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, 33175-33179 [2023-10905]
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Federal Register / Vol. 88, No. 99 / Tuesday, May 23, 2023 / Notices
6. The 2011 strategy focused on
engineered nanomaterials and did not
include incidental nanoscale materials
such as nanoplastics and certain
nanoscale particulate emissions such as
those from 3D printing. If the updated
strategy is revised to include some nonengineered or incidental nanomaterials,
describe how to scope the strategy in a
way that complements rather than being
redundant with existing health and
environmental research (e.g., by
excluding the large body of existing
research on air pollution, which can
include nanoscale particles).
Dated: May 18, 2023.
Stacy Murphy,
Deputy Chief Operations Officer/Security
Officer.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2023–10958 Filed 5–22–23; 8:45 am]
BILLING CODE 3270–F1–P
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–97520; File No. SR–MIAX–
2023–20]
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
May 17, 2023.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 4,
2023, Miami International Securities
Exchange LLC (‘‘MIAX’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
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’s principal office, and
at the Commission’s Public Reference
Room.
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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The Exchange proposes to amend
Rule 518, Complex Orders, to: (i) amend
the definition of a conforming ratio and
a non-conforming ratio to include the
conforming and non-conforming ratios
for stock-option orders; (ii) amend the
definition of a complex order to insert
the clarifying phrase, ‘‘conforming or
non-conforming ratio’’ for stock-option
orders; and (iii) adopt new paragraph (2)
to Interpretations and Policies .01(c) of
Rule 518 to describe the handling of
stock-option orders with nonconforming ratios. Additionally, the
Exchange proposes to make a minor
non-substantive edit to the first
paragraph of Interpretations and
Policies .01(c) of Rule 518 to renumber
the paragraph as paragraph (1).
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 conforming 3
or non-conforming ratio 4 for the
purposes of executing a particular
investment strategy. Mini-options may
only be part of a complex order that
includes other mini-options. Only those
complex orders in the classes
designated by the Exchange and
3 A ‘‘conforming ratio’’ is 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). See Exchange Rule 518(a)(8).
4 A ‘‘non-conforming ratio’’ is 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).
See Exchange Rule 518(a)(16).
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33175
communicated to Members 5 via
Regulatory Circular with no more than
the applicable number of legs, as
determined by the Exchange on a classby-class basis and communicated to
Members via Regulatory Circular, are
eligible for processing.
Additionally, a complex order can
also be a ‘‘stock-option order’’ as
described further, and subject to the
limitations set forth, in Interpretations
and Policies .01 of Rule 518. A stockoption order is an order to buy or sell
a stated number of units of an
underlying security (stock or Exchange
Traded Fund Share (‘‘ETF’’)) or a
security convertible into the underlying
stock (‘‘convertible security’’) coupled
with the purchase or sale of options
contract(s) on the opposite side of the
market representing either (i) the same
number of units of the underlying
security or convertible security, or (ii)
the number of units of the underlying
stock necessary to create a delta neutral
position, but in no case in a ratio greater
than eight-to-one (8.00), where the ratio
represents the total number of units of
the underlying security or convertible
security in the option leg to the total
number of units of the underlying
security or convertible security in the
stock leg. Only those stock-option
orders in the classes designated by the
Exchange and communicated to
Members via Regulatory Circular with
no more than the applicable number of
legs as determined by the Exchange on
a class-by-class basis and communicated
to Members via Regulatory Circular, are
eligible for processing.6
Proposal
The Exchange now proposes to accept
stock-option orders with ratios greater
than eight-to-one, or non-conforming
ratios, as defined herein. To support its
proposal, the Exchange proposes to
amend the definition of a ‘‘conforming
ratio’’ in Exchange Rule 518(a)(8) to
include the current ratio for stockoption orders accepted by the Exchange,
which is where one component of the
complex order is the underlying
security (stock or ETF), or security
convertible into the underlying stock
(‘‘convertible security’’) and the ratio
between the option component(s) and
the underlying security (stock or ETF),
or convertible security is less than or
equal to eight-to-one (8.00).
Specifically, as amended the
proposed rule will provide that, a
5 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.
6 See Exchange Rule 518(a)(5).
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‘‘conforming ratio’’ is 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); where one
component of the complex order is the
underlying security (stock or ETF) or
security convertible into the underlying
stock (‘‘convertible security’’) the ratio
between the option component(s) and
the underlying security (stock or ETF) or
convertible security is less than or equal
to eight-to-one (8.00).7 The Exchange
also proposes to amend the definition of
a non-conforming ratio in Exchange
Rule 518(a)(16) to include stock-option
orders, to state, where one component of
the complex order is the underlying
security (stock or ETF) or underlying
security convertible into the underlying
stock (‘‘convertible security’’), the ratio
between the option component(s) and
the underlying security (stock or ETF) or
convertible security is greater than
eight-to-one (8.00). Specifically, as
amended the proposed rule will provide
that, a ‘‘non-conforming ratio’’ is 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 oneto-three (.333); where one component of
the complex order is the underlying
security (stock or ETF) or security
convertible into the underlying stock
(‘‘convertible security’’), the ratio
between the option component(s) and
the underlying security (stock or ETF) or
convertible security is greater than
eight-to-one (8.00).8
Additionally, the Exchange proposes
to amend the second paragraph of Rule
518(a)(5) which discusses stock-option
orders to include the terms conforming
and non-conforming ratio and to remove
the reference to the eight-to-one ratio as
the conforming and non-conforming
ratios for stock-option complex orders
are being relocated under this proposal
to Rule 518(a)(8) and (a)(16)
respectively.
The Exchange also proposes to
renumber the first paragraph of
Interpretations and Policies .01(c) of
Rule 518 as paragraph (1) and to insert
the clarifying phrase, ‘‘with a
conforming ratio,’’ to delineate stockoption order handling when there is a
conforming ratio versus a nonconforming ratio.
Like stock-option orders with
conforming ratios, stock-option orders
with non-conforming ratios will also be
required to create delta neutral
7 See
8 See
proposed Exchange Rule 518(a)(8).
proposed Exchange Rule 518(a)(16).
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positions 9 and must also comply with
the Qualified Contingent Trade
Exemption from Rule 611(a) of
Regulation NMS under the Securities
Exchange Act of 1934 in the same
manner as stock-option orders with
conforming ratios.10 Members
submitting stock option orders in
conforming or non-conforming ratios
represent that such orders comply with
the Qualified Contingent Trade
Exemption.11 The Exchange represents
that it will have the necessary
surveillance in place for stock-option
orders with non-conforming ratios prior
to implementing this functionality.
The Exchange proposes to adopt new
paragraph (2) to Interpretations and
Policies .01(c) of Rule 518 to describe
stock-option order processing on the
Exchange for stock-option orders with
non-conforming ratios. Proposed
paragraph (2) will provide that, ‘‘the
option leg(s) of a stock-option order
with a non-conforming ratio shall not be
executed (i) at a price that is inferior to
the Exchange’s best bid (offer) in the
option or (ii) at the Exchange’s best bid
(offer) in that option if there are one or
more Priority Customer Orders 12 resting
on the Simple Order Book 13 at the best
bid (offer) price for any option leg of a
stock-option order. Each component of
a stock-option order with a nonconforming ratio must trade at a price
better than any Priority Customer
Order(s) resting on the Simple Order
Book at the best bid (offer) price by at
least $0.01. The option leg(s) of a stockoption order may be executed in a $0.01
increment, regardless of the minimum
quoting increment applicable to that
series.’’ 14
Additionally, the Exchange’s proposal
is consistent with the Exchange’s
handling of complex orders with only
options components with nonconforming ratios as Exchange Rule
518(c)(1)(v) provides 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 15 on the
9 See
Exchange Rule 518(a)(5).
Interpretations and Policies .01(a) of
Exchange Rule 518.
11 See id.
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)(17).
14 See proposed Interpretations and Policies .01(c)
of Rule 518.
15 The term ‘‘MBBO’’ means the best bid of offer
on the Exchange. See Exchange Rule 100. The
Exchange notes that this requirement is similar to
10 See
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Simple Order Book; or (C) at a price that
is through the NBBO.16 Like Exchange
Rule 518(c)(1)(v) which requires each
component of a complex order with a
non-conforming ratio to trade at a price
that is better than the MBBO if there is
Priority Customer interest resting on the
Simple Order Book at the MBBO, this
proposal will protect Priority Customer
interest by requiring that each leg of a
stock-option order with a nonconforming ratio trade at a price that is
$0.01 better than any Priority Customer
interest resting on the Simple Order
Book at the best bid or offer.17 Thus the
proposed rule continues to protect
Priority Customer interest on the
Exchange.
Implementation
The Exchange will announce the
implementation of stock-option orders
with non-conforming ratios by
Regulatory Circular at least 48 hours
prior to implementation of this
functionality, as 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,18 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) 19 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 stock-option orders that fit
within the definition of a conforming
ratio, that is where one component of
that of other options exchanges. See Cboe Exchange
Rule 5.33(f)(2)(A)(iv)(b); and BOX Exchange Rule
7240(b)(2)(iii).
16 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.
17 See proposed Interpretations and Policies
.01(c)(2) of Exchange Rule 518.
18 15 U.S.C. 78f(b).
19 15 U.S.C. 78(f)(b)(5).
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the complex order is the underlying
instrument and the ratio between the
option component(s) and the underlying
instrument must be less than or equal to
eight-to-one (8.00). The Exchange has
received significant demand from its
Members to support stock-option orders
in non-conforming ratios, and 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 stock-option
orders where one component of the
complex order is the underlying
security (stock or ETF) or security
convertible into the underlying stock
(‘‘convertible security’’) and the ratio
between the option component(s) and
the underlying security (stock or ETF) or
convertible security is greater than
eight-to-one (8.00).
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 at least
two other options exchanges permit the
trading of stock-option orders with nonconforming ratios. Specifically, Cboe
and Cboe EDGX began supporting the
electronic processing of stock-option
orders in non-conforming ratios via
Cboe’s Complex Order Auctions
(‘‘COA’’); 20 Complex Order Book
(‘‘COB’’); 21 Automated Improvement
Mechanism (‘‘AIM’’); 22 and as Qualified
Contingent Cross Orders (‘‘QCC’’) 23 in
August of 2022.24 Additionally, the
execution price for each option leg must
improve the local BBO 25 by at least
$0.01 when there is a Priority Customer
Order resting at the BBO on that leg,26
which is the same requirement that
20 See
Cboe Exchange Rule 5.33(d).
Cboe Exchange Rule 5.33(a).
22 See Cboe Exchange Rule 5.37.
23 See ‘‘Qualified Contingent Cross or QCC’’ at
Cboe Exchange Rule 5.6(c).
24 See Cboe Exchange Alert, ‘‘Update—Cboe
Options Introduces C–SAM Enhancement, New
Net, Leg Price Increments, and Enhanced Handling
for Complex Orders with Non-Conforming Ratios,
Reference ID: C2022072700 available online at
https://cdn.cboe.com/resources/release_notes/2022/
Update-Cboe-Options-Introduces-C-SAMEnhancement-New-Net-Leg-Price-Increments-andEnhanced-Handling-for-Complex-Orders-with-NonConforming-Ratios.pdf.
25 The term ‘‘BBO’’ means the best bid or offer
disseminated on the Exchange. See Cboe Exchange
Rule 1.1. The Exchange notes that at least one other
options exchange offers stock-option orders with
non-conforming ratios. See the definition of ‘‘StockOption Order’’ in Cboe Exchange Rule 1.1; and see
also Cboe Exchange Rule 5.85(b)(3) which provides
that, ‘‘stock-option orders . . . have priority over
bids (offers) of in-crowd market participants but not
over Priority Customer bids (offers) in the Book.’’
26 See supra note 24. [sic]
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21 See
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applies on the Exchange to all complex
orders with non-conforming ratios.27
Further, the Exchange’s proposal
promotes a free and open market and a
national system and, in general, protects
investors and the public interest by
providing market participants an
additional venue to route stock-option
orders with non-conforming ratios to for
execution. This provides investors an
additional venue to choose from when
making order-routing decisions.
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.28 As
discussed above, the proposed Exchange
rules provide that a stock-option order
with a non-conforming ratio will not be
executed (i) at a price that is inferior to
the Exchange’s best bid (offer) in the
option or (ii) at the Exchange’s best bid
(offer) in that option if there are one or
more Priority Customer Orders resting
on the Simple Order Book at the best
bid (offer) price for any option leg of a
stock-option order. Each component of
a stock-option order with a nonconforming ratio must trade at a price
better than any Priority Customer
Order(s) resting on the Simple Order
Book at the best bid (offer) price by at
least $0.01.29
The Exchange believes the proposed
changes will increase opportunities for
execution of stock-option orders with
non-conforming ratios, 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 stock-option orders with nonconforming ratios, and the priority and
eligibility requirements apply equally to
the stock-option orders with nonconforming ratios of all market
participants.
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 and open market
and a national market system, and, in
general to protect investors and the
public interest, by enhancing its
System 30 and rules governing complex
orders. The Exchange’s proposal should
provide market participants with
27 See
Exchange Rule 518(c)(1)(v).
Exchange Rule 518(c)(1)(iv).
29 See supra note 17.
30 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
28 See
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33177
trading opportunities more closely
aligned with their investment or risk
management strategies and allow market
participants to benefit from trading
these orders electronically.
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 stock-option
orders with non-conforming ratios.
Therefore, any Member of the Exchange
may submit a stock-option order with a
conforming or non-conforming ratio and
the order will be handled in a uniform
fashion by the System. Further, the
Exchange’s proposal protects investors
as Priority Customer interest is
protected and the Exchange’s proposal
prevents any option component of a
stock-option order in a non-conforming
ratio to be [sic] executed ahead of a
Priority Customer Order.31
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. Currently, at least two
other options exchanges process stockoption orders with ratios that are greater
than eight-to-one.32 The Exchange’s
proposal will enhance inter-market
competition by providing an additional
venue where investors may
electronically execute their stock-option
orders with non-conforming ratios,
giving investors greater flexibility and a
choice of where to send their orders.
Market participants may find it more
convenient to access one exchange over
another or may choose to concentrate
volume at a particular exchange in order
to maximize the impact of volume-based
incentive programs, or may prefer the
trade execution services of one
exchange over another.
As such, the Exchange does not
believe the proposed rule change will
impose any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
31 See proposed Interpretations and Policies
.01(c)(2) of Exchange Rule 518.
32 See supra note 24.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to 19(b)(3)(A)
of the Act 33 and Rule 19b–4(f)(6) 34
thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) 35 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b4(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 states that waiver of the
operative delay will benefit investors by
making available immediately an
additional venue for trading stockoption orders in which the ratio
between the options component(s) of
the order and the underlying security
component is greater than 8:1. The
Exchange states that the proposal
protects investors by requiring each
option leg of a non-conforming ratio
stock-option order, as defined in
proposed Exchange Rule 518(a)(16), to
trade at a price that is better than
Priority Customer Order(s) resting on
the Simple Order Book at the
Exchange’s best bid (offer) by at least
$0.01.37 The Exchange notes that this
requirement is consistent with the
current requirements in Exchange Rule
518(c)(1)(v), which, among other things,
states that a non-conforming ratio
complex order comprised solely of
options will not be executed at a net
price that would cause any option
component of the order to be executed
ahead of a Priority Customer Order at
33 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
35 17 CFR 240.19b–4(f)(6).
36 17 CFR 240.19b–4(f)(6)(iii).
37 See proposed Exchange Rule 518,
Interpretation and Policy .01(c)(2).
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the MBBO on the Exchange’s Simple
Order Book.38 As noted above, the
Exchange states that it has received
significant demand from its Members to
support stock-option orders with nonconforming ratios. The Exchange further
states that it will have surveillance
procedures in place for stock-option
orders with non-conforming ratios prior
to implementing the functionality.
The Commission finds that waiving
the 30-day operative delay is consistent
with the protection of investors and the
public interest. The rules of at least one
other options exchange currently permit
the trading on the exchange’s floor of
stock-option orders in which the ratio
between the option component(s) of the
order and the underlying security
component is greater than 8:1.39 The
proposal will provide investors with an
additional venue for trading these stockoption orders. The proposal protects the
priority of Priority Customer orders
resting on the Exchange’s Simple Order
Book by requiring each option
component of a non-conforming ratio
stock-option order to trade at a price
that is better than any Priority Customer
Order(s) resting on the Exchange’s
Simple Order Book at the best bid (offer)
price by at least $0.01.40 This protection
for Priority Customer orders is
consistent with Exchange Rule
518(c)(1)(v), which, among other things,
states that a non-conforming ratio
complex order comprised solely of
options will not be executed at a net
price that would cause any option
component of the order to be executed
ahead of a Priority Customer Order at
the MBBO on the Exchange’s Simple
38 See
Exchange Rule 518(c)(1)(v).
Rule 1.1 states that ‘‘A stock-option order
is an order to buy or sell a stated number of units
of an underlying or a related security coupled with
either (a) the purchase or sale of option contract(s)
on the opposite side of the market representing
either the same number of units of the underlying
or related security or the number of units of the
underlying security necessary to create a delta
neutral position or (b) the purchase or sale of an
equal number of put and call option contracts, each
having the same exercise price and expiration date,
and each representing the same number of units of
stock as, and on the opposite side of the market
from, the underlying or related security portion of
the order. For purposes of electronic trading, the
term ‘‘stock-option order’’ has the meaning set forth
in Rule 5.33.’’ See also Cboe Rule 5.85(b)(3)
(establishing the priority of stock-option orders on
Cboe’s floor).
40 See proposed Exchange Rule 518,
Interpretation and Policy .01(c)(2). Proposed
Exchange Rule 518, Interpretation and Policy
.01(c)(2) also states that the option leg(s) of a nonconforming ratio stock-option order may not be
executed (i) at a price that is inferior to the
Exchange’s best bid (offer) in the option or (ii) at
the Exchange’s best bid (offer) in that option if there
are one or more Priority Customer Orders resting on
the Simple Order Book at the best bid (offer) price
for any option leg of the order.
39 Cboe
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Sfmt 4703
Order Book.41 In addition, like stockoption orders with a conforming ratio,
stock-option orders with a nonconforming ratio must create a delta
neutral position and comply with the
requirements of the QCT Exemption.42
The Exchange states that it will have
necessary surveillance procedures in
place prior to introducing nonconforming ratio stock-option orders.
For all of these reasons, the Commission
designates the proposal operative upon
filing.43
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 rule-comments@
sec.gov. Please include File Number SR–
MIAX–2023–20 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
41 See Exchange Rule 518(c)(1)(v). Other options
exchanges that provide for the trading of complex
orders comprised solely of options that have a ratio
greater than 3:1 provide the same protection for
customer orders on their single-leg limit order
books. See, e.g., Cboe Rule 5.33(f)(2)(A)(iv)(b)
(stating that if the complex order has a ratio less
than one-to-three (.333) or greater than three-to-one
(3.00), the component(s) of the complex order for
the leg(s) with a Priority Customer order at the BBO
must execute at a price that improves the price of
that Priority Customer order(s) on the Simple Book
by at least one minimum increment); and BOX Rule
7240(b)(2)(iii) (stating that a Multi-Leg Order may
be executed at a net credit or debit price; provided,
however, that each component leg must execute (A)
at or between the NBBO, and (B) at a price that is
at least $0.01 better than any Public Customer order
on the BOX Book).
42 See proposed Exchange Rule 518(b)(5) and
Exchange Rule 518, Interpretation and Policy .01(a).
43 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).
E:\FR\FM\23MYN1.SGM
23MYN1
Federal Register / Vol. 88, No. 99 / Tuesday, May 23, 2023 / Notices
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–MIAX–2023–20. 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. Do not include
personal identifiable information in
submissions; you should submit only
information that you wish to make
available publicly. We may redact in
part or withhold entirely from
publication submitted material that is
obscene or subject to copyright
protection. All submissions should refer
to File Number SR–MIAX–2023–20 and
should be submitted on or before June
13, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.44
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–10905 Filed 5–22–23; 8:45 am]
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 9,
2023, Nasdaq GEMX, LLC (‘‘GEMX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
GEMX’s Pricing Schedule at Options 7,
Section 3, ‘‘Regular Order Fees and
Rebates.’’ 3
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/gemx/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
GEMX proposes to amend its Pricing
Schedule at Options 7, Section 3,
‘‘Regular Order Fees and Rebates’’ to
decrease the Penny Symbol Priority
Customer 4 Taker Fees.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–97521; File No. SR–GEMX–
2023–07]
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 The Exchange originally filed SR–GEMX–2023–
06 on May 1, 2023. On May 9, 2023, the Exchange
withdrew SR–GEMX–2023–06 and replaced that
filing with the instant filing.
4 A ‘‘Priority Customer’’ is a person or entity that
is not a broker/dealer in securities, and does not
place more than 390 orders in listed options per day
on average during a calendar month for its own
beneficial account(s), as defined in Nasdaq GEMX
Options 1, Section 1(a)(36). Unless otherwise noted,
when used in the Pricing Schedule the term
‘‘Priority Customer’’ includes ‘‘Retail’’. See Options
7, Section 1(c).
lotter on DSK11XQN23PROD with NOTICES1
2 17
Self-Regulatory Organizations; Nasdaq
GEMX, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Options 7,
Section 3
May 17, 2023.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
DATES:
44 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
17:24 May 22, 2023
Jkt 259001
PO 00000
Frm 00100
Fmt 4703
Sfmt 4703
33179
Today, GEMX assesses 5 tiers of
Penny Symbol Taker Fees. Market
Makers,5 and Non-Nasdaq GEMX
Market Makers (FarMM) 6 are assessed
the following Penny Symbol Taker Fees:
a Tier 1 Taker Fee of $0.50 per contract;
a Tier 2 Taker Fee of $0.50 per contract;
a Tier 3 Taker Fee of $0.50 per contract;
a Tier 4 Taker Fee of $0.50 per contract;
and a Tier 5 Taker Fee of $0.48 per
contract. In comparison, GEMX assesses
Firm Proprietary 7/Broker Dealers 8 and
Professional Customers 9 the following
Penny Symbol Taker Fees: a Tier 1
Taker Fee of $0.50 per contract; a Tier
2 Taker Fee of $0.50 per contract; a Tier
3 Taker Fee of $0.50 per contract; a Tier
4 Taker Fee of $0.50 per contract; and
a Tier 5 Taker Fee of $0.49 per contract.
Finally, Priority Customers are assessed
the following Penny Symbol Taker Fees:
a Tier 1 Taker Fee of $0.48 per contract;
a Tier 2 Taker Fee of $0.48 per contract;
a Tier 3 Taker Fee of $0.48 per contract;
a Tier 4 Taker Fee of $0.48 per contract;
and a Tier 5 Taker Fee of $0.43 per
contract.
At this time, GEMX proposes to
decrease the Penny Symbol Priority
Customer Taker Fees. Specifically,
GEMX proposes to decrease Penny
Symbol Priority Customer Taker Fees
Tiers 1 through 4 from $0.48 per
contract to $0.41 per contract.
Additionally, GEMX proposes to
decrease Penny Symbol Priority
Customer Taker Fee Tier 5 from $0.43
to $0.41 per contract. GEMX is not
proposing to amend the Qualifying Tier
Thresholds to achieve these tiers. GEMX
believes that decreasing the Priority
Customer Taker Fees in Penny Symbols
will incentivize GEMX Members to send
additional order flow to GEMX.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,10 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
5 The term ‘‘Market Makers’’ refers to
‘‘Competitive Market Makers’’ and ‘‘Primary Market
Makers’’ collectively. See Options 1, Section
1(a)(21).
6 A ‘‘Non-Nasdaq GEMX Market Maker’’ is a
market maker as defined in Section 3(a)(38) of the
Securities Exchange Act of 1934, as amended,
registered in the same options class on another
options exchange. See Options 7, Section 1(c).
7 A ‘‘Firm Proprietary’’ order is an order
submitted by a member for its own proprietary
account. See Options 7, Section 1(c).
8 A ‘‘Broker-Dealer’’ order is an order submitted
by a member for a broker-dealer account that is not
its own proprietary account. See Options 7, Section
1(c).
9 A ‘‘Professional Customer’’ is a person or entity
that is not a broker/dealer and is not a Priority
Customer.
10 See 15 U.S.C. 78f(b).
E:\FR\FM\23MYN1.SGM
23MYN1
]]>Agencies
[Federal Register Volume 88, Number 99 (Tuesday, May 23, 2023)]
[Notices]
[Pages 33175-33179]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-10905]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97520; File No. SR-MIAX-2023-20]
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
May 17, 2023.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 4, 2023, Miami International Securities Exchange LLC (``MIAX''
or ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend Exchange Rule 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's principal
office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 518, Complex Orders, to: (i)
amend the definition of a conforming ratio and a non-conforming ratio
to include the conforming and non-conforming ratios for stock-option
orders; (ii) amend the definition of a complex order to insert the
clarifying phrase, ``conforming or non-conforming ratio'' for stock-
option orders; and (iii) adopt new paragraph (2) to Interpretations and
Policies .01(c) of Rule 518 to describe the handling of stock-option
orders with non-conforming ratios. Additionally, the Exchange proposes
to make a minor non-substantive edit to the first paragraph of
Interpretations and Policies .01(c) of Rule 518 to renumber the
paragraph as paragraph (1).
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 conforming \3\ or
non-conforming ratio \4\ for the purposes of executing a particular
investment strategy. Mini-options may only be part of a complex order
that includes other mini-options. Only those complex orders in the
classes designated by the Exchange and communicated to Members \5\ 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.
---------------------------------------------------------------------------
\3\ A ``conforming ratio'' is 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). See Exchange Rule 518(a)(8).
\4\ A ``non-conforming ratio'' is 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). See Exchange Rule 518(a)(16).
\5\ 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.
---------------------------------------------------------------------------
Additionally, a complex order can also be a ``stock-option order''
as described further, and subject to the limitations set forth, in
Interpretations and Policies .01 of Rule 518. A stock-option order is
an order to buy or sell a stated number of units of an underlying
security (stock or Exchange Traded Fund Share (``ETF'')) or a security
convertible into the underlying stock (``convertible security'')
coupled with the purchase or sale of options contract(s) on the
opposite side of the market representing either (i) the same number of
units of the underlying security or convertible security, or (ii) the
number of units of the underlying stock necessary to create a delta
neutral position, but in no case in a ratio greater than eight-to-one
(8.00), where the ratio represents the total number of units of the
underlying security or convertible security in the option leg to the
total number of units of the underlying security or convertible
security in the stock leg. Only those stock-option orders in the
classes designated by the Exchange and communicated to Members via
Regulatory Circular with no more than the applicable number of legs as
determined by the Exchange on a class-by-class basis and communicated
to Members via Regulatory Circular, are eligible for processing.\6\
---------------------------------------------------------------------------
\6\ See Exchange Rule 518(a)(5).
---------------------------------------------------------------------------
Proposal
The Exchange now proposes to accept stock-option orders with ratios
greater than eight-to-one, or non-conforming ratios, as defined herein.
To support its proposal, the Exchange proposes to amend the definition
of a ``conforming ratio'' in Exchange Rule 518(a)(8) to include the
current ratio for stock-option orders accepted by the Exchange, which
is where one component of the complex order is the underlying security
(stock or ETF), or security convertible into the underlying stock
(``convertible security'') and the ratio between the option
component(s) and the underlying security (stock or ETF), or convertible
security is less than or equal to eight-to-one (8.00).
Specifically, as amended the proposed rule will provide that, a
[[Page 33176]]
``conforming ratio'' is 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); where one component of the complex order is the underlying
security (stock or ETF) or security convertible into the underlying
stock (``convertible security'') the ratio between the option
component(s) and the underlying security (stock or ETF) or convertible
security is less than or equal to eight-to-one (8.00).\7\ The Exchange
also proposes to amend the definition of a non-conforming ratio in
Exchange Rule 518(a)(16) to include stock-option orders, to state,
where one component of the complex order is the underlying security
(stock or ETF) or underlying security convertible into the underlying
stock (``convertible security''), the ratio between the option
component(s) and the underlying security (stock or ETF) or convertible
security is greater than eight-to-one (8.00). Specifically, as amended
the proposed rule will provide that, a ``non-conforming ratio'' is
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); where one component of the complex order is
the underlying security (stock or ETF) or security convertible into the
underlying stock (``convertible security''), the ratio between the
option component(s) and the underlying security (stock or ETF) or
convertible security is greater than eight-to-one (8.00).\8\
---------------------------------------------------------------------------
\7\ See proposed Exchange Rule 518(a)(8).
\8\ See proposed Exchange Rule 518(a)(16).
---------------------------------------------------------------------------
Additionally, the Exchange proposes to amend the second paragraph
of Rule 518(a)(5) which discusses stock-option orders to include the
terms conforming and non-conforming ratio and to remove the reference
to the eight-to-one ratio as the conforming and non-conforming ratios
for stock-option complex orders are being relocated under this proposal
to Rule 518(a)(8) and (a)(16) respectively.
The Exchange also proposes to renumber the first paragraph of
Interpretations and Policies .01(c) of Rule 518 as paragraph (1) and to
insert the clarifying phrase, ``with a conforming ratio,'' to delineate
stock-option order handling when there is a conforming ratio versus a
non-conforming ratio.
Like stock-option orders with conforming ratios, stock-option
orders with non-conforming ratios will also be required to create delta
neutral positions \9\ and must also comply with the Qualified
Contingent Trade Exemption from Rule 611(a) of Regulation NMS under the
Securities Exchange Act of 1934 in the same manner as stock-option
orders with conforming ratios.\10\ Members submitting stock option
orders in conforming or non-conforming ratios represent that such
orders comply with the Qualified Contingent Trade Exemption.\11\ The
Exchange represents that it will have the necessary surveillance in
place for stock-option orders with non-conforming ratios prior to
implementing this functionality.
---------------------------------------------------------------------------
\9\ See Exchange Rule 518(a)(5).
\10\ See Interpretations and Policies .01(a) of Exchange Rule
518.
\11\ See id.
---------------------------------------------------------------------------
The Exchange proposes to adopt new paragraph (2) to Interpretations
and Policies .01(c) of Rule 518 to describe stock-option order
processing on the Exchange for stock-option orders with non-conforming
ratios. Proposed paragraph (2) will provide that, ``the option leg(s)
of a stock-option order with a non-conforming ratio shall not be
executed (i) at a price that is inferior to the Exchange's best bid
(offer) in the option or (ii) at the Exchange's best bid (offer) in
that option if there are one or more Priority Customer Orders \12\
resting on the Simple Order Book \13\ at the best bid (offer) price for
any option leg of a stock-option order. Each component of a stock-
option order with a non-conforming ratio must trade at a price better
than any Priority Customer Order(s) resting on the Simple Order Book at
the best bid (offer) price by at least $0.01. The option leg(s) of a
stock-option order may be executed in a $0.01 increment, regardless of
the minimum quoting increment applicable to that series.'' \14\
---------------------------------------------------------------------------
\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)(17).
\14\ See proposed Interpretations and Policies .01(c) of Rule
518.
---------------------------------------------------------------------------
Additionally, the Exchange's proposal is consistent with the
Exchange's handling of complex orders with only options components with
non-conforming ratios as Exchange Rule 518(c)(1)(v) provides 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 \15\ on the Simple Order Book; or (C) at a price that
is through the NBBO.\16\ Like Exchange Rule 518(c)(1)(v) which requires
each component of a complex order with a non-conforming ratio to trade
at a price that is better than the MBBO if there is Priority Customer
interest resting on the Simple Order Book at the MBBO, this proposal
will protect Priority Customer interest by requiring that each leg of a
stock-option order with a non-conforming ratio trade at a price that is
$0.01 better than any Priority Customer interest resting on the Simple
Order Book at the best bid or offer.\17\ Thus the proposed rule
continues to protect Priority Customer interest on the Exchange.
---------------------------------------------------------------------------
\15\ The term ``MBBO'' means the best bid of offer on the
Exchange. See Exchange Rule 100. The Exchange notes that this
requirement is similar to that of other options exchanges. See Cboe
Exchange Rule 5.33(f)(2)(A)(iv)(b); and BOX Exchange Rule
7240(b)(2)(iii).
\16\ 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.
\17\ See proposed Interpretations and Policies .01(c)(2) of
Exchange Rule 518.
---------------------------------------------------------------------------
Implementation
The Exchange will announce the implementation of stock-option
orders with non-conforming ratios by Regulatory Circular at least 48
hours prior to implementation of this functionality, as 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,\18\ 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) \19\ requirement that the
rules of an exchange not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78(f)(b)(5).
---------------------------------------------------------------------------
The Exchange currently only processes stock-option orders that fit
within the definition of a conforming ratio, that is where one
component of
[[Page 33177]]
the complex order is the underlying instrument and the ratio between
the option component(s) and the underlying instrument must be less than
or equal to eight-to-one (8.00). The Exchange has received significant
demand from its Members to support stock-option orders in non-
conforming ratios, and 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 stock-option orders where one component of the complex order
is the underlying security (stock or ETF) or security convertible into
the underlying stock (``convertible security'') and the ratio between
the option component(s) and the underlying security (stock or ETF) or
convertible security is greater than eight-to-one (8.00).
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 at least two other options exchanges permit the trading of
stock-option orders with non-conforming ratios. Specifically, Cboe and
Cboe EDGX began supporting the electronic processing of stock-option
orders in non-conforming ratios via Cboe's Complex Order Auctions
(``COA''); \20\ Complex Order Book (``COB''); \21\ Automated
Improvement Mechanism (``AIM''); \22\ and as Qualified Contingent Cross
Orders (``QCC'') \23\ in August of 2022.\24\ Additionally, the
execution price for each option leg must improve the local BBO \25\ by
at least $0.01 when there is a Priority Customer Order resting at the
BBO on that leg,\26\ which is the same requirement that applies on the
Exchange to all complex orders with non-conforming ratios.\27\
---------------------------------------------------------------------------
\20\ See Cboe Exchange Rule 5.33(d).
\21\ See Cboe Exchange Rule 5.33(a).
\22\ See Cboe Exchange Rule 5.37.
\23\ See ``Qualified Contingent Cross or QCC'' at Cboe Exchange
Rule 5.6(c).
\24\ See Cboe Exchange Alert, ``Update--Cboe Options Introduces
C-SAM Enhancement, New Net, Leg Price Increments, and Enhanced
Handling for Complex Orders with Non-Conforming Ratios, Reference
ID: C2022072700 available online at https://cdn.cboe.com/resources/release_notes/2022/Update-Cboe-Options-Introduces-C-SAM-Enhancement-New-Net-Leg-Price-Increments-and-Enhanced-Handling-for-Complex-Orders-with-Non-Conforming-Ratios.pdf.
\25\ The term ``BBO'' means the best bid or offer disseminated
on the Exchange. See Cboe Exchange Rule 1.1. The Exchange notes that
at least one other options exchange offers stock-option orders with
non-conforming ratios. See the definition of ``Stock-Option Order''
in Cboe Exchange Rule 1.1; and see also Cboe Exchange Rule
5.85(b)(3) which provides that, ``stock-option orders . . . have
priority over bids (offers) of in-crowd market participants but not
over Priority Customer bids (offers) in the Book.''
\26\ See supra note 24. [sic]
\27\ See Exchange Rule 518(c)(1)(v).
---------------------------------------------------------------------------
Further, the Exchange's proposal promotes a free and open market
and a national system and, in general, protects investors and the
public interest by providing market participants an additional venue to
route stock-option orders with non-conforming ratios to for execution.
This provides investors an additional venue to choose from when making
order-routing decisions.
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.\28\ As
discussed above, the proposed Exchange rules provide that a stock-
option order with a non-conforming ratio will not be executed (i) at a
price that is inferior to the Exchange's best bid (offer) in the option
or (ii) at the Exchange's best bid (offer) in that option if there are
one or more Priority Customer Orders resting on the Simple Order Book
at the best bid (offer) price for any option leg of a stock-option
order. Each component of a stock-option order with a non-conforming
ratio must trade at a price better than any Priority Customer Order(s)
resting on the Simple Order Book at the best bid (offer) price by at
least $0.01.\29\
---------------------------------------------------------------------------
\28\ See Exchange Rule 518(c)(1)(iv).
\29\ See supra note 17.
---------------------------------------------------------------------------
The Exchange believes the proposed changes will increase
opportunities for execution of stock-option orders with non-conforming
ratios, 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 stock-option orders with non-conforming ratios, and the
priority and eligibility requirements apply equally to the stock-option
orders with non-conforming ratios of all market participants.
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 and open market and a national market system,
and, in general to protect investors and the public interest, by
enhancing its System \30\ 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 and allow market participants to benefit from
trading these orders electronically.
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\30\ 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 stock-option orders with non-conforming ratios. Therefore,
any Member of the Exchange may submit a stock-option order with a
conforming or non-conforming ratio and the order will be handled in a
uniform fashion by the System. Further, the Exchange's proposal
protects investors as Priority Customer interest is protected and the
Exchange's proposal prevents any option component of a stock-option
order in a non-conforming ratio to be [sic] executed ahead of a
Priority Customer Order.\31\
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\31\ See proposed Interpretations and Policies .01(c)(2) of
Exchange Rule 518.
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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. Currently, at least two other options exchanges process
stock-option orders with ratios that are greater than eight-to-one.\32\
The Exchange's proposal will enhance inter-market competition by
providing an additional venue where investors may electronically
execute their stock-option orders with non-conforming ratios, giving
investors greater flexibility and a choice of where to send their
orders. Market participants may find it more convenient to access one
exchange over another or may choose to concentrate volume at a
particular exchange in order to maximize the impact of volume-based
incentive programs, or may prefer the trade execution services of one
exchange over another.
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\32\ See supra note 24.
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As such, the Exchange does not believe the proposed rule change
will impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
[[Page 33178]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to 19(b)(3)(A) of the Act \33\ and Rule 19b-4(f)(6) \34\
thereunder.
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\33\ 15 U.S.C. 78s(b)(3)(A).
\34\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \35\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(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 states
that waiver of the operative delay will benefit investors by making
available immediately an additional venue for trading stock-option
orders in which the ratio between the options component(s) of the order
and the underlying security component is greater than 8:1. The Exchange
states that the proposal protects investors by requiring each option
leg of a non-conforming ratio stock-option order, as defined in
proposed Exchange Rule 518(a)(16), to trade at a price that is better
than Priority Customer Order(s) resting on the Simple Order Book at the
Exchange's best bid (offer) by at least $0.01.\37\ The Exchange notes
that this requirement is consistent with the current requirements in
Exchange Rule 518(c)(1)(v), which, among other things, states that a
non-conforming ratio complex order comprised solely of options will not
be executed at a net price that would cause any option component of the
order to be executed ahead of a Priority Customer Order at the MBBO on
the Exchange's Simple Order Book.\38\ As noted above, the Exchange
states that it has received significant demand from its Members to
support stock-option orders with non-conforming ratios. The Exchange
further states that it will have surveillance procedures in place for
stock-option orders with non-conforming ratios prior to implementing
the functionality.
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\35\ 17 CFR 240.19b-4(f)(6).
\36\ 17 CFR 240.19b-4(f)(6)(iii).
\37\ See proposed Exchange Rule 518, Interpretation and Policy
.01(c)(2).
\38\ See 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 rules of at least one other options exchange currently permit the
trading on the exchange's floor of stock-option orders in which the
ratio between the option component(s) of the order and the underlying
security component is greater than 8:1.\39\ The proposal will provide
investors with an additional venue for trading these stock-option
orders. The proposal protects the priority of Priority Customer orders
resting on the Exchange's Simple Order Book by requiring each option
component of a non-conforming ratio stock-option order to trade at a
price that is better than any Priority Customer Order(s) resting on the
Exchange's Simple Order Book at the best bid (offer) price by at least
$0.01.\40\ This protection for Priority Customer orders is consistent
with Exchange Rule 518(c)(1)(v), which, among other things, states that
a non-conforming ratio complex order comprised solely of options will
not be executed at a net price that would cause any option component of
the order to be executed ahead of a Priority Customer Order at the MBBO
on the Exchange's Simple Order Book.\41\ In addition, like stock-option
orders with a conforming ratio, stock-option orders with a non-
conforming ratio must create a delta neutral position and comply with
the requirements of the QCT Exemption.\42\ The Exchange states that it
will have necessary surveillance procedures in place prior to
introducing non-conforming ratio stock-option orders. For all of these
reasons, the Commission designates the proposal operative upon
filing.\43\
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\39\ Cboe Rule 1.1 states that ``A stock-option order is an
order to buy or sell a stated number of units of an underlying or a
related security coupled with either (a) the purchase or sale of
option contract(s) on the opposite side of the market representing
either the same number of units of the underlying or related
security or the number of units of the underlying security necessary
to create a delta neutral position or (b) the purchase or sale of an
equal number of put and call option contracts, each having the same
exercise price and expiration date, and each representing the same
number of units of stock as, and on the opposite side of the market
from, the underlying or related security portion of the order. For
purposes of electronic trading, the term ``stock-option order'' has
the meaning set forth in Rule 5.33.'' See also Cboe Rule 5.85(b)(3)
(establishing the priority of stock-option orders on Cboe's floor).
\40\ See proposed Exchange Rule 518, Interpretation and Policy
.01(c)(2). Proposed Exchange Rule 518, Interpretation and Policy
.01(c)(2) also states that the option leg(s) of a non-conforming
ratio stock-option order may not be executed (i) at a price that is
inferior to the Exchange's best bid (offer) in the option or (ii) at
the Exchange's best bid (offer) in that option if there are one or
more Priority Customer Orders resting on the Simple Order Book at
the best bid (offer) price for any option leg of the order.
\41\ See Exchange Rule 518(c)(1)(v). Other options exchanges
that provide for the trading of complex orders comprised solely of
options that have a ratio greater than 3:1 provide the same
protection for customer orders on their single-leg limit order
books. See, e.g., Cboe Rule 5.33(f)(2)(A)(iv)(b) (stating that if
the complex order has a ratio less than one-to-three (.333) or
greater than three-to-one (3.00), the component(s) of the complex
order for the leg(s) with a Priority Customer order at the BBO must
execute at a price that improves the price of that Priority Customer
order(s) on the Simple Book by at least one minimum increment); and
BOX Rule 7240(b)(2)(iii) (stating that a Multi-Leg Order may be
executed at a net credit or debit price; provided, however, that
each component leg must execute (A) at or between the NBBO, and (B)
at a price that is at least $0.01 better than any Public Customer
order on the BOX Book).
\42\ See proposed Exchange Rule 518(b)(5) and Exchange Rule 518,
Interpretation and Policy .01(a).
\43\ 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-2023-20 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange
[[Page 33179]]
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-MIAX-2023-20. 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. Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to File Number SR-MIAX-2023-20 and should be submitted on
or before June 13, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\44\
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\44\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-10905 Filed 5-22-23; 8:45 am]
BILLING CODE 8011-01-P
