
[Federal Register Volume 84, Number 56 (Friday, March 22, 2019)]
[Notices]
[Pages 10854-10860]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05468]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85346; File No. SR-EMERALD-2019-14]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Exchange Rule 518, Complex Orders

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 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, 
Complex

[[Page 10855]]

Orders, in order to implement identical functionality currently 
operative on one of the Exchange's affiliates, Miami International 
Securities Exchange, LLC (``MIAX Options'').
    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 518, Complex Orders, 
to implement functionality, as described below, that is identical to 
functionality currently operative on MIAX Options.\3\ 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. At that 
time MIAX Emerald Rule 518 and MIAX Options Rule 518 were substantially 
similar. MIAX Options recently amended its Rule 518 \6\ and in order to 
ensure consistent operation of both MIAX Emerald and MIAX Options 
through having consistent rules, the Exchange now proposes to amend 
MIAX Emerald Exchange Rule 518 as described below.
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    \3\ See MIAX Options Exchange Rule 518.
    \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 application of MIAX Emerald, LLC for registration as a 
national securities exchange).
    \6\ See Securities Exchange Act Release No. 85155 (February 15, 
2019), 84 FR 5739 (February 22, 2019) (SR-MIAX-2018-36).
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    Specifically, the Exchange proposes to amend Exchange Rule 518, 
Complex Orders, to (i) amend the Response Time Interval and Defined 
Time Period for Complex Auctions (each defined below); (ii) amend 
Interpretation and Policy .05(f), to add additional detail pertaining 
to the operation of the Complex MIAX [sic] Price Collar (``MPC''), 
specifically to adopt new rule text for the use of a Temporary MIAX 
Price Collar (``TMPC'') during a cPRIME Auction or Complex Auction \7\ 
in the limited instance when an MPC has not been assigned; (iii) adopt 
a new Complex Liquidity Exposure Process (``cLEP''); (iv) make minor 
changes to the Complex MIAX [sic] Options Price Collar Protection; and 
(v) clarify that the Calendar Spread Variance (``CSV'') price 
protection applies only to strategies in American-style option \8\ 
classes.
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    \7\ See Exchange Rule 518(d).
    \8\ The term ``American-style option'' means an option contract 
that, subject to the provisions of Rule 700 (relating to the cutoff 
time for exercise instructions) and to the Rules of the Clearing 
Corporation, can be exercised on any business day prior to its 
expiration date and on its expiration date. See Exchange Rule 100.
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    The Exchange proposes to amend subsection (d)(3) which describes 
the Response Time Interval of a Complex Auction, which is a single-
sided auction. The Exchange offers Complex Auction functionality as 
described in Exchange Rule 518 \9\ and also a cPRIME process for paired 
orders, which is unaffected by this proposal, as described in Exchange 
Rule 515A.12. The Exchange is not proposing to change the cPRIME 
process, and thus the cPRIME Timer will remain at 100 milliseconds.
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    \9\ Certain option classes, as determined by the Exchange and 
communicated to Members via Regulatory Circular, will be eligible to 
participate in a Complex Auction (an ``eligible class''). Upon 
evaluation as set forth in subparagraph (c)(5) of Rule 518, the 
Exchange may determine to automatically submit a Complex Auction-
eligible order into a Complex Auction. Upon entry into the System or 
upon evaluation of a complex order resting at the top of the 
Strategy Book, Complex Auction-eligible orders may be subject to an 
automated request for responses (``RFR''). See Exchange Rule 518(d).
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    Currently, Rule 518(d)(3) provides that the Response Time Interval 
means the period of time during which responses to the Request for 
Responses (``RFR'') message may be entered. The Rule further provides 
that the Exchange determines the duration of the Response Time 
Interval, which shall not exceed 500 milliseconds, and communicates it 
to Members via Regulatory Circular.\10\ The Exchange now proposes to 
adopt new rule text to state that, ``the end of the trading session 
will also serve as the end of the Response Time Interval for a Complex 
Auction still in progress.'' In connection with this proposed change, 
the Exchange proposes to amend subsection (d)(2) to remove the 
reference to the Defined Time Period for a Complex Auction. The Defined 
Time Period represents the period of time preceding the end of a 
trading session during which a Complex Auction will not be initiated. 
Currently, by Exchange rule the Defined Time Period shall be at least 
100 milliseconds and may not exceed 10 seconds.\11\ The Exchange 
anticipates it will launch operations with the duration of a Complex 
Auction set to 200 milliseconds.\12\
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    \10\ The Exchange notes that the Response Time Interval is 
currently set to 200 milliseconds.
    \11\ See Exchange Rule 518(d)(2).
    \12\ The MIAX Options Complex Auction duration is currently set 
to 200 milliseconds. See MIAX Options Regulatory Circular 2016-46.
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    The Exchange also proposes to amend subsection (c)(2)(i) to remove 
the restriction that a cAOA Order \13\ received during the Defined Time 
Period will not initiate a new Complex Auction. Under the current rules 
there is no opportunity at all for price improvement via a Complex 
Auction when there is less than two seconds left in the trading 
session. The Exchange believes that removing the Defined Time Period 
and allowing the end of the trading session to serve as the end of the 
Response Time Interval in the limited instance that a Complex Auction 
is initiated with less than 200 milliseconds left in the trading 
session will allow for more opportunities for price improvement via the 
auction process. In the event that a Member initiates a Complex Auction 
and no Members respond, the initiating Member is no worse off under the 
proposed rule than the Member would have been under the current rule 
which prevents the Member from even attempting to initiate a Complex 
Auction with less than two seconds left in the trading session. 
Additionally, a Member who initiates a Complex Auction will not forego 
the opportunity to trade with unrelated interest received during the 
Auction period, as this interest is included in the Complex 
Auction.\14\
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    \13\ A ``Complex Auction-on-Arrival'' or ``cAOA'' Order is a 
complex order designated to be placed into a Complex Auction upon 
receipt or upon evaluation. See Exchange Rule 518(b)(2).
    \14\ See Exchange Rule 518(d)(8).
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    The Exchange represents that it has the System \15\ capacity and 
capability to conduct auctions and execute transactions in a timely 
fashion at any

[[Page 10856]]

time during the trading session including the last two seconds. 
Further, the Exchange represents that it has surveillances in place to 
surveil for conduct that violates the Exchange's rules, specifically as 
they pertain to Complex Auctions as described herein.\16\
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    \15\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \16\ The Exchange notes that Rule 518.04, Dissemination of 
Information, remains in effect for any Complex Auction-eligible 
order submitted to the Exchange at any time.
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    The Exchange also proposes to amend Rule 518, Interpretation and 
Policy .05, to add additional detail to the rule regarding the 
establishment of the MIAX [sic] Price Collar (``MPC'') under various 
circumstances to align MIAX Emerald rule text to that of MIAX 
Options.\17\ The MPC is a price protection feature designed to help 
maintain a fair and orderly market by helping to mitigate the potential 
risk of executions at prices that are extreme and potentially 
erroneous. The MPC prevents complex orders from automatically executing 
at potentially erroneous prices by establishing a price range outside 
of which a complex order will not be executed.
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    \17\ See Securities Exchange Act Release No. 84519 (November 1, 
2018), 83 FR 55776 (November 7, 2018) (SR-MIAX-2018-27).
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    The Exchange now proposes to amend Rule 518, Interpretation and 
Policy .05, by removing current subsection (f)(3) and replacing it with 
new proposed subsections (f)(3) and (f)(4) as described below. New 
subsection (f)(3) will provide that, ``[t]he MPC Price is established: 
(i) upon receipt of the complex order or eQuote during free trading, or 
(ii) if the complex order or eQuote is not received during free 
trading, at the opening (or reopening following a halt) of trading in 
the complex strategy; or (iii) upon evaluation of the Strategy Book by 
the System when a wide market condition, as described in Interpretation 
and Policy .05(e)(1) of this Rule, no longer exists.'' \18\
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    \18\ The Exchange notes that if wide market conditions exist 
(any individual option component of a complex strategy has a 
displayed EBBO quote width that is wider than the permissible simple 
market quote width) when an order is received, an MPC will not be 
calculated until the wide market conditions are resolved. See 
Exchange Rule 518.05(e)(1).
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    New subsection (f)(4) will provide that, ``[a] Temporary MPC Price 
(`TMPC Price') is established solely for use during a Complex Auction 
(as defined in Rule 518(d)) or a cPRIME Auction (as defined in Rule 
515A, Interpretation and Policy .12) for (i) any complex order resting 
on the Strategy Book that does not have an MPC assigned and is eligible 
to participate in a Complex Auction or a cPRIME Auction in that 
strategy; or (ii) any complex order or eQuote received during a cPRIME 
Auction \19\ if a wide market condition existed in a component of the 
strategy at the start of the cPRIME Auction. The TMPC Price shall be 
the auction start price \20\ (the auction start price of a cPRIME 
Agency Order for a cPRIME Auction is defined in Rule 515A.12(a)(i) and 
the auction start price for a Complex Auction is defined in Rule 
518(d)(1)) plus (minus) the MPC Setting \21\ if the order is a buy 
(sell). If the complex order or eQuote eligible to participate in the 
Complex Auction or cPRIME Auction is priced more aggressively than the 
TMPC Price (i.e., the complex order or eQuote price is greater than the 
TMPC Price for a buy order, or the complex order or eQuote price is 
lower than the TMPC Price for a sell order) the complex order or eQuote 
may participate in the auction but will not trade through its TMPC 
Price.'' The minimum MPC Setting is $0.00 and the maximum MPC Setting 
is $1.00, as determined by the Exchange and communicated to Members via 
Regulatory Circular.\22\ A TMPC Price will be calculated for use during 
the length of the auction for any complex order resting on the Strategy 
Book that does not have an MPC assigned and is eligible to participate 
in a Complex Auction or cPRIME Auction in that strategy, or any complex 
order or eQuote received during a cPRIME Auction if a wide market 
condition existed in a component of the strategy at the start of the 
cPRIME Auction.
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    \19\ The Exchange notes that if a wide market condition exists 
for a component of a complex strategy, trading in the strategy will 
be suspended, except as otherwise set forth in Exchange Rule 
518.05(e)(1)(iii), which states that a wide market condition shall 
have no impact on the trading of cPRIME Orders and processing of 
cPRIME Auctions (including the processing of cPRIME Auction 
responses) pursuant to Rule 515A, Interpretation and Policy .12. See 
Exchange Rule 518.05(e)(1)(i).
    \20\ The auction start price for a cPRIME Auction is the 
initiating price of a cPRIME Agency Order as described in Exchange 
Rule 515A.12(a)(i). The auction start price for a Complex Auction is 
the initiating order's limit price as described in Exchange Rule 
518(d)(1).
    \21\ See Exchange Rule 518.05(f).
    \22\ See Exchange Rule 518.05(f)(2). The Exchange anticipates 
that the setting for the launch of trading on MIAX Emerald will be 
$.25.
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    An example of the TMPC Price being established and used is provided 
below.

Example 3--A TMPC Price is established for an order or eQuote received 
during a cPRIME Auction
    MIAX Emerald--LMM Mar 50 Call 1.00-6.50 (10x10) (Wide Market)
    MIAX Emerald--LMM Mar 55 Call 2.90-3.30 (10x10)
    ABBO--Mar 50 Call 6.00-6.30 (10x10)
    ABBO--Mar 55 Call 3.00-3.30 (10x10)
    NBBO--Mar 50 Call 6.00-6.30 (10x10)
    NBBO--Mar 55 Call 3.00-3.30 (10x20)
Strategy: Buy 1 Mar 50 Call, Sell 1 Mar 55 Call
The cNBBO is 2.70 debit bid and 3.30 credit offer

    The MPC Setting is $.25.
    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.
    A TMPC Price will be calculated for use during the length of the 
auction for any complex order or eQuote received during a cPRIME 
Auction if a wide market condition existed in a component of the 
strategy at the start of the cPRIME Auction. The TMPC Price will be the 
cPRIME auction start price +/- the MPC Setting. In this example the 
auction start price is $3.00. The TMPC Price is $2.75 ($3.00-$.25) for 
sell orders, and $3.25 ($3.00 + $.25) for buy orders.
    An RFR is broadcast to all subscribers and the RFR period is 
started.
    The following responses are received:

 @20 milliseconds BD1 response, cAOC Order @2.95 credit sell of 
200 arrives
 @30 milliseconds MM1 response, cAOC eQuote @2.90 credit sell 
of 200 arrives
 @50 milliseconds C1 response, cAOC Order @2.70 credit sell of 
100 arrives

    The cPRIME Auction process will continue until the Response Time 
Interval ends. When the 100 millisecond Response Time Interval ends, 
the cPRIME Auction process will trade the Agency Order with the best 
priced responses. The Agency Order will be filled as follows:

 The cPRIME Agency Order buys 100 from C1 @2.75
 The cPRIME Agency Order buys 200 from MM1 @2.90
 The cPRIME Agency Order buys 200 from BD1 @2.95

    Note that C1 is prevented from selling at 2.70 by the cPRIME 
Auction TMPC Price limit of 2.75.
    The Exchange believes that amending the rule to [sic] regarding the 
use of a TMPC Price, which is applicable only in the limited 
circumstance when an MPC has not been assigned, and exists only for the 
duration of a Complex Auction or cPRIME Auction, adds additional detail 
to the Exchange's rules and provides greater transparency of Exchange 
functionality. The use of a TMPC Price provides protection for orders 
that participate in either a

[[Page 10857]]

Complex Auction or a cPRIME Auction when the order does not have an 
assigned MPC Price as described above. This price protection ensures 
that orders are not executed at potentially erroneous prices during the 
auction. The Exchange believes that the proposed changes promote the 
protection of investors and the public interest by providing greater 
clarity and specificity of Exchange functionality, and it is in the 
public interest for the Exchange's rules to be accurate and concise so 
as to minimize the potential for confusion.
    The Exchange also proposes to amend current subsection (f)(4) 
(proposed subsection (f)(5)) which states that, ``Any unexecuted 
portion of such a complex order or eQuote: (A) Will be cancelled if it 
would otherwise be displayed or executed at a price that is outside the 
MPC Price, and (B) may be subject to the managed interest process 
described in Rule 518(c)(4).'' The Exchange proposes to amend this 
sentence to account for a proposed Complex Liquidity Exposure Process 
(``cLEP'') as described below. The proposed amended sentence will 
provide, ``Any unexecuted portion of such a complex order or eQuote: 
(A) will be subject to the cLEP as described in subsection (e) of this 
Rule, and (B) may be subject to the managed interest process described 
in Rule 518(c)(4).''
    The Exchange also proposes to adopt new subsection (e) to Rule 518 
to describe a Complex Liquidity Exposure Process (``cLEP'') for complex 
orders and complex eQuotes that would violate their Complex MIAX [sic] 
Price Collar (``MPC'') price. The MPC price protection feature is an 
Exchange-wide mechanism under which a complex order or complex eQuote 
to sell will not be displayed or executed at a price that is lower than 
the opposite side cNBBO \23\ bid at the time the MPC is assigned by the 
System (i.e., upon receipt or upon opening) by more than a specific 
dollar amount expressed in $0.01 increments (the ``MPC Setting''), and 
under which a complex order or eQuote to buy will not be displayed or 
executed at a price that is higher than the opposite side cNBBO offer 
at the time the MPC is assigned by the System by more than the MPC 
Setting (each the ``MPC Price'').\24\
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    \23\ The term cNBBO means the Complex National Best Bid or Offer 
and is calculated using the National Best Bid or Offer (``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).
    \24\ See Exchange Rule 518.05(f).
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    The Exchange now proposes to initiate a Complex Liquidity Exposure 
Auction (``cLEP Auction'') whenever a complex order or complex eQuote 
would execute or post at a price that would violate its MPC Price. To 
begin the cLEP Auction, the System will first broadcast a liquidity 
exposure message to all subscribers of the Exchange's data feeds. The 
liquidity exposure message will include the symbol, side of the market, 
auction start price (MPC Price of the complex order or eQuote), and the 
imbalance quantity. The purpose of including the imbalance quantity in 
the RFR message is to inform such participants of the number of 
contracts that are available for execution.
    The System will initiate a Response Time Interval, as determined by 
the Exchange and communicated via Regulatory Circular which shall be no 
less than 100 milliseconds and no more than 5,000 milliseconds.\25\ At 
the conclusion of the Complex Liquidity Exposure Auction the resulting 
trade price will be determined by the Exchange's Complex Auction 
Pricing described in subsection (d)(6) of this Rule and interest will 
be executed as provided in subsection (d)(6) of this Rule. In no event 
will the resulting trade price of a cLEP Auction ever be more 
aggressive than the MPC Price. Remaining liquidity with an original 
limit price that is (i) less aggressive (lower for a buy order or 
eQuote, or higher for a sell order or eQuote) than or equal to the MPC 
Price will be handled in accordance with subsection (c)(2)(ii)-(v) of 
this Rule, or (ii) more aggressive than the MPC Price will be subject 
to the Reevaluation process as described below. Orders and quotes 
executed in a cLEP Auction will be allocated in accordance with the 
Complex Auction allocation procedures described in Exchange Rule 
518(d)(7)(i)-(vi).
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    \25\ The Exchange notes that the current duration of a cPRIME 
Auction is 100 milliseconds and the current duration of a Complex 
Auction is 200 milliseconds.
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    At the conclusion of a cLEP Auction the System will calculate the 
next potential MPC Price for remaining liquidity with an original limit 
price more aggressive than the existing MPC Price. The next MPC Price 
will be calculated as the MPC Price plus (minus) the next MPC increment 
for buy (sell) orders (the ``New MPC Price''). The System will initiate 
a cLEP Auction for liquidity that would execute or post at a price that 
would violate its New MPC Price. Liquidity with an original limit price 
less aggressive (lower for a buy order or eQuote, or higher for a sell 
order or eQuote) than or equal to the New MPC Price will be posted to 
the Strategy Book at its original limit price or handled in accordance 
with subsection (c)(2)(ii)-(v) of Rule 518. The cLEP process will 
continue until no liquidity remains with an original limit price that 
is more aggressive than its MPC Price. At the conclusion of the cLEP 
process, any liquidity that has not been executed will be posted to the 
Strategy Book at its original limit price.
    The current rule provides that if the MPC Price is priced less 
aggressively than the limit price of the complex order or eQuote (i.e., 
the MPC Price is less than the complex order or eQuote's bid price for 
a buy, or the MPC Price is greater than the complex order or eQuote's 
offer price for a sell), or if the complex order is a market order, the 
complex order or eQuote will be displayed and/or executed up to its MPC 
Price. Any unexecuted portion of such a complex order or eQuote: (A) 
will be cancelled if it would otherwise be displayed or executed at a 
price that is outside the MPC Price, and (B) may be subject to the 
managed interest process described in 518(c)(4).\26\
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    \26\ See Exchange Rule 518.05(f)(6).
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    The Exchange now proposes to amend subsection(f)(6)(A) to provide 
that any unexecuted portion of such a complex order or eQuote will be 
subject to the cLEP as described in proposed subsection (e). The 
Exchange believes it to be in the best interest of the Member \27\ to 
seek liquidity via the Complex Liquidity Exposure Process as described 
above, rather than cancel any unexecuted portion of the order. The 
Exchange represents that it has the System capability and capacity to 
handle the potential cLEP Auctions that may occur under the Exchange's 
proposal.
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    \27\ 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 examples below demonstrate an order subject to the Complex 
Liquidity Exposure Process.
Example 1
MPC: $0.25

    The Exchange has one order resting on its Strategy Book: \28\ +1 
component A, - 1 component B:

    \28\ 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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Order 1 is to sell 10 at $1.90
    EBBO \29\ component A: 4.00(10) x 5.00(10)
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    \29\ The term ``EBBO'' means the best bid or offer on the Simple 
Order Book on the Exchange. See Exchange Rule 518(a)(10).
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    EBBO component B: 2.00(10) x

[[Page 10858]]

2.50(10)
    NBBO \30\ component A: 4.05(10) x 4.15(10)
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    \30\ The term ``NBBO'' means the national best bid or offer as 
calculated by the Exchange based on market information received by 
the Exchange from OPRA. See Exchange Rule 100.

    NBBO component B: 2.30(10) x 2.40(10)
    icEBBO:\31\ 1.50 (10) x 3.00 (10)
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    \31\ The Implied Complex MIAX Emerald Best Bid or Offer 
(``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).
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    cNBBO: \32\ 1.65 (10) x 1.85 (10)

    \32\ The Complex National Best Bid or Offer (``cNBBO'') is 
calculated using the NBBO for each component of a complex strategy 
to establish the best net bid and offeror a complex strategy. See 
Exchange Rule 518(a)(2).

    The Exchange receives a new order (Order 2) to buy 20 at $2.25.
    Order 2 buys 10 from Order 1 at $1.90 and initiates the Complex 
Liquidity Exposure Process: Order 2 reprices to its protected price of 
$2.10 (cNBO of 1.85 + 0.25) and is posted at that price on the Strategy 
Book and the Complex Liquidity Exposure Process Auction begins.
    During the cLEP Auction the Exchange receives a new order (Order 3) 
to sell 10 at $2.10. This order locks the current same side Book Price 
of $2.10. At the end of the auction, Order 3 sells 10 to Order 2 at 
$2.10, filling both Order 2 and Order 3.
Example 2
MPC: $0.25

    The Exchange has one order resting on its book in Strategy +1 
component A, -1 component B:

Order 1 is to sell 10 at $1.90
    EBBO component A: 4.00(10) x 5.00(10)
    EBBO component B: 2.00(10) x 2.50(10)
    NBBO component A: 4.05(10) x 4.15(10)
    NBBO component B: 2.30(10) x 2.40(10)
    icEBBO: 1.50 (10) x 3.00 (10)
    cNBBO: 1.65 (10) x 1.85 (10)

    The Exchange receives a new order (Order 2) to buy 20 at $2.25.
    Order 2 buys 10 from Order 1 at $1.90 and initiates the Complex 
Liquidity Exposure Process: Order 2 reprices to its protected price of 
$2.10 (cNBO of 1.85 + 0.25) and is posted at that price on the Strategy 
Book and the Complex Liquidity Exposure Process Auction begins.
    No new liquidity arrives during the Auction. At the end of the 
Auction, Order 2 reprices to its limit of $2.25 and is posted at that 
price on the Strategy Book, ending the Complex Liquidity Exposure 
Process.
Example 3
MPC: $0.25

    The Exchange has one order resting on its book in Strategy +1 
component A, -1 component B:

Order 1 is to sell 10 at $1.90
    EBBO component A: 4.00(10) x 5.00(10)
    EBBO component B: 2.00(10) x 2.50(10)
    NBBO component A: 4.05(10) x 4.15(10)
    NBBO component B: 2.30(10) x 2.40(10)
    icEBBO: 1.50 (10) x 3.00 (10)
    cNBBO: 1.65 (10) x 1.85 (10)

    The Exchange receives a new order (Order 2) to buy 20 at $2.45.
    Order 2 buys 10 from Order 1 at $1.90 and initiates the Complex 
Liquidity Exposure Process: Order 2 reprices to its protected price of 
$2.10 (cNBO of 1.85 + 0.25) and is posted at that price on the Strategy 
Book and the Complex Liquidity Exposure Process Auction begins.
    No new liquidity arrives during the Auction. At the end of the 
Auction, Order 2 reprices to its next protected price of $2.35 (prior 
protected price of 2.10 + 0.25) and is posted at that price on the 
Strategy Book and the Complex Liquidity Exposure Process Auction 
begins.
    No new liquidity arrives during the Auction. At the end of the 
Auction, Order 2 reprices to its limit of $2.45 and is posted at that 
price on the Strategy Book, ending the Complex Liquidity Exposure 
Process.
    Finally, the Exchange proposes to amend subsection (b) of 
Interpretation and Policy .05 to adopt new rule text stating that the 
Calendar Spread Variance (``CSV'') price protection applies only to 
strategies in American-style option classes. A Calendar Spread is a 
complex strategy consisting of the purchase of one call (put) option 
and the sale of another call (put) option overlying the same security 
that have different expirations but the same strike price. The CSV 
establishes a minimum trading price limit for Calendar Spreads. The 
maximum possible value of a Calendar Spread is unlimited, thus there is 
no maximum price protection for Calendar Spreads. The minimum possible 
trading price limit of a Calendar Spread is zero minus the pre-set 
value of $.10. This ensures that the Strategy doesn't trade more than 
$.10 away from its intrinsic value. (On a basic level the price of an 
American-style option is comprised of two components; intrinsic value 
and time value. If the strike price of a call option is $5.00 and the 
stock is priced at $6.00, there is $1.00 of intrinsic value in the 
price of the call option, anything above $1.00 represents the time 
value component.) An American-style option must be worth at least as 
much as its intrinsic value because the holder of the option can 
realize the intrinsic value by immediately exercising the option. In a 
Calendar Spread strategy comprised of American-style options, ceteris 
paribus, the far month should be worth more than the near month due to 
its having a longer time to expiration and therefore a greater time 
value. As European-style options \33\ may only be exercised on their 
expiration date, the relationship between the stock price, option 
price, and option strike price that exists for American-style options 
does not exist for European-style options. Therefore the CSV price 
protection would be ineffective and will not be available for 
strategies comprised of European-style options.
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    \33\ The term ``European-style option'' means an option contract 
that, subject to the provisions of Rule 700 (relating to the cutoff 
time for exercise instructions) and to the Rules of the Clearing 
Corporation, can be exercised only on its expiration date. See 
Exchange Rule 100.
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    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.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \34\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \35\ 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

[[Page 10859]]

general, to protect investors and the public interest.
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    \34\ 15 U.S.C. 78f(b).
    \35\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that its proposal to eliminate the Defined 
Time Period to allow Complex Auctions \36\ to occur throughout the 
trading session 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 removing an unnecessary 
barrier which prevented Complex Auctions from occurring with less than 
two seconds left in the trading session. The current anticipated 
duration of a Complex Auction is just 200 milliseconds. The Exchange 
believes it is in the best interest of the investor to allow for 
opportunities for price improvement throughout the entire trading 
session. In the event that a Member initiates a Complex Auction and no 
Members respond, the initiating Member is no worse off under the 
proposed rule than the Member would have been under the current rule 
which prevents the Member from even attempting to initiate a Complex 
Auction with less than two seconds left in the trading session. 
Additionally, a Member who initiates a Complex Auction will not forego 
the opportunity to trade with unrelated interest received during the 
Auction period, as this interest is included in the Complex 
Auction.\37\
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    \36\ Complex Auctions are described in Exchange Rule 518(d) and 
are separate and distinct from cPRIME Auctions which are described 
in Interpretation and Policy .12 of Exchange Rule 515A, MIAX Price 
Improvement Mechanism (``PRIME'') and PRIME Solicitation Mechanism.
    \37\ See supra note 14.
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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 of 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.
    Further, the Exchange believes that providing a TMPC Price during a 
Complex Auction or a cPRIME Auction protects investors against 
executions at potentially erroneous prices. Additionally, the Exchange 
believes that adding additional detail to the Exchange's rules 
regarding the operation of MIAX [sic] Options Price Collar, and 
including the method of calculating a TMPC Price for the limited 
circumstances when one is used, promotes just and equitable principles 
of trade and removes impediments to a free and open market by providing 
greater transparency concerning the operation of Exchange 
functionality.
    The Exchange also believes its proposal to adopt a Complex 
Liquidity Exposure Process promotes just and equitable principles of 
trade and removes impediments to and perfects the mechanisms of a free 
and open market and a national market system and, in general, protects 
investors and the public interest. The Complex Liquidity Exposure 
Process provides an additional opportunity for price discovery for 
those orders that would trade through their MPC Price. The Exchange 
believes its proposal promotes just and equitable principles of trade 
as it is in the best interest of the Member to seek liquidity for the 
unexecuted portion of the order which exceeds the order's MPC Price 
rather than to simply cancel the unexecuted portion back to the 
Member.\38\
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    \38\ The Exchange notes that Members who believe that an 
execution has occurred at an erroneous price may avail themselves of 
the protections provided in Exchange Rule 521, Nullification and 
Adjustment of Options Transactions Including Obvious Errors.
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    The Exchange also believes that its proposal to amend 
Interpretation and Policy .05(f) to reflect the changes resulting from 
the introduction of the Complex Liquidity Exposure Process promotes 
just and equitable principles of trade, and removes impediments to and 
perfects the mechanisms of a free and open market and a national market 
system and, in general, protects investors and the public interest by 
clearly describing the operation of the Exchange's functionality in the 
Exchange's rules. 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. 
Further, the Exchange's proposal to make non-substantive changes to re-
number certain paragraphs for internal consistency within the rule 
benefits investors and the public interest by providing clarity and 
accuracy in the Exchange's rules.
    Finally, the Exchange believes its proposal to clarify that the 
Calendar Spread Variance (CSV) price protection is available only for 
American-style options promotes just and equitable principles of trade, 
and removes impediments to and perfects the mechanisms of a free and 
open market and a national market system and, in general, and protects 
investors and the public interest by providing clarity and precision in 
the Exchange's rules. Given that European-style options may only be 
exercised on their expiration date, the CSV price protection would be 
ineffective for strategies comprised of European-style options. 
Therefore, under the Exchange's proposal, the CSV price protection will 
not be available for strategies comprised of European-style options. 
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. In 
particular, the Exchange believes that the proposed rule change 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.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
    The Exchange does not believe the proposed rule change will impose 
any burden on inter-market competition. The Exchange's proposal seeks 
to enhance complex order trading on the Exchange, and may potentially 
enhance competition among the various markets for complex order 
execution, potentially resulting in more active complex order trading 
on all exchanges. The changes to the Exchange rules concerning the use 
of a TMPC Price is designed to add additional detail to the rules to 
further clarify the operation of Exchange functionality and to minimize 
the potential for confusion.
    Additionally, the Exchange does not believe the proposed rule 
change will impose any burden on intra-market competition as the Rules 
apply equally to all Members of the Exchange.

[[Page 10860]]

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 \39\ and Rule 19b-4(f)(6) \40\ 
thereunder.
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    \39\ 15 U.S.C. 78s(b)(3)(A).
    \40\ 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 pursuant to Rule 19b-4(f)(6) under the 
Act \41\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \42\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. In its filing 
with the Commission, the Exchange has asked the Commission to waive the 
30-day operative delay to allow MIAX Emerald to harmonize its rules 
with those of MIAX Options. MIAX Emerald states that the proposal will 
implement functionality that is identical to functionality currently 
operative on MIAX Options \43\ and does not raise new regulatory 
issues. In addition, as discussed above, MIAX Emerald notes that MIAX 
Emerald and MIAX Options may have a number of Members in common, and 
that, where feasible, MIAX Emerald intends to implement similar 
behavior to provide consistency between MIAX Options and MIAX Emerald 
to avoid confusion among Members. The Commission believes that waiving 
the 30-day operative delay is consistent with the protection of 
investors and the public interest because it will allow MIAX Emerald to 
harmonize its rules with those of MIAX Options, thereby reducing the 
potential for confusion among market participants that are Members of 
both MIAX Emerald and MIAX Options. In addition, the Commission notes 
that the proposed rule change is based on substantively identical rules 
of MIAX Options and thus raises no new regulatory issues. Accordingly, 
the Commission hereby waives the operative delay and designates the 
proposal operative upon filing.\44\
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    \41\ 17 CFR 240.19b-4(f)(6).
    \42\ 17 CFR 240.19b-4(f)(6)(iii).
    \43\ See supra note 3, and accompanying text.
    \44\ 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-2019-14 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-2019-14. 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-2019-14 and should be submitted 
on or before April 12, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\45\
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    \45\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05468 Filed 3-21-19; 8:45 am]
 BILLING CODE 8011-01-P


