Agency Order must be better than (inside) 
the icMBBO \15\ for the strategy and any other complex orders on the 
Strategy Book.\16\ The System will reject cPRIME Agency Orders 
submitted with an initiating price that is equal to or worse than 
(outside) the icMBBO or any other complex orders on the Strategy 
Book.\17\ As a result, MPC protection for cPRIME orders is not 
necessary, and in certain occasions, prevents orders that are otherwise 
eligible for participation in the cPRIME process from being accepted by 
the Exchange.
---------------------------------------------------------------------------

    \15\ The Implied Complex MIAX Best Bid or Offer or ``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 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 Exchange Rule 518(a)(11).
    \16\ The ``Strategy Book'' is the Exchange's electronic book of 
complex orders and complex quotes. See Exchange Rule 518(a)(17).
    \17\ See Exchange Rule 515A. Interpretations and Policies 
.12(a)(i).
---------------------------------------------------------------------------

    The following examples demonstrate the current behavior as compared 
to the proposed behavior.
Current cPRIME Evaluation Subject to MPC Protection
Example 1 The auction start price (``ASP'') of a Complex PRIME order 
cannot be outside the MPC opposite the Agency side
MIAX Price Collar Value (MPCV) = 0.25
cMBBO 3.00 x 4.00
cNBBO 3.00 x 3.50
MPC = (3.00-0.25) x (3.50 + 0.25) = 2.75 x 3.75
    An incoming cPRIME order is received where the ASP of the Agency 
order is to buy complex strategies at a price of 3.80. Because the ASP 
of the Agency order to buy at 3.80 is outside the opposite side MPC of 
3.75 (cNBO plus the MPCV); the cPRIME order is rejected.
Proposed cPRIME Evaluation Subject to MPC Protection
Example 2 The auction start price of a Complex PRIME order CAN be 
outside the MPC opposite the Agency side
MIAX Price Collar Value (MPCV) = 0.25
cMBBO 3.00 x 4.00
cNBBO 3.00 x 3.50
MPC = (3.00-0.25) x (3.50 + 0.25) = 2.75 x 3.75
    An incoming cPRIME order is received where the ASP of the Agency 
order is to buy complex strategies at a price of 3.80. Although the ASP 
of the Agency order to buy at 3.80 is outside the opposite side MPC of 
3.75 (cNBO plus the MPCV); the cPRIME order is accepted and initiates 
an auction.
Proposed cPRIME Evaluation Subject to MPC Protection When Inside the 
icMBBO
Example 3 The auction start price of a Complex PRIME order CAN be 
outside the MPC opposite the Agency side, and accepted if inside the 
icMBBO
MIAX Price Collar Value (MPCV) = 0.25
Strategy +1A+1B
Option A MBBO \18\ 1.00 x 1.50
---------------------------------------------------------------------------

    \18\ The term ``MBBO'' means the best bid or offer on the Simple 
Order Book on the Exchange. See Exchange Rule 518(a)(13).
---------------------------------------------------------------------------

Option B MBBO 2.00 x 2.50
icMBBO 1(1.00 + 2.00) x 1(1.50 + 2.50) = 3.00 x 4.00
Option A NBBO 1.00 x 1.30
Option B NBBO 2.00 x 2.20
cNBBO 1(1.00 + 2.00) x 1(1.30 + 2.20) = 3.00 x 3.50
MPC = (3.00 - 0.25) x (3.50 + 0.25) = 2.75 x 3.75
    An incoming cPRIME order is received where the ASP of the Agency 
order is to buy complex strategies at a price of 3.80. Although the ASP 
of the Agency order to buy at 3.80 is permitted outside the opposite 
side MPC of 3.75 (cNBO plus the MPCV), it is inside the icMBBO of 3.00 
x 4.00; therefore the cPRIME order is accepted and initiates an 
auction.
Proposed cPRIME Evaluation Subject to MPC Protection When Outside the 
icMBBO
Example 4 The auction start price of a Complex PRIME order CAN be 
outside the MPC opposite the Agency side, but is rejected if outside 
the icMBBO \19\
---------------------------------------------------------------------------

    \19\ The initiating price for a cPRIME Agency Order must be 
better than (inside) the icMBBO for the strategy and any other 
complex orders on the Strategy Book. The System will reject cPRIME 
Agency Orders submitted with an initiating price that is equal to or 
worse than (outside) the icMBBO or any other complex orders on the 
Strategy Book. See Exchange Rule 515A. Interpretations and Policies 
.12(a)(i).
---------------------------------------------------------------------------

MIAX Price Collar Value (MPCV) = 0.25
Strategy +1A+1B
Option A MBBO 1.00 x 1.50
Option B MBBO 2.00 x 2.25
icMBBO 1(1.00 + 2.00) x 1(1.50 + 2.25) = 3.00 x 3.75
Option A NBBO \20\ 1.00 x 1.30
---------------------------------------------------------------------------

    \20\ 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).
---------------------------------------------------------------------------

Option B NBBO 2.00 x 2.20
cNBBO 1(1.00 + 2.00) x 1(1.30 + 2.20) = 3.00 x 3.50
MPC = (3.00-0.25) x (3.50 + 0.25) = 2.75 x 3.75
    An incoming cPRIME order is received where the ASP of the Agency 
order is to buy complex strategies at a price of 3.80. Although the ASP 
of the Agency order to buy at 3.80 is permitted outside the opposite 
side MPC of 3.75 (cNBO plus the MPCV), it is outside the icMBBO of 3.00 
x 3.75; therefore the cPRIME order is rejected.
    The Exchange also proposes to amend Exchange Rule 515A to allow 
last priority in allocation for Initiating Members that submit cPRIME 
Agency Orders. Currently subsection (v) of Interpretations and Policies 
.12(c) provides that the order allocations provisions contained in Rule 
515(A)(a)(2(iii) shall apply to cPRIME Auctions, provided that: (A) All 
references to contracts shall be deemed to be references to complex 
strategies as defined in Rule 518(a)(6); and (B) the last priority 
allocation option described

[[Page 41081]]

in Rule 515A(a)(2)(iii)(L) is not available for Initiating Members that 
submit cPRIME Agency Orders. In its filing to adopt cPRIME 
functionality \21\ the Exchange stated that the last priority in 
allocation option described in Rule 515(A)(a)(2)(iii)(L) \22\ is not 
available for Initiating Members that submit cPRIME Agency Orders. As, 
at that time, the Exchange did not believe that there was significant 
Member demand for the use of the last priority in allocation option in 
cPRIME Auctions, therefore there was no need to include it in the 
allocation model then in use for cPRIME Auctions.
---------------------------------------------------------------------------

    \21\ See supra note 10.
    \22\ If the Initiating Member elected to have last priority in 
allocation when submitting an Agency Order to initiate an Auction 
against a single-price submission, the Initiating Member will be 
allocated only the amount of contracts remaining, if any, after the 
Agency Order is allocated to all other responses at the single price 
specified by the Initiating Member.
---------------------------------------------------------------------------

    The Exchange now believes that there is significant Member demand 
for the use of the last priority in allocation option in cPRIME 
Auctions, and proposes to amend its current rule to remove the 
provision which makes it unavailable for Initiating Members that submit 
cPRIME Agency Orders. The Exchange proposes to remove subsection 
(c)(v)(B) of Interpretations and Policies .12 in its entirety. New 
proposed subsection (c)(v) will provide that, the order allocation 
provisions contained in Rule 515A(a)(2)(iii) \23\ shall apply to cPRIME 
Auctions, provided that all references to contracts shall be deemed to 
be references to complex strategies as defined in Rule 518(a)(6).
---------------------------------------------------------------------------

    \23\ Exchange Rule 515A(a)(2)(iii)(L) provides, ``[i]f the 
Initiating Member elected to have last priority in allocation when 
submitting an Agency Order to initiate an Auction against a single-
price submission, the Initiating Member will be allocated only the 
amount of contracts remaining, if any, after the Agency Order is 
allocated to all other responses at the single price specified by 
the Initiating Member.''
---------------------------------------------------------------------------

    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.
2. Statutory Basis
    MIAX Options believes that its proposed rule change is consistent 
with Section 6(b) of the Act \24\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \25\ 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.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78f(b).
    \25\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes its proposal to exclude cPRIME Orders from 
the Complex MIAX Options Price Collar Protection 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 allowing 
otherwise eligible orders to benefit from submission to the cPRIME 
mechanism. The Exchange believes that, if not excluded, such protection 
feature could unnecessarily impede certain transactions in this order 
type that is submitted with contra-side participation and guaranteed 
executions for the Agency side. The Agency side of a cPRIME Order is 
effectively executed when received (and, in the case of cPRIME Orders, 
subject to price improvement) because it is a paired order with a 
guaranteed execution. The Exchange believes that accepting these 
orders, rather than rejecting them, protects investors that have 
established crossing orders at a specific execution price, and in the 
case of cPRIME Orders, allows the opportunity for further price 
improvement.
    The Exchange believes that its proposal to allow Initiating Members 
that submit cPRIME Agency Orders to the Exchange to elect to have last 
priority in allocation 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 offering an additional allocation choice 
which could result in an increase of cPRIME Agency Orders, and 
resultant executions. The Exchange believes offering last priority in 
allocation gives the Initiating Member additional flexibility and 
control over cPRIME Agency Orders which will benefit investors by 
increasing the opportunity for option orders to receive an execution.

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 Exchange believes that the proposal to exclude cPRIME Orders 
from the Exchange's MPC price protection promotes inter-market 
competition by enabling MIAX Options to better compete for this type of 
order flow with other exchanges that have similar functionality in 
place.\26\ Additionally, offering a last in priority allocation option 
to Initiating Members that submit cPRIME Agency orders allows the 
Exchange to compete with other option exchanges that offer similar 
functionality.\27\
---------------------------------------------------------------------------

    \26\ See Cboe Exchange Rule 5.38.
    \27\ See Cboe Exchange Rule 5.38(e)(4).
---------------------------------------------------------------------------

    The Exchange does not believe that its proposal will impose any 
burden on intra-market competition as all Members of the Exchange that 
submit cPRIME Orders will benefit equally from the Exchange's proposal. 
The proposed rule change is intended to promote competition by ensuring 
that unnecessary price protections which would preclude executions on 
the Exchange are removed, thus enabling MIAX Options participants to 
execute more complex orders on the Exchange. Additionally, offering 
Initiating Members that submit cPRIME Agency Orders an additional 
allocation choice gives Members more flexibility and control over their 
orders and may result in the submission of more cPRIME Orders which 
would benefit competition on the Exchange.
    For all the reasons stated, 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, and 
believes the proposed changes will in fact enhance 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)

[[Page 41082]]

of the Act \28\ and Rule 19b-4(f)(6) \29\ thereunder.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78s(b)(3)(A).
    \29\ 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.
---------------------------------------------------------------------------

    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-2020-19 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-2020-19. 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-2020-19 and should be submitted on 
or before July 29, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
---------------------------------------------------------------------------

    \30\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14629 Filed 7-7-20; 8:45 am]
BILLING CODE 8011-01-P