[Federal Register Volume 87, Number 228 (Tuesday, November 29, 2022)]
[Notices]
[Pages 73353-73364]
[FR Doc No: 2022-25948]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96376; File No. SR-EMERALD-2022-30]

Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt
Exchange Rule 532, Order and Quote Price Protection Mechanisms and Risk
Controls

November 22, 2022.
    Pursuant to the provisions of Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on November 10, 2022, MIAX Emerald, LLC (``MIAX
Emerald'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') a proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to (i) adopt new Exchange Rule 532, Order and
Quote Price Protection Mechanisms and Risk Controls; and (ii) amend
Exchange Rule 518, Complex Orders.
    The text of the proposed rule change is available on the Exchange's
website at http://www.miaxoptions.com/rule-filings/emerald, at MIAX
Emerald's principal office, and at the Commission's Public Reference
Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to adopt new Exchange Rule 532, Order and
Quote Price Protection Mechanisms and Risk Controls.\3\ The Exchange
proposes to adopt a new Managed Protection Override feature, a new Max
Put Price Protection feature, and a new MIAX Strategy Price Protection
(``MSPP'') in new proposed Rule 532. The Exchange notes that the
proposed functionality is identical to functionality recently adopted
by the Exchange's affiliate, MIAX Options Exchange.\4\
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    \3\ The Exchange notes that proposed Rule 532 is identical to
current Rule 532 on the MIAX Options Exchange.
    \4\ See Securities Exchange Act Release No. 94353 (March 3,
2022), 87 FR 13339 (March 9, 2022) (SR-MIAX-2021-58).
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    The Exchange also proposes to relocate and amend paragraph (a),
Vertical Spread Variance (``VSV'') Price Protection; paragraph (b),
Calendar Spread Variance (``CSV'') Price Protection; and paragraph (c)
VSV and CSV Price Protection, from Interpretations and Policies .05 of
Exchange Rule 518 to new proposed Rule 532 as described below.
    Additionally, the Exchange proposes to add a new Butterfly Spread
Variance (``BSV'') Price Protection to proposed section (b)(2) of new
proposed Rule 532.\5\ Further, the Exchange proposes to relocate
paragraph (d), Implied Away Best Bid or Offer (``ixABBO'') Price
Protection; paragraph (f), Complex MIAX Emerald Price Collar
Protection; and paragraph (g), Market Maker Single Side Protection,
from Interpretations and Policies .05 of Exchange Rule 518 to new
proposed Rule 532 in their entirety and without modification as section
(b)(6), Complex MIAX Options Price Collar Protection; section (b)(7),
Implied Away Best Bid or Offer (``ixABBO'') Price Protection; and
section (b)(8), Market Maker Single Side Protection.\6\
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    \5\ The Exchange notes that the proposed functionality is
identical to functionality recently adopted by the Exchange's
affiliate, MIAX Options. See Securities Exchange Act Release No.
94353 (March 3, 2022), 87 FR 13339 (March 9, 2022) (SR-MIAX-2021-
58).
    \6\ The proposed rulebook changes are identical to recent
rulebook changes made by the Exchange's affiliate, MIAX Options. See
supra note 4.
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    The Exchange also proposes to amend Exchange Rule 518, Complex
Orders, to

change the value used in the calculation that determines whether a
complex order is eligible to initiate a Complex Auction \7\ from the
dcEBBO \8\ to the cNBBO.\9\ The Exchange notes that this proposed
change is substantively identical (the only difference being the naming
convention used by each exchange, whereas MIAX Options used the term
dcMBBO \10\ prior to changing to the cNBBO and MIAX Emerald uses the
term dcEBBO) to a recent change made by the Exchange's affiliate, MIAX
Options.\11\
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    \7\ Certain option classes, as determined by the Exchange and
communicated to Members via Regulatory Circular, will be eligible to
participate in a Complex Auction (an ``eligible class''). Upon
evaluation as set forth in subparagraph (c)(5) of Exchange Rule 518,
the Exchange may determine to automatically submit a Complex
Auction-eligible order into a Complex Auction. Upon entry into the
System or upon evaluation of a complex order resting at the top of
the Strategy Book, Complex Auction-eligible orders may be subject to
an automated request for responses (``RFR''). See Exchange Rule
518(d).
    \8\ The Displayed Complex MIAX Emerald Best Bid or Offer
(``dcEBBO'') is calculated using the best displayed price for each
component of a complex strategy from the Simple Order Book. For
stock-option orders, the dcEBBO for a complex strategy will be
calculated using the Exchange's best displayed bid or offer in the
individual option component(s) and the NBBO in the stock component.
See Exchange Rule 518(a)(8).
    \9\ The Complex National Best Bid or Offer (``cNBBO'') is
calculated using the NBBO for each component of a complex strategy
to establish the best net bid and offer for a complex strategy. See
Exchange Rule 518(a)(2).
    \10\ 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 Options
Exchange Rule 518(a)(8).
    \11\ See Securities Exchange Act Release No. 94671 (April 11,
2022), 87 FR 22605 (April 15, 2022) (SR-MIAX-2022-13).
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    Additionally, the Exchange also proposes to relabel paragraph (e)
of Interpretations and Policies .05 of Exchange Rule 518 to paragraph
(a), and to make a number of non-substantive changes to update internal
cross references throughout Exchange Rule 518 that have changed as a
result of the proposed changes contained herein.
Background
    The Exchange launched in December 2018, and at that time, the
Exchange Rulebook contained complex order rules that were substantially
similar to the rules of its affiliate exchange, MIAX Options. Since
December 2018, MIAX Options has added functionality to grow its complex
order business. The Exchange proposes to amend its rules to adopt
functionality that currently exists on the MIAX Options Exchange. The
Exchange seeks to align functionality to its affiliate, MIAX Options,
where feasible. The proposed rule changes described below are
identical, or substantively identical, to rule changes filed by the
Exchange's affiliate, MIAX Options.\12\
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    \12\ See Securities Exchange Act Release No. 94353 (March 3,
2022), 87 FR 13339 (March 9, 2022) (SR-MIAX-2021-58) (Notice of
Filing of Amendment Nos. 1 and 2 and Order Granting Approval of a
Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To
Adopt Exchange Rule 532, Order and Quote Price Protection Mechanisms
and Risk Controls).
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Proposal
Managed Protection Override (``MPO'')
    The Exchange proposes to adopt a new Managed Protection Override
feature which will work in conjunction with certain risk protections on
the Exchange. If a Member \13\ enables the Managed Protection Override
then all risk protections connected to the Managed Protection Override
feature are engaged. When a risk protection connected to the Managed
Protection Override feature is triggered, and the Managed Protection
Override feature is enabled, the order subject to the risk protection
will be cancelled. The Exchange notes that this proposed rule change is
identical to a rule currently operative on the Exchange's affiliate,
MIAX Options.\14\
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    \13\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100.
    \14\ See MIAX Options Exchange Rule 532.
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    The Managed Protection Override will be available for the following
risk protections: Vertical Spread Variance (``VSV'') Price Protection,
Calendar Spread Variance (``CSV'') Price Protection, new proposed
Butterfly Spread Variance (``BSV'') Price Protection, Parity Price
Protection, and new proposed Max Put Price Protection. The Exchange
notes that this proposed rule change is identical to a rule currently
operative on the Exchange's affiliate, MIAX Options.\15\
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    \15\ See id.
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    Currently, when the Vertical Spread Variance (``VSV'') Price
Protection and the Calendar Spread Variance (``CSV'') Price Protection
are triggered the default behavior is to manage the order in accordance
to Exchange Rule 518(c)(4).\16\ Additionally, when the Parity Price
Protection is triggered the default behavior is to place the order on
the Strategy Book \17\ at its parity protected price.\18\ The Exchange
believes that offering Members the option to have their orders either
managed by the Exchange or cancelled gives Members greater flexibility
and control over their orders while retaining risk protection
functionality.
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    \16\ See Interpretations and Policies .05(c) of Exchange Rule
518.
    \17\ The ``Strategy Book'' is the Exchange's electronic book of
complex orders and complex quotes. See Exchange Rule 518(a)(17).
    \18\ See Interpretations and Policies .01(g) of Exchange Rule
518.
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Max Put Price Protection (``MPPP'')
    The Exchange proposes to adopt a new price protection for put \19\
options by establishing a maximum price at which a put option may
trade. This proposed rule change is identical to a rule currently
operative on the Exchange's affiliate, MIAX Options.\20\
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    \19\ The term ``put'' means an option contract under which the
holder of the option has the right, in accordance to the terms and
provisions of the option, to sell to the Clearing Corporation the
number of units of the underlying security covered by the option
contract. See Exchange Rule 100.
    \20\ See MIAX Options Exchange Rule 532(a)(1).
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    To determine the maximum price the Exchange will add a pre-set
value, the Put Price Variance (``PPV''), to the strike price of the Put
option. The pre-set value will be determined by the Exchange \21\ and
communicated to Members via Regulatory Circular. Buy orders that are
priced through the maximum trading price limit will trade up to, and
including, the maximum trading price limit, and will then be placed on
the Book \22\ and managed to the appropriate trading price limit as
described in Rule 515(c)(1)(ii), or cancelled if the Managed Protection
Override (``MPO'') is enabled. Sell orders that are priced higher than
the maximum trading price limit will be rejected.
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    \21\ The Exchange proposes to use a pre-set value for the Put
Price Variance of $0.10 to align to other similar price protections
on the Exchange. The Exchange believes this value provides an
adequate price range for executions while offering price protection
against potentially erroneous executions. See MIAX Emerald
Regulatory Circular 2019-73, Complex Order Price Protection Pre-set
Values (August 13, 2019) available at https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Emerald_RC_2019_73.pdf,
which establishes a $0.10 pre-set value for Vertical Spreads and
Calendar Spreads.
    \22\ The term ``Book'' means the electronic book of buy and sell
orders and quotes maintained by the System. See Exchange Rule 100.
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    A bid quote through the maximum trading price limit will trade up
to, and including the maximum trading price limit, then will be placed
on the Book and managed to the appropriate trading price limit as
described in Rule 515(c)(1)(ii), or in the case of a bid eQuote, will
be cancelled. An offer quote received that is higher than the

maximum trading price limit is not rejected and will be placed on the
Book and displayed. An offer eQuote greater than the maximum trading
price limit will be cancelled.\23\
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    \23\ Orders and quotes are handled differently as orders may
only be submitted by Electronic Exchange Members and quotes may only
be submitted by Market Makers. The term ``Electronic Exchange
Member'' or ``EEM'' means the holder of a Trading Permit who is not
a Market Maker. Electronic Exchange Members are deemed ``members''
under the Exchange Act. See Exchange Rule 100. The term ``Market
Makers'' refers to ``Lead Market Makers'', ``Primary Lead Market
Makers'' and ``Registered Market Makers'' collectively. See Exchange
Rule 100.
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Example Max Put Price Protection for a Buy Market Order
    An order to Buy 10 XYZ Jan 5 Put @Market is received.
    The current market is:

EBBO \24\ 0.50 (10) x 5.50 (10)
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    \24\ The term ``EBBO'' means the best bid or offer on the Simple
Order Book on the Exchange. See Exchange Rule 518(a)(10). The
``Simple Order Book'' is the Exchange's regular electronic book of
orders and quotes. See Exchange Rule 518(a)(15).

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    The price protection is:

Put Price Variance (PPV) = $0.10
Max Put Price Protection = (Strike + PPV) = $5.10

    Because the Buy Order is priced through the Max Put Price
Protection of $5.10, the order is subject to management and posted to
the order book at $5.10.

EBBO 5.10 (10) x 5.50 (10)

Example Max Put Price Protection for a Sell Limit Order
    An Order to Sell 10 XYZ Jan 5 Put @$5.25 is received.
    The current market is:

EBBO 0.50 (10) x 5.50 (10)

    The price protection is:
Put Price Variance (PPV) = $0.10
Put Option = XYZ Jan 5 Put
Max Put Price Protection = (Strike + PPV) = $5.10

    Because the Sell Order is priced higher than the Max Put Price
Protection of $5.10, the order is rejected.
Example Max Put Price Protection for a Buy Quote
    A Quote to Buy 10 XYZ Jan 5 Put @ $5.50 is received.
    The current market is:

EBBO 0.50 (10) x 5.50 (10)

    The price protection is:

Put Price Variance (PPV) = $0.10
Put Option = XYZ Jan 5 Put
Max Put Price Protection = (Strike + PPV) = $5.10

    Because the Buy Quote is priced through the Max Put Price
Protection of $5.10, the quote posted to the order book and managed at
$5.10.

EBBO 5.10 (10) x 5.50 (10)
Example Max Put Price Protection for a Sell Quote
    A Quote to Sell 10 XYZ Jan 5 Put @ $5.25 is received.
    The current market is:

EBBO 0.50 (10) x 5.50 (10)

    The price protection is:

Put Price Variance (PPV) = $0.10
Put Option = XYZ Jan 5 Put
Max Put Price Protection = (Strike + PPV) = $5.10

    Although the Sell Quote is priced higher than the Max Put Price
Protection of $5.10, sell Quotes priced higher than the Max Put Price
Protection are not rejected and therefore it is posted to the order
book at $5.25.

EBBO 5.10 (10) x 5.25 (10)

    The Exchange believes that offering Members the option to have
orders either managed by the Exchange or cancelled when a risk
protection is triggered gives Members greater flexibility and control
over their orders while retaining the risk protection functionality.
The Exchange notes that this proposed rule change is identical to a
rule currently operative on the Exchange's affiliate, MIAX Options.\25\
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    \25\ See MIAX Options Exchange Rule 532(a)(1).
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Definitions
    The Exchange proposes to include a ``Definitions'' section as
paragraph (b)(1) in proposed Rule 532.\26\ For the purposes of proposed
paragraph (b) the Exchange will adopt the following definition of a
Butterfly Spread in section (b)(1)(i): A ``Butterfly Spread'' is a
three legged complex order with two legs to buy (sell) the same number
of calls \27\ (puts) and one leg to sell (buy) twice the number of
calls (puts), all legs have the same expiration date but different
exercise prices, and the exercise price of the middle leg is between
the exercise prices of the other legs. The strike price of each leg is
equidistant from the next sequential strike price.\28\
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    \26\ The Exchange notes that the proposed rule text is identical
to current rule text on MIAX Options. See MIAX Options Exchange Rule
532(b)(1).
    \27\ The term ``call'' means an option contract under which the
holder of the option has the right, in accordance with the terms of
the option, to purchase from the Clearing Corporation the number of
units of the underlying security covered by the option contract. See
Exchange Rule 100.
    \28\ The Exchange notes that its proposed definition of a
Butterfly Spread is identical to the definition of a Butterfly
Spread on MIAX Options. See MIAX Options Exchange Rule 532(b)(1)(i).
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    The Exchange also proposes to relocate the definition of Calendar
Spread and Vertical Spread from Interpretations and Policies .05(b) and
.05(a) of Exchange Rule 518 respectively, to proposed section
(b)(1)(ii) and (b)(1)(iii) of proposed Rule 532 respectively. The
definition of 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.\29\ The definition of 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.\30\ The
Exchange notes its definition of a Calendar Spread and a Vertical
Spread is not changing under this proposal.
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    \29\ The Exchange notes that its proposed definition of a
Calendar Spread is identical to the definition of a Calendar Spread
on MIAX Options. See MIAX Options Exchange Rule 532(b)(1)(ii).
    \30\ The Exchange notes that its proposed definition of a
Vertical Spread is identical to the definition of a Vertical Spread
on MIAX Options. See MIAX Options Exchange Rule 532(b)(1)(iii).
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Butterfly Spread Price Variance (``BSV'') Price Protection
    The Exchange proposes to adopt a new price protection for Butterfly
Spreads as section (b)(2) of new proposed Rule 532. This proposed rule
change is identical to a rule currently operative on the Exchange's
affiliate, MIAX Options.\31\
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    \31\ See MIAX Options Exchange Rule 532(b)(2).
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    A Butterfly Spread is comprised of three legs which have the same
expiration date but different exercise prices, and are of the same
type, either calls or puts, and are at equal strike intervals. The
upper and lower strikes are each a buy (sell) and the middle strike is
a sell (buy). The ratio of a butterfly spread will always be +1 -2 +1
or -1 +2 -1.
Butterfly Spread Example
Buy 1 XYZ April 50 Call
Sell 2 XYZ April 55 Calls
Buy 1 FYX April 60 Call

    The Exchange will establish a price protection for Butterfly
Spreads by establishing a Butterfly Spread Variance. The Exchange
proposes to adopt paragraph (b)(2)(i) to provide that, the minimum
possible trading price limit of a Butterfly Spread is zero minus a pre-
set value. The maximum possible trading price limit of a Butterfly
Spread is the absolute value of the difference between the closest
strikes (the upper strike price minus the middle strike price or the
middle strike price minus the lower strike price) plus a pre-set value.
The Exchange notes that this proposed rule change is identical to a

rule currently operative on the Exchange's affiliate, MIAX Options.\32\
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    \32\ See MIAX Options Exchange Rule 532(b)(2)(i).
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    The Exchange proposes to adopt paragraph (b)(2)(ii) to provide
that, if the execution price of a complex order would be outside of the
limits set forth in paragraph (i) above (bid higher than the maximum
trading price limit or offer lower than the minimum trading price
limit), such complex order will trade up to, and including, the maximum
trading price limit for bids or down to, and including, the minimum
trading price limit for offers. Remaining interest will then will be
placed on the Strategy Book and managed to the appropriate trading
price limit as described in Rule 518(c)(4), or cancelled if the Managed
Protection Override is enabled. The Exchange notes that this proposed
rule change is identical to a rule currently operative on the
Exchange's affiliate, MIAX Options.\33\
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    \33\ See MIAX Options Exchange Rule 532(b)(2)(ii).
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    The Exchange proposes to adopt paragraph (b)(2)(iii) to provide
that, buy orders, sell orders, and offer eQuotes \34\ with a limit
price less than the minimum trading price limit will be rejected. Bid
eQuotes with a limit price less than the minimum trading price limit
will be cancelled. Sell orders with a limit price greater than the
maximum trading price limit will be rejected. Offer eQuotes with a
limit price greater than the maximum trading price limit will be
cancelled. The Exchange notes that this proposed rule change is
identical to a rule currently operative on the Exchange's affiliate,
MIAX Options.\35\
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    \34\ The Exchange proposes to extend existing price protections
to sell limit orders and offer eQuotes for certain complex order
spread strategies similar to MIAX Options. See Exchange Act Release
No. 95227 (July 8, 2022), 87 FR 42229 (July 14, 2022) (SR-MIAX-2022-
25).
    \35\ See MIAX Options Exchange Rule 532(b)(2)(iii).
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    The Exchange also proposes to adopt paragraph (b)(2)(iv) to provide
that, the pre-set value will be determined by the Exchange and
communicated to Members via Regulatory Circular. The Exchange notes
that this proposed rule change is identical to a rule currently
operative on the Exchange's affiliate, MIAX Options.\36\
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    \36\ See MIAX Options Exchange Rule 532(b)(2)(iv).
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    The minimum value of a Butterfly Spread is zero and the maximum
value is capped at the absolute value of the difference between the
closest strikes (the upper strike price minus the middle strike price
or the middle strike price minus the lower strike price). To establish
the maximum and minimum trading values, a configurable pre-set value is
added to the maximum spread value and subtracted from the minimum
spread value. The pre-set value will be determined by the Exchange and
communicated to Members via Regulatory Circular.\37\
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    \37\ The Exchange proposes to use a pre-set value of $0.10 for
Butterfly Spreads to align to the pre-set value which is used on the
Exchange for Calendar Spreads and Vertical Spreads. See supra note
21.
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Example
    Butterfly Spread: Buy 1 October 50 Call, Sell 2 October 55 Calls,
Buy 1 October 60 Call.

October 50 Call EBBO: $11.00 x $16.00
October 55 Call EBBO: $6.00 x $11.00
October 60 Call EBBO: $1.00 x $6.00

    The maximum spread value is the absolute value of the difference
between the closest strikes or $5.00 (60.00-55.00 or 55.00-50.00). The
minimum spread value is zero. If the pre-set value is $0.10 the maximum
allowable price limit is then $5.10 and the minimum allowable price
limit is then -$0.10. A strategy order to buy at $5.15 will be managed
on the Strategy Book at $5.10.
Calendar Spread Variance (``CSV'') Price Protection
    The Exchange proposes to (i) relocate the Calendar Spread Variance
(``CSV'') Price Protection from Rule 518; (ii) amend the rule text to
align to the rule text on the Exchange's affiliate, MIAX Options; (iii)
amend the rule text to enable the operation of the Managed Protection
Override; and (iv) extend the existing price protection to include sell
orders and offer eQuotes. Specifically, the Exchange proposes to
relocate the Calendar Spread Variance (``CSV'') Price Protection from
Interpretations and Policies .05(b) of Rule 518 to paragraph (b)(3) of
new proposed Rule 532. The Exchange notes that this proposed rule
change is identical to a rule currently operative on the Exchange's
affiliate, MIAX Options.\38\
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    \38\ See MIAX Options Exchange Rule 532(b)(3).
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    The Exchange proposes to adopt paragraph (i) to state that, the
maximum possible value of a Calendar Spread is unlimited, thus there is
no maximum price protection for Calendar Spreads. The minimum possible
trading price limit of a Calendar Spread is zero minus a pre-set value.
The Exchange notes that this rule text is being relocated to Rule
532(b)(3)(i) but is not changing under this proposal.\39\
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    \39\ See Interpretations and Policies .05(b)(1) of Rule 518.
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    Currently, the operation of the Calendar Spread Variance (``CSV'')
and Vertical Spread Variance (``VSV'') price protection is described
together in Interpretations and Policies .05(c) of Rule 518. The
Exchange now proposes to describe the operation of the price protection
separately for each strategy. Specifically, the Exchange proposes to
adopt subparagraph (ii) to proposed Rule 532(b)(3) to state that, if
the execution price of a complex order would be outside of the limit
set forth in subparagraph (i) above (offers lower than the minimum
trading price limit), such complex order will trade down to, and
including, the minimum trading price limit. The Exchange notes that
this proposed rule change is identical to a rule currently operative on
the Exchange's affiliate, MIAX Options.\40\
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    \40\ See MIAX Options Exchange Rule 523(b)(3)(ii).
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    The Exchange also proposes to describe the handling of remaining
interest within the rule text to provide additional detail and to
incorporate the operation of the Managed Protection Override.
Specifically, the Exchange proposes to adopt an additional provision to
proposed Rule 532(b)(3)(ii) to provide that, remaining interest will
then be placed on the Strategy Book and managed to the appropriate
trading price limit as described in Rule 518(c)(4), or cancelled if the
Managed Protection Override is enabled. The Exchange notes that this
proposed rule change is identical to a rule currently operative on the
Exchange's affiliate, MIAX Options.\41\
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    \41\ See id.
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    The Exchange proposes to adopt subparagraph (iii) to state that,
buy orders, sell orders, and offer eQuotes \42\ with a limit price less
than the minimum trading price will be rejected. Bid eQuotes with a
limit price less than the minimum trading price limit will be
cancelled. Currently, the rule provides that orders to buy below the
minimum trading price limit will be rejected.\43\ The Exchange is
proposing to extend this price protection to sell orders and offer
eQuotes under this proposal. The Exchange notes that this proposed rule
change is identical to a rule currently operative on the Exchange's
affiliate, MIAX Options.\44\
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    \42\ See supra note 34.
    \43\ See Interpretations and Policies .05(c) of Exchange Rule
518.
    \44\ See MIAX Options Exchange Rule 532(b)(3)(iii).
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    The Exchange proposes to adopt subparagraph (iv) to state that the
CSV Price Protection applies only to strategies in American-style
option classes. The Exchange notes that this rule text is being
relocated to proposed Rule 532(b)(3)(iv) but is not changing under this
proposal.\45\
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    \45\ See Interpretations and Policies .05(c)(3) of Exchange Rule
518.

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    The Exchange proposes to adopt subparagraph (v) to state that the
pre-set value will be determined by the Exchange and communicated to
Members via Regulatory Circular. The Exchange notes that this proposed
rule change is identical to a rule currently operative on the
Exchange's affiliate, MIAX Options.\46\
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    \46\ See MIAX Options Exchange Rule 518(b)(3)(v).
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Vertical Spread Variance (``VSV'') Price Protection
    The Exchange proposes to (i) relocate Vertical Spread Variance
(``VSV'') Price Protection from Rule 518; (ii) amend the rule text to
align to the rule text on the Exchange's affiliate, MIAX Options; (iii)
amend the rule text to enable the operation of the Managed Protection
Override; and (iv) extend the existing price protection to include sell
orders and offer eQuotes. Specifically, the Exchange proposes to
relocate the Vertical Spread Variance (``VSV'') Price Protection from
Interpretations and Policies .05(a) of Rule 518 to paragraph (b)(4) of
new proposed Rule 532. The Exchange notes that this proposed rule
change is identical to a rule currently operative on the Exchange's
affiliate, MIAX Options.\47\
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    \47\ See MIAX Options Exchange Rule 532(b)(4).
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    The Exchange proposes to adopt subparagraph (i) to state that, the
maximum possible trading price limit of the VSV is the difference
between the two component strike prices plus a pre-set value. For
example, a Vertical Spread consisting of the purchase of one January 30
call and the sale of one January 35 call would have a maximum trading
price limit of $5.00 plus a pre-set value. The minimum possible trading
price limit of a Vertical Spread is always zero minus a pre-set value.
The Exchange notes that this rule text is being relocated to Rule
532(b)(4)(i) but is not changing under this proposal.\48\
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    \48\ See Interpretations and Policies .05(a)(1) of Rule 518.
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    Currently, the operation of the Calendar Spread Variance (``CSV'')
and Vertical Spread Variance (``VSV'') price protection is described
together in Interpretations and Policies .05(c) of Rule 518. The
Exchange now proposes to describe the operation of the price protection
separately for each strategy. Specifically, the Exchange proposes to
adopt subparagraph (ii) to proposed Rule 532(b)(4) to state that, if
the execution price of a complex order would be outside of the limits
set forth in subparagraph (i) above (bid higher than the maximum
trading price limit or offer lower than the minimum trading price
limit), such complex order will trade up to, and including, the maximum
trading price limit for bids or down to, and including, the minimum
trading price limit for offers. The Exchange notes that this proposed
rule change is identical to a rule currently operative on the
Exchange's affiliate, MIAX Options.\49\
---------------------------------------------------------------------------

    \49\ See MIAX Options Exchange Rule 532(b)(4)(ii).
---------------------------------------------------------------------------

    The Exchange also proposes to describe the handling of remaining
interest within the rule text to provide additional detail and to
incorporate the operation of the Managed Protection Override.
Specifically, the Exchange proposes to adopt an additional provision to
proposed Rule 532(b)(4)(ii) to provide that, remaining interest will
then be placed on the Strategy Book and managed to the appropriate
trading price limit as described in Rule 518(c)(4), or cancelled if the
Managed Protection Override is enabled. The Exchange notes that this
proposed rule change is identical to a rule currently operative on the
Exchange's affiliate, MIAX Options.\50\
---------------------------------------------------------------------------

    \50\ See id.
---------------------------------------------------------------------------

    The Exchange proposes to adopt subparagraph (iii) to state that,
buy orders, sell orders, and offer eQuotes \51\ with a limit price less
than the minimum trading price limit will be rejected. Bid eQuotes with
a limit price less than the minimum trading price limit will be
cancelled. Sell orders with a limit price greater than the maximum
trading price limit will be rejected. Offer eQuotes with a limit price
greater than the maximum trading price limit will be cancelled.
Currently, the rule provides that orders to buy below the minimum
trading price limit and orders to sell above the maximum trading price
limit will be rejected by the System.\52\ The Exchange is proposing to
extend this price protection to sell orders and offer eQuotes under
this proposal. The Exchange notes that this proposed rule change is
identical to a rule currently operative on the Exchange's affiliate,
MIAX Options.\53\
---------------------------------------------------------------------------

    \51\ See supra note 34.
    \52\ See Interpretations and Policies .05(c) of Exchange Rule
518.
    \53\ See MIAX Options Exchange Rule 532(b)(4)(iii).
---------------------------------------------------------------------------

    The Exchange also proposes to adopt subparagraph (iv) to state
that, the pre-set value will be determined by the Exchange and
communicated to Members via Regulatory Circular. The Exchange notes
that this proposed rule change is identical to a rule currently
operative on the Exchange's affiliate, MIAX Options.\54\
---------------------------------------------------------------------------

    \54\ See MIAX Options Exchange Rule 532(b)(4)(iv).
---------------------------------------------------------------------------

MIAX Strategy Price Protection (``MSPP'')
    The Exchange also proposes to introduce a MIAX Strategy Price
Protection (``MSPP'') which will establish a maximum protected price
for buy orders and a minimum protected price for sell orders. The
Exchange notes that this proposed rule change is identical to a rule
currently operative on the Exchange's affiliate, MIAX Options.\55\
---------------------------------------------------------------------------

    \55\ See MIAX Options Exchange Rule 532(b)(5).
---------------------------------------------------------------------------

    To determine the maximum price for a buy order the Exchange will
add a pre-set value, the MIAX Strategy Price Protection Variance
(``MSPPV''),\56\ to the offer side value of the cNBBO.\57\ To determine
the minimum protected price for sell orders the Exchange will subtract
the MSPPV value from the bid side value of the cNBBO. The MSPPV value
will be determined by the Exchange and communicated to Members via
Regulatory Circular. For market orders \58\ the functional limit price
will be the MSPP. All Day \59\ and GTC \60\ complex orders are eligible
for the MIAX Strategy Price Protection. cIOC orders,\61\ cAOC
orders,\62\ cIOC

eQuotes,\63\ and cAOC eQuotes,\64\ are not eligible for the MIAX
Strategy Price Protection,\65\ nor are crossing orders.\66\ The MIAX
Strategy Price Protection is an additional price protection feature
provided to all Members of the Exchange.
---------------------------------------------------------------------------

    \56\ The Exchange proposes to use a pre-set value of $2.50 for
the MIAX Strategy Price Protection Variance (``MSPPV''). The
Exchange believes this value provides an adequate price range for
executions while offering price protection against potentially
erroneous executions and is identical to the value currently in use
for the MSPP on the MIAX Options Exchange. See MIAX Options Exchange
Regulatory Circular 2022-16, MIAX Order Price Protection Pre-set
Values (March 4, 2022) available at https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Options_RC_2022_16.pdf.
    \57\ The cNBBO is calculated using the NBBO for each component
of a complex strategy to establish the best net bid and offer for a
complex strategy. For stock-option orders, the cNBBO for a complex
strategy will be calculated using the NBBO in the individual option
component(s) and the NBBO in the stock component. See Exchange Rule
518(a)(2).
    \58\ A market order is an order to buy or sell a stated number
of option contracts at the best price available at the time of
execution. See Exchange Rule 516(a).
    \59\ A Day Limit Order is an order to buy or sell which, if not
executed, expires at the end of trading in the security on the day
on which it was entered. See Exchange Rule 516(k).
    \60\ A Good `til Cancelled or ``GTC'' Order is an order to buy
or sell which remains in effect until it is either executed,
cancelled or the underlying option expires. See Exchange Rule
516(l).
    \61\ A Complex Immediate-or-Cancel or ``cIOC'' order is a
complex order that is to be executed in whole or in part upon
receipt. Any portion not so executed is cancelled. See Exchange Rule
518(b)(4).
    \62\ A Complex Auction-or-Cancel or ``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. A cAOC order with a size
greater than the aggregate auctioned size (as defined in Rule
518(d)(4)) will be capped for allocation purposes at the aggregate
auctioned size. See Exchange Rule 518(b)(3).
    \63\ A ``Complex Immediate or Cancel eQuote'' or ``cIOC
eQuote,'' which 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.
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 is immediately cancelled. See
paragraph (c)(2) of Interpretations and Policies .02 of Exchange
Rule 518.
    \64\ A ``Complex Auction or Cancel eQuote'' or ``cAOC eQuote,''
which 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. A
cAOC eQuote with a size greater than the aggregate auctioned size
(as defined in Rule 518(d)(4)) will be capped for allocation
purposes at the aggregate auctioned size. 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. See paragraph (c)(1) of
Interpretations and Policies .02 of Exchange Rule 518.
    \65\ The Exchange does not believe that these order and quote
types require the additional price protection afforded by the MSPP
as these orders and quotes do not rest on the Strategy Book but are
either executed immediately or cancelled. See supra notes 61, 62,
63, and 64.
    \66\ The Exchange does not believe that crossing orders require
the additional price protection afforded by the MSPP as the
execution price of these orders is pre-established. A Complex
Customer Cross or ``cC2C'' Order is comprised of one Priority
Customer complex order to buy and one Priority Customer complex
order to sell at the same price and for the same quantity. Trading
of cC2C Orders is governed by Rule 515(h)(3). See Exchange Rule
518(b)(5). A Complex Qualified Contingent Cross or ``cQCC'' Order is
comprised of an originating complex order to buy or sell where each
component is at least 1,000 contracts that is identified as being
part of a qualified contingent trade, as defined in Rule 516,
Interpretations and Policies .01, coupled with a contra-side complex
order or orders totaling an equal number of contracts. Trading of
cQCC Orders is governed by Rule 515(h)(4). See Exchange Rule
518(b)(6).
---------------------------------------------------------------------------

    If the MSPP is priced less aggressively than the limit price of a
complex order (i.e., the MSPP is less than the complex order's bid
price for a buy order, or the MSPP is greater than the complex order's
offer price for a sell order), or if the order is a complex market
order, the order will be (i) executed up to, and including, its MSPP
for buy orders; or (ii) executed down to, and including, its MSPP for
sell orders. Any unexecuted portion of such a complex order will be
cancelled. The Exchange notes that this proposed rule change is
identical to a rule currently operative on the Exchange's affiliate,
MIAX Options.\67\
---------------------------------------------------------------------------

    \67\ See MIAX Options Exchange Rule 532(b)(5)(v).
---------------------------------------------------------------------------

    If the MSPP is priced equal to, or more aggressively than, the
limit price of a complex order (i.e., the MSPP is greater than the
complex order's bid price for a buy order, of the MSPP is less than the
complex order's offer price for a sell order) the order will be (i)
displayed and/or executed up to, and including, its limit price for buy
orders; or (ii) displayed and/or executed down to, and including, its
limit price for sell orders. Any unexecuted portion of such a complex
order: (A) will be subject to the cLEP as described in subsection (e)
of Exchange Rule 518; (B) may be submitted, if eligible, to the managed
interest process described in Exchange Rule 518(c)(4); or (C) may be
placed on the Strategy Book at its limit price. The Exchange notes that
this proposed rule change is identical to a rule currently operative on
the Exchange's affiliate, MIAX Options.\68\
---------------------------------------------------------------------------

    \68\ See MIAX Options Exchange Rule 532(b)(5)(vi).
---------------------------------------------------------------------------

    The MSPP is designed to work in conjunction with other features on
the Exchange such as the Complex Liquidity Exposure (``cLEP'') Process.
The Exchange introduced the Complex Liquidity Exposure Process (cLEP)
in 2018.\69\ The cLEP process was designed for complex orders and
complex eQuotes that violate their Complex MIAX Price Collar (``MPC'')
price.\70\ The MPC price protection feature is an Exchange-wide
mechanism under which a complex order or complex eQuote to sell will
not be displayed or executed at a price that is lower than the opposite
side cNBBO bid at the time the MPC is assigned by the System \71\
(i.e., upon receipt or upon opening) by more than a specific dollar
amount expressed in $0.01 increments (the ``MPC Setting''), and under
which a complex order or eQuote to buy will not be displayed or
executed at a price that is higher than the opposite side cNBBO offer
at the time the MPC is assigned by the System by more than the MPC
Setting (each the ``MPC Price'').\72\ The MPC Price is established (i)
upon receipt of the complex order or eQuote during free trading, or
(ii) if the complex order or eQuote is not received during free
trading, at the opening (or reopening following a halt) of trading in
the complex strategy; or (iii) upon evaluation of the Strategy Book by
the System when a wide market condition, as described in
Interpretations and Policies .05(e)(1) of this Rule, no longer
exists.\73\ Once established the MPC Price will not change during the
life of the complex order or eQuote. If the MPC Price is priced less
aggressively than the limit price of the complex order or eQuote (i.e.,
the MPC Price is less than the complex order or eQuote's bid price for
a buy, or the MPC Price is greater than the complex order or eQuote's
offer price for a sell), or if the complex order is a market order, the
complex order or eQuote will be displayed and/or executed up to its MPC
Price.\74\
---------------------------------------------------------------------------

    \69\ See Securities Exchange Act Release No. 85346 (March 18,
2019), 84 FR 10854 (March 22, 2019) (SR-EMERALD-2019-14).
    \70\ The Exchange notes that there are no changes to the Complex
MIAX Price Collar functionality under this proposal.
    \71\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
    \72\ See Exchange Rule 518.05(f).
    \73\ See Exchange Rule 518.05(f)(3).
    \74\ See Exchange Rule 518.05(f)(5).
---------------------------------------------------------------------------

    A complex order or complex eQuote that would violate its MPC Price
begins a cLEP Auction.\75\ The System will post the complex order or
eQuote to the Strategy Book at its MPC Price and begin the cLEP Auction
by broadcasting a liquidity exposure message to all subscribers of the
Exchange's data feeds.\76\ Remaining liquidity with an original limit
price that is (i) less aggressive (lower for a buy order or eQuote, or
higher for a sell order or eQuote) than or equal to the MPC Price will
be handled in accordance with subsection (c)(2)(ii)-(v) of Rule 518, or
(ii) more aggressive than the MPC Price will be subject to the
Reevaluation Process.\77\
---------------------------------------------------------------------------

    \75\ See Exchange Rule 518(e).
    \76\ Id.
    \77\ Id.
---------------------------------------------------------------------------

    The Reevaluation process occurs at the conclusion of a cLEP Auction
where the System will calculate the next potential MPC Price for
remaining liquidity with an original limit price more aggressive than
the existing MPC Price. The next MPC Price will be calculated as the
MPC Price plus (minus) the next MPC increment for buy (sell) orders
(the ``New MPC Price''). Liquidity with an original limit price equal
to or less aggressive than the New MPC Price is no longer subject to
the MPC price protection. Liquidity with an original limit price more
aggressive than the New MPC Price (or market order liquidity) is
subject to the MPC price protection feature using the New MPC Price. In
certain scenarios this could lead to a cycle of cLEP Auctions and ever
increasing MPC price protection prices.
    The operation of the MIAX Strategy Price Protection feature during
a cLEP Auction can be seen in the following example.

Example
MPC: 0.25

    The Exchange has one order (Order 1) resting on its Strategy Book:
+1 component A, -1 component B:
    The current market is:

EBBO component A: 4.00 (10) x 6.00 (10)
EBBO component B: 1.00 (10) x 2.50 (10)
NBBO \78\ component A: 4.05 (10) x 4.15 (10)
---------------------------------------------------------------------------

    \78\ The term ``NBBO'' means the national best bid or offer as
calculated by the Exchange based on market information received by
the Exchange from the appropriate Securities Information Processor
(``SIP''). See Exchange Rule 518(a)(14).
---------------------------------------------------------------------------

NBBO component B: 2.30 (10) x 2.40 (10)
icEBBO: \79\ 1.50 (10) x 5.00 (10)
---------------------------------------------------------------------------

    \79\ The icEBBO is a calculation that uses the best price from
the Simple Order Book for each component of a complex strategy
including using displayed and non-displayed trading interest. For
stock-option orders, the icEBBO 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 NBBO in the stock component. See Exchange Rule 518(a)(12).
---------------------------------------------------------------------------

cNBBO: 1.65 (10) x 1.85 (10)

    The price protection is:

MSPPV: 2.50
Buy MSPPV: 1.85 + .2.50 = 4.35
Sell MSPPV: 1.65-2.50 = -.85

    Order 1 to sell 10 at 1.90 is received and updates the icEBBO.

icEBBO: 1.50 (10) x 1.90 (10)

    The Exchange receives a new order (Order 2) to buy 30 at the
Market. For Market Orders the functional limit is the MSPP or 4.35.
    Order 2 buys 10 from Order 1 at $1.90 and initiates the Complex
Liquidity Exposure Process: Order 2 reprices to its MPC protected price
of $2.10 (cNBO of 1.85 + 0.25) and is posted at that price on the
Strategy Book and the cLEP Auction begins.
    During the cLEP Auction the Exchange receives a new order (Order 3)
to sell 10 at 2.10. This order locks the current same side Book Price
of $2.10. At the end of the auction, Order 3 sells 10 to Order 2 at
$2.10, filling Order 3.
    Order 2 reprices to the next MPC protected price of $2.35 (initial
MPC of 2.10 + 0.25) and is posted at that price on the Strategy Book
and the next cLEP Auction begins.
    During the next cLEP Auction the Exchange does not receive any
interest to sell. At the end of the auction Order 2 is reevaluated and
reprices to the next MPC protected price of 2.60 (previous MPC of 2.35
+ 0.25) and is posted at that price on the Strategy Book and the next
cLEP Auction begins.
    During all subsequent cLEP Auctions the Exchange does not receive
any interest to sell. At the end of each subsequent auction, Order 2 is
reevaluated and repriced to the next MPC protected price as seen below
until the MSPP protected price is equal to or less than the MPC
protected price.

3rd MPC evaluation 2.60 + 0.25 = 2.85
4th MPC evaluation 2.85 + 0.25 = 3.10
5th MPC evaluation 3.10 + 0.25 = 3.35
6th MPC evaluation 3.35 + 0.25 = 3.60
7th MPC evaluation 3.60 + 0.25 = 3.85
8th MPC evaluation 3.85 + 0.25 = 4.10
9th MPC evaluation 4.10 + 0.25 = 4.35

    At the end of the final auction, because the MSPP protected price
of 4.35 is equal to the MPC protected price of 4.35, Order 2 is not
repriced to the next MPC and is cancelled subject to MSPP.

icEBBO: 4.35 (10) x 5.00 (10)

    The Exchange proposes to amend Exchange Rule 518(e), Reevaluation,
to account for the introduction of a protected price into the cLEP
process. Currently, at the conclusion of a cLEP Auction, the System
will calculate the next potential MPC Price for remaining liquidity
with an original limit price more aggressive than the existing MPC
Price. The Exchange proposes to amend this sentence to state that, at
the conclusion of a cLEP Auction, the System will calculate the next
potential MPC Price for remaining liquidity with an original limit
price or protected price more aggressive than the existing MPC Price.
Additionally, the current rule text provides that, liquidity with an
original limit price less aggressive (lower for a buy order or eQuote,
or higher for a sell order or eQuote) than or equal to the New MPC
Price will be posted to the Strategy Book at its original limit price
or handled in accordance with subsection (c)(2)(ii)-(v) of Rule 518.
The Exchange proposes to amend this sentence to provide that, liquidity
with an original limit price or protected price less aggressive (lower
for a buy order or eQuote, or higher for a sell order or eQuote) than
or equal to the New MPC Price will be posted to the Strategy Book at
its original limit price or handled in accordance with subsection
(c)(2)(ii)-(v) of Rule 518.
    The next MPC Price will be calculated as the MPC Price plus (minus)
the next MPC increment for buy (sell) orders (the ``New MPC Price'').
The System will initiate a cLEP Auction for liquidity that would
execute or post at a price that would violate its New MPC Price.
Liquidity with an original limit price or protected price less
aggressive (lower for a buy order or eQuote, or higher for a sell order
or eQuote) than or equal to the New MPC Price will be posted to the
Strategy Book at its original limit price or handled in accordance with
subsection (c)(2)(ii)-(v) of this Rule. The cLEP process will continue
until no liquidity remains with an original limit price that is more
aggressive than its MPC Price. At the conclusion of the cLEP process,
any liquidity that has not been executed will be posted to the Strategy
Book at its original limit price.
    Additionally, the Exchange proposes to introduce the protected
price into the allocation process at the end of a cLEP Auction. The
current rule, Allocation at the Conclusion of a Complex Liquidity
Exposure Auction, provides that, orders and quotes executed in a cLEP
Auction will be allocated first in price priority based upon their
original limit price, and thereafter in accordance with the Complex
Auction allocation procedures described in subsection (d)(7)(i)-(vi) of
this Rule (518).
    The Exchange now proposes to amend this provision to state that,
orders and quotes executed in a cLEP Auction will be allocated first in
price priority based upon their original limit price, orders subject to
the MIAX Strategy Price Protection (``MSPP'') (as described in Rule
532(b)(5)) are allocated using their protected price, and thereafter in
accordance with the Complex Auction allocation procedures described in
subsection (d)(7)(i)-(vi) of this Rule (518).
    The Exchange also proposes to amend Rule 518(e), Allocation at the
Conclusion of a Complex Liquidity Exposure Auction, to provide that
orders and quotes executed in a cLEP Auction will be allocated first in
price priority based upon their original limit price, orders subject to
MSPP are allocated using their protected price, and thereafter in
accordance with the Complex Auction allocation procedures described in
subsection (d)(7)(i)-(vi) of this Rule.
Parity Price Protection
    The Exchange proposes to amend paragraph (g), Parity Price
Protection, of Interpretations and Policies .01 of Exchange Rule 518,
to add a reference to the Managed Protection Override. The rule, as
proposed to be amended, will provide that Married-Put and Buy-Write
interest to sell (sell put and sell stock; or sell call and buy stock)
that is priced below the parity protected price for the strategy will
be placed on the Strategy Book at the parity protected price for the
strategy, or cancelled if the Managed Protection Override is enabled.
This provision allows the Parity Price Protection functionality to
operate in conjunction with the Managed Protection Override feature
which cancels an order when its price

protection feature is triggered. The Exchange notes that this proposed
rule change is identical to a rule currently operative on the
Exchange's affiliate, MIAX Options.\80\ The Exchange believes that
offering Members the option to have orders either managed by the
Exchange or cancelled when a risk protection is triggered gives Members
greater flexibility and control over their orders while retaining the
risk protection functionality.
---------------------------------------------------------------------------

    \80\ See Interpretations and Policies .01(g) of MIAX Options
Exchange Rule 518.
---------------------------------------------------------------------------

IIP/URIP/RIP
    Currently the Exchange uses the following methods to determine
whether a complex order is qualified to initiate a Complex Auction:
Initial Improvement Percentage (``IIP'')
    For complex orders received prior to the opening of all individual
components of a complex strategy, the System \81\ will calculate an IIP
value, which is a defined percentage of the current dcEBBO bid/ask
differential once all of the components of the complex strategy have
opened. Such percentage will be defined by the Exchange and
communicated to Members \82\ via Regulatory Circular.\83\ If a Complex
Auction-eligible order is priced equal to, or improves, the IIP value
\84\ 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.\85\
---------------------------------------------------------------------------

    \81\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
    \82\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100.
    \83\ See MIAX Emerald Regulatory Circular 2019-68, Complex
Auction Initiating Percentages (August 13, 2019) available at
https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Emerald_RC_2019_68.pdf.
    \84\ The Initial Improvement Percentage (``IIP'') is currently
set to 70%. See Id.
    \85\ See Policy .03(a) of Exchange Rule 518.
---------------------------------------------------------------------------

Upon Receipt Improvement Percentage (``URIP'')
    Upon receipt of a complex order when the complex strategy is open,
the System will calculate a URIP value, which is a defined percentage
of the current dcEBBO bid/ask differential. Such percentage will be
defined by the Exchange and communicated to Members via Regulatory
Circular.\86\ If a Complex Auction-eligible order is priced equal to,
or improves, the URIP value \87\ and is also priced to improve other
complex orders and/or quotes resting at the top of the Strategy Book,
the complex order will be eligible to initiate a Complex Auction.\88\
---------------------------------------------------------------------------

    \86\ See supra note 83.
    \87\ The Upon Receipt Improvement Percentage (``URIP'') is
currently set to 70%. See supra note 83.
    \88\ See Policy .03(b) of Exchange Rule 518.
---------------------------------------------------------------------------

Re-Evaluation Improvement Percentage (``RIP'')
    Upon evaluation of a complex order resting at the top of the
Strategy Book, the System will calculate a Re-evaluation Improvement
Percentage (``RIP'') value, which is a defined percentage of the
current dcEBBO bid/ask differential. Such percentage will be defined by
the Exchange and communicated to Members via Regulatory Circular.\89\
If a complex order resting at the top of the Strategy Book is priced
equal to, or improves, the RIP value,\90\ the complex order will be
eligible to initiate a Complex Auction.\91\
---------------------------------------------------------------------------

    \89\ See supra note 83.
    \90\ The Reevaluation Improvement Percentage (``RIP'') is
currently set to 80%. See supra note 83.
    \91\ See Policy .03(c) of Exchange Rule 518.
---------------------------------------------------------------------------

Proposal
    The Exchange now proposes to replace the dcEBBO bid/ask
differential with the cNBBO \92\ bid/ask differential in the
calculations described above for IIP, URIP, and RIP, respectively. The
dcEBBO is calculated using the displayed price for each component of a
complex strategy from the Simple Order Book \93\ on the Exchange,
whereas the cNBBO is calculated using the NBBO for each component of a
complex strategy to establish the best net bid and offer for a complex
strategy.\94\ The Exchange believes that using the cNBBO will reduce
the number of auctions generated by the Exchange System which do not
receive responses or result in price improvement for the initiating
order. The cNBBO, which includes the best away markets as well as the
EBBO for each component of a complex strategy, will always be equal to
or better than the dcEBBO, which includes the EBBO for each component
of a complex strategy. The component prices contained in the cNBBO
provide a more accurate indicator of the overall market interest in
each component, and therefore, provides a more accurate indicator of
the overall market interest in the complex strategy. The Exchange
believes that this will result in a reduction of the overall number of
Complex Auctions initiated on the Exchange but will in turn increase
the percentage of Complex Auctions that result in price improvement, as
the auction start price will be more closely aligned to prevailing
market prices. The Exchange notes that this proposal is substantively
identical (the only difference being the naming convention used by each
exchange, whereas MIAX Options used the dcMBBO prior to changing to the
cNBBO and MIAX Emerald uses the dcEBBO) to rules currently operative on
the Exchange's affiliate, MIAX Options.\95\
---------------------------------------------------------------------------

    \92\ The Complex National Best Bid or Offer (``cNBBO'') is
calculated using the NBBO for each component of a complex strategy
to establish the best net bid and offer for a complex strategy. For
stock-option orders, the cNBBO for a complex strategy will be
calculated using the NBBO in the individual option component(s) and
the NBBO in the stock component. See Exchange Rule 518(a)(2).
    \93\ The ``Simple Order Book'' is the Exchange's regular
electronic book of orders and quotes. See Exchange Rule 518(a)(15).
    \94\ See supra note 9.
    \95\ See Interpretations and Policies .03(a), (b), and (c) of
MIAX Options Exchange Rule 518.
---------------------------------------------------------------------------

Miscellaneous
    The Exchange proposes to rename paragraph (e), Wide Market
Conditions, SMAT Events and Halts, of Interpretations and Policies .05
of Exchange Rule 518, to new paragraph (a), as a result of the removal
of the preceding paragraphs (a), (b), (c), and (d) from Interpretations
and Policies .05 of Exchange Rule 518, which have been relocated to new
proposed Rule 532. Additionally, the Exchange proposes to make a number
of non-substantive changes in Rule 518 to correct internal cross
references that have changed as a result of this proposal.
Implementation
    The Exchange will announce the implementation of these changes in a
Regulatory Circular to be published no later than 90 days following the
operative date of the proposed rule. The implementation date will be no
later than 90 days following the issuance of the Regulatory Circular.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent
with Section 6(b) of the Act \96\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \97\ in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanisms of a free and open market

and a national market system and, in general, to protect investors and
the public interest.
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    \96\ 15 U.S.C. 78f(b).
    \97\ 15 U.S.C. 78f(b)(5).
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Managed Protection Override
    The Exchange believes that the Managed Protection Override feature
promotes just and equitable principles of trade, removes impediments to
and perfects the mechanisms of a free and open market and a national
market system and, in general, protects investors and the public
interest by providing a mechanism by which Members may determine the
way their orders are handled when a risk protection is triggered. The
Exchange believes that enabling the Butterfly Spread Variance (``BSV'')
Price Protection, Calendar Spread Variance (``CSV'') Price Protection,
Vertical Spread Variance (``VSV'') Price Protection, Parity Price
Protection, and MAX Put Price Protection, to work in conjunction with
the Managed Protection Override benefits Members by providing Members
an option as to the treatment of their order when a risk protection is
engaged. The Exchange believes that it has an effective way to manage
orders on the Exchange so that they do not execute at potentially
erroneous prices, however the Exchange believes that giving Members the
option to have their orders cancelled if a risk protection is triggered
protects investors and the public interest. Cancelling an order allows
Members to make a decision on what to do with their order based on the
then current market conditions. A Member may choose to re-submit the
order at the same or different limit price. Specifically, the Exchange
believes the proposed change will remove impediments to and perfect the
mechanisms of a free and open market by providing Members with the
option to either manage their own orders or have the Exchange manage
their orders when a price protection is triggered which will promote
fair and orderly markets, increase overall market confidence, and
promote the protection of investors. Additionally, the Exchange notes
that this proposed rule change is identical to a rule currently
operative on the Exchange's affiliate, MIAX Options.\98\
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    \98\ See MIAX Options Exchange Rule 532.
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Max Put Price Protection
    The Exchange believes that the proposed Max Put Price Protection
feature promotes just and equitable principles of trade, removes
impediments to and perfects the mechanisms of a free and open market
and a national market system and, in general, protects investors and
the public interest by providing a risk protection mechanism that
establishes a maximum price at which a put option may trade. The Max
Put Price Protection is designed to prevent trades from occurring at
potentially unwanted or erroneous prices. Additionally, the Exchange
notes that this proposed rule change is identical to a rule currently
operative on the Exchange's affiliate, MIAX Options.\99\
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    \99\ See MIAX Options Exchange Rule 532(a)(1).
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Butterfly Spread Price Variance (``BSV'') Price Protection
    The Exchange believes that the proposed Butterfly Spread Price
Variance (``BSV'') Price Protection feature promotes just and equitable
principles of trade, removes impediments to and perfects the mechanisms
of a free and open market and a national market system and, in general,
protects investors and the public interest by providing a risk
protection mechanism that will establish minimum and maximum trading
values to prevent an order from trading at a potentially unwanted or
erroneous price.
    Additionally, the Exchange believes that making the Butterfly
Spread Variance (``BSV'') Price Protection eligible for the Managed
Protection Override feature benefits Members as it gives them the
option to have their order cancelled if the Butterfly Spread Variance
Price Protection is triggered and the Managed Protection Override
feature is enabled. Cancelling orders back to Members allows them to
make a decision on what to do with their order based on the then
current market conditions and a Member may choose to re-submit the
order at the same or different limit price. Specifically, the Exchange
believes the proposed change will remove impediments to and perfect the
mechanism of a free and open market by providing market participants
with the option to either manage their own orders or have the Exchange
manage their orders when a price protection is triggered which will
promote fair and orderly markets, increase overall market confidence,
and promote the protection of investors.
Calendar Spread Variance (``CSV'') Price Protection/Vertical Spread
Variance (``VSV'') Price Protection
    The Exchange believes that amending the Calendar Spread Variance
(``CSV'') and the Vertical Spread Variance (``VSV'') Price Protection
feature to enable the Managed Protection Override feature promotes just
and equitable principles of trade, removes impediments to and perfects
the mechanism of a free and open market and a national market system
and, in general, protects investors and the public interest by
providing Members the option of having the Exchange manage their order
when a price protection is triggered, or having their order cancelled
when a price protection is triggered, if the Managed Protection
Override is enabled. The Exchange believes cancelling an order in this
scenario benefits Members as it allows them to make a decision on what
to do with their order based on the then current market conditions and
a Member may choose to re-submit the order at the same or different
limit price. Specifically, the Exchange believes the proposed change
will remove impediments to and perfect the mechanism of a free and open
market by providing market participants with the option to either
manage their own orders or have the Exchange manage their orders when a
price protection is triggered which will promote fair and orderly
markets, increase overall market confidence, and promote the protection
of investors.
    The Exchange believes that amending the Calendar Spread Price
Variance (``CSV'') and Vertical Spread Variance (``VSV'') Price
Protection protects investors and the public interest and helps
maintain fair and orderly markets by mitigating potential risks
associated with market participants entering sell orders and offer
eQuotes at clearly unintended prices and trading at prices that are
extreme and potentially erroneous. Extending the existing price
protections to sell orders and offer eQuotes will assist in the
maintenance of a fair and orderly market and protect investors by
rejecting sell orders and offer eQuotes that are priced to sell below
the minimum trading limit established by the Exchange. The Exchange
believes this will promote just and equitable principles of trade and
ultimately protect investors. Additionally, the Exchange notes that
this proposed rule change is identical to a rule currently operative on
the Exchange's affiliate, MIAX Options.\100\
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    \100\ See MIAX Options Exchange Rule 532(b)(3)(iii) and
(b)(4)(iii).
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MIAX Strategy Price Protection (``MSPP'')
    The Exchange believes that the adoption of the MIAX Strategy Price
Protection (``MSPP'') promotes just and equitable principles of trade,
and facilitates transactions in securities, removes impediments to and
perfects

the mechanisms of a free and open market and a national market system
and, in general, protects investors and the public interest, by
providing an order price protection that establishes a minimum and
maximum trading value to prevent potentially unwanted or erroneous
executions from occurring. The Exchange believes that when the MSPP is
priced less aggressively than the limit price of the complex order that
executing the order, up to and including its MSPP for buy orders, or
down to and including its MSPP for sell orders, and cancelling any
unexecuted portion of the order, protects investors and the public
interest. Cancelling orders back to Members allows them to make a
decision on what to do with their order based on the then current
market conditions and a Member may choose to re-submit the order at the
same or different limit price. Specifically, the Exchange believes the
proposed change will remove impediments to and perfect the mechanism of
a free and open market by providing market participants with the option
to either manage their own orders or have the Exchange manage their
orders when a price protection is triggered which will promote fair and
orderly markets, increase overall market confidence, and promote the
protection of investors. Additionally, this proposed change is
identical to a rule currently operative on the Exchange's affiliate,
MIAX Options.\101\
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    \101\ See MIAX Options Exchange Rule 532(b)(5).
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Parity Price Protection
    The Exchange believes that amending Interpretations and Policies
.01(g), Parity Price Protection, of Exchange Rule 518, to provide that
an order will be cancelled if the Managed Protection Override is
enabled promotes just and equitable principles of trade, and
facilitates transactions in securities, removes impediments to and
perfects the mechanisms of a free and open market and a national market
system and, in general, protects investors and the public interest, by
providing Members and the public additional detail and clarity in the
Exchange's rules. It is in the public interest for rules to be accurate
and concise so as to eliminate the potential for confusion.
Additionally, the Exchange notes that this proposed change is identical
to a rule currently operative on the Exchange's affiliate, MIAX
Options.\102\
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    \102\ See Interpretations and Policies .01(g) of MIAX Options
Exchange Rule 518.
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Miscellaneous
    The Exchange believes the proposed change to correct internal cross
references within the Exchange's Rulebook promotes just and equitable
principles of trade and removes impediments to and perfects the
mechanism of a free and open market and a national market system
because the proposal ensures that the Exchange's rules are accurate.
The Exchange notes that the proposed changes to correct internal cross
references and to make minor non-substantive edits does not alter the
application of each rule. As such, the proposed amendments would foster
cooperation and coordination with persons engaged in facilitating
transactions in securities and would remove impediments to and perfect
the mechanism of a free and open market and national market system. In
particular, the Exchange believes that the proposed rule changes will
provide greater clarity to Members and the public regarding the
Exchange's Rules. It is in the public interest for rules to be accurate
and concise so as to eliminate the potential for confusion.
    The Exchange believes this proposal promotes just and equitable
principles of trade, removes impediments to and perfects the mechanisms
of a free and open market and a national market system and, in general,
protects investors and the public interest by providing new price
protection features for MIAX Emerald Members. Additionally, the
description of the System's functionality is designed to promote just
and equitable principles of trade by providing a clear and accurate
description to all participants of how the price protection process is
applied and should assist investors in making decisions concerning
their orders. Further, the Exchange believes that the price protection
features and functionality provides market participants with an
appropriate level of risk protection to their orders and contributes to
the maintenance of a fair and orderly market.
    The Exchange believes that its proposal to use the cNBBO instead of
the dcEBBO in the calculation used to determine whether a complex order
is qualified to initiate a Complex Auction promotes just and equitable
principles of trade and removes impediments to and perfects the
mechanisms of a free and open market and a national market system and,
in general, protects investors and the public interest as using the
cNBBO provides a better measure of the current market and is more
likely to result in price improvement for the initiating order as the
cNBBO is calculated using the NBBO (which in turn is calculated by
taking the best prices of all exchanges into consideration) for each
component of a complex strategy to establish the best net bid and offer
for a complex strategy, and therefore is more representative of the
prevailing market interest and market prices. The example below
demonstrates the difference between the current and proposed
calculations.
Example 1
(Current Auction Evaluation Based on dcEBBO)

    Reevaluation Improvement Percentage (RIP) for a complex order at
the best price on the Strategy Book \103\ subject to dcEBBO.
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    \103\ The ``Strategy Book'' is the Exchange's electronic book of
complex orders and complex quotes. See Exchange Rule 518(a)(17).

RIP = 80%
EBBO: \104\ Option A 2.00 x 2.10
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    \104\ The term ``EBBO'' means the best bid or offer on the
Exchange. See Exchange Rule 100.
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EBBO: Option B 1.05 x 1.20
Strategy +1A-1B = (2.00-1.20) x (2.10-1.05)
dcEBBO = 0.80 x 1.05

    A complex order is resting on the Strategy Book to buy 1 Strategy
at a price of 1.00. Upon reevaluation of the Strategy Book it is
determined the complex order to buy at 1.00 improves the Strategy bid
by 0.20; (1.00-0.80). The improvement percentage is then calculated as
the 0.20 improvement divided by the Strategy bid/offer spread; (1.05-
0.80), in this case resulting in 80% improvement. Because the 80%
improvement equals the configured RIP of 80% an auction is initiated.
Example 2
(Proposed Auction Evaluation Based on cNBBO)

    Reevaluation Improvement Percentage (RIP) for a complex order at
the best price on the Strategy Book subject to cNBBO.

RIP = 80%
NBBO: Option A 2.05 x 2.10
NBBO: Option B 1.05 x 1.10
Strategy +1A-1B = (2.05-1.10) x (2.10-1.05)
cNBBO = 0.95 x 1.05

    A complex order is resting on the Strategy Book to buy 1 Strategy
at a price of 1.00. Upon reevaluation of the Strategy Book it is
determined the complex order to buy at 1.00 improves the Strategy bid
by 0.05; (1.00-0.95). The improvement percentage is then calculated as
the 0.05 improvement divided by the Strategy bid/offer spread; (1.05-
0.95), in this case resulting in

50% improvement. Because the 50% improvement is less than the
configured RIP of 80% an auction is not initiated.
    The Exchange believes that using the cNBBO in its calculation to
determine whether a complex order is qualified to initiate a Complex
Auction will reduce the number of Complex Auctions initiated by the
Exchange System which do not receive responses. Using the cNBBO instead
of the dcEBBO better reflects the current state of the market and may
result in Complex Auctions that receive responses which in turn may
result in price improvement for the initiating order.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
Intra-Market Competition
    Specifically, the Exchange does not believe that the proposed
changes will impose any burden on intra-market competition as the rules
of the Exchange apply equally to all MIAX participants. The Butterfly
Spread Variance (``BSV'') Price Protection, Calendar Spread Variance
(``CSV'') Price Protection, and Vertical Spread Variance (``VSV'')
Price Protection, Parity Price Protection, and Max Put Price protection
are all available for any MIAX Emerald Member that submits orders or
quotes to the Exchange. Any MIAX Member transacting on the Exchange
will benefit from the risk protections proposed herein. Additionally,
any Member may elect to enable the Managed Protection Override feature
to allow the Exchange to cancel their orders when a risk protection is
triggered.
    Additionally, the Exchange does not believe that the proposed rule
change to replace the dcEBBO value with the cNBBO value in the
calculation used to determine whether a complex order is qualified to
initiate a Complex Auction will impose any burden on intra-market
competition. As all complex orders submitted to the Exchange will be
uniformly evaluated under the Exchange's rules, and the rules of the
Exchange apply equally to all Members.
Inter-Market Competition
    The Exchange does not believe the proposal will impose any burden
on inter-market competition as the proposal is intended to protect
investors by providing additional price protection functionality and
further enhancements and provide additional transparency to the
Exchange's risk protections. The Exchange's proposal may promote inter-
market competition as the Exchange's proposal adds additional price
protection features and functionality that may attract additional order
flow to the Exchange, thereby promoting inter-market competition.
    The Exchange believes its proposal to adopt to use the cNBBO in the
calculation to determine whether to initiate a Complex Auction better
reflects current market prices and may result in the initiation of
Complex Auctions which result in price improvement for the initiating
order. The Exchange believes the proposed rule change will enhance
competition among the various markets for complex order execution,
potentially resulting in more active complex order trading on all
exchanges. Additionally, the Exchange believes that this change will
result in a reduction of the overall number of Complex Auctions
initiated on the Exchange but will in turn increase the percentage of
auctions that result in price improvement, as the auction start price
will be more closely aligned to prevailing market prices.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to 19(b)(3)(A) of the Act \105\ and Rule 19b-4(f)(6) \106\
thereunder.
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    \105\ 15 U.S.C. 78s(b)(3)(A).
    \106\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-EMERALD-2022-30 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-EMERALD-2022-30. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-EMERALD-2022-30 and should be submitted
on or before December 20, 2022.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\107\
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    \107\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-25948 Filed 11-28-22; 8:45 am]
BILLING CODE 8011-01-P