[Federal Register Volume 79, Number 223 (Wednesday, November 19, 2014)]
[Notices]
[Pages 68919-68922]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-27311]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73590; File No. SR-MIAX-2014-56]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Amend
Exchange Rule 515A
November 13, 2014.
Pursuant to 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 31, 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. On November 12, 2014, the Exchange filed Amendment No. 1 to
the proposed rule change.\3\ The Commission is publishing this notice
to solicit comments on the proposed rule change, as modified by
Amendment No. 1, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, MIAX deleted a sentence from purpose
section which incorrectly described the current functionality of the
Price Improvement Mechanism (``PIM'') offered by the International
Securities Exchange, LLC (``ISE''). See ISE Rule 723. Because the
sentence was immaterial to the filing, MIAX submitted Amendment No.
1 to delete it from the filing. MIAX did not propose any other
changes to the filing in Amendment No. 1.
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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 proposes to amend MIAX Rule 515A regarding PRIME to
allow orders of any size to initiate a PRIME Auction on MIAX at a price
which is at or better than the national best bid or offer (``NBBO'').
The proposed change is based on recent filings of other competing
exchanges.\4\
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\4\ See Securities Exchange Act Release Nos. 70654 (October 10,
2013), 78 FR 62891 (October 22, 2013) (SR-PHLX-2013-76); 72554 (July
8, 2014), 79 FR 40830 (July 14, 2014) (SR-ISE-2014-35).
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Rule 515A provides that a Member (the ``Initiating Member'') may
initiate an Auction provided that: (i) If the Agency Order is for 50
standard option contracts or 500 mini-option contracts or more, the
Initiating Member must stop the entire Agency Order as principal or
with a solicited order at the better of the NBBO or the Agency Order's
limit price (if the order is a limit order); or (ii) if the Agency
Order is for less than 50 standard option contracts or 500 mini-option
contracts, the Initiating Member must stop the entire Agency Order as
principal or with a solicited order at the better of (A) the NBBO price
improved by a $0.01 increment; or (B) the Agency Order's limit price
(if the order is a limit order).\5\ In addition, to initiate the
Auction for auto-match submissions, the Initiating Member must mark the
Agency Order for Auction processing, and for auto-match as principal
the price and size of all Auction responses up to an optional
designated limit price in which case the Agency Order will be stopped
at the better of the NBBO (if 50 standard option contracts or 500 mini-
option contracts or greater), $0.01 increment better than the NBBO (if
less than 50 standard option contracts or 500 mini-option contracts),
or the Agency Order's limit price.\6\
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\5\ See Exchange Rule 515A(a)(1).
\6\ See Exchange Rule 515A(a)(2)(i)(A).
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The Exchange proposes to discontinue the disparate treatment for
Agency Orders less than 50 contracts or 500 mini-option contracts. As a
result, all Agency Orders regardless of their size will be treated the
same as Agency Orders that are 50 standard option contracts or 500
mini-option contracts or more in current Rule 515A(a)(1)(ii).
Similarly, for auto-match submissions, the Exchange will discontinue
the requirement that Agency Orders for less
[[Page 68920]]
than 50 contracts or 500 mini-option contracts to be $0.01 increment or
better than the NBBO in current Rule 515A(a)(2)(i)(A). As a result, for
auto-match submissions, all Agency Orders regardless of their size will
be stopped at the better of the NBBO or the Agency Order's limit price.
The Exchange notes that the requirement will remain unchanged for both
single price submissions and auto-match that if the MBBO on the same
side of the market as the Agency Order represents a limit order on the
Book the stop price must be at least $0.01 increment better than the
booked order's limit price.\7\ The Exchange notes that orders on the
Book on the opposite side of the market as the Agency Order that are
priced at the MBBO when the Agency Order has a stop price equal to the
opposite order, will be executed in the same manner as today for orders
more than 50 contracts or 500 mini-option contracts in accordance to
the priority rules for PRIME in Rule 515A(a)(2)(iii). The Exchange
notes that other exchanges provide the same functionality.\8\ Priority
rules for PRIME will remain unchanged with Priority Customers
continuing to have priority at each price level in accordance with Rule
515A(a)(2)(iii). After Priority Customer interest at a given price
point has been satisfied, remaining contracts will be allocated in
accordance with the priority rules set forth in Rule 515A(a)(2)(iii).
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\7\ See Exchange Rule 515A(a)(2)(i)(A).
\8\ See PHLX Rule 1080(n); ISE Rule 723.
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The following examples show how allocations will be allocated at
the conclusion of the Prime Auction with the proposed changes.
Example 1--Single Price Submission
NBBO = $1.15-$1.20 200 x 200
BBO = $1.15-$1.20 100 x 100
Agency Order to buy 100 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 100 contracts with a
single stop price of $1.20
RFR sent identifying the option, side and size, with initiating
price of $1.20 \9\
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\9\ The Exchange notes that under the current Rule the
initiating price would have been $1.19.
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(Auction Starts)
@110 milliseconds MM1 response received, AOC eQuote to
Sell 5 at $1.17
@230 milliseconds MM4 response received, AOC eQuote to
Sell 100 at $1.20
@450 milliseconds MM3 response received, AOC eQuote to
Sell 40 at $1.22
500 milliseconds (Auction Ends)
Under this scenario the Agency Order would be executed as follows:
1. 5 contracts trade with MM1 @$1.17
2. 40 contracts trade with the Initiating Member's Contra Order
@$1.20 (This satisfies their 40% participation guarantee)
3. 55 contracts trade with MM4 @$1.20
Example 2--Single Price Submission, Less Than 50 Contracts
NBBO = $1.15-$1.20 200 x 200
BBO = $1.15-$1.20 100 x 100
Agency Order to buy 30 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 30 contracts with a single
stop price of $1.20
RFR sent identifying the option, side and size, with initiating
price of $1.20 \10\
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\10\ The Exchange notes that under the current Rule the
initiating price would have been $1.24.
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(Auction Starts)
@110 milliseconds MM1 response received, AOC eQuote to
Sell 5 at $1.17
@230 milliseconds MM4 response received, AOC eQuote to
Sell 5 at $1.18
@450 milliseconds MM3 response received, AOC eQuote to
Sell 10 at $1.20
500 milliseconds (Auction Ends)
Under this scenario the Agency Order would be executed as follows:
1. 5 contracts trade with MM1 @$1.17
2. 5 contracts trade with MM4 @$1.18
3. 12 contracts trade with the Initiating Member's Contra Order
@$1.20 (This satisfies their 40% participation guarantee)
4. 8 contracts trade with MM3 @$1.20 (This fills the entire Agency
Order)
Example 3--Auto-Match
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 $1.25
Initiating Member's Contra Order selling 50 contracts auto-match
RFR sent identifying the option, side and size, with initiating price
of $1.25 (Auction Starts)
@ 150 milliseconds MM2 response received, AOC eQuote to
Sell 5 at $1.17
@ 230 milliseconds MM4 response received, AOC eQuote to
Sell 10 at $1.18
@ 450 milliseconds MM3 response received, AOC eQuote to
Sell 40 at $1.20
500 milliseconds (Auction Ends)
Under this scenario the Agency Order would be executed as follows:
1. 5 contracts trade with MM2 @ $1.17
2. 5 contracts trade with Contra Order @ $1.17 (due to auto-match)
3. 10 contracts trade with MM4 @ $1.18
4. 10 contracts trade with Contra Order @ $1.18 (due to auto-match)
5. 8 contracts trade with Contra Order @ $1.20 (due to auto-match
of 40% of the remainder of the order participation guarantee)
6. 12 contracts trade with MM3 @ $1.20 (This fills the entire
Agency Order)
Example 4--Auto-Match, Agency Order Entered Without a Limit Price, Less
Than 50 Contracts
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Agency Order to buy 50 contracts without a limit price
Initiating Member's Contra Order selling 30 contracts auto-match
RFR sent identifying the option, side and size, with initiating price
of $1.25 (Auction Starts)
@ 150 milliseconds MM2 response received, AOC eQuote to
Sell 5 at $1.17
@ 230 milliseconds MM4 response received, AOC eQuote to
Sell 5 at $1.18
@ 450 milliseconds MM3 response received, AOC eQuote to
Sell 30 at $1.20
500 milliseconds (Auction Ends)
Under this scenario the Agency Order would be executed as follows:
1. 5 contracts trade with MM2 @ $1.17
2. 5 contracts trade with Contra Order @ $1.17 (due to auto-match)
3. 5 contracts trade with MM4 @ $1.18
4. 5 contracts trade with Contra Order @ $1.18 (due to auto-match)
5. 4 contracts trade with Contra Order @ $1.20 (due to auto-match
of 40% of the remainder of the order participation guarantee)
6. 6 contracts trade with MM3 @ $1.20 (This fills the entire Agency
Order)
While the removal of the requirement that Agency Orders for less
than 50 contracts or 500 mini-option contracts to be $0.01 increment or
better than the NBBO, removes the guarantee of price improvement in a
limited instance, specifically when a PRIME Order is for fewer than 50
contracts and MIAX is already present at the NBBO at the commencement
of the Auction, the Exchange believes that the proposed rule change
will benefit customers because it will encourage the entry of more
orders into PRIME, thus it is more likely that such orders may receive
price improvement. Similar price improvement mechanisms on the ISE,
BOX, and PHLX do not guarantee price improvement over the NBBO today.
The BOX PIP mechanism and PHLX PIXL allow orders of any size to be
stopped at the NBBO or better which also does not guarantee price
improvement.\11\ As
[[Page 68921]]
noted above, the requirement will remain unchanged for both single
price submissions and auto-match that if the MBBO on the same side of
the market as the Agency Order represents a limit order on the Book the
stop price must be at least $0.01 increment better than the booked
order's limit price.\12\
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\11\ See Securities Exchange Act Release No. 70654 (October 10,
2013), 78 FR 62891 (October 22, 2013) (SR-PHLX-2013-76).
\12\ See Exchange Rule 515A(a)(2)(1)(A)[sic]. See also PHLX Rule
1080(n).
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The Exchange believes using the same exact allocation method, as it
does today for Agency Orders of 50 contracts or 500 mini-options or
greater, is a fair distribution because the Contra-side Order provides
significant value to the market. The Initiating Member guarantees the
Agency Order the opportunity for price improvement, and is subject to
market risk while the order is exposed to other market participants.
The Initiating Member may not change or cancel its order once the PRIME
Auction commences. Other market participants are free to modify or
cancel their quotes and orders at any time during the auction. The
Exchange believes that the Initiating Member provides an important role
in facilitating the price improvement opportunity for market
participants.
The Exchange believes the proposed rule change will attract new
order flow that might not currently be afforded any price improvement
opportunity. Moreover, the Exchange notes that other competing options
exchanges currently have rules that allow it [sic] to commence its
[sic] price improvement auction, at a price equal to the NBBO.\13\
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\13\ See BOX Rules Chapter V, Section 18(e); PHLX Rule 1080(n);
ISE Rule 723.
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The Exchange believes that because there is no rational need for
volume differentiation, and as there is a competitive disadvantage to
the Exchange in continuing differentiation, it is appropriate to
discontinue the requirement that Agency Orders for less than 50
contracts or 500 mini-option contracts to be $0.01 increment or better
than the NBBO and thereby simplify the way PRIME operates.
The Exchange proposes to adopt the proposed changes to the size
requirements subject to a Pilot Program ending July 18, 2015, pursuant
to which the Exchange will periodically submit reports based on the
comprehensive list of the data that the Exchange represented that it
will collect in order to aid the Commission in its evaluation of the
PRIME that incorporates the changes proposed.\14\
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\14\ See Proposed Rule 515A, Interpretations and Policies .08. A
comprehensive list of the data that the Exchange represented that it
will collect is available in Exhibit 3 of SR-MIAX-2014-23. See also
Securities Exchange Act Release Nos. 72009 (April 23, 2014), 79 FR
24032 (April 29, 2014) (SR-MIAX-2014-20); 72418 (June 18, 2014), 79
FR 35833 (June 24, 2014) (SR-MIAX-2014-23).
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2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with Section 6(b) \15\ of the Act in general, and furthers the
objectives of Section 6(b)(5) \16\ 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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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
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Specifically, the Exchange believes the proposal will result in
more orders of less than 50 contracts being executed in PRIME, thus
providing an increased probability of price improvement for small
orders. By removing the requirement as proposed, market participants
would be incentivized to introduce more customer orders to PRIME for
the opportunity to receive price improvement. Furthermore, Priority
Customers will continue to have priority at each price level in
accordance with Rule 515A(a)(2)(iii). In particular, the Exchange
believes that using the same allocation process as is used today for
Agency Orders of 50 contracts or greater, is fair and equitable because
of the value the Initiating Member brings to the market place.
Specifically, by stopping the Agency Order at or better than the NBBO,
the Initiating Member facilitates a process that protects investors and
is in the public interest by providing an opportunity for price
improvement. The Exchange believes the proposed rule change is
appropriate in the price improvement auctions are widely recognized by
market participants as invaluable, both as a tool to access liquidity,
and a mechanism to help meet their best execution obligations. The
proposed rule change will further the ability of market participants to
carry out these strategies. Finally, as noted above, the proposed
changes are a competitive response to how price improvement auctions on
other exchanges currently operate and with this proposal, the Exchange
will be on a more equal footing to compete with other exchanges for
orders to be executed in the PRIME.
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 Exchange's proposal to
amend its rules regarding the start price of a PRIME Auction will not
impose a burden on competition because it will increase the number of
orders that may be executed in the PRIME and thereby receive price
improvement opportunities that were not previously available to them.
The PRIME Auction is 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.
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 \17\ and Rule 19b-4(f)(6) \18\
thereunder.
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 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
[[Page 68922]]
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, as modified by Amendment No. 1, 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-2014-56 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-2014-56. 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 information that you wish to make available publicly. All
submissions should refer to File Number SR-MIAX-2014-56 and should be
submitted on or before December 10, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-27311 Filed 11-18-14; 8:45 am]
BILLING CODE 8011-01-P