[Federal Register Volume 79, Number 121 (Tuesday, June 24, 2014)]
[Notices]
[Pages 35833-35838]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-14693]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72418; File No. SR-MIAX-2014-23]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Exchange Rule 515A
June 18, 2014.
Pursuant to the provisions of Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on June 5, 2014, Miami International Securities
Exchange LLC (``MIAX'' or ``Exchange'') filed with the Securities and
Exchange Commission (``Commission'') a proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the Exchange. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend Exchange Rule 515A.
The text of the proposed rule change is available on the Exchange's
Web site at http://www.miaxoptions.com/filter/wotitle/rule_filing, at
MIAX's principal office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange adopted Rule 515A to establish a price improvement
auction (``PRIME Auction'') and a solicited order mechanism
(``Solicitation Auction'').\3\ The Exchange has identified several
additional enhancements to the functionality that the Exchange believes
should be included in the Rules prior to deployment of the new PRIME
Auction and Solicitation Auction functionality. The Exchange proposes
to amend Exchange Rules 515A accordingly.
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\3\ See Securities Exchange Act Release Nos. 71640 (March 4,
2014), 79 FR 13334 (March 10, 2014) (SR-MIAX-2014-09) (``Notice'');
72009 (April 23, 2014), 79 FR 24032 (April 29, 2014) (SR-MIAX-2014-
09).
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The Exchange proposes to amend Rule 515A(a)(2)(ii)(B) and Rule
515A(b)(2)(ii)(B) in order to provide that the PRIME Auction and
Solicitation Auction will conclude upon the receipt by the System of an
unrelated order (in the same option as the Agency Order) on the
opposite side of the market from the RFR responses, that is marketable
against either the NBBO, the initiating price,\4\ or the RFR responses.
In addition, the Exchange proposes to separately provide in amended
Rule 515A(a)(2)(ii)(C) and Rule 515A(b)(2)(ii)(C) that the PRIME
Auction and Solicitation Auction will conclude upon the receipt by the
System of an unrelated order (in the same option as the Agency Order)
on the same side of the market as the RFR responses, that is marketable
against the NBBO. Currently, the Rules state that the PRIME Auction and
a Solicitation Auction will conclude upon the receipt by the System of
an unrelated order on the same side or opposite side of the market from
the RFR responses, that is marketable against either the MBBO (when
such quote is the NBBO) or the RFR responses.\5\ The proposed change
will add the initiating price of the Auction as an additional trigger
to cause the early termination of an Auction upon the receipt of an
unrelated order on the opposite side of the market from the RFR
responses. The proposed change will also use the NBBO as a trigger to
cause the early termination of an Auction in lieu of the MBBO when such
quote is the NBBO. In addition, the proposed change will restructure
the Rules so that the treatment of same side and opposite side
unrelated orders are described in separate provisions in order to
provide additional clarity and reduce the potential for confusion on
behalf of market participants. The Exchange proposes to make these
enhancements to further ensure that the PRIME Auction and Solicitation
Auction will work seamlessly with the
[[Page 35834]]
Exchange's Book in a manner that would ensure a fair and orderly market
by maintaining priority of orders and quotes while still affording the
opportunity for price improvement on each Auction commenced on the
Exchange. The Exchange believes that by using such additional reasons
for terminating an Auction early will improve the interaction between
the Auction and the Exchange's Book and the national market system.
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\4\ The ``initiating price'' is the stopped price specified by
the Initiating Member on the Agency Order. See Rule
515A(a)(2)(i)(A).
\5\ See Rules 515A(a)(2)(ii)(B) and 515A(b)(2)(ii)(B). See also
CBOE Rules 6.74A(b)(2) and 6.74B(b)(2).
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The following examples show how the proposed amendments described
above would affect the outcome of the PRIME Auction.
Example 1--Early Conclusion of Auction, limit order on the same
side of the market as RFR Responses that is marketable against NBBO
at the time of arrival
NBBO = $1.20-$1.24 200 x 100
BBO = $1.20-$1.24 100 x 100
Agency Order to buy 50 contracts with a limit of $1.24
Initiating Member's Contra Order selling 50 contracts with a stop
price of $1.24
RFR sent identifying the option, side and size, initiating price of
$1.24 (Auction Starts)
@ 200 milliseconds MM3 response received, AOC eQuote to
Sell 50 at $1.22
@ 210 milliseconds MM1 response received, AOC eQuote to
Sell 50 at $1.22
@ 230 milliseconds MM4 response received, AOC eQuote to
Sell 50 at $1.23
@ 400 milliseconds BD1 Unrelated Order received Sell 10 at
$1.20 (Opposite-side order marketable against the NBB causes an
early conclusion to the Auction)
Under this scenario, the Agency Order would be executed as
follows:
1. 10 contracts trade with the unrelated order for BD1 @
$1.21(midpoint of the best RFR response of $1.22 and the opposite
side of the market from the RFR response of $1.20)
2. 20 contracts trade with MM3 @ $1.22
3. 20 contracts trade with MM1 @ $1.22 (This fills the entire Agency
Order)
4. MM4 does not trade any contracts
5. Contra Order does not trade any contracts
Example 2--Early Conclusion of Auction, limit order on the same
side of the market as RFR Responses that is marketable against NBBO
at the time of arrival
NBBO = $1.20-$1.24 200 x 100
BBO = $1.18-$1.26 100 x 100
Agency Order to buy 50 contracts with a limit of $1.24
Initiating Member's Contra Order selling 50 contracts with a stop
price of $1.24
RFR sent identifying the option, side and size, initiating price of
$1.24
(Auction Starts)
@ 200 milliseconds MM3 response received, AOC eQuote to
Sell 50 at $1.22
@ 210 milliseconds MM1 response received, AOC eQuote to
Sell 50 at $1.22
@ 230 milliseconds MM4 response received, AOC eQuote to
Sell 50 at $1.23
@ 400 milliseconds BD1 Unrelated Order received Sell 10 at
$1.20 (Opposite-side order marketable against the NBB causes an
early conclusion to the Auction)
Under this scenario, the Agency Order would be executed as
follows:
1. 10 contracts trade with the unrelated order for BD1 @
$1.21(midpoint of the best RFR response of $1.22 and the opposite
side of the market from the RFR response of $1.20)
2. 20 contracts trade with MM3 @ $1.22
3. 20 contracts trade with MM1 @ $1.22 (This fills the entire Agency
Order)
4. MM4 does not trade any contracts
5. Contra Order does not trade any contracts
In Example 1, since the MBBO is the same as the NBBO, the outcome
of the PRIME Auction will be identical under the proposal as the
current approved Rule.\6\ However, in Example 2, under the proposal,
the PRIME Auction terminates early upon the receipt of the unrelated
order that is marketable against the NBBO, but not the MBBO. In
contrast, in Example 2 under the current approved Rule, the PRIME
Auction would not have terminated early upon the receipt of the
unrelated order that is marketable against the NBBO and could have
continued another 100 milliseconds.\7\
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\6\ See Notice, supra note 3, Example 17. See Rule
515A(a)(2)(ii)(B).
\7\ See Rule 515A(a)(2)(ii)(B).
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Example 3--Early Conclusion of Auction, IOC marketable against
either side of NBBO at time of arrival
NBBO = $1.20-$1.24 200 x 200
BBO = $1.20-$1.24 100 x 100
Agency Order to buy with a limit price of $1.22 for 20 contracts
Initiating Member's Contra Order selling 20 contracts at $1.22
RFR sent identifying the option, side and size, with initiating
price of $1.22
(Auction Starts)
@ 100 milliseconds MM3 response received, AOC eQuote to
Sell 20 at $1.22
@ 210 milliseconds MM1 response received, AOC eQuote to
Sell 20 at $1.22
@ 330 milliseconds MM4 response received, AOC eQuote to
Sell 20 at $1.22
@ 400 milliseconds C1 Unrelated IOC Order received Buy 100
at $1.24 (Same side IOC order to buy marketable against the NBO
causes the Auction to conclude early)
Under this scenario, the Agency Order would be executed as
follows:
1. 8 contracts trade with the Contra Order @ $1.22 (This satisfies
their 40% participation guarantee)
2. 4 contracts trades with MM3 @ $1.22
3. 4 contracts trades with MM1 @ $1.22
4. 4 contracts trade with MM4 @ $1.22 (This fills the entire Agency
Order)
5. C1 unrelated IOC order then executes as follows:
a. 16 contracts trade with MM3 @ $1.22
b. 16 contracts trade with MM1 @ $1.22
c. 16 contracts trade with MM4 @ $1.22
d. Remaining 52 contracts then executes with the posted market
at the Exchange's $1.24 BO
Example 4--Early Conclusion of Auction, IOC marketable against
either side of NBBO at time of arrival
NBBO = $1.20-$1.24 200 x 200
BBO = $1.18-$1.26 100 xx 100
Agency Order to buy with a limit price of $1.22 for 20 contracts
Initiating Member's Contra Order selling 20 contracts at $1.22
RFR sent identifying the option, side and size, with initiating
price of $1.22
(Auction Starts)
@ 100 milliseconds MM3 response received, AOC eQuote to
Sell 20 at $1.22
@ 210 milliseconds MM1 response received, AOC eQuote to
Sell 20 at $1.22
@ 330 milliseconds MM4 response received, AOC eQuote to
Sell 20 at $1.22
@ 400 milliseconds C1 Unrelated IOC Order received Buy 100
at $1.24 (Same side IOC order to buy marketable against the NBO
causes the Auction to conclude early)
Under this scenario, the Agency Order would be executed as
follows:
1. 8 contracts trade with the Contra Order @ $1.22 (This satisfies
their 40% participation guarantee)
2. 4 contracts trades with MM3 @ $1.22
3. 4 contracts trades with MM1 @ $1.22
4. 4 contracts trade with MM4 @ $1.22 (This fills the entire Agency
Order)
5. C1 unrelated IOC order then executes as follows:
a. 16 contracts trade with MM3 @ $1.22
b. 16 contracts trade with MM1 @ $1.22
c. 16 contracts trade with MM4 @ $1.22
d. Remaining 52 contracts are then canceled
Similarly, in Example 3, since the MBBO is the same as the NBBO,
the outcome of the PRIME Auction will be identical under the proposal
as the current approved Rule.\8\ However, in Example 4, under the
proposal, the PRIME Auction terminates early upon the receipt of the
unrelated order that is marketable against the NBBO, not the MBBO. In
contrast, in Example 4 under the current approved Rule, the PRIME
Auction would not have terminated early upon the receipt of the
unrelated order that is marketable against the NBBO and could have
continued another 100 milliseconds.\9\
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\8\ See Notice, supra note 3, Example 24.
\9\ See Rule 515A(a)(2)(ii)(D).
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As mentioned above, in Examples 2 and 4, the PRIME Auctions could
have continued for another 100 milliseconds under the current approved
rule, with the potential for additional price improvement beyond the
NBBO to the MBBO. However, there is no guarantee that the market would
not move to the detriment of the Agency Order, providing no additional
price improvement. In other words, if market prices moved away from the
Agency Order's price and better prices for the
[[Page 35835]]
Member's trading interest exist outside the PRIME Auction, Members
might be unwilling to continue to provide additional price improvement
even if the PRIME Auction continued. Further, the marketable unrelated
order could have also executed prior to the end of the Auction Period,
thus reducing the potential price improvement for the Agency Order
which would be left to execute against any remaining RFR Responses or
the initiating member's stop price. Under the proposal, the unrelated
order benefits from receiving an execution sooner than anticipated
against liquidity that they may not have known was there at the time.
The Exchange believes that the benefits of terminating the PRIME
Auction early for both the Agency Order and the marketable unrelated
order outweigh any marginal loss of opportunity from terminating at the
NBBO versus the MBBO.
The following examples show how the proposed amendments to
terminate the PRIME Auction and Solicitation Auction early upon the
receipt of an unrelated order on the opposite side of the market from
the RFR Responses that is marketable against the initiating price would
affect the outcome of the PRIME Auction and Solicitation Auction.
Example 5--Early Conclusion of Auction, limit order on the opposite
side of the market from RFR Responses improves initiating price
NBBO = $1.20-$1.24 200 x 200
BBO = $1.20-$1.24 100 x 100
Agency Order to buy 20 contracts with a limit price of $1.22
Initiating Member's Contra Order selling 20 contracts at $1.22
RFR sent identifying the option, side and size, with an initiating
price of $1.22
(Auction Starts)
@ 300 milliseconds MM3 response received, AOC eQuote to
Sell 20 at $1.22
@ 310 milliseconds MM1 response received, AOC eQuote to
Sell 20 at $1.22
@ 430 milliseconds MM4 response received, AOC eQuote to
Sell 20 at $1.22
@ 450 milliseconds C1 Unrelated Order received Buy 100 at
$1.23 (limit order to buy on the opposite side of the market from
RFR Responses that improves (i.e., is priced higher than) the Agency
Order's initiating price causes the Auction to conclude early)
Under this scenario, the Agency Order would be executed as
follows:
1. 8 contracts trade with the Contra Order @ $1.22 (This satisfies
their 40% participation guarantee)
2. 4 contracts trades with MM3 @ $1.22
3. 4 contracts trades with MM1 @ $1.22
4. 4 contracts trade with MM4 @ $1.22 (This fills the entire Agency
Order)
5. C1 unrelated order then executes as follows:
a. 16 contracts trade with MM3 @ $1.22
b. 16 contracts trade with MM1 @ $1.22
c. 16 contracts trade with MM4 @ $1.22
d. Remaining contracts post to the Book as new BB paying $1.23
for 52 contracts
Example 6--Early Conclusion of Auction, limit order on the opposite
side of the market from RFR Responses matches the initiating price
NBBO = $1.20-$1.24 200 x200
BBO = $1.20-$1.24 100 x 100
Agency Order to buy 20 contracts with a limit price of $1.22
Initiating Member's Contra Order selling 20 contracts at $1.22
RFR sent identifying the option, side and size, with an initiating
price of $1.22
(Auction Starts)
@ 300 milliseconds MM3 response received, AOC eQuote to
Sell 20 at $1.22
@ 310 milliseconds MM1 response received, AOC eQuote to
Sell 20 at $1.22
@ 430 milliseconds MM4 response received, AOC eQuote to
Sell 20 at $1.22
@ 450 milliseconds C1 Unrelated Order received Buy 100 at
$1.22 (limit order to buy on the opposite side of the market from
RFR Responses that matches the Agency Order's initiating price
causes the Auction to conclude early)
Under this scenario, the Agency Order would be executed as
follows:
1. 8 contracts trade with the Contra Order @ $1.22 (This satisfies
their 40% participation guarantee)
2. 4 contracts trades with MM3 @ $1.22
3. 4 contracts trades with MM1 @ $1.22
4. 4 contracts trade with MM4 @ $1.22 (This fills the entire Agency
Order)
5. C1 unrelated order then executes as follows:
a. 16 contracts trade with MM3 @ $1.22
b. 16 contracts trade with MM1 @ $1.22
c. 16 contracts trade with MM4 @ $1.22
d. Remaining contracts post to the Book as new BB paying $1.22
for 52 contracts
Example 7--Solicitation Auction--Customer gets price improved for
AON size, unrelated order on the opposite side of the market from
RFR Responses ends auction and trades vs. responses
XYZ Jan 50 Calls
NBBO--1.10-1.25
BBO--1.10-1.30
Paired order to execute 2000 contracts AON (customer selling) @ 1.10
A RFR is broadcast to all subscribers showing option, size, side,
and price; timer is started
System starts the auction at the Initiating Customer price to sell @
1.10
@ 100 milliseconds Response 1 to buy @ 1.10 2000 AOC order
arrives
@ 200 milliseconds Response 2 to buy @ 1.10 2000 AOC order
arrives
@ 220 milliseconds Response 3 to buy @ 1.10 5000 AOC order
arrives
@ 332 milliseconds Response 4 to buy @ 1.20 1000 AOC order
arrives
@ 400 milliseconds Response 5 to buy @ 1.15 2000 AOC order
arrives
@ 450 milliseconds, unrelated same side order arrives
selling 100 @ 1.10--(limit order to sell on the opposite side of the
market from RFR Responses that is marketable against Initiating
Price or RFR responses causes the Auction to conclude early)
Trade is allocated against Initiating Customer:
1. 1000 trade vs. Response 4 @ 1.20
2. 1000 trade vs. Response 5 @ 1.15
3. Solicited contra does not participate because entire size was
price improved
4. Unrelated same side order trades 100 vs. Response 5 @ 1.15;
balance of response size is cancelled
In Examples 5, 6,\10\ and 7, the outcome of both the PRIME Auction
and Solicitation Auction will be identical under the proposal as the
current approved Rule.\11\ The Exchange notes that there will be no
impact on the allocation or priority.
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\10\ The Commission notes that with respect to Examples 5 and 6,
while the outcome of the PRIME auction is the same under the
proposal as under the current Rule, the cause of early termination
under the proposal differs from the current Rule. Under the current
Rule, the PRIME auctions in Examples 5 and 6 would end early due to
the receipt of an unrelated order on the same side of the market as
the Agency Order that is marketable against an RFR response. See
Rule 515A(a)(2)(ii)(B). However, under the amended Rule, the PRIME
auctions would end early due to the receipt of an unrelated order on
the same side as the Agency Order that is marketable against either
the RFR responses or the initiating price. See amended Rule
515A(a)(2)(ii)(B). In both examples, the best RFR response matches
the initiating price.
\11\ See Notice, supra note 3, Examples 23 and 28.
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The Exchange proposes to amend Rule 515A(a)(2)(ii) and Rule
515A(b)(2)(ii) to provide that the PRIME Auction and Solicitation
Auction will conclude any time an RFR response matches the NBBO on the
opposite side of the market from RFR responses. Currently, the Rules
state that the PRIME Auction will conclude any time an RFR response
matches the MBBO on the opposite side of the market from the RFR
responses.\12\ The proposed change will use the NBBO as a trigger to
cause the early termination of an Auction in lieu of the MBBO. The
Exchange proposes to make this enhancement to further ensure that the
PRIME Auction and Solicitation Auction will work seamlessly with the
national market system in a manner that would ensure a fair and orderly
market by maintaining priority of orders and quotes while still
affording the opportunity for price improvement on each Auction
commenced on the Exchange. The Exchange believes that by using the NBBO
instead of the MBBO as a reason for terminating an Auction early will
improve the interaction between the Auction and the national market
system.
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\12\ See Rules 515A(a)(2)(ii) and 515A(b)(2)(ii). See also CBOE
Rules 6.74A(b)(2) and 6.74B(b)(2).
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The following examples show how the proposed amendments to use the
NBBO as a trigger to cause the early termination of an Auction in lieu
of the
[[Page 35836]]
MBBO would affect the outcome of the PRIME Auction.
Example 8--Single Price Submission, priority customer order on the
Book on the same side locks the final Auction Price
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Agency Order to buy 50 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts with a single
stop price of $1.20
RFR sent identifying the option, side and size, with initiating
price of $1.20
(Auction Starts)
@ 110 milliseconds MM1 response received, AOC eQuote to
Sell 10 at $1.22
@ 230 milliseconds MM4 response received, AOC eQuote to
Sell 50 at $1.15 (response matches the opposite side NBB causes the
Auction to conclude early)
Under this scenario the Agency Order would be executed as
follows:
1. 50 contracts trade with MM4 @ $1.15 (This fills the entire Agency
Order and Contra Order does not receive an execution)
Example 9--Single Price Submission, priority customer order on the
Book on the same side
NBBO = $1.15-$1.25 200 x 200
BBO = $1.14-$1.25 100 x 100
Agency Order to buy 50 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts with a single
stop price of $1.20
RFR sent identifying the option, side and size, with initiating
price of $1.20
(Auction Starts)
@ 110 milliseconds MM1 response received, AOC eQuote to
Sell 10 at $1.22
@ 230 milliseconds MM4 response received, AOC eQuote to
Sell 50 at $1.15 (response matches the opposite side NBB causes the
Auction to conclude early)
Under this scenario the Agency Order would be executed as
follows:
1. 50 contracts trade with MM4 @ $1.15 (This fills the entire Agency
Order and Contra Order does not receive an execution)
In Example 8, since the MBBO is the same as the NBBO, the outcome
of the PRIME Auction will be identical under the proposal as the
current approved Rule.\13\ However, in Example 9, under the proposal,
the PRIME Auction terminates early anytime an RFR Response matches the
NBBO on the opposite side of the market from the RFR Response, but not
the MBBO. In contrast, in Example 9 under the current approved Rule,
the PRIME Auction would not have terminated early upon the receipt of
the unrelated order that is marketable against the NBBO and could have
continued another 270 milliseconds.\14\
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\13\ See Notice, supra note 3; Rule 515A(a)(2)(ii)(D).
\14\ See Rule 515A(a)(2)(ii)(D).
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The Exchange notes that the proposed changes detailed above will
likely result in both the shortening of the Auction Period and an
increase in the frequency of early conclusions of the Auction for both
the PRIME Auction and Solicitation Auction and the Agency Order
potentially receiving less opportunity for price improvement. However,
the Exchange believes that the benefits to market participants
(including those participating in the Auctions and outside of the
Auctions) as a result of the new proposed enhancements to make both the
PRIME Auction and Solicitation Auction more integrated with the
Exchange's Book and the national market system, exceed any potential
loss of opportunity for price improvement caused by the proposed
changes.
The Exchange proposes to amend Interpretations and Policies .06 and
.07 of Rule 515A to provide that same treatment for interest subject to
a route timer as the Rules currently provide for managed interest.
Specifically, the Exchange proposes to amend Interpretation and Policy
.06 to provide that if trading interest exists on the Exchange's Book
that is subject to the managed interest process pursuant to Rule 515(c)
or a route timer pursuant to Rule 529 for the option on the opposite of
side of the market as the Agency Order and when the MBBO is equal to
the NBBO, the Agency Order will be automatically executed against the
managed interest or route timer interest if the execution would be at a
price equal to or better than the initiating price of the Agency Order.
If the Agency Order is not fully executed after the managed interest or
route timer interest is fully exhausted and is no longer at a price
equal to the initiating price of the Agency Order, the Auction will be
initiated for the balance of the order as provided in this rule. With
respect to any portion of an Agency Order that is automatically
executed against managed interest or route timer interest pursuant to
this paragraph .06, the exposure requirements contained in Rule 520(b)
and (c) will not be satisfied just because the member utilized the
PRIME. Trading interest subject to a route timer on the opposite side
of the market as the Agency Order pursuant to Rule 515(c) is posted at
one minimum trading increment away from the NBBO, but is available for
execution at the NBBO. In order to preserve the priority of trading
interest subject to a route timer against incoming RFR responses to the
Auction of the Agency Order, the System will execute the Agency Order
to the extent possible. The Exchange believes that this provision is
necessary to ensure that PRIME works seamlessly with the Exchange's
Book in a manner that would ensure a fair and orderly market by
maintaining priority of orders and quotes while still affording the
opportunity for price improvement on each Auction commenced on the
Exchange.
In addition, the Exchange proposes to amend Interpretation and
Policy .07 to provide that if trading interest exists on the Exchange's
Book that is subject to the managed interest process pursuant to Rule
515(c) or a route timer pursuant to Rule 529 for the option on the same
side of the market as the Agency Order, the Agency Order will be
rejected by the System prior to initiating an Auction or a Solicitation
Auction. The Exchange also proposes to provide that if trading interest
exists on the MIAX Book that is subject to the liquidity refresh pause
pursuant to Rule 515(c) for the option on the same side or opposite
side of the market as the Agency Order, the Agency Order will be
rejected by the System prior to initiating an Auction or a Solicitation
Auction. Trading interest subject to a liquidity refresh pause or a
route timer is posted at one minimum trading increment away from the
NBBO, but is available for execution at the NBBO. In order to preserve
the priority of trading interest subject to a liquidity refresh pause
or a route timer against incoming RFR responses to the Auction of the
Agency Order, the System will reject the Agency Order. The Exchange
believes that this provision is necessary to ensure that PRIME works
seamlessly with the Exchange's Book in a manner that would ensure a
fair and orderly market by maintaining priority of orders and quotes
while still affording the opportunity for price improvement on each
Auction commenced on the Exchange.
Finally, the Exchange proposes new Interpretation and Policy .09 to
provide that if the market is locked or crossed as defined in Rule 1402
for the option, the Agency Order will be rejected by the System prior
to initiating a PRIME Auction or a Solicitation Auction. The Exchange
believes that this provision is necessary to ensure that PRIME works
seamlessly with the national market system in a manner that would
ensure a fair and orderly market by maintaining priority of orders and
quotes while still affording the opportunity for price improvement on
each Auction commenced on the Exchange.
The Exchange also proposes a couple minor technical changes to the
Rules. The Exchange also proposes an updated comprehensive list of the
data that the Exchange represents that it will collect in order to aid
the Commission in its
[[Page 35837]]
evaluation of the PRIME that incorporates the changes proposed.\15\
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\15\ See Rule 515A, Interpretations and Policies .08; Exhibit 3.
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2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with Section 6(b) \16\ of the Act in general, and furthers the
objectives of Section 6(b)(5) \17\ of the Act in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, to remove impediments to and perfect the
mechanisms of a free and open market and a national market system and,
in general, to protect investors and the public interest.
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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
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The proposal to add the initiating price of the Auction and to use
the NBBO as a trigger to cause the early termination of an Auction is
designed to facilitate transactions, to remove impediments to and
perfect the mechanism of a free and open market by freeing up interest
in the Auction when conditions have changed that renders the initiating
order no longer marketable to the benefit of market participants. The
proposed enhancements to the Rules are designed to further ensure that
the Auctions will work seamlessly with the national market system in a
manner that would ensure a fair and orderly market by maintaining
priority of orders and quotes while still affording the opportunity for
price improvement on each Auction commenced on the Exchange. The
Exchange believes that by using the NBBO instead of the MBBO as a
reason for terminating an Auction early will improve the interaction
between the Auction and the national market system.
The proposal to provide similar treatment for interest subject to a
liquidity refresh pause and a route timer as the Rules currently
provide for managed interest is also designed to ensure that PRIME
works seamlessly with the Exchange's Book in a manner that would ensure
a fair and orderly market by maintaining priority of orders and quotes
while still affording the opportunity for price improvement on each
Auction commenced on the Exchange in a manner that also protects
investors and the public interest.
Finally, the proposal to reject Agency Orders if the market is
locked or crossed is designed to ensure that PRIME works seamlessly
with the national market system in a manner that would ensure a fair
and orderly market by maintaining priority of orders and quotes while
still affording the opportunity for price improvement on each Auction
commenced on the Exchange.
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. The PRIME Auction and
Solicitation Auction are designed to increase competition for order
flow on the Exchange in a manner intended to be beneficial to investors
seeking to effect option orders with an opportunity to access
additional liquidity and receive price improvement. The Exchange notes
that it operates in a highly competitive market in which market
participants can readily direct order flow to competing venues who
offer similar functionality. The Exchange believes that the proposed
changes to the Auctions are pro-competitive by providing market
participants with functionality that is similar to that of other
options exchanges. The Exchange notes that not having the PRIME Auction
and Solicitation Auction places the Exchange at a competitive
disadvantage versus other exchanges that offer similar price
improvement functionality.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to 19(b)(3)(A) of the Act \18\ and Rule 19b-4(f)(6) \19\
thereunder.
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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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 [email protected]. Please include
File Number SR-MIAX-2014-23 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-MIAX-2014-23. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only
[[Page 35838]]
information that you wish to make available publicly. All submissions
should refer to File Number SR-MIAX-2014-23 and should be submitted on
or before July 15, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-14693 Filed 6-23-14; 8:45 am]
BILLING CODE 8011-01-P