
[Federal Register Volume 88, Number 248 (Thursday, December 28, 2023)]
[Notices]
[Pages 89738-89740]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-28705]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99232; File No. SR-EMERALD-2023-31]


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

December 22, 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 December 13, 2023, MIAX Emerald, LLC (``MIAX 
Emerald'' 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/emerald-options/rule-filings, at MIAX Emerald'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 separate and distinct 
quoting obligations. A Primary Lead Market Maker must provide 
continuous two-sided Standard quotes, 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.\12\ A Primary Lead Market 
Maker must provide continuous two-sided Standard quotes 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.\13\ A Lead Market Maker must 
provide continuous two-sided Standard quotes, 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.\14\ A Lead Market Maker must 
provide continuous two-sided Standard quotes 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).\15\ A Registered Market Maker must provide continuous two-
sided Standard quotes throughout the trading day in 60% of the non-
adjusted series that have a time

[[Page 89739]]

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.\16\
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    \11\ See supra note 4.
    \12\ See Exchange Rule 604(e)(1)(i).
    \13\ See Exchange Rule 604(e)(1)(ii).
    \14\ See Exchange Rule 604(e)(2)(i).
    \15\ See Exchange Rule 604(e)(2)(ii).
    \16\ 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 \17\ 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.\18\ 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 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.\19\
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    \17\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \18\ See Exchange Rule 612.
    \19\ 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.\20\
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    \20\ 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 Interpretations and Policies .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.\21\ 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 \22\ for that class.\23\ 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).\24\ 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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    \21\ See MIAX Emerald Options Exchange, Express Interface for 
Quoting and Trading Options, MEI Interface Specification, version 
2.2 (7/28/2023), available at: https://www.miaxglobal.com/markets/us-options/emerald-options/interface-specifications.
    \22\ The price of Market Maker quotes shall be in the minimum 
trading increments applicable to the security under Rule 510. See 
Exchange Rule 604(b)(1).
    \23\ The terms ``class of options'' or ``option class'' mean all 
option contracts covering the same underlying security. See Exchange 
Rule 100.
    \24\ Exchange Rule 604(b)(2) provides that, the initial size of 
a Market Maker incoming Standard Quote 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 the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\25\ Specifically, the Exchange believes that its proposed rule 
change is consistent with Section 6(b)(5) \26\ 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) \27\ 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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    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(5).
    \27\ 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.

[[Page 89740]]

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 \28\ and 
subparagraph (f)(6) of Rule 19b 4 thereunder.\29\
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    \28\ 15 U.S.C. 78s(b)(3)(A).
    \29\ 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) \30\ normally 
does not become operative prior to 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\31\ 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. In addition, 
the Commission notes that the proposed rule change is substantively 
identical to a recent proposed rule change filed by another national 
securities exchange that is now operative.\32\ 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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    \30\ 17 CFR 240.19b-4(f)(6).
    \31\ 17 CFR 240.19b-4(f)(6)(iii).
    \32\ See Securities Exchange Act Release No. 99041 (November 29, 
2023), 88 FR 84376 (December 5, 2023) (SR-MIAX-2023-45); see also 
Interpretations and Policies .02 of MIAX Options Exchange Rule 517.
    \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 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-EMERALD-2023-31 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-EMERALD-2023-31. 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 (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 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-EMERALD-2023-31 and should 
be submitted on or before January 18, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12), (59).
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Christina Z. Milnor,
Assistant Secretary.
[FR Doc. 2023-28705 Filed 12-27-23; 8:45 am]
BILLING CODE 8011-01-P


