Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 503, 11347-11354 [2019-05696]
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Federal Register / Vol. 84, No. 58 / Tuesday, March 26, 2019 / Notices
the BZX, BYX, EDGA, or EDGX book.13
For the foregoing reasons, the Exchange
believes that the proposed rule change
is consistent with the Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. As discussed
above, the proposed functionality is
partly based on existing functionality
available on competitor exchanges.14
Furthermore, the Exchange provides
routing services in a highly competitive
market in which participants may avail
themselves of a wide variety of routing
options offered by other exchanges,
alternative trading systems, other
broker-dealers, market participants’ own
proprietary routing systems, and service
bureaus. In such an environment,
system enhancements such as the
changes proposed in this rule filing do
not burden competition, because they
can succeed in attracting order flow to
the Exchange only if they offer investors
higher quality and better value than
services offered by others. Encouraging
competitors to provide higher quality
and better value is the essence of a wellfunctioning competitive marketplace.
Lastly, SCAR would not provide any
advantage to members when routing to
the Nasdaq Affiliated Exchanges as
compared to other methods of routing or
connectivity available to members by
the Exchange. For the foregoing reasons,
the Exchange does not believe the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or 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 from the date on
which it was filed, or such shorter time
13 See
BZX Rule 11.13(b)(3)(O), BYX Rule
11.13(b)(3)(M), EDGA Rule 11.11(g)(7), and EDGX
Rule 11.11(g)(7). ALLB is also substantially similar
to the Exchange’s PCRT strategy, as described
above.
14 Id.
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as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 15 and Rule 19b–
4(f)(6) thereunder.16
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–
Phlx–2019–04 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–Phlx–2019–04. 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
15 15
U.S.C. 78s(b)(3)(A).
16 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
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11347
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-Phlx-2019–04 and should
be submitted on or before April 16,
2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–05697 Filed 3–25–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85365; File No. SR–MIAX–
2019–12]
Self-Regulatory Organizations; Miami
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend Exchange Rule 503
March 20, 2019.
Pursuant to the provisions of Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
on March 7, 2019, Miami International
Securities Exchange, LLC (‘‘MIAX
Options’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change as described in
Items I, II, and III 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 503, Openings on
17 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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the Exchange, Interpretations and
Policies .03.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/ at MIAX Options’ principal
office, and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
On October 12, 2018, the Exchange
received approval from the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) to list and trade on the
Exchange, options on the SPIKESTM
Index, a new index that measures
expected 30-day volatility of the SPDR
S&P 500 ETF Trust (commonly known
and referred to by its ticker symbol,
‘‘SPY’’).3 To facilitate trading options on
the Index the Exchange proposes to
amend Exchange Rule 503, Openings on
the Exchange, Interpretations and
Policies .03.
Specifically, the Exchange proposes to
amend Exchange Rule 503, Openings on
the Exchange, Interpretations and
Policies .03, to provide that bona fide
Market Maker activity does not
constitute either a SPIKES strategy order
or a modification to or cancellation of a
previously submitted SPIKES strategy
order during the ‘‘SPIKES Special
Settlement Auction.’’
The SPIKES Index is calculated using
only standard options on SPY that
expire on the third Friday of each
calendar month. Although weekly
options on SPY are available, these are
not used in the calculation of the Index.
To determine the final settlement value
3 See Securities Exchange Act Release No. 84417
(October 12, 2018), 83 FR 52865 (October 18, 2018)
(SR–MIAX–2018–14) (Order Granting Approval of a
Proposed Rule Change by Miami International
Securities Exchange, LLC to List and Trade on the
Exchange Options on the SPIKESTM Index).
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of the Index, the Exchange performs an
Index settlement price calculation
which includes all SPY options that
expire 30 days after the SPIKES
settlement that are included in the
settlement (these options are referred to
in this rule filing as the ‘‘constituent
options’’). In order to perform the Index
settlement price calculation, each
constituent option is assigned a
Settlement Reference Price or ‘‘SRP,’’
defined and discussed in more detail
below. Each SRP is determined using
the SPIKES Special Settlement Auction,
which is conducted once per month, in
the constituent options traded on the
Exchange, on final settlement day. The
SPIKES Special Settlement Auction
utilizes the Exchange’s standard,
existing Opening Process, as defined
and fully-described in Exchange Rule
503(f), with a modification to account
for situations where there remains an
order imbalance 4 that must be filled at
the opening price after the requisite
number of iterations of the imbalance
process takes place under the
Exchange’s existing Opening Process
(the Exchange’s existing Opening
Process provides that the Exchange can
open with an imbalance after the
requisite number of iterations of the
imbalance process takes place).5 This
modification to the Exchange’s existing
Opening Process to facilitate the
execution of this remaining must-fill
interest is referred to as the special
settlement imbalance process (‘‘SSIP’’),
which is governed by Interpretations
and Policies .03 to Exchange Rule 503,
as described more fully below. This
modified Opening Process functionality,
which is accessible to all Members of
the Exchange for participation, occurs in
highly liquid SPY options (which are
simultaneously opening and available
for trading on up to 14 other exchanges,
thus providing real-time cross-reference
prices for the SPY options included in
the settlement) is used to conduct the
SPIKES Special Settlement Auction to
settle expiring SPIKES options.
As discussed more fully below, the
Exchange’s existing Opening Process
runs to completion and precedes the
engagement of the new SSIP. The
existing Opening Process cannot occur
prior to 9:30 a.m. Eastern Time and only
begins following the dissemination of a
quote or trade in the market for the
underlying security.6 Following the
dissemination of a quote or trade in the
4 An ‘‘imbalance’’ occurs when there is
insufficient liquidity to satisfy all trading interest
due an execution at a certain price. See Exchange
Rule 503(f)(2)(v).
5 See Exchange Rule 503(f)(2)(vii)(B)(5).
6 See Exchange Rule 503(e)(1).
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market for the underlying security, the
System 7 pauses for a period of time no
longer than one half second to allow the
marketplace to absorb this information.8
When there is an imbalance,9 the
System broadcasts a System Imbalance
Message (which includes the symbol,
side of the market, quantity of matched
contracts, the imbalance quantity, must
fill quantity (i.e., the number of
contracts that must be filled in order for
that option to open on the Exchange at
the indicated price), quantity of routable
contracts, and price of the affected
series) to subscribers of the Exchange’s
data feeds and begins an Imbalance
Timer 10 not to exceed three seconds.11
Under the existing Opening Process the
Exchange may repeat this process up to
three times.12 While the Exchange is
conducting its Opening Process, all 14
other option exchanges will also be
conducting their opening process for
SPY options. As the Exchange works
through its process to resolve
imbalances under the existing Opening
Process, other Exchanges will be open
and serve as real-time cross-reference
prices for those SPY options, enabling
market participants to send orders to the
Exchange if there are pricing anomalies
for these SPY options across venues.
The longer it takes the Exchange to work
through the imbalance, the greater the
likelihood that other exchanges will
have opened their SPY options market
and the natural pressures of a
competitive market helps to eliminate
any pricing anomalies and aid in
eliminating the imbalance on the
Exchange.
As previously discussed, on the day
the settlement value for the Index is
calculated, the Exchange conducts the
SPIKES Special Settlement Auction,
using its standard, existing Opening
Process for all options on the Exchange,
including the constituent options.13
Pursuant to the standard, existing
Opening Process, if there are no quotes
or orders that lock or cross each other,
the System will open by disseminating
the Exchange’s best bid and offer among
quotes and orders that exist in the
System at that time. If there are quotes
or orders that lock each other, the
System will calculate an Expanded
7 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
8 The Exchange notes that the current setting is
one half second.
9 See supra note 4.
10 The Exchange notes that the current Imbalance
Timer setting is one second.
11 See Exchange Rule 503(f)(2)(vii).
12 See Exchange Rule 503(f)(2)(vii)(B)(4).
13 For a complete description of the Exchange’s
standard, existing Opening Process, refer to
Exchange Rule 503, Openings on the Exchange.
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Quote Range (‘‘EQR’’), as described in
Rule 503(f)(2). The EQR represents the
limits of the range in which transactions
may occur during the Opening
Process.14 The EQR is recalculated any
time a route timer or Imbalance Timer
expires if material conditions of the
market (imbalance size, ABBO 15 price
and size, liquidity price or size, etc.)
have changed during the timer. Once
calculated, the EQR represents the
limits of the range in which transactions
may occur during the Opening
Process.16 The System uses the EQR to
determine the highest and lowest price
of the opening price range.
To calculate the opening price, the
System takes into consideration all valid
Exchange quotes and all valid orders,
together with other exchanges’ markets
for the series, and identifies the price at
which the maximum number of
contracts can trade. If that price is
within the EQR and leaves no
imbalance, the Exchange will open at
that price, executing marketable trading
interest as long as the opening price
includes only Exchange interest.17 If the
calculated opening price included
interest other than solely Exchange
interest, the System will broadcast a
system imbalance message (which
includes the symbol, side of the market,
quantity of matched contracts, the
imbalance quantity, must fill quantity,
quantity of routable contracts, and price
of the affected series) to Exchange
Members 18 and initiate a ‘‘route timer,’’
not to exceed one second.19
If all opening and marketable interest
cannot be completely executed at or
within the EQR without trading at a
price inferior to the ABBO, or cannot
trade at or within the quality opening
market range in the absence of a valid
width NBBO,20 the System will
automatically institute an imbalance
14 See Exchange Rule 503(f)(2)(i). See also
Exchange Regulatory Circular 2012–02, which sets
forth the tables that describe the calculation of the
EQR for option classes traded on the Exchange, at
https://www.miaxoptions.com/sites/default/files/
circular-files/MIAX_Opening_Process_and_Pause_
Timer.pdf.
15 The term ‘‘ABBO’’ or ‘‘Away Best Bid or Offer’’
means the best bid(s) or offer(s) disseminated by
other Eligible Exchanges (defined in Rule 1400(f))
and calculated by the Exchange based on market
information received by the Exchange from OPRA.
See Exchange Rule 100.
16 See Exchange Rule 503(f)(2)(i).
17 See Exchange Rule 503(f)(2)(iv).
18 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.
19 See Exchange Rule 503(f)(2)(iv)(A).
20 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.
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process.21 The System will broadcast a
system imbalance message (which
includes the symbol, side of the market,
quantity of matched contracts, the
imbalance quantity, must fill quantity,
quantity of routable contracts, and price
of the affected series) to subscribers of
the Exchange’s data feeds, and begin an
Imbalance Timer, not to exceed three
seconds.22 Market Makers 23 may enter
Opening Only (‘‘OPG’’) eQuotes,24
Auction or Cancel (‘‘AOC’’) eQuotes,25
Standard quotes,26 Opening Orders
(‘‘OPG Orders’’),27 AOC Orders 28 and
limit orders during the Imbalance
Timer. Other Exchange Members may
enter OPG Orders, AOC Orders and
other order types (except those order
types not valid during the Opening
Process, as described in Rule 516)
during the Imbalance Timer.29 If, at the
conclusion of the timer, quotes and
orders submitted during the Imbalance
Timer, or other changes to the ABBO,
would not allow the entire imbalance
amount to trade at the Exchange at or
within the EQR without trading at a
price inferior to the ABBO, the System
will send a new system imbalance
message to Exchange Members and
initiate a route timer for routable Public
Customer orders not to exceed one
second. If, during the route timer,
interest is received by the System which
would allow all interest to trade on the
System (i.e., there is no longer an
imbalance) at the opening price without
trading at a price inferior to other
markets, the System will trade and the
route timer will end.30 The System may
repeat the imbalance process up to three
times (as established by the
21 See
Exchange Rule 503(f)(2)(vii).
Exchange Rule 503(f)(2)(vii)(A).
23 The term ‘‘Market Makers’’ refers to ‘‘Lead
Market Makers’’, ‘‘Primary Lead Market Makers’’
and ‘‘Registered Market Makers’’ collectively. See
Exchange Rule 100.
24 An opening only or ‘‘OPG’’ eQuote is a quote
that can be submitted by a Market Maker only
during the Opening as set forth in Rule 503. OPG
eQuotes will automatically expire at the end of the
Opening Process. See Exchange Rule 517(a)(2)(iii).
25 An Auction or Cancel or ‘‘AOC’’ eQuote is a
quote submitted by a Market Maker to provide
liquidity in a specific Exchange process with a time
in force that corresponds with the duration of that
event and will automatically expire at the end of
that event. See Exchange Rule 517(a)(2)(ii).
26 A Standard quote is a quote submitted by a
Market Maker that cancels and replaces the Market
Maker’s previous Standard quote, if any. See
Exchange Rule 517(a)(1).
27 An Opening or ‘‘OPG’’ Order is an order that
is valid only for the opening process. See Exchange
Rule 516(h).
28 An Auction-or-Cancel or ‘‘AOC’’ order is a limit
order used to provide liquidity during a specific
Exchange process with a time in force that
corresponds with that event. See Exchange Rule
516(b)(4).
29 See supra note 10.
30 See Exchange Rule 503(f)(2)(vii)(B)(2).
22 See
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11349
Exchange).31 Following completion of
the third imbalance process, if there is
an opening transaction, any unexecuted
contracts from the imbalance not traded
or routed will be cancelled back to the
entering Member if the price for those
contracts crosses the opening price, in
effect cancelling that must fill interest.32
That is the completion of the Exchange’s
standard, existing Opening Process.
Now, where an imbalance exists in
constituent options and the final
imbalance process has been conducted
as part of the Exchange’s standard,
existing Opening Process, instead of
cancelling that must fill interest back to
the entering Member, the Exchange
conducts the SSIP,33 where the
Exchange will satisfy that must fill
interest. The Exchange does not want to
cancel any must fill interest, as this
liquidity could represent previously
hedged interest that must be unwound.
The SSIP is employed to satisfy all
liquidity identified as must fill which is
creating the imbalance, referred to as the
must fill imbalance. The SSIP is an
iterative process that is designed to
determine a price at which all must fill
imbalance interest can be satisfied.34 In
the SPIKES Special Settlement Auction,
in addition to any order types that may
be regularly accepted by the Exchange,
the Exchange will also accept settlement
auction only orders (‘‘SAO Orders’’) and
settlement auction only eQuotes (‘‘SAO
eQuotes’’) (SAO Orders and SAO
eQuotes are collectively referred to as
‘‘SAOs’’) at any time after the opening
of the Live Order Window (‘‘LOW’’) 35
and the Live Quote Window (‘‘LQW’’),36
respectively. SAOs are specific order
types that allow a Member to
voluntarily tag such order as a SPIKES
strategy order, defined below. All orders
for participation in the SPIKES Special
Settlement Auction that are related to
positions in, or a trading strategy
involving, SPIKES Index options
(‘‘SPIKES strategy orders’’), and any
change to or cancellation of any such
order: (i) Must be received prior to the
applicable SPIKES strategy order cut-off
time for the constituent option series, as
determined by the Exchange, which
may be no earlier than the opening of
the LOQ or the LQW, and no later than
the opening of trading in the series. The
31 See
Exchange Rule 503(f)(2)(vii)(B)(4).
Exchange Rule 503(f)(2)(vii)(B)(5).
33 See Exchange Rule 503(f)(2)(vii)(B)(5)(a).
34 See Exchange Rule 503, Interpretations and
Policies .03.
35 The Exchange notes that the current Live Order
Window opens at 7:30 a.m.
36 The Exchange notes that the current Live Quote
Window setting opens at 9:25 a.m., however the
Exchange plans to open the Live Quote Window for
the SPIKES Special Settlement Auction at 8:30 a.m.
32 See
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Exchange will announce all
determinations regarding changes to the
applicable SPIKES strategy order cut-off
time via Regulatory Circular at least one
day prior to implementation (however
the Exchange anticipates initially
establishing the cut-off time at 9:20 a.m.
Eastern); and (ii) may not be cancelled
or modified after the applicable SPIKES
strategy order cut-off time, unless the
SPIKES strategy order is not executed in
the SPIKES Special Settlement Auction
and the cancellation or modification is
submitted after the SPIKES Special
Settlement Auction is concluded
(provided that any such SPIKES strategy
order may be modified or cancelled after
the applicable SPIKES strategy order
cut-off time and prior to the applicable
non-SPIKES strategy order cut-off time
in order to correct a legitimate error, in
which case the Member submitting the
change or cancellation will prepare and
maintain a memorandum setting forth
the circumstances that resulted in the
change or cancellation and will file a
copy of the memorandum with the
Exchange no later than the next
business day in a form and manner
prescribed by the Exchange).
In general, the Exchange considers
orders to be SPIKES strategy orders for
purposes of Rule 503 Interpretation and
Policy .03, if the orders possess the
following three characteristics: (A) Are
for options with the expiration that will
be used to calculate the exercise or final
settlement value of the applicable
volatility index option contract; (B) are
for options spanning the full range of
strike prices for the appropriate
expiration for options that will be used
to calculate the exercise or final
settlement value of the applicable
volatility index option contract, but not
necessarily every available strike price;
and (C) are for put options with strike
prices less than the ‘‘at-the-money’’
strike price and for call options with
strike prices greater than the ‘‘at-themoney’’ strike price. They may also be
for put and call options with ‘‘at-themoney’’ strike prices.
Whether certain orders are SPIKES
strategy orders for purposes of
Interpretation and Policy .03 depends
upon specific facts and circumstances.
The Exchange may also deem order
types other than those provided above
as SPIKES strategy orders if the
Exchange determines that to be the case
based upon the applicable facts and
circumstances.
These requirements are substantially
similar to Cboe’s requirements for
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‘‘strategy orders’’ participating in the
VIX settlement auction.37
Market participants that actively trade
SPIKES options may hedge their
positions with SPY option series that
will also be used to calculate the
SPIKES exercise settlement/final
settlement value. Market participants
holding hedged SPIKES options
positions may trade out of their SPY
option series on the relevant SPIKES
expiration/final settlement date.
Specifically, market participants
holding short, hedged SPIKES options
could liquidate that hedge by selling
their SPY options series, while traders
holding long, hedged SPIKES options
could liquidate their hedge by buying
SPY option series. In order to seek
convergence with the SPIKES exercise/
final settlement value, these market
participants may liquidate their hedges
by submitting SPIKES strategy orders in
the appropriate SPY option series
during the SPIKES Special Settlement
Auction on the SPIKES expiration/final
settlement date.
The SPIKES strategy order cut-off
time exists because trades to liquidate
hedges can contribute to an order
imbalance during the SPIKES Special
Settlement Auction in SPY option series
on expiration/final settlement dates. For
example, traders liquidating hedges
could predominantly be on one side of
the market and those market
participants’ orders may create buy or
sell order imbalances during the SPIKES
Special Settlement Auction in SPY
option series on expiration/final
settlement dates. As a result of having
a SPIKES strategy order cut-off time in
place, the Exchange has created a
defined window to encourage
participation in the SPIKES Special
Settlement Auction among market
participants who may wish to place offsetting orders against imbalances to
which SPIKES strategy orders may have
contributed. Additionally, by
precluding the modification or
cancellation of SPIKES strategy orders
from occurring after the cut-off time, the
Exchange is ensuring that the order
book reflects bona-fide interest for
execution, and is a feature designed to
prevent manipulation of the final
settlement price.
Next, to begin the SSIP, which occurs
during the SPIKES Special Settlement
Auction and is done to resolve
imbalances, the System broadcasts a
system imbalance message to all
subscribers of the Exchange’s relevant
37 See Cboe Rule 6.2, Hybrid Opening (and
Sometimes Closing) System (‘‘HOSS’’),
Interpretations and Policies .01, Modified Opening
Procedure for Series Used to Calculate the Exercise/
Final Settlement Values of Volatility Indexes.
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data feed and begins an SSIP Imbalance
Timer, the duration of which shall be
determined by the Exchange, not to
exceed ten seconds, and shall be
communicated via Regulatory Circular.
During the SSIP Imbalance Timer, the
System accepts all quote and order
types supported during the standard
Opening Process. Next, the System
evaluates the must fill imbalance and
adjusts the EQR by a defined amount by
appending to the EQR (adding to offers
or subtracting from bids) the EQR value
(as determined by the Exchange and
communicated via Regulatory
Circular).38 During the SSIP, the
allowable EQR is increased .5 times the
EQR value upon each iteration of the
SSIP. The SSIP is repeated until a price
is reached at which there is no
remaining must fill imbalance.
Once there is no remaining must fill
imbalance, SAOs, AOC Orders, AOC
eQuotes, OPG Orders, and OPG eQuotes
submitted into the SPIKES Special
Settlement Auction are cancelled. Any
unfilled day limit orders and GTC
orders that are priced at the Opening
Price are placed on the Book and
managed by the System.
As previously discussed, the System
assigns an SRP to each constituent
option to facilitate the calculation of the
final settlement price of the Index. If the
System opens the constituent option
with a trade, the System assigns the
constituent option an SRP equal to the
trade price in that option. If there is no
locking or crossing interest and the
System opens the constituent option
without a trade, and the bid-ask spread
is at or within a range as defined by the
Exchange in an SRP opening width table
and communicated via Regulatory
Circular, the System assigns the
constituent option an SRP equal to the
midpoint of the bid and ask prices. If
the bid-ask spread is not within a range
as defined in the SRP opening width
table, the System conducts an additional
process to determine the SRP of the
constituent option, as follows.
First, the System starts a settlement
reference price timer (‘‘SRPT’’) (the
duration of which shall be defined by
the Exchange not to exceed sixty
seconds and shall be communicated via
Regulatory Circular). If, during the
SRPT, there is a trade on the Exchange,
the System will set the SRP equal to the
trade price. If, during the SRPT, the bidask spread changes so that it is within
a range defined in the settlement price
opening width table, the System will set
the SRP equal to the midpoint of the bid
and ask price.
38 See
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If the SRPT expires, the System will
set the SRP equal to the Reference Price
(the current price of that option utilizing
the cash index calculation formula,
described above) of the constituent
option if it is equal to or inside the
MBBO.39 If the Reference Price is nonzero and less than the Exchange’s bid,
then the System will set the SRP equal
to the Exchange’s bid. If the Reference
Price is non-zero and greater than the
Exchange’s ask, then the System will set
the SRP equal to the Exchange’s ask. If
the Reference Price is zero and if one or
both adjacent constituent options have a
non-zero SRP, the constituent option
will be excluded from the calculation. If
the Reference Price is zero and there are
multiple adjacent constituent options
with a current Reference Price of zero,
the System will use the midpoint of the
NBBO for the SRP if the NBBO bid-ask
spread is at or within a range defined in
the settlement price opening width
table. If the NBBO bid-ask spread is not
within a range defined in the settlement
price opening width table, the System
will wait for either a trade, or a bid-ask
spread that is within a range defined in
the settlement price opening width
table. Once all constituent options have
been assigned an SRP, the System
performs the final settlement price
calculation of the Index.
In the options market, it is important
for Market Makers to provide liquidity
to execute against orders submitted by
other market participants. Pursuant to
Rule 603, a Market Maker has general
obligations to, among other things,
engage (to a reasonable degree under
existing circumstances) in dealings for
the Market Maker’s own account when
there exists, or it is reasonably
anticipated that there will exist, a lack
of price continuity, a temporary
disparity between the supply of and
demand for an option (i.e., an
imbalance), to compete with other
Market Makers to improve markets in its
appointed classes, and to update market
quotations in response to changed
market conditions in its appointed
classes. Certain types of Market Makers
have obligations to facilitate resolution
of imbalances and make competitive
markets, and the proposed rule change
is consistent with those obligations.40
As described above, the entry of SPIKES
strategy orders may lead to order
imbalances in the option series used to
determine the final settlement value for
expiring SPIKES Index options. In order
39 The term ‘‘MBBO’’ means the best bid or offer
on the Exchange. See Exchange Rule 100.
40 See, e.g., Rules 603 and 604 (describing the
obligations of Primary Lead Market Makers and
Lead Market Makers).
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for the Exchange’s system to open these
series for trading (i.e., to resolve order
imbalances) and achieve the most
competitive pricing in these series,
Market Maker participation in the
SPIKES Special Settlement Auction is
important for adding liquidity and
promoting a fair and orderly opening
and settlement process.
The Exchange understands that some
Market Makers may hesitate to provide
liquidity that could resolve order
imbalances, out of a concern that adding
such liquidity after the SPIKES strategy
order cut-off time could be deemed
either a new SPIKES strategy order or a
modification to or cancellation of an
existing SPIKES strategy order. As a
result, this perceived risk may lead to
reduced liquidity and may exacerbate
the time it takes to open a series at a
competitive price.41 The proposed rule
change encourages Market Makers to
provide liquidity on SPIKES Index
options settlement days by explicitly
stating in Rule 503, Interpretations and
Policies .03, that bona fide Market
Maker activity does not constitute either
a SPIKES strategy order or a
modification to or cancellation of a
previously submitted SPIKES strategy
order during the SPIKES Special
Settlement Auction. The Exchange
believes Market Maker liquidity is
important to the resolution of order
imbalances on SPIKES Index settlement
days and to the orderly opening of series
on such day, due to the fact that a series
cannot open if there is a market order
imbalance. Also, Market Maker liquidity
is desirable to advance the opening of
series at competitive prices on SPIKES
Index settlement days. The Exchange’s
system also relies on Market Maker
liquidity to open series for trading.
Pursuant to Rule 503, the Exchange’s
system will not open a series for trading
if there are no Market Maker quotes
present. Additionally, the width of the
best Market Maker quotes on the
Exchange must be within a certain price
range for the System to open a series for
trading. The Exchange believes the
proposed rule change will incentivize
Market Maker liquidity on SPIKES
Index settlement days by explicitly
stating in the Rules that providing such
liquidity will not be deemed to
constitute either submission of a
SPIKES strategy order or modification or
cancellation of a previously submitted
SPIKES strategy order.
Specifically, proposed Rule 503,
Interpretations and Policies .03(e) states
a Market Maker with an appointment in
a class with constituent option series
may submit bids and offers in those
41 See
PO 00000
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11351
series for bona fide market making
purposes in accordance with Rule 603
and the Securities Exchange Act of 1934
(the ‘‘Act’’), for its market maker
account prior to the open of trading for
participation in the SPIKES Special
Settlement Auction. The Exchange will
deem these bids and offers to be nonSPIKES strategy orders, and will not
deem them to be changes to or
cancellations of previously submitted
SPIKES strategy orders, if:
(i) The Member with which the
Market Maker is affiliated has
established, maintains, and enforces
reasonably designed written policies
and procedures (including information
barriers, as applicable), taking into
consideration the nature of the
Member’s business and other facts and
circumstances, to prevent the misuse of
material nonpublic information
(including the submission of SPIKES
strategy orders); and
(ii) when submitting these bids and
offers, the Market Maker has no actual
knowledge of any previously submitted
SPIKES strategy orders.
In other words, if a Market Maker
submits bids or offers in constituent
options on a SPIKES Index option
settlement day, and if such bids and
offers are for its market maker account
and submitted for purposes of its market
making activities on the Exchange
(including in accordance with Market
Maker obligations, such as to offset
imbalances or provide competitive
pricing), the Market Maker may submit
those bids and offers any time prior to
the open of trading, including both
before and after the strategy order cutoff time. As long as the Member has
appropriate procedures in place both to
prevent the Market Maker from knowing
about the submission of SPIKES strategy
orders by other persons within the
Member organization with which it is
affiliated, and to prevent other persons
from knowing about the Market Maker’s
submission of bids and offers, the
Exchange will not review such bids and
offers for either potential impermissible
entry of SPIKES strategy orders, or
cancellations of or modifications to
previously submitted SPIKES strategy
orders.
Bona fide Market Maker activity is
generally activity consistent with
Market Maker requirements under the
Act and MIAX Options Rules:
• Pursuant to the Act, a market maker
is a specialist permitted to act as a
dealer, any dealer acting in the capacity
of block positioner, and any dealer who,
with respect to a security, holds himself
out (by entering quotations in an interdealer communications system or
otherwise) as being willing to buy and
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sell such security for his own account
on a regular or continuous basis.42
• Pursuant to Rule 603, a Market
Maker appointed to a class must, among
other things, engage to a reasonable
degree under existing circumstances in
dealings for the Market Maker’s own
account when there exists, or it is
reasonably anticipated that there will
exist, a lack of price continuity, a
temporary disparity between the supply
of and demand for an option (i.e., an
imbalance), to compete with other
Market Makers to improve markets in its
appointed classes, and to update market
quotations in response to changed
market conditions in its appointed
classes. Additionally, pursuant to Rule
603, all quotes a Market Maker submits,
including prior to the opening, must
comply with all requirements including
applicable bid-ask differential and
minimum size requirements.43 Rule 604
imposes an ongoing continuous quoting
requirement on Market Makers that
applies through the opening of trading,
as well as during regular trading hours.
• In addition to these obligations,
Market Makers also effect transactions
for the purpose of hedging, reducing
risk of, rebalancing, or liquidating their
open positions.
As noted above, the Exchange
implemented the SPIKES strategy order
cut-off time for the operational purpose
of providing market participants with
time to enter additional orders and
quotes to offset any such imbalances
prior to the opening of these series.44
The Exchange’s surveillance procedures
to determine market participants’
compliance with the SPIKES strategy
order cut-off time are separate and
distinct from the Exchange’s
surveillance procedures to identify
potentially manipulative behavior.
Therefore, from the Exchange’s
perspective, whether a Market Maker’s
bids and offers constitute SPIKES
strategy orders is distinct from whether
the submitting Market Maker is
attempting to engage in manipulative
behavior. The classification of bona fide
Market Maker activity as non-SPIKES
strategy orders will have no impact on
the Exchange’s surveillance procedures
to detect activity intended to
manipulate the settlement value or
violate other Rules. Additionally, all
42 15 U.S.C. 78c(a)(38); see also 12 U.S.C.
1851(d)(1)(B) (market making is intended to service
‘‘the reasonably expected near-term demand’’ of
other parties).
43 Rule 603(b)(4) permits the Exchange to set
different minimum quote size and bid-ask
differential requirements for opening quotes as
those for intraday quotes.
44 See Exchange Rule 503, Interpretations and
Policies .03.
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Market Maker bids and offers, even
though not considered SPIKES strategy
orders pursuant to the proposed rule
change, will continue to be subject to
Exchange surveillance procedures that
monitor trading in the option series
used to calculate SPIKES Index
settlement values on expiration dates, as
well as surveillance procedures that
monitor Market Maker activity for
compliance with Market Maker
obligations in the Rules. This activity
will merely be excepted from Exchange
surveillance procedures determining
compliance with the operational
SPIKES strategy order cut-off time.
The Exchange believes Market Makers
are more likely to interact with and
resolve order imbalances on SPIKES
settlement days if they can be confident
that their bids and offers submitted for
that purpose will not be deemed SPIKES
strategy orders or cancellations of or
modifications to previously submitted
SPIKES strategy orders. As discussed
above, the purpose of the SPIKES
strategy order cut-off time is to provide
market participants, including Market
Makers, with sufficient time to address
imbalances created by SPIKES strategy
orders. Additionally, as discussed
above, pursuant to Rule 503(f), whether
a series opens depends on the presence
of Market Maker quotes at prices no
wider than an acceptable price range.
Market Makers are an important source
of liquidity on the Exchange, and also
have various obligations with which
they must comply. The proposed rule
change will provide a Market Maker
with an opportunity to provide liquidity
on SPIKES Index settlement dates and
to satisfy their Market Maker
obligations, without concern that the
Exchange may consider such activity to
constitute the placing of, or
cancellations to or modifications of,
SPIKES strategy orders, even if the
Member with which the Market Maker
is affiliated submitted a SPIKES strategy
order.
The purpose of this proposed change
is to accommodate the fact that the
Member with which the Market Maker
is affiliated may submit a SPIKES
strategy order while the Market Maker
may also be submitting bids and offers
to accommodate a fair and orderly
opening process, by among other things,
resolving market order imbalances and
submitting competitively priced bids
and offers.
For example, a Member may have a
SPY Market Maker and a separate
volatility trading desk. During the
SPIKES Special Settlement Auction on
a SPIKES Index settlement day, the
trading strategy of the SPY Market
Maker is to provide markets in SPY
PO 00000
Frm 00074
Fmt 4703
Sfmt 4703
options (both before and after the
SPIKES strategy order cut-off time), and
the trading strategy of the volatility
trading desk may be to replicate Vega
exposure by replacing its expiring
SPIKES options positions with positions
in the SPY constituent series. To
replicate its Vega exposure, the
volatility trading desk may enter
SPIKES strategy orders prior to the
SPIKES strategy order cut-off time.
These are separate and distinct trading
strategies. If the Member has reasonable
policies and procedures in place such
that the SPY Market Maker has no
knowledge of the volatility trading
desk’s submission of SPIKES strategy
orders, and that the volatility trader has
no knowledge of the SPY Market
Maker’s submission of bids and offers,
the Exchange believes it is appropriate
for the SPY Market Maker’s bids and
offers to not be deemed SPIKES strategy
orders, or the modification to or
cancellation of the SPIKES strategy
order submitted by its affiliated
volatility trading desk.
The Exchange does not believe it is
necessary to restrict the bona fide
market making activities of a Market
Maker within its appointed classes due
to other unrelated trading activities that
may involve submissions of orders
deemed to be SPIKES strategy orders of
which the Market Maker has no actual
knowledge. The proposed rule change
expressly provides that activity related
to a Market Maker’s market making
activity in an appointed class will not
constitute the submission of a SPIKES
strategy order or the cancellation of or
modification to a previously submitted
SPIKES strategy order.
The proposed rule change makes clear
that a Market Maker’s submission of
bids and offers for bona fide market
making purposes in constituent series is
permitted on SPIKES Index settlement
days through the open of trading in the
same manner as it is permitted in all
series in its appointed classes at all
other times. This will encourage Market
Makers to continue to submit bids and
offers through the open, despite other
trading activity within the Member
organization. This will also ensure
Market Makers can respond to
imbalances and update their quotes 45 in
accordance with their market making
dealings and obligations. The Exchange
believes this will contribute to price
transparency and liquidity in the option
series at the open, and thus will
promote a fair and orderly opening on
SPIKES Index settlement days. The
45 As noted above, the Exchange’s system will not
open a series if there is no quote of if the opening
quote or price is outside an acceptable price range.
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Exchange continuously evaluates the
SPIKES Special Settlement Auction to
identify potential enhancements, and
intends to modify the procedure as it
deems appropriate to contribute to a fair
and orderly opening process. A fair and
orderly opening in these series benefits
all market participants who trade in the
SPIKES Index options and the
constituent options.
The proposed rule change would not
eliminate a Market Maker’s
requirements to abide by Exchange
Rules 301 (Just and Equitable Principles
of Trade), 318 (Manipulation), and 303
(Prevention of the Misuse of Material
Nonpublic Information). The
requirement in the proposed rule
change that the Member with which a
Market Maker is affiliated must
establish, maintain, and enforce policies
and procedures reasonably designed to
ensure the Market Maker will not have
knowledge of the submission of SPIKES
strategy orders is consistent with
requirements of Rule 303. The Exchange
will continue to conduct surveillance to
monitor trading in the option series
used to calculate the SPIKES Index
settlement values on expiration dates,
including but not limited to, monitoring
entry of SPIKES strategy orders, or
modifications to SPIKES strategy orders,
following the cut-off time, as well as
compliance with other Rules.
The proposed rule change also makes
a non-substantive change to change
paragraph numbering resulting from the
addition of this proposed rule.
Additionally, the proposed rule
changes modifies Interpretations and
Policies .03(c) to Rule 503, to state that
‘‘SPIKES strategy orders’’ means all
orders for participation in the SPIKES
Special Settlement Auction that are
related to positions in, or a trading
strategy involving, expiring SPIKES
Index options. The addition of the word
‘‘expiring’’ is a codification of the
Exchange’s interpretation of the term
SPIKES strategy order. As discussed
above, to replicate expiring SPIKES
Index options on their expiration dates
with options portfolios, market
participants generally submit SPIKES
strategy orders to participate in the
SPIKES Special Settlement Auction on
SPIKES Index settlement days. The
addition of the word ‘‘expiring’’ is
consistent with the introductory
paragraph in Interpretations and
Policies .03 to Rule 503, which states
that the SPIKES Special Settlement
Auction applies to series used to
calculate the exercise/final settlement
value of the SPIKES Index for expiring
options contracts, and demonstrates the
rule is meant to refer to orders that
relate to strategies involving expiring
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SPIKES Index options. Therefore, the
proposed codification is consistent with
this general practice, as well as the
current rule.
2. Statutory Basis
The Exchange believes that its
proposed rule change is consistent with
Section 6(b) of the Act 46 in general, and
furthers the objectives of Section 6(b)(5)
of the Act 47 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
remove impediments to and perfect the
mechanisms of a free and open market
and a national market system and, in
general, to protect investors and the
public interest. Additionally, the
Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) requirement that the rules of an
exchange not be designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the Exchange believes
the proposed change will increase
liquidity on SPIKES Index settlement
dates, as it will remove an impediment
that may discourage Market Makers
from submitting bids and offers to offset
imbalances and update the prices of
their quotes in response to changing
market conditions prior to the open. The
Exchange believes this additional
liquidity may contribute to a fair and
orderly opening by increasing execution
opportunities, reducing imbalances in
constituent options, and increasing the
presence of quotes within the acceptable
price range, which would benefit all
market participants who trade in the
SPIKES Index options and the
constituent options. The Exchange does
not believe it is necessary to restrict the
bona fide market maker activities of a
Market Maker due to other unrelated
trading activity by the Member with
which it is affiliated. The Exchange
notes that the proposed rule change
would not impact a Market Maker’s
requirements to abide by Exchange
Rules 301 (Just and Equitable Principles
of Trade), 318 (Manipulation), and 303
(Prevention of the Misuse of Material
Nonpublic Information). The
requirement in the proposed rule
change that the Member with which a
Market Maker is affiliated must
establish, maintain, and enforce policies
and procedures reasonably designed to
46 15
47 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00075
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11353
ensure the Market Maker will not have
knowledge of the submission of SPIKES
strategy orders is consistent with
requirements of Rule 303. As a result,
the Exchange does not believe that the
proposed rule change will be
burdensome on Market Makers.
The Exchange believes the proposed
rule change will contribute to price
transparency and liquidity in the option
series at the open, and thus a fair and
orderly opening on SPIKES Index
settlement days. A fair and orderly
opening in these series benefits all
market participants who trade in the
SPIKES Index options and the
constituent options.
The proposed rule change to add the
term ‘‘expiring’’ to the definition of
SPIKES strategy order is merely a
codification of a current Exchange
interpretation and is consistent with the
definition of constituent options in the
current rule.
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. Because of
the importance of Market Maker
liquidity in the options market and the
Exchange’s need for competitive quotes
to open a series, the Exchange believes
it is appropriate for Market Makers’ bids
and offers prior to the opening of
trading, including after the SPIKES
strategy order cut-off time, not to be
considered SPIKES strategy orders, or
cancellations to or modifications of
previously submitted SPIKES strategy
orders. As discussed above, Market
Makers are subject to various obligations
under the Rules, and the proposed rule
change provides them with the ability to
satisfy these obligations without the risk
of their market making activity being
deemed to constitute SPIKES strategy
orders or modifications to or
cancellations of SPIKES strategy orders.
The requirement in the proposed rule
change that the Member with which a
Market Maker is affiliated must
establish, maintain, and enforce policies
and procedures is reasonably designed
to ensure the Market Maker will not
have knowledge of the submission of
SPIKES strategy orders and is consistent
with the requirements of Rule 303. As
a result, the Exchange does not believe
the proposed rule change will be
burdensome on Market Makers. The
Exchange does not believe it is
necessary to restrict the bona fide
market maker activities of a Member
due to its other unrelated trading
activities. The proposed rule change has
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no impact on intermarket competition,
as it applies to orders and quotes
submitted to the SPIKES Special
Settlement Auction the Exchange
conducts prior to the open of trading in
certain classes.
The Exchange believes that the
proposed rule change will relieve any
burden on, or otherwise promote,
competition. The Exchange believes the
proposed rule change will contribute to
price transparency and liquidity in
constituent options at the open on
SPIKES Index settlement days, and thus
to a fair and orderly opening on those
days. A fair and orderly opening, and
increased liquidity in these series
benefits all market participants who
trade in the SPIKES Index options and
the constituent options.
The proposed rule change to add the
term ‘‘expiring’’ to the definition of
SPIKES strategy orders has no impact on
competition, as it is merely a
codification of a current Exchange
interpretation and is consistent with the
definition of constituent options in the
current rule.
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 48 and Rule 19b–4(f)(6) 49
thereunder.
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.
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48 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.
49 17
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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:
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MIAX–2019–12 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–MIAX–2019–12. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–MIAX–2019–12 and should
be submitted on or before April 16,
2019.
PO 00000
CFR 200.30–3(a)(12).
Frm 00076
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[FR Doc. 2019–05696 Filed 3–25–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
50 17
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.50
Eduardo A. Aleman,
Deputy Secretary.
Sfmt 4703
[Release No. 34–85374; File No. SR–NYSE–
2018–54]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Order
Granting Approval of a Proposed Rule
Change Amending Sections 312.03 and
312.04 of the Listed Company Manual
To Amend the Price Requirements for
Certain Exceptions From the
Shareholder Approval Rules
March 20, 2019.
I. Introduction
On December 3, 2018, New York
Stock Exchange LLC (‘‘NYSE’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend Sections 312.03 and 312.04 of
the NYSE Listed Company Manual
(‘‘Manual’’) to modify the price
requirements that companies must meet
to avail themselves of certain exceptions
from the shareholder approval
requirements set forth in Section 312.03.
The proposed rule change was
published for comment in the Federal
Register on December 20, 2018.3 On
January 30, 2019, pursuant to Section
19(b)(2) of the Act,4 the Commission
designated March 20, 2019, as the date
by which it should either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether to
disapprove the proposed rule change.5
The Commission has received no
comment letters on the proposal. This
order approves the proposed rule
change.
II. Description of the Proposal
The Exchange has proposed to amend
Sections 312.03 and 312.04 of the
Manual to modify the price
requirements that companies must meet
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 84821
(Dec. 14, 2018), 83 FR 65378 (‘‘Notice’’).
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 85005
(Jan. 30, 2019), 84 FR 1812 (Feb. 5, 2019).
2 17
E:\FR\FM\26MRN1.SGM
26MRN1
]]>Agencies
[Federal Register Volume 84, Number 58 (Tuesday, March 26, 2019)]
[Notices]
[Pages 11347-11354]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05696]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85365; File No. SR-MIAX-2019-12]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Exchange Rule 503
March 20, 2019.
Pursuant to the provisions of Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on March 7, 2019, Miami International Securities
Exchange, LLC (``MIAX Options'' or the ``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') a proposed rule
change as described in Items I, II, and III 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.
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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 503,
Openings on
[[Page 11348]]
the Exchange, Interpretations and Policies .03.
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxoptions.com/rule-filings/ at MIAX Options'
principal office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On October 12, 2018, the Exchange received approval from the
Securities and Exchange Commission (``SEC'' or ``Commission'') to list
and trade on the Exchange, options on the SPIKESTM Index, a
new index that measures expected 30-day volatility of the SPDR S&P 500
ETF Trust (commonly known and referred to by its ticker symbol,
``SPY'').\3\ To facilitate trading options on the Index the Exchange
proposes to amend Exchange Rule 503, Openings on the Exchange,
Interpretations and Policies .03.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 84417 (October 12,
2018), 83 FR 52865 (October 18, 2018) (SR-MIAX-2018-14) (Order
Granting Approval of a Proposed Rule Change by Miami International
Securities Exchange, LLC to List and Trade on the Exchange Options
on the SPIKES\TM\ Index).
---------------------------------------------------------------------------
Specifically, the Exchange proposes to amend Exchange Rule 503,
Openings on the Exchange, Interpretations and Policies .03, to provide
that bona fide Market Maker activity does not constitute either a
SPIKES strategy order or a modification to or cancellation of a
previously submitted SPIKES strategy order during the ``SPIKES Special
Settlement Auction.''
The SPIKES Index is calculated using only standard options on SPY
that expire on the third Friday of each calendar month. Although weekly
options on SPY are available, these are not used in the calculation of
the Index. To determine the final settlement value of the Index, the
Exchange performs an Index settlement price calculation which includes
all SPY options that expire 30 days after the SPIKES settlement that
are included in the settlement (these options are referred to in this
rule filing as the ``constituent options''). In order to perform the
Index settlement price calculation, each constituent option is assigned
a Settlement Reference Price or ``SRP,'' defined and discussed in more
detail below. Each SRP is determined using the SPIKES Special
Settlement Auction, which is conducted once per month, in the
constituent options traded on the Exchange, on final settlement day.
The SPIKES Special Settlement Auction utilizes the Exchange's standard,
existing Opening Process, as defined and fully-described in Exchange
Rule 503(f), with a modification to account for situations where there
remains an order imbalance \4\ that must be filled at the opening price
after the requisite number of iterations of the imbalance process takes
place under the Exchange's existing Opening Process (the Exchange's
existing Opening Process provides that the Exchange can open with an
imbalance after the requisite number of iterations of the imbalance
process takes place).\5\ This modification to the Exchange's existing
Opening Process to facilitate the execution of this remaining must-fill
interest is referred to as the special settlement imbalance process
(``SSIP''), which is governed by Interpretations and Policies .03 to
Exchange Rule 503, as described more fully below. This modified Opening
Process functionality, which is accessible to all Members of the
Exchange for participation, occurs in highly liquid SPY options (which
are simultaneously opening and available for trading on up to 14 other
exchanges, thus providing real-time cross-reference prices for the SPY
options included in the settlement) is used to conduct the SPIKES
Special Settlement Auction to settle expiring SPIKES options.
---------------------------------------------------------------------------
\4\ An ``imbalance'' occurs when there is insufficient liquidity
to satisfy all trading interest due an execution at a certain price.
See Exchange Rule 503(f)(2)(v).
\5\ See Exchange Rule 503(f)(2)(vii)(B)(5).
---------------------------------------------------------------------------
As discussed more fully below, the Exchange's existing Opening
Process runs to completion and precedes the engagement of the new SSIP.
The existing Opening Process cannot occur prior to 9:30 a.m. Eastern
Time and only begins following the dissemination of a quote or trade in
the market for the underlying security.\6\ Following the dissemination
of a quote or trade in the market for the underlying security, the
System \7\ pauses for a period of time no longer than one half second
to allow the marketplace to absorb this information.\8\ When there is
an imbalance,\9\ the System broadcasts a System Imbalance Message
(which includes the symbol, side of the market, quantity of matched
contracts, the imbalance quantity, must fill quantity (i.e., the number
of contracts that must be filled in order for that option to open on
the Exchange at the indicated price), quantity of routable contracts,
and price of the affected series) to subscribers of the Exchange's data
feeds and begins an Imbalance Timer \10\ not to exceed three
seconds.\11\ Under the existing Opening Process the Exchange may repeat
this process up to three times.\12\ While the Exchange is conducting
its Opening Process, all 14 other option exchanges will also be
conducting their opening process for SPY options. As the Exchange works
through its process to resolve imbalances under the existing Opening
Process, other Exchanges will be open and serve as real-time cross-
reference prices for those SPY options, enabling market participants to
send orders to the Exchange if there are pricing anomalies for these
SPY options across venues. The longer it takes the Exchange to work
through the imbalance, the greater the likelihood that other exchanges
will have opened their SPY options market and the natural pressures of
a competitive market helps to eliminate any pricing anomalies and aid
in eliminating the imbalance on the Exchange.
---------------------------------------------------------------------------
\6\ See Exchange Rule 503(e)(1).
\7\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\8\ The Exchange notes that the current setting is one half
second.
\9\ See supra note 4.
\10\ The Exchange notes that the current Imbalance Timer setting
is one second.
\11\ See Exchange Rule 503(f)(2)(vii).
\12\ See Exchange Rule 503(f)(2)(vii)(B)(4).
---------------------------------------------------------------------------
As previously discussed, on the day the settlement value for the
Index is calculated, the Exchange conducts the SPIKES Special
Settlement Auction, using its standard, existing Opening Process for
all options on the Exchange, including the constituent options.\13\
Pursuant to the standard, existing Opening Process, if there are no
quotes or orders that lock or cross each other, the System will open by
disseminating the Exchange's best bid and offer among quotes and orders
that exist in the System at that time. If there are quotes or orders
that lock each other, the System will calculate an Expanded
[[Page 11349]]
Quote Range (``EQR''), as described in Rule 503(f)(2). The EQR
represents the limits of the range in which transactions may occur
during the Opening Process.\14\ The EQR is recalculated any time a
route timer or Imbalance Timer expires if material conditions of the
market (imbalance size, ABBO \15\ price and size, liquidity price or
size, etc.) have changed during the timer. Once calculated, the EQR
represents the limits of the range in which transactions may occur
during the Opening Process.\16\ The System uses the EQR to determine
the highest and lowest price of the opening price range.
---------------------------------------------------------------------------
\13\ For a complete description of the Exchange's standard,
existing Opening Process, refer to Exchange Rule 503, Openings on
the Exchange.
\14\ See Exchange Rule 503(f)(2)(i). See also Exchange
Regulatory Circular 2012-02, which sets forth the tables that
describe the calculation of the EQR for option classes traded on the
Exchange, at https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Opening_Process_and_Pause_Timer.pdf.
\15\ The term ``ABBO'' or ``Away Best Bid or Offer'' means the
best bid(s) or offer(s) disseminated by other Eligible Exchanges
(defined in Rule 1400(f)) and calculated by the Exchange based on
market information received by the Exchange from OPRA. See Exchange
Rule 100.
\16\ See Exchange Rule 503(f)(2)(i).
---------------------------------------------------------------------------
To calculate the opening price, the System takes into consideration
all valid Exchange quotes and all valid orders, together with other
exchanges' markets for the series, and identifies the price at which
the maximum number of contracts can trade. If that price is within the
EQR and leaves no imbalance, the Exchange will open at that price,
executing marketable trading interest as long as the opening price
includes only Exchange interest.\17\ If the calculated opening price
included interest other than solely Exchange interest, the System will
broadcast a system imbalance message (which includes the symbol, side
of the market, quantity of matched contracts, the imbalance quantity,
must fill quantity, quantity of routable contracts, and price of the
affected series) to Exchange Members \18\ and initiate a ``route
timer,'' not to exceed one second.\19\
---------------------------------------------------------------------------
\17\ See Exchange Rule 503(f)(2)(iv).
\18\ 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.
\19\ See Exchange Rule 503(f)(2)(iv)(A).
---------------------------------------------------------------------------
If all opening and marketable interest cannot be completely
executed at or within the EQR without trading at a price inferior to
the ABBO, or cannot trade at or within the quality opening market range
in the absence of a valid width NBBO,\20\ the System will automatically
institute an imbalance process.\21\ The System will broadcast a system
imbalance message (which includes the symbol, side of the market,
quantity of matched contracts, the imbalance quantity, must fill
quantity, quantity of routable contracts, and price of the affected
series) to subscribers of the Exchange's data feeds, and begin an
Imbalance Timer, not to exceed three seconds.\22\ Market Makers \23\
may enter Opening Only (``OPG'') eQuotes,\24\ Auction or Cancel
(``AOC'') eQuotes,\25\ Standard quotes,\26\ Opening Orders (``OPG
Orders''),\27\ AOC Orders \28\ and limit orders during the Imbalance
Timer. Other Exchange Members may enter OPG Orders, AOC Orders and
other order types (except those order types not valid during the
Opening Process, as described in Rule 516) during the Imbalance
Timer.\29\ If, at the conclusion of the timer, quotes and orders
submitted during the Imbalance Timer, or other changes to the ABBO,
would not allow the entire imbalance amount to trade at the Exchange at
or within the EQR without trading at a price inferior to the ABBO, the
System will send a new system imbalance message to Exchange Members and
initiate a route timer for routable Public Customer orders not to
exceed one second. If, during the route timer, interest is received by
the System which would allow all interest to trade on the System (i.e.,
there is no longer an imbalance) at the opening price without trading
at a price inferior to other markets, the System will trade and the
route timer will end.\30\ The System may repeat the imbalance process
up to three times (as established by the Exchange).\31\ Following
completion of the third imbalance process, if there is an opening
transaction, any unexecuted contracts from the imbalance not traded or
routed will be cancelled back to the entering Member if the price for
those contracts crosses the opening price, in effect cancelling that
must fill interest.\32\ That is the completion of the Exchange's
standard, existing Opening Process.
---------------------------------------------------------------------------
\20\ 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.
\21\ See Exchange Rule 503(f)(2)(vii).
\22\ See Exchange Rule 503(f)(2)(vii)(A).
\23\ The term ``Market Makers'' refers to ``Lead Market
Makers'', ``Primary Lead Market Makers'' and ``Registered Market
Makers'' collectively. See Exchange Rule 100.
\24\ An opening only or ``OPG'' eQuote is a quote that can be
submitted by a Market Maker only during the Opening as set forth in
Rule 503. OPG eQuotes will automatically expire at the end of the
Opening Process. See Exchange Rule 517(a)(2)(iii).
\25\ An Auction or Cancel or ``AOC'' eQuote is a quote submitted
by a Market Maker to provide liquidity in a specific Exchange
process with a time in force that corresponds with the duration of
that event and will automatically expire at the end of that event.
See Exchange Rule 517(a)(2)(ii).
\26\ A Standard quote is a quote submitted by a Market Maker
that cancels and replaces the Market Maker's previous Standard
quote, if any. See Exchange Rule 517(a)(1).
\27\ An Opening or ``OPG'' Order is an order that is valid only
for the opening process. See Exchange Rule 516(h).
\28\ An Auction-or-Cancel or ``AOC'' order is a limit order used
to provide liquidity during a specific Exchange process with a time
in force that corresponds with that event. See Exchange Rule
516(b)(4).
\29\ See supra note 10.
\30\ See Exchange Rule 503(f)(2)(vii)(B)(2).
\31\ See Exchange Rule 503(f)(2)(vii)(B)(4).
\32\ See Exchange Rule 503(f)(2)(vii)(B)(5).
---------------------------------------------------------------------------
Now, where an imbalance exists in constituent options and the final
imbalance process has been conducted as part of the Exchange's
standard, existing Opening Process, instead of cancelling that must
fill interest back to the entering Member, the Exchange conducts the
SSIP,\33\ where the Exchange will satisfy that must fill interest. The
Exchange does not want to cancel any must fill interest, as this
liquidity could represent previously hedged interest that must be
unwound.
---------------------------------------------------------------------------
\33\ See Exchange Rule 503(f)(2)(vii)(B)(5)(a).
---------------------------------------------------------------------------
The SSIP is employed to satisfy all liquidity identified as must
fill which is creating the imbalance, referred to as the must fill
imbalance. The SSIP is an iterative process that is designed to
determine a price at which all must fill imbalance interest can be
satisfied.\34\ In the SPIKES Special Settlement Auction, in addition to
any order types that may be regularly accepted by the Exchange, the
Exchange will also accept settlement auction only orders (``SAO
Orders'') and settlement auction only eQuotes (``SAO eQuotes'') (SAO
Orders and SAO eQuotes are collectively referred to as ``SAOs'') at any
time after the opening of the Live Order Window (``LOW'') \35\ and the
Live Quote Window (``LQW''),\36\ respectively. SAOs are specific order
types that allow a Member to voluntarily tag such order as a SPIKES
strategy order, defined below. All orders for participation in the
SPIKES Special Settlement Auction that are related to positions in, or
a trading strategy involving, SPIKES Index options (``SPIKES strategy
orders''), and any change to or cancellation of any such order: (i)
Must be received prior to the applicable SPIKES strategy order cut-off
time for the constituent option series, as determined by the Exchange,
which may be no earlier than the opening of the LOQ or the LQW, and no
later than the opening of trading in the series. The
[[Page 11350]]
Exchange will announce all determinations regarding changes to the
applicable SPIKES strategy order cut-off time via Regulatory Circular
at least one day prior to implementation (however the Exchange
anticipates initially establishing the cut-off time at 9:20 a.m.
Eastern); and (ii) may not be cancelled or modified after the
applicable SPIKES strategy order cut-off time, unless the SPIKES
strategy order is not executed in the SPIKES Special Settlement Auction
and the cancellation or modification is submitted after the SPIKES
Special Settlement Auction is concluded (provided that any such SPIKES
strategy order may be modified or cancelled after the applicable SPIKES
strategy order cut-off time and prior to the applicable non-SPIKES
strategy order cut-off time in order to correct a legitimate error, in
which case the Member submitting the change or cancellation will
prepare and maintain a memorandum setting forth the circumstances that
resulted in the change or cancellation and will file a copy of the
memorandum with the Exchange no later than the next business day in a
form and manner prescribed by the Exchange).
---------------------------------------------------------------------------
\34\ See Exchange Rule 503, Interpretations and Policies .03.
\35\ The Exchange notes that the current Live Order Window opens
at 7:30 a.m.
\36\ The Exchange notes that the current Live Quote Window
setting opens at 9:25 a.m., however the Exchange plans to open the
Live Quote Window for the SPIKES Special Settlement Auction at 8:30
a.m.
---------------------------------------------------------------------------
In general, the Exchange considers orders to be SPIKES strategy
orders for purposes of Rule 503 Interpretation and Policy .03, if the
orders possess the following three characteristics: (A) Are for options
with the expiration that will be used to calculate the exercise or
final settlement value of the applicable volatility index option
contract; (B) are for options spanning the full range of strike prices
for the appropriate expiration for options that will be used to
calculate the exercise or final settlement value of the applicable
volatility index option contract, but not necessarily every available
strike price; and (C) are for put options with strike prices less than
the ``at-the-money'' strike price and for call options with strike
prices greater than the ``at-the-money'' strike price. They may also be
for put and call options with ``at-the-money'' strike prices.
Whether certain orders are SPIKES strategy orders for purposes of
Interpretation and Policy .03 depends upon specific facts and
circumstances. The Exchange may also deem order types other than those
provided above as SPIKES strategy orders if the Exchange determines
that to be the case based upon the applicable facts and circumstances.
These requirements are substantially similar to Cboe's requirements
for ``strategy orders'' participating in the VIX settlement
auction.\37\
---------------------------------------------------------------------------
\37\ See Cboe Rule 6.2, Hybrid Opening (and Sometimes Closing)
System (``HOSS''), Interpretations and Policies .01, Modified
Opening Procedure for Series Used to Calculate the Exercise/Final
Settlement Values of Volatility Indexes.
---------------------------------------------------------------------------
Market participants that actively trade SPIKES options may hedge
their positions with SPY option series that will also be used to
calculate the SPIKES exercise settlement/final settlement value. Market
participants holding hedged SPIKES options positions may trade out of
their SPY option series on the relevant SPIKES expiration/final
settlement date. Specifically, market participants holding short,
hedged SPIKES options could liquidate that hedge by selling their SPY
options series, while traders holding long, hedged SPIKES options could
liquidate their hedge by buying SPY option series. In order to seek
convergence with the SPIKES exercise/final settlement value, these
market participants may liquidate their hedges by submitting SPIKES
strategy orders in the appropriate SPY option series during the SPIKES
Special Settlement Auction on the SPIKES expiration/final settlement
date.
The SPIKES strategy order cut-off time exists because trades to
liquidate hedges can contribute to an order imbalance during the SPIKES
Special Settlement Auction in SPY option series on expiration/final
settlement dates. For example, traders liquidating hedges could
predominantly be on one side of the market and those market
participants' orders may create buy or sell order imbalances during the
SPIKES Special Settlement Auction in SPY option series on expiration/
final settlement dates. As a result of having a SPIKES strategy order
cut-off time in place, the Exchange has created a defined window to
encourage participation in the SPIKES Special Settlement Auction among
market participants who may wish to place off-setting orders against
imbalances to which SPIKES strategy orders may have contributed.
Additionally, by precluding the modification or cancellation of SPIKES
strategy orders from occurring after the cut-off time, the Exchange is
ensuring that the order book reflects bona-fide interest for execution,
and is a feature designed to prevent manipulation of the final
settlement price.
Next, to begin the SSIP, which occurs during the SPIKES Special
Settlement Auction and is done to resolve imbalances, the System
broadcasts a system imbalance message to all subscribers of the
Exchange's relevant data feed and begins an SSIP Imbalance Timer, the
duration of which shall be determined by the Exchange, not to exceed
ten seconds, and shall be communicated via Regulatory Circular. During
the SSIP Imbalance Timer, the System accepts all quote and order types
supported during the standard Opening Process. Next, the System
evaluates the must fill imbalance and adjusts the EQR by a defined
amount by appending to the EQR (adding to offers or subtracting from
bids) the EQR value (as determined by the Exchange and communicated via
Regulatory Circular).\38\ During the SSIP, the allowable EQR is
increased .5 times the EQR value upon each iteration of the SSIP. The
SSIP is repeated until a price is reached at which there is no
remaining must fill imbalance.
---------------------------------------------------------------------------
\38\ See supra note 14.
---------------------------------------------------------------------------
Once there is no remaining must fill imbalance, SAOs, AOC Orders,
AOC eQuotes, OPG Orders, and OPG eQuotes submitted into the SPIKES
Special Settlement Auction are cancelled. Any unfilled day limit orders
and GTC orders that are priced at the Opening Price are placed on the
Book and managed by the System.
As previously discussed, the System assigns an SRP to each
constituent option to facilitate the calculation of the final
settlement price of the Index. If the System opens the constituent
option with a trade, the System assigns the constituent option an SRP
equal to the trade price in that option. If there is no locking or
crossing interest and the System opens the constituent option without a
trade, and the bid-ask spread is at or within a range as defined by the
Exchange in an SRP opening width table and communicated via Regulatory
Circular, the System assigns the constituent option an SRP equal to the
midpoint of the bid and ask prices. If the bid-ask spread is not within
a range as defined in the SRP opening width table, the System conducts
an additional process to determine the SRP of the constituent option,
as follows.
First, the System starts a settlement reference price timer
(``SRPT'') (the duration of which shall be defined by the Exchange not
to exceed sixty seconds and shall be communicated via Regulatory
Circular). If, during the SRPT, there is a trade on the Exchange, the
System will set the SRP equal to the trade price. If, during the SRPT,
the bid-ask spread changes so that it is within a range defined in the
settlement price opening width table, the System will set the SRP equal
to the midpoint of the bid and ask price.
[[Page 11351]]
If the SRPT expires, the System will set the SRP equal to the
Reference Price (the current price of that option utilizing the cash
index calculation formula, described above) of the constituent option
if it is equal to or inside the MBBO.\39\ If the Reference Price is
non-zero and less than the Exchange's bid, then the System will set the
SRP equal to the Exchange's bid. If the Reference Price is non-zero and
greater than the Exchange's ask, then the System will set the SRP equal
to the Exchange's ask. If the Reference Price is zero and if one or
both adjacent constituent options have a non-zero SRP, the constituent
option will be excluded from the calculation. If the Reference Price is
zero and there are multiple adjacent constituent options with a current
Reference Price of zero, the System will use the midpoint of the NBBO
for the SRP if the NBBO bid-ask spread is at or within a range defined
in the settlement price opening width table. If the NBBO bid-ask spread
is not within a range defined in the settlement price opening width
table, the System will wait for either a trade, or a bid-ask spread
that is within a range defined in the settlement price opening width
table. Once all constituent options have been assigned an SRP, the
System performs the final settlement price calculation of the Index.
---------------------------------------------------------------------------
\39\ The term ``MBBO'' means the best bid or offer on the
Exchange. See Exchange Rule 100.
---------------------------------------------------------------------------
In the options market, it is important for Market Makers to provide
liquidity to execute against orders submitted by other market
participants. Pursuant to Rule 603, a Market Maker has general
obligations to, among other things, engage (to a reasonable degree
under existing circumstances) in dealings for the Market Maker's own
account when there exists, or it is reasonably anticipated that there
will exist, a lack of price continuity, a temporary disparity between
the supply of and demand for an option (i.e., an imbalance), to compete
with other Market Makers to improve markets in its appointed classes,
and to update market quotations in response to changed market
conditions in its appointed classes. Certain types of Market Makers
have obligations to facilitate resolution of imbalances and make
competitive markets, and the proposed rule change is consistent with
those obligations.\40\ As described above, the entry of SPIKES strategy
orders may lead to order imbalances in the option series used to
determine the final settlement value for expiring SPIKES Index options.
In order for the Exchange's system to open these series for trading
(i.e., to resolve order imbalances) and achieve the most competitive
pricing in these series, Market Maker participation in the SPIKES
Special Settlement Auction is important for adding liquidity and
promoting a fair and orderly opening and settlement process.
---------------------------------------------------------------------------
\40\ See, e.g., Rules 603 and 604 (describing the obligations of
Primary Lead Market Makers and Lead Market Makers).
---------------------------------------------------------------------------
The Exchange understands that some Market Makers may hesitate to
provide liquidity that could resolve order imbalances, out of a concern
that adding such liquidity after the SPIKES strategy order cut-off time
could be deemed either a new SPIKES strategy order or a modification to
or cancellation of an existing SPIKES strategy order. As a result, this
perceived risk may lead to reduced liquidity and may exacerbate the
time it takes to open a series at a competitive price.\41\ The proposed
rule change encourages Market Makers to provide liquidity on SPIKES
Index options settlement days by explicitly stating in Rule 503,
Interpretations and Policies .03, that bona fide Market Maker activity
does not constitute either a SPIKES strategy order or a modification to
or cancellation of a previously submitted SPIKES strategy order during
the SPIKES Special Settlement Auction. The Exchange believes Market
Maker liquidity is important to the resolution of order imbalances on
SPIKES Index settlement days and to the orderly opening of series on
such day, due to the fact that a series cannot open if there is a
market order imbalance. Also, Market Maker liquidity is desirable to
advance the opening of series at competitive prices on SPIKES Index
settlement days. The Exchange's system also relies on Market Maker
liquidity to open series for trading. Pursuant to Rule 503, the
Exchange's system will not open a series for trading if there are no
Market Maker quotes present. Additionally, the width of the best Market
Maker quotes on the Exchange must be within a certain price range for
the System to open a series for trading. The Exchange believes the
proposed rule change will incentivize Market Maker liquidity on SPIKES
Index settlement days by explicitly stating in the Rules that providing
such liquidity will not be deemed to constitute either submission of a
SPIKES strategy order or modification or cancellation of a previously
submitted SPIKES strategy order.
---------------------------------------------------------------------------
\41\ See Rules 503(f).
---------------------------------------------------------------------------
Specifically, proposed Rule 503, Interpretations and Policies
.03(e) states a Market Maker with an appointment in a class with
constituent option series may submit bids and offers in those series
for bona fide market making purposes in accordance with Rule 603 and
the Securities Exchange Act of 1934 (the ``Act''), for its market maker
account prior to the open of trading for participation in the SPIKES
Special Settlement Auction. The Exchange will deem these bids and
offers to be non-SPIKES strategy orders, and will not deem them to be
changes to or cancellations of previously submitted SPIKES strategy
orders, if:
(i) The Member with which the Market Maker is affiliated has
established, maintains, and enforces reasonably designed written
policies and procedures (including information barriers, as
applicable), taking into consideration the nature of the Member's
business and other facts and circumstances, to prevent the misuse of
material nonpublic information (including the submission of SPIKES
strategy orders); and
(ii) when submitting these bids and offers, the Market Maker has no
actual knowledge of any previously submitted SPIKES strategy orders.
In other words, if a Market Maker submits bids or offers in
constituent options on a SPIKES Index option settlement day, and if
such bids and offers are for its market maker account and submitted for
purposes of its market making activities on the Exchange (including in
accordance with Market Maker obligations, such as to offset imbalances
or provide competitive pricing), the Market Maker may submit those bids
and offers any time prior to the open of trading, including both before
and after the strategy order cut-off time. As long as the Member has
appropriate procedures in place both to prevent the Market Maker from
knowing about the submission of SPIKES strategy orders by other persons
within the Member organization with which it is affiliated, and to
prevent other persons from knowing about the Market Maker's submission
of bids and offers, the Exchange will not review such bids and offers
for either potential impermissible entry of SPIKES strategy orders, or
cancellations of or modifications to previously submitted SPIKES
strategy orders.
Bona fide Market Maker activity is generally activity consistent
with Market Maker requirements under the Act and MIAX Options Rules:
Pursuant to the Act, a market maker is a specialist
permitted to act as a dealer, any dealer acting in the capacity of
block positioner, and any dealer who, with respect to a security, holds
himself out (by entering quotations in an inter-dealer communications
system or otherwise) as being willing to buy and
[[Page 11352]]
sell such security for his own account on a regular or continuous
basis.\42\
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\42\ 15 U.S.C. 78c(a)(38); see also 12 U.S.C. 1851(d)(1)(B)
(market making is intended to service ``the reasonably expected
near-term demand'' of other parties).
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Pursuant to Rule 603, a Market Maker appointed to a class
must, among other things, engage to a reasonable degree under existing
circumstances in dealings for the Market Maker's own account when there
exists, or it is reasonably anticipated that there will exist, a lack
of price continuity, a temporary disparity between the supply of and
demand for an option (i.e., an imbalance), to compete with other Market
Makers to improve markets in its appointed classes, and to update
market quotations in response to changed market conditions in its
appointed classes. Additionally, pursuant to Rule 603, all quotes a
Market Maker submits, including prior to the opening, must comply with
all requirements including applicable bid-ask differential and minimum
size requirements.\43\ Rule 604 imposes an ongoing continuous quoting
requirement on Market Makers that applies through the opening of
trading, as well as during regular trading hours.
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\43\ Rule 603(b)(4) permits the Exchange to set different
minimum quote size and bid-ask differential requirements for opening
quotes as those for intraday quotes.
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In addition to these obligations, Market Makers also
effect transactions for the purpose of hedging, reducing risk of,
rebalancing, or liquidating their open positions.
As noted above, the Exchange implemented the SPIKES strategy order
cut-off time for the operational purpose of providing market
participants with time to enter additional orders and quotes to offset
any such imbalances prior to the opening of these series.\44\ The
Exchange's surveillance procedures to determine market participants'
compliance with the SPIKES strategy order cut-off time are separate and
distinct from the Exchange's surveillance procedures to identify
potentially manipulative behavior. Therefore, from the Exchange's
perspective, whether a Market Maker's bids and offers constitute SPIKES
strategy orders is distinct from whether the submitting Market Maker is
attempting to engage in manipulative behavior. The classification of
bona fide Market Maker activity as non-SPIKES strategy orders will have
no impact on the Exchange's surveillance procedures to detect activity
intended to manipulate the settlement value or violate other Rules.
Additionally, all Market Maker bids and offers, even though not
considered SPIKES strategy orders pursuant to the proposed rule change,
will continue to be subject to Exchange surveillance procedures that
monitor trading in the option series used to calculate SPIKES Index
settlement values on expiration dates, as well as surveillance
procedures that monitor Market Maker activity for compliance with
Market Maker obligations in the Rules. This activity will merely be
excepted from Exchange surveillance procedures determining compliance
with the operational SPIKES strategy order cut-off time.
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\44\ See Exchange Rule 503, Interpretations and Policies .03.
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The Exchange believes Market Makers are more likely to interact
with and resolve order imbalances on SPIKES settlement days if they can
be confident that their bids and offers submitted for that purpose will
not be deemed SPIKES strategy orders or cancellations of or
modifications to previously submitted SPIKES strategy orders. As
discussed above, the purpose of the SPIKES strategy order cut-off time
is to provide market participants, including Market Makers, with
sufficient time to address imbalances created by SPIKES strategy
orders. Additionally, as discussed above, pursuant to Rule 503(f),
whether a series opens depends on the presence of Market Maker quotes
at prices no wider than an acceptable price range. Market Makers are an
important source of liquidity on the Exchange, and also have various
obligations with which they must comply. The proposed rule change will
provide a Market Maker with an opportunity to provide liquidity on
SPIKES Index settlement dates and to satisfy their Market Maker
obligations, without concern that the Exchange may consider such
activity to constitute the placing of, or cancellations to or
modifications of, SPIKES strategy orders, even if the Member with which
the Market Maker is affiliated submitted a SPIKES strategy order.
The purpose of this proposed change is to accommodate the fact that
the Member with which the Market Maker is affiliated may submit a
SPIKES strategy order while the Market Maker may also be submitting
bids and offers to accommodate a fair and orderly opening process, by
among other things, resolving market order imbalances and submitting
competitively priced bids and offers.
For example, a Member may have a SPY Market Maker and a separate
volatility trading desk. During the SPIKES Special Settlement Auction
on a SPIKES Index settlement day, the trading strategy of the SPY
Market Maker is to provide markets in SPY options (both before and
after the SPIKES strategy order cut-off time), and the trading strategy
of the volatility trading desk may be to replicate Vega exposure by
replacing its expiring SPIKES options positions with positions in the
SPY constituent series. To replicate its Vega exposure, the volatility
trading desk may enter SPIKES strategy orders prior to the SPIKES
strategy order cut-off time. These are separate and distinct trading
strategies. If the Member has reasonable policies and procedures in
place such that the SPY Market Maker has no knowledge of the volatility
trading desk's submission of SPIKES strategy orders, and that the
volatility trader has no knowledge of the SPY Market Maker's submission
of bids and offers, the Exchange believes it is appropriate for the SPY
Market Maker's bids and offers to not be deemed SPIKES strategy orders,
or the modification to or cancellation of the SPIKES strategy order
submitted by its affiliated volatility trading desk.
The Exchange does not believe it is necessary to restrict the bona
fide market making activities of a Market Maker within its appointed
classes due to other unrelated trading activities that may involve
submissions of orders deemed to be SPIKES strategy orders of which the
Market Maker has no actual knowledge. The proposed rule change
expressly provides that activity related to a Market Maker's market
making activity in an appointed class will not constitute the
submission of a SPIKES strategy order or the cancellation of or
modification to a previously submitted SPIKES strategy order.
The proposed rule change makes clear that a Market Maker's
submission of bids and offers for bona fide market making purposes in
constituent series is permitted on SPIKES Index settlement days through
the open of trading in the same manner as it is permitted in all series
in its appointed classes at all other times. This will encourage Market
Makers to continue to submit bids and offers through the open, despite
other trading activity within the Member organization. This will also
ensure Market Makers can respond to imbalances and update their quotes
\45\ in accordance with their market making dealings and obligations.
The Exchange believes this will contribute to price transparency and
liquidity in the option series at the open, and thus will promote a
fair and orderly opening on SPIKES Index settlement days. The
[[Page 11353]]
Exchange continuously evaluates the SPIKES Special Settlement Auction
to identify potential enhancements, and intends to modify the procedure
as it deems appropriate to contribute to a fair and orderly opening
process. A fair and orderly opening in these series benefits all market
participants who trade in the SPIKES Index options and the constituent
options.
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\45\ As noted above, the Exchange's system will not open a
series if there is no quote of if the opening quote or price is
outside an acceptable price range.
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The proposed rule change would not eliminate a Market Maker's
requirements to abide by Exchange Rules 301 (Just and Equitable
Principles of Trade), 318 (Manipulation), and 303 (Prevention of the
Misuse of Material Nonpublic Information). The requirement in the
proposed rule change that the Member with which a Market Maker is
affiliated must establish, maintain, and enforce policies and
procedures reasonably designed to ensure the Market Maker will not have
knowledge of the submission of SPIKES strategy orders is consistent
with requirements of Rule 303. The Exchange will continue to conduct
surveillance to monitor trading in the option series used to calculate
the SPIKES Index settlement values on expiration dates, including but
not limited to, monitoring entry of SPIKES strategy orders, or
modifications to SPIKES strategy orders, following the cut-off time, as
well as compliance with other Rules.
The proposed rule change also makes a non-substantive change to
change paragraph numbering resulting from the addition of this proposed
rule.
Additionally, the proposed rule changes modifies Interpretations
and Policies .03(c) to Rule 503, to state that ``SPIKES strategy
orders'' means all orders for participation in the SPIKES Special
Settlement Auction that are related to positions in, or a trading
strategy involving, expiring SPIKES Index options. The addition of the
word ``expiring'' is a codification of the Exchange's interpretation of
the term SPIKES strategy order. As discussed above, to replicate
expiring SPIKES Index options on their expiration dates with options
portfolios, market participants generally submit SPIKES strategy orders
to participate in the SPIKES Special Settlement Auction on SPIKES Index
settlement days. The addition of the word ``expiring'' is consistent
with the introductory paragraph in Interpretations and Policies .03 to
Rule 503, which states that the SPIKES Special Settlement Auction
applies to series used to calculate the exercise/final settlement value
of the SPIKES Index for expiring options contracts, and demonstrates
the rule is meant to refer to orders that relate to strategies
involving expiring SPIKES Index options. Therefore, the proposed
codification is consistent with this general practice, as well as the
current rule.
2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with Section 6(b) of the Act \46\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \47\ in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanisms of a free and open market and a national market
system and, in general, to protect investors and the public interest.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) requirement that the rules of an
exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\46\ 15 U.S.C. 78f(b).
\47\ 15 U.S.C. 78f(b)(5).
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In particular, the Exchange believes the proposed change will
increase liquidity on SPIKES Index settlement dates, as it will remove
an impediment that may discourage Market Makers from submitting bids
and offers to offset imbalances and update the prices of their quotes
in response to changing market conditions prior to the open. The
Exchange believes this additional liquidity may contribute to a fair
and orderly opening by increasing execution opportunities, reducing
imbalances in constituent options, and increasing the presence of
quotes within the acceptable price range, which would benefit all
market participants who trade in the SPIKES Index options and the
constituent options. The Exchange does not believe it is necessary to
restrict the bona fide market maker activities of a Market Maker due to
other unrelated trading activity by the Member with which it is
affiliated. The Exchange notes that the proposed rule change would not
impact a Market Maker's requirements to abide by Exchange Rules 301
(Just and Equitable Principles of Trade), 318 (Manipulation), and 303
(Prevention of the Misuse of Material Nonpublic Information). The
requirement in the proposed rule change that the Member with which a
Market Maker is affiliated must establish, maintain, and enforce
policies and procedures reasonably designed to ensure the Market Maker
will not have knowledge of the submission of SPIKES strategy orders is
consistent with requirements of Rule 303. As a result, the Exchange
does not believe that the proposed rule change will be burdensome on
Market Makers.
The Exchange believes the proposed rule change will contribute to
price transparency and liquidity in the option series at the open, and
thus a fair and orderly opening on SPIKES Index settlement days. A fair
and orderly opening in these series benefits all market participants
who trade in the SPIKES Index options and the constituent options.
The proposed rule change to add the term ``expiring'' to the
definition of SPIKES strategy order is merely a codification of a
current Exchange interpretation and is consistent with the definition
of constituent options in the current rule.
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. Because of the importance of
Market Maker liquidity in the options market and the Exchange's need
for competitive quotes to open a series, the Exchange believes it is
appropriate for Market Makers' bids and offers prior to the opening of
trading, including after the SPIKES strategy order cut-off time, not to
be considered SPIKES strategy orders, or cancellations to or
modifications of previously submitted SPIKES strategy orders. As
discussed above, Market Makers are subject to various obligations under
the Rules, and the proposed rule change provides them with the ability
to satisfy these obligations without the risk of their market making
activity being deemed to constitute SPIKES strategy orders or
modifications to or cancellations of SPIKES strategy orders. The
requirement in the proposed rule change that the Member with which a
Market Maker is affiliated must establish, maintain, and enforce
policies and procedures is reasonably designed to ensure the Market
Maker will not have knowledge of the submission of SPIKES strategy
orders and is consistent with the requirements of Rule 303. As a
result, the Exchange does not believe the proposed rule change will be
burdensome on Market Makers. The Exchange does not believe it is
necessary to restrict the bona fide market maker activities of a Member
due to its other unrelated trading activities. The proposed rule change
has
[[Page 11354]]
no impact on intermarket competition, as it applies to orders and
quotes submitted to the SPIKES Special Settlement Auction the Exchange
conducts prior to the open of trading in certain classes.
The Exchange believes that the proposed rule change will relieve
any burden on, or otherwise promote, competition. The Exchange believes
the proposed rule change will contribute to price transparency and
liquidity in constituent options at the open on SPIKES Index settlement
days, and thus to a fair and orderly opening on those days. A fair and
orderly opening, and increased liquidity in these series benefits all
market participants who trade in the SPIKES Index options and the
constituent options.
The proposed rule change to add the term ``expiring'' to the
definition of SPIKES strategy orders has no impact on competition, as
it is merely a codification of a current Exchange interpretation and is
consistent with the definition of constituent options in the current
rule.
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 \48\ and Rule 19b-4(f)(6) \49\
thereunder.
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\48\ 15 U.S.C. 78s(b)(3)(A).
\49\ 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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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.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-MIAX-2019-12 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-MIAX-2019-12. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-MIAX-2019-12 and should be submitted on
or before April 16, 2019.
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\50\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\50\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05696 Filed 3-25-19; 8:45 am]
BILLING CODE 8011-01-P
