84 FR 26924 - Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 519, MIAX Order Monitor

[Federal Register Volume 84, Number 111 (Monday, June 10, 2019)]
[Notices]
[Pages 26924-26927]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2019-12089]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86024; File No. SR-MIAX-2019-26]


Self-Regulatory Organizations; Miami International Securities 
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Exchange Rule 519, MIAX Order Monitor

June 4, 2019.
    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 May 24, 2019, 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.
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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 519, MIAX 
Order Monitor, in order to harmonize its rule to the rules of the 
Exchange's affiliate, MIAX Emerald, LLC (``MIAX Emerald'').
    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.

[[Page 26925]]

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 519, MIAX Order 
Monitor, to align its behavior pertaining to the handling of limit 
orders to buy and limit orders to sell to that of MIAX Emerald.
Current Functionality
    In order to avoid the occurrence of potential obvious or 
catastrophic errors on the Exchange the MIAX Order Monitor will prevent 
certain orders from executing or being placed on the Book at prices 
outside pre-set standard limits. Beginning after the Opening Process- 
\3\ is complete, the MIAX Order Monitor will be operational each 
trading day until the close of trading.\4\
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    \3\ See Exchange Rule 503(f).
    \4\ See Exchange Rule 519(a).
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    Subsection (3) of paragraph (a), Limit Orders to Buy or Sell, of 
the Rule, states that the System \5\ will reject an incoming limit 
order that crosses the contra-side NBBO \6\ by at least 50% or $2.50, 
whichever is less. The following examples illustrate those situations 
where lower priced limit orders are rejected because they cross the 
NBBO by at least 50%: (A) If the NBBO on the offer side is $4.00, an 
order to buy options for $6.00 or more will be rejected; and (B) if the 
NBBO on the bid side is $4.00, an order to sell options for $2.00 or 
less will be rejected. Additionally, the following are examples of 
those situations where higher priced limit orders are rejected because 
they cross the NBBO by $2.50 or more: (A) If the NBBO on the offer side 
is $12.00, an order to buy options for $14.50 or more will be rejected; 
and (B) if the NBBO on the bid side is $12.00, an order to sell options 
for $9.50 or less will be rejected. Notwithstanding the foregoing, with 
respect to limit orders to sell, the MIAX Order Monitor will not be 
activated when the NBBO on the bid side is equal to or less than $0.25. 
Thus, the System will accept all limit orders to sell regardless of 
price during this time.
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    \5\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \6\ 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.
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Proposal
    The Exchange proposes to amend current subsection (3) to create a 
separate subsection for limit orders to buy (proposed subsection (3)), 
and for limit orders to sell (proposed subsection (4)). The Exchange 
proposes to introduce a new threshold for limit orders to buy which 
will provide that for options with a National Best Offer (``NBO'') less 
than or equal to $0.50 the System will reject an incoming limit order 
that has a limit price that is equal to or greater than the NBO Price 
by $0.25. The Exchange believes that creating separate subsections 
dedicated to limit orders to buy and limit orders to sell will add 
clarity and additional detail to the Exchange's Rule. Additionally, the 
Exchange proposes to provide new examples demonstrating the operation 
of the MIAX Order Monitor functionality for both limit orders to buy 
and limit orders to sell.
    Proposed subsection (3), Limit Orders to Buy, will provide that for 
options with a National Best Offer (``NBO'') greater than $0.50 the 
System will reject an incoming limit order that has a limit price equal 
to or greater than the NBO by the lesser of (i) $2.50, or (ii) 50% of 
the NBO price. The proposed rule will also provide that for options 
with an NBO less than or equal to $0.50 the System will reject an 
incoming limit order that has a limit price that is equal to or greater 
than the NBO price by $0.25.
    The proposed examples provide that (A) if the NBO is $12.00 an 
incoming limit order to buy options for $14.50 or more will be 
rejected; and (B) if the NBO is $0.10 an incoming limit order to buy 
options for $0.15 will not be rejected; whereas if the NBO is $0.10 an 
incoming limit order to buy options for $0.35 will be rejected as the 
limit price of the order is $0.25 greater than the NBO. Proposed 
example A provides an example of an order being rejected when the 
order's limit price ($14.50) is greater than the NBO ($12.00) by the 
lesser of $2.50 or 50% of the NBO price ($6.00). Proposed example B 
demonstrates how the protection works when the NBO of the option is 
$0.50 or less. If the NBO is $0.10 an incoming limit order to buy 
options for $0.15 will not be rejected as the order's limit price is 
not $0.25 greater ($.35) than the NBO price.
    Proposed subsection (4) Limit Orders to Sell, will provide that for 
options with a National Best Bid (``NBB'') equal to or greater than 
$0.25 the System will reject an incoming limit order that has a limit 
price equal to or less than the NBB by the lesser of (i) $2.50, or (ii) 
50% of the NBB price. For options with an NBB of $0.25 or less the 
System will accept any incoming limit order.
    Additionally, the proposed rule will include examples to 
demonstrate the operation of the rule in different circumstances. The 
proposed examples provide that (A) if the NBB is $12.00 an incoming 
limit order to sell options for $9.50 or less will be rejected; and (B) 
if the NBB is $0.30 an incoming limit order to sell options for $0.15 
will be rejected; whereas if the NBB is $0.30 an incoming limit order 
to sell options for $0.20 will not be rejected as the limit price of 
the order is not less than 50% of the NBB price. Proposed example A 
provides an example of an order being rejected when the order's limit 
price ($9.50) is less than the NBB ($12.00) by the lesser of $2.50 or 
50% of the NBB price ($6.00). Proposed example B demonstrates how the 
protection works when the NBB of the option is greater than $0.25.
    The Exchange believes its proposed changes provide additional 
detail and clarity to the Exchange's rules concerning order protections 
for incoming limit orders to buy and incoming limit orders to sell.
    The Exchange will announce the implementation date of the proposed 
rule change by Regulatory Circular to be published no later than 60 
days following the operative date of the proposed rule. The 
implementation date will be no later than 60 days following the 
issuance of the Regulatory Circular.
2. Statutory Basis
    MIAX Options believes that its proposed rule change is consistent 
with Section 6(b) of the Act \7\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \8\ 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes its proposal promotes just and equitable 
principles of trade, 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 establishing thresholds 
for the handling of incoming limit orders to buy and sell, and by 
providing examples describing the System's behavior in various 
circumstances. Currently the Exchange's

[[Page 26926]]

Rule discusses the operation of the MIAX Order Monitor on incoming 
limit orders to buy or incoming limit orders to sell in a single 
paragraph.\9\ The Exchange believes providing separate paragraphs in 
the Rule specifically discussing the MIAX Order Monitor process for 
incoming limit orders to buy (proposed paragraph (a)(3)) and for 
incoming limit orders to sell (proposed paragraph (a)(4)), promotes the 
protection of investors and the public interest by providing additional 
detail and clarity in the rule. It is in the best interest of investors 
and the public for rules to be accurate and precise to avoid the 
potential for confusion. Further, the Exchange believes that providing 
a clear line of delineation for the treatment of limit orders to buy 
when the NBO is less than or equal to $0.50, and for limit orders to 
sell when the National Best Bid (``NBB'') is less than $0.25 benefits 
investors and the public by establishing clear and unambiguous 
thresholds regarding the acceptance or rejection of orders.
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    \9\ See Exchange Rule 519(a)(3).
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    The Exchange believes that the proposed changes to its rulebook add 
additional detail and provide further clarification to Members,\10\ 
investors, and the public, regarding the Exchange's order monitoring 
functionality. The Exchange believes it is in the interest of investors 
and the public to accurately describe the behavior of the Exchange's 
System in its rules as this information may be used by investors to 
make decisions concerning the submission of their orders. Transparency 
and clarity are consistent with the Act because it removes impediments 
to and helps perfect the mechanism of a free and open market and a 
national market system, and, in general, protects investors and the 
public interest by accurately describing the behavior of the Exchange's 
System.
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    \10\ 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.
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    The Exchange believes that the proposed changes promote 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 
and, in general, protects investors and the public interest by 
providing additional detail and clarity in the Exchange's rules. 
Further, the Exchange's proposal provides transparency and clarity in 
the rules and is consistent with the Act because it removes impediments 
to and helps perfect the mechanism of a free and open market and a 
national market system, and, in general, protects investors and the 
public interest by accurately describing the behavior of the Exchange's 
System. In particular, the Exchange believes that the proposed rule 
changes will provide greater clarity to Members and the public 
regarding 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.
    Additionally, the Exchange believes that although MIAX Options 
rules may, in certain instances, intentionally differ from MIAX Emerald 
rules, the proposed changes will promote uniformity with MIAX Emerald 
with respect to rules that are intended to be identical. MIAX Options 
and MIAX Emerald may have a number of Members in common, and where 
feasible the Exchange intends to implement similar behavior to provide 
consistency between MIAX Options and MIAX Emerald so as to avoid 
confusion among Members.

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 proposed rule change is 
designed to add additional clarity and detail to the Exchange's rules.
    The Exchange does not believe that the proposed rule change will 
impose any burden on inter-market competition as the Rules apply 
equally to all Exchange Members. The proposed rule change is not a 
competitive filing and is intended to enhance the protection of 
investors by ensuring that the rule clearly and accurately describes 
the scenarios when a limit order to buy or a limit order to sell will 
be rejected by the Exchange's System. Additionally, the proposed rule 
change provides examples of hypothetical scenarios to provide 
additional detail and clarity to the Exchange's rulebook.

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 \11\ and Rule 19b-4(f)(6) \12\ 
thereunder.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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 [email protected]. Please include 
File Number SR-MIAX-2019-26 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-2019-26. 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

[[Page 26927]]

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-2019-26 and should be 
submitted on or before July 1, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-12089 Filed 6-7-19; 8:45 am]
 BILLING CODE 8011-01-P