Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend MIAX Options Rule 518 Relating to Derived Orders, 50916-50921 [2017-23825]
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Federal Register / Vol. 82, No. 211 / Thursday, November 2, 2017 / Notices
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public Web site through which its
current prospectus may be
downloaded.27 The Web site will
include additional information
concerning the Fund updated on a daily
basis, including the prior business day’s
NAV, and the following trading
information for that business day
expressed as premiums/discounts to
NAV: (a) Intraday high, low, average,
and closing prices of Shares in
Exchange trading; (b) the midpoint of
the highest bid and lowest offer prices
as of the close of Exchange trading,
expressed as a premium/discount to
NAV (‘‘Closing Bid/Ask Midpoint’’);
and (c) the spread between highest bid
and lowest offer prices as of the close of
Exchange trading (‘‘Closing Bid/Ask
Spread.’’). The Web site will also
contain charts showing the frequency
distribution and range of values of
trading prices, Closing Bid/Ask
Midpoints, and Closing Bid/Ask
Spreads over time.
The Exchange represents that all
statements and representations made in
the filing regarding: (a) The description
of the portfolio or reference assets, (b)
limitations on portfolio holdings or
reference assets, (c) dissemination and
availability of the reference asset or IIV,
or (d) the applicability of Exchange
listing rules shall constitute continued
listing requirements for listing the
Shares on the Exchange. The issuer has
represented to the Exchange that it will
advise the Exchange of any failure by
the Fund to comply with the continued
listing requirements, and, pursuant to
its obligations under Section 19(g)(1) of
the Act, the Exchange will monitor for
compliance with the continued listing
requirements.28 If the Fund is not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures for the
Fund under the Nasdaq 5800 Series.
This approval order is based on all of
the Exchange’s representations,
including those set forth above and in
Amendment No. 1.29 In particular, the
Commission notes that, although the
27 The Exchange represents that the Web site
containing this information will be at
www.eatonvance.com and/or www.nextshares.com.
28 The Commission notes that certain other
proposals for the listing and trading of Managed
Fund Shares include a representation that the
exchange will ‘‘surveil’’ for compliance with the
continued listing requirements. See, e.g., Securities
Exchange Act Release No. 78005 (Jun. 7, 2016), 81
FR 38247 (Jun. 13, 2016) (SR–BATS–2015–100). In
the context of this representation, it is the
Commission’s view that ‘‘monitor’’ and ‘‘surveil’’
both mean ongoing oversight of a fund’s compliance
with the continued listing requirements. Therefore,
the Commission does not view ‘‘monitor’’ as a more
or less stringent obligation than ‘‘surveil’’ with
respect to the continued listing requirements.
29 See supra note 4.
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Shares will be available for purchase
and sale on an intraday basis, the Shares
will be purchased and sold at prices
directly linked to the Fund’s nextdetermined NAV. The Commission
notes that the Fund and the Shares must
comply with the requirements of
Nasdaq Rule 5745 and the conditions
set forth in this proposed rule change to
be listed and traded on the Exchange on
an initial and continuing basis.
For the foregoing reasons, the
Commission finds that the proposed
rule change, as modified by Amendment
No. 1, is consistent with Section
6(b)(5) 30 and Section 11A(a)(1)(C)(iii) of
the Act,31 and the rules and regulations
thereunder applicable to a national
securities exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,32 that the
proposed rule change (SR–NASDAQ–
2017–090), as modified by Amendment
No. 1, be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–23830 Filed 11–1–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81967; File No. SR–MIAX–
2017–44]
Self-Regulatory Organizations; Miami
International Securities Exchange LLC;
Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend MIAX Options Rule
518 Relating to Derived Orders
October 27, 2017.
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 October 19, 2017, 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 and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
30 15
U.S.C. 78f(b)(5).
U.S.C. 78k–1(a)(1)(C)(iii).
32 15 U.S.C. 78s(b)(2).
33 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
31 15
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solicit comments on the proposed rule
change from interested persons.
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(a)(9) to: (i)
Update the definition of a derived order
on the Exchange, (ii) clarify the
circumstances under which a derived
order is generated by the Exchange’s
System, and the price at which a
derived order may be generated, and
(iii) expand the situations under which
a derived order is removed from the
Exchange’s Simple Order Book.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://www.miaxoptions.com/rulefilings/ 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(a)(9) to: (i) Update
the definition of a derived order on the
Exchange, (ii) clarify the circumstances
under which a derived order is
generated by the Exchange’s System,3
and the price at which a derived order
may be generated, and (iii) expand the
situations under which a derived order
is removed from the Exchange’s Simple
Order Book.4
A ‘‘derived order’’ is an Exchangegenerated limit order on the Simple
Order Book that represents either the
bid or offer of one component of a
complex order resting on the Strategy
3 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
4 The ‘‘Simple Order Book’’ is the Exchange’s
regular electronic book of orders and quotes. See
Exchange Rule 518(a)(15).
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Book 5 that is comprised of orders to buy
or sell an equal quantity (currently with
a one-to-one ratio) of two option
components.6 Derived orders will not be
routed outside of the Exchange
regardless of the price(s) disseminated
by away markets. The Exchange will
determine on a class-by-class basis to
make available derived orders and
communicate such determination to
Members 7 via a Regulatory Circular.
Derived orders are firm orders (i.e., if
executed, firm for the disseminated
price and size) that are included in the
MBBO.8
The Exchange is proposing to amend
the definition of a ‘‘derived order’’ in
two ways. First, the Exchange is
proposing to revise the current
requirement in Rule 518(a)(9) that a
derived order can only be generated
from one component of a complex order
resting on the Strategy Book that is
comprised of orders to buy or sell an
equal quantity (currently with a one-toone ratio) of two option components.
Under the proposal, a derived order may
now be comprised of orders to buy or
sell two option components, where the
size of one component has a base ratio
of ‘‘one’’ relative to the other component
(1:1, 1:2, or 1:3). Thus, the basis for the
generation of derived orders on the
Exchange will not be restricted to
complex orders of equal size with a oneto-one ratio; instead, a derived order
may be generated by using a complex
order resting on the Strategy Book with
two components, provided that one
component of the complex order has a
base ratio of one relative to the other
component. For example, a complex
order whose components have a size
ratio of 1:3 could be used to generate a
derived order, whereas a complex order
whose components have a size ratio of
2:3 could not.9 The Exchange notes that
5 The ‘‘Strategy Book’’ is the Exchange’s
electronic book of complex orders and complex
quotes. See Exchange Rule 518(a)(17).
6 See Exchange Rule 518(a)(9).
7 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.
8 The term ‘‘MBBO’’ means the best bid or offer
on the Simple Order Book (as defined below) on the
Exchange. See Exchange Rule 518(a)(13).
9 A leg order may only be generated for the legs
of complex orders with a ratio of 1:1, 1:2, or 1:3.
(A leg order will not be generated for the legs of
a complex order with a 1:4 ratio). For example, if
a complex order to buy 10 of series A and sell 20
of series B is resting on the Strategy Book, a leg
order will be generated for the leg to buy 10 of
series A (ratio of 1:2), but not for the leg to sell 20
of series B (ratio of 2:1). If a complex order to buy
20 of series A and sell 30 of series B is resting on
the Strategy Book, no leg orders will be generated
for either leg (ratio is 2:3 for leg 1 and 3:2 for leg
2).
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another options exchange permits a
derived, or ‘‘leg’’ order, to be generated
using a complex order with a ratio
greater than 1:1.10 The Exchange
believes that the revision of the one-toone ratio limitation should increase the
potential number of derived orders that
may be generated by the System, which
should result in greater liquidity and
more opportunities for participants to
trade complex orders on the
Exchange.11
The Exchange is also proposing to
amend Rule 518(a)(9) by adding a final
sentence stating that derived orders are
subject to the managed interest process
described in Rule 515(c)(1)(ii).12 The
purpose of this provision is to ensure
that a derived order (which is firm for
its price and size) is handled in
accordance with that Rule so that it does
not lock or cross an away market price
at the NBBO.13 An example of a derived
order subject to the managed interest
process is provided below.
Example 1
Option A ($.05 MPV) 14
MBBO: $2.00 × $2.20
ABBO: $2.00 × $2.10
NBBO: $2.00 × $2.10
Option B ($.05 MPV)
MBBO: $1.00 × $1.05
ABBO: $1.00 × $1.05
NBBO: $1.00 × $1.05
Strategy: Buy 1 Option A, Sell 1 Option
B
icMBBO: 15 $.95 × $1.20
10 See Chicago Board Options Exchange, Inc.
(‘‘CBOE’’) Rule 6.53(x).
11 The Exchange notes that other exchanges
require a complex order used to generate a derived
or ‘‘legging’’ order to be for an equal quantity of two
options. See, e.g., NASDAQ PHLX LLC (‘‘Phlx’’)
Rule 1098(f)(iii)(C)(1). See also, Nasdaq ISE, LLC
(‘‘ISE’’) Rule 715(k). The Exchange’s proposal is
distinguished in that it seeks to expand its current
one-to-one ratio requirement to include any
complex order with a component that has a base of
one with respect to the other component.
12 Under the managed interest process, nonroutable orders whose limit price locks or crosses
the current opposite side National Best Bid or Offer
(‘‘NBBO’’) are displayed one Minimum Price
Variation (‘‘MPV’’) away from the current opposite
side NBBO, and placed on the Simple Order Book
at a price that will lock the current opposite side
NBBO. Should the NBBO price change to an
inferior price level, the order’s price on the Simple
Order Book will continuously re-price to lock the
new NBBO and the managed order’s displayed
price will continuously re-price one MPV away
from the new NBBO. See Exchange Rule
515(c)(1)(ii).
13 The term ‘‘NBBO’’ means the national best bid
or offer as calculated by the Exchange based on
market information received from OPRA. See
Exchange Rule 100.
14 The default Minimum Price Variation (‘‘MPV’’)
of an option contract trading at less than $3.00 per
option is $.05. See Exchange Rule 510.
15 The ‘‘icMBBO’’ is the Implied Complex MIAX
Best Bid or Offer. The icMBBO is a calculation that
uses the best price from the Simple Order Book for
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50917
cNBBO: 16 $.95 × $1.10
Strategy Order
Buy 1 (+1A ¥1B) $1.10 net debit
The System will create a derived
order to buy Option A at a price of
$2.10. The new MBBO would be $2.10
× $2.20. However, the $2.10 bid price
would lock the ABBO 17 offer for Option
A, which is being quoted on an away
exchange at $2.00 × $2.10. Therefore,
the derived order will be managed in
accordance with the Exchange’s
managed interest process. Under the
Exchange’s managed interest process for
non-routable orders defined in Rule
515(c)(1)(ii)(A), if the limit price of an
order ($2.10 bid) locks or crosses the
current opposite side NBBO ($2.10
offer), the System will display the order
one MPV ($.05) away from the current
opposite side NBBO ($2.05 bid), and
book the order at a price that will lock
the current side NBBO. Therefore, the
derived order in Option A will have a
Book 18 price of $2.10 and will be
displayed at $2.05, the MBBO will
therefore be $2.05 × $2.20.
Option A
MBBO: $2.05 × $2.20
ABBO: $2.00 × $2.10
NBBO: $2.05 × $2.10
Should interest arrive on MIAX
Options to sell at $2.10 or lower, it will
trade at $2.10 against the derived order,
as Rule 515(c)(1)(ii)(A) provides that if
the Exchange receives a new order or
quote on the opposite side of the market
from the managed order that can be
executed, the System will immediately
execute the remaining contracts from
the initiating order to the extent
possible at the order’s current Book
price ($2.10), provided that the
execution price does not violate the
current NBBO. The other side of the
complex order will execute against the
$1.00 bid price for Option B, effectively
legging the complex order for a net price
of $1.10.
The Exchange believes that generating
and managing a derived order (rather
each component of a complex strategy including
displayed and non-displayed trading interest. See
Exchange Rule 518(a)(11).
16 The ‘‘cNBBO’’ is the Complex National Best
Bid or Offer. 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. See Exchange Rule 518(a)(2).
17 The term ‘‘ABBO’’ means the best bid(s) or
offer(s) disseminated by other Eligible Exchanges
(defined in Exchange Rule 1400(f)) and calculated
by the Exchange based on market information
received by the Exchange from OPRA. See
Exchange Rule 100.
18 The term ‘‘Book’’ means the electronic book of
buy and sell orders and quotes maintained by the
System. See Exchange Rule 100.
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than simply preventing its generation) 19
creates and preserves additional
opportunities for complex orders to be
executed as individual components
against orders resting on the Simple
Order Book as market conditions
change.
The Exchange is also proposing to
amend Rule 518(a)(9)(i) to provide more
detail regarding the circumstances
under which a derived order is
generated by the Exchange’s System,
and the price at which a derived order
must be generated. Currently, a derived
order may be automatically generated
for one or more legs of a complex order
at a price: (A) That matches or improves
upon the best displayed bid or offer in
the affected series on the Simple Order
Book; and (B) at which the net price of
the complex order on the Strategy Book
can be achieved when the other
component of the complex order is
executed against the best displayed bid
or offer on the Simple Order Book.
Additionally, a derived order will not be
displayed at a price that locks or crosses
the best bid or offer of another
exchange. In such a circumstance, the
System will display the derived order
on the Simple Order Book at a price that
is one MPV away from the current
opposite side best bid or offer of such
other exchange, and rank the derived
order on the Simple Order Book
according to its actual price.20
The Exchange is proposing to amend
Rule 518(a)(9)(i) to add more detail to
the rule stating that a derived order may
be automatically generated if the
complex order is eligible for ‘‘Legging’’
pursuant to Rule 518(c)(2)(iii), and
meets the requirements set forth
therein.21 The purpose of this proposed
amendment is to establish clearly in the
Exchange’s Rules that the System will
only generate derived orders for
complex orders that are eligible for
legging—that is, complex orders whose
components can be executed as
19 Other exchanges have determined not to
generate derived or ‘‘leg’’ orders that would lock or
cross the NBBO. See, e.g., CBOE Rule
6.53C(c)(iv)(1)(A). See also, ISE Rule 715(k)(1).
Despite this distinction, the Exchange’s inclusion of
derived orders in the managed interest process is
intended to achieve the same result, i.e., to prevent
a derived order from locking or crossing an away
market.
20 See Exchange Rule 518(a)(9)(ii).
21 Complex orders up to a maximum number of
legs (determined by the Exchange on a class-byclass basis as either two or three legs and
communicated to Members 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. See Exchange Rule 518(c)(2)(iii).
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individual legs against orders resting on
the Simple Order Book. Conversely, if a
complex order is not eligible for legging,
then the System will not generate
derived orders with respect to that
complex order.22
The Exchange is proposing to amend
Rule 518(a)(9)(i)(B) to make a technical
modification to the current rule text.
Currently, the rule provides that a
derived order may automatically be
generated for one or more legs of a
complex order at a price, ‘‘at which the
net price of the complex order on the
Strategy Book can be achieved when the
other component(s) of the complex
order is (are) executed against the best
displayed bid or offer on the Simple
Order Book.’’ The Exchange proposes to
make the word ‘‘components’’ singular
by removing the ‘‘(s)’’ and removing the
word ‘‘(are)’’ following the phrase
‘‘complex order’’ so that the new
sentence has the proper subject-verb
agreement. The Exchange believes this
change describes System functionality
with more accuracy and precision.
The Exchange is proposing to amend
Rule 518(a)(9)(i)(B) to state that a
derived order may be automatically
generated for one or more legs of a
complex order at a price at which the
net price of the complex order ‘‘at the
best price’’ on the Strategy Book can be
achieved when the other component of
the complex order is executed against
the best displayed bid or offer on the
Simple Order Book. This requirement is
intended to ensure that a complex order
executed by way of generating and
Legging a derived order for execution
against an order on the Simple Order
Book is not executed at a net price that
is inferior to the best net price displayed
on the Strategy Book. A derived order
could not, therefore, result in a tradethrough of a complex order resting on
the Strategy Book at the Exchange’s best
displayed net price.
The Exchange is also proposing to
amend Rule 518(a)(9)(vi), which
describes the various circumstances
under which a derived order that has
been generated is removed from the
Simple Order Book. Specifically, the
Exchange is proposing to amend Rule
518(a)(9)(vi)(B), which currently
provides that a derived order is
automatically removed from the Simple
Order Book if the execution of the
derived order would no longer achieve
the net price of the complex order on
22 The Exchange notes that while derived order
functionality was approved with the Exchange’s
filing to adopt new rules to govern the trading of
Complex orders, the functionality has not yet been
implemented in the System. See Exchange Act
Release No. 79072 (October 7, 2016), 81 FR 71131
(October 14, 2016) (SR–MIAX–2016–26).
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the Strategy Book when the other
component of the complex order is
executed against the best bid or offer on
the Simple Order Book. The Exchange is
proposing to replace the word ‘‘would’’
with the word ‘‘may’’ in this subparagraph in order to broaden the rule
to reflect that the System will remove a
derived order from the Simple Order
Book any time the price of the best bid
or offer on the Simple Order Book
changes such that the net price of the
complex order to be executed may not
be achieved. A price change of the best
bid or offer could be either: (i)
Improving (raising the bid or lowering
the offer) or, (ii) worsening (lowering
the bid or raising the offer). In scenario
(i), the derived order could remain on
the Simple Order Book as it could still
achieve the net price of the complex
order. However, in scenario (ii), the
derived order may not achieve the net
price of the complex order depending
upon how much the price had moved.
For the sake of processing efficiency and
speed, rather than perform the
calculation to determine if the derived
order could still achieve the net price
for the complex order in scenario (ii),
the System simply cancels any derived
order in scenario (i) or (ii). The
Exchange believes that removal of the
derived order from the Simple Order
Book when there is a possibility that the
complex order may not be executed at
its net price is prudent and is an
appropriate safeguard against such an
execution.23 The Exchange’s System reevaluates each strategy on the Strategy
Book on a periodic basis to ascertain if
the creation of a derived order is
warranted. If, upon re-evaluation, the
new price allows a new derived order
for the strategy, such new derived order
will then be created.24 As re-evaluation
is a continual process, the Exchange
believes it is more expedient to cancel
a derived order where a change in price
may no longer allow the derived order
to achieve the net price for the complex
order and rely upon the re-evaluation
process to create a new derived order
when warranted. The Exchange believes
that changing the language in the rule
from ‘‘would’’ to ‘‘may’’ more accurately
describes the operation of Exchange
functionality.
23 The System continually evaluates complex
orders and quotes on the Strategy Book to
determine, among other things, whether a derived
order should be generated or cancelled. See
Exchange Rule 518(c)(5)(ii). Thus, when the System
cancels and removes a derived order from the
Simple Order Book, the System could thereafter
generate another derived order using the same
complex order based upon the evaluation process
if the appropriate conditions are present.
24 Id.
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The Exchange is also proposing to
amend Rules 518(a)(9)(vi)(C) and (D),
which currently describe the automatic
removal of a derived order from the
Simple Order Book when the complex
order is executed in full, or is cancelled.
The Exchange is proposing to
consolidate sub-paragraphs (C) and (D)
into one sub-paragraph (C), to delete the
phrase ‘‘in full,’’ and to broaden the rule
by stating that a derived order is
automatically removed from the Simple
Order Book if the complex order is
executed, cancelled, or modified in any
way.25 The Exchange believes that any
change to a complex order used to
generate a derived order obviates the
need for the derived order at its limit
price and size on the Simple Order
Book. The phrase ‘‘modified in any
way’’ is intended to capture, without
limitation, any modification to the price
or size of the complex order. Such a
modification could require a different
limit price for the derived order to
achieve the best execution price of the
complex order, or result in a size ratio
that does not comply with the ‘‘base of
one’’ ratio in proposed Rule 518(a)(9)
discussed above, in which case the
complex order could not be executed.
The Exchange is proposing to remove
the derived order from the Simple Order
Book when the complex order is
modified in any way in order to prevent
these circumstances.
The Exchange is also proposing to
amend Rule 518(a)(9)(vi)(D) by deleting
the current text (see above) and
adopting new Rule 518(a)(9)(vi)(D) to
state that a derived order is
automatically removed from the Simple
Order Book if the strategy 26 enters a
cPRIME Auction (as described in Rule
515A, Interpretations and Policies
.12) 27 or a Complex Auction (pursuant
to Rule 518(d)).28 This would include
25 This is substantially similar to rules that are
currently operative on other exchanges. See ISE
Rule 715(k)(3)(iii) and (iv). See also, CBOE Rule
6.53C(c)(iv)(3)(B)(II) and (III), and Phlx Rule
1098(f)(iii)(C)(4)(iii) and (iv).
26 The term ‘‘complex strategy’’ means a
particular combination of components and their
ratios to one another. New complex strategies can
be created as the result of the receipt of a complex
order or by the Exchange for a complex strategy that
is not currently in the System. The Exchange may
limit the number of new complex strategies that
may be in the System at a particular time and will
communicate this limitation to Members via
Regulatory Circular. See Exchange Rule 518(a)(6).
27 The Exchange recently adopted rules that
permit the submission of complex orders for price
improvement and execution in the MIAX Price
Improvement Mechanism (‘‘PRIME’’). Complex
orders submitted into PRIME are known as
‘‘cPRIME Orders’’ and are processed in a ‘‘cPRIME
Auction.’’ See Securities Exchange Act Release No.
81131 (July 12, 2017), 82 FR 32900 (July 18, 2017)
(SR–MIAX–2017–19).
28 Currently, the Exchange may determine to
automatically submit a Complex Auction-eligible
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any strategy that has, as a component,
an option that is of the same type as a
derived order.29 To illustrate, using the
example set forth above,30 the System
would automatically remove from the
Simple Order Book the derived order in
Option A if strategy AB (or any other
strategy having Option A as a
component) enters a cPRIME Auction or
a Complex Auction. The System would
wait until a cPRIME Auction or
Complex Auction is concluded before
creating a derived order for an option
that is subject to such an auction.31 A
complex order that enters and is
processed in a cPRIME Auction or a
Complex Auction is subject to execution
at improved prices against complex
orders submitted in response to the
Exchange’s notification, and thus could
cause the derived order to be priced
such that it may no longer achieve the
best net price of the complex order. In
this situation, therefore, the System will
automatically remove the derived order
from the Simple Order Book. Finally,
the Exchange proposes to amend Rule
518(a)(9)(vi)(E) by adding a sentence
stating that, if a derived order is
removed from the Simple Order Book,
the System will continually evaluate
any remaining complex order(s) on the
Strategy Book to determine whether a
new derived order should be generated,
as described in Rule 518(c)(5).32 The
purpose of this provision is to ensure
that a new derived order can and will
be generated by the System under the
proper conditions even after a
previously generated derived order has
been removed from the Simple Order
Book. The Exchange believes that this
provides additional opportunities to
execute complex orders through Legging
using derived orders as market
conditions change.
The Exchange believes that the
proposed rule change relating to derived
orders will facilitate more interaction
between the Strategy Book and the
Simple Order Book, resulting in
increased execution opportunities and
order into a Complex Auction and begin the
Complex Auction process by sending a message to
participants requesting responses to the Complex
Auction. See Exchange Rule 518(d). For a complete
description of the Complex Auction, see Securities
Exchange Act Release No. 79072 (October 7, 2016),
81 FR 71131 (October 14, 2016) (SR–MIAX–2016–
26).
29 An option of the same type would be either the
put or call option in the same series as a component
in the strategy. (E.g., if the complex strategy was a
long straddle to Buy 1 JNJ Oct 141 Call and to Buy
1 JNJ Oct 141 Put, a derived order in either of those
options would be considered an option of the same
type, and would be removed if the strategy entered
a cPRIME Auction or a Complex Auction).
30 See Example 1 on page 6 [sic].
31 See supra note 23.
32 Id.
PO 00000
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50919
better execution prices for complex
orders and for orders resting on the
Simple Order Book.
The Exchange will announce the
implementation date of the proposed
rule change by Regulatory Circular to be
published no later than 60 days
following the operative date of the
proposed rule. The implementation date
will be no later than 60 days following
the issuance of the Regulatory Circular.
2. Statutory Basis
The Exchange believes that its
proposed rule change is consistent with
section 6(b) of the Act 33 in general, and
furthers the objectives of section 6(b)(5)
of the Act 34 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.
The Exchange’s proposal to amend
Rule 518(a)(9) to remove the limitation
on the generation of derived orders to
use only complex orders of equal size
with a one-to-one ratio, and instead to
permit a derived order to be generated
by using a complex order resting on the
Strategy Book with a ratio of greater
than one-to-one, provided that one
component of the complex order that is
used to generate the derived order has
a base ratio of one relative to the other
component, is designed to remove
impediments to and perfect the
mechanisms of a free and open market
and a national market system.
Specifically, the Exchange believes that
this proposal will increase the number
of derived orders that may be generated
on the Exchange, thus enhancing
liquidity and increasing the number of
opportunities for the execution of
complex orders on the Exchange.
The Exchange’s proposal to state in
Rule 518(a)(9) that derived orders are
subject to the managed interest process
described in Rule 515(c)(1)(ii) is
designed protect investors and the
public interest by ensuring that a
derived order (which is firm for its price
and size) does not lock or cross an away
market price at the NBBO. If a derived
order were to lock or cross an away
market price at the NBBO, the Exchange
would not be able to route the derived
33 15
34 15
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U.S.C. 78f(b)(5).
02NON1
asabaliauskas on DSKBBXCHB2PROD with NOTICES
50920
Federal Register / Vol. 82, No. 211 / Thursday, November 2, 2017 / Notices
order to such a market because derived
orders are not routable. The inclusion of
derived orders in the managed interest
process thus protects investors and the
public interest by removing the
possibility that this situation could
occur, while maintaining the derived
order on the Simple Order Book.
The proposed amendment to
Exchange Rule 518(a)(9)(i), adding the
requirement that a derived order may be
automatically generated if the complex
order is eligible for Legging pursuant to
Rule 518(c)(2)(iii), is designed to remove
impediments to and perfect the
mechanisms of a free and open market
by establishing clearly in the Exchange’s
Rules that the System will generate
derived orders only for complex orders
whose components (including the
component represented by a derived
order) can be executed as individual
legs against orders on the Simple Order
Book. In order for a component to be
executed against an order on the Simple
Order Book, the complex order must be
executed by way of its individual legs;
there is thus no need for, or purpose in,
generating a derived order for a complex
order that is not eligible for Legging.
The Exchange’s proposal to amend
Rule 518(a)(9)(i)(B) to clarify the
conditions required for the creation of
derived orders would promote just and
equitable principles of trade and remove
impediments to a free and open market
by providing greater transparency
concerning the operation of Exchange
functionality.
The Exchange’s proposal to amend
Rule 518(a)(9)(i)(B), to require that a
derived order be generated at a price at
which the net price of the complex
order at the best price on the Strategy
Book can be achieved, is designed 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 by ensuring that a
complex order executed by way of
Legging against orders on the Simple
Order Book could not result in a tradethrough of a complex order at the
Exchange’s best displayed net price.
The proposed amendment to
Exchange Rule 518(a)(9)(vi)(B) is
designed 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 by
ensuring that a derived order is removed
from the Simple Order Book any time
the price of the best bid or offer on the
Simple Order Book changes such that
the net price of a complex order at the
top of the Strategy Book may not be
achieved by executing the derived order
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22:28 Nov 01, 2017
Jkt 244001
and another order at the changed price,
thus protecting investors by ensuring a
safeguard against such an execution.
The proposed amendments to Rules
518(a)(9)(vi)(C) and (D), describing the
automatic removal of derived orders
from the Simple Order Book, are
designed to protect investors and the
public interest by ensuring that derived
orders do not result in executions that
trade through the top of the Exchange’s
Simple Order Book and Strategy Book,
and that executions on the Simple Order
Book and on the Strategy Book do not
result in prices that trade through away
markets.
Amended Rule 518(a)(9)(vi)(E), stating
that the System will continually
evaluate any remaining complex
order(s) on the Strategy Book to
determine whether a new derived order
should be generated, ensures that a new
derived order can and will be generated
by the System under the proper
conditions even after a previously
generated derived order has been
removed from the Simple Order Book.
This provision is designed to promote
just and equitable principles of trade
and also to remove impediments to and
perfect the mechanisms of a free and
open market and a national market
system by providing more opportunities
to execute complex orders through
Legging using derived orders as market
conditions change.
The Exchange also believes that the
proposed rule change removes
impediments to and perfects the
mechanisms of a free and open market
and a national market system by
attracting more order flow and by
increasing the frequency with which
MIAX Options participants are able to
trade complex orders.
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 not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes that the proposed
rule change enhances intermarket
competition by providing market
participants with additional
opportunities to execute complex orders
through the generation of a greater
number of derived orders using an
expanded permissible size ratio. The
Exchange believes that the additional
opportunities to trade complex orders
will result in the submission of more
complex orders for execution on the
Exchange, thus enhancing the
Exchange’s competitive position by
increasing liquidity and order flow on
the Exchange. Moreover, the proposed
PO 00000
Frm 00066
Fmt 4703
Sfmt 4703
rule change is consistent with the rules
of other exchanges, as cited above.35
The Exchange also believes that its
proposal enhances intra-market
competition, as all Exchange
participants in the same category are
able to participate on an equal basis
with respect to the trading of complex
orders.
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 change 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 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 36 and Rule 19b–
4(f)(6) thereunder.37
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
35 See
supra notes 10, 11, 19 and 25.
U.S.C. 78s(b)(3)(A).
37 17 CFR 240.19b–4(f)(6). As required under Rule
19b–4(f)(6)(iii), the Exchange provided the
Commission with written notice of its intent to file
the proposed rule change, along with a brief
description and the text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission.
36 15
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Federal Register / Vol. 82, No. 211 / Thursday, November 2, 2017 / Notices
50921
Comments may be submitted by any of
the following methods:
SECURITIES AND EXCHANGE
COMMISSION
the most significant aspects of such
statements.
Electronic Comments
[Release No. 34–81975; File No. SR–Phlx–
2017–79]
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MIAX–2017–44 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
asabaliauskas on DSKBBXCHB2PROD with NOTICES
All submissions should refer to File
Number SR–MIAX–2017–44. 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 Web site (https://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 Web site 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–2017–44 and should
be submitted on or before November 24,
2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.38
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–23825 Filed 11–1–17; 8:45 am]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing of
Proposed Rule Change, as Modified by
Amendment No. 1, To Establish a
Nonstandard Expirations Pilot
Program on a Pilot Basis, for an Initial
Period of Twelve Months From the
Date of Approval of This Proposed
Rule Change
October 27, 2017.
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
12, 2017 Nasdaq PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. On October
26, 2017, the Exchange filed
Amendment No.1 to the proposal to
amend and replace the original filing of
SR–Phlx–2017–79 in its entirety. The
Commission is publishing this notice, as
modified by Amendment No. 1, to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to [sic] a [sic]
proposal [sic] to establish a
Nonstandard Expirations Pilot Program
on a pilot basis, for an initial period of
twelve months from the date of approval
of this proposed rule change.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://nasdaqphlx.cchwallstreet.
com/, at the principal office of the
Exchange, 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
BILLING CODE 8011–01–P
1 15
38 17
CFR 200.30–3(a)(12).
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2 17
Jkt 244001
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00067
Fmt 4703
Sfmt 4703
1. Purpose
The purpose of this rule filing is to
permit the listing and trading, on a pilot
basis, of p.m.-settled options on broadbased indexes with nonstandard
expiration dates for an initial period of
twelve months (the ‘‘Nonstandard
Expirations Pilot Program’’ or ‘‘Pilot
Program’’) from the date of approval of
this proposed rule change.3 The Pilot
Program would permit both weekly
expirations (‘‘Weekly Expirations’’) and
end of month (‘‘EOM’’) expirations as
explained below. Contract terms for the
Weekly Expirations and EOM
expirations will be similar to those of
the a.m. settled broad-based index
options, except that the exercise
settlement value will be based on the
index value derived from the closing
prices of component stocks.
Weekly Expirations
The Exchange proposes to add new
subsection (b)(vii)(1), Weekly
Expirations, to Rule 1101A, Terms of
Options Contracts. Under the proposed
new rule the Exchange would be
permitted to open for trading Weekly
Expirations on any broad-based index
eligible for standard options trading to
expire on any Monday, Wednesday, or
Friday (other than the third Friday-ofthe-month or days that coincide with an
EOM expiration). Weekly Expirations
would be subject to all provisions of
Rule 1101A and would be treated the
same as options on the same underlying
index that expire on the third Friday of
the expiration month. Unlike the
standard monthly options, however,
Weekly Expirations would be p.m.settled. New series in Weekly
3 P.M.-settled NASDAQ–100 index options with
standard third Friday of the month expiration dates
(‘‘NDXPM’’) have previously been approved for
listing on the Exchange on a pilot basis. NDXPM
and NDX are separate option classes. See Securities
Exchange Act Release No. 81293 (August 2, 2017),
82 FR 37138 (August 8, 2017) (Order Granting
Approval of a Proposed Rule Change, as Modified
by Amendment Nos. 1 and 2, To Permit the Listing
and Trading of P.M.-Settled NASDAQ–100 Index(R)
Options on a Pilot Basis). The Exchange anticipates
that it will file a proposed rule change in the near
future to move these NDXPM index options with
standard third Friday of the month expiration dates
to the NDX index option class. The Exchange notes
that the Chicago Board Options Exchange (‘‘CBOE’’)
recently did likewise with its P.M.-settled S&P 500
Index Options (‘‘SPXPM’’). See Securities Exchange
Act Release No. 80060 (February 17, 2017), 82 FR
11673 (February 24, 2017) (approving SR–CBOE–
2016–091).
E:\FR\FM\02NON1.SGM
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]]>Agencies
[Federal Register Volume 82, Number 211 (Thursday, November 2, 2017)]
[Notices]
[Pages 50916-50921]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-23825]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-81967; File No. SR-MIAX-2017-44]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend MIAX Options Rule 518 Relating to Derived
Orders
October 27, 2017.
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 October 19, 2017, 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 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.
---------------------------------------------------------------------------
\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(a)(9)
to: (i) Update the definition of a derived order on the Exchange, (ii)
clarify the circumstances under which a derived order is generated by
the Exchange's System, and the price at which a derived order may be
generated, and (iii) expand the situations under which a derived order
is removed from the Exchange's Simple Order Book.
The text of the proposed rule change is available on the Exchange's
Web site at https://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(a)(9) to: (i)
Update the definition of a derived order on the Exchange, (ii) clarify
the circumstances under which a derived order is generated by the
Exchange's System,\3\ and the price at which a derived order may be
generated, and (iii) expand the situations under which a derived order
is removed from the Exchange's Simple Order Book.\4\
---------------------------------------------------------------------------
\3\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\4\ The ``Simple Order Book'' is the Exchange's regular
electronic book of orders and quotes. See Exchange Rule 518(a)(15).
---------------------------------------------------------------------------
A ``derived order'' is an Exchange-generated limit order on the
Simple Order Book that represents either the bid or offer of one
component of a complex order resting on the Strategy
[[Page 50917]]
Book \5\ that is comprised of orders to buy or sell an equal quantity
(currently with a one-to-one ratio) of two option components.\6\
Derived orders will not be routed outside of the Exchange regardless of
the price(s) disseminated by away markets. The Exchange will determine
on a class-by-class basis to make available derived orders and
communicate such determination to Members \7\ via a Regulatory
Circular. Derived orders are firm orders (i.e., if executed, firm for
the disseminated price and size) that are included in the MBBO.\8\
---------------------------------------------------------------------------
\5\ The ``Strategy Book'' is the Exchange's electronic book of
complex orders and complex quotes. See Exchange Rule 518(a)(17).
\6\ See Exchange Rule 518(a)(9).
\7\ 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.
\8\ The term ``MBBO'' means the best bid or offer on the Simple
Order Book (as defined below) on the Exchange. See Exchange Rule
518(a)(13).
---------------------------------------------------------------------------
The Exchange is proposing to amend the definition of a ``derived
order'' in two ways. First, the Exchange is proposing to revise the
current requirement in Rule 518(a)(9) that a derived order can only be
generated from one component of a complex order resting on the Strategy
Book that is comprised of orders to buy or sell an equal quantity
(currently with a one-to-one ratio) of two option components. Under the
proposal, a derived order may now be comprised of orders to buy or sell
two option components, where the size of one component has a base ratio
of ``one'' relative to the other component (1:1, 1:2, or 1:3). Thus,
the basis for the generation of derived orders on the Exchange will not
be restricted to complex orders of equal size with a one-to-one ratio;
instead, a derived order may be generated by using a complex order
resting on the Strategy Book with two components, provided that one
component of the complex order has a base ratio of one relative to the
other component. For example, a complex order whose components have a
size ratio of 1:3 could be used to generate a derived order, whereas a
complex order whose components have a size ratio of 2:3 could not.\9\
The Exchange notes that another options exchange permits a derived, or
``leg'' order, to be generated using a complex order with a ratio
greater than 1:1.\10\ The Exchange believes that the revision of the
one-to-one ratio limitation should increase the potential number of
derived orders that may be generated by the System, which should result
in greater liquidity and more opportunities for participants to trade
complex orders on the Exchange.\11\
---------------------------------------------------------------------------
\9\ A leg order may only be generated for the legs of complex
orders with a ratio of 1:1, 1:2, or 1:3. (A leg order will not be
generated for the legs of a complex order with a 1:4 ratio). For
example, if a complex order to buy 10 of series A and sell 20 of
series B is resting on the Strategy Book, a leg order will be
generated for the leg to buy 10 of series A (ratio of 1:2), but not
for the leg to sell 20 of series B (ratio of 2:1). If a complex
order to buy 20 of series A and sell 30 of series B is resting on
the Strategy Book, no leg orders will be generated for either leg
(ratio is 2:3 for leg 1 and 3:2 for leg 2).
\10\ See Chicago Board Options Exchange, Inc. (``CBOE'') Rule
6.53(x).
\11\ The Exchange notes that other exchanges require a complex
order used to generate a derived or ``legging'' order to be for an
equal quantity of two options. See, e.g., NASDAQ PHLX LLC (``Phlx'')
Rule 1098(f)(iii)(C)(1). See also, Nasdaq ISE, LLC (``ISE'') Rule
715(k). The Exchange's proposal is distinguished in that it seeks to
expand its current one-to-one ratio requirement to include any
complex order with a component that has a base of one with respect
to the other component.
---------------------------------------------------------------------------
The Exchange is also proposing to amend Rule 518(a)(9) by adding a
final sentence stating that derived orders are subject to the managed
interest process described in Rule 515(c)(1)(ii).\12\ The purpose of
this provision is to ensure that a derived order (which is firm for its
price and size) is handled in accordance with that Rule so that it does
not lock or cross an away market price at the NBBO.\13\ An example of a
derived order subject to the managed interest process is provided
below.
---------------------------------------------------------------------------
\12\ Under the managed interest process, non-routable orders
whose limit price locks or crosses the current opposite side
National Best Bid or Offer (``NBBO'') are displayed one Minimum
Price Variation (``MPV'') away from the current opposite side NBBO,
and placed on the Simple Order Book at a price that will lock the
current opposite side NBBO. Should the NBBO price change to an
inferior price level, the order's price on the Simple Order Book
will continuously re-price to lock the new NBBO and the managed
order's displayed price will continuously re-price one MPV away from
the new NBBO. See Exchange Rule 515(c)(1)(ii).
\13\ The term ``NBBO'' means the national best bid or offer as
calculated by the Exchange based on market information received from
OPRA. See Exchange Rule 100.
---------------------------------------------------------------------------
Example 1
Option A ($.05 MPV) \14\
---------------------------------------------------------------------------
\14\ The default Minimum Price Variation (``MPV'') of an option
contract trading at less than $3.00 per option is $.05. See Exchange
Rule 510.
---------------------------------------------------------------------------
MBBO: $2.00 x $2.20
ABBO: $2.00 x $2.10
NBBO: $2.00 x $2.10
Option B ($.05 MPV)
MBBO: $1.00 x $1.05
ABBO: $1.00 x $1.05
NBBO: $1.00 x $1.05
Strategy: Buy 1 Option A, Sell 1 Option B
icMBBO: \15\ $.95 x $1.20
---------------------------------------------------------------------------
\15\ The ``icMBBO'' is the Implied Complex MIAX Best Bid or
Offer. 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. See Exchange Rule
518(a)(11).
---------------------------------------------------------------------------
cNBBO: \16\ $.95 x $1.10
---------------------------------------------------------------------------
\16\ The ``cNBBO'' is the Complex National Best Bid or Offer.
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. See Exchange Rule 518(a)(2).
---------------------------------------------------------------------------
Strategy Order
Buy 1 (+1A -1B) $1.10 net debit
The System will create a derived order to buy Option A at a price
of $2.10. The new MBBO would be $2.10 x $2.20. However, the $2.10 bid
price would lock the ABBO \17\ offer for Option A, which is being
quoted on an away exchange at $2.00 x $2.10. Therefore, the derived
order will be managed in accordance with the Exchange's managed
interest process. Under the Exchange's managed interest process for
non-routable orders defined in Rule 515(c)(1)(ii)(A), if the limit
price of an order ($2.10 bid) locks or crosses the current opposite
side NBBO ($2.10 offer), the System will display the order one MPV
($.05) away from the current opposite side NBBO ($2.05 bid), and book
the order at a price that will lock the current side NBBO. Therefore,
the derived order in Option A will have a Book \18\ price of $2.10 and
will be displayed at $2.05, the MBBO will therefore be $2.05 x $2.20.
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\17\ The term ``ABBO'' means the best bid(s) or offer(s)
disseminated by other Eligible Exchanges (defined in Exchange Rule
1400(f)) and calculated by the Exchange based on market information
received by the Exchange from OPRA. See Exchange Rule 100.
\18\ The term ``Book'' means the electronic book of buy and sell
orders and quotes maintained by the System. See Exchange Rule 100.
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Option A
MBBO: $2.05 x $2.20
ABBO: $2.00 x $2.10
NBBO: $2.05 x $2.10
Should interest arrive on MIAX Options to sell at $2.10 or lower,
it will trade at $2.10 against the derived order, as Rule
515(c)(1)(ii)(A) provides that if the Exchange receives a new order or
quote on the opposite side of the market from the managed order that
can be executed, the System will immediately execute the remaining
contracts from the initiating order to the extent possible at the
order's current Book price ($2.10), provided that the execution price
does not violate the current NBBO. The other side of the complex order
will execute against the $1.00 bid price for Option B, effectively
legging the complex order for a net price of $1.10.
The Exchange believes that generating and managing a derived order
(rather
[[Page 50918]]
than simply preventing its generation) \19\ creates and preserves
additional opportunities for complex orders to be executed as
individual components against orders resting on the Simple Order Book
as market conditions change.
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\19\ Other exchanges have determined not to generate derived or
``leg'' orders that would lock or cross the NBBO. See, e.g., CBOE
Rule 6.53C(c)(iv)(1)(A). See also, ISE Rule 715(k)(1). Despite this
distinction, the Exchange's inclusion of derived orders in the
managed interest process is intended to achieve the same result,
i.e., to prevent a derived order from locking or crossing an away
market.
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The Exchange is also proposing to amend Rule 518(a)(9)(i) to
provide more detail regarding the circumstances under which a derived
order is generated by the Exchange's System, and the price at which a
derived order must be generated. Currently, a derived order may be
automatically generated for one or more legs of a complex order at a
price: (A) That matches or improves upon the best displayed bid or
offer in the affected series on the Simple Order Book; and (B) at which
the net price of the complex order on the Strategy Book can be achieved
when the other component of the complex order is executed against the
best displayed bid or offer on the Simple Order Book. Additionally, a
derived order will not be displayed at a price that locks or crosses
the best bid or offer of another exchange. In such a circumstance, the
System will display the derived order on the Simple Order Book at a
price that is one MPV away from the current opposite side best bid or
offer of such other exchange, and rank the derived order on the Simple
Order Book according to its actual price.\20\
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\20\ See Exchange Rule 518(a)(9)(ii).
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The Exchange is proposing to amend Rule 518(a)(9)(i) to add more
detail to the rule stating that a derived order may be automatically
generated if the complex order is eligible for ``Legging'' pursuant to
Rule 518(c)(2)(iii), and meets the requirements set forth therein.\21\
The purpose of this proposed amendment is to establish clearly in the
Exchange's Rules that the System will only generate derived orders for
complex orders that are eligible for legging--that is, complex orders
whose components can be executed as individual legs against orders
resting on the Simple Order Book. Conversely, if a complex order is not
eligible for legging, then the System will not generate derived orders
with respect to that complex order.\22\
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\21\ 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 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. See Exchange Rule 518(c)(2)(iii).
\22\ The Exchange notes that while derived order functionality
was approved with the Exchange's filing to adopt new rules to govern
the trading of Complex orders, the functionality has not yet been
implemented in the System. See Exchange Act Release No. 79072
(October 7, 2016), 81 FR 71131 (October 14, 2016) (SR-MIAX-2016-26).
---------------------------------------------------------------------------
The Exchange is proposing to amend Rule 518(a)(9)(i)(B) to make a
technical modification to the current rule text. Currently, the rule
provides that a derived order may automatically be generated for one or
more legs of a complex order at a price, ``at which the net price of
the complex order on the Strategy Book can be achieved when the other
component(s) of the complex order is (are) executed against the best
displayed bid or offer on the Simple Order Book.'' The Exchange
proposes to make the word ``components'' singular by removing the
``(s)'' and removing the word ``(are)'' following the phrase ``complex
order'' so that the new sentence has the proper subject-verb agreement.
The Exchange believes this change describes System functionality with
more accuracy and precision.
The Exchange is proposing to amend Rule 518(a)(9)(i)(B) to state
that a derived order may be automatically generated for one or more
legs of a complex order at a price at which the net price of the
complex order ``at the best price'' on the Strategy Book can be
achieved when the other component of the complex order is executed
against the best displayed bid or offer on the Simple Order Book. This
requirement is intended to ensure that a complex order executed by way
of generating and Legging a derived order for execution against an
order on the Simple Order Book is not executed at a net price that is
inferior to the best net price displayed on the Strategy Book. A
derived order could not, therefore, result in a trade-through of a
complex order resting on the Strategy Book at the Exchange's best
displayed net price.
The Exchange is also proposing to amend Rule 518(a)(9)(vi), which
describes the various circumstances under which a derived order that
has been generated is removed from the Simple Order Book. Specifically,
the Exchange is proposing to amend Rule 518(a)(9)(vi)(B), which
currently provides that a derived order is automatically removed from
the Simple Order Book if the execution of the derived order would no
longer achieve the net price of the complex order on the Strategy Book
when the other component of the complex order is executed against the
best bid or offer on the Simple Order Book. The Exchange is proposing
to replace the word ``would'' with the word ``may'' in this sub-
paragraph in order to broaden the rule to reflect that the System will
remove a derived order from the Simple Order Book any time the price of
the best bid or offer on the Simple Order Book changes such that the
net price of the complex order to be executed may not be achieved. A
price change of the best bid or offer could be either: (i) Improving
(raising the bid or lowering the offer) or, (ii) worsening (lowering
the bid or raising the offer). In scenario (i), the derived order could
remain on the Simple Order Book as it could still achieve the net price
of the complex order. However, in scenario (ii), the derived order may
not achieve the net price of the complex order depending upon how much
the price had moved. For the sake of processing efficiency and speed,
rather than perform the calculation to determine if the derived order
could still achieve the net price for the complex order in scenario
(ii), the System simply cancels any derived order in scenario (i) or
(ii). The Exchange believes that removal of the derived order from the
Simple Order Book when there is a possibility that the complex order
may not be executed at its net price is prudent and is an appropriate
safeguard against such an execution.\23\ The Exchange's System re-
evaluates each strategy on the Strategy Book on a periodic basis to
ascertain if the creation of a derived order is warranted. If, upon re-
evaluation, the new price allows a new derived order for the strategy,
such new derived order will then be created.\24\ As re-evaluation is a
continual process, the Exchange believes it is more expedient to cancel
a derived order where a change in price may no longer allow the derived
order to achieve the net price for the complex order and rely upon the
re-evaluation process to create a new derived order when warranted. The
Exchange believes that changing the language in the rule from ``would''
to ``may'' more accurately describes the operation of Exchange
functionality.
---------------------------------------------------------------------------
\23\ The System continually evaluates complex orders and quotes
on the Strategy Book to determine, among other things, whether a
derived order should be generated or cancelled. See Exchange Rule
518(c)(5)(ii). Thus, when the System cancels and removes a derived
order from the Simple Order Book, the System could thereafter
generate another derived order using the same complex order based
upon the evaluation process if the appropriate conditions are
present.
\24\ Id.
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[[Page 50919]]
The Exchange is also proposing to amend Rules 518(a)(9)(vi)(C) and
(D), which currently describe the automatic removal of a derived order
from the Simple Order Book when the complex order is executed in full,
or is cancelled. The Exchange is proposing to consolidate sub-
paragraphs (C) and (D) into one sub-paragraph (C), to delete the phrase
``in full,'' and to broaden the rule by stating that a derived order is
automatically removed from the Simple Order Book if the complex order
is executed, cancelled, or modified in any way.\25\ The Exchange
believes that any change to a complex order used to generate a derived
order obviates the need for the derived order at its limit price and
size on the Simple Order Book. The phrase ``modified in any way'' is
intended to capture, without limitation, any modification to the price
or size of the complex order. Such a modification could require a
different limit price for the derived order to achieve the best
execution price of the complex order, or result in a size ratio that
does not comply with the ``base of one'' ratio in proposed Rule
518(a)(9) discussed above, in which case the complex order could not be
executed. The Exchange is proposing to remove the derived order from
the Simple Order Book when the complex order is modified in any way in
order to prevent these circumstances.
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\25\ This is substantially similar to rules that are currently
operative on other exchanges. See ISE Rule 715(k)(3)(iii) and (iv).
See also, CBOE Rule 6.53C(c)(iv)(3)(B)(II) and (III), and Phlx Rule
1098(f)(iii)(C)(4)(iii) and (iv).
---------------------------------------------------------------------------
The Exchange is also proposing to amend Rule 518(a)(9)(vi)(D) by
deleting the current text (see above) and adopting new Rule
518(a)(9)(vi)(D) to state that a derived order is automatically removed
from the Simple Order Book if the strategy \26\ enters a cPRIME Auction
(as described in Rule 515A, Interpretations and Policies .12) \27\ or a
Complex Auction (pursuant to Rule 518(d)).\28\ This would include any
strategy that has, as a component, an option that is of the same type
as a derived order.\29\ To illustrate, using the example set forth
above,\30\ the System would automatically remove from the Simple Order
Book the derived order in Option A if strategy AB (or any other
strategy having Option A as a component) enters a cPRIME Auction or a
Complex Auction. The System would wait until a cPRIME Auction or
Complex Auction is concluded before creating a derived order for an
option that is subject to such an auction.\31\ A complex order that
enters and is processed in a cPRIME Auction or a Complex Auction is
subject to execution at improved prices against complex orders
submitted in response to the Exchange's notification, and thus could
cause the derived order to be priced such that it may no longer achieve
the best net price of the complex order. In this situation, therefore,
the System will automatically remove the derived order from the Simple
Order Book. Finally, the Exchange proposes to amend Rule
518(a)(9)(vi)(E) by adding a sentence stating that, if a derived order
is removed from the Simple Order Book, the System will continually
evaluate any remaining complex order(s) on the Strategy Book to
determine whether a new derived order should be generated, as described
in Rule 518(c)(5).\32\ The purpose of this provision is to ensure that
a new derived order can and will be generated by the System under the
proper conditions even after a previously generated derived order has
been removed from the Simple Order Book. The Exchange believes that
this provides additional opportunities to execute complex orders
through Legging using derived orders as market conditions change.
---------------------------------------------------------------------------
\26\ The term ``complex strategy'' means a particular
combination of components and their ratios to one another. New
complex strategies can be created as the result of the receipt of a
complex order or by the Exchange for a complex strategy that is not
currently in the System. The Exchange may limit the number of new
complex strategies that may be in the System at a particular time
and will communicate this limitation to Members via Regulatory
Circular. See Exchange Rule 518(a)(6).
\27\ The Exchange recently adopted rules that permit the
submission of complex orders for price improvement and execution in
the MIAX Price Improvement Mechanism (``PRIME''). Complex orders
submitted into PRIME are known as ``cPRIME Orders'' and are
processed in a ``cPRIME Auction.'' See Securities Exchange Act
Release No. 81131 (July 12, 2017), 82 FR 32900 (July 18, 2017) (SR-
MIAX-2017-19).
\28\ Currently, the Exchange may determine to automatically
submit a Complex Auction-eligible order into a Complex Auction and
begin the Complex Auction process by sending a message to
participants requesting responses to the Complex Auction. See
Exchange Rule 518(d). For a complete description of the Complex
Auction, see Securities Exchange Act Release No. 79072 (October 7,
2016), 81 FR 71131 (October 14, 2016) (SR-MIAX-2016-26).
\29\ An option of the same type would be either the put or call
option in the same series as a component in the strategy. (E.g., if
the complex strategy was a long straddle to Buy 1 JNJ Oct 141 Call
and to Buy 1 JNJ Oct 141 Put, a derived order in either of those
options would be considered an option of the same type, and would be
removed if the strategy entered a cPRIME Auction or a Complex
Auction).
\30\ See Example 1 on page 6 [sic].
\31\ See supra note 23.
\32\ Id.
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change relating to
derived orders will facilitate more interaction between the Strategy
Book and the Simple Order Book, resulting in increased execution
opportunities and better execution prices for complex orders and for
orders resting on the Simple Order Book.
The Exchange will announce the implementation date of the proposed
rule change by Regulatory Circular to be published no later than 60
days following the operative date of the proposed rule. The
implementation date will be no later than 60 days following the
issuance of the Regulatory Circular.
2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with section 6(b) of the Act \33\ in general, and furthers the
objectives of section 6(b)(5) of the Act \34\ 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.
---------------------------------------------------------------------------
\33\ 15 U.S.C. 78f(b).
\34\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange's proposal to amend Rule 518(a)(9) to remove the
limitation on the generation of derived orders to use only complex
orders of equal size with a one-to-one ratio, and instead to permit a
derived order to be generated by using a complex order resting on the
Strategy Book with a ratio of greater than one-to-one, provided that
one component of the complex order that is used to generate the derived
order has a base ratio of one relative to the other component, is
designed to remove impediments to and perfect the mechanisms of a free
and open market and a national market system. Specifically, the
Exchange believes that this proposal will increase the number of
derived orders that may be generated on the Exchange, thus enhancing
liquidity and increasing the number of opportunities for the execution
of complex orders on the Exchange.
The Exchange's proposal to state in Rule 518(a)(9) that derived
orders are subject to the managed interest process described in Rule
515(c)(1)(ii) is designed protect investors and the public interest by
ensuring that a derived order (which is firm for its price and size)
does not lock or cross an away market price at the NBBO. If a derived
order were to lock or cross an away market price at the NBBO, the
Exchange would not be able to route the derived
[[Page 50920]]
order to such a market because derived orders are not routable. The
inclusion of derived orders in the managed interest process thus
protects investors and the public interest by removing the possibility
that this situation could occur, while maintaining the derived order on
the Simple Order Book.
The proposed amendment to Exchange Rule 518(a)(9)(i), adding the
requirement that a derived order may be automatically generated if the
complex order is eligible for Legging pursuant to Rule 518(c)(2)(iii),
is designed to remove impediments to and perfect the mechanisms of a
free and open market by establishing clearly in the Exchange's Rules
that the System will generate derived orders only for complex orders
whose components (including the component represented by a derived
order) can be executed as individual legs against orders on the Simple
Order Book. In order for a component to be executed against an order on
the Simple Order Book, the complex order must be executed by way of its
individual legs; there is thus no need for, or purpose in, generating a
derived order for a complex order that is not eligible for Legging.
The Exchange's proposal to amend Rule 518(a)(9)(i)(B) to clarify
the conditions required for the creation of derived orders would
promote just and equitable principles of trade and remove impediments
to a free and open market by providing greater transparency concerning
the operation of Exchange functionality.
The Exchange's proposal to amend Rule 518(a)(9)(i)(B), to require
that a derived order be generated at a price at which the net price of
the complex order at the best price on the Strategy Book can be
achieved, is designed 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 by ensuring
that a complex order executed by way of Legging against orders on the
Simple Order Book could not result in a trade-through of a complex
order at the Exchange's best displayed net price.
The proposed amendment to Exchange Rule 518(a)(9)(vi)(B) is
designed 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 by ensuring that a derived
order is removed from the Simple Order Book any time the price of the
best bid or offer on the Simple Order Book changes such that the net
price of a complex order at the top of the Strategy Book may not be
achieved by executing the derived order and another order at the
changed price, thus protecting investors by ensuring a safeguard
against such an execution.
The proposed amendments to Rules 518(a)(9)(vi)(C) and (D),
describing the automatic removal of derived orders from the Simple
Order Book, are designed to protect investors and the public interest
by ensuring that derived orders do not result in executions that trade
through the top of the Exchange's Simple Order Book and Strategy Book,
and that executions on the Simple Order Book and on the Strategy Book
do not result in prices that trade through away markets.
Amended Rule 518(a)(9)(vi)(E), stating that the System will
continually evaluate any remaining complex order(s) on the Strategy
Book to determine whether a new derived order should be generated,
ensures that a new derived order can and will be generated by the
System under the proper conditions even after a previously generated
derived order has been removed from the Simple Order Book. This
provision is designed to promote just and equitable principles of trade
and also to remove impediments to and perfect the mechanisms of a free
and open market and a national market system by providing more
opportunities to execute complex orders through Legging using derived
orders as market conditions change.
The Exchange also believes that the proposed rule change removes
impediments to and perfects the mechanisms of a free and open market
and a national market system by attracting more order flow and by
increasing the frequency with which MIAX Options participants are able
to trade complex orders.
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 not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange believes that the
proposed rule change enhances intermarket competition by providing
market participants with additional opportunities to execute complex
orders through the generation of a greater number of derived orders
using an expanded permissible size ratio. The Exchange believes that
the additional opportunities to trade complex orders will result in the
submission of more complex orders for execution on the Exchange, thus
enhancing the Exchange's competitive position by increasing liquidity
and order flow on the Exchange. Moreover, the proposed rule change is
consistent with the rules of other exchanges, as cited above.\35\
---------------------------------------------------------------------------
\35\ See supra notes 10, 11, 19 and 25.
---------------------------------------------------------------------------
The Exchange also believes that its proposal enhances intra-market
competition, as all Exchange participants in the same category are able
to participate on an equal basis with respect to the trading of complex
orders.
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 change 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 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 \36\ and Rule 19b-4(f)(6) thereunder.\37\
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\36\ 15 U.S.C. 78s(b)(3)(A).
\37\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission.
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act.
[[Page 50921]]
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-MIAX-2017-44 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-MIAX-2017-44. 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 Web site (https://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 Web site 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-2017-44 and should be
submitted on or before November 24, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
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\38\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-23825 Filed 11-1-17; 8:45 am]
BILLING CODE 8011-01-P
