MIAX Emerald: Pro-Rata Options Exchange

Key Takeaways

• MIAX Emerald is a U.S. options exchange that launched in March 2019.
• It allocates fills pro-rata, splitting them by each participant's quoted size.
• It uses a maker-taker fee model, paying to add and charging to remove liquidity.
• Its PRIME auction lets agency orders seek a price better than the displayed quote.

What It Is

MIAX Emerald is a registered options exchange operated by the MIAX exchange group, which runs several U.S. options markets. Emerald launched in March 2019 to add capacity and choice alongside its sister venues. It trades listed equity and index options electronically.

Its core design uses pro-rata allocation. When several orders rest at the best price, an incoming order is split among them in proportion to their displayed size rather than handed entirely to whoever was first. This rewards participants who quote larger size at the best price.

The Intuition

A pure time-priority market hands the fill to whoever posts first at a price, which favors the fastest systems. A pro-rata market takes a different view. It shares the fill by size, so a participant who is willing to quote 500 contracts at the best price earns a larger slice than one quoting 100.

The goal is to encourage deep, sizeable quotes. If quoting more size means earning a bigger share of incoming orders, liquidity providers have a reason to show real depth rather than minimal quotes. Pro-rata markets are common in options precisely because depth at each strike matters to traders building positions.

How MIAX Emerald Works

When an order arrives at MIAX Emerald, the best price trades first. Among orders resting at that best price, the fill is divided pro-rata by displayed size. Many pro-rata markets also grant a priority allocation to public customer orders before the pro-rata split begins.

1. Best price trades first
2. Public customer orders may receive priority
3. Remaining size split pro-rata by each provider's quote

MIAX Emerald uses a maker-taker fee model. A participant who posts resting interest is the maker and earns a per-contract rebate when it fills, while a participant who removes liquidity is the taker and pays a fee. The exchange also runs PRIME, its Price Improvement Mechanism. A member can submit a customer agency order into a PRIME auction, broadcast it to other members, and let them respond with prices at or better than the national best bid and offer. If a responder improves the price, the customer fills better than the displayed quote.

Worked Example

Suppose a call option shows a best offer of 2.00, where two market makers are quoting. Maker A displays 300 contracts and Maker B displays 100 contracts, for 400 total at 2.00. A buyer arrives wanting 200 contracts.

Under pro-rata, the 200 contracts split by displayed size. Maker A holds 300 of the 400 total, or 75 percent, so A fills about 150 contracts. Maker B holds 25 percent, so B fills about 50 contracts. Size, not speed, drove the split.

Now suppose the buyer's broker instead routes the order through a PRIME auction. Other members respond, and one offers 1.98, better than the 2.00 displayed market. The customer fills at 1.98, capturing two cents of price improvement per contract that the displayed quote did not offer.

Common Mistakes

1. Expecting first-in-first-out. MIAX Emerald is pro-rata, not pure time priority. At the best price, fills are split by displayed size, so being fastest does not capture the whole order.

2. Quoting tiny size on a pro-rata venue. Pro-rata rewards depth. A small quote earns only a small share of incoming orders, so minimal quotes get minimal fills.

3. Skipping the PRIME auction. PRIME can deliver a price better than the displayed quote. Routing a marketable order without considering price improvement can mean leaving money on the table.

4. Confusing MIAX Emerald with a price-time venue. Markets like Cboe BZX Options fill the earliest order at a price first. MIAX Emerald shares the fill by size instead. The allocation logic is different.

5. Treating allocation as price. Pro-rata decides who fills at the best price, not what that price is. The national best bid and offer still governs the price you can trade at.

Frequently Asked Questions

What is MIAX Emerald in simple terms? MIAX Emerald is a U.S. options exchange that splits fills at the best price by each participant's quoted size rather than by who was fastest. It also runs an auction called PRIME that can improve a customer's price.

How does MIAX Emerald affect investment decisions? For options traders, the pro-rata model rewards quoting large size, and the PRIME auction can beat the displayed quote. Brokers may route customer options orders here to seek price improvement.

What is a real-world example of MIAX Emerald in action? When two market makers quote different sizes at the best price, an incoming order is divided in proportion to those sizes, so the maker showing more contracts receives a larger share of the fill.

How can investors use MIAX Emerald effectively? Public customers can benefit from priority where it applies, and orders routed through the PRIME auction may fill at a better price than the displayed quote, so ask your broker how it handles options price improvement.

How is MIAX Emerald different from Cboe BZX Options? MIAX Emerald uses pro-rata allocation, splitting fills by quoted size at the best price. Cboe BZX Options uses pure price-time priority, filling the earliest order at a price first regardless of size.

Sources

1. MIAX. "Emerald Options Exchange Functionality." https://www.miaxglobal.com/markets/us-options/emerald-options/exchange-functionality
2. MIAX. "MIAX Emerald Options Fact Sheet." https://www.miaxglobal.com/sites/default/files/website_file-files/MIAX_Emerald_Fact_Sheet_03272019.pdf
3. Federal Register. "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." https://www.federalregister.gov/documents/2019/06/28/2019-13763/self-regulatory-organizations-miax-emerald-llc-order-approving-a-proposed-rule-change-to-amend
4. MIAX. "U.S. Options." https://www.miaxglobal.com/company/markets/us-options

Disclaimer

This article is educational content only and is not financial advice. Nothing here is a recommendation to buy, sell, or hold any security. Consult a licensed advisor before making investment decisions.