[Federal Register Volume 79, Number 153 (Friday, August 8, 2014)]
[Notices]
[Pages 46489-46490]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-18745]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72747; File No. SR-MIAX-2014-28]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Order Approving Proposed Rule Change To Amend Rule 515 To
Terminate the Liquidity Refresh Pause Early in Certain Situations
August 4, 2014.
I. Introduction
On June 5, 2014, Miami International Securities Exchange LLC
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend MIAX Rule 515. The
proposed rule change was published for comment in the Federal Register
on June 23, 2014.\3\ The Commission did not receive any comments on the
proposal. This order approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 72408 (June 17,
2014), 79 FR 35625.
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II. Description of the Proposal
The Liquidity Refresh Pause, set forth in MIAX Rule 515(c)(2),
provides an opportunity for additional orders or quotes to be received
where an incoming order (``initiating order'') exhausts a Market
Maker's quote that was all or part of the MIAX best bid or offer
(``MBBO'') when MIAX was alone at the national best bid or offer
(``NBBO'') and there are unexecuted contracts remaining from the
initiating order. Specifically, the Liquidity Refresh Pause is utilized
in instances where (a) either the initiating order is a limit order
that crosses the NBBO or the initiating order is a market order, and
the limit order or market order could only be partially executed; (b) a
Market Maker quote was all or part of the MBBO when the MBBO is alone
at the NBBO; and (c) the Market Maker quote was exhausted.\4\
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\4\ At the start of the Liquidity Refresh Pause, the system
broadcasts a ``liquidity refresh message'' to subscribers of the
Exchange's data feeds, providing a description of the option and the
size and side of the order and the exhausted MBBO price. During the
pause, the system displays the unexecuted remainder of the
initiating order at the original NBBO price (i.e., the exhausted
MBBO price) and MIAX's next bid or offer on the opposite side is
displayed as non-firm.
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The Exchange proposes to amend MIAX Rule 515(c)(2) in order to
address the case where, during the Liquidity Refresh Pause, an Away
Best Bid or Offer (``ABBO'') on the same side of the market as the
initiating order (a ``same-side ABBO'') crosses the original NBBO price
on the opposite side of the market. The proposed rule change would
provide that, in such a situation, the Liquidity Refresh Pause will be
terminated early and normal trading will resume. The Exchange states
that the proposed change is designed to codify existing functionality
during the liquidity refresh pause.\5\
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\5\ See Notice, supra note 3, at 35625.
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The following examples describe how a new revised same-side ABBO
that crosses the original NBBO on the opposite side of the market will
terminate the Liquidity Refresh Pause early.
[[Page 46490]]
Example 1: Same Side ABBO Terminates the Liquidity Refresh
Pause Early
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\6\ A ``PLMM'' is a MIAX Primary Lead Market Maker; an ``LMM''
is a MIAX Lead Market Maker; and an ``RMM'' is a MIAX Registered
Market Maker.
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Bid Ask
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ABBO.......................................... 1.00 (10) 1.14 (10)
MIAX Book: PLMM \6\........................... 1.00 (10) 1.10 (10)
LMM 1......................................... 1.00 (10) 1.12 (10)
LMM 2......................................... 1.00 (10) 1.15 (10)
RMM 1......................................... 1.00 (10) 1.16 (10)
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Order 1: Buy limit of 1.13 for 20 contacts with a price
protection instruction of 3 MPVs.\7\
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\7\ Executions of non-market maker orders on MIAX are subject to
the ``price protection'' provisions of Exchange Rule 515(c)(1).
Price protection prevents an order from being executed beyond the
price designated in the order's price protection instructions, which
are expressed in units of ``MPV'' away from the NBBO at the time of
the order's receipt, or the MBBO if the ABBO is crossing the MBBO.
(The MPV is the minimum price variation, or minimum increment, by
which bids and offers may be separated.) Market participants may
designate or disable price protection instructions on an order by
order basis. The default price protection is one MPV. When
triggered, price protection cancels an order or the remaining
contracts of an order.
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NBBO at time of Order 1's arrival = 1.00 (50) x 1.10
(10).
Order 1 is price protected at 1.13 (which is 1.10 + 3
MPV = 1.13).
Order 1 trades 10 contracts with PLMM @1.10.
Liquidity Refresh Pause is triggered because the MBO of
1.10 \8\ was alone at NBBO and PLMM's 1.10 offer was exhausted.
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\8\ ``MBO'' and ``MBB'' refer to the two components of the MBBO
separately. ``NBB'' and ``NBO'' and ``ABB'' and ``ABO'' and are the
equivalent conventions used for components of the ABBO and MBBO
separately.
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New MBBO = 1.10 (10) x 1.12 (10). \9\
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\9\ The remaining 10 contracts of Order 1 to buy are posted at
1.10 (the price at which the first 10 contracts were bought), which
becomes the new MBB. Note that the new MBO is displayed as non-firm.
See supra note 4.
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ABB updates to 1.12 for 10 contracts; ABBO = 1.12 (10)
x 1.14 (10).
Liquidity Refresh Pause is terminated early due to the
ABB crossing the original NBO of 1.10.
Because no responses to the Liquidity Refresh Pause
were received before it terminated early, Order 1 trades 10
contracts with LMM1 @1.12, after which Order 1 has been fully
executed.
New MBBO: 1.00 (40) x 1.15 (10). New NBBO: 1.12 (10) x
1.14 (10).
III. Discussion and Commission Findings
The Commission has carefully reviewed the proposed rule change and
finds that it is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
exchange.\10\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\11\ which
requires, among other things, that the rules of a national securities
exchange be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
The Commission believes that the proposal is reasonable in its
rationale that terminating the Liquidity Refresh Pause, when the ABBO
on the same side of the market as the initiating order crosses the
original NBBO price on the opposite side of the market, could allow
interest in the Liquidity Refresh Pause to execute, because a move of
this kind in the ABBO indicates that conditions may be changing so as
to render the initiating order and same side orders/quotes no longer
marketable. Terminating the Liquidity Refresh Pause early and
permitting normal trading to resume may thus provide an opportunity for
the broker routing the initiating order or any remainder thereof to
further pursue an execution, assuming that subsequent responses to the
Liquidity Refresh Pause would be unlikely when the ABBO moves in such a
manner, even if the pause were to run its full course.
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\10\ 15 U.S.C. 78f. In approving this proposed rule change, the
Commission has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
\11\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\12\ that the proposed rule change (SR-MIAX-2014-28), is approved.
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\12\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18745 Filed 8-7-14; 8:45 am]
BILLING CODE 8011-01-P