[Federal Register Volume 79, Number 223 (Wednesday, November 19, 2014)]
[Notices]
[Pages 68919-68922]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-27311]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73590; File No. SR-MIAX-2014-56]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Amend 
Exchange Rule 515A

November 13, 2014.
    Pursuant to 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 October 31, 2014, Miami International Securities Exchange LLC 
(``MIAX'' 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. On November 12, 2014, the Exchange filed Amendment No. 1 to 
the proposed rule change.\3\ The Commission is publishing this notice 
to solicit comments on the proposed rule change, as modified by 
Amendment No. 1, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, MIAX deleted a sentence from purpose 
section which incorrectly described the current functionality of the 
Price Improvement Mechanism (``PIM'') offered by the International 
Securities Exchange, LLC (``ISE''). See ISE Rule 723. Because the 
sentence was immaterial to the filing, MIAX submitted Amendment No. 
1 to delete it from the filing. MIAX did not propose any other 
changes to the filing in Amendment No. 1.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend Exchange Rule 515A.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.miaxoptions.com/filter/wotitle/rule_filing, at 
MIAX'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 amend MIAX Rule 515A regarding PRIME to 
allow orders of any size to initiate a PRIME Auction on MIAX at a price 
which is at or better than the national best bid or offer (``NBBO''). 
The proposed change is based on recent filings of other competing 
exchanges.\4\
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    \4\ See Securities Exchange Act Release Nos. 70654 (October 10, 
2013), 78 FR 62891 (October 22, 2013) (SR-PHLX-2013-76); 72554 (July 
8, 2014), 79 FR 40830 (July 14, 2014) (SR-ISE-2014-35).
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    Rule 515A provides that a Member (the ``Initiating Member'') may 
initiate an Auction provided that: (i) If the Agency Order is for 50 
standard option contracts or 500 mini-option contracts or more, the 
Initiating Member must stop the entire Agency Order as principal or 
with a solicited order at the better of the NBBO or the Agency Order's 
limit price (if the order is a limit order); or (ii) if the Agency 
Order is for less than 50 standard option contracts or 500 mini-option 
contracts, the Initiating Member must stop the entire Agency Order as 
principal or with a solicited order at the better of (A) the NBBO price 
improved by a $0.01 increment; or (B) the Agency Order's limit price 
(if the order is a limit order).\5\ In addition, to initiate the 
Auction for auto-match submissions, the Initiating Member must mark the 
Agency Order for Auction processing, and for auto-match as principal 
the price and size of all Auction responses up to an optional 
designated limit price in which case the Agency Order will be stopped 
at the better of the NBBO (if 50 standard option contracts or 500 mini-
option contracts or greater), $0.01 increment better than the NBBO (if 
less than 50 standard option contracts or 500 mini-option contracts), 
or the Agency Order's limit price.\6\
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    \5\ See Exchange Rule 515A(a)(1).
    \6\ See Exchange Rule 515A(a)(2)(i)(A).
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    The Exchange proposes to discontinue the disparate treatment for 
Agency Orders less than 50 contracts or 500 mini-option contracts. As a 
result, all Agency Orders regardless of their size will be treated the 
same as Agency Orders that are 50 standard option contracts or 500 
mini-option contracts or more in current Rule 515A(a)(1)(ii). 
Similarly, for auto-match submissions, the Exchange will discontinue 
the requirement that Agency Orders for less

[[Page 68920]]

than 50 contracts or 500 mini-option contracts to be $0.01 increment or 
better than the NBBO in current Rule 515A(a)(2)(i)(A). As a result, for 
auto-match submissions, all Agency Orders regardless of their size will 
be stopped at the better of the NBBO or the Agency Order's limit price. 
The Exchange notes that the requirement will remain unchanged for both 
single price submissions and auto-match that if the MBBO on the same 
side of the market as the Agency Order represents a limit order on the 
Book the stop price must be at least $0.01 increment better than the 
booked order's limit price.\7\ The Exchange notes that orders on the 
Book on the opposite side of the market as the Agency Order that are 
priced at the MBBO when the Agency Order has a stop price equal to the 
opposite order, will be executed in the same manner as today for orders 
more than 50 contracts or 500 mini-option contracts in accordance to 
the priority rules for PRIME in Rule 515A(a)(2)(iii). The Exchange 
notes that other exchanges provide the same functionality.\8\ Priority 
rules for PRIME will remain unchanged with Priority Customers 
continuing to have priority at each price level in accordance with Rule 
515A(a)(2)(iii). After Priority Customer interest at a given price 
point has been satisfied, remaining contracts will be allocated in 
accordance with the priority rules set forth in Rule 515A(a)(2)(iii).
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    \7\ See Exchange Rule 515A(a)(2)(i)(A).
    \8\ See PHLX Rule 1080(n); ISE Rule 723.
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    The following examples show how allocations will be allocated at 
the conclusion of the Prime Auction with the proposed changes.
Example 1--Single Price Submission
NBBO = $1.15-$1.20 200 x 200
BBO = $1.15-$1.20 100 x 100
Agency Order to buy 100 contracts with a limit price of $1.20
    Initiating Member's Contra Order selling 100 contracts with a 
single stop price of $1.20
    RFR sent identifying the option, side and size, with initiating 
price of $1.20 \9\
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    \9\ The Exchange notes that under the current Rule the 
initiating price would have been $1.19.
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    (Auction Starts)
    <bullet> @110 milliseconds MM1 response received, AOC eQuote to 
Sell 5 at $1.17
    <bullet> @230 milliseconds MM4 response received, AOC eQuote to 
Sell 100 at $1.20
    <bullet> @450 milliseconds MM3 response received, AOC eQuote to 
Sell 40 at $1.22
    <bullet> 500 milliseconds (Auction Ends)
    Under this scenario the Agency Order would be executed as follows:
    1. 5 contracts trade with MM1 @$1.17
    2. 40 contracts trade with the Initiating Member's Contra Order 
@$1.20 (This satisfies their 40% participation guarantee)
    3. 55 contracts trade with MM4 @$1.20
Example 2--Single Price Submission, Less Than 50 Contracts
NBBO = $1.15-$1.20 200 x 200
BBO = $1.15-$1.20 100 x 100
Agency Order to buy 30 contracts with a limit price of $1.20
    Initiating Member's Contra Order selling 30 contracts with a single 
stop price of $1.20
    RFR sent identifying the option, side and size, with initiating 
price of $1.20 \10\
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    \10\ The Exchange notes that under the current Rule the 
initiating price would have been $1.24.
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    (Auction Starts)

    <bullet> @110 milliseconds MM1 response received, AOC eQuote to 
Sell 5 at $1.17
    <bullet> @230 milliseconds MM4 response received, AOC eQuote to 
Sell 5 at $1.18
    <bullet> @450 milliseconds MM3 response received, AOC eQuote to 
Sell 10 at $1.20
    <bullet> 500 milliseconds (Auction Ends)
    Under this scenario the Agency Order would be executed as follows:
    1. 5 contracts trade with MM1 @$1.17
    2. 5 contracts trade with MM4 @$1.18
    3. 12 contracts trade with the Initiating Member's Contra Order 
@$1.20 (This satisfies their 40% participation guarantee)
    4. 8 contracts trade with MM3 @$1.20 (This fills the entire Agency 
Order)
Example 3--Auto-Match
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Agency Order to buy 50 contracts with a limit price of $1.25
Initiating Member's Contra Order selling 50 contracts auto-match
RFR sent identifying the option, side and size, with initiating price 
of $1.25 (Auction Starts)

    <bullet> @ 150 milliseconds MM2 response received, AOC eQuote to 
Sell 5 at $1.17
    <bullet> @ 230 milliseconds MM4 response received, AOC eQuote to 
Sell 10 at $1.18
    <bullet> @ 450 milliseconds MM3 response received, AOC eQuote to 
Sell 40 at $1.20
    <bullet> 500 milliseconds (Auction Ends)
    Under this scenario the Agency Order would be executed as follows:
    1. 5 contracts trade with MM2 @ $1.17
    2. 5 contracts trade with Contra Order @ $1.17 (due to auto-match)
    3. 10 contracts trade with MM4 @ $1.18
    4. 10 contracts trade with Contra Order @ $1.18 (due to auto-match)
    5. 8 contracts trade with Contra Order @ $1.20 (due to auto-match 
of 40% of the remainder of the order participation guarantee)
    6. 12 contracts trade with MM3 @ $1.20 (This fills the entire 
Agency Order)
Example 4--Auto-Match, Agency Order Entered Without a Limit Price, Less 
Than 50 Contracts
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Agency Order to buy 50 contracts without a limit price
Initiating Member's Contra Order selling 30 contracts auto-match
RFR sent identifying the option, side and size, with initiating price 
of $1.25 (Auction Starts)

    <bullet> @ 150 milliseconds MM2 response received, AOC eQuote to 
Sell 5 at $1.17
    <bullet> @ 230 milliseconds MM4 response received, AOC eQuote to 
Sell 5 at $1.18
    <bullet> @ 450 milliseconds MM3 response received, AOC eQuote to 
Sell 30 at $1.20
    <bullet> 500 milliseconds (Auction Ends)
    Under this scenario the Agency Order would be executed as follows:
    1. 5 contracts trade with MM2 @ $1.17
    2. 5 contracts trade with Contra Order @ $1.17 (due to auto-match)
    3. 5 contracts trade with MM4 @ $1.18
    4. 5 contracts trade with Contra Order @ $1.18 (due to auto-match)
    5. 4 contracts trade with Contra Order @ $1.20 (due to auto-match 
of 40% of the remainder of the order participation guarantee)
    6. 6 contracts trade with MM3 @ $1.20 (This fills the entire Agency 
Order)
    While the removal of the requirement that Agency Orders for less 
than 50 contracts or 500 mini-option contracts to be $0.01 increment or 
better than the NBBO, removes the guarantee of price improvement in a 
limited instance, specifically when a PRIME Order is for fewer than 50 
contracts and MIAX is already present at the NBBO at the commencement 
of the Auction, the Exchange believes that the proposed rule change 
will benefit customers because it will encourage the entry of more 
orders into PRIME, thus it is more likely that such orders may receive 
price improvement. Similar price improvement mechanisms on the ISE, 
BOX, and PHLX do not guarantee price improvement over the NBBO today. 
The BOX PIP mechanism and PHLX PIXL allow orders of any size to be 
stopped at the NBBO or better which also does not guarantee price 
improvement.\11\ As

[[Page 68921]]

noted above, the requirement will remain unchanged for both single 
price submissions and auto-match that if the MBBO on the same side of 
the market as the Agency Order represents a limit order on the Book the 
stop price must be at least $0.01 increment better than the booked 
order's limit price.\12\
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    \11\ See Securities Exchange Act Release No. 70654 (October 10, 
2013), 78 FR 62891 (October 22, 2013) (SR-PHLX-2013-76).
    \12\ See Exchange Rule 515A(a)(2)(1)(A)[sic]. See also PHLX Rule 
1080(n).
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    The Exchange believes using the same exact allocation method, as it 
does today for Agency Orders of 50 contracts or 500 mini-options or 
greater, is a fair distribution because the Contra-side Order provides 
significant value to the market. The Initiating Member guarantees the 
Agency Order the opportunity for price improvement, and is subject to 
market risk while the order is exposed to other market participants. 
The Initiating Member may not change or cancel its order once the PRIME 
Auction commences. Other market participants are free to modify or 
cancel their quotes and orders at any time during the auction. The 
Exchange believes that the Initiating Member provides an important role 
in facilitating the price improvement opportunity for market 
participants.
    The Exchange believes the proposed rule change will attract new 
order flow that might not currently be afforded any price improvement 
opportunity. Moreover, the Exchange notes that other competing options 
exchanges currently have rules that allow it [sic] to commence its 
[sic] price improvement auction, at a price equal to the NBBO.\13\
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    \13\ See BOX Rules Chapter V, Section 18(e); PHLX Rule 1080(n); 
ISE Rule 723.
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    The Exchange believes that because there is no rational need for 
volume differentiation, and as there is a competitive disadvantage to 
the Exchange in continuing differentiation, it is appropriate to 
discontinue the requirement that Agency Orders for less than 50 
contracts or 500 mini-option contracts to be $0.01 increment or better 
than the NBBO and thereby simplify the way PRIME operates.
    The Exchange proposes to adopt the proposed changes to the size 
requirements subject to a Pilot Program ending July 18, 2015, pursuant 
to which the Exchange will periodically submit reports based on the 
comprehensive list of the data that the Exchange represented that it 
will collect in order to aid the Commission in its evaluation of the 
PRIME that incorporates the changes proposed.\14\
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    \14\ See Proposed Rule 515A, Interpretations and Policies .08. A 
comprehensive list of the data that the Exchange represented that it 
will collect is available in Exhibit 3 of SR-MIAX-2014-23. See also 
Securities Exchange Act Release Nos. 72009 (April 23, 2014), 79 FR 
24032 (April 29, 2014) (SR-MIAX-2014-20); 72418 (June 18, 2014), 79 
FR 35833 (June 24, 2014) (SR-MIAX-2014-23).
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2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) \15\ of the Act in general, and furthers the 
objectives of Section 6(b)(5) \16\ of the Act 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 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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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes the proposal will result in 
more orders of less than 50 contracts being executed in PRIME, thus 
providing an increased probability of price improvement for small 
orders. By removing the requirement as proposed, market participants 
would be incentivized to introduce more customer orders to PRIME for 
the opportunity to receive price improvement. Furthermore, Priority 
Customers will continue to have priority at each price level in 
accordance with Rule 515A(a)(2)(iii). In particular, the Exchange 
believes that using the same allocation process as is used today for 
Agency Orders of 50 contracts or greater, is fair and equitable because 
of the value the Initiating Member brings to the market place. 
Specifically, by stopping the Agency Order at or better than the NBBO, 
the Initiating Member facilitates a process that protects investors and 
is in the public interest by providing an opportunity for price 
improvement. The Exchange believes the proposed rule change is 
appropriate in the price improvement auctions are widely recognized by 
market participants as invaluable, both as a tool to access liquidity, 
and a mechanism to help meet their best execution obligations. The 
proposed rule change will further the ability of market participants to 
carry out these strategies. Finally, as noted above, the proposed 
changes are a competitive response to how price improvement auctions on 
other exchanges currently operate and with this proposal, the Exchange 
will be on a more equal footing to compete with other exchanges for 
orders to be executed in the PRIME.

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 not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange's proposal to 
amend its rules regarding the start price of a PRIME Auction will not 
impose a burden on competition because it will increase the number of 
orders that may be executed in the PRIME and thereby receive price 
improvement opportunities that were not previously available to them. 
The PRIME Auction is designed to increase competition for order flow on 
the Exchange in a manner intended to be beneficial to investors seeking 
to effect option orders with an opportunity to access additional 
liquidity and receive price improvement. The Exchange notes that it 
operates in a highly competitive market in which market participants 
can readily direct order flow to competing venues who offer similar 
functionality. The Exchange believes that the proposed changes to the 
Auctions are pro-competitive by providing market participants with 
functionality that is similar to that of other options exchanges.

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 \17\ and Rule 19b-4(f)(6) \18\ 
thereunder.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 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

[[Page 68922]]

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, as modified by Amendment No. 1, is consistent with the Act. 
Comments may be submitted by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#7301061f165e101c1e1e161d0700330016105d141c05"><span class="__cf_email__" data-cfemail="acded9c0c981cfc3c1c1c9c2d8dfecdfc9cf82cbc3da">[email protected]</span></a>. Please include 
File Number SR-MIAX-2014-56 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MIAX-2014-56. 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 Web site (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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-MIAX-2014-56 and should be 
submitted on or before December 10, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-27311 Filed 11-18-14; 8:45 am]
BILLING CODE 8011-01-P


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