Document ID: SEC-2013-1328-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Miami International Securities Exchange LLC
Posted Date: 2013-07-23T04:00Z

[Federal Register Volume 78, Number 141 (Tuesday, July 23, 2013)]
[Notices]
[Pages 44180-44182]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-17595]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69997; File No. SR-MIAX-2013-33]

Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change to Amend Exchange Rules 521 and 530 Regarding Its Obvious 
Error Rules

Dated: July 17, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 3, 2013, 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 Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend Exchange Rules 521 and 
530.
    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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend Rule 521 to (i) 
provide that opening purchase transactions that occur when the Exchange 
has prohibited, restricted or limited such opening purchase 
transactions are subject to nullification and (ii) allow the Exchange 
to review transactions that are believed to be erroneous on motion of 
the Exchange. Additionally, the Exchange proposes mirroring the 
proposed amendments to Rule 521 in section (j) of Rule 530. The 
Exchange recently adopted section (j) of Rule 530 to provide how the 
Exchange handles erroneous options transactions in response to the Plan 
to Address Extraordinary Market Volatility Pursuant to Rule 608 of 
Regulation NMS.\3\ As the Exchange developed Rule 530(j) off the basis 
of Rule 521, the Exchange believes it appropriate to make the 
corresponding amendments to Rule 530 as proposed in Rule 521. Lastly, 
the Exchange proposes a technical change to Rule 530(j)(1)(i) to

[[Page 44181]]

cite to the correct notification provisions of Rule 530(j).
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    \3\ See Securities Exchange Act Release No. 69342 (April 8, 
2013), 78 FR 22017 (April 12, 2013) (SR-MIAX-2013-12).
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    The proposed change is substantially similar to other exchanges--
such as Chicago Board Options Exchange (``CBOE'') for the nullification 
of prohibited opening transactions and Nasdaq Options Market (``NOM''), 
NYSE Arca, Inc. (``NYSE Arca''), NYSE MKT LLC (``NYSE MKT''), and 
NASDAQ OMX PHLX (``PHLX'') for review of erroneous transactions on 
motion of the Exchange.\4\
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    \4\ See Securities Exchange Act Release No. 61576 (February 23, 
2010), 75 FR 9990 (March 4, 2010) (SR-NASDAQ-2010-022). See also 
CBOE Rule 6.25(a)(6); NOM Rules Chapter V Section 6(d)(i); NYSE Arca 
Rule 6.87(b)(3); NYSE MKT Rule 975NY.(b)(3); and PHLX Rule 
1092(e)(i)(B).
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Nullifying Prohibited Opening Transactions
    The Exchange proposes to add a provision to both Rule 521 and 
530(j) allowing for the nullification of opening purchase transactions 
in option classes or series subject to a prohibition, restriction or 
limitation on the creation and increase in long positions. Pursuant to 
Rule 403(a) the Exchange may determine to prohibit opening purchase 
transactions if, for example, the security underlying an option fails 
to meet the standards for continued listing and trading on the 
Exchange, or an option series is listed on the Exchange in violation of 
the provisions of Rule 404 and such series are unable to be immediately 
delisted. Such prohibitions curtail the creation and increase in long 
positions in the option class or series. The proposed rule change would 
provide the Exchange the ability to nullify any opening transaction 
prohibited pursuant to Rule 403. Thus, for example in the event that 
the Exchange withdraws approval for an underlying security previously 
approved by the Exchange for options transactions pursuant to Rule 403, 
the Exchange may prohibit any opening purchase transaction in series of 
options of that class previously listed and traded. Currently, a Member 
who violates the prohibition on opening purchase transactions can be 
pursued for such a violation through an appropriate regulatory action. 
However, there is no rule mechanism in the Rules by which to nullify 
the trade created by the prohibited opening transaction--thus a 
violator of the Exchange mandated prohibition, even after being subject 
to a regulatory action, could nonetheless benefit from the violation by 
keeping the prohibited opening position.
    The Exchange believes that the ability to nullify trades resulting 
in prohibited opening transactions would eliminate any possible 
windfall from violating Exchange mandated prohibitions and thus 
strengthen the Exchange's regulatory program. The proposed rule change 
would provide the Exchange with an additional regulatory tool to 
promote compliance with Exchange Rules and the maintenance of a fair 
and orderly marketplace. Lastly, the Exchange notes that the ability to 
nullify prohibited opening transactions currently exists at CBOE.\5\
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    \5\ See CBOE Rule 6.25(a)(6).
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Reviewing Trades on Exchange Motion
    The Exchange proposes to adopt a provision which provides that in 
the interest of maintaining a fair and orderly market and for the 
protection of investors, the Chief Regulatory Officer of MIAX or his/
her designee who is an officer (collectively ``Exchange Officer''), 
may, on his or her own motion or upon request, determine to review any 
transaction occurring on the Exchange that is believed to be 
erroneous.\6\ A transaction reviewed pursuant to this provision may be 
nullified or adjusted only if it is determined by the Exchange Officer 
that the transaction is erroneous as provided in Rule 521 or 530(j). A 
transaction would be adjusted or nullified, or just nullified if 
reviewed under 530(j), in accordance with the provision under which it 
is deemed an erroneous transaction. The Exchange Officer may be 
assisted by an Exchange Official that is trained in the application of 
this Rule for reviewing a transaction(s).
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    \6\ In the event a party to a transaction requests that the 
Exchange review a transaction, the Exchange Officer nonetheless 
would need to determine, on his or her own motion, whether to review 
the transaction.
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    As proposed, the Exchange Officer shall act pursuant to this 
paragraph as soon as possible after receiving notification of the 
transaction, and ordinarily would be expected to act on the same day as 
the transaction occurred. However, because a transaction under review 
may have occurred near the close of trading or due to unusual 
circumstances, the proposed Rule provides that the Exchange Officer 
shall act no later than 9:30 a.m. (ET) on the next trading day 
following the date of the transaction in question. A party affected by 
a determination to nullify or adjust a transaction pursuant to this 
provision may appeal such determination in accordance with Rule 521 or 
530(j); however, a determination by an Exchange Officer not to review a 
transaction, or a determination not to nullify or adjust a transaction 
for which a review was requested or conducted, is not appealable. The 
Exchange believes it is appropriate to limit review on appeal to only 
those situations in which a transaction is actually nullified or 
adjusted.
    This provision is not intended to replace a party's obligation to 
request a review, within the required time periods under Rules 521 and 
530(j) of any transaction that it believes meets the criteria for an 
obvious error. And, if a transaction is reviewed and a determination 
has been rendered pursuant to Rule 521 no additional relief may be 
granted under this new provision. Moreover, the Exchange does not 
anticipate exercising this new authority in every situation in which a 
party fails to make a timely request for review of this transaction 
pursuant to Rule 521 or 530(j). The Exchange believes this provision 
should help to protect the integrity of its marketplace by vesting an 
Exchange Officer with the authority to review a transaction that may be 
erroneous, in those situations where a party failed to make a timely 
request for a review.
    The Exchange believes that the provision would also be useful in 
situations where some parties, but not all, to trades around the same 
time have requested a review. Under the Rule, reviews are currently 
request-based. Under the proposal, in this situation, the Exchange 
would be able to invoke this provision to review a series of trades, 
whether or not all parties requested it.
    Lastly, the Exchange notes that the ability to review erroneous 
transactions on motion of the Exchange currently exists at NOM, NYSE 
Arca, NYSE MKT, and PHLX.\7\
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    \7\ See NOM Rules Chapter V Section 6(d)(i); NYSE Arca Rule 
6.87(b)(3); NYSE MKT Rule 975NY.(b)(3); and PHLX Rule 1092(e)(i)(B).
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Technical Correction to Rule 530(j)(1)(i)
    Rule 530(j)(1)(i) provides that any review pursuant to Rule 530(j) 
occur within the time frame provided by the Rule. However, the Rule 
currently incorrectly cites to a nonexistent provision--Rule 
530(j)(5)(i). The Exchange proposes correcting the Rule citation so 
that the time frame contained in proposed Rule 530(j)(2)(i)(A) is 
properly cited instead.
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

[[Page 44182]]

acts and practices, to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanisms of a free and open market and a national market 
system and, in general, to protect investors and the public interest.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    The proposed addition regarding the nullification of opening 
transactions in options classes or series in which the Exchange has 
prohibited opening transactions promotes just and equitable principles 
of trade by allowing for the nullification of opening transactions in 
options overlying securities for which the Exchange has withdrawn 
options trading eligibility. The nullification of such opening 
transactions eliminates the possibility of unjust enrichment on the 
part of one participant in the transaction at the expense of the contra 
party, all to the benefit of the marketplace as a whole. Additionally, 
the proposed rule change would provide the Exchange with an additional 
regulatory tool to promote compliance with Exchange Rules and the 
maintenance of a fair and orderly marketplace.
    Proposed Rule 521(e)(1)(ii), which would allow an Exchange Officer 
to adjust or nullify a transaction on his or her motion in the interest 
of maintaining a fair and orderly market, protects investors and the 
public interest by authorizing such Exchange Officer to take 
affirmative action when a transaction appears erroneous. Investors and 
the public would have assurances that an Exchange Officer may nullify 
their erroneous transaction without their own notification. This extra 
layer of protection in Rule 521 would benefit options investors on the 
Exchange and the marketplace in general. Additionally, a transaction 
reviewed pursuant to this proposal may be nullified or adjusted only if 
it is determined by the Exchange Officer that the transaction is 
erroneous as provided in Rule 521 or 530(j).

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. 
In addition, the Exchange does not believe the proposal will impose any 
burden on inter-market competition as the proposal is intended to 
protect investors by adopting an additional safeguard that is available 
on several competing exchanges. The Exchange notes the proposed changes 
to its Rules 521 and 530 do not go outside of the scope of the rules of 
other competing options exchanges. Additionally, consistency among the 
national securities exchanges regarding the handling of obvious errors 
reduces the possibility of any regulatory arbitrage on the part of a 
market participant seeking a forum with a lower regulatory requirement.

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

    Written comments were neither solicited nor received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) \11\ 
thereunder.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File No. SR-MIAX-2013-33 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 No. SR-MIAX-2013-33. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File No. SR-MIAX-2013-33 and should be 
submitted on or before August 13, 2013.

For the Commission, by the Division of Trading and Markets, pursuant 
to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-17595 Filed 7-22-13; 8:45 am]
BILLING CODE 8011-01-P