83_FR_37998 83 FR 37849 - 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

83 FR 37849 - 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

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 149 (August 2, 2018)

Page Range37849-37853
FR Document2018-16528

Federal Register, Volume 83 Issue 149 (Thursday, August 2, 2018)
[Federal Register Volume 83, Number 149 (Thursday, August 2, 2018)]
[Notices]
[Pages 37849-37853]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-16528]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83726; File No. SR-MIAX-2018-16]


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

July 27, 2018.
    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 July 16, 2018, Miami International Securities 
Exchange, LLC (``MIAX Options'' 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 518, 
Complex Orders, to update its rule text regarding stock-option orders, 
in connection with the upcoming launch of such orders on the Exchange.
    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 update its rule text regarding stock-option orders, in connection 
with the upcoming launch of such orders on the Exchange. In particular, 
the Exchange is proposing to (i) adopt new rule text to introduce a new 
price protection feature for certain stock-option strategies, (ii) 
delete certain existing rule text to eliminate an unnecessary execution 
price restriction for the stock component of a stock-option strategy, 
and (iii) make certain minor clarifying edits to existing rule text.
    Complex orders began trading on the Exchange on October 24, 
2016.\3\ In its rule filing to establish the trading of complex orders, 
the Exchange adopted rules for handling stock-option orders.\4\ The 
Exchange also indicated that it would determine when stock-option 
orders would be made available for trading in the System \5\ and would 
communicate such determination to Members \6\ via Regulatory 
Circular.\7\ The Exchange is now proposing to make certain changes to 
its rule text, in connection with the upcoming launch of such orders on 
the Exchange, which is scheduled for the third quarter of 2018.
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    \3\ See MIAX Regulatory Circular 2016-43, October 20, 2016.
    \4\ See Securities Exchange Act Release No. 79072 (October 7, 
2016), 81 FR 71131 (October 14, 2016) (SR-MIAX-2016-26).
    \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 ``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 supra note 4.
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    Currently, the Exchange provides price protection for certain 
complex option trading strategies such as Vertical Spreads \8\ and 
Calendar Spreads \9\ to prevent executions at potentially erroneous 
prices. Specifically, the Exchange provides a Vertical Spread Variance 
(``VSV'') price protection and a Calendar Spread Variance (``CSV'') 
price protection. The VSV establishes minimum and maximum trading price 
limits for Vertical Spreads.\10\ The CSV establishes a minimum trading 
price limit for Calendar Spreads.\11\ If the execution price of a 
complex order would be outside of the limits established for Vertical 
Spreads and Calendar Spreads, such complex order will be placed on the 
Strategy Book and will be managed to the appropriate trading price 
limit as described in Rule 518(c)(4), Managed Interest Process for 
Complex Orders. Orders to buy below the minimum trading price limit and 
orders to sell above the maximum trading price limit (in the case of 
Vertical Spreads) will be rejected by the System.\12\
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    \8\ A ``Vertical Spread'' is a complex strategy consisting of 
the purchase of one call (put) option and the sale of another call 
(put) option overlying the same security that have the same 
expiration but different strike prices. See Exchange Rule 518.05(a).
    \9\ A ``Calendar Spread'' is a complex strategy consisting of 
the purchase of one call (put) option and the sale of another call 
(put) option overlying the same security that have different 
expirations but the same strike price. See Exchange Rule 518.05(b).
    \10\ See Exchange Rule 518.05(a).
    \11\ See Exchange Rule 518.05(b).
    \12\ See Exchange Rule 518.05(c).
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    The Exchange now proposes to adopt new subsection (g) in Rule 518, 
Interpretations and Policies .01, to provide a price protection feature 
for certain stock-option strategies that have a single option component 
tied to a stock component with a standard deliverable.\13\ The proposed 
price protection feature, named ``Parity Price Protection,'' will 
provide price protection for strategies that consist of a

[[Page 37850]]

sale of one call \14\ and the purchase of one hundred shares of the 
underlying stock (``Buy-Write'') and the contra side of the strategy, 
or that consist of the purchase of one put \15\ and the purchase of one 
hundred shares of the underlying stock (``Married-Put'') and the contra 
side of the strategy. The Exchange will establish a Parity Spread 
Variance (``PSV'') value between $0.00 and $0.50. The PSV value will be 
uniform for all option classes traded on the Exchange as determined by 
the Exchange and communicated to Members via Regulatory Circular prior 
to accepting such orders on the Exchange. The PSV will be used to 
calculate a minimum option trading price limit that the System will 
prevent the option leg from trading below by applying the PSV value to 
the strike price of the option to establish a parity protected price 
for the strategy. For call option legs, the PSV value is added to the 
strike price of the option; for put option legs, the PSV value is 
subtracted from the strike price of the option. The System will then 
prevent the strategy from trading below its parity protected price 
limit to ensure that the strategy does not execute at a potentially 
erroneous price.
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    \13\ The standard stock deliverable is 100 shares.
    \14\ The term ``call'' means an option contract under which the 
holder of the option has the right, in accordance with the terms of 
the option, to purchase from the Clearing Corporation the number of 
units of the underlying security covered by the option contract. See 
Exchange Rule 100.
    \15\ The term ``put'' means an option contract under which the 
holder of the option has the right, in accordance with the terms and 
provisions of the option, to sell to the Clearing Corporation the 
number of units of the underlying security covered by the option 
contract. See Exchange Rule 100.
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    The examples below provide an illustration of how the protection is 
calculated for Buy-Write and Married-Put strategies. For the purposes 
of the following examples the PSV used in the calculations is $.10.
    Following is an example of the operation of the price protection 
feature for a Married-Put Strategy:
Example 1 (Married-Put)
    In its simplest terms the parity price of a put option can be 
expressed as (Strike Price - Stock Price = Put Option Parity Price). 
If, for example, the stock is trading at $45.00 and the Strike Price of 
the put option is $50.00, the parity price of the put option would then 
be $5.00 ($50.00 - $45.00 = $5.00). The Exchange is able to leverage 
the parity relationship between the components to establish a minimum 
option trading price limit for Married-Put Strategies by simply 
subtracting the PSV from the strike price of the option. The effect on 
the option price can be seen in the following calculation (($50.00 - 
$0.10) - $45.00 = $49.90 - $45.00 = $4.90). The Exchange will calculate 
the parity protected price for a Married-Put Strategy by leveraging the 
put option parity formula by simply subtracting the PSV from the strike 
price of the option. This would result in a parity protected price for 
the strategy of $49.90 using the figures above.
    This allows for the stock component and the option component prices 
to fluctuate to achieve the strategy's net price, but ensures that the 
strategy will not trade below its parity protected price. Married Put 
Strategy interest received to sell a price protected Married-Put 
Strategy below $49.90 will be placed on the Strategy Book \16\ at 
$49.90. Married Put Strategy interest received to buy a price protected 
Married-Put Strategy below $49.90 will be rejected.
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    \16\ The ``Strategy Book'' is the Exchange's electronic book of 
complex orders and complex quotes. See Exchange Rule 518(a)(17).
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Example 2 (Buy-Write)
    In its simplest terms the parity price of a call option can be 
expressed as (Stock Price - Strike Price = Call Option Parity Price). 
If, for example, the stock is trading at $45.00 and the Strike Price of 
the call option is $40.00, the parity price of the call option would 
then be $5.00 ($45.00 - $40.00 = $5.00). The Exchange is able to 
leverage the parity relationship between the components to establish a 
minimum option trading price limit for Buy-Write Strategies by adding 
the PSV to the strike price of the option. The effect on the option 
price can be seen in the following calculation ($45.00 - ($40.00 + 
$.10) = $45.00 - $40.10 = $4.90). The Exchange will calculate the 
parity protected price for a Buy-Write Strategy by leveraging the call 
option parity formula by simply adding the PSV to the strike price of 
the option. This would result in a parity protected price for the 
strategy of $40.10 net debit using the figures above.
    This allows for the stock component and the option component prices 
to fluctuate to achieve the strategy's net price, but ensures that the 
strategy will not trade below its parity protected price. Buy-Write 
strategy interest received to sell a price protected Buy-Write Strategy 
below $40.10 net debit will be placed on the Strategy Book at $40.10 
net debit.\17\ Buy-Write strategy interest received to buy a price 
protected Buy-Write Strategy below $40.10 net debit will be rejected.
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    \17\ A seller of the strategy would receive a $40.10 net credit.
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    Second, the Exchange proposes to delete certain existing rule text 
from Exchange Rule 518, Interpretations and Policies .01, subsection 
(b), to eliminate an unnecessary execution price restriction for the 
stock component of a stock-option strategy. Exchange Rule 518, 
Interpretations and Policies .01 subsection (b), contains a paragraph 
that provides that, ``[t]he execution price of the underlying security 
component must be also within the high-low range for the day in the 
underlying security at the time the stock-option order is processed and 
within a certain price from the current market, which the Exchange will 
establish and communicate to Members via Regulatory Circular. If the 
underlying security component price is not within these parameters, the 
stock-option order is not executable.'' \18\ The Exchange does not 
believe that this execution price restriction for the stock component 
is necessary given the existing price protections already in place on 
the Exchange.
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    \18\ See Exchange Rule 518, Interpretations and Policies .01(b).
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    The Exchange believes that the execution price restriction for the 
stock component of a stock-option strategy is unnecessary because all 
complex orders on the Exchange, including stock-option orders, receive 
Implied Complex MIAX Best Bid or Offer (``icMBBO'') protection.\19\ The 
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. For stock-option orders, the icMBBO for 
a complex strategy is calculated using the best price (whether 
displayed or non-displayed) on the Simple Order Book \20\ in the 
individual option component(s), and the NBBO \21\ in the stock 
component.\22\ Exchange Rule 518(c)(2)(ii) provides, in relevant part, 
that incoming complex orders and quotes will not be executed at prices 
inferior to the icMBBO or at a price that is equal to the icMBBO when 
there is a Priority Customer Order (as defined in Rule 100) at the best 
icMBBO price. Further, the rule provides that complex orders will never 
be executed at a price that is outside of the individual component 
prices on the Simple Order Book, and the net price of a complex order 
executed against another complex order on the Strategy Book will never 
be

[[Page 37851]]

inferior to the price that would be available if the complex order 
legged into the Simple Order Book. Accordingly, as a result of the 
icMBBO price protection feature, the execution price for the stock 
component of a stock-option order will always be inside the NBBO of the 
stock. Therefore, rule text stating that the execution price of the 
underlying security component must be within the high-low range for the 
day is unnecessary, as the icMBBO protection ensures that executions 
are always within the NBBO.
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    \19\ See Exchange Rule 518(a)(11).
    \20\ The ``Simple Order Book'' is the Exchange's regular 
electronic book of orders and quotes. See Exchange Rule 518(a)(15).
    \21\ 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).
    \22\ See Exchange Rule 518(a)(11).
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    Finally, the Exchange proposes to make a number of minor, non-
substantive edits to Rule 518, Interpretations and Policies .05(e), to 
add clarity and precision to the Exchange's rule text. Since the 
Exchange will be introducing the trading of complex strategies which 
include a ``stock'' component, the Exchange seeks to clarify certain 
aspects of the rule that are intended to apply only to the ``option'' 
component of a complex strategy. Specifically, the Exchange proposes to 
clarify the definition of a Wide Market Condition, as described in 
Interpretations and Policies .05, subsection (e)(1), so that it is 
clear that it is only applying to the ``option'' component of a complex 
strategy. The new proposed rule text will provide that, ``[a] `wide 
market condition' is defined as any individual option component of a 
complex strategy having, at the time of evaluation, an MBBO \23\ quote 
width that is wider than the permissible valid quote width as defined 
in Rule 603(b)(4).'' By definition, the MBBO is comprised of option 
interest only, therefore providing additional detail to the existing 
rule adds clarity to the Exchange's rules.
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    \23\ The term ``MBBO'' means the best bid or offer on the Simple 
Order Book on the Exchange. See Exchange Rule 518(a)(13).
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    Similarly, the Exchange proposes to clarify that Simple Market 
Auction or Timer Events (``SMAT Events'') pertain only to ``option'' 
components of a complex strategy, by amending Interpretations and 
Policies .05, subsection (e)(2)(i) and (e)(2)(ii), to include the term 
``option component'' in the first sentence of each section. By 
definition, the Exchange's Simple Market is comprised of option 
interest only, on the Simple Order Book, therefore providing additional 
detail to the existing rule adds clarity to the Exchange's rules.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \24\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \25\ 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 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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    \24\ 15 U.S.C. 78f(b).
    \25\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes establishing a parity price protection for 
certain Buy-Write and Married-Put strategies 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 by ensuring 
that strategies are not executed at potentially erroneous prices.
    Given the relationship that the stock price, strike price, and 
option price have to each other, the Exchange is able to calculate a 
minimum option trading price limit for the option leg of certain stock-
option strategies with a call or a put component. Specifically, the 
parity price of a call option can be derived by subtracting the strike 
price from the stock price (Stock Price - Strike Price = Call Option 
Parity Price); and the parity price of a put option can be derived by 
subtracting the stock price from the strike price (Strike Price - Stock 
Price = Put Option Parity Price). Using these relationships the PSV may 
be applied to establish a minimum option trading price limit that the 
System will prevent the option leg from trading below to establish a 
parity protected price for the strategy to ensure the strategy does not 
trade below its parity protected price at a potentially erroneous 
price.
    The Exchange believes that Members will benefit from the proposed 
risk protection measure as the protection ensures that these stock-
option strategies are not executed below their parity protected price 
as calculated by the Exchange. Consequently, the proposed risk 
protection is designed to encourage Members to submit additional order 
flow and liquidity to the Exchange in these strategies, 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. This protection should provide 
Members with confidence that protections are in place on the Exchange 
to reduce the risk of these strategies being executed at potentially 
erroneous prices. As a result, the Exchange believes that the proposed 
price protection feature will promote just and equitable principles of 
trade.
    Additionally the Exchange's proposal to remove unnecessary rule 
text from its current rule which requires that the execution price of 
the underlying security component be within the high-low range for the 
day in the underlying security at the time the stock-option order is 
processed is consistent with Section 6(b) of the Act \26\ in general, 
and furthers the objectives of Section 6(b)(5) of the Act \27\ in 
particular. The Exchange believes that its existing icMBBO price 
protection feature will sufficiently guard against potentially 
erroneous transaction prices for complex strategies which include an 
underlying stock component. The icMBBO for a complex strategy involving 
a stock component is calculated using the best price on the Simple 
Order Book in the individual option component(s) and the NBBO in the 
stock component.\28\ Every complex order entered on the Exchange 
receives the icMBBO price protection \29\ and as a result, the 
execution price for the stock component of a stock-option order will 
always be inside the NBBO of the stock. Removal of the unnecessary rule 
text will protect investors and the public interest by providing 
clarity and precision in the Exchange's rules. Further, the Exchange 
notes that other exchanges that offer stock-option orders do not have 
this provision in their rules.\30\
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    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(5).
    \28\ See supra note 21.
    \29\ See supra note 19.
    \30\ See CBOE Rule 6.53C.06 and NASDAQ ISE Rule 722.
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    Finally, the Exchange proposes to make minor non-substantive 
changes to its rule to clarify that Wide Market Conditions and Simple 
Market Auction or Timer Events on the Exchange are related to the 
``option'' components only for complex strategies. The Exchange 
believes the proposed changes promote just and equitable principles of 
trade, remove impediments to and perfect the mechanism of a free and 
open market and a national market system because they seek to add 
clarity and precision to the Exchange's rules. 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.

[[Page 37852]]

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 not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes the 
proposed rule change will foster competition as it provides a risk 
protection mechanism for certain complex strategies entered on the 
Exchange and may promote competition by enabling Members to trade more 
aggressively on the Exchange knowing that these strategies will not be 
executed below [sic] parity protected price at potentially erroneous 
prices. Accordingly, the price protection feature should instill 
additional confidence in Members that submit certain stock-option 
orders to the Exchange that their orders receive price protection, and 
thus should encourage Members to submit additional order flow and 
liquidity to the Exchange, 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.
    The removal of unnecessary rule text pertaining to the execution 
price of the stock component of a stock-option order does not impose 
any burden on competition as the proposed change will align the 
Exchange's rule with that of other exchanges.\31\ Further, the 
additional proposed changes remedy minor non-substantive issues in the 
text of various rules identified in this proposal.
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    \31\ Id.
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    The Exchange does not believe the proposed rule change will impose 
any burden on intra-market competition as price protection is available 
to all market participants that submit orders in certain stock-option 
strategies. The Exchange further believes that the proposed price 
protection should promote inter-market competition, and result in more 
competitive order flow to the Exchange by protecting market 
participants from potentially erroneous executions occurring at prices 
below the parity protected price of the strategy, as calculated by the 
Exchange.
    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 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 \32\ and Rule 19b-4(f)(6) \33\ 
thereunder.
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    \32\ 15 U.S.C. 78s(b)(3)(A).
    \33\ 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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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \34\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \35\ permits the 
Commission to 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. The 
Exchange states that waiver of the operative delay is consistent with 
the protection of investors and the public interest because it will 
enable market participants to benefit from the proposed parity price 
protection feature, which is designed to safeguard against the 
possibility of executions occurring at potentially erroneous prices. 
MIAX also states that the proposal protects investors and the public 
interest by deleting a provision requiring the execution price of the 
underlying security component of a stock-option order to be within the 
underlying component's high-low range for the day. MIAX notes that this 
provision is unnecessary because all complex orders on MIAX are 
protected by the icMBBO price protection feature, which assures that 
the stock leg of a stock-option order will not be executed at a price 
that is inferior to the NBBO for the stock. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest because the proposed 
parity price protection feature is designed to prevent Buy-Write and 
Married Put strategies from executing at potentially erroneous prices. 
As noted above, Buy-Write and Married Put interest to buy that is 
priced below the parity protected price for the strategy will be 
rejected, and Buy-Write and Married Put interest to sell that is priced 
below the parity protected price will be placed on the Strategy Book at 
the parity protected price for the strategy. Therefore, the Commission 
hereby waives the operative delay and designates the proposed rule 
change as operative upon filing.\36\
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    \34\ 17 CFR 240.19b-4(f)(6).
    \35\ 17 CFR 240.19b-4(f)(6)(iii).
    \36\ 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 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-2018-16 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-MIAX-2018-16. 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

[[Page 37853]]

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-2018-16 and should be submitted on or before August 23, 2018.
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    \37\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018-16528 Filed 8-1-18; 8:45 am]
BILLING CODE 8011-01-P



                                                                              Federal Register / Vol. 83, No. 149 / Thursday, August 2, 2018 / Notices                                                  37849

                                               public in accordance with the                           I. Self-Regulatory Organization’s                     trading in the System 5 and would
                                               provisions of 5 U.S.C. 552, will be                     Statement of the Terms of Substance of                communicate such determination to
                                               available for website viewing and                       the Proposed Rule Change                              Members 6 via Regulatory Circular.7 The
                                               printing in the Commission’s Public                                                                           Exchange is now proposing to make
                                               Reference Section, 100 F Street NE,                        The Exchange is filing a proposal to               certain changes to its rule text, in
                                               Washington, DC 20549, on official                       amend Exchange Rule 518, Complex                      connection with the upcoming launch
                                               business days between the hours of                      Orders, to update its rule text regarding             of such orders on the Exchange, which
                                               10:00 a.m. and 3:00 p.m. Copies of such                 stock-option orders, in connection with               is scheduled for the third quarter of
                                               filing also will be available for                       the upcoming launch of such orders on                 2018.
                                               inspection and copying at the principal                 the Exchange.                                            Currently, the Exchange provides
                                               office of OCC and on OCC’s website at                      The text of the proposed rule change               price protection for certain complex
                                               https://www.theocc.com/about/                           is available on the Exchange’s website at             option trading strategies such as Vertical
                                               publications/bylaws.jsp.                                http://www.miaxoptions.com/rule-                      Spreads 8 and Calendar Spreads 9 to
                                                                                                       filings/ at MIAX Options’ principal                   prevent executions at potentially
                                                  All comments received will be posted
                                                                                                       office, and at the Commission’s Public                erroneous prices. Specifically, the
                                               without change. Persons submitting
                                                                                                       Reference Room.                                       Exchange provides a Vertical Spread
                                               comments are cautioned that we do not
                                               redact or edit personal or identifying                  II. Self-Regulatory Organization’s                    Variance (‘‘VSV’’) price protection and a
                                               information from comment submissions.                   Statement of the Purpose of, and                      Calendar Spread Variance (‘‘CSV’’) price
                                               You should submit only information                      Statutory Basis for, the Proposed Rule                protection. The VSV establishes
                                               that you wish to make available                         Change                                                minimum and maximum trading price
                                               publicly.                                                                                                     limits for Vertical Spreads.10 The CSV
                                                                                                         In its filing with the Commission, the              establishes a minimum trading price
                                                  All submissions should refer to File                 Exchange included statements                          limit for Calendar Spreads.11 If the
                                               Number SR–OCC–2017–020 and should                       concerning the purpose of and basis for               execution price of a complex order
                                               be submitted on or before August 17,                    the proposed rule change and discussed                would be outside of the limits
                                               2018.                                                   any comments it received on the                       established for Vertical Spreads and
                                                 For the Commission by the Division of                 proposed rule change. The text of these               Calendar Spreads, such complex order
                                               Trading and Markets, pursuant to delegated              statements may be examined at the                     will be placed on the Strategy Book and
                                               authority.72                                            places specified in Item IV below. The                will be managed to the appropriate
                                               Robert W. Errett,                                       Exchange has prepared summaries, set                  trading price limit as described in Rule
                                               Deputy Secretary.                                       forth in sections A, B, and C below, of               518(c)(4), Managed Interest Process for
                                               [FR Doc. 2018–16535 Filed 8–1–18; 8:45 am]              the most significant aspects of such                  Complex Orders. Orders to buy below
                                                                                                       statements.                                           the minimum trading price limit and
                                               BILLING CODE 8011–01–P
                                                                                                                                                             orders to sell above the maximum
                                                                                                       A. Self-Regulatory Organization’s
                                                                                                                                                             trading price limit (in the case of
                                                                                                       Statement of the Purpose of, and
                                               SECURITIES AND EXCHANGE                                                                                       Vertical Spreads) will be rejected by the
                                                                                                       Statutory Basis for, the Proposed Rule
                                               COMMISSION                                                                                                    System.12
                                                                                                       Change                                                   The Exchange now proposes to adopt
                                                                                                       1. Purpose                                            new subsection (g) in Rule 518,
                                               [Release No. 34–83726; File No. SR–MIAX–                                                                      Interpretations and Policies .01, to
                                               2018–16]                                                   The Exchange proposes to amend                     provide a price protection feature for
                                                                                                       Exchange Rule 518, Complex Orders, to                 certain stock-option strategies that have
                                               Self-Regulatory Organizations; Miami                    update its rule text regarding stock-
                                               International Securities Exchange LLC;                                                                        a single option component tied to a
                                                                                                       option orders, in connection with the                 stock component with a standard
                                               Notice of Filing and Immediate                          upcoming launch of such orders on the
                                               Effectiveness of a Proposed Rule                                                                              deliverable.13 The proposed price
                                                                                                       Exchange. In particular, the Exchange is              protection feature, named ‘‘Parity Price
                                               Change To Amend Exchange Rule 518,                      proposing to (i) adopt new rule text to
                                               Complex Orders                                                                                                Protection,’’ will provide price
                                                                                                       introduce a new price protection feature              protection for strategies that consist of a
                                               July 27, 2018.                                          for certain stock-option strategies, (ii)
                                                                                                       delete certain existing rule text to                     5 The term ‘‘System’’ means the automated
                                                  Pursuant to the provisions of Section                eliminate an unnecessary execution                    trading system used by the Exchange for the trading
                                               19(b)(1) of the Securities Exchange Act                 price restriction for the stock                       of securities. See Exchange Rule 100.
                                               of 1934 (‘‘Act’’) 1 and Rule 19b–4                      component of a stock-option strategy,
                                                                                                                                                                6 The term ‘‘Member’’ means an individual or

                                               thereunder,2 notice is hereby given that                                                                      organization approved to exercise the trading rights
                                                                                                       and (iii) make certain minor clarifying               associated with a Trading Permit. Members are
                                               on July 16, 2018, Miami International                   edits to existing rule text.                          deemed ‘‘members’’ under the Exchange Act. See
                                               Securities Exchange, LLC (‘‘MIAX                                                                              Exchange Rule 100.
                                                                                                          Complex orders began trading on the
                                               Options’’ or ‘‘Exchange’’) filed with the                                                                        7 See supra note 4.
                                                                                                       Exchange on October 24, 2016.3 In its
                                               Securities and Exchange Commission                                                                               8 A ‘‘Vertical Spread’’ is a complex strategy
                                                                                                       rule filing to establish the trading of               consisting of the purchase of one call (put) option
                                               (‘‘Commission’’) a proposed rule change
                                                                                                       complex orders, the Exchange adopted                  and the sale of another call (put) option overlying
                                               as described in Items I and II below,
                                                                                                       rules for handling stock-option orders.4              the same security that have the same expiration but
                                               which Items have been prepared by the                                                                         different strike prices. See Exchange Rule 518.05(a).
                                                                                                       The Exchange also indicated that it
                                               Exchange. The Commission is                                                                                      9 A ‘‘Calendar Spread’’ is a complex strategy
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                                                                                                       would determine when stock-option
                                               publishing this notice to solicit                                                                             consisting of the purchase of one call (put) option
                                                                                                       orders would be made available for                    and the sale of another call (put) option overlying
                                               comments on the proposed rule change
                                                                                                                                                             the same security that have different expirations but
                                               from interested persons.                                  3 See MIAX Regulatory Circular 2016–43, October     the same strike price. See Exchange Rule 518.05(b).
                                                                                                                                                                10 See Exchange Rule 518.05(a).
                                                                                                       20, 2016.
                                                 72 17 CFR 200.30–3(a)(12).                              4 See Securities Exchange Act Release No. 79072        11 See Exchange Rule 518.05(b).
                                                 1 15 U.S.C. 78s(b)(1).                                                                                         12 See Exchange Rule 518.05(c).
                                                                                                       (October 7, 2016), 81 FR 71131 (October 14, 2016)
                                                 2 17 CFR 240.19b–4.                                   (SR–MIAX–2016–26).                                       13 The standard stock deliverable is 100 shares.




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                                               37850                        Federal Register / Vol. 83, No. 149 / Thursday, August 2, 2018 / Notices

                                               sale of one call 14 and the purchase of                 ¥ $45.00 = $49.90 ¥ $45.00 = $4.90).                   Exchange Rule 518, Interpretations and
                                               one hundred shares of the underlying                    The Exchange will calculate the parity                 Policies .01, subsection (b), to eliminate
                                               stock (‘‘Buy-Write’’) and the contra side               protected price for a Married-Put                      an unnecessary execution price
                                               of the strategy, or that consist of the                 Strategy by leveraging the put option                  restriction for the stock component of a
                                               purchase of one put 15 and the purchase                 parity formula by simply subtracting the               stock-option strategy. Exchange Rule
                                               of one hundred shares of the underlying                 PSV from the strike price of the option.               518, Interpretations and Policies .01
                                               stock (‘‘Married-Put’’) and the contra                  This would result in a parity protected                subsection (b), contains a paragraph that
                                               side of the strategy. The Exchange will                 price for the strategy of $49.90 using the             provides that, ‘‘[t]he execution price of
                                               establish a Parity Spread Variance                      figures above.                                         the underlying security component
                                               (‘‘PSV’’) value between $0.00 and $0.50.                   This allows for the stock component                 must be also within the high-low range
                                               The PSV value will be uniform for all                   and the option component prices to                     for the day in the underlying security at
                                               option classes traded on the Exchange                   fluctuate to achieve the strategy’s net                the time the stock-option order is
                                               as determined by the Exchange and                       price, but ensures that the strategy will              processed and within a certain price
                                               communicated to Members via                             not trade below its parity protected                   from the current market, which the
                                               Regulatory Circular prior to accepting                  price. Married Put Strategy interest                   Exchange will establish and
                                               such orders on the Exchange. The PSV                    received to sell a price protected                     communicate to Members via
                                               will be used to calculate a minimum                     Married-Put Strategy below $49.90 will                 Regulatory Circular. If the underlying
                                               option trading price limit that the                     be placed on the Strategy Book 16 at                   security component price is not within
                                               System will prevent the option leg from                 $49.90. Married Put Strategy interest                  these parameters, the stock-option order
                                               trading below by applying the PSV                       received to buy a price protected                      is not executable.’’ 18 The Exchange
                                               value to the strike price of the option to              Married-Put Strategy below $49.90 will                 does not believe that this execution
                                               establish a parity protected price for the              be rejected.                                           price restriction for the stock
                                               strategy. For call option legs, the PSV                 Example 2 (Buy-Write)                                  component is necessary given the
                                               value is added to the strike price of the                                                                      existing price protections already in
                                               option; for put option legs, the PSV                       In its simplest terms the parity price              place on the Exchange.
                                               value is subtracted from the strike price               of a call option can be expressed as                      The Exchange believes that the
                                               of the option. The System will then                     (Stock Price ¥ Strike Price = Call                     execution price restriction for the stock
                                               prevent the strategy from trading below                 Option Parity Price). If, for example, the             component of a stock-option strategy is
                                               its parity protected price limit to ensure              stock is trading at $45.00 and the Strike              unnecessary because all complex orders
                                               that the strategy does not execute at a                 Price of the call option is $40.00, the                on the Exchange, including stock-option
                                               potentially erroneous price.                            parity price of the call option would                  orders, receive Implied Complex MIAX
                                                  The examples below provide an                        then be $5.00 ($45.00 ¥ $40.00 =                       Best Bid or Offer (‘‘icMBBO’’)
                                               illustration of how the protection is                   $5.00). The Exchange is able to leverage               protection.19 The icMBBO is a
                                               calculated for Buy-Write and Married-                   the parity relationship between the                    calculation that uses the best price from
                                               Put strategies. For the purposes of the                 components to establish a minimum                      the Simple Order Book for each
                                               following examples the PSV used in the                  option trading price limit for Buy-Write               component of a complex strategy
                                               calculations is $.10.                                   Strategies by adding the PSV to the                    including displayed and non-displayed
                                                  Following is an example of the                       strike price of the option. The effect on              trading interest. For stock-option orders,
                                               operation of the price protection feature               the option price can be seen in the                    the icMBBO for a complex strategy is
                                               for a Married-Put Strategy:                             following calculation ($45.00 ¥ ($40.00                calculated using the best price (whether
                                                                                                       + $.10) = $45.00 ¥ $40.10 = $4.90). The                displayed or non-displayed) on the
                                               Example 1 (Married-Put)                                 Exchange will calculate the parity                     Simple Order Book 20 in the individual
                                                  In its simplest terms the parity price               protected price for a Buy-Write Strategy               option component(s), and the NBBO 21
                                               of a put option can be expressed as                     by leveraging the call option parity                   in the stock component.22 Exchange
                                               (Strike Price ¥ Stock Price = Put Option                formula by simply adding the PSV to                    Rule 518(c)(2)(ii) provides, in relevant
                                               Parity Price). If, for example, the stock               the strike price of the option. This                   part, that incoming complex orders and
                                               is trading at $45.00 and the Strike Price               would result in a parity protected price               quotes will not be executed at prices
                                               of the put option is $50.00, the parity                 for the strategy of $40.10 net debit using             inferior to the icMBBO or at a price that
                                               price of the put option would then be                   the figures above.                                     is equal to the icMBBO when there is a
                                               $5.00 ($50.00 ¥ $45.00 = $5.00). The                       This allows for the stock component                 Priority Customer Order (as defined in
                                               Exchange is able to leverage the parity                 and the option component prices to                     Rule 100) at the best icMBBO price.
                                               relationship between the components to                  fluctuate to achieve the strategy’s net                Further, the rule provides that complex
                                               establish a minimum option trading                      price, but ensures that the strategy will              orders will never be executed at a price
                                               price limit for Married-Put Strategies by               not trade below its parity protected                   that is outside of the individual
                                               simply subtracting the PSV from the                     price. Buy-Write strategy interest                     component prices on the Simple Order
                                               strike price of the option. The effect on               received to sell a price protected Buy-                Book, and the net price of a complex
                                               the option price can be seen in the                     Write Strategy below $40.10 net debit                  order executed against another complex
                                               following calculation (($50.00 ¥ $0.10)                 will be placed on the Strategy Book at                 order on the Strategy Book will never be
                                                                                                       $40.10 net debit.17 Buy-Write strategy
                                                 14 The term ‘‘call’’ means an option contract         interest received to buy a price                          18 See Exchange Rule 518, Interpretations and

                                               under which the holder of the option has the right,     protected Buy-Write Strategy below                     Policies .01(b).
                                               in accordance with the terms of the option, to                                                                    19 See Exchange Rule 518(a)(11).
                                                                                                       $40.10 net debit will be rejected.
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                                               purchase from the Clearing Corporation the number          Second, the Exchange proposes to                       20 The ‘‘Simple Order Book’’ is the Exchange’s

                                               of units of the underlying security covered by the                                                             regular electronic book of orders and quotes. See
                                               option contract. See Exchange Rule 100.                 delete certain existing rule text from                 Exchange Rule 518(a)(15).
                                                 15 The term ‘‘put’’ means an option contract under                                                              21 The term ‘‘NBBO’’ means the national best bid
                                                                                                         16 The ‘‘Strategy Book’’ is the Exchange’s           or offer as calculated by the Exchange based on
                                               which the holder of the option has the right, in
                                               accordance with the terms and provisions of the         electronic book of complex orders and complex          market information received by the Exchange from
                                               option, to sell to the Clearing Corporation the         quotes. See Exchange Rule 518(a)(17).                  the appropriate Securities Information Processor
                                               number of units of the underlying security covered        17 A seller of the strategy would receive a $40.10   (‘‘SIP’’). See Exchange Rule 518(a)(14).
                                               by the option contract. See Exchange Rule 100.          net credit.                                               22 See Exchange Rule 518(a)(11).




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                                                                            Federal Register / Vol. 83, No. 149 / Thursday, August 2, 2018 / Notices                                                37851

                                               inferior to the price that would be                     Section 6(b) of the Act 24 in general, and              with confidence that protections are in
                                               available if the complex order legged                   furthers the objectives of Section 6(b)(5)              place on the Exchange to reduce the risk
                                               into the Simple Order Book.                             of the Act 25 in particular, in that it is              of these strategies being executed at
                                               Accordingly, as a result of the icMBBO                  designed to prevent fraudulent and                      potentially erroneous prices. As a result,
                                               price protection feature, the execution                 manipulative acts and practices, to                     the Exchange believes that the proposed
                                               price for the stock component of a stock-               promote just and equitable principles of                price protection feature will promote
                                               option order will always be inside the                  trade, to foster cooperation and                        just and equitable principles of trade.
                                               NBBO of the stock. Therefore, rule text                 coordination with persons engaged in                       Additionally the Exchange’s proposal
                                               stating that the execution price of the                 facilitating transactions in securities, to             to remove unnecessary rule text from its
                                               underlying security component must be                   remove impediments to and perfect the                   current rule which requires that the
                                               within the high-low range for the day is                mechanisms of a free and open market                    execution price of the underlying
                                               unnecessary, as the icMBBO protection                   and a national market system and, in                    security component be within the high-
                                               ensures that executions are always                      general, to protect investors and the                   low range for the day in the underlying
                                               within the NBBO.                                        public interest.                                        security at the time the stock-option
                                                  Finally, the Exchange proposes to                       The Exchange believes establishing a                 order is processed is consistent with
                                               make a number of minor, non-                            parity price protection for certain Buy-                Section 6(b) of the Act 26 in general, and
                                               substantive edits to Rule 518,                          Write and Married-Put strategies                        furthers the objectives of Section 6(b)(5)
                                               Interpretations and Policies .05(e), to                 promotes just and equitable principles                  of the Act 27 in particular. The Exchange
                                               add clarity and precision to the                        of trade and removes impediments to                     believes that its existing icMBBO price
                                                                                                       and perfects the mechanisms of a free                   protection feature will sufficiently guard
                                               Exchange’s rule text. Since the
                                                                                                       and open market and a national market                   against potentially erroneous
                                               Exchange will be introducing the
                                                                                                       system and, in general, protects                        transaction prices for complex strategies
                                               trading of complex strategies which
                                                                                                       investors and the public interest by                    which include an underlying stock
                                               include a ‘‘stock’’ component, the
                                                                                                       ensuring that strategies are not executed               component. The icMBBO for a complex
                                               Exchange seeks to clarify certain aspects
                                                                                                       at potentially erroneous prices.                        strategy involving a stock component is
                                               of the rule that are intended to apply                     Given the relationship that the stock
                                               only to the ‘‘option’’ component of a                                                                           calculated using the best price on the
                                                                                                       price, strike price, and option price have              Simple Order Book in the individual
                                               complex strategy. Specifically, the                     to each other, the Exchange is able to
                                               Exchange proposes to clarify the                                                                                option component(s) and the NBBO in
                                                                                                       calculate a minimum option trading                      the stock component.28 Every complex
                                               definition of a Wide Market Condition,                  price limit for the option leg of certain
                                               as described in Interpretations and                                                                             order entered on the Exchange receives
                                                                                                       stock-option strategies with a call or a                the icMBBO price protection 29 and as a
                                               Policies .05, subsection (e)(1), so that it             put component. Specifically, the parity
                                               is clear that it is only applying to the                                                                        result, the execution price for the stock
                                                                                                       price of a call option can be derived by                component of a stock-option order will
                                               ‘‘option’’ component of a complex                       subtracting the strike price from the
                                               strategy. The new proposed rule text                                                                            always be inside the NBBO of the stock.
                                                                                                       stock price (Stock Price ¥ Strike Price                 Removal of the unnecessary rule text
                                               will provide that, ‘‘[a] ‘wide market                   = Call Option Parity Price); and the
                                               condition’ is defined as any individual                                                                         will protect investors and the public
                                                                                                       parity price of a put option can be                     interest by providing clarity and
                                               option component of a complex strategy                  derived by subtracting the stock price
                                               having, at the time of evaluation, an                                                                           precision in the Exchange’s rules.
                                                                                                       from the strike price (Strike Price ¥                   Further, the Exchange notes that other
                                               MBBO 23 quote width that is wider than                  Stock Price = Put Option Parity Price).
                                               the permissible valid quote width as                                                                            exchanges that offer stock-option orders
                                                                                                       Using these relationships the PSV may
                                               defined in Rule 603(b)(4).’’ By                                                                                 do not have this provision in their
                                                                                                       be applied to establish a minimum
                                               definition, the MBBO is comprised of                                                                            rules.30
                                                                                                       option trading price limit that the                        Finally, the Exchange proposes to
                                               option interest only, therefore providing               System will prevent the option leg from
                                               additional detail to the existing rule                                                                          make minor non-substantive changes to
                                                                                                       trading below to establish a parity                     its rule to clarify that Wide Market
                                               adds clarity to the Exchange’s rules.                   protected price for the strategy to ensure              Conditions and Simple Market Auction
                                                  Similarly, the Exchange proposes to                  the strategy does not trade below its                   or Timer Events on the Exchange are
                                               clarify that Simple Market Auction or                   parity protected price at a potentially                 related to the ‘‘option’’ components only
                                               Timer Events (‘‘SMAT Events’’) pertain                  erroneous price.                                        for complex strategies. The Exchange
                                               only to ‘‘option’’ components of a                         The Exchange believes that Members
                                                                                                                                                               believes the proposed changes promote
                                               complex strategy, by amending                           will benefit from the proposed risk
                                                                                                                                                               just and equitable principles of trade,
                                               Interpretations and Policies .05,                       protection measure as the protection
                                                                                                                                                               remove impediments to and perfect the
                                               subsection (e)(2)(i) and (e)(2)(ii), to                 ensures that these stock-option
                                                                                                                                                               mechanism of a free and open market
                                               include the term ‘‘option component’’ in                strategies are not executed below their
                                                                                                                                                               and a national market system because
                                               the first sentence of each section. By                  parity protected price as calculated by
                                                                                                                                                               they seek to add clarity and precision to
                                               definition, the Exchange’s Simple                       the Exchange. Consequently, the
                                                                                                                                                               the Exchange’s rules. The Exchange
                                               Market is comprised of option interest                  proposed risk protection is designed to
                                                                                                                                                               believes that the proposed rule changes
                                               only, on the Simple Order Book,                         encourage Members to submit
                                                                                                                                                               will provide greater clarity to Members
                                               therefore providing additional detail to                additional order flow and liquidity to
                                                                                                                                                               and the public regarding the Exchange’s
                                               the existing rule adds clarity to the                   the Exchange in these strategies, thereby
                                                                                                                                                               Rules, and it is in the public interest for
                                               Exchange’s rules.                                       removing impediments to and
                                                                                                                                                               rules to be accurate and concise so as to
                                                                                                       perfecting the mechanisms of a free and
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                                               2. Statutory Basis                                                                                              eliminate the potential for confusion.
                                                                                                       open market and a national market
                                                 The Exchange believes that its                        system and, in general, protecting                        26 15 U.S.C. 78f(b).
                                               proposed rule change is consistent with                 investors and the public interest. This                   27 15 U.S.C. 78f(b)(5).
                                                                                                       protection should provide Members                         28 See supra note 21.

                                                 23 The term ‘‘MBBO’’ means the best bid or offer                                                                29 See supra note 19.
                                                                                                         24 15   U.S.C. 78f(b).
                                               on the Simple Order Book on the Exchange. See                                                                     30 See CBOE Rule 6.53C.06 and NASDAQ ISE

                                               Exchange Rule 518(a)(13).                                 25 15   U.S.C. 78f(b)(5).                             Rule 722.



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                                               37852                        Federal Register / Vol. 83, No. 149 / Thursday, August 2, 2018 / Notices

                                               B. Self-Regulatory Organization’s                       C. Self-Regulatory Organization’s                         public interest because the proposed
                                               Statement on Burden on Competition                      Statement on Comments on the                              parity price protection feature is
                                                                                                       Proposed Rule Change Received From                        designed to prevent Buy-Write and
                                                  The Exchange does not believe that                   Members, Participants, or Others                          Married Put strategies from executing at
                                               the proposed rule change will impose                                                                              potentially erroneous prices. As noted
                                                                                                         Written comments were neither
                                               any burden on competition not                                                                                     above, Buy-Write and Married Put
                                                                                                       solicited nor received.
                                               necessary or appropriate in furtherance                                                                           interest to buy that is priced below the
                                               of the purposes of the Act. The                         III. Date of Effectiveness of the                         parity protected price for the strategy
                                               Exchange believes the proposed rule                     Proposed Rule Change and Timing for                       will be rejected, and Buy-Write and
                                               change will foster competition as it                    Commission Action                                         Married Put interest to sell that is priced
                                               provides a risk protection mechanism                       Because the foregoing proposed rule                    below the parity protected price will be
                                               for certain complex strategies entered on               change does not: (i) Significantly affect                 placed on the Strategy Book at the parity
                                               the Exchange and may promote                            the protection of investors or the public                 protected price for the strategy.
                                               competition by enabling Members to                      interest; (ii) impose any significant                     Therefore, the Commission hereby
                                               trade more aggressively on the Exchange                 burden on competition; and (iii) become                   waives the operative delay and
                                               knowing that these strategies will not be               operative for 30 days after the date of                   designates the proposed rule change as
                                               executed below [sic] parity protected                   the filing, or such shorter time as the                   operative upon filing.36
                                               price at potentially erroneous prices.                  Commission may designate, it has                             At any time within 60 days of the
                                               Accordingly, the price protection                       become effective pursuant to 19(b)(3)(A)                  filing of the proposed rule change, the
                                                                                                       of the Act 32 and Rule 19b–4(f)(6) 33                     Commission summarily may
                                               feature should instill additional
                                                                                                       thereunder.                                               temporarily suspend such rule change if
                                               confidence in Members that submit
                                                                                                          A proposed rule change filed                           it appears to the Commission that such
                                               certain stock-option orders to the                                                                                action is necessary or appropriate in the
                                               Exchange that their orders receive price                pursuant to Rule 19b–4(f)(6) under the
                                                                                                       Act 34 normally does not become                           public interest, for the protection of
                                               protection, and thus should encourage                                                                             investors, or otherwise in furtherance of
                                               Members to submit additional order                      operative for 30 days after the date of its
                                                                                                       filing. However, Rule 19b–4(f)(6)(iii) 35                 the purposes of the Act. If the
                                               flow and liquidity to the Exchange,                                                                               Commission takes such action, the
                                                                                                       permits the Commission to designate a
                                               thereby removing impediments to and                                                                               Commission shall institute proceedings
                                                                                                       shorter time if such action is consistent
                                               perfecting the mechanisms of a free and                                                                           to determine whether the proposed rule
                                                                                                       with the protection of investors and the
                                               open market and a national market                                                                                 should be approved or disapproved.
                                                                                                       public interest. The Exchange has asked
                                               system and, in general, protecting                      the Commission to waive the 30-day
                                               investors and the public interest.                                                                                IV. Solicitation of Comments
                                                                                                       operative delay. The Exchange states
                                                  The removal of unnecessary rule text                                                                             Interested persons are invited to
                                                                                                       that waiver of the operative delay is
                                               pertaining to the execution price of the                                                                          submit written data, views, and
                                                                                                       consistent with the protection of
                                                                                                                                                                 arguments concerning the foregoing,
                                               stock component of a stock-option order                 investors and the public interest
                                                                                                                                                                 including whether the proposed rule
                                               does not impose any burden on                           because it will enable market
                                                                                                                                                                 change is consistent with the Act.
                                               competition as the proposed change will                 participants to benefit from the
                                                                                                                                                                 Comments may be submitted by any of
                                               align the Exchange’s rule with that of                  proposed parity price protection feature,
                                                                                                                                                                 the following methods:
                                               other exchanges.31 Further, the                         which is designed to safeguard against
                                               additional proposed changes remedy                      the possibility of executions occurring                   Electronic Comments
                                               minor non-substantive issues in the text                at potentially erroneous prices. MIAX                       • Use the Commission’s internet
                                               of various rules identified in this                     also states that the proposal protects                    comment form (http://www.sec.gov/
                                               proposal.                                               investors and the public interest by                      rules/sro.shtml); or
                                                  The Exchange does not believe the                    deleting a provision requiring the                          • Send an email to rule-comments@
                                                                                                       execution price of the underlying                         sec.gov. Please include File Number SR–
                                               proposed rule change will impose any
                                                                                                       security component of a stock-option                      MIAX–2018–16 on the subject line.
                                               burden on intra-market competition as
                                                                                                       order to be within the underlying
                                               price protection is available to all                                                                              Paper Comments
                                                                                                       component’s high-low range for the day.
                                               market participants that submit orders
                                                                                                       MIAX notes that this provision is                           • Send paper comments in triplicate
                                               in certain stock-option strategies. The
                                                                                                       unnecessary because all complex orders                    to Brent J. Fields, Secretary, Securities
                                               Exchange further believes that the                                                                                and Exchange Commission, 100 F Street
                                                                                                       on MIAX are protected by the icMBBO
                                               proposed price protection should                        price protection feature, which assures                   NE, Washington, DC 20549–1090.
                                               promote inter-market competition, and                   that the stock leg of a stock-option order                All submissions should refer to File
                                               result in more competitive order flow to                will not be executed at a price that is                   Number SR–MIAX–2018–16. This file
                                               the Exchange by protecting market                       inferior to the NBBO for the stock. The                   number should be included on the
                                               participants from potentially erroneous                 Commission believes that waiving the                      subject line if email is used. To help the
                                               executions occurring at prices below the                30-day operative delay is consistent                      Commission process and review your
                                               parity protected price of the strategy, as              with the protection of investors and the                  comments more efficiently, please use
                                               calculated by the Exchange.                                                                                       only one method. The Commission will
                                                  The Exchange does not believe that                     32 15  U.S.C. 78s(b)(3)(A).                             post all comments on the Commission’s
                                                                                                         33 17  CFR 240.19b–4(f)(6). In addition, Rule 19b–
                                               the proposed rule change will impose                                                                              internet website (http://www.sec.gov/
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                                                                                                       4(f)(6) requires a self-regulatory organization to give
                                               any burden on competition not                           the Commission written notice of its intent to file       rules/sro.shtml). Copies of the
                                               necessary or appropriate in furtherance                 the proposed rule change at least five business days      submission, all subsequent
                                               of the purposes of the Act, and believes                prior to the date of filing of the proposed rule
                                               the proposed change will enhance                        change, or such shorter time as designated by the            36 For purposes only of waiving the 30-day
                                                                                                       Commission. The Exchange has satisfied this               operative delay, the Commission has also
                                               competition.                                            requirement.                                              considered the proposed rule’s impact on
                                                                                                         34 17 CFR 240.19b–4(f)(6).
                                                                                                                                                                 efficiency, competition, and capital formation. See
                                                 31 Id.                                                  35 17 CFR 240.19b–4(f)(6)(iii).                         15 U.S.C. 78c(f).



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                                                                              Federal Register / Vol. 83, No. 149 / Thursday, August 2, 2018 / Notices                                                     37853

                                               amendments, all written statements                      prepared by the Exchange. The                               Connection type               Monthly fees
                                               with respect to the proposed rule                       Exchange filed the proposed rule change
                                               change that are filed with the                          pursuant to Section 19(b)(3)(A)(ii) of the               Non-10 Gb Connec-          $1,000 per connec-
                                               Commission, and all written                             Act,3 and Rule 19b–4(f)(2) thereunder,4                    tion.                      tion.
                                               communications relating to the                                                                                   10 Gb Connection .....     5,000 per connection.
                                                                                                       which renders the proposal effective
                                               proposed rule change between the                        upon filing with the Commission. The
                                               Commission and any person, other than                                                                               The Exchange also proposes to amend
                                                                                                       Commission is publishing this notice to                  certain language and numbering in
                                               those that may be withheld from the                     solicit comments on the proposed rule
                                               public in accordance with the                                                                                    Section VI.A to reflect the changes
                                                                                                       change from interested persons.                          discussed above. Specifically, BOX
                                               provisions of 5 U.S.C. 552, will be
                                               available for website viewing and                       I. Self-Regulatory Organization’s                        proposes to add the title ‘‘Third Party
                                               printing in the Commission’s Public                     Statement of the Terms of the Substance                  Connectivity Fees’’ under Section VI.A.
                                               Reference Room, 100 F Street NE,                                                                                 Further, the Exchange proposes to add
                                                                                                       of the Proposed Rule Change
                                               Washington, DC 20549, on official                                                                                Section VI.A.2 which details the
                                               business days between the hours of                         The Exchange is filing with the                       proposed BOX Connectivity Fees
                                               10:00 a.m. and 3:00 p.m. Copies of the                  Securities and Exchange Commission                       discussed above.
                                                                                                       (‘‘Commission’’) a proposed rule change                     Participants and non-Participants
                                               filing also will be available for
                                               inspection and copying at the principal                 to amend the Fee Schedule on the BOX                     with ten (10) Gigabit Connections will
                                               office of the Exchange. All comments                                                                             be charged a monthly fee of $5,000 per
                                                                                                       Market LLC (‘‘BOX’’) options facility.
                                               received will be posted without change.                                                                          connection. Participants and non-
                                                                                                       The text of the proposed rule change is
                                               Persons submitting comments are                                                                                  Participants with non-10 Gigabits
                                                                                                       available from the principal office of the               Connections will be charged a monthly
                                               cautioned that we do not redact or edit                 Exchange, at the Commission’s Public
                                               personal identifying information from                                                                            fee of $1,000 per connection. The
                                                                                                       Reference Room and also on the                           Exchange notes that another exchange
                                               comment submissions. You should                         Exchange’s internet website at http://
                                               submit only information that you wish                                                                            in the industry has similar connectivity
                                                                                                       boxexchange.com.                                         fees.5 The Exchange also notes that
                                               to make available publicly. All
                                               submissions should refer to File                        II. Self-Regulatory Organization’s                       certain fees will continue to be assessed
                                               Number SR–MIAX–2018–16 and should                       Statement of the Purpose of, and                         by the datacenters and will be billed
                                               be submitted on or before August 23,                    Statutory Basis for, the Proposed Rule                   directly to the market participant.
                                               2018.                                                                                                               Next, the Exchange is amending
                                                                                                       Change
                                                                                                                                                                Section VI.C. High Speed Vendor Feed
                                                 For the Commission, by the Division of                                                                         (‘‘HSVF’’) of the Fee Schedule.
                                               Trading and Markets, pursuant to delegated                In its filing with the Commission, the
                                               authority.37                                            Exchange included statements                             Specifically, BOX is proposing to delete
                                                                                                       concerning the purpose of and basis for                  Section VI.C. and reclassify the HSVF
                                               Robert W. Errett,
                                                                                                       the proposed rule change and discussed                   Connection as a Port Fee. The Exchange
                                               Deputy Secretary.                                                                                                believes this reclassification is more
                                               [FR Doc. 2018–16528 Filed 8–1–18; 8:45 am]
                                                                                                       any comments it received on the
                                                                                                       proposed rule change. The text of these                  accurate, as HSVF subscription is not
                                               BILLING CODE 8011–01–P
                                                                                                       statements may be examined at the                        dependent on a physical connection to
                                                                                                       places specified in Item IV below. The                   the Exchange. Instead, subscribers must
                                                                                                       Exchange has prepared summaries, set                     be credentialed by BOX to receive the
                                               SECURITIES AND EXCHANGE                                                                                          HSVF. The HSVF Fee will remain
                                               COMMISSION                                              forth in Sections A, B, and C below, of
                                                                                                                                                                unchanged, BOX will assess a HSVF
                                                                                                       the most significant aspects of such
                                               [Release No. 34–83728; File No. SR–BOX–                                                                          Port Fee of $1,500 per month 6 for each
                                               2018–24]                                                statements.
                                                                                                                                                                month a Participant or non-Participant
                                                                                                       A. Self-Regulatory Organization’s                        is credentialed to use the HSVF Port.
                                               Self-Regulatory Organizations; BOX                      Statement of the Purpose of, and                         The Exchange notes that another
                                               Options Exchange LLC; Notice of
                                                                                                       Statutory Basis for, the Proposed Rule
                                               Filing and Immediate Effectiveness of                                                                              5 See Miami International Securities Exchange
                                                                                                       Change
                                               a Proposed Rule Change To Amend                                                                                  LLC (‘‘MIAX’’) Fee Schedule. MIAX charges its
                                               the Fee Schedule on the BOX Market                      1. Purpose                                               Members and non-Members a monthly fee of $1,100
                                               LLC (‘‘BOX’’) Options Facility To                                                                                for each 1 Gigabit connection and $5,500 for each
                                                                                                         The Exchange proposes to amend                         10 Gigabit connection to MIAX’s Primary/
                                               Establish BOX Connectivity Fees for                                                                              Secondary Facility. The Exchange notes a minor
                                               Participants and Non-Participants Who                   Section VI. (Technology Fees) of the                     difference between MIAX’s connectivity fees and
                                               Connect to the BOX Network                              BOX Fee Schedule to establish BOX                        BOX’s proposal. MIAX prorates their connectivity
                                                                                                       Connectivity Fees for Participants and                   fees when a Member makes a change to their
                                               July 27, 2018.                                                                                                   connectivity (by adding or deleting connections).
                                                                                                       non-Participants who connect to the                      BOX notes that, like the Exchange’s Port Fees and
                                                  Pursuant to Section 19(b)(1) of the                  BOX network. Connectivity fees will be                   HSVF Fees, Participants or non-Participants
                                               Securities Exchange Act of 1934 (the
                                                                                                       based upon the amount of bandwidth                       connected as of the last trading day of each calendar
                                               ‘‘Act’’),1 and Rule 19b–4 thereunder,2                                                                           month will be charged the applicable Connectivity
                                                                                                       that will be used by the Participant or
                                               notice is hereby given that on July 19,                                                                          Fee for that month.
                                                                                                       non-Participant. Further, BOX
                                               2018, BOX Options Exchange LLC (the                                                                                6 The Exchange notes that with the proposed

                                               ‘‘Exchange’’) filed with the Securities                 Participants or non-Participants                         change discussed herein, Participants and non-
                                               and Exchange Commission                                 connected as of the last trading day of                  Participants credentialed to use the HSVF Port who
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                                                                                                       each calendar month will be charged the                  also have physical connections to the BOX system
                                               (‘‘Commission’’) the proposed rule                                                                               will be charged for both the HSVF monthly fee and
                                               change as described in Items I, II, and                 applicable Connectivity Fee for that                     the applicable amount for their physical
                                               III below, which Items have been                        month. The Connectivity Fees will be as                  connections to BOX. For example, if non-
                                                                                                       follows:                                                 Participant X is credentialed to use the HSVF Port
                                                                                                                                                                and has three (3) physical non-10Gb connections to
                                                 37 17 CFR 200.30–3(a)(12).                                                                                     BOX, non-Participant X will be charged $1,500 for
                                                 1 15 U.S.C. 78s(b)(1).                                  3 15   U.S.C. 78s(b)(3)(A)(ii).                        the monthly HSVF Port Fee and $3,000 for the three
                                                 2 17 CFR 240.19b–4.                                     4 17   CFR 240.19b–4(f)(2).                            non-10Gb physical connections to BOX.



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Document Created: 2018-08-02 01:28:47
Document Modified: 2018-08-02 01:28:47
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation83 FR 37849 

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