[Federal Register Volume 85, Number 131 (Wednesday, July 8, 2020)]
[Notices]
[Pages 41075-41077]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14630]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89212; File No. SR-MIAX-2020-20]
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
July 1, 2020.
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 June 25, 2020, Miami International Securities Exchange, LLC
(``MIAX'' or the ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') a proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange 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 http://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 Exchange Rule 518, Complex Orders,
to adopt a new Complex Auction-on-Arrival-Only (``cAOAO'') order type
and to amend relevant portions of the rule to accurately describe the
behavior and operation of a cAOAO order.
Currently, the Exchange offers a Complex Auction-on-Arrival or
``cAOA'' order that is a complex order designated to be placed into a
Complex Auction upon receipt or upon evaluation. Complex orders that
are not designated as cAOA will, by default, not initiate a Complex
Auction upon arrival, but except as described in Exchange Rule 518 will
be eligible to participate in a Complex Auction that is in progress
when such complex order arrives or if placed on the Strategy Book may
participate in or may initiate a Complex Auction, following evaluation
conducted by the System.\3\ Complex orders that are designated as cIOC
\4\ or cAOC \5\ are not eligible for cAOA designation, and their
evaluation will not result in the initiation of a Complex Auction
either upon arrival or if eligible when resting on the Strategy
Book.\6\ Any unexecuted balance of a cAOA order remaining upon the
completion of the auction process is eligible \7\ to be placed on the
Strategy Book.
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\3\ See Exchange Rule 518(b)(2)(i); The term ``System'' means
the automated trading system used by the Exchange for the trading of
securities. See Exchange Rule 100.
\4\ A Complex Immediate-or-Cancel or ``cIOC'' order is a complex
order that is to be executed in whole or in part upon receipt. Any
portion not so executed is cancelled. See Exchange Rule 518(b)(4).
\5\ A Complex Auction-or-Cancel or ``cAOC'' order is a complex
limit order used to provide liquidity during a specific Complex
Auction with a time in force that corresponds with that of the
event. cAOC orders are not displayed to any market participant, and
are not eligible for trading outside of the event. A cAOC order with
a size greater than the aggregate auctioned size (as defined in Rule
518(d)(4)) will be capped for allocation purposes at the aggregate
auctioned size. See Exchange Rule 518(b)(3).
\6\ See Exchange Rule 518(b)(2)(ii); The ``Strategy Book'' is
the Exchange's electronic book of complex orders and complex quotes.
See Exchange Rule 518(a)(17).
\7\ Any unexecuted portion of a Complex Auction-eligible order
remaining at the end of the Response Time Interval will either be:
(A) Evaluated to determine if it may initiate another Complex
Auction; or (B) placed on the Strategy Book and ranked pursuant to
subparagraph (c)(3) of Exchange Rule 518. See Exchange Rule
518(d)(5)(ii).
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The Exchange now proposes to adopt a new Complex Auction-on-
Arrival-Only or ``cAOAO'' order type. A cAOAO order is a complex order
that will be placed into an auction as described in Rule 518(d) if
eligible, and cancelled if not eligible. Any unexecuted balance of a
cAOAO order remaining upon the completion of the auction process is
also cancelled. Similar to Immediate-or-Cancel orders, the cAOAO order
type is designed to assist Members \8\ in achieving an expeditious
execution by exposing eligible Complex Orders for potential price
improvement before cancelling any unexecuted balance.
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\8\ 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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Example 1
Suppose the following market in complex strategy ABC:
MIAX dcMBBO: \9\ 1.00-1.10 (10 x 10)
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\9\ The dcMBBO is calculated using the best displayed price for
each component of a complex strategy from the Simple Order Book. For
stock-option orders, the dcMBBO for a complex strategy will be
calculated using the Exchange's best displayed bid or offer in the
individual option component(s) and the NBBO in the stock component.
See Exchange Rule 518(a)(8).
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A cAOAO order is entered to buy 20 @1.07.
A Request For Response (RFR) message is sent identifying the
complex strategy, the price, quantity of matched complex quotes and/or
orders at that price, imbalance quantity and side of the market of the
Complex Auction-eligible order, in accordance to Rule 518(d)(2).\10\
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\10\ An auction is commenced as the cAOAO order satisfies the
URIP requirement described in Exchange Rule 518(c)(5)(i).
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During the Response Time Interval, the following RFR Responses \11\
are received:
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\11\ Members may submit a response to the RFR message (an ``RFR
Response'') during the Response Time Interval. RFR Responses may be
submitted in $0.01 increments. RFR Responses must be a cAOC order or
a cAOC eQuote as defined in Interpretations and Policies .02 of
Exchange Rule 518 and may be submitted on either side of the market.
See Exchange Rule 518(d)(4).
[[Page 41076]]
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Response 1: Sell 10 @1.07
Response 2: Sell 5 @1.06
At the conclusion of the Response Time Interval, the cAOAO order
trades 15 @1.07.
The remaining quantity of 5 contracts from the cAOAO order is then
cancelled.
The Exchange also proposes to amend subsection (b), Types of
Complex Orders, to adopt a new Complex Auction-on-Arrival Only Order
type to be included among other complex order types that may be
submitted to the Exchange as provided by Exchange Rule 518(b)(1).
Certain provisions in current Exchange Rule 518 that apply to cAOA
orders would similarly apply to cAOAO orders. Therefore, the Exchange
proposes to amend the Rule to incorporate cAOAO orders as necessary.
Specifically, the Exchange proposes to amend subsection (c)(6) to
provide that complex orders may be submitted as market orders and may
be designated as cAOA or cAOAO. Additionally, the Exchange proposes to
amend subsection (c)(6)(i) to provide that complex market orders
designated as cAOA or cAOAO may initiate a Complex Auction upon arrival
or join a Complex Auction in progress. Finally, the Exchange proposes
to amend subsection (c)(6)(ii) to provide that complex market orders
not designated as cAOA or cAOAO will trade immediately with any contra-
side complex orders or quotes, or against the individual legs, up to an
including the dcMBBO, and may be subject to the managed interest
process described in subparagraph (c)(4) of Exchange Rule 518, and the
evaluation process described in subparagraph (c)(5) of Exchange Rule
518.
The Exchange also proposes to amend subsection (d)(1) to provide
that, in order to initiate a Complex Auction upon receipt, a Complex
Auction-eligible order must be designated as cAOA or cAOAO and must
meet the criteria described in Interpretations and Policies .03(b) of
Exchange Rule 518 regarding the URIP.\12\ A complex order not
designated as cAOA or cAOAO (i.e., a complex order considered by
default to be ``do not auction on arrival'' by the System) may (i) join
a Complex Auction in progress at the time of receipt; (ii) become a
Complex Auction-eligible order after resting on the Strategy Book and
may then automatically join a Complex Auction then in effect for the
complex strategy; or (iii) initiate a Complex Auction if it meets the
criteria described in Interpretations and Policies .03(a) of Exchange
Rule 518 regarding the IIP or .03(c) of Exchange Rule 518 regarding the
RIP. Complex orders processed through a Complex Auction may be executed
without consideration to prices of the same complex interest that might
be available on other exchanges.
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\12\ Upon receipt of a complex order when the complex strategy
is open, the System will calculate an Upon Receipt Improvement
Percentage (``URIP'') value, which is a defined percentage of the
current dcMBBO bid/ask differential. Such percentage will be defined
by the Exchange and communicated to Members via Regulatory Circular.
If a Complex Auction-eligible order is priced equal to, or improves,
the URIP value and is also priced to improve other complex orders
and/or quotes resting at the top of the Strategy Book, the complex
order will be eligible to initiate a Complex Auction. See
Interpretations and Polices .03(b) of Exchange Rule 518.
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The Exchange also proposes to amend subsection (d)(9) to provide
that a complex order not designated as cAOA or cAOAO will either be (i)
executed in full at a single price or at multiple prices up to its
limit price, with remaining contracts placed on the Strategy Book; (ii)
executed until the order exhausts the opposite side dcMBBO, at which
time the order will be placed on the Strategy Book and evaluated for
Complex Auction eligibility, or (iii) cancelled.
The Exchange believes the proposed changes will allow the Exchange
to effectively implement the proposed cAOAO order type.
The Exchange will announce the implementation date of the proposed
rule change by Regulatory Circular to be published no later than 90
days following the operative date of the proposed rule. The
implementation date will be no later than 90 days following the
issuance of the Regulatory Circular.
2. Statutory Basis
MIAX believes that its proposed rule change is consistent with
Section 6(b) of the Act \13\ in general, and furthers the objectives of
Section 6(b)(5) of the Act \14\ in particular, in that it is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in, securities, to remove impediments to and perfect the mechanisms of
a free and open market and a national market system and, in general, to
protect investors and the public interest.
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that its proposal to adopt a cAOAO order type
promotes just and equitable principles of trade, removes impediments to
and perfects the mechanisms of a free and open market and a national
market system and, in general, protects investors and the public
interest. The Exchange believes it is reasonable to provide an
opportunity for investors to seek to have their complex orders exposed
for an opportunity for price improvement and to also provide investors
the option to have such orders canceled if they are not filled. The
Exchange believes its proposal to amend other portions of Exchange Rule
518 to accurately describe the operation and behavior of a cAOAO order
benefits investors and the public interest by providing information
that investors can use to ascertain the suitability of an order type
relative to their investment objectives.
The Exchange believes its proposed rule change promotes just and
equitable principles of trade and removes impediments to and perfects
the mechanisms of a free and open market and a national market system
and, in general, protects investors and the public interest by
providing an opportunity for investors to have their complex orders
exposed for an opportunity for price improvement. Furthermore, the
Exchange believes that it is appropriate to give Members the option to
have such orders canceled if they are not eligible to be posted.
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 the proposed rule change will
impose any burden on intra-market competition but will rather promote
inter-market competition as the Exchange is proposing an order type
that already exists on at least one other options exchange.\15\ The
Exchange notes that it operates in a highly competitive market in which
market participants can readily direct order flow to competing venues
who offer similar functionality. The Exchange believes the proposed
rule change will enhance competition among the various markets for
Complex Order execution, potentially resulting in more active Complex
Order trading on all exchanges.
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\15\ See Nasdaq ISE Exchange Rules, Options 3, Section
14(b)(14).
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The Exchange does not believe that the proposed rule change will
impose any burden on intra-market competition as the Rules of the
Exchange apply
[[Page 41077]]
equally to all Exchange Members, and any Member of the Exchange may use
the cAOAO order type.
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 \16\ and Rule 19b-4(f)(6) \17\
thereunder.
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 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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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 (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-MIAX-2020-20 on the subject line.
Paper Comments
Send paper comments in triplicate to Vanessa A.
Countryman, Secretary, Securities and Exchange Commission, 100 F Street
NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-MIAX-2020-20. 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 (http://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-2020-20 and should be submitted on
or before July 29, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14630 Filed 7-7-20; 8:45 am]
BILLING CODE 8011-01-P