Document ID: SEC-2019-0200-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Miami International Securities Exchange, LLC
Posted Date: 2019-02-22T05:00Z

[Federal Register Volume 84, Number 36 (Friday, February 22, 2019)]
[Notices]
[Pages 5743-5745]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-03034]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85147; File No. SR-MIAX-2018-35]

Self-Regulatory Organizations; Miami International Securities 
Exchange, LLC; Notice of Filing of Amendment No. 1 and Order Granting 
Accelerated Approval of Proposed Rule Change, as Modified by Amendment 
No. 1, To Amend Exchange Rule 100 (Definitions); Rule 515 (Execution of 
Orders and Quotes); and Rule 503 (Openings on the Exchange)

February 15, 2019.

I. Introduction

    On November 9, 2018, Miami International Securities Exchange, LLC 
(``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend Exchange Rules 100 (Definitions), 515 
(Execution of Orders and Quotes), and 503 (Openings on the Exchange). 
The proposed rule change was published for comment in the Federal 
Register on November 20, 2018.\3\ On December 20, 2018, the Commission 
extended the time period for Commission action on the proposed rule 
change from January 4, 2019, to February 18, 2019.\4\ The Commission 
received no comments on the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 84589 (Nov. 14, 
2018), 83 FR 58633 (``Notice'').
    \4\ See Securities Exchange Act Release No. 84900 (December 20, 
2018), 83 FR 67394 (December 28, 2018).
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    On February 13, 2019, the Exchange filed Amendment No. 1 to make a 
clarifying change to the proposal.\5\ The Commission is publishing this 
notice to solicit comment on Amendment No. 1, and is approving the 
proposed rule change, as modified by Amendment No. 1, on an accelerated 
basis.
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    \5\ In Amendment No. 1, the Exchange modified its proposal to 
clarify that the term ``Proprietary Product'' refers to an options 
product that is listed exclusively on the Exchange, and is not 
multiply listed. The full text of Amendment No. 1 has been placed in 
the public comment file for SR-MIAX-2018-35 and is available at: 
https://www.sec.gov/rules/sro/miax.htm#SR-MIAX-2018-35.
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II. Description of the Proposal, as Modified by Amendment No. 1

    As more fully set forth in the Notice and Amendment No. 1, the 
Exchange proposes to amend its rules to address how price protection 
will apply to non-multi listed option products that are proprietary to 
the Exchange. More specifically, the Exchange proposes to amend (i) 
Exchange Rule 100 (Definitions), to adopt definitions for the terms 
``Proprietary Product'' and ``Non-Proprietary Product;'' (ii) Exchange 
Rule 515 (Execution of Orders and Quotes), to specify how the Exchange 
will provide price protection to eligible non-Market Orders for 
Proprietary Products; and (iii) Exchange Rule 503 (Openings on the 
Exchange), to specify how certain orders for Proprietary Products will 
be handled at the conclusion of the Opening Process.
    The Exchange proposes to amend Exchange Rule 100 (Definitions), to 
adopt definitions for the terms ``Proprietary Product'' and ``Non-
Proprietary Product,'' to provide clarity and ease of reference in 
Exchange rules.\6\ The proposed definition of a Proprietary Product is 
``a class of options that is listed exclusively on the Exchange,'' and 
the proposed definition of a Non-Proprietary Product is ``a class of 
options that is not a Proprietary Product.'' \7\
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    \6\ See Notice, supra note 3, at 58634.
    \7\ See proposed Exchange Rule 100 and supra note 5.
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    The Exchange further proposes to amend Exchange Rule 515 (Execution 
of Orders and Quotes). Currently, Rule 515(c)(1) describes a price 
protection process for certain non-Market Maker orders received during 
a trading session.\8\ This price protection process prevents certain 
orders from being executed beyond the price designated in the order's 
price protection instructions (the ``price protection limit''). When 
triggered, this price protection process will cancel an order or the 
remaining contracts of an order. The Exchange proposes to amend the 
heading of Rule 515(c)(1) to read ``Price Protection on Non-Market 
Maker Orders in Non-Proprietary Products,'' \9\ and add new subsection 
(c)(2) to Exchange Rule 515 to address and distinguish how price 
protection would apply to Proprietary Products.
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    \8\ See Exchange Rule 515(c)(1). This price protection process 
does not apply to Intermarket Sweep Orders (``ISO''), Immediate or 
Cancel (``IOC'') orders, or Fill-or-Kill (``FOK'') orders.
    \9\ See Notice, supra note 3, at 58634.
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    Proposed Exchange Rule 515(c)(2) would establish a price protection 
process for eligible non-Market Maker orders in Proprietary Products 
received during a regular trading session that are larger than, and 
priced through, the opposite side NBBO.\10\ The proposed price 
protection process provides for exposure of such orders and a limited 
time (i.e., a liquidity exposure period or ``LEP'') during which market 
participants may respond to provide liquidity, subject to certain 
parameters, in lieu of the Exchange canceling the order back to the 
Member. The price protection limit for applicable orders in Proprietary 
Products will be calculated by the System \11\ as follows: By adding 
(subtracting) a set number of MPVs \12\ if the order is a buy (sell) 
to: (i) The

[[Page 5744]]

opposite side NBBO, or (ii) the previous price protection limit,\13\ or 
(iii) in certain circumstances, the limit price of same side joining 
interest after the expiration of the liquidity exposure process 
timer.\14\
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    \10\ The term ``NBBO'' means the national best bid or offer as 
calculated by the Exchange based on market information received by 
the Exchange from OPRA. See Exchange Rule 100. The proposed new 
price protection process would apply to non-Market Maker orders in 
Proprietary Products, excluding ISOs and Auction or Cancel orders. 
See Notice, supra note 3, at 58634.
    \11\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \12\ The term ``MPV'' means Minimum Price Variation. See 
Exchange Rule 510. The number of MPVs will be determined by the 
Exchange and announced to Members through a Regulatory Circular, 
provided that the minimum shall be no less than two MPVs and the 
maximum shall be no more than twenty MPVs. See proposed Exchange 
Rule 515(c)(2).
    \13\ See proposed Exchange Rule 515(c)(2)(i)(iv).
    \14\ See proposed Exchange Rule 515(c)(2)(i)(v).
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    The proposed LEP applies to over-sized non-Market Maker eligible 
orders in Proprietary Products. More specifically, interest that would 
be posted or managed, or that would trade at a price more aggressive 
than the order's protected price (also referred to as the ``Book 
price'') will be subject to the LEP. To begin the LEP, the System will 
broadcast a liquidity exposure message to all subscribers of the 
Exchange's data feeds which will include the symbol, side of the 
market, quantity of matched contracts, the imbalance quantity, ``must 
fill'' quantity, and price. Additionally, the System will start an LEP 
timer, not to exceed three seconds, as determined by the Exchange and 
announced via Regulatory Circular. All market participants may respond 
to the liquidity exposure broadcast message. The System will evaluate 
interest received during the LEP based on price and the side of the 
market relative to the side of the market of the initiating order.
    During the LEP, if the Exchange receives interest on the opposite 
side of the market from the initiating order that locks or crosses the 
Book price of the interest subject to the LEP, the interest will trade, 
with resting liquidity executed prior to joining liquidity. During the 
LEP, if the Exchange receives interest on the same side of the market 
as the initiating order that is priced more aggressively than the Book 
price of the interest subject to the LEP that also locks or crosses the 
opposite side NBBO, the System will immediately terminate the timer and 
treat the new interest as joining liquidity for allocation purposes.
    Proposed Exchange Rule 515(c)(2)(i)(B) provides that at the end of 
the timer, the initiating order, resting liquidity, and any same side 
joining interest will (i) be handled in accordance to Exchange Rule 
515, Execution of Orders and Quotes, or (ii) trade against opposite 
side interest in the following sequence: resting interest will be 
filled first, followed by joining interest in the order it was 
received; and opposite side interest will be allocated in accordance 
with the Exchange's standard allocation, as described in Exchange Rule 
514, Priority of Quotes and Orders.
    The Exchange also proposes to amend subsection (f)(2)(vii)(B)(5) of 
Exchange Rule 503 (Openings on the Exchange), which currently provides 
that if there is an opening transaction, any unexecuted contracts from 
the imbalance not traded or routed will be cancelled back to the 
entering Member if the price for those contracts crosses the opening 
price, unless the Member that submitted the original order has 
instructed the Exchange in writing to re-enter the remaining size, in 
which case the remaining size will be automatically submitted as a new 
order. The Exchange proposes to amend the rule to adopt a new provision 
to state that unexecuted contracts that are from a non-Market Maker 
order in a Proprietary Product will be placed on the Book with a 
protected price equal to the opening price, and the LEP will begin 
immediately after the Opening Process is complete.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange and, in particular, with 
Section 6(b) of the Act.\15\ In particular, the Commission finds that 
the proposed rule change, as modified by Amendment No. 1, is consistent 
with Section 6(b)(5) of the Act,\16\ which requires, among other 
things, that the rules of a national securities exchange be designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism 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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    \15\ 15 U.S.C. 78f(b). In approving this proposed rule change, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \16\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that adopting definitions for the terms 
Proprietary Product and Non-Proprietary Product on the Exchange adds 
additional detail and promotes transparency and clarity in the 
Exchange's rules. The proposed definitions allow the Exchange to 
distinguish between two separate and distinct classes of options listed 
on the Exchange and to describe rules that may be applicable to one 
class and not the other.
    As described above, the Exchange proposes a new price protection 
and order handling mechanism for Proprietary Products that is similar 
to drill-through protection currently offered by other exchanges, and 
offers an opportunity for an investor's order in a Proprietary Product 
to be filled rather than cancelled.\17\ The Commission believes that 
the proposed price protection and liquidity exposure process for 
eligible non-Market Maker orders in Proprietary Products is reasonably 
designed to facilitate the execution of orders larger than and priced-
through the opposite side NBBO, as it offers a mechanism to seek and 
potentially provide liquidity to a Member, subject to specified 
parameters, in lieu of canceling back an order for which there are no 
other venues to seek an execution.
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    \17\ See Notice, supra note 3, at 58636.
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    In addition, the Exchange proposes that if there are unexecuted 
contracts from an eligible non-Market Maker order in a Proprietary 
Product at the conclusion of the Opening Process, the remaining 
contracts will be placed on the Book with a protected price equal to 
the opening price, and the LEP will begin immediately after the Opening 
Process is complete. The Commission believes that this aspect of the 
proposal similarly provides an additional opportunity for price 
discovery and a mechanism by which an investor's order in a Proprietary 
Product may ultimately be filled.
    For the foregoing reasons, the Commission finds the proposal, as 
modified by Amendment No. 1, to be consistent with the Act.

IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 1 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-2018-35 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange

[[Page 5745]]

Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-MIAX-2018-35. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MIAX-2018-35, and should be submitted on 
or before March 15, 2019.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
1 in the Federal Register. In Amendment No. 1, the Exchange modified 
its proposal to specify that the term ``Proprietary Product'' refers to 
an options product that is listed exclusively on the Exchange. The 
Commission notes that Amendment No. 1 does not otherwise modify the 
proposed rule change, which was subject to a full notice-and-comment 
period during which no comments were received. Amendment No. 1 narrows 
the scope of the original proposal by limiting the extent of products 
that may meet the Exchange's proposed definition of ``Proprietary 
Product,'' and harmonizes the definition with the rationale for the 
proposal, which is to provide price protection for products that do not 
trade on other execution venues. Accordingly, the Commission finds good 
cause, pursuant to Section 19(b)(2) of the Act,\18\ to approve the 
proposed rule change, as modified by Amendment No. 1, on an accelerated 
basis.
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    \18\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\19\ that the proposed rule change (SR-MIAX-2018-35), as modified 
by Amendment No. 1, be, and hereby is, approved on an accelerated 
basis.
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    \19\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-03034 Filed 2-21-19; 8:45 am]
 BILLING CODE 8011-01-P