Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 518, Complex Orders, 10854-10860 [2019-05468]
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Federal Register / Vol. 84, No. 56 / Friday, March 22, 2019 / Notices
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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Orders, in order 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
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 functionality, as described
below, that is identical to functionality
currently operative on 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
MIAX Emerald Rule 518 and MIAX
Options Rule 518 were substantially
similar. MIAX Options recently
amended its Rule 518 6 and in order to
ensure consistent operation of both
MIAX Emerald and MIAX Options
through having consistent rules, the
Exchange now proposes to amend MIAX
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. 85155
(February 15, 2019), 84 FR 5739 (February 22, 2019)
(SR–MIAX–2018–36).
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Emerald Exchange Rule 518 as
described below.
Specifically, the Exchange proposes to
amend Exchange Rule 518, Complex
Orders, to (i) amend the Response Time
Interval and Defined Time Period for
Complex Auctions (each defined
below); (ii) amend Interpretation and
Policy .05(f), to add additional detail
pertaining to the operation of the
Complex MIAX [sic] Price Collar
(‘‘MPC’’), specifically to adopt new rule
text for the use of a Temporary MIAX
Price Collar (‘‘TMPC’’) during a cPRIME
Auction or Complex Auction 7 in the
limited instance when an MPC has not
been assigned; (iii) adopt a new
Complex Liquidity Exposure Process
(‘‘cLEP’’); (iv) make minor changes to
the Complex MIAX [sic] Options Price
Collar Protection; and (v) clarify that the
Calendar Spread Variance (‘‘CSV’’) price
protection applies only to strategies in
American-style option 8 classes.
The Exchange proposes to amend
subsection (d)(3) which describes the
Response Time Interval of a Complex
Auction, which is a single-sided
auction. The Exchange offers Complex
Auction functionality as described in
Exchange Rule 518 9 and also a cPRIME
process for paired orders, which is
unaffected by this proposal, as
described in Exchange Rule 515A.12.
The Exchange is not proposing to
change the cPRIME process, and thus
the cPRIME Timer will remain at 100
milliseconds.
Currently, Rule 518(d)(3) provides
that the Response Time Interval means
the period of time during which
responses to the Request for Responses
(‘‘RFR’’) message may be entered. The
Rule further provides that the Exchange
determines the duration of the Response
Time Interval, which shall not exceed
500 milliseconds, and communicates it
to Members via Regulatory Circular.10
The Exchange now proposes to adopt
7 See
Exchange Rule 518(d).
term ‘‘American-style option’’ means an
option contract that, subject to the provisions of
Rule 700 (relating to the cutoff time for exercise
instructions) and to the Rules of the Clearing
Corporation, can be exercised on any business day
prior to its expiration date and on its expiration
date. See Exchange Rule 100.
9 Certain option classes, as determined by the
Exchange and communicated to Members via
Regulatory Circular, will be eligible to participate
in a Complex Auction (an ‘‘eligible class’’). Upon
evaluation as set forth in subparagraph (c)(5) of
Rule 518, the Exchange may determine to
automatically submit a Complex Auction-eligible
order into a Complex Auction. Upon entry into the
System or upon evaluation of a complex order
resting at the top of the Strategy Book, Complex
Auction-eligible orders may be subject to an
automated request for responses (‘‘RFR’’). See
Exchange Rule 518(d).
10 The Exchange notes that the Response Time
Interval is currently set to 200 milliseconds.
8 The
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10855
new rule text to state that, ‘‘the end of
the trading session will also serve as the
end of the Response Time Interval for a
Complex Auction still in progress.’’ In
connection with this proposed change,
the Exchange proposes to amend
subsection (d)(2) to remove the
reference to the Defined Time Period for
a Complex Auction. The Defined Time
Period represents the period of time
preceding the end of a trading session
during which a Complex Auction will
not be initiated. Currently, by Exchange
rule the Defined Time Period shall be at
least 100 milliseconds and may not
exceed 10 seconds.11 The Exchange
anticipates it will launch operations
with the duration of a Complex Auction
set to 200 milliseconds.12
The Exchange also proposes to amend
subsection (c)(2)(i) to remove the
restriction that a cAOA Order 13
received during the Defined Time
Period will not initiate a new Complex
Auction. Under the current rules there
is no opportunity at all for price
improvement via a Complex Auction
when there is less than two seconds left
in the trading session. The Exchange
believes that removing the Defined Time
Period and allowing the end of the
trading session to serve as the end of the
Response Time Interval in the limited
instance that a Complex Auction is
initiated with less than 200
milliseconds left in the trading session
will allow for more opportunities for
price improvement via the auction
process. In the event that a Member
initiates a Complex Auction and no
Members respond, the initiating
Member is no worse off under the
proposed rule than the Member would
have been under the current rule which
prevents the Member from even
attempting to initiate a Complex
Auction with less than two seconds left
in the trading session. Additionally, a
Member who initiates a Complex
Auction will not forego the opportunity
to trade with unrelated interest received
during the Auction period, as this
interest is included in the Complex
Auction.14
The Exchange represents that it has
the System 15 capacity and capability to
conduct auctions and execute
transactions in a timely fashion at any
11 See
Exchange Rule 518(d)(2).
MIAX Options Complex Auction duration
is currently set to 200 milliseconds. See MIAX
Options Regulatory Circular 2016–46.
13 A ‘‘Complex Auction-on-Arrival’’ or ‘‘cAOA’’
Order is a complex order designated to be placed
into a Complex Auction upon receipt or upon
evaluation. See Exchange Rule 518(b)(2).
14 See Exchange Rule 518(d)(8).
15 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
12 The
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time during the trading session
including the last two seconds. Further,
the Exchange represents that it has
surveillances in place to surveil for
conduct that violates the Exchange’s
rules, specifically as they pertain to
Complex Auctions as described
herein.16
The Exchange also proposes to amend
Rule 518, Interpretation and Policy .05,
to add additional detail to the rule
regarding the establishment of the MIAX
[sic] Price Collar (‘‘MPC’’) under various
circumstances to align MIAX Emerald
rule text to that of MIAX Options.17 The
MPC is a price protection feature
designed to help maintain a fair and
orderly market by helping to mitigate
the potential risk of executions at prices
that are extreme and potentially
erroneous. The MPC prevents complex
orders from automatically executing at
potentially erroneous prices by
establishing a price range outside of
which a complex order will not be
executed.
The Exchange now proposes to amend
Rule 518, Interpretation and Policy .05,
by removing current subsection (f)(3)
and replacing it with new proposed
subsections (f)(3) and (f)(4) as described
below. New subsection (f)(3) will
provide that, ‘‘[t]he MPC Price is
established: (i) upon receipt of the
complex order or eQuote during free
trading, or (ii) if the complex order or
eQuote is not received during free
trading, at the opening (or reopening
following a halt) of trading in the
complex strategy; or (iii) upon
evaluation of the Strategy Book by the
System when a wide market condition,
as described in Interpretation and Policy
.05(e)(1) of this Rule, no longer
exists.’’ 18
New subsection (f)(4) will provide
that, ‘‘[a] Temporary MPC Price (‘TMPC
Price’) is established solely for use
during a Complex Auction (as defined
in Rule 518(d)) or a cPRIME Auction (as
defined in Rule 515A, Interpretation
and Policy .12) for (i) any complex order
resting on the Strategy Book that does
not have an MPC assigned and is
eligible to participate in a Complex
16 The Exchange notes that Rule 518.04,
Dissemination of Information, remains in effect for
any Complex Auction-eligible order submitted to
the Exchange at any time.
17 See Securities Exchange Act Release No. 84519
(November 1, 2018), 83 FR 55776 (November 7,
2018) (SR–MIAX–2018–27).
18 The Exchange notes that if wide market
conditions exist (any individual option component
of a complex strategy has a displayed EBBO quote
width that is wider than the permissible simple
market quote width) when an order is received, an
MPC will not be calculated until the wide market
conditions are resolved. See Exchange Rule
518.05(e)(1).
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Auction or a cPRIME Auction in that
strategy; or (ii) any complex order or
eQuote received during a cPRIME
Auction 19 if a wide market condition
existed in a component of the strategy
at the start of the cPRIME Auction. The
TMPC Price shall be the auction start
price 20 (the auction start price of a
cPRIME Agency Order for a cPRIME
Auction is defined in Rule 515A.12(a)(i)
and the auction start price for a
Complex Auction is defined in Rule
518(d)(1)) plus (minus) the MPC
Setting 21 if the order is a buy (sell). If
the complex order or eQuote eligible to
participate in the Complex Auction or
cPRIME Auction is priced more
aggressively than the TMPC Price (i.e.,
the complex order or eQuote price is
greater than the TMPC Price for a buy
order, or the complex order or eQuote
price is lower than the TMPC Price for
a sell order) the complex order or
eQuote may participate in the auction
but will not trade through its TMPC
Price.’’ The minimum MPC Setting is
$0.00 and the maximum MPC Setting is
$1.00, as determined by the Exchange
and communicated to Members via
Regulatory Circular.22 A TMPC Price
will be calculated for use during the
length of the auction for any complex
order resting on the Strategy Book that
does not have an MPC assigned and is
eligible to participate in a Complex
Auction or cPRIME Auction in that
strategy, or any complex order or
eQuote received during a cPRIME
Auction if a wide market condition
existed in a component of the strategy
at the start of the cPRIME Auction.
An example of the TMPC Price being
established and used is provided below.
Example 3—A TMPC Price is
established for an order or eQuote
received during a cPRIME Auction
MIAX Emerald—LMM Mar 50 Call
1.00–6.50 (10x10) (Wide Market)
MIAX Emerald—LMM Mar 55 Call
2.90–3.30 (10x10)
ABBO—Mar 50 Call 6.00–6.30 (10x10)
19 The Exchange notes that if a wide market
condition exists for a component of a complex
strategy, trading in the strategy will be suspended,
except as otherwise set forth in Exchange Rule
518.05(e)(1)(iii), which states that a wide market
condition shall have no impact on the trading of
cPRIME Orders and processing of cPRIME Auctions
(including the processing of cPRIME Auction
responses) pursuant to Rule 515A, Interpretation
and Policy .12. See Exchange Rule 518.05(e)(1)(i).
20 The auction start price for a cPRIME Auction
is the initiating price of a cPRIME Agency Order as
described in Exchange Rule 515A.12(a)(i). The
auction start price for a Complex Auction is the
initiating order’s limit price as described in
Exchange Rule 518(d)(1).
21 See Exchange Rule 518.05(f).
22 See Exchange Rule 518.05(f)(2). The Exchange
anticipates that the setting for the launch of trading
on MIAX Emerald will be $.25.
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ABBO—Mar 55 Call 3.00–3.30 (10x10)
NBBO—Mar 50 Call 6.00–6.30 (10x10)
NBBO—Mar 55 Call 3.00–3.30 (10x20)
Strategy: Buy 1 Mar 50 Call, Sell 1 Mar
55 Call
The cNBBO is 2.70 debit bid and 3.30
credit offer
The MPC Setting is $.25.
The Exchange receives a cPRIME
Order with the cPRIME Agency Order
representing the purchase of the
Strategy at a net debit of 3.00, 500 times.
Auto-match is not enabled and there are
no orders for the Strategy on the
Strategy Book.
A TMPC Price will be calculated for
use during the length of the auction for
any complex order or eQuote received
during a cPRIME Auction if a wide
market condition existed in a
component of the strategy at the start of
the cPRIME Auction. The TMPC Price
will be the cPRIME auction start price
+/¥ the MPC Setting. In this example
the auction start price is $3.00. The
TMPC Price is $2.75 ($3.00¥$.25) for
sell orders, and $3.25 ($3.00 + $.25) for
buy orders.
An RFR is broadcast to all subscribers
and the RFR period is started.
The following responses are received:
• @20 milliseconds BD1 response,
cAOC Order @2.95 credit sell of 200
arrives
• @30 milliseconds MM1 response,
cAOC eQuote @2.90 credit sell of 200
arrives
• @50 milliseconds C1 response, cAOC
Order @2.70 credit sell of 100 arrives
The cPRIME Auction process will
continue until the Response Time
Interval ends. When the 100 millisecond
Response Time Interval ends, the
cPRIME Auction process will trade the
Agency Order with the best priced
responses. The Agency Order will be
filled as follows:
• The cPRIME Agency Order buys 100
from C1 @2.75
• The cPRIME Agency Order buys 200
from MM1 @2.90
• The cPRIME Agency Order buys 200
from BD1 @2.95
Note that C1 is prevented from selling
at 2.70 by the cPRIME Auction TMPC
Price limit of 2.75.
The Exchange believes that amending
the rule to [sic] regarding the use of a
TMPC Price, which is applicable only in
the limited circumstance when an MPC
has not been assigned, and exists only
for the duration of a Complex Auction
or cPRIME Auction, adds additional
detail to the Exchange’s rules and
provides greater transparency of
Exchange functionality. The use of a
TMPC Price provides protection for
orders that participate in either a
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Complex Auction or a cPRIME Auction
when the order does not have an
assigned MPC Price as described above.
This price protection ensures that orders
are not executed at potentially
erroneous prices during the auction.
The Exchange believes that the
proposed changes promote the
protection of investors and the public
interest by providing greater clarity and
specificity of Exchange functionality,
and it is in the public interest for the
Exchange’s rules to be accurate and
concise so as to minimize the potential
for confusion.
The Exchange also proposes to amend
current subsection (f)(4) (proposed
subsection (f)(5)) which states that,
‘‘Any unexecuted portion of such a
complex order or eQuote: (A) Will be
cancelled if it would otherwise be
displayed or executed at a price that is
outside the MPC Price, and (B) may be
subject to the managed interest process
described in Rule 518(c)(4).’’ The
Exchange proposes to amend this
sentence to account for a proposed
Complex Liquidity Exposure Process
(‘‘cLEP’’) as described below. The
proposed amended sentence will
provide, ‘‘Any unexecuted portion of
such a complex order or eQuote: (A)
will be subject to the cLEP as described
in subsection (e) of this Rule, and (B)
may be subject to the managed interest
process described in Rule 518(c)(4).’’
The Exchange also proposes to adopt
new subsection (e) to Rule 518 to
describe a Complex Liquidity Exposure
Process (‘‘cLEP’’) for complex orders
and complex eQuotes that would violate
their Complex MIAX [sic] Price Collar
(‘‘MPC’’) price. The MPC price
protection feature is an Exchange-wide
mechanism under which a complex
order or complex eQuote to sell will not
be displayed or executed at a price that
is lower than the opposite side
cNBBO 23 bid at the time the MPC is
assigned by the System (i.e., upon
receipt or upon opening) by more than
a specific dollar amount expressed in
$0.01 increments (the ‘‘MPC Setting’’),
and under which a complex order or
eQuote to buy will not be displayed or
executed at a price that is higher than
the opposite side cNBBO offer at the
time the MPC is assigned by the System
by more than the MPC Setting (each the
‘‘MPC Price’’).24
The Exchange now proposes to
initiate a Complex Liquidity Exposure
23 The term cNBBO means the Complex National
Best Bid or Offer and is calculated using the
National Best Bid or Offer (‘‘NBBO’’) for each
component of a complex strategy to establish the
best net bid and offer for a complex strategy. See
Exchange Rule 518(a)(2).
24 See Exchange Rule 518.05(f).
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Auction (‘‘cLEP Auction’’) whenever a
complex order or complex eQuote
would execute or post at a price that
would violate its MPC Price. To begin
the cLEP Auction, the System will first
broadcast a liquidity exposure message
to all subscribers of the Exchange’s data
feeds. The liquidity exposure message
will include the symbol, side of the
market, auction start price (MPC Price of
the complex order or eQuote), and the
imbalance quantity. The purpose of
including the imbalance quantity in the
RFR message is to inform such
participants of the number of contracts
that are available for execution.
The System will initiate a Response
Time Interval, as determined by the
Exchange and communicated via
Regulatory Circular which shall be no
less than 100 milliseconds and no more
than 5,000 milliseconds.25 At the
conclusion of the Complex Liquidity
Exposure Auction the resulting trade
price will be determined by the
Exchange’s Complex Auction Pricing
described in subsection (d)(6) of this
Rule and interest will be executed as
provided in subsection (d)(6) of this
Rule. In no event will the resulting trade
price of a cLEP Auction ever be more
aggressive than the MPC Price.
Remaining liquidity with an original
limit price that is (i) less aggressive
(lower for a buy order or eQuote, or
higher for a sell order or eQuote) than
or equal to the MPC Price will be
handled in accordance with subsection
(c)(2)(ii)–(v) of this Rule, or (ii) more
aggressive than the MPC Price will be
subject to the Reevaluation process as
described below. Orders and quotes
executed in a cLEP Auction will be
allocated in accordance with the
Complex Auction allocation procedures
described in Exchange Rule
518(d)(7)(i)–(vi).
At the conclusion of a cLEP Auction
the System will calculate the next
potential MPC Price for remaining
liquidity with an original limit price
more aggressive than the existing MPC
Price. The next MPC Price will be
calculated as the MPC Price plus
(minus) the next MPC increment for buy
(sell) orders (the ‘‘New MPC Price’’).
The System will initiate a cLEP Auction
for liquidity that would execute or post
at a price that would violate its New
MPC Price. Liquidity with an original
limit price less aggressive (lower for a
buy order or eQuote, or higher for a sell
order or eQuote) than or equal to the
New MPC Price will be posted to the
25 The Exchange notes that the current duration
of a cPRIME Auction is 100 milliseconds and the
current duration of a Complex Auction is 200
milliseconds.
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10857
Strategy Book at its original limit price
or handled in accordance with
subsection (c)(2)(ii)–(v) of Rule 518. The
cLEP process will continue until no
liquidity remains with an original limit
price that is more aggressive than its
MPC Price. At the conclusion of the
cLEP process, any liquidity that has not
been executed will be posted to the
Strategy Book at its original limit price.
The current rule provides that if the
MPC Price is priced less aggressively
than the limit price of the complex
order or eQuote (i.e., the MPC Price is
less than the complex order or eQuote’s
bid price for a buy, or the MPC Price is
greater than the complex order or
eQuote’s offer price for a sell), or if the
complex order is a market order, the
complex order or eQuote will be
displayed and/or executed up to its
MPC Price. Any unexecuted portion of
such a complex order or eQuote: (A)
will be cancelled if it would otherwise
be displayed or executed at a price that
is outside the MPC Price, and (B) may
be subject to the managed interest
process described in 518(c)(4).26
The Exchange now proposes to amend
subsection(f)(6)(A) to provide that any
unexecuted portion of such a complex
order or eQuote will be subject to the
cLEP as described in proposed
subsection (e). The Exchange believes it
to be in the best interest of the
Member 27 to seek liquidity via the
Complex Liquidity Exposure Process as
described above, rather than cancel any
unexecuted portion of the order. The
Exchange represents that it has the
System capability and capacity to
handle the potential cLEP Auctions that
may occur under the Exchange’s
proposal.
The examples below demonstrate an
order subject to the Complex Liquidity
Exposure Process.
Example 1
MPC: $0.25
The Exchange has one order resting
on its Strategy Book: 28 +1 component A,
¥ 1 component B:
Order 1 is to sell 10 at $1.90
EBBO 29 component A: 4.00(10) ×
5.00(10)
EBBO component B: 2.00(10) ×
26 See
Exchange Rule 518.05(f)(6).
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.
27 The
28 The term ‘‘Strategy Book’’ is the Exchange’s
electronic book of complex orders and complex
quotes. See Exchange Rule 518(a)(17).
29 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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2.50(10)
NBBO 30 component A: 4.05(10) ×
4.15(10)
NBBO component B: 2.30(10) ×
2.40(10)
icEBBO:31 1.50 (10) × 3.00 (10)
cNBBO: 32 1.65 (10) × 1.85 (10)
The Exchange receives a new order
(Order 2) to buy 20 at $2.25.
Order 2 buys 10 from Order 1 at $1.90
and initiates the Complex Liquidity
Exposure Process: Order 2 reprices to its
protected price of $2.10 (cNBO of 1.85
+ 0.25) and is posted at that price on the
Strategy Book and the Complex
Liquidity Exposure Process Auction
begins.
During the cLEP Auction the
Exchange receives a new order (Order 3)
to sell 10 at $2.10. This order locks the
current same side Book Price of $2.10.
At the end of the auction, Order 3 sells
10 to Order 2 at $2.10, filling both Order
2 and Order 3.
Example 2
MPC: $0.25
The Exchange has one order resting
on its book in Strategy +1 component A,
¥1 component B:
Order 1 is to sell 10 at $1.90
EBBO component A: 4.00(10) ×
5.00(10)
EBBO component B: 2.00(10) ×
2.50(10)
NBBO component A: 4.05(10) ×
4.15(10)
NBBO component B: 2.30(10) ×
2.40(10)
icEBBO: 1.50 (10) × 3.00 (10)
cNBBO: 1.65 (10) × 1.85 (10)
The Exchange receives a new order
(Order 2) to buy 20 at $2.25.
Order 2 buys 10 from Order 1 at $1.90
and initiates the Complex Liquidity
Exposure Process: Order 2 reprices to its
protected price of $2.10 (cNBO of 1.85
+ 0.25) and is posted at that price on the
Strategy Book and the Complex
Liquidity Exposure Process Auction
begins.
No new liquidity arrives during the
Auction. At the end of the Auction,
Order 2 reprices to its limit of $2.25 and
30 The term ‘‘NBBO’’ means the national best bid
or offer as calculated by the Exchange based on
market information received by the Exchange from
OPRA. See Exchange Rule 100.
31 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
component of a complex strategy including
displayed and non-displayed trading interest. See
Exchange Rule 518(a)(12).
32 The Complex National Best Bid or Offer
(‘‘cNBBO’’) is calculated using the NBBO for each
component of a complex strategy to establish the
best net bid and offeror a complex strategy. See
Exchange Rule 518(a)(2).
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is posted at that price on the Strategy
Book, ending the Complex Liquidity
Exposure Process.
Example 3
MPC: $0.25
The Exchange has one order resting
on its book in Strategy +1 component A,
¥1 component B:
Order 1 is to sell 10 at $1.90
EBBO component A: 4.00(10) ×
5.00(10)
EBBO component B: 2.00(10) ×
2.50(10)
NBBO component A: 4.05(10) ×
4.15(10)
NBBO component B: 2.30(10) ×
2.40(10)
icEBBO: 1.50 (10) × 3.00 (10)
cNBBO: 1.65 (10) × 1.85 (10)
The Exchange receives a new order
(Order 2) to buy 20 at $2.45.
Order 2 buys 10 from Order 1 at $1.90
and initiates the Complex Liquidity
Exposure Process: Order 2 reprices to its
protected price of $2.10 (cNBO of 1.85
+ 0.25) and is posted at that price on the
Strategy Book and the Complex
Liquidity Exposure Process Auction
begins.
No new liquidity arrives during the
Auction. At the end of the Auction,
Order 2 reprices to its next protected
price of $2.35 (prior protected price of
2.10 + 0.25) and is posted at that price
on the Strategy Book and the Complex
Liquidity Exposure Process Auction
begins.
No new liquidity arrives during the
Auction. At the end of the Auction,
Order 2 reprices to its limit of $2.45 and
is posted at that price on the Strategy
Book, ending the Complex Liquidity
Exposure Process.
Finally, the Exchange proposes to
amend subsection (b) of Interpretation
and Policy .05 to adopt new rule text
stating that the Calendar Spread
Variance (‘‘CSV’’) price protection
applies only to strategies in Americanstyle option classes. A Calendar Spread
is a complex strategy consisting of the
purchase of one call (put) option and
the sale of another call (put) option
overlying the same security that have
different expirations but the same strike
price. The CSV establishes a minimum
trading price limit for Calendar Spreads.
The maximum possible value of a
Calendar Spread is unlimited, thus there
is no maximum price protection for
Calendar Spreads. The minimum
possible trading price limit of a
Calendar Spread is zero minus the preset value of $.10. This ensures that the
Strategy doesn’t trade more than $.10
away from its intrinsic value. (On a
basic level the price of an American-
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style option is comprised of two
components; intrinsic value and time
value. If the strike price of a call option
is $5.00 and the stock is priced at $6.00,
there is $1.00 of intrinsic value in the
price of the call option, anything above
$1.00 represents the time value
component.) An American-style option
must be worth at least as much as its
intrinsic value because the holder of the
option can realize the intrinsic value by
immediately exercising the option. In a
Calendar Spread strategy comprised of
American-style options, ceteris paribus,
the far month should be worth more
than the near month due to its having
a longer time to expiration and therefore
a greater time value. As European-style
options 33 may only be exercised on
their expiration date, the relationship
between the stock price, option price,
and option strike price that exists for
American-style options does not exist
for European-style options. Therefore
the CSV price protection would be
ineffective and will not be available for
strategies comprised of European-style
options.
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 change is consistent with
Section 6(b) of the Act 34 in general, and
furthers the objectives of Section 6(b)(5)
of the Act 35 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
remove impediments to and perfect the
mechanisms of a free and open market
and a national market system and, in
33 The term ‘‘European-style option’’ means an
option contract that, subject to the provisions of
Rule 700 (relating to the cutoff time for exercise
instructions) and to the Rules of the Clearing
Corporation, can be exercised only on its expiration
date. See Exchange Rule 100.
34 15 U.S.C. 78f(b).
35 15 U.S.C. 78f(b)(5).
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general, to protect investors and the
public interest.
The Exchange believes that its
proposal to eliminate the Defined Time
Period to allow Complex Auctions 36 to
occur throughout the trading session
removes impediments to and perfects
the mechanism of a free and open
market and a national market system
and, in general, protects investors and
the public interest by removing an
unnecessary barrier which prevented
Complex Auctions from occurring with
less than two seconds left in the trading
session. The current anticipated
duration of a Complex Auction is just
200 milliseconds. The Exchange
believes it is in the best interest of the
investor to allow for opportunities for
price improvement throughout the
entire trading session. In the event that
a Member initiates a Complex Auction
and no Members respond, the initiating
Member is no worse off under the
proposed rule than the Member would
have been under the current rule which
prevents the Member from even
attempting to initiate a Complex
Auction with less than two seconds left
in the trading session. Additionally, a
Member who initiates a Complex
Auction will not forego the opportunity
to trade with unrelated interest received
during the Auction period, as this
interest is included in the Complex
Auction.37
The Exchange believes the proposed
changes promote just and equitable
principles of trade and remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because
they seek to add additional detail to,
and improve the accuracy of, the
Exchange’s rules. In particular, the
Exchange believes that the proposed
rule changes will provide clarity and
transparency of the Exchange’s rules to
Members and the public, and it is in the
public interest for rules to be accurate
and concise so as to minimize the
potential for confusion.
Further, the Exchange believes that
providing a TMPC Price during a
Complex Auction or a cPRIME Auction
protects investors against executions at
potentially erroneous prices.
Additionally, the Exchange believes that
adding additional detail to the
Exchange’s rules regarding the operation
of MIAX [sic] Options Price Collar, and
36 Complex Auctions are described in Exchange
Rule 518(d) and are separate and distinct from
cPRIME Auctions which are described in
Interpretation and Policy .12 of Exchange Rule
515A, MIAX Price Improvement Mechanism
(‘‘PRIME’’) and PRIME Solicitation Mechanism.
37 See supra note 14.
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10859
including the method of calculating a
TMPC Price for the limited
circumstances when one is used,
promotes just and equitable principles
of trade and removes impediments to a
free and open market by providing
greater transparency concerning the
operation of Exchange functionality.
The Exchange also believes its
proposal to adopt a Complex Liquidity
Exposure Process promotes just and
equitable principles of trade and
removes impediments to and perfects
the mechanisms of a free and open
market and a national market system
and, in general, protects investors and
the public interest. The Complex
Liquidity Exposure Process provides an
additional opportunity for price
discovery for those orders that would
trade through their MPC Price. The
Exchange believes its proposal promotes
just and equitable principles of trade as
it is in the best interest of the Member
to seek liquidity for the unexecuted
portion of the order which exceeds the
order’s MPC Price rather than to simply
cancel the unexecuted portion back to
the Member.38
The Exchange also believes that its
proposal to amend Interpretation and
Policy .05(f) to reflect the changes
resulting from the introduction of the
Complex Liquidity Exposure Process
promotes just and equitable principles
of trade, and removes impediments to
and perfects the mechanisms of a free
and open market and a national market
system and, in general, protects
investors and the public interest by
clearly describing the operation of the
Exchange’s functionality in the
Exchange’s rules. The Exchange believes
it is in the interest of investors and the
public to accurately describe the
behavior of the Exchange’s System in its
rules as this information may be used by
investors to make decisions concerning
the submission of their orders. Further,
the Exchange’s proposal to make nonsubstantive changes to re-number
certain paragraphs for internal
consistency within the rule benefits
investors and the public interest by
providing clarity and accuracy in the
Exchange’s rules.
Finally, the Exchange believes its
proposal to clarify that the Calendar
Spread Variance (CSV) price protection
is available only for American-style
options promotes just and equitable
principles of trade, and removes
impediments to and perfects the
mechanisms of a free and open market
and a national market system and, in
general, and protects investors and the
public interest by providing clarity and
precision in the Exchange’s rules. Given
that European-style options may only be
exercised on their expiration date, the
CSV price protection would be
ineffective for strategies comprised of
European-style options. Therefore,
under the Exchange’s proposal, the CSV
price protection will not be available for
strategies comprised of European-style
options. The Exchange believes it is in
the interest of investors and the public
to accurately describe the behavior of
the Exchange’s System in its rules as
this information may be used by
investors to make decisions concerning
the submission of their orders.
Transparency and clarity are consistent
with the Act because it removes
impediments to and helps perfect the
mechanism of a free and open market
and a national market system, and, in
general, protects investors and the
public interest by accurately describing
the behavior of the Exchange’s System.
In particular, the Exchange believes that
the proposed rule change will provide
greater clarity to Members and the
public regarding the Exchange’s Rules,
and it is in the public interest for rules
to be accurate and concise so as to
eliminate the potential for confusion.
38 The Exchange notes that Members who believe
that an execution has occurred at an erroneous
price may avail themselves of the protections
provided in Exchange Rule 521, Nullification and
Adjustment of Options Transactions Including
Obvious Errors.
Additionally, the Exchange does not
believe the proposed rule change will
impose any burden on intra-market
competition as the Rules apply equally
to all Members of the Exchange.
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
The Exchange does not believe the
proposed rule change will impose any
burden on inter-market competition.
The Exchange’s proposal seeks to
enhance complex order trading on the
Exchange, and may potentially enhance
competition among the various markets
for complex order execution, potentially
resulting in more active complex order
trading on all exchanges. The changes to
the Exchange rules concerning the use
of a TMPC Price is designed to add
additional detail to the rules to further
clarify the operation of Exchange
functionality and to minimize the
potential for confusion.
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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 39 and Rule 19b–4(f)(6) 40
thereunder.
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 41 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 42
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 harmonize its rules with those of
MIAX Options. MIAX Emerald states
that the proposal will implement
functionality that is identical to
functionality currently operative on
MIAX Options 43 and does not raise new
regulatory issues. In addition, as
discussed above, 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
harmonize its rules with those of MIAX
Options, thereby reducing the potential
for confusion among market participants
that are Members of both MIAX Emerald
39 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.
41 17 CFR 240.19b–4(f)(6).
42 17 CFR 240.19b–4(f)(6)(iii).
43 See supra note 3, and accompanying text.
40 17
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and MIAX Options. In addition, the
Commission notes that the proposed
rule change is based on substantively
identical rules of MIAX Options and
thus raises no new regulatory issues.
Accordingly, the Commission hereby
waives the operative delay and
designates the proposal operative upon
filing.44
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 SREMERALD–2019–14 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–2019–14. 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
44 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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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–2019–14 and
should be submitted on or before April
12, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.45
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–05468 Filed 3–21–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85348; File No. SR–
NYSEAMER–2019–05]
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending Commentary
.02 to Rule 960NY To Specify That
Replacement Issues May Be Added to
the Penny Pilot Quarterly
March 18, 2019.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on March 7,
2019, NYSE American LLC (‘‘NYSE
American’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II, which Items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
45 17
CFR 200.30–3(a)(12).
U.S.C.78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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]]>Agencies
[Federal Register Volume 84, Number 56 (Friday, March 22, 2019)]
[Notices]
[Pages 10854-10860]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05468]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[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.
---------------------------------------------------------------------------
\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
[[Page 10855]]
Orders, in order 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 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 functionality, as described below, that is identical to
functionality currently operative on 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 MIAX Emerald Rule 518 and MIAX Options Rule 518 were substantially
similar. MIAX Options recently amended its Rule 518 \6\ and in order to
ensure consistent operation of both MIAX Emerald and MIAX Options
through having consistent rules, the Exchange now proposes to amend
MIAX Emerald Exchange Rule 518 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. 85155 (February 15,
2019), 84 FR 5739 (February 22, 2019) (SR-MIAX-2018-36).
---------------------------------------------------------------------------
Specifically, the Exchange proposes to amend Exchange Rule 518,
Complex Orders, to (i) amend the Response Time Interval and Defined
Time Period for Complex Auctions (each defined below); (ii) amend
Interpretation and Policy .05(f), to add additional detail pertaining
to the operation of the Complex MIAX [sic] Price Collar (``MPC''),
specifically to adopt new rule text for the use of a Temporary MIAX
Price Collar (``TMPC'') during a cPRIME Auction or Complex Auction \7\
in the limited instance when an MPC has not been assigned; (iii) adopt
a new Complex Liquidity Exposure Process (``cLEP''); (iv) make minor
changes to the Complex MIAX [sic] Options Price Collar Protection; and
(v) clarify that the Calendar Spread Variance (``CSV'') price
protection applies only to strategies in American-style option \8\
classes.
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\7\ See Exchange Rule 518(d).
\8\ The term ``American-style option'' means an option contract
that, subject to the provisions of Rule 700 (relating to the cutoff
time for exercise instructions) and to the Rules of the Clearing
Corporation, can be exercised on any business day prior to its
expiration date and on its expiration date. See Exchange Rule 100.
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The Exchange proposes to amend subsection (d)(3) which describes
the Response Time Interval of a Complex Auction, which is a single-
sided auction. The Exchange offers Complex Auction functionality as
described in Exchange Rule 518 \9\ and also a cPRIME process for paired
orders, which is unaffected by this proposal, as described in Exchange
Rule 515A.12. The Exchange is not proposing to change the cPRIME
process, and thus the cPRIME Timer will remain at 100 milliseconds.
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\9\ Certain option classes, as determined by the Exchange and
communicated to Members via Regulatory Circular, will be eligible to
participate in a Complex Auction (an ``eligible class''). Upon
evaluation as set forth in subparagraph (c)(5) of Rule 518, the
Exchange may determine to automatically submit a Complex Auction-
eligible order into a Complex Auction. Upon entry into the System or
upon evaluation of a complex order resting at the top of the
Strategy Book, Complex Auction-eligible orders may be subject to an
automated request for responses (``RFR''). See Exchange Rule 518(d).
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Currently, Rule 518(d)(3) provides that the Response Time Interval
means the period of time during which responses to the Request for
Responses (``RFR'') message may be entered. The Rule further provides
that the Exchange determines the duration of the Response Time
Interval, which shall not exceed 500 milliseconds, and communicates it
to Members via Regulatory Circular.\10\ The Exchange now proposes to
adopt new rule text to state that, ``the end of the trading session
will also serve as the end of the Response Time Interval for a Complex
Auction still in progress.'' In connection with this proposed change,
the Exchange proposes to amend subsection (d)(2) to remove the
reference to the Defined Time Period for a Complex Auction. The Defined
Time Period represents the period of time preceding the end of a
trading session during which a Complex Auction will not be initiated.
Currently, by Exchange rule the Defined Time Period shall be at least
100 milliseconds and may not exceed 10 seconds.\11\ The Exchange
anticipates it will launch operations with the duration of a Complex
Auction set to 200 milliseconds.\12\
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\10\ The Exchange notes that the Response Time Interval is
currently set to 200 milliseconds.
\11\ See Exchange Rule 518(d)(2).
\12\ The MIAX Options Complex Auction duration is currently set
to 200 milliseconds. See MIAX Options Regulatory Circular 2016-46.
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The Exchange also proposes to amend subsection (c)(2)(i) to remove
the restriction that a cAOA Order \13\ received during the Defined Time
Period will not initiate a new Complex Auction. Under the current rules
there is no opportunity at all for price improvement via a Complex
Auction when there is less than two seconds left in the trading
session. The Exchange believes that removing the Defined Time Period
and allowing the end of the trading session to serve as the end of the
Response Time Interval in the limited instance that a Complex Auction
is initiated with less than 200 milliseconds left in the trading
session will allow for more opportunities for price improvement via the
auction process. In the event that a Member initiates a Complex Auction
and no Members respond, the initiating Member is no worse off under the
proposed rule than the Member would have been under the current rule
which prevents the Member from even attempting to initiate a Complex
Auction with less than two seconds left in the trading session.
Additionally, a Member who initiates a Complex Auction will not forego
the opportunity to trade with unrelated interest received during the
Auction period, as this interest is included in the Complex
Auction.\14\
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\13\ A ``Complex Auction-on-Arrival'' or ``cAOA'' Order is a
complex order designated to be placed into a Complex Auction upon
receipt or upon evaluation. See Exchange Rule 518(b)(2).
\14\ See Exchange Rule 518(d)(8).
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The Exchange represents that it has the System \15\ capacity and
capability to conduct auctions and execute transactions in a timely
fashion at any
[[Page 10856]]
time during the trading session including the last two seconds.
Further, the Exchange represents that it has surveillances in place to
surveil for conduct that violates the Exchange's rules, specifically as
they pertain to Complex Auctions as described herein.\16\
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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\ The Exchange notes that Rule 518.04, Dissemination of
Information, remains in effect for any Complex Auction-eligible
order submitted to the Exchange at any time.
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The Exchange also proposes to amend Rule 518, Interpretation and
Policy .05, to add additional detail to the rule regarding the
establishment of the MIAX [sic] Price Collar (``MPC'') under various
circumstances to align MIAX Emerald rule text to that of MIAX
Options.\17\ The MPC is a price protection feature designed to help
maintain a fair and orderly market by helping to mitigate the potential
risk of executions at prices that are extreme and potentially
erroneous. The MPC prevents complex orders from automatically executing
at potentially erroneous prices by establishing a price range outside
of which a complex order will not be executed.
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\17\ See Securities Exchange Act Release No. 84519 (November 1,
2018), 83 FR 55776 (November 7, 2018) (SR-MIAX-2018-27).
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The Exchange now proposes to amend Rule 518, Interpretation and
Policy .05, by removing current subsection (f)(3) and replacing it with
new proposed subsections (f)(3) and (f)(4) as described below. New
subsection (f)(3) will provide that, ``[t]he MPC Price is established:
(i) upon receipt of the complex order or eQuote during free trading, or
(ii) if the complex order or eQuote is not received during free
trading, at the opening (or reopening following a halt) of trading in
the complex strategy; or (iii) upon evaluation of the Strategy Book by
the System when a wide market condition, as described in Interpretation
and Policy .05(e)(1) of this Rule, no longer exists.'' \18\
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\18\ The Exchange notes that if wide market conditions exist
(any individual option component of a complex strategy has a
displayed EBBO quote width that is wider than the permissible simple
market quote width) when an order is received, an MPC will not be
calculated until the wide market conditions are resolved. See
Exchange Rule 518.05(e)(1).
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New subsection (f)(4) will provide that, ``[a] Temporary MPC Price
(`TMPC Price') is established solely for use during a Complex Auction
(as defined in Rule 518(d)) or a cPRIME Auction (as defined in Rule
515A, Interpretation and Policy .12) for (i) any complex order resting
on the Strategy Book that does not have an MPC assigned and is eligible
to participate in a Complex Auction or a cPRIME Auction in that
strategy; or (ii) any complex order or eQuote received during a cPRIME
Auction \19\ if a wide market condition existed in a component of the
strategy at the start of the cPRIME Auction. The TMPC Price shall be
the auction start price \20\ (the auction start price of a cPRIME
Agency Order for a cPRIME Auction is defined in Rule 515A.12(a)(i) and
the auction start price for a Complex Auction is defined in Rule
518(d)(1)) plus (minus) the MPC Setting \21\ if the order is a buy
(sell). If the complex order or eQuote eligible to participate in the
Complex Auction or cPRIME Auction is priced more aggressively than the
TMPC Price (i.e., the complex order or eQuote price is greater than the
TMPC Price for a buy order, or the complex order or eQuote price is
lower than the TMPC Price for a sell order) the complex order or eQuote
may participate in the auction but will not trade through its TMPC
Price.'' The minimum MPC Setting is $0.00 and the maximum MPC Setting
is $1.00, as determined by the Exchange and communicated to Members via
Regulatory Circular.\22\ A TMPC Price will be calculated for use during
the length of the auction for any complex order resting on the Strategy
Book that does not have an MPC assigned and is eligible to participate
in a Complex Auction or cPRIME Auction in that strategy, or any complex
order or eQuote received during a cPRIME Auction if a wide market
condition existed in a component of the strategy at the start of the
cPRIME Auction.
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\19\ The Exchange notes that if a wide market condition exists
for a component of a complex strategy, trading in the strategy will
be suspended, except as otherwise set forth in Exchange Rule
518.05(e)(1)(iii), which states that a wide market condition shall
have no impact on the trading of cPRIME Orders and processing of
cPRIME Auctions (including the processing of cPRIME Auction
responses) pursuant to Rule 515A, Interpretation and Policy .12. See
Exchange Rule 518.05(e)(1)(i).
\20\ The auction start price for a cPRIME Auction is the
initiating price of a cPRIME Agency Order as described in Exchange
Rule 515A.12(a)(i). The auction start price for a Complex Auction is
the initiating order's limit price as described in Exchange Rule
518(d)(1).
\21\ See Exchange Rule 518.05(f).
\22\ See Exchange Rule 518.05(f)(2). The Exchange anticipates
that the setting for the launch of trading on MIAX Emerald will be
$.25.
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An example of the TMPC Price being established and used is provided
below.
Example 3--A TMPC Price is established for an order or eQuote received
during a cPRIME Auction
MIAX Emerald--LMM Mar 50 Call 1.00-6.50 (10x10) (Wide Market)
MIAX Emerald--LMM Mar 55 Call 2.90-3.30 (10x10)
ABBO--Mar 50 Call 6.00-6.30 (10x10)
ABBO--Mar 55 Call 3.00-3.30 (10x10)
NBBO--Mar 50 Call 6.00-6.30 (10x10)
NBBO--Mar 55 Call 3.00-3.30 (10x20)
Strategy: Buy 1 Mar 50 Call, Sell 1 Mar 55 Call
The cNBBO is 2.70 debit bid and 3.30 credit offer
The MPC Setting is $.25.
The Exchange receives a cPRIME Order with the cPRIME Agency Order
representing the purchase of the Strategy at a net debit of 3.00, 500
times. Auto-match is not enabled and there are no orders for the
Strategy on the Strategy Book.
A TMPC Price will be calculated for use during the length of the
auction for any complex order or eQuote received during a cPRIME
Auction if a wide market condition existed in a component of the
strategy at the start of the cPRIME Auction. The TMPC Price will be the
cPRIME auction start price +/- the MPC Setting. In this example the
auction start price is $3.00. The TMPC Price is $2.75 ($3.00-$.25) for
sell orders, and $3.25 ($3.00 + $.25) for buy orders.
An RFR is broadcast to all subscribers and the RFR period is
started.
The following responses are received:
@20 milliseconds BD1 response, cAOC Order @2.95 credit sell of
200 arrives
@30 milliseconds MM1 response, cAOC eQuote @2.90 credit sell
of 200 arrives
@50 milliseconds C1 response, cAOC Order @2.70 credit sell of
100 arrives
The cPRIME Auction process will continue until the Response Time
Interval ends. When the 100 millisecond Response Time Interval ends,
the cPRIME Auction process will trade the Agency Order with the best
priced responses. The Agency Order will be filled as follows:
The cPRIME Agency Order buys 100 from C1 @2.75
The cPRIME Agency Order buys 200 from MM1 @2.90
The cPRIME Agency Order buys 200 from BD1 @2.95
Note that C1 is prevented from selling at 2.70 by the cPRIME
Auction TMPC Price limit of 2.75.
The Exchange believes that amending the rule to [sic] regarding the
use of a TMPC Price, which is applicable only in the limited
circumstance when an MPC has not been assigned, and exists only for the
duration of a Complex Auction or cPRIME Auction, adds additional detail
to the Exchange's rules and provides greater transparency of Exchange
functionality. The use of a TMPC Price provides protection for orders
that participate in either a
[[Page 10857]]
Complex Auction or a cPRIME Auction when the order does not have an
assigned MPC Price as described above. This price protection ensures
that orders are not executed at potentially erroneous prices during the
auction. The Exchange believes that the proposed changes promote the
protection of investors and the public interest by providing greater
clarity and specificity of Exchange functionality, and it is in the
public interest for the Exchange's rules to be accurate and concise so
as to minimize the potential for confusion.
The Exchange also proposes to amend current subsection (f)(4)
(proposed subsection (f)(5)) which states that, ``Any unexecuted
portion of such a complex order or eQuote: (A) Will be cancelled if it
would otherwise be displayed or executed at a price that is outside the
MPC Price, and (B) may be subject to the managed interest process
described in Rule 518(c)(4).'' The Exchange proposes to amend this
sentence to account for a proposed Complex Liquidity Exposure Process
(``cLEP'') as described below. The proposed amended sentence will
provide, ``Any unexecuted portion of such a complex order or eQuote:
(A) will be subject to the cLEP as described in subsection (e) of this
Rule, and (B) may be subject to the managed interest process described
in Rule 518(c)(4).''
The Exchange also proposes to adopt new subsection (e) to Rule 518
to describe a Complex Liquidity Exposure Process (``cLEP'') for complex
orders and complex eQuotes that would violate their Complex MIAX [sic]
Price Collar (``MPC'') price. The MPC price protection feature is an
Exchange-wide mechanism under which a complex order or complex eQuote
to sell will not be displayed or executed at a price that is lower than
the opposite side cNBBO \23\ bid at the time the MPC is assigned by the
System (i.e., upon receipt or upon opening) by more than a specific
dollar amount expressed in $0.01 increments (the ``MPC Setting''), and
under which a complex order or eQuote to buy will not be displayed or
executed at a price that is higher than the opposite side cNBBO offer
at the time the MPC is assigned by the System by more than the MPC
Setting (each the ``MPC Price'').\24\
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\23\ The term cNBBO means the Complex National Best Bid or Offer
and is calculated using the National Best Bid or Offer (``NBBO'')
for each component of a complex strategy to establish the best net
bid and offer for a complex strategy. See Exchange Rule 518(a)(2).
\24\ See Exchange Rule 518.05(f).
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The Exchange now proposes to initiate a Complex Liquidity Exposure
Auction (``cLEP Auction'') whenever a complex order or complex eQuote
would execute or post at a price that would violate its MPC Price. To
begin the cLEP Auction, the System will first broadcast a liquidity
exposure message to all subscribers of the Exchange's data feeds. The
liquidity exposure message will include the symbol, side of the market,
auction start price (MPC Price of the complex order or eQuote), and the
imbalance quantity. The purpose of including the imbalance quantity in
the RFR message is to inform such participants of the number of
contracts that are available for execution.
The System will initiate a Response Time Interval, as determined by
the Exchange and communicated via Regulatory Circular which shall be no
less than 100 milliseconds and no more than 5,000 milliseconds.\25\ At
the conclusion of the Complex Liquidity Exposure Auction the resulting
trade price will be determined by the Exchange's Complex Auction
Pricing described in subsection (d)(6) of this Rule and interest will
be executed as provided in subsection (d)(6) of this Rule. In no event
will the resulting trade price of a cLEP Auction ever be more
aggressive than the MPC Price. Remaining liquidity with an original
limit price that is (i) less aggressive (lower for a buy order or
eQuote, or higher for a sell order or eQuote) than or equal to the MPC
Price will be handled in accordance with subsection (c)(2)(ii)-(v) of
this Rule, or (ii) more aggressive than the MPC Price will be subject
to the Reevaluation process as described below. Orders and quotes
executed in a cLEP Auction will be allocated in accordance with the
Complex Auction allocation procedures described in Exchange Rule
518(d)(7)(i)-(vi).
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\25\ The Exchange notes that the current duration of a cPRIME
Auction is 100 milliseconds and the current duration of a Complex
Auction is 200 milliseconds.
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At the conclusion of a cLEP Auction the System will calculate the
next potential MPC Price for remaining liquidity with an original limit
price more aggressive than the existing MPC Price. The next MPC Price
will be calculated as the MPC Price plus (minus) the next MPC increment
for buy (sell) orders (the ``New MPC Price''). The System will initiate
a cLEP Auction for liquidity that would execute or post at a price that
would violate its New MPC Price. Liquidity with an original limit price
less aggressive (lower for a buy order or eQuote, or higher for a sell
order or eQuote) than or equal to the New MPC Price will be posted to
the Strategy Book at its original limit price or handled in accordance
with subsection (c)(2)(ii)-(v) of Rule 518. The cLEP process will
continue until no liquidity remains with an original limit price that
is more aggressive than its MPC Price. At the conclusion of the cLEP
process, any liquidity that has not been executed will be posted to the
Strategy Book at its original limit price.
The current rule provides that if the MPC Price is priced less
aggressively than the limit price of the complex order or eQuote (i.e.,
the MPC Price is less than the complex order or eQuote's bid price for
a buy, or the MPC Price is greater than the complex order or eQuote's
offer price for a sell), or if the complex order is a market order, the
complex order or eQuote will be displayed and/or executed up to its MPC
Price. Any unexecuted portion of such a complex order or eQuote: (A)
will be cancelled if it would otherwise be displayed or executed at a
price that is outside the MPC Price, and (B) may be subject to the
managed interest process described in 518(c)(4).\26\
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\26\ See Exchange Rule 518.05(f)(6).
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The Exchange now proposes to amend subsection(f)(6)(A) to provide
that any unexecuted portion of such a complex order or eQuote will be
subject to the cLEP as described in proposed subsection (e). The
Exchange believes it to be in the best interest of the Member \27\ to
seek liquidity via the Complex Liquidity Exposure Process as described
above, rather than cancel any unexecuted portion of the order. The
Exchange represents that it has the System capability and capacity to
handle the potential cLEP Auctions that may occur under the Exchange's
proposal.
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\27\ 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 examples below demonstrate an order subject to the Complex
Liquidity Exposure Process.
Example 1
MPC: $0.25
The Exchange has one order resting on its Strategy Book: \28\ +1
component A, - 1 component B:
\28\ The term ``Strategy Book'' is the Exchange's electronic
book of complex orders and complex quotes. See Exchange Rule
518(a)(17).
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Order 1 is to sell 10 at $1.90
EBBO \29\ component A: 4.00(10) x 5.00(10)
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\29\ 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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EBBO component B: 2.00(10) x
[[Page 10858]]
2.50(10)
NBBO \30\ component A: 4.05(10) x 4.15(10)
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\30\ The term ``NBBO'' means the national best bid or offer as
calculated by the Exchange based on market information received by
the Exchange from OPRA. See Exchange Rule 100.
NBBO component B: 2.30(10) x 2.40(10)
icEBBO:\31\ 1.50 (10) x 3.00 (10)
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\31\ 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 component of a complex strategy including
displayed and non-displayed trading interest. See Exchange Rule
518(a)(12).
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cNBBO: \32\ 1.65 (10) x 1.85 (10)
\32\ The Complex National Best Bid or Offer (``cNBBO'') is
calculated using the NBBO for each component of a complex strategy
to establish the best net bid and offeror a complex strategy. See
Exchange Rule 518(a)(2).
The Exchange receives a new order (Order 2) to buy 20 at $2.25.
Order 2 buys 10 from Order 1 at $1.90 and initiates the Complex
Liquidity Exposure Process: Order 2 reprices to its protected price of
$2.10 (cNBO of 1.85 + 0.25) and is posted at that price on the Strategy
Book and the Complex Liquidity Exposure Process Auction begins.
During the cLEP Auction the Exchange receives a new order (Order 3)
to sell 10 at $2.10. This order locks the current same side Book Price
of $2.10. At the end of the auction, Order 3 sells 10 to Order 2 at
$2.10, filling both Order 2 and Order 3.
Example 2
MPC: $0.25
The Exchange has one order resting on its book in Strategy +1
component A, -1 component B:
Order 1 is to sell 10 at $1.90
EBBO component A: 4.00(10) x 5.00(10)
EBBO component B: 2.00(10) x 2.50(10)
NBBO component A: 4.05(10) x 4.15(10)
NBBO component B: 2.30(10) x 2.40(10)
icEBBO: 1.50 (10) x 3.00 (10)
cNBBO: 1.65 (10) x 1.85 (10)
The Exchange receives a new order (Order 2) to buy 20 at $2.25.
Order 2 buys 10 from Order 1 at $1.90 and initiates the Complex
Liquidity Exposure Process: Order 2 reprices to its protected price of
$2.10 (cNBO of 1.85 + 0.25) and is posted at that price on the Strategy
Book and the Complex Liquidity Exposure Process Auction begins.
No new liquidity arrives during the Auction. At the end of the
Auction, Order 2 reprices to its limit of $2.25 and is posted at that
price on the Strategy Book, ending the Complex Liquidity Exposure
Process.
Example 3
MPC: $0.25
The Exchange has one order resting on its book in Strategy +1
component A, -1 component B:
Order 1 is to sell 10 at $1.90
EBBO component A: 4.00(10) x 5.00(10)
EBBO component B: 2.00(10) x 2.50(10)
NBBO component A: 4.05(10) x 4.15(10)
NBBO component B: 2.30(10) x 2.40(10)
icEBBO: 1.50 (10) x 3.00 (10)
cNBBO: 1.65 (10) x 1.85 (10)
The Exchange receives a new order (Order 2) to buy 20 at $2.45.
Order 2 buys 10 from Order 1 at $1.90 and initiates the Complex
Liquidity Exposure Process: Order 2 reprices to its protected price of
$2.10 (cNBO of 1.85 + 0.25) and is posted at that price on the Strategy
Book and the Complex Liquidity Exposure Process Auction begins.
No new liquidity arrives during the Auction. At the end of the
Auction, Order 2 reprices to its next protected price of $2.35 (prior
protected price of 2.10 + 0.25) and is posted at that price on the
Strategy Book and the Complex Liquidity Exposure Process Auction
begins.
No new liquidity arrives during the Auction. At the end of the
Auction, Order 2 reprices to its limit of $2.45 and is posted at that
price on the Strategy Book, ending the Complex Liquidity Exposure
Process.
Finally, the Exchange proposes to amend subsection (b) of
Interpretation and Policy .05 to adopt new rule text stating that the
Calendar Spread Variance (``CSV'') price protection applies only to
strategies in American-style option classes. A Calendar Spread is a
complex strategy consisting of the purchase of one call (put) option
and the sale of another call (put) option overlying the same security
that have different expirations but the same strike price. The CSV
establishes a minimum trading price limit for Calendar Spreads. The
maximum possible value of a Calendar Spread is unlimited, thus there is
no maximum price protection for Calendar Spreads. The minimum possible
trading price limit of a Calendar Spread is zero minus the pre-set
value of $.10. This ensures that the Strategy doesn't trade more than
$.10 away from its intrinsic value. (On a basic level the price of an
American-style option is comprised of two components; intrinsic value
and time value. If the strike price of a call option is $5.00 and the
stock is priced at $6.00, there is $1.00 of intrinsic value in the
price of the call option, anything above $1.00 represents the time
value component.) An American-style option must be worth at least as
much as its intrinsic value because the holder of the option can
realize the intrinsic value by immediately exercising the option. In a
Calendar Spread strategy comprised of American-style options, ceteris
paribus, the far month should be worth more than the near month due to
its having a longer time to expiration and therefore a greater time
value. As European-style options \33\ may only be exercised on their
expiration date, the relationship between the stock price, option
price, and option strike price that exists for American-style options
does not exist for European-style options. Therefore the CSV price
protection would be ineffective and will not be available for
strategies comprised of European-style options.
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\33\ The term ``European-style option'' means an option contract
that, subject to the provisions of Rule 700 (relating to the cutoff
time for exercise instructions) and to the Rules of the Clearing
Corporation, can be exercised only on its expiration date. See
Exchange Rule 100.
---------------------------------------------------------------------------
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 change is consistent
with Section 6(b) of the Act \34\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \35\ in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanisms of a free and open market and a national market
system and, in
[[Page 10859]]
general, to protect investors and the public interest.
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\34\ 15 U.S.C. 78f(b).
\35\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that its proposal to eliminate the Defined
Time Period to allow Complex Auctions \36\ to occur throughout the
trading session removes impediments to and perfects the mechanism of a
free and open market and a national market system and, in general,
protects investors and the public interest by removing an unnecessary
barrier which prevented Complex Auctions from occurring with less than
two seconds left in the trading session. The current anticipated
duration of a Complex Auction is just 200 milliseconds. The Exchange
believes it is in the best interest of the investor to allow for
opportunities for price improvement throughout the entire trading
session. In the event that a Member initiates a Complex Auction and no
Members respond, the initiating Member is no worse off under the
proposed rule than the Member would have been under the current rule
which prevents the Member from even attempting to initiate a Complex
Auction with less than two seconds left in the trading session.
Additionally, a Member who initiates a Complex Auction will not forego
the opportunity to trade with unrelated interest received during the
Auction period, as this interest is included in the Complex
Auction.\37\
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\36\ Complex Auctions are described in Exchange Rule 518(d) and
are separate and distinct from cPRIME Auctions which are described
in Interpretation and Policy .12 of Exchange Rule 515A, MIAX Price
Improvement Mechanism (``PRIME'') and PRIME Solicitation Mechanism.
\37\ See supra note 14.
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The Exchange believes the proposed changes promote just and
equitable principles of trade and remove impediments to and perfect the
mechanism of a free and open market and a national market system
because they seek to add additional detail to, and improve the accuracy
of, the Exchange's rules. In particular, the Exchange believes that the
proposed rule changes will provide clarity and transparency of the
Exchange's rules to Members and the public, and it is in the public
interest for rules to be accurate and concise so as to minimize the
potential for confusion.
Further, the Exchange believes that providing a TMPC Price during a
Complex Auction or a cPRIME Auction protects investors against
executions at potentially erroneous prices. Additionally, the Exchange
believes that adding additional detail to the Exchange's rules
regarding the operation of MIAX [sic] Options Price Collar, and
including the method of calculating a TMPC Price for the limited
circumstances when one is used, promotes just and equitable principles
of trade and removes impediments to a free and open market by providing
greater transparency concerning the operation of Exchange
functionality.
The Exchange also believes its proposal to adopt a Complex
Liquidity Exposure Process promotes just and equitable principles of
trade and removes impediments to and perfects the mechanisms of a free
and open market and a national market system and, in general, protects
investors and the public interest. The Complex Liquidity Exposure
Process provides an additional opportunity for price discovery for
those orders that would trade through their MPC Price. The Exchange
believes its proposal promotes just and equitable principles of trade
as it is in the best interest of the Member to seek liquidity for the
unexecuted portion of the order which exceeds the order's MPC Price
rather than to simply cancel the unexecuted portion back to the
Member.\38\
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\38\ The Exchange notes that Members who believe that an
execution has occurred at an erroneous price may avail themselves of
the protections provided in Exchange Rule 521, Nullification and
Adjustment of Options Transactions Including Obvious Errors.
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The Exchange also believes that its proposal to amend
Interpretation and Policy .05(f) to reflect the changes resulting from
the introduction of the Complex Liquidity Exposure Process promotes
just and equitable principles of trade, and removes impediments to and
perfects the mechanisms of a free and open market and a national market
system and, in general, protects investors and the public interest by
clearly describing the operation of the Exchange's functionality in the
Exchange's rules. The Exchange believes it is in the interest of
investors and the public to accurately describe the behavior of the
Exchange's System in its rules as this information may be used by
investors to make decisions concerning the submission of their orders.
Further, the Exchange's proposal to make non-substantive changes to re-
number certain paragraphs for internal consistency within the rule
benefits investors and the public interest by providing clarity and
accuracy in the Exchange's rules.
Finally, the Exchange believes its proposal to clarify that the
Calendar Spread Variance (CSV) price protection is available only for
American-style options promotes just and equitable principles of trade,
and removes impediments to and perfects the mechanisms of a free and
open market and a national market system and, in general, and protects
investors and the public interest by providing clarity and precision in
the Exchange's rules. Given that European-style options may only be
exercised on their expiration date, the CSV price protection would be
ineffective for strategies comprised of European-style options.
Therefore, under the Exchange's proposal, the CSV price protection will
not be available for strategies comprised of European-style options.
The Exchange believes it is in the interest of investors and the public
to accurately describe the behavior of the Exchange's System in its
rules as this information may be used by investors to make decisions
concerning the submission of their orders. Transparency and clarity are
consistent with the Act because it removes impediments to and helps
perfect the mechanism of a free and open market and a national market
system, and, in general, protects investors and the public interest by
accurately describing the behavior of the Exchange's System. In
particular, the Exchange believes that the proposed rule change will
provide greater clarity to Members and the public regarding the
Exchange's Rules, and it is in the public interest for rules to be
accurate and concise so as to eliminate the potential for confusion.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
The Exchange does not believe the proposed rule change will impose
any burden on inter-market competition. The Exchange's proposal seeks
to enhance complex order trading on the Exchange, and may potentially
enhance competition among the various markets for complex order
execution, potentially resulting in more active complex order trading
on all exchanges. The changes to the Exchange rules concerning the use
of a TMPC Price is designed to add additional detail to the rules to
further clarify the operation of Exchange functionality and to minimize
the potential for confusion.
Additionally, the Exchange does not believe the proposed rule
change will impose any burden on intra-market competition as the Rules
apply equally to all Members of the Exchange.
[[Page 10860]]
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 \39\ and Rule 19b-4(f)(6) \40\
thereunder.
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\39\ 15 U.S.C. 78s(b)(3)(A).
\40\ 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 \41\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \42\ 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 harmonize its rules
with those of MIAX Options. MIAX Emerald states that the proposal will
implement functionality that is identical to functionality currently
operative on MIAX Options \43\ and does not raise new regulatory
issues. In addition, as discussed above, 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
harmonize its rules with those of 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 the proposed rule change is based on substantively identical rules
of MIAX Options and thus raises no new regulatory issues. Accordingly,
the Commission hereby waives the operative delay and designates the
proposal operative upon filing.\44\
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\41\ 17 CFR 240.19b-4(f)(6).
\42\ 17 CFR 240.19b-4(f)(6)(iii).
\43\ See supra note 3, and accompanying text.
\44\ 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-2019-14 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-2019-14. 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-2019-14 and should be submitted
on or before April 12, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\45\
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\45\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05468 Filed 3-21-19; 8:45 am]
BILLING CODE 8011-01-P
