Document ID: SEC-2014-0885-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Miami International Securities Exchange LLC
Posted Date: 2014-05-29T04:00Z

[Federal Register Volume 79, Number 103 (Thursday, May 29, 2014)]
[Notices]
[Pages 30908-30911]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-12424]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72228; File No. SR-MIAX-2014-18]

Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Exchange Rule 503

May 22, 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 May 13, 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 
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 the 
Substance of the Proposed Rule Change

    The Exchange is filing a proposal to amend MIAX Rule 503 with 
respect to the Opening Process in an option series.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.miaxoptions.com/filter/wotitle/rule_filing, at 
MIAX's principal office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 503 to change the definition of 
a valid width NBBO and valid width quote to correspond to the standard 
bid-ask differential specified under Rule 603(b)(4)(i). The Exchange's 
current methodology to start the Opening Process is not conducive to a 
quick and efficient opening on the Exchange. The proposed rule change 
will amend the current process to provide that the bid-ask differential 
to allow for the Exchange System to start the Opening Process based on 
the bid-ask differentials specified in Rule 603(b)(4)(i), which are 
wider than the bid-ask differential of Rule 603(b)(4)(ii).\3\ In 
addition, the Exchange proposes some technical changes related to the 
removal of the narrow-width quote standard from Rule 603(b)(4)(ii), as 
it would no longer be necessary once the definition of a valid width 
NBBO and valid width quote is updated to correspond to Rule 
603(b)(4)(i).
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    \3\ For purposes of this filing, the quote width in Rule 
603(b)(4)(i) will be referred to as the ``standard-width quote'' and 
that of Rule 603(b)(40(ii) [sic] will be referred to as the 
``narrow-width quote.''
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Current Opening Process
    Currently, Rule 503 describes the process pursuant to which the 
Exchange System opens an option series. Pursuant to the procedures 
described in Rule 503(e), after an initial pause following the 
dissemination of a quote or trade in the market for the underlying 
security, the Opening Process starts with one of the following events: 
(i) The Primary Lead Market Maker's valid width quote has been 
submitted; (ii) the valid width quotes of at least two Market Makers, 
where at least one is a Lead Market Maker have been submitted; or (iii) 
for multiply listed option classes, at least one Eligible Exchange (as 
defined in Rule 1400(f)) has disseminated a quote in the individual 
option in accordance with Rule 1402(a), there is a valid width NBBO 
available and the valid width quote of at least one Lead Market Maker

[[Page 30909]]

has been submitted.\4\ For the purposes of Rule 503(e) both a valid 
width NBBO and valid width quote is one where the bid and offer differ 
by no more than the differences outlined in Rule 603(b)(4)(ii), the 
narrow-width quote.\5\ Additionally, if after two minutes following the 
dissemination of a quote or trade in the market for the underlying 
security none of the provisions described above have occurred, then the 
opening process can begin when one Market Maker has submitted its valid 
width quote.\6\ The Primary Lead Market Maker assigned in a particular 
equity option class must enter valid width quotes not later than one 
minute following the dissemination of a quote or trade by the market 
for the underlying security.\7\ A Registered Market Maker that submits 
a quote pursuant to this Rule 503 in any series when a Lead Market 
Maker's or Primary Lead Market Maker's quote has not been submitted 
shall be required to submit continuous, two-sided quotes in such series 
until such time as a Lead Market Maker submits his/her quote, after 
which the Registered Market Maker that submitted such quote shall be 
obligated to submit quotations pursuant to Rule 604(e)(3).\8\
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    \4\ See Rule 503(e).
    \5\ See Rule 603(b)(4)(ii). The bid-ask guidelines specified in 
Rule 603(b)(4)(ii) that are required to start the Opening Process 
are narrower than the $5 wide bid-ask differential for options 
traded after the opening rotation. See also Rule 603(b)(4)(i). Rule 
603(b)(4)(i) provides that options traded after the opening rotation 
may be quoted with a difference not to exceed $5 between the bid and 
offer regardless of the price of the bid.
    \6\ See Rule 503(e)(4).
    \7\ See Rule 503(e)(5).
    \8\ See Rule 503(e)(6).
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    Once the Opening Process has been started, the Exchange System will 
either open with a quote or a trade. Rule 503(f)(1) provides the 
mechanism by which the Exchange System will open on a quote.\9\ 
Pursuant to Rule 503(f)(1), the Exchange System, if there are no quotes 
or orders that lock or cross each other, will open by disseminating the 
Exchange's best bid and offer among quotes and orders that exist in the 
System at that time. The remainder of Rule 503(f) provides how the 
Exchange System operates when opening with a trade--scenarios where 
there are quotes or orders that lock or cross an order. Rule 503(f)(2)-
(11) provides the mechanics of how the Exchange System calculates the 
price of an opening trade and handles any imbalance that may occur.\10\ 
For purposes of opening with a trade, Rule 503(f) utilizes the narrow-
width quote used to first start the Opening Process pursuant to Rule 
503(e).
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    \9\ See Rule 503(f)(1).
    \10\ See Rule 503(f).
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Proposed Change to Opening Process
    The Exchange proposes to amend Rule 503(e)(2) and (3) to change the 
definition of a valid width NBBO \11\ and valid width quote \12\ to 
correspond to the standard bid-ask differential specified under Rule 
603(b)(4)(i). As noted above, the Exchange currently uses the narrow-
width quote to define a valid width NBBO and valid width quote. The 
Exchange proposes to replace references to Rule 603(b)(4)(ii) in Rule 
503(e)(2) and (3) with the standard-width quote of Rule 603(b)(4)(i).
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    \11\ See Rule 503(e)(2).
    \12\ See Rule 503(e)(3).
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    Rule 603(b)(4)(i) provides that options, following the opening 
rotation, may be quoted with a difference not to exceed $5 between the 
bid and offer regardless of the price of the bid. The proposed change 
will align the requirements to open the unopened series on a quote with 
the existing Market Marker quoting requirements following the opening 
rotation.
    The Exchange believes that the application of the narrow-width 
quoting requirement of Rule 603(b)(4)(ii) to start the Opening Process 
prevents series from opening promptly and thus unnecessarily delays the 
execution of orders on the Exchange. The Exchange believes that setting 
a wider quote differential requirement to start the Opening Process 
would expedite the opening of all options series on the Exchange 
promptly after the opening of the underlying security. The Exchange 
believes that market participants will benefit by having the ability to 
execute orders on the Exchange without unnecessary delay. In addition, 
applying the standard-width quote bid-ask differential to start the 
Opening Process is consistent with the quoting requirements that are 
applicable following the start of regular trading.
    The Exchange further believes that applying the standard-width 
quote to start the Opening Process is appropriate because it would more 
closely align the Exchange's Rules with the rules of other option 
exchanges with respect to opening a series--specifically in the area of 
opening a series on a quote. Other options exchanges have the ability 
to open a series for trading when there are no executable orders and/or 
quotes to conduct an auction. BOX Options Exchange (``BOX'') and NASDAQ 
Options Market (``NOM''), allow for the opening of series without 
conducting an opening auction. Similar to the Exchange's proposal, NYSE 
Arca opens option series for trading after receiving notification of an 
initial NBBO disseminated by OPRA for the series or on a Market Maker 
quote, provided that the bid-ask differential does not exceed its 
standard-width quote of $5 when not opening with a trade.\13\ On BOX, 
the BOX system attempts to conduct an opening match (similar to the 
Exchange's Opening Process) to determine a single price at which a 
particular option series will be opened.\14\ However, if the BOX system 
is not able to determine an opening price, the option series will 
nevertheless move from the ``Pre-Opening Phase'' to the continuous 
trading phase and the option series will be open for trading. When the 
option series move from Pre-Opening Phase to the continuous trading 
phase, there is no requirement for a bid-ask differential to be met. 
Market makers on BOX would only be required to meet the $5 bid-ask 
differential in the option series if and when they ever decided to 
quote.\15\ Similarly, NOM has no bid-ask differential requirements to 
open a series if an ``Opening Cross'' (similar to Trading Auction) 
cannot be initiated because there are no opening quotes or orders that 
lock or cross each other.\16\ Specifically, if an Opening Cross cannot 
be initiated because there are no opening quotes or orders that lock or 
cross each other, the option series will open for trading on NOM.\17\ 
Market makers on NOM would only be required to meet the $5 bid-ask 
differentials in the option series if and when they ever decided to 
quote.\18\ Both, BOX and NOM could open options series and disseminate 
a protected quotation without the benefit of Market Maker quotation to 
facilitate price discovery.
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    \13\ See NYSE Arca Rule 6.64(b)(E). See also Securities Exchange 
Release No. 68290 (November 26, 2012), 77 FR 71469 (November 30, 
2012) (SR-NYSEArca-2012-126).
    \14\ See BOX Rule 7070(e).
    \15\ See BOX Rule 7070(f). See also BOX Rule 8040, which sets 
forth BOX market maker quoting obligations.
    \16\ See NOM Chapter VI, Section 8(c)(1).
    \17\ See id.
    \18\ See NOM Chapter VII, Section 6(d).
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    By contrast, currently, if the options series does not meet the 
narrow-width quotes, the series will not start the Opening Process and 
not open at all on the Exchange, which differs from NYSE Arca, BOX and 
NOM. As noted above, NYSE Arca requires a Market Maker quote that meets 
the standard-width requirement to open with a quote and neither BOX nor 
NOM require any bid-ask differential to be met prior to opening series 
for trading with a quote. The current inability of the Exchange to

[[Page 30910]]

open a series without quotes subject to a narrow-width quote 
requirement puts the Exchange at a competitive disadvantage to other 
options exchanges that do not have that similar restriction. By not 
opening the option series, the Exchange cannot display orders in the 
Exchange System and thus has no protected quotation in the options 
series. Until the options series officially opens for trading, the 
Exchange cannot route out orders in the Exchange System pursuant to 
Linkage, nor can it have a protected quote that draws trading interest 
from other options markets. The Exchange believes that the delay in 
execution of orders on the Exchange in this situation is unnecessary 
and harmful to market participants. The Exchange's proposal would 
provide for the ability to open an option series on a quote in a 
similar fashion as NYSE Arca, BOX, and NOM. The Exchange believes that 
having a bid-ask differential requirement to open a series is 
beneficial for opening series and helps ensure there is a sufficient 
quoted market in the options series, whether it is via NBBO from OPRA 
or Market Maker generated quote, prior to opening of the series on the 
Exchange to facilitate transactions in securities on the Exchange.
Technical Changes
    To clarify that the Exchange System uses the standard-width quote 
standard to start the Opening Process, the Exchange proposes to delete 
Rule 603(b)(4)(ii). Related to the proposed deletion of Rule 
603(b)(4)(ii), the Exchange further proposes replacing the reference to 
Rule 603(b)(4)(ii) within Rule 521 (Obvious and Catastrophic Errors) 
with the specific bid-ask differential contained in Rule 603(b)(4)(ii) 
so that Rule 521 will be substantially unchanged and remain operatively 
the same.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) \19\ of the Act in general, and furthers the 
objectives of Section 6(b)(5) \20\ of the Act in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanisms of a free and open market and a national market system and, 
in general, to protect investors and the public interest.
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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
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    The proposed rule change is designed to remove impediments to, and 
perfect the mechanism of, a free and open market and a national market 
system because it would permit the Exchange to utilize the standard-
width quote bid-ask differential to start the Opening Process which 
will expedite the opening of all options series on the Exchange 
promptly after the opening of the underlying security, and thus remove 
impediments to and perfect the mechanism of a free and open market in a 
way that benefits market participants and enables them to execute their 
orders on the Exchange.
    The proposed rule change contributes to the protection of investors 
and the public interest by ensuring that if the Exchange should open a 
series on a quote the opening quote will be within the standard bid-ask 
differential of Rule 603(b)(4)(i). The Exchange believes this offers 
better protection than the alternative of requiring no bid-ask 
differential when opening an option series on a quote.
    The proposal would provide fair and orderly means to open a series 
when the Exchange does not have sufficient executable quotes and/or 
orders to conduct an Opening Process and would reasonably ensure that 
the Exchange does not open the series at a price that is beyond the 
price at which Market Makers are permitted to quote for the series 
during the trading session, which also contributes to the protection of 
investors and the public interest, generally. The proposed rule change 
is also designed to promote just and equitable principles of trade 
because it would permit the Exchange to open a series in a manner that 
is more consistent with the opening of individual series on other 
option exchanges.\21\
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    \21\ See supra notes 13, 14, and 16.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed changes are 
designed to facilitate the opening of series on the Exchange in a 
manner that is fair, orderly and more consistent with the practice of 
other option exchanges. Thus, the Exchange believes that the filing is 
pro-competitive and should increase intermarket and intramarket 
competition for options transactions during and immediately after the 
opening.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \22\ and Rule 19b-4(f)(6) \23\ 
thereunder.
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-MIAX-2014-18 on the subject line.

Paper Comments

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

[[Page 30911]]

All submissions should refer to File Number SR-MIAX-2014-18. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such 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-2014-18, and should be 
submitted on or before June 19, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-12424 Filed 5-28-14; 8:45 am]
BILLING CODE 8011-01-P