[Federal Register Volume 82, Number 211 (Thursday, November 2, 2017)]
[Notices]
[Pages 50916-50921]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-23825]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81967; File No. SR-MIAX-2017-44]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend MIAX Options Rule 518 Relating to Derived 
Orders

October 27, 2017.
    Pursuant to the provisions of section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on October 19, 2017, Miami International 
Securities Exchange, LLC (``MIAX Options'' 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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    \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(a)(9) 
to: (i) Update the definition of a derived order on the Exchange, (ii) 
clarify the circumstances under which a derived order is generated by 
the Exchange's System, and the price at which a derived order may be 
generated, and (iii) expand the situations under which a derived order 
is removed from the Exchange's Simple Order Book.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://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 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(a)(9) to: (i) 
Update the definition of a derived order on the Exchange, (ii) clarify 
the circumstances under which a derived order is generated by the 
Exchange's System,\3\ and the price at which a derived order may be 
generated, and (iii) expand the situations under which a derived order 
is removed from the Exchange's Simple Order Book.\4\
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    \3\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \4\ 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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    A ``derived order'' is an Exchange-generated limit order on the 
Simple Order Book that represents either the bid or offer of one 
component of a complex order resting on the Strategy

[[Page 50917]]

Book \5\ that is comprised of orders to buy or sell an equal quantity 
(currently with a one-to-one ratio) of two option components.\6\ 
Derived orders will not be routed outside of the Exchange regardless of 
the price(s) disseminated by away markets. The Exchange will determine 
on a class-by-class basis to make available derived orders and 
communicate such determination to Members \7\ via a Regulatory 
Circular. Derived orders are firm orders (i.e., if executed, firm for 
the disseminated price and size) that are included in the MBBO.\8\
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    \5\ The ``Strategy Book'' is the Exchange's electronic book of 
complex orders and complex quotes. See Exchange Rule 518(a)(17).
    \6\ See Exchange Rule 518(a)(9).
    \7\ 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.
    \8\ The term ``MBBO'' means the best bid or offer on the Simple 
Order Book (as defined below) on the Exchange. See Exchange Rule 
518(a)(13).
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    The Exchange is proposing to amend the definition of a ``derived 
order'' in two ways. First, the Exchange is proposing to revise the 
current requirement in Rule 518(a)(9) that a derived order can only be 
generated from one component of a complex order resting on the Strategy 
Book that is comprised of orders to buy or sell an equal quantity 
(currently with a one-to-one ratio) of two option components. Under the 
proposal, a derived order may now be comprised of orders to buy or sell 
two option components, where the size of one component has a base ratio 
of ``one'' relative to the other component (1:1, 1:2, or 1:3). Thus, 
the basis for the generation of derived orders on the Exchange will not 
be restricted to complex orders of equal size with a one-to-one ratio; 
instead, a derived order may be generated by using a complex order 
resting on the Strategy Book with two components, provided that one 
component of the complex order has a base ratio of one relative to the 
other component. For example, a complex order whose components have a 
size ratio of 1:3 could be used to generate a derived order, whereas a 
complex order whose components have a size ratio of 2:3 could not.\9\ 
The Exchange notes that another options exchange permits a derived, or 
``leg'' order, to be generated using a complex order with a ratio 
greater than 1:1.\10\ The Exchange believes that the revision of the 
one-to-one ratio limitation should increase the potential number of 
derived orders that may be generated by the System, which should result 
in greater liquidity and more opportunities for participants to trade 
complex orders on the Exchange.\11\
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    \9\ A leg order may only be generated for the legs of complex 
orders with a ratio of 1:1, 1:2, or 1:3. (A leg order will not be 
generated for the legs of a complex order with a 1:4 ratio). For 
example, if a complex order to buy 10 of series A and sell 20 of 
series B is resting on the Strategy Book, a leg order will be 
generated for the leg to buy 10 of series A (ratio of 1:2), but not 
for the leg to sell 20 of series B (ratio of 2:1). If a complex 
order to buy 20 of series A and sell 30 of series B is resting on 
the Strategy Book, no leg orders will be generated for either leg 
(ratio is 2:3 for leg 1 and 3:2 for leg 2).
    \10\ See Chicago Board Options Exchange, Inc. (``CBOE'') Rule 
6.53(x).
    \11\ The Exchange notes that other exchanges require a complex 
order used to generate a derived or ``legging'' order to be for an 
equal quantity of two options. See, e.g., NASDAQ PHLX LLC (``Phlx'') 
Rule 1098(f)(iii)(C)(1). See also, Nasdaq ISE, LLC (``ISE'') Rule 
715(k). The Exchange's proposal is distinguished in that it seeks to 
expand its current one-to-one ratio requirement to include any 
complex order with a component that has a base of one with respect 
to the other component.
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    The Exchange is also proposing to amend Rule 518(a)(9) by adding a 
final sentence stating that derived orders are subject to the managed 
interest process described in Rule 515(c)(1)(ii).\12\ The purpose of 
this provision is to ensure that a derived order (which is firm for its 
price and size) is handled in accordance with that Rule so that it does 
not lock or cross an away market price at the NBBO.\13\ An example of a 
derived order subject to the managed interest process is provided 
below.
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    \12\ Under the managed interest process, non-routable orders 
whose limit price locks or crosses the current opposite side 
National Best Bid or Offer (``NBBO'') are displayed one Minimum 
Price Variation (``MPV'') away from the current opposite side NBBO, 
and placed on the Simple Order Book at a price that will lock the 
current opposite side NBBO. Should the NBBO price change to an 
inferior price level, the order's price on the Simple Order Book 
will continuously re-price to lock the new NBBO and the managed 
order's displayed price will continuously re-price one MPV away from 
the new NBBO. See Exchange Rule 515(c)(1)(ii).
    \13\ The term ``NBBO'' means the national best bid or offer as 
calculated by the Exchange based on market information received from 
OPRA. See Exchange Rule 100.
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Example 1
Option A ($.05 MPV) \14\
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    \14\ The default Minimum Price Variation (``MPV'') of an option 
contract trading at less than $3.00 per option is $.05. See Exchange 
Rule 510.
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    MBBO: $2.00 x $2.20
    ABBO: $2.00 x $2.10
    NBBO: $2.00 x $2.10
Option B ($.05 MPV)
    MBBO: $1.00 x $1.05
    ABBO: $1.00 x $1.05
    NBBO: $1.00 x $1.05
Strategy: Buy 1 Option A, Sell 1 Option B
    icMBBO: \15\ $.95 x $1.20
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    \15\ The ``icMBBO'' is the Implied Complex MIAX Best Bid or 
Offer. The 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).
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    cNBBO: \16\ $.95 x $1.10
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    \16\ The ``cNBBO'' is the Complex National Best Bid or Offer. 
The cNBBO is calculated using the NBBO for each component of a 
complex strategy to establish the best net bid and offer for a 
complex strategy. See Exchange Rule 518(a)(2).
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Strategy Order
    Buy 1 (+1A -1B) $1.10 net debit

    The System will create a derived order to buy Option A at a price 
of $2.10. The new MBBO would be $2.10 x $2.20. However, the $2.10 bid 
price would lock the ABBO \17\ offer for Option A, which is being 
quoted on an away exchange at $2.00 x $2.10. Therefore, the derived 
order will be managed in accordance with the Exchange's managed 
interest process. Under the Exchange's managed interest process for 
non-routable orders defined in Rule 515(c)(1)(ii)(A), if the limit 
price of an order ($2.10 bid) locks or crosses the current opposite 
side NBBO ($2.10 offer), the System will display the order one MPV 
($.05) away from the current opposite side NBBO ($2.05 bid), and book 
the order at a price that will lock the current side NBBO. Therefore, 
the derived order in Option A will have a Book \18\ price of $2.10 and 
will be displayed at $2.05, the MBBO will therefore be $2.05 x $2.20.
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    \17\ The term ``ABBO'' means the best bid(s) or offer(s) 
disseminated by other Eligible Exchanges (defined in Exchange Rule 
1400(f)) and calculated by the Exchange based on market information 
received by the Exchange from OPRA. See Exchange Rule 100.
    \18\ The term ``Book'' means the electronic book of buy and sell 
orders and quotes maintained by the System. See Exchange Rule 100.
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Option A
    MBBO: $2.05 x $2.20
    ABBO: $2.00 x $2.10
    NBBO: $2.05 x $2.10

    Should interest arrive on MIAX Options to sell at $2.10 or lower, 
it will trade at $2.10 against the derived order, as Rule 
515(c)(1)(ii)(A) provides that if the Exchange receives a new order or 
quote on the opposite side of the market from the managed order that 
can be executed, the System will immediately execute the remaining 
contracts from the initiating order to the extent possible at the 
order's current Book price ($2.10), provided that the execution price 
does not violate the current NBBO. The other side of the complex order 
will execute against the $1.00 bid price for Option B, effectively 
legging the complex order for a net price of $1.10.
    The Exchange believes that generating and managing a derived order 
(rather

[[Page 50918]]

than simply preventing its generation) \19\ creates and preserves 
additional opportunities for complex orders to be executed as 
individual components against orders resting on the Simple Order Book 
as market conditions change.
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    \19\ Other exchanges have determined not to generate derived or 
``leg'' orders that would lock or cross the NBBO. See, e.g., CBOE 
Rule 6.53C(c)(iv)(1)(A). See also, ISE Rule 715(k)(1). Despite this 
distinction, the Exchange's inclusion of derived orders in the 
managed interest process is intended to achieve the same result, 
i.e., to prevent a derived order from locking or crossing an away 
market.
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    The Exchange is also proposing to amend Rule 518(a)(9)(i) to 
provide more detail regarding the circumstances under which a derived 
order is generated by the Exchange's System, and the price at which a 
derived order must be generated. Currently, a derived order may be 
automatically generated for one or more legs of a complex order at a 
price: (A) That matches or improves upon the best displayed bid or 
offer in the affected series on the Simple Order Book; and (B) at which 
the net price of the complex order on the Strategy Book can be achieved 
when the other component of the complex order is executed against the 
best displayed bid or offer on the Simple Order Book. Additionally, a 
derived order will not be displayed at a price that locks or crosses 
the best bid or offer of another exchange. In such a circumstance, the 
System will display the derived order on the Simple Order Book at a 
price that is one MPV away from the current opposite side best bid or 
offer of such other exchange, and rank the derived order on the Simple 
Order Book according to its actual price.\20\
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    \20\ See Exchange Rule 518(a)(9)(ii).
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    The Exchange is proposing to amend Rule 518(a)(9)(i) to add more 
detail to the rule stating that a derived order may be automatically 
generated if the complex order is eligible for ``Legging'' pursuant to 
Rule 518(c)(2)(iii), and meets the requirements set forth therein.\21\ 
The purpose of this proposed amendment is to establish clearly in the 
Exchange's Rules that the System will only generate derived orders for 
complex orders that are eligible for legging--that is, complex orders 
whose components can be executed as individual legs against orders 
resting on the Simple Order Book. Conversely, if a complex order is not 
eligible for legging, then the System will not generate derived orders 
with respect to that complex order.\22\
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    \21\ Complex orders up to a maximum number of legs (determined 
by the Exchange on a class-by-class basis as either two or three 
legs and communicated to Members via Regulatory Circular) may be 
automatically executed against bids and offers on the Simple Order 
Book for the individual legs of the complex order (``Legging''), 
provided the complex order can be executed in full or in a 
permissible ratio by such bids and offers, and provided that the 
execution price of each component is not executed at a price that is 
outside of the NBBO. See Exchange Rule 518(c)(2)(iii).
    \22\ The Exchange notes that while derived order functionality 
was approved with the Exchange's filing to adopt new rules to govern 
the trading of Complex orders, the functionality has not yet been 
implemented in the System. See Exchange Act Release No. 79072 
(October 7, 2016), 81 FR 71131 (October 14, 2016) (SR-MIAX-2016-26).
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    The Exchange is proposing to amend Rule 518(a)(9)(i)(B) to make a 
technical modification to the current rule text. Currently, the rule 
provides that a derived order may automatically be generated for one or 
more legs of a complex order at a price, ``at which the net price of 
the complex order on the Strategy Book can be achieved when the other 
component(s) of the complex order is (are) executed against the best 
displayed bid or offer on the Simple Order Book.'' The Exchange 
proposes to make the word ``components'' singular by removing the 
``(s)'' and removing the word ``(are)'' following the phrase ``complex 
order'' so that the new sentence has the proper subject-verb agreement. 
The Exchange believes this change describes System functionality with 
more accuracy and precision.
    The Exchange is proposing to amend Rule 518(a)(9)(i)(B) to state 
that a derived order may be automatically generated for one or more 
legs of a complex order at a price at which the net price of the 
complex order ``at the best price'' on the Strategy Book can be 
achieved when the other component of the complex order is executed 
against the best displayed bid or offer on the Simple Order Book. This 
requirement is intended to ensure that a complex order executed by way 
of generating and Legging a derived order for execution against an 
order on the Simple Order Book is not executed at a net price that is 
inferior to the best net price displayed on the Strategy Book. A 
derived order could not, therefore, result in a trade-through of a 
complex order resting on the Strategy Book at the Exchange's best 
displayed net price.
    The Exchange is also proposing to amend Rule 518(a)(9)(vi), which 
describes the various circumstances under which a derived order that 
has been generated is removed from the Simple Order Book. Specifically, 
the Exchange is proposing to amend Rule 518(a)(9)(vi)(B), which 
currently provides that a derived order is automatically removed from 
the Simple Order Book if the execution of the derived order would no 
longer achieve the net price of the complex order on the Strategy Book 
when the other component of the complex order is executed against the 
best bid or offer on the Simple Order Book. The Exchange is proposing 
to replace the word ``would'' with the word ``may'' in this sub-
paragraph in order to broaden the rule to reflect that the System will 
remove a derived order from the Simple Order Book any time the price of 
the best bid or offer on the Simple Order Book changes such that the 
net price of the complex order to be executed may not be achieved. A 
price change of the best bid or offer could be either: (i) Improving 
(raising the bid or lowering the offer) or, (ii) worsening (lowering 
the bid or raising the offer). In scenario (i), the derived order could 
remain on the Simple Order Book as it could still achieve the net price 
of the complex order. However, in scenario (ii), the derived order may 
not achieve the net price of the complex order depending upon how much 
the price had moved. For the sake of processing efficiency and speed, 
rather than perform the calculation to determine if the derived order 
could still achieve the net price for the complex order in scenario 
(ii), the System simply cancels any derived order in scenario (i) or 
(ii). The Exchange believes that removal of the derived order from the 
Simple Order Book when there is a possibility that the complex order 
may not be executed at its net price is prudent and is an appropriate 
safeguard against such an execution.\23\ The Exchange's System re-
evaluates each strategy on the Strategy Book on a periodic basis to 
ascertain if the creation of a derived order is warranted. If, upon re-
evaluation, the new price allows a new derived order for the strategy, 
such new derived order will then be created.\24\ As re-evaluation is a 
continual process, the Exchange believes it is more expedient to cancel 
a derived order where a change in price may no longer allow the derived 
order to achieve the net price for the complex order and rely upon the 
re-evaluation process to create a new derived order when warranted. The 
Exchange believes that changing the language in the rule from ``would'' 
to ``may'' more accurately describes the operation of Exchange 
functionality.
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    \23\ The System continually evaluates complex orders and quotes 
on the Strategy Book to determine, among other things, whether a 
derived order should be generated or cancelled. See Exchange Rule 
518(c)(5)(ii). Thus, when the System cancels and removes a derived 
order from the Simple Order Book, the System could thereafter 
generate another derived order using the same complex order based 
upon the evaluation process if the appropriate conditions are 
present.
    \24\ Id.

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[[Page 50919]]

    The Exchange is also proposing to amend Rules 518(a)(9)(vi)(C) and 
(D), which currently describe the automatic removal of a derived order 
from the Simple Order Book when the complex order is executed in full, 
or is cancelled. The Exchange is proposing to consolidate sub-
paragraphs (C) and (D) into one sub-paragraph (C), to delete the phrase 
``in full,'' and to broaden the rule by stating that a derived order is 
automatically removed from the Simple Order Book if the complex order 
is executed, cancelled, or modified in any way.\25\ The Exchange 
believes that any change to a complex order used to generate a derived 
order obviates the need for the derived order at its limit price and 
size on the Simple Order Book. The phrase ``modified in any way'' is 
intended to capture, without limitation, any modification to the price 
or size of the complex order. Such a modification could require a 
different limit price for the derived order to achieve the best 
execution price of the complex order, or result in a size ratio that 
does not comply with the ``base of one'' ratio in proposed Rule 
518(a)(9) discussed above, in which case the complex order could not be 
executed. The Exchange is proposing to remove the derived order from 
the Simple Order Book when the complex order is modified in any way in 
order to prevent these circumstances.
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    \25\ This is substantially similar to rules that are currently 
operative on other exchanges. See ISE Rule 715(k)(3)(iii) and (iv). 
See also, CBOE Rule 6.53C(c)(iv)(3)(B)(II) and (III), and Phlx Rule 
1098(f)(iii)(C)(4)(iii) and (iv).
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    The Exchange is also proposing to amend Rule 518(a)(9)(vi)(D) by 
deleting the current text (see above) and adopting new Rule 
518(a)(9)(vi)(D) to state that a derived order is automatically removed 
from the Simple Order Book if the strategy \26\ enters a cPRIME Auction 
(as described in Rule 515A, Interpretations and Policies .12) \27\ or a 
Complex Auction (pursuant to Rule 518(d)).\28\ This would include any 
strategy that has, as a component, an option that is of the same type 
as a derived order.\29\ To illustrate, using the example set forth 
above,\30\ the System would automatically remove from the Simple Order 
Book the derived order in Option A if strategy AB (or any other 
strategy having Option A as a component) enters a cPRIME Auction or a 
Complex Auction. The System would wait until a cPRIME Auction or 
Complex Auction is concluded before creating a derived order for an 
option that is subject to such an auction.\31\ A complex order that 
enters and is processed in a cPRIME Auction or a Complex Auction is 
subject to execution at improved prices against complex orders 
submitted in response to the Exchange's notification, and thus could 
cause the derived order to be priced such that it may no longer achieve 
the best net price of the complex order. In this situation, therefore, 
the System will automatically remove the derived order from the Simple 
Order Book. Finally, the Exchange proposes to amend Rule 
518(a)(9)(vi)(E) by adding a sentence stating that, if a derived order 
is removed from the Simple Order Book, the System will continually 
evaluate any remaining complex order(s) on the Strategy Book to 
determine whether a new derived order should be generated, as described 
in Rule 518(c)(5).\32\ The purpose of this provision is to ensure that 
a new derived order can and will be generated by the System under the 
proper conditions even after a previously generated derived order has 
been removed from the Simple Order Book. The Exchange believes that 
this provides additional opportunities to execute complex orders 
through Legging using derived orders as market conditions change.
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    \26\ The term ``complex strategy'' means a particular 
combination of components and their ratios to one another. New 
complex strategies can be created as the result of the receipt of a 
complex order or by the Exchange for a complex strategy that is not 
currently in the System. The Exchange may limit the number of new 
complex strategies that may be in the System at a particular time 
and will communicate this limitation to Members via Regulatory 
Circular. See Exchange Rule 518(a)(6).
    \27\ The Exchange recently adopted rules that permit the 
submission of complex orders for price improvement and execution in 
the MIAX Price Improvement Mechanism (``PRIME''). Complex orders 
submitted into PRIME are known as ``cPRIME Orders'' and are 
processed in a ``cPRIME Auction.'' See Securities Exchange Act 
Release No. 81131 (July 12, 2017), 82 FR 32900 (July 18, 2017) (SR-
MIAX-2017-19).
    \28\ Currently, the Exchange may determine to automatically 
submit a Complex Auction-eligible order into a Complex Auction and 
begin the Complex Auction process by sending a message to 
participants requesting responses to the Complex Auction. See 
Exchange Rule 518(d). For a complete description of the Complex 
Auction, see Securities Exchange Act Release No. 79072 (October 7, 
2016), 81 FR 71131 (October 14, 2016) (SR-MIAX-2016-26).
    \29\ An option of the same type would be either the put or call 
option in the same series as a component in the strategy. (E.g., if 
the complex strategy was a long straddle to Buy 1 JNJ Oct 141 Call 
and to Buy 1 JNJ Oct 141 Put, a derived order in either of those 
options would be considered an option of the same type, and would be 
removed if the strategy entered a cPRIME Auction or a Complex 
Auction).
    \30\ See Example 1 on page 6 [sic].
    \31\ See supra note 23.
    \32\ Id.
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    The Exchange believes that the proposed rule change relating to 
derived orders will facilitate more interaction between the Strategy 
Book and the Simple Order Book, resulting in increased execution 
opportunities and better execution prices for complex orders and for 
orders resting on the Simple Order Book.
    The Exchange will announce the implementation date of the proposed 
rule change by Regulatory Circular to be published no later than 60 
days following the operative date of the proposed rule. The 
implementation date will be no later than 60 days following the 
issuance of the Regulatory Circular.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with section 6(b) of the Act \33\ in general, and furthers the 
objectives of section 6(b)(5) of the Act \34\ 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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    \33\ 15 U.S.C. 78f(b).
    \34\ 15 U.S.C. 78f(b)(5).
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    The Exchange's proposal to amend Rule 518(a)(9) to remove the 
limitation on the generation of derived orders to use only complex 
orders of equal size with a one-to-one ratio, and instead to permit a 
derived order to be generated by using a complex order resting on the 
Strategy Book with a ratio of greater than one-to-one, provided that 
one component of the complex order that is used to generate the derived 
order has a base ratio of one relative to the other component, is 
designed to remove impediments to and perfect the mechanisms of a free 
and open market and a national market system. Specifically, the 
Exchange believes that this proposal will increase the number of 
derived orders that may be generated on the Exchange, thus enhancing 
liquidity and increasing the number of opportunities for the execution 
of complex orders on the Exchange.
    The Exchange's proposal to state in Rule 518(a)(9) that derived 
orders are subject to the managed interest process described in Rule 
515(c)(1)(ii) is designed protect investors and the public interest by 
ensuring that a derived order (which is firm for its price and size) 
does not lock or cross an away market price at the NBBO. If a derived 
order were to lock or cross an away market price at the NBBO, the 
Exchange would not be able to route the derived

[[Page 50920]]

order to such a market because derived orders are not routable. The 
inclusion of derived orders in the managed interest process thus 
protects investors and the public interest by removing the possibility 
that this situation could occur, while maintaining the derived order on 
the Simple Order Book.
    The proposed amendment to Exchange Rule 518(a)(9)(i), adding the 
requirement that a derived order may be automatically generated if the 
complex order is eligible for Legging pursuant to Rule 518(c)(2)(iii), 
is designed to remove impediments to and perfect the mechanisms of a 
free and open market by establishing clearly in the Exchange's Rules 
that the System will generate derived orders only for complex orders 
whose components (including the component represented by a derived 
order) can be executed as individual legs against orders on the Simple 
Order Book. In order for a component to be executed against an order on 
the Simple Order Book, the complex order must be executed by way of its 
individual legs; there is thus no need for, or purpose in, generating a 
derived order for a complex order that is not eligible for Legging.
    The Exchange's proposal to amend Rule 518(a)(9)(i)(B) to clarify 
the conditions required for the creation of derived orders would 
promote just and equitable principles of trade and remove impediments 
to a free and open market by providing greater transparency concerning 
the operation of Exchange functionality.
    The Exchange's proposal to amend Rule 518(a)(9)(i)(B), to require 
that a derived order be generated at a price at which the net price of 
the complex order at the best price on the Strategy Book can be 
achieved, is designed 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 by ensuring 
that a complex order executed by way of Legging against orders on the 
Simple Order Book could not result in a trade-through of a complex 
order at the Exchange's best displayed net price.
    The proposed amendment to Exchange Rule 518(a)(9)(vi)(B) is 
designed 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 by ensuring that a derived 
order is removed from the Simple Order Book any time the price of the 
best bid or offer on the Simple Order Book changes such that the net 
price of a complex order at the top of the Strategy Book may not be 
achieved by executing the derived order and another order at the 
changed price, thus protecting investors by ensuring a safeguard 
against such an execution.
    The proposed amendments to Rules 518(a)(9)(vi)(C) and (D), 
describing the automatic removal of derived orders from the Simple 
Order Book, are designed to protect investors and the public interest 
by ensuring that derived orders do not result in executions that trade 
through the top of the Exchange's Simple Order Book and Strategy Book, 
and that executions on the Simple Order Book and on the Strategy Book 
do not result in prices that trade through away markets.
    Amended Rule 518(a)(9)(vi)(E), stating that the System will 
continually evaluate any remaining complex order(s) on the Strategy 
Book to determine whether a new derived order should be generated, 
ensures that a new derived order can and will be generated by the 
System under the proper conditions even after a previously generated 
derived order has been removed from the Simple Order Book. This 
provision is designed to promote just and equitable principles of trade 
and also to remove impediments to and perfect the mechanisms of a free 
and open market and a national market system by providing more 
opportunities to execute complex orders through Legging using derived 
orders as market conditions change.
    The Exchange also believes that the proposed rule change removes 
impediments to and perfects the mechanisms of a free and open market 
and a national market system by attracting more order flow and by 
increasing the frequency with which MIAX Options participants are able 
to trade complex orders.

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 not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes that the 
proposed rule change enhances intermarket competition by providing 
market participants with additional opportunities to execute complex 
orders through the generation of a greater number of derived orders 
using an expanded permissible size ratio. The Exchange believes that 
the additional opportunities to trade complex orders will result in the 
submission of more complex orders for execution on the Exchange, thus 
enhancing the Exchange's competitive position by increasing liquidity 
and order flow on the Exchange. Moreover, the proposed rule change is 
consistent with the rules of other exchanges, as cited above.\35\
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    \35\ See supra notes 10, 11, 19 and 25.
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    The Exchange also believes that its proposal enhances intra-market 
competition, as all Exchange participants in the same category are able 
to participate on an equal basis with respect to the trading of complex 
orders.
    For all the reasons stated, 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, and 
believes the proposed change will in fact enhance competition.

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 proposed rule change does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, it has become effective pursuant to section 
19(b)(3)(A) of the Act \36\ and Rule 19b-4(f)(6) thereunder.\37\
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    \36\ 15 U.S.C. 78s(b)(3)(A).
    \37\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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.
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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 change 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.

[[Page 50921]]

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-2017-44 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-MIAX-2017-44. 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 Web site (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 Web site 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-2017-44 and should be 
submitted on or before November 24, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-23825 Filed 11-1-17; 8:45 am]
 BILLING CODE 8011-01-P


