Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Exchange Rule 322, Disruptive Quoting and Trading Activity Prohibited and Exchange Rule 1018, Expedited Suspension Proceeding, 76639-76645 [2016-26514]
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Federal Register / Vol. 81, No. 213 / Thursday, November 3, 2016 / Notices
be incentivized to minimize any
compliance issues identified in the
inspection. The proposed amendments
to Rule 748(g) concerning the
examination schedule and specifically
requiring that the inspection be
reasonably designed to assist in
preventing and detecting violations of,
and achieving compliance with,
applicable securities laws and
regulations and with applicable
Exchange rules should assure that
inspections take place with a
predictable and adequate frequency and
are reasonably designed to identify
violations of applicable law and rules.
The proposed amendments to Rule
748(h) are also designed to protect
investors and the public interest, by
requiring the written supervisory
procedures to be preserved for a period
of not less than three years, the first two
in an easily accessible place, in order to
facilitate identification of instances
where the procedures were not
followed. Stating that the written
supervisory procedures and the system
for applying such procedures shall
reasonably be ‘‘designed’’ rather than
‘‘expected’’ to prevent and detect
violations clarifies the affirmative
nature of the member or member
organization’s obligations under the rule
when creating such procedures.
Finally, the Rule 748(h) amendment
requiring members or member
organizations to update their written
supervisory procedures following
changes in applicable securities laws
and regulations, and Exchange rules
should promote the continued
usefulness of the procedures in the
context of ongoing changes in the
regulatory environment in which
members and member organizations
conduct their business.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
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The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
amendments will apply to all members
and member organizations subject to
Rule 748.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission shall: (a) By order
approve or disapprove such proposed
rule change, or (b) institute proceedings
to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
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–
Phlx–2016–104 on the subject line.
Paper Comments
• 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–Phlx–2016–104. 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 the
filing also will be available for
inspection and copying at the principal
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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–Phlx–2016–104 and should
be submitted on or before November 25,
2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
Brent J. Fields,
Secretary.
[FR Doc. 2016–26511 Filed 11–2–16; 8:45 am]
BILLING CODE 8011–01–P
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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76639
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79182; File No. SR–MIAX–
2016–40]
Self-Regulatory Organizations; Miami
International Securities Exchange LLC;
Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Adopt Exchange Rule 322,
Disruptive Quoting and Trading
Activity Prohibited and Exchange Rule
1018, Expedited Suspension
Proceeding
October 28, 2016.
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 October
20, 2016, Miami International Securities
Exchange LLC (‘‘MIAX’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I and II below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
adopt Exchange Rule 322, Disruptive
Quoting and Trading Activity
Prohibited, to clearly prohibit disruptive
quoting and trading activity on the
Exchange as described below. The
Exchange also proposes to adopt new
Exchange Rule 1018, Expedited
Suspension Proceeding, to permit the
Exchange to take prompt action to
6 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 81, No. 213 / Thursday, November 3, 2016 / Notices
suspend Members or their clients that
violate such rule.
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
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1. Purpose
The Exchange proposes to adopt new
Exchange Rule 322, Disruptive Quoting
and Trading Activity Prohibited, to
clearly prohibit disruptive trading
activity on the Exchange and to adopt a
new Exchange Rule 1018, Expedited
Suspension Proceeding, to permit the
Exchange to take prompt action to
suspend Members or their clients that
violate such rule.
Background
As a national securities exchange
registered pursuant to Section 6 of the
Act, the Exchange is required to be
organized and to have the capacity to
enforce compliance by its members and
persons associated with its members,
with the Act, the rules and regulations,
thereunder, and the Exchange’s Rules.
Further, the Exchange’s Rules are
required to be ‘‘designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade . . . and, in general,
to protect investors and the public
interest.’’ 3 In fulfilling these
requirements, the Exchange has
developed a comprehensive regulatory
program that includes automated
surveillance of trading activity that is
both operated directly by Exchange staff
and by staff of the Financial Industry
Regulatory Authority (‘‘FINRA’’)
pursuant to a Regulatory Services
Agreement (‘‘RSA’’). When disruptive
3 15
U.S.C. 78(f)(b)(1).
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and potentially manipulative or
improper quoting and trading activity is
identified, the Exchange or FINRA
(acting as an agent of the Exchange)
conducts an investigation into the
activity, requesting additional
information from the Member or
Members involved. To the extent
violations of the Act, the rules and
regulations thereunder, or Exchange
Rules have been identified and
confirmed, the Exchange or FINRA, as
its agent, will commence the
enforcement process, which might
result in, among other things, a censure,
a requirement to take certain remedial
actions, one or more restrictions on
future business activities, a monetary
fine, or even a temporary or permanent
ban from the securities industry.
The process described above, from the
identification of disruptive and
potentially manipulative or improper
quoting and trading activity to a final
resolution of the matter, can often take
several years. The Exchange believes
that this time period is generally
necessary and appropriate to afford the
subject Member adequate due process,
particularly in complex cases. However,
as described below, the Exchange
believes that there are certain obvious
and uncomplicated cases of disruptive
and manipulative behavior or cases
where the potential harm to investors is
so large that the Exchange should have
the authority to initiate an expedited
suspension proceeding in order to stop
the behavior from continuing on the
Exchange.
In recent years, several cases have
been brought and resolved by exchanges
and other SROs that involved
allegations of wide-spread market
manipulation, much of which was
ultimately being conducted by foreign
persons and entities using relatively
rudimentary technology to access the
markets and over which the exchanges
and other SROs had no direct
jurisdiction. In each case, the conduct
involved a pattern of disruptive quoting
and trading activity indicative of
manipulative layering 4 or spoofing.5
4 ‘‘Layering’’ is a form of market manipulation in
which multiple, non-bona fide limit orders are
entered on one side of the market at various price
levels in order to create the appearance of a change
in the levels of supply and demand, thereby
artificially moving the price of the security. An
order is then executed on the opposite side of the
market at the artificially created price, and the nonbona fide orders are cancelled.
5 ‘‘Spoofing’’ is a form of market manipulation
that involves the market manipulator placing nonbona fide orders that are intended to trigger some
type of market movement and/or response from
other market participants, from which the market
manipulator might benefit by trading bona fide
orders.
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The exchanges and other SROs were
able to identify the disruptive quoting
and trading activity in real-time or near
real-time; nonetheless, in accordance
with Exchange Rules and the Act, the
Members responsible for such conduct
or responsible for their customers’
conduct were allowed to continue the
disruptive quoting and trading activity
on the Exchange and other exchanges
during the entirety of the subsequent
lengthy investigation and enforcement
process. The Exchange believes that it
should have the authority to initiate an
expedited suspension proceeding in
order to stop the behavior from
continuing on the Exchange if a Member
is engaging in or facilitating disruptive
quoting and trading activity and the
Member has received sufficient notice
with an opportunity to respond, but
such activity has not ceased.
The following two examples are
instructive on the Exchange’s rationale
for the proposed rule change.
In July 2012, Biremis Corp. (formerly
Swift Trade Securities USA, Inc.) (the
‘‘Firm’’) and its CEO were barred from
the industry for, among other things,
supervisory violations related to a
failure by the Firm to detect and prevent
disruptive and allegedly manipulative
trading activities, including layering,
short sale violations, and anti-money
laundering violations.6
The Firm’s sole business was to
provide trade execution services via a
proprietary day trading platform and
order management system to day traders
located in foreign jurisdictions. Thus,
the disruptive and allegedly
manipulative trading activity
introduced by the Firm to U.S. markets
originated directly or indirectly from
foreign clients of the Firm. The pattern
of disruptive and allegedly
manipulative quoting and trading
activity was widespread across multiple
exchanges, FINRA, and other SROs
identified clear patterns of the behavior
in 2007 and 2008. Although the Firm
and its principals were on notice of the
disruptive and allegedly manipulative
quoting and trading activity that was
occurring, the Firm took little to no
action to attempt to supervise or prevent
such quoting and trading activity until
at least 2009. Even when it put some
controls in place, they were deficient
and the pattern of disruptive and
allegedly manipulative trading activity
continued to occur. As noted above, the
final resolution of the enforcement
action to bar the Firm and its CEO from
the industry was not concluded until
6 See Biremis Corp. and Peter Beck, FINRA Letter
of Acceptance, Waiver and Consent No.
2010021162202, July 30, 2012.
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2012, four years after the disruptive and
allegedly manipulative trading activity
was first identified.
In September of 2012, Hold Brothers
On-Line Investment Services, Inc. (the
‘‘Firm’’) settled a regulatory action in
connection with the Firm’s provision of
a trading platform, trade software and
trade execution, support and clearing
services for day traders.7 Many traders
using the Firm’s services were located
in foreign jurisdictions. The Firm
ultimately settled the action with
FINRA and several exchanges, for a total
monetary fine of $3.4 million. In a
separate action, the Firm settled with
the Commission for a monetary fine of
$2.5 million.8 Among the alleged
violations in the case were disruptive
and allegedly manipulative quoting and
trading activity, including spoofing,
layering, wash trading, and pre-arranged
trading. Through its conduct and
insufficient procedures and controls, the
Firm also allegedly committed antimoney laundering violations by failing
to detect and report manipulative and
suspicious trading activity. The Firm
was alleged to have not only provided
foreign traders with access to the U.S.
markets to engage in such activities, but
that its principals also owned and
funded foreign subsidiaries that engaged
in the disruptive and allegedly
manipulative quoting and trading
activity. Although the pattern of
disruptive and allegedly manipulative
quoting and trading activity was
identified in 2009, as noted above, the
enforcement action was not concluded
until 2012. Thus, although disruptive
and allegedly manipulative quoting and
trading was promptly detected, it
continued for several years.
The Exchange also notes the current
criminal proceedings that have
commenced against Navinder Singh
Sarao. Mr. Sarao’s allegedly
manipulative trading activity, which
included forms of layering and spoofing
in the futures markets, has been linked
as a contributing factor to the ‘‘Flash
Crash’’ of 2010, and yet continued
through 2015.
The Exchange believes that the
activities described in the cases above
provide justification for the proposed
rule change, which is described below.
In addition, while the examples
provided are related to the equities
market, the Exchange believes that this
type of conduct should be prohibited for
options as well. The Exchange believes
7 See Hold Brothers On-Line Investment Services,
LLC, FINRA Letter of Acceptance, Waiver and
Consent No. 20100237710001, September 25, 2012.
8 In the Matter of Hold Brothers On-Line
Investment Services, LLC, Exchange Act Release.
No. 67924, September 25, 2012.
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that these patterns of disruptive and
allegedly manipulative quoting and
trading activity need to be addressed
and the product should not limit the
action taken by the Exchange.
Rule 1018—Expedited Suspension
Proceeding
The Exchange proposes to adopt new
Rule 1018, titled ‘‘Expedited
Suspension Proceeding,’’ to set forth
procedures for issuing suspension
orders, immediately prohibiting a
Member from conducting continued
disruptive quoting and trading activity
on the Exchange. Importantly, these
procedures would also provide the
Exchange the authority to order a
Member to cease and desist from
providing access to the Exchange to a
client of the Member that is conducting
disruptive quoting and trading activity
in violation of proposed Rule 322. The
proposed new Rule 322 would be titled,
‘‘Disruptive Quoting and Trading
Activity Prohibited.’’ Under proposed
paragraph (a) of Rule 1018, with the
prior written authorization of the Chief
Regulatory Officer (‘‘CRO’’) or such
other senior officers as the CRO may
designate, the Office of the General
Counsel or Regulatory Department of
the Exchange (such departments
generally referred to as the ‘‘Exchange’’
for purposes of the proposed Rule 1018)
may initiate an expedited suspension
proceeding with respect to alleged
violations of proposed Rule 322, which
is proposed as part of this filing and
described in detail below. Proposed
paragraph (a) would also set forth the
requirements for notice and service of
such notice pursuant to the Rule,
including the required method of
service and the content of notice.
Proposed paragraph (b) of Rule 1018
would govern the appointment of a
Hearing Panel as well as potential
disqualification or recusal of Panel
Members. The proposed provision is
consistent with existing Exchange Rule
1006(a). The proposed rule provides for
a Panel Member to be recused in the
event he or she has a conflict of interest
or bias or other circumstances exist
where his or her fairness might
reasonably be questioned in accordance
with Rule 1018(b)(2). In addition to
recusal initiated by such a Panel
Member, a party to the proceeding will
be permitted to file a motion to
disqualify a Panel Member. However,
due to the compressed schedule
pursuant to which the process would
operate under Rule 1018, the proposed
rule would require such motion to be
filed no later than 5 days after the
announcement of the Hearing Panel and
the Exchange’s brief in opposition to
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76641
such motion would be required to be
filed no later than 5 days after service
thereof. Pursuant to existing Rule
1006(a)(3), any time a person serving on
a Panel has a conflict of interest or bias
or circumstances otherwise exist where
his or her fairness might be reasonably
questioned, the person must withdraw
from the Panel. The applicable Panel
Member shall remove himself or herself
and the Panel Chairman may request the
Chairman of the Business Conduct
Committee to select a replacement such
that the Hearing Panel still meets the
compositional requirements described
in Rule 1006(a).
Under paragraph (c) of the proposed
Rule, the hearing would be held not
later than 15 days after the service of the
notice initiating the suspension
proceeding, unless otherwise extended
by the Chairman of the Hearing Panel
with the consent of the Parties for good
cause shown. In the event of a recusal
or disqualification of a Panel Member,
the hearing shall be held not later than
five days after a replacement Panel
Member is appointed. Proposed
paragraph (c) would also govern how
the hearing is conducted, including the
authority of Panel Members, witnesses,
additional information that may be
required by the Hearing Panel, the
requirement that a transcript of the
proceeding be created and details
related to such transcript, and details
regarding the creation and maintenance
of the record of the proceeding.
Proposed paragraph (c) would also state
that if a Respondent fails to appear at a
hearing for which it has notice, the
allegations in the notice and
accompanying declaration may be
deemed admitted, and the Hearing
Panel may issue a suspension order
without further proceedings. Finally, as
proposed, if the Exchange fails to appear
at a hearing for which it has notice, the
Hearing Panel may order that the
suspension proceeding be dismissed.
Under paragraph (d) of the proposed
Rule, the Hearing Panel would be
required to issue a written decision
stating whether a suspension order
would be imposed. The Hearing Panel
would be required to issue the decision
not later than 10 days after receipt of the
hearing transcript, unless otherwise
extended by the Chairman of the
Hearing Panel with the consent of the
Parties for good cause shown. The Rule
would state that a suspension order
shall be imposed if the Hearing Panel
finds by a preponderance of the
evidence that the alleged violation
specified in the notice has occurred and
that the violative conduct or
continuation thereof is likely to result in
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significant market disruption or other
significant harm to investors.
Proposed paragraph (d) would also
describe the content, scope and form of
a suspension order. As proposed, a
suspension order shall be limited to
ordering a Respondent to cease and
desist from violating proposed Rule 322
and/or to ordering a Respondent to
cease and desist from providing access
to the Exchange to a client of
Respondent that is causing violations of
proposed Rule 322. Under the proposed
rule, a suspension order shall also set
forth the alleged violation and the
significant market disruption or other
significant harm to investors that is
likely to result without the issuance of
an order. The order shall describe in
reasonable detail the act or acts the
Respondent is to take or refrain from
taking, and suspend such Respondent
unless and until such action is taken or
refrained from. Finally, the order shall
include the date and hour of its
issuance. As proposed, a suspension
order would remain effective and
enforceable unless modified, set aside,
limited, or revoked pursuant to
proposed paragraph (e), as described
below. Finally, paragraph (d) would
require service of the Hearing Panel’s
decision and any suspension order
consistent with other portions of the
proposed rule related to service.
Proposed paragraph (e) of Rule 1018
would state that at any time after the
Hearing Panel served the Respondent
with a suspension order, a Party could
apply to the Hearing Panel to have the
order modified, set aside, limited, or
revoked. If any part of a suspension
order is modified, set aside, limited, or
revoked, proposed paragraph (e) of Rule
1018 provides the Hearing Panel
discretion to leave the cease and desist
part of the order in place. For example,
if a suspension order suspends
Respondent unless and until
Respondent ceases and desists
providing access to the Exchange to a
client of Respondent, and after the order
is entered the Respondent complies, the
Hearing Panel is permitted to modify
the order to lift the suspension portion
of the order while keeping in place the
cease and desist portion of the order.
With its broad modification powers, the
Hearing Panel also maintains the
discretion to impose conditions upon
the removal of a suspension—for
example, the Hearing Panel could
modify an order to lift the suspension
portion of the order in the event a
Respondent complies with the cease
and desist portion of the order but
additionally order that the suspension
will be re-imposed if Respondent
violates the cease and desist provisions
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modified order in the future. The
Hearing Panel generally would be
required to respond to the request in
writing within 10 days after receipt of
the request. An application to modify,
set aside, limit or revoke a suspension
order would not stay the effectiveness of
the suspension order.
Finally, proposed paragraph (f) would
provide that sanctions issued under the
proposed Rule 1018 would constitute
final and immediately effective
disciplinary sanctions imposed by the
Exchange, and that the right to have any
action under the Rule reviewed by the
Commission would be governed by
Section 19 of the Act. The filing of an
application for review would not stay
the effectiveness of a suspension order
unless the Commission otherwise
ordered.
Rule 322—Disruptive Quoting and
Trading Activity Prohibited
The Exchange currently has authority
to prohibit and take action against
manipulative trading activity, including
disruptive quoting and trading activity,
pursuant to its general market
manipulation rules, including Rules
301, Just and Equitable Principles of
Trade, and 318, Manipulation. The
Exchange proposes to adopt new Rule
322, which would more specifically
define and prohibit disruptive quoting
and trading activity on the Exchange. As
noted above, the Exchange proposes to
apply the proposed suspension rules to
proposed Rule 322.
Proposed Rule 322 would prohibit
Members from engaging in or facilitating
disruptive quoting and trading activity
on the Exchange, as described in
proposed Rule 322(a)(1) and (2),
including acting in concert with other
persons to effect such activity. The
Exchange believes that it is necessary to
extend the prohibition to situations
when persons are acting in concert to
avoid a potential loophole where
disruptive quoting and trading activity
is simply split between several brokers
or customers. The Exchange believes,
that with respect to persons acting in
concert perpetrating an abusive scheme,
it is important that the Exchange have
authority to act against the parties
perpetrating the abusive scheme,
whether it is one person or multiple
persons.
To provide proper context for the
situations in which the Exchange
proposes to utilize its proposed
authority, the Exchange believes it is
necessary to describe the types of
disruptive quoting and trading activity
that would cause the Exchange to use its
authority. Accordingly, the Exchange
proposes to adopt Rule 322(a)(1) and (2)
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providing additional details regarding
disruptive quoting and trading activity.
Proposed Rule 322(a)(1)(i) describes
disruptive quoting and trading activity
containing many of the elements
indicative of layering. It would describe
disruptive quoting and trading activity
as a frequent pattern in which the
following facts are present: (i) A party
enters multiple limit orders on one side
of the market at various price levels (the
‘‘Displayed Orders’’); and (ii) following
the entry of the Displayed Orders, the
level of supply and demand for the
security changes; and (iii) the party
enters one or more orders on the
opposite side of the market of the
Displayed Orders (the ‘‘Contra-Side
Orders’’) that are subsequently
executed; and (iv) following the
execution of the Contra-Side Orders, the
party cancels the Displayed Orders.
Proposed Rule 322(a)(1)(ii) describes
disruptive quoting and trading activity
containing many of the elements
indicative of spoofing and would
describe disruptive quoting and trading
activity as a frequent pattern in which
the following facts are present: (i) A
party narrows the spread for a security
by placing an order inside the national
best bid or offer; and (ii) the party then
submits an order on the opposite side of
the market that executes against another
market participant that joined the new
inside market established by the order
described in proposed Rule
322(a)(1)(ii)(A) that narrowed the
spread. The Exchange believes that the
proposed descriptions of disruptive
quoting and trading activity articulated
in the rule are consistent with the
activities that have been identified and
described in the client access cases
described above. The Exchange further
believes that the proposed descriptions
will provide Members with clear
descriptions of disruptive quoting and
trading activity that will help them to
avoid in engaging in such activities or
allowing their clients to engage in such
activities.
The Exchange proposes to make clear
in proposed Rule 322(a)(2), unless
otherwise indicated, the descriptions of
disruptive quoting and trading activity
do not require the facts to occur in a
specific order in order for the rule to
apply. For instance, with respect to the
pattern defined in proposed Rule
322(a)(1)(i) it is of no consequence
whether a party first enters Displayed
Orders and then Contra-side Orders or
vice-versa. However, as proposed, it is
required for supply and demand to
change following the entry of the
Displayed Orders. The Exchange also
proposes to make clear that disruptive
quoting and trading activity includes a
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pattern or practice in which some
portion of the disruptive quoting and
trading activity is conducted on the
Exchange and the other portions of the
disruptive quoting and trading activity
are conducted on one or more other
exchanges. The Exchange believes that
this authority is necessary to address
market participants who would
otherwise seek to avoid the prohibitions
of the proposed Rule by spreading their
activity amongst various execution
venues. In sum, proposed Rule 322
coupled with proposed Rule 1018
would provide the Exchange with the
authority to promptly act to prevent
disruptive quoting and trading activity
from continuing on the Exchange.
Below is an example of how the
proposed rule would operate.
Assume that through its surveillance
program, Exchange staff identifies a
pattern of potentially disruptive quoting
and trading activity. After an initial
investigation the Exchange would then
contact the Member responsible for the
orders that caused the activity to request
an explanation of the activity as well as
any additional relevant information,
including the source of the activity. If
the Exchange were to continue to see
the same pattern from the same Member
and the source of the activity is the
same or has been previously identified
as a frequent source of disruptive
quoting and trading activity then the
Exchange could initiate an expedited
suspension proceeding by serving notice
on the Member that would include
details regarding the alleged violations
as well as the proposed sanction. In
such a case the proposed sanction
would likely be to order the Member to
cease and desist providing access to the
Exchange to the client that is
responsible for the disruptive quoting
and trading activity and to suspend
such Member unless and until such
action is taken.
The Member would have the
opportunity to be heard in front of a
Hearing Panel at a hearing to be
conducted within 15 days of the notice.
If the Hearing Panel determined that the
violation alleged in the notice did not
occur or that the conduct or its
continuation would not have the
potential to result in significant market
disruption or other significant harm to
investors, then the Hearing Panel would
dismiss the suspension order
proceeding.
If the Hearing Panel determined that
the violation alleged in the notice did
occur and that the conduct or its
continuation is likely to result in
significant market disruption or other
significant harm to investors, then the
Hearing Panel would issue the order
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including the proposed sanction,
ordering the Member to cease providing
access to the client at issue and
suspending such Member unless and
until such action is taken. If such
Member wished for the suspension to be
lifted because the client ultimately
responsible for the activity no longer
would be provided access to the
Exchange, then such Member could
apply to the Hearing Panel to have the
order modified, set aside, limited or
revoked. The Exchange notes that the
issuance of a suspension order would
not alter the Exchange’s ability to
further investigate the matter and/or
later sanction the Member pursuant to
the Exchange’s standard disciplinary
process for supervisory violations or
other violations of Exchange rules or the
Act.
The Exchange reiterates that it already
has broad authority to take action
against a Member in the event that such
Member is engaging in or facilitating
disruptive or manipulative trading
activity on the Exchange. For the
reasons described above, and in light of
recent cases like the client access cases
described above, as well as other cases
currently under investigation, the
Exchange believes that it is equally
important for the Exchange to have the
authority to promptly initiate expedited
suspension proceedings against any
Member who has demonstrated a clear
pattern or practice of disruptive quoting
and trading activity, as described above,
and to take action including ordering
such Member to terminate access to the
Exchange to one or more of such
Member’s clients if such clients are
responsible for the activity.
The Exchange recognizes that its
proposed authority to issue a
suspension order is a powerful measure
that should be used very cautiously.
Consequently, the proposed rules have
been designed to ensure that the
proceedings are used to address only the
most clear and serious types of
disruptive quoting and trading activity
and that the interests of Respondents are
protected. For example, to ensure that
proceedings are used appropriately and
that the decision to initiate a proceeding
is made only at the highest staff levels,
the proposed rules require the CRO or
another senior officer of the Exchange to
issue written authorization before the
Exchange can institute an expedited
suspension proceeding. In addition, the
rule by its terms is limited to violations
of Rule 322, when necessary to protect
investors, other Members and the
Exchange. The Exchange will initiate
disciplinary action for violations of
proposed Rule 322, pursuant to
proposed Rule 1018. Further, the
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76643
Exchange believes that the proposed
expedited suspension provisions
described above that provide the
opportunity to respond as well as a
Hearing Panel determination prior to
taking action will ensure that the
Exchange would not utilize its authority
in the absence of a clear pattern or
practice of disruptive quoting and
trading activity.
2. Statutory Basis
MIAX believes that its proposed rule
change is consistent with Section 6(b) of
the Act 9 in general, and furthers the
objectives of Section 6(b)(5) of the Act 10
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. Pursuant to the
proposal, the Exchange will have a
mechanism to promptly initiate
expedited suspension proceedings in
the event the Exchange believes that it
has sufficient proof that a violation of
proposed Rule 322 has occurred and is
ongoing.
Further, the Exchange believes that
the proposal is consistent with Sections
6(b)(1) and 6(b)(6) of the Act,11 which
require that the rules of an exchange
enforce compliance with, and provide
appropriate discipline for, violations of
the Commission and Exchange rules.
The Exchange also believes that the
proposal is consistent with the public
interest, the protection of investors, or
otherwise in furtherance of the purposes
of the Act because the proposal helps to
strengthen the Exchange’s ability to
carry out its oversight and enforcement
responsibilities as a self-regulatory
organization in cases where awaiting the
conclusion of a full disciplinary
proceeding is unsuitable in view of the
potential harm to other Members and
their customers. Also, the Exchange
notes that if this type of conduct is
allowed to continue on the Exchange,
the Exchange’s reputation could be
harmed because it may appear to the
public that the Exchange is not acting to
address the behavior. The expedited
process would enable the Exchange to
address the behavior with greater speed.
As explained above, the Exchange
notes that it has defined the prohibited
9 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
11 15 U.S.C. 78f(b)(1) and 78f(b)(6).
10 15
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disruptive quoting and trading activity
by modifying the traditional definitions
of layering and spoofing 12 to eliminate
an express intent element that would
not be proven on an expedited basis and
would instead require a thorough
investigation into the activity. As noted
throughout this filing, the Exchange
believes it is necessary for the
protection of investors to make such
modifications in order to adopt an
expedited process rather than allowing
disruptive quoting and trading activity
to occur for several years.
Through this proposal, the Exchange
does not intend to modify the
definitions of spoofing and layering that
have generally been used by exchanges
and other regulators in connection with
actions like those cited above. The
Exchange believes that the pattern of
disruptive and allegedly manipulative
quoting and trading activity was
widespread across multiple exchanges,
FINRA, and other SROs identified clear
patterns of behavior in 2007 and 2008
in the equities markets.13 The Exchange
believes that this proposal will provide
the Exchange with the necessary means
to enforce against such behavior in an
expedited manner while providing
Members with the necessary due
process. The Exchange believes that its
proposal is consistent with the Act
because it provides the Exchange with
the ability 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 from
such ongoing behavior.
Further, the Exchange believes that
adopting a rule applicable to market
participants is consistent with the Act
because it provides the Exchange with
the ability 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 from
such ongoing behavior.
Further, the Exchange believes that
adopting a rule applicable to market
participants is consistent with the Act
because the Exchange believes that this
type of behavior should be prohibited
for all Members. The type of product
should not be the determining factor,
rather the behavior which challenges
the market structure is the primary
concern for the Exchange. While this
behavior may not be as prevalent on the
options market today, the Exchange
does not believe that the possibility of
such behavior in the future would not
supra note 4 and 5.
Section 3 herein, the Purpose section, for
examples of conduct referred to herein.
have the same market impact and
thereby warrant an expedited process.
The Exchange further believes that the
proposal is consistent with Section
6(b)(7) of the Act,14 which requires that
the rules of an exchange ‘‘provide a fair
procedure for the disciplining of
members and persons associated with
members . . . and the prohibition or
limitation by the exchange of any
person with respect to access to services
offered by the exchange or a member
thereof.’’ Finally, the Exchange also
believes the proposal is consistent with
Sections 6(d)(1) and 6(d)(2) of the Act,15
which require that the rules of an
exchange with respect to a disciplinary
proceeding or proceeding that would
limit or prohibit access to or
membership in the exchange require the
exchange to: Provide adequate and
specific notice of the charges brought
against a member or person associated
with a member, provide an opportunity
to defend against such charges, keep a
record, and provide details regarding
the findings and applicable sanctions in
the event a determination to impose a
disciplinary sanction is made. The
Exchange believes that each of these
requirements is addressed by the notice
and due process provisions included
within Rule 1018. Importantly, as noted
above, the Exchange will use the
authority only in clear and egregious
cases when necessary to protect
investors, other Members and the
Exchange, and in such cases, the
Respondent will be afforded due
process in connection with the
suspension proceedings.
Further, the Exchange believes that
adopting a rule applicable to options is
consistent with the Act because the
Exchange believes that this type of
behavior should be prohibited for all
Members. The type of product should
not be the determining factor, rather the
behavior which challenges the market
structure is the primary concern for the
Exchange. While this behavior may not
be as prevalent on the options market
today, the Exchange does not believe
that the possibility of such behavior in
the future would not have the same
market impact and thereby warrant an
expedited process.
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 that is not
necessary or appropriate in furtherance
of the purposes of the Act. To the
contrary, the Exchange believes that
12 See
13 See
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14 15
15 15
PO 00000
U.S.C. 78f(b)(7).
U.S.C. 78f(d)(1) and 78f(d)(2).
Frm 00092
Fmt 4703
Sfmt 4703
each self-regulatory organization should
be empowered to regulate trading
occurring on its market consistent with
the Act and without regard to
competitive issues. The Exchange is
requesting authority to take appropriate
action if necessary for the protection of
investors, other Members and the
Exchange. The Exchange also believes
that it is important for all exchanges to
be able to take similar action to enforce
their rules against manipulative conduct
thereby leaving no exchange prey to
such conduct.
The Exchange does not believe that
the proposed rule change imposes an
undue burden on competition, rather
this process will provide the Exchange
with the necessary means to enforce
against violations of manipulative
quoting and trading activity in an
expedited manner, while providing
Members with the necessary due
process. The Exchange’s proposal would
treat all Members in a uniform manner
with respect to the type of disciplinary
action that would be taken for violations
of manipulative quoting and trading
activity.
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
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to 19(b)(3)(A)
of the Act 16 and Rule 19b–4(f)(6) 17
thereunder.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
16 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
17 17
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Federal Register / Vol. 81, No. 213 / Thursday, November 3, 2016 / Notices
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
[FR Doc. 2016–26514 Filed 11–2–16; 8:45 am]
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MIAX–2016–40 on the subject line.
Paper Comments
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• 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–MIAX–2016–40. 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 the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly.
All submissions should refer to File
Number SR–MIAX–2016–40 and should
be submitted on or before November 25,
2016.
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17:54 Nov 02, 2016
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Brent J. Fields,
Secretary.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79184; File No. SR–
BatsEDGX–2016–58]
Self-Regulatory Organizations; Bats
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend
EDGX Rule 21.12, Clearing Member
Give Up
October 28, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
19, 2016, Bats EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange filed a proposal to
amend Rule 21.12 in order to codify the
requirement that for each transaction in
which the User 3 participates, the User
must give up the name of the Clearing
Member 4 through which the transaction
will be cleared (‘‘give up’’).
The text of the proposed rule change
is available at the Exchange’s Web site
at www.batstrading.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
18 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 A User is defined as ‘‘any Options member or
Sponsored Participant who is authorized to obtain
access to the System pursuant to Rule 11.3
(Access).’’ See Exchange Rule 16.1(a)(63).
4 A Clearing Member is defined as ‘‘an Options
Member that is self-clearing or an Options Member
that clears EDGX Options Transactions for other
Members of EDGX Options.’’ See Exchange Rule
16.1(a)(15). An Option Member is defined as ‘‘a
firm, or organization that is registered with the
Exchange pursuant to Chapter XVII of these Rules
for purposes of participating in options trading on
EDGX Options as an ‘Options Order Entry Firm’ or
‘Options Market Maker.’ ’’ See Exchange Rule
16.1(a)(38).
1 15
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76645
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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange is proposing to amend
Rule 21.12 (Clearing Member Give Up)
to expand upon the procedure related to
the ‘‘give up’’ of a Clearing Member by
Exchange Users. The Exchange believes
that this proposal would result in the
fair and reasonable use of resources by
both the Exchange and the User. In
addition, the proposed change would
align the Exchange with competing
options exchanges that have adopted
rules consistent with this proposal.5
Background
Under current Exchange rules, Users
entering transactions on the Exchange
must either be a Clearing Member or
must establish a clearing arrangement
with a Clearing Member, and must have
a Letter of Guarantee issued by a
Clearing Member. In addition, under
current Rule 21.12, a User must give up
the name of the Clearing Member
through which each transaction will be
cleared. Every Clearing Member accepts
financial responsibility for all EGDX
Options transactions made by the
guaranteed User pursuant to Rule
22.8(b) (Terms of Letter of Guarantee).
The Exchange believes the proposed
amendment will result in a more
structured and coherent streamlined
give up process.
5 See Securities Exchange Act Release Nos. 75642
(August 7, 2015), 80 FR 48594 (August 13, 2015)
(SR–NYSEMKT–2015–55) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
Amending Rule 961 To Establish Exchange Rules
Governing the Give Up of a Clearing Member by
Users and Conforming Changes to Rules 960 and
954NY); 72668 (July 24, 2014), 79 FR 44229 (July
30, 2014) (SR–CBOE–2014–048) (Order Approving
Proposed Rule Change Relating to the ‘‘Give Up’’
Process, the Process by which a Trading Permit
Holder ‘‘Gives Up’’ or Selects and Indicates the
Clearing Trading Permit Holder Responsible for the
clearance of an Exchange transaction).
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]]>Agencies
[Federal Register Volume 81, Number 213 (Thursday, November 3, 2016)]
[Notices]
[Pages 76639-76645]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-26514]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79182; File No. SR-MIAX-2016-40]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Adopt Exchange Rule 322, Disruptive Quoting and
Trading Activity Prohibited and Exchange Rule 1018, Expedited
Suspension Proceeding
October 28, 2016.
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 October 20, 2016, Miami International Securities Exchange LLC
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange
Commission (``SEC'' or ``Commission'') the proposed rule change as
described in Items I and II below, which Items have been prepared by
the Exchange. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to adopt Exchange Rule 322,
Disruptive Quoting and Trading Activity Prohibited, to clearly prohibit
disruptive quoting and trading activity on the Exchange as described
below. The Exchange also proposes to adopt new Exchange Rule 1018,
Expedited Suspension Proceeding, to permit the Exchange to take prompt
action to
[[Page 76640]]
suspend Members or their clients that violate such rule.
The text of the proposed rule change is available on the Exchange's
Web site at https://www.miaxoptions.com/filter/wotitle/rule_filing, at
MIAX's principal office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to adopt new Exchange Rule 322, Disruptive
Quoting and Trading Activity Prohibited, to clearly prohibit disruptive
trading activity on the Exchange and to adopt a new Exchange Rule 1018,
Expedited Suspension Proceeding, to permit the Exchange to take prompt
action to suspend Members or their clients that violate such rule.
Background
As a national securities exchange registered pursuant to Section 6
of the Act, the Exchange is required to be organized and to have the
capacity to enforce compliance by its members and persons associated
with its members, with the Act, the rules and regulations, thereunder,
and the Exchange's Rules. Further, the Exchange's Rules are required to
be ``designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade . . . and,
in general, to protect investors and the public interest.'' \3\ In
fulfilling these requirements, the Exchange has developed a
comprehensive regulatory program that includes automated surveillance
of trading activity that is both operated directly by Exchange staff
and by staff of the Financial Industry Regulatory Authority (``FINRA'')
pursuant to a Regulatory Services Agreement (``RSA''). When disruptive
and potentially manipulative or improper quoting and trading activity
is identified, the Exchange or FINRA (acting as an agent of the
Exchange) conducts an investigation into the activity, requesting
additional information from the Member or Members involved. To the
extent violations of the Act, the rules and regulations thereunder, or
Exchange Rules have been identified and confirmed, the Exchange or
FINRA, as its agent, will commence the enforcement process, which might
result in, among other things, a censure, a requirement to take certain
remedial actions, one or more restrictions on future business
activities, a monetary fine, or even a temporary or permanent ban from
the securities industry.
---------------------------------------------------------------------------
\3\ 15 U.S.C. 78(f)(b)(1).
---------------------------------------------------------------------------
The process described above, from the identification of disruptive
and potentially manipulative or improper quoting and trading activity
to a final resolution of the matter, can often take several years. The
Exchange believes that this time period is generally necessary and
appropriate to afford the subject Member adequate due process,
particularly in complex cases. However, as described below, the
Exchange believes that there are certain obvious and uncomplicated
cases of disruptive and manipulative behavior or cases where the
potential harm to investors is so large that the Exchange should have
the authority to initiate an expedited suspension proceeding in order
to stop the behavior from continuing on the Exchange.
In recent years, several cases have been brought and resolved by
exchanges and other SROs that involved allegations of wide-spread
market manipulation, much of which was ultimately being conducted by
foreign persons and entities using relatively rudimentary technology to
access the markets and over which the exchanges and other SROs had no
direct jurisdiction. In each case, the conduct involved a pattern of
disruptive quoting and trading activity indicative of manipulative
layering \4\ or spoofing.\5\
---------------------------------------------------------------------------
\4\ ``Layering'' is a form of market manipulation in which
multiple, non-bona fide limit orders are entered on one side of the
market at various price levels in order to create the appearance of
a change in the levels of supply and demand, thereby artificially
moving the price of the security. An order is then executed on the
opposite side of the market at the artificially created price, and
the non-bona fide orders are cancelled.
\5\ ``Spoofing'' is a form of market manipulation that involves
the market manipulator placing non-bona fide orders that are
intended to trigger some type of market movement and/or response
from other market participants, from which the market manipulator
might benefit by trading bona fide orders.
---------------------------------------------------------------------------
The exchanges and other SROs were able to identify the disruptive
quoting and trading activity in real-time or near real-time;
nonetheless, in accordance with Exchange Rules and the Act, the Members
responsible for such conduct or responsible for their customers'
conduct were allowed to continue the disruptive quoting and trading
activity on the Exchange and other exchanges during the entirety of the
subsequent lengthy investigation and enforcement process. The Exchange
believes that it should have the authority to initiate an expedited
suspension proceeding in order to stop the behavior from continuing on
the Exchange if a Member is engaging in or facilitating disruptive
quoting and trading activity and the Member has received sufficient
notice with an opportunity to respond, but such activity has not
ceased.
The following two examples are instructive on the Exchange's
rationale for the proposed rule change.
In July 2012, Biremis Corp. (formerly Swift Trade Securities USA,
Inc.) (the ``Firm'') and its CEO were barred from the industry for,
among other things, supervisory violations related to a failure by the
Firm to detect and prevent disruptive and allegedly manipulative
trading activities, including layering, short sale violations, and
anti-money laundering violations.\6\
---------------------------------------------------------------------------
\6\ See Biremis Corp. and Peter Beck, FINRA Letter of
Acceptance, Waiver and Consent No. 2010021162202, July 30, 2012.
---------------------------------------------------------------------------
The Firm's sole business was to provide trade execution services
via a proprietary day trading platform and order management system to
day traders located in foreign jurisdictions. Thus, the disruptive and
allegedly manipulative trading activity introduced by the Firm to U.S.
markets originated directly or indirectly from foreign clients of the
Firm. The pattern of disruptive and allegedly manipulative quoting and
trading activity was widespread across multiple exchanges, FINRA, and
other SROs identified clear patterns of the behavior in 2007 and 2008.
Although the Firm and its principals were on notice of the disruptive
and allegedly manipulative quoting and trading activity that was
occurring, the Firm took little to no action to attempt to supervise or
prevent such quoting and trading activity until at least 2009. Even
when it put some controls in place, they were deficient and the pattern
of disruptive and allegedly manipulative trading activity continued to
occur. As noted above, the final resolution of the enforcement action
to bar the Firm and its CEO from the industry was not concluded until
[[Page 76641]]
2012, four years after the disruptive and allegedly manipulative
trading activity was first identified.
In September of 2012, Hold Brothers On-Line Investment Services,
Inc. (the ``Firm'') settled a regulatory action in connection with the
Firm's provision of a trading platform, trade software and trade
execution, support and clearing services for day traders.\7\ Many
traders using the Firm's services were located in foreign
jurisdictions. The Firm ultimately settled the action with FINRA and
several exchanges, for a total monetary fine of $3.4 million. In a
separate action, the Firm settled with the Commission for a monetary
fine of $2.5 million.\8\ Among the alleged violations in the case were
disruptive and allegedly manipulative quoting and trading activity,
including spoofing, layering, wash trading, and pre-arranged trading.
Through its conduct and insufficient procedures and controls, the Firm
also allegedly committed anti-money laundering violations by failing to
detect and report manipulative and suspicious trading activity. The
Firm was alleged to have not only provided foreign traders with access
to the U.S. markets to engage in such activities, but that its
principals also owned and funded foreign subsidiaries that engaged in
the disruptive and allegedly manipulative quoting and trading activity.
Although the pattern of disruptive and allegedly manipulative quoting
and trading activity was identified in 2009, as noted above, the
enforcement action was not concluded until 2012. Thus, although
disruptive and allegedly manipulative quoting and trading was promptly
detected, it continued for several years.
---------------------------------------------------------------------------
\7\ See Hold Brothers On-Line Investment Services, LLC, FINRA
Letter of Acceptance, Waiver and Consent No. 20100237710001,
September 25, 2012.
\8\ In the Matter of Hold Brothers On-Line Investment Services,
LLC, Exchange Act Release. No. 67924, September 25, 2012.
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The Exchange also notes the current criminal proceedings that have
commenced against Navinder Singh Sarao. Mr. Sarao's allegedly
manipulative trading activity, which included forms of layering and
spoofing in the futures markets, has been linked as a contributing
factor to the ``Flash Crash'' of 2010, and yet continued through 2015.
The Exchange believes that the activities described in the cases
above provide justification for the proposed rule change, which is
described below. In addition, while the examples provided are related
to the equities market, the Exchange believes that this type of conduct
should be prohibited for options as well. The Exchange believes that
these patterns of disruptive and allegedly manipulative quoting and
trading activity need to be addressed and the product should not limit
the action taken by the Exchange.
Rule 1018--Expedited Suspension Proceeding
The Exchange proposes to adopt new Rule 1018, titled ``Expedited
Suspension Proceeding,'' to set forth procedures for issuing suspension
orders, immediately prohibiting a Member from conducting continued
disruptive quoting and trading activity on the Exchange. Importantly,
these procedures would also provide the Exchange the authority to order
a Member to cease and desist from providing access to the Exchange to a
client of the Member that is conducting disruptive quoting and trading
activity in violation of proposed Rule 322. The proposed new Rule 322
would be titled, ``Disruptive Quoting and Trading Activity
Prohibited.'' Under proposed paragraph (a) of Rule 1018, with the prior
written authorization of the Chief Regulatory Officer (``CRO'') or such
other senior officers as the CRO may designate, the Office of the
General Counsel or Regulatory Department of the Exchange (such
departments generally referred to as the ``Exchange'' for purposes of
the proposed Rule 1018) may initiate an expedited suspension proceeding
with respect to alleged violations of proposed Rule 322, which is
proposed as part of this filing and described in detail below. Proposed
paragraph (a) would also set forth the requirements for notice and
service of such notice pursuant to the Rule, including the required
method of service and the content of notice.
Proposed paragraph (b) of Rule 1018 would govern the appointment of
a Hearing Panel as well as potential disqualification or recusal of
Panel Members. The proposed provision is consistent with existing
Exchange Rule 1006(a). The proposed rule provides for a Panel Member to
be recused in the event he or she has a conflict of interest or bias or
other circumstances exist where his or her fairness might reasonably be
questioned in accordance with Rule 1018(b)(2). In addition to recusal
initiated by such a Panel Member, a party to the proceeding will be
permitted to file a motion to disqualify a Panel Member. However, due
to the compressed schedule pursuant to which the process would operate
under Rule 1018, the proposed rule would require such motion to be
filed no later than 5 days after the announcement of the Hearing Panel
and the Exchange's brief in opposition to such motion would be required
to be filed no later than 5 days after service thereof. Pursuant to
existing Rule 1006(a)(3), any time a person serving on a Panel has a
conflict of interest or bias or circumstances otherwise exist where his
or her fairness might be reasonably questioned, the person must
withdraw from the Panel. The applicable Panel Member shall remove
himself or herself and the Panel Chairman may request the Chairman of
the Business Conduct Committee to select a replacement such that the
Hearing Panel still meets the compositional requirements described in
Rule 1006(a).
Under paragraph (c) of the proposed Rule, the hearing would be held
not later than 15 days after the service of the notice initiating the
suspension proceeding, unless otherwise extended by the Chairman of the
Hearing Panel with the consent of the Parties for good cause shown. In
the event of a recusal or disqualification of a Panel Member, the
hearing shall be held not later than five days after a replacement
Panel Member is appointed. Proposed paragraph (c) would also govern how
the hearing is conducted, including the authority of Panel Members,
witnesses, additional information that may be required by the Hearing
Panel, the requirement that a transcript of the proceeding be created
and details related to such transcript, and details regarding the
creation and maintenance of the record of the proceeding. Proposed
paragraph (c) would also state that if a Respondent fails to appear at
a hearing for which it has notice, the allegations in the notice and
accompanying declaration may be deemed admitted, and the Hearing Panel
may issue a suspension order without further proceedings. Finally, as
proposed, if the Exchange fails to appear at a hearing for which it has
notice, the Hearing Panel may order that the suspension proceeding be
dismissed.
Under paragraph (d) of the proposed Rule, the Hearing Panel would
be required to issue a written decision stating whether a suspension
order would be imposed. The Hearing Panel would be required to issue
the decision not later than 10 days after receipt of the hearing
transcript, unless otherwise extended by the Chairman of the Hearing
Panel with the consent of the Parties for good cause shown. The Rule
would state that a suspension order shall be imposed if the Hearing
Panel finds by a preponderance of the evidence that the alleged
violation specified in the notice has occurred and that the violative
conduct or continuation thereof is likely to result in
[[Page 76642]]
significant market disruption or other significant harm to investors.
Proposed paragraph (d) would also describe the content, scope and
form of a suspension order. As proposed, a suspension order shall be
limited to ordering a Respondent to cease and desist from violating
proposed Rule 322 and/or to ordering a Respondent to cease and desist
from providing access to the Exchange to a client of Respondent that is
causing violations of proposed Rule 322. Under the proposed rule, a
suspension order shall also set forth the alleged violation and the
significant market disruption or other significant harm to investors
that is likely to result without the issuance of an order. The order
shall describe in reasonable detail the act or acts the Respondent is
to take or refrain from taking, and suspend such Respondent unless and
until such action is taken or refrained from. Finally, the order shall
include the date and hour of its issuance. As proposed, a suspension
order would remain effective and enforceable unless modified, set
aside, limited, or revoked pursuant to proposed paragraph (e), as
described below. Finally, paragraph (d) would require service of the
Hearing Panel's decision and any suspension order consistent with other
portions of the proposed rule related to service.
Proposed paragraph (e) of Rule 1018 would state that at any time
after the Hearing Panel served the Respondent with a suspension order,
a Party could apply to the Hearing Panel to have the order modified,
set aside, limited, or revoked. If any part of a suspension order is
modified, set aside, limited, or revoked, proposed paragraph (e) of
Rule 1018 provides the Hearing Panel discretion to leave the cease and
desist part of the order in place. For example, if a suspension order
suspends Respondent unless and until Respondent ceases and desists
providing access to the Exchange to a client of Respondent, and after
the order is entered the Respondent complies, the Hearing Panel is
permitted to modify the order to lift the suspension portion of the
order while keeping in place the cease and desist portion of the order.
With its broad modification powers, the Hearing Panel also maintains
the discretion to impose conditions upon the removal of a suspension--
for example, the Hearing Panel could modify an order to lift the
suspension portion of the order in the event a Respondent complies with
the cease and desist portion of the order but additionally order that
the suspension will be re-imposed if Respondent violates the cease and
desist provisions modified order in the future. The Hearing Panel
generally would be required to respond to the request in writing within
10 days after receipt of the request. An application to modify, set
aside, limit or revoke a suspension order would not stay the
effectiveness of the suspension order.
Finally, proposed paragraph (f) would provide that sanctions issued
under the proposed Rule 1018 would constitute final and immediately
effective disciplinary sanctions imposed by the Exchange, and that the
right to have any action under the Rule reviewed by the Commission
would be governed by Section 19 of the Act. The filing of an
application for review would not stay the effectiveness of a suspension
order unless the Commission otherwise ordered.
Rule 322--Disruptive Quoting and Trading Activity Prohibited
The Exchange currently has authority to prohibit and take action
against manipulative trading activity, including disruptive quoting and
trading activity, pursuant to its general market manipulation rules,
including Rules 301, Just and Equitable Principles of Trade, and 318,
Manipulation. The Exchange proposes to adopt new Rule 322, which would
more specifically define and prohibit disruptive quoting and trading
activity on the Exchange. As noted above, the Exchange proposes to
apply the proposed suspension rules to proposed Rule 322.
Proposed Rule 322 would prohibit Members from engaging in or
facilitating disruptive quoting and trading activity on the Exchange,
as described in proposed Rule 322(a)(1) and (2), including acting in
concert with other persons to effect such activity. The Exchange
believes that it is necessary to extend the prohibition to situations
when persons are acting in concert to avoid a potential loophole where
disruptive quoting and trading activity is simply split between several
brokers or customers. The Exchange believes, that with respect to
persons acting in concert perpetrating an abusive scheme, it is
important that the Exchange have authority to act against the parties
perpetrating the abusive scheme, whether it is one person or multiple
persons.
To provide proper context for the situations in which the Exchange
proposes to utilize its proposed authority, the Exchange believes it is
necessary to describe the types of disruptive quoting and trading
activity that would cause the Exchange to use its authority.
Accordingly, the Exchange proposes to adopt Rule 322(a)(1) and (2)
providing additional details regarding disruptive quoting and trading
activity. Proposed Rule 322(a)(1)(i) describes disruptive quoting and
trading activity containing many of the elements indicative of
layering. It would describe disruptive quoting and trading activity as
a frequent pattern in which the following facts are present: (i) A
party enters multiple limit orders on one side of the market at various
price levels (the ``Displayed Orders''); and (ii) following the entry
of the Displayed Orders, the level of supply and demand for the
security changes; and (iii) the party enters one or more orders on the
opposite side of the market of the Displayed Orders (the ``Contra-Side
Orders'') that are subsequently executed; and (iv) following the
execution of the Contra-Side Orders, the party cancels the Displayed
Orders.
Proposed Rule 322(a)(1)(ii) describes disruptive quoting and
trading activity containing many of the elements indicative of spoofing
and would describe disruptive quoting and trading activity as a
frequent pattern in which the following facts are present: (i) A party
narrows the spread for a security by placing an order inside the
national best bid or offer; and (ii) the party then submits an order on
the opposite side of the market that executes against another market
participant that joined the new inside market established by the order
described in proposed Rule 322(a)(1)(ii)(A) that narrowed the spread.
The Exchange believes that the proposed descriptions of disruptive
quoting and trading activity articulated in the rule are consistent
with the activities that have been identified and described in the
client access cases described above. The Exchange further believes that
the proposed descriptions will provide Members with clear descriptions
of disruptive quoting and trading activity that will help them to avoid
in engaging in such activities or allowing their clients to engage in
such activities.
The Exchange proposes to make clear in proposed Rule 322(a)(2),
unless otherwise indicated, the descriptions of disruptive quoting and
trading activity do not require the facts to occur in a specific order
in order for the rule to apply. For instance, with respect to the
pattern defined in proposed Rule 322(a)(1)(i) it is of no consequence
whether a party first enters Displayed Orders and then Contra-side
Orders or vice-versa. However, as proposed, it is required for supply
and demand to change following the entry of the Displayed Orders. The
Exchange also proposes to make clear that disruptive quoting and
trading activity includes a
[[Page 76643]]
pattern or practice in which some portion of the disruptive quoting and
trading activity is conducted on the Exchange and the other portions of
the disruptive quoting and trading activity are conducted on one or
more other exchanges. The Exchange believes that this authority is
necessary to address market participants who would otherwise seek to
avoid the prohibitions of the proposed Rule by spreading their activity
amongst various execution venues. In sum, proposed Rule 322 coupled
with proposed Rule 1018 would provide the Exchange with the authority
to promptly act to prevent disruptive quoting and trading activity from
continuing on the Exchange.
Below is an example of how the proposed rule would operate.
Assume that through its surveillance program, Exchange staff
identifies a pattern of potentially disruptive quoting and trading
activity. After an initial investigation the Exchange would then
contact the Member responsible for the orders that caused the activity
to request an explanation of the activity as well as any additional
relevant information, including the source of the activity. If the
Exchange were to continue to see the same pattern from the same Member
and the source of the activity is the same or has been previously
identified as a frequent source of disruptive quoting and trading
activity then the Exchange could initiate an expedited suspension
proceeding by serving notice on the Member that would include details
regarding the alleged violations as well as the proposed sanction. In
such a case the proposed sanction would likely be to order the Member
to cease and desist providing access to the Exchange to the client that
is responsible for the disruptive quoting and trading activity and to
suspend such Member unless and until such action is taken.
The Member would have the opportunity to be heard in front of a
Hearing Panel at a hearing to be conducted within 15 days of the
notice. If the Hearing Panel determined that the violation alleged in
the notice did not occur or that the conduct or its continuation would
not have the potential to result in significant market disruption or
other significant harm to investors, then the Hearing Panel would
dismiss the suspension order proceeding.
If the Hearing Panel determined that the violation alleged in the
notice did occur and that the conduct or its continuation is likely to
result in significant market disruption or other significant harm to
investors, then the Hearing Panel would issue the order including the
proposed sanction, ordering the Member to cease providing access to the
client at issue and suspending such Member unless and until such action
is taken. If such Member wished for the suspension to be lifted because
the client ultimately responsible for the activity no longer would be
provided access to the Exchange, then such Member could apply to the
Hearing Panel to have the order modified, set aside, limited or
revoked. The Exchange notes that the issuance of a suspension order
would not alter the Exchange's ability to further investigate the
matter and/or later sanction the Member pursuant to the Exchange's
standard disciplinary process for supervisory violations or other
violations of Exchange rules or the Act.
The Exchange reiterates that it already has broad authority to take
action against a Member in the event that such Member is engaging in or
facilitating disruptive or manipulative trading activity on the
Exchange. For the reasons described above, and in light of recent cases
like the client access cases described above, as well as other cases
currently under investigation, the Exchange believes that it is equally
important for the Exchange to have the authority to promptly initiate
expedited suspension proceedings against any Member who has
demonstrated a clear pattern or practice of disruptive quoting and
trading activity, as described above, and to take action including
ordering such Member to terminate access to the Exchange to one or more
of such Member's clients if such clients are responsible for the
activity.
The Exchange recognizes that its proposed authority to issue a
suspension order is a powerful measure that should be used very
cautiously. Consequently, the proposed rules have been designed to
ensure that the proceedings are used to address only the most clear and
serious types of disruptive quoting and trading activity and that the
interests of Respondents are protected. For example, to ensure that
proceedings are used appropriately and that the decision to initiate a
proceeding is made only at the highest staff levels, the proposed rules
require the CRO or another senior officer of the Exchange to issue
written authorization before the Exchange can institute an expedited
suspension proceeding. In addition, the rule by its terms is limited to
violations of Rule 322, when necessary to protect investors, other
Members and the Exchange. The Exchange will initiate disciplinary
action for violations of proposed Rule 322, pursuant to proposed Rule
1018. Further, the Exchange believes that the proposed expedited
suspension provisions described above that provide the opportunity to
respond as well as a Hearing Panel determination prior to taking action
will ensure that the Exchange would not utilize its authority in the
absence of a clear pattern or practice of disruptive quoting and
trading activity.
2. Statutory Basis
MIAX believes that its proposed rule change is consistent with
Section 6(b) of the Act \9\ in general, and furthers the objectives of
Section 6(b)(5) of the Act \10\ 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. Pursuant to the proposal,
the Exchange will have a mechanism to promptly initiate expedited
suspension proceedings in the event the Exchange believes that it has
sufficient proof that a violation of proposed Rule 322 has occurred and
is ongoing.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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Further, the Exchange believes that the proposal is consistent with
Sections 6(b)(1) and 6(b)(6) of the Act,\11\ which require that the
rules of an exchange enforce compliance with, and provide appropriate
discipline for, violations of the Commission and Exchange rules. The
Exchange also believes that the proposal is consistent with the public
interest, the protection of investors, or otherwise in furtherance of
the purposes of the Act because the proposal helps to strengthen the
Exchange's ability to carry out its oversight and enforcement
responsibilities as a self-regulatory organization in cases where
awaiting the conclusion of a full disciplinary proceeding is unsuitable
in view of the potential harm to other Members and their customers.
Also, the Exchange notes that if this type of conduct is allowed to
continue on the Exchange, the Exchange's reputation could be harmed
because it may appear to the public that the Exchange is not acting to
address the behavior. The expedited process would enable the Exchange
to address the behavior with greater speed.
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\11\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
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As explained above, the Exchange notes that it has defined the
prohibited
[[Page 76644]]
disruptive quoting and trading activity by modifying the traditional
definitions of layering and spoofing \12\ to eliminate an express
intent element that would not be proven on an expedited basis and would
instead require a thorough investigation into the activity. As noted
throughout this filing, the Exchange believes it is necessary for the
protection of investors to make such modifications in order to adopt an
expedited process rather than allowing disruptive quoting and trading
activity to occur for several years.
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\12\ See supra note 4 and 5.
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Through this proposal, the Exchange does not intend to modify the
definitions of spoofing and layering that have generally been used by
exchanges and other regulators in connection with actions like those
cited above. The Exchange believes that the pattern of disruptive and
allegedly manipulative quoting and trading activity was widespread
across multiple exchanges, FINRA, and other SROs identified clear
patterns of behavior in 2007 and 2008 in the equities markets.\13\ The
Exchange believes that this proposal will provide the Exchange with the
necessary means to enforce against such behavior in an expedited manner
while providing Members with the necessary due process. The Exchange
believes that its proposal is consistent with the Act because it
provides the Exchange with the ability 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
from such ongoing behavior.
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\13\ See Section 3 herein, the Purpose section, for examples of
conduct referred to herein.
---------------------------------------------------------------------------
Further, the Exchange believes that adopting a rule applicable to
market participants is consistent with the Act because it provides the
Exchange with the ability 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 from such
ongoing behavior.
Further, the Exchange believes that adopting a rule applicable to
market participants is consistent with the Act because the Exchange
believes that this type of behavior should be prohibited for all
Members. The type of product should not be the determining factor,
rather the behavior which challenges the market structure is the
primary concern for the Exchange. While this behavior may not be as
prevalent on the options market today, the Exchange does not believe
that the possibility of such behavior in the future would not have the
same market impact and thereby warrant an expedited process.
The Exchange further believes that the proposal is consistent with
Section 6(b)(7) of the Act,\14\ which requires that the rules of an
exchange ``provide a fair procedure for the disciplining of members and
persons associated with members . . . and the prohibition or limitation
by the exchange of any person with respect to access to services
offered by the exchange or a member thereof.'' Finally, the Exchange
also believes the proposal is consistent with Sections 6(d)(1) and
6(d)(2) of the Act,\15\ which require that the rules of an exchange
with respect to a disciplinary proceeding or proceeding that would
limit or prohibit access to or membership in the exchange require the
exchange to: Provide adequate and specific notice of the charges
brought against a member or person associated with a member, provide an
opportunity to defend against such charges, keep a record, and provide
details regarding the findings and applicable sanctions in the event a
determination to impose a disciplinary sanction is made. The Exchange
believes that each of these requirements is addressed by the notice and
due process provisions included within Rule 1018. Importantly, as noted
above, the Exchange will use the authority only in clear and egregious
cases when necessary to protect investors, other Members and the
Exchange, and in such cases, the Respondent will be afforded due
process in connection with the suspension proceedings.
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\14\ 15 U.S.C. 78f(b)(7).
\15\ 15 U.S.C. 78f(d)(1) and 78f(d)(2).
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Further, the Exchange believes that adopting a rule applicable to
options is consistent with the Act because the Exchange believes that
this type of behavior should be prohibited for all Members. The type of
product should not be the determining factor, rather the behavior which
challenges the market structure is the primary concern for the
Exchange. While this behavior may not be as prevalent on the options
market today, the Exchange does not believe that the possibility of
such behavior in the future would not have the same market impact and
thereby warrant an expedited process.
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 that is not necessary or appropriate
in furtherance of the purposes of the Act. To the contrary, the
Exchange believes that each self-regulatory organization should be
empowered to regulate trading occurring on its market consistent with
the Act and without regard to competitive issues. The Exchange is
requesting authority to take appropriate action if necessary for the
protection of investors, other Members and the Exchange. The Exchange
also believes that it is important for all exchanges to be able to take
similar action to enforce their rules against manipulative conduct
thereby leaving no exchange prey to such conduct.
The Exchange does not believe that the proposed rule change imposes
an undue burden on competition, rather this process will provide the
Exchange with the necessary means to enforce against violations of
manipulative quoting and trading activity in an expedited manner, while
providing Members with the necessary due process. The Exchange's
proposal would treat all Members in a uniform manner with respect to
the type of disciplinary action that would be taken for violations of
manipulative quoting and trading activity.
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
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to 19(b)(3)(A) of the Act \16\ and Rule 19b-4(f)(6) \17\
thereunder.
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the
[[Page 76645]]
Commission takes such action, the Commission shall institute
proceedings to determine whether the proposed rule should be approved
or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-MIAX-2016-40 on the subject line.
Paper Comments
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-MIAX-2016-40. 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 the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly.
All submissions should refer to File Number SR-MIAX-2016-40 and
should be submitted on or before November 25, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-26514 Filed 11-2-16; 8:45 am]
BILLING CODE 8011-01-P
