Self-Regulatory Organizations; Miami International Securities Exchange LLC; Order Granting Approval to Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Adopt a “Risk Protection Monitor” Functionality Under Proposed MIAX Rule 519A and Amend the “Aggregate Risk Monitor” Functionality Under MIAX Rule 612, 14421-14424 [2015-06262]
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Federal Register / Vol. 80, No. 53 / Thursday, March 19, 2015 / Notices
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–
ISEGemini–2015–06, and should be
submitted on or before April 9, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Brent J. Fields,
Secretary.
[FR Doc. 2015–06263 Filed 3–18–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74507; File Nos. SR–NYSE–
2011–55; SR–NYSEAmex–2011–84]
Self-Regulatory Organizations; New
York Stock Exchange LLC; NYSE MKT
LLC; Order Granting an Extension to
Limited Exemptions From Rule 612(c)
of Regulation NMS in Connection With
the Exchanges’ Retail Liquidity
Programs Until September 30, 2015
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March 13, 2015.
On July 3, 2012, the Securities and
Exchange Commission (‘‘Commission’’)
issued an order pursuant to its authority
under Rule 612(c) of Regulation NMS
(‘‘Sub-Penny Rule’’) 1 that granted the
New York Stock Exchange LLC
18 17
1 17
CFR 200.30–3(a)(12).
CFR 242.612(c).
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(‘‘NYSE’’) and NYSE MKT LLC 2
(‘‘NYSE MKT’’ and, together with
NYSE, the ‘‘Exchanges’’) limited
exemptions from the Sub-Penny Rule in
connection with the operation of the
Exchanges’ respective Retail Liquidity
Programs (the ‘‘Programs’’).3 The
limited exemptions were granted
concurrently with the Commission’s
approval of the Exchanges’ proposals to
adopt their respective Programs for oneyear pilot terms.4 The exemptions were
granted coterminous with the
effectiveness of the pilot Programs; both
the pilot Programs and exemptions are
scheduled to expire on March 31, 2015.5
The Exchanges now seek to extend
the exemptions until September 30,
2015.6 The Exchanges’ request was
made in conjunction with immediately
effective filings that extend the
operation of the Programs through the
same date.7 In their request to extend
the exemptions, the Exchanges note that
the participation in the Programs has
increased more recently. Accordingly,
the Exchanges have asked for additional
time to allow themselves and the
Commission to analyze more robust data
concerning the Programs, which the
Exchanges committed to provide to the
2 At the time it filed the original proposal to adopt
the Retail Liquidity Program, NYSE MKT went by
the name NYSE Amex LLC. On May 14, 2012, the
Exchange filed a proposed rule change,
immediately effective upon filing, to change its
name from NYSE Amex LLC to NYSE MKT LLC.
See Securities Exchange Act Release No. 67037
(May 21, 2012), 77 FR 31415 (May 25, 2012) (SR–
NYSEAmex–2012–32).
3 See Securities Exchange Act Release No. 67347
(July 3, 2012), 77 FR 40673 (July 10, 2012) (SR–
NYSE–2011–55; SR–NYSEAmex–2011–84)
(‘‘Order’’).
4 See id.
5 The pilot term of the Programs was originally
scheduled to end on July 31, 2013, but the
Exchanges initially extended the term for an
additional year, through July 31, 2014, see
Securities Exchange Act Release Nos. 70096
(August 2, 2013), 78 FR 48520 (August 8, 2013)
(SR–NYSE–2013–48), and 70100 (August 2, 2013),
78 FR 48535 (August 8, 2013) (SR–NYSEMKT–
2013–60), and then subsequently extended the term
again through March 31, 2015, see Securities
Exchange Act Release Nos. 72629 (July 16, 2014),
79 FR 42564 (July 22, 2014) (SR–NYSE–2014–35),
and 72625 (July 16, 2014), 79 FR 42566 (July 22,
2014) (SR–NYSEMKT–2014–60). Each time the
pilot term of the Programs was extended, the
Commission granted the Exchanges’ requests to also
extend the Sub-Penny Exemption through July 31,
2014, see Securities Exchange Act Release No.
70085 (July 31, 2013), 78 FR 47807 (August 6,
2013), and March 31, 2015, see Securities Exchange
Act Release No. 72732 (July 31, 2014), 79 FR 45851
(August 6, 2014), respectively.
6 See Letter from Martha Redding, Senior
Counsel, NYSE, to Brent J. Fields, Secretary,
Securities and Exchange Commission, dated
February 27, 2015.
7 See Securities Exchange Act Release Nos. 34–
74454 (March 6, 2015), 80 FR 13054 (March 12,
2015) (SR–NYSE–2015–10), and 34–74455 (March
6, 2015), 80 FR 13047 (March 12, 2015) (SR–
NYSEMKT–2015–14).
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14421
Commission.8 For this reason and the
reasons stated in the Order originally
granting the limited exemptions, the
Commission finds that extending the
exemptions, pursuant to its authority
under Rule 612(c) of Regulation NMS, is
appropriate in the public interest and
consistent with the protection of
investors.
Therefore, it is hereby ordered that,
pursuant to Rule 612(c) of Regulation
NMS, each Exchange is granted a
limited exemption from Rule 612 of
Regulation NMS that allows it to accept
and rank orders priced equal to or
greater than $1.00 per share in
increments of $0.001, in connection
with the operation of its Retail Liquidity
Program, until September 30, 2015.
The limited and temporary
exemptions extended by this Order are
subject to modification or revocation if
at any time the Commission determines
that such action is necessary or
appropriate in furtherance of the
purposes of the Securities Exchange Act
of 1934. Responsibility for compliance
with any applicable provisions of the
Federal securities laws must rest with
the persons relying on the exemptions
that are the subject of this Order.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
Brent J. Fields,
Secretary.
[FR Doc. 2015–06265 Filed 3–18–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74496; File No. SR–MIAX–
2015–03]
Self-Regulatory Organizations; Miami
International Securities Exchange LLC;
Order Granting Approval to Proposed
Rule Change, as Modified by
Amendment No. 1 Thereto, To Adopt a
‘‘Risk Protection Monitor’’
Functionality Under Proposed MIAX
Rule 519A and Amend the ‘‘Aggregate
Risk Monitor’’ Functionality Under
MIAX Rule 612
March 13, 2015.
I. Introduction
On January 8, 2015, Miami
International Securities Exchange LLC
(‘‘MIAX’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to section
19(b)(1) of the Securities Exchange Act
8 See
9 17
Order, supra note 3, 77 FR at 40681.
CFR 200.30–3(a)(83).
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Federal Register / Vol. 80, No. 53 / Thursday, March 19, 2015 / Notices
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
establish a voluntary Risk Protection
Monitor functionality for orders (the
‘‘RPM’’) and codify existing
functionality regarding the Exchange’s
Aggregate Risk Manager for quotes (the
‘‘ARM’’). On January 20, 2105, the
Exchange filed Amendment No.1 to the
proposal.3 The proposed rule change, as
modified by Amendment No. 1, was
published for comment in the Federal
Register on January 28, 2015.4 The
Commission did not receive any
comments on the proposed rule change.
This order approves the proposed rule
change, as modified by Amendment No.
1.
II. Description of the Proposal
The Exchange proposes new MIAX
Rule 519A to establish a voluntary RPM
that will be available to all MIAX
members. The Exchange also proposes
clarifying amendments to current MIAX
Rule 612, which describes the
Exchange’s ARM functionality that is
applicable to quoting activity by MIAX
Market Makers.
A. Risk Protection Monitor
According to the Exchange, the RPM
is intended to provide new risk
protection functionality for orders
entered by members. Under new MIAX
Rule 519A, MIAX’s automated trading
system (the ‘‘System’’) will maintain a
counting program (the ‘‘counting
program’’) for each participating
member. Member participation in the
counting program will be voluntary. The
counting program will count (i) the
number of orders entered by the
member on the Exchange within a
specified time period that has been
established by the member (the
‘‘specified time period’’), and (ii) the
number of contracts traded via an order
entered by the member on the Exchange
within the specified time period.5 The
Exchange will establish a maximum
duration for any specified time period
and announce that maximum duration
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.
4 See Securities Exchange Act Release No. 74118
(January 22, 2015), 80 FR 4605 (‘‘Notice’’).
5 In its filing, the Exchange noted that members
may establish different specified time periods for
the purpose of counting orders and the purpose of
counting contracts traded via an order entered by
the member under the RPM, and thus, the length
of the specified time period for each purpose need
not be the same. See Notice, supra note 4, at 4605
n.7.
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via a Regulatory Circular. To use the
RPM functionality, members must
establish an Allowable Order Rate and/
or an Allowable Contract Execution
Rate. The Allowable Order Rate is the
maximum number of permissible orders
(as specified by the member) entered
during the specified time period
designated by the member. The
Allowable Contract Execution Rate is
the maximum number of permissible
contracts (as specified by the member)
executed during the specified time
period designated by the member.
If the RPM functionality is elected by
a member, the System will trigger the
RPM whenever the counting program
determines that the member has entered
a number of orders that exceeds the
member’s specified Allowable Order
Rate during the specified time period, or
executed a number of contracts that
exceeds the member’s specified
Allowable Contract Execution Rate
during the specified time period.6
Under new MIAX Rule 519A, a
member may establish whether the
RPM, once triggered, will: (i) Prevent
the System from receiving any new
orders in all series in all classes from
the member; (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
(iii) send a notification that the RPM has
been triggered without any further
preventative actions or cancellations by
the System. Once engaged, the RPM will
automatically take whatever action has
been specified in advance by the
member. However, PRIME Orders,
PRIME Solicitation Orders, Auction or
Cancel Orders (‘‘AOC Order’’), Opening
Orders (‘‘OPG Order’’), or Good ‘til
Cancel Orders (‘‘GTC Order’’) will not
participate in the RPM. 7 When engaged,
the RPM will allow the member to
interact with existing orders that were
entered prior to the member exceeding
the Allowable Order Rate or the
Allowable Contract Execution Rate,
6 In the Notice, the Exchange provided examples
demonstrating how the System will determine
when the Allowable Order Rate or Allowable
Contract Execution Rate for an individual member
is exceeded. See Notice, supra note 4, at 4606–07.
7 Interpretation and Policy .02 to new MIAX Rule
519A provides that PRIME Orders, PRIME
Solicitation Orders, and GTC Orders will not
participate in the RPM. The System will include
PRIME Orders, PRIME Solicitation Orders, and GTC
Orders in the counting program for purposes
determining when the RPM is triggered. PRIME
Orders, PRIME Solicitation Orders and Customerto-Customer Orders will each be counted as two
orders for the purpose of calculating the Allowable
Order Rate. Once engaged, however, the RPM will
not cancel any existing PRIME Orders, PRIME
Solicitation Orders, AOC Orders, OPG Orders, or
GTC Orders that are marked as Day orders.
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including sending cancel order
messages and receiving trade executions
from those orders. The RPM will remain
engaged until the member
communicates with the Exchange’s help
desk (the ‘‘Help Desk’’) to re-enable the
System to accept new orders from the
member. The Exchange noted that this
communication from the member to the
Help Desk may be sent either via email
or phone.8
In addition, the Exchange also
proposes to allow members to group
with other members so that the RPM
would apply collectively to the group.
The members in such a group must
designate a group owner and may form
a group together if: (i) There is at least
75% common ownership between the
group’s members, 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. A clearing firm
also may elect to group together with
several members so that the RPM
applies collectively to that group of
members, provided that: (i) The clearing
firm must be designated as the group
owner; (ii) the clearing firm must serve
as the clearing firm for all the MPIDs of
the group; and (iii) there must be
written authorization signed by the
clearing firm and each member of the
group.
In general, the RPM for groups will
operate in the same manner as it does
for individual members, except that that
the counting program and RPM
protections will apply to the group as a
whole. Thus, the counting program will
count the number of orders entered and
the number of contracts traded resulting
from orders entered by all MPIDs in the
group collectively, and the System will
trigger the RPM when the group
collectively exceeds either the
Allowable Order Rate or Allowable
Contract Execution Rate for the group.9
Once engaged, pursuant to the group
owner’s instructions, the RPM will
automatically either: (i) Prevent the
System from receiving any new orders
in all series in all classes from each
MPID in the group; (ii) prevent the
System from receiving any new orders
in all series in all classes from each
MPID in the group and cancel all
existing Day orders in all series in all
classes from the group, or (iii) send a
notification without any further
8 See
Notice, supra note 4, at 4606 n.10.
the Notice, the Exchange provided examples
demonstrating how the System will determine
when the Allowable Order Rate or Allowable
Contract Execution Rate is exceeded for a group.
See Notice, supra note 4, at 4608.
9 In
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preventative action or cancellations by
the System. Only the designated group
owner may re-enable the acceptance of
new orders for all the members of the
group, via a request to the Help Desk.
In instances when a clearing firm has
grouped several members for the
purpose of the RPM, the clearing firm
may only elect to receive warning
notifications indicating that a specific
percentage of an Allowable Order Rate
or an Allowable Contract Execution Rate
has been met, unless one member of the
group maintains exclusive control of all
orders routed through all MPIDs within
the group.
In addition, members may elect to
receive warning notifications from
MIAX indicating that a specific
percentage of an Allowable Order Rate
or an Allowable Contract Execution Rate
has been met. The Exchange also
proposes that, at the request of a
member, or if necessary 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.
B. Aggregate Risk Manager
The Exchange also proposes to codify
what it represents is existing
functionality regarding the ARM under
MIAX Rule 612.10 Under MIAX Rule
612, the System maintains a counting
program for each Market Maker who is
required to submit continuous twosided quotations pursuant to MIAX Rule
604 in each of its assigned option
classes. The ARM counting program
counts the number of contracts traded
by a Market Maker’s quotes in an
assigned option class within a specified
time period that has been established by
the Market Maker; MIAX Rule 612 states
that the specified time period for the
ARM cannot exceed 15 seconds. Under
the ARM, a Market Maker also
establishes for each option class an
Allowable Engagement Percentage. The
System engages the ARM in a particular
option class when the counting program
has determined that a Market Maker has
traded during the specified time period
a number of contracts equal to or above
its Allowable Engagement Percentage.11
10 See
Notice, supra note 4, at 4609.
Allowable Engagement Percentage cannot
be less than 100%. The System calculates the
Allowable Engagement Percentage by first
determining the percentage that the number of
contracts executed in an individual option in a
class represents relative to the Market Maker’s
disseminated Standard quote and/or Day eQuote in
that individual option (‘‘option percentage’’). See
MIAX Rule 612(b)(2)(i). When the System calculates
the option percentage, the number of contracts
executed in that option class will be automatically
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Once engaged, the ARM automatically
removes the Market Maker’s quotations
on MIAX in all series of that particular
option class until the Market Maker
submits a new revised quotation.
The Exchange proposes to amend
MIAX Rule 612 in two regards. First, the
Exchange proposes to codify in its rules
an existing requirement for a Market
Maker to send a message to MIAX
specifically to disengage the ARM and
allow quoting before the Market Maker
can begin to quote again in that class. As
noted above, MIAX Rule 612 currently
provides that once engaged, the ARM
will automatically remove the Market
Maker’s quotations from MIAX in all
series of that particular option class
until the Market Maker submits a new
revised quotation. The Exchange
proposes to add rule text to MIAX Rule
612(b)(1) requiring a Market Maker also
to send a notification to the System of
its intent to reengage quoting in order to
disengage the ARM. Second, the
Exchange proposes to clarify, in new
Interpretation and Policy .01 to Rule
612, that eQuotes 12 do not participate in
the ARM. The Exchange states that the
System does not include contracts
traded through the use of an eQuote in
the counting program for purposes of
Rule 612, and that eQuotes will remain
in the System available for trading when
the Aggregate Risk Manager is
engaged.13
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder that are applicable to a
national securities exchange.14 In
particular, the Commission finds that
the proposed rule change is consistent
with section 6(b)(5) of the Act,15 which
offset by the number of contracts that are executed
on the opposite side of the market in the same
option class during the specified time period. See
MIAX Rule 612(b)(3). The counting program will
then combine the individual option percentages to
determine the option class percentage (‘‘class
percentage’’). See MIAX Rule 612(b)(2)(ii). When
the class percentage equals or exceeds the Market
Maker’s Allowable Engagement Percentage, the
ARM will be triggered. See id.
12 An eQuote ‘‘is a quote with a specific time in
force that does not automatically cancel and replace
a previous Standard quote or eQuote,’’ and ‘‘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.’’
See MIAX Rule 517(a)(2).
13 See Notice, supra note 4, at 4609.
14 15 U.S.C. 78f. In approving this proposed rule
change, the Commission notes that it has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
15 15 U.S.C. 78f(b)(5).
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14423
requires, among other things, that the
rules of a national securities exchange
be designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest. The Commission
believes that the RPM may help
members, and member groups, to
mitigate the potential risks associated
with the execution of an unacceptable
level of orders that result from, e.g.,
technology issues with electronic
trading systems. The Commission also
notes that other exchanges have
established risk protection mechanisms
for members and/or market makers that
are similar in many respects to MIAX’s
proposal.16 While the concept of
member groups may be unique to
MIAX’s proposal, the Commission
believes that MIAX has designed that
portion of the proposed rule to be
consistent with the Act, including
section 6(b)(5), as it may foster
cooperation and coordination with
clearing transactions and protect
investors and the public interest by
providing a mechanism to reduce the
risk of abnormal trading activity across
multiple participants under common
control or where the group otherwise
provides written opt-in consent.
The Commission notes that the RPM
is a voluntary mechanism. The
Commission reminds members electing
to use the RPM to be mindful of their
obligations to, among other things, seek
best execution of orders they handle on
an agency basis. A broker-dealer has a
legal duty to seek to obtain best
execution of customer orders, and the
decision to utilize the RPM, including
the parameters set by the member for
the RPM, must be consistent with this
duty.17 For instance, under the
16 See, e.g., BATS Exchange (‘‘BATS’’) Rule 21.16
(Risk Monitor Mechanism available to all BATS
Users); NASDAQ Options Market (‘‘NOM’’) Rule
Chapter VI, Section 19 (Risk Monitor Mechanism
available to all NOM Participants); BOX Options
Exchange Rule 7280 (Bulk Cancellation of Trading
Interest available to Options Participants); and
Chicago Board Options Exchange (‘‘CBOE’’) Rule
8.18 (Quote Risk Monitor Mechanism available to
certain CBOE Market-Makers and CBOE Trading
Permit Holders associated with certain CBOE
Market-Makers).
17 See Securities Exchange Act Release Nos.
37619A (Sept. 6, 1996), 61 FR 48290 (Sept. 12,
1996) (‘‘Order Handling Rules Release’’); 51808
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proposal, members have unfettered
discretion to set the Allowable Order
Rate and Allowable Contract Execution
Rate for the RPM. While MIAX
neglected to affirmatively establish
minimum and maximum permissible
settings for the RPM in its rule, the
Commission expects MIAX periodically
to assess whether the RPM functionality
is operating in a manner that is
consistent with the promotion of fair
and orderly markets. In addition, the
Commission expects that members will
consider their best execution obligations
when establishing the minimum and
maximum parameters for the RPM.18
For example, an abnormally low
Allowable Order Rate set over an
abnormally long specified time period
should be carefully scrutinized,
particularly if a member’s order flow to
MIAX contains agency orders. To the
extent that the RPM is set to overlysensitive parameters, a member should
consider the effect of its chosen settings
on its ability to receive a timely
execution on marketable agency orders
that it sends to MIAX in various market
conditions.19 The Commission cautions
that brokers considering their best
execution obligations should be aware
that the agency orders they represent
may be rejected on account of the RPM.
In addition, under the proposal, once
the RPM is engaged, PRIME Orders,
PRIME Solicitation Orders, GTC Orders,
AOC Orders, and OPG Orders will not
participate in the RPM.20 The
Commission notes that these are unique
order types.21 The Commission believes
that these exceptions appear to be
reasonably designed to not interfere
with the operation of the PRIME and
PRIME Solicitation auctions and also to
restrict application of the RPM to
specific types of orders, whose terms
limit their application to specialized
(June 9, 2005), 70 FR 37496, 37537–8 (June 29,
2005).
18 The Commission reminds broker-dealers that
they must examine their procedures for seeking to
obtain best execution in light of market and
technology changes and modify those practices if
necessary to enable their customers to obtain the
best reasonably available prices. See Order
Handling Rules Release, supra note 17, at 48323.
19 For example, a marketable agency order that
would have otherwise executed on MIAX might be
prevented from reaching MIAX on account of other
interest from the member that causes it to exceed
its Allowable Order Rate and, thus, triggers the
RPM, resulting in the System blocking new orders
from the member.
20 See supra note 7.
21 For example, the Exchange argues that PRIME
Orders submitted pursuant to MIAX Rule 515A
have been guaranteed an execution at the time of
acceptance into the System and, therefore, should
not be cancelled when the RPM is engaged, because
the execution has effectively already occurred. See
Notice, supra note 4, at 4609.
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purposes for which members may not
want or need order protection to apply.
The proposed rule change also
codifies existing functionality in the
ARM with respect to the procedures for
resuming quoting and the nonparticipation of eQuotes. The
Commission notes that the clarification
of ARM procedures in Rule 612 could
eliminate potential confusion for
members regarding the need to
affirmatively notify MIAX that the
member wishes to re-start quoting
following an ARM event as well as
internal inconsistency in the rule about
the inapplicability of ARM to eQuotes.
IV. Conclusion
It is therefore ordered, pursuant to
section 19(b)(2) of the Act,22 that the
proposed rule change (SR–MIAX–2015–
03), as modified by Amendment No. 1,
be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Brent J. Fields,
Secretary.
[FR Doc. 2015–06262 Filed 3–18–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Submission for OMB Review;
Comment Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE., Washington, DC
20549–2736.
Extension: Rule 11a1–1(T).
SEC File No. 270–428, OMB Control No.
3235–0478.
Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(‘‘PRA’’) (44 U.S.C. 3501 et seq.), the
Securities and Exchange Commission
(‘‘Commission’’) has submitted to the
Office of Management and Budget
(‘‘OMB’’) a request for approval of
extension of the previously approved
collection of information provided for in
Rule 11a1–1(T) (17 CFR 240.11a1–1(T)),
under the Securities Exchange Act of
1934 (15 U.S.C. 78a et seq.) (‘‘Exchange
Act’’).
On January 27, 1976, the Commission
adopted Rule 11a1–1(T), to exempt
certain transactions of exchange
members for their own accounts that
would otherwise be prohibited under
Section 11(a) of the Exchange Act. The
rule provides that a member’s
22 15
23 17
PO 00000
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
Frm 00068
Fmt 4703
Sfmt 4703
proprietary order may be executed on
the exchange of which the trader is a
member, if, among other things: (1) The
member discloses that a bid or offer for
its account is for its account to any
member with whom such bid or offer is
placed or to whom it is communicated;
(2) any such member through whom
that bid or offer is communicated
discloses to others participating in
effecting the order that it is for the
account of a member; and (3)
immediately before executing the order,
a member (other than a specialist in
such security) presenting any order for
the account of a member on the
exchange clearly announces or
otherwise indicates to the specialist and
to other members then present that he
is presenting an order for the account of
a member.
Without these requirements, it would
not be possible for the Commission to
monitor its mandate under the Exchange
Act to promote fair and orderly markets
and ensure that exchange members
have, as the principal purpose of their
exchange memberships, the conduct of
a public securities business.
There are approximately 663
respondents that require an aggregate
total of 19 hours to comply with this
rule. Each of these approximately 663
respondents makes an estimated 20
annual responses, for an aggregate of
13,260 responses per year. Each
response takes approximately 5 seconds
to complete. Thus, the total compliance
burden per year is 19 hours (13,260 × 5
seconds/60 seconds per minute/60
minutes per hour = 19 hours). The
approximate cost per hour is $323,
resulting in a total cost of compliance
for the annual burden of $6,137 (19
hours @$323).
Compliance with Rule 11a–1(T) is
necessary for exchange members to
make transactions for their own
accounts under a specific exemption
from the general prohibition of such
transactions under Section 11(a) of the
Exchange Act. Compliance with Rule
11a–1(T) does not involve the collection
of confidential information. Rule 11a–
1(T) does not have a record retention
requirement per se. However, responses
made pursuant to Rule 11a–1(T) may be
subject to the recordkeeping
requirements of Rules 17a–3 and 17a–4.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
under the PRA unless it displays a
currently valid OMB control number.
The public may view background
documentation for this information
collection at the following Web site:
www.reginfo.gov. Comments should be
directed to (i) Desk Officer for the
E:\FR\FM\19MRN1.SGM
19MRN1
]]>Agencies
[Federal Register Volume 80, Number 53 (Thursday, March 19, 2015)]
[Notices]
[Pages 14421-14424]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-06262]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74496; File No. SR-MIAX-2015-03]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Order Granting Approval to Proposed Rule Change, as
Modified by Amendment No. 1 Thereto, To Adopt a ``Risk Protection
Monitor'' Functionality Under Proposed MIAX Rule 519A and Amend the
``Aggregate Risk Monitor'' Functionality Under MIAX Rule 612
March 13, 2015.
I. Introduction
On January 8, 2015, Miami International Securities Exchange LLC
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to section 19(b)(1) of the
Securities Exchange Act
[[Page 14422]]
of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule
change to establish a voluntary Risk Protection Monitor functionality
for orders (the ``RPM'') and codify existing functionality regarding
the Exchange's Aggregate Risk Manager for quotes (the ``ARM''). On
January 20, 2105, the Exchange filed Amendment No.1 to the proposal.\3\
The proposed rule change, as modified by Amendment No. 1, was published
for comment in the Federal Register on January 28, 2015.\4\ The
Commission did not receive any comments on the proposed rule change.
This order approves the proposed rule change, as modified by Amendment
No. 1.
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\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.
\4\ See Securities Exchange Act Release No. 74118 (January 22,
2015), 80 FR 4605 (``Notice'').
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II. Description of the Proposal
The Exchange proposes new MIAX Rule 519A to establish a voluntary
RPM that will be available to all MIAX members. The Exchange also
proposes clarifying amendments to current MIAX Rule 612, which
describes the Exchange's ARM functionality that is applicable to
quoting activity by MIAX Market Makers.
A. Risk Protection Monitor
According to the Exchange, the RPM is intended to provide new risk
protection functionality for orders entered by members. Under new MIAX
Rule 519A, MIAX's automated trading system (the ``System'') will
maintain a counting program (the ``counting program'') for each
participating member. Member participation in the counting program will
be voluntary. The counting program will count (i) the number of orders
entered by the member on the Exchange within a specified time period
that has been established by the member (the ``specified time
period''), and (ii) the number of contracts traded via an order entered
by the member on the Exchange within the specified time period.\5\ The
Exchange will establish a maximum duration for any specified time
period and announce that maximum duration via a Regulatory Circular. To
use the RPM functionality, members must establish an Allowable Order
Rate and/or an Allowable Contract Execution Rate. The Allowable Order
Rate is the maximum number of permissible orders (as specified by the
member) entered during the specified time period designated by the
member. The Allowable Contract Execution Rate is the maximum number of
permissible contracts (as specified by the member) executed during the
specified time period designated by the member.
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\5\ In its filing, the Exchange noted that members may establish
different specified time periods for the purpose of counting orders
and the purpose of counting contracts traded via an order entered by
the member under the RPM, and thus, the length of the specified time
period for each purpose need not be the same. See Notice, supra note
4, at 4605 n.7.
---------------------------------------------------------------------------
If the RPM functionality is elected by a member, the System will
trigger the RPM whenever the counting program determines that the
member has entered a number of orders that exceeds the member's
specified Allowable Order Rate during the specified time period, or
executed a number of contracts that exceeds the member's specified
Allowable Contract Execution Rate during the specified time period.\6\
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\6\ In the Notice, the Exchange provided examples demonstrating
how the System will determine when the Allowable Order Rate or
Allowable Contract Execution Rate for an individual member is
exceeded. See Notice, supra note 4, at 4606-07.
---------------------------------------------------------------------------
Under new MIAX Rule 519A, a member may establish whether the RPM,
once triggered, will: (i) Prevent the System from receiving any new
orders in all series in all classes from the member; (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 (iii) send a notification that the RPM has
been triggered without any further preventative actions or
cancellations by the System. Once engaged, the RPM will automatically
take whatever action has been specified in advance by the member.
However, PRIME Orders, PRIME Solicitation Orders, Auction or Cancel
Orders (``AOC Order''), Opening Orders (``OPG Order''), or Good `til
Cancel Orders (``GTC Order'') will not participate in the RPM. \7\ When
engaged, the RPM will allow the member to interact with existing orders
that were entered prior to the member exceeding the Allowable Order
Rate or the Allowable Contract Execution Rate, including sending cancel
order messages and receiving trade executions from those orders. The
RPM will remain engaged until the member communicates with the
Exchange's help desk (the ``Help Desk'') to re-enable the System to
accept new orders from the member. The Exchange noted that this
communication from the member to the Help Desk may be sent either via
email or phone.\8\
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\7\ Interpretation and Policy .02 to new MIAX Rule 519A provides
that PRIME Orders, PRIME Solicitation Orders, and GTC Orders will
not participate in the RPM. The System will include PRIME Orders,
PRIME Solicitation Orders, and GTC Orders in the counting program
for purposes determining when the RPM is triggered. 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, however, the RPM will not cancel
any existing PRIME Orders, PRIME Solicitation Orders, AOC Orders,
OPG Orders, or GTC Orders that are marked as Day orders.
\8\ See Notice, supra note 4, at 4606 n.10.
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In addition, the Exchange also proposes to allow members to group
with other members so that the RPM would apply collectively to the
group. The members in such a group must designate a group owner and may
form a group together if: (i) There is at least 75% common ownership
between the group's members, 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. A
clearing firm also may elect to group together with several members so
that the RPM applies collectively to that group of members, provided
that: (i) The clearing firm must be designated as the group owner; (ii)
the clearing firm must serve as the clearing firm for all the MPIDs of
the group; and (iii) there must be written authorization signed by the
clearing firm and each member of the group.
In general, the RPM for groups will operate in the same manner as
it does for individual members, except that that the counting program
and RPM protections will apply to the group as a whole. Thus, the
counting program will count the number of orders entered and the number
of contracts traded resulting from orders entered by all MPIDs in the
group collectively, and the System will trigger the RPM when the group
collectively exceeds either the Allowable Order Rate or Allowable
Contract Execution Rate for the group.\9\ Once engaged, pursuant to the
group owner's instructions, the RPM will automatically either: (i)
Prevent the System from receiving any new orders in all series in all
classes from each MPID in the group; (ii) prevent the System from
receiving any new orders in all series in all classes from each MPID in
the group and cancel all existing Day orders in all series in all
classes from the group, or (iii) send a notification without any
further
[[Page 14423]]
preventative action or cancellations by the System. Only the designated
group owner may re-enable the acceptance of new orders for all the
members of the group, via a request to the Help Desk. In instances when
a clearing firm has grouped several members for the purpose of the RPM,
the clearing firm may only elect to receive warning notifications
indicating that a specific percentage of an Allowable Order Rate or an
Allowable Contract Execution Rate has been met, unless one member of
the group maintains exclusive control of all orders routed through all
MPIDs within the group.
---------------------------------------------------------------------------
\9\ In the Notice, the Exchange provided examples demonstrating
how the System will determine when the Allowable Order Rate or
Allowable Contract Execution Rate is exceeded for a group. See
Notice, supra note 4, at 4608.
---------------------------------------------------------------------------
In addition, members may elect to receive warning notifications
from MIAX indicating that a specific percentage of an Allowable Order
Rate or an Allowable Contract Execution Rate has been met. The Exchange
also proposes that, at the request of a member, or if necessary 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.
B. Aggregate Risk Manager
The Exchange also proposes to codify what it represents is existing
functionality regarding the ARM under MIAX Rule 612.\10\ Under MIAX
Rule 612, the System maintains a counting program for each Market Maker
who is required to submit continuous two-sided quotations pursuant to
MIAX Rule 604 in each of its assigned option classes. The ARM counting
program counts the number of contracts traded by a Market Maker's
quotes in an assigned option class within a specified time period that
has been established by the Market Maker; MIAX Rule 612 states that the
specified time period for the ARM cannot exceed 15 seconds. Under the
ARM, a Market Maker also establishes for each option class an Allowable
Engagement Percentage. The System engages the ARM in a particular
option class when the counting program has determined that a Market
Maker has traded during the specified time period a number of contracts
equal to or above its Allowable Engagement Percentage.\11\ Once
engaged, the ARM automatically removes the Market Maker's quotations on
MIAX in all series of that particular option class until the Market
Maker submits a new revised quotation.
---------------------------------------------------------------------------
\10\ See Notice, supra note 4, at 4609.
\11\ The Allowable Engagement Percentage cannot be less than
100%. The System calculates the Allowable Engagement Percentage by
first determining the percentage that the number of contracts
executed in an individual option in a class represents relative to
the Market Maker's disseminated Standard quote and/or Day eQuote in
that individual option (``option percentage''). See MIAX Rule
612(b)(2)(i). When the System calculates the option percentage, the
number of contracts executed in that option class will be
automatically offset by the number of contracts that are executed on
the opposite side of the market in the same option class during the
specified time period. See MIAX Rule 612(b)(3). The counting program
will then combine the individual option percentages to determine the
option class percentage (``class percentage''). See MIAX Rule
612(b)(2)(ii). When the class percentage equals or exceeds the
Market Maker's Allowable Engagement Percentage, the ARM will be
triggered. See id.
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The Exchange proposes to amend MIAX Rule 612 in two regards. First,
the Exchange proposes to codify in its rules an existing requirement
for a Market Maker to send a message to MIAX specifically to disengage
the ARM and allow quoting before the Market Maker can begin to quote
again in that class. As noted above, MIAX Rule 612 currently provides
that once engaged, the ARM will automatically remove the Market Maker's
quotations from MIAX in all series of that particular option class
until the Market Maker submits a new revised quotation. The Exchange
proposes to add rule text to MIAX Rule 612(b)(1) requiring a Market
Maker also to send a notification to the System of its intent to
reengage quoting in order to disengage the ARM. Second, the Exchange
proposes to clarify, in new Interpretation and Policy .01 to Rule 612,
that eQuotes \12\ do not participate in the ARM. The Exchange states
that the System does not include contracts traded through the use of an
eQuote in the counting program for purposes of Rule 612, and that
eQuotes will remain in the System available for trading when the
Aggregate Risk Manager is engaged.\13\
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\12\ An eQuote ``is a quote with a specific time in force that
does not automatically cancel and replace a previous Standard quote
or eQuote,'' and ``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.'' See MIAX Rule
517(a)(2).
\13\ See Notice, supra note 4, at 4609.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder that are applicable to a national securities
exchange.\14\ In particular, the Commission finds that the proposed
rule change is consistent with section 6(b)(5) of the Act,\15\ which
requires, among other things, that the rules of a national securities
exchange be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
The Commission believes that the RPM may help members, and member
groups, to mitigate the potential risks associated with the execution
of an unacceptable level of orders that result from, e.g., technology
issues with electronic trading systems. The Commission also notes that
other exchanges have established risk protection mechanisms for members
and/or market makers that are similar in many respects to MIAX's
proposal.\16\ While the concept of member groups may be unique to
MIAX's proposal, the Commission believes that MIAX has designed that
portion of the proposed rule to be consistent with the Act, including
section 6(b)(5), as it may foster cooperation and coordination with
clearing transactions and protect investors and the public interest by
providing a mechanism to reduce the risk of abnormal trading activity
across multiple participants under common control or where the group
otherwise provides written opt-in consent.
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\14\ 15 U.S.C. 78f. In approving this proposed rule change, the
Commission notes that it has considered the proposed rule's impact
on efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\15\ 15 U.S.C. 78f(b)(5).
\16\ See, e.g., BATS Exchange (``BATS'') Rule 21.16 (Risk
Monitor Mechanism available to all BATS Users); NASDAQ Options
Market (``NOM'') Rule Chapter VI, Section 19 (Risk Monitor Mechanism
available to all NOM Participants); BOX Options Exchange Rule 7280
(Bulk Cancellation of Trading Interest available to Options
Participants); and Chicago Board Options Exchange (``CBOE'') Rule
8.18 (Quote Risk Monitor Mechanism available to certain CBOE Market-
Makers and CBOE Trading Permit Holders associated with certain CBOE
Market-Makers).
---------------------------------------------------------------------------
The Commission notes that the RPM is a voluntary mechanism. The
Commission reminds members electing to use the RPM to be mindful of
their obligations to, among other things, seek best execution of orders
they handle on an agency basis. A broker-dealer has a legal duty to
seek to obtain best execution of customer orders, and the decision to
utilize the RPM, including the parameters set by the member for the
RPM, must be consistent with this duty.\17\ For instance, under the
[[Page 14424]]
proposal, members have unfettered discretion to set the Allowable Order
Rate and Allowable Contract Execution Rate for the RPM. While MIAX
neglected to affirmatively establish minimum and maximum permissible
settings for the RPM in its rule, the Commission expects MIAX
periodically to assess whether the RPM functionality is operating in a
manner that is consistent with the promotion of fair and orderly
markets. In addition, the Commission expects that members will consider
their best execution obligations when establishing the minimum and
maximum parameters for the RPM.\18\ For example, an abnormally low
Allowable Order Rate set over an abnormally long specified time period
should be carefully scrutinized, particularly if a member's order flow
to MIAX contains agency orders. To the extent that the RPM is set to
overly-sensitive parameters, a member should consider the effect of its
chosen settings on its ability to receive a timely execution on
marketable agency orders that it sends to MIAX in various market
conditions.\19\ The Commission cautions that brokers considering their
best execution obligations should be aware that the agency orders they
represent may be rejected on account of the RPM.
---------------------------------------------------------------------------
\17\ See Securities Exchange Act Release Nos. 37619A (Sept. 6,
1996), 61 FR 48290 (Sept. 12, 1996) (``Order Handling Rules
Release''); 51808 (June 9, 2005), 70 FR 37496, 37537-8 (June 29,
2005).
\18\ The Commission reminds broker-dealers that they must
examine their procedures for seeking to obtain best execution in
light of market and technology changes and modify those practices if
necessary to enable their customers to obtain the best reasonably
available prices. See Order Handling Rules Release, supra note 17,
at 48323.
\19\ For example, a marketable agency order that would have
otherwise executed on MIAX might be prevented from reaching MIAX on
account of other interest from the member that causes it to exceed
its Allowable Order Rate and, thus, triggers the RPM, resulting in
the System blocking new orders from the member.
---------------------------------------------------------------------------
In addition, under the proposal, once the RPM is engaged, PRIME
Orders, PRIME Solicitation Orders, GTC Orders, AOC Orders, and OPG
Orders will not participate in the RPM.\20\ The Commission notes that
these are unique order types.\21\ The Commission believes that these
exceptions appear to be reasonably designed to not interfere with the
operation of the PRIME and PRIME Solicitation auctions and also to
restrict application of the RPM to specific types of orders, whose
terms limit their application to specialized purposes for which members
may not want or need order protection to apply.
---------------------------------------------------------------------------
\20\ See supra note 7.
\21\ For example, the Exchange argues that PRIME Orders
submitted pursuant to MIAX Rule 515A have been guaranteed an
execution at the time of acceptance into the System and, therefore,
should not be cancelled when the RPM is engaged, because the
execution has effectively already occurred. See Notice, supra note
4, at 4609.
---------------------------------------------------------------------------
The proposed rule change also codifies existing functionality in
the ARM with respect to the procedures for resuming quoting and the
non-participation of eQuotes. The Commission notes that the
clarification of ARM procedures in Rule 612 could eliminate potential
confusion for members regarding the need to affirmatively notify MIAX
that the member wishes to re-start quoting following an ARM event as
well as internal inconsistency in the rule about the inapplicability of
ARM to eQuotes.
IV. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\22\ that the proposed rule change (SR-MIAX-2015-03), as modified
by Amendment No. 1, be, and hereby is, approved.
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\22\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-06262 Filed 3-18-15; 8:45 am]
BILLING CODE 8011-01-P
