[Federal Register Volume 78, Number 59 (Wednesday, March 27, 2013)]
[Notices]
[Pages 18637-18642]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-07062]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69210; File No. SR-MIAX-2013-12]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing of a Proposed Rule Change Relating to
Obvious Errors in Limit or Straddle States
March 22, 2013.
Pursuant to the provisions of 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 March 22, 2013, Miami International
Securities Exchange LLC (``MIAX'' or ``Exchange'') filed with the
Securities and Exchange Commission (``SEC'' or ``Commission'') a
proposed rule change as described in Items I, II and III below, which
Items have been prepared by the self-regulatory orgnaization. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend Exchange Rule 530, Limit
Up-Limit Down (``LULD''), and to amend Exchange Rule 521, Obvious and
Catastrophic Errors to provide for how the Exchange proposes to treat
erroneous options transactions in response to the Plan to Address
Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS,
as it may be amended from time to time (the ``Plan'').
The text of the proposed rule change is provided in Exhibit 5. The
text of the proposed rule change is also available on the Exchange's
Web site at http://www.miaxoptions.com/filter/wotitle/rule_filing, at
MIAX's principal office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend MIAX Rules 530
and 521 to provide for how the Exchange proposes to treat erroneous
options transactions in response to the Plan.
Background
Since May 6, 2010, when the markets experienced excessive
volatility in an abbreviated time period, i.e., the ``flash crash,''
the equities exchanges and The Financial Industry Regulatory Authority
(``FINRA'') have implemented market-wide measures designed to restore
investor confidence by reducing the potential for excessive market
volatility.
Among the measures adopted include pilot plans for stock-by-stock
trading pauses, related changes to the equities
[[Page 18638]]
market clearly erroneous execution rules, and more stringent equities
market maker quoting requirements. On May 31, 2012, the Commission
approved the Plan, as amended, on a one-year pilot basis. In addition,
the Commission approved changes to the equities market-wide circuit
breaker rules on a pilot basis to coincide with the pilot period for
the Plan. The Plan is designed to prevent trades in individual NMS
stocks from occurring outside of specified Price Bands. The instant
proposed rule change is intended to adopt MIAX rules that address the
trading of options overlying NMS Stocks that are the subject of the
Plan and its provisions during times of unusual volatility in the
markets.
The requirements of the Plan are coupled with Trading Pauses to
accommodate more fundamental price moves (as opposed to erroneous
trades or momentary gaps in liquidity). All trading centers in NMS
stocks, including both those operated by Participants and those
operated by members of Participants, are required to establish,
maintain, and enforce written policies and procedures that are
reasonably designed to comply with the requirements specified in the
Plan.
Limit State and Straddle State
As set forth in more detail in the Plan, Price Bands consisting of
a Lower Price Band and an Upper Price Band for each NMS Stock are
calculated by the Processors. When the National Best Bid (Offer) is
below (above) the Lower (Upper) Price Band, the Processors shall
disseminate such National Best Bid (Offer) with an appropriate flag
identifying it as unexecutable. When the National Best Bid (Offer) is
equal to the Upper (Lower) Price Band, the Processors shall distribute
such National Best Bid (Offer) with an appropriate flag identifying it
as a Limit State Quotation. All trading centers in NMS stocks must
maintain written policies and procedures that are reasonably designed
to prevent the display of offers below the Lower Price Band and bids
above the Upper Price Band for NMS stocks. Notwithstanding this
requirement, the Processor shall display an offer below the Lower Price
Band or a bid above the Upper Price Band, but with a flag indicating
that it is non-executable. Such bids or offers shall not be included in
the National Best Bid or National Best Offer calculations. Trading in
an NMS stock immediately enters a Limit State if the National Best
Offer (Bid) equals but does not cross the Lower (Upper) Price Band.
Trading for an NMS stock exits a Limit State if, within 15 seconds of
entering the Limit State, all Limit State Quotations were executed or
canceled in their entirety. If the market does not exit a Limit State
within 15 seconds, then the Primary Listing Exchange would declare a
five-minute trading pause pursuant to Section VII of the Plan, which
would be applicable to all markets trading the security.
In addition, the Plan defines a Straddle State as when the National
Best Bid (Offer) is below (above) the Lower (Upper) Price Band and the
NMS stock is not in a Limit State. For example, assume the Lower Price
Band for an NMS Stock is $9.50 and the Upper Price Band is $10.50, such
NMS stock would be in a Straddle State if the National Best Bid were
below $9.50, and therefore nonexecutable and the National Best Offer
were above $9.50 (including a National Best Offer that could be above
$10.50). If an NMS stock is in a Straddle State and trading in that
stock deviates from normal trading characteristics, the Primary Listing
Exchange may declare a trading pause for that NMS stock if such Trading
Pause would support the Plan's goal to address extraordinary market
volatility.
Obvious Error
The Exchange analyzed in detail the operation of current Exchange
Rule 521 (Obvious and Catastrophic Errors) and determined that it would
be undesirable to apply that Rule to options when the underlying NMS
Stock has entered either a Limit or Straddle State. However, the
Exchange does not believe that it should operate without any protection
against erroneous transactions during these periods. Therefore, the
Exchange proposes that proposed Rule 530(j) apply to erroneous
transactions in options when the underlying NMS Stock has entered
either a Limit or Straddle State only when an erroneous transaction is
due to a verifiable disruption or malfunction of the MIAX System.
The Exchange proposes to exclude transactions executed during a
Limit or Straddle State from the provisions of MIAX Rule 521, on a one-
year pilot basis, beginning on the date of implementation of the Plan,
except in situations where the affected trade resulted from a
verifiable disruption or malfunction of an Exchange execution,
dissemination, or communication system, as discussed below.
Current Rule 521 provides a process by which a transaction may be
busted or adjusted when the execution price of a transaction deviates
from the option's theoretical price \3\ by a certain amount.
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\3\ The Theoretical Price of an option is:
(1) If the series is traded on at least one other options
exchange the last National Best Bid price with respect to an
erroneous sell transaction and the last National Best Offer price
with respect to an erroneous buy transaction, just prior to the
trade;
(2) if there are no quotes for comparison purposes, or if the
bid/ask differential of the NBBO for the affected series, just prior
to the erroneous transaction, was at least two times the standard
bid/ask differential as permitted for pre-opening quotes under Rule
603(b)(4), as determined by an Exchange Official; or
(3) for transactions occurring as part of the Exchange's
automated opening system, the Theoretical Price shall be the first
quote after the transaction(s) in question that does not reflect the
erroneous transaction(s).
See Exchange Rule 521(b).
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As discussed above, during a Limit or Straddle State, options
prices may deviate substantially from those available prior to or
following the limit state. The Exchange believes that the application
of this provision to all erroneous transactions that occur during a
Limit or Straddle State would give rise to much uncertainty for market
participants as there is no bright line definition of what the
theoretical price should be for an option when the underlying NMS stock
has an unexecutable bid or offer or both.
Determining theoretical price in such a situation would be often
times very subjective as opposed to an objective determination giving
rise to additional uncertainty, and Rule 521 provides that if there are
no quotes from other options exchanges for comparison purposes, the
theoretical price will be determined by an Exchange Official. However,
given that options market makers and other industry professionals will
have difficulty pricing options during Limit and Straddle States, the
Exchange does not believe it would be reasonable for an Exchange
Official to derive theoretical prices to be applied to transactions
executed during such unusual market conditions. Accordingly, the
Exchange does not believe that the approach employed under Rule 521,
which by definition depends on a reliable national best bid and offer
in the option, is appropriate for all transactions that occur during a
Limit or Straddle State. The Exchange believes that there is no
reliable basis on which to determine the Theoretical Price of
transactions that occur during a Limit or Straddle State. Accordingly,
proposed Rule 530(j) will not include any provision to adjust the price
of trades that occur during a Limit or Straddle State. Proposed Rule
530(j) will only apply to transactions occurring during Limit and
Straddle States that resulted from a verifiable disruption or
malfunction of an Exchange execution, dissemination, or communication
system, and thus proposed Rule 530(j) will not include
[[Page 18639]]
the numerical tables defining Obvious and Catastrophic Errors found in
Rule 521(a). Moreover, the Exchange proposes to exclude the description
of conditions other than a verifiable disruption or malfunction of an
Exchange execution, dissemination, or communication system that give
rise to a review that are included in current Rules 521(c)(2)(v) and
(vi).\4\
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\4\ Under these rules, which will not be incorporated into
proposed Rule 530(j), parties to a trade may have a trade nullified
or its price adjusted if:
(v) The trade resulted in an execution price in a series quoted
no bid and for 5 seconds prior to the execution remained no bid
(excluding the quote in question; bids and offers of the parties to
the subject trade that are in any of the series in the same options
class shall not be considered) and at least one strike price below
(for calls) or above (for puts) in the same class were quoted no bid
at the time of the erroneous execution (in which case the trade
shall be nullified); or
(vi) The trade occurred at a price that is deemed to be an
Obvious Error as defined in Paragraph (a)(1) of this Rule 521.
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After careful consideration, the Exchange believes the application
of the current rule to all transactions occurring during a Limit or
Straddle State would be impracticable during Limit and Straddle States,
and could produce undesirable effects.
The Exchange believes that market participants should not be able
to benefit from the time frames allotted to them from the time of the
affected transaction within which they may request a review of their
transactions in these situations. Suspending application of Rule 521
for all transactions occurring during a Limit or Straddle State (except
for erroneous transactions that resulted from a verifiable disruption
or malfunction of an Exchange execution, dissemination, or
communication system, or due to an erroneous quote or print in the
underlying NMS Stock as discussed below) would mitigate two of the
undesirable aspects described above: (i) The moral hazard associated
with granting a second look to trades that went against the market
participant after market conditions have changed and (ii) gaming the
obvious error rule to retroactively adjust market maker quotes by
adjusting the execution price at a later time.
The Exchange notes that there are additional protections in place
outside of Rule 521 that will continue to safeguard customers. First,
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.'' \5\
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\5\ See Securities and Exchange Act Release No. 63241, 75 FR
69791 (November 15, 2010) (S7-03-10).
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Secondly, as noted above, the Exchange will cancel unexecuted
market orders in the MIAX System, and will reject market orders
received during a Limit or Straddle State. Additionally, the MIAX
System is designed with a built-in protection mechanism that will never
trade through the NBBO price at the time of receipt of an order by more
than one Minimum Price Variation (``MPV'').\6\ Thus, Exchange
functionality that filters out orders that appear to be erroneous or
are at risk of execution at an erroneous price enhances the protections
provided through LULD Functionality.
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\6\ This would only happen in the event that the Exchange
receives an Intermarket Search Order (``ISO'') routed to the
Exchange by an away market, in which the sending away market
indicates that it has exhausted its efforts to trade at a better
price than the Exchange's disseminated price and that such ISO can
be executed at a price that is inferior to the then-disseminated
NBBO.
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Reviewable Transactions
As stated above, the Exchange will review all erroneous
transactions occurring during Limit and Straddle States that resulted
from a verifiable disruption or malfunction of an Exchange execution,
dissemination, or communication system. Accordingly, the Exchange is
proposing to incorporate the relevant portions of Rule 521 into
proposed Rule 530(j) to establish the process for such review. The
Exchange proposes to adopt Commentary .06 to Rule 521, which provides
that transactions in MIAX options that overly an NMS Stock that occur
during a Limit or Straddle State are not subject to review under Rule
521. The Exchange shall apply proposed Rule 530(j) to such
transactions.
Proposed Rule 530(j)(1)(ii) states that trades will continue to be
subject to an obvious error or catastrophic error review in a Limit or
Straddle State if (A) 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 (B) 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; (C) the trade resulted from an
erroneous print disseminated by the underlying market which is later
cancelled or corrected by the underlying market where such erroneous
print resulted in a trade higher or lower than the average trade in the
underlying security during the time period encompassing two minutes
before and after the erroneous print, by an amount at least five times
greater than the average quote width for such underlying security
during the time period encompassing two minutes before and after the
erroneous print. For purposes of this Rule, the average trade in the
underlying security shall be determined by adding the prices of each
trade during the four minute time period referenced above (excluding
the trade in question) and dividing by the number of trades during such
time period (excluding the trade in question); or (D) the trade
resulted from an erroneous quote in the primary market for the
underlying security that has a width of at least $1.00 and that width
is at least five times greater than the average quote width for such
underlying security during the time period encompassing two minutes
before and after the dissemination of such quote. For the purposes of
this Rule, the average quote width shall be determined by adding the
quote widths of sample quotations at regular 15-second intervals during
the four minute time period referenced above (excluding the quote in
question) and dividing by the number of quotes during such time period
(excluding the quote in question).
Currently, under Rule 521(a)(1) and (2), obvious and catastrophic
errors are calculated by determining a theoretical price and applying
such price, based on objective standards, to ascertain whether the
trade should be nullified or adjusted. While the rule contains a
notification process for requesting an obvious error review, certain
more substantial errors may fall under the category of a catastrophic
error, for which a longer time period is permitted to request a review
and for which trades can currently only be adjusted (not nullified).
Trades are adjusted pursuant to an adjustment table that, in effect,
assesses an adjustment penalty. By adjusting trades above or below the
theoretical price, the Rule assesses a ``penalty'' in that the
adjustment price is not as favorable as the amount the party making the
error would have received had it not made the error.
[[Page 18640]]
Pursuant to current Rule 521(b), the theoretical price of an option
is determined in one of three ways: (1) If the series is traded on at
least one other options exchange, the last National Best Bid price with
respect to an erroneous sell transaction and the last National Best
Offer price with respect to an erroneous buy transaction, just prior to
the trade; (2) if there are no quotes for comparison purposes, or if
the bid/ask differential of the National Best Bid and Offer (``NBBO'')
for the affected series, just prior to the erroneous transaction, was
at least two times the permitted bid/ask differential under Rule
1014(c)(i)(A)(1)(a) [sic], as determined by an Exchange Official; or
(3) for transactions occurring as part of the Exchange's automated
opening system, the theoretical price shall be the first quote after
the transaction(s) in question that does not reflect the erroneous
transaction(s).
The Exchange believes that none of these three methods is
appropriate during a Limit or Straddle State. Specifically, under Rule
521(b)(1), the theoretical price is determined with respect to the NBBO
for an option series just prior to the trade. As discussed above,
during a Limit or Straddle State, options prices may deviate
substantially from those available prior to or following the State. The
Exchange believes this provision would give rise to much uncertainty
for market participants as there is no bright line definition of what
the theoretical price should be for an option when the underlying NMS
stock has an unexecutable bid or offer or both. Determining theoretical
price in such a situation would be often times very subjective as
opposed to an objective determination giving rise to additional
uncertainty and confusion for investors. Accordingly, the Exchange does
not believe that the approach employed under current Rule 521(b)(1),
which by definition depends on a reliable NBBO in the option, is
appropriate during a Limit or Straddle State. The Exchange believes
that excluding this from proposed Rule 530(j) is appropriate because
while in a Limit or Straddle State, only limit orders will be accepted
by the Exchange, affirming that the participant is willing to accept an
execution up to the limit price. Further, because the Exchange system
will only trade through the theoretical bid or offer if the Exchange or
the participant (via an ISO order) has accessed all better priced
interest away in accordance the Options Order Protection and Locked/
Crossed Markets Plan, the Exchange believes potential trade reviews of
executions that occurred at the participant's limit price and also in
compliance with aforementioned Plan could result in uncertainty that
could harm liquidity and also could create an advantage to either side
of an execution depending on the future movement of the underlying
stock.
The Exchange recognizes that the second method (in Rule 521(b)(2))
affords discretion to the Options Exchange Official in determining the
theoretical price and thereby, ultimately, whether a trade is busted or
adjusted and to what price. The Exchange has determined that it would
be difficult to exercise such discretion in periods of extraordinary
market volatility and in particular when the price of the underlying
security is unreliable. Moreover, the theoretical price would be
subjective. Thus, the Exchange has determined not to permit an obvious
or catastrophic error review if there are no quotes for comparison
purposes, or if the bid/ask differential of the NBBO for the affected
series, just prior to the erroneous transaction, was at least two times
the permitted bid/ask differential. The Exchange believes that adding
certainty to the execution of orders in these situations should
encourage market participants to continue to provide liquidity to the
Exchange and thus promote a fair and orderly market.
The Exchange notes that current Rule 521(b)(3) applies to trades
executed during openings. Because the Exchange does not intend to open
an option during a Limit or Straddle State, this provision, on its
face, will not apply.
For the same reasons, the Exchange is proposing that Rule
521(c)(2)(vi) not apply during a Limit or Straddle State.
In addition, the Exchange proposes that trades are not subject to
an obvious error and catastrophic error review if pursuant to the
provisions of Rule 521(c)(2)(vi) the trade resulted from an execution
price in a series quoted no bid. A zero bid option refers to an option
where the bid price is $0.00. Series of options quoted zero bid are
usually deep out-of-the-money series that are perceived as having
little if any chance of expiring in-the-money. For this reason,
relatively few transactions occur in these series and those that do are
usually the result of a momentary pricing error.
Specifically, under this provision, where the trade resulted in an
execution price in a series quoted no bid and for 5 seconds prior to
the execution remained no bid (excluding the quote in question; bids
and offers of the parties to the subject trade that are in any of the
series in the same options class shall not be considered) and at least
one strike price below (for calls) or above (for puts) in the same
class were quoted no bid at the time of the erroneous execution (in
which case the trade shall be nullified). The Exchange believes that
these situations are not appropriate for an error review because they
are more likely to result in a windfall to one party at the expense of
another in a Limit or Straddle State, because the criteria for meeting
the no-bid provision are more likely to be met in a Limit or Straddle
State, and unlike normal circumstances, may not be a true reflection of
the value of the series being quoted. For example, in a series quoted
$1.95-$2.00 on multiple exchanges prior to the Limit or Straddle State,
an order to B10@ $2.00 is likely a reasonably priced trade because the
buyer attempted to pay $2.00 with a limit price. However, if that
series and the series one strike below are both quoted $0.00- $5.00,
then both the seller and the buyer at $2.00 would have an opportunity
to dispute the trade. This would create uncertainty to both parties and
an advantage to one participant if the underlying stock moved
significantly in their direction.
Regarding Obvious Errors, the Commission has stated previously that
it ``* * * considers that in most circumstances trades that are
executed between parties should be honored. On rare occasions, the
price of the executed trade indicates an `obvious error' may exist,
suggesting that it is unrealistic to expect that the parties to the
trade had come to a meeting of the minds regarding the terms of the
transaction. In the Commission's view, the determination of whether an
`obvious error' has occurred, and the adjustment or nullification of a
transaction because an obvious error is considered to exist, should be
based on specific and objective criteria and subject to specific and
objective procedures * * *'' \7\
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\7\ See Securities Exchange Act Release No. 49785 (May 28,
2004), 69 FR 32090 (June 8, 2004) (SR-Phlx-2003-68).
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The Exchange believes that, in some extreme situations, trade
participants may not be aware of errors that result in very large
losses within the time periods currently required under the rule. In
this type of extreme situation, the Exchange believes its members
should be given more time to seek relief so that there is a greater
opportunity to mitigate very large losses and reduce the corresponding
large wind-falls. However, to maintain the appropriate balance, the
Exchange believes members should only be given more time when the
execution price is much further
[[Page 18641]]
away from the theoretical price than is required for Obvious Errors so
that relief is only provided in extreme circumstances.
The Exchange believes that this proposal strikes the aforementioned
balance. The Exchange is proposing to decline to review certain trades,
which is specific and objective. Furthermore, the proposal more fairly
balances the potential windfall to one market participant against the
potential reconsideration of a trading decision under the guise of an
error, and thereby results in more certainty during periods of extreme
market volatility. Trades can nevertheless be considered erroneous
under other sections of the Rule, because those continue to be an
objective method of determining whether an error occurred, even during
periods of extraordinary market volatility. Because the Exchange
intends to continue to review trades pursuant to proposed Rules
521(j)(1)(A)-(D) [sic], the Exchange believes that this continues to
provide some protection to market participants.
The Exchange believes that, in addition to the built-in customer
protections discussed above, it is necessary to protect investors from
erroneous transactions resulting from a verifiable disruption or
malfunction of an Exchange execution, dissemination, or communication
system.
Proposed Rule 530(j) will also include identical language to that
used in current Rule 521 regarding mutual agreement by the parties to
an erroneous transaction during a trading halt, i.e., trades on the
Exchange will be nullified when the trade occurred 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.
Proposed Rule 530(j) will also incorporate the relevant elements of
Rule 521 regarding the review procedure, requests for review, and
appeals from decisions to bust a trade.
The Exchange has engaged in informal discussions with its members,
and has received generally favorable feedback concerning its proposed
handling of Obvious Errors during Limit and Straddle States, given the
aforementioned built-in protections in the MIAX System.
During the one-year pilot period beginning on the date of
implementation of the Plan, the Exchange will conduct its own analysis
concerning the elimination of obvious error rules 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. Additionally, the Exchange
agrees to provide to the Commission data requested to evaluate the
impact of the elimination of the obvious error rule, including data
relevant to assessing the various analyses noted above.
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 regulating, clearing, settling,
processing information with respect to, and 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.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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The Exchange believes the application of the current Obvious Error
rule will 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. This change would ensure that
limit orders that are filled during a Limit 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, given that options prices during brief Limit or Straddle
States may deviate substantially from those available shortly following
the Limit or Straddle State, the Exchange believes giving market
participants time to reevaluate 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 by rejecting market orders and
cancelling pending market orders, 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 on the MIAX System that will continue to safeguard
customers.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Specifically, the Exchange believes the proposed changes will not
impose any burden on intra-market competition because it applies to all
MIAX participants equally. The Exchange does not believe the proposed
rules will impose any burden on inter-market competition as the
proposed rules are intended to protect investors with the
implementation of the Plan. In addition, the proposed changes will
provide certainty of treatment and execution of options orders during
periods of extraordinary market volatility.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
[[Page 18642]]
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-2013-12 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-2013-12. 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, located at 100 F
Street NE., Washington, DC 20549, on official business days between the
hours of 10:00 a.m. and 3:00 p.m. Copies of the filing will also 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-2013-12 and should be submitted on or before April 8, 2013.\10\
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\10\ The Commission believes that a 10-day comment period is
reasonable, given the urgency of the matter. It will provide
adequate time for comment. The Commission also notes that this
proposal is substantially similar to proposals from NASDAQ OMX PHLX
LLC, The NASDAQ Stock Market LLC, and NASDAQ OMX BX, Inc. which were
published for comment in the Federal Register on March 20, 2013. See
Securities Exchange Act Release Nos. 69141 (March 15, 2013), 78 FR
17262 (March 20, 2013) (SR-Phlx-2013-29); 69142 (March 15, 2013), 78
FR 17251 (March 20, 2013) (SR-NASDAQ-2013-048); and 69140 (March 15,
2013), 78 FR 17255 (March 20, 2013) (SR-BX-2013-026).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-07062 Filed 3-26-13; 8:45 am]
BILLING CODE 8011-01-P