Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing of Amendment Nos. 1 and 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To Adopt Exchange Rule 532, Order and Quote Price Protection Mechanisms and Risk Controls, 13339-13350 [2022-04921]
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Federal Register / Vol. 87, No. 46 / Wednesday, March 9, 2022 / Notices
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. FINRA
believes that extending the April 26,
2022 implementation date to October
26, 2022, pending further Commission
action on the Proposed Amendments,
will help to provide clarity to industry
participants and to promote stability in
the Covered Agency Transaction market,
thereby benefiting all parties.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 13 and Rule 19b–
4(f)(6) thereunder.14
A proposed rule change filed under
Rule 19b–4(f)(6) 15 normally does not
become operative for 30 days after the
date of filing. However, pursuant to
Rule 19b–(f)(6)(iii),16 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest.
FINRA has requested that the
Commission waive the 30-day operative
delay so that the proposal may become
operative upon filing. FINRA has stated
that the proposed rule change will help
to provide clarity to industry
participants and to promote stability in
the Covered Agency Transaction market
pending further Commission Action on
the Proposed Amendments.
The Commission believes that
waiving the 30-day operative delay is
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13 15
U.S.C. 78s(b)(3)(A).
14 17 CFR 240.19b–4(f)(6).
15 17 CFR 240.19b–4(f)(6).
16 17 CFR 240.19b–4(f)(6)(iii). In addition, Rule
19b–4(f)(6)(iii) requires a self-regulatory
organization to give the Commission written notice
of its intent to file the proposed rule change, along
with a brief description and text of the proposed
rule change, at least five business days prior to the
date of filing of the proposed rule change, or such
shorter time as designated by the Commission.
FINRA has satisfied this requirement.
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consistent with the protection of
investors and the public interest
because the proposal to extend the
implementation date of the amendments
to Rule 4210 pursuant to SR–FINRA–
2015–036 (other than the amendments
pursuant to SR–FINRA–2015–036 that
were implemented on December 15,
2016) does not raise any new or novel
issues and will reduce any potential
uncertainty in the Covered Agency
Transaction market. Therefore, the
Commission hereby waives the 30-day
operative delay requirement and
designates the proposed rule change as
operative upon filing.17
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
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
a.m. and 3 p.m. Copies of such filing
also will be available for inspection and
copying at the principal office of
FINRA.
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–FINRA–2022–003
and should be submitted on or before
March 30, 2022.
IV. Solicitation of Comments
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
J. Matthew DeLesDernier,
Assistant Secretary.
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
FINRA–2022–003 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–FINRA–2022–003. 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
17 For purposes of waiving the 30-day operative
delay, the Commission has also considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
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[FR Doc. 2022–04920 Filed 3–8–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–94353; File No. SR–MIAX–
2021–58]
Self-Regulatory Organizations; Miami
International Securities Exchange,
LLC; Notice of Filing of Amendment
Nos. 1 and 2 and Order Granting
Accelerated Approval of a Proposed
Rule Change, as Modified by
Amendment Nos. 1 and 2, To Adopt
Exchange Rule 532, Order and Quote
Price Protection Mechanisms and Risk
Controls
March 3, 2022.
I. Introduction
On November 16, 2021, Miami
International Securities Exchange, LLC
(‘‘MIAX Options’’ or the ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (the ‘‘Commission’’),
pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
18 17
1 15
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
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Federal Register / Vol. 87, No. 46 / Wednesday, March 9, 2022 / Notices
‘‘Act’’),2 and Rule 19b–4 thereunder,3 a
proposed rule change to amend
Exchange Rules 100 and 518 and to
adopt new Exchange Rule 532, ‘‘Order
and Quote Price Protection Mechanisms
and Risk Controls.’’ The proposed rule
change was published for comment in
the Federal Register on December 3,
2021.4 The Commission received no
comment letters regarding the proposal.
On January 13, 2022, pursuant to
Section 19(b)(2) of the Act,5 the
Commission designated a longer period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to approve or
disapprove the proposed rule change.6
On February 22, 2022, the Exchange
filed Amendment No. 1 to the proposal,
which amends and replaces the original
filing in its entirety.7 On March 2, 2022,
the Exchange filed Amendment No. 2 to
the proposal.8 The Commission is
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2 15
U.S.C. 78a.
3 17 CFR 240.19b–4.
4 See Securities Exchange Act Release No. 93676
(November 29, 2021), 86 FR 68695.
5 15 U.S.C. 78s(b)(2).
6 See Securities Exchange Act Release No. 93972
(January 13, 2022), 87 FR 3137 (January 20, 2022).
The Commission designated March 3, 2022, as the
date by which the Commission shall approve or
disapprove, or institute proceedings to determine
whether to approve or disapprove, the proposed
rule change.
7 Amendment No. 1 modifies the original filing to
(1) indicate that, if enabled, the proposed Managed
Protection Override will apply to all of the risk
protections listed in proposed Exchange Rule 532;
(2) revise the Max Put Price Protection for Simple
Orders to indicate that an offer eQuote greater than
the maximum trading price limit will be cancelled;
(3) add clarifying detail to the proposed definition
of Butterfly Spread and revise the proposed
Butterfly Spread Variance Price Protection to
describe the treatment of orders and eQuotes limit
priced outside the minimum and maximum trading
price limits in the proposed rule; (4) revise the
Calendar Spread Variance Price Protection to
describe the treatment of buy orders and bid
eQuotes priced less than the minimum trading price
limit in the proposed rule; (5) revise the Vertical
Spread Price Protection to describe the treatment of
orders and eQuotes priced outside the minimum
and maximum trading price limits in the proposed
rule; (6) revise the proposed MIAX Strategy Price
Protection to indicate that complex orders with a
time-in-force of Day or GTC are eligible for the
protection; (7) add clarifying detail to the Market
Maker Single Side Protection; (8) add Interpretation
and Policy .01 to proposed Exchange Rule 532,
which states that the System will apply the most
conservative price protection to an order when an
order is eligible for multiple price protections; (9)
make non-substantive grammatical changes to the
text of the proposed rules; (10) more clearly identify
rules that the proposal will relocate to new
proposed Exchange Rule 532 without substantive
changes; and (11) describe the Exchange’s rationale
for the pre-set value the Exchange will use in the
proposed MIAX Strategy Price Protection Variance.
Amendment No. 1 is available at https://
www.sec.gov/comments/sr-miax-2021-58/
srmiax202158.htm.
8 Amendment No. 2 revises the proposal to
describe the application of the proposed MIAX
Strategy Price Protection applies to complex market
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publishing this notice to solicit
comment on Amendment Nos. 1 and 2
to the proposed rule change from
interested persons and is approving the
proposed rule change, as modified by
Amendment Nos. 1 and 2, on an
accelerated basis.
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; and
paragraph (f), Complex MIAX Options
Price Collar 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;
and section (b)(7), Implied Away Best
Bid or Offer (‘‘ixABBO’’) Price
orders. Amendment No. 2 is available at https://
www.sec.gov/comments/sr-miax-2021-58/
srmiax202158.htm.
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Protection. The Exchange also proposes
to relocate paragraph (g), Market Maker
Single Side Protection, from
Interpretations and Policies .05 of
Exchange Rule 518 to new proposed
Rule 532 as section (b)(8), Market Maker
Single Side Protection. The Exchange
also proposes to make a minor nonsubstantive edit to the rule text of
Market Maker Single Side Protection.
The Exchange proposes to adopt new
Interpretations and Policies .01, to new
proposed Rule 532 to state that, when
an order is eligible for multiple price
protections the System 9 will apply the
most conservative.
The Exchange proposes to amend
Exchange Rule 100, Definitions to insert
a clarifying term to the definition of
‘‘Book.’’ 10
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 11 in October, 2016.12 As part of
its effort to continue to build out its
complex order market segment the
Exchange has continued to add order
types 13 and functionality. To encourage
Members 14 to send complex orders to
9 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
10 The term ‘‘Book’’ means the electronic book of
buy and sell orders and quotes maintained by the
System. See Exchange Rule 100.
11 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).
12 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).
13 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-onArrival-Only ‘‘cAOAO’’ order type).
14 The term ‘‘Member’’ means an individual or
organization approved to exercise the trading rights
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Federal Register / Vol. 87, No. 46 / Wednesday, March 9, 2022 / Notices
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.
Proposal
Managed Protection Override
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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
has been 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).15 Additionally, when the
Parity Price Protection is triggered the
default behavior is to place the order on
the Strategy Book 16 at its parity
protected price.17 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.
associated with a Trading Permit. Members are
deemed ‘‘members’’ under the Exchange Act. See
Exchange Rule 100.
15 See Interpretations and Policies .05(c) of
Exchange Rule 518.
16 The ‘‘Strategy Book’’ is the Exchange’s
electronic book of complex orders and complex
quotes. See Exchange Rule 518(a)(17).
17 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 18
by establishing a maximum price at
which a put option may trade.19 To
determine the maximum price the
Exchange will add a pre-set value, the
Put Price Variance,20 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. Buy orders that are
priced through the maximum trading
price limit will trade up to, and
including, the maximum trading price
limit, and will then be placed on the
Book and managed to the appropriate
trading price limit as described in Rule
515(c)(1)(ii), or cancelled if the Managed
Protection Override (‘‘MPO’’) is enabled.
Sell orders that are priced higher than
the maximum trading price limit will be
rejected.
A bid quote through the maximum
trading price limit will trade up to, and
including, the maximum trading price
limit, then will be placed on the Book
and managed to the appropriate trading
price limit as described in Rule
515(c)(1)(ii), or in the case of a bid
eQuote,21 will be cancelled.22 An offer
quote greater than the maximum trading
18 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.
19 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).
20 The proposed pre-set value for the Put Price
Variance will be $0.10 to align to other similar price
protections on the Exchange and will apply to all
classes. 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.
21 The Exchange offers two different types of
quotes for use in its simple market: A Standard
quote, which is submitted by a Market Maker that
cancels and replaces the Market Maker’s previous
Standard quote, if any; and an eQuote which is a
quote with a specific time in force that does not
automatically cancel and replace a previous
Standard quote or eQuote. An eQuote can be
cancelled by the Market Maker at any time, or can
be replaced by another eQuote that contains
specific instructions to cancel an existing eQuote.
See Exchange Rule 517(a)(1) and (2).
22 Currently, eQuotes offered on the Exchange do
not have a time in force setting that would allow
them to be managed. See Exchange Rule 517(a)(2).
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13341
price limit is not rejected and will be
placed on the Book and displayed. An
offer eQuote greater than the maximum
trading price limit will be cancelled.
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 23 0.50 (10) × 5.50 (10)
The price protection is:
Put Price Variance (PPV) = $0.10
Max Put Price Protection = (Strike +
PPV) = $5.10
The Max Put Price Protection
establishes the maximum trading price
limit at which an order can trade.
Because the Buy Order is priced through
the Max Put Price Protection of $5.10,
the order is subject to management
pursuant to 515(c)(1)(ii) and is posted to
the order book at $5.10.
MBBO 5.10 (10) × 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) × 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 is 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
A Quote to Sell 10 XYZ Jan 5 Put @
$5.25 is received.
The current market is:
23 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).
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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)
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The Exchange treats orders and quotes
differently on the Exchange as orders
may only be submitted by Electronic
Exchange Members (‘‘EEMs’’) 24 and
quotes may only be submitted by Market
Makers 25 on the Exchange. Market
Makers have heightened obligations on
the Exchange including the requirement
to provide continuous two sided quotes
under Exchange Rule 604(e),26 and as
such the Exchange minimizes the times
it will cancel Market Maker quotes.
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. If the Managed Protection
Override is enabled the Exchange will
return the unexecuted order to the
Member for further analysis and
evaluation. If the Managed Protection
Override is not enabled the Exchange
will manage the unexecuted order on
behalf of the Member.
24 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.
25 The term ‘‘Market Makers’’ refers to ‘‘Lead
Market Makers’’, ‘‘Primary Lead Market Makers’’
and ‘‘Registered Market Makers’’ collectively. See
Exchange Rule 100.
26 A Primary Lead Market Maker must provide
continuous two-sided Standard quotes and/or Day
eQuotes, which for the purpose of paragraph (e) of
Rule 604 which shall mean 90% of the time, for the
options classes to which it is appointed. See
Exchange Rule 604(e)(1)(i); A Lead Market Maker
must provide continuous two-sided Standard
quotes and/or Day eQuotes, which for the purpose
of paragraph (e) of Rule 604 which shall mean 90%
of the time, for the option classes to which it is
appointed. See Exchange Rule 604(e)(2)(i); A
Registered Market Maker must provide continuous
two-sided Standard quotes and/or Day eQuotes
throughout the trading day in 60% of the nonadjusted series that have a time to expiration of less
than nine months in each of its appointed classes.
For the purpose of paragraph (e) of Rule 604 which,
continuous two-sided quoting shall mean 90% of
the time, for the options classes to which the
Registered Market Maker is appointed. See
Exchange Rule 604(e)(3)(i).
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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 27 (puts)
and one leg to sell (buy) twice the
number of calls (puts), all legs have the
same expiration date but different
exercise prices, and the exercise price of
the middle leg is between the exercise
prices of the other legs. The strike price
of each leg is equidistant from the next
sequential strike price.28
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
27 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.
28 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 Cboe Exchange Rule
5.34(b)(1)(B).
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Sell 2 XYZ April 55 Calls
Buy 1 FYX April 60 Call
The Exchange will determine a
Butterfly Spread Variance which
establishes minimum and maximum
trading price limits for Butterfly
Spreads. The minimum value of a
Butterfly Spread is zero and the
maximum value is capped at the
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 price limits, a
configurable pre-set value is added to
the maximum value of the Butterfly
Spread and subtracted from the
minimum value of the Butterfly Spread.
The pre-set value will be determined by
the Exchange and communicated to
Members via Regulatory Circular.29 The
minimum and maximum trading price
limits are used together to create an
allowable trading range for the Butterfly
Spread.
If the execution price of a complex
order would be outside of the minimum
and maximum trading price limits (bid
higher than the maximum trading price
limit or offer lower than the minimum
trading price limit), such complex order
will trade up to, and including the
maximum trading price limit for bids or
down to, and including, the minimum
trading price limit for offers. 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.
By establishing minimum and
maximum trading price limits the
Exchange can then evaluate the
reasonableness of the prices of orders
and eQuotes against these limits. The
Exchange will reject an order, or cancel
an eQuote, if the price is determined to
be unreasonable relative to the
minimum or maximum trading price
limit. Buy orders with a limit price less
than the minimum trading price limit
will be rejected. Bid eQuotes with a
limit price less than the minimum
trading price limit will be cancelled.
Sell orders with a limit price greater
than the maximum trading price limit
will be rejected. Offer eQuotes with a
limit price greater than the maximum
trading price limit will be cancelled.
29 The Exchange proposes to use a pre-set value
of $0.10 for Butterfly Spreads which will apply to
all classes to align to the pre-set value which is used
on the Exchange for Calendar Spreads and Vertical
Spreads. See supra note 24.
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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 × $16.00
April 55 Call MBBO: $6.00 × $11.00
April 60 Call MBBO: $1.00 × $6.00
The maximum spread value is the
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 limit is then $5.10 and
the minimum allowable price limit 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)
restructure the rule text for internal
consistency with other similar price
protections in the Exchange’s rules (BSV
and VSV); (iii) make clarifying changes
to the rule text; and (iv) amend the rule
text to enable the operation of the
Managed Protection Override.
Currently, paragraph (b) of
Interpretation and Policy .05 of Rule
518, Calendar Spread Variance (‘‘CSV’’)
Price Protection, provides that, a
‘‘Calendar Spread’’ is a complex strategy
consisting of the purchase of one call
(put) option and the sale of another call
(put) option overlying the same security
that have different expirations but the
same strike price. The CSV establishes
a minimum trading price limit for
Calendar Spreads. Current subparagraph
(1) provides that, the maximum possible
value of a Calendar Spread is unlimited,
thus there is no maximum price
protection for Calendar Spreads. The
minimum possible trading price limit of
a Calendar Spread is zero minus a preset value. Current subparagraph (2)
provides that, the pre-set value will be
uniform for all option classes traded on
the Exchange as determined by the
Exchange and communicated to
Members via Regulatory Circular.
Current subparagraph (3) provides that,
CSV Price Protection applies only to
strategies in American-style option
classes. Current paragraph (c) of
Interpretation and Policy .05 of Rule 518
provides that, if the execution price of
a complex order would be outside of the
limits set forth in subparagraphs (a)(1)
and (b)(1) of this Interpretations and
Policies .05, such complex order will be
placed on the Strategy Book and will be
managed to the appropriate trading
price limit as described in subparagraph
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(c)(4) of Rule 518. Orders to buy below
the minimum trading price limit and
orders to sell above the maximum
trading price limit (in the case of
Vertical Spreads) will be rejected by the
System.
The Exchange now proposes to
relocate Calendar Spread Variance
(‘‘CSV’’) Price Protection from
Interpretations and Policies .05(b) of
Rule 518 to paragraph (b)(3) of new
proposed Rule 532 and to restructure
the rule text for internal consistency
with other similar price protections in
the Exchange’s rules. Specifically, the
Exchange proposes to relocate current
paragraph (1) of the rule to new
proposed subparagraph (i) 30 of the rule,
without change. The Exchange proposes
to adopt new subparagraph (ii) to new
proposed Rule 532(b)(3) to clarify the
operation of the price protection. New
subparagraph (ii) will state that, if the
execution price of a complex order
would be outside of the limit set forth
in subparagraph (i) of this rule (offers
lower than the minimum trading price
limit), such complex order will trade
down to, and including, the minimum
trading price limit. 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. Further,
the Exchange proposes to adopt new
subparagraph (iii) which will provide
that, buy orders with a limit price less
than the minimum trading price limit
will be rejected. Bid eQuotes with a
limit price less than the minimum
trading price limit will be cancelled.
The Exchange proposes to relocate
current paragraph (3) of Interpretations
and Policies .05(b) of Rule 518 to new
subparagraph (iv) and current paragraph
(2) of Interpretations and Policies .05(b)
of Rule 518 to new subparagraph (v) of
proposed Rule 532(b)(3), in their
entirety and without modification.
13343
Vertical Spread Variance (‘‘VSV’’) Price
Protection
The Exchange proposes to (i) relocate
Vertical Spread Variance (‘‘VSV’’) Price
Protection from Rule 518; (ii) restructure
the rule text for internal consistency
with other similar price protections in
the Exchange’s rules (BSV and CSV);
(iii) make clarifying changes to the rule
text; and (iv) amend the rule text to
enable the operation of the Managed
Protection Override.
Currently, paragraph (a) of
Interpretation and Policy .05 of Rule
518, Vertical Spread Variance (‘‘VSV’’)
Price Protection, provides that, 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 VSV
establishes minimum and maximum
trading price limits for Vertical Spreads.
Current subparagraph (1) provides, the
maximum possible trading price limit of
the VSV is the difference between the
two component strike prices plus a preset value. For example, a Vertical
Spread consisting of the purchase of one
January 30 call and the sale of one
January 35 call would have a maximum
trading price limit of $5.00 plus a preset value. The minimum possible
trading price limit of a Vertical Spread
is always zero minus a pre-set value.
Current subparagraph (2) provides that,
the pre-set value will be uniform for all
option classes traded on the Exchange
as determined by the Exchange and
communicated to Members via
Regulatory Circular.
The Exchange now proposes to
relocate paragraph (a), Vertical Spread
Variance (‘‘VSV’’) Price Protection, from
Interpretations and Policies .05(a) of
Rule 518 to paragraph (b)(4) of new
proposed Rule 532. The Exchange
proposes to bifurcate the current rule
text of paragraph (a) by adding the
definition of a Vertical Spread to the
Definitions section of proposed Rule
532, and retaining the rule text that
states, the VSV establishes minimum
and maximum trading price limits for
Vertical Spreads.
The Exchange proposes to adopt new
subparagraph (i) 31 to new proposed
Rule 532(b)(4) which will state that, the
maximum possible trading price limit of
the VSV is the difference between the
two component strike prices plus a preset value. For example, a Vertical
Spread consisting of the purchase of one
January 30 call and the sale of one
January 35 call would have a maximum
trading price limit of $5.00 plus a preset value. The minimum possible
trading price limit of a Vertical Spread
is always zero minus a pre-set value.
The Exchange proposes to adopt new
subparagraph (ii) to state that, if the
execution price of a complex order
would be outside of the limits set forth
in subparagraph (i) of this rule (bid
higher than the maximum trading price
limit or offer lower than the minimum
trading price limit), such complex order
30 The Exchange notes that proposed
subparagraph (i) is identical to current paragraph
(1) of Interpretations and Policies .05(b) of
Exchange Rule 518.
31 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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will trade up to, and including, the
maximum trading price limit for bids or
down to, and including, the minimum
trading price limit for offers. 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. Further, the Exchange proposes
to adopt new subparagraph (iii) which
will provide that, buy orders with a
limit price less than the minimum
trading price limit will be rejected. Bid
eQuotes with a limit price less than the
minimum trading price limit will be
cancelled. Sell orders with a limit price
greater than the maximum trading price
limit will be rejected. Offer eQuotes
with a limit price greater than the
maximum trading price limit will be
cancelled.
The Exchange proposes to relocate
current subparagraph (2) of
Interpretations and Policies .03(a) of
Rule 518 to new subparagraph (iv) of
proposed Rule 532(b)(4), in its entirety
and without modification.
jspears on DSK121TN23PROD with NOTICES1
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’’), to the offer side
value of the cNBBO 32 (or the offer side
of the dcMBBO 33 if the cNBBO is
crossed).34 To determine the minimum
protected price for sell orders the
Exchange will subtract the MSPPV
value from the bid side value of the
cNBBO, (or the bid side of the dcMBBO
if the cNBBO is crossed). The MSPPV
value will be determined by the
Exchange and communicated to
32 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).
33 The dcMBBO is calculated using the best
displayed price for each component of a complex
strategy from the Simple Order Book. For stockoption orders, the dcMBBO for a complex strategy
will be calculated using the Exchange’s best
displayed bid or offer in the individual option
component(s) and the NBBO in the stock
component. See Exchange Rule 518(a)(8).
34 A complex strategy is not evaluated until all
the components of the complex strategy are open
on the Simple Order Book. Therefore, a dcMBBO
will always be available as the System prevents the
Simple Order Book from displaying a locked or
crossed market. See Exchange Rule 518(c)(2)(i).
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Members via Regulatory Circular.35 For
market orders 36 the functional limit will
be the MSPP. Complex orders with a
time in force of Day 37 or GTC 38 are
eligible for the MIAX Strategy Price
Protection. 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), or if
the order is a complex market order, the
order will be (i) executed up to, and
including, its MSPP for buy orders; or
(ii) 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 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
2018.39 The cLEP process was designed
for complex orders and complex
35 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 and aligns to other
price protections on the Exchange. See Exchange
Rule 518 Interpretations and Policies .06.
36 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).
37 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).
38 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).
39 See Securities Exchange Act Release No. 85155
(February 15, 2019), 84 FR 5739 (February 22, 2019)
(SR–MIAX–2018–36).
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eQuotes that violate their Complex
MIAX Price Collar (‘‘MPC) price.40 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’’).41 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.42 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.43
A complex order or complex eQuote
that would violate its MPC Price begins
a cLEP Auction.44 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.45 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
40 The Exchange notes that there are no changes
to the Complex MIAX Price Collar functionality
under this proposal.
41 See Exchange Rule 518.05(f).
42 See Exchange Rule 518.05(f)(3).
43 See Exchange Rule 518.05(f)(5).
44 See Exchange Rule 518(e).
45 Id.
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will be subject to the Reevaluation
Process.46
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 47 component A: 4.05(10) ×
4.15(10)
NBBO component B: 2.30(10) × 2.40(10)
cMBBO: 48 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
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46 Id.
47 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).
48 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.
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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 as Order 2 was a market order.49
cMBBO: 4.35 (10) × 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
49 See
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13345
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. Currently the rule
states that, orders and quotes executed
in a cLEP Auction will be allocated first
in price priority based upon their
original limit price, and thereafter in
accordance with the Complex Auction
allocation procedures described in
subsection (d)(7)(i)–(vi) of this Rule. The
Exchange now proposes to amend this
provision to state that orders subject to
MSPP are allocated using their
protected price. As proposed the
amended rule will state 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,
Interpretations and Policies .01 of
Exchange Rule 518, to incorporate the
Managed Protection Override feature.
Currently the rule text states, MarriedPut 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. The
Exchange proposes to amend this
sentence 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
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while retaining the risk protection
functionality.
The Exchange proposes to adopt
Interpretations and Policies .01 to
proposed Rule 532, to state that, when
an order is eligible for multiple price
protections the System will apply the
most conservative. The Exchange offers
a number of price protections in the
System, for example, if a limit order to
buy a non-proprietary product had
indicated a price protection 50 for the
order at 5 MPVs 51 from the NBBO at the
time of receipt and the NBBO for the
XYZ Jan 5 put was 4.80 × 5.10 the price
protection would not let the order trade
at more than 5.35, however, in this
instance the proposed Max Put Price
Protection would be applied and the
order would not trade higher than 5.10,
which is the more conservative of the
price protections. The Exchange
believes that this change promotes the
protection of investors as it protects
investors from executions at undesirable
prices.
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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’’ 52 as the Exchange’s electronic
book of complex orders and complex
quotes. Additionally, the Exchange
defined the ‘‘Simple Order Book’’ 53 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
50 See
Exchange Rule 515(c)(1).
Exchange Rule 510.
52 See Exchange Rule 518(a)(17).
53 See Exchange Rule 518(a)(15).
17:44 Mar 08, 2022
2. Statutory Basis
The Exchange believes that its
proposed rule change is consistent with
Section 6(b) of the Act 55 in general, and
furthers the objectives of Section 6(b)(5)
of the Act 56 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
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
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 mechanism 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
54 See Interpretations and Policies .05(g) of
Exchange Rule 518.
55 15 U.S.C. 78f(b).
56 15 U.S.C. 78f(b)(5).
51 See
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regarding which book of orders and
quotes is being referenced.
The Exchange proposes to make a
minor non-substantive edit to the rule
text of Market Maker Single Side
Protection (proposed Rule 532(b)(8)).
Currently, the rule text provides that,
when triggered, the System will cancel
all complex Standard quotes and block
all new inbound complex Standard
quotes and cIOC eQuotes for that
particular side of that strategy for that
MPID. The System will provide a
notification message to the Market
Maker.54 The Exchange now proposes to
expand on the previously mentioned
sentence to read, the System will
provide a notification message to the
Market Maker that the protection has
been triggered. The Exchange believes
that this amendment provides
additional detail and clarity regarding
the operation of the rule.
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and the public interest. When the
Exchange cancels an order, a Member
can make a decision on what to do with
that 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
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.
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 mechanism 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 Variance (‘‘BSV’’) Price
Protection
The Exchange believes that the
Butterfly Spread Variance (‘‘BSV’’) Price
Protection feature promotes just and
equitable principles of trade, removes
impediments to and perfects the
mechanism of a free and open market
and a national market system and, in
general, protects investors and the
public interest by providing a risk
protection mechanism that will
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establish minimum and maximum
trading limits to prevent an order from
trading at a potentially unwanted or
erroneous price.
Additionally, the Exchange believes
that making the Butterfly Spread
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
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 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 mechanism 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.
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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 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 mechanism 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 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.
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13347
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 impediments to and perfects the
mechanism of a free and open market
and a national market system and, in
general, protects investors and the
public interest, by 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, or
complex market order [sic], that
executing the order, up to an [sic]
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 mechanism 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
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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 mechanism 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 that relocating
the Implied Away Best bid or Offer
(‘‘ixABBO’’) Price Protection and the
Complex MIAX Options Price Collar
Protection from Interpretations and
Policies .05 of Exchange Rule 518 to
new proposed Rule 532 in their entirety
and without modification 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
and, in general, protects investors and
the public interest by organizing and
consolidating risk protections into a
single Rule. The Exchange believes that
organizing and consolidating the
Exchange’s risk protection features as
described herein provides ease of
reference for investors and the public
when reviewing the Exchange’s
rulebook and it is in the best interest of
investors and the public for the
Exchange’s rulebook to be clear and
accurate so as to avoid confusion.
The Exchange believes that the nonsubstantive update to the Market Maker
Single Side Protection rule text provides
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additional detail and clarity regarding
the operation of the rule by specifying
that the notification message to Market
Makers will indicate that the price
protection has been triggered. The
Exchange believes it benefits investors
and the public interest for rules to be
accurate and concise as it reduces the
chance for confusion regarding the
operation of Exchange functionality.
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 mechanism 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
PO 00000
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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
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
The Exchange has neither solicited
nor received comments on the proposed
rule change.
III. Discussion and Commission
Findings
After careful review of the proposed
rule change, as modified by Amendment
Nos. 1 and 2, the Commission finds that
the proposed rule change, as amended,
is consistent with the requirements of
the Act and the rules and regulations
thereunder applicable to a national
securities exchange.57 In particular, the
Commission finds that the proposed
rule change, as modified by Amendment
Nos. 1 and 2, is consistent with Section
6(b)(5) of the Act,58 which requires,
among other things, that the rules of a
national securities exchange be
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
57 In approving this proposed rule change, the
Commission notes that it has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
58 15 U.S.C. 78(b)(5).
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trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
The Commission believes that the
proposed rule changes are designed to
provide useful risk management tools to
Members on the Exchange. The proposal
adopts a new Max Put Price Protection
for simple orders and a new MIAX
Strategy Price Protection and Butterfly
Spread Variance Price Protection for
complex orders. The Exchange states
that each of these proposed price
protections could help to prevent trades
from occurring at potentially unwanted
or erroneous prices.59 The proposed
Max Put Price Protection for simple
orders will establish a maximum trading
price limit for put options, which the
Exchange will determine by adding a
pre-set value, the Put Price Variance, to
the strike price of the option.60 The
Exchange notes that another options
exchange offers a similar protection for
put options.61 The proposed MIAX
Strategy Price Protection (‘‘MSPP’’),
which will be available for complex
orders with a time-in-force of Day or
GTC, establishes a maximum protected
price for buy orders and a minimum
protected price for sell orders.62 The
proposed Max Put Price Protection,
MIAX Strategy Price Protection, and
Butterfly Spread Variance Price
Protection are designed to protect
investors by helping to mitigate
potential risks associated with executing
trades at what the Exchange believes are
potentially erroneous prices.
The proposal also adopts a new
Managed Protection Override feature.63
If a Member enables the Managed
Protection Override for its orders, an
order that triggers the Vertical Spread
Variance Price Protection, the Calendar
Spread Variance Price Protection, the
proposed Butterfly Spread Variance
Price Protection, the Parity Price
Protection, or the proposed Max Put
Price Protection will be cancelled back
to the Member rather than managed by
59 See
Amendment No. 1 at 32, 33, and 36.
proposed Exchange Rule 532(a)(1). The
Exchange states that the proposed pre-set value for
the Put Price Variance will be $0.10 to align with
other similar price protections on the Exchange and
will apply to all classes. The Exchange believes this
value provides an adequate price range for
executions while offering price protection against
potentially erroneous executions. See Amendment
No. 1 at 11, n. 24. The Exchange will communicate
the Put Price Variance to Members via Regulatory
Circular. See proposed Exchange Rule 532(a)(1)(iv).
61 See Amendment No. 1 at 11, n. 33 (citing Cboe
Rule 5.34(a)(3)).
62 See proposed Exchange Rule 532(b)(5) and
Amendment No. 1 at 43.
63 See proposed Exchange Rule 532.
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60 See
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the Exchange.64 Returning the
unexecuted order to the Member will
allow the Member to evaluate the order
and determine how to handle the order
based on current market conditions. The
proposed Managed Protection Override
feature could benefit market
participants by providing them with
greater flexibility and control over
orders that trigger a risk protection that
is subject to the Managed Protection
Override.
The proposal relocates to proposed
Exchange Rule 532, in their entirety and
without modification, the Implied Away
Best Bid or Offer (‘‘ixABBO’’) Price
Protection in current Exchange Rule
518, Interpretation and Policy .05(d) and
the Complex MIAX Options Price Collar
Protection in current Exchange Rule
518, Interpretation and Policy .05(f).
The proposal also relocates to proposed
Exchange Rule 532 the Market Maker
Single Side Protection in current
Exchange Rule 518, Interpretation and
Policy .05(g), the Vertical Spread
Variance Price Protection in current
Exchange Rule 518, Interpretation and
Policy .05(a), and the Calendar Spread
Variance Price Protection in current
Exchange Rule 518, Interpretation and
Policy .05(b).65 Consolidating these risk
protection features, as well as the
proposed Managed Protection Override,
Max Put Price Protection, MIAX
Strategy Price Protection, and Butterfly
Spread Variance Price Protection, in a
single rule could help market
participants to more readily identify the
price protections that could apply to
their orders. The proposal also
renumbers certain rules and updates
internal cross-references within the
Exchange’s rules, which could help to
maintain the accuracy of the Exchange’s
rules.
The Calendar Spread Variance Price
Protection and the Vertical Spread
Variance Price Protection provisions in
64 See proposed Exchange Rule 532. In addition
to incorporating the proposed Managed Protection
Override into the proposed new Max Put Price
Protection and the proposed new Butterfly Spread
Variance Price Protection, the proposal revises the
existing Parity Price Protection in Exchange Rule
518, Interpretation and Policy .01(g), the Calendar
Spread Variance Price Protection in proposed
Exchange Rule 532(b)(3), and the Vertical Spread
Variance Price Protection in proposed Exchange
Rule 532(b)(4) to reflect the operation of the
proposed Managed Protection Override.
65 Proposed Exchange Rule 532(b)(1) defines the
terms Butterfly Spread, Calendar Spread, and
Vertical Spread. The proposed definitions of
Vertical Spread and Calendar Spread are
substantially the same as the definitions of those
terms in current Exchange Rule 518, Interpretation
and Policy .05(a) and (b). The proposed definition
of Butterfly Spread is substantially similar to the
definition of Butterfly Spread used in the rules of
another options exchange. See Cboe Rule
5.33(b)(1)(B).
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13349
proposed Exchange Rule 532(b)(3) and
(4), respectively, retain provisions of the
existing Calendar Spread Variance Price
Protection and Vertical Spread Variance
Price Protection in current Exchange
Rules 518, Interpretation and Policy
.05(b) and (a), respectively, incorporate
and add detail to the Vertical Spread
Variance and Calendar Spread Variance
Price Protection in current Exchange
Rule 518, Interpretation and Policy
.05(c),66 and provide additional detail to
more fully describe the operation of the
price protections. The additional detail
could provide greater transparency
regarding the way that an order will
trade after it triggers the Vertical Spread
Variance or Calendar Spread Variance
Price Protection. In addition, the
proposed rules will provide greater
transparency regarding the treatment of
orders and eQuotes entered at prices
outside of the trading price limits
established in those rules.67
The proposal adopts new Exchange
Rule 532, Interpretation and Policy .01,
which states that the System will apply
the most conservative price protection
when an order is eligible for multiple
price protections. Specifying the price
protection that the System will apply
when an order is eligible for multiple
price protections could provide market
participants with greater transparency
regarding the handling of their orders
and help to protect against potentially
erroneous executions.
The proposal amends the Market
Maker Single Side Protection, which
will be relocated to proposed new
Exchange Rule 532(b)(8), to specify that
the notification message sent to a market
maker will indicate that the Market
Maker Single Side Protection has been
triggered. This addition should provide
clarifying detail to the rule. The
proposal also revises the definition of
Book in Exchange Rule 100 to indicate
that the term refers to the electronic
book of simple buy and sell orders and
quotes maintained by the System. The
addition of the reference to simple
orders and quotes should help to clarify
the Exchange’s rules by more
specifically identifying the order book
the term references.
66 Current Exchange Rule 518, Interpretation and
Policy .05(c) states that if the execution price of a
complex order would be outside of the limits set
forth in Exchange Rule 518, Interpretation and
Policy .05(a)(1) and (b)(1) for Vertical Spreads and
Calendar Spreads, respectively, the complex order
will be placed on the Strategy Book and will be
managed to the appropriate trading price limit as
described in Exchange Rule 518(c)(4). Orders to buy
below the minimum trading price limit and orders
to sell above the maximum trading price limit (in
the case of Vertical Spreads) will be rejected by the
System.
67 See proposed Exchange Rules 532(b)(3)(iii) and
(b)(4)(iii).
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IV. Solicitation of Comments on
Amendment Nos. 1 and 2
Interested persons are invited to
submit written data, views, and
arguments concerning whether
Amendment Nos. 1 and 2 are consistent
with the Act. Comments may be
submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MIAX–2021–58 on the subject line.
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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 such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
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 March 30, 2022.
The Commission finds good cause to
approve the proposed rule change, as
17:44 Mar 08, 2022
Jkt 256001
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,68 that the
proposed rule change (File No. SR–
MIAX–2021–58), as modified by
Amendment Nos. 1 and 2, is approved
on an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.69
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–04921 Filed 3–8–22; 8:45 am]
BILLING CODE 8011–01–P
V. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment Nos. 1 and 2
VerDate Sep<11>2014
modified by Amendment Nos. 1 and 2,
prior to the thirtieth day after the date
of publication of the notice of
Amendment Nos. 1 and 2 in the Federal
Register. As described more fully above,
Amendment No. 1 revises the proposal
to, among other things, indicate that, if
enabled, the Managed Protection
Override will apply to all of the price
protections that are subject to the
Managed Protection Override; add
clarifying detail to the proposed
definition of Butterfly Spread and to the
Market Maker Single Side Protection;
describe the treatment of orders and
eQuotes priced outside the trading price
limits in the proposed Butterfly Spread
Variance, Calendar Spread Variance,
and Vertical Spread Variance rules; add
proposed Exchange Rule 532,
Interpretation and Policy .01 to indicate
that the System will apply the most
conservative price protection when an
order is eligible for multiple price
protections; and describe the rationale
for the pre-set value used in the
proposed MIAX Strategy Price
Protection Variance. Amendment No. 2
adds clarifying detail to the proposed
MIAX Strategy Price Protection by
describing how the price protection will
apply to complex market orders.
Amendment Nos. 1 and 2 raise no novel
regulatory issues and provide additional
detail and clarifications that help to
more fully describe the operation of the
proposed rules. In addition, the
additional information in Amendment
Nos. 1 and 2 assists the Commission in
evaluating the Exchange’s proposal and
finding that it is consistent with the Act.
Accordingly, the Commission finds
good cause for approving the proposed
rule change, as modified by Amendment
Nos. 1 and 2, on an accelerated basis.
68 15
69 17
PO 00000
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
Frm 00100
Fmt 4703
Sfmt 4703
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–94354; File No. SR–ISE–
2022–04]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Index Options
Rules
March 3, 2022.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on February
18, 2022, Nasdaq ISE, LLC (‘‘ISE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend ISE
Rules at Options 3, Section 1, Days and
Hours of Business; Options 4A, Section
11, Trading Sessions; and Options 4A,
Section 12, Terms of Index Options
Contracts. The Exchange also proposes
to adopt new Options 4A, Section 4
which is currently reserved. Finally, the
Exchange proposes to make a technical
amendment to Options 7, Section 1,
General Provisions.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/ise/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
E:\FR\FM\09MRN1.SGM
09MRN1
]]>Agencies
[Federal Register Volume 87, Number 46 (Wednesday, March 9, 2022)]
[Notices]
[Pages 13339-13350]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-04921]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94353; File No. SR-MIAX-2021-58]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing of Amendment Nos. 1 and 2 and Order
Granting Accelerated Approval of a Proposed Rule Change, as Modified by
Amendment Nos. 1 and 2, To Adopt Exchange Rule 532, Order and Quote
Price Protection Mechanisms and Risk Controls
March 3, 2022.
I. Introduction
On November 16, 2021, Miami International Securities Exchange, LLC
(``MIAX Options'' or the ``Exchange'') filed with the Securities and
Exchange Commission (the ``Commission''), pursuant to Section 19(b)(1)
\1\ of the Securities Exchange Act of 1934 (the
[[Page 13340]]
``Act''),\2\ and Rule 19b-4 thereunder,\3\ a proposed rule change to
amend Exchange Rules 100 and 518 and to adopt new Exchange Rule 532,
``Order and Quote Price Protection Mechanisms and Risk Controls.'' The
proposed rule change was published for comment in the Federal Register
on December 3, 2021.\4\ The Commission received no comment letters
regarding the proposal. On January 13, 2022, pursuant to Section
19(b)(2) of the Act,\5\ the Commission designated a longer period
within which to approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether to
approve or disapprove the proposed rule change.\6\ On February 22,
2022, the Exchange filed Amendment No. 1 to the proposal, which amends
and replaces the original filing in its entirety.\7\ On March 2, 2022,
the Exchange filed Amendment No. 2 to the proposal.\8\ The Commission
is publishing this notice to solicit comment on Amendment Nos. 1 and 2
to the proposed rule change from interested persons and is approving
the proposed rule change, as modified by Amendment Nos. 1 and 2, on an
accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
\4\ See Securities Exchange Act Release No. 93676 (November 29,
2021), 86 FR 68695.
\5\ 15 U.S.C. 78s(b)(2).
\6\ See Securities Exchange Act Release No. 93972 (January 13,
2022), 87 FR 3137 (January 20, 2022). The Commission designated
March 3, 2022, as the date by which the Commission shall approve or
disapprove, or institute proceedings to determine whether to approve
or disapprove, the proposed rule change.
\7\ Amendment No. 1 modifies the original filing to (1) indicate
that, if enabled, the proposed Managed Protection Override will
apply to all of the risk protections listed in proposed Exchange
Rule 532; (2) revise the Max Put Price Protection for Simple Orders
to indicate that an offer eQuote greater than the maximum trading
price limit will be cancelled; (3) add clarifying detail to the
proposed definition of Butterfly Spread and revise the proposed
Butterfly Spread Variance Price Protection to describe the treatment
of orders and eQuotes limit priced outside the minimum and maximum
trading price limits in the proposed rule; (4) revise the Calendar
Spread Variance Price Protection to describe the treatment of buy
orders and bid eQuotes priced less than the minimum trading price
limit in the proposed rule; (5) revise the Vertical Spread Price
Protection to describe the treatment of orders and eQuotes priced
outside the minimum and maximum trading price limits in the proposed
rule; (6) revise the proposed MIAX Strategy Price Protection to
indicate that complex orders with a time-in-force of Day or GTC are
eligible for the protection; (7) add clarifying detail to the Market
Maker Single Side Protection; (8) add Interpretation and Policy .01
to proposed Exchange Rule 532, which states that the System will
apply the most conservative price protection to an order when an
order is eligible for multiple price protections; (9) make non-
substantive grammatical changes to the text of the proposed rules;
(10) more clearly identify rules that the proposal will relocate to
new proposed Exchange Rule 532 without substantive changes; and (11)
describe the Exchange's rationale for the pre-set value the Exchange
will use in the proposed MIAX Strategy Price Protection Variance.
Amendment No. 1 is available at https://www.sec.gov/comments/sr-miax-2021-58/srmiax202158.htm.
\8\ Amendment No. 2 revises the proposal to describe the
application of the proposed MIAX Strategy Price Protection applies
to complex market orders. Amendment No. 2 is available at https://www.sec.gov/comments/sr-miax-2021-58/srmiax202158.htm.
---------------------------------------------------------------------------
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; and paragraph (f), Complex
MIAX Options Price Collar 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; and section (b)(7), Implied Away Best Bid or Offer
(``ixABBO'') Price Protection. The Exchange also proposes to relocate
paragraph (g), Market Maker Single Side Protection, from
Interpretations and Policies .05 of Exchange Rule 518 to new proposed
Rule 532 as section (b)(8), Market Maker Single Side Protection. The
Exchange also proposes to make a minor non-substantive edit to the rule
text of Market Maker Single Side Protection.
The Exchange proposes to adopt new Interpretations and Policies
.01, to new proposed Rule 532 to state that, when an order is eligible
for multiple price protections the System \9\ will apply the most
conservative.
---------------------------------------------------------------------------
\9\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
---------------------------------------------------------------------------
The Exchange proposes to amend Exchange Rule 100, Definitions to
insert a clarifying term to the definition of ``Book.'' \10\
---------------------------------------------------------------------------
\10\ The term ``Book'' means the electronic book of buy and sell
orders and quotes maintained by the System. See Exchange Rule 100.
---------------------------------------------------------------------------
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 \11\ in October,
2016.\12\ As part of its effort to continue to build out its complex
order market segment the Exchange has continued to add order types \13\
and functionality. To encourage Members \14\ to send complex orders to
[[Page 13341]]
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.
---------------------------------------------------------------------------
\11\ 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).
\12\ 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).
\13\ 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).
\14\ 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.
---------------------------------------------------------------------------
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 has been 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).\15\ Additionally, when the Parity Price
Protection is triggered the default behavior is to place the order on
the Strategy Book \16\ at its parity protected price.\17\ 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.
---------------------------------------------------------------------------
\15\ See Interpretations and Policies .05(c) of Exchange Rule
518.
\16\ The ``Strategy Book'' is the Exchange's electronic book of
complex orders and complex quotes. See Exchange Rule 518(a)(17).
\17\ See Interpretations and Policies .01(g) of Exchange Rule
518.
---------------------------------------------------------------------------
Max Put Price Protection (``MPPP'')
The Exchange proposes to adopt a new price protection for put
options \18\ by establishing a maximum price at which a put option may
trade.\19\ To determine the maximum price the Exchange will add a pre-
set value, the Put Price Variance,\20\ 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. Buy orders that are
priced through the maximum trading price limit will trade up to, and
including, the maximum trading price limit, and will then be placed on
the Book and managed to the appropriate trading price limit as
described in Rule 515(c)(1)(ii), or cancelled if the Managed Protection
Override (``MPO'') is enabled. Sell orders that are priced higher than
the maximum trading price limit will be rejected.
---------------------------------------------------------------------------
\18\ 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.
\19\ 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).
\20\ The proposed pre-set value for the Put Price Variance will
be $0.10 to align to other similar price protections on the Exchange
and will apply to all classes. 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.
---------------------------------------------------------------------------
A bid quote through the maximum trading price limit will trade up
to, and including, the maximum trading price limit, then will be placed
on the Book and managed to the appropriate trading price limit as
described in Rule 515(c)(1)(ii), or in the case of a bid eQuote,\21\
will be cancelled.\22\ An offer quote greater than the maximum trading
price limit is not rejected and will be placed on the Book and
displayed. An offer eQuote greater than the maximum trading price limit
will be cancelled.
---------------------------------------------------------------------------
\21\ The Exchange offers two different types of quotes for use
in its simple market: A Standard quote, which is submitted by a
Market Maker that cancels and replaces the Market Maker's previous
Standard quote, if any; and an eQuote which is a quote with a
specific time in force that does not automatically cancel and
replace a previous Standard quote or eQuote. An eQuote can be
cancelled by the Market Maker at any time, or can be replaced by
another eQuote that contains specific instructions to cancel an
existing eQuote. See Exchange Rule 517(a)(1) and (2).
\22\ Currently, eQuotes offered on the Exchange do not have a
time in force setting that would allow them to be managed. See
Exchange Rule 517(a)(2).
---------------------------------------------------------------------------
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 \23\ 0.50 (10) x 5.50 (10)
---------------------------------------------------------------------------
\23\ 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
The Max Put Price Protection establishes the maximum trading price
limit at which an order can trade. Because the Buy Order is priced
through the Max Put Price Protection of $5.10, the order is subject to
management pursuant to 515(c)(1)(ii) and is 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 is 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:
[[Page 13342]]
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 treats orders and quotes differently on the Exchange
as orders may only be submitted by Electronic Exchange Members
(``EEMs'') \24\ and quotes may only be submitted by Market Makers \25\
on the Exchange. Market Makers have heightened obligations on the
Exchange including the requirement to provide continuous two sided
quotes under Exchange Rule 604(e),\26\ and as such the Exchange
minimizes the times it will cancel Market Maker quotes.
---------------------------------------------------------------------------
\24\ 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.
\25\ The term ``Market Makers'' refers to ``Lead Market
Makers'', ``Primary Lead Market Makers'' and ``Registered Market
Makers'' collectively. See Exchange Rule 100.
\26\ A Primary Lead Market Maker must provide continuous two-
sided Standard quotes and/or Day eQuotes, which for the purpose of
paragraph (e) of Rule 604 which shall mean 90% of the time, for the
options classes to which it is appointed. See Exchange Rule
604(e)(1)(i); A Lead Market Maker must provide continuous two-sided
Standard quotes and/or Day eQuotes, which for the purpose of
paragraph (e) of Rule 604 which shall mean 90% of the time, for the
option classes to which it is appointed. See Exchange Rule
604(e)(2)(i); A Registered Market Maker must provide continuous two-
sided Standard quotes and/or Day eQuotes throughout the trading day
in 60% of the non-adjusted series that have a time to expiration of
less than nine months in each of its appointed classes. For the
purpose of paragraph (e) of Rule 604 which, continuous two-sided
quoting shall mean 90% of the time, for the options classes to which
the Registered Market Maker is appointed. See Exchange Rule
604(e)(3)(i).
---------------------------------------------------------------------------
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. If
the Managed Protection Override is enabled the Exchange will return the
unexecuted order to the Member for further analysis and evaluation. If
the Managed Protection Override is not enabled the Exchange will manage
the unexecuted order on behalf of the Member.
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 \27\
(puts) and one leg to sell (buy) twice the number of calls (puts), all
legs have the same expiration date but different exercise prices, and
the exercise price of the middle leg is between the exercise prices of
the other legs. The strike price of each leg is equidistant from the
next sequential strike price.\28\
---------------------------------------------------------------------------
\27\ 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.
\28\ 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
Cboe Exchange Rule 5.34(b)(1)(B).
---------------------------------------------------------------------------
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 determine a Butterfly Spread Variance which
establishes minimum and maximum trading price limits for Butterfly
Spreads. The minimum value of a Butterfly Spread is zero and the
maximum value is capped at the 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 price limits, a configurable
pre-set value is added to the maximum value of the Butterfly Spread and
subtracted from the minimum value of the Butterfly Spread. The pre-set
value will be determined by the Exchange and communicated to Members
via Regulatory Circular.\29\ The minimum and maximum trading price
limits are used together to create an allowable trading range for the
Butterfly Spread.
---------------------------------------------------------------------------
\29\ The Exchange proposes to use a pre-set value of $0.10 for
Butterfly Spreads which will apply to all classes to align to the
pre-set value which is used on the Exchange for Calendar Spreads and
Vertical Spreads. See supra note 24.
---------------------------------------------------------------------------
If the execution price of a complex order would be outside of the
minimum and maximum trading price limits (bid higher than the maximum
trading price limit or offer lower than the minimum trading price
limit), such complex order will trade up to, and including the maximum
trading price limit for bids or down to, and including, the minimum
trading price limit for offers. 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.
By establishing minimum and maximum trading price limits the
Exchange can then evaluate the reasonableness of the prices of orders
and eQuotes against these limits. The Exchange will reject an order, or
cancel an eQuote, if the price is determined to be unreasonable
relative to the minimum or maximum trading price limit. Buy orders with
a limit price less than the minimum trading price limit will be
rejected. Bid eQuotes with a limit price less than the minimum trading
price limit will be cancelled. Sell orders with a limit price greater
than the maximum trading price limit will be rejected. Offer eQuotes
with a limit price greater than the maximum trading price limit will be
cancelled.
[[Page 13343]]
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 the 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 limit is then $5.10 and the minimum allowable price
limit 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) restructure the rule
text for internal consistency with other similar price protections in
the Exchange's rules (BSV and VSV); (iii) make clarifying changes to
the rule text; and (iv) amend the rule text to enable the operation of
the Managed Protection Override.
Currently, paragraph (b) of Interpretation and Policy .05 of Rule
518, Calendar Spread Variance (``CSV'') Price Protection, provides
that, a ``Calendar Spread'' is a complex strategy consisting of the
purchase of one call (put) option and the sale of another call (put)
option overlying the same security that have different expirations but
the same strike price. The CSV establishes a minimum trading price
limit for Calendar Spreads. Current subparagraph (1) provides that, the
maximum possible value of a Calendar Spread is unlimited, thus there is
no maximum price protection for Calendar Spreads. The minimum possible
trading price limit of a Calendar Spread is zero minus a pre-set value.
Current subparagraph (2) provides that, the pre-set value will be
uniform for all option classes traded on the Exchange as determined by
the Exchange and communicated to Members via Regulatory Circular.
Current subparagraph (3) provides that, CSV Price Protection applies
only to strategies in American-style option classes. Current paragraph
(c) of Interpretation and Policy .05 of Rule 518 provides that, if the
execution price of a complex order would be outside of the limits set
forth in subparagraphs (a)(1) and (b)(1) of this Interpretations and
Policies .05, such complex order will be placed on the Strategy Book
and will be managed to the appropriate trading price limit as described
in subparagraph (c)(4) of Rule 518. Orders to buy below the minimum
trading price limit and orders to sell above the maximum trading price
limit (in the case of Vertical Spreads) will be rejected by the System.
The Exchange now proposes to relocate Calendar Spread Variance
(``CSV'') Price Protection from Interpretations and Policies .05(b) of
Rule 518 to paragraph (b)(3) of new proposed Rule 532 and to
restructure the rule text for internal consistency with other similar
price protections in the Exchange's rules. Specifically, the Exchange
proposes to relocate current paragraph (1) of the rule to new proposed
subparagraph (i) \30\ of the rule, without change. The Exchange
proposes to adopt new subparagraph (ii) to new proposed Rule 532(b)(3)
to clarify the operation of the price protection. New subparagraph (ii)
will state that, if the execution price of a complex order would be
outside of the limit set forth in subparagraph (i) of this rule (offers
lower than the minimum trading price limit), such complex order will
trade down to, and including, the minimum trading price limit.
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. Further,
the Exchange proposes to adopt new subparagraph (iii) which will
provide that, buy orders with a limit price less than the minimum
trading price limit will be rejected. Bid eQuotes with a limit price
less than the minimum trading price limit will be cancelled.
---------------------------------------------------------------------------
\30\ The Exchange notes that proposed subparagraph (i) is
identical to current paragraph (1) of Interpretations and Policies
.05(b) of Exchange Rule 518.
---------------------------------------------------------------------------
The Exchange proposes to relocate current paragraph (3) of
Interpretations and Policies .05(b) of Rule 518 to new subparagraph
(iv) and current paragraph (2) of Interpretations and Policies .05(b)
of Rule 518 to new subparagraph (v) of proposed Rule 532(b)(3), in
their entirety and without modification.
Vertical Spread Variance (``VSV'') Price Protection
The Exchange proposes to (i) relocate Vertical Spread Variance
(``VSV'') Price Protection from Rule 518; (ii) restructure the rule
text for internal consistency with other similar price protections in
the Exchange's rules (BSV and CSV); (iii) make clarifying changes to
the rule text; and (iv) amend the rule text to enable the operation of
the Managed Protection Override.
Currently, paragraph (a) of Interpretation and Policy .05 of Rule
518, Vertical Spread Variance (``VSV'') Price Protection, provides
that, 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 VSV establishes minimum and maximum
trading price limits for Vertical Spreads. Current subparagraph (1)
provides, the maximum possible trading price limit of the VSV is the
difference between the two component strike prices plus a pre-set
value. For example, a Vertical Spread consisting of the purchase of one
January 30 call and the sale of one January 35 call would have a
maximum trading price limit of $5.00 plus a pre-set value. The minimum
possible trading price limit of a Vertical Spread is always zero minus
a pre-set value. Current subparagraph (2) provides that, the pre-set
value will be uniform for all option classes traded on the Exchange as
determined by the Exchange and communicated to Members via Regulatory
Circular.
The Exchange now proposes to relocate paragraph (a), Vertical
Spread Variance (``VSV'') Price Protection, from Interpretations and
Policies .05(a) of Rule 518 to paragraph (b)(4) of new proposed Rule
532. The Exchange proposes to bifurcate the current rule text of
paragraph (a) by adding the definition of a Vertical Spread to the
Definitions section of proposed Rule 532, and retaining the rule text
that states, the VSV establishes minimum and maximum trading price
limits for Vertical Spreads.
The Exchange proposes to adopt new subparagraph (i) \31\ to new
proposed Rule 532(b)(4) which will state that, the maximum possible
trading price limit of the VSV is the difference between the two
component strike prices plus a pre-set value. For example, a Vertical
Spread consisting of the purchase of one January 30 call and the sale
of one January 35 call would have a maximum trading price limit of
$5.00 plus a pre-set value. The minimum possible trading price limit of
a Vertical Spread is always zero minus a pre-set value.
---------------------------------------------------------------------------
\31\ The Exchange notes that proposed subparagraph (i) is
identical to current paragraph (1) of Interpretations and Policies
.05(a) of Exchange Rule 518.
---------------------------------------------------------------------------
The Exchange proposes to adopt new subparagraph (ii) to state that,
if the execution price of a complex order would be outside of the
limits set forth in subparagraph (i) of this rule (bid higher than the
maximum trading price limit or offer lower than the minimum trading
price limit), such complex order
[[Page 13344]]
will trade up to, and including, the maximum trading price limit for
bids or down to, and including, the minimum trading price limit for
offers. 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.
Further, the Exchange proposes to adopt new subparagraph (iii) which
will provide that, buy orders with a limit price less than the minimum
trading price limit will be rejected. Bid eQuotes with a limit price
less than the minimum trading price limit will be cancelled. Sell
orders with a limit price greater than the maximum trading price limit
will be rejected. Offer eQuotes with a limit price greater than the
maximum trading price limit will be cancelled.
The Exchange proposes to relocate current subparagraph (2) of
Interpretations and Policies .03(a) of Rule 518 to new subparagraph
(iv) of proposed Rule 532(b)(4), in its entirety and without
modification.
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''),
to the offer side value of the cNBBO \32\ (or the offer side of the
dcMBBO \33\ if the cNBBO is crossed).\34\ To determine the minimum
protected price for sell orders the Exchange will subtract the MSPPV
value from the bid side value of the cNBBO, (or the bid side of the
dcMBBO if the cNBBO is crossed). The MSPPV value will be determined by
the Exchange and communicated to Members via Regulatory Circular.\35\
For market orders \36\ the functional limit will be the MSPP. Complex
orders with a time in force of Day \37\ or GTC \38\ are eligible for
the MIAX Strategy Price Protection. The MIAX Strategy Price Protection
is an additional price protection feature provided to all Members of
the Exchange.
---------------------------------------------------------------------------
\32\ 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).
\33\ The dcMBBO is calculated using the best displayed price for
each component of a complex strategy from the Simple Order Book. For
stock-option orders, the dcMBBO for a complex strategy will be
calculated using the Exchange's best displayed bid or offer in the
individual option component(s) and the NBBO in the stock component.
See Exchange Rule 518(a)(8).
\34\ A complex strategy is not evaluated until all the
components of the complex strategy are open on the Simple Order
Book. Therefore, a dcMBBO will always be available as the System
prevents the Simple Order Book from displaying a locked or crossed
market. See Exchange Rule 518(c)(2)(i).
\35\ 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 and aligns to other price protections on the
Exchange. See Exchange Rule 518 Interpretations and Policies .06.
\36\ 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).
\37\ 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).
\38\ 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).
---------------------------------------------------------------------------
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), or if the order is a complex market
order, the order will be (i) executed up to, and including, its MSPP
for buy orders; or (ii) 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 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.\39\ The cLEP process was designed for complex orders and
complex eQuotes that violate their Complex MIAX Price Collar (``MPC)
price.\40\ 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'').\41\ 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.\42\ 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.\43\
---------------------------------------------------------------------------
\39\ See Securities Exchange Act Release No. 85155 (February 15,
2019), 84 FR 5739 (February 22, 2019) (SR-MIAX-2018-36).
\40\ The Exchange notes that there are no changes to the Complex
MIAX Price Collar functionality under this proposal.
\41\ See Exchange Rule 518.05(f).
\42\ See Exchange Rule 518.05(f)(3).
\43\ See Exchange Rule 518.05(f)(5).
---------------------------------------------------------------------------
A complex order or complex eQuote that would violate its MPC Price
begins a cLEP Auction.\44\ 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.\45\ 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
[[Page 13345]]
will be subject to the Reevaluation Process.\46\
---------------------------------------------------------------------------
\44\ See Exchange Rule 518(e).
\45\ Id.
\46\ 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 \47\ component A: 4.05(10) x 4.15(10)
---------------------------------------------------------------------------
\47\ 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)
cMBBO: \48\ 1.50 (10) x 5.00 (10)
---------------------------------------------------------------------------
\48\ 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 as Order 2
was a market order.\49\
---------------------------------------------------------------------------
\49\ See proposed Rule 532(b)(5)(v).
---------------------------------------------------------------------------
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. Currently the rule
states that, orders and quotes executed in a cLEP Auction will be
allocated first in price priority based upon their original limit
price, and thereafter in accordance with the Complex Auction allocation
procedures described in subsection (d)(7)(i)-(vi) of this Rule. The
Exchange now proposes to amend this provision to state that orders
subject to MSPP are allocated using their protected price. As proposed
the amended rule will state 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, Interpretations and Policies .01 of Exchange Rule 518, to
incorporate the Managed Protection Override feature. Currently the rule
text states, 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. The Exchange proposes to
amend this sentence 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
[[Page 13346]]
while retaining the risk protection functionality.
The Exchange proposes to adopt Interpretations and Policies .01 to
proposed Rule 532, to state that, when an order is eligible for
multiple price protections the System will apply the most conservative.
The Exchange offers a number of price protections in the System, for
example, if a limit order to buy a non-proprietary product had
indicated a price protection \50\ for the order at 5 MPVs \51\ from the
NBBO at the time of receipt and the NBBO for the XYZ Jan 5 put was 4.80
x 5.10 the price protection would not let the order trade at more than
5.35, however, in this instance the proposed Max Put Price Protection
would be applied and the order would not trade higher than 5.10, which
is the more conservative of the price protections. The Exchange
believes that this change promotes the protection of investors as it
protects investors from executions at undesirable prices.
---------------------------------------------------------------------------
\50\ See Exchange Rule 515(c)(1).
\51\ See Exchange Rule 510.
---------------------------------------------------------------------------
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'' \52\ as the Exchange's
electronic book of complex orders and complex quotes. Additionally, the
Exchange defined the ``Simple Order Book'' \53\ 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.
---------------------------------------------------------------------------
\52\ See Exchange Rule 518(a)(17).
\53\ See Exchange Rule 518(a)(15).
---------------------------------------------------------------------------
The Exchange proposes to make a minor non-substantive edit to the
rule text of Market Maker Single Side Protection (proposed Rule
532(b)(8)). Currently, the rule text provides that, when triggered, the
System will cancel all complex Standard quotes and block all new
inbound complex Standard quotes and cIOC eQuotes for that particular
side of that strategy for that MPID. The System will provide a
notification message to the Market Maker.\54\ The Exchange now proposes
to expand on the previously mentioned sentence to read, the System will
provide a notification message to the Market Maker that the protection
has been triggered. The Exchange believes that this amendment provides
additional detail and clarity regarding the operation of the rule.
---------------------------------------------------------------------------
\54\ See Interpretations and Policies .05(g) of Exchange Rule
518.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with Section 6(b) of the Act \55\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \56\ 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 mechanism of a free and open market and a national market
system and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------
\55\ 15 U.S.C. 78f(b).
\56\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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 mechanism 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. When the Exchange cancels an order,
a Member can make a decision on what to do with that 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
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.
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 mechanism 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 Variance (``BSV'') Price Protection
The Exchange believes that the Butterfly Spread Variance (``BSV'')
Price Protection feature promotes just and equitable principles of
trade, removes impediments to and perfects the mechanism of a free and
open market and a national market system and, in general, protects
investors and the public interest by providing a risk protection
mechanism that will
[[Page 13347]]
establish minimum and maximum trading limits to prevent an order from
trading at a potentially unwanted or erroneous price.
Additionally, the Exchange believes that making the Butterfly
Spread 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 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 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 mechanism 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 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 mechanism 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
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 impediments to and
perfects the mechanism of a free and open market and a national market
system and, in general, protects investors and the public interest, by
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, or
complex market order [sic], that executing the order, up to an [sic]
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 mechanism 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
[[Page 13348]]
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
mechanism 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 that relocating the Implied Away Best bid or
Offer (``ixABBO'') Price Protection and the Complex MIAX Options Price
Collar Protection from Interpretations and Policies .05 of Exchange
Rule 518 to new proposed Rule 532 in their entirety and without
modification 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 and, in general, protects investors
and the public interest by organizing and consolidating risk
protections into a single Rule. The Exchange believes that organizing
and consolidating the Exchange's risk protection features as described
herein provides ease of reference for investors and the public when
reviewing the Exchange's rulebook and it is in the best interest of
investors and the public for the Exchange's rulebook to be clear and
accurate so as to avoid confusion.
The Exchange believes that the non-substantive update to the Market
Maker Single Side Protection rule text provides additional detail and
clarity regarding the operation of the rule by specifying that the
notification message to Market Makers will indicate that the price
protection has been triggered. The Exchange believes it benefits
investors and the public interest for rules to be accurate and concise
as it reduces the chance for confusion regarding the operation of
Exchange functionality.
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 mechanism
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 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
The Exchange has neither solicited nor received comments on the
proposed rule change.
III. Discussion and Commission Findings
After careful review of the proposed rule change, as modified by
Amendment Nos. 1 and 2, the Commission finds that the proposed rule
change, as amended, is consistent with the requirements of the Act and
the rules and regulations thereunder applicable to a national
securities exchange.\57\ In particular, the Commission finds that the
proposed rule change, as modified by Amendment Nos. 1 and 2, is
consistent with Section 6(b)(5) of the Act,\58\ which requires, among
other things, that the rules of a national securities exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of
[[Page 13349]]
trade, to remove impediments to and perfect the mechanism of a free and
open market and a national market system, and, in general, to protect
investors and the public interest.
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\57\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\58\ 15 U.S.C. 78(b)(5).
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The Commission believes that the proposed rule changes are designed
to provide useful risk management tools to Members on the Exchange. The
proposal adopts a new Max Put Price Protection for simple orders and a
new MIAX Strategy Price Protection and Butterfly Spread Variance Price
Protection for complex orders. The Exchange states that each of these
proposed price protections could help to prevent trades from occurring
at potentially unwanted or erroneous prices.\59\ The proposed Max Put
Price Protection for simple orders will establish a maximum trading
price limit for put options, which the Exchange will determine by
adding a pre-set value, the Put Price Variance, to the strike price of
the option.\60\ The Exchange notes that another options exchange offers
a similar protection for put options.\61\ The proposed MIAX Strategy
Price Protection (``MSPP''), which will be available for complex orders
with a time-in-force of Day or GTC, establishes a maximum protected
price for buy orders and a minimum protected price for sell orders.\62\
The proposed Max Put Price Protection, MIAX Strategy Price Protection,
and Butterfly Spread Variance Price Protection are designed to protect
investors by helping to mitigate potential risks associated with
executing trades at what the Exchange believes are potentially
erroneous prices.
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\59\ See Amendment No. 1 at 32, 33, and 36.
\60\ See proposed Exchange Rule 532(a)(1). The Exchange states
that the proposed pre-set value for the Put Price Variance will be
$0.10 to align with other similar price protections on the Exchange
and will apply to all classes. The Exchange believes this value
provides an adequate price range for executions while offering price
protection against potentially erroneous executions. See Amendment
No. 1 at 11, n. 24. The Exchange will communicate the Put Price
Variance to Members via Regulatory Circular. See proposed Exchange
Rule 532(a)(1)(iv).
\61\ See Amendment No. 1 at 11, n. 33 (citing Cboe Rule
5.34(a)(3)).
\62\ See proposed Exchange Rule 532(b)(5) and Amendment No. 1 at
43.
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The proposal also adopts a new Managed Protection Override
feature.\63\ If a Member enables the Managed Protection Override for
its orders, an order that triggers the Vertical Spread Variance Price
Protection, the Calendar Spread Variance Price Protection, the proposed
Butterfly Spread Variance Price Protection, the Parity Price
Protection, or the proposed Max Put Price Protection will be cancelled
back to the Member rather than managed by the Exchange.\64\ Returning
the unexecuted order to the Member will allow the Member to evaluate
the order and determine how to handle the order based on current market
conditions. The proposed Managed Protection Override feature could
benefit market participants by providing them with greater flexibility
and control over orders that trigger a risk protection that is subject
to the Managed Protection Override.
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\63\ See proposed Exchange Rule 532.
\64\ See proposed Exchange Rule 532. In addition to
incorporating the proposed Managed Protection Override into the
proposed new Max Put Price Protection and the proposed new Butterfly
Spread Variance Price Protection, the proposal revises the existing
Parity Price Protection in Exchange Rule 518, Interpretation and
Policy .01(g), the Calendar Spread Variance Price Protection in
proposed Exchange Rule 532(b)(3), and the Vertical Spread Variance
Price Protection in proposed Exchange Rule 532(b)(4) to reflect the
operation of the proposed Managed Protection Override.
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The proposal relocates to proposed Exchange Rule 532, in their
entirety and without modification, the Implied Away Best Bid or Offer
(``ixABBO'') Price Protection in current Exchange Rule 518,
Interpretation and Policy .05(d) and the Complex MIAX Options Price
Collar Protection in current Exchange Rule 518, Interpretation and
Policy .05(f). The proposal also relocates to proposed Exchange Rule
532 the Market Maker Single Side Protection in current Exchange Rule
518, Interpretation and Policy .05(g), the Vertical Spread Variance
Price Protection in current Exchange Rule 518, Interpretation and
Policy .05(a), and the Calendar Spread Variance Price Protection in
current Exchange Rule 518, Interpretation and Policy .05(b).\65\
Consolidating these risk protection features, as well as the proposed
Managed Protection Override, Max Put Price Protection, MIAX Strategy
Price Protection, and Butterfly Spread Variance Price Protection, in a
single rule could help market participants to more readily identify the
price protections that could apply to their orders. The proposal also
renumbers certain rules and updates internal cross-references within
the Exchange's rules, which could help to maintain the accuracy of the
Exchange's rules.
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\65\ Proposed Exchange Rule 532(b)(1) defines the terms
Butterfly Spread, Calendar Spread, and Vertical Spread. The proposed
definitions of Vertical Spread and Calendar Spread are substantially
the same as the definitions of those terms in current Exchange Rule
518, Interpretation and Policy .05(a) and (b). The proposed
definition of Butterfly Spread is substantially similar to the
definition of Butterfly Spread used in the rules of another options
exchange. See Cboe Rule 5.33(b)(1)(B).
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The Calendar Spread Variance Price Protection and the Vertical
Spread Variance Price Protection provisions in proposed Exchange Rule
532(b)(3) and (4), respectively, retain provisions of the existing
Calendar Spread Variance Price Protection and Vertical Spread Variance
Price Protection in current Exchange Rules 518, Interpretation and
Policy .05(b) and (a), respectively, incorporate and add detail to the
Vertical Spread Variance and Calendar Spread Variance Price Protection
in current Exchange Rule 518, Interpretation and Policy .05(c),\66\ and
provide additional detail to more fully describe the operation of the
price protections. The additional detail could provide greater
transparency regarding the way that an order will trade after it
triggers the Vertical Spread Variance or Calendar Spread Variance Price
Protection. In addition, the proposed rules will provide greater
transparency regarding the treatment of orders and eQuotes entered at
prices outside of the trading price limits established in those
rules.\67\
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\66\ Current Exchange Rule 518, Interpretation and Policy .05(c)
states that if the execution price of a complex order would be
outside of the limits set forth in Exchange Rule 518, Interpretation
and Policy .05(a)(1) and (b)(1) for Vertical Spreads and Calendar
Spreads, respectively, the complex order will be placed on the
Strategy Book and will be managed to the appropriate trading price
limit as described in Exchange Rule 518(c)(4). Orders to buy below
the minimum trading price limit and orders to sell above the maximum
trading price limit (in the case of Vertical Spreads) will be
rejected by the System.
\67\ See proposed Exchange Rules 532(b)(3)(iii) and (b)(4)(iii).
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The proposal adopts new Exchange Rule 532, Interpretation and
Policy .01, which states that the System will apply the most
conservative price protection when an order is eligible for multiple
price protections. Specifying the price protection that the System will
apply when an order is eligible for multiple price protections could
provide market participants with greater transparency regarding the
handling of their orders and help to protect against potentially
erroneous executions.
The proposal amends the Market Maker Single Side Protection, which
will be relocated to proposed new Exchange Rule 532(b)(8), to specify
that the notification message sent to a market maker will indicate that
the Market Maker Single Side Protection has been triggered. This
addition should provide clarifying detail to the rule. The proposal
also revises the definition of Book in Exchange Rule 100 to indicate
that the term refers to the electronic book of simple buy and sell
orders and quotes maintained by the System. The addition of the
reference to simple orders and quotes should help to clarify the
Exchange's rules by more specifically identifying the order book the
term references.
[[Page 13350]]
IV. Solicitation of Comments on Amendment Nos. 1 and 2
Interested persons are invited to submit written data, views, and
arguments concerning whether Amendment Nos. 1 and 2 are 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 such filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change; the Commission does not edit
personal identifying information from 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 March 30, 2022.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment Nos. 1 and 2
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment Nos. 1 and 2, prior to the thirtieth
day after the date of publication of the notice of Amendment Nos. 1 and
2 in the Federal Register. As described more fully above, Amendment No.
1 revises the proposal to, among other things, indicate that, if
enabled, the Managed Protection Override will apply to all of the price
protections that are subject to the Managed Protection Override; add
clarifying detail to the proposed definition of Butterfly Spread and to
the Market Maker Single Side Protection; describe the treatment of
orders and eQuotes priced outside the trading price limits in the
proposed Butterfly Spread Variance, Calendar Spread Variance, and
Vertical Spread Variance rules; add proposed Exchange Rule 532,
Interpretation and Policy .01 to indicate that the System will apply
the most conservative price protection when an order is eligible for
multiple price protections; and describe the rationale for the pre-set
value used in the proposed MIAX Strategy Price Protection Variance.
Amendment No. 2 adds clarifying detail to the proposed MIAX Strategy
Price Protection by describing how the price protection will apply to
complex market orders. Amendment Nos. 1 and 2 raise no novel regulatory
issues and provide additional detail and clarifications that help to
more fully describe the operation of the proposed rules. In addition,
the additional information in Amendment Nos. 1 and 2 assists the
Commission in evaluating the Exchange's proposal and finding that it is
consistent with the Act. Accordingly, the Commission finds good cause
for approving the proposed rule change, as modified by Amendment Nos. 1
and 2, on an accelerated basis.
VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\68\ that the proposed rule change (File No. SR-MIAX-2021-58), as
modified by Amendment Nos. 1 and 2, is approved on an accelerated
basis.
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\68\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\69\
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\69\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-04921 Filed 3-8-22; 8:45 am]
BILLING CODE 8011-01-P
