Document ID: SEC-2014-0386-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Miami International Securities Exchange, LLC
Posted Date: 2014-03-10T04:00Z

[Federal Register Volume 79, Number 46 (Monday, March 10, 2014)]
[Notices]
[Pages 13334-13349]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-05029]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71640; File No. SR-MIAX-2014-09]

Self-Regulatory Organizations; Miami International Securities 
Exchange, LLC; Notice of Filing of Proposed Rule Change to Adopt the 
MIAX Price Improvement Mechanism

March 4, 2014.
    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 February 18, 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. The Commission is publishing this notice 
to solicit

[[Page 13335]]

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 adopt Rule 515A to provide for 
a price improvement auction and a solicited order mechanism.
    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 adopt new Rule 515A and associated 
Interpretations and Policies to provide for a price improvement auction 
and a solicited order mechanism on the Exchange. In particular, the 
Exchange proposes to adopt the MIAX Price Improvement Mechanism 
(``PRIME'') to provide a method for market participants to effect 
orders in a price improvement auction. The proposed rules are similar 
to the rules of other exchanges that have price improvement auction 
mechanisms.\3\ The Exchange believes that the similarity of its 
proposed price improvement rules to those of other exchanges will allow 
the Exchange's proposed price improvement functionality to fit 
seamlessly into the greater options market place and benefit market 
participants who are already familiar with similar functionality 
offered on other exchanges.
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    \3\ See CBOE Rules 6.74A and 6.74B; ISE Rule 723.
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PRIME Price Improvement Auction

    PRIME is a process by which a Member may electronically submit for 
execution (``Auction'') an order it represents as agent (``Agency 
Order''), and/or an Agency Order against solicited interest. A Member 
(the ``Initiating Member'') may initiate an Auction provided all of the 
following are met: (i) The Agency Order is in a class designated as 
eligible for PRIME as determined by the Exchange and within the 
designated Auction order eligibility size parameters as such size 
parameters are determined by the Exchange; \4\ (ii) 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\5\ or the 
Agency Order's limit price (if the order is a limit order); \6\ and 
(iii) 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).\7\ Since 
the Initiating Member is stopping the entire Agency Order at the NBBO 
price or better at the beginning of the Auction, the Auction execution 
at the conclusion of the Auction will qualify as an exception to the 
general prohibition against Trade-Throughs, pursuant to Rule 
1401(b)(9).\8\ The Exchange notes that this is consistent with how the 
electronic price improvement auctions of other competing exchanges 
operate.\9\
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    \4\ See Proposed Rule 515A(a)(1)(i). See also CBOE Rule 
6.74A(a)(1).
    \5\ See Rule 100. The term ``NBBO'' means the national best bid 
or offer as calculated by the Exchange based on market information 
received by the Exchange from OPRA.
    \6\ See Proposed Rule 515A(a)(1)(ii). See also CBOE Rule 
6.74A(a)(2). The Exchange notes that nothing in this Rule prevents 
an Initiating Member from choosing to stop an Agency Order better 
than that NBBO or the Agency Order's limit price for orders for 50 
standard option contracts or 500 mini-option contracts or more. An 
Initiating Member may choose to stop an Agency Order better than 
these minimum requirements, thus guaranteeing further price 
improvement to the Agency Order if such Initiating Member chooses by 
simply designating a more aggressive price upon submission for 
either a single price submission or an auto-match.
    \7\ See Proposed Rule 515A(a)(1)(iii). See also CBOE Rule 
6.74A(a)(3). The Exchange notes that nothing in this Rule prevents 
an Initiating Member from choosing to stop an Agency Order better 
than that NBBO improved by a $0.01 or the Agency Order's limit price 
for orders for 50 standard option contracts or 500 mini-option 
contracts or more. An Initiating Member may choose to stop an Agency 
Order better than these minimum requirements, thus guaranteeing 
further price improvement to the Agency Order if such Initiating 
Member chooses by simply designating a more aggressive price upon 
submission for either a single price submission or an auto-match.
    \8\ See Rule 1401(b)(9) (providing an exception from Trade-
Through liability in the circumstance when a transaction that 
constituted the Trade-Through was the execution of an order that was 
stopped at a price that did not Trade-Through an Eligible Exchange 
at the time of the stop).
    \9\ See, e.g., CBOE Rule 6.74A; ISE Rule 723.
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    To initiate the Auction, the Initiating Member must mark the Agency 
Order for Auction processing, and specify (i) a single price at which 
it seeks to cross the Agency Order (with principal interest and/or a 
solicited order) (a ``single-price submission''), including whether the 
Initiating Member elects to have last priority in allocation, or (ii) 
that it is willing to automatically match (``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.\10\ For both single price 
submissions and auto-match, 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.\11\ For both a single price submission and auto-match, the 
stopped price specified by the Initiating Member on the Agency Order 
shall be the ``initiating price'' for the Auction.\12\ Thus for single 
price submissions, the initiating price will be the stop price which is 
the limit price of the single price submission. For Agency Orders where 
no limit price is designated (market orders), the initiating price will 
be the stop price which is at the NBBO (if 50 standard option contracts 
or 500 mini-option contracts or greater) or $0.01 increment better than 
the NBBO (if less than 50 standard option contracts or 500 mini-option 
contracts). For auto-match submissions with a designated limit price, 
the initiating price will be the

[[Page 13336]]

stop price which is the limit price designated on the Agency Order. For 
auto-match submissions where no limit price is designated (market 
orders), the initiating price will be the stop price at the NBBO (if 50 
standard option contracts or 500 mini-option contracts or greater) or 
$0.01 increment better than the NBBO (if less than 50 standard option 
contracts or 500 mini-option contracts).\13\ Once the Initiating Member 
has submitted an Agency Order for processing pursuant to proposed Rule 
515A(a)(2)(i)(A), such submission may not be modified or cancelled.\14\ 
Only one Auction may be ongoing at any given time in an option and 
Auctions in the same option may not queue or overlap in any manner.\15\ 
The Exchange believes that these options afford the Initiating Member 
flexibility and control over the prices at which it would be willing to 
guarantee an Agency Order. The following examples show the options 
afforded to Initiating Members to specify.
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    \10\ See Proposed Rule 515A(a)(2)(i)(A). See also CBOE Rule 
6.74A(b)(1)(A). As noted above, an Initiating Member may choose to 
stop an Agency Order better than the minimum requirements, thus 
guaranteeing further price improvement to the Agency Order if such 
Initiating Member chooses by simply designating a more aggressive 
price upon submission for either a single price submission or an 
auto-match.
    \11\ See Proposed Rule 515A(a)(2)(i)(A). The corresponding CBOE 
provision is silent regarding this situation. See CBOE Rule 
6.74A(b)(1)(A). The Exchange proposes adding this provision to 
enable the PRIME to work seamlessly with the Exchange's Book in a 
manner that would ensure a fair and orderly market by maintaining 
priority of orders and quotes while still affording the opportunity 
for price improvement on each Auction commenced on the Exchange. See 
also NASDAQ OMX PHLX Rule 1080(n)(ii)(A)(1).
    \12\ See Proposed Rule 515A(a)(2)(i)(A).
    \13\ See Proposed Rule 515A(a)(2)(i)(A). See also CBOE Rule 
6.74A(b)(1)(A).
    \14\ See Proposed Rule 515A(a)(2)(i)(A). See also CBOE Rule 
6.74A(b)(1)(A).
    \15\ See Proposed Rule 515A(a)(2). See also CBOE Rule 6.74A(b).
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Example 1--Single Price Submission

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 $1.20
Initiating Member's Contra Order selling 50 contracts with a single 
stop price of $1.20
RFR sent identifying the option, side and size, with initiating price 
\16\ of $1.20 (Auction Starts)
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    \16\ The ``initiating price'' is the stop price of the Agency 
Order. Thus for single price submissions, the initiating price will 
be the stop price which is the limit price of the single price 
submission. For Agency Orders where no limit price is designated 
(market orders), the initiating price will be the stop price which 
is at the NBBO (if 50 standard option contracts or 500 mini-option 
contracts or greater) or $0.01 increment better than the NBBO (if 
less than 50 standard option contracts or 500 mini-option 
contracts). For auto-match submissions with a designated limit 
price, the initiating price will be the stop price which is the 
limit price designated on the Agency Order. For auto-match 
submissions where no limit price is designated (market orders), the 
initiating price will be the stop price at the NBBO (if 50 standard 
option contracts or 500 mini-option contracts or greater) or $0.01 
increment better than the NBBO (if less than 50 standard option 
contracts or 500 mini-option contracts). See Proposed Rule 
515A(a)(2)(i)(A). See also CBOE Rule 6.74A(b)(1)(A).

 @ 110 milliseconds MM1 response received, AOC eQuote to Sell 5 
at $1.17
 @ 230 milliseconds MM4 response received, AOC eQuote to Sell 
10 at $1.18
 @ 450 milliseconds MM3 response received, AOC eQuote to Sell 
40 at $1.20
 500 milliseconds (Auction Ends)

    Under this scenario the Agency Order would be executed as follows:

1. 5 contracts trade with MM1 @ $1.17
2. 10 contracts trade with MM4 @ $1.18
3. 20 contracts trade with the Initiating Member's Contra Order @ $1.20 
(This satisfies their 40% participation guarantee)
4. 15 contracts trade with MM3 @ $1.20 (This fills the entire Agency 
Order)

Example 2--Single Price Submission

NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 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 (Auction Starts)
 @ 110 milliseconds MM1 response received, AOC eQuote to Sell 5 
at $1.17
 @ 230 milliseconds MM4 response received, AOC eQuote to Sell 
100 at $1.20
 @ 450 milliseconds MM3 response received, AOC eQuote to Sell 
40 at $1.22
 500 milliseconds (Auction Ends)

    Under this scenario the Agency Order would be executed as follows:

1. 5 contracts trade with MM1 @ $1.17
2. 55 contracts trade with MM4 @ $1.20
3. 40 contracts trade with the Initiating Member's Contra Order @ $1.20 
(This fills the entire Agency Order and satisfies their 40% 
participation guarantee)

Example 3--Single Price Submission, Less Than 50 Contracts

NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 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 (Auction Starts)
 @ 110 milliseconds MM1 response received, AOC eQuote to Sell 5 
at $1.17
 @ 230 milliseconds MM4 response received, AOC eQuote to Sell 5 
at $1.18
 @ 450 milliseconds MM3 response received, AOC eQuote to Sell 
10 at $1.20
 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 4--Single Price Submission, Initiating Member Elects Last 
Priority in Allocation

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 $1.20
Initiating Member's Contra Order selling 50 contracts with a single 
stop price of $1.20, electing last priority in allocation
RFR sent identifying the option, side and size, with initiating price 
of $1.20 (Auction Starts)
 @ 110 milliseconds MM1 response received, AOC eQuote to Sell 5 
at $1.17
 @ 230 milliseconds MM4 response received, AOC eQuote to Sell 
10 at $1.18
 @ 450 milliseconds MM3 response received, AOC eQuote to Sell 
40 at $1.20
 500 milliseconds (Auction Ends)

    Under this scenario the Agency Order would be executed as follows:

1. 5 contracts trade with MM1 @ $1.17
2. 10 contracts trade with MM4 @ $1.18
3. 35 contracts trade with MM3 @ $1.20 (This fills the entire Agency 
Order and the Contra Order does not receive an execution)

Example 5--Auto-Match

NBBO = $1.15-$1.25 200 x 200
BBO = $1.15[dash]$1.25 100 x 100
Agency Order to buy 50 contracts with a limit price of $1.24
Initiating Member's Contra Order selling 50 contracts auto-match
RFR sent identifying the option, side and size, with initiating price 
of $1.24 (Auction Starts)
 @ 150 milliseconds MM2 response received, AOC eQuote to Sell 5 
at $1.17
 @ 230 milliseconds MM4 response received, AOC eQuote to Sell 
10 at $1.18
 @ 450 milliseconds MM3 response received, AOC eQuote to Sell 
40 at $1.20
 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)

[[Page 13337]]

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 6--Auto-Match, Agency Order Entered Without a Limit Price

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 50 contracts auto-match
RFR sent identifying the option, side and size, with initiating price 
of $1.25 (Auction Starts)
 @ 150 milliseconds MM2 response received, AOC eQuote to Sell 5 
at $1.17
 @ 230 milliseconds MM4 response received, AOC eQuote to Sell 
10 at $1.18
 @ 450 milliseconds MM3 response received, AOC eQuote to Sell 
40 at $1.20
 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 7--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 $1.24 (Auction Starts)
 @ 150 milliseconds MM2 response received, AOC eQuote to Sell 5 
at $1.17
 @ 230 milliseconds MM4 response received, AOC eQuote to Sell 5 
at $1.18
 @ 450 milliseconds MM3 response received, AOC eQuote to Sell 
30 at $1.20
 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)

    When the Exchange receives a properly designated Agency Order for 
Auction processing, a Request for Responses (``RFR'') detailing the 
option, side, size, and initiating price will be sent to all 
subscribers of the Exchange's data feeds.\17\ The Exchange believes 
that including this level of detail in each RFR may lead to better 
prices for the Agency Order. The RFR will last for 500 
milliseconds.\18\ The Exchange believes that the 500 millisecond 
duration of the RFR would provide Members with sufficient time to 
submit RFR responses and would encourage competition among 
participants, thereby enhancing the potential for price improvement for 
the Agency Order.\19\ Members may submit responses to the RFR 
(specifying prices and sizes). RFR responses shall be an Auction or 
Cancel (``AOC'') order or an AOC eQuote.\20\ Such responses cannot 
cross the disseminated MBBO\21\ on the opposite side of the market from 
the response.\22\ RFR responses shall not be visible to other Auction 
participants, and shall not be disseminated to OPRA.\23\ The minimum 
price increment for RFR responses and for the Initiating Member's 
submission shall be $0.01 increment, regardless if the class trades in 
another price increment.\24\ An RFR response with a size greater than 
the size of the Agency Order will be capped at the size of the Agency 
Order for

[[Page 13338]]

allocation purposes.\25\ RFR responses may be cancelled.\26\
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    \17\ See Proposed Rule 515A(a)(2)(i)(B). The Exchange will 
include the RFR from the auction mechanisms in the Exchange's data 
feeds at no incremental cost to subscribers. Thus, any subscriber 
that chooses to receive options data, including any Member 
subscriber, has the ability to respond to those RFRs. The proposed 
RFR differs from CBOE which only disseminates side and size to 
Trading Permit Holders that have elected to receive RFRs. See CBOE 
Rule 6.74A(b)(1)(B).
    \18\ See Proposed Rule 515A(a)(2)(i)(C). The RFR response time 
during price improvement auctions varies from exchange to exchange. 
While the BOX Options RFR response period is as short as 100 
milliseconds, the CBOE RFR response period lasts for one second and 
the ISE exposure time lasts for 500 milliseconds. See CBOE Rule 
6.74A(b)(1)(C); ISE Rule 723(c)(1); BOX Options Rule 7150(f)(1).
    \19\ In February 2014, to determine whether the proposed 
duration of the RFR would provide sufficient time to enter a RFR 
response, the Exchange asked Members, including Market Makers, 
whether their firms ``could respond to an Auction with a duration of 
500 milliseconds.'' Of the 8 Members that responded to the question, 
100% indicated that their firm could respond in this time frame. 
Thus, the Exchange believes that the proposed duration for the RFR 
of 500 milliseconds, would provide a meaningful opportunity for 
participants on MIAX to respond to a RFR while at the same time 
facilitating the prompt execution of orders.
    \20\ See Proposed Rule 515A(a)(2)(i)(D). An ``AOC order'' is a 
limit order used to provide liquidity during a specific Exchange 
process (such as the Opening Imbalance process described in Rule 
503) with a time in force that corresponds with that event. AOC 
orders are not displayed to any market participant, are not included 
in the MBBO and therefore are not eligible for trading outside of 
the event, may not be routed, and may not trade at a price inferior 
to the away markets. See Rule 516(b)(4). An ``AOC eQuote'' is a 
quote submitted by a Market Maker to provide liquidity in a specific 
Exchange process (such as the Opening Imbalance Process described in 
Rule 503) with a time in force that corresponds with the duration of 
that event and will automatically expire at the end of that event. 
AOC eQuotes are not displayed to any market participant, are not 
included in the MBBO and therefore are not eligible for trading 
outside of the event. An AOC eQuote does not automatically cancel or 
replace the Market Maker's previous Standard quote or eQuote. See 
Rule 517(a)(2)(ii). The Exchange notes that any orders or quotes 
received by the System during the Auction that are not AOC orders or 
AOC eQuotes will be treated as unrelated trading interest. In 
addition, the Exchange notes that an AOC order or an AOC eQuote 
could trade at a price inferior to the away market if it is a part 
of an exempt transaction. See Rule 1402.
    AOC orders are available to all market participants on MIAX; 
thus enabling all market participants with the ability to 
participate in the PRIME. As mentioned below, in contrast to CBOE 
which limits responses to only market makers assigned to the 
relevant options class, any MIAX Member may respond to the RFR in 
the PRIME. See CBOE Rule 6.74A(b)(1)(D). In addition, the Exchange 
does not propose to limit responses to Members acting as agent to 
orders resting at the top of the Exchange's Book opposite the Agency 
Order like CBOE. Instead, any MIAX Member acting as agent for orders 
may respond to the RFR in the PRIME. See Proposed Rule 
515A(a)(2)(i)(D). See CBOE Rule 6.74A(b)(1)(E).
    \21\ The term ``MBBO'' means the best bid or offer on the 
Exchange. See Rule 100.
    \22\ See Proposed Rule 515A(a)(2)(i)(D). In contrast to CBOE 
which limits responses to only market makers assigned to the 
relevant options class, any MIAX Member may respond to the RFR in 
the PRIME. See also CBOE Rule 6.74A(b)(1)(D). In addition, the 
Exchange does not propose to limit responses to Members acting as 
agent to orders resting at the top of the Exchange's Book opposite 
the Agency Order like CBOE. Instead, any MIAX Member acting as agent 
for orders may respond to the RFR in the PRIME. See Proposed Rule 
515A(a)(2)(i). See CBOE Rule 6.74A(b)(1)(E).
    \23\ See Proposed Rule 515A(a)(2)(i)(E). In contrast to CBOE 
which is silent on the pricing increment that is available for non-
single price submissions, the Exchange proposes that the Initiating 
Member's submission whether single price or auto-match shall have a 
minimum price increment of $0.01. See also CBOE Rule 6.74A(b)(1)(F).
    \24\ See Proposed Rule 515A(a)(2)(i)(F). See also CBOE Rule 
6.74A(b)(1)(G).
    \25\ See Proposed Rule 515A(a)(2)(i)(G). In contrast to CBOE 
which limits responses to only the size of the Agency Order, 
responses that exceed the size of the Agency Order will be treated 
as if they were the same size as the Agency Order for purposes of 
the Auction. See CBOE Rule 6.74A(b)(1)(H). RFR response sizes are 
capped at the same size of the Agency Order in order to prevent 
manipulation and gaming of the pro rata allocation within each 
origin type and price point. See Proposed Rules 515A(2)(iii)(C),(D). 
The Exchange notes that unrelated trading interest including 
unrelated orders, quotes, or orders on the Exchange's Book will not 
be subject to such a cap, since they are not considered responses to 
the Auction. The Exchange believes that this will help enable the 
Auction to work seamlessly with the Exchange's Book, by maintaining 
priority of all resting quotes and orders and any RFR responses 
received before the conclusion of the Auction while preventing the 
gaming of pro rata allocations by RFR responses. The Exchange notes 
that this is consistent with how the electronic price improvement 
auctions of other competing exchanges operate. See CBOE Rule 6.74A.
    \26\ See Proposed Rule 515A(a)(2)(i)(H). See also CBOE Rule 
6.74A(b)(1)(I).
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    The PRIME Auction is designed to work seamlessly with the 
Exchange's Book and is designed to maintain priority of all resting 
quotes and orders and any RFR responses received before the conclusion 
of the Auction. The PRIME will conclude early, before the end of the 
RFR period, as a result of certain events that would otherwise disrupt 
the priority of the Auction within the Book. The Exchange notes that 
this is consistent with how the electronic price improvement auctions 
of other competing exchanges operate.\27\ Specifically, the Auction 
shall conclude at the sooner of the following: (i) The end of the RFR 
period; (ii) upon receipt by the System of an unrelated order (in the 
same option as the Agency Order) on the same side or opposite side of 
the market from the RFR responses, that is marketable against either 
the MBBO (when such quote is the NBBO) or the RFR responses; (iii) upon 
receipt by the System of an unrelated limit order (in the same option 
as the Agency Order and on the opposite side of the market from the 
Agency Order) that improves any RFR response; (iv) any time an RFR 
response matches the MBBO on the opposite side of the market from the 
RFR responses; (v) any time there is a quote lock in the subject option 
on the Exchange pursuant to Rule 1402; or (vi) any time there is a 
trading halt in the option on the Exchange.\28\
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    \27\ See CBOE Rule 6.74A(b)(2); ISE Rule 723(c)(5).
    \28\ See Proposed Rule 515A(a)(2)(ii). See also CBOE Rule 
6.74A(b)(2).
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Priority and Allocation of Orders and Quotes

    The priority of allocation at the conclusion of a PRIME Auction, 
described below, will be similar to the standard allocation of orders 
and quotes on MIAX. Current MIAX Rule 514 provides the priority of 
allocation of order and quotes on the Exchange. Under the pro-rata 
allocation method, resting quotes and orders on the Book are 
prioritized according to price. If there are two or more quotes or 
orders at the best price then the contracts are allocated 
proportionally according to size (in a pro-rata fashion) within each 
origin type. If the executed quantity cannot be evenly allocated, the 
remaining contracts will be distributed one at a time based upon size-
time priority.\29\ When the Priority Customer Overlay is in effect, the 
highest bid and lowest offer shall have priority except that Priority 
Customer Orders shall have priority over Professional Interest and all 
Market Maker interest at the same price. If there are two or more 
Priority Customer Orders for the same options at the same price, 
priority shall be afforded to such Priority Customer Orders in the 
sequence in which they are received by the System.\30\ If there is 
other interest at the NBBO, after all Priority Customer Orders (if any) 
at that price have been filled, executions at that price will be first 
allocated to other remaining Market Maker priority quotes\31\, which 
have not received a participation entitlement, and have precedence over 
Professional Interest.\32\ If after all Market Maker priority quotes 
have been filled in accordance with Rule 514(d)(1) and there remains 
interest at the NBBO, executions will be allocated to all Professional 
Interest at that price. Professional Interest is defined in Rule 100 
and includes among other interest, Market Maker non-priority quotes (as 
described in Rule 517(b)(1)(ii)) and Market Maker orders in both 
assigned and non-assigned classes.\33\
---------------------------------------------------------------------------

    \29\ See Exchange Rule 514(c)(2).
    \30\ See Exchange Rule 514(d)(1). The term ``Priority Customer'' 
means a person or entity that (i) is not a broker or dealer in 
securities, and (ii) does not place more than 390 orders in listed 
options per day on average during a calendar month for its own 
beneficial accounts(s). See Exchange Rule 100.
    \31\ To be considered a priority quote, at the time of 
execution, each of the following standards must be met: (A) The bid/
ask differential of a Market Maker's two-sided quote pair must be 
valid width (no wider than the bid/ask differentials outlined in 
Rule 603(b)(4)); (B) the initial size of both of the Market Maker's 
bid and the offer must be in compliance with the requirements of 
Rule 604(b)(2); (C) the bid/ask differential of a Market Maker's 
two-sided quote pair must meet the priority quote width requirements 
defined in Rule 517(b)(1)(ii) for each option; and (D) either of the 
following are true:
    1. At the time a locking or crossing quote or order enters the 
System, the Market Maker's two-sided quote pair must be valid width 
for that option and must have been resting on the Book; or
    2. Immediately prior to the time the Market Maker enters a new 
quote that locks or crosses the MBBO, the Market Maker must have had 
a valid width quote already existing (i.e., exclusive of the Market 
Maker's new marketable quote or update) among his two-sided quotes 
for that option. See Exchange Rule 517(b)(1)(i).
    \32\ See Exchange Rule 514(e)(1).
    \33\ See Exchange Rule 514(e)(2). Specifically, the term 
``Professional Interest'' means (i) an order that is for the account 
of a person or entity that is not a Priority Customer, or (ii) an 
order or non-priority quote for the account of a Market Maker. See 
Exchange Rule 100.
---------------------------------------------------------------------------

    PRIME is designed to work seamlessly with the Exchange's Book in a 
manner that would ensure a fair and orderly market by maintaining 
priority of orders and quotes while still affording the opportunity for 
price improvement on each Auction commenced on the Exchange. The 
priority of allocation at the conclusion of a PRIME Auction will be 
similar to the standard allocation of orders and quotes on MIAX.\34\ At 
the conclusion of the Auction, the Agency Order will be allocated at 
the best price(s) pursuant to the matching algorithm in effect for the 
class subject to the following:
---------------------------------------------------------------------------

    \34\ In this regard, the proposed Rule 515A(a)(2)(iii) differs 
from CBOE Rule 6.74A(b)(3) which gives priority to public customers 
but also restricts participation in the auction to market makers 
appointed in the relevant option class. Since participation in the 
PRIME extends to all Members on MIAX, the Exchange believes that the 
existing priority rules that distinguish between Priority Customers, 
Market Makers with priority quotes, and Professional Interest is the 
best method to ensure a fair and orderly market by maintaining 
priority of orders and quotes while still affording the opportunity 
for price improvement on each Auction commenced on the Exchange.
---------------------------------------------------------------------------

     Such best prices include non-Auction quotes and 
orders.\35\
---------------------------------------------------------------------------

    \35\ See Proposed Rule 515A(a)(2)(iii)(A). See also CBOE Rule 
6.74A(b)(3)(A).
---------------------------------------------------------------------------

     Priority Customer orders resting on the Book before, or 
that are received during, the Response Time Interval and Priority 
Customer RFR responses shall, collectively have first priority to trade 
against the Agency Order. The allocation of an Agency Order against the 
Priority Customer orders resting in the Book, Priority Customer orders 
received during the Response Time Interval, and Priority Customer RFR 
responses shall be in the sequence in which they are received by the 
System.\36\
---------------------------------------------------------------------------

    \36\ See Proposed Rule 515A(a)(2)(iii)(B). The Exchange notes 
that the priority allocation in PRIME is consistent with the 
standard priority rules for Priority Customers in Rule 514(d)(1). In 
contrast to CBOE that extends priority to only public customers in 
the book, the Exchange gives priority to Priority Customer orders 
whether they were on the Book or received during the Response Time 
Interval. See CBOE Rule 6.74A(b)(3)(B).
---------------------------------------------------------------------------

     Market Maker priority quotes and RFR responses from Market 
Makers with priority quotes will collectively have second priority. The 
allocation of

[[Page 13339]]

Agency Orders against these contra sided quotes and RFR responses shall 
be on a size pro rata basis as defined in Rule 514(c)(2).\37\
---------------------------------------------------------------------------

    \37\ See Proposed Rule 515A(a)(2)(iii)(C).
---------------------------------------------------------------------------

     Professional Interest orders resting in the Book, 
Professional Interest orders placed in the Book during the Response 
Time Interval, Professional Interest quotes, and Professional Interest 
RFR responses will collectively have third priority.\38\ The allocation 
of Agency Orders against these contra sided orders and RFR responses 
shall be on a size pro rata basis as defined in Rule 514(c)(2).\39\
---------------------------------------------------------------------------

    \38\ See Exchange Rule 514(e)(2). Specifically, the term 
``Professional Interest'' means (i) an order that is for the account 
of a person or entity that is not a Priority Customer, or (ii) an 
order or non-priority quote for the account of a Market Maker. See 
Exchange Rule 100.
    \39\ See Proposed Rule 515A(a)(2)(iii)(D).
---------------------------------------------------------------------------

     No participation entitlement shall apply to orders 
executed pursuant to this Rule.\40\
---------------------------------------------------------------------------

    \40\ See Proposed Rule 515A(a)(2)(iii)(E). See also CBOE Rule 
6.74A(b)(3)(C).
---------------------------------------------------------------------------

     If an unrelated market or marketable limit order on the 
opposite side of the market as the Agency Order was received during the 
Auction and ended the Auction, such unrelated order shall trade against 
the Agency Order at the midpoint of the best RFR response (or in the 
absence of a RFR response, the initiating price \41\) and the NBBO on 
the other side of the market from the RFR responses (rounded towards 
the disseminated quote when necessary).\42\
---------------------------------------------------------------------------

    \41\ As mentioned above, the ``initiating price'' is the stop 
price of the Agency Order. Thus for single price submissions, the 
initiating price will be the stop price which is the limit price of 
the single price submission. For Agency Orders where no limit price 
is designated (market orders), the initiating price will be the stop 
price which is at the NBBO (if 50 standard option contracts or 500 
mini-option contracts or greater) or $0.01 increment better than the 
NBBO (if less than 50 standard option contracts or 500 mini-option 
contracts). For auto-match submissions with a designated limit 
price, the initiating price will be the stop price which is the 
limit price designated on the Agency Order. For auto-match 
submissions where no limit price is designated (market orders), the 
initiating price will be the stop price at the NBBO (if 50 standard 
option contracts or 500 mini-option contracts or greater) or $0.01 
increment better than the NBBO (if less than 50 standard option 
contracts or 500 mini-option contracts). See Proposed Rule 
515A(a)(2)(i)(A). See also CBOE Rule 6.74A(b)(1)(A).
    \42\ See Proposed Rule 515A(a)(2)(iii)(F). The proposed 
treatment of the unrelated market or marketable limit order on the 
opposite side differs from CBOE, in that CBOE's rule does not 
contemplate pricing at the midpoint when there is no RFR response. 
The Exchange believes that in the absence of a RFR response, using 
the initiating price in this scenario is appropriate and helps 
facilitate an execution at an improved price for the Agency Order. 
See CBOE Rule 6.74A(b)(3)(D).
---------------------------------------------------------------------------

     If an unrelated non-marketable limit order on the opposite 
side of the market as the Agency Order was received during the Auction 
and ended the Auction, such unrelated order shall trade against the 
Agency Order at the midpoint of the best RFR response and the unrelated 
order's limit price (rounded towards the unrelated order's limit price 
when necessary).\43\
---------------------------------------------------------------------------

    \43\ See Proposed Rule 515A(a)(2)(iii)(G). An unrelated non-
marketable limit order on the opposite side of the market as the 
Agency Order would end the Auction in the situation when that 
unrelated non-marketable limit order improves any RFR response. 
Thus, in contrast to the situation of an unrelated market or 
marketable limit order, the proposed treatment of an unrelated non-
marketable limit order on the opposite side will be identical to 
CBOE since there will be a RFR response present to calculate the 
midpoint from when the Auction ends. See also CBOE Rule 
6.74A(b)(3)(E).
---------------------------------------------------------------------------

     Notwithstanding proposed Rule 515A(a)(2)(iii)(C), (D), if 
the best price equals the Initiating Member's single-price submission, 
the Initiating Member's single-price submission shall be allocated the 
greater of one contract or a certain percentage of the order, which 
percentage will be determined by the Exchange and may not be larger 
than 40%. However, if only one Member's response matches the Initiating 
Member's single price submission then the Initiating Member may be 
allocated up to 50% of the order.\44\
---------------------------------------------------------------------------

    \44\ See Proposed Rule 515A(a)(2)(iii)(H). In contrast to CBOE 
which is silent on the priority of allocation at a price point 
between the Initiating Member's guaranteed allocation and other 
interest, the Exchange proposes additional language to clarify that 
the priority of the Initiating Member's guaranteed allocation is 
after Priority Customer interest. See also CBOE Rule 6.74A(b)(3)(F).
---------------------------------------------------------------------------

     Notwithstanding proposed Rule 515A(a)(2)(iii)(C), (D), if 
the Initiating Member selected the auto-match option of the Auction, 
the Initiating Member shall be allocated its full size of RFR responses 
at each price point up to the designated limit price or until a price 
point is reached where the balance of the order can be fully 
executed.\45\ At such price point, the Initiating Member shall be 
allocated the greater of one contract or a certain percentage of the 
remainder of the order, which percentage will be determined by the 
Exchange and may not be larger than 40%.\46\
---------------------------------------------------------------------------

    \45\ The Exchange notes that the auto-match functionality will 
only allocate the full size of RFR responses (AOC orders and AOC 
eQuotes). See Proposed Rule 515A(a)(2)(iii)(I). In contrast to CBOE 
which is silent on the priority of allocation at a price point 
between the Initiating Member's guarantee and other interest, the 
Exchange proposes additional language to clarify that the priority 
of the Initiating Member's guaranteed allocation is after Priority 
Customer interest. See also CBOE Rule 6.74A(b)(3)(G). As noted 
above, any orders or quotes received by the System during the 
Auction that are not AOC orders or AOC eQuotes will be treated as 
unrelated trading interest; the auto-match functionality will not 
allocate against such unrelated trading interest. See Proposed Rule 
515A(a)(2)(i)(D).
    \46\ See Proposed Rule 515A(a)(2)(iii)(I). In contrast to CBOE 
which is silent regarding the allocation of the Initiating Member's 
auto-match when there is a designated limit price, the Exchange 
proposes additional language to clarify that the Initiating Member 
shall be allocated its full size of RFR responses at each price 
point up to the designated limit price or until a price point is 
reached where the balance of the order can be fully executed. See 
also CBOE Rule 6.74A(b)(3)(G).
---------------------------------------------------------------------------

     Notwithstanding proposed Rule 515A(a)(2)(iii)(C), (D), if 
the Auction does not result in price improvement over the Exchange's 
disseminated price at the time the Auction began, resting unchanged 
quotes or orders that were disseminated at the best price before the 
Auction began shall have priority after any Priority Customer order 
priority and the Initiating Member's priority (40%) have been 
satisfied.\47\ Any unexecuted balance on the Agency Order shall be 
allocated to RFR responses provided that those RFR responses will be 
capped to the size of the original order and that the Initiating Member 
may not participate on any such balance unless the Agency Order would 
otherwise go unfilled.\48\
---------------------------------------------------------------------------

    \47\ The Exchange notes that the priority of such resting 
unchanged quotes or orders that were disseminated at the best price 
before the Auction began will still be subject to the standard 
priority allocation in effect pursuant to Rule 514.
    In contrast to CBOE which is silent on the priority of 
allocation at a price point between the Initiating Member's 
guarantee and other interest, the Exchange proposes additional 
language to clarify that the priority of the Initiating Member's 
guaranteed allocation is after Priority Customer interest. See 
Proposed Rule 515A(a)(2)(iii)(J). See also CBOE Rule 6.74A(b)(3)(H).
    \48\ See Proposed Rule 515A(a)(2)(iii)(J). This provision 
differs slightly from CBOE which caps RFR responses to the size of 
the unexecuted balance of the Agency Order when allocating any 
unexecuted balance on the Agency Order. See CBOE Rule 
6.74A(b)(3)(H).
---------------------------------------------------------------------------

     If the final Auction price locks a Priority Customer order 
on the Book on the same side of the market as the Agency Order, then, 
unless there is sufficient size in the Auction responses to execute 
both the Agency Order and the booked Priority Customer order (in which 
case they will both execute at the final Auction price), the Agency 
Order will execute against the RFR responses at $0.01 increment worse 
than the final Auction price (towards the opposite side of the Agency 
Order) against the Auction participants that submitted the final 
Auction price and any balance shall trade against the Priority Customer 
order in the Book at such order's limit price.\49\
---------------------------------------------------------------------------

    \49\ See Proposed Rule 515A(a)(2)(iii)(K). The Exchange proposes 
additional language not in the CBOE rule to clarify that an 
execution price in this situation that is $0.01 increment worse than 
the final Auction price means the final Auction price adjusted by 
$0.01 increment towards the opposite side of the Agency Order. See 
also CBOE Rule 6.74A(b)(3)(I).
---------------------------------------------------------------------------

     If the Initiating Member elected to have last priority in 
allocation when

[[Page 13340]]

submitting an Agency Order to initiate an Auction against a single-
price submission, the Initiating Member will be allocated only the 
amount of contracts remaining, if any, after the Agency Order is 
allocated to all other responses at the single price specified by the 
Initiating Member.\50\
---------------------------------------------------------------------------

    \50\ See Proposed Rule 515A(a)(2)(iii)(L). See also CBOE Rule 
6.74A(b)(3)(J).
---------------------------------------------------------------------------

     If an unexecuted balance remains on the Auction responses 
after the Agency Order has been executed and such balance could trade 
against any unrelated order(s) that caused the Auction to conclude, 
then the RFR balance will trade against the unrelated order(s) on a 
size pro rata basis as defined in Rule 514(c)(2).\51\
---------------------------------------------------------------------------

    \51\ See Proposed Rule 515A(a)(2)(iii)(M). In contrast to CBOE 
which is silent regarding the basis for allocation of an unrelated 
order(s) against the RFR balance in this situation, the Exchange 
proposes additional language to clarify that such RFR balance will 
trade against the unrelated order(s) on a size pro rata basis as 
defined in Rule 514(c)(2). See also CBOE Rule 6.74A(b)(3).
---------------------------------------------------------------------------

    The following examples show how allocations will be allocated at 
the conclusion of the Prime Auction.\52\
---------------------------------------------------------------------------

    \52\ The Exchange notes that in all examples in the filing, a 
Market Maker response should be considered from a Market Maker that 
does not have a priority quote, unless the example specifically 
states that the response is from a Market Maker with a priority 
quote.
---------------------------------------------------------------------------

Example 8--Single Price Submission, Priority Customer Has Priority

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 $1.20
Initiating Member's Contra Order selling 50 contracts with a single 
stop price of $1.20
RFR sent identifying the option, side and size, with initiating price 
of $1.20
(Auction Starts)
 @ 110 milliseconds MM1 response received, AOC eQuote to Sell 
10 at $1.18
 @ 230 milliseconds MM4 response received, AOC eQuote to Sell 
10 at $1.18
 @ 450 milliseconds Priority Customer response received, AOC 
order to Sell 40 at $1.18
 500 milliseconds (Auction Ends)
    Under this scenario the Agency Order would be executed as follows:
1. 40 contracts trade with Priority Customer @ $1.18
2. 5 contracts trade with MM1 @ $1.18
3. 5 contracts trade with MM4 @ $1.18 (This fills the entire Agency 
Order and Contra Order does not receive an execution)

Example 9--Single Price Submission, Priority Customer Has Priority and 
Only One Response Matches the Initiating Member at the Best Price

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 $1.20
Initiating Member's Contra Order selling 50 contracts with a single 
stop price of $1.20
RFR sent identifying the option, side and size, with initiating price 
of $1.20
(Auction Starts)
 @ 110 milliseconds MM1 response received, AOC eQuote to Sell 
50 at $1.20
 @ 230 milliseconds MM4 response received, AOC eQuote to Sell 
10 at $1.22
 @ 450 milliseconds Priority Customer response received, AOC 
order to Sell 40 at $1.22
 500 milliseconds (Auction Ends)
    Under this scenario the Agency Order would be executed as follows:
1. 25 contracts trade with MM1 @ $1.20
2. 25 contracts trade with the Contra Order @ $1.20 (This fills the 
entire Agency Order and this satisfies their 50% of the order size when 
matching one other member participation guarantee)

Example 10--Single Price Submission, Market Maker With Priority Quotes 
Has Priority

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 $1.20
Initiating Member's Contra Order selling 50 contracts with a single 
stop price of $1.20
RFR sent identifying the option, side and size, with initiating price 
of $1.20
(Auction Starts)
 @ 110 milliseconds MM1 non-priority response received, AOC 
eQuote to Sell 10 at $1.18
 @ 230 milliseconds MM4 non-priority response received, AOC 
eQuote to Sell 10 at $1.18
 @ 450 milliseconds MM3 with priority quotes response received, 
AOC eQuote to Sell 40 at $1.18
 500 milliseconds (Auction Ends)
    Under this scenario the Agency Order would be executed as follows:
1. 40 contracts trade with MM3 @ $1.18
2. 5 contracts trade with MM1 @ $1.18
3. 5 contracts trade with MM4 @ $1.18 (This fills the entire Agency 
Order and Contra Order does not receive an execution)

Example 11--Single Price Submission, Market Maker With Priority Quotes 
Has Priority

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 $1.20
Initiating Member's Contra Order selling 50 contracts with a single 
stop price of $1.20
RFR sent identifying the option, side and size, with initiating price 
of $1.20
(Auction Starts)
 @ 110 milliseconds MM1 non-priority response received, AOC 
eQuote to Sell 10 at $1.18
 @ 230 milliseconds BD4 response received, AOC order to Sell 10 
at $1.18
 @ 450 milliseconds MM3 with priority quotes response received, 
AOC eQuote to Sell 40 at $1.18
 500 milliseconds (Auction Ends)
    Under this scenario the Agency Order would be executed as follows:
1. 40 contracts trade with MM3 @ $1.18
2. 5 contracts trade with MM1 @ $1.18
3. 5 contracts trade with BD4 @ $1.18 (This fills the entire Agency 
Order and Contra Order does not receive an execution)

Example 12--Auto-Match, Market Maker With Priority Quotes Has Priority

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 $1.20
Initiating Member's Contra Order selling 50 contracts auto-match
RFR sent identifying the option, side and size, with initiating price 
of $1.20
(Auction Starts)
 @ 110 milliseconds MM1 non-priority response received, AOC 
eQuote to Sell 10 at $1.18
 @ 230 milliseconds MM4 non-priority response received, AOC 
eQuote to Sell 10 at $1.18
 @ 450 milliseconds MM3 with priority quotes response received, 
AOC eQuote to Sell 40 at $1.18
 500 milliseconds (Auction Ends)
    Under this scenario the Agency Order would be executed as follows:
1. 30 contracts trade with MM3 @ $1.18
2. 20 contracts trade with the Contra Order @ $1.18 (This fills the 
entire Agency Order and this satisfies their 40% participation 
guarantee)

Example 13--Auto-Match, Market Maker With Priority Quotes Has Priority

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 $1.20
Initiating Member's Contra Order selling 50 contracts auto-match
RFR sent identifying the option, side and size, with initiating price 
of $1.20
(Auction Starts)
 @ 110 milliseconds MM1 non-priority response received, AOC 
eQuote to Sell 10 at $1.18

[[Page 13341]]

 @ 230 milliseconds BD4 response received, AOC order to Sell 10 
at $1.18
 @ 450 milliseconds MM3 with priority quotes response received, 
AOC eQuote to Sell 40 at $1.18
 500 milliseconds (Auction Ends)
    Under this scenario the Agency Order would be executed as follows:
1. 30 contracts trade with MM3 @ $1.18
2. 20 contracts trade with the Contra Order @ $1.18 (This fills the 
entire Agency Order and this satisfies their 40% participation 
guarantee)

Example 14--Single Price Submission, Priority Customer Order on the 
Book on the Same Side Locks the Final Auction Price

NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Priority Customer order on the Book to Buy 75 at $1.15
Agency Order to buy 50 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts with a single 
stop price of $1.20
RFR sent identifying the option, side and size, with initiating price 
of $1.20
(Auction Starts)
 @ 110 milliseconds MM1 response received, AOC eQuote to Sell 
10 at $1.22
 @ 230 milliseconds MM4 response received, AOC eQuote to Sell 
50 at $1.15 (response matches the opposite MBBO causes the Auction to 
conclude early)
    Under this scenario the Agency Order would be executed as follows:
1. 50 contracts trade with MM4 @ $1.16 (This fills the entire Agency 
Order and Contra Order does not receive an execution)

Example 15--Auto-Match, Priority Customer Order on the Book on the Same 
Side Locks the Final Auction Price

NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Priority Customer order on the Book to Buy 75 at $1.15
Agency Order to buy 50 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts auto-match
RFR sent identifying the option, side and size, with initiating price 
of $1.20
(Auction Starts)
 @ 110 milliseconds MM1 response received, AOC eQuote to Sell 
10 at $1.22
 @ 230 milliseconds MM4 response received, AOC eQuote to Sell 
50 at $1.15 (response matches the opposite MBBO causes the Auction to 
conclude early)
    Under this scenario the Agency Order would be executed as follows:
1. 30 contracts trade with MM4 @ $1.16
2. 20 contracts trade with the Contra Order @ $1.16 (This fills the 
entire Agency Order and this satisfies their 40% participation 
guarantee)
3. Priority Customer order to buy 75 at $1.15 then executes as follows:
a. 20 contracts trade with MM4 @ $1.15
b. Remaining contracts post to the Book as the new BB paying $1.15 for 
55 contracts
    In Examples 14 and 15, since both the Agency Order and the Priority 
Customer order could not both be executed against the RFR responses due 
to insufficient size, the Agency Order executed against the RFR 
response at $0.01 increment worse than the final Auction price with the 
remaining balance of responses trading against the Priority Customer 
order in the Book at such order's limit price.\53\ In Example 15, there 
is sufficient balance remaining of the RFR response to partially trade 
at the Priority Customer's limit price. However, in Example 14, there 
is not any remaining balance of RFR responses that can trade against 
the Priority Customer order.
---------------------------------------------------------------------------

    \53\ See Proposed Rule 515A(a)(2)(iii)(K). See also CBOE Rule 
6.74A(b)(3)(I).
---------------------------------------------------------------------------

Example 16--Auto-Match, Priority Customer Order on the Book on the Same 
Side Locks the Final Auction Price

NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Priority Customer order to Buy 20 at $1.15
Agency Order to buy 50 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts auto-match
RFR sent identifying the option, side and size, with initiating price 
of $1.20
(Auction Starts)
 @ 110 milliseconds MM1 response received, AOC eQuote to Sell 
50 at $1.15 (response matches the opposite MBBO causes the Auction to 
conclude early)
    Under this scenario the Agency Order would be executed as follows:
1. 30 contracts trade with MM1 @ $1.15
2. 20 contracts trade with the Contra Order @ $1.15 (This fills the 
entire Agency Order and this satisfies their 40% participation 
guarantee)
3. Priority Customer order to buy 20 at $1.15 then executes as follows:
a. 20 contracts trade with MM1 @ $1.15
    In Example 16, since there is sufficient size in the RFR responses 
to execute both the Agency Order and the Priority Customer order, both 
execute at the final Auction price.\54\
---------------------------------------------------------------------------

    \54\ See id.
---------------------------------------------------------------------------

    As mentioned above and shown in Examples 8-16, the priority of 
allocation at the conclusion of a PRIME Auction will be similar to the 
standard allocation of orders and quotes on MIAX.\55\ At each price 
point, orders and quotes will be given priority by type--Priority 
Customer, Market Maker with priority quotes, and then to Professional 
Interest. The Exchange believes that this design is necessary to ensure 
a fair and orderly market by maintaining priority of orders and quotes 
while still affording the opportunity for price improvement on each 
Auction commenced on the Exchange. In addition, by keeping the priority 
of allocation of the PRIME similar in this way to the standard 
allocation, there is a reduced ability to misuse the Auction to 
circumvent the standard priority rules.
---------------------------------------------------------------------------

    \55\ In simple terms, the allocation of orders and quotes at the 
conclusion of a PRIME Auction will be in priority ranked by price/
origin type/pro-rata/time which is that standard allocation of 
orders and quotes on MIAX when the pro-rata allocation method and 
the Priority Customer Overlay is in effect. The key differences 
between the standard allocation and PRIME allocation are that in 
PRIME: RFR responses are capped at the total size of the Agency 
order which changes the pro-rata calculation when allocating within 
the same origin type; no participation entitlement will apply to 
orders executed in the PRIME; and the Initiating Member's 
facilitating or solicitation order may receive a participation 
guarantee at the stop price.
---------------------------------------------------------------------------

    As noted earlier, the PRIME Auction is integrated seamlessly within 
the Exchange's Book and is designed to maintain priority of all resting 
quotes and orders and any RFR responses received before the conclusion 
of the Auction. A PRIME Auction would conclude early as a result of 
certain events that would otherwise disrupt the priority of the Auction 
within the Book. The Exchange notes that this is consistent with how 
the electronic price improvement auctions of other competing exchanges 
operate.\56\ The following examples show how allocations will be 
allocated due to the early conclusion of the Prime Auction before the 
expiration of the RFR timer.\57\
---------------------------------------------------------------------------

    \56\ See, e.g., CBOE Rule 6.74A; ISE Rule 723.
    \57\ See supra note 42. As provided above, the Exchange notes 
that in all examples in the filing, a Market Maker response should 
be considered from a Market Maker that does not have a priority 
quote, unless the example specifically states that the response is 
from a Market Maker with a priority quote.
---------------------------------------------------------------------------

Example 17--Early Conclusion of Auction, Opposite Side Limit Order 
Marketable Against NBBO at the Time of Arrival

NBBO = $1.20-$1.24 200 x 100
BBO = $1.20-$1.24 100 x 100
Agency Order to buy 50 contracts with a limit of $1.24

[[Page 13342]]

Initiating Member's Contra Order selling 50 contracts with a stop price 
of $1.24
RFR sent identifying the option, side and size, initiating price of 
$1.24
(Auction Starts)
 @ 200 milliseconds MM3 response received, AOC eQuote to Sell 
50 at $1.22
 @ 210 milliseconds MM1 response received, AOC eQuote to Sell 
50 at $1.22
 @ 230 milliseconds MM4 response received, AOC eQuote to Sell 
50 at $1.23
 @ 400 milliseconds BD1 Unrelated Order received Sell 10 at 
$1.20 (Opposite-side order marketable against the NBB causes an early 
conclusion to the Auction)
    Under this scenario, the Agency Order would be executed as follows:

1. 10 contracts trade with the unrelated order for BD1 @ $1.21 
(midpoint of the best RFR response of $1.22 and the opposite side of 
the market from the RFR response of $1.20)
2. 20 contracts trade with MM3 @ $1.22
3. 20 contracts trade with MM1 @ (This fills the entire Agency Order)
4. MM4 does not trade any contracts
5. Contra Order does not trade any contracts

Example 18--Early Conclusion of Auction, Opposite Side Non-Marketable 
Order Received

NBBO = $1.20-$1.24 200 x 100
BBO = $1.20-$1.24 100 x 100
Agency Order to buy 50 contracts with a limit of $1.24
Initiating Member's Contra Order selling 50 contracts with a stop price 
of $1.24
RFR sent identifying the option, side and size, initiating price of 
$1.24
(Auction Starts)
 @ 200 milliseconds MM3 response received, AOC eQuote to Sell 
50 at $1.23
 @ 210 milliseconds MM1 response received, AOC eQuote to Sell 
50 at $1.23
 @ 230 milliseconds MM4 response received, AOC eQuote to Sell 
50 at $1.24
 @ 400 milliseconds BD1 Unrelated Order received Sell 10 at 
$1.21 (Opposite-side order non-marketable against the NBB causes an 
early conclusion to the Auction)
    Under this scenario, the Agency Order would be executed as follows:

1. 10 contracts trade with the unrelated order for BD1 @ $1.22(midpoint 
of the best RFR response of $1.23 and the unrelated order's limit price 
of $1.21, rounded towards the unrelated order's limit price when 
necessary)
2. 20 contracts trade with MM3 @ $1.23
3. 20 contracts trade with MM1 @ $1.23 (This fills the entire Agency 
Order)
4. MM4 does not trade any contracts
5. Contra Order does not trade any contracts

Example 19--Early Conclusion of Auction, Opposite Side Market Order 
With Auto-Match and No Responses

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 of $1.20
Initiating Member's Contra Order selling 50 contracts with Auto-match
RFR sent identifying the option, side and size, with initiating price 
of $1.20 (Auction Starts)
 @ 490 milliseconds BD1 Unrelated Order received Sell 5 at the 
market (Opposite-side market order causes an early conclusion to the 
Auction)

    Under this scenario, the Agency Order would be executed as follows:

1. 5 contracts trade with BD1 @ $1.17 (midpoint of the initiating price 
of $1.20 and the opposite side of the market from the RFR response of 
$1.15, rounded towards the disseminated quote when necessary)
2. 45 contracts trade with Contra Order at $1.20 (the initiating price) 
(This fills the entire Agency Order)

Example 20--Early Conclusion of Auction, Opposite Side Market Order 
With Auto-Match and Responses Before Early Conclusion

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 of $1.20
Initiating Member's Contra Order selling 50 contracts with Auto-match,
RFR sent identifying the option, side and size, with initiating price 
of $1.20 (Auction Starts)
 @ 230 milliseconds MM4 response received, AOC eQuote to Sell 
10 at $1.18
 @ 450 milliseconds MM3 response received, AOC eQuote to Sell 
40 at $1.20
 @ 490 milliseconds BD1 Unrelated Order received Sell 5 at the 
market (Opposite-side market order causes an early conclusion to the 
Auction)

    Under this scenario, the Agency Order would be executed as follows:

1. 5 contracts trade with BD1 @ $1.16 (midpoint of the best RFR 
response of $1.18 and the opposite side of the market from the RFR 
response of $1.15, rounded towards the disseminated quote)
2. 10 contracts trade with MM4 @ $1.18
3. 10 contracts trade with Contra Order @ $1.18 (Auto-match other 
response prices)
4. 10 contracts trade with the Contra Order @ $1.20 (This satisfies 
their 40% of the remaining contracts participation guarantee)
5. 15 contracts trade with MM3 @ $1.20 (This fills the entire Agency 
Order)

Example 21--Early Conclusion of Auction, Opposite Side Market Order 
With Single-Price Submission

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 of $1.20
Initiating Member's Contra Order selling 50 contracts with single stop 
price of $1.20
RFR sent identifying the option, side and size, with initiating price 
of $1.20 (Auction Starts,)
 @ 230 milliseconds MM4 response received, AOC eQuote to Sell 
10 at $1.19
 @ 450 milliseconds MM3 response received, AOC eQuote to Sell 
40 at $1.20
 @ 490 milliseconds BD1 Unrelated Order received Sell 5 at the 
market (Opposite-side market order causes an early conclusion to the 
Auction)

    Under this scenario, the Agency Order would be executed as follows:

1. 5 contracts trade with BD1 @ $1.17 (midpoint of the best RFR 
response of $1.19 and the opposite side of the market from the RFR 
response of $1.15)
2. 10 contracts trade with MM4 @ $1.19
3. 20 contracts trade with the Contra Order @ $1.20 (This satisfies 
their 40% participation guarantee)
4. 15 contracts trade with MM3 @ $1.20 (This fills the entire Agency 
Order)

Example 22--Early Conclusion of Auction, Same Side Market Order

NBBO = $1.20-$1.24 200 x 200
BBO = $1.20-$1.24 100 x 100
Agency Order to buy 20 contracts for $1.23
Initiating Member's Contra Order selling 20 contracts with Auto-match
RFR sent, identifying the option, side and size, initiating price of 
$1.23 (Auction Starts)
 @ 200 milliseconds MM3 response received, AOC eQuote to Sell 
20 at $1.23
 @ 210 milliseconds MM1 response received, AOC eQuote to Sell 
20 at $1.22
 @ 230 milliseconds MM4 response received, AOC eQuote to Sell 
20 at $1.22
 @ 250 milliseconds C1 Unrelated Order received Buy 100 at the 
market (Same-side order marketable against the NBO causes an early 
conclusion to the Auction)

[[Page 13343]]

    Under this scenario, the Agency Order would be executed as follows:

1. 8 contracts trade with the Contra Order @ $1.22 (This satisfies 
their 40% participation guarantee)
2. 6 contract trades with MM1 @ $1.22
3. 6 contract trades with MM4 @ $1.22 (This fills the entire Agency 
Order)
4. C1 unrelated order to buy 100 at the market then executes as 
follows:
a. 14 contracts trade with MM1 @ $1.22
b. 14 contracts trade with MM4 @ $1.22
c. 20 contracts trade with MM3 @ $1.23
d. The remaining 52 contracts from C1 unrelated order are handled 
pursuant to existing Rule 514 (in this case, that means the 52 
contracts would trade with the interest comprising the BO, which was 
offering 100 contracts at $1.24)

Example 23--Early Conclusion of Auction, Same Side New BBO Improves 
Initiating Price

NBBO = $1.20-$1.24 200 x 200
BBO = $1.20-$1.24 100 x 100
Agency Order to buy 20 contracts with a limit price of $1.22
Initiating Member's Contra Order selling 20 contracts at $1.22
RFR sent identifying the option, side and size, with an initiating 
price of $1.22 (Auction Starts)
 @ 300 milliseconds MM3 response received, AOC eQuote to Sell 
20 at $1.22
 @ 310 milliseconds MM1 response received, AOC eQuote to Sell 
20 at $1.22
 @ 430 milliseconds MM4 response received, AOC eQuote to Sell 
20 at $1.22
 @ 450 milliseconds C1 Unrelated Order received Buy 100 at 
$1.23 (Same side limit order to buy that improves (i.e., is priced 
higher than) the Agency Order's initiating price causes the Auction to 
conclude early)

    Under this scenario, the Agency Order would be executed as follows:
 8 contracts trade with the Contra Order @ $1.22 (This 
satisfies their 40% participation guarantee)
 4 contracts trades with MM3 @ $1.22
 4 contracts trades with MM1 @ $1.22
 4 contracts trade with MM4 @ $1.22 (This fills the entire 
Agency Order)
 C1 unrelated order then executes as follows:
a. 16 contracts trade with MM3 @ $1.22
b. 16 contracts trade with MM1 @ $1.22
c. 16 contracts trade with MM4 @ $1.22
d. Remaining contracts post to the Book as new BB paying $1.23 for 52 
contracts

Example 24--Early Conclusion of Auction, IOC Marketable Against Either 
Side of NBBO at Time of Arrival

NBBO = $1.20-$1.24 200 x 200
BBO = $1.20-$1.24 100 x 100
Agency Order to buy with a limit price of $1.22 for 20 contracts
Initiating Member's Contra Order selling 20 contracts at $1.22
RFR sent identifying the option, side and size, with initiating price 
of $1.22 (Auction Starts)
 @ 100 milliseconds MM3 response received, AOC eQuote to Sell 
20 at $1.22
 @ 210 milliseconds MM1 response received, AOC eQuote to Sell 
20 at $1.22
 @ 330 milliseconds MM4 response received, AOC eQuote to Sell 
20 at $1.22
 @ 400 milliseconds C1 Unrelated IOC Order received Buy 100 at 
$1.24 (Same side IOC order to buy marketable against the BO causes the 
Auction to conclude early)

    Under this scenario, the Agency Order would be executed as follows:
1. 8 contracts trade with the Contra Order @ $1.22 (This satisfies 
their 40% participation guarantee)
2. 4 contracts trades with MM3 @ $1.22
3. 4 contracts trades with MM1 @ $1.22
4. 4 contracts trade with MM4 @ $1.22 (This fills the entire Agency 
Order)
5. C1 unrelated IOC order then executes as follows:
a. 16 contracts trade with MM3 @ $1.22
b. 16 contracts trade with MM1 @ $1.22
c. 16 contracts trade with MM4 @ $1.22
d. Remaining 52 contracts then executes with the posted market at the 
Exchange's $1.24 BO

    As described above, the PRIME is designed to work seamlessly with 
the Exchange's Book and with a priority of allocation that will be 
similar to the standard allocation of orders and quotes on MIAX. If 
orders are received by the Exchange during the period when a PRIME 
Auction is occurring, such orders will be eligible to participate in 
the auction, subject to the process above. If orders received are not 
executed in the Auction, the time stamps they received will be used to 
determine time priority for their execution outside of the auction. The 
Exchange believes that early conclusion of the Auction in these 
circumstances will ensure that the Auction interacts seamlessly with 
the Exchange's Book so as not to disturb the priority of orders on the 
Book, while affording the PRIME Auction opportunities for price 
improvement.

PRIME Solicitation Mechanism

    The Exchange also proposes to provide for a price improvement 
mechanism to handle solicited orders. A Member that represents agency 
orders may electronically execute orders it represents as agent 
(``Agency Order'') against solicited orders provided it submits both 
the Agency Order and solicited orders for electronic execution into the 
PRIME Solicitation Mechanism (``Solicitation Auction'') pursuant to 
proposed Rule 515A(b).
    A Member (the ``Initiating Member'') may initiate a Solicitation 
Auction provided all of the following are met: (i) The Agency Order is 
in a class designated as eligible for Solicitation Auctions as 
determined by the Exchange and within the designated Solicitation 
Auction order eligibility size parameters as such size parameters are 
determined by the Exchange (however, the eligible order size may not be 
less than 500 standard option contracts or 5,000 mini-option 
contracts); (ii) each order entered into the Solicitation Auction shall 
be designated as all-or-none; and (iii) the minimum price increment for 
an Initiating Member's single price submission shall be $0.01 
increment.\58\
---------------------------------------------------------------------------

    \58\ See Proposed Rule 515A(b)(1). See also CBOE Rule 6.74B(a).
---------------------------------------------------------------------------

    The Exchange proposes that the PRIME Solicitation Auction will 
proceed as follows:
     To initiate the Solicitation Auction, the Initiating 
Member must mark the Agency Order for Solicitation Auction processing, 
and specify a single price at which it seeks to cross the Agency Order 
with a solicited order which shall be the ``initiating price'' for the 
Solicitation Auction.\59\
---------------------------------------------------------------------------

    \59\ See Proposed Rule 515A(b)(2)(i)(A). See also CBOE Rule 
6.74B(b)(1)(A).
---------------------------------------------------------------------------

     When the Exchange receives a properly designated Agency 
Order for Solicitation Auction processing, a RFR message indicating the 
option, side, size, and initiating price \60\ will be sent to all 
subscribers of the Exchange's data feeds.\61\
---------------------------------------------------------------------------

    \60\ The ``initiating price'' for the PRIME Solicitation Auction 
is the single price specified by the Initiating Member at which it 
seeks to cross the Agency Order with a solicited order. See id.
    \61\ See Proposed Rule 515A(b)(2)(i)(B). As mentioned above, the 
Exchange will include the RFR from the auction mechanisms in the 
Exchange's data feeds at no incremental cost to subscribers. Thus, 
any subscriber that chooses to receive options data, including any 
Member subscriber, has the ability to respond to those RFRs. The 
proposed RFR differs from CBOE which only disseminates side and size 
to Trading Permit Holders that have elected to receive RFRs. See 
also CBOE Rule 6.74B(b)(1)(B).
---------------------------------------------------------------------------

     Members may submit responses to the Request for Responses 
(specifying prices and sizes) during the response period (which shall 
be 500 milliseconds).\62\ RFR responses shall be

[[Page 13344]]

an Auction or Cancel (``AOC'') order or an AOC eQuote.\63\
---------------------------------------------------------------------------

    \62\ See Proposed Rule 515A(b)(2)(i)(C). The RFR response time 
during solicitation auctions varies from exchange to exchange. The 
CBOE RFR lasts for one second. See CBOE Rule 6.74B(b)(1)(C). In 
February 2014, to determine whether the proposed duration of the RFR 
would provide sufficient time to enter a RFR response, the Exchange 
asked Members, including Market Makers, whether their firms ``could 
respond to an Auction with a duration of 500 milliseconds.'' Of the 
8 Members that responded to the question, 100% indicated that their 
firm could respond in this time frame. Thus, the Exchange believes 
that the proposed duration for the RFR of 500 milliseconds, would 
provide a meaningful opportunity for participants on MIAX to respond 
to a RFR while at the same time facilitating the prompt execution of 
orders.
    \63\ See Proposed Rule 515A(b)(2)(i)(C). See supra note 20. In 
contrast to CBOE which does not allow responses from options market 
makers from another options exchange, any MIAX Member may respond to 
the RFR in the PRIME Solicitation Mechanism. See CBOE Rule 
6.74B(b)(1)(C).
---------------------------------------------------------------------------

     Responses shall not be visible to other Solicitation 
Auction participants, and shall not be disseminated to OPRA.\64\
---------------------------------------------------------------------------

    \64\ See Proposed Rule 515A(b)(2)(i)(D). See also CBOE Rule 
6.74B(b)(1)(D).
---------------------------------------------------------------------------

     The minimum price increment for responses shall be the 
same as provided in 515A(b)(1)(iii) above.\65\
---------------------------------------------------------------------------

    \65\ See Proposed Rule 515A(b)(2)(i)(E). See also CBOE Rule 
6.74B(b)(1)(E).
---------------------------------------------------------------------------

     A response with a size greater than the size of the Agency 
Order will be capped at the size of the Agency Order.\66\
---------------------------------------------------------------------------

    \66\ See Proposed Rule 515A(b)(2)(i)(F). In contrast to CBOE 
which limits responses to only the size of the Agency Order, 
responses that exceed the size of the Agency Order will be treated 
as if they were the same size as the Agency Order for purposes of 
the auction. See CBOE Rule 6.74B(b)(1)(F).
---------------------------------------------------------------------------

     RFR responses may be cancelled.\67\
---------------------------------------------------------------------------

    \67\ See Proposed Rule 515A(b)(2)(i)(G). See also CBOE Rule 
6.74B(b)(1)(G).
---------------------------------------------------------------------------

    The Solicitation Auction shall conclude at the sooner of the 
following: (i) The end of the RFR period; (ii) upon receipt by the 
System of an unrelated order (in the same option as the Agency Order) 
on the same side or opposite side of the market from the RFR responses, 
that is marketable against either the MBBO (when such quote is the 
NBBO) or the RFR responses; (iii) upon receipt by the System of an 
unrelated limit order (in the same option as the Agency Order and on 
the opposite side of the market as the Agency Order) that improves any 
RFR response; (iv) any time an RFR response matches the MBBO on the 
opposite side of the market from the RFR responses; (v) any time there 
is a quote lock on the Exchange pursuant to Rule 1402; or (vi) any time 
there is a trading halt in the option on the Exchange.\68\
---------------------------------------------------------------------------

    \68\ See Proposed Rule 515A(b)(2)(ii). See also CBOE Rules CBOE 
Rule 6.74B(b)(2) and 6.74A(b)(2).
---------------------------------------------------------------------------

    At the conclusion of the Solicitation Auction, the Agency Order 
will be automatically executed in full and allocated subject to the 
following provisions, or cancelled. The Agency Order will be executed 
against the solicited order at the proposed execution price, provided 
that:
     The execution price must be equal to or better than the 
NBBO. If the execution would take place outside the NBBO, the Agency 
Order and solicited order will be cancelled; \69\
---------------------------------------------------------------------------

    \69\ See Proposed Rule 515A(b)(2)(iii)(A). See also CBOE Rule 
6.74B(b)(2)(A)(I).
---------------------------------------------------------------------------

     There are no Priority Customer orders resting in the Book 
on the opposite side of the Agency Order at the proposed execution 
price.\70\
---------------------------------------------------------------------------

    \70\ See Proposed Rule 515A(b)(2)(iii)(B)1). See also CBOE Rule 
6.74B(b)(2)(A)(II).
---------------------------------------------------------------------------

     If there are Priority Customer orders and there is 
sufficient size (considering all resting orders, quotes and responses) 
to execute the Agency Order, the Agency Order will be executed against 
these interests and the solicited order will be cancelled. The Agency 
Order will be allocated at the best price(s) pursuant to the matching 
algorithm in effect for the class.\71\
---------------------------------------------------------------------------

    \71\ See Proposed Rule 515A(b)(2)(iii)(B)2). In contrast to CBOE 
which is silent on the priority of allocation of interest against 
the Agency Order, the Exchange proposes to specify that the Agency 
Order will be allocated pursuant to the matching algorithm in effect 
for the class. This will ensure that the Agency Order is allocated 
consistent with the standard priority of allocation on the Exchange 
rules that distinguish between Priority Customers, Market Makers 
with priority quotes, and Professional Interest in a manner that 
will help ensure a fair and orderly market by maintaining priority 
of orders and quotes while still affording the opportunity for price 
improvement on each Solicitation Auction commenced on the Exchange. 
See also CBOE Rule 6.74B(b)(2)(A)(II).
---------------------------------------------------------------------------

     If there are Priority Customer orders and there is not 
sufficient size (considering all resting orders, quotes and responses), 
both the Agency Order and the solicited order will be cancelled; \72\ 
and
---------------------------------------------------------------------------

    \72\ See Proposed Rule 515A(b)(2)(iii)(B). See also CBOE Rule 
6.74B(b)(2)(A)(II).
---------------------------------------------------------------------------

     There is insufficient size to execute the Agency Order at 
an improved price(s).\73\
---------------------------------------------------------------------------

    \73\ See Proposed Rule 515A(b)(2)(iii)(C). See also CBOE Rule 
6.74B(b)(2)(A)(III).
---------------------------------------------------------------------------

     If there is sufficient size (considering all resting 
orders, quotes and responses) to execute the Agency Order at an 
improved price(s) that is equal or better than the NBBO, the Agency 
Order will execute at the improved price(s) and the solicited order 
will be cancelled. The Agency Order will be allocated at the best 
price(s) pursuant to the matching algorithm in effect for the 
class.\74\
---------------------------------------------------------------------------

    \74\ See Proposed Rule 515A(b)(2)(iii)(C)1) [sic]. In contrast 
to CBOE which is silent on the priority of allocation of interest 
against the Agency Order, the Exchange proposes to specify that the 
Agency Order will be allocated pursuant to the matching algorithm in 
effect for the class. This will ensure that the Agency Order is 
allocated consistent with the standard priority of allocation on the 
Exchange rules that distinguish between Priority Customers, Market 
Makers with priority quotes, and Professional Interest in a manner 
that will help ensure a fair and orderly market by maintaining 
priority of orders and quotes while still affording the opportunity 
for price improvement on each Solicitation Auction commenced on the 
Exchange. See also CBOE Rule 6.74B(b)(2)(A)(III).
---------------------------------------------------------------------------

    The following examples show how orders will be executed in the 
Solicitation Auction.

Example 25--All-or-None (``AON'') Solicited Offer Gets Allocation

XYZ Jan 50 Calls
NBBO--1.10-1.25
BBO--1.10-1.30
Paired order to execute 2000 contracts AON (customer selling) @ 1.10
A RFR is broadcast to all subscribers showing option, size, side, and 
price; timer is started
System starts the auction at the Initiating Customer price to sell @ 
1.10
 @ 100 milliseconds Response 1 to buy @ 1.10 2000 AOC order 
arrives
 @ 200 milliseconds Response 2 to buy @ 1.10 2000 AOC order 
arrives
 @ 220 milliseconds Response 3 to buy @ 1.10 5000 AOC order 
arrives
 @ 432 milliseconds Response 4 to buy @ 1.20 1000 AOC order 
arrives
 @ 500 milliseconds auction timer expires and auction ends
    Aggregate responses did not price improve AON size of Initiating 
Customer Trade is allocated against Initiating Customer:

1. Solicited order buys 2000 contracts paying 1.10

Example 26--Customer Gets Price Improved for AON Size

XYZ Jan 50 Calls
NBBO--1.10-1.25
BBO--1.10-1.30
Paired order to execute 2000 contracts AON (customer selling) @ 1.10
A RFR is broadcast to all subscribers showing option, size, side, and 
price; timer is started
System starts the auction at the Initiating Customer price to sell @ 
1.10
 @ 100 milliseconds Response 1 to buy @ 1.10 2000 AOC order 
arrives
 @ 200 milliseconds Response 2 to buy @ 1.10 2000 AOC order 
arrives
 @ 220 milliseconds Response 3 to buy @ 1.10 5000 AOC order 
arrives
 @ 332 milliseconds Response 4 to buy @ 1.20 1000 AOC order 
arrives
 @ 400 milliseconds Response 5 to buy @ 1.15 2000 AOC order 
arrives
 @ 500 milliseconds auction timer expires and auction ends

[[Page 13345]]

Solicited contra does not participate because entire size was price 
improved
    Trade is allocated against Initiating Customer:
1. 1000 trade vs. Response 4 @ 120
2. 1000 trade vs. Response 5 @ 115; balance of response size is 
cancelled
3. Solicited contra does not participate because entire size was price 
improved

Example 27--Customer Gets Price Improved for AON Size, Unrelated 
Opposite Side Order Ends Auction and Trades vs. Responses

XYZ Jan 50 Calls
NBBO--1.10-1.25
BBO--1.10-1.30
Paired order to execute 2000 contracts AON (customer selling) @ 1.10
A RFR is broadcast to all subscribers showing option, size, side, and 
price; timer is started
System starts the auction at the Initiating Customer price to sell @ 
1.10
 @ 100 milliseconds Response 1 to buy @ 1.10 2000 AOC order 
arrives
 @ 200 milliseconds Response 2 to buy @ 1.10 2000 AOC order 
arrives
 @ 220 milliseconds Response 3 to buy @ 1.10 5000 AOC order 
arrives
 @ 332 milliseconds Response 4 to buy @ 1.20 1000 AOC order 
arrives
 @ 400 milliseconds Response 5 to buy @ 1.15 2000 AOC order 
arrives
 @ 450 milliseconds, unrelated opposite side order arrives 
buying 100 @ 1.20-(Opposite side limit order to buy that improves a RFR 
response (improves Responses 1, 2, 3, and 4)\75\ causes the Auction to 
conclude early)

    \75\ The Commission believes that in Example 27, the reference 
to Response 4 in the final bullet point should instead be to 
Response 5.
---------------------------------------------------------------------------

    Trade is allocated against Initiating Customer:

1. 1000 trade vs. Response 4 @ 1.20
2. 100 trade vs. unrelated opposite side order @ 1.20
3. 900 trade vs. Response 5 @ 1.15; balance of response size is 
cancelled
4. Solicited contra does not participate because entire size was price 
improved

Example 28--Customer Gets Price Improved for AON Size, Unrelated Same 
Side Order Ends Auction and Trades vs. Responses

XYZ Jan 50 Calls
NBBO--1.10-1.25
BBO--1.10-1.30
Paired order to execute 2000 contracts AON (customer selling) @ 1.10
A RFR is broadcast to all subscribers showing option, size, side, and 
price; timer is started
System starts the auction at the Initiating Customer price to sell @ 
1.10
 @ 100 milliseconds Response 1 to buy @ 1.10 2000 AOC order 
arrives
 @ 200 milliseconds Response 2 to buy @ 1.10 2000 AOC order 
arrives
 @ 220 milliseconds Response 3 to buy @ 1.10 5000 AOC order 
arrives
 @ 332 milliseconds Response 4 to buy @ 1.20 1000 AOC order 
arrives
 @ 400 milliseconds Response 5 to buy @ 1.15 2000 AOC order 
arrives
 @ 450 milliseconds, unrelated same side order arrives selling 
100 @ 1.10--(Same side limit order to sell that is marketable against 
RFR responses causes the Auction to conclude early)

    Trade is allocated against Initiating Customer:
1. 1000 trade vs. Response 4 @ 1.20
2. 1000 trade vs. Response 5 @ 1.15
3. Solicited contra does not participate because entire size was price 
improved
4. Unrelated same side order trades 100 vs. Response 5 @ 1.15; balance 
of response size is cancelled

Interpretations and Policies

    The Exchange also proposes several Interpretations and Policies to 
Proposed Rule 515A.
    Interpretations and Policy .01 provides that it shall be considered 
conduct inconsistent with just and equitable principles of trade, in 
accordance with Rule 301, for any Member to enter orders, quotes, 
Agency Orders, or other responses for the purpose of disrupting or 
manipulating the Auction. Such conduct includes, but is not limited to, 
engaging in a pattern or practice of submitting unrelated orders that 
cause an Auction to conclude before the end of the RFR period and 
engaging in a pattern of conduct where the Member submitting the Agency 
Order into the PRIME breaks up the Agency Order into separate orders 
for two (2) or fewer contracts for the purpose of gaining a higher 
allocation percentage than the Member would have otherwise received in 
accordance with the allocation procedures contained in paragraph 
(a)(2)(iii) or (b)(2)(iii) above.\76\
---------------------------------------------------------------------------

    \76\ See Proposed Rule 515A, Interpretations and Policies .01. 
See also ISE Rule 723, Commentary .01; CBOE Rule 6.74A.02.
---------------------------------------------------------------------------

    Interpretations and Policy .02 provides that the Auction and the 
Solicitation Auction may only be used to execute bona fide crossing 
transactions. Using the Auction and the Solicitation Auction for any 
other means, including but not limited to, market or price 
manipulation, shall be considered conduct inconsistent with just and 
equitable principles of trade in accordance with Rule 301.\77\
---------------------------------------------------------------------------

    \77\ See Proposed Rule 515A, Interpretations and Policies .02. 
See also ISE Rule 723, Commentary .02.
---------------------------------------------------------------------------

    Interpretations and Policy .03 provides that for executions 
pursuant to Rule 515A(b), prior to entering Agency Orders into the 
PRIME on behalf of customers, Initiating Members must deliver to the 
customer a written notification informing the customer that his order 
may be executed using the PRIME. The written notification must disclose 
the terms and conditions contained in this Rule 515A and be in a form 
approved by the Exchange.\78\
---------------------------------------------------------------------------

    \78\ See Proposed Rule 515A, Interpretations and Policies .03. 
See also CBOE Rule 6.74B.02.
---------------------------------------------------------------------------

    Interpretations and Policies .04 provides that Members may enter 
contra orders that are solicited. The PRIME provides a facility for 
Members that locate liquidity for their customer orders. Members may 
not use the Solicitation Auction to circumvent Rule 520 limiting 
principal transactions. This may include, but is not limited to, 
Members entering contra orders that are solicited from (a) affiliated 
broker-dealers, or (b) broker-dealers with which the Member has an 
arrangement that allows the Member to realize similar economic benefits 
from the solicited transaction as it would achieve by executing the 
customer order in whole or in part as principal. Additionally, 
solicited contra orders entered by Members to trade against Agency 
Orders may not be for the account of a MIAX Market Maker assigned to 
the options class.\79\
---------------------------------------------------------------------------

    \79\ See Proposed Rule 515A, Interpretations and Policies .04. 
See also CBOE Rule 6.74B.03.
---------------------------------------------------------------------------

    Interpretation and Policy .05 provides that any determinations made 
by the Exchange pursuant to this Rule such as eligible classes and 
order size parameters shall be communicated in a Regulatory 
Circular.\80\
---------------------------------------------------------------------------

    \80\ See Proposed Rule 515A, Interpretations and Policies .05. 
See also CBOE Rule 6.74A.05.
---------------------------------------------------------------------------

    Interpretation and Policy .06 provides that if managed interest 
exists on the MIAX Book pursuant to Rule 515(c) for the option on the 
opposite side of the market as the Agency Order and when the MBBO is 
equal to the NBBO, the Agency Order will be automatically executed 
against the managed interest if the execution would be at a price equal 
to the initiating price of the Agency Order. If the Agency Order is not 
fully executed after the managed interest is fully exhausted and is no 
longer at a price equal to or better than the initiating price of the 
Agency Order, the Auction will be initiated for the balance

[[Page 13346]]

of the order as provided in this rule. With respect to any portion of 
an Agency Order that is automatically executed against managed interest 
pursuant to this paragraph .06, the exposure requirements contained in 
Rule 520(b) and (c) will not be satisfied just because the member 
utilized the PRIME.\81\ Managed interest on the opposite side of the 
market as the Agency Order pursuant to Rule 515(c) is posted at one 
minimum trading increment away from the NBBO, but is available for 
execution at the NBBO. In order to preserve the priority of this 
managed interest against incoming RFR responses to the Auction of the 
Agency Order, the System will execute the Agency Order to the extent 
possible. The Exchange believes that this provision is necessary to 
ensure that PRIME works seamlessly with the Exchange's Book in a manner 
that would ensure a fair and orderly market by maintaining priority of 
orders and quotes while still affording the opportunity for price 
improvement on each Auction commenced on the Exchange.
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    \81\ See Proposed Rule 515A, Interpretations and Policies .06. 
In contract to ISE which allows the Agency Order to execute against 
the ISE BBO before executing a crossing transaction in the price 
improvement mechanism, the Exchange proposes allowing the immediate 
execution against managed interest if that execution is equal to the 
initiating price, which is the stop price of the Agency Order. See 
ISE Rule 723, Commentary .08.
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    Interpretation and Policy .07 provides that if managed interest 
exists on the Exchange's Book pursuant to Rule 515(c) for the option on 
the same side of the market as the Agency Order, the Agency Order will 
be rejected by the System prior to initiating an Auction or a 
Solicitation Auction.\82\ Managed interest on the same side of the 
market as the Agency Order pursuant to Rule 515(c) is posted at one 
minimum trading increment away from the NBBO, but is available for 
execution at the NBBO. In order to preserve the priority of this 
managed interest against incoming RFR responses to the Auction of the 
Agency Order, the System will reject the Agency Order. The Exchange 
believes that this provision is necessary to ensure that PRIME works 
seamlessly with the Exchange's Book in a manner that would ensure a 
fair and orderly market by maintaining priority of orders and quotes 
while still affording the opportunity for price improvement on each 
Auction commenced on the Exchange.
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    \82\ See Proposed Rule 515A, Interpretations and Policies .07.
---------------------------------------------------------------------------

    Interpretation and Policy .08 provides that the Exchange will 
submit certain data, as required by the Commission, to provide 
supporting evidence that, among other things, there is meaningful 
competition for all size orders within the PRIME, that there is 
significant price improvement for all orders executed through the 
PRIME, and that there is an active and liquid market functioning on the 
Exchange outside of the PRIME. Any data which is submitted to the 
Commission will be provided on a confidential basis.\83\
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    \83\ See Proposed Rule 515A, Interpretations and Policies .08; 
Exhibit 3 (providing a comprehensive list of the data that the 
Exchange represents that it will collect in order to aid the 
Commission in its evaluation of the PRIME). See also ISE Rule 723, 
Commentary .03.
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Order Exposure Rule

    Current Rule 520 prohibits Electronic Exchange Members from acting 
as principal on any orders they represent as agent unless (i) agency 
orders are first exposed on the Exchange for at least one (1) second, 
and (ii) the Electronic Exchange Member has been bidding or offering on 
the Exchange for at least one (1) second prior to receiving an agency 
order that is executable against such bid or offer. In addition, 
Electronic Exchange Members may not execute orders they represent as 
agent on the Exchange against orders 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 (1) 
second.
    The Exchange believes that the proposed RFR period of 500 
milliseconds is sufficient length to permit Members time to respond to 
a PRIME Auction thereby enhancing opportunities for competition among 
participants and increasing the likelihood of price improvement for the 
Agency Order. Accordingly, the Exchange proposes to amend Rule 520 to 
stipulate that a Member may execute as principal orders they represent 
as agent, provided that the Member avails itself of the PRIME Auction, 
pursuant to Rule 515A. Similarly, the Exchange proposes to amend Rule 
520 to stipulate that a Member may execute orders they represent as 
agent against solicited orders, provided that the Member avails itself 
of the PRIME Auction, pursuant to Rule 515A. Such Agency Orders would 
not be subject to the one second order exposure requirement of Rule 
520, which exclusion from the one second order exposure requirement is 
consistent with the treatment of similar orders at another competing 
exchange.\84\
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    \84\ See BOX Options Rule 7130 IM-7140-2.
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Section 11(a) of the Exchange Act

    Section 11(a) of the Exchange Act prohibits any member of a 
national securities exchange from effecting transactions on that 
exchange for its own account, the account of an associated person, or 
an account over which it or its associated persons exercises discretion 
(``covered accounts''), unless an exception applies.\85\ Section 
11(a)(1) contains a number of exceptions for principal transactions by 
members and their associated persons. As set forth below, the Exchange 
believes that the proposed rules for the PRIME are consistent with the 
requirements in Section 11(a) and the rules thereunder.
---------------------------------------------------------------------------

    \85\ 15 U.S.C. 78k(a)(1).
---------------------------------------------------------------------------

    In this regard, Section 11(a)(1)(A) provides an exception from the 
prohibitions in Section 11(a) for dealers acting in the capacity of 
market makers. With respect to Market Makers on the Exchange, the 
Exchange believes that orders sent by them for covered accounts to the 
proposed PRIME would qualify for this exception from Section 11(a).
    In addition to this Market Maker exception, Rule 11a2-2(T) under 
the Exchange Act, known as the ``effect versus execute'' rule, provides 
exchange members with an exception from Section 11(a) by permitting 
them, subject to certain conditions, to effect transactions for covered 
accounts by arranging for an unaffiliated member to execute the 
transactions on the exchange.\86\ To comply with the ``effect versus 
execute'' rule's conditions, a member: (i) Must transmit the order from 
off the exchange floor; (ii) may not participate in the execution of 
the transaction once it has been transmitted to the member performing 
the execution; \87\ (iii) may not be affiliated with the member 
executing the transaction on the floor through the facilities of the 
Exchange; and (iv) with respect to an account over which the member has 
investment discretion, neither the member nor its associated person may 
retain any compensation in connection with effecting the transaction 
except as provided in the rule.\88\
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    \86\ 17 CFR 240.11a2-2(T).
    \87\ The member, however, may participate in clearing and 
settling the transaction. See Securities Exchange Act Release No. 
14563 (March 14, 1978), 43 FR 11542 (March 17, 1978).
    \88\ 17 CFR 240.11a2-2(T).
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    The Exchange believes that orders sent by Members for covered 
accounts to the proposed PRIME would qualify for this ``effect versus 
execute'' exception from Section 11(a), as

[[Page 13347]]

described below. In this regard, the first condition of Rule 11a2-2(T) 
is that orders for covered accounts be transmitted from off the 
exchange floor. The MIAX trading system and the proposed PRIME receives 
all orders electronically through remote terminals or computer-to-
computer interfaces. The Exchange represents that orders for covered 
accounts from Members will be transmitted from a remote location 
directly to the proposed PRIME mechanisms by electronic means. In the 
context of other automated trading systems, the Commission has found 
that the off-floor transmission requirement is met if a covered account 
order is transmitted from a remote location directly to an exchange's 
floor by electronic means.\89\ The second condition of Rule 11a2-2(T) 
requires that the member not participate in the execution of its order 
once the order is transmitted to the floor for execution.\90\ The 
Exchange represents that, upon submission to the PRIME, an order will 
be executed automatically pursuant to the rules set forth for the 
mechanism. In particular, execution of an order sent to the mechanism 
depends not on the Member entering the order, but rather on what other 
orders are present and the priority of those orders. Thus, at no time 
following the submission of an order is a Member able to acquire 
control or influence over the result or timing of order execution.\91\ 
Rule 11a2-2(T)'s third condition requires that the order be executed by 
an exchange member who is unaffiliated with the member initiating the 
order. The Commission has stated that the requirement is satisfied when 
automated exchange facilities, such as the PRIME, are used, as long as 
the design of these systems ensures that members do not possess any 
special or unique trading advantages in handling their orders after 
transmitting them to the exchange.\92\ The Exchange represents that the 
PRIME is designed so that no Member has any special or unique trading 
advantage in the handling of its orders after transmitting its orders 
to the mechanism. Rule 11a2-2(T)'s fourth condition requires that, in 
the case of a transaction effected for an account with respect to which 
the initiating member or an associated person thereof exercises 
investment discretion, neither the initiating member nor any associated 
person thereof may retain any compensation in connection with effecting 
the transaction, unless the person authorized to transact business for 
the account has expressly provided otherwise by written contract 
referring to Section 11(a) of the Act and Rule 11a2-2(T) 
thereunder.\93\ The Exchange recognizes that Members relying on Rule 
11a2-2(T) for transactions effected through the PRIME must comply with 
this condition of the Rule.
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    \89\ See, e.g., Securities Exchange Act Release Nos. 59154 
(December 23, 2008), 73 FR 80468 (December 31, 2008) (SR-BSE-2008-
48); 57478 (March 12, 2008), 73 FR 14521 (March 18, 2008) (SR-
NASDAQ-2007-004 and SR-NASDAQ-2007-080); 49068 (January 13, 2004), 
69 FR 2775 (January 20, 2004) (SR-BSE-2002-15); 15533 (January 29, 
1979), 44 FR 6084 (January 31, 1979) (``1979 Release''); 14563 
(March 14, 1978), 43 FR 11542 (March 17, 1978) (``1978 Release'').
    \90\ The description above covers the universe of the types of 
Members (i.e., Market Makers, EEMs).
    \91\ The Exchange notes that a Member may cancel or modify the 
order, or modify the instructions for executing the order, but that 
such instructions would be transmitted from off the floor of the 
Exchange. The Commission has stated that the non-participation 
requirement is satisfied under such circumstances so long as such 
modifications or cancellations are also transmitted from off the 
floor. See 1978 Release (stating that the ``non-participation 
requirement does not prevent initiating members from canceling or 
modifying orders (or the instructions pursuant to which the 
initiating member wishes to be executed) after the orders have been 
transmitted to the executing member, provided that any such 
instructions are also transmitted from off the floor'').
    \92\ In considering the operation of automated execution systems 
operated by an exchange, the Commission noted that, while there is 
not an independent executing exchange member, the execution of an 
order is automatic once it has been transmitted into the system. 
Because the design of these systems ensures that members do not 
possess any special or unique trading advantages in handling their 
orders after transmitting them to the exchange, the Commission has 
stated that executions obtained through these systems satisfy the 
independent execution requirement of Rule 11a2-2(T). See 1979 
Release.
    \93\ See 17 CFR 240.11a2-2(T)(a)(2)(iv). In addition, Rule 11a2-
2(T)(d) requires a member or associated person authorized by written 
contract to retain compensation, in connection with effecting 
transactions for covered accounts over which such member or 
associated persons thereof exercises investment discretion, to 
furnish at least annually to the person authorized to transact 
business for the account a statement setting forth the total amount 
of compensation retained by the member in connection with effecting 
transactions for the account during the period covered by the 
statement which amount must be exclusive of all amounts paid to 
others during that period for services rendered to effect such 
transactions. See also 1978 (stating ``[t]he contractual and 
disclosure requirements are designed to assure that accounts 
electing to permit transaction-related compensation do so only after 
deciding that such arrangements are suitable to their interests'').
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    Because of the technology changes associated with this rule 
proposal, the Exchange will announce the implementation date of the 
proposal in a Regulatory Circular to be published no later than 90 days 
after the publication of the approval order in the Federal Register. 
The implementation date will be no later than 90 days following 
publication of the Regulatory Circular announcing publication of the 
approval order in the Federal Register.
2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \94\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \95\ 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.
---------------------------------------------------------------------------

    \94\ 15 U.S.C. 78f(b).
    \95\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In particular, the proposal will provide market participants 
auction mechanisms to execute various crossing transactions with the 
opportunity for price improvement, while ensuring equal access to 
exposed orders for all market participants. In this regard, PRIME and 
PRIME Solicitation are intended to be beneficial to investors because 
they are designed to provide investors seeking to effect option orders 
while providing opportunities to access additional liquidity and 
receive price improvement. The Exchange believes the proposed rules are 
appropriate in that 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 rules will provide the opportunity for an efficient mechanism 
for carrying out these strategies. In addition, PRIME and PRIME 
Solicitation promote equal access by providing Members that subscribe 
to the Exchange's data feeds with the opportunity to interact with 
orders in PRIME and PRIME Solicitation. In this regard, any Member can 
subscribe to the options data provided through the Exchange's data 
feeds.
    The Exchange believes that the general provisions regarding the 
price improvement auction provide a simple, clear framework that will 
enable the efficient trading of options in a manner consistent with 
other options exchanges. Further, this clarity in how the price 
improvement auction functions and its consistency with other exchanges 
will help promote a fair and orderly national options market system. 
The Exchange believes that the proposed rules will result in efficient 
trading and reduce the risk for investors that seek access to 
additional liquidity

[[Page 13348]]

and price improvement by providing additional opportunities to do so. 
The proposed priority of allocation rules in PRIME and PRIME 
Solicitation are designed to be similar to the existing priority rules 
that distinguish between Priority Customers, Market Makers with 
priority quotes, and Professional Interest in a manner that will help 
ensure a fair and orderly market by maintaining priority of orders and 
quotes while still affording the opportunity for price improvement on 
each Auction commenced on the Exchange. In addition, by keeping the 
priority of allocation of PRIME and PRIME Solicitation similar in this 
way to the standard allocation, the proposal reduces the ability of 
market participants to misuse the Auction to circumvent the standard 
priority rules in a manner that is designed to prevent fraudulent and 
manipulative acts and practices, and to promote just and equitable 
principles of trade on the Exchange. The proposed execution and 
priority rules will allow option orders to interact with interest in 
the MIAX Book and, conversely, all interest on the MIAX Book to 
interact with option orders in the price improvement mechanism in an 
efficient and orderly manner. The Exchange also believes that this 
interaction of orders will benefit investors by increasing the 
opportunity for option orders to receive execution, while also 
enhancing execution quality for the orders on the MIAX Book.

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. PRIME and PRIME Solicitation 
are 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 proposal to offer price improvement 
auctions on the Exchange is 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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be 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. Among other things, the Commission 
notes that MIAX's proposed rule text in this filing is similar to and 
based on the rules in place at other options exchanges, in particular 
CBOE, with a few provisions that reflect the unique structure of the 
MIAX market. As such, MIAX likely intends that its proposed PRIME 
auction will operate in a manner similar to those other auction 
mechanisms. Despite the similarity in rule text, however, ambiguities 
in the rule may nevertheless exist concerning how the auction 
mechanisms would function in a live trading environment.
    Although MIAX has provided guidance in this respect through 
numerous examples in Section III of this notice, the Commission 
requests comments on whether the MIAX's proposed rule text is 
sufficiently clear and precise regarding how the proposed PRIME 
auctions would operate and how orders would interact within the 
auctions as well as how the auctions would interact with MIAX's market. 
Among other things, the Commission requests comment on the following 
issues:
    1. Are the proposed rules sufficiently clear and detailed as to how 
and at what price the Agency Order could be stopped (either in single-
price or auto match auctions)?
    2. In the case of an unrelated order that arrives to MIAX during 
the auction period on either the side of the Agency Order or the side 
of the RFR Responses (when it is marketable or when it is not, either 
against the BBO, NBBO, or an RFR Response), is the proposed rule text 
sufficiently clear regarding the operation of the proposed PRIME 
Auction and its outcomes?
    3. Are the proposed allocation provisions for the price improvement 
mechanism as well as the solicitation mechanism sufficiently detailed 
and clear?
    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-2014-09 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-2014-09. 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 20549-1090, 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-2014-09 and 
should be submitted on or before March 31,

[[Page 13349]]

2014. For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\96\
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    \96\ 17 CFR 200.30-3(a)(12).

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-05029 Filed 3-7-14; 8:45 am]
BILLING CODE 8011-01-P