Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing of a Proposed Rule Change To Amend Exchange Rule 518, Complex Orders, 59435-59439 [2018-25470]
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plans to submit this existing collection
of information to the Office of
Management and Budget (‘‘OMB’’) for
extension and approval.
Form N–5 (17 CFR 239.24 and 274.5)
is the form used by small business
investment companies (‘‘SBICs’’) to
register their securities under the
Securities Act of 1933 (15 U.S.C. 77a et
seq.) (‘‘Securities Act’’) and the
Investment Company Act of 1940 (15
U.S.C. 80a–1 et seq.) (‘‘Investment
Company Act’’). Form N–5 is the
registration statement form adopted by
the Commission for use by an SBIC that
has been licensed as such under the
Small Business Investment Act of 1958
or which has received the preliminary
approval of the Small Business
Administration (‘‘SBA’’) and has been
notified by the SBA that the company
may submit a license application Form
N–5 is an integrated registration form
and may be used as the registration
statement under both the Securities Act
and the Investment Company Act. The
purpose of Form N–5 is to meet the
filing and disclosure requirements of
both the Securities Act and Investment
Company Act, and to provide investors
with information sufficient to evaluate
an investment in an SBIC. The
information that is required to be filed
with the Commission permits
verification of compliance with
securities law requirements and assures
the public availability and
dissemination of the information.
The Commission did not receive any
filings on Form N–5 in the last three
years (and in the three years before that,
received only one Form N–5 filing).
Nevertheless, for purposes of this PRA,
we conservatively estimate that at least
one Form N–5 will be filed in the next
three years, which translates to about
0.333 filings on Form N–5 per year. The
currently approved internal burden of
Form N–5 is 352 hours per response. We
continue to believe this estimate for
Form N–5’s internal hour burden is
appropriate. Therefore, the number of
currently approved aggregate burden
hours, when calculated using the
current estimate for number of filings, is
about 117 internal hours per year. The
currently approved external cost burden
of Form N–5 is $30,000 per filing. We
continue to believe this estimate for
Form N–5’s cost burden is appropriate.
Therefore, we estimate that the
aggregate cost burden, when calculated
using the Commission’s estimate of
0.333 filings per year, is about $10,000
in external costs per year.
Estimates of average burden hours
and costs are made solely for the
purposes of the Paperwork Reduction
Act, and are not derived from a
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comprehensive or even representative
survey or study of the costs of
Commission rules and forms.
Compliance with the collection of
information requirements of Form N–5
is mandatory. Responses to the
collection of information will not be
kept confidential. An agency may not
conduct or sponsor, and a person is not
required to respond to, a collection of
information unless it displays a
currently valid OMB control number.
Written comments are invited on: (a)
Whether the collection of information is
necessary for the proper performance of
the functions of the Commission,
including whether the information has
practical utility; (b) the accuracy of the
Commission’s estimate of the burden of
the collection of information; (c) ways to
enhance the quality, utility, and clarity
of the information collected; and (d)
ways to minimize the burden of the
collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Consideration will be given to
comments and suggestions submitted in
writing within 60 days of this
publication.
Please direct your written comments
to Charles Riddle, Acting Director/Chief
Information Officer, Securities and
Exchange Commission, C/O Candace
Kenner, 100 F Street NE, Washington,
DC 20549; or send an email to: PRA_
Mailbox@sec.gov.
Dated: November 16, 2018.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–25442 Filed 11–21–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84613; File No. SR–MIAX–
2018–36]
Self-Regulatory Organizations; Miami
International Securities Exchange,
LLC; Notice of Filing of a Proposed
Rule Change To Amend Exchange
Rule 518, Complex Orders
November 16, 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 November 9, 2018, Miami
International Securities Exchange, LLC
(‘‘MIAX Options’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
1 15
2 17
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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59435
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.
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 [sic]
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
1. Purpose
The Exchange proposes to amend
Exchange Rule 518, Complex Orders, to
(i) adopt a new Simple Market Auction
or Timer (‘‘SMAT’’) Event (defined
below); (ii) amend the Response Time
Interval and Defined Time Period for
Complex Auctions (each defined
below); (iii) adopt a new Complex
Liquidity Exposure Process (‘‘cLEP’’);
(iv) make minor changes to the Complex
MIAX Options Price Collar Protection;
and (v) clarify that the Calendar Spread
Variance (‘‘CSV’’) price protection
applies only to strategies in Americanstyle option 3 classes.
Specifically, the Exchange proposes to
amend subsection (a)(16), to adopt a
new Simple Market Auction or Timer
(SMAT) Event. A SMAT Event is
3 The term ‘‘American-style option’’ means an
option contract that, subject to the provisions of
Rule 700 (relating to the cutoff time for exercise
instructions) and to the Rules of the Clearing
Corporation, can be exercised on any business day
prior to its expiration date and on its expiration
date. See Exchange Rule 100.
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defined as any one of the following; a
PRIME Auction (pursuant to Rule
515A),4 a Route Timer (pursuant to Rule
529),5 or a liquidity refresh pause
(pursuant to Rule 515(c)(2).6 The
Exchange now proposes to adopt new
rule text to add the liquidity exposure
process timer (pursuant to proposed
Rule 515(c)(2)(i)) as a SMAT Event. The
liquidity exposure process timer, which
is not to exceed three (3) seconds, is
engaged as part of the liquidity exposure
process for orders in Proprietary
Products 7 that would be posted,
managed, or would trade at a price more
aggressive than the order’s protected
price. If a SMAT Event exists during
free trading for an option component of
a complex strategy, trading in the
complex strategy will be suspended.8
The Exchange also proposes to correct
an internal cross reference in subsection
(a)(16)(iii) from Rule 515(c)(2) to Rule
515(c)(3) to reflect the new citation
under a currently pending proposed
rule change. The purpose of adding the
liquidity exposure process timer as a
SMAT Event is to enhance the
continuity, trade-through protection,
and orderliness in the simple market
and to protect complex order
4 The MIAX Price Improvement Mechanism
(‘‘PRIME’’) is a process by which a Member may
electronically submit for execution (‘‘Auction’’) an
order it represents as agent (‘‘Agency Order’’)
against principal interest, and/or an Agency Order
against solicited interest. See Exchange Rule 515A.
5 The Exchange may automatically route orders to
other exchanges under certain circumstances
(‘‘Routing Services’’). In connection with such
services, one of two Route Mechanisms, Immediate
Routing or the Route Timer, will be used when a
Public Customer order is received and/or
reevaluated that is both routable and marketable
against the opposite side ABBO upon receipt and
the Exchange’s disseminated market is not equal to
the opposite side ABBO, or is equal to the opposite
side ABBO and of insufficient size to satisfy the
order. For those initiating Public Customer orders
that are routable, but do not meet the additional
criteria for Immediate Routing, the System will
implement a Route Timer not to exceed one second
(the duration of the Timer will be announced to
Members through a Regulatory Circular), in order to
allow Market Makers and other participants an
opportunity to interact with the initiating order. See
Exchange Rule 529.
6 The System will pause the market for a time
period not to exceed one second to allow additional
orders or quotes refreshing the liquidity at the
MBBO to be received (‘‘liquidity refresh pause’’)
when at the time of receipt or reevaluation of the
initiating order by the System: (A) Either the
initiating order is a limit order whose limit price
crosses the NBBO or the initiating order is a market
order, and the limit order or market order could
only be partially executed; (B) a Market Maker
quote was all or part of the MBBO when the MBBO
is alone at the NBBO; and (C) and the Market Maker
quote was exhausted. See Exchange Rule 515(c)(2).
7 The term ‘‘Proprietary Product’’ means a class
of options that is listed exclusively on the Exchange
and any of its affiliates. See proposed Exchange
Rule 100.
8 See Exchange Rule 518, Interpretations and
Policies .05(e)(2)(i).
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components from being executed at
prices that could improve following a
SMAT Event.
Additionally, the Exchange proposes
to amend subsection (d)(3) which
describes the Response Time Interval of
a Complex Auction, which is a singlesided auction. The Exchange offers
Complex Auction functionality as
described in Exchange Rule 518 9 and
also a cPRIME process, which is
unaffected by this proposal, as
described in Exchange Rule 515A.12.
Currently, Rule 518(d)(3) provides
that the Response Time Interval means
the period of time during which
responses to the Request for Responses
(‘‘RFR’’) message may be entered. The
Rule further provides that the Exchange
determines the duration of the Response
Time Interval, which shall not exceed
500 milliseconds, and communicates it
to Members via Regulatory Circular.10
The Exchange now proposes to adopt
new rule text to state that, ‘‘the end of
the trading session will also serve as the
end of the Response Time Interval for a
Complex Auction still in progress.’’ In
connection with this proposed change
the Exchange proposes to amend
subsection (d)(2) to remove the
reference to the Defined Time Period for
a Complex Auction. The Defined Time
Period represents the period of time
preceding the end of a trading session
during which a Complex Auction will
not be initiated. Currently, the Defined
Time Period is 2,000 milliseconds 11
while the duration of a Complex
Auction is just 200 milliseconds. The
Exchange believes that removing this
restriction will allow for increased price
improvement opportunities. The
Exchange also proposes to amend
subsection (c)(2)(i) to remove the
restriction that a cAOA order 12 received
during the Defined Time Period will not
initiate a new Complex Auction. Under
the current rules there is no opportunity
at all for price improvement via a
9 Certain option classes, as determined by the
Exchange and communicated to Members via
Regulatory Circular, will be eligible to participate
in a Complex Auction (an ‘‘eligible class’’). Upon
evaluation as set forth in subparagraph (c)(5) of
Rule 518, the Exchange may determine to
automatically submit a Complex Auction-eligible
order into a Complex Auction. Upon entry into the
System or upon evaluation of a complex order
resting at the top of the Strategy Book, Complex
Auction-eligible orders may be subject to an
automated request for responses (‘‘RFR’’). See
Exchange Rule 518(d).
10 The Exchange notes that the Response Time
Interval is currently set to 200 milliseconds. See
MIAX Regulatory Circular 2016–46.
11 See MIAX Regulatory Circular 2016–63.
12 A ‘‘Complex Auction-on-Arrival’’ or ‘‘cAOA’’
order is a complex order designated to be placed
into a Complex Auction upon receipt or upon
evaluation . See Exchange Rule 518(b)(2).
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Complex Auction when there is less
than two seconds left in the trading
session. The Exchange believes that
removing the Defined Time Period and
allowing the end of the trading session
to serve as the end of the Response Time
Interval in the limited instance that a
Complex Auction is initiated with less
than 200 milliseconds left in the trading
session will allow for more
opportunities for price improvement via
the auction process. The Exchange
warrants that is has the System
capability to conduct auctions and
execute transactions in a timely fashion
at any time during the trading session.
The Exchange also proposes to adopt
new subsection (e) to describe a
Complex Liquidity Exposure Process
(‘‘cLEP’’) for complex orders and
complex eQuotes that would violate
their Complex MIAX Price Collar
(‘‘MPC’’) price . The MPC price
protection feature is an Exchange-wide
mechanism under which a complex
order or complex eQuote to sell will not
be displayed or executed at a price that
is lower than the opposite side
cNBBO 13 bid at the time the MPC is
assigned by the System 14 (i.e., upon
receipt or upon opening) by more than
a specific dollar amount expressed in
$0.01 increments (the ‘‘MPC Setting’’),
and under which a complex order or
eQuote to buy will not be displayed or
executed at a price that is higher than
the opposite side cNBBO offer at the
time the MPC is assigned by the System
by more than the MPC Setting (each the
‘‘MPC Price’’).15 The MPC Price is
established (i) upon receipt of the
complex order or eQuote during free
trading, or (ii) if the complex order or
eQuote is not received during free
trading, at the opening (or reopening
following a halt) of trading in the
complex strategy; or (iii) upon
evaluation of the Strategy Book by the
System when a wide market condition,
as described in Interpretations and
Policies .05(e)(1) of this Rule, no longer
exists.16 Once established the MPC Price
will not change during the life of the
complex order or eQuote.17 If the MPC
Price is priced less aggressively than the
limit price of the complex order or
eQuote (i.e., the MPC Price is less than
the complex order or eQuote’s bid price
13 The term cNBBO means the Complex National
Best Bid or Offer and is calculated using the
National Best Bid or Offer (‘‘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).
14 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
15 See Exchange Rule 518.05(f).
16 See Exchange Rule 518.05(f)(3).
17 See Exchange Rule 518.05(f)(4).
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for a buy, or the MPC Price is greater
than the complex order or eQuote’s offer
price for a sell), or if the complex order
is a market order, the complex order or
eQuote will be displayed and/or
executed up to its MPC Price. Any
unexecuted portion of such a complex
order or eQuote: (A) Will be cancelled
if it would otherwise be displayed or
executed at a price that is outside the
MPC Price; and (B) may be subject to the
managed interest process described in
Rule 518(c)(4).18 If the MPC Price is
priced more aggressively than the limit
price of the complex order or eQuote
(i.e., the MPC Price is greater than the
complex order or eQuote’s bid price for
a buy, or the MPC Price is less than the
complex order or eQuote’s offer price
for a sell), the complex order or eQuote
will be displayed and/or executed up to
its limit price. Any unexecuted portion
of such a complex order will be
submitted, if eligible, to the managed
interest process described in Rule
518(c)(4), or placed on the Strategy Book
at its limit price. Any unexecuted
portion of such a complex eQuote will
be cancelled.19
The Exchange now proposes to
initiate a Complex Liquidity Exposure
Auction (‘‘cLEP Auction’’) whenever a
complex order or complex eQuote
would violate its MPC Price. To begin
the cLEP Auction, the System will first
broadcast a liquidity exposure message
to all subscribers of the Exchange’s data
feeds. The liquidity exposure message
will include the symbol, side of the
market, auction start price (MPC Price),
quantity of matched contracts, and the
imbalance quantity. The inclusion of the
quantity of matched contracts at the
price included in the RFR message is
intended to inform participants
considering submitting an RFR
Response the number of contracts for
which there is matched interest, and the
purposes of including the imbalance
quantity in the RFR message is to inform
such participants of the number of
contracts that do not have matched
interest.
The System will initiate a Response
Time Interval, as determined by the
Exchange and communicated via
Regulatory Circular which shall be no
less than 100 milliseconds and no more
than 5,000 milliseconds.20 The
Exchange recently surveyed its
Members and established that Members’
Systems could submit auction responses
18 See
Exchange Rule 518.05(f)(6).
Exchange Rule 518.05(f)(7).
20 The Exchange notes that the current duration
of a cPRIME Auction is 100 milliseconds and the
current duration of a Complex Auction is 200
milliseconds.
in 100 milliseconds or less on average.21
At the conclusion of the Complex
Liquidity Exposure Auction if the
resulting trade price is less aggressive
than the MPC Price, liquidity will be
handled in accordance to Exchange Rule
518(c)(2), Execution of Complex Orders
and Quotes. Orders and quotes executed
in a cLEP Auction will be allocated in
accordance with the Complex Auction
allocation procedures described in
Exchange Rule 518(d)(7), Allocation at
the Conclusion of a Complex Auction.
At the conclusion of a cLEP Auction
the System will calculate the next
potential MPC Price using the auction
start price plus (minus) the next MPC
increment for buy (sell) orders.
Liquidity with an original price equal to
or less aggressive than the new MPC
Price is no longer subject to the MPC
price protection. Liquidity with an
original price more aggressive than the
new MPC Price (or market order
liquidity) is subject to the MPC price
protection feature using the new MPC
Price.
The current rule provides that if the
MPC Price is priced less aggressively
than the limit price of the complex
order or eQuote (i.e., the MPC Price is
less than the complex order or eQuote’s
bid price for a buy, or the MPC Price is
greater than the complex order or
eQuote’s offer price for a sell), or if the
complex order is a market order, the
complex order or eQuote will be
displayed and/or executed up to its
MPC Price. Any unexecuted portion of
such a complex order or eQuote: (A)
Will be cancelled if it would otherwise
be displayed or executed at a price that
is outside the MPC Price, and (B) may
be subject to the managed interest
process described in 518(c)(4).22
The Exchange now proposes to amend
subsection(f)(6)(A) to provide that any
unexecuted portion of such a complex
order or eQuote will be subject to the
cLEP as described in proposed
subsection (e). The Exchange believes it
to be in the best interest of the Member
to seek liquidity via the Complex
Liquidity Exposure Process as described
above, rather than cancel any
unexecuted portion of the order.
The examples below demonstrate an
order subject to the Complex Liquidity
Exposure Process.
Example 1
MPC: $0.25
19 See
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21 See Securities Exchange Release No.80940
(June 15, 2017), 82 FR 28369 (June 21, 2017) (SR–
MIAX–2017–16).
22 See Exchange Rule 518.05(f)(6).
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59437
The Exchange has one order resting
on its Strategy Book: 23 +1 component A,
¥1 component B:
Order 1 is to sell 10 at $1.90
MBBO component A: 4.00(10) × 5.00(10)
MBBO component B: 2.00(10) × 2.50(10)
NBBO component A: 4.05(10) × 4.15(10)
NBBO component B: 2.30(10) × 2.40(10)
cMBBO: 1.50 (10) × 3.00 (10)
cNBBO: 1.65 (10) × 1.85 (10)
The Exchange receives a new order
(Order 2) to buy 20 at $2.25.
Order 2 buys 10 from Order 1 at $1.90
and initiates the Complex Liquidity
Exposure Process: Order 2 reprices to its
protected price of $2.10 (cNBO of 1.85
+ 0.25) and is posted at that price on the
Complex Order Book and the Complex
Liquidity Exposure Process Timer
begins.
During the cLEP Auction the
Exchange receives a new order (Order 3)
to sell 10 at $2.10. This order locks the
current same side Book Price of $2.10
and Order 3 sells 10 to Order 2 at $2.10,
filling Order 2 and ending the Liquidity
Exposure Process.
Example 2
MPC: $0.25
The Exchange has one order resting
on its book in Strategy +1 component A,
¥1 component B:
Order 1 is to sell 10 at $1.90
MBBO component A: 4.00(10) × 5.00(10)
MBBO component B: 2.00(10) × 2.50(10)
NBBO component A: 4.05(10) × 4.15(10)
NBBO component B: 2.30(10) × 2.40(10)
cMBBO: 1.50 (10) × 3.00 (10)
cNBBO: 1.65 (10) × 1.85 (10)
The Exchange receives a new order
(Order 2) to buy 20 at $2.25.
Order 2 buys 10 from Order 1 at $1.90
and initiates the Complex Liquidity
Exposure Process: Order 2 reprices to its
protected price of $2.10 (cNBO of 1.85
+ 0.25) and is posted at that price on the
Strategy Book and the Complex
Liquidity Exposure Process Timer
begins.
No new liquidity arrives during the
Liquidity Exposure Process. At the end
of the timer, Order 2 reprices to its limit
of $2.25 and is posted at that price on
the Strategy Book, ending the Liquidity
Exposure Process.
The Exchange also proposes to make
minor technical changes to
Interpretations and Policies .05 of
Exchange Rule 518 to reflect the
proposed changes described above.
Specifically, the Exchange proposes to
remove subparagraph (f)(4) that
provides that once established, the MPC
23 The term ‘‘Strategy Book’’ is the Exchange’s
electronic book of complex orders and complex
quotes. See Exchange Rule 518(a)(17).
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Price will not change during the life of
the complex order or eQuote. As
described above the MPC Price for
certain liquidities will be subject to a reevaluation process and may change as a
result of such re-evaluation. Also, the
Exchange proposes to amend
subparagraph (6)(A) to remove the
provision that any unexecuted portion
of such a complex order or eQuote will
be cancelled if it would otherwise be
displayed or executed at a price that is
outside the MPC Price, and to state
instead that it will be subject to the
cLEP as described in subsection (e) of
this Rule. Additionally, as a result of the
removal of paragraph (4) it is necessary
to renumber the remaining paragraphs
for consistency within the numbering
hierarchy of the Exchange’s rules.
Therefore current paragraph (5) will be
renumbered as new paragraph (4);
current paragraph (6) will be
renumbered as new paragraph (5); and
current paragraph (7) will be
renumbered as new paragraph (6).
Finally, the Exchange proposes to
amend subsection (b) of Interpretations
and Policies .05 to adopt new rule text
stating that the Calendar Spread
Variance (‘‘CSV’’) price protection
applies only to strategies in Americanstyle option classes. 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. The CSV establishes a minimum
trading price limit for Calendar Spreads.
The maximum possible value of a
Calendar Spread is unlimited, thus there
is no maximum price protection for
Calendar Spreads. The minimum
possible trading price limit of a
Calendar Spread is zero minus the preset value of $.10. This ensures that the
Strategy doesn’t trade more than $.10
away from its intrinsic value. (On a
basic level the price of an Americanstyle option is comprised of two
components; intrinsic value and time
value. If the strike price of a call option
is $5.00 and the stock is priced at $6.00,
there is $1.00 of intrinsic value in the
price of the call option, anything above
$1.00 represents the time value
component.) An American-style option
must be worth at least as much as its
intrinsic value because the holder of the
option can realize the intrinsic value by
immediately exercising the option. In a
Calendar Spread strategy comprised of
American-style options, ceteris paribus,
the far month should be worth more
than the near month due to its having
a greater time to expiration and
therefore a higher time value. As
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European-style options 24 may only be
exercised on their expiration date, the
relationship between the stock price,
option price, and option strike price that
exists for American-style options does
not exist for European-style options.
Therefore the CSV price protection
would be ineffective and will not be
available for strategies comprised of
European-style options.
2. Statutory Basis
The Exchange believes that its
proposed rule change is consistent with
Section 6(b) of the Act 25 in general, and
furthers the objectives of Section 6(b)(5)
of the Act 26 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 believes its proposal to
include the liquidity exposure timer as
a SMAT Event promotes just and
equitable principles of trade, removes
impediments to and perfects the
mechanisms of a free and open market
and a national market system and, in
general, protects investors and the
public interest. SMAT Events represent
temporary interruptions of free trading
in one or more components of a
complex strategy. The temporary
suspension of trading in complex orders
during a SMAT Event is intended to
enhance continuity, trade-through
protection, and orderliness in the
simple market and to protect complex
order components from being executed
at prices that could improve following
a SMAT Event. Once a SMAT Event is
concluded or resolved, the System will
re-evaluate the Strategy Book.27
The Exchange believes that its
proposal to eliminate the Defined Time
Period to allow Complex Auctions 28 to
24 The term ‘‘European-style option’’ means an
option contract that, subject to the provisions of
Rule 700 (relating to the cutoff time for exercise
instructions) and to the Rules of the Clearing
Corporation, can be exercised only on its expiration
date. See Exchange Rule 100.
25 15 U.S.C. 78f(b).
26 15 U.S.C. 78f(b)(5).
27 See Exchange Rule 518, Interpretations and
Policies .05(f)(2)(i).
28 Complex Auctions are described in Exchange
Rule 518(d) and are separate and distinct from
cPRIME Auctions which are described in
Interpretations and Policies .12 of Exchange Rule
515A, MIAX Price Improvement Mechanism
(‘‘PRIME’’) and PRIME Solicitation Mechanism.
PO 00000
Frm 00085
Fmt 4703
Sfmt 4703
occur throughout the trading session
removes impediments to and perfects
the mechanism of a free and open
market and a national market system
and, in general, protects investors and
the public interest by removing an
unnecessary barrier which prevented
Complex Auctions from occurring with
less than two seconds left in the trading
session. The current duration of a
Complex Auction duration is just 200
milliseconds. The Exchange believes it
is in the best interest of the investor to
allow for opportunities for price
improvement throughout the entire
trading session. In the event that a
Member initiates a Complex Auction
without enough time for Members to
respond, the initiating Member is no
worse off under the proposed rule than
the Member would have been under the
current rule which prevents the Member
from even attempting to initiate a
Complex Auction with less than two
seconds left in the trading session.
The Exchange also believes its
proposal to adopt a Complex Liquidity
Exposure Process 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. The Complex
Liquidity Exposure Process provides an
additional opportunity for price
discovery for those orders that would
trade through their MPC Price. The
Exchange believes its proposal promotes
just and equitable principles of trade as
it is in the best interest of the Member
to seek liquidity for the unexecuted
portion of the order which exceeds the
order’s MPC Price rather than to simply
cancel the unexecuted portion back to
the Member.29
The Exchange also believes that its
proposal to amend Interpretations and
Policies .05(f) to reflect the changes
resulting from the introduction of the
Complex Liquidity Exposure Process
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
clearly describing the operation of the
Exchange’s functionality in the
Exchange’s rules. The Exchange believes
it is in the interest of investors and the
public to accurately describe the
behavior of the Exchange’s System in its
29 The Exchange notes that Members who believe
that an execution has occurred at an erroneous
price may avail themselves of the protections
provided in Exchange Rule 521, Nullification and
Adjustment of Options Transactions Including
Obvious Errors.
E:\FR\FM\23NON1.SGM
23NON1
Federal Register / Vol. 83, No. 226 / Friday, November 23, 2018 / Notices
rules as this information may be used by
investors to make decisions concerning
the submission of their orders. Further,
the Exchange’s proposal to make nonsubstantive changes to re-number
certain paragraphs for internal
consistency within the rule benefits
investors and the public interest by
providing clarity and accuracy in the
Exchange’s rules.
Finally, the Exchange believes its
proposal to clarify that the Calendar
Spread Variance (CSV) price protection
is available only for American-style
options 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, and protects investors and the
public interest by providing clarity and
precision in the Exchange’s rules. The
Exchange believes it is in the interest of
investors and the public to accurately
describe the behavior of the Exchange’s
System in its rules as this information
may be used by investors to make
decisions concerning the submission of
their orders. Transparency and clarity
are consistent with the Act because it
removes impediments to and helps
perfect the mechanism of a free and
open market and a national market
system, and, in general, protects
investors and the public interest by
accurately describing the behavior of the
Exchange’s System. In particular, the
Exchange believes that the proposed
rule change 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.
amozie on DSK3GDR082PROD with NOTICES1
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
The Exchange does not believe the
proposed rule change will impose any
burden on inter-market competition.
The Exchange’s proposal seeks to
enhance complex order trading on the
Exchange, and may potentially enhance
competition among the various markets
for complex order execution, potentially
resulting in more active complex order
trading on all exchanges.
Additionally, the Exchange does not
believe the proposed rule change will
impose any burden on intra-market
competition as the Rules apply equally
to all Members of the Exchange.
VerDate Sep<11>2014
18:33 Nov 21, 2018
Jkt 247001
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
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
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–2018–36 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–2018–36. 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
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
Fmt 4703
Sfmt 4703
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
Eduardo A. Aleman,
Assistant Secretary.
BILLING CODE 8011–01–P
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:
Frm 00086
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
a.m. and 3 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–
2018–36, and should be submitted on or
before December 14, 2018.
[FR Doc. 2018–25470 Filed 11–21–18; 8:45 am]
IV. Solicitation of Comments
PO 00000
59439
SECURITIES AND EXCHANGE
COMMISSION
Proposed Collection; Comment
Request
Upon Written Request Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736.
Extension:
Form 8–A; SEC File No. 270–054; OMB
Control No. 3235–0056.
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the collection of information
summarized below. The Commission
plans to submit this existing collection
of information to the Office of
Management and Budget for extension
and approval.
Form 8–A (17 CFR 249.208a) is a
registration statement used to register a
class of securities under Section 12(b) or
Section 12(g) of the Securities Exchange
Act of 1934 (15 U.S.C. 78l(b) and 78l(g))
(‘‘Exchange Act’’). Section 12(a) (15
U.S.C. 78l(a)) of the Exchange Act
makes it unlawful for any member,
broker, or dealer to effect any
transaction in any security (other than
an exempted security) on a national
securities exchange unless such security
has been registered under the Exchange
Act (15 U.S.C. 78a et seq.). Exchange
30 17
E:\FR\FM\23NON1.SGM
CFR 200.30–3(a)(12).
23NON1
]]>Agencies
[Federal Register Volume 83, Number 226 (Friday, November 23, 2018)]
[Notices]
[Pages 59435-59439]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-25470]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84613; File No. SR-MIAX-2018-36]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing of a Proposed Rule Change To Amend
Exchange Rule 518, Complex Orders
November 16, 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 November 9, 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 [sic]
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 (i) adopt a new Simple Market Auction or Timer (``SMAT'') Event
(defined below); (ii) amend the Response Time Interval and Defined Time
Period for Complex Auctions (each defined below); (iii) adopt a new
Complex Liquidity Exposure Process (``cLEP''); (iv) make minor changes
to the Complex MIAX Options Price Collar Protection; and (v) clarify
that the Calendar Spread Variance (``CSV'') price protection applies
only to strategies in American-style option \3\ classes.
---------------------------------------------------------------------------
\3\ The term ``American-style option'' means an option contract
that, subject to the provisions of Rule 700 (relating to the cutoff
time for exercise instructions) and to the Rules of the Clearing
Corporation, can be exercised on any business day prior to its
expiration date and on its expiration date. See Exchange Rule 100.
---------------------------------------------------------------------------
Specifically, the Exchange proposes to amend subsection (a)(16), to
adopt a new Simple Market Auction or Timer (SMAT) Event. A SMAT Event
is
[[Page 59436]]
defined as any one of the following; a PRIME Auction (pursuant to Rule
515A),\4\ a Route Timer (pursuant to Rule 529),\5\ or a liquidity
refresh pause (pursuant to Rule 515(c)(2).\6\ The Exchange now proposes
to adopt new rule text to add the liquidity exposure process timer
(pursuant to proposed Rule 515(c)(2)(i)) as a SMAT Event. The liquidity
exposure process timer, which is not to exceed three (3) seconds, is
engaged as part of the liquidity exposure process for orders in
Proprietary Products \7\ that would be posted, managed, or would trade
at a price more aggressive than the order's protected price. If a SMAT
Event exists during free trading for an option component of a complex
strategy, trading in the complex strategy will be suspended.\8\ The
Exchange also proposes to correct an internal cross reference in
subsection (a)(16)(iii) from Rule 515(c)(2) to Rule 515(c)(3) to
reflect the new citation under a currently pending proposed rule
change. The purpose of adding the liquidity exposure process timer as a
SMAT Event is to enhance the continuity, trade-through protection, and
orderliness in the simple market and to protect complex order
components from being executed at prices that could improve following a
SMAT Event.
---------------------------------------------------------------------------
\4\ The MIAX Price Improvement Mechanism (``PRIME'') is a
process by which a Member may electronically submit for execution
(``Auction'') an order it represents as agent (``Agency Order'')
against principal interest, and/or an Agency Order against solicited
interest. See Exchange Rule 515A.
\5\ The Exchange may automatically route orders to other
exchanges under certain circumstances (``Routing Services''). In
connection with such services, one of two Route Mechanisms,
Immediate Routing or the Route Timer, will be used when a Public
Customer order is received and/or reevaluated that is both routable
and marketable against the opposite side ABBO upon receipt and the
Exchange's disseminated market is not equal to the opposite side
ABBO, or is equal to the opposite side ABBO and of insufficient size
to satisfy the order. For those initiating Public Customer orders
that are routable, but do not meet the additional criteria for
Immediate Routing, the System will implement a Route Timer not to
exceed one second (the duration of the Timer will be announced to
Members through a Regulatory Circular), in order to allow Market
Makers and other participants an opportunity to interact with the
initiating order. See Exchange Rule 529.
\6\ The System will pause the market for a time period not to
exceed one second to allow additional orders or quotes refreshing
the liquidity at the MBBO to be received (``liquidity refresh
pause'') when at the time of receipt or reevaluation of the
initiating order by the System: (A) Either the initiating order is a
limit order whose limit price crosses the NBBO or the initiating
order is a market order, and the limit order or market order could
only be partially executed; (B) a Market Maker quote was all or part
of the MBBO when the MBBO is alone at the NBBO; and (C) and the
Market Maker quote was exhausted. See Exchange Rule 515(c)(2).
\7\ The term ``Proprietary Product'' means a class of options
that is listed exclusively on the Exchange and any of its
affiliates. See proposed Exchange Rule 100.
\8\ See Exchange Rule 518, Interpretations and Policies
.05(e)(2)(i).
---------------------------------------------------------------------------
Additionally, the Exchange proposes to amend subsection (d)(3)
which describes the Response Time Interval of a Complex Auction, which
is a single-sided auction. The Exchange offers Complex Auction
functionality as described in Exchange Rule 518 \9\ and also a cPRIME
process, which is unaffected by this proposal, as described in Exchange
Rule 515A.12.
---------------------------------------------------------------------------
\9\ Certain option classes, as determined by the Exchange and
communicated to Members via Regulatory Circular, will be eligible to
participate in a Complex Auction (an ``eligible class''). Upon
evaluation as set forth in subparagraph (c)(5) of Rule 518, the
Exchange may determine to automatically submit a Complex Auction-
eligible order into a Complex Auction. Upon entry into the System or
upon evaluation of a complex order resting at the top of the
Strategy Book, Complex Auction-eligible orders may be subject to an
automated request for responses (``RFR''). See Exchange Rule 518(d).
---------------------------------------------------------------------------
Currently, Rule 518(d)(3) provides that the Response Time Interval
means the period of time during which responses to the Request for
Responses (``RFR'') message may be entered. The Rule further provides
that the Exchange determines the duration of the Response Time
Interval, which shall not exceed 500 milliseconds, and communicates it
to Members via Regulatory Circular.\10\ The Exchange now proposes to
adopt new rule text to state that, ``the end of the trading session
will also serve as the end of the Response Time Interval for a Complex
Auction still in progress.'' In connection with this proposed change
the Exchange proposes to amend subsection (d)(2) to remove the
reference to the Defined Time Period for a Complex Auction. The Defined
Time Period represents the period of time preceding the end of a
trading session during which a Complex Auction will not be initiated.
Currently, the Defined Time Period is 2,000 milliseconds \11\ while the
duration of a Complex Auction is just 200 milliseconds. The Exchange
believes that removing this restriction will allow for increased price
improvement opportunities. The Exchange also proposes to amend
subsection (c)(2)(i) to remove the restriction that a cAOA order \12\
received during the Defined Time Period will not initiate a new Complex
Auction. Under the current rules there is no opportunity at all for
price improvement via a Complex Auction when there is less than two
seconds left in the trading session. The Exchange believes that
removing the Defined Time Period and allowing the end of the trading
session to serve as the end of the Response Time Interval in the
limited instance that a Complex Auction is initiated with less than 200
milliseconds left in the trading session will allow for more
opportunities for price improvement via the auction process. The
Exchange warrants that is has the System capability to conduct auctions
and execute transactions in a timely fashion at any time during the
trading session.
---------------------------------------------------------------------------
\10\ The Exchange notes that the Response Time Interval is
currently set to 200 milliseconds. See MIAX Regulatory Circular
2016-46.
\11\ See MIAX Regulatory Circular 2016-63.
\12\ A ``Complex Auction-on-Arrival'' or ``cAOA'' order is a
complex order designated to be placed into a Complex Auction upon
receipt or upon evaluation . See Exchange Rule 518(b)(2).
---------------------------------------------------------------------------
The Exchange also proposes to adopt new subsection (e) to describe
a Complex Liquidity Exposure Process (``cLEP'') for complex orders and
complex eQuotes that would violate their Complex MIAX Price Collar
(``MPC'') price . The MPC price protection feature is an Exchange-wide
mechanism under which a complex order or complex eQuote to sell will
not be displayed or executed at a price that is lower than the opposite
side cNBBO \13\ bid at the time the MPC is assigned by the System \14\
(i.e., upon receipt or upon opening) by more than a specific dollar
amount expressed in $0.01 increments (the ``MPC Setting''), and under
which a complex order or eQuote to buy will not be displayed or
executed at a price that is higher than the opposite side cNBBO offer
at the time the MPC is assigned by the System by more than the MPC
Setting (each the ``MPC Price'').\15\ The MPC Price is established (i)
upon receipt of the complex order or eQuote during free trading, or
(ii) if the complex order or eQuote is not received during free
trading, at the opening (or reopening following a halt) of trading in
the complex strategy; or (iii) upon evaluation of the Strategy Book by
the System when a wide market condition, as described in
Interpretations and Policies .05(e)(1) of this Rule, no longer
exists.\16\ Once established the MPC Price will not change during the
life of the complex order or eQuote.\17\ If the MPC Price is priced
less aggressively than the limit price of the complex order or eQuote
(i.e., the MPC Price is less than the complex order or eQuote's bid
price
[[Page 59437]]
for a buy, or the MPC Price is greater than the complex order or
eQuote's offer price for a sell), or if the complex order is a market
order, the complex order or eQuote will be displayed and/or executed up
to its MPC Price. Any unexecuted portion of such a complex order or
eQuote: (A) Will be cancelled if it would otherwise be displayed or
executed at a price that is outside the MPC Price; and (B) may be
subject to the managed interest process described in Rule
518(c)(4).\18\ If the MPC Price is priced more aggressively than the
limit price of the complex order or eQuote (i.e., the MPC Price is
greater than the complex order or eQuote's bid price for a buy, or the
MPC Price is less than the complex order or eQuote's offer price for a
sell), the complex order or eQuote will be displayed and/or executed up
to its limit price. Any unexecuted portion of such a complex order will
be submitted, if eligible, to the managed interest process described in
Rule 518(c)(4), or placed on the Strategy Book at its limit price. Any
unexecuted portion of such a complex eQuote will be cancelled.\19\
---------------------------------------------------------------------------
\13\ The term cNBBO means the Complex National Best Bid or Offer
and is calculated using the National Best Bid or Offer (``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).
\14\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\15\ See Exchange Rule 518.05(f).
\16\ See Exchange Rule 518.05(f)(3).
\17\ See Exchange Rule 518.05(f)(4).
\18\ See Exchange Rule 518.05(f)(6).
\19\ See Exchange Rule 518.05(f)(7).
---------------------------------------------------------------------------
The Exchange now proposes to initiate a Complex Liquidity Exposure
Auction (``cLEP Auction'') whenever a complex order or complex eQuote
would violate its MPC Price. To begin the cLEP Auction, the System will
first broadcast a liquidity exposure message to all subscribers of the
Exchange's data feeds. The liquidity exposure message will include the
symbol, side of the market, auction start price (MPC Price), quantity
of matched contracts, and the imbalance quantity. The inclusion of the
quantity of matched contracts at the price included in the RFR message
is intended to inform participants considering submitting an RFR
Response the number of contracts for which there is matched interest,
and the purposes of including the imbalance quantity in the RFR message
is to inform such participants of the number of contracts that do not
have matched interest.
The System will initiate a Response Time Interval, as determined by
the Exchange and communicated via Regulatory Circular which shall be no
less than 100 milliseconds and no more than 5,000 milliseconds.\20\ The
Exchange recently surveyed its Members and established that Members'
Systems could submit auction responses in 100 milliseconds or less on
average.\21\ At the conclusion of the Complex Liquidity Exposure
Auction if the resulting trade price is less aggressive than the MPC
Price, liquidity will be handled in accordance to Exchange Rule
518(c)(2), Execution of Complex Orders and Quotes. Orders and quotes
executed in a cLEP Auction will be allocated in accordance with the
Complex Auction allocation procedures described in Exchange Rule
518(d)(7), Allocation at the Conclusion of a Complex Auction.
---------------------------------------------------------------------------
\20\ The Exchange notes that the current duration of a cPRIME
Auction is 100 milliseconds and the current duration of a Complex
Auction is 200 milliseconds.
\21\ See Securities Exchange Release No.80940 (June 15, 2017),
82 FR 28369 (June 21, 2017) (SR-MIAX-2017-16).
---------------------------------------------------------------------------
At the conclusion of a cLEP Auction the System will calculate the
next potential MPC Price using the auction start price plus (minus) the
next MPC increment for buy (sell) orders. Liquidity with an original
price equal to or less aggressive than the new MPC Price is no longer
subject to the MPC price protection. Liquidity with an original price
more aggressive than the new MPC Price (or market order liquidity) is
subject to the MPC price protection feature using the new MPC Price.
The current rule provides that if the MPC Price is priced less
aggressively than the limit price of the complex order or eQuote (i.e.,
the MPC Price is less than the complex order or eQuote's bid price for
a buy, or the MPC Price is greater than the complex order or eQuote's
offer price for a sell), or if the complex order is a market order, the
complex order or eQuote will be displayed and/or executed up to its MPC
Price. Any unexecuted portion of such a complex order or eQuote: (A)
Will be cancelled if it would otherwise be displayed or executed at a
price that is outside the MPC Price, and (B) may be subject to the
managed interest process described in 518(c)(4).\22\
---------------------------------------------------------------------------
\22\ See Exchange Rule 518.05(f)(6).
---------------------------------------------------------------------------
The Exchange now proposes to amend subsection(f)(6)(A) to provide
that any unexecuted portion of such a complex order or eQuote will be
subject to the cLEP as described in proposed subsection (e). The
Exchange believes it to be in the best interest of the Member to seek
liquidity via the Complex Liquidity Exposure Process as described
above, rather than cancel any unexecuted portion of the order.
The examples below demonstrate an order subject to the Complex
Liquidity Exposure Process.
Example 1
MPC: $0.25
The Exchange has one order resting on its Strategy Book: \23\ +1
component A, -1 component B:
---------------------------------------------------------------------------
\23\ The term ``Strategy Book'' is the Exchange's electronic
book of complex orders and complex quotes. See Exchange Rule
518(a)(17).
Order 1 is to sell 10 at $1.90
MBBO component A: 4.00(10) x 5.00(10)
MBBO component B: 2.00(10) x 2.50(10)
NBBO component A: 4.05(10) x 4.15(10)
NBBO component B: 2.30(10) x 2.40(10)
cMBBO: 1.50 (10) x 3.00 (10)
cNBBO: 1.65 (10) x 1.85 (10)
The Exchange receives a new order (Order 2) to buy 20 at $2.25.
Order 2 buys 10 from Order 1 at $1.90 and initiates the Complex
Liquidity Exposure Process: Order 2 reprices to its protected price of
$2.10 (cNBO of 1.85 + 0.25) and is posted at that price on the Complex
Order Book and the Complex Liquidity Exposure Process Timer begins.
During the cLEP Auction the Exchange receives a new order (Order 3)
to sell 10 at $2.10. This order locks the current same side Book Price
of $2.10 and Order 3 sells 10 to Order 2 at $2.10, filling Order 2 and
ending the Liquidity Exposure Process.
Example 2
MPC: $0.25
The Exchange has one order resting on its book in Strategy +1
component A, -1 component B:
Order 1 is to sell 10 at $1.90
MBBO component A: 4.00(10) x 5.00(10)
MBBO component B: 2.00(10) x 2.50(10)
NBBO component A: 4.05(10) x 4.15(10)
NBBO component B: 2.30(10) x 2.40(10)
cMBBO: 1.50 (10) x 3.00 (10)
cNBBO: 1.65 (10) x 1.85 (10)
The Exchange receives a new order (Order 2) to buy 20 at $2.25.
Order 2 buys 10 from Order 1 at $1.90 and initiates the Complex
Liquidity Exposure Process: Order 2 reprices to its protected price of
$2.10 (cNBO of 1.85 + 0.25) and is posted at that price on the Strategy
Book and the Complex Liquidity Exposure Process Timer begins.
No new liquidity arrives during the Liquidity Exposure Process. At
the end of the timer, Order 2 reprices to its limit of $2.25 and is
posted at that price on the Strategy Book, ending the Liquidity
Exposure Process.
The Exchange also proposes to make minor technical changes to
Interpretations and Policies .05 of Exchange Rule 518 to reflect the
proposed changes described above. Specifically, the Exchange proposes
to remove subparagraph (f)(4) that provides that once established, the
MPC
[[Page 59438]]
Price will not change during the life of the complex order or eQuote.
As described above the MPC Price for certain liquidities will be
subject to a re-evaluation process and may change as a result of such
re-evaluation. Also, the Exchange proposes to amend subparagraph (6)(A)
to remove the provision that any unexecuted portion of such a complex
order or eQuote will be cancelled if it would otherwise be displayed or
executed at a price that is outside the MPC Price, and to state instead
that it will be subject to the cLEP as described in subsection (e) of
this Rule. Additionally, as a result of the removal of paragraph (4) it
is necessary to renumber the remaining paragraphs for consistency
within the numbering hierarchy of the Exchange's rules. Therefore
current paragraph (5) will be renumbered as new paragraph (4); current
paragraph (6) will be renumbered as new paragraph (5); and current
paragraph (7) will be renumbered as new paragraph (6).
Finally, the Exchange proposes to amend subsection (b) of
Interpretations and Policies .05 to adopt new rule text stating that
the Calendar Spread Variance (``CSV'') price protection applies only to
strategies in American-style option classes. 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. The CSV
establishes a minimum trading price limit for Calendar Spreads. The
maximum possible value of a Calendar Spread is unlimited, thus there is
no maximum price protection for Calendar Spreads. The minimum possible
trading price limit of a Calendar Spread is zero minus the pre-set
value of $.10. This ensures that the Strategy doesn't trade more than
$.10 away from its intrinsic value. (On a basic level the price of an
American-style option is comprised of two components; intrinsic value
and time value. If the strike price of a call option is $5.00 and the
stock is priced at $6.00, there is $1.00 of intrinsic value in the
price of the call option, anything above $1.00 represents the time
value component.) An American-style option must be worth at least as
much as its intrinsic value because the holder of the option can
realize the intrinsic value by immediately exercising the option. In a
Calendar Spread strategy comprised of American-style options, ceteris
paribus, the far month should be worth more than the near month due to
its having a greater time to expiration and therefore a higher time
value. As European-style options \24\ may only be exercised on their
expiration date, the relationship between the stock price, option
price, and option strike price that exists for American-style options
does not exist for European-style options. Therefore the CSV price
protection would be ineffective and will not be available for
strategies comprised of European-style options.
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\24\ The term ``European-style option'' means an option contract
that, subject to the provisions of Rule 700 (relating to the cutoff
time for exercise instructions) and to the Rules of the Clearing
Corporation, can be exercised only on its expiration date. See
Exchange Rule 100.
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2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with Section 6(b) of the Act \25\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \26\ in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanisms of a free and open market and a national market
system and, in general, to protect investors and the public interest.
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\25\ 15 U.S.C. 78f(b).
\26\ 15 U.S.C. 78f(b)(5).
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The Exchange believes its proposal to include the liquidity
exposure timer as a SMAT Event promotes just and equitable principles
of trade, removes impediments to and perfects the mechanisms of a free
and open market and a national market system and, in general, protects
investors and the public interest. SMAT Events represent temporary
interruptions of free trading in one or more components of a complex
strategy. The temporary suspension of trading in complex orders during
a SMAT Event is intended to enhance continuity, trade-through
protection, and orderliness in the simple market and to protect complex
order components from being executed at prices that could improve
following a SMAT Event. Once a SMAT Event is concluded or resolved, the
System will re-evaluate the Strategy Book.\27\
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\27\ See Exchange Rule 518, Interpretations and Policies
.05(f)(2)(i).
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The Exchange believes that its proposal to eliminate the Defined
Time Period to allow Complex Auctions \28\ to occur throughout the
trading session removes impediments to and perfects the mechanism of a
free and open market and a national market system and, in general,
protects investors and the public interest by removing an unnecessary
barrier which prevented Complex Auctions from occurring with less than
two seconds left in the trading session. The current duration of a
Complex Auction duration is just 200 milliseconds. The Exchange
believes it is in the best interest of the investor to allow for
opportunities for price improvement throughout the entire trading
session. In the event that a Member initiates a Complex Auction without
enough time for Members to respond, the initiating Member is no worse
off under the proposed rule than the Member would have been under the
current rule which prevents the Member from even attempting to initiate
a Complex Auction with less than two seconds left in the trading
session.
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\28\ Complex Auctions are described in Exchange Rule 518(d) and
are separate and distinct from cPRIME Auctions which are described
in Interpretations and Policies .12 of Exchange Rule 515A, MIAX
Price Improvement Mechanism (``PRIME'') and PRIME Solicitation
Mechanism.
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The Exchange also believes its proposal to adopt a Complex
Liquidity Exposure Process 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. The Complex Liquidity Exposure
Process provides an additional opportunity for price discovery for
those orders that would trade through their MPC Price. The Exchange
believes its proposal promotes just and equitable principles of trade
as it is in the best interest of the Member to seek liquidity for the
unexecuted portion of the order which exceeds the order's MPC Price
rather than to simply cancel the unexecuted portion back to the
Member.\29\
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\29\ The Exchange notes that Members who believe that an
execution has occurred at an erroneous price may avail themselves of
the protections provided in Exchange Rule 521, Nullification and
Adjustment of Options Transactions Including Obvious Errors.
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The Exchange also believes that its proposal to amend
Interpretations and Policies .05(f) to reflect the changes resulting
from the introduction of the Complex Liquidity Exposure Process
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 clearly describing the operation of the
Exchange's functionality in the Exchange's rules. The Exchange believes
it is in the interest of investors and the public to accurately
describe the behavior of the Exchange's System in its
[[Page 59439]]
rules as this information may be used by investors to make decisions
concerning the submission of their orders. Further, the Exchange's
proposal to make non-substantive changes to re-number certain
paragraphs for internal consistency within the rule benefits investors
and the public interest by providing clarity and accuracy in the
Exchange's rules.
Finally, the Exchange believes its proposal to clarify that the
Calendar Spread Variance (CSV) price protection is available only for
American-style options 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, and protects
investors and the public interest by providing clarity and precision in
the Exchange's rules. The Exchange believes it is in the interest of
investors and the public to accurately describe the behavior of the
Exchange's System in its rules as this information may be used by
investors to make decisions concerning the submission of their orders.
Transparency and clarity are consistent with the Act because it removes
impediments to and helps perfect the mechanism of a free and open
market and a national market system, and, in general, protects
investors and the public interest by accurately describing the behavior
of the Exchange's System. In particular, the Exchange believes that the
proposed rule change 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.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
The Exchange does not believe the proposed rule change will impose
any burden on inter-market competition. The Exchange's proposal seeks
to enhance complex order trading on the Exchange, and may potentially
enhance competition among the various markets for complex order
execution, potentially resulting in more active complex order trading
on all exchanges.
Additionally, the Exchange does not believe the proposed rule
change will impose any burden on intra-market competition as the Rules
apply equally to all Members of the Exchange.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be 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-2018-36 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-2018-36. 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 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 a.m. and 3
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-2018-36, and should be submitted on
or before December 14, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-25470 Filed 11-21-18; 8:45 am]
BILLING CODE 8011-01-P
