[Federal Register Volume 85, Number 131 (Wednesday, July 8, 2020)]
[Notices]
[Pages 41075-41077]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14630]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89212; File No. SR-MIAX-2020-20]


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

July 1, 2020.
    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 June 25, 2020, Miami International Securities Exchange, LLC 
(``MIAX'' or the ``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 518, 
Complex Orders.
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/ at MIAX'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 adopt a new Complex Auction-on-Arrival-Only (``cAOAO'') order type 
and to amend relevant portions of the rule to accurately describe the 
behavior and operation of a cAOAO order.
    Currently, the Exchange offers a Complex Auction-on-Arrival or 
``cAOA'' order that is a complex order designated to be placed into a 
Complex Auction upon receipt or upon evaluation. Complex orders that 
are not designated as cAOA will, by default, not initiate a Complex 
Auction upon arrival, but except as described in Exchange Rule 518 will 
be eligible to participate in a Complex Auction that is in progress 
when such complex order arrives or if placed on the Strategy Book may 
participate in or may initiate a Complex Auction, following evaluation 
conducted by the System.\3\ Complex orders that are designated as cIOC 
\4\ or cAOC \5\ are not eligible for cAOA designation, and their 
evaluation will not result in the initiation of a Complex Auction 
either upon arrival or if eligible when resting on the Strategy 
Book.\6\ Any unexecuted balance of a cAOA order remaining upon the 
completion of the auction process is eligible \7\ to be placed on the 
Strategy Book.
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    \3\ See Exchange Rule 518(b)(2)(i); The term ``System'' means 
the automated trading system used by the Exchange for the trading of 
securities. See Exchange Rule 100.
    \4\ A Complex Immediate-or-Cancel or ``cIOC'' order is a complex 
order that is to be executed in whole or in part upon receipt. Any 
portion not so executed is cancelled. See Exchange Rule 518(b)(4).
    \5\ 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 of the 
event. cAOC orders are not displayed to any market participant, and 
are not eligible for trading outside of the event. A cAOC order with 
a size greater than the aggregate auctioned size (as defined in Rule 
518(d)(4)) will be capped for allocation purposes at the aggregate 
auctioned size. See Exchange Rule 518(b)(3).
    \6\ See Exchange Rule 518(b)(2)(ii); The ``Strategy Book'' is 
the Exchange's electronic book of complex orders and complex quotes. 
See Exchange Rule 518(a)(17).
    \7\ Any unexecuted portion of a Complex Auction-eligible order 
remaining at the end of the Response Time Interval will either be: 
(A) Evaluated to determine if it may initiate another Complex 
Auction; or (B) placed on the Strategy Book and ranked pursuant to 
subparagraph (c)(3) of Exchange Rule 518. See Exchange Rule 
518(d)(5)(ii).
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    The Exchange now proposes to adopt a new Complex Auction-on-
Arrival-Only or ``cAOAO'' order type. A cAOAO order is a complex order 
that will be placed into an auction as described in Rule 518(d) if 
eligible, and cancelled if not eligible. Any unexecuted balance of a 
cAOAO order remaining upon the completion of the auction process is 
also cancelled. Similar to Immediate-or-Cancel orders, the cAOAO order 
type is designed to assist Members \8\ in achieving an expeditious 
execution by exposing eligible Complex Orders for potential price 
improvement before cancelling any unexecuted balance.
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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.
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Example 1
    Suppose the following market in complex strategy ABC:

MIAX dcMBBO: \9\ 1.00-1.10 (10 x 10)
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    \9\ The dcMBBO is calculated using the best displayed price for 
each component of a complex strategy from the Simple Order Book. For 
stock-option orders, the dcMBBO for a complex strategy will be 
calculated using the Exchange's best displayed bid or offer in the 
individual option component(s) and the NBBO in the stock component. 
See Exchange Rule 518(a)(8).
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A cAOAO order is entered to buy 20 @1.07.
    A Request For Response (RFR) message is sent identifying the 
complex strategy, the price, quantity of matched complex quotes and/or 
orders at that price, imbalance quantity and side of the market of the 
Complex Auction-eligible order, in accordance to Rule 518(d)(2).\10\
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    \10\ An auction is commenced as the cAOAO order satisfies the 
URIP requirement described in Exchange Rule 518(c)(5)(i).
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    During the Response Time Interval, the following RFR Responses \11\ 
are received:
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    \11\ Members may submit a response to the RFR message (an ``RFR 
Response'') during the Response Time Interval. RFR Responses may be 
submitted in $0.01 increments. RFR Responses must be a cAOC order or 
a cAOC eQuote as defined in Interpretations and Policies .02 of 
Exchange Rule 518 and may be submitted on either side of the market. 
See Exchange Rule 518(d)(4).


[[Page 41076]]


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Response 1: Sell 10 @1.07
Response 2: Sell 5 @1.06
    At the conclusion of the Response Time Interval, the cAOAO order 
trades 15 @1.07.
    The remaining quantity of 5 contracts from the cAOAO order is then 
cancelled.
    The Exchange also proposes to amend subsection (b), Types of 
Complex Orders, to adopt a new Complex Auction-on-Arrival Only Order 
type to be included among other complex order types that may be 
submitted to the Exchange as provided by Exchange Rule 518(b)(1). 
Certain provisions in current Exchange Rule 518 that apply to cAOA 
orders would similarly apply to cAOAO orders. Therefore, the Exchange 
proposes to amend the Rule to incorporate cAOAO orders as necessary. 
Specifically, the Exchange proposes to amend subsection (c)(6) to 
provide that complex orders may be submitted as market orders and may 
be designated as cAOA or cAOAO. Additionally, the Exchange proposes to 
amend subsection (c)(6)(i) to provide that complex market orders 
designated as cAOA or cAOAO may initiate a Complex Auction upon arrival 
or join a Complex Auction in progress. Finally, the Exchange proposes 
to amend subsection (c)(6)(ii) to provide that complex market orders 
not designated as cAOA or cAOAO will trade immediately with any contra-
side complex orders or quotes, or against the individual legs, up to an 
including the dcMBBO, and may be subject to the managed interest 
process described in subparagraph (c)(4) of Exchange Rule 518, and the 
evaluation process described in subparagraph (c)(5) of Exchange Rule 
518.
    The Exchange also proposes to amend subsection (d)(1) to provide 
that, in order to initiate a Complex Auction upon receipt, a Complex 
Auction-eligible order must be designated as cAOA or cAOAO and must 
meet the criteria described in Interpretations and Policies .03(b) of 
Exchange Rule 518 regarding the URIP.\12\ A complex order not 
designated as cAOA or cAOAO (i.e., a complex order considered by 
default to be ``do not auction on arrival'' by the System) may (i) join 
a Complex Auction in progress at the time of receipt; (ii) become a 
Complex Auction-eligible order after resting on the Strategy Book and 
may then automatically join a Complex Auction then in effect for the 
complex strategy; or (iii) initiate a Complex Auction if it meets the 
criteria described in Interpretations and Policies .03(a) of Exchange 
Rule 518 regarding the IIP or .03(c) of Exchange Rule 518 regarding the 
RIP. Complex orders processed through a Complex Auction may be executed 
without consideration to prices of the same complex interest that might 
be available on other exchanges.
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    \12\ Upon receipt of a complex order when the complex strategy 
is open, the System will calculate an Upon Receipt Improvement 
Percentage (``URIP'') value, which is a defined percentage of the 
current dcMBBO bid/ask differential. Such percentage will be defined 
by the Exchange and communicated to Members via Regulatory Circular. 
If a Complex Auction-eligible order is priced equal to, or improves, 
the URIP value and is also priced to improve other complex orders 
and/or quotes resting at the top of the Strategy Book, the complex 
order will be eligible to initiate a Complex Auction. See 
Interpretations and Polices .03(b) of Exchange Rule 518.
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    The Exchange also proposes to amend subsection (d)(9) to provide 
that a complex order not designated as cAOA or cAOAO will either be (i) 
executed in full at a single price or at multiple prices up to its 
limit price, with remaining contracts placed on the Strategy Book; (ii) 
executed until the order exhausts the opposite side dcMBBO, at which 
time the order will be placed on the Strategy Book and evaluated for 
Complex Auction eligibility, or (iii) cancelled.
    The Exchange believes the proposed changes will allow the Exchange 
to effectively implement the proposed cAOAO order type.
    The Exchange will announce the implementation date of the proposed 
rule change by Regulatory Circular to be published no later than 90 
days following the operative date of the proposed rule. The 
implementation date will be no later than 90 days following the 
issuance of the Regulatory Circular.
2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \13\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \14\ 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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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that its proposal to adopt a cAOAO order type 
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. The Exchange believes it is reasonable to provide an 
opportunity for investors to seek to have their complex orders exposed 
for an opportunity for price improvement and to also provide investors 
the option to have such orders canceled if they are not filled. The 
Exchange believes its proposal to amend other portions of Exchange Rule 
518 to accurately describe the operation and behavior of a cAOAO order 
benefits investors and the public interest by providing information 
that investors can use to ascertain the suitability of an order type 
relative to their investment objectives.
    The Exchange believes its proposed rule change 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 
providing an opportunity for investors to have their complex orders 
exposed for an opportunity for price improvement. Furthermore, the 
Exchange believes that it is appropriate to give Members the option to 
have such orders canceled if they are not eligible to be posted.

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 that the proposed rule change will 
impose any burden on intra-market competition but will rather promote 
inter-market competition as the Exchange is proposing an order type 
that already exists on at least one other options exchange.\15\ The 
Exchange notes that it operates in a highly competitive market in which 
market participants can readily direct order flow to competing venues 
who offer similar functionality. The Exchange believes the proposed 
rule change will enhance competition among the various markets for 
Complex Order execution, potentially resulting in more active Complex 
Order trading on all exchanges.
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    \15\ See Nasdaq ISE Exchange Rules, Options 3, Section 
14(b)(14).
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    The Exchange does not believe that the proposed rule change will 
impose any burden on intra-market competition as the Rules of the 
Exchange apply

[[Page 41077]]

equally to all Exchange Members, and any Member of the Exchange may use 
the cAOAO order type.

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 \16\ and Rule 19b-4(f)(6) \17\ 
thereunder.
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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) 
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-MIAX-2020-20 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MIAX-2020-20. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MIAX-2020-20 and should be submitted on 
or before July 29, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14630 Filed 7-7-20; 8:45 am]
BILLING CODE 8011-01-P


