Notice2022-24143
Self-Regulatory Organizations: Notice of Filing and Immediate Effectiveness of a Proposed Rule Change by Miami International Securities Exchange LLC To Amend Its Fee Schedule
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Published
November 7, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 214 (Monday, November 7, 2022)</title>
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[Federal Register Volume 87, Number 214 (Monday, November 7, 2022)]
[Notices]
[Pages 67100-67103]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-24143]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96198; File No. SR-MIAX-2022-38]
Self-Regulatory Organizations: Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change by Miami International
Securities Exchange LLC To Amend Its Fee Schedule
November 1, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 12, 2022, Miami International Securities Exchange LLC
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') a proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend the MIAX Options Fee
Schedule (the ``Fee Schedule'').
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's principal
office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Fee Schedule to amend footnote
``*'' of the MIAX Price Improvement Mechanism (``PRIME'') Fees table
\3\ to increase the enhanced PRIME Break-up credit of $0.69 to $0.73
for EEMs that submit a Priority Customer PRIME Order in Non-Penny
Classes that is submitted to the PRIME Auction that trades with PRIME
AOC Reponses and/or PRIME Participating Quotes or Orders, if the PRIME
Order experiences a break-up of greater than forty percent (40%). The
Exchange initially filed this proposal on September 30, 2022 (SR-MIAX-
2022-34). On October 12, 2022, the Exchange withdrew SR-MIAX-2022-34
and resubmitted the proposal (SR-MIAX-2022-36). On October 19, 2022,
the Exchange withdrew SR-MIAX-2022-36 and resubmitted this proposal
(SR-MIAX-2022-38).
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\3\ See Section 1)a)v) of the Exchange's Fee Schedule on its
public website (available at <a href="http://www.miaxoptions.com/fees">www.miaxoptions.com/fees</a>).
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The proposed changes are immediately effective.
Background
The MIAX Price Improvement Mechanism (``PRIME'') is a process by
which a Member \4\ may electronically submit for execution an order it
represents as agent (an ``Agency Order'') against principal interest
and/or solicited interest. The Member that submits the Agency Order
(``Initiating Member'') agrees to guarantee the execution of the Agency
Order by submitting a contra-side order representing principal interest
or solicited interest (``Contra-Side Order'').\5\ When the Exchange
receives a properly designated Agency Order for Auction processing, a
request for response (``RFR'') detailing the option, side, size and
initiating price is broadcasted to MIAX participants up to an optional
designated limit price.\6\ Members may submit responses to the RFR,
which can be either an Auction or Cancel (``AOC'') order \7\ or an AOC
[[Page 67101]]
eQuote.\8\ The PRIME mechanism is used for orders on the Exchange's
Simple Order Book.\9\
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\4\ 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.
\5\ See Exchange Rule 515A(a).
\6\ See Exchange Rule 515A(a)(2)(B).
\7\ An Auction-or-Cancel or ``AOC'' order is a limit order used
to provide liquidity during a specific Exchange process (such as the
Opening Imbalance process described in Rule 503) with a time in
force that corresponds with that event. AOC orders are not displayed
to any market participant, are not included in the MBBO and
therefore are not eligible for trading outside of the event, may not
be routed, and may not trade at a price inferior to the away
markets. See Exchange Rule 516(b)(4).
\8\ AOC eQuote An Auction or Cancel or ``AOC'' eQuote is a quote
submitted by a Market Maker to provide liquidity in a specific
Exchange process (such as the Opening Imbalance Process described in
Rule 503) with a time in force that corresponds with the duration of
that event and will automatically expire at the end of that event.
AOC eQuotes are not displayed to any market participant, are not
included in the MBBO and therefore are not eligible for trading
outside of the event. An AOC eQuote does not automatically cancel or
replace the Market Maker's previous Standard quote or eQuote. See
Exchange Rule 517(a)(2)(ii).
\9\ The ``Simple Order Book'' is the Exchange's regular
electronic book of orders and quotes. See Exchange Rule 518(a)(15).
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The Exchange provides a PRIME Break-up credit of $0.60 per contract
for Non-Penny Classes in a PRIME Auction.\10\ The Exchange subsequently
adopted an enhanced PRIME Break-up credit of $0.69 per contract for
Priority Customer PRIME Orders in Non-Penny Classes when the order
break-up percentage was greater than 40%.\11\ The enhanced PRIME Break-
up credit of $0.69 per contract is applied to the EEM that submitted a
PRIME Order in Non-Penny classes that is submitted to a PRIME Auction
that trades with PRIME AOC Responses and/or PRIME Participating Quotes
or Orders, if the PRIME Order experiences a break-up of greater than
forty percent (40%). The Exchange now proposes to increase the per
contract credit from $0.69 to $0.73. The decision to increase the
enhanced Priority Customer Break-up credit is based on an analysis of
current revenue and volume levels and is designed to continue to
encourage Priority Customer order flow to PRIME Auctions.
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\10\ See Section 1)a)v) of the Exchange's Fee Schedule on its
public website (available at <a href="http://www.miaxoptions.com/fees">www.miaxoptions.com/fees</a>).
\11\ See Securities Exchange Act Release No. 93306 (October 13,
2021), 86 FR 57869 (October 19, 2021) (SR-MIAX-2021-42).
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2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \12\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \13\ in
particular, in that it is an equitable allocation of reasonable dues,
fees, and other charges among its members and issuers and other persons
using its facilities. The Exchange also believes the proposal furthers
the objectives of Section 6(b)(5) of the Act \14\ in that it is
designed to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest and is not designed to permit unfair discrimination
between customers, issuers, brokers and dealers.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(4).
\14\ 15 U.S.C. 78f(b)(5).
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The Exchange believes its proposal provides for the equitable
allocation of reasonable dues and fees and is not unfairly
discriminatory for the following reasons. The decision to increase the
enhanced Priority Customer Break-up credit is based on an analysis of
current revenue and volume levels and is designed to continue to
encourage Priority Customer order flow to PRIME Auctions. The Exchange
operates in a highly competitive market in which market participants
can readily direct order flow to competing venues if they deem fee
levels at a particular venue to be excessive or incentives to be
insufficient. More specifically, the Exchange is one of 16 registered
options exchanges competing for order flow. Based on publicly-available
information, and excluding index-based options, no single exchange has
more than approximately 11% of the market share of executed volume of
multiply-listed equity and exchange-traded fund (``ETF'') options
trades as of September 26, 2022, for the month of September 2022.\15\
Therefore, no exchange possesses significant pricing power in the
execution of multiply-listed equity and ETF options order flow. More
specifically, as of September 26, 2022, the Exchange has a total market
share of 5.23% of all equity options volume, for the month of September
2022.\16\
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\15\ See MIAX's ``The market at a glance/MTD AVERAGE'',
available at <a href="https://www.miaxoptions.com/">https://www.miaxoptions.com/</a> (Data as of 9/1/2022-9/26/
2022).
\16\ See id.
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The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow, or discontinue use of certain categories of products,
in response to fee changes. For example, on March 1, 2019, the Exchange
filed with the Commission an immediately effective filing to decrease
certain credits assessable to Members pursuant to the PCRP.\17\ The
Exchange experienced a decrease in total market share between the
months of February and March of 2019. Accordingly, the Exchange
believes that the March 1, 2019, fee change may have contributed to the
decrease in the Exchange's market share and, as such, the Exchange
believes competitive forces constrain options exchange transaction and
non-transaction fees.
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\17\ See Securities Exchange Act Release No. 85301 (March 13,
2019), 84 FR 10166 (March 19, 2019) (SR-MIAX-2019-09).
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Accordingly, competitive forces constrain the Exchange's
transaction fees, and market participants can readily trade on
competing venues if they deem pricing levels at those other venues to
be more favorable. In response to the competitive environment, the
Exchange offers specific rates and credits in its Fee Schedule, like
those of other options exchanges' fees schedules, which the Exchange
believes provides incentives to Members to increase order flow of
certain qualifying orders.
The Exchange believes its proposal to increase the enhanced PRIME
Break-up Credit for Non-Penny Classes for Priority Customers is
reasonable, equitably allocated and not unfairly discriminatory because
this change is for business and competitive reasons. In order to
attract order flow the Exchange initially set its rebates and fees for
its PRIME Auctions so that they were meaningfully higher/lower than
other options exchanges that provide comparable price improvement
mechanisms.\18\ The Exchange now believes that it is appropriate to
further adjust these fees so that they are competitive with other
Exchanges that offer similar price improvement functionality and
maintain a similar credit methodology. Specifically, the Cboe Exchange
provides a Break-up Credit of $0.60 in Non-Penny Classes \19\ and the
BOX Exchange provides a Break-up Credit of $0.81 in Non-Penny
Classes,\20\ therefore the Exchange's proposed enhanced Break-up credit
of $0.73 in Non-Penny Classes is in line with Break-up credits in Non-
Penny Classes currently available on other exchanges. The Exchange
believes its proposed enhanced Break-up credit in Non-Penny Classes
will allow the Exchange to remain competitive and should enable the
Exchange to continue to attract order flow to PRIME Auctions and to
also maintain market share.
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\18\ See Cboe Exchange Rule 5.73 and 5.74; See also BOX Exchange
Rule 7150 and 7245.
\19\ See Cboe Exchange Fee Schedule, ``Break-Up Credits,'' on
its public website (available at <a href="https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf">https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf</a>).
\20\ See Section IV. Electronic Transaction Fees, B. PIP and
COPIP Transactions, of the BOX Options Exchange Fee Schedule on its
public website (available at <a href="https://boxoptions.com/fee-schedule/">https://boxoptions.com/fee-schedule/</a>).
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The Exchange believes that its proposal will continue to encourage
Priority Customer order flow to PRIME
[[Page 67102]]
Auctions. Increased Priority Customer order flow benefits all market
participants because it continues to attract liquidity to the Exchange
by providing more trading opportunities. This attracts Market Makers
and other liquidity providers, thus, facilitating price improvement in
the auction process, signaling additional corresponding increase in
order flow from other market participants, and, as a result, increasing
liquidity on the Exchange.
As noted above, the Exchange operates in a highly competitive
market. The Exchange is only one of several options venues to which
market participants may direct their order flow, and it represents a
small percentage of the overall market. The Exchange believes that the
proposed fees are reasonable, equitable, and not unfairly
discriminatory in that at least one competing options exchange offers
similar fees and credits in connection with similar price improvement
auctions.\21\
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\21\ See supra note 20.
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The Exchange also believes that this proposal is consistent with
Section 6(b)(5) of the Act \22\ because it perfects the mechanisms of a
free and open market and a national market system and protects
investors and the public interest because it provides an additional
incentive for Members to increase Priority Customer order flow to the
Exchange in order to obtain the highest volume threshold, which
benefits all market participants by providing more trading
opportunities and tighter spreads.
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\22\ 15 U.S.C. 78f(b)(1) and (b)(5).
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In addition, The Exchange believes that its proposal is consistent
with Section 6(b)(5) of the Act \23\ because it perfects the mechanisms
of a free and open market and a national market system and protects
investors and the public interest because Priority Customer order flow
will bring greater volume and liquidity to the Exchange, which benefits
all market participants by providing more trading opportunities and
tighter spreads. To the extent Priority Customer order flow is
increased by this proposal, market participants will increasingly
compete for the opportunity to trade on the Exchange including sending
more orders and provided narrower and larger-sized quotations in the
effort to trade with such Priority Customer order flow.
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\23\ 15 U.S.C. 78f(b)(4).
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The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. In Regulation NMS,
the Commission highlighted the importance of market forces in
determining prices and self-regulatory organization (``SRO'') revenues
and, also, recognized that current regulation of the market system
``has been remarkably successful in promoting market competition in its
broader forms that are most important to investors and listed
companies.'' \24\
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\24\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
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The Exchange believes that the ever-shifting market shares among
the exchanges from month to month demonstrates that market participants
can shift order flow or discontinue or reduce use of certain categories
of products, in response to transaction and non-transaction fee
changes. Accordingly, competitive forces constrain the Exchange's
transaction fees and rebates, and market participants can readily trade
on competing venues if they deem pricing levels at those other venues
to be more favorable. The Exchange believes the proposal reflects a
reasonable and competitive pricing structure which will continue to
incentivize market participants to direct liquidity adding orders to
the Exchange, which the Exchange believes would enhance liquidity and
market quality on the exchange to the benefit of all Members.
For the reasons discussed above, the Exchange submits that the
proposal satisfies the requirements of Sections 6(b)(4) and 6(b)(5) of
the Act \25\ in that it provides for the equitable allocation of
reasonable dues, fees and other charges among its Members and other
persons using its facilities and is not designed to unfairly
discriminate between customers, issuers, brokers, or dealers.
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\25\ 15 U.S.C. 78f(b)(4) and (5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\26\ the Exchange
does not believe that the proposed rule change will impose any burden
on intra-market or intra-market competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
believes its proposal to increase its enhanced PRIME Break-up Credit
for Non-Penny Classes for Priority Customers is reasonable, equitably
allocated and not unfairly discriminatory as the credit will be applied
equally to all Members eligible to receive the credit. The Exchange
believes that its proposal will continue to encourage Priority Customer
order flow to PRIME Auctions. Increased Priority Customer order flow
benefits all market participants because it continues to attract
liquidity to the Exchange by providing more trading opportunities and
tighter spreads.
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\26\ 15 U.S.C. 78f(b)(8).
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The Exchange does not believe that its proposal will impose any
burden on inter-market competition that is not necessary or appropriate
in furtherance of the purposes of the Act because, as noted above, at
least one other competing options exchange currently has similar
rebates in place in connection with similar price improvement
auctions.\27\ Additionally, the Exchange notes that it operates in a
highly competitive market in which market participants can readily
favor competing venues if they deem fee levels at a particular venue to
be excessive or incentives to be insufficient. In such an environment,
the Exchange must continually adjust its fees and incentives to remain
competitive with other exchanges and to attract order flow to the
Exchange. The Exchange is one of 16 options exchanges competing for
order flow. Based on publicly available information, and excluding
index-based options, no single options exchange has more than
approximately 11% of the market share of executed multiply-listed
equity and ETF options as of September 26, 2022, for the month of
September 2022.\28\ Market participants can readily choose to send
their orders to other exchanges if they deem fee levels or incentives
at those other venues to be more favorable. In such an environment, the
Exchange must continually adjust its fees and incentives to remain
competitive with other exchanges and to attract order flow. The
Exchange believes that the proposed rule change reflects this
competitive environment.
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\27\ See supra note 20.
\28\ See supra note 15.
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Moreover, the Commission has repeatedly expressed its preference
for competition over regulatory intervention in determining prices,
products, and services in the securities markets. Specifically, in
Regulation NMS, the Commission highlighted the importance of market
forces in determining prices and SRO revenues and, also, recognized
that current regulation of the market system ``has been remarkably
successful in promoting market competition in its broader forms that
are most important to investors and listed companies.'' \29\ The
[[Page 67103]]
fact that this market is competitive has also long been recognized by
the courts. In NetCoalition v. Securities and Exchange Commission, the
D.C. Circuit stated as follows: ``[n]o one disputes that competition
for order flow is `fierce.' . . . As the SEC explained, `[i]n the U.S.
national market system, buyers and sellers of securities, and the
broker-dealers that act as their order-routing agents, have a wide
range of choices of where to route orders for execution'; [and] `no
exchange can afford to take its market share percentages for granted'
because `no exchange possesses a monopoly, regulatory or otherwise, in
the execution of order flow from broker dealers'. . . .''.\30\
Accordingly, the Exchange does not believe its proposed fee change
imposes any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
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\29\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 47396, 37499 (June 29, 2005).
\30\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act,\31\ and Rule 19b-4(f)(2) \32\ thereunder.
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.
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\31\ 15 U.S.C. 78s(b)(3)(A)(ii).
\32\ 17 CFR 24.19b-4(f)(2).
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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#88fafde4eda5ebe7e5e5ede6fcfbc8fbedeba6efe7fe"><span class="__cf_email__" data-cfemail="2c5e594049014f4341414942585f6c5f494f024b435a">[email protected]</span></a>. Please include
File Number SR-MIAX-2022-38 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-2022-38. 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-2022-38, and should be submitted on
or before November 28, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-24143 Filed 11-4-22; 8:45 am]
BILLING CODE 8011-01-P
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