[Federal Register Volume 81, Number 199 (Friday, October 14, 2016)]
[Notices]
[Pages 71131-71143]
[FR Doc No: 2016-24837]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79072; File No. SR-MIAX-2016-26]

Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Order Approving a Proposed Rule Change To Adopt New
Rules To Govern the Trading of Complex Orders

October 7, 2016

I. Introduction

    On August 8, 2016, Miami International Securities Exchange, LLC
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange
Commission (the ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to adopt rules to govern the
trading of complex orders on the Exchange. The proposed rule change was
published for comment in the Federal Register on August 25, 2016.\3\
The Commission received no comment letters regarding the proposed rule
change. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 78620 (August 18,
2016), 81 FR 58770 (``Notice'').
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II. Description

A. Definitions

    MIAX proposes to add Rule 518(a) to define 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),\4\ 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.\5\
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    \4\ The different options in the same underlying security that
comprise a particular complex order are referred to as the ``legs''
or ``components'' of the complex order.
    \5\ This definition is consistent with other options exchanges.
See, e.g., CBOE Rule 6.53C(a)(1); PHLX Rule 1098(a)(i); NYSE MKT
Rule 900.3NY(e); and BOX Rule 7240(a)(5).
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    A stock-option order is proposed to be defined as an order to buy
or sell a stated number of units of an underlying security (stock or
Exchange Traded Fund Share (``ETF'')) or a security convertible into
the underlying stock (``convertible security'') coupled with the
purchase or sale of options contract(s) on the opposite side of the
market representing either (i) the same number of units of the
underlying

security or convertible security, or (ii) the number of units of the
underlying stock necessary to create a delta neutral position, but in
no case in a ratio greater than eight-to-one (8.00), where the ratio
represents the total number of units of the underlying security or
convertible security in the option leg to the total number of units of
the underlying security or convertible security in the stock leg.\6\
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    \6\ This is substantially similar to the definition of a stock-
option order on other exchanges. See, e.g., CBOE Rule 6.53C(a)(2)
and PHLX Rule 1098(a)(i).
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    The Exchange has also proposed to define a complex strategy as a
particular combination of components and their ratios to one another.
As proposed, the Exchange may limit the number of new complex
strategies that may be in the System at a particular time and will
communicate this limitation to Members via Regulatory Circular.\7\
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    \7\ See MIAX Rule 518(a)(6).
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B. Types of Complex Orders

    MIAX is proposing to add Rule 518(b) to allow complex orders to be
entered as limit orders, market orders, Good `til Cancelled (``GTC'')
orders, or day limit orders (all as defined in MIAX Rule 516). In
addition, MIAX is proposing new complex order types: Complex Auction-
on-Arrival (``cAOA'') orders, Complex Auction-or-Cancel (``cAOC'')
orders, or Complex Immediate-or-Cancel (``cIOC'') orders, as described
below. Proposed Rule 518(b)(1) states that the Exchange will issue a
Regulatory Circular listing which complex order types, among the
complex order types set forth in the proposed Rule, are available for
use on the Exchange. Additional Regulatory Circulars will be issued as
additional complex order types, among those complex order types set
forth in the proposed Rule, become available for use on the Exchange.
Regulatory Circulars will also be issued when a complex order type that
had been in usage on the Exchange will no longer be available for use.

C. Trading of Complex Orders and Quotes

    Proposed Rule 518(c) describes the manner in which complex orders
will be handled and traded on the Exchange. The proposed rule provides
that the Exchange will determine and communicate to Members via
Regulatory Circular which complex order origin types (i.e., non-broker-
dealer customers, broker-dealers that are not Market Makers on an
options exchange, and/or Market Makers on an options exchange) are
eligible for entry onto the Strategy Book.\8\ The proposed rule also
states that complex orders will be subject to all other Exchange Rules
that pertain to orders generally, unless otherwise provided in proposed
Rule 518.
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    \8\ See MIAX Rule 518(c). The Strategy Book is defined as the
Exchange's electronic book of complex orders and complex quotes. See
MIAX Rule 518(a)(17).
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1. Minimum Increments and Trade Prices
    Proposed Rule 518(c)(1) provides that bids and offers on complex
orders and quotes may be expressed in $0.01 increments, and the
component(s) of a complex order may be executed in $0.01 increments,
regardless of the minimum increments otherwise applicable to individual
components of the complex order,\9\ and that if any component of a
complex strategy would be executed at a price that is equal to a
Priority Customer bid or offer on the Simple Order Book,\10\ at least
one other component of the complex strategy must trade at a price that
is better than the corresponding MBBO.\11\
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    \9\ See MIAX Rule 518(c)(1). See also ISE Rule 722(b)(1).
    \10\ The Simple Order Book is defined as the Exchange's regular
electronic book of orders and quotes. See MIAX Rule 518(a)(15).
    \11\ See MIAX Rule 518(c)(1)(ii). See also ISE Rule 722(b)(2)
and PHLX Rule 1098(c)(iii). ``MBBO'' is defined as the best bid or
offer on the Simple Order Book on the Exchange. See MIAX Rule
518(a)(13).
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    Proposed Rule 518(c)(1)(iii) states generally that a complex order
will not be executed at a net price that would cause any 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 component of the complex strategy.
2. Execution of Complex Orders and Quotes
a. Opening and Reopening
    MIAX proposes to add Rule 518(c)(2)(i), which states that complex
orders and quotes do not participate in the opening process for the
individual option legs conducted pursuant to Rule 503. At the beginning
of each trading session, and upon reopening after a halt, once all
components of a complex strategy are open, an initial evaluation will
be conducted in order to determine whether a complex order is a Complex
Auction-eligible order, using the process and criteria described in
Interpretations and Policies .03(a) of proposed Rule 518 regarding the
Initial Improvement Percentage (``IIP''). Specifically, the Exchange
would set a defined percentage (such percentage, the ``IIP'') of the
dcMBBO \12\ bid/ask differential at or within which the System will
determine to initiate a Complex Auction when the Strategy Book opens
for trading.\13\ If a Complex Auction-eligible order is priced equal
to, or improves, the IIP value and is also priced equal to, or
improves, other complex orders and/or quotes resting at the top of the
Strategy Book, the complex order will be eligible to initiate a Complex
Auction.\14\
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    \12\ The Displayed Complex MIAX Best Bid or Offer (``dcMBBO'')
is calculated using the best displayed price for each component of a
complex strategy from the Simple Order Book. For stock-option
orders, the dcMBBO for a complex strategy will be calculated using
the Exchange's best displayed bid or offer in the individual option
component(s) and the NBBO in the stock component. See MIAX Rule
518(a)(8).
    \13\ Similarly, as discussed more fully below, the System will
also calculate an Upon Receipt Improvement Percentage (``URIP'')
value to determine whether a complex order is priced equal to, or
improves, the URIP value upon receipt when the complex strategy is
open for trading, and a Re-evaluation Improvement Percentage
(``RIP'') value, to determine whether a complex order resting at the
top of the Strategy Book is priced equal to, or improves, the RIP
value. If so, in either case, the complex order will be Complex
Auction-eligible. See MIAX Rule 518, Interpretations and Policies
.03(b) and (c). See Notice, 81 FR at 58782, for an example of a URIP
calculation.
    \14\ See MIAX Rule 518(c)(2)(i).
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    MIAX also proposes that the Strategy Book will open for trading, or
reopen for trading after a halt, with a Complex Auction if it is
determined that one of the following conditions is present: (A) A
complex order with no matching interest on the Strategy Book equals or
improves the IIP, (B) matching interest exists at a price that is equal
to or through the IIP, or (C) a size imbalance exists where the price
at which the maximum quantity that can trade is equal to or through the
IIP. If the Strategy Book contains matched interest or a size imbalance
exists where the price at which the maximum quantity can trade is not
equal to or through the IIP, the Strategy Book will open for trading
with a trade and a Complex Auction will not be initiated. The remaining
portion of any complex order for which there is a size imbalance will
be placed on the Strategy Book. If the Strategy Book contains no
matching interest or interest equal to or through the IIP, the complex
strategy will open without a trade and a Complex Auction will not be
initiated.
b. Pricing
    Proposed Rule 518(c)(2)(ii) describes the manner in which the
System determines the price of execution of complex orders and quotes.
Incoming complex orders and quotes will be executed by the System in
accordance

with the provisions below, and will not be executed at prices inferior
to the icMBBO \15\ or at a price that is equal to the icMBBO when there
is a Priority Customer Order (as defined in Rule 100) \16\ at the best
icMBBO price.\17\ Complex orders will never be executed at a price that
is outside of the individual component prices on the Simple Order
Book.\18\ Furthermore, the net price of a complex order executed
against another complex order on the Strategy Book will never be
inferior to the price that would be available if the complex order
legged into the Simple Order Book.\19\
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    \15\ The Implied Complex Best Bid or Offer (``icMBBO'') is
calculated using the best price from the Simple Order Book for each
component of a complex strategy including displayed and non-
displayed trading interest. For stock-option orders, the icMBBO for
a complex strategy will be calculated using the best price (whether
displayed or non-displayed) on the Simple Order Book in the
individual option component(s), and the national best bid or offer
(``NBBO'') in the stock component. See MIAX Rule 518(a)(11).
``NBBO'' means the national best bid or offer as calculated by the
Exchange based on market information received by the Exchange from
the appropriate Securities Information Processor (``SIP''). See MIAX
Rule 518(a)(14).
    \16\ 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 accounts(s). The term
``Priority Customer Order'' means an order for the account of a
Priority Customer. See MIAX Rule 100.
    \17\ See MIAX Rule 518(c)(2)(ii).
    \18\ See id.
    \19\ See id.
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    The proposed rule also provides that incoming complex orders that
cannot be executed because the executions would be priced (A) outside
of the icMBBO, or (B) equal to or through the icMBBO due to a Priority
Customer Order at the best icMBBO price, will be cancelled if such
complex orders are not eligible to be placed on the Strategy Book.\20\
Complex orders and quotes will be executed without consideration of any
prices for the complex strategy that might be available on other
exchanges trading the same options contracts provided, however, that
such complex order price may be subject to the Implied Exchange Away
Best Bid or Offer (``ixABBO'') Protection set forth in Interpretations
and Policies .05(d) proposed Rule 518.\21\
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    \20\ See MIAX Rule 518(c)(2)(ii).
    \21\ The ixABBO price protection feature is a price protection
mechanism under which, when in operation as requested by the
submitting Member, a buy order will not be executed at a price that
is higher than each other single exchange's best offer, and under
which a sell order will not be executed at a price that is lower
than each other single exchange's best bid for the complex strategy.
See Interpretations and Policies .05(d) to MIAX Rule 518. The ixABBO
is calculated using the best net bid and offer for a complex
strategy using each other exchange's displayed best bid or offer on
their version of the Simple Order Book. For stock-option orders, the
ixABBO for a complex strategy will be calculated using the BBO for
each component on each individual away options market and the NBBO
for the stock component. The ixABBO price protection feature must be
engaged on an order-by-order basis by the submitting Member and is
not available for complex Standard quotes, complex eQuotes, or cAOC
orders. ABBO is defined as the best bid(s) or offer(s) disseminated
by other Eligible Exchanges (defined in MIAX Rule 1400(f)) and
calculated by the Exchange based on market information received by
the Exchange from the Options Price Reporting Authority (``OPRA'').
See MIAX Rule 518(a)(1).
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3. Priority
    Proposed Rule 518(c)(3) describes how the system will establish
priority for complex orders.\22\ A complex order may be executed at a
net credit or debit price with one other Member without giving priority
to bids or offers established in the marketplace that are no better
than the bids or offers comprising such net credit or debit; provided,
however, that if any of the bids or offers established in the
marketplace consist of a Priority Customer Order, at least one leg of
the complex order must trade at a price that is better than the
corresponding bid or offer in the marketplace by at least a $0.01
increment.\23\ Under the circumstances described above, if a stock-
option order has one option leg, such option leg has priority over bids
and offers established in the marketplace by Professional Interest (as
defined in Rule 100) \24\ and Market Makers with priority quotes \25\
that are no better than the price of the options leg, but not over such
bids and offers established by Priority Customer Orders. If a stock-
option order has more than one option leg, such option legs may be
executed in accordance with proposed Rule 518(c)(3)(i).
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    \22\ The proposed complex order priority structure is based
generally on the same approach and structure currently effective on
MIAX respecting priority of orders and quotes in the simple market
as established in MIAX Rule 514. See Notice, 81 FR at 58788.
    \23\ See MIAX Rule 518(c)(3).
    \24\ The term ``Professional Interest'' means (i) an order that
is for the account of a person or entity that is not a Priority
Customer or (ii) an order or non-priority quote for the account of a
Market Maker. See MIAX Rule 100.
    \25\ See MIAX Rule 517(b)(1).
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    Regarding execution and allocation of complex orders, proposed Rule
518(c)(3)(ii) establishes that complex orders will be automatically
executed against bids and offers on the Strategy Book in price
priority. Bids and offers at the same price on the Strategy Book will
be executed pursuant to the following priority rules: (A) Priority
Customer complex orders resting on the Strategy Book will have first
priority to trade against a complex order. Priority Customer complex
orders resting on the Strategy Book will be allocated in price time
priority; (B) Market Maker Priority Interest for Complex (described
below) will collectively have second priority. Market Maker Priority
Interest for Complex will be allocated on a pro-rata basis as defined
in Rule 514(c)(2); (C) Market Maker non-Priority Interest for Complex
will collectively have third priority. Market Maker non-Priority
Interest for Complex will be allocated on a pro-rata basis as defined
in Rule 514(c)(2); (D) Non-Market Maker Professional Interest orders
resting on the Strategy Book will collectively have fourth priority.
Non-Market Maker Professional Interest orders will be allocated on a
pro-rata basis as defined in Rule 514(c)(2).\26\
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    \26\ See MIAX Rule 518(c)(3)(ii).
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4. Managed Interest Process
    Proposed Rule 518(c)(4), sets forth the price(s) at which complex
orders will be placed on the Strategy Book. The managed interest
process is initiated when a complex order that is eligible to be placed
on the Strategy Book cannot be executed against either the Strategy
Book or the Simple Order Book (with the individual legs) at the complex
order's net price, and is intended to ensure that a complex order to be
managed does not result in a locked or crossed market on the Exchange.
Once initiated, the managed interest process for complex orders will be
based upon the icMBBO.\27\
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    \27\ A complex order for which the ixABBO protection is engaged
will be managed to the ixABBO as described below and in MIAX Rule
518, Interpretations and Policies .05(d).
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    Under the managed interest process, a complex order that is resting
on the Strategy Book and is either a complex market order as described
in proposed Rule 518(c)(6) and discussed below, or has a limit price
that locks or crosses the current opposite side icMBBO when the icMBBO
is the best price, may be subject to the managed interest process for
complex orders as discussed herein. Complex Standard quotes are not
eligible for inclusion in the managed interest process. An unexecuted
complex Standard quote with a limit price that would otherwise be
managed to the icMBBO will be cancelled. If the order is not a Complex
Auction-eligible order as defined in proposed Rule 518(d)(1) and
described below, the System will first determine if the inbound complex
order can be matched against other complex orders and/or quotes resting
on the Strategy Book at a price that is at or inside the icMBBO
(provided there are no Priority Customer orders on the Simple Order
Book at that

price). Second, the System will determine if the inbound complex order
can be executed by Legging against individual orders and quotes resting
on the Simple Order Book at the icMBBO. A complex order subject to the
managed interest process will never be executed at a price that is
through the individual component prices on the Simple Order Book.
Furthermore, the net price of a complex order subject to the managed
interest process that is executed against another complex order on the
Strategy Book will never be inferior to the price that would be
available if the complex order legged into the Simple Order Book. When
the opposite side icMBBO includes a Priority Customer Order, the System
will book and display such booked complex order on the Strategy Book at
a price (the ``book and display price'') that is $0.01 away from the
current opposite side icMBBO.\28\
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    \28\ For an example of the managed interest process when
Priority Customer Interest is present at the icMBBO, see Notice, 81
FR at 58778-79.
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    When the opposite side icMBBO does not include a Priority Customer
Order and is not available for execution in the ratio of such complex
order, or cannot be executed through Legging with the Simple Order
Book, the System will place such complex order on the Strategy Book and
display such booked complex order at a book and display price that will
lock the current opposite side icMBBO because it is a price at which
another complex order or quote can trade.\29\
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    \29\ For an example of the managed interest process when no
Priority Customer Interest is present at the icMBBO, see Notice, 81
FR at 58779.
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    Should the icMBBO change, the complex order's book and display
price will continuously re-price to the new icMBBO until (A) the
complex order has been executed in its entirety; (B) if not executed,
the complex order has been placed on the Strategy Book at prices up to
and including its limit price or, in the case of a complex market
order, at the new icMBBO; (C) the complex order has been partially
executed and remaining unexecuted contracts have been placed on the
Strategy Book at prices up to and including their limit price or, in
the case of a complex market order, at the new icMBBO; or (D) the
complex order or any remaining portion of the complex order is
cancelled. If the Exchange receives a new complex order or quote for
the complex strategy on the opposite side of the market from the
managed complex order that can be executed, the System will immediately
execute the remaining contracts from the managed complex order to the
extent possible at the complex order's current book and display price,
provided that the execution price is not outside of the current icMBBO.
If unexecuted contracts remain from the complex order on the Strategy
Book, the complex order's size will be revised and disseminated to
reflect the complex order's remaining contracts at its current managed
book and display price.
5. Evaluation Process
    Proposed Rules 518(c)(2)(v) and (c)(5) describe how and when the
System determines to execute or otherwise handle complex orders in the
System, a process known as ``evaluation.'' The System will evaluate
complex orders and quotes and the Strategy Book on a regular and event-
driven basis. For example, the System would evaluate whether an
incoming complex order is Complex Auction-eligible; \30\ whether it
could be executed against the Simple Order Book; \31\ whether there is
a halt or wide market condition in any component of the complex order;
\32\ or whether a derived order should be generated or cancelled.\33\
The System will evaluate complex orders and quotes initially once all
components of the complex strategy are open as set forth in proposed
Rule 518(c)(2)(i), upon receipt as set forth in proposed Rule
518(c)(5)(i), and continually as set forth in proposed Rule(c)(5)(ii).
In addition, proposed Rule 518(c)(5)(iii) states that if the System
determines that a complex order is a Complex Auction-eligible order
(described below), such complex order will be submitted into the
Complex Auction process as described in proposed Rule 518(d) and
discussed below.
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    \30\ See Part II.F.1, infra.
    \31\ See Part II.E, infra.
    \32\ See Part II.I, infra.
    \33\ See Part II.D, infra.
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D. Derived Orders

1. Generation and Removal of Derived Orders; Ranking and Display
    MIAX proposes to adopt Rule 518(a)(9) relating to derived orders. A
``derived order'' is an Exchange-generated limit order on the Simple
Order Book that represents either the bid or offer of one component of
a complex order resting on the Strategy Book that is comprised of
orders to buy or sell an equal quantity (with a one-to-one ratio) of
two option components.\34\ Derived orders are firm orders that are
included in the MBBO.\35\ Derived orders will not be routed outside of
the Exchange regardless of the price(s) disseminated by away markets.
The Exchange will determine on a class-by-class basis to make available
derived orders and communicate such determination to Members via a
Regulatory Circular. A derived order may be automatically generated for
one or more legs of a complex order at a price that matches or improves
upon the best displayed bid or offer in the affected series on the
Simple Order Book and at a price at which the net price of the complex
order on the Strategy Book can be achieved when the other component(s)
of the complex order is (are) executed against the best displayed bid
or offer on the Simple Order Book.\36\ A derived order will not be
displayed at a price that locks or crosses the best bid or offer of
another exchange.\37\ In such a circumstance, the System will display
the derived order on the Simple Order Book at a price that is one
Minimum Price Variation (``MPV'') away from the current opposite side
best bid or offer of such other exchange, and rank the derived order on
the Simple Order Book according to its actual price.\38\ A derived
order will not be created at a price increment less than the minimum
established by MIAX Rule 510.\39\
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    \34\ See MIAX Rule 518(a)(9).
    \35\ See MIAX Rule 518(a)(9).
    \36\ See MIAX Rule 518(a)(9)(i).
    \37\ See MIAX Rule 518(a)(9)(ii).
    \38\ See Notice, 81 FR at 58771-72, for an example of adjustment
of the price of a derived order.
    \39\ See MIAX Rule 518(a)(9)(iii).
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    MIAX proposes that a derived order is automatically removed from
the Simple Order Book if (i) the displayed price of the derived order
is no longer at the displayed best bid or offer on the Simple Order
Book, (ii) execution of the derived order would no longer achieve the
net price of the complex order on the Strategy Book when the other
component of the complex order is executed against the best bid or
offer on the Simple Order Book, (iii) the complex order is executed in
full,\40\ (iv) the complex order is cancelled, or (v) any component of
the complex order resting on the Strategy Book that is used to generate
the derived order is subject to a Simple Market Auction or Timer
(``SMAT'') Event,\41\ a wide market

condition,\42\ or a halt \43\ (each as described below).\44\
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    \40\ See Notice, 81 FR at 58772-73, for an example of the
creation and cancellation of a derived order.
    \41\ A SMAT Event is defined as any of the following: a PRIME
Auction (pursuant to Exchange Rule 515A); a Route Timer (pursuant to
Exchange Rule 529); or a liquidity refresh pause (pursuant to
Exchange Rule 515(c)(2)). See proposed Rule 518(a)(16). See Notice,
81 FR at 58772-73, for an example of cancellation of a derived order
when a component of a complex order is subject to a SMAT Event.
    \42\ A ``wide-market condition'' is defined as any individual
component of a complex strategy having, at the time of evaluation,
an MBBO quote width that is wider than the permissible valid quote
width as defined in Rule 603(b)(4). See MIAX Rule 518,
Interpretations and Policies .05(e).
    \43\ See MIAX Rule 504.
    \44\ See MIAX Rule 518(a)(9).
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2. Execution
    MIAX proposes that a derived order will be handled in the same
manner as other orders on the Simple Order Book except as otherwise
provided in proposed Rule 518, and will be executed only after all
other executable orders (including orders subject to the managed
interest process as described below) and quotes at the same price are
executed in full.\45\ When a derived order is executed, the other
component of the complex order on the Strategy Book will be
automatically executed against the best bid or offer on the Exchange.
If a derived order is locked (i.e., if the opposite side MBBO locks the
derived order), the Exchange proposes that it will be executed if the
execution price is at the NBBO.\46\
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    \45\ See Notice, 81 FR at 58772, for an example of the priority
of a derived order on the Simple Order Book.
    \46\ See MIAX Rule 518(a)(9)(vii).
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E. Legging

    Proposed Rule 518(c)(2)(iii) describes the Legging process through
which complex orders, under certain circumstances, are executed against
the individual components of a complex strategy on the Simple Order
Book. Complex orders up to a maximum number of legs (determined by the
Exchange on a class-by-class basis as either two or three legs and
communicated to Members via Regulatory Circular) may be automatically
executed against bids and offers on the Simple Order Book for the
individual legs of the complex order (``Legging''), provided the
complex order can be executed in full or in a permissible ratio by such
bids and offers, and provided that the execution price of each
component is not executed at a price that is outside of the NBBO.\47\
Legging is not available for cAOC orders, complex Standard quotes,
complex eQuotes, or stock-option orders. Notwithstanding the foregoing,
the Exchange is proposing to establish, in proposed Rule
518(c)(2)(iii), that complex orders that could otherwise be eligible
for Legging will only be permitted to trade against other complex
orders in the Strategy Book in certain situations. Specifically,
proposed Rule 518(c)(2)(iii) would provide that complex orders with two
option legs where both legs are buying or both legs are selling and
both legs are calls or both legs are puts may only trade against other
complex orders on the Strategy Book and will not be permitted to leg
into the Simple Order Book. Similarly, proposed Rule 518(c)(2)(iii)
would impose a similar restriction by stating that complex orders with
three option legs where all legs are buying or all legs are selling may
only trade against other complex orders on the Strategy Book
(regardless of whether the option leg is a call or a put). The System
will not generate derived orders for these complex orders.
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    \47\ See MIAX Rule 518(c)(2)(iii).
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F. Complex Auction Process

    Proposed Rule 518(d), Complex Auction Process, describes the
process for determining if a complex order is eligible to begin a
Complex Auction, and to participate in a Complex Auction that is in
progress. Certain option classes, as determined by the Exchange and
communicated to Members via Regulatory Circular, will be eligible to
participate in a Complex Auction (an ``eligible class''). Upon
evaluation as described above, the Exchange may determine to
automatically submit a Complex Auction-eligible order (defined below)
into a Complex Auction (as described below). Upon entry into the System
or upon evaluation of a complex order resting at the top of the
Strategy Book, Complex Auction-eligible orders may be subject to an
automated request for responses (``RFR''), as described below.
1. Eligibility and Initiation
    Proposed Rule 518(d)(1) defines and describes the handling of a
Complex Auction-eligible order. A ``Complex Auction-eligible order''
means a complex order that, as determined by the Exchange, is eligible
to initiate or join a Complex Auction based upon the order's
marketability (i.e., if the price of such order is equal to or within a
specific range of the current dcMBBO) as established by the Exchange,
number of components, and complex order origin types (i.e., non-broker-
dealer customers, broker-dealers that are not market makers on an
options exchange, and/or market makers on an options exchange as
established by the Exchange and communicated to Members via Regulatory
Circular).\48\
---------------------------------------------------------------------------

    \48\ See also NYSE MKT Rule 980NY(e)(1), which allows the
exchange to determine which complex order origin types are eligible
to initiate a complex order auction.
---------------------------------------------------------------------------

    In order to initiate a Complex Auction upon receipt, a Complex
Auction-eligible order must be designated as cAOA \49\ and must meet
the criteria described in proposed Rule 518, Interpretations and
Policies .03(b) regarding the URIP. A complex order not designated as
cAOA (i.e., a complex order considered by default to be ``do not
auction on arrival'' by the System) may (i) join a Complex Auction in
progress at the time of receipt; (ii) become a Complex Auction-eligible
order after resting on the Strategy Book and may then automatically
join a Complex Auction then in effect for the complex strategy; or
(iii) initiate a Complex Auction if it meets the criteria described in
proposed Rule 518, Interpretations and Policies .03(a) regarding the
IIP or .03(c) regarding the RIP.
---------------------------------------------------------------------------

    \49\ Complex orders that are designated as cIOC or cAOC are not
eligible for cAOA designation, and their evaluation will not result
in the initiation of a Complex Auction either upon arrival or if
eligible when resting on the Strategy Book. See MIAX Rule
518(b)(2)(ii). Market orders may be designated as cAOA. See MIAX
Rule 518(c).
---------------------------------------------------------------------------

    A complex order not designated as cAOA will still have execution
opportunities. A complex order not designated as cAOA is deemed to be
``do not auction on arrival'' by the System by default. Such a complex
order will still have the opportunity to execute upon entry into the
System without initiating a Complex Auction. For example, such an order
may execute automatically upon entry into the System by matching with
complex orders and/or quotes resting on the Strategy Book at a price
that is at or inside the icMBBO, or via Legging against the Simple
Order Book. Additionally, such an order on the opposite side of, and
marketable against, a Complex Auction-eligible order may trade against
the Complex Auction-eligible order if the System receives the order
while a Complex Auction is ongoing.\50\ Complex orders processed
through a Complex Auction may be executed without consideration to
prices of the same complex interest that might be available on other
exchanges.
---------------------------------------------------------------------------

    \50\ A MIAX complex order not designated as cAOA will not be
considered a Complex Auction-eligible order by default. The Exchange
believes that this gives market participants extra flexibility to
control the handling and execution of their complex orders by the
System by giving them the ability to determine affirmatively to have
their complex order initiate a Complex Auction by way of the cAOA
designation. In contrast, CBOE Rule 6.53C(d)(ii)(B) expressly states
that Trading Permit Holders may request on an order by order basis
that an incoming COA eligible order with two legs not COA (a ``do
not COA'' request).
---------------------------------------------------------------------------

    Proposed Rule 518(d)(2) describes the circumstances under which a
Complex Auction is begun. Upon receipt of a Complex Auction-eligible
order or upon

an evaluation by the System indicating that there is a Complex Auction-
eligible order resting on the Strategy Book, the Exchange may begin the
Complex Auction process by sending an RFR message. The RFR message will
be sent to all subscribers to the Exchange's data feeds that deliver
RFR messages. The RFR message will identify the complex strategy, the
price, quantity of matched complex quotes and/or orders at that price,
imbalance quantity, and side of the market of the Complex Auction-
eligible order. The inclusion of the quantity of matched complex quotes
and/or orders at the price included in the RFR message is intended to
inform participants considering submitting an RFR Response of the
number of contracts for which there is matched interest, and the
purpose of including the imbalance quantity in the RFR message is to
inform such participants of the number of contracts that do not have
matched interest. The sum of the matched interest quantity and the
imbalance quantity is equal to the size of the initiating Complex
Auction-eligible order that is being auctioned. The price included in
the RFR message will be the limit order price, unless that price is
through the opposite side dcMBBO or the Complex Auction is initiated by
a complex market order, in which case such price will be the dcMBBO.
    The Exchange may determine to limit the frequency of Complex
Auctions for a complex strategy (i.e., establish a minimum time period
between Complex Auctions initiated for complex orders in that strategy
resting on the Strategy Book). The duration of such limitation will be
established on an Exchange-wide basis and communicated to Members via
Regulatory Circular. The Exchange will not change the duration of the
minimum time period on an intra-day basis during any trading session.
The purpose of this limitation is to safeguard the integrity of the
System and to ensure an orderly market on the Exchange. Despite this
limitation respecting orders resting on the Strategy Book, however, a
new complex order received by the System during such limitation that
ordinarily triggers a Complex Auction will still trigger a Complex
Auction upon receipt.
2. Response Time Interval
    Proposed Rule 518(d)(3) defines the amount of time within which
participants may respond to an RFR message. The term ``Response Time
Interval'' means the period of time during which responses to the RFR
may be entered. The Exchange will determine the duration of the
Response Time Interval, which shall not exceed 500 milliseconds, and
will communicate it to Members via Regulatory Circular.
    Proposed Rule 518(d)(4) states that Members may submit a response
to the RFR message (an ``RFR Response'') during the Response Time
Interval. RFR Responses may be submitted in $0.01 increments. RFR
Responses must be cAOC orders \51\ or cAOC eQuotes (discussed below),
and may be submitted on either side of the market. RFR Responses
represent non-firm interest that can be modified or withdrawn at any
time prior to the end of the Response Time Interval. At the end of the
Response Time Interval, RFR Responses are firm (i.e., guaranteed at the
RFR price and size). All RFR Responses and other complex orders and
quotes on the opposite side of the Complex Auction-eligible order are
also firm with respect to other incoming Complex Auction-eligible
orders that are received during the Response Time Interval. Any RFR
Responses not executed in full will expire at the end of the Complex
Auction.
---------------------------------------------------------------------------

    \51\ A cAOC order is a complex limit order used to provide
liquidity during a specific Complex Auction with a time in force
that corresponds with that event. cAOC orders are not displayed to
any market participant, and are not eligible for trading outside of
the event. See MIAX Rule 518(b)(3). The Exchange also proposes a
minor change to Exchange Rule 605, Market Maker Orders, to codify in
Rule 605(a) that, in addition to the other order types specified in
the rule, Market Makers may place cAOC complex orders in option
classes to which they are appointed.
---------------------------------------------------------------------------

    Proposed Rule 518(d)(5) describes how Complex Auction-eligible
orders are handled following the Response Time Interval. At the end of
the Response Time Interval, Complex Auction-eligible orders (and other
complex orders and quotes) may be executed in whole or in part. Complex
Auction-eligible orders will be executed against the best priced contra
side interest, and any unexecuted portion of a Complex Auction-eligible
order remaining at the end of the Response Time Interval will either be
evaluated to determine if it may initiate another Complex Auction, or
placed on the Strategy Book and ranked pursuant to proposed Rule
518(c)(3) as discussed above.
    The Complex Auction will terminate at the end of the Response Time
Interval without trading when any individual component of a complex
strategy in the Complex Auction process is subject to a wide market
condition as described in proposed Rule 518, Interpretations and
Policies .05(e)(1), or to a SMAT Event as described in proposed Rule
518(a)(16) and proposed Interpretations and Policies .05(e)(2), or
immediately without trading if any individual component or underlying
security of a complex strategy in the Complex Auction process is
subject to a halt as described in proposed Rule 518, Interpretations
and Policies .05(e)(3).\52\ Upon the conclusion of these condition(s)
or process(es), an affected complex order will be evaluated and may
initiate a new Complex Auction if such complex order is determined to
be a Complex Auction-eligible order.
---------------------------------------------------------------------------

    \52\ For an example of termination of an auction without trading
due to a SMAT event, see Notice, 81 FR at 58782-83.
---------------------------------------------------------------------------

3. Pricing
    Proposed Rule 518(d)(6) describes the manner in which the System
prices and executes complex orders and quotes at the conclusion of the
Response Time Interval. A complex strategy will not be executed at a
net price that would cause any 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 on at least
one component of the complex strategy by at least $.01.
    At the conclusion of the Response Time Interval, using $0.01 inside
the current icMBBO as the boundary (the ``boundary''), the System will
calculate the price where the maximum quantity of contracts can trade
and also determine whether there is an imbalance.\53\ If there is no
imbalance, and a single price satisfies the maximum quantity criteria,
that single price is used as the Complex Auction price.\54\ If two or
more prices satisfy the maximum quantity criteria, the System will
calculate the midpoint of the lowest and highest price points that
satisfy the maximum quantity criteria, such midpoint price is used as
the Complex Auction price.\55\ For orders with ixABBO Price Protection,
(``price protection''), the midpoint pricing will use the price
protection range selected by the Member at the end of the Complex
Auction. If the midpoint price is not in a $0.01 increment, the System
will round toward the midpoint of the dcMBBO to the nearest $0.01.\56\
If the midpoint of the highest and lowest prices is also the midpoint
of the dcMBBO and is not in a $0.01 increment, the System will round
the price up to the next $0.01 increment.\57\
---------------------------------------------------------------------------

    \53\ For an example, see Notice, 81 FR at 58783.
    \54\ For an example, see Notice, 81 FR at 58783-84.
    \55\ For an example, see Notice, 81 FR at 58784.
    \56\ For an example, see Notice, 81 FR at 58784.
    \57\ For an example, see Notice, 81 FR at 58784-85.

---------------------------------------------------------------------------

    If there is a size imbalance, and if a single price satisfies the
maximum quantity criteria, that single price is used as the Complex
Auction price. If two or more prices satisfy the maximum quantity
criteria, the System will price the execution at the price on the
opposite side of the size imbalance that meets the maximum quantity
criteria, while also respecting limit prices and the pricing boundaries
which include the price protection boundary of $0.01 inside of the
icMBBO and the price protection range (if any) selected by the Members
whose interest makes up the order imbalance.\58\
---------------------------------------------------------------------------

    \58\ For an example, see Notice, 81 FR at 58785.
---------------------------------------------------------------------------

    If, after trading the maximum quantity at the execution price,
Complex Auction interest remains with a managed price that locks or
crosses the opposite side icMBBO, the System will execute the
individual legs of eligible remaining Complex Auction-eligible orders
and quotes against orders and quotes resting on the Simple Order Book
that were present prior to the beginning of the Complex Auction at the
icMBBO if available in the proper ratio and at or within the NBBO of
each component of the complex order.\59\
---------------------------------------------------------------------------

    \59\ For an example, see Notice, 81 FR at 58786.
---------------------------------------------------------------------------

    After executing the imbalance side interest to the extent possible
at the icMBBO, and if Priority Customer interest at the icMBBO that is
not in the proper ratio remains, the System will place such remaining
imbalance side interest on the Strategy Book and manage such interest
pursuant to proposed Rule 518(c)(4). If no Priority Customer interest
at the icMBBO remains, the System will execute Complex Auction interest
with any available complex orders, complex Standard quotes or complex
eQuotes priced at the icMBBO, and then with any orders or quotes on the
Simple Order Book at the icMBBO that were received or modified after
the beginning of the Response Time Interval.
    If after trading the maximum quantity at the initial icMBBO all
interest at the initial icMBBO has been executed, including through
Legging with the Simple Order Book (as described in proposed Rule
518(c)(2)(iii) above), and Complex Auction interest remains with a
managed price that crosses the exhausted icMBBO or dcMBBO (if the next
opposite side icMBBO is also the dcMBBO), or locks or crosses the next
opposite side icMBBO or dcMBBO (if the next opposite side icMBBO is
also the dcMBBO), the System will repeat the process for a size
imbalance described in proposed Rule 518(d)(6)(i)(B)(1)-(3).\60\ At
each icMBBO price level the System will repeat this process at the end
of the Response Time Interval until reaching the dcMBBO price. If the
Complex Auction price is equal to or crosses the dcMBBO and the dcMBBO
is exhausted, the System will place any remaining Complex Auction
interest on the Strategy Book and manage the interest that is eligible
to rest on the Strategy Book pursuant to subparagraph (c)(4) to the
exhausted dcMBBO price, cancel Complex Auction interest, including
remaining complex order cAOC interest, that is not eligible to rest on
the Strategy Book, and cancel any complex Standard quotes that are
locking or crossing the exhausted dcMBBO price. The System will then
immediately initiate a re-evaluation of the remaining interest from the
Complex Auction and may initiate a new Complex Auction without regard
to the RIP.
---------------------------------------------------------------------------

    \60\ For examples, see Notice, 81 FR at 58786-87.
---------------------------------------------------------------------------

    If all interest at the dcMBBO has been exhausted and Auction orders
with a managed or limit price that locks or crosses the exhausted
dcMBBO price remain, the System will place any remaining Complex
Auction interest on the Strategy Book and manage the interest that is
eligible to rest on the Strategy Book pursuant to proposed Rule
518(c)(4) to the exhausted dcMBBO price, cancel Complex Auction
interest (including remaining complex order cAOC interest) that is not
eligible to rest on the Strategy Book, and cancel any complex Standard
quotes that are locking or crossing the exhausted dcMBBO price. The
System will then immediately initiate a reevaluation of the remaining
interest from the Complex Auction and may initiate a new Complex
Auction without regard to the RIP.
    The System will place any eligible remaining non-marketable Complex
Auction orders and quotes on the Strategy Book, cancel any remaining
Complex Auction interest that is not eligible to rest on the Strategy
Book, and cancel complex Standard quotes that would otherwise require
management because of their price as described in proposed Rule
518(c)(4) above if placed on the Strategy Book.
4. Allocation
    Proposed Rule 518(d)(7) describes the allocation of complex orders
and quotes that are executed in a Complex Auction.\61\ Once the Complex
Auction is complete (at the end of the Response Time Interval), such
orders and quotes will be allocated first in price priority based on
their original limit price, and thereafter as stated herein.
---------------------------------------------------------------------------

    \61\ For examples of allocation, see Notice, 81 FR at 58788-89.
---------------------------------------------------------------------------

    Individual orders and quotes in the leg markets resting on the
Simple Order Book prior to the initiation of a Complex Auction and that
have remained unchanged during the Auction have first priority,
provided the complex order can be executed in full (or in a permissible
ratio) against orders and quotes on the Simple Order Book, provided
that the prices of the components on the Simple Order Book are at or
within the NBBO for each component. Orders and/or quotes resting on the
Simple Order Book that execute against a complex order will be
allocated pursuant to Rule 514(c).
    Priority Customer complex orders resting on the Strategy Book
before, or that are received during, the Response Time Interval, and
Priority Customer RFR Responses, collectively have second priority and
will be allocated in price-time priority.
    Market Maker non-Priority Interest for Complex and RFR Responses
from Market Makers with non-Priority Interest for Complex collectively
have fourth priority and will be allocated on a pro-rata basis as
defined in Rule 514(c)(2).
    Non-Market Maker Professional Interest complex orders resting on
the Strategy Book, non-Market Maker Professional Interest complex
orders placed on the Strategy Book during the Response Time Interval,
and non-Market Maker Professional Interest RFR Responses will
collectively have fifth priority and will be allocated on a pro-rata
basis as defined in Rule 514(c)(2).
    Finally, individual orders and quotes in the leg markets that are
received or changed during the Complex Auction will collectively have
sixth priority and will be allocated pursuant to Rule 514(c)(2).
    Proposed Rule 518(d)(8) describes the manner in which the System
handles incoming unrelated complex orders and quotes that are eligible
to join a Complex Auction and are received during the Response Time
Interval for a Complex Auction-eligible order. Such incoming unrelated
complex orders and quotes will simply join the Complex Auction, will be
ranked by price, and will be allocated as described above.\62\
---------------------------------------------------------------------------

    \62\ The Exchange proposes to include eligible unrelated
incoming complex orders and quotes in the Complex Auction Process.
This is similar to another exchange. Specifically, PHLX incoming
Complex Orders that were received during the COLA Timer (equivalent
to the MIAX Response Time Interval) for the same Complex Order
Strategy as the COLA-eligible order that are on the same side of the
market will join the COLA. See PHLX Rule 1098(e)(viii)(B).

---------------------------------------------------------------------------

G. Stock-Option Orders

    MIAX is proposing Interpretations and Policies .01 to provide
additional detail regarding the trading and regulation of stock-option
orders on the Exchange. The Exchange will determine when stock-option
orders will be made available for trading in the System and communicate
such determination to Members via Regulatory Circular.\63\
---------------------------------------------------------------------------

    \63\ See MIAX Rule 518, Interpretations and Policies .01(a).
---------------------------------------------------------------------------

    As set forth in proposed Rule 518, Interpretations and Policies
.01(a), stock-option orders may be executed against other stock-option
orders through the Strategy Book and Complex Auction. Stock-option
orders will not be legged against the individual component legs, and
the System will not generate a derived order based upon a stock-option
order.\64\ A stock-option order shall not be executed on the System
unless the underlying security component is executable at the price(s)
necessary to achieve the desired net price.\65\
---------------------------------------------------------------------------

    \64\ See id.
    \65\ See id.
---------------------------------------------------------------------------

    MIAX Rule 518, Interpretations and Policies .01(a), permits Members
to submit stock-option orders only if such orders comply with the
Qualified Contingent Trade (``QCT'') Exemption from Rule 611(a) of
Regulation NMS \66\ under the Act, and provides further, that Members
submitting stock-option orders represent that such orders comply with
the QCT Exemption.\67\
---------------------------------------------------------------------------

    \66\ 17 CFR 242.611(a).
    \67\ See MIAX Rule 518, Interpretations and Policies .01(a). See
also Securities Exchange Act Release No. 57620 (April 4, 2008), 73
FR 19271 (April 9, 2008) (order modifying the QCT Exemption) and
Securities Exchange Act Release No. 53489 (August 31, 2006), 71 FR
52829 (September 7, 2006) (order establishing the QCT Exemption).
---------------------------------------------------------------------------

    To participate in stock-option order processing, a Member must give
up a Clearing Member previously identified to, and processed by the
Exchange as a Designated Give Up for that Member in accordance with
Rule 507 and which has entered into a brokerage agreement with one or
more Exchange-designated broker-dealers that are not affiliated with
the Exchange to electronically execute the underlying security
component of the stock-option order at a stock trading venue selected
by the Exchange-designated broker-dealer on behalf of the Member.\68\
---------------------------------------------------------------------------

    \68\ See MIAX Rule 518, Interpretations and Policies .01(a).
---------------------------------------------------------------------------

    Proposed Rule 518, Interpretations and Policies .01(b) sets forth
the process by which stock-option orders, including inbound and those
resting on the Strategy Book, will be handled.\69\ When a stock-option
order is received by the Exchange, the System will validate that the
stock-option order has been properly marked as required by Rule 200 of
Regulation SHO under the Act (``Rule 200'').\70\ Rule 200 requires all
broker-dealers to mark sell orders of equity securities as ``long,''
``short,'' or ``short exempt.'' Accordingly, Members submitting stock-
option orders must mark the underlying security component (including
ETF) ``long,'' ``short,'' or ``short exempt'' in compliance with Rule
200.\71\ If the stock-option order is not so marked, the order will be
rejected by the System.\72\ Likewise, any underlying security component
of a stock-option order sent by the Exchange to the Exchange-designated
broker-dealer shall be marked ``long,'' ``short,'' or ``short exempt''
in the same manner in which it was received by the Exchange from the
submitting Member.\73\
---------------------------------------------------------------------------

    \69\ Stock-option orders and quotes on the Strategy Book that
are marketable against each other will automatically execute,
provided they meet the conditions of MIAX Rule 518, Interpretations
and Policies .01(b). See MIAX Rule 518, Interpretations and Policies
.01(d).
    \70\ 17 CFR 242.200.
    \71\ See MIAX Rule 518, Interpretations and Policies .01(b).
    \72\ See id.
    \73\ See id.
---------------------------------------------------------------------------

    If the stock-option order is properly marked, the System will
determine whether the stock-option order is Complex Auction-
eligible.\74\ If the stock-option order is Complex Auction-eligible,
the System will initiate the Complex Auction Process.\75\ The rule
requires that any stock-option order executed utilizing the Complex
Auction Process will comply with the requirements of Rule 201 of
Regulation SHO under the Act (``Rule 201'').\76\
---------------------------------------------------------------------------

    \74\ See id. MIAX Rule 518, Interpretations and Policies .01(e)
provides that stock-option orders executed via Complex Auction shall
trade in the sequence set forth in proposed Rule 518(d) except that
the provision regarding individual orders and quotes in the leg
markets resting on the Simple Order Book prior to the initiation of
a Complex Auction will not be applicable and such execution will be
subject to the conditions set forth in MIAX Rule 518,
Interpretations and Policies .01 regarding the price of the option
leg(s), together with all applicable securities laws.
    \75\ See id.
    \76\ 17 CFR 242.201. See MIAX Rule 518, Interpretations and
Policies .01(b).
---------------------------------------------------------------------------

    When the short sale price test in Rule 201 is triggered for a
covered security,\77\ a ``trading center,'' \78\ such as the Exchange,
an Exchange-designated broker-dealer, or a stock trading venue, as
applicable, must comply with Rule 201.\79\ A trading center such as the
Exchange, an Exchange-designated broker-dealer and a stock trading
venue, as applicable, on which the underlying security component is
executed, must also comply with Rule 201(b)(1)(iii)(B),\80\ which
provides that a trading center must establish, maintain, and enforce
written policies and procedures reasonably designed to permit the
execution or display of a short sale order of a covered security marked
``short exempt'' \81\ without regard to whether the order is at a price
that is less than or equal to the current national best bid.\82\
---------------------------------------------------------------------------

    \77\ The term ``covered security'' is defined in Rule 201(a)(1)
as any NMS stock as defined in Rule 600(b)(47) of Regulation NMS.
See also 17 CFR 242.600(b)(47).
    \78\ Rule 201(a)(9) states that the term ``trading center''
shall have the same meaning as in Rule 600(b)(78). Rule 600(b)(78)
of Regulation NMS defines a ``trading center'' as ``a national
securities exchange or national securities association that operates
an SRO trading facility, an alternative trading system, an exchange
market maker, an OTC market maker, or any other broker or dealer
that executes orders internally by trading as principal or crossing
orders as agent.'' See 17 CFR 242.600(b)(78). The definition
encompasses all entities that may execute short sale orders. Thus,
Rule 201 will apply to any entity that executes short sale orders.
    \79\ See MIAX Rule 518, Interpretations and Policies .01(b). See
also Notice, 81 FR at 58791.
    \80\ 17 CFR 242.201(b)(1)(iii)(B).
    \81\ 17 CFR 242.200(g)(2).
    \82\ Since the underlying security component of a stock-option
order is not displayed by the Exchange, the exception in Rule
201(b)(1)(iii)(A) is not available. 17 CFR 242.201(b)(1)(iii)(A).
---------------------------------------------------------------------------

    If the stock-option order is not Complex Auction-eligible, the
System will determine if it is eligible to be executed against another
inbound stock-option order or another stock-option order resting on the
Strategy Book.\83\ If eligible, the System will route both sides of the
matched underlying security component of the stock-option order as a
QCT to an Exchange-designated broker-dealer for execution on a stock
trading venue.\84\ The stock trading venue will then either
successfully execute the QCT or cancel it back to the Exchange-
designated broker-dealer, which in turn will either report the
execution of the QCT or cancel it back to the Exchange.\85\ While the
Exchange is a trading center pursuant to Rule 201, the Exchange will
neither execute nor display the underlying security component of a
stock-option order.\86\ Instead, the execution or display of the
underlying security component of a stock-option order will occur on a
trading center other than the Exchange, such as an

Exchange-designated broker-dealer or other stock trading venue.\87\
---------------------------------------------------------------------------

    \83\ See MIAX Rule 518, Interpretations and Policies .01(b).
    \84\ See id.
    \85\ See id.
    \86\ See id.
    \87\ See id.
---------------------------------------------------------------------------

    If the Exchange-designated broker-dealer or other stock trading
venue, as applicable, cannot execute the underlying security component
of a stock-option order in accordance with Rule 201, the Exchange will
not execute the option component(s) of the stock-option order and will
either place the unexecuted stock-option order on the Strategy Book or
cancel it back to the submitting Member in accordance with the
submitting Member's instructions (except that cAOC and cIOC stock-
option orders and eQuotes will be cancelled).\88\ Once placed back onto
the Strategy Book, the stock-option order will be handled in accordance
with MIAX Rule 518, Interpretations and Policies .01(b).\89\
---------------------------------------------------------------------------

    \88\ See MIAX Rule 518, Interpretations and Policies .01(b).
    \89\ See id. If the stock-option order is not Complex Auction-
eligible and cannot be executed or placed on the Strategy Book, it
will be cancelled by the System. See id.
---------------------------------------------------------------------------

    MIAX also proposes that the execution price of the underlying
security component must be also within the high-low range for the day
in the underlying security at the time the stock-option order is
processed and within a certain price from the current market, which the
Exchange will establish and communicate to Members via Regulatory
Circular.\90\ Pursuant to the proposed rules, if the underlying
security component price is not within these parameters, the stock-
option order is not executable.\91\
---------------------------------------------------------------------------

    \90\ See id.
    \91\ See id.
---------------------------------------------------------------------------

    Proposed Rule 518, Interpretations and Policies .01(c) states that
the option leg(s) of a stock-option order shall not be executed (i) at
a price that is inferior to the Exchange's best bid (offer) in the
option or (ii) at the Exchange's best bid (offer) in that option if one
or more Priority Customer Orders are resting at the best bid (offer)
price on the Simple Order Book in each of the option components and the
stock-option order could otherwise be executed in full (or in a
permissible ratio). If one or more Priority Customer Orders are resting
at the best bid (offer) price on the Simple Order Book, at least one
option component must trade at a price that is better than the
corresponding bid or offer in the marketplace by at least $0.01.\92\
The option leg(s) of a stock-option order may be executed in a $0.01
increment, regardless of the minimum quoting increment applicable to
that series.\93\
---------------------------------------------------------------------------

    \92\ See MIAX Rule 518, Interpretations and Policies .01(c).
    \93\ See id.
---------------------------------------------------------------------------

    Finally, proposed Rule 518, Interpretations and Policies .01(f)
provides that the underlying security of a stock-option order is in a
limit up-limit down state as defined in Rule 530, such order will only
execute if the calculated stock price is within the permissible Price
Bands as determined by SIPs under the Plan to Address Extraordinary
Market Volatility Pursuant to Rule 608 of Regulation NMS, as it may be
amended from time to time (the ``LULD Plan'').

H. Market-Maker Complex Quotes

    Proposed Rule 518, Interpretations and Policies .02 describes the
manner in which the Exchange will allow Market Maker quotes in complex
strategies.\94\ Market Maker complex quotes may be entered as either
complex Standard quotes or complex eQuotes, as defined in proposed Rule
518, Interpretations and Policies .02(a).\95\
---------------------------------------------------------------------------

    \94\ ISE permits market maker complex quotes. See ISE Rule 722,
Supplementary Material .03.
    \95\ A complex Standard quote is a complex quote submitted by a
Market Maker that cancels and replaces the Market Maker's previous
complex Standard quote for that side of the strategy, if any. A
complex eQuote is a complex quote submitted by a Market Maker with a
specific time in force that does not automatically cancel and
replace the Market Maker's previous complex Standard quote or
complex eQuote.
---------------------------------------------------------------------------

    The Exchange will determine, on a class-by-class basis, the complex
strategies in which Market Makers may submit complex Standard quotes,
and will notify Members of such determination via Regulatory Circular.
Market Makers may submit complex eQuotes in their appointed options
classes.
    A ``Complex Auction or Cancel eQuote'' or ``cAOC eQuote'' \96\ is
an eQuote submitted by a Market Maker that is used to provide liquidity
during a specific Complex Auction with a time in force that corresponds
with the duration of the Complex Auction. cAOC eQuotes will not: (i) Be
executed against individual orders and quotes resting on the Simple
Order Book; (ii) be eligible to initiate a Complex Auction, but may
join a Complex Auction in progress; (iii) rest on the Strategy Book; or
(iv) be displayed.
---------------------------------------------------------------------------

    \96\ See MIAX Rule 518, Interpretations and Policies .02(c)(1).
---------------------------------------------------------------------------

    A ``Complex Immediate or Cancel eQuote'' or ``cIOC eQuote'' \97\ is
a complex eQuote with a time-in-force of IOC that may be matched with
another complex quote or complex order for an execution to occur in
whole or in part upon receipt into the System.\98\ cIOC eQuotes will
not: (i) Be executed against individual orders and quotes resting on
the Simple Order Book; (ii) be eligible to initiate a Complex Auction
or join a Complex Auction in progress; (iii) rest on the Strategy Book;
or (iv) be displayed. Any portion of a cIOC eQuote that is not executed
will be immediately cancelled.
---------------------------------------------------------------------------

    \97\ See MIAX Rule 518, Interpretations and Policies .02(c)(2).
    \98\ This is based on the Exchange's current IOC eQuote in the
simple market. See MIAX Rule 517(a)(2)(iv).
---------------------------------------------------------------------------

    Market Maker complex quotes are executed in the same manner as
complex orders but will not be executed against bids and offers on the
Simple Order Book via Legging as described in proposed Rule
518(c)(2)(iii). Market Maker complex Standard quotes may rest on the
Strategy Book and are not subject to the managed interest process
described in proposed Rule 518(c)(4). An unexecuted complex Standard
quote with a limit price that would otherwise be managed to the icMBBO
will be cancelled.
    Certain Market Maker complex Standard quotes and complex eQuotes
(as defined below) will qualify as ``Market Maker Priority Interest for
Complex'' on the Strategy Book (as defined below) if the certain
criteria have been met. If complex Standard quoting is engaged for a
complex strategy, a Market Maker complex Standard quote or complex
eQuote will qualify as Market Maker Priority Interest for Complex if
the Market Maker has a complex Standard quote in the complex strategy
that equals or improves the dcMBBO on the opposite side from the
incoming complex order or quote at the time of evaluation (a ``Complex
priority quote''). For purposes of the proposed Rule, Market Maker
Priority Interest for Complex is established at the beginning of a
Complex Auction (as described in proposed Rule 518(d) below), or at the
time of execution in free trading.
    Market Makers are not required to enter complex quotes on the
Strategy Book.\99\ Quotes for complex strategies are not subject to any
quoting requirements that are applicable to Market Maker quotes in the
simple market for individual options series or classes. Volume executed
in complex strategies is not taken into consideration when determining
whether Market Makers are meeting quotation obligations applicable to
Market Maker

quotes in the simple market for individual options.\100\
---------------------------------------------------------------------------

    \99\ See MIAX Rule 518, Interpretations and Policies .02(e).
    \100\ See MIAX Rule 518, Interpretations and Policies .02(e).
This is substantially similar to complex quoting functionality
currently operative on another exchange. See ISE Rule 722,
Supplementary Material .03.
---------------------------------------------------------------------------

I. Price Protection and Other Features

    MIAX is also proposing to adopt price protection features. First,
the proposal establishes a price protection program for Vertical
Spreads and Calendar Spreads by establishing a Vertical Spread Variance
(``VSV'') \101\ and Calendar Spread Variance (``CSV'').\102\ VSV will
apply only to Vertical Spreads, and CSV will apply only to Calendar
Spreads.\103\
---------------------------------------------------------------------------

    \101\ A ``Vertical Spread'' is a complex strategy consisting of
the purchase of one call (put) option and the sale of another call
(put) option overlying the same security that have the same
expiration but different strike prices. See MIAX Rule 518,
Interpretations and Policies .05(a).
    \102\ A ``Calendar Spread'' is a complex strategy consisting of
the purchase of one call (put) option and the sale of another call
(put) option overlying the same security that have different
expirations but the same strike price. See MIAX Rule 518,
Interpretations and Policies .05(b).
    \103\ The proposed MIAX VSV and CSV price protections are
similar to the price protections that are currently operative on
other exchanges. See ISE Rule 722, Supplementary Material .07(c),
PHLX Rule 1098(g).
---------------------------------------------------------------------------

    If the execution price of a complex order would be outside of the
limits established in the VSV or the CSV, such complex order will be
placed on the Strategy Book and will be managed to the appropriate
trading price limit as described in proposed Rule 518(c)(4) above.
Orders to buy below the minimum trading price limit and orders to sell
above the maximum trading price limit (in the case of Vertical Spreads)
will be rejected by the System.
    Proposed Rule 518, Interpretations and Policies .05(e)(1)(i),
describes how the System functions when there is a wide market
condition \104\ during free trading (i.e., when there is not a Complex
Auction in progress).\105\ Specifically, if a wide market condition
exists for a component of a complex strategy, trading in the complex
strategy will be suspended. The Strategy Book will remain available for
Members to enter and manage complex orders and quotes. New Complex
Auctions will not be initiated and incoming Complex Auction-eligible
orders that could have otherwise caused an auction to begin will be
placed on the Strategy Book. Incoming complex orders with a time in
force of IOC will be cancelled.
---------------------------------------------------------------------------

    \104\ A ``wide market condition'' is defined as any individual
component of a complex strategy having, at the time of evaluation,
an MBBO quote width that is wider than the permissible valid quote
width as defined in Rule 603(b)(4).
    \105\ ``Free trading'' is defined in MIAX Rule 518(a)(10) as
trading that occurs during a trading session other than: (i) At the
opening or re-opening for trading following a halt, or (ii) during
the Complex Auction Process.
---------------------------------------------------------------------------

    The System will continue to evaluate the Strategy Book. If a wide
market condition exists for a component of a complex strategy at the
time of evaluation, complex orders or quotes that could have otherwise
been executed will not be executed until the wide market condition no
longer exists. When the wide market condition no longer exists, the
System will again evaluate the Strategy Book and will use the process
and criteria respecting the RIP as described in proposed
Interpretations and Policies .03(c) to determine whether complex order
interest exists to initiate a Complex Auction, or whether to commence
trading in the complex strategy without a Complex Auction.
    Proposed Rule 518, Interpretations and Policies .05(e)(1)(ii),
describes how the System functions when there is a wide market
condition during a Complex Auction. If, at the expiration of the
Response Time Interval, a wide market condition exists for a component
of a complex strategy in the Complex Auction, trading in the complex
strategy will be suspended, and any RFR Responses will be cancelled.
Remaining Complex Auction-eligible orders will then be placed on the
Strategy Book. When the wide market condition no longer exists, the
System will evaluate the Strategy Book pursuant to proposed Rule
518(c)(5)(ii), and will use the process and criteria respecting the RIP
as described in proposed Interpretations and Policies .03(c) to
determine whether complex order interest exists to initiate a Complex
Auction, or whether to commence trading in the complex strategy without
a Complex Auction.
    Proposed Rule 518, Interpretations and Policies .05(e)(2) sets
forth the functionality of the System if a Simple Market Auction or
Timer (``SMAT'') Event (defined above as a PRIME Auction, a Route
Timer, or a liquidity refresh pause) \106\ exists for a component of a
complex strategy, both during free trading and during an auction. Once
a SMAT Event is concluded or resolved, the System will evaluate the
Strategy Book as described above to provide the previously suspended
complex orders with more opportunities to be executed.
---------------------------------------------------------------------------

    \106\ See MIAX Rule 518(a)(16).
---------------------------------------------------------------------------

    Proposed Rule 518, Interpretations and Policies .05(e)(3) describes
the System's functionality when there is a halt in trading for the
underlying security or a component of a complex order. If a trading
halt exists for the underlying security or a component of a complex
strategy, trading in the complex strategy will be suspended.
    The Strategy Book will remain available for members to enter and
manage complex orders and quotes. Incoming complex orders and quotes
that could otherwise be executed or initiate a Complex Auction in the
absence of a halt will be placed on the Strategy Book. Incoming complex
orders and quotes with a time in force of IOC will be cancelled.
    When trading in the halted component(s) and/or underlying security
of the complex order resumes, the System will evaluate the Strategy
Book as described in proposed Rule 518(c)(2)(i), and will use the
process and criteria respecting the IIP as described in proposed Rule
518, Interpretations and Policies .03(a) to determine whether complex
order interest exists to initiate a Complex Auction, or whether to
commence trading in the complex strategy without a Complex Auction.
    Proposed Interpretations and Policies .05(e)(3)(ii) describes what
happens when there is a halt during a Complex Auction. Unlike during a
wide market condition or a SMAT Event, where a Complex Auction will end
without trading at the end of the Response Time Interval, if during a
Complex Auction any component or the underlying security of a Complex
Auction-eligible order is halted, the Complex Auction will end early
without trading \107\ and all RFR Responses will be cancelled.
Remaining complex orders will be placed on the Strategy Book if
eligible, or cancelled. When trading in the halted component(s) and/or
underlying security of the complex order resumes, the System will
evaluate the Strategy Book pursuant to proposed Rule 518(c)(2)(i)
above, and will use the process and criteria respecting the IIP as
described in Interpretations and Policies .03(a) of this Rule to
determine whether marketable complex order interest exists to initiate
a Complex Auction, or whether to commence trading in the complex
strategy without a Complex Auction.
---------------------------------------------------------------------------

    \107\ This is the only circumstance under which a Complex
Auction on MIAX would end early. In all other circumstances
described in proposed Rule 518 that would disrupt trading during a
Complex Auction, the Complex Auction will end after the Response
Time Interval without trading.
---------------------------------------------------------------------------

    Another investor protection proposed by the Exchange is described
in Interpretations and Policies .06 of proposed Rule 518, the MIAX
Order Monitor for Complex Orders (``cMOM'').\108\ cMOM defines a price

range outside of which a complex limit order will not be accepted by
the System. cMOM is a number defined by the Exchange and communicated
to Members via Regulatory Circular. The default price range for cMOM
will be greater than or equal to a price through the cNBBO \109\ for
the complex strategy to be determined by the Exchange and communicated
to Members via Regulatory Circular. Such price will not be greater than
$2.50. A complex limit order to sell will not be accepted at a price
that is lower than the cNBBO bid, and a complex limit order to buy will
not be accepted at a price that is higher than the cNBBO offer, by more
than cMOM. A complex limit order that is priced through this range will
be rejected. cMOM includes complex order size protections, open complex
order protection, and open complex contract protection. The cMOM
protections will be available for complex orders as determined by the
Exchange and communicated to Members via Regulatory Circular.
---------------------------------------------------------------------------

    \108\ cMOM is substantially similar to the Exchange's MIAX Order
Monitor (``MOM'') protection for the Simple Order Book. See Exchange
Rule 519.
    \109\ The Complex National Best Bid or Offer (``cNBBO'') is
defined as the best net bid and offer price the best net bid and
offer for a complex strategy calculated using the NBBO for each
component of a complex strategy. For stock-option orders, the cNBBO
for a complex strategy is calculated using the NBBO in the
individual option component(s) and the NBBO in the stock component.
See MIAX Rule 518(a)(2).
---------------------------------------------------------------------------

    The Exchange is also proposing to amend Exchange Rule 519A to state
that complex orders will participate in the Risk Protection Monitor.
The Risk Protection Monitor maintains a counting program for each
participating Member that will count the number of orders entered and
the number of contracts traded via an order entered by a Member on the
Exchange within a specified time period that has been established by
the Member, and will reject orders that exceed a Member-designated
``Allowable Order Rate'' and an ``Allowable Contract Execution Rate.''
\110\
---------------------------------------------------------------------------

    \110\ For a complete description of the Risk Protection Monitor,
see Securities Exchange Act Release No. 74496 (March 13, 2015), 80
FR 14421 (March 19, 2015) (SR-MIAX-2015-03).
---------------------------------------------------------------------------

J. Obvious Errors

    The Exchange proposes to adopt Rule 521(c)(5) to address the manner
in which obvious errors in complex order transactions will be handled
in situations where one or more components of a complex order is
eligible to be adjusted or nullified pursuant to Exchange Rule
521(c)(4).\111\
---------------------------------------------------------------------------

    \111\ Exchange Rule 521(c)(4) describes the actions to be taken
by the Exchange when a transaction resulting from an obvious error
(as defined elsewhere in Rule 521) has occurred, depending upon who
the parties to the transaction are.
---------------------------------------------------------------------------

    Specifically, if a complex order executes against another complex
order on the Strategy Book and one or more components of the
transaction is deemed eligible to be adjusted or nullified, the entire
trade (all components) will be nullified, unless both parties agree to
adjust the transaction to a different price within thirty (30) minutes
of being notified by the Exchange of the decision to nullify the
transaction. Additionally, if a complex order executes against orders
or quotes on the Simple Order Book, each component of the complex order
will be reviewed and handled independently in accordance with Exchange
Rule 521.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\112\ In particular, for the reasons discussed below, the
Commission finds that the proposed rule change is consistent with
Section 6(b)(5) of the Act,\113\ which requires, among other things,
that the rules of a national securities exchange be designed to prevent
fraudulent and manipulative acts and practices, 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.
---------------------------------------------------------------------------

    \112\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
    \113\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

A. Definitions and Types of Complex Orders

    The proposal adopts several defined terms related to the trading of
complex orders. The Commission notes that MIAX's new definition of
complex order \114\ is consistent with the definition of complex order
adopted by other options exchanges.\115\ The Commission believes that
adding Rule 518(b) to allow complex orders to be entered as limit
orders, market orders, GTC orders, day limit orders, cAOA orders, cAOC
orders, or cIOC orders could provide market participants with greater
flexibility and control over the trading of complex orders. The
Commission notes, in addition, that MIAX currently permits each of
these orders types (other than cAOA, cAOC, and cIOC orders) for orders
on single option series.\116\
---------------------------------------------------------------------------

    \114\ See MIAX Rule 518(a)(5).
    \115\ See, e.g., ISE Rule 722(a)(1) and CBOE Rule 6.53C(a)(1).
    \116\ See MIAX Rule 516.
---------------------------------------------------------------------------

B. Trading of Complex Orders and Quotes

    The Commission notes that MIAX states that it has designed its
execution rules to allow complex orders to interact with interest in
the Simple Order Book and vice versa.\117\ The Commission notes that
MIAX Rule 518(c)(3), is designed to protect interest established in the
leg market by providing that if any of the bids or offers established
in the marketplace consist of a Priority Customer Order, at least one
leg of the complex order must trade at a price that is better than the
corresponding bid or offer in the marketplace by at least a $0.01
increment. In addition, the Commission notes that other options
exchanges have similar provisions requiring one leg to trade at a
better price in such a circumstance.\118\
---------------------------------------------------------------------------

    \117\ See MIAX Rule 514. See also Notice, 81 FR at 58788.
    \118\ See ISE Rule 722(b)(2) and Phlx Rule 1098(c)(iii).
---------------------------------------------------------------------------

    MIAX proposes that complex orders will never be executed at a price
that is outside of the individual component prices on the Simple Order
Book.\119\ Furthermore, the net price of a complex order executed
against another complex order on the Strategy Book will never be
inferior to the price that would be available if the complex order
legged into the Simple Order Book.\120\ According to MIAX, these
provisions should help prevent a component of a complex order from
being executed at a price that compromises the priority already
established by a Priority Customer on the Simple Order Book.\121\
---------------------------------------------------------------------------

    \119\ See Notice, 81 FR at 58780.
    \120\ See id.
    \121\ See Notice, 81 FR at 58775-76.
---------------------------------------------------------------------------

C. Derived Orders

    As described more fully above, MIAX proposes to provide for the
generation of derived orders on behalf of certain complex orders. The
Commission believes that derived orders could facilitate the execution
of complex orders on MIAX by increasing the opportunities for complex
orders to execute against interest in the leg market, thereby
benefitting investors seeking to execute complex orders. In addition,
the Commission believes that derived orders could benefit participants
in the leg market by providing additional liquidity, and potentially
more favorable executions,

for leg market interest. The Commission notes that it previously
approved proposals by other options exchange to implement similar
functionality.\122\
---------------------------------------------------------------------------

    \122\ See Securities Exchange Act Release Nos. 66234 (January
25, 2012), 77 FR 4852 (January 31, 2012) (order approving File No.
SR-ISE-2011-82) and 69419 (April 19, 2013), 78 FR 24449 (April 25,
2013) (order approving File No. SR-BOX-2013-01).
---------------------------------------------------------------------------

D. Legging

    As described more fully above, MIAX proposes to provide for Legging
of complex orders into the Simple Order Book. The Commission believes
that Legging could benefit investors by providing additional execution
opportunities for both complex orders and interest on the MIAX Book. In
addition, the Commission believes that Legging could facilitate
interaction between the Strategy Book and the Simple Order Book,
potentially resulting in a more competitive and efficient market, and
better executions for investors.
    In addition, and as discussed above, MIAX is proposing to prohibit
Legging for: (i) Complex orders with two option legs where both legs
are buying or both legs are selling and both legs are calls or both
legs are puts; and (ii) complex orders with three option legs where all
legs are buying or all legs are selling regardless of whether the
option leg is a call or a put.\123\ The Commission notes that this
prohibition is consistent with the rules of another options market,
which the Commission has approved.\124\ The Commission notes that
directional complex orders may continue to trade against other complex
orders on the Exchange's Strategy Book, and that market participants
may submit the individual legs of a directional complex order
separately to the regular market for execution should they so choose.
---------------------------------------------------------------------------

    \123\ See MIAX Rule 518(c)(2)(iii).
    \124\ See Securities Exchange Act Release No. 73023 (September
9, 2014) 79 FR 55033 (September 15, 2014) (order approving SR-ISE-
2014-10).
---------------------------------------------------------------------------

E. Complex Auction Process

    MIAX has proposed Rule 518(d) to describe the Complex Auction
Process. MIAX states that the auction process is designed to ensure
that complex orders are given every opportunity to be executed at the
best prices against an increased level of contra-side liquidity.\125\
In addition, MIAX states that the Complex Auction process is intended
to protect the integrity of the MIAX System\126\ and is designed to
work effectively with the Strategy Book by maintaining priority of all
resting quotes and orders and any RFR Responses received before the end
of the Response Time Interval.\127\ The Commission notes that the
ability for unrelated marketable orders to join and be executed in a
Complex Auction may enhance the liquidity in the Complex Auction and
thus increase opportunities for execution of complex orders and quotes
on both sides of the market.
---------------------------------------------------------------------------

    \125\ See Notice, 81 FR at 58799.
    \126\ See id.
    \127\ See Notice, 81 FR at58789.
---------------------------------------------------------------------------

F. Stock-Option Orders

    The Commission believes that the proposal to add Rule 518,
Interpretations and Policies .01(a) to provide that stock-option orders
will execute against other stock-option orders through the Strategy
Book and Complex Auction is consistent with the Act because it could
facilitate the execution of stock-option orders. The Commission notes
that another options exchange similarly permits stock-option orders
traded on its electronic trading platform to execute only against other
stock-option orders.\128\
---------------------------------------------------------------------------

    \128\ See C2 Rule 6.13, Interpretation and Policy .06.
---------------------------------------------------------------------------

    As described more fully above, MIAX proposes to allow the Exchange
to electronically communicate the stock leg of a stock-option order to
a designated broker-dealer(s) for execution on behalf of a Member.\129\
To participate in stock-option order automated processing, a Member
must give up a Clearing Member previously identified to, and processed
by the Exchange as a Designated Give Up for that Member in accordance
with Rule 507 and which has entered into a brokerage agreement with one
or more Exchange-designated broker-dealers that are not affiliated with
the Exchange.\130\ A Member may submit a stock-option order only if the
order complies with the QCT Exemption from Rule 611(a) of Regulation
NMS, and a Member submitting a stock-option order represents that the
order complies with the QCT Exemption.\131\
---------------------------------------------------------------------------

    \129\ See MIAX Rule 518, Interpretations and Policies .01(a).
    \130\ See id.
    \131\ See id.
---------------------------------------------------------------------------

    MIAX's proposal to electronically communicate the stock leg of a
stock-option order to a designated broker-dealer for execution is
similar to rules adopted by other options exchanges.\132\ Accordingly,
the Commission finds that the proposal to allow MIAX to electronically
communicate the stock leg of a stock-option order to a designated
broker-dealer that is not affiliated with MIAX for execution on behalf
of a Permit Holder is consistent with the Act.
---------------------------------------------------------------------------

    \132\ See ISE Rule 722, Supplementary Material .02. See also C2
Rule 6.13, Interpretation and Policy .06(a).
---------------------------------------------------------------------------

    As described above, proposed Rule 518, Interpretations and Policies
.01(c) states that the option leg(s) of a stock-option order shall not
be executed (i) at a price that is inferior to the Exchange's best bid
(offer) in the option or (ii) at the Exchange's best bid (offer) in
that option if one or more Priority Customer Orders are resting at the
best bid (offer) price on the Simple Order Book in each of the option
components and the stock-option order could otherwise be executed in
full (or in a permissible ratio). These provisions are consistent with
the rules of other options exchanges.\133\ Accordingly, the Commission
believes that the price priority requirements for stock-option orders
in MIAX Rule 518, Interpretations and Policies .01(c) are consistent
with the Act.
---------------------------------------------------------------------------

    \133\ See ISE Rule 722(b)(2) and C2 Rule 6.13, Interpretation
and Policy .06(b).
---------------------------------------------------------------------------

    Under the proposal, stock-option orders executed against other
stock-option orders through a Complex Auction will trade in the
sequence set forth in MIAX Rule 518(d), except that the provision
regarding individual orders and quotes in the leg markets resting on
the Simple Order Book prior to the initiation of a Complex Auction will
not be applicable and such execution will be subject to the conditions
set forth in MIAX Rule 518, Interpretations and Policies .01 regarding
the price of the option leg(s), together with all applicable securities
laws.\134\ The Commission believes that it is consistent with the Act
to apply the same allocation sequence as other complex orders, as
modified to reflect that stock-option orders will not execute against
individual orders and quotes in the Strategy Book.
---------------------------------------------------------------------------

    \134\ See MIAX Rule 518, Interpretations and Policies .01(e).
---------------------------------------------------------------------------

G. Market-Maker Complex Quotes

    MIAX is proposing to allow Market Maker quotes to qualify as Market
Maker Priority Interest for Complex. Under the proposal, and as
described in more detail above, if complex Standard quoting is engaged
for a complex strategy, a Market Maker complex Standard quote or
complex eQuote will qualify as Market Maker Priority Interest for
Complex if the Market Maker has a complex Standard quote in the complex
strategy that equals or improves the dcMBBO on the opposite side from
the incoming complex order or quote at the time of evaluation.
According to MIAX, the Exchange's proposal to adopt Market Maker
Priority Interest for Complex in the Strategy Book is substantially
based

upon principles and rules currently operative on the Exchange in the
Simple Order Book.\135\ In addition, MIAX notes that affording priority
in the Strategy Book to Market Makers with a Complex priority quote
should provide incentive for MIAX participants to submit complex quotes
at the best prices and rewards Market Makers who are quoting in the
Strategy Book at the best prices.\136\
---------------------------------------------------------------------------

    \135\ The Exchange currently follows the established hierarchy
that generally affords priority to Priority Customer Orders, then to
Market Makers with priority quotes, followed by Professional
Interest at the same price. See Notice, 81 FR at 58773, n. 24 and
MIAX Rule 514.
    \136\ See Notice, 81 FR at 58798.
---------------------------------------------------------------------------

H. Price Protection and Other Features

    MIAX's proposed price and order protection features are intended to
provide market participants with price and order size protection in
order to allow them to better manage their risk exposure.\137\ The VSV
and CSV price protections are similar to functionalities already
available on other options exchanges.\138\ In addition, according to
MIAX, the cMOM functionality may help ensure a fair and orderly market
by rejecting inbound complex orders whose prices may be erroneous or
disruptive.\139\ The cMOM functionality is similar to an existing
functionality on MIAX's simple market.\140\ MIAX's provisions regarding
wide market conditions, SMAT events, and halts could help protect
investors by pausing trading during potentially disruptive
conditions.\141\ Finally, according to MIAX, adding complex orders to
the Risk Protection Monitor should allow MIAX members to better manage
their risk and encourage them to submit additional liquidity to the
Exchange.\142\ The Commission believes the proposed new price
protection features are reasonably designed to promote just and
equitable principles of trade to the extent they are able to mitigate
potential risks associated with market participants entering orders or
executing trades at what MIAX believes are erroneous or disruptive
prices.\143\ In addition, the Commission has noted that the Risk
Protection Monitor may help members, and member groups, mitigate
potential risk associated with the execution an unacceptable level of
order that result from, e.g., technology issues.\144\
---------------------------------------------------------------------------

    \137\ See Notice, 81 FR at 58800.
    \138\ See ISE Rule 722, Supplementary Material .07(c) and PHLX
Rule 1098(g).
    \139\ See Notice, 81 FR at 58800.
    \140\ See MIAX Rule 519.
    \141\ See Notice, 81 FR at 58800.
    \142\ See id.
    \143\ See id.
    \144\ See Securities Exchange Act Release No. 74496 (March 13,
2015), 80 FR 14421 (March 19, 2015) (SR-MIAX-2015-03), at 14423. The
Commission reminds members electing to use the Risk Protection
Monitor to be mindful of their obligations to, among other things,
seek best execution of orders they handle on an agency basis. See
id.
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\145\ that the proposed rule change (SR-MIAX-2016-26) is approved.
---------------------------------------------------------------------------

    \145\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\146\
Robert W. Errett,
Deputy Secretary.
---------------------------------------------------------------------------

    \146\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. 2016-24837 Filed 10-13-16; 8:45 am]
 BILLING CODE 8011-01-P