Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Exchange Rule 532, Order and Quote Price Protection Mechanisms and Risk Controls, 73353-73364 [2022-25948]

Download as PDF Federal Register / Vol. 87, No. 228 / Tuesday, November 29, 2022 / Notices to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: • 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– NASDAQ–2022–064 on the subject line. Paper Comments khammond on DSKJM1Z7X2PROD with NOTICES BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Exchange Rule 532, Order and Quote Price Protection Mechanisms and Risk Controls November 22, 2022. • 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–NASDAQ–2022–064. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NASDAQ–2022–064 and should be submitted on or before December 20, 2022. 16:29 Nov 28, 2022 [FR Doc. 2022–25947 Filed 11–28–22; 8:45 am] [Release No. 34–96376; File No. SR– EMERALD–2022–30] Electronic Comments VerDate Sep<11>2014 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.28 Sherry R. Haywood, Assistant Secretary. Jkt 259001 Pursuant to the provisions of Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on November 10, 2022, MIAX Emerald, LLC (‘‘MIAX Emerald’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to (i) adopt new Exchange Rule 532, Order and Quote Price Protection Mechanisms and Risk Controls; and (ii) amend Exchange Rule 518, Complex Orders. The text of the proposed rule change is available on the Exchange’s website at https://www.miaxoptions.com/rulefilings/emerald, at MIAX Emerald’s principal office, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The 28 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 73353 Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to adopt new Exchange Rule 532, Order and Quote Price Protection Mechanisms and Risk Controls.3 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 notes that the proposed functionality is identical to functionality recently adopted by the Exchange’s affiliate, MIAX Options Exchange.4 The Exchange also 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 add a new Butterfly Spread Variance (‘‘BSV’’) Price Protection to proposed section (b)(2) of new proposed Rule 532.5 Further, the Exchange proposes to relocate paragraph (d), Implied Away Best Bid or Offer (‘‘ixABBO’’) Price Protection; paragraph (f), Complex MIAX Emerald Price Collar Protection; and paragraph (g), Market Maker Single Side Protection, from Interpretations and Policies .05 of Exchange Rule 518 to new proposed Rule 532 in their entirety and without modification as section (b)(6), Complex MIAX Options Price Collar Protection; section (b)(7), Implied Away Best Bid or Offer (‘‘ixABBO’’) Price Protection; and section (b)(8), Market Maker Single Side Protection.6 The Exchange also proposes to amend Exchange Rule 518, Complex Orders, to 3 The Exchange notes that proposed Rule 532 is identical to current Rule 532 on the MIAX Options Exchange. 4 See Securities Exchange Act Release No. 94353 (March 3, 2022), 87 FR 13339 (March 9, 2022) (SR– MIAX–2021–58). 5 The Exchange notes that the proposed functionality is identical to functionality recently adopted by the Exchange’s affiliate, MIAX Options. See Securities Exchange Act Release No. 94353 (March 3, 2022), 87 FR 13339 (March 9, 2022) (SR– MIAX–2021–58). 6 The proposed rulebook changes are identical to recent rulebook changes made by the Exchange’s affiliate, MIAX Options. See supra note 4. E:\FR\FM\29NON1.SGM 29NON1 73354 Federal Register / Vol. 87, No. 228 / Tuesday, November 29, 2022 / Notices change the value used in the calculation that determines whether a complex order is eligible to initiate a Complex Auction 7 from the dcEBBO 8 to the cNBBO.9 The Exchange notes that this proposed change is substantively identical (the only difference being the naming convention used by each exchange, whereas MIAX Options used the term dcMBBO 10 prior to changing to the cNBBO and MIAX Emerald uses the term dcEBBO) to a recent change made by the Exchange’s affiliate, MIAX Options.11 Additionally, the Exchange also 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. khammond on DSKJM1Z7X2PROD with NOTICES Background The Exchange launched in December 2018, and at that time, the Exchange Rulebook contained complex order rules that were substantially similar to the rules of its affiliate exchange, MIAX Options. Since December 2018, MIAX Options has added functionality to grow its complex order business. The Exchange proposes to amend its rules to adopt functionality that currently exists 7 Certain option classes, as determined by the Exchange and communicated to Members via Regulatory Circular, will be eligible to participate in a Complex Auction (an ‘‘eligible class’’). Upon evaluation as set forth in subparagraph (c)(5) of Exchange Rule 518, the Exchange may determine to automatically submit a Complex Auction-eligible order into a Complex Auction. Upon entry into the System or upon evaluation of a complex order resting at the top of the Strategy Book, Complex Auction-eligible orders may be subject to an automated request for responses (‘‘RFR’’). See Exchange Rule 518(d). 8 The Displayed Complex MIAX Emerald Best Bid or Offer (‘‘dcEBBO’’) is calculated using the best displayed price for each component of a complex strategy from the Simple Order Book. For stockoption orders, the dcEBBO 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). 9 The Complex National Best Bid or Offer (‘‘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. See Exchange Rule 518(a)(2). 10 The Displayed Complex MIAX Best Bid or Offer (‘‘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 MIAX Options Exchange Rule 518(a)(8). 11 See Securities Exchange Act Release No. 94671 (April 11, 2022), 87 FR 22605 (April 15, 2022) (SR– MIAX–2022–13). VerDate Sep<11>2014 16:29 Nov 28, 2022 Jkt 259001 on the MIAX Options Exchange. The Exchange seeks to align functionality to its affiliate, MIAX Options, where feasible. The proposed rule changes described below are identical, or substantively identical, to rule changes filed by the Exchange’s affiliate, MIAX Options.12 the Strategy Book 17 at its parity protected price.18 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. Proposal Max Put Price Protection (‘‘MPPP’’) The Exchange proposes to adopt a new price protection for put 19 options by establishing a maximum price at which a put option may trade. This proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.20 To determine the maximum price the Exchange will add a pre-set value, the Put Price Variance (‘‘PPV’’), to the strike price of the Put option. The pre-set value will be determined by the Exchange 21 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 22 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, will be cancelled. An offer quote received that is higher than the Managed Protection Override (‘‘MPO’’) 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 13 enables the Managed Protection Override then all risk protections connected to the Managed Protection Override feature are engaged. When a risk protection connected to the Managed Protection Override feature is triggered, and the Managed Protection Override feature is enabled, the order subject to the risk protection will be cancelled. The Exchange notes that this proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.14 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. The Exchange notes that this proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.15 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).16 Additionally, when the Parity Price Protection is triggered the default behavior is to place the order on 12 See Securities Exchange Act Release No. 94353 (March 3, 2022), 87 FR 13339 (March 9, 2022) (SR– MIAX–2021–58) (Notice of Filing of Amendment Nos. 1 and 2 and Order Granting 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). 13 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. 14 See MIAX Options Exchange Rule 532. 15 See id. 16 See Interpretations and Policies .05(c) of Exchange Rule 518. PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 17 The ‘‘Strategy Book’’ is the Exchange’s electronic book of complex orders and complex quotes. See Exchange Rule 518(a)(17). 18 See Interpretations and Policies .01(g) of Exchange Rule 518. 19 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. 20 See MIAX Options Exchange Rule 532(a)(1). 21 The Exchange proposes to use a pre-set value for the Put Price Variance of $0.10 to align to other similar price protections on the Exchange. The Exchange believes this value provides an adequate price range for executions while offering price protection against potentially erroneous executions. See MIAX Emerald Regulatory Circular 2019–73, Complex Order Price Protection Pre-set Values (August 13, 2019) available at https:// www.miaxoptions.com/sites/default/files/circularfiles/MIAX_Emerald_RC_2019_73.pdf, which establishes a $0.10 pre-set value for Vertical Spreads and Calendar Spreads. 22 The term ‘‘Book’’ means the electronic book of buy and sell orders and quotes maintained by the System. See Exchange Rule 100. E:\FR\FM\29NON1.SGM 29NON1 Federal Register / Vol. 87, No. 228 / Tuesday, November 29, 2022 / Notices 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.23 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: EBBO 24 0.50 (10) × 5.50 (10) The price protection is: Put Price Variance (PPV) = $0.10 Max Put Price Protection = (Strike + PPV) = $5.10 Because the Buy Order is priced through the Max Put Price Protection of $5.10, the order is subject to management and posted to the order book at $5.10. EBBO 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: EBBO 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. khammond on DSKJM1Z7X2PROD with NOTICES 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: EBBO 0.50 (10) × 5.50 (10) The price protection is: Put Price Variance (PPV) = $0.10 Put Option = XYZ Jan 5 Put Max Put Price Protection = (Strike + PPV) = $5.10 Because the Buy Quote is priced through the Max Put Price Protection of $5.10, the quote posted to the order book and managed at $5.10. 23 Orders and quotes are handled differently as orders may only be submitted by Electronic Exchange Members and quotes may only be submitted by Market Makers. The term ‘‘Electronic Exchange Member’’ or ‘‘EEM’’ means the holder of a Trading Permit who is not a Market Maker. Electronic Exchange Members are deemed ‘‘members’’ under the Exchange Act. See Exchange Rule 100. The term ‘‘Market Makers’’ refers to ‘‘Lead Market Makers’’, ‘‘Primary Lead Market Makers’’ and ‘‘Registered Market Makers’’ collectively. See Exchange Rule 100. 24 The term ‘‘EBBO’’ means the best bid or offer on the Simple Order Book on the Exchange. See Exchange Rule 518(a)(10). The ‘‘Simple Order Book’’ is the Exchange’s regular electronic book of orders and quotes. See Exchange Rule 518(a)(15). VerDate Sep<11>2014 16:29 Nov 28, 2022 Jkt 259001 EBBO 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: EBBO 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. EBBO 5.10 (10) × 5.25 (10) The Exchange believes that offering Members the option to have orders either managed by the Exchange or cancelled when a risk protection is triggered gives Members greater flexibility and control over their orders while retaining the risk protection functionality. The Exchange notes that this proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.25 Definitions The Exchange proposes to include a ‘‘Definitions’’ section as paragraph (b)(1) in proposed Rule 532.26 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 25 See MIAX Options Exchange Rule 532(a)(1). Exchange notes that the proposed rule text is identical to current rule text on MIAX Options. See MIAX Options Exchange Rule 532(b)(1). 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 identical to the definition of a Butterfly Spread on MIAX Options. See MIAX Options Exchange Rule 532(b)(1)(i). 26 The PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 73355 .05(a) of Exchange Rule 518 respectively, to proposed section (b)(1)(ii) and (b)(1)(iii) of proposed Rule 532 respectively. The definition of 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.29 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.30 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. This proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.31 A Butterfly Spread is comprised of three legs which have the same expiration date but different exercise prices, and are of the same type, either calls or puts, and are at equal strike intervals. The upper and lower strikes are each a buy (sell) and the middle strike is a sell (buy). The ratio of a butterfly spread will always be +1 ¥2 +1 or ¥1 +2 ¥1. Butterfly Spread Example Buy 1 XYZ April 50 Call Sell 2 XYZ April 55 Calls Buy 1 FYX April 60 Call The Exchange will establish a price protection for Butterfly Spreads by establishing a Butterfly Spread Variance. The Exchange proposes to adopt paragraph (b)(2)(i) to provide that, the minimum possible trading price limit of a Butterfly Spread is zero minus a pre-set value. The maximum possible trading price limit of a Butterfly Spread is 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) plus a pre-set value. The Exchange notes that this proposed rule change is identical to a 29 The Exchange notes that its proposed definition of a Calendar Spread is identical to the definition of a Calendar Spread on MIAX Options. See MIAX Options Exchange Rule 532(b)(1)(ii). 30 The Exchange notes that its proposed definition of a Vertical Spread is identical to the definition of a Vertical Spread on MIAX Options. See MIAX Options Exchange Rule 532(b)(1)(iii). 31 See MIAX Options Exchange Rule 532(b)(2). E:\FR\FM\29NON1.SGM 29NON1 73356 Federal Register / Vol. 87, No. 228 / Tuesday, November 29, 2022 / Notices rule currently operative on the Exchange’s affiliate, MIAX Options.32 The Exchange proposes to adopt paragraph (b)(2)(ii) to provide that, if the execution price of a complex order would be outside of the limits set forth in paragraph (i) above (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 will 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. The Exchange notes that this proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.33 The Exchange proposes to adopt paragraph (b)(2)(iii) to provide that, buy orders, sell orders, and offer eQuotes 34 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 notes that this proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.35 The Exchange also proposes to adopt paragraph (b)(2)(iv) to provide that, the pre-set value will be determined by the Exchange and communicated to Members via Regulatory Circular. The Exchange notes that this proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.36 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 values, a configurable pre-set value is added to the maximum spread khammond on DSKJM1Z7X2PROD with NOTICES 32 See MIAX Options Exchange Rule 532(b)(2)(i). MIAX Options Exchange Rule 532(b)(2)(ii). 34 The Exchange proposes to extend existing price protections to sell limit orders and offer eQuotes for certain complex order spread strategies similar to MIAX Options. See Exchange Act Release No. 95227 (July 8, 2022), 87 FR 42229 (July 14, 2022) (SR–MIAX–2022–25). 35 See MIAX Options Exchange Rule 532(b)(2)(iii). 36 See MIAX Options Exchange Rule 532(b)(2)(iv). 33 See VerDate Sep<11>2014 16:29 Nov 28, 2022 Jkt 259001 value and subtracted from the minimum spread value. The pre-set value will be determined by the Exchange and communicated to Members via Regulatory Circular.37 Example Butterfly Spread: Buy 1 October 50 Call, Sell 2 October 55 Calls, Buy 1 October 60 Call. October 50 Call EBBO: $11.00 × $16.00 October 55 Call EBBO: $6.00 × $11.00 October 60 Call EBBO: $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) amend the rule text to align to the rule text on the Exchange’s affiliate, MIAX Options; (iii) amend the rule text to enable the operation of the Managed Protection Override; and (iv) extend the existing price protection to include sell orders and offer eQuotes. Specifically, the Exchange proposes to relocate the Calendar Spread Variance (‘‘CSV’’) Price Protection from Interpretations and Policies .05(b) of Rule 518 to paragraph (b)(3) of new proposed Rule 532. The Exchange notes that this proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.38 The Exchange proposes to adopt paragraph (i) to state 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. The Exchange notes that this rule text is being relocated to Rule 532(b)(3)(i) but is not changing under this proposal.39 Currently, the operation of the Calendar Spread Variance (‘‘CSV’’) and Vertical Spread Variance (‘‘VSV’’) price protection is described together in Interpretations and Policies .05(c) of Rule 518. The Exchange now proposes to describe the operation of the price protection separately for each strategy. Specifically, the Exchange proposes to adopt subparagraph (ii) to proposed Rule 532(b)(3) to state that, if the execution price of a complex order would be outside of the limit set forth in subparagraph (i) above (offers lower than the minimum trading price limit), such complex order will trade down to, and including, the minimum trading price limit. The Exchange notes that this proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.40 The Exchange also proposes to describe the handling of remaining interest within the rule text to provide additional detail and to incorporate the operation of the Managed Protection Override. Specifically, the Exchange proposes to adopt an additional provision to proposed Rule 532(b)(3)(ii) to provide that, 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. The Exchange notes that this proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.41 The Exchange proposes to adopt subparagraph (iii) to state that, buy orders, sell orders, and offer eQuotes 42 with a limit price less than the minimum trading price will be rejected. Bid eQuotes with a limit price less than the minimum trading price limit will be cancelled. Currently, the rule provides that orders to buy below the minimum trading price limit will be rejected.43 The Exchange is proposing to extend this price protection to sell orders and offer eQuotes under this proposal. The Exchange notes that this proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.44 The Exchange proposes to adopt subparagraph (iv) to state that the CSV Price Protection applies only to strategies in American-style option classes. The Exchange notes that this rule text is being relocated to proposed Rule 532(b)(3)(iv) but is not changing under this proposal.45 40 See 37 The Exchange proposes to use a pre-set value of $0.10 for Butterfly Spreads to align to the preset value which is used on the Exchange for Calendar Spreads and Vertical Spreads. See supra note 21. 38 See MIAX Options Exchange Rule 532(b)(3). 39 See Interpretations and Policies .05(b)(1) of Rule 518. PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 MIAX Options Exchange Rule 523(b)(3)(ii). id. 42 See supra note 34. 43 See Interpretations and Policies .05(c) of Exchange Rule 518. 44 See MIAX Options Exchange Rule 532(b)(3)(iii). 45 See Interpretations and Policies .05(c)(3) of Exchange Rule 518. 41 See E:\FR\FM\29NON1.SGM 29NON1 Federal Register / Vol. 87, No. 228 / Tuesday, November 29, 2022 / Notices khammond on DSKJM1Z7X2PROD with NOTICES The Exchange proposes to adopt subparagraph (v) to state that the pre-set value will be determined by the Exchange and communicated to Members via Regulatory Circular. The Exchange notes that this proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.46 Vertical Spread Variance (‘‘VSV’’) Price Protection The Exchange proposes to (i) relocate Vertical Spread Variance (‘‘VSV’’) Price Protection from Rule 518; (ii) amend the rule text to align to the rule text on the Exchange’s affiliate, MIAX Options; (iii) amend the rule text to enable the operation of the Managed Protection Override; and (iv) extend the existing price protection to include sell orders and offer eQuotes. Specifically, the Exchange proposes to relocate the Vertical Spread Variance (‘‘VSV’’) Price Protection from Interpretations and Policies .05(a) of Rule 518 to paragraph (b)(4) of new proposed Rule 532. The Exchange notes that this proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.47 The Exchange proposes to adopt subparagraph (i) to 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 notes that this rule text is being relocated to Rule 532(b)(4)(i) but is not changing under this proposal.48 Currently, the operation of the Calendar Spread Variance (‘‘CSV’’) and Vertical Spread Variance (‘‘VSV’’) price protection is described together in Interpretations and Policies .05(c) of Rule 518. The Exchange now proposes to describe the operation of the price protection separately for each strategy. Specifically, the Exchange proposes to adopt subparagraph (ii) to proposed Rule 532(b)(4) to state that, if the execution price of a complex order would be outside of the limits set forth in subparagraph (i) above (bid higher than the maximum trading price limit or offer lower than the minimum trading price limit), such complex order will 46 See MIAX Options Exchange Rule 518(b)(3)(v). MIAX Options Exchange Rule 532(b)(4). 48 See Interpretations and Policies .05(a)(1) of Rule 518. 47 See VerDate Sep<11>2014 16:29 Nov 28, 2022 Jkt 259001 trade up to, and including, the maximum trading price limit for bids or down to, and including, the minimum trading price limit for offers. The Exchange notes that this proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.49 The Exchange also proposes to describe the handling of remaining interest within the rule text to provide additional detail and to incorporate the operation of the Managed Protection Override. Specifically, the Exchange proposes to adopt an additional provision to proposed Rule 532(b)(4)(ii) to provide that, 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. The Exchange notes that this proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.50 The Exchange proposes to adopt subparagraph (iii) to state that, buy orders, sell orders, and offer eQuotes 51 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. Currently, the rule provides that orders to buy below the minimum trading price limit and orders to sell above the maximum trading price limit will be rejected by the System.52 The Exchange is proposing to extend this price protection to sell orders and offer eQuotes under this proposal. The Exchange notes that this proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.53 The Exchange also proposes to adopt subparagraph (iv) to state that, the preset value will be determined by the Exchange and communicated to Members via Regulatory Circular. The Exchange notes that this proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.54 49 See MIAX Options Exchange Rule 532(b)(4)(ii). id. 51 See supra note 34. 52 See Interpretations and Policies .05(c) of Exchange Rule 518. 53 See MIAX Options Exchange Rule 532(b)(4)(iii). 54 See MIAX Options Exchange Rule 532(b)(4)(iv). 50 See PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 73357 MIAX Strategy Price Protection (‘‘MSPP’’) The Exchange also 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. The Exchange notes that this proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.55 To determine the maximum price for a buy order the Exchange will add a preset value, the MIAX Strategy Price Protection Variance (‘‘MSPPV’’),56 to the offer side value of the cNBBO.57 To determine the minimum protected price for sell orders the Exchange will subtract the MSPPV value from the bid side value of the cNBBO. The MSPPV value will be determined by the Exchange and communicated to Members via Regulatory Circular. For market orders 58 the functional limit price will be the MSPP. All Day 59 and GTC 60 complex orders are eligible for the MIAX Strategy Price Protection. cIOC orders,61 cAOC orders,62 cIOC 55 See MIAX Options Exchange Rule 532(b)(5). 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 is identical to the value currently in use for the MSPP on the MIAX Options Exchange. See MIAX Options Exchange Regulatory Circular 2022–16, MIAX Order Price Protection Pre-set Values (March 4, 2022) available at https://www.miaxoptions.com/ sites/default/files/circular-files/MIAX_Options_RC_ 2022_16.pdf. 57 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). 58 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). 59 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). 60 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). 61 A Complex Immediate-or-Cancel or ‘‘cIOC’’ order is a complex order that is to be executed in whole or in part upon receipt. Any portion not so executed is cancelled. See Exchange Rule 518(b)(4). 62 A Complex Auction-or-Cancel or ‘‘cAOC’’ order is a complex limit order used to provide liquidity during a specific Complex Auction with a time in force that corresponds with that event. cAOC orders are not displayed to any market participant, and are not eligible for trading outside of the event. A cAOC order with a size greater than the aggregate auctioned size (as defined in Rule 518(d)(4)) will be 56 The E:\FR\FM\29NON1.SGM Continued 29NON1 73358 Federal Register / Vol. 87, No. 228 / Tuesday, November 29, 2022 / Notices khammond on DSKJM1Z7X2PROD with NOTICES eQuotes,63 and cAOC eQuotes,64 are not eligible for the MIAX Strategy Price Protection,65 nor are crossing orders.66 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. The Exchange notes that this proposed rule change is identical to a capped for allocation purposes at the aggregate auctioned size. See Exchange Rule 518(b)(3). 63 A ‘‘Complex Immediate or Cancel eQuote’’ or ‘‘cIOC eQuote,’’ which is a complex eQuote with a time-in-force of IOC that may be matched with another complex quote or complex order for an execution to occur in whole or in part upon receipt into the System. cIOC eQuotes will not: (i) be executed against individual orders and quotes resting on the Simple Order Book; (ii) be eligible to initiate a Complex Auction or join a Complex Auction in progress; (iii) rest on the Strategy Book; or (iv) be displayed. Any portion of a cIOC eQuote that is not executed is immediately cancelled. See paragraph (c)(2) of Interpretations and Policies .02 of Exchange Rule 518. 64 A ‘‘Complex Auction or Cancel eQuote’’ or ‘‘cAOC eQuote,’’ which is an eQuote submitted by a Market Maker that is used to provide liquidity during a specific Complex Auction with a time in force that corresponds with the duration of the Complex Auction. A cAOC eQuote with a size greater than the aggregate auctioned size (as defined in Rule 518(d)(4)) will be capped for allocation purposes at the aggregate auctioned size. cAOC eQuotes will not: (i) be executed against individual orders and quotes resting on the Simple Order Book; (ii) be eligible to initiate a Complex Auction, but may join a Complex Auction in progress; (iii) rest on the Strategy Book; or (iv) be displayed. See paragraph (c)(1) of Interpretations and Policies .02 of Exchange Rule 518. 65 The Exchange does not believe that these order and quote types require the additional price protection afforded by the MSPP as these orders and quotes do not rest on the Strategy Book but are either executed immediately or cancelled. See supra notes 61, 62, 63, and 64. 66 The Exchange does not believe that crossing orders require the additional price protection afforded by the MSPP as the execution price of these orders is pre-established. A Complex Customer Cross or ‘‘cC2C’’ Order is comprised of one Priority Customer complex order to buy and one Priority Customer complex order to sell at the same price and for the same quantity. Trading of cC2C Orders is governed by Rule 515(h)(3). See Exchange Rule 518(b)(5). A Complex Qualified Contingent Cross or ‘‘cQCC’’ Order is comprised of an originating complex order to buy or sell where each component is at least 1,000 contracts that is identified as being part of a qualified contingent trade, as defined in Rule 516, Interpretations and Policies .01, coupled with a contra-side complex order or orders totaling an equal number of contracts. Trading of cQCC Orders is governed by Rule 515(h)(4). See Exchange Rule 518(b)(6). VerDate Sep<11>2014 16:29 Nov 28, 2022 Jkt 259001 rule currently operative on the Exchange’s affiliate, MIAX Options.67 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 Exchange notes that this proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.68 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 2018.69 The cLEP process was designed for complex orders and complex eQuotes that violate their Complex MIAX Price Collar (‘‘MPC’’) price.70 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 71 (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’’).72 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 67 See MIAX Options Exchange Rule 532(b)(5)(v). MIAX Options Exchange Rule 532(b)(5)(vi). 69 See Securities Exchange Act Release No. 85346 (March 18, 2019), 84 FR 10854 (March 22, 2019) (SR–EMERALD–2019–14). 70 The Exchange notes that there are no changes to the Complex MIAX Price Collar functionality under this proposal. 71 The term ‘‘System’’ means the automated trading system used by the Exchange for the trading of securities. See Exchange Rule 100. 72 See Exchange Rule 518.05(f). 68 See PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 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.73 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.74 A complex order or complex eQuote that would violate its MPC Price begins a cLEP Auction.75 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.76 Remaining liquidity with an original limit price that is (i) less aggressive (lower for a buy order or eQuote, or higher for a sell order or eQuote) than or equal to the MPC Price will be handled in accordance with subsection (c)(2)(ii)–(v) of Rule 518, or (ii) more aggressive than the MPC Price will be subject to the Reevaluation Process.77 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. 73 See Exchange Rule 518.05(f)(3). Exchange Rule 518.05(f)(5). 75 See Exchange Rule 518(e). 76 Id. 77 Id. 74 See E:\FR\FM\29NON1.SGM 29NON1 Federal Register / Vol. 87, No. 228 / Tuesday, November 29, 2022 / Notices khammond on DSKJM1Z7X2PROD with NOTICES 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: EBBO component A: 4.00 (10) × 6.00 (10) EBBO component B: 1.00 (10) × 2.50 (10) NBBO 78 component A: 4.05 (10) × 4.15 (10) NBBO component B: 2.30 (10) × 2.40 (10) icEBBO: 79 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 icEBBO. icEBBO: 1.50 (10) × 1.90 (10) The Exchange receives a new order (Order 2) to buy 30 at the Market. For Market Orders the functional limit is the MSPP or 4.35. Order 2 buys 10 from Order 1 at $1.90 and initiates the Complex Liquidity Exposure Process: Order 2 reprices to its MPC protected price of $2.10 (cNBO of 1.85 + 0.25) and is posted at that price on the Strategy Book and the cLEP Auction begins. During the cLEP Auction the Exchange receives a new order (Order 3) to sell 10 at 2.10. This order locks the current same side Book Price of $2.10. At the end of the auction, Order 3 sells 10 to Order 2 at $2.10, filling Order 3. Order 2 reprices to the next MPC protected price of $2.35 (initial MPC of 2.10 + 0.25) and is posted at that price on the Strategy Book and the next cLEP Auction begins. During the next cLEP Auction the Exchange does not receive any interest to sell. At the end of the auction Order 2 is reevaluated and reprices to the next MPC protected price of 2.60 (previous MPC of 2.35 + 0.25) and is posted at that price on the Strategy Book and the next cLEP Auction begins. During all subsequent cLEP Auctions the Exchange does not receive any 78 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). 79 The icEBBO is a calculation that uses the best price from the Simple Order Book for each component of a complex strategy including using displayed and non-displayed trading interest. For stock-option orders, the icEBBO for a complex strategy will be calculated using the best price (whether displayed or non-displayed) on the Simple Order Book in the individual option component(s), and the NBBO in the stock component. See Exchange Rule 518(a)(12). VerDate Sep<11>2014 16:29 Nov 28, 2022 Jkt 259001 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. icEBBO: 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 into the cLEP process. Currently, at the conclusion of a cLEP Auction, 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 Exchange proposes to amend this sentence to state 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. Additionally, the current rule text provides that, liquidity with an original limit 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 Rule 518. The Exchange proposes to amend this sentence to provide that, 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 Rule 518. 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 PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 73359 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. Additionally, the Exchange proposes to introduce the protected price into the allocation process at the end of a cLEP Auction. The current rule, Allocation at the Conclusion of a Complex Liquidity Exposure Auction, provides 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 (518). The Exchange now proposes to amend this provision to 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 the MIAX Strategy Price Protection (‘‘MSPP’’) (as described in Rule 532(b)(5)) 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 (518). The Exchange also proposes to amend Rule 518(e), Allocation at the Conclusion of a Complex Liquidity Exposure Auction, to provide that orders and quotes executed in a cLEP Auction will be allocated first in price priority based upon their original limit price, orders subject to MSPP are allocated using their protected price, and thereafter in accordance with the Complex Auction allocation procedures described in subsection (d)(7)(i)–(vi) of this Rule. Parity Price Protection The Exchange proposes to amend paragraph (g), Parity Price Protection, of Interpretations and Policies .01 of Exchange Rule 518, to add a reference to the Managed Protection Override. The rule, as proposed to be amended, will provide that Married-Put and BuyWrite 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 E:\FR\FM\29NON1.SGM 29NON1 73360 Federal Register / Vol. 87, No. 228 / Tuesday, November 29, 2022 / Notices protection feature is triggered. The Exchange notes that this proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.80 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. IIP/URIP/RIP Currently the Exchange uses the following methods to determine whether a complex order is qualified to initiate a Complex Auction: Initial Improvement Percentage (‘‘IIP’’) For complex orders received prior to the opening of all individual components of a complex strategy, the System 81 will calculate an IIP value, which is a defined percentage of the current dcEBBO bid/ask differential once all of the components of the complex strategy have opened. Such percentage will be defined by the Exchange and communicated to Members 82 via Regulatory Circular.83 If a Complex Auction-eligible order is priced equal to, or improves, the IIP value 84 and is also priced equal to, or improves, other complex orders and/or quotes resting at the top of the Strategy Book, the complex order will be eligible to initiate a Complex Auction.85 Re-Evaluation Improvement Percentage (‘‘RIP’’) Upon evaluation of a complex order resting at the top of the Strategy Book, the System will calculate a Reevaluation Improvement Percentage (‘‘RIP’’) value, which is a defined percentage of the current dcEBBO bid/ ask differential. Such percentage will be defined by the Exchange and communicated to Members via Regulatory Circular.89 If a complex order resting at the top of the Strategy Book is priced equal to, or improves, the RIP value,90 the complex order will be eligible to initiate a Complex Auction.91 Upon receipt of a complex order when the complex strategy is open, the System will calculate a URIP value, which is a defined percentage of the current dcEBBO bid/ask differential. Such percentage will be defined by the Exchange and communicated to Members via Regulatory Circular.86 If a Complex Auction-eligible order is priced equal to, or improves, the URIP Proposal The Exchange now proposes to replace the dcEBBO bid/ask differential with the cNBBO 92 bid/ask differential in the calculations described above for IIP, URIP, and RIP, respectively. The dcEBBO is calculated using the displayed price for each component of a complex strategy from the Simple Order Book 93 on the Exchange, whereas 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.94 The Exchange believes that using the cNBBO will reduce the number of auctions generated by the Exchange System which do not receive responses or result in price improvement for the initiating order. The cNBBO, which includes the best away markets as well as the EBBO for each component of a complex strategy, will always be equal to or better than the dcEBBO, which includes the EBBO for each component of a complex strategy. The component prices contained in the cNBBO provide a more accurate indicator of the overall market interest in each component, and 80 See Interpretations and Policies .01(g) of MIAX Options Exchange Rule 518. 81 The term ‘‘System’’ means the automated trading system used by the Exchange for the trading of securities. See Exchange Rule 100. 82 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. 83 See MIAX Emerald Regulatory Circular 2019– 68, Complex Auction Initiating Percentages (August 13, 2019) available at https:// www.miaxoptions.com/sites/default/files/circularfiles/MIAX_Emerald_RC_2019_68.pdf. 84 The Initial Improvement Percentage (‘‘IIP’’) is currently set to 70%. See Id. 85 See Policy .03(a) of Exchange Rule 518. 86 See supra note 83. 87 The Upon Receipt Improvement Percentage (‘‘URIP’’) is currently set to 70%. See supra note 83. 88 See Policy .03(b) of Exchange Rule 518. 89 See supra note 83. 90 The Reevaluation Improvement Percentage (‘‘RIP’’) is currently set to 80%. See supra note 83. 91 See Policy .03(c) of Exchange Rule 518. 92 The Complex National Best Bid or Offer (‘‘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). 93 The ‘‘Simple Order Book’’ is the Exchange’s regular electronic book of orders and quotes. See Exchange Rule 518(a)(15). 94 See supra note 9. Upon Receipt Improvement Percentage (‘‘URIP’’) khammond on DSKJM1Z7X2PROD with NOTICES value 87 and is also priced to improve other complex orders and/or quotes resting at the top of the Strategy Book, the complex order will be eligible to initiate a Complex Auction.88 VerDate Sep<11>2014 16:29 Nov 28, 2022 Jkt 259001 PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 therefore, provides a more accurate indicator of the overall market interest in the complex strategy. The Exchange believes that this will result in a reduction of the overall number of Complex Auctions initiated on the Exchange but will in turn increase the percentage of Complex Auctions that result in price improvement, as the auction start price will be more closely aligned to prevailing market prices. The Exchange notes that this proposal is substantively identical (the only difference being the naming convention used by each exchange, whereas MIAX Options used the dcMBBO prior to changing to the cNBBO and MIAX Emerald uses the dcEBBO) to rules currently operative on the Exchange’s affiliate, MIAX Options.95 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. Implementation The Exchange will announce the implementation of these changes in a Regulatory Circular to be published no later than 90 days following the operative date of the proposed rule. The implementation date will be no later than 90 days following the issuance of the Regulatory Circular. 2. Statutory Basis The Exchange believes that its proposed rule change is consistent with Section 6(b) of the Act 96 in general, and furthers the objectives of Section 6(b)(5) of the Act 97 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanisms of a free and open market 95 See Interpretations and Policies .03(a), (b), and (c) of MIAX Options Exchange Rule 518. 96 15 U.S.C. 78f(b). 97 15 U.S.C. 78f(b)(5). E:\FR\FM\29NON1.SGM 29NON1 Federal Register / Vol. 87, No. 228 / Tuesday, November 29, 2022 / Notices and a national market system and, in general, to protect investors and the public interest. khammond on DSKJM1Z7X2PROD with NOTICES Managed Protection Override The Exchange believes that the Managed Protection Override feature promotes just and equitable principles of trade, removes impediments to and perfects the mechanisms of a free and open market and a national market system and, in general, protects investors and the public interest by providing a mechanism by which Members may determine the way their orders are handled when a risk protection is triggered. The Exchange believes that enabling the Butterfly Spread Variance (‘‘BSV’’) Price Protection, Calendar Spread Variance (‘‘CSV’’) Price Protection, Vertical Spread Variance (‘‘VSV’’) Price Protection, Parity Price Protection, and MAX Put Price Protection, to work in conjunction with the Managed Protection Override benefits Members by providing Members an option as to the treatment of their order when a risk protection is engaged. 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. Cancelling an order allows Members to make a decision on what to do with their order based on the then current market conditions. A Member may choose to resubmit the order at the same or different limit price. Specifically, the Exchange believes the proposed change will remove impediments to and perfect the mechanisms of a free and open market by providing Members 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. Additionally, the Exchange notes that this proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.98 Max Put Price Protection The Exchange believes that the proposed Max Put Price Protection feature promotes just and equitable principles of trade, removes impediments to and perfects the mechanisms of a free and open market and a national market system and, in 98 See MIAX Options Exchange Rule 532. VerDate Sep<11>2014 16:29 Nov 28, 2022 Jkt 259001 general, protects investors and the public interest by providing a risk protection mechanism that establishes a maximum price at which a put option may trade. The Max Put Price Protection is designed to prevent trades from occurring at potentially unwanted or erroneous prices. Additionally, the Exchange notes that this proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.99 Butterfly Spread Price Variance (‘‘BSV’’) Price Protection The Exchange believes that the proposed Butterfly Spread Price Variance (‘‘BSV’’) Price Protection feature promotes just and equitable principles of trade, removes impediments to and perfects the mechanisms of a free and open market and a national market system and, in general, protects investors and the public interest by providing a risk protection mechanism that will establish minimum and maximum trading values to prevent an order from trading at a potentially unwanted or erroneous price. Additionally, the Exchange believes that making the Butterfly Spread 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/Vertical Spread Variance (‘‘VSV’’) Price Protection The Exchange believes that amending the Calendar Spread Variance (‘‘CSV’’) and the Vertical Spread Variance (‘‘VSV’’) Price Protection feature to enable the Managed Protection Override feature promotes just and equitable 99 See PO 00000 MIAX Options Exchange Rule 532(a)(1). Frm 00083 Fmt 4703 Sfmt 4703 73361 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 that amending the Calendar Spread Price Variance (‘‘CSV’’) and Vertical Spread Variance (‘‘VSV’’) Price Protection protects investors and the public interest and helps maintain fair and orderly markets by mitigating potential risks associated with market participants entering sell orders and offer eQuotes at clearly unintended prices and trading at prices that are extreme and potentially erroneous. Extending the existing price protections to sell orders and offer eQuotes will assist in the maintenance of a fair and orderly market and protect investors by rejecting sell orders and offer eQuotes that are priced to sell below the minimum trading limit established by the Exchange. The Exchange believes this will promote just and equitable principles of trade and ultimately protect investors. Additionally, the Exchange notes that this proposed rule change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.100 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, removes impediments to and perfects 100 See MIAX Options Exchange Rule 532(b)(3)(iii) and (b)(4)(iii). E:\FR\FM\29NON1.SGM 29NON1 73362 Federal Register / Vol. 87, No. 228 / Tuesday, November 29, 2022 / Notices the mechanisms of a free and open market and a national market system and, in general, protects investors and the public interest, by providing an order price protection that establishes a minimum and maximum trading value to prevent potentially unwanted or erroneous executions from occurring. The Exchange believes that when the MSPP is priced less aggressively than the limit price of the complex order that executing the order, up to and 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. Additionally, this proposed change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.101 khammond on DSKJM1Z7X2PROD with NOTICES Parity Price Protection The Exchange believes that amending Interpretations and Policies .01(g), Parity Price Protection, of Exchange Rule 518, to provide that an order will be cancelled if the Managed Protection Override is enabled promotes just and equitable principles of trade, and facilitates transactions in securities, removes impediments to and perfects the mechanisms of a free and open market and a national market system and, in general, protects investors and the public interest, by providing Members and the public additional detail and clarity in 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. Additionally, the Exchange notes that this proposed change is identical to a rule currently operative on the Exchange’s affiliate, MIAX Options.102 101 See MIAX Options Exchange Rule 532(b)(5). Interpretations and Policies .01(g) of MIAX Options Exchange Rule 518. 102 See VerDate Sep<11>2014 16:29 Nov 28, 2022 Jkt 259001 Miscellaneous 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 market system. In particular, the Exchange believes that the proposed rule changes will provide greater clarity to Members and the public regarding the Exchange’s Rules. It is in the public interest for rules to be accurate and concise so as to eliminate the potential for confusion. The Exchange believes this proposal promotes just and equitable principles of trade, removes impediments to and perfects the mechanisms of a free and open market and a national market system and, in general, protects investors and the public interest by providing new price protection features for MIAX Emerald 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. The Exchange believes that its proposal to use the cNBBO instead of the dcEBBO in the calculation used to determine whether a complex order is qualified to initiate a Complex Auction promotes just and equitable principles of trade and removes impediments to and perfects the mechanisms of a free and open market and a national market system and, in general, protects investors and the public interest as using the cNBBO provides a better measure of the current market and is more likely to result in price improvement for the initiating order as PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 the cNBBO is calculated using the NBBO (which in turn is calculated by taking the best prices of all exchanges into consideration) for each component of a complex strategy to establish the best net bid and offer for a complex strategy, and therefore is more representative of the prevailing market interest and market prices. The example below demonstrates the difference between the current and proposed calculations. Example 1 (Current Auction Evaluation Based on dcEBBO) Reevaluation Improvement Percentage (RIP) for a complex order at the best price on the Strategy Book 103 subject to dcEBBO. RIP = 80% EBBO: 104 Option A 2.00 × 2.10 EBBO: Option B 1.05 × 1.20 Strategy +1A¥1B = (2.00¥1.20) × (2.10¥1.05) dcEBBO = 0.80 × 1.05 A complex order is resting on the Strategy Book to buy 1 Strategy at a price of 1.00. Upon reevaluation of the Strategy Book it is determined the complex order to buy at 1.00 improves the Strategy bid by 0.20; (1.00¥0.80). The improvement percentage is then calculated as the 0.20 improvement divided by the Strategy bid/offer spread; (1.05¥0.80), in this case resulting in 80% improvement. Because the 80% improvement equals the configured RIP of 80% an auction is initiated. Example 2 (Proposed Auction Evaluation Based on cNBBO) Reevaluation Improvement Percentage (RIP) for a complex order at the best price on the Strategy Book subject to cNBBO. RIP = 80% NBBO: Option A 2.05 × 2.10 NBBO: Option B 1.05 × 1.10 Strategy +1A¥1B = (2.05¥1.10) × (2.10¥1.05) cNBBO = 0.95 × 1.05 A complex order is resting on the Strategy Book to buy 1 Strategy at a price of 1.00. Upon reevaluation of the Strategy Book it is determined the complex order to buy at 1.00 improves the Strategy bid by 0.05; (1.00¥0.95). The improvement percentage is then calculated as the 0.05 improvement divided by the Strategy bid/offer spread; (1.05¥0.95), in this case resulting in 103 The ‘‘Strategy Book’’ is the Exchange’s electronic book of complex orders and complex quotes. See Exchange Rule 518(a)(17). 104 The term ‘‘EBBO’’ means the best bid or offer on the Exchange. See Exchange Rule 100. E:\FR\FM\29NON1.SGM 29NON1 Federal Register / Vol. 87, No. 228 / Tuesday, November 29, 2022 / Notices 50% improvement. Because the 50% improvement is less than the configured RIP of 80% an auction is not initiated. The Exchange believes that using the cNBBO in its calculation to determine whether a complex order is qualified to initiate a Complex Auction will reduce the number of Complex Auctions initiated by the Exchange System which do not receive responses. Using the cNBBO instead of the dcEBBO better reflects the current state of the market and may result in Complex Auctions that receive responses which in turn may result in price improvement for the initiating order. 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. khammond on DSKJM1Z7X2PROD with NOTICES Intra-Market Competition 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 Butterfly Spread Variance (‘‘BSV’’) Price Protection, Calendar Spread Variance (‘‘CSV’’) Price Protection, and Vertical Spread Variance (‘‘VSV’’) Price Protection, Parity Price Protection, and Max Put Price protection are all available for any MIAX Emerald Member that submits orders or quotes to the Exchange. Any MIAX Member transacting on the Exchange will benefit from the risk protections proposed herein. 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. Additionally, the Exchange does not believe that the proposed rule change to replace the dcEBBO value with the cNBBO value in the calculation used to determine whether a complex order is qualified to initiate a Complex Auction will impose any burden on intra-market competition. As all complex orders submitted to the Exchange will be uniformly evaluated under the Exchange’s rules, and the rules of the Exchange apply equally to all Members. Inter-Market Competition 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 provide additional transparency to the Exchange’s risk protections. The VerDate Sep<11>2014 16:29 Nov 28, 2022 Jkt 259001 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. The Exchange believes its proposal to adopt to use the cNBBO in the calculation to determine whether to initiate a Complex Auction better reflects current market prices and may result in the initiation of Complex Auctions which result in price improvement for the initiating order. The Exchange believes the proposed rule change will enhance competition among the various markets for complex order execution, potentially resulting in more active complex order trading on all exchanges. Additionally, the Exchange believes that this change will result in a reduction of the overall number of Complex Auctions initiated on the Exchange but will in turn increase the percentage of auctions that result in price improvement, as the auction start price will be more closely aligned to prevailing market prices. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days after the date of the filing, or such shorter time as the Commission may designate, it has become effective pursuant to 19(b)(3)(A) of the Act 105 and Rule 19b–4(f)(6) 106 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the 105 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 106 17 PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 73363 Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– EMERALD–2022–30 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–EMERALD–2022–30. 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. 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–EMERALD–2022–30 and should be submitted on or before December 20, 2022. E:\FR\FM\29NON1.SGM 29NON1 73364 Federal Register / Vol. 87, No. 228 / Tuesday, November 29, 2022 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.107 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2022–25948 Filed 11–28–22; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–96378; File No. SR– EMERALD–2022–31] Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 518, Complex Orders November 22, 2022. Pursuant to the provisions of Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on November 10, 2022, MIAX Emerald, LLC (‘‘MIAX Emerald’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Exchange Rule 518, Complex Orders. The text of the proposed rule change is available on the Exchange’s website at https://www.miaxoptions.com/rulefilings/emerald, at MIAX Emerald’s principal office, and at the Commission’s Public Reference Room. khammond on DSKJM1Z7X2PROD with NOTICES 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. 107 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 16:29 Nov 28, 2022 Jkt 259001 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend Exchange Rule 518, Complex Orders, to adopt a new optional order instruction, ‘‘Do Not Leg (‘DNL’),’’ to paragraph (b), Types of Complex Orders. The Exchange currently offers its Members 3 a number of complex order types enumerated in paragraph (b) of Rule 518. The Exchange offers a Complex Auction-on-Arrival Order,4 a Complex Auction-or-Cancel Order,5 a Complex Immediate-or-Cancel Order,6 a Complex Customer Cross Order,7 a Complex Qualified Contingent Cross Order,8 a Complex PRIME Order,9 a Complex Attributable Order,10 and a Complex Auction-on-Arrival-Only Order.11 The Exchange now proposes to adopt a new optional order instruction for complex orders entitled, ‘‘Do Not Leg’’ or ‘‘DNL.’’ A complex order that is marked with the DNL instruction will not leg into the Simple Order Book.12 Additionally, a complex order that is marked with the DNL instruction must be executed at a price that complies with Exchange Rule 518(c)(2)(ii). The DNL order instruction will be available for use with all complex order types (excluding Complex Customer Cross Orders, Complex Qualified Contingent Cross Orders, and cPRIME Orders) offered on the Exchange. Complex Customer Cross Orders 13 and Complex Qualified Contingent Cross Orders 14 are order types that execute immediately upon entry (provided that they satisfy certain criteria) and would therefore not leg into the Simple Order Book. Specifically, Complex Customer Cross (‘‘cC2C’’) Orders as defined in Rule 518(b)(5), are automatically executed upon entry provided that the execution is at least $0.01 better than (inside) the 3 The term ‘‘Member’’ means an individual or organization approved to exercise the trading rights associated with a Trading Permit. Members are deemed ‘‘members’’ under the Exchange Act. See Exchange Rule 100. 4 See Exchange Rule 518(b)(2). 5 See Exchange Rule 518(b)(3). 6 See Exchange Rule 518(b)(4). 7 See Exchange Rule 518(b)(5). 8 See Exchange Rule 518(b)(6). 9 See Exchange Rule 518(b)(7). 10 See Exchange Rule 518(b)(8). 11 See Exchange Rule 518(b)(9). 12 The ‘‘Simple Order Book’’ is the Exchange’s regular electronic book of orders and quotes. See Exchange Rule 518(a)(15). 13 See Exchange Rule 518(b)(5). 14 See Exchange Rule 518(b)(6). PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 icEBBO 15 (as defined in Rule 518(a)(12)) price or the best net price of a complex order (as defined in Rule 518(a)(5)) on the Strategy Book 16 (as defined in Rule 518(a)(17)), whichever is more aggressive.17 Complex Qualified Contingent Cross (‘‘cQCC’’) Orders, as defined in Rule 518(b)(6), are automatically executed upon entry provided that, with respect to each option leg of the cQCC Order, the execution (i) is not at the same price as a Priority Customer Order 18 on the Exchange’s Book; 19 and (ii) is at or between the NBBO.20 Additionally, the DNL instruction will not be available for cPRIME Orders, as cPRIME Orders are another type of a crossing order. Specifically, a cPRIME Order is a paired order with an established minimum execution price that must meet certain defined internal criteria to be eligible to participate in a cPRIME Auction.21 Specifically, the initiating price for a cPRIME Agency Order must be better than (inside) the icEBBO for the strategy and any other complex orders on the Strategy Book. The System will reject cPRIME Agency Orders submitted with an initiating price that is equal to or worse than (outside) the icEBBO or any other complex orders on the Strategy Book.22 Currently, a cPRIME Auction has a duration of 100 milliseconds.23 15 The Implied Complex MIAX Emerald Best Bid or Offer (‘‘icEBBO’’) is a calculation that uses the best price from the Simple Order Book for each component of a complex strategy including displayed and non-displayed trading interest. For stock-option orders, the icEBBO for a complex strategy will be calculated using the best price (whether displayed or non-displayed) on the Simple Order Book in the individual option component(s), and the NBBO in the stock component. See Exchange Rule 518(a)(12). 16 The ‘‘Strategy Book’’ is the Exchange’s electronic book of complex orders and complex quotes. See Exchange Rule 518(a)(17). 17 See Exchange Rule 515(h)(3). 18 The term ‘‘Priority Customer’’ means a person or entity that (i) is not a broker or dealer in securities, and (ii) does not place more than 390 orders in listed options per day on average during a calendar month for its own beneficial account(s). See Exchange Rule 100. 19 The term ‘‘Book’’ means the electronic book of buy and sell orders and quotes maintained by the System. See Exchange Rule 100. 20 See Exchange Rule 515(h)(4). The term ‘‘NBBO’’ means the national best bid or offer as calculated by the Exchange based on market information received by the Exchange from OPRA. See Exchange Rule 100. 21 See Interpretations and Policies .12(a) of Exchange Rule 515A. 22 See Interpretations and Policies .12(a)(i) of Exchange Rule 515A. 23 See MIAX Emerald Exchange System Settings on the Exchange’s public website, available at https://www.miaxoptions.com/sites/default/files/ page-files/MIAX_EMERALD_System_Settings_ 11122018.pdf. E:\FR\FM\29NON1.SGM 29NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 87, Number 228 (Tuesday, November 29, 2022)]
[Notices]
[Pages 73353-73364]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-25948]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96376; File No. SR-EMERALD-2022-30]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt 
Exchange Rule 532, Order and Quote Price Protection Mechanisms and Risk 
Controls

November 22, 2022.
    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on November 10, 2022, MIAX Emerald, LLC (``MIAX 
Emerald'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to (i) adopt new Exchange Rule 532, Order and 
Quote Price Protection Mechanisms and Risk Controls; and (ii) amend 
Exchange Rule 518, Complex Orders.
    The text of the proposed rule change is available on the Exchange's 
website at https://www.miaxoptions.com/rule-filings/emerald, at MIAX 
Emerald's principal office, and at the Commission's Public Reference 
Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to adopt new Exchange Rule 532, Order and 
Quote Price Protection Mechanisms and Risk Controls.\3\ 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 notes that the 
proposed functionality is identical to functionality recently adopted 
by the Exchange's affiliate, MIAX Options Exchange.\4\
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    \3\ The Exchange notes that proposed Rule 532 is identical to 
current Rule 532 on the MIAX Options Exchange.
    \4\ See Securities Exchange Act Release No. 94353 (March 3, 
2022), 87 FR 13339 (March 9, 2022) (SR-MIAX-2021-58).
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    The Exchange also 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 add a new Butterfly Spread 
Variance (``BSV'') Price Protection to proposed section (b)(2) of new 
proposed Rule 532.\5\ Further, the Exchange proposes to relocate 
paragraph (d), Implied Away Best Bid or Offer (``ixABBO'') Price 
Protection; paragraph (f), Complex MIAX Emerald Price Collar 
Protection; and paragraph (g), Market Maker Single Side Protection, 
from Interpretations and Policies .05 of Exchange Rule 518 to new 
proposed Rule 532 in their entirety and without modification as section 
(b)(6), Complex MIAX Options Price Collar Protection; section (b)(7), 
Implied Away Best Bid or Offer (``ixABBO'') Price Protection; and 
section (b)(8), Market Maker Single Side Protection.\6\
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    \5\ The Exchange notes that the proposed functionality is 
identical to functionality recently adopted by the Exchange's 
affiliate, MIAX Options. See Securities Exchange Act Release No. 
94353 (March 3, 2022), 87 FR 13339 (March 9, 2022) (SR-MIAX-2021-
58).
    \6\ The proposed rulebook changes are identical to recent 
rulebook changes made by the Exchange's affiliate, MIAX Options. See 
supra note 4.
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    The Exchange also proposes to amend Exchange Rule 518, Complex 
Orders, to

[[Page 73354]]

change the value used in the calculation that determines whether a 
complex order is eligible to initiate a Complex Auction \7\ from the 
dcEBBO \8\ to the cNBBO.\9\ The Exchange notes that this proposed 
change is substantively identical (the only difference being the naming 
convention used by each exchange, whereas MIAX Options used the term 
dcMBBO \10\ prior to changing to the cNBBO and MIAX Emerald uses the 
term dcEBBO) to a recent change made by the Exchange's affiliate, MIAX 
Options.\11\
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    \7\ Certain option classes, as determined by the Exchange and 
communicated to Members via Regulatory Circular, will be eligible to 
participate in a Complex Auction (an ``eligible class''). Upon 
evaluation as set forth in subparagraph (c)(5) of Exchange Rule 518, 
the Exchange may determine to automatically submit a Complex 
Auction-eligible order into a Complex Auction. Upon entry into the 
System or upon evaluation of a complex order resting at the top of 
the Strategy Book, Complex Auction-eligible orders may be subject to 
an automated request for responses (``RFR''). See Exchange Rule 
518(d).
    \8\ The Displayed Complex MIAX Emerald Best Bid or Offer 
(``dcEBBO'') is calculated using the best displayed price for each 
component of a complex strategy from the Simple Order Book. For 
stock-option orders, the dcEBBO 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).
    \9\ The Complex National Best Bid or Offer (``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. See 
Exchange Rule 518(a)(2).
    \10\ The Displayed Complex MIAX Best Bid or Offer (``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 MIAX Options 
Exchange Rule 518(a)(8).
    \11\ See Securities Exchange Act Release No. 94671 (April 11, 
2022), 87 FR 22605 (April 15, 2022) (SR-MIAX-2022-13).
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    Additionally, the Exchange also 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 launched in December 2018, and at that time, the 
Exchange Rulebook contained complex order rules that were substantially 
similar to the rules of its affiliate exchange, MIAX Options. Since 
December 2018, MIAX Options has added functionality to grow its complex 
order business. The Exchange proposes to amend its rules to adopt 
functionality that currently exists on the MIAX Options Exchange. The 
Exchange seeks to align functionality to its affiliate, MIAX Options, 
where feasible. The proposed rule changes described below are 
identical, or substantively identical, to rule changes filed by the 
Exchange's affiliate, MIAX Options.\12\
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    \12\ See Securities Exchange Act Release No. 94353 (March 3, 
2022), 87 FR 13339 (March 9, 2022) (SR-MIAX-2021-58) (Notice of 
Filing of Amendment Nos. 1 and 2 and Order Granting 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).
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Proposal
Managed Protection Override (``MPO'')
    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 \13\ enables the Managed Protection Override 
then all risk protections connected to the Managed Protection Override 
feature are engaged. When a risk protection connected to the Managed 
Protection Override feature is triggered, and the Managed Protection 
Override feature is enabled, the order subject to the risk protection 
will be cancelled. The Exchange notes that this proposed rule change is 
identical to a rule currently operative on the Exchange's affiliate, 
MIAX Options.\14\
---------------------------------------------------------------------------

    \13\ 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.
    \14\ See MIAX Options Exchange Rule 532.
---------------------------------------------------------------------------

    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. The Exchange 
notes that this proposed rule change is identical to a rule currently 
operative on the Exchange's affiliate, MIAX Options.\15\
---------------------------------------------------------------------------

    \15\ See id.
---------------------------------------------------------------------------

    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).\16\ Additionally, when the Parity Price 
Protection is triggered the default behavior is to place the order on 
the Strategy Book \17\ at its parity protected price.\18\ 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.
---------------------------------------------------------------------------

    \16\ See Interpretations and Policies .05(c) of Exchange Rule 
518.
    \17\ The ``Strategy Book'' is the Exchange's electronic book of 
complex orders and complex quotes. See Exchange Rule 518(a)(17).
    \18\ 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 \19\ 
options by establishing a maximum price at which a put option may 
trade. This proposed rule change is identical to a rule currently 
operative on the Exchange's affiliate, MIAX Options.\20\
---------------------------------------------------------------------------

    \19\ 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.
    \20\ See MIAX Options Exchange Rule 532(a)(1).
---------------------------------------------------------------------------

    To determine the maximum price the Exchange will add a pre-set 
value, the Put Price Variance (``PPV''), to the strike price of the Put 
option. The pre-set value will be determined by the Exchange \21\ 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 \22\ 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.
---------------------------------------------------------------------------

    \21\ The Exchange proposes to use a pre-set value for the Put 
Price Variance of $0.10 to align to other similar price protections 
on the Exchange. The Exchange believes this value provides an 
adequate price range for executions while offering price protection 
against potentially erroneous executions. See MIAX Emerald 
Regulatory Circular 2019-73, Complex Order Price Protection Pre-set 
Values (August 13, 2019) available at https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Emerald_RC_2019_73.pdf, 
which establishes a $0.10 pre-set value for Vertical Spreads and 
Calendar Spreads.
    \22\ The term ``Book'' means the electronic book of buy and sell 
orders and quotes maintained by the System. See Exchange Rule 100.
---------------------------------------------------------------------------

    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, will 
be cancelled. An offer quote received that is higher than the

[[Page 73355]]

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.\23\
---------------------------------------------------------------------------

    \23\ Orders and quotes are handled differently as orders may 
only be submitted by Electronic Exchange Members and quotes may only 
be submitted by Market Makers. The term ``Electronic Exchange 
Member'' or ``EEM'' means the holder of a Trading Permit who is not 
a Market Maker. Electronic Exchange Members are deemed ``members'' 
under the Exchange Act. See Exchange Rule 100. The term ``Market 
Makers'' refers to ``Lead Market Makers'', ``Primary Lead Market 
Makers'' and ``Registered Market Makers'' collectively. See Exchange 
Rule 100.
---------------------------------------------------------------------------

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:

EBBO \24\ 0.50 (10) x 5.50 (10)
---------------------------------------------------------------------------

    \24\ The term ``EBBO'' means the best bid or offer on the Simple 
Order Book on the Exchange. See Exchange Rule 518(a)(10). The 
``Simple Order Book'' is the Exchange's regular electronic book of 
orders and quotes. See Exchange Rule 518(a)(15).

---------------------------------------------------------------------------
    The price protection is:

Put Price Variance (PPV) = $0.10
Max Put Price Protection = (Strike + PPV) = $5.10

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

EBBO 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:

EBBO 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:

EBBO 0.50 (10) x 5.50 (10)

    The price protection is:

Put Price Variance (PPV) = $0.10
Put Option = XYZ Jan 5 Put
Max Put Price Protection = (Strike + PPV) = $5.10

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

EBBO 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:

EBBO 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.

EBBO 5.10 (10) x 5.25 (10)

    The Exchange believes that offering Members the option to have 
orders either managed by the Exchange or cancelled when a risk 
protection is triggered gives Members greater flexibility and control 
over their orders while retaining the risk protection functionality. 
The Exchange notes that this proposed rule change is identical to a 
rule currently operative on the Exchange's affiliate, MIAX Options.\25\
---------------------------------------------------------------------------

    \25\ See MIAX Options Exchange Rule 532(a)(1).
---------------------------------------------------------------------------

Definitions
    The Exchange proposes to include a ``Definitions'' section as 
paragraph (b)(1) in proposed Rule 532.\26\ 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\
---------------------------------------------------------------------------

    \26\ The Exchange notes that the proposed rule text is identical 
to current rule text on MIAX Options. See MIAX Options Exchange Rule 
532(b)(1).
    \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 identical to the definition of a Butterfly 
Spread on MIAX Options. See MIAX Options Exchange Rule 532(b)(1)(i).
---------------------------------------------------------------------------

    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 (b)(1)(iii) of proposed Rule 532 respectively. The 
definition of 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.\29\ 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.\30\ The 
Exchange notes its definition of a Calendar Spread and a Vertical 
Spread is not changing under this proposal.
---------------------------------------------------------------------------

    \29\ The Exchange notes that its proposed definition of a 
Calendar Spread is identical to the definition of a Calendar Spread 
on MIAX Options. See MIAX Options Exchange Rule 532(b)(1)(ii).
    \30\ The Exchange notes that its proposed definition of a 
Vertical Spread is identical to the definition of a Vertical Spread 
on MIAX Options. See MIAX Options Exchange Rule 532(b)(1)(iii).
---------------------------------------------------------------------------

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. This proposed rule 
change is identical to a rule currently operative on the Exchange's 
affiliate, MIAX Options.\31\
---------------------------------------------------------------------------

    \31\ See MIAX Options Exchange Rule 532(b)(2).
---------------------------------------------------------------------------

    A Butterfly Spread is comprised of three legs which have the same 
expiration date but different exercise prices, and are of the same 
type, either calls or puts, and are at equal strike intervals. The 
upper and lower strikes are each a buy (sell) and the middle strike is 
a sell (buy). The ratio of a butterfly spread will always be +1 -2 +1 
or -1 +2 -1.
Butterfly Spread Example
Buy 1 XYZ April 50 Call
Sell 2 XYZ April 55 Calls
Buy 1 FYX April 60 Call

    The Exchange will establish a price protection for Butterfly 
Spreads by establishing a Butterfly Spread Variance. The Exchange 
proposes to adopt paragraph (b)(2)(i) to provide that, the minimum 
possible trading price limit of a Butterfly Spread is zero minus a pre-
set value. The maximum possible trading price limit of a Butterfly 
Spread is 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) plus a pre-set value. 
The Exchange notes that this proposed rule change is identical to a

[[Page 73356]]

rule currently operative on the Exchange's affiliate, MIAX Options.\32\
---------------------------------------------------------------------------

    \32\ See MIAX Options Exchange Rule 532(b)(2)(i).
---------------------------------------------------------------------------

    The Exchange proposes to adopt paragraph (b)(2)(ii) to provide 
that, if the execution price of a complex order would be outside of the 
limits set forth in paragraph (i) above (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 will 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. The Exchange notes that this proposed 
rule change is identical to a rule currently operative on the 
Exchange's affiliate, MIAX Options.\33\
---------------------------------------------------------------------------

    \33\ See MIAX Options Exchange Rule 532(b)(2)(ii).
---------------------------------------------------------------------------

    The Exchange proposes to adopt paragraph (b)(2)(iii) to provide 
that, buy orders, sell orders, and offer eQuotes \34\ 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 notes that this proposed rule change is 
identical to a rule currently operative on the Exchange's affiliate, 
MIAX Options.\35\
---------------------------------------------------------------------------

    \34\ The Exchange proposes to extend existing price protections 
to sell limit orders and offer eQuotes for certain complex order 
spread strategies similar to MIAX Options. See Exchange Act Release 
No. 95227 (July 8, 2022), 87 FR 42229 (July 14, 2022) (SR-MIAX-2022-
25).
    \35\ See MIAX Options Exchange Rule 532(b)(2)(iii).
---------------------------------------------------------------------------

    The Exchange also proposes to adopt paragraph (b)(2)(iv) to provide 
that, the pre-set value will be determined by the Exchange and 
communicated to Members via Regulatory Circular. The Exchange notes 
that this proposed rule change is identical to a rule currently 
operative on the Exchange's affiliate, MIAX Options.\36\
---------------------------------------------------------------------------

    \36\ See MIAX Options Exchange Rule 532(b)(2)(iv).
---------------------------------------------------------------------------

    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 values, a configurable pre-set value is 
added to the maximum spread value and subtracted from the minimum 
spread value. The pre-set value will be determined by the Exchange and 
communicated to Members via Regulatory Circular.\37\
---------------------------------------------------------------------------

    \37\ The Exchange proposes to use a pre-set value of $0.10 for 
Butterfly Spreads to align to the pre-set value which is used on the 
Exchange for Calendar Spreads and Vertical Spreads. See supra note 
21.
---------------------------------------------------------------------------

Example
    Butterfly Spread: Buy 1 October 50 Call, Sell 2 October 55 Calls, 
Buy 1 October 60 Call.

October 50 Call EBBO: $11.00 x $16.00
October 55 Call EBBO: $6.00 x $11.00
October 60 Call EBBO: $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) amend the rule text to 
align to the rule text on the Exchange's affiliate, MIAX Options; (iii) 
amend the rule text to enable the operation of the Managed Protection 
Override; and (iv) extend the existing price protection to include sell 
orders and offer eQuotes. Specifically, the Exchange proposes to 
relocate the Calendar Spread Variance (``CSV'') Price Protection from 
Interpretations and Policies .05(b) of Rule 518 to paragraph (b)(3) of 
new proposed Rule 532. The Exchange notes that this proposed rule 
change is identical to a rule currently operative on the Exchange's 
affiliate, MIAX Options.\38\
---------------------------------------------------------------------------

    \38\ See MIAX Options Exchange Rule 532(b)(3).
---------------------------------------------------------------------------

    The Exchange proposes to adopt paragraph (i) to state 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. 
The Exchange notes that this rule text is being relocated to Rule 
532(b)(3)(i) but is not changing under this proposal.\39\
---------------------------------------------------------------------------

    \39\ See Interpretations and Policies .05(b)(1) of Rule 518.
---------------------------------------------------------------------------

    Currently, the operation of the Calendar Spread Variance (``CSV'') 
and Vertical Spread Variance (``VSV'') price protection is described 
together in Interpretations and Policies .05(c) of Rule 518. The 
Exchange now proposes to describe the operation of the price protection 
separately for each strategy. Specifically, the Exchange proposes to 
adopt subparagraph (ii) to proposed Rule 532(b)(3) to state that, if 
the execution price of a complex order would be outside of the limit 
set forth in subparagraph (i) above (offers lower than the minimum 
trading price limit), such complex order will trade down to, and 
including, the minimum trading price limit. The Exchange notes that 
this proposed rule change is identical to a rule currently operative on 
the Exchange's affiliate, MIAX Options.\40\
---------------------------------------------------------------------------

    \40\ See MIAX Options Exchange Rule 523(b)(3)(ii).
---------------------------------------------------------------------------

    The Exchange also proposes to describe the handling of remaining 
interest within the rule text to provide additional detail and to 
incorporate the operation of the Managed Protection Override. 
Specifically, the Exchange proposes to adopt an additional provision to 
proposed Rule 532(b)(3)(ii) to provide that, 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. The Exchange notes that this 
proposed rule change is identical to a rule currently operative on the 
Exchange's affiliate, MIAX Options.\41\
---------------------------------------------------------------------------

    \41\ See id.
---------------------------------------------------------------------------

    The Exchange proposes to adopt subparagraph (iii) to state that, 
buy orders, sell orders, and offer eQuotes \42\ with a limit price less 
than the minimum trading price will be rejected. Bid eQuotes with a 
limit price less than the minimum trading price limit will be 
cancelled. Currently, the rule provides that orders to buy below the 
minimum trading price limit will be rejected.\43\ The Exchange is 
proposing to extend this price protection to sell orders and offer 
eQuotes under this proposal. The Exchange notes that this proposed rule 
change is identical to a rule currently operative on the Exchange's 
affiliate, MIAX Options.\44\
---------------------------------------------------------------------------

    \42\ See supra note 34.
    \43\ See Interpretations and Policies .05(c) of Exchange Rule 
518.
    \44\ See MIAX Options Exchange Rule 532(b)(3)(iii).
---------------------------------------------------------------------------

    The Exchange proposes to adopt subparagraph (iv) to state that the 
CSV Price Protection applies only to strategies in American-style 
option classes. The Exchange notes that this rule text is being 
relocated to proposed Rule 532(b)(3)(iv) but is not changing under this 
proposal.\45\
---------------------------------------------------------------------------

    \45\ See Interpretations and Policies .05(c)(3) of Exchange Rule 
518.

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

[[Page 73357]]

    The Exchange proposes to adopt subparagraph (v) to state that the 
pre-set value will be determined by the Exchange and communicated to 
Members via Regulatory Circular. The Exchange notes that this proposed 
rule change is identical to a rule currently operative on the 
Exchange's affiliate, MIAX Options.\46\
---------------------------------------------------------------------------

    \46\ See MIAX Options Exchange Rule 518(b)(3)(v).
---------------------------------------------------------------------------

Vertical Spread Variance (``VSV'') Price Protection
    The Exchange proposes to (i) relocate Vertical Spread Variance 
(``VSV'') Price Protection from Rule 518; (ii) amend the rule text to 
align to the rule text on the Exchange's affiliate, MIAX Options; (iii) 
amend the rule text to enable the operation of the Managed Protection 
Override; and (iv) extend the existing price protection to include sell 
orders and offer eQuotes. Specifically, the Exchange proposes to 
relocate the Vertical Spread Variance (``VSV'') Price Protection from 
Interpretations and Policies .05(a) of Rule 518 to paragraph (b)(4) of 
new proposed Rule 532. The Exchange notes that this proposed rule 
change is identical to a rule currently operative on the Exchange's 
affiliate, MIAX Options.\47\
---------------------------------------------------------------------------

    \47\ See MIAX Options Exchange Rule 532(b)(4).
---------------------------------------------------------------------------

    The Exchange proposes to adopt subparagraph (i) to 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. 
The Exchange notes that this rule text is being relocated to Rule 
532(b)(4)(i) but is not changing under this proposal.\48\
---------------------------------------------------------------------------

    \48\ See Interpretations and Policies .05(a)(1) of Rule 518.
---------------------------------------------------------------------------

    Currently, the operation of the Calendar Spread Variance (``CSV'') 
and Vertical Spread Variance (``VSV'') price protection is described 
together in Interpretations and Policies .05(c) of Rule 518. The 
Exchange now proposes to describe the operation of the price protection 
separately for each strategy. Specifically, the Exchange proposes to 
adopt subparagraph (ii) to proposed Rule 532(b)(4) to state that, if 
the execution price of a complex order would be outside of the limits 
set forth in subparagraph (i) above (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. The Exchange notes that this proposed 
rule change is identical to a rule currently operative on the 
Exchange's affiliate, MIAX Options.\49\
---------------------------------------------------------------------------

    \49\ See MIAX Options Exchange Rule 532(b)(4)(ii).
---------------------------------------------------------------------------

    The Exchange also proposes to describe the handling of remaining 
interest within the rule text to provide additional detail and to 
incorporate the operation of the Managed Protection Override. 
Specifically, the Exchange proposes to adopt an additional provision to 
proposed Rule 532(b)(4)(ii) to provide that, 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. The Exchange notes that this 
proposed rule change is identical to a rule currently operative on the 
Exchange's affiliate, MIAX Options.\50\
---------------------------------------------------------------------------

    \50\ See id.
---------------------------------------------------------------------------

    The Exchange proposes to adopt subparagraph (iii) to state that, 
buy orders, sell orders, and offer eQuotes \51\ 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. 
Currently, the rule provides that orders to buy below the minimum 
trading price limit and orders to sell above the maximum trading price 
limit will be rejected by the System.\52\ The Exchange is proposing to 
extend this price protection to sell orders and offer eQuotes under 
this proposal. The Exchange notes that this proposed rule change is 
identical to a rule currently operative on the Exchange's affiliate, 
MIAX Options.\53\
---------------------------------------------------------------------------

    \51\ See supra note 34.
    \52\ See Interpretations and Policies .05(c) of Exchange Rule 
518.
    \53\ See MIAX Options Exchange Rule 532(b)(4)(iii).
---------------------------------------------------------------------------

    The Exchange also proposes to adopt subparagraph (iv) to state 
that, the pre-set value will be determined by the Exchange and 
communicated to Members via Regulatory Circular. The Exchange notes 
that this proposed rule change is identical to a rule currently 
operative on the Exchange's affiliate, MIAX Options.\54\
---------------------------------------------------------------------------

    \54\ See MIAX Options Exchange Rule 532(b)(4)(iv).
---------------------------------------------------------------------------

MIAX Strategy Price Protection (``MSPP'')
    The Exchange also 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. The 
Exchange notes that this proposed rule change is identical to a rule 
currently operative on the Exchange's affiliate, MIAX Options.\55\
---------------------------------------------------------------------------

    \55\ See MIAX Options Exchange Rule 532(b)(5).
---------------------------------------------------------------------------

    To determine the maximum price for a buy order the Exchange will 
add a pre-set value, the MIAX Strategy Price Protection Variance 
(``MSPPV''),\56\ to the offer side value of the cNBBO.\57\ To determine 
the minimum protected price for sell orders the Exchange will subtract 
the MSPPV value from the bid side value of the cNBBO. The MSPPV value 
will be determined by the Exchange and communicated to Members via 
Regulatory Circular. For market orders \58\ the functional limit price 
will be the MSPP. All Day \59\ and GTC \60\ complex orders are eligible 
for the MIAX Strategy Price Protection. cIOC orders,\61\ cAOC 
orders,\62\ cIOC

[[Page 73358]]

eQuotes,\63\ and cAOC eQuotes,\64\ are not eligible for the MIAX 
Strategy Price Protection,\65\ nor are crossing orders.\66\ The MIAX 
Strategy Price Protection is an additional price protection feature 
provided to all Members of the Exchange.
---------------------------------------------------------------------------

    \56\ 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 is identical to the value currently in use 
for the MSPP on the MIAX Options Exchange. See MIAX Options Exchange 
Regulatory Circular 2022-16, MIAX Order Price Protection Pre-set 
Values (March 4, 2022) available at https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Options_RC_2022_16.pdf.
    \57\ 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).
    \58\ 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).
    \59\ 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).
    \60\ 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).
    \61\ A Complex Immediate-or-Cancel or ``cIOC'' order is a 
complex order that is to be executed in whole or in part upon 
receipt. Any portion not so executed is cancelled. See Exchange Rule 
518(b)(4).
    \62\ A Complex Auction-or-Cancel or ``cAOC'' order is a complex 
limit order used to provide liquidity during a specific Complex 
Auction with a time in force that corresponds with that event. cAOC 
orders are not displayed to any market participant, and are not 
eligible for trading outside of the event. A cAOC order with a size 
greater than the aggregate auctioned size (as defined in Rule 
518(d)(4)) will be capped for allocation purposes at the aggregate 
auctioned size. See Exchange Rule 518(b)(3).
    \63\ A ``Complex Immediate or Cancel eQuote'' or ``cIOC 
eQuote,'' which is a complex eQuote with a time-in-force of IOC that 
may be matched with another complex quote or complex order for an 
execution to occur in whole or in part upon receipt into the System. 
cIOC eQuotes will not: (i) be executed against individual orders and 
quotes resting on the Simple Order Book; (ii) be eligible to 
initiate a Complex Auction or join a Complex Auction in progress; 
(iii) rest on the Strategy Book; or (iv) be displayed. Any portion 
of a cIOC eQuote that is not executed is immediately cancelled. See 
paragraph (c)(2) of Interpretations and Policies .02 of Exchange 
Rule 518.
    \64\ A ``Complex Auction or Cancel eQuote'' or ``cAOC eQuote,'' 
which is an eQuote submitted by a Market Maker that is used to 
provide liquidity during a specific Complex Auction with a time in 
force that corresponds with the duration of the Complex Auction. A 
cAOC eQuote with a size greater than the aggregate auctioned size 
(as defined in Rule 518(d)(4)) will be capped for allocation 
purposes at the aggregate auctioned size. cAOC eQuotes will not: (i) 
be executed against individual orders and quotes resting on the 
Simple Order Book; (ii) be eligible to initiate a Complex Auction, 
but may join a Complex Auction in progress; (iii) rest on the 
Strategy Book; or (iv) be displayed. See paragraph (c)(1) of 
Interpretations and Policies .02 of Exchange Rule 518.
    \65\ The Exchange does not believe that these order and quote 
types require the additional price protection afforded by the MSPP 
as these orders and quotes do not rest on the Strategy Book but are 
either executed immediately or cancelled. See supra notes 61, 62, 
63, and 64.
    \66\ The Exchange does not believe that crossing orders require 
the additional price protection afforded by the MSPP as the 
execution price of these orders is pre-established. A Complex 
Customer Cross or ``cC2C'' Order is comprised of one Priority 
Customer complex order to buy and one Priority Customer complex 
order to sell at the same price and for the same quantity. Trading 
of cC2C Orders is governed by Rule 515(h)(3). See Exchange Rule 
518(b)(5). A Complex Qualified Contingent Cross or ``cQCC'' Order is 
comprised of an originating complex order to buy or sell where each 
component is at least 1,000 contracts that is identified as being 
part of a qualified contingent trade, as defined in Rule 516, 
Interpretations and Policies .01, coupled with a contra-side complex 
order or orders totaling an equal number of contracts. Trading of 
cQCC Orders is governed by Rule 515(h)(4). See Exchange Rule 
518(b)(6).
---------------------------------------------------------------------------

    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. The Exchange notes that this proposed rule change is 
identical to a rule currently operative on the Exchange's affiliate, 
MIAX Options.\67\
---------------------------------------------------------------------------

    \67\ See MIAX Options Exchange Rule 532(b)(5)(v).
---------------------------------------------------------------------------

    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 Exchange notes that 
this proposed rule change is identical to a rule currently operative on 
the Exchange's affiliate, MIAX Options.\68\
---------------------------------------------------------------------------

    \68\ See MIAX Options Exchange Rule 532(b)(5)(vi).
---------------------------------------------------------------------------

    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.\69\ The cLEP process was designed for complex orders and 
complex eQuotes that violate their Complex MIAX Price Collar (``MPC'') 
price.\70\ 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 \71\ 
(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'').\72\ 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.\73\ 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.\74\
---------------------------------------------------------------------------

    \69\ See Securities Exchange Act Release No. 85346 (March 18, 
2019), 84 FR 10854 (March 22, 2019) (SR-EMERALD-2019-14).
    \70\ The Exchange notes that there are no changes to the Complex 
MIAX Price Collar functionality under this proposal.
    \71\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \72\ See Exchange Rule 518.05(f).
    \73\ See Exchange Rule 518.05(f)(3).
    \74\ See Exchange Rule 518.05(f)(5).
---------------------------------------------------------------------------

    A complex order or complex eQuote that would violate its MPC Price 
begins a cLEP Auction.\75\ 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.\76\ Remaining liquidity with an original limit 
price that is (i) less aggressive (lower for a buy order or eQuote, or 
higher for a sell order or eQuote) than or equal to the MPC Price will 
be handled in accordance with subsection (c)(2)(ii)-(v) of Rule 518, or 
(ii) more aggressive than the MPC Price will be subject to the 
Reevaluation Process.\77\
---------------------------------------------------------------------------

    \75\ See Exchange Rule 518(e).
    \76\ Id.
    \77\ 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.

[[Page 73359]]

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:

EBBO component A: 4.00 (10) x 6.00 (10)
EBBO component B: 1.00 (10) x 2.50 (10)
NBBO \78\ component A: 4.05 (10) x 4.15 (10)
---------------------------------------------------------------------------

    \78\ 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)
icEBBO: \79\ 1.50 (10) x 5.00 (10)
---------------------------------------------------------------------------

    \79\ The icEBBO is a calculation that uses the best price from 
the Simple Order Book for each component of a complex strategy 
including using displayed and non-displayed trading interest. For 
stock-option orders, the icEBBO for a complex strategy will be 
calculated using the best price (whether displayed or non-displayed) 
on the Simple Order Book in the individual option component(s), and 
the NBBO in the stock component. See Exchange Rule 518(a)(12).
---------------------------------------------------------------------------

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 icEBBO.

icEBBO: 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.

icEBBO: 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 into the cLEP 
process. Currently, at the conclusion of a cLEP Auction, 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 Exchange proposes to amend this sentence to state 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. 
Additionally, the current rule text provides that, liquidity with an 
original limit 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 Rule 518. 
The Exchange proposes to amend this sentence to provide that, 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 Rule 518.
    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.
    Additionally, the Exchange proposes to introduce the protected 
price into the allocation process at the end of a cLEP Auction. The 
current rule, Allocation at the Conclusion of a Complex Liquidity 
Exposure Auction, provides 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 (518).
    The Exchange now proposes to amend this provision to 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 
the MIAX Strategy Price Protection (``MSPP'') (as described in Rule 
532(b)(5)) 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 (518).
    The Exchange also proposes to amend Rule 518(e), Allocation at the 
Conclusion of a Complex Liquidity Exposure Auction, to provide that 
orders and quotes executed in a cLEP Auction will be allocated first in 
price priority based upon their original limit price, orders subject to 
MSPP are allocated using their protected price, and thereafter in 
accordance with the Complex Auction allocation procedures described in 
subsection (d)(7)(i)-(vi) of this Rule.
Parity Price Protection
    The Exchange proposes to amend paragraph (g), Parity Price 
Protection, of Interpretations and Policies .01 of Exchange Rule 518, 
to add a reference to the Managed Protection Override. The rule, as 
proposed to be amended, will 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

[[Page 73360]]

protection feature is triggered. The Exchange notes that this proposed 
rule change is identical to a rule currently operative on the 
Exchange's affiliate, MIAX Options.\80\ 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.
---------------------------------------------------------------------------

    \80\ See Interpretations and Policies .01(g) of MIAX Options 
Exchange Rule 518.
---------------------------------------------------------------------------

IIP/URIP/RIP
    Currently the Exchange uses the following methods to determine 
whether a complex order is qualified to initiate a Complex Auction:
Initial Improvement Percentage (``IIP'')
    For complex orders received prior to the opening of all individual 
components of a complex strategy, the System \81\ will calculate an IIP 
value, which is a defined percentage of the current dcEBBO bid/ask 
differential once all of the components of the complex strategy have 
opened. Such percentage will be defined by the Exchange and 
communicated to Members \82\ via Regulatory Circular.\83\ If a Complex 
Auction-eligible order is priced equal to, or improves, the IIP value 
\84\ and is also priced equal to, or improves, other complex orders 
and/or quotes resting at the top of the Strategy Book, the complex 
order will be eligible to initiate a Complex Auction.\85\
---------------------------------------------------------------------------

    \81\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \82\ 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.
    \83\ See MIAX Emerald Regulatory Circular 2019-68, Complex 
Auction Initiating Percentages (August 13, 2019) available at 
https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Emerald_RC_2019_68.pdf.
    \84\ The Initial Improvement Percentage (``IIP'') is currently 
set to 70%. See Id.
    \85\ See Policy .03(a) of Exchange Rule 518.
---------------------------------------------------------------------------

Upon Receipt Improvement Percentage (``URIP'')
    Upon receipt of a complex order when the complex strategy is open, 
the System will calculate a URIP value, which is a defined percentage 
of the current dcEBBO bid/ask differential. Such percentage will be 
defined by the Exchange and communicated to Members via Regulatory 
Circular.\86\ If a Complex Auction-eligible order is priced equal to, 
or improves, the URIP value \87\ and is also priced to improve other 
complex orders and/or quotes resting at the top of the Strategy Book, 
the complex order will be eligible to initiate a Complex Auction.\88\
---------------------------------------------------------------------------

    \86\ See supra note 83.
    \87\ The Upon Receipt Improvement Percentage (``URIP'') is 
currently set to 70%. See supra note 83.
    \88\ See Policy .03(b) of Exchange Rule 518.
---------------------------------------------------------------------------

Re-Evaluation Improvement Percentage (``RIP'')
    Upon evaluation of a complex order resting at the top of the 
Strategy Book, the System will calculate a Re-evaluation Improvement 
Percentage (``RIP'') value, which is a defined percentage of the 
current dcEBBO bid/ask differential. Such percentage will be defined by 
the Exchange and communicated to Members via Regulatory Circular.\89\ 
If a complex order resting at the top of the Strategy Book is priced 
equal to, or improves, the RIP value,\90\ the complex order will be 
eligible to initiate a Complex Auction.\91\
---------------------------------------------------------------------------

    \89\ See supra note 83.
    \90\ The Reevaluation Improvement Percentage (``RIP'') is 
currently set to 80%. See supra note 83.
    \91\ See Policy .03(c) of Exchange Rule 518.
---------------------------------------------------------------------------

Proposal
    The Exchange now proposes to replace the dcEBBO bid/ask 
differential with the cNBBO \92\ bid/ask differential in the 
calculations described above for IIP, URIP, and RIP, respectively. The 
dcEBBO is calculated using the displayed price for each component of a 
complex strategy from the Simple Order Book \93\ on the Exchange, 
whereas 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.\94\ The Exchange believes that using the cNBBO will reduce 
the number of auctions generated by the Exchange System which do not 
receive responses or result in price improvement for the initiating 
order. The cNBBO, which includes the best away markets as well as the 
EBBO for each component of a complex strategy, will always be equal to 
or better than the dcEBBO, which includes the EBBO for each component 
of a complex strategy. The component prices contained in the cNBBO 
provide a more accurate indicator of the overall market interest in 
each component, and therefore, provides a more accurate indicator of 
the overall market interest in the complex strategy. The Exchange 
believes that this will result in a reduction of the overall number of 
Complex Auctions initiated on the Exchange but will in turn increase 
the percentage of Complex Auctions that result in price improvement, as 
the auction start price will be more closely aligned to prevailing 
market prices. The Exchange notes that this proposal is substantively 
identical (the only difference being the naming convention used by each 
exchange, whereas MIAX Options used the dcMBBO prior to changing to the 
cNBBO and MIAX Emerald uses the dcEBBO) to rules currently operative on 
the Exchange's affiliate, MIAX Options.\95\
---------------------------------------------------------------------------

    \92\ The Complex National Best Bid or Offer (``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).
    \93\ The ``Simple Order Book'' is the Exchange's regular 
electronic book of orders and quotes. See Exchange Rule 518(a)(15).
    \94\ See supra note 9.
    \95\ See Interpretations and Policies .03(a), (b), and (c) of 
MIAX Options Exchange Rule 518.
---------------------------------------------------------------------------

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.
Implementation
    The Exchange will announce the implementation of these changes in a 
Regulatory Circular to be published no later than 90 days following the 
operative date of the proposed rule. The implementation date will be no 
later than 90 days following the issuance of the Regulatory Circular.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \96\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \97\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanisms of a free and open market

[[Page 73361]]

and a national market system and, in general, to protect investors and 
the public interest.
---------------------------------------------------------------------------

    \96\ 15 U.S.C. 78f(b).
    \97\ 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 mechanisms of a free and open market and a national 
market system and, in general, protects investors and the public 
interest by providing a mechanism by which Members may determine the 
way their orders are handled when a risk protection is triggered. The 
Exchange believes that enabling the Butterfly Spread Variance (``BSV'') 
Price Protection, Calendar Spread Variance (``CSV'') Price Protection, 
Vertical Spread Variance (``VSV'') Price Protection, Parity Price 
Protection, and MAX Put Price Protection, to work in conjunction with 
the Managed Protection Override benefits Members by providing Members 
an option as to the treatment of their order when a risk protection is 
engaged. 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. Cancelling an order allows 
Members to make a decision on what to do with their order based on the 
then current market conditions. 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 
mechanisms of a free and open market by providing Members 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. Additionally, the Exchange notes 
that this proposed rule change is identical to a rule currently 
operative on the Exchange's affiliate, MIAX Options.\98\
---------------------------------------------------------------------------

    \98\ See MIAX Options Exchange Rule 532.
---------------------------------------------------------------------------

Max Put Price Protection
    The Exchange believes that the proposed Max Put Price Protection 
feature promotes just and equitable principles of trade, removes 
impediments to and perfects the mechanisms of a free and open market 
and a national market system and, in general, protects investors and 
the public interest by providing a risk protection mechanism that 
establishes a maximum price at which a put option may trade. The Max 
Put Price Protection is designed to prevent trades from occurring at 
potentially unwanted or erroneous prices. Additionally, the Exchange 
notes that this proposed rule change is identical to a rule currently 
operative on the Exchange's affiliate, MIAX Options.\99\
---------------------------------------------------------------------------

    \99\ See MIAX Options Exchange Rule 532(a)(1).
---------------------------------------------------------------------------

Butterfly Spread Price Variance (``BSV'') Price Protection
    The Exchange believes that the proposed Butterfly Spread Price 
Variance (``BSV'') Price Protection feature promotes just and equitable 
principles of trade, removes impediments to and perfects the mechanisms 
of a free and open market and a national market system and, in general, 
protects investors and the public interest by providing a risk 
protection mechanism that will establish minimum and maximum trading 
values to prevent an order from trading at a potentially unwanted or 
erroneous price.
    Additionally, the Exchange believes that making the Butterfly 
Spread 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/Vertical Spread 
Variance (``VSV'') Price Protection
    The Exchange believes that amending the Calendar Spread Variance 
(``CSV'') and 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 that amending the Calendar Spread Price 
Variance (``CSV'') and Vertical Spread Variance (``VSV'') Price 
Protection protects investors and the public interest and helps 
maintain fair and orderly markets by mitigating potential risks 
associated with market participants entering sell orders and offer 
eQuotes at clearly unintended prices and trading at prices that are 
extreme and potentially erroneous. Extending the existing price 
protections to sell orders and offer eQuotes will assist in the 
maintenance of a fair and orderly market and protect investors by 
rejecting sell orders and offer eQuotes that are priced to sell below 
the minimum trading limit established by the Exchange. The Exchange 
believes this will promote just and equitable principles of trade and 
ultimately protect investors. Additionally, the Exchange notes that 
this proposed rule change is identical to a rule currently operative on 
the Exchange's affiliate, MIAX Options.\100\
---------------------------------------------------------------------------

    \100\ See MIAX Options Exchange Rule 532(b)(3)(iii) and 
(b)(4)(iii).
---------------------------------------------------------------------------

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, removes impediments to and 
perfects

[[Page 73362]]

the mechanisms of a free and open market and a national market system 
and, in general, protects investors and the public interest, by 
providing an order price protection that establishes a minimum and 
maximum trading value to prevent potentially unwanted or erroneous 
executions from occurring. The Exchange believes that when the MSPP is 
priced less aggressively than the limit price of the complex order that 
executing the order, up to and 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. Additionally, this proposed change is 
identical to a rule currently operative on the Exchange's affiliate, 
MIAX Options.\101\
---------------------------------------------------------------------------

    \101\ See MIAX Options Exchange Rule 532(b)(5).
---------------------------------------------------------------------------

Parity Price Protection
    The Exchange believes that amending Interpretations and Policies 
.01(g), Parity Price Protection, of Exchange Rule 518, to provide that 
an order will be cancelled if the Managed Protection Override is 
enabled promotes just and equitable principles of trade, and 
facilitates transactions in securities, removes impediments to and 
perfects the mechanisms of a free and open market and a national market 
system and, in general, protects investors and the public interest, by 
providing Members and the public additional detail and clarity in 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. 
Additionally, the Exchange notes that this proposed change is identical 
to a rule currently operative on the Exchange's affiliate, MIAX 
Options.\102\
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    \102\ See Interpretations and Policies .01(g) of MIAX Options 
Exchange Rule 518.
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Miscellaneous
    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 market system. In 
particular, the Exchange believes that the proposed rule changes will 
provide greater clarity to Members and the public regarding the 
Exchange's Rules. It is in the public interest for rules to be accurate 
and concise so as to eliminate the potential for confusion.
    The Exchange believes this proposal promotes just and equitable 
principles of trade, removes impediments to and perfects the mechanisms 
of a free and open market and a national market system and, in general, 
protects investors and the public interest by providing new price 
protection features for MIAX Emerald 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.
    The Exchange believes that its proposal to use the cNBBO instead of 
the dcEBBO in the calculation used to determine whether a complex order 
is qualified to initiate a Complex Auction promotes just and equitable 
principles of trade and removes impediments to and perfects the 
mechanisms of a free and open market and a national market system and, 
in general, protects investors and the public interest as using the 
cNBBO provides a better measure of the current market and is more 
likely to result in price improvement for the initiating order as the 
cNBBO is calculated using the NBBO (which in turn is calculated by 
taking the best prices of all exchanges into consideration) for each 
component of a complex strategy to establish the best net bid and offer 
for a complex strategy, and therefore is more representative of the 
prevailing market interest and market prices. The example below 
demonstrates the difference between the current and proposed 
calculations.
Example 1
(Current Auction Evaluation Based on dcEBBO)

    Reevaluation Improvement Percentage (RIP) for a complex order at 
the best price on the Strategy Book \103\ subject to dcEBBO.
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    \103\ The ``Strategy Book'' is the Exchange's electronic book of 
complex orders and complex quotes. See Exchange Rule 518(a)(17).

RIP = 80%
EBBO: \104\ Option A 2.00 x 2.10
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    \104\ The term ``EBBO'' means the best bid or offer on the 
Exchange. See Exchange Rule 100.
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EBBO: Option B 1.05 x 1.20
Strategy +1A-1B = (2.00-1.20) x (2.10-1.05)
dcEBBO = 0.80 x 1.05

    A complex order is resting on the Strategy Book to buy 1 Strategy 
at a price of 1.00. Upon reevaluation of the Strategy Book it is 
determined the complex order to buy at 1.00 improves the Strategy bid 
by 0.20; (1.00-0.80). The improvement percentage is then calculated as 
the 0.20 improvement divided by the Strategy bid/offer spread; (1.05-
0.80), in this case resulting in 80% improvement. Because the 80% 
improvement equals the configured RIP of 80% an auction is initiated.
Example 2
(Proposed Auction Evaluation Based on cNBBO)

    Reevaluation Improvement Percentage (RIP) for a complex order at 
the best price on the Strategy Book subject to cNBBO.

RIP = 80%
NBBO: Option A 2.05 x 2.10
NBBO: Option B 1.05 x 1.10
Strategy +1A-1B = (2.05-1.10) x (2.10-1.05)
cNBBO = 0.95 x 1.05

    A complex order is resting on the Strategy Book to buy 1 Strategy 
at a price of 1.00. Upon reevaluation of the Strategy Book it is 
determined the complex order to buy at 1.00 improves the Strategy bid 
by 0.05; (1.00-0.95). The improvement percentage is then calculated as 
the 0.05 improvement divided by the Strategy bid/offer spread; (1.05-
0.95), in this case resulting in

[[Page 73363]]

50% improvement. Because the 50% improvement is less than the 
configured RIP of 80% an auction is not initiated.
    The Exchange believes that using the cNBBO in its calculation to 
determine whether a complex order is qualified to initiate a Complex 
Auction will reduce the number of Complex Auctions initiated by the 
Exchange System which do not receive responses. Using the cNBBO instead 
of the dcEBBO better reflects the current state of the market and may 
result in Complex Auctions that receive responses which in turn may 
result in price improvement for the initiating order.

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.
Intra-Market Competition
    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 Butterfly 
Spread Variance (``BSV'') Price Protection, Calendar Spread Variance 
(``CSV'') Price Protection, and Vertical Spread Variance (``VSV'') 
Price Protection, Parity Price Protection, and Max Put Price protection 
are all available for any MIAX Emerald Member that submits orders or 
quotes to the Exchange. Any MIAX Member transacting on the Exchange 
will benefit from the risk protections proposed herein. 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.
    Additionally, the Exchange does not believe that the proposed rule 
change to replace the dcEBBO value with the cNBBO value in the 
calculation used to determine whether a complex order is qualified to 
initiate a Complex Auction will impose any burden on intra-market 
competition. As all complex orders submitted to the Exchange will be 
uniformly evaluated under the Exchange's rules, and the rules of the 
Exchange apply equally to all Members.
Inter-Market Competition
    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 provide additional 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.
    The Exchange believes its proposal to adopt to use the cNBBO in the 
calculation to determine whether to initiate a Complex Auction better 
reflects current market prices and may result in the initiation of 
Complex Auctions which result in price improvement for the initiating 
order. The Exchange believes the proposed rule change will enhance 
competition among the various markets for complex order execution, 
potentially resulting in more active complex order trading on all 
exchanges. Additionally, the Exchange believes that this change will 
result in a reduction of the overall number of Complex Auctions 
initiated on the Exchange but will in turn increase the percentage of 
auctions that result in price improvement, as the auction start price 
will be more closely aligned to prevailing market prices.

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

    Written comments were neither solicited nor received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \105\ and Rule 19b-4(f)(6) \106\ 
thereunder.
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    \105\ 15 U.S.C. 78s(b)(3)(A).
    \106\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-EMERALD-2022-30 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-EMERALD-2022-30. 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. 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-EMERALD-2022-30 and should be submitted 
on or before December 20, 2022.


[[Page 73364]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\107\
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    \107\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-25948 Filed 11-28-22; 8:45 am]
BILLING CODE 8011-01-P

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