Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing of a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Adopt Rule 519A Risk Protection Monitor, 4605-4610 [2015-01510]

Download as PDF Federal Register / Vol. 80, No. 18 / Wednesday, January 28, 2015 / Notices • Send an email to rule-comments@ sec.gov. Please include File No. SR–ISE Gemini-2015–02 on the subject line. SECURITIES AND EXCHANGE COMMISSION Paper Comments [Release No. 34–74118; File No. SR–MIAX– 2015–03] • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–ISE Gemini–2015–02. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–ISE Gemini–2015–02 and should be submitted on or before February 18, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Brent J. Fields, Secretary. [FR Doc. 2015–01507 Filed 1–27–15; 8:45 am] mstockstill on DSK4VPTVN1PROD with NOTICES BILLING CODE 8011–01–P Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing of a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Adopt Rule 519A Risk Protection Monitor January 22, 2015. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on January 8, 2015, Miami International Securities Exchange LLC (‘‘MIAX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. On January 20, 2015, the Exchange filed Amendment No.1 to the proposal.3 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to adopt new risk protections for orders. The text of the proposed rule change is available on the Exchange’s Web site at https://www.miaxoptions.com/filter/ wotitle/rule_filing, at MIAX’s principal office, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 In Amendment No. 1, the Exchange proposed changes to the Form 19b–4, Exhibit 1, and Exhibit 5 to clarify that once triggered, the Risk Protection Monitor described therein will apply to orders in all series in all classes of options from the Exchange Member. 2 17 17 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 16:41 Jan 27, 2015 Jkt 235001 PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 4605 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 Rule 519A, Risk Protection Monitor, to provide new risk protections for orders entered by Members on the Exchange. The proposed functionality is similar to the existing Aggregate Risk Protections available to Market Makers that provide risk protections for Market Maker quotations, however it will apply to orders entered by Members.4 The Exchange also proposes to codify existing functionality regarding the Aggregate Risk Manager to provide additional transparency in the Rule to Members regarding the current functionality. The Exchange proposes that the MIAX System will maintain a counting program (‘‘counting program’’) for each participating Member that will count the number of orders entered and the number of contracts traded via an order entered by a Member on the Exchange within a specified time period that has been established by the Member (the ‘‘specified time period’’). The maximum duration of the specified time period will be established by the Exchange and announced via a Regulatory Circular. Members may establish an Allowable Order Rate 5 and/or an Allowable Contract Execution Rate 6. When a Member’s order is entered or when an execution of a Member’s order occurs, the System will look back over the specified time period to determine whether the order entered or the execution that occurred triggers the Risk Protection Monitor.7 Members may establish whether the Risk Protection Monitor, when triggered, will (i) prevent the System from receiving any new orders in all series in all classes from the Member; or (ii) prevent the System from receiving any new orders in all series in all classes from the Member and cancel all existing Day orders in all series in all classes from the Member; or 4 See Rule 612. The proposed Risk Protection Monitor is similar in that it is based on a counting program that triggers a risk protection if a certain predetermined threshold is reached. 5 The Allowable Order Rate is the number of orders entered during the specific time period that has been established by the Member. 6 The Allowable Contract Execution Rate is the number of contracts executed during the specific time period that has been established by the Member. 7 The Exchange notes that the specific time period does not need to be the same for both the Allowable Order Rate and Allowable Contract Execution Rate (i.e., there can be one specific time period for Allowable Order Rate and a different specific time period for Allowable Contract Execution Rate). E:\FR\FM\28JAN1.SGM 28JAN1 4606 Federal Register / Vol. 80, No. 18 / Wednesday, January 28, 2015 / Notices (iii) send a notification that the Risk Protection Monitor has been triggered without any further preventative or cancellation action by the System.8 The System will trigger the Risk Protection Monitor when the counting program has determined either (i) that a Member has entered during the specified time period a number of orders exceeding their Allowable Order Rate, or (ii) that a Member has executed during the specified time period a number of contracts exceeding their Allowable Contract Execution Rate.9 Once engaged, the Risk Protection Monitor will then automatically either prevent the System from receiving any new orders in all series in all classes from the Member, and cancel all existing Day orders in all series in all classes from the Member (if designated by the Member’s instructions), or send a notification without any further preventative or cancellation action by the System. When engaged, the Risk Protection Monitor will still allow the Member to interact with existing orders entered prior to exceeding the Allowable Order Rate or the Allowable Contract Execution Rate, including sending cancel order messages and receiving trade executions from those orders. The Risk Protection Monitor shall remain engaged until the Member communicates with the Help Desk to enable the acceptance of new orders.10 The following examples show how the proposed Risk Protection Monitor would operate. Example 1. BD1 designates the following settings: 1. Allowable Order Rate = 500 orders/ per 2 second. Reject new orders. 2. Allowable Contract Execution Rate = 1000 contracts/per 2 seconds. Reject new orders and cancel day orders. Time Event @100 milliseconds ................................................................. @110 milliseconds ................................................................. @200 milliseconds ................................................................. @225 milliseconds ................................................................. @250 milliseconds ................................................................. @350 milliseconds ................................................................. @500 milliseconds ................................................................. @1000 milliseconds ............................................................... @1500 milliseconds ............................................................... @1700 milliseconds ............................................................... @2000 milliseconds ............................................................... BD1 enters 10 orders ............................................................ 50 contracts execute ...................................................... BD1 enters 10 orders ............................................................ 355 contracts execute .................................................... 45 contracts execute ...................................................... 150 contracts execute .................................................... BD1 enters 10 orders ............................................................ BD1 enters 200 orders .......................................................... BD1 enters 200 orders .......................................................... BD1 enters 50 orders ............................................................ BD1 enters 50 orders ............................................................ • 530 orders over 2 seconds exceeds the Allowable Order Rate—triggers the RPM • Once engaged, the System will reject new orders from BD1 until BD1 contacts the Help Desk to request re- @2200 milliseconds ............................................................... @2500 milliseconds ............................................................... @3000 milliseconds ............................................................... • 1100 contract executions over 2 seconds exceeds the Allowable Contract Execution Rate—triggers RPM • Once engaged, the System will then reject new orders and cancel day orders Count total enabling the acceptance of new orders from BD1. • Orders on the book, may continue to trade. 300 contracts execute ........................................................... 500 contracts execute ........................................................... 300 contracts execute ........................................................... from BD1 until BD1 contacts the Help Desk to request re-enabling the acceptance of new orders for BD1. Example 2. BD1 designates the following settings: 10 orders. 50 contracts 20 orders. 405 contracts. 450 contracts. 600 contracts. 30 orders. 230 orders. 430 orders. 480 orders. 530 orders. 850 contracts. 800 contracts. 1100 contracts. 1. Allowable Order Rate = 500 orders/ per 2 second. Reject new orders. 2. Allowable Contract Execution Rate = 6,000 contracts/per 2 seconds. Reject new orders and cancel day orders. Event Count total @100 milliseconds ................................................................. @110 milliseconds ................................................................. @200 milliseconds ................................................................. @225 milliseconds ................................................................. @250 milliseconds ................................................................. @350 milliseconds ................................................................. @500 milliseconds ................................................................. @1000 milliseconds ............................................................... @1500 milliseconds ............................................................... @1700 milliseconds ............................................................... @2000 milliseconds ............................................................... mstockstill on DSK4VPTVN1PROD with NOTICES Time BD1 enters 10 orders ............................................................ 5050 contracts execute .................................................. BD1 enters 10 orders ............................................................ 355 contracts execute .................................................... 45 contracts execute ...................................................... 150 contracts execute .................................................... BD1 enters 10 orders ............................................................ BD1 enters 200 orders .......................................................... BD1 enters 200 orders .......................................................... BD1 enters 50 orders ............................................................ BD1 enters 50 orders ............................................................ 10 orders. 5050 contracts. 20 orders. 5405 contracts. 5450 contracts. 5600 contracts. 30 orders. 230 orders. 430 orders. 480 orders. 530 orders. 8 See Proposed Rule 519A(a). As discussed below, the Risk Protection Monitor will not cancel any existing GTC orders. GTC Orders will remain in the System available for trading when the Risk Protection Monitor is engaged. See Proposed Rule 519A, Interpretations and Policies .02. VerDate Sep<11>2014 16:41 Jan 27, 2015 Jkt 235001 9 The Exchange does not believe that establishing a minimum or maximum Allowable Order Rate or Allowable Contract Execution Rate is necessary at this time. The Exchange notes that use of the Risk Protection Monitor is optional and not mandatory. If, after some time of gaining experience with the Risk Protection Monitor, the Exchange sees a need PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 for either minimums or maximums in the interest of maintaining fair and orderly markets, the Exchange will submit a subsequent 19b–4 rule filing as necessary. 10 See Proposed Rule 519A(b). The communication from the Member to the Help Desk can either be via email or phone. E:\FR\FM\28JAN1.SGM 28JAN1 Federal Register / Vol. 80, No. 18 / Wednesday, January 28, 2015 / Notices • 530 orders over 2 seconds exceeds the Allowable Order Rate—triggers the RPM • Once engaged, the System will reject new orders from BD1 until BD1 contacts the Help Desk to request re- @2200 milliseconds ............................................................... @2500 milliseconds ............................................................... @3000 milliseconds ............................................................... • 6100 contract executions over 2 seconds exceeds the Allowable Contract Execution Rate—triggers RPM • Once engaged, the System will then reject new orders and cancel day orders from BD1 until BD1 contacts the Help Desk to request re-enabling the acceptance of new orders for BD1. In Examples 1 and 2, the Exchange notes that contracts continued to execute even though the Risk Protection mstockstill on DSK4VPTVN1PROD with NOTICES @100 milliseconds ................................................................. @110 milliseconds ................................................................. @200 milliseconds ................................................................. @225 milliseconds ................................................................. @250 milliseconds ................................................................. @350 milliseconds ................................................................. @500 milliseconds ................................................................. @1000 milliseconds ............................................................... @1500 milliseconds ............................................................... @1700 milliseconds ............................................................... @2200 milliseconds ............................................................... @2200 milliseconds ............................................................... @2500 milliseconds ............................................................... @3050 milliseconds ............................................................... @3060 milliseconds ............................................................... • 1100 contract executions over 2 seconds exceeds the Allowable Contract Execution Rate—triggers RPM • Once engaged, the System will then reject new orders and cancel day orders from BD1 until BD1 contacts the Help Desk to request re-enabling the acceptance of new orders for BD1. The Exchange also proposes Interpretation and Policy .01 to provide that Members may elect to group with other Members to enable the Risk Protection Monitor to apply collectively to the group.11 The Members in the group must designate a group owner. Specifically, Members may elect to group with other Members to enable the Risk Protection Monitor to apply collectively to the group, provided that either: (i) There is at least 75% common ownership between the firms as reflected on each firm’s Form BD, Schedule A; or (ii) there is written authorization signed by all Members in the group and the group owner maintains exclusive control of all orders sent to the Exchange from each MPID 11 See Proposed Rule 519A, Interpretations and Policies .01. VerDate Sep<11>2014 16:41 Jan 27, 2015 Jkt 235001 12 See Proposed Rule 519A, Interpretations and Policies .01(a). 13 See Proposed Rule 519A, Interpretations and Policies .01(b). 14 See id. Frm 00079 Fmt 4703 Sfmt 4703 850 contracts. 800 contracts. 6100 contracts. all existing Day orders in all series in all classes from the Member if the orders entered equal or exceed the Allowable Order Rate. Example 3. BD1 designates the following settings: 1. Allowable Order Rate = 500 orders/ per 2 second. Reject new orders. 2. Allowable Contract Execution Rate = 1000 contracts/per 2 seconds. Reject new orders and cancel day orders. BD1 enters 10 orders ............................................................ 50 contracts execute ...................................................... BD1 enters 10 orders ............................................................ 355 contracts execute .................................................... 45 contracts execute ...................................................... 150 contracts execute .................................................... BD1 enters 10 orders ............................................................ BD1 enters 200 orders .......................................................... BD1 enters 200 orders .......................................................... BD1 enters 50 orders ............................................................ BD1 enters 10 orders ............................................................ 300 contracts execute .................................................... 500 contracts execute .................................................... BD1 enters 150 orders .......................................................... 300 contracts execute .................................................... within the group.12 A Member may also elect to group with the Member’s clearing firm.13 A clearing firm may also elect to group several Members to enable the Risk Protection Monitor to apply collectively to the group with the clearing firm designated as the group owner, provided that the clearing firm serves as the clearing firm for all the MPIDs of the group and there is written authorization signed by the clearing firm and each Member of the group. A clearing firm that has grouped several Members may only receive warning messages pursuant to Interpretation and Policy .03 of this Rule, unless one Member of the group maintains exclusive control of all orders routed through all MPIDs within the group.14 The Exchange believes that the threshold of at least 75% common ownership between the firms as reflected on each firm’s Form BD, Schedule A, is reasonable and appropriate for determining adequate PO 00000 enabling the acceptance of new orders from BD1. • Orders on the book, may continue to trade. 300 contracts execute ........................................................... 500 contracts execute ........................................................... 5300 contracts execute ......................................................... Monitor was triggered because the orders received during the specified time period exceeded the Allowable Order Rate. If BD1 wishes to mitigate the risk of additional executions after the Risk Protection Monitor is triggered in scenarios like Examples 1 or 2, BD1 could designate that the Risk Protection Monitor prevent the System from receiving any new orders in all series in all classes from the Member and cancel 4607 10 orders 50 contracts 20 orders 405 contracts 450 contracts 600 contracts 30 orders 230 orders 430 orders 480 orders 480 orders 850 contracts 800 contracts 410 orders 1100 contracts affiliation between two or more Member firms. The Exchange notes that this threshold level has been widely adopted by options exchanges in the context of aggregated trading volume of affiliated firms for volume based fee/rebate programs.15 The written authorization and exclusive control requirement helps ensure that the Risk Protection Monitor does not apply to Members in a group or orders without adequate permission in the manner that is designed to prevent fraudulent and manipulative acts and practices, and to foster cooperation and coordination with persons engaged in facilitating transaction in securities. The Risk Protection Monitor for groups will operate in the same manner as described in paragraphs (a) and (b) of Proposed Rule 519A, except that: (i) The counting program will count the number of orders entered and the number of contracts traded resulting 15 See e.g., MIAX Options Fee Schedule, Sections 1)a)i), 1)a)iii); CBOE Fees Schedule, p. 3 (Volume Incentive Program), p. 13 (Liquidity Provider Sliding Scale), p. 13 [sic] (Clearing Trading Permit Holder Fee Cap); NASDAQ Options Market, Chapter XV, Section 2(1). E:\FR\FM\28JAN1.SGM 28JAN1 4608 Federal Register / Vol. 80, No. 18 / Wednesday, January 28, 2015 / Notices from an order entered by all MPIDs in the group collectively; (ii) the System will trigger the Risk Protection Monitor when the group collectively exceeds either the Allowable Order Rate or Allowable Contract Execution Rate for the group; (iii) once engaged, the Risk Protection Monitor will then either automatically prevent the System from receiving any new orders in all series in all classes from each MPID in the group, and, if designated by the group owner’s instructions, cancel all existing Day orders in all series in all classes from the group, or send a notification without any further preventative or cancellation action by the System; and (iv) only the designated group owner may request through the Help Desk to enable the acceptance of new orders for all the Members of the group.16 The following examples show how the proposed Risk Protection Monitor would operate for groups. Example 4. BD1, BD2, BD3 elect to group with each other, with BD1 as the group owner. BD1, BD2, BD3 designate the following settings: 1. Allowable Order Rate = 500 orders/ per 2 second. Reject new orders. 2. Allowable Contract Execution Rate = 1000 contracts/per 2 seconds. Reject new orders and cancel day orders. Time Event @100 milliseconds ................................................................. @110 milliseconds ................................................................. @200 milliseconds ................................................................. @225 milliseconds ................................................................. @250 milliseconds ................................................................. @350 milliseconds ................................................................. @500 milliseconds ................................................................. @1000 milliseconds ............................................................... @1500 milliseconds ............................................................... @1700 milliseconds ............................................................... @2000 milliseconds ............................................................... BD1 enters 10 orders ............................................................ 50 contracts execute ...................................................... BD2 enters 10 orders ............................................................ 355 contracts execute for BD1 ...................................... 45 contracts execute for BD2 ........................................ 150 contracts execute for BD1 ...................................... BD3 enters 10 orders ............................................................ BD1 enters 200 orders .......................................................... BD2 enters 200 orders .......................................................... BD3 enters 50 orders ............................................................ BD3 enters 50 orders ............................................................ • 530 orders over 2 seconds exceeds the Allowable Order Rate for the group—triggers the RPM • Once engaged, the System will reject new orders from BD1, BD2, BD3 until BD1 contacts the Help Desk to @2200 milliseconds ............................................................... @2500 milliseconds ............................................................... @3000 milliseconds ............................................................... • 1100 contract executions over 2 seconds exceeds the Allowable Contract Execution Rate for the group—triggers RPM • Once engaged, the System will then reject new orders and cancel day orders from BD1, BD2, BD3 until BD1 contacts Count total request re-enabling the acceptance of new orders from BD1, BD2, BD3. • Orders on the book, may continue to trade. 300 contracts execute for BD3 .............................................. 500 contracts execute for BD2 .............................................. 300 contracts execute for BD1 .............................................. the Help Desk to request re-enabling the acceptance of new orders for BD1, BD2, BD3. Example 5. BD1 elects to group with their clearing firm CC1, with CC1 as the @100 milliseconds .......................................... @110 milliseconds .......................................... @200 milliseconds .......................................... @225 milliseconds .......................................... @250 milliseconds .......................................... @350 milliseconds .......................................... @500 milliseconds .......................................... @1000 milliseconds ........................................ @1500 milliseconds ........................................ @1700 milliseconds ........................................ @2200 milliseconds ........................................ @2200 milliseconds ........................................ @2500 milliseconds ........................................ @3050 milliseconds ........................................ @3060 milliseconds ........................................ mstockstill on DSK4VPTVN1PROD with NOTICES Event BD1 enters 10 orders ................................................................................ 50 contracts execute .......................................................................... BD1 enters 10 orders ................................................................................ 355 contracts execute ........................................................................ 45 contracts execute .......................................................................... 150 contracts execute ........................................................................ BD1 enters 10 orders ................................................................................ BD1 enters 200 orders .............................................................................. BD1 enters 200 orders .............................................................................. BD1 enters 50 orders ................................................................................ BD1 enters 10 orders ................................................................................ 300 contracts execute ........................................................................ 500 contracts execute ........................................................................ BD1 enters 150 orders .............................................................................. 300 contracts execute ........................................................................ • Once engaged, the System will then reject new orders and cancel day orders from BD1 until CC1 contacts the Help Count total 16:41 Jan 27, 2015 Jkt 235001 PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 10 orders. 50 contracts. 20 orders. 405 contracts. 450 contracts. 600 contracts. 30 orders. 230 orders. 430 orders. 480 orders. 480 orders. 850 contracts. 800 contracts. 410 orders. 1100 contracts. Desk to request re-enabling the acceptance of new orders from BD1. 16 See Proposed Rule 519A, Interpretations and Policies .01(c). VerDate Sep<11>2014 850 contracts. 800 contracts. 1100 contracts. group owner. BD1, CC1 designate the following settings: 1. Allowable Order Rate = 500 orders/ per 2 second. Reject new orders. 2. Allowable Contract Execution Rate = 1000 contracts/per 2 seconds. Reject new orders and cancel day orders. Time • 1100 contract executions over 2 seconds exceeds the Allowable Contract Execution Rate—triggers RPM 10 orders 50 contracts 20 orders 405 contracts 450 contracts 600 contracts 30 orders 230 orders 430 orders 480 orders 530 orders E:\FR\FM\28JAN1.SGM 28JAN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 80, No. 18 / Wednesday, January 28, 2015 / Notices The Exchange believes that the ability for affiliated Members to collectively monitor and manage their risk from excessive order or execution rates that may be caused by a system error or market event, will provide a valuable risk management tool for such Members that have shared order exposure and execution risk across affiliated entities. The Exchange believes that allowing Members to group with their clearing firm will help both Members and clearing firms monitor and manage order exposure and execution risk that may be caused from a system or other error or market event in a manner that removes impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, protects investors and the public interest. The Exchange proposes Interpretation and Policy .02 to provide that PRIME Orders, PRIME Solicitation Orders 17 and GTC Orders do not participate in the Risk Protection Monitor. However, the System does include such PRIME Orders, PRIME Solicitation Orders and GTC Orders in the counting program for purposes of this Rule. PRIME Orders, PRIME Solicitation Orders and Customer-to-Customer Orders will each be counted as two orders for the purpose of calculating the Allowable Order Rate. Once engaged, the Risk Protection Monitor will not cancel any existing PRIME Orders, PRIME Solicitation Orders, AOC orders, OPG orders, or GTC orders. PRIME Orders, PRIME Solicitation Orders and GTC Orders will remain in the System available for trading when the Risk Protection Monitor is engaged.18 The Exchange believes the proposed treatment of PRIME Orders, PRIME Solicitation Orders, AOC orders, OPG orders, and GTC Orders is an equitable approach to handling the unique characteristics of these order types within the Risk Protection Monitor mechanism. Separately, the Exchange believes the proposed treatment of paired orders in the form of PRIME Orders and PRIME Solicitation Orders processed pursuant to Rule 515A versus standard Agency Orders processed pursuant to Rule 515, is an equitable approach to handling the unique characteristics of PRIME Orders and PRIME Solicitation Orders within the Risk Protection Monitor mechanism. The Exchange notes that PRIME Orders 17 The terms ‘‘PRIME Order’’ and ‘‘PRIME Solicitation Order’’ refer to a two-sided paired order that consists of both an Agency Order and a Contraside Order that is submitted to the Exchange pursuant to Rule 515A. 18 See Proposed Rule 519A, Interpretations and Policies .02. VerDate Sep<11>2014 16:41 Jan 27, 2015 Jkt 235001 submitted pursuant to Rule 515A by operation of the ‘‘stop’’ have been guaranteed an execution at the time of acceptance into the System; therefore, the Exchange does not believe that such orders should be cancelled when the Risk Protection Monitor is engaged, since the execution effectively already happened. In contrast, standard Agency Orders that a Member is representing as a principal are processed according to Rule 515 in the same manner as other incoming orders and are not been guaranteed an execution at the time of acceptance in the System, thus the Exchange believes that standard Agency Orders should be treated the same as other orders and be subject to the protections of the Risk Protection Monitor. The Exchange proposes Interpretation and Policy .03 to provide that Members may elect to receive warning notifications indicating that a specific percentage of an Allowable Order Rate or an Allowable Contract Execution Rate has been met.19 The Exchange proposes Interpretation and Policy .04 to provide that at the request of a Member or in order to maintain a fair and orderly market the Help Desk may pause and restart the specified time period used by the counting program or clear and reset any calculated Allowable Order Rate or Allowable Contract Execution Rate.20 The Exchange also proposes to amend Rule 612 to codify existing functionality regarding the Aggregate Risk Manager to provide additional transparency in the Rule to Members regarding the current functionality. Currently, the Rule provides that after the System engages the Aggregate Risk Manager, that the Aggregate Risk Manager will automatically remove the Market Maker’s quotations from the Exchange’s disseminated quotation in all series of that particular option class until the Market Maker submits a new revised quotation. However, submitting a new revised quotation alone is not currently enough in this situation. The Market Maker must also send a notification to the System of the intent to reengage quoting. The Exchange proposes to amend the Rule to codify this additional requirement, of sending a notification to the System of the intent to reengage quoting, in order to eliminate potential confusion on behalf of Market Makers. In addition, the Exchange proposes to adopt a new Interpretation and Policy .01 to Rule 612 to codify existing functionality regarding the Aggregate Risk Manager to provide additional transparency in the Rule to Members regarding the current functionality. The Exchange proposes to specify that eQuotes do not participate in the Aggregate Risk Manager. An eQuote is a quote with a specific time in force that does not automatically cancel and replace a previous Standard quote or eQuote. An eQuote can be cancelled by the Market Maker at any time, or can be replaced by another eQuote that contains specific instructions to cancel an existing eQuote.21 The System does not include contracts traded through the use of an eQuote in the counting program for purposes of this Rule. eQuotes will remain in the System available for trading when the Aggregate Risk Manager is engaged.22 The proposed changes to the Aggregate Risk Manager are designed to protect investors and the public interest by codifying the protections that apply to quotation orders that help Market Makers avoid quotation activity that exceeds their established risk thresholds on the Exchange. In addition, the Exchange believes that the proposed amendment removes impediments to and perfects the mechanisms of a free and open market and a national market system and, in general, protects investors and the public interest by helping to eliminate potential confusion on behalf of Market Makers by clearly stating the System’s functionality with regard to quotations that trigger the Aggregate Risk Manager protections. 2. Statutory Basis MIAX believes that its proposed rule change is consistent with Section 6(b) of the Act 23 in general, and furthers the objectives of Section 6(b)(5) of the Act 24 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. The Exchange believes that Members will benefit from the proposed new Risk Protection Monitor. Members are vulnerable to the risk from system or other error or a market event, that may 21 See 19 See Proposed Rule 519A, Interpretations and Policies .03. 20 See Proposed Rule 519A, Interpretations and Policies .04. PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 4609 Rule 517(a)(2). Proposed Rule 612, Interpretations and Policies .01. 23 15 U.S.C. 78f(b). 24 15 U.S.C. 78f(b)(5). 22 See E:\FR\FM\28JAN1.SGM 28JAN1 mstockstill on DSK4VPTVN1PROD with NOTICES 4610 Federal Register / Vol. 80, No. 18 / Wednesday, January 28, 2015 / Notices cause them to send a large number of orders or receive multiple, automatic executions before they can adjust their order exposure in the market. Without adequate risk management tools, such as the Risk Protection Monitor, Members could reduce the amount of order flow and liquidity that they provide to the market. Such actions may undermine the quality of the markets available to customers and other market participants. Accordingly, the proposed Risk Protection Monitor is designed to encourage Members to submit additional order flow and liquidity to the Exchange, thereby removing impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, protecting investors and the public interest. In addition, providing Members with more tools for managing risk will facilitate transactions in securities because, as noted above, the Members will have more confidence that protections are in place that reduce the risks from potential system errors and market events. As a result, the new functionality has the potential to promote just and equitable principles of trade. The written authorization and exclusive control requirement helps ensure that the Risk Protection Monitor does not apply to Members in a group or orders without adequate permission in the manner that is designed to prevent fraudulent and manipulative acts and practices, and to foster cooperation and coordination with persons engaged in facilitating transaction in securities. The Exchange believes the proposed treatment of PRIME Orders, PRIME Solicitation Orders, AOC orders, OPG orders, and GTC Orders is an equitable approach to handling the unique characteristics of these order types within the Risk Protection Monitor mechanism. Further, the Exchange believes the proposed treatment of paired orders in the form of PRIME Orders and PRIME Solicitation Orders processed pursuant to Rule 515A versus standard Agency Orders processed pursuant to Rule 515, is an equitable approach to handling the unique characteristics of Agency Orders within the Risk Protection Monitor mechanism. The proposed changes to the Aggregate Risk Manager are designed to protect investors and the public interest by codifying the protections that apply to quotations that help Market Makers avoid executions from quotation activity that exceeds their established risk thresholds on the Exchange. In addition, the Exchange believes that the proposed amendment removes impediments to VerDate Sep<11>2014 16:41 Jan 27, 2015 Jkt 235001 and perfects the mechanisms of a free and open market and a national market system and, in general, protects investors and the public interest by helping to eliminate potential confusion on behalf of Market Makers by clearly stating the System’s functionality with regard to quotations that trigger the Aggregate Risk Manager protections. 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. Rather, the Exchange believes that the new Risk Protection Monitor help promote fair and order markets. The Exchange believes the proposed changes will not impose any burden on intra-market competition because the use of the Risk Protection Monitor is voluntary and is available to all Members. The Exchange notes that it operates in a highly competitive market in which market participants can readily direct order flow to competing venues who offer similar functionality. As to inter-market competition, the Exchange believes that the proposed risk protections should promote competition for such functionality that is designed to protect market participants from system errors or market events that may cause them to send a large number of orders or receive multiple, automatic executions before they can adjust their order exposure in the market. 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 up to 90 days (i) as the Commission may designate 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 will: (a) by order approve or disapprove such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be disapproved IV. Solicitation of Comments Interested persons are invited to submit written data, views, and PO 00000 Frm 00082 Fmt 4703 Sfmt 9990 arguments concerning the foregoing, including whether the proposed rule change, as modified by Amendment No. 1, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– MIAX–2015–03 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–MIAX–2015–03. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal offices 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– 2015–03, and should be submitted on or before February 18, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.25 Brent J. Fields, Secretary. [FR Doc. 2015–01510 Filed 1–27–15; 8:45 am] BILLING CODE 8011–01–P 25 17 E:\FR\FM\28JAN1.SGM CFR 200.30–3(a)(12). 28JAN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 80, Number 18 (Wednesday, January 28, 2015)]
[Notices]
[Pages 4605-4610]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-01510]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74118; File No. SR-MIAX-2015-03]

Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing of a Proposed Rule Change, as Modified
by Amendment No. 1 Thereto, To Adopt Rule 519A Risk Protection Monitor

January 22, 2015.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on January 8, 2015, Miami International Securities Exchange LLC
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
On January 20, 2015, the Exchange filed Amendment No.1 to the
proposal.\3\ The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, the Exchange proposed changes to the
Form 19b-4, Exhibit 1, and Exhibit 5 to clarify that once triggered,
the Risk Protection Monitor described therein will apply to orders
in all series in all classes of options from the Exchange Member.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The Exchange proposes to adopt new risk protections for orders.
The text of the proposed rule change is available on the Exchange's
Web site at https://www.miaxoptions.com/filter/wotitle/rule_filing, at
MIAX's principal office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
The Exchange proposes to adopt Rule 519A, Risk Protection Monitor,
to provide new risk protections for orders entered by Members on the
Exchange. The proposed functionality is similar to the existing
Aggregate Risk Protections available to Market Makers that provide risk
protections for Market Maker quotations, however it will apply to
orders entered by Members.\4\ The Exchange also proposes to codify
existing functionality regarding the Aggregate Risk Manager to provide
additional transparency in the Rule to Members regarding the current
functionality.
---------------------------------------------------------------------------

\4\ See Rule 612. The proposed Risk Protection Monitor is
similar in that it is based on a counting program that triggers a
risk protection if a certain predetermined threshold is reached.
---------------------------------------------------------------------------

The Exchange proposes that the MIAX System will maintain a counting
program (``counting program'') for each participating Member that will
count the number of orders entered and the number of contracts traded
via an order entered by a Member on the Exchange within a specified
time period that has been established by the Member (the ``specified
time period''). The maximum duration of the specified time period will
be established by the Exchange and announced via a Regulatory Circular.
Members may establish an Allowable Order Rate \5\ and/or an Allowable
Contract Execution Rate \6\. When a Member's order is entered or when
an execution of a Member's order occurs, the System will look back over
the specified time period to determine whether the order entered or the
execution that occurred triggers the Risk Protection Monitor.\7\
Members may establish whether the Risk Protection Monitor, when
triggered, will (i) prevent the System from receiving any new orders in
all series in all classes from the Member; or (ii) prevent the System
from receiving any new orders in all series in all classes from the
Member and cancel all existing Day orders in all series in all classes
from the Member; or

[[Page 4606]]

(iii) send a notification that the Risk Protection Monitor has been
triggered without any further preventative or cancellation action by
the System.\8\
---------------------------------------------------------------------------

\5\ The Allowable Order Rate is the number of orders entered
during the specific time period that has been established by the
Member.
\6\ The Allowable Contract Execution Rate is the number of
contracts executed during the specific time period that has been
established by the Member.
\7\ The Exchange notes that the specific time period does not
need to be the same for both the Allowable Order Rate and Allowable
Contract Execution Rate (i.e., there can be one specific time period
for Allowable Order Rate and a different specific time period for
Allowable Contract Execution Rate).
\8\ See Proposed Rule 519A(a). As discussed below, the Risk
Protection Monitor will not cancel any existing GTC orders. GTC
Orders will remain in the System available for trading when the Risk
Protection Monitor is engaged. See Proposed Rule 519A,
Interpretations and Policies .02.
---------------------------------------------------------------------------

The System will trigger the Risk Protection Monitor when the
counting program has determined either (i) that a Member has entered
during the specified time period a number of orders exceeding their
Allowable Order Rate, or (ii) that a Member has executed during the
specified time period a number of contracts exceeding their Allowable
Contract Execution Rate.\9\ Once engaged, the Risk Protection Monitor
will then automatically either prevent the System from receiving any
new orders in all series in all classes from the Member, and cancel all
existing Day orders in all series in all classes from the Member (if
designated by the Member's instructions), or send a notification
without any further preventative or cancellation action by the System.
When engaged, the Risk Protection Monitor will still allow the Member
to interact with existing orders entered prior to exceeding the
Allowable Order Rate or the Allowable Contract Execution Rate,
including sending cancel order messages and receiving trade executions
from those orders. The Risk Protection Monitor shall remain engaged
until the Member communicates with the Help Desk to enable the
acceptance of new orders.\10\
---------------------------------------------------------------------------

\9\ The Exchange does not believe that establishing a minimum or
maximum Allowable Order Rate or Allowable Contract Execution Rate is
necessary at this time. The Exchange notes that use of the Risk
Protection Monitor is optional and not mandatory. If, after some
time of gaining experience with the Risk Protection Monitor, the
Exchange sees a need for either minimums or maximums in the interest
of maintaining fair and orderly markets, the Exchange will submit a
subsequent 19b-4 rule filing as necessary.
\10\ See Proposed Rule 519A(b). The communication from the
Member to the Help Desk can either be via email or phone.
---------------------------------------------------------------------------

The following examples show how the proposed Risk Protection
Monitor would operate.
Example 1.
BD1 designates the following settings:
1. Allowable Order Rate = 500 orders/per 2 second. Reject new
orders.
2. Allowable Contract Execution Rate = 1000 contracts/per 2
seconds. Reject new orders and cancel day orders.

------------------------------------------------------------------------
Time Event Count total
------------------------------------------------------------------------
@100 milliseconds........... BD1 enters 10 10 orders.
orders.
@110 milliseconds........... 50 contracts 50 contracts
execute.
@200 milliseconds........... BD1 enters 10 20 orders.
orders.
@225 milliseconds........... 355 405 contracts.
contracts
execute.
@250 milliseconds........... 45 contracts 450 contracts.
execute.
@350 milliseconds........... 150 600 contracts.
contracts
execute.
@500 milliseconds........... BD1 enters 10 30 orders.
orders.
@1000 milliseconds.......... BD1 enters 200 230 orders.
orders.
@1500 milliseconds.......... BD1 enters 200 430 orders.
orders.
@1700 milliseconds.......... BD1 enters 50 480 orders.
orders.
@2000 milliseconds.......... BD1 enters 50 530 orders.
orders.
------------------------------------------------------------------------

530 orders over 2 seconds exceeds the Allowable Order
Rate--triggers the RPM
Once engaged, the System will reject new orders from BD1
until BD1 contacts the Help Desk to request re-enabling the acceptance
of new orders from BD1.
Orders on the book, may continue to trade.

------------------------------------------------------------------------

------------------------------------------------------------------------
@2200 milliseconds.......... 300 contracts 850 contracts.
execute.
@2500 milliseconds.......... 500 contracts 800 contracts.
execute.
@3000 milliseconds.......... 300 contracts 1100 contracts.
execute.
------------------------------------------------------------------------

------------------------------------------------------------------------
Time Event Count total
------------------------------------------------------------------------
@100 milliseconds........... BD1 enters 10 10 orders.
orders.
@110 milliseconds........... 5050 5050 contracts.
contracts
execute.
@200 milliseconds........... BD1 enters 10 20 orders.
orders.
@225 milliseconds........... 355 5405 contracts.
contracts
execute.
@250 milliseconds........... 45 contracts 5450 contracts.
execute.
@350 milliseconds........... 150 5600 contracts.
contracts
execute.
@500 milliseconds........... BD1 enters 10 30 orders.
orders.
@1000 milliseconds.......... BD1 enters 200 230 orders.
orders.
@1500 milliseconds.......... BD1 enters 200 430 orders.
orders.
@1700 milliseconds.......... BD1 enters 50 480 orders.
orders.
@2000 milliseconds.......... BD1 enters 50 530 orders.
orders.
------------------------------------------------------------------------

[[Page 4607]]

------------------------------------------------------------------------

------------------------------------------------------------------------
@2200 milliseconds.......... 300 contracts 850 contracts.
execute.
@2500 milliseconds.......... 500 contracts 800 contracts.
execute.
@3000 milliseconds.......... 5300 contracts 6100 contracts.
execute.
------------------------------------------------------------------------

6100 contract executions over 2 seconds exceeds the
Allowable Contract Execution Rate--triggers RPM
Once engaged, the System will then reject new orders and
cancel day orders from BD1 until BD1 contacts the Help Desk to request
re-enabling the acceptance of new orders for BD1.
In Examples 1 and 2, the Exchange notes that contracts continued to
execute even though the Risk Protection Monitor was triggered because
the orders received during the specified time period exceeded the
Allowable Order Rate. If BD1 wishes to mitigate the risk of additional
executions after the Risk Protection Monitor is triggered in scenarios
like Examples 1 or 2, BD1 could designate that the Risk Protection
Monitor prevent the System from receiving any new orders in all series
in all classes from the Member and cancel all existing Day orders in
all series in all classes from the Member if the orders entered equal
or exceed the Allowable Order Rate.
Example 3.
BD1 designates the following settings:
1. Allowable Order Rate = 500 orders/per 2 second. Reject new
orders.
2. Allowable Contract Execution Rate = 1000 contracts/per 2
seconds. Reject new orders and cancel day orders.

------------------------------------------------------------------------
Time Event Count total
------------------------------------------------------------------------
@100 milliseconds........... BD1 enters 10 10 orders
orders.
@110 milliseconds........... 50 contracts 50 contracts
execute.
@200 milliseconds........... BD1 enters 10 20 orders
orders.
@225 milliseconds........... 355 405 contracts
contracts
execute.
@250 milliseconds........... 45 contracts 450 contracts
execute.
@350 milliseconds........... 150 600 contracts
contracts
execute.
@500 milliseconds........... BD1 enters 10 30 orders
orders.
@1000 milliseconds.......... BD1 enters 200 230 orders
orders.
@1500 milliseconds.......... BD1 enters 200 430 orders
orders.
@1700 milliseconds.......... BD1 enters 50 480 orders
orders.
@2200 milliseconds.......... BD1 enters 10 480 orders
orders.
@2200 milliseconds.......... 300 850 contracts
contracts
execute.
@2500 milliseconds.......... 500 800 contracts
contracts
execute.
@3050 milliseconds.......... BD1 enters 150 410 orders
orders.
@3060 milliseconds.......... 300 1100 contracts
contracts
execute.
------------------------------------------------------------------------

1100 contract executions over 2 seconds exceeds the
Allowable Contract Execution Rate--triggers RPM
Once engaged, the System will then reject new orders and
cancel day orders from BD1 until BD1 contacts the Help Desk to request
re-enabling the acceptance of new orders for BD1.
The Exchange also proposes Interpretation and Policy .01 to provide
that Members may elect to group with other Members to enable the Risk
Protection Monitor to apply collectively to the group.\11\ The Members
in the group must designate a group owner. Specifically, Members may
elect to group with other Members to enable the Risk Protection Monitor
to apply collectively to the group, provided that either: (i) There is
at least 75% common ownership between the firms as reflected on each
firm's Form BD, Schedule A; or (ii) there is written authorization
signed by all Members in the group and the group owner maintains
exclusive control of all orders sent to the Exchange from each MPID
within the group.\12\ A Member may also elect to group with the
Member's clearing firm.\13\ A clearing firm may also elect to group
several Members to enable the Risk Protection Monitor to apply
collectively to the group with the clearing firm designated as the
group owner, provided that the clearing firm serves as the clearing
firm for all the MPIDs of the group and there is written authorization
signed by the clearing firm and each Member of the group. A clearing
firm that has grouped several Members may only receive warning messages
pursuant to Interpretation and Policy .03 of this Rule, unless one
Member of the group maintains exclusive control of all orders routed
through all MPIDs within the group.\14\
---------------------------------------------------------------------------

\11\ See Proposed Rule 519A, Interpretations and Policies .01.
\12\ See Proposed Rule 519A, Interpretations and Policies
.01(a).
\13\ See Proposed Rule 519A, Interpretations and Policies
.01(b).
\14\ See id.
---------------------------------------------------------------------------

The Exchange believes that the threshold of at least 75% common
ownership between the firms as reflected on each firm's Form BD,
Schedule A, is reasonable and appropriate for determining adequate
affiliation between two or more Member firms. The Exchange notes that
this threshold level has been widely adopted by options exchanges in
the context of aggregated trading volume of affiliated firms for volume
based fee/rebate programs.\15\ The written authorization and exclusive
control requirement helps ensure that the Risk Protection Monitor does
not apply to Members in a group or orders without adequate permission
in the manner that is designed to prevent fraudulent and manipulative
acts and practices, and to foster cooperation and coordination with
persons engaged in facilitating transaction in securities.
---------------------------------------------------------------------------

\15\ See e.g., MIAX Options Fee Schedule, Sections 1)a)i),
1)a)iii); CBOE Fees Schedule, p. 3 (Volume Incentive Program), p. 13
(Liquidity Provider Sliding Scale), p. 13 [sic] (Clearing Trading
Permit Holder Fee Cap); NASDAQ Options Market, Chapter XV, Section
2(1).
---------------------------------------------------------------------------

The Risk Protection Monitor for groups will operate in the same
manner as described in paragraphs (a) and (b) of Proposed Rule 519A,
except that: (i) The counting program will count the number of orders
entered and the number of contracts traded resulting

[[Page 4608]]

from an order entered by all MPIDs in the group collectively; (ii) the
System will trigger the Risk Protection Monitor when the group
collectively exceeds either the Allowable Order Rate or Allowable
Contract Execution Rate for the group; (iii) once engaged, the Risk
Protection Monitor will then either automatically prevent the System
from receiving any new orders in all series in all classes from each
MPID in the group, and, if designated by the group owner's
instructions, cancel all existing Day orders in all series in all
classes from the group, or send a notification without any further
preventative or cancellation action by the System; and (iv) only the
designated group owner may request through the Help Desk to enable the
acceptance of new orders for all the Members of the group.\16\
---------------------------------------------------------------------------

\16\ See Proposed Rule 519A, Interpretations and Policies
.01(c).
---------------------------------------------------------------------------

The following examples show how the proposed Risk Protection
Monitor would operate for groups.
Example 4.
BD1, BD2, BD3 elect to group with each other, with BD1 as the group
owner. BD1, BD2, BD3 designate the following settings:
1. Allowable Order Rate = 500 orders/per 2 second. Reject new
orders.
2. Allowable Contract Execution Rate = 1000 contracts/per 2
seconds. Reject new orders and cancel day orders.

------------------------------------------------------------------------
Time Event Count total
------------------------------------------------------------------------
@100 milliseconds........... BD1 enters 10 10 orders
orders.
@110 milliseconds........... 50 contracts 50 contracts
execute.
@200 milliseconds........... BD2 enters 10 20 orders
orders.
@225 milliseconds........... 355 405 contracts
contracts
execute for
BD1.
@250 milliseconds........... 45 contracts 450 contracts
execute for
BD2.
@350 milliseconds........... 150 600 contracts
contracts
execute for
BD1.
@500 milliseconds........... BD3 enters 10 30 orders
orders.
@1000 milliseconds.......... BD1 enters 200 230 orders
orders.
@1500 milliseconds.......... BD2 enters 200 430 orders
orders.
@1700 milliseconds.......... BD3 enters 50 480 orders
orders.
@2000 milliseconds.......... BD3 enters 50 530 orders
orders.
------------------------------------------------------------------------

530 orders over 2 seconds exceeds the Allowable Order Rate
for the group--triggers the RPM
Once engaged, the System will reject new orders from BD1,
BD2, BD3 until BD1 contacts the Help Desk to request re-enabling the
acceptance of new orders from BD1, BD2, BD3.
Orders on the book, may continue to trade.

------------------------------------------------------------------------
300 contracts
@2200 milliseconds execute for BD3 850 contracts
------------------------------------------------------------------------
@2200 milliseconds.......... 300 contracts 850 contracts.
execute for
BD3.
@2500 milliseconds.......... 500 contracts 800 contracts.
execute for
BD2.
@3000 milliseconds.......... 300 contracts 1100 contracts.
execute for
BD1.
------------------------------------------------------------------------

1100 contract executions over 2 seconds exceeds the
Allowable Contract Execution Rate for the group--triggers RPM
Once engaged, the System will then reject new orders and
cancel day orders from BD1, BD2, BD3 until BD1 contacts the Help Desk
to request re-enabling the acceptance of new orders for BD1, BD2, BD3.
Example 5.
BD1 elects to group with their clearing firm CC1, with CC1 as the
group owner. BD1, CC1 designate the following settings:
1. Allowable Order Rate = 500 orders/per 2 second. Reject new
orders.
2. Allowable Contract Execution Rate = 1000 contracts/per 2
seconds. Reject new orders and cancel day orders.

----------------------------------------------------------------------------------------------------------------
Time Event Count total
----------------------------------------------------------------------------------------------------------------
@100 milliseconds........................ BD1 enters 10 orders......... 10 orders.
@110 milliseconds........................ 50 contracts execute...... 50 contracts.
@200 milliseconds........................ BD1 enters 10 orders......... 20 orders.
@225 milliseconds........................ 355 contracts execute..... 405 contracts.
@250 milliseconds........................ 45 contracts execute...... 450 contracts.
@350 milliseconds........................ 150 contracts execute..... 600 contracts.
@500 milliseconds........................ BD1 enters 10 orders......... 30 orders.
@1000 milliseconds....................... BD1 enters 200 orders........ 230 orders.
@1500 milliseconds....................... BD1 enters 200 orders........ 430 orders.
@1700 milliseconds....................... BD1 enters 50 orders......... 480 orders.
@2200 milliseconds....................... BD1 enters 10 orders......... 480 orders.
@2200 milliseconds....................... 300 contracts execute..... 850 contracts.
@2500 milliseconds....................... 500 contracts execute..... 800 contracts.
@3050 milliseconds....................... BD1 enters 150 orders........ 410 orders.
@3060 milliseconds....................... 300 contracts execute..... 1100 contracts.
----------------------------------------------------------------------------------------------------------------

[[Page 4609]]

The Exchange believes that the ability for affiliated Members to
collectively monitor and manage their risk from excessive order or
execution rates that may be caused by a system error or market event,
will provide a valuable risk management tool for such Members that have
shared order exposure and execution risk across affiliated entities.
The Exchange believes that allowing Members to group with their
clearing firm will help both Members and clearing firms monitor and
manage order exposure and execution risk that may be caused from a
system or other error or market event in a manner that removes
impediments to and perfect the mechanisms of a free and open market and
a national market system and, in general, protects investors and the
public interest.
The Exchange proposes Interpretation and Policy .02 to provide that
PRIME Orders, PRIME Solicitation Orders \17\ and GTC Orders do not
participate in the Risk Protection Monitor. However, the System does
include such PRIME Orders, PRIME Solicitation Orders and GTC Orders in
the counting program for purposes of this Rule. PRIME Orders, PRIME
Solicitation Orders and Customer-to-Customer Orders will each be
counted as two orders for the purpose of calculating the Allowable
Order Rate. Once engaged, the Risk Protection Monitor will not cancel
any existing PRIME Orders, PRIME Solicitation Orders, AOC orders, OPG
orders, or GTC orders. PRIME Orders, PRIME Solicitation Orders and GTC
Orders will remain in the System available for trading when the Risk
Protection Monitor is engaged.\18\ The Exchange believes the proposed
treatment of PRIME Orders, PRIME Solicitation Orders, AOC orders, OPG
orders, and GTC Orders is an equitable approach to handling the unique
characteristics of these order types within the Risk Protection Monitor
mechanism. Separately, the Exchange believes the proposed treatment of
paired orders in the form of PRIME Orders and PRIME Solicitation Orders
processed pursuant to Rule 515A versus standard Agency Orders processed
pursuant to Rule 515, is an equitable approach to handling the unique
characteristics of PRIME Orders and PRIME Solicitation Orders within
the Risk Protection Monitor mechanism. The Exchange notes that PRIME
Orders submitted pursuant to Rule 515A by operation of the ``stop''
have been guaranteed an execution at the time of acceptance into the
System; therefore, the Exchange does not believe that such orders
should be cancelled when the Risk Protection Monitor is engaged, since
the execution effectively already happened. In contrast, standard
Agency Orders that a Member is representing as a principal are
processed according to Rule 515 in the same manner as other incoming
orders and are not been guaranteed an execution at the time of
acceptance in the System, thus the Exchange believes that standard
Agency Orders should be treated the same as other orders and be subject
to the protections of the Risk Protection Monitor.
---------------------------------------------------------------------------

\17\ The terms ``PRIME Order'' and ``PRIME Solicitation Order''
refer to a two-sided paired order that consists of both an Agency
Order and a Contra-side Order that is submitted to the Exchange
pursuant to Rule 515A.
\18\ See Proposed Rule 519A, Interpretations and Policies .02.
---------------------------------------------------------------------------

The Exchange proposes Interpretation and Policy .03 to provide that
Members may elect to receive warning notifications indicating that a
specific percentage of an Allowable Order Rate or an Allowable Contract
Execution Rate has been met.\19\
---------------------------------------------------------------------------

\19\ See Proposed Rule 519A, Interpretations and Policies .03.
---------------------------------------------------------------------------

The Exchange proposes Interpretation and Policy .04 to provide that
at the request of a Member or in order to maintain a fair and orderly
market the Help Desk may pause and restart the specified time period
used by the counting program or clear and reset any calculated
Allowable Order Rate or Allowable Contract Execution Rate.\20\
---------------------------------------------------------------------------

\20\ See Proposed Rule 519A, Interpretations and Policies .04.
---------------------------------------------------------------------------

The Exchange also proposes to amend Rule 612 to codify existing
functionality regarding the Aggregate Risk Manager to provide
additional transparency in the Rule to Members regarding the current
functionality. Currently, the Rule provides that after the System
engages the Aggregate Risk Manager, that the Aggregate Risk Manager
will automatically remove the Market Maker's quotations from the
Exchange's disseminated quotation in all series of that particular
option class until the Market Maker submits a new revised quotation.
However, submitting a new revised quotation alone is not currently
enough in this situation. The Market Maker must also send a
notification to the System of the intent to reengage quoting. The
Exchange proposes to amend the Rule to codify this additional
requirement, of sending a notification to the System of the intent to
reengage quoting, in order to eliminate potential confusion on behalf
of Market Makers. In addition, the Exchange proposes to adopt a new
Interpretation and Policy .01 to Rule 612 to codify existing
functionality regarding the Aggregate Risk Manager to provide
additional transparency in the Rule to Members regarding the current
functionality. The Exchange proposes to specify that eQuotes do not
participate in the Aggregate Risk Manager. An eQuote is a quote with a
specific time in force that does not automatically cancel and replace a
previous Standard quote or eQuote. An eQuote can be cancelled by the
Market Maker at any time, or can be replaced by another eQuote that
contains specific instructions to cancel an existing eQuote.\21\ The
System does not include contracts traded through the use of an eQuote
in the counting program for purposes of this Rule. eQuotes will remain
in the System available for trading when the Aggregate Risk Manager is
engaged.\22\ The proposed changes to the Aggregate Risk Manager are
designed to protect investors and the public interest by codifying the
protections that apply to quotation orders that help Market Makers
avoid quotation activity that exceeds their established risk thresholds
on the Exchange. In addition, the Exchange believes that the proposed
amendment removes impediments to and perfects the mechanisms of a free
and open market and a national market system and, in general, protects
investors and the public interest by helping to eliminate potential
confusion on behalf of Market Makers by clearly stating the System's
functionality with regard to quotations that trigger the Aggregate Risk
Manager protections.
---------------------------------------------------------------------------

\21\ See Rule 517(a)(2).
\22\ See Proposed Rule 612, Interpretations and Policies .01.
---------------------------------------------------------------------------

2. Statutory Basis
MIAX believes that its proposed rule change is consistent with
Section 6(b) of the Act \23\ in general, and furthers the objectives of
Section 6(b)(5) of the Act \24\ 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.
---------------------------------------------------------------------------

\23\ 15 U.S.C. 78f(b).
\24\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

The Exchange believes that Members will benefit from the proposed
new Risk Protection Monitor. Members are vulnerable to the risk from
system or other error or a market event, that may

[[Page 4610]]

cause them to send a large number of orders or receive multiple,
automatic executions before they can adjust their order exposure in the
market. Without adequate risk management tools, such as the Risk
Protection Monitor, Members could reduce the amount of order flow and
liquidity that they provide to the market. Such actions may undermine
the quality of the markets available to customers and other market
participants. Accordingly, the proposed Risk Protection Monitor is
designed to encourage Members to submit additional order flow and
liquidity to the Exchange, thereby removing impediments to and perfect
the mechanisms of a free and open market and a national market system
and, in general, protecting investors and the public interest. In
addition, providing Members with more tools for managing risk will
facilitate transactions in securities because, as noted above, the
Members will have more confidence that protections are in place that
reduce the risks from potential system errors and market events. As a
result, the new functionality has the potential to promote just and
equitable principles of trade.
The written authorization and exclusive control requirement helps
ensure that the Risk Protection Monitor does not apply to Members in a
group or orders without adequate permission in the manner that is
designed to prevent fraudulent and manipulative acts and practices, and
to foster cooperation and coordination with persons engaged in
facilitating transaction in securities. The Exchange believes the
proposed treatment of PRIME Orders, PRIME Solicitation Orders, AOC
orders, OPG orders, and GTC Orders is an equitable approach to handling
the unique characteristics of these order types within the Risk
Protection Monitor mechanism. Further, the Exchange believes the
proposed treatment of paired orders in the form of PRIME Orders and
PRIME Solicitation Orders processed pursuant to Rule 515A versus
standard Agency Orders processed pursuant to Rule 515, is an equitable
approach to handling the unique characteristics of Agency Orders within
the Risk Protection Monitor mechanism.
The proposed changes to the Aggregate Risk Manager are designed to
protect investors and the public interest by codifying the protections
that apply to quotations that help Market Makers avoid executions from
quotation activity that exceeds their established risk thresholds on
the Exchange. In addition, the Exchange believes that the proposed
amendment removes impediments to and perfects the mechanisms of a free
and open market and a national market system and, in general, protects
investors and the public interest by helping to eliminate potential
confusion on behalf of Market Makers by clearly stating the System's
functionality with regard to quotations that trigger the Aggregate Risk
Manager protections.

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. Rather, the Exchange believes
that the new Risk Protection Monitor help promote fair and order
markets. The Exchange believes the proposed changes will not impose any
burden on intra-market competition because the use of the Risk
Protection Monitor is voluntary and is available to all Members. The
Exchange notes that it operates in a highly competitive market in which
market participants can readily direct order flow to competing venues
who offer similar functionality. As to inter-market competition, the
Exchange believes that the proposed risk protections should promote
competition for such functionality that is designed to protect market
participants from system errors or market events that may cause them to
send a large number of orders or receive multiple, automatic executions
before they can adjust their order exposure in the market.

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 up to 90 days (i) as the
Commission may designate 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 will:
(a) by order approve or disapprove such proposed rule change, or
(b) institute proceedings to determine whether the proposed rule
change should be disapproved

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Amendment No. 1, is consistent with the Act.
Comments may be submitted by any of the following methods:

Electronic Comments

Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-MIAX-2015-03 on the subject line.

Paper Comments

Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-MIAX-2015-03. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal offices 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-2015-03,
and should be submitted on or before February 18, 2015.
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\25\ 17 CFR 200.30-3(a)(12).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
Brent J. Fields,
Secretary.
[FR Doc. 2015-01510 Filed 1-27-15; 8:45 am]
BILLING CODE 8011-01-P

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