
[Federal Register Volume 84, Number 36 (Friday, February 22, 2019)]
[Notices]
[Pages 5745-5748]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-03042]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85148; File No. SR-MIAX-2018-34]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing of Amendment No. 1 and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment No. 1, To Amend Exchange Rule 519, MIAX Order Monitor; 
Exchange Rule 519A, Risk Protection Monitor; and Exchange Rule 517, 
Quote Types Defined

February 15, 2019.

I. Introduction

    On November 9, 2018, Miami International Securities Exchange, LLC 
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend Exchange Rules 519 (MIAX 
Order Monitor), 519A (Risk Protection Monitor), and 517 (Quote Types 
Defined). The proposed rule change was published for comment in the 
Federal Register on November 20, 2018.\3\ On December 20, 2018, the 
Commission extended the time period for Commission action on the 
proposed rule change from January 4, 2019, to February 18, 2019.\4\ The 
Commission has received no comments on the proposal. On February 12, 
2019, the Exchange filed Amendment No. 1 to the proposed rule change to 
modify one provision of its proposal.\5\ The Commission is publishing 
this notice to solicit comment on Amendment No. 1, and is approving the 
proposed rule change, as modified by Amendment No. 1, on an accelerated 
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 84594 (November 14, 
2018), 83 FR 58642 (``Notice'').
    \4\ See Securities Exchange Act Release No. 84888 (December 20, 
2018), 83 FR 67390 (December 28, 2018).
    \5\ In Amendment No. 1, the Exchange modified its proposal by 
removing a provision that would deem an SAO eQuote a ``priority 
quote'' for trade allocation purposes in accordance with Exchange 
Rule 514(e), a provision that was contained in proposed 
Interpretations and Policies .02 to Exchange Rule 517. The full text 
of Amendment No. 1 has been placed in the public comment file for 
SR-MIAX-2018-34 and is available at: https://www.sec.gov/rules/sro/miax.htm#SR-MIAX-2018-34.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1 6
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    \6\ For a full description of the proposal, see Notice, supra 
note 3 and Amendment No. 1, supra note 5.
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    The Exchange recently received Commission approval to list and 
trade options on the SPIKESTM Index (``Index''), a new index 
that measures expected 30-day volatility of the SPDR S&P 500 ETF 
Trust.\7\ To establish the settlement value for the Index, the Exchange 
conducts a settlement auction (the ``SPIKES Special Settlement 
Auction''), during which the Exchange will accept settlement auction 
only orders (``SAO Orders'') and settlement auction only eQuotes (``SAO 
eQuotes'' and, collectively with SAO Orders, ``SAOs''), in addition to 
any other order types that may regularly be accepted by the 
Exchange.\8\ Market participants entering interest for participation in 
the SPIKES Special Settlement Auction that is related to positions in, 
or a trading strategy involving, Index options, and that are ``SPIKES 
strategy orders'' may be tagged as SAOs.\9\
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    \7\ See Securities Exchange Act Release No. 84417 (October 12, 
2018), 83 FR 52865 (October 18, 2018) (SR-MIAX-2018-14) (Order 
Granting Approval of a Proposed Rule Change by Miami International 
Securities Exchange, LLC to List and Trade Options on the 
SPIKESTM Index).
    \8\ Id.
    \9\ See id. at 52866. See also Exchange Rule 503.03(c) (defining 
``SPIKES strategy orders,'' and stating that the Exchange will 
generally consider orders to be SPIKES Strategy Orders if the orders 
possess the following characteristics: (i) They are for options with 
the expiration that will be used to calculate the exercise or final 
settlement value of the applicable volatility index option contract; 
(ii) they are for options spanning the full range of strike prices 
for the appropriate expiration for options that will be used to 
calculate the exercise or final settlement value of the applicable 
volatility index option contract, but not necessarily every 
available strike price; and (iii) they are for put options with 
strike prices less than the at-the-money strike price, for call 
options with strike prices greater than the at-the-money strike 
price, or for put and call options with at-the-money strike prices). 
The Exchange notes that it may also deem order types other than 
those provided above as SPIKES Strategy Orders if the Exchange 
determines that to be the case based on the applicable facts and 
circumstances. See id.

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[[Page 5746]]

    The Exchange anticipates that market participants that actively 
trade SPIKES options may hedge their positions with SPY option series 
that will also be used to calculate the SPIKES exercise settlement/
final settlement value.\10\ The Exchange believes that in order to seek 
convergence with the SPIKES exercise/final settlement value, these 
market participants may liquidate their hedges by submitting SPIKES 
strategy orders in the appropriate SPY option series during the SPIKES 
Special Settlement Auction on the SPIKES expiration/final settlement 
date.\11\ The Exchange proposes to amend its rules to exclude SAOs from 
certain risk protection features offered by the Exchange. According to 
the Exchange, given that SAOs are designed for the special purpose of 
closing a hedged position and are available for use only during the 
SPIKES Special Settlement Auction, the application of certain risk 
protection features could diminish the utility of SAO Orders and SAO 
eQuotes.
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    \10\ See Notice, supra note 3, at 56842.
    \11\ See id.
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    Specifically, the Exchange proposes to amend Exchange Rule 519, 
Interpretations and Policies, to adopt new subsection .03, to provide 
that the order protections of the MIAX Order Monitor pursuant to 
sections (b), (c), and (d) of that rule will not apply to SAO Orders, 
as defined in Interpretations and Policies .03 of Exchange Rule 503. 
The MIAX Order Monitor is a risk management feature of the Exchange's 
System. Pursuant to paragraph (a) of Exchange Rule 519, the MIAX Order 
Monitor prevents certain orders from executing or being placed on the 
Book \12\ at prices outside pre-set standard limits.\13\ Paragraph (b) 
prevents certain orders from executing or being placed on the Book if 
the size of the order exceeds the order size protection designated by 
the Member; \14\ paragraph (c) specifies that the System will reject 
any orders that exceed the maximum number of open orders held in the 
System on behalf of a particular Member, as designated by the Member; 
\15\ and paragraph (d) specifies that the System will reject any orders 
that exceed the maximum number of open contracts represented by orders 
held in the System on behalf of a particular Member, as designated by 
the Member.\16\ According to the Exchange, the application of the order 
size protection described in Exchange Rule 519(b) may prevent an SAO 
order from being placed on the Book and may prevent the Member from 
effectively hedging or closing a hedged position in SPIKES options.\17\ 
Similarly, the Exchange does not believe that an SAO Order should be 
subject to the open order protection described in Exchange Rule 519(c) 
as this protection aggregates open orders held in the System and may 
inadvertently prevent the Member from hedging or closing a hedged 
position in SPIKES options by preventing the submission of an SAO 
Order.\18\ Likewise, the Exchange does not believe that an SAO Order 
should be subject to the open contract protection described in Exchange 
Rule 519(d), as this protection aggregates the number of open contracts 
represented by orders held in the System, and including SAO Orders in 
this protection may inadvertently prevent the Member from hedging or 
closing a hedged position in SPIKES options by preventing the 
submission of an SAO Order.\19\
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    \12\ The term ``Book'' means the electronic book of buy and sell 
orders and quotes maintained by the System. See Exchange Rule 100.
    \13\ See Exchange Rule 519(a).
    \14\ See Exchange Rule 519(b).
    \15\ See Exchange Rule 519(c).
    \16\ See Exchange Rule 519(d).
    \17\ See Notice, supra note 3, at 58642-43.
    \18\ See Notice, supra note 3, at 58643.
    \19\ See id.
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    The Exchange similarly proposes to amend Exchange Rule 519A, 
Interpretations and Policies, to adopt new subsection .02 to state that 
SAO Orders, as defined in Interpretations and Policies .03 of Exchange 
Rule 503, are not eligible to participate in the Risk Protection 
Monitor (``RPM'').\20\ The RPM is a feature of the MIAX System, which 
maintains a counting program for each participating Member that will 
count the number of orders entered and the number of contracts traded 
via an order entered by a Member on the Exchange within a specified 
time period that has been established by the Member. The RPM maintains 
one or more Member-configurable Allowable Order Rate settings and 
Allowable Contract Execution Rate settings. The Risk Protection Monitor 
shall remain engaged until the Member communicates with the Help Desk 
to enable the acceptance of new orders.\21\ According to the Exchange, 
excepting SAO Orders from participating in the RPM ensures that these 
orders may be freely submitted to the Exchange and will remain active 
in the System once accepted.\22\ As noted, SAO Orders are SPIKES 
strategy orders used for hedging or closing a hedged position in SPIKES 
options during the SPIKES Special Settlement Auction which is conducted 
only once per month. If engaged, the RPM may prevent the Member from 
submitting SAO Orders to the Exchange until the Member communicates 
with the Help Desk to enable the acceptance of new orders. The Exchange 
does not believe it is in the best interest of the Member to introduce 
this type of delay for SAO Orders, as they are time sensitive and are 
designed to participate in the SPIKES Special Settlement Auction.\23\
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    \20\ For a more complete description of the Risk Protection 
Monitor, see id.
    \21\ See Exchange Rule 519A(a).
    \22\ See Notice, supra note 3, at 58643.
    \23\ See id.
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    Additionally, the Exchange proposes to amend Exchange Rule 517, 
Quote Types Defined. Exchange Rule 517(d) currently provides that bids 
and offers in certain limited time-in-force eQuote types (Auction-or-
Cancel, Opening Only, Immediate-or-Cancel, Fill-or-Kill, and Immediate-
or-Cancel Intermarket Sweep) will not be disseminated by the Exchange 
in accordance with Rule 602 of Regulation NMS, and that executions 
resulting from these eQuote types will not be used by the Exchange's 
Aggregate Risk Manager (``ARM'') to determine whether the Market Maker 
has exceeded the Allowable Engagement Percentage. As more fully 
described in Exchange Rule 612, the MIAX System will engage the ARM in 
a particular option class when the counting program has determined that 
a Market Maker has traded during the specified time period a number of 
contracts equal to or above their Allowable Engagement Percentage. The 
ARM will then automatically remove the Market Maker's Standard 
Quotations and Day eQuotes from the Exchange's disseminated quotation 
in all series of that particular option class until the Market Maker 
sends a notification to the System of the intent to reengage quoting 
and submits a new revised quotation.\24\ The Exchange proposes to add 
SAO eQuote, as defined in Interpretations and Policies .03 of Exchange 
Rule 503, to the list of eQuotes that are not disseminated by the 
Exchange in accordance with Rule 602 of Regulation NMS and not subject 
to the ARM. An SAO eQuote is a special purpose eQuote available only 
during

[[Page 5747]]

the SPIKES Special Settlement Auction and as such, the Exchange 
believes it should be treated similarly to other limited time-in-force 
eQuote types.\25\
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    \24\ See Exchange Rule 612(b)(1).
    \25\ See Notice, supra note 3, at 58643.
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III. Discussion and Commission Findings

    After careful consideration of the proposal, the Commission finds 
that the proposed rule change, as modified by Amendment No. 1, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange,\26\ and, in particular, the requirements of Section 6 of the 
Act.\27\ Specifically, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with Section 
6(b)(5) of the Act,\28\ which requires, among other things, that the 
rules of a national securities exchange be designed to prevent 
fraudulent and manipulative acts and practices, 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.
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    \26\ In approving this proposed rule change, as modified by 
Amendment No. 1, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
    \27\ 15 U.S.C. 78f.
    \28\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposal to remove SAO Orders, 
which are designed specifically for closing a hedged position and are 
available for use only during the SPIKES Special Settlement 
Auction,\29\ from certain risk protection features offered by the 
Exchange, as described above, is reasonably designed to mitigate the 
potential risks associated with preventing market participants from 
effectively hedging or closing a hedged position in SPIKES options. 
Specifically, the proposal to exclude SAO Orders from the order size 
protection, open order protection, and open contract protection of the 
MIAX Order Monitor is reasonably designed to prevent a market 
participant from being unable to effectively hedge or close a hedged 
position in SPIKES options in the event those order protections may 
inadvertently prevent the submission or posting of an SAO Order.\30\ 
The Commission further believes that the proposal to exclude SAO Orders 
from the RPM is reasonably designed to prevent any unintended delay in 
the submission of SAO Orders, which MIAX states are time sensitive and 
designed to participate in the SPIKES Special Settlement Auction.\31\
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    \29\ See Notice, supra note 3, at 58642.
    \30\ See id. at 58643.
    \31\ See id.
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    The Commission also believes that the proposal to add SAO eQuotes 
to the list of eQuotes that are not disseminated by the Exchange in 
accordance with Rule 602 of Regulation NMS or counted as executions for 
purposes of the ARM is reasonably designed to promote fair and orderly 
markets by ensuring that SAO eQuotes, which are only available during 
the SPIKES Special Settlement Auction, are treated similarly to other 
limited time-in-force eQuotes.\32\
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    \32\ See id.
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    Accordingly, for the reasons discussed above, the Commission 
believes that the proposed rule change, as modified by Amendment No. 1, 
is consistent with the Act.

IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 1 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 rule-comments@sec.gov. Please include 
File Number SR-MIAX-2018-34 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MIAX-2018-34. 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-2018-34, and should be submitted on 
or before March 15, 2019.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
1 in the Federal Register. As discussed above, in Amendment No. 1, the 
Exchange is removing from its proposal a provision that would deem an 
SAO eQuote a ``priority quote'' for trade allocation purposes in 
accordance with Exchange Rule 514(e), a provision that was contained in 
proposed Interpretations and Policies .02 of Exchange Rule 517. The 
Commission notes that Amendment No. 1 does not otherwise modify the 
proposed rule change, which was subject to a full notice-and-comment 
period during which no comments were received. Amendment No. 1 
eliminates one discrete aspect of the original proposal that does not 
impact the remaining portions of the proposed rule change. Accordingly, 
the Commission finds good cause, pursuant to Section 19(b)(2) of the 
Act,\33\ to approve the proposed rule change, as modified by Amendment 
No. 1, on an accelerated basis.
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    \33\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\34\ that the proposed rule change (SR-MIAX-2018-34), as modified 
by Amendment No. 1 be, and hereby is, approved on an accelerated basis.
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    \34\ 15 U.S.C. 78s(b)(2).


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
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    \35\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-03042 Filed 2-21-19; 8:45 am]
 BILLING CODE 8011-01-P


