Self-Regulatory Organizations; MIAX Emerald, LLC; Order Approving a Proposed Rule Change To Amend Exchange Rule 515A Concerning the PRIME Price Improvement and Solicitation Mechanisms and Rules 516 and 517 Regarding Post-Only Orders and Post-Only Quotes
| Published date | 28 June 2019 |
| Record Number | 2019-13763 |
| Section | Notices |
| Court | Securities And Exchange Commission |
Federal Register, Volume 84 Issue 125 (Friday, June 28, 2019)
[Federal Register Volume 84, Number 125 (Friday, June 28, 2019)]
[Notices]
[Pages 31127-31128]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-13763]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86183; File No. SR-EMERALD-2019-19]
Self-Regulatory Organizations; MIAX Emerald, LLC; Order Approving
a Proposed Rule Change To Amend Exchange Rule 515A Concerning the PRIME
Price Improvement and Solicitation Mechanisms and Rules 516 and 517
Regarding Post-Only Orders and Post-Only Quotes
June 24, 2019.
I. Introduction
On April 29, 2019, MIAX Emerald, LLC (``MIAX Emerald'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposal to address Post-Only trading interest in the context of the
MIAX Emerald Price Improvement Mechanism (``PRIME'' or ``PRIME
Auction''). The proposed rule change was published for comment in the
Federal Register on May 10, 2019.\3\ The Commission did not receive any
comment letters on 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. 85783 (May 6, 2019),
84 FR 20665 (May 10, 2019) (``Notice'').
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II. Description of the Proposed Rule Change
PRIME is a process by which an Exchange member may submit for
execution an order it represents as agent (``Agency Order'') against
principal interest or solicited interest.\4\ Currently, resting Post-
Only Orders \5\ and Post-Only Quotes \6\ (collectively referred to as
``Post-Only OQs'') may not participate in a PRIME Auction and are
rejected if received during a PRIME Auction.\7\ Additionally, if
trading interest on the MIAX Emerald Book (``Book'') \8\ is subject to
the Managed Interest Process,\9\ or there is a Post-Only OQ on the Book
on the same side of the market as the Agency Order, the Agency Order
will be rejected by the System \10\ and a PRIME Auction will not
commence.\11\
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\4\ See Exchange Rule 515A(a).
\5\ ``Post-Only Orders'' are orders that, by their terms, will
not remove liquidity. See Exchange Rule 516(m).
\6\ ``Post-Only Quotes'' are quotes that, by their terms, will
not remove liquidity. See Exchange Rule 517(a)(1)(i).
\7\ See Exchange Rule 515A(a)(1)(iv).
\8\ The term ``Book'' means the electronic book of buy and sell
orders and quotes maintained by the Exchange's system. See Exchange
Rule 100.
\9\ See Exchange Rule 515(c)(1)(ii).
\10\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\11\ See Exchange Rule 515A(a).07. The Exchange proposes to
delete current Interpretation and Policy .07 and adopt new
Interpretation and Policy .08 to Rule 515A, to state that if trading
interest exists on the MIAX Emerald Book that is subject to the
Managed Interest Process pursuant to Rule 515(c) or the Post-Only
price process (``POP Process'') pursuant to Rule 515(i) for the
option on the same side of the market as the Agency Order, then the
Agency Order will be rejected by the System prior to initiating a
PRIME Auction or Solicitation Auction. The proposed new
Interpretation and Policy .08 makes no substantive changes but
simply clarifies that a Post-Only OQ may be handled under the
Managed Interest Process or the POP Process.
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A. Post-Only OQs Resting on the Same Side as the Agency Order
With respect to the initiation of a PRIME Auction, the Exchange
proposes that for both single price submissions and auto-match, if the
EBBO \12\ on the same side of the market as the Agency Order represents
a limit order on the Book or a Post-Only Quote subject to the POP
Process,\13\ the Agency Order must be stopped at a price that is at
least $0.01 increment better than the Book price.\14\
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\12\ The term ``EBBO'' means the best bid or offer on the
Exchange. See Exchange Rule 100.
\13\ See Exchange Rule 515(i)(3).
\14\ See Exchange Rule 515A(a)(2)(i)(A).
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B. Post-Only OQs Received During the PRIME Auction
As described in more detail in the Notice,\15\ the Exchange
proposes to no longer reject Post-Only OQs that it receives when the
System is conducting a PRIME Auction. Instead, the System will accept
Post-Only OQs received during a PRIME Auction and will treat them in
the same manner as other unrelated interest received during a PRIME
Auction.\16\ Accordingly, Post-Only OQs now will participate in a PRIME
Auction and be eligible to execute against the Agency Order.\17\
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\15\ See Notice, supra note 3.
\16\ Post-Only Orders and Post-Only Quotes, by their terms, do
not remove liquidity. Under the proposal, a PRIME Auction may
conclude earlier than the end of the Request for Responses (``RFR'')
period upon receipt by the System of an unrelated order, including a
Post-Only Order that is received: (i) On the opposite side of the
market from the RFR responses, that is marketable against either the
NBBO, the initiating price, or the RFR responses; or (ii) on the
same side of the market as the RFR responses, that is marketable
against the NBBO. See Exchange Rule 515A(a)(2)(ii)(B) and (C). A
PRIME Auction also may conclude early if the System receives an
unrelated limit order, including a Post-Only Order, on the opposite
side of the market from the Agency Order that improves any RFR
response. See Exchange Rule 515A(a)(2)(ii)(D). Additionally, a PRIME
Auction would conclude for any of the other reasons provided for in
Rule 515A. See Exchange Rule 515A(a)(2)(ii). If the same-side Post-
Only interest remains on the Book at the conclusion of a PRIME
Auction, it will be subject to the POP Process. See Notice, supra
note 3, at 20667.
\17\ To implement this change, the Exchange proposes to amend
Exchange Rules 515A(a)(1)(iv) (PRIME), 516(m) (Order Types Defined)
and 517(a)(1)(i) (Quote Types Defined) to delete sentences from the
rule text stating that Post-Only Quotes may not participate in a
PRIME Auction and are rejected if received during a PRIME Auction.
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C. Automatic Execution of Agency Order Against Opposite Side Post-Only
Interest on the Book
Next, the Exchange proposes, before commencing a PRIME Auction, to
have trading interest on the opposite side of the market as the Agency
Order that is subject to the POP Process automatically execute against
the Agency Order if the execution would be at a price $0.01 inside the
EBBO.\18\ For an Agency Order to buy, the execution price would need to
be $0.01 higher than the EBB, and for an Agency Order to sell, the
execution price would need to be $0.01 lower than the EBO. If the
Agency Order was not fully executed after the trading interest subject
to the POP Process is fully exhausted, then a PRIME Auction would be
initiated for the balance of the Agency Order. Further, with respect to
any portion of an Agency Order that is automatically executed against
interest subject to the POP Process, the exposure requirements
contained in Exchange
[[Page 31128]]
Rule 520(b) \19\ and (c) \20\ would not be satisfied just because the
member utilized the PRIME.\21\ A similar provision currently exists for
interest in the Book that is subject to the Managed Interest Process
pursuant to Exchange Rule 515(c), and the proposed rule change extends
this functionality to interest that is subject to the POP Process.
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\18\ See Exchange Rule 515A Interpretation and Policy .07.
\19\ Exchange Rule 520(b) provides that members may not execute
as principal orders they represent as agent unless (i) agency orders
are first exposed on the Exchange for at least one second, (ii) the
member has been bidding or offering on the Exchange for at least one
second prior to receiving an agency order that is executable against
such bid or offer, or (iii) the member utilizes the PRIME.
\20\ Exchange Rule 520(c) provides that members may not execute
orders they represent as agent on the Exchange against order
solicited from members and non-member broker-dealers to transact
with such orders unless the unsolicited Order is first exposed on
the Exchange for at least one second, or the member utilizes the
PRIME or PRIME Solicitation Mechanism.
\21\ See Notice, supra note 3, at 20666 (for examples
illustrating how Post-Only interest resting on the Book is handled).
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D. cPRIME Auction
Currently, a cPRIME Agency Order will be rejected at the time of
receipt if any component of the strategy involves an option that is
subject to the Managed Interest Process described in Rule
515(c)(1)(ii).\22\ The Exchange now proposes to also reject a cPRIME
Agency Order at the time of receipt if any component of the strategy
involves an option that is subject to Exchange Rule 515(d) (which
describes the management process for Market Maker order and quotes) or
the POP Process.
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\22\ See Exchange Rule 515A Interpretation and Policy
.12(b)(iii).
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act,\23\ and the
rules and regulations thereunder applicable to a national securities
exchange.\24\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\25\ which
requires, among other things, that the rules of a national securities
exchange be designed to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest and that the
rules are not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\23\ 15 U.S.C. 78f.
\24\ 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).
\25\ 15 U.S.C. 78f(b)(5).
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Regarding PRIME Auction eligibility and the stop price when
considering existing interest resting on the Book, the proposal
provides that Post-Only Quotes will now also be considered (in addition
to considering resting limit orders) in determining the Auction's
Agency Order stop price, which must be at least $0.01 better than the
Book price if the EBBO represents a limit order on the Book or a Post-
Only Quote subject to the POP Process on the same side as the Agency
Order. The Commission finds that, as revised, these PRIME eligibility
requirements are consistent with the Act in that they protect the
priority of resting limit orders on the Book when members seek to
initiate a PRIME Auction and thus they are consistent with the
protection of investors and the public interest.
The Commission finds that the proposal to permit participation in a
PRIME Auction by incoming Post-Only OQs received during a PRIME Auction
may increase the potential liquidity available to trade with an Agency
Order during a PRIME Auction and thus provide additional opportunities
for price improvement to the Agency Order, thereby removing impediments
to and perfecting the mechanism of a free and open market in a manner
consistent with the protection of investors. The Commission notes that
the participation of Post-Only interest in the PRIME Auction is
limited. Specifically, Post-Only OQs may participate in a PRIME Auction
if they are received during the RFR period, though they may not be
submitted as responses to an RFR.\26\ Further, Post-Only OQ may not
participate in PRIME as an Agency Order, principal interest, or
solicited interest.\27\ The proposal to permit resting trading interest
on the Book subject to the POP Process on the opposite side as the
Agency Order to execute automatically against the Agency Order (before
the System initiates a PRIME Auction) at a price $0.01 inside the EBBO
is designed to accommodate within the PRIME process the presence of a
preexisting, resting Post-Only OQ on the opposite side of the Agency
Order, while allowing members to submit customer interest to the PRIME
mechanism for potential price improvement.\28\ As such, this provision
is designed to provide a further opportunity for a liquidity-taking
Agency Order to receive both a timely execution and meaningful price
improvement. As such, it is designed in a manner that is consistent
with the protection of investors.
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\26\ See Exchange Rule 515A(a)(2)(i)(D) (stating RFR responses
shall be an Auction-or-Cancel (``AOC'') order or an AOC eQuote).
\27\ See Exchange Rule 515A(a)(1)(iv).
\28\ See also supra notes 19 and 20 (concerning the
applicability of exposure requirements).
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Finally, the Commission finds that the proposal to reject a cPRIME
Agency Order, and thus not commence a PRIME Auction, if any component
of the complex order on the Book is subject to the POP Process is
substantially similar to the current rule that provides that a cPRIME
Agency Order will be rejected at the time of receipt if any component
is subject to the Managed Interest Process. The Exchange intends for
this provision to protect the integrity of the Book. The Commission
finds that extending this protection to include interest subject to the
POP Process is designed to support efficient trading in both the simple
market and the complex market and remove impediments to and perfect the
mechanism of a free and open market.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\29\ that the proposed rule change (SR-EMERALD-2019-19) be, and
hereby is, approved.
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\29\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 2019-13763 Filed 6-27-19; 8:45 am]
BILLING CODE 8011-01-P
