Document ID: SEC-2016-1998-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Miami International Securities Exchange LLC
Posted Date: 2016-11-16T05:00Z

[Federal Register Volume 81, Number 221 (Wednesday, November 16, 2016)]
[Notices]
[Pages 80691-80694]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-27467]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79272; File No. SR-MIAX-2016-39]

Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Exchange Rule 519A, Risk Protection 
Monitor

November 9, 2016.
    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on October 31, 2016, Miami International 
Securities Exchange LLC (``MIAX'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'') a proposed rule 
change as described in Items I and II 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 Rule 519A, Risk 
Protection Monitor.
    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 Rule 519A, Risk Protection 
Monitor, to mandate the use of the Risk Protection Monitor by Members, 
and to state clearly in the rule that Members may establish multiple 
RPM Settings, as defined below.
Current Functionality
    Currently, using the Risk Protection Monitor, the Exchange's System 
\3\ maintains a counting program (``counting program'') for each 
participating Member that counts the number of orders entered and the 
number of contracts traded via an order entered by a Member on the 
Exchange within a specified time period that has been established by 
the Member (the ``specified time period''). The maximum duration of the 
specified time period is established by the Exchange and announced via 
a Regulatory Circular. The current maximum duration of the specified 
time period is a trading session.
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    \3\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.

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[[Page 80692]]

    Under the current rule, Members may establish an Allowable Order 
Rate \4\ and/or an Allowable Contract Execution Rate.\5\ When a 
Member's order is entered or when an execution of a Member's order 
occurs, the System will look back over the specified time period to 
determine whether the order entered or the execution that occurred 
triggers the Risk Protection Monitor.\6\ Members may establish whether 
the Risk Protection Monitor, when triggered, will (i) prevent the 
System from receiving any new orders in all series in all classes from 
the Member; or (ii) prevent the System from receiving any new orders in 
all series in all classes from the Member and cancel all existing Day 
orders in all series in all classes from the Member; or (iii) send a 
notification that the Risk Protection Monitor has been triggered 
without any further preventative or cancellation action by the 
System.\7\
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    \4\ The Allowable Order Rate is the number of orders entered 
during the specific time period that has been established by the 
Member.
    \5\ The Allowable Contract Execution Rate is the number of 
contracts executed during the specific time period that has been 
established by the Member.
    \6\ The Exchange notes that the specific time period does not 
need to be the same for both the Allowable Order Rate and Allowable 
Contract Execution Rate (i.e., there can be one specified time 
period for Allowable Order Rate and a different specified time 
period for Allowable Contract Execution Rate). In order to be 
consistent in the rule, under the proposal there can also be one 
Corresponding Specified Time Period (as described below) for both 
the Allowable Order Rate and a different Corresponding Specified 
Time Period for Allowable Contract Execution Rate. See proposed Rule 
519A(b).
    \7\ See Exchange Rule 519A(a). As discussed below, the Risk 
Protection Monitor will not cancel any existing Good Til Cancelled 
(``GTC'') orders. GTC Orders will remain in the System available for 
trading when the Risk Protection Monitor is engaged. See Rule 519A, 
Interpretations and Policies .02.
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    When engaged, the Risk Protection Monitor allows the Member to 
interact with existing orders entered prior to triggering the Risk 
Protection Monitor and allows the Member to continue to send cancel 
messages and receive reports of executions resulting from those orders. 
The Risk Protection Monitor shall remain engaged until the Member 
communicates with the Exchange staff to enable the acceptance of new 
orders.\8\
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    \8\ See current Exchange Rule 519A(b). The communication from 
the Member to Exchange staff can either be via email or phone.
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The Proposal
    First, the Exchange proposes to amend current Rule 519A(a) and (b) 
by consolidating the two paragraphs into one unified, cohesive 
paragraph describing the Risk Protection Monitor feature, its 
functionality, the ability of Members to establish and configure 
multiple Risk Protection Monitor settings, and the ability of Members 
to determine one of three alternative actions taken by the Risk 
Protection Monitor once it is triggered.
    Proposed Rule 519A will continue to include the basic description 
of the Risk Protection Monitor described above. The proposed amendments 
will reflect that the Risk Protection Monitor maintains one or more 
Member-configurable Allowable Order Rate settings and Allowable 
Contract Execution Rate settings (collectively, ``Risk Protection 
Monitor settings''). The Exchange believes that providing Members with 
the ability to establish multiple Risk Protection Monitor settings 
enhances Members' ability to account for sudden market movements due to 
extreme market volatility, and for heightened activity in one 
particular option or group of options in a particular industry or 
segment of the market due to news or other factors affecting the 
activity surrounding such option or options. Members may also 
simultaneously account for normal or even sluggish activity in less 
active options by establishing higher Risk Protection Monitor settings 
and a longer specified time period during which the Risk Protection 
Monitor engages the counting program.
    Amended Rule 519A(a), Voluntary Risk Protection Functionality,\9\ 
will also continue to include a choice of three possible outcomes for 
the Member once the System triggers the Risk Protection Monitor (i.e., 
when the Risk Protection Monitor setting has been reached during the 
specified time period), all of which are contained in the current rule. 
Specifically, once engaged, the Risk Protection Monitor will then, as 
determined by the Member: Automatically either (A) prevent the System 
from receiving any new orders in all series in all classes from the 
Member; (B) prevent the System from receiving any new orders in all 
series in all classes from the Member and cancel all existing orders 
with a time-in-force of Day in all series in all classes from the 
Member; or (C) send a notification to the Member without any further 
preventative or cancellation action by the System. As under the current 
rule when engaged, the Risk Protection Monitor will still allow the 
Member to interact with existing orders entered prior to exceeding the 
Allowable Order Rate setting or the Allowable Contract Execution Rate 
setting, including sending cancel order messages and receiving trade 
executions from those orders. The Risk Protection Monitor will remain 
engaged until the Member communicates with the Help Desk to enable the 
acceptance of new orders.
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    \9\ For clarity and ease of reference, the Exchange is proposing 
to add the heading ``Voluntary Risk protection Functionality'' to 
new Rule 519A(a), and the heading ``Mandatory Participation'' to new 
Rule 519A(b).
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    The Exchange believes that the ability of a Member to choose among 
three outcomes once the Risk Protection Monitor is triggered enhances 
the risk protections afforded to Members by the Exchange and thus 
provides a tool by which Members can further use the Risk Protection 
Monitor, once triggered, by tailoring the outcome to their acceptable 
risk tolerance levels.
Mandatory Use of the Risk Monitor Mechanism
    In addition to the consolidation of current Rules 519A(a) and (b) 
into one paragraph (new paragraph (a)), the Exchange proposes to adopt 
new Rule 519A(b), Mandatory Participation, to state that Members must 
establish at least one Allowable Order Rate setting with a 
corresponding specified time period of not less than one second, and 
not to exceed ten seconds, as established by the Exchange and 
communicated to Members via Regulatory Circular (a ``Corresponding 
Specified Time Period'') and at least one Allowable Contract Execution 
Rate setting (with a Corresponding Specified Time Period). The Exchange 
believes that establishing the Corresponding Specified Time Period 
within these parameters will provide minimum and maximum guidelines for 
Members, making their required use of the Risk Protection Monitor more 
efficient and streamlined.
    The Risk Protection Monitor settings must be configured by the 
Member such that the Risk Protection Monitor, when triggered, will 
perform one of two steps set forth in proposed Rule 519A(a): Either (A) 
prevent the System from receiving any new orders in all series in all 
classes from the Member; or (B) prevent the System from receiving any 
new orders in all series in all classes from the Member and cancel all 
existing orders with a time-in-force of Day in all series in all 
classes from the Member. Under the mandatory provision of proposed Rule 
519A(b), the simple Member notification option included in section (C) 
of proposed Rule 519A(a) would not be available.
    The purpose of this proposed provision is to mandate the use of the 
Risk Protection Monitor so that Members and the investing public are 
assured that the Risk Protection Monitor is active for all orders 
submitted to the

[[Page 80693]]

Exchange. The Exchange notes that other exchanges have similar risk 
protection tools and one has mandated a Member's use of similar 
functionality.\10\
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    \10\ International Securities Exchange LLC (``ISE'') Rule 714(d) 
mandates the use of its Market Wide Risk Protection tool by 
establishing default values that apply to members that do not submit 
the required parameters, but does not establish exchange-mandated 
minimum or maximum parameters. BATS BZX Exchange (``BZX'') Rule 
21.16(b)(ii) lists a succession of ``Specified Engagement Triggers'' 
that may be set optionally by the BATS User, and thus does not 
mandate the use of its Risk Monitor Mechanism.
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    Proposed Rule 519A(b) would also state that Members may establish 
additional Allowable Order Rate settings and additional Allowable 
Contract Execution Rate settings, and any such additional settings may 
be configured to perform the step set forth in either (A), (B), or (C) 
of Rule 519(a) as described above, upon engagement of the Risk 
Protection Monitor.
    As a technical matter, the Exchange proposes to amend Rule 519A, 
Interpretations and Policies .01(c), to make it consistent with the 
proposed amended Rule. The current Rule states that the Risk Protection 
Monitor will prevent the System from receiving any new orders in all 
series in all classes from the Member and, if designated by the 
Member's instructions, cancel all existing Day orders in all series in 
all classes from the Member. ``Day orders'' are not defined in the 
Exchange's rules and therefore the Exchange proposes to replace the 
term ``Day orders'' with ``orders with a time-in-force of Day.''
    The purpose of the proposed rule change is to enhance the risk 
protections afforded to Members by the Exchange by mandating use of the 
RPM and by permitting Members to establish multiple RPM Settings which 
can be tailored to the Member's acceptable risk tolerance levels.
    The Exchange anticipates that the proposed new Risk Protection 
Monitor functionality will be deployed on the Exchange beginning 
November 7, 2016.
2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \11\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \12\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanisms of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that Members will benefit from the proposed 
mandatory use of the Risk Protection Monitor, coupled with the ability 
of members to tailor their use of the Risk Protection Monitor to their 
risk tolerance levels. Members are vulnerable to the risk from system 
or other error or a market event, that may cause them to send a large 
number of orders or receive multiple, automatic executions before they 
can adjust their order exposure in the market. Without adequate risk 
management tools, such as the Risk Protection Monitor, Members could 
reduce the amount of order flow and liquidity that they provide to the 
market. Such actions may undermine the quality of the markets available 
to customers and other market participants. Accordingly, the proposed 
amendments to the Risk Protection Monitor, especially its mandated use, 
should instill additional confidence in Members that submit orders to 
the Exchange that their risk tolerance levels are protected, and thus 
should encourage such Members to submit additional order flow and 
liquidity to the Exchange with the understanding that they must have 
this protection, thereby removing impediments to and perfecting the 
mechanisms of a free and open market and a national market system and, 
in general, protecting investors and the public interest.
    In addition, providing Members with the ability to establish 
multiple RPM settings provides Members with more tools to use in 
managing their specific risks based on their individual risk tolerance 
levels. This facilitates transactions in securities because, as noted 
above, the Members will have more confidence that protections are in 
place that reduce the risks from potential system errors and market 
events. As a result, the modified functionality, together with the 
mandated use of the Risk Protection Monitor, has the potential to 
promote just and equitable principles of trade.

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. On the contrary, the 
Exchange believes that the amendments to the Risk Protection Monitor 
help promote competition by enabling Members to trade more aggressively 
on the Exchange, with the understanding that there are multiple, 
configurable risk management tools in place in the System. The Exchange 
believes the proposed changes will not impose any burden on intra-
market competition because the use of the Risk Protection Monitor is 
now required of all Members.
    The Exchange further believes that the proposed mandatory risk 
protections should promote inter-market competition, and result in more 
competitive order flow to the Exchange by protecting market 
participants from system errors or market events that may cause them to 
send a large number of orders or receive multiple, automatic executions 
before they can adjust their order exposure in the market.

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 \13\ and Rule 19b-4(f)(6) \14\ 
thereunder.
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) \15\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. In its filing with the Commission, 
the Exchange requests that the Commission waive the 30-day operative 
delay. The Exchange requests waiver of the 30-day operative delay so 
that Members may benefit from the proposed new functionality and so 
that the Exchange is able to deploy the functionality on its scheduled 
deployment date of November 7, 2016. For these reasons, the Commission 
believes that waiver of

[[Page 80694]]

the 30-day operative delay is consistent with the protection of 
investors and the public interest. Therefore, the Commission designates 
the proposed rule change to be operative upon filing.\16\
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    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-MIAX-2016-39 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MIAX-2016-39. 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 the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-MIAX-2016-39 and should be 
submitted on or before December 7, 2016.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Brent J. Fields,
Secretary.
[FR Doc. 2016-27467 Filed 11-15-16; 8:45 am]
 BILLING CODE 8011-01-P