[Federal Register Volume 83, Number 131 (Monday, July 9, 2018)]
[Notices]
[Pages 31812-31816]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14545]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83577; File No. SR-MIAX-2018-13]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Exchange Rule 602, Appointment of Market
Makers
July 2, 2018.
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 June 26, 2018, Miami International Securities Exchange, LLC (``MIAX
Options'' or the ``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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend Rule 602, Appointment of
Market Makers, to specify the new method by which Lead Market Makers
\3\ (``LMMs'') and Registered Market Makers \4\ (``RMMs'') request
appointments to one or more classes of option contracts traded on the
Exchange.
---------------------------------------------------------------------------
\3\ The term ``Lead Market Maker'' means a Member registered
with the Exchange for the purpose of making markets in securities
traded on the Exchange and that is vested with the rights and
responsibilities specified in Chapter VI of the Exchange's Rules
with respect to Lead Market Makers. See Exchange Rule 100.
\4\ The term ``Registered Market Maker'' means a Member
registered with the Exchange for the purpose of making markets in
securities traded on the Exchange, who is not a Lead Market Maker
and is vested with the rights and responsibilities specified in
Chapter VI of the Exchange's Rules with respect to Registered Market
Makers. See Exchange Rule 100.
---------------------------------------------------------------------------
[[Page 31813]]
The text of the proposed rule change is available on the Exchange's
website at http://www.miaxoptions.com/rule-filings/ at MIAX Options'
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 Options Rule 602, Appointment
of Market Makers, to specify the new method by which LMMs and RMMs
would request appointments to (and relinquishment of appointments from)
one or more classes of option contracts traded on the Exchange pursuant
to Rule 602(a). The Exchange believes this proposal would improve the
efficiency of the appointment process for both the Exchange and for
these types of Market Makers.\5\ Other option exchanges also specify a
method which governs the appointment of market makers to classes of
option contracts traded on the exchange, however, these methods, while
generally automated, differ somewhat across exchanges.\6\
---------------------------------------------------------------------------
\5\ The term ``Market Makers'' refers to ``Lead Market Makers,''
``Primary Lead Market Makers'' and ``Registered Market Makers''
collectively. See Exchange Rule 100.
\6\ See, e.g.., Cboe BZX Exchange, Inc. (``Cboe BZX'') Rules
22.3(a),(b) (Market Maker Registration); see also Nasdaq PHLX, LLC
(``Nasdaq Phlx'') Rule 3212(b) (Registration as a Market Maker);
Nasdaq Options Market (``NOM''), Chapter VII (Market Participants),
Section 3(a),(b) (Continuing Market Maker Registration); NYSE
American, LLC (``NYSE American''), Rule 923NY (Appointment of Market
Makers).
---------------------------------------------------------------------------
Once a Member \7\ has qualified as either an LMM or an RMM, such
Market Maker may request an appointment (or, following an appointment,
relinquishment from an appointment) in one or more option classes
pursuant to Rule 602. Currently, an LMM or RMM may request such an
appointment by contacting Exchange staff, either by phone or via email,
identifying those classes of option contracts in which the Market Maker
is seeking an appointment. A Primary Lead Market Maker (``PLMM''),\8\
however, goes through a different, more extensive appointment process.
Accordingly, the Exchange intentionally excluded PLMMs from this
proposal. The Exchange believes it is appropriate to exclude PLMMs from
this new appointment method because the Board or designated committee
appoints only one PLMM to each options class traded on the Exchange, as
opposed to the multiple number of LMMs and RMMs, and because of the
heightened obligations associated with performing the responsibilities
of a PLMM.\9\ Because of the heightened responsibilities of PLMMs, the
Exchange believes that it is appropriate to have a different method for
PLMMs on the one hand, and LMMs and RMMs on the other hand, with
respect to the method by which appointments (and relinquishments of
appointments) are requested.
---------------------------------------------------------------------------
\7\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100.
\8\ A ``Primary Lead Market Maker'' is a Lead Market Maker
appointment by the Exchange to act as the Primary Lead Market Maker
for the purpose of making markets in securities traded on the
Exchange. The Primary Lead Market Maker is vested with the rights
and responsibilities specified in Chapter VI of these Rules with
respect to Primary Lead Market Makers. See Exchange Rule 100.
\9\ See, for example, Exchange Rules 603 and 604 for certain
heightened obligations of PLMMs.
---------------------------------------------------------------------------
According to the Exchange's current practice, with respect to LMMs
and RMMs, after the LMM or RMM contacts Exchange staff either by phone
or via email, the Exchange staff then delivers that request to the
Board or a committee designated by the Board for its approval. Upon the
decision of the Board or committee designated by the Board regarding
that appointment, Exchange staff then notifies the Market Maker of the
determination, with such notification being made the next business day.
The Exchange notes that it is not proposing to make any changes to
timing of the notification, which will continue to be made the next
business day.
Specifically, Rule 602(a) provides that ``[t]he Board or a
committee designated by the Board shall appoint Market Makers to one or
more classes of option contracts traded on the Exchange.'' \10\ In
addition to having the authority to appoint one PLMM to each options
class, ``[t]he Exchange will impose an upper limit on the aggregate
number of Market Makers that may quote in each class of options
(``Class Quoting Limit'' or ``CQL'').'' Currently, the CQL is set at
fifty (50) Market Makers per option class but the Exchange may
``increase the CQL for an existing or new option class if the President
determines that it would be appropriate.'' \11\ Further, Rule 602(c)(2)
provides that ``Market Makers requesting an appointment in a class of
options will be considered for the appointment in accordance with
paragraphs (a), (b) and (f) of this Rule 602, provided the number of
Market Makers appointed in the options class does not exceed the CQL.''
---------------------------------------------------------------------------
\10\ See Rule 602(a).
\11\ See Rule 602(c).
---------------------------------------------------------------------------
In making appointments of Market Makers to one or more classes of
option contracts traded on the Exchange, the Board or designated
committee shall consider the financial resources available to the
Market Maker; the Market Maker's experience and expertise in market
making or options trading; the preferences of the Market Maker to
receive appointment(s) in specific option class(es); and the
maintenance and enhancement of competition among Market Makers in each
class of option contracts to which they are appointed.\12\ Rule
602(c)(2) also states that, when the number of Market Makers appointed
in the options class equals the CQL, all other Market Makers requesting
to be appointed in that options class will be wait-listed in the order
in which they submitted their request.\13\
---------------------------------------------------------------------------
\12\ See Rule 602(a).
\13\ See Rule 602(c)(2).
---------------------------------------------------------------------------
Under the current Rule, ``[t]he Board or designated committee may
suspend or terminate any appointment of a Market Maker under this Rule
[602] and may make additional appointments or change the option classes
included in a Market Maker's appointed classes whenever, in the Board's
or designated committee's judgment, the interests of a fair and orderly
market are best served by such action.'' \14\ Moreover, the Exchange
``shall periodically conduct an evaluation of Market Makers to
determine whether they have fulfilled performance standards relating
to, among other things, quality of markets, competition among Market
Makers, observance of ethical standards, and administrative factors.
The Exchange may consider any relevant information, including but not
limited to the results of a Market Maker evaluation questionnaire,
trading data, a Market Maker's regulatory history and such other
factors and data as may be
[[Page 31814]]
pertinent in the circumstances.'' \15\ If the Exchange finds that a
Market Maker has not met the performance standards, the Exchange may
take action, including suspending, terminating or restricting a Market
Maker's appointment or registration.\16\
---------------------------------------------------------------------------
\14\ See Rule 602(e).
\15\ See Rule 602(f).
\16\ See id.
---------------------------------------------------------------------------
The Exchange proposes to amend MIAX Options Rule 602 solely to
specify the new method by which LMMs and RMMs would request
appointments to (or relinquishment of appointments from) one or more
classes of option contracts traded on the Exchange pursuant to Rule
602(a). In particular, the Exchange proposes to adopt Interpretations &
Policies .02 to Rule 602 to provide that, ``Lead Market Makers and
Registered Market Makers shall request appointments to (and
relinquishment of appointments from) one or more classes of option
contracts traded on the Exchange pursuant to Rule 602(a) via an
Exchange approved electronic interface, which request must be submitted
prior to 6:00 p.m. Eastern Time of the business day immediately
preceding the next trading day. The Exchange approved electronic
interface will also ensure that, before any appointment request (or
relinquishment of an appointment) is approved, the CQL established by
Rule 602 has not been exceeded. Appointments (and relinquishments of
appointments) shall become effective on the day after the request is
submitted, provided that it has been approved. Approvals and denials of
appointments (and relinquishment of appointments) shall be communicated
by the Exchange via the same Exchange approved electronic interface
through which the request was made.''
The Exchange believes that requiring LMMs and RMMs to use an
Exchange approved electronic interface to request appointments to one
or more classes of option contracts would enable LMMs and RMMs to
streamline the process by which they request appointments (and
relinquishment of appointments) and get notified of approvals or
denials related to such requests, which, in turn, would reduce the time
and resources expended by such Market Makers and the Exchange on the
appointment process.
The Exchange also believes this proposal would provide LMMs and
RMMs with more efficient access to the securities in which they want to
make markets and disseminate competitive quotations, which would
provide additional liquidity and enhance competition in those
securities. The Exchange would retain the ability to suspend or
terminate any appointment of a Market Maker if necessary to maintain a
fair and orderly market.\17\ The Exchange also notes that the proposed
changes to Rule 602 are similar in some respects to the rules of other
exchanges \18\ and therefore raises no new or novel issues.
Furthermore, the Exchange notes that it is only proposing to specify
the new method by which LMMs and RMMs would request appointments to
(and relinquishment of appointments from) one or more classes of option
contracts traded on the Exchange pursuant to Rule 602(a), and would not
change the substantive provisions of the rules including the CQL,
quoting requirements, or the Exchange's ability to make additional
appointments or change the option classes included in a Market Maker's
requested appointment whenever, in the Board's or designated
committee's judgment, the interests of a fair and orderly market are
best served by such action.
---------------------------------------------------------------------------
\17\ See Rule 602(e).
\18\ See e.g., Phlx Rule 3212(b) (``A PSX Market Maker may
become registered in an issue by entering a registration request via
an Exchange approved electronic interface with PSX's systems or by
contacting PSX Market Operations. Registration shall become
effective on the day the registration request is entered''); Phlx
Rule 3220(a) (``A market maker may voluntarily terminate its
registration in a security by withdrawing its two-sided quotation
from PSX. A PSX Market Maker that voluntarily terminates its
registration in a security may not re-register as a market maker for
one (1) business day.''). See also BZX Options Rules 22.3(b) (``An
Options Market Maker may become registered in a series by entering a
registration request via an Exchange approved electronic interface
with the Exchange's systems by 9:00 a.m. Eastern time. Registration
shall become effective on the day the registration request is
entered''); NOM, Chapter VII, Section 3(b) (``An Options Market
Maker may become registered in an option by entering a registration
request via a Nasdaq approved electronic interface with Nasdaq's
systems. Registration shall become effective on the day the
registration request is entered.'').
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with Section 6(b) of the Act \19\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \20\ 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.
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change removes
impediments to a free and open market because it would streamline the
process by which LMMs and RMMs request appointments to (and
relinquishment of appointments from) one or more classes of option
contracts traded on the Exchange and offer LMMs and RMMs the ability to
manage their appointments in a more efficient manner, through use of an
automated tool. The Exchange believes the proposed change would reduce
the burden on both LMMs and RMMs, and Exchange staff, which would
result in a fair and reasonable use of resources to the benefit of all
market participants. In particular, the proposal to require LMMs and
RMMs to use an Exchange approved electronic interface to request to be
appointed to a class, and to make changes thereto, is consistent with
Act because it would provide LMMs and RMMs with more efficient access
to the securities in which they want to make markets. The Exchange also
believes that allowing LMMs and RMMs to request relinquishment from
appointments using the same process used by LMMs and RMMs to request
appointments, would serve to promote just and equitable principles of
trade and benefit investors and the public interest by establishing a
more systematic way for LMMs and RMMs to manage their appointments and
provide more clarity with respect to the process.
In addition, the Exchange believes that improving the efficiency of
the process by which LMMs and RMMs request appointments and
relinquishment of appointments on an automated basis without having to
manually contact Exchange staff is likewise consistent with the Act.
First, the Board or a designated committee will continue to have
responsibility for approving the appointments requested by LMMs and
RMMs in one or more classes of options contracts traded on the
Exchange. The Board or a designated committee would continue to
consider the relevant factors and conduct an evaluation of Market
Makers prior to their appointment. \21\ In addition, as noted above,
the Exchange would continue to have authority to suspend or terminate
any Market Maker appointment in the interest of a fair and orderly
market, including, if necessary to prevent fraudulent and manipulative
acts and practices and protect investors, or if a Market Maker does not
satisfy its obligations with respect to an appointment.\22\
Furthermore, the
[[Page 31815]]
Exchange approved electronic interface utilized by LMMs and RMMs to
request an appointment will ensure that, before any additions to a
Market Maker's appointment are approved, the CQL established by Rule
602 has not been exceeded. Accordingly, the Exchange believes this
proposal is consistent with Section 6(b) of the Exchange Act.\23\
---------------------------------------------------------------------------
\21\ See supra notes 10-14.
\22\ See Rule 602(e). See also Rule 600(c) (regarding the
Exchange's ability to suspend or terminate a Market Maker's
registration based on ``a determination that such Member has failed
to properly perform as a Market Maker.'').
\23\ 15 U.S.C. 78f(b).
---------------------------------------------------------------------------
The proposed rule change would not result in unfair discrimination,
as it applies to all LMMs and RMMs equally. As noted above, the
Exchange intentionally excluded PLMMs from this proposal. The Exchange
believes it isn't unfairly discriminatory to exclude PLMMs from this
new appointment method because the Board or designated committee
appoints only one PLMM to each options class traded on the Exchange, as
opposed to the multiple number of LMMs and RMMs, and because of the
heightened obligations associated with performing the responsibilities
of a PLMM.\24\ Because of these heightened responsibilities of PLMMs,
the Exchange believes that it is not unfairly discriminatory to treat
PLMMs differently from LMMs and RMMs with respect to the method by
which appointments (and relinquishments of appointments) are requested.
---------------------------------------------------------------------------
\24\ See supra note 9.
---------------------------------------------------------------------------
Further, the proposed rule change would reduce the burden on LMMs
and RMMs to manage their appointments, and thus provide greater
liquidity to the Exchange while reducing the time and resources
expended by such Market Makers and the Exchange on the appointment
process. Nevertheless, Market Makers would still be required to comply
with certain obligations to maintain their status as a Market Maker,
including that they provide continuous, two-sided quotations in their
appointed securities.\25\
---------------------------------------------------------------------------
\25\ See Rule 604.
---------------------------------------------------------------------------
Finally, as noted above, specifying the method of the appointment
process would also align the rules of the Exchange with the rules of
other options exchanges, where Market Makers presently have the ability
to select and make changes to their appointments and registrations via
an exchange-approved electronic interface.\26\ The Exchange believes
this consistency across exchanges would remove impediments to and
perfect the mechanism of a free and open market by ensuring that
members, regulators and the public can more easily navigate the
Exchange's rulebook and better understand the appointment process.
---------------------------------------------------------------------------
\26\ See supra notes 6 and 18.
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
MIAX Options 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 because it provides the same
enhancement to a group of similarly situated market participants--LMMs
and RMMs. The proposed rule change would reduce the burden on these
Market Makers to manage their appointments and thus provide greater
liquidity to the Exchange while reducing the time and resources
expended by such Market Makers and the Exchange on the appointment
process.
The Exchange does not believe the proposed rule change would help
these Market Makers to the detriment of market participants on other
exchanges, particularly because the proposed appointment process for
LMMs and RMMs is meant to simply create a more efficient process by
which such Market Makers can request an appointment, and it is similar
to the appointment and registration processes for market makers already
in place on other exchanges.\27\ LMMs and RMMs would still be subject
to the same obligations with respect to its appointment; however, the
proposed rule change would make the appointment process more efficient
for such Market Makers. The Exchange believes that the proposed rule
change would relieve any burden on, or otherwise promote, competition,
as it would enable LMMs and RMMs to streamline the process by which
they request appointments (and relinquishment of appointments) and get
notified of approvals or denials related to such requests, which, in
turn, would reduce the time and resources expended by such Market
Makers and the Exchange on the appointment process.
---------------------------------------------------------------------------
\27\ Id.
---------------------------------------------------------------------------
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 \28\ and Rule 19b-4(f)(6) \29\
thereunder.
---------------------------------------------------------------------------
\28\ 15 U.S.C. 78s(b)(3)(A).
\29\ 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.
---------------------------------------------------------------------------
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-2018-13 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-2018-13. 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 website (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
[[Page 31816]]
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 website 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. Persons submitting comments are cautioned that we do
not redact or edit personal identifying information from comment
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
MIAX-2018-13 and should be submitted on or before July 30, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
---------------------------------------------------------------------------
\30\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-14545 Filed 7-6-18; 8:45 am]
BILLING CODE P