[Federal Register Volume 87, Number 89 (Monday, May 9, 2022)]
[Notices]
[Pages 27670-27676]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-09853]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94836; File No. SR-MIAX-2022-17]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change by Miami International 
Securities Exchange, LLC to Amend Exchange Rule 518, Complex Orders and 
Exchange Rule 515, Execution of Orders and Quotes, To Permit Pricing of 
Stock-Option Complex Strategies in any Decimal Price the Exchange 
Determines

May 3, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on April 19, 2022, Miami International Securities Exchange, LLC 
(``MIAX Options'' or the ``Exchange'') filed with the Securities and 
Exchange Commission (the ``Commission'') the 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 its Rulebook to permit 
pricing of stock-option complex strategies in any decimal price the 
Exchange determines.
    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 Exchange Rule 518, Complex Orders, 
and Exchange Rule 515, Execution of Orders and Quotes, to permit 
pricing of stock-option complex strategies in any decimal price the 
Exchange determines.\3\
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    \3\ The Exchange notes that other options exchanges offer this 
pricing increment for stock-option orders. See Cboe Options Rule 
5.33(f)(i)(B), which provides that, ``users may express bids and 
offers for a stock-option order (including a QCC with Stock Order) 
in any decimal price the Exchange determines. The minimum increment 
for the option leg(s) of a stock-option order is $0.01 or greater, 
which the Exchange may determine on a class-by-class basis, 
regardless of the minimum increments otherwise applicable to the 
option leg(s), and the stock leg of a stock-option order may be 
executed in any decimal price permitted in the equity market.'' See 
also Nasdaq ISE Options 3, Section 14(c)(1), which similarly 
provides, ``bids and offers for Complex Options Strategies may be 
expressed in one cent ($0.01) increments, and the options leg of 
Complex Options Strategies may be executed in one cent ($0.01) 
increments, regardless of the minimum increments otherwise 
applicable to the individual options legs of the order. Bids and 
offers for Stock-Option Strategies or Stock-Complex Strategies may 
be expressed in any decimal price determined by the Exchange, and 
the stock leg of a Stock-Option Strategy or Stock-Complex Strategy 
may be executed in any decimal price permitted in the equity market. 
The options leg of a Stock-Option Strategy or Stock-Complex Strategy 
may be executed in one cent ($0.01) increments, regardless of the 
minimum increments otherwise applicable to the individual options 
legs of the order.'' See also Cboe EDGX Rule 21.20(f)(1)(B).
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Background
    In October 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\ The Exchange defines 
a ``complex order'' as 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 \6\ 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,\7\ are eligible for processing.\8\
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    \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\ 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.
    \7\ See MIAX Regulatory Circular 2016-41, Trading of Complex 
Orders on MIAX (October 14, 2016) available at https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_RC_2016_41.pdf.
    \8\ See Exchange Rule 518(a)(5).
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    A complex order can also be a ``stock-option order'' as described 
further, and subject to the limitations set forth, in Interpretations 
and Policies .01 of Exchange 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

[[Page 27671]]

than eight-to-one (8.00), where the ratio represents the total number 
of units of 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,\9\ are eligible for 
processing.\10\
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    \9\ See MIAX Regulatory Circular 2018-34, Implementation of 
Stock-Option Complex Order Trading on the Exchange (August 2, 2018) 
available at https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Options_RC_2018_34.pdf.
    \10\ See supra note 8.
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    Additionally, the Exchange offers a Complex Qualified Contingent 
Cross Order or ``cQCC'' Order which is comprised of an originating 
complex order to buy or sell where each component is at least 1,000 
contracts that is identified as being part of a qualified contingent 
trade, as defined in Rule 516, Interpretations and Policies .01,\11\ 
coupled with a contra-side complex order or orders totaling an equal 
number of contracts. The trading of cQCC Orders is governed by Rule 
515(h)(4).\12\
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    \11\ A ``qualified contingent trade'' is a transaction 
consisting of two or more component orders, executed as agent or 
principal, where: (a) At least one component is an NMS Stock, as 
defined in Rule 600 of Regulation NMS under the Exchange Act; (b) 
all components are effected with a product or price contingency that 
either has been agreed to by all the respective counterparties or 
arranged for by a broker-dealer as principal or agent; (c) the 
execution of one component is contingent upon the execution of all 
other components at or near the same time; (d) the specific 
relationship between the component orders (e.g., the spread between 
the prices of the component orders) is determined by the time the 
contingent order is placed; (e) the component orders bear a 
derivative relationship to one another, represent different classes 
of shares of the same issuer, or involve the securities of 
participants in mergers or with intentions to merge that have been 
announced or cancelled; and (f) the transaction is fully hedged 
(without regard to any prior existing position) as a result of other 
components of the contingent trade. See Interpretations and Polices 
.01 of Exchange Rule 516.
    \12\ See Exchange Rule 518(b)(6).
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    Exchange Rule 515(h)(4) currently provides that, cQCC Orders, as 
defined in Rule 518(b)(6), are automatically executed upon entry 
provided that, with respect to each option leg of the cQCC Order, the 
execution (i) is not at the same price as a Priority Customer Order on 
the Exchange's Book; and (ii) is at or between the NBBO. The System 
will reject a cQCC Order if, at the time of receipt of the cQCC Order: 
(i) the strategy is subject to a cPRIME Auction pursuant to Rule 515A, 
Interpretation and Policy .12 or to a Complex Auction pursuant to Rule 
518(d); or (ii) any component of the strategy is subject is subject to 
a SMAT Event as described in Rule 518(a)(16). Further paragraph (A) of 
Exchange Rule 515(h)(4) provides that cQCC Orders will be automatically 
canceled if they cannot be executed. Paragraph (B) of Exchange Rule 
515(h)(4) provides that, cQCC Orders may only be entered in the minimum 
trading increments applicable to complex orders under Rule 
518(c)(1)(i). Paragraph (C) of Exchange Rule 515(h)(4) provides that, 
the Exchange will determine on a class-by-class basis, the option 
classes in which cQCC Orders are available for trading on the Exchange, 
and will announce such classes to Members via Regulatory Circular.
    Trading of complex orders on the Exchange is governed by Exchange 
Rule 518, Complex Orders. Minimum increments and trade prices for 
complex orders are described in current subparagraph (i) of Rule 
518(c)(1) which states, 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. Current subparagraph (ii) of Exchange Rule 518(c)(1) states, if 
any component of a complex strategy would be executed at a price that 
is equal to a Priority Customer \13\ bid or offer on the Simple Order 
Book,\14\ at least one other component of the complex strategy must 
trade at a price that is better than the corresponding MBBO.\15\ 
Current subparagraph (iii) of Exchange Rule 518(c)(1) states, 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. Current subparagraph (iv) of Exchange Rule 518(c)(1) 
states, a complex order or eQuote (as defined in Interpretations and 
Policies .02 of Rule 518) will not be executed at a price that is 
outside of its MPC Price (as defined in Interpretations and Policies 
.05(f) of Rule 518) or its limit price.\16\
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    \13\ 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). See 
Exchange Rule 100.
    \14\ The term ``Simple Order Book'' is the Exchange's regular 
electronic book of orders and quotes. See Exchange Rule 518(a)(15).
    \15\ The term ``MBBO'' means the best bid or offer on the Simple 
Order Book on the Exchange. See Exchange Rule 518(a)(13).
    \16\ See Exchange Rule 518(c)(1).
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Proposal
    The Exchange now proposes to (i) amend its rule pertaining to the 
pricing of complex orders to permit the pricing of stock-option complex 
strategies in any decimal price the Exchange determines; and (ii) make 
additional changes to the Exchange's rulebook necessary to support the 
implementation of the proposed pricing structure.
Rule 518 Complex Orders
    Specifically, the Exchange proposes to amend subsection (c)(1) 
Minimum Increments and Trade Prices of Rule 518, to adopt new paragraph 
(ii), and to renumber current paragraph (c)(1)(ii) as paragraph 
(c)(1)(iii). New paragraph (c)(1)(ii) will provide that bids and offers 
on complex orders, quotes, and RFR Responses for stock-option complex 
strategies (including a cQCC Order entered with a stock component) may 
be expressed in any decimal price the Exchange determines. The option 
component(s) of such a complex order may be executed in $0.01 
increments, regardless of the minimum increments otherwise applicable 
to individual components of the complex order, and the stock component 
of such a complex order may be executed in any decimal price permitted 
in the equity market. Minimum increments less than $0.01 are 
appropriate for stock-option orders as the stock component can trade at 
finer decimal increments permitted by the equity market.\17\ 
Furthermore, the Exchange notes that even with the flexibility provided 
in the proposed rule, the individual options and stock legs must trade 
at increments allowed by the Commission in the options and equities 
markets.
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    \17\ The Exchange notes that its rule text is substantially 
similar to the rules of other exchanges that trade stock-option 
orders. See supra note 3.
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    To support the pricing of stock-option orders in any decimal price 
the Exchange determines, the Exchange is proposing to make a number of 
conforming changes throughout its Rulebook to clearly differentiate 
pricing and support of complex strategies with only option components, 
(which remains unchanged under this proposal in $0.01 increments), and 
pricing and support of stock-option complex strategies which may be in 
sub-penny increments, as determined by the Exchange.
    Therefore, the Exchange proposes to make a minor conforming change 
to the

[[Page 27672]]

rule text of current paragraph (c)(1)(ii) of Rule 518, which will be 
renumbered as paragraph (c)(1)(iii). The current rule text states 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 trade 
at a price that is better than the corresponding MBBO. The Exchange now 
proposes to amend the rule to add additional detail and specificity by 
stating 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 option component of the complex 
strategy must trade at a price that is better than the corresponding 
MBBO. The Exchange believes that clarifying that the component of the 
complex strategy must be an option component adds additional detail to 
the rule and makes it clear in the Exchange's rules that a Priority 
Customer bid or offer must be improved by at least $0.01 by the option 
component of either a complex strategy with only option components or 
the option component of a stock-option complex strategy.
    Additionally, the Exchange proposes to amend paragraph (i) of 
subsection (c)(1), Minimum Increments and Trade Prices, of Exchange 
Rule 518, to add additional detail and clarity to the rule text. 
Currently, the rule 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. The Exchange now proposes to amend the rule text to 
provide that, bids and offers on complex orders, quotes, and RFR 
Responses for complex strategies having only option components may be 
expressed in $0.01 increments, and the component(s) of such a complex 
order may be executed in $0.01 increments, regardless of the minimum 
increments otherwise applicable to individual components of the complex 
order.
    Paragraph (c)(1)(i) pertains to complex strategies that have only 
option components (as opposed to paragraph (c)(1)(ii) which pertains to 
stock-option complex strategies) and therefore provides that bids, 
offers, and RFR Responses for complex strategies having only option 
components may be expressed in $0.01 increments. The Exchange believes 
this change is necessary to differentiate between which strategies are 
required to be priced in $0.01 increments (complex strategies having 
only option components) and which strategies may be priced in an 
increment other than $0.01 (stock-option complex strategies). The 
Exchange believes this amendment provides additional detail and clarity 
regarding the pricing of complex strategies having only option 
components, which is not changing under this proposal.
    The Exchange also proposes to amend the rule text of current 
paragraph (c)(1)(iii) of Rule 518 to make two minor conforming changes 
and to renumber the paragraph as new paragraph (c)(1)(iv). Currently, 
the rule states 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 now proposes to add 
additional detail and specificity to the rule to state that, a complex 
order will not be executed at a net price that would cause any option 
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 option component of the 
complex strategy.\18\ The Exchange believes that clarifying that the 
component of the complex strategy must be an option component adds 
additional detail and clarity to the rule. The Exchange also proposes 
to make a non-substantive change to existing paragraph (c)(1)(iv) to 
renumber the paragraph as (c)(1)(v).
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    \18\ The Exchange proposes to make an identical conforming 
change to paragraph (d)(6) of Rule 518.
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    The Exchange proposes to amend subparagraph (i) of section (c)(4), 
Managed Interest Process for Complex Orders, of Rule 518 to add 
additional detail and clarity to the rule text. The managed interest 
process for complex orders ensures that a complex order will never be 
executed at a price that is through the individual component prices on 
the Simple Order Book.
    Currently, the rule provides that, when the opposite side icMBBO 
\19\ includes a Priority Customer Order, the System will book and 
display such booked complex order on the Strategy Book \20\ at a price 
(the ``book and display price'') that is $0.01 away from the current 
opposite side icMBBO. The Exchange proposes to amend the rule text to 
provide that, 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'') 
such that at least one option component is priced $0.01 away from the 
current opposite side MBBO. The MBBO is comprised of the best bid and 
the best offer on the Simple Order Book on the Exchange.\21\
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    \19\ The 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 
NBBO in the stock component. See Exchange Rule 518(a)(11).
    \20\ The ``Strategy Book'' is the Exchange's electronic book of 
complex orders and complex quotes. See Exchange Rule 518(a)(17).
    \21\ See supra note 15.
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    This change supports the proposed change to 518(c)(1)(iii) which 
provides 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 option component of the complex 
strategy must trade at a price that is better than the corresponding 
MBBO. Together, these changes ensure that no complex strategy (either a 
complex strategy with only option components or a stock-option complex 
strategy) will execute ahead of a Priority Customer order on the Simple 
Order Book without improving the MBBO of at least one option component 
of the complex strategy by at least $0.01.\22\ The Exchange believes 
this change provides additional detail and clarity regarding the 
managed interest process for complex strategies with only option 
components and for stock-option complex strategies, and harmonizes the 
rule text to the System behavior.
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    \22\ See Exchange Rule 518(c)(1)(iv) as proposed herein.
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    The Exchange proposes to amend paragraph (d)(4), RFR Response, of 
Rule 518 to make a conforming change to the rule necessary to support 
pricing of stock-option complex strategies in any decimal price 
determined by the Exchange. Currently, Rule 518(d)(4) provides that, 
RFR responses may be submitted in $0.01 increments. The Exchange 
proposes to amend this provision to provide that RFR Responses may be 
submitted in the increments defined in proposed subparagraphs (c)(1)(i) 
and (c)(1)(ii) of this Rule. This proposed change is consistent with 
the proposed change to Rule 518(c)(1), Minimum Increments and Trade 
Prices, as described above, and aligns the pricing of complex 
strategies with only option components in $0.01, which is not changing 
under this proposal, and the pricing of

[[Page 27673]]

complex strategies with an option component in any decimal price the 
Exchange determines as proposed herein. RFR responses submitted for a 
complex strategy having only options components may be expressed in 
$0.01 increments as proposed in subparagraph (c)(1)(i), whereas RFR 
responses submitted for a stock-option complex strategy may be 
expressed in any decimal price the Exchange determines as proposed in 
subparagraph (c)(1)(ii). This change aligns RFR responses for complex 
strategies with only options components to the current price interval 
for complex orders of $0.01, which is not changing under this proposal, 
and aligns the pricing interval for stock-option complex strategies 
with the proposed change discussed herein to be in any decimal price as 
determined by the Exchange.\23\
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    \23\ The Exchange proposes to make an identical conforming 
change to Rule 518(e) for cLEP Responses.
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    The Exchange proposes to amend paragraph (d)(6)(i) of Rule 518 to 
add additional detail and clarity to the operation of the rule 
necessary to support pricing of stock-option complex strategies in sub-
penny increments and clarify that the pricing and processing of complex 
strategies with only option components will remain unchanged under this 
proposal. Currently, the rule states that, at the conclusion of the 
Response Time Interval, Complex Auction-eligible orders will be priced 
and executed as follows, and allocated pursuant to subparagraph (7) of 
Rule 518: \24\ (i) 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.\25\
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    \24\ See Exchange Rule 518(d)(6).
    \25\ See Exchange Rule 518(d)(6)(i).
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    The Exchange now proposes to amend the rule text to state that, at 
the conclusion of the Response Time Interval, Complex Auction-eligible 
orders will be priced and executed as follows, and allocated pursuant 
to subparagraph (7) of Rule 518: (i) Using $0.01 inside the current 
icMBBO for complex strategies with only option components or using a 
decimal price increment (as determined by the Exchange) inside the 
current icMBBO for stock-option complex strategies 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. This proposed change is consistent with the proposed change 
to Rule 518(c)(1), Minimum Increments and Trade Prices, as described 
above and allows the Exchange to accurately calculate prices for stock-
option complex strategies. Using the same pricing increments that each 
complex strategy is priced in ($0.01 for complex strategies with only 
option components and the decimal price increment as determined by the 
Exchange for stock-option complex strategies) ensures that there are no 
calculation or rounding errors which ensures the accuracy and integrity 
of the Exchange's price calculations and the System's determination of 
the price where the maximum quantity of contracts can trade and also 
the System's determination of an imbalance. The Exchange believes this 
change adds additional detail and clarity to the rule, by clarifying 
current behavior as it relates to complex strategies with only option 
components and facilitates the proposed change to permit pricing of 
complex strategies with an option component in any decimal price the 
Exchange determines.
    The Exchange proposes to amend paragraph (d)(6)(i)(A)2.a. of Rule 
518 to provide for calculations in $0.01 increments to support complex 
strategies with only option components and to provide for calculations 
in any decimal price increment as determined by the Exchange to support 
stock-option complex strategies. Currently, the rule provides that, if 
the midpoint price is not in a $0.01 increment, the System will round 
toward the midpoint of the dcMBBO \26\ to the nearest $0.01. The 
Exchange now proposes to amend the rule text to state that, for complex 
strategies with only option components 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; for stock-option complex strategies, if 
the midpoint price is not in a decimal price increment as determined by 
the Exchange, the System will round toward the midpoint of the dcMBBO 
to the nearest decimal price increment as determined by the Exchange.
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    \26\ The 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. 
See Exchange Rule 518(a)(8).
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    Similarly, the Exchange also proposes to amend paragraph 
(d)(6)(i)(A)2.b. of Rule 518 to provide for calculations in $0.01 
increments to support complex strategies with only option components 
and to provide for calculations in any decimal increment as determined 
by the Exchange to support stock-option complex strategies. Currently, 
the rule provides that 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. The 
Exchange now proposes to amend the rule text to state that, if the 
midpoint of the highest and lowest prices is also the midpoint of the 
dcMBBO and is not in a $0.01 increment for complex strategies with only 
option components or in a decimal price increment as determined by the 
Exchange for stock-option complex strategies, the System will round the 
price up to the next $0.01 increment for complex strategies with only 
option components or to a decimal price increment as determined by the 
Exchange for stock-option complex strategies.
    To properly perform the internal calculations described in Exchange 
Rule 518(d)(6)(i)(A)2.a. and b. correctly it is imperative that the 
decimal increment being used in the calculation properly aligns to the 
decimal quoting increment being used on the Exchange for that strategy, 
be it for complex strategies with only options components or stock-
option complex strategies. Using the appropriate decimal increment that 
the strategy is priced in ($0.01 for complex strategies with only 
options components or any decimal price as determined by the Exchange 
for stock-option complex strategies) ensures that the Exchange 
accurately calculates the Auction Start Price to the proper decimal 
precision for either complex strategies with only options components 
(which may only be in $0.01 increments) or stock-option complex 
strategies (which may be in any price increment as determined by the 
Exchange). The Exchange believes these changes provide additional 
detail and clarification regarding the differentiation in calculations 
for complex strategies with only options components that are priced in 
$0.01 increments, which remains unchanged under this proposal, and 
calculations for stock-option complex strategies, which may be priced 
in increments other than $0.01. This change is necessary to support the 
proposed change discussed herein to price stock-option strategies in 
any decimal price increment as determined by the Exchange.
Rule 515 Execution of Orders and Quotes
Customer to Customer Cross Orders
    The Exchange proposes to amend paragraph (h), Crossing Orders, of 
Rule

[[Page 27674]]

515, to clarify that Complex Customer Cross (``cC2C'') pricing is not 
changing under this proposal. Currently, subparagraph (B) of paragraph 
(3), of Rule 515(h), Complex Customer Cross (``cC2C'') Orders provides 
that cC2C Orders \27\ may only be entered in the minimum trading 
increments applicable to complex orders under Rule 518(c)(1)(i). 
Current Rule 518(c)(1)(i) provides that the minimum trading increments 
applicable to complex orders is $0.01.\28\ The Exchange proposes to 
amend subparagraph (B) to state that, cC2C Orders may only be entered 
in minimum trading increments of $0.01.
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    \27\ A Complex Customer Cross or ``cC2C'' Order is comprised of 
one Priority Customer complex order to buy and one Priority Customer 
complex order to sell at the same price and for the same quantity. 
Trading of cC2C Orders is governed by Rule 515(h)(3). See Exchange 
Rule 518(b)(5).
    \28\ 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. See Exchange Rule 518(c)(1)(i).
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Complex Qualified Contingent Cross Orders
    cQCC Orders \29\ may be entered into the Exchange's System with a 
stock component or without the stock component. To support and 
facilitate the pricing proposal for stock-option strategies as proposed 
herein, a cQCC entered without the stock component will be treated as a 
complex strategy with only option components for pricing purposes 
(pricing in $0.01 increments only), whereas a cQCC entered with the 
stock component will be treated as a complex strategy with a stock 
component under the Exchange's new quoting structure as proposed 
herein. Therefore, the Exchange proposes to amend subparagraph (B) of 
paragraph (4), Complex Qualified Contingent Cross (``cQCC'') Orders to 
provide that cQCC Orders may only be entered in the minimum trading 
increments applicable to complex orders under proposed Rule 
518(c)(1)(i) or 518(c)(1)(ii) if the cQCC Order includes the stock 
component upon entry.
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    \29\ A Complex Qualified Contingent Cross or ``cQCC'' Order is 
comprised of an originating complex order to buy or sell where each 
component is at least 1,000 contracts that is identified as being 
part of a qualified contingent trade, as defined in Rule 516, 
Interpretations and Policies .01, coupled with a contra-side complex 
order or orders totaling an equal number of contracts. Trading of 
cQCC Orders is governed by Rule 515(h)(4). See Exchange Rule 
518(b)(6).
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    Additionally, the Exchange proposes to adopt new subparagraph (D) 
to paragraph (4) of Rule 515(h) to provide a more fulsome description 
of cQCC Order handling of a cQCC Order entered without the stock 
component and a cQCC Order entered with the stock component. New 
subparagraph (D) will provide that, a cQCC Order may be entered with or 
without the stock component. A cQCC Order entered without the stock 
component will be treated as a complex strategy with only option 
components. A cQCC Order entered with the stock component shall be 
subject to Rule 518.01. A Member that submits a cQCC Order to the 
Exchange (with or without the stock component) represents that such 
order satisfies the requirements of a qualified contingent trade (as 
described in Interpretations and Policies .01 of Rule 516) and agrees 
to provide information to the Exchange related to the execution of the 
stock component as determined by the Exchange and communicated via 
Regulatory Circular.\30\
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    \30\ See proposed Rule 515(h)(4)(D) and see also MIAX Options 
Regulatory Circular 2019-19, Update regarding Regulatory 
Requirements when entering a Qualified Contingent Cross Order 
(``QCC'') or a Complex Qualified Contingent Cross Order (``cQCC'') 
(March 19, 2019) available at: https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Options_RC_2019_19.pdf.
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2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \31\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \32\ 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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    \31\ 15 U.S.C. 78f(b).
    \32\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change benefits 
investors and promotes just and equitable principles of trade because 
it provides investors with the ability to price stock-option complex 
strategies with greater precision.\33\ This provides investors with 
greater opportunities for execution as it allows for more accurate 
pricing of stock-option complex strategies. The net price of a complex 
strategy with a stock component may result in a price that is 
accurately expressed in a finer decimal increment than $0.01 as a 
result of the stock ratio being used.
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    \33\ The Exchange notes that other options exchanges permit 
stock-option orders to be priced in decimal increments. See Cboe 
Options Rule 5.33(f)(i)(B), Nasdaq ISE Options 3, Section 14(c)(1), 
and Cboe EDGX Rule 21.20(f)(1)(B).
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Example 1 Stock-Option Complex Strategy
    The current market is:

MBBO XYZ Jan 15 Put 0.95 (10) x 1.00 (10)
NBBO XYZ Stock 20.00 (100) x 20.01 (100)

    Customer strategy:
    A customer order to Buy 1 XYZ Jan 15 Put and Buy 33 Shares of XYZ 
is received. The customer would like to pay $1.00 for the option and 
pay $20.01 for the stock for a net price $7.6033 as per the calculation 
of the strategy market below.
    The market for the Strategy is:

Strategy Bid = (Option Bid * Option Ratio) + (Stock Bid * Stock Ratio/
100)
Strategy Bid = (0.95 * 1) + (20.00 * .33)
Strategy Bid = 7.5500
Strategy Ask = (Option Ask * Option Ratio) + (Stock Ask * Stock Ratio/
100)
Strategy Ask = (1.00 * 1) + (20.01 * .33)
Strategy Ask = 7.6033
Strategy market = 7.5500 x 7.6033

    As the Exchange does not support stock option strategies priced in 
four decimal increments this strategy would be sent to a venue that 
supports four decimal pricing for execution.
    Under the Exchange's proposal to permit stock-option complex 
strategies to be expressed in any decimal price as determined by the 
Exchange, if the Exchange determines to price stock-option complex 
strategies in $0.0001 increments, the above strategy could be placed on 
the Exchange's Strategy Book at its calculated net price. The customer 
who would like to pay $1.00 for the option and pay $20.01for the stock 
can now pay $1.00 for the option and pay $20.01 for the stock for a net 
price of $7.6033 as per the calculation above.
    Pricing stock-option complex strategies in sub-penny increments 
permits more precision pricing and allows for complex strategies with a 
stock component to be effectively traded on the Exchange. Currently, 
firms that wish to execute these types of strategies will not send them 
to the MIAX Exchange due to the current System limitation which 
constrains the price to two decimal places, whereas the strategy may be 
more precisely priced in sub-penny increments on exchanges that permit 
sub-penny pricing of stock-option complex strategies to four decimal 
places.\34\
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    \34\ See id.
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    Further, the Exchange believes that the proposed rule change 
removes

[[Page 27675]]

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 similar functionality to Members that 
can be found on other competing option exchanges.\35\ Competition 
benefits investors by providing investors an additional venue to choose 
from when making order routing decisions.
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    \35\ See id.
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    Additionally, the Exchange believes its proposal to leave Complex 
Customer Cross Order functionality unchanged 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, to protects investors and the public interest. A Complex 
Customer Cross Order is comprised of one Priority Customer complex 
order to buy and one Priority Customer complex order to sell at the 
same price and for the same quantity.\36\ Complex Customer Cross Orders 
are not exposed to the marketplace and are executed upon entry, 
provided that the execution is at least $0.01 better than the icMBBO, 
or the best net price of a complex order on the Strategy Book, 
whichever is more aggressive.\37\ The Exchange believes that requiring 
a minimum improvement of $0.01 benefits investors and the public 
interest as it is not a de minimis price improvement amount. Further, 
the Exchange does not believe that Members on the Exchange are 
disadvantaged in any way by not being able to execute Complex Customer 
Cross Orders with a stock component in a sub-penny interval, as Members 
may use the cQCC Order type for stock-option complex strategies, or 
expose their stock-option complex strategy order to the market via the 
Exchange's cPRIME for price improvement in sub-penny increments.
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    \36\ See Exchange Rule 518(b)(2)(d).
    \37\ See Exchange Rule 515(h)(3).
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    To support the pricing of stock-option orders in any decimal price 
the Exchange determines, the Exchange is proposing to make a number of 
non-substantive conforming changes throughout its rules to clearly 
differentiate pricing and support of complex strategies with only 
option components, (which remains unchanged under this proposal in 
$0.01 increments), and pricing and support of stock-option complex 
strategies, which may be in any decimal price the Exchange determines. 
The Exchange believes that its proposed non-substantive changes to add 
additional detail and clarity to the Exchange's rulebook benefits 
investors and the public interest as it provides transparency and 
eliminates the potential for confusion regarding the operation of the 
Exchange's rules.

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 does not 
believe that its proposal will impose any burden on intra-market 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because all Members of the Exchange that transact 
stock-option complex strategies will be able to price stock-option 
complex strategies in more precise increments.\38\
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    \38\ The Exchange notes that an updated FIX Order Interface 
Specification was published on 11/12/2021 to apprise Members of the 
change in pricing increments from $0.01 to $0.0001 for stock-option 
orders. See MIAX Options, Options Order Management using FIX 
Protocol, FIX Interface Specification, version: 2.5a (11/2/2021) 
available at https://www.miaxoptions.com/sites/default/files/page-files/FIX_Order_Interface_FOI_v2.5a.pdf.
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    The Exchange does not believe that the proposed rule change will 
impose any burden on inter-market competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
believes that its proposal may benefit inter-market competition as 
other competing option exchanges offer similar price precision for 
stock-option complex strategies.\39\
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    \39\ See CboeEDGX Exchange Rule 21.20(f)(1)(B) which provides 
that Users may express bids and offers for a stock-option order 
(including a QCC with Stock Order) in any decimal price the Exchange 
determines. The option leg(s) of a stock-option order may be 
executed in $0.01 increments, regardless of minimum increments 
otherwise applicable to the option leg(s), and the stock leg of a 
stock-option order may be executed in any decimal price permitted in 
the equity market; and Cboe Exchange Rule 5.33(f)(1)(B) which 
similarly provides that Users may express bids and offers for a 
stock-option order (including a QCC with Stock Order) in any decimal 
price the Exchange determines. The minimum increment for the option 
leg(s) of a stock-option order is $0.01 or greater, which the 
Exchange may determine on a class-by-class basis, regardless of the 
minimum increments otherwise applicable to the option leg(s), and 
the stock leg of a stock-option order may be executed in any decimal 
price permitted in the equity market. See also Tradedesk Updates, 
Cboe Options Exchange Announces Support for QCC with an Equity Leg 
and Improved Pricing Precision on Complex Orders with an Equity Leg 
(March 2, 2018) (allowing a price with four decimal places on all 
complex orders that include a stock leg and that are routed for 
electronic trading) available at https://cdn.cboe.com/resources/release_notes/2018/QCC-w-equity-leg-and-CPS-4-digit-decimal.pdf.
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    Additionally, the non-substantive changes proposed by the Exchange 
will have no impact on competition as they provide additional clarity 
and detail in the Exchange's rules and are not changes made for any 
competitive purpose.

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 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 and Rule 19b-4(f)(6) thereunder.
    A proposed rule change filed under Rule 19b-4(f)(6) \40\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\41\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay. The Exchange states 
that other options exchanges currently allow bids and offers for stock-
option orders to be expressed in any decimal price the exchange 
determines and that waiver of the operative delay will benefit 
investors by immediately providing them with an additional venue that 
offers sub-penny pricing for stock-option orders. The Exchange further 
states that its proposal does not introduce new regulatory issues. The 
Commission finds that waiving the operative delay is consistent with 
the protection of investors and the public interest because other 
options exchanges currently allow market participants to express bids 
and offers for stock-option orders in any decimal price the exchange 
determines,\42\ and waiver of the operative delay will immediately 
provide investors with an additional venue that allows them to express 
bids and offers for stock-option orders in this manner. As discussed 
above, the Exchange believes that the proposal will permit more precise 
and accurate pricing of stock-option complex strategies, which could 
provide investors with additional execution

[[Page 27676]]

opportunities. The Commission notes that although the proposal will 
allow bids and offers for stock-option orders to be expressed in any 
decimal price the Exchange determines, the option component(s) of such 
an order will continue to be executed in $0.01 increments. In addition, 
the Exchange's rules will continue to protect Priority Customer 
interest by providing, among other things, 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 Book, at least one other 
option component of the complex strategy must trade at a price that is 
better than the corresponding MBBO.\43\ The proposal also protects 
investors by codifying in the Exchange's rules that a member that 
submits a cQCC order to the Exchange (with or without the stock 
component) represents that the order satisfies the requirements of a 
qualified contingent trade and agrees to provide information to the 
Exchange related to the execution of the stock component of the order. 
For these reasons, the Commission designates the proposal operative 
upon filing.\44\
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    \40\ 17 CFR 240.19b-4(f)(6).
    \41\ 17 CFR 240.19b-4(f)(6)(iii).
    \42\ See supra note 3.
    \43\ See proposed Exchange Rule 518(c)(1)(iii). See also 
proposed Exchange Rule 518(c)(1)(iv) (stating that a complex order 
will not be executed at a net price that would cause any option 
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 option component of 
the complex strategy).
    \44\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 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 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-2022-17.

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-2022-17. 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-2022-17, and should be submitted on 
or before May 31, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\45\
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    \45\ 17 CFR 200.30-3(a)(12), (59).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-09853 Filed 5-6-22; 8:45 am]
BILLING CODE 8011-01-P