
[Federal Register Volume 84, Number 37 (Monday, February 25, 2019)]
[Notices]
[Pages 6036-6038]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-03173]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85164; File No. SR-EMERALD-2019-03]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Exchange Rule 519, MIAX Emerald Order Monitor

February 19, 2019.
    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 February 11, 2019, MIAX Emerald, LLC (``MIAX 
Emerald'' 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 519, MIAX 
Emerald Order Monitor, in order to harmonize its rule to the rules of 
the Exchange's affiliate, MIAX PEARL, LLC (``MIAX PEARL'').
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/emerald, at MIAX 
Emerald'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 519, MIAX Emerald 
Order Monitor, to align its behavior pertaining to the handling of 
limit orders to buy and limit orders to sell to that of MIAX PEARL.
Current Functionality
    In order to avoid the occurrence of potential obvious or 
catastrophic errors on the Exchange the MIAX Emerald Order Monitor will 
prevent certain orders from executing or being placed on the Book at 
prices outside pre-set standard limits. Beginning after the Opening 
Process is complete, the MIAX Emerald Order Monitor will be operational 
each trading day until the close of trading.
    Paragraph (3), Limit Orders to Buy or Sell, of the Rule, states 
that the System will reject an incoming limit order that crosses the 
contra-side NBBO by at least 50% or $2.50, whichever is less. The 
following examples illustrate those situations where lower priced limit 
orders are rejected because they cross the NBBO by at least 50%: (A) If 
the NBBO on the offer side is $4.00, an order to buy options for $6.00 
or more will be rejected; and (B) if the NBBO on the bid side is $4.00, 
an order to sell options for $2.00 or less will be rejected. 
Additionally, the following are examples of those situations where 
higher priced limit orders are rejected because they cross the NBBO by 
$2.50 or more: (A) If the NBBO on the offer side is $12.00, an order to 
buy options for $14.50 or more will be rejected; and (B) if the NBBO on 
the bid side is $12.00, an order to sell options for $9.50 or less will 
be rejected. Notwithstanding the foregoing, with respect to limit 
orders to sell, the MIAX Emerald Order Monitor will not be activated 
when the NBBO on the bid side is equal to or less than $0.25. Thus, the 
System will accept all limit orders to sell regardless of price during 
this time.
Proposal
    MIAX Emerald plans to commence operations as a national securities 
exchange registered under Section 6 of the Act \3\ on March 1, 2019. As 
described more fully in MIAX Emerald's Form 1 application,\4\ the 
Exchange is an affiliate of Miami International Securities Exchange, 
LLC (``MIAX Options'') and MIAX PEARL, LLC (``MIAX PEARL''). MIAX 
Emerald Rules, in their current form, were filed as Exhibit B to its 
Form 1 on August 16, 2018, and at that time MIAX Emerald Rule 519 was 
substantially similar to MIAX PEARL Rule 519. In the time between when 
the Exchange filed its Form 1 and the time the Exchange received its 
approval order, MIAX PEARL made changes to its Rule 519.\5\ In order to 
ensure consistent operation of both MIAX Emerald and MIAX PEARL through 
having consistent rules, the Exchange now proposes to amend the MIAX 
Emerald Rule as described below.
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    \3\ 15 U.S.C. 78f.
    \4\ See Securities Exchange Act Release No. 84891 (December 20, 
2018), 83 FR 67421 (December 28, 2018) (File No. 10-233) (order 
approving application of MIAX Emerald, LLC for registration as a 
national securities exchange.)
    \5\ See Securities Exchange Act Release No. 84887 (December 20, 
2018), 83 FR 67452 (December 28, 2018) (SR-PEARL-2018-25).
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    The Exchange proposes to amend current subsection (3) to create a 
separate subsection for limit orders to buy (proposed subsection (3)), 
and for limit orders to sell (proposed subsection (4)). The Exchange 
proposes to introduce a new threshold for limit orders to buy which 
will provide that for options with a National Best Offer (``NBO'') less 
than or equal to $0.50 the System \6\ will reject an incoming limit 
order that has a limit price that is equal to or greater than the NBO 
Price by $0.25. The Exchange believes that creating separate 
subsections dedicated to limit orders to buy and limit orders to sell 
will add clarity and additional detail to the Exchange's rule. 
Additionally, the Exchange proposes to provide new examples 
demonstrating the operation of the MIAX Emerald Order Monitor 
functionality for both limit orders to buy and limit orders to sell.
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    \6\ 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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    Proposed subsection (3), Limit Orders to Buy, will provide that for 
options with a National Best Offer (``NBO'') greater than $0.50 the 
System will reject an incoming limit order that has a limit price equal 
to or greater than the NBO by the lesser of (i) $2.50, or (ii) 50% of 
the NBO price. The proposed rule will also provide that for options 
with an NBO less than or equal to $0.50 the System will reject an 
incoming limit

[[Page 6037]]

order that has a limit price that is equal to or greater than the NBO 
price by $0.25.
    The proposed examples provide that (A) if the NBO is $12.00 an 
incoming limit order to buy options for $14.50 or more will be 
rejected; and (B) if the NBO is $0.10 an incoming limit order to buy 
options for $0.15 will not be rejected; whereas if the NBO is $0.10 an 
incoming limit order to buy options for $0.35 will be rejected as the 
limit price of the order is $0.25 greater than the NBO. Proposed 
example A provides an example of an order being rejected when the 
order's limit price ($14.50) is greater than the NBO ($12.00) by the 
lesser of $2.50 or 50% of the NBO price ($6.00). Proposed example B 
demonstrates how the protection works when the NBO of the option is 
$0.50 or less. If the NBO is $0.10 an incoming limit order to buy 
options for $0.15 will not be rejected as the order's limit price is 
not $0.25 greater ($.35) than the NBO price.
    Proposed subsection (4) Limit Orders to Sell, will provide that for 
options with a National Best Bid (``NBB'') equal to or greater than 
$0.25 the System will reject an incoming limit order that has a limit 
price equal to or less than the NBB by the lesser of (i) $2.50, or (ii) 
50% of the NBB price.
    Additionally, the proposed rule will include examples to 
demonstrate the operation of the rule in different circumstances. The 
proposed examples provide that (A) if the NBB is $12.00 an incoming 
limit order to sell options for $9.50 or less will be rejected; and (B) 
if the NBB is $0.30 an incoming limit order to sell options for $0.15 
will be rejected; whereas if the NBB is $0.30 an incoming limit order 
to sell options for $0.20 will not be rejected as the limit price of 
the order is not less than 50% of the NBB price. Proposed example A 
provides an example of an order being rejected when the order's limit 
price ($9.50) is less than the NBB ($12.00) by the lesser of $2.50 or 
50% of the NBB price ($6.00). Proposed example B demonstrates how the 
protection works when the NBB of the option is greater than $0.25.
    The Exchange believes its proposed changes provide additional 
detail and clarity to the Exchange's rules concerning order protections 
for incoming limit orders to buy and incoming limit orders to sell.
2. Statutory Basis
    MIAX Emerald believes that its proposed rule change is consistent 
with Section 6(b) of the Act \7\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \8\ 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes its proposal 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 by establishing thresholds 
for the handling of incoming limit orders to buy and sell, and by 
providing examples describing the System's behavior in various 
circumstances. Currently the Exchange's rule discusses the operation of 
the MIAX Emerald Order Monitor on incoming limit orders to buy or 
incoming limit orders to sell in a single paragraph.\9\ The Exchange 
believes providing separate paragraphs in the rule specifically 
discussing the MIAX Emerald Order Monitor process for incoming limit 
orders to buy (proposed paragraph (a)(3)) and for incoming limit orders 
to sell (proposed paragraph (a)(4)), promotes the protection of 
investors and the public interest by providing additional detail and 
clarity in the rule. It is in the best interest of investors and the 
public for rules to be accurate and precise to avoid the potential for 
confusion. Further, the Exchange believes that providing a clear line 
of delineation for the treatment of limit orders to buy when the NBO is 
less than or equal to $0.50, and for limit orders to sell when the 
National Best Bid (``NBB'') is less than $0.25 benefits investors and 
the public by establishing clear and unambiguous thresholds regarding 
the acceptance or rejection of orders.
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    \9\ See Exchange Rule 519(a)(3).
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    The Exchange believes that the proposed changes to its rulebook add 
additional detail and provide further clarification to Members,\10\ 
investors, and the public, regarding the Exchange's order monitoring 
functionality. The Exchange believes it is in the interest of investors 
and the public to accurately describe the behavior of the Exchange's 
System in its rules as this information may be used by investors to 
make decisions concerning the submission of their orders. Transparency 
and clarity are consistent with the Act because it removes impediments 
to and helps perfect the mechanism of a free and open market and a 
national market system, and, in general, protects investors and the 
public interest by accurately describing the behavior of the Exchange's 
System.
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    \10\ 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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    The Exchange believes that the proposed changes promote just and 
equitable principles of trade and removes impediments to and perfects 
the mechanism of a free and open market and a national market system 
and, in general, protects investors and the public interest by 
providing additional detail and clarity in the Exchange's rules. 
Further, the Exchange's proposal provides transparency and clarity in 
the rules and is consistent with the Act because it removes impediments 
to and helps perfect the mechanism of a free and open market and a 
national market system, and, in general, protects investors and the 
public interest by accurately describing the behavior of the Exchange's 
System. In particular, the Exchange believes that the proposed rule 
changes will provide greater clarity to Members and the public 
regarding the Exchange's Rules, and it is in the public interest for 
rules to be accurate and concise so as to eliminate the potential for 
confusion.
    Additionally, the Exchange believes that although MIAX Emerald 
rules may, in certain instances, intentionally differ from MIAX PEARL 
rules, the proposed changes will promote uniformity with MIAX PEARL 
with respect to rules that are intended to be identical. MIAX Emerald 
and MIAX PEARL may have a number of Members in common, and where 
feasible the Exchange intends to implement similar behavior to provide 
consistency between MIAX PEARL and MIAX Emerald so as to avoid 
confusion among Members.

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 proposed rule change is 
designed to add additional clarity and detail to the Exchange's rules.
    The Exchange does not believe that the proposed rule change will 
impose any burden on inter-market competition as the Rules apply 
equally to all

[[Page 6038]]

Exchange Members. The proposed rule change is not a competitive filing 
and is intended to enhance the protection of investors by ensuring that 
the rule clearly and accurately describes the scenarios when a limit 
order to buy or a limit order to sell will be rejected by the 
Exchange's System. Additionally, the proposed rule change provides 
examples of hypothetical scenarios to provide additional detail and 
clarity to the Exchange's rulebook.

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 \11\ and Rule 19b-4(f)(6) \12\ 
thereunder.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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) normally does 
not become operative for 30 days from the date of filing. However, Rule 
19b-4(f)(6)(iii) \13\ permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange has asked the Commission to waive the 
30-day operative delay and designate the proposal operative on March 1, 
2019, to coincide with the planned commencement date of operation of 
the Exchange. The Commission believes that the waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest and hereby waives the 30-day operative delay and 
designates the proposal operative on March 1, 2019.\14\
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    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-EMERALD-2019-03 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-EMERALD-2019-03. 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-EMERALD-2019-03 and should be submitted 
on or before March 18, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-03173 Filed 2-22-19; 8:45 am]
 BILLING CODE 8011-01-P


