Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing of Proposed Rule Change To Modify Price Protection Provisions for the Execution of Orders, 12713-12721 [2014-04920]
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Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Notices
determination.12 The proposed rule
change was published for comment in
the Federal Register on September 4,
2013. The 180th day after that
publication is March 3, 2014.
The Commission finds it appropriate
to designate a longer period within
which to issue an order approving or
disapproving the proposed rule change,
as amended, so that it has sufficient
time to consider the amended proposal,
the issues raised in the comment letters
on the amended proposal, and FINRA’s
response to the comments.
Accordingly, the Commission,
pursuant to Section 19(b)(2)(B)(ii)(II) of
the Act,13 designates May 2, 2014, as the
date by which the Commission should
either approve or disapprove the
proposed rule change (SR–FINRA–
2013–036).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–04922 Filed 3–5–14; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 71634; File No. SR–MIAX–
2014–08]
Self-Regulatory Organizations; Miami
International Securities Exchange LLC;
Notice of Filing of Proposed Rule
Change To Modify Price Protection
Provisions for the Execution of Orders
February 28, 2014.
tkelley on DSK3SPTVN1PROD with NOTICES6
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 February
14, 2014, 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 III below, which Items
have been prepared by the selfregulatory 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 is filing a proposal to
amend Exchange Rules 515 and 529 to
U.S.C. 78s(b)(2)(B)(ii)(II).
13 Id.
14 17
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
12 15
modify price protection provisions for
the execution of orders.
The text of the proposed rule change
is 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.
The Exchange proposes to amend
Exchange Rules 515 and 529 to modify
price protection provisions for the
execution of orders to provide market
participants additional flexibility to
designate the level of price protections
for their orders. The Exchange proposes
to: (i) Amend Rule 515(c) to establish a
new price protection for market
participants; (ii) amend Rule 529 to
allow for immediate routing in an
additional situation; and (iii) make
corresponding technical changes
including deleting the language in
current Rule 515(c).
Specifically, the Exchange proposes to
amend Rule 515 to: (a) Amend price
protection functionality as described in
Rule 515(c) to be flexible and
customizable by market participants and
allow for the execution of a non-Market
Maker order at multiple price points
instead of a one-size-fits-all system that
permits executions at a maximum of
two price-points; (b) amend the
handling of incoming routable nonMarket Maker orders as described in
Rule 515(c) to account for the flexibility
of the proposed price protection
functionality; (c) amend the handling of
incoming non-routable non-Market
Maker orders as described in Rule
515(c) to account for the flexibility of
the proposed price protection
functionality; (d) amend the Liquidity
Refresh Pause to account for the
proposed price protection functionality
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12713
which would allow orders to trade at
multiple price-points; (e) amend the
Liquidity Refresh message to include
the exhausted MBBO price instead of
the original NBBO price; (f) amend the
Liquidity Refresh Pause so that a new
quote or order received during a
Liquidity Refresh Pause on the same
side of the market as the initiating
order’s remaining contracts that locks or
crosses the original NBBO will
terminate the Liquidity Refresh Pause
instead of joining the initiating order to
wait for the end of the Pause; (g) amend
the handling of Immediate or Cancel
and Fill or Kills orders during a
Liquidity Refresh Pause so that the
Liquidity Refresh Pause will terminate
early if such orders improve the same
side of the market as the initiating order;
(h) amend the handling of Immediate or
Cancel orders to apply a price
protection system similar to that for
non-Market Maker orders; (i) amend the
handling of Fill-or-Kill orders to apply
a price protection system similar to that
for non-Market Maker orders; and (j)
provide a new Interpretation and Policy
to Rule 515 to codify how the managed
interest is priced when there are
multiple possible execution prices. In
addition, the Exchange proposes to
amend Rule 529 to allow resting Public
Orders to route in a specific scenario.
Finally, the Exchange proposes to make
corresponding technical changes
including deleting the language in
current Rule 515(c) and replacing
references in Rules 516 and 520.
Non-Market Market Orders That Could
Not Be Executed or Could Not Be
Executed in Full at the Original NBBO
Upon Receipt
Rule 515(c) currently details the
execution of non-Market Market orders
that could not be executed or could not
be executed in full at the original NBBO
upon receipt. Proposed Rule 515(c)
continues to address the execution of
such non-Market Maker orders.
However, the Exchange proposes to add
language to explain that such orders,
depending upon the order’s specific
price protection instructions, may be
reevaluated for executions at additional
price-points. Specifically, non-Market
Maker orders that are reevaluated by the
System for execution pursuant to an
order’s price protection instructions that
could not be executed or could not be
executed in full at the NBBO at the time
of reevaluation will be handled in
accordance with the provisions of
Proposed Rule 515(c). The
subparagraphs of Proposed Rule 515(c)
will apply to orders both (i) upon
receipt by the System, and (ii) upon
reevaluation by the System for
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Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Notices
execution and according to the price
protections designated on the order. The
term ‘‘initiating order’’ will be used in
the subparagraphs of Proposed Rule
515(c) to refer to (i) the incoming order
that could not be executed, (ii) the order
reevaluated by the System for execution
that could not be executed, or (iii) the
remaining contracts of the incoming
order or reevaluated order could not be
executed in full. The term ‘‘original
NBBO’’ will be used in the following
paragraphs to refer to the NBBO that
existed at time of receipt of the
initiating order or the NBBO at time of
reevaluation of an order pursuant to
Rule 515. The language added to
Proposed Rule 515(c) is necessary to
accommodate the possibility of a nonMarket Maker executing at multiple
price-points in accordance with the
proposed price protection functionality.
tkelley on DSK3SPTVN1PROD with NOTICES6
Price Protection
Rule 515(c) currently provides a
detailed price protection process that
includes a managed interest process and
liquidity refresh pause. Rule 515(c)
currently imposes a fixed, one
Minimum Price Variation (MPV) price
protection scheme in which incoming
non-Market Maker orders can, at a
maximum, trade at two price-points—at
the original NBBO and one MPV away
from the original NBBO upon receipt.3
Thereafter, the System will cancel the
remaining portion of any order that can
potentially trade at a price more than
one MPV away from the original
NBBO.4
The Exchange believes that the
current price protection functionality is
too rigid and does not meet the needs
of all market participants. Since
commencing operations over one year
ago, both the Exchange and its
participants have gained in knowledge
and experience in the use of the
Exchange System and stand ready for
the next step in its evolution—a more
flexible system of price protection. The
Exchange believes that the additional
flexibility of the proposed price
protection provides market participants
with an invaluable level of protection
on the Exchange in the wake of recent
industry-wide market events. The
Exchange also proposes the
3 The Exchange does not propose to amend the
provisions regarding the execution of orders and
quotes described in Rules 515(b), 515(d), and
515(f)–(h). See Exchange Rules 515(b), (d), (f)–(h).
As discussed below, the Exchange does propose to
amend Rule 515(a), 515(c), and 515(e).
4 See current Exchange Rules 515(c)(1)(ii)(A),
(c)(1)(ii)(B)(1)(b), (c)(1)(ii)(B)(2)(b),
(c)(1)(iii)(A)(1)(a)2), (c)(1)(iii)(A)(1)(b)2),
(c)(1)(iii)(B)(1)(b), and (c)(1)(iii)(B)(2)(b) (instances
where the System cancels orders that are priced
more than one MPV away from the NBBO).
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functionality as part of its broader
response to the Commission’s initiative
regarding such industry-wide market
events.
The Exchange proposes to amend
Rule 515(c) to provide more flexibility
in the price protections offered to
market participants by replacing the
rigid price protection system with a
customizable one where market
participants may specify the level of
price protection by the number of pricepoints at which an order may trade. The
current price protection functionality
does not offer flexibility and caps the
execution of every incoming non-Market
Maker order with a maximum of two
price-points—at the original NBBO at
the time of receipt and one MPV away
from the original NBBO. The Exchange
proposes to replace this rigidity with
flexibility and choice. Specifically, the
Exchange proposes to open up the price
protection functionality so that market
participants may designate, on an order
by order basis, price protection
instructions that are expressed in units
of MPV away from the NBBO at the time
of the order’s receipt, or the MBBO if
the ABBO is crossing the MBBO. Price
protection prevents an order from being
executed beyond the price designated in
the order’s price protection instructions
(the ‘‘price protection limit’’). If a
market participant does not provide
such price protection instructions, the
Exchange proposes implementing a
default price protection consistent with
the current price protection
functionality—one MPV away from the
NBBO at the time of receipt, or the
MBBO if the ABBO is crossing the
MBBO. Currently all incoming nonMarket Marker orders are subject to
price protection functionality. However
in contrast the Exchange now proposes
providing market participants, if they so
choose, with the ability to elect to
disable price protection on an order by
order basis.5 To sum, the proposed price
protection system provides market
participants with greater control over
how their order is executed and allows
for greater interaction with liquidity
both on MIAX and away markets, all
while retaining the protective benefits of
the current system that prevents
incoming non-Market Maker orders
from executing beyond a certain pricepoint. As proposed, an order will be
able to execute up or down to its price
protection—which would be fully
customizable and no longer a one-size5 The Exchange notes that orders will still be
subject to the other price protections systematically
enforced for all orders, e.g., Exchange Rule
503(f)(5), Expanded Quote Range, Exchange Rule
519, MIAX Order Monitor.
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fits-all approach of the current
functionality. When triggered, price
protection will cancel an order or the
remaining contracts of an order.
Consistent with current functionality,
the System will not execute incoming
orders at prices inferior to the NBBO.6
The following example describes the
price protection functionality when a
non-Market Maker limit order trades
until it reaches its price protection
instruction limit.7 In this situation, the
remaining contracts will be cancelled
because the price protection
instructions have been triggered. Price
protection prevents the order in this
example from receiving an execution
beyond the price protection limit,
calculated as a specified number of
MPVs away from the NBBO at the time
of receipt, or the MBBO if the ABBO is
crossing the MBBO, by canceling the
order back to the market participant.
Upon receipt of the cancellation, a
market participant may then elect to
resubmit the order.
EXAMPLE 1: LIMIT PRICE EXCEEDS
PRICE PROTECTION—ORDER TRADED UNTIL PRICE PROTECTION LIMIT
AND IS CANCELED
Market
Bid
Ask
ABBO ............
Order 1 .........
Order 2 .........
Order 3 .........
Order 4 .........
PLMM ...........
1.00 (10)
......................
......................
......................
......................
1.00 (10)
1.20
1.10
1.12
1.15
1.16
1.20
(10)
(10)
(10)
(10)
(10)
(10)
• Order 5: Buy limit of 1.13 for 100
contacts with a price protection
instruction of 2 MPVs
• MBBO at time of arrival = 1.00 (10) ×
1.10 (10)
• NBBO at time of arrival = 1.00 (20) ×
1.10 (10)
• Order 5 is price protected at 1.12
(which is 1.10 + 2 MPV = 1.12)
• Order 5 trades 10 contracts with
Order 1 @ 1.10
• Order 5 trades 10 contracts with
Order 2 @ 1.12
• Order 5’s remaining contracts are then
cancelled because there is no more
interest to trade against at Order 5’s
price protection level of 1.12. Order
5’s remaining contracts are
cancelled and not placed on the
Book because limit price of 1.13
6 See both current and Proposed Exchange Rule
515(a)—this point is unchanged.
7 The non-Market Maker limit order in this
example could be either a Routable or Non-Routable
order as this distinction does not matter because the
order is never subjected to being routed as the
ABBO exceeds the order’s limit. Upcoming
examples will demonstrate the difference between
Routable and Non-Routable orders.
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Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Notices
exceeds its price protection limit of
1.12
The following example describes the
price protection functionality when a
limit order reaches its limit price and
can be displayed.8 Price protection does
not factor into this example as the limit
price is reached before the price
protection price.
EXAMPLE 3: PRICE PROTECTION
EQUALS LIMIT PRICE—LIMIT PRICE
REACHED AND ORDER IS BOOKED—
Continued
Market
Bid
Ask
Order 2 .........
Order 3 .........
Order 4 .........
PLMM ...........
......................
......................
......................
1.00 (10)
1.12
1.15
1.16
1.20
EXAMPLE 2: PRICE PROTECTION EXCEEDS LIMIT PRICE—LIMIT PRICE
• Order 5: Buy limit of 1.13 for 100
REACHED AND ORDER IS BOOKED
contacts with a price protection
Market
Bid
Ask
ABBO ............
Order 1 .........
Order 2 .........
Order 3 .........
Order 4 .........
PLMM ...........
1.00 (10)
......................
......................
......................
......................
1.00 (10)
1.20
1.10
1.12
1.15
1.16
1.20
(10)
(10)
(10)
(10)
(10)
(10)
• Order 5: Buy limit of 1.13 for 100
contacts with a price protection
instruction of 4 MPVs
• MBBO at time of arrival = 1.00 (10) ×
1.10 (10)
• NBBO at time of arrival = 1.00 (10) ×
1.10 (10)
• Order 5 is price protected at 1.14
(which is 1.10 + 4 MPV = 1.14)
• Order 5 trades 10 contracts with
Order 1 @ 1.10
• Order 5 trades 10 contracts with
Order 2 @ 1.12
• Order 5’s remaining contracts are
then placed on the MIAX Book @
1.13 as Order 5 has reached its limit
price of 1.13
The following example describes the
price protection functionality when a
limit order reaches its limit price and
can be displayed.9 In this example, the
order’s limit price and the price
protection price are equal. In these
scenarios, the order will be displayed at
its limit price rather than be canceled.10
(10)
(10)
(10)
(10)
instruction of 3 MPVs
• MBBO at time of arrival = 1.00 (10) ×
1.10 (10)
• NBBO at time of arrival = 1.00 (10) ×
1.10 (10)
• Order 5 is price protected at 1.13
(which is 1.10 + 3 MPV = 1.13)
• Order 5 trades 10 contracts with
Order 1 @ 1.10
• Order 5 trades 10 contracts with
Order 2 @ 1.12
• Order 5’s remaining contracts are
then placed on the MIAX Book @
1.13 as Order 5 has reached its limit
price of 1.13
Routable Non-Market Maker Orders
The Exchange proposes amending the
rules governing routable non-Market
Maker orders (‘‘routable orders’’) to
accommodate for the greater flexibility
of the proposed price protection
functionality described above. Rule
515(c) currently allows routable orders
to, at a maximum, trade at two pricepoints—at the original NBBO and one
MPV away from the original NBBO
upon receipt. Currently, an execution at
the second price point can only occur
on MIAX 11 because after executing at
this second price point at MIAX any
remaining balance 12 will be handled by
the managed interest process 13 rather
than be routed to away markets which
may also be displaying this second
EXAMPLE 3: PRICE PROTECTION
price-point.14 Specifically, if interest is
EQUALS LIMIT PRICE—LIMIT PRICE not available at MIAX at this second
REACHED AND ORDER IS BOOKED
price point, the System will, depending
on the order’s price, either (i) handle
Market
Bid
Ask
any remaining according to the managed
tkelley on DSK3SPTVN1PROD with NOTICES6
ABBO ............
Order 1 .........
1.00 (10)
......................
1.20 (10)
1.10 (10)
8 The non-Market Maker limit order in this
example could be either a Routable or Non-Routable
order as this distinction does not matter because the
ABBO exceeds the order’s limit. Upcoming
examples will demonstrate the difference between
Routable and Non-Routable orders.
9 The non-Market Maker limit order in this
example could be either a Routable or Non-Routable
order as this distinction does not matter because the
ABBO exceeds the order’s limit. Upcoming
examples will demonstrate the difference between
Routable and Non-Routable orders.
10 See Proposed Rule 515(c)(1)(i)(C) and
(c)(1)(ii)(C).
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11 See current Exchange Rule 515(c)(1)(ii)(B)(1)
(the Exchange System will execute such an order
against the MIAX bid or offer one MPV beyond the
original NBBO).
12 Remaining balance of a limit order with a limit
price at this second price-point are handled
according to the managed order process. See current
Exchange Rule 515(c)(1)(ii)(B)(1)(a). Market orders
or orders with a limit price beyond this second
price-point are cancelled. See current Exchange
Rule 515(c)(1)(ii)(B)(1)(b).
13 Managed interest process allows the System,
inter alia, to display an order at a price that avoids
locking or cross the NBBO. See current Exchange
Rule 515(c)(2).
14 See current Exchange Rule 515(c)(1)
(ii)(B)(1)(a).
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12715
interest process rather than routing to an
away market that may be displaying
interest at this second price-point,15 or
(ii) cancel the remaining balance.16
The Exchange proposes adding greater
flexibility to the price protection
functionality as applied to routable
orders. As proposed, the System will
seek to trade routable orders to the
extent possible at MIAX first before
routing to the ABBO. The System will
trade and/or route a routable order until
the first of: The order is fully executed;
the order has traded or routed to and
including its price protection limit; or
the order has traded or routed to and
including its limit price. A routable
order that would otherwise trade and/or
route through its price protection limit
will be canceled. For a routable order
that has traded or routed to and
including its limit price, the System will
display and book the order at its limit
price to await further execution in
accordance with Rule 515. As current,
the System will not execute such orders
at prices inferior to the current NBBO.
Consistent with the current rule, the
routing of routable orders will be
handled in accordance with Rule 529.
The following example describes the
how the price protection will handle
routable non-Market Maker orders. In
this example, the order routes at
multiple price-points, with each price
point triggering a Route Timer,17 and
the order’s remaining contracts
eventually get cancelled because it has
routed at prices up to and including its
price protection instructions. Price
protection prevents an order from
receiving an execution beyond a specific
price, calculated as a specified number
of MPVs away from the NBBO at the
time of receipt, or the MBBO if the
ABBO is crossing the MBBO, by
canceling the order back to the market
participant. The Exchange notes that
after each route, the System will
reevaluate the order to consider any
15 Orders that cross the original NBBO are
handled according to the managed interest process
in these scenarios. See current Exchange Rule
515(c)(1)(ii)(B)(2)(a).
16 Market orders and orders with a limit price that
crosses the original NBBO by more than one MPV
are canceled in these scenarios. See current
Exchange Rule 515(c)(1)(ii)(B)(2)(b).
17 The System will handle any routing of a
routable order according to Exchange Rule 529. See
Proposed Rule 515(c)(1)(i). Currently, such routable
orders are only eligible to route once—to away
markets displaying the NBBO upon receipt—with
any remaining balance either being handled
according to the managed interest process or
cancelled. See current Exchange Rule
515(c)(1)(ii)(B). Since the proposed price protection
functionality allows routable orders to trade and
route at multiple price-points, it is possible for
Route Timers to be triggered at multiple pricepoints.
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updates to the away market quotes in
the next decision.
EXAMPLE 4: ROUTABLE ORDER—
PRICE PROTECTION LIMIT REACHED
AND ORDER CANCELED
Bid
MIAX .............
MKT1 ............
MKT2 ............
MKT3 ............
MKT4 ............
tkelley on DSK3SPTVN1PROD with NOTICES6
Market
1.00
1.00
1.00
1.00
1.00
Ask
(10)
(10)
(10)
(10)
(10)
1.20
1.10
1.12
1.15
1.16
(10)
(10)
(10)
(10)
(10)
• Order 1: Buy limit of 1.13 for 100
contacts with a price protection
instruction of 2 MPVs
• NBBO at time of arrival = 1.00 (50) ×
1.10 (10)
• Order 1 is price protected at 1.12
(which is 1.10 + 2 MPV = 1.12)
• Route Timer is triggered as Order 1
is eligible to route to MKT1
• MBBO is updated: 1.09 (100) × 1.20
(10)
• Route Timer expires and 10
contracts of Order 1 are routed to
MKT1 @ 1.10
• The System will reevaluate Order 1
pursuant to Rule 515 to trade, post,
route, or cancel considering any
updates to the away market
quotes—assume for the example
that no market has updated it quote
• NBO at time of reevaluation: 1.12
(10) (MKT 2)
• The NBO of 1.12 is within Order 1’s
price protection limit of 1.12
• Route Timer is triggered as Order 1
is eligible to route to MKT2
• MBBO is updated: 1.11 (90) × 1.20
(10)
• Route Timer expires and 10
contracts of Order 1 are routed to
MKT2 @ 1.12
• The System will reevaluate Order 1
pursuant to Rule 515 to trade, post,
route, or cancel considering any
updates to the away market
quotes—assume for the example
that no market has updated it quote
• NBO at time of reevaluation: MKT
3’s 1.15 (10) (MKT 3)
• The NBO of 1.15 is outside of Order
1’s price protection limit of 1.12
• Order 1’s remaining 80 contracts are
then cancelled because it has been
routed until its price protection
limit of 1.12. Order 1 cannot
displayed at its limit of 1.13
because this could allow Order 1 to
be execution at a price (1.13)
exceeding its price protection limit
(1.12)
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EXAMPLE 5: ROUTABLE ORDER—
QUOTE UPDATE AND ORDER IS
FULLY EXECUTED
Market
Bid
MIAX .............
MKT1 ............
MKT2 ............
MKT3 ............
MKT4 ............
1.00
1.00
1.00
1.00
1.00
Ask
(10)
(10)
(10)
(10)
(10)
1.20
1.10
1.12
1.15
1.16
(10)
(10)
(10)
(10)
(10)
• Order 1: Buy limit of 1.13 for 100
contacts with a price protection
instruction of 2 MPVs
• NBBO at time of arrival = 1.00 (50) ×
1.10 (10)
• Order 1 is price protected at 1.12
(which is 1.10 + 2 MPV = 1.12)
• Route Timer is triggered as Order 1
is eligible to route to MKT1
• MBBO is updated: 1.09 (100) × 1.20
(10)
• Route Timer expires and 10
contracts of Order 1 are routed to
MKT1 @ 1.10
• The System will reevaluate Order 1
pursuant to Rule 515 to trade, post,
route, or cancel considering any
updates to the away market
quotes—assume for the example
that MKT 4 has updated its quote:
1.00 (10) × 1.12 (80)
• NBO at time of reevaluation: 1.12
(90) (MKT 2 and MKT 4)
• The NBO of 1.12 is within Order 1’s
price protection limit of 1.12
• Route Timer is triggered as Order 1
is eligible to route to MKT 2 and
MKT 4
• Route Timer expires and 10
contracts are routed to MKT 2 @
1.12 and 80 contracts of Order 1 are
routed to MKT4 @ 1.12
• Order 1 has been fully executed
• The System will reevaluate Order 1
pursuant to Rule 515 to trade, post,
route, or cancel considering any
updates to the away market
quotes—assume for the example
that no market has updated it quote
• NBO at time of reevaluation: 1.12
(10) (MKT 2)
• The NBO of 1.12 is within Order 1’s
price protection limit of 1.12
• Route Timer is triggered as Order 1
is eligible to route to MKT2
• MBBO is updated: 1.11 (90) × 1.20
(10)
• Route Timer expires and 10
contracts of Order 1 are routed to
MKT2 @ 1.12
• The System will reevaluate Order 1
pursuant to Rule 515 to trade, post,
route, or cancel considering any
updates to the away market
quotes—assume for the example
that no market has updated its
quote
• Order 1’s remaining 80 contracts are
placed on the Book at its limit price
of 1.12
• MBBO is updated: 1.12 (80) × 1.20
(10)
Non-Routable Non-Market Maker Orders
The Exchange proposes amending the
rules governing non-routable nonMarket Maker orders (‘‘non-routable
orders’’) to accommodate for the greater
flexibility of the proposed price
protection functionality described
above. Rule 515(c) currently allows nonroutable orders to, at a maximum, trade
at two price-points—at the original
NBBO and one MPV away from the
original NBBO upon receipt. Thereafter,
the System will cancel the remaining
EXAMPLE 6: ROUTABLE ORDER—LIMIT portion of any order that can potentially
MPV
PRICE REACHED AND ORDER IS trade at a price more than one 18
away from the original NBBO.
BOOKED
Consistent with the current price
protections, a non-routable order will
Market
Bid
Ask
never be routed outside of the Exchange
MIAX .............
1.00 (10)
1.20 (10) regardless of prices displayed by away
MKT1 ............
1.00 (10)
1.10 (10) markets and can trade on the Exchange
MKT2 ............
1.00 (10)
1.12 (10) at a price equal to or better than, but not
MKT3 ............
1.00 (10)
1.15 (10) inferior to, the ABBO. As current, the
MKT4 ............
1.00 (10)
1.16 (10) System will not execute such orders at
prices inferior to the current NBBO. The
• Order 1: Buy limit of 1.12 for 100
Exchange proposes adding flexibility to
contacts with a price protection
the price protection functionality as
instruction of 2 MPVs
applied to non-routable orders by
• NBBO at time of arrival = 1.00 (50) ×
allowing the System to trade a non1.10 (10)
routable order until the first of: The
• Order 1 is price protected at 1.12
order is fully executed; the order has
(which is 1.10 + 2 MPV = 1.12)
traded to and including its price
• Route Timer is triggered as Order 1
is eligible to route to MKT1
18 See current Exchange Rule 515(c)(1)(ii)(A),
• MBBO is updated: 1.09 (100) × 1.20
(c)(1)(iii)(A)(1)(a)(2), (c)(1)(iii)(A)(1)(b)(2),
(10)
(c)(1)(iii)(B)(1)(b), and (c)(1)(iii)(B)(2)(b) (instances
• Route Timer expires and 10
where the System cancels non-routable orders that
contracts of Order 1 are routed to
are priced more than one MPV away from the
MKT1 @1 1.10
NBBO).
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protection limit; or the order has traded
to and including its limit price. A nonroutable order that reaches its price
protection limit before its limit price
will be canceled. If a non-routable order
reaches its limit price, the System will
attempt to display this non-routable
order at its limit price. However, if its
limit price would lock or cross the
current opposite side NBBO, the System
will display the order one MPV away
from the current opposite side NBBO,
and book the order at a price that will
lock the current opposite side NBBO.
Should the NBBO price change to an
inferior price level, the order’s Book
price will continuously re-price to lock
the new NBBO and the managed order’s
displayed price will continuously reprice one MPV away from the new
NBBO until the order’s has traded to
and including its limit price, has traded
to and including its price protection
limit at which any remaining contracts
are cancelled, is fully executed, or is
cancelled. If the Exchange receives a
new order or quote on the opposite side
of the market from the managed order
that can be executed, the System will
immediately execute the remaining
contracts from the initiating order to the
extent possible at the order’s current
Book price, provided that the execution
price does not violate the current NBBO.
If unexecuted contracts remain from the
initiating order, the order’s size will be
revised and the MBBO disseminated to
reflect the order’s remaining contracts.
The following example describes how
the price protection will handle nonroutable non-Market Maker orders. In
this example, the non-routable order
trades at multiple price-points on MIAX
until it reaches the ABBO. The order is
then managed as to avoid locking or
crossing the ABBO. Subsequently, an
incoming opposite side order trades
with the managed order at the MIAX
Book price.
EXAMPLE 7: PRICE PROTECTION-NONROUTABLE ORDER GETS MANAGED
Bid
Ask
ABBO ............
Order 1 .........
Order 2 .........
Order 3 .........
Order 4 .........
tkelley on DSK3SPTVN1PROD with NOTICES6
Market
1.00 (10)
......................
......................
......................
......................
1.12
1.10
1.12
1.15
1.16
(10)
(10)
(10)
(10)
(10)
• Order 5: Do Not Route Buy limit of
1.13 for 100 contacts with a price
protection instruction of 3 MPVs
• NBBO at time of arrival = 1.00 (10) ×
1.10 (10)
• Order 5 is price protected at 1.13
(which is 1.10 + 3 MPV = 1.13)
• Order 5 trades 10 contracts with
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Order 1 @ 1.10
• Order 5 trades 10 contracts with
Order 2 @ 1.12
• Order 5’s remaining contracts are
then displayed in the MIAX Bid @
1.11 as to not lock the Away Best
Offer of 1.12, but remain available
to trade on the MIAX Book @ 1.12
• Order 6: Sell limit of 1.10 for 10
contracts
• Order 5 trades 10 contracts with
Order 6 @ 1.12
Liquidity Refresh Pause
The Liquidity Refresh Pause, as
proposed, will continue to operate in
substantially the same manner as today,
except where noted below. The
Liquidity Refresh Pause will continue to
apply in the following situation: (A)
Either the initiating order is a limit
order whose limit price crosses the
NBBO or the initiating order is a market
order, and the limit order or market
order could only be partially executed;
(B) a Market Maker quote was all or part
of the MBBO when the MBBO is alone
at the NBBO; and (C) and the Market
Maker quote was exhausted. However,
the Liquidity Refresh Pause mechanism,
as proposed, will apply either upon
receipt or reevaluation of an initiating
order. This change is consistent with the
new price protection functionality
described above, which can allow an
order to trade at multiple price-points—
not just at the price-point of the NBBO
upon the receipt of an order. Allowing
orders to trade at multiple price-points
necessitates a change in the language
describing the Liquidity Refresh Pause
as it too can apply at multiple pricepoints. Hence the proposed rule adopts
the term ‘‘reevaluation’’ together with
‘‘upon receipt,’’ with the latter applying
to the first price-point and the former
applying to subsequent price-points.
The System will continue to broadcast
a liquidity refresh message in largely the
same manner as today. In addition to
providing a description of the option
and the size and side of the order, the
Exchange proposes to include the
exhausted MBBO price in the liquidity
refresh message broadcast to subscribers
of the Exchange’s data feeds.19
Consistent with this, the Exchange
proposes to display the remainder of the
initiating order at ‘‘the exhausted MBBO
price’’ instead of ‘‘the original NBBO
price, which has been exhausted’’ as
currently described in Rule
515(c)(iii)(A). This change is consistent
19 The Exchange notes that broadcast message
will be sent to subscribers of the Exchange’s data
feeds and not disseminated to OPRA, in the same
manner as today. As such, this broadcast message
itself does not qualify as a Protected Bid or
Protected Offer. See Exchange Rule 1400(o).
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12717
with the new price protection
functionality described above which can
allow an order to trade at multiple
price-points—not just the original
NBBO. Allowing orders to trade at
multiple price-points necessitates a
change in the language describing the
Liquidity Refresh Pause message as the
Liquidity Refresh Pause can apply at
multiple price-points. Hence the
proposed rule adopts the term ‘‘the
exhausted MBBO’’ in place of ‘‘the
original NBBO’’ because the latter seems
only to apply to the first price-point
while the former can apply to the first
price-point and any other subsequent
price-points.
The Exchange proposes amending the
handling of new quotes or orders that
arrive during a Liquidity Refresh Pause
on the same side of the initiating order’s
remaining contracts, which locks or
crosses the original NBBO. Currently,
such orders are added to the MBBO and
the Pause continues to run. The
Exchange proposes that the Liquidity
Refresh Pause terminate early and the
System process all quotes and orders in
the order in which they were received.
The Exchange believes the termination
of the Liquidity Pause in these scenarios
necessary to allow the displayed
opposite side of MBBO to receive an
immediate execution. The initiating
order and any new order(s) or quote(s)
on the same side of the market received
during the liquidity refresh pause will
be processed in the order in which they
were received. Thus, the initiating order
will be executed first and any additional
order(s) or quote(s) will be executed in
order of receipt.
The Exchange proposes that if at the
end of the Liquidity Refresh Pause all
orders and quotes were not completely
filled or cancelled, the System will
reevaluate the order for execution
pursuant to Rule 515 until exhausted.
This change is consistent with the new
price protection functionality described
above which can allow an order to trade
at multiple price-points.
Lastly, the Exchange proposes to
amend how Immediate or Cancel
(‘‘IOC’’) and Fill or Kill (‘‘FOK’’) orders
interact with the Liquidity Refresh
Pause. Currently, if the Exchange
receives an Immediate or Cancel
(‘‘IOC’’) or a Fill or Kill (‘‘FOK’’) order
on the same side of the market as the
initiating order’s remaining contracts,
the System will immediately cancel the
IOC and FOK orders. The Exchange
proposes to amend this so that if the
Exchange receives an IOC or FOK order
on the same side of the market as the
initiating order’s remaining contracts,
the System will immediately cancel the
IOC and FOK orders unless the IOC or
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FOK order on the same side of the
market as the initiating order locks or
crosses the opposite side NBBO, in
which case the liquidity refresh pause
will be terminated early. If the liquidity
refresh pause was terminated due to the
receipt of an IOC or FOK, the initiating
order and any new order(s) or quote(s)
on the same side of the market received
during the liquidity refresh pause and
the IOC or FOK will be processed in the
order in which they were received, with
the initiating order being processed first
and the IOC or FOK being processed
last.
The following example describes how
the revised Liquidity Refresh Pause will
operate in the price protection process.
Specifically, this example shows how
the System will reevaluate an order
which can result in multiple Liquidity
Refresh Pauses with the proposed
flexibility of the price protection
functionality which can allow
executions at multiple price-points.
EXAMPLE 8: PRICE PROTECTION—
MULTIPLE LIQUIDITY REFRESH PAUSES
• Liquidity Refresh message is
broadcasted on the Exchange’s data
feeds: Buy 80 contracts, exhausted
MBO of 1.12
• Liquidity Refresh Pause expires
• The System will reevaluate Order
1 pursuant to Rule 515 to trade,
post, route, or cancel considering
any updates to the away market
quotes—assume for the example
that there are no updates
• Order 1’s remaining contracts are
then placed on the MIAX Book @
1.13 as Order 1 has reached its limit
price of 1.13
• MBBO 1.13 (80) × 1.15 (10)
The following examples describes
how an order entered during the
Liquidity Refresh Pause on the same
side as the initiating order’s remaining
contracts at a price that locks the
original NBBO will terminate the
Liquidity Refresh Pause early.
EXAMPLE 9: SAME SIDE INTEREST
TERMINATES THE LIQUIDITY REFRESH PAUSE EARLY
Market
Bid
ABBO ............
PLMM ...........
LMM 1 ...........
LMM 2 ...........
RMM 1 ..........
tkelley on DSK3SPTVN1PROD with NOTICES6
Market
1.00
1.00
1.00
1.00
1.00
(10)
(10)
(10)
(10)
(10)
1.14
1.10
1.12
1.15
1.16
(10)
(10)
(10)
(10)
(10)
• Order 1: Buy limit of 1.13 for 100
contacts with a price protection
instruction of 3 MPVs
• NBBO at time of arrival = 1.00 (50)
× 1.10 (10)
• Order 1 is price protected at 1.13
(which is 1.10 + 3 MPV = 1.13)
• Order 1 trades 10 contracts with
PLMM @ 1.10
• Liquidity Refresh Pause is
triggered because the MBO of 1.10
was alone at NBBO and PLMM’s
1.10 offer was exhausted
• MBBO 1.10 (90) × 1.12 (10)
• Liquidity Refresh message is
broadcasted on the Exchange’s data
feeds: Buy 90 contracts, exhausted
MBO of 1.10
• Liquidity Refresh Pause expires
• The System will reevaluate Order
1 pursuant to Rule 515 to trade,
post, route, or cancel considering
any updates to the away market
quotes—assume for the example
that there are no updates
• Order 1 trades 10 contracts with
LMM1 @ 1.12
• Liquidity Refresh Pause is
triggered because the MBO of 1.12
offer was alone at NBBO and
LMM1’s 1.12 offer was exhausted
• MBBO 1.12 (80) × 1.15 (10)
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Bid
ABBO ............
PLMM ...........
LMM 1 ...........
LMM 2 ...........
RMM 1 ..........
1.00
1.00
1.00
1.00
1.00
Ask
Ask
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(10)
(10)
(10)
(10)
(10)
1.14
1.10
1.12
1.15
1.16
(10)
(10)
(20)
(10)
(10)
• Order 1: Buy limit of 1.13 for 20
contacts with a price protection
instruction of 3 MPVs
• NBBO at time of arrival = 1.00 (50) ×
1.10 (10)
• Order 1 is price protected at 1.13
(which is 1.10 + 3 MPV = 1.13)
• Order 1 trades 10 contracts with
PLMM @ 1.10
• Liquidity Refresh Pause is triggered
because the MBO of 1.10 was alone
at NBBO and PLMM’s 1.10 offer
was exhausted
• MBBO 1.10 (10) × 1.12 (20)
• Liquidity Refresh message is
broadcasted on the Exchange’s data
feeds: Buy 10 contracts, exhausted
MBO of 1.10 20
• Order 2: Buy limit of 1.12 for 10
contracts
• Liquidity Refresh Pause is
terminated early upon the arrival of
Order 2 because Order 2 is at a
price that would lock the MBO of
1.12
• Order 1 trades 10 contracts with
LMM1 @ 1.12. Order 1 has been
fully executed. Order 2 traded 10
contracts with LMM1 @ 1.12. Order
20 Note that the pricing information contained in
the Liquidity Refresh message (Buy 10 contracts,
exhausted MBO of 1.10) corresponds to the MBB
(1.10 (10)).
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2 and LMM1’s offer have been fully
executed.
• New MBBO: 1.00 (40) × 1.15 (10)
EXAMPLE 10: SAME SIDE INTEREST
TERMINATES THE LIQUIDITY REFRESH PAUSE EARLY
Market
Bid
ABBO ............
PLMM ...........
LMM 1 ...........
LMM 2 ...........
RMM 1 ..........
1.00
1.00
1.00
1.00
1.00
Ask
(10)
(10)
(10)
(10)
(10)
1.14
1.10
1.12
1.15
1.16
(10)
(10)
(10)
(10)
(10)
• Order 1: Buy limit of 1.13 for 20
contacts with a price protection
instruction of 3 MPVs
• NBBO at time of arrival = 1.00 (50) ×
1.10 (10)
• Order 1 is price protected at 1.13
(which is 1.10 + 3 MPV = 1.13)
• Order 1 trades 10 contracts with
PLMM @ 1.10
• Liquidity Refresh Pause is triggered
because the MBO of 1.10 was alone
at NBBO and PLMM’s 1.10 offer
was exhausted
• MBBO 1.10 (10) × 1.12 (10)
• Liquidity Refresh message is
broadcasted on the Exchange’s data
feeds: Buy 10 contracts, exhausted
MBO of 1.10
• Order 2: Buy limit of 1.12 for 10
contracts
• Liquidity Refresh Pause is
terminated early upon the arrival of
Order 2 because Order 2 is at a
price that would lock the MBO of
1.12
• Order 1 trades 10 contracts with
LMM1 @ 1.12. Order 1 gets priority
over Order 2 as Order 1 was the
initiating order. Order 1 has been
fully executed and Order 2 is
Booked
• New MBBO: 1.12 (10) × 1.15 (10)
Handling of Immediate-or-Cancel (IOC)
Orders
The Exchange also proposes
amending Rule 515(e) to provide that
market participants may designate price
protection instructions on an order by
order basis for IOC orders in the manner
described in Rule 515(c)(1). Specifically,
this includes: (i) Price protection
instructions being expressed in units of
MPV away from the NBBO at the time
of the order’s receipt, or the MBBO if
the ABBO is crossing the MBBO; (ii) the
default price protection being one MPV
away from the NBBO at the time of
receipt, or the MBBO if the ABBO is
crossing the MBBO; and (iii) market
participants being able to elect to
disable price protection on an order by
order basis. In addition, the Exchange
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tkelley on DSK3SPTVN1PROD with NOTICES6
proposes that IOC orders would be
allowed to trade at multiple prices not
to exceed the IOC order’s limit price or
the order’s price protection limit,
provided the execution does not trade at
a price inferior to the current ABBO.
This change is consistent with the new
price protection functionality described
above which will allow orders to trade
at multiple price-points until an order’s
limit price or price protection limit. The
Exchange believes that market
participants will benefit from the
change as such IOC orders will be able
to access more liquidity on the
Exchange than current functionality that
limits the IOC order to just one pricepoint.
Handling of Fill-or-Kill (‘‘FOK’’) Orders
The Exchange also proposes
amending Rule 515(f) to provide that
market participants may designate price
protection instructions on an order by
order basis for FOK orders in the
manner described in Rule 515(c)(1).
Specifically, this includes: (i) Price
protection instructions being expressed
in units of MPV away from the NBBO
at the time of the order’s receipt, or the
MBBO if the ABBO is crossing the
MBBO; (ii) the default price protection
being one MPV away from the NBBO at
the time of receipt, or the MBBO if the
ABBO is crossing the MBBO; and (iii)
market participants being able to elect to
disable price protection on an order by
order basis. In addition, the Exchange
proposes that if an FOK order is fully
executable against orders and quotes in
the System and MIAX is at the NBBO
when an FOK order is received or
reevaluated after the termination of a
liquidity refresh pause by the System,
the System will execute the FOK order
at the NBBO price or better and if the
FOK order could not be executed in full
at a single price, the FOK order is
cancelled. If the MBBO is not at the
NBBO at the time the FOK order is
received or reevaluated after the
termination of a liquidity refresh pause
or the FOK order is not fully executable
against any orders or quotes in the
System, the FOK order will be
immediately cancelled. Contracts
remaining from an FOK order will not
be eligible for automatic resubmission
as a new order for Members who have
instructed the Exchange in writing to reenter remaining contracts. The
Exchange believes that market
participants will benefit from the
change as such FOK orders will be
provided with an additional
opportunity, after the termination of a
liquidity refresh pause, to access more
liquidity on the Exchange than current
functionality that limits the FOK order
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17:49 Mar 05, 2014
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to just one opportunity upon receipt.
The Exchange believes this necessary
because an FOK order that arrives
during a liquidity refresh pause and
causes the liquidity refresh pause to
terminate early may not be able to
access the contra-side liquidity because
it was not the initiating order. However,
the FOK order may be able to execute
with interest at the next price point on
the Exchange after the termination of
the liquidity refresh pause.
Finally, the Exchange proposes a
technical modification to the language
of Rule 515(f). Specifically, the
Exchange proposes deleting the phrase
‘‘contracts remaining from’’ when
discussing that FOK orders will not be
eligible for automatic resubmission. The
proposed revisions make it clear that the
entirety of an FOK order is not eligible
for resubmission as there cannot
actually be contracts remaining from an
FOK order, which by its definition will
either be executed in its entirety or
cancelled and can never receive a
partial execution.
Interpretation and Policy .02
The Exchange proposes to add new
Interpretation and Policy .02 to Rule 515
to codify how the managed interest is
priced when there are multiple possible
execution prices. Specifically, during
the managed interest process, if
managed interest becomes tradable at
multiple price points on MIAX due to
the ABBO transitioning from a crossed
state to an uncrossed state, the midpoint
of the MBBO, rounded up to the nearest
MPV if necessary, will be used for the
initial trade price. If locking or crossing
interest remains, the next trade occurs at
the Book price of the interest with lesser
size. Trades will continue to occur until
(a) all locking or crossing interest has
been satisfied, (b) the ABBO is reached
at which the interest will be managed
according to subparagraph (c)(1)(ii), (c)
the order’s limit price with any
remaining contracts being booked, or (d)
the order’s price protection limit at
which any remaining contracts being
canceled. This provision regarding
midpoint pricing of the execution in
this narrow scenario codifies existing
functionality during the managed
interest process, while updating the
functionality to correspond with new
price protection functionality described
above. The Exchange believes that using
the midpoint as the initial execution
price in this situation promotes just and
equitable principals for trade among
parties to the execution.
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EXAMPLE 11: MIDPOINT EXECUTION OF
MANAGED INTEREST
Market
MIAX .............
MKT 1 ...........
MKT 2 ...........
Bid
Ask
1.00 (10)
1.00 (10)
1.15 (10)
1.20 (10)
1.10 (10)
1.20 (10)
• Order 1: Buy limit of 1.20 for 10
contacts with Do Not Route
instructions
• Order 1 cannot route to MKT1
because of its Do Not Route
instructions
• Order 1 will be placed on the MIAX
Book @ 1.10, but displayed in the
MIAX Bid @ 1.09 as to not lock
MKT1’s 1.10 ask
• Updated MBBO 2: 1.09 (10) × 1.20
(10)
• Order 2: Sell limit of 1.11 for 10
contracts with Do Not Route
instructions
• Order 2 cannot route to MKT2
because of its Do Not Route
instructions
• Order 2 cannot trade with Order 1
because Order 1 has been placed on
the Book at a price of 1.10—which
is both inferior to the NBB of 1.15
and below Order 2’s limit price of
1.11
• Order 2 will be placed on the MIAX
Book @ 1.15, but displayed in the
MIAX Ask @ 1.16 as to not lock
MKT2’s 1.15 bid
• Updated MBBO 3: 1.09 (10) × 1.16
(10)
• MKT1 and MKT2 display new quotes
that no longer cross:
• MKT 1: 1.00 (10) × 1.20 (10)
• MKT 2: 1.00 (10) × 1.20 (10)
• MBBO 3 (1.09 (10) × 1.16 (10)) now
represents the NBBO
• Order 1 has been Booked at 1.10,
but has an actual limit price of 1.20
• Order 2 has been Booked at 1.15,
but has an actual limit price of 1.11
• Order 1’s buy limit of 1.20 crosses
Order 2’s sell limit of 1.11 and the
two orders can trade an multiple
price points—anywhere from 1.11
up to 1.20
• Order 1 and Order 2 trade 10
contracts at 1.13, which represents
the midpoint of the MBBO (1.09 ×
1.16 yields a 1.125 midpoint)
rounded up to the nearest MPV
(1.13)
Amendments to Rule 529
Currently the Exchange does not route
Public Orders once they are resting on
the book. The Exchange proposes to
amend Rule 529 to provide that Public
Customer orders resting on the book
will not initiate a route timer, but may
be routed with an incoming Public
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Customer order that has initiated a
Route Mechanism (‘‘initiating order’’).
Specifically, if at the time of receipt of
the initiating Public Customer order, the
opposite side ABBO is also locking or
crossing the same side MBBO, the
System will immediately route the
initiating Public Customer order,
together with any routable interest
resting at the same side MBBO, to the
opposite side ABBO. The initiating
Public Customer and any routable
resting interest will be processed in the
order in which they were received. The
Exchange believes that this change will
benefit Public Customers by allowing
the Public Customer order to
immediately access marketable liquidity
available at an away market. The
immediate routing of routable orders in
this instance will also benefit the greater
options market system as a whole, in
that it may help to resolve undesirable
crossed markets.
tkelley on DSK3SPTVN1PROD with NOTICES6
Technical Changes
Consistent with changes described
above, the Exchange proposes deleting
the current language in Rule 515(c) in
whole to replace it with the new
provisions described above. The
Exchange believes that the language in
current Rule 515(c) is repetitive and
difficult to follow. In choosing to
replace it with the language of proposed
Rule 515(c) the Exchange hopes to
produce a rule text sufficiently clear to
provide members with a better
understanding of Exchange
functionality.
Additionally, the Exchange proposes
technical amendments to Exchange Rule
516(b)(3), and 516(g) and Interpretation
and Policy .04 to Rule 520 to
accommodate the proposed movement
of the language explaining the managed
interest process from current Rule
515(c)(2) to proposed Rule 515(c)(1)(ii).
Because of the technology changes
associated with this rule proposal, the
Exchange will announce the
implementation date of the proposal in
a Regulatory Circular to be published no
later than 30 days after the publication
of the approval order in the Federal
Register. The implementation date will
be no later than 30 days following
publication of the Regulatory Circular
announcing publication of the approval
order in the Federal Register.
2. Statutory Basis
MIAX believes that its proposed rule
change is consistent with Section 6(b) of
the Act 21 in general, and furthers the
objectives of Section 6(b)(5) of the Act 22
21 15
22 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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17:07 Mar 05, 2014
Jkt 232001
in particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, to remove
impediments to and perfect the
mechanisms of a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
Specifically, the Exchange believes
the proposed price protection
functionality will remove impediments
to and perfect the mechanism of a free
and open market by providing members
with greater flexibility and control over
how orders interact with liquidity both
on the Exchange and, if routable, on
away markets. Instead of imposing a
rigid one-size-fits-all price protection
mechanism, the proposed functionality
allows for customization and choice on
the part of a member entering a nonMarket Maker order. As proposed, the
member can select how many price
points beyond the NBBO at the time of
the order’s receipt the member would
like the order to trade. This opens up
the possibility of orders to trade on the
Exchange and route to away markets at
multiple price-points, instead of the
more restrictive current maximum of
two price-points. This proposal allows
market participants to access greater
liquidity both on the Exchange, thus
benefiting Exchange members, and on
away markets, thus benefiting the
options market as a whole.
The Exchange believes that proposed
changes to Rules 515, specifically the
handlings of routable and non-routable
orders addressed in this filing, are
consistent with the stated goals of and
necessary to achieve the proposed
expansion of the price protection
functionality. Allowing routable and
non-routable orders to be reevaluated
and trade at multiple price points will
allow such orders to access greater
liquidity and improve the mechanism of
price discovery. Allowing routable
orders to be routed away at multiple
price points will benefit the options
market as a whole as this will improve
the chances of market participants at
these other options exchanges of
receiving an execution. This too will
help improve the mechanism of price
discovery.
The Exchange believes that the
proposed changes to the Liquidity
Refresh Pause mechanism addressed in
this filing are consistent with the stated
goals of and necessary to achieve the
proposed expansion of the price
protection functionality. Allowing the
liquidity refresh pause mechanism to
PO 00000
Frm 00035
Fmt 4703
Sfmt 4703
apply at multiple price points will help
promote a fair and orderly market as the
liquidity refresh pause allows MIAX
participants to add liquidity and price
stabilization. Allowing MIAX to display
‘‘the exhausted MBBO’’ in the liquidity
refresh pause message will better inform
MIAX participants regarding the price at
which to supply additional liquidity
and is necessary given a liquidity
refresh pause mechanism that can apply
at multiple price-points beyond ‘‘the
original NBBO.’’ The Exchange believes
that the change regarding terminating a
liquidity refresh pause when a new
quote or order is received during a
Liquidity Refresh Pause on the same
side of the market as the initiating
order’s remaining contracts that locks or
crosses the original NBBO will protect
the opposite side interest by allowing
the opposite side interest to receive an
execution.
The Exchange believes that permitting
IOC orders to execute at multiple pricepoints removes a market impediment as
this change will allow IOC orders to
access additional liquidity on the
Exchange, thus benefiting both the
sender of the IOC and the members
providing the additional liquidity.
The Exchange believes that permitting
FOK orders the additional opportunity
for an execution after causing a liquidity
refresh pause to terminate early will
allow FOK orders to access additional
liquidity on the Exchange, thus
benefiting both the sender of the FOK
and the members providing the
additional liquidity.
Finally, the Exchange believes that its
proposed modifications to its Immediate
Routing mechanism 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 by allowing the Public
Customer order to immediately access
marketable liquidity available at an
away market in a manner that may help
to resolve undesirable crossed markets.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange notes that it operates in a
highly competitive market in which
market participants can readily direct
order flow to competing venues who
offer similar functionality. As to intermarket competition, the Exchange notes
proposed price protection functionality
will benefit competing exchanges
because routable orders will be eligible
E:\FR\FM\06MRN1.SGM
06MRN1
Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Notices
to route to away markets at multiple
price-points instead of just the NBBO at
the time of the receipt of the order. As
to intra-market competition, the
Exchange believes the proposal to be
fair as it preserves price protection
functionality for non-Market Maker
orders. Market Maker orders and quotes
have their own distinct functionality,
which already includes the ability to
trade at multiple price-points.
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 Exchange consents,
the Commission shall: (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:
tkelley on DSK3SPTVN1PROD with NOTICES6
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 Number SR–
MIAX–2014–08 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–MIAX–2014–08. 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
VerDate Mar<15>2010
17:07 Mar 05, 2014
Jkt 232001
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
publicly available. All submissions
should refer to File Number SR–MIAX–
2014–08 and should be submitted on or
before March 27, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–04920 Filed 3–5–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–71635; File No. SR–
NYSEArca–2014–18]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Reflect Changes to
the Means of Achieving the Investment
Objective Applicable to the Newfleet
Multi-Sector Income ETF
February 28, 2014.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on February
26, 2014, NYSE Arca, Inc. (the
‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
23 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
PO 00000
Frm 00036
Fmt 4703
Sfmt 4703
12721
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 reflect
changes to the means of achieving the
investment objective applicable to the
Newfleet Multi-Sector Income ETF (the
‘‘Fund’’). The shares of the Fund are
currently listed and traded on the
Exchange under NYSE Arca Equities
Rule 8.600. 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.
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.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Commission has approved listing
and trading on the Exchange of shares
(‘‘Shares’’) of the Newfleet Multi-Sector
Income ETF, which are offered by
AdvisorShares Trust (the ‘‘Trust’’),4
under NYSE Arca Equities Rule 8.600,
which governs the listing and trading of
Managed Fund Shares. The Shares of
the Fund are currently listed and traded
on the Exchange under NYSE Arca
Equities Rule 8.600.
The Shares are offered by the Trust,
a statutory trust organized under the
laws of the State of Delaware and
registered with the Commission as an
4 See Securities Exchange Act Release No. 69061
(March 7, 2013), 78 FR 15990 (March 13, 2013) (SR–
NYSEArca–2013–01) (order approving listing and
trading on the Exchange of the Newfleet MultiSector Income ETF) (‘‘Prior Order’’). See also
Securities Exchange Act Release No. 68666 (January
16, 2013), 78 FR 4960 (January 23, 2013) (SR–
NYSEArca–2013–01) (‘‘Prior Notice,’’ and together
with the Prior Order, the ‘‘Prior Release’’). The
Fund and the Shares are currently in compliance
with the listing standards and other rules of the
Exchange and the requirements set forth in the Prior
Release.
E:\FR\FM\06MRN1.SGM
06MRN1
]]>Agencies
[Federal Register Volume 79, Number 44 (Thursday, March 6, 2014)]
[Notices]
[Pages 12713-12721]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-04920]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 71634; File No. SR-MIAX-2014-08]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing of Proposed Rule Change To Modify Price
Protection Provisions for the Execution of Orders
February 28, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on February 14, 2014, 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 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.
---------------------------------------------------------------------------
\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 Rules 515 and
529 to modify price protection provisions for the execution of orders.
The text of the proposed rule change is 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Exchange Rules 515 and 529 to modify
price protection provisions for the execution of orders to provide
market participants additional flexibility to designate the level of
price protections for their orders. The Exchange proposes to: (i) Amend
Rule 515(c) to establish a new price protection for market
participants; (ii) amend Rule 529 to allow for immediate routing in an
additional situation; and (iii) make corresponding technical changes
including deleting the language in current Rule 515(c).
Specifically, the Exchange proposes to amend Rule 515 to: (a) Amend
price protection functionality as described in Rule 515(c) to be
flexible and customizable by market participants and allow for the
execution of a non-Market Maker order at multiple price points instead
of a one-size-fits-all system that permits executions at a maximum of
two price-points; (b) amend the handling of incoming routable non-
Market Maker orders as described in Rule 515(c) to account for the
flexibility of the proposed price protection functionality; (c) amend
the handling of incoming non-routable non-Market Maker orders as
described in Rule 515(c) to account for the flexibility of the proposed
price protection functionality; (d) amend the Liquidity Refresh Pause
to account for the proposed price protection functionality which would
allow orders to trade at multiple price-points; (e) amend the Liquidity
Refresh message to include the exhausted MBBO price instead of the
original NBBO price; (f) amend the Liquidity Refresh Pause so that a
new quote or order received during a Liquidity Refresh Pause on the
same side of the market as the initiating order's remaining contracts
that locks or crosses the original NBBO will terminate the Liquidity
Refresh Pause instead of joining the initiating order to wait for the
end of the Pause; (g) amend the handling of Immediate or Cancel and
Fill or Kills orders during a Liquidity Refresh Pause so that the
Liquidity Refresh Pause will terminate early if such orders improve the
same side of the market as the initiating order; (h) amend the handling
of Immediate or Cancel orders to apply a price protection system
similar to that for non-Market Maker orders; (i) amend the handling of
Fill-or-Kill orders to apply a price protection system similar to that
for non-Market Maker orders; and (j) provide a new Interpretation and
Policy to Rule 515 to codify how the managed interest is priced when
there are multiple possible execution prices. In addition, the Exchange
proposes to amend Rule 529 to allow resting Public Orders to route in a
specific scenario. Finally, the Exchange proposes to make corresponding
technical changes including deleting the language in current Rule
515(c) and replacing references in Rules 516 and 520.
Non-Market Market Orders That Could Not Be Executed or Could Not Be
Executed in Full at the Original NBBO Upon Receipt
Rule 515(c) currently details the execution of non-Market Market
orders that could not be executed or could not be executed in full at
the original NBBO upon receipt. Proposed Rule 515(c) continues to
address the execution of such non-Market Maker orders. However, the
Exchange proposes to add language to explain that such orders,
depending upon the order's specific price protection instructions, may
be reevaluated for executions at additional price-points. Specifically,
non-Market Maker orders that are reevaluated by the System for
execution pursuant to an order's price protection instructions that
could not be executed or could not be executed in full at the NBBO at
the time of reevaluation will be handled in accordance with the
provisions of Proposed Rule 515(c). The subparagraphs of Proposed Rule
515(c) will apply to orders both (i) upon receipt by the System, and
(ii) upon reevaluation by the System for
[[Page 12714]]
execution and according to the price protections designated on the
order. The term ``initiating order'' will be used in the subparagraphs
of Proposed Rule 515(c) to refer to (i) the incoming order that could
not be executed, (ii) the order reevaluated by the System for execution
that could not be executed, or (iii) the remaining contracts of the
incoming order or reevaluated order could not be executed in full. The
term ``original NBBO'' will be used in the following paragraphs to
refer to the NBBO that existed at time of receipt of the initiating
order or the NBBO at time of reevaluation of an order pursuant to Rule
515. The language added to Proposed Rule 515(c) is necessary to
accommodate the possibility of a non-Market Maker executing at multiple
price-points in accordance with the proposed price protection
functionality.
Price Protection
Rule 515(c) currently provides a detailed price protection process
that includes a managed interest process and liquidity refresh pause.
Rule 515(c) currently imposes a fixed, one Minimum Price Variation
(MPV) price protection scheme in which incoming non-Market Maker orders
can, at a maximum, trade at two price-points--at the original NBBO and
one MPV away from the original NBBO upon receipt.\3\ Thereafter, the
System will cancel the remaining portion of any order that can
potentially trade at a price more than one MPV away from the original
NBBO.\4\
---------------------------------------------------------------------------
\3\ The Exchange does not propose to amend the provisions
regarding the execution of orders and quotes described in Rules
515(b), 515(d), and 515(f)-(h). See Exchange Rules 515(b), (d), (f)-
(h). As discussed below, the Exchange does propose to amend Rule
515(a), 515(c), and 515(e).
\4\ See current Exchange Rules 515(c)(1)(ii)(A),
(c)(1)(ii)(B)(1)(b), (c)(1)(ii)(B)(2)(b), (c)(1)(iii)(A)(1)(a)2),
(c)(1)(iii)(A)(1)(b)2), (c)(1)(iii)(B)(1)(b), and
(c)(1)(iii)(B)(2)(b) (instances where the System cancels orders that
are priced more than one MPV away from the NBBO).
---------------------------------------------------------------------------
The Exchange believes that the current price protection
functionality is too rigid and does not meet the needs of all market
participants. Since commencing operations over one year ago, both the
Exchange and its participants have gained in knowledge and experience
in the use of the Exchange System and stand ready for the next step in
its evolution--a more flexible system of price protection. The Exchange
believes that the additional flexibility of the proposed price
protection provides market participants with an invaluable level of
protection on the Exchange in the wake of recent industry-wide market
events. The Exchange also proposes the functionality as part of its
broader response to the Commission's initiative regarding such
industry-wide market events.
The Exchange proposes to amend Rule 515(c) to provide more
flexibility in the price protections offered to market participants by
replacing the rigid price protection system with a customizable one
where market participants may specify the level of price protection by
the number of price-points at which an order may trade. The current
price protection functionality does not offer flexibility and caps the
execution of every incoming non-Market Maker order with a maximum of
two price-points--at the original NBBO at the time of receipt and one
MPV away from the original NBBO. The Exchange proposes to replace this
rigidity with flexibility and choice. Specifically, the Exchange
proposes to open up the price protection functionality so that market
participants may designate, on an order by order basis, price
protection instructions that are expressed in units of MPV away from
the NBBO at the time of the order's receipt, or the MBBO if the ABBO is
crossing the MBBO. Price protection prevents an order from being
executed beyond the price designated in the order's price protection
instructions (the ``price protection limit''). If a market participant
does not provide such price protection instructions, the Exchange
proposes implementing a default price protection consistent with the
current price protection functionality--one MPV away from the NBBO at
the time of receipt, or the MBBO if the ABBO is crossing the MBBO.
Currently all incoming non-Market Marker orders are subject to price
protection functionality. However in contrast the Exchange now proposes
providing market participants, if they so choose, with the ability to
elect to disable price protection on an order by order basis.\5\ To
sum, the proposed price protection system provides market participants
with greater control over how their order is executed and allows for
greater interaction with liquidity both on MIAX and away markets, all
while retaining the protective benefits of the current system that
prevents incoming non-Market Maker orders from executing beyond a
certain price-point. As proposed, an order will be able to execute up
or down to its price protection--which would be fully customizable and
no longer a one-size-fits-all approach of the current functionality.
When triggered, price protection will cancel an order or the remaining
contracts of an order. Consistent with current functionality, the
System will not execute incoming orders at prices inferior to the
NBBO.\6\
---------------------------------------------------------------------------
\5\ The Exchange notes that orders will still be subject to the
other price protections systematically enforced for all orders,
e.g., Exchange Rule 503(f)(5), Expanded Quote Range, Exchange Rule
519, MIAX Order Monitor.
\6\ See both current and Proposed Exchange Rule 515(a)--this
point is unchanged.
---------------------------------------------------------------------------
The following example describes the price protection functionality
when a non-Market Maker limit order trades until it reaches its price
protection instruction limit.\7\ In this situation, the remaining
contracts will be cancelled because the price protection instructions
have been triggered. Price protection prevents the order in this
example from receiving an execution beyond the price protection limit,
calculated as a specified number of MPVs away from the NBBO at the time
of receipt, or the MBBO if the ABBO is crossing the MBBO, by canceling
the order back to the market participant. Upon receipt of the
cancellation, a market participant may then elect to resubmit the
order.
---------------------------------------------------------------------------
\7\ The non-Market Maker limit order in this example could be
either a Routable or Non-Routable order as this distinction does not
matter because the order is never subjected to being routed as the
ABBO exceeds the order's limit. Upcoming examples will demonstrate
the difference between Routable and Non-Routable orders.
Example 1: Limit Price Exceeds Price Protection--Order Traded Until
Price Protection Limit and Is Canceled
------------------------------------------------------------------------
Market Bid Ask
------------------------------------------------------------------------
ABBO........................................ 1.00 (10) 1.20 (10)
Order 1..................................... ............ 1.10 (10)
Order 2..................................... ............ 1.12 (10)
Order 3..................................... ............ 1.15 (10)
Order 4..................................... ............ 1.16 (10)
PLMM........................................ 1.00 (10) 1.20 (10)
------------------------------------------------------------------------
Order 5: Buy limit of 1.13 for 100 contacts with a price
protection instruction of 2 MPVs
MBBO at time of arrival = 1.00 (10) x 1.10 (10)
NBBO at time of arrival = 1.00 (20) x 1.10 (10)
Order 5 is price protected at 1.12 (which is 1.10 + 2 MPV =
1.12)
Order 5 trades 10 contracts with Order 1 @ 1.10
Order 5 trades 10 contracts with Order 2 @ 1.12
Order 5's remaining contracts are then cancelled because there
is no more interest to trade against at Order 5's price protection
level of 1.12. Order 5's remaining contracts are cancelled and not
placed on the Book because limit price of 1.13
[[Page 12715]]
exceeds its price protection limit of 1.12
The following example describes the price protection functionality
when a limit order reaches its limit price and can be displayed.\8\
Price protection does not factor into this example as the limit price
is reached before the price protection price.
---------------------------------------------------------------------------
\8\ The non-Market Maker limit order in this example could be
either a Routable or Non-Routable order as this distinction does not
matter because the ABBO exceeds the order's limit. Upcoming examples
will demonstrate the difference between Routable and Non-Routable
orders.
Example 2: Price Protection Exceeds Limit Price--Limit Price Reached and
Order Is Booked
------------------------------------------------------------------------
Market Bid Ask
------------------------------------------------------------------------
ABBO........................................ 1.00 (10) 1.20 (10)
Order 1..................................... ............ 1.10 (10)
Order 2..................................... ............ 1.12 (10)
Order 3..................................... ............ 1.15 (10)
Order 4..................................... ............ 1.16 (10)
PLMM........................................ 1.00 (10) 1.20 (10)
------------------------------------------------------------------------
Order 5: Buy limit of 1.13 for 100 contacts with a price
protection instruction of 4 MPVs
MBBO at time of arrival = 1.00 (10) x 1.10 (10)
NBBO at time of arrival = 1.00 (10) x 1.10 (10)
Order 5 is price protected at 1.14 (which is 1.10 + 4 MPV =
1.14)
Order 5 trades 10 contracts with Order 1 @ 1.10
Order 5 trades 10 contracts with Order 2 @ 1.12
Order 5's remaining contracts are then placed on the MIAX
Book @ 1.13 as Order 5 has reached its limit price of 1.13
The following example describes the price protection functionality
when a limit order reaches its limit price and can be displayed.\9\ In
this example, the order's limit price and the price protection price
are equal. In these scenarios, the order will be displayed at its limit
price rather than be canceled.\10\
---------------------------------------------------------------------------
\9\ The non-Market Maker limit order in this example could be
either a Routable or Non-Routable order as this distinction does not
matter because the ABBO exceeds the order's limit. Upcoming examples
will demonstrate the difference between Routable and Non-Routable
orders.
\10\ See Proposed Rule 515(c)(1)(i)(C) and (c)(1)(ii)(C).
Example 3: Price Protection Equals Limit Price--Limit Price Reached and
Order Is Booked
------------------------------------------------------------------------
Market Bid Ask
------------------------------------------------------------------------
ABBO........................................ 1.00 (10) 1.20 (10)
Order 1..................................... ............ 1.10 (10)
Order 2..................................... ............ 1.12 (10)
Order 3..................................... ............ 1.15 (10)
Order 4..................................... ............ 1.16 (10)
PLMM........................................ 1.00 (10) 1.20 (10)
------------------------------------------------------------------------
Order 5: Buy limit of 1.13 for 100 contacts with a price
protection instruction of 3 MPVs
MBBO at time of arrival = 1.00 (10) x 1.10 (10)
NBBO at time of arrival = 1.00 (10) x 1.10 (10)
Order 5 is price protected at 1.13 (which is 1.10 + 3 MPV =
1.13)
Order 5 trades 10 contracts with Order 1 @ 1.10
Order 5 trades 10 contracts with Order 2 @ 1.12
Order 5's remaining contracts are then placed on the MIAX
Book @ 1.13 as Order 5 has reached its limit price of 1.13
Routable Non-Market Maker Orders
The Exchange proposes amending the rules governing routable non-
Market Maker orders (``routable orders'') to accommodate for the
greater flexibility of the proposed price protection functionality
described above. Rule 515(c) currently allows routable orders to, at a
maximum, trade at two price-points--at the original NBBO and one MPV
away from the original NBBO upon receipt. Currently, an execution at
the second price point can only occur on MIAX \11\ because after
executing at this second price point at MIAX any remaining balance \12\
will be handled by the managed interest process \13\ rather than be
routed to away markets which may also be displaying this second price-
point.\14\ Specifically, if interest is not available at MIAX at this
second price point, the System will, depending on the order's price,
either (i) handle any remaining according to the managed interest
process rather than routing to an away market that may be displaying
interest at this second price-point,\15\ or (ii) cancel the remaining
balance.\16\
---------------------------------------------------------------------------
\11\ See current Exchange Rule 515(c)(1)(ii)(B)(1) (the Exchange
System will execute such an order against the MIAX bid or offer one
MPV beyond the original NBBO).
\12\ Remaining balance of a limit order with a limit price at
this second price-point are handled according to the managed order
process. See current Exchange Rule 515(c)(1)(ii)(B)(1)(a). Market
orders or orders with a limit price beyond this second price-point
are cancelled. See current Exchange Rule 515(c)(1)(ii)(B)(1)(b).
\13\ Managed interest process allows the System, inter alia, to
display an order at a price that avoids locking or cross the NBBO.
See current Exchange Rule 515(c)(2).
\14\ See current Exchange Rule 515(c)(1) (ii)(B)(1)(a).
\15\ Orders that cross the original NBBO are handled according
to the managed interest process in these scenarios. See current
Exchange Rule 515(c)(1)(ii)(B)(2)(a).
\16\ Market orders and orders with a limit price that crosses
the original NBBO by more than one MPV are canceled in these
scenarios. See current Exchange Rule 515(c)(1)(ii)(B)(2)(b).
---------------------------------------------------------------------------
The Exchange proposes adding greater flexibility to the price
protection functionality as applied to routable orders. As proposed,
the System will seek to trade routable orders to the extent possible at
MIAX first before routing to the ABBO. The System will trade and/or
route a routable order until the first of: The order is fully executed;
the order has traded or routed to and including its price protection
limit; or the order has traded or routed to and including its limit
price. A routable order that would otherwise trade and/or route through
its price protection limit will be canceled. For a routable order that
has traded or routed to and including its limit price, the System will
display and book the order at its limit price to await further
execution in accordance with Rule 515. As current, the System will not
execute such orders at prices inferior to the current NBBO. Consistent
with the current rule, the routing of routable orders will be handled
in accordance with Rule 529.
The following example describes the how the price protection will
handle routable non-Market Maker orders. In this example, the order
routes at multiple price-points, with each price point triggering a
Route Timer,\17\ and the order's remaining contracts eventually get
cancelled because it has routed at prices up to and including its price
protection instructions. Price protection prevents an order from
receiving an execution beyond a specific price, calculated as a
specified number of MPVs away from the NBBO at the time of receipt, or
the MBBO if the ABBO is crossing the MBBO, by canceling the order back
to the market participant. The Exchange notes that after each route,
the System will reevaluate the order to consider any
[[Page 12716]]
updates to the away market quotes in the next decision.
---------------------------------------------------------------------------
\17\ The System will handle any routing of a routable order
according to Exchange Rule 529. See Proposed Rule 515(c)(1)(i).
Currently, such routable orders are only eligible to route once--to
away markets displaying the NBBO upon receipt--with any remaining
balance either being handled according to the managed interest
process or cancelled. See current Exchange Rule 515(c)(1)(ii)(B).
Since the proposed price protection functionality allows routable
orders to trade and route at multiple price-points, it is possible
for Route Timers to be triggered at multiple price-points.
Example 4: Routable Order--Price Protection Limit Reached and Order
Canceled
------------------------------------------------------------------------
Market Bid Ask
------------------------------------------------------------------------
MIAX........................................ 1.00 (10) 1.20 (10)
MKT1........................................ 1.00 (10) 1.10 (10)
MKT2........................................ 1.00 (10) 1.12 (10)
MKT3........................................ 1.00 (10) 1.15 (10)
MKT4........................................ 1.00 (10) 1.16 (10)
------------------------------------------------------------------------
Order 1: Buy limit of 1.13 for 100 contacts with a price
protection instruction of 2 MPVs
NBBO at time of arrival = 1.00 (50) x 1.10 (10)
Order 1 is price protected at 1.12 (which is 1.10 + 2 MPV
= 1.12)
Route Timer is triggered as Order 1 is eligible to route
to MKT1
MBBO is updated: 1.09 (100) x 1.20 (10)
Route Timer expires and 10 contracts of Order 1 are routed
to MKT1 @ 1.10
The System will reevaluate Order 1 pursuant to Rule 515 to
trade, post, route, or cancel considering any updates to the away
market quotes--assume for the example that no market has updated it
quote
NBO at time of reevaluation: 1.12 (10) (MKT 2)
The NBO of 1.12 is within Order 1's price protection limit
of 1.12
Route Timer is triggered as Order 1 is eligible to route
to MKT2
MBBO is updated: 1.11 (90) x 1.20 (10)
Route Timer expires and 10 contracts of Order 1 are routed
to MKT2 @ 1.12
The System will reevaluate Order 1 pursuant to Rule 515 to
trade, post, route, or cancel considering any updates to the away
market quotes--assume for the example that no market has updated it
quote
NBO at time of reevaluation: MKT 3's 1.15 (10) (MKT 3)
The NBO of 1.15 is outside of Order 1's price protection
limit of 1.12
Order 1's remaining 80 contracts are then cancelled
because it has been routed until its price protection limit of 1.12.
Order 1 cannot displayed at its limit of 1.13 because this could allow
Order 1 to be execution at a price (1.13) exceeding its price
protection limit (1.12)
Example 5: Routable Order--Quote Update and Order Is Fully Executed
------------------------------------------------------------------------
Market Bid Ask
------------------------------------------------------------------------
MIAX........................................ 1.00 (10) 1.20 (10)
MKT1........................................ 1.00 (10) 1.10 (10)
MKT2........................................ 1.00 (10) 1.12 (10)
MKT3........................................ 1.00 (10) 1.15 (10)
MKT4........................................ 1.00 (10) 1.16 (10)
------------------------------------------------------------------------
Order 1: Buy limit of 1.13 for 100 contacts with a price
protection instruction of 2 MPVs
NBBO at time of arrival = 1.00 (50) x 1.10 (10)
Order 1 is price protected at 1.12 (which is 1.10 + 2 MPV =
1.12)
Route Timer is triggered as Order 1 is eligible to route
to MKT1
MBBO is updated: 1.09 (100) x 1.20 (10)
Route Timer expires and 10 contracts of Order 1 are routed
to MKT1 @ 1.10
The System will reevaluate Order 1 pursuant to Rule 515 to
trade, post, route, or cancel considering any updates to the away
market quotes--assume for the example that MKT 4 has updated its quote:
1.00 (10) x 1.12 (80)
NBO at time of reevaluation: 1.12 (90) (MKT 2 and MKT 4)
The NBO of 1.12 is within Order 1's price protection limit
of 1.12
Route Timer is triggered as Order 1 is eligible to route
to MKT 2 and MKT 4
Route Timer expires and 10 contracts are routed to MKT 2 @
1.12 and 80 contracts of Order 1 are routed to MKT4 @ 1.12
Order 1 has been fully executed
Example 6: Routable Order--Limit Price Reached and Order Is Booked
------------------------------------------------------------------------
Market Bid Ask
------------------------------------------------------------------------
MIAX........................................ 1.00 (10) 1.20 (10)
MKT1........................................ 1.00 (10) 1.10 (10)
MKT2........................................ 1.00 (10) 1.12 (10)
MKT3........................................ 1.00 (10) 1.15 (10)
MKT4........................................ 1.00 (10) 1.16 (10)
------------------------------------------------------------------------
Order 1: Buy limit of 1.12 for 100 contacts with a price
protection instruction of 2 MPVs
NBBO at time of arrival = 1.00 (50) x 1.10 (10)
Order 1 is price protected at 1.12 (which is 1.10 + 2 MPV
= 1.12)
Route Timer is triggered as Order 1 is eligible to route
to MKT1
MBBO is updated: 1.09 (100) x 1.20 (10)
Route Timer expires and 10 contracts of Order 1 are routed
to MKT1 @ 1.10
The System will reevaluate Order 1 pursuant to Rule 515 to
trade, post, route, or cancel considering any updates to the away
market quotes--assume for the example that no market has updated it
quote
NBO at time of reevaluation: 1.12 (10) (MKT 2)
The NBO of 1.12 is within Order 1's price protection limit
of 1.12
Route Timer is triggered as Order 1 is eligible to route
to MKT2
MBBO is updated: 1.11 (90) x 1.20 (10)
Route Timer expires and 10 contracts of Order 1 are routed
to MKT2 @ 1.12
The System will reevaluate Order 1 pursuant to Rule 515 to
trade, post, route, or cancel considering any updates to the away
market quotes--assume for the example that no market has updated its
quote
Order 1's remaining 80 contracts are placed on the Book at
its limit price of 1.12
MBBO is updated: 1.12 (80) x 1.20 (10)
Non-Routable Non-Market Maker Orders
The Exchange proposes amending the rules governing non-routable
non-Market Maker orders (``non-routable orders'') to accommodate for
the greater flexibility of the proposed price protection functionality
described above. Rule 515(c) currently allows non-routable orders to,
at a maximum, trade at two price-points--at the original NBBO and one
MPV away from the original NBBO upon receipt. Thereafter, the System
will cancel the remaining portion of any order that can potentially
trade at a price more than one MPV away from the original NBBO.\18\
---------------------------------------------------------------------------
\18\ See current Exchange Rule 515(c)(1)(ii)(A),
(c)(1)(iii)(A)(1)(a)(2), (c)(1)(iii)(A)(1)(b)(2),
(c)(1)(iii)(B)(1)(b), and (c)(1)(iii)(B)(2)(b) (instances where the
System cancels non-routable orders that are priced more than one MPV
away from the NBBO).
---------------------------------------------------------------------------
Consistent with the current price protections, a non-routable order
will never be routed outside of the Exchange regardless of prices
displayed by away markets and can trade on the Exchange at a price
equal to or better than, but not inferior to, the ABBO. As current, the
System will not execute such orders at prices inferior to the current
NBBO. The Exchange proposes adding flexibility to the price protection
functionality as applied to non-routable orders by allowing the System
to trade a non-routable order until the first of: The order is fully
executed; the order has traded to and including its price
[[Page 12717]]
protection limit; or the order has traded to and including its limit
price. A non-routable order that reaches its price protection limit
before its limit price will be canceled. If a non-routable order
reaches its limit price, the System will attempt to display this non-
routable order at its limit price. However, if its limit price would
lock or cross the current opposite side NBBO, the System will display
the order one MPV away from the current opposite side NBBO, and book
the order at a price that will lock the current opposite side NBBO.
Should the NBBO price change to an inferior price level, the order's
Book price will continuously re-price to lock the new NBBO and the
managed order's displayed price will continuously re-price one MPV away
from the new NBBO until the order's has traded to and including its
limit price, has traded to and including its price protection limit at
which any remaining contracts are cancelled, is fully executed, or is
cancelled. If the Exchange receives a new order or quote on the
opposite side of the market from the managed order that can be
executed, the System will immediately execute the remaining contracts
from the initiating order to the extent possible at the order's current
Book price, provided that the execution price does not violate the
current NBBO. If unexecuted contracts remain from the initiating order,
the order's size will be revised and the MBBO disseminated to reflect
the order's remaining contracts.
The following example describes how the price protection will
handle non-routable non-Market Maker orders. In this example, the non-
routable order trades at multiple price-points on MIAX until it reaches
the ABBO. The order is then managed as to avoid locking or crossing the
ABBO. Subsequently, an incoming opposite side order trades with the
managed order at the MIAX Book price.
Example 7: Price Protection[dash]Non-Routable Order Gets Managed
------------------------------------------------------------------------
Market Bid Ask
------------------------------------------------------------------------
ABBO........................................ 1.00 (10) 1.12 (10)
Order 1..................................... ............ 1.10 (10)
Order 2..................................... ............ 1.12 (10)
Order 3..................................... ............ 1.15 (10)
Order 4..................................... ............ 1.16 (10)
------------------------------------------------------------------------
Order 5: Do Not Route Buy limit of 1.13 for 100 contacts with
a price protection instruction of 3 MPVs
NBBO at time of arrival = 1.00 (10) x 1.10 (10)
Order 5 is price protected at 1.13 (which is 1.10 + 3 MPV =
1.13)
Order 5 trades 10 contracts with Order 1 @ 1.10
Order 5 trades 10 contracts with Order 2 @ 1.12
Order 5's remaining contracts are then displayed in the
MIAX Bid @ 1.11 as to not lock the Away Best Offer of 1.12, but remain
available to trade on the MIAX Book @ 1.12
Order 6: Sell limit of 1.10 for 10 contracts
Order 5 trades 10 contracts with Order 6 @ 1.12
Liquidity Refresh Pause
The Liquidity Refresh Pause, as proposed, will continue to operate
in substantially the same manner as today, except where noted below.
The Liquidity Refresh Pause will continue to apply in the following
situation: (A) Either the initiating order is a limit order whose limit
price crosses the NBBO or the initiating order is a market order, and
the limit order or market order could only be partially executed; (B) a
Market Maker quote was all or part of the MBBO when the MBBO is alone
at the NBBO; and (C) and the Market Maker quote was exhausted. However,
the Liquidity Refresh Pause mechanism, as proposed, will apply either
upon receipt or reevaluation of an initiating order. This change is
consistent with the new price protection functionality described above,
which can allow an order to trade at multiple price-points--not just at
the price-point of the NBBO upon the receipt of an order. Allowing
orders to trade at multiple price-points necessitates a change in the
language describing the Liquidity Refresh Pause as it too can apply at
multiple price-points. Hence the proposed rule adopts the term
``reevaluation'' together with ``upon receipt,'' with the latter
applying to the first price-point and the former applying to subsequent
price-points.
The System will continue to broadcast a liquidity refresh message
in largely the same manner as today. In addition to providing a
description of the option and the size and side of the order, the
Exchange proposes to include the exhausted MBBO price in the liquidity
refresh message broadcast to subscribers of the Exchange's data
feeds.\19\ Consistent with this, the Exchange proposes to display the
remainder of the initiating order at ``the exhausted MBBO price''
instead of ``the original NBBO price, which has been exhausted'' as
currently described in Rule 515(c)(iii)(A). This change is consistent
with the new price protection functionality described above which can
allow an order to trade at multiple price-points--not just the original
NBBO. Allowing orders to trade at multiple price-points necessitates a
change in the language describing the Liquidity Refresh Pause message
as the Liquidity Refresh Pause can apply at multiple price-points.
Hence the proposed rule adopts the term ``the exhausted MBBO'' in place
of ``the original NBBO'' because the latter seems only to apply to the
first price-point while the former can apply to the first price-point
and any other subsequent price-points.
---------------------------------------------------------------------------
\19\ The Exchange notes that broadcast message will be sent to
subscribers of the Exchange's data feeds and not disseminated to
OPRA, in the same manner as today. As such, this broadcast message
itself does not qualify as a Protected Bid or Protected Offer. See
Exchange Rule 1400(o).
---------------------------------------------------------------------------
The Exchange proposes amending the handling of new quotes or orders
that arrive during a Liquidity Refresh Pause on the same side of the
initiating order's remaining contracts, which locks or crosses the
original NBBO. Currently, such orders are added to the MBBO and the
Pause continues to run. The Exchange proposes that the Liquidity
Refresh Pause terminate early and the System process all quotes and
orders in the order in which they were received. The Exchange believes
the termination of the Liquidity Pause in these scenarios necessary to
allow the displayed opposite side of MBBO to receive an immediate
execution. The initiating order and any new order(s) or quote(s) on the
same side of the market received during the liquidity refresh pause
will be processed in the order in which they were received. Thus, the
initiating order will be executed first and any additional order(s) or
quote(s) will be executed in order of receipt.
The Exchange proposes that if at the end of the Liquidity Refresh
Pause all orders and quotes were not completely filled or cancelled,
the System will reevaluate the order for execution pursuant to Rule 515
until exhausted. This change is consistent with the new price
protection functionality described above which can allow an order to
trade at multiple price-points.
Lastly, the Exchange proposes to amend how Immediate or Cancel
(``IOC'') and Fill or Kill (``FOK'') orders interact with the Liquidity
Refresh Pause. Currently, if the Exchange receives an Immediate or
Cancel (``IOC'') or a Fill or Kill (``FOK'') order on the same side of
the market as the initiating order's remaining contracts, the System
will immediately cancel the IOC and FOK orders. The Exchange proposes
to amend this so that if the Exchange receives an IOC or FOK order on
the same side of the market as the initiating order's remaining
contracts, the System will immediately cancel the IOC and FOK orders
unless the IOC or
[[Page 12718]]
FOK order on the same side of the market as the initiating order locks
or crosses the opposite side NBBO, in which case the liquidity refresh
pause will be terminated early. If the liquidity refresh pause was
terminated due to the receipt of an IOC or FOK, the initiating order
and any new order(s) or quote(s) on the same side of the market
received during the liquidity refresh pause and the IOC or FOK will be
processed in the order in which they were received, with the initiating
order being processed first and the IOC or FOK being processed last.
The following example describes how the revised Liquidity Refresh
Pause will operate in the price protection process. Specifically, this
example shows how the System will reevaluate an order which can result
in multiple Liquidity Refresh Pauses with the proposed flexibility of
the price protection functionality which can allow executions at
multiple price-points.
Example 8: Price Protection--Multiple Liquidity Refresh Pauses
------------------------------------------------------------------------
Market Bid Ask
------------------------------------------------------------------------
ABBO........................................ 1.00 (10) 1.14 (10)
PLMM........................................ 1.00 (10) 1.10 (10)
LMM 1....................................... 1.00 (10) 1.12 (10)
LMM 2....................................... 1.00 (10) 1.15 (10)
RMM 1....................................... 1.00 (10) 1.16 (10)
------------------------------------------------------------------------
Order 1: Buy limit of 1.13 for 100 contacts with a price
protection instruction of 3 MPVs
NBBO at time of arrival = 1.00 (50) x 1.10 (10)
Order 1 is price protected at 1.13 (which is 1.10 + 3 MPV
= 1.13)
Order 1 trades 10 contracts with PLMM @ 1.10
Liquidity Refresh Pause is triggered because the MBO of
1.10 was alone at NBBO and PLMM's 1.10 offer was exhausted
MBBO 1.10 (90) x 1.12 (10)
Liquidity Refresh message is broadcasted on the
Exchange's data feeds: Buy 90 contracts, exhausted MBO of 1.10
Liquidity Refresh Pause expires
The System will reevaluate Order 1 pursuant to Rule 515
to trade, post, route, or cancel considering any updates to the away
market quotes--assume for the example that there are no updates
Order 1 trades 10 contracts with LMM1 @ 1.12
Liquidity Refresh Pause is triggered because the MBO of
1.12 offer was alone at NBBO and LMM1's 1.12 offer was exhausted
MBBO 1.12 (80) x 1.15 (10)
Liquidity Refresh message is broadcasted on the
Exchange's data feeds: Buy 80 contracts, exhausted MBO of 1.12
Liquidity Refresh Pause expires
The System will reevaluate Order 1 pursuant to Rule 515
to trade, post, route, or cancel considering any updates to the away
market quotes--assume for the example that there are no updates
Order 1's remaining contracts are then placed on the MIAX
Book @ 1.13 as Order 1 has reached its limit price of 1.13
MBBO 1.13 (80) x 1.15 (10)
The following examples describes how an order entered during the
Liquidity Refresh Pause on the same side as the initiating order's
remaining contracts at a price that locks the original NBBO will
terminate the Liquidity Refresh Pause early.
Example 9: Same Side Interest Terminates the Liquidity Refresh Pause
Early
------------------------------------------------------------------------
Market Bid Ask
------------------------------------------------------------------------
ABBO........................................ 1.00 (10) 1.14 (10)
PLMM........................................ 1.00 (10) 1.10 (10)
LMM 1....................................... 1.00 (10) 1.12 (20)
LMM 2....................................... 1.00 (10) 1.15 (10)
RMM 1....................................... 1.00 (10) 1.16 (10)
------------------------------------------------------------------------
Order 1: Buy limit of 1.13 for 20 contacts with a price
protection instruction of 3 MPVs
NBBO at time of arrival = 1.00 (50) x 1.10 (10)
Order 1 is price protected at 1.13 (which is 1.10 + 3 MPV =
1.13)
Order 1 trades 10 contracts with PLMM @ 1.10
Liquidity Refresh Pause is triggered because the MBO of
1.10 was alone at NBBO and PLMM's 1.10 offer was exhausted
MBBO 1.10 (10) x 1.12 (20)
Liquidity Refresh message is broadcasted on the Exchange's
data feeds: Buy 10 contracts, exhausted MBO of 1.10 \20\
---------------------------------------------------------------------------
\20\ Note that the pricing information contained in the
Liquidity Refresh message (Buy 10 contracts, exhausted MBO of 1.10)
corresponds to the MBB (1.10 (10)).
---------------------------------------------------------------------------
Order 2: Buy limit of 1.12 for 10 contracts
Liquidity Refresh Pause is terminated early upon the
arrival of Order 2 because Order 2 is at a price that would lock the
MBO of 1.12
Order 1 trades 10 contracts with LMM1 @ 1.12. Order 1 has
been fully executed. Order 2 traded 10 contracts with LMM1 @ 1.12.
Order 2 and LMM1's offer have been fully executed.
New MBBO: 1.00 (40) x 1.15 (10)
Example 10: Same Side Interest Terminates the Liquidity Refresh Pause
Early
------------------------------------------------------------------------
Market Bid Ask
------------------------------------------------------------------------
ABBO........................................ 1.00 (10) 1.14 (10)
PLMM........................................ 1.00 (10) 1.10 (10)
LMM 1....................................... 1.00 (10) 1.12 (10)
LMM 2....................................... 1.00 (10) 1.15 (10)
RMM 1....................................... 1.00 (10) 1.16 (10)
------------------------------------------------------------------------
Order 1: Buy limit of 1.13 for 20 contacts with a price
protection instruction of 3 MPVs
NBBO at time of arrival = 1.00 (50) x 1.10 (10)
Order 1 is price protected at 1.13 (which is 1.10 + 3 MPV =
1.13)
Order 1 trades 10 contracts with PLMM @ 1.10
Liquidity Refresh Pause is triggered because the MBO of
1.10 was alone at NBBO and PLMM's 1.10 offer was exhausted
MBBO 1.10 (10) x 1.12 (10)
Liquidity Refresh message is broadcasted on the Exchange's
data feeds: Buy 10 contracts, exhausted MBO of 1.10
Order 2: Buy limit of 1.12 for 10 contracts
Liquidity Refresh Pause is terminated early upon the
arrival of Order 2 because Order 2 is at a price that would lock the
MBO of 1.12
Order 1 trades 10 contracts with LMM1 @ 1.12. Order 1 gets
priority over Order 2 as Order 1 was the initiating order. Order 1 has
been fully executed and Order 2 is Booked
New MBBO: 1.12 (10) x 1.15 (10)
Handling of Immediate-or-Cancel (IOC) Orders
The Exchange also proposes amending Rule 515(e) to provide that
market participants may designate price protection instructions on an
order by order basis for IOC orders in the manner described in Rule
515(c)(1). Specifically, this includes: (i) Price protection
instructions being expressed in units of MPV away from the NBBO at the
time of the order's receipt, or the MBBO if the ABBO is crossing the
MBBO; (ii) the default price protection being one MPV away from the
NBBO at the time of receipt, or the MBBO if the ABBO is crossing the
MBBO; and (iii) market participants being able to elect to disable
price protection on an order by order basis. In addition, the Exchange
[[Page 12719]]
proposes that IOC orders would be allowed to trade at multiple prices
not to exceed the IOC order's limit price or the order's price
protection limit, provided the execution does not trade at a price
inferior to the current ABBO. This change is consistent with the new
price protection functionality described above which will allow orders
to trade at multiple price-points until an order's limit price or price
protection limit. The Exchange believes that market participants will
benefit from the change as such IOC orders will be able to access more
liquidity on the Exchange than current functionality that limits the
IOC order to just one price-point.
Handling of Fill-or-Kill (``FOK'') Orders
The Exchange also proposes amending Rule 515(f) to provide that
market participants may designate price protection instructions on an
order by order basis for FOK orders in the manner described in Rule
515(c)(1). Specifically, this includes: (i) Price protection
instructions being expressed in units of MPV away from the NBBO at the
time of the order's receipt, or the MBBO if the ABBO is crossing the
MBBO; (ii) the default price protection being one MPV away from the
NBBO at the time of receipt, or the MBBO if the ABBO is crossing the
MBBO; and (iii) market participants being able to elect to disable
price protection on an order by order basis. In addition, the Exchange
proposes that if an FOK order is fully executable against orders and
quotes in the System and MIAX is at the NBBO when an FOK order is
received or reevaluated after the termination of a liquidity refresh
pause by the System, the System will execute the FOK order at the NBBO
price or better and if the FOK order could not be executed in full at a
single price, the FOK order is cancelled. If the MBBO is not at the
NBBO at the time the FOK order is received or reevaluated after the
termination of a liquidity refresh pause or the FOK order is not fully
executable against any orders or quotes in the System, the FOK order
will be immediately cancelled. Contracts remaining from an FOK order
will not be eligible for automatic resubmission as a new order for
Members who have instructed the Exchange in writing to re-enter
remaining contracts. The Exchange believes that market participants
will benefit from the change as such FOK orders will be provided with
an additional opportunity, after the termination of a liquidity refresh
pause, to access more liquidity on the Exchange than current
functionality that limits the FOK order to just one opportunity upon
receipt. The Exchange believes this necessary because an FOK order that
arrives during a liquidity refresh pause and causes the liquidity
refresh pause to terminate early may not be able to access the contra-
side liquidity because it was not the initiating order. However, the
FOK order may be able to execute with interest at the next price point
on the Exchange after the termination of the liquidity refresh pause.
Finally, the Exchange proposes a technical modification to the
language of Rule 515(f). Specifically, the Exchange proposes deleting
the phrase ``contracts remaining from'' when discussing that FOK orders
will not be eligible for automatic resubmission. The proposed revisions
make it clear that the entirety of an FOK order is not eligible for
resubmission as there cannot actually be contracts remaining from an
FOK order, which by its definition will either be executed in its
entirety or cancelled and can never receive a partial execution.
Interpretation and Policy .02
The Exchange proposes to add new Interpretation and Policy .02 to
Rule 515 to codify how the managed interest is priced when there are
multiple possible execution prices. Specifically, during the managed
interest process, if managed interest becomes tradable at multiple
price points on MIAX due to the ABBO transitioning from a crossed state
to an uncrossed state, the midpoint of the MBBO, rounded up to the
nearest MPV if necessary, will be used for the initial trade price. If
locking or crossing interest remains, the next trade occurs at the Book
price of the interest with lesser size. Trades will continue to occur
until (a) all locking or crossing interest has been satisfied, (b) the
ABBO is reached at which the interest will be managed according to
subparagraph (c)(1)(ii), (c) the order's limit price with any remaining
contracts being booked, or (d) the order's price protection limit at
which any remaining contracts being canceled. This provision regarding
midpoint pricing of the execution in this narrow scenario codifies
existing functionality during the managed interest process, while
updating the functionality to correspond with new price protection
functionality described above. The Exchange believes that using the
midpoint as the initial execution price in this situation promotes just
and equitable principals for trade among parties to the execution.
Example 11: Midpoint Execution of Managed Interest
------------------------------------------------------------------------
Market Bid Ask
------------------------------------------------------------------------
MIAX........................................ 1.00 (10) 1.20 (10)
MKT 1....................................... 1.00 (10) 1.10 (10)
MKT 2....................................... 1.15 (10) 1.20 (10)
------------------------------------------------------------------------
Order 1: Buy limit of 1.20 for 10 contacts with Do Not Route
instructions
Order 1 cannot route to MKT1 because of its Do Not Route
instructions
Order 1 will be placed on the MIAX Book @ 1.10, but
displayed in the MIAX Bid @ 1.09 as to not lock MKT1's 1.10 ask
Updated MBBO 2: 1.09 (10) x 1.20 (10)
Order 2: Sell limit of 1.11 for 10 contracts with Do Not Route
instructions
Order 2 cannot route to MKT2 because of its Do Not Route
instructions
Order 2 cannot trade with Order 1 because Order 1 has been
placed on the Book at a price of 1.10--which is both inferior to the
NBB of 1.15 and below Order 2's limit price of 1.11
Order 2 will be placed on the MIAX Book @ 1.15, but
displayed in the MIAX Ask @ 1.16 as to not lock MKT2's 1.15 bid
Updated MBBO 3: 1.09 (10) x 1.16 (10)
MKT1 and MKT2 display new quotes that no longer cross:
MKT 1: 1.00 (10) x 1.20 (10)
MKT 2: 1.00 (10) x 1.20 (10)
MBBO 3 (1.09 (10) x 1.16 (10)) now represents the NBBO
Order 1 has been Booked at 1.10, but has an actual limit
price of 1.20
Order 2 has been Booked at 1.15, but has an actual limit
price of 1.11
Order 1's buy limit of 1.20 crosses Order 2's sell limit
of 1.11 and the two orders can trade an multiple price points--anywhere
from 1.11 up to 1.20
Order 1 and Order 2 trade 10 contracts at 1.13, which
represents the midpoint of the MBBO (1.09 x 1.16 yields a 1.125
midpoint) rounded up to the nearest MPV (1.13)
Amendments to Rule 529
Currently the Exchange does not route Public Orders once they are
resting on the book. The Exchange proposes to amend Rule 529 to provide
that Public Customer orders resting on the book will not initiate a
route timer, but may be routed with an incoming Public
[[Page 12720]]
Customer order that has initiated a Route Mechanism (``initiating
order''). Specifically, if at the time of receipt of the initiating
Public Customer order, the opposite side ABBO is also locking or
crossing the same side MBBO, the System will immediately route the
initiating Public Customer order, together with any routable interest
resting at the same side MBBO, to the opposite side ABBO. The
initiating Public Customer and any routable resting interest will be
processed in the order in which they were received. The Exchange
believes that this change will benefit Public Customers by allowing the
Public Customer order to immediately access marketable liquidity
available at an away market. The immediate routing of routable orders
in this instance will also benefit the greater options market system as
a whole, in that it may help to resolve undesirable crossed markets.
Technical Changes
Consistent with changes described above, the Exchange proposes
deleting the current language in Rule 515(c) in whole to replace it
with the new provisions described above. The Exchange believes that the
language in current Rule 515(c) is repetitive and difficult to follow.
In choosing to replace it with the language of proposed Rule 515(c) the
Exchange hopes to produce a rule text sufficiently clear to provide
members with a better understanding of Exchange functionality.
Additionally, the Exchange proposes technical amendments to
Exchange Rule 516(b)(3), and 516(g) and Interpretation and Policy .04
to Rule 520 to accommodate the proposed movement of the language
explaining the managed interest process from current Rule 515(c)(2) to
proposed Rule 515(c)(1)(ii).
Because of the technology changes associated with this rule
proposal, the Exchange will announce the implementation date of the
proposal in a Regulatory Circular to be published no later than 30 days
after the publication of the approval order in the Federal Register.
The implementation date will be no later than 30 days following
publication of the Regulatory Circular announcing publication of the
approval order in the Federal Register.
2. Statutory Basis
MIAX believes that its proposed rule change is consistent with
Section 6(b) of the Act \21\ in general, and furthers the objectives of
Section 6(b)(5) of the Act \22\ in particular, in that it is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanisms of a
free and open market and a national market system and, in general, to
protect investors and the public interest.
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\21\ 15 U.S.C. 78f(b).
\22\ 15 U.S.C. 78f(b)(5).
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Specifically, the Exchange believes the proposed price protection
functionality will remove impediments to and perfect the mechanism of a
free and open market by providing members with greater flexibility and
control over how orders interact with liquidity both on the Exchange
and, if routable, on away markets. Instead of imposing a rigid one-
size-fits-all price protection mechanism, the proposed functionality
allows for customization and choice on the part of a member entering a
non-Market Maker order. As proposed, the member can select how many
price points beyond the NBBO at the time of the order's receipt the
member would like the order to trade. This opens up the possibility of
orders to trade on the Exchange and route to away markets at multiple
price-points, instead of the more restrictive current maximum of two
price-points. This proposal allows market participants to access
greater liquidity both on the Exchange, thus benefiting Exchange
members, and on away markets, thus benefiting the options market as a
whole.
The Exchange believes that proposed changes to Rules 515,
specifically the handlings of routable and non-routable orders
addressed in this filing, are consistent with the stated goals of and
necessary to achieve the proposed expansion of the price protection
functionality. Allowing routable and non-routable orders to be
reevaluated and trade at multiple price points will allow such orders
to access greater liquidity and improve the mechanism of price
discovery. Allowing routable orders to be routed away at multiple price
points will benefit the options market as a whole as this will improve
the chances of market participants at these other options exchanges of
receiving an execution. This too will help improve the mechanism of
price discovery.
The Exchange believes that the proposed changes to the Liquidity
Refresh Pause mechanism addressed in this filing are consistent with
the stated goals of and necessary to achieve the proposed expansion of
the price protection functionality. Allowing the liquidity refresh
pause mechanism to apply at multiple price points will help promote a
fair and orderly market as the liquidity refresh pause allows MIAX
participants to add liquidity and price stabilization. Allowing MIAX to
display ``the exhausted MBBO'' in the liquidity refresh pause message
will better inform MIAX participants regarding the price at which to
supply additional liquidity and is necessary given a liquidity refresh
pause mechanism that can apply at multiple price-points beyond ``the
original NBBO.'' The Exchange believes that the change regarding
terminating a liquidity refresh pause when a new quote or order is
received during a Liquidity Refresh Pause on the same side of the
market as the initiating order's remaining contracts that locks or
crosses the original NBBO will protect the opposite side interest by
allowing the opposite side interest to receive an execution.
The Exchange believes that permitting IOC orders to execute at
multiple price-points removes a market impediment as this change will
allow IOC orders to access additional liquidity on the Exchange, thus
benefiting both the sender of the IOC and the members providing the
additional liquidity.
The Exchange believes that permitting FOK orders the additional
opportunity for an execution after causing a liquidity refresh pause to
terminate early will allow FOK orders to access additional liquidity on
the Exchange, thus benefiting both the sender of the FOK and the
members providing the additional liquidity.
Finally, the Exchange believes that its proposed modifications to
its Immediate Routing mechanism 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 by allowing
the Public Customer order to immediately access marketable liquidity
available at an away market in a manner that may help to resolve
undesirable crossed markets.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange notes that it
operates in a highly competitive market in which market participants
can readily direct order flow to competing venues who offer similar
functionality. As to inter-market competition, the Exchange notes
proposed price protection functionality will benefit competing
exchanges because routable orders will be eligible
[[Page 12721]]
to route to away markets at multiple price-points instead of just the
NBBO at the time of the receipt of the order. As to intra-market
competition, the Exchange believes the proposal to be fair as it
preserves price protection functionality for non-Market Maker orders.
Market Maker orders and quotes have their own distinct functionality,
which already includes the ability to trade at multiple price-points.
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 Exchange consents, the Commission shall: (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 rule-comments@sec.gov. Please include
File Number SR-MIAX-2014-08 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-MIAX-2014-08. 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 publicly available. All
submissions should refer to File Number SR-MIAX-2014-08 and should be
submitted on or before March 27, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-04920 Filed 3-5-14; 8:45 am]
BILLING CODE 8011-01-P
