Document ID: SEC-2013-0592-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Miami International Securities Exchange LLC
Posted Date: 2013-03-27T04:00Z

[Federal Register Volume 78, Number 59 (Wednesday, March 27, 2013)]
[Notices]
[Pages 18637-18642]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-07062]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69210; File No. SR-MIAX-2013-12]

Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing of a Proposed Rule Change Relating to 
Obvious Errors in Limit or Straddle States

March 22, 2013.
    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that, on March 22, 2013, Miami International 
Securities Exchange LLC (``MIAX'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission'') a 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared by the self-regulatory orgnaization. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend Exchange Rule 530, Limit 
Up-Limit Down (``LULD''), and to amend Exchange Rule 521, Obvious and 
Catastrophic Errors to provide for how the Exchange proposes to treat 
erroneous options transactions in response to the Plan to Address 
Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS, 
as it may be amended from time to time (the ``Plan'').
    The text of the proposed rule change is provided in Exhibit 5. The 
text of the proposed rule change is also 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend MIAX Rules 530 
and 521 to provide for how the Exchange proposes to treat erroneous 
options transactions in response to the Plan.
Background
    Since May 6, 2010, when the markets experienced excessive 
volatility in an abbreviated time period, i.e., the ``flash crash,'' 
the equities exchanges and The Financial Industry Regulatory Authority 
(``FINRA'') have implemented market-wide measures designed to restore 
investor confidence by reducing the potential for excessive market 
volatility.
    Among the measures adopted include pilot plans for stock-by-stock 
trading pauses, related changes to the equities

[[Page 18638]]

market clearly erroneous execution rules, and more stringent equities 
market maker quoting requirements. On May 31, 2012, the Commission 
approved the Plan, as amended, on a one-year pilot basis. In addition, 
the Commission approved changes to the equities market-wide circuit 
breaker rules on a pilot basis to coincide with the pilot period for 
the Plan. The Plan is designed to prevent trades in individual NMS 
stocks from occurring outside of specified Price Bands. The instant 
proposed rule change is intended to adopt MIAX rules that address the 
trading of options overlying NMS Stocks that are the subject of the 
Plan and its provisions during times of unusual volatility in the 
markets.
    The requirements of the Plan are coupled with Trading Pauses to 
accommodate more fundamental price moves (as opposed to erroneous 
trades or momentary gaps in liquidity). All trading centers in NMS 
stocks, including both those operated by Participants and those 
operated by members of Participants, are required to establish, 
maintain, and enforce written policies and procedures that are 
reasonably designed to comply with the requirements specified in the 
Plan.
Limit State and Straddle State
    As set forth in more detail in the Plan, Price Bands consisting of 
a Lower Price Band and an Upper Price Band for each NMS Stock are 
calculated by the Processors. When the National Best Bid (Offer) is 
below (above) the Lower (Upper) Price Band, the Processors shall 
disseminate such National Best Bid (Offer) with an appropriate flag 
identifying it as unexecutable. When the National Best Bid (Offer) is 
equal to the Upper (Lower) Price Band, the Processors shall distribute 
such National Best Bid (Offer) with an appropriate flag identifying it 
as a Limit State Quotation. All trading centers in NMS stocks must 
maintain written policies and procedures that are reasonably designed 
to prevent the display of offers below the Lower Price Band and bids 
above the Upper Price Band for NMS stocks. Notwithstanding this 
requirement, the Processor shall display an offer below the Lower Price 
Band or a bid above the Upper Price Band, but with a flag indicating 
that it is non-executable. Such bids or offers shall not be included in 
the National Best Bid or National Best Offer calculations. Trading in 
an NMS stock immediately enters a Limit State if the National Best 
Offer (Bid) equals but does not cross the Lower (Upper) Price Band. 
Trading for an NMS stock exits a Limit State if, within 15 seconds of 
entering the Limit State, all Limit State Quotations were executed or 
canceled in their entirety. If the market does not exit a Limit State 
within 15 seconds, then the Primary Listing Exchange would declare a 
five-minute trading pause pursuant to Section VII of the Plan, which 
would be applicable to all markets trading the security.
    In addition, the Plan defines a Straddle State as when the National 
Best Bid (Offer) is below (above) the Lower (Upper) Price Band and the 
NMS stock is not in a Limit State. For example, assume the Lower Price 
Band for an NMS Stock is $9.50 and the Upper Price Band is $10.50, such 
NMS stock would be in a Straddle State if the National Best Bid were 
below $9.50, and therefore nonexecutable and the National Best Offer 
were above $9.50 (including a National Best Offer that could be above 
$10.50). If an NMS stock is in a Straddle State and trading in that 
stock deviates from normal trading characteristics, the Primary Listing 
Exchange may declare a trading pause for that NMS stock if such Trading 
Pause would support the Plan's goal to address extraordinary market 
volatility.
Obvious Error
    The Exchange analyzed in detail the operation of current Exchange 
Rule 521 (Obvious and Catastrophic Errors) and determined that it would 
be undesirable to apply that Rule to options when the underlying NMS 
Stock has entered either a Limit or Straddle State. However, the 
Exchange does not believe that it should operate without any protection 
against erroneous transactions during these periods. Therefore, the 
Exchange proposes that proposed Rule 530(j) apply to erroneous 
transactions in options when the underlying NMS Stock has entered 
either a Limit or Straddle State only when an erroneous transaction is 
due to a verifiable disruption or malfunction of the MIAX System.
    The Exchange proposes to exclude transactions executed during a 
Limit or Straddle State from the provisions of MIAX Rule 521, on a one-
year pilot basis, beginning on the date of implementation of the Plan, 
except in situations where the affected trade resulted from a 
verifiable disruption or malfunction of an Exchange execution, 
dissemination, or communication system, as discussed below.
    Current Rule 521 provides a process by which a transaction may be 
busted or adjusted when the execution price of a transaction deviates 
from the option's theoretical price \3\ by a certain amount.
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    \3\ The Theoretical Price of an option is:
    (1) If the series is traded on at least one other options 
exchange the last National Best Bid price with respect to an 
erroneous sell transaction and the last National Best Offer price 
with respect to an erroneous buy transaction, just prior to the 
trade;
    (2) if there are no quotes for comparison purposes, or if the 
bid/ask differential of the NBBO for the affected series, just prior 
to the erroneous transaction, was at least two times the standard 
bid/ask differential as permitted for pre-opening quotes under Rule 
603(b)(4), as determined by an Exchange Official; or
    (3) for transactions occurring as part of the Exchange's 
automated opening system, the Theoretical Price shall be the first 
quote after the transaction(s) in question that does not reflect the 
erroneous transaction(s).
    See Exchange Rule 521(b).
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    As discussed above, during a Limit or Straddle State, options 
prices may deviate substantially from those available prior to or 
following the limit state. The Exchange believes that the application 
of this provision to all erroneous transactions that occur during a 
Limit or Straddle State would give rise to much uncertainty for market 
participants as there is no bright line definition of what the 
theoretical price should be for an option when the underlying NMS stock 
has an unexecutable bid or offer or both.
    Determining theoretical price in such a situation would be often 
times very subjective as opposed to an objective determination giving 
rise to additional uncertainty, and Rule 521 provides that if there are 
no quotes from other options exchanges for comparison purposes, the 
theoretical price will be determined by an Exchange Official. However, 
given that options market makers and other industry professionals will 
have difficulty pricing options during Limit and Straddle States, the 
Exchange does not believe it would be reasonable for an Exchange 
Official to derive theoretical prices to be applied to transactions 
executed during such unusual market conditions. Accordingly, the 
Exchange does not believe that the approach employed under Rule 521, 
which by definition depends on a reliable national best bid and offer 
in the option, is appropriate for all transactions that occur during a 
Limit or Straddle State. The Exchange believes that there is no 
reliable basis on which to determine the Theoretical Price of 
transactions that occur during a Limit or Straddle State. Accordingly, 
proposed Rule 530(j) will not include any provision to adjust the price 
of trades that occur during a Limit or Straddle State. Proposed Rule 
530(j) will only apply to transactions occurring during Limit and 
Straddle States that resulted from a verifiable disruption or 
malfunction of an Exchange execution, dissemination, or communication 
system, and thus proposed Rule 530(j) will not include

[[Page 18639]]

the numerical tables defining Obvious and Catastrophic Errors found in 
Rule 521(a). Moreover, the Exchange proposes to exclude the description 
of conditions other than a verifiable disruption or malfunction of an 
Exchange execution, dissemination, or communication system that give 
rise to a review that are included in current Rules 521(c)(2)(v) and 
(vi).\4\
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    \4\ Under these rules, which will not be incorporated into 
proposed Rule 530(j), parties to a trade may have a trade nullified 
or its price adjusted if:
    (v) The trade resulted in an execution price in a series quoted 
no bid and for 5 seconds prior to the execution remained no bid 
(excluding the quote in question; bids and offers of the parties to 
the subject trade that are in any of the series in the same options 
class shall not be considered) and at least one strike price below 
(for calls) or above (for puts) in the same class were quoted no bid 
at the time of the erroneous execution (in which case the trade 
shall be nullified); or
    (vi) The trade occurred at a price that is deemed to be an 
Obvious Error as defined in Paragraph (a)(1) of this Rule 521.
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    After careful consideration, the Exchange believes the application 
of the current rule to all transactions occurring during a Limit or 
Straddle State would be impracticable during Limit and Straddle States, 
and could produce undesirable effects.
    The Exchange believes that market participants should not be able 
to benefit from the time frames allotted to them from the time of the 
affected transaction within which they may request a review of their 
transactions in these situations. Suspending application of Rule 521 
for all transactions occurring during a Limit or Straddle State (except 
for erroneous transactions that resulted from a verifiable disruption 
or malfunction of an Exchange execution, dissemination, or 
communication system, or due to an erroneous quote or print in the 
underlying NMS Stock as discussed below) would mitigate two of the 
undesirable aspects described above: (i) The moral hazard associated 
with granting a second look to trades that went against the market 
participant after market conditions have changed and (ii) gaming the 
obvious error rule to retroactively adjust market maker quotes by 
adjusting the execution price at a later time.
    The Exchange notes that there are additional protections in place 
outside of Rule 521 that will continue to safeguard customers. First, 
SEC Rule 15c3-5 requires that, ``financial risk management controls and 
supervisory procedures must be reasonably designed to prevent the entry 
of orders that exceed appropriate pre-set credit or capital thresholds, 
or that appear to be erroneous.'' \5\
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    \5\ See Securities and Exchange Act Release No. 63241, 75 FR 
69791 (November 15, 2010) (S7-03-10).
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    Secondly, as noted above, the Exchange will cancel unexecuted 
market orders in the MIAX System, and will reject market orders 
received during a Limit or Straddle State. Additionally, the MIAX 
System is designed with a built-in protection mechanism that will never 
trade through the NBBO price at the time of receipt of an order by more 
than one Minimum Price Variation (``MPV'').\6\ Thus, Exchange 
functionality that filters out orders that appear to be erroneous or 
are at risk of execution at an erroneous price enhances the protections 
provided through LULD Functionality.
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    \6\ This would only happen in the event that the Exchange 
receives an Intermarket Search Order (``ISO'') routed to the 
Exchange by an away market, in which the sending away market 
indicates that it has exhausted its efforts to trade at a better 
price than the Exchange's disseminated price and that such ISO can 
be executed at a price that is inferior to the then-disseminated 
NBBO.
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Reviewable Transactions
    As stated above, the Exchange will review all erroneous 
transactions occurring during Limit and Straddle States that resulted 
from a verifiable disruption or malfunction of an Exchange execution, 
dissemination, or communication system. Accordingly, the Exchange is 
proposing to incorporate the relevant portions of Rule 521 into 
proposed Rule 530(j) to establish the process for such review. The 
Exchange proposes to adopt Commentary .06 to Rule 521, which provides 
that transactions in MIAX options that overly an NMS Stock that occur 
during a Limit or Straddle State are not subject to review under Rule 
521. The Exchange shall apply proposed Rule 530(j) to such 
transactions.
    Proposed Rule 530(j)(1)(ii) states that trades will continue to be 
subject to an obvious error or catastrophic error review in a Limit or 
Straddle State if (A) the trade resulted from a verifiable disruption 
or malfunction of an Exchange execution, dissemination, or 
communication system that caused a quote/order to trade in excess of 
its disseminated size (e.g. a quote/order that is frozen, because of an 
Exchange system error, and repeatedly traded) in which case trades in 
excess of the disseminated size may be nullified, or (B) the trade 
resulted from a verifiable disruption or malfunction of an Exchange 
dissemination or communication system that prevented a member from 
updating or canceling a quote/order for which the member is responsible 
where there is Exchange documentation providing that the member sought 
to update or cancel the quote/order; (C) the trade resulted from an 
erroneous print disseminated by the underlying market which is later 
cancelled or corrected by the underlying market where such erroneous 
print resulted in a trade higher or lower than the average trade in the 
underlying security during the time period encompassing two minutes 
before and after the erroneous print, by an amount at least five times 
greater than the average quote width for such underlying security 
during the time period encompassing two minutes before and after the 
erroneous print. For purposes of this Rule, the average trade in the 
underlying security shall be determined by adding the prices of each 
trade during the four minute time period referenced above (excluding 
the trade in question) and dividing by the number of trades during such 
time period (excluding the trade in question); or (D) the trade 
resulted from an erroneous quote in the primary market for the 
underlying security that has a width of at least $1.00 and that width 
is at least five times greater than the average quote width for such 
underlying security during the time period encompassing two minutes 
before and after the dissemination of such quote. For the purposes of 
this Rule, the average quote width shall be determined by adding the 
quote widths of sample quotations at regular 15-second intervals during 
the four minute time period referenced above (excluding the quote in 
question) and dividing by the number of quotes during such time period 
(excluding the quote in question).
    Currently, under Rule 521(a)(1) and (2), obvious and catastrophic 
errors are calculated by determining a theoretical price and applying 
such price, based on objective standards, to ascertain whether the 
trade should be nullified or adjusted. While the rule contains a 
notification process for requesting an obvious error review, certain 
more substantial errors may fall under the category of a catastrophic 
error, for which a longer time period is permitted to request a review 
and for which trades can currently only be adjusted (not nullified). 
Trades are adjusted pursuant to an adjustment table that, in effect, 
assesses an adjustment penalty. By adjusting trades above or below the 
theoretical price, the Rule assesses a ``penalty'' in that the 
adjustment price is not as favorable as the amount the party making the 
error would have received had it not made the error.

[[Page 18640]]

    Pursuant to current Rule 521(b), the theoretical price of an option 
is determined in one of three ways: (1) If the series is traded on at 
least one other options exchange, the last National Best Bid price with 
respect to an erroneous sell transaction and the last National Best 
Offer price with respect to an erroneous buy transaction, just prior to 
the trade; (2) if there are no quotes for comparison purposes, or if 
the bid/ask differential of the National Best Bid and Offer (``NBBO'') 
for the affected series, just prior to the erroneous transaction, was 
at least two times the permitted bid/ask differential under Rule 
1014(c)(i)(A)(1)(a) [sic], as determined by an Exchange Official; or 
(3) for transactions occurring as part of the Exchange's automated 
opening system, the theoretical price shall be the first quote after 
the transaction(s) in question that does not reflect the erroneous 
transaction(s).
    The Exchange believes that none of these three methods is 
appropriate during a Limit or Straddle State. Specifically, under Rule 
521(b)(1), the theoretical price is determined with respect to the NBBO 
for an option series just prior to the trade. As discussed above, 
during a Limit or Straddle State, options prices may deviate 
substantially from those available prior to or following the State. The 
Exchange believes this provision would give rise to much uncertainty 
for market participants as there is no bright line definition of what 
the theoretical price should be for an option when the underlying NMS 
stock has an unexecutable bid or offer or both. Determining theoretical 
price in such a situation would be often times very subjective as 
opposed to an objective determination giving rise to additional 
uncertainty and confusion for investors. Accordingly, the Exchange does 
not believe that the approach employed under current Rule 521(b)(1), 
which by definition depends on a reliable NBBO in the option, is 
appropriate during a Limit or Straddle State. The Exchange believes 
that excluding this from proposed Rule 530(j) is appropriate because 
while in a Limit or Straddle State, only limit orders will be accepted 
by the Exchange, affirming that the participant is willing to accept an 
execution up to the limit price. Further, because the Exchange system 
will only trade through the theoretical bid or offer if the Exchange or 
the participant (via an ISO order) has accessed all better priced 
interest away in accordance the Options Order Protection and Locked/
Crossed Markets Plan, the Exchange believes potential trade reviews of 
executions that occurred at the participant's limit price and also in 
compliance with aforementioned Plan could result in uncertainty that 
could harm liquidity and also could create an advantage to either side 
of an execution depending on the future movement of the underlying 
stock.
    The Exchange recognizes that the second method (in Rule 521(b)(2)) 
affords discretion to the Options Exchange Official in determining the 
theoretical price and thereby, ultimately, whether a trade is busted or 
adjusted and to what price. The Exchange has determined that it would 
be difficult to exercise such discretion in periods of extraordinary 
market volatility and in particular when the price of the underlying 
security is unreliable. Moreover, the theoretical price would be 
subjective. Thus, the Exchange has determined not to permit an obvious 
or catastrophic error review if there are no quotes for comparison 
purposes, or if the bid/ask differential of the NBBO for the affected 
series, just prior to the erroneous transaction, was at least two times 
the permitted bid/ask differential. The Exchange believes that adding 
certainty to the execution of orders in these situations should 
encourage market participants to continue to provide liquidity to the 
Exchange and thus promote a fair and orderly market.
    The Exchange notes that current Rule 521(b)(3) applies to trades 
executed during openings. Because the Exchange does not intend to open 
an option during a Limit or Straddle State, this provision, on its 
face, will not apply.
    For the same reasons, the Exchange is proposing that Rule 
521(c)(2)(vi) not apply during a Limit or Straddle State.
    In addition, the Exchange proposes that trades are not subject to 
an obvious error and catastrophic error review if pursuant to the 
provisions of Rule 521(c)(2)(vi) the trade resulted from an execution 
price in a series quoted no bid. A zero bid option refers to an option 
where the bid price is $0.00. Series of options quoted zero bid are 
usually deep out-of-the-money series that are perceived as having 
little if any chance of expiring in-the-money. For this reason, 
relatively few transactions occur in these series and those that do are 
usually the result of a momentary pricing error.
    Specifically, under this provision, where the trade resulted in an 
execution price in a series quoted no bid and for 5 seconds prior to 
the execution remained no bid (excluding the quote in question; bids 
and offers of the parties to the subject trade that are in any of the 
series in the same options class shall not be considered) and at least 
one strike price below (for calls) or above (for puts) in the same 
class were quoted no bid at the time of the erroneous execution (in 
which case the trade shall be nullified). The Exchange believes that 
these situations are not appropriate for an error review because they 
are more likely to result in a windfall to one party at the expense of 
another in a Limit or Straddle State, because the criteria for meeting 
the no-bid provision are more likely to be met in a Limit or Straddle 
State, and unlike normal circumstances, may not be a true reflection of 
the value of the series being quoted. For example, in a series quoted 
$1.95-$2.00 on multiple exchanges prior to the Limit or Straddle State, 
an order to B10@ $2.00 is likely a reasonably priced trade because the 
buyer attempted to pay $2.00 with a limit price. However, if that 
series and the series one strike below are both quoted $0.00- $5.00, 
then both the seller and the buyer at $2.00 would have an opportunity 
to dispute the trade. This would create uncertainty to both parties and 
an advantage to one participant if the underlying stock moved 
significantly in their direction.
    Regarding Obvious Errors, the Commission has stated previously that 
it ``* * * considers that in most circumstances trades that are 
executed between parties should be honored. On rare occasions, the 
price of the executed trade indicates an `obvious error' may exist, 
suggesting that it is unrealistic to expect that the parties to the 
trade had come to a meeting of the minds regarding the terms of the 
transaction. In the Commission's view, the determination of whether an 
`obvious error' has occurred, and the adjustment or nullification of a 
transaction because an obvious error is considered to exist, should be 
based on specific and objective criteria and subject to specific and 
objective procedures * * *'' \7\
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    \7\ See Securities Exchange Act Release No. 49785 (May 28, 
2004), 69 FR 32090 (June 8, 2004) (SR-Phlx-2003-68).
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    The Exchange believes that, in some extreme situations, trade 
participants may not be aware of errors that result in very large 
losses within the time periods currently required under the rule. In 
this type of extreme situation, the Exchange believes its members 
should be given more time to seek relief so that there is a greater 
opportunity to mitigate very large losses and reduce the corresponding 
large wind-falls. However, to maintain the appropriate balance, the 
Exchange believes members should only be given more time when the 
execution price is much further

[[Page 18641]]

away from the theoretical price than is required for Obvious Errors so 
that relief is only provided in extreme circumstances.
    The Exchange believes that this proposal strikes the aforementioned 
balance. The Exchange is proposing to decline to review certain trades, 
which is specific and objective. Furthermore, the proposal more fairly 
balances the potential windfall to one market participant against the 
potential reconsideration of a trading decision under the guise of an 
error, and thereby results in more certainty during periods of extreme 
market volatility. Trades can nevertheless be considered erroneous 
under other sections of the Rule, because those continue to be an 
objective method of determining whether an error occurred, even during 
periods of extraordinary market volatility. Because the Exchange 
intends to continue to review trades pursuant to proposed Rules 
521(j)(1)(A)-(D) [sic], the Exchange believes that this continues to 
provide some protection to market participants.
    The Exchange believes that, in addition to the built-in customer 
protections discussed above, it is necessary to protect investors from 
erroneous transactions resulting from a verifiable disruption or 
malfunction of an Exchange execution, dissemination, or communication 
system.
    Proposed Rule 530(j) will also include identical language to that 
used in current Rule 521 regarding mutual agreement by the parties to 
an erroneous transaction during a trading halt, i.e., trades on the 
Exchange will be nullified when the trade occurred during a trading 
halt in the affected option on the Exchange, or respecting equity 
options (including options overlying ETFs), the trade occurred during a 
trading halt on the primary market for the underlying security. 
Proposed Rule 530(j) will also incorporate the relevant elements of 
Rule 521 regarding the review procedure, requests for review, and 
appeals from decisions to bust a trade.
    The Exchange has engaged in informal discussions with its members, 
and has received generally favorable feedback concerning its proposed 
handling of Obvious Errors during Limit and Straddle States, given the 
aforementioned built-in protections in the MIAX System.
    During the one-year pilot period beginning on the date of 
implementation of the Plan, the Exchange will conduct its own analysis 
concerning the elimination of obvious error rules during limit and 
straddle states and agrees to provide the Commission with relevant data 
to assess the impact of this proposed rule change. As part of its 
analysis, the Exchange will evaluate (1) the options market quality 
during limit and straddle states, (2) assess the character of incoming 
order flow and transactions during limit and straddle states, and (3) 
review any complaints from members and their customers concerning 
executions during limit and straddle states. Additionally, the Exchange 
agrees to provide to the Commission data requested to evaluate the 
impact of the elimination of the obvious error rule, including data 
relevant to assessing the various analyses noted above.
2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \8\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \9\ 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 regulating, clearing, settling, 
processing information with respect to, and 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, and it is not designed to 
permit unfair discrimination among customers, brokers, or dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the application of the current Obvious Error 
rule will be impracticable given the lack of a reliable NBBO in the 
options market during Limit and Straddle States, and that the resulting 
actions (i.e., nullified trades or adjusted prices) may not be 
appropriate given market conditions. This change would ensure that 
limit orders that are filled during a Limit or Straddle State would 
have certainty of execution in a manner that promotes just and 
equitable principles of trade, removes impediments to, and perfects the 
mechanism of a free and open market and a national market system. 
Moreover, given that options prices during brief Limit or Straddle 
States may deviate substantially from those available shortly following 
the Limit or Straddle State, the Exchange believes giving market 
participants time to reevaluate a transaction would create an 
unreasonable adverse selection opportunity that would discourage 
participants from providing liquidity during Limit or Straddle States. 
In this respect, the Exchange notes that by rejecting market orders and 
cancelling pending market orders, only those orders with a limit price 
will be executed during a Limit or Straddle State. Therefore, on 
balance, the Exchange believes that removing the potential inequity of 
nullifying or adjusting executions occurring during Limit or Straddle 
States outweighs any potential benefits from applying certain 
provisions during such unusual market conditions.
    Additionally, as discussed above, there are additional pre-trade 
protections in place on the MIAX System that will continue to safeguard 
customers.

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.
    Specifically, the Exchange believes the proposed changes will not 
impose any burden on intra-market competition because it applies to all 
MIAX participants equally. The Exchange does not believe the proposed 
rules will impose any burden on inter-market competition as the 
proposed rules are intended to protect investors with the 
implementation of the Plan. In addition, the proposed changes will 
provide certainty of treatment and execution of options orders during 
periods of extraordinary market volatility.

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 such 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

[[Page 18642]]

change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-MIAX-2013-12 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MIAX-2013-12. 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, located at 100 F 
Street NE., Washington, DC 20549, on official business days between the 
hours of 10:00 a.m. and 3:00 p.m. Copies of the filing will also be 
available for inspection and copying at the principal office of the 
Exchange. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
MIAX-2013-12 and should be submitted on or before April 8, 2013.\10\
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    \10\ The Commission believes that a 10-day comment period is 
reasonable, given the urgency of the matter. It will provide 
adequate time for comment. The Commission also notes that this 
proposal is substantially similar to proposals from NASDAQ OMX PHLX 
LLC, The NASDAQ Stock Market LLC, and NASDAQ OMX BX, Inc. which were 
published for comment in the Federal Register on March 20, 2013. See 
Securities Exchange Act Release Nos. 69141 (March 15, 2013), 78 FR 
17262 (March 20, 2013) (SR-Phlx-2013-29); 69142 (March 15, 2013), 78 
FR 17251 (March 20, 2013) (SR-NASDAQ-2013-048); and 69140 (March 15, 
2013), 78 FR 17255 (March 20, 2013) (SR-BX-2013-026).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-07062 Filed 3-26-13; 8:45 am]
BILLING CODE 8011-01-P