Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 518, Complex Orders, 6795-6801 [2023-01998]
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Federal Register / Vol. 88, No. 21 / Wednesday, February 1, 2023 / Notices
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–
NYSE–2023–07 on the subject line.
Paper Comments
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• 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–NYSE–2023–07. 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–NYSE–2023–07 and should
be submitted on or before February 22,
2023.
21:04 Jan 31, 2023
[FR Doc. 2023–01999 Filed 1–31–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
VerDate Sep<11>2014
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Sherry R. Haywood,
Assistant Secretary.
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[Release No. 34–96752; File No. SR–MIAX–
2023–01]
Self-Regulatory Organizations; Miami
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend Exchange Rule 518,
Complex Orders
January 26, 2023.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on January
19, 2023, Miami International Securities
Exchange, LLC (‘‘MIAX Options’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange filed the
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend Exchange Rule 518, Complex
Orders.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/ at MIAX Options’ principal
office, and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
14 17
CFR 200.30–3(a)(12), (59).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
1 15
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6795
on the proposed rule change. The text
of these statements may be examined at
the places specified in Item IV below.
The self-regulatory organization has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 518, Complex Orders, to (i) adopt
definitions for the terms ‘‘conforming
ratio,’’ and ‘‘non-conforming ratio;’’ (ii)
amend the current definition of a
complex order to incorporate the
proposed conforming and nonconforming ratio definitions; (iii) adopt
new subsection (v) to Exchange Rule
518(c)(1) to describe the processing of a
complex order with a non-conforming
ratio; (iv) amend Exchange Rule
518(c)(2)(ii) to distinguish icMBBO
protection for complex orders with
conforming ratios and complex orders
with non-conforming ratios; and (v)
make minor clarifying edits throughout
Exchange Rule 518 to distinguish order
handling of complex orders with
conforming ratios. Additionally, the
Exchange proposes to amend Rule
515A, MIAX Price Improvement
Mechanism (‘‘PRIME’’) and PRIME
Solicitation Mechanism, to describe
new scenarios which will cause a
cPRIME Auction 5 to terminate prior to
the end of the RFR period. Finally, the
Exchange proposes to update Exchange
Rule 515 and Rule 516 to correct
internal cross references that have
changed as a result of this proposal.
Background
Currently the Exchange defines a
‘‘complex order’’ as any order involving
the concurrent purchase and/or sale of
two or more different options in the
same underlying security (the ‘‘legs’’ or
‘‘components’’ of the complex order),
for the same account, in a ratio that is
equal to or greater than one-to-three
(.333) and less than or equal to three-toone (3.00) and for the purposes of
executing a particular investment
strategy. Mini-options may only be part
of a complex order that includes other
mini-options. Only those complex
orders in the classes designated by the
5 Members may use PRIME to execute complex
orders at a net price. ‘‘cPRIME’’ is the process by
which a Member may electronically submit a
cPRIME Order (as defined in Rule 518(b)(7)) it
represents as agent (a ‘‘cPRIME Agency Order’’)
against principal or solicited interest for execution
(a ‘‘cPRIME Auction’’). See Exchange Rule 515A,
Interpretations and Policies .12(a).
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Exchange and communicated to
Members 6 via Regulatory Circular with
no more than the applicable number of
legs, as determined by the Exchange on
a class-by-class basis and communicated
to Members via Regulatory Circular, are
eligible for processing.
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Proposal
Currently the Exchange will accept a
complex order comprised solely of
option components in a ratio that is
equal to or greater than one-to-three
(.333) or less than or equal to three-toone (3.00).7 The Exchange now proposes
to accept complex orders comprised
solely of options with ratios larger than
three-to-one or smaller than one-tothree. To support its proposal the
Exchange proposes to adopt a definition
for a ‘‘conforming ratio’’ to refer to
complex orders where the ratio between
the sizes of the components of a
complex order comprised solely of
options is equal to or greater than oneto-three (.333) and less than or equal to
three-to-one (3.00).8 Additionally, the
Exchange proposes to adopt a definition
for a ‘‘non-conforming ratio’’ to refer to
complex orders where the ratio between
the sizes of the components of a
complex order comprised solely of
options is greater than three-to-one
(3.00) or less than one-to-three (.333).9
Subsequently, the Exchange proposes
to amend Exchange Rule 518(c)(1)(iii)
and (c)(1)(iv) to insert the phrase, ‘‘with
a conforming ratio,’’ to provide
additional detail and clarity to the rule
text. Specifically, current Rule
518(c)(1)(iii) provides that, ‘‘[i]f any
component of a complex strategy would
be executed at a price that is equal to
a Priority Customer 10 bid or offer on the
Simple Order Book, at least one other
option component of the complex
strategy must trade at a price that is
better than the corresponding
MBBO.’’ 11 The Exchange now proposes
to amend this rule to provide that, ‘‘[i]f
any component of a complex strategy
with a conforming ratio would be
executed at a price that is equal to a
Priority Customer bid or offer on the
6 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.
7 See Exchange Rule 518(a)(5).
8 See proposed Rule 518(a)(8).
9 See proposed Exchange Rule 518(a)(16).
10 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.
11 The term ‘‘MBBO’’ means the best bid or offer
on the Exchange. See Exchange Rule 100.
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Simple Order Book, at least one other
option component of the complex
strategy must trade at a price that is
better than the corresponding MBBO.’’
Similarly, current Rule 518(c)(1)(iv)
provides that, ‘‘[a] complex order will
not be executed at a net price that
would cause any option component of
the complex strategy to be executed: (A)
at a price of zero; or (B) ahead of a
Priority Customer Order 12 on the
Simple Order Book 13 without
improving the MBBO of at least one
option component of the complex
strategy.’’ The Exchange now propose to
amend this rule to provide that, ‘‘[a]
complex order with a conforming ratio
will not be executed at a net price that
would cause any option component of
the complex strategy to be executed: (A)
at a price of zero; or (B) ahead of a
Priority Customer Order on the Simple
Order Book without improving the
MBBO of at least one option component
of the complex strategy.’’ The proposed
changes to Rule 518(c)(1)(iii) and
(c)(1)(iv) will make clear that existing
complex priority provisions apply only
to complex orders with conforming
ratios.
The Exchange proposes to renumber
current paragraph (c)(1)(v) to new
paragraph (c)(1)(vi) and to adopt new
paragraph (v) to provide that, ‘‘[a]
complex order with a non-conforming
ratio will not be executed at a net price
that would cause any option component
of the complex strategy to be executed:
(A) at a price of zero; (B) ahead of a
Priority Customer Order at the MBBO
on the Simple Order Book; or (C) at a
price that is through the NBBO.’’ 14
Therefore, a complex order with any
ratio less than one-to-three or greater
than three-to-one may be executed at a
net price only if each leg of the complex
order betters the corresponding bid
(offer) of a Priority Customer Order(s) on
the Simple Order Book, and is not at a
price that is through the NBBO. These
requirements are consistent with the
rules of other option exchanges that
process complex orders in the same
ratios.15
In addition, icMBBO 16 protection
will apply to both conforming and non12 The term ‘‘Priority Customer Order’’ means an
order for the account of a Priority Customer. See
Exchange Rule 100.
13 The ‘‘Simple Order Book’’ is the Exchange’s
regular electronic book of orders and quotes. See
Exchange Rule 518(a)(15).
14 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.
15 See Cboe Exchange Rule 5.33(f)(2)(A)(iv)(b),
and BOX Options Rule 7240(b)(2)(iii).
16 The Implied Complex MIAX Best Bid or Offer
(‘‘icMBBO’’) is a calculation that uses the best price
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conforming strategies as executions of
complex orders (with either conforming
or non-conforming ratios) must comply
with Exchange Rule 518(c)(2)(ii).17
Accordingly, the Exchange proposes to
amend Rule 518(c)(2)(ii) to provide
additional detail related to pricing for
conforming and non-conforming
strategies. Specifically, the Exchange
proposes to add a clarifying
parenthetical statement to the first
sentence to clearly differentiate the
rules that apply to executions of
complex orders with conforming ratios
and complex orders with nonconforming rations when there is
Priority Customer interest at the MBBO.
Specifically, the proposed sentence will
state, ‘‘Incoming complex orders and
quotes will be executed by the System
in accordance with the provisions set
forth herein, and will not be executed at
prices inferior to the icMBBO or at a
price that is equal to the icMBBO when
there is a Priority Customer Order (as
defined in Rule 100) at the best icMBBO
price (complex orders with conforming
ratios will be executed in accordance
with Rule 518(c)(1)(iv) and complex
orders with non-conforming ratios will
be executed in accordance with Rule
518(c)(1)(v).’’ With this amendment the
Exchange represents that the complex
order priority rules will protect Priority
Customer interest on the Simple Order
Book.
The Exchange does not propose to
extend the complex order priority
afforded to complex orders with
conforming ratios to those with nonconforming ratios. Execution of complex
orders with conforming ratios will be
unchanged under the Exchange’s
proposal and these orders will continue
to not be executed at a net price that
would cause any option component of
the complex strategy to be executed: (A)
at a price of zero; or (B) ahead of a
Priority Customer Order on the Simple
Order Book without improving the
MBBO of at least one option component
of the complex strategy.
The Exchange also proposes to amend
the current definition of a complex
order as described in Rule 518(a)(5) to
include the terms conforming or nonconforming ratios as those terms are
defined in the Rule.
from the Simple Order Book for each component of
a complex strategy including displayed and nondisplayed trading interest. See Exchange Rule
518(a)(11).
17 Exchange Rule 518(c)(2)(ii) provides that
incoming complex orders and quotes will be
executed by the System in accordance with the
provisions set forth in Exchange Rule 518, and will
not be executed at prices inferior to the icMBBO or
at a price that is equal to the icMBBO when there
is a Priority Customer Order (as defined in Rule
100) at the best icMBBO price.
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The Exchange also proposes to amend
Interpretations and Policies .12(d) of
Exchange Rule 515A, MIAX Price
Improvement Mechanism (‘‘PRIME’’)
and PRIME Solicitation Mechanism to
adopt two new paragraphs which will
describe new scenarios that arise as a
result of the Exchange processing
complex orders with non-conforming
ratios, which will cause a cPRIME
Auction to terminate prior to the end of
the RFR period.
Currently Interpretations and Policies
.12(d) of Exchange Rule 515A, provides
that, a cPRIME Auction shall conclude
at the sooner of (i) 18 through (vii) as
listed in the Rule below with the
cPRIME Agency Order executing
pursuant to Rule 515A(2)(iii). The
Exchange proposes to describe two new
scenarios that will terminate a cPRIME
Auction prior to the conclusion of the
RFR period as subparagraphs (viii) and
(ix), as described more fully below.
Consequently, the Exchange proposes to
amend the first sentence of
Interpretations and Policies .12(d) of
Exchange Rule 515A to account for the
addition of these scenarios. As
proposed, the new sentence would
provide that, ‘‘[a] cPRIME Auction shall
conclude at the sooner of (i) through (ix)
below with the cPRIME Agency Order
executing pursuant to Rule 515A(2)(iii)
below:’’
The Exchange proposes to adopt
paragraph (viii) to Interpretations and
Policies .12(d) of Rule 515A to provide
that, ‘‘a Priority Customer Order,
eligible to rest on the Simple Order
Book, is received on either side of the
market as the cPRIME Agency Order
with a non-conforming ratio, and causes
any component of the cPRIME Agency
Order to lock or cross a Priority
Customer Order at (A) the best price
opposite the cPRIME Agency Order; or
(B) the initiating price.’’ The Exchange
also proposes to adopt paragraph (ix) to
provide that, ‘‘the NBBO for a
component of a cPRIME Agency Order
with a non-conforming ratio updates to
a price that would cause any option
component of the cPRIME Agency Order
to be executed at a price through the
NBBO for that series.’’
These provisions ensure that a
cPRIME Agency Order will always
receive the best price on the Exchange
while simultaneously preserving the
integrity of the simple market by
preventing a component of an order
with a non-conforming ratio from
trading ahead of Priority Customer
interest or trading through the NBBO.
18 The end of the RFR Period. See Interpretations
and Policies .12(d)(i) of Exchange Rule 515A.
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Example 1
A Priority Customer Order in a
component of the strategy, eligible to
rest on the Simple Order Book, is
received on the same side of the market
as the cPRIME Agency Order with a
non-conforming ratio, and causes a
component of the cPRIME Agency Order
to lock a Priority Customer Order at the
best price opposite the cPRIME Agency
Order.
MIAX—LMM 19 Sep 50 Call 1.81–1.82
(10 × 10)
MIAX—LMM Sep 55 Call 1.29–1.30 (10
× 10)
MIAX—Priority Customer Sep 55 Call
order to sell 10 at 1.30 20
Strategy: Buy 1 Sep 50 Call, Sell 1 Sep
55 Call
The icMBBO 21 is 0.51 debit bid and
0.53 credit offer
The Exchange receives a cPRIME
Order with a non-conforming ratio with
the cPRIME Agency Order representing
the purchase of the Strategy at a net
debit of 0.52, (Buy Sep 50 Call at 1.82,
Sell Sep 55 Call at 1.30) 500 times.
(Auto-match is not enabled and there
are no orders for the Strategy on the
Strategy Book.)
Since the order price is at least $0.01
better than (inside) the icMBBO and the
best net price of any order for the
Strategy on the Strategy Book, a cPRIME
Auction can begin.22
A Request for Responses (‘‘RFR’’) is
broadcast to all subscribers and the RFR
period is started.
19 The term ‘‘Lead Market Maker’’ means a
Member registered with the Exchange for the
purpose of making markets in securities traded on
the Exchange and that is vested with the rights and
responsibilities specified in Chapter VI of these
Rules with respect to Lead Market Makers. When
a Lead Market Maker is appointed to act in the
capacity of a Primary Lead Market Maker, the
additional rights and responsibilities of a Primary
Lead Market Maker specified in Chapter VI of these
Rules will apply. See Exchange Rule 100.
20 A leg of a non-conforming strategy may not
execute ahead of a Priority Customer Order at the
MBBO on the Simple Order Book, therefore while
there is a Priority Customer Order priced at 1.30 for
the Sep 55 Call, the price used for this leg to
establish the net price will be 1.29. See proposed
Exchange Rule 518(c)(1)(v). (The Auction starts as
the net price of 0.52 may still be achieved if the
other leg in the strategy (Sep 50 Call) can be
executed at 1.81.)
21 The Implied Complex MIAX Best Bid or Offer
(‘‘icMBBO’’) is a calculation that uses the best price
from the Simple Order Book for each component of
a complex strategy including displayed and nondisplayed trading interest. See Exchange Rule
518(a)(11).
22 The initiating price for a cPRIME Agency Order
must be better than (inside) the icMBBO 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 icMBBO
or any other complex orders on the Strategy Book.
See Interpretations and Policies .12(a)(i) of
Exchange Rule 515A.
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6797
The following responses are received:
• @70 milliseconds MM1 response,
cAOC eQuote @0.52 credit sell of
100 arrives
The cPRIME Auction process will
continue until the Response Time
Interval ends or an event eligible to
cause the cPRIME Auction to end
sooner occurs.
• @85 milliseconds a Priority Customer
simple order bid to pay 1.81 for 10
Sep 50 Calls arrives
Since the pre-existing simple order to
sell at 1.30 is Priority Customer, the
tradable component prices of the
cPRIME Order are 1.81 for the Sep 50
Call and 1.29 for the Sep 55 Call, for a
net debit price of 0.52.
However, because the new order to
buy at 1.81 is also Priority Customer and
causes a tradable component of the
cPRIME Agency Order (Sep 50 Call) to
lock a Priority Customer Order at the
best price opposite the cPRIME Agency
Order, the cPRIME Auction will
terminate.
The cPRIME Auction is concluded
prior to the end of the Response Time
Interval to prevent the cPRIME Agency
Order from trading ahead of a Priority
Customer in any component of the
cPRIME Agency Order.
The cPRIME Auction process will
trade the cPRIME Agency Order with
the best priced responses. The cPRIME
Agency order will be filled as follows:
• The cPRIME Agency Order buys 400
from the Contra side @0.52
• The cPRIME Agency Order buys 100
from MM1 @0.52
Example 2
A Priority Customer Order in a
component of the strategy, eligible to
rest on the Simple Order Book, is
received on the opposite side of the
market from the cPRIME Agency Order
with a non-conforming ratio, and causes
a component of the cPRIME Agency
Order to lock a Priority Customer at the
initiating price.
MIAX—LMM Sep 50 Call 1.81–1.82 (10
× 10)
MIAX—LMM Sep 55 Call 1.29–1.30 (10
× 10)
MIAX—Priority Customer Sep 55 Call
order to buy 10 at 1.29
Strategy: Buy 1 Sep 50 Call, Sell 1 Sep
55 Call
The icMBBO is 0.51 debit bid and 0.53
credit offer
The Exchange receives a cPRIME
Order with a non-conforming ratio with
the cPRIME Agency Order representing
the purchase of the Strategy at a net
debit of 0.52, (Buy Sep 50 Call at 1.82,
Sell Sep 55 Call at 1.30), 500 times.
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(Auto-match is not enabled and there
are no orders for the Strategy on the
Strategy Book.)
Since the order price is at least $0.01
better than (inside) the icMBBO and the
best net price of any order for the
Strategy on the Strategy Book, a cPRIME
Auction can begin.
A Request for Responses (‘‘RFR’’) is
broadcast to all subscribers and the RFR
period is started.
The following responses are received:
• @70 milliseconds MM1 response,
cAOC eQuote @0.52 credit sell of
100 arrives
The cPRIME Auction process will
continue until the Response Time
Interval ends or an event eligible to
cause the cPRIME Auction to end
sooner occurs.
• @85 milliseconds a Priority Customer
simple order offer to sell at 1.82 for
10 Sep 50 Calls arrives
Since the pre-existing simple order to
buy Sep 55 Call at 1.29 is Priority
Customer, the tradable component
prices of the cPRIME Order are 1.82 for
the Sep 50 Call and 1.30 for the Sep 55
Call, for a net debit price of 0.52.
However, because the new order to
sell at 1.82 is also Priority Customer and
causes a tradable component of the
cPRIME Agency Order (Sep 50 Call) to
lock a Priority Customer Order at the
initiating price; the cPRIME Auction
will terminate.
The cPRIME Auction is concluded
prior to the end of the Response Time
Interval to prevent the cPRIME Agency
Order from trading ahead of a Priority
Customer in any component of the
cPRIME Agency Order.
The cPRIME Auction process will
trade the cPRIME Agency Order with
the best priced responses. The cPRIME
Agency order will be filled as follows:
• The cPRIME Agency Order buys 400
from the Contra side @0.52
• The cPRIME Agency Order buys 100
from MM1 @0.52
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Example 3
The NBBO for a component of a
cPRIME Agency Order with a nonconforming ratio updates to a price that
would cause a component to trade
through the NBBO.
MIAX—LMM Sep 50 Call 1.81–1.82 (10
× 10)
MIAX—LMM Sep 55 Call 1.29–1.30 (10
× 10)
MIAX—Priority Customer Sep 55 Call
order to buy 10 at 1.29
Strategy: Buy 1 Sep 50 Call, Sell 1 Sep
55 Call
The icMBBO is 0.51 debit bid and 0.53
credit offer
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The Exchange receives a cPRIME
Order with a non-conforming ratio with
the cPRIME Agency Order representing
the purchase of the Strategy at a net
debit of 0.52, (Buy Sep 50 Call at 1.82,
Sell Sep 55 Call at 1.30), 500 times.
(Auto-match is not enabled and there
are no orders for the Strategy on the
Strategy Book.)
Since the order price is at least $0.01
better than (inside) the icMBBO and the
best net price of any order for the
Strategy on the Strategy Book, a cPRIME
Auction can begin.
A Request for Responses (‘‘RFR’’) is
broadcast to all subscribers and the RFR
period is started.
The following responses are received:
• @70 milliseconds MM1 response,
cAOC eQuote @0.52 credit sell of
100 arrives
The cPRIME Auction process will
continue until the Response Time
Interval ends or an event eligible to
cause the cPRIME Auction to end
sooner occurs.
The ABBO updates to 1.80–1.81 (10×10)
for the Sep 50 Call
Since the pre-existing simple order to
buy Sep 55 Call at 1.29 is Priority
Customer, the tradable component
prices of the cPRIME order are 1.82 for
the Sep 50 Call and 1.30 for the Sep 55
Call, for a net debit price of 0.52.
However, because the ABBO update
to sell Sep 50 Call at 1.81 is better than
the local best offer (1.82), this causes the
tradable price to be through the NBBO
for that component and is no longer
tradable.
The cPRIME Auction is concluded
prior to the end of the Response Time
Interval to prevent the non-conforming
strategy trading through any component
NBBO.
The cPRIME Auction process will
trade the cPRIME Agency Order with
the best priced responses. The cPRIME
Agency order will be filled as follows:
• The cPRIME Agency Order buys 400
from the Contra side @0.52
• The cPRIME Agency Order buys 100
from MM1 @0.52
The Exchange also proposes to allow
bids and offers on complex orders,
quotes and RFR Responses for complex
strategies having only option
components and a non-conforming ratio
to be expressed in $0.01 increments,
and the component(s) of such a complex
order may be executed in $0.01
increments, regardless of the minimum
increments otherwise applicable to
individual components of the complex
order. The Exchange notes that
electronic trading of complex orders
with non-conforming ratios in one cent
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increments was recently established on
another exchange.23 Further, the
Exchange notes that complex orders
with conforming ratios are currently
traded in one cent increments on the
Exchange 24 and the proposed change
will allow trading of complex orders in
one cent increments for all complex
orders on the Exchange.
The Exchange understands that there
may be some concerns that if the ratios
of complex orders, where each
component leg is allowed to trade in
one cent increments, are too greatly
expanded, market participants will, for
example, enter complex orders with
non-conforming ratios designed
primarily to trade orders in a class in
pennies that cannot otherwise execute
as simple orders in that class in pennies.
The Exchange believes it is highly
unlikely that market participants will
submit non-bona-fide trading strategies
with larger ratios just to trade in penny
increments. Adding a single leg to a
larger order just to obtain penny pricing
may further reduce execution
opportunities for such an order because
it may be less likely that sufficient
contracts in the appropriate ratio would
be available and because it is unlikely
that other market participants would be
willing to execute against an order that
is not a bona-fide trading strategy.
Further, the Exchange notes that all
option series traded on the Exchange
can currently trade in penny increments
in the Exchange’s Price Improvement
Mechanism (‘‘PRIME’’) regardless of the
minimum increment otherwise
applicable.25 Lastly, the Exchange notes
that pursuant to Exchange Rule 301, no
Member shall engage in acts or practices
inconsistent with just and equitable
principles of trade, and entering orders
for non-bona-fide trading strategies may
constitute acts or practices inconsistent
with just and equitable principles of
trade.
Finally, the Exchange proposes to
make non-substantive edits to Exchange
Rule 515 and Rule 516, to update
internal cross references to the location
of certain definitions that have changed
as a result of this proposal.
Implementation
The Exchange will announce the
implementation of complex orders with
non-conforming strategies by Regulatory
Circular at least 48 hours prior to
implementation of this functionality, as
23 See Securities Exchange Act Release No. 94204
(February 9, 2022), 87 FR 8625 (February 15, 2022)
(SR–CBOE–2021–046) and Cboe Rule 5.4(b); see
also BOX Options Rule 7240(b)(1).
24 See Exchange Rule 518(c)(1)(i).
25 See Exchange Rule 515A(a)(2)(i)(F).
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Federal Register / Vol. 88, No. 21 / Wednesday, February 1, 2023 / Notices
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the Exchange believes that 48 hours of
notice is adequate for Members.
2. Statutory Basis
The Exchange believes that its
proposed rule change is consistent with
the Act and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act,26 in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in, securities, to
remove impediments to and perfect the
mechanisms of a free and open market
and a national market system and, in
general, to protect investors and the
public interest. Additionally, the
Exchange believes the proposed rule
change is consistent with the Section
(6)(b)(5) 27 requirement that the rules of
an exchange not be designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange currently only
processes complex orders that fit within
the proposed definition of a conforming
ratio, that is complex orders with a ratio
between the sizes of the option
components equal to or greater than
one-to-three (.333) and less than or
equal to three-to-one (3.00) and for the
purposes of executing a particular
investment strategy.28
In particular, the Exchange believes
the proposed rule change will remove
impediments to and perfect the
mechanism of a free and open market
and benefit investors, because it will
allow market participants to execute
complex strategies with option
components only in ratios greater than
three-to-one or less than one-to-three
(‘‘non-conforming ratios’’ as proposed
herein). The proposed rule change will
further remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, as other options exchanges
permit the trading of complex orders
with any ratio.29
The proposed change rule change will
continue to protect Priority Customer
Order interest on the Simple Order Book
in the same manner as it does today, as
all complex orders with a conforming
ratio will continue to be executed on the
Exchange without change. The proposed
26 15
U.S.C. 78f(b).
U.S.C. 78(f)(b)(5).
28 See Exchange Rule 518(a)(5).
29 See Cboe Exchange Rules 1.1 (Complex Order)
and 5.33; see also BOX Exchange Rule 7240(a)(10),
(b)(1) and (b)(2)(iii).
27 15
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rule change has no impact on the
priority of complex orders with a
conforming ratio, as complex orders
with a conforming ratio will continue to
be required to improve the price of a leg
of the complex order for which a
Priority Customer Order is resting at the
BBO in the Simple Order Book,30 and
thus will continue to protect Priority
Customer Orders in the Simple Order
Book. Additionally, the Exchange will
not allow any component of a complex
order with a non-conforming strategy to
execute ahead of a Priority Customer
resting at the BBO in the Simple Order
Book.31
Additionally, the Exchange believes
the proposed amendment to revise
Exchange Rule 518(c)(2) to indicate
icMBBO protection for complex orders
with conforming ratios will require
those orders to be executed in
accordance with Rule 518(c)(1)(iv) and
complex orders with non-conforming
ratios to be executed in accordance with
Rule 518(c)(1)(v) will clarify the
operation of the icMBBO protection for
complex orders with a conforming ratio
and complex orders with a nonconforming ratio. This change benefits
investors and the public as it clarifies
that the complex order priority rules
will continue to protect Priority
Customer interest on the Simple Order
Book.
The Exchange believes the proposed
changes will increase opportunities for
execution of complex orders and lead to
tighter spreads on the Exchange, which
will benefit all investors. The Exchange
also believes that the proposed rule
change is designed to not permit unfair
discrimination among market
participants, as all market participants
may trade complex orders, and the
priority and eligibility requirements
apply to complex orders of all market
participants.
Additionally, the Exchange believes
that including additional scenarios
which will terminate a cPRIME Auction
promotes just and equitable principles
of trade and removes impediments to a
free and open market by providing
greater transparency concerning the
operation of Exchange functionality.
These provisions ensure that a cPRIME
Agency Order will always receive the
best price on the Exchange while
simultaneously preserving the integrity
of the simple market.
The Exchange believes that its
proposal is designed to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free an open market and
30 See
31 See
PO 00000
Exchange Rule 518(c)(3).
proposed Rule 518(c)(1)(v).
Frm 00104
Fmt 4703
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6799
a national market system, and, in
general to protect investors and the
public interest, by enhancing its
System 32 and rules governing complex
orders. The Exchange’s proposal should
provide market participants with
trading opportunities more closely
aligned with their investment or risk
management strategies.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
The Exchange does not believe that its
proposed rule change will impose any
burden on intra-market competition as
the Rules of the Exchange apply equally
to all Members of the Exchange and all
Members may submit complex orders.
Therefore, any Member of the Exchange
may submit a complex order with a
conforming or non-conforming ratio and
the order will be handled in a uniform
fashion by the System.
The Exchange does not believe that its
proposed rule change will impose any
burden on inter-market competition that
is not necessary or appropriate in
furtherance of the purposes of the Act,
rather the Exchange believes that its
proposal will promote inter-market
competition. The Exchange notes that
other options exchanges provide for the
electronic trading of complex orders
with only option components with
ratios that are less than one-to-three and
greater than three-to-one, and allow
these orders to be priced and executed
in one cent increments.33 As such, the
Exchange does not believe that the
proposed rule change will impose any
burden on competition not necessary or
appropriate in furtherance of the
purposes of the Act.
The Exchange does not believe the
proposed amendment to clarify icMBBO
protections imposes any burden on
intra-market competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. Complex
orders submitted by Members with
conforming ratios will continue to be
handled by the System without change.
Complex orders submitted by Members
with non-conforming ratios will be
handled uniformly by the System as
described in this proposal. The
Exchange does not believe that this
proposed change imposes any burden
on inter-market competition as the
32 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
33 See Cboe Exchange Rule 5.4(b); see also BOX
Exchange Rule 7240(b)(1).
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Federal Register / Vol. 88, No. 21 / Wednesday, February 1, 2023 / Notices
icMBBO protection is designed to
protect Priority Customer priority on the
Exchange’s Book and is not a change
made for competitive reasons.
Additionally, the Exchange does not
believe that its new proposed scenarios
to terminate a cPRIME Auction imposes
any burden on intra-market competition
that is not necessary or appropriate in
furtherance of the purposes of the Act,
as the proposed changes are designed to
add additional detail to the rules to
further clarify the operation of Exchange
functionality and to minimize the
potential for confusion. The Exchange
does not believe that this proposed
change imposes any burden on intermarket competition as this change is
designed to protect Priority Customer
priority on the Exchange’s Book and is
not a change made for competitive
reasons.
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 (a) significantly affect
the protection of investors or the public
interest; (b) impose any significant
burden on competition; and (c) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 34 and Rule 19b–
4(f)(6) thereunder.35
A proposed rule change filed under
Rule 19b–4(f)(6) normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),36 the
Commission may designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. The Exchange has asked the
Commission to waive the 30-day
operative delay. As noted above, other
options exchanges currently allow
complex orders with a ratio less than
one-to-three or greater than three-to-one
to trade electronically in $0.01
34 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
36 17 CFR 240.19b–4(f)(6)(iii).
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35 17
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increments.37 Under the proposal, no
component leg of a complex order with
a non-conforming ratio will execute (A)
at a price of zero; (B) ahead of a Priority
Customer Order at the MBBO on the
Simple Order Book; or (C) at a price that
is through the NBBO.38 Accordingly, the
Exchange states that a non-conforming
ratio complex order may be executed at
a net price only if each leg of the
complex order betters the corresponding
bid (offer) of a Priority Customer
Order(s) on the Simple Order Book, and
is not at a price that is through the
NBBO. The Exchange states that waiver
of the operative delay will allow the
Exchange to immediately offer market
participants the choice of another
execution venue for the electronic
trading of complex orders with nonconforming ratios. The Exchange further
states that market participants may
benefit from competition between
exchanges, may find the trade execution
services and fees on one exchange more
favorable than another, or may find it
more convenient to access on exchange
over another. Accordingly, the Exchange
believes that waiving the operative
delay will allow the Exchange to
immediately make a competitive
offering to market participants.
The Commission finds that waiving
the 30-day operative delay is consistent
with the protection of investors and the
public interest. The proposal will
provide investors with an additional
venue for electronically trading complex
orders with a ratio less than one-to-three
or greater than three-to-one. The
Commission believes that proposal does
not raise new or novel regulatory issues
because other options exchanges
currently provide for the electronic
trading of complex orders with a ratio
less than one-to-three or greater than
three-to-one.39 The proposal protects
the priority of resting Priority Customer
orders by providing that no component
leg of a non-conforming ratio complex
order will be executed ahead of a
Priority Customer Order at the MBBO
on the Simple Order Book.40 This
37 See BOX Rules 7240(a)(10); 7240(b)(1); and
7240(b)(2)(iii); and Cboe Rules 1.1 (stating, in the
definition of complex order, that ‘‘the Exchange
determines on a class-by-class basis whether
complex orders with ratios less than one-to-three
(.333) or greater than three-to-one (3.00) (except for
Index Combo orders) are eligible for electronic
processing’’)); 5.4(b); and 5.33(f)(2)(A)(iv)(b).
38 See proposed Exchange Rule 518(c)(1)(v).
39 See footnote 37, supra.
40 See proposed Exchange Rule 518(c)(1)(v). In
addition, the proposal revises Exchange Rule
518(c)(2)(ii), which provides that complex orders
will not be executed at prices inferior to the
icMBBO or at a price that is equal to the icMBBO
when there is a Priority Customer Order at the best
icMBBO price, to indicate that complex orders with
non-conforming ratios will be executed in
PO 00000
Frm 00105
Fmt 4703
Sfmt 4703
requirement is consistent with the rules
of other options exchanges that provide
for the electronic trading of complex
orders with a ratio less than one-to-three
or greater than three-to-one.41 As
described above, the proposal also
revises Exchange Rule 515A,
Interpretation and Policy .12(d) to
provide that a cPRIME Auction for a
non-conforming ratio cPRIME Agency
Order will terminate early when a
single-leg Priority Customer Order
arrives and causes any component of the
cPRIME Agency Order to lock or cross
a Priority Customer Order at the best
price opposite the cPRIME Agency
Order or the initiating price.42 A
cPRIME Auction for a non-conforming
ratio cPRIME Agency Order also will
terminate early when the NBBO for a
component of the cPRIME Agency Order
updates to a price that would cause any
component of the cPRIME Agency Order
to be executed at a price that is through
the NBBO for that series.43 The
Exchange states that these provisions
ensure that a cPRIME Agency Order will
always receive the best price on the
Exchange while preserving the integrity
of the simple market by preventing a
component of a non-conforming ratio
complex order from trading ahead of
Priority Customer interest or trading
through the NBBO. In addition, as
discussed above, the Exchange believes
it is highly unlikely that market
participants will submit non-bona-fide
trading strategies with larger ratios
solely for the purpose of trading in
penny increments. The Exchange states
that adding a single leg to a larger order
to obtain penny pricing could reduce
execution opportunities for such an
order because it may be less likely that
sufficient contracts in the appropriate
ratio would be available and because it
is unlikely that other market
participants would be willing to execute
against an order that is not a bona-fide
trading strategy. Further, the Exchange
notes that all option series traded on the
Exchange can currently trade in penny
increments in the Exchange’s PRIME
auction, regardless of the minimum
increment otherwise applicable.44 The
Exchange also states that entering orders
for non-bona-fide trading strategies
could constitute an act or practice
inconsistent with just and equitable
principles of trade, in violation of
accordance with proposed Exchange Rule
518(c)(1)(v).
41 See BOX Rule 7240(b)(2)(iii); and Cboe Rule
5.33(f)(2)(iv)(b).
42 See proposed Exchange Rule 515A,
Interpretation and Policy .12(d)(viii).
43 See proposed Exchange Rule 515A,
Interpretation and Policy .12(d)(ix).
44 See Exchange Rule 515A(a)(2)(i)(F).
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Federal Register / Vol. 88, No. 21 / Wednesday, February 1, 2023 / Notices
Exchange Rule 301. For these reasons,
the Commission designates the proposal
operative upon filing.45
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.
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–MIAX–2023–01, and
should be submitted on or before
February 22, 2023.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.46
Sherry R. Haywood,
Assistant Secretary.
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MIAX–2023–01.
DEPARTMENT OF STATE
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–MIAX–2023–01. 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
45 For purposes only of accelerating the operative
date of this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
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[FR Doc. 2023–01998 Filed 1–31–23; 8:45 am]
BILLING CODE 8011–01–P
[Public Notice 11984]
Overseas Security Advisory Council
(OSAC) Meeting Notice; Closed
Meeting
The Department of State announces
meetings of the U.S. State Department’s
Overseas Security Advisory Council on
February 28, June 7, and November 14,
2023. Pursuant to Section 10(d) of the
Federal Advisory Committee Act (5
U.S.C. 1009(d)), 5 U.S.C. 552b(c)(4), and
5 U.S.C. 552b(c)(7)(E), it has been
determined that the meetings will be
closed to the public. The meetings will
focus on an examination of corporate
security policies and procedures, will
involve extensive discussion of trade
secrets and proprietary commercial
information that is privileged and
confidential, and will discuss law
enforcement investigative techniques
and procedures. The agendas will
include updated committee reports,
global threat overviews, and other
matters relating to private sector
security policies and protective
programs and the protection of U.S.
business information overseas.
For more information, contact Ellen
Tannor, Overseas Security Advisory
Council, U.S. Department of State,
Washington, DC 20522–2008, phone:
571–345–2223.
Kevin E. Bryant,
Deputy Director, Office of Directives
Management, Department of State.
[FR Doc. 2023–02069 Filed 1–31–23; 8:45 am]
BILLING CODE 4710–43–P
46 17
PO 00000
SURFACE TRANSPORTATION BOARD
[Docket No. AB 1321X]
Ohi-Rail Corporation—Discontinuance
of Service Exemption—in Perry and
Muskingum Counties, Ohio
Ohi-Rail Corporation (Ohi-Rail) has
filed a verified notice of exemption
under 49 CFR part 1152 subpart F—
Exempt Abandonments and
Discontinuances of Service to
discontinue service and terminate its
lease operations over approximately
14.8 miles of rail line owned by the
Ohio Rail Development Commission,
including the Fultonham Running Track
from milepost 0.0 to milepost 3.1 (Glass
Rock-East) and Z&W Industrial Track
from milepost 45.8 to milepost 57.5
(Glass Rock-West), in Perry and
Muskingum Counties, Ohio (the Line).1
The Line traverses U.S. Postal Service
Zip Codes 43701, 43735, 43739, 43760,
43777, and 43791.
Ohi-Rail has certified that: (1) it has
not moved any local traffic over the Line
for at least two years; (2) it has not
moved any overhead traffic over the
Line for at least two years, and overhead
traffic, if there were any, could be
rerouted over other lines; (3) no formal
complaint filed by a user of rail service
on the Line (or by a state or local
government entity acting on behalf of
such user) regarding cessation of service
on the Line is either pending with the
Surface Transportation Board (Board) or
with any U.S. District Court or has been
decided in favor of a complainant
within the two-year period; and (4) the
requirements at 49 CFR 1105.12
(newspaper publication) and 49 CFR
1152.50(d)(1) (notice to governmental
agencies) have been met.
As a condition to this exemption, any
employee adversely affected by the
discontinuance of service shall be
protected under Oregon Short Line
Railroad—Abandonment Portion
Goshen Branch Between Firth &
Ammon, in Bingham & Bonneville
Counties, Idaho, 360 I.C.C. 91 (1979). To
address whether this condition
adequately protects affected employees,
a petition for partial revocation under
49 U.S.C. 10502(d) must be filed.
Provided no formal expression of
intent to file an offer of financial
assistance (OFA) 2 to subsidize
1 Ohi-Rail was authorized to lease and operate the
Line in Ohi-Rail Corp.—Lease & Operation
Exemption—Ohio Department of Transportation,
FD 30986 (ICC served Feb. 27, 1987).
2 Persons interested in submitting an OFA to
subsidize continued rail service must first file a
formal expression of intent to file an offer,
indicating the intent to file an OFA for subsidy and
CFR 200.30–3(a)(12).
Frm 00106
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Continued
E:\FR\FM\01FEN1.SGM
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]]>Agencies
[Federal Register Volume 88, Number 21 (Wednesday, February 1, 2023)]
[Notices]
[Pages 6795-6801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-01998]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96752; File No. SR-MIAX-2023-01]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Exchange Rule 518, Complex Orders
January 26, 2023.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on January 19, 2023, Miami International Securities Exchange, LLC
(``MIAX Options'' or the ``Exchange'') filed with the Securities and
Exchange Commission (the ``Commission'') the proposed rule change as
described in Items I and II below, which Items have been prepared by
the Exchange. The Exchange filed the proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6)
thereunder.\4\ The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend Exchange Rule 518,
Complex Orders.
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxoptions.com/rule-filings/ at MIAX Options'
principal office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in Sections A, B, and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 518, Complex Orders, to (i)
adopt definitions for the terms ``conforming ratio,'' and ``non-
conforming ratio;'' (ii) amend the current definition of a complex
order to incorporate the proposed conforming and non-conforming ratio
definitions; (iii) adopt new subsection (v) to Exchange Rule 518(c)(1)
to describe the processing of a complex order with a non-conforming
ratio; (iv) amend Exchange Rule 518(c)(2)(ii) to distinguish icMBBO
protection for complex orders with conforming ratios and complex orders
with non-conforming ratios; and (v) make minor clarifying edits
throughout Exchange Rule 518 to distinguish order handling of complex
orders with conforming ratios. Additionally, the Exchange proposes to
amend Rule 515A, MIAX Price Improvement Mechanism (``PRIME'') and PRIME
Solicitation Mechanism, to describe new scenarios which will cause a
cPRIME Auction \5\ to terminate prior to the end of the RFR period.
Finally, the Exchange proposes to update Exchange Rule 515 and Rule 516
to correct internal cross references that have changed as a result of
this proposal.
---------------------------------------------------------------------------
\5\ Members may use PRIME to execute complex orders at a net
price. ``cPRIME'' is the process by which a Member may
electronically submit a cPRIME Order (as defined in Rule 518(b)(7))
it represents as agent (a ``cPRIME Agency Order'') against principal
or solicited interest for execution (a ``cPRIME Auction''). See
Exchange Rule 515A, Interpretations and Policies .12(a).
---------------------------------------------------------------------------
Background
Currently the Exchange defines a ``complex order'' as any order
involving the concurrent purchase and/or sale of two or more different
options in the same underlying security (the ``legs'' or ``components''
of the complex order), for the same account, in a ratio that is equal
to or greater than one-to-three (.333) and less than or equal to three-
to-one (3.00) and for the purposes of executing a particular investment
strategy. Mini-options may only be part of a complex order that
includes other mini-options. Only those complex orders in the classes
designated by the
[[Page 6796]]
Exchange and communicated to Members \6\ via Regulatory Circular with
no more than the applicable number of legs, as determined by the
Exchange on a class-by-class basis and communicated to Members via
Regulatory Circular, are eligible for processing.
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\6\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100.
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Proposal
Currently the Exchange will accept a complex order comprised solely
of option components in a ratio that is equal to or greater than one-
to-three (.333) or less than or equal to three-to-one (3.00).\7\ The
Exchange now proposes to accept complex orders comprised solely of
options with ratios larger than three-to-one or smaller than one-to-
three. To support its proposal the Exchange proposes to adopt a
definition for a ``conforming ratio'' to refer to complex orders where
the ratio between the sizes of the components of a complex order
comprised solely of options is equal to or greater than one-to-three
(.333) and less than or equal to three-to-one (3.00).\8\ Additionally,
the Exchange proposes to adopt a definition for a ``non-conforming
ratio'' to refer to complex orders where the ratio between the sizes of
the components of a complex order comprised solely of options is
greater than three-to-one (3.00) or less than one-to-three (.333).\9\
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\7\ See Exchange Rule 518(a)(5).
\8\ See proposed Rule 518(a)(8).
\9\ See proposed Exchange Rule 518(a)(16).
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Subsequently, the Exchange proposes to amend Exchange Rule
518(c)(1)(iii) and (c)(1)(iv) to insert the phrase, ``with a conforming
ratio,'' to provide additional detail and clarity to the rule text.
Specifically, current Rule 518(c)(1)(iii) provides that, ``[i]f any
component of a complex strategy would be executed at a price that is
equal to a Priority Customer \10\ bid or offer on the Simple Order
Book, at least one other option component of the complex strategy must
trade at a price that is better than the corresponding MBBO.'' \11\ The
Exchange now proposes to amend this rule to provide that, ``[i]f any
component of a complex strategy with a conforming ratio would be
executed at a price that is equal to a Priority Customer bid or offer
on the Simple Order Book, at least one other option component of the
complex strategy must trade at a price that is better than the
corresponding MBBO.''
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\10\ 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.
\11\ The term ``MBBO'' means the best bid or offer on the
Exchange. See Exchange Rule 100.
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Similarly, current Rule 518(c)(1)(iv) provides that, ``[a] complex
order will not be executed at a net price that would cause any option
component of the complex strategy to be executed: (A) at a price of
zero; or (B) ahead of a Priority Customer Order \12\ on the Simple
Order Book \13\ without improving the MBBO of at least one option
component of the complex strategy.'' The Exchange now propose to amend
this rule to provide that, ``[a] complex order with a conforming ratio
will not be executed at a net price that would cause any option
component of the complex strategy to be executed: (A) at a price of
zero; or (B) ahead of a Priority Customer Order on the Simple Order
Book without improving the MBBO of at least one option component of the
complex strategy.'' The proposed changes to Rule 518(c)(1)(iii) and
(c)(1)(iv) will make clear that existing complex priority provisions
apply only to complex orders with conforming ratios.
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\12\ The term ``Priority Customer Order'' means an order for the
account of a Priority Customer. See Exchange Rule 100.
\13\ The ``Simple Order Book'' is the Exchange's regular
electronic book of orders and quotes. See Exchange Rule 518(a)(15).
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The Exchange proposes to renumber current paragraph (c)(1)(v) to
new paragraph (c)(1)(vi) and to adopt new paragraph (v) to provide
that, ``[a] complex order with a non-conforming ratio will not be
executed at a net price that would cause any option component of the
complex strategy to be executed: (A) at a price of zero; (B) ahead of a
Priority Customer Order at the MBBO on the Simple Order Book; or (C) at
a price that is through the NBBO.'' \14\ Therefore, a complex order
with any ratio less than one-to-three or greater than three-to-one may
be executed at a net price only if each leg of the complex order
betters the corresponding bid (offer) of a Priority Customer Order(s)
on the Simple Order Book, and is not at a price that is through the
NBBO. These requirements are consistent with the rules of other option
exchanges that process complex orders in the same ratios.\15\
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\14\ 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.
\15\ See Cboe Exchange Rule 5.33(f)(2)(A)(iv)(b), and BOX
Options Rule 7240(b)(2)(iii).
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In addition, icMBBO \16\ protection will apply to both conforming
and non-conforming strategies as executions of complex orders (with
either conforming or non-conforming ratios) must comply with Exchange
Rule 518(c)(2)(ii).\17\ Accordingly, the Exchange proposes to amend
Rule 518(c)(2)(ii) to provide additional detail related to pricing for
conforming and non-conforming strategies. Specifically, the Exchange
proposes to add a clarifying parenthetical statement to the first
sentence to clearly differentiate the rules that apply to executions of
complex orders with conforming ratios and complex orders with non-
conforming rations when there is Priority Customer interest at the
MBBO. Specifically, the proposed sentence will state, ``Incoming
complex orders and quotes will be executed by the System in accordance
with the provisions set forth herein, and will not be executed at
prices inferior to the icMBBO or at a price that is equal to the icMBBO
when there is a Priority Customer Order (as defined in Rule 100) at the
best icMBBO price (complex orders with conforming ratios will be
executed in accordance with Rule 518(c)(1)(iv) and complex orders with
non-conforming ratios will be executed in accordance with Rule
518(c)(1)(v).'' With this amendment the Exchange represents that the
complex order priority rules will protect Priority Customer interest on
the Simple Order Book.
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\16\ The Implied Complex MIAX Best Bid or Offer (``icMBBO'') 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. See Exchange Rule 518(a)(11).
\17\ Exchange Rule 518(c)(2)(ii) provides that incoming complex
orders and quotes will be executed by the System in accordance with
the provisions set forth in Exchange Rule 518, and will not be
executed at prices inferior to the icMBBO or at a price that is
equal to the icMBBO when there is a Priority Customer Order (as
defined in Rule 100) at the best icMBBO price.
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The Exchange does not propose to extend the complex order priority
afforded to complex orders with conforming ratios to those with non-
conforming ratios. Execution of complex orders with conforming ratios
will be unchanged under the Exchange's proposal and these orders will
continue to not be executed at a net price that would cause any option
component of the complex strategy to be executed: (A) at a price of
zero; or (B) ahead of a Priority Customer Order on the Simple Order
Book without improving the MBBO of at least one option component of the
complex strategy.
The Exchange also proposes to amend the current definition of a
complex order as described in Rule 518(a)(5) to include the terms
conforming or non-conforming ratios as those terms are defined in the
Rule.
[[Page 6797]]
The Exchange also proposes to amend Interpretations and Policies
.12(d) of Exchange Rule 515A, MIAX Price Improvement Mechanism
(``PRIME'') and PRIME Solicitation Mechanism to adopt two new
paragraphs which will describe new scenarios that arise as a result of
the Exchange processing complex orders with non-conforming ratios,
which will cause a cPRIME Auction to terminate prior to the end of the
RFR period.
Currently Interpretations and Policies .12(d) of Exchange Rule
515A, provides that, a cPRIME Auction shall conclude at the sooner of
(i) \18\ through (vii) as listed in the Rule below with the cPRIME
Agency Order executing pursuant to Rule 515A(2)(iii). The Exchange
proposes to describe two new scenarios that will terminate a cPRIME
Auction prior to the conclusion of the RFR period as subparagraphs
(viii) and (ix), as described more fully below. Consequently, the
Exchange proposes to amend the first sentence of Interpretations and
Policies .12(d) of Exchange Rule 515A to account for the addition of
these scenarios. As proposed, the new sentence would provide that,
``[a] cPRIME Auction shall conclude at the sooner of (i) through (ix)
below with the cPRIME Agency Order executing pursuant to Rule
515A(2)(iii) below:''
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\18\ The end of the RFR Period. See Interpretations and Policies
.12(d)(i) of Exchange Rule 515A.
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The Exchange proposes to adopt paragraph (viii) to Interpretations
and Policies .12(d) of Rule 515A to provide that, ``a Priority Customer
Order, eligible to rest on the Simple Order Book, is received on either
side of the market as the cPRIME Agency Order with a non-conforming
ratio, and causes any component of the cPRIME Agency Order to lock or
cross a Priority Customer Order at (A) the best price opposite the
cPRIME Agency Order; or (B) the initiating price.'' The Exchange also
proposes to adopt paragraph (ix) to provide that, ``the NBBO for a
component of a cPRIME Agency Order with a non-conforming ratio updates
to a price that would cause any option component of the cPRIME Agency
Order to be executed at a price through the NBBO for that series.''
These provisions ensure that a cPRIME Agency Order will always
receive the best price on the Exchange while simultaneously preserving
the integrity of the simple market by preventing a component of an
order with a non-conforming ratio from trading ahead of Priority
Customer interest or trading through the NBBO.
Example 1
A Priority Customer Order in a component of the strategy, eligible
to rest on the Simple Order Book, is received on the same side of the
market as the cPRIME Agency Order with a non-conforming ratio, and
causes a component of the cPRIME Agency Order to lock a Priority
Customer Order at the best price opposite the cPRIME Agency Order.
MIAX--LMM \19\ Sep 50 Call 1.81-1.82 (10 x 10)
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\19\ The term ``Lead Market Maker'' means a Member registered
with the Exchange for the purpose of making markets in securities
traded on the Exchange and that is vested with the rights and
responsibilities specified in Chapter VI of these Rules with respect
to Lead Market Makers. When a Lead Market Maker is appointed to act
in the capacity of a Primary Lead Market Maker, the additional
rights and responsibilities of a Primary Lead Market Maker specified
in Chapter VI of these Rules will apply. See Exchange Rule 100.
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MIAX--LMM Sep 55 Call 1.29-1.30 (10 x 10)
MIAX--Priority Customer Sep 55 Call order to sell 10 at 1.30 \20\
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\20\ A leg of a non-conforming strategy may not execute ahead of
a Priority Customer Order at the MBBO on the Simple Order Book,
therefore while there is a Priority Customer Order priced at 1.30
for the Sep 55 Call, the price used for this leg to establish the
net price will be 1.29. See proposed Exchange Rule 518(c)(1)(v).
(The Auction starts as the net price of 0.52 may still be achieved
if the other leg in the strategy (Sep 50 Call) can be executed at
1.81.)
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Strategy: Buy 1 Sep 50 Call, Sell 1 Sep 55 Call
The icMBBO \21\ is 0.51 debit bid and 0.53 credit offer
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\21\ The Implied Complex MIAX Best Bid or Offer (``icMBBO'') 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. See Exchange Rule 518(a)(11).
The Exchange receives a cPRIME Order with a non-conforming ratio
with the cPRIME Agency Order representing the purchase of the Strategy
at a net debit of 0.52, (Buy Sep 50 Call at 1.82, Sell Sep 55 Call at
1.30) 500 times. (Auto-match is not enabled and there are no orders for
the Strategy on the Strategy Book.)
Since the order price is at least $0.01 better than (inside) the
icMBBO and the best net price of any order for the Strategy on the
Strategy Book, a cPRIME Auction can begin.\22\
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\22\ The initiating price for a cPRIME Agency Order must be
better than (inside) the icMBBO 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 icMBBO or any other complex orders on the
Strategy Book. See Interpretations and Policies .12(a)(i) of
Exchange Rule 515A.
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A Request for Responses (``RFR'') is broadcast to all subscribers
and the RFR period is started.
The following responses are received:
@70 milliseconds MM1 response, cAOC eQuote @0.52 credit sell
of 100 arrives
The cPRIME Auction process will continue until the Response Time
Interval ends or an event eligible to cause the cPRIME Auction to end
sooner occurs.
@85 milliseconds a Priority Customer simple order bid to pay
1.81 for 10 Sep 50 Calls arrives
Since the pre-existing simple order to sell at 1.30 is Priority
Customer, the tradable component prices of the cPRIME Order are 1.81
for the Sep 50 Call and 1.29 for the Sep 55 Call, for a net debit price
of 0.52.
However, because the new order to buy at 1.81 is also Priority
Customer and causes a tradable component of the cPRIME Agency Order
(Sep 50 Call) to lock a Priority Customer Order at the best price
opposite the cPRIME Agency Order, the cPRIME Auction will terminate.
The cPRIME Auction is concluded prior to the end of the Response
Time Interval to prevent the cPRIME Agency Order from trading ahead of
a Priority Customer in any component of the cPRIME Agency Order.
The cPRIME Auction process will trade the cPRIME Agency Order with
the best priced responses. The cPRIME Agency order will be filled as
follows:
The cPRIME Agency Order buys 400 from the Contra side @0.52
The cPRIME Agency Order buys 100 from MM1 @0.52
Example 2
A Priority Customer Order in a component of the strategy, eligible
to rest on the Simple Order Book, is received on the opposite side of
the market from the cPRIME Agency Order with a non-conforming ratio,
and causes a component of the cPRIME Agency Order to lock a Priority
Customer at the initiating price.
MIAX--LMM Sep 50 Call 1.81-1.82 (10 x 10)
MIAX--LMM Sep 55 Call 1.29-1.30 (10 x 10)
MIAX--Priority Customer Sep 55 Call order to buy 10 at 1.29
Strategy: Buy 1 Sep 50 Call, Sell 1 Sep 55 Call
The icMBBO is 0.51 debit bid and 0.53 credit offer
The Exchange receives a cPRIME Order with a non-conforming ratio
with the cPRIME Agency Order representing the purchase of the Strategy
at a net debit of 0.52, (Buy Sep 50 Call at 1.82, Sell Sep 55 Call at
1.30), 500 times.
[[Page 6798]]
(Auto-match is not enabled and there are no orders for the Strategy on
the Strategy Book.)
Since the order price is at least $0.01 better than (inside) the
icMBBO and the best net price of any order for the Strategy on the
Strategy Book, a cPRIME Auction can begin.
A Request for Responses (``RFR'') is broadcast to all subscribers
and the RFR period is started.
The following responses are received:
@70 milliseconds MM1 response, cAOC eQuote @0.52 credit sell
of 100 arrives
The cPRIME Auction process will continue until the Response Time
Interval ends or an event eligible to cause the cPRIME Auction to end
sooner occurs.
@85 milliseconds a Priority Customer simple order offer to
sell at 1.82 for 10 Sep 50 Calls arrives
Since the pre-existing simple order to buy Sep 55 Call at 1.29 is
Priority Customer, the tradable component prices of the cPRIME Order
are 1.82 for the Sep 50 Call and 1.30 for the Sep 55 Call, for a net
debit price of 0.52.
However, because the new order to sell at 1.82 is also Priority
Customer and causes a tradable component of the cPRIME Agency Order
(Sep 50 Call) to lock a Priority Customer Order at the initiating
price; the cPRIME Auction will terminate.
The cPRIME Auction is concluded prior to the end of the Response
Time Interval to prevent the cPRIME Agency Order from trading ahead of
a Priority Customer in any component of the cPRIME Agency Order.
The cPRIME Auction process will trade the cPRIME Agency Order with
the best priced responses. The cPRIME Agency order will be filled as
follows:
The cPRIME Agency Order buys 400 from the Contra side @0.52
The cPRIME Agency Order buys 100 from MM1 @0.52
Example 3
The NBBO for a component of a cPRIME Agency Order with a non-
conforming ratio updates to a price that would cause a component to
trade through the NBBO.
MIAX--LMM Sep 50 Call 1.81-1.82 (10 x 10)
MIAX--LMM Sep 55 Call 1.29-1.30 (10 x 10)
MIAX--Priority Customer Sep 55 Call order to buy 10 at 1.29
Strategy: Buy 1 Sep 50 Call, Sell 1 Sep 55 Call
The icMBBO is 0.51 debit bid and 0.53 credit offer
The Exchange receives a cPRIME Order with a non-conforming ratio
with the cPRIME Agency Order representing the purchase of the Strategy
at a net debit of 0.52, (Buy Sep 50 Call at 1.82, Sell Sep 55 Call at
1.30), 500 times. (Auto-match is not enabled and there are no orders
for the Strategy on the Strategy Book.)
Since the order price is at least $0.01 better than (inside) the
icMBBO and the best net price of any order for the Strategy on the
Strategy Book, a cPRIME Auction can begin.
A Request for Responses (``RFR'') is broadcast to all subscribers
and the RFR period is started.
The following responses are received:
@70 milliseconds MM1 response, cAOC eQuote @0.52 credit sell
of 100 arrives
The cPRIME Auction process will continue until the Response Time
Interval ends or an event eligible to cause the cPRIME Auction to end
sooner occurs.
The ABBO updates to 1.80-1.81 (10x10) for the Sep 50 Call
Since the pre-existing simple order to buy Sep 55 Call at 1.29 is
Priority Customer, the tradable component prices of the cPRIME order
are 1.82 for the Sep 50 Call and 1.30 for the Sep 55 Call, for a net
debit price of 0.52.
However, because the ABBO update to sell Sep 50 Call at 1.81 is
better than the local best offer (1.82), this causes the tradable price
to be through the NBBO for that component and is no longer tradable.
The cPRIME Auction is concluded prior to the end of the Response
Time Interval to prevent the non-conforming strategy trading through
any component NBBO.
The cPRIME Auction process will trade the cPRIME Agency Order with
the best priced responses. The cPRIME Agency order will be filled as
follows:
The cPRIME Agency Order buys 400 from the Contra side @0.52
The cPRIME Agency Order buys 100 from MM1 @0.52
The Exchange also proposes to allow bids and offers on complex
orders, quotes and RFR Responses for complex strategies having only
option components and a non-conforming ratio to be expressed in $0.01
increments, and the component(s) of such a complex order may be
executed in $0.01 increments, regardless of the minimum increments
otherwise applicable to individual components of the complex order. The
Exchange notes that electronic trading of complex orders with non-
conforming ratios in one cent increments was recently established on
another exchange.\23\ Further, the Exchange notes that complex orders
with conforming ratios are currently traded in one cent increments on
the Exchange \24\ and the proposed change will allow trading of complex
orders in one cent increments for all complex orders on the Exchange.
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\23\ See Securities Exchange Act Release No. 94204 (February 9,
2022), 87 FR 8625 (February 15, 2022) (SR-CBOE-2021-046) and Cboe
Rule 5.4(b); see also BOX Options Rule 7240(b)(1).
\24\ See Exchange Rule 518(c)(1)(i).
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The Exchange understands that there may be some concerns that if
the ratios of complex orders, where each component leg is allowed to
trade in one cent increments, are too greatly expanded, market
participants will, for example, enter complex orders with non-
conforming ratios designed primarily to trade orders in a class in
pennies that cannot otherwise execute as simple orders in that class in
pennies. The Exchange believes it is highly unlikely that market
participants will submit non-bona-fide trading strategies with larger
ratios just to trade in penny increments. Adding a single leg to a
larger order just to obtain penny pricing may further reduce execution
opportunities for such an order because it may be less likely that
sufficient contracts in the appropriate ratio would be available and
because it is unlikely that other market participants would be willing
to execute against an order that is not a bona-fide trading strategy.
Further, the Exchange notes that all option series traded on the
Exchange can currently trade in penny increments in the Exchange's
Price Improvement Mechanism (``PRIME'') regardless of the minimum
increment otherwise applicable.\25\ Lastly, the Exchange notes that
pursuant to Exchange Rule 301, no Member shall engage in acts or
practices inconsistent with just and equitable principles of trade, and
entering orders for non-bona-fide trading strategies may constitute
acts or practices inconsistent with just and equitable principles of
trade.
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\25\ See Exchange Rule 515A(a)(2)(i)(F).
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Finally, the Exchange proposes to make non-substantive edits to
Exchange Rule 515 and Rule 516, to update internal cross references to
the location of certain definitions that have changed as a result of
this proposal.
Implementation
The Exchange will announce the implementation of complex orders
with non-conforming strategies by Regulatory Circular at least 48 hours
prior to implementation of this functionality, as
[[Page 6799]]
the Exchange believes that 48 hours of notice is adequate for Members.
2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act,\26\ in that it is designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in, securities, to remove impediments to
and perfect the mechanisms of a free and open market and a national
market system and, in general, to protect investors and the public
interest. Additionally, the Exchange believes the proposed rule change
is consistent with the Section (6)(b)(5) \27\ requirement that the
rules of an exchange not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
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\26\ 15 U.S.C. 78f(b).
\27\ 15 U.S.C. 78(f)(b)(5).
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The Exchange currently only processes complex orders that fit
within the proposed definition of a conforming ratio, that is complex
orders with a ratio between the sizes of the option components equal to
or greater than one-to-three (.333) and less than or equal to three-to-
one (3.00) and for the purposes of executing a particular investment
strategy.\28\
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\28\ See Exchange Rule 518(a)(5).
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In particular, the Exchange believes the proposed rule change will
remove impediments to and perfect the mechanism of a free and open
market and benefit investors, because it will allow market participants
to execute complex strategies with option components only in ratios
greater than three-to-one or less than one-to-three (``non-conforming
ratios'' as proposed herein). The proposed rule change will further
remove impediments to and perfect the mechanism of a free and open
market and a national market system, as other options exchanges permit
the trading of complex orders with any ratio.\29\
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\29\ See Cboe Exchange Rules 1.1 (Complex Order) and 5.33; see
also BOX Exchange Rule 7240(a)(10), (b)(1) and (b)(2)(iii).
---------------------------------------------------------------------------
The proposed change rule change will continue to protect Priority
Customer Order interest on the Simple Order Book in the same manner as
it does today, as all complex orders with a conforming ratio will
continue to be executed on the Exchange without change. The proposed
rule change has no impact on the priority of complex orders with a
conforming ratio, as complex orders with a conforming ratio will
continue to be required to improve the price of a leg of the complex
order for which a Priority Customer Order is resting at the BBO in the
Simple Order Book,\30\ and thus will continue to protect Priority
Customer Orders in the Simple Order Book. Additionally, the Exchange
will not allow any component of a complex order with a non-conforming
strategy to execute ahead of a Priority Customer resting at the BBO in
the Simple Order Book.\31\
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\30\ See Exchange Rule 518(c)(3).
\31\ See proposed Rule 518(c)(1)(v).
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Additionally, the Exchange believes the proposed amendment to
revise Exchange Rule 518(c)(2) to indicate icMBBO protection for
complex orders with conforming ratios will require those orders to be
executed in accordance with Rule 518(c)(1)(iv) and complex orders with
non-conforming ratios to be executed in accordance with Rule
518(c)(1)(v) will clarify the operation of the icMBBO protection for
complex orders with a conforming ratio and complex orders with a non-
conforming ratio. This change benefits investors and the public as it
clarifies that the complex order priority rules will continue to
protect Priority Customer interest on the Simple Order Book.
The Exchange believes the proposed changes will increase
opportunities for execution of complex orders and lead to tighter
spreads on the Exchange, which will benefit all investors. The Exchange
also believes that the proposed rule change is designed to not permit
unfair discrimination among market participants, as all market
participants may trade complex orders, and the priority and eligibility
requirements apply to complex orders of all market participants.
Additionally, the Exchange believes that including additional
scenarios which will terminate a cPRIME Auction promotes just and
equitable principles of trade and removes impediments to a free and
open market by providing greater transparency concerning the operation
of Exchange functionality. These provisions ensure that a cPRIME Agency
Order will always receive the best price on the Exchange while
simultaneously preserving the integrity of the simple market.
The Exchange believes that its proposal is designed to promote just
and equitable principles of trade, to remove impediments to and perfect
the mechanism of a free an open market and a national market system,
and, in general to protect investors and the public interest, by
enhancing its System \32\ and rules governing complex orders. The
Exchange's proposal should provide market participants with trading
opportunities more closely aligned with their investment or risk
management strategies.
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\32\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
The Exchange does not believe that its proposed rule change will
impose any burden on intra-market competition as the Rules of the
Exchange apply equally to all Members of the Exchange and all Members
may submit complex orders. Therefore, any Member of the Exchange may
submit a complex order with a conforming or non-conforming ratio and
the order will be handled in a uniform fashion by the System.
The Exchange does not believe that its proposed rule change will
impose any burden on inter-market competition that is not necessary or
appropriate in furtherance of the purposes of the Act, rather the
Exchange believes that its proposal will promote inter-market
competition. The Exchange notes that other options exchanges provide
for the electronic trading of complex orders with only option
components with ratios that are less than one-to-three and greater than
three-to-one, and allow these orders to be priced and executed in one
cent increments.\33\ As such, the Exchange does not believe that the
proposed rule change will impose any burden on competition not
necessary or appropriate in furtherance of the purposes of the Act.
---------------------------------------------------------------------------
\33\ See Cboe Exchange Rule 5.4(b); see also BOX Exchange Rule
7240(b)(1).
---------------------------------------------------------------------------
The Exchange does not believe the proposed amendment to clarify
icMBBO protections imposes any burden on intra-market competition that
is not necessary or appropriate in furtherance of the purposes of the
Act. Complex orders submitted by Members with conforming ratios will
continue to be handled by the System without change. Complex orders
submitted by Members with non-conforming ratios will be handled
uniformly by the System as described in this proposal. The Exchange
does not believe that this proposed change imposes any burden on inter-
market competition as the
[[Page 6800]]
icMBBO protection is designed to protect Priority Customer priority on
the Exchange's Book and is not a change made for competitive reasons.
Additionally, the Exchange does not believe that its new proposed
scenarios to terminate a cPRIME Auction imposes any burden on intra-
market competition that is not necessary or appropriate in furtherance
of the purposes of the Act, as the proposed changes are designed to add
additional detail to the rules to further clarify the operation of
Exchange functionality and to minimize the potential for confusion. The
Exchange does not believe that this proposed change imposes any burden
on inter-market competition as this change is designed to protect
Priority Customer priority on the Exchange's Book and is not a change
made for competitive reasons.
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 (a)
significantly affect the protection of investors or the public
interest; (b) impose any significant burden on competition; and (c)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \34\ and Rule 19b-
4(f)(6) thereunder.\35\
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\34\ 15 U.S.C. 78s(b)(3)(A).
\35\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative prior to 30 days after the date of the filing.
However, pursuant to Rule 19b-4(f)(6)(iii),\36\ the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay. As noted above,
other options exchanges currently allow complex orders with a ratio
less than one-to-three or greater than three-to-one to trade
electronically in $0.01 increments.\37\ Under the proposal, no
component leg of a complex order with a non-conforming ratio will
execute (A) at a price of zero; (B) ahead of a Priority Customer Order
at the MBBO on the Simple Order Book; or (C) at a price that is through
the NBBO.\38\ Accordingly, the Exchange states that a non-conforming
ratio complex order may be executed at a net price only if each leg of
the complex order betters the corresponding bid (offer) of a Priority
Customer Order(s) on the Simple Order Book, and is not at a price that
is through the NBBO. The Exchange states that waiver of the operative
delay will allow the Exchange to immediately offer market participants
the choice of another execution venue for the electronic trading of
complex orders with non-conforming ratios. The Exchange further states
that market participants may benefit from competition between
exchanges, may find the trade execution services and fees on one
exchange more favorable than another, or may find it more convenient to
access on exchange over another. Accordingly, the Exchange believes
that waiving the operative delay will allow the Exchange to immediately
make a competitive offering to market participants.
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\36\ 17 CFR 240.19b-4(f)(6)(iii).
\37\ See BOX Rules 7240(a)(10); 7240(b)(1); and 7240(b)(2)(iii);
and Cboe Rules 1.1 (stating, in the definition of complex order,
that ``the Exchange determines on a class-by-class basis whether
complex orders with ratios less than one-to-three (.333) or greater
than three-to-one (3.00) (except for Index Combo orders) are
eligible for electronic processing'')); 5.4(b); and
5.33(f)(2)(A)(iv)(b).
\38\ See proposed Exchange Rule 518(c)(1)(v).
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The Commission finds that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
The proposal will provide investors with an additional venue for
electronically trading complex orders with a ratio less than one-to-
three or greater than three-to-one. The Commission believes that
proposal does not raise new or novel regulatory issues because other
options exchanges currently provide for the electronic trading of
complex orders with a ratio less than one-to-three or greater than
three-to-one.\39\ The proposal protects the priority of resting
Priority Customer orders by providing that no component leg of a non-
conforming ratio complex order will be executed ahead of a Priority
Customer Order at the MBBO on the Simple Order Book.\40\ This
requirement is consistent with the rules of other options exchanges
that provide for the electronic trading of complex orders with a ratio
less than one-to-three or greater than three-to-one.\41\ As described
above, the proposal also revises Exchange Rule 515A, Interpretation and
Policy .12(d) to provide that a cPRIME Auction for a non-conforming
ratio cPRIME Agency Order will terminate early when a single-leg
Priority Customer Order arrives and causes any component of the cPRIME
Agency Order to lock or cross a Priority Customer Order at the best
price opposite the cPRIME Agency Order or the initiating price.\42\ A
cPRIME Auction for a non-conforming ratio cPRIME Agency Order also will
terminate early when the NBBO for a component of the cPRIME Agency
Order updates to a price that would cause any component of the cPRIME
Agency Order to be executed at a price that is through the NBBO for
that series.\43\ The Exchange states that these provisions ensure that
a cPRIME Agency Order will always receive the best price on the
Exchange while preserving the integrity of the simple market by
preventing a component of a non-conforming ratio complex order from
trading ahead of Priority Customer interest or trading through the
NBBO. In addition, as discussed above, the Exchange believes it is
highly unlikely that market participants will submit non-bona-fide
trading strategies with larger ratios solely for the purpose of trading
in penny increments. The Exchange states that adding a single leg to a
larger order to obtain penny pricing could reduce execution
opportunities for such an order because it may be less likely that
sufficient contracts in the appropriate ratio would be available and
because it is unlikely that other market participants would be willing
to execute against an order that is not a bona-fide trading strategy.
Further, the Exchange notes that all option series traded on the
Exchange can currently trade in penny increments in the Exchange's
PRIME auction, regardless of the minimum increment otherwise
applicable.\44\ The Exchange also states that entering orders for non-
bona-fide trading strategies could constitute an act or practice
inconsistent with just and equitable principles of trade, in violation
of
[[Page 6801]]
Exchange Rule 301. For these reasons, the Commission designates the
proposal operative upon filing.\45\
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\39\ See footnote 37, supra.
\40\ See proposed Exchange Rule 518(c)(1)(v). In addition, the
proposal revises Exchange Rule 518(c)(2)(ii), which provides that
complex orders will not be executed at prices inferior to the icMBBO
or at a price that is equal to the icMBBO when there is a Priority
Customer Order at the best icMBBO price, to indicate that complex
orders with non-conforming ratios will be executed in accordance
with proposed Exchange Rule 518(c)(1)(v).
\41\ See BOX Rule 7240(b)(2)(iii); and Cboe Rule
5.33(f)(2)(iv)(b).
\42\ See proposed Exchange Rule 515A, Interpretation and Policy
.12(d)(viii).
\43\ See proposed Exchange Rule 515A, Interpretation and Policy
.12(d)(ix).
\44\ See Exchange Rule 515A(a)(2)(i)(F).
\45\ For purposes only of accelerating the operative date of
this proposal, the Commission has considered the proposed rule's
impact on efficiency, competition, and capital formation. 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-MIAX-2023-01.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-MIAX-2023-01. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-MIAX-2023-01, and should be submitted on
or before February 22, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\46\
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\46\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-01998 Filed 1-31-23; 8:45 am]
BILLING CODE 8011-01-P
