[Federal Register Volume 79, Number 213 (Tuesday, November 4, 2014)]
[Notices]
[Pages 65445-65447]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-26124]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73463; File No. SR-MIAX-2014-54]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Add Exchange Rule 531, Trade Nullification and
Price Adjustment Procedure
October 29, 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 October 20, 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 the
Substance of the Proposed Rule Change
The Exchange is filing a proposal to add Rule 531, Trade
Nullification and Price Adjustment Procedure.
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 proposes to add Rule 531, Trade Nullification and
Price Adjustment Procedure.\3\ As proposed, Rule 531 will allow for
transactions to be nullified if both parties to the transaction agree
to the nullification and allow the price of transaction [sic] and
authorized by the Exchange.\4\ The proposal is based upon a recent
filing of another options exchange.\5\
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\3\ The Exchange notes that this proposal is only intended to be
effective until the joint efforts by the exchanges to create uniform
trade nullification and adjustment rules are approved and in effect.
Once the uniform rule has been approved and is effective, the
Exchange will amend its rules appropriately.
\4\ The Exchange notes that, as proposed, Rule 6.19 [sic] will
only apply to trades that were executed on the Exchange and, as
such, any orders that were either fully or partially routed to, or
executed, on another Exchange will not be subject to the Proposed
Rule 531.
\5\ See Securities Exchange Act Release No. 72970 (September 3,
2014), 79 FR 53498 (September 9, 2014) (SR-CBOE-2014-066).
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The Exchange proposes to add Rule 531, ``Trade Nullification and
Price Adjustment Procedure,'' which would: (a) Allow for any trades on
the Exchange
[[Page 65446]]
to be nullified if both parties to the trade agree to such
nullification, and (b) allow for prices of executions to be adjusted if
the price adjustment is agreed upon by both parties of the trade and
authorized by the Exchange.\6\
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\6\ See supra note 4.
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The Exchange is also proposing to add a provision to allow Members
to mutually agree to adjust a price of an execution. The Exchange
believes this provision is necessary given the benefits of adjusting a
trade price rather than nullifying the trade completely. Because
options trades are used to hedge transactions in other markets,
including securities and futures, many Members, and their customers,
would rather adjust prices of executions rather than nullify the
transactions and, thus, lose a hedge altogether. As such, the Exchange
believes it is in the best interest of investors to allow for price
adjustments as well as nullifications. In addition, the Exchange
believes it is in the nature of a fair and orderly market to allow for
price adjustments rather than only cancellations because an adjustment
will result in the least amount of disruption to the overall market.
The Exchange also notes that current Exchange Rules allow for prices of
trades to be adjusted at the consent of both parties if such
transactions are within the current obvious error provisions.\7\ The
Exchange is now proposing to merely allow this practice for any trade.
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\7\ The Exchange notes that no changes are being proposed to the
procedures for nullification or adjustment of a trade by mutual
agreement in the Exchange's obvious error rules. See MIAX Rule
521(c)(3). MIAX Rule 521(c)(3) provides that the ``determination as
to whether a trade was automatically executed at an erroneous price
may be made by mutual agreement of the affected parties to a
particular transaction within the time periods specified in
subparagraphs (e)(1) or (2) [of Rule 531 [sic]] below. A trade may
be nullified or adjusted on the terms that all parties to a
particular transaction agree. In the absence of mutual agreement by
the parties, a particular trade may only be nullified or adjusted
when the transaction results from an Obvious Error as provided in
this Rule.'' With the effectiveness of Proposed Rule 531, members
will have two options to choose from in order to have the their
trades nullified or adjusted by mutual agreement: (i) request under
the procedures of MIAX Rule 521(c)(3) including the timeframes in
Rule 521(e)(1), (2); or (ii) request under the procedures of
Proposed Rule 531 which requires the authorization of the Exchange
prior to the nullification or adjustment. The Exchange believes both
provisions are complimentary [sic] in that they provide protections
in different situations under procedures that are correspondingly
appropriate based on the situation in which a nullification or an
adjustment is requested.
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As proposed, Rule 531 expressly states that trades may be subject
to nullification or price adjustment only if such trades are authorized
by the Exchange. As part of the authorization process, in the case of a
mutual nullification or mutual price adjustment, the Exchange will only
authorize if the Exchange received verification from both parties to
the trade that a mutual agreement has been made. In addition, prior to
an authorization for a mutual price adjustment, the Exchange will
ensure the agreed upon price would have been permissible and in
compliance with all Exchange and Securities and Exchange Commission
Rules, as amended, at the time the original transaction was
executed.\8\ Finally, the proposed rule will state that the format and
information required by the Exchange for this submission will be
released by the Exchange via Regulatory Circular. As such, prior to
Rule 531 becoming operative, the Exchange will provide Members with
specific requirements via an Exchange Regulatory Circular. The circular
will, among other things, state specific timeframes required for
requests and the format in which the requests will be accepted by the
Exchange.
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\8\ For example, the Exchange would ensure that the mutually
agreed upon price would not have traded through resting interest at
the time of the initial execution.
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To conclude, the Exchange believes that the proposed changes are in
furtherance of the Act because the proposed Rule 531 will allow Members
to agree to nullify transactions or adjust prices of transactions to
maintain a fair and orderly market. As stated above, the Exchange
intends to release a Regulatory Circular to announce the implementation
of the Rule and other specifics surrounding the procedures of the
implementation. In addition, prior to implementation, the Exchange will
ensure it has proper policies and procedures in place to correctly
administer the Rule.
2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with Section 6(b) \9\ of the Act in general, and furthers the
objectives of Section 6(b)(5) \10\ 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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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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More specifically, the Exchange believes that the proposed changes
are consistent with the Act as they are designed to promote just and
equitable principles and protect investors and the public interest.
Because options trades are used to hedge transactions in other markets,
including securities and futures, many market participants would rather
adjust prices of executions rather than nullify the transactions and,
thus, lose a hedge altogether. As such, the Exchange believes it is in
the best interest of investors to allow for price adjustments as well
as nullifications. In addition, the Exchange believes it is in the
nature of a fair and orderly market to allow for price adjustments
rather than only cancellations because an adjustment will result in the
least amount of disruption to the overall market. Finally, the Exchange
does not believe that the proposed changes are unfairly discriminatory
because they will be applied to all Members equally.
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. In fact, the Exchange believes
that the proposed rule change will foster competition as it will allow
for less overall disruption to the market and encourage participation
on the Exchange.
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 \11\ and Rule 19b-4(f)(6) \12\
thereunder.
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 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
[[Page 65447]]
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-2014-54 on the subject line.
Paper Comments:
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-MIAX-2014-54. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-MIAX-2014-54, and should be
submitted on or before November 25, 2014.
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. 2014-26124 Filed 11-3-14; 8:45 am]
BILLING CODE 8011-01-P