Document ID: SEC-2014-0017-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Miami International Securities Exchange, LLC
Posted Date: 2014-01-06T05:00Z

[Federal Register Volume 79, Number 3 (Monday, January 6, 2014)]
[Notices]
[Pages 683-686]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-31519]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71202; File No. SR-MIAX-2013-61]

Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Expand the Short Term Option Series Program

December 30, 2013.
    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 December 23, 2013, 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 and II 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 is filing a proposal to amend Rule 404 (Series of 
Options Open for Trading) to expand the Short Term Option Series 
Program (``STOS Program'').\3\
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    \3\ STOS, also known as ``weekly options'' as well as ``Short 
Term Options'', are series in an options class that are approved for 
listing and trading on the Exchange in which the series are opened 
for trading on any Thursday or Friday that is a business day and 
that expire on the Friday of the next business week. If a Thursday 
or Friday is not a business day, the series may be opened (or shall 
expire) on the first business day immediately prior to that Thursday 
or Friday, respectively. For STOS Program Rules see Rule 404 and 
404.02.
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    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 is proposing to amend Interpretation and Policy .02 to 
Rule 404 consistent with a recently approved filing by NASDAQ OMX PHLX, 
LLC (``PHLX'').\4\ In particular, the Exchange proposes to expand the 
STOS Program so that the Exchange may: Change the current thirty option 
class limitation to fifty option classes on which STOS may be opened; 
match the parameters for opening initial and additional STOS strikes to 
what is permissible per the Options Listing Procedures Plan (``OLPP''); 
\5\ open up to thirty initial

[[Page 684]]

series for each expiration date in an STOS class; add a STOS strike 
price interval of $2.50 or greater where the strike price is above 
$150; and in general harmonize the different parts of the STOS Program 
(e.g., initial listings and additional series).
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    \4\ See Securities Exchange Act Release No. 71004 (December 6, 
2013), 78 FR 75437 (December 11, 2013) (SR-PHLX-2013-101).
    \5\ The full name of the OLPP (which is applicable to all option 
exchanges) is Plan For The Purpose of Developing and Implementing 
Procedures Designed to Facilitate the Listing and Trading of 
Standardized Options Submitted Pursuant to Section 11A(a)(3)(B) of 
the Securities Exchange Act of 1934. With regard to the listing of 
new series on equity, ETF, or trust issued receipt (``TIRs'') option 
classes, subsection 3.(g)(i) of the OLPP states, in relevant part, 
that the exercise price of each option series listed by an exchange 
that chooses to list a series of options (known as the Series 
Selecting Exchange) shall be fixed at a price per share which is 
reasonably close to the price of the underlying equity security, 
ETF, or TIR at or about the time the Series Selecting Exchange 
determines to list such series. Except as provided in subparagraphs 
(ii) through (iv) of the OLPP, if the price of the underlying 
security is less than or equal to $20, the Series Selecting Exchange 
shall not list new option series with an exercise price more than 
100% above or below the price of the underlying security. If the 
price of the underlying security is greater than $20, the Series 
Selecting Exchange shall not list new option series with an exercise 
price more than 50% above or below the price of the underlying 
security. Subsection 3.(g)(i) of the OLPP indicates that an option 
series price has to be reasonably close to the price of the 
underlying security and must not exceed a maximum of 50% or 100%, 
depending on the price, from the underlying. The Exchange's 
proposal, while conforming to the current structure of the 
Exchange's STOS Rules, is similar in practical effect to the noted 
OLPP subsection.
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    The STOS Program is codified in Interpretation and Policy .02 to 
Rule 404. These rules currently provide that after an option class has 
been approved for listing and trading on the Exchange, the Exchange may 
open for trading on any Thursday or Friday that is a business day 
series of options on no more than thirty option classes that expire on 
each of the next five consecutive Fridays that are business days. In 
addition to the thirty-option class limitation, there is also a 
limitation that no more than twenty initial series for each expiration 
date in those classes may be opened for trading; provided, however, 
that the Exchange may open up to 10 additional series when the Exchange 
deems it necessary to maintain an orderly market, to meet customer 
demand or when the market price of the underlying security moves 
substantially from the exercise price or prices of the series already 
opened.\6\
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    \6\ See Exchange Rule 404.02(c) and (d).
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    Furthermore, the strike price of each STOS has to be fixed with 
approximately the same number of strike prices being opened above and 
below the value of the underlying security at about the time that the 
STOS are initially opened for trading on the Exchange, and with strike 
prices being within thirty percent (30%) above or below the closing 
price of the underlying security from the preceding day. In terms of 
the strike price intervals, the STOS Program currently allows the 
interval between strike prices on STOS to be (i) $0.50 or greater where 
the strike price is less than $75, and $1 or greater where the strike 
price is between $75 and $150 for all classes that participate in the 
STOS Program; or (ii) $0.50 for option classes that trade in one dollar 
increments, i.e., in the Related non-STOS,\7\ and are in the STOS 
Program. This proposal retains many of the fundamental limitations of 
the STOS Program while proposing specific changes as described below.
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    \7\ Related non-STOS are non-STOS that have similar options with 
longer expiration cycles (e.g., monthly Apple (AAPL) options would 
be Related non-STOS to weekly AAPL options).
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The Proposal
    First, the Exchange proposes to increase the number of STOS classes 
that may be opened after an option class has been approved for listing 
and trading on the Exchange. Specifically, the Exchange proposes in 
Interpretation and Policy .02(a) to Rule 404 that the Exchange may 
select up to fifty currently listed option classes on which STOS may be 
opened. The Exchange also proposes in Interpretation and Policy .02(c) 
to Rule 404 that for each option class eligible for participation in 
the STOS Program, the Exchange may open up to thirty initial series for 
each expiration date in that STOS class. Currently MIAX rules permit 
the Exchange to list up to twenty initial series, and up to ten 
additional series, for each option class that participates in the STOS 
program.\8\ While the MIAX may currently list thirty STOS series total, 
the Exchange is proposing to increase the number of initial series that 
it may list in order to remain competitive with other exchanges. The 
Exchange will continue to be limited to a total of thirty STOS, 
including both initial and additional series, and is proposing 
amendments to Interpretation and Policy .02(d) to Rule 404 to reflect 
the fact that the Exchange may only open additional series if it has 
opened fewer than thirty initial series. The Exchange believes that 
this proposed moderate increase in the number of STOS classes and 
initial STOS series is needed and advisable in light of the 
demonstrated acceptance and popularity of the STOS Program among market 
participants, as discussed below.
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    \8\ See Interpretation and Policy .02(c) and (d) to Rule 404.
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    Second, the Exchange proposes changes to Interpretation and Policy 
.02(c) and (d) to Rule 404 to indicate that any initial or additional 
strike prices listed by the Exchange shall be reasonably close to the 
price of the underlying equity security and within the following 
parameters: (i) If the price of the underlying security is less than or 
equal to $20, strike prices shall be not more than one hundred percent 
(100%) above or below the price of the underlying security; and (ii) if 
the price of the underlying security is greater than $20, strike prices 
shall be not more than fifty percent (50%) above or below the price of 
the underlying security.\9\ This proposal is in line with the process 
for adding new series of options found in subsection 3.(g)(i) of the 
OLPP, and harmonizes the STOS Program internally by adopting consistent 
parameters for opening STOS and listing additional strike prices. The 
Exchange believes that this proposal is a reasonable and desirable 
enhancement to the STOS Program.
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    \9\ The price of the underlying security will be calculated 
commensurate with Rule 404A(b)(1) as amended.
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    Third, the Exchange proposes additional changes to Interpretation 
and Policy .02(d) to indicate that if the Exchange has opened less than 
thirty series for an STOS expiration date, the Exchange may also open 
additional strike prices of STOS that are more than 50% above or below 
the current price of the underlying security if the price is greater 
than $20, provided that demonstrated customer interest exists for such 
series,\10\ as expressed by institutional, corporate or individual 
customers or their brokers. This is done to further conform the 
additional strike price methodology to the proposed listing parameters 
described above, while retaining demonstrated interest language that 
may be useful in unforeseen circumstances. Furthermore, Rule 404A(b)(1) 
currently states that if the price of the underlying security is 
greater than $20, the Exchange shall not list new option series with an 
exercise price more than 50% above or below the price of the underlying 
security. Immediately before this language, the Exchange proposes to 
also add a carve-out that states: ``Except as provided in 
Interpretation and Policy .02(d) to Rule 404* * *''
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    \10\ Market Makers trading for their own account are not 
considered when determining customer interest.
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    Fourth, the Exchange proposes to simplify the delisting language in 
Interpretation and Policy .02(d) to Rule 404, by removing the current 
range methodology that states, in part, that the Exchange will delist 
certain series ``so as to list series that are at least 10% but not 
more than 30% above or below the current price of the underlying 
security.'' \11\ In the event that the underlying security has moved 
such that there are no series that are at least 10% above or below the 
current price of the underlying security, the Exchange will continue to 
delist any series with no open interest in both the call and the

[[Page 685]]

put series having a: (i) Strike higher than the highest price with open 
interest in the put and/or call series for a given expiration week; and 
(ii) strike lower than the lowest strike price with open interest in 
the put and/or the call series for a given expiration week.\12\
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    \11\ Currently, the delisting language states: ``In the event 
that the underlying security has moved such that there are no series 
that are at least 10% above or below the current price of the 
underlying security, the Exchange will delist any series with no 
open interest in both the call and the put series having a: (i) 
Strike higher than the highest strike price with open interest in 
the put and/or call series for a given expiration month; and (ii) 
strike lower than the lowest strike price with open interest in the 
put and/or the call series for a given expiration month, so as to 
list series that are at least 10% but not more than 30% above or 
below the current price of the underlying security. In the event 
that the underlying security has moved such that there are no series 
that are at least 10% above or below the current price of the 
underlying security and all existing series have open interest, the 
Exchange may list additional series, in excess of the 30 allowed 
under Interpretations and Policies .02(a), that are between 10% and 
30% above or below the price of the underlying security.'' 
Interpretation and Policy .02(d) to Rule 404.
    \12\ The Exchange notes that the delisting language in 
Interpretation and Policy .02(d) to Rule 404 incorrectly refers to 
expiration months rather than weeks. With this filing the Exchange 
also proposes to clarify that the exchange will delist series for 
given expiration weeks in accordance with the criteria discussed in 
this rule.
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    Fifth, the Exchange proposes to add $2.50 strike price intervals to 
the STOS Program. Specifically, the Exchange proposes in Interpretation 
and Policy .02(e) to Rule 404 to indicate that the interval between 
strike prices on STOS may be $2.50 or greater where the strike price is 
above $150. This proposed change complements the current STOS strike 
price intervals of $0.50 or greater where the strike price is less than 
$75 (or for STOS classes that trade in one dollar increments in the 
Related non-STOS), and $1 or greater where the strike price is between 
$75 and $150. The proposed $2.50 strike price interval addresses the 
issue that above a $150 strike price STO strike price intervals must 
generally be an exceedingly wide $5 or greater.\13\
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    \13\ See, e.g., Exchange Rule 404(d).
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    The principal reason for the proposed expansion is market demand 
for additional STOS classes and series and a desire to make the STOS 
Program more effective. There is continuing strong customer demand for 
having the ability to execute hedging and trading strategies via STOS, 
particularly in the current fast and volatile multi-faceted trading and 
investing environment that extends across numerous markets and 
platforms,\14\ and includes market moving events such as significant 
market volatility, corporate events, or large market, sector, or 
individual issue price swings. The options industry has been requested 
by traders and other market participants to expand the STOS Program to 
allow additional STOS offerings and increased efficiency.\15\
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    \14\ These include, without limitation, options, equities, 
futures, derivatives, indexes, ETFs, exchange traded notes, 
currencies, and over the counter instruments.
    \15\ See Securities Exchange Act Release No. 71004 (December 6, 
2013), 78 FR 75437 (December 11, 2013) (SR-PHLX-2013-101).
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    In order that the Exchange not exceed the current thirty option 
class and twenty initial option series restriction, the Exchange has on 
occasion had to turn away STOS customers (traders and investors) 
because it could not list, or had to delist, STOS or could not open 
adequate STOS because of restrictions in the STOS Program. This has 
negatively impacted investors and traders, particularly retail 
investors, who have continued to request that the Exchange add, or not 
remove, STOS classes, or have requested that the Exchange expand the 
STOS Program so that additional STOS classes and series could be opened 
that would allow the market participants to execute trading and hedging 
strategies. There are, as discussed, substantial benefits to market 
participants having the ability to trade eligible option classes within 
the STOS Program. Furthermore, the Exchange supports the objective of 
responding to customer need to enhance successful programs to make them 
more efficient for hedging and trading purposes. The Exchange notes 
that the STOS Program has been well-received by market participants, in 
particular by retail investors. The Exchange believes that weekly 
expiration options will continue to grow in importance for all market 
participants, including institutional and retail investors.\16\ The 
proposed revisions to the STOS Program will permit the Exchange to meet 
customer demand for weekly expiration options by providing a reasonable 
expansion to the program, and will further allow the Exchange to 
harmonize STOS Program Rules with the OLPP as well as internally.
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    \16\ The current STOS Program, which is similar across all 
options markets that have weeklies programs, is in its current 
formulation one of the more challenging industrywide listings 
program to administer. Recognizing the importance of the Program, 
the Exchange is seeking to improve the Program for non-index STOS by 
making it more uniform and logical.
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    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it and the 
Options Price Reporting Authority (``OPRA'') have the necessary systems 
capacity to handle any potential additional traffic associated with 
this current amendment to the STOS Program. The Exchange believes that 
its members will not have a capacity issue as a result of this 
proposal. The Exchange represents that it will monitor the trading 
volume associated with the additional STOS classes and series listed as 
a result of this proposal and the effect (if any) of these additional 
STOS classes and series on market fragmentation and on the capacity of 
the Exchange's automated systems.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) \17\ of the Act in general, and furthers the 
objectives of Section 6(b)(5) \18\ 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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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes that expanding the classes and 
additional series that can be opened in the STOS Program, simplifying 
the delisting process, and allowing $2.50 strike price intervals will 
result in a continuing benefit to investors by giving them more 
flexibility to closely tailor their investment and hedging decisions in 
greater number of securities. In addition, correcting the delisting 
language, which currently refers to ``expiration months'' instead of 
weeks will clarify the Exchange's Rules and reduce investor confusion.
    The STOS Program has been well-received by market participants, and 
in particular by retail investors, and has seen increasing trading 
volume. The Exchange believes that the current proposed revisions to 
the STOS Program will permit the Exchange to meet customer demand for 
weekly expiration options by providing a reasonable expansion to the 
program, and will further allow the Exchange to harmonize STOS Program 
rules with the OLPP as well as internally to the benefit of investors, 
market participants, and the marketplace.
    With regard to the impact of this proposal on system capacity, the 
Exchange believes that it and OPRA have the necessary systems capacity 
to handle any potential additional traffic associated with this current 
amendment to the STOS Program. The Exchange believes that its members 
will not have a capacity issue as a result of this proposal. As 
explained above, this proposal will afford significant benefits to 
market participants, and the market in general, in terms of 
significantly greater flexibility and increases in efficient trading 
and hedging options. It will also allow the Exchange to compete on 
equal footing with STOS Programs adopted by other options exchanges, 
and in particular PHLX, which has recently been granted approval to 
adopt substantially similar rules to those proposed here.

[[Page 686]]

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. To the contrary, the Exchange 
believes the proposal is pro-competitive. The proposed rule change is a 
competitive response to a recently approved filing by the PHLX,\19\ 
which the Exchange believes is necessary to permit fair competition 
among the options exchanges with respect to STOS Programs. The Exchange 
believes that the proposed rule change will result in additional 
investment options and opportunities to achieve the investment 
objectives of market participants seeking efficient trading and hedging 
vehicles, to the benefit of investors, market participants, and the 
marketplace in general.
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    \19\ See Securities Exchange Act Release No. 71004 (December 6, 
2013), 78 FR 75437 (December 11, 2013) (SR-PHLX-2013-101).
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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 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 from the date on which it was filed, or such shorter time as the 
Commission may designate, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \20\ and Rule 19b-4(f)(6) 
thereunder.\21\
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of 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.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Exchange stated that the proposal will promote fair 
competition among exchanges by allowing it to offer a more efficient 
STOS Program that is harmonized internally and externally with the OLPP 
and to meet customer demand for a greater number of STOS classes and 
strike price intervals in the same manner as other exchanges. For these 
reasons, the Commission believes that the proposed rule change presents 
no novel issues and that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest and 
will allow the Exchange to remain competitive with other exchanges. 
Therefore, the Commission designates the proposed rule change to be 
operative upon filing.\22\
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    \22\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 rule-comments@sec.gov. Please 
include File Number SR-MIAX-2013-61 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MIAX-2013-61. 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-2013-61 and should be 
submitted on or before January 27, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-31519 Filed 1-3-14; 8:45 am]
BILLING CODE 8011-01-P