Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing of a Proposed Rule Change To Amend Rule 515A, MIAX Price Improvement Mechanism (“PRIME”) and PRIME Solicitation Mechanism, 90030-90033 [2016-29805]
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Federal Register / Vol. 81, No. 239 / Tuesday, December 13, 2016 / Notices
Majority if: (i) The proposed
participation of each Regulated Fund
and each Affiliated Fund in such
investment is proportionate to its
outstanding investments in the issuer
immediately preceding the Follow-On
Investment; and (ii) the Board of the
Regulated Fund has approved as being
in the best interests of the Regulated
Fund the ability to participate in
Follow-On Investments on a pro rata
basis (as described in greater detail in
the application). In all other cases, the
Adviser will provide its written
recommendation as to the Regulated
Fund’s participation to the Eligible
Directors, and the Regulated Fund will
participate in such Follow-On
Investment solely to the extent that a
Required Majority determines that it is
in the Regulated Fund’s best interests.
(c) If, with respect to any Follow-On
Investment:
(i) the amount of the opportunity is
not based on the Regulated Funds’ and
the Affiliated Funds’ outstanding
investments immediately preceding the
Follow-On Investment; and
(ii) the aggregate amount
recommended by the applicable Adviser
to be invested by the applicable
Regulated Fund in the Follow-On
Investment, together with the amount
proposed to be invested by the other
participating Regulated Funds and
Affiliated Funds, collectively, in the
same transaction, exceeds the amount of
the investment opportunity; then the
investment opportunity will be
allocated among them pro rata based on
each participant’s Available Capital, up
to the maximum amount proposed to be
invested by each.
(d) The acquisition of Follow-On
Investments as permitted by this
condition will be considered a CoInvestment Transaction for all purposes
and subject to the other conditions set
forth in this application.
9. The Non-Interested Directors of
each Regulated Fund will be provided
quarterly for review all information
concerning Potential Co-Investment
Transactions and Co-Investment
Transactions, including investments
made by other Regulated Funds or
Affiliated Funds that the Regulated
Fund considered but declined to
participate in, so that the Non-Interested
Directors may determine whether all
investments made during the preceding
quarter, including those investments
that the Regulated Fund considered but
declined to participate in, comply with
the conditions of the Order. In addition,
the Non-Interested Directors will
consider at least annually the continued
appropriateness for the Regulated Fund
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of participating in new and existing CoInvestment Transactions.
10. Each Regulated Fund will
maintain the records required by
Section 57(f)(3) of the Act as if each of
the Regulated Funds were a BDC and
each of the investments permitted under
these conditions were approved by the
Required Majority under Section 57(f) of
the Act.
11. No Non-Interested Director of a
Regulated Fund will also be a director,
general partner, managing member or
principal, or otherwise an ‘‘affiliated
person’’ (as defined in the Act) of an
Affiliated Fund.
12. The expenses, if any, associated
with acquiring, holding or disposing of
any securities acquired in a CoInvestment Transaction (including,
without limitation, the expenses of the
distribution of any such securities
registered for sale under the Securities
Act) will, to the extent not payable by
the Advisers under their respective
investment advisory agreements with
Affiliated Funds and the Regulated
Funds, be shared by the Regulated
Funds and the Affiliated Funds in
proportion to the relative amounts of the
securities held or to be acquired or
disposed of, as the case may be.
13. Any transaction fee 15 (including
break-up or commitment fees but
excluding broker’s fees contemplated by
Section 17(e) or 57(k) of the Act, as
applicable), received in connection with
a Co-Investment Transaction will be
distributed to the participating
Regulated Funds and Affiliated Funds
on a pro rata basis based on the amounts
they invested or committed, as the case
may be, in such Co-Investment
Transaction. If any transaction fee is to
be held by an Adviser pending
consummation of the transaction, the
fee will be deposited into an account
maintained by such Adviser at a bank or
banks having the qualifications
prescribed in Section 26(a)(1) of the Act,
and the account will earn a competitive
rate of interest that will also be divided
pro rata among the participating
Regulated Funds and Affiliated Funds
based on the amounts they invest in
such Co-Investment Transaction. None
of the Affiliated Funds, the Advisers,
the other Regulated Funds or any
affiliated person of the Regulated Funds
or Affiliated Funds will receive
additional compensation or
remuneration of any kind as a result of
or in connection with a Co-Investment
Transaction (other than (a) in the case
15 Applicants are not requesting, and the staff is
not providing, any relief for transaction fees
received in connection with any Co-Investment
Transaction.
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of the Regulated Funds and the
Affiliated Funds, the pro rata
transaction fees described above and
fees or other compensation described in
condition 2(c)(iii)(C); and (b) in the case
of an Adviser, investment advisory fees
paid in accordance with the agreement
between the Adviser and the Regulated
Fund or Affiliated Fund.
14. If the Holders own in the aggregate
more than 25 percent of the Shares of
a Regulated Fund (other than Fidus
SBIC), then the Holders will vote such
Shares as directed by an independent
third party when voting on (1) the
election of directors;
(2) the removal of one or more
directors; or (3) any other matter under
either the Act or applicable State law
affecting the Board’s composition, size
or manner of election.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–29795 Filed 12–12–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79500; File No. SR–MIAX–
2016–46]
Self-Regulatory Organizations; Miami
International Securities Exchange LLC;
Notice of Filing of a Proposed Rule
Change To Amend Rule 515A, MIAX
Price Improvement Mechanism
(‘‘PRIME’’) and PRIME Solicitation
Mechanism
December 7, 2016.
Pursuant to the provisions of Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
on November 25, 2016, Miami
International Securities Exchange LLC
(‘‘MIAX’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I, II, and III below,
which Items have been prepared by the
Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Exchange Rule 515A, MIAX Price
1 15
2 17
E:\FR\FM\13DEN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Improvement Mechanism (‘‘PRIME’’)
and PRIME Solicitation Mechanism.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://www.miaxoptions.com/filter/
wotitle/rule_filing, at MIAX’s principal
office, and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The Exchange proposes to adopt new
Rule 515A(a)(1)(iii) to state that, with
respect to Agency Orders (as defined
below) that have a size of less than 50
contracts, if at the time of receipt of the
Agency Order, the National Best Bid
and Offer (‘‘NBBO’’) has a bid/ask
differential of $0.01, the System 3 will
reject the Agency Order. The Exchange
also proposes to make permanent a pilot
program that allows orders of less than
50 contracts or 500 mini-option
contracts to initiate a PRIME Auction
(the ‘‘Pilot’’), as described below.
Background
PRIME is a process by which a
Member may electronically submit for
execution an order it represents as agent
(‘‘Agency Order’’) against principal
interest and/or an Agency Order against
solicited interest. The Member that
submits the Agency Order (the
‘‘Initiating Member’’) agrees to
guarantee the execution of the Agency
Order by submitting a contra-side order
representing principal interest or
solicited interest (‘‘Contra-side Order’’).
When the Exchange receives a properly
designated Agency Order for Auction
processing, a Request for Responses
(‘‘RFR’’) detailing the option, side, size,
and initiating price will be sent to all
subscribers of the Exchange’s data feeds.
3 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
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Members may submit responses to the
RFR (specifying prices and sizes). RFR
responses can be either an Auction or
Cancel (‘‘AOC’’) order or an AOC
eQuote.4
Originally, for Agency Orders for less
than 50 standard option contracts or 500
mini-option contracts, the Initiating
Member was required to stop the entire
Agency Order as principal or with a
solicited order at the better of the NBBO
price improved by a $0.01 increment or
the Agency Order’s limit price (if the
order is a limit order). In addition, to
initiate the PRIME Auction for automatch submissions, the Initiating
Member was required to stop the
Agency Order for less than 50 standard
option contracts or 500 mini-option
contracts at the better of the NBBO price
improved by a $0.01 increment or the
Agency Order’s limit price.
In November 2014, MIAX filed to
establish a pilot program to allow orders
of less than 50 contracts or 500 minioption contracts to initiate a PRIME
Auction (the ‘‘Pilot’’).5 The Pilot allows
Agency Orders of any size to initiate a
PRIME Auction on MIAX at a price that
is at or better than the NBBO. The
Exchange has extended the Pilot several
times, and the Pilot is currently set to
expire January 18, 2017.6 The Exchange
is proposing to make the Pilot
permanent, with one modification, as
described below.
Proposal
The Exchange is proposing to adopt
new Rule 515A(a)(1)(iii) upon the
expiration of the current Pilot to
establish on a permanent basis that,
with respect to Agency Orders that have
a size of less than 50 contracts, if at the
time of receipt of the Agency Order, the
NBBO has a bid/ask differential of
$0.01,7 the System will reject the
Agency Order. Agency Orders with a
size of under 50 contracts will be
accepted and processed by the System
when the NBBO bid/ask differential is
greater than $0.01, and all Agency
Orders with a size of 50 contracts or
greater will be accepted and processed
4 See
Exchange Rule 515A(a)(2)(i)(D).
Securities Exchange Act Release No. 73590
(November 13, 2014), 79 FR 68919 (November 19,
2014) (SR–MIAX–2014–56).
6 See Securities Exchange Act Release No. 78265
(July 8, 2016), 81 FR 45578 (July 14, 2016) (SR–
MIAX–2016–19).
7 Currently, if the market is locked or crossed as
defined in Exchange Rule 1402 for the option, the
Agency Order will be rejected by the System prior
to initiating an Auction or a Solicitation Auction.
See Exchange Rule 515A, Interpretations and
Policies .09. The Exchange will continue to reject
Agency Orders, regardless of their size, in this
situation.
5 See
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90031
by the System, regardless of the NBBO
bid/ask differential.
Additionally, the Exchange is
proposing to delete Interpretations and
Policies .08 to Rule 515A.
Interpretations and Policies .08 relates
to the Pilot, and it states that the
minimum size requirement for PRIME
Auctions to start at the NBBO is subject
to a Pilot Program ending January 18,
2017. Accordingly, the Exchange will
continue after that date to accept and
process Agency Orders of any size at the
NBBO, except when the Agency Order
is for a size of less than 50 contracts and
the NBBO has a bid/ask differential of
$0.01, in which case the System will
reject the Agency Order. It also states
that the Exchange will submit certain
data to the Commission during the Pilot.
Because the Pilot is being made
permanent (and there is no ‘‘Pilot’’), the
Exchange will no longer submit the
referenced data.
The purpose of providing the
referenced data was to provide
supporting evidence that, among other
things, there is meaningful competition
for all size orders within the PRIME,
that there is significant price
improvement for all orders executed
through the PRIME, and that there is an
active and liquid market functioning on
the Exchange outside of the PRIME.
The Exchange has analyzed this data
and believes that there has been
meaningful competition for all size
orders within the PRIME Auction
process, regardless of the size of the
order or the bid/ask differential of the
NBBO. Specifically from July, 2015
through January, 2016, there were a total
of 961,152 PRIME Auctions on MIAX,
which included more than 2,691,000
participants, for an average of 2.8
participants per PRIME Auction.8
Market Makers and other participants
have submitted competitive bids and
offers during the Response Time
Interval and have shown interest in
participating in trades stemming from
PRIME Auctions, and the Exchange
believes that the current allocation
algorithm 9 at multiple execution prices
or at a single price supports competitive
bidding and offering.
The Exchange also believes that the
data show that there is an active and
liquid market functioning on the
Exchange outside of the PRIME.10
8 See
Exhibit 3 attached hereto.
Priority Customer interest at a given price
point has been satisfied, remaining contracts are
allocated in accordance with the priority rules set
forth in Rule 515A(a)(2)(iii).
10 From July, 2015 through January, 2016, the
Exchange executed 7,449,818 transactions for a total
of 92,706,999 contracts outside of the PRIME. The
9 After
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Continued
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Federal Register / Vol. 81, No. 239 / Tuesday, December 13, 2016 / Notices
Competitive bidding and offering occurs
outside of the PRIME and participants
can submit bids/offers at improved
prices or join a bid or offer (thus
improving liquidity at that price)
regardless of the bid/ask differential of
the NBBO.
While the Exchange continues to
believe that opportunities remain for
price improvement of Agency Orders
with a size of less than 50 contracts
when the NBBO has a bid/ask
differential of $0.01 (e.g., because
market conditions may change during
the PRIME Auction),11 the data have not
demonstrated significant price
improvement in this narrow
circumstance, as indicated in the
following table:
PRIME TRADES FOR ORDERS OF LESS THAN 50 CONTRACTS WITH NBBO SPREAD OF $0.01
[5/1–10/25/2016]
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Total Number of Trades ...............................................
Trades Receiving Price Improvement ..........................
Percent of Trades Receiving Improvement ..................
2,383,204
17,179
0.72%
Total Number of Contracts ...........................................
Contracts Receiving Price Improvement ......................
Percent of Contracts Receiving Improvement .............
The Exchange does believe, however,
that based on the data there is
significant price improvement, and
significant opportunity for price
improvement, for all Agency Orders
submitted when the NBBO bid/ask
differential is greater than $0.01. The
data attached reflect an average price
improvement of $0.045 per contract for
all contracts executed in PRIME
Auctions, regardless of the size of the
Agency Order (i.e., less than 50
contracts or greater than 50 contracts).12
The maximum price improvement for
any order can only be $0.01 per contract
when the NBBO bid/ask differential is
$0.01; the overall average price
improvement, which is elevated to
$0.045 per contract when considering
all NBBO bid/ask differentials (i.e.,
including where the NBBO bid/ask
differential is $0.02 or higher) reflects
significant price improvement and
opportunity for price improvement
when the NBBO bid/ask differential is
greater than $0.01 for orders of all sizes.
Moreover, the Exchange believes that,
with respect to Agency Orders with a
size of 50 contracts or greater, a PRIME
Auction provides not only the
opportunity for price improvement, but
also a legitimate value proposition in
certainty of execution. Continuing to
allow PRIME Auctions to be initiated by
Agency Orders with a size of 50
contracts or greater increases the
opportunity for executions of larger size
orders.13 For example, although the
NBBO may have an associated size of 50
contracts, those 50 contracts at the best
price may be fragmented across several
exchanges (e.g., five exchanges
disseminating the NBBO price for 10
contracts each). There is no guarantee
that a participant wishing to buy or sell
50 contracts can access all of the posted
liquidity in a fragmented marketplace in
which (in this example) often only 10
contracts are executed on a particular
exchange at the NBBO price, and
thereafter the other 40 contracts are
adjusted to inferior prices on the other
exchanges before executing. The
Exchange believes that maintaining the
PRIME Auction for Agency Orders with
a size of 50 contracts or greater when
the bid/ask differential at the NBBO is
$0.01 enables consolidated size
discovery and provides certainty of
larger sized executions. The Exchange
believes that this represents an efficient
way for market participants to access
liquidity for larger sized orders.
Therefore, the Exchange believes that it
is appropriate to continue to support the
acceptance of Agency Orders with a size
of 50 contracts or greater, regardless of
the bid/ask differential of the NBBO,
even at $0.01, both now and in the
future.
Based on its review of the data, the
Exchange believes that there is
meaningful competition for all size
orders within the PRIME, that there is
significant price improvement for all
orders executed through the PRIME
(except for Agency Orders with a size of
less than 50 contracts that are entered
into the PRIME Auction when the
NBBO has a bid/ask differential of
$0.01), and that there is an active and
liquid market functioning on the
Exchange outside of the PRIME.
Accordingly, the Exchange proposes to
adopt Rule 515A(a)(1)(iii) upon the
expiration of the Pilot to establish on a
permanent basis that, with respect to
Agency Orders that have a size of less
than 50 contracts, if at the time of
receipt of the Agency Order, the NBBO
Exchange believes that this represents an active and
liquid market functioning on the Exchange outside
of the PRIME.
11 For example, assume the NBBO is $1.00 bid,
$1.01 offer and an Agency Order is submitted into
MIAX PRIME to buy 20 contracts at $1.01. The
Exchange believes that there is still a chance,
however slight, that during the Response Time
Interval the offer price could change to $1.00, and
the Agency Order, while guaranteed an execution
at $1.01, could buy 20 contracts at $1.00.
12 See Exhibit 3 attached hereto.
13 According to the Options Clearing Corporation
(‘‘OCC’’), for the year-to-date through September
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15:08 Dec 12, 2016
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11,950,538
154,338
1.29%
has a bid/ask differential of $0.01, the
System will reject the Agency Order.
2. Statutory Basis
MIAX believes that its proposed rule
change is consistent with Section 6(b) of
the Act 14 in general, and furthers the
objectives of Section 6(b)(5) of the Act 15
in particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, to remove
impediments to and perfect the
mechanisms of a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
The Exchange believes that the
proposed rule change fosters
cooperation and coordination with
persons engaged in facilitating
transactions in securities because, based
on its communication with the
Commission, the Exchange believes that
all U.S. options exchanges will file
similar proposals to address the
handling of Agency Orders received
with a size of under 50 contracts when
the NBBO has a bid/ask differential of
$0.01.
The proposed rule change removes
impediments to and perfect the
mechanisms of a free and open market
and a national market system and, in
general, to protect investors and the
public interest by way of meaningful
competition for all size orders within
the PRIME Auction process, regardless
of the size of the order or the bid/ask
differential of the NBBO. Further, with
respect to Agency Orders with a size of
50 contracts or greater, the PRIME
Auction process perfects the
2016 there were 130, 573,030 transactions for a total
of 1,473,152,154 contracts traded, for an average
execution size of 11.3 contracts.
14 15 U.S.C. 78f(b).
15 15 U.S.C. 78f(b)(5).
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Federal Register / Vol. 81, No. 239 / Tuesday, December 13, 2016 / Notices
mechanisms of a free and open market
and a national market system by
providing meaningful price
improvement for orders executed
through PRIME, regardless of the NBBO
bid/ask differential. Additionally, the
proposal protects investors and the
public interest by showing that there is
an active and liquid market functioning
on the Exchange outside of the PRIME.
Furthermore, the proposed rule
change removes impediments to and
perfects the mechanisms of a free and
open market and a national market
system by establishing the new manner
in which the Exchange will handle
Agency Orders received with a size of
under 50 contracts when the NBBO has
a bid/ask differential of $0.01.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
The PRIME Auction enables the
Exchange to compete for order flow
with other exchanges that have similar
price improvement mechanisms in
place. As stated above, the Exchange
believes that there is meaningful
competition in PRIME Auctions for all
size orders, there are opportunities for
significant price improvement for orders
executed through PRIME, and that there
is an active and liquid market
functioning on the Exchange outside of
PRIME.
The Exchange believes that approving
the Pilot on a permanent basis will not
significantly impact competition, as it
will continue to accept and process
Agency Orders for potential price
improvement except in the very limited
circumstance where the Agency Order is
for a size of less than 50 contracts and
the NBBO bid/ask differential is $0.01.
pmangrum on DSK3GDR082PROD with NOTICES
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission shall: (a) By order
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15:08 Dec 12, 2016
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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
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016–29805 Filed 12–12–16; 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–2016–46 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–MIAX–2016–46. 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–
2016–46 and should be submitted on or
before January 3, 2017.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79495; File No. SR–
NYSEARCA–2016–157]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Extend the Pilot
Period for the Exchange’s Retail
Liquidity Program
December 7, 2016.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on
November 28, 2016, NYSE Arca, Inc.
(the ‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange, on behalf of its whollyowned corporation, NYSE Arca
Equities, Inc., proposes to extend the
pilot period for the Exchange’s Retail
Liquidity Program (the ‘‘Retail Liquidity
Program’’ or the ‘‘Program’’), which is
currently scheduled to expire on
December 31, 2016, until June 30, 2017.
The proposed rule change is available
on the Exchange’s Web site at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
16 17
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[Federal Register Volume 81, Number 239 (Tuesday, December 13, 2016)]
[Notices]
[Pages 90030-90033]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-29805]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79500; File No. SR-MIAX-2016-46]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing of a Proposed Rule Change To Amend Rule
515A, MIAX Price Improvement Mechanism (``PRIME'') and PRIME
Solicitation Mechanism
December 7, 2016.
Pursuant to the provisions of Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on November 25, 2016, Miami International
Securities Exchange LLC (``MIAX'' or ``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') a proposed rule
change as described in Items I, II, and III below, which Items have
been prepared by the Exchange. The Commission is publishing this notice
to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Exchange Rule 515A, MIAX Price
[[Page 90031]]
Improvement Mechanism (``PRIME'') and PRIME Solicitation Mechanism.
The text of the proposed rule change is available on the Exchange's
Web site at https://www.miaxoptions.com/filter/wotitle/rule_filing, at
MIAX's principal office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to adopt new Rule 515A(a)(1)(iii) to state
that, with respect to Agency Orders (as defined below) that have a size
of less than 50 contracts, if at the time of receipt of the Agency
Order, the National Best Bid and Offer (``NBBO'') has a bid/ask
differential of $0.01, the System \3\ will reject the Agency Order. The
Exchange also proposes to make permanent a pilot program that allows
orders of less than 50 contracts or 500 mini-option contracts to
initiate a PRIME Auction (the ``Pilot''), as described below.
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\3\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
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Background
PRIME is a process by which a Member may electronically submit for
execution an order it represents as agent (``Agency Order'') against
principal interest and/or an Agency Order against solicited interest.
The Member that submits the Agency Order (the ``Initiating Member'')
agrees to guarantee the execution of the Agency Order by submitting a
contra-side order representing principal interest or solicited interest
(``Contra-side Order''). When the Exchange receives a properly
designated Agency Order for Auction processing, a Request for Responses
(``RFR'') detailing the option, side, size, and initiating price will
be sent to all subscribers of the Exchange's data feeds. Members may
submit responses to the RFR (specifying prices and sizes). RFR
responses can be either an Auction or Cancel (``AOC'') order or an AOC
eQuote.\4\
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\4\ See Exchange Rule 515A(a)(2)(i)(D).
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Originally, for Agency Orders for less than 50 standard option
contracts or 500 mini-option contracts, the Initiating Member was
required to stop the entire Agency Order as principal or with a
solicited order at the better of the NBBO price improved by a $0.01
increment or the Agency Order's limit price (if the order is a limit
order). In addition, to initiate the PRIME Auction for auto-match
submissions, the Initiating Member was required to stop the Agency
Order for less than 50 standard option contracts or 500 mini-option
contracts at the better of the NBBO price improved by a $0.01 increment
or the Agency Order's limit price.
In November 2014, MIAX filed to establish a pilot program to allow
orders of less than 50 contracts or 500 mini-option contracts to
initiate a PRIME Auction (the ``Pilot'').\5\ The Pilot allows Agency
Orders of any size to initiate a PRIME Auction on MIAX at a price that
is at or better than the NBBO. The Exchange has extended the Pilot
several times, and the Pilot is currently set to expire January 18,
2017.\6\ The Exchange is proposing to make the Pilot permanent, with
one modification, as described below.
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\5\ See Securities Exchange Act Release No. 73590 (November 13,
2014), 79 FR 68919 (November 19, 2014) (SR-MIAX-2014-56).
\6\ See Securities Exchange Act Release No. 78265 (July 8,
2016), 81 FR 45578 (July 14, 2016) (SR-MIAX-2016-19).
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Proposal
The Exchange is proposing to adopt new Rule 515A(a)(1)(iii) upon
the expiration of the current Pilot to establish on a permanent basis
that, with respect to Agency Orders that have a size of less than 50
contracts, if at the time of receipt of the Agency Order, the NBBO has
a bid/ask differential of $0.01,\7\ the System will reject the Agency
Order. Agency Orders with a size of under 50 contracts will be accepted
and processed by the System when the NBBO bid/ask differential is
greater than $0.01, and all Agency Orders with a size of 50 contracts
or greater will be accepted and processed by the System, regardless of
the NBBO bid/ask differential.
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\7\ Currently, if the market is locked or crossed as defined in
Exchange Rule 1402 for the option, the Agency Order will be rejected
by the System prior to initiating an Auction or a Solicitation
Auction. See Exchange Rule 515A, Interpretations and Policies .09.
The Exchange will continue to reject Agency Orders, regardless of
their size, in this situation.
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Additionally, the Exchange is proposing to delete Interpretations
and Policies .08 to Rule 515A. Interpretations and Policies .08 relates
to the Pilot, and it states that the minimum size requirement for PRIME
Auctions to start at the NBBO is subject to a Pilot Program ending
January 18, 2017. Accordingly, the Exchange will continue after that
date to accept and process Agency Orders of any size at the NBBO,
except when the Agency Order is for a size of less than 50 contracts
and the NBBO has a bid/ask differential of $0.01, in which case the
System will reject the Agency Order. It also states that the Exchange
will submit certain data to the Commission during the Pilot. Because
the Pilot is being made permanent (and there is no ``Pilot''), the
Exchange will no longer submit the referenced data.
The purpose of providing the referenced data was to provide
supporting evidence that, among other things, there is meaningful
competition for all size orders within the PRIME, that there is
significant price improvement for all orders executed through the
PRIME, and that there is an active and liquid market functioning on the
Exchange outside of the PRIME.
The Exchange has analyzed this data and believes that there has
been meaningful competition for all size orders within the PRIME
Auction process, regardless of the size of the order or the bid/ask
differential of the NBBO. Specifically from July, 2015 through January,
2016, there were a total of 961,152 PRIME Auctions on MIAX, which
included more than 2,691,000 participants, for an average of 2.8
participants per PRIME Auction.\8\ Market Makers and other participants
have submitted competitive bids and offers during the Response Time
Interval and have shown interest in participating in trades stemming
from PRIME Auctions, and the Exchange believes that the current
allocation algorithm \9\ at multiple execution prices or at a single
price supports competitive bidding and offering.
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\8\ See Exhibit 3 attached hereto.
\9\ After Priority Customer interest at a given price point has
been satisfied, remaining contracts are allocated in accordance with
the priority rules set forth in Rule 515A(a)(2)(iii).
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The Exchange also believes that the data show that there is an
active and liquid market functioning on the Exchange outside of the
PRIME.\10\
[[Page 90032]]
Competitive bidding and offering occurs outside of the PRIME and
participants can submit bids/offers at improved prices or join a bid or
offer (thus improving liquidity at that price) regardless of the bid/
ask differential of the NBBO.
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\10\ From July, 2015 through January, 2016, the Exchange
executed 7,449,818 transactions for a total of 92,706,999 contracts
outside of the PRIME. The Exchange believes that this represents an
active and liquid market functioning on the Exchange outside of the
PRIME.
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While the Exchange continues to believe that opportunities remain
for price improvement of Agency Orders with a size of less than 50
contracts when the NBBO has a bid/ask differential of $0.01 (e.g.,
because market conditions may change during the PRIME Auction),\11\ the
data have not demonstrated significant price improvement in this narrow
circumstance, as indicated in the following table:
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\11\ For example, assume the NBBO is $1.00 bid, $1.01 offer and
an Agency Order is submitted into MIAX PRIME to buy 20 contracts at
$1.01. The Exchange believes that there is still a chance, however
slight, that during the Response Time Interval the offer price could
change to $1.00, and the Agency Order, while guaranteed an execution
at $1.01, could buy 20 contracts at $1.00.
PRIME Trades for Orders of Less Than 50 Contracts With NBBO Spread of $0.01
[5/1-10/25/2016]
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Total Number of Trades........................ 2,383,204 Total Number of Contracts....... 11,950,538
Trades Receiving Price Improvement............ 17,179 Contracts Receiving Price 154,338
Improvement.
Percent of Trades Receiving Improvement....... 0.72% Percent of Contracts Receiving 1.29%
Improvement.
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The Exchange does believe, however, that based on the data there is
significant price improvement, and significant opportunity for price
improvement, for all Agency Orders submitted when the NBBO bid/ask
differential is greater than $0.01. The data attached reflect an
average price improvement of $0.045 per contract for all contracts
executed in PRIME Auctions, regardless of the size of the Agency Order
(i.e., less than 50 contracts or greater than 50 contracts).\12\ The
maximum price improvement for any order can only be $0.01 per contract
when the NBBO bid/ask differential is $0.01; the overall average price
improvement, which is elevated to $0.045 per contract when considering
all NBBO bid/ask differentials (i.e., including where the NBBO bid/ask
differential is $0.02 or higher) reflects significant price improvement
and opportunity for price improvement when the NBBO bid/ask
differential is greater than $0.01 for orders of all sizes.
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\12\ See Exhibit 3 attached hereto.
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Moreover, the Exchange believes that, with respect to Agency Orders
with a size of 50 contracts or greater, a PRIME Auction provides not
only the opportunity for price improvement, but also a legitimate value
proposition in certainty of execution. Continuing to allow PRIME
Auctions to be initiated by Agency Orders with a size of 50 contracts
or greater increases the opportunity for executions of larger size
orders.\13\ For example, although the NBBO may have an associated size
of 50 contracts, those 50 contracts at the best price may be fragmented
across several exchanges (e.g., five exchanges disseminating the NBBO
price for 10 contracts each). There is no guarantee that a participant
wishing to buy or sell 50 contracts can access all of the posted
liquidity in a fragmented marketplace in which (in this example) often
only 10 contracts are executed on a particular exchange at the NBBO
price, and thereafter the other 40 contracts are adjusted to inferior
prices on the other exchanges before executing. The Exchange believes
that maintaining the PRIME Auction for Agency Orders with a size of 50
contracts or greater when the bid/ask differential at the NBBO is $0.01
enables consolidated size discovery and provides certainty of larger
sized executions. The Exchange believes that this represents an
efficient way for market participants to access liquidity for larger
sized orders. Therefore, the Exchange believes that it is appropriate
to continue to support the acceptance of Agency Orders with a size of
50 contracts or greater, regardless of the bid/ask differential of the
NBBO, even at $0.01, both now and in the future.
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\13\ According to the Options Clearing Corporation (``OCC''),
for the year-to-date through September 2016 there were 130, 573,030
transactions for a total of 1,473,152,154 contracts traded, for an
average execution size of 11.3 contracts.
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Based on its review of the data, the Exchange believes that there
is meaningful competition for all size orders within the PRIME, that
there is significant price improvement for all orders executed through
the PRIME (except for Agency Orders with a size of less than 50
contracts that are entered into the PRIME Auction when the NBBO has a
bid/ask differential of $0.01), and that there is an active and liquid
market functioning on the Exchange outside of the PRIME. Accordingly,
the Exchange proposes to adopt Rule 515A(a)(1)(iii) upon the expiration
of the Pilot to establish on a permanent basis that, with respect to
Agency Orders that have a size of less than 50 contracts, if at the
time of receipt of the Agency Order, the NBBO has a bid/ask
differential of $0.01, the System will reject the Agency Order.
2. Statutory Basis
MIAX believes that its proposed rule change is consistent with
Section 6(b) of the Act \14\ in general, and furthers the objectives of
Section 6(b)(5) of the Act \15\ in particular, in that it is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanisms of a
free and open market and a national market system and, in general, to
protect investors and the public interest.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change fosters
cooperation and coordination with persons engaged in facilitating
transactions in securities because, based on its communication with the
Commission, the Exchange believes that all U.S. options exchanges will
file similar proposals to address the handling of Agency Orders
received with a size of under 50 contracts when the NBBO has a bid/ask
differential of $0.01.
The proposed rule change removes impediments to and perfect the
mechanisms of a free and open market and a national market system and,
in general, to protect investors and the public interest by way of
meaningful competition for all size orders within the PRIME Auction
process, regardless of the size of the order or the bid/ask
differential of the NBBO. Further, with respect to Agency Orders with a
size of 50 contracts or greater, the PRIME Auction process perfects the
[[Page 90033]]
mechanisms of a free and open market and a national market system by
providing meaningful price improvement for orders executed through
PRIME, regardless of the NBBO bid/ask differential. Additionally, the
proposal protects investors and the public interest by showing that
there is an active and liquid market functioning on the Exchange
outside of the PRIME.
Furthermore, the proposed rule change removes impediments to and
perfects the mechanisms of a free and open market and a national market
system by establishing the new manner in which the Exchange will handle
Agency Orders received with a size of under 50 contracts when the NBBO
has a bid/ask differential of $0.01.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
The PRIME Auction enables the Exchange to compete for order flow
with other exchanges that have similar price improvement mechanisms in
place. As stated above, the Exchange believes that there is meaningful
competition in PRIME Auctions for all size orders, there are
opportunities for significant price improvement for orders executed
through PRIME, and that there is an active and liquid market
functioning on the Exchange outside of PRIME.
The Exchange believes that approving the Pilot on a permanent basis
will not significantly impact competition, as it will continue to
accept and process Agency Orders for potential price improvement except
in the very limited circumstance where the Agency Order is for a size
of less than 50 contracts and the NBBO bid/ask differential is $0.01.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-MIAX-2016-46 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-MIAX-2016-46. 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-2016-46 and should be
submitted on or before January 3, 2017.
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\16\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-29805 Filed 12-12-16; 8:45 am]
BILLING CODE 8011-01-P
