[Federal Register Volume 85, Number 209 (Wednesday, October 28, 2020)]
[Notices]
[Pages 68387-68390]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-23797]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90251; File No. SR-MIAX-2020-33]


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 and 
Rule 519A, Risk Protection Monitor

October 22, 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 October 8, 2020, Miami International Securities Exchange, LLC 
(``MIAX Options'' or the ``Exchange'') filed with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') the 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; and Rule 519A, Risk Protection Monitor.
    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 518 and Exchange Rule 
519A to facilitate the use of Related Futures Cross (``RFC'') orders on 
the Exchange. The Exchange recently adopted the RFC order type for 
trading on the Exchange.\3\ RFC orders provide market participants with 
the ability to exchange SPIKES options positions with corresponding 
futures positions, or to exchange corresponding futures positions with 
SPIKES options positions.\4\
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    \3\ See Securities Exchange Act Release No. 89213 (July 1, 
2020), 85 FR 41077 (July 8, 2020) (SR-MIAX-2020-11).
    \4\ See Policy .08 of Exchange Rule 518.
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    Specifically, the Exchange proposes to amend Policy .05(e)(1)(iii) 
of Rule 518, entitled, Wide Market Condition \5\ and cPRIME,\6\ 
cC2C,\7\ and cQCC \8\ Orders, to

[[Page 68388]]

facilitate the trading of RFC orders on the Exchange during wide market 
conditions. Currently, during free trading, if a wide market condition 
exists for a component of a complex strategy, trading in the complex 
strategy will be suspended.\9\ Similarly, if a wide market condition 
exists for a component of a complex strategy following a Complex 
Auction,\10\ trading in the complex strategy will be suspended.\11\ 
cPRIME Orders, cC2C Orders, and cQCC Orders are currently excluded from 
this protection during wide market conditions, and the trading and 
processing of these orders will continue during wide market 
conditions.\12\
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    \5\ A ``wide market condition'' is defined as any individual 
option component of a complex strategy having, at the time of 
evaluation, an MBBO quote width that is wider than the permissible 
valid quote width as defined in Rule 603(b)(4). See Policy .05(e)(1) 
of Exchange Rule 518.
    \6\ A Complex PRIME or ``cPRIME'' Order is a complex order (as 
defined in Rule 518(a)(5)) that is submitted for participation in a 
cPRIME Auction. Trading of cPRIME Orders is governed by Rule 515A, 
Interpretations and Policies .12. See Exchange Rule 518(b)(7).
    \7\ A Complex Customer Cross or ``cC2C'' Order is comprised of 
one Priority Customer complex order to buy and one Priority Customer 
complex order to sell at the same price and for the same quantity. 
Trading of cC2C Orders is governed by Rule 515(h)(3). See Exchange 
Rule 518(b)(5).
    \8\ A Complex Qualified Contingent Cross or ``cQCC'' Order is 
comprised of an originating complex order to buy or sell where each 
component is at least 1,000 contracts that is identified as being 
part of a qualified contingent trade, as defined in Rule 516, 
Interpretations and Policies .01, coupled with a contra-side complex 
order or orders totaling an equal number of contracts. Trading of 
cQCC Orders is governed by Rule 515(h)(4). See Exchange Rule 
518(b)(6).
    \9\ See Policy .05(e)(1)(i) of Exchange Rule 518.
    \10\ A ``Complex Auction'' is an auction of a complex order as 
set forth in Exchange Rule 518(d). See Exchange Rule 518(a)(3).
    \11\ See Policy .05(e)(1)(ii) of Exchange Rule 518.
    \12\ See Policy .05(e)(1)(iii) of Exchange Rule 518.
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    Specifically, current Policy .05(e)(1)(iii) provides 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, Interpretations and Policies 
.12, or on the trading of cC2C and cQCC Orders pursuant to Rules 
515(h)(3) and (4). Such trading and processing will not be suspended 
and will continue during wide market conditions.
    The Exchange is proposing to also exclude RFC orders from this 
current trade protection provision related to wide market conditions. 
The Exchange proposes to amend Policy .05(e)(1)(iii) of Rule 518 to 
rename the title of the provision to, Wide Market Condition and cPRIME, 
cC2C, cQCC and RFC Orders. The Exchange also proposes to amend the text 
of the provision to provide 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, Policy .12, or on the trading of cC2C, cQCC, or 
RFC Orders pursuant to Rules 515(h)(3) and (4), and Policy .08 of this 
Rule respectively. Such trading and processing will not be suspended 
and will continue during wide market conditions.
    The Exchange also proposes to amend Policy .02, .02(a), and .02(b) 
of Rule 519A, to make RFC orders eligible to participate in certain 
Risk Protection Monitor functionality. Currently, the MIAX System \13\ 
will maintain a counting program (``counting program'') for each 
participating Member \14\ that will count the number of orders entered 
and the number of contracts traded via an order entered by a Member on 
the Exchange within a specified time period that has been established 
by the Member (the ``specified time period''). The maximum duration of 
the specified time period will be established by the Exchange and 
announced via a Regulatory Circular.\15\ The Risk Protection Monitor 
maintains one or more Member-configurable Allowable Order Rate \16\ 
settings and Allowable Contract Execution Rate settings. When a 
Member's order is entered or when an execution of a Member's order 
occurs, the System will look back over the specified time period to 
determine if the Member has: (i) Entered during the specified time 
period a number of orders exceeding their Allowable Order Rate 
setting(s), or (ii) executed during the specified time period a number 
of contracts exceeding their Allowable Contract Execution Rate 
setting(s). Once engaged, the Risk Protection Monitor will then, as 
determined by the Member: Automatically either (A) prevent the System 
from receiving any new orders in all series in all classes from the 
Member; (B) prevent the System from receiving any new orders in all 
series in all classes from the Member and cancel all existing orders 
with a time-in-force of Day in all series in all classes from the 
Member; or (C) send a notification to the Member without any further 
preventative or cancellation action by the System. When engaged, the 
Risk Protection Monitor will still allow the Member to interact with 
existing orders entered prior to exceeding the Allowable Order Rate 
setting or the Allowable Contract Execution Rate setting, including 
sending cancel order messages and receiving trade executions from those 
orders. The Risk Protection Monitor shall remain engaged until the 
Member communicates with the Help Desk \17\ to enable the acceptance of 
new orders.\18\
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    \13\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \14\ 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.
    \15\ The Exchange has established a maximum duration of ten 
seconds. See MIAX Regulatory Circular 2016-57, Corresponding 
Specified Time Period for RPM Rate Settings (October 31, 2016) 
available at https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_RC_2016_57.pdf.
    \16\ Members must establish at least one Allowable Order Rate 
setting, with a corresponding specified time period of not less than 
one second, and not to exceed ten seconds, as established by the 
Exchange and communicated to Members via Regulatory Circular. See 
Exchange Rule 519A(b).
    \17\ The term ``Help Desk'' means the Exchange's control room 
consisting of Exchange staff authorized to make certain trading 
determinations on behalf of the Exchange. The Help Desk shall report 
to and be supervised by a senior executive officer of the Exchange. 
See Exchange Rule 100.
    \18\ See Exchange Rule 519A(a).
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    Under current Policy .02 of Rule 519A, PRIME Orders,\19\ cPRIME 
Orders, QCC Orders,\20\ cQCC Orders, Customer Cross Orders,\21\ cC2C 
Orders, and PRIME Solicitation Orders will each be counted as two 
orders for the purposes of calculating the Allowable Order Rate.\22\
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    \19\ PRIME is a process by which a Member 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. See Exchange Rule 515A(a).
    \20\ A Qualified Contingent Cross Order is comprised of an 
originating order to buy or sell at least 1,000 contracts, or 10,000 
mini-option contracts, that is identified as being part of a 
qualified contingent trade, as that term is defined in 
Interpretations and Policies .01 of Rule 516, coupled with a contra-
side order or orders totaling an equal number of contracts. A 
Qualified Contingent Cross Order is not valid during the opening 
rotation process described in Rule 503. See Exchange Rule 516(j).
    \21\ A Customer Cross Order is comprised of a Priority Customer 
Order to buy and a Priority Customer Order to sell at the same price 
and for the same quantity. A Customer Cross Order is not valid 
during the opening rotation process described in Rule 503. See 
Exchange Rule 516(i).
    \22\ See Policy .02(b) of Exchange Rule 519A.
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    The Exchange now proposes to amend Policy .02 to allow RFC orders 
to be included in the counting program by amending the text to provide 
that, PRIME Orders, cPRIME Orders, PRIME Solicitation Orders, QCC 
Orders, cQCC Orders, Customer Cross Orders, cC2C Orders, RFC Orders, 
and GTC Orders participate in the Risk Protection Monitor as follows:
    (a) The System includes PRIME Orders, cPRIME Orders, PRIME 
Solicitation Orders, QCC Orders, cQCC Orders, Customer Cross Orders, 
cC2C Orders, RFC Orders, and GTC Orders in the counting program for 
purposes of this Rule;
    (b) PRIME Orders, cPRIME Orders, PRIME Solicitation Orders, QCC 
Orders, cQCC Orders, Customer Cross Orders, cC2C Orders, and RFC Orders 
will each be counted as two orders for the purpose of calculating the 
Allowable Order Rate.
    The Exchange believes that treating RFC orders similarly to other 
paired order types for purposes of the counting program will instill 
confidence in Members that an unusually high number of orders submitted 
within a

[[Page 68389]]

specified time period will be accurately counted in regards to the 
possible engagement of the Risk Protection Monitor to prevent 
additional orders from being transmitted to the Exchange.
2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \23\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \24\ 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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    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(5).
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    The Exchange's proposal to exclude RFC orders from the wide market 
condition trade protection promotes just and equitable principles of 
trade, 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. Allowing RFC orders to continue to 
trade during wide market conditions is consistent with the Exchange's 
treatment of other paired order types such as cPRIME, cC2C, and cQCC 
orders. cPRIME Orders, cC2C Orders, and cQCC Orders are all received 
with either a paired Agency Order (in the case of a PRIME and cPRIME 
Orders) or a contra-side order or orders. cPRIME and cC2C orders are 
received with an execution price at least $0.01 better than (inside) 
the icMBBO \25\ price or the best net price of a complex order on the 
Strategy Book,\26\ whichever is more aggressive. cQCC Orders are 
received with an execution price that (i) is not at the same price as a 
Priority Customer Order \27\ on the Exchange's Book; \28\ and (ii) is 
at or between the NBBO.\29\ An RFC order is comprised of a SPIKES 
options combo coupled with a contra-side order or orders totaling an 
equal number of SPIKES option combo orders, which is identified to the 
Exchange as being part of an exchange of option contracts for related 
futures positions.\30\ In order to execute an RFC order an EEM \31\ 
must submit the RFC order to the System, which may execute 
automatically without exposure.\32\ An EEM may execute an RFC order 
pursuant to the previous statement only if: (i) Each option leg 
executes at a price that complies with Exchange Rule 518(c), provided 
that no option leg executes at the same price as a Priority Customer 
Order in the Simple Book; \33\ (ii) each option leg executes at a price 
at or between the NBBO for the applicable series; and (iii) the 
execution price is better than the price of any complex order resting 
in the Strategy Book, unless the RFC order is a Priority Customer Order 
and the resting complex order is a non-Priority Customer Order, in 
which case the execution price may the same as or better than the price 
of the resting complex order. The System cancels an RFC order it if 
cannot execute.\34\ Therefore, these order types, all of which consist 
of paired orders with execution price requirements, are not affected by 
wide market conditions because they may only be executed at or inside 
of their obligatory prices, and as such are appropriately excluded from 
this trade protection feature.
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    \25\ The Implied Complex MIAX Best Bid or Offer (``icMBBO'') 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)(11). The 
``Simple Order Book'' is the Exchange's regular electronic book of 
orders and quotes. See Exchange Rule 518(a)(15).
    \26\ The ``Strategy Book'' is the Exchange's electronic book of 
complex orders and complex quotes. See Exchange Rule 518(a)(17).
    \27\ 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 the following 
Interpretation and Policy .01 hereto. See Exchange Rule 100.
    \28\ The term ``Book'' means the electronic book of buy and sell 
orders and quotes maintained by the System. See Exchange Rule 100.
    \29\ See Exchange Rule 515(h)(4). The term ``NBBO'' means the 
national best bid or offer as calculated by the Exchange based on 
market information received by the Exchange from the appropriate 
Securities Information Processor (``SIP'') See Exchange Rule 
518(a)(14).
    \30\ See Policy .08(a) of Exchange Rule 518.
    \31\ 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.
    \32\ See Policy .08(a)(1) of Exchange Rule 518.
    \33\ The ``Simple Order Book'' is the Exchange's regular 
electronic book of orders and quotes. See Exchange Rule 518(a)(15).
    \34\ See Policy .08(a)(2) of Exchange Rule 518.
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    The Exchange's proposal to include RFC orders in the Exchange's 
Risk Protection Monitor promotes just and equitable principles of 
trade, 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 treating RFC orders similarly to 
other paired orders for purposes of the Risk Protection Monitor 
counting program.
    The Exchange's proposal to add RFC orders to the list of order 
types to which Policy .02 and .02(a) of Rule 519A applies; and to the 
list of order types to be counted as two orders for purposes of 
calculating the Allowable Order Rate in Policy .02(b) of Rule 519A, 
perfects the mechanisms of a free and open market and a national market 
system by assisting investors in managing their acceptable risk levels 
respecting open orders. The submission of a single message into the 
System for the execution of a paired order type is a submission 
representing two orders, and the Risk Protection Monitor counts them as 
such for purposes of calculating the Allowable Order Rate. Participants 
thus will know that their single message for these order types 
represents two orders for purposes of the counting system and may 
determine their appropriate risk tolerance parameters accordingly.
    The Exchange believes that the proposed amendments to its trade 
protection rules should instill additional confidence in Members that 
submit orders to the Exchange that their risk tolerance levels are 
protected, and thus should encourage such Members to submit additional 
order flow and liquidity to the Exchange with the understanding that 
they retain necessary protections and avoid unnecessary protections 
with respect to all orders they submit to the Exchange, including 
complex orders, thereby removing impediments to and perfecting the 
mechanisms of a free and open market and a national market system and, 
in general, protecting investors and the public interest

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 its proposal will promote intra-market 
competition by ensuring that RFC orders are eligible to trade during 
wide market conditions, similar to other paired order types. 
Additionally, including RFC orders in certain trade protections 
available on the Exchange enables MIAX Options participants to submit 
more orders to the Exchange knowing that risk protection measures are 
in place. The proposal applies equally to all market participants and 
should benefit intra-market competition accordingly.
    The Exchange's proposal is limited to transactions involving a 
Proprietary

[[Page 68390]]

Product \35\ of the Exchange, and therefore has no impact on inter-
market competition.
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    \35\ The term ``Proprietary Product'' means a class of options 
that is listed exclusively on the Exchange and any of its 
affiliates. See Exchange Rule 100.
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    For all the reasons stated, the Exchange does not believe that the 
proposed rule change will impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Act, and 
believes the proposed change will in fact enhance competition.

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 \36\ and Rule 19b-4(f)(6) \37\ 
thereunder.
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    \36\ 15 U.S.C. 78s(b)(3)(A).
    \37\ 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-2020-33 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-2020-33. 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 offices 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-2020-33, and should be submitted on 
or before November 18, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-23797 Filed 10-27-20; 8:45 am]
BILLING CODE 8011-01-P


