Notice2022-08068
Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change by Miami International Securities Exchange, LLC To Amend Exchange Rule 518, Complex Orders
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Published
April 15, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 73 (Friday, April 15, 2022)</title>
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[Federal Register Volume 87, Number 73 (Friday, April 15, 2022)]
[Notices]
[Pages 22605-22607]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-08068]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94671; File No. SR-MIAX-2022-13]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change by Miami International
Securities Exchange, LLC To Amend Exchange Rule 518, Complex Orders
April 11, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on April 1, 2022, Miami International Securities Exchange, LLC
(``MIAX Options'' or the ``Exchange'') filed with the Securities and
Exchange Commission (the ``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the Exchange. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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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.
The text of the proposed rule change is available on the Exchange's
website at <a href="http://www.miaxoptions.com/rule-filings/">http://www.miaxoptions.com/rule-filings/</a> at MIAX Options'
principal office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Exchange Rule 518, Complex Orders,
to change the value used in the calculation that determines whether a
complex order is eligible to initiate a Complex Auction.\3\
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\3\ Certain option classes, as determined by the Exchange and
communicated to Members via Regulatory Circular, will be eligible to
participate in a Complex Auction (an ``eligible class''). Upon
evaluation as set forth in subparagraph (c)(5) of Exchange Rule 518,
the Exchange may determine to automatically submit a Complex
Auction-eligible order into a Complex Auction. Upon entry into the
System or upon evaluation of a complex order resting at the top of
the Strategy Book, Complex Auction-eligible orders may be subject to
an automated request for responses (``RFR''). See Exchange Rule
518(d).
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Currently the Exchange uses the following methods to determine
whether a complex order is qualified to initiate a Complex Auction:
Initial Improvement Percentage (``IIP'')
For complex orders received prior to the opening of all individual
components of a complex strategy, the System \4\ will calculate an IIP
value, which is a defined percentage of the current dcMBBO \5\ bid/ask
differential once all of the components of the complex strategy have
opened. Such percentage will be defined by the Exchange and
communicated to Members \6\ via Regulatory Circular.\7\ If a Complex
Auction-eligible order is priced equal to, or improves, the IIP value
\8\ and is also priced equal to, or improves, other complex orders and/
or quotes resting at the top of the Strategy Book, the complex order
will be eligible to initiate a Complex Auction.\9\
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\4\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\5\ The Displayed Complex MIAX Best Bid or Offer (``dcMBBO'') is
calculated using the best displayed price for each component of a
complex strategy from the Simple Order Book. For stock-option
orders, the dcMBBO for a complex strategy will be calculated using
the Exchange's best displayed bid or offer in the individual option
component(s) and the NBBO in the stock component. See Exchange Rule
518(a)(8).
\6\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100.
\7\ See MIAX Options Regulatory Circular 2016-48, MIAX Complex
Auction Initiating Percentages (October 20, 2016) available at
<a href="https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_RC_2016_48.pdf">https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_RC_2016_48.pdf</a>.
\8\ The Initial Improvement Percentage (``IIP'') is currently
set to 70%. See Id.
\9\ See Policy .03(a) of Exchange Rule 518.
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Upon Receipt Improvement Percentage (``URIP'')
Upon receipt of a complex order when the complex strategy is open,
the System will calculate a URIP value, which is a defined percentage
of the current dcMBBO bid/ask differential. Such percentage will be
defined by the
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Exchange and communicated to Members via Regulatory Circular.\10\ If a
Complex Auction-eligible order is priced equal to, or improves, the
URIP value \11\ and is also priced to improve other complex orders and/
or quotes resting at the top of the Strategy Book, the complex order
will be eligible to initiate a Complex Auction.\12\
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\10\ See supra note 7.
\11\ The Upon Receipt Improvement Percentage (``URIP'') is
currently set to 70%. See supra note 7.
\12\ See Policy .03(b) of Exchange Rule 518.
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Re-Evaluation Improvement Percentage (``RIP'')
Upon evaluation of a complex order resting at the top of the
Strategy Book, the System will calculate a Re-evaluation Improvement
Percentage (``RIP'') value, which is a defined percentage of the
current dcMBBO bid/ask differential. Such percentage will be defined by
the Exchange and communicated to Members via Regulatory Circular.\13\
If a complex order resting at the top of the Strategy Book is priced
equal to, or improves, the RIP value,\14\ the complex order will be
eligible to initiate a Complex Auction.\15\
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\13\ See supra note 7.
\14\ The Re-evaluation Improvement Percentage (``RIP'') is
currently set to 80%. See supra note 7.
\15\ See Policy .03(c) of Exchange Rule 518.
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Proposal
The Exchange now proposes to replace the dcMBBO bid/ask
differential with the cNBBO \16\ bid/ask differential in the
calculations described above for IIP, URIP, and RIP, respectively. The
dcMBBO is calculated using the displayed price for each component of a
complex strategy from the Simple Order Book \17\ on the Exchange,
whereas the cNBBO is calculated using the NBBO \18\ for each component
of a complex strategy to establish the best net bid and offer for a
complex strategy.\19\ The Exchange believes that using the cNBBO will
reduce the number of auctions generated by the Exchange System which do
not receive responses or result in price improvement for the initiating
order. The cNBBO, which includes the best away markets as well as the
MBBO for each component of a complex strategy, will always be equal to
or better than the dcMBBO, which includes the MBBO for each component
of a complex strategy. The component prices contained in the cNBBO
provide a more accurate indicator of the overall market interest in
each component, and therefore, provides a more accurate indicator of
the overall market interest in the complex strategy. The Exchange
believes that this will result in a reduction of the overall number of
Complex Auctions initiated on the Exchange but will in turn increase
the percentage of Complex Auctions that result in price improvement, as
the auction start price will be more closely aligned to prevailing
market prices.
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\16\ The Complex National Best Bid or Offer (``cNBBO'') is
calculated using the NBBO for each component of a complex strategy
to establish the best net bid and offer for a complex strategy. For
stock-option orders, the cNBBO for a complex strategy will be
calculated using the NBBO in the individual option component(s) and
the NBBO in the stock component. See Exchange Rule 518(a)(2).
\17\ The ``Simple Order Book'' is the Exchange's regular
electronic book of orders and quotes. See Exchange Rule 518(a)(15).
\18\ The term ``NBBO'' means the national best bid or offer as
calculated by the Exchange based on market information received by
the Exchange from the appropriate Securities Information Processor
(``SIP''). See Exchange Rule 518(a)(14).
\19\ See supra note 5.
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Implementation
The Exchange proposes to implement the proposed rule change in the
second quarter of 2022. The Exchange will announce the implementation
date to its Members via Regulatory Circular.
2. Statutory Basis
MIAX believes that its proposed rule change is consistent with
Section 6(b) of the Act \20\ in general, and furthers the objectives of
Section 6(b)(5) of the Act \21\ in particular, in that it is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanisms of a
free and open market and a national market system and, in general, to
protect investors and the public interest.
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\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that its proposal to use the cNBBO instead of
the dcMBBO in the calculation used to determine whether a complex order
is qualified to initiate a Complex Auction promotes just and equitable
principles of trade and removes impediments to and perfects the
mechanisms of a free and open market and a national market system and,
in general, protects investors and the public interest as using the
cNBBO provides a better measure of the current market and is more
likely to result in price improvement for the initiating order as the
cNBBO is calculated using the NBBO (which in turn is calculated by
taking the best prices of all exchanges into consideration) \22\ for
each component of a complex strategy to establish the best net bid and
offer for a complex strategy,\23\ and therefore is more representative
of the prevailing market interest and market prices. The example below
demonstrates the difference between the current and proposed
calculations.
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\22\ See supra note 19.
\23\ See supra note 16
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Example 1
(Current Auction Evaluation Based on dcMBBO)
Reevaluation Improvement Percentage (RIP) for a complex order at
the best price on the Strategy Book \24\ subject to dcMBBO.
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\24\ The ``Strategy Book'' is the Exchange's electronic book of
complex orders and complex quotes. See Exchange Rule 518(a)(17).
RIP = 80%
MBBO: \25\ Option A 2.00 x 2.10
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\25\ The term ``MBBO'' means the best bid or offer on the
Exchange. See Exchange Rule 100.
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MBBO: Option B 1.05 x 1.20
Strategy +1A-1B = (2.00-1.20) x (2.10-1.05)
dcMBBO = 0.80 x 1.05
A complex order is resting on the Strategy Book to buy 1 Strategy
at a price of 1.00. Upon reevaluation of the Strategy Book it is
determined the complex order to buy at 1.00 improves the Strategy bid
by 0.20; (1.00-0.80). The improvement percentage is then calculated as
the 0.20 improvement divided by the Strategy bid/offer spread; (1.05-
0.80), in this case resulting in 80% improvement. Because the 80%
improvement equals the configured RIP of 80% an auction is initiated.
Example 2
(Proposed Auction Evaluation Based on cNBBO)
Reevaluation Improvement Percentage (RIP) for a complex order at
the best price on the Strategy Book subject to cNBBO.
RIP = 80%
NBBO: Option A 2.05 x 2.10
NBBO: Option B 1.05 x 1.10
Strategy +1A-1B = (2.05-1.10) x (2.10-1.05)
cNBBO = 0.95 x 1.05
A complex order is resting on the Strategy Book to buy 1 Strategy
at a price of 1.00. Upon reevaluation of the Strategy Book it is
determined the complex order to buy at 1.00 improves the Strategy bid
by 0.05; (1.00-0.95). The improvement percentage is then calculated as
the 0.05 improvement divided by the Strategy bid/offer spread; (1.05-
0.95), in this case resulting in 50% improvement. Because the 50%
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improvement is less than the configured RIP of 80% an auction is not
initiated.
The Exchange believes that using the cNBBO in its calculation to
determine whether a complex order is qualified to initiate a Complex
Auction will reduce the number of Complex Auctions initiated by the
Exchange System \26\ which do not receive responses. Using the cNBBO
instead of the dcMBBO better reflects the current state of the market
and may result in Complex Auctions that receive responses which in turn
may result in price improvement for the initiating order.
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\26\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
The Exchange does not believe that the proposed rule change to
replace the dcMBBO value with the cNBBO value in the calculation used
to determine whether a complex order is qualified to initiate a Complex
Auction will impose any burden on inter-market competition. The
Exchange believes its proposal may benefit competition as using the
cNBBO in the calculation better reflects current market prices and may
result in the initiation of Complex Auctions which result in price
improvement for the initiating order. The Exchange believes the
proposed rule change will enhance competition among the various markets
for complex order execution, potentially resulting in more active
complex order trading on all exchanges. Additionally, the Exchange
believes that this change will result in a reduction of the overall
number of Complex Auctions initiated on the Exchange but will in turn
increase the percentage of auctions that result in price improvement,
as the auction start price will be more closely aligned to prevailing
market prices.
The Exchange does not believe that the proposed rule change will
impose any burden on intra-market competition as all complex orders
submitted to the Exchange will be evaluated, and re-evaluated, equally
under the Exchange's Rules.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to 19(b)(3)(A) of the Act \27\ and Rule 19b-4(f)(6) \28\
thereunder.
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\27\ 15 U.S.C. 78s(b)(3)(A).
\28\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#9eecebf2fbb3fdf1f3f3fbf0eaeddeedfbfdb0f9f1e8"><span class="__cf_email__" data-cfemail="9ae8eff6ffb7f9f5f7f7fff4eee9dae9fff9b4fdf5ec">[email protected]</span></a>. Please include
File Number SR-MIAX-2022-13.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-MIAX-2022-13. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-MIAX-2022-13, and should be submitted on
or before May 6, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-08068 Filed 4-14-22; 8:45 am]
BILLING CODE 8011-01-P
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