[Federal Register Volume 78, Number 38 (Tuesday, February 26, 2013)]
[Notices]
[Pages 13107-13109]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-04368]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68954; File No. SR-MIAX-2013-04]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Revise Market Maker Obligations Regarding the
Opening Process on the Exchange
February 20, 2013.
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 February 11, 2013, Miami International Securities Exchange LLC
(``Exchange'' or ``MIAX'') 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 self-
regulatory organization. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C.78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend Rules 503, 603 and 604
to revise Market Maker obligations regarding the opening process on the
Exchange.
The text of the proposed rule change is available on the Exchange's
Web site at http://www.miaxoptions.com/filter/wotitle/rule_filing, at
MIAX's principal office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to revise the quoting
obligations of Market Makers prior to and during the opening process.
Specifically, (i) Lead Market Makers (``LMMs''), including those
appointed Primary Lead Market Maker (``PLMM''), will not be required to
enter quotes before or during the opening process in their assigned
option classes; and (ii) PLMMs will, however, be required to submit
valid width quotes not later than one minute following the
dissemination of a quote or trade by the market for the underlying
security. These changes, which are described in detail below, will make
MIAX's Market Maker obligations more consistent with market maker
obligations at other options exchanges.
Currently, Rules 503(e)(5), 603(c), 604(e)(1)(i) and 604(e)(2)(i)
require PLMMs and LMMs to participate in the opening process by
submitting valid width quotes and entering into any transactions
resulting from their participation. MIAX proposes to amend each of
these rules to revise the PLMM obligations and eliminate the LMM
obligations. Rule 503(e) specifies that the opening process can begin
following the dissemination of a quote or trade by the market for the
underlying security and a pause of no longer than one half second. The
pause allows the market place to absorb the dissemination of the
underlying security's quote or trade. Thereafter, the option's opening
process can be initiated by the occurrence of one of three triggers.
These triggers are (i) a valid width quote being submitted by the PLMM
in the option class; (ii) the valid width quotes of at least two Market
Makers (one of whom must be a LMM) being submitted in the option; or
(iii) the valid width quote of one LMM being submitted in the option
with at least one other options exchange disseminating a quote in the
option and a valid width NBBO being available for that option. Trigger
(iii) can only occur in multiply listed option classes; for singly
listed option classes either trigger (i) or (ii) must occur to initiate
the option's opening process.
While the PLMM can submit a valid width quote to start the option's
opening process, there are, as described above, other ways in which the
option opening process can begin. Pursuant to the revisions being
proposed herein, MIAX will require the PLMM to submit valid width
quotes in each of the
[[Page 13108]]
PLMM's appointed classes within one minute of a trade or quote in the
underlying security being disseminated, thus assuring a timely start of
the opening process if none of the other triggers for starting the
opening process have occurred.\3\ As described above, an LMM's valid
width quotes can also be used to trigger the start of the opening
process, however, MIAX now proposes to eliminate the requirement that
PLMMs and LMMs submit such quotes as part of the opening process.
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\3\ See NASDAQ OMX PHLX (``PHLX'') Rule 1017(k), which requires
``the specialist assigned in a particular equity option must enter
opening quotes not later than one minute following the dissemination
of a quote or trade by the market for the underlying security.''
PHLX does not require any of its other market makers to enter
opening quotes, see also, PHLX Rule 1014.
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By eliminating the specific obligations for PLMMs and LMMs to
submit valid width quotes prior to regular options trading and only
require continuous quoting during regular options trading, the opening
obligations for MIAX Market Makers would be consistent with opening
obligations for market makers at other options exchanges. For example,
in addition to the PHLX rule for their non-specialist market makers
referred to in footnote three above, NYSE Amex Options does not require
either its specialist or its market makers to submit quotes or
participate in the opening process.\4\ In addition, NASDAQ Options
Market, LLC (``NOM'') \5\, NASDAQ OMX BX, Inc (``BX Options'') \6\, and
BOX Options Exchange LLC (``BOX'') \7\ eliminated market maker pre-
opening quoting obligations in 2012. As a result of these filings, NOM,
BX Options and BOX do not impose obligations on their respective
options market makers to continuously quote prior to the regular
options trading.
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\4\ See NYSE Amex Options Rules 925NY (Obligations of Market
Makers), 925.1NY (Market Maker Quotes), 927NY (Specialists), 927.5NY
(e-Specialists Obligations) and 952NY (Opening Process). None of
these rules require specialist or market maker participation in the
opening process.
\5\ See Securities Exchange Act Release No. 67722 (August 23,
2012) 77 FR 52375 (August 29, 2012) (SR-NASDAQ-2012-095).
\6\ See Securities Exchange Act Release No. 68116 (October 26,
2012) 77 FR 66204 (November 2, 2012) (SR-BX-2012-069).
\7\ See Securities Exchange Act Release No. 68412 (December 12,
2012) 77 FR 74902 (December 18, 2012) (SR-BOX-2012-022).
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Market Makers have advised the Exchange that other option exchanges
do not have opening quoting obligations for their market makers and
have requested that MIAX eliminate its opening quoting obligations so
that MIAX rules are similar to the other options exchanges. While MIAX
agrees that eliminating its opening quoting obligations for Market
Makers would be pro-competitive in that it will attract more market
makers and additional liquidity to the Exchange, MIAX believes that the
PLMM should still have the responsibility to assure a timely start to
the opening process in each of its appointed classes and is therefore
continuing to require the PLMM to submit valid width quotes not later
than one minute after a trade or quote in the underlying security has
been disseminated. As it builds its options marketplace, MIAX believes
a consistently timely opening of its options classes is essential for
attracting order flow.
Moreover, the Exchange believes that its proposal to put LMMs in
the same position as market makers on other exchanges with respect to
opening obligations will not have a negative effect on MIAX's options
market. In particular, the Exchange believes the removal of opening
quoting obligations for LMMs will have no impact on the functioning of
the MIAX opening process and will not negatively impact MIAX market
participants. Exchange rules continue to provide that the PLMM will be
required to assure a timely opening by submitting valid width quotes in
its appointed option classes if none of the other triggers for opening
its appointed option classes have occurred. MIAX, therefore, believes
its market participants will continue to experience a quality opening
on the Exchange.
2. Statutory Basis
MIAX believes that its proposed rule change is consistent with
Section 6(b) of the Act \8\ in general, and furthers the objectives of
Section 6(b)(5) of the Act \9\ in particular, in that it is designed to
prevent fraudulent and manipulative 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, and it is not designed to
permit unfair discrimination among customers, brokers, or dealers. The
Exchange believes the proposal to conform Market Maker obligations to
the requirements of competing markets will promote the application of
consistent trading practices.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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Additionally, the Exchange believes the proposal removes a market
maker quoting requirement that is unnecessary, as evidenced by the fact
that it does not exist on other competitive markets. The Exchange
operates in a highly competitive market comprised of eleven U.S.
options exchanges in which sophisticated and knowledgeable market
participants can, and do, send order flow to competing exchanges if
they deem trading practices at a particular exchange to be onerous or
cumbersome. With this proposal, LMMs will be relieved of a market maker
requirement that does not materially improve the quality of the
markets. On the contrary, the opening quoting obligation creates an
additional obligation and burden on LMMs that does not exist on
numerous other competitive markets. The Exchange believes that in this
competitive marketplace, the impact of the opening quoting obligation
that exists on the Exchange today compels this proposal. It will allow
LMMs on the Exchange to follow rules that are similar to the rules of
other options exchanges that do not impose opening obligations on their
market makers, and will allow LMMs to focus on aspects of their
operations that contribute to the market in a more efficient and
meaningful way. However, as the newest entrant into this competitive
marketplace, MIAX also believes it is important to provide consistently
timely openings for its options, therefore, MIAX has a requirement that
the PLMM in each of its appointed option classes be required to submit
valid width quotes within one minute of the dissemination of a quote or
trade in the underlying security. This requirement for the PLMM is also
consistent with requirements at other options exchanges.
Finally, in determining to revise requirements for its Market
Makers, MIAX is mindful of the balance between the obligations and the
benefits bestowed on its Market Makers. The proposal will reduce
obligations currently in place for PLMMs and LMMs without a
corresponding reduction in the benefits currently bestowed upon them.
MIAX nevertheless believes this shifting in the balance of obligations
and benefits is appropriate given (i) the obligation is not necessary
for LMMs; (ii) the obligation is being revised and not eliminated for
the PLMM; and (iii) the changes being proposed herein are in place at
other options exchanges. MIAX believes that its proposal is consistent
with the Act in that the relieving of an unnecessary requirement for
LMMs does not detract from the overall market making obligations of
LMMs. The requirement that a market maker hold
[[Page 13109]]
itself out as willing to buy and sell options for its own account on a
regular or continuous basis is better supported by requirements to
quote continuously throughout the trading day rather than by a
requirement to quote at the opening. The LMM's continuous quoting
obligations are the equivalent of obligations in place for other
similarly situated market makers at other options exchanges.
Maintaining the PLMM requirement to submit valid width quotes within
one minute of a trade or quote in the underlying security being
disseminated is consistent with the heightened level of obligations
imposed by MIAX rules on PLMMs.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. MIAX's proposal to eliminate
the obligation for Market Makers to submit quotes and participate in
the opening process for each of its appointed option classes is
consistent with what is already occurring on other markets. By
providing Market Maker obligations that are more consistent with market
maker obligations in place at other option exchanges, competition for
the liquidity providing services of market makers is enhanced. MIAX is
better able to compete for the services of market makers when its
requirements for market makers are consistent with the other options
exchanges.
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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \10\ and Rule 19b-4(f)(6) thereunder.\11\
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 prior to
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 and Rule 19b-
4(f)(6)(iii) thereunder.
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\10\ 15 U.S.C. 78s(b)(3)(A)(iii).
\11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and 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. The
Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \12\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\13\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay, noting that doing
so will allow Market Makers on the Exchange to follow rules concerning
Market Maker quoting obligations prior to the commencement of daily
trading that are similar to the rules of other options Exchanges. The
Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public
interest.\14\ Accordingly, the Commission hereby grants the Exchange's
request and designates the proposal operative upon filing.\15\
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\12\ 17 CFR 240.19b-4(f)(6).
\13\ 17 CFR 240.19b-4(f)(6)(iii).
\14\ The Commission notes that it recently waived the operative
delay for a similar filing submitted by BX Options. See supra note
6.
\15\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of such 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.
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 [email protected]. Please include
File Number SR-MIAX-2013-04 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-MIAX-2013-04. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make publicly available. All
submissions should refer to File Number SR-MIAX-2013-04 and should be
submitted on or before March 19, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-04368 Filed 2-25-13; 8:45 am]
BILLING CODE 8011-01-P