[Federal Register Volume 81, Number 25 (Monday, February 8, 2016)]
[Notices]
[Pages 6562-6565]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-02334]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77034; File No. SR-MIAX-2016-03]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Exchange Rules 503 and 515
February 2, 2016.
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 January 20, 2016, 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 and II 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 Rules 503,
Openings on the Exchange, and 515, Execution of Orders and Quotes.
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.
[[Page 6563]]
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 purpose of the proposal is to adopt new rule text and provide
additional clarity to MIAX participants regarding the manner in which
non-routable, or Do Not Route (``DNR''),\3\ orders that are not
executed during the opening on the Exchange are handled.
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\3\ A Do Not Route or ``DNR'' order is an order that will never
be routed outside of the Exchange regardless of the prices displayed
by away markets. A DNR order may execute on the Exchange at a price
equal to or better than, but not inferior to, the best away market
price but, if that best away market remains, the DNR order will be
handled in accordance with the managed interest process described in
Rule 515(c)(1)(ii). See Exchange Rule 516(g).
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First, the Exchange proposes to amend Rule 503(f), Opening Process,
to clarify the process that occurs when (i) the MIAX System \4\ has
completed the opening imbalance process and there are unexecuted
contracts remaining following an opening transaction, or (ii) if there
is no opening transaction and the Exchange opens by disseminating the
Exchange's best bid and offer among quotes and orders that exist in the
System at that time as described in current Rule 503(f)(1).\5\ In the
latter situation, non-routable orders then in the System that cross the
Away Best Bid or Offer (``ABBO'') will be cancelled and are not
included in the Managed Interest Process, as described in proposed Rule
515(c)(1)(ii)(B).
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\4\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\5\ If there are no quotes or orders that lock or cross each
other, the System will open by disseminating the Exchange's best bid
and offer among quotes and orders that exist in the System at that
time. See Exchange Rule 503(f)(1).
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Additionally, the Exchange proposes to amend current Exchange Rule
515(c)(1)(ii) to explicitly state that, when the MIAX System opens
without an opening transaction, and instead opens by disseminating the
Exchange's best bid and offer among quotes and orders that exist in the
System at that time as described in Rule 503(f)(1), non-routable orders
then in the System that cross the ABBO will be cancelled and are not
included in the Managed Interest Process described below.
DNR Orders at the Opening
Exchange Rule 503(f) describes the Opening Process on the Exchange,
in which the System goes through a number of processes seeking an
opening price at which the greatest number of contracts will trade. The
Opening Process also includes the routing of orders to away markets in
situations where the Exchange cannot execute all contracts at its
opening price.\6\ If the System opens with an opening transaction after
conducting the Imbalance Process as set forth in Exchange Rule
503(f)(2)(vii), any unexecuted contracts from the imbalance not traded
or routed will be cancelled back to the entering Member if the price
for those contracts crosses the opening price, unless the Member that
submitted the original order has instructed the Exchange in writing to
re-enter the remaining size, in which case the remaining size will be
automatically submitted as a new order.\7\
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\6\ See Exchange Rule 503(f)(2)(vii)(B).
\7\ Id.
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If, however, there is no opening transaction and instead the
Exchange opens by disseminating the Exchange's best bid and offer among
quotes and orders that exist in the System at that time,\8\ non-
routable orders then in the System that cross the ABBO will be
cancelled and therefore, because they are cancelled, are not included
in the Managed Interest Process.
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\8\ See supra note 5.
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Currently, the System executes orders at the opening that have
contingencies, including non-routable orders (DNR Orders) to the extent
possible. Non-routable orders are handled after the opening in
accordance with Rule 515.\9\ Specifically, such orders are submitted
into the Managed Interest Process, as described below, except when the
Exchange opens by disseminating quotations rather than executing
contracts. In this limited circumstance, non-routable orders (DNR
Orders) that cross the ABBO are not submitted to the Managed Interest
Process, and instead are cancelled.
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\9\ The System will execute orders at the opening that have
contingencies and nonroutable orders, such as a ``Do Not Route'' or
``DNR'' Orders to the extent possible. DNR orders together with
other nonroutable orders will be handled after the opening in
accordance with Rule 515. See Exchange Rule 503(f)(2)(vii)(B)(6).
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Managed Interest Process
The proposed amendment to Exchange Rule 515(c)(1)(ii) is intended
to codify existing functionality concerning the Exchange's Managed
Interest Process. The Managed Interest Process is a process for non-
routable orders during which, if the limit price locks or crosses the
current opposite side National Best Bid or Offer (``NBBO''), the System
will display the order one Minimum Price Variation (``MPV'') away from
the current opposite side NBBO, and book the order at an undisplayed
price that locks the current opposite side NBBO. Should the NBBO price
change to an inferior price level, the order's undisplayed price will
re-price to lock the new NBBO and the managed order's displayed price
will continue to re-price one MPV away from the new NBBO until (i) the
order has traded to and including its limit price, (ii) the order has
traded to and including its price protection limit at which any
remaining contracts are cancelled, (iii) the order is fully executed or
(iv) the order is cancelled.\10\
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\10\ See Exchange Rule 515(c)(1)(ii).
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The Proposal
The proposed rule change to Exchange Rule 503 concerning the
Opening Process is related to the Managed Interest Process in Exchange
Rule 515 because non-routable orders that are not executed at the
opening under certain circumstances are not included in the Managed
Interest Process and are instead cancelled by the System. Specifically,
the proposed rule change to Exchange Rule 503(f)(1) is intended to
clarify that, when the Exchange opens by disseminating quotations
rather than executing contracts after the Opening Process, non-routable
orders then in the System that cross the ABBO will be cancelled and are
not included in the Managed Interest Process, as described in Rule
515(c)(1)(ii)(B).
Proposed Rule 503(f)(2)(vii)(B)5 [sic] would add language to
existing rule text to state clearly in the Exchange's rules that the
rule applies when there is an opening transaction. Specifically, if
there is an opening transaction, any unexecuted contracts from the
imbalance not traded or routed will be cancelled back to the entering
Member if the price for those contracts crosses the opening price,
unless the Member that submitted the original order has instructed the
Exchange in writing to re-enter the remaining size, in which case
[[Page 6564]]
the remaining size will be automatically submitted as a new order.
Consistent with the proposed change to Exchange Rule 503(f)(1),
proposed Rule 515(c)(1)(ii)(B) would state specifically that, when the
System opens without an opening transaction, and instead opens by
disseminating the Exchange's best bid and offer among quotes and orders
that exist in the System at that time as described in Rule 503(f)(1),
non-routable orders then in the System that cross the ABBO will be
cancelled and are not included in the Managed Interest Process. This
proposed amendment addresses any perceived discrepancy between the rule
text description of how this process works and how it is actually
working in production, and provides consistency in the Exchange's rules
concerning the Opening Process and how that relates to the Managed
Interest Process.
The Exchange believes that the codification of the cancellation of
non-routable orders that cross the ABBO when the System opens without
an opening transaction and instead opens by disseminating the
Exchange's best bid and offer among quotes and orders that exist in the
System at that time, reflects the Exchange's intention to further
protect investors that elect to submit non-routable orders. This
existing functionality is intended to enable participants that submit
non-routable orders that have been handled during the opening but not
executed to make informed decisions about such orders based upon
transparent market conditions (i.e., the ability to ascertain the
current prices on all markets) following the opening. Such participants
are able then to determine whether to re-submit their orders (with or
without a DNR designation) and whether to establish a different limit
price based on then-current market conditions. The Exchange believes
that the precise description of this existing functionality should be
included in the Exchange's rules in order to inform participants that
submit non-routable orders that there are additional opportunities to
re-determine and possibly modify the routing status and limit price of
their orders. The proposed rule change should assist participants in
making decisions concerning such opportunities by clarifying the
relationship between the Exchange's Opening Process and when non-
routable orders not executed when the Exchange opens by disseminating
its best bid and offer are not included in the Managed Interest
Process.
2. Statutory Basis
MIAX believes that its proposed rule change is consistent with
Section 6(b) of the Act \11\ in general, and furthers the objectives of
Section 6(b)(5) of the Act \12\ 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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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
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The existing functionality concerning the Opening Process and the
description of the circumstances where non-routable orders that are
handled during the Opening Process are not included in the Managed
Interest Process because they are cancelled. This functionality and
proposed codification of it as described herein removes impediments to
and perfects the mechanisms of a free and open market and a national
market system and, in general, protects investors and the public
interest, by giving participants that submit non-routable orders that
are not executed at the opening an opportunity to make decisions
concerning their orders based upon then-current market conditions,
which were unknown at the time they submitted their orders. Routable
orders that cross away markets are sent to such away markets for
execution when the Exchange cannot execute at the opening; non-routable
orders that cross away markets are not. Absent an execution, the
Exchange believes that participants that submitted non-routable orders
that are handled but not executed during the opening process should
have the opportunity to make further decisions regarding such orders
based upon current market conditions, and thus the System cancels such
orders and reports this to the affected participants. This benefits not
only MIAX participants but benefits the marketplace as a whole.
The inclusion of the functionality of the System in the rules
promotes transparency and clarity in the Exchange's rules. The
transparency and accuracy resulting from the codification of this
functionality is consistent with the Act because it removes impediments
to and perfects the mechanism of a free and open market and a national
market system, and, in general, protects investors and the public
interest, by accurately describing the steps taken by the System in the
limited scenario when the Exchange opens by disseminating quotations
rather than executing contracts after the Opening Process, and non-
routable orders cross the NBBO.
MIAX participants should have a better understanding of the
Exchange's Managed Interest Process in this limited circumstance. The
codification and clarification of the System's functionality is
designed to promote just and equitable principles of trade by providing
a clear and objective description to all participants of how opening
non-routable orders will be handled, and should assist investors in
making decisions concerning their non-routable orders.
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 that is 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.
In addition, the Exchange does not believe the proposal will impose any
burden on inter-market competition as the proposal is intended to
protect investors by providing further transparency regarding the
Exchange's Managed Interest Process in the limited scenario described
above.
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 Section 19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6)
\14\ thereunder.
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of 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.
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[[Page 6565]]
A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \15\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \16\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay. The
Exchange states that waiver of the operative delay would enable market
participants to benefit from the clarifying language regarding how the
Managed Interest Process operates without undue delay. For this reason,
the Commission believes that waiver of the 30-day operative delay is
consistent with the protection of investors and the public interest.
Therefore, the Commission hereby waives the operative delay and
designates the proposed rule change operative upon filing.\17\
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\15\ 17 CFR 240.19b-4(f)(6).
\16\ 17 CFR 240.19b-4(f)(6)(iii).
\17\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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-2016-03 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-2016-03. 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-2016-03 and should be
submitted on or before February 29, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-02334 Filed 2-5-16; 8:45 am]
BILLING CODE 8011-01-P