[Federal Register Volume 85, Number 190 (Wednesday, September 30, 2020)]
[Notices]
[Pages 61782-61787]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-21554]



[[Page 61782]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89991; File No. SR-MIAX-2020-31]


Self-Regulatory Organizations; Miami International Securities 
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Exchange Rule 515A, MIAX Price 
Improvement Mechanism (``PRIME'') and PRIME Solicitation Mechanism To 
Adopt a New ISO Prime Order Type

September 24, 2020.
    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 September 17, 2020, Miami International 
Securities Exchange, LLC (``MIAX Options'' 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend Exchange Rule 515A, MIAX 
Price Improvement Mechanism (``PRIME'') and PRIME Solicitation 
Mechanism.
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/ at MIAX Options' 
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 515A, MIAX Price 
Improvement Mechanism (``PRIME'') and PRIME Solicitation Mechanism, to 
adopt a new ISO PRIME order type.
    PRIME is a process by which a Member \3\ may electronically submit 
for execution (``Auction'') an order it represents as agent (``Agency 
Order'') against principal interest, and/or an Agency Order against 
solicited interest.\4\ A Member (the ``Initiating Member'') may 
initiate an Auction provided all of the following are met: (i) The 
Agency Order is in a class designated as eligible for PRIME as 
determined by the Exchange and within the designated Auction order 
eligibility size parameters as such size parameters are determined by 
the Exchange; (ii) the Initiating Member must stop the entire Agency 
Order as principal or with a solicited order at the better of the NBBO 
\5\ or the Agency Order's limit price (if the order is a limit order); 
and (iii) with respect to Agency Orders that have a size of less than 
50 contracts, if at the time of receipt of the Agency Order, the NBBO 
has a bid/ask differential of $0.01, the System \6\ will reject the 
Agency Order.\7\
---------------------------------------------------------------------------

    \3\ 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.
    \4\ See Exchange Rule 515A(a).
    \5\ 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.
    \6\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \7\ See Exchange Rule 515A(a)(1).
---------------------------------------------------------------------------

    An Intermarket Sweep Order (``ISO'') is defined in Exchange Rule 
1400(i) as a limit order for an options series that, simultaneously 
with the routing of the ISO, one or more additional ISOs, as necessary, 
are routed to execute against the full displayed size of any Protected 
Bid,\8\ in the case of a limit order to sell, or any Protected 
Offer,\9\ in the case of a limit order to buy, for the options series 
with a price that is superior to the limit price of the ISO. A Member 
may submit an Intermarket Sweep Order to the Exchange only if it has 
simultaneously routed one or more additional Intermarket Sweep Orders 
to execute against the full displayed size of any Protected Bid, in the 
case of a limit order to sell, or Protected Offer, in the case of a 
limit order to buy, for an options series with a price that is superior 
to the limit price of the Intermarket Sweep Order. An ISO may be either 
an Immediate-Or-Cancel Order \10\ or an order that expires on the day 
it is entered.\11\
---------------------------------------------------------------------------

    \8\ A ``Protected Bid'' or ``Protected Offer'' means a Bid or 
Offer in an options series, respectively, that: (a) Is disseminated 
pursuant to the OPRA Plan; and (b) is the Best Bid or Best Offer, 
respectively, displayed by an Eligible Exchange. See Exchange Rule 
1400(p).
    \9\ Id.
    \10\ An immediate-or-cancel order is an order that is to be 
executed in whole or in part upon receipt. Any portion not so 
executed is cancelled. An immediate-or-cancel order is not valid 
during the opening rotation process described in Rule 503. See 
Exchange Rule 516(c).
    \11\ See Exchange Rule 1400(i).
---------------------------------------------------------------------------

    The Exchange now proposes to implement an ISO PRIME order type 
(``ISO PRIME'') that will allow the submission of an ISO into the 
PRIME. Specifically, an ISO PRIME is the transmission of two orders for 
crossing pursuant to Rule 515A, MIAX Price Improvement Mechanism 
(``PRIME'') and PRIME Solicitation Mechanism, without regard for better 
priced Protected Bids or Protected Offers because the Member 
transmitting the ISO PRIME order to the Exchange has, simultaneously 
with the submission of the ISO PRIME order, routed one or more ISOs, as 
necessary, to execute against the full displayed size of any Protected 
Bid or Protected Offer that is superior to the starting PRIME Auction 
price, and has swept all interest in the Exchange's Book \12\ priced 
better than the proposed Auction starting price. Any execution(s) 
resulting from such sweeps shall accrue to the PRIME order, meaning 
that any executions will be given to the agency side of the order.
---------------------------------------------------------------------------

    \12\ The term ``Book'' means the electronic book of buy and sell 
orders and quotes maintained by the System. See Exchange Rule 100.
---------------------------------------------------------------------------

    The Exchange will accept an ISO PRIME provided that the order 
adheres to the current PRIME order acceptance criteria outlined above, 
except that the initiating Member is only required to stop the entire 
Agency Order as principal or with a solicited order at the Agency 
Order's limit price (if the order is a limit order). Therefore, a 
Member (the ``Initiating Member'') may initiate an Auction provided 
that: (i) The Agency Order is in a class designated as eligible for 
PRIME as determined by the Exchange and within the designated Auction 
order eligibility size parameters as such size parameters are 
determined by the Exchange; and (ii) the Initiating Member must stop 
the entire Agency Order as principal or with a solicited order at the 
Agency Order's limit price (if the order is a limit order). Also, with

[[Page 61783]]

respect to Agency Orders that have a size of less than 50 contracts, if 
at the time of receipt of the Agency Order, the NBBO has a bid/ask 
differential of $0.01, the System will reject the Agency Order.\13\
---------------------------------------------------------------------------

    \13\ See Exchange Rule 515A(a)(1).
---------------------------------------------------------------------------

    The Exchange will process the ISO PRIME order in the same manner 
that it currently processes PRIME Orders, except that it will initiate 
a PRIME Auction without protecting away prices. The Member transmitting 
the ISO PRIME order will bear the responsibility to clear all better 
priced interest away simultaneously with the submission of the ISO 
PRIME order to the Exchange.
    The Exchange also proposes to adopt a new allocation methodology 
specifically for Market Maker \14\ interest that is executed during an 
ISO PRIME Auction. Currently, allocation in a PRIME Auction follows the 
order allocation methodology defined in Exchange Rule 515A(a)(2)(iii), 
which provides that Priority Customer \15\ orders resting on the Book 
before, or that are received during, the Response Time Interval \16\ 
and Priority Customer RFR \17\ responses shall, collectively have first 
priority to trade against the Agency Order. The allocation of an Agency 
Order against the Priority Customer orders resting in the Book, 
Priority Customer orders received during the Response Time Interval, 
and Priority Customer RFR responses shall be in the sequence in which 
they are received by the System.\18\ Market Maker priority quotes \19\ 
and RFR responses from Market Makers with priority quotes will 
collectively have second priority. The allocation of Agency Orders 
against these contra sided quotes and RFR responses shall be on a size 
pro rata basis \20\ as defined in Rule 514(c)(2).\21\ Professional 
Interest \22\ orders resting in the Book, Professional Interest orders 
placed in the Book during the Response Time Interval, Professional 
Interest quotes, and Professional Interest RFR responses will 
collectively have third priority. The allocation of Agency Orders 
against these contra sided orders and RFR Responses shall be on a size 
pro rata basis as defined in Rule 514(c)(2).\23\
---------------------------------------------------------------------------

    \14\ The term ``Market Makers'' refers to ``Lead Market 
Makers'', ``Primary Lead Market Makers'' and ``Registered Market 
Makers'' collectively. See Exchange Rule 100.
    \15\ 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). See 
Exchange Rule 100.
    \16\ The ``Response Time Interval'' means the period of time 
during which responses to the RFR may be entered. The RFR timer is 
100 milliseconds. See MIAX Options Regulatory Circular 2017-30, 
Change to MIAX Options PRIME Timer Effective June 16, 2017 (June 15, 
2017) available at https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Options_RC_2017_30.pdf.
    \17\ When the Exchange receives a properly designated Agency 
Order for auction processing, a Request for Responses (``RFR'') 
detailing the option, side, size, and initiating price will be sent 
to all subscribers of the Exchange's data feeds. See Exchange Rule 
515A(a)(2)(i)(B).
    \18\ See Exchange Rule 515A(a)(2)(iii)(B).
    \19\ To be considered a priority quote, at the time of 
execution, each of the following standards must be met: (A) The bid/
ask differential of a Market Maker's two-sided quote pair must be 
valid width (no wider than the bid/ask differentials outlined in 
Exchange Rule 603(b)(4)); (B) the initial size of both or the Market 
Maker's bid and the offer must be in compliance with the 
requirements of Exchange Rule 604(b)(2); (C) the bid/ask 
differential of a Market Maker's two-sided quote pair must meet the 
priority quote width requirements defined in Exchange Rule 
517(b)(1)(ii) for each option; and (D) either of the following are 
true: 1. At the time a locking or crossing quote or order enters the 
System, the Market Maker's two-sided quote pair must be valid width 
for that option and must have been resting on the Book; or 2. 
Immediately prior to the time the Market Maker enters a new quote 
that locks or crosses the MBBO, the Market Maker must have had a 
valid width quote already existing (i.e., exclusive of the Market 
Maker's new marketable quote or update) among his two-sided quotes 
for that option. See Exchange Rule 517(b). The term ``MBBO'' means 
the best bid or offer on the Exchange. See Exchange Rule 100.
    \20\ Exchange Rule 514(c)(2), Pro Rata Allocation, states that, 
under this method, resting quotes and orders on the Book are 
prioritized according to price and time. If there are two or more 
quotes or orders at the best price then the contracts are allocated 
proportionally according to size (in a pro-rata fashion). If the 
executed quantity cannot be evenly allocated, the remaining 
contracts will be distributed one at a time based upon price-size-
time priority.
    \21\ See Exchange Rule 515A(a)(2)(iii)(C).
    \22\ The term ``Professional Interest'' means (i) an order that 
is for the account of a person or entity that is not a Priority 
Customer, or (ii) an order or non-priority quote for the account of 
a Market Maker. See Exchange Rule 100.
    \23\ See Exchange Rule 515A(a)(2)(iii)(D).
---------------------------------------------------------------------------

    The Exchange now proposes to amend subsection (C) to adopt a new 
allocation for Market Maker priority quotes at the conclusion of an 
Auction for an ISO PRIME order. The proposed rule text will state that 
at the conclusion of an Auction for an ISO PRIME order, the allocation 
of Agency Orders at the final Auction price shall be: (i) To Market 
Makers that traded in the associated ISO sweep, for up to the full size 
of such Market Makers' refreshed priority quotes, as well as any RFR 
responses submitted by those Market Makers; (ii) to those Market Makers 
with quotes at the Auction start price that were resting and any RFR 
responses submitted by those Market Makers at the final Auction price; 
and (iii) to all other Market Makers that did not trade in the 
associated ISO sweep and did not have resting quotes at the Auction 
start price with joining interest at the final Auction price that was 
submitted during the Auction. If two or more Market Makers are entitled 
to priority under (i), (ii) or (iii) above, priority will be afforded 
to the extent practicable on a pro-rata basis.
    This can be demonstrated in the following examples.
    Example 1--(Current PRIME Allocation) Single Price Submission, 
Priority Customer has first priority and Market Maker with priority 
quotes has second priority
ABBO \24\ = $1.15--$1.25 100 x 100
---------------------------------------------------------------------------

    \24\ The term ``ABBO'' or ``Away Best Bid or Offer'' means the 
best bid(s) or offer(s) disseminated by other Eligible Exchanges 
(defined in Rule 1400(g)) and calculated by the Exchange based on 
market information received by the Exchange from OPRA. See Exchange 
Rule 100.
---------------------------------------------------------------------------

    MM3 = $1.15--$1.25 100 x 100 (priority quote) \25\
---------------------------------------------------------------------------

    \25\ The term ``priority quote'' has the meaning set forth in 
Rule 517(b)(1)(i). See Exchange Rule 100. See also supra note 19.
---------------------------------------------------------------------------

MBBO = $1.15--$1.25 100 x 100
NBBO = $1.15--$1.25 200 x 200

Agency Order to buy 50 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts with a single 
stop price of $1.20
RFR sent identifying the option, side and size, with initiating price 
of $1.20
(Auction Starts)

     @10 milliseconds MM1 response received (did not have a 
priority quote on the Book), AOC eQuote to Sell 10 at $1.18
     @30 milliseconds BD4 response received, AOC order to Sell 
10 at $1.18
     @50 milliseconds Priority Customer response received, AOC 
order to Sell 15 at $1.18
     @75 milliseconds MM3 response received, AOC eQuote to Sell 
20 at $1.18
     100 milliseconds (Auction Ends)

    Under this scenario the Agency Order would be executed as follows:

    1. 15 contracts trade with Priority Customer @$1.18
    2. 20 contracts trade with MM3 @$1.18
    3. 8 contracts trade with MM1 @$1.18
    4. 7 contracts trade with BD4 @$1.18 (This fills the entire Agency 
Order and Contra Order does not receive an execution)

Example 2--(Proposed ISO PRIME Allocation) Single Price Submission, 
Priority Customer has first priority and Market Maker (who initially 
traded as part of the associated ISO Sweep) with joining quotes at the 
final Auction price has second priority

[[Page 61784]]

ABBO = $1.15--$1.17 200 x 200
MM3 = $1.15--$1.17 100 x 10 (priority quote)
MBBO = $1.15--$1.17 100 x 10
NBBO = $1.15--$1.17 300 x 210

ISO PRIME Agency Order to buy 50 contracts with a limit price of $1.20 
is received.
It will ISO Sweep resting liquidity priced better than the Auction 
start price of $1.20.

    Under this scenario the Agency Order would be executed as follows:

    1. 10 contracts trade with MM3 @1.17
Contemporaneously the balance of the ISO PRIME Agency Order initiates a 
PRIME Auction to buy 40 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts with a single 
stop price of $1.20
RFR sent identifying the option, side and size, with initiating price 
of $1.20
    (Auction Starts)


 @10 milliseconds MM1 response received, AOC eQuote to Sell 10 
at $1.18
 @30 milliseconds BD4 response received, AOC order to Sell 10 
at $1.18
 @40 milliseconds Priority Customer response received, AOC 
order to Sell 15 at $1.18
 @65 milliseconds MM3 (who traded as part of the initial 
sweep), response received, AOC eQuote to Sell 40 at $1.18
 100 milliseconds (Auction Ends)

    Under this scenario the Agency Order would be executed as follows:

2. 15 contracts trade with Priority Customer @$1.18
3. 25 contracts trade with MM3 @$1.18 (This fills the entire Agency 
Order and Contra Order does not receive an execution)

    Example 3--(Proposed ISO PRIME Allocation) Single Price Submission, 
Market Maker who has a joining quote at a better price has priority and 
Market Maker (who has a resting quote at the Auction start price) that 
submits an RFR response at the final Auction price has priority
ABBO = $1.15--$1.17 100 x 100
MM1 = $1.15--$1.17 10 x 10 (priority quote)
MM2 = $1.15--$1.20 20 x 20 (priority quote)
MM3 = $1.15--$1.21 20 x 20 (priority quote)
MBBO = $1.15--$1.17 50 x 10
NBBO = $1.15--$1.17 150 x 110

ISO PRIME Agency Order to buy 50 contracts with a limit price of $1.20 
is received.
It will ISO Sweep resting liquidity priced better than the Auction 
start price of $1.20.

    Under this scenario the Agency Order would be executed as follows:

    1. 10 contracts trade with MM1 @$1.17
Contemporaneously the balance of the ISO PRIME Agency Order initiates a 
PRIME Auction to buy 40 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts with a single 
stop price of $1.20
RFR sent identifying the option, side and size, with initiating price 
of $1.20
    (Auction Starts)

     @10 milliseconds MM4 response received, AOC eQuote to Sell 
30 at $1.18
     @30 milliseconds MM3 response received, AOC eQuote to Sell 
20 at $1.19
     @75 milliseconds MM2 (who has a resting quote at the 
Auction Start Price), response received, AOC eQuote to Sell 20 at $1.19
     100 milliseconds (Auction Ends)

    Under this scenario, the Agency Order would be executed as follows:

    2. 30 contracts trade with MM4 @$1.18
    3. 10 contracts trade with MM2 @$1.19 (This is the final Auction 
price and fills the entire Agency Order and Contra Order and MM3 does 
not receive an execution)

Example 4--(Proposed ISO PRIME Allocation) Single Price Submission, 
Priority Customer has first priority and Market Maker (who initially 
traded as part of an ISO Sweep) with joining quotes has second 
priority, Market Maker with joining interest that is received during 
the associated ISO PRIME Auction that did not trade in the associated 
ISO sweep and did not have resting interest at the Auction start price 
receives last priority among Market Makers
ABBO = $1.15--$1.17 200 x 200
MM3 = $1.15--$1.17 100 x 10 (priority quote)
MBBO = $1.15--$1.17 100 x10
NBBO = $1.15--$1.17 300 x 210

ISO PRIME Agency Order to buy 50 contracts with a limit price of $1.20 
is received.
It will ISO Sweep resting liquidity priced better than the Auction 
start price of $1.20.

    Under this scenario, the Agency Order would be executed as follows:

    1. 10 contracts trade with MM3 @1.17

Contemporaneously, the balance of the ISO PRIME Agency Order initiates 
a PRIME Auction to buy 40 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts with a single 
stop price of $1.20
RFR sent identifying the option, side and size, with an initiating 
price of $1.20

    (Auction Starts)
    (Auction Starts)
     @10 milliseconds MM1 response received (did not have a 
priority quote on the Book), AOC eQuote to Sell 20 at $1.18
 @30 milliseconds BD4 response received, AOC order to Sell 20 
at $1.18
 @40 milliseconds Priority Customer response received, AOC 
order to Sell 15 at $1.18
 @65 milliseconds MM3 (who traded as part of the initial 
sweep), quote response received, AOC eQuote to Sell 20 at $1.18
 @100 milliseconds (Auction Ends)

    Under this scenario, the Agency Order would be executed as follows:

    2. 15 contracts trade with Priority Customer @$1.18
    3. 20 contracts trade with MM3 @$1.18
    4. 3 contracts trade with MM1 @$1.18
    5. 2 contracts trade with BD4 @$1.18 (This fills the entire Agency 
Order and the Contra Order does not receive an execution)

    The Exchange believes this allocation methodology, used only for 
Market Maker priority interest and only at the conclusion of an ISO 
PRIME Auction, will provide an additional incentive for Market Makers 
to provide their most aggressive quotes to the market throughout the 
entire trading session.
    The Exchange also proposes to amend subsection (J) which currently 
states, notwithstanding (a)(2)(iii)(C), (D) above, if the Auction does 
not result in price improvement over the Exchange's disseminated price 
at the time the Auction began, resting unchanged quotes or orders that 
were disseminated at the best price before the Auction began shall have 
priority after any Priority Customer order priority and the Initiating 
Member's priority (40%) have been satisfied. The new proposed rule text 
will provide, notwithstanding (a)(2)(iii)(C), (D) above, (provided the 
Auction is not for an ISO PRIME order) if the Auction does not result 
in price improvement over the Exchange's disseminated price at the time 
the Auction began, resting unchanged quotes or orders that were 
disseminated at the best price before the Auction began shall have 
priority after any Priority Customer order priority and the

[[Page 61785]]

Initiating Member may not participate on any such balance unless the 
Agency Order would otherwise go unfilled.
    The Exchange will announce the implementation of this order type in 
a Regulatory Circular. 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 \26\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \27\ 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.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The proposed rule change promotes just and equitable principles of 
trade and removes impediments to and perfects the mechanisms of a free 
and open market in that it promotes competition as described below. 
Specifically, the proposal allows the Exchange to offer its Members an 
order type that is already offered by another exchange.\28\ In 
addition, the proposal benefits traders and investors because it adds a 
new order type for seeking price improvement through the PRIME. ISO 
PRIME orders will also be subject to all eligibility requirements that 
currently apply to PRIME orders. The Initiating Member, simultaneous 
with the routing of the ISO PRIME order to the Exchange, remains 
responsible for routing one or more ISOs, as necessary, to execute 
against the full displayed size of any Protected Bid or Protected Offer 
that is superior to the starting PRIME Auction price and has swept all 
interest in the Exchange's Book priced better than the proposed Auction 
starting price. Finally, the proposal does not unfairly discriminate 
among Members because all Members of the Exchange are eligible to 
submit an ISO PRIME order.
---------------------------------------------------------------------------

    \28\ See Nasdaq ISE Exchange Rule, Options 3, Section 13, 
Supplementary Material .08.
---------------------------------------------------------------------------

    The Exchange's proposal to adopt a new allocation at the conclusion 
of an ISO PRIME Auction for Market Maker priority quotes and RFR 
responses from Market Makers with priority quotes, that participate in 
the associated ISO sweep, promotes just and equitable principles of 
trade, perfects the mechanisms of a free and open market and a national 
market system and, in general, benefits investors as it provides an 
additional incentive to Market Makers to provide their most aggressive 
quotes to the market at all times. Prioritizing Market Maker interest 
such that Market Makers that trade in the associated ISO sweep that 
also have joining interest at the final Auction price receive first 
priority in allocation provides an incentive to Market Makers to have 
their most aggressive quotes on the Book in order to participate in any 
potential ISO sweeps.
    The Exchange's proposal does not change the existing allocation 
priority for PRIME Auctions. The Exchange's proposal is narrowly 
tailored to allocation priority only among Market Makers and only at 
the conclusion of a PRIME Auction initiated by an ISO PRIME order.
    The Exchange currently uses priority quotes for trade allocation 
purposes as described in Exchange Rule 517(b) which provides that, 
quotes will be considered either priority quotes (i.e., trade 
allocation will be in accordance with Rule 514(e), which provides 
priority quotes with precedence over all Professional Interest) or non-
priority quotes (i.e., trade allocation will be in accordance with Rule 
514(e), which also provides non-priority quotes are considered together 
with all other Professional Interest) based upon a Market Maker's quote 
width at certain times as described.\29\ To be considered a priority 
quote, at the time of execution, each of the following standards must 
be met: (A) The bid/ask differential of both of the Market Maker's two-
sided quote pair must be valid width (no wider than the bid/ask 
differentials outlined in Rule 603(b)(4)); (B) the initial size of both 
of the Market Maker's bid and the offer must be in compliance with the 
requirements of Rule 604(b)(2); (C) the bid/ask differential of a 
Market Maker's two-sided quote pair must meet the priority quote width 
requirements defined in Exchange Rule 517(b)(ii) for each option; and 
(D) either of the following are true: 1. At the time a locking or 
crossing quote or order enters the System, the Market Maker's two-sided 
pair must be valid width for that option and must have been resting on 
the Book; or 2. Immediately prior to the time the Market Maker enters a 
new quote that locks or crosses the MBBO, the Market Maker must have 
had a valid width quote already existing (i.e., exclusive of the Market 
Maker's new marketable quote or update) among his two-side quotes for 
that option.\30\
---------------------------------------------------------------------------

    \29\ See Exchange Rule 517(b).
    \30\ See Exchange Rule 517(b)(1)(i).
---------------------------------------------------------------------------

    Exchange Rule 514(e) provides that after executions resulting from 
Priority Overlays set forth in paragraph (d) of Rule 514, when the pro-
rata allocation method applies: (1) If there is other interest at the 
NBBO, after all Priority Customer Orders (if any) at that price have 
been filled, executions at that price will be first allocated to other 
remaining Market Maker priority quotes, which have not received a 
participation entitlement, and have precedence over Professional 
Interest. (2) If after all Market Maker priority quotes have been 
filled in accordance with (1) above and there remains interest at the 
NBBO, executions will be allocated to all Professional Interest at that 
price. Professional Interest is defined in Rule 100 and includes among 
other interest, Market Maker non-priority quotes (as described in Rule 
517(b)(1)(iii)) and Market Maker orders in both assigned and non-
assigned classes.\31\
---------------------------------------------------------------------------

    \31\ See Exchange Rule 514(e).
---------------------------------------------------------------------------

    The Exchange does not believe that the purpose of the proposed rule 
change, to provide priority to a Market Maker at the conclusion of an 
ISO PRIME Auction (among other Market Makers) that has also traded in 
the associated ISO sweep, is a new or novel concept, as the Exchange 
has an existing hierarchy of priority allocation based on priority 
quotes as discussed above.
    Additionally, the Exchange believes its proposal to amend 
subsection (J) to clarify that the subsection does not apply to 
Auctions for ISO PRIME orders, 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 removing any ambiguity in 
the Exchange's rulebook about the type of Auctions subsection (J) 
pertains to. Current subsection (J) provides additional clarifying 
language concerning the priority of allocations at the conclusion of a 
PRIME Auction that does not result in price improvement over the 
Exchange's disseminated price at the time the Auction began stating 
that, ``resting unchanged quotes or orders that were disseminated at 
the best price before the Auction began shall have priority after any 
Priority Customer order priority . . . .'' The

[[Page 61786]]

Exchange's proposal concerning allocation at the conclusion of an 
Auction for an ISO PRIME order provides a more nuanced and detailed 
hierarchy of allocation for Market Makers which would be applicable in 
the scenario contemplated by subsection (J). Therefore, the Exchange is 
proposing to exclude the application of subsection (J) to Auctions that 
are initiated by ISO PRIME orders. The Exchange believes this change 
eliminates any potential conflict regarding the application of 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 this change will benefit market participants 
as it encourages Market Makers to participate in ISO PRIME Auctions and 
will provide additional incentive to Market Makers to provide their 
most aggressive quotes to the market throughout the trading session and 
may also result in increased liquidity being available during the 
Auction.

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 believes the 
proposed rule change will benefit inter-market competition as it will 
allow the Exchange to compete with other markets that already allow an 
ISO order type in their price improvement mechanisms.\32\
---------------------------------------------------------------------------

    \32\ See supra note 28.
---------------------------------------------------------------------------

    The Exchange's proposal to adopt an ISO PRIME order type benefits 
intra-market competition because it will enable the Exchange to provide 
market participants with an additional method of seeking price 
improvement through the PRIME. 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 equally to all Exchange Members, and 
all Exchange Members may submit an ISO PRIME order.
    The Exchange does not believe its proposal to further apportion 
Market Maker allocation at the conclusion of an Auction of an ISO PRIME 
order will impose any burden on intra-market competition but rather 
promotes intra-market competition as it provides further incentive to 
Market Makers to provide their most aggressive quotes to the market 
throughout the entire trading session and may increase liquidity 
available during a PRIME Auction. The proposal provides Market Makers 
with priority quotes on the Book, that participate in an associated ISO 
sweep, with priority over other Market Makers, which benefits intra-
market competition as it also provides an incentive to Market Makers to 
provide their most aggressive quotes to the market during the entire 
trading session to be in position to participate in any potential ISO 
sweeps.
    The Exchange does not believe its proposal will impose any burden 
on inter-market competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, but rather will promote inter-
market competition as it provides an additional incentive to Market 
Makers on the Exchange to provide their most aggressive quotes to the 
market at all times which could result in tighter quotes and greater 
liquidity being available in the market place, which would benefit all 
investors.
    The Exchange believes its proposal to amend subparagraph (J) 
promotes just and equitable principles of trade and removes impediments 
to and perfects the mechanism of a free and open market and a national 
market system because the proposed rule change provides additional 
detail and further clarifies the rule. It is in the public interest for 
rules to be accurate and concise so as to eliminate the potential for 
confusion.

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 \33\ and Rule 19b-4(f)(6) \34\ 
thereunder.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78s(b)(3)(A).
    \34\ 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.
---------------------------------------------------------------------------

    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-2020-31 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-MIAX-2020-31. 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

[[Page 61787]]

submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-MIAX-2020-31 and should be 
submitted on or before October 21, 2020.
---------------------------------------------------------------------------

    \35\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-21554 Filed 9-29-20; 8:45 am]
BILLING CODE 8011-01-P


