Notice2022-16353
Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 404, Series of Option Contracts Open for Trading
Primary source
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Published
August 1, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 146 (Monday, August 1, 2022)</title>
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[Federal Register Volume 87, Number 146 (Monday, August 1, 2022)]
[Notices]
[Pages 47020-47023]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-16353]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95365; File No. SR-MIAX-2022-26]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Exchange Rule 404, Series of Option
Contracts Open for Trading
July 26, 2022.
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 13, 2022, Miami International Securities
Exchange, LLC (``MIAX Options'' or the ``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') a proposed rule
change as described in Items I 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 404,
Series of Option Contracts Open for Trading.
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 404, Series of Option
Contracts Open for Trading. Specifically, the Exchange proposes to
amend Interpretations and Polices .11 of Rule 404 to account for
conflicts between different provisions within the Short Term Option
Series Rules.
Background
In 2021, the Exchange amended Rule 404 to limit the intervals
between strikes in equity options listed as part of the Short Term
Option Series Program, excluding Exchange-Traded Fund Shares and ETNs,
that have an expiration date more than twenty-one days from the listing
date (``Strike Interval Proposal'').\3\ The Strike Interval Proposal
adopted new Policy .11 to Interpretations and Policies of Rule 404,
which included a table that intended to specify the applicable strike
intervals that would supersede Policy .02(e) \4\ of Rule 404 for Short
Term Option Series in equity options, excluding Exchange-Traded Fund
Shares and ETNs, which have an expiration date more than twenty-one
days from the listing date. The Strike Interval Proposal was designed
to reduce the density of strike intervals that would be listed in later
weeks, within the Short Term Option Series Program, by utilizing
limitations for intervals between strikes which have an expiration date
more than twenty-one days from the listing date.
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\3\ See Securities Exchange Act Release No. 91776 (May 5, 2021),
86 FR 25923 (May 11, 2021) (SR-MIAX-2021-12).
\4\ The strike price interval for Short Term Option Series may
be $0.50 or greater for option classes that trade in $1 strike price
intervals and are in the Short Term Option Series Program. If the
class does not trade in $1 strike price intervals, the strike price
interval for Short Term Option Series may be $0.50 or greater where
the strike price is less than $100 and $1.00 or greater where the
strike price is between $100 and $150, and $2.50 or greater for
strike prices greater than $150. See Policy .02(e) of Exchange Rule
404.
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The Exchange now proposes to amend the rule text within Policy .11
of Interpretations and Policies of Rule 404 to clarify current rule
text and amend the application of the table to account for potential
conflicts within the Short Term Option Series Rules. Currently, the
table within Policy .11 of Rule 404 is as follows: \5\
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\5\ The Share Price is the closing price on the primary market
on the last day of the calendar quarter. In the event of a corporate
action, the Share Price of the surviving company is utilized. The
Average Daily Volume is the total number of options contracts traded
in a given security for the applicable calendar quarter divided by
the number of trading days in the applicable calendar quarter.
Beginning on the second trading day in the first month of each
calendar quarter, the Average Daily Volume shall be calculated by
utilizing data from the prior calendar quarter based on Customer-
cleared volume at The Options Clearing Corporation. For options
listed on the first trading day of a given calendar quarter, the
Average Daily Volume shall be calculated using the quarter prior to
the last trading calendar quarter. See Interpretations and Policies
.11 of Exchange Rule 404.
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Share price
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Tier Average daily volume $25 to less $75 to less $150 to less $500 or
Less than $25 than $75 than $150 than $500 greater
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1......................................... Greater than 5,000.......... $0.50 $1.00 $1.00 $5.00 $5.00
2......................................... Greater than 1,000 to 5,000. 1.00 1.00 1.00 5.00 10.00
3......................................... 0 to 1,000.................. 2.50 5.00 5.00 5.00 10.00
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The first sentence of Policy .11 of Rule 404 provides, ``[w]ith
respect to listing Short Term Option Series in equity options,
excluding Exchange-Traded Fund Shares and ETNs, which have an
expiration date more than twenty-one (21) days from the listing date,
the following table will apply as noted within Policy .02(f).''
First, the Exchange proposes to amend the first sentence of Policy
.11 of
[[Page 47021]]
Rule 404 to provide, ``[w]ith respect to listing Short Term Option
Series in equity options, excluding Exchange-Traded Fund Shares and
ETNs, which have an expiration date more than twenty-one (21) days from
the listing date, the following table, which specifies the applicable
interval for listing, will apply as noted within Policy .02(f).'' The
table within Policy .11 provides for the listing of intervals based on
certain parameters (average daily volume and share price). The Exchange
proposes to add the phrase, ``which specifies the applicable interval
for listing'' to make clear that the only permitted intervals are as
specified in the table within Interpretations and Policies .11, except
in the case where Policy .02(e) of Rule 404 provides for a greater
interval as described in more detail below.
Second, the Exchange proposes to add a new sentence to Policy .11
of Rule 404 which states, ``[t]o the extent there is a conflict between
applying Policy .02(e) and the below table, the greater interval would
apply.'' Today, there are instances where a conflict is presented as
between the application of the table within Policy .11 and the rule
text within Policy .02(e) with respect to the correct interval. Adding
the proposed sentence would make clear to Members \6\ the applicable
intervals where there is a conflict between the rule text within Policy
.11 and the rule text within Policy .02(e), thereby providing certainty
as to the outcome. The Exchange proposes to insert the words ``greater
interval'' because it proposes to permit Policy .02(e) of Rule 404 to
govern only in the event that the interval would be greater. The same
analysis would not be conducted where the result would be a lesser
interval. By way of example:
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\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.
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Example 1: Assume a Tier 1 stock that closed on the last day of Q1
with a quarterly share price higher than $75 but less than $150.
Therefore, utilizing the table within Policy .11 of Rule 404, the
interval would be $1.00 for strikes added during Q2 even for strikes
above $150. Next, assume during Q2 the share price rises above $150.
Utilizing only the table within Policy .11, the interval would be $1.00
even though the stock is now trading above $150 because the Share Price
for purposes of Policy .11 was calculated utilizing data from the prior
calendar quarter. However, a separate Policy, Policy .02(e) of Rule
404, provides that the Exchange may list a Short Term Option Series at
$2.50 intervals where the strike price is above $150. In other words,
there is a potential conflict between the permitted strike intervals
above $150. In this example, Policy .11 of Rule 404 would specify a
$1.00 interval whereas Policy .02(e) of Rule 404 would specify a $2.50
interval. As proposed, the Exchange proposes to apply the greater
interval. The greater interval would then be $2.50 as per Policy .02(e)
of Rule 404 in this scenario. Therefore, the following strikes would be
eligible to list: $152.50 and $157.50. For strikes less than $150, the
following strikes would be eligible to list: $149 and $148 because
Short Term Option Series with expiration dates more than 21 days from
the listing date as well as Short Term Option Series with expiration
dates less than 21 days from the listing date would both be eligible to
list $1 intervals pursuant to Policy .11 of Rule 404 and Policy .02(e)
of Rule 404.
Example 2: Assume a Tier 2 stock that closed on the last day of Q1
with a quarterly share price less than $25. Therefore, utilizing the
table within Policy.11 of Rule 404, the interval would be $1.00 for
strikes added during Q2 even for strikes above $25. Next, assume during
Q2 the share price rises above $100. Utilizing only the table within
Policy .11 of Rule 404, the interval would be $1.00 even though the
stock is now trading above $100 because the Share Price for purposes of
Policy .11 of Rule 404 was calculated utilizing data from the prior
calendar quarter. However, Policy .02(e) of Rule 404 provides that the
Exchange may list a Short Term Option Series at $1.00 intervals where
the strike price is above $100. As proposed, the Exchange would apply
the greater interval, however, the $1.00 interval is the same in both
cases in this scenario and, therefore, there is no conflict. Now,
assume during Q2 the share price rises above $150. Utilizing only the
table within Policy .11 of Rule 404, the interval would continue to be
$1.00 because the Share Price relied on data from the prior calendar
quarter, however, pursuant to Policy .02(e) of Rule 404, the interval
would be $2.50 for strike prices above $150. The greater interval would
then be $2.50 as per Policy .02(e) of Rule 404 in this scenario.
Example 3: Assume a Tier 3 stock that closed on the last day of Q1
with a quarterly share price less than $25. Therefore, utilizing the
table within Policy .11 of Rule 404, the interval would be $2.50 for
strikes added during Q2 even for strikes above $25. Next, assume during
Q2 the share price rises above $100. Utilizing only the table within
Policy .11 of Rule 404, the interval would be $2.50 even though the
stock was trading above $100 because the Share Price for purposes of
Policy .11 of Rule 404 was calculated utilizing data from the prior
calendar quarter. However, Policy .02(e) of Rule 404 provides that the
Exchange may list a Short Term Option Series at $1.00 intervals where
the strike price is above $100. The greater interval would then be
$2.50 as per the table in Policy .11 of Rule 404 in this scenario.
Third, the Exchange proposes to delete the last sentence of the
first paragraph of Policy .11 of Rule 404 which states, ``[t]he below
table indicates the applicable strike intervals and supersedes Policy
.02(d) which permits additional series to be opened for trading on the
Exchange when the Exchange deems it necessary to maintain an orderly
market, to meet customer demand or when the market price of the
underlying security moves substantially from the exercise price or
prices of the series already opened.'' The table within Policy .11
impacts strike intervals, while Policy .02(d) describes adding series
of options. The table within Policy .11 supersedes other rules
pertaining to strike intervals, but the table does not supersede rules
governing the addition of options series. Therefore, the table within
Policy .11 of Rule 404 and the rule text of Policy .02(d) do not
conflict with each other. Deleting the reference to Policy .02(d) will
avoid confusion.
Fourth, and finally, the Exchange provides within the last sentence
of Policy .11 of Rule 404 that, ``[n]otwithstanding the limitations
imposed by this Policy .11, this proposal does not amend the range of
strikes that may be listed pursuant to Policy .02 above, regarding the
Short Term Option Series Program.'' The Exchange proposes to remove
this rule text. While the range limitations continue to be applicable
to the table within Policy .11, the strike ranges do not conflict with
strike intervals and therefore the sentence is not necessary. Removing
the last sentence of Policy .11 of Rule 404 will avoid confusion. Also,
the rule text within Policy .02(f) of Rule 404 otherwise indicates when
Policy .11 would apply.
Implementation
The Exchange proposes to implement this rule change on August 1,
2022. The Exchange will issue a Trader Alert to notify Members of the
implementation date.
[[Page 47022]]
2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with Section 6(b) of the Act \7\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \8\ in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanisms of a free and open market and a national market
system and, in general, to protect investors and the public interest.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
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The Exchange's proposal to add clarifying language to the first
sentence of Policy .11 of Rule 404, is consistent with the Act because
it will make clear that the only permitted intervals are as specified
in the table within Policy .11, except in the case where Policy .02(e)
provides for a greater interval. This amendment will bring greater
transparency to the rule.
Adopting a new sentence within Policy .11 of Rule 404 to address a
potential conflict between the Short Term Option Series Program rules,
specifically as between the application of the table within Policy .11
of Rule 404, and the rule text within Policy .02(e), with respect to
the correct interval is consistent with the Act. The table within
Policy .11 of Rule 404 supersedes other strike interval rules, but does
not supersede the addition of option series. Therefore, these rules do
not conflict with the table in Policy .11 of Rule 404. Deleting the
reference to Policy .02(d) will avoid confusion. This new rule text
will make clear to Members the applicable intervals when there is a
conflict between the rule text within Policy .11 of Rule 404 and the
rule text within Policy .02(e), thereby providing certainty as to the
outcome. The proposed new rule text promotes just and equitable
principles of trade by adding transparency to the manner in which the
Exchange implements its listing rules, and protects investors and the
general public by removing uncertainty.
Removing the last sentence of the first paragraph of Policy .11 of
Rule 404, is consistent with the Act because the table within Policy
.11 impacts strike intervals, while Policy .02(d) of Rule 404,
describes the addition of options series. Therefore, the tables within
Policy .11 and Policy .02(d) do not conflict with each other. Deleting
the reference to Policy .02(d) will avoid confusion.
Removing the last sentence of Policy .11 is consistent with the Act
because while the range limitations continue to be applicable, the
strike ranges do not conflict with strike intervals, rendering the
sentence unnecessary. Removing the last sentence of Policy .11 of Rule
404 will avoid confusion. Also, the rule text within Policy .02(f) of
Rule 404 otherwise indicates when Policy .11 would apply.
The Strike Interval Proposal was designed to reduce the density of
strike intervals that would be listed in later weeks, within the Short
Term Option Series Program, by utilizing limitations for intervals
between strikes which have an expiration date more than twenty-one days
from the listing date. The Exchange's proposal intends to continue to
remove certain strike intervals where there exist clusters of strikes
whose characteristics closely resemble one another and, therefore, do
not serve different trading needs,\9\ rendering these strikes less
useful. Also, the Strike Interval Proposal continues to reduce the
number of strikes listed on the Exchange, allowing Market Makers \10\
to expend their capital in the options market in a more efficient
manner, thereby improving overall market quality on the Exchange.
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\9\ For example, two strikes that are densely clustered may have
the same risk properties and may also be the same percentage out-of-
the-money.
\10\ The Term Market Makers refers to ``Lead Market Makers'',
``Primary Lead Market Makers'' and ``Registered Market Makers''
collectively. See Exchange Rule 100.
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Additionally, by making clear that the greater interval would
control as between the rule text with Policy .11 of Rule 404 and the
rule text within Policy .02(e), the Exchange is reducing the number of
strikes listed in a manner consistent with the intent of the Strike
Interval Proposal, which was to reduce strikes which were farther out
in time. The result of this clarification is to select wider strike
intervals for Short Term Option Series in equity options which have an
expiration date more than twenty-one days from the listing date. This
rule change would harmonize strike intervals as between inner weeklies
(those having less than twenty-one days from the listing date) and
outer weeklies (those having more than twenty-one days from the listing
date) so that strike intervals are not widening as the listing date
approaches.
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 Strike Interval Proposal
continues to limit the number of Short Term Option Series strike
intervals available for quoting and trading on the Exchange for all
Members.
Adopting a new sentence to address potential conflicts between the
rule text within Policy .11 of Rule 404 and Policy .02(e) of Rule 404,
within the Short Term Option Series Program, will bring greater
transparency to the manner in which the Exchange implements its listing
rules. Adding clarifying language to the first sentence of Policy .11
of Rule 404 to make clear which parameter the table within Policy .11
amends within the Short Term Option Series Program will bring greater
transparency to the rules.
The table within Policy .11 of Rule 404 impacts strike intervals,
while Policy .02(d) describes adding series of options. The table
within Policy .11 supersedes other strike interval rules, but does not
supersede the addition of series. Removing the last sentence of the
first paragraph of Policy .11 of Rule 404, does not impose an undue
burden on competition because the table within Policy .11 of Rule 404
supersedes other rules pertaining to strike intervals, but the table
does not supersede rules governing the addition of options series.
Also, deleting the reference to Policy .02(d) of Rule 404 will avoid
confusion. Finally, removing the last sentence of Policy .11 of Rule
404 will remove any potential confusion. While the range limitations
continue to be applicable, the strike ranges do not conflict with
strike intervals and are not necessary.
While this proposal continues to limit the intervals of strikes
listed on the Exchange, the Exchange continues to balance the needs of
market participants by continuing to offer a number of strikes to meet
a market participant's investment objective. The Exchange's Strike
Interval Proposal does not impose an undue burden on inter-market
competition as this Strike Interval Proposal does not impact the
listings available at another self-regulatory organization.
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.
[[Page 47023]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) \12\
thereunder.
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \13\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\14\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has
requested that the Commission waive the 30-day operative delay so that
the Exchange may implement the proposed rule change on August 1, 2022--
the same time other exchanges are implementing an identical change.\15\
The Exchange states that implementing the proposal simultaneously with
other option exchanges will promote the protection of investors by
harmonizing the strike listing methodology across exchanges. For this
reason, the Commission believes that waiver of the 30-day operative
delay is consistent with the protection of investors and the public
interest. Accordingly, the Commission hereby waives the operative
delay.\16\
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\13\ 17 CFR 240.19b-4(f)(6).
\14\ 17 CFR 240.19b-4(f)(6)(iii).
\15\ See Securities Exchange Act Release No. 95085 (June 10,
2022), 87 FR 36353 (June 16, 2022) (SR-ISE-2022-10) (Order Approving
a Proposed Rule Change, as Modified by Amendment No. 1, to Amend ISE
Options 4, Section 5, Series of Options Contracts Open for Trading).
\16\ For purposes only of waiving the 30-day operative delay,
the Commission also has 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
<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#5a282f363f77393537373f342e291a293f39743d352c"><span class="__cf_email__" data-cfemail="1f6d6a737a327c7072727a716b6c5f6c7a7c31787069">[email protected]</span></a>. Please include
File Number SR-MIAX-2022-26 on the subject line.
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-2022-26. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<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-2022-26 and should be submitted on
or before August 22, 2022.
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\17\ 17 CFR 200.30-3(a)(12), (59).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-16353 Filed 7-29-22; 8:45 am]
BILLING CODE 8011-01-P
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