
[Federal Register Volume 88, Number 232 (Tuesday, December 5, 2023)]
[Notices]
[Pages 84376-84379]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-26596]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99041; File No. SR-MIAX-2023-45]


Self-Regulatory Organizations; Miami International Securities 
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Rule 517, Quote Types Defined

November 29, 2023.
    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 November 16, 2023, Miami International 
Securities Exchange, LLC (``MIAX'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'') a proposed rule 
change as described in Items I and II below, which Items have been 
prepared by the Exchange. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend Exchange Rule 517, Quote 
Types Defined.
    The text of the proposed rule change is available on the Exchange's 
website at https://www.miaxglobal.com/markets/us-options/miax-options/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 Rule 517, Quote Types Defined. 
Specifically, the Exchange proposes to adopt new Interpretations and 
Policies .02 to Rule 517 to adopt new risk protection behavior for 
replacement Standard quotes \3\ that are rejected.
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    \3\ A Standard quote is a quote submitted by a Market Maker that 
cancels and replaces the Market Maker's previous Standard quote, if 
any. See Exchange Rule 517(a)(1).
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Background
    Market Makers \4\ on the Exchange have heightened obligations 
separate from other market participants. Transactions of a Market Maker 
should constitute a course of dealings reasonably calculated to 
contribute to the maintenance of a fair and orderly market, and Market 
Makers should not make bids \5\ or offers \6\ or enter into 
transactions that are inconsistent with such a course of dealings.\7\ A 
quotation may only be entered by a Market Maker, and only in the 
options classes to which the Market Maker is appointed under Rule 
602.\8\ A Market Maker's bid and offer for a series of option contracts 
shall state a price accompanied by the number of contracts at that 
price the Market Maker is willing to buy or sell upon receipt of an 
order or upon interaction with a quotation entered by another Market 
Maker on the Exchange.\9\ Additionally, a Market Maker that enters a 
bid (offer) on the Exchange must enter an offer (bid) within the spread 
allowable under Rule 603(b)(4).\10\
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    \4\ The term ``Market Makers'' refers to ``Lead Market Makers'', 
``Primary Lead Market Makers'' and ``Registered Market Makers'' 
collectively. See Exchange Rule 100.
    \5\ The term ``bid'' means a limit order or quote to buy one or 
more option contracts. See Exchange Rule 100.
    \6\ The term ``offer'' means a limit order or quote to sell one 
or more option contracts. See Exchange Rule 100.
    \7\ See Exchange Rule 603(a).
    \8\ See Exchange Rule 604(a).
    \9\ See Exchange Rule 604(b).
    \10\ See Exchange Rule 604(c).
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    The Exchange has three classes of Market Makers; Primary Lead 
Market Makers, Lead Market Makers, and Registered Market Makers.\11\ 
Further, each class of Market Maker has its own

[[Page 84377]]

separate and distinct quoting obligations. A Primary Lead Market Maker 
must provide continuous two-sided Standard quotes and/or Day 
eQuotes,\12\ which for the purpose of paragraph (e)(1)(i) of Rule 604 
shall mean 90% of the time, for the options classes to which it is 
appointed.\13\ A Primary Lead Market Maker must provide continuous two-
sided Standard quotes and/or Day eQuotes in at least the lesser of 99% 
of the non-adjusted option series, or 100% of the non-adjusted option 
series minus one put-call pair, in each class in which the Primary Lead 
Market Maker is assigned.\14\ A Lead Market Maker must provide 
continuous two-sided Standard quotes and/or Day eQuotes, which for the 
purpose of paragraph (e)(2)(i) of Rule 604 shall mean 90% of the time, 
for the options classes to which it is appointed.\15\ A Lead Market 
Maker must provide continuous two-sided Standard quotes and/or Day 
eQuotes in at least 90% of the non-adjusted option series in each of 
its appointed classes. Such quotations must meet the bid/ask 
differential requirements of Rule 603(b)(4).\16\ A Registered Market 
Maker must provide continuous two-sided Standard quotes and/or Day 
eQuotes throughout the trading day in 60% of the non-adjusted series 
that have a time to expiration of less than nine months in each of its 
appointed classes. For the purpose of paragraph (e)(3)(i) of Rule 604, 
continuous two-sided quoting shall mean 90% of the time, for the 
options classes to which the Registered Market Maker is appointed.\17\
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    \11\ See supra note 4.
    \12\ A Day eQuote is a quote submitted by a Market Maker that 
does not automatically cancel or replace the Market Maker's previous 
Standard quote or eQuote. Day eQuotes will expire at the close of 
trading each trading day. See Exchange Rule 517(a)(2)(i). An eQuote 
is a quote with a specific time in force that does not automatically 
cancel and replace a previous Standard quote or eQuote. An eQuote 
can be cancelled by the Market Maker at any time, or can be replaced 
by another eQuote that contains specific instructions to cancel an 
existing eQuote. See Exchange Rule 517(a)(2).
    \13\ See Exchange Rule 604(e)(1)(i).
    \14\ See Exchange Rule 604(e)(1)(ii).
    \15\ See Exchange Rule 604(e)(2)(i).
    \16\ See Exchange Rule 604(e)(2)(ii).
    \17\ See Exchange Rule 604(e)(3)(i).
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    The Exchange offers several features to Market Makers designed to 
mitigate potential risks unique to Market Makers given their 
obligations on the Exchange. For example, the Exchange offers an 
Aggregate Risk Manager (``ARM'') protection which provides that the 
MIAX System \18\ will maintain a counting program (``counting 
program'') for each Market Maker who is required to submit continuous 
two-sided quotations pursuant to Rule 604 in each of their appointed 
option classes.\19\ The System will engage the Aggregate Risk Manager 
in a particular option class when the counting program has determined 
that a Market Maker has traded during the specified time period a 
number of contracts equal to or above their Allowable Engagement 
Percentage. The Aggregate Risk Manager will then automatically remove 
the Market Maker's Standard quotations and Day eQuotes from the 
Exchange's disseminated quotation in all series of that particular 
option class until the Market Maker sends a notification to the System 
of the intent to reengage quoting and submits a new revised 
quotation.\20\
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    \18\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \19\ See Exchange Rule 612.
    \20\ See Exchange Rule 612(b)(1).
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    Additionally, the Exchange offers Market Makers Single Side 
Protection (``SSP'') functionality which provides that, if the full 
remaining size of a Market Maker's complex Standard quote or cIOC 
eQuote in a strategy is exhausted by a trade, the System will trigger 
the SSP for the traded side of the strategy. When triggered, the System 
will cancel all complex Standard quotes and block all new inbound 
complex Standard quotes and cIOC eQuotes for that particular side of 
that strategy for that MPID.\21\
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    \21\ See Exchange Rule 532(b)(8).
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Proposal
    The Exchange now proposes to cancel a Market Maker's Standard quote 
in certain scenarios when a replacement Standard quote submitted by the 
Market Maker is rejected. Specifically, the Exchange proposes to adopt 
new Policy .02 to Exchange Rule 517 which will provide that a 
replacement Standard quote that is rejected for a technical reason (as 
described below) will still cancel the target Standard quote.
    A Standard quote is submitted by the Market Maker to the Exchange 
using the MIAX Express Interface (``MEI''). MEI is a messaging 
interface that MIAX members that are approved as Market Makers use to 
submit quotes for trading on the MIAX Options market. Market Makers are 
only allowed to submit quotes in the products of underlying instruments 
to which they are assigned.\22\ Each message submitted to the Exchange 
via the MEI must pass a number of validity checks that are performed by 
the System. These include, but are not limited to, price and size 
checks. Specifically, Standard quote prices must not (i) be less than 
zero; (ii) exceed the maximum price; and (iii) must comply with the 
minimum trade increment \23\ for that class.\24\ Additionally, Standard 
quote sizes must not be less than zero and must not be less than the 
minimum quote size as defined in Rule 604(b)(2).\25\ Collectively, 
these requirements constitute the technical reasons for which a 
replacement Standard quote may be rejected, but which will still result 
in the cancellation of the target Standard quote under the Exchange's 
proposal.
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    \22\ See MIAX Express Interface for Quoting and Trading Options, 
MEI Interface Specification, version 2.9c (8/1/2022), available at: 
https://www.miaxglobal.com/markets/us-options/miax-options/interface-specifications.
    \23\ The price of Market Maker quotes shall be in the minimum 
trading increments applicable to the security under Rule 510; 
provided that, with respect to any security designated by the 
Exchange as available for non-displayed penny orders under Rule 
516(b)(2), Market Maker quotes may be in one-cent increments. In 
such designated securities, quotes entered in one-cent increments 
will be firm as provided in paragraph (d) of Rule 604, but shall 
only be displayed to Members and the public at the Minimum Price 
Variation (MPV) for the security. The displayed price of such quotes 
will be the closest MPV that is higher for offers and the closest 
MPV that is lower for bids. See Exchange Rule 604(b)(1).
    \24\ The terms ``class of options'' or ``option class'' mean all 
option contracts covering the same underlying security. See Exchange 
Rule 100.
    \25\ Exchange Rule 604(b)(2) provides that, the initial size of 
a Market Maker incoming Standard Quote, Day eQuote and all other 
types of eQuotes must be for the minimum number of contracts, which 
minimum number shall be at least one (1) contract. The minimum 
number of contracts, which can vary according to type of quote or 
eQuote, shall be at least one (1) contract, will be determined by 
the Exchange on a class-by-class basis and announced to the Members 
through a Regulatory Circular.
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    The Exchange believes that removing the Standard quote that the 
Market Maker was attempting to alter promotes the quality of the 
Exchange's market as removing a Standard quote that was targeted for 
replacement but was not replaced due to a technical reason maintains 
the integrity of quotes available in the market by ensuring that all 
available quotes accurately represent Market Maker interest.
    When a Market Maker's replacement Standard quote is rejected 
because of a technical reason the existing Standard quote will be 
cancelled by the Exchange. In addition to maintaining the integrity of 
the Exchange's market, the Exchange believes this functionality also 
provides an additional level of risk protection to Market Makers that 
are attempting to replace an existing Standard quote but are unable to 
as a result of a technical reason with the replacement Standard quote.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with

[[Page 84378]]

the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of section 6(b) of the 
Act.\26\ Specifically, the Exchange believes that its proposed rule 
change is consistent with section 6(b)(5) \27\ requirements 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 mechanism of a free and open market and a national market 
system and, in general, to protect investors and the public interest. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the section (6)(b)(5) \28\ requirement that the rules 
of an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers as the proposed rule will be 
uniformly applied to all Standard quote messages submitted by Market 
Makers on the Exchange.
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    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(5).
    \28\ See id.
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    The Exchange believes its proposal 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 as 
removing a Market Maker's Standard quote that the Market Maker has 
targeted for replacement, but failed to replace due to a technical 
reason with the replacement Standard quote message, promotes the 
quality of the Exchange's market by ensuring that all available quotes 
accurately represent Market Maker interest. When a Market Maker enters 
a replacement Standard quote a Market Maker has an expectation that the 
existing Standard quote will be cancelled, currently the existing 
Standard quote that the Market Maker intended to cancel may be executed 
if the replacement Standard quote is rejected which is contrary to the 
Market Maker's intent.

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 its proposed rule change will 
impose any burden on intra-market competition as the Rules of the 
Exchange apply equally to all Market Makers of the Exchange and all 
Market Makers that submit a replacement Standard quote that is rejected 
as a result of a technical reason will have the existing target 
Standard quote removed by the Exchange.
    The Exchange does not believe that its proposed rule change will 
impose any burden on inter-market competition, as the Exchange's 
proposal is not a competitive filing. Rather the Exchange believes that 
its proposal may promote inter-market competition, as the Exchange's 
proposal will improve market quality on the Exchange which may improve 
competition for orders across all exchanges.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to section 19(b)(3)(A) of the Act \29\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\30\
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    \29\ 15 U.S.C. 78s(b)(3)(A).
    \30\ 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, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \31\ normally 
does not become operative prior to 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\32\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative immediately upon filing. The Exchange 
requested the waiver because it would ensure the integrity of quotes 
available in the market. The Exchange stated that the Exchange provides 
risk protection functionality specifically for Market Makers due to the 
heightened obligations that Market Makers have on the Exchange and that 
the proposed rule change would ensure that the quotes available in the 
marketplace accurately represent Market Maker interest. For these 
reasons, the Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. Therefore, the Commission hereby waives the 30-day operative 
delay and designates the proposal operative upon filing.\33\
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    \31\ 17 CFR 240.19b-4(f)(6).
    \32\ 17 CFR 240.19b-4(f)(6)(iii).
    \33\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-MIAX-2023-45 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-2023-45. 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 (https://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

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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 a.m. and 3 p.m. Copies of the 
filing also will be available for inspection and copying at the 
principal office of the Exchange. Do not include personal identifiable 
information in submissions; you should submit only information that you 
wish to make available publicly. We may redact in part or withhold 
entirely from publication submitted material that is obscene or subject 
to copyright protection. All submissions should refer to file number 
SR-MIAX-2023-45 and should be submitted on or before December 26, 2023.
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    \34\ 17 CFR 200.30-3(a)(12), (59).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-26596 Filed 12-4-23; 8:45 am]
BILLING CODE 8011-01-P


