Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend MIAX Options Rule 515A, MIAX Price Improvement Mechanism (“PRIME”) and PRIME Solicitation Mechanism, 25393-25398 [2017-11355]
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Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices
trade as principal with their customer
order flow.
In addition, when establishing the
proposed fees, the Exchange considered
the competitiveness of the market for
proprietary data and all of the
implications of that competition. The
Exchange believes that it has considered
all relevant factors and has not
considered irrelevant factors in order to
establish fair, reasonable, and not
unreasonably discriminatory fees and an
equitable allocation of fees among all
Users. The existence of alternatives to
the ETF Implied Liquidity Feed ensures
that the Exchange cannot set
unreasonable fees, or fees that are
unreasonably discriminatory, when
vendors and subscribers can elect these
alternatives or choose not to purchase a
specific proprietary data product if its
cost to purchase is not justified by the
returns any particular vendor or
subscriber would achieve through the
purchase.
Lastly, the Exchange represents that
the proposed pricing of the ETF Implied
Liquidity Feed provides investors with
alternative market data and competes
with similar market data product
currently offered by other exchanges.24
In addition, the pricing is designed to
ensure that a vendor to create a
competing product to the ETF Implied
Liquidity Feed on the same price basis
as the Exchange. As stated above, the
Exchange notes that a vendor seeking to
build a competing product to the
proposed ETF Implied Liquidity feed
could simply utilize the top-of-book
data feeds from each of the Bats
Exchange’s to create an aggregated
BBO.25 These top-of-book feeds are
EDGA Top, EDGX Top, BYX Top and
BZX Top. The Exchange represents that
a competing vendor could obtain these
top-of-book data feeds from each of the
Bats Exchanges on the same latency
basis as the system that performs the
aggregation and consolidation of the
Bats One Summary Feed. While the
proposed ETF Implied Liquidity feed
does not separately provide the ETF’s
NBBO, the number of shares of
securities underlying one creation unit
of the ETF, or the estimated cash
included in one creation unit of the
ETF, a vendor could obtain this
information from the securities
information processors and other
publicly available sources to perform its
own calculation of an ETF’s implied
liquidity to include as part of a
competing product. Therefore, a vendor
could create a product to compete with
the proposed ETF Implied Liquidity
feed on the same terms as the Exchange.
The Exchange designed the pricing of
this product to enable a vendor to create
a competing product to the ETF Implied
Liquidity Feed on the same cost basis as
the Exchange. The offering of certain fee
waivers described herein continues to
enable vendors to compete on price as
the waivers are only granted where the
Distributor is receiving the Bats One
Feed and paying the required fees for
External Distribution, Logical Ports, and
Data Consolidation.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has neither solicited
nor received written comments on the
proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 26 and paragraph (f) of Rule
19b–4 thereunder.27 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.
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–
BatsBZX–2017–36 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–BatsBZX–2017–36. 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–
BatsBZX–2017–36 and should be
submitted on or before June 22, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–11254 Filed 5–31–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80779; File No. SR–MIAX–
2017–22]
Self-Regulatory Organizations; Miami
International Securities Exchange LLC;
Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend MIAX Options Rule
515A, MIAX Price Improvement
Mechanism (‘‘PRIME’’) and PRIME
Solicitation Mechanism
May 26, 2017.
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 May 17, 2017, Miami International
Securities Exchange, LLC (‘‘MIAX
Options’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
28 17
24 See
supra note 21.
25 See supra note 16.
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18:32 May 31, 2017
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
26 15
U.S.C. 78s(b)(3)(A).
27 17 CFR 240.19b–4(f).
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Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices
(‘‘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 is filing a proposal to
amend Exchange Rule 515A to reflect
changes to the MIAX Options Price
Improvement Mechanism (‘‘PRIME’’).
The text of the proposed rule change
is available on the Exchange’s Web site
at https://www.miaxoptions.com/rulefilings, 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 amend
Exchange Rule 515A, MIAX Price
Improvement Mechanism (‘‘PRIME’’)
and PRIME Solicitation Mechanism, to
reflect new functionality to be included
in the PRIME process, as described
below. The Exchange is also proposing
certain clarifying technical amendments
to the Rule.
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Background
MIAX PRIME is a price-improvement
mechanism on the Exchange under
which a Member 3 (‘‘Initiating Member’’)
electronically submits an order that it
represents as agent (an ‘‘Agency Order’’)
into a PRIME Auction (‘‘Auction’’). The
Initiating Member, in submitting an
Agency Order, must be willing to either
3 The term ‘‘Member’’ means an individual or
organization approved to exercise the trading rights
associated with a Trading Permit. Members are
deemed ‘‘members’’ under the Act. See Exchange
Rule 100.
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(i) cross the Agency Order at a single
price (a ‘‘single-price submission’’) as
principal, or (ii) automatically match
(‘‘auto-match’’), as principal, the price
and size of responses to a Request for
Response (‘‘RFR’’) that is broadcast to
MIAX Options participants up to an
optional designated limit price. Such a
response is known as an ‘‘RFR
response.’’ 4 Members wishing to
participate in the PRIME Auction may
do so by submitting RFR responses
during the RFR period (see below),
which is currently 500 milliseconds.
Multiple Auctions
The Exchange is proposing to amend
Rule 515A(a)(2) to state that, as today,
only one Auction may be ongoing at any
given time in an option. The Exchange
is proposing to modify the rule to
account for the trading of complex
orders on the Exchange.5 Specifically,
Rule 515A(a)(2) will continue to state
clearly that only one Auction may be
ongoing at any given time in an option
and Auctions in the same option may
not queue or overlap in any manner. In
addition, the Exchange proposes to
amend the Rule by stating that the
System 6 will reject an Agency Order if,
at the time of receipt of the Agency
Order, the option is in an Auction or is
a component of a complex strategy 7 that
is the subject of a Complex Auction
pursuant to Rule 518(d). The Exchange
believes that the rejection of Agency
Orders that are received in an option in
which an Auction or Complex Auction
is ongoing ensures that there will not be
any interference with the potential for
price improvement for the Agency
4 See Exchange Rule 515A(a)(2)(i). When the
Exchange receives a properly designated Agency
Order for auction processing, an RFR detailing the
option, side, size, and initiating price will be sent
to all subscribers of the Exchange’s data feeds. The
RFR currently lasts for 500 milliseconds. Members
may submit responses to the RFR (specifying prices
and sizes). RFR responses shall be an Auction or
Cancel (‘‘AOC’’) order or an AOC eQuote. Such
responses cannot cross the disseminated MIAX Best
Bid or Offer (‘‘MBBO’’) on the opposite side of the
market from the response.
5 See Exchange Rule 518. See also, Securities
Exchange Act Release No. 79072 (October 7, 2016),
81 FR 71131 (October 14, 2016) (SR–MIAX–2016–
26).
6 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
7 The term ‘‘complex strategy’’ means a particular
combination of components and their ratios to one
another. New complex strategies can be created as
the result of the receipt of a complex order or by
the Exchange for a complex strategy that is not
currently in the System. The Exchange may limit
the number of new complex strategies that may be
in the System at a particular time and will
communicate this limitation to Members via
Regulatory Circular. See Exchange Rule 518(a)(6).
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Order from one ongoing auction type to
another.
The Exchange notes that the
limitation against simultaneous ongoing
Auctions and Complex Auctions applies
to the specific option being auctioned.
The term ‘‘option’’ in the Exchange’s
rules refers to an individual put or call
with a specific underlying security,
strike price and expiration date. The
Exchange defines a ‘‘series of options’’
as all option contracts of the same class
having the same exercise price and
expiration date.8 Thus, a ‘‘series of
options’’ on MIAX Options includes
both calls and puts overlying a security
with the same strike price and the same
expiration. The individual call or put in
the series of options is the ‘‘option.’’
For example, if an Auction or a
Complex Auction involving XYZ July 20
calls is underway and ongoing at the
time of receipt of an Agency Order in
XYZ July 20 calls, the System will reject
such Agency Order. The System will
not, however, reject an Agency Order in
XYZ October 20 calls, or in XYZ July 25
calls, for example, because the series
being auctioned has a different strike
price or expiration.9
The Exchange believes that, without
such a limitation, investors could be
faced with an unusually large number of
simultaneous PRIME and/or Complex
Auctions in the same option in the
simple market, and in the same strategy
in the complex market, which in turn
could impact the orderly function of the
markets. The Exchange believes that this
limitation should ensure orderliness in
the PRIME and Complex Auction
process.
Rounding
The Exchange is proposing to adopt
new Interpretations and Policies .10 to
Rule 515A to establish in the rule text
that, when determining the 40% or 50%
Initiating Member allocation under
paragraphs (a)(2)(iii)(H) or (I), the
8 See
Exchange Rule 100.
Exchange notes that other exchanges also
limit simultaneous auctions by ‘‘series,’’ which on
other exchanges has the same meaning as ‘‘option’’
on MIAX Options. For example, Nasdaq ISE, LLC
(‘‘ISE’’) Rule 723.04 states that only one Price
Improvement Mechanism (‘‘PIM’’) may be ongoing
at any given time in a ‘‘series.’’ PIMs will not queue
or overlap in any manner. See ISE Rule 723.04. In
another example, Chicago Board Options Exchange,
Inc. (‘‘CBOE’’) Automated Improvement Mechanism
(‘‘AIM’’) rules state that only one Auction may be
ongoing at any given time in a ‘‘series’’ and
Auctions in the same ‘‘series’’ may not queue or
overlap in any manner. See CBOE Rule 6.74A(b).
See also, NASDAQ PHLX LLC (‘‘Phlx’’) Rule
1080(n)(ii), which states that only one Auction may
be conducted at a time in the same ‘‘series’’ or same
strategy, otherwise the orders will be rejected. The
use of the term ‘‘series’’ in these various exchanges’
rules is synonymous with the Exchange’s use of the
term ‘‘option.’’
9 The
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System will round the number of
contracts to which the Initiating
Member is entitled to the nearest whole
number (up or down). If the 40% or
50% Initiating Member allocation
results in a remainder of exactly onehalf contract (.50000), then the System
will round the number of contracts to
which the Initiating Member is entitled
up to the next higher whole number.
Other exchanges that allocate based on
percentage amounts employ some form
of ‘‘rounding.’’ 10
The Exchange believes that the
proposed rule change regarding
rounding results in the fair and
equitable allocation of contracts among
PRIME participants, and provides
clarity and transparency in the
Exchange’s rules so that all MIAX
PRIME Auction participants will be
informed of their participation
entitlements when submitting orders
and responses into MIAX PRIME.
Allocation of Contracts at the
Conclusion of the PRIME Auction
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Currently, Exchange Rule
515A(a)(2)(iii) provides that at the
conclusion of the Auction, the Agency
Order will be allocated at the best
price(s), subject to the following: (A)
Such best prices include non-Auction
quotes and orders; (B) Priority
Customer 11 orders resting on the
Book 12 before, or that are received
during, the Response Time Interval and
Priority Customer RFR responses shall,
collectively have first priority to trade
10 For example, Phlx Rules provide that where the
allocation of contracts results in remaining
amounts, the number of contracts to be allocated
shall be rounded down to the nearest integer. If
rounding would result in an allocation of less than
one contract, then one contract will be allocated to
the Initiating Member only if the Initiating Member
did not otherwise receive an allocation. See Phlx
Rule 1080(n)(ii)(E)(2)(f). This differs slightly from
the instant proposal by the Exchange in that the
System will round the number of contracts to which
the Initiating Member is entitled to the nearest
whole number (up or down). The Exchange also
notes that NASDAQ BX, Inc. (‘‘BX’’), in a filing
relating to its directed orders program, described a
process for rounding that has the potential to result
in an allocation that is slightly greater than their
40% or 50% entitlement for directed orders. See
Securities Exchange Act Release No. 73784
(December 8, 2014), 79 FR 73930 (SR–BX–2014–
049) (Notice of Filing of Proposed Rule Change
Relating to Directed Market Makers). See also,
Securities Exchange Act Release No. 74129 (January
23, 2015), 80 FR 4954 (January 29, 2015) (SR–BX–
2014–049) (Order Approving Proposed Rule Change
Relating to Directed Market Makers).
11 The term ‘‘Priority Customer’’ means a person
or entity that (i) is not a broker or dealer in
securities, and (ii) does not place more than 390
orders in listed options per day on average during
a calendar month for its own beneficial account(s).
See Exchange Rule 100.
12 The term ‘‘Book’’ means the electronic book of
buy and sell orders and quotes maintained by the
System. See Exchange Rule 100.
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against the Agency Order. The
allocation of an Agency Order against
the Priority Customer orders resting in
the Book, Priority Customer orders
received during the Response Time
Interval, and Priority Customer RFR
responses shall be in the sequence in
which they are received by the System;
(C) Market Maker priority quotes 13 and
RFR responses from Market Makers 14
with priority quotes will collectively
have second priority. The allocation of
Agency Orders against these contra
sided quotes and RFR responses shall be
on a size pro rata basis as defined in
Rule 514(c)(2); (D) Professional Interest
orders resting in the Book, Professional
Interest orders placed in the Book
during the Response Time Interval,
Professional Interest quotes, and
Professional Interest RFR responses will
collectively have third priority. The
allocation of Agency Orders against
these contra sided orders and RFR
Responses shall be on a size pro rata
13 To be considered a priority quote, at the time
of execution, each of the following standards must
be met: (A) The bid/ask differential of a Market
Maker’s two-sided quote pair must be valid width
(no wider than the bid/ask differentials outlined in
Rule 603(b)(4)); (B) the initial size of both of the
Market Maker’s bid and the offer must be in
compliance with the requirements of Rule 604(b)(2);
(C) the bid/ask differential of a Market Maker’s twosided quote pair must meet the priority quote width
requirements defined below in subparagraph (ii)
[sic] for each option; and (D) either of the following
are true: 1. At the time a locking or crossing quote
or order enters the System, the Market Maker’s twosided quote pair must be valid width for that option
and must have been resting on the Book; or 2.
Immediately prior to the time the Market Maker
enters a new quote that locks or crosses the MBBO,
the Market Maker must have had a valid width
quote already existing (i.e., exclusive of the Market
Maker’s new marketable quote or update) among his
two-sided quotes for that option. See Exchange Rule
517(b)(1)(i).
14 The term ‘‘Market Makers’’ refers to ‘‘Lead
Market Makers’’, ‘‘Primary Lead Market Makers’’
and ‘‘Registered Market Makers’’ collectively. The
term ‘‘Lead Market Maker’’ means a Member
registered with the Exchange for the purpose of
making markets in securities traded on the
Exchange and that is vested with the rights and
responsibilities specified in Chapter VI of the
Exchange’s Rules with respect to Lead Market
Makers. When a Lead Market Maker is appointed
to act in the capacity of a Primary Lead Market
Maker, the additional rights and responsibilities of
a Primary Lead Market Maker specified in Chapter
VI of the Exchange’s Rules will apply. The term
‘‘Primary Lead Market Maker’’ means a Lead Market
Maker appointed by the Exchange to act as the
Primary Lead Market Maker for the purpose of
making markets in securities traded on the
Exchange. The Primary Lead Market Maker is
vested with the rights and responsibilities specified
in Chapter VI of the Exchange’s Rules with respect
to Primary Lead Market Makers. The term
‘‘Registered Market Maker’’ means a Member
registered with the Exchange for the purpose of
making markets in securities traded on the
Exchange, who is not a Lead Market Maker and is
vested with the rights and responsibilities specified
in Chapter VI of the Exchange’s Rules with respect
to Registered Market Makers. See Exchange Rule
100.
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25395
basis as defined in Rule 514(c)(2); (E) No
participation entitlement shall apply to
orders executed pursuant to this Rule;
(F) If an unrelated market or marketable
limit order on the opposite side of the
market as the Agency Order was
received during the Auction and ended
the Auction, such unrelated order shall
trade against the Agency Order at the
midpoint of the best RFR response (or
in the absence of a RFR response, the
initiating price) and the NBBO on the
other side of the market from the RFR
responses (rounded towards the
disseminated quote when necessary).
(G) If an unrelated non-marketable limit
order on the opposite side of the market
as the Agency Order was received
during the Auction and ended the
Auction, such unrelated order shall
trade against the Agency Order at the
midpoint of the best RFR response and
the unrelated order’s limit price
(rounded towards the unrelated order’s
limit price when necessary).
Rules 515A(a)(2)(iii)(H) and (I)
describe the allocation of contracts
executed when the Initiating Member
selects the single-price submission or
the auto-match option, respectively,
when submitting their Agency Order
and there are either two or more
participants at the execution price or
when there is only one other participant
on parity with the Initiating Member at
either the single price execution price or
at the final auto-match price point.
The Exchange is proposing to modify
the PRIME trade allocation rules with
respect to determining the Initiating
Member’s entitlement percentage (either
40% or 50%) at the single price
submission price and at the final automatch price point, as applicable.
Exchange Rules 515A(a)(2)(iii)(H) and
(I) currently state that, upon conclusion
of an Auction, an Initiating Member will
retain certain priority and trade
allocation privileges for a single-price
submission and for an auto-match
submission. Under current Rule
515A(a)(2)(iii)(H), if the best price
equals the Initiating Member’s singleprice submission, the Initiating
Member’s single-price submission shall
be allocated the greater of one contract
or a certain percentage of the order,
which percentage will be determined by
the Exchange and may not be larger than
40% of the Agency Order, subject to the
rounding provisions of proposed Rule
515A, Interpretations and Policies .10
(described above). However, if only one
Member’s response, subject to the
System’s calculation of the number of
Member’s responses described in
proposed Rule 515A, Interpretations
and Policies .11 (described below)
matches the Initiating Member’s single
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Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices
price submission, then the Initiating
Member may be allocated up to 50% of
the Agency Order.
Similarly, current Exchange Rule
515A(a)(2)(iii)(I) provides that if the
Initiating Member selected the automatch option of the Auction, the
Initiating Member shall be allocated its
full size of RFR responses at each price
point until the final auto-match price
point is reached. At the final auto-match
price point, the Initiating Member shall
be allocated the greater of one contract
or a certain percentage of the remainder
of the Agency Order, which percentage
will be determined by the Exchange and
may not be larger than 40%, subject to
the rounding provisions of proposed
Rule 515A, Interpretations and Policies
.10 (described above). However, if only
one Member’s response, subject to the
System’s calculation of the number of
Member’s responses described in
proposed Rule 515A, Interpretations
and Policies .11 (described below)
matches the Initiating Member’s
submission at the final auto-match price
point, then the Initiating Member may
be allocated up to 50% of the remainder
of the Agency Order at the final automatch price point.
At the conclusion of the Auction, the
Agency Order is allocated at the best
price(s) pursuant to the matching
algorithm in effect for the class.15 The
System first must determine the number
of participants that are entitled to
receive contracts to be allocated, and
whether any participant(s) such as
Priority Customers are entitled to
receive contracts first. Thereafter,
contracts are allocated among
participants at the execution price.
The Exchange is proposing to adopt
Interpretations and Policies .11 to Rule
515A to state the basis on which the
System will determine a Member’s
response to be a participant at the single
price submission price and at the final
auto-match price point in calculating
the Initiating Member’s entitlement at
that price.16 Specifically, when
calculating the number of Members’
responses that match the Initiating
Member’s single price submission under
sub-paragraph (a)(2)(iii)(H) and the final
15 See
Exchange Rule 515A(a)(2)(iii).
Exchange notes that under the NYSE MKT
CUBE price improvement mechanism, if only the
accompanying contra order and one other RFR
response are eligible to trade at the CUBE execution
price, each will receive a 50% allocation; otherwise,
the accompanying contra order will receive a 40%
guaranteed allocation unless more than 60% of the
order is price improved by other participants (the
accompanying contra will yield priority at a given
price once the 40% entitlement is satisfied). See
NYSE MKT CUBE Factsheet, https://
www.nyse.com/markets/amex-options, Related
Information, dated February 9, 2016 at p.2.
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16 The
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auto-match price point under subparagraph (a)(2)(iii)(I) of Rule 515A, the
System will not include in such
calculation: (i) Any Priority Customer
Auction response and/or unrelated
Priority Customer interest that has been
executed, or (ii) any Member’s response
(including unrelated orders and quotes)
executed at a better price.
Exchange Rule 515A(2)(iii)(B)
explicitly states that Priority Customer
orders resting on the Book before, or
that are received during, the Response
Time Interval and Priority Customer
RFR responses shall, collectively, have
first priority to trade against the Agency
Order. Therefore, all Priority Customer
Interest at the single price submission
and at the final auto-match price point
is executed first, after which other
interest is allocated in accordance with
Rule 515A(a)(2)(iii).
The Exchange is proposing to adopt
Interpretations and Policies .11 to
exclude from the number of responding
participants remaining at those prices (i)
Priority Customer RFR responses and/or
unrelated Priority Customer interest that
has already been executed, and (ii) any
Member’s response (including unrelated
orders and quotes) executed at a better
price. The purpose of this proposal is to
calculate and establish the actual
number of Auction participants that
may be allocated contracts at a given
price point. To include Priority
Customer and other interest that have
already received full executions and
therefore cannot participate further in
the allocation of contracts as part of the
remaining participants at the execution
price could artificially skew the
entitlements of remaining participants
at the next level(s) of priority
established in Rule 515A(2)(iii). This is
particularly true when there is only one
remaining participant with the Initiating
Member that could or would be entitled
to receive contracts at the single price
submission or at the final auto-match
price point. The following examples
illustrate this.
Example 1—Priority Customer Interest
Already Executed, One Participant With
Initiating Member
ABBO: 1.00–1.06
MBBO: 1.00–1.06
PRIME Order, Agency buy 20 contracts,
Auction Start Price 1.05
Begin RFR Auction
During Auction, MM1 responds with an
RFR response to sell 20 at 1.05
Customer order to sell 5 at 1.05
At the end of the RFR period
Agency Order buys 5 from the Customer
order at 1.05
There is one remaining joining interest
at 1.05 (MM1), so the contra receives
PO 00000
Frm 00173
Fmt 4703
Sfmt 4703
50% of the original size of the order,
or 10 contracts, and MM1 receives the
balance of 5 contracts 17
Example 2—Responses Executed at
Better Prices, One Participant With
Initiating Member
ABBO: 1.00–1.06
MBBO: 1.00–1.06
PRIME Order, Agency buy 20 contracts,
Auction Start Price 1.05
Begin RFR Auction
During Auction, MM1 responds with an
RFR response to sell 20 at 1.05
MM2 responds with an RFR response to
sell to sell 5 at 1.04
At the end of the RFR period
Agency Order buys 5 from MM2 at 1.04
There is one joining interest at 1.05
(MM1), so the contra receives 50% of
the original size of the order, or 10
contracts, and MM1 receives the
balance of 5 contracts 18
When more than one participant
matches the Initiating Member at the
single price submission and/or at the
final auto-match price point, the
Initiating Member is entitled to receive
and is allocated the greater of one
contract or a certain percentage of the
remainder of the Agency Order, which
percentage will be determined by the
Exchange and may not be larger than
40%. Currently, in auto-match, in the
situation where there is one remaining
participant matching the Initiating
Member at the final auto-match price
point, the Initiating Member and the
lone remaining participant are each
entitled to 50% of the remaining
contracts at that price (subject of course
to their stated size). The proposal to
include only the remaining participant
after other participants have already
received full executions at better prices
ensures that the Initiating Participant,
who has guaranteed the full execution at
the single price submission or at the
final auto-match price point, will
receive its rightful 50% allocation. The
Exchange believes that the proposed
rule change rewards the Initiating
17 Under the current Rule, the result would be
slightly different. The Agency Order would still buy
5 contracts from the Customer at $1.05. However,
although the Customer has sold all 5 contracts it
offered at $1.05, the current rule counts two
remaining joining offers at 1.05 (MM1 and
Customer) for the remaining 15 contracts, so the
contra receives 40% of the original size of the order,
or 8 contracts, and MM1 receives the balance of 7
contracts.
18 Under the current Rule, just as in Example 1,
the result would be slightly different. The Agency
Order would buy 5 contracts from MM2 at $1.04.
However, although MM2 has sold all 5 contracts it
offered at $1.04, the current rule counts two
remaining joining offers at 1.05 (MM1 and MM2) for
the remaining 15 contracts, so the contra receives
40% of the original size of the order, or 8 contracts,
and MM1 receives the balance of 7 contracts.
E:\FR\FM\01JNN1.SGM
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Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices
Participant, who has absorbed the
maximum risk in the PRIME Auction,
by ensuring the 50% allocation
entitlement when there is only one
other participant matching the Initiating
Member at the single price submission
price or at the final auto-match price
point. The Exchange believes that this
provides an additional incentive for
Initiating Members to submit Agency
Orders for price improvement in MIAX
PRIME.
mstockstill on DSK30JT082PROD with NOTICES
Technical Amendments
The Exchange is proposing to
capitalize the term ‘‘Agency Order’’ in
Rule 515A(a)(2)(iii)(H) because the term
is defined in Rule 515A(a) above.
Additionally, the Exchange is proposing
to add the word ‘‘or’’ to the first
sentence of Rules 515A(a)(2)(iii)(H) and
(I), respectfully, for grammatical
correctness. These proposed technical
amendments are intended for clarity
and ease of reference.
The Exchange will announce the
implementation date of the proposed
rule change by Regulatory Circular to be
published no later than 60 days
following the operative date of the
proposed rule. The implementation date
will be no later than 60 days following
the issuance of the Regulatory Circular.
2. Statutory Basis
MIAX believes that its proposed rule
change is consistent with Section 6(b) of
the Act 19 in general, and furthers the
objectives of Section 6(b)(5) of the Act 20
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 regulating, clearing,
settling, processing information with
respect to, and 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 further believes the proposed
rule change is consistent with the
Section 6(b)(5) 21 requirement that the
rules of an exchange not be designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the Exchange believes
that the proposed amendment to Rule
515A(a)(2) stating that only one Auction
or Complex Auction may be ongoing at
any given time in an option and/or in
a complex strategy in which that option
is a component, and Auctions and
19 15
20 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
22 See
18:32 May 31, 2017
impediments to and perfects the
mechanisms of a free and open market
and a national market system by
attracting more order flow and by
increasing the frequency with which
Initiating Members initiate Auctions
through PRIME. Moreover, the proposed
rule change is consistent with the rules
and proposals of other exchanges.23
Additionally, the Exchange believes
that the proposed technical clarifying
and definitional amendments to Rule
515A will benefit market participants by
enhancing transparency, clarity and
ease of reference to the rules.
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.
The proposed changes and their effect
on trade allocations in MIAX PRIME are
meant to more fairly allocate an Agency
Order submitted for price improvement
at the single price submission price or
at the final auto-match price point. The
Exchange believes that the allocation of
50% of the remainder of the Agency
Order to the Initiating Member when
there is only one non-Priority Customer
response that will trade at the execution
price should in fact enhance
competition by encouraging more
Initiating Members to submit Agency
Orders to MIAX Options for price
improvement via MIAX PRIME, which
should benefit investors by attracting
more order flow as well as increasing
the frequency with which Initiating
Members submit Agency Orders into the
PRIME Auction. This should result in
enhanced liquidity and more
competition on the Exchange.
For all the reasons stated, 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, and believes the
proposed change will in fact enhance
competition.
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.
23 See
21 Id.
VerDate Sep<11>2014
Complex Auctions involving the same
option may not queue or overlap in any
manner, is consistent with the Act. The
Exchange believes that, without such a
limitation, investors could be faced with
an unusually large number of
simultaneous PRIME and/or Complex
Auctions in the same option in the
simple market, and in the same strategy
in the complex market, which in turn
could impact the orderly function of the
markets. The Exchange believes that this
limitation is consistent with the Act
because it is designed to remove
impediments to and perfect the
mechanisms of a free and open market
and a national market system by
ensuring orderliness in the PRIME and
Complex Auction process on the
Exchange.
The Exchange believes that the
proposed rule change relating to
rounding removes impediments to and
perfects the mechanisms of a free and
open market and a national market
system by adopting rules that are
consistent with industry practices. As
stated above, BX, in a filing relating to
its directed orders program, described a
process for rounding that has the
potential to result in an allocation that
is slightly greater than their 40% or 50%
entitlement for directed orders.22 The
Exchange believes that this supports its
proposal to adopt Proposed
Interpretations and Policies .10 with
respect to rounding a remainder of
exactly one-half contract (.50000) up to
the next higher whole number.
The Exchange further believes the
proposed rule change protects investors
and is in the public interest because it
fairly allocates the PRIME Agency Order
in a manner that rewards Initiating
Members who submit PRIME Agency
Orders and guarantee price
improvement for the entire Agency
Order. The allocation of 50% of the
contracts to the Initiating Member when
there is only one remaining participant
that matches the initiating Member’s
single price submission price or final
auto-match price point should provide
greater incentive to Initiating Members
to submit Agency Orders for price
improvement in the PRIME auction. The
result of a greater number of Agency
Orders submitted to PRIME is a benefit
to the MIAX Options markets and the
marketplace as a whole because it
enriches liquidity on the Exchange at
the NBBO, providing investors with
greater opportunities for executions at
the NBBO and beyond at improved
prices through MIAX PRIME.
The Exchange also believes that the
proposed rule change removes
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27.
supra note 10.
Sfmt 4703
25397
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25398
Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices
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 24 and Rule 19b–4(f)(6) 25
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
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–2017–22 on the subject line.
mstockstill on DSK30JT082PROD with NOTICES
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–2017–22. 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
24 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.
25 17
VerDate Sep<11>2014
18:32 May 31, 2017
Jkt 241001
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–
2017–22 and should be submitted on or
before June 22, 2017.
mail. Hearing requests should be
received by the SEC by 5:30 p.m. on
June 20, 2017, and should be
accompanied by proof of service on
applicants, in the form of an affidavit or,
for lawyers, a certificate of service.
Pursuant to Rule 0–5 under the Act,
hearing requests should state the nature
of the writer’s interest, any facts bearing
upon the desirability of a hearing on the
matter, the reason for the request, and
the issues contested. Persons who wish
to be notified of a hearing may request
notification by writing to the
Commission’s Secretary.
ADDRESSES: The Commission: Secretary,
U.S. Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
FOR FURTHER INFORMATION CONTACT:
Jessica Shin, Attorney-Adviser, at (202)
551–5921 or Chief Counsel’s Office at
(202) 551–6821; SEC, Division of
Investment Management, Chief
Counsel’s Office, 100 F Street NE.,
Washington, DC 20549–8010.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Eduardo A. Aleman,
Assistant Secretary.
[File No. 811–21479]
[FR Doc. 2017–11355 Filed 5–31–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
32663]
Notice of Applications for
Deregistration Under Section 8(f) of the
Investment Company Act of 1940
May 26, 2017.
The following is a notice of
applications for deregistration under
section 8(f) of the Investment Company
Act of 1940 for the month of May 2017.
A copy of each application may be
obtained via the Commission’s Web site
by searching for the file number, or for
an applicant using the Company name
box, at https://www.sec.gov/search/
search.htm or by calling (202) 551–
8090. An order granting each
application will be issued unless the
SEC orders a hearing. Interested persons
may request a hearing on any
application by writing to the SEC’s
Secretary at the address below and
serving the relevant applicant with a
copy of the request, personally or by
26 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00175
Fmt 4703
Sfmt 4703
Madison Harbor Balanced Strategies,
Inc.
Summary: Applicant, a closed-end
investment company, seeks an order
declaring that it has ceased to be an
investment company. On January 31,
2017 and April 28, 2017, applicant
made liquidating distributions to its
shareholders, based on net asset value.
Expenses of $268,984 incurred in
connection with the liquidation were
paid by the applicant. Applicant has
retained $251,910 for the purpose of
paying outstanding accrued and
anticipated expenses.
Filing Date: The application was filed
on May 1, 2017.
Applicant’s Address: Madison Harbor
Balanced Strategies, Inc., 1177 Avenue
of the Americas, 44th Floor, New York,
New York 10036.
CBRE Clarion MLP Select Income
Opportunities Fund
[File No. 811–22950]
Summary: Applicant, a closed-end
investment company, seeks an order
declaring that it has ceased to be an
investment company. Applicant has
never made a public offering of its
securities and does not propose to make
a public offering or engage in business
of any kind.
Filing Dates: The application was
filed on February 28, 2017 and amended
on May 2, 2017.
Applicant’s Address: 201 King of
Prussia Road, Suite 600, Radnor,
Pennsylvania 19087.
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]]>Agencies
[Federal Register Volume 82, Number 104 (Thursday, June 1, 2017)]
[Notices]
[Pages 25393-25398]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-11355]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80779; File No. SR-MIAX-2017-22]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend MIAX Options Rule 515A, MIAX Price
Improvement Mechanism (``PRIME'') and PRIME Solicitation Mechanism
May 26, 2017.
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 May 17, 2017, Miami International Securities
Exchange, LLC (``MIAX Options'' or ``Exchange'') filed with the
Securities and Exchange Commission
[[Page 25394]]
(``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.
---------------------------------------------------------------------------
\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 amend Exchange Rule 515A to
reflect changes to the MIAX Options Price Improvement Mechanism
(``PRIME'').
The text of the proposed rule change is available on the Exchange's
Web site at https://www.miaxoptions.com/rule-filings, 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 amend Exchange Rule 515A, MIAX Price
Improvement Mechanism (``PRIME'') and PRIME Solicitation Mechanism, to
reflect new functionality to be included in the PRIME process, as
described below. The Exchange is also proposing certain clarifying
technical amendments to the Rule.
Background
MIAX PRIME is a price-improvement mechanism on the Exchange under
which a Member \3\ (``Initiating Member'') electronically submits an
order that it represents as agent (an ``Agency Order'') into a PRIME
Auction (``Auction''). The Initiating Member, in submitting an Agency
Order, must be willing to either (i) cross the Agency Order at a single
price (a ``single-price submission'') as principal, or (ii)
automatically match (``auto-match''), as principal, the price and size
of responses to a Request for Response (``RFR'') that is broadcast to
MIAX Options participants up to an optional designated limit price.
Such a response is known as an ``RFR response.'' \4\ Members wishing to
participate in the PRIME Auction may do so by submitting RFR responses
during the RFR period (see below), which is currently 500 milliseconds.
---------------------------------------------------------------------------
\3\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Act. See Exchange
Rule 100.
\4\ See Exchange Rule 515A(a)(2)(i). When the Exchange receives
a properly designated Agency Order for auction processing, an RFR
detailing the option, side, size, and initiating price will be sent
to all subscribers of the Exchange's data feeds. The RFR currently
lasts for 500 milliseconds. Members may submit responses to the RFR
(specifying prices and sizes). RFR responses shall be an Auction or
Cancel (``AOC'') order or an AOC eQuote. Such responses cannot cross
the disseminated MIAX Best Bid or Offer (``MBBO'') on the opposite
side of the market from the response.
---------------------------------------------------------------------------
Multiple Auctions
The Exchange is proposing to amend Rule 515A(a)(2) to state that,
as today, only one Auction may be ongoing at any given time in an
option. The Exchange is proposing to modify the rule to account for the
trading of complex orders on the Exchange.\5\ Specifically, Rule
515A(a)(2) will continue to state clearly that only one Auction may be
ongoing at any given time in an option and Auctions in the same option
may not queue or overlap in any manner. In addition, the Exchange
proposes to amend the Rule by stating that the System \6\ will reject
an Agency Order if, at the time of receipt of the Agency Order, the
option is in an Auction or is a component of a complex strategy \7\
that is the subject of a Complex Auction pursuant to Rule 518(d). The
Exchange believes that the rejection of Agency Orders that are received
in an option in which an Auction or Complex Auction is ongoing ensures
that there will not be any interference with the potential for price
improvement for the Agency Order from one ongoing auction type to
another.
---------------------------------------------------------------------------
\5\ See Exchange Rule 518. See also, Securities Exchange Act
Release No. 79072 (October 7, 2016), 81 FR 71131 (October 14, 2016)
(SR-MIAX-2016-26).
\6\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\7\ The term ``complex strategy'' means a particular combination
of components and their ratios to one another. New complex
strategies can be created as the result of the receipt of a complex
order or by the Exchange for a complex strategy that is not
currently in the System. The Exchange may limit the number of new
complex strategies that may be in the System at a particular time
and will communicate this limitation to Members via Regulatory
Circular. See Exchange Rule 518(a)(6).
---------------------------------------------------------------------------
The Exchange notes that the limitation against simultaneous ongoing
Auctions and Complex Auctions applies to the specific option being
auctioned. The term ``option'' in the Exchange's rules refers to an
individual put or call with a specific underlying security, strike
price and expiration date. The Exchange defines a ``series of options''
as all option contracts of the same class having the same exercise
price and expiration date.\8\ Thus, a ``series of options'' on MIAX
Options includes both calls and puts overlying a security with the same
strike price and the same expiration. The individual call or put in the
series of options is the ``option.''
---------------------------------------------------------------------------
\8\ See Exchange Rule 100.
---------------------------------------------------------------------------
For example, if an Auction or a Complex Auction involving XYZ July
20 calls is underway and ongoing at the time of receipt of an Agency
Order in XYZ July 20 calls, the System will reject such Agency Order.
The System will not, however, reject an Agency Order in XYZ October 20
calls, or in XYZ July 25 calls, for example, because the series being
auctioned has a different strike price or expiration.\9\
---------------------------------------------------------------------------
\9\ The Exchange notes that other exchanges also limit
simultaneous auctions by ``series,'' which on other exchanges has
the same meaning as ``option'' on MIAX Options. For example, Nasdaq
ISE, LLC (``ISE'') Rule 723.04 states that only one Price
Improvement Mechanism (``PIM'') may be ongoing at any given time in
a ``series.'' PIMs will not queue or overlap in any manner. See ISE
Rule 723.04. In another example, Chicago Board Options Exchange,
Inc. (``CBOE'') Automated Improvement Mechanism (``AIM'') rules
state that only one Auction may be ongoing at any given time in a
``series'' and Auctions in the same ``series'' may not queue or
overlap in any manner. See CBOE Rule 6.74A(b). See also, NASDAQ PHLX
LLC (``Phlx'') Rule 1080(n)(ii), which states that only one Auction
may be conducted at a time in the same ``series'' or same strategy,
otherwise the orders will be rejected. The use of the term
``series'' in these various exchanges' rules is synonymous with the
Exchange's use of the term ``option.''
---------------------------------------------------------------------------
The Exchange believes that, without such a limitation, investors
could be faced with an unusually large number of simultaneous PRIME
and/or Complex Auctions in the same option in the simple market, and in
the same strategy in the complex market, which in turn could impact the
orderly function of the markets. The Exchange believes that this
limitation should ensure orderliness in the PRIME and Complex Auction
process.
Rounding
The Exchange is proposing to adopt new Interpretations and Policies
.10 to Rule 515A to establish in the rule text that, when determining
the 40% or 50% Initiating Member allocation under paragraphs
(a)(2)(iii)(H) or (I), the
[[Page 25395]]
System will round the number of contracts to which the Initiating
Member is entitled to the nearest whole number (up or down). If the 40%
or 50% Initiating Member allocation results in a remainder of exactly
one-half contract (.50000), then the System will round the number of
contracts to which the Initiating Member is entitled up to the next
higher whole number. Other exchanges that allocate based on percentage
amounts employ some form of ``rounding.'' \10\
---------------------------------------------------------------------------
\10\ For example, Phlx Rules provide that where the allocation
of contracts results in remaining amounts, the number of contracts
to be allocated shall be rounded down to the nearest integer. If
rounding would result in an allocation of less than one contract,
then one contract will be allocated to the Initiating Member only if
the Initiating Member did not otherwise receive an allocation. See
Phlx Rule 1080(n)(ii)(E)(2)(f). This differs slightly from the
instant proposal by the Exchange in that the System will round the
number of contracts to which the Initiating Member is entitled to
the nearest whole number (up or down). The Exchange also notes that
NASDAQ BX, Inc. (``BX''), in a filing relating to its directed
orders program, described a process for rounding that has the
potential to result in an allocation that is slightly greater than
their 40% or 50% entitlement for directed orders. See Securities
Exchange Act Release No. 73784 (December 8, 2014), 79 FR 73930 (SR-
BX-2014-049) (Notice of Filing of Proposed Rule Change Relating to
Directed Market Makers). See also, Securities Exchange Act Release
No. 74129 (January 23, 2015), 80 FR 4954 (January 29, 2015) (SR-BX-
2014-049) (Order Approving Proposed Rule Change Relating to Directed
Market Makers).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change regarding
rounding results in the fair and equitable allocation of contracts
among PRIME participants, and provides clarity and transparency in the
Exchange's rules so that all MIAX PRIME Auction participants will be
informed of their participation entitlements when submitting orders and
responses into MIAX PRIME.
Allocation of Contracts at the Conclusion of the PRIME Auction
Currently, Exchange Rule 515A(a)(2)(iii) provides that at the
conclusion of the Auction, the Agency Order will be allocated at the
best price(s), subject to the following: (A) Such best prices include
non-Auction quotes and orders; (B) Priority Customer \11\ orders
resting on the Book \12\ before, or that are received during, the
Response Time Interval and Priority Customer RFR responses shall,
collectively have first priority to trade against the Agency Order. The
allocation of an Agency Order against the Priority Customer orders
resting in the Book, Priority Customer orders received during the
Response Time Interval, and Priority Customer RFR responses shall be in
the sequence in which they are received by the System; (C) Market Maker
priority quotes \13\ and RFR responses from Market Makers \14\ with
priority quotes will collectively have second priority. The allocation
of Agency Orders against these contra sided quotes and RFR responses
shall be on a size pro rata basis as defined in Rule 514(c)(2); (D)
Professional Interest orders resting in the Book, Professional Interest
orders placed in the Book during the Response Time Interval,
Professional Interest quotes, and Professional Interest RFR responses
will collectively have third priority. The allocation of Agency Orders
against these contra sided orders and RFR Responses shall be on a size
pro rata basis as defined in Rule 514(c)(2); (E) No participation
entitlement shall apply to orders executed pursuant to this Rule; (F)
If an unrelated market or marketable limit order on the opposite side
of the market as the Agency Order was received during the Auction and
ended the Auction, such unrelated order shall trade against the Agency
Order at the midpoint of the best RFR response (or in the absence of a
RFR response, the initiating price) and the NBBO on the other side of
the market from the RFR responses (rounded towards the disseminated
quote when necessary). (G) If an unrelated non-marketable limit order
on the opposite side of the market as the Agency Order was received
during the Auction and ended the Auction, such unrelated order shall
trade against the Agency Order at the midpoint of the best RFR response
and the unrelated order's limit price (rounded towards the unrelated
order's limit price when necessary).
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\11\ The term ``Priority Customer'' means a person or entity
that (i) is not a broker or dealer in securities, and (ii) does not
place more than 390 orders in listed options per day on average
during a calendar month for its own beneficial account(s). See
Exchange Rule 100.
\12\ The term ``Book'' means the electronic book of buy and sell
orders and quotes maintained by the System. See Exchange Rule 100.
\13\ To be considered a priority quote, at the time of
execution, each of the following standards must be met: (A) The bid/
ask differential of a Market Maker's two-sided quote pair must be
valid width (no wider than the bid/ask differentials outlined in
Rule 603(b)(4)); (B) the initial size of both of the Market Maker's
bid and the offer must be in compliance with the requirements of
Rule 604(b)(2); (C) the bid/ask differential of a Market Maker's
two-sided quote pair must meet the priority quote width requirements
defined below in subparagraph (ii) [sic] for each option; and (D)
either of the following are true: 1. At the time a locking or
crossing quote or order enters the System, the Market Maker's two-
sided quote pair must be valid width for that option and must have
been resting on the Book; or 2. Immediately prior to the time the
Market Maker enters a new quote that locks or crosses the MBBO, the
Market Maker must have had a valid width quote already existing
(i.e., exclusive of the Market Maker's new marketable quote or
update) among his two-sided quotes for that option. See Exchange
Rule 517(b)(1)(i).
\14\ The term ``Market Makers'' refers to ``Lead Market
Makers'', ``Primary Lead Market Makers'' and ``Registered Market
Makers'' collectively. The term ``Lead Market Maker'' means a Member
registered with the Exchange for the purpose of making markets in
securities traded on the Exchange and that is vested with the rights
and responsibilities specified in Chapter VI of the Exchange's Rules
with respect to Lead Market Makers. When a Lead Market Maker is
appointed to act in the capacity of a Primary Lead Market Maker, the
additional rights and responsibilities of a Primary Lead Market
Maker specified in Chapter VI of the Exchange's Rules will apply.
The term ``Primary Lead Market Maker'' means a Lead Market Maker
appointed by the Exchange to act as the Primary Lead Market Maker
for the purpose of making markets in securities traded on the
Exchange. The Primary Lead Market Maker is vested with the rights
and responsibilities specified in Chapter VI of the Exchange's Rules
with respect to Primary Lead Market Makers. The term ``Registered
Market Maker'' means a Member registered with the Exchange for the
purpose of making markets in securities traded on the Exchange, who
is not a Lead Market Maker and is vested with the rights and
responsibilities specified in Chapter VI of the Exchange's Rules
with respect to Registered Market Makers. See Exchange Rule 100.
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Rules 515A(a)(2)(iii)(H) and (I) describe the allocation of
contracts executed when the Initiating Member selects the single-price
submission or the auto-match option, respectively, when submitting
their Agency Order and there are either two or more participants at the
execution price or when there is only one other participant on parity
with the Initiating Member at either the single price execution price
or at the final auto-match price point.
The Exchange is proposing to modify the PRIME trade allocation
rules with respect to determining the Initiating Member's entitlement
percentage (either 40% or 50%) at the single price submission price and
at the final auto-match price point, as applicable.
Exchange Rules 515A(a)(2)(iii)(H) and (I) currently state that,
upon conclusion of an Auction, an Initiating Member will retain certain
priority and trade allocation privileges for a single-price submission
and for an auto-match submission. Under current Rule
515A(a)(2)(iii)(H), if the best price equals the Initiating Member's
single-price submission, the Initiating Member's single-price
submission shall be allocated the greater of one contract or a certain
percentage of the order, which percentage will be determined by the
Exchange and may not be larger than 40% of the Agency Order, subject to
the rounding provisions of proposed Rule 515A, Interpretations and
Policies .10 (described above). However, if only one Member's response,
subject to the System's calculation of the number of Member's responses
described in proposed Rule 515A, Interpretations and Policies .11
(described below) matches the Initiating Member's single
[[Page 25396]]
price submission, then the Initiating Member may be allocated up to 50%
of the Agency Order.
Similarly, current Exchange Rule 515A(a)(2)(iii)(I) provides that
if the Initiating Member selected the auto-match option of the Auction,
the Initiating Member shall be allocated its full size of RFR responses
at each price point until the final auto-match price point is reached.
At the final auto-match price point, the Initiating Member shall be
allocated the greater of one contract or a certain percentage of the
remainder of the Agency Order, which percentage will be determined by
the Exchange and may not be larger than 40%, subject to the rounding
provisions of proposed Rule 515A, Interpretations and Policies .10
(described above). However, if only one Member's response, subject to
the System's calculation of the number of Member's responses described
in proposed Rule 515A, Interpretations and Policies .11 (described
below) matches the Initiating Member's submission at the final auto-
match price point, then the Initiating Member may be allocated up to
50% of the remainder of the Agency Order at the final auto-match price
point.
At the conclusion of the Auction, the Agency Order is allocated at
the best price(s) pursuant to the matching algorithm in effect for the
class.\15\ The System first must determine the number of participants
that are entitled to receive contracts to be allocated, and whether any
participant(s) such as Priority Customers are entitled to receive
contracts first. Thereafter, contracts are allocated among participants
at the execution price.
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\15\ See Exchange Rule 515A(a)(2)(iii).
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The Exchange is proposing to adopt Interpretations and Policies .11
to Rule 515A to state the basis on which the System will determine a
Member's response to be a participant at the single price submission
price and at the final auto-match price point in calculating the
Initiating Member's entitlement at that price.\16\ Specifically, when
calculating the number of Members' responses that match the Initiating
Member's single price submission under sub-paragraph (a)(2)(iii)(H) and
the final auto-match price point under sub-paragraph (a)(2)(iii)(I) of
Rule 515A, the System will not include in such calculation: (i) Any
Priority Customer Auction response and/or unrelated Priority Customer
interest that has been executed, or (ii) any Member's response
(including unrelated orders and quotes) executed at a better price.
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\16\ The Exchange notes that under the NYSE MKT CUBE price
improvement mechanism, if only the accompanying contra order and one
other RFR response are eligible to trade at the CUBE execution
price, each will receive a 50% allocation; otherwise, the
accompanying contra order will receive a 40% guaranteed allocation
unless more than 60% of the order is price improved by other
participants (the accompanying contra will yield priority at a given
price once the 40% entitlement is satisfied). See NYSE MKT CUBE
Factsheet, https://www.nyse.com/markets/amex-options, Related
Information, dated February 9, 2016 at p.2.
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Exchange Rule 515A(2)(iii)(B) explicitly states that Priority
Customer orders resting on the Book before, or that are received
during, the Response Time Interval and Priority Customer RFR responses
shall, collectively, have first priority to trade against the Agency
Order. Therefore, all Priority Customer Interest at the single price
submission and at the final auto-match price point is executed first,
after which other interest is allocated in accordance with Rule
515A(a)(2)(iii).
The Exchange is proposing to adopt Interpretations and Policies .11
to exclude from the number of responding participants remaining at
those prices (i) Priority Customer RFR responses and/or unrelated
Priority Customer interest that has already been executed, and (ii) any
Member's response (including unrelated orders and quotes) executed at a
better price. The purpose of this proposal is to calculate and
establish the actual number of Auction participants that may be
allocated contracts at a given price point. To include Priority
Customer and other interest that have already received full executions
and therefore cannot participate further in the allocation of contracts
as part of the remaining participants at the execution price could
artificially skew the entitlements of remaining participants at the
next level(s) of priority established in Rule 515A(2)(iii). This is
particularly true when there is only one remaining participant with the
Initiating Member that could or would be entitled to receive contracts
at the single price submission or at the final auto-match price point.
The following examples illustrate this.
Example 1--Priority Customer Interest Already Executed, One Participant
With Initiating Member
ABBO: 1.00-1.06
MBBO: 1.00-1.06
PRIME Order, Agency buy 20 contracts, Auction Start Price 1.05
Begin RFR Auction
During Auction, MM1 responds with an RFR response to sell 20 at 1.05
Customer order to sell 5 at 1.05
At the end of the RFR period
Agency Order buys 5 from the Customer order at 1.05
There is one remaining joining interest at 1.05 (MM1), so the contra
receives 50% of the original size of the order, or 10 contracts, and
MM1 receives the balance of 5 contracts \17\
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\17\ Under the current Rule, the result would be slightly
different. The Agency Order would still buy 5 contracts from the
Customer at $1.05. However, although the Customer has sold all 5
contracts it offered at $1.05, the current rule counts two remaining
joining offers at 1.05 (MM1 and Customer) for the remaining 15
contracts, so the contra receives 40% of the original size of the
order, or 8 contracts, and MM1 receives the balance of 7 contracts.
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Example 2--Responses Executed at Better Prices, One Participant With
Initiating Member
ABBO: 1.00-1.06
MBBO: 1.00-1.06
PRIME Order, Agency buy 20 contracts, Auction Start Price 1.05
Begin RFR Auction
During Auction, MM1 responds with an RFR response to sell 20 at 1.05
MM2 responds with an RFR response to sell to sell 5 at 1.04
At the end of the RFR period
Agency Order buys 5 from MM2 at 1.04
There is one joining interest at 1.05 (MM1), so the contra receives 50%
of the original size of the order, or 10 contracts, and MM1 receives
the balance of 5 contracts \18\
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\18\ Under the current Rule, just as in Example 1, the result
would be slightly different. The Agency Order would buy 5 contracts
from MM2 at $1.04. However, although MM2 has sold all 5 contracts it
offered at $1.04, the current rule counts two remaining joining
offers at 1.05 (MM1 and MM2) for the remaining 15 contracts, so the
contra receives 40% of the original size of the order, or 8
contracts, and MM1 receives the balance of 7 contracts.
When more than one participant matches the Initiating Member at the
single price submission and/or at the final auto-match price point, the
Initiating Member is entitled to receive and is allocated the greater
of one contract or a certain percentage of the remainder of the Agency
Order, which percentage will be determined by the Exchange and may not
be larger than 40%. Currently, in auto-match, in the situation where
there is one remaining participant matching the Initiating Member at
the final auto-match price point, the Initiating Member and the lone
remaining participant are each entitled to 50% of the remaining
contracts at that price (subject of course to their stated size). The
proposal to include only the remaining participant after other
participants have already received full executions at better prices
ensures that the Initiating Participant, who has guaranteed the full
execution at the single price submission or at the final auto-match
price point, will receive its rightful 50% allocation. The Exchange
believes that the proposed rule change rewards the Initiating
[[Page 25397]]
Participant, who has absorbed the maximum risk in the PRIME Auction, by
ensuring the 50% allocation entitlement when there is only one other
participant matching the Initiating Member at the single price
submission price or at the final auto-match price point. The Exchange
believes that this provides an additional incentive for Initiating
Members to submit Agency Orders for price improvement in MIAX PRIME.
Technical Amendments
The Exchange is proposing to capitalize the term ``Agency Order''
in Rule 515A(a)(2)(iii)(H) because the term is defined in Rule 515A(a)
above. Additionally, the Exchange is proposing to add the word ``or''
to the first sentence of Rules 515A(a)(2)(iii)(H) and (I),
respectfully, for grammatical correctness. These proposed technical
amendments are intended for clarity and ease of reference.
The Exchange will announce the implementation date of the proposed
rule change by Regulatory Circular to be published no later than 60
days following the operative date of the proposed rule. The
implementation date will be no later than 60 days following the
issuance of the Regulatory Circular.
2. Statutory Basis
MIAX believes that its proposed rule change is consistent with
Section 6(b) of the Act \19\ in general, and furthers the objectives of
Section 6(b)(5) of the Act \20\ 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 regulating, clearing, settling,
processing information with respect to, and 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 further
believes the proposed rule change is consistent with the Section
6(b)(5) \21\ requirement that the rules of an exchange not be designed
to permit unfair discrimination between customers, issuers, brokers, or
dealers.
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\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(5).
\21\ Id.
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In particular, the Exchange believes that the proposed amendment to
Rule 515A(a)(2) stating that only one Auction or Complex Auction may be
ongoing at any given time in an option and/or in a complex strategy in
which that option is a component, and Auctions and Complex Auctions
involving the same option may not queue or overlap in any manner, is
consistent with the Act. The Exchange believes that, without such a
limitation, investors could be faced with an unusually large number of
simultaneous PRIME and/or Complex Auctions in the same option in the
simple market, and in the same strategy in the complex market, which in
turn could impact the orderly function of the markets. The Exchange
believes that this limitation is consistent with the Act because it is
designed to remove impediments to and perfect the mechanisms of a free
and open market and a national market system by ensuring orderliness in
the PRIME and Complex Auction process on the Exchange.
The Exchange believes that the proposed rule change relating to
rounding removes impediments to and perfects the mechanisms of a free
and open market and a national market system by adopting rules that are
consistent with industry practices. As stated above, BX, in a filing
relating to its directed orders program, described a process for
rounding that has the potential to result in an allocation that is
slightly greater than their 40% or 50% entitlement for directed
orders.\22\ The Exchange believes that this supports its proposal to
adopt Proposed Interpretations and Policies .10 with respect to
rounding a remainder of exactly one-half contract (.50000) up to the
next higher whole number.
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\22\ See supra note 10.
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The Exchange further believes the proposed rule change protects
investors and is in the public interest because it fairly allocates the
PRIME Agency Order in a manner that rewards Initiating Members who
submit PRIME Agency Orders and guarantee price improvement for the
entire Agency Order. The allocation of 50% of the contracts to the
Initiating Member when there is only one remaining participant that
matches the initiating Member's single price submission price or final
auto-match price point should provide greater incentive to Initiating
Members to submit Agency Orders for price improvement in the PRIME
auction. The result of a greater number of Agency Orders submitted to
PRIME is a benefit to the MIAX Options markets and the marketplace as a
whole because it enriches liquidity on the Exchange at the NBBO,
providing investors with greater opportunities for executions at the
NBBO and beyond at improved prices through MIAX PRIME.
The Exchange also believes that the proposed rule change removes
impediments to and perfects the mechanisms of a free and open market
and a national market system by attracting more order flow and by
increasing the frequency with which Initiating Members initiate
Auctions through PRIME. Moreover, the proposed rule change is
consistent with the rules and proposals of other exchanges.\23\
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\23\ See supra notes 9, 10, 16 and infra notes 26 and 27.
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Additionally, the Exchange believes that the proposed technical
clarifying and definitional amendments to Rule 515A will benefit market
participants by enhancing transparency, clarity and ease of reference
to the rules.
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.
The proposed changes and their effect on trade allocations in MIAX
PRIME are meant to more fairly allocate an Agency Order submitted for
price improvement at the single price submission price or at the final
auto-match price point. The Exchange believes that the allocation of
50% of the remainder of the Agency Order to the Initiating Member when
there is only one non-Priority Customer response that will trade at the
execution price should in fact enhance competition by encouraging more
Initiating Members to submit Agency Orders to MIAX Options for price
improvement via MIAX PRIME, which should benefit investors by
attracting more order flow as well as increasing the frequency with
which Initiating Members submit Agency Orders into the PRIME Auction.
This should result in enhanced liquidity and more competition on the
Exchange.
For all the reasons stated, 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, and
believes the proposed change will in fact enhance competition.
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.
[[Page 25398]]
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 \24\ and Rule 19b-4(f)(6) \25\
thereunder.
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\24\ 15 U.S.C. 78s(b)(3)(A).
\25\ 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 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-2017-22 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-2017-22. 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-2017-22 and should be
submitted on or before June 22, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-11355 Filed 5-31-17; 8:45 am]
BILLING CODE 8011-01-P
