Document ID: SEC-2023-0121-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Miami International Securities Exchange, LLC
Posted Date: 2023-02-01T05:00Z

[Federal Register Volume 88, Number 21 (Wednesday, February 1, 2023)]
[Notices]
[Pages 6795-6801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-01998]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96752; File No. SR-MIAX-2023-01]

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

January 26, 2023.
    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 January 19, 2023, 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 and II below, which Items have been prepared by 
the Exchange. The Exchange filed the proposed rule change pursuant to 
Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) 
thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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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 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 self-regulatory organization 
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 self-regulatory organization 
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 Rule 518, Complex Orders, to (i) 
adopt definitions for the terms ``conforming ratio,'' and ``non-
conforming ratio;'' (ii) amend the current definition of a complex 
order to incorporate the proposed conforming and non-conforming ratio 
definitions; (iii) adopt new subsection (v) to Exchange Rule 518(c)(1) 
to describe the processing of a complex order with a non-conforming 
ratio; (iv) amend Exchange Rule 518(c)(2)(ii) to distinguish icMBBO 
protection for complex orders with conforming ratios and complex orders 
with non-conforming ratios; and (v) make minor clarifying edits 
throughout Exchange Rule 518 to distinguish order handling of complex 
orders with conforming ratios. Additionally, the Exchange proposes to 
amend Rule 515A, MIAX Price Improvement Mechanism (``PRIME'') and PRIME 
Solicitation Mechanism, to describe new scenarios which will cause a 
cPRIME Auction \5\ to terminate prior to the end of the RFR period. 
Finally, the Exchange proposes to update Exchange Rule 515 and Rule 516 
to correct internal cross references that have changed as a result of 
this proposal.
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    \5\ Members may use PRIME to execute complex orders at a net 
price. ``cPRIME'' is the process by which a Member may 
electronically submit a cPRIME Order (as defined in Rule 518(b)(7)) 
it represents as agent (a ``cPRIME Agency Order'') against principal 
or solicited interest for execution (a ``cPRIME Auction''). See 
Exchange Rule 515A, Interpretations and Policies .12(a).
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Background
    Currently the Exchange defines a ``complex order'' as any order 
involving the concurrent purchase and/or sale of two or more different 
options in the same underlying security (the ``legs'' or ``components'' 
of the complex order), for the same account, in a ratio that is equal 
to or greater than one-to-three (.333) and less than or equal to three-
to-one (3.00) and for the purposes of executing a particular investment 
strategy. Mini-options may only be part of a complex order that 
includes other mini-options. Only those complex orders in the classes 
designated by the

[[Page 6796]]

Exchange and communicated to Members \6\ via Regulatory Circular with 
no more than the applicable number of legs, as determined by the 
Exchange on a class-by-class basis and communicated to Members via 
Regulatory Circular, are eligible for processing.
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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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Proposal
    Currently the Exchange will accept a complex order comprised solely 
of option components in a ratio that is equal to or greater than one-
to-three (.333) or less than or equal to three-to-one (3.00).\7\ The 
Exchange now proposes to accept complex orders comprised solely of 
options with ratios larger than three-to-one or smaller than one-to-
three. To support its proposal the Exchange proposes to adopt a 
definition for a ``conforming ratio'' to refer to complex orders where 
the ratio between the sizes of the components of a complex order 
comprised solely of options is equal to or greater than one-to-three 
(.333) and less than or equal to three-to-one (3.00).\8\ Additionally, 
the Exchange proposes to adopt a definition for a ``non-conforming 
ratio'' to refer to complex orders where the ratio between the sizes of 
the components of a complex order comprised solely of options is 
greater than three-to-one (3.00) or less than one-to-three (.333).\9\
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    \7\ See Exchange Rule 518(a)(5).
    \8\ See proposed Rule 518(a)(8).
    \9\ See proposed Exchange Rule 518(a)(16).
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    Subsequently, the Exchange proposes to amend Exchange Rule 
518(c)(1)(iii) and (c)(1)(iv) to insert the phrase, ``with a conforming 
ratio,'' to provide additional detail and clarity to the rule text. 
Specifically, current Rule 518(c)(1)(iii) provides that, ``[i]f any 
component of a complex strategy would be executed at a price that is 
equal to a Priority Customer \10\ bid or offer on the Simple Order 
Book, at least one other option component of the complex strategy must 
trade at a price that is better than the corresponding MBBO.'' \11\ The 
Exchange now proposes to amend this rule to provide that, ``[i]f any 
component of a complex strategy with a conforming ratio would be 
executed at a price that is equal to a Priority Customer bid or offer 
on the Simple Order Book, at least one other option component of the 
complex strategy must trade at a price that is better than the 
corresponding MBBO.''
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    \10\ The term ``Priority Customer'' means a person or entity 
that (i) is not a broker or dealer in securities, and (ii) does not 
place more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial account(s). See 
Exchange Rule 100.
    \11\ The term ``MBBO'' means the best bid or offer on the 
Exchange. See Exchange Rule 100.
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    Similarly, current Rule 518(c)(1)(iv) provides that, ``[a] complex 
order will not be executed at a net price that would cause any option 
component of the complex strategy to be executed: (A) at a price of 
zero; or (B) ahead of a Priority Customer Order \12\ on the Simple 
Order Book \13\ without improving the MBBO of at least one option 
component of the complex strategy.'' The Exchange now propose to amend 
this rule to provide that, ``[a] complex order with a conforming ratio 
will not be executed at a net price that would cause any option 
component of the complex strategy to be executed: (A) at a price of 
zero; or (B) ahead of a Priority Customer Order on the Simple Order 
Book without improving the MBBO of at least one option component of the 
complex strategy.'' The proposed changes to Rule 518(c)(1)(iii) and 
(c)(1)(iv) will make clear that existing complex priority provisions 
apply only to complex orders with conforming ratios.
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    \12\ The term ``Priority Customer Order'' means an order for the 
account of a Priority Customer. See Exchange Rule 100.
    \13\ 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 proposes to renumber current paragraph (c)(1)(v) to 
new paragraph (c)(1)(vi) and to adopt new paragraph (v) to provide 
that, ``[a] complex order with a non-conforming ratio will not be 
executed at a net price that would cause any option component of the 
complex strategy to be executed: (A) at a price of zero; (B) ahead of a 
Priority Customer Order at the MBBO on the Simple Order Book; or (C) at 
a price that is through the NBBO.'' \14\ Therefore, a complex order 
with any ratio less than one-to-three or greater than three-to-one may 
be executed at a net price only if each leg of the complex order 
betters the corresponding bid (offer) of a Priority Customer Order(s) 
on the Simple Order Book, and is not at a price that is through the 
NBBO. These requirements are consistent with the rules of other option 
exchanges that process complex orders in the same ratios.\15\
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    \14\ The term ``NBBO'' means the national best bid or offer as 
calculated by the Exchange based on market information received by 
the Exchange from OPRA. See Exchange Rule 100.
    \15\ See Cboe Exchange Rule 5.33(f)(2)(A)(iv)(b), and BOX 
Options Rule 7240(b)(2)(iii).
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    In addition, icMBBO \16\ protection will apply to both conforming 
and non-conforming strategies as executions of complex orders (with 
either conforming or non-conforming ratios) must comply with Exchange 
Rule 518(c)(2)(ii).\17\ Accordingly, the Exchange proposes to amend 
Rule 518(c)(2)(ii) to provide additional detail related to pricing for 
conforming and non-conforming strategies. Specifically, the Exchange 
proposes to add a clarifying parenthetical statement to the first 
sentence to clearly differentiate the rules that apply to executions of 
complex orders with conforming ratios and complex orders with non-
conforming rations when there is Priority Customer interest at the 
MBBO. Specifically, the proposed sentence will state, ``Incoming 
complex orders and quotes will be executed by the System in accordance 
with the provisions set forth herein, and 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 (complex orders with conforming ratios will be 
executed in accordance with Rule 518(c)(1)(iv) and complex orders with 
non-conforming ratios will be executed in accordance with Rule 
518(c)(1)(v).'' With this amendment the Exchange represents that the 
complex order priority rules will protect Priority Customer interest on 
the Simple Order Book.
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    \16\ The Implied Complex MIAX Best Bid or Offer (``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. See Exchange Rule 518(a)(11).
    \17\ Exchange Rule 518(c)(2)(ii) provides that incoming complex 
orders and quotes will be executed by the System in accordance with 
the provisions set forth in Exchange Rule 518, and 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.
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    The Exchange does not propose to extend the complex order priority 
afforded to complex orders with conforming ratios to those with non-
conforming ratios. Execution of complex orders with conforming ratios 
will be unchanged under the Exchange's proposal and these orders will 
continue to not be executed at a net price that would cause any option 
component of the complex strategy to be executed: (A) at a price of 
zero; or (B) ahead of a Priority Customer Order on the Simple Order 
Book without improving the MBBO of at least one option component of the 
complex strategy.
    The Exchange also proposes to amend the current definition of a 
complex order as described in Rule 518(a)(5) to include the terms 
conforming or non-conforming ratios as those terms are defined in the 
Rule.

[[Page 6797]]

    The Exchange also proposes to amend Interpretations and Policies 
.12(d) of Exchange Rule 515A, MIAX Price Improvement Mechanism 
(``PRIME'') and PRIME Solicitation Mechanism to adopt two new 
paragraphs which will describe new scenarios that arise as a result of 
the Exchange processing complex orders with non-conforming ratios, 
which will cause a cPRIME Auction to terminate prior to the end of the 
RFR period.
    Currently Interpretations and Policies .12(d) of Exchange Rule 
515A, provides that, a cPRIME Auction shall conclude at the sooner of 
(i) \18\ through (vii) as listed in the Rule below with the cPRIME 
Agency Order executing pursuant to Rule 515A(2)(iii). The Exchange 
proposes to describe two new scenarios that will terminate a cPRIME 
Auction prior to the conclusion of the RFR period as subparagraphs 
(viii) and (ix), as described more fully below. Consequently, the 
Exchange proposes to amend the first sentence of Interpretations and 
Policies .12(d) of Exchange Rule 515A to account for the addition of 
these scenarios. As proposed, the new sentence would provide that, 
``[a] cPRIME Auction shall conclude at the sooner of (i) through (ix) 
below with the cPRIME Agency Order executing pursuant to Rule 
515A(2)(iii) below:''
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    \18\ The end of the RFR Period. See Interpretations and Policies 
.12(d)(i) of Exchange Rule 515A.
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    The Exchange proposes to adopt paragraph (viii) to Interpretations 
and Policies .12(d) of Rule 515A to provide that, ``a Priority Customer 
Order, eligible to rest on the Simple Order Book, is received on either 
side of the market as the cPRIME Agency Order with a non-conforming 
ratio, and causes any component of the cPRIME Agency Order to lock or 
cross a Priority Customer Order at (A) the best price opposite the 
cPRIME Agency Order; or (B) the initiating price.'' The Exchange also 
proposes to adopt paragraph (ix) to provide that, ``the NBBO for a 
component of a cPRIME Agency Order with a non-conforming ratio updates 
to a price that would cause any option component of the cPRIME Agency 
Order to be executed at a price through the NBBO for that series.''
    These provisions ensure that a cPRIME Agency Order will always 
receive the best price on the Exchange while simultaneously preserving 
the integrity of the simple market by preventing a component of an 
order with a non-conforming ratio from trading ahead of Priority 
Customer interest or trading through the NBBO.
Example 1
    A Priority Customer Order in a component of the strategy, eligible 
to rest on the Simple Order Book, is received on the same side of the 
market as the cPRIME Agency Order with a non-conforming ratio, and 
causes a component of the cPRIME Agency Order to lock a Priority 
Customer Order at the best price opposite the cPRIME Agency Order.

MIAX--LMM \19\ Sep 50 Call 1.81-1.82 (10 x 10)
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    \19\ The term ``Lead Market Maker'' means a Member registered 
with the Exchange for the purpose of making markets in securities 
traded on the Exchange and that is vested with the rights and 
responsibilities specified in Chapter VI of these Rules with respect 
to Lead Market Makers. When a Lead Market Maker is appointed to act 
in the capacity of a Primary Lead Market Maker, the additional 
rights and responsibilities of a Primary Lead Market Maker specified 
in Chapter VI of these Rules will apply. See Exchange Rule 100.
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MIAX--LMM Sep 55 Call 1.29-1.30 (10 x 10)
MIAX--Priority Customer Sep 55 Call order to sell 10 at 1.30 \20\
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    \20\ A leg of a non-conforming strategy may not execute ahead of 
a Priority Customer Order at the MBBO on the Simple Order Book, 
therefore while there is a Priority Customer Order priced at 1.30 
for the Sep 55 Call, the price used for this leg to establish the 
net price will be 1.29. See proposed Exchange Rule 518(c)(1)(v). 
(The Auction starts as the net price of 0.52 may still be achieved 
if the other leg in the strategy (Sep 50 Call) can be executed at 
1.81.)
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Strategy: Buy 1 Sep 50 Call, Sell 1 Sep 55 Call
The icMBBO \21\ is 0.51 debit bid and 0.53 credit offer
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    \21\ The Implied Complex MIAX Best Bid or Offer (``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. See Exchange Rule 518(a)(11).

    The Exchange receives a cPRIME Order with a non-conforming ratio 
with the cPRIME Agency Order representing the purchase of the Strategy 
at a net debit of 0.52, (Buy Sep 50 Call at 1.82, Sell Sep 55 Call at 
1.30) 500 times. (Auto-match is not enabled and there are no orders for 
the Strategy on the Strategy Book.)
    Since the order price is at least $0.01 better than (inside) the 
icMBBO and the best net price of any order for the Strategy on the 
Strategy Book, a cPRIME Auction can begin.\22\
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    \22\ The initiating price for a cPRIME Agency Order must be 
better than (inside) the icMBBO for the strategy and any other 
complex orders on the Strategy Book. The System will reject cPRIME 
Agency Orders submitted with an initiating price that is equal to or 
worse than (outside) the icMBBO or any other complex orders on the 
Strategy Book. See Interpretations and Policies .12(a)(i) of 
Exchange Rule 515A.
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    A Request for Responses (``RFR'') is broadcast to all subscribers 
and the RFR period is started.
    The following responses are received:

 @70 milliseconds MM1 response, cAOC eQuote @0.52 credit sell 
of 100 arrives

    The cPRIME Auction process will continue until the Response Time 
Interval ends or an event eligible to cause the cPRIME Auction to end 
sooner occurs.

 @85 milliseconds a Priority Customer simple order bid to pay 
1.81 for 10 Sep 50 Calls arrives

    Since the pre-existing simple order to sell at 1.30 is Priority 
Customer, the tradable component prices of the cPRIME Order are 1.81 
for the Sep 50 Call and 1.29 for the Sep 55 Call, for a net debit price 
of 0.52.
    However, because the new order to buy at 1.81 is also Priority 
Customer and causes a tradable component of the cPRIME Agency Order 
(Sep 50 Call) to lock a Priority Customer Order at the best price 
opposite the cPRIME Agency Order, the cPRIME Auction will terminate.
    The cPRIME Auction is concluded prior to the end of the Response 
Time Interval to prevent the cPRIME Agency Order from trading ahead of 
a Priority Customer in any component of the cPRIME Agency Order.
    The cPRIME Auction process will trade the cPRIME Agency Order with 
the best priced responses. The cPRIME Agency order will be filled as 
follows:

 The cPRIME Agency Order buys 400 from the Contra side @0.52
 The cPRIME Agency Order buys 100 from MM1 @0.52
Example 2
    A Priority Customer Order in a component of the strategy, eligible 
to rest on the Simple Order Book, is received on the opposite side of 
the market from the cPRIME Agency Order with a non-conforming ratio, 
and causes a component of the cPRIME Agency Order to lock a Priority 
Customer at the initiating price.

MIAX--LMM Sep 50 Call 1.81-1.82 (10 x 10)
MIAX--LMM Sep 55 Call 1.29-1.30 (10 x 10)
MIAX--Priority Customer Sep 55 Call order to buy 10 at 1.29
Strategy: Buy 1 Sep 50 Call, Sell 1 Sep 55 Call
The icMBBO is 0.51 debit bid and 0.53 credit offer

    The Exchange receives a cPRIME Order with a non-conforming ratio 
with the cPRIME Agency Order representing the purchase of the Strategy 
at a net debit of 0.52, (Buy Sep 50 Call at 1.82, Sell Sep 55 Call at 
1.30), 500 times.

[[Page 6798]]

(Auto-match is not enabled and there are no orders for the Strategy on 
the Strategy Book.)
    Since the order price is at least $0.01 better than (inside) the 
icMBBO and the best net price of any order for the Strategy on the 
Strategy Book, a cPRIME Auction can begin.
    A Request for Responses (``RFR'') is broadcast to all subscribers 
and the RFR period is started.
    The following responses are received:

 @70 milliseconds MM1 response, cAOC eQuote @0.52 credit sell 
of 100 arrives

    The cPRIME Auction process will continue until the Response Time 
Interval ends or an event eligible to cause the cPRIME Auction to end 
sooner occurs.

 @85 milliseconds a Priority Customer simple order offer to 
sell at 1.82 for 10 Sep 50 Calls arrives

    Since the pre-existing simple order to buy Sep 55 Call at 1.29 is 
Priority Customer, the tradable component prices of the cPRIME Order 
are 1.82 for the Sep 50 Call and 1.30 for the Sep 55 Call, for a net 
debit price of 0.52.
    However, because the new order to sell at 1.82 is also Priority 
Customer and causes a tradable component of the cPRIME Agency Order 
(Sep 50 Call) to lock a Priority Customer Order at the initiating 
price; the cPRIME Auction will terminate.
    The cPRIME Auction is concluded prior to the end of the Response 
Time Interval to prevent the cPRIME Agency Order from trading ahead of 
a Priority Customer in any component of the cPRIME Agency Order.
    The cPRIME Auction process will trade the cPRIME Agency Order with 
the best priced responses. The cPRIME Agency order will be filled as 
follows:

 The cPRIME Agency Order buys 400 from the Contra side @0.52
 The cPRIME Agency Order buys 100 from MM1 @0.52
Example 3
    The NBBO for a component of a cPRIME Agency Order with a non-
conforming ratio updates to a price that would cause a component to 
trade through the NBBO.

MIAX--LMM Sep 50 Call 1.81-1.82 (10 x 10)
MIAX--LMM Sep 55 Call 1.29-1.30 (10 x 10)
MIAX--Priority Customer Sep 55 Call order to buy 10 at 1.29
Strategy: Buy 1 Sep 50 Call, Sell 1 Sep 55 Call
The icMBBO is 0.51 debit bid and 0.53 credit offer

    The Exchange receives a cPRIME Order with a non-conforming ratio 
with the cPRIME Agency Order representing the purchase of the Strategy 
at a net debit of 0.52, (Buy Sep 50 Call at 1.82, Sell Sep 55 Call at 
1.30), 500 times. (Auto-match is not enabled and there are no orders 
for the Strategy on the Strategy Book.)
    Since the order price is at least $0.01 better than (inside) the 
icMBBO and the best net price of any order for the Strategy on the 
Strategy Book, a cPRIME Auction can begin.
    A Request for Responses (``RFR'') is broadcast to all subscribers 
and the RFR period is started.
    The following responses are received:

 @70 milliseconds MM1 response, cAOC eQuote @0.52 credit sell 
of 100 arrives

    The cPRIME Auction process will continue until the Response Time 
Interval ends or an event eligible to cause the cPRIME Auction to end 
sooner occurs.

The ABBO updates to 1.80-1.81 (10x10) for the Sep 50 Call

    Since the pre-existing simple order to buy Sep 55 Call at 1.29 is 
Priority Customer, the tradable component prices of the cPRIME order 
are 1.82 for the Sep 50 Call and 1.30 for the Sep 55 Call, for a net 
debit price of 0.52.
    However, because the ABBO update to sell Sep 50 Call at 1.81 is 
better than the local best offer (1.82), this causes the tradable price 
to be through the NBBO for that component and is no longer tradable.
    The cPRIME Auction is concluded prior to the end of the Response 
Time Interval to prevent the non-conforming strategy trading through 
any component NBBO.
    The cPRIME Auction process will trade the cPRIME Agency Order with 
the best priced responses. The cPRIME Agency order will be filled as 
follows:

 The cPRIME Agency Order buys 400 from the Contra side @0.52
 The cPRIME Agency Order buys 100 from MM1 @0.52

    The Exchange also proposes to allow bids and offers on complex 
orders, quotes and RFR Responses for complex strategies having only 
option components and a non-conforming ratio to be expressed in $0.01 
increments, and the component(s) of such a complex order may be 
executed in $0.01 increments, regardless of the minimum increments 
otherwise applicable to individual components of the complex order. The 
Exchange notes that electronic trading of complex orders with non-
conforming ratios in one cent increments was recently established on 
another exchange.\23\ Further, the Exchange notes that complex orders 
with conforming ratios are currently traded in one cent increments on 
the Exchange \24\ and the proposed change will allow trading of complex 
orders in one cent increments for all complex orders on the Exchange.
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    \23\ See Securities Exchange Act Release No. 94204 (February 9, 
2022), 87 FR 8625 (February 15, 2022) (SR-CBOE-2021-046) and Cboe 
Rule 5.4(b); see also BOX Options Rule 7240(b)(1).
    \24\ See Exchange Rule 518(c)(1)(i).
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    The Exchange understands that there may be some concerns that if 
the ratios of complex orders, where each component leg is allowed to 
trade in one cent increments, are too greatly expanded, market 
participants will, for example, enter complex orders with non-
conforming ratios designed primarily to trade orders in a class in 
pennies that cannot otherwise execute as simple orders in that class in 
pennies. The Exchange believes it is highly unlikely that market 
participants will submit non-bona-fide trading strategies with larger 
ratios just to trade in penny increments. Adding a single leg to a 
larger order just to obtain penny pricing may further reduce execution 
opportunities for such an order because it may be less likely that 
sufficient contracts in the appropriate ratio would be available and 
because it is unlikely that other market participants would be willing 
to execute against an order that is not a bona-fide trading strategy. 
Further, the Exchange notes that all option series traded on the 
Exchange can currently trade in penny increments in the Exchange's 
Price Improvement Mechanism (``PRIME'') regardless of the minimum 
increment otherwise applicable.\25\ Lastly, the Exchange notes that 
pursuant to Exchange Rule 301, no Member shall engage in acts or 
practices inconsistent with just and equitable principles of trade, and 
entering orders for non-bona-fide trading strategies may constitute 
acts or practices inconsistent with just and equitable principles of 
trade.
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    \25\ See Exchange Rule 515A(a)(2)(i)(F).
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    Finally, the Exchange proposes to make non-substantive edits to 
Exchange Rule 515 and Rule 516, to update internal cross references to 
the location of certain definitions that have changed as a result of 
this proposal.
Implementation
    The Exchange will announce the implementation of complex orders 
with non-conforming strategies by Regulatory Circular at least 48 hours 
prior to implementation of this functionality, as

[[Page 6799]]

the Exchange believes that 48 hours of notice is adequate for Members.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act,\26\ 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. Additionally, the Exchange believes the proposed rule change 
is consistent with the Section (6)(b)(5) \27\ requirement that the 
rules of an exchange not be designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
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    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78(f)(b)(5).
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    The Exchange currently only processes complex orders that fit 
within the proposed definition of a conforming ratio, that is complex 
orders with a ratio between the sizes of the option components equal to 
or greater than one-to-three (.333) and less than or equal to three-to-
one (3.00) and for the purposes of executing a particular investment 
strategy.\28\
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    \28\ See Exchange Rule 518(a)(5).
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    In particular, the Exchange believes the proposed rule change will 
remove impediments to and perfect the mechanism of a free and open 
market and benefit investors, because it will allow market participants 
to execute complex strategies with option components only in ratios 
greater than three-to-one or less than one-to-three (``non-conforming 
ratios'' as proposed herein). The proposed rule change will further 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, as other options exchanges permit 
the trading of complex orders with any ratio.\29\
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    \29\ See Cboe Exchange Rules 1.1 (Complex Order) and 5.33; see 
also BOX Exchange Rule 7240(a)(10), (b)(1) and (b)(2)(iii).
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    The proposed change rule change will continue to protect Priority 
Customer Order interest on the Simple Order Book in the same manner as 
it does today, as all complex orders with a conforming ratio will 
continue to be executed on the Exchange without change. The proposed 
rule change has no impact on the priority of complex orders with a 
conforming ratio, as complex orders with a conforming ratio will 
continue to be required to improve the price of a leg of the complex 
order for which a Priority Customer Order is resting at the BBO in the 
Simple Order Book,\30\ and thus will continue to protect Priority 
Customer Orders in the Simple Order Book. Additionally, the Exchange 
will not allow any component of a complex order with a non-conforming 
strategy to execute ahead of a Priority Customer resting at the BBO in 
the Simple Order Book.\31\
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    \30\ See Exchange Rule 518(c)(3).
    \31\ See proposed Rule 518(c)(1)(v).
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    Additionally, the Exchange believes the proposed amendment to 
revise Exchange Rule 518(c)(2) to indicate icMBBO protection for 
complex orders with conforming ratios will require those orders to be 
executed in accordance with Rule 518(c)(1)(iv) and complex orders with 
non-conforming ratios to be executed in accordance with Rule 
518(c)(1)(v) will clarify the operation of the icMBBO protection for 
complex orders with a conforming ratio and complex orders with a non-
conforming ratio. This change benefits investors and the public as it 
clarifies that the complex order priority rules will continue to 
protect Priority Customer interest on the Simple Order Book.
    The Exchange believes the proposed changes will increase 
opportunities for execution of complex orders and lead to tighter 
spreads on the Exchange, which will benefit all investors. The Exchange 
also believes that the proposed rule change is designed to not permit 
unfair discrimination among market participants, as all market 
participants may trade complex orders, and the priority and eligibility 
requirements apply to complex orders of all market participants.
    Additionally, the Exchange believes that including additional 
scenarios which will terminate a cPRIME Auction promotes just and 
equitable principles of trade and removes impediments to a free and 
open market by providing greater transparency concerning the operation 
of Exchange functionality. These provisions ensure that a cPRIME Agency 
Order will always receive the best price on the Exchange while 
simultaneously preserving the integrity of the simple market.
    The Exchange believes that its proposal is designed to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free an open market and a national market system, 
and, in general to protect investors and the public interest, by 
enhancing its System \32\ and rules governing complex orders. The 
Exchange's proposal should provide market participants with trading 
opportunities more closely aligned with their investment or risk 
management strategies.
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    \32\ 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 its proposed rule change will 
impose any burden on intra-market competition as the Rules of the 
Exchange apply equally to all Members of the Exchange and all Members 
may submit complex orders. Therefore, any Member of the Exchange may 
submit a complex order with a conforming or non-conforming ratio and 
the order will be handled in a uniform fashion by the System.
    The Exchange does not believe that its proposed rule change will 
impose any burden on inter-market competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, rather the 
Exchange believes that its proposal will promote inter-market 
competition. The Exchange notes that other options exchanges provide 
for the electronic trading of complex orders with only option 
components with ratios that are less than one-to-three and greater than 
three-to-one, and allow these orders to be priced and executed in one 
cent increments.\33\ As such, 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.
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    \33\ See Cboe Exchange Rule 5.4(b); see also BOX Exchange Rule 
7240(b)(1).
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    The Exchange does not believe the proposed amendment to clarify 
icMBBO protections imposes any burden on intra-market competition that 
is not necessary or appropriate in furtherance of the purposes of the 
Act. Complex orders submitted by Members with conforming ratios will 
continue to be handled by the System without change. Complex orders 
submitted by Members with non-conforming ratios will be handled 
uniformly by the System as described in this proposal. The Exchange 
does not believe that this proposed change imposes any burden on inter-
market competition as the

[[Page 6800]]

icMBBO protection is designed to protect Priority Customer priority on 
the Exchange's Book and is not a change made for competitive reasons.
    Additionally, the Exchange does not believe that its new proposed 
scenarios to terminate a cPRIME Auction imposes any burden on intra-
market competition that is not necessary or appropriate in furtherance 
of the purposes of the Act, as the proposed changes are designed to add 
additional detail to the rules to further clarify the operation of 
Exchange functionality and to minimize the potential for confusion. The 
Exchange does not believe that this proposed change imposes any burden 
on inter-market competition as this change is designed to protect 
Priority Customer priority on the Exchange's Book and is not a change 
made for competitive reasons.

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 (a) 
significantly affect the protection of investors or the public 
interest; (b) impose any significant burden on competition; and (c) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \34\ and Rule 19b-
4(f)(6) thereunder.\35\
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    \34\ 15 U.S.C. 78s(b)(3)(A).
    \35\ 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) normally does 
not become operative prior to 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\36\ the Commission may 
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. As noted above, 
other options exchanges currently allow complex orders with a ratio 
less than one-to-three or greater than three-to-one to trade 
electronically in $0.01 increments.\37\ Under the proposal, no 
component leg of a complex order with a non-conforming ratio will 
execute (A) at a price of zero; (B) ahead of a Priority Customer Order 
at the MBBO on the Simple Order Book; or (C) at a price that is through 
the NBBO.\38\ Accordingly, the Exchange states that a non-conforming 
ratio complex order may be executed at a net price only if each leg of 
the complex order betters the corresponding bid (offer) of a Priority 
Customer Order(s) on the Simple Order Book, and is not at a price that 
is through the NBBO. The Exchange states that waiver of the operative 
delay will allow the Exchange to immediately offer market participants 
the choice of another execution venue for the electronic trading of 
complex orders with non-conforming ratios. The Exchange further states 
that market participants may benefit from competition between 
exchanges, may find the trade execution services and fees on one 
exchange more favorable than another, or may find it more convenient to 
access on exchange over another. Accordingly, the Exchange believes 
that waiving the operative delay will allow the Exchange to immediately 
make a competitive offering to market participants.
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    \36\ 17 CFR 240.19b-4(f)(6)(iii).
    \37\ See BOX Rules 7240(a)(10); 7240(b)(1); and 7240(b)(2)(iii); 
and Cboe Rules 1.1 (stating, in the definition of complex order, 
that ``the Exchange determines on a class-by-class basis whether 
complex orders with ratios less than one-to-three (.333) or greater 
than three-to-one (3.00) (except for Index Combo orders) are 
eligible for electronic processing'')); 5.4(b); and 
5.33(f)(2)(A)(iv)(b).
    \38\ See proposed Exchange Rule 518(c)(1)(v).
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    The Commission finds that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The proposal will provide investors with an additional venue for 
electronically trading complex orders with a ratio less than one-to-
three or greater than three-to-one. The Commission believes that 
proposal does not raise new or novel regulatory issues because other 
options exchanges currently provide for the electronic trading of 
complex orders with a ratio less than one-to-three or greater than 
three-to-one.\39\ The proposal protects the priority of resting 
Priority Customer orders by providing that no component leg of a non-
conforming ratio complex order will be executed ahead of a Priority 
Customer Order at the MBBO on the Simple Order Book.\40\ This 
requirement is consistent with the rules of other options exchanges 
that provide for the electronic trading of complex orders with a ratio 
less than one-to-three or greater than three-to-one.\41\ As described 
above, the proposal also revises Exchange Rule 515A, Interpretation and 
Policy .12(d) to provide that a cPRIME Auction for a non-conforming 
ratio cPRIME Agency Order will terminate early when a single-leg 
Priority Customer Order arrives and causes any component of the cPRIME 
Agency Order to lock or cross a Priority Customer Order at the best 
price opposite the cPRIME Agency Order or the initiating price.\42\ A 
cPRIME Auction for a non-conforming ratio cPRIME Agency Order also will 
terminate early when the NBBO for a component of the cPRIME Agency 
Order updates to a price that would cause any component of the cPRIME 
Agency Order to be executed at a price that is through the NBBO for 
that series.\43\ The Exchange states that these provisions ensure that 
a cPRIME Agency Order will always receive the best price on the 
Exchange while preserving the integrity of the simple market by 
preventing a component of a non-conforming ratio complex order from 
trading ahead of Priority Customer interest or trading through the 
NBBO. In addition, as discussed above, the Exchange believes it is 
highly unlikely that market participants will submit non-bona-fide 
trading strategies with larger ratios solely for the purpose of trading 
in penny increments. The Exchange states that adding a single leg to a 
larger order to obtain penny pricing could reduce execution 
opportunities for such an order because it may be less likely that 
sufficient contracts in the appropriate ratio would be available and 
because it is unlikely that other market participants would be willing 
to execute against an order that is not a bona-fide trading strategy. 
Further, the Exchange notes that all option series traded on the 
Exchange can currently trade in penny increments in the Exchange's 
PRIME auction, regardless of the minimum increment otherwise 
applicable.\44\ The Exchange also states that entering orders for non-
bona-fide trading strategies could constitute an act or practice 
inconsistent with just and equitable principles of trade, in violation 
of

[[Page 6801]]

Exchange Rule 301. For these reasons, the Commission designates the 
proposal operative upon filing.\45\
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    \39\ See footnote 37, supra.
    \40\ See proposed Exchange Rule 518(c)(1)(v). In addition, the 
proposal revises Exchange Rule 518(c)(2)(ii), which provides that 
complex orders 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 at the best icMBBO price, to indicate that complex 
orders with non-conforming ratios will be executed in accordance 
with proposed Exchange Rule 518(c)(1)(v).
    \41\ See BOX Rule 7240(b)(2)(iii); and Cboe Rule 
5.33(f)(2)(iv)(b).
    \42\ See proposed Exchange Rule 515A, Interpretation and Policy 
.12(d)(viii).
    \43\ See proposed Exchange Rule 515A, Interpretation and Policy 
.12(d)(ix).
    \44\ See Exchange Rule 515A(a)(2)(i)(F).
    \45\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 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 [email protected]. Please include 
File Number SR-MIAX-2023-01.

Paper Comments

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

All submissions should refer to File Number SR-MIAX-2023-01. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than 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-2023-01, and should be submitted on 
or before February 22, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\46\
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    \46\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-01998 Filed 1-31-23; 8:45 am]
BILLING CODE 8011-01-P