Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 518, Complex Orders, 37849-37853 [2018-16528]

Download as PDF Federal Register / Vol. 83, No. 149 / Thursday, August 2, 2018 / Notices 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 Section, 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 such filing also will be available for inspection and copying at the principal office of OCC and on OCC’s website at https://www.theocc.com/about/ publications/bylaws.jsp. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal or 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–OCC–2017–020 and should be submitted on or before August 17, 2018. For the Commission by the Division of Trading and Markets, pursuant to delegated authority.72 Robert W. Errett, Deputy Secretary. [FR Doc. 2018–16535 Filed 8–1–18; 8:45 am] BILLING CODE 8011–01–P [Release No. 34–83726; File No. SR–MIAX– 2018–16] Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 518, Complex Orders daltland on DSKBBV9HB2PROD with NOTICES July 27, 2018. 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 July 16, 2018, 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. CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 17:06 Aug 01, 2018 Jkt 244001 The Exchange is filing a proposal to amend Exchange Rule 518, Complex Orders, to update its rule text regarding stock-option orders, in connection with the upcoming launch of such orders on the Exchange. The text of the proposed rule change is available on the Exchange’s website 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 SECURITIES AND EXCHANGE COMMISSION 72 17 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change 1. Purpose The Exchange proposes to amend Exchange Rule 518, Complex Orders, to update its rule text regarding stockoption orders, in connection with the upcoming launch of such orders on the Exchange. In particular, the Exchange is proposing to (i) adopt new rule text to introduce a new price protection feature for certain stock-option strategies, (ii) delete certain existing rule text to eliminate an unnecessary execution price restriction for the stock component of a stock-option strategy, and (iii) make certain minor clarifying edits to existing rule text. Complex orders began trading on the Exchange on October 24, 2016.3 In its rule filing to establish the trading of complex orders, the Exchange adopted rules for handling stock-option orders.4 The Exchange also indicated that it would determine when stock-option orders would be made available for 3 See MIAX Regulatory Circular 2016–43, October 20, 2016. 4 See Securities Exchange Act Release No. 79072 (October 7, 2016), 81 FR 71131 (October 14, 2016) (SR–MIAX–2016–26). PO 00000 Frm 00067 Fmt 4703 Sfmt 4703 37849 trading in the System 5 and would communicate such determination to Members 6 via Regulatory Circular.7 The Exchange is now proposing to make certain changes to its rule text, in connection with the upcoming launch of such orders on the Exchange, which is scheduled for the third quarter of 2018. Currently, the Exchange provides price protection for certain complex option trading strategies such as Vertical Spreads 8 and Calendar Spreads 9 to prevent executions at potentially erroneous prices. Specifically, the Exchange provides a Vertical Spread Variance (‘‘VSV’’) price protection and a Calendar Spread Variance (‘‘CSV’’) price protection. The VSV establishes minimum and maximum trading price limits for Vertical Spreads.10 The CSV establishes a minimum trading price limit for Calendar Spreads.11 If the execution price of a complex order would be outside of the limits established for Vertical Spreads and Calendar Spreads, such complex order will be placed on the Strategy Book and will be managed to the appropriate trading price limit as described in Rule 518(c)(4), Managed Interest Process for Complex Orders. Orders to buy below the minimum trading price limit and orders to sell above the maximum trading price limit (in the case of Vertical Spreads) will be rejected by the System.12 The Exchange now proposes to adopt new subsection (g) in Rule 518, Interpretations and Policies .01, to provide a price protection feature for certain stock-option strategies that have a single option component tied to a stock component with a standard deliverable.13 The proposed price protection feature, named ‘‘Parity Price Protection,’’ will provide price protection for strategies that consist of a 5 The term ‘‘System’’ means the automated trading system used by the Exchange for the trading of securities. See Exchange Rule 100. 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 supra note 4. 8 A ‘‘Vertical Spread’’ is a complex strategy consisting of the purchase of one call (put) option and the sale of another call (put) option overlying the same security that have the same expiration but different strike prices. See Exchange Rule 518.05(a). 9 A ‘‘Calendar Spread’’ is a complex strategy consisting of the purchase of one call (put) option and the sale of another call (put) option overlying the same security that have different expirations but the same strike price. See Exchange Rule 518.05(b). 10 See Exchange Rule 518.05(a). 11 See Exchange Rule 518.05(b). 12 See Exchange Rule 518.05(c). 13 The standard stock deliverable is 100 shares. E:\FR\FM\02AUN1.SGM 02AUN1 37850 Federal Register / Vol. 83, No. 149 / Thursday, August 2, 2018 / Notices sale of one call 14 and the purchase of one hundred shares of the underlying stock (‘‘Buy-Write’’) and the contra side of the strategy, or that consist of the purchase of one put 15 and the purchase of one hundred shares of the underlying stock (‘‘Married-Put’’) and the contra side of the strategy. The Exchange will establish a Parity Spread Variance (‘‘PSV’’) value between $0.00 and $0.50. The PSV value will be uniform for all option classes traded on the Exchange as determined by the Exchange and communicated to Members via Regulatory Circular prior to accepting such orders on the Exchange. The PSV will be used to calculate a minimum option trading price limit that the System will prevent the option leg from trading below by applying the PSV value to the strike price of the option to establish a parity protected price for the strategy. For call option legs, the PSV value is added to the strike price of the option; for put option legs, the PSV value is subtracted from the strike price of the option. The System will then prevent the strategy from trading below its parity protected price limit to ensure that the strategy does not execute at a potentially erroneous price. The examples below provide an illustration of how the protection is calculated for Buy-Write and MarriedPut strategies. For the purposes of the following examples the PSV used in the calculations is $.10. Following is an example of the operation of the price protection feature for a Married-Put Strategy: daltland on DSKBBV9HB2PROD with NOTICES Example 1 (Married-Put) In its simplest terms the parity price of a put option can be expressed as (Strike Price ¥ Stock Price = Put Option Parity Price). If, for example, the stock is trading at $45.00 and the Strike Price of the put option is $50.00, the parity price of the put option would then be $5.00 ($50.00 ¥ $45.00 = $5.00). The Exchange is able to leverage the parity relationship between the components to establish a minimum option trading price limit for Married-Put Strategies by simply subtracting the PSV from the strike price of the option. The effect on the option price can be seen in the following calculation (($50.00 ¥ $0.10) 14 The term ‘‘call’’ means an option contract under which the holder of the option has the right, in accordance with the terms of the option, to purchase from the Clearing Corporation the number of units of the underlying security covered by the option contract. See Exchange Rule 100. 15 The term ‘‘put’’ means an option contract under which the holder of the option has the right, in accordance with the terms and provisions of the option, to sell to the Clearing Corporation the number of units of the underlying security covered by the option contract. See Exchange Rule 100. VerDate Sep<11>2014 17:06 Aug 01, 2018 Jkt 244001 ¥ $45.00 = $49.90 ¥ $45.00 = $4.90). The Exchange will calculate the parity protected price for a Married-Put Strategy by leveraging the put option parity formula by simply subtracting the PSV from the strike price of the option. This would result in a parity protected price for the strategy of $49.90 using the figures above. This allows for the stock component and the option component prices to fluctuate to achieve the strategy’s net price, but ensures that the strategy will not trade below its parity protected price. Married Put Strategy interest received to sell a price protected Married-Put Strategy below $49.90 will be placed on the Strategy Book 16 at $49.90. Married Put Strategy interest received to buy a price protected Married-Put Strategy below $49.90 will be rejected. Example 2 (Buy-Write) In its simplest terms the parity price of a call option can be expressed as (Stock Price ¥ Strike Price = Call Option Parity Price). If, for example, the stock is trading at $45.00 and the Strike Price of the call option is $40.00, the parity price of the call option would then be $5.00 ($45.00 ¥ $40.00 = $5.00). The Exchange is able to leverage the parity relationship between the components to establish a minimum option trading price limit for Buy-Write Strategies by adding the PSV to the strike price of the option. The effect on the option price can be seen in the following calculation ($45.00 ¥ ($40.00 + $.10) = $45.00 ¥ $40.10 = $4.90). The Exchange will calculate the parity protected price for a Buy-Write Strategy by leveraging the call option parity formula by simply adding the PSV to the strike price of the option. This would result in a parity protected price for the strategy of $40.10 net debit using the figures above. This allows for the stock component and the option component prices to fluctuate to achieve the strategy’s net price, but ensures that the strategy will not trade below its parity protected price. Buy-Write strategy interest received to sell a price protected BuyWrite Strategy below $40.10 net debit will be placed on the Strategy Book at $40.10 net debit.17 Buy-Write strategy interest received to buy a price protected Buy-Write Strategy below $40.10 net debit will be rejected. Second, the Exchange proposes to delete certain existing rule text from 16 The ‘‘Strategy Book’’ is the Exchange’s electronic book of complex orders and complex quotes. See Exchange Rule 518(a)(17). 17 A seller of the strategy would receive a $40.10 net credit. PO 00000 Frm 00068 Fmt 4703 Sfmt 4703 Exchange Rule 518, Interpretations and Policies .01, subsection (b), to eliminate an unnecessary execution price restriction for the stock component of a stock-option strategy. Exchange Rule 518, Interpretations and Policies .01 subsection (b), contains a paragraph that provides that, ‘‘[t]he execution price of the underlying security component must be also within the high-low range for the day in the underlying security at the time the stock-option order is processed and within a certain price from the current market, which the Exchange will establish and communicate to Members via Regulatory Circular. If the underlying security component price is not within these parameters, the stock-option order is not executable.’’ 18 The Exchange does not believe that this execution price restriction for the stock component is necessary given the existing price protections already in place on the Exchange. The Exchange believes that the execution price restriction for the stock component of a stock-option strategy is unnecessary because all complex orders on the Exchange, including stock-option orders, receive Implied Complex MIAX Best Bid or Offer (‘‘icMBBO’’) protection.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 is calculated using the best price (whether displayed or non-displayed) on the Simple Order Book 20 in the individual option component(s), and the NBBO 21 in the stock component.22 Exchange Rule 518(c)(2)(ii) provides, in relevant part, that incoming complex orders and quotes will not be executed at prices inferior to the icMBBO or at a price that is equal to the icMBBO when there is a Priority Customer Order (as defined in Rule 100) at the best icMBBO price. Further, the rule provides that complex orders will never be executed at a price that is outside of the individual component prices on the Simple Order Book, and the net price of a complex order executed against another complex order on the Strategy Book will never be 18 See Exchange Rule 518, Interpretations and Policies .01(b). 19 See Exchange Rule 518(a)(11). 20 The ‘‘Simple Order Book’’ is the Exchange’s regular electronic book of orders and quotes. See Exchange Rule 518(a)(15). 21 The term ‘‘NBBO’’ means the national best bid or offer as calculated by the Exchange based on market information received by the Exchange from the appropriate Securities Information Processor (‘‘SIP’’). See Exchange Rule 518(a)(14). 22 See Exchange Rule 518(a)(11). E:\FR\FM\02AUN1.SGM 02AUN1 Federal Register / Vol. 83, No. 149 / Thursday, August 2, 2018 / Notices daltland on DSKBBV9HB2PROD with NOTICES inferior to the price that would be available if the complex order legged into the Simple Order Book. Accordingly, as a result of the icMBBO price protection feature, the execution price for the stock component of a stockoption order will always be inside the NBBO of the stock. Therefore, rule text stating that the execution price of the underlying security component must be within the high-low range for the day is unnecessary, as the icMBBO protection ensures that executions are always within the NBBO. Finally, the Exchange proposes to make a number of minor, nonsubstantive edits to Rule 518, Interpretations and Policies .05(e), to add clarity and precision to the Exchange’s rule text. Since the Exchange will be introducing the trading of complex strategies which include a ‘‘stock’’ component, the Exchange seeks to clarify certain aspects of the rule that are intended to apply only to the ‘‘option’’ component of a complex strategy. Specifically, the Exchange proposes to clarify the definition of a Wide Market Condition, as described in Interpretations and Policies .05, subsection (e)(1), so that it is clear that it is only applying to the ‘‘option’’ component of a complex strategy. The new proposed rule text will provide that, ‘‘[a] ‘wide market condition’ is defined as any individual option component of a complex strategy having, at the time of evaluation, an MBBO 23 quote width that is wider than the permissible valid quote width as defined in Rule 603(b)(4).’’ By definition, the MBBO is comprised of option interest only, therefore providing additional detail to the existing rule adds clarity to the Exchange’s rules. Similarly, the Exchange proposes to clarify that Simple Market Auction or Timer Events (‘‘SMAT Events’’) pertain only to ‘‘option’’ components of a complex strategy, by amending Interpretations and Policies .05, subsection (e)(2)(i) and (e)(2)(ii), to include the term ‘‘option component’’ in the first sentence of each section. By definition, the Exchange’s Simple Market is comprised of option interest only, on the Simple Order Book, therefore providing additional detail to the existing rule adds clarity to the Exchange’s rules. 2. Statutory Basis The Exchange believes that its proposed rule change is consistent with 23 The term ‘‘MBBO’’ means the best bid or offer on the Simple Order Book on the Exchange. See Exchange Rule 518(a)(13). VerDate Sep<11>2014 17:06 Aug 01, 2018 Jkt 244001 Section 6(b) of the Act 24 in general, and furthers the objectives of Section 6(b)(5) of the Act 25 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, to protect investors and the public interest. The Exchange believes establishing a parity price protection for certain BuyWrite and Married-Put strategies promotes just and equitable principles of trade and removes impediments to and perfects the mechanisms of a free and open market and a national market system and, in general, protects investors and the public interest by ensuring that strategies are not executed at potentially erroneous prices. Given the relationship that the stock price, strike price, and option price have to each other, the Exchange is able to calculate a minimum option trading price limit for the option leg of certain stock-option strategies with a call or a put component. Specifically, the parity price of a call option can be derived by subtracting the strike price from the stock price (Stock Price ¥ Strike Price = Call Option Parity Price); and the parity price of a put option can be derived by subtracting the stock price from the strike price (Strike Price ¥ Stock Price = Put Option Parity Price). Using these relationships the PSV may be applied to establish a minimum option trading price limit that the System will prevent the option leg from trading below to establish a parity protected price for the strategy to ensure the strategy does not trade below its parity protected price at a potentially erroneous price. The Exchange believes that Members will benefit from the proposed risk protection measure as the protection ensures that these stock-option strategies are not executed below their parity protected price as calculated by the Exchange. Consequently, the proposed risk protection is designed to encourage Members to submit additional order flow and liquidity to the Exchange in these strategies, thereby removing impediments to and perfecting the mechanisms of a free and open market and a national market system and, in general, protecting investors and the public interest. This protection should provide Members 24 15 25 15 PO 00000 U.S.C. 78f(b). U.S.C. 78f(b)(5). Frm 00069 Fmt 4703 Sfmt 4703 37851 with confidence that protections are in place on the Exchange to reduce the risk of these strategies being executed at potentially erroneous prices. As a result, the Exchange believes that the proposed price protection feature will promote just and equitable principles of trade. Additionally the Exchange’s proposal to remove unnecessary rule text from its current rule which requires that the execution price of the underlying security component be within the highlow range for the day in the underlying security at the time the stock-option order is processed is consistent with Section 6(b) of the Act 26 in general, and furthers the objectives of Section 6(b)(5) of the Act 27 in particular. The Exchange believes that its existing icMBBO price protection feature will sufficiently guard against potentially erroneous transaction prices for complex strategies which include an underlying stock component. The icMBBO for a complex strategy involving a stock component is calculated using the best price on the Simple Order Book in the individual option component(s) and the NBBO in the stock component.28 Every complex order entered on the Exchange receives the icMBBO price protection 29 and as a result, the execution price for the stock component of a stock-option order will always be inside the NBBO of the stock. Removal of the unnecessary rule text will protect investors and the public interest by providing clarity and precision in the Exchange’s rules. Further, the Exchange notes that other exchanges that offer stock-option orders do not have this provision in their rules.30 Finally, the Exchange proposes to make minor non-substantive changes to its rule to clarify that Wide Market Conditions and Simple Market Auction or Timer Events on the Exchange are related to the ‘‘option’’ components only for complex strategies. The Exchange believes the proposed changes promote just and equitable principles of trade, remove impediments to and perfect the mechanism of a free and open market and a national market system because they seek to add clarity and precision to the Exchange’s rules. The Exchange believes that the proposed rule changes will provide greater clarity to Members and the public regarding the Exchange’s Rules, and it is in the public interest for rules to be accurate and concise so as to eliminate the potential for confusion. 26 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 28 See supra note 21. 29 See supra note 19. 30 See CBOE Rule 6.53C.06 and NASDAQ ISE Rule 722. 27 15 E:\FR\FM\02AUN1.SGM 02AUN1 37852 Federal Register / Vol. 83, No. 149 / Thursday, August 2, 2018 / Notices daltland on DSKBBV9HB2PROD with NOTICES 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 the proposed rule change will foster competition as it provides a risk protection mechanism for certain complex strategies entered on the Exchange and may promote competition by enabling Members to trade more aggressively on the Exchange knowing that these strategies will not be executed below [sic] parity protected price at potentially erroneous prices. Accordingly, the price protection feature should instill additional confidence in Members that submit certain stock-option orders to the Exchange that their orders receive price protection, and thus should encourage Members to submit additional order flow and liquidity to the Exchange, thereby removing impediments to and perfecting the mechanisms of a free and open market and a national market system and, in general, protecting investors and the public interest. The removal of unnecessary rule text pertaining to the execution price of the stock component of a stock-option order does not impose any burden on competition as the proposed change will align the Exchange’s rule with that of other exchanges.31 Further, the additional proposed changes remedy minor non-substantive issues in the text of various rules identified in this proposal. The Exchange does not believe the proposed rule change will impose any burden on intra-market competition as price protection is available to all market participants that submit orders in certain stock-option strategies. The Exchange further believes that the proposed price protection should promote inter-market competition, and result in more competitive order flow to the Exchange by protecting market participants from potentially erroneous executions occurring at prices below the parity protected price of the strategy, as calculated by the Exchange. 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 enhance competition. 31 Id. VerDate Sep<11>2014 17:06 Aug 01, 2018 Jkt 244001 C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days after the date of the filing, or such shorter time as the Commission may designate, it has become effective pursuant to 19(b)(3)(A) of the Act 32 and Rule 19b–4(f)(6) 33 thereunder. A proposed rule change filed pursuant to Rule 19b–4(f)(6) under the Act 34 normally does not become operative for 30 days after the date of its filing. However, Rule 19b–4(f)(6)(iii) 35 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay. The Exchange states that waiver of the operative delay is consistent with the protection of investors and the public interest because it will enable market participants to benefit from the proposed parity price protection feature, which is designed to safeguard against the possibility of executions occurring at potentially erroneous prices. MIAX also states that the proposal protects investors and the public interest by deleting a provision requiring the execution price of the underlying security component of a stock-option order to be within the underlying component’s high-low range for the day. MIAX notes that this provision is unnecessary because all complex orders on MIAX are protected by the icMBBO price protection feature, which assures that the stock leg of a stock-option order will not be executed at a price that is inferior to the NBBO for the stock. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the 32 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 34 17 CFR 240.19b–4(f)(6). 35 17 CFR 240.19b–4(f)(6)(iii). 33 17 PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 public interest because the proposed parity price protection feature is designed to prevent Buy-Write and Married Put strategies from executing at potentially erroneous prices. As noted above, Buy-Write and Married Put interest to buy that is priced below the parity protected price for the strategy will be rejected, and Buy-Write and Married Put interest to sell that is priced below the parity protected price will be placed on the Strategy Book at the parity protected price for the strategy. Therefore, the Commission hereby waives the operative delay and designates the proposed rule change as operative upon filing.36 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– MIAX–2018–16 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–2018–16. 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 (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent 36 For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). E:\FR\FM\02AUN1.SGM 02AUN1 Federal Register / Vol. 83, No. 149 / Thursday, August 2, 2018 / Notices 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–2018–16 and should be submitted on or before August 23, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.37 Robert W. Errett, Deputy Secretary. [FR Doc. 2018–16528 Filed 8–1–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–83728; File No. SR–BOX– 2018–24] Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee Schedule on the BOX Market LLC (‘‘BOX’’) Options Facility To Establish BOX Connectivity Fees for Participants and Non-Participants Who Connect to the BOX Network daltland on DSKBBV9HB2PROD with NOTICES July 27, 2018. 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 July 19, 2018, BOX Options Exchange LLC (the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. prepared by the Exchange. The Exchange filed the proposed rule change pursuant to Section 19(b)(3)(A)(ii) of the Act,3 and Rule 19b–4(f)(2) thereunder,4 which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change The Exchange is filing with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change to amend the Fee Schedule on the BOX Market LLC (‘‘BOX’’) options facility. The text of the proposed rule change is available from the principal office of the Exchange, at the Commission’s Public Reference Room and also on the Exchange’s internet website at https:// boxexchange.com. 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 Section VI. (Technology Fees) of the BOX Fee Schedule to establish BOX Connectivity Fees for Participants and non-Participants who connect to the BOX network. Connectivity fees will be based upon the amount of bandwidth that will be used by the Participant or non-Participant. Further, BOX Participants or non-Participants connected as of the last trading day of each calendar month will be charged the applicable Connectivity Fee for that month. The Connectivity Fees will be as follows: 37 17 1 15 VerDate Sep<11>2014 17:06 Aug 01, 2018 3 15 4 17 Jkt 244001 PO 00000 U.S.C. 78s(b)(3)(A)(ii). CFR 240.19b–4(f)(2). Frm 00071 Fmt 4703 Sfmt 4703 37853 Connection type Monthly fees Non-10 Gb Connection. 10 Gb Connection ..... $1,000 per connection. 5,000 per connection. The Exchange also proposes to amend certain language and numbering in Section VI.A to reflect the changes discussed above. Specifically, BOX proposes to add the title ‘‘Third Party Connectivity Fees’’ under Section VI.A. Further, the Exchange proposes to add Section VI.A.2 which details the proposed BOX Connectivity Fees discussed above. Participants and non-Participants with ten (10) Gigabit Connections will be charged a monthly fee of $5,000 per connection. Participants and nonParticipants with non-10 Gigabits Connections will be charged a monthly fee of $1,000 per connection. The Exchange notes that another exchange in the industry has similar connectivity fees.5 The Exchange also notes that certain fees will continue to be assessed by the datacenters and will be billed directly to the market participant. Next, the Exchange is amending Section VI.C. High Speed Vendor Feed (‘‘HSVF’’) of the Fee Schedule. Specifically, BOX is proposing to delete Section VI.C. and reclassify the HSVF Connection as a Port Fee. The Exchange believes this reclassification is more accurate, as HSVF subscription is not dependent on a physical connection to the Exchange. Instead, subscribers must be credentialed by BOX to receive the HSVF. The HSVF Fee will remain unchanged, BOX will assess a HSVF Port Fee of $1,500 per month 6 for each month a Participant or non-Participant is credentialed to use the HSVF Port. The Exchange notes that another 5 See Miami International Securities Exchange LLC (‘‘MIAX’’) Fee Schedule. MIAX charges its Members and non-Members a monthly fee of $1,100 for each 1 Gigabit connection and $5,500 for each 10 Gigabit connection to MIAX’s Primary/ Secondary Facility. The Exchange notes a minor difference between MIAX’s connectivity fees and BOX’s proposal. MIAX prorates their connectivity fees when a Member makes a change to their connectivity (by adding or deleting connections). BOX notes that, like the Exchange’s Port Fees and HSVF Fees, Participants or non-Participants connected as of the last trading day of each calendar month will be charged the applicable Connectivity Fee for that month. 6 The Exchange notes that with the proposed change discussed herein, Participants and nonParticipants credentialed to use the HSVF Port who also have physical connections to the BOX system will be charged for both the HSVF monthly fee and the applicable amount for their physical connections to BOX. For example, if nonParticipant X is credentialed to use the HSVF Port and has three (3) physical non-10Gb connections to BOX, non-Participant X will be charged $1,500 for the monthly HSVF Port Fee and $3,000 for the three non-10Gb physical connections to BOX. E:\FR\FM\02AUN1.SGM 02AUN1

Agencies

[Federal Register Volume 83, Number 149 (Thursday, August 2, 2018)]
[Notices]
[Pages 37849-37853]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-16528]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83726; File No. SR-MIAX-2018-16]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Exchange Rule 518, Complex Orders

July 27, 2018.
    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 July 16, 2018, 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, 
Complex Orders, to update its rule text regarding stock-option orders, 
in connection with the upcoming launch of such orders on the Exchange.
    The text of the proposed rule change is available on the Exchange's 
website 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, Complex Orders, 
to update its rule text regarding stock-option orders, in connection 
with the upcoming launch of such orders on the Exchange. In particular, 
the Exchange is proposing to (i) adopt new rule text to introduce a new 
price protection feature for certain stock-option strategies, (ii) 
delete certain existing rule text to eliminate an unnecessary execution 
price restriction for the stock component of a stock-option strategy, 
and (iii) make certain minor clarifying edits to existing rule text.
    Complex orders began trading on the Exchange on October 24, 
2016.\3\ In its rule filing to establish the trading of complex orders, 
the Exchange adopted rules for handling stock-option orders.\4\ The 
Exchange also indicated that it would determine when stock-option 
orders would be made available for trading in the System \5\ and would 
communicate such determination to Members \6\ via Regulatory 
Circular.\7\ The Exchange is now proposing to make certain changes to 
its rule text, in connection with the upcoming launch of such orders on 
the Exchange, which is scheduled for the third quarter of 2018.
---------------------------------------------------------------------------

    \3\ See MIAX Regulatory Circular 2016-43, October 20, 2016.
    \4\ See Securities Exchange Act Release No. 79072 (October 7, 
2016), 81 FR 71131 (October 14, 2016) (SR-MIAX-2016-26).
    \5\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \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 supra note 4.
---------------------------------------------------------------------------

    Currently, the Exchange provides price protection for certain 
complex option trading strategies such as Vertical Spreads \8\ and 
Calendar Spreads \9\ to prevent executions at potentially erroneous 
prices. Specifically, the Exchange provides a Vertical Spread Variance 
(``VSV'') price protection and a Calendar Spread Variance (``CSV'') 
price protection. The VSV establishes minimum and maximum trading price 
limits for Vertical Spreads.\10\ The CSV establishes a minimum trading 
price limit for Calendar Spreads.\11\ If the execution price of a 
complex order would be outside of the limits established for Vertical 
Spreads and Calendar Spreads, such complex order will be placed on the 
Strategy Book and will be managed to the appropriate trading price 
limit as described in Rule 518(c)(4), Managed Interest Process for 
Complex Orders. Orders to buy below the minimum trading price limit and 
orders to sell above the maximum trading price limit (in the case of 
Vertical Spreads) will be rejected by the System.\12\
---------------------------------------------------------------------------

    \8\ A ``Vertical Spread'' is a complex strategy consisting of 
the purchase of one call (put) option and the sale of another call 
(put) option overlying the same security that have the same 
expiration but different strike prices. See Exchange Rule 518.05(a).
    \9\ A ``Calendar Spread'' is a complex strategy consisting of 
the purchase of one call (put) option and the sale of another call 
(put) option overlying the same security that have different 
expirations but the same strike price. See Exchange Rule 518.05(b).
    \10\ See Exchange Rule 518.05(a).
    \11\ See Exchange Rule 518.05(b).
    \12\ See Exchange Rule 518.05(c).
---------------------------------------------------------------------------

    The Exchange now proposes to adopt new subsection (g) in Rule 518, 
Interpretations and Policies .01, to provide a price protection feature 
for certain stock-option strategies that have a single option component 
tied to a stock component with a standard deliverable.\13\ The proposed 
price protection feature, named ``Parity Price Protection,'' will 
provide price protection for strategies that consist of a

[[Page 37850]]

sale of one call \14\ and the purchase of one hundred shares of the 
underlying stock (``Buy-Write'') and the contra side of the strategy, 
or that consist of the purchase of one put \15\ and the purchase of one 
hundred shares of the underlying stock (``Married-Put'') and the contra 
side of the strategy. The Exchange will establish a Parity Spread 
Variance (``PSV'') value between $0.00 and $0.50. The PSV value will be 
uniform for all option classes traded on the Exchange as determined by 
the Exchange and communicated to Members via Regulatory Circular prior 
to accepting such orders on the Exchange. The PSV will be used to 
calculate a minimum option trading price limit that the System will 
prevent the option leg from trading below by applying the PSV value to 
the strike price of the option to establish a parity protected price 
for the strategy. For call option legs, the PSV value is added to the 
strike price of the option; for put option legs, the PSV value is 
subtracted from the strike price of the option. The System will then 
prevent the strategy from trading below its parity protected price 
limit to ensure that the strategy does not execute at a potentially 
erroneous price.
---------------------------------------------------------------------------

    \13\ The standard stock deliverable is 100 shares.
    \14\ The term ``call'' means an option contract under which the 
holder of the option has the right, in accordance with the terms of 
the option, to purchase from the Clearing Corporation the number of 
units of the underlying security covered by the option contract. See 
Exchange Rule 100.
    \15\ The term ``put'' means an option contract under which the 
holder of the option has the right, in accordance with the terms and 
provisions of the option, to sell to the Clearing Corporation the 
number of units of the underlying security covered by the option 
contract. See Exchange Rule 100.
---------------------------------------------------------------------------

    The examples below provide an illustration of how the protection is 
calculated for Buy-Write and Married-Put strategies. For the purposes 
of the following examples the PSV used in the calculations is $.10.
    Following is an example of the operation of the price protection 
feature for a Married-Put Strategy:
Example 1 (Married-Put)
    In its simplest terms the parity price of a put option can be 
expressed as (Strike Price - Stock Price = Put Option Parity Price). 
If, for example, the stock is trading at $45.00 and the Strike Price of 
the put option is $50.00, the parity price of the put option would then 
be $5.00 ($50.00 - $45.00 = $5.00). The Exchange is able to leverage 
the parity relationship between the components to establish a minimum 
option trading price limit for Married-Put Strategies by simply 
subtracting the PSV from the strike price of the option. The effect on 
the option price can be seen in the following calculation (($50.00 - 
$0.10) - $45.00 = $49.90 - $45.00 = $4.90). The Exchange will calculate 
the parity protected price for a Married-Put Strategy by leveraging the 
put option parity formula by simply subtracting the PSV from the strike 
price of the option. This would result in a parity protected price for 
the strategy of $49.90 using the figures above.
    This allows for the stock component and the option component prices 
to fluctuate to achieve the strategy's net price, but ensures that the 
strategy will not trade below its parity protected price. Married Put 
Strategy interest received to sell a price protected Married-Put 
Strategy below $49.90 will be placed on the Strategy Book \16\ at 
$49.90. Married Put Strategy interest received to buy a price protected 
Married-Put Strategy below $49.90 will be rejected.
---------------------------------------------------------------------------

    \16\ The ``Strategy Book'' is the Exchange's electronic book of 
complex orders and complex quotes. See Exchange Rule 518(a)(17).
---------------------------------------------------------------------------

Example 2 (Buy-Write)
    In its simplest terms the parity price of a call option can be 
expressed as (Stock Price - Strike Price = Call Option Parity Price). 
If, for example, the stock is trading at $45.00 and the Strike Price of 
the call option is $40.00, the parity price of the call option would 
then be $5.00 ($45.00 - $40.00 = $5.00). The Exchange is able to 
leverage the parity relationship between the components to establish a 
minimum option trading price limit for Buy-Write Strategies by adding 
the PSV to the strike price of the option. The effect on the option 
price can be seen in the following calculation ($45.00 - ($40.00 + 
$.10) = $45.00 - $40.10 = $4.90). The Exchange will calculate the 
parity protected price for a Buy-Write Strategy by leveraging the call 
option parity formula by simply adding the PSV to the strike price of 
the option. This would result in a parity protected price for the 
strategy of $40.10 net debit using the figures above.
    This allows for the stock component and the option component prices 
to fluctuate to achieve the strategy's net price, but ensures that the 
strategy will not trade below its parity protected price. Buy-Write 
strategy interest received to sell a price protected Buy-Write Strategy 
below $40.10 net debit will be placed on the Strategy Book at $40.10 
net debit.\17\ Buy-Write strategy interest received to buy a price 
protected Buy-Write Strategy below $40.10 net debit will be rejected.
---------------------------------------------------------------------------

    \17\ A seller of the strategy would receive a $40.10 net credit.
---------------------------------------------------------------------------

    Second, the Exchange proposes to delete certain existing rule text 
from Exchange Rule 518, Interpretations and Policies .01, subsection 
(b), to eliminate an unnecessary execution price restriction for the 
stock component of a stock-option strategy. Exchange Rule 518, 
Interpretations and Policies .01 subsection (b), contains a paragraph 
that provides that, ``[t]he execution price of the underlying security 
component must be also within the high-low range for the day in the 
underlying security at the time the stock-option order is processed and 
within a certain price from the current market, which the Exchange will 
establish and communicate to Members via Regulatory Circular. If the 
underlying security component price is not within these parameters, the 
stock-option order is not executable.'' \18\ The Exchange does not 
believe that this execution price restriction for the stock component 
is necessary given the existing price protections already in place on 
the Exchange.
---------------------------------------------------------------------------

    \18\ See Exchange Rule 518, Interpretations and Policies .01(b).
---------------------------------------------------------------------------

    The Exchange believes that the execution price restriction for the 
stock component of a stock-option strategy is unnecessary because all 
complex orders on the Exchange, including stock-option orders, receive 
Implied Complex MIAX Best Bid or Offer (``icMBBO'') protection.\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 is calculated using the best price (whether 
displayed or non-displayed) on the Simple Order Book \20\ in the 
individual option component(s), and the NBBO \21\ in the stock 
component.\22\ Exchange Rule 518(c)(2)(ii) provides, in relevant part, 
that incoming complex orders and quotes will not be executed at prices 
inferior to the icMBBO or at a price that is equal to the icMBBO when 
there is a Priority Customer Order (as defined in Rule 100) at the best 
icMBBO price. Further, the rule provides that complex orders will never 
be executed at a price that is outside of the individual component 
prices on the Simple Order Book, and the net price of a complex order 
executed against another complex order on the Strategy Book will never 
be

[[Page 37851]]

inferior to the price that would be available if the complex order 
legged into the Simple Order Book. Accordingly, as a result of the 
icMBBO price protection feature, the execution price for the stock 
component of a stock-option order will always be inside the NBBO of the 
stock. Therefore, rule text stating that the execution price of the 
underlying security component must be within the high-low range for the 
day is unnecessary, as the icMBBO protection ensures that executions 
are always within the NBBO.
---------------------------------------------------------------------------

    \19\ See Exchange Rule 518(a)(11).
    \20\ The ``Simple Order Book'' is the Exchange's regular 
electronic book of orders and quotes. See Exchange Rule 518(a)(15).
    \21\ The term ``NBBO'' means the national best bid or offer as 
calculated by the Exchange based on market information received by 
the Exchange from the appropriate Securities Information Processor 
(``SIP''). See Exchange Rule 518(a)(14).
    \22\ See Exchange Rule 518(a)(11).
---------------------------------------------------------------------------

    Finally, the Exchange proposes to make a number of minor, non-
substantive edits to Rule 518, Interpretations and Policies .05(e), to 
add clarity and precision to the Exchange's rule text. Since the 
Exchange will be introducing the trading of complex strategies which 
include a ``stock'' component, the Exchange seeks to clarify certain 
aspects of the rule that are intended to apply only to the ``option'' 
component of a complex strategy. Specifically, the Exchange proposes to 
clarify the definition of a Wide Market Condition, as described in 
Interpretations and Policies .05, subsection (e)(1), so that it is 
clear that it is only applying to the ``option'' component of a complex 
strategy. The new proposed rule text will provide that, ``[a] `wide 
market condition' is defined as any individual option component of a 
complex strategy having, at the time of evaluation, an MBBO \23\ quote 
width that is wider than the permissible valid quote width as defined 
in Rule 603(b)(4).'' By definition, the MBBO is comprised of option 
interest only, therefore providing additional detail to the existing 
rule adds clarity to the Exchange's rules.
---------------------------------------------------------------------------

    \23\ The term ``MBBO'' means the best bid or offer on the Simple 
Order Book on the Exchange. See Exchange Rule 518(a)(13).
---------------------------------------------------------------------------

    Similarly, the Exchange proposes to clarify that Simple Market 
Auction or Timer Events (``SMAT Events'') pertain only to ``option'' 
components of a complex strategy, by amending Interpretations and 
Policies .05, subsection (e)(2)(i) and (e)(2)(ii), to include the term 
``option component'' in the first sentence of each section. By 
definition, the Exchange's Simple Market is comprised of option 
interest only, on the Simple Order Book, therefore providing additional 
detail to the existing rule adds clarity to the Exchange's rules.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \24\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \25\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanisms of a free and open market and a national market system and, 
in general, to protect investors and the public interest.
---------------------------------------------------------------------------

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

    The Exchange believes establishing a parity price protection for 
certain Buy-Write and Married-Put strategies promotes just and 
equitable principles of trade and removes impediments to and perfects 
the mechanisms of a free and open market and a national market system 
and, in general, protects investors and the public interest by ensuring 
that strategies are not executed at potentially erroneous prices.
    Given the relationship that the stock price, strike price, and 
option price have to each other, the Exchange is able to calculate a 
minimum option trading price limit for the option leg of certain stock-
option strategies with a call or a put component. Specifically, the 
parity price of a call option can be derived by subtracting the strike 
price from the stock price (Stock Price - Strike Price = Call Option 
Parity Price); and the parity price of a put option can be derived by 
subtracting the stock price from the strike price (Strike Price - Stock 
Price = Put Option Parity Price). Using these relationships the PSV may 
be applied to establish a minimum option trading price limit that the 
System will prevent the option leg from trading below to establish a 
parity protected price for the strategy to ensure the strategy does not 
trade below its parity protected price at a potentially erroneous 
price.
    The Exchange believes that Members will benefit from the proposed 
risk protection measure as the protection ensures that these stock-
option strategies are not executed below their parity protected price 
as calculated by the Exchange. Consequently, the proposed risk 
protection is designed to encourage Members to submit additional order 
flow and liquidity to the Exchange in these strategies, thereby 
removing impediments to and perfecting the mechanisms of a free and 
open market and a national market system and, in general, protecting 
investors and the public interest. This protection should provide 
Members with confidence that protections are in place on the Exchange 
to reduce the risk of these strategies being executed at potentially 
erroneous prices. As a result, the Exchange believes that the proposed 
price protection feature will promote just and equitable principles of 
trade.
    Additionally the Exchange's proposal to remove unnecessary rule 
text from its current rule which requires that the execution price of 
the underlying security component be within the high-low range for the 
day in the underlying security at the time the stock-option order is 
processed is consistent with Section 6(b) of the Act \26\ in general, 
and furthers the objectives of Section 6(b)(5) of the Act \27\ in 
particular. The Exchange believes that its existing icMBBO price 
protection feature will sufficiently guard against potentially 
erroneous transaction prices for complex strategies which include an 
underlying stock component. The icMBBO for a complex strategy involving 
a stock component is calculated using the best price on the Simple 
Order Book in the individual option component(s) and the NBBO in the 
stock component.\28\ Every complex order entered on the Exchange 
receives the icMBBO price protection \29\ and as a result, the 
execution price for the stock component of a stock-option order will 
always be inside the NBBO of the stock. Removal of the unnecessary rule 
text will protect investors and the public interest by providing 
clarity and precision in the Exchange's rules. Further, the Exchange 
notes that other exchanges that offer stock-option orders do not have 
this provision in their rules.\30\
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(5).
    \28\ See supra note 21.
    \29\ See supra note 19.
    \30\ See CBOE Rule 6.53C.06 and NASDAQ ISE Rule 722.
---------------------------------------------------------------------------

    Finally, the Exchange proposes to make minor non-substantive 
changes to its rule to clarify that Wide Market Conditions and Simple 
Market Auction or Timer Events on the Exchange are related to the 
``option'' components only for complex strategies. The Exchange 
believes the proposed changes promote just and equitable principles of 
trade, remove impediments to and perfect the mechanism of a free and 
open market and a national market system because they seek to add 
clarity and precision to the Exchange's rules. The Exchange believes 
that the proposed rule changes will provide greater clarity to Members 
and the public regarding the Exchange's Rules, and it is in the public 
interest for rules to be accurate and concise so as to eliminate the 
potential for confusion.

[[Page 37852]]

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 the 
proposed rule change will foster competition as it provides a risk 
protection mechanism for certain complex strategies entered on the 
Exchange and may promote competition by enabling Members to trade more 
aggressively on the Exchange knowing that these strategies will not be 
executed below [sic] parity protected price at potentially erroneous 
prices. Accordingly, the price protection feature should instill 
additional confidence in Members that submit certain stock-option 
orders to the Exchange that their orders receive price protection, and 
thus should encourage Members to submit additional order flow and 
liquidity to the Exchange, thereby removing impediments to and 
perfecting the mechanisms of a free and open market and a national 
market system and, in general, protecting investors and the public 
interest.
    The removal of unnecessary rule text pertaining to the execution 
price of the stock component of a stock-option order does not impose 
any burden on competition as the proposed change will align the 
Exchange's rule with that of other exchanges.\31\ Further, the 
additional proposed changes remedy minor non-substantive issues in the 
text of various rules identified in this proposal.
---------------------------------------------------------------------------

    \31\ Id.
---------------------------------------------------------------------------

    The Exchange does not believe the proposed rule change will impose 
any burden on intra-market competition as price protection is available 
to all market participants that submit orders in certain stock-option 
strategies. The Exchange further believes that the proposed price 
protection should promote inter-market competition, and result in more 
competitive order flow to the Exchange by protecting market 
participants from potentially erroneous executions occurring at prices 
below the parity protected price of the strategy, as calculated by the 
Exchange.
    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 enhance competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others
    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \32\ and Rule 19b-4(f)(6) \33\ 
thereunder.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78s(b)(3)(A).
    \33\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \34\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \35\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay. The 
Exchange states that waiver of the operative delay is consistent with 
the protection of investors and the public interest because it will 
enable market participants to benefit from the proposed parity price 
protection feature, which is designed to safeguard against the 
possibility of executions occurring at potentially erroneous prices. 
MIAX also states that the proposal protects investors and the public 
interest by deleting a provision requiring the execution price of the 
underlying security component of a stock-option order to be within the 
underlying component's high-low range for the day. MIAX notes that this 
provision is unnecessary because all complex orders on MIAX are 
protected by the icMBBO price protection feature, which assures that 
the stock leg of a stock-option order will not be executed at a price 
that is inferior to the NBBO for the stock. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest because the proposed 
parity price protection feature is designed to prevent Buy-Write and 
Married Put strategies from executing at potentially erroneous prices. 
As noted above, Buy-Write and Married Put interest to buy that is 
priced below the parity protected price for the strategy will be 
rejected, and Buy-Write and Married Put interest to sell that is priced 
below the parity protected price will be placed on the Strategy Book at 
the parity protected price for the strategy. Therefore, the Commission 
hereby waives the operative delay and designates the proposed rule 
change as operative upon filing.\36\
---------------------------------------------------------------------------

    \34\ 17 CFR 240.19b-4(f)(6).
    \35\ 17 CFR 240.19b-4(f)(6)(iii).
    \36\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-MIAX-2018-16 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-2018-16. 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 (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent

[[Page 37853]]

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-2018-16 and should be submitted on or before August 23, 2018.
---------------------------------------------------------------------------

    \37\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018-16528 Filed 8-1-18; 8:45 am]
BILLING CODE 8011-01-P
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