Self-Regulatory Organizations; Miami International Securities Exchange LLC; Order Approving Proposed Rule Change To Modify the Allocation of Directed Orders in Specific Limited Situations, 45001-45003 [2013-17839]
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Federal Register / Vol. 78, No. 143 / Thursday, July 25, 2013 / Notices
After studying market data and
soliciting comment, FINRA believes that
investors would benefit from increased
transparency in Rule 144A transactions.
FINRA’s review of the reported
transactions indicates and commenters
note that the market in Rule 144A
transactions has significant volume, has
matured and has increased in liquidity
over the several years that TRACE has
been in effect. Although one comment
opposing dissemination of Rule 144A
transactions noted that the contra
parties to Rule 144A transactions are
almost exclusively institutions that are
capable of assessing and negotiating the
information needed to make investment
decisions, FINRA believes, based on
academic studies and the experience in
publicly traded corporate bonds, that
even in institutional markets more
transparent markets tend to reduce
spreads and trade execution costs,
which may be indicative of more
competitive prices for investors. In
addition, FINRA notes that
dissemination may assist market
participants in price discovery as well
as determining execution quality.
Finally, FINRA believes that
transparency in this sector may improve
the quality of pricing for valuation
purposes, which is critical for both
dealers and institutions.
In addition, FINRA does not believe
that providing price transparency in
Rule 144A transactions generally will
have an adverse impact on the liquidity
of the market. FINRA notes that
academic studies have not established a
relationship between transparency and a
reduction in liquidity of a specific
market sector. FINRA acknowledges,
however, that each market sector is
different, and intends to monitor the
market in Rule 144A transactions in
TRACE-Eligible Securities to determine
if there is an adverse impact to liquidity
or other factors, as FINRA has
previously done when introducing
transparency in other debt market
sectors.
A commenter raised concerns that
investors will be confused by
transparency in Rule 144A transactions.
FINRA does not believe that investor
confusion will result from such
transparency. FINRA does not believe
that non-QIB institutional customers
will be confused by access to Rule 144A
transaction data. First, FINRA believes
that establishing separate data sets for
Rule 144A transaction information
avoids potential investor confusion
since such transactions are not
comingled with non-Rule 144A
transactions and can be presented
separately and clearly marked as such.
In addition, such customers can use this
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information as an additional data point
in pricing bonds that they are eligible to
trade, and if they fail to recognize the
Rule 144A status of the trades and think
they can trade these precise bonds, their
broker will advise otherwise.
For the reasons discussed above,
FINRA believes that transparency
should be provided in Rule 144A
transactions and, accordingly, proposes
to amend FINRA Rule 6750 and the
TRACE dissemination protocols to
provide for dissemination of Rule 144A
transactions.
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.
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
Number SR–FINRA–2013–029 on the
subject line.
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
Number SR–FINRA–2013–029. 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
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amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of FINRA. All comments received
will be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–FINRA–
2013–029 and should be submitted on
or before August 15, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–17857 Filed 7–24–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70007; File No. SR–MIAX–
2013–21]
Self-Regulatory Organizations; Miami
International Securities Exchange LLC;
Order Approving Proposed Rule
Change To Modify the Allocation of
Directed Orders in Specific Limited
Situations
July 19, 2013.
I. Introduction
On May 22, 2013, Miami International
Securities Exchange LLC (the
‘‘Exchange’’ or ‘‘MIAX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) 1 of the Securities Exchange Act
of 1934 (‘‘Act’’),2 and Rule 19b–4
thereunder,3 a proposed rule change to
modify its practice of allocating
Directed Orders. The proposed rule
change was published for comment in
42 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 78, No. 143 / Thursday, July 25, 2013 / Notices
the Federal Register on June 7, 2013.4
The Commission did not receive any
comments on the proposal. This order
approves the proposed rule change.
ehiers on DSK2VPTVN1PROD with NOTICES
II. Description of the Proposal
The Exchange’s proposal amends
MIAX Rule 514 to modify the allocation
of Directed Orders 5 to provide that a
Directed Lead Market Maker (‘‘DLMM’’)
will always receive a minimum
participation allocation of at least one
(1) contract. Specifically, the proposal
ensures that the DLMM will be allocated
a minimum of one contract in situations
where, due to the Exchange’s allocation
calculation methodology and the fact
that the Exchange system rounds down
any fractional contract size allocations,
the DLMM participation entitlement
allocation would otherwise have
resulted in the DLMM being allocated
zero contracts.
Currently, MIAX Rule 514(h)(1)
provides the formula used to calculate
the DLMM participation entitlement.
The Rule provides that the DLMM
participation entitlement is equal to the
greater of: (i) The proportion of the total
size at the best price represented by the
size of its quote; (ii) sixty percent (60%)
of the contracts to be allocated if there
is only one (1) other Market Maker
quotation at the NBBO; or (iii) forty
percent (40%) if there are two (2) or
more other Market Maker quotes at the
NBBO. According to MIAX, the DLMM
participation entitlement algorithm
works well when applied to Directed
Orders of a contract size of three (3) or
more. However, as MIAX explained in
the Notice,6 for Directed Orders of a
contract size of two (2) or fewer, the
DLMM participation entitlement
allocation may result in an allocation of
zero due to the fact that the Exchange
system rounds down any fractional
contract size allocations.7 MIAX
provided several examples in the Notice
to illustrate how, in such instances, a
Lead Market Maker to whom the order
was specifically directed does not
receive a contract allocation.
The MIAX proposal amends Rule
514(h)(1) to add a provision to ensure
that DLMMs receive at least one
contract of an incoming Directed Order.
4 See Securities Exchange Act Release No. 69682
(June 3, 2013), 78 FR 34417 (‘‘Notice’’).
5 A ‘‘Directed Order’’ is an order entered into the
System by an Electronic Exchange Member with a
designation for a Lead Market Maker (referred to as
a ‘‘Directed Lead Market Maker’’). See Securities
Exchange Act Release No. 69507 (May 3, 2013), 78
FR 27269 (May 9, 2013) (SR–MIAX–2013–20).
6 See Notice, supra note 4.
7 MIAX expressed its belief in the Notice that
other competing exchanges may instead round up
in certain situations where there is a fractional
contract size allocation. See Notice, supra note 4.
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Thus, under the proposed rule change,
a DLMM will be entitled to the greatest
of: (i) The pro-rata share; (ii) 40% or
60% of the incoming Directed Order
(depending on the number of other
Market Makers quoting along with the
DLMM, as described above); or (iii) one
(1) contract. Accordingly, MIAX’s
proposal will allow the Exchange to
ensure that the Electronic Exchange
Member’s (‘‘EEM’’) Directed Order
would trade a minimum of one contract
with the quote of the DLMM, when the
DLMM participation entitlement
applies.
allocation formula, Directed Orders with
a contract size of two or less may result
in the DLMM being allocated zero
contracts. The Commission believes that
it is appropriate to allow MIAX to revise
its rules to account for this limited
situation and ensure that DLMMs will
receive at least one contract of any order
that is directed to them when the
DLMM’s participation entitlement
applies.12 The Commission believes that
this change will allow the rule to
operate as anticipated by EEMs,
providing greater certainty of execution
with regard to Directed Orders. Further,
the proposed rule change allows MIAX
III. Discussion and Commission
to effectuate one of the purposes of the
Findings
Directed Order participation
The Commission has carefully
entitlement; namely, to reward DLMMs
reviewed the proposed rule change and
for attracting order flow to the
finds that it consistent with the
Exchange.
requirements of the Act.8 Specifically,
The Commission notes that this rule
the Commission believes it is consistent change will not impact the application
with Section 6(b)(5) of the Act,9 which
of other participation entitlements. For
requires, among other things, that the
instance, MIAX Rule 514(i)(1) provides
rules of a national securities exchange
that a PLMM may receive either the
PLMM entitlement or, if applicable, the
be designed to prevent fraudulent and
DLMM entitlement, but not both. As
manipulative acts and practices, to
promote just and equitable principles of such, although this proposal will change
the allocation for Directed Orders of two
trade, to foster cooperation and
or fewer contacts, it will not, in any
coordination with persons engaged in
regulating, clearing, settling, processing way, affect the small order participation
guarantee for PLMMs in MIAX Rule
information with respect to, and
514(g)(2) or allow DLMMs to receive
facilitating transactions in securities, to
both the small order participation
remove impediments to and perfect the
entitlement in that rule and the Directed
mechanism of a free and open market
Order participation entitlement in Rule
and a national market system, and, in
514(h). Additionally, under MIAX Rule
general, to protect investors and the
514(h)(4), the PLMM and DLMM
public interest.
The Commission notes that a Directed participation entitlements never allow
for an allocation that is greater than the
Order is an order that an EEM enters
quantity of contracts quoted by the
into the MIAX system and directs to a
PLMM or DLMM. Furthermore, the
particular Lead Market Maker. As such,
Commission notes that the proposed
EEMs have a reasonable expectation
that, in most situations when the DLMM change will not affect Priority
Customers because DLMM participation
participation entitlement applies, the
entitlements may take effect only after
EEM’s Directed Order will interact and
all Priority Customer orders are
execute at least partially with the quote
of the DLMM.10 However, under MIAX’s satisfied.13
For the foregoing reasons, the
current rules, solely because of MIAX’s
Commission believes that the proposed
practice of rounding down factional
rule change is consistent with the Act.
contract sizes 11 and its current
IV. Conclusion
8 15 U.S.C. 78f. In approving this proposed rule
It is therefore ordered, pursuant to
change, the Commission has considered the
proposed rule’s impact on efficiency, competition,
Section 19(b)(2) of the Act 14 that the
and capital formation. See 15 U.S.C. 78c(f).
proposed rule change (SR–MIAX–2013–
9 15 U.S.C. 78f(b)(5).
21), is approved.
10
The Commission notes, however, that there
may be other situations where the DLMM may not
have the opportunity to interact with the Directed
Order. For example, the DLMM participation
entitlement applies only to any remaining balance
after Priority Customer orders have been satisfied.
See MIAX Rule 514(g). MIAX Rule 100 defines
‘‘Priority Customer’’ as ‘‘a person or entity that (i)
is not a broker or dealer in securities, and (ii) does
not place more than 390 orders in listed options per
day on average during a calendar month for its own
beneficial account(s).’’
11 MIAX noted that other exchanges may not have
the same issue with Directed Orders because their
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
systems round up instead of down where there are
fractional contract size allocations. See supra note
7.
12 See supra note 10 (concerning the possibility
that a Priority Customer may have priority).
13 See MIAX Rule 514(h).
14 15 U.S.C. 78f(b)(2).
15 17 CFR 200.30–3(a)(12).
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Federal Register / Vol. 78, No. 143 / Thursday, July 25, 2013 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–17839 Filed 7–24–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70008; File No. SR–
NYSEArca–2013–70]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change To List and Trade Shares
of First Trust Inflation Managed Fund
July 19, 2013.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on July 8,
2013, NYSE Arca, Inc. (‘‘Exchange’’ or
‘‘NYSE Arca’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the self-regulatory
organization. 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 list and
trade shares of the following under
NYSE Arca Equities Rule 8.600
(‘‘Managed Fund Shares’’): First Trust
Inflation Managed Fund. The text of the
proposed rule change is available on the
Exchange’s Web site at www.nyse.com,
at the principal office of the Exchange,
and at the Commission’s Public
Reference Room.
ehiers on DSK2VPTVN1PROD with NOTICES
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
self-regulatory organization 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 those 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 parts of such
statements.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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13:49 Jul 24, 2013
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1. Purpose
The Exchange proposes to list and
trade the shares (‘‘Shares’’) of the
following under NYSE Arca Equities
Rule 8.600, which governs the listing
and trading of Managed Fund Shares 4
on the Exchange: First Trust Inflation
Managed Fund (‘‘Fund’’).5 The Shares
will be offered by First Trust ExchangeTraded Fund IV (the ‘‘Trust’’), which is
organized as a Massachusetts business
trust and is registered with the
Commission as an open-end
management investment company.6
The investment adviser to the Fund
will be First Trust Advisors L.P. (the
‘‘Adviser’’ or ‘‘First Trust’’). First Trust
Portfolios L.P. (the ‘‘Distributor’’) will
be the principal underwriter and
distributor of the Fund’s Shares. Bank of
New York Mellon (the ‘‘Administrator’’
or ‘‘BNY’’) will serve as administrator,
custodian and transfer agent for the
Fund.
4 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (15 U.S.C. 80a–1) (‘‘1940 Act’’) organized as
an open-end investment company or similar entity
that invests in a portfolio of securities selected by
its investment adviser consistent with its
investment objectives and policies. In contrast, an
open-end investment company that issues
Investment Company Units, listed and traded on
the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that
correspond generally to the price and yield
performance of a specific foreign or domestic stock
index, fixed income securities index or combination
thereof.
5 The Commission has previously approved
listing and trading on the Exchange of a number of
actively managed funds under Rule 8.600. See, e.g.,
Securities Exchange Act Release Nos. 57801 (May
8, 2008), 73 FR 27878 (May 14, 2008) (SR–
NYSEArca–2008–31) (order approving Exchange
listing and trading of twelve actively-managed
funds of the WisdomTree Trust); 60460 (August 7,
2009), 74 FR 41468 (August 17, 2009) (SR–
NYSEArca–2009–55) (order approving listing of
Dent Tactical ETF); 62502 (July 15, 2010), 75 FR
42471 (July 21, 2010) (SR–NYSEArca–2010–57)
(order approving listing of AdvisorShares WCM/
BNY Mellon Focused Growth ADR ETF); 69251
(March 28, 2013), 78 FR 20162 (April 3, 2013) (SR–
NYSEArca–2013–14) (order approving listing of
Cambria Shareholder Yield ETF).
6 The Trust is registered under the 1940 Act. On
December 7, 2012, the Trust filed with the
Commission an amendment to the Trust’s
registration statement on Form N–1A under the
Securities Act of 1933 (‘‘1933 Act’’) and under the
1940 Act relating to the Fund (File Nos. 333–
174332 and 811–22559) (‘‘Registration Statement’’).
The description of the operation of the Trust and
the Fund herein is based, in part, on the
Registration Statement. In addition, the
Commission has issued an order granting certain
exemptive relief to the Trust under the 1940 Act.
See Investment Company Act Release No. 28468
(October 27, 2008) (File No. 812–13477)
(‘‘Exemptive Order’’).
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45003
Commentary .06 to Rule 8.600
provides that, if the investment adviser
to the investment company issuing
Managed Fund Shares is affiliated with
a broker-dealer, such investment adviser
shall erect a ‘‘fire wall’’ between the
investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio. In addition,
Commentary .06 further requires that
personnel who make decisions on the
open-end fund’s portfolio composition
must be subject to procedures designed
to prevent the use and dissemination of
material nonpublic information
regarding the open-end fund’s
portfolio.7 Commentary .06 to Rule
8.600 is similar to Commentary .03(a)(i)
and (iii) to NYSE Arca Equities Rule
5.2(j)(3); however, Commentary .06 in
connection with the establishment of a
‘‘fire wall’’ between the investment
adviser and the broker-dealer reflects
the applicable open-end fund’s
portfolio, not an underlying benchmark
index, as is the case with index-based
funds. The Adviser is not a brokerdealer but is affiliated with First Trust
Portfolios L.P., a broker-dealer, and has
implemented a fire wall with respect to
its broker-dealer affiliate regarding
access to information concerning the
composition and/or changes to the
portfolio. In the event (a) the Adviser or
any sub-adviser becomes newly
affiliated with a broker-dealer, or (b) any
new adviser or sub-adviser is a
registered broker-dealer or becomes
affiliated with a broker-dealer, it will
implement a fire wall with respect to its
relevant personnel or its broker-dealer
affiliate regarding access to information
7 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
result, the Adviser and its related personnel are
subject to the provisions of Rule 204A–1 under the
Advisers Act relating to codes of ethics. This Rule
requires investment advisers to adopt a code of
ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with
other applicable securities laws. Accordingly,
procedures designed to prevent the communication
and misuse of non-public information by an
investment adviser must be consistent with Rule
204A–1 under the Advisers Act. In addition, Rule
206(4)–7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment
advice to clients unless such investment adviser has
(i) adopted and implemented written policies and
procedures reasonably designed to prevent
violation, by the investment adviser and its
supervised persons, of the Advisers Act and the
Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review
regarding the adequacy of the policies and
procedures established pursuant to subparagraph (i)
above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
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]]>Agencies
[Federal Register Volume 78, Number 143 (Thursday, July 25, 2013)]
[Notices]
[Pages 45001-45003]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-17839]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70007; File No. SR-MIAX-2013-21]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Order Approving Proposed Rule Change To Modify the
Allocation of Directed Orders in Specific Limited Situations
July 19, 2013.
I. Introduction
On May 22, 2013, Miami International Securities Exchange LLC (the
``Exchange'' or ``MIAX'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to Section 19(b)(1) \1\ of the
Securities Exchange Act of 1934 (``Act''),\2\ and Rule 19b-4
thereunder,\3\ a proposed rule change to modify its practice of
allocating Directed Orders. The proposed rule change was published for
comment in
[[Page 45002]]
the Federal Register on June 7, 2013.\4\ The Commission did not receive
any comments on the proposal. This order approves the proposed rule
change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
\4\ See Securities Exchange Act Release No. 69682 (June 3,
2013), 78 FR 34417 (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposal
The Exchange's proposal amends MIAX Rule 514 to modify the
allocation of Directed Orders \5\ to provide that a Directed Lead
Market Maker (``DLMM'') will always receive a minimum participation
allocation of at least one (1) contract. Specifically, the proposal
ensures that the DLMM will be allocated a minimum of one contract in
situations where, due to the Exchange's allocation calculation
methodology and the fact that the Exchange system rounds down any
fractional contract size allocations, the DLMM participation
entitlement allocation would otherwise have resulted in the DLMM being
allocated zero contracts.
---------------------------------------------------------------------------
\5\ A ``Directed Order'' is an order entered into the System by
an Electronic Exchange Member with a designation for a Lead Market
Maker (referred to as a ``Directed Lead Market Maker''). See
Securities Exchange Act Release No. 69507 (May 3, 2013), 78 FR 27269
(May 9, 2013) (SR-MIAX-2013-20).
---------------------------------------------------------------------------
Currently, MIAX Rule 514(h)(1) provides the formula used to
calculate the DLMM participation entitlement. The Rule provides that
the DLMM participation entitlement is equal to the greater of: (i) The
proportion of the total size at the best price represented by the size
of its quote; (ii) sixty percent (60%) of the contracts to be allocated
if there is only one (1) other Market Maker quotation at the NBBO; or
(iii) forty percent (40%) if there are two (2) or more other Market
Maker quotes at the NBBO. According to MIAX, the DLMM participation
entitlement algorithm works well when applied to Directed Orders of a
contract size of three (3) or more. However, as MIAX explained in the
Notice,\6\ for Directed Orders of a contract size of two (2) or fewer,
the DLMM participation entitlement allocation may result in an
allocation of zero due to the fact that the Exchange system rounds down
any fractional contract size allocations.\7\ MIAX provided several
examples in the Notice to illustrate how, in such instances, a Lead
Market Maker to whom the order was specifically directed does not
receive a contract allocation.
---------------------------------------------------------------------------
\6\ See Notice, supra note 4.
\7\ MIAX expressed its belief in the Notice that other competing
exchanges may instead round up in certain situations where there is
a fractional contract size allocation. See Notice, supra note 4.
---------------------------------------------------------------------------
The MIAX proposal amends Rule 514(h)(1) to add a provision to
ensure that DLMMs receive at least one contract of an incoming Directed
Order. Thus, under the proposed rule change, a DLMM will be entitled to
the greatest of: (i) The pro-rata share; (ii) 40% or 60% of the
incoming Directed Order (depending on the number of other Market Makers
quoting along with the DLMM, as described above); or (iii) one (1)
contract. Accordingly, MIAX's proposal will allow the Exchange to
ensure that the Electronic Exchange Member's (``EEM'') Directed Order
would trade a minimum of one contract with the quote of the DLMM, when
the DLMM participation entitlement applies.
III. Discussion and Commission Findings
The Commission has carefully reviewed the proposed rule change and
finds that it consistent with the requirements of the Act.\8\
Specifically, the Commission believes it is consistent with Section
6(b)(5) of the Act,\9\ which requires, among other things, that the
rules of a national securities exchange be 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 mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78f. In approving this proposed rule change, the
Commission has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
\9\ 15 U.S.C. 78f(b)(5).
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The Commission notes that a Directed Order is an order that an EEM
enters into the MIAX system and directs to a particular Lead Market
Maker. As such, EEMs have a reasonable expectation that, in most
situations when the DLMM participation entitlement applies, the EEM's
Directed Order will interact and execute at least partially with the
quote of the DLMM.\10\ However, under MIAX's current rules, solely
because of MIAX's practice of rounding down factional contract sizes
\11\ and its current allocation formula, Directed Orders with a
contract size of two or less may result in the DLMM being allocated
zero contracts. The Commission believes that it is appropriate to allow
MIAX to revise its rules to account for this limited situation and
ensure that DLMMs will receive at least one contract of any order that
is directed to them when the DLMM's participation entitlement
applies.\12\ The Commission believes that this change will allow the
rule to operate as anticipated by EEMs, providing greater certainty of
execution with regard to Directed Orders. Further, the proposed rule
change allows MIAX to effectuate one of the purposes of the Directed
Order participation entitlement; namely, to reward DLMMs for attracting
order flow to the Exchange.
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\10\ The Commission notes, however, that there may be other
situations where the DLMM may not have the opportunity to interact
with the Directed Order. For example, the DLMM participation
entitlement applies only to any remaining balance after Priority
Customer orders have been satisfied. See MIAX Rule 514(g). MIAX Rule
100 defines ``Priority Customer'' as ``a person or entity that (i)
is not a broker or dealer in securities, and (ii) does not place
more than 390 orders in listed options per day on average during a
calendar month for its own beneficial account(s).''
\11\ MIAX noted that other exchanges may not have the same issue
with Directed Orders because their systems round up instead of down
where there are fractional contract size allocations. See supra note
7.
\12\ See supra note 10 (concerning the possibility that a
Priority Customer may have priority).
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The Commission notes that this rule change will not impact the
application of other participation entitlements. For instance, MIAX
Rule 514(i)(1) provides that a PLMM may receive either the PLMM
entitlement or, if applicable, the DLMM entitlement, but not both. As
such, although this proposal will change the allocation for Directed
Orders of two or fewer contacts, it will not, in any way, affect the
small order participation guarantee for PLMMs in MIAX Rule 514(g)(2) or
allow DLMMs to receive both the small order participation entitlement
in that rule and the Directed Order participation entitlement in Rule
514(h). Additionally, under MIAX Rule 514(h)(4), the PLMM and DLMM
participation entitlements never allow for an allocation that is
greater than the quantity of contracts quoted by the PLMM or DLMM.
Furthermore, the Commission notes that the proposed change will not
affect Priority Customers because DLMM participation entitlements may
take effect only after all Priority Customer orders are satisfied.\13\
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\13\ See MIAX Rule 514(h).
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For the foregoing reasons, the Commission believes that the
proposed rule change is consistent with the Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\14\ that the proposed rule change (SR-MIAX-2013-21), is approved.
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\14\ 15 U.S.C. 78f(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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[[Page 45003]]
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-17839 Filed 7-24-13; 8:45 am]
BILLING CODE 8011-01-P
