Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing of Proposed Rule Change Relating to Limit Up Limit Down Functionality, 19344-19348 [2013-07318]
Download as PDF
<![CDATA[
19344
Federal Register / Vol. 78, No. 61 / Friday, March 29, 2013 / Notices
demonstrated that NES cannot use any
information advantage it may have
because of its affiliation with the
Exchange.20
In the past, the Commission has
expressed concern that the affiliation of
an exchange with one of its members
raises potential conflicts of interest, and
the potential for unfair competitive
advantage.21 Although the Commission
continues to be concerned about
potential unfair competition and
conflicts of interest between an
exchange’s self-regulatory obligations
and its commercial interest when the
exchange is affiliated with one of its
members, for the reasons discussed
below, the Commission believes that it
is consistent with the Act to permit
NES, in its capacity as a facility of PSX,
to route orders inbound to the Exchange
on a permanent basis instead of a pilot
basis, subject to the limitations and
conditions described above.22
The Exchange has proposed four
ongoing conditions applicable to NES’s
routing activities, which are enumerated
above. The Commission believes that
these conditions will mitigate its
concerns about potential conflicts of
interest and unfair competitive
advantage. In particular, the
Commission believes that FINRA’s
oversight of NES,23 combined with
FINRA’s monitoring of NES’s
20 See
Notice, supra note 3, at 10675.
e.g., Securities Exchange Act Release Nos.
54170 (July 18, 2006), 71 FR 42149 (July 25, 2006)
(SR–NASDAQ–2006–006) (order approving
NASDAQ’s proposal to adopt NASDAQ Rule 2140,
restricting affiliations between NASDAQ and its
members); 53382 (February 27, 2006), 71 FR 11251
(March 6, 2006) (SR–NYSE–2005–77) (order
approving the combination of the New York Stock
Exchange, Inc. and Archipelago Holdings, Inc.);
58673 (September 29, 2008), 73 FR 57707 (October
3, 2008) (SR–Amex–2008–62 and SR–NYSE–2008–
60) (order approving the combination of NYSE
Euronext and the American Stock Exchange LLC);
59135 (December 22, 2008), 73 FR 79954 (December
30, 2008) (SR–ISE–2009–85) (order approving the
purchase by ISE Holdings of an ownership interest
in Direct Edge Holdings LLC); 59281 (January 22,
2009), 74 FR 5014 (January 28, 2009) (SR–NYSE–
2008–120) (order approving a joint venture between
NYSE and BIDS Holdings L.P.); 58375 (August 18,
2008), 73 FR 49498 (August 21, 2008) (File No. 10–
182) (order granting the exchange registration of
BATS Exchange, Inc.); 61698 (March 12, 2010), 75
FR 13151 (March 18, 2010) (File Nos. 10–194 and
10–196) (order granting the exchange registration of
EDGX Exchange, Inc. and EDGA Exchange, Inc.);
and 62716 (August 13, 2010), 75 FR 51295 (August
19, 2010) (File No. 10–198) (order granting the
exchange registration of BATS–Y Exchange, Inc.).
22 The Commission notes that these limitations
and conditions are consistent with those previously
approved by the Commission for the Exchange. See,
e.g., Securities Exchange Act Release Nos. 67256
(June 26, 2012) 77 FR 39277 (July 2, 2012) (SR–BX–
2012–030); and 64090 (March 17, 2011), 76 FR
16462 (March 23, 2011) (SR–BX–2011–007).
23 This oversight will be accomplished through
the 17d–2 Agreement between FINRA and the
Exchange and the Regulatory Contract. See Notice,
supra note 3, at 10675 n.10 and accompanying text.
mstockstill on DSK4VPTVN1PROD with NOTICES
21 See,
VerDate Mar<15>2010
17:34 Mar 28, 2013
Jkt 229001
compliance with the Exchange’s rules
and quarterly reporting to the Exchange,
will help to protect the independence of
the Exchange’s regulatory
responsibilities with respect to NES.
The Commission also believes that the
Exchange’s Rule 2140(a) is designed to
ensure that NES cannot use any
information advantage it may have
because of its affiliation with the
Exchange.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,24 that the
proposed rule change (SR–BX–2013–
013) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.25
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013–07317 Filed 3–28–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69234; File No. SR–MIAX–
2013–15]
Self-Regulatory Organizations; Miami
International Securities Exchange LLC;
Notice of Filing of Proposed Rule
Change Relating to Limit Up Limit
Down Functionality
March 25, 2013.
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 March 25,
2013, Miami International Securities
Exchange LLC (‘‘MIAX’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, 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.
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 530, Limit UpLimit Down (‘‘LULD’’), to provide for
how the Exchange proposes to treat
option orders, market-making quoting
obligations, openings, priority quotes (as
defined below), systemic changes,
24 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
Trading Pauses and openings following
a Trading Pause in response to the Plan
to Address Extraordinary Market
Volatility Pursuant to Rule 608 of
Regulation NMS, as it may be amended
from time to time (the ‘‘Plan’’). The
proposed rules establish procedures to
address extraordinary volatility in NMS
Stocks and outlines MIAX’s LULD
processing for options overlying such
NMS Stocks. Rule 530, as proposed to
be amended, will be effective on a one
year pilot basis beginning on the date of
implementation of the Plan.
The text of the proposed rule change
is provided in Exhibit 5. 3 The text of the
proposed rule change is also available
on the Exchange’s Web site at https://
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 the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to amend MIAX Rule 530 to
provide for how the Exchange proposes
to treat options orders, market-making
quoting obligations, openings, priority
quotes (as defined below), systemic
changes, Trading Pauses, and openings
following a Trading Pause in response
to the Plan.
Background
Since May 6, 2010, when the markets
experienced excessive volatility in an
abbreviated time period, i.e., the ‘‘flash
crash,’’ the equities exchanges and The
Financial Industry Regulatory Authority
(‘‘FINRA’’) have implemented marketwide measures designed to restore
investor confidence by reducing the
potential for excessive market volatility.
25 17
PO 00000
Frm 00166
Fmt 4703
Sfmt 4703
3 The Commission notes that Exhibit 5 is attached
to the filing, not to this notice.
E:\FR\FM\29MRN1.SGM
29MRN1
Federal Register / Vol. 78, No. 61 / Friday, March 29, 2013 / Notices
mstockstill on DSK4VPTVN1PROD with NOTICES
Among the measures adopted include
pilot plans for stock-by-stock trading
pauses, related changes to the equities
market clearly erroneous execution
rules, and more stringent equities
market maker quoting requirements. On
May 31, 2012, the Commission
approved the Plan, as amended, on a
one-year pilot basis. In addition, the
Commission approved changes to the
equities market-wide circuit breaker
rules on a pilot basis to coincide with
the pilot period for the Plan. The Plan
is designed to prevent trades in
individual NMS stocks from occurring
outside of specified Price Bands.4 The
instant proposed rule change is
intended to adopt MIAX rules that
address the trading of options overlying
NMS Stocks that are the subject of the
Plan and its provisions during times of
unusual volatility in the markets.
The requirements of the Plan are
coupled with Trading Pauses to
accommodate more fundamental price
moves (as opposed to erroneous trades
or momentary gaps in liquidity). All
trading centers in NMS stocks,
including both those operated by
Participants and those operated by
members of Participants, are required to
establish, maintain, and enforce written
policies and procedures that are
reasonably designed to comply with the
requirements specified in the Plan.
Limit State and Straddle State
As set forth in more detail in the Plan,
Price Bands consisting of a Lower Price
Band and an Upper Price Band for each
NMS Stock are calculated by the
Processors. When the National Best Bid
(Offer) is below (above) the Lower
(Upper) Price Band, the Processors shall
disseminate such National Best Bid
(Offer) with an appropriate flag
identifying it as unexecutable. When the
National Best Bid (Offer) is equal to the
Upper (Lower) Price Band, the
Processors shall distribute such
National Best Bid (Offer) with an
appropriate flag identifying it as a Limit
State Quotation. All trading centers in
NMS stocks must maintain written
policies and procedures that are
reasonably designed to prevent the
display of offers below the Lower Price
Band and bids above the Upper Price
Band for NMS stocks. Notwithstanding
this requirement, the Processor shall
display an offer below the Lower Price
Band or a bid above the Upper Price
Band, but with a flag indicating that it
is non-executable. Such bids or offers
shall not be included in the National
4 Unless otherwise specified, capitalized terms
used in this filing are based on the defined terms
of the Plan.
VerDate Mar<15>2010
17:34 Mar 28, 2013
Jkt 229001
Best Bid or National Best Offer
calculations. Trading in an NMS stock
immediately enters a Limit State if the
National Best Offer (Bid) equals but
does not cross the Lower (Upper) Price
Band. Trading for an NMS stock exits a
Limit State if, within 15 seconds of
entering the Limit State, all Limit State
Quotations were executed or canceled
in their entirety. If the market does not
exit a Limit State within 15 seconds,
then the Primary Listing Exchange
would declare a five-minute trading
pause pursuant to Section VII of the
Plan, which would be applicable to all
markets trading the security.
In addition, the Plan defines a
Straddle State as when the National Best
Bid (Offer) is below (above) the Lower
(Upper) Price Band and the NMS stock
is not in a Limit State. For example,
assume the Lower Price Band for an
NMS Stock is $9.50 and the Upper Price
Band is $10.50, such NMS stock would
be in a Straddle State if the National
Best Bid were below $9.50, and
therefore non-executable, and the
National Best Offer were above $9.50
(including a National Best Offer that
could be above $10.50). If an NMS stock
is in a Straddle State and trading in that
stock deviates from normal trading
characteristics, the Primary Listing
Exchange may declare a trading pause
for that NMS stock if such Trading
Pause would support the Plan’s goal to
address extraordinary market volatility.
Relief From Market Maker Quoting
Obligations
The Exchange proposes to adopt Rule
530(f) to address Market Maker quoting
obligations during Straddle States and
Limit States. Specifically, the Exchange
proposes to adopt proposed Rules
530(f)(1)(i)–(iv) to state that during such
periods Market Makers will be relieved
of the following obligations
(collectively, ‘‘the quoting obligations’’):
(i) The bid/ask differential requirements
set forth in Exchange Rule 603(b)(4); (ii)
the minimum quote size requirement set
forth in Exchange Rule 604(b)(2); (iii)
the two-sided quote requirement set
forth in Exchange Rule 604(c); and (iv)
the continuous quote requirement set
forth in Exchange Rule 604(e).
The Exchange acknowledges the effect
of limited price discovery in the
underlying stock on the direct
relationship between an options price
and the price of the underlying security.
During a Limit State or Straddle State,
the bid price or offer price of the
underlying security will be
unexecutable and the ability to hedge
the purchase or sale of an option will be
jeopardized. Recognizing that it may be
impossible to hedge to offset the risk
PO 00000
Frm 00167
Fmt 4703
Sfmt 4703
19345
created by trading options, the Exchange
expects that Market Makers will, as a
result, modify their quoting behavior.
The Exchange therefore believes it is
reasonable and appropriate to relieve
Market Makers from their quoting
obligations as proposed during a Limit
or Straddle State.
Given the uncertain effect on liquidity
for affected option contracts during a
Limit or Straddle State, the Exchange
believes it is reasonable to relieve
Market Makers from the complete suite
of quoting obligations as proposed and
not just the continuous quote
requirements of Exchange Rule 604(e).
Offering relief from Exchange Rule
604(e) provides needed flexibility to
Market Makers during the affected
periods of uncertain price discovery.
The Exchange believes that if it does not
afford relief from the remaining Market
Maker quoting obligations, such as the
bid-ask differential of Rule 603(b)(4), the
minimum size requirement set forth in
Exchange Rule 604(b)(2), the
requirement to submit two-sided quotes
set forth in Exchange Rule 604(c), and
the continuous quoting obligations set
forth in Exchange Rule 604(e), such
flexibility would be compromised. If for
example, the National Best Bid or Offer
(‘‘NBBO’’) has a bid/ask differential that
is greater than $5.00, a Market Maker
would be compelled to improve one or
both sides of the NBBO to stay within
the $5.00 bid-ask differential
requirement of Rule 603(b)(4). Given the
option, the Exchange believes that
Market Makers would likely choose not
to quote at all over assuming unwanted
risk by being compelled to quote at one
or both sides of the NBBO. In the
interest of promoting liquidity during
these periods, the Exchange believes it
best to relieve Market Makers of all
quoting obligations.
The Exchange will exclude the
amount of time an NMS stock
underlying a MIAX option is in a Limit
State or Straddle State from the total
amount of time in the trading day when
calculating the percentage of the trading
day MIAX Market Makers are required
to quote. The Exchange believes that
this is appropriate for the same reasons
discussed above, in light of the limited
price discovery in the underlying stock
and the direct relationship between an
options price and the price of the
underlying security. During a Limit
State or Straddle State, the bid price or
offer price of the underlying security
will be unexecutable and the ability to
hedge the purchase or sale of an option
will be jeopardized.
Proposed Rule 530(f)(2) states that the
relief described in sub-paragraphs
(f)(1)(i)-(iv) shall terminate when the
E:\FR\FM\29MRN1.SGM
29MRN1
19346
Federal Register / Vol. 78, No. 61 / Friday, March 29, 2013 / Notices
Limit or Straddle State no longer exists
in the affected NMS Stock.
mstockstill on DSK4VPTVN1PROD with NOTICES
Market Maker Participation Guarantees
Proposed Rule 530(f)(3) states that the
provisions of Exchange Rule 514
concerning priority of quotes and orders
shall remain unchanged during periods
of relief from quoting obligations
pursuant to proposed Rule 530(f).
Exchange Rule 514 describes, among
other things, priority of quotes and
orders on the Exchange, allocation
methods used on the Exchange, and
participation guarantees granted to
certain Market Makers. Rule 514(g)
details the Primary Lead Market Maker
(‘‘PLMM’’) participation guarantee and
Rule 514(h) describes the Directed Lead
Market Maker (‘‘DLMM’’) participation
guarantee. The participation guarantees
set forth in Exchange Rule 514 only
apply if the affected PLMM or DLMM
has submitted a priority quote at the
NBBO.
The PLMM and DLMM each have a
more stringent quoting obligation during
normal trading conditions than other
Market Makers, and the participation
guarantee rewards them for these
elevated quoting obligations. Although
proposed Rule 530 would relieve
PLMMs and DLMMs of their quoting
obligations, the Exchange believes that
they should continue to be entitled to
receive the participation guarantee for
executions in which they participate
during a Limit or Straddle State.
As previously noted, the Exchange
expects a Limit State and a Straddle
State to have a negative impact on
liquidity in the options markets, and
that some Market Makers may elect not
to quote at all during such times of
extreme volatility. Market Makers who
quote at the NBBO during these times
may face greater risk in doing so given
the pricing uncertainty in the
underlying NMS Stock, and the
Exchange believes that affording them
the participation guarantees set forth in
Exchange Rule 514 should serve as a
reward to Market Makers who assume a
higher than normal risk in quoting at the
NBBO.
Moreover, the Exchange believes that
the use of participation guarantees,
which can be found on other options
exchanges,5 provides incentives for
Market Makers to provide liquidity at
5 See Phlx Rule 1014(b)(vii), CBOE Rule
6.45A(a)(ii)(2), C2 Rule 8.19, NYSE Amex Rule
964.2NY, and ISE Rule 713(e) for entitlements
comparable to MIAX’s Primary Lead Market Maker
participation entitlement. See Phlx Rules
1014(b)(viii) and 1080(1), CBOE Rules 8.13 and
6.45A(a)(ii)(2), C2 Rules 6.12(a)(3)(B) and 8.13,
NYSE Amex Rule 964.1NY, and ISE Rules 713 and
811 for entitlements comparable to MIAX’s Directed
Lead Market Maker participation entitlement.
VerDate Mar<15>2010
17:34 Mar 28, 2013
Jkt 229001
the NBBO during Limit States and
Straddle States. Accordingly, proposed
Rule 530(f)(3) preserves the operation of
Rule 514 by continuing to grant
participation entitlements for options
when the underlying NMS Stock has
entered either a Straddle or Limit State.
The Exchange believes that rewarding
Market Makers for their assumption of
higher than normal risk during times of
extreme market volatility and promoting
and fostering liquidity through the
participation guarantee will help in the
maintenance of a fair and orderly
market. The Exchange further believes
that removing the participation
guarantees from the operation of Rule
514 would have the adverse effect of
motivating Market Makers to remove
liquidity and further destabilize the
marketplace at a time when stability and
liquidity is most needed. Lastly, the
Exchange notes that the participation
guarantee only applies if the qualifying
Market Maker participates in the
execution at the NBBO.
Opening Process
Proposed Rule 530(g) sets forth
changes in the manner in which the
Exchange’s System will function during
Limit and Straddle States.
Proposed Rule 530(g)(1) describes the
functionality of the Exchange’s Opening
Process 6 when a Straddle State or Limit
State occurs before and during the
Opening Process.
Proposed Rule 530(g)(1)(i) provides
that Opening Process shall be delayed
for options overlying an NMS Stock that
is in a Straddle State or a Limit State
prior to the opening of trading such
overlying options and that the Opening
Process shall begin when such Straddle
or Limit State has ended and there is not
a halt or Trading Pause in effect. The
Exchange therefore will not open an
option overlying an NMS Stock that is
in a Limit State or Straddle State.
Proposed Rule 530(g)(1)(ii) addresses
scenarios where the Exchange’s
Opening Process has started but not yet
completed when the underlying NMS
Stock enters a Straddle or Limit State.
When the affected option is in the
Opening Process but trading has not
begun, the Opening Process will be
terminated when the underlying NMS
Stock is in a Limit or Straddle State. The
Opening Process will begin anew in the
affected overlying options when such
Limit or Straddle State has ended and
there is not a halt or Trading Pause in
effect. Thus, if an Opening Process is
occurring, it will cease and then start
the Opening Process from the beginning
6 For a complete description of the Exchange’s
Opening Process, see Exchange Rule 503.
PO 00000
Frm 00168
Fmt 4703
Sfmt 4703
once the Limit or Straddle State is no
longer present.
Priority Quotes
The Exchange is proposing to adopt
rules that would qualify all quotes as
priority quotes 7 when LULD
Functionality is in effect. Proposed Rule
530(g)(2)(i) states that, notwithstanding
the provisions of Exchange Rule 517(b),8
all quotes that result in an execution
during a period in which LULD
Functionality is engaged shall be
deemed to be priority quotes for
allocation purposes.
The purpose of the proposed rule is
to provide incentive for Market Makers
to submit quotations during Limit and
Straddle states by affording their quotes
priority quote status, ensuring them of
priority executions over professional
interest when they assume the risk of
quoting at or near the NBBO during
times of extreme volatility.
The Exchange believes that deeming
all quotes to be priority quotes should
be strictly limited to the time period in
which the affected underlying NMS
Stock is in either a Limit or Straddle
State (and LULD Functionality is thus
engaged). Accordingly, proposed rule
530(g)(2)(ii) would state clearly in the
Exchange’s rules that, for executions
occurring when LULD Functionality is
not engaged, the priority status of a
quote for allocation purposes shall be
determined by the provisions of Rule
517(b).
7 For trade allocation purposes, quotes will be
considered either priority quotes (i.e., trade
allocation will be in accordance with Rule 514(e),
which provides priority quotes with precedence
over all Professional Interest) or non-priority quotes
(i.e., trade allocation will be in accordance with
Rule 514(e), which also provides non-priority
quotes are considered together with all other
Professional Interest) based upon a Market Maker’s
quote width at certain times as described in the
rule. See Exchange Rule 517(b).
8 The Exchange is proposing to deem all quotes
as priority quotes that result in an execution during
a period in which LULD Functionality is engaged,
notwithstanding the requirement under normal
circumstances that, to be considered a priority
quote at the time of execution, each of the following
standards must be met: (A) the bid/ask differential
of a Market Maker’s two-sided quote pair must be
valid width (no wider than the bid/ask differentials
outlined in Rule 603(b)(4)); (B) the initial size of
both of the Market Maker’s bid and the offer must
be in compliance with the requirements of Rule
604(b)(2); (C) the bid/ask differential of a Market
Maker’s two-sided quote pair must meet the priority
quote width requirements defined below in
subparagraph (ii) for each option; and (D) either of
the following are true: (1) At the time a locking or
crossing quote or order enters the System, the
Market Maker’s two-sided quote pair must be valid
width for that option and must have been resting
on the Book; or (2) Immediately prior to the time
the Market Maker enters a new quote that locks or
crosses the MBBO, the Market Maker must have had
a valid width quote already existing (i.e., exclusive
of the Market Maker’s new marketable quote or
update) among his two-sided quotes for that option.
See Exchange Rule 517(b)(i).
E:\FR\FM\29MRN1.SGM
29MRN1
Federal Register / Vol. 78, No. 61 / Friday, March 29, 2013 / Notices
mstockstill on DSK4VPTVN1PROD with NOTICES
As with participation guarantees as
discussed above, the Exchange believes
that rewarding Market Makers for their
assumption of higher than normal risk
during times of extreme market
volatility by deeming all quotes
submitted during a Limit or Straddle
State to be priority quotes will help in
the maintenance of a fair and orderly
market. Such rewards are intended to
promote and foster liquidity in the
options marketplace. The Exchange
further believes that, absent this and the
other incentives proposed herein,
Market Makers could be motivated to
remove liquidity and further destabilize
the marketplace at a time when stability
and liquidity is most needed. The
Exchange notes that the priority quote
status only applies if the qualifying
Market Maker participates in the
execution at the NBBO.
The Exchange believes that the
incentive for Market Makers to quote at
the NBBO during periods of extreme
volatility and the concomitant
extraordinary risk assumed by Market
Makers in submitting quotes at the
NBBO under such conditions is
consistent with the fundamental
principle of customer protection
incorporated in the Act. The Exchange
expects that liquidity and stability in
the options markets will be
compromised during a Limit or Straddle
State. The participation guarantees and
priority quote status described in the
instant proposed rule change, taken as
a whole, are intended to mitigate the
anticipated diminished liquidity and
stability in the options markets brought
about by a Limit or Straddle State.
These incentives for Market Makers to
quote and to assume extraordinary risk
are intended to enhance liquidity and
stability during times of unusual
volatility in the options marketplace,
which should promote customer
protection and foster stability in the
marketplace as a whole.
Trading Pauses and Opening After a
Trading Pause
Proposed Rule 530(h) provides that
the Exchange will halt trading in
options overlying an NMS Stock that is
subject to a Trading Pause. During a
Trading Pause, the Exchange System
will purge all quotes in the affected
option, yet maintain orders existing in
the Exchange System prior to the
Trading Pause. Additionally, the
Exchange System will accept incoming
orders and quotes, including market
orders.
Proposed Rule 530(i) provides that the
Exchange will open trading following a
Trading Pause pursuant to the
Exchange’s opening procedures
VerDate Mar<15>2010
17:34 Mar 28, 2013
Jkt 229001
contained in Rule 503. Proposed Rule
530(i) further adds that, consistent with
provisions of the Plan,9 the Exchange
may resume trading in options contracts
overlying an affected NMS Stock if
trading on the Primary Listing Exchange
has not resumed within ten minutes of
receipt of a Trading Pause and at least
one exchange has resumed trading in
such NMS Stock.
2. Statutory Basis
MIAX believes that its proposed rule
change is consistent with Section 6(b) of
the Act 10 in general, and furthers the
objectives of Section 6(b)(5) of the Act 11
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 regulating, clearing,
settling, processing information with
respect to, and 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, and it
is not designed to permit unfair
discrimination among customers,
brokers, or dealers.
The Exchange believes that excluding
the Limit and Straddle State from a
Market Maker’s quoting obligation
calculation should promote just and
equitable principles of trade by
recognizing the particular risk that
arises for liquidity providers who
cannot hedge. Whenever an NMS stock
is in a Limit or Straddle State, trading
continues; however, there will not be a
reliable price for a security to serve as
a benchmark for the price of the option.
Accordingly, the Exchange seeks to
expressly remove these periods from
consideration in order to enable MIAX
Market Makers to provide the necessary
liquidity and facilitate transactions on
the Exchange.
The Exchange also believes that the
proposed rules concerning MIAX LULD
Functionality described herein during a
Limit or Straddle State will minimize
undue risk to MIAX Market Makers, and
thus will lead them to continue to act
as Market Makers, rather than
potentially causing Market Makers to
de-register. The Exchange also believes
that these changes will help to protect
all investors from executions in options
at prices that are not based on a reliable
benchmark for the price of an option
during times of significant volatility.
Section VII(B)(3) of the Plan.
U.S.C. 78f(b).
11 15 U.S.C. 78f(b)(5).
19347
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.
Specifically, the Exchange believes
the proposed changes will not impose
any burden on intra-market competition
because it applies to all MIAX
participants equally. The Exchange does
not believe the proposed rules will
impose any burden on inter-market
competition as the proposed rules are
intended to protect investors with the
implementation of the Plan. In addition,
the proposed changes will provide
certainty of treatment and execution of
options orders during periods of
extraordinary market volatility.
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
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.12
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
No. SR–MIAX–2013–15 on the subject
line.
9 See
10 15
PO 00000
Frm 00169
Fmt 4703
Sfmt 4703
12 The Commission notes that the Exchange
requested accelerated approval of the filing.
E:\FR\FM\29MRN1.SGM
29MRN1
19348
Federal Register / Vol. 78, No. 61 / Friday, March 29, 2013 / Notices
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
No. SR–MIAX–2013–15. 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 (https://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 No. SR–MIAX–
2013–15 and should be submitted on or
before April 8, 2013.13
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013–07318 Filed 3–28–13; 8:45 am]
mstockstill on DSK4VPTVN1PROD with NOTICES
BILLING CODE 8011–01–P
13 The Commission believes that a 10-day
comment period is reasonable, given the urgency of
the matter. It will provide adequate time for
comment.
14 17 CFR 200.30–3(a)(12).
VerDate Mar<15>2010
17:34 Mar 28, 2013
Jkt 229001
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69227; File No. SR–CBOE–
2013–035]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of a
Proposed Rule Change Relating to
Exchange Trading Days and Hours of
Business and Trading Halts
March 25, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 11,
2013, Chicago Board Options Exchange,
Incorporated (the ‘‘Exchange’’ or
‘‘CBOE’’) filed with the Securities and
Exchange Commission (the
‘‘Commission’’) the 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Exchange rules to clarify Rules 6.1,
‘‘Days and Hours of Business,’’ and 6.3,
‘‘Trading Halts.’’ The text of the
proposed rule change is available on the
Exchange’s Web site (https://
www.cboe.com/AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
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.
1 15
2 17
PO 00000
Fmt 4703
1. Purpose
The Exchange is proposing to change
its rules to clarify when it will be open
for trading along with when trading
halts on underlying securities will
inhibit trading on the Exchange. The
Exchange is proposing to amend its
rules to clarify that it will not be solely
dependent upon the ‘‘primary market’’
when determining when to open and/or
halt securities. Instead, the Exchange is
proposing to clarify in its rules that it
will be open if there is ample liquidity
in the underlying market for the
security. Generally, the national equity
exchanges have the same core business
hours.3 With this proposal, the
Exchange is attempting to clarify in its
rules that it can remain open to trade
options during such business hours
even if the ‘‘primary market’’ of the
underlying securities is not open for
business. The Exchange believes that
the proposed changes will allow the
markets to continue to function in an
instance where all exchanges may not
be open. In addition, the Exchange
believes the proposed changes will
bring greater clarity to its Trading
Permit Holders (‘‘TPHs’’) regarding
when the Exchange will be open for
trading.
Currently, Exchange Rule 6.1 provides
that no TPH ‘‘shall make any bid, offer,
or transaction on the Exchange before or
after’’ business hours.4 As an
administrative clean-up change, the
Exchange is proposing to eliminate this
language as it is no longer relevant.
Executions may only happen during
business hours, however, TPHs now
have the ability to submit information in
the electronic system outside of
business hours. The Exchange believes
deleting this language would bring
greater clarity to Exchange rules while
updating the rule text to the current
trading environment.
Next, the Exchange is proposing to
add language to Rule 6.1.01 to specify
that the Exchange will not solely rely on
the ‘‘primary market’’ of an underlying
security to determine whether the
Exchange may trade the option for such
security. The Exchange believes that the
proposed rule change will specify that
if there is an ample market in the
underlying security, the Exchange has
the authority to trade the option even if
3 See, e.g., New York Stock Exchange Rule 51(a)
and Bats Exchange Rule 1.5(w) which describes
regular trading hours as 9:30 a.m. through 4:00 p.m.
Eastern.
4 See Exchange Rule 6.1.
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00170
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
Sfmt 4703
E:\FR\FM\29MRN1.SGM
29MRN1
]]>Agencies
[Federal Register Volume 78, Number 61 (Friday, March 29, 2013)]
[Notices]
[Pages 19344-19348]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-07318]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69234; File No. SR-MIAX-2013-15]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing of Proposed Rule Change Relating to
Limit Up Limit Down Functionality
March 25, 2013.
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 March 25, 2013, Miami International Securities Exchange LLC
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I, II, 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.
---------------------------------------------------------------------------
\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 Exchange Rule 530, Limit
Up-Limit Down (``LULD''), to provide for how the Exchange proposes to
treat option orders, market-making quoting obligations, openings,
priority quotes (as defined below), systemic changes, Trading Pauses
and openings following a Trading Pause in response to the Plan to
Address Extraordinary Market Volatility Pursuant to Rule 608 of
Regulation NMS, as it may be amended from time to time (the ``Plan'').
The proposed rules establish procedures to address extraordinary
volatility in NMS Stocks and outlines MIAX's LULD processing for
options overlying such NMS Stocks. Rule 530, as proposed to be amended,
will be effective on a one year pilot basis beginning on the date of
implementation of the Plan.
The text of the proposed rule change is provided in Exhibit 5. \3\
The text of the proposed rule change is also available on the
Exchange's Web site at https://www.miaxoptions.com/filter/wotitle/rule_filing, at MIAX's principal office, and at the Commission's Public
Reference Room.
---------------------------------------------------------------------------
\3\ The Commission notes that Exhibit 5 is attached to the
filing, not to this notice.
---------------------------------------------------------------------------
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend MIAX Rule 530
to provide for how the Exchange proposes to treat options orders,
market-making quoting obligations, openings, priority quotes (as
defined below), systemic changes, Trading Pauses, and openings
following a Trading Pause in response to the Plan.
Background
Since May 6, 2010, when the markets experienced excessive
volatility in an abbreviated time period, i.e., the ``flash crash,''
the equities exchanges and The Financial Industry Regulatory Authority
(``FINRA'') have implemented market-wide measures designed to restore
investor confidence by reducing the potential for excessive market
volatility.
[[Page 19345]]
Among the measures adopted include pilot plans for stock-by-stock
trading pauses, related changes to the equities market clearly
erroneous execution rules, and more stringent equities market maker
quoting requirements. On May 31, 2012, the Commission approved the
Plan, as amended, on a one-year pilot basis. In addition, the
Commission approved changes to the equities market-wide circuit breaker
rules on a pilot basis to coincide with the pilot period for the Plan.
The Plan is designed to prevent trades in individual NMS stocks from
occurring outside of specified Price Bands.\4\ The instant proposed
rule change is intended to adopt MIAX rules that address the trading of
options overlying NMS Stocks that are the subject of the Plan and its
provisions during times of unusual volatility in the markets.
---------------------------------------------------------------------------
\4\ Unless otherwise specified, capitalized terms used in this
filing are based on the defined terms of the Plan.
---------------------------------------------------------------------------
The requirements of the Plan are coupled with Trading Pauses to
accommodate more fundamental price moves (as opposed to erroneous
trades or momentary gaps in liquidity). All trading centers in NMS
stocks, including both those operated by Participants and those
operated by members of Participants, are required to establish,
maintain, and enforce written policies and procedures that are
reasonably designed to comply with the requirements specified in the
Plan.
Limit State and Straddle State
As set forth in more detail in the Plan, Price Bands consisting of
a Lower Price Band and an Upper Price Band for each NMS Stock are
calculated by the Processors. When the National Best Bid (Offer) is
below (above) the Lower (Upper) Price Band, the Processors shall
disseminate such National Best Bid (Offer) with an appropriate flag
identifying it as unexecutable. When the National Best Bid (Offer) is
equal to the Upper (Lower) Price Band, the Processors shall distribute
such National Best Bid (Offer) with an appropriate flag identifying it
as a Limit State Quotation. All trading centers in NMS stocks must
maintain written policies and procedures that are reasonably designed
to prevent the display of offers below the Lower Price Band and bids
above the Upper Price Band for NMS stocks. Notwithstanding this
requirement, the Processor shall display an offer below the Lower Price
Band or a bid above the Upper Price Band, but with a flag indicating
that it is non-executable. Such bids or offers shall not be included in
the National Best Bid or National Best Offer calculations. Trading in
an NMS stock immediately enters a Limit State if the National Best
Offer (Bid) equals but does not cross the Lower (Upper) Price Band.
Trading for an NMS stock exits a Limit State if, within 15 seconds of
entering the Limit State, all Limit State Quotations were executed or
canceled in their entirety. If the market does not exit a Limit State
within 15 seconds, then the Primary Listing Exchange would declare a
five-minute trading pause pursuant to Section VII of the Plan, which
would be applicable to all markets trading the security.
In addition, the Plan defines a Straddle State as when the National
Best Bid (Offer) is below (above) the Lower (Upper) Price Band and the
NMS stock is not in a Limit State. For example, assume the Lower Price
Band for an NMS Stock is $9.50 and the Upper Price Band is $10.50, such
NMS stock would be in a Straddle State if the National Best Bid were
below $9.50, and therefore non-executable, and the National Best Offer
were above $9.50 (including a National Best Offer that could be above
$10.50). If an NMS stock is in a Straddle State and trading in that
stock deviates from normal trading characteristics, the Primary Listing
Exchange may declare a trading pause for that NMS stock if such Trading
Pause would support the Plan's goal to address extraordinary market
volatility.
Relief From Market Maker Quoting Obligations
The Exchange proposes to adopt Rule 530(f) to address Market Maker
quoting obligations during Straddle States and Limit States.
Specifically, the Exchange proposes to adopt proposed Rules
530(f)(1)(i)-(iv) to state that during such periods Market Makers will
be relieved of the following obligations (collectively, ``the quoting
obligations''): (i) The bid/ask differential requirements set forth in
Exchange Rule 603(b)(4); (ii) the minimum quote size requirement set
forth in Exchange Rule 604(b)(2); (iii) the two-sided quote requirement
set forth in Exchange Rule 604(c); and (iv) the continuous quote
requirement set forth in Exchange Rule 604(e).
The Exchange acknowledges the effect of limited price discovery in
the underlying stock on the direct relationship between an options
price and the price of the underlying security. During a Limit State or
Straddle State, the bid price or offer price of the underlying security
will be unexecutable and the ability to hedge the purchase or sale of
an option will be jeopardized. Recognizing that it may be impossible to
hedge to offset the risk created by trading options, the Exchange
expects that Market Makers will, as a result, modify their quoting
behavior. The Exchange therefore believes it is reasonable and
appropriate to relieve Market Makers from their quoting obligations as
proposed during a Limit or Straddle State.
Given the uncertain effect on liquidity for affected option
contracts during a Limit or Straddle State, the Exchange believes it is
reasonable to relieve Market Makers from the complete suite of quoting
obligations as proposed and not just the continuous quote requirements
of Exchange Rule 604(e). Offering relief from Exchange Rule 604(e)
provides needed flexibility to Market Makers during the affected
periods of uncertain price discovery. The Exchange believes that if it
does not afford relief from the remaining Market Maker quoting
obligations, such as the bid-ask differential of Rule 603(b)(4), the
minimum size requirement set forth in Exchange Rule 604(b)(2), the
requirement to submit two-sided quotes set forth in Exchange Rule
604(c), and the continuous quoting obligations set forth in Exchange
Rule 604(e), such flexibility would be compromised. If for example, the
National Best Bid or Offer (``NBBO'') has a bid/ask differential that
is greater than $5.00, a Market Maker would be compelled to improve one
or both sides of the NBBO to stay within the $5.00 bid-ask differential
requirement of Rule 603(b)(4). Given the option, the Exchange believes
that Market Makers would likely choose not to quote at all over
assuming unwanted risk by being compelled to quote at one or both sides
of the NBBO. In the interest of promoting liquidity during these
periods, the Exchange believes it best to relieve Market Makers of all
quoting obligations.
The Exchange will exclude the amount of time an NMS stock
underlying a MIAX option is in a Limit State or Straddle State from the
total amount of time in the trading day when calculating the percentage
of the trading day MIAX Market Makers are required to quote. The
Exchange believes that this is appropriate for the same reasons
discussed above, in light of the limited price discovery in the
underlying stock and the direct relationship between an options price
and the price of the underlying security. During a Limit State or
Straddle State, the bid price or offer price of the underlying security
will be unexecutable and the ability to hedge the purchase or sale of
an option will be jeopardized.
Proposed Rule 530(f)(2) states that the relief described in sub-
paragraphs (f)(1)(i)-(iv) shall terminate when the
[[Page 19346]]
Limit or Straddle State no longer exists in the affected NMS Stock.
Market Maker Participation Guarantees
Proposed Rule 530(f)(3) states that the provisions of Exchange Rule
514 concerning priority of quotes and orders shall remain unchanged
during periods of relief from quoting obligations pursuant to proposed
Rule 530(f).
Exchange Rule 514 describes, among other things, priority of quotes
and orders on the Exchange, allocation methods used on the Exchange,
and participation guarantees granted to certain Market Makers. Rule
514(g) details the Primary Lead Market Maker (``PLMM'') participation
guarantee and Rule 514(h) describes the Directed Lead Market Maker
(``DLMM'') participation guarantee. The participation guarantees set
forth in Exchange Rule 514 only apply if the affected PLMM or DLMM has
submitted a priority quote at the NBBO.
The PLMM and DLMM each have a more stringent quoting obligation
during normal trading conditions than other Market Makers, and the
participation guarantee rewards them for these elevated quoting
obligations. Although proposed Rule 530 would relieve PLMMs and DLMMs
of their quoting obligations, the Exchange believes that they should
continue to be entitled to receive the participation guarantee for
executions in which they participate during a Limit or Straddle State.
As previously noted, the Exchange expects a Limit State and a
Straddle State to have a negative impact on liquidity in the options
markets, and that some Market Makers may elect not to quote at all
during such times of extreme volatility. Market Makers who quote at the
NBBO during these times may face greater risk in doing so given the
pricing uncertainty in the underlying NMS Stock, and the Exchange
believes that affording them the participation guarantees set forth in
Exchange Rule 514 should serve as a reward to Market Makers who assume
a higher than normal risk in quoting at the NBBO.
Moreover, the Exchange believes that the use of participation
guarantees, which can be found on other options exchanges,\5\ provides
incentives for Market Makers to provide liquidity at the NBBO during
Limit States and Straddle States. Accordingly, proposed Rule 530(f)(3)
preserves the operation of Rule 514 by continuing to grant
participation entitlements for options when the underlying NMS Stock
has entered either a Straddle or Limit State. The Exchange believes
that rewarding Market Makers for their assumption of higher than normal
risk during times of extreme market volatility and promoting and
fostering liquidity through the participation guarantee will help in
the maintenance of a fair and orderly market. The Exchange further
believes that removing the participation guarantees from the operation
of Rule 514 would have the adverse effect of motivating Market Makers
to remove liquidity and further destabilize the marketplace at a time
when stability and liquidity is most needed. Lastly, the Exchange notes
that the participation guarantee only applies if the qualifying Market
Maker participates in the execution at the NBBO.
---------------------------------------------------------------------------
\5\ See Phlx Rule 1014(b)(vii), CBOE Rule 6.45A(a)(ii)(2), C2
Rule 8.19, NYSE Amex Rule 964.2NY, and ISE Rule 713(e) for
entitlements comparable to MIAX's Primary Lead Market Maker
participation entitlement. See Phlx Rules 1014(b)(viii) and 1080(1),
CBOE Rules 8.13 and 6.45A(a)(ii)(2), C2 Rules 6.12(a)(3)(B) and
8.13, NYSE Amex Rule 964.1NY, and ISE Rules 713 and 811 for
entitlements comparable to MIAX's Directed Lead Market Maker
participation entitlement.
---------------------------------------------------------------------------
Opening Process
Proposed Rule 530(g) sets forth changes in the manner in which the
Exchange's System will function during Limit and Straddle States.
Proposed Rule 530(g)(1) describes the functionality of the
Exchange's Opening Process \6\ when a Straddle State or Limit State
occurs before and during the Opening Process.
---------------------------------------------------------------------------
\6\ For a complete description of the Exchange's Opening
Process, see Exchange Rule 503.
---------------------------------------------------------------------------
Proposed Rule 530(g)(1)(i) provides that Opening Process shall be
delayed for options overlying an NMS Stock that is in a Straddle State
or a Limit State prior to the opening of trading such overlying options
and that the Opening Process shall begin when such Straddle or Limit
State has ended and there is not a halt or Trading Pause in effect. The
Exchange therefore will not open an option overlying an NMS Stock that
is in a Limit State or Straddle State.
Proposed Rule 530(g)(1)(ii) addresses scenarios where the
Exchange's Opening Process has started but not yet completed when the
underlying NMS Stock enters a Straddle or Limit State. When the
affected option is in the Opening Process but trading has not begun,
the Opening Process will be terminated when the underlying NMS Stock is
in a Limit or Straddle State. The Opening Process will begin anew in
the affected overlying options when such Limit or Straddle State has
ended and there is not a halt or Trading Pause in effect. Thus, if an
Opening Process is occurring, it will cease and then start the Opening
Process from the beginning once the Limit or Straddle State is no
longer present.
Priority Quotes
The Exchange is proposing to adopt rules that would qualify all
quotes as priority quotes \7\ when LULD Functionality is in effect.
Proposed Rule 530(g)(2)(i) states that, notwithstanding the provisions
of Exchange Rule 517(b),\8\ all quotes that result in an execution
during a period in which LULD Functionality is engaged shall be deemed
to be priority quotes for allocation purposes.
---------------------------------------------------------------------------
\7\ For trade allocation purposes, quotes will be considered
either priority quotes (i.e., trade allocation will be in accordance
with Rule 514(e), which provides priority quotes with precedence
over all Professional Interest) or non-priority quotes (i.e., trade
allocation will be in accordance with Rule 514(e), which also
provides non-priority quotes are considered together with all other
Professional Interest) based upon a Market Maker's quote width at
certain times as described in the rule. See Exchange Rule 517(b).
\8\ The Exchange is proposing to deem all quotes as priority
quotes that result in an execution during a period in which LULD
Functionality is engaged, notwithstanding the requirement under
normal circumstances that, to be considered a priority quote at the
time of execution, each of the following standards must be met: (A)
the bid/ask differential of a Market Maker's two-sided quote pair
must be valid width (no wider than the bid/ask differentials
outlined in Rule 603(b)(4)); (B) the initial size of both of the
Market Maker's bid and the offer must be in compliance with the
requirements of Rule 604(b)(2); (C) the bid/ask differential of a
Market Maker's two-sided quote pair must meet the priority quote
width requirements defined below in subparagraph (ii) for each
option; and (D) either of the following are true: (1) At the time a
locking or crossing quote or order enters the System, the Market
Maker's two-sided quote pair must be valid width for that option and
must have been resting on the Book; or (2) Immediately prior to the
time the Market Maker enters a new quote that locks or crosses the
MBBO, the Market Maker must have had a valid width quote already
existing (i.e., exclusive of the Market Maker's new marketable quote
or update) among his two-sided quotes for that option. See Exchange
Rule 517(b)(i).
---------------------------------------------------------------------------
The purpose of the proposed rule is to provide incentive for Market
Makers to submit quotations during Limit and Straddle states by
affording their quotes priority quote status, ensuring them of priority
executions over professional interest when they assume the risk of
quoting at or near the NBBO during times of extreme volatility.
The Exchange believes that deeming all quotes to be priority quotes
should be strictly limited to the time period in which the affected
underlying NMS Stock is in either a Limit or Straddle State (and LULD
Functionality is thus engaged). Accordingly, proposed rule
530(g)(2)(ii) would state clearly in the Exchange's rules that, for
executions occurring when LULD Functionality is not engaged, the
priority status of a quote for allocation purposes shall be determined
by the provisions of Rule 517(b).
[[Page 19347]]
As with participation guarantees as discussed above, the Exchange
believes that rewarding Market Makers for their assumption of higher
than normal risk during times of extreme market volatility by deeming
all quotes submitted during a Limit or Straddle State to be priority
quotes will help in the maintenance of a fair and orderly market. Such
rewards are intended to promote and foster liquidity in the options
marketplace. The Exchange further believes that, absent this and the
other incentives proposed herein, Market Makers could be motivated to
remove liquidity and further destabilize the marketplace at a time when
stability and liquidity is most needed. The Exchange notes that the
priority quote status only applies if the qualifying Market Maker
participates in the execution at the NBBO.
The Exchange believes that the incentive for Market Makers to quote
at the NBBO during periods of extreme volatility and the concomitant
extraordinary risk assumed by Market Makers in submitting quotes at the
NBBO under such conditions is consistent with the fundamental principle
of customer protection incorporated in the Act. The Exchange expects
that liquidity and stability in the options markets will be compromised
during a Limit or Straddle State. The participation guarantees and
priority quote status described in the instant proposed rule change,
taken as a whole, are intended to mitigate the anticipated diminished
liquidity and stability in the options markets brought about by a Limit
or Straddle State. These incentives for Market Makers to quote and to
assume extraordinary risk are intended to enhance liquidity and
stability during times of unusual volatility in the options
marketplace, which should promote customer protection and foster
stability in the marketplace as a whole.
Trading Pauses and Opening After a Trading Pause
Proposed Rule 530(h) provides that the Exchange will halt trading
in options overlying an NMS Stock that is subject to a Trading Pause.
During a Trading Pause, the Exchange System will purge all quotes in
the affected option, yet maintain orders existing in the Exchange
System prior to the Trading Pause. Additionally, the Exchange System
will accept incoming orders and quotes, including market orders.
Proposed Rule 530(i) provides that the Exchange will open trading
following a Trading Pause pursuant to the Exchange's opening procedures
contained in Rule 503. Proposed Rule 530(i) further adds that,
consistent with provisions of the Plan,\9\ the Exchange may resume
trading in options contracts overlying an affected NMS Stock if trading
on the Primary Listing Exchange has not resumed within ten minutes of
receipt of a Trading Pause and at least one exchange has resumed
trading in such NMS Stock.
---------------------------------------------------------------------------
\9\ See Section VII(B)(3) of the Plan.
---------------------------------------------------------------------------
2. Statutory Basis
MIAX believes that its proposed rule change is consistent with
Section 6(b) of the Act \10\ in general, and furthers the objectives of
Section 6(b)(5) of the Act \11\ 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 regulating, clearing, settling,
processing information with respect to, and 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, and it is not designed to
permit unfair discrimination among customers, brokers, or dealers.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that excluding the Limit and Straddle State
from a Market Maker's quoting obligation calculation should promote
just and equitable principles of trade by recognizing the particular
risk that arises for liquidity providers who cannot hedge. Whenever an
NMS stock is in a Limit or Straddle State, trading continues; however,
there will not be a reliable price for a security to serve as a
benchmark for the price of the option. Accordingly, the Exchange seeks
to expressly remove these periods from consideration in order to enable
MIAX Market Makers to provide the necessary liquidity and facilitate
transactions on the Exchange.
The Exchange also believes that the proposed rules concerning MIAX
LULD Functionality described herein during a Limit or Straddle State
will minimize undue risk to MIAX Market Makers, and thus will lead them
to continue to act as Market Makers, rather than potentially causing
Market Makers to de-register. The Exchange also believes that these
changes will help to protect all investors from executions in options
at prices that are not based on a reliable benchmark for the price of
an option during times of significant volatility.
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.
Specifically, the Exchange believes the proposed changes will not
impose any burden on intra-market competition because it applies to all
MIAX participants equally. The Exchange does not believe the proposed
rules will impose any burden on inter-market competition as the
proposed rules are intended to protect investors with the
implementation of the Plan. In addition, the proposed changes will
provide certainty of treatment and execution of options orders during
periods of extraordinary market volatility.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.\12\
---------------------------------------------------------------------------
\12\ The Commission notes that the Exchange requested
accelerated approval of the filing.
---------------------------------------------------------------------------
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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File No. SR-MIAX-2013-15 on the subject line.
[[Page 19348]]
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File No. SR-MIAX-2013-15. 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 (https://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 No. SR-MIAX-2013-15 and should be
submitted on or before April 8, 2013.\13\
---------------------------------------------------------------------------
\13\ The Commission believes that a 10-day comment period is
reasonable, given the urgency of the matter. It will provide
adequate time for comment.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
---------------------------------------------------------------------------
\14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-07318 Filed 3-28-13; 8:45 am]
BILLING CODE 8011-01-P
