[Federal Register Volume 87, Number 73 (Friday, April 15, 2022)]
[Notices]
[Pages 22605-22607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-08068]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94671; File No. SR-MIAX-2022-13]


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

April 11, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on April 1, 2022, Miami International Securities Exchange, LLC 
(``MIAX Options'' or the ``Exchange'') filed with the Securities and 
Exchange Commission (the ``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.
---------------------------------------------------------------------------

    \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 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 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, Complex Orders, 
to change the value used in the calculation that determines whether a 
complex order is eligible to initiate a Complex Auction.\3\
---------------------------------------------------------------------------

    \3\ Certain option classes, as determined by the Exchange and 
communicated to Members via Regulatory Circular, will be eligible to 
participate in a Complex Auction (an ``eligible class''). Upon 
evaluation as set forth in subparagraph (c)(5) of Exchange Rule 518, 
the Exchange may determine to automatically submit a Complex 
Auction-eligible order into a Complex Auction. Upon entry into the 
System or upon evaluation of a complex order resting at the top of 
the Strategy Book, Complex Auction-eligible orders may be subject to 
an automated request for responses (``RFR''). See Exchange Rule 
518(d).
---------------------------------------------------------------------------

    Currently the Exchange uses the following methods to determine 
whether a complex order is qualified to initiate a Complex Auction:
Initial Improvement Percentage (``IIP'')
    For complex orders received prior to the opening of all individual 
components of a complex strategy, the System \4\ will calculate an IIP 
value, which is a defined percentage of the current dcMBBO \5\ bid/ask 
differential once all of the components of the complex strategy have 
opened. Such percentage will be defined by the Exchange and 
communicated to Members \6\ via Regulatory Circular.\7\ If a Complex 
Auction-eligible order is priced equal to, or improves, the IIP value 
\8\ and is also priced equal to, or improves, 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.\9\
---------------------------------------------------------------------------

    \4\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \5\ The Displayed Complex MIAX Best Bid or Offer (``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).
    \6\ 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.
    \7\ See MIAX Options Regulatory Circular 2016-48, MIAX Complex 
Auction Initiating Percentages (October 20, 2016) available at 
https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_RC_2016_48.pdf.
    \8\ The Initial Improvement Percentage (``IIP'') is currently 
set to 70%. See Id.
    \9\ See Policy .03(a) of Exchange Rule 518.
---------------------------------------------------------------------------

Upon Receipt Improvement Percentage (``URIP'')
    Upon receipt of a complex order when the complex strategy is open, 
the System will calculate a URIP value, which is a defined percentage 
of the current dcMBBO bid/ask differential. Such percentage will be 
defined by the

[[Page 22606]]

Exchange and communicated to Members via Regulatory Circular.\10\ If a 
Complex Auction-eligible order is priced equal to, or improves, the 
URIP value \11\ 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.\12\
---------------------------------------------------------------------------

    \10\ See supra note 7.
    \11\ The Upon Receipt Improvement Percentage (``URIP'') is 
currently set to 70%. See supra note 7.
    \12\ See Policy .03(b) of Exchange Rule 518.
---------------------------------------------------------------------------

Re-Evaluation Improvement Percentage (``RIP'')
    Upon evaluation of a complex order resting at the top of the 
Strategy Book, the System will calculate a Re-evaluation Improvement 
Percentage (``RIP'') 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.\13\ 
If a complex order resting at the top of the Strategy Book is priced 
equal to, or improves, the RIP value,\14\ the complex order will be 
eligible to initiate a Complex Auction.\15\
---------------------------------------------------------------------------

    \13\ See supra note 7.
    \14\ The Re-evaluation Improvement Percentage (``RIP'') is 
currently set to 80%. See supra note 7.
    \15\ See Policy .03(c) of Exchange Rule 518.
---------------------------------------------------------------------------

Proposal
    The Exchange now proposes to replace the dcMBBO bid/ask 
differential with the cNBBO \16\ bid/ask differential in the 
calculations described above for IIP, URIP, and RIP, respectively. The 
dcMBBO is calculated using the displayed price for each component of a 
complex strategy from the Simple Order Book \17\ on the Exchange, 
whereas the cNBBO is calculated using the NBBO \18\ for each component 
of a complex strategy to establish the best net bid and offer for a 
complex strategy.\19\ The Exchange believes that using the cNBBO will 
reduce the number of auctions generated by the Exchange System which do 
not receive responses or result in price improvement for the initiating 
order. The cNBBO, which includes the best away markets as well as the 
MBBO for each component of a complex strategy, will always be equal to 
or better than the dcMBBO, which includes the MBBO for each component 
of a complex strategy. The component prices contained in the cNBBO 
provide a more accurate indicator of the overall market interest in 
each component, and therefore, provides a more accurate indicator of 
the overall market interest in the complex strategy. The Exchange 
believes that this will result in a reduction of the overall number of 
Complex Auctions initiated on the Exchange but will in turn increase 
the percentage of Complex Auctions that result in price improvement, as 
the auction start price will be more closely aligned to prevailing 
market prices.
---------------------------------------------------------------------------

    \16\ The Complex National Best Bid or Offer (``cNBBO'') is 
calculated using the NBBO for each component of a complex strategy 
to establish the best net bid and offer for a complex strategy. For 
stock-option orders, the cNBBO for a complex strategy will be 
calculated using the NBBO in the individual option component(s) and 
the NBBO in the stock component. See Exchange Rule 518(a)(2).
    \17\ The ``Simple Order Book'' is the Exchange's regular 
electronic book of orders and quotes. See Exchange Rule 518(a)(15).
    \18\ 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).
    \19\ See supra note 5.
---------------------------------------------------------------------------

Implementation
    The Exchange proposes to implement the proposed rule change in the 
second quarter of 2022. The Exchange will announce the implementation 
date to its Members via Regulatory Circular.
2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \20\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \21\ 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.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that its proposal to use the cNBBO instead of 
the dcMBBO in the calculation used to determine whether a complex order 
is qualified to initiate a Complex Auction 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 as using the 
cNBBO provides a better measure of the current market and is more 
likely to result in price improvement for the initiating order as the 
cNBBO is calculated using the NBBO (which in turn is calculated by 
taking the best prices of all exchanges into consideration) \22\ for 
each component of a complex strategy to establish the best net bid and 
offer for a complex strategy,\23\ and therefore is more representative 
of the prevailing market interest and market prices. The example below 
demonstrates the difference between the current and proposed 
calculations.
---------------------------------------------------------------------------

    \22\ See supra note 19.
    \23\ See supra note 16
---------------------------------------------------------------------------

Example 1
(Current Auction Evaluation Based on dcMBBO)

    Reevaluation Improvement Percentage (RIP) for a complex order at 
the best price on the Strategy Book \24\ subject to dcMBBO.
---------------------------------------------------------------------------

    \24\ The ``Strategy Book'' is the Exchange's electronic book of 
complex orders and complex quotes. See Exchange Rule 518(a)(17).

RIP = 80%
MBBO: \25\ Option A 2.00 x 2.10
---------------------------------------------------------------------------

    \25\ The term ``MBBO'' means the best bid or offer on the 
Exchange. See Exchange Rule 100.
---------------------------------------------------------------------------

MBBO: Option B 1.05 x 1.20
Strategy +1A-1B = (2.00-1.20) x (2.10-1.05)
dcMBBO = 0.80 x 1.05

    A complex order is resting on the Strategy Book to buy 1 Strategy 
at a price of 1.00. Upon reevaluation of the Strategy Book it is 
determined the complex order to buy at 1.00 improves the Strategy bid 
by 0.20; (1.00-0.80). The improvement percentage is then calculated as 
the 0.20 improvement divided by the Strategy bid/offer spread; (1.05-
0.80), in this case resulting in 80% improvement. Because the 80% 
improvement equals the configured RIP of 80% an auction is initiated.
Example 2
(Proposed Auction Evaluation Based on cNBBO)

    Reevaluation Improvement Percentage (RIP) for a complex order at 
the best price on the Strategy Book subject to cNBBO.

RIP = 80%
NBBO: Option A 2.05 x 2.10
NBBO: Option B 1.05 x 1.10
Strategy +1A-1B = (2.05-1.10) x (2.10-1.05)
cNBBO = 0.95 x 1.05

    A complex order is resting on the Strategy Book to buy 1 Strategy 
at a price of 1.00. Upon reevaluation of the Strategy Book it is 
determined the complex order to buy at 1.00 improves the Strategy bid 
by 0.05; (1.00-0.95). The improvement percentage is then calculated as 
the 0.05 improvement divided by the Strategy bid/offer spread; (1.05-
0.95), in this case resulting in 50% improvement. Because the 50%

[[Page 22607]]

improvement is less than the configured RIP of 80% an auction is not 
initiated.
    The Exchange believes that using the cNBBO in its calculation to 
determine whether a complex order is qualified to initiate a Complex 
Auction will reduce the number of Complex Auctions initiated by the 
Exchange System \26\ which do not receive responses. Using the cNBBO 
instead of the dcMBBO better reflects the current state of the market 
and may result in Complex Auctions that receive responses which in turn 
may result in price improvement for the initiating order.
---------------------------------------------------------------------------

    \26\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
---------------------------------------------------------------------------

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 to 
replace the dcMBBO value with the cNBBO value in the calculation used 
to determine whether a complex order is qualified to initiate a Complex 
Auction will impose any burden on inter-market competition. The 
Exchange believes its proposal may benefit competition as using the 
cNBBO in the calculation better reflects current market prices and may 
result in the initiation of Complex Auctions which result in price 
improvement for the initiating order. 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. Additionally, the Exchange 
believes that this change will result in a reduction of the overall 
number of Complex Auctions initiated on the Exchange but will in turn 
increase the percentage of auctions that result in price improvement, 
as the auction start price will be more closely aligned to prevailing 
market prices.
    The Exchange does not believe that the proposed rule change will 
impose any burden on intra-market competition as all complex orders 
submitted to the Exchange will be evaluated, and re-evaluated, equally 
under the Exchange's Rules.

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 \27\ and Rule 19b-4(f)(6) \28\ 
thereunder.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78s(b)(3)(A).
    \28\ 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 [email protected]. Please include 
File Number SR-MIAX-2022-13.

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-2022-13. 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-2022-13, and should be submitted on 
or before May 6, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
---------------------------------------------------------------------------

    \29\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-08068 Filed 4-14-22; 8:45 am]
BILLING CODE 8011-01-P


