Document ID: SEC-2014-0375-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Miami International Securities Exchange, LLC
Posted Date: 2014-03-06T05:00Z

[Federal Register Volume 79, Number 44 (Thursday, March 6, 2014)]
[Notices]
[Pages 12713-12721]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-04920]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 71634; File No. SR-MIAX-2014-08]

Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing of Proposed Rule Change To Modify Price 
Protection Provisions for the Execution of Orders

February 28, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 14, 2014, Miami International Securities Exchange LLC 
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the self-
regulatory organization. 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 Rules 515 and 
529 to modify price protection provisions for the execution of orders.
    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 Exchange Rules 515 and 529 to modify 
price protection provisions for the execution of orders to provide 
market participants additional flexibility to designate the level of 
price protections for their orders. The Exchange proposes to: (i) Amend 
Rule 515(c) to establish a new price protection for market 
participants; (ii) amend Rule 529 to allow for immediate routing in an 
additional situation; and (iii) make corresponding technical changes 
including deleting the language in current Rule 515(c).
    Specifically, the Exchange proposes to amend Rule 515 to: (a) Amend 
price protection functionality as described in Rule 515(c) to be 
flexible and customizable by market participants and allow for the 
execution of a non-Market Maker order at multiple price points instead 
of a one-size-fits-all system that permits executions at a maximum of 
two price-points; (b) amend the handling of incoming routable non-
Market Maker orders as described in Rule 515(c) to account for the 
flexibility of the proposed price protection functionality; (c) amend 
the handling of incoming non-routable non-Market Maker orders as 
described in Rule 515(c) to account for the flexibility of the proposed 
price protection functionality; (d) amend the Liquidity Refresh Pause 
to account for the proposed price protection functionality which would 
allow orders to trade at multiple price-points; (e) amend the Liquidity 
Refresh message to include the exhausted MBBO price instead of the 
original NBBO price; (f) amend the Liquidity Refresh Pause so that a 
new quote or order received during a Liquidity Refresh Pause on the 
same side of the market as the initiating order's remaining contracts 
that locks or crosses the original NBBO will terminate the Liquidity 
Refresh Pause instead of joining the initiating order to wait for the 
end of the Pause; (g) amend the handling of Immediate or Cancel and 
Fill or Kills orders during a Liquidity Refresh Pause so that the 
Liquidity Refresh Pause will terminate early if such orders improve the 
same side of the market as the initiating order; (h) amend the handling 
of Immediate or Cancel orders to apply a price protection system 
similar to that for non-Market Maker orders; (i) amend the handling of 
Fill-or-Kill orders to apply a price protection system similar to that 
for non-Market Maker orders; and (j) provide a new Interpretation and 
Policy to Rule 515 to codify how the managed interest is priced when 
there are multiple possible execution prices. In addition, the Exchange 
proposes to amend Rule 529 to allow resting Public Orders to route in a 
specific scenario. Finally, the Exchange proposes to make corresponding 
technical changes including deleting the language in current Rule 
515(c) and replacing references in Rules 516 and 520.
Non-Market Market Orders That Could Not Be Executed or Could Not Be 
Executed in Full at the Original NBBO Upon Receipt
    Rule 515(c) currently details the execution of non-Market Market 
orders that could not be executed or could not be executed in full at 
the original NBBO upon receipt. Proposed Rule 515(c) continues to 
address the execution of such non-Market Maker orders. However, the 
Exchange proposes to add language to explain that such orders, 
depending upon the order's specific price protection instructions, may 
be reevaluated for executions at additional price-points. Specifically, 
non-Market Maker orders that are reevaluated by the System for 
execution pursuant to an order's price protection instructions that 
could not be executed or could not be executed in full at the NBBO at 
the time of reevaluation will be handled in accordance with the 
provisions of Proposed Rule 515(c). The subparagraphs of Proposed Rule 
515(c) will apply to orders both (i) upon receipt by the System, and 
(ii) upon reevaluation by the System for

[[Page 12714]]

execution and according to the price protections designated on the 
order. The term ``initiating order'' will be used in the subparagraphs 
of Proposed Rule 515(c) to refer to (i) the incoming order that could 
not be executed, (ii) the order reevaluated by the System for execution 
that could not be executed, or (iii) the remaining contracts of the 
incoming order or reevaluated order could not be executed in full. The 
term ``original NBBO'' will be used in the following paragraphs to 
refer to the NBBO that existed at time of receipt of the initiating 
order or the NBBO at time of reevaluation of an order pursuant to Rule 
515. The language added to Proposed Rule 515(c) is necessary to 
accommodate the possibility of a non-Market Maker executing at multiple 
price-points in accordance with the proposed price protection 
functionality.
Price Protection
    Rule 515(c) currently provides a detailed price protection process 
that includes a managed interest process and liquidity refresh pause. 
Rule 515(c) currently imposes a fixed, one Minimum Price Variation 
(MPV) price protection scheme in which incoming non-Market Maker orders 
can, at a maximum, trade at two price-points--at the original NBBO and 
one MPV away from the original NBBO upon receipt.\3\ Thereafter, the 
System will cancel the remaining portion of any order that can 
potentially trade at a price more than one MPV away from the original 
NBBO.\4\
---------------------------------------------------------------------------

    \3\ The Exchange does not propose to amend the provisions 
regarding the execution of orders and quotes described in Rules 
515(b), 515(d), and 515(f)-(h). See Exchange Rules 515(b), (d), (f)-
(h). As discussed below, the Exchange does propose to amend Rule 
515(a), 515(c), and 515(e).
    \4\ See current Exchange Rules 515(c)(1)(ii)(A), 
(c)(1)(ii)(B)(1)(b), (c)(1)(ii)(B)(2)(b), (c)(1)(iii)(A)(1)(a)2), 
(c)(1)(iii)(A)(1)(b)2), (c)(1)(iii)(B)(1)(b), and 
(c)(1)(iii)(B)(2)(b) (instances where the System cancels orders that 
are priced more than one MPV away from the NBBO).
---------------------------------------------------------------------------

    The Exchange believes that the current price protection 
functionality is too rigid and does not meet the needs of all market 
participants. Since commencing operations over one year ago, both the 
Exchange and its participants have gained in knowledge and experience 
in the use of the Exchange System and stand ready for the next step in 
its evolution--a more flexible system of price protection. The Exchange 
believes that the additional flexibility of the proposed price 
protection provides market participants with an invaluable level of 
protection on the Exchange in the wake of recent industry-wide market 
events. The Exchange also proposes the functionality as part of its 
broader response to the Commission's initiative regarding such 
industry-wide market events.
    The Exchange proposes to amend Rule 515(c) to provide more 
flexibility in the price protections offered to market participants by 
replacing the rigid price protection system with a customizable one 
where market participants may specify the level of price protection by 
the number of price-points at which an order may trade. The current 
price protection functionality does not offer flexibility and caps the 
execution of every incoming non-Market Maker order with a maximum of 
two price-points--at the original NBBO at the time of receipt and one 
MPV away from the original NBBO. The Exchange proposes to replace this 
rigidity with flexibility and choice. Specifically, the Exchange 
proposes to open up the price protection functionality so that market 
participants may designate, on an order by order basis, price 
protection instructions that are expressed in units of MPV away from 
the NBBO at the time of the order's receipt, or the MBBO if the ABBO is 
crossing the MBBO. Price protection prevents an order from being 
executed beyond the price designated in the order's price protection 
instructions (the ``price protection limit''). If a market participant 
does not provide such price protection instructions, the Exchange 
proposes implementing a default price protection consistent with the 
current price protection functionality--one MPV away from the NBBO at 
the time of receipt, or the MBBO if the ABBO is crossing the MBBO. 
Currently all incoming non-Market Marker orders are subject to price 
protection functionality. However in contrast the Exchange now proposes 
providing market participants, if they so choose, with the ability to 
elect to disable price protection on an order by order basis.\5\ To 
sum, the proposed price protection system provides market participants 
with greater control over how their order is executed and allows for 
greater interaction with liquidity both on MIAX and away markets, all 
while retaining the protective benefits of the current system that 
prevents incoming non-Market Maker orders from executing beyond a 
certain price-point. As proposed, an order will be able to execute up 
or down to its price protection--which would be fully customizable and 
no longer a one-size-fits-all approach of the current functionality. 
When triggered, price protection will cancel an order or the remaining 
contracts of an order. Consistent with current functionality, the 
System will not execute incoming orders at prices inferior to the 
NBBO.\6\
---------------------------------------------------------------------------

    \5\ The Exchange notes that orders will still be subject to the 
other price protections systematically enforced for all orders, 
e.g., Exchange Rule 503(f)(5), Expanded Quote Range, Exchange Rule 
519, MIAX Order Monitor.
    \6\ See both current and Proposed Exchange Rule 515(a)--this 
point is unchanged.
---------------------------------------------------------------------------

    The following example describes the price protection functionality 
when a non-Market Maker limit order trades until it reaches its price 
protection instruction limit.\7\ In this situation, the remaining 
contracts will be cancelled because the price protection instructions 
have been triggered. Price protection prevents the order in this 
example from receiving an execution beyond the price protection limit, 
calculated as a specified number of MPVs away from the NBBO at the time 
of receipt, or the MBBO if the ABBO is crossing the MBBO, by canceling 
the order back to the market participant. Upon receipt of the 
cancellation, a market participant may then elect to resubmit the 
order.
---------------------------------------------------------------------------

    \7\ The non-Market Maker limit order in this example could be 
either a Routable or Non-Routable order as this distinction does not 
matter because the order is never subjected to being routed as the 
ABBO exceeds the order's limit. Upcoming examples will demonstrate 
the difference between Routable and Non-Routable orders.

   Example 1: Limit Price Exceeds Price Protection--Order Traded Until
                 Price Protection Limit and Is Canceled
------------------------------------------------------------------------
                   Market                          Bid           Ask
------------------------------------------------------------------------
ABBO........................................     1.00 (10)     1.20 (10)
Order 1.....................................  ............     1.10 (10)
Order 2.....................................  ............     1.12 (10)
Order 3.....................................  ............     1.15 (10)
Order 4.....................................  ............     1.16 (10)
PLMM........................................     1.00 (10)     1.20 (10)
------------------------------------------------------------------------

 Order 5: Buy limit of 1.13 for 100 contacts with a price 
protection instruction of 2 MPVs
 MBBO at time of arrival = 1.00 (10) x 1.10 (10)
 NBBO at time of arrival = 1.00 (20) x 1.10 (10)
 Order 5 is price protected at 1.12 (which is 1.10 + 2 MPV = 
1.12)
 Order 5 trades 10 contracts with Order 1 @ 1.10
 Order 5 trades 10 contracts with Order 2 @ 1.12
 Order 5's remaining contracts are then cancelled because there 
is no more interest to trade against at Order 5's price protection 
level of 1.12. Order 5's remaining contracts are cancelled and not 
placed on the Book because limit price of 1.13

[[Page 12715]]

exceeds its price protection limit of 1.12

    The following example describes the price protection functionality 
when a limit order reaches its limit price and can be displayed.\8\ 
Price protection does not factor into this example as the limit price 
is reached before the price protection price.
---------------------------------------------------------------------------

    \8\ The non-Market Maker limit order in this example could be 
either a Routable or Non-Routable order as this distinction does not 
matter because the ABBO exceeds the order's limit. Upcoming examples 
will demonstrate the difference between Routable and Non-Routable 
orders.

Example 2: Price Protection Exceeds Limit Price--Limit Price Reached and
                             Order Is Booked
------------------------------------------------------------------------
                   Market                          Bid           Ask
------------------------------------------------------------------------
ABBO........................................     1.00 (10)     1.20 (10)
Order 1.....................................  ............     1.10 (10)
Order 2.....................................  ............     1.12 (10)
Order 3.....................................  ............     1.15 (10)
Order 4.....................................  ............     1.16 (10)
PLMM........................................     1.00 (10)     1.20 (10)
------------------------------------------------------------------------

 Order 5: Buy limit of 1.13 for 100 contacts with a price 
protection instruction of 4 MPVs
 MBBO at time of arrival = 1.00 (10) x 1.10 (10)
 NBBO at time of arrival = 1.00 (10) x 1.10 (10)
 Order 5 is price protected at 1.14 (which is 1.10 + 4 MPV = 
1.14)
     Order 5 trades 10 contracts with Order 1 @ 1.10
     Order 5 trades 10 contracts with Order 2 @ 1.12
     Order 5's remaining contracts are then placed on the MIAX 
Book @ 1.13 as Order 5 has reached its limit price of 1.13

    The following example describes the price protection functionality 
when a limit order reaches its limit price and can be displayed.\9\ In 
this example, the order's limit price and the price protection price 
are equal. In these scenarios, the order will be displayed at its limit 
price rather than be canceled.\10\
---------------------------------------------------------------------------

    \9\ The non-Market Maker limit order in this example could be 
either a Routable or Non-Routable order as this distinction does not 
matter because the ABBO exceeds the order's limit. Upcoming examples 
will demonstrate the difference between Routable and Non-Routable 
orders.
    \10\ See Proposed Rule 515(c)(1)(i)(C) and (c)(1)(ii)(C).

 Example 3: Price Protection Equals Limit Price--Limit Price Reached and
                             Order Is Booked
------------------------------------------------------------------------
                   Market                          Bid           Ask
------------------------------------------------------------------------
ABBO........................................     1.00 (10)     1.20 (10)
Order 1.....................................  ............     1.10 (10)
Order 2.....................................  ............     1.12 (10)
Order 3.....................................  ............     1.15 (10)
Order 4.....................................  ............     1.16 (10)
PLMM........................................     1.00 (10)     1.20 (10)
------------------------------------------------------------------------

 Order 5: Buy limit of 1.13 for 100 contacts with a price 
protection instruction of 3 MPVs
 MBBO at time of arrival = 1.00 (10) x 1.10 (10)
 NBBO at time of arrival = 1.00 (10) x 1.10 (10)
 Order 5 is price protected at 1.13 (which is 1.10 + 3 MPV = 
1.13)
     Order 5 trades 10 contracts with Order 1 @ 1.10
     Order 5 trades 10 contracts with Order 2 @ 1.12
     Order 5's remaining contracts are then placed on the MIAX 
Book @ 1.13 as Order 5 has reached its limit price of 1.13

Routable Non-Market Maker Orders

    The Exchange proposes amending the rules governing routable non-
Market Maker orders (``routable orders'') to accommodate for the 
greater flexibility of the proposed price protection functionality 
described above. Rule 515(c) currently allows routable orders to, at a 
maximum, trade at two price-points--at the original NBBO and one MPV 
away from the original NBBO upon receipt. Currently, an execution at 
the second price point can only occur on MIAX \11\ because after 
executing at this second price point at MIAX any remaining balance \12\ 
will be handled by the managed interest process \13\ rather than be 
routed to away markets which may also be displaying this second price-
point.\14\ Specifically, if interest is not available at MIAX at this 
second price point, the System will, depending on the order's price, 
either (i) handle any remaining according to the managed interest 
process rather than routing to an away market that may be displaying 
interest at this second price-point,\15\ or (ii) cancel the remaining 
balance.\16\
---------------------------------------------------------------------------

    \11\ See current Exchange Rule 515(c)(1)(ii)(B)(1) (the Exchange 
System will execute such an order against the MIAX bid or offer one 
MPV beyond the original NBBO).
    \12\ Remaining balance of a limit order with a limit price at 
this second price-point are handled according to the managed order 
process. See current Exchange Rule 515(c)(1)(ii)(B)(1)(a). Market 
orders or orders with a limit price beyond this second price-point 
are cancelled. See current Exchange Rule 515(c)(1)(ii)(B)(1)(b).
    \13\ Managed interest process allows the System, inter alia, to 
display an order at a price that avoids locking or cross the NBBO. 
See current Exchange Rule 515(c)(2).
    \14\ See current Exchange Rule 515(c)(1) (ii)(B)(1)(a).
    \15\ Orders that cross the original NBBO are handled according 
to the managed interest process in these scenarios. See current 
Exchange Rule 515(c)(1)(ii)(B)(2)(a).
    \16\ Market orders and orders with a limit price that crosses 
the original NBBO by more than one MPV are canceled in these 
scenarios. See current Exchange Rule 515(c)(1)(ii)(B)(2)(b).
---------------------------------------------------------------------------

    The Exchange proposes adding greater flexibility to the price 
protection functionality as applied to routable orders. As proposed, 
the System will seek to trade routable orders to the extent possible at 
MIAX first before routing to the ABBO. The System will trade and/or 
route a routable order until the first of: The order is fully executed; 
the order has traded or routed to and including its price protection 
limit; or the order has traded or routed to and including its limit 
price. A routable order that would otherwise trade and/or route through 
its price protection limit will be canceled. For a routable order that 
has traded or routed to and including its limit price, the System will 
display and book the order at its limit price to await further 
execution in accordance with Rule 515. As current, the System will not 
execute such orders at prices inferior to the current NBBO. Consistent 
with the current rule, the routing of routable orders will be handled 
in accordance with Rule 529.
    The following example describes the how the price protection will 
handle routable non-Market Maker orders. In this example, the order 
routes at multiple price-points, with each price point triggering a 
Route Timer,\17\ and the order's remaining contracts eventually get 
cancelled because it has routed at prices up to and including its price 
protection instructions. Price protection prevents an order from 
receiving an execution beyond a specific price, calculated as a 
specified number of MPVs away from the NBBO at the time of receipt, or 
the MBBO if the ABBO is crossing the MBBO, by canceling the order back 
to the market participant. The Exchange notes that after each route, 
the System will reevaluate the order to consider any

[[Page 12716]]

updates to the away market quotes in the next decision.
---------------------------------------------------------------------------

    \17\ The System will handle any routing of a routable order 
according to Exchange Rule 529. See Proposed Rule 515(c)(1)(i). 
Currently, such routable orders are only eligible to route once--to 
away markets displaying the NBBO upon receipt--with any remaining 
balance either being handled according to the managed interest 
process or cancelled. See current Exchange Rule 515(c)(1)(ii)(B). 
Since the proposed price protection functionality allows routable 
orders to trade and route at multiple price-points, it is possible 
for Route Timers to be triggered at multiple price-points.

   Example 4: Routable Order--Price Protection Limit Reached and Order
                                Canceled
------------------------------------------------------------------------
                   Market                          Bid           Ask
------------------------------------------------------------------------
MIAX........................................     1.00 (10)     1.20 (10)
MKT1........................................     1.00 (10)     1.10 (10)
MKT2........................................     1.00 (10)     1.12 (10)
MKT3........................................     1.00 (10)     1.15 (10)
MKT4........................................     1.00 (10)     1.16 (10)
------------------------------------------------------------------------

 Order 1: Buy limit of 1.13 for 100 contacts with a price 
protection instruction of 2 MPVs
 NBBO at time of arrival = 1.00 (50) x 1.10 (10)
     Order 1 is price protected at 1.12 (which is 1.10 + 2 MPV 
= 1.12)
     Route Timer is triggered as Order 1 is eligible to route 
to MKT1
     MBBO is updated: 1.09 (100) x 1.20 (10)
     Route Timer expires and 10 contracts of Order 1 are routed 
to MKT1 @ 1.10
     The System will reevaluate Order 1 pursuant to Rule 515 to 
trade, post, route, or cancel considering any updates to the away 
market quotes--assume for the example that no market has updated it 
quote
     NBO at time of reevaluation: 1.12 (10) (MKT 2)
     The NBO of 1.12 is within Order 1's price protection limit 
of 1.12
     Route Timer is triggered as Order 1 is eligible to route 
to MKT2
     MBBO is updated: 1.11 (90) x 1.20 (10)
     Route Timer expires and 10 contracts of Order 1 are routed 
to MKT2 @ 1.12
     The System will reevaluate Order 1 pursuant to Rule 515 to 
trade, post, route, or cancel considering any updates to the away 
market quotes--assume for the example that no market has updated it 
quote
     NBO at time of reevaluation: MKT 3's 1.15 (10) (MKT 3)
     The NBO of 1.15 is outside of Order 1's price protection 
limit of 1.12
     Order 1's remaining 80 contracts are then cancelled 
because it has been routed until its price protection limit of 1.12. 
Order 1 cannot displayed at its limit of 1.13 because this could allow 
Order 1 to be execution at a price (1.13) exceeding its price 
protection limit (1.12)

   Example 5: Routable Order--Quote Update and Order Is Fully Executed
------------------------------------------------------------------------
                   Market                          Bid           Ask
------------------------------------------------------------------------
MIAX........................................     1.00 (10)     1.20 (10)
MKT1........................................     1.00 (10)     1.10 (10)
MKT2........................................     1.00 (10)     1.12 (10)
MKT3........................................     1.00 (10)     1.15 (10)
MKT4........................................     1.00 (10)     1.16 (10)
------------------------------------------------------------------------

 Order 1: Buy limit of 1.13 for 100 contacts with a price 
protection instruction of 2 MPVs
 NBBO at time of arrival = 1.00 (50) x 1.10 (10)
 Order 1 is price protected at 1.12 (which is 1.10 + 2 MPV = 
1.12)
     Route Timer is triggered as Order 1 is eligible to route 
to MKT1
     MBBO is updated: 1.09 (100) x 1.20 (10)
     Route Timer expires and 10 contracts of Order 1 are routed 
to MKT1 @ 1.10
 The System will reevaluate Order 1 pursuant to Rule 515 to 
trade, post, route, or cancel considering any updates to the away 
market quotes--assume for the example that MKT 4 has updated its quote: 
1.00 (10) x 1.12 (80)
     NBO at time of reevaluation: 1.12 (90) (MKT 2 and MKT 4)
     The NBO of 1.12 is within Order 1's price protection limit 
of 1.12
     Route Timer is triggered as Order 1 is eligible to route 
to MKT 2 and MKT 4
     Route Timer expires and 10 contracts are routed to MKT 2 @ 
1.12 and 80 contracts of Order 1 are routed to MKT4 @ 1.12
     Order 1 has been fully executed

   Example 6: Routable Order--Limit Price Reached and Order Is Booked
------------------------------------------------------------------------
                   Market                          Bid           Ask
------------------------------------------------------------------------
MIAX........................................     1.00 (10)     1.20 (10)
MKT1........................................     1.00 (10)     1.10 (10)
MKT2........................................     1.00 (10)     1.12 (10)
MKT3........................................     1.00 (10)     1.15 (10)
MKT4........................................     1.00 (10)     1.16 (10)
------------------------------------------------------------------------

 Order 1: Buy limit of 1.12 for 100 contacts with a price 
protection instruction of 2 MPVs
 NBBO at time of arrival = 1.00 (50) x 1.10 (10)
     Order 1 is price protected at 1.12 (which is 1.10 + 2 MPV 
= 1.12)
     Route Timer is triggered as Order 1 is eligible to route 
to MKT1
     MBBO is updated: 1.09 (100) x 1.20 (10)
     Route Timer expires and 10 contracts of Order 1 are routed 
to MKT1 @ 1.10
     The System will reevaluate Order 1 pursuant to Rule 515 to 
trade, post, route, or cancel considering any updates to the away 
market quotes--assume for the example that no market has updated it 
quote
     NBO at time of reevaluation: 1.12 (10) (MKT 2)
     The NBO of 1.12 is within Order 1's price protection limit 
of 1.12
     Route Timer is triggered as Order 1 is eligible to route 
to MKT2
     MBBO is updated: 1.11 (90) x 1.20 (10)
     Route Timer expires and 10 contracts of Order 1 are routed 
to MKT2 @ 1.12
     The System will reevaluate Order 1 pursuant to Rule 515 to 
trade, post, route, or cancel considering any updates to the away 
market quotes--assume for the example that no market has updated its 
quote
     Order 1's remaining 80 contracts are placed on the Book at 
its limit price of 1.12
     MBBO is updated: 1.12 (80) x 1.20 (10)
Non-Routable Non-Market Maker Orders
    The Exchange proposes amending the rules governing non-routable 
non-Market Maker orders (``non-routable orders'') to accommodate for 
the greater flexibility of the proposed price protection functionality 
described above. Rule 515(c) currently allows non-routable orders to, 
at a maximum, trade at two price-points--at the original NBBO and one 
MPV away from the original NBBO upon receipt. Thereafter, the System 
will cancel the remaining portion of any order that can potentially 
trade at a price more than one MPV away from the original NBBO.\18\
---------------------------------------------------------------------------

    \18\ See current Exchange Rule 515(c)(1)(ii)(A), 
(c)(1)(iii)(A)(1)(a)(2), (c)(1)(iii)(A)(1)(b)(2), 
(c)(1)(iii)(B)(1)(b), and (c)(1)(iii)(B)(2)(b) (instances where the 
System cancels non-routable orders that are priced more than one MPV 
away from the NBBO).
---------------------------------------------------------------------------

    Consistent with the current price protections, a non-routable order 
will never be routed outside of the Exchange regardless of prices 
displayed by away markets and can trade on the Exchange at a price 
equal to or better than, but not inferior to, the ABBO. As current, the 
System will not execute such orders at prices inferior to the current 
NBBO. The Exchange proposes adding flexibility to the price protection 
functionality as applied to non-routable orders by allowing the System 
to trade a non-routable order until the first of: The order is fully 
executed; the order has traded to and including its price

[[Page 12717]]

protection limit; or the order has traded to and including its limit 
price. A non-routable order that reaches its price protection limit 
before its limit price will be canceled. If a non-routable order 
reaches its limit price, the System will attempt to display this non-
routable order at its limit price. However, if its limit price would 
lock or cross the current opposite side NBBO, the System will display 
the order one MPV away from the current opposite side NBBO, and book 
the order at a price that will lock the current opposite side NBBO. 
Should the NBBO price change to an inferior price level, the order's 
Book price will continuously re-price to lock the new NBBO and the 
managed order's displayed price will continuously re-price one MPV away 
from the new NBBO until the order's has traded to and including its 
limit price, has traded to and including its price protection limit at 
which any remaining contracts are cancelled, is fully executed, or is 
cancelled. If the Exchange receives a new order or quote on the 
opposite side of the market from the managed order that can be 
executed, the System will immediately execute the remaining contracts 
from the initiating order to the extent possible at the order's current 
Book price, provided that the execution price does not violate the 
current NBBO. If unexecuted contracts remain from the initiating order, 
the order's size will be revised and the MBBO disseminated to reflect 
the order's remaining contracts.
    The following example describes how the price protection will 
handle non-routable non-Market Maker orders. In this example, the non-
routable order trades at multiple price-points on MIAX until it reaches 
the ABBO. The order is then managed as to avoid locking or crossing the 
ABBO. Subsequently, an incoming opposite side order trades with the 
managed order at the MIAX Book price.

    Example 7: Price Protection[dash]Non-Routable Order Gets Managed
------------------------------------------------------------------------
                   Market                          Bid           Ask
------------------------------------------------------------------------
ABBO........................................     1.00 (10)     1.12 (10)
Order 1.....................................  ............     1.10 (10)
Order 2.....................................  ............     1.12 (10)
Order 3.....................................  ............     1.15 (10)
Order 4.....................................  ............     1.16 (10)
------------------------------------------------------------------------

 Order 5: Do Not Route Buy limit of 1.13 for 100 contacts with 
a price protection instruction of 3 MPVs
 NBBO at time of arrival = 1.00 (10) x 1.10 (10)
 Order 5 is price protected at 1.13 (which is 1.10 + 3 MPV = 
1.13)
      Order 5 trades 10 contracts with Order 1 @ 1.10
      Order 5 trades 10 contracts with Order 2 @ 1.12
      Order 5's remaining contracts are then displayed in the 
MIAX Bid @ 1.11 as to not lock the Away Best Offer of 1.12, but remain 
available to trade on the MIAX Book @ 1.12
 Order 6: Sell limit of 1.10 for 10 contracts
 Order 5 trades 10 contracts with Order 6 @ 1.12

Liquidity Refresh Pause

    The Liquidity Refresh Pause, as proposed, will continue to operate 
in substantially the same manner as today, except where noted below. 
The Liquidity Refresh Pause will continue to apply in the following 
situation: (A) Either the initiating order is a limit order whose limit 
price crosses the NBBO or the initiating order is a market order, and 
the limit order or market order could only be partially executed; (B) a 
Market Maker quote was all or part of the MBBO when the MBBO is alone 
at the NBBO; and (C) and the Market Maker quote was exhausted. However, 
the Liquidity Refresh Pause mechanism, as proposed, will apply either 
upon receipt or reevaluation of an initiating order. This change is 
consistent with the new price protection functionality described above, 
which can allow an order to trade at multiple price-points--not just at 
the price-point of the NBBO upon the receipt of an order. Allowing 
orders to trade at multiple price-points necessitates a change in the 
language describing the Liquidity Refresh Pause as it too can apply at 
multiple price-points. Hence the proposed rule adopts the term 
``reevaluation'' together with ``upon receipt,'' with the latter 
applying to the first price-point and the former applying to subsequent 
price-points.
    The System will continue to broadcast a liquidity refresh message 
in largely the same manner as today. In addition to providing a 
description of the option and the size and side of the order, the 
Exchange proposes to include the exhausted MBBO price in the liquidity 
refresh message broadcast to subscribers of the Exchange's data 
feeds.\19\ Consistent with this, the Exchange proposes to display the 
remainder of the initiating order at ``the exhausted MBBO price'' 
instead of ``the original NBBO price, which has been exhausted'' as 
currently described in Rule 515(c)(iii)(A). This change is consistent 
with the new price protection functionality described above which can 
allow an order to trade at multiple price-points--not just the original 
NBBO. Allowing orders to trade at multiple price-points necessitates a 
change in the language describing the Liquidity Refresh Pause message 
as the Liquidity Refresh Pause can apply at multiple price-points. 
Hence the proposed rule adopts the term ``the exhausted MBBO'' in place 
of ``the original NBBO'' because the latter seems only to apply to the 
first price-point while the former can apply to the first price-point 
and any other subsequent price-points.
---------------------------------------------------------------------------

    \19\ The Exchange notes that broadcast message will be sent to 
subscribers of the Exchange's data feeds and not disseminated to 
OPRA, in the same manner as today. As such, this broadcast message 
itself does not qualify as a Protected Bid or Protected Offer. See 
Exchange Rule 1400(o).
---------------------------------------------------------------------------

    The Exchange proposes amending the handling of new quotes or orders 
that arrive during a Liquidity Refresh Pause on the same side of the 
initiating order's remaining contracts, which locks or crosses the 
original NBBO. Currently, such orders are added to the MBBO and the 
Pause continues to run. The Exchange proposes that the Liquidity 
Refresh Pause terminate early and the System process all quotes and 
orders in the order in which they were received. The Exchange believes 
the termination of the Liquidity Pause in these scenarios necessary to 
allow the displayed opposite side of MBBO to receive an immediate 
execution. The initiating order and any new order(s) or quote(s) on the 
same side of the market received during the liquidity refresh pause 
will be processed in the order in which they were received. Thus, the 
initiating order will be executed first and any additional order(s) or 
quote(s) will be executed in order of receipt.
    The Exchange proposes that if at the end of the Liquidity Refresh 
Pause all orders and quotes were not completely filled or cancelled, 
the System will reevaluate the order for execution pursuant to Rule 515 
until exhausted. This change is consistent with the new price 
protection functionality described above which can allow an order to 
trade at multiple price-points.
    Lastly, the Exchange proposes to amend how Immediate or Cancel 
(``IOC'') and Fill or Kill (``FOK'') orders interact with the Liquidity 
Refresh Pause. Currently, if the Exchange receives an Immediate or 
Cancel (``IOC'') or a Fill or Kill (``FOK'') order on the same side of 
the market as the initiating order's remaining contracts, the System 
will immediately cancel the IOC and FOK orders. The Exchange proposes 
to amend this so that if the Exchange receives an IOC or FOK order on 
the same side of the market as the initiating order's remaining 
contracts, the System will immediately cancel the IOC and FOK orders 
unless the IOC or

[[Page 12718]]

FOK order on the same side of the market as the initiating order locks 
or crosses the opposite side NBBO, in which case the liquidity refresh 
pause will be terminated early. If the liquidity refresh pause was 
terminated due to the receipt of an IOC or FOK, the initiating order 
and any new order(s) or quote(s) on the same side of the market 
received during the liquidity refresh pause and the IOC or FOK will be 
processed in the order in which they were received, with the initiating 
order being processed first and the IOC or FOK being processed last.
    The following example describes how the revised Liquidity Refresh 
Pause will operate in the price protection process. Specifically, this 
example shows how the System will reevaluate an order which can result 
in multiple Liquidity Refresh Pauses with the proposed flexibility of 
the price protection functionality which can allow executions at 
multiple price-points.

     Example 8: Price Protection--Multiple Liquidity Refresh Pauses
------------------------------------------------------------------------
                   Market                          Bid           Ask
------------------------------------------------------------------------
ABBO........................................     1.00 (10)     1.14 (10)
PLMM........................................     1.00 (10)     1.10 (10)
LMM 1.......................................     1.00 (10)     1.12 (10)
LMM 2.......................................     1.00 (10)     1.15 (10)
RMM 1.......................................     1.00 (10)     1.16 (10)
------------------------------------------------------------------------

     Order 1: Buy limit of 1.13 for 100 contacts with a price 
protection instruction of 3 MPVs
     NBBO at time of arrival = 1.00 (50) x 1.10 (10)
     Order 1 is price protected at 1.13 (which is 1.10 + 3 MPV 
= 1.13)
      Order 1 trades 10 contracts with PLMM @ 1.10
      Liquidity Refresh Pause is triggered because the MBO of 
1.10 was alone at NBBO and PLMM's 1.10 offer was exhausted
      MBBO 1.10 (90) x 1.12 (10)
      Liquidity Refresh message is broadcasted on the 
Exchange's data feeds: Buy 90 contracts, exhausted MBO of 1.10
      Liquidity Refresh Pause expires
      The System will reevaluate Order 1 pursuant to Rule 515 
to trade, post, route, or cancel considering any updates to the away 
market quotes--assume for the example that there are no updates
      Order 1 trades 10 contracts with LMM1 @ 1.12
      Liquidity Refresh Pause is triggered because the MBO of 
1.12 offer was alone at NBBO and LMM1's 1.12 offer was exhausted
      MBBO 1.12 (80) x 1.15 (10)
      Liquidity Refresh message is broadcasted on the 
Exchange's data feeds: Buy 80 contracts, exhausted MBO of 1.12
      Liquidity Refresh Pause expires
      The System will reevaluate Order 1 pursuant to Rule 515 
to trade, post, route, or cancel considering any updates to the away 
market quotes--assume for the example that there are no updates
      Order 1's remaining contracts are then placed on the MIAX 
Book @ 1.13 as Order 1 has reached its limit price of 1.13
      MBBO 1.13 (80) x 1.15 (10)

    The following examples describes how an order entered during the 
Liquidity Refresh Pause on the same side as the initiating order's 
remaining contracts at a price that locks the original NBBO will 
terminate the Liquidity Refresh Pause early.

  Example 9: Same Side Interest Terminates the Liquidity Refresh Pause
                                  Early
------------------------------------------------------------------------
                   Market                          Bid           Ask
------------------------------------------------------------------------
ABBO........................................     1.00 (10)     1.14 (10)
PLMM........................................     1.00 (10)     1.10 (10)
LMM 1.......................................     1.00 (10)     1.12 (20)
LMM 2.......................................     1.00 (10)     1.15 (10)
RMM 1.......................................     1.00 (10)     1.16 (10)
------------------------------------------------------------------------

 Order 1: Buy limit of 1.13 for 20 contacts with a price 
protection instruction of 3 MPVs
 NBBO at time of arrival = 1.00 (50) x 1.10 (10)
 Order 1 is price protected at 1.13 (which is 1.10 + 3 MPV = 
1.13)
     Order 1 trades 10 contracts with PLMM @ 1.10
     Liquidity Refresh Pause is triggered because the MBO of 
1.10 was alone at NBBO and PLMM's 1.10 offer was exhausted
     MBBO 1.10 (10) x 1.12 (20)
     Liquidity Refresh message is broadcasted on the Exchange's 
data feeds: Buy 10 contracts, exhausted MBO of 1.10 \20\
---------------------------------------------------------------------------

    \20\ Note that the pricing information contained in the 
Liquidity Refresh message (Buy 10 contracts, exhausted MBO of 1.10) 
corresponds to the MBB (1.10 (10)).
---------------------------------------------------------------------------

     Order 2: Buy limit of 1.12 for 10 contracts
     Liquidity Refresh Pause is terminated early upon the 
arrival of Order 2 because Order 2 is at a price that would lock the 
MBO of 1.12
     Order 1 trades 10 contracts with LMM1 @ 1.12. Order 1 has 
been fully executed. Order 2 traded 10 contracts with LMM1 @ 1.12. 
Order 2 and LMM1's offer have been fully executed.
     New MBBO: 1.00 (40) x 1.15 (10)

  Example 10: Same Side Interest Terminates the Liquidity Refresh Pause
                                  Early
------------------------------------------------------------------------
                   Market                          Bid           Ask
------------------------------------------------------------------------
ABBO........................................     1.00 (10)     1.14 (10)
PLMM........................................     1.00 (10)     1.10 (10)
LMM 1.......................................     1.00 (10)     1.12 (10)
LMM 2.......................................     1.00 (10)     1.15 (10)
RMM 1.......................................     1.00 (10)     1.16 (10)
------------------------------------------------------------------------

 Order 1: Buy limit of 1.13 for 20 contacts with a price 
protection instruction of 3 MPVs
 NBBO at time of arrival = 1.00 (50) x 1.10 (10)
 Order 1 is price protected at 1.13 (which is 1.10 + 3 MPV = 
1.13)
     Order 1 trades 10 contracts with PLMM @ 1.10
     Liquidity Refresh Pause is triggered because the MBO of 
1.10 was alone at NBBO and PLMM's 1.10 offer was exhausted
     MBBO 1.10 (10) x 1.12 (10)
     Liquidity Refresh message is broadcasted on the Exchange's 
data feeds: Buy 10 contracts, exhausted MBO of 1.10
     Order 2: Buy limit of 1.12 for 10 contracts
     Liquidity Refresh Pause is terminated early upon the 
arrival of Order 2 because Order 2 is at a price that would lock the 
MBO of 1.12
     Order 1 trades 10 contracts with LMM1 @ 1.12. Order 1 gets 
priority over Order 2 as Order 1 was the initiating order. Order 1 has 
been fully executed and Order 2 is Booked
     New MBBO: 1.12 (10) x 1.15 (10)

Handling of Immediate-or-Cancel (IOC) Orders

    The Exchange also proposes amending Rule 515(e) to provide that 
market participants may designate price protection instructions on an 
order by order basis for IOC orders in the manner described in Rule 
515(c)(1). Specifically, this includes: (i) Price protection 
instructions being expressed in units of MPV away from the NBBO at the 
time of the order's receipt, or the MBBO if the ABBO is crossing the 
MBBO; (ii) the default price protection being one MPV away from the 
NBBO at the time of receipt, or the MBBO if the ABBO is crossing the 
MBBO; and (iii) market participants being able to elect to disable 
price protection on an order by order basis. In addition, the Exchange

[[Page 12719]]

proposes that IOC orders would be allowed to trade at multiple prices 
not to exceed the IOC order's limit price or the order's price 
protection limit, provided the execution does not trade at a price 
inferior to the current ABBO. This change is consistent with the new 
price protection functionality described above which will allow orders 
to trade at multiple price-points until an order's limit price or price 
protection limit. The Exchange believes that market participants will 
benefit from the change as such IOC orders will be able to access more 
liquidity on the Exchange than current functionality that limits the 
IOC order to just one price-point.

Handling of Fill-or-Kill (``FOK'') Orders

    The Exchange also proposes amending Rule 515(f) to provide that 
market participants may designate price protection instructions on an 
order by order basis for FOK orders in the manner described in Rule 
515(c)(1). Specifically, this includes: (i) Price protection 
instructions being expressed in units of MPV away from the NBBO at the 
time of the order's receipt, or the MBBO if the ABBO is crossing the 
MBBO; (ii) the default price protection being one MPV away from the 
NBBO at the time of receipt, or the MBBO if the ABBO is crossing the 
MBBO; and (iii) market participants being able to elect to disable 
price protection on an order by order basis. In addition, the Exchange 
proposes that if an FOK order is fully executable against orders and 
quotes in the System and MIAX is at the NBBO when an FOK order is 
received or reevaluated after the termination of a liquidity refresh 
pause by the System, the System will execute the FOK order at the NBBO 
price or better and if the FOK order could not be executed in full at a 
single price, the FOK order is cancelled. If the MBBO is not at the 
NBBO at the time the FOK order is received or reevaluated after the 
termination of a liquidity refresh pause or the FOK order is not fully 
executable against any orders or quotes in the System, the FOK order 
will be immediately cancelled. Contracts remaining from an FOK order 
will not be eligible for automatic resubmission as a new order for 
Members who have instructed the Exchange in writing to re-enter 
remaining contracts. The Exchange believes that market participants 
will benefit from the change as such FOK orders will be provided with 
an additional opportunity, after the termination of a liquidity refresh 
pause, to access more liquidity on the Exchange than current 
functionality that limits the FOK order to just one opportunity upon 
receipt. The Exchange believes this necessary because an FOK order that 
arrives during a liquidity refresh pause and causes the liquidity 
refresh pause to terminate early may not be able to access the contra-
side liquidity because it was not the initiating order. However, the 
FOK order may be able to execute with interest at the next price point 
on the Exchange after the termination of the liquidity refresh pause.
    Finally, the Exchange proposes a technical modification to the 
language of Rule 515(f). Specifically, the Exchange proposes deleting 
the phrase ``contracts remaining from'' when discussing that FOK orders 
will not be eligible for automatic resubmission. The proposed revisions 
make it clear that the entirety of an FOK order is not eligible for 
resubmission as there cannot actually be contracts remaining from an 
FOK order, which by its definition will either be executed in its 
entirety or cancelled and can never receive a partial execution.

Interpretation and Policy .02

    The Exchange proposes to add new Interpretation and Policy .02 to 
Rule 515 to codify how the managed interest is priced when there are 
multiple possible execution prices. Specifically, during the managed 
interest process, if managed interest becomes tradable at multiple 
price points on MIAX due to the ABBO transitioning from a crossed state 
to an uncrossed state, the midpoint of the MBBO, rounded up to the 
nearest MPV if necessary, will be used for the initial trade price. If 
locking or crossing interest remains, the next trade occurs at the Book 
price of the interest with lesser size. Trades will continue to occur 
until (a) all locking or crossing interest has been satisfied, (b) the 
ABBO is reached at which the interest will be managed according to 
subparagraph (c)(1)(ii), (c) the order's limit price with any remaining 
contracts being booked, or (d) the order's price protection limit at 
which any remaining contracts being canceled. This provision regarding 
midpoint pricing of the execution in this narrow scenario codifies 
existing functionality during the managed interest process, while 
updating the functionality to correspond with new price protection 
functionality described above. The Exchange believes that using the 
midpoint as the initial execution price in this situation promotes just 
and equitable principals for trade among parties to the execution.

           Example 11: Midpoint Execution of Managed Interest
------------------------------------------------------------------------
                   Market                          Bid           Ask
------------------------------------------------------------------------
MIAX........................................     1.00 (10)     1.20 (10)
MKT 1.......................................     1.00 (10)     1.10 (10)
MKT 2.......................................     1.15 (10)     1.20 (10)
------------------------------------------------------------------------

 Order 1: Buy limit of 1.20 for 10 contacts with Do Not Route 
instructions
     Order 1 cannot route to MKT1 because of its Do Not Route 
instructions
     Order 1 will be placed on the MIAX Book @ 1.10, but 
displayed in the MIAX Bid @ 1.09 as to not lock MKT1's 1.10 ask
 Updated MBBO 2: 1.09 (10) x 1.20 (10)
 Order 2: Sell limit of 1.11 for 10 contracts with Do Not Route 
instructions
     Order 2 cannot route to MKT2 because of its Do Not Route 
instructions
     Order 2 cannot trade with Order 1 because Order 1 has been 
placed on the Book at a price of 1.10--which is both inferior to the 
NBB of 1.15 and below Order 2's limit price of 1.11
     Order 2 will be placed on the MIAX Book @ 1.15, but 
displayed in the MIAX Ask @ 1.16 as to not lock MKT2's 1.15 bid
 Updated MBBO 3: 1.09 (10) x 1.16 (10)
 MKT1 and MKT2 display new quotes that no longer cross:
     MKT 1: 1.00 (10) x 1.20 (10)
     MKT 2: 1.00 (10) x 1.20 (10)
 MBBO 3 (1.09 (10) x 1.16 (10)) now represents the NBBO
     Order 1 has been Booked at 1.10, but has an actual limit 
price of 1.20
     Order 2 has been Booked at 1.15, but has an actual limit 
price of 1.11
     Order 1's buy limit of 1.20 crosses Order 2's sell limit 
of 1.11 and the two orders can trade an multiple price points--anywhere 
from 1.11 up to 1.20
     Order 1 and Order 2 trade 10 contracts at 1.13, which 
represents the midpoint of the MBBO (1.09 x 1.16 yields a 1.125 
midpoint) rounded up to the nearest MPV (1.13)

Amendments to Rule 529

    Currently the Exchange does not route Public Orders once they are 
resting on the book. The Exchange proposes to amend Rule 529 to provide 
that Public Customer orders resting on the book will not initiate a 
route timer, but may be routed with an incoming Public

[[Page 12720]]

Customer order that has initiated a Route Mechanism (``initiating 
order''). Specifically, if at the time of receipt of the initiating 
Public Customer order, the opposite side ABBO is also locking or 
crossing the same side MBBO, the System will immediately route the 
initiating Public Customer order, together with any routable interest 
resting at the same side MBBO, to the opposite side ABBO. The 
initiating Public Customer and any routable resting interest will be 
processed in the order in which they were received. The Exchange 
believes that this change will benefit Public Customers by allowing the 
Public Customer order to immediately access marketable liquidity 
available at an away market. The immediate routing of routable orders 
in this instance will also benefit the greater options market system as 
a whole, in that it may help to resolve undesirable crossed markets.

Technical Changes

    Consistent with changes described above, the Exchange proposes 
deleting the current language in Rule 515(c) in whole to replace it 
with the new provisions described above. The Exchange believes that the 
language in current Rule 515(c) is repetitive and difficult to follow. 
In choosing to replace it with the language of proposed Rule 515(c) the 
Exchange hopes to produce a rule text sufficiently clear to provide 
members with a better understanding of Exchange functionality.
    Additionally, the Exchange proposes technical amendments to 
Exchange Rule 516(b)(3), and 516(g) and Interpretation and Policy .04 
to Rule 520 to accommodate the proposed movement of the language 
explaining the managed interest process from current Rule 515(c)(2) to 
proposed Rule 515(c)(1)(ii).
    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 30 days 
after the publication of the approval order in the Federal Register. 
The implementation date will be no later than 30 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 \21\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \22\ 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.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Specifically, the Exchange believes the proposed price protection 
functionality will remove impediments to and perfect the mechanism of a 
free and open market by providing members with greater flexibility and 
control over how orders interact with liquidity both on the Exchange 
and, if routable, on away markets. Instead of imposing a rigid one-
size-fits-all price protection mechanism, the proposed functionality 
allows for customization and choice on the part of a member entering a 
non-Market Maker order. As proposed, the member can select how many 
price points beyond the NBBO at the time of the order's receipt the 
member would like the order to trade. This opens up the possibility of 
orders to trade on the Exchange and route to away markets at multiple 
price-points, instead of the more restrictive current maximum of two 
price-points. This proposal allows market participants to access 
greater liquidity both on the Exchange, thus benefiting Exchange 
members, and on away markets, thus benefiting the options market as a 
whole.
    The Exchange believes that proposed changes to Rules 515, 
specifically the handlings of routable and non-routable orders 
addressed in this filing, are consistent with the stated goals of and 
necessary to achieve the proposed expansion of the price protection 
functionality. Allowing routable and non-routable orders to be 
reevaluated and trade at multiple price points will allow such orders 
to access greater liquidity and improve the mechanism of price 
discovery. Allowing routable orders to be routed away at multiple price 
points will benefit the options market as a whole as this will improve 
the chances of market participants at these other options exchanges of 
receiving an execution. This too will help improve the mechanism of 
price discovery.
    The Exchange believes that the proposed changes to the Liquidity 
Refresh Pause mechanism addressed in this filing are consistent with 
the stated goals of and necessary to achieve the proposed expansion of 
the price protection functionality. Allowing the liquidity refresh 
pause mechanism to apply at multiple price points will help promote a 
fair and orderly market as the liquidity refresh pause allows MIAX 
participants to add liquidity and price stabilization. Allowing MIAX to 
display ``the exhausted MBBO'' in the liquidity refresh pause message 
will better inform MIAX participants regarding the price at which to 
supply additional liquidity and is necessary given a liquidity refresh 
pause mechanism that can apply at multiple price-points beyond ``the 
original NBBO.'' The Exchange believes that the change regarding 
terminating a liquidity refresh pause when a new quote or order is 
received during a Liquidity Refresh Pause on the same side of the 
market as the initiating order's remaining contracts that locks or 
crosses the original NBBO will protect the opposite side interest by 
allowing the opposite side interest to receive an execution.
    The Exchange believes that permitting IOC orders to execute at 
multiple price-points removes a market impediment as this change will 
allow IOC orders to access additional liquidity on the Exchange, thus 
benefiting both the sender of the IOC and the members providing the 
additional liquidity.
    The Exchange believes that permitting FOK orders the additional 
opportunity for an execution after causing a liquidity refresh pause to 
terminate early will allow FOK orders to access additional liquidity on 
the Exchange, thus benefiting both the sender of the FOK and the 
members providing the additional liquidity.
    Finally, the Exchange believes that its proposed modifications to 
its Immediate Routing mechanism 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 by allowing 
the Public Customer order to immediately access marketable liquidity 
available at an away market in a manner that may help to resolve 
undesirable crossed markets.

 B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange 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. As to inter-market competition, the Exchange notes 
proposed price protection functionality will benefit competing 
exchanges because routable orders will be eligible

[[Page 12721]]

to route to away markets at multiple price-points instead of just the 
NBBO at the time of the receipt of the order. As to intra-market 
competition, the Exchange believes the proposal to be fair as it 
preserves price protection functionality for non-Market Maker orders. 
Market Maker orders and quotes have their own distinct functionality, 
which already includes the ability to trade at multiple price-points.

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 
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-2014-08 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-2014-08. 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 publicly available. All 
submissions should refer to File Number SR-MIAX-2014-08 and should be 
submitted on or before March 27, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
---------------------------------------------------------------------------

    \23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-04920 Filed 3-5-14; 8:45 am]
BILLING CODE 8011-01-P