Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 518, Complex Orders, 10848-10854 [2019-05461]
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Federal Register / Vol. 84, No. 56 / Friday, March 22, 2019 / Notices
transparency concerning the operation
of Exchange functionality. This
provision ensures that a cPRIME Agency
Order will always receive the best price
on the Exchange while simultaneously
preserving the integrity of the simple
market.
Additionally, the Exchange believes
that although MIAX Emerald rules may,
in certain instances, intentionally differ
from MIAX Options rules, the proposed
changes will promote uniformity with
MIAX Options with respect to rules that
are intended to be identical. MIAX
Emerald and MIAX Options may have a
number of Members in common, and
where feasible the Exchange intends to
implement similar behavior to provide
consistency between MIAX Options and
MIAX Emerald so as to avoid confusion
among Members.
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
proposed rule change is intended to
promote competition by improving the
efficiency of handling cPRIME Agency
Orders on the Exchange. The Exchange
believes that this enhances intermarket
competition by enabling the Exchange
to compete for this type of order flow
with other exchanges that have similar
rules and functionality in place.
The Exchange does not believe the
proposal will impose any burden on
intra-market competition as the
Exchange’s 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
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 26 and Rule 19b–4(f)(6) 27
thereunder.
26 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
27 17
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At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
EMERALD–2019–12 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–EMERALD–2019–12. 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
10:00 a.m. and 3:00 p.m. Copies of the
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.
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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–EMERALD–2019–12 and
should be submitted on or before April
12, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–05467 Filed 3–21–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85345; File No. SR–
EMERALD–2019–13]
Self-Regulatory Organizations; MIAX
Emerald, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Exchange
Rule 518, Complex Orders
March 18, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 6,
2019, MIAX Emerald, LLC (‘‘MIAX
Emerald’’ 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.
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 implement identical
functionality currently operative on one
of the Exchange’s affiliates, Miami
International Securities Exchange, LLC
(‘‘MIAX Options’’).
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/emerald at MIAX Emerald’s
28 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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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
implement stock-option trading on the
Exchange in an identical fashion, and
with an identical rule, as MIAX
Options.3 MIAX Emerald commenced
operations as a national securities
exchange registered under Section 6 of
the Act 4 on March 1, 2019. As
described more fully in MIAX Emerald’s
Form 1 application,5 the Exchange is an
affiliate of Miami International
Securities Exchange, LLC (‘‘MIAX
Options’’) and MIAX PEARL, LLC
(‘‘MIAX PEARL’’). MIAX Emerald Rules,
in their current form, were filed as
Exhibit B to its Form 1 on August 16,
2018. At that time stock-option orders as
described in MIAX Options Rule 518
were being implemented on the MIAX
Options Exchange and MIAX Options
Rule 518 was undergoing revisions to
support the implementation and trading
of stock-option orders, therefore the
revised MIAX Options rule 6 was not
included in the Exchange’s Form 1
filing. In order to ensure consistent
operation of both MIAX Emerald and
MIAX Options through having
consistent rules, the Exchange now
proposes to amend the MIAX Emerald
Rule as described below.
3 See
MIAX Options Exchange Rule 518.
U.S.C. 78f.
5 See Securities Exchange Act Release No. 84891
(December 20, 2018), 83 FR 67421 (December 28,
2018) (File No. 10–233) (order approving
application of MIAX Emerald, LLC for registration
as a national securities exchange.)
6 See Securities Exchange Act Release No. 83726
(July 27, 2018), 83 FR 37849 (August 2, 2018) (SR–
MIAX–2018–16).
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Proposal
Complex orders began trading on
MIAX Options on October 24, 2016.7 In
its rule filing to establish the trading of
complex orders, MIAX Options adopted
rules for handling stock-option orders.8
MIAX Options filed SR–MIAX–2018–
16 9 to update its rule text regarding
stock-option orders in connection with
the launch of such orders on the MIAX
Options Exchange. MIAX Emerald now
proposes to amend Exchange Rule 518,
to adopt the identical provisions from
the MIAX Options rulebook for
handling stock-option orders that are
currently in place on MIAX Options, in
order to align stock-option trading on
MIAX Emerald to MIAX Options.
In particular, the Exchange is
proposing to (i) amend the definition of
complex orders to add a stock-option
order definition; (ii) amend the
definition of Displayed Complex MIAX
Emerald Best Bid or Offer (‘‘dcEBBO’’)
and Implied Complex MIAX Emerald
Best Bid or Offer (‘‘icEBBO’’) to add the
stock-option order provision; (iii)
amend subsection (b)(3) Complex Order
Priority, to describe order priority
handling for a stock-option order that
has only one leg; (iv) adopt
Interpretation and Policy .01 to Rule 518
titled, Special Provisions Applicable to
Stock-Option Orders, to provide
additional detail regarding the trading
and regulation of stock-option orders on
the Exchange; and (v) make certain
minor clarifying edits to existing rule
text.
A ‘‘complex order’’ is currently
defined in Exchange Rule 518 as any
order involving the concurrent purchase
and/or sale of two or more different
options in the same underlying security
(the ‘‘legs’’ or ‘‘components’’ of the
complex order),10 for the same account,
in a ratio that is equal to or greater than
one-to-three (.333) and less than or
equal to three-to-one (3.00) and for the
purposes of executing a particular
investment strategy. Mini-options may
only be part of a complex order that
includes other mini-options.11 Only
those complex orders in the classes
designated by the Exchange and
7 See MIAX Options Regulatory Circular 2016–43,
October 20, 2016.
8 See Securities Exchange Act Release No. 79072
(October 7, 2016), 81 FR 71131 (October 14, 2016)
(SR–MIAX–2016–26).
9 See supra note 6.
10 The different options in the same underlying
security that comprise a particular complex order
are referred to as the ‘‘legs’’ or ‘‘components’’ of the
complex order throughout this proposal.
11 This definition is consistent with other options
exchanges. See e.g., CBOE Rule 6.53C(a)(1). See also
PHLX Rule 1098(a)(i); NYSE MKT Rule 900.3NY(e);
and BOX Rule 7240(a)(5).
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10849
communicated to Members 12 via
Regulatory Circular with no more than
the applicable number of legs, as
determined by the Exchange on a classby-class basis and communicated to
Members via Regulatory Circular, are
eligible for processing.
The Exchange now proposes to
update the definition of a complex order
to include stock-option orders. The
proposed text will state that, a complex
order can also be a ‘‘stock-option order’’
as described further, and subject to the
limitations set forth in proposed
Interpretation and Policy .01 of Rule
518. A stock-option order is an order to
buy or sell a stated number of units of
an underlying security (stock or
Exchange Traded Fund Share (‘‘ETF’’))
or a security convertible into the
underlying stock (‘‘convertible
security’’) coupled with the purchase or
sale of options contract(s) on the
opposite side of the market representing
either (i) the same number of units of
the underlying security or convertible
security, or (ii) the number of units of
the underlying stock necessary to create
a delta neutral position, but in no case
in a ratio greater than eight-to-one
(8.00), where the ratio represents the
total number of units of the underlying
security or convertible security in the
option leg to the total number of units
of the underlying security or convertible
security in the stock leg. Only those
stock-option orders in the classes
designated by the Exchange and
communicated to Members via
Regulatory Circular with no more than
the applicable number of legs as
determined by the Exchange on a classby-class basis and communicated to
Members via Regulatory Circular, are
eligible for processing.
The Displayed Complex MIAX
Emerald Best Bid or Offer (‘‘dcEBBO’’)
is calculated using the best displayed
price for each component of a complex
strategy from the Simple Order Book.
The Exchange proposes to update the
definition of the dcEBBO to include
stock-option orders and proposes to
append the following sentence to the
existing definition, ‘‘For stock-option
orders, the dcEBBO for a complex
strategy will be calculated using the
Exchange’s best displayed bid or offer in
the individual option component(s) and
the NBBO in the stock component.’’
The Implied Complex MIAX Emerald
Best Bid or Offer (‘‘icEBBO’’) is a
calculation that uses the best price from
the Simple Order Book for each
12 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.
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component of a complex strategy
including displayed and non-displayed
trading interest. The Exchange now
proposes to update the definition of the
icEBBO to include stock-option orders
by appending the following sentence to
the end of the current definition, ‘‘For
stock-option orders, the icEBBO for a
complex strategy will be calculated
using the best price (whether displayed
or non-displayed) on the Simple Order
Book 13 in the individual option
component(s), and the national best bid
or offer (‘‘NBBO’’) in the stock
component.’’
Current Rule 518(c), Trading of
Complex Orders and Quotes, describes
the manner in which complex orders
will be handled and traded on the
Exchange. The Exchange will determine
and communicate to Members via
Regulatory Circular which complex
order origin types (i.e., non-brokerdealer customers, broker-dealers that are
not Market Makers on an options
exchange, and/or Market Makers on an
options exchange) are eligible for entry
onto the Strategy Book.14 The rule also
states that complex orders will be
subject to all other Exchange Rules that
pertain to orders generally, unless
otherwise provided in Rule 518(b).
Current Rule 518(c)(2)(iii), Legging,
provides that complex orders up to a
maximum number of legs (determined
by the Exchange on a class-by-class
basis as either two or three legs and
communicated to Members via
Regulatory Circular) may be
automatically executed against bids and
offers on the Simple Order Book for the
individual legs of the complex order
(‘‘Legging’’), provided that the execution
price of each component is not executed
at a price that is outside of the NBBO.
The current rule also provides that
legging is not available for cAOC orders,
complex Standard quotes, or complex
eQuotes. The Exchange now proposes to
amend this sentence to provide that
legging is not available for cAOC orders,
complex Standard quotes, complex
eQuotes, or stock-option orders.
Current Rule 518(c)(3), Complex
Order Priority, describes how the
System 15 will establish priority for
13 The ‘‘Simple Order Book’’ is the Exchange’s
regular electronic book of orders and quotes. See
Exchange Rule 518(a)(15).
14 See Rule 518(c). See also CBOE Rule
6.53C(c)(i), which states that CBOE will determine
which classes and which complex order origin
types (i.e., non-broker-dealer public customer,
broker-dealers that are not Market-Makers or
specialists on an options exchange, and/or MarketMakers or specialists on an options exchange) are
eligible for entry into the Complex Order Book.
15 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
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complex orders. The complex order
priority structure is based generally on
the same approach and structure
currently effective on MIAX Emerald
respecting priority of orders and quotes
in the simple market as established in
Exchange Rule 514.16 A complex order
may be executed at a net credit or debit
price with one other Member without
giving priority to bids or offers
established in the marketplace that are
no better than the bids or offers
comprising such net credit or debit;
provided, however, that if any of the
bids or offers established in the
marketplace consist of a Priority
Customer Order, at least one leg of the
complex order must trade at a price that
is better than the corresponding bid or
offer in the marketplace by at least a
$0.01 increment.17 The Exchange now
proposes to amend Rule 518(c)(3)(i) to
now include stock-option orders to the
circumstances described above, if a
stock-option order has one option leg,
such option leg has priority over bids
and offers established in the
marketplace by Professional Interest (as
defined in Rule 100) 18 and Market
Makers with priority quotes 19 that are
no better than the price of the options
leg, but not over such bids and offers
established by Priority Customer Orders.
If a stock-option order has more than
one option leg, such option legs may be
executed in accordance with Rule
518(c)(3)(i).
Stock-Option Orders
The Exchange proposes to adopt
Interpretation and Policy .01, Special
Provisions Applicable to Stock-Option
Orders, to provide detail regarding the
trading and regulation of stock-option
orders on the Exchange.
The Exchange proposes to adopt new
subsection (a) to Interpretation and
Policy .01, to provide that stock-option
orders may be executed against other
stock-option orders through the Strategy
16 Exchange Rule 514, Priority of Quotes and
Orders, describes among other things the various
execution priority, trade allocation and
participation guarantees generally applicable to the
Simple Order Book. Some sections of Exchange
Rule 514 are cross-referenced herein and will apply
as noted to complex orders, as the context requires.
17 See Rule 518(c)(3). See also, ISE Rule 722(b)(2),
which states that in this situation at least one leg
must trade at a price that is better by at least one
minimum trading increment, and PHLX Rule
1098(c)(iii), requiring in this situation that at least
one option leg is executed at a better price than the
established bid or offer for that option contract and
no option leg is executed at a price outside of the
established bid or offer for that option contract.
18 The term ‘‘Professional Interest’’ means (i) an
order that is for the account of a person or entity
that is not a Priority Customer or (ii) an order or
non-priority quote for the account of a Market
Maker. See Exchange Rule 100.
19 See Exchange Rule 517(b)(1).
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Book and Complex Auction. Stockoption orders will not be legged against
the individual component legs, and the
System will not generate a derived order
based upon a stock-option order. A
stock-option order shall not be executed
on the System unless the underlying
security component is executable at the
price(s) necessary to achieve the desired
net price.
Members may only submit stockoption orders if such orders comply
with the Qualified Contingent Trade
Exemption from Rule 611(a) of
Regulation NMS 20 under the Act.
Members submitting such complex
orders represent that such orders
comply with the Qualified Contingent
Trade Exemption.
To participate in stock-option order
processing, a Member must give up a
Clearing Member previously identified
to, and processed by the Exchange as a
Designated Give Up for that Member in
accordance with Exchange Rule 507 and
which has entered into a brokerage
agreement with one or more Exchangedesignated broker-dealers that are not
affiliated with the Exchange to
electronically execute the underlying
security component of the stock-option
order at a stock trading venue selected
by the Exchange-designated brokerdealer on behalf of the Member.
The Exchange proposes to adopt new
subsection (b), Process, to,
Interpretation and Policy .01 to provide
that when a stock-option order is
received by the Exchange, the System
will validate that the stock-option order
has been properly marked as required
by Rule 200 of Regulation SHO under
the Act (‘‘Rule 200’’).21 Rule 200
requires all broker-dealers to mark sell
orders of equity securities as ‘‘long,’’
‘‘short,’’ or ‘‘short exempt.’’
Accordingly, Members submitting stockoption orders must mark the underlying
security component (including ETF)
‘‘long,’’ ‘‘short,’’ or ‘‘short exempt’’ in
compliance with Rule 200. If the stockoption order is not so marked, the order
will be rejected by the System.
Likewise, any underlying security
component of a stock-option order sent
by the Exchange to the Exchangedesignated broker-dealer shall be
marked ‘‘long,’’ ‘‘short,’’ or ‘‘short
exempt’’ in the same manner in which
it was received by the Exchange from
the submitting Member.
If the stock-option order is properly
marked, the System will determine
whether the stock-option order is
Complex Auction-eligible. If the stockoption order is Complex Auction20 17
21 17
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CFR 242.611(a).
CFR 242.200.
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eligible, the System will initiate the
Complex Auction Process described in
paragraph (d) of this Rule. Any stockoption order executed utilizing the
Complex Auction Process will comply
with the requirements of Rule 201 of
Regulation SHO under the Act (‘‘Rule
201’’) 22 as discussed further below.
When the short sale price test in Rule
201 is triggered for a covered security,23
a ‘‘trading center,’’ 24 such as the
Exchange, an Exchange-designated
broker-dealer, or a stock trading venue,
as applicable, must comply with Rule
201. Rule 201 requires a trading center
to establish, maintain, and enforce
written policies and procedures
reasonably designed to prevent the
execution or display of a short sale
order of a covered security at a price
that is less than or equal to the current
national best bid 25 if the price of that
covered security decreases by 10% or
more from the covered security’s closing
price as determined by the listing
market 26 for the covered security as of
the end of regular trading hours on the
prior day; 27 and impose these
requirements for the remainder of the
day and the following day when a
national best bid for the covered
security is calculated and disseminated
on a current and continuing basis by a
plan processor pursuant to an effective
national market system plan.28 A
trading center such as the Exchange, an
Exchange-designated broker-dealer and
a stock trading venue, as applicable, on
which the underlying security
component is executed, must also
comply with Rule 201(b)(1)(iii)(B),29
which provides that a trading center
must establish, maintain, and enforce
written policies and procedures
22 17
CFR 242.201.
purposes of this proposal, the term
‘‘covered security’’ shall have the same meaning as
in Rule 201(a)(1) of Regulation SHO. The term
‘‘covered security’’ is defined in Rule 201(a)(1) as
any NMS stock as defined in Rule 600(b)(47) of
Regulation NMS. See also 17 CFR 242.600(b)(47).
24 Rule 201(a)(9) states that the term ‘‘trading
center’’ shall have the same meaning as in Rule
600(b)(78). Rule 600(b)(78) of Regulation NMS
defines a ‘‘trading center’’ as ‘‘a national securities
exchange or national securities association that
operates an SRO trading facility, an alternative
trading system, an exchange market maker, an OTC
market maker, or any other broker or dealer that
executes orders internally by trading as principal or
crossing orders as agent.’’ See 17 CFR
242.600(b)(78). The definition encompasses all
entities that may execute short sale orders. Thus,
Rule 201 will apply to any entity that executes short
sale orders.
25 The term ‘‘national best bid’’ is defined in Rule
201(a)(4). 17 CFR 242.201(a)(4).
26 The term ‘‘listing market’’ is defined in Rule
201(a)(3). 17 CFR 242.201(a)(3).
27 17 CFR 242.201(b)(1)(i).
28 17 CFR 242.201(b)(1)(ii).
29 17 CFR 242.201(b)(1)(iii)(B).
23 For
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reasonably designed to permit the
execution or display of a short sale
order of a covered security marked
‘‘short exempt’’ 30 without regard to
whether the order is at a price that is
less than or equal to the current national
best bid.31
If the stock-option order is not
Complex Auction-eligible, the System
will determine if it is eligible to be
executed against another inbound stockoption order or another stock-option
order resting on the Strategy Book. If
eligible, the System will route both
sides of the matched underlying
security component of the stock-option
order as a Qualified Contingent Trade
(‘‘QCT’’) to an Exchange-designated
broker-dealer for execution on a stock
trading venue. The stock trading venue
will then either successfully execute the
QCT or cancel it back to the Exchangedesignated broker-dealer, which in turn
will either report the execution of the
QCT or cancel it back to the Exchange.
While the Exchange is a trading center
pursuant to Rule 201, the Exchange will
neither execute nor display the
underlying security component of a
stock-option order. Instead, the
execution or display of the underlying
security component of a stock-option
order will occur on a trading center
other than the Exchange, such as an
Exchange-designated broker-dealer or
other stock trading venue.
If the Exchange-designated brokerdealer or other stock trading venue, as
applicable, cannot execute the
underlying security component of a
stock-option order in accordance with
Rule 201, the Exchange will not execute
the option component(s) of the stockoption order and will either place the
unexecuted stock-option order on the
Strategy Book or cancel it back to the
submitting Member in accordance with
the submitting Member’s instructions
(except that cAOC and cIOC stockoption orders and eQuotes will be
cancelled). Once placed back onto the
Strategy Book, the stock-option order
will be handled in accordance with
Proposed Rule 518, Interpretation and
Policy .01(b) as described herein.
If the stock-option order is not
Complex Auction-eligible and cannot be
executed or placed on the Strategy
Book, it will be cancelled by the System.
Otherwise, the stock-option order will
be placed on the Strategy Book.
The Exchange proposes to adopt
subsection (c), Option Component, to
30 17
CFR 242.200(g)(2).
the underlying security component of a
stock-option order is not displayed by the
Exchange, the exception in Rule 201(b)(1)(iii)(A) is
not available. 17 CFR 242.201(b)(1)(iii)(A).
31 Since
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10851
Interpretation and Policy .01, to provide
that the option leg(s) of a stock-option
order shall not be executed (i) at a price
that is inferior to the Exchange’s best
bid (offer) in the option or (ii) at the
Exchange’s best bid (offer) in that option
if one or more Priority Customer Orders
are resting at the best bid (offer) price on
the Simple Order Book in each of the
option components and the stock-option
order could otherwise be executed in
full (or in a permissible ratio). If one or
more Priority Customer Orders are
resting at the best bid (offer) price on the
Simple Order Book, at least one option
component must trade at a price that is
better than the corresponding bid or
offer in the marketplace by at least
$0.01. The option leg(s) of a stockoption order may be executed in a $0.01
increment, regardless of the minimum
quoting increment applicable to that
series.32
The Exchange proposes to adopt
subsection (d), Strategy Book, to
Interpretation and Policy .01, to provide
that stock-option orders and quotes on
the Strategy Book that are marketable
against each other will automatically
execute, subject to price and priority
provisions described in the above
paragraph relating to the option
component of the stock-option order.
Orders and quotes may be submitted by
Members to trade against orders on the
Strategy Book.33
The Exchange proposes to adopt
subsection (e), Stock-Option Orders in
MIAX Emerald Complex Order
Auctions, to Interpretation and Policy
.01, to provide that stock-option orders
executed via Complex Auction shall
trade in the sequence set forth in
proposed Rule 518(d)(5) described
above except that the provision
regarding individual orders and quotes
in the leg markets resting on the Simple
Order Book prior to the initiation of a
Complex Auction will not be applicable
and such execution will be subject to
the conditions noted above concerning
32 See also CBOE Rule 6.53C.06(b), which states
that the option leg(s) shall not be executed at a price
that is (i) at a price that is inferior to the Exchange’s
best bid (offer) in the series or (ii) at the Exchange’s
best bid (offer) in that series if one or more public
customer orders are resting at the best bid (offer)
price on the Ebook in each of the component option
series and the stock-option order could otherwise
be executed in full (or in a permissible ratio). The
option leg(s) of a stock-option order may be
executed in a one-cent increment, regardless of the
minimum quoting increment applicable to that
series.
33 See also CBOE Rule 6.53C.06(c), which differs
slightly, stating that orders and quotes may be
submitted by market participants to trade against
orders in the COB except that the N-second group
timer shall not be in effect for stock-option orders.
MIAX does not have an ‘‘N-second group timer.’’
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the price of the option leg(s), together
with all applicable securities laws.
The Exchange proposes to adopt
subsection (f), Limit Up-Limit Down
State, to Interpretation and Policy .01, to
provide that when the underlying
security of a stock-option order is in a
limit up-limit down state as defined in
Rule 530, such order will only execute
if the calculated stock price is within
the permissible Price Bands as
determined by SIPs 34 under the Plan to
Address Extraordinary Market Volatility
Pursuant to Rule 608 of Regulation
NMS, as it may be amended from time
to time (the ‘‘LULD Plan’’).
The Exchange proposes to adopt
subsection (g), Parity Price Protection, to
Interpretation and Policy .01, to provide
that the System will provide parity price
protection for strategies that consist of a
sale (purchase) of one call and the
purchase (sale) of 100 shares of the
underlying stock (‘‘Buy-Write’’) or that
consist of the purchase (sale) of one put
and the purchase (sale) of 100 shares of
the underlying stock (‘‘Married-Put’’). A
Parity Spread Variance (‘‘PSV’’) value
between $0.00 and $0.50 which will be
uniform for all option classes traded on
the Exchange, will be determined by the
Exchange and communicated via
Regulatory Circular. The PSV will be
used to calculate a minimum option
trading price limit that the System will
prevent the option leg from trading
below. For call option legs, the PSV
value is added to the strike price of the
option to establish a parity protected
price for the strategy. For put option
legs, the PSV value is subtracted from
the strike price of the option to establish
a parity protected price for the strategy.
Married-Put and Buy-Write interest to
buy (buy put and buy stock; or buy call
and sell stock) that is priced below the
parity protected price for the strategy
will be rejected. Married-Put and BuyWrite interest to sell (sell put and sell
stock; or sell call and buy stock) that is
priced below the parity protected price
for the strategy will be placed on the
Strategy Book at the parity protected
price for the strategy.
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:
34 All U.S. exchanges and associations that quote
and trade exchange-listed securities must provide
their data to a centralized SIP for data consolidation
and dissemination. See 15 U.S.C. 78c(22)(A).
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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 35 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.
35 The ‘‘Strategy Book’’ is the Exchange’s
electronic book of complex orders and complex
quotes. See Exchange Rule 518(a)(17).
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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.36 Buy-Write strategy
interest received to buy a price
protected Buy-Write Strategy below
$40.10 net debit will be rejected.
The Exchange proposes to amend
subsection (d), Implied Away Best Bid
or Offer (‘‘ixABBO’’) Price Protection,37
of Interpretation and Policy .05 to add
that for stock-option orders, the ixABBO
for a complex strategy will be calculated
using the BBO for each component on
each individual away options market
and the NBBO for the stock component.
Finally, the Exchange proposes to
make a number of minor, nonsubstantive edits to Rule 518,
Interpretation and Policy .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
Interpretation and Policy .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 EBBO 38 quote width that
is wider than the permissible valid
quote width as defined in Rule
603(b)(4).’’ By definition, the EBBO 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
36 A seller of the strategy would receive a $40.10
net credit.
37 The Implied Away Best Bid or Offer
(‘‘ixABBO’’) price protection feature is a price
protection mechanism under which, when in
operation as requested by the submitting Member,
a buy order will not be executed at a price that is
higher than each other single exchange’s best
displayed offer for the complex strategy, and under
which a sell order will not be executed at a price
that is lower than each other single exchange’s best
displayed bid for the complex strategy. See
Exchange Rule 518.05(d)
38 The term ‘‘EBBO’’ means the best bid or offer
on the Simple Order Book on the Exchange. See
Exchange Rule 518(a)(10).
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Timer Events (‘‘SMAT Events’’) pertain
only to ‘‘option’’ components of a
complex strategy, by amending
Interpretation and Policy .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.
Additionally, the Exchange believes
that although MIAX Emerald rules may,
in certain instances, intentionally differ
from MIAX Options rules, the proposed
changes will promote uniformity with
MIAX Options with respect to rules that
are intended to be identical. MIAX
Emerald and MIAX Options may have a
number of Members in common, and
where feasible the Exchange intends to
implement similar behavior to provide
consistency between MIAX Options and
MIAX Emerald so as to avoid confusion
among Members.
2. Statutory Basis
The Exchange believes that its
proposed rule changes are consistent
with Section 6(b) of the Act 39 in
general, and furthers the objectives of
Section 6(b)(5) of the Act 40 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 introducing
stock-option orders promotes just and
equitable principles of trade, removes
impediments to and perfects the
mechanisms of a free and open market
and a national market system and, in
general, protects investors and the
public interest by providing investors
additional complex orders to use to
meet their investment objectives. The
Exchange believes that the proposed
rule change will assist in the electronic
processing of stock-option orders by
providing an efficient mechanism for
transacting these strategies. The
Exchange believes that the general
provisions regarding the trading of
complex orders provide a clear
framework for trading of complex orders
in a manner consistent with other
39 15
40 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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options exchanges. This consistency
should promote a fair and orderly
national options market system.
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
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.
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
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10853
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.
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 the
Exchange will offer stock-option orders
which are offered on other exchanges.41
Additionally, 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 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.
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
the rules of the Exchange apply equally
to all Members. The Exchange further
believes that the proposed price
protection should promote inter-market
competition, and could result in more
competitive order flow to 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
41 See MIAX Options Exchange Rule 518, CBOE
Rule 6.53C(a)(2), and NASDAQ PHLX Rule 1098.
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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 42 and Rule 19b–4(f)(6) 43
thereunder.
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 44 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 45
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. In its filing with the
Commission, the Exchange has asked
the Commission to waive the 30-day
operative delay to allow MIAX Emerald
to implement the handling and trading
of stock-option orders in a manner
identical to that of MIAX Options. As
noted above, MIAX Emerald states that
the proposed rules are identical to rules
adopted by MIAX Options.46 In
addition, MIAX Emerald notes that
MIAX Emerald and MIAX Options may
have a number of Members in common,
and that, where feasible, MIAX Emerald
intends to implement similar behavior
to provide consistency between MIAX
Options and MIAX Emerald to avoid
confusion among Members. The
Commission believes that waiving the
30-day operative delay is consistent
with the protection of investors and the
public interest because it will allow
MIAX Emerald to implement rules
regarding the trading of stock-option
orders that are identical to rules adopted
by MIAX Options, thereby reducing the
42 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.
44 17 CFR 240.19b–4(f)(6).
45 17 CFR 240.19b–4(f)(6)(iii).
46 See supra note 3, and accompanying text.
43 17
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potential for confusion among market
participants that are Members of both
MIAX Emerald and MIAX Options. In
addition, the Commission notes that
because the proposed rule change is
based on substantively identical rules of
MIAX Options, the proposal raises no
new regulatory issues. Accordingly, the
Commission hereby waives the
operative delay and designates the
proposal operative upon filing.47
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.
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–EMERALD–2019–13 and
should be submitted on or before April
12, 2019.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.48
Eduardo A. Aleman,
Deputy Secretary.
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–
EMERALD–2019–13 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–EMERALD–2019–13. 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
47 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).
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[FR Doc. 2019–05461 Filed 3–21–19; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–85346; File No. SR–
EMERALD–2019–14]
Self-Regulatory Organizations; MIAX
Emerald, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Exchange
Rule 518, Complex Orders
March 18, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 6,
2019, MIAX Emerald, LLC (‘‘MIAX
Emerald’’ 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.
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
48 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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]]>Agencies
[Federal Register Volume 84, Number 56 (Friday, March 22, 2019)]
[Notices]
[Pages 10848-10854]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05461]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85345; File No. SR-EMERALD-2019-13]
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Exchange Rule 518, Complex Orders
March 18, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 6, 2019, MIAX Emerald, LLC (``MIAX Emerald'' 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 implement identical functionality currently
operative on one of the Exchange's affiliates, Miami International
Securities Exchange, LLC (``MIAX Options'').
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxoptions.com/rule-filings/emerald at MIAX
Emerald's
[[Page 10849]]
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 implement stock-option trading on the Exchange in an identical
fashion, and with an identical rule, as MIAX Options.\3\ MIAX Emerald
commenced operations as a national securities exchange registered under
Section 6 of the Act \4\ on March 1, 2019. As described more fully in
MIAX Emerald's Form 1 application,\5\ the Exchange is an affiliate of
Miami International Securities Exchange, LLC (``MIAX Options'') and
MIAX PEARL, LLC (``MIAX PEARL''). MIAX Emerald Rules, in their current
form, were filed as Exhibit B to its Form 1 on August 16, 2018. At that
time stock-option orders as described in MIAX Options Rule 518 were
being implemented on the MIAX Options Exchange and MIAX Options Rule
518 was undergoing revisions to support the implementation and trading
of stock-option orders, therefore the revised MIAX Options rule \6\ was
not included in the Exchange's Form 1 filing. In order to ensure
consistent operation of both MIAX Emerald and MIAX Options through
having consistent rules, the Exchange now proposes to amend the MIAX
Emerald Rule as described below.
---------------------------------------------------------------------------
\3\ See MIAX Options Exchange Rule 518.
\4\ 15 U.S.C. 78f.
\5\ See Securities Exchange Act Release No. 84891 (December 20,
2018), 83 FR 67421 (December 28, 2018) (File No. 10-233) (order
approving application of MIAX Emerald, LLC for registration as a
national securities exchange.)
\6\ See Securities Exchange Act Release No. 83726 (July 27,
2018), 83 FR 37849 (August 2, 2018) (SR-MIAX-2018-16).
---------------------------------------------------------------------------
Proposal
Complex orders began trading on MIAX Options on October 24,
2016.\7\ In its rule filing to establish the trading of complex orders,
MIAX Options adopted rules for handling stock-option orders.\8\ MIAX
Options filed SR-MIAX-2018-16 \9\ to update its rule text regarding
stock-option orders in connection with the launch of such orders on the
MIAX Options Exchange. MIAX Emerald now proposes to amend Exchange Rule
518, to adopt the identical provisions from the MIAX Options rulebook
for handling stock-option orders that are currently in place on MIAX
Options, in order to align stock-option trading on MIAX Emerald to MIAX
Options.
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\7\ See MIAX Options Regulatory Circular 2016-43, October 20,
2016.
\8\ See Securities Exchange Act Release No. 79072 (October 7,
2016), 81 FR 71131 (October 14, 2016) (SR-MIAX-2016-26).
\9\ See supra note 6.
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In particular, the Exchange is proposing to (i) amend the
definition of complex orders to add a stock-option order definition;
(ii) amend the definition of Displayed Complex MIAX Emerald Best Bid or
Offer (``dcEBBO'') and Implied Complex MIAX Emerald Best Bid or Offer
(``icEBBO'') to add the stock-option order provision; (iii) amend
subsection (b)(3) Complex Order Priority, to describe order priority
handling for a stock-option order that has only one leg; (iv) adopt
Interpretation and Policy .01 to Rule 518 titled, Special Provisions
Applicable to Stock-Option Orders, to provide additional detail
regarding the trading and regulation of stock-option orders on the
Exchange; and (v) make certain minor clarifying edits to existing rule
text.
A ``complex order'' is currently defined in Exchange Rule 518 as
any order involving the concurrent purchase and/or sale of two or more
different options in the same underlying security (the ``legs'' or
``components'' of the complex order),\10\ for the same account, in a
ratio that is equal to or greater than one-to-three (.333) and less
than or equal to three-to-one (3.00) and for the purposes of executing
a particular investment strategy. Mini-options may only be part of a
complex order that includes other mini-options.\11\ Only those complex
orders in the classes designated by the Exchange and communicated to
Members \12\ via Regulatory Circular with no more than the applicable
number of legs, as determined by the Exchange on a class-by-class basis
and communicated to Members via Regulatory Circular, are eligible for
processing.
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\10\ The different options in the same underlying security that
comprise a particular complex order are referred to as the ``legs''
or ``components'' of the complex order throughout this proposal.
\11\ This definition is consistent with other options exchanges.
See e.g., CBOE Rule 6.53C(a)(1). See also PHLX Rule 1098(a)(i); NYSE
MKT Rule 900.3NY(e); and BOX Rule 7240(a)(5).
\12\ 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.
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The Exchange now proposes to update the definition of a complex
order to include stock-option orders. The proposed text will state
that, a complex order can also be a ``stock-option order'' as described
further, and subject to the limitations set forth in proposed
Interpretation and Policy .01 of Rule 518. A stock-option order is an
order to buy or sell a stated number of units of an underlying security
(stock or Exchange Traded Fund Share (``ETF'')) or a security
convertible into the underlying stock (``convertible security'')
coupled with the purchase or sale of options contract(s) on the
opposite side of the market representing either (i) the same number of
units of the underlying security or convertible security, or (ii) the
number of units of the underlying stock necessary to create a delta
neutral position, but in no case in a ratio greater than eight-to-one
(8.00), where the ratio represents the total number of units of the
underlying security or convertible security in the option leg to the
total number of units of the underlying security or convertible
security in the stock leg. Only those stock-option orders in the
classes designated by the Exchange and communicated to Members via
Regulatory Circular with no more than the applicable number of legs as
determined by the Exchange on a class-by-class basis and communicated
to Members via Regulatory Circular, are eligible for processing.
The Displayed Complex MIAX Emerald Best Bid or Offer (``dcEBBO'')
is calculated using the best displayed price for each component of a
complex strategy from the Simple Order Book. The Exchange proposes to
update the definition of the dcEBBO to include stock-option orders and
proposes to append the following sentence to the existing definition,
``For stock-option orders, the dcEBBO for a complex strategy will be
calculated using the Exchange's best displayed bid or offer in the
individual option component(s) and the NBBO in the stock component.''
The Implied Complex MIAX Emerald Best Bid or Offer (``icEBBO'') is
a calculation that uses the best price from the Simple Order Book for
each
[[Page 10850]]
component of a complex strategy including displayed and non-displayed
trading interest. The Exchange now proposes to update the definition of
the icEBBO to include stock-option orders by appending the following
sentence to the end of the current definition, ``For stock-option
orders, the icEBBO for a complex strategy will be calculated using the
best price (whether displayed or non-displayed) on the Simple Order
Book \13\ in the individual option component(s), and the national best
bid or offer (``NBBO'') in the stock component.''
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\13\ The ``Simple Order Book'' is the Exchange's regular
electronic book of orders and quotes. See Exchange Rule 518(a)(15).
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Current Rule 518(c), Trading of Complex Orders and Quotes,
describes the manner in which complex orders will be handled and traded
on the Exchange. The Exchange will determine and communicate to Members
via Regulatory Circular which complex order origin types (i.e., non-
broker-dealer customers, broker-dealers that are not Market Makers on
an options exchange, and/or Market Makers on an options exchange) are
eligible for entry onto the Strategy Book.\14\ The rule also states
that complex orders will be subject to all other Exchange Rules that
pertain to orders generally, unless otherwise provided in Rule 518(b).
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\14\ See Rule 518(c). See also CBOE Rule 6.53C(c)(i), which
states that CBOE will determine which classes and which complex
order origin types (i.e., non-broker-dealer public customer, broker-
dealers that are not Market-Makers or specialists on an options
exchange, and/or Market-Makers or specialists on an options
exchange) are eligible for entry into the Complex Order Book.
---------------------------------------------------------------------------
Current Rule 518(c)(2)(iii), Legging, provides that complex orders
up to a maximum number of legs (determined by the Exchange on a class-
by-class basis as either two or three legs and communicated to Members
via Regulatory Circular) may be automatically executed against bids and
offers on the Simple Order Book for the individual legs of the complex
order (``Legging''), provided that the execution price of each
component is not executed at a price that is outside of the NBBO. The
current rule also provides that legging is not available for cAOC
orders, complex Standard quotes, or complex eQuotes. The Exchange now
proposes to amend this sentence to provide that legging is not
available for cAOC orders, complex Standard quotes, complex eQuotes, or
stock-option orders.
Current Rule 518(c)(3), Complex Order Priority, describes how the
System \15\ will establish priority for complex orders. The complex
order priority structure is based generally on the same approach and
structure currently effective on MIAX Emerald respecting priority of
orders and quotes in the simple market as established in Exchange Rule
514.\16\ A complex order may be executed at a net credit or debit price
with one other Member without giving priority to bids or offers
established in the marketplace that are no better than the bids or
offers comprising such net credit or debit; provided, however, that if
any of the bids or offers established in the marketplace consist of a
Priority Customer Order, at least one leg of the complex order must
trade at a price that is better than the corresponding bid or offer in
the marketplace by at least a $0.01 increment.\17\ The Exchange now
proposes to amend Rule 518(c)(3)(i) to now include stock-option orders
to the circumstances described above, if a stock-option order has one
option leg, such option leg has priority over bids and offers
established in the marketplace by Professional Interest (as defined in
Rule 100) \18\ and Market Makers with priority quotes \19\ that are no
better than the price of the options leg, but not over such bids and
offers established by Priority Customer Orders. If a stock-option order
has more than one option leg, such option legs may be executed in
accordance with Rule 518(c)(3)(i).
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\15\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\16\ Exchange Rule 514, Priority of Quotes and Orders, describes
among other things the various execution priority, trade allocation
and participation guarantees generally applicable to the Simple
Order Book. Some sections of Exchange Rule 514 are cross-referenced
herein and will apply as noted to complex orders, as the context
requires.
\17\ See Rule 518(c)(3). See also, ISE Rule 722(b)(2), which
states that in this situation at least one leg must trade at a price
that is better by at least one minimum trading increment, and PHLX
Rule 1098(c)(iii), requiring in this situation that at least one
option leg is executed at a better price than the established bid or
offer for that option contract and no option leg is executed at a
price outside of the established bid or offer for that option
contract.
\18\ The term ``Professional Interest'' means (i) an order that
is for the account of a person or entity that is not a Priority
Customer or (ii) an order or non-priority quote for the account of a
Market Maker. See Exchange Rule 100.
\19\ See Exchange Rule 517(b)(1).
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Stock-Option Orders
The Exchange proposes to adopt Interpretation and Policy .01,
Special Provisions Applicable to Stock-Option Orders, to provide detail
regarding the trading and regulation of stock-option orders on the
Exchange.
The Exchange proposes to adopt new subsection (a) to Interpretation
and Policy .01, to provide that stock-option orders may be executed
against other stock-option orders through the Strategy Book and Complex
Auction. Stock-option orders will not be legged against the individual
component legs, and the System will not generate a derived order based
upon a stock-option order. A stock-option order shall not be executed
on the System unless the underlying security component is executable at
the price(s) necessary to achieve the desired net price.
Members may only submit stock-option orders if such orders comply
with the Qualified Contingent Trade Exemption from Rule 611(a) of
Regulation NMS \20\ under the Act. Members submitting such complex
orders represent that such orders comply with the Qualified Contingent
Trade Exemption.
---------------------------------------------------------------------------
\20\ 17 CFR 242.611(a).
---------------------------------------------------------------------------
To participate in stock-option order processing, a Member must give
up a Clearing Member previously identified to, and processed by the
Exchange as a Designated Give Up for that Member in accordance with
Exchange Rule 507 and which has entered into a brokerage agreement with
one or more Exchange-designated broker-dealers that are not affiliated
with the Exchange to electronically execute the underlying security
component of the stock-option order at a stock trading venue selected
by the Exchange-designated broker-dealer on behalf of the Member.
The Exchange proposes to adopt new subsection (b), Process, to,
Interpretation and Policy .01 to provide that when a stock-option order
is received by the Exchange, the System will validate that the stock-
option order has been properly marked as required by Rule 200 of
Regulation SHO under the Act (``Rule 200'').\21\ Rule 200 requires all
broker-dealers to mark sell orders of equity securities as ``long,''
``short,'' or ``short exempt.'' Accordingly, Members submitting stock-
option orders must mark the underlying security component (including
ETF) ``long,'' ``short,'' or ``short exempt'' in compliance with Rule
200. If the stock-option order is not so marked, the order will be
rejected by the System. Likewise, any underlying security component of
a stock-option order sent by the Exchange to the Exchange-designated
broker-dealer shall be marked ``long,'' ``short,'' or ``short exempt''
in the same manner in which it was received by the Exchange from the
submitting Member.
---------------------------------------------------------------------------
\21\ 17 CFR 242.200.
---------------------------------------------------------------------------
If the stock-option order is properly marked, the System will
determine whether the stock-option order is Complex Auction-eligible.
If the stock-option order is Complex Auction-
[[Page 10851]]
eligible, the System will initiate the Complex Auction Process
described in paragraph (d) of this Rule. Any stock-option order
executed utilizing the Complex Auction Process will comply with the
requirements of Rule 201 of Regulation SHO under the Act (``Rule 201'')
\22\ as discussed further below.
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\22\ 17 CFR 242.201.
---------------------------------------------------------------------------
When the short sale price test in Rule 201 is triggered for a
covered security,\23\ a ``trading center,'' \24\ such as the Exchange,
an Exchange-designated broker-dealer, or a stock trading venue, as
applicable, must comply with Rule 201. Rule 201 requires a trading
center to establish, maintain, and enforce written policies and
procedures reasonably designed to prevent the execution or display of a
short sale order of a covered security at a price that is less than or
equal to the current national best bid \25\ if the price of that
covered security decreases by 10% or more from the covered security's
closing price as determined by the listing market \26\ for the covered
security as of the end of regular trading hours on the prior day; \27\
and impose these requirements for the remainder of the day and the
following day when a national best bid for the covered security is
calculated and disseminated on a current and continuing basis by a plan
processor pursuant to an effective national market system plan.\28\ A
trading center such as the Exchange, an Exchange-designated broker-
dealer and a stock trading venue, as applicable, on which the
underlying security component is executed, must also comply with Rule
201(b)(1)(iii)(B),\29\ which provides that a trading center must
establish, maintain, and enforce written policies and procedures
reasonably designed to permit the execution or display of a short sale
order of a covered security marked ``short exempt'' \30\ without regard
to whether the order is at a price that is less than or equal to the
current national best bid.\31\
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\23\ For purposes of this proposal, the term ``covered
security'' shall have the same meaning as in Rule 201(a)(1) of
Regulation SHO. The term ``covered security'' is defined in Rule
201(a)(1) as any NMS stock as defined in Rule 600(b)(47) of
Regulation NMS. See also 17 CFR 242.600(b)(47).
\24\ Rule 201(a)(9) states that the term ``trading center''
shall have the same meaning as in Rule 600(b)(78). Rule 600(b)(78)
of Regulation NMS defines a ``trading center'' as ``a national
securities exchange or national securities association that operates
an SRO trading facility, an alternative trading system, an exchange
market maker, an OTC market maker, or any other broker or dealer
that executes orders internally by trading as principal or crossing
orders as agent.'' See 17 CFR 242.600(b)(78). The definition
encompasses all entities that may execute short sale orders. Thus,
Rule 201 will apply to any entity that executes short sale orders.
\25\ The term ``national best bid'' is defined in Rule
201(a)(4). 17 CFR 242.201(a)(4).
\26\ The term ``listing market'' is defined in Rule 201(a)(3).
17 CFR 242.201(a)(3).
\27\ 17 CFR 242.201(b)(1)(i).
\28\ 17 CFR 242.201(b)(1)(ii).
\29\ 17 CFR 242.201(b)(1)(iii)(B).
\30\ 17 CFR 242.200(g)(2).
\31\ Since the underlying security component of a stock-option
order is not displayed by the Exchange, the exception in Rule
201(b)(1)(iii)(A) is not available. 17 CFR 242.201(b)(1)(iii)(A).
---------------------------------------------------------------------------
If the stock-option order is not Complex Auction-eligible, the
System will determine if it is eligible to be executed against another
inbound stock-option order or another stock-option order resting on the
Strategy Book. If eligible, the System will route both sides of the
matched underlying security component of the stock-option order as a
Qualified Contingent Trade (``QCT'') to an Exchange-designated broker-
dealer for execution on a stock trading venue. The stock trading venue
will then either successfully execute the QCT or cancel it back to the
Exchange-designated broker-dealer, which in turn will either report the
execution of the QCT or cancel it back to the Exchange. While the
Exchange is a trading center pursuant to Rule 201, the Exchange will
neither execute nor display the underlying security component of a
stock-option order. Instead, the execution or display of the underlying
security component of a stock-option order will occur on a trading
center other than the Exchange, such as an Exchange-designated broker-
dealer or other stock trading venue.
If the Exchange-designated broker-dealer or other stock trading
venue, as applicable, cannot execute the underlying security component
of a stock-option order in accordance with Rule 201, the Exchange will
not execute the option component(s) of the stock-option order and will
either place the unexecuted stock-option order on the Strategy Book or
cancel it back to the submitting Member in accordance with the
submitting Member's instructions (except that cAOC and cIOC stock-
option orders and eQuotes will be cancelled). Once placed back onto the
Strategy Book, the stock-option order will be handled in accordance
with Proposed Rule 518, Interpretation and Policy .01(b) as described
herein.
If the stock-option order is not Complex Auction-eligible and
cannot be executed or placed on the Strategy Book, it will be cancelled
by the System. Otherwise, the stock-option order will be placed on the
Strategy Book.
The Exchange proposes to adopt subsection (c), Option Component, to
Interpretation and Policy .01, to provide that the option leg(s) of a
stock-option order shall not be executed (i) at a price that is
inferior to the Exchange's best bid (offer) in the option or (ii) at
the Exchange's best bid (offer) in that option if one or more Priority
Customer Orders are resting at the best bid (offer) price on the Simple
Order Book in each of the option components and the stock-option order
could otherwise be executed in full (or in a permissible ratio). If one
or more Priority Customer Orders are resting at the best bid (offer)
price on the Simple Order Book, at least one option component must
trade at a price that is better than the corresponding bid or offer in
the marketplace by at least $0.01. The option leg(s) of a stock-option
order may be executed in a $0.01 increment, regardless of the minimum
quoting increment applicable to that series.\32\
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\32\ See also CBOE Rule 6.53C.06(b), which states that the
option leg(s) shall not be executed at a price that is (i) at a
price that is inferior to the Exchange's best bid (offer) in the
series or (ii) at the Exchange's best bid (offer) in that series if
one or more public customer orders are resting at the best bid
(offer) price on the Ebook in each of the component option series
and the stock-option order could otherwise be executed in full (or
in a permissible ratio). The option leg(s) of a stock-option order
may be executed in a one-cent increment, regardless of the minimum
quoting increment applicable to that series.
---------------------------------------------------------------------------
The Exchange proposes to adopt subsection (d), Strategy Book, to
Interpretation and Policy .01, to provide that stock-option orders and
quotes on the Strategy Book that are marketable against each other will
automatically execute, subject to price and priority provisions
described in the above paragraph relating to the option component of
the stock-option order. Orders and quotes may be submitted by Members
to trade against orders on the Strategy Book.\33\
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\33\ See also CBOE Rule 6.53C.06(c), which differs slightly,
stating that orders and quotes may be submitted by market
participants to trade against orders in the COB except that the N-
second group timer shall not be in effect for stock-option orders.
MIAX does not have an ``N-second group timer.''
---------------------------------------------------------------------------
The Exchange proposes to adopt subsection (e), Stock-Option Orders
in MIAX Emerald Complex Order Auctions, to Interpretation and Policy
.01, to provide that stock-option orders executed via Complex Auction
shall trade in the sequence set forth in proposed Rule 518(d)(5)
described above except that the provision regarding individual orders
and quotes in the leg markets resting on the Simple Order Book prior to
the initiation of a Complex Auction will not be applicable and such
execution will be subject to the conditions noted above concerning
[[Page 10852]]
the price of the option leg(s), together with all applicable securities
laws.
The Exchange proposes to adopt subsection (f), Limit Up-Limit Down
State, to Interpretation and Policy .01, to provide that when the
underlying security of a stock-option order is in a limit up-limit down
state as defined in Rule 530, such order will only execute if the
calculated stock price is within the permissible Price Bands as
determined by SIPs \34\ under the Plan to Address Extraordinary Market
Volatility Pursuant to Rule 608 of Regulation NMS, as it may be amended
from time to time (the ``LULD Plan'').
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\34\ All U.S. exchanges and associations that quote and trade
exchange-listed securities must provide their data to a centralized
SIP for data consolidation and dissemination. See 15 U.S.C.
78c(22)(A).
---------------------------------------------------------------------------
The Exchange proposes to adopt subsection (g), Parity Price
Protection, to Interpretation and Policy .01, to provide that the
System will provide parity price protection for strategies that consist
of a sale (purchase) of one call and the purchase (sale) of 100 shares
of the underlying stock (``Buy-Write'') or that consist of the purchase
(sale) of one put and the purchase (sale) of 100 shares of the
underlying stock (``Married-Put''). A Parity Spread Variance (``PSV'')
value between $0.00 and $0.50 which will be uniform for all option
classes traded on the Exchange, will be determined by the Exchange and
communicated via Regulatory Circular. The PSV will be used to calculate
a minimum option trading price limit that the System will prevent the
option leg from trading below. For call option legs, the PSV value is
added to the strike price of the option to establish a parity protected
price for the strategy. For put option legs, the PSV value is
subtracted from the strike price of the option to establish a parity
protected price for the strategy. Married-Put and Buy-Write interest to
buy (buy put and buy stock; or buy call and sell stock) that is priced
below the parity protected price for the strategy will be rejected.
Married-Put and Buy-Write interest to sell (sell put and sell stock; or
sell call and buy stock) that is priced below the parity protected
price for the strategy will be placed on the Strategy Book at the
parity protected price for the strategy.
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 \35\ at
$49.90. Married Put Strategy interest received to buy a price protected
Married-Put Strategy below $49.90 will be rejected.
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\35\ 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.\36\ Buy-Write strategy interest received to buy a price
protected Buy-Write Strategy below $40.10 net debit will be rejected.
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\36\ A seller of the strategy would receive a $40.10 net credit.
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The Exchange proposes to amend subsection (d), Implied Away Best
Bid or Offer (``ixABBO'') Price Protection,\37\ of Interpretation and
Policy .05 to add that for stock-option orders, the ixABBO for a
complex strategy will be calculated using the BBO for each component on
each individual away options market and the NBBO for the stock
component.
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\37\ The Implied Away Best Bid or Offer (``ixABBO'') price
protection feature is a price protection mechanism under which, when
in operation as requested by the submitting Member, a buy order will
not be executed at a price that is higher than each other single
exchange's best displayed offer for the complex strategy, and under
which a sell order will not be executed at a price that is lower
than each other single exchange's best displayed bid for the complex
strategy. See Exchange Rule 518.05(d)
---------------------------------------------------------------------------
Finally, the Exchange proposes to make a number of minor, non-
substantive edits to Rule 518, Interpretation and Policy .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 Interpretation
and Policy .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 EBBO \38\ quote width that is
wider than the permissible valid quote width as defined in Rule
603(b)(4).'' By definition, the EBBO is comprised of option interest
only, therefore providing additional detail to the existing rule adds
clarity to the Exchange's rules.
---------------------------------------------------------------------------
\38\ The term ``EBBO'' means the best bid or offer on the Simple
Order Book on the Exchange. See Exchange Rule 518(a)(10).
---------------------------------------------------------------------------
Similarly, the Exchange proposes to clarify that Simple Market
Auction or
[[Page 10853]]
Timer Events (``SMAT Events'') pertain only to ``option'' components of
a complex strategy, by amending Interpretation and Policy .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.
Additionally, the Exchange believes that although MIAX Emerald
rules may, in certain instances, intentionally differ from MIAX Options
rules, the proposed changes will promote uniformity with MIAX Options
with respect to rules that are intended to be identical. MIAX Emerald
and MIAX Options may have a number of Members in common, and where
feasible the Exchange intends to implement similar behavior to provide
consistency between MIAX Options and MIAX Emerald so as to avoid
confusion among Members.
2. Statutory Basis
The Exchange believes that its proposed rule changes are consistent
with Section 6(b) of the Act \39\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \40\ 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.
---------------------------------------------------------------------------
\39\ 15 U.S.C. 78f(b).
\40\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes introducing stock-option orders promotes just
and equitable principles of trade, removes impediments to and perfects
the mechanisms of a free and open market and a national market system
and, in general, protects investors and the public interest by
providing investors additional complex orders to use to meet their
investment objectives. The Exchange believes that the proposed rule
change will assist in the electronic processing of stock-option orders
by providing an efficient mechanism for transacting these strategies.
The Exchange believes that the general provisions regarding the trading
of complex orders provide a clear framework for trading of complex
orders in a manner consistent with other options exchanges. This
consistency should promote a fair and orderly national options market
system.
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.
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.
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 the Exchange will offer
stock-option orders which are offered on other exchanges.\41\
Additionally, 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 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. Further, the additional proposed changes remedy minor
non-substantive issues in the text of various rules identified in this
proposal.
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\41\ See MIAX Options Exchange Rule 518, CBOE Rule 6.53C(a)(2),
and NASDAQ PHLX Rule 1098.
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The Exchange does not believe the proposed rule change will impose
any burden on intra-market competition as the rules of the Exchange
apply equally to all Members. The Exchange further believes that the
proposed price protection should promote inter-market competition, and
could result in more competitive order flow to 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
[[Page 10854]]
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 \42\ and Rule 19b-4(f)(6) \43\
thereunder.
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\42\ 15 U.S.C. 78s(b)(3)(A).
\43\ 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.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \44\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \45\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. In its filing
with the Commission, the Exchange has asked the Commission to waive the
30-day operative delay to allow MIAX Emerald to implement the handling
and trading of stock-option orders in a manner identical to that of
MIAX Options. As noted above, MIAX Emerald states that the proposed
rules are identical to rules adopted by MIAX Options.\46\ In addition,
MIAX Emerald notes that MIAX Emerald and MIAX Options may have a number
of Members in common, and that, where feasible, MIAX Emerald intends to
implement similar behavior to provide consistency between MIAX Options
and MIAX Emerald to avoid confusion among Members. The Commission
believes that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest because it will allow
MIAX Emerald to implement rules regarding the trading of stock-option
orders that are identical to rules adopted by MIAX Options, thereby
reducing the potential for confusion among market participants that are
Members of both MIAX Emerald and MIAX Options. In addition, the
Commission notes that because the proposed rule change is based on
substantively identical rules of MIAX Options, the proposal raises no
new regulatory issues. Accordingly, the Commission hereby waives the
operative delay and designates the proposal operative upon filing.\47\
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\44\ 17 CFR 240.19b-4(f)(6).
\45\ 17 CFR 240.19b-4(f)(6)(iii).
\46\ See supra note 3, and accompanying text.
\47\ 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).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-EMERALD-2019-13 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-EMERALD-2019-13. 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 10:00 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-EMERALD-2019-13 and should be submitted
on or before April 12, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\48\
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\48\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05461 Filed 3-21-19; 8:45 am]
BILLING CODE 8011-01-P
