Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing of a Proposed Rule Change To Adopt Exchange Rule 532, Order and Quote Price Protection Mechanisms and Risk Controls, 68695-68703 [2021-26241]

Download as PDF jspears on DSK121TN23PROD with NOTICES1 Federal Register / Vol. 86, No. 230 / Friday, December 3, 2021 / Notices Funds’ outstanding investments immediately preceding the Follow-On Investment; and (ii) the aggregate amount recommended by the Advisor to be invested by each Regulated Entity in the Follow-On Investment, together with the amount proposed to be invested by the participating Affiliated Funds in the same transaction, exceeds the amount of the opportunity; then the amount invested by each such party will be allocated among them pro rata based on each party’s capital available for investment in the asset class being allocated, up to the amount proposed to be invested by each. (d) The acquisition of Follow-On Investments as permitted by this condition will be considered a CoInvestment Transaction for all purposes and subject to the other conditions set forth in the application. 9. The Independent Trustees of each Regulated Entity will be provided quarterly for review all information concerning Potential Co-Investment Transactions and Co-Investment Transactions, including investments made by other Regulated Entities and the Affiliated Funds that the Regulated Entity considered but declined to participate in, so that the Independent Trustees may determine whether all investments made during the preceding quarter, including those investments which the Regulated Entity considered but declined to participate in, comply with the conditions of the Order. In addition, the Independent Trustees will consider at least annually the continued appropriateness for the Regulated Entity of participating in new and existing CoInvestment Transactions. 10. Each Regulated Entity will maintain the records required by section 57(f)(3) of the Act as if each of the Regulated Entities were a business development company (as defined in section 2(a)(48) of the Act) and each of the investments permitted under these conditions were approved by the Required Majority under section 57(f) of the Act. 11. No Independent Trustee of a Regulated Entity will also be a director, general partner, managing member or principal, or otherwise an ‘‘affiliated person’’ (as defined in the Act) of an Affiliated Fund. 12. The expenses, if any, associated with acquiring, holding or disposing of any securities acquired in a CoInvestment Transaction (including, without limitation, the expenses of the distribution of any such securities registered for sale under the Securities Act) will, to the extent not payable by an Advisor under the investment VerDate Sep<11>2014 18:06 Dec 02, 2021 Jkt 256001 advisory agreements with the Regulated Entities and the Affiliated Funds, be shared by the Affiliated Funds and the Regulated Entities in proportion to the relative amounts of the securities held or to be acquired or disposed of, as the case may be. 13. Any transaction fee 11 (including break-up or commitment fees but excluding broker’s fees contemplated by section 17(e) of the Act, as applicable), received in connection with a CoInvestment Transaction will be distributed to the participating Regulated Entities and Affiliated Funds on a pro rata basis based on the amounts they invested or committed, as the case may be, in such Co-Investment Transaction. If any transaction fee is to be held by the Advisor pending consummation of the transaction, the fee will be deposited into an account maintained by the Advisor at a bank or banks having the qualifications prescribed in section 26(a)(1) of the Act, and the account will earn a competitive rate of interest that will also be divided pro rata among the participating Regulated Entities and Affiliated Funds based on the amounts they invest in such Co-Investment Transaction. None of the Affiliated Funds, the Advisors, the other Regulated Entities or any affiliated person of the Regulated Entities or Affiliated Funds will receive additional compensation or remuneration of any kind as a result of or in connection with a Co-Investment Transaction (other than (a) in the case of the Regulated Entities and Affiliated Funds, the pro rata transaction fees described above and fees or other compensation described in condition 2(c)(iii)(C); and (b) in the case of the Advisors, investment advisory fees paid in accordance with the agreements between the Advisors and the Regulated Entities or the Affiliated Funds). 14. The Advisors will each maintain policies and procedures reasonably designed to ensure compliance with the foregoing conditions. These policies and procedures will require, among other things, that the applicable Advisor will be notified of all Potential CoInvestment Transactions that fall within a Regulated Entity’s then-current Objectives and Strategies and will be given sufficient information to make its independent determination and recommendations under conditions 1, 2(a), 7 and 8. 15. If the Holders own in the aggregate more than 25 percent of the Shares of 11 Applicants are not requesting and the staff is not providing any relief for transaction fees received in connection with any Co-Investment Transaction. PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 68695 a Regulated Entity, then the Holders will vote such Shares in the same percentages as the Regulated Entity’s other shareholders (not including the Holders) when voting on (1) the election of directors; (2) the removal of one or more directors; or (3) all other matters under either the Act or applicable State law affecting the Board’s composition, size or manner of election. 16. Each Regulated Entity’s chief compliance officer, as defined in Rule 38a–1(a)(4), will prepare an annual report for its Board that evaluates (and documents the basis of that evaluation) the Regulated Entity’s compliance with the terms and conditions of the application and the procedures established to achieve such compliance. For the Commission, by the Division of Investment Management, under delegated authority. J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–26299 Filed 12–2–21; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–93676; File No. SR–MIAX– 2021–58] Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing of a Proposed Rule Change To Adopt Exchange Rule 532, Order and Quote Price Protection Mechanisms and Risk Controls November 29, 2021. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’),2 and Rule 19b–4 thereunder,3 notice is hereby given that on November 16, 2021, Miami International Securities Exchange, LLC (‘‘MIAX Options’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing a proposal to adopt new Exchange Rule 532, Order and Quote Price Protection Mechanisms and Risk Controls; amend Exchange 15 U.S.C. 78s(b)(1). 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 1 2 E:\FR\FM\03DEN1.SGM 03DEN1 68696 Federal Register / Vol. 86, No. 230 / Friday, December 3, 2021 / Notices Rule 100, Definitions; and amend Exchange Rule 518, Complex Orders. 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 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 jspears on DSK121TN23PROD with NOTICES1 1. Purpose The Exchange proposes to adopt new Exchange Rule 532, Order and Quote Price Protection Mechanisms and Risk Controls. The Exchange proposes to adopt a new Managed Protection Override feature, a new Max Put Price Protection feature, and a new MIAX Strategy Price Protection (‘‘MSPP’’) in new proposed Rule 532. The Exchange proposes to relocate and amend paragraph (a), Vertical Spread Variance (‘‘VSV’’) Price Protection; paragraph (b), Calendar Spread Variance (‘‘CSV’’) Price Protection; and paragraph (c) VSV and CSV Price Protection, from Interpretations and Policies .05 of Exchange Rule 518 to new proposed Rule 532 as described below. Additionally, the Exchange proposes to adopt a new Butterfly Spread Variance (‘‘BSV’’) Price Protection to proposed section (b)(2) of new proposed Rule 532. The Exchange proposes to relocate paragraph (d), Implied Away Best Bid or Offer (‘‘ixABBO’’) Price Protection; paragraph (f), Complex MIAX Options Price Collar Protection; and paragraph (g), Market Maker Single Side Protection, from Interpretations and Policies .05 of Exchange Rule 518 to new proposed Rule 532 in their entirety and without modification as section (b)(6), Complex MIAX Options Price Collar Protection; section (b)(7), Implied Away Best Bid or Offer (‘‘ixABBO’’) VerDate Sep<11>2014 18:06 Dec 02, 2021 Jkt 256001 Price Protection; and section (b)(8), Market Maker Single Side Protection. The Exchange proposes to amend Exchange Rule 100, Definitions to insert a clarifying term to the definition of ‘‘Book.’’ The Exchange proposes to relabel paragraph (e) of Interpretations and Policies .05 of Exchange Rule 518 to paragraph (a), and to make a number of non-substantive changes to update internal cross references throughout Exchange Rule 518 that have changed as a result of the proposed changes contained herein. Background The Exchange began trading complex orders 4 in October, 2016.5 As part of its effort to continue to build out its complex order market segment the Exchange has continued to add order types 6 and functionality. To encourage Members 7 to send complex orders to the Exchange the Exchange has implemented numerous risk protections specifically tailored to complex orders. The Exchange is now proposing to modify Exchange Rule 518, Complex Orders, to relocate and consolidate certain risk protection functionality in new proposed Exchange Rule 532, Order and Quote Price Protection Mechanisms and Risk Controls, and to adopt additional risk protection functionality as described below. 4 A ‘‘complex order’’ is any order involving the concurrent purchase and/or sale of two or more different options in the same underlying security (the ‘‘legs’’ or ‘‘components’’ of the complex order), for the same account, in a ratio that is equal to or greater than one-to-three (.333) and less than or equal to three-to-one (3.00) and for the purposes of executing a particular investment strategy. Minioptions may only be part of a complex order that includes other mini-options. Only those complex orders in the classes designated by the Exchange and communicated to Members via Regulatory Circular with no more than the applicable number of legs, as determined by the Exchange on a classby-class basis and communicated to Members via Regulatory Circular, are eligible for processing. See Exchange Rule 518(a)(5). 5 For a complete description of the trading of complex orders on the Exchange, see Exchange Rule 518. See also, Securities Exchange Act Release No. 79072 (October 7, 2016), 81 FR 71131 (October 14, 2016) (SR–MIAX–2016–26). 6 See Securities Exchange Act Release Nos. 89085 (June 17, 2020), 85 FR 37719 (June 23, 2020) (SR– MIAX–2020–16) (Proposal to adopt new Complex Attributable Order); 89212 (July 1, 2020), 85 FR 41075 (July 8, 2020) (SR–MIAX–2020–20) (Proposal to adopt new Complex Auction-on-Arrival-Only ‘‘cAOAO’’ order type). 7 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. PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 Proposal Managed Protection Override The Exchange proposes to adopt a new Managed Protection Override feature which will work in conjunction with certain risk protections on the Exchange. If a Member enables the Managed Protection Override then all risk protections connected to the Managed Protection Override feature are engaged. When a risk protection connected to the Managed Protection Override feature is triggered, and the Managed Protection Override feature is enabled, the order subject to the risk protection will be cancelled. The Managed Protection Override will be available for the following risk protections: Vertical Spread Variance (‘‘VSV’’) Price Protection, Calendar Spread Variance (‘‘CSV’’) Price Protection, new proposed Butterfly Spread Variance (‘‘BSV’’) Price Protection, Parity Price Protection, and new proposed Max Put Price Protection. Currently, when the Vertical Spread Variance (‘‘VSV’’) Price Protection and the Calendar Spread Variance (‘‘CSV’’) Price Protection are triggered the default behavior is to manage the order in accordance to Exchange Rule 518(c)(4).8 Additionally, when the Parity Price Protection is triggered the default behavior is to place the order on the Strategy Book 9 at its parity protected price.10 The Exchange believes that offering Members the option to have their orders either managed by the Exchange or cancelled gives Members greater flexibility and control over their orders while retaining risk protection functionality. Max Put Price Protection (‘‘MPPP’’) The Exchange proposes to adopt a new price protection for Put options 11 by establishing a maximum price at which a Put option may trade.12 To 8 See Interpretations and Policies .05(c) of Exchange Rule 518. 9 The ‘‘Strategy Book’’ is the Exchange’s electronic book of complex orders and complex quotes. See Exchange Rule 518(a)(17). 10 See Interpretations and Policies .01(g) of Exchange Rule 518. 11 The term ‘‘put’’ means an option contract under which the holder of the option has the right, in accordance to the terms and provisions of the option, to sell to the Clearing Corporation the number of units of the underlying security covered by the option contract. See Exchange Rule 100. 12 The Exchange notes that the Cboe Exchange offers a similar Buy Order Put Protection which provides that if a User enters a buy limit order for a put with, or if a buy market order (or unexecuted portion) for a put would execute at, a price higher than or equal to the strike price of the option, the System cancels or rejects the order (or unexecuted portion) or quote. This check does not apply to adjusted series or bulk messages. See Cboe Exchange Rule 5.34(a)(3). E:\FR\FM\03DEN1.SGM 03DEN1 Federal Register / Vol. 86, No. 230 / Friday, December 3, 2021 / Notices determine the maximum price the Exchange will add a pre-set value, the Put Price Variance (‘‘PPV’’),13 to the strike price of the Put option. The preset value will be determined by the Exchange and communicated to Members via Regulatory Circular. Put bid orders priced through the maximum value (bids higher than the maximum value) will trade up to, and including, the maximum value, and then will be managed at the limit of the allowable range, or optionally cancelled if the Managed Protection Override feature is enabled. Put offer orders priced higher than the maximum value will be rejected. A bid quote will trade up to, and including, the maximum value, then will be managed at the limit of the allowable range, or in the case of a bid eQuote, will be cancelled. An offer quote received that is higher than the maximum price will be displayed.14 Example Max Put Price Protection for a Buy Market Order An order to Buy 10 XYZ Jan 5 Put @ Market is received. The current market is: MBBO 15 0.50 (10) × 5.50 (10) The price protection is: Put Price Variance (PPV) = $0.10 Max Put Price Protection = (Strike + PPV) = $5.10 jspears on DSK121TN23PROD with NOTICES1 MBBO 5.10 (10) × 5.50 (10) 13 The proposed pre-set value for the Put Price Variance will be $0.10 to align to other similar price protections on the Exchange. The Exchange believes this value provides an adequate price range for executions while offering price protection against potentially erroneous executions. See MIAX Regulatory Circular 2016–47, MIAX Complex Order Price Protection Pre-set Values (October 20, 2016) available at https://www.miaxoptions.com/sites/ default/files/circular-files/MIAX_RC_2016_47.pdf, which establishes a $0.10 pre-set value for Vertical Spreads and Calendar Spreads. 14 Orders and quotes are handled differently as orders may only be submitted by Electronic Exchange Members and quotes may only be submitted by Market Makers. The term ‘‘Electronic Exchange Member’’ or ‘‘EEM’’ means the holder of a Trading Permit who is not a Market Maker. Electronic Exchange Members are deemed ‘‘members’’ under the Exchange Act. See Exchange Rule 100. 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 ‘‘MBBO’’ means the best bid or offer on the Simple Order Book on the Exchange. See Exchange Rule 518(a)(13). The ‘‘Simple Order Book’’ is the Exchange’s regular electronic book of orders and quotes. See Exchange Rule 518(a)(15). 18:06 Dec 02, 2021 Jkt 256001 An Order to Sell 10 XYZ Jan 5 Put @ $5.25 is received. The current market is: MBBO 0.50 (10) × 5.50 (10) The price protection is: Put Price Variance (PPV) = $0.10 Put Option = XYZ Jan 5 Put Max Put Price Protection = (Strike + PPV) = $5.10 Because the Sell Order is priced higher than the Max Put Price Protection of $5.10, the order is rejected. Example Max Put Price Protection for a Buy Quote A Quote to Buy 10 XYZ Jan 5 Put @ 5.50 is received. The current market is: MBBO 0.50 (10) × 5.50 (10) The price protection is: Put Price Variance (PPV) = $0.10 Put Option = XYZ Jan 5 Put Max Put Price Protection = (Strike + PPV) = $5.10 Because the Buy Quote is priced through the Max Put Price Protection of $5.10, the quote posted to the order book and managed at $5.10. MBBO 5.10 (10) × 5.50 (10) Example Max Put Price Protection for a Sell Quote Because the Buy Order is priced through the Max Put Price Protection of $5.10, the order is subject to management and posted to the order book at $5.10. VerDate Sep<11>2014 Example Max Put Price Protection for a Sell Limit Order A Quote to Sell 10 XYZ Jan 5 Put @ $5.25 is received. The current market is: MBBO 0.50 (10) × 5.50 (10) The price protection is: Put Price Variance (PPV) = $0.10 Put Option = XYZ Jan 5 Put Max Put Price Protection = (Strike + PPV) = $5.10 Although the Sell Quote is priced higher than the Max Put Price Protection of $5.10, sell Quotes priced higher than the Max Put Price Protection are not rejected and therefore it is posted to the order book at $5.25. MBBO 5.10 (10) × 5.25 (10) The Exchange believes that offering Members the option to have orders either managed by the Exchange or cancelled when a risk protection is triggered gives Members greater flexibility and control over their orders while retaining the risk protection functionality. Definitions The Exchange proposes to include a ‘‘Definitions’’ section as paragraph (b)(1) in Rule 532. For the purposes of proposed paragraph (b) the Exchange will adopt the following definition of a Butterfly Spread in section (b)(1)(i): A PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 68697 ‘‘Butterfly Spread’’ is a three legged Complex Order with two legs to buy (sell) the same number of calls 16 (puts) and one leg is to sell (buy) twice the number of calls (puts), all legs have the same expiration; the strike price of each leg is equidistant from the next sequential strike price; and all legs overlie the same security.17 The Exchange also proposes to relocate the definition of Calendar Spread and Vertical Spread from Interpretations and Policies .05(b) and .05(a) of Exchange Rule 518 respectively, to proposed section (b)(1)(ii) and (iii) of proposed Rule 532 respectively. The definition of a Calendar Spread is a complex strategy consisting of one call (put) option and the sale of another call (put) option overlaying the same security that have different expirations but the same strike price. The definition of a Vertical Spread is a complex strategy consisting of the purchase of one call (put) option and the sale of another call (put) option overlying the same security that have the same expiration but different strike prices. The Exchange notes its definition of a Calendar Spread and a Vertical Spread is not changing under this proposal. Butterfly Spread Price Variance (‘‘BSV’’) Price Protection The Exchange proposes to adopt a new price protection for Butterfly Spreads as section (b)(2) of new proposed Rule 532. A butterfly spread is comprised of three legs which have the same expiration date, and are of the same type, either calls or puts, and are at equal strike intervals. The upper and lower strikes are each a buy (sell) and the middle strike is a sell (buy). The ratio of a butterfly spread will always be +1 ¥2 +1 or ¥1 +2 ¥1. Butterfly Spread Example Buy 1 XYZ April 50 Call Sell 2 XYZ April 55 Calls Buy 1 FYX April 60 Call The Exchange will establish a price protection for Butterfly Spreads by establishing a Butterfly Spread Variance. The minimum value of a Butterfly Spread is zero and the maximum value is capped at the 16 The term ‘‘call’’ means an option contract under which the holder of the option has the right, in accordance with the terms of the option, to purchase from the Clearing Corporation the number of units of the underlying security covered by the option contract. See Exchange Rule 100. 17 The Exchange notes that its proposed definition of a Butterfly Spread is substantially similar to the definition of a Butterfly Spread used by at least one other options exchange. See Nasdaq ISE, Options 3 Options Trading Rules, Section 16. Complex Order Risk Protections, (b)(3). E:\FR\FM\03DEN1.SGM 03DEN1 68698 Federal Register / Vol. 86, No. 230 / Friday, December 3, 2021 / Notices absolute value of the difference between the closest strikes (the upper strike price minus the middle strike price or the middle strike price minus the lower strike price). To establish the maximum and minimum trading values, a configurable pre-set value is added to the maximum spread value and subtracted from the minimum spread value. The pre-set value will be determined by the Exchange and communicated to Members via Regulatory Circular.18 The minimum and maximum spread values are used together to create an allowable trading range for the Butterfly Spread. Liquidity priced through the allowable trading range (bids higher than the maximum value or offers lower than the minimum value) will trade up to and including the maximum value for bids or down to and including the minimum value for offers, and then will be managed at the limit of the allowable trading range, or cancelled if the Managed Protection Override is enabled. Liquidity priced outside the allowable trading range (offers higher than the maximum value or bids lower than the minimum value) will be rejected. Example Butterfly Spread: Buy 1 April 50 Call, Sell 2 April 55 Calls, Buy 1 April 60 Call. April 50 Call MBBO: $11.00 × $16.00 April 55 Call MBBO: $6.00 × $11.00 April 60 Call MBBO: $1.00 × $6.00 The maximum spread value is absolute value of the difference between the closest strikes or $5.00 (60.00¥55.00 or 55.00¥50.00). The minimum spread value is zero. If the pre-set value is $0.10 the maximum allowable price is then $5.10 and the minimum allowable price is then $0.10. A strategy order to buy at $5.15 will be managed on the Strategy Book at $5.10. jspears on DSK121TN23PROD with NOTICES1 Calendar Spread Variance (‘‘CSV’’) Price Protection The Exchange proposes to (i) relocate the Calendar Spread Variance (‘‘CSV’’) Price Protection from Rule 518; (ii) make a clarifying change to the rule text; and (iii) amend the rule text to enable the operation of the Managed Protection Override. Specifically, the Exchange proposes to relocate the Calendar Spread Variance (‘‘CSV’’) Price Protection from Interpretations and Policies .05(b) of Rule 518 to paragraph (b)(3) of new proposed Rule 532. 18 The Exchange proposes to use a pre-set value of $0.10 for Butterfly Spreads to align to the preset value which is used on the Exchange for Calendar Spreads and Vertical Spreads. See supra note 12. VerDate Sep<11>2014 18:06 Dec 02, 2021 Jkt 256001 Additionally, the Exchange proposes to amend the rule text of proposed subparagraph (b)(3)(iv) to provide that if the execution price of a complex order would be outside the limit set forth in proposed subparagraph (i) 19 of proposed Rule 532(b)(3), such complex order will trade down to, and including, the minimum value. This proposed change clarifies the operation of the rule and harmonizes the operation of the rule to that of the Vertical Spread Variance (‘‘VSV’’) and Butterfly Spread Variance (‘‘BSV’’) Price Protections. Remaining interest will then be placed on the Strategy Book and managed to the appropriate trading price limit as described in Rule 518(c)(4), or cancelled if the Managed Protection Override is enabled. Orders to buy below the minimum trading price limit will be rejected by the System.20 Vertical Spread Variance (‘‘VSV’’) Price Protection The Exchange proposes to (i) relocate Vertical Spread Variance (‘‘VSV’’) Price Protection from Rule 518; (ii) make a clarifying change to the rule text; and (iii) amend the rule text to enable the operation of the Managed Protection Override. Specifically, the Exchange proposes to relocate the Vertical Spread Variance (‘‘VSV’’) Price Protection from Interpretations and Policies .05(a) of Rule 518 to paragraph (b)(4) of new proposed Rule 532. Additionally, the Exchange proposes to amend the rule text of proposed subparagraph (b)(4)(iii) to provide that if the execution price of a complex order would be outside the limits set forth in proposed subparagraph (i) 21 of proposed Rule 532(b)(4), such complex order will trade up to, and including, the maximum value for bids or down to, and including, the minimum value for offers. This proposed change clarifies the operation of the rule and harmonizes the operation of the rule to that of the Calendar Spread Variance (‘‘CSV’’) and Butterfly Spread Variance (‘‘BSV’’) Price Protections. Remaining interest will then be placed on the Strategy Book and managed to an appropriate trading price limit as described in Rule 518(c)(4), or cancelled if the Managed Protection Override is enabled. Orders to buy below the 19 The Exchange notes that proposed subparagraph (i) is identical to current paragraph (1) of Interpretations and Policies .05(b) of Exchange Rule 518. 20 The term ‘‘System’’ means the automated trading system used by the Exchange for the trading of securities. See Exchange Rule 100. 21 The Exchange notes that proposed subparagraph (i) is identical to current paragraph (1) of Interpretations and Policies .05(a) of Exchange Rule 518. PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 minimum trading price limit and orders to sell above the maximum trading price limit will be rejected by the System. MIAX Strategy Price Protection (‘‘MSPP’’) The Exchange now proposes to introduce a MIAX Strategy Price Protection (‘‘MSPP’’) which will establish a maximum protected price for buy orders and a minimum protected price for sell orders. To determine the maximum price for a buy order the Exchange will add a pre-set value, the MIAX Strategy Price Protection Variance (‘‘MSPPV’’),22 to the offer side value of the cNBBO.23 To determine the minimum protected price for sell orders the Exchange will subtract the MSPPV value from the bid side value of the cNBBO. The MSPPV value will be determined by the Exchange and communicated to Members via Regulatory Circular. For market orders 24 the functional limit will be the MSPP. All Day 25 and GTC 26 complex orders are eligible for the MIAX Strategy Price Protection. cIOC orders,27 cAOC orders,28 cIOC eQuotes,29 and cAOC 22 The Exchange proposes to use a pre-set value of $2.50 for the MIAX Strategy Price Protection Variance (‘‘MSPPV’’). The Exchange believes this value provides an adequate price range for executions while offering price protection against potentially erroneous executions. 23 The cNBBO is calculated using the NBBO for each component of a complex strategy to establish the best net bid and offer for a complex strategy. For stock-option orders, the cNBBO for a complex strategy will be calculated using the NBBO in the individual option component(s) and the NBBO in the stock component. See Exchange Rule 518(a)(2). 24 A market order is an order to buy or sell a stated number of option contracts at the best price available at the time of execution. See Exchange Rule 516(a). 25 A Day Limit Order is an order to buy or sell which, if not executed, expires at the end of trading in the security on the day on which it was entered. See Exchange Rule 516(k). 26 A Good ’til Cancelled or ‘‘GTC’’ Order is an order to buy or sell which remains in effect until it is either executed, cancelled or the underlying option expires. See Exchange Rule 516(l). 27 A Complex Immediate-or-Cancel or ‘‘cIOC’’ order is a complex order that is to be executed in whole or in part upon receipt. Any portion not so executed is cancelled. See Exchange Rule 518(b)(4). 28 A Complex Auction-or-Cancel or ‘‘cAOC’’ order is a complex limit order used to provide liquidity during a specific Complex Auction with a time in force that corresponds with that event. cAOC orders are not displayed to any market participant, and are not eligible for trading outside of the event. A cAOC order with a size greater than the aggregate auctioned size (as defined in Rule 518(d)(4)) will be capped for allocation purposes at the aggregate auctioned size. See Exchange Rule 518(b)(3). 29 A ‘‘Complex Immediate or Cancel eQuote’’ or ‘‘cIOC eQuote,’’ which is a complex eQuote with a time-in-force of IOC that may be matched with another complex quote or complex order for an execution to occur in whole or in part upon receipt into the System. cIOC eQuotes will not: (i) Be executed against individual orders and quotes E:\FR\FM\03DEN1.SGM 03DEN1 Federal Register / Vol. 86, No. 230 / Friday, December 3, 2021 / Notices jspears on DSK121TN23PROD with NOTICES1 eQuotes,30 are not eligible for the MIAX Strategy Price Protection,31 nor are crossing orders.32 The MIAX Strategy Price Protection is an additional price protection feature provided to all Members of the Exchange. If the MSPP is priced less aggressively than the limit price of a complex order (i.e., the MSPP is less than the complex order’s bid price for a buy order, or the MSPP is greater than the complex order’s offer price for a sell order) the order will be (i) displayed and/or executed up to, and including, its MSPP for buy orders; or (ii) displayed and/or executed down to, and including, its MSPP for sell orders. Any unexecuted portion of such a complex order will be cancelled. If the MSPP is priced equal to, or more aggressively than, the limit price of a complex order (i.e., the MSPP is greater than the complex order’s bid price for a buy order, of [sic] the MSPP is less than the complex order’s offer price for a sell order) the order will be (i) displayed and/or executed up to, and including, its limit price for buy orders; or (ii) displayed and/or executed down resting on the Simple Order Book; (ii) be eligible to initiate a Complex Auction or join a Complex Auction in progress; (iii) rest on the Strategy Book; or (iv) be displayed. Any portion of a cIOC eQuote that is not executed is immediately cancelled. See paragraph (c)(2) of Interpretations and Policies .02 of Exchange Rule 518. 30 A ‘‘Complex Auction or Cancel eQuote’’ or ‘‘cAOC eQuote,’’ which is an eQuote submitted by a Market Maker that is used to provide liquidity during a specific Complex Auction with a time in force that corresponds with the duration of the Complex Auction. A cAOC eQuote with a size greater than the aggregate auctioned size (as defined in Rule 518(d)(4)) will be capped for allocation purposes at the aggregate auctioned size. cAOC eQuotes will not: (i) Be executed against individual orders and quotes resting on the Simple Order Book; (ii) be eligible to initiate a Complex Auction, but may join a Complex Auction in progress; (iii) rest on the Strategy Book; or (iv) be displayed. See paragraph (c)(1) of Interpretations and Policies .02 of Exchange Rule 518. 31 The Exchange does not believe that these order types require the additional price protection afforded by the MSPP as these orders and quotes do not rest on the Strategy Book but are either executed immediately or cancelled. See supra notes 26, 27, 28, and 29. 32 The Exchange does not believe that crossing orders require the additional price protection afforded by the MSPP as the execution price of these orders is pre-established. A Complex Customer Cross or ‘‘cC2C’’ Order is comprised of one Priority Customer complex order to buy and one Priority Customer complex order to sell at the same price and for the same quantity. Trading of cC2C Orders is governed by Rule 515(h)(3). See Exchange Rule 518(b)(5). A Complex Qualified Contingent Cross or ‘‘cQCC’’ Order is comprised of an originating complex order to buy or sell where each component is at least 1,000 contracts that is identified as being part of a qualified contingent trade, as defined in Rule 516, Interpretations and Policies .01, coupled with a contra-side complex order or orders totaling an equal number of contracts. Trading of cQCC Orders is governed by Rule 515(h)(4). See Exchange Rule 518(b)(6). VerDate Sep<11>2014 18:06 Dec 02, 2021 Jkt 256001 to, and including, its limit price for sell orders. Any unexecuted portion of such a complex order: (A) Will be subject to the cLEP as described in subsection (e) of Exchange Rule 518; (B) may be submitted, if eligible, to the managed interest process described in Exchange Rule 518(c)(4); or (C) may be placed on the Strategy Book at its limit price. The MSPP is designed to work in conjunction with other features on the Exchange such as the Complex Liquidity Exposure (‘‘cLEP’’) Process. The Exchange introduced the Complex Liquidity Exposure Process (cLEP) in 2018.33 The cLEP process was designed for complex orders and complex eQuotes that violate their Complex MIAX Price Collar (‘‘MPC) price.34 The MPC price protection feature is an Exchange-wide mechanism under which a complex order or complex eQuote to sell will not be displayed or executed at a price that is lower than the opposite side cNBBO bid at the time the MPC is assigned by the System (i.e., upon receipt or upon opening) by more than a specific dollar amount expressed in $0.01 increments (the ‘‘MPC Setting’’), and under which a complex order or eQuote to buy will not be displayed or executed at a price that is higher than the opposite side cNBBO offer at the time the MPC is assigned by the System by more than the MPC Setting (each the ‘‘MPC Price’’).35 The MPC Price is established (i) upon receipt of the complex order or eQuote during free trading, or (ii) if the complex order or eQuote is not received during free trading, at the opening (or reopening following a halt) of trading in the complex strategy; or (iii) upon evaluation of the Strategy Book by the System when a wide market condition, as described in Interpretations and Policies .05(e)(1) of this Rule, no longer exists.36 Once established the MPC Price will not change during the life of the complex order or eQuote. If the MPC Price is priced less aggressively than the limit price of the complex order or eQuote (i.e., the MPC Price is less than the complex order or eQuote’s bid price for a buy, or the MPC Price is greater than the complex order or eQuote’s offer price for a sell), or if the complex order is a market order, the complex order or eQuote will be displayed and/or executed up to its MPC Price.37 33 See Securities Exchange Act Release No. 85155 (February 15, 2019), 84 FR 5739 (February 22, 2019) (SR–MIAX–2018–36). 34 The Exchange notes that there are no changes to the Complex MIAX Price Collar functionality under this proposal. 35 See Exchange Rule 518.05(f). 36 See Exchange Rule 518.05(f)(3). 37 See Exchange Rule 518.05(f)(5). PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 68699 A complex order or complex eQuote that would violate its MPC Price begins a cLEP Auction.38 The System will post the complex order or eQuote to the Strategy Book at its MPC Price and begin the cLEP Auction by broadcasting a liquidity exposure message to all subscribers of the Exchange’s data feeds.39 Remaining liquidity with an original limit price that is (i) less aggressive (lower for a buy order or eQuote, or higher for a sell order or eQuote) than or equal to the MPC Price will be handled in accordance with subsection (c)(2)(ii)–(v) of Rule 518, or (ii) more aggressive than the MPC Price will be subject to the Reevaluation Process.40 The Reevaluation process occurs at the conclusion of a cLEP Auction where the System will calculate the next potential MPC Price for remaining liquidity with an original limit price more aggressive than the existing MPC Price. The next MPC Price will be calculated as the MPC Price plus (minus) the next MPC increment for buy (sell) orders (the ‘‘New MPC Price’’). Liquidity with an original limit price equal to or less aggressive than the New MPC Price is no longer subject to the MPC price protection. Liquidity with an original limit price more aggressive than the New MPC Price (or market order liquidity) is subject to the MPC price protection feature using the New MPC Price. In certain scenarios this could lead to a cycle of cLEP Auctions and ever increasing MPC price protection prices. The operation of the MIAX Strategy Price Protection feature during a cLEP Auction can be seen in the following example. Example MPC: 0.25 The Exchange has one order (Order 1) resting on its Strategy Book: +1 component A, ¥1 component B: The current market is: MBBO component A: 4.00 (10) × 6.00 (10) MBBO component B: 1.00 (10) × 2.50 (10) NBBO 41 component A: 4.05 (10) × 4.15 (10) NBBO component B: 2.30 (10) × 2.40 (10) 38 See Exchange Rule 518(e). 39 Id. 40 Id. 41 The term ‘‘NBBO’’ means the national best bid or offer as calculated by the Exchange based on market information received by the Exchange from the appropriate Securities Information Processor (‘‘SIP’’). See Exchange Rule 518(a)(14). E:\FR\FM\03DEN1.SGM 03DEN1 jspears on DSK121TN23PROD with NOTICES1 68700 Federal Register / Vol. 86, No. 230 / Friday, December 3, 2021 / Notices cMBBO: 42 1.50 (10) × 5.00 (10) cNBBO: 1.65 (10) × 1.85 (10) The price protection is: MSPPV: 2.50 Buy MSPPV: 1.85 + .2.50 = 4.35 Sell MSPPV: 1.65¥2.50 =¥.85 Order 1 to sell 10 at 1.90 is received and updates the cMBBO. cMBBO: 1.50 (10) × 1.90 (10) The Exchange receives a new order (Order 2) to buy 30 at the Market. For Market Orders the functional limit is the MSPP or 4.35. Order 2 buys 10 from Order 1 at $1.90 and initiates the Complex Liquidity Exposure Process: Order 2 reprices to its MPC protected price of $2.10 (cNBO of 1.85 + 0.25) and is posted at that price on the Strategy Book and the cLEP Auction begins. During the cLEP Auction the Exchange receives a new order (Order 3) to sell 10 at 2.10. This order locks the current same side Book Price of $2.10. At the end of the auction, Order 3 sells 10 to Order 2 at $2.10, filling Order 3. Order 2 reprices to the next MPC protected price of $2.35 (initial MPC of 2.10 + 0.25) and is posted at that price on the Strategy Book and the next cLEP Auction begins. During the next cLEP Auction the Exchange does not receive any interest to sell. At the end of the auction Order 2 is reevaluated and reprices to the next MPC protected price of 2.60 (previous MPC of 2.35 + 0.25) and is posted at that price on the Strategy Book and the next cLEP Auction begins. During all subsequent cLEP Auctions the Exchange does not receive any interest to sell. At the end of each subsequent auction, Order 2 is reevaluated and repriced to the next MPC protected price as seen below until the MSPP protected price is equal to or less than the MPC protected price. 3rd MPC evaluation 2.60 + 0.25 = 2.85 4th MPC evaluation 2.85 + 0.25 = 3.10 5th MPC evaluation 3.10 + 0.25 = 3.35 6th MPC evaluation 3.35 + 0.25 = 3.60 7th MPC evaluation 3.60 + 0.25 = 3.85 8th MPC evaluation 3.85 + 0.25 = 4.10 9th MPC evaluation 4.10 + 0.25 = 4.35 At the end of the final auction, because the MSPP protected price of 4.35 is equal to the MPC protected price of 4.35, Order 2 is not repriced to the next MPC and is cancelled subject to MSPP. cMBBO: 4.35 (10) × 5.00 (10) The Exchange proposes to amend Exchange Rule 518(e), Reevaluation, to 42 The cMBBO is calculated using the MBBO for each component of a complex strategy to establish the best net bid and offer for a complex strategy on the Exchange. VerDate Sep<11>2014 18:06 Dec 02, 2021 Jkt 256001 account for the introduction of a protected price in the cLEP process. The proposed rule text will provide that, at the conclusion of a cLEP Auction, the System will calculate the next potential MPC Price for remaining liquidity with an original limit price or protected price more aggressive than the existing MPC Price. The next MPC Price will be calculated as the MPC Price plus (minus) the next MPC increment for buy (sell) orders (the ‘‘New MPC Price’’). The System will initiate a cLEP Auction for liquidity that would execute or post at a price that would violate its New MPC Price. Liquidity with an original limit price or protected price less aggressive (lower for a buy order or eQuote, or higher for a sell order or eQuote) than or equal to the New MPC Price will be posted to the Strategy Book at its original limit price or handled in accordance with subsection (c)(2)(ii)–(v) of this Rule. The cLEP process will continue until no liquidity remains with an original limit price that is more aggressive than its MPC Price. At the conclusion of the cLEP process, any liquidity that has not been executed will be posted to the Strategy Book at its original limit price. The Exchange also proposes to amend Rule 518(e), Allocation at the Conclusion of a Complex Liquidity Exposure Auction, to provide that orders and quotes executed in a cLEP Auction will be allocated first in price priority based upon their original limit price, orders subject to MSPP are allocated using their protected price, and thereafter in accordance with the Complex Auction allocation procedures described in subsection (d)(7)(i)–(vi) of this Rule. Parity Price Protection The Exchange proposes to amend paragraph (g), Parity Price Protection, of Interpretations and Policies .01 of Exchange Rule 518, to provide that Married-Put and Buy-Write interest to sell (sell put and sell stock; or sell call and buy stock) that is priced below the parity protected price for the strategy will be placed on the Strategy Book at the parity protected price for the strategy, or cancelled if the Managed Protection Override is enabled. This provision allows the Parity Price Protection functionality to operate in conjunction with the Managed Protection Override feature which cancels an order when its price protection feature is triggered. The Exchange believes that offering Members the option to have orders either managed by the Exchange or cancelled when a risk protection is triggered gives Members greater PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 flexibility and control over their orders while retaining the risk protection functionality. Miscellaneous The Exchange proposes to rename paragraph (e), Wide Market Conditions, SMAT Events and Halts, of Interpretations and Policies .05 of Exchange Rule 518, to new paragraph (a), as a result of the removal of the preceding paragraphs (a), (b), (c), and (d) from Interpretations and Policies .05 of Exchange Rule 518, which have been relocated to new proposed Rule 532. Additionally, the Exchange proposes to make a number of non-substantive changes in Rule 518 to correct internal cross references that have changed as a result of this proposal. The Exchange also proposes to amend the definition of ‘‘Book’’ in Exchange Rule 100 by adding the clarifying term ‘‘simple’’ to the current definition. The Exchange proposes to define the term ‘‘Book’’ to mean the electronic book of simple buy and sell orders and quotes maintained by the System. When the Exchange introduced complex orders the Exchange defined the ‘‘Strategy Book’’ 43 as the Exchange’s electronic book of complex orders and complex quotes. Additionally, the Exchange defined the ‘‘Simple Order Book’’ 44 as the Exchange’s regular electronic book of orders and quotes in Rule 518. The Exchange believes its proposal to amend the definition provided in Exchange Rule 100 adds clarity to the definition regarding which book of orders and quotes is being referenced. 2. Statutory Basis The Exchange believes that its proposed rule change is consistent with Section 6(b) of the Act 45 in general, and furthers the objectives of Section 6(b)(5) of the Act 46 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. 43 See Exchange Rule 518(a)(17). Exchange Rule 518(a)(15). 45 15 U.S.C. 78f(b). 46 15 U.S.C. 78f(b)(5). 44 See E:\FR\FM\03DEN1.SGM 03DEN1 Federal Register / Vol. 86, No. 230 / Friday, December 3, 2021 / Notices jspears on DSK121TN23PROD with NOTICES1 Managed Protection Override The Exchange believes that the Managed Protection Override feature 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 a mechanism by which Members may determine the way their orders are handled when a risk protection is triggered. The Exchange believes that it has an effective way to manage orders on the Exchange so that they do not execute at potentially erroneous prices, however the Exchange believes that giving Members the option to have their orders cancelled if a risk protection is triggered protects investors and the public interest. Members can make a decision on what to do with their order based on the then current market conditions and may choose to resubmit the order at the same or different limit price. Specifically, the Exchange believes the proposed change will remove impediments to and perfect the mechanisms of a free and open market by providing market participants with the option to either manage their own orders or have the Exchange manage their orders when a price protection is triggered which will promote fair and orderly markets, increase overall market confidence, and promote the protection of investors. Max Put Price Protection The Exchange believes that the Max Put Price Protection feature 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 a risk protection mechanism to prevent trades from occurring at potentially unwanted or erroneous prices. Additionally, the Exchange believes that making this risk protection feature eligible for the Managed Protection Override feature benefits Members as it gives them the option to have their order cancelled if the Max Put Price protection is triggered and the Managed Protection Override feature is enabled. Cancelling orders back to Members allows them to make a decision on what to do with their order based on the then current market conditions and a Member may choose to re-submit the order at the same or different limit price. Specifically, the Exchange believes the proposed change will remove impediments to and perfect the mechanism of a free and open market by providing market participants VerDate Sep<11>2014 18:06 Dec 02, 2021 Jkt 256001 with the option to either manage their own orders or have the Exchange manage their orders when a price protection is triggered which will promote fair and orderly markets, increase overall market confidence, and promote the protection of investors. Butterfly Spread Price Variance (‘‘BSV’’) Price Protection The Exchange believes that the Butterfly Spread Price Variance (‘‘BSV’’) Price Protection feature 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 a risk protection mechanism that will establish minimum and maximum trading values to prevent an order from trading at a potentially unwanted or erroneous price. Additionally, the Exchange believes that making the Butterfly Spread Price Variance (‘‘BSV’’) Price Protection eligible for the Managed Protection Override feature benefits Members as it gives them the option to have their order cancelled if the Butterfly Spread Price Variance Price Protection is triggered and the Managed Protection Override feature is enabled. Cancelling orders back to Members allows them to make a decision on what to do with their order based on the then current market conditions and a Member may choose to re-submit the order at the same or different limit price. Specifically, the Exchange believes the proposed change will remove impediments to and perfect the mechanism of a free and open market by providing market participants with the option to either manage their own orders or have the Exchange manage their orders when a price protection is triggered which will promote fair and orderly markets, increase overall market confidence, and promote the protection of investors. Calendar Spread Variance (‘‘CSV’’) Price Protection The Exchange believes that amending the Calendar Spread Price Variance (‘‘CSV’’) Price Protection feature to enable the Managed Protection Override feature 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 Members the option of having the Exchange manage their order when a price protection is triggered, or having their PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 68701 order cancelled when a price protection is triggered, if the Managed Protection Override is enabled. The Exchange believes cancelling an order in this scenario benefits Members as it allows them to make a decision on what to do with their order based on the then current market conditions and a Member may choose to re-submit the order at the same or different limit price. Specifically, the Exchange believes the proposed change will remove impediments to and perfect the mechanism of a free and open market by providing market participants with the option to either manage their own orders or have the Exchange manage their orders when a price protection is triggered which will promote fair and orderly markets, increase overall market confidence, and promote the protection of investors. The Exchange believes amending the rule text to clarify the operation of the rule and to harmonize the rule text to that of the Vertical Spread Variance (‘‘VSV’’) and Butterfly Spread Variance (‘‘BSV’’) Price Protections promotes the protection of investors by having similar rule text and similar behavior for similar price protections which provides clarity and consistency within the Exchange’s rulebook. A clear and concise rulebook benefits investors and the public interest as it reduces the chance for confusion regarding the operation of price protection functionality. Vertical Spread Variance (‘‘VSV’’) Price Protection The Exchange believes that amending the Vertical Spread Price Variance (‘‘VSV’’) Price Protection feature to enable the Managed Protection Override feature 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 Members the option of having the Exchange manage their order when a price protection is triggered, or having their order cancelled, when a price protection is triggered, if the Managed Protection Override is enabled. The Exchange believes cancelling an order in this scenario benefits Members as it allows them to make a decision on what to do with their order based on the then current market conditions and a Member may choose to re-submit the order at the same or different limit price. Specifically, the Exchange believes the proposed change will remove impediments to and perfect the mechanism of a free and open market by providing market participants with the E:\FR\FM\03DEN1.SGM 03DEN1 68702 Federal Register / Vol. 86, No. 230 / Friday, December 3, 2021 / Notices option to either manage their own orders or have the Exchange manage their orders when a price protection is triggered which will promote fair and orderly markets, increase overall market confidence, and promote the protection of investors. The Exchange believes amending the rule text to clarify the operation of the rule and to harmonize the rule text to that of the Calendar Spread Variance (‘‘CSV’’) and Butterfly Spread Variance (‘‘BSV’’) Price Protections promotes the protection of investors by having similar rule text and similar behavior for similar price protections which provides clarity and consistency within the Exchange’s rulebook. A clear and concise rulebook benefits investors and the public interest as it reduces the chance for confusion regarding the operation of price protection functionality. jspears on DSK121TN23PROD with NOTICES1 MIAX Strategy Price Protection (‘‘MSPP’’) The Exchange believes that the adoption of the MIAX Strategy Price Protection (‘‘MSPP’’) promotes just and equitable principles of trade, and facilitates transactions in securities, remove [sic] 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 an order price protection that establishes a minimum and maximum trading value to prevent potentially unwanted or erroneous executions from occurring. The Exchange believes that when the MSPP is priced less aggressively than the limit price of the complex order that executing the order, up to an including its MSPP for buy orders, or down to and including its MSPP for sell orders, and cancelling any unexecuted portion of the order, protects investors and the public interest. Cancelling orders back to Members allows them to make a decision on what to do with their order based on the then current market conditions and a Member may choose to re-submit the order at the same or different limit price. Specifically, the Exchange believes the proposed change will remove impediments to and perfect the mechanism of a free and open market by providing market participants with the option to either manage their own orders or have the Exchange manage their orders when a price protection is triggered which will promote fair and orderly markets, increase overall market confidence, and promote the protection of investors. VerDate Sep<11>2014 18:06 Dec 02, 2021 Jkt 256001 Parity Price Protection The Exchange believes that amending Interpretations and Policies .01(g), Parity Price Protection, of Exchange Rule 518, to operate in conjunction with the Managed Protection Override feature promotes just and equitable principles of trade, and facilitates transactions in securities, 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 Members greater flexibility and control over their orders if the Parity Price Protection is triggered. The Exchange believes that making this risk protection feature eligible for the Managed Protection Override feature benefits Members as it gives them the option to have their order cancelled if the Parity Price Protection is triggered and the Managed Protection Override feature is enabled. Cancelling orders back to Members allows them to make a decision on what to do with their order based on the then current market conditions and a Member may choose to re-submit the order at the same or different limit price. Specifically, the Exchange believes the proposed change will remove impediments to and perfect the mechanism of a free and open market by providing market participants with the option to either manage their own orders or have the Exchange manage their orders when a price protection is triggered which will promote fair and orderly markets, increase overall market confidence, and promote the protection of investors. Miscellaneous The Exchange believes that amending the definition of ‘‘Book’’ promotes just and equitable principles of trade, fosters cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, 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 a clarifying term to the existing definition. In particular, the Exchange believes that the proposed change will provide greater clarity to Members and the public regarding the Exchange’s Rules. It is in the public interest for rules to be accurate and concise so as to eliminate the potential for confusion. The Exchange believes the proposed change to correct internal cross references within the Exchange’s Rulebook promotes just and equitable PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 principles of trade and removes impediments to and perfects the mechanism of a free and open market and a national market system because the proposal ensures that the Exchange’s rules are accurate. The Exchange notes that the proposed changes to correct internal cross references and to make minor non-substantive edits does not alter the application of each rule. As such, the proposed amendments would foster cooperation and coordination with persons engaged in facilitating transactions in securities and would remove impediments to and perfect the mechanism of a free and open market and national exchange system. In particular, the Exchange believes that the proposed rule changes will provide greater clarity to Members and the public regarding the Exchange’s Rules. 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 proposal 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 new price protection features for MIAX Members. Additionally, the description of the System’s functionality is designed to promote just and equitable principles of trade by providing a clear and accurate description to all participants of how the price protection process is applied and should assist investors in making decisions concerning their orders. Further, the Exchange believes that the price protection features and functionality provides market participants with an appropriate level of risk protection to their orders and contributes to the maintenance of a fair and orderly market. 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. Specifically, the Exchange does not believe that the proposed changes will impose any burden on intra-market competition as the rules of the Exchange apply equally to all MIAX participants. The price protections are available for any MIAX Member that submits orders or quotes to the Exchange. Any MIAX Member that submits a complex order to the Exchange will benefit from the risk protections proposed herein. Further any MIAX Member that seeks to buy or sell a put will be afforded the MAX Put E:\FR\FM\03DEN1.SGM 03DEN1 Federal Register / Vol. 86, No. 230 / Friday, December 3, 2021 / Notices Price protection. Additionally, any Member may elect to enable the Managed Protection Override feature to allow the Exchange to cancel their orders when a risk protection is triggered. In addition, the Exchange does not believe the proposal will impose any burden on inter-market competition as the proposal is intended to protect investors by providing additional price protection functionality and further enhancements and transparency to the Exchange’s risk protections. The Exchange’s proposal may promote intermarket competition as the Exchange’s proposal adds additional price protection features and functionality that may attract additional order flow to the Exchange, thereby promoting intermarket competition. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. jspears on DSK121TN23PROD with NOTICES1 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action All submissions should refer to File Number SR–MIAX–2021–58. 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–2021–58, and should be submitted on or before December 27, 2021. Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission will: A. By order approve or disapprove such proposed rule change, or B. institute proceedings to determine whether the proposed rule change should be disapproved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.47 J. Matthew DeLesDernier, Assistant Secretary. IV. Solicitation of Comments [FR Doc. 2021–26241 Filed 12–2–21; 8:45 am] 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: BILLING CODE 8011–01–P Electronic Comments Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Adopt a Modified Trading Schedule for Holidays • 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–2021–58 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. VerDate Sep<11>2014 18:06 Dec 02, 2021 Jkt 256001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–93677; File No. SR–CBOE– 2021–068] November 29, 2021. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 47 1 15 PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 68703 notice is hereby given that on November 15, 2021, Cboe Exchange, Inc. (the ‘‘Exchange’’ or ‘‘Cboe Options’’) filed with the Securities and Exchange Commission (the ‘‘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 Cboe Exchange, Inc. (the ‘‘Exchange’’ or ‘‘Cboe Options’’) proposes to adopt a modified trading schedule for holidays. The text of the proposed rule change is provided in Exhibit 5. The text of the proposed rule change is also available on the Exchange’s website (https://www.cboe.com/ AboutCBOE/CBOELegal RegulatoryHome.aspx), at the Exchange’s Office of the Secretary, 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 the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to adopt a modified trading schedule for holidays observed by the Exchange and amend and conform various rules relating to the proposed holiday trading sessions, as described more fully below. Particularly, the Exchange proposes to (i) adopt an additional Global Trading Hours (‘‘GTH’’) 3 trading session that 3 The Exchange’s rules provide that the Exchange may designate as eligible for trading during GTH any exclusively listed index option designated for trading under Chapter 4, Section B. If the Exchange designates a class of index options as eligible for trading during GTH, FLEX Options with the same underlying index are also deemed eligible for Continued E:\FR\FM\03DEN1.SGM 03DEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 86, Number 230 (Friday, December 3, 2021)]
[Notices]
[Pages 68695-68703]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-26241]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93676; File No. SR-MIAX-2021-58]


Self-Regulatory Organizations; Miami International Securities 
Exchange, LLC; Notice of Filing of a Proposed Rule Change To Adopt 
Exchange Rule 532, Order and Quote Price Protection Mechanisms and Risk 
Controls

November 29, 2021.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on November 16, 2021, Miami International Securities 
Exchange, LLC (``MIAX Options'' or the ``Exchange'') filed with the 
Securities and Exchange Commission (the ``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared by the self-regulatory organization. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to adopt new Exchange Rule 532, 
Order and Quote Price Protection Mechanisms and Risk Controls; amend 
Exchange

[[Page 68696]]

Rule 100, Definitions; and amend Exchange Rule 518, Complex Orders.
    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 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 adopt new Exchange Rule 532, Order and 
Quote Price Protection Mechanisms and Risk Controls. The Exchange 
proposes to adopt a new Managed Protection Override feature, a new Max 
Put Price Protection feature, and a new MIAX Strategy Price Protection 
(``MSPP'') in new proposed Rule 532.
    The Exchange proposes to relocate and amend paragraph (a), Vertical 
Spread Variance (``VSV'') Price Protection; paragraph (b), Calendar 
Spread Variance (``CSV'') Price Protection; and paragraph (c) VSV and 
CSV Price Protection, from Interpretations and Policies .05 of Exchange 
Rule 518 to new proposed Rule 532 as described below. Additionally, the 
Exchange proposes to adopt a new Butterfly Spread Variance (``BSV'') 
Price Protection to proposed section (b)(2) of new proposed Rule 532.
    The Exchange proposes to relocate paragraph (d), Implied Away Best 
Bid or Offer (``ixABBO'') Price Protection; paragraph (f), Complex MIAX 
Options Price Collar Protection; and paragraph (g), Market Maker Single 
Side Protection, from Interpretations and Policies .05 of Exchange Rule 
518 to new proposed Rule 532 in their entirety and without modification 
as section (b)(6), Complex MIAX Options Price Collar Protection; 
section (b)(7), Implied Away Best Bid or Offer (``ixABBO'') Price 
Protection; and section (b)(8), Market Maker Single Side Protection.
    The Exchange proposes to amend Exchange Rule 100, Definitions to 
insert a clarifying term to the definition of ``Book.''
    The Exchange proposes to relabel paragraph (e) of Interpretations 
and Policies .05 of Exchange Rule 518 to paragraph (a), and to make a 
number of non-substantive changes to update internal cross references 
throughout Exchange Rule 518 that have changed as a result of the 
proposed changes contained herein.
Background
    The Exchange began trading complex orders \4\ in October, 2016.\5\ 
As part of its effort to continue to build out its complex order market 
segment the Exchange has continued to add order types \6\ and 
functionality. To encourage Members \7\ to send complex orders to the 
Exchange the Exchange has implemented numerous risk protections 
specifically tailored to complex orders. The Exchange is now proposing 
to modify Exchange Rule 518, Complex Orders, to relocate and 
consolidate certain risk protection functionality in new proposed 
Exchange Rule 532, Order and Quote Price Protection Mechanisms and Risk 
Controls, and to adopt additional risk protection functionality as 
described below.
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    \4\ A ``complex order'' is any order involving the concurrent 
purchase and/or sale of two or more different options in the same 
underlying security (the ``legs'' or ``components'' of the complex 
order), for the same account, in a ratio that is equal to or greater 
than one-to-three (.333) and less than or equal to three-to-one 
(3.00) and for the purposes of executing a particular investment 
strategy. Mini-options may only be part of a complex order that 
includes other mini-options. Only those complex orders in the 
classes designated by the Exchange and communicated to Members via 
Regulatory Circular with no more than the applicable number of legs, 
as determined by the Exchange on a class-by-class basis and 
communicated to Members via Regulatory Circular, are eligible for 
processing. See Exchange Rule 518(a)(5).
    \5\ For a complete description of the trading of complex orders 
on the Exchange, see Exchange Rule 518. See also, Securities 
Exchange Act Release No. 79072 (October 7, 2016), 81 FR 71131 
(October 14, 2016) (SR-MIAX-2016-26).
    \6\ See Securities Exchange Act Release Nos. 89085 (June 17, 
2020), 85 FR 37719 (June 23, 2020) (SR-MIAX-2020-16) (Proposal to 
adopt new Complex Attributable Order); 89212 (July 1, 2020), 85 FR 
41075 (July 8, 2020) (SR-MIAX-2020-20) (Proposal to adopt new 
Complex Auction-on-Arrival-Only ``cAOAO'' order type).
    \7\ The term ``Member'' means an individual or organization 
approved to exercise the trading rights associated with a Trading 
Permit. Members are deemed ``members'' under the Exchange Act. See 
Exchange Rule 100.
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Proposal
Managed Protection Override
    The Exchange proposes to adopt a new Managed Protection Override 
feature which will work in conjunction with certain risk protections on 
the Exchange. If a Member enables the Managed Protection Override then 
all risk protections connected to the Managed Protection Override 
feature are engaged. When a risk protection connected to the Managed 
Protection Override feature is triggered, and the Managed Protection 
Override feature is enabled, the order subject to the risk protection 
will be cancelled.
    The Managed Protection Override will be available for the following 
risk protections: Vertical Spread Variance (``VSV'') Price Protection, 
Calendar Spread Variance (``CSV'') Price Protection, new proposed 
Butterfly Spread Variance (``BSV'') Price Protection, Parity Price 
Protection, and new proposed Max Put Price Protection.
    Currently, when the Vertical Spread Variance (``VSV'') Price 
Protection and the Calendar Spread Variance (``CSV'') Price Protection 
are triggered the default behavior is to manage the order in accordance 
to Exchange Rule 518(c)(4).\8\ Additionally, when the Parity Price 
Protection is triggered the default behavior is to place the order on 
the Strategy Book \9\ at its parity protected price.\10\ The Exchange 
believes that offering Members the option to have their orders either 
managed by the Exchange or cancelled gives Members greater flexibility 
and control over their orders while retaining risk protection 
functionality.
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    \8\ See Interpretations and Policies .05(c) of Exchange Rule 
518.
    \9\ The ``Strategy Book'' is the Exchange's electronic book of 
complex orders and complex quotes. See Exchange Rule 518(a)(17).
    \10\ See Interpretations and Policies .01(g) of Exchange Rule 
518.
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Max Put Price Protection (``MPPP'')
    The Exchange proposes to adopt a new price protection for Put 
options \11\ by establishing a maximum price at which a Put option may 
trade.\12\ To

[[Page 68697]]

determine the maximum price the Exchange will add a pre-set value, the 
Put Price Variance (``PPV''),\13\ to the strike price of the Put 
option. The pre-set value will be determined by the Exchange and 
communicated to Members via Regulatory Circular. Put bid orders priced 
through the maximum value (bids higher than the maximum value) will 
trade up to, and including, the maximum value, and then will be managed 
at the limit of the allowable range, or optionally cancelled if the 
Managed Protection Override feature is enabled. Put offer orders priced 
higher than the maximum value will be rejected. A bid quote will trade 
up to, and including, the maximum value, then will be managed at the 
limit of the allowable range, or in the case of a bid eQuote, will be 
cancelled. An offer quote received that is higher than the maximum 
price will be displayed.\14\
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    \11\ The term ``put'' means an option contract under which the 
holder of the option has the right, in accordance to the terms and 
provisions of the option, to sell to the Clearing Corporation the 
number of units of the underlying security covered by the option 
contract. See Exchange Rule 100.
    \12\ The Exchange notes that the Cboe Exchange offers a similar 
Buy Order Put Protection which provides that if a User enters a buy 
limit order for a put with, or if a buy market order (or unexecuted 
portion) for a put would execute at, a price higher than or equal to 
the strike price of the option, the System cancels or rejects the 
order (or unexecuted portion) or quote. This check does not apply to 
adjusted series or bulk messages. See Cboe Exchange Rule 5.34(a)(3).
    \13\ The proposed pre-set value for the Put Price Variance will 
be $0.10 to align to other similar price protections on the 
Exchange. The Exchange believes this value provides an adequate 
price range for executions while offering price protection against 
potentially erroneous executions. See MIAX Regulatory Circular 2016-
47, MIAX Complex Order Price Protection Pre-set Values (October 20, 
2016) available at https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_RC_2016_47.pdf, which establishes a $0.10 pre-
set value for Vertical Spreads and Calendar Spreads.
    \14\ Orders and quotes are handled differently as orders may 
only be submitted by Electronic Exchange Members and quotes may only 
be submitted by Market Makers. The term ``Electronic Exchange 
Member'' or ``EEM'' means the holder of a Trading Permit who is not 
a Market Maker. Electronic Exchange Members are deemed ``members'' 
under the Exchange Act. See Exchange Rule 100. The term ``Market 
Makers'' refers to ``Lead Market Makers'', ``Primary Lead Market 
Makers'' and ``Registered Market Makers'' collectively. See Exchange 
Rule 100.
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Example Max Put Price Protection for a Buy Market Order
    An order to Buy 10 XYZ Jan 5 Put @ Market is received.

The current market is:
MBBO \15\ 0.50 (10) x 5.50 (10)
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    \15\ The term ``MBBO'' means the best bid or offer on the Simple 
Order Book on the Exchange. See Exchange Rule 518(a)(13). The 
``Simple Order Book'' is the Exchange's regular electronic book of 
orders and quotes. See Exchange Rule 518(a)(15).

The price protection is:
Put Price Variance (PPV) = $0.10
Max Put Price Protection = (Strike + PPV) = $5.10

    Because the Buy Order is priced through the Max Put Price 
Protection of $5.10, the order is subject to management and posted to 
the order book at $5.10.

MBBO 5.10 (10) x 5.50 (10)
Example Max Put Price Protection for a Sell Limit Order
    An Order to Sell 10 XYZ Jan 5 Put @ $5.25 is received.

The current market is:
MBBO 0.50 (10) x 5.50 (10)

The price protection is:
Put Price Variance (PPV) = $0.10
Put Option = XYZ Jan 5 Put
Max Put Price Protection = (Strike + PPV) = $5.10

    Because the Sell Order is priced higher than the Max Put Price 
Protection of $5.10, the order is rejected.
Example Max Put Price Protection for a Buy Quote
    A Quote to Buy 10 XYZ Jan 5 Put @ 5.50 is received.

The current market is:
MBBO 0.50 (10) x 5.50 (10)

The price protection is:
Put Price Variance (PPV) = $0.10
Put Option = XYZ Jan 5 Put
Max Put Price Protection = (Strike + PPV) = $5.10

    Because the Buy Quote is priced through the Max Put Price 
Protection of $5.10, the quote posted to the order book and managed at 
$5.10.

MBBO 5.10 (10) x 5.50 (10)
Example Max Put Price Protection for a Sell Quote
    A Quote to Sell 10 XYZ Jan 5 Put @ $5.25 is received.

The current market is:
MBBO 0.50 (10) x 5.50 (10)

The price protection is:
Put Price Variance (PPV) = $0.10
Put Option = XYZ Jan 5 Put
Max Put Price Protection = (Strike + PPV) = $5.10

    Although the Sell Quote is priced higher than the Max Put Price 
Protection of $5.10, sell Quotes priced higher than the Max Put Price 
Protection are not rejected and therefore it is posted to the order 
book at $5.25.

MBBO 5.10 (10) x 5.25 (10)

    The Exchange believes that offering Members the option to have 
orders either managed by the Exchange or cancelled when a risk 
protection is triggered gives Members greater flexibility and control 
over their orders while retaining the risk protection functionality.
Definitions
    The Exchange proposes to include a ``Definitions'' section as 
paragraph (b)(1) in Rule 532. For the purposes of proposed paragraph 
(b) the Exchange will adopt the following definition of a Butterfly 
Spread in section (b)(1)(i): A ``Butterfly Spread'' is a three legged 
Complex Order with two legs to buy (sell) the same number of calls \16\ 
(puts) and one leg is to sell (buy) twice the number of calls (puts), 
all legs have the same expiration; the strike price of each leg is 
equidistant from the next sequential strike price; and all legs overlie 
the same security.\17\
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    \16\ The term ``call'' means an option contract under which the 
holder of the option has the right, in accordance with the terms of 
the option, to purchase from the Clearing Corporation the number of 
units of the underlying security covered by the option contract. See 
Exchange Rule 100.
    \17\ The Exchange notes that its proposed definition of a 
Butterfly Spread is substantially similar to the definition of a 
Butterfly Spread used by at least one other options exchange. See 
Nasdaq ISE, Options 3 Options Trading Rules, Section 16. Complex 
Order Risk Protections, (b)(3).
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    The Exchange also proposes to relocate the definition of Calendar 
Spread and Vertical Spread from Interpretations and Policies .05(b) and 
.05(a) of Exchange Rule 518 respectively, to proposed section 
(b)(1)(ii) and (iii) of proposed Rule 532 respectively. The definition 
of a Calendar Spread is a complex strategy consisting of one call (put) 
option and the sale of another call (put) option overlaying the same 
security that have different expirations but the same strike price. The 
definition of a Vertical Spread is a complex strategy consisting of the 
purchase of one call (put) option and the sale of another call (put) 
option overlying the same security that have the same expiration but 
different strike prices. The Exchange notes its definition of a 
Calendar Spread and a Vertical Spread is not changing under this 
proposal.
Butterfly Spread Price Variance (``BSV'') Price Protection
    The Exchange proposes to adopt a new price protection for Butterfly 
Spreads as section (b)(2) of new proposed Rule 532. A butterfly spread 
is comprised of three legs which have the same expiration date, and are 
of the same type, either calls or puts, and are at equal strike 
intervals. The upper and lower strikes are each a buy (sell) and the 
middle strike is a sell (buy). The ratio of a butterfly spread will 
always be +1 -2 +1 or -1 +2 -1.
Butterfly Spread Example
Buy 1 XYZ April 50 Call
Sell 2 XYZ April 55 Calls
Buy 1 FYX April 60 Call

    The Exchange will establish a price protection for Butterfly 
Spreads by establishing a Butterfly Spread Variance. The minimum value 
of a Butterfly Spread is zero and the maximum value is capped at the

[[Page 68698]]

absolute value of the difference between the closest strikes (the upper 
strike price minus the middle strike price or the middle strike price 
minus the lower strike price). To establish the maximum and minimum 
trading values, a configurable pre-set value is added to the maximum 
spread value and subtracted from the minimum spread value. The pre-set 
value will be determined by the Exchange and communicated to Members 
via Regulatory Circular.\18\ The minimum and maximum spread values are 
used together to create an allowable trading range for the Butterfly 
Spread. Liquidity priced through the allowable trading range (bids 
higher than the maximum value or offers lower than the minimum value) 
will trade up to and including the maximum value for bids or down to 
and including the minimum value for offers, and then will be managed at 
the limit of the allowable trading range, or cancelled if the Managed 
Protection Override is enabled. Liquidity priced outside the allowable 
trading range (offers higher than the maximum value or bids lower than 
the minimum value) will be rejected.
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    \18\ The Exchange proposes to use a pre-set value of $0.10 for 
Butterfly Spreads to align to the pre-set value which is used on the 
Exchange for Calendar Spreads and Vertical Spreads. See supra note 
12.
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Example
    Butterfly Spread: Buy 1 April 50 Call, Sell 2 April 55 Calls, Buy 1 
April 60 Call.

April 50 Call MBBO: $11.00 x $16.00
April 55 Call MBBO: $6.00 x $11.00
April 60 Call MBBO: $1.00 x $6.00

    The maximum spread value is absolute value of the difference 
between the closest strikes or $5.00 (60.00-55.00 or 55.00-50.00). The 
minimum spread value is zero. If the pre-set value is $0.10 the maximum 
allowable price is then $5.10 and the minimum allowable price is then 
$0.10. A strategy order to buy at $5.15 will be managed on the Strategy 
Book at $5.10.
Calendar Spread Variance (``CSV'') Price Protection
    The Exchange proposes to (i) relocate the Calendar Spread Variance 
(``CSV'') Price Protection from Rule 518; (ii) make a clarifying change 
to the rule text; and (iii) amend the rule text to enable the operation 
of the Managed Protection Override. Specifically, the Exchange proposes 
to relocate the Calendar Spread Variance (``CSV'') Price Protection 
from Interpretations and Policies .05(b) of Rule 518 to paragraph 
(b)(3) of new proposed Rule 532. Additionally, the Exchange proposes to 
amend the rule text of proposed subparagraph (b)(3)(iv) to provide that 
if the execution price of a complex order would be outside the limit 
set forth in proposed subparagraph (i) \19\ of proposed Rule 532(b)(3), 
such complex order will trade down to, and including, the minimum 
value. This proposed change clarifies the operation of the rule and 
harmonizes the operation of the rule to that of the Vertical Spread 
Variance (``VSV'') and Butterfly Spread Variance (``BSV'') Price 
Protections. Remaining interest will then be placed on the Strategy 
Book and managed to the appropriate trading price limit as described in 
Rule 518(c)(4), or cancelled if the Managed Protection Override is 
enabled. Orders to buy below the minimum trading price limit will be 
rejected by the System.\20\
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    \19\ The Exchange notes that proposed subparagraph (i) is 
identical to current paragraph (1) of Interpretations and Policies 
.05(b) of Exchange Rule 518.
    \20\ 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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Vertical Spread Variance (``VSV'') Price Protection
    The Exchange proposes to (i) relocate Vertical Spread Variance 
(``VSV'') Price Protection from Rule 518; (ii) make a clarifying change 
to the rule text; and (iii) amend the rule text to enable the operation 
of the Managed Protection Override. Specifically, the Exchange proposes 
to relocate the Vertical Spread Variance (``VSV'') Price Protection 
from Interpretations and Policies .05(a) of Rule 518 to paragraph 
(b)(4) of new proposed Rule 532. Additionally, the Exchange proposes to 
amend the rule text of proposed subparagraph (b)(4)(iii) to provide 
that if the execution price of a complex order would be outside the 
limits set forth in proposed subparagraph (i) \21\ of proposed Rule 
532(b)(4), such complex order will trade up to, and including, the 
maximum value for bids or down to, and including, the minimum value for 
offers. This proposed change clarifies the operation of the rule and 
harmonizes the operation of the rule to that of the Calendar Spread 
Variance (``CSV'') and Butterfly Spread Variance (``BSV'') Price 
Protections. Remaining interest will then be placed on the Strategy 
Book and managed to an appropriate trading price limit as described in 
Rule 518(c)(4), or cancelled if the Managed Protection Override is 
enabled. Orders to buy below the minimum trading price limit and orders 
to sell above the maximum trading price limit will be rejected by the 
System.
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    \21\ The Exchange notes that proposed subparagraph (i) is 
identical to current paragraph (1) of Interpretations and Policies 
.05(a) of Exchange Rule 518.
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MIAX Strategy Price Protection (``MSPP'')
    The Exchange now proposes to introduce a MIAX Strategy Price 
Protection (``MSPP'') which will establish a maximum protected price 
for buy orders and a minimum protected price for sell orders. To 
determine the maximum price for a buy order the Exchange will add a 
pre-set value, the MIAX Strategy Price Protection Variance 
(``MSPPV''),\22\ to the offer side value of the cNBBO.\23\ To determine 
the minimum protected price for sell orders the Exchange will subtract 
the MSPPV value from the bid side value of the cNBBO. The MSPPV value 
will be determined by the Exchange and communicated to Members via 
Regulatory Circular. For market orders \24\ the functional limit will 
be the MSPP. All Day \25\ and GTC \26\ complex orders are eligible for 
the MIAX Strategy Price Protection. cIOC orders,\27\ cAOC orders,\28\ 
cIOC eQuotes,\29\ and cAOC

[[Page 68699]]

eQuotes,\30\ are not eligible for the MIAX Strategy Price 
Protection,\31\ nor are crossing orders.\32\ The MIAX Strategy Price 
Protection is an additional price protection feature provided to all 
Members of the Exchange.
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    \22\ The Exchange proposes to use a pre-set value of $2.50 for 
the MIAX Strategy Price Protection Variance (``MSPPV''). The 
Exchange believes this value provides an adequate price range for 
executions while offering price protection against potentially 
erroneous executions.
    \23\ The cNBBO is calculated using the NBBO for each component 
of a complex strategy to establish the best net bid and offer for a 
complex strategy. For stock-option orders, the cNBBO for a complex 
strategy will be calculated using the NBBO in the individual option 
component(s) and the NBBO in the stock component. See Exchange Rule 
518(a)(2).
    \24\ A market order is an order to buy or sell a stated number 
of option contracts at the best price available at the time of 
execution. See Exchange Rule 516(a).
    \25\ A Day Limit Order is an order to buy or sell which, if not 
executed, expires at the end of trading in the security on the day 
on which it was entered. See Exchange Rule 516(k).
    \26\ A Good 'til Cancelled or ``GTC'' Order is an order to buy 
or sell which remains in effect until it is either executed, 
cancelled or the underlying option expires. See Exchange Rule 
516(l).
    \27\ A Complex Immediate-or-Cancel or ``cIOC'' order is a 
complex order that is to be executed in whole or in part upon 
receipt. Any portion not so executed is cancelled. See Exchange Rule 
518(b)(4).
    \28\ A Complex Auction-or-Cancel or ``cAOC'' order is a complex 
limit order used to provide liquidity during a specific Complex 
Auction with a time in force that corresponds with that event. cAOC 
orders are not displayed to any market participant, and are not 
eligible for trading outside of the event. A cAOC order with a size 
greater than the aggregate auctioned size (as defined in Rule 
518(d)(4)) will be capped for allocation purposes at the aggregate 
auctioned size. See Exchange Rule 518(b)(3).
    \29\ A ``Complex Immediate or Cancel eQuote'' or ``cIOC 
eQuote,'' which is a complex eQuote with a time-in-force of IOC that 
may be matched with another complex quote or complex order for an 
execution to occur in whole or in part upon receipt into the System. 
cIOC eQuotes will not: (i) Be executed against individual orders and 
quotes resting on the Simple Order Book; (ii) be eligible to 
initiate a Complex Auction or join a Complex Auction in progress; 
(iii) rest on the Strategy Book; or (iv) be displayed. Any portion 
of a cIOC eQuote that is not executed is immediately cancelled. See 
paragraph (c)(2) of Interpretations and Policies .02 of Exchange 
Rule 518.
    \30\ A ``Complex Auction or Cancel eQuote'' or ``cAOC eQuote,'' 
which is an eQuote submitted by a Market Maker that is used to 
provide liquidity during a specific Complex Auction with a time in 
force that corresponds with the duration of the Complex Auction. A 
cAOC eQuote with a size greater than the aggregate auctioned size 
(as defined in Rule 518(d)(4)) will be capped for allocation 
purposes at the aggregate auctioned size. cAOC eQuotes will not: (i) 
Be executed against individual orders and quotes resting on the 
Simple Order Book; (ii) be eligible to initiate a Complex Auction, 
but may join a Complex Auction in progress; (iii) rest on the 
Strategy Book; or (iv) be displayed. See paragraph (c)(1) of 
Interpretations and Policies .02 of Exchange Rule 518.
    \31\ The Exchange does not believe that these order types 
require the additional price protection afforded by the MSPP as 
these orders and quotes do not rest on the Strategy Book but are 
either executed immediately or cancelled. See supra notes 26, 27, 
28, and 29.
    \32\ The Exchange does not believe that crossing orders require 
the additional price protection afforded by the MSPP as the 
execution price of these orders is pre-established. A Complex 
Customer Cross or ``cC2C'' Order is comprised of one Priority 
Customer complex order to buy and one Priority Customer complex 
order to sell at the same price and for the same quantity. Trading 
of cC2C Orders is governed by Rule 515(h)(3). See Exchange Rule 
518(b)(5). A Complex Qualified Contingent Cross or ``cQCC'' Order is 
comprised of an originating complex order to buy or sell where each 
component is at least 1,000 contracts that is identified as being 
part of a qualified contingent trade, as defined in Rule 516, 
Interpretations and Policies .01, coupled with a contra-side complex 
order or orders totaling an equal number of contracts. Trading of 
cQCC Orders is governed by Rule 515(h)(4). See Exchange Rule 
518(b)(6).
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    If the MSPP is priced less aggressively than the limit price of a 
complex order (i.e., the MSPP is less than the complex order's bid 
price for a buy order, or the MSPP is greater than the complex order's 
offer price for a sell order) the order will be (i) displayed and/or 
executed up to, and including, its MSPP for buy orders; or (ii) 
displayed and/or executed down to, and including, its MSPP for sell 
orders. Any unexecuted portion of such a complex order will be 
cancelled.
    If the MSPP is priced equal to, or more aggressively than, the 
limit price of a complex order (i.e., the MSPP is greater than the 
complex order's bid price for a buy order, of [sic] the MSPP is less 
than the complex order's offer price for a sell order) the order will 
be (i) displayed and/or executed up to, and including, its limit price 
for buy orders; or (ii) displayed and/or executed down to, and 
including, its limit price for sell orders. Any unexecuted portion of 
such a complex order: (A) Will be subject to the cLEP as described in 
subsection (e) of Exchange Rule 518; (B) may be submitted, if eligible, 
to the managed interest process described in Exchange Rule 518(c)(4); 
or (C) may be placed on the Strategy Book at its limit price.
    The MSPP is designed to work in conjunction with other features on 
the Exchange such as the Complex Liquidity Exposure (``cLEP'') Process. 
The Exchange introduced the Complex Liquidity Exposure Process (cLEP) 
in 2018.\33\ The cLEP process was designed for complex orders and 
complex eQuotes that violate their Complex MIAX Price Collar (``MPC) 
price.\34\ The MPC price protection feature is an Exchange-wide 
mechanism under which a complex order or complex eQuote to sell will 
not be displayed or executed at a price that is lower than the opposite 
side cNBBO bid at the time the MPC is assigned by the System (i.e., 
upon receipt or upon opening) by more than a specific dollar amount 
expressed in $0.01 increments (the ``MPC Setting''), and under which a 
complex order or eQuote to buy will not be displayed or executed at a 
price that is higher than the opposite side cNBBO offer at the time the 
MPC is assigned by the System by more than the MPC Setting (each the 
``MPC Price'').\35\ The MPC Price is established (i) upon receipt of 
the complex order or eQuote during free trading, or (ii) if the complex 
order or eQuote is not received during free trading, at the opening (or 
reopening following a halt) of trading in the complex strategy; or 
(iii) upon evaluation of the Strategy Book by the System when a wide 
market condition, as described in Interpretations and Policies 
.05(e)(1) of this Rule, no longer exists.\36\ Once established the MPC 
Price will not change during the life of the complex order or eQuote. 
If the MPC Price is priced less aggressively than the limit price of 
the complex order or eQuote (i.e., the MPC Price is less than the 
complex order or eQuote's bid price for a buy, or the MPC Price is 
greater than the complex order or eQuote's offer price for a sell), or 
if the complex order is a market order, the complex order or eQuote 
will be displayed and/or executed up to its MPC Price.\37\
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    \33\ See Securities Exchange Act Release No. 85155 (February 15, 
2019), 84 FR 5739 (February 22, 2019) (SR-MIAX-2018-36).
    \34\ The Exchange notes that there are no changes to the Complex 
MIAX Price Collar functionality under this proposal.
    \35\ See Exchange Rule 518.05(f).
    \36\ See Exchange Rule 518.05(f)(3).
    \37\ See Exchange Rule 518.05(f)(5).
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    A complex order or complex eQuote that would violate its MPC Price 
begins a cLEP Auction.\38\ The System will post the complex order or 
eQuote to the Strategy Book at its MPC Price and begin the cLEP Auction 
by broadcasting a liquidity exposure message to all subscribers of the 
Exchange's data feeds.\39\ Remaining liquidity with an original limit 
price that is (i) less aggressive (lower for a buy order or eQuote, or 
higher for a sell order or eQuote) than or equal to the MPC Price will 
be handled in accordance with subsection (c)(2)(ii)-(v) of Rule 518, or 
(ii) more aggressive than the MPC Price will be subject to the 
Reevaluation Process.\40\
---------------------------------------------------------------------------

    \38\ See Exchange Rule 518(e).
    \39\ Id.
    \40\ Id.
---------------------------------------------------------------------------

    The Reevaluation process occurs at the conclusion of a cLEP Auction 
where the System will calculate the next potential MPC Price for 
remaining liquidity with an original limit price more aggressive than 
the existing MPC Price. The next MPC Price will be calculated as the 
MPC Price plus (minus) the next MPC increment for buy (sell) orders 
(the ``New MPC Price''). Liquidity with an original limit price equal 
to or less aggressive than the New MPC Price is no longer subject to 
the MPC price protection. Liquidity with an original limit price more 
aggressive than the New MPC Price (or market order liquidity) is 
subject to the MPC price protection feature using the New MPC Price. In 
certain scenarios this could lead to a cycle of cLEP Auctions and ever 
increasing MPC price protection prices.
    The operation of the MIAX Strategy Price Protection feature during 
a cLEP Auction can be seen in the following example.
Example
MPC: 0.25

    The Exchange has one order (Order 1) resting on its Strategy Book: 
+1 component A, -1 component B:

The current market is:
MBBO component A: 4.00 (10) x 6.00 (10)
MBBO component B: 1.00 (10) x 2.50 (10)
NBBO \41\ component A: 4.05 (10) x 4.15 (10)
---------------------------------------------------------------------------

    \41\ The term ``NBBO'' means the national best bid or offer as 
calculated by the Exchange based on market information received by 
the Exchange from the appropriate Securities Information Processor 
(``SIP''). See Exchange Rule 518(a)(14).
---------------------------------------------------------------------------

NBBO component B: 2.30 (10) x 2.40 (10)

[[Page 68700]]

cMBBO: \42\ 1.50 (10) x 5.00 (10)
---------------------------------------------------------------------------

    \42\ The cMBBO is calculated using the MBBO for each component 
of a complex strategy to establish the best net bid and offer for a 
complex strategy on the Exchange.
---------------------------------------------------------------------------

cNBBO: 1.65 (10) x 1.85 (10)

The price protection is:
MSPPV: 2.50
Buy MSPPV: 1.85 + .2.50 = 4.35
Sell MSPPV: 1.65-2.50 =-.85

    Order 1 to sell 10 at 1.90 is received and updates the cMBBO.

cMBBO: 1.50 (10) x 1.90 (10)

    The Exchange receives a new order (Order 2) to buy 30 at the 
Market. For Market Orders the functional limit is the MSPP or 4.35.
    Order 2 buys 10 from Order 1 at $1.90 and initiates the Complex 
Liquidity Exposure Process: Order 2 reprices to its MPC protected price 
of $2.10 (cNBO of 1.85 + 0.25) and is posted at that price on the 
Strategy Book and the cLEP Auction begins.
    During the cLEP Auction the Exchange receives a new order (Order 3) 
to sell 10 at 2.10. This order locks the current same side Book Price 
of $2.10. At the end of the auction, Order 3 sells 10 to Order 2 at 
$2.10, filling Order 3.
    Order 2 reprices to the next MPC protected price of $2.35 (initial 
MPC of 2.10 + 0.25) and is posted at that price on the Strategy Book 
and the next cLEP Auction begins.
    During the next cLEP Auction the Exchange does not receive any 
interest to sell. At the end of the auction Order 2 is reevaluated and 
reprices to the next MPC protected price of 2.60 (previous MPC of 2.35 
+ 0.25) and is posted at that price on the Strategy Book and the next 
cLEP Auction begins.
    During all subsequent cLEP Auctions the Exchange does not receive 
any interest to sell. At the end of each subsequent auction, Order 2 is 
reevaluated and repriced to the next MPC protected price as seen below 
until the MSPP protected price is equal to or less than the MPC 
protected price.

3rd MPC evaluation 2.60 + 0.25 = 2.85
4th MPC evaluation 2.85 + 0.25 = 3.10
5th MPC evaluation 3.10 + 0.25 = 3.35
6th MPC evaluation 3.35 + 0.25 = 3.60
7th MPC evaluation 3.60 + 0.25 = 3.85
8th MPC evaluation 3.85 + 0.25 = 4.10
9th MPC evaluation 4.10 + 0.25 = 4.35

    At the end of the final auction, because the MSPP protected price 
of 4.35 is equal to the MPC protected price of 4.35, Order 2 is not 
repriced to the next MPC and is cancelled subject to MSPP.

cMBBO: 4.35 (10) x 5.00 (10)

    The Exchange proposes to amend Exchange Rule 518(e), Reevaluation, 
to account for the introduction of a protected price in the cLEP 
process. The proposed rule text will provide that, at the conclusion of 
a cLEP Auction, the System will calculate the next potential MPC Price 
for remaining liquidity with an original limit price or protected price 
more aggressive than the existing MPC Price. The next MPC Price will be 
calculated as the MPC Price plus (minus) the next MPC increment for buy 
(sell) orders (the ``New MPC Price''). The System will initiate a cLEP 
Auction for liquidity that would execute or post at a price that would 
violate its New MPC Price. Liquidity with an original limit price or 
protected price less aggressive (lower for a buy order or eQuote, or 
higher for a sell order or eQuote) than or equal to the New MPC Price 
will be posted to the Strategy Book at its original limit price or 
handled in accordance with subsection (c)(2)(ii)-(v) of this Rule. The 
cLEP process will continue until no liquidity remains with an original 
limit price that is more aggressive than its MPC Price. At the 
conclusion of the cLEP process, any liquidity that has not been 
executed will be posted to the Strategy Book at its original limit 
price.
    The Exchange also proposes to amend Rule 518(e), Allocation at the 
Conclusion of a Complex Liquidity Exposure Auction, to provide that 
orders and quotes executed in a cLEP Auction will be allocated first in 
price priority based upon their original limit price, orders subject to 
MSPP are allocated using their protected price, and thereafter in 
accordance with the Complex Auction allocation procedures described in 
subsection (d)(7)(i)-(vi) of this Rule.
Parity Price Protection
    The Exchange proposes to amend paragraph (g), Parity Price 
Protection, of Interpretations and Policies .01 of Exchange Rule 518, 
to provide that Married-Put and Buy-Write interest to sell (sell put 
and sell stock; or sell call and buy stock) that is priced below the 
parity protected price for the strategy will be placed on the Strategy 
Book at the parity protected price for the strategy, or cancelled if 
the Managed Protection Override is enabled. This provision allows the 
Parity Price Protection functionality to operate in conjunction with 
the Managed Protection Override feature which cancels an order when its 
price protection feature is triggered. The Exchange believes that 
offering Members the option to have orders either managed by the 
Exchange or cancelled when a risk protection is triggered gives Members 
greater flexibility and control over their orders while retaining the 
risk protection functionality.
Miscellaneous
    The Exchange proposes to rename paragraph (e), Wide Market 
Conditions, SMAT Events and Halts, of Interpretations and Policies .05 
of Exchange Rule 518, to new paragraph (a), as a result of the removal 
of the preceding paragraphs (a), (b), (c), and (d) from Interpretations 
and Policies .05 of Exchange Rule 518, which have been relocated to new 
proposed Rule 532. Additionally, the Exchange proposes to make a number 
of non-substantive changes in Rule 518 to correct internal cross 
references that have changed as a result of this proposal.
    The Exchange also proposes to amend the definition of ``Book'' in 
Exchange Rule 100 by adding the clarifying term ``simple'' to the 
current definition. The Exchange proposes to define the term ``Book'' 
to mean the electronic book of simple buy and sell orders and quotes 
maintained by the System. When the Exchange introduced complex orders 
the Exchange defined the ``Strategy Book'' \43\ as the Exchange's 
electronic book of complex orders and complex quotes. Additionally, the 
Exchange defined the ``Simple Order Book'' \44\ as the Exchange's 
regular electronic book of orders and quotes in Rule 518. The Exchange 
believes its proposal to amend the definition provided in Exchange Rule 
100 adds clarity to the definition regarding which book of orders and 
quotes is being referenced.
---------------------------------------------------------------------------

    \43\ See Exchange Rule 518(a)(17).
    \44\ See Exchange Rule 518(a)(15).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \45\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \46\ 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.
---------------------------------------------------------------------------

    \45\ 15 U.S.C. 78f(b).
    \46\ 15 U.S.C. 78f(b)(5).

---------------------------------------------------------------------------

[[Page 68701]]

Managed Protection Override
    The Exchange believes that the Managed Protection Override feature 
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 a mechanism by which Members may determine the 
way their orders are handled when a risk protection is triggered. The 
Exchange believes that it has an effective way to manage orders on the 
Exchange so that they do not execute at potentially erroneous prices, 
however the Exchange believes that giving Members the option to have 
their orders cancelled if a risk protection is triggered protects 
investors and the public interest. Members can make a decision on what 
to do with their order based on the then current market conditions and 
may choose to re-submit the order at the same or different limit price. 
Specifically, the Exchange believes the proposed change will remove 
impediments to and perfect the mechanisms of a free and open market by 
providing market participants with the option to either manage their 
own orders or have the Exchange manage their orders when a price 
protection is triggered which will promote fair and orderly markets, 
increase overall market confidence, and promote the protection of 
investors.
Max Put Price Protection
    The Exchange believes that the Max Put Price Protection feature 
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 a risk protection mechanism to prevent trades 
from occurring at potentially unwanted or erroneous prices. 
Additionally, the Exchange believes that making this risk protection 
feature eligible for the Managed Protection Override feature benefits 
Members as it gives them the option to have their order cancelled if 
the Max Put Price protection is triggered and the Managed Protection 
Override feature is enabled. Cancelling orders back to Members allows 
them to make a decision on what to do with their order based on the 
then current market conditions and a Member may choose to re-submit the 
order at the same or different limit price. Specifically, the Exchange 
believes the proposed change will remove impediments to and perfect the 
mechanism of a free and open market by providing market participants 
with the option to either manage their own orders or have the Exchange 
manage their orders when a price protection is triggered which will 
promote fair and orderly markets, increase overall market confidence, 
and promote the protection of investors.
Butterfly Spread Price Variance (``BSV'') Price Protection
    The Exchange believes that the Butterfly Spread Price Variance 
(``BSV'') Price Protection feature 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 a risk 
protection mechanism that will establish minimum and maximum trading 
values to prevent an order from trading at a potentially unwanted or 
erroneous price.
    Additionally, the Exchange believes that making the Butterfly 
Spread Price Variance (``BSV'') Price Protection eligible for the 
Managed Protection Override feature benefits Members as it gives them 
the option to have their order cancelled if the Butterfly Spread Price 
Variance Price Protection is triggered and the Managed Protection 
Override feature is enabled. Cancelling orders back to Members allows 
them to make a decision on what to do with their order based on the 
then current market conditions and a Member may choose to re-submit the 
order at the same or different limit price. Specifically, the Exchange 
believes the proposed change will remove impediments to and perfect the 
mechanism of a free and open market by providing market participants 
with the option to either manage their own orders or have the Exchange 
manage their orders when a price protection is triggered which will 
promote fair and orderly markets, increase overall market confidence, 
and promote the protection of investors.
Calendar Spread Variance (``CSV'') Price Protection
    The Exchange believes that amending the Calendar Spread Price 
Variance (``CSV'') Price Protection feature to enable the Managed 
Protection Override feature 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 Members the option of 
having the Exchange manage their order when a price protection is 
triggered, or having their order cancelled when a price protection is 
triggered, if the Managed Protection Override is enabled. The Exchange 
believes cancelling an order in this scenario benefits Members as it 
allows them to make a decision on what to do with their order based on 
the then current market conditions and a Member may choose to re-submit 
the order at the same or different limit price. Specifically, the 
Exchange believes the proposed change will remove impediments to and 
perfect the mechanism of a free and open market by providing market 
participants with the option to either manage their own orders or have 
the Exchange manage their orders when a price protection is triggered 
which will promote fair and orderly markets, increase overall market 
confidence, and promote the protection of investors.
    The Exchange believes amending the rule text to clarify the 
operation of the rule and to harmonize the rule text to that of the 
Vertical Spread Variance (``VSV'') and Butterfly Spread Variance 
(``BSV'') Price Protections promotes the protection of investors by 
having similar rule text and similar behavior for similar price 
protections which provides clarity and consistency within the 
Exchange's rulebook. A clear and concise rulebook benefits investors 
and the public interest as it reduces the chance for confusion 
regarding the operation of price protection functionality.
Vertical Spread Variance (``VSV'') Price Protection
    The Exchange believes that amending the Vertical Spread Price 
Variance (``VSV'') Price Protection feature to enable the Managed 
Protection Override feature 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 Members the option of 
having the Exchange manage their order when a price protection is 
triggered, or having their order cancelled, when a price protection is 
triggered, if the Managed Protection Override is enabled. The Exchange 
believes cancelling an order in this scenario benefits Members as it 
allows them to make a decision on what to do with their order based on 
the then current market conditions and a Member may choose to re-submit 
the order at the same or different limit price. Specifically, the 
Exchange believes the proposed change will remove impediments to and 
perfect the mechanism of a free and open market by providing market 
participants with the

[[Page 68702]]

option to either manage their own orders or have the Exchange manage 
their orders when a price protection is triggered which will promote 
fair and orderly markets, increase overall market confidence, and 
promote the protection of investors.
    The Exchange believes amending the rule text to clarify the 
operation of the rule and to harmonize the rule text to that of the 
Calendar Spread Variance (``CSV'') and Butterfly Spread Variance 
(``BSV'') Price Protections promotes the protection of investors by 
having similar rule text and similar behavior for similar price 
protections which provides clarity and consistency within the 
Exchange's rulebook. A clear and concise rulebook benefits investors 
and the public interest as it reduces the chance for confusion 
regarding the operation of price protection functionality.
MIAX Strategy Price Protection (``MSPP'')
    The Exchange believes that the adoption of the MIAX Strategy Price 
Protection (``MSPP'') promotes just and equitable principles of trade, 
and facilitates transactions in securities, remove [sic] 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 an order price protection that establishes a 
minimum and maximum trading value to prevent potentially unwanted or 
erroneous executions from occurring. The Exchange believes that when 
the MSPP is priced less aggressively than the limit price of the 
complex order that executing the order, up to an including its MSPP for 
buy orders, or down to and including its MSPP for sell orders, and 
cancelling any unexecuted portion of the order, protects investors and 
the public interest. Cancelling orders back to Members allows them to 
make a decision on what to do with their order based on the then 
current market conditions and a Member may choose to re-submit the 
order at the same or different limit price. Specifically, the Exchange 
believes the proposed change will remove impediments to and perfect the 
mechanism of a free and open market by providing market participants 
with the option to either manage their own orders or have the Exchange 
manage their orders when a price protection is triggered which will 
promote fair and orderly markets, increase overall market confidence, 
and promote the protection of investors.
Parity Price Protection
    The Exchange believes that amending Interpretations and Policies 
.01(g), Parity Price Protection, of Exchange Rule 518, to operate in 
conjunction with the Managed Protection Override feature promotes just 
and equitable principles of trade, and facilitates transactions in 
securities, 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 Members 
greater flexibility and control over their orders if the Parity Price 
Protection is triggered. The Exchange believes that making this risk 
protection feature eligible for the Managed Protection Override feature 
benefits Members as it gives them the option to have their order 
cancelled if the Parity Price Protection is triggered and the Managed 
Protection Override feature is enabled. Cancelling orders back to 
Members allows them to make a decision on what to do with their order 
based on the then current market conditions and a Member may choose to 
re-submit the order at the same or different limit price. Specifically, 
the Exchange believes the proposed change will remove impediments to 
and perfect the mechanism of a free and open market by providing market 
participants with the option to either manage their own orders or have 
the Exchange manage their orders when a price protection is triggered 
which will promote fair and orderly markets, increase overall market 
confidence, and promote the protection of investors.
Miscellaneous
    The Exchange believes that amending the definition of ``Book'' 
promotes just and equitable principles of trade, fosters cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, 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 a 
clarifying term to the existing definition. In particular, the Exchange 
believes that the proposed change will provide greater clarity to 
Members and the public regarding the Exchange's Rules. It is in the 
public interest for rules to be accurate and concise so as to eliminate 
the potential for confusion.
    The Exchange believes the proposed change to correct internal cross 
references within the Exchange's Rulebook 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 proposal ensures that the Exchange's rules are accurate. 
The Exchange notes that the proposed changes to correct internal cross 
references and to make minor non-substantive edits does not alter the 
application of each rule. As such, the proposed amendments would foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities and would remove impediments to and perfect 
the mechanism of a free and open market and national exchange system. 
In particular, the Exchange believes that the proposed rule changes 
will provide greater clarity to Members and the public regarding the 
Exchange's Rules. 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 proposal 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 new price 
protection features for MIAX Members. Additionally, the description of 
the System's functionality is designed to promote just and equitable 
principles of trade by providing a clear and accurate description to 
all participants of how the price protection process is applied and 
should assist investors in making decisions concerning their orders. 
Further, the Exchange believes that the price protection features and 
functionality provides market participants with an appropriate level of 
risk protection to their orders and contributes to the maintenance of a 
fair and orderly market.

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.
    Specifically, the Exchange does not believe that the proposed 
changes will impose any burden on intra-market competition as the rules 
of the Exchange apply equally to all MIAX participants. The price 
protections are available for any MIAX Member that submits orders or 
quotes to the Exchange. Any MIAX Member that submits a complex order to 
the Exchange will benefit from the risk protections proposed herein. 
Further any MIAX Member that seeks to buy or sell a put will be 
afforded the MAX Put

[[Page 68703]]

Price protection. Additionally, any Member may elect to enable the 
Managed Protection Override feature to allow the Exchange to cancel 
their orders when a risk protection is triggered.
    In addition, the Exchange does not believe the proposal will impose 
any burden on inter-market competition as the proposal is intended to 
protect investors by providing additional price protection 
functionality and further enhancements and transparency to the 
Exchange's risk protections. The Exchange's proposal may promote inter-
market competition as the Exchange's proposal adds additional price 
protection features and functionality that may attract additional order 
flow to the Exchange, thereby promoting inter-market competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be 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-2021-58 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-2021-58. 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-2021-58, and should be submitted on 
or before December 27, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\47\
---------------------------------------------------------------------------

    \47\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-26241 Filed 12-2-21; 8:45 am]
BILLING CODE 8011-01-P

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