Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing of Proposed Rule Change to Adopt the MIAX Price Improvement Mechanism, 13334-13349 [2014-05029]
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Federal Register / Vol. 79, No. 46 / Monday, March 10, 2014 / Notices
Dated at Rockville, Maryland, this 28th day
of February 2014.
For the Nuclear Regulatory Commission.
Joseph Anderson,
Acting Director, Division of Preparedness and
Response, Office of Nuclear Security and
Incident Response.
[FR Doc. 2014–05105 Filed 3–7–14; 8:45 am]
BILLING CODE 7590–01–P
NUCLEAR REGULATORY
COMMISSION
[NRC–2014–0001]
Sunshine Act Meeting Notice
Weeks of March 10, 17, 24, 31,
April 7, 14, 2014.
PLACE: Commissioners’ Conference
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DATE:
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Friday, March 21, 2014
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emcdonald on DSK67QTVN1PROD with NOTICES
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Additional Information
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The schedule for Commission
meetings is subject to change on short
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notice. To verify the status of meetings,
call (recording)—301–415–1292.
Contact person for more information:
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The NRC Commission Meeting
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Dated: March 6, 2014.
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Matters To Be Considered: The
Privacy and Civil Liberties Oversight
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hearing to continue the PCLOB’s study
of the federal government’s surveillance
program operated pursuant to Section
702 of the Foreign Intelligence
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Board will evaluate both legal and
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Procedures for Public Observation
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Individuals who plan to attend and
require special assistance should
contact Ms. Susan Reingold, Chief
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at least 72 hours prior to the meeting
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Dated: March 4, 2014.
Peter Winn,
Acting General Counsel, Privacy and Civil
Liberties Oversight Board.
[FR Doc. 2014–05047 Filed 3–7–14; 8:45 am]
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BILLING CODE 7590–01–P
PRIVACY AND CIVIL LIBERTIES
OVERSIGHT BOARD
[Notice-PCLOB–2014–02; Docket No. 2014–
0001; Sequence No. 2]
Notice of Public Hearing
Privacy and Civil Liberties
Oversight Board.
ACTION: Public Hearing notice.
AGENCY:
The Privacy and Civil
Liberties Oversight Board (PCLOB) will
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DATES: March 19, 2014, 9:00 a.m.–4:30
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FOR FURTHER INFORMATION CONTACT: Ms.
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SUPPLEMENTARY INFORMATION: The
public hearing meeting is scheduled for
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and ending at 4:30 p.m. Eastern
Standard Time. Location: Mayflower
SUMMARY:
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–71640; File No. SR–MIAX–
2014–09]
Self-Regulatory Organizations; Miami
International Securities Exchange,
LLC; Notice of Filing of Proposed Rule
Change to Adopt the MIAX Price
Improvement Mechanism
March 4, 2014.
Pursuant to the provisions of Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
on February 18, 2014, Miami
International Securities Exchange LLC
(‘‘MIAX’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I, II, and III below,
which Items have been prepared by the
Exchange. The Commission is
publishing this notice to solicit
1 15
2 17
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Federal Register / Vol. 79, No. 46 / Monday, March 10, 2014 / Notices
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
adopt Rule 515A to provide for a price
improvement auction and a solicited
order mechanism.
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.
emcdonald on DSK67QTVN1PROD with NOTICES
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to adopt new
Rule 515A and associated
Interpretations and Policies to provide
for a price improvement auction and a
solicited order mechanism on the
Exchange. In particular, the Exchange
proposes to adopt the MIAX Price
Improvement Mechanism (‘‘PRIME’’) to
provide a method for market
participants to effect orders in a price
improvement auction. The proposed
rules are similar to the rules of other
exchanges that have price improvement
auction mechanisms.3 The Exchange
believes that the similarity of its
proposed price improvement rules to
those of other exchanges will allow the
Exchange’s proposed price
improvement functionality to fit
seamlessly into the greater options
market place and benefit market
participants who are already familiar
with similar functionality offered on
other exchanges.
PRIME Price Improvement Auction
PRIME is a process by which a
Member may electronically submit for
3 See
CBOE Rules 6.74A and 6.74B; ISE Rule 723.
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execution (‘‘Auction’’) an order it
represents as agent (‘‘Agency Order’’),
and/or an Agency Order against
solicited interest. A Member (the
‘‘Initiating Member’’) may initiate an
Auction provided all of the following
are met: (i) The Agency Order is in a
class designated as eligible for PRIME as
determined by the Exchange and within
the designated Auction order eligibility
size parameters as such size parameters
are determined by the Exchange; 4 (ii) if
the Agency Order is for 50 standard
option contracts or 500 mini-option
contracts or more, the Initiating Member
must stop the entire Agency Order as
principal or with a solicited order at the
better of the NBBO5 or the Agency
Order’s limit price (if the order is a limit
order); 6 and (iii) if the Agency Order is
for less than 50 standard option
contracts or 500 mini-option contracts,
the Initiating Member must stop the
entire Agency Order as principal or with
a solicited order at the better of (A) the
NBBO price improved by a $0.01
increment; or (B) the Agency Order’s
limit price (if the order is a limit order).7
Since the Initiating Member is stopping
the entire Agency Order at the NBBO
price or better at the beginning of the
Auction, the Auction execution at the
conclusion of the Auction will qualify
as an exception to the general
prohibition against Trade-Throughs,
pursuant to Rule 1401(b)(9).8 The
4 See Proposed Rule 515A(a)(1)(i). See also CBOE
Rule 6.74A(a)(1).
5 See Rule 100. The term ‘‘NBBO’’ means the
national best bid or offer as calculated by the
Exchange based on market information received by
the Exchange from OPRA.
6 See Proposed Rule 515A(a)(1)(ii). See also CBOE
Rule 6.74A(a)(2). The Exchange notes that nothing
in this Rule prevents an Initiating Member from
choosing to stop an Agency Order better than that
NBBO or the Agency Order’s limit price for orders
for 50 standard option contracts or 500 mini-option
contracts or more. An Initiating Member may
choose to stop an Agency Order better than these
minimum requirements, thus guaranteeing further
price improvement to the Agency Order if such
Initiating Member chooses by simply designating a
more aggressive price upon submission for either a
single price submission or an auto-match.
7 See Proposed Rule 515A(a)(1)(iii). See also
CBOE Rule 6.74A(a)(3). The Exchange notes that
nothing in this Rule prevents an Initiating Member
from choosing to stop an Agency Order better than
that NBBO improved by a $0.01 or the Agency
Order’s limit price for orders for 50 standard option
contracts or 500 mini-option contracts or more. An
Initiating Member may choose to stop an Agency
Order better than these minimum requirements,
thus guaranteeing further price improvement to the
Agency Order if such Initiating Member chooses by
simply designating a more aggressive price upon
submission for either a single price submission or
an auto-match.
8 See Rule 1401(b)(9) (providing an exception
from Trade-Through liability in the circumstance
when a transaction that constituted the TradeThrough was the execution of an order that was
stopped at a price that did not Trade-Through an
Eligible Exchange at the time of the stop).
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Exchange notes that this is consistent
with how the electronic price
improvement auctions of other
competing exchanges operate.9
To initiate the Auction, the Initiating
Member must mark the Agency Order
for Auction processing, and specify (i) a
single price at which it seeks to cross
the Agency Order (with principal
interest and/or a solicited order) (a
‘‘single-price submission’’), including
whether the Initiating Member elects to
have last priority in allocation, or (ii)
that it is willing to automatically match
(‘‘auto-match’’) as principal the price
and size of all Auction responses up to
an optional designated limit price in
which case the Agency Order will be
stopped at the better of the NBBO (if 50
standard option contracts or 500 minioption contracts or greater), $0.01
increment better than the NBBO (if less
than 50 standard option contracts or 500
mini-option contracts), or the Agency
Order’s limit price.10 For both single
price submissions and auto-match, if the
MBBO on the same side of the market
as the Agency Order represents a limit
order on the Book, the stop price must
be at least $0.01 increment better than
the booked order’s limit price.11 For
both a single price submission and automatch, the stopped price specified by
the Initiating Member on the Agency
Order shall be the ‘‘initiating price’’ for
the Auction.12 Thus for single price
submissions, the initiating price will be
the stop price which is the limit price
of the single price submission. For
Agency Orders where no limit price is
designated (market orders), the
initiating price will be the stop price
which is at the NBBO (if 50 standard
option contracts or 500 mini-option
contracts or greater) or $0.01 increment
better than the NBBO (if less than 50
standard option contracts or 500 minioption contracts). For auto-match
submissions with a designated limit
price, the initiating price will be the
9 See,
e.g., CBOE Rule 6.74A; ISE Rule 723.
Proposed Rule 515A(a)(2)(i)(A). See also
CBOE Rule 6.74A(b)(1)(A). As noted above, an
Initiating Member may choose to stop an Agency
Order better than the minimum requirements, thus
guaranteeing further price improvement to the
Agency Order if such Initiating Member chooses by
simply designating a more aggressive price upon
submission for either a single price submission or
an auto-match.
11 See Proposed Rule 515A(a)(2)(i)(A). The
corresponding CBOE provision is silent regarding
this situation. See CBOE Rule 6.74A(b)(1)(A). The
Exchange proposes adding this provision to enable
the PRIME to work seamlessly with the Exchange’s
Book in a manner that would ensure a fair and
orderly market by maintaining priority of orders
and quotes while still affording the opportunity for
price improvement on each Auction commenced on
the Exchange. See also NASDAQ OMX PHLX Rule
1080(n)(ii)(A)(1).
12 See Proposed Rule 515A(a)(2)(i)(A).
10 See
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Federal Register / Vol. 79, No. 46 / Monday, March 10, 2014 / Notices
stop price which is the limit price
designated on the Agency Order. For
auto-match submissions where no limit
price is designated (market orders), the
initiating price will be the stop price at
the NBBO (if 50 standard option
contracts or 500 mini-option contracts
or greater) or $0.01 increment better
than the NBBO (if less than 50 standard
option contracts or 500 mini-option
contracts).13 Once the Initiating Member
has submitted an Agency Order for
processing pursuant to proposed Rule
515A(a)(2)(i)(A), such submission may
not be modified or cancelled.14 Only
one Auction may be ongoing at any
given time in an option and Auctions in
the same option may not queue or
overlap in any manner.15 The Exchange
believes that these options afford the
Initiating Member flexibility and control
over the prices at which it would be
willing to guarantee an Agency Order.
The following examples show the
options afforded to Initiating Members
to specify.
Example 1—Single Price Submission
emcdonald on DSK67QTVN1PROD with NOTICES
NBBO = $1.15–$1.25 200 × 200
BBO = $1.15–$1.25 100 × 100
Agency Order to buy 50 contracts with
a limit price of $1.20
Initiating Member’s Contra Order selling
50 contracts with a single stop price
of $1.20
RFR sent identifying the option, side
and size, with initiating price 16 of
$1.20 (Auction Starts)
• @ 110 milliseconds MM1 response
received, AOC eQuote to Sell 5 at
$1.17
• @ 230 milliseconds MM4 response
received, AOC eQuote to Sell 10 at
$1.18
13 See Proposed Rule 515A(a)(2)(i)(A). See also
CBOE Rule 6.74A(b)(1)(A).
14 See Proposed Rule 515A(a)(2)(i)(A). See also
CBOE Rule 6.74A(b)(1)(A).
15 See Proposed Rule 515A(a)(2). See also CBOE
Rule 6.74A(b).
16 The ‘‘initiating price’’ is the stop price of the
Agency Order. Thus for single price submissions,
the initiating price will be the stop price which is
the limit price of the single price submission. For
Agency Orders where no limit price is designated
(market orders), the initiating price will be the stop
price which is at the NBBO (if 50 standard option
contracts or 500 mini-option contracts or greater) or
$0.01 increment better than the NBBO (if less than
50 standard option contracts or 500 mini-option
contracts). For auto-match submissions with a
designated limit price, the initiating price will be
the stop price which is the limit price designated
on the Agency Order. For auto-match submissions
where no limit price is designated (market orders),
the initiating price will be the stop price at the
NBBO (if 50 standard option contracts or 500 minioption contracts or greater) or $0.01 increment
better than the NBBO (if less than 50 standard
option contracts or 500 mini-option contracts). See
Proposed Rule 515A(a)(2)(i)(A). See also CBOE Rule
6.74A(b)(1)(A).
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• @ 450 milliseconds MM3 response
received, AOC eQuote to Sell 40 at
$1.20
• 500 milliseconds (Auction Ends)
Under this scenario the Agency Order
would be executed as follows:
1. 5 contracts trade with MM1 @ $1.17
2. 10 contracts trade with MM4 @ $1.18
3. 20 contracts trade with the Initiating
Member’s Contra Order @ $1.20 (This
satisfies their 40% participation
guarantee)
4. 15 contracts trade with MM3 @ $1.20
(This fills the entire Agency Order)
Example 2—Single Price Submission
NBBO = $1.15–$1.25 200 × 200
BBO = $1.15–$1.25 100 × 100
Agency Order to buy 100 contracts with
a limit price of $1.20
Initiating Member’s Contra Order selling
100 contracts with a single stop price
of $1.20
RFR sent identifying the option, side
and size, with initiating price of $1.20
(Auction Starts)
• @ 110 milliseconds MM1 response
received, AOC eQuote to Sell 5 at
$1.17
• @ 230 milliseconds MM4 response
received, AOC eQuote to Sell 100 at
$1.20
• @ 450 milliseconds MM3 response
received, AOC eQuote to Sell 40 at
$1.22
• 500 milliseconds (Auction Ends)
Under this scenario the Agency Order
would be executed as follows:
1. 5 contracts trade with MM1 @ $1.17
2. 55 contracts trade with MM4 @ $1.20
3. 40 contracts trade with the Initiating
Member’s Contra Order @ $1.20 (This
fills the entire Agency Order and
satisfies their 40% participation
guarantee)
Example 3—Single Price Submission,
Less Than 50 Contracts
NBBO = $1.15–$1.25 200 × 200
BBO = $1.15–$1.25 100 × 100
Agency Order to buy 30 contracts with
a limit price of $1.20
Initiating Member’s Contra Order selling
30 contracts with a single stop price
of $1.20
RFR sent identifying the option, side
and size, with initiating price of $1.20
(Auction Starts)
• @ 110 milliseconds MM1 response
received, AOC eQuote to Sell 5 at
$1.17
• @ 230 milliseconds MM4 response
received, AOC eQuote to Sell 5 at
$1.18
• @ 450 milliseconds MM3 response
received, AOC eQuote to Sell 10 at
$1.20
• 500 milliseconds (Auction Ends)
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Under this scenario the Agency Order
would be executed as follows:
1. 5 contracts trade with MM1 @ $1.17
2. 5 contracts trade with MM4 @ $1.18
3. 12 contracts trade with the Initiating
Member’s Contra Order @ $1.20 (This
satisfies their 40% participation
guarantee)
4. 8 contracts trade with MM3 @ $1.20
(This fills the entire Agency Order)
Example 4—Single Price Submission,
Initiating Member Elects Last Priority in
Allocation
NBBO = $1.15–$1.25 200 × 200
BBO = $1.15–$1.25 100 × 100
Agency Order to buy 50 contracts with
a limit price of $1.20
Initiating Member’s Contra Order selling
50 contracts with a single stop price
of $1.20, electing last priority in
allocation
RFR sent identifying the option, side
and size, with initiating price of $1.20
(Auction Starts)
• @ 110 milliseconds MM1 response
received, AOC eQuote to Sell 5 at
$1.17
• @ 230 milliseconds MM4 response
received, AOC eQuote to Sell 10 at
$1.18
• @ 450 milliseconds MM3 response
received, AOC eQuote to Sell 40 at
$1.20
• 500 milliseconds (Auction Ends)
Under this scenario the Agency Order
would be executed as follows:
1. 5 contracts trade with MM1 @ $1.17
2. 10 contracts trade with MM4 @ $1.18
3. 35 contracts trade with MM3 @ $1.20
(This fills the entire Agency Order
and the Contra Order does not receive
an execution)
Example 5—Auto-Match
NBBO = $1.15–$1.25 200 × 200
BBO = $1.15-$1.25 100 × 100
Agency Order to buy 50 contracts with
a limit price of $1.24
Initiating Member’s Contra Order selling
50 contracts auto-match
RFR sent identifying the option, side
and size, with initiating price of $1.24
(Auction Starts)
• @ 150 milliseconds MM2 response
received, AOC eQuote to Sell 5 at
$1.17
• @ 230 milliseconds MM4 response
received, AOC eQuote to Sell 10 at
$1.18
• @ 450 milliseconds MM3 response
received, AOC eQuote to Sell 40 at
$1.20
• 500 milliseconds (Auction Ends)
Under this scenario the Agency Order
would be executed as follows:
1. 5 contracts trade with MM2 @ $1.17
2. 5 contracts trade with Contra Order
@ $1.17 (due to auto-match)
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3. 10 contracts trade with MM4 @ $1.18
4. 10 contracts trade with Contra Order
@ $1.18 (due to auto-match)
5. 8 contracts trade with Contra Order
@ $1.20 (due to auto-match of 40% of
the remainder of the order
participation guarantee)
6. 12 contracts trade with MM3 @ $1.20
(This fills the entire Agency Order)
Example 6—Auto-Match, Agency Order
Entered Without a Limit Price
NBBO = $1.15–$1.25 200 × 200
BBO = $1.15–$1.25 100 × 100
Agency Order to buy 50 contracts
without a limit price
Initiating Member’s Contra Order selling
50 contracts auto-match
RFR sent identifying the option, side
and size, with initiating price of $1.25
(Auction Starts)
• @ 150 milliseconds MM2 response
received, AOC eQuote to Sell 5 at
$1.17
• @ 230 milliseconds MM4 response
received, AOC eQuote to Sell 10 at
$1.18
• @ 450 milliseconds MM3 response
received, AOC eQuote to Sell 40 at
$1.20
• 500 milliseconds (Auction Ends)
Under this scenario the Agency Order
would be executed as follows:
1. 5 contracts trade with MM2 @ $1.17
2. 5 contracts trade with Contra Order
@ $1.17 (due to auto-match)
3. 10 contracts trade with MM4 @ $1.18
4. 10 contracts trade with Contra Order
@ $1.18 (due to auto-match)
5. 8 contracts trade with Contra Order
@ $1.20 (due to auto-match of 40% of
the remainder of the order
participation guarantee)
6. 12 contracts trade with MM3 @ $1.20
(This fills the entire Agency Order)
emcdonald on DSK67QTVN1PROD with NOTICES
Example 7—Auto-Match, Agency Order
Entered Without a Limit Price, Less
Than 50 Contracts
NBBO = $1.15–$1.25 200 × 200
BBO = $1.15–$1.25 100 × 100
Agency Order to buy 50 contracts
without a limit price
Initiating Member’s Contra Order selling
30 contracts auto-match
RFR sent identifying the option, side
and size, with initiating price of $1.24
(Auction Starts)
• @ 150 milliseconds MM2 response
received, AOC eQuote to Sell 5 at
$1.17
• @ 230 milliseconds MM4 response
received, AOC eQuote to Sell 5 at
$1.18
• @ 450 milliseconds MM3 response
received, AOC eQuote to Sell 30 at
$1.20
• 500 milliseconds (Auction Ends)
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Under this scenario the Agency Order
would be executed as follows:
1. 5 contracts trade with MM2 @ $1.17
2. 5 contracts trade with Contra Order
@ $1.17 (due to auto-match)
3. 5 contracts trade with MM4 @ $1.18
4. 5 contracts trade with Contra Order
@ $1.18 (due to auto-match)
5. 4 contracts trade with Contra Order
@ $1.20 (due to auto-match of 40% of
the remainder of the order
participation guarantee)
6. 6 contracts trade with MM3 @ $1.20
(This fills the entire Agency Order)
When the Exchange receives a
properly designated Agency Order for
Auction processing, a Request for
Responses (‘‘RFR’’) detailing the option,
side, size, and initiating price will be
sent to all subscribers of the Exchange’s
data feeds.17 The Exchange believes that
including this level of detail in each
RFR may lead to better prices for the
Agency Order. The RFR will last for 500
milliseconds.18 The Exchange believes
that the 500 millisecond duration of the
RFR would provide Members with
sufficient time to submit RFR responses
and would encourage competition
among participants, thereby enhancing
the potential for price improvement for
the Agency Order.19 Members may
submit responses to the RFR (specifying
prices and sizes). RFR responses shall
be an Auction or Cancel (‘‘AOC’’) order
or an AOC eQuote.20 Such responses
17 See Proposed Rule 515A(a)(2)(i)(B). The
Exchange will include the RFR from the auction
mechanisms in the Exchange’s data feeds at no
incremental cost to subscribers. Thus, any
subscriber that chooses to receive options data,
including any Member subscriber, has the ability to
respond to those RFRs. The proposed RFR differs
from CBOE which only disseminates side and size
to Trading Permit Holders that have elected to
receive RFRs. See CBOE Rule 6.74A(b)(1)(B).
18 See Proposed Rule 515A(a)(2)(i)(C). The RFR
response time during price improvement auctions
varies from exchange to exchange. While the BOX
Options RFR response period is as short as 100
milliseconds, the CBOE RFR response period lasts
for one second and the ISE exposure time lasts for
500 milliseconds. See CBOE Rule 6.74A(b)(1)(C);
ISE Rule 723(c)(1); BOX Options Rule 7150(f)(1).
19 In February 2014, to determine whether the
proposed duration of the RFR would provide
sufficient time to enter a RFR response, the
Exchange asked Members, including Market
Makers, whether their firms ‘‘could respond to an
Auction with a duration of 500 milliseconds.’’ Of
the 8 Members that responded to the question,
100% indicated that their firm could respond in
this time frame. Thus, the Exchange believes that
the proposed duration for the RFR of 500
milliseconds, would provide a meaningful
opportunity for participants on MIAX to respond to
a RFR while at the same time facilitating the prompt
execution of orders.
20 See Proposed Rule 515A(a)(2)(i)(D). An ‘‘AOC
order’’ is a limit order used to provide liquidity
during a specific Exchange process (such as the
Opening Imbalance process described in Rule 503)
with a time in force that corresponds with that
event. AOC orders are not displayed to any market
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13337
cannot cross the disseminated MBBO21
on the opposite side of the market from
the response.22 RFR responses shall not
be visible to other Auction participants,
and shall not be disseminated to
OPRA.23 The minimum price increment
for RFR responses and for the Initiating
Member’s submission shall be $0.01
increment, regardless if the class trades
in another price increment.24 An RFR
response with a size greater than the
size of the Agency Order will be capped
at the size of the Agency Order for
participant, are not included in the MBBO and
therefore are not eligible for trading outside of the
event, may not be routed, and may not trade at a
price inferior to the away markets. See Rule
516(b)(4). An ‘‘AOC eQuote’’ is a quote submitted
by a Market Maker to provide liquidity in a specific
Exchange process (such as the Opening Imbalance
Process described in Rule 503) with a time in force
that corresponds with the duration of that event and
will automatically expire at the end of that event.
AOC eQuotes are not displayed to any market
participant, are not included in the MBBO and
therefore are not eligible for trading outside of the
event. An AOC eQuote does not automatically
cancel or replace the Market Maker’s previous
Standard quote or eQuote. See Rule 517(a)(2)(ii).
The Exchange notes that any orders or quotes
received by the System during the Auction that are
not AOC orders or AOC eQuotes will be treated as
unrelated trading interest. In addition, the Exchange
notes that an AOC order or an AOC eQuote could
trade at a price inferior to the away market if it is
a part of an exempt transaction. See Rule 1402.
AOC orders are available to all market
participants on MIAX; thus enabling all market
participants with the ability to participate in the
PRIME. As mentioned below, in contrast to CBOE
which limits responses to only market makers
assigned to the relevant options class, any MIAX
Member may respond to the RFR in the PRIME. See
CBOE Rule 6.74A(b)(1)(D). In addition, the
Exchange does not propose to limit responses to
Members acting as agent to orders resting at the top
of the Exchange’s Book opposite the Agency Order
like CBOE. Instead, any MIAX Member acting as
agent for orders may respond to the RFR in the
PRIME. See Proposed Rule 515A(a)(2)(i)(D). See
CBOE Rule 6.74A(b)(1)(E).
21 The term ‘‘MBBO’’ means the best bid or offer
on the Exchange. See Rule 100.
22 See Proposed Rule 515A(a)(2)(i)(D). In contrast
to CBOE which limits responses to only market
makers assigned to the relevant options class, any
MIAX Member may respond to the RFR in the
PRIME. See also CBOE Rule 6.74A(b)(1)(D). In
addition, the Exchange does not propose to limit
responses to Members acting as agent to orders
resting at the top of the Exchange’s Book opposite
the Agency Order like CBOE. Instead, any MIAX
Member acting as agent for orders may respond to
the RFR in the PRIME. See Proposed Rule
515A(a)(2)(i). See CBOE Rule 6.74A(b)(1)(E).
23 See Proposed Rule 515A(a)(2)(i)(E). In contrast
to CBOE which is silent on the pricing increment
that is available for non-single price submissions,
the Exchange proposes that the Initiating Member’s
submission whether single price or auto-match
shall have a minimum price increment of $0.01. See
also CBOE Rule 6.74A(b)(1)(F).
24 See Proposed Rule 515A(a)(2)(i)(F). See also
CBOE Rule 6.74A(b)(1)(G).
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allocation purposes.25 RFR responses
may be cancelled.26
The PRIME Auction is designed to
work seamlessly with the Exchange’s
Book and is designed to maintain
priority of all resting quotes and orders
and any RFR responses received before
the conclusion of the Auction. The
PRIME will conclude early, before the
end of the RFR period, as a result of
certain events that would otherwise
disrupt the priority of the Auction
within the Book. The Exchange notes
that this is consistent with how the
electronic price improvement auctions
of other competing exchanges operate.27
Specifically, the Auction shall conclude
at the sooner of the following: (i) The
end of the RFR period; (ii) upon receipt
by the System of an unrelated order (in
the same option as the Agency Order)
on the same side or opposite side of the
market from the RFR responses, that is
marketable against either the MBBO
(when such quote is the NBBO) or the
RFR responses; (iii) upon receipt by the
System of an unrelated limit order (in
the same option as the Agency Order
and on the opposite side of the market
from the Agency Order) that improves
any RFR response; (iv) any time an RFR
response matches the MBBO on the
opposite side of the market from the
RFR responses; (v) any time there is a
quote lock in the subject option on the
Exchange pursuant to Rule 1402; or (vi)
any time there is a trading halt in the
option on the Exchange.28
Priority and Allocation of Orders and
Quotes
The priority of allocation at the
conclusion of a PRIME Auction,
described below, will be similar to the
standard allocation of orders and quotes
on MIAX. Current MIAX Rule 514
provides the priority of allocation of
order and quotes on the Exchange.
Under the pro-rata allocation method,
resting quotes and orders on the Book
are prioritized according to price. If
there are two or more quotes or orders
at the best price then the contracts are
allocated proportionally according to
size (in a pro-rata fashion) within each
origin type. If the executed quantity
cannot be evenly allocated, the
remaining contracts will be distributed
one at a time based upon size-time
priority.29 When the Priority Customer
Overlay is in effect, the highest bid and
lowest offer shall have priority except
that Priority Customer Orders shall have
priority over Professional Interest and
all Market Maker interest at the same
price. If there are two or more Priority
Customer Orders for the same options at
the same price, priority shall be afforded
to such Priority Customer Orders in the
sequence in which they are received by
the System.30 If there is other interest at
the NBBO, after all Priority Customer
Orders (if any) at that price have been
filled, executions at that price will be
first allocated to other remaining Market
Maker priority quotes31, which have not
received a participation entitlement,
and have precedence over Professional
Interest.32 If after all Market Maker
priority quotes have been filled in
accordance with Rule 514(d)(1) and
there remains interest at the NBBO,
executions will be allocated to all
Professional Interest at that price.
Exchange Rule 514(c)(2).
Exchange Rule 514(d)(1). The term
‘‘Priority Customer’’ means a person or entity that
(i) is not a broker or dealer in securities, and (ii)
does not place more than 390 orders in listed
options per day on average during a calendar month
for its own beneficial accounts(s). See Exchange
Rule 100.
31 To be considered a priority quote, at the time
of execution, each of the following standards must
be met: (A) The bid/ask differential of a Market
Maker’s two-sided quote pair must be valid width
(no wider than the bid/ask differentials outlined in
Rule 603(b)(4)); (B) the initial size of both of the
Market Maker’s bid and the offer must be in
compliance with the requirements of Rule 604(b)(2);
(C) the bid/ask differential of a Market Maker’s twosided quote pair must meet the priority quote width
requirements defined in Rule 517(b)(1)(ii) for each
option; and (D) either of the following are true:
1. At the time a locking or crossing quote or order
enters the System, the Market Maker’s two-sided
quote pair must be valid width for that option and
must have been resting on the Book; or
2. Immediately prior to the time the Market
Maker enters a new quote that locks or crosses the
MBBO, the Market Maker must have had a valid
width quote already existing (i.e., exclusive of the
Market Maker’s new marketable quote or update)
among his two-sided quotes for that option. See
Exchange Rule 517(b)(1)(i).
32 See Exchange Rule 514(e)(1).
29 See
30 See
emcdonald on DSK67QTVN1PROD with NOTICES
25 See
Proposed Rule 515A(a)(2)(i)(G). In contrast
to CBOE which limits responses to only the size of
the Agency Order, responses that exceed the size of
the Agency Order will be treated as if they were the
same size as the Agency Order for purposes of the
Auction. See CBOE Rule 6.74A(b)(1)(H). RFR
response sizes are capped at the same size of the
Agency Order in order to prevent manipulation and
gaming of the pro rata allocation within each origin
type and price point. See Proposed Rules
515A(2)(iii)(C),(D). The Exchange notes that
unrelated trading interest including unrelated
orders, quotes, or orders on the Exchange’s Book
will not be subject to such a cap, since they are not
considered responses to the Auction. The Exchange
believes that this will help enable the Auction to
work seamlessly with the Exchange’s Book, by
maintaining priority of all resting quotes and orders
and any RFR responses received before the
conclusion of the Auction while preventing the
gaming of pro rata allocations by RFR responses.
The Exchange notes that this is consistent with how
the electronic price improvement auctions of other
competing exchanges operate. See CBOE Rule
6.74A.
26 See Proposed Rule 515A(a)(2)(i)(H). See also
CBOE Rule 6.74A(b)(1)(I).
27 See CBOE Rule 6.74A(b)(2); ISE Rule 723(c)(5).
28 See Proposed Rule 515A(a)(2)(ii). See also
CBOE Rule 6.74A(b)(2).
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Professional Interest is defined in Rule
100 and includes among other interest,
Market Maker non-priority quotes (as
described in Rule 517(b)(1)(ii)) and
Market Maker orders in both assigned
and non-assigned classes.33
PRIME is designed to work seamlessly
with the Exchange’s Book in a manner
that would ensure a fair and orderly
market by maintaining priority of orders
and quotes while still affording the
opportunity for price improvement on
each Auction commenced on the
Exchange. The priority of allocation at
the conclusion of a PRIME Auction will
be similar to the standard allocation of
orders and quotes on MIAX.34 At the
conclusion of the Auction, the Agency
Order will be allocated at the best
price(s) pursuant to the matching
algorithm in effect for the class subject
to the following:
• Such best prices include nonAuction quotes and orders.35
• Priority Customer orders resting on
the Book before, or that are received
during, the Response Time Interval and
Priority Customer RFR responses shall,
collectively have first priority to trade
against the Agency Order. The
allocation of an Agency Order against
the Priority Customer orders resting in
the Book, Priority Customer orders
received during the Response Time
Interval, and Priority Customer RFR
responses shall be in the sequence in
which they are received by the
System.36
• Market Maker priority quotes and
RFR responses from Market Makers with
priority quotes will collectively have
second priority. The allocation of
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33 See Exchange Rule 514(e)(2). Specifically, the
term ‘‘Professional Interest’’ means (i) an order that
is for the account of a person or entity that is not
a Priority Customer, or (ii) an order or non-priority
quote for the account of a Market Maker. See
Exchange Rule 100.
34 In this regard, the proposed Rule 515A(a)(2)(iii)
differs from CBOE Rule 6.74A(b)(3) which gives
priority to public customers but also restricts
participation in the auction to market makers
appointed in the relevant option class. Since
participation in the PRIME extends to all Members
on MIAX, the Exchange believes that the existing
priority rules that distinguish between Priority
Customers, Market Makers with priority quotes, and
Professional Interest is the best method to ensure
a fair and orderly market by maintaining priority of
orders and quotes while still affording the
opportunity for price improvement on each Auction
commenced on the Exchange.
35 See Proposed Rule 515A(a)(2)(iii)(A). See also
CBOE Rule 6.74A(b)(3)(A).
36 See Proposed Rule 515A(a)(2)(iii)(B). The
Exchange notes that the priority allocation in
PRIME is consistent with the standard priority rules
for Priority Customers in Rule 514(d)(1). In contrast
to CBOE that extends priority to only public
customers in the book, the Exchange gives priority
to Priority Customer orders whether they were on
the Book or received during the Response Time
Interval. See CBOE Rule 6.74A(b)(3)(B).
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Agency Orders against these contra
sided quotes and RFR responses shall be
on a size pro rata basis as defined in
Rule 514(c)(2).37
• Professional Interest orders resting
in the Book, Professional Interest orders
placed in the Book during the Response
Time Interval, Professional Interest
quotes, and Professional Interest RFR
responses will collectively have third
priority.38 The allocation of Agency
Orders against these contra sided orders
and RFR responses shall be on a size pro
rata basis as defined in Rule 514(c)(2).39
• No participation entitlement shall
apply to orders executed pursuant to
this Rule.40
• If an unrelated market or
marketable limit order on the opposite
side of the market as the Agency Order
was received during the Auction and
ended the Auction, such unrelated order
shall trade against the Agency Order at
the midpoint of the best RFR response
(or in the absence of a RFR response, the
initiating price 41) and the NBBO on the
other side of the market from the RFR
responses (rounded towards the
disseminated quote when necessary).42
• If an unrelated non-marketable limit
order on the opposite side of the market
as the Agency Order was received
during the Auction and ended the
37 See
Proposed Rule 515A(a)(2)(iii)(C).
Exchange Rule 514(e)(2). Specifically, the
term ‘‘Professional Interest’’ means (i) an order that
is for the account of a person or entity that is not
a Priority Customer, or (ii) an order or non-priority
quote for the account of a Market Maker. See
Exchange Rule 100.
39 See Proposed Rule 515A(a)(2)(iii)(D).
40 See Proposed Rule 515A(a)(2)(iii)(E). See also
CBOE Rule 6.74A(b)(3)(C).
41 As mentioned above, the ‘‘initiating price’’ is
the stop price of the Agency Order. Thus for single
price submissions, the initiating price will be the
stop price which is the limit price of the single
price submission. For Agency Orders where no
limit price is designated (market orders), the
initiating price will be the stop price which is at
the NBBO (if 50 standard option contracts or 500
mini-option contracts or greater) or $0.01 increment
better than the NBBO (if less than 50 standard
option contracts or 500 mini-option contracts). For
auto-match submissions with a designated limit
price, the initiating price will be the stop price
which is the limit price designated on the Agency
Order. For auto-match submissions where no limit
price is designated (market orders), the initiating
price will be the stop price at the NBBO (if 50
standard option contracts or 500 mini-option
contracts or greater) or $0.01 increment better than
the NBBO (if less than 50 standard option contracts
or 500 mini-option contracts). See Proposed Rule
515A(a)(2)(i)(A). See also CBOE Rule
6.74A(b)(1)(A).
42 See Proposed Rule 515A(a)(2)(iii)(F). The
proposed treatment of the unrelated market or
marketable limit order on the opposite side differs
from CBOE, in that CBOE’s rule does not
contemplate pricing at the midpoint when there is
no RFR response. The Exchange believes that in the
absence of a RFR response, using the initiating price
in this scenario is appropriate and helps facilitate
an execution at an improved price for the Agency
Order. See CBOE Rule 6.74A(b)(3)(D).
emcdonald on DSK67QTVN1PROD with NOTICES
38 See
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Auction, such unrelated order shall
trade against the Agency Order at the
midpoint of the best RFR response and
the unrelated order’s limit price
(rounded towards the unrelated order’s
limit price when necessary).43
• Notwithstanding proposed Rule
515A(a)(2)(iii)(C), (D), if the best price
equals the Initiating Member’s singleprice submission, the Initiating
Member’s single-price submission shall
be allocated the greater of one contract
or a certain percentage of the order,
which percentage will be determined by
the Exchange and may not be larger than
40%. However, if only one Member’s
response matches the Initiating
Member’s single price submission then
the Initiating Member may be allocated
up to 50% of the order.44
• Notwithstanding proposed Rule
515A(a)(2)(iii)(C), (D), if the Initiating
Member selected the auto-match option
of the Auction, the Initiating Member
shall be allocated its full size of RFR
responses at each price point up to the
designated limit price or until a price
point is reached where the balance of
the order can be fully executed.45 At
such price point, the Initiating Member
shall be allocated the greater of one
contract or a certain percentage of the
remainder of the order, which
percentage will be determined by the
Exchange and may not be larger than
40%.46
43 See Proposed Rule 515A(a)(2)(iii)(G). An
unrelated non-marketable limit order on the
opposite side of the market as the Agency Order
would end the Auction in the situation when that
unrelated non-marketable limit order improves any
RFR response. Thus, in contrast to the situation of
an unrelated market or marketable limit order, the
proposed treatment of an unrelated non-marketable
limit order on the opposite side will be identical to
CBOE since there will be a RFR response present
to calculate the midpoint from when the Auction
ends. See also CBOE Rule 6.74A(b)(3)(E).
44 See Proposed Rule 515A(a)(2)(iii)(H). In
contrast to CBOE which is silent on the priority of
allocation at a price point between the Initiating
Member’s guaranteed allocation and other interest,
the Exchange proposes additional language to
clarify that the priority of the Initiating Member’s
guaranteed allocation is after Priority Customer
interest. See also CBOE Rule 6.74A(b)(3)(F).
45 The Exchange notes that the auto-match
functionality will only allocate the full size of RFR
responses (AOC orders and AOC eQuotes). See
Proposed Rule 515A(a)(2)(iii)(I). In contrast to
CBOE which is silent on the priority of allocation
at a price point between the Initiating Member’s
guarantee and other interest, the Exchange proposes
additional language to clarify that the priority of the
Initiating Member’s guaranteed allocation is after
Priority Customer interest. See also CBOE Rule
6.74A(b)(3)(G). As noted above, any orders or
quotes received by the System during the Auction
that are not AOC orders or AOC eQuotes will be
treated as unrelated trading interest; the auto-match
functionality will not allocate against such
unrelated trading interest. See Proposed Rule
515A(a)(2)(i)(D).
46 See Proposed Rule 515A(a)(2)(iii)(I). In contrast
to CBOE which is silent regarding the allocation of
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13339
• Notwithstanding proposed Rule
515A(a)(2)(iii)(C), (D), if the Auction
does not result in price improvement
over the Exchange’s disseminated price
at the time the Auction began, resting
unchanged quotes or orders that were
disseminated at the best price before the
Auction began shall have priority after
any Priority Customer order priority and
the Initiating Member’s priority (40%)
have been satisfied.47 Any unexecuted
balance on the Agency Order shall be
allocated to RFR responses provided
that those RFR responses will be capped
to the size of the original order and that
the Initiating Member may not
participate on any such balance unless
the Agency Order would otherwise go
unfilled.48
• If the final Auction price locks a
Priority Customer order on the Book on
the same side of the market as the
Agency Order, then, unless there is
sufficient size in the Auction responses
to execute both the Agency Order and
the booked Priority Customer order (in
which case they will both execute at the
final Auction price), the Agency Order
will execute against the RFR responses
at $0.01 increment worse than the final
Auction price (towards the opposite
side of the Agency Order) against the
Auction participants that submitted the
final Auction price and any balance
shall trade against the Priority Customer
order in the Book at such order’s limit
price.49
• If the Initiating Member elected to
have last priority in allocation when
the Initiating Member’s auto-match when there is a
designated limit price, the Exchange proposes
additional language to clarify that the Initiating
Member shall be allocated its full size of RFR
responses at each price point up to the designated
limit price or until a price point is reached where
the balance of the order can be fully executed. See
also CBOE Rule 6.74A(b)(3)(G).
47 The Exchange notes that the priority of such
resting unchanged quotes or orders that were
disseminated at the best price before the Auction
began will still be subject to the standard priority
allocation in effect pursuant to Rule 514.
In contrast to CBOE which is silent on the
priority of allocation at a price point between the
Initiating Member’s guarantee and other interest,
the Exchange proposes additional language to
clarify that the priority of the Initiating Member’s
guaranteed allocation is after Priority Customer
interest. See Proposed Rule 515A(a)(2)(iii)(J). See
also CBOE Rule 6.74A(b)(3)(H).
48 See Proposed Rule 515A(a)(2)(iii)(J). This
provision differs slightly from CBOE which caps
RFR responses to the size of the unexecuted balance
of the Agency Order when allocating any
unexecuted balance on the Agency Order. See
CBOE Rule 6.74A(b)(3)(H).
49 See Proposed Rule 515A(a)(2)(iii)(K). The
Exchange proposes additional language not in the
CBOE rule to clarify that an execution price in this
situation that is $0.01 increment worse than the
final Auction price means the final Auction price
adjusted by $0.01 increment towards the opposite
side of the Agency Order. See also CBOE Rule
6.74A(b)(3)(I).
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submitting an Agency Order to initiate
an Auction against a single-price
submission, the Initiating Member will
be allocated only the amount of
contracts remaining, if any, after the
Agency Order is allocated to all other
responses at the single price specified
by the Initiating Member.50
• If an unexecuted balance remains
on the Auction responses after the
Agency Order has been executed and
such balance could trade against any
unrelated order(s) that caused the
Auction to conclude, then the RFR
balance will trade against the unrelated
order(s) on a size pro rata basis as
defined in Rule 514(c)(2).51
The following examples show how
allocations will be allocated at the
conclusion of the Prime Auction.52
Example 8—Single Price Submission,
Priority Customer Has Priority
NBBO = $1.15–$1.25 200 × 200
BBO = $1.15–$1.25 100 × 100
Agency Order to buy 50 contracts with
a limit price of $1.20
Initiating Member’s Contra Order selling
50 contracts with a single stop price
of $1.20
RFR sent identifying the option, side
and size, with initiating price of $1.20
(Auction Starts)
• @ 110 milliseconds MM1 response
received, AOC eQuote to Sell 10 at
$1.18
• @ 230 milliseconds MM4 response
received, AOC eQuote to Sell 10 at
$1.18
• @ 450 milliseconds Priority Customer
response received, AOC order to Sell
40 at $1.18
• 500 milliseconds (Auction Ends)
Under this scenario the Agency Order
would be executed as follows:
1. 40 contracts trade with Priority
Customer @ $1.18
2. 5 contracts trade with MM1 @ $1.18
3. 5 contracts trade with MM4 @ $1.18
(This fills the entire Agency Order
and Contra Order does not receive an
execution)
emcdonald on DSK67QTVN1PROD with NOTICES
50 See
Proposed Rule 515A(a)(2)(iii)(L). See also
CBOE Rule 6.74A(b)(3)(J).
51 See Proposed Rule 515A(a)(2)(iii)(M). In
contrast to CBOE which is silent regarding the basis
for allocation of an unrelated order(s) against the
RFR balance in this situation, the Exchange
proposes additional language to clarify that such
RFR balance will trade against the unrelated
order(s) on a size pro rata basis as defined in Rule
514(c)(2). See also CBOE Rule 6.74A(b)(3).
52 The Exchange notes that in all examples in the
filing, a Market Maker response should be
considered from a Market Maker that does not have
a priority quote, unless the example specifically
states that the response is from a Market Maker with
a priority quote.
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Example 9—Single Price Submission,
Priority Customer Has Priority and Only
One Response Matches the Initiating
Member at the Best Price
NBBO = $1.15–$1.25 200 × 200
BBO = $1.15–$1.25 100 × 100
Agency Order to buy 50 contracts with
a limit price of $1.20
Initiating Member’s Contra Order selling
50 contracts with a single stop price
of $1.20
RFR sent identifying the option, side
and size, with initiating price of $1.20
(Auction Starts)
• @ 110 milliseconds MM1 response
received, AOC eQuote to Sell 50 at
$1.20
• @ 230 milliseconds MM4 response
received, AOC eQuote to Sell 10 at
$1.22
• @ 450 milliseconds Priority Customer
response received, AOC order to Sell
40 at $1.22
• 500 milliseconds (Auction Ends)
Under this scenario the Agency Order
would be executed as follows:
1. 25 contracts trade with MM1 @ $1.20
2. 25 contracts trade with the Contra
Order @ $1.20 (This fills the entire
Agency Order and this satisfies their
50% of the order size when matching
one other member participation
guarantee)
Example 10—Single Price Submission,
Market Maker With Priority Quotes Has
Priority
NBBO = $1.15–$1.25 200 × 200
BBO = $1.15–$1.25 100 × 100
Agency Order to buy 50 contracts with
a limit price of $1.20
Initiating Member’s Contra Order selling
50 contracts with a single stop price
of $1.20
RFR sent identifying the option, side
and size, with initiating price of $1.20
(Auction Starts)
• @ 110 milliseconds MM1 non-priority
response received, AOC eQuote to
Sell 10 at $1.18
• @ 230 milliseconds MM4 non-priority
response received, AOC eQuote to
Sell 10 at $1.18
• @ 450 milliseconds MM3 with
priority quotes response received,
AOC eQuote to Sell 40 at $1.18
• 500 milliseconds (Auction Ends)
Under this scenario the Agency Order
would be executed as follows:
1. 40 contracts trade with MM3 @ $1.18
2. 5 contracts trade with MM1 @ $1.18
3. 5 contracts trade with MM4 @ $1.18
(This fills the entire Agency Order
and Contra Order does not receive an
execution)
Example 11—Single Price Submission,
Market Maker With Priority Quotes Has
Priority
NBBO = $1.15–$1.25 200 × 200
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BBO = $1.15–$1.25 100 × 100
Agency Order to buy 50 contracts with
a limit price of $1.20
Initiating Member’s Contra Order selling
50 contracts with a single stop price
of $1.20
RFR sent identifying the option, side
and size, with initiating price of $1.20
(Auction Starts)
• @ 110 milliseconds MM1 non-priority
response received, AOC eQuote to
Sell 10 at $1.18
• @ 230 milliseconds BD4 response
received, AOC order to Sell 10 at
$1.18
• @ 450 milliseconds MM3 with
priority quotes response received,
AOC eQuote to Sell 40 at $1.18
• 500 milliseconds (Auction Ends)
Under this scenario the Agency Order
would be executed as follows:
1. 40 contracts trade with MM3 @ $1.18
2. 5 contracts trade with MM1 @ $1.18
3. 5 contracts trade with BD4 @ $1.18
(This fills the entire Agency Order
and Contra Order does not receive an
execution)
Example 12—Auto-Match, Market
Maker With Priority Quotes Has Priority
NBBO = $1.15–$1.25 200 × 200
BBO = $1.15–$1.25 100 × 100
Agency Order to buy 50 contracts with
a limit price of $1.20
Initiating Member’s Contra Order selling
50 contracts auto-match
RFR sent identifying the option, side
and size, with initiating price of $1.20
(Auction Starts)
• @ 110 milliseconds MM1 non-priority
response received, AOC eQuote to
Sell 10 at $1.18
• @ 230 milliseconds MM4 non-priority
response received, AOC eQuote to
Sell 10 at $1.18
• @ 450 milliseconds MM3 with
priority quotes response received,
AOC eQuote to Sell 40 at $1.18
• 500 milliseconds (Auction Ends)
Under this scenario the Agency Order
would be executed as follows:
1. 30 contracts trade with MM3 @ $1.18
2. 20 contracts trade with the Contra
Order @ $1.18 (This fills the entire
Agency Order and this satisfies their
40% participation guarantee)
Example 13—Auto-Match, Market
Maker With Priority Quotes Has Priority
NBBO = $1.15–$1.25 200 × 200
BBO = $1.15–$1.25 100 × 100
Agency Order to buy 50 contracts with
a limit price of $1.20
Initiating Member’s Contra Order selling
50 contracts auto-match
RFR sent identifying the option, side
and size, with initiating price of $1.20
(Auction Starts)
• @ 110 milliseconds MM1 non-priority
response received, AOC eQuote to
Sell 10 at $1.18
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• @ 230 milliseconds BD4 response
received, AOC order to Sell 10 at
$1.18
• @ 450 milliseconds MM3 with
priority quotes response received,
AOC eQuote to Sell 40 at $1.18
• 500 milliseconds (Auction Ends)
Under this scenario the Agency Order
would be executed as follows:
1. 30 contracts trade with MM3 @ $1.18
2. 20 contracts trade with the Contra
Order @ $1.18 (This fills the entire
Agency Order and this satisfies their
40% participation guarantee)
Example 14—Single Price Submission,
Priority Customer Order on the Book on
the Same Side Locks the Final Auction
Price
NBBO = $1.15–$1.25 200 × 200
BBO = $1.15–$1.25 100 × 100
Priority Customer order on the Book to
Buy 75 at $1.15
Agency Order to buy 50 contracts with
a limit price of $1.20
Initiating Member’s Contra Order selling
50 contracts with a single stop price
of $1.20
RFR sent identifying the option, side
and size, with initiating price of $1.20
(Auction Starts)
• @ 110 milliseconds MM1 response
received, AOC eQuote to Sell 10 at
$1.22
• @ 230 milliseconds MM4 response
received, AOC eQuote to Sell 50 at
$1.15 (response matches the opposite
MBBO causes the Auction to
conclude early)
Under this scenario the Agency Order
would be executed as follows:
1. 50 contracts trade with MM4 @ $1.16
(This fills the entire Agency Order
and Contra Order does not receive an
execution)
emcdonald on DSK67QTVN1PROD with NOTICES
Example 15—Auto-Match, Priority
Customer Order on the Book on the
Same Side Locks the Final Auction
Price
NBBO = $1.15–$1.25 200 × 200
BBO = $1.15–$1.25 100 × 100
Priority Customer order on the Book to
Buy 75 at $1.15
Agency Order to buy 50 contracts with
a limit price of $1.20
Initiating Member’s Contra Order selling
50 contracts auto-match
RFR sent identifying the option, side
and size, with initiating price of $1.20
(Auction Starts)
• @ 110 milliseconds MM1 response
received, AOC eQuote to Sell 10 at
$1.22
• @ 230 milliseconds MM4 response
received, AOC eQuote to Sell 50 at
$1.15 (response matches the opposite
MBBO causes the Auction to
conclude early)
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Under this scenario the Agency Order
would be executed as follows:
1. 30 contracts trade with MM4 @ $1.16
2. 20 contracts trade with the Contra
Order @ $1.16 (This fills the entire
Agency Order and this satisfies their
40% participation guarantee)
3. Priority Customer order to buy 75 at
$1.15 then executes as follows:
a. 20 contracts trade with MM4 @ $1.15
b. Remaining contracts post to the Book
as the new BB paying $1.15 for 55
contracts
In Examples 14 and 15, since both the
Agency Order and the Priority Customer
order could not both be executed against
the RFR responses due to insufficient
size, the Agency Order executed against
the RFR response at $0.01 increment
worse than the final Auction price with
the remaining balance of responses
trading against the Priority Customer
order in the Book at such order’s limit
price.53 In Example 15, there is
sufficient balance remaining of the RFR
response to partially trade at the Priority
Customer’s limit price. However, in
Example 14, there is not any remaining
balance of RFR responses that can trade
against the Priority Customer order.
Example 16—Auto-Match, Priority
Customer Order on the Book on the
Same Side Locks the Final Auction
Price
NBBO = $1.15–$1.25 200 × 200
BBO = $1.15–$1.25 100 × 100
Priority Customer order to Buy 20 at
$1.15
Agency Order to buy 50 contracts with
a limit price of $1.20
Initiating Member’s Contra Order selling
50 contracts auto-match
RFR sent identifying the option, side
and size, with initiating price of $1.20
(Auction Starts)
• @ 110 milliseconds MM1 response
received, AOC eQuote to Sell 50 at
$1.15 (response matches the opposite
MBBO causes the Auction to
conclude early)
Under this scenario the Agency Order
would be executed as follows:
1. 30 contracts trade with MM1 @ $1.15
2. 20 contracts trade with the Contra
Order @ $1.15 (This fills the entire
Agency Order and this satisfies their
40% participation guarantee)
3. Priority Customer order to buy 20 at
$1.15 then executes as follows:
a. 20 contracts trade with MM1 @ $1.15
In Example 16, since there is
sufficient size in the RFR responses to
execute both the Agency Order and the
Priority Customer order, both execute at
the final Auction price.54
53 See Proposed Rule 515A(a)(2)(iii)(K). See also
CBOE Rule 6.74A(b)(3)(I).
54 See id.
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As mentioned above and shown in
Examples 8–16, the priority of
allocation at the conclusion of a PRIME
Auction will be similar to the standard
allocation of orders and quotes on
MIAX.55 At each price point, orders and
quotes will be given priority by type—
Priority Customer, Market Maker with
priority quotes, and then to Professional
Interest. The Exchange believes that this
design is necessary to ensure a fair and
orderly market by maintaining priority
of orders and quotes while still
affording the opportunity for price
improvement on each Auction
commenced on the Exchange. In
addition, by keeping the priority of
allocation of the PRIME similar in this
way to the standard allocation, there is
a reduced ability to misuse the Auction
to circumvent the standard priority
rules.
As noted earlier, the PRIME Auction
is integrated seamlessly within the
Exchange’s Book and is designed to
maintain priority of all resting quotes
and orders and any RFR responses
received before the conclusion of the
Auction. A PRIME Auction would
conclude early as a result of certain
events that would otherwise disrupt the
priority of the Auction within the Book.
The Exchange notes that this is
consistent with how the electronic price
improvement auctions of other
competing exchanges operate.56 The
following examples show how
allocations will be allocated due to the
early conclusion of the Prime Auction
before the expiration of the RFR timer.57
Example 17—Early Conclusion of
Auction, Opposite Side Limit Order
Marketable Against NBBO at the Time
of Arrival
NBBO = $1.20–$1.24 200 × 100
BBO = $1.20–$1.24 100 × 100
Agency Order to buy 50 contracts with
a limit of $1.24
55 In simple terms, the allocation of orders and
quotes at the conclusion of a PRIME Auction will
be in priority ranked by price/origin type/pro-rata/
time which is that standard allocation of orders and
quotes on MIAX when the pro-rata allocation
method and the Priority Customer Overlay is in
effect. The key differences between the standard
allocation and PRIME allocation are that in PRIME:
RFR responses are capped at the total size of the
Agency order which changes the pro-rata
calculation when allocating within the same origin
type; no participation entitlement will apply to
orders executed in the PRIME; and the Initiating
Member’s facilitating or solicitation order may
receive a participation guarantee at the stop price.
56 See, e.g., CBOE Rule 6.74A; ISE Rule 723.
57 See supra note 42. As provided above, the
Exchange notes that in all examples in the filing,
a Market Maker response should be considered
from a Market Maker that does not have a priority
quote, unless the example specifically states that
the response is from a Market Maker with a priority
quote.
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Initiating Member’s Contra Order selling
50 contracts with a stop price of $1.24
RFR sent identifying the option, side
and size, initiating price of $1.24
(Auction Starts)
• @ 200 milliseconds MM3 response
received, AOC eQuote to Sell 50 at
$1.22
• @ 210 milliseconds MM1 response
received, AOC eQuote to Sell 50 at
$1.22
• @ 230 milliseconds MM4 response
received, AOC eQuote to Sell 50 at
$1.23
• @ 400 milliseconds BD1 Unrelated
Order received Sell 10 at $1.20
(Opposite-side order marketable
against the NBB causes an early
conclusion to the Auction)
Under this scenario, the Agency Order
would be executed as follows:
1. 10 contracts trade with the unrelated
order for BD1 @ $1.21 (midpoint of
the best RFR response of $1.22 and
the opposite side of the market from
the RFR response of $1.20)
2. 20 contracts trade with MM3 @ $1.22
3. 20 contracts trade with MM1 @ (This
fills the entire Agency Order)
4. MM4 does not trade any contracts
5. Contra Order does not trade any
contracts
emcdonald on DSK67QTVN1PROD with NOTICES
Example 18—Early Conclusion of
Auction, Opposite Side Non-Marketable
Order Received
NBBO = $1.20–$1.24 200 × 100
BBO = $1.20–$1.24 100 × 100
Agency Order to buy 50 contracts with
a limit of $1.24
Initiating Member’s Contra Order selling
50 contracts with a stop price of $1.24
RFR sent identifying the option, side
and size, initiating price of $1.24
(Auction Starts)
• @ 200 milliseconds MM3 response
received, AOC eQuote to Sell 50 at
$1.23
• @ 210 milliseconds MM1 response
received, AOC eQuote to Sell 50 at
$1.23
• @ 230 milliseconds MM4 response
received, AOC eQuote to Sell 50 at
$1.24
• @ 400 milliseconds BD1 Unrelated
Order received Sell 10 at $1.21
(Opposite-side order non-marketable
against the NBB causes an early
conclusion to the Auction)
Under this scenario, the Agency Order
would be executed as follows:
1. 10 contracts trade with the unrelated
order for BD1 @ $1.22(midpoint of the
best RFR response of $1.23 and the
unrelated order’s limit price of $1.21,
rounded towards the unrelated order’s
limit price when necessary)
2. 20 contracts trade with MM3 @ $1.23
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3. 20 contracts trade with MM1 @ $1.23
(This fills the entire Agency Order)
4. MM4 does not trade any contracts
5. Contra Order does not trade any
contracts
Example 19—Early Conclusion of
Auction, Opposite Side Market Order
With Auto-Match and No Responses
NBBO = $1.15–$1.25 200 × 200
BBO = $1.15–$1.25 100 × 100
Agency Order to buy 50 contracts with
a limit of $1.20
Initiating Member’s Contra Order selling
50 contracts with Auto-match
RFR sent identifying the option, side
and size, with initiating price of $1.20
(Auction Starts)
• @ 490 milliseconds BD1 Unrelated
Order received Sell 5 at the market
(Opposite-side market order causes an
early conclusion to the Auction)
Under this scenario, the Agency Order
would be executed as follows:
1. 5 contracts trade with BD1 @ $1.17
(midpoint of the initiating price of
$1.20 and the opposite side of the
market from the RFR response of
$1.15, rounded towards the
disseminated quote when necessary)
2. 45 contracts trade with Contra Order
at $1.20 (the initiating price) (This
fills the entire Agency Order)
Example 20—Early Conclusion of
Auction, Opposite Side Market Order
With Auto-Match and Responses Before
Early Conclusion
NBBO = $1.15–$1.25 200 × 200
BBO = $1.15–$1.25 100 × 100
Agency Order to buy 50 contracts with
a limit of $1.20
Initiating Member’s Contra Order selling
50 contracts with Auto-match,
RFR sent identifying the option, side
and size, with initiating price of $1.20
(Auction Starts)
• @ 230 milliseconds MM4 response
received, AOC eQuote to Sell 10 at
$1.18
• @ 450 milliseconds MM3 response
received, AOC eQuote to Sell 40 at
$1.20
• @ 490 milliseconds BD1 Unrelated
Order received Sell 5 at the market
(Opposite-side market order causes an
early conclusion to the Auction)
Under this scenario, the Agency Order
would be executed as follows:
1. 5 contracts trade with BD1 @ $1.16
(midpoint of the best RFR response of
$1.18 and the opposite side of the
market from the RFR response of
$1.15, rounded towards the
disseminated quote)
2. 10 contracts trade with MM4 @ $1.18
3. 10 contracts trade with Contra Order
@ $1.18 (Auto-match other response
prices)
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4. 10 contracts trade with the Contra
Order @ $1.20 (This satisfies their
40% of the remaining contracts
participation guarantee)
5. 15 contracts trade with MM3 @ $1.20
(This fills the entire Agency Order)
Example 21—Early Conclusion of
Auction, Opposite Side Market Order
With Single-Price Submission
NBBO = $1.15–$1.25 200 × 200
BBO = $1.15–$1.25 100 × 100
Agency Order to buy 50 contracts with
a limit of $1.20
Initiating Member’s Contra Order selling
50 contracts with single stop price of
$1.20
RFR sent identifying the option, side
and size, with initiating price of $1.20
(Auction Starts,)
• @ 230 milliseconds MM4 response
received, AOC eQuote to Sell 10 at
$1.19
• @ 450 milliseconds MM3 response
received, AOC eQuote to Sell 40 at
$1.20
• @ 490 milliseconds BD1 Unrelated
Order received Sell 5 at the market
(Opposite-side market order causes an
early conclusion to the Auction)
Under this scenario, the Agency Order
would be executed as follows:
1. 5 contracts trade with BD1 @ $1.17
(midpoint of the best RFR response of
$1.19 and the opposite side of the
market from the RFR response of
$1.15)
2. 10 contracts trade with MM4 @ $1.19
3. 20 contracts trade with the Contra
Order @ $1.20 (This satisfies their
40% participation guarantee)
4. 15 contracts trade with MM3 @ $1.20
(This fills the entire Agency Order)
Example 22—Early Conclusion of
Auction, Same Side Market Order
NBBO = $1.20–$1.24 200 × 200
BBO = $1.20–$1.24 100 × 100
Agency Order to buy 20 contracts for
$1.23
Initiating Member’s Contra Order selling
20 contracts with Auto-match
RFR sent, identifying the option, side
and size, initiating price of $1.23
(Auction Starts)
• @ 200 milliseconds MM3 response
received, AOC eQuote to Sell 20 at
$1.23
• @ 210 milliseconds MM1 response
received, AOC eQuote to Sell 20 at
$1.22
• @ 230 milliseconds MM4 response
received, AOC eQuote to Sell 20 at
$1.22
• @ 250 milliseconds C1 Unrelated
Order received Buy 100 at the market
(Same-side order marketable against
the NBO causes an early conclusion to
the Auction)
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Under this scenario, the Agency Order
would be executed as follows:
1. 8 contracts trade with the Contra
Order @ $1.22 (This satisfies their
40% participation guarantee)
2. 6 contract trades with MM1 @ $1.22
3. 6 contract trades with MM4 @ $1.22
(This fills the entire Agency Order)
4. C1 unrelated order to buy 100 at the
market then executes as follows:
a. 14 contracts trade with MM1 @ $1.22
b. 14 contracts trade with MM4 @ $1.22
c. 20 contracts trade with MM3 @ $1.23
d. The remaining 52 contracts from C1
unrelated order are handled pursuant
to existing Rule 514 (in this case, that
means the 52 contracts would trade
with the interest comprising the BO,
which was offering 100 contracts at
$1.24)
Example 23—Early Conclusion of
Auction, Same Side New BBO Improves
Initiating Price
NBBO = $1.20–$1.24 200 × 200
BBO = $1.20–$1.24 100 × 100
Agency Order to buy 20 contracts with
a limit price of $1.22
Initiating Member’s Contra Order selling
20 contracts at $1.22
RFR sent identifying the option, side
and size, with an initiating price of
$1.22 (Auction Starts)
• @ 300 milliseconds MM3 response
received, AOC eQuote to Sell 20 at
$1.22
• @ 310 milliseconds MM1 response
received, AOC eQuote to Sell 20 at
$1.22
• @ 430 milliseconds MM4 response
received, AOC eQuote to Sell 20 at
$1.22
• @ 450 milliseconds C1 Unrelated
Order received Buy 100 at $1.23
(Same side limit order to buy that
improves (i.e., is priced higher than)
the Agency Order’s initiating price
causes the Auction to conclude early)
Under this scenario, the Agency Order
would be executed as follows:
• 8 contracts trade with the Contra
Order @ $1.22 (This satisfies their
40% participation guarantee)
• 4 contracts trades with MM3 @ $1.22
• 4 contracts trades with MM1 @ $1.22
• 4 contracts trade with MM4 @ $1.22
(This fills the entire Agency Order)
• C1 unrelated order then executes as
follows:
a. 16 contracts trade with MM3 @ $1.22
b. 16 contracts trade with MM1 @ $1.22
c. 16 contracts trade with MM4 @ $1.22
d. Remaining contracts post to the Book
as new BB paying $1.23 for 52
contracts
Example 24—Early Conclusion of
Auction, IOC Marketable Against Either
Side of NBBO at Time of Arrival
NBBO = $1.20–$1.24 200 × 200
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BBO = $1.20–$1.24 100 × 100
Agency Order to buy with a limit price
of $1.22 for 20 contracts
Initiating Member’s Contra Order selling
20 contracts at $1.22
RFR sent identifying the option, side
and size, with initiating price of $1.22
(Auction Starts)
• @ 100 milliseconds MM3 response
received, AOC eQuote to Sell 20 at
$1.22
• @ 210 milliseconds MM1 response
received, AOC eQuote to Sell 20 at
$1.22
• @ 330 milliseconds MM4 response
received, AOC eQuote to Sell 20 at
$1.22
• @ 400 milliseconds C1 Unrelated IOC
Order received Buy 100 at $1.24
(Same side IOC order to buy
marketable against the BO causes the
Auction to conclude early)
Under this scenario, the Agency Order
would be executed as follows:
1. 8 contracts trade with the Contra
Order @ $1.22 (This satisfies their
40% participation guarantee)
2. 4 contracts trades with MM3 @ $1.22
3. 4 contracts trades with MM1 @ $1.22
4. 4 contracts trade with MM4 @ $1.22
(This fills the entire Agency Order)
5. C1 unrelated IOC order then executes
as follows:
a. 16 contracts trade with MM3 @ $1.22
b. 16 contracts trade with MM1 @ $1.22
c. 16 contracts trade with MM4 @ $1.22
d. Remaining 52 contracts then executes
with the posted market at the
Exchange’s $1.24 BO
As described above, the PRIME is
designed to work seamlessly with the
Exchange’s Book and with a priority of
allocation that will be similar to the
standard allocation of orders and quotes
on MIAX. If orders are received by the
Exchange during the period when a
PRIME Auction is occurring, such
orders will be eligible to participate in
the auction, subject to the process
above. If orders received are not
executed in the Auction, the time
stamps they received will be used to
determine time priority for their
execution outside of the auction. The
Exchange believes that early conclusion
of the Auction in these circumstances
will ensure that the Auction interacts
seamlessly with the Exchange’s Book so
as not to disturb the priority of orders
on the Book, while affording the PRIME
Auction opportunities for price
improvement.
PRIME Solicitation Mechanism
The Exchange also proposes to
provide for a price improvement
mechanism to handle solicited orders. A
Member that represents agency orders
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may electronically execute orders it
represents as agent (‘‘Agency Order’’)
against solicited orders provided it
submits both the Agency Order and
solicited orders for electronic execution
into the PRIME Solicitation Mechanism
(‘‘Solicitation Auction’’) pursuant to
proposed Rule 515A(b).
A Member (the ‘‘Initiating Member’’)
may initiate a Solicitation Auction
provided all of the following are met: (i)
The Agency Order is in a class
designated as eligible for Solicitation
Auctions as determined by the
Exchange and within the designated
Solicitation Auction order eligibility
size parameters as such size parameters
are determined by the Exchange
(however, the eligible order size may
not be less than 500 standard option
contracts or 5,000 mini-option
contracts); (ii) each order entered into
the Solicitation Auction shall be
designated as all-or-none; and (iii) the
minimum price increment for an
Initiating Member’s single price
submission shall be $0.01 increment.58
The Exchange proposes that the
PRIME Solicitation Auction will
proceed as follows:
• To initiate the Solicitation Auction,
the Initiating Member must mark the
Agency Order for Solicitation Auction
processing, and specify a single price at
which it seeks to cross the Agency
Order with a solicited order which shall
be the ‘‘initiating price’’ for the
Solicitation Auction.59
• When the Exchange receives a
properly designated Agency Order for
Solicitation Auction processing, a RFR
message indicating the option, side,
size, and initiating price 60 will be sent
to all subscribers of the Exchange’s data
feeds.61
• Members may submit responses to
the Request for Responses (specifying
prices and sizes) during the response
period (which shall be 500
milliseconds).62 RFR responses shall be
58 See Proposed Rule 515A(b)(1). See also CBOE
Rule 6.74B(a).
59 See Proposed Rule 515A(b)(2)(i)(A). See also
CBOE Rule 6.74B(b)(1)(A).
60 The ‘‘initiating price’’ for the PRIME
Solicitation Auction is the single price specified by
the Initiating Member at which it seeks to cross the
Agency Order with a solicited order. See id.
61 See Proposed Rule 515A(b)(2)(i)(B). As
mentioned above, the Exchange will include the
RFR from the auction mechanisms in the
Exchange’s data feeds at no incremental cost to
subscribers. Thus, any subscriber that chooses to
receive options data, including any Member
subscriber, has the ability to respond to those RFRs.
The proposed RFR differs from CBOE which only
disseminates side and size to Trading Permit
Holders that have elected to receive RFRs. See also
CBOE Rule 6.74B(b)(1)(B).
62 See Proposed Rule 515A(b)(2)(i)(C). The RFR
response time during solicitation auctions varies
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an Auction or Cancel (‘‘AOC’’) order or
an AOC eQuote.63
• Responses shall not be visible to
other Solicitation Auction participants,
and shall not be disseminated to
OPRA.64
• The minimum price increment for
responses shall be the same as provided
in 515A(b)(1)(iii) above.65
• A response with a size greater than
the size of the Agency Order will be
capped at the size of the Agency
Order.66
• RFR responses may be cancelled.67
The Solicitation Auction shall
conclude at the sooner of the following:
(i) The end of the RFR period; (ii) upon
receipt by the System of an unrelated
order (in the same option as the Agency
Order) on the same side or opposite side
of the market from the RFR responses,
that is marketable against either the
MBBO (when such quote is the NBBO)
or the RFR responses; (iii) upon receipt
by the System of an unrelated limit
order (in the same option as the Agency
Order and on the opposite side of the
market as the Agency Order) that
improves any RFR response; (iv) any
time an RFR response matches the
MBBO on the opposite side of the
market from the RFR responses; (v) any
time there is a quote lock on the
Exchange pursuant to Rule 1402; or (vi)
any time there is a trading halt in the
option on the Exchange.68
At the conclusion of the Solicitation
Auction, the Agency Order will be
automatically executed in full and
from exchange to exchange. The CBOE RFR lasts for
one second. See CBOE Rule 6.74B(b)(1)(C). In
February 2014, to determine whether the proposed
duration of the RFR would provide sufficient time
to enter a RFR response, the Exchange asked
Members, including Market Makers, whether their
firms ‘‘could respond to an Auction with a duration
of 500 milliseconds.’’ Of the 8 Members that
responded to the question, 100% indicated that
their firm could respond in this time frame. Thus,
the Exchange believes that the proposed duration
for the RFR of 500 milliseconds, would provide a
meaningful opportunity for participants on MIAX to
respond to a RFR while at the same time facilitating
the prompt execution of orders.
63 See Proposed Rule 515A(b)(2)(i)(C). See supra
note 20. In contrast to CBOE which does not allow
responses from options market makers from another
options exchange, any MIAX Member may respond
to the RFR in the PRIME Solicitation Mechanism.
See CBOE Rule 6.74B(b)(1)(C).
64 See Proposed Rule 515A(b)(2)(i)(D). See also
CBOE Rule 6.74B(b)(1)(D).
65 See Proposed Rule 515A(b)(2)(i)(E). See also
CBOE Rule 6.74B(b)(1)(E).
66 See Proposed Rule 515A(b)(2)(i)(F). In contrast
to CBOE which limits responses to only the size of
the Agency Order, responses that exceed the size of
the Agency Order will be treated as if they were the
same size as the Agency Order for purposes of the
auction. See CBOE Rule 6.74B(b)(1)(F).
67 See Proposed Rule 515A(b)(2)(i)(G). See also
CBOE Rule 6.74B(b)(1)(G).
68 See Proposed Rule 515A(b)(2)(ii). See also
CBOE Rules CBOE Rule 6.74B(b)(2) and 6.74A(b)(2).
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allocated subject to the following
provisions, or cancelled. The Agency
Order will be executed against the
solicited order at the proposed
execution price, provided that:
• The execution price must be equal
to or better than the NBBO. If the
execution would take place outside the
NBBO, the Agency Order and solicited
order will be cancelled; 69
• There are no Priority Customer
orders resting in the Book on the
opposite side of the Agency Order at the
proposed execution price.70
• If there are Priority Customer orders
and there is sufficient size (considering
all resting orders, quotes and responses)
to execute the Agency Order, the
Agency Order will be executed against
these interests and the solicited order
will be cancelled. The Agency Order
will be allocated at the best price(s)
pursuant to the matching algorithm in
effect for the class.71
• If there are Priority Customer orders
and there is not sufficient size
(considering all resting orders, quotes
and responses), both the Agency Order
and the solicited order will be
cancelled; 72 and
• There is insufficient size to execute
the Agency Order at an improved
price(s).73
• If there is sufficient size
(considering all resting orders, quotes
and responses) to execute the Agency
Order at an improved price(s) that is
equal or better than the NBBO, the
Agency Order will execute at the
improved price(s) and the solicited
order will be cancelled. The Agency
Order will be allocated at the best
price(s) pursuant to the matching
algorithm in effect for the class.74
69 See Proposed Rule 515A(b)(2)(iii)(A). See also
CBOE Rule 6.74B(b)(2)(A)(I).
70 See Proposed Rule 515A(b)(2)(iii)(B)1). See also
CBOE Rule 6.74B(b)(2)(A)(II).
71 See Proposed Rule 515A(b)(2)(iii)(B)2). In
contrast to CBOE which is silent on the priority of
allocation of interest against the Agency Order, the
Exchange proposes to specify that the Agency Order
will be allocated pursuant to the matching
algorithm in effect for the class. This will ensure
that the Agency Order is allocated consistent with
the standard priority of allocation on the Exchange
rules that distinguish between Priority Customers,
Market Makers with priority quotes, and
Professional Interest in a manner that will help
ensure a fair and orderly market by maintaining
priority of orders and quotes while still affording
the opportunity for price improvement on each
Solicitation Auction commenced on the Exchange.
See also CBOE Rule 6.74B(b)(2)(A)(II).
72 See Proposed Rule 515A(b)(2)(iii)(B). See also
CBOE Rule 6.74B(b)(2)(A)(II).
73 See Proposed Rule 515A(b)(2)(iii)(C). See also
CBOE Rule 6.74B(b)(2)(A)(III).
74 See Proposed Rule 515A(b)(2)(iii)(C)1) [sic]. In
contrast to CBOE which is silent on the priority of
allocation of interest against the Agency Order, the
Exchange proposes to specify that the Agency Order
will be allocated pursuant to the matching
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The following examples show how
orders will be executed in the
Solicitation Auction.
Example 25—All-or-None (‘‘AON’’)
Solicited Offer Gets Allocation
XYZ Jan 50 Calls
NBBO—1.10–1.25
BBO—1.10–1.30
Paired order to execute 2000 contracts
AON (customer selling) @ 1.10
A RFR is broadcast to all subscribers
showing option, size, side, and price;
timer is started
System starts the auction at the
Initiating Customer price to sell @
1.10
• @ 100 milliseconds Response 1 to buy
@ 1.10 2000 AOC order arrives
• @ 200 milliseconds Response 2 to buy
@ 1.10 2000 AOC order arrives
• @ 220 milliseconds Response 3 to buy
@ 1.10 5000 AOC order arrives
• @ 432 milliseconds Response 4 to buy
@ 1.20 1000 AOC order arrives
• @ 500 milliseconds auction timer
expires and auction ends
Aggregate responses did not price
improve AON size of Initiating
Customer Trade is allocated against
Initiating Customer:
1. Solicited order buys 2000 contracts
paying 1.10
Example 26—Customer Gets Price
Improved for AON Size
XYZ Jan 50 Calls
NBBO—1.10–1.25
BBO—1.10–1.30
Paired order to execute 2000 contracts
AON (customer selling) @ 1.10
A RFR is broadcast to all subscribers
showing option, size, side, and price;
timer is started
System starts the auction at the
Initiating Customer price to sell @
1.10
• @ 100 milliseconds Response 1 to buy
@ 1.10 2000 AOC order arrives
• @ 200 milliseconds Response 2 to buy
@ 1.10 2000 AOC order arrives
• @ 220 milliseconds Response 3 to buy
@ 1.10 5000 AOC order arrives
• @ 332 milliseconds Response 4 to buy
@ 1.20 1000 AOC order arrives
• @ 400 milliseconds Response 5 to buy
@ 1.15 2000 AOC order arrives
• @ 500 milliseconds auction timer
expires and auction ends
algorithm in effect for the class. This will ensure
that the Agency Order is allocated consistent with
the standard priority of allocation on the Exchange
rules that distinguish between Priority Customers,
Market Makers with priority quotes, and
Professional Interest in a manner that will help
ensure a fair and orderly market by maintaining
priority of orders and quotes while still affording
the opportunity for price improvement on each
Solicitation Auction commenced on the Exchange.
See also CBOE Rule 6.74B(b)(2)(A)(III).
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Solicited contra does not participate
because entire size was price
improved
Trade is allocated against Initiating
Customer:
1. 1000 trade vs. Response 4 @ 120
2. 1000 trade vs. Response 5 @ 115;
balance of response size is cancelled
3. Solicited contra does not participate
because entire size was price
improved
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Example 27—Customer Gets Price
Improved for AON Size, Unrelated
Opposite Side Order Ends Auction and
Trades vs. Responses
XYZ Jan 50 Calls
NBBO—1.10–1.25
BBO—1.10–1.30
Paired order to execute 2000 contracts
AON (customer selling) @ 1.10
A RFR is broadcast to all subscribers
showing option, size, side, and price;
timer is started
System starts the auction at the
Initiating Customer price to sell @
1.10
• @ 100 milliseconds Response 1 to buy
@ 1.10 2000 AOC order arrives
• @ 200 milliseconds Response 2 to buy
@ 1.10 2000 AOC order arrives
• @ 220 milliseconds Response 3 to buy
@ 1.10 5000 AOC order arrives
• @ 332 milliseconds Response 4 to buy
@ 1.20 1000 AOC order arrives
• @ 400 milliseconds Response 5 to buy
@ 1.15 2000 AOC order arrives
• @ 450 milliseconds, unrelated
opposite side order arrives buying 100
@ 1.20–(Opposite side limit order to
buy that improves a RFR response
(improves Responses 1, 2, 3, and 4)75
causes the Auction to conclude early)
Trade is allocated against Initiating
Customer:
1. 1000 trade vs. Response 4 @ 1.20
2. 100 trade vs. unrelated opposite side
order @ 1.20
3. 900 trade vs. Response 5 @ 1.15;
balance of response size is cancelled
4. Solicited contra does not participate
because entire size was price
improved
System starts the auction at the
Initiating Customer price to sell @
1.10
• @ 100 milliseconds Response 1 to buy
@ 1.10 2000 AOC order arrives
• @ 200 milliseconds Response 2 to buy
@ 1.10 2000 AOC order arrives
• @ 220 milliseconds Response 3 to buy
@ 1.10 5000 AOC order arrives
• @ 332 milliseconds Response 4 to buy
@ 1.20 1000 AOC order arrives
• @ 400 milliseconds Response 5 to buy
@ 1.15 2000 AOC order arrives
• @ 450 milliseconds, unrelated same
side order arrives selling 100 @ 1.10—
(Same side limit order to sell that is
marketable against RFR responses
causes the Auction to conclude early)
Trade is allocated against Initiating
Customer:
1. 1000 trade vs. Response 4 @ 1.20
2. 1000 trade vs. Response 5 @ 1.15
3. Solicited contra does not participate
because entire size was price
improved
4. Unrelated same side order trades 100
vs. Response 5 @ 1.15; balance of
response size is cancelled
Interpretations and Policies
Example 28—Customer Gets Price
Improved for AON Size, Unrelated
Same Side Order Ends Auction and
Trades vs. Responses
XYZ Jan 50 Calls
NBBO—1.10–1.25
BBO—1.10–1.30
Paired order to execute 2000 contracts
AON (customer selling) @ 1.10
A RFR is broadcast to all subscribers
showing option, size, side, and price;
timer is started
The Exchange also proposes several
Interpretations and Policies to Proposed
Rule 515A.
Interpretations and Policy .01
provides that it shall be considered
conduct inconsistent with just and
equitable principles of trade, in
accordance with Rule 301, for any
Member to enter orders, quotes, Agency
Orders, or other responses for the
purpose of disrupting or manipulating
the Auction. Such conduct includes, but
is not limited to, engaging in a pattern
or practice of submitting unrelated
orders that cause an Auction to
conclude before the end of the RFR
period and engaging in a pattern of
conduct where the Member submitting
the Agency Order into the PRIME breaks
up the Agency Order into separate
orders for two (2) or fewer contracts for
the purpose of gaining a higher
allocation percentage than the Member
would have otherwise received in
accordance with the allocation
procedures contained in paragraph
(a)(2)(iii) or (b)(2)(iii) above.76
Interpretations and Policy .02
provides that the Auction and the
Solicitation Auction may only be used
to execute bona fide crossing
transactions. Using the Auction and the
Solicitation Auction for any other
means, including but not limited to,
market or price manipulation, shall be
75 The Commission believes that in Example 27,
the reference to Response 4 in the final bullet point
should instead be to Response 5.
76 See Proposed Rule 515A, Interpretations and
Policies .01. See also ISE Rule 723, Commentary
.01; CBOE Rule 6.74A.02.
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13345
considered conduct inconsistent with
just and equitable principles of trade in
accordance with Rule 301.77
Interpretations and Policy .03
provides that for executions pursuant to
Rule 515A(b), prior to entering Agency
Orders into the PRIME on behalf of
customers, Initiating Members must
deliver to the customer a written
notification informing the customer that
his order may be executed using the
PRIME. The written notification must
disclose the terms and conditions
contained in this Rule 515A and be in
a form approved by the Exchange.78
Interpretations and Policies .04
provides that Members may enter contra
orders that are solicited. The PRIME
provides a facility for Members that
locate liquidity for their customer
orders. Members may not use the
Solicitation Auction to circumvent Rule
520 limiting principal transactions. This
may include, but is not limited to,
Members entering contra orders that are
solicited from (a) affiliated brokerdealers, or (b) broker-dealers with which
the Member has an arrangement that
allows the Member to realize similar
economic benefits from the solicited
transaction as it would achieve by
executing the customer order in whole
or in part as principal. Additionally,
solicited contra orders entered by
Members to trade against Agency Orders
may not be for the account of a MIAX
Market Maker assigned to the options
class.79
Interpretation and Policy .05 provides
that any determinations made by the
Exchange pursuant to this Rule such as
eligible classes and order size
parameters shall be communicated in a
Regulatory Circular.80
Interpretation and Policy .06 provides
that if managed interest exists on the
MIAX Book pursuant to Rule 515(c) for
the option on the opposite side of the
market as the Agency Order and when
the MBBO is equal to the NBBO, the
Agency Order will be automatically
executed against the managed interest if
the execution would be at a price equal
to the initiating price of the Agency
Order. If the Agency Order is not fully
executed after the managed interest is
fully exhausted and is no longer at a
price equal to or better than the
initiating price of the Agency Order, the
Auction will be initiated for the balance
77 See Proposed Rule 515A, Interpretations and
Policies .02. See also ISE Rule 723, Commentary
.02.
78 See Proposed Rule 515A, Interpretations and
Policies .03. See also CBOE Rule 6.74B.02.
79 See Proposed Rule 515A, Interpretations and
Policies .04. See also CBOE Rule 6.74B.03.
80 See Proposed Rule 515A, Interpretations and
Policies .05. See also CBOE Rule 6.74A.05.
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of the order as provided in this rule.
With respect to any portion of an
Agency Order that is automatically
executed against managed interest
pursuant to this paragraph .06, the
exposure requirements contained in
Rule 520(b) and (c) will not be satisfied
just because the member utilized the
PRIME.81 Managed interest on the
opposite side of the market as the
Agency Order pursuant to Rule 515(c) is
posted at one minimum trading
increment away from the NBBO, but is
available for execution at the NBBO. In
order to preserve the priority of this
managed interest against incoming RFR
responses to the Auction of the Agency
Order, the System will execute the
Agency Order to the extent possible.
The Exchange believes that this
provision is necessary to ensure that
PRIME works seamlessly with the
Exchange’s Book in a manner that
would ensure a fair and orderly market
by maintaining priority of orders and
quotes while still affording the
opportunity for price improvement on
each Auction commenced on the
Exchange.
Interpretation and Policy .07 provides
that if managed interest exists on the
Exchange’s Book pursuant to Rule
515(c) for the option on the same side
of the market as the Agency Order, the
Agency Order will be rejected by the
System prior to initiating an Auction or
a Solicitation Auction.82 Managed
interest on the same side of the market
as the Agency Order pursuant to Rule
515(c) is posted at one minimum trading
increment away from the NBBO, but is
available for execution at the NBBO. In
order to preserve the priority of this
managed interest against incoming RFR
responses to the Auction of the Agency
Order, the System will reject the Agency
Order. The Exchange believes that this
provision is necessary to ensure that
PRIME works seamlessly with the
Exchange’s Book in a manner that
would ensure a fair and orderly market
by maintaining priority of orders and
quotes while still affording the
opportunity for price improvement on
each Auction commenced on the
Exchange.
Interpretation and Policy .08 provides
that the Exchange will submit certain
data, as required by the Commission, to
81 See Proposed Rule 515A, Interpretations and
Policies .06. In contract to ISE which allows the
Agency Order to execute against the ISE BBO before
executing a crossing transaction in the price
improvement mechanism, the Exchange proposes
allowing the immediate execution against managed
interest if that execution is equal to the initiating
price, which is the stop price of the Agency Order.
See ISE Rule 723, Commentary .08.
82 See Proposed Rule 515A, Interpretations and
Policies .07.
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provide supporting evidence that,
among other things, there is meaningful
competition for all size orders within
the PRIME, that there is significant price
improvement for all orders executed
through the PRIME, and that there is an
active and liquid market functioning on
the Exchange outside of the PRIME. Any
data which is submitted to the
Commission will be provided on a
confidential basis.83
Order Exposure Rule
Current Rule 520 prohibits Electronic
Exchange Members from acting as
principal on any orders they represent
as agent unless (i) agency orders are first
exposed on the Exchange for at least one
(1) second, and (ii) the Electronic
Exchange Member has been bidding or
offering on the Exchange for at least one
(1) second prior to receiving an agency
order that is executable against such bid
or offer. In addition, Electronic
Exchange Members may not execute
orders they represent as agent on the
Exchange against orders solicited from
Members and non-member brokerdealers to transact with such orders
unless the unsolicited order is first
exposed on the Exchange for at least one
(1) second.
The Exchange believes that the
proposed RFR period of 500
milliseconds is sufficient length to
permit Members time to respond to a
PRIME Auction thereby enhancing
opportunities for competition among
participants and increasing the
likelihood of price improvement for the
Agency Order. Accordingly, the
Exchange proposes to amend Rule 520
to stipulate that a Member may execute
as principal orders they represent as
agent, provided that the Member avails
itself of the PRIME Auction, pursuant to
Rule 515A. Similarly, the Exchange
proposes to amend Rule 520 to stipulate
that a Member may execute orders they
represent as agent against solicited
orders, provided that the Member avails
itself of the PRIME Auction, pursuant to
Rule 515A. Such Agency Orders would
not be subject to the one second order
exposure requirement of Rule 520,
which exclusion from the one second
order exposure requirement is
consistent with the treatment of similar
orders at another competing exchange.84
83 See Proposed Rule 515A, Interpretations and
Policies .08; Exhibit 3 (providing a comprehensive
list of the data that the Exchange represents that it
will collect in order to aid the Commission in its
evaluation of the PRIME). See also ISE Rule 723,
Commentary .03.
84 See BOX Options Rule 7130 IM–7140–2.
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Section 11(a) of the Exchange Act
Section 11(a) of the Exchange Act
prohibits any member of a national
securities exchange from effecting
transactions on that exchange for its
own account, the account of an
associated person, or an account over
which it or its associated persons
exercises discretion (‘‘covered
accounts’’), unless an exception
applies.85 Section 11(a)(1) contains a
number of exceptions for principal
transactions by members and their
associated persons. As set forth below,
the Exchange believes that the proposed
rules for the PRIME are consistent with
the requirements in Section 11(a) and
the rules thereunder.
In this regard, Section 11(a)(1)(A)
provides an exception from the
prohibitions in Section 11(a) for dealers
acting in the capacity of market makers.
With respect to Market Makers on the
Exchange, the Exchange believes that
orders sent by them for covered
accounts to the proposed PRIME would
qualify for this exception from Section
11(a).
In addition to this Market Maker
exception, Rule 11a2–2(T) under the
Exchange Act, known as the ‘‘effect
versus execute’’ rule, provides exchange
members with an exception from
Section 11(a) by permitting them,
subject to certain conditions, to effect
transactions for covered accounts by
arranging for an unaffiliated member to
execute the transactions on the
exchange.86 To comply with the ‘‘effect
versus execute’’ rule’s conditions, a
member: (i) Must transmit the order
from off the exchange floor; (ii) may not
participate in the execution of the
transaction once it has been transmitted
to the member performing the
execution; 87 (iii) may not be affiliated
with the member executing the
transaction on the floor through the
facilities of the Exchange; and (iv) with
respect to an account over which the
member has investment discretion,
neither the member nor its associated
person may retain any compensation in
connection with effecting the
transaction except as provided in the
rule.88
The Exchange believes that orders
sent by Members for covered accounts
to the proposed PRIME would qualify
for this ‘‘effect versus execute’’
exception from Section 11(a), as
85 15
U.S.C. 78k(a)(1).
CFR 240.11a2–2(T).
87 The member, however, may participate in
clearing and settling the transaction. See Securities
Exchange Act Release No. 14563 (March 14, 1978),
43 FR 11542 (March 17, 1978).
88 17 CFR 240.11a2–2(T).
86 17
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described below. In this regard, the first
condition of Rule 11a2–2(T) is that
orders for covered accounts be
transmitted from off the exchange floor.
The MIAX trading system and the
proposed PRIME receives all orders
electronically through remote terminals
or computer-to-computer interfaces. The
Exchange represents that orders for
covered accounts from Members will be
transmitted from a remote location
directly to the proposed PRIME
mechanisms by electronic means. In the
context of other automated trading
systems, the Commission has found that
the off-floor transmission requirement is
met if a covered account order is
transmitted from a remote location
directly to an exchange’s floor by
electronic means.89 The second
condition of Rule 11a2–2(T) requires
that the member not participate in the
execution of its order once the order is
transmitted to the floor for execution.90
The Exchange represents that, upon
submission to the PRIME, an order will
be executed automatically pursuant to
the rules set forth for the mechanism. In
particular, execution of an order sent to
the mechanism depends not on the
Member entering the order, but rather
on what other orders are present and the
priority of those orders. Thus, at no time
following the submission of an order is
a Member able to acquire control or
influence over the result or timing of
order execution.91 Rule 11a2–2(T)’s
third condition requires that the order
be executed by an exchange member
who is unaffiliated with the member
initiating the order. The Commission
has stated that the requirement is
satisfied when automated exchange
facilities, such as the PRIME, are used,
as long as the design of these systems
89 See, e.g., Securities Exchange Act Release Nos.
59154 (December 23, 2008), 73 FR 80468 (December
31, 2008) (SR–BSE–2008–48); 57478 (March 12,
2008), 73 FR 14521 (March 18, 2008) (SR–
NASDAQ–2007–004 and SR–NASDAQ–2007–080);
49068 (January 13, 2004), 69 FR 2775 (January 20,
2004) (SR–BSE–2002–15); 15533 (January 29, 1979),
44 FR 6084 (January 31, 1979) (‘‘1979 Release’’);
14563 (March 14, 1978), 43 FR 11542 (March 17,
1978) (‘‘1978 Release’’).
90 The description above covers the universe of
the types of Members (i.e., Market Makers, EEMs).
91 The Exchange notes that a Member may cancel
or modify the order, or modify the instructions for
executing the order, but that such instructions
would be transmitted from off the floor of the
Exchange. The Commission has stated that the nonparticipation requirement is satisfied under such
circumstances so long as such modifications or
cancellations are also transmitted from off the floor.
See 1978 Release (stating that the ‘‘nonparticipation requirement does not prevent
initiating members from canceling or modifying
orders (or the instructions pursuant to which the
initiating member wishes to be executed) after the
orders have been transmitted to the executing
member, provided that any such instructions are
also transmitted from off the floor’’).
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ensures that members do not possess
any special or unique trading
advantages in handling their orders after
transmitting them to the exchange.92
The Exchange represents that the PRIME
is designed so that no Member has any
special or unique trading advantage in
the handling of its orders after
transmitting its orders to the
mechanism. Rule 11a2–2(T)’s fourth
condition requires that, in the case of a
transaction effected for an account with
respect to which the initiating member
or an associated person thereof exercises
investment discretion, neither the
initiating member nor any associated
person thereof may retain any
compensation in connection with
effecting the transaction, unless the
person authorized to transact business
for the account has expressly provided
otherwise by written contract referring
to Section 11(a) of the Act and Rule
11a2–2(T) thereunder.93 The Exchange
recognizes that Members relying on
Rule 11a2–2(T) for transactions effected
through the PRIME must comply with
this condition of the Rule.
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 90 days after the publication
of the approval order in the Federal
Register. The implementation date will
be no later than 90 days following
publication of the Regulatory Circular
announcing publication of the approval
order in the Federal Register.
92 In considering the operation of automated
execution systems operated by an exchange, the
Commission noted that, while there is not an
independent executing exchange member, the
execution of an order is automatic once it has been
transmitted into the system. Because the design of
these systems ensures that members do not possess
any special or unique trading advantages in
handling their orders after transmitting them to the
exchange, the Commission has stated that
executions obtained through these systems satisfy
the independent execution requirement of Rule
11a2–2(T). See 1979 Release.
93 See 17 CFR 240.11a2–2(T)(a)(2)(iv). In addition,
Rule 11a2–2(T)(d) requires a member or associated
person authorized by written contract to retain
compensation, in connection with effecting
transactions for covered accounts over which such
member or associated persons thereof exercises
investment discretion, to furnish at least annually
to the person authorized to transact business for the
account a statement setting forth the total amount
of compensation retained by the member in
connection with effecting transactions for the
account during the period covered by the statement
which amount must be exclusive of all amounts
paid to others during that period for services
rendered to effect such transactions. See also 1978
(stating ‘‘[t]he contractual and disclosure
requirements are designed to assure that accounts
electing to permit transaction-related compensation
do so only after deciding that such arrangements are
suitable to their interests’’).
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2. Statutory Basis
MIAX believes that its proposed rule
change is consistent with Section 6(b) of
the Act 94 in general, and furthers the
objectives of Section 6(b)(5) of the Act 95
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.
In particular, the proposal will
provide market participants auction
mechanisms to execute various crossing
transactions with the opportunity for
price improvement, while ensuring
equal access to exposed orders for all
market participants. In this regard,
PRIME and PRIME Solicitation are
intended to be beneficial to investors
because they are designed to provide
investors seeking to effect option orders
while providing opportunities to access
additional liquidity and receive price
improvement. The Exchange believes
the proposed rules are appropriate in
that price improvement auctions are
widely recognized by market
participants as invaluable, both as a tool
to access liquidity, and a mechanism to
help meet their best execution
obligations. The proposed rules will
provide the opportunity for an efficient
mechanism for carrying out these
strategies. In addition, PRIME and
PRIME Solicitation promote equal
access by providing Members that
subscribe to the Exchange’s data feeds
with the opportunity to interact with
orders in PRIME and PRIME
Solicitation. In this regard, any Member
can subscribe to the options data
provided through the Exchange’s data
feeds.
The Exchange believes that the
general provisions regarding the price
improvement auction provide a simple,
clear framework that will enable the
efficient trading of options in a manner
consistent with other options
exchanges. Further, this clarity in how
the price improvement auction
functions and its consistency with other
exchanges will help promote a fair and
orderly national options market system.
The Exchange believes that the
proposed rules will result in efficient
trading and reduce the risk for investors
that seek access to additional liquidity
94 15
95 15
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U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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Federal Register / Vol. 79, No. 46 / Monday, March 10, 2014 / Notices
and price improvement by providing
additional opportunities to do so. The
proposed priority of allocation rules in
PRIME and PRIME Solicitation are
designed to be similar to the existing
priority rules that distinguish between
Priority Customers, Market Makers with
priority quotes, and Professional Interest
in a manner that will help ensure a fair
and orderly market by maintaining
priority of orders and quotes while still
affording the opportunity for price
improvement on each Auction
commenced on the Exchange. In
addition, by keeping the priority of
allocation of PRIME and PRIME
Solicitation similar in this way to the
standard allocation, the proposal
reduces the ability of market
participants to misuse the Auction to
circumvent the standard priority rules
in a manner that is designed to prevent
fraudulent and manipulative acts and
practices, and to promote just and
equitable principles of trade on the
Exchange. The proposed execution and
priority rules will allow option orders to
interact with interest in the MIAX Book
and, conversely, all interest on the
MIAX Book to interact with option
orders in the price improvement
mechanism in an efficient and orderly
manner. The Exchange also believes that
this interaction of orders will benefit
investors by increasing the opportunity
for option orders to receive execution,
while also enhancing execution quality
for the orders on the MIAX Book.
emcdonald on DSK67QTVN1PROD with NOTICES
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. PRIME and
PRIME Solicitation are designed to
increase competition for order flow on
the Exchange in a manner intended to
be beneficial to investors seeking to
effect option orders with an opportunity
to access additional liquidity and
receive price improvement. 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. The
Exchange believes that the proposal to
offer price improvement auctions on the
Exchange is pro-competitive by
providing market participants with
functionality that is similar to that of
other options exchanges.
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18:00 Mar 07, 2014
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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
the 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.
Among other things, the Commission
notes that MIAX’s proposed rule text in
this filing is similar to and based on the
rules in place at other options
exchanges, in particular CBOE, with a
few provisions that reflect the unique
structure of the MIAX market. As such,
MIAX likely intends that its proposed
PRIME auction will operate in a manner
similar to those other auction
mechanisms. Despite the similarity in
rule text, however, ambiguities in the
rule may nevertheless exist concerning
how the auction mechanisms would
function in a live trading environment.
Although MIAX has provided
guidance in this respect through
numerous examples in Section III of this
notice, the Commission requests
comments on whether the MIAX’s
proposed rule text is sufficiently clear
and precise regarding how the proposed
PRIME auctions would operate and how
orders would interact within the
auctions as well as how the auctions
would interact with MIAX’s market.
Among other things, the Commission
requests comment on the following
issues:
1. Are the proposed rules sufficiently
clear and detailed as to how and at what
price the Agency Order could be
stopped (either in single-price or auto
match auctions)?
2. In the case of an unrelated order
that arrives to MIAX during the auction
period on either the side of the Agency
PO 00000
Frm 00077
Fmt 4703
Sfmt 4703
Order or the side of the RFR Responses
(when it is marketable or when it is not,
either against the BBO, NBBO, or an
RFR Response), is the proposed rule text
sufficiently clear regarding the
operation of the proposed PRIME
Auction and its outcomes?
3. Are the proposed allocation
provisions for the price improvement
mechanism as well as the solicitation
mechanism sufficiently detailed and
clear?
Comments may be submitted by any
of the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–MIAX–2014–09 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–2014–09. 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 20549–1090, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly.
All submissions should refer to File
Number SR–MIAX–2014–09 and should
be submitted on or before March 31,
E:\FR\FM\10MRN1.SGM
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Federal Register / Vol. 79, No. 46 / Monday, March 10, 2014 / Notices
rule change.6 This Order institutes
proceedings under Section 19(b)(2)(B) of
the Act 7 to determine whether to
approve or disapprove the proposed
rule change.
2014. For the Commission, by the
Division of Trading and Markets,
pursuant to delegated authority.96
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–05029 Filed 3–7–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–71645; File No. SR–
NYSEArca-2013–127]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Instituting
Proceedings to Determine Whether to
Approve or Disapprove Proposed Rule
Change Relating to the Listing and
Trading of Shares of Nine Series of the
IndexIQ Active ETF Trust Under NYSE
Arca Equities Rule 8.600
March 4, 2014.
I. Introduction
On November 18, 2013, NYSE Arca,
Inc. (‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’ or
‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
list and trade shares (‘‘Shares’’) of the IQ
Long/Short Alpha ETF, IQ Bear U.S.
Large Cap ETF, IQ Bear U.S. Small Cap
ETF, IQ Bear International ETF, IQ Bear
Emerging Markets ETF, IQ Bull U.S.
Large Cap ETF, IQ Bull U.S. Small Cap
ETF, IQ Bull International ETF, and IQ
Bull Emerging Markets ETF (each a
‘‘Fund’’ and collectively, the ‘‘Funds’’).
On November 26, 2013, the Exchange
filed Amendment No. 1 to the proposed
rule change.3 The proposed rule change
was published for comment in the
Federal Register on December 4, 2013.4
The Commission received no comment
letters on the proposed rule change. On
January 15, 2014, pursuant to Section
19(b)(2) of the Act,5 the Commission
designated a longer period within which
to approve the proposed rule change,
disapprove the proposed rule change, or
institute proceedings to determine
whether to disapprove the proposed
emcdonald on DSK67QTVN1PROD with NOTICES
96 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Amendment No. 1 clarified how certain
holdings will be valued for purposes of calculating
a fund’s net asset value and where investors will
be able to obtain pricing information for certain
underlying holdings.
4 See Securities Exchange Act Release No. 70954
(November 27, 2013), 78 FR 72955 (‘‘Notice’’).
5 15 U.S.C. 78s(b)(2).
1 15
VerDate Mar<15>2010
18:00 Mar 07, 2014
Jkt 232001
II. Description of the Proposal
The Exchange proposes to list and
trade the Shares under NYSE Arca
Equities Rule 8.600, which governs the
listing and trading of Managed Fund
Shares. Each of the Funds is a series of
the IndexIQ Active ETF Trust (‘‘Trust’’),
which is registered under the
Investment Company Act of 1940
(‘‘1940 Act’’).8 IndexIQ Advisors LLC
(‘‘Adviser’’) is the investment adviser
for the Funds. The Funds are described
below. Additional information regarding
the Trust, the Fund, and the Shares,
including investment strategies, risks,
creation and redemption procedures,
fees, portfolio holdings disclosure
policies, distributions, and taxes, among
other things, is included in the Notice
and Registration Statement, as
applicable.9
IQ Long/Short Alpha ETF
The Exchange states that the
investment objective of the IQ Long/
Short Alpha ETF is to seek capital
appreciation. Under normal
circumstances,10 at least 80% of the
6 See Securities Exchange Act Release No. 71309,
79 FR 3657 (January 22, 2014). The Commission
determined that it was appropriate to designate a
longer period within which to take action on the
proposed rule change so that it has sufficient time
to consider the proposed rule change. Accordingly,
the Commission designated March 4, 2014 as the
date by which it should approve, disapprove, or
institute proceedings to determine whether to
disapprove the proposed rule change.
7 15 U.S.C. 78s(b)(2)(B).
8 The Exchange states that on September 12, 2013,
the Trust filed with the Commission an amendment
to its registration statement on Form N–1A relating
to the Funds (File Nos. 333–183489 and 811–22739)
(‘‘Registration Statement’’). In addition, the
Commission has issued an order granting certain
exemptive relief to the Trusts under the 1940 Act.
See Investment Company Act Release No. 30198
(September 10, 2012) (File No. 812–13956)
(‘‘Exemptive Order’’).
9 See Notice and Registration Statement, supra
notes 4 and 8, respectively.
10 The term ‘‘under normal circumstances’’
includes, but is not limited to, the absence of
adverse market, economic, political, or other
conditions, including extreme volatility or trading
halts in the fixed income markets or the financial
markets generally; operational issues causing
dissemination of inaccurate market information;
and force majeure type events such as systems
failure, natural or man-made disaster, act of God,
armed conflict, act of terrorism, riot or labor
disruption, or any similar intervening circumstance.
In certain situations or market conditions, a Fund
may temporarily depart from its normal investment
policies and strategies, provided that the alternative
is consistent with the Fund’s investment objective
and is in the best interest of the Fund. For example,
a Fund that typically takes short positions may hold
little or no short positions for extended periods, or
a Fund may hold a higher than normal proportion
PO 00000
Frm 00078
Fmt 4703
Sfmt 4703
13349
Fund’s assets will be exposed to equity
securities of U.S. large capitalization
companies,11 by investing in exchangetraded funds (‘‘ETFs’’), in ‘‘Financial
Instruments,’’ which are defined as
swap agreements, options contracts, and
futures contracts with economic
characteristics similar to those of the
ETFs for which they are substituted, or
in both. The Exchange states that all
options contracts and futures contracts
will be listed on a U.S. national
securities exchange or a non-U.S.
securities exchange that is a member of
the Intermarket Surveillance Group
(‘‘ISG’’) or a party to a comprehensive
surveillance sharing agreement with the
Exchange.
To implement its strategy, the Fund
will hold long and short positions in
ETFs providing exposure to certain
sectors. Cash balances arising from the
use of short selling and derivatives
typically will be held in money market
instruments.12
IQ Bear U.S. Large Cap ETF
The Exchange states that the
investment objective of the IQ Bear U.S.
Large Cap ETF is to seek capital
appreciation. Under normal
circumstances, at least 80% of the
Fund’s assets will be exposed to equity
securities of U.S. large capitalization
issuers by taking short positions in
ETFs, Financial Instruments, or both. To
implement its strategy, the Fund will
primarily hold short positions in ETFs
providing exposure to certain sectors.
Cash balances arising from the use of
short selling and derivatives typically
will be held in money market
instruments.
IQ Bear U.S. Small Cap ETF
The Exchange states that the
investment objective of the IQ Bear U.S.
Small Cap ETF is to seek capital
appreciation. Under normal
circumstances, at least 80% of the
Fund’s assets will be exposed to equity
securities of U.S. small capitalization
companies 13 by taking short positions
in ETFs, Financial Instruments, or both.
To implement its strategy, the Fund will
hold short positions in ETFs providing
of its assets in cash in times of extreme market
stress.
11 The Exchange states that the Adviser considers
‘‘large capitalization companies’’ to have market
capitalizations of at least $5 billion.
12 Money market instruments generally are shortterm cash instruments that have a remaining
maturity of 397 days or less and exhibit high quality
credit profiles. These include U.S. Treasury Bills
and repurchase agreements.
13 According to the Registration Statement, the
Adviser will consider ‘‘small capitalization
companies’’ to have market capitalizations of
between $300 million and $2 billion.
E:\FR\FM\10MRN1.SGM
10MRN1
]]>Agencies
[Federal Register Volume 79, Number 46 (Monday, March 10, 2014)]
[Notices]
[Pages 13334-13349]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-05029]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71640; File No. SR-MIAX-2014-09]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing of Proposed Rule Change to Adopt the
MIAX Price Improvement Mechanism
March 4, 2014.
Pursuant to the provisions of Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on February 18, 2014, Miami International
Securities Exchange LLC (``MIAX'' or ``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') a proposed rule
change as described in Items I, II, and III below, which Items have
been prepared by the Exchange. The Commission is publishing this notice
to solicit
[[Page 13335]]
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 adopt Rule 515A to provide for
a price improvement auction and a solicited order mechanism.
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 adopt new Rule 515A and associated
Interpretations and Policies to provide for a price improvement auction
and a solicited order mechanism on the Exchange. In particular, the
Exchange proposes to adopt the MIAX Price Improvement Mechanism
(``PRIME'') to provide a method for market participants to effect
orders in a price improvement auction. The proposed rules are similar
to the rules of other exchanges that have price improvement auction
mechanisms.\3\ The Exchange believes that the similarity of its
proposed price improvement rules to those of other exchanges will allow
the Exchange's proposed price improvement functionality to fit
seamlessly into the greater options market place and benefit market
participants who are already familiar with similar functionality
offered on other exchanges.
---------------------------------------------------------------------------
\3\ See CBOE Rules 6.74A and 6.74B; ISE Rule 723.
---------------------------------------------------------------------------
PRIME Price Improvement Auction
PRIME is a process by which a Member may electronically submit for
execution (``Auction'') an order it represents as agent (``Agency
Order''), and/or an Agency Order against solicited interest. A Member
(the ``Initiating Member'') may initiate an Auction provided all of the
following are met: (i) The Agency Order is in a class designated as
eligible for PRIME as determined by the Exchange and within the
designated Auction order eligibility size parameters as such size
parameters are determined by the Exchange; \4\ (ii) if the Agency Order
is for 50 standard option contracts or 500 mini-option contracts or
more, the Initiating Member must stop the entire Agency Order as
principal or with a solicited order at the better of the NBBO\5\ or the
Agency Order's limit price (if the order is a limit order); \6\ and
(iii) if the Agency Order is for less than 50 standard option contracts
or 500 mini-option contracts, the Initiating Member must stop the
entire Agency Order as principal or with a solicited order at the
better of (A) the NBBO price improved by a $0.01 increment; or (B) the
Agency Order's limit price (if the order is a limit order).\7\ Since
the Initiating Member is stopping the entire Agency Order at the NBBO
price or better at the beginning of the Auction, the Auction execution
at the conclusion of the Auction will qualify as an exception to the
general prohibition against Trade-Throughs, pursuant to Rule
1401(b)(9).\8\ The Exchange notes that this is consistent with how the
electronic price improvement auctions of other competing exchanges
operate.\9\
---------------------------------------------------------------------------
\4\ See Proposed Rule 515A(a)(1)(i). See also CBOE Rule
6.74A(a)(1).
\5\ See Rule 100. The term ``NBBO'' means the national best bid
or offer as calculated by the Exchange based on market information
received by the Exchange from OPRA.
\6\ See Proposed Rule 515A(a)(1)(ii). See also CBOE Rule
6.74A(a)(2). The Exchange notes that nothing in this Rule prevents
an Initiating Member from choosing to stop an Agency Order better
than that NBBO or the Agency Order's limit price for orders for 50
standard option contracts or 500 mini-option contracts or more. An
Initiating Member may choose to stop an Agency Order better than
these minimum requirements, thus guaranteeing further price
improvement to the Agency Order if such Initiating Member chooses by
simply designating a more aggressive price upon submission for
either a single price submission or an auto-match.
\7\ See Proposed Rule 515A(a)(1)(iii). See also CBOE Rule
6.74A(a)(3). The Exchange notes that nothing in this Rule prevents
an Initiating Member from choosing to stop an Agency Order better
than that NBBO improved by a $0.01 or the Agency Order's limit price
for orders for 50 standard option contracts or 500 mini-option
contracts or more. An Initiating Member may choose to stop an Agency
Order better than these minimum requirements, thus guaranteeing
further price improvement to the Agency Order if such Initiating
Member chooses by simply designating a more aggressive price upon
submission for either a single price submission or an auto-match.
\8\ See Rule 1401(b)(9) (providing an exception from Trade-
Through liability in the circumstance when a transaction that
constituted the Trade-Through was the execution of an order that was
stopped at a price that did not Trade-Through an Eligible Exchange
at the time of the stop).
\9\ See, e.g., CBOE Rule 6.74A; ISE Rule 723.
---------------------------------------------------------------------------
To initiate the Auction, the Initiating Member must mark the Agency
Order for Auction processing, and specify (i) a single price at which
it seeks to cross the Agency Order (with principal interest and/or a
solicited order) (a ``single-price submission''), including whether the
Initiating Member elects to have last priority in allocation, or (ii)
that it is willing to automatically match (``auto-match'') as principal
the price and size of all Auction responses up to an optional
designated limit price in which case the Agency Order will be stopped
at the better of the NBBO (if 50 standard option contracts or 500 mini-
option contracts or greater), $0.01 increment better than the NBBO (if
less than 50 standard option contracts or 500 mini-option contracts),
or the Agency Order's limit price.\10\ For both single price
submissions and auto-match, if the MBBO on the same side of the market
as the Agency Order represents a limit order on the Book, the stop
price must be at least $0.01 increment better than the booked order's
limit price.\11\ For both a single price submission and auto-match, the
stopped price specified by the Initiating Member on the Agency Order
shall be the ``initiating price'' for the Auction.\12\ Thus for single
price submissions, the initiating price will be the stop price which is
the limit price of the single price submission. For Agency Orders where
no limit price is designated (market orders), the initiating price will
be the stop price which is at the NBBO (if 50 standard option contracts
or 500 mini-option contracts or greater) or $0.01 increment better than
the NBBO (if less than 50 standard option contracts or 500 mini-option
contracts). For auto-match submissions with a designated limit price,
the initiating price will be the
[[Page 13336]]
stop price which is the limit price designated on the Agency Order. For
auto-match submissions where no limit price is designated (market
orders), the initiating price will be the stop price at the NBBO (if 50
standard option contracts or 500 mini-option contracts or greater) or
$0.01 increment better than the NBBO (if less than 50 standard option
contracts or 500 mini-option contracts).\13\ Once the Initiating Member
has submitted an Agency Order for processing pursuant to proposed Rule
515A(a)(2)(i)(A), such submission may not be modified or cancelled.\14\
Only one Auction may be ongoing at any given time in an option and
Auctions in the same option may not queue or overlap in any manner.\15\
The Exchange believes that these options afford the Initiating Member
flexibility and control over the prices at which it would be willing to
guarantee an Agency Order. The following examples show the options
afforded to Initiating Members to specify.
---------------------------------------------------------------------------
\10\ See Proposed Rule 515A(a)(2)(i)(A). See also CBOE Rule
6.74A(b)(1)(A). As noted above, an Initiating Member may choose to
stop an Agency Order better than the minimum requirements, thus
guaranteeing further price improvement to the Agency Order if such
Initiating Member chooses by simply designating a more aggressive
price upon submission for either a single price submission or an
auto-match.
\11\ See Proposed Rule 515A(a)(2)(i)(A). The corresponding CBOE
provision is silent regarding this situation. See CBOE Rule
6.74A(b)(1)(A). The Exchange proposes adding this provision to
enable the PRIME to work seamlessly with the Exchange's Book in a
manner that would ensure a fair and orderly market by maintaining
priority of orders and quotes while still affording the opportunity
for price improvement on each Auction commenced on the Exchange. See
also NASDAQ OMX PHLX Rule 1080(n)(ii)(A)(1).
\12\ See Proposed Rule 515A(a)(2)(i)(A).
\13\ See Proposed Rule 515A(a)(2)(i)(A). See also CBOE Rule
6.74A(b)(1)(A).
\14\ See Proposed Rule 515A(a)(2)(i)(A). See also CBOE Rule
6.74A(b)(1)(A).
\15\ See Proposed Rule 515A(a)(2). See also CBOE Rule 6.74A(b).
---------------------------------------------------------------------------
Example 1--Single Price Submission
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Agency Order to buy 50 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts with a single
stop price of $1.20
RFR sent identifying the option, side and size, with initiating price
\16\ of $1.20 (Auction Starts)
---------------------------------------------------------------------------
\16\ The ``initiating price'' is the stop price of the Agency
Order. Thus for single price submissions, the initiating price will
be the stop price which is the limit price of the single price
submission. For Agency Orders where no limit price is designated
(market orders), the initiating price will be the stop price which
is at the NBBO (if 50 standard option contracts or 500 mini-option
contracts or greater) or $0.01 increment better than the NBBO (if
less than 50 standard option contracts or 500 mini-option
contracts). For auto-match submissions with a designated limit
price, the initiating price will be the stop price which is the
limit price designated on the Agency Order. For auto-match
submissions where no limit price is designated (market orders), the
initiating price will be the stop price at the NBBO (if 50 standard
option contracts or 500 mini-option contracts or greater) or $0.01
increment better than the NBBO (if less than 50 standard option
contracts or 500 mini-option contracts). See Proposed Rule
515A(a)(2)(i)(A). See also CBOE Rule 6.74A(b)(1)(A).
@ 110 milliseconds MM1 response received, AOC eQuote to Sell 5
at $1.17
@ 230 milliseconds MM4 response received, AOC eQuote to Sell
10 at $1.18
@ 450 milliseconds MM3 response received, AOC eQuote to Sell
40 at $1.20
500 milliseconds (Auction Ends)
Under this scenario the Agency Order would be executed as follows:
1. 5 contracts trade with MM1 @ $1.17
2. 10 contracts trade with MM4 @ $1.18
3. 20 contracts trade with the Initiating Member's Contra Order @ $1.20
(This satisfies their 40% participation guarantee)
4. 15 contracts trade with MM3 @ $1.20 (This fills the entire Agency
Order)
Example 2--Single Price Submission
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Agency Order to buy 100 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 100 contracts with a single
stop price of $1.20
RFR sent identifying the option, side and size, with initiating price
of $1.20 (Auction Starts)
@ 110 milliseconds MM1 response received, AOC eQuote to Sell 5
at $1.17
@ 230 milliseconds MM4 response received, AOC eQuote to Sell
100 at $1.20
@ 450 milliseconds MM3 response received, AOC eQuote to Sell
40 at $1.22
500 milliseconds (Auction Ends)
Under this scenario the Agency Order would be executed as follows:
1. 5 contracts trade with MM1 @ $1.17
2. 55 contracts trade with MM4 @ $1.20
3. 40 contracts trade with the Initiating Member's Contra Order @ $1.20
(This fills the entire Agency Order and satisfies their 40%
participation guarantee)
Example 3--Single Price Submission, Less Than 50 Contracts
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Agency Order to buy 30 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 30 contracts with a single
stop price of $1.20
RFR sent identifying the option, side and size, with initiating price
of $1.20 (Auction Starts)
@ 110 milliseconds MM1 response received, AOC eQuote to Sell 5
at $1.17
@ 230 milliseconds MM4 response received, AOC eQuote to Sell 5
at $1.18
@ 450 milliseconds MM3 response received, AOC eQuote to Sell
10 at $1.20
500 milliseconds (Auction Ends)
Under this scenario the Agency Order would be executed as follows:
1. 5 contracts trade with MM1 @ $1.17
2. 5 contracts trade with MM4 @ $1.18
3. 12 contracts trade with the Initiating Member's Contra Order @ $1.20
(This satisfies their 40% participation guarantee)
4. 8 contracts trade with MM3 @ $1.20 (This fills the entire Agency
Order)
Example 4--Single Price Submission, Initiating Member Elects Last
Priority in Allocation
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Agency Order to buy 50 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts with a single
stop price of $1.20, electing last priority in allocation
RFR sent identifying the option, side and size, with initiating price
of $1.20 (Auction Starts)
@ 110 milliseconds MM1 response received, AOC eQuote to Sell 5
at $1.17
@ 230 milliseconds MM4 response received, AOC eQuote to Sell
10 at $1.18
@ 450 milliseconds MM3 response received, AOC eQuote to Sell
40 at $1.20
500 milliseconds (Auction Ends)
Under this scenario the Agency Order would be executed as follows:
1. 5 contracts trade with MM1 @ $1.17
2. 10 contracts trade with MM4 @ $1.18
3. 35 contracts trade with MM3 @ $1.20 (This fills the entire Agency
Order and the Contra Order does not receive an execution)
Example 5--Auto-Match
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15[dash]$1.25 100 x 100
Agency Order to buy 50 contracts with a limit price of $1.24
Initiating Member's Contra Order selling 50 contracts auto-match
RFR sent identifying the option, side and size, with initiating price
of $1.24 (Auction Starts)
@ 150 milliseconds MM2 response received, AOC eQuote to Sell 5
at $1.17
@ 230 milliseconds MM4 response received, AOC eQuote to Sell
10 at $1.18
@ 450 milliseconds MM3 response received, AOC eQuote to Sell
40 at $1.20
500 milliseconds (Auction Ends)
Under this scenario the Agency Order would be executed as follows:
1. 5 contracts trade with MM2 @ $1.17
2. 5 contracts trade with Contra Order @ $1.17 (due to auto-match)
[[Page 13337]]
3. 10 contracts trade with MM4 @ $1.18
4. 10 contracts trade with Contra Order @ $1.18 (due to auto-match)
5. 8 contracts trade with Contra Order @ $1.20 (due to auto-match of
40% of the remainder of the order participation guarantee)
6. 12 contracts trade with MM3 @ $1.20 (This fills the entire Agency
Order)
Example 6--Auto-Match, Agency Order Entered Without a Limit Price
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Agency Order to buy 50 contracts without a limit price
Initiating Member's Contra Order selling 50 contracts auto-match
RFR sent identifying the option, side and size, with initiating price
of $1.25 (Auction Starts)
@ 150 milliseconds MM2 response received, AOC eQuote to Sell 5
at $1.17
@ 230 milliseconds MM4 response received, AOC eQuote to Sell
10 at $1.18
@ 450 milliseconds MM3 response received, AOC eQuote to Sell
40 at $1.20
500 milliseconds (Auction Ends)
Under this scenario the Agency Order would be executed as follows:
1. 5 contracts trade with MM2 @ $1.17
2. 5 contracts trade with Contra Order @ $1.17 (due to auto-match)
3. 10 contracts trade with MM4 @ $1.18
4. 10 contracts trade with Contra Order @ $1.18 (due to auto-match)
5. 8 contracts trade with Contra Order @ $1.20 (due to auto-match of
40% of the remainder of the order participation guarantee)
6. 12 contracts trade with MM3 @ $1.20 (This fills the entire Agency
Order)
Example 7--Auto-Match, Agency Order Entered Without a Limit Price, Less
Than 50 Contracts
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Agency Order to buy 50 contracts without a limit price
Initiating Member's Contra Order selling 30 contracts auto-match
RFR sent identifying the option, side and size, with initiating price
of $1.24 (Auction Starts)
@ 150 milliseconds MM2 response received, AOC eQuote to Sell 5
at $1.17
@ 230 milliseconds MM4 response received, AOC eQuote to Sell 5
at $1.18
@ 450 milliseconds MM3 response received, AOC eQuote to Sell
30 at $1.20
500 milliseconds (Auction Ends)
Under this scenario the Agency Order would be executed as follows:
1. 5 contracts trade with MM2 @ $1.17
2. 5 contracts trade with Contra Order @ $1.17 (due to auto-match)
3. 5 contracts trade with MM4 @ $1.18
4. 5 contracts trade with Contra Order @ $1.18 (due to auto-match)
5. 4 contracts trade with Contra Order @ $1.20 (due to auto-match of
40% of the remainder of the order participation guarantee)
6. 6 contracts trade with MM3 @ $1.20 (This fills the entire Agency
Order)
When the Exchange receives a properly designated Agency Order for
Auction processing, a Request for Responses (``RFR'') detailing the
option, side, size, and initiating price will be sent to all
subscribers of the Exchange's data feeds.\17\ The Exchange believes
that including this level of detail in each RFR may lead to better
prices for the Agency Order. The RFR will last for 500
milliseconds.\18\ The Exchange believes that the 500 millisecond
duration of the RFR would provide Members with sufficient time to
submit RFR responses and would encourage competition among
participants, thereby enhancing the potential for price improvement for
the Agency Order.\19\ Members may submit responses to the RFR
(specifying prices and sizes). RFR responses shall be an Auction or
Cancel (``AOC'') order or an AOC eQuote.\20\ Such responses cannot
cross the disseminated MBBO\21\ on the opposite side of the market from
the response.\22\ RFR responses shall not be visible to other Auction
participants, and shall not be disseminated to OPRA.\23\ The minimum
price increment for RFR responses and for the Initiating Member's
submission shall be $0.01 increment, regardless if the class trades in
another price increment.\24\ An RFR response with a size greater than
the size of the Agency Order will be capped at the size of the Agency
Order for
[[Page 13338]]
allocation purposes.\25\ RFR responses may be cancelled.\26\
---------------------------------------------------------------------------
\17\ See Proposed Rule 515A(a)(2)(i)(B). The Exchange will
include the RFR from the auction mechanisms in the Exchange's data
feeds at no incremental cost to subscribers. Thus, any subscriber
that chooses to receive options data, including any Member
subscriber, has the ability to respond to those RFRs. The proposed
RFR differs from CBOE which only disseminates side and size to
Trading Permit Holders that have elected to receive RFRs. See CBOE
Rule 6.74A(b)(1)(B).
\18\ See Proposed Rule 515A(a)(2)(i)(C). The RFR response time
during price improvement auctions varies from exchange to exchange.
While the BOX Options RFR response period is as short as 100
milliseconds, the CBOE RFR response period lasts for one second and
the ISE exposure time lasts for 500 milliseconds. See CBOE Rule
6.74A(b)(1)(C); ISE Rule 723(c)(1); BOX Options Rule 7150(f)(1).
\19\ In February 2014, to determine whether the proposed
duration of the RFR would provide sufficient time to enter a RFR
response, the Exchange asked Members, including Market Makers,
whether their firms ``could respond to an Auction with a duration of
500 milliseconds.'' Of the 8 Members that responded to the question,
100% indicated that their firm could respond in this time frame.
Thus, the Exchange believes that the proposed duration for the RFR
of 500 milliseconds, would provide a meaningful opportunity for
participants on MIAX to respond to a RFR while at the same time
facilitating the prompt execution of orders.
\20\ See Proposed Rule 515A(a)(2)(i)(D). An ``AOC order'' is a
limit order used to provide liquidity during a specific Exchange
process (such as the Opening Imbalance process described in Rule
503) with a time in force that corresponds with that event. AOC
orders are not displayed to any market participant, are not included
in the MBBO and therefore are not eligible for trading outside of
the event, may not be routed, and may not trade at a price inferior
to the away markets. See Rule 516(b)(4). An ``AOC eQuote'' is a
quote submitted by a Market Maker to provide liquidity in a specific
Exchange process (such as the Opening Imbalance Process described in
Rule 503) with a time in force that corresponds with the duration of
that event and will automatically expire at the end of that event.
AOC eQuotes are not displayed to any market participant, are not
included in the MBBO and therefore are not eligible for trading
outside of the event. An AOC eQuote does not automatically cancel or
replace the Market Maker's previous Standard quote or eQuote. See
Rule 517(a)(2)(ii). The Exchange notes that any orders or quotes
received by the System during the Auction that are not AOC orders or
AOC eQuotes will be treated as unrelated trading interest. In
addition, the Exchange notes that an AOC order or an AOC eQuote
could trade at a price inferior to the away market if it is a part
of an exempt transaction. See Rule 1402.
AOC orders are available to all market participants on MIAX;
thus enabling all market participants with the ability to
participate in the PRIME. As mentioned below, in contrast to CBOE
which limits responses to only market makers assigned to the
relevant options class, any MIAX Member may respond to the RFR in
the PRIME. See CBOE Rule 6.74A(b)(1)(D). In addition, the Exchange
does not propose to limit responses to Members acting as agent to
orders resting at the top of the Exchange's Book opposite the Agency
Order like CBOE. Instead, any MIAX Member acting as agent for orders
may respond to the RFR in the PRIME. See Proposed Rule
515A(a)(2)(i)(D). See CBOE Rule 6.74A(b)(1)(E).
\21\ The term ``MBBO'' means the best bid or offer on the
Exchange. See Rule 100.
\22\ See Proposed Rule 515A(a)(2)(i)(D). In contrast to CBOE
which limits responses to only market makers assigned to the
relevant options class, any MIAX Member may respond to the RFR in
the PRIME. See also CBOE Rule 6.74A(b)(1)(D). In addition, the
Exchange does not propose to limit responses to Members acting as
agent to orders resting at the top of the Exchange's Book opposite
the Agency Order like CBOE. Instead, any MIAX Member acting as agent
for orders may respond to the RFR in the PRIME. See Proposed Rule
515A(a)(2)(i). See CBOE Rule 6.74A(b)(1)(E).
\23\ See Proposed Rule 515A(a)(2)(i)(E). In contrast to CBOE
which is silent on the pricing increment that is available for non-
single price submissions, the Exchange proposes that the Initiating
Member's submission whether single price or auto-match shall have a
minimum price increment of $0.01. See also CBOE Rule 6.74A(b)(1)(F).
\24\ See Proposed Rule 515A(a)(2)(i)(F). See also CBOE Rule
6.74A(b)(1)(G).
\25\ See Proposed Rule 515A(a)(2)(i)(G). In contrast to CBOE
which limits responses to only the size of the Agency Order,
responses that exceed the size of the Agency Order will be treated
as if they were the same size as the Agency Order for purposes of
the Auction. See CBOE Rule 6.74A(b)(1)(H). RFR response sizes are
capped at the same size of the Agency Order in order to prevent
manipulation and gaming of the pro rata allocation within each
origin type and price point. See Proposed Rules 515A(2)(iii)(C),(D).
The Exchange notes that unrelated trading interest including
unrelated orders, quotes, or orders on the Exchange's Book will not
be subject to such a cap, since they are not considered responses to
the Auction. The Exchange believes that this will help enable the
Auction to work seamlessly with the Exchange's Book, by maintaining
priority of all resting quotes and orders and any RFR responses
received before the conclusion of the Auction while preventing the
gaming of pro rata allocations by RFR responses. The Exchange notes
that this is consistent with how the electronic price improvement
auctions of other competing exchanges operate. See CBOE Rule 6.74A.
\26\ See Proposed Rule 515A(a)(2)(i)(H). See also CBOE Rule
6.74A(b)(1)(I).
---------------------------------------------------------------------------
The PRIME Auction is designed to work seamlessly with the
Exchange's Book and is designed to maintain priority of all resting
quotes and orders and any RFR responses received before the conclusion
of the Auction. The PRIME will conclude early, before the end of the
RFR period, as a result of certain events that would otherwise disrupt
the priority of the Auction within the Book. The Exchange notes that
this is consistent with how the electronic price improvement auctions
of other competing exchanges operate.\27\ Specifically, the Auction
shall conclude at the sooner of the following: (i) The end of the RFR
period; (ii) upon receipt by the System of an unrelated order (in the
same option as the Agency Order) on the same side or opposite side of
the market from the RFR responses, that is marketable against either
the MBBO (when such quote is the NBBO) or the RFR responses; (iii) upon
receipt by the System of an unrelated limit order (in the same option
as the Agency Order and on the opposite side of the market from the
Agency Order) that improves any RFR response; (iv) any time an RFR
response matches the MBBO on the opposite side of the market from the
RFR responses; (v) any time there is a quote lock in the subject option
on the Exchange pursuant to Rule 1402; or (vi) any time there is a
trading halt in the option on the Exchange.\28\
---------------------------------------------------------------------------
\27\ See CBOE Rule 6.74A(b)(2); ISE Rule 723(c)(5).
\28\ See Proposed Rule 515A(a)(2)(ii). See also CBOE Rule
6.74A(b)(2).
---------------------------------------------------------------------------
Priority and Allocation of Orders and Quotes
The priority of allocation at the conclusion of a PRIME Auction,
described below, will be similar to the standard allocation of orders
and quotes on MIAX. Current MIAX Rule 514 provides the priority of
allocation of order and quotes on the Exchange. Under the pro-rata
allocation method, resting quotes and orders on the Book are
prioritized according to price. If there are two or more quotes or
orders at the best price then the contracts are allocated
proportionally according to size (in a pro-rata fashion) within each
origin type. If the executed quantity cannot be evenly allocated, the
remaining contracts will be distributed one at a time based upon size-
time priority.\29\ When the Priority Customer Overlay is in effect, the
highest bid and lowest offer shall have priority except that Priority
Customer Orders shall have priority over Professional Interest and all
Market Maker interest at the same price. If there are two or more
Priority Customer Orders for the same options at the same price,
priority shall be afforded to such Priority Customer Orders in the
sequence in which they are received by the System.\30\ If there is
other interest at the NBBO, after all Priority Customer Orders (if any)
at that price have been filled, executions at that price will be first
allocated to other remaining Market Maker priority quotes\31\, which
have not received a participation entitlement, and have precedence over
Professional Interest.\32\ If after all Market Maker priority quotes
have been filled in accordance with Rule 514(d)(1) and there remains
interest at the NBBO, executions will be allocated to all Professional
Interest at that price. Professional Interest is defined in Rule 100
and includes among other interest, Market Maker non-priority quotes (as
described in Rule 517(b)(1)(ii)) and Market Maker orders in both
assigned and non-assigned classes.\33\
---------------------------------------------------------------------------
\29\ See Exchange Rule 514(c)(2).
\30\ See Exchange Rule 514(d)(1). The term ``Priority Customer''
means a person or entity that (i) is not a broker or dealer in
securities, and (ii) does not place more than 390 orders in listed
options per day on average during a calendar month for its own
beneficial accounts(s). See Exchange Rule 100.
\31\ To be considered a priority quote, at the time of
execution, each of the following standards must be met: (A) The bid/
ask differential of a Market Maker's two-sided quote pair must be
valid width (no wider than the bid/ask differentials outlined in
Rule 603(b)(4)); (B) the initial size of both of the Market Maker's
bid and the offer must be in compliance with the requirements of
Rule 604(b)(2); (C) the bid/ask differential of a Market Maker's
two-sided quote pair must meet the priority quote width requirements
defined in Rule 517(b)(1)(ii) for each option; and (D) either of the
following are true:
1. At the time a locking or crossing quote or order enters the
System, the Market Maker's two-sided quote pair must be valid width
for that option and must have been resting on the Book; or
2. Immediately prior to the time the Market Maker enters a new
quote that locks or crosses the MBBO, the Market Maker must have had
a valid width quote already existing (i.e., exclusive of the Market
Maker's new marketable quote or update) among his two-sided quotes
for that option. See Exchange Rule 517(b)(1)(i).
\32\ See Exchange Rule 514(e)(1).
\33\ See Exchange Rule 514(e)(2). Specifically, the term
``Professional Interest'' means (i) an order that is for the account
of a person or entity that is not a Priority Customer, or (ii) an
order or non-priority quote for the account of a Market Maker. See
Exchange Rule 100.
---------------------------------------------------------------------------
PRIME is designed to work seamlessly with the Exchange's Book in a
manner that would ensure a fair and orderly market by maintaining
priority of orders and quotes while still affording the opportunity for
price improvement on each Auction commenced on the Exchange. The
priority of allocation at the conclusion of a PRIME Auction will be
similar to the standard allocation of orders and quotes on MIAX.\34\ At
the conclusion of the Auction, the Agency Order will be allocated at
the best price(s) pursuant to the matching algorithm in effect for the
class subject to the following:
---------------------------------------------------------------------------
\34\ In this regard, the proposed Rule 515A(a)(2)(iii) differs
from CBOE Rule 6.74A(b)(3) which gives priority to public customers
but also restricts participation in the auction to market makers
appointed in the relevant option class. Since participation in the
PRIME extends to all Members on MIAX, the Exchange believes that the
existing priority rules that distinguish between Priority Customers,
Market Makers with priority quotes, and Professional Interest is the
best method to ensure a fair and orderly market by maintaining
priority of orders and quotes while still affording the opportunity
for price improvement on each Auction commenced on the Exchange.
---------------------------------------------------------------------------
Such best prices include non-Auction quotes and
orders.\35\
---------------------------------------------------------------------------
\35\ See Proposed Rule 515A(a)(2)(iii)(A). See also CBOE Rule
6.74A(b)(3)(A).
---------------------------------------------------------------------------
Priority Customer orders resting on the Book before, or
that are received during, the Response Time Interval and Priority
Customer RFR responses shall, collectively have first priority to trade
against the Agency Order. The allocation of an Agency Order against the
Priority Customer orders resting in the Book, Priority Customer orders
received during the Response Time Interval, and Priority Customer RFR
responses shall be in the sequence in which they are received by the
System.\36\
---------------------------------------------------------------------------
\36\ See Proposed Rule 515A(a)(2)(iii)(B). The Exchange notes
that the priority allocation in PRIME is consistent with the
standard priority rules for Priority Customers in Rule 514(d)(1). In
contrast to CBOE that extends priority to only public customers in
the book, the Exchange gives priority to Priority Customer orders
whether they were on the Book or received during the Response Time
Interval. See CBOE Rule 6.74A(b)(3)(B).
---------------------------------------------------------------------------
Market Maker priority quotes and RFR responses from Market
Makers with priority quotes will collectively have second priority. The
allocation of
[[Page 13339]]
Agency Orders against these contra sided quotes and RFR responses shall
be on a size pro rata basis as defined in Rule 514(c)(2).\37\
---------------------------------------------------------------------------
\37\ See Proposed Rule 515A(a)(2)(iii)(C).
---------------------------------------------------------------------------
Professional Interest orders resting in the Book,
Professional Interest orders placed in the Book during the Response
Time Interval, Professional Interest quotes, and Professional Interest
RFR responses will collectively have third priority.\38\ The allocation
of Agency Orders against these contra sided orders and RFR responses
shall be on a size pro rata basis as defined in Rule 514(c)(2).\39\
---------------------------------------------------------------------------
\38\ See Exchange Rule 514(e)(2). Specifically, the term
``Professional Interest'' means (i) an order that is for the account
of a person or entity that is not a Priority Customer, or (ii) an
order or non-priority quote for the account of a Market Maker. See
Exchange Rule 100.
\39\ See Proposed Rule 515A(a)(2)(iii)(D).
---------------------------------------------------------------------------
No participation entitlement shall apply to orders
executed pursuant to this Rule.\40\
---------------------------------------------------------------------------
\40\ See Proposed Rule 515A(a)(2)(iii)(E). See also CBOE Rule
6.74A(b)(3)(C).
---------------------------------------------------------------------------
If an unrelated market or marketable limit order on the
opposite side of the market as the Agency Order was received during the
Auction and ended the Auction, such unrelated order shall trade against
the Agency Order at the midpoint of the best RFR response (or in the
absence of a RFR response, the initiating price \41\) and the NBBO on
the other side of the market from the RFR responses (rounded towards
the disseminated quote when necessary).\42\
---------------------------------------------------------------------------
\41\ As mentioned above, the ``initiating price'' is the stop
price of the Agency Order. Thus for single price submissions, the
initiating price will be the stop price which is the limit price of
the single price submission. For Agency Orders where no limit price
is designated (market orders), the initiating price will be the stop
price which is at the NBBO (if 50 standard option contracts or 500
mini-option contracts or greater) or $0.01 increment better than the
NBBO (if less than 50 standard option contracts or 500 mini-option
contracts). For auto-match submissions with a designated limit
price, the initiating price will be the stop price which is the
limit price designated on the Agency Order. For auto-match
submissions where no limit price is designated (market orders), the
initiating price will be the stop price at the NBBO (if 50 standard
option contracts or 500 mini-option contracts or greater) or $0.01
increment better than the NBBO (if less than 50 standard option
contracts or 500 mini-option contracts). See Proposed Rule
515A(a)(2)(i)(A). See also CBOE Rule 6.74A(b)(1)(A).
\42\ See Proposed Rule 515A(a)(2)(iii)(F). The proposed
treatment of the unrelated market or marketable limit order on the
opposite side differs from CBOE, in that CBOE's rule does not
contemplate pricing at the midpoint when there is no RFR response.
The Exchange believes that in the absence of a RFR response, using
the initiating price in this scenario is appropriate and helps
facilitate an execution at an improved price for the Agency Order.
See CBOE Rule 6.74A(b)(3)(D).
---------------------------------------------------------------------------
If an unrelated non-marketable limit order on the opposite
side of the market as the Agency Order was received during the Auction
and ended the Auction, such unrelated order shall trade against the
Agency Order at the midpoint of the best RFR response and the unrelated
order's limit price (rounded towards the unrelated order's limit price
when necessary).\43\
---------------------------------------------------------------------------
\43\ See Proposed Rule 515A(a)(2)(iii)(G). An unrelated non-
marketable limit order on the opposite side of the market as the
Agency Order would end the Auction in the situation when that
unrelated non-marketable limit order improves any RFR response.
Thus, in contrast to the situation of an unrelated market or
marketable limit order, the proposed treatment of an unrelated non-
marketable limit order on the opposite side will be identical to
CBOE since there will be a RFR response present to calculate the
midpoint from when the Auction ends. See also CBOE Rule
6.74A(b)(3)(E).
---------------------------------------------------------------------------
Notwithstanding proposed Rule 515A(a)(2)(iii)(C), (D), if
the best price equals the Initiating Member's single-price submission,
the Initiating Member's single-price submission shall be allocated the
greater of one contract or a certain percentage of the order, which
percentage will be determined by the Exchange and may not be larger
than 40%. However, if only one Member's response matches the Initiating
Member's single price submission then the Initiating Member may be
allocated up to 50% of the order.\44\
---------------------------------------------------------------------------
\44\ See Proposed Rule 515A(a)(2)(iii)(H). In contrast to CBOE
which is silent on the priority of allocation at a price point
between the Initiating Member's guaranteed allocation and other
interest, the Exchange proposes additional language to clarify that
the priority of the Initiating Member's guaranteed allocation is
after Priority Customer interest. See also CBOE Rule 6.74A(b)(3)(F).
---------------------------------------------------------------------------
Notwithstanding proposed Rule 515A(a)(2)(iii)(C), (D), if
the Initiating Member selected the auto-match option of the Auction,
the Initiating Member shall be allocated its full size of RFR responses
at each price point up to the designated limit price or until a price
point is reached where the balance of the order can be fully
executed.\45\ At such price point, the Initiating Member shall be
allocated the greater of one contract or a certain percentage of the
remainder of the order, which percentage will be determined by the
Exchange and may not be larger than 40%.\46\
---------------------------------------------------------------------------
\45\ The Exchange notes that the auto-match functionality will
only allocate the full size of RFR responses (AOC orders and AOC
eQuotes). See Proposed Rule 515A(a)(2)(iii)(I). In contrast to CBOE
which is silent on the priority of allocation at a price point
between the Initiating Member's guarantee and other interest, the
Exchange proposes additional language to clarify that the priority
of the Initiating Member's guaranteed allocation is after Priority
Customer interest. See also CBOE Rule 6.74A(b)(3)(G). As noted
above, any orders or quotes received by the System during the
Auction that are not AOC orders or AOC eQuotes will be treated as
unrelated trading interest; the auto-match functionality will not
allocate against such unrelated trading interest. See Proposed Rule
515A(a)(2)(i)(D).
\46\ See Proposed Rule 515A(a)(2)(iii)(I). In contrast to CBOE
which is silent regarding the allocation of the Initiating Member's
auto-match when there is a designated limit price, the Exchange
proposes additional language to clarify that the Initiating Member
shall be allocated its full size of RFR responses at each price
point up to the designated limit price or until a price point is
reached where the balance of the order can be fully executed. See
also CBOE Rule 6.74A(b)(3)(G).
---------------------------------------------------------------------------
Notwithstanding proposed Rule 515A(a)(2)(iii)(C), (D), if
the Auction does not result in price improvement over the Exchange's
disseminated price at the time the Auction began, resting unchanged
quotes or orders that were disseminated at the best price before the
Auction began shall have priority after any Priority Customer order
priority and the Initiating Member's priority (40%) have been
satisfied.\47\ Any unexecuted balance on the Agency Order shall be
allocated to RFR responses provided that those RFR responses will be
capped to the size of the original order and that the Initiating Member
may not participate on any such balance unless the Agency Order would
otherwise go unfilled.\48\
---------------------------------------------------------------------------
\47\ The Exchange notes that the priority of such resting
unchanged quotes or orders that were disseminated at the best price
before the Auction began will still be subject to the standard
priority allocation in effect pursuant to Rule 514.
In contrast to CBOE which is silent on the priority of
allocation at a price point between the Initiating Member's
guarantee and other interest, the Exchange proposes additional
language to clarify that the priority of the Initiating Member's
guaranteed allocation is after Priority Customer interest. See
Proposed Rule 515A(a)(2)(iii)(J). See also CBOE Rule 6.74A(b)(3)(H).
\48\ See Proposed Rule 515A(a)(2)(iii)(J). This provision
differs slightly from CBOE which caps RFR responses to the size of
the unexecuted balance of the Agency Order when allocating any
unexecuted balance on the Agency Order. See CBOE Rule
6.74A(b)(3)(H).
---------------------------------------------------------------------------
If the final Auction price locks a Priority Customer order
on the Book on the same side of the market as the Agency Order, then,
unless there is sufficient size in the Auction responses to execute
both the Agency Order and the booked Priority Customer order (in which
case they will both execute at the final Auction price), the Agency
Order will execute against the RFR responses at $0.01 increment worse
than the final Auction price (towards the opposite side of the Agency
Order) against the Auction participants that submitted the final
Auction price and any balance shall trade against the Priority Customer
order in the Book at such order's limit price.\49\
---------------------------------------------------------------------------
\49\ See Proposed Rule 515A(a)(2)(iii)(K). The Exchange proposes
additional language not in the CBOE rule to clarify that an
execution price in this situation that is $0.01 increment worse than
the final Auction price means the final Auction price adjusted by
$0.01 increment towards the opposite side of the Agency Order. See
also CBOE Rule 6.74A(b)(3)(I).
---------------------------------------------------------------------------
If the Initiating Member elected to have last priority in
allocation when
[[Page 13340]]
submitting an Agency Order to initiate an Auction against a single-
price submission, the Initiating Member will be allocated only the
amount of contracts remaining, if any, after the Agency Order is
allocated to all other responses at the single price specified by the
Initiating Member.\50\
---------------------------------------------------------------------------
\50\ See Proposed Rule 515A(a)(2)(iii)(L). See also CBOE Rule
6.74A(b)(3)(J).
---------------------------------------------------------------------------
If an unexecuted balance remains on the Auction responses
after the Agency Order has been executed and such balance could trade
against any unrelated order(s) that caused the Auction to conclude,
then the RFR balance will trade against the unrelated order(s) on a
size pro rata basis as defined in Rule 514(c)(2).\51\
---------------------------------------------------------------------------
\51\ See Proposed Rule 515A(a)(2)(iii)(M). In contrast to CBOE
which is silent regarding the basis for allocation of an unrelated
order(s) against the RFR balance in this situation, the Exchange
proposes additional language to clarify that such RFR balance will
trade against the unrelated order(s) on a size pro rata basis as
defined in Rule 514(c)(2). See also CBOE Rule 6.74A(b)(3).
---------------------------------------------------------------------------
The following examples show how allocations will be allocated at
the conclusion of the Prime Auction.\52\
---------------------------------------------------------------------------
\52\ The Exchange notes that in all examples in the filing, a
Market Maker response should be considered from a Market Maker that
does not have a priority quote, unless the example specifically
states that the response is from a Market Maker with a priority
quote.
---------------------------------------------------------------------------
Example 8--Single Price Submission, Priority Customer Has Priority
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Agency Order to buy 50 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts with a single
stop price of $1.20
RFR sent identifying the option, side and size, with initiating price
of $1.20
(Auction Starts)
@ 110 milliseconds MM1 response received, AOC eQuote to Sell
10 at $1.18
@ 230 milliseconds MM4 response received, AOC eQuote to Sell
10 at $1.18
@ 450 milliseconds Priority Customer response received, AOC
order to Sell 40 at $1.18
500 milliseconds (Auction Ends)
Under this scenario the Agency Order would be executed as follows:
1. 40 contracts trade with Priority Customer @ $1.18
2. 5 contracts trade with MM1 @ $1.18
3. 5 contracts trade with MM4 @ $1.18 (This fills the entire Agency
Order and Contra Order does not receive an execution)
Example 9--Single Price Submission, Priority Customer Has Priority and
Only One Response Matches the Initiating Member at the Best Price
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Agency Order to buy 50 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts with a single
stop price of $1.20
RFR sent identifying the option, side and size, with initiating price
of $1.20
(Auction Starts)
@ 110 milliseconds MM1 response received, AOC eQuote to Sell
50 at $1.20
@ 230 milliseconds MM4 response received, AOC eQuote to Sell
10 at $1.22
@ 450 milliseconds Priority Customer response received, AOC
order to Sell 40 at $1.22
500 milliseconds (Auction Ends)
Under this scenario the Agency Order would be executed as follows:
1. 25 contracts trade with MM1 @ $1.20
2. 25 contracts trade with the Contra Order @ $1.20 (This fills the
entire Agency Order and this satisfies their 50% of the order size when
matching one other member participation guarantee)
Example 10--Single Price Submission, Market Maker With Priority Quotes
Has Priority
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Agency Order to buy 50 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts with a single
stop price of $1.20
RFR sent identifying the option, side and size, with initiating price
of $1.20
(Auction Starts)
@ 110 milliseconds MM1 non-priority response received, AOC
eQuote to Sell 10 at $1.18
@ 230 milliseconds MM4 non-priority response received, AOC
eQuote to Sell 10 at $1.18
@ 450 milliseconds MM3 with priority quotes response received,
AOC eQuote to Sell 40 at $1.18
500 milliseconds (Auction Ends)
Under this scenario the Agency Order would be executed as follows:
1. 40 contracts trade with MM3 @ $1.18
2. 5 contracts trade with MM1 @ $1.18
3. 5 contracts trade with MM4 @ $1.18 (This fills the entire Agency
Order and Contra Order does not receive an execution)
Example 11--Single Price Submission, Market Maker With Priority Quotes
Has Priority
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Agency Order to buy 50 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts with a single
stop price of $1.20
RFR sent identifying the option, side and size, with initiating price
of $1.20
(Auction Starts)
@ 110 milliseconds MM1 non-priority response received, AOC
eQuote to Sell 10 at $1.18
@ 230 milliseconds BD4 response received, AOC order to Sell 10
at $1.18
@ 450 milliseconds MM3 with priority quotes response received,
AOC eQuote to Sell 40 at $1.18
500 milliseconds (Auction Ends)
Under this scenario the Agency Order would be executed as follows:
1. 40 contracts trade with MM3 @ $1.18
2. 5 contracts trade with MM1 @ $1.18
3. 5 contracts trade with BD4 @ $1.18 (This fills the entire Agency
Order and Contra Order does not receive an execution)
Example 12--Auto-Match, Market Maker With Priority Quotes Has Priority
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Agency Order to buy 50 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts auto-match
RFR sent identifying the option, side and size, with initiating price
of $1.20
(Auction Starts)
@ 110 milliseconds MM1 non-priority response received, AOC
eQuote to Sell 10 at $1.18
@ 230 milliseconds MM4 non-priority response received, AOC
eQuote to Sell 10 at $1.18
@ 450 milliseconds MM3 with priority quotes response received,
AOC eQuote to Sell 40 at $1.18
500 milliseconds (Auction Ends)
Under this scenario the Agency Order would be executed as follows:
1. 30 contracts trade with MM3 @ $1.18
2. 20 contracts trade with the Contra Order @ $1.18 (This fills the
entire Agency Order and this satisfies their 40% participation
guarantee)
Example 13--Auto-Match, Market Maker With Priority Quotes Has Priority
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Agency Order to buy 50 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts auto-match
RFR sent identifying the option, side and size, with initiating price
of $1.20
(Auction Starts)
@ 110 milliseconds MM1 non-priority response received, AOC
eQuote to Sell 10 at $1.18
[[Page 13341]]
@ 230 milliseconds BD4 response received, AOC order to Sell 10
at $1.18
@ 450 milliseconds MM3 with priority quotes response received,
AOC eQuote to Sell 40 at $1.18
500 milliseconds (Auction Ends)
Under this scenario the Agency Order would be executed as follows:
1. 30 contracts trade with MM3 @ $1.18
2. 20 contracts trade with the Contra Order @ $1.18 (This fills the
entire Agency Order and this satisfies their 40% participation
guarantee)
Example 14--Single Price Submission, Priority Customer Order on the
Book on the Same Side Locks the Final Auction Price
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Priority Customer order on the Book to Buy 75 at $1.15
Agency Order to buy 50 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts with a single
stop price of $1.20
RFR sent identifying the option, side and size, with initiating price
of $1.20
(Auction Starts)
@ 110 milliseconds MM1 response received, AOC eQuote to Sell
10 at $1.22
@ 230 milliseconds MM4 response received, AOC eQuote to Sell
50 at $1.15 (response matches the opposite MBBO causes the Auction to
conclude early)
Under this scenario the Agency Order would be executed as follows:
1. 50 contracts trade with MM4 @ $1.16 (This fills the entire Agency
Order and Contra Order does not receive an execution)
Example 15--Auto-Match, Priority Customer Order on the Book on the Same
Side Locks the Final Auction Price
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Priority Customer order on the Book to Buy 75 at $1.15
Agency Order to buy 50 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts auto-match
RFR sent identifying the option, side and size, with initiating price
of $1.20
(Auction Starts)
@ 110 milliseconds MM1 response received, AOC eQuote to Sell
10 at $1.22
@ 230 milliseconds MM4 response received, AOC eQuote to Sell
50 at $1.15 (response matches the opposite MBBO causes the Auction to
conclude early)
Under this scenario the Agency Order would be executed as follows:
1. 30 contracts trade with MM4 @ $1.16
2. 20 contracts trade with the Contra Order @ $1.16 (This fills the
entire Agency Order and this satisfies their 40% participation
guarantee)
3. Priority Customer order to buy 75 at $1.15 then executes as follows:
a. 20 contracts trade with MM4 @ $1.15
b. Remaining contracts post to the Book as the new BB paying $1.15 for
55 contracts
In Examples 14 and 15, since both the Agency Order and the Priority
Customer order could not both be executed against the RFR responses due
to insufficient size, the Agency Order executed against the RFR
response at $0.01 increment worse than the final Auction price with the
remaining balance of responses trading against the Priority Customer
order in the Book at such order's limit price.\53\ In Example 15, there
is sufficient balance remaining of the RFR response to partially trade
at the Priority Customer's limit price. However, in Example 14, there
is not any remaining balance of RFR responses that can trade against
the Priority Customer order.
---------------------------------------------------------------------------
\53\ See Proposed Rule 515A(a)(2)(iii)(K). See also CBOE Rule
6.74A(b)(3)(I).
---------------------------------------------------------------------------
Example 16--Auto-Match, Priority Customer Order on the Book on the Same
Side Locks the Final Auction Price
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Priority Customer order to Buy 20 at $1.15
Agency Order to buy 50 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts auto-match
RFR sent identifying the option, side and size, with initiating price
of $1.20
(Auction Starts)
@ 110 milliseconds MM1 response received, AOC eQuote to Sell
50 at $1.15 (response matches the opposite MBBO causes the Auction to
conclude early)
Under this scenario the Agency Order would be executed as follows:
1. 30 contracts trade with MM1 @ $1.15
2. 20 contracts trade with the Contra Order @ $1.15 (This fills the
entire Agency Order and this satisfies their 40% participation
guarantee)
3. Priority Customer order to buy 20 at $1.15 then executes as follows:
a. 20 contracts trade with MM1 @ $1.15
In Example 16, since there is sufficient size in the RFR responses
to execute both the Agency Order and the Priority Customer order, both
execute at the final Auction price.\54\
---------------------------------------------------------------------------
\54\ See id.
---------------------------------------------------------------------------
As mentioned above and shown in Examples 8-16, the priority of
allocation at the conclusion of a PRIME Auction will be similar to the
standard allocation of orders and quotes on MIAX.\55\ At each price
point, orders and quotes will be given priority by type--Priority
Customer, Market Maker with priority quotes, and then to Professional
Interest. The Exchange believes that this design is necessary to ensure
a fair and orderly market by maintaining priority of orders and quotes
while still affording the opportunity for price improvement on each
Auction commenced on the Exchange. In addition, by keeping the priority
of allocation of the PRIME similar in this way to the standard
allocation, there is a reduced ability to misuse the Auction to
circumvent the standard priority rules.
---------------------------------------------------------------------------
\55\ In simple terms, the allocation of orders and quotes at the
conclusion of a PRIME Auction will be in priority ranked by price/
origin type/pro-rata/time which is that standard allocation of
orders and quotes on MIAX when the pro-rata allocation method and
the Priority Customer Overlay is in effect. The key differences
between the standard allocation and PRIME allocation are that in
PRIME: RFR responses are capped at the total size of the Agency
order which changes the pro-rata calculation when allocating within
the same origin type; no participation entitlement will apply to
orders executed in the PRIME; and the Initiating Member's
facilitating or solicitation order may receive a participation
guarantee at the stop price.
---------------------------------------------------------------------------
As noted earlier, the PRIME Auction is integrated seamlessly within
the Exchange's Book and is designed to maintain priority of all resting
quotes and orders and any RFR responses received before the conclusion
of the Auction. A PRIME Auction would conclude early as a result of
certain events that would otherwise disrupt the priority of the Auction
within the Book. The Exchange notes that this is consistent with how
the electronic price improvement auctions of other competing exchanges
operate.\56\ The following examples show how allocations will be
allocated due to the early conclusion of the Prime Auction before the
expiration of the RFR timer.\57\
---------------------------------------------------------------------------
\56\ See, e.g., CBOE Rule 6.74A; ISE Rule 723.
\57\ See supra note 42. As provided above, the Exchange notes
that in all examples in the filing, a Market Maker response should
be considered from a Market Maker that does not have a priority
quote, unless the example specifically states that the response is
from a Market Maker with a priority quote.
---------------------------------------------------------------------------
Example 17--Early Conclusion of Auction, Opposite Side Limit Order
Marketable Against NBBO at the Time of Arrival
NBBO = $1.20-$1.24 200 x 100
BBO = $1.20-$1.24 100 x 100
Agency Order to buy 50 contracts with a limit of $1.24
[[Page 13342]]
Initiating Member's Contra Order selling 50 contracts with a stop price
of $1.24
RFR sent identifying the option, side and size, initiating price of
$1.24
(Auction Starts)
@ 200 milliseconds MM3 response received, AOC eQuote to Sell
50 at $1.22
@ 210 milliseconds MM1 response received, AOC eQuote to Sell
50 at $1.22
@ 230 milliseconds MM4 response received, AOC eQuote to Sell
50 at $1.23
@ 400 milliseconds BD1 Unrelated Order received Sell 10 at
$1.20 (Opposite-side order marketable against the NBB causes an early
conclusion to the Auction)
Under this scenario, the Agency Order would be executed as follows:
1. 10 contracts trade with the unrelated order for BD1 @ $1.21
(midpoint of the best RFR response of $1.22 and the opposite side of
the market from the RFR response of $1.20)
2. 20 contracts trade with MM3 @ $1.22
3. 20 contracts trade with MM1 @ (This fills the entire Agency Order)
4. MM4 does not trade any contracts
5. Contra Order does not trade any contracts
Example 18--Early Conclusion of Auction, Opposite Side Non-Marketable
Order Received
NBBO = $1.20-$1.24 200 x 100
BBO = $1.20-$1.24 100 x 100
Agency Order to buy 50 contracts with a limit of $1.24
Initiating Member's Contra Order selling 50 contracts with a stop price
of $1.24
RFR sent identifying the option, side and size, initiating price of
$1.24
(Auction Starts)
@ 200 milliseconds MM3 response received, AOC eQuote to Sell
50 at $1.23
@ 210 milliseconds MM1 response received, AOC eQuote to Sell
50 at $1.23
@ 230 milliseconds MM4 response received, AOC eQuote to Sell
50 at $1.24
@ 400 milliseconds BD1 Unrelated Order received Sell 10 at
$1.21 (Opposite-side order non-marketable against the NBB causes an
early conclusion to the Auction)
Under this scenario, the Agency Order would be executed as follows:
1. 10 contracts trade with the unrelated order for BD1 @ $1.22(midpoint
of the best RFR response of $1.23 and the unrelated order's limit price
of $1.21, rounded towards the unrelated order's limit price when
necessary)
2. 20 contracts trade with MM3 @ $1.23
3. 20 contracts trade with MM1 @ $1.23 (This fills the entire Agency
Order)
4. MM4 does not trade any contracts
5. Contra Order does not trade any contracts
Example 19--Early Conclusion of Auction, Opposite Side Market Order
With Auto-Match and No Responses
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Agency Order to buy 50 contracts with a limit of $1.20
Initiating Member's Contra Order selling 50 contracts with Auto-match
RFR sent identifying the option, side and size, with initiating price
of $1.20 (Auction Starts)
@ 490 milliseconds BD1 Unrelated Order received Sell 5 at the
market (Opposite-side market order causes an early conclusion to the
Auction)
Under this scenario, the Agency Order would be executed as follows:
1. 5 contracts trade with BD1 @ $1.17 (midpoint of the initiating price
of $1.20 and the opposite side of the market from the RFR response of
$1.15, rounded towards the disseminated quote when necessary)
2. 45 contracts trade with Contra Order at $1.20 (the initiating price)
(This fills the entire Agency Order)
Example 20--Early Conclusion of Auction, Opposite Side Market Order
With Auto-Match and Responses Before Early Conclusion
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Agency Order to buy 50 contracts with a limit of $1.20
Initiating Member's Contra Order selling 50 contracts with Auto-match,
RFR sent identifying the option, side and size, with initiating price
of $1.20 (Auction Starts)
@ 230 milliseconds MM4 response received, AOC eQuote to Sell
10 at $1.18
@ 450 milliseconds MM3 response received, AOC eQuote to Sell
40 at $1.20
@ 490 milliseconds BD1 Unrelated Order received Sell 5 at the
market (Opposite-side market order causes an early conclusion to the
Auction)
Under this scenario, the Agency Order would be executed as follows:
1. 5 contracts trade with BD1 @ $1.16 (midpoint of the best RFR
response of $1.18 and the opposite side of the market from the RFR
response of $1.15, rounded towards the disseminated quote)
2. 10 contracts trade with MM4 @ $1.18
3. 10 contracts trade with Contra Order @ $1.18 (Auto-match other
response prices)
4. 10 contracts trade with the Contra Order @ $1.20 (This satisfies
their 40% of the remaining contracts participation guarantee)
5. 15 contracts trade with MM3 @ $1.20 (This fills the entire Agency
Order)
Example 21--Early Conclusion of Auction, Opposite Side Market Order
With Single-Price Submission
NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Agency Order to buy 50 contracts with a limit of $1.20
Initiating Member's Contra Order selling 50 contracts with single stop
price of $1.20
RFR sent identifying the option, side and size, with initiating price
of $1.20 (Auction Starts,)
@ 230 milliseconds MM4 response received, AOC eQuote to Sell
10 at $1.19
@ 450 milliseconds MM3 response received, AOC eQuote to Sell
40 at $1.20
@ 490 milliseconds BD1 Unrelated Order received Sell 5 at the
market (Opposite-side market order causes an early conclusion to the
Auction)
Under this scenario, the Agency Order would be executed as follows:
1. 5 contracts trade with BD1 @ $1.17 (midpoint of the best RFR
response of $1.19 and the opposite side of the market from the RFR
response of $1.15)
2. 10 contracts trade with MM4 @ $1.19
3. 20 contracts trade with the Contra Order @ $1.20 (This satisfies
their 40% participation guarantee)
4. 15 contracts trade with MM3 @ $1.20 (This fills the entire Agency
Order)
Example 22--Early Conclusion of Auction, Same Side Market Order
NBBO = $1.20-$1.24 200 x 200
BBO = $1.20-$1.24 100 x 100
Agency Order to buy 20 contracts for $1.23
Initiating Member's Contra Order selling 20 contracts with Auto-match
RFR sent, identifying the option, side and size, initiating price of
$1.23 (Auction Starts)
@ 200 milliseconds MM3 response received, AOC eQuote to Sell
20 at $1.23
@ 210 milliseconds MM1 response received, AOC eQuote to Sell
20 at $1.22
@ 230 milliseconds MM4 response received, AOC eQuote to Sell
20 at $1.22
@ 250 milliseconds C1 Unrelated Order received Buy 100 at the
market (Same-side order marketable against the NBO causes an early
conclusion to the Auction)
[[Page 13343]]
Under this scenario, the Agency Order would be executed as follows:
1. 8 contracts trade with the Contra Order @ $1.22 (This satisfies
their 40% participation guarantee)
2. 6 contract trades with MM1 @ $1.22
3. 6 contract trades with MM4 @ $1.22 (This fills the entire Agency
Order)
4. C1 unrelated order to buy 100 at the market then executes as
follows:
a. 14 contracts trade with MM1 @ $1.22
b. 14 contracts trade with MM4 @ $1.22
c. 20 contracts trade with MM3 @ $1.23
d. The remaining 52 contracts from C1 unrelated order are handled
pursuant to existing Rule 514 (in this case, that means the 52
contracts would trade with the interest comprising the BO, which was
offering 100 contracts at $1.24)
Example 23--Early Conclusion of Auction, Same Side New BBO Improves
Initiating Price
NBBO = $1.20-$1.24 200 x 200
BBO = $1.20-$1.24 100 x 100
Agency Order to buy 20 contracts with a limit price of $1.22
Initiating Member's Contra Order selling 20 contracts at $1.22
RFR sent identifying the option, side and size, with an initiating
price of $1.22 (Auction Starts)
@ 300 milliseconds MM3 response received, AOC eQuote to Sell
20 at $1.22
@ 310 milliseconds MM1 response received, AOC eQuote to Sell
20 at $1.22
@ 430 milliseconds MM4 response received, AOC eQuote to Sell
20 at $1.22
@ 450 milliseconds C1 Unrelated Order received Buy 100 at
$1.23 (Same side limit order to buy that improves (i.e., is priced
higher than) the Agency Order's initiating price causes the Auction to
conclude early)
Under this scenario, the Agency Order would be executed as follows:
8 contracts trade with the Contra Order @ $1.22 (This
satisfies their 40% participation guarantee)
4 contracts trades with MM3 @ $1.22
4 contracts trades with MM1 @ $1.22
4 contracts trade with MM4 @ $1.22 (This fills the entire
Agency Order)
C1 unrelated order then executes as follows:
a. 16 contracts trade with MM3 @ $1.22
b. 16 contracts trade with MM1 @ $1.22
c. 16 contracts trade with MM4 @ $1.22
d. Remaining contracts post to the Book as new BB paying $1.23 for 52
contracts
Example 24--Early Conclusion of Auction, IOC Marketable Against Either
Side of NBBO at Time of Arrival
NBBO = $1.20-$1.24 200 x 200
BBO = $1.20-$1.24 100 x 100
Agency Order to buy with a limit price of $1.22 for 20 contracts
Initiating Member's Contra Order selling 20 contracts at $1.22
RFR sent identifying the option, side and size, with initiating price
of $1.22 (Auction Starts)
@ 100 milliseconds MM3 response received, AOC eQuote to Sell
20 at $1.22
@ 210 milliseconds MM1 response received, AOC eQuote to Sell
20 at $1.22
@ 330 milliseconds MM4 response received, AOC eQuote to Sell
20 at $1.22
@ 400 milliseconds C1 Unrelated IOC Order received Buy 100 at
$1.24 (Same side IOC order to buy marketable against the BO causes the
Auction to conclude early)
Under this scenario, the Agency Order would be executed as follows:
1. 8 contracts trade with the Contra Order @ $1.22 (This satisfies
their 40% participation guarantee)
2. 4 contracts trades with MM3 @ $1.22
3. 4 contracts trades with MM1 @ $1.22
4. 4 contracts trade with MM4 @ $1.22 (This fills the entire Agency
Order)
5. C1 unrelated IOC order then executes as follows:
a. 16 contracts trade with MM3 @ $1.22
b. 16 contracts trade with MM1 @ $1.22
c. 16 contracts trade with MM4 @ $1.22
d. Remaining 52 contracts then executes with the posted market at the
Exchange's $1.24 BO
As described above, the PRIME is designed to work seamlessly with
the Exchange's Book and with a priority of allocation that will be
similar to the standard allocation of orders and quotes on MIAX. If
orders are received by the Exchange during the period when a PRIME
Auction is occurring, such orders will be eligible to participate in
the auction, subject to the process above. If orders received are not
executed in the Auction, the time stamps they received will be used to
determine time priority for their execution outside of the auction. The
Exchange believes that early conclusion of the Auction in these
circumstances will ensure that the Auction interacts seamlessly with
the Exchange's Book so as not to disturb the priority of orders on the
Book, while affording the PRIME Auction opportunities for price
improvement.
PRIME Solicitation Mechanism
The Exchange also proposes to provide for a price improvement
mechanism to handle solicited orders. A Member that represents agency
orders may electronically execute orders it represents as agent
(``Agency Order'') against solicited orders provided it submits both
the Agency Order and solicited orders for electronic execution into the
PRIME Solicitation Mechanism (``Solicitation Auction'') pursuant to
proposed Rule 515A(b).
A Member (the ``Initiating Member'') may initiate a Solicitation
Auction provided all of the following are met: (i) The Agency Order is
in a class designated as eligible for Solicitation Auctions as
determined by the Exchange and within the designated Solicitation
Auction order eligibility size parameters as such size parameters are
determined by the Exchange (however, the eligible order size may not be
less than 500 standard option contracts or 5,000 mini-option
contracts); (ii) each order entered into the Solicitation Auction shall
be designated as all-or-none; and (iii) the minimum price increment for
an Initiating Member's single price submission shall be $0.01
increment.\58\
---------------------------------------------------------------------------
\58\ See Proposed Rule 515A(b)(1). See also CBOE Rule 6.74B(a).
---------------------------------------------------------------------------
The Exchange proposes that the PRIME Solicitation Auction will
proceed as follows:
To initiate the Solicitation Auction, the Initiating
Member must mark the Agency Order for Solicitation Auction processing,
and specify a single price at which it seeks to cross the Agency Order
with a solicited order which shall be the ``initiating price'' for the
Solicitation Auction.\59\
---------------------------------------------------------------------------
\59\ See Proposed Rule 515A(b)(2)(i)(A). See also CBOE Rule
6.74B(b)(1)(A).
---------------------------------------------------------------------------
When the Exchange receives a properly designated Agency
Order for Solicitation Auction processing, a RFR message indicating the
option, side, size, and initiating price \60\ will be sent to all
subscribers of the Exchange's data feeds.\61\
---------------------------------------------------------------------------
\60\ The ``initiating price'' for the PRIME Solicitation Auction
is the single price specified by the Initiating Member at which it
seeks to cross the Agency Order with a solicited order. See id.
\61\ See Proposed Rule 515A(b)(2)(i)(B). As mentioned above, the
Exchange will include the RFR from the auction mechanisms in the
Exchange's data feeds at no incremental cost to subscribers. Thus,
any subscriber that chooses to receive options data, including any
Member subscriber, has the ability to respond to those RFRs. The
proposed RFR differs from CBOE which only disseminates side and size
to Trading Permit Holders that have elected to receive RFRs. See
also CBOE Rule 6.74B(b)(1)(B).
---------------------------------------------------------------------------
Members may submit responses to the Request for Responses
(specifying prices and sizes) during the response period (which shall
be 500 milliseconds).\62\ RFR responses shall be
[[Page 13344]]
an Auction or Cancel (``AOC'') order or an AOC eQuote.\63\
---------------------------------------------------------------------------
\62\ See Proposed Rule 515A(b)(2)(i)(C). The RFR response time
during solicitation auctions varies from exchange to exchange. The
CBOE RFR lasts for one second. See CBOE Rule 6.74B(b)(1)(C). In
February 2014, to determine whether the proposed duration of the RFR
would provide sufficient time to enter a RFR response, the Exchange
asked Members, including Market Makers, whether their firms ``could
respond to an Auction with a duration of 500 milliseconds.'' Of the
8 Members that responded to the question, 100% indicated that their
firm could respond in this time frame. Thus, the Exchange believes
that the proposed duration for the RFR of 500 milliseconds, would
provide a meaningful opportunity for participants on MIAX to respond
to a RFR while at the same time facilitating the prompt execution of
orders.
\63\ See Proposed Rule 515A(b)(2)(i)(C). See supra note 20. In
contrast to CBOE which does not allow responses from options market
makers from another options exchange, any MIAX Member may respond to
the RFR in the PRIME Solicitation Mechanism. See CBOE Rule
6.74B(b)(1)(C).
---------------------------------------------------------------------------
Responses shall not be visible to other Solicitation
Auction participants, and shall not be disseminated to OPRA.\64\
---------------------------------------------------------------------------
\64\ See Proposed Rule 515A(b)(2)(i)(D). See also CBOE Rule
6.74B(b)(1)(D).
---------------------------------------------------------------------------
The minimum price increment for responses shall be the
same as provided in 515A(b)(1)(iii) above.\65\
---------------------------------------------------------------------------
\65\ See Proposed Rule 515A(b)(2)(i)(E). See also CBOE Rule
6.74B(b)(1)(E).
---------------------------------------------------------------------------
A response with a size greater than the size of the Agency
Order will be capped at the size of the Agency Order.\66\
---------------------------------------------------------------------------
\66\ See Proposed Rule 515A(b)(2)(i)(F). In contrast to CBOE
which limits responses to only the size of the Agency Order,
responses that exceed the size of the Agency Order will be treated
as if they were the same size as the Agency Order for purposes of
the auction. See CBOE Rule 6.74B(b)(1)(F).
---------------------------------------------------------------------------
RFR responses may be cancelled.\67\
---------------------------------------------------------------------------
\67\ See Proposed Rule 515A(b)(2)(i)(G). See also CBOE Rule
6.74B(b)(1)(G).
---------------------------------------------------------------------------
The Solicitation Auction shall conclude at the sooner of the
following: (i) The end of the RFR period; (ii) upon receipt by the
System of an unrelated order (in the same option as the Agency Order)
on the same side or opposite side of the market from the RFR responses,
that is marketable against either the MBBO (when such quote is the
NBBO) or the RFR responses; (iii) upon receipt by the System of an
unrelated limit order (in the same option as the Agency Order and on
the opposite side of the market as the Agency Order) that improves any
RFR response; (iv) any time an RFR response matches the MBBO on the
opposite side of the market from the RFR responses; (v) any time there
is a quote lock on the Exchange pursuant to Rule 1402; or (vi) any time
there is a trading halt in the option on the Exchange.\68\
---------------------------------------------------------------------------
\68\ See Proposed Rule 515A(b)(2)(ii). See also CBOE Rules CBOE
Rule 6.74B(b)(2) and 6.74A(b)(2).
---------------------------------------------------------------------------
At the conclusion of the Solicitation Auction, the Agency Order
will be automatically executed in full and allocated subject to the
following provisions, or cancelled. The Agency Order will be executed
against the solicited order at the proposed execution price, provided
that:
The execution price must be equal to or better than the
NBBO. If the execution would take place outside the NBBO, the Agency
Order and solicited order will be cancelled; \69\
---------------------------------------------------------------------------
\69\ See Proposed Rule 515A(b)(2)(iii)(A). See also CBOE Rule
6.74B(b)(2)(A)(I).
---------------------------------------------------------------------------
There are no Priority Customer orders resting in the Book
on the opposite side of the Agency Order at the proposed execution
price.\70\
---------------------------------------------------------------------------
\70\ See Proposed Rule 515A(b)(2)(iii)(B)1). See also CBOE Rule
6.74B(b)(2)(A)(II).
---------------------------------------------------------------------------
If there are Priority Customer orders and there is
sufficient size (considering all resting orders, quotes and responses)
to execute the Agency Order, the Agency Order will be executed against
these interests and the solicited order will be cancelled. The Agency
Order will be allocated at the best price(s) pursuant to the matching
algorithm in effect for the class.\71\
---------------------------------------------------------------------------
\71\ See Proposed Rule 515A(b)(2)(iii)(B)2). In contrast to CBOE
which is silent on the priority of allocation of interest against
the Agency Order, the Exchange proposes to specify that the Agency
Order will be allocated pursuant to the matching algorithm in effect
for the class. This will ensure that the Agency Order is allocated
consistent with the standard priority of allocation on the Exchange
rules that distinguish between Priority Customers, Market Makers
with priority quotes, and Professional Interest in a manner that
will help ensure a fair and orderly market by maintaining priority
of orders and quotes while still affording the opportunity for price
improvement on each Solicitation Auction commenced on the Exchange.
See also CBOE Rule 6.74B(b)(2)(A)(II).
---------------------------------------------------------------------------
If there are Priority Customer orders and there is not
sufficient size (considering all resting orders, quotes and responses),
both the Agency Order and the solicited order will be cancelled; \72\
and
---------------------------------------------------------------------------
\72\ See Proposed Rule 515A(b)(2)(iii)(B). See also CBOE Rule
6.74B(b)(2)(A)(II).
---------------------------------------------------------------------------
There is insufficient size to execute the Agency Order at
an improved price(s).\73\
---------------------------------------------------------------------------
\73\ See Proposed Rule 515A(b)(2)(iii)(C). See also CBOE Rule
6.74B(b)(2)(A)(III).
---------------------------------------------------------------------------
If there is sufficient size (considering all resting
orders, quotes and responses) to execute the Agency Order at an
improved price(s) that is equal or better than the NBBO, the Agency
Order will execute at the improved price(s) and the solicited order
will be cancelled. The Agency Order will be allocated at the best
price(s) pursuant to the matching algorithm in effect for the
class.\74\
---------------------------------------------------------------------------
\74\ See Proposed Rule 515A(b)(2)(iii)(C)1) [sic]. In contrast
to CBOE which is silent on the priority of allocation of interest
against the Agency Order, the Exchange proposes to specify that the
Agency Order will be allocated pursuant to the matching algorithm in
effect for the class. This will ensure that the Agency Order is
allocated consistent with the standard priority of allocation on the
Exchange rules that distinguish between Priority Customers, Market
Makers with priority quotes, and Professional Interest in a manner
that will help ensure a fair and orderly market by maintaining
priority of orders and quotes while still affording the opportunity
for price improvement on each Solicitation Auction commenced on the
Exchange. See also CBOE Rule 6.74B(b)(2)(A)(III).
---------------------------------------------------------------------------
The following examples show how orders will be executed in the
Solicitation Auction.
Example 25--All-or-None (``AON'') Solicited Offer Gets Allocation
XYZ Jan 50 Calls
NBBO--1.10-1.25
BBO--1.10-1.30
Paired order to execute 2000 contracts AON (customer selling) @ 1.10
A RFR is broadcast to all subscribers showing option, size, side, and
price; timer is started
System starts the auction at the Initiating Customer price to sell @
1.10
@ 100 milliseconds Response 1 to buy @ 1.10 2000 AOC order
arrives
@ 200 milliseconds Response 2 to buy @ 1.10 2000 AOC order
arrives
@ 220 milliseconds Response 3 to buy @ 1.10 5000 AOC order
arrives
@ 432 milliseconds Response 4 to buy @ 1.20 1000 AOC order
arrives
@ 500 milliseconds auction timer expires and auction ends
Aggregate responses did not price improve AON size of Initiating
Customer Trade is allocated against Initiating Customer:
1. Solicited order buys 2000 contracts paying 1.10
Example 26--Customer Gets Price Improved for AON Size
XYZ Jan 50 Calls
NBBO--1.10-1.25
BBO--1.10-1.30
Paired order to execute 2000 contracts AON (customer selling) @ 1.10
A RFR is broadcast to all subscribers showing option, size, side, and
price; timer is started
System starts the auction at the Initiating Customer price to sell @
1.10
@ 100 milliseconds Response 1 to buy @ 1.10 2000 AOC order
arrives
@ 200 milliseconds Response 2 to buy @ 1.10 2000 AOC order
arrives
@ 220 milliseconds Response 3 to buy @ 1.10 5000 AOC order
arrives
@ 332 milliseconds Response 4 to buy @ 1.20 1000 AOC order
arrives
@ 400 milliseconds Response 5 to buy @ 1.15 2000 AOC order
arrives
@ 500 milliseconds auction timer expires and auction ends
[[Page 13345]]
Solicited contra does not participate because entire size was price
improved
Trade is allocated against Initiating Customer:
1. 1000 trade vs. Response 4 @ 120
2. 1000 trade vs. Response 5 @ 115; balance of response size is
cancelled
3. Solicited contra does not participate because entire size was price
improved
Example 27--Customer Gets Price Improved for AON Size, Unrelated
Opposite Side Order Ends Auction and Trades vs. Responses
XYZ Jan 50 Calls
NBBO--1.10-1.25
BBO--1.10-1.30
Paired order to execute 2000 contracts AON (customer selling) @ 1.10
A RFR is broadcast to all subscribers showing option, size, side, and
price; timer is started
System starts the auction at the Initiating Customer price to sell @
1.10
@ 100 milliseconds Response 1 to buy @ 1.10 2000 AOC order
arrives
@ 200 milliseconds Response 2 to buy @ 1.10 2000 AOC order
arrives
@ 220 milliseconds Response 3 to buy @ 1.10 5000 AOC order
arrives
@ 332 milliseconds Response 4 to buy @ 1.20 1000 AOC order
arrives
@ 400 milliseconds Response 5 to buy @ 1.15 2000 AOC order
arrives
@ 450 milliseconds, unrelated opposite side order arrives
buying 100 @ 1.20-(Opposite side limit order to buy that improves a RFR
response (improves Responses 1, 2, 3, and 4)\75\ causes the Auction to
conclude early)
\75\ The Commission believes that in Example 27, the reference
to Response 4 in the final bullet point should instead be to
Response 5.
---------------------------------------------------------------------------
Trade is allocated against Initiating Customer:
1. 1000 trade vs. Response 4 @ 1.20
2. 100 trade vs. unrelated opposite side order @ 1.20
3. 900 trade vs. Response 5 @ 1.15; balance of response size is
cancelled
4. Solicited contra does not participate because entire size was price
improved
Example 28--Customer Gets Price Improved for AON Size, Unrelated Same
Side Order Ends Auction and Trades vs. Responses
XYZ Jan 50 Calls
NBBO--1.10-1.25
BBO--1.10-1.30
Paired order to execute 2000 contracts AON (customer selling) @ 1.10
A RFR is broadcast to all subscribers showing option, size, side, and
price; timer is started
System starts the auction at the Initiating Customer price to sell @
1.10
@ 100 milliseconds Response 1 to buy @ 1.10 2000 AOC order
arrives
@ 200 milliseconds Response 2 to buy @ 1.10 2000 AOC order
arrives
@ 220 milliseconds Response 3 to buy @ 1.10 5000 AOC order
arrives
@ 332 milliseconds Response 4 to buy @ 1.20 1000 AOC order
arrives
@ 400 milliseconds Response 5 to buy @ 1.15 2000 AOC order
arrives
@ 450 milliseconds, unrelated same side order arrives selling
100 @ 1.10--(Same side limit order to sell that is marketable against
RFR responses causes the Auction to conclude early)
Trade is allocated against Initiating Customer:
1. 1000 trade vs. Response 4 @ 1.20
2. 1000 trade vs. Response 5 @ 1.15
3. Solicited contra does not participate because entire size was price
improved
4. Unrelated same side order trades 100 vs. Response 5 @ 1.15; balance
of response size is cancelled
Interpretations and Policies
The Exchange also proposes several Interpretations and Policies to
Proposed Rule 515A.
Interpretations and Policy .01 provides that it shall be considered
conduct inconsistent with just and equitable principles of trade, in
accordance with Rule 301, for any Member to enter orders, quotes,
Agency Orders, or other responses for the purpose of disrupting or
manipulating the Auction. Such conduct includes, but is not limited to,
engaging in a pattern or practice of submitting unrelated orders that
cause an Auction to conclude before the end of the RFR period and
engaging in a pattern of conduct where the Member submitting the Agency
Order into the PRIME breaks up the Agency Order into separate orders
for two (2) or fewer contracts for the purpose of gaining a higher
allocation percentage than the Member would have otherwise received in
accordance with the allocation procedures contained in paragraph
(a)(2)(iii) or (b)(2)(iii) above.\76\
---------------------------------------------------------------------------
\76\ See Proposed Rule 515A, Interpretations and Policies .01.
See also ISE Rule 723, Commentary .01; CBOE Rule 6.74A.02.
---------------------------------------------------------------------------
Interpretations and Policy .02 provides that the Auction and the
Solicitation Auction may only be used to execute bona fide crossing
transactions. Using the Auction and the Solicitation Auction for any
other means, including but not limited to, market or price
manipulation, shall be considered conduct inconsistent with just and
equitable principles of trade in accordance with Rule 301.\77\
---------------------------------------------------------------------------
\77\ See Proposed Rule 515A, Interpretations and Policies .02.
See also ISE Rule 723, Commentary .02.
---------------------------------------------------------------------------
Interpretations and Policy .03 provides that for executions
pursuant to Rule 515A(b), prior to entering Agency Orders into the
PRIME on behalf of customers, Initiating Members must deliver to the
customer a written notification informing the customer that his order
may be executed using the PRIME. The written notification must disclose
the terms and conditions contained in this Rule 515A and be in a form
approved by the Exchange.\78\
---------------------------------------------------------------------------
\78\ See Proposed Rule 515A, Interpretations and Policies .03.
See also CBOE Rule 6.74B.02.
---------------------------------------------------------------------------
Interpretations and Policies .04 provides that Members may enter
contra orders that are solicited. The PRIME provides a facility for
Members that locate liquidity for their customer orders. Members may
not use the Solicitation Auction to circumvent Rule 520 limiting
principal transactions. This may include, but is not limited to,
Members entering contra orders that are solicited from (a) affiliated
broker-dealers, or (b) broker-dealers with which the Member has an
arrangement that allows the Member to realize similar economic benefits
from the solicited transaction as it would achieve by executing the
customer order in whole or in part as principal. Additionally,
solicited contra orders entered by Members to trade against Agency
Orders may not be for the account of a MIAX Market Maker assigned to
the options class.\79\
---------------------------------------------------------------------------
\79\ See Proposed Rule 515A, Interpretations and Policies .04.
See also CBOE Rule 6.74B.03.
---------------------------------------------------------------------------
Interpretation and Policy .05 provides that any determinations made
by the Exchange pursuant to this Rule such as eligible classes and
order size parameters shall be communicated in a Regulatory
Circular.\80\
---------------------------------------------------------------------------
\80\ See Proposed Rule 515A, Interpretations and Policies .05.
See also CBOE Rule 6.74A.05.
---------------------------------------------------------------------------
Interpretation and Policy .06 provides that if managed interest
exists on the MIAX Book pursuant to Rule 515(c) for the option on the
opposite side of the market as the Agency Order and when the MBBO is
equal to the NBBO, the Agency Order will be automatically executed
against the managed interest if the execution would be at a price equal
to the initiating price of the Agency Order. If the Agency Order is not
fully executed after the managed interest is fully exhausted and is no
longer at a price equal to or better than the initiating price of the
Agency Order, the Auction will be initiated for the balance
[[Page 13346]]
of the order as provided in this rule. With respect to any portion of
an Agency Order that is automatically executed against managed interest
pursuant to this paragraph .06, the exposure requirements contained in
Rule 520(b) and (c) will not be satisfied just because the member
utilized the PRIME.\81\ Managed interest on the opposite side of the
market as the Agency Order pursuant to Rule 515(c) is posted at one
minimum trading increment away from the NBBO, but is available for
execution at the NBBO. In order to preserve the priority of this
managed interest against incoming RFR responses to the Auction of the
Agency Order, the System will execute the Agency Order to the extent
possible. The Exchange believes that this provision is necessary to
ensure that PRIME works seamlessly with the Exchange's Book in a manner
that would ensure a fair and orderly market by maintaining priority of
orders and quotes while still affording the opportunity for price
improvement on each Auction commenced on the Exchange.
---------------------------------------------------------------------------
\81\ See Proposed Rule 515A, Interpretations and Policies .06.
In contract to ISE which allows the Agency Order to execute against
the ISE BBO before executing a crossing transaction in the price
improvement mechanism, the Exchange proposes allowing the immediate
execution against managed interest if that execution is equal to the
initiating price, which is the stop price of the Agency Order. See
ISE Rule 723, Commentary .08.
---------------------------------------------------------------------------
Interpretation and Policy .07 provides that if managed interest
exists on the Exchange's Book pursuant to Rule 515(c) for the option on
the same side of the market as the Agency Order, the Agency Order will
be rejected by the System prior to initiating an Auction or a
Solicitation Auction.\82\ Managed interest on the same side of the
market as the Agency Order pursuant to Rule 515(c) is posted at one
minimum trading increment away from the NBBO, but is available for
execution at the NBBO. In order to preserve the priority of this
managed interest against incoming RFR responses to the Auction of the
Agency Order, the System will reject the Agency Order. The Exchange
believes that this provision is necessary to ensure that PRIME works
seamlessly with the Exchange's Book in a manner that would ensure a
fair and orderly market by maintaining priority of orders and quotes
while still affording the opportunity for price improvement on each
Auction commenced on the Exchange.
---------------------------------------------------------------------------
\82\ See Proposed Rule 515A, Interpretations and Policies .07.
---------------------------------------------------------------------------
Interpretation and Policy .08 provides that the Exchange will
submit certain data, as required by the Commission, to provide
supporting evidence that, among other things, there is meaningful
competition for all size orders within the PRIME, that there is
significant price improvement for all orders executed through the
PRIME, and that there is an active and liquid market functioning on the
Exchange outside of the PRIME. Any data which is submitted to the
Commission will be provided on a confidential basis.\83\
---------------------------------------------------------------------------
\83\ See Proposed Rule 515A, Interpretations and Policies .08;
Exhibit 3 (providing a comprehensive list of the data that the
Exchange represents that it will collect in order to aid the
Commission in its evaluation of the PRIME). See also ISE Rule 723,
Commentary .03.
---------------------------------------------------------------------------
Order Exposure Rule
Current Rule 520 prohibits Electronic Exchange Members from acting
as principal on any orders they represent as agent unless (i) agency
orders are first exposed on the Exchange for at least one (1) second,
and (ii) the Electronic Exchange Member has been bidding or offering on
the Exchange for at least one (1) second prior to receiving an agency
order that is executable against such bid or offer. In addition,
Electronic Exchange Members may not execute orders they represent as
agent on the Exchange against orders solicited from Members and non-
member broker-dealers to transact with such orders unless the
unsolicited order is first exposed on the Exchange for at least one (1)
second.
The Exchange believes that the proposed RFR period of 500
milliseconds is sufficient length to permit Members time to respond to
a PRIME Auction thereby enhancing opportunities for competition among
participants and increasing the likelihood of price improvement for the
Agency Order. Accordingly, the Exchange proposes to amend Rule 520 to
stipulate that a Member may execute as principal orders they represent
as agent, provided that the Member avails itself of the PRIME Auction,
pursuant to Rule 515A. Similarly, the Exchange proposes to amend Rule
520 to stipulate that a Member may execute orders they represent as
agent against solicited orders, provided that the Member avails itself
of the PRIME Auction, pursuant to Rule 515A. Such Agency Orders would
not be subject to the one second order exposure requirement of Rule
520, which exclusion from the one second order exposure requirement is
consistent with the treatment of similar orders at another competing
exchange.\84\
---------------------------------------------------------------------------
\84\ See BOX Options Rule 7130 IM-7140-2.
---------------------------------------------------------------------------
Section 11(a) of the Exchange Act
Section 11(a) of the Exchange Act prohibits any member of a
national securities exchange from effecting transactions on that
exchange for its own account, the account of an associated person, or
an account over which it or its associated persons exercises discretion
(``covered accounts''), unless an exception applies.\85\ Section
11(a)(1) contains a number of exceptions for principal transactions by
members and their associated persons. As set forth below, the Exchange
believes that the proposed rules for the PRIME are consistent with the
requirements in Section 11(a) and the rules thereunder.
---------------------------------------------------------------------------
\85\ 15 U.S.C. 78k(a)(1).
---------------------------------------------------------------------------
In this regard, Section 11(a)(1)(A) provides an exception from the
prohibitions in Section 11(a) for dealers acting in the capacity of
market makers. With respect to Market Makers on the Exchange, the
Exchange believes that orders sent by them for covered accounts to the
proposed PRIME would qualify for this exception from Section 11(a).
In addition to this Market Maker exception, Rule 11a2-2(T) under
the Exchange Act, known as the ``effect versus execute'' rule, provides
exchange members with an exception from Section 11(a) by permitting
them, subject to certain conditions, to effect transactions for covered
accounts by arranging for an unaffiliated member to execute the
transactions on the exchange.\86\ To comply with the ``effect versus
execute'' rule's conditions, a member: (i) Must transmit the order from
off the exchange floor; (ii) may not participate in the execution of
the transaction once it has been transmitted to the member performing
the execution; \87\ (iii) may not be affiliated with the member
executing the transaction on the floor through the facilities of the
Exchange; and (iv) with respect to an account over which the member has
investment discretion, neither the member nor its associated person may
retain any compensation in connection with effecting the transaction
except as provided in the rule.\88\
---------------------------------------------------------------------------
\86\ 17 CFR 240.11a2-2(T).
\87\ The member, however, may participate in clearing and
settling the transaction. See Securities Exchange Act Release No.
14563 (March 14, 1978), 43 FR 11542 (March 17, 1978).
\88\ 17 CFR 240.11a2-2(T).
---------------------------------------------------------------------------
The Exchange believes that orders sent by Members for covered
accounts to the proposed PRIME would qualify for this ``effect versus
execute'' exception from Section 11(a), as
[[Page 13347]]
described below. In this regard, the first condition of Rule 11a2-2(T)
is that orders for covered accounts be transmitted from off the
exchange floor. The MIAX trading system and the proposed PRIME receives
all orders electronically through remote terminals or computer-to-
computer interfaces. The Exchange represents that orders for covered
accounts from Members will be transmitted from a remote location
directly to the proposed PRIME mechanisms by electronic means. In the
context of other automated trading systems, the Commission has found
that the off-floor transmission requirement is met if a covered account
order is transmitted from a remote location directly to an exchange's
floor by electronic means.\89\ The second condition of Rule 11a2-2(T)
requires that the member not participate in the execution of its order
once the order is transmitted to the floor for execution.\90\ The
Exchange represents that, upon submission to the PRIME, an order will
be executed automatically pursuant to the rules set forth for the
mechanism. In particular, execution of an order sent to the mechanism
depends not on the Member entering the order, but rather on what other
orders are present and the priority of those orders. Thus, at no time
following the submission of an order is a Member able to acquire
control or influence over the result or timing of order execution.\91\
Rule 11a2-2(T)'s third condition requires that the order be executed by
an exchange member who is unaffiliated with the member initiating the
order. The Commission has stated that the requirement is satisfied when
automated exchange facilities, such as the PRIME, are used, as long as
the design of these systems ensures that members do not possess any
special or unique trading advantages in handling their orders after
transmitting them to the exchange.\92\ The Exchange represents that the
PRIME is designed so that no Member has any special or unique trading
advantage in the handling of its orders after transmitting its orders
to the mechanism. Rule 11a2-2(T)'s fourth condition requires that, in
the case of a transaction effected for an account with respect to which
the initiating member or an associated person thereof exercises
investment discretion, neither the initiating member nor any associated
person thereof may retain any compensation in connection with effecting
the transaction, unless the person authorized to transact business for
the account has expressly provided otherwise by written contract
referring to Section 11(a) of the Act and Rule 11a2-2(T)
thereunder.\93\ The Exchange recognizes that Members relying on Rule
11a2-2(T) for transactions effected through the PRIME must comply with
this condition of the Rule.
---------------------------------------------------------------------------
\89\ See, e.g., Securities Exchange Act Release Nos. 59154
(December 23, 2008), 73 FR 80468 (December 31, 2008) (SR-BSE-2008-
48); 57478 (March 12, 2008), 73 FR 14521 (March 18, 2008) (SR-
NASDAQ-2007-004 and SR-NASDAQ-2007-080); 49068 (January 13, 2004),
69 FR 2775 (January 20, 2004) (SR-BSE-2002-15); 15533 (January 29,
1979), 44 FR 6084 (January 31, 1979) (``1979 Release''); 14563
(March 14, 1978), 43 FR 11542 (March 17, 1978) (``1978 Release'').
\90\ The description above covers the universe of the types of
Members (i.e., Market Makers, EEMs).
\91\ The Exchange notes that a Member may cancel or modify the
order, or modify the instructions for executing the order, but that
such instructions would be transmitted from off the floor of the
Exchange. The Commission has stated that the non-participation
requirement is satisfied under such circumstances so long as such
modifications or cancellations are also transmitted from off the
floor. See 1978 Release (stating that the ``non-participation
requirement does not prevent initiating members from canceling or
modifying orders (or the instructions pursuant to which the
initiating member wishes to be executed) after the orders have been
transmitted to the executing member, provided that any such
instructions are also transmitted from off the floor'').
\92\ In considering the operation of automated execution systems
operated by an exchange, the Commission noted that, while there is
not an independent executing exchange member, the execution of an
order is automatic once it has been transmitted into the system.
Because the design of these systems ensures that members do not
possess any special or unique trading advantages in handling their
orders after transmitting them to the exchange, the Commission has
stated that executions obtained through these systems satisfy the
independent execution requirement of Rule 11a2-2(T). See 1979
Release.
\93\ See 17 CFR 240.11a2-2(T)(a)(2)(iv). In addition, Rule 11a2-
2(T)(d) requires a member or associated person authorized by written
contract to retain compensation, in connection with effecting
transactions for covered accounts over which such member or
associated persons thereof exercises investment discretion, to
furnish at least annually to the person authorized to transact
business for the account a statement setting forth the total amount
of compensation retained by the member in connection with effecting
transactions for the account during the period covered by the
statement which amount must be exclusive of all amounts paid to
others during that period for services rendered to effect such
transactions. See also 1978 (stating ``[t]he contractual and
disclosure requirements are designed to assure that accounts
electing to permit transaction-related compensation do so only after
deciding that such arrangements are suitable to their interests'').
---------------------------------------------------------------------------
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 90 days
after the publication of the approval order in the Federal Register.
The implementation date will be no later than 90 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 \94\ in general, and furthers the objectives of
Section 6(b)(5) of the Act \95\ 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.
---------------------------------------------------------------------------
\94\ 15 U.S.C. 78f(b).
\95\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
In particular, the proposal will provide market participants
auction mechanisms to execute various crossing transactions with the
opportunity for price improvement, while ensuring equal access to
exposed orders for all market participants. In this regard, PRIME and
PRIME Solicitation are intended to be beneficial to investors because
they are designed to provide investors seeking to effect option orders
while providing opportunities to access additional liquidity and
receive price improvement. The Exchange believes the proposed rules are
appropriate in that price improvement auctions are widely recognized by
market participants as invaluable, both as a tool to access liquidity,
and a mechanism to help meet their best execution obligations. The
proposed rules will provide the opportunity for an efficient mechanism
for carrying out these strategies. In addition, PRIME and PRIME
Solicitation promote equal access by providing Members that subscribe
to the Exchange's data feeds with the opportunity to interact with
orders in PRIME and PRIME Solicitation. In this regard, any Member can
subscribe to the options data provided through the Exchange's data
feeds.
The Exchange believes that the general provisions regarding the
price improvement auction provide a simple, clear framework that will
enable the efficient trading of options in a manner consistent with
other options exchanges. Further, this clarity in how the price
improvement auction functions and its consistency with other exchanges
will help promote a fair and orderly national options market system.
The Exchange believes that the proposed rules will result in efficient
trading and reduce the risk for investors that seek access to
additional liquidity
[[Page 13348]]
and price improvement by providing additional opportunities to do so.
The proposed priority of allocation rules in PRIME and PRIME
Solicitation are designed to be similar to the existing priority rules
that distinguish between Priority Customers, Market Makers with
priority quotes, and Professional Interest in a manner that will help
ensure a fair and orderly market by maintaining priority of orders and
quotes while still affording the opportunity for price improvement on
each Auction commenced on the Exchange. In addition, by keeping the
priority of allocation of PRIME and PRIME Solicitation similar in this
way to the standard allocation, the proposal reduces the ability of
market participants to misuse the Auction to circumvent the standard
priority rules in a manner that is designed to prevent fraudulent and
manipulative acts and practices, and to promote just and equitable
principles of trade on the Exchange. The proposed execution and
priority rules will allow option orders to interact with interest in
the MIAX Book and, conversely, all interest on the MIAX Book to
interact with option orders in the price improvement mechanism in an
efficient and orderly manner. The Exchange also believes that this
interaction of orders will benefit investors by increasing the
opportunity for option orders to receive execution, while also
enhancing execution quality for the orders on the MIAX Book.
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. PRIME and PRIME Solicitation
are designed to increase competition for order flow on the Exchange in
a manner intended to be beneficial to investors seeking to effect
option orders with an opportunity to access additional liquidity and
receive price improvement. 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.
The Exchange believes that the proposal to offer price improvement
auctions on the Exchange is pro-competitive by providing market
participants with functionality that is similar to that of other
options exchanges.
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 the 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. Among other things, the Commission
notes that MIAX's proposed rule text in this filing is similar to and
based on the rules in place at other options exchanges, in particular
CBOE, with a few provisions that reflect the unique structure of the
MIAX market. As such, MIAX likely intends that its proposed PRIME
auction will operate in a manner similar to those other auction
mechanisms. Despite the similarity in rule text, however, ambiguities
in the rule may nevertheless exist concerning how the auction
mechanisms would function in a live trading environment.
Although MIAX has provided guidance in this respect through
numerous examples in Section III of this notice, the Commission
requests comments on whether the MIAX's proposed rule text is
sufficiently clear and precise regarding how the proposed PRIME
auctions would operate and how orders would interact within the
auctions as well as how the auctions would interact with MIAX's market.
Among other things, the Commission requests comment on the following
issues:
1. Are the proposed rules sufficiently clear and detailed as to how
and at what price the Agency Order could be stopped (either in single-
price or auto match auctions)?
2. In the case of an unrelated order that arrives to MIAX during
the auction period on either the side of the Agency Order or the side
of the RFR Responses (when it is marketable or when it is not, either
against the BBO, NBBO, or an RFR Response), is the proposed rule text
sufficiently clear regarding the operation of the proposed PRIME
Auction and its outcomes?
3. Are the proposed allocation provisions for the price improvement
mechanism as well as the solicitation mechanism sufficiently detailed
and clear?
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-2014-09 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-2014-09. 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 20549-1090, on official business days between the hours of 10:00
a.m. and 3:00 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly.
All submissions should refer to File Number SR-MIAX-2014-09 and
should be submitted on or before March 31,
[[Page 13349]]
2014. For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\96\
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\96\ 17 CFR 200.30-3(a)(12).
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-05029 Filed 3-7-14; 8:45 am]
BILLING CODE 8011-01-P
