
[Federal Register Volume 84, Number 56 (Friday, March 22, 2019)]
[Notices]
[Pages 10845-10848]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05467]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85344; File No. SR-EMERALD-2019-12]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Exchange Rule 515A, MIAX Emerald Price Improvement Mechanism 
(``PRIME'') and PRIME Solicitation Mechanism

March 18, 2019.
    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 March 6, 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, 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 515A, MIAX 
Emerald Price Improvement Mechanism (``PRIME'') and PRIME Solicitation 
Mechanism.
    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.

[[Page 10846]]

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 515A, MIAX Emerald 
Price Improvement Mechanism (``PRIME'') and PRIME Solicitation 
Mechanism. Specifically, the Exchange proposes to amend Rule 515A to 
harmonize the rule text to Rule 515A of MIAX Options.\3\
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    \3\ See Securities Exchange Act Release No. 84519 (November 1, 
2018), 83 FR 55776 (November 7, 2018) (SR-MIAX-2018-27).
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Background
    MIAX Emerald commenced operations as a national securities exchange 
registered under Section 6 of the Act \4\ on March 1, 2019. As 
described more fully in MIAX Emerald's Form 1 application,\5\ 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, the MIAX Emerald Rule 515A 
was substantially similar to the rule of MIAX Options Rule 515A. In the 
time between when the Exchange filed its Form 1 and the time the 
Exchange's application for registration as a national securities 
exchange was granted,\6\ MIAX Options made changes to its rule 515A.\7\ 
In order to ensure consistent operation of both MIAX Emerald and MIAX 
Options through having consistent rules, the Exchange proposes to amend 
the MIAX Emerald Rule to adopt identical rule text from MIAX Options 
Rule 515A as described below.
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    \4\ 15 U.S.C. 78f.
    \5\ See Securities Exchange Act Release No. 84891 (December 20, 
2018), 83 FR 67421 (December 28, 2018) (File No. 10-233) (order 
approving the application of MIAX Emerald for registration as a 
national securities exchange.)
    \6\ See Id.
    \7\ See supra note 3.
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Proposal
    The Exchange proposes to amend Rule 515A, Interpretation and Policy 
.12, PRIME for Complex Orders. The current rule provides that, ``. . . 
the provisions of Rule 515A(a) . . . shall be applicable to the trading 
of complex orders (as defined in Rule 518) on PRIME. The Exchange will 
determine, on a class-by-class basis, the option classes in which 
complex orders are available for trading on PRIME on the Exchange, and 
will announce such classes to Members \8\ via Regulatory Circular.'' 
The Exchange now proposes to replace the word ``on'' which precedes 
``PRIME'' with the phrase ``in the'' to more accurately describe 
Exchange functionality and maintain consistency with how the 
functionality is described in other areas of the rule.\9\
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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.
    \9\ See Exchange Rule 515A.01, 515A.03, and 515A.04, which 
references usage of ``the PRIME.''
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    The Exchange also proposes to amend Rule 515A, Interpretation and 
Policy .12(d), to organize the rule for clarity and ease of reference 
and to codify two additional scenarios describing conditions which will 
terminate a cPRIME Auction \10\ in new proposed subsections (d)(vi) and 
(d)(vii).\11\ Specifically, the Exchange proposes to consolidate 
current subsection (d)(v) and current subsection (d)(vi) into new 
subsection (d)(v). Current subsection (d)(v) provides that a cPRIME 
Auction will terminate if ``a simple order or quote in a component of 
the strategy on the same side of the market as the cPRIME Agency Order 
locks or crosses the NBBO for such component.'' Current subsection 
(d)(vi) similarly provides that a cPRIME Auction will terminate if, ``a 
simple order or quote in a component of the strategy on the opposite 
side of the market as the cPRIME Agency Order: (A) locks or crosses the 
NBBO for such component . . . .''
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    \10\ See Exchange Rule 515A.12(a).
    \11\ The Exchange notes that the proposed changes are identical 
to changes made by MIAX Options. See supra note 3.
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    The Exchange now proposes to combine subsection (d)(v) and (d)(vi) 
into a single rule under new subsection (d)(v) that provides that a 
cPRIME Auction will terminate if, ``a simple order or quote in a 
component of the strategy on either side of the market as the cPRIME 
Agency Order locks or crosses the NBBO for such component;''. The 
proposed change simplifies the rule text and clarifies two similar 
scenarios that will terminate a cPRIME Auction when interest is 
received on either side of the market as the cPRIME Agency Order. The 
Exchange believes that the proposed changes promote the protection of 
investors and the public interest by improving the accuracy and 
precision of the Exchange's rules.
    Additionally, the Exchange proposes to adopt new subsections 
(d)(vi) and (d)(vii) to include additional scenarios that will cause a 
cPRIME Auction to terminate when interest is received on the same or 
opposite side of the market, respectively, as the cPRIME Agency Order. 
Specifically, proposed subsection (d)(vi) will provide that a cPRIME 
Auction shall conclude at the earlier of the end of the RFR period,\12\ 
or when ``a simple order or quote in a component of the strategy, 
eligible to rest on the Simple Order Book,\13\ is received on the same 
side of the market as the cPRIME Agency Order and causes the icEBBO 
\14\ to lock or cross the best price opposite the cPRIME Agency 
Order;'' This provision ensures that a cPRIME Agency Order will always 
receive the best price \15\ on the Exchange while simultaneously 
preserving the integrity of the simple market by preventing orders 
executed in a cPRIME Auction from possibly trading through the 
Exchange's simple market.
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    \12\ See Exchange Rule 515A.12(d)(i).
    \13\ The term ``Simple Order Book'' is the Exchange's regular 
electronic book of orders and quotes. See Exchange Rule 518(a)(15).
    \14\ The term ``icEBBO'' means the Implied Complex MIAX Emerald 
Best Bid or Offer. The icEBBO 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)(12).
    \15\ The best price for an Agency Order to buy (sell) is the 
lowest offer (highest bid) on the Exchange, comprised of all 
available interest.
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    An example of this scenario is illustrated below.
    Example 1--A simple order or quote on the same side as the Agency 
Order causes the icEBBO to equal the best price opposite the Agency 
Order

MIAX Emerald--LMM \16\ Mar 50 Call 5.80-6.30 (10x10)
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    \16\ The term ``Lead Market Maker'' means a Member registered 
with the Exchange for the purposes of making markets in securities 
traded on the Exchange and that is vested with the rights and 
responsibilities specified in Chapter VI of the Exchange's Rules 
with respect to Lead Market Makers. See Exchange Rule 100.
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MIAX Emerald--LMM Mar 55 Call 2.90-3.30 (10x10)
Strategy: Buy 1 Mar 50 Call, Sell 1 Mar 55 Call
The icEBBO is 2.50 debit bid and 3.40 credit offer

    The Exchange receives a cPRIME Order with the cPRIME Agency Order 
representing the purchase of the Strategy at a net debit of 3.00, 500 
times. (Auto-match is not enabled and there are no orders for the 
Strategy on the Strategy Book.) \17\
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    \17\ The term ``Strategy Book'' is the Exchange's electronic 
book of complex orders and complex quotes. See Exchange Rule 
518(a)(17).
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    Since the order price is at least $0.01 better than (inside) the 
icEBBO and the best net price of any order for the Strategy on the 
Strategy Book, a cPRIME Auction can begin.

[[Page 10847]]

    A Request for Responses (``RFR'') is broadcast to all subscribers 
and the RFR period is started.
    The following responses are received:
 @50 milliseconds BD1 response, cAOC Order \18\ @2.95 credit 
sell of 100 arrives
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    \18\ 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 event. cAOC 
Orders are not displayed to any market participant, and are not 
eligible for trading outside of the event. See Exchange Rule 
518(b)(3).
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 @70 milliseconds MM1 response, cAOC eQuote \19\ @2.98 credit 
sell of 500 arrives
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    \19\ A ``Complex Auction or Cancel eQuote'' or ``cAOC eQuote,'' 
which is an eQuote submitted by a Market Maker that is used to 
provide liquidity during a specific Complex Auction with a time in 
force that corresponds with the duration of a Complex Auction. See 
Exchange Rule 518.02(c)(1).
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    The cPRIME Auction process will continue until the Response Time 
Interval \20\ ends or an event eligible to cause the cPRIME Auction to 
end sooner occurs.
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    \20\ The ``Response Time Interval'' means the period of time 
during which responses to the RFR may be entered. See Exchange Rule 
518(d)(3).
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 @85 milliseconds a simple order bid to pay 6.25 for 10 MAR 50 
Calls arrives
    The icEBBO is now 2.95 debit bid and 3.40 credit offer. Since the 
bid side of the icEBBO is now equal to the best price opposite the 
Agency Order [BD1 response, 2.95 credit sell of 100], the cPRIME 
Auction is concluded prior to the end of the Response Time Interval.
    The cPRIME Auction process will trade the cPRIME Agency Order with 
the best priced responses. The cPRIME Agency order will be filled as 
follows: \21\
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    \21\ See Exchange Rule 515A(a)(2)(iii).

 The cPRIME Agency Order buys 100 from BD1 @2.95
 The cPRIME Agency Order buys 400 from MM1 @2.98

    Similarly, proposed subsection (d)(vii) will provide that a cPRIME 
Auction shall conclude at the earlier of the end of the RFR period or 
if, ``a simple order or quote in a component of the strategy, eligible 
to rest on the Simple Order Book, is received on the opposite side of 
the market from the cPRIME Agency Order and causes the icEBBO to lock 
or cross the initiating price.'' This provision ensures that a cPRIME 
Agency Order will always receive the best price on the Exchange while 
simultaneously preserving the integrity of the simple market by 
preventing orders executed in a cPRIME Auction from possibly trading 
through the Exchange's simple market.
    An example of this scenario is illustrated below.
    Example 2--A simple order or quote on the opposite side from the 
Agency Order causes the icEBBO to equal the initiating price

MIAX Emerald--LMM Mar 50 Call 5.80-6.30 (10x10)
MIAX Emerald--LMM Mar 55 Call 2.90-3.30 (10x10)
Strategy: Buy 1 Mar 50 Call, Sell 1 Mar 55 Call
The icEBBO is 2.50 debit bid and 3.40 credit offer

    The Exchange receives a cPRIME Order with the cPRIME Agency Order 
representing the purchase of the Strategy at a net debit of 3.00, 500 
times. (Auto-match is not enabled and there are no orders for the 
Strategy on the Strategy Book.)
    Since the order price is at least $0.01 better than (inside) the 
icEBBO and the best net price of any order for the Strategy on the 
Strategy Book, a cPRIME Auction can begin.
    An RFR is broadcast to all subscribers and the RFR period is 
started.
    The following responses are received:

 @40 milliseconds BD1 response, cAOC Order @2.95 credit sell of 
100 arrives
 @50 milliseconds MM1 response, cAOC eQuote @2.98 credit sell 
of 500 arrives

    The cPRIME Auction process will continue until the Response Time 
Interval ends or an event eligible to cause the cPRIME Auction to end 
sooner occurs.
 @75 milliseconds a simple order offer to sell 10 MAR 50 Calls 
@5.90 arrives
    The icEBBO is now 2.50 debit bid and 3.00 credit offer. Since the 
offer side of the icEBBO is now equal to the initiating price, the 
cPRIME Auction is concluded prior to the end of the Response Time 
Interval.
    The cPRIME Auction process will trade the cPRIME Agency Order with 
the best priced responses. The cPRIME Agency order will be filled as 
follows:

 The cPRIME Agency Order buys 100 from BD1 @2.95
 The cPRIME Agency Order buys 400 from MM1 @2.98

    The Exchange believes that terminating a cPRIME Auction when these 
conditions are present ensures that the execution of the cPRIME Agency 
Order improves the best price on the Exchange at the time of receipt, 
and that there is no interference between the simple and complex 
markets. (The System \22\ will reject cPRIME Agency Orders submitted 
with an initiating price that is equal to or worse than (outside) the 
icEBBO or any other complex orders on the Strategy Book.) \23\ This 
provision ensures that a cPRIME Agency Order will always receive the 
best price on the Exchange while simultaneously preserving the 
integrity of the simple market by preventing orders executed in a 
cPRIME Auction from possibly trading through the Exchange's simple 
market. The Exchange believes that including these scenarios in the 
rules will provide additional detail concerning the operation of cPRIME 
Auctions and the conditions which will terminate a cPRIME Auction. The 
Exchange believes that the proposed 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 minimize the potential for confusion.
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    \22\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \23\ See Exchange Rule 515A, Interpretation and Policy 
.12(a)(i).
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2. Statutory Basis
    The Exchange believes that its proposed rule changes are consistent 
with Section 6(b) of the Act \24\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \25\ 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 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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    \24\ 15 U.S.C. 78f(b).
    \25\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposed changes promote just and 
equitable principles of trade and remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because they seek to add additional detail to, and improve the accuracy 
of, the Exchange's rules. In particular, the Exchange believes that the 
proposed rule changes will provide clarity and transparency to the 
Exchange's rules to Members and the public, and it is in the public 
interest for rules to be accurate and concise so as to minimize the 
potential for confusion.
    The Exchange believes that including additional scenarios which 
will terminate a cPRIME Auction promotes just and equitable principles 
of trade and removes impediments to a free and open market by providing 
greater

[[Page 10848]]

transparency concerning the operation of Exchange functionality. This 
provision ensures that a cPRIME Agency Order will always receive the 
best price on the Exchange while simultaneously preserving the 
integrity of the simple market.
    Additionally, the Exchange believes that although MIAX Emerald 
rules may, in certain instances, intentionally differ from MIAX Options 
rules, the proposed changes will promote uniformity with MIAX Options 
with respect to rules that are intended to be identical. MIAX Emerald 
and MIAX Options may have a number of Members in common, and where 
feasible the Exchange intends to implement similar behavior to provide 
consistency between MIAX Options 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 
intended to promote competition by improving the efficiency of handling 
cPRIME Agency Orders on the Exchange. The Exchange believes that this 
enhances intermarket competition by enabling the Exchange to compete 
for this type of order flow with other exchanges that have similar 
rules and functionality in place.
    The Exchange does not believe the proposal will impose any burden 
on intra-market competition as the Exchange's rules apply equally to 
all Members of the Exchange.

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 \26\ and Rule 19b-4(f)(6) \27\ 
thereunder.
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    \26\ 15 U.S.C. 78s(b)(3)(A).
    \27\ 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 rule-comments@sec.gov. Please include 
File Number SR-EMERALD-2019-12 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-2019-12. 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-2019-12 and should be submitted 
on or before April 12, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05467 Filed 3-21-19; 8:45 am]
 BILLING CODE 8011-01-P


