Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 100, Definitions and Exchange Rule 503, Openings on the Exchange, 17105-17112 [2020-06386]
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Federal Register / Vol. 85, No. 59 / Thursday, March 26, 2020 / Notices
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[FR Doc. 2020–06257 Filed 3–25–20; 8:45 am]
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[Release No. 34–88455; File No. SR–MIAX–
2020–04]
Self-Regulatory Organizations; Miami
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend Exchange Rule 100,
Definitions and Exchange Rule 503,
Openings on the Exchange
March 23, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 12,
2020, 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 and II below,
which Items have been prepared by the
Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend Exchange Rule 100, Definitions;
and Exchange Rule 503, Openings on
the Exchange.
1 15
Washington, DC.
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MATTERS TO BE CONSIDERED:
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CFR 240.19b–4.
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The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/ at MIAX Options’ principal
office, and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Exchange Rule 100 to adopt new
definitions for the terms ‘‘Composite
Market,’’ ‘‘Composite Width,’’ and
‘‘Maximum Composite Width.’’ The
Exchange also proposes to amend
Exchange Rule 503, to incorporate the
proposed Composite Market into its
opening process. Finally, the Exchange
proposes to make minor non-substantive
changes to Rule 503 to correct internal
cross-references within the Exchange’s
rulebook. The Exchange believes that
incorporating the concept of a
Composite Market into its existing
opening process will improve the speed
and efficiency of the opening process
without impairing price discovery.
The Exchange proposes to amend
Exchange Rule 100 to adopt a new
definition for Composite Market that
will mean, ‘‘the market for a series
comprised of (1) the higher of the thencurrent best appointed Market Maker 3
bid quote on the Exchange and the
ABB 4 (if there is an ABB) and (2) the
lower of the then-current best appointed
Market Maker offer quote on the
Exchange and the ABO 5 (if there is an
ABO). The term ‘‘Composite Bid
(Offer)’’ means the bid (offer) used to
3 The term ‘‘Market Makers’’ refers to ‘‘Lead
Market Makers’’, ‘‘Primary Lead Market Makers’’
and ‘‘Registered Market Makers’’ collectively. See
Exchange Rule 100.
4 The term ABB means the Away Best Bid.
5 The term ABO means the Away Best Offer.
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Federal Register / Vol. 85, No. 59 / Thursday, March 26, 2020 / Notices
of valid width quotes to begin.10 A valid
width quote is defined in the
Exchange’s rules as, one where the bid
and offer, comprised of a Market
Maker’s Standard quotes 11 and Day
eQuotes,12 differ by no more than the
differences outlined in Exchange Rule
603(b)(4)(i).13 Exchange Rule
603(b)(4)(i) establishes a bid/ask
differential of $5.00.14 However,
Exchange Rule 603(b)(4)(ii) further
provides that the Exchange may
establish differences other than the bid/
ask differences described in Rule
603(b)(4)(i) for one or more option series
or classes. When the Exchange
establishes bid/ask differentials under
Exchange Rule 603(b)(4)(ii) the
Low end of
High end of
Maximum
Exchange publishes a Regulatory
range
range
composite
Circular identifying the option symbol,
(bid)
(bid)
width
security name, and valid width bid/ask
$0.00 .........
$1.99
$5.00 differential for the opening process and
2.00 ...........
5.00
5.00 for intra-day quoting.
Paragraph (e) Starting the Opening
5.01 ...........
10.00
5.00
10.01 .........
20.00
5.00 Process, of Exchange Rule 503, provides
20.01 .........
+
5.00 that, (1) the opening process cannot
occur prior to 9:30 a.m. Eastern Time
The Exchange may modify these
and can only begin following the
amounts when it deems necessary to
dissemination of a quote or trade in the
maintain a fair and orderly opening
market for the underlying security.
process (which modifications the
Following the dissemination of a quote
Exchange will announce to Members 8
or a trade in the market for the
9
via Regulatory Circular). The
underlying security, the System 15 will
Maximum Composite Width
pause for a period of time no longer
corresponds to the opening valid width
than one half second to allow the
range currently used by the Exchange.
market place to absorb this information.
The Exchange proposes to amend
The length of the pause will be
Exchange Rule 503, Openings on the
disseminated to members through a
Exchange, to incorporate the Composite
Market into the Exchange’s opening
10 See Exchange Rule 503(e)(1)(i), (ii), and (iii).
process. The Composite Market will be
11 A Standard quote is a quote submitted by a
used during the opening process to
Market Maker that cancels and replaces the Market
Maker’s previous Standard quote, if any. See
determine whether or not to open a
Exchange Rule 517(a)(1).
series for trading. The Exchange
12 A Day eQuote is a quote submitted by a Market
believes it is appropriate to consider any
Maker that does not automatically cancel or replace
quotes from away markets in addition to the Market Maker’s previous Standard quote or
quotes on its own market when
eQuote. See Exchange Rule 517(a)(2)(i).
13 Also, for purposes of this rule, valid width
determining whether to open a series,
quote is one where the bid and offer, comprised of
because consideration of all thena Market Maker’s Standard quotes and Day eQuotes,
available pricing information may
differ by no more than the differences outlined in
provide for more accurate opening
Exchange Rule 603(b)(4)(i). See Exchange Rule
prices.
503(e)(3).
determine the Composite Market.’’ 6 The
Exchange also proposes to amend
Exchange Rule 100 to adopt a new
definition for Composite Width that will
mean, ‘‘the width of the Composite
Market (i.e., the width between the
Composite Bid and the Composite Offer)
of a series.’’ 7 Finally, the Exchange
proposes to amend Exchange Rule 100
to adopt a new definition of Maximum
Composite Width, that will mean, the
amount that the Composite Width of a
series may generally not be greater than
for the series to open. The Maximum
Composite Widths for all classes are as
follows (based on the Composite Bid for
a series):
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Current Opening Process
The Exchange’s current opening
process is dependent upon the presence
6 This definition is substantially similar to the
definition of a Composite Market used on another
options exchange. See Cboe Exchange Rule 5.31(a).
7 This definition is substantially similar to the
definition for Composite Width used on another
options exchange. See Cboe Exchange Rule 5.31(a).
8 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.
9 This definition is substantially similar to the
definition for Maximum Composite Width used on
another options exchange. See Cboe Exchange Rule
5.31(a).
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14 Under Exchange Rule 603(b) a Market Maker is
expected to perform the following activities in the
course of maintaining a fair and orderly market: (1)
To compete with other Market Makers to improve
the market in all series of options classes to which
the Market Maker is appointed. (2) To make markets
that, absent changed market conditions, will be
honored for the number of contracts entered into
the System in all series of option classes to which
the Market Maker is appointed. (3) To update
market quotations in response to changed market
conditions in all series of options classes to which
the Market Maker is appointed. (4)(i) To price
option contracts fairly by, among other things,
bidding and offering so as to create differences of
no more than $5 between the bid and offer (‘‘bid/
ask differentials’’) following the opening rotation in
an equity option contract;
15 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
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Regulatory Circular. After the
conclusion of the pause the opening
process will begin when either: (i) The
Primary Lead Market Maker’s 16 valid
width quote has been submitted; (ii) the
valid width quotes of at least two
Market Makers, where at least one is a
Lead Market Maker,17 have been
submitted; or (iii) for multiply listed
option classes, at least one Eligible
Exchange (as defined in Rule 1400(g))
has disseminated a quote in the
individual option in accordance with
Rule 1402(a), there is a valid width
NBBO 18 available and the valid width
quote of at least one Lead Market Maker
has been submitted.
The current rule further provides that
(2) for purposes of this rule a valid
width NBBO is one where the bid and
offer of the NBBO differ by no more
than differences outlined in Exchange
Rule 603(b)(4)(i); (3) also, for purposes
of this rule, valid width quote is one
where the bid and offer, comprised of a
Market Maker’s Standard quotes and
Day eQuotes, differ by no more than the
differences outlined in Exchange Rule
603(b)(4)(i); (4) if after two minutes
following the dissemination of a quote
or trade in the market for the underlying
security none of the provisions set forth
in (e)(1) above have occurred, then the
opening process can begin when one
Market Maker has submitted its valid
width quote; (5) the Primary Lead
Market Maker assigned in a particular
equity option class must enter valid
width quotes not later than one minute
following the dissemination of a quote
or trade by the market for the
underlying security; and (6) a Registered
Market Maker 19 that submits a quote
16 The term ‘‘Primary Lead Market Maker’’ means
a Lead Market Maker appointed by the Exchange to
act as the Primary Lead Market Maker for the
purpose of making markets in securities traded on
the Exchange. The Primary Lead Market Maker is
vested with the rights and responsibilities specified
in Chapter VI of MIAX Exchange Rules with respect
to Primary Lead Market Makers. See Exchange Rule
100.
17 The term ‘‘Lead Market Maker’’ means a
Member registered with the Exchange for the
purpose of making markets in securities traded on
the Exchange and that is vested with the rights and
responsibilities specified in Chapter VI of these
Rules with respect to Lead Market Makers. When
a Lead Market Maker is appointed to act in the
capacity of a Primary Lead Market Maker, the
additional rights and responsibilities of a Primary
Lead Market Maker specified in Chapter VI of MIAX
Exchange Rules will apply. See Exchange Rule 100.
18 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.
19 The term ‘‘Registered Market Maker’’ means a
Member registered with the Exchange for the
purpose of making markets in securities traded on
the Exchange, who is not a Lead Market Maker and
is vested with the rights and responsibilities
specified in Chapter VI of MIAX Options Exchange
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Federal Register / Vol. 85, No. 59 / Thursday, March 26, 2020 / Notices
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pursuant to this Rule 503 in any series
when a Lead Market Maker’s or Primary
Lead Market Maker’s quote has not been
submitted shall be required to submit
continuous, two-sided quotes in such
series until such time as a Lead Market
Maker submits his/her quote, after
which the Registered Market Maker that
submitted such quote shall be obligated
to submit quotations pursuant to Rule
604(e)(3).
Proposed Opening Process
The Exchange now proposes to amend
paragraph (e) of Rule 503 to remove
certain references to valid width quotes
and to incorporate the Composite
Market into the opening process as
described below. Specifically, proposed
paragraph (e) Starting the Opening
Process, will provide that (1) the
opening process cannot occur prior to
9:30 a.m. Eastern Time and can only
begin following the dissemination of a
quote or trade in the market for the
underlying security. Following the
dissemination of a quote or a trade in
the market for the underlying security,
the System will pause for a period of
time no longer than one half second to
allow the market place to absorb this
information. The length of the pause
will be disseminated to members
through a Regulatory Circular. After the
conclusion of the pause the opening
process will begin when either: (i) The
Primary Lead Market Maker’s quote has
been submitted; (ii) the quotes of at least
two Market Makers, where at least one
is a Lead Market Maker, have been
submitted; or (iii) for multiply listed
option classes, at least one Eligible
Exchange (as defined in Rule 1400(g))
has disseminated a quote in the
individual option in accordance with
Rule 1402(a), and the quote of at least
one Lead Market Maker has been
submitted.
The Exchange also proposes to adopt
new subsection (7) to paragraph (e) that
will state, ‘‘[i]f the Composite Width is
equal to or less than the Maximum
Composite Width,20 the opening process
will continue.’’ Finally, the Exchange
proposes to adopt new subsection (8) to
paragraph (e) that will state, ‘‘[f]or
purposes of this rule a valid width
market is one where the Composite
Width is equal to or less than the
Maximum Composite Width.’’
The proposal describes the opening
process, which will begin when at least
one of the prerequisite triggers has been
Rules with respect to Market Makers. See Exchange
Rule 100.
20 The Exchange notes that the default settings for
the Maximum Composite Width are the same as the
Exchange’s current default settings for opening
valid width range.
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satisfied, i.e., (i) the Primary Lead
Market Maker’s quote has been
submitted; (ii) the quotes of at least two
Market Makers, where at least one is a
Lead Market Maker, have been
submitted; or (iii) for multiply listed
option classes, at least one Eligible
Exchange (as defined in Rule 1400(g))
has disseminated a quote in the
individual option in accordance with
Rule 1402(a), and the quote of at least
one Lead Market Maker has been
submitted.
For each series of options 21 the
System will calculate a Composite
Market using quotes from away markets
in addition to quotes on its own market.
The Composite Width for an option will
then be evaluated against the Maximum
Composite Width range, and the System
will open the option for trading if the
Composite Width is equal to or less than
the Maximum Composite Width. The
Exchange believes the proposed changes
effectively integrate the proposed
Composite Market into the existing
opening process and will provide a
faster and more efficient opening
process while simultaneously
improving the quality of the opening
process. Performing a check of the
Composite Width against the Maximum
Composite Width is intended to
facilitate that option series open in a fair
and orderly manner and at prices
consistent with the current market
conditions for the option series and not
at extreme prices, while taking into
consideration prices disseminated from
other option exchanges that may be
better than the Exchange’s at the open.
The examples below illustrate the
operation of the current opening process
and the proposed opening process as
described herein.
Example 1 (Current Opening)
PLMM quote and Away Market Quote
subject to individual quote
evaluation
Valid Width: Maximum Bid and Offer
Differential = $5.00
Pre-Opening Market:
PLMM (10) 23.90 x 30.50 (10)
ABBO 22 0.00 x 0.00
Upon opening of the Underlying
Security and a brief pause, the opening
process for the related option products
is initiated. The quote from the PLMM
to buy 10 options at a price of 23.90 and
21 The term ‘‘series of options’’ means all option
contracts of the same class having the same exercise
price and expiration date. See Exchange Rule 100.
22 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(g))
and calculated by the Exchange based on market
information received by the Exchange from OPRA.
See Exchange Rule 100.
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17107
sell 10 options at a price of 30.50
remains unchanged from the preopening. The Away Best Bid and Offer
(ABBO) which is not considered preopen, updates to reflect 0.00 x 24.00.
Resultant Evaluation:
PLMM (10) 23.90 x 30.50 (10) Invalid
Width (6.60)
ABBO 0.00 x 24.00 Invalid Width
(24.00)
Because the quote from the PLMM is
not considered a valid width quote, nor
is the quote from the ABBO considered
valid width, the option products remain
unopened.
Example 2 (Proposed Opening)
PLMM quote and Away Market Quote
subject to Composite Market
evaluation
Valid Width: Maximum Composite
Width = $5.00
Pre-Opening Market:
PLMM (10) 23.90 x 30.50 (10)
ABBO 0.00 x 0.00
Upon opening of the Underlying
Security and a brief pause, the opening
process for the related option products
is initiated. The quote from the PLMM
to buy 10 options at a price of 23.90 and
sell 10 options at a price of 30.50
remains unchanged from the preopening. The Away Best Bid and Offer
(ABBO) which is not considered preopen, updates to reflect 0.00 x 24.00.
Resultant Evaluation:
PLMM (10) 23.90 x 30.50 (10) Invalid
Width (6.60)
ABBO 0.00 x 24.00 Invalid Width
(24.00)
Composite Market 23.90 x 24.00
Composite Width (0.10)
The higher of the PLMM bid and the
ABB, and the lower of the PLMM offer
and the ABO, creates a Composite
Market of 23.90 x 24.10, which has a
Composite Width of 0.10. Under the
proposed rule the Composite Width is
equal to or less than the Maximum
Composite Width, the opening process
continues, and the option products
could be opened.
Resultant Market:
PLMM (10) 23.90 x 30.50 (10)
MBBO 23 (10) 23.90 x 30.50 (10)
ABBO 0.00 x 24.00
NBBO 23.90 x 24.00
Additionally, the Exchange proposes
to amend subsection (f)(2)(i), Expanded
Quote Range, of Rule 503, to further
incorporate the Composite Market into
the opening process. Currently, if there
are quotes or orders that lock or cross
each other, the System calculates an
Expanded Quote Range (‘‘EQR’’) to
23 The term ‘‘MBBO’’ means the best bid or offer
on the Exchange. See Exchange Rule 100.
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Federal Register / Vol. 85, No. 59 / Thursday, March 26, 2020 / Notices
establish the range within which
transactions may occur during the
opening process.24 The EQR will be
recalculated any time a Route Timer 25
or Imbalance Timer 26 expires if material
conditions of the market (imbalance
size, ABBO price or size, liquidity price
or size, etc.) have changed during the
timer.27
The Exchange now proposes to amend
subsection (f)(2)(i)(A)1. to provide that,
to determine the minimum value for the
EQR, an amount, as defined in a table
to be determined by the Exchange, will
be subtracted from the Composite Bid.
Further, subsection (f)(2)(i)(A)1. will be
amended to provide that, to determine
the maximum value for the EQR, an
amount, as defined in a table to be
determined by the Exchange, will be
added to the Composite Offer.
Additionally, subsection (f)(2)(i)(A)2.
will be amended to provide that, if one
or more away markets have
disseminated quotes that are not crossed
and together comprise a valid width
market, and the Composite Market
crosses an ABBO, or is internally
crossed, then: (a) The minimum value
for the EQR will be the Composite Offer
less an amount, as defined in a table to
be determined by the Exchange, and (b)
the maximum value for the EQR will be
the Composite Bid plus an amount, as
defined in a table to be determined by
the Exchange.
The Exchange also proposes to amend
subsection (f)(2)(i)(B)1. to provide that,
except as provided in subparagraph (3)
of Rule 503(f)(2)(i)(B), to determine the
minimum value for the EQR, an amount,
as defined in a table to be determined
by the Exchange, will be subtracted
from the Composite Bid; and 2. to
provide that, except as provided in
subparagraph (3) of Rule 503(f)(2)(i)(B)
to determine the maximum value for the
EQR, an amount, as defined in a table
to be determined by the Exchange, will
be added to the Composite Offer.
Additionally, subsection (f)(2)(i)(B)3.
will be amended to provide that, if there
are quotes on the Exchange that cross
each other, and there is no away market
in the affected series, then; (a) the
minimum value for the EQR will be the
Composite Offer less an amount, as
defined in a table to be determined by
the Exchange; and (b) the maximum
value for the EQR will be the Composite
Bid plus an amount, as defined in a
table to be determined by the Exchange.
The Exchange believes that
incorporating the Composite Market
24 See
Exchange Rule 503(f)(2).
Exchange Rule 529(b).
26 See Exchange Rule 503(f)(2)(vii)(A).
27 See Exchange Rule 503(f)(2)(i).
25 See
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into the EQR calculation is beneficial to
market participants because the EQR
provides a more accurate measure as to
whether there is sufficient available
liquidity in the broader market system
to provide a fair and orderly opening
process and sufficient price discovery
for the options to open for trading
because it incorporates the prices on
away markets into its evaluation.
Finally, the Exchange proposes to
amend Exchange Rule
503(f)(2)(vii)(B)(5)a. to make a nonsubstantive change to correct an internal
cross-reference within the Exchange’s
rulebook. Currently the rule provides
that, if the option is being used in the
calculation of a final settlement price of
an Index pursuant to Chapter XVIII of
Exchange Rules on expiration date, then
. . . the System will instead conduct a
further imbalance process to trade the
entire imbalance amount, as described
in Exchange Rule 1809. The Exchange
proposes to replace Chapter XVIII with
Policy .02 of Exchange Rule 503; and to
replace Exchange Rule 1809 with Policy
.03 of Exchange Rule 503. While
Chapter XVIII of the Exchange Rules
describes Index Options, and Exchange
Rule 1809, describes Terms of Index
Options Contracts, the final settlement
price calculation for an Index Option is
described in Exchange Rule 503,
specifically in Policy .02 and .03.28
Therefore, correcting these internal
cross-references will add clarity and
precision to the Exchange’s rules.
2. Statutory Basis
MIAX Options believes that its
proposed rule change is consistent with
Section 6(b) of the Act 29 in general, and
furthers the objectives of Section 6(b)(5)
of the Act 30 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanisms of a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
The Exchange believes that the
proposed addition of a Composite
Market into the Exchange’s existing
opening process promotes just and
equitable principles of trade, removes
impediments to and perfects the
28 See Securities Exchange Release No. 84578
(November 13, 2018), 83 FR 58306 (November 19,
2018) (SR–MIAX–2018–32) (Amend Exchange Rule
503 To Adopt Interpretations and Polices .02 and
.03).
29 15 U.S.C. 78f(b).
30 15 U.S.C. 78f(b)(5).
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mechanism of a free and open market
and a national market system and, in
general protects investors and the public
interest by improving the Exchange’s
opening process by creating additional
opportunities for price discovery based
on then-current market conditions. The
Exchange believes it is appropriate to
consider any quotes from away markets
in addition to quotes on its own market
when determining whether to open an
option series in all classes, because
consideration of all then-available
pricing information may provide for
more accurate opening prices. By
incorporating a Composite Market,
which includes prices from away
exchanges, the Exchange believes the
proposed opening process will promote
competitive liquidity and open option
series at prices consistent with thencurrent market conditions, and thus will
promote a faster and more efficient
opening process.
The Exchange believes that removing
the requirement that a Market Maker’s
submitted quotes must be valid width as
a pre-requisite to beginning the opening
process is benign in light of the new
proposed process. Under the Exchange’s
current Rule the Exchange would begin
the opening process when either (i) the
Primary Lead Market Maker’s valid
width quote has been submitted; (ii) the
valid width quotes of at least two
Market Makers, where at least one is a
Lead Market Maker, have been
submitted; or (iii) for multiply listed
option classes, at least one Eligible
Exchange (as defined in Rule 1400(g))
has disseminated a quote in the
individual option in accordance with
Rule 1402(a), there is a valid width
NBBO available and the valid width
quote of at least one Lead Market Maker
has been submitted. Valid width quotes
were required to ensure that the
Exchange did not open at prices that
were extreme and potentially erroneous.
The Exchange is proposing to remove
the valid width evaluation from Rule
503(e)(1)(i) (ii) and (iii) as described
above; and to relocate the evaluation of
quotes for valid width to a separate
provision (new proposed paragraph
503(e)(7)) in the Rule. The Exchange is
proposing to adopt new rule text 31
which will provide that the Composite
Width must be equal to or less than the
Maximum Composite Width for the
opening process to continue. If the
Composite Width is greater than the
Maximum Composite Width, the
opening process will not continue for
that option. This check ensures that the
31 See
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Exchange does not open at prices that
are extreme and potentially erroneous.
The Exchange notes that at least two
other option exchanges’ opening
processes do not require Market Maker
valid width quotes. The Cboe Exchange
similarly employs a Composite
Market,32 Composite Width,33 and
Maximum Composite Width,34 in its
opening auction process. The Cboe
Exchange relies upon the occurrence of
one, or the other, of the following two
triggers to begin its opening rotation.
For equity options, the System initiates
the opening rotation after a time period
(which the Exchange determines for all
classes) upon the earlier of: (i) The
passage of two minutes (or such shorter
time as determined by the Exchange)
after the System’s observation after 9:30
a.m. of either the first disseminated
transaction or the first disseminated
quote on the primary market in the
security underlying an equity option; or
(ii) the System’s observation after 9:30
a.m. of both the first disseminated
transaction and the first disseminated
quote on the primary market in the
security underlying an equity option.35
After the System initiates the opening
rotation for a series as described above,
the System performs a Maximum
Composite Width Check.36 The Cboe
Exchange provides that the term
‘‘Maximum Composite Width’’ means
the amount that the Composite Width of
a series may generally not be greater
than for the series to open (subject to
certain exceptions set forth in paragraph
(e)(1) of Cboe Exchange Rule 5.31). The
Maximum Composite Widths for all
classes on the Cboe Exchange are as
follows (based on the Composite Bid for
a series):
Composite bid
Maximum
composite
width
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0–1.99 ...................................
2.00–5.00 ..............................
5.01–10.00 ............................
10.01–20.00 ..........................
20.01–50.00 ..........................
50.01–100.00 ........................
0.50
0.80
1.00
2.00
3.00
5.00
32 The term ‘‘Composite Market’’ means the
market for a series comprised of (1) the higher of
the then-current best appointed Market-Maker bulk
message bid on the Exchange the ABB (if there is
an ABB) and (2) the lower of the then-current best
appointed Market-Maker bulk message offer on the
Exchange and the ABO (if there is an ABO). The
term ‘‘Composite Bid (Offer)’’ means the bid (offer)
used to determine the Composite Market. See Cboe
Exchange Rule 5.31(a).
33 The term ‘‘Composite Width’’ means the width
of the Composite Market (i.e., the width between
the Composite Bid and the Composite Offer) of a
series. See Cboe Exchange Rule 5.31(a).
34 See Cboe Exchange Rule 5.31(a).
35 See Cboe Exchange Rule 5.31(d)(1)(A).
36 See Cboe Exchange Rule 5.31(e)(1).
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Maximum
composite
width
Composite bid
100.01–200.00 ......................
≥ 200.01 ................................
8.00
12.00
The Cboe Exchange provides that it
may modify these amounts during the
opening auction process when it deems
necessary to maintain a fair and orderly
opening process (which modifications
the Exchange disseminates to all
subscribers to the Exchange’s data feeds
that deliver opening auction updates).37
After a series satisfies the Maximum
Composite Width Check, if there are
orders and quotes marketable against
each other at a price not outside the
Opening Collar, the System determines
the Opening Trade Price for the series.38
On the Cboe Exchange the term
‘‘Opening Collar’ means the price range
that establishes limits at or inside of
which the System determines the
Opening Trade price for a series. The
Opening Collar is determined by
determining the midpoint of the
Composite Market, and adding and
subtracting half of the applicable width
amount above and below, respectively,
that midpoint. The Opening Collar
widths for all classes on the Cboe
Exchange are as follows (based on the
Composite Bid for a series):
Opening
collar width
Composite bid
0–1.99 ...................................
2.00–5.00 ..............................
5.01–10.00 ............................
10.01–20.00 ..........................
20.01–50.00 ..........................
50.01–100.00 ........................
100.01–200.00 ......................
≥ 200.01 ................................
0.50
0.80
1.00
2.00
3.00
5.00
8.00
12.00
The Cboe Exchange provides that it
may modify these amounts during the
opening auction process when it deems
necessary to maintain a fair and orderly
opening process (which modifications
the Cboe Exchange disseminates to all
subscribers to the Exchange’s data feeds
that deliver opening auction updates).39
Similarly, the NYSE American
Exchange does not require valid width
quotes from a Market Maker to open
option series. At or after 9:30 a.m.
Eastern Time, the NYSE American
Exchange rules provide that once the
primary market for the underlying
security disseminates a quote and a
trade that is at or within the quote, the
related option series will be opened
automatically based on the following
37 See
Cboe Exchange Rule 5.31.
Cboe Exchange Rule 5.31(e)(2).
39 See Cboe Exchange Rule 5.31(a).
38 See
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17109
principles and procedures: (A) The
system will determine a single price at
which a particular option series will be
opened. (B) Orders and quotes in the
system will be matched up with one
another based on price-time priority;
provided, however, that orders will
have priority over Market Maker quotes
at the same price. (C) Orders in the
System Book that were not executed
during the Auction Process shall
become eligible for the Core Trading
Session immediately after the
conclusion of the Auction Process. (D)
The System will not conduct an Auction
Process if the bid-ask differential for
that series is not within an acceptable
range. For the purposes of this rule, an
acceptable range shall mean within the
bid-ask differential guidelines
established pursuant to Rule
925NY(b)(4).40 (E) If the System does
not open a series with an Auction
Process, the System shall open the
series for trading after receiving
notification of an initial uncrossed
NBBO disseminated by OPRA for the
series, provided that the bid-ask
differential does not exceed the bid-ask
differential specified under Rule
925NY(b)(5).41
The Cboe Exchange, NYSE American
Exchange, and the MIAX Options
Exchange have all established unique
bid/ask differentials at the various bid
levels, that allow each exchange to open
at prices which are not extreme. The
Exchange believes that defining a
default Maximum Composite Width
provides transparency in the Exchange’s
rules concerning its opening process.
The Exchange believes that its
proposed opening process is
substantially similar to its current
opening process: (i) The proposed
Composite Market Width default values
are based on the Exchange’s current
opening valid width values; and (ii) the
proposed Composite Market Width
check is similar to the Exchange’s
current valid width quote check which
40 NYSE American Exchange Rule 925NY(b)
establishes bid/ask differences for Market Makers in
open outcry of: (A) No more than .25 between the
bid and the offer for each contract for which the bid
is less than $2, (B) no more than .40 where the bid
is $2 or more but does not exceed $5, (C) no more
than .50 where the bid is more than $5 but does
not exceed $10, (D) no more than .80 where the bid
is more than $10 but does not exceed $20, and (E)
no more than $1 when the last bid is $20.01 or
more, provided that a Trading Official may
establish differences other than the above for one
or more series or classes of options. See NYSE
American Exchange Rule 925NY(b)(4).
41 NYSE American Exchange Rule 925NY(b)
requires that a Market Maker’s electronically
submitted quotes to the System during Core Trading
Hours have a bid/ask difference not to exceed $5
between the bid and offer regardless of the price of
the bid. See NYSE American Exchange Rule
925NY(b)(5).
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ensures that the Exchange does not open
at prices that are erroneous or extreme.
While the Exchange no longer requires
the presence of a Market Maker’s valid
width quotes in its opening process, the
Exchange notes that other exchanges,
such as the Cboe and NYSE American,
similarly do not require the presence of
a Market Maker’s valid width quotes to
open.
The Exchange believes the inclusion
of the ABBO in the composition of the
Composite Market will continue to
provide opportunities for price
discovery based on then-current market
conditions when the Exchange opens
series for trading. The Exchange
believes the proposed opening process
will promote competitive liquidity and
open series at prices consistent with
then-current market conditions, and
thus will promote a fair and orderly
opening process. The Exchange believes
that ensuring that the Composite Width
is equal to or less than the Maximum
Composite Width ensures that the
Exchange will not open at prices which
are extreme. The Exchange believes it is
appropriate to open a series under the
proposed circumstances and provide
marketable orders with an opportunity
to execute at a reasonable price, because
there is minimal risk of execution at an
extreme price.
Additionally, the Exchange believes
using the Composite Market to establish
the Expanded Quote Range, which
represents the limits of the range in
which transactions may occur during
the opening process,42 promotes just
and equitable principles of trade, and
perfects the mechanism or a free and
open market and a national market
system and, in general protects investors
and the public interest as it is
substantially similar to the current EQR
process. Current Exchange Rule
503(f)(2)(i)(A) considers away market
quotes for EQR purposes and uses the
highest valid width quote bid among
valid width quotes on the Exchange and
on the away market(s) to determine the
minimum value for the EQR; and the
lowest valid width quote offer among
valid width quotes on the Exchange and
on the away market(s) to determine the
maximum value for the EQR.43 Under
the Exchange’s proposal the use of a
Composite Market creates uniformity in
the Exchange’s process to establish the
EQR. The Exchange believes that using
the Composite Bid and the Composite
Offer to determine the EQR range may
improve the range within which
transactions may occur during the
opening process as the Composite
42 See
43 See
Exchange Rule 503(f)(2)(i).
Exchange Rule 503(f)(2)(i)(A)1.
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Market considers all quotes in the
market, in addition to the Exchange’s
quotes.
The Exchange believes adopting new
rule text to provide that for the purposes
of this rule a valid width market is one
where the Composite Width is equal to
or less than the Maximum Composite
Width, promotes just and equitable
principles of trade, removes
impediments to and perfects the
mechanisms of a free and open market
and a national market system and, in
general, protects investors and the
public interest by providing clarity and
precision in the Exchange’s rules
thereby mitigating any potential
investor confusion.
Similar to the Exchange’s EQR, which
represents the limits of the range in
which transaction may occur during the
opening process, the Cboe Exchange
employs an Opening Collar 44 which
establishes limits at or inside of which
the System determines the Opening
Trade Price for a series. Neither the
Cboe Exchange Opening Collar nor the
MIAX Exchange EQR rely upon Market
Maker quotes for its calculation but
instead use a value from the Composite
Market as a basis for its calculation. The
Cboe Exchange Opening Collar is
determined by determining the
midpoint of the Composite Market, and
adding and subtracting half of the
applicable width amount above and
below, respectively, that midpoint. The
Exchange’s EQR calculation also uses
the Composite Market to establish the
transaction range, but performs slightly
different calculations depending upon;
(A) If one or more away markets have
disseminated valid width quotes in the
affected series; 45 or (B) If no away
markets have disseminated valid width
quotes in the affected series.46
Further, under the Exchange’s
proposal Market Makers on the
Exchange are not relieved of their
obligations. Primary Lead Market
Makers assigned in a particular equity
option class must enter valid width
quotes 47 not later than one minute
following the dissemination of a quote
or trade by the market for the
underlying security.48 A faster, more
efficient, opening of a particular option
does not relieve the Primary Lead
Market Maker of the obligation to
44 See
supra note 39.
Exchange Rule 503(f)(2)(i)(A).
46 See Exchange Rule 503(f)(2)(i)(B).
47 Valid width quotes are also used to establish
priority quotes on the Exchange as described in
Exchange Rule 517(b)(1)(i), which are used for
allocation purposes as described in Exchange Rule
514(e), which is not changing under this proposal.
48 See Exchange Rule 503(e)(5).
45 See
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Frm 00070
Fmt 4703
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provide valid width quotes as described
above.49
Additionally, Market Makers on the
Exchange are required to fulfill their
quoting obligations as described in
Exchange Rule 603, Obligations of
Market Makers, and Rule 604, Market
Maker Quotations. Exchange Rule
603(b) provides that with respect to
each options class to which a Market
Maker is appointed under Exchange
Rule 602, the Market Maker has a
continuous obligation to engage, to a
reasonable degree under the existing
circumstances, in dealings for his 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 a particular option
contract, or a temporary distortion of the
price relationships between option
contracts of the same class. Without
limiting the foregoing, a Market Maker
is expected to perform the following
activities in the course of maintaining a
fair and orderly market: (1) To compete
with other Market Makers to improve
the market in all series of options
classes to which the Market Maker is
appointed; (2) to make markets that,
absent changed market conditions, will
be honored for the number of contracts
entered into the System in all series of
options classes to which the Market
Maker is appointed; (3) To update
market quotations in response to
changed market conditions in all series
of options classes to which the Market
Maker is appointed; (4)(i) to price
option contracts fairly by, among other
things, bidding and offering so as to
create differences of no more than $5
between the bid and offer (‘‘bid/ask
differentials’’) following the opening
rotation in an equity contract.
Under Exchange Rule 604, Market
Maker Quotations, a Primary Lead
Market Maker must provide continuous
two-sided Standard quotes and/or Day
eQuotes in at least the lesser of 99% of
the non-adjusted option series, or 100%
of the non-adjusted option series minus
one put-call pair, in each class in which
the Primary Lead Market Maker is
assigned.50 A Lead Market Maker must
provide continuous two-sided Standard
quotes and/or Day eQuotes in at least
90% of the non-adjusted option series in
each of its appointed classes.51 A
Registered Market Maker must provide
continuous two-sided Standard quotes
and/or Day eQuotes throughout the
49 The Exchange notes that it has internal
surveillances that monitor PLMM quoting behavior
to ensure compliance with Exchange Rules.
50 See Exchange Rule 604(e)(1)(ii).
51 See Exchange Rule 604(e)(2)(ii).
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trading day in 60% of the non-adjusted
series that have a time to expiration of
less than nine months in each of its
appointed classes.52
Market Makers on the Exchange
receive a priority allocation under
Exchange Rule 514, Priority of Quotes
and Orders. Specifically, as described in
Exchange Rule 514(e), after executions
resulting from Priority Overlays set forth
in paragraph (d) of Rule 514, when the
pro-rata allocation method applies: (1) If
there is interest at the NBBO, after all
Priority Customers (if any) at that price
have been filled, executions at that price
will be first allocated to other remaining
Market Maker priority quotes, which
have not received a participation
entitlement,53 and have precedence over
Professional Interest; 54 (2) If after all
Market Maker priority quotes have been
filled in accordance with (1) above and
there remains interest at the NBBO,
executions will be allocated to all
Professional Interest at that price.
Professional Interest is defined in Rule
100 and includes among other interest,
Market Maker non-priority quotes (as
described in Rule 517(b)(1)(iii)) and
Market Maker orders in both assigned
and non-assigned classes.55
To be considered a priority quote, at
the time of execution, each of the
following standards must be met: (A)
The bid/ask differential of a Market
Maker’s two-sided quote pair must be
valid width (no wider than the bid/ask
differentials outlined in Rule 603(b)(4));
(B) the initial size of both of the Market
Maker’s bid and the offer must be in
compliance with the requirements of
Rule 604(b)(2); (C) the bid/ask
differential of a Market Maker’s twosided quote pair must meet the priority
quote width requirements defined in
subparagraph (ii) of Rule 517(b) 56 for
each option; and (D) either of the
following are true: (1.) At the time a
locking or crossing quote or order enters
52 See
Exchange Rule 604(e)(3)(i).
Exchange Rule 514(g), (h), and (i).
54 The term ‘‘Professional Interest’’ means (i) an
order that is for the account of a person or entity
that is not a Priority Customer, or (ii) an order or
non-priority quote for the account of a Market
Maker. See Exchange Rule 100.
55 See Exchange Rule 514(e).
56 The priority quote width standard will be
established by the Exchange and filed with the
Commission in accordance with Section 19 of the
Exchange Act and Rule 19b–4 thereunder. The
Priority quote width standard established by the
Exchange can have bid/ask differentials as narrow
as one MPV, as wide but never wider than the bid/
ask differentials outlined in Rule 603(b)(4), or
somewhere in between. Notwithstanding the
foregoing, until such time as the Exchange has
submitted and received approval of a rule change
establishing narrower bid/ask differentials, the
priority quote width standard will be the bid/ask
differentials outlined in Rule 603(b)(4). See
Exchange Rule 517(b)(1)(ii).
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53 See
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the System, the Market Maker’s twosided quote pair must be valid width for
that option and must have been resting
on the Book; or (2.) Immediately prior
to the time the Market Maker enters a
new quote that locks or crosses the
MBBO, the Market Maker must have
had a valid width quote already existing
(i.e., exclusive of the Market Maker’s
new marketable quote or update) among
his two-sided quotes for that option.57
The Exchange notes that the
definition of a priority quote is not
changing under this proposal nor is the
allocation methodology. While the
Exchange’s proposal may provide for
faster openings on the Exchange it does
not relieve Market Makers from
fulfilling their obligations on the
Exchange as described herein.
The proposed non-substantive rule
changes are intended to correct
inaccurate internal rule cross-references
and are designed to protect investors by
ensuring that the Exchange’s rules
accurately reference the proper rule,
thereby mitigating any potential
investor confusion.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not believe that the
proposed rule change to amend the
opening process will impose any burden
on intra-market competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, because it
will apply to orders and quotes of all
market participants in the same manner.
The Exchange does not believe that
the proposed rule change to amend the
opening process will impose any burden
on inter-market competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, because it is
designed to open series on the Exchange
in a fair and orderly manner. The
Exchange believes the proposed opening
process will continue to provide market
participants with an opportunity for
price discovery based on then-current
market conditions when the Exchange
opens series for trading. This will
facilitate the presence of sufficient
liquidity in a series when it opens, and
increase the ability of series to open at
prices consistent with then-current
market conditions (at the Exchange and
on other exchanges) rather than at
extreme prices that could potentially
result in unfavorable executions to
market participants.
57 See
PO 00000
Exchange Rule 517(b)(1)(i).
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17111
The Exchange does not believe that
the proposed rule change to amend the
EQR calculation will impose any burden
on inter-market competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, because
incorporating the Composite Market
into the EQR calculation is designed to
improve the limits of the range within
which transactions may occur during
the opening process and allow the
Exchange to open at prices which are
not extreme.
The Exchange does not believe that
the proposed rule change will impose
any burden on intra-market competition
that is not necessary or appropriate in
furtherance of the purposes of the Act,
as all market participants that
participate in the opening process may
benefit equally from the proposal, as the
rules of the Exchange apply equally to
all Exchange Members.
Additionally, the non-substantive
changes proposed by the Exchange
provide additional clarity and detail in
the Exchange’s rules and are not
changes made for any competitive
purpose.
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, the
proposed rule change has become
effective pursuant to 19(b)(3)(A) of the
Act 58 and Rule 19b–4(f)(6) 59
thereunder.
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 60 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 61
permits the Commission to designate a
shorter time if such action is consistent
58 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.
60 17 CFR 240.19b–4(f)(6).
61 17 CFR 240.19b–4(f)(6)(iii).
59 17
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with the protection of investors and the
public interest. The Exchange has asked
the Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Exchange notes that waiver
of the operative delay would allow it to
implement the proposal immediately
and would allow investors and the
public to immediately benefit from the
Exchange’s revised opening process.
Further, the Exchange states that the
proposed rule amendments are
substantially similar to those currently
in place on other options exchanges.62
The Commission believes the proposal
raises no novel or unique regulatory
issues. The Commission finds that it is
consistent with the protection of
investors and the public interest to
waive the 30-day operative delay.
Accordingly, the Commission hereby
waives the operative delay and
designates the proposal operative upon
filing.63
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:
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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–2020–04 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–MIAX–2020–04. This file
62 See,
e.g., supra notes 6,7, 9, 32–34, 40–41.
purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
63 For
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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–2020–04 and should
be submitted on or before April 16,
2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.64
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–06386 Filed 3–25–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88436; File No. SR–
NYSEArca–2020–21]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the NYSE Arca
Equities Fees and Charges
March 20, 2020.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’),2 and Rule 19b–4 thereunder,3
notice is hereby given that on March 11,
64 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00072
Fmt 4703
Sfmt 4703
2020, NYSE Arca, Inc. (‘‘NYSE Arca’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
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 proposes to amend the
NYSE Arca Equities Fees and Charges
(‘‘Fee Schedule’’) to (1) amend the
requirement to qualify for the Tape B
Tier 1 pricing tier; (2) amend the per
share fee for PO Orders routed to the
Nasdaq Stock Market LLC; (3) adopt a
per share fee for PO Orders routed to
Cboe BZX Exchange, Inc.; (4) adopt a
cap applicable to the Step Up Tier 4
credit in Tape B securities; and (5)
amend the requirement to qualify for the
tiered-rebate structure applicable to
Lead Market Makers and to ETP Holders
affiliated with such Lead Market
Makers. The proposed rule change is
available on the Exchange’s website at
www.nyse.com, at the principal office of
the Exchange, 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
self-regulatory organization 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 those 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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
Fee Schedule to (1) amend the
requirement to qualify for the Tape B
Tier 1 pricing tier; (2) amend the per
share fee for Primary Only (‘‘PO’’)
Orders 4 routed to the Nasdaq Stock
4 A PO Order is a Market or Limit Order that on
arrival is routed directly to the primary listing
market without being assigned a working time or
interacting with interest on the NYSE Arca Book.
See NYSE Arca Rule 7.31–E(f)(1).
E:\FR\FM\26MRN1.SGM
26MRN1
]]>Agencies
[Federal Register Volume 85, Number 59 (Thursday, March 26, 2020)]
[Notices]
[Pages 17105-17112]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06386]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88455; File No. SR-MIAX-2020-04]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Exchange Rule 100, Definitions and
Exchange Rule 503, Openings on the Exchange
March 23, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 12, 2020, 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 and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend Exchange Rule 100,
Definitions; and Exchange Rule 503, Openings on the Exchange.
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxoptions.com/rule-filings/ at MIAX Options'
principal office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Exchange Rule 100 to adopt new
definitions for the terms ``Composite Market,'' ``Composite Width,''
and ``Maximum Composite Width.'' The Exchange also proposes to amend
Exchange Rule 503, to incorporate the proposed Composite Market into
its opening process. Finally, the Exchange proposes to make minor non-
substantive changes to Rule 503 to correct internal cross-references
within the Exchange's rulebook. The Exchange believes that
incorporating the concept of a Composite Market into its existing
opening process will improve the speed and efficiency of the opening
process without impairing price discovery.
The Exchange proposes to amend Exchange Rule 100 to adopt a new
definition for Composite Market that will mean, ``the market for a
series comprised of (1) the higher of the then-current best appointed
Market Maker \3\ bid quote on the Exchange and the ABB \4\ (if there is
an ABB) and (2) the lower of the then-current best appointed Market
Maker offer quote on the Exchange and the ABO \5\ (if there is an ABO).
The term ``Composite Bid (Offer)'' means the bid (offer) used to
[[Page 17106]]
determine the Composite Market.'' \6\ The Exchange also proposes to
amend Exchange Rule 100 to adopt a new definition for Composite Width
that will mean, ``the width of the Composite Market (i.e., the width
between the Composite Bid and the Composite Offer) of a series.'' \7\
Finally, the Exchange proposes to amend Exchange Rule 100 to adopt a
new definition of Maximum Composite Width, that will mean, the amount
that the Composite Width of a series may generally not be greater than
for the series to open. The Maximum Composite Widths for all classes
are as follows (based on the Composite Bid for a series):
---------------------------------------------------------------------------
\3\ The term ``Market Makers'' refers to ``Lead Market Makers'',
``Primary Lead Market Makers'' and ``Registered Market Makers''
collectively. See Exchange Rule 100.
\4\ The term ABB means the Away Best Bid.
\5\ The term ABO means the Away Best Offer.
\6\ This definition is substantially similar to the definition
of a Composite Market used on another options exchange. See Cboe
Exchange Rule 5.31(a).
\7\ This definition is substantially similar to the definition
for Composite Width used on another options exchange. See Cboe
Exchange Rule 5.31(a).
------------------------------------------------------------------------
Maximum
Low end of range (bid) High end of composite
range (bid) width
------------------------------------------------------------------------
$0.00................................... $1.99 $5.00
2.00.................................... 5.00 5.00
5.01.................................... 10.00 5.00
10.01................................... 20.00 5.00
20.01................................... + 5.00
------------------------------------------------------------------------
The Exchange may modify these amounts when it deems necessary to
maintain a fair and orderly opening process (which modifications the
Exchange will announce to Members \8\ via Regulatory Circular).\9\ The
Maximum Composite Width corresponds to the opening valid width range
currently used by the Exchange.
---------------------------------------------------------------------------
\8\ 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.
\9\ This definition is substantially similar to the definition
for Maximum Composite Width used on another options exchange. See
Cboe Exchange Rule 5.31(a).
---------------------------------------------------------------------------
The Exchange proposes to amend Exchange Rule 503, Openings on the
Exchange, to incorporate the Composite Market into the Exchange's
opening process. The Composite Market will be used during the opening
process to determine whether or not to open a series for trading. The
Exchange believes it is appropriate to consider any quotes from away
markets in addition to quotes on its own market when determining
whether to open a series, because consideration of all then-available
pricing information may provide for more accurate opening prices.
Current Opening Process
The Exchange's current opening process is dependent upon the
presence of valid width quotes to begin.\10\ A valid width quote is
defined in the Exchange's rules as, one where the bid and offer,
comprised of a Market Maker's Standard quotes \11\ and Day eQuotes,\12\
differ by no more than the differences outlined in Exchange Rule
603(b)(4)(i).\13\ Exchange Rule 603(b)(4)(i) establishes a bid/ask
differential of $5.00.\14\ However, Exchange Rule 603(b)(4)(ii) further
provides that the Exchange may establish differences other than the
bid/ask differences described in Rule 603(b)(4)(i) for one or more
option series or classes. When the Exchange establishes bid/ask
differentials under Exchange Rule 603(b)(4)(ii) the Exchange publishes
a Regulatory Circular identifying the option symbol, security name, and
valid width bid/ask differential for the opening process and for intra-
day quoting.
---------------------------------------------------------------------------
\10\ See Exchange Rule 503(e)(1)(i), (ii), and (iii).
\11\ 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).
\12\ A Day eQuote is a quote submitted by a Market Maker that
does not automatically cancel or replace the Market Maker's previous
Standard quote or eQuote. See Exchange Rule 517(a)(2)(i).
\13\ Also, for purposes of this rule, valid width quote is one
where the bid and offer, comprised of a Market Maker's Standard
quotes and Day eQuotes, differ by no more than the differences
outlined in Exchange Rule 603(b)(4)(i). See Exchange Rule 503(e)(3).
\14\ Under Exchange Rule 603(b) a Market Maker is expected to
perform the following activities in the course of maintaining a fair
and orderly market: (1) To compete with other Market Makers to
improve the market in all series of options classes to which the
Market Maker is appointed. (2) To make markets that, absent changed
market conditions, will be honored for the number of contracts
entered into the System in all series of option classes to which the
Market Maker is appointed. (3) To update market quotations in
response to changed market conditions in all series of options
classes to which the Market Maker is appointed. (4)(i) To price
option contracts fairly by, among other things, bidding and offering
so as to create differences of no more than $5 between the bid and
offer (``bid/ask differentials'') following the opening rotation in
an equity option contract;
---------------------------------------------------------------------------
Paragraph (e) Starting the Opening Process, of Exchange Rule 503,
provides that, (1) the opening process cannot occur prior to 9:30 a.m.
Eastern Time and can only begin following the dissemination of a quote
or trade in the market for the underlying security. Following the
dissemination of a quote or a trade in the market for the underlying
security, the System \15\ will pause for a period of time no longer
than one half second to allow the market place to absorb this
information. The length of the pause will be disseminated to members
through a Regulatory Circular. After the conclusion of the pause the
opening process will begin when either: (i) The Primary Lead Market
Maker's \16\ valid width quote has been submitted; (ii) the valid width
quotes of at least two Market Makers, where at least one is a Lead
Market Maker,\17\ have been submitted; or (iii) for multiply listed
option classes, at least one Eligible Exchange (as defined in Rule
1400(g)) has disseminated a quote in the individual option in
accordance with Rule 1402(a), there is a valid width NBBO \18\
available and the valid width quote of at least one Lead Market Maker
has been submitted.
---------------------------------------------------------------------------
\15\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\16\ The term ``Primary Lead Market Maker'' means a Lead Market
Maker appointed by the Exchange to act as the Primary Lead Market
Maker for the purpose of making markets in securities traded on the
Exchange. The Primary Lead Market Maker is vested with the rights
and responsibilities specified in Chapter VI of MIAX Exchange Rules
with respect to Primary Lead Market Makers. See Exchange Rule 100.
\17\ The term ``Lead Market Maker'' means a Member registered
with the Exchange for the purpose of making markets in securities
traded on the Exchange and that is vested with the rights and
responsibilities specified in Chapter VI of these Rules with respect
to Lead Market Makers. When a Lead Market Maker is appointed to act
in the capacity of a Primary Lead Market Maker, the additional
rights and responsibilities of a Primary Lead Market Maker specified
in Chapter VI of MIAX Exchange Rules will apply. See Exchange Rule
100.
\18\ 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.
---------------------------------------------------------------------------
The current rule further provides that (2) for purposes of this
rule a valid width NBBO is one where the bid and offer of the NBBO
differ by no more than differences outlined in Exchange Rule
603(b)(4)(i); (3) also, for purposes of this rule, valid width quote is
one where the bid and offer, comprised of a Market Maker's Standard
quotes and Day eQuotes, differ by no more than the differences outlined
in Exchange Rule 603(b)(4)(i); (4) if after two minutes following the
dissemination of a quote or trade in the market for the underlying
security none of the provisions set forth in (e)(1) above have
occurred, then the opening process can begin when one Market Maker has
submitted its valid width quote; (5) the Primary Lead Market Maker
assigned in a particular equity option class must enter valid width
quotes not later than one minute following the dissemination of a quote
or trade by the market for the underlying security; and (6) a
Registered Market Maker \19\ that submits a quote
[[Page 17107]]
pursuant to this Rule 503 in any series when a Lead Market Maker's or
Primary Lead Market Maker's quote has not been submitted shall be
required to submit continuous, two-sided quotes in such series until
such time as a Lead Market Maker submits his/her quote, after which the
Registered Market Maker that submitted such quote shall be obligated to
submit quotations pursuant to Rule 604(e)(3).
---------------------------------------------------------------------------
\19\ The term ``Registered Market Maker'' means a Member
registered with the Exchange for the purpose of making markets in
securities traded on the Exchange, who is not a Lead Market Maker
and is vested with the rights and responsibilities specified in
Chapter VI of MIAX Options Exchange Rules with respect to Market
Makers. See Exchange Rule 100.
---------------------------------------------------------------------------
Proposed Opening Process
The Exchange now proposes to amend paragraph (e) of Rule 503 to
remove certain references to valid width quotes and to incorporate the
Composite Market into the opening process as described below.
Specifically, proposed paragraph (e) Starting the Opening Process, will
provide that (1) the opening process cannot occur prior to 9:30 a.m.
Eastern Time and can only begin following the dissemination of a quote
or trade in the market for the underlying security. Following the
dissemination of a quote or a trade in the market for the underlying
security, the System will pause for a period of time no longer than one
half second to allow the market place to absorb this information. The
length of the pause will be disseminated to members through a
Regulatory Circular. After the conclusion of the pause the opening
process will begin when either: (i) The Primary Lead Market Maker's
quote has been submitted; (ii) the quotes of at least two Market
Makers, where at least one is a Lead Market Maker, have been submitted;
or (iii) for multiply listed option classes, at least one Eligible
Exchange (as defined in Rule 1400(g)) has disseminated a quote in the
individual option in accordance with Rule 1402(a), and the quote of at
least one Lead Market Maker has been submitted.
The Exchange also proposes to adopt new subsection (7) to paragraph
(e) that will state, ``[i]f the Composite Width is equal to or less
than the Maximum Composite Width,\20\ the opening process will
continue.'' Finally, the Exchange proposes to adopt new subsection (8)
to paragraph (e) that will state, ``[f]or purposes of this rule a valid
width market is one where the Composite Width is equal to or less than
the Maximum Composite Width.''
---------------------------------------------------------------------------
\20\ The Exchange notes that the default settings for the
Maximum Composite Width are the same as the Exchange's current
default settings for opening valid width range.
---------------------------------------------------------------------------
The proposal describes the opening process, which will begin when
at least one of the prerequisite triggers has been satisfied, i.e., (i)
the Primary Lead Market Maker's quote has been submitted; (ii) the
quotes of at least two Market Makers, where at least one is a Lead
Market Maker, have been submitted; or (iii) for multiply listed option
classes, at least one Eligible Exchange (as defined in Rule 1400(g))
has disseminated a quote in the individual option in accordance with
Rule 1402(a), and the quote of at least one Lead Market Maker has been
submitted.
For each series of options \21\ the System will calculate a
Composite Market using quotes from away markets in addition to quotes
on its own market. The Composite Width for an option will then be
evaluated against the Maximum Composite Width range, and the System
will open the option for trading if the Composite Width is equal to or
less than the Maximum Composite Width. The Exchange believes the
proposed changes effectively integrate the proposed Composite Market
into the existing opening process and will provide a faster and more
efficient opening process while simultaneously improving the quality of
the opening process. Performing a check of the Composite Width against
the Maximum Composite Width is intended to facilitate that option
series open in a fair and orderly manner and at prices consistent with
the current market conditions for the option series and not at extreme
prices, while taking into consideration prices disseminated from other
option exchanges that may be better than the Exchange's at the open.
---------------------------------------------------------------------------
\21\ The term ``series of options'' means all option contracts
of the same class having the same exercise price and expiration
date. See Exchange Rule 100.
---------------------------------------------------------------------------
The examples below illustrate the operation of the current opening
process and the proposed opening process as described herein.
Example 1 (Current Opening)
PLMM quote and Away Market Quote subject to individual quote evaluation
Valid Width: Maximum Bid and Offer Differential = $5.00
Pre-Opening Market:
PLMM (10) 23.90 x 30.50 (10)
ABBO \22\ 0.00 x 0.00
---------------------------------------------------------------------------
\22\ 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(g)) and calculated by the Exchange based on
market information received by the Exchange from OPRA. See Exchange
Rule 100.
Upon opening of the Underlying Security and a brief pause, the
opening process for the related option products is initiated. The quote
from the PLMM to buy 10 options at a price of 23.90 and sell 10 options
at a price of 30.50 remains unchanged from the pre-opening. The Away
Best Bid and Offer (ABBO) which is not considered pre-open, updates to
---------------------------------------------------------------------------
reflect 0.00 x 24.00.
Resultant Evaluation:
PLMM (10) 23.90 x 30.50 (10) Invalid Width (6.60)
ABBO 0.00 x 24.00 Invalid Width (24.00)
Because the quote from the PLMM is not considered a valid width
quote, nor is the quote from the ABBO considered valid width, the
option products remain unopened.
Example 2 (Proposed Opening)
PLMM quote and Away Market Quote subject to Composite Market evaluation
Valid Width: Maximum Composite Width = $5.00
Pre-Opening Market:
PLMM (10) 23.90 x 30.50 (10)
ABBO 0.00 x 0.00
Upon opening of the Underlying Security and a brief pause, the
opening process for the related option products is initiated. The quote
from the PLMM to buy 10 options at a price of 23.90 and sell 10 options
at a price of 30.50 remains unchanged from the pre-opening. The Away
Best Bid and Offer (ABBO) which is not considered pre-open, updates to
reflect 0.00 x 24.00.
Resultant Evaluation:
PLMM (10) 23.90 x 30.50 (10) Invalid Width (6.60)
ABBO 0.00 x 24.00 Invalid Width (24.00)
Composite Market 23.90 x 24.00 Composite Width (0.10)
The higher of the PLMM bid and the ABB, and the lower of the PLMM
offer and the ABO, creates a Composite Market of 23.90 x 24.10, which
has a Composite Width of 0.10. Under the proposed rule the Composite
Width is equal to or less than the Maximum Composite Width, the opening
process continues, and the option products could be opened.
Resultant Market:
PLMM (10) 23.90 x 30.50 (10)
MBBO \23\ (10) 23.90 x 30.50 (10)
---------------------------------------------------------------------------
\23\ The term ``MBBO'' means the best bid or offer on the
Exchange. See Exchange Rule 100.
---------------------------------------------------------------------------
ABBO 0.00 x 24.00
NBBO 23.90 x 24.00
Additionally, the Exchange proposes to amend subsection (f)(2)(i),
Expanded Quote Range, of Rule 503, to further incorporate the Composite
Market into the opening process. Currently, if there are quotes or
orders that lock or cross each other, the System calculates an Expanded
Quote Range (``EQR'') to
[[Page 17108]]
establish the range within which transactions may occur during the
opening process.\24\ The EQR will be recalculated any time a Route
Timer \25\ or Imbalance Timer \26\ expires if material conditions of
the market (imbalance size, ABBO price or size, liquidity price or
size, etc.) have changed during the timer.\27\
---------------------------------------------------------------------------
\24\ See Exchange Rule 503(f)(2).
\25\ See Exchange Rule 529(b).
\26\ See Exchange Rule 503(f)(2)(vii)(A).
\27\ See Exchange Rule 503(f)(2)(i).
---------------------------------------------------------------------------
The Exchange now proposes to amend subsection (f)(2)(i)(A)1. to
provide that, to determine the minimum value for the EQR, an amount, as
defined in a table to be determined by the Exchange, will be subtracted
from the Composite Bid. Further, subsection (f)(2)(i)(A)1. will be
amended to provide that, to determine the maximum value for the EQR, an
amount, as defined in a table to be determined by the Exchange, will be
added to the Composite Offer.
Additionally, subsection (f)(2)(i)(A)2. will be amended to provide
that, if one or more away markets have disseminated quotes that are not
crossed and together comprise a valid width market, and the Composite
Market crosses an ABBO, or is internally crossed, then: (a) The minimum
value for the EQR will be the Composite Offer less an amount, as
defined in a table to be determined by the Exchange, and (b) the
maximum value for the EQR will be the Composite Bid plus an amount, as
defined in a table to be determined by the Exchange.
The Exchange also proposes to amend subsection (f)(2)(i)(B)1. to
provide that, except as provided in subparagraph (3) of Rule
503(f)(2)(i)(B), to determine the minimum value for the EQR, an amount,
as defined in a table to be determined by the Exchange, will be
subtracted from the Composite Bid; and 2. to provide that, except as
provided in subparagraph (3) of Rule 503(f)(2)(i)(B) to determine the
maximum value for the EQR, an amount, as defined in a table to be
determined by the Exchange, will be added to the Composite Offer.
Additionally, subsection (f)(2)(i)(B)3. will be amended to provide
that, if there are quotes on the Exchange that cross each other, and
there is no away market in the affected series, then; (a) the minimum
value for the EQR will be the Composite Offer less an amount, as
defined in a table to be determined by the Exchange; and (b) the
maximum value for the EQR will be the Composite Bid plus an amount, as
defined in a table to be determined by the Exchange.
The Exchange believes that incorporating the Composite Market into
the EQR calculation is beneficial to market participants because the
EQR provides a more accurate measure as to whether there is sufficient
available liquidity in the broader market system to provide a fair and
orderly opening process and sufficient price discovery for the options
to open for trading because it incorporates the prices on away markets
into its evaluation.
Finally, the Exchange proposes to amend Exchange Rule
503(f)(2)(vii)(B)(5)a. to make a non-substantive change to correct an
internal cross-reference within the Exchange's rulebook. Currently the
rule provides that, if the option is being used in the calculation of a
final settlement price of an Index pursuant to Chapter XVIII of
Exchange Rules on expiration date, then . . . the System will instead
conduct a further imbalance process to trade the entire imbalance
amount, as described in Exchange Rule 1809. The Exchange proposes to
replace Chapter XVIII with Policy .02 of Exchange Rule 503; and to
replace Exchange Rule 1809 with Policy .03 of Exchange Rule 503. While
Chapter XVIII of the Exchange Rules describes Index Options, and
Exchange Rule 1809, describes Terms of Index Options Contracts, the
final settlement price calculation for an Index Option is described in
Exchange Rule 503, specifically in Policy .02 and .03.\28\ Therefore,
correcting these internal cross-references will add clarity and
precision to the Exchange's rules.
---------------------------------------------------------------------------
\28\ See Securities Exchange Release No. 84578 (November 13,
2018), 83 FR 58306 (November 19, 2018) (SR-MIAX-2018-32) (Amend
Exchange Rule 503 To Adopt Interpretations and Polices .02 and .03).
---------------------------------------------------------------------------
2. Statutory Basis
MIAX Options believes that its proposed rule change is consistent
with Section 6(b) of the Act \29\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \30\ in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, to remove impediments to and perfect the
mechanisms of a free and open market and a national market system and,
in general, to protect investors and the public interest.
---------------------------------------------------------------------------
\29\ 15 U.S.C. 78f(b).
\30\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed addition of a Composite
Market into the Exchange's existing opening process promotes just and
equitable principles of trade, removes impediments to and perfects the
mechanism of a free and open market and a national market system and,
in general protects investors and the public interest by improving the
Exchange's opening process by creating additional opportunities for
price discovery based on then-current market conditions. The Exchange
believes it is appropriate to consider any quotes from away markets in
addition to quotes on its own market when determining whether to open
an option series in all classes, because consideration of all then-
available pricing information may provide for more accurate opening
prices. By incorporating a Composite Market, which includes prices from
away exchanges, the Exchange believes the proposed opening process will
promote competitive liquidity and open option series at prices
consistent with then-current market conditions, and thus will promote a
faster and more efficient opening process.
The Exchange believes that removing the requirement that a Market
Maker's submitted quotes must be valid width as a pre-requisite to
beginning the opening process is benign in light of the new proposed
process. Under the Exchange's current Rule the Exchange would begin the
opening process when either (i) the Primary Lead Market Maker's valid
width quote has been submitted; (ii) the valid width quotes of at least
two Market Makers, where at least one is a Lead Market Maker, have been
submitted; or (iii) for multiply listed option classes, at least one
Eligible Exchange (as defined in Rule 1400(g)) has disseminated a quote
in the individual option in accordance with Rule 1402(a), there is a
valid width NBBO available and the valid width quote of at least one
Lead Market Maker has been submitted. Valid width quotes were required
to ensure that the Exchange did not open at prices that were extreme
and potentially erroneous.
The Exchange is proposing to remove the valid width evaluation from
Rule 503(e)(1)(i) (ii) and (iii) as described above; and to relocate
the evaluation of quotes for valid width to a separate provision (new
proposed paragraph 503(e)(7)) in the Rule. The Exchange is proposing to
adopt new rule text \31\ which will provide that the Composite Width
must be equal to or less than the Maximum Composite Width for the
opening process to continue. If the Composite Width is greater than the
Maximum Composite Width, the opening process will not continue for that
option. This check ensures that the
[[Page 17109]]
Exchange does not open at prices that are extreme and potentially
erroneous.
---------------------------------------------------------------------------
\31\ See proposed Exchange Rule 503(e)(7).
---------------------------------------------------------------------------
The Exchange notes that at least two other option exchanges'
opening processes do not require Market Maker valid width quotes. The
Cboe Exchange similarly employs a Composite Market,\32\ Composite
Width,\33\ and Maximum Composite Width,\34\ in its opening auction
process. The Cboe Exchange relies upon the occurrence of one, or the
other, of the following two triggers to begin its opening rotation. For
equity options, the System initiates the opening rotation after a time
period (which the Exchange determines for all classes) upon the earlier
of: (i) The passage of two minutes (or such shorter time as determined
by the Exchange) after the System's observation after 9:30 a.m. of
either the first disseminated transaction or the first disseminated
quote on the primary market in the security underlying an equity
option; or (ii) the System's observation after 9:30 a.m. of both the
first disseminated transaction and the first disseminated quote on the
primary market in the security underlying an equity option.\35\ After
the System initiates the opening rotation for a series as described
above, the System performs a Maximum Composite Width Check.\36\ The
Cboe Exchange provides that the term ``Maximum Composite Width'' means
the amount that the Composite Width of a series may generally not be
greater than for the series to open (subject to certain exceptions set
forth in paragraph (e)(1) of Cboe Exchange Rule 5.31). The Maximum
Composite Widths for all classes on the Cboe Exchange are as follows
(based on the Composite Bid for a series):
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\32\ The term ``Composite Market'' means the market for a series
comprised of (1) the higher of the then-current best appointed
Market-Maker bulk message bid on the Exchange the ABB (if there is
an ABB) and (2) the lower of the then-current best appointed Market-
Maker bulk message offer on the Exchange and the ABO (if there is an
ABO). The term ``Composite Bid (Offer)'' means the bid (offer) used
to determine the Composite Market. See Cboe Exchange Rule 5.31(a).
\33\ The term ``Composite Width'' means the width of the
Composite Market (i.e., the width between the Composite Bid and the
Composite Offer) of a series. See Cboe Exchange Rule 5.31(a).
\34\ See Cboe Exchange Rule 5.31(a).
\35\ See Cboe Exchange Rule 5.31(d)(1)(A).
\36\ See Cboe Exchange Rule 5.31(e)(1).
------------------------------------------------------------------------
Maximum
Composite bid composite
width
------------------------------------------------------------------------
0-1.99.................................................. 0.50
2.00-5.00............................................... 0.80
5.01-10.00.............................................. 1.00
10.01-20.00............................................. 2.00
20.01-50.00............................................. 3.00
50.01-100.00............................................ 5.00
100.01-200.00........................................... 8.00
>= 200.01............................................... 12.00
------------------------------------------------------------------------
The Cboe Exchange provides that it may modify these amounts during
the opening auction process when it deems necessary to maintain a fair
and orderly opening process (which modifications the Exchange
disseminates to all subscribers to the Exchange's data feeds that
deliver opening auction updates).\37\ After a series satisfies the
Maximum Composite Width Check, if there are orders and quotes
marketable against each other at a price not outside the Opening
Collar, the System determines the Opening Trade Price for the
series.\38\
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\37\ See Cboe Exchange Rule 5.31.
\38\ See Cboe Exchange Rule 5.31(e)(2).
---------------------------------------------------------------------------
On the Cboe Exchange the term ``Opening Collar' means the price
range that establishes limits at or inside of which the System
determines the Opening Trade price for a series. The Opening Collar is
determined by determining the midpoint of the Composite Market, and
adding and subtracting half of the applicable width amount above and
below, respectively, that midpoint. The Opening Collar widths for all
classes on the Cboe Exchange are as follows (based on the Composite Bid
for a series):
------------------------------------------------------------------------
Opening collar
Composite bid width
------------------------------------------------------------------------
0-1.99.................................................. 0.50
2.00-5.00............................................... 0.80
5.01-10.00.............................................. 1.00
10.01-20.00............................................. 2.00
20.01-50.00............................................. 3.00
50.01-100.00............................................ 5.00
100.01-200.00........................................... 8.00
= 200.01..................................... 12.00
------------------------------------------------------------------------
The Cboe Exchange provides that it may modify these amounts during
the opening auction process when it deems necessary to maintain a fair
and orderly opening process (which modifications the Cboe Exchange
disseminates to all subscribers to the Exchange's data feeds that
deliver opening auction updates).\39\
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\39\ See Cboe Exchange Rule 5.31(a).
---------------------------------------------------------------------------
Similarly, the NYSE American Exchange does not require valid width
quotes from a Market Maker to open option series. At or after 9:30 a.m.
Eastern Time, the NYSE American Exchange rules provide that once the
primary market for the underlying security disseminates a quote and a
trade that is at or within the quote, the related option series will be
opened automatically based on the following principles and procedures:
(A) The system will determine a single price at which a particular
option series will be opened. (B) Orders and quotes in the system will
be matched up with one another based on price-time priority; provided,
however, that orders will have priority over Market Maker quotes at the
same price. (C) Orders in the System Book that were not executed during
the Auction Process shall become eligible for the Core Trading Session
immediately after the conclusion of the Auction Process. (D) The System
will not conduct an Auction Process if the bid-ask differential for
that series is not within an acceptable range. For the purposes of this
rule, an acceptable range shall mean within the bid-ask differential
guidelines established pursuant to Rule 925NY(b)(4).\40\ (E) If the
System does not open a series with an Auction Process, the System shall
open the series for trading after receiving notification of an initial
uncrossed NBBO disseminated by OPRA for the series, provided that the
bid-ask differential does not exceed the bid-ask differential specified
under Rule 925NY(b)(5).\41\
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\40\ NYSE American Exchange Rule 925NY(b) establishes bid/ask
differences for Market Makers in open outcry of: (A) No more than
.25 between the bid and the offer for each contract for which the
bid is less than $2, (B) no more than .40 where the bid is $2 or
more but does not exceed $5, (C) no more than .50 where the bid is
more than $5 but does not exceed $10, (D) no more than .80 where the
bid is more than $10 but does not exceed $20, and (E) no more than
$1 when the last bid is $20.01 or more, provided that a Trading
Official may establish differences other than the above for one or
more series or classes of options. See NYSE American Exchange Rule
925NY(b)(4).
\41\ NYSE American Exchange Rule 925NY(b) requires that a Market
Maker's electronically submitted quotes to the System during Core
Trading Hours have a bid/ask difference not to exceed $5 between the
bid and offer regardless of the price of the bid. See NYSE American
Exchange Rule 925NY(b)(5).
---------------------------------------------------------------------------
The Cboe Exchange, NYSE American Exchange, and the MIAX Options
Exchange have all established unique bid/ask differentials at the
various bid levels, that allow each exchange to open at prices which
are not extreme. The Exchange believes that defining a default Maximum
Composite Width provides transparency in the Exchange's rules
concerning its opening process.
The Exchange believes that its proposed opening process is
substantially similar to its current opening process: (i) The proposed
Composite Market Width default values are based on the Exchange's
current opening valid width values; and (ii) the proposed Composite
Market Width check is similar to the Exchange's current valid width
quote check which
[[Page 17110]]
ensures that the Exchange does not open at prices that are erroneous or
extreme. While the Exchange no longer requires the presence of a Market
Maker's valid width quotes in its opening process, the Exchange notes
that other exchanges, such as the Cboe and NYSE American, similarly do
not require the presence of a Market Maker's valid width quotes to
open.
The Exchange believes the inclusion of the ABBO in the composition
of the Composite Market will continue to provide opportunities for
price discovery based on then-current market conditions when the
Exchange opens series for trading. The Exchange believes the proposed
opening process will promote competitive liquidity and open series at
prices consistent with then-current market conditions, and thus will
promote a fair and orderly opening process. The Exchange believes that
ensuring that the Composite Width is equal to or less than the Maximum
Composite Width ensures that the Exchange will not open at prices which
are extreme. The Exchange believes it is appropriate to open a series
under the proposed circumstances and provide marketable orders with an
opportunity to execute at a reasonable price, because there is minimal
risk of execution at an extreme price.
Additionally, the Exchange believes using the Composite Market to
establish the Expanded Quote Range, which represents the limits of the
range in which transactions may occur during the opening process,\42\
promotes just and equitable principles of trade, and perfects the
mechanism or a free and open market and a national market system and,
in general protects investors and the public interest as it is
substantially similar to the current EQR process. Current Exchange Rule
503(f)(2)(i)(A) considers away market quotes for EQR purposes and uses
the highest valid width quote bid among valid width quotes on the
Exchange and on the away market(s) to determine the minimum value for
the EQR; and the lowest valid width quote offer among valid width
quotes on the Exchange and on the away market(s) to determine the
maximum value for the EQR.\43\ Under the Exchange's proposal the use of
a Composite Market creates uniformity in the Exchange's process to
establish the EQR. The Exchange believes that using the Composite Bid
and the Composite Offer to determine the EQR range may improve the
range within which transactions may occur during the opening process as
the Composite Market considers all quotes in the market, in addition to
the Exchange's quotes.
---------------------------------------------------------------------------
\42\ See Exchange Rule 503(f)(2)(i).
\43\ See Exchange Rule 503(f)(2)(i)(A)1.
---------------------------------------------------------------------------
The Exchange believes adopting new rule text to provide that for
the purposes of this rule a valid width market is one where the
Composite Width is equal to or less than the Maximum Composite Width,
promotes just and equitable principles of trade, removes impediments to
and perfects the mechanisms of a free and open market and a national
market system and, in general, protects investors and the public
interest by providing clarity and precision in the Exchange's rules
thereby mitigating any potential investor confusion.
Similar to the Exchange's EQR, which represents the limits of the
range in which transaction may occur during the opening process, the
Cboe Exchange employs an Opening Collar \44\ which establishes limits
at or inside of which the System determines the Opening Trade Price for
a series. Neither the Cboe Exchange Opening Collar nor the MIAX
Exchange EQR rely upon Market Maker quotes for its calculation but
instead use a value from the Composite Market as a basis for its
calculation. The Cboe Exchange Opening Collar is determined by
determining the midpoint of the Composite Market, and adding and
subtracting half of the applicable width amount above and below,
respectively, that midpoint. The Exchange's EQR calculation also uses
the Composite Market to establish the transaction range, but performs
slightly different calculations depending upon; (A) If one or more away
markets have disseminated valid width quotes in the affected series;
\45\ or (B) If no away markets have disseminated valid width quotes in
the affected series.\46\
---------------------------------------------------------------------------
\44\ See supra note 39.
\45\ See Exchange Rule 503(f)(2)(i)(A).
\46\ See Exchange Rule 503(f)(2)(i)(B).
---------------------------------------------------------------------------
Further, under the Exchange's proposal Market Makers on the
Exchange are not relieved of their obligations. Primary Lead Market
Makers assigned in a particular equity option class must enter valid
width quotes \47\ not later than one minute following the dissemination
of a quote or trade by the market for the underlying security.\48\ A
faster, more efficient, opening of a particular option does not relieve
the Primary Lead Market Maker of the obligation to provide valid width
quotes as described above.\49\
---------------------------------------------------------------------------
\47\ Valid width quotes are also used to establish priority
quotes on the Exchange as described in Exchange Rule 517(b)(1)(i),
which are used for allocation purposes as described in Exchange Rule
514(e), which is not changing under this proposal.
\48\ See Exchange Rule 503(e)(5).
\49\ The Exchange notes that it has internal surveillances that
monitor PLMM quoting behavior to ensure compliance with Exchange
Rules.
---------------------------------------------------------------------------
Additionally, Market Makers on the Exchange are required to fulfill
their quoting obligations as described in Exchange Rule 603,
Obligations of Market Makers, and Rule 604, Market Maker Quotations.
Exchange Rule 603(b) provides that with respect to each options class
to which a Market Maker is appointed under Exchange Rule 602, the
Market Maker has a continuous obligation to engage, to a reasonable
degree under the existing circumstances, in dealings for his 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 a particular option contract, or a
temporary distortion of the price relationships between option
contracts of the same class. Without limiting the foregoing, a Market
Maker is expected to perform the following activities in the course of
maintaining a fair and orderly market: (1) To compete with other Market
Makers to improve the market in all series of options classes to which
the Market Maker is appointed; (2) to make markets that, absent changed
market conditions, will be honored for the number of contracts entered
into the System in all series of options classes to which the Market
Maker is appointed; (3) To update market quotations in response to
changed market conditions in all series of options classes to which the
Market Maker is appointed; (4)(i) to price option contracts fairly by,
among other things, bidding and offering so as to create differences of
no more than $5 between the bid and offer (``bid/ask differentials'')
following the opening rotation in an equity contract.
Under Exchange Rule 604, Market Maker Quotations, a Primary Lead
Market Maker must provide continuous two-sided Standard quotes and/or
Day eQuotes in at least the lesser of 99% of the non-adjusted option
series, or 100% of the non-adjusted option series minus one put-call
pair, in each class in which the Primary Lead Market Maker is
assigned.\50\ A Lead Market Maker must provide continuous two-sided
Standard quotes and/or Day eQuotes in at least 90% of the non-adjusted
option series in each of its appointed classes.\51\ A Registered Market
Maker must provide continuous two-sided Standard quotes and/or Day
eQuotes throughout the
[[Page 17111]]
trading day in 60% of the non-adjusted series that have a time to
expiration of less than nine months in each of its appointed
classes.\52\
---------------------------------------------------------------------------
\50\ See Exchange Rule 604(e)(1)(ii).
\51\ See Exchange Rule 604(e)(2)(ii).
\52\ See Exchange Rule 604(e)(3)(i).
---------------------------------------------------------------------------
Market Makers on the Exchange receive a priority allocation under
Exchange Rule 514, Priority of Quotes and Orders. Specifically, as
described in Exchange Rule 514(e), after executions resulting from
Priority Overlays set forth in paragraph (d) of Rule 514, when the pro-
rata allocation method applies: (1) If there is interest at the NBBO,
after all Priority Customers (if any) at that price have been filled,
executions at that price will be first allocated to other remaining
Market Maker priority quotes, which have not received a participation
entitlement,\53\ and have precedence over Professional Interest; \54\
(2) If after all Market Maker priority quotes have been filled in
accordance with (1) above and there remains interest at the NBBO,
executions will be allocated to all Professional Interest at that
price. Professional Interest is defined in Rule 100 and includes among
other interest, Market Maker non-priority quotes (as described in Rule
517(b)(1)(iii)) and Market Maker orders in both assigned and non-
assigned classes.\55\
---------------------------------------------------------------------------
\53\ See Exchange Rule 514(g), (h), and (i).
\54\ The term ``Professional Interest'' means (i) an order that
is for the account of a person or entity that is not a Priority
Customer, or (ii) an order or non-priority quote for the account of
a Market Maker. See Exchange Rule 100.
\55\ See Exchange Rule 514(e).
---------------------------------------------------------------------------
To be considered a priority quote, at the time of execution, each
of the following standards must be met: (A) The bid/ask differential of
a Market Maker's two-sided quote pair must be valid width (no wider
than the bid/ask differentials outlined in Rule 603(b)(4)); (B) the
initial size of both of the Market Maker's bid and the offer must be in
compliance with the requirements of Rule 604(b)(2); (C) the bid/ask
differential of a Market Maker's two-sided quote pair must meet the
priority quote width requirements defined in subparagraph (ii) of Rule
517(b) \56\ for each option; and (D) either of the following are true:
(1.) At the time a locking or crossing quote or order enters the
System, the Market Maker's two-sided quote pair must be valid width for
that option and must have been resting on the Book; or (2.) Immediately
prior to the time the Market Maker enters a new quote that locks or
crosses the MBBO, the Market Maker must have had a valid width quote
already existing (i.e., exclusive of the Market Maker's new marketable
quote or update) among his two-sided quotes for that option.\57\
---------------------------------------------------------------------------
\56\ The priority quote width standard will be established by
the Exchange and filed with the Commission in accordance with
Section 19 of the Exchange Act and Rule 19b-4 thereunder. The
Priority quote width standard established by the Exchange can have
bid/ask differentials as narrow as one MPV, as wide but never wider
than the bid/ask differentials outlined in Rule 603(b)(4), or
somewhere in between. Notwithstanding the foregoing, until such time
as the Exchange has submitted and received approval of a rule change
establishing narrower bid/ask differentials, the priority quote
width standard will be the bid/ask differentials outlined in Rule
603(b)(4). See Exchange Rule 517(b)(1)(ii).
\57\ See Exchange Rule 517(b)(1)(i).
---------------------------------------------------------------------------
The Exchange notes that the definition of a priority quote is not
changing under this proposal nor is the allocation methodology. While
the Exchange's proposal may provide for faster openings on the Exchange
it does not relieve Market Makers from fulfilling their obligations on
the Exchange as described herein.
The proposed non-substantive rule changes are intended to correct
inaccurate internal rule cross-references and are designed to protect
investors by ensuring that the Exchange's rules accurately reference
the proper rule, thereby mitigating any potential investor confusion.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe that the proposed rule change to amend the opening process will
impose any burden on intra-market competition that is not necessary or
appropriate in furtherance of the purposes of the Act, because it will
apply to orders and quotes of all market participants in the same
manner.
The Exchange does not believe that the proposed rule change to
amend the opening process will impose any burden on inter-market
competition that is not necessary or appropriate in furtherance of the
purposes of the Act, because it is designed to open series on the
Exchange in a fair and orderly manner. The Exchange believes the
proposed opening process will continue to provide market participants
with an opportunity for price discovery based on then-current market
conditions when the Exchange opens series for trading. This will
facilitate the presence of sufficient liquidity in a series when it
opens, and increase the ability of series to open at prices consistent
with then-current market conditions (at the Exchange and on other
exchanges) rather than at extreme prices that could potentially result
in unfavorable executions to market participants.
The Exchange does not believe that the proposed rule change to
amend the EQR calculation will impose any burden on inter-market
competition that is not necessary or appropriate in furtherance of the
purposes of the Act, because incorporating the Composite Market into
the EQR calculation is designed to improve the limits of the range
within which transactions may occur during the opening process and
allow the Exchange to open at prices which are not extreme.
The Exchange does not believe that the proposed rule change will
impose any burden on intra-market competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as all market
participants that participate in the opening process may benefit
equally from the proposal, as the rules of the Exchange apply equally
to all Exchange Members.
Additionally, the non-substantive changes proposed by the Exchange
provide additional clarity and detail in the Exchange's rules and are
not changes made for any competitive purpose.
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, the proposed rule change
has become effective pursuant to 19(b)(3)(A) of the Act \58\ and Rule
19b-4(f)(6) \59\ thereunder.
---------------------------------------------------------------------------
\58\ 15 U.S.C. 78s(b)(3)(A).
\59\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------
A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \60\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \61\ permits the
Commission to designate a shorter time if such action is consistent
[[Page 17112]]
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay so that
the proposal may become operative immediately upon filing. The Exchange
notes that waiver of the operative delay would allow it to implement
the proposal immediately and would allow investors and the public to
immediately benefit from the Exchange's revised opening process.
Further, the Exchange states that the proposed rule amendments are
substantially similar to those currently in place on other options
exchanges.\62\ The Commission believes the proposal raises no novel or
unique regulatory issues. The Commission finds that it is consistent
with the protection of investors and the public interest to waive the
30-day operative delay. Accordingly, the Commission hereby waives the
operative delay and designates the proposal operative upon filing.\63\
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\60\ 17 CFR 240.19b-4(f)(6).
\61\ 17 CFR 240.19b-4(f)(6)(iii).
\62\ See, e.g., supra notes 6,7, 9, 32-34, 40-41.
\63\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-MIAX-2020-04 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-MIAX-2020-04. 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 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-2020-04 and should be submitted on
or before April 16, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\64\
---------------------------------------------------------------------------
\64\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06386 Filed 3-25-20; 8:45 am]
BILLING CODE 8011-01-P
