Document ID: SEC-2015-0832-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Miami International Securities Exchange LLC
Posted Date: 2015-05-14T04:00Z

[Federal Register Volume 80, Number 93 (Thursday, May 14, 2015)]
[Notices]
[Pages 27781-27798]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-11603]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74918; File No. SR-MIAX-2015-35]

Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to the Nullification and Adjustment of 
Options Transactions Including Obvious Errors

May 8, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on May 7, 2015, 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 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 the 
Substance of the Proposed Rule Change

    The Exchange is filing a proposal to replace current Exchange Rule 
521 (the ``Current Rule''), entitled ``Obvious and Catastrophic 
Errors,'' with new Exchange Rule 521 (the ``Proposed Rule''), entitled 
``Nullification and Adjustment of Options Transactions Including 
Obvious Errors.'' Rule 521 relates to the adjustment and nullification 
of transactions that occur on the Exchange's options trading platform 
(the ``System'' \3\ or the ``MIAX System''). The Exchange also proposes 
to amend Exchange Rule 504, Trading Halts, and to delete current 
Exchange Rule 531, Trade Nullification and Price Adjustment Procedure.
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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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    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
Background
    For several months the Exchange has been working with other options 
exchanges to identify ways to improve the process related to the 
adjustment and nullification of erroneous options transactions. The 
goal of the process that the options exchanges have undertaken is to 
adopt harmonized rules related to the adjustment and nullification of 
erroneous options transactions as well as a specific provision related 
to coordination in connection with large-scale events involving 
erroneous options transactions. As described below, the Exchange 
believes that the changes the options exchanges and the Exchange have 
agreed to propose will provide transparency and finality with respect 
to the adjustment and nullification of erroneous options transactions. 
Particularly, the proposed changes seek to achieve consistent results 
for participants across U.S. options exchanges while maintaining a fair 
and orderly market, protecting investors and protecting the public 
interest.
    The instant Proposed Rule Change is the culmination of a 
coordinated effort by the options exchanges to address the August 22, 
2013, halt of trading in Nasdaq-listed securities (``Nasdaq SIP 
Failure''). Following the Nasdaq SIP Failure, the Chair of the 
Commission met with the heads of the securities exchanges to discuss 
potential initiatives aimed at addressing market resilience.\4\ The 
Proposed Rule responds to the Chair's initiative, and reflects 
discussions by the options exchanges to universally adopt: (1) certain 
provisions already in place on one or more options exchanges; and (2) 
new provisions that the options exchanges collectively believe will 
improve the handling of erroneous options transactions.
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    \4\ See SEC Press Release No. 2013-178 (September 12, 2013), 
available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539804861.
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    The Exchange is proposing additional objective standards in the 
Proposed

[[Page 27782]]

Rule as compared to the Current Rule. The Proposed Rule will ensure 
that the Exchange will have the same standards as all other options 
exchanges. However, there are still areas under the Proposed Rule where 
subjective determinations need to be made by Exchange personnel with 
respect to the calculation of Theoretical Price. The Exchange and all 
other options exchanges have been working to further improve the review 
of potentially erroneous transactions and their subsequent adjustment 
by creating an objective and universal way to determine Theoretical 
Price in the event a reliable National Best Bid/Offer (``NBBO'') is not 
available. For instance, the Exchange and all other options exchanges 
may utilize an independent third party to calculate and disseminate or 
make available Theoretical Price. This initiative requires additional 
exchange and industry discussion as well as additional time for 
development and implementation. The Exchange will continue to work with 
other options exchanges and the options industry towards the goal of 
additional objectivity and uniformity with respect to the calculation 
of Theoretical Price.
    The Exchange believes that the Proposed Rule is consistent with 
long-standing principles in the options industry under which the 
general policy is to adjust rather than nullify transactions. The 
Exchange acknowledges that adjustment of transactions is contrary to 
the operation of analogous rules applicable to the equities markets, 
where erroneous transactions are typically nullified rather than 
adjusted and where there is no distinction between the types of market 
participants involved in a transaction. The Exchange believes that the 
differences in market structure between equities and options markets 
continue to support the distinctions between the rules for handling 
obvious errors in the equities and options markets.
    The Exchange also believes that the Proposed Rule properly balances 
several competing concerns based on the structure of the options 
markets. Various structural differences between the options and 
equities markets point toward the need for a different balancing of 
risks for options market participants and are reflected in the Proposed 
Rule. Option pricing is formulaic and is tied to the price of the 
underlying stock, the volatility of the underlying security and other 
factors. Options market participants can generally create new open 
interest in response to trading demand. As new open interest is 
created, trades in the underlying security or related option series are 
generally also executed to hedge a market participant's risk. This 
pairing of open interest with hedging interest differentiates the 
options market specifically (and the derivatives markets broadly) from 
the cash equities markets. The Exchange believes that hedging 
transactions commonly engaged in by options market participants 
necessitates protection of transactions through adjustments rather than 
nullifications when possible and appropriate.
    The options markets are also quote driven markets dependent on 
liquidity providers to an even greater extent than equities markets. In 
contrast to the approximately 7,000 different securities traded in the 
U.S. equities markets each day, there are more than 500,000 unique, 
regularly quoted option series. This breadth in options series renders 
the options markets more dependent on liquidity providers than equities 
markets; such liquidity is provided most commonly by registered market 
makers but also by other professional traders. Due to the number of 
instruments in which registered market makers must quote and the risk 
attendant with quoting so many products simultaneously, the Exchange 
believes that those liquidity providers should be afforded a greater 
level of protection. In particular, the Exchange believes that trades 
of option liquidity providers should be protected because such 
liquidity providers typically engage in hedging activity to reduce 
potential significant financial risk. This should foster and promote 
continued liquidity provision and maintenance of the quote-driven 
options markets.
    Furthermore, there are other fundamental differences between 
options and equities markets that support the different treatment of 
specific categories of participants, as reflected in the Proposed Rule. 
For example, there is no trade reporting facility in the options 
markets. Thus, all transactions must occur on an options exchange. This 
leads to significantly more retail customer participation directly on 
exchanges than in the equities markets, where a significant amount of 
retail customer participation never reaches an exchange and is instead 
executed in off-exchange venues such as alternative trading systems, 
broker-dealer market making desks and internalized executions. Because 
of such direct retail customer participation, the options exchanges 
have taken steps to afford those retail customers--generally 
Customers--more favorable treatment in some circumstances.
Definitions
    The Exchange proposes to adopt various definitions that will be 
used in the Proposed Rule, as described below.
    First, the Exchange proposes to adopt a definition of ``Customer,'' 
for purposes of the new Rule as a Priority Customer \5\ to make clear 
that this term would not include any broker-dealer or non-Priority 
Customer. Although other portions of the Exchange's rules address the 
various categories of market participants, including Customers, the 
proposed definition is consistent with such rules and the Exchange 
believes it is important for all options exchanges to have the same 
definition of Customer in the context of nullifying and adjusting 
trades in order to have harmonized rules. As set forth in detail below, 
orders on behalf of a Customer \6\ are in many cases treated 
differently than non-Customer orders in light of the fact that 
Customers are not necessarily immersed in the day-to-day trading of the 
markets, are less likely to be watching trading activity in a 
particular option throughout the day, and may have limited funds in 
their trading accounts.
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    \5\ The term ``Priority Customer'' means a person or entity that 
(i) is not a broker or dealer in securities, and (ii) does not place 
more than 390 orders in listed options per day on average during a 
calendar month for its own beneficial account(s). See Exchange Rule 
100.
    \6\ Hereinafter, references to ``Customer'' mean ``Priority 
Customer.'' See id.
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    Second, the Exchange proposes to adopt definitions for both an 
``erroneous sell transaction'' and an ``erroneous buy transaction.'' As 
proposed, an erroneous sell transaction is one in which the price 
received by the person selling the option is erroneously low, and an 
erroneous buy transaction is one in which the price paid by the person 
purchasing the option is erroneously high. This provision helps to 
reduce the possibility that a party can intentionally submit an order 
hoping for the market to move in their favor while knowing that the 
transaction will be nullified or adjusted if the market does not. For 
instance, when a market participant who is buying options in a 
particular series sees an aggressively priced sell order posted on the 
Exchange, and the buyer believes that the price of the options is such 
that it might qualify for obvious error, the option buyer can trade 
with the aggressively priced order, then wait to see which direction 
the market moves. If the market moves in their direction, the buyer 
keeps the trade and if it moves against them, the buyer calls the 
Exchange hoping to get the trade adjusted or busted.
    Third, the Exchange proposes to adopt a definition of ``Official,'' 
which

[[Page 27783]]

would mean an Officer of the Exchange or such other employee designee 
of the Exchange that is trained in the application of the Proposed 
Rule.
    Fourth, the Exchange proposes to adopt a new term, a ``Size 
Adjustment Modifier,'' which would apply to individual transactions and 
would modify the applicable adjustment for orders under certain 
circumstances, as discussed in further detail below. As proposed, the 
Size Adjustment Modifier will be applied to individual transactions as 
follows:

------------------------------------------------------------------------
                                               Adjustment: theoretical
    Number of contracts per transaction       price (as defined below)
                                                     plus/pinus
------------------------------------------------------------------------
1-50......................................  N/A.
51-250....................................  2 times adjustment amount.
251-1000..................................  2.5 times adjustment amount.
1001 or more..............................  3 times adjustment amount.
------------------------------------------------------------------------

    The Size Adjustment Modifier attempts to account for the additional 
risk that the parties to the trade undertake for transactions that are 
larger in scope. The Exchange believes that the Size Adjustment 
Modifier creates additional incentives to prevent more impactful 
Obvious Errors and it lessens the impact on the contra-party to an 
adjusted trade. The Exchange notes that these contra-parties may have 
preferred to only trade the size involved in the transaction at the 
price at which such trade occurred, and in trading larger size has 
committed a greater level of capital and bears a larger hedge risk.
    When setting the proposed size adjustment modifier thresholds the 
Exchange has tried to correlate the size breakpoints with typical small 
and larger ``block'' execution sizes of underlying stock. For instance, 
SEC Rule 10b-18(a)(5)(ii) defines a ``block'' as a quantity of stock 
that is at least 5,000 shares and a purchase price of at least $50,000, 
among others.\7\ Similarly, NYSE Rule 72 defines a ``block'' as an 
order to buy or sell ``at least 10,000 shares or a quantity of stock 
having a market value of $200,000 or more, whichever is less.'' Thus, 
executions of 51 to 100 option contracts, which are generally 
equivalent to executions of 5,100 and 10,000 shares of underlying 
stock, respectively, are proposed to be subject to the lowest size 
adjustment modifier. An execution of over 1,000 contracts is roughly 
equivalent to a block transaction of more than 100,000 shares of 
underlying stock, and is proposed to be subject to the highest size 
adjustment modifier. The Exchange has correlated the proposed size 
adjustment modifier thresholds to smaller and larger scale blocks 
because the Exchange believes that the execution cost associated with 
transacting in block sizes should be in proportion to the size of the 
block. In other words, in the same way that executing a 100,000 share 
stock order will have a proportionately larger market impact and will 
have a higher overall execution cost than executing a 500, 1,000 or 
5,000 share order in the same stock, all other market factors being 
equal, executing a 1,000 option contract order will have a larger 
market impact and higher overall execution cost than executing a 5, 10 
or 50 contract option order.
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    \7\ See 17 CFR 240.10b-18(a)(5)(ii).
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Calculation of Theoretical Price
Theoretical Price in Normal Circumstances
    Under both the Current Rule and the Proposed Rule, when reviewing a 
transaction as potentially erroneous, the Exchange needs to first 
determine the ``Theoretical Price'' of the option, i.e., the Exchange's 
estimate of the correct market price for the option. Pursuant to the 
Proposed Rule, if the applicable option series is traded on at least 
one other options exchange, then the Theoretical Price of an option 
series is the last national best bid (``NBB'') just prior to the trade 
in question with respect to an erroneous sell transaction or the last 
national best offer (``NBO'') just prior to the trade in question with 
respect to an erroneous buy transaction unless one of the exceptions 
described below exists. Thus, the Exchange proposes that whenever the 
Exchange has a reliable NBB or NBO, as applicable, just prior to the 
transaction, then the Exchange will use this NBB or NBO as the 
Theoretical Price.
    The Exchange also proposes to specify in the Proposed Rule that 
when a single order received by the Exchange is executed at multiple 
price levels, the last NBB and last NBO just prior to the trade in 
question would be the last NBB and last NBO just prior to the 
Exchange's receipt of the order.
    The Exchange also proposes to set forth in the Proposed Rule 
various provisions governing specific situations where the NBB or NBO 
is not available or may not be reliable. Specifically, the Exchange is 
proposing additional detail specifying provisions governing 
transactions at the open of trading on each trading day; situations in 
which there are no quotes or no valid quotes (as defined below); and 
when the national best bid or offer (``NBBO'') is determined to be too 
wide to be reliable.
Transactions at the Open
    Under the Proposed Rule, for a transaction occurring as part of the 
Opening Process (as described in Exchange Rule 503), the Exchange will 
determine the Theoretical Price where there is no NBB or NBO for the 
affected series just prior to the erroneous transaction or if the bid/
ask differential of the NBBO just prior to the erroneous transaction is 
equal to or greater than the Minimum Amount set forth in the chart 
proposed for the wide quote provision described below. The Exchange 
believes that this discretion is necessary because it is consistent 
with other scenarios in which the Exchange will determine the 
Theoretical Price if there are no quotes or no valid quotes for 
comparison purposes, including the wide quote provision proposed by the 
Exchange as described above. If, however, there are valid quotes and 
the bid/ask differential of the NBBO is less than the Minimum Amount 
set forth in the chart proposed for the wide quote provision described 
below, then the Exchange will use the NBB or NBO just prior to the 
transaction as it would in any other normal review scenario.
    As an example of an erroneous transaction for which the NBBO is 
wide at the open, assume the NBBO at the time of the opening 
transaction is $1.00 x $5.00 and the opening transaction takes place at 
$1.25. The Exchange would be responsible for determining the 
Theoretical Price because the bid/ask differential for the NBBO was 
wider than the applicable minimum amount set forth in the wide quote 
provision as described below. The Exchange believes that it is 
necessary to determine Theoretical Price at the open in the event of a 
wide quote at the open for the same reason that the Exchange has 
proposed to determine Theoretical Price during the remainder of the 
trading day pursuant to the proposed wide quote provision, namely that 
a wide quote cannot be reliably used to determine Theoretical Price 
because the Exchange does not know which of the two quotes, the NBB or 
the NBO, is closer to the real value of the option.
No Valid Quotes
    Pursuant to the Proposed Rule the Exchange will determine the 
Theoretical Price if there are no quotes or no valid quotes for 
comparison purposes. As proposed, quotes that are not valid are all 
quotes in the applicable option series published at a time where the 
last NBB is higher than the last NBO in such series (a ``crossed 
market''), quotes published by the Exchange that were submitted by 
either party to the

[[Page 27784]]

transaction in question, and quotes published by another options 
exchange against which the Exchange has declared self-help. Thus, in 
addition to scenarios where there are literally no quotes to be used as 
Theoretical Price, the Exchange will exclude quotes in certain 
circumstances if such quotes are not deemed valid. The Proposed Rule is 
consistent with the Exchange's application of the Current Rule but the 
descriptions of the various scenarios where the Exchange considers 
quotes to be invalid represent additional detail that is not included 
in the Current Rule.
    The Exchange notes that Exchange personnel currently are required 
to determine Theoretical Price in certain circumstances. While the 
Exchange continues to pursue alternative solutions that might further 
enhance the objectivity and consistency of determining Theoretical 
Price, the Exchange believes that the discretion currently afforded to 
Officials is appropriate in the absence of a reliable NBBO that can be 
used to set the Theoretical Price. Under the current Rule, Exchange 
personnel will generally consult and refer to data such as the prices 
of related series, especially the closest strikes in the option in 
question. Exchange personnel may also take into account the price of 
the underlying security and the volatility characteristics of the 
option as well as historical pricing of the option and/or similar 
options.
Wide Quotes
    Similarly, pursuant to the Proposed Rule the Exchange will 
determine the Theoretical Price if the bid/ask differential of the NBB 
and NBO for the affected series just prior to the erroneous transaction 
was equal to or greater than the Minimum Amount set forth below and 
there was a bid/ask differential less than the Minimum Amount during 
the 10 seconds prior to the transaction. If there was no bid/ask 
differential less than the Minimum Amount during the 10 seconds prior 
to the transaction then the Theoretical Price of an option series is 
the last NBB or NBO just prior to the transaction in question. The 
Exchange proposes to use the following chart to determine whether a 
quote is too wide to be reliable:

------------------------------------------------------------------------
              Bid price at time of trade                Minimum  amount
------------------------------------------------------------------------
Below $2.00..........................................              $0.75
$2.00 to $5.00.......................................               1.25
Above $5.00 to $10.00................................               1.50
Above $10.00 to $20.00...............................               2.50
Above $20.00 to $50.00...............................               3.00
Above $50.00 to $100.00..............................               4.50
Above $100.00........................................               6.00
------------------------------------------------------------------------

    The Exchange notes that the values set forth above generally 
represent a multiple of 3 times the bid/ask differential requirements 
of other options exchanges, with certain rounding applied (e.g., $1.25 
as proposed rather than $1.20).\8\ The Exchange believes that basing 
the Wide Quote table on a multiple of the permissible bid/ask 
differential rule provides a reasonable baseline for quotations that 
are indeed so wide that they cannot be considered reliable for purposes 
of determining Theoretical Price unless they have been consistently 
wide. As described above, while the Exchange will determine Theoretical 
Price when the bid/ask differential equals or exceeds the amount set 
forth in the chart above and within the previous 10 seconds there was a 
bid/ask differential smaller than such amount, if a quote has been 
persistently wide for at least 10 seconds the Exchange will use such 
quote for purposes of Theoretical Price. The Exchange believes that 
there should be a greater level of protection afforded to market 
participants that enter the market when there are liquidity gaps and 
price fluctuations. The Exchange does not believe that a similar level 
of protection is warranted when market participants choose to enter a 
market that is wide and has been consistently wide for some time. The 
Exchange notes that it has previously determined that, given the 
largely electronic nature of today's markets, as little as one second 
(or less) is a sufficient time for market participants to receive, 
process and account for and respond to new market information.\9\ While 
introducing this new provision the Exchange believes it is being 
appropriately cautious by selecting a time frame that is an order of 
magnitude above and beyond what the Exchange has previously determined 
is sufficient for information dissemination. The table above bases the 
wide quote provision on the bid price in order to provide a relatively 
straightforward beginning point for the analysis.
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    \8\ See, e.g., NYSE Arca Options Rule 6.37(b)(1).
    \9\ See, e.g., Exchange Rules 520(b) and (c), which require 
certain orders to be exposed on the MIAX System for at least one 
second before they can be executed.
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    As an example, assume an option is quoted $3.00 by $6.00 with a 
size of 50 contracts posted on each side of the market for an extended 
period of time. If a market participant were to enter a market order to 
buy 20 contracts the Exchange believes that the buyer should have a 
reasonable expectation of paying $6.00 for the contracts they are 
buying. This should be the case even if immediately after the purchase 
of those options, the market conditions change and the same option is 
then quoted at $3.75 by $4.25. Although the quote was wide according to 
the table above at the time immediately prior to and the time of the 
execution of the market order, it was also well established and well 
known. The Exchange believes that an execution at the then prevailing 
market price should not in and of itself constitute an erroneous trade.
Obvious Errors
    The Exchange proposes to adopt numerical thresholds that would 
qualify transactions as ``Obvious Errors.'' These thresholds are 
similar to those in place under the Current Rule. As proposed, a 
transaction will qualify as an Obvious Error if the Exchange receives a 
properly submitted obvious or catastrophic error notification 
(described below) and the execution price of a transaction is higher or 
lower than the Theoretical Price for the series by an amount equal to 
at least the amount shown below:

------------------------------------------------------------------------
                                                               Minimum
                     Theoretical price                          amount
------------------------------------------------------------------------
Below $2.00................................................        $0.25
$2.00 to $5.00.............................................         0.40
Above $5.00 to $10.00......................................         0.50
Above $10.00 to $20.00.....................................         0.80
Above $20.00 to $50.00.....................................         1.00
Above $50.00 to $100.00....................................         1.50
Above $100.00..............................................         2.00
------------------------------------------------------------------------

    Applying the Theoretical Price, as described above, to determine 
the applicable threshold and comparing the Theoretical Price to the 
actual execution price provides the Exchange with an objective 
methodology to determine whether an Obvious Error occurred. The 
Exchange believes that the proposed amounts are reasonable as they are 
generally consistent with the standards of the Current Rule and reflect 
a significant disparity from Theoretical Price. The Exchange notes that 
the Minimum Amounts in the Proposed Rule and as set forth above are 
identical to the Current Rule except for the last two categories, for 
options where the Theoretical Price is above $50.00 to $100.00 and 
above $100.00. The Exchange believes that this additional granularity 
is reasonable because given the proliferation of additional strikes 
that have been created in the past several years there are many more 
high-priced options that are trading with open interest for extended 
periods. The

[[Page 27785]]

Exchange believes that it is appropriate to account for these high-
priced options with additional Minimum Amount levels for options with 
Theoretical Prices above $50.00.
    Under the Proposed Rule, a party that believes that it participated 
in a transaction that was the result of an Obvious Error must notify 
MIAX Regulatory Control (``MRC'') in the manner specified from time to 
time on the Exchange's Web site. The Exchange currently requires 
electronic notification through a web-based process but believes that 
maintaining flexibility in the Rule is important to allow for changes 
to the process.
    The Exchange also proposes to adopt notification timeframes that 
must be met in order for a transaction to qualify as an Obvious Error. 
Specifically, as proposed a party that believes that it participated in 
a transaction that was the result of an Obvious Error must submit a 
notification to MRC (an ``obvious error notification'') within thirty 
(30) minutes of the execution with respect to an execution of a 
Customer order and within fifteen (15) minutes of the execution for any 
other participant. The Exchange also proposes to provide additional 
time for trades that are routed through other options exchanges to the 
Exchange.
    Specifically, under the Proposed Rule, any other options exchange 
will have a total of forty-five (45) minutes for Customer orders and 
thirty (30) minutes for non-Customer orders, measured from the time of 
execution on the Exchange, to submit an obvious error notification to 
MRC for review of transactions routed to the Exchange from that options 
exchange and executed on the Exchange pursuant to the Options Order 
Protection and Locked/Crossed Market Plan \10\ (such trades are 
hereinafter referred to as ``Linkage Trades''). This includes obvious 
error notifications on behalf of another options exchange submitted by 
a third-party routing broker if such third-party broker identifies the 
affected transactions as Linkage Trades. In order to facilitate timely 
reviews of Linkage Trades the Exchange will accept obvious error 
notifications from either the other options exchange or, if applicable, 
the third-party routing broker that routed the affected order(s). The 
additional fifteen (15) minutes provided with respect to Linkage Trades 
shall only apply to the extent the options exchange that originally 
received and routed the order to the Exchange itself received a timely 
obvious error notification from the entering participant (i.e., within 
30 minutes if a Customer order or 15 minutes if a non-Customer order).
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    \10\ As defined in Exchange Rule 1400(n).
---------------------------------------------------------------------------

    The Exchange believes that additional time for obvious error 
notifications related to Customer orders is appropriate in light of the 
fact that Customers are not necessarily immersed in the day-to-day 
trading of the markets and are less likely to be watching trading 
activity in a particular option throughout the day. The Exchange 
believes that the additional time afforded to Linkage Trades is 
appropriate given the interconnected nature of the markets today and 
the practical difficulty that an end user may face in getting requests 
for review filed in a timely fashion when the transaction originated at 
a different exchange than where the error took place. Without this 
additional time the Exchange believes it would be common for a market 
participant to satisfy the filing deadline at the original exchange to 
which an order was routed but that requests for review of executions 
from orders routed to other options exchanges would not qualify for 
review as potential Obvious Errors by the time obvious error 
notifications were received by such other options exchanges, in turn 
leading to potentially disparate results under the applicable rules of 
options exchanges to which the orders were routed.
    Pursuant to the Proposed Rule, an Official may review a transaction 
believed to be erroneous on his/her own motion in the interest of 
maintaining a fair and orderly market and for the protection of 
investors. This proposed provision is designed to give an Official the 
ability to provide parties relief in those situations where they have 
failed to submit an obvious or catastrophic error notification within 
the established time period. A transaction reviewed pursuant to the 
proposed provision may be nullified or adjusted only if it is 
determined by the Official that the transaction is erroneous in 
accordance with the provisions of the Proposed Rule, provided that the 
time deadlines for filing a request for review described above shall 
not apply. The Proposed Rule would require the Official to act as soon 
as possible after becoming aware of the transaction; action by the 
Official would ordinarily be expected on the same day that 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 Official shall act 
no later than 8:30 a.m. Eastern Time on the next trading day following 
the date of the affected transaction.
    The Exchange also proposes to state that a party affected by a 
determination to nullify or adjust a transaction after an Official's 
review on his or her own motion may appeal such determination in 
accordance with paragraph (l), which is described below. The Proposed 
Rule would make clear that a determination by an Official not to review 
a transaction or determination not to nullify or adjust a transaction 
for which a review was conducted on an Official's own motion is not 
appealable, and further that if a transaction is reviewed and a 
determination is rendered pursuant to another provision of the Proposed 
Rule, no additional relief may be granted by an Official.
    If it is determined that an Obvious Error has occurred based on the 
objective numeric criteria and time deadlines described above, the 
Exchange will adjust or nullify the transaction as described below and 
promptly notify both parties to the trade electronically or via 
telephone. The Exchange proposes different adjustment and nullification 
criteria for Customers and non-Customers.
    As proposed, where neither party to the transaction is a Customer, 
the execution price of the transaction will be adjusted by the Official 
pursuant to the table below.

------------------------------------------------------------------------
                                     Buy transaction    Sell transaction
      Theoretical price (TP)         adjustment-- TP    adjustment-- TP
                                           plus              minus
------------------------------------------------------------------------
Below $3.00.......................              $0.15               0.15
At or above $3.00.................              $0.30               0.30
------------------------------------------------------------------------

[[Page 27786]]

    The Exchange believes that it is appropriate to adjust to prices a 
specified amount away from Theoretical Price rather than to adjust to 
Theoretical Price because even though the Exchange has determined a 
given trade to be erroneous in nature, the parties to the transaction 
should have had some expectation of execution at the price or prices 
submitted. Also, it is common that by the time it is determined that an 
obvious error has occurred additional hedging and trading activity has 
already occurred based on the executions that previously happened. The 
Exchange is concerned that an adjustment to Theoretical Price in all 
cases would not appropriately incentivize market participants to 
maintain appropriate controls to avoid potential errors.
    Further, as proposed any non-Customer Obvious Error exceeding 50 
contracts will be subject to the Size Adjustment Modifier described 
above. The Exchange believes that it is appropriate to apply the Size 
Adjustment Modifier to non-Customer orders because the hedging cost 
associated with trading larger sized options orders and the market 
impact of larger blocks of underlying can be significant.
    As an example of the application of the Size Adjustment Modifier, 
assume Exchange A has a quoted bid to buy 50 contracts at $2.50, 
Exchange B has a quoted bid to buy 100 contracts at $2.05 and there is 
no other options exchange quoting a bid priced higher than $2.00. 
Assume that the NBBO is $2.50 by $3.00. Finally, assume that all orders 
quoted and submitted to Exchange B in connection with this example are 
non-Customer orders.
     Assume Exchange A's quoted bid at $2.50 is either executed 
or cancelled.
     Assume Exchange B immediately thereafter receives an 
incoming market order to sell 100 contracts.
     The incoming order would be executed against Exchange B's 
resting bid at $2.05 for 100 contracts.
     Because the 100 contract execution of the incoming sell 
order was priced at $2.05, which is $0.45 below the Theoretical Price 
of $2.50, the 100 contract execution would qualify for adjustment as an 
Obvious Error.
     The normal adjustment process would adjust the execution 
of the 100 contracts to $2.35 per contract, which is the Theoretical 
Price minus $0.15.
     However, because the execution would qualify for the Size 
Adjustment Modifier of 2 times the adjustment price, the adjusted 
transaction would instead be to $2.20 per contract, which is the 
Theoretical Price minus $0.30.
    By reference to the example above, the Exchange reiterates that it 
believes that a Size Adjustment Modifier is appropriate, as the buyer 
in this example was originally willing to buy 100 contracts at $2.05 
and ended up paying $2.20 per contract for such execution. Without the 
Size Adjustment Modifier the buyer would have paid $2.35 per contract. 
Such buyer may be advantaged by the trade if the Theoretical Price is 
indeed closer to $2.50 per contract. However, the buyer may not have 
wanted to buy so many contracts at a higher price and does incur 
increasing cost and risk due to the additional size of their quote. 
Thus, the proposed rule is attempting to strike a balance between 
various competing objectives, including recognition of cost and risk 
incurred in quoting larger size and incentivizing market participants 
to maintain appropriate controls to avoid errors.
    In contrast to non-Customer orders, where trades will be adjusted 
if they qualify as Obvious Errors, pursuant the Proposed Rule a trade 
that qualifies as an Obvious Error will be nullified where at least one 
party to the Obvious Error is a Customer. The Exchange also proposes, 
however, that if any Member submits an obvious error notification 
pursuant to the Proposed Rule, and in the aggregate that Member has 200 
or more Customer transactions under review concurrently and the orders 
resulting in such transactions were submitted during the course of 2 
minutes or less, where at least one party to the Obvious Error is a 
non-Customer, the Exchange will apply the non-Customer adjustment 
criteria described above to such transactions.
    The Exchange based its proposal of 200 transactions on the fact 
that the proposed level is reasonable as it is representative of an 
extremely large number of orders submitted to the Exchange that are, in 
turn, possibly erroneous. Similarly, the Exchange based its proposal of 
orders received in 2 minutes or less on the fact that this is a very 
short amount of time under which one Member could generate multiple 
erroneous transactions. In order for a participant to have more than 
200 transactions under review concurrently when the orders triggering 
such transactions were received in 2 minutes or less, the market 
participant will have far exceeded the normal behavior of customers 
deserving protected status.\11\ While the Exchange continues to believe 
that it is appropriate to nullify transactions in such a circumstance 
if both participants to a transaction are Customers, the Exchange does 
not believe it is appropriate to place the overall risk of a 
significant number of trade breaks on non-Customers that in the normal 
course of business may have engaged in additional hedging activity or 
trading activity based on such transactions. Thus, the Exchange 
believes it is necessary and appropriate to protect non-Customers in 
such a circumstance by applying the non-Customer adjustment criteria, 
and thus adjusting transactions as set forth above, in the event a 
Member has more than 200 transactions under review concurrently.
---------------------------------------------------------------------------

    \11\ The Exchange notes that in the third quarter of 2014 across 
all options exchanges the average number of valid Customer orders 
received and executed was less than 38 valid orders every two 
minutes. The number of obvious errors resulting from valid orders 
is, of course, a very small fraction of such orders.
---------------------------------------------------------------------------

Catastrophic Errors
    Consistent with the Current Rule, the Exchange proposes to adopt 
separate numerical thresholds for review of transactions for which the 
Exchange does not receive an obvious error notification within the 
Obvious Error timeframes set forth above. Based on this review these 
transactions may qualify as ``Catastrophic Errors.'' As proposed, a 
Catastrophic Error will be deemed to have occurred when the execution 
price of a transaction is higher or lower than the Theoretical Price 
for the series by an amount equal to at least the amount shown below:

------------------------------------------------------------------------
                                                               Minimum
                     Theoretical price                          amount
------------------------------------------------------------------------
Below $2.00................................................        $0.50
$2.00 to $5.00.............................................        $1.00
Above $5.00 to $10.00......................................        $1.50
Above $10.00 to $20.00.....................................        $2.00
Above $20.00 to $50.00.....................................        $2.50
Above $50.00 to $100.00....................................        $3.00
Above $100.00..............................................        $4.00
------------------------------------------------------------------------

    Based on industry feedback on the Catastrophic Error thresholds set 
forth under the Current Rule, the thresholds proposed as set forth 
above are more granular and lower (i.e., more likely to qualify) than 
the thresholds under the Current Rule. As noted above, under the 
Proposed Rule as well as the Current Rule, parties have additional time 
to submit transactions for review as Catastrophic Errors. As proposed, 
notification requesting review (a ``catastrophic error notification'') 
must be received by MRC by 8:30 a.m. Eastern Time on the first trading 
day following the execution. For transactions in an expiring options 
series that take place on an expiration day, a party must

[[Page 27787]]

submit a catastrophic error notification to MRC within 45 minutes after 
the close of trading that same day. As is true for requests for review 
under the Obvious Error provision of the Proposed Rule, a party 
requesting review of a transaction as a Catastrophic Error must notify 
MRC in the manner specified from time to time on the Exchange's Web 
site. By definition, any execution that qualifies as a Catastrophic 
Error is also an Obvious Error. However, the Exchange believes it is 
appropriate to account for these two categories of errors because the 
Catastrophic Error provisions provide market participants with a longer 
time period within which they may submit a catastrophic error 
notification to MRC than the time period for an obvious error 
notification. This provides an additional level of protection for 
transactions that are severely erroneous even in the event a 
participant does not submit an obvious error notification in a timely 
fashion.
    The Proposed Rule would specify the action to be taken by the 
Exchange if it is determined that a Catastrophic Error has occurred, as 
described below, and would require the Exchange to promptly notify both 
parties to the trade electronically or via telephone. In the event of a 
Catastrophic Error, the execution price of the transaction will be 
adjusted by the Official pursuant to the table below.

------------------------------------------------------------------------
                                     Buy transaction    Sell transaction
      Theoretical price (TP)         adjustment-- TP    adjustment-- TP
                                           Plus              Minus
------------------------------------------------------------------------
Below $2.00.......................              $0.50              $0.50
$2.00 to $5.00....................              $1.00              $1.00
Above $5.00 to $10.00.............              $1.50              $1.50
Above $10.00 to $20.00............              $2.00              $2.00
Above $20.00 to $50.00............              $2.50              $2.50
Above $50.00 to $100.00...........              $3.00              $3.00
Above $100.00.....................              $4.00              $4.00
------------------------------------------------------------------------

    Although Customer orders would be adjusted in the same manner as 
non-Customer orders, any Customer order that qualifies as a 
Catastrophic Error will be nullified if the adjustment would result in 
an execution price higher (for buy transactions) or lower (for sell 
transactions) than the Customer's limit price. Based on industry 
feedback, the levels proposed above with respect to adjustment amounts 
are the same levels as the thresholds at which a transaction may be 
deemed a Catastrophic Error pursuant to the chart set forth above.
    As is true for Obvious Errors as described above, the Exchange 
believes that it is appropriate to adjust to prices a specified amount 
away from Theoretical Price rather than to adjust to Theoretical Price 
because even though the Exchange has determined a given trade to be 
erroneous in nature, the affected parties should have had some 
expectation of execution at the price or prices submitted. Also, it is 
common that by the time it is determined that a Catastrophic Error has 
occurred additional hedging and trading activity has already occurred 
based on the executions that previously happened. The Exchange is 
concerned that an adjustment to Theoretical Price in all cases would 
not appropriately incentivize market participants to maintain 
appropriate controls to avoid potential errors. Further, the Exchange 
believes it is appropriate to maintain a higher adjustment level for 
Catastrophic Errors than Obvious Errors given the significant 
additional time that can potentially pass before an adjustment is 
requested and applied and the amount of hedging and trading activity 
that can occur based on the executions at issue during such time. For 
the same reasons, other than honoring the limit prices established for 
Customer orders, the Exchange has proposed to treat all market 
participants the same in the context of the Catastrophic Error 
provision. Specifically, the Exchange believes that treating market 
participants the same in this context will provide additional certainty 
to market participants with respect to their potential exposure and 
hedging activities, including comfort that even if a transaction is 
later adjusted (i.e., past the standard time limit for the submission 
of an obvious error notification), such transaction will not be fully 
nullified. However, as noted above, under the Proposed Rule where at 
least one party to the transaction is a Customer, the trade will be 
nullified if the adjustment would result in an execution price higher 
(for buy transactions) or lower (for sell transactions) than the 
Customer's limit price. The Exchange has retained the protection of a 
Customer's limit price in order to avoid a situation where the 
adjustment could be to a price that the Customer could not afford, 
which is less likely to be an issue for a market professional.
Significant Market Events
    In order to improve consistency for market participants in the case 
of a widespread market event and in light of the interconnected nature 
of the options exchanges, the Exchange proposes to adopt a new 
provision that calls for coordination between the options exchanges in 
certain circumstances and provides limited flexibility in the 
application of other provisions of the Proposed Rule in order to 
promptly respond to a widespread market event.\12\ The Exchange 
proposes to describe such an event as a Significant Market Event, and 
to set forth certain objective criteria that will determine whether 
such an event has occurred. The Exchange developed these objective 
criteria in consultation with the other options exchanges by reference 
to historical patterns and events with a goal of setting thresholds 
that very rarely will be triggered so as to limit the application of 
the provision to truly significant market events. As proposed, a 
Significant Market Event will be deemed to have occurred when proposed 
criterion (A) below is met or exceeded or the sum of all applicable 
event statistics, where each is expressed as a percentage of the 
relevant threshold in criteria (A) through (D) below, is greater than 
or equal to 150% and 75% or more of at least one category is reached, 
provided that no single

[[Page 27788]]

category can contribute more than 100% to the sum. All criteria set 
forth below will be measured in aggregate across all exchanges.
---------------------------------------------------------------------------

    \12\ Although the Exchange has proposed a specific provision 
related to coordination among options exchanges in the context of a 
widespread event, the Exchange does not believe that the Significant 
Market Event provision or any other provision of the proposed rule 
alters the Exchange's ability to coordinate with other options 
exchanges in the normal course of business with respect to market 
events or activity. The Exchange does already coordinate with other 
options exchanges to the extent possible if such coordination is 
necessary to maintain a fair and orderly market and/or to fulfill 
the Exchange's duties as a self-regulatory organization.
---------------------------------------------------------------------------

    The proposed criteria for determining a Significant Market Event 
are as follows:
    (A) Transactions that are potentially erroneous would result in a 
total Worst-Case Adjustment Penalty of $30,000,000, where the Worst-
Case Adjustment Penalty is computed as the sum, across all potentially 
erroneous trades, of: (i) $0.30 (i.e., the largest Transaction 
Adjustment value listed in sub-paragraph (e)(3)(A) below); times; (ii) 
the contract multiplier for each traded contract; times (iii) the 
number of contracts for each trade; times (iv) the appropriate Size 
Adjustment Modifier for each trade, if any, as defined in sub-paragraph 
(e)(3)(A) below;
    (B) Transactions involving 500,000 options contracts are 
potentially erroneous;
    (C) Transactions with a notional value (i.e., number of contracts 
traded multiplied by the option premium multiplied by the contract 
multiplier) of $100,000,000 are potentially erroneous;
    (D) 10,000 transactions are potentially erroneous.
    As described above, the Exchange proposes to adopt a Worst Case 
Adjustment Penalty, proposed as criterion (A), which is the only 
criterion that can on its own result in an event being designated as a 
significant market event. The Worst Case Adjustment Penalty is intended 
to develop an objective criterion that can be quickly determined by the 
Exchange in consultation with other options exchanges that approximates 
the total overall exposure to market participants on the negatively 
impacted side of each transaction that occurs during an event. If the 
Worst Case Adjustment criterion equals or exceeds $30,000,000, then an 
event is a Significant Market Event. As an example of the Worst Case 
Adjustment Penalty, assume that a single potentially erroneous 
transaction in an event is as follows: Sale of 100 contracts of a 
standard option (i.e., an option with a 100 share multiplier). The 
highest potential adjustment penalty for this single transaction would 
be $6,000, which would be calculated as $0.30 times 100 (contract 
multiplier) times 100 (number of contracts) times 2 (applicable Size 
Adjustment Modifier). The Exchange would calculate the highest 
potential adjustment penalty for each of the potentially erroneous 
transactions in the event and the Worst Case Adjustment Penalty would 
be the sum of such penalties on the Exchange and all other options 
exchanges with affected transactions.
    As described above, under the Proposed Rule if the Worst Case 
Adjustment Penalty does not equal or exceed $30,000,000, then a 
Significant Market Event has occurred if the sum of all applicable 
event statistics (expressed as a percentage of the relevant 
thresholds), is greater than or equal to 150% and 75% or more of at 
least one category is reached. The Proposed Rule further provides that 
no single category can contribute more than 100% to the sum. As an 
example of the application of this provision, assume that in a given 
event across all options exchanges that: (A) The Worst Case Adjustment 
Penalty is $12,000,000 (40% of $30,000,000), (B) 300,000 options 
contracts are potentially erroneous (60% of 500,000), (C) the notional 
value of potentially erroneous transactions is $30,000,000 (30% of 
$100,000,000), and (D) 12,000 transactions are potentially erroneous 
(120% of 10,000). This event would qualify as a Significant Market 
Event because the sum of all applicable event statistics would be 230%, 
far exceeding the 150% threshold. The 230% sum is reached by adding 
40%, 60%, 30% and last, 100% (i.e., rounded down from 120%) for the 
number of transactions. The Exchange notes that no single category can 
contribute more than 100% to the sum and any category contributing more 
than 100% will be rounded down to 100%.
    As an alternative example, assume a large-scale event occurs 
involving low-priced options with a small number of contracts in each 
execution. Assume in this event across all options exchanges that: (A) 
The Worst Case Adjustment Penalty is $600,000 (2% of $30,000,000), (B) 
20,000 options contracts are potentially erroneous (4% of 500,000), (C) 
the notional value of potentially erroneous transactions is $20,000,000 
(20% of $100,000,000), and (D) 20,000 transactions are potentially 
erroneous (200% of 10,000, but rounded down to 100%). This event would 
not qualify as a Significant Market Event because the sum of all 
applicable event statistics would be 126%, below the 150% threshold. 
The Exchange reiterates that as proposed, even when a single category 
other than criterion (A) is fully met, that does not necessarily 
qualify an event as a Significant Market Event.
    The Exchange believes that the breadth and scope of the obvious 
error rules are appropriate and sufficient for handling of typical and 
common obvious errors. Coordination between and among the exchanges 
should generally not be necessary even when a member has an error that 
results in executions on more than one exchange. In setting the 
thresholds above the Exchange believes that the requirements will be 
met only when truly widespread and significant errors happen and the 
benefits of coordination and information sharing far outweigh the costs 
of the logistics of additional intra-exchange coordination. The 
Exchange notes that in addition to its belief that the proposed 
thresholds are sufficiently high, the Exchange has proposed the 
requirement that either criterion (A) is met or the sum of applicable 
event statistics for proposed (A) through (D) equals or exceeds 150% in 
order to ensure that an event is sufficiently large but also to avoid 
situations where an event is extremely large but just misses potential 
qualifying thresholds. For instance, the proposal is designed to help 
avoid a situation where the Worst Case Adjustment Penalty is 
$15,000,000, so the event does not qualify based on criterion (A) 
alone, but there are transactions in 490,000 options contracts that are 
potentially erroneous (missing criterion (B) by 10,000 contracts), 
there are transactions with a notional value of $99,000,000 (missing 
criterion (C) by $1,000,000), and there are 9,000 potentially erroneous 
transactions overall (missing criterion (D) by 1,000 transactions). The 
Exchange believes that the proposed formula, while slightly more 
complicated than simply requiring a certain threshold to be met in each 
category, may help to avoid inapplicability of the proposed provisions 
in the context of an event that would be deemed significant by most 
subjective measures but that barely misses each of the objective 
criteria proposed by the Exchange.
    To ensure consistent application across options exchanges, in the 
event of a suspected Significant Market Event, the Exchange shall 
initiate a coordinated review of potentially erroneous transactions 
with all other affected options exchanges to determine the full scope 
of the event. Under the Proposed Rule, the Exchange will promptly 
coordinate with the other options exchanges to determine the 
appropriate review period as well as select one or more specific points 
in time prior to the transactions in question and use one or more 
specific points in time to determine Theoretical Price. Other than the 
selected points in time, if applicable, the Exchange will determine 
Theoretical Price as described above. For example, around the start of 
a Significant Market Event that is triggered by a large and

[[Page 27789]]

aggressively priced buy order, three exchanges have multiple orders on 
the offer side of the market: Exchange A has offers priced at $2.20, 
$2.25, $2.30 and several other price levels to $3.00, Exchange B has 
offers at $2.45, $2.30 and several other price levels to $3.00, 
Exchange C has offers at price levels between $2.50 and $3.00. Assume 
an event occurs starting at 10:05:25 a.m. ET and in this particular 
series the executions begin on Exchange A and subsequently begin to 
occur on Exchanges B and C. Without coordination and information 
sharing between the exchanges, Exchange B and Exchange C cannot know 
with certainty if the execution at Exchange A that happened at $2.20 
immediately prior to their executions at $2.45 and $2.50 is part of the 
same erroneous event or not. With proper coordination, the exchanges 
can determine that in this series, the proper point in time from which 
the event should be analyzed is 10:05:25 a.m. ET, and thus, the NBO of 
$2.20 should be used as the Theoretical Price for purposes of all buy 
transactions in such options series that occurred during the event.
    If it is determined that a Significant Market Event has occurred 
then, using the parameters agreed with respect to the times from which 
Theoretical Price will be calculated, if applicable, an Official will 
determine whether any or all transactions under review qualify as 
Obvious Errors. The Proposed Rule would require the Exchange to use the 
criteria in Proposed Rule 521(c), as described above, to determine 
whether an Obvious Error has occurred for each transaction that was 
part of the Significant Market Event. Upon taking any final action, the 
Exchange would be required to promptly notify both parties to the trade 
electronically or via telephone.
    The execution price of each affected transaction will be adjusted 
by an Official to the price provided below, unless both parties agree 
to adjust the transaction to a different price or agree to bust the 
trade.

------------------------------------------------------------------------
                                     Buy transaction    Sell transaction
      Theoretical price (TP)         adjustment-- TP    adjustment-- TP
                                           plus              minus
------------------------------------------------------------------------
Below $3.00.......................              $0.15              $0.15
At or above $3.00.................              $0.30              $0.30
------------------------------------------------------------------------

    Thus, the proposed adjustment criteria for Significant Market 
Events are identical to the proposed adjustment levels for Obvious 
Errors generally. In addition, in the context of a Significant Market 
Event, any error exceeding 50 contracts will be subject to the Size 
Adjustment Modifier described above. Also, the adjustment criteria 
would apply equally to all market participants (i.e., Customers and 
non-Customers) in a Significant Market Event. However, as is true for 
the proposal with respect to Catastrophic Errors, under the Proposed 
Rule where at least one party to the transaction is a Customer, the 
trade will be nullified if the adjustment would result in an execution 
price higher (for buy transactions) or lower (for sell transactions) 
than the Customer's limit price. The Exchange has retained the 
protection of a Customer's limit price in order to avoid a situation 
where the adjustment could be to a price that the Customer could not 
afford, which is less likely to be an issue for a market professional. 
The Exchange has otherwise proposed to treat all market participants 
the same in the context of a Significant Market Event to provide 
additional certainty to market participants with respect to their 
potential exposure as soon as an event has occurred.
    Another significant distinction between the proposed Obvious Error 
provision and the proposed Significant Market Event provision is that 
if the Exchange, in consultation with other options exchanges, 
determines that timely adjustment is not feasible due to the 
extraordinary nature of the situation, then the Exchange will nullify 
some or all transactions arising out of the Significant Market Event 
during the review period selected by the Exchange and other options 
exchanges. To the extent the Exchange, in consultation with other 
options exchanges, determines to nullify less than all transactions 
arising out of the Significant Market Event, those transactions subject 
to nullification will be selected based upon objective criteria with a 
view toward maintaining a fair and orderly market and the protection of 
investors and the public interest. For example, assume a Significant 
Market Event causes 25,000 potentially erroneous transactions and 
impacts 51 options classes. Of the 25,000 transactions, 24,000 of them 
are concentrated in a single options class. The exchanges may decide 
the most appropriate solution because it will provide the most 
certainty to participants and allow for the prompt resumption of 
regular trading is to bust all trades in the most heavily affected 
class between two specific points in time, while the other 1,000 trades 
across the other 50 classes are reviewed and adjusted as appropriate. A 
similar situation might arise directionally where a Customer submits 
both erroneous buy and sell orders and the number of errors that 
happened that were erroneously low priced (i.e., erroneous sell orders) 
were 50,000 in number but the number of errors that were erroneously 
high (i.e., erroneous buy orders) were only 500 in number. The most 
effective and efficient approach that provides the most certainty to 
the marketplace in a reasonable amount of time while most closely 
following the generally prescribed obvious error rules could be to bust 
all of the erroneous sell transactions but to adjust the erroneous buy 
transactions.
    With respect to rulings made pursuant to the proposed Significant 
Market Event provision the Exchange believes that the number of 
affected transactions is such that immediate finality is necessary to 
maintain a fair and orderly market and to protect investors and the 
public interest. Accordingly, rulings by the Exchange pursuant to the 
Significant Market Event provision would be non-appealable pursuant to 
the Proposed Rule.
Additional Provisions
Mutual Agreement
    In addition to the objective criteria described above, the Proposed 
Rule also proposes to make clear that the determination as to whether a 
trade was executed at an erroneous price may be made by mutual 
agreement of the affected parties to a particular transaction. The 
Proposed Rule would state that a trade may be nullified or adjusted on 
the terms upon which all parties to a particular transaction agree, 
provided, however, that such agreement to nullify or adjust must be 
conveyed to the Exchange in a manner prescribed by the Exchange prior 
to 8:30 a.m. Eastern Time on the first trading day following the 
execution.
    The Exchange also proposes to explicitly state that it is 
considered conduct inconsistent with just and

[[Page 27790]]

equitable principles of trade for any Member to use the mutual 
adjustment process to circumvent any applicable Exchange rule, the Act 
or any of the rules and regulations thereunder. Thus, for instance, a 
Member is precluded from seeking to avoid applicable trade-through 
rules by executing a transaction and then adjusting such transaction to 
a price at which the Exchange would not have allowed it to execute at 
the time of the execution because it traded through the quotation of 
another options exchange. The Exchange notes that in connection with 
its obligations as a self-regulatory organization, the Exchange's 
Regulatory Department reviews adjustments to transactions to detect 
potential violations of Exchange rules or the Act and the rules and 
regulations thereunder.
Trading Halts
    Current Exchange Rule 521(c)(4) states that trades on the Exchange 
will be nullified when: (i) The trade occurred during a trading halt in 
the affected option on the Exchange; or (ii) respecting equity options 
(including options overlying ETFs), the trade occurred during a trading 
halt on the primary market for the underlying security. The Exchange 
proposes to include this language in proposed new Interpretations and 
Policies .04 to Exchange Rule 504, Trading Halts. Proposed new Rule 
521(f) will refer to this provision by stating that the Exchange shall 
nullify any transaction that occurs during a trading halt in the 
affected option on the Exchange or respecting equity options (including 
options overlying ETFs), the trade occurred during a trading halt on 
the primary market for the underlying security, pursuant to Exchange 
Rule 504. The Exchange believes it appropriate to nullify transactions 
that occur during a trading halt. While the Exchange may halt options 
trading for various reasons, such a scenario almost certainly is due to 
extraordinary circumstances and is potentially the result of market-
wide coordination to halt options trading or trading generally. 
Accordingly, the Exchange does not believe it is appropriate to allow 
trades to stand if such trades should not have occurred in the first 
place.
Erroneous Print and Quotes in the Underlying Security
    Market participants on the Exchange likely base the pricing of 
their orders submitted to the Exchange on the price of the underlying 
security for the option. Thus, the Exchange believes it is appropriate 
to adopt provisions that allow adjustment or nullification of 
transactions based on erroneous prints or erroneous quotes in the 
underlying security.
    The Exchange proposes to adopt language in the Proposed Rule 
stating that a trade resulting from an erroneous print(s) disseminated 
by the underlying market that is later nullified by that underlying 
market shall be adjusted or nullified as set forth in the Obvious Error 
provisions of the Proposed Rule, provided a party notifies MRC in a 
timely manner, as further described below. The Exchange proposes to 
define a trade resulting from an erroneous print(s) as any options 
trade executed during a period of time for which one or more executions 
in the underlying security are nullified, and for one second 
thereafter. The Exchange believes that one second is an appropriate 
amount of time within which the price of an options trade would be 
directly based on executions in the underlying equity security. The 
Exchange also proposes to require that if a party believes it 
participated in an erroneous transaction resulting from an erroneous 
print(s) pursuant to the proposed erroneous print provision it must 
submit an obvious error notification to MRC within the timeframes set 
forth in the Obvious Error provision described above. The Exchange has 
also proposed to state that the allowed notification timeframe 
commences at the time of notification by the underlying market(s) of 
nullification of transactions in the underlying security. Further, the 
Exchange proposes that if multiple underlying markets nullify trades in 
the underlying security, the notification timeframe to be measured will 
commence at the time of the first market's notification.
    As an example of a situation in which a trade results from an 
erroneous print disseminated by the underlying market that is later 
nullified by the underlying market, assume that a given underlying 
security is trading in the $49.00-$50.00 price range and has an 
erroneous print at $5.00. Given that there is the potential perception 
that the underlying has gone through a dramatic price revaluation, 
numerous options trades could promptly trigger based on this new price. 
However, because the price that triggered them was not a valid price it 
would be appropriate to review said option trades when the underlying 
print that triggered them is removed.
    The Exchange also proposes to add a provision stating that a trade 
resulting from an erroneous quote(s) in the underlying security shall 
be adjusted or nullified as set forth in the Obvious Error provisions 
of the Proposed Rule, provided a party notifies MRC in a timely manner, 
as further described below. Pursuant to the Proposed Rule, an erroneous 
quote occurs when the underlying security has a bid/ask differential of 
at least $1.00 and has a bid/ask differential at least five times 
greater than the average bid/ask differential for such underlying 
security during the time period encompassing two minutes before and 
after the dissemination of such quote. For purposes of the Proposed 
Rule, the average bid/ask differential will be determined by adding the 
bid/ask differentials of sample quotes at regular 15-second intervals 
during the four-minute time period referenced above (excluding the 
quote(s) in question) and dividing by the number of quotes during such 
time period (excluding the quote(s) in question).\13\ Similar to the 
proposal with respect to erroneous prints described above, if a party 
believes that it participated in an erroneous transaction resulting 
from an erroneous quote(s) it must notify MRC in accordance with the 
notification provisions of the Obvious Error provision described above. 
The Proposed Rule, therefore, puts the onus on each Member to notify 
the Exchange if such Member believes that a trade should be reviewed 
pursuant to either of the proposed provisions, as the Exchange is not 
in position to determine the impact of erroneous prints or quotes on 
individual Members. The Exchange notes that it does not believe that 
additional time is necessary with respect to a trade based on an 
erroneous quote because a Member has all information necessary to 
detect the error at the time of an option transaction that was 
triggered by an erroneous quote, which is in contrast to the proposed 
erroneous print provision that includes a dependency on an action by 
the market where the underlying security traded.
---------------------------------------------------------------------------

    \13\ The Exchange has proposed the price and time parameters for 
quote width and average quote width used to determine whether an 
erroneous quote has occurred based on established rules of options 
exchanges that currently apply such parameters. See, e.g., CBOE Rule 
6.25(a)(5); NYSE Arca Rule 6.87(a)(5). Based on discussions with 
these exchanges, the Exchange believes that the parameters are a 
reasonable approach to determine whether an erroneous quote has 
occurred for purposes of the proposed rule.
---------------------------------------------------------------------------

    As an example of a situation in which a trade results from an 
erroneous quote in the underlying security, assume again that a given 
underlying security is quoting and trading in the $49.00-$50.00 price 
range then a liquidity gap occurs, with bidders not representing quotes 
in the market place and an offer quoted at $5.00. Quoting may quickly

[[Page 27791]]

return to normal, again in the $49.00-$50.00 price range, but due to 
the potential perception that the underlying security has gone through 
a dramatic price revaluation, numerous options trades could trigger 
based on this new quoted price in the interim. Because the price that 
triggered such trades was not a valid price it would be appropriate to 
review the affected option trades.
Stop and Stop Limit Order Trades Elected by Erroneous Trades
    The Exchange notes that certain market participants and their 
customers enter stop or stop limit orders that are elected based on 
executions in the marketplace. As proposed, transactions resulting from 
the election of a stop or stop-limit order by an erroneous trade in an 
option contract shall be nullified by the Exchange, provided a party 
notifies MRC in a timely manner as set forth below. The Exchange 
believes it is appropriate to nullify executions of stop or stop-limit 
orders that were wrongly elected because such transactions should not 
have occurred. If a party believes that it participated in an erroneous 
transaction pursuant to the Proposed Rule it must notify MRC within the 
timeframes set forth in the Obvious Error Rule above, with the allowed 
notification timeframe commencing at the time of notification of the 
nullification of transaction(s) that elected the stop or stop limit 
order.
Order Protection
    The Exchange also proposes to adopt language that clearly provides 
the Exchange with authority to take necessary actions when another 
options exchange nullifies or adjusts a transaction pursuant to its 
respective rules and the transaction resulted from an order that has 
passed through the Exchange and been routed to another options exchange 
on behalf of the Exchange. Specifically, if the Exchange routes an 
order pursuant to the Options Order Protection and Locked/Crossed 
Market Plan that results in a Linkage Trade, and such options exchange 
subsequently nullifies or adjusts the Linkage Trade pursuant to its 
rules, the Exchange will perform all actions necessary to complete the 
nullification or adjustment of the Linkage Trade. Although the Exchange 
is not using its own authority to nullify or adjust a transaction 
related to an action taken on a Linkage Trade by another options 
exchange, the Exchange does have to assist in the processing of the 
adjustment or nullification of the order, such as notification to the 
Member and the Options Clearing Corporation (``OCC'') of the adjustment 
or nullification. Thus, the Exchange believes that the proposed 
provision adds additional transparency to the Proposed Rule.
Verifiable Disruptions or Malfunctions of Exchange Systems
    The Proposed Rule will include the same language found in the 
Current Rule concerning nullification and adjustment of trades that are 
the result of a verifiable system disruption or malfunction.
    Specifically, the Proposed Rule will provide that, absent mutual 
agreement, parties to a trade may have a trade nullified or its price 
adjusted if any such party makes a documented request within the time 
specified in Rule 521(c)(2), and either (1) the trade resulted from a 
verifiable disruption or malfunction of an Exchange execution, 
dissemination, or communication system that caused a quote/order to 
trade in excess of its disseminated size (e.g. a quote/order that is 
frozen, because of an Exchange System error, and repeatedly traded) in 
which case trades in excess of the disseminated size may be nullified; 
or (2) the trade resulted from a verifiable disruption or malfunction 
of an Exchange dissemination or communication system that prevented a 
Member from updating or canceling a quote/order for which the Member is 
responsible where there is Exchange documentation providing that the 
Member sought to update or cancel the quote/order.
    An Official may act on his/her own motion pursuant to Rule 
521(c)(3) to nullify or adjust a trade resulting from a verifiable 
disruption or malfunction of an Exchange system.\14\
---------------------------------------------------------------------------

    \14\ Proposed Rule 521(c)(3) states that an Official may review 
a transaction believed to be erroneous on his/her own motion in the 
interest of maintaining a fair and orderly market and for the 
protection of investors. A transaction reviewed pursuant to the 
Proposed Rule may be nullified or adjusted only if it is determined 
by the Official that the transaction is erroneous in accordance with 
the provisions of this Rule, provided that the time deadlines of 
sub-paragraph (c)(2) above shall not apply.
---------------------------------------------------------------------------

Appeal
    The Exchange proposes generally to maintain its current process for 
the review of Official decisions on appeal under the Proposed Rule with 
certain adjustments to accommodate the harmonized rules. Specifically, 
if a party affected by a determination made under the Proposed Rule 
requests a review of an Official decision (an ``appeal'') within the 
time permitted, the Exchange's Chief Regulatory Officer (``CRO'') or 
his/her designee will review decisions made under the Proposed Rule. An 
appeal must be submitted within thirty minutes after a party receives 
official notification of a final determination by an Official under the 
Proposed Rule. The CRO or his/her designee shall review the facts and 
render a decision as soon as practicable, but generally on the same 
trading day as the execution(s) under review. Decisions respecting 
appeals that are received after 3:00 p.m. Eastern Time will be rendered 
as soon as practicable, but in no event later than the trading day 
following the date of the execution under review.\15\
---------------------------------------------------------------------------

    \15\ This is distinguished from the Current Rule, which states 
that if such notification is made after 3:30 p.m. Eastern Time, 
either party has until 9:30 a.m. Eastern Time on the next trading 
day to request a review.
---------------------------------------------------------------------------

    In the absence of the CRO, a designee of the CRO will be appointed 
to act in this capacity. Consistent with the Current Rule, a Member 
that submits an appeal seeking the review of an Official ruling shall 
be assessed a fee of $250.00 for each Official ruling to be appealed 
that is sustained and not overturned or modified by the CRO, and 
decisions of the CRO concerning (i) the review of Official rulings 
relating to the nullification or adjustment of transactions, and (ii) 
initial requests for relief shall be final and may not be appealed to 
the Exchange's Board. Any determination by an Officer or by the CRO or 
his/her designee shall be rendered without prejudice as to the rights 
of the parties to the transaction to submit their dispute to 
arbitration.
Limit Up/Limit Down
    The Exchange is proposing to adopt Interpretation and Policy .01 to 
the Proposed Rule to provide for how the Exchange will treat Obvious 
and Catastrophic Errors in response to the Regulation NMS Plan to 
Address Extraordinary Market Volatility Pursuant to Rule 608 of 
Regulation NMS under the Act (the ``Limit Up-Limit Down Plan'' or the 
``LULD Plan''),\16\ which is applicable to all NMS stocks, as defined 
in Regulation NMS Rule 600(b)(47).\17\ Under the Proposed Rule, during 
a pilot period to coincide with the pilot period for the LULD Plan, 
including any extensions to the pilot period for the LULD Plan, an 
execution will not be subject to review as an Obvious Error or 
Catastrophic Error

[[Page 27792]]

pursuant to paragraph (c) or (d) of the Proposed Rule if it occurred 
while the underlying security was in a ``Limit State'' or ``Straddle 
State,'' as defined in the LULD Plan.
---------------------------------------------------------------------------

    \16\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (Order approving the LULD Plan on 
a pilot basis). See also, Securities Exchange Act Release No. 74307 
(February 19, 2015), 80 FR 10196 (February 25, 2015)(SR-MIAX-2015-
11)(Notice of Filing and Immediate Effectiveness Extending the MIAX 
LULD pilot through October 23, 2015).
    \17\ 17 CFR 242.600(b)(47).
---------------------------------------------------------------------------

    Nonetheless, the Exchange proposes to retain authority to review 
transactions on an Official's own motion pursuant to sub-paragraph 
(c)(3) of the Proposed Rule or a nullification or adjustment pursuant 
to the proposed Significant Market Event provision, the proposed 
trading halts provision, the proposed provisions with respect to 
erroneous prints and quotes in the underlying security, or the proposed 
provision related to stop and stop limit orders that have been 
triggered by an erroneous execution. The Exchange believes that these 
safeguards will provide the Exchange with the flexibility to act when 
necessary and appropriate to nullify or adjust a transaction, while 
also providing market participants with certainty that, under normal 
circumstances, the trades they affect with quotes and/or orders having 
limit prices will stand irrespective of subsequent moves in the 
underlying security.
    During a Limit or Straddle State, options prices may deviate 
substantially from those available immediately prior to or following 
such States. Thus, determining a Theoretical Price in such situations 
would often be very subjective, creating unnecessary uncertainty and 
confusion for investors. Because of this uncertainty, the Exchange is 
proposing to amend Rule 521 to provide that the Exchange will not 
review transactions as Obvious Errors or Catastrophic Errors when the 
underlying security is in a Limit or Straddle State.
    The Exchange notes that there are additional protections in place 
outside of the Obvious and Catastrophic Error Rule that will continue 
to safeguard customers. First, the Exchange rejects all un-priced 
options orders received by the Exchange (i.e., Market Orders) during a 
Limit or Straddle State for the underlying security. Second, SEC Rule 
15c3-5 requires that, ``financial risk management controls and 
supervisory procedures must be reasonably designed to prevent the entry 
of orders that exceed appropriate pre-set credit or capital thresholds, 
or that appear to be erroneous.'' \18\ Third, the Exchange has limit 
order price checks that result in the rejection of limit orders that 
are priced sufficiently far through the NBBO that it seems likely an 
error occurred. The rejection of Market Orders, the requirements placed 
upon broker dealers to adopt controls to prevent the entry of orders 
that appear to be erroneous, and Exchange functionality that filters 
out orders that appear to be erroneous, will all serve to sharply 
reduce the incidence of erroneous transactions.
---------------------------------------------------------------------------

    \18\ See Securities and Exchange Act Release No. 63241 (November 
3, 2010), 75 FR 69791 (November 15, 2010) (File No. S7-03-10).
---------------------------------------------------------------------------

    The Exchange represents that it will conduct its own analysis 
concerning the elimination of the Obvious Error and Catastrophic Error 
provisions during Limit and Straddle States and agrees to provide the 
Commission with relevant data to assess the impact of this proposed 
rule change. As part of its analysis, the Exchange will evaluate (1) 
the options market quality during Limit and Straddle States, (2) assess 
the character of incoming order flow and transactions during Limit and 
Straddle States, and (3) review any complaints from Members and their 
customers concerning executions during Limit and Straddle States. The 
Exchange also agrees to provide to the Commission data requested to 
evaluate the impact of the inapplicability of the Obvious Error and 
Catastrophic Error provisions, including data relevant to assessing the 
various analyses noted above.
    In connection with this proposal, the Exchange will provide to the 
Commission and the public a dataset containing the data for each 
Straddle State and Limit State in NMS Stocks underlying options traded 
on the Exchange beginning in the month during which the proposal is 
approved, limited to those option classes that have at least one (1) 
trade on the Exchange during a Straddle State or Limit State. For each 
of those option classes affected, each data record will contain the 
following information:
     Stock symbol, option symbol, time at the start of the 
Straddle or Limit State, an indicator for whether it is a Straddle or 
Limit State.
     For activity on the Exchange:
     Executed volume, time-weighted quoted bid-ask spread, 
time-weighted average quoted depth at the bid, time-weighted average 
quoted depth at the offer;
     high execution price, low execution price;
     number of trades for which a request for review for error 
was received during Straddle and Limit States;
     an indicator variable for whether those options outlined 
above have a price change exceeding 30% during the underlying stock's 
Limit or Straddle State compared to the last available option price as 
reported by OPRA before the start of the Limit or Straddle State (1 if 
observe 30% and 0 otherwise). Another indicator variable for whether 
the option price within five minutes of the underlying stock leaving 
the Limit or Straddle state (or halt if applicable) is 30% away from 
the price before the start of the Limit or Straddle State.
    In addition, by May 29, 2015, the Exchange shall provide to the 
Commission and the public assessments relating to the impact of the 
operation of the Obvious Error rules during Limit and Straddle States 
as follows: (1) Evaluate the statistical and economic impact of Limit 
and Straddle States on liquidity and market quality in the options 
markets; and (2) Assess whether the lack of Obvious Error rules in 
effect during the Limit and Straddle States are problematic. The timing 
of this submission would coordinate with Participants' proposed time 
frame to submit to the Commission assessments as required under 
Appendix B of the LULD Plan. The Exchange notes that the pilot program 
is intended to run concurrently with the pilot period of the LULD Plan, 
which has been extended to October 23, 2015.\19\ The Exchange proposes 
to reflect this date in the Proposed Rule.
---------------------------------------------------------------------------

    \19\ See Securities Exchange Act Release No. 74110 (January 21, 
2015), 80 FR 4321 (January 27, 2015).
---------------------------------------------------------------------------

No Adjustment to a Worse Price
    Finally, the Exchange proposes to include Interpretation and Policy 
.02 to the Proposed Rule, which would make clear that to the extent the 
provisions of the proposed Rule would result in the Exchange applying 
an adjustment of an erroneous sell transaction to a price lower than 
the execution price or an erroneous buy transaction to a price higher 
than the execution price, the Exchange will not adjust or nullify the 
transaction, but rather, the execution price will stand.
Deletion of Current Exchange Rule 531
    The Exchange proposes to delete current Exchange Rule 531, Trade 
Nullification and Price Adjustment Procedure, which states that a trade 
on the Exchange may be nullified or adjusted if the parties to the 
trade agree to the nullification or adjustment. The Proposed Rule 
includes a provision stating that a trade may be nullified or adjusted 
on the terms that all parties to a particular transaction agree, thus 
obviating the need for current Rule 531.\20\ The Exchange proposes to 
reserve the rule number.
---------------------------------------------------------------------------

    \20\ In its filing to adopt Rule 531, the Exchange stated that 
the rule is only intended to be effective until the joint efforts by 
the exchanges to create uniform trade nullification and adjustment 
rules are approved and in effect. See Securities Exchange Act 
Release No. 73463 (October 29, 2014), 79 FR 65445 (November 4, 2014) 
(SR-MIAX-2014-54).

---------------------------------------------------------------------------

[[Page 27793]]

Operative Date
    In order to ensure that other options exchanges are able to adopt 
rules consistent with this proposal and to coordinate the effectiveness 
of such harmonized rules, the Exchange proposes that the Proposed Rule 
be made operative on May 8, 2015.
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).
---------------------------------------------------------------------------

    As described above, the Exchange and other options exchanges are 
seeking to adopt harmonized rules related to the adjustment and 
nullification of erroneous options transactions. The Exchange believes 
that the Proposed Rule will provide greater transparency and clarity 
with respect to the adjustment and nullification of erroneous options 
transactions. Particularly, the proposed changes seek to achieve 
consistent results for participants across U.S. options exchanges while 
maintaining a fair and orderly market, protecting investors and 
protecting the public interest. Based on the foregoing, the Exchange 
believes that the proposal is consistent with Section 6(b)(5) of the 
Act \23\ in that the Proposed Rule will foster cooperation and 
coordination with persons engaged in regulating and facilitating 
transactions.
---------------------------------------------------------------------------

    \23\ Id.
---------------------------------------------------------------------------

    The Exchange believes the various provisions allowing or dictating 
adjustment rather than nullification of a trade are necessary given the 
benefits of adjusting a trade price rather than nullifying the trade 
completely. Because options trades are used to hedge, or are hedged by, 
transactions in other markets, including securities and futures, many 
Members and their customers would rather adjust prices of executions 
rather than nullify the transactions and thereby lose a hedge 
altogether. As such, the Exchange believes it is in the best interest 
of investors to allow for price adjustments as well as nullifications. 
The Exchange further discusses specific aspects of the Proposed Rule 
below.
    The Exchange does not believe that the proposal is unfairly 
discriminatory, even though it differentiates in many places between 
Customers and non-Customers. The rules of the options exchanges, 
including the Exchange's existing Obvious Error provision, often treat 
Customers differently, often affording them preferential treatment. 
This treatment is appropriate in light of the fact that Customers are 
not necessarily immersed in the day-to-day trading of the markets, are 
less likely to be watching trading activity in a particular option 
throughout the day, and may have limited funds in their trading 
accounts. At the same time, the Exchange reiterates that in the U.S. 
options markets generally there is significant retail customer 
participation that occurs directly on (and only on) options exchanges 
such as MIAX. Accordingly, differentiating among market participants 
with respect to the adjustment and nullification of erroneous options 
transactions is not unfairly discriminatory because it is reasonable 
and fair to provide Customers with additional protections as compared 
to non-Customers.
    The Exchange believes that its proposal with respect to the 
allowance of mutually agreed upon adjustments or nullifications is 
appropriate and consistent with the Act, as such proposal removes 
impediments to and perfects the mechanism of a free and open market and 
a national market system, allowing participants to mutually agree to 
correct an erroneous transactions without the Exchange mandating the 
outcome. The Exchange also believes that its proposal with respect to 
mutual adjustments is consistent with the Act because it is designed to 
prevent fraudulent and manipulative acts and practices by explicitly 
stating that it is considered conduct inconsistent with just and 
equitable principles of trade for any Member to use the mutual 
adjustment process to circumvent any applicable Exchange rule, the Act 
or any of the rules and regulations thereunder.
    The Exchange believes its proposal to provide within the Proposed 
Rule definitions of Customer, erroneous sell transaction and erroneous 
buy transaction, and Official is consistent with Section 6(b)(5) of the 
Act because such terms will provide more certainty to market 
participants as to the meaning of the Proposed Rule and reduce the 
possibility that a party can intentionally submit an order hoping for 
the market to move in their favor in reliance on the Rule as a safety 
mechanism, thereby promoting just and fair principles of trade. 
Similarly, the Exchange believes that proposed Interpretation and 
Policy .02 of proposed Rule 521 is consistent with the Act as it would 
make clear that the Exchange will not adjust or nullify a transaction, 
but rather, the execution price will stand when the applicable 
adjustment criteria would actually adjust the price of the transaction 
to a worse price (i.e., higher for an erroneous buy or lower for an 
erroneous sell order).
    As set forth below, the Exchange believes it is consistent with 
Section 6(b)(5) of the Act for the Exchange to determine Theoretical 
Price when the NBBO cannot reasonably be relied upon because the 
alternative could result in transactions that cannot be adjusted or 
nullified even when they are otherwise clearly at a price that is 
significantly away from the appropriate market for the option. 
Similarly, reliance on an NBBO that is not reliable could result in 
adjustment to prices that are still significantly away from the 
appropriate market for the option.
    The Exchange believes that its proposal with respect to determining 
Theoretical Price is consistent with the Act in that it has retained 
the standard of the current rule, which is to rely on the NBBO to 
determine Theoretical Price if such NBBO can reasonably be relied upon. 
Because, however, there is not always an NBBO that can or should be 
used in order to administer the rule, the Exchange has proposed various 
provisions that provide the Exchange with the authority to determine a 
Theoretical Price. The Exchange believes that the Proposed Rule is 
transparent with respect to the circumstances under which the Exchange 
will determine Theoretical Price, and has sought to limit such 
circumstances as much as possible. The Exchange notes that Exchange 
personnel currently are required to determine Theoretical Price in 
certain circumstances. While the Exchange continues to pursue 
alternative solutions that might further enhance the objectivity and 
consistency of determining Theoretical Price, the Exchange believes 
that the discretion currently afforded to Officials is appropriate in 
the absence of a reliable NBBO that can be used to set the Theoretical 
Price.
    With respect to the specific proposed provisions for determining 
Theoretical Price for transactions that occur as part of the Exchange's 
Opening Process and in situations where there is a wide quote, the 
Exchange believes both provisions are consistent with the Act

[[Page 27794]]

because they provide objective criteria that will determine Theoretical 
Price with limited exceptions for situations where the Exchange does 
not believe the NBBO is a reasonable benchmark or there is no NBBO. The 
Exchange notes in particular with respect to the wide quote provision 
that the Proposed Rule will result in the Exchange determining 
Theoretical Price less frequently than it would pursuant to wide quote 
provisions that have previously been approved. The Exchange believes 
that it is appropriate and consistent with the Act to afford 
protections to market participants by not relying on the NBBO to 
determine Theoretical Price when the quote is extremely wide but had 
been, in the prior 10 seconds, at much more reasonable width. The 
Exchange also believes it is appropriate and consistent with the Act to 
use the NBBO to determine Theoretical Price when the quote has been 
wider than the applicable amount for more than 10 seconds, as the 
Exchange does not believe it is necessary to apply any other criteria 
in such a circumstance. The Exchange believes that market participants 
can easily use or adopt safeguards to prevent errors when such market 
conditions exist. When entering an order into a market with a 
persistently wide quote, the Exchange does not believe that the 
entering party should reasonably expect anything other than the quoted 
price of an option.
    The Exchange believes that its proposal to adopt clear but 
disparate standards with respect to the deadline for submitting a 
request for review of Customer and non-Customer transactions is 
consistent with the Act, particularly in that it creates a greater 
level of protection for Customers. As noted above, the Exchange 
believes that this is appropriate and not unfairly discriminatory in 
light of the fact that Customers are not necessarily immersed in the 
day-to-day trading of the markets and are less likely to be watching 
trading activity in a particular option throughout the day. Thus, 
Members representing Customer orders reasonably may need additional 
time to submit a request for review. The Exchange also believes that 
its proposal to provide additional time for submission of requests for 
review of Linkage Trades is reasonable and consistent with the 
protection of investors and the public interest due to the time that it 
might take an options exchange or third-party routing broker to file a 
request for review with the Exchange if the initial notification of an 
error is received by the originating options exchange near the end of 
such options exchange's filing deadline. Without this additional time, 
there could be disparate results based purely on the existence of 
intermediaries and an interconnected market structure.
    In relation to the aspect of the proposal giving Officials the 
ability to review transactions for obvious errors on their own motion, 
the Exchange notes that an Official can adjust or nullify a transaction 
under the authority granted by this provision only if the transaction 
meets the specific and objective criteria for an Obvious Error under 
the Proposed Rule. As noted above, this is designed to give an Official 
the ability to provide parties relief in those situations where they 
have failed to report an apparent error within the established 
notification period. However, the Exchange will only grant relief if 
the transaction meets the requirements for an Obvious Error as 
described in the Proposed Rule.
    The Exchange believes that its proposal to adjust non-Customer 
transactions and to nullify Customer transactions that qualify as 
Obvious Errors is appropriate for reasons consistent with those 
described above. In particular, Customers are not necessarily immersed 
in the day-to-day trading of the markets, are less likely to be 
watching trading activity in a particular option throughout the day, 
and may have limited funds in their trading accounts.
    The Exchange acknowledges that the proposal contains some 
uncertainty regarding whether a trade will be adjusted or nullified, 
depending on whether one of the parties is a Customer, because a party 
may not know whether the other party to a transaction was a Customer at 
the time of entering into the transaction. However, the Exchange 
believes that the proposal nevertheless promotes just and equitable 
principles of trade and protects investors as well as the public 
interest because it eliminates the possibility that a Customer's order 
will be adjusted to a significantly different price. As noted above, 
the Exchange believes it is consistent with the Act to afford Customers 
greater protections under the Proposed Rule than are afforded to non-
Customers. Thus, the Exchange believes that its proposal is consistent 
with the Act in that it protects investors and the public interest by 
providing additional protections to those that are less informed and 
potentially less able to afford an adjustment of a transaction that was 
executed in error. Customers are also less likely to have engaged in 
significant hedging or other trading activity based on earlier 
transactions, and thus, are less in need of maintaining a position at 
an adjusted price than non-Customers.
    If any Member submits requests to the Exchange for review of 
transactions pursuant to the Proposed Rule, and in aggregate that 
Member has 200 or more Customer transactions under review concurrently 
and the orders resulting in such transactions were submitted during the 
course of 2 minutes or less, the Exchange believes it is appropriate 
for the Exchange to apply the non-Customer adjustment criteria 
described above to such transactions. The Exchange believes that the 
proposed aggregation is reasonable as it is representative of an 
extremely large number of orders submitted to the Exchange over a 
relatively short period of time that are, in turn, possibly erroneous 
(and within a time frame significantly less than an entire day), and 
thus is most likely to occur because of a systems issue experienced by 
an Options Member representing Customer orders or a systems issue 
coupled with the erroneous marking of orders. The Exchange does not 
believe it is possible at a level of 200 Customer orders over a 2 
minute period that are under review at one time that multiple, separate 
Customers were responsible for the errors in the ordinary course of 
trading. In the event of a large-scale issue caused by an Options 
Member that has submitted orders over a 2 minute period marked as 
Customer that resulted in more than 200 transactions under review, the 
Exchange does not believe it is appropriate to nullify all such 
transactions because of the negative impact that nullification could 
have on the market participants on the contra-side of such 
transactions, who might have engaged in hedging and trading activity 
following such transactions. The Exchange believes that a market 
participant with more than 200 transactions under review concurrently 
when the orders electing such transactions were received in 2 minutes 
or less will have far exceeded the normal behavior of Customers 
deserving protected status. While the Exchange continues to believe 
that it is appropriate to nullify transactions in such a circumstance 
if both participants to a transaction are Customers, the Exchange does 
not believe it is appropriate to place the overall risk of a 
significant number of trade breaks on non-Customers that in the normal 
course of business may have engaged in additional hedging activity or 
trading activity based on such transactions. Thus, the Exchange 
believes it is necessary and appropriate to protect

[[Page 27795]]

non-Customers in such a circumstance by applying the non-Customer 
adjustment criteria, and thus adjusting transactions as set forth 
above, in the event a Member has more than 200 transactions under 
review concurrently. In summary, due to the extreme level at which the 
proposal is set, the Exchange believes that the proposal is consistent 
with Section 6(b)(5) of the Act in that it promotes just and equitable 
principles of trade by encouraging market participants to retain 
appropriate controls over their systems to avoid submitting a large 
number of erroneous orders in a short period of time.
    Similarly, the Exchange believes that the proposed Size Adjustment 
Modifier, which would increase the adjustment amount for non-Customer 
transactions, is appropriate because it attempts to account for the 
additional risk that the parties to the trade undertake for 
transactions that are larger in scope. The Exchange believes that the 
Size Adjustment Modifier creates additional incentives to prevent more 
impactful Obvious Errors and it lessens the impact on the contra-party 
to an adjusted trade. The Exchange notes that these contra-parties may 
have preferred to only trade the size involved in the transaction at 
the price at which such trade occurred, and in trading larger size has 
committed a greater level of capital and bears a larger hedge risk.
    The Exchange similarly believes that its Proposed Rule with respect 
to Catastrophic Errors is consistent with the Act as it affords 
additional time for market participants to file for review of erroneous 
transactions that were executed at prices further away from the 
Theoretical Price. At the same time, the Exchange believes that the 
Proposed Rule is consistent with the Act in that it generally would 
adjust transactions, including Customer transactions, because this will 
protect against hedge risk, particularly for transactions that may have 
occurred several hours earlier and thus, which all parties to the 
transaction might presume are protected from further modification. 
Similarly, by providing larger adjustment amounts away from Theoretical 
Price than are set forth under the Obvious Error provision, the 
Catastrophic Error provision also takes into account the possibility 
that the party that was advantaged by the erroneous transaction has 
already taken actions based on the assumption that the transaction 
would stand. The Exchange believes it is reasonable to specifically 
protect Customers from adjustments through their limit prices for the 
reasons stated above because, among other things, Customers are less 
likely to be watching trading throughout the day and they may have less 
capital with which to meet an adjustment price. The Exchange believes 
that the proposal provides a fair process that will ensure that 
Customers are not forced to accept a trade that was executed in 
violation of their limit order price. In contrast, market professionals 
are more likely to have engaged in hedging or other trading activity 
based on earlier trading activity, and thus are more likely to be 
willing to accept an adjustment rather than a nullification to preserve 
their positions even if such adjustment is to a price through their 
limit price.
    The Exchange believes that the proposed rule change to adopt the 
Significant Market Event provision is consistent with Section 6(b)(5) 
of the Act in that it will foster cooperation and coordination with 
persons engaged in regulating the options markets. In particular, the 
Exchange believes it is important for options exchanges to coordinate 
when there is a widespread and significant event because, typically, 
multiple options exchanges are impacted in such an event.
    Further, while the Exchange recognizes that the Proposed Rule will 
not guarantee a consistent result for all market participants on every 
market, the Exchange does believe that it will assist in that outcome. 
For instance, if options exchanges are able to agree as to the time 
from which Theoretical Price should be determined and the period of 
time that should be reviewed, the likely disparity between the 
Theoretical Prices used by such exchanges should be very slight and, in 
turn, with otherwise consistent rules, the results should be similar.
    The Exchange also believes that the Proposed Rule is consistent 
with the Act in that it generally would adjust transactions, including 
Customer transactions, because this will protect against hedge risk, 
particularly for liquidity providers that might have been quoting in 
thousands or tens of thousands of different series and might have 
affected executions throughout such quoted series. The Exchange 
believes that when weighing the competing interests between preferring 
a nullification for a Customer transaction and an adjustment for a 
transaction of a market professional, while nullification is 
appropriate in a typical one-off situation it is necessary to protect 
liquidity providers in a widespread market event because, presumably, 
they will be the most affected by such an event (in contrast to a 
Customer who, by virtue of their status as such, likely would not have 
more than a small number of affected transactions). The Exchange 
believes that the protection of liquidity providers by favoring 
adjustments in the context of Significant Market Events can also 
benefit Customers indirectly by better enabling liquidity providers, 
which provides a cumulative benefit to the market. Also, as stated 
above with respect to Catastrophic Errors, the Exchange believes it is 
reasonable to specifically protect Customers from adjustments through 
their limit prices for the reasons stated above, including that 
Customers are less likely to be watching trading throughout the day and 
that they may have less capital to fund an adjustment price. The 
Exchange believes that the proposal provides a fair process that will 
ensure that Customers are not forced to accept a trade that was 
executed in violation of their limit order price. In contrast, market 
professionals are more likely to have engaged in hedging or other 
trading activity based on earlier trading activity, and thus, are more 
likely to be willing to accept an adjustment rather than a 
nullification to preserve their positions even if such adjustment is to 
a price through their limit price. In addition, the Exchange believes 
it is important to have the ability to nullify some or all transactions 
arising out of a Significant Market Event in the event timely 
adjustment is not feasible due to the extraordinary nature of the 
situation. In particular, although the Exchange has worked to limit the 
circumstances in which it has to determine Theoretical Price, in a 
widespread event it is possible that hundreds if not thousands of 
series would require an Exchange determination of Theoretical Price. In 
turn, if there are hundreds or thousands of trades in such series, it 
may not be practicable for the Exchange to determine the adjustment 
levels for all non-Customer transactions in a timely fashion, and it 
would be in the public interest to instead more promptly deliver a 
simple, consistent result of nullification.
    The Exchange believes that the proposed rule change related to 
review, nullification and/or adjustment of erroneous transactions 
during a trading halt, an erroneous print in the underlying security, 
an erroneous quote in the underlying security, or an erroneous 
transaction in the option with respect to stop and stop limit orders is 
likewise consistent with Section 6(b)(5) of the Act because the 
proposal provides for the adjustment or nullification of trades 
executed at erroneous prices through no fault on the part of the 
trading participants. Allowing for Exchange review in such situations 
will promote just and equitable principles of

[[Page 27796]]

trade by protecting investors from harm that is not of their own 
making. Specifically with respect to the proposed provisions governing 
erroneous prints and quotes in the underlying security, the Exchange 
notes that market participants on the Exchange base the value of their 
quotes and orders on the price of the underlying security. The 
provisions regarding errors in prints and quotes in the underlying 
security cover instances where the information market participants use 
to price options is erroneous through no fault of their own. In these 
instances, market participants have little, if any, chance of pricing 
options accurately. Thus, these provisions are designed to provide 
relief to market participants harmed by such errors in the prints or 
quotes of the underlying security.
    The Exchange believes that the proposed provision related to 
Linkage Trades is consistent with the Act because it adds additional 
transparency to the Proposed Rule and makes clear that when a Linkage 
Trade is adjusted or nullified by another options exchange, the 
Exchange will take necessary actions to complete the nullification or 
adjustment of the Linkage Trade.
    The Exchange believes that retaining the same process for the 
Request for Review of Official decisions that it maintains under the 
Current Rule is consistent with the Act because it affords Members with 
due process in connection with decisions made by Officials under the 
Proposed Rule which the Member may feel warrants review. The Exchange 
believes that this process is streamlined and efficient, thus providing 
persons who seek review of Obvious and Catastrophic Error decisions 
with an expeditious opportunity for reconsideration of such decisions. 
The Exchange also believes that the proposed appeals process is 
appropriate with respect to financial penalties for appeals that result 
in a decision of the Exchange being upheld because it discourages 
frivolous appeals, thereby reducing the possibility of overusing 
Exchange resources that can instead be focused on other, more 
productive activities. The fees with respect to such financial 
penalties are the same as under the Current Rule, and are equitable and 
not unfairly discriminatory because they will be applied uniformly to 
all Options Members and are designed to reduce administrative burden on 
the Exchange.
    With regard to the portion of the Exchange's proposal related to 
the applicability of the Obvious Error Rule when the underlying 
security is in a Limit or Straddle State, the Exchange believes that 
the proposed rule change is consistent with Section 6(b)(5) of the Act 
because it will provide certainty about how errors involving options 
orders and trades will be handled during periods of extraordinary 
volatility in the underlying security. Further, the Exchange believes 
that it is necessary and appropriate in the interest of promoting fair 
and orderly markets to exclude from Proposed Rule 521 those 
transactions executed during a Limit or Straddle State.
    The Exchange believes the application of the Proposed Rule without 
the proposed provision would be impracticable given the lack of a 
reliable NBBO in the options market during Limit and Straddle States, 
and that the resulting actions (i.e., nullified trades or adjusted 
prices) may not be appropriate given market conditions. The Proposed 
Rule change would ensure that limit orders that are filled during a 
Limit State or Straddle State would have certainty of execution in a 
manner that promotes just and equitable principles of trade, removes 
impediments to, and perfects the mechanism of a free and open market 
and a national market system.
    Moreover, because options prices may deviate substantially during 
brief Limit or Straddle States from those available shortly following 
the Limit or Straddle State, the Exchange believes giving market 
participants time to re-evaluate a transaction would create an 
unreasonable adverse selection opportunity that would discourage 
participants from providing liquidity during Limit or Straddle States. 
In this respect, the Exchange notes that only those orders with a limit 
price will be executed during a Limit or Straddle State. Therefore, on 
balance, the Exchange believes that removing the potential inequity of 
nullifying or adjusting executions occurring during Limit or Straddle 
States outweighs any potential benefits from applying certain 
provisions during such unusual market conditions. Additionally, as 
discussed above, there are additional pre-trade protections in place 
outside of the Obvious and Catastrophic Error Rule that will continue 
to safeguard customers.
    The Exchange notes that under certain limited circumstances the 
Proposed Rule will permit the Exchange to review transactions in 
options that overlay a security that is in a Limit or Straddle State. 
Specifically, an Official will have authority to review a transaction 
on his or her own motion in the interest of maintaining a fair and 
orderly market and for the protection of investors. Furthermore, the 
Exchange will have the authority to adjust or nullify transactions in 
the event of a Significant Market Event, a trading halt in the affected 
option, an erroneous print or quote in the underlying security, or with 
respect to stop and stop limit orders that have been triggered based on 
erroneous trades. The Exchange believes that the safeguards described 
above will protect market participants and will provide the Exchange 
with the flexibility to act when necessary and appropriate to nullify 
or adjust a transaction, while also providing market participants with 
certainty that, under normal circumstances, the trades they effect with 
quotes and/or orders having limit prices will stand irrespective of 
subsequent moves in the underlying security. The right to review those 
transactions that occur during a Limit or Straddle State would allow 
the Exchange to account for unforeseen circumstances that result in 
Obvious or Catastrophic Errors for which a nullification or adjustment 
may be necessary in the interest of maintaining a fair and orderly 
market and for the protection of investors. Similarly, the ability to 
nullify or adjust transactions that occur during a Significant Market 
Event or trading halt, erroneous print or quote in the underlying 
security, or erroneous trade in the option when stop and stop limit 
orders are elected erroneously may also be necessary in the interest of 
maintaining a fair and orderly market and for the protection of 
investors. Furthermore, the Exchange will administer this provision in 
a manner that is consistent with the principles of the Act and will 
create and maintain records relating to the use of the authority to act 
on its own motion during a Limit or Straddle State or any adjustments 
or trade breaks based on other proposed provisions under the Rule.
    Additionally, the Exchange's proposal to delete current Rule 531 is 
consistent with the Act in that it will promote investor protection by 
preventing duplication in the Exchange's rules, ensuring clarity 
regarding agreements to nullify or adjust trades.
    With regard to the impact of this proposal on system capacity, the 
Exchange notes that it has analyzed its capacity and represents that it 
and the Options Price Reporting Authority (``OPRA'') have the necessary 
systems capacity to handle any potential additional traffic associated 
with the proposed rule change. The Exchange believes that its members 
will not have a capacity issue as a result of this proposal.

[[Page 27797]]

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.
    The Exchange believes the proposal will not impose a burden on 
intermarket competition but will rather alleviate any burden on 
competition because it is the result of a collaborative effort by all 
options exchanges to harmonize and improve the process related to the 
adjustment and nullification of erroneous options transactions. The 
Exchange does not believe that the rules applicable to such process is 
an area where options exchanges should compete, but rather, that all 
options exchanges should have consistent rules to the extent possible. 
Particularly where a market participant trades on several different 
exchanges and an erroneous trade may occur on multiple markets nearly 
simultaneously, the Exchange believes that a participant should have a 
consistent experience with respect to the nullification or adjustment 
of transactions. The Exchange understands that all other options 
exchanges intend to file proposals that are substantially similar to 
this proposal.
    The Exchange does not believe that the proposed rule change imposes 
a burden on intramarket competition because the provisions apply to all 
market participants equally within each participant category (i.e., 
Customers and non-Customers). With respect to competition between 
Customer and non-Customer market participants, the Exchange believes 
that the Proposed Rule acknowledges competing concerns and tries to 
strike the appropriate balance between such concerns. For instance, as 
noted above, the Exchange believes that protection of Customers is 
important due to their direct participation in the options markets as 
well as the fact that they are not, by definition, market 
professionals. At the same time, the Exchange believes due to the 
quote-driven nature of the options markets, the importance of liquidity 
provision in such markets and the risk assumed by liquidity providers 
quoting a large breadth of products that are derivative of underlying 
securities, that the protection of liquidity providers and the practice 
of adjusting transactions rather than nullifying them is of critical 
importance. As described above, the Exchange will apply specific and 
objective criteria to determine whether an erroneous transaction has 
occurred and, if so, how to adjust or nullify a transaction.

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 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 from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \24\ and Rule 19b-4(f)(6) 
thereunder.\25\
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    \24\ 15 U.S.C. 78s(b)(3)(A).
    \25\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of 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.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest, 
as it will enable the Exchange to meet its proposed implementation date 
of May 8, 2015, which will help facilitate the implementation of 
harmonized rules related to the adjustment and nullification of 
erroneous options transactions across the options exchanges. For this 
reason, the Commission designates the proposed rule change to be 
operative upon filing.\26\
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    \26\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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-2015-35 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MIAX-2015-35. 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 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 Number SR-MIAX-2015-35, and should be 
submitted on or before June 4, 2015.

[[Page 27798]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-11603 Filed 5-13-15; 8:45 am]
BILLING CODE 8011-01-P