Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 515A, MIAX Price Improvement Mechanism (“PRIME”) and PRIME Solicitation Mechanism To Adopt a New ISO Prime Order Type, 61782-61787 [2020-21554]
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Federal Register / Vol. 85, No. 190 / Wednesday, September 30, 2020 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89991; File No. SR–MIAX–
2020–31]
Self-Regulatory Organizations; Miami
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend Exchange Rule
515A, MIAX Price Improvement
Mechanism (‘‘PRIME’’) and PRIME
Solicitation Mechanism To Adopt a
New ISO Prime Order Type
September 24, 2020.
Pursuant to the provisions of Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
on September 17, 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, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend Exchange Rule 515A, MIAX
Price Improvement Mechanism
(‘‘PRIME’’) and PRIME Solicitation
Mechanism.
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.
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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.
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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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 515A, MIAX Price
Improvement Mechanism (‘‘PRIME’’)
and PRIME Solicitation Mechanism, to
adopt a new ISO PRIME order type.
PRIME is a process by which a
Member 3 may electronically submit for
execution (‘‘Auction’’) an order it
represents as agent (‘‘Agency Order’’)
against principal interest, and/or an
Agency Order against solicited interest.4
A Member (the ‘‘Initiating Member’’)
may initiate an Auction provided all of
the following are met: (i) The Agency
Order is in a class designated as eligible
for PRIME as determined by the
Exchange and within the designated
Auction order eligibility size parameters
as such size parameters are determined
by the Exchange; (ii) the Initiating
Member must stop the entire Agency
Order as principal or with a solicited
order at the better of the NBBO 5 or the
Agency Order’s limit price (if the order
is a limit order); and (iii) with respect
to Agency Orders that have a size of less
than 50 contracts, if at the time of
receipt of the Agency Order, the NBBO
has a bid/ask differential of $0.01, the
System 6 will reject the Agency Order.7
An Intermarket Sweep Order (‘‘ISO’’)
is defined in Exchange Rule 1400(i) as
a limit order for an options series that,
simultaneously with the routing of the
ISO, one or more additional ISOs, as
necessary, are routed to execute against
the full displayed size of any Protected
Bid,8 in the case of a limit order to sell,
or any Protected Offer,9 in the case of a
limit order to buy, for the options series
with a price that is superior to the limit
price of the ISO. A Member may submit
an Intermarket Sweep Order to the
Exchange only if it has simultaneously
3 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.
4 See Exchange Rule 515A(a).
5 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.
6 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
7 See Exchange Rule 515A(a)(1).
8 A ‘‘Protected Bid’’ or ‘‘Protected Offer’’ means
a Bid or Offer in an options series, respectively,
that: (a) Is disseminated pursuant to the OPRA Plan;
and (b) is the Best Bid or Best Offer, respectively,
displayed by an Eligible Exchange. See Exchange
Rule 1400(p).
9 Id.
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routed one or more additional
Intermarket Sweep Orders to execute
against the full displayed size of any
Protected Bid, in the case of a limit
order to sell, or Protected Offer, in the
case of a limit order to buy, for an
options series with a price that is
superior to the limit price of the
Intermarket Sweep Order. An ISO may
be either an Immediate-Or-Cancel
Order 10 or an order that expires on the
day it is entered.11
The Exchange now proposes to
implement an ISO PRIME order type
(‘‘ISO PRIME’’) that will allow the
submission of an ISO into the PRIME.
Specifically, an ISO PRIME is the
transmission of two orders for crossing
pursuant to Rule 515A, MIAX Price
Improvement Mechanism (‘‘PRIME’’)
and PRIME Solicitation Mechanism,
without regard for better priced
Protected Bids or Protected Offers
because the Member transmitting the
ISO PRIME order to the Exchange has,
simultaneously with the submission of
the ISO PRIME order, routed one or
more ISOs, as necessary, to execute
against the full displayed size of any
Protected Bid or Protected Offer that is
superior to the starting PRIME Auction
price, and has swept all interest in the
Exchange’s Book 12 priced better than
the proposed Auction starting price.
Any execution(s) resulting from such
sweeps shall accrue to the PRIME order,
meaning that any executions will be
given to the agency side of the order.
The Exchange will accept an ISO
PRIME provided that the order adheres
to the current PRIME order acceptance
criteria outlined above, except that the
initiating Member is only required to
stop the entire Agency Order as
principal or with a solicited order at the
Agency Order’s limit price (if the order
is a limit order). Therefore, a Member
(the ‘‘Initiating Member’’) may initiate
an Auction provided that: (i) The
Agency Order is in a class designated as
eligible for PRIME as determined by the
Exchange and within the designated
Auction order eligibility size parameters
as such size parameters are determined
by the Exchange; and (ii) the Initiating
Member must stop the entire Agency
Order as principal or with a solicited
order at the Agency Order’s limit price
(if the order is a limit order). Also, with
10 An immediate-or-cancel order is an order that
is to be executed in whole or in part upon receipt.
Any portion not so executed is cancelled. An
immediate-or-cancel order is not valid during the
opening rotation process described in Rule 503. See
Exchange Rule 516(c).
11 See Exchange Rule 1400(i).
12 The term ‘‘Book’’ means the electronic book of
buy and sell orders and quotes maintained by the
System. See Exchange Rule 100.
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respect to Agency Orders that have a
size of less than 50 contracts, if at the
time of receipt of the Agency Order, the
NBBO has a bid/ask differential of
$0.01, the System will reject the Agency
Order.13
The Exchange will process the ISO
PRIME order in the same manner that it
currently processes PRIME Orders,
except that it will initiate a PRIME
Auction without protecting away prices.
The Member transmitting the ISO
PRIME order will bear the responsibility
to clear all better priced interest away
simultaneously with the submission of
the ISO PRIME order to the Exchange.
The Exchange also proposes to adopt
a new allocation methodology
specifically for Market Maker 14 interest
that is executed during an ISO PRIME
Auction. Currently, allocation in a
PRIME Auction follows the order
allocation methodology defined in
Exchange Rule 515A(a)(2)(iii), which
provides that Priority Customer 15
orders resting on the Book before, or
that are received during, the Response
Time Interval 16 and Priority Customer
RFR 17 responses shall, collectively have
first priority to trade against the Agency
Order. The allocation of an Agency
Order against the Priority Customer
orders resting in the Book, Priority
Customer orders received during the
Response Time Interval, and Priority
Customer RFR responses shall be in the
sequence in which they are received by
the System.18 Market Maker priority
quotes 19 and RFR responses from
13 See
Exchange Rule 515A(a)(1).
term ‘‘Market Makers’’ refers to ‘‘Lead
Market Makers’’, ‘‘Primary Lead Market Makers’’
and ‘‘Registered Market Makers’’ collectively. See
Exchange Rule 100.
15 The term ‘‘Priority Customer’’ means a person
or entity that (i) is not a broker or dealer in
securities, and (ii) does not place more than 390
orders in listed options per day on average during
a calendar month for its own beneficial account(s).
See Exchange Rule 100.
16 The ‘‘Response Time Interval’’ means the
period of time during which responses to the RFR
may be entered. The RFR timer is 100 milliseconds.
See MIAX Options Regulatory Circular 2017–30,
Change to MIAX Options PRIME Timer Effective
June 16, 2017 (June 15, 2017) available at https://
www.miaxoptions.com/sites/default/files/circularfiles/MIAX_Options_RC_2017_30.pdf.
17 When the Exchange receives a properly
designated Agency Order for auction processing, a
Request for Responses (‘‘RFR’’) detailing the option,
side, size, and initiating price will be sent to all
subscribers of the Exchange’s data feeds. See
Exchange Rule 515A(a)(2)(i)(B).
18 See Exchange Rule 515A(a)(2)(iii)(B).
19 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
Exchange Rule 603(b)(4)); (B) the initial size of both
or the Market Maker’s bid and the offer must be in
compliance with the requirements of Exchange Rule
604(b)(2); (C) the bid/ask differential of a Market
Market Makers with priority quotes will
collectively have second priority. The
allocation of Agency Orders against
these contra sided quotes and RFR
responses shall be on a size pro rata
basis 20 as defined in Rule 514(c)(2).21
Professional Interest 22 orders resting in
the Book, Professional Interest orders
placed in the Book during the Response
Time Interval, Professional Interest
quotes, and Professional Interest RFR
responses will collectively have third
priority. The allocation of Agency
Orders against these contra sided orders
and RFR Responses shall be on a size
pro rata basis as defined in Rule
514(c)(2).23
The Exchange now proposes to amend
subsection (C) to adopt a new allocation
for Market Maker priority quotes at the
conclusion of an Auction for an ISO
PRIME order. The proposed rule text
will state that at the conclusion of an
Auction for an ISO PRIME order, the
allocation of Agency Orders at the final
Auction price shall be: (i) To Market
Makers that traded in the associated ISO
sweep, for up to the full size of such
Market Makers’ refreshed priority
quotes, as well as any RFR responses
submitted by those Market Makers; (ii)
to those Market Makers with quotes at
the Auction start price that were resting
and any RFR responses submitted by
those Market Makers at the final
Auction price; and (iii) to all other
Market Makers that did not trade in the
associated ISO sweep and did not have
resting quotes at the Auction start price
with joining interest at the final Auction
price that was submitted during the
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14 The
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Maker’s two-sided quote pair must meet the priority
quote width requirements defined in Exchange Rule
517(b)(1)(ii) 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.
See Exchange Rule 517(b). The term ‘‘MBBO’’
means the best bid or offer on the Exchange. See
Exchange Rule 100.
20 Exchange Rule 514(c)(2), Pro Rata Allocation,
states that, under this method, resting quotes and
orders on the Book are prioritized according to
price and time. If there are two or more quotes or
orders at the best price then the contracts are
allocated proportionally according to size (in a prorata fashion). If the executed quantity cannot be
evenly allocated, the remaining contracts will be
distributed one at a time based upon price-size-time
priority.
21 See Exchange Rule 515A(a)(2)(iii)(C).
22 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.
23 See Exchange Rule 515A(a)(2)(iii)(D).
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Auction. If two or more Market Makers
are entitled to priority under (i), (ii) or
(iii) above, priority will be afforded to
the extent practicable on a pro-rata
basis.
This can be demonstrated in the
following examples.
Example 1—(Current PRIME
Allocation) Single Price Submission,
Priority Customer has first priority and
Market Maker with priority quotes has
second priority
ABBO 24 = $1.15—$1.25 100 × 100
MM3 = $1.15—$1.25 100 x 100
(priority quote) 25
MBBO = $1.15—$1.25 100 × 100
NBBO = $1.15—$1.25 200 × 200
Agency Order to buy 50 contracts with
a limit price of $1.20
Initiating Member’s Contra Order selling
50 contracts with a single stop price
of $1.20
RFR sent identifying the option, side
and size, with initiating price of
$1.20
(Auction Starts)
• @10 milliseconds MM1 response
received (did not have a priority
quote on the Book), AOC eQuote to
Sell 10 at $1.18
• @30 milliseconds BD4 response
received, AOC order to Sell 10 at
$1.18
• @50 milliseconds Priority Customer
response received, AOC order to
Sell 15 at $1.18
• @75 milliseconds MM3 response
received, AOC eQuote to Sell 20 at
$1.18
• 100 milliseconds (Auction Ends)
Under this scenario the Agency Order
would be executed as follows:
1. 15 contracts trade with Priority
Customer @$1.18
2. 20 contracts trade with MM3 @
$1.18
3. 8 contracts trade with MM1 @$1.18
4. 7 contracts trade with BD4 @$1.18
(This fills the entire Agency Order
and Contra Order does not receive
an execution)
Example 2—(Proposed ISO PRIME
Allocation) Single Price
Submission, Priority Customer has
first priority and Market Maker
(who initially traded as part of the
associated ISO Sweep) with joining
quotes at the final Auction price has
second priority
24 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.
25 The term ‘‘priority quote’’ has the meaning set
forth in Rule 517(b)(1)(i). See Exchange Rule 100.
See also supra note 19.
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ABBO = $1.15—$1.17 200 × 200
MM3 = $1.15—$1.17 100 × 10 (priority
quote)
MBBO = $1.15—$1.17 100 × 10
NBBO = $1.15—$1.17 300 × 210
ISO PRIME Agency Order to buy 50
contracts with a limit price of $1.20
is received.
It will ISO Sweep resting liquidity
priced better than the Auction start
price of $1.20.
Under this scenario the Agency Order
would be executed as follows:
1. 10 contracts trade with MM3 @1.17
Contemporaneously the balance of the
ISO PRIME Agency Order initiates
a PRIME Auction to buy 40
contracts with a limit price of $1.20
Initiating Member’s Contra Order selling
50 contracts with a single stop price
of $1.20
RFR sent identifying the option, side
and size, with initiating price of
$1.20
(Auction Starts)
• @10 milliseconds MM1 response
received, AOC eQuote to Sell 10 at
$1.18
• @30 milliseconds BD4 response
received, AOC order to Sell 10 at
$1.18
• @40 milliseconds Priority Customer
response received, AOC order to Sell
15 at $1.18
• @65 milliseconds MM3 (who traded
as part of the initial sweep), response
received, AOC eQuote to Sell 40 at
$1.18
• 100 milliseconds (Auction Ends)
Under this scenario the Agency Order
would be executed as follows:
2. 15 contracts trade with Priority
Customer @$1.18
3. 25 contracts trade with MM3 @$1.18
(This fills the entire Agency Order
and Contra Order does not receive an
execution)
Example 3—(Proposed ISO PRIME
Allocation) Single Price Submission,
Market Maker who has a joining quote
at a better price has priority and Market
Maker (who has a resting quote at the
Auction start price) that submits an RFR
response at the final Auction price has
priority
ABBO = $1.15—$1.17 100 × 100
MM1 = $1.15—$1.17 10 × 10 (priority
quote)
MM2 = $1.15—$1.20 20 × 20 (priority
quote)
MM3 = $1.15—$1.21 20 × 20 (priority
quote)
MBBO = $1.15—$1.17 50 × 10
NBBO = $1.15—$1.17 150 × 110
ISO PRIME Agency Order to buy 50
contracts with a limit price of $1.20
is received.
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It will ISO Sweep resting liquidity
priced better than the Auction start
price of $1.20.
Under this scenario the Agency Order
would be executed as follows:
1. 10 contracts trade with MM1 @
$1.17
Contemporaneously the balance of the
ISO PRIME Agency Order initiates
a PRIME Auction to buy 40
contracts with a limit price of $1.20
Initiating Member’s Contra Order selling
50 contracts with a single stop price
of $1.20
RFR sent identifying the option, side
and size, with initiating price of
$1.20
(Auction Starts)
• @10 milliseconds MM4 response
received, AOC eQuote to Sell 30 at
$1.18
• @30 milliseconds MM3 response
received, AOC eQuote to Sell 20 at
$1.19
• @75 milliseconds MM2 (who has a
resting quote at the Auction Start
Price), response received, AOC
eQuote to Sell 20 at $1.19
• 100 milliseconds (Auction Ends)
Under this scenario, the Agency Order
would be executed as follows:
2. 30 contracts trade with MM4 @
$1.18
3. 10 contracts trade with MM2 @
$1.19 (This is the final Auction
price and fills the entire Agency
Order and Contra Order and MM3
does not receive an execution)
Example 4—(Proposed ISO PRIME
Allocation) Single Price
Submission, Priority Customer has
first priority and Market Maker
(who initially traded as part of an
ISO Sweep) with joining quotes has
second priority, Market Maker with
joining interest that is received
during the associated ISO PRIME
Auction that did not trade in the
associated ISO sweep and did not
have resting interest at the Auction
start price receives last priority
among Market Makers
ABBO = $1.15—$1.17 200 × 200
MM3 = $1.15—$1.17 100 × 10 (priority
quote)
MBBO = $1.15—$1.17 100 ×10
NBBO = $1.15—$1.17 300 × 210
ISO PRIME Agency Order to buy 50
contracts with a limit price of $1.20
is received.
It will ISO Sweep resting liquidity
priced better than the Auction start
price of $1.20.
Under this scenario, the Agency Order
would be executed as follows:
1. 10 contracts trade with MM3 @1.17
Contemporaneously, the balance of the
ISO PRIME Agency Order initiates
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a PRIME Auction to buy 40
contracts with a limit price of $1.20
Initiating Member’s Contra Order selling
50 contracts with a single stop price
of $1.20
RFR sent identifying the option, side
and size, with an initiating price of
$1.20
(Auction Starts)
(Auction Starts)
• @10 milliseconds MM1 response
received (did not have a priority
quote on the Book), AOC eQuote to
Sell 20 at $1.18
• @30 milliseconds BD4 response
received, AOC order to Sell 20 at
$1.18
• @40 milliseconds Priority Customer
response received, AOC order to
Sell 15 at $1.18
• @65 milliseconds MM3 (who traded
as part of the initial sweep), quote
response received, AOC eQuote to
Sell 20 at $1.18
• @100 milliseconds (Auction Ends)
Under this scenario, the Agency Order
would be executed as follows:
2. 15 contracts trade with Priority
Customer @$1.18
3. 20 contracts trade with MM3 @
$1.18
4. 3 contracts trade with MM1 @$1.18
5. 2 contracts trade with BD4 @$1.18
(This fills the entire Agency Order
and the Contra Order does not
receive an execution)
The Exchange believes this allocation
methodology, used only for Market
Maker priority interest and only at the
conclusion of an ISO PRIME Auction,
will provide an additional incentive for
Market Makers to provide their most
aggressive quotes to the market
throughout the entire trading session.
The Exchange also proposes to amend
subsection (J) which currently states,
notwithstanding (a)(2)(iii)(C), (D) above,
if the Auction does not result in price
improvement over the Exchange’s
disseminated price at the time the
Auction began, resting unchanged
quotes or orders that were disseminated
at the best price before the Auction
began shall have priority after any
Priority Customer order priority and the
Initiating Member’s priority (40%) have
been satisfied. The new proposed rule
text will provide, notwithstanding
(a)(2)(iii)(C), (D) above, (provided the
Auction is not for an ISO PRIME order)
if the Auction does not result in price
improvement over the Exchange’s
disseminated price at the time the
Auction began, resting unchanged
quotes or orders that were disseminated
at the best price before the Auction
began shall have priority after any
Priority Customer order priority and the
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Initiating Member may not participate
on any such balance unless the Agency
Order would otherwise go unfilled.
The Exchange will announce the
implementation of this order type in a
Regulatory Circular. The Exchange will
announce the implementation date of
the proposed rule change by Regulatory
Circular to be published no later than 90
days following the operative date of the
proposed rule. The implementation date
will be no later than 90 days following
the issuance of the Regulatory Circular.
2. Statutory Basis
MIAX believes that its proposed rule
change is consistent with Section 6(b) of
the Act 26 in general, and furthers the
objectives of Section 6(b)(5) of the Act 27
in particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in, securities, to remove impediments to
and perfect the mechanisms of a free
and open market and a national market
system and, in general, to protect
investors and the public interest.
The proposed rule change promotes
just and equitable principles of trade
and removes impediments to and
perfects the mechanisms of a free and
open market in that it promotes
competition as described below.
Specifically, the proposal allows the
Exchange to offer its Members an order
type that is already offered by another
exchange.28 In addition, the proposal
benefits traders and investors because it
adds a new order type for seeking price
improvement through the PRIME. ISO
PRIME orders will also be subject to all
eligibility requirements that currently
apply to PRIME orders. The Initiating
Member, simultaneous with the routing
of the ISO PRIME order to the Exchange,
remains responsible for routing one or
more ISOs, as necessary, to execute
against the full displayed size of any
Protected Bid or Protected Offer that is
superior to the starting PRIME Auction
price and has swept all interest in the
Exchange’s Book priced better than the
proposed Auction starting price.
Finally, the proposal does not unfairly
discriminate among Members because
all Members of the Exchange are eligible
to submit an ISO PRIME order.
The Exchange’s proposal to adopt a
new allocation at the conclusion of an
26 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
28 See Nasdaq ISE Exchange Rule, Options 3,
Section 13, Supplementary Material .08.
27 15
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ISO PRIME Auction for Market Maker
priority quotes and RFR responses from
Market Makers with priority quotes, that
participate in the associated ISO sweep,
promotes just and equitable principles
of trade, perfects the mechanisms of a
free and open market and a national
market system and, in general, benefits
investors as it provides an additional
incentive to Market Makers to provide
their most aggressive quotes to the
market at all times. Prioritizing Market
Maker interest such that Market Makers
that trade in the associated ISO sweep
that also have joining interest at the
final Auction price receive first priority
in allocation provides an incentive to
Market Makers to have their most
aggressive quotes on the Book in order
to participate in any potential ISO
sweeps.
The Exchange’s proposal does not
change the existing allocation priority
for PRIME Auctions. The Exchange’s
proposal is narrowly tailored to
allocation priority only among Market
Makers and only at the conclusion of a
PRIME Auction initiated by an ISO
PRIME order.
The Exchange currently uses priority
quotes for trade allocation purposes as
described in Exchange Rule 517(b)
which provides that, quotes will be
considered either priority quotes (i.e.,
trade allocation will be in accordance
with Rule 514(e), which provides
priority quotes with precedence over all
Professional Interest) or non-priority
quotes (i.e., trade allocation will be in
accordance with Rule 514(e), which also
provides non-priority quotes are
considered together with all other
Professional Interest) based upon a
Market Maker’s quote width at certain
times as described.29 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 both of the 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
Exchange Rule 517(b)(ii) 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
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-side
quotes for that option.30
Exchange Rule 514(e) provides that
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 other
interest at the NBBO, after all Priority
Customer Orders (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, and have precedence over
Professional Interest. (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.31
The Exchange does not believe that
the purpose of the proposed rule
change, to provide priority to a Market
Maker at the conclusion of an ISO
PRIME Auction (among other Market
Makers) that has also traded in the
associated ISO sweep, is a new or novel
concept, as the Exchange has an existing
hierarchy of priority allocation based on
priority quotes as discussed above.
Additionally, the Exchange believes
its proposal to amend subsection (J) to
clarify that the subsection does not
apply to Auctions for ISO PRIME orders,
promotes just and equitable principles
of trade, and removes impediments to
and perfects the mechanisms of a free
and open market and a national market
system and, in general, protects
investors and the public interest by
removing any ambiguity in the
Exchange’s rulebook about the type of
Auctions subsection (J) pertains to.
Current subsection (J) provides
additional clarifying language
concerning the priority of allocations at
the conclusion of a PRIME Auction that
does not result in price improvement
over the Exchange’s disseminated price
at the time the Auction began stating
that, ‘‘resting unchanged quotes or
orders that were disseminated at the
best price before the Auction began
shall have priority after any Priority
Customer order priority . . . .’’ The
30 See
29 See
PO 00000
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31 See
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Exchange Rule 514(e).
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Exchange’s proposal concerning
allocation at the conclusion of an
Auction for an ISO PRIME order
provides a more nuanced and detailed
hierarchy of allocation for Market
Makers which would be applicable in
the scenario contemplated by subsection
(J). Therefore, the Exchange is proposing
to exclude the application of subsection
(J) to Auctions that are initiated by ISO
PRIME orders. The Exchange believes
this change eliminates any potential
conflict regarding the application of the
Exchange’s rules and it is in the public
interest for rules to be accurate and
concise so as to eliminate the potential
for confusion.
The Exchange believes this change
will benefit market participants as it
encourages Market Makers to participate
in ISO PRIME Auctions and will
provide additional incentive to Market
Makers to provide their most aggressive
quotes to the market throughout the
trading session and may also result in
increased liquidity being available
during the Auction.
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 believes the proposed rule
change will benefit inter-market
competition as it will allow the
Exchange to compete with other markets
that already allow an ISO order type in
their price improvement mechanisms.32
The Exchange’s proposal to adopt an
ISO PRIME order type benefits intramarket competition because it will
enable the Exchange to provide market
participants with an additional method
of seeking price improvement through
the PRIME. The Exchange does not
believe that the proposed rule change
will impose any burden on intra-market
competition as the Rules of the
Exchange apply equally to all Exchange
Members, and all Exchange Members
may submit an ISO PRIME order.
The Exchange does not believe its
proposal to further apportion Market
Maker allocation at the conclusion of an
Auction of an ISO PRIME order will
impose any burden on intra-market
competition but rather promotes intramarket competition as it provides
further incentive to Market Makers to
provide their most aggressive quotes to
the market throughout the entire trading
session and may increase liquidity
available during a PRIME Auction. The
proposal provides Market Makers with
32 See
supra note 28.
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priority quotes on the Book, that
participate in an associated ISO sweep,
with priority over other Market Makers,
which benefits intra-market competition
as it also provides an incentive to
Market Makers to provide their most
aggressive quotes to the market during
the entire trading session to be in
position to participate in any potential
ISO sweeps.
The Exchange does not believe its
proposal will impose any burden on
inter-market competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, but rather
will promote inter-market competition
as it provides an additional incentive to
Market Makers on the Exchange to
provide their most aggressive quotes to
the market at all times which could
result in tighter quotes and greater
liquidity being available in the market
place, which would benefit all
investors.
The Exchange believes its proposal to
amend subparagraph (J) promotes just
and equitable principles of trade and
removes impediments to and perfects
the mechanism of a free and open
market and a national market system
because the proposed rule change
provides additional detail and further
clarifies the rule. It is in the public
interest for rules to be accurate and
concise so as to eliminate the potential
for confusion.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to 19(b)(3)(A)
of the Act 33 and Rule 19b–4(f)(6) 34
thereunder.
At any time within 60 days of the
filing of the proposed rule change, the
33 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.
34 17
PO 00000
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Fmt 4703
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Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MIAX–2020–31 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–2020–31. 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
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Federal Register / Vol. 85, No. 190 / Wednesday, September 30, 2020 / Notices
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–MIAX–2020–31 and should
be submitted on or before October 21,
2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–21554 Filed 9–29–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
34026; File No. 812–15145]
Arca U.S. Treasury Fund and Arca
Capital Management, LLC
September 24, 2020.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice.
jbell on DSKJLSW7X2PROD with NOTICES
AGENCY:
Notice of application for an order
under sections 6(c) and 23(c)(3) of the
Investment Company Act of 1940 (the
‘‘Act’’) for an exemption from rule 23c–
3 under the Act.
Summary of Application: Applicants
request an order under sections 6(c) and
23(c)(3) of the Act for an exemption
from certain provisions of rule 23c–3 to
permit certain registered closed-end
investment companies to make
repurchase offers on a monthly basis.
Applicants: Arca U.S. Treasury Fund
(the ‘‘Fund’’) and Arca Capital
Management, LLC (the ‘‘Adviser’’).
Filing Dates: The application was
filed on July 22, 2020 and amended on
September 10, 2020.
Hearing or Notification of Hearing: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing by emailing the
Commission’s Secretary at SecretarysOffice@sec.gov and serving applicants
with a copy of the request, personally or
by mail. Hearing requests should be
received by the Commission by 5:30
p.m. on October 19, 2020, and should be
accompanied by proof of service on the
applicants, in the form of an affidavit,
or, for lawyers, a certificate of service.
Pursuant to rule 0–5 under the Act,
hearing requests should state the nature
of the writer’s interest, any facts bearing
upon the desirability of a hearing on the
matter, the reason for the request, and
the issues contested. Persons who wish
35 17
CFR 200.30–3(a)(12).
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17:36 Sep 29, 2020
Jkt 250001
to be notified of a hearing may request
notification by emailing the
Commission’s Secretary at SecretarysOffice@sec.gov.
ADDRESSES: The Commission:
Secretarys-Office@sec.gov. Applicants:
c/o Kelley A. Howes, by email to
KHowes@mofo.com.
FOR FURTHER INFORMATION CONTACT:
Laura L. Solomon, Senior Counsel, at
(202) 551–6915, or Kaitlin C. Bottock,
Branch Chief, at (202) 551–6825
(Division of Investment Management,
Chief Counsel’s Office).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
website by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
Applicants’ Representations
1. The Fund is a Delaware statutory
trust that is registered under the Act as
a diversified, closed-end management
investment company that operates as an
interval fund. The Adviser is a Delaware
limited liability company and is
registered as an investment adviser
under the Investment Advisers Act of
1940. The Adviser serves as investment
adviser to the Fund.
2. Applicants request that any relief
granted also apply to any registered
closed-end management investment
company that operates as an interval
fund pursuant to rule 23c–3 for which
the Adviser or any entity controlling,
controlled by, or under common control
with the Adviser, or any successor in
interest to any such entity,1 acts as
investment adviser (the ‘‘Future Funds,’’
and together with the Fund, the
‘‘Funds,’’ and each, individually, a
‘‘Fund’’).2
3. The Fund’s common shares are not
offered or traded in the secondary
market and are not listed on any
exchange or quoted on any quotation
medium. The Fund issues its shares as
digital securities (‘‘ArCoins’’), meaning
the securities are uncertificated
securities, the ownership and transfer of
which are authenticated and recorded as
ERC–1404 compatible tokens on
Ethereum, an electronic distributed
ledger that is secured using
1 A successor in interest is limited to an entity
that results from a reorganization into another
jurisdiction or a change in the type of business
organization.
2 All entities currently intending to rely on the
requested relief have been named as applicants.
Any entity that relies on the requested order in the
future will do so only in accordance with the terms
and conditions of the application.
PO 00000
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61787
cryptography (referred to as a
‘‘blockchain’’).
4. Applicants request an order to
permit each Fund to offer to repurchase
a portion of its common shares at onemonth intervals, rather than the three,
six, or twelve-month intervals specified
by rule 23c–3.
5. Each Fund will disclose in its
prospectus and annual reports its
fundamental policy to make monthly
offers to repurchase a portion of its
common shares at net asset value, less
deduction of a repurchase fee, if any, as
permitted by rule 23c–3(b)(1). The
fundamental policy will be changeable
only by a majority vote of the holders
of such Fund’s outstanding voting
securities. Under the fundamental
policy, the repurchase offer amount will
be determined by the board of trustees
of the applicable Fund (‘‘Board’’) prior
to each repurchase offer. Each Fund will
comply with rule 23c–3(b)(8)’s
requirements with respect to its trustees
who are not interested persons of such
Fund, within the meaning of section
2(a)(19) of the Act (‘‘Disinterested
Trustees’’) and their legal counsel. Each
Fund will make monthly offers to
repurchase not less than 5% of its
outstanding shares at the time of the
repurchase request deadline. The
repurchase offer amounts for the thencurrent monthly period, plus the
repurchase offer amounts for the two
monthly periods immediately preceding
the then-current monthly period, will
not exceed 25% of the outstanding
common shares of the applicable Fund.
6. Each Fund’s fundamental policies
will specify the means to determine the
repurchase request deadline and the
maximum number of days between each
repurchase request deadline and the
repurchase pricing date. Each Fund’s
repurchase pricing date normally will
be the same date as the repurchase
request deadline and pricing will be
determined after close of business on
that date.
7. Pursuant to rule 23c–3(b)(1), each
Fund will repurchase shares for cash on
or before the repurchase payment
deadline, which will be no later than
seven calendar days after the repurchase
pricing date. Each Fund intends to make
payment by the fifth business day or
seventh calendar day (whichever period
is shorter) following the repurchase
pricing date. Each Fund will make
payment for shares repurchased in the
previous month’s repurchase offer at
least five business days before sending
notification of the next repurchase offer.
Each Fund may deduct a repurchase fee
in an amount not to exceed 2% from the
repurchase proceeds payable to
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]]>Agencies
[Federal Register Volume 85, Number 190 (Wednesday, September 30, 2020)]
[Notices]
[Pages 61782-61787]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-21554]
[[Page 61782]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89991; File No. SR-MIAX-2020-31]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Exchange Rule 515A, MIAX Price
Improvement Mechanism (``PRIME'') and PRIME Solicitation Mechanism To
Adopt a New ISO Prime Order Type
September 24, 2020.
Pursuant to the provisions of Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on September 17, 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, II, and III below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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 515A, MIAX
Price Improvement Mechanism (``PRIME'') and PRIME Solicitation
Mechanism.
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 515A, MIAX Price
Improvement Mechanism (``PRIME'') and PRIME Solicitation Mechanism, to
adopt a new ISO PRIME order type.
PRIME is a process by which a Member \3\ may electronically submit
for execution (``Auction'') an order it represents as agent (``Agency
Order'') against principal interest, and/or an Agency Order against
solicited interest.\4\ A Member (the ``Initiating Member'') may
initiate an Auction provided all of the following are met: (i) The
Agency Order is in a class designated as eligible for PRIME as
determined by the Exchange and within the designated Auction order
eligibility size parameters as such size parameters are determined by
the Exchange; (ii) the Initiating Member must stop the entire Agency
Order as principal or with a solicited order at the better of the NBBO
\5\ or the Agency Order's limit price (if the order is a limit order);
and (iii) with respect to Agency Orders that have a size of less than
50 contracts, if at the time of receipt of the Agency Order, the NBBO
has a bid/ask differential of $0.01, the System \6\ will reject the
Agency Order.\7\
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\3\ 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.
\4\ See Exchange Rule 515A(a).
\5\ 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.
\6\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\7\ See Exchange Rule 515A(a)(1).
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An Intermarket Sweep Order (``ISO'') is defined in Exchange Rule
1400(i) as a limit order for an options series that, simultaneously
with the routing of the ISO, one or more additional ISOs, as necessary,
are routed to execute against the full displayed size of any Protected
Bid,\8\ in the case of a limit order to sell, or any Protected
Offer,\9\ in the case of a limit order to buy, for the options series
with a price that is superior to the limit price of the ISO. A Member
may submit an Intermarket Sweep Order to the Exchange only if it has
simultaneously routed one or more additional Intermarket Sweep Orders
to execute against the full displayed size of any Protected Bid, in the
case of a limit order to sell, or Protected Offer, in the case of a
limit order to buy, for an options series with a price that is superior
to the limit price of the Intermarket Sweep Order. An ISO may be either
an Immediate-Or-Cancel Order \10\ or an order that expires on the day
it is entered.\11\
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\8\ A ``Protected Bid'' or ``Protected Offer'' means a Bid or
Offer in an options series, respectively, that: (a) Is disseminated
pursuant to the OPRA Plan; and (b) is the Best Bid or Best Offer,
respectively, displayed by an Eligible Exchange. See Exchange Rule
1400(p).
\9\ Id.
\10\ An immediate-or-cancel order is an order that is to be
executed in whole or in part upon receipt. Any portion not so
executed is cancelled. An immediate-or-cancel order is not valid
during the opening rotation process described in Rule 503. See
Exchange Rule 516(c).
\11\ See Exchange Rule 1400(i).
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The Exchange now proposes to implement an ISO PRIME order type
(``ISO PRIME'') that will allow the submission of an ISO into the
PRIME. Specifically, an ISO PRIME is the transmission of two orders for
crossing pursuant to Rule 515A, MIAX Price Improvement Mechanism
(``PRIME'') and PRIME Solicitation Mechanism, without regard for better
priced Protected Bids or Protected Offers because the Member
transmitting the ISO PRIME order to the Exchange has, simultaneously
with the submission of the ISO PRIME order, routed one or more ISOs, as
necessary, to execute against the full displayed size of any Protected
Bid or Protected Offer that is superior to the starting PRIME Auction
price, and has swept all interest in the Exchange's Book \12\ priced
better than the proposed Auction starting price. Any execution(s)
resulting from such sweeps shall accrue to the PRIME order, meaning
that any executions will be given to the agency side of the order.
---------------------------------------------------------------------------
\12\ The term ``Book'' means the electronic book of buy and sell
orders and quotes maintained by the System. See Exchange Rule 100.
---------------------------------------------------------------------------
The Exchange will accept an ISO PRIME provided that the order
adheres to the current PRIME order acceptance criteria outlined above,
except that the initiating Member is only required to stop the entire
Agency Order as principal or with a solicited order at the Agency
Order's limit price (if the order is a limit order). Therefore, a
Member (the ``Initiating Member'') may initiate an Auction provided
that: (i) The Agency Order is in a class designated as eligible for
PRIME as determined by the Exchange and within the designated Auction
order eligibility size parameters as such size parameters are
determined by the Exchange; and (ii) the Initiating Member must stop
the entire Agency Order as principal or with a solicited order at the
Agency Order's limit price (if the order is a limit order). Also, with
[[Page 61783]]
respect to Agency Orders that have a size of less than 50 contracts, if
at the time of receipt of the Agency Order, the NBBO has a bid/ask
differential of $0.01, the System will reject the Agency Order.\13\
---------------------------------------------------------------------------
\13\ See Exchange Rule 515A(a)(1).
---------------------------------------------------------------------------
The Exchange will process the ISO PRIME order in the same manner
that it currently processes PRIME Orders, except that it will initiate
a PRIME Auction without protecting away prices. The Member transmitting
the ISO PRIME order will bear the responsibility to clear all better
priced interest away simultaneously with the submission of the ISO
PRIME order to the Exchange.
The Exchange also proposes to adopt a new allocation methodology
specifically for Market Maker \14\ interest that is executed during an
ISO PRIME Auction. Currently, allocation in a PRIME Auction follows the
order allocation methodology defined in Exchange Rule 515A(a)(2)(iii),
which provides that Priority Customer \15\ orders resting on the Book
before, or that are received during, the Response Time Interval \16\
and Priority Customer RFR \17\ responses shall, collectively have first
priority to trade against the Agency Order. The allocation of an Agency
Order against the Priority Customer orders resting in the Book,
Priority Customer orders received during the Response Time Interval,
and Priority Customer RFR responses shall be in the sequence in which
they are received by the System.\18\ Market Maker priority quotes \19\
and RFR responses from Market Makers with priority quotes will
collectively have second priority. The allocation of Agency Orders
against these contra sided quotes and RFR responses shall be on a size
pro rata basis \20\ as defined in Rule 514(c)(2).\21\ Professional
Interest \22\ orders resting in the Book, Professional Interest orders
placed in the Book during the Response Time Interval, Professional
Interest quotes, and Professional Interest RFR responses will
collectively have third priority. The allocation of Agency Orders
against these contra sided orders and RFR Responses shall be on a size
pro rata basis as defined in Rule 514(c)(2).\23\
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\14\ The term ``Market Makers'' refers to ``Lead Market
Makers'', ``Primary Lead Market Makers'' and ``Registered Market
Makers'' collectively. See Exchange Rule 100.
\15\ The term ``Priority Customer'' means a person or entity
that (i) is not a broker or dealer in securities, and (ii) does not
place more than 390 orders in listed options per day on average
during a calendar month for its own beneficial account(s). See
Exchange Rule 100.
\16\ The ``Response Time Interval'' means the period of time
during which responses to the RFR may be entered. The RFR timer is
100 milliseconds. See MIAX Options Regulatory Circular 2017-30,
Change to MIAX Options PRIME Timer Effective June 16, 2017 (June 15,
2017) available at https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Options_RC_2017_30.pdf.
\17\ When the Exchange receives a properly designated Agency
Order for auction processing, a Request for Responses (``RFR'')
detailing the option, side, size, and initiating price will be sent
to all subscribers of the Exchange's data feeds. See Exchange Rule
515A(a)(2)(i)(B).
\18\ See Exchange Rule 515A(a)(2)(iii)(B).
\19\ 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
Exchange Rule 603(b)(4)); (B) the initial size of both or the Market
Maker's bid and the offer must be in compliance with the
requirements of Exchange 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 Exchange Rule
517(b)(1)(ii) 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. See Exchange Rule 517(b). The term ``MBBO'' means
the best bid or offer on the Exchange. See Exchange Rule 100.
\20\ Exchange Rule 514(c)(2), Pro Rata Allocation, states that,
under this method, resting quotes and orders on the Book are
prioritized according to price and time. If there are two or more
quotes or orders at the best price then the contracts are allocated
proportionally according to size (in a pro-rata fashion). If the
executed quantity cannot be evenly allocated, the remaining
contracts will be distributed one at a time based upon price-size-
time priority.
\21\ See Exchange Rule 515A(a)(2)(iii)(C).
\22\ 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.
\23\ See Exchange Rule 515A(a)(2)(iii)(D).
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The Exchange now proposes to amend subsection (C) to adopt a new
allocation for Market Maker priority quotes at the conclusion of an
Auction for an ISO PRIME order. The proposed rule text will state that
at the conclusion of an Auction for an ISO PRIME order, the allocation
of Agency Orders at the final Auction price shall be: (i) To Market
Makers that traded in the associated ISO sweep, for up to the full size
of such Market Makers' refreshed priority quotes, as well as any RFR
responses submitted by those Market Makers; (ii) to those Market Makers
with quotes at the Auction start price that were resting and any RFR
responses submitted by those Market Makers at the final Auction price;
and (iii) to all other Market Makers that did not trade in the
associated ISO sweep and did not have resting quotes at the Auction
start price with joining interest at the final Auction price that was
submitted during the Auction. If two or more Market Makers are entitled
to priority under (i), (ii) or (iii) above, priority will be afforded
to the extent practicable on a pro-rata basis.
This can be demonstrated in the following examples.
Example 1--(Current PRIME Allocation) Single Price Submission,
Priority Customer has first priority and Market Maker with priority
quotes has second priority
ABBO \24\ = $1.15--$1.25 100 x 100
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\24\ 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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MM3 = $1.15--$1.25 100 x 100 (priority quote) \25\
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\25\ The term ``priority quote'' has the meaning set forth in
Rule 517(b)(1)(i). See Exchange Rule 100. See also supra note 19.
---------------------------------------------------------------------------
MBBO = $1.15--$1.25 100 x 100
NBBO = $1.15--$1.25 200 x 200
Agency Order to buy 50 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts with a single
stop price of $1.20
RFR sent identifying the option, side and size, with initiating price
of $1.20
(Auction Starts)
@10 milliseconds MM1 response received (did not have a
priority quote on the Book), AOC eQuote to Sell 10 at $1.18
@30 milliseconds BD4 response received, AOC order to Sell
10 at $1.18
@50 milliseconds Priority Customer response received, AOC
order to Sell 15 at $1.18
@75 milliseconds MM3 response received, AOC eQuote to Sell
20 at $1.18
100 milliseconds (Auction Ends)
Under this scenario the Agency Order would be executed as follows:
1. 15 contracts trade with Priority Customer @$1.18
2. 20 contracts trade with MM3 @$1.18
3. 8 contracts trade with MM1 @$1.18
4. 7 contracts trade with BD4 @$1.18 (This fills the entire Agency
Order and Contra Order does not receive an execution)
Example 2--(Proposed ISO PRIME Allocation) Single Price Submission,
Priority Customer has first priority and Market Maker (who initially
traded as part of the associated ISO Sweep) with joining quotes at the
final Auction price has second priority
[[Page 61784]]
ABBO = $1.15--$1.17 200 x 200
MM3 = $1.15--$1.17 100 x 10 (priority quote)
MBBO = $1.15--$1.17 100 x 10
NBBO = $1.15--$1.17 300 x 210
ISO PRIME Agency Order to buy 50 contracts with a limit price of $1.20
is received.
It will ISO Sweep resting liquidity priced better than the Auction
start price of $1.20.
Under this scenario the Agency Order would be executed as follows:
1. 10 contracts trade with MM3 @1.17
Contemporaneously the balance of the ISO PRIME Agency Order initiates a
PRIME Auction to buy 40 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts with a single
stop price of $1.20
RFR sent identifying the option, side and size, with initiating price
of $1.20
(Auction Starts)
@10 milliseconds MM1 response received, AOC eQuote to Sell 10
at $1.18
@30 milliseconds BD4 response received, AOC order to Sell 10
at $1.18
@40 milliseconds Priority Customer response received, AOC
order to Sell 15 at $1.18
@65 milliseconds MM3 (who traded as part of the initial
sweep), response received, AOC eQuote to Sell 40 at $1.18
100 milliseconds (Auction Ends)
Under this scenario the Agency Order would be executed as follows:
2. 15 contracts trade with Priority Customer @$1.18
3. 25 contracts trade with MM3 @$1.18 (This fills the entire Agency
Order and Contra Order does not receive an execution)
Example 3--(Proposed ISO PRIME Allocation) Single Price Submission,
Market Maker who has a joining quote at a better price has priority and
Market Maker (who has a resting quote at the Auction start price) that
submits an RFR response at the final Auction price has priority
ABBO = $1.15--$1.17 100 x 100
MM1 = $1.15--$1.17 10 x 10 (priority quote)
MM2 = $1.15--$1.20 20 x 20 (priority quote)
MM3 = $1.15--$1.21 20 x 20 (priority quote)
MBBO = $1.15--$1.17 50 x 10
NBBO = $1.15--$1.17 150 x 110
ISO PRIME Agency Order to buy 50 contracts with a limit price of $1.20
is received.
It will ISO Sweep resting liquidity priced better than the Auction
start price of $1.20.
Under this scenario the Agency Order would be executed as follows:
1. 10 contracts trade with MM1 @$1.17
Contemporaneously the balance of the ISO PRIME Agency Order initiates a
PRIME Auction to buy 40 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts with a single
stop price of $1.20
RFR sent identifying the option, side and size, with initiating price
of $1.20
(Auction Starts)
@10 milliseconds MM4 response received, AOC eQuote to Sell
30 at $1.18
@30 milliseconds MM3 response received, AOC eQuote to Sell
20 at $1.19
@75 milliseconds MM2 (who has a resting quote at the
Auction Start Price), response received, AOC eQuote to Sell 20 at $1.19
100 milliseconds (Auction Ends)
Under this scenario, the Agency Order would be executed as follows:
2. 30 contracts trade with MM4 @$1.18
3. 10 contracts trade with MM2 @$1.19 (This is the final Auction
price and fills the entire Agency Order and Contra Order and MM3 does
not receive an execution)
Example 4--(Proposed ISO PRIME Allocation) Single Price Submission,
Priority Customer has first priority and Market Maker (who initially
traded as part of an ISO Sweep) with joining quotes has second
priority, Market Maker with joining interest that is received during
the associated ISO PRIME Auction that did not trade in the associated
ISO sweep and did not have resting interest at the Auction start price
receives last priority among Market Makers
ABBO = $1.15--$1.17 200 x 200
MM3 = $1.15--$1.17 100 x 10 (priority quote)
MBBO = $1.15--$1.17 100 x10
NBBO = $1.15--$1.17 300 x 210
ISO PRIME Agency Order to buy 50 contracts with a limit price of $1.20
is received.
It will ISO Sweep resting liquidity priced better than the Auction
start price of $1.20.
Under this scenario, the Agency Order would be executed as follows:
1. 10 contracts trade with MM3 @1.17
Contemporaneously, the balance of the ISO PRIME Agency Order initiates
a PRIME Auction to buy 40 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts with a single
stop price of $1.20
RFR sent identifying the option, side and size, with an initiating
price of $1.20
(Auction Starts)
(Auction Starts)
@10 milliseconds MM1 response received (did not have a
priority quote on the Book), AOC eQuote to Sell 20 at $1.18
@30 milliseconds BD4 response received, AOC order to Sell 20
at $1.18
@40 milliseconds Priority Customer response received, AOC
order to Sell 15 at $1.18
@65 milliseconds MM3 (who traded as part of the initial
sweep), quote response received, AOC eQuote to Sell 20 at $1.18
@100 milliseconds (Auction Ends)
Under this scenario, the Agency Order would be executed as follows:
2. 15 contracts trade with Priority Customer @$1.18
3. 20 contracts trade with MM3 @$1.18
4. 3 contracts trade with MM1 @$1.18
5. 2 contracts trade with BD4 @$1.18 (This fills the entire Agency
Order and the Contra Order does not receive an execution)
The Exchange believes this allocation methodology, used only for
Market Maker priority interest and only at the conclusion of an ISO
PRIME Auction, will provide an additional incentive for Market Makers
to provide their most aggressive quotes to the market throughout the
entire trading session.
The Exchange also proposes to amend subsection (J) which currently
states, notwithstanding (a)(2)(iii)(C), (D) above, if the Auction does
not result in price improvement over the Exchange's disseminated price
at the time the Auction began, resting unchanged quotes or orders that
were disseminated at the best price before the Auction began shall have
priority after any Priority Customer order priority and the Initiating
Member's priority (40%) have been satisfied. The new proposed rule text
will provide, notwithstanding (a)(2)(iii)(C), (D) above, (provided the
Auction is not for an ISO PRIME order) if the Auction does not result
in price improvement over the Exchange's disseminated price at the time
the Auction began, resting unchanged quotes or orders that were
disseminated at the best price before the Auction began shall have
priority after any Priority Customer order priority and the
[[Page 61785]]
Initiating Member may not participate on any such balance unless the
Agency Order would otherwise go unfilled.
The Exchange will announce the implementation of this order type in
a Regulatory Circular. The Exchange will announce the implementation
date of the proposed rule change by Regulatory Circular to be published
no later than 90 days following the operative date of the proposed
rule. The implementation date will be no later than 90 days following
the issuance of the Regulatory Circular.
2. Statutory Basis
MIAX believes that its proposed rule change is consistent with
Section 6(b) of the Act \26\ in general, and furthers the objectives of
Section 6(b)(5) of the Act \27\ in particular, in that it is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in, securities, to remove impediments to and perfect the mechanisms of
a free and open market and a national market system and, in general, to
protect investors and the public interest.
---------------------------------------------------------------------------
\26\ 15 U.S.C. 78f(b).
\27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The proposed rule change promotes just and equitable principles of
trade and removes impediments to and perfects the mechanisms of a free
and open market in that it promotes competition as described below.
Specifically, the proposal allows the Exchange to offer its Members an
order type that is already offered by another exchange.\28\ In
addition, the proposal benefits traders and investors because it adds a
new order type for seeking price improvement through the PRIME. ISO
PRIME orders will also be subject to all eligibility requirements that
currently apply to PRIME orders. The Initiating Member, simultaneous
with the routing of the ISO PRIME order to the Exchange, remains
responsible for routing one or more ISOs, as necessary, to execute
against the full displayed size of any Protected Bid or Protected Offer
that is superior to the starting PRIME Auction price and has swept all
interest in the Exchange's Book priced better than the proposed Auction
starting price. Finally, the proposal does not unfairly discriminate
among Members because all Members of the Exchange are eligible to
submit an ISO PRIME order.
---------------------------------------------------------------------------
\28\ See Nasdaq ISE Exchange Rule, Options 3, Section 13,
Supplementary Material .08.
---------------------------------------------------------------------------
The Exchange's proposal to adopt a new allocation at the conclusion
of an ISO PRIME Auction for Market Maker priority quotes and RFR
responses from Market Makers with priority quotes, that participate in
the associated ISO sweep, promotes just and equitable principles of
trade, perfects the mechanisms of a free and open market and a national
market system and, in general, benefits investors as it provides an
additional incentive to Market Makers to provide their most aggressive
quotes to the market at all times. Prioritizing Market Maker interest
such that Market Makers that trade in the associated ISO sweep that
also have joining interest at the final Auction price receive first
priority in allocation provides an incentive to Market Makers to have
their most aggressive quotes on the Book in order to participate in any
potential ISO sweeps.
The Exchange's proposal does not change the existing allocation
priority for PRIME Auctions. The Exchange's proposal is narrowly
tailored to allocation priority only among Market Makers and only at
the conclusion of a PRIME Auction initiated by an ISO PRIME order.
The Exchange currently uses priority quotes for trade allocation
purposes as described in Exchange Rule 517(b) which provides that,
quotes will be considered either priority quotes (i.e., trade
allocation will be in accordance with Rule 514(e), which provides
priority quotes with precedence over all Professional Interest) or non-
priority quotes (i.e., trade allocation will be in accordance with Rule
514(e), which also provides non-priority quotes are considered together
with all other Professional Interest) based upon a Market Maker's quote
width at certain times as described.\29\ 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 both of the 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 Exchange Rule 517(b)(ii) 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
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-side quotes for
that option.\30\
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\29\ See Exchange Rule 517(b).
\30\ See Exchange Rule 517(b)(1)(i).
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Exchange Rule 514(e) provides that 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 other interest at the
NBBO, after all Priority Customer Orders (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, and have precedence over Professional
Interest. (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.\31\
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\31\ See Exchange Rule 514(e).
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The Exchange does not believe that the purpose of the proposed rule
change, to provide priority to a Market Maker at the conclusion of an
ISO PRIME Auction (among other Market Makers) that has also traded in
the associated ISO sweep, is a new or novel concept, as the Exchange
has an existing hierarchy of priority allocation based on priority
quotes as discussed above.
Additionally, the Exchange believes its proposal to amend
subsection (J) to clarify that the subsection does not apply to
Auctions for ISO PRIME orders, promotes just and equitable principles
of trade, and removes impediments to and perfects the mechanisms of a
free and open market and a national market system and, in general,
protects investors and the public interest by removing any ambiguity in
the Exchange's rulebook about the type of Auctions subsection (J)
pertains to. Current subsection (J) provides additional clarifying
language concerning the priority of allocations at the conclusion of a
PRIME Auction that does not result in price improvement over the
Exchange's disseminated price at the time the Auction began stating
that, ``resting unchanged quotes or orders that were disseminated at
the best price before the Auction began shall have priority after any
Priority Customer order priority . . . .'' The
[[Page 61786]]
Exchange's proposal concerning allocation at the conclusion of an
Auction for an ISO PRIME order provides a more nuanced and detailed
hierarchy of allocation for Market Makers which would be applicable in
the scenario contemplated by subsection (J). Therefore, the Exchange is
proposing to exclude the application of subsection (J) to Auctions that
are initiated by ISO PRIME orders. The Exchange believes this change
eliminates any potential conflict regarding the application of the
Exchange's rules and it is in the public interest for rules to be
accurate and concise so as to eliminate the potential for confusion.
The Exchange believes this change will benefit market participants
as it encourages Market Makers to participate in ISO PRIME Auctions and
will provide additional incentive to Market Makers to provide their
most aggressive quotes to the market throughout the trading session and
may also result in increased liquidity being available during the
Auction.
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 believes the
proposed rule change will benefit inter-market competition as it will
allow the Exchange to compete with other markets that already allow an
ISO order type in their price improvement mechanisms.\32\
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\32\ See supra note 28.
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The Exchange's proposal to adopt an ISO PRIME order type benefits
intra-market competition because it will enable the Exchange to provide
market participants with an additional method of seeking price
improvement through the PRIME. The Exchange does not believe that the
proposed rule change will impose any burden on intra-market competition
as the Rules of the Exchange apply equally to all Exchange Members, and
all Exchange Members may submit an ISO PRIME order.
The Exchange does not believe its proposal to further apportion
Market Maker allocation at the conclusion of an Auction of an ISO PRIME
order will impose any burden on intra-market competition but rather
promotes intra-market competition as it provides further incentive to
Market Makers to provide their most aggressive quotes to the market
throughout the entire trading session and may increase liquidity
available during a PRIME Auction. The proposal provides Market Makers
with priority quotes on the Book, that participate in an associated ISO
sweep, with priority over other Market Makers, which benefits intra-
market competition as it also provides an incentive to Market Makers to
provide their most aggressive quotes to the market during the entire
trading session to be in position to participate in any potential ISO
sweeps.
The Exchange does not believe its proposal will impose any burden
on inter-market competition that is not necessary or appropriate in
furtherance of the purposes of the Act, but rather will promote inter-
market competition as it provides an additional incentive to Market
Makers on the Exchange to provide their most aggressive quotes to the
market at all times which could result in tighter quotes and greater
liquidity being available in the market place, which would benefit all
investors.
The Exchange believes its proposal to amend subparagraph (J)
promotes just and equitable principles of trade and removes impediments
to and perfects the mechanism of a free and open market and a national
market system because the proposed rule change provides additional
detail and further clarifies the rule. It is in the public interest for
rules to be accurate and concise so as to eliminate the potential for
confusion.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to 19(b)(3)(A) of the Act \33\ and Rule 19b-4(f)(6) \34\
thereunder.
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\33\ 15 U.S.C. 78s(b)(3)(A).
\34\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. 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-2020-31 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-2020-31. 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
[[Page 61787]]
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-MIAX-2020-31 and should be
submitted on or before October 21, 2020.
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\35\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-21554 Filed 9-29-20; 8:45 am]
BILLING CODE 8011-01-P
