[Federal Register Volume 84, Number 163 (Thursday, August 22, 2019)]
[Notices]
[Pages 43829-43833]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-18075]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86699; File No. SR-EMERALD-2019-30]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Exchange Rule 520, Limitations on Orders

August 16, 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 August 7, 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 520, 
Limitations on Orders, to remove certain order entry restrictions 
prohibiting Electronic

[[Page 43830]]

Exchange Members \3\ from effectively operating as Market Makers \4\ on 
the Exchange.
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    \3\ The term ``Electronic Exchange Member'' or ``EEM'' means the 
holder of a Trading Permit who is not a Market Maker. Electronic 
Exchange Members are deemed ``members'' under the Exchange Act. See 
Exchange Rule 100.
    \4\ The term ``Market Makers'' refers to ``Lead Market Makers'', 
``Primary Lead Market Makers'' and ``Registered Market Makers'' 
collectively. See Exchange Rule 100.
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    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 520, Limitations on 
Orders, to remove certain order entry restrictions prohibiting EEMs 
from effectively operating as Market Makers on the Exchange. The 
proposed rule change is similar to the recent filing submitted by the 
Exchange's affiliate, Miami International Securities Exchange, LLC 
(``MIAX'').\5\ Currently, subsection (a)(1) of Exchange Rule 520 
provides that the Exchange shall designate classes in which EEMs may 
enter into the System,\6\ as principal or as agent, buy and sell limit 
orders in the same option series, for the account or accounts of the 
same or related beneficial owners. Currently, subsection (a)(2) of 
Exchange Rule 520 provides that, in all other classes, EEMs shall not 
enter into the System, as principal or agent, limit orders in the same 
options series, for the account or accounts of the same or related 
beneficial owners, in such a manner that the EEM or the beneficial 
owner(s) effectively is operating as a market maker by holding itself 
out as willing to buy and sell such option contract on a regular or 
continuous basis. Subsection (a)(2) further provides that in 
determining whether an EEM or beneficial owner effectively is operating 
as a Market Maker, the Exchange will consider, among other things: The 
simultaneous or near-simultaneous entry of limit orders to buy and sell 
the same option contract; the multiple acquisition and liquidation of 
positions in the same options series during the same day; and the entry 
of multiple limit orders at different prices in the same options 
series.
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    \5\ See Securities Exchange Act Release No. 86534 (July 31, 
2019), 84 FR 38316 (August 6, 2019(SR-MIAX-2019-33).
    \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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    The Exchange now proposes to amend Exchange Rule 520(a) to delete 
current subsection (a)(1) and to modify current subsection (a)(2) such 
that, for all option classes, the restrictions prohibiting EEMs from 
effectively operating as Market Makers will only be applicable to 
Priority Customer Orders \7\ since Priority Customer Orders have 
priority at any price over the bids and offers of non-Priority Customer 
Orders. Current Exchange Rule 520(a)(2) was adopted to limit the 
ability of Members that are not Market Makers to compete on 
preferential terms within the Exchange's System. Because Priority 
Customer Orders are provided with certain benefits such as priority of 
bids and offers, the Exchange believes that Priority Customer Orders 
should continue to be subject to the restrictions set out in current 
Exchange Rule 520(a)(2). However, because broker-dealer orders do not 
have priority over bids and offers of Market Makers, the Exchange no 
longer believes it is necessary to impose the restrictions set out in 
current Exchange Rule 520(a)(2) on the entry of broker-dealer orders. 
Similarly, because Voluntary Professional orders do not have priority 
over bids and offers of Market Makers, the Exchange does not believe it 
is necessary to impose the restrictions set out in current Exchange 
Rule 520(a)(2) on Voluntary Professional orders.\8\
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    \7\ The term ``Priority Customer Order'' means an order for the 
account of a Priority Customer. See Exchange Rule 100. The term 
``Priority Customer'' means a person or entity that (i) is not a 
broker or dealer in securities, and (ii) does not place more than 
390 orders in listed options per day on average during a calendar 
month for its own beneficial account(s). The number of orders shall 
be counted in accordance with Interpretation and Policy .01 of 
Exchange Rule 100.
    \8\ The Exchange notes that this rule change would only 
eliminate the restrictions of Exchange Rule 520(a)(2) in the manner 
proposed. Members would continue to remain subject to the 
requirements of MIAX Rule 303, incorporated by reference into the 
MIAX Emerald Rulebook (which requires Members to establish, maintain 
and enforce written policies and procedures reasonably designed, 
taking into consideration the nature of such Member's business, to 
prevent the misuse of material, nonpublic information by such Member 
or persons associated with such Member); MIAX Rule 301, 
Interpretation and Policy .02, also incorporated by reference into 
the MIAX Emerald Rulebook (which considers it conduct inconsistent 
with just and equitable principles of trade for any person 
associated with a Member who has knowledge of all material terms and 
conditions of: (a) An order and a solicited order, (b) an order 
being facilitated, or (c) orders being crossed, the execution of 
which are imminent, to enter, based on such knowledge, an order to 
buy or sell an option for the same underlying security as any option 
that is the subject of the order, or an order to buy or sell the 
security underlying such class, or any order to buy or sell any 
related instrument until (1) the terms of the order and any changes 
in the terms of the order of which the person associated with the 
Member has knowledge are disclosed to the trading crowd, or (2) the 
trade can no longer reasonably be considered imminent in view of the 
passage of time since the order was received); and Exchange Rule 
520(b) (which provides that EEMs may not execute as principal orders 
they represent as agent unless (i) agency orders are first exposed 
on the Exchange for at least one (1) second, (ii) the EEM has been 
bidding or offering on the Exchange for at least one (1) second 
prior to receiving an agency order that is executable against such 
bid or offer, or (iii) the EEM utilizes the MIAX Emerald PRIME or 
the PRIME Solicitation Mechanism pursuant to Rule 515A); and 
Exchange Rule 520(c) (which provides that EEMs may not execute 
orders they represent as agent on the Exchange against orders 
solicited from Members and non-member broker-dealers to transact 
with such orders unless the unsolicited order is first exposed on 
the Exchange for at least one (1) second, or the EEM utilizes the 
MIAX Emerald PRIME or the PRIME Solicitation Mechanism pursuant to 
Rule 515A).
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    Pursuant to this proposal, the Exchange will allow EEMs to enter 
buy and sell limit orders in the same options series for the account or 
accounts of the same beneficial owners, other than for the account(s) 
of Priority Customers, and will no longer need to designate specific 
classes for EEMs to engage in this type of activity. Accordingly, the 
Exchange believes that subsection (a)(1) of the current rule is no 
longer necessary and is redundant. Therefore, the Exchange proposes to 
delete subsection (a)(1). Similarly, the Exchange proposes to delete 
the beginning text of subsection (a)(2), which states ``In all other 
classes,'' as this rule text is no longer necessary in accordance with 
the Exchange's proposal to also delete subsection (a)(1).
    Additionally, the Exchange proposes to insert text into the first 
sentence of current Exchange Rule 520(a)(2) to specify that Priority 
Customer Orders would continue to be subject to the restrictions of 
that subsection. The Exchange proposes to delete the text in the first 
sentence of current subsection (a)(2) regarding limit orders entered by 
EEMs as principal or agent to clarify that all Priority Customer Orders 
are

[[Page 43831]]

subject to the restrictions of that subsection. The Exchange also 
proposes to amend the hierarchical scheme in the first sentence of 
current subsection (a)(2) to insert romanettes ``(i)'' and ``(ii)'' to 
clarify the two conditions that must exist for the entry of Priority 
Customer Orders to be subject to the restrictions of current subsection 
(a)(2). The Exchange further proposes to delete the text in the first 
sentence of current subsection (a)(2) that states ``or related'' when 
referring to the account or accounts of the same beneficial owner. The 
purpose of this change is to remove outdated rule text and to align the 
Exchange's proposed rule with a competing options exchange that has a 
rule consistent with this proposal.\9\ The Exchange believes this is a 
non-substantive change and is consistent with the Exchange's proposal 
to delete subsection (a)(1) of the rule. The Exchange does not believe 
that deleting the text ``or related'' will have any impact to Members 
as the remaining text continues to apply to ``the account or accounts 
of the same beneficial owner(s).'' The Exchange also proposes to 
capitalize the term ``Market Maker'' throughout current subsection 
(a)(2) to harmonize the rule text to the definition of Market Maker in 
Exchange Rule 100 and clarify that the rule text of current subsection 
(a)(2) refers to Market Makers on the Exchange. The Exchange proposes 
to delete the term ``Electronic Exchange Member'' in the second 
sentence of current subsection (a)(2) as the purpose of this proposed 
rule change is to remove the restrictions of current subsection (a)(2) 
as they currently pertain to EEMs effectively operating as Market 
Makers. Additionally, the Exchange proposes to replace the term 
``option contract'' throughout current subsection (a)(2) with the term 
``security'' or ``securities,'' where appropriately used in the 
singular or plural. The purpose of these proposed changes are to align 
the Exchange's proposed rule with competing options exchanges that have 
rules consistent with this proposal as well as with the Exchange's 
affiliate, MIAX.\10\
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    \9\ See Cboe Exchange, Inc. Rules, CHAPTER VI. DOING BUSINESS ON 
THE EXCHANGE FLOOR, Rule 6.8, Prohibition Against Customers 
Functioning as Market-Makers; Securities Exchange Act Release No. 
59700 (April 2, 2009), 67 FR 16246 (April 9, 2009)(SR-CBOE-2009-009) 
(Order Approving a Proposed Rule Change To Amend its Rules 
Prohibiting Members From Functioning as Market Makers).
    \10\ See id.; see also Nasdaq ISE, LLC, Options 3 Options 
Trading Rules, Section 22(a); Securities Exchange Act Release No. 
63017 (September 29, 2010), 75 FR 61795 (October 6, 2010)(SR-ISE-
2010-95); see also MIAX Rule 520(a).
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    Further, Exchange Rule 520(a)(2) currently provides that, in 
determining whether an EEM or beneficial owner effectively is operating 
as a Market Maker, the Exchange will consider, among other things: The 
simultaneous or near-simultaneous entry of limit orders to buy and sell 
the same option contract; the multiple acquisition and liquidation of 
positions in the same options during the same day; and the entry of 
multiple limit orders at different prices in the same options series. 
The Exchange proposes to remove the second condition pertaining to the 
multiple acquisition and liquidation of positions from its list of 
factors used for determining whether an EEM or beneficial owner is 
operating as a Market Maker. In light of the proliferation of day 
trading activity and the fact that such a prohibition does not exist on 
other markets,\11\ the Exchange no longer believes this activity should 
be considered a factor in determining whether an EEM or beneficial 
owner is effectively acting as a Market Maker.
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    \11\ See id.
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    With the proposed changes, Exchange Rule 520(a) would be amended to 
state as follows:

    Electronic Exchange Members shall not enter into the System 
Priority Customer Orders in the same options series if (i) the 
orders are limit orders for the account or accounts of the same 
beneficial owner(s) and (ii) the limit orders are entered in such a 
manner that the beneficial owner(s) effectively is operating as a 
Market Maker by holding itself out as willing to buy and sell such 
securities on a regular or continuous basis. In determining whether 
a beneficial owner effectively is operating as a Market Maker, the 
Exchange will consider, among other things, the simultaneous or 
near-simultaneous entry of limit orders to buy and sell the same 
security and the entry of multiple limit orders at different prices 
in the same security.

    Accordingly, the restrictions contained in current Exchange Rule 
520(a)(2) against entering limit orders into the System would no longer 
be applicable to EEMs, except when entering Priority Customer Orders 
for account of the same beneficial owner. Further, current Exchange 
Rule 520(a)(1) would be deleted in its entirety.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \12\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \13\ 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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    \12\ 15 U.S.C. 78f(b).
    \13\ 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 removing the prohibition 
on EEMs from entering limit orders in such a manner to effectively 
operate as Market Makers will more freely permit the entry of orders by 
EEMs, resulting in more orders on the Exchange. The increase in more 
orders on the Exchange should increase liquidity on the Exchange, which 
would benefit all market participants.
    The Exchange believes its proposal to prohibit EEMs from entering 
Priority Customer Orders for the account of the same beneficial owner 
such that the beneficial owner is effectively operating as a Market 
Maker continues to promote just and equitable principles of trade 
because Priority Customer Orders have priority over the bids and offers 
of non-Priority Customer Orders. Because Priority Customers are 
provided with certain benefits such as priority of bids and offers, the 
Exchange believes its proposal to continue to subject Priority Customer 
Orders to the restrictions of current Exchange Rule 520(a)(2) will 
protect investors and the public interest. The Exchange believes its 
proposal to remove the restrictions of current subsection (a)(2) on 
EEMs entering broker-dealer and Voluntary Professional orders in such a 
manner that the EEM is effectively operating as a Market Maker promotes 
just and equitable principles of trade because those orders do not 
receive the same benefits as Priority Customer Orders, such as priority 
of bids and offers.
    Similarly, the Exchange believes its proposal to delete subsection 
(a)(1) and specific text in subsection (a)(2) 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 removing 
provisions of the rule text that no longer apply in light of the 
Exchange's proposal to allow EEMs to

[[Page 43832]]

enter buy and sell limit orders in the same options series for the 
account or accounts of the same beneficial owners, other than for the 
account(s) of Priority Customers. Accordingly, the Exchange will no 
longer need to designate specific classes for EEMs to engage in this 
type of market making activity pursuant to subsection (a)(1). This 
proposed 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.
    The Exchange believes its proposal to remove the second condition 
pertaining to the multiple acquisition and liquidation of positions 
from its list of factors used for determining whether an EEM or 
beneficial owner is operating as a Market Maker 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 because of the 
proliferation of day trading activity and the fact that such a 
prohibition does not exist on other markets.\14\
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    \14\ See supra notes 9 and 10.
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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.
Intra-Market Competition
    Specifically, the Exchange believes that removing the prohibition 
on EEMs from entering limit orders such that EEMs may enter limit 
orders in such a manner to effectively operate as Market Makers will 
further promote competition on the Exchange, increase order flow and 
liquidity, leading to tighter, more efficient markets to the benefit of 
all market participants.
    The Exchange believes that the prohibition on EEMs from entering 
Priority Customer Orders for the account of the same beneficial owner 
such that the beneficial owner is effectively operating as a Market 
Maker does not impose any burden on competition that is not necessary 
or appropriate because Priority Customers are provided with certain 
benefits such as priority of bids and offers that are not shared by 
other market participants.
Inter-Market Competition
    The Exchange believes that its proposal to remove the prohibition 
on EEMs from entering limit orders such that EEMs may enter limit 
orders in such a manner to effectively operate as Market Makers will 
not impose any burden on intermarket competition not necessary or 
appropriate in furtherance of the purposes of the Act because of the 
proliferation of day trading activity and the fact that such a 
prohibition does not exist on other markets.\15\
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    \15\ Id.
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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 from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-
4(f)(6) thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
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 \18\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \19\ 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 requested that the Commission waive the 30-day operative delay so 
that the proposed rule change may become operative upon filing. Waiver 
of the operative delay would allow the Exchange to immediately 
harmonize with similar rules on other exchanges that allow EEMs to 
effectively operate as Market Makers. Therefore, the Commission 
believes that waiver of the 30-day operative delay is consistent with 
the protection of investors and the public interest. Accordingly, the 
Commission hereby waives the operative delay and designates the 
proposed rule change operative upon filing.\20\
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 17 CFR 240.19b-4(f)(6)(iii).
    \20\ For purposes only of waiving the 30-day operative delay, 
the Commission also has 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 change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. 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-2019-30 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-2019-30. 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

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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-2019-30, and should be submitted on or before September 12, 
2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-18075 Filed 8-21-19; 8:45 am]
 BILLING CODE 8011-01-P


