Self-Regulatory Organizations; Miami International Securities Exchange LLC; Order Granting Approval of a Proposed Rule Change To Amend MIAX Options Rules 515, Execution of Orders and Quotes; 515A, MIAX Price Improvement Mechanism (“PRIME”) and PRIME Solicitation Mechanism; and 518, Complex Orders, 32900-32904 [2017-14984]
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Federal Register / Vol. 82, No. 136 / Tuesday, July 18, 2017 / Notices
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, security-based swap
submission, or advance notice that are
filed with the Commission, and all
written communications relating to the
proposed rule change, security-based
swap submission, or advance notice
between the Commission and any
person, other than those that may be
withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will
be available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filings will also be available for
inspection and copying at the principal
office of ICE Clear Credit and on ICE
Clear Credit’s Web site at https://
www.theice.com/clear-credit/regulation.
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–ICC–2017–011 and should
be submitted on or before August 2,
2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2017–14985 Filed 7–17–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Proposed Collection; Comment
Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE., Washington, DC
20549–2736
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Extension:
Rule 203–3, Form ADV–H; SEC File No.
270–481, OMB Control No. 3235–0538
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission (the
‘‘Commission’’) is soliciting comments
on the collection of information
19 17
CFR 200.30–3(a)(12).
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summarized below. The Commission
plans to submit this existing collection
of information to the Office of
Management and Budget (‘‘OMB’’) for
extension and approval.
The title for the collection of
information is ‘‘Form ADV–H under the
Investment Advisers Act of 1940.’’ Rule
203–3 (17 CFR 275.203–3) under the
Investment Advisers Act of 1940 (15
U.S.C. 80b) requires that registered
advisers requesting either a temporary
or continuing hardship exemption
submit the request on Form ADV–H.
Rule 204–4 (17 CFR 275.204–4) under
the Investment Advisers Act of 1940
requires that exempt reporting advisers
requesting a temporary hardship
exemption submit the request on Form
ADV–H. The purpose of this collection
of information is to permit advisers to
obtain a hardship exemption to not
complete an electronic filing. The
temporary hardship exemption that is
available to registered advisers under
rule 203–3 and exempt reporting
advisers under rule 204–4 permits these
advisers to make late filings due to
unforeseen computer or software
problems. The continuing hardship
exemption available to registered
advisers under rule 203–3 permits
advisers to submit all required
electronic filings on hard copy for data
entry by the operator of the IARD.
The Commission has estimated that
compliance with the requirement to
complete Form ADV–H imposes a total
burden of approximately one hour for
an adviser. Based on our experience, we
estimate that we will receive two Form
ADV–H filings annually from registered
investment advisers and one Form
ADV–H filing annually from exempt
reporting advisers. Based on the 60
minute per respondent estimate, the
Commission estimates a total annual
burden of 3 hours for this collection of
information.
Rule 203–3, rule 204–4, and Form
ADV–H do not require recordkeeping or
records retention. The collection of
information requirements under the rule
and form are mandatory. The
information collected pursuant to the
rule and Form ADV–H consists of filings
with the Commission. These filings are
not kept confidential. An agency may
not conduct or sponsor, and a person is
not required to respond to, a collection
of information unless it displays a
currently valid control number.
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information will have practical utility;
(b) the accuracy of the agency’s estimate
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of the burden of the collection of
information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection of
information on respondents, including
through the use of automated collection
techniques or other forms of information
technology. Consideration will be given
to comments and suggestions submitted
in writing within 60 days of this
publication.
Please direct your written comments
to Pamela Dyson, Director/Chief
Information Officer, Securities and
Exchange Commission, C/O Remi
Pavlik-Simon, 100 F Street NE.,
Washington, DC 20549; or send an email
to: PRA_Mailbox@sec.gov.
Dated: July 11, 2017.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2017–14967 Filed 7–17–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81131; File No. SR–MIAX–
2017–19]
Self-Regulatory Organizations; Miami
International Securities Exchange LLC;
Order Granting Approval of a
Proposed Rule Change To Amend
MIAX Options Rules 515, Execution of
Orders and Quotes; 515A, MIAX Price
Improvement Mechanism (‘‘PRIME’’)
and PRIME Solicitation Mechanism;
and 518, Complex Orders
July 12, 2017.
I. Introduction
On May 12, 2017, Miami International
Securities Exchange, LLC (‘‘MIAX
Options’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to the
provisions of Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change to establish three
new types of complex orders—Complex
Customer Cross (‘‘cC2C’’) Orders,
Complex Qualified Contingent Cross
(‘‘cQCC’’) Orders, and Complex PRIME
(‘‘cPRIME’’) Orders—and to adopt new
provisions that relate to the processing
of those new complex order types. The
proposed rule change was published for
comment in the Federal Register on
June 1, 2017.3 The Commission received
no comments regarding the proposal.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 80768
(May 25, 2017), 82 FR 25347 (‘‘Notice’’).
2 17
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This order approves the proposed rule
change.
II. Description of the Proposal
The Exchange proposes to establish
three new types of complex orders,4 and
to adopt new provisions that relate to
the processing of those new complex
order types. In particular, the Exchange
is proposing to modify its rules,
including its rule related to the MIAX
Price Improvement Mechanism
(‘‘PRIME’’), to permit the entry and
execution of cC2C Orders, cQCC Orders,
and cPRIME Orders, each as discussed
more fully below.
A. cC2C Orders
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The Exchange proposes to define a
cC2C Order as a type of complex order
that is comprised of one Priority
Customer 5 complex order to buy and
one Priority Customer complex order to
sell the same strategy at the same price
(which must be better than the
icMBBO 6 or the best net price of the
complex order on the Strategy Book 7 for
the strategy, whichever is more
aggressive) and for the same quantity.8
The Exchange proposes that cC2C
Orders be automatically executed upon
entry provided that the execution is at
least $0.01 better than the icMBBO price
or the best net price of a complex order
on the Strategy Book, whichever is more
aggressive.9 The Exchange will reject a
cC2C Order if, at the time of its receipt,
(i) the strategy is subject to a cPRIME
Auction pursuant to proposed
Interpretations and Policies .12 to Rule
515A or to a Complex Auction pursuant
to Rule 518(d); or (ii) any component of
the strategy is subject to a SMAT Event
4 For a description of the trading of complex
orders on the Exchange, see Rule 518. See also
Securities Exchange Act Release No. 79072 (October
7, 2016), 81 FR 71131 (October 14, 2016) (SR–
MIAX–2016–26).
5 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 Rule 100.
6 The Implied Complex MIAX Best Bid or Offer
(‘‘icMBBO’’) is a calculation that uses the best price
from the Simple Order Book for each component of
a complex strategy including displayed and nondisplayed trading interest. For stock-option orders,
the icMBBO for a complex strategy will be
calculated using the best price (whether displayed
or non-displayed) on the Simple Order Book in the
individual option component(s), and the National
Best Bid and Offer (‘‘NBBO’’) in the stock
component. See Rule 518(a)(11). The ‘‘Simple Order
Book’’ is the Exchange’s regular electronic book of
orders and quotes. See Rule 518(a)(15).
7 The ‘‘Strategy Book’’ is the Exchange’s
electronic book of complex orders and complex
quotes. See Rule 518(a)(17).
8 See proposed Rules 515(h)(3) and 518(b)(5).
9 See proposed Rule 515(h)(3).
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as described in Rule 518(a)(16).10 Unlike
simple Customer Cross Orders, the
Exchange proposes to not reject a cC2C
Order when a component of the strategy
is subject to the managed interest
process 11 pursuant to Rule 515(c).12
cC2C Orders will be automatically
cancelled if they cannot be executed,13
and may only be entered in the
minimum trading increments applicable
to complex orders under Rule
518(c)(1)(i).14 The Exchange further
proposes to state that Interpretations
and Policies .01 to Rule 520 applies to
the entry and execution of cC2C
Orders.15
The Exchange will determine, on a
class-by-class basis, the option classes
in which cC2C Orders are available for
trading on the Exchange, and will
10 A Simple Market Auction or Timer, or ‘‘SMAT’’
Event, is defined as any of the following: (i) a
PRIME Auction (pursuant to Rule 515A); (ii) a
Route Timer (pursuant to Rule 529); or (iii) a
liquidity refresh pause (pursuant to Rule 515(c)(2)).
See Rule 518(a)(16).
11 Under the managed interest process, if the limit
price of a non-routable order locks or crosses the
current opposite side NBBO, the System will
display the order one Minimum Price Variation
away from the current opposite side NBBO, and
book the order at a price that will lock the current
opposite side NBBO. See Rule 515(c)(ii).
12 The Exchange states that it is not necessary to
reject a cC2C Order in this scenario because, in
accordance with the execution price requirements
for cC2C Orders, the order would already have a
guaranteed execution price at the better of $0.01
inside the icMBBO price or at the best net price of
a complex order on the Strategy Book. See Notice,
supra note 3, at 25349. See also proposed Rule
515(h)(3). According to the Exchange, because the
execution price requirements ensure that each
participant in the complex order receives a better
price than it would have received if its order were
submitted as a single complex order, it is not
necessary or desirable to preclude the execution of
a cC2C Order where one component is subject to
the managed interest process in the simple market.
See Notice, supra note 3, at 25349.
13 See proposed Rule 515(h)(3)(A).
14 See proposed Rule 515(h)(3)(B). Bids and offers
on complex orders and quotes may be expressed in
$0.01 increments, and the component(s) of a
complex order may be executed in $0.01
increments, regardless of the minimum increments
otherwise applicable to individual components of
the complex order. See Rule 518(c)(1)(i).
15 See proposed Rule 515(h)(3)(C). Rule 520(b)
prevents an Electronic Exchange Member from
executing agency orders to increase its economic
gain from trading against the order without first
giving other trading interest on the Exchange an
opportunity to either trade with the agency order
or to trade at the execution price when the
Electronic Exchange Member was already bidding
or offering on the Simple Order Book. It would be
a violation of Rule 520(b) for an Electronic
Exchange Member to be a party to any arrangement
designed to circumvent Rule 520(b) by providing an
opportunity for a customer or other person
(including an affiliate) to regularly execute against
agency orders handled by the Electronic Exchange
Member immediately upon their entry into the
System. See Interpretations and Policies .01 to Rule
520. The term ‘‘Electronic Exchange Member’’
means the holder of a Trading Permit who is not
a Market Maker. See Rule 100.
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32901
announce such classes to Members via
Regulatory Circular.16
B. cQCC Orders
The Exchange proposes to define a
cQCC Order as a type of complex order
that is identified as being part of a
qualified contingent trade17 which is
comprised of a complex order to buy or
sell where each component is at least
1,000 contracts, coupled with a contraside complex order or orders (for the
same strategy) totaling an equal number
of contracts.18 cQCC Orders are
automatically executed upon entry
provided that, with respect to each
option leg of the cQCC Order, the
execution (i) is not at the same price as
a Priority Customer Order on the Simple
Order Book; and (ii) is at or between the
NBBO.19 The Exchange states that, as is
currently the case with QCC orders, it
will require that the Member entering a
cQCC Order provide certain information
to the Exchange regarding the execution
of the stock component, such as the
underlying price, quantity, price delta,
execution time, and executing venue.20
The Exchange will reject a cQCC
Order if, at the time of receipt of the
cQCC Order, (i) the strategy is subject to
a cPRIME Auction pursuant to proposed
Interpretations and Policies .12 to Rule
515A, or to a Complex Auction pursuant
to Rule 518(d); or (ii) any component of
the strategy is subject to a SMAT Event
as described in Rule 518(a)(16).21 The
Exchange will not reject a cQCC Order
when a component of the strategy is
subject to the managed interest process
pursuant to Rule 515(c). cQCC Orders
will be automatically cancelled if they
16 See proposed Rule 515(h)(3)(D). The term
‘‘Member’’ means an individual or organization
approved to exercise the trading rights associated
with a Trading Permit. See Rule 100.
17 A ‘‘qualified contingent trade’’ is a transaction
consisting of two or more component orders,
executed as agent or principal, where: (a) At least
one component is an NMS Stock, as defined in Rule
600 of Regulation NMS under the Act; (b) all
components are effected with a product or price
contingency that either has been agreed to by all the
respective counterparties or arranged for by a
broker-dealer as principal or agent; (c) the execution
of one component is contingent upon the execution
of all other components at or near the same time;
(d) the specific relationship between the component
orders (e.g., the spread between the prices of the
component orders) is determined by the time the
contingent order is placed; (e) the component
orders bear a derivative relationship to one another,
represent different classes of shares of the same
issuer, or involve the securities of participants in
mergers or with intentions to merge that have been
announced or cancelled; and (f) the transaction is
fully hedged (without regard to any prior existing
position) as a result of other components of the
contingent trade. See Interpretations and Policies
.01 to Rule 516.
18 See proposed Rule 518(b)(6).
19 See proposed Rule 515(h)(4).
20 See Notice, supra note 3, at 25350.
21 See proposed Rule 515(h)(4).
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cannot be executed,22 and may only be
entered in the minimum trading
increments applicable to complex
orders under Rule 518(c)(1)(i).23
The Exchange will determine, on a
class-by-class basis, the option classes
in which cQCC Orders are available for
trading on the Exchange, and will
announce such classes to Members via
Regulatory Circular.24
C. cPRIME Orders
PRIME is a price-improvement
mechanism pursuant to which a
Member (‘‘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’’)
against principal or solicited interest, or
(ii) automatically match (‘‘auto-match’’),
against principal or solicited interest,
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.25
As described below, the Exchange
proposes to add a cPRIME order type 26
which will be processed and executed
in the same manner in which simple
PRIME Orders are currently processed
and executed, except as otherwise
provided in proposed Interpretations
and Policies .12 to Rule 515A or unless
the context otherwise requires.27 The
22 See
proposed Rule 515(h)(4)(A).
proposed Rule 515(h)(4)(B).
24 See proposed Rule 515(h)(4)(C).
25 See 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. 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.
26 The Exchange proposes to define a cPRIME
Order as a type of complex order that is submitted
for participation in a cPRIME Auction. See
proposed Rule 518(b)(7). A Member may
electronically submit a ‘‘cPRIME Order’’ it
represents as agent (a ‘‘cPRIME Agency Order’’)
against principal or solicited interest for execution
(a ‘‘cPRIME Auction’’). See proposed Interpretations
and Policies .12(a) to Rule 515A.
27 In addition, MIAX proposes to state that any
references to the NBBO in Rule 515A are
inapplicable to cPRIME Auctions. See proposed
Interpretations and Policies .12(a)(v) to Rule 515A.
The Exchange also proposes to modify its simple
PRIME Rule to (1) state clearly that it will reject
RFR responses submitted with a price that is not
equal to or better than the initiating price to avoid
handling RFR responses that could not be executed
in an Auction because they are inferior to the
initiating price; and (2) delete unnecessary text
stating that an RFR response cannot cross the
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23 See
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Exchange will determine, on a class-byclass basis, the option classes in which
complex orders are available for trading
on PRIME on the Exchange, and will
announce such classes to Members via
Regulatory Circular.28
1. Auction Eligibility and Auction
Process
The initiating price for a cPRIME
Agency Order must be better than the
icMBBO for the strategy and any other
complex orders on the Strategy Book.29
The Exchange will reject cPRIME
Agency Orders submitted with an
initiating price that is equal to or worse
than the icMBBO or any other complex
orders on the Strategy Book. The
Exchange also will reject a cPRIME
Agency Order if, at the time of receipt
of the cPRIME Agency Order: (i) the
strategy is subject to a cPRIME Auction
or to a Complex Auction pursuant to
Rule 518(d); (ii) any component of the
strategy is subject to a SMAT Event as
described in Rule 518(a)(16); or (iii) any
component of the strategy is subject to
the managed interest process described
in Rule 515(c)(1)(ii).
The RFR period for cPRIME Auctions
will be independent from the RFR for
PRIME Auctions and will last for a
period of time as set forth in Rule
515A(a)(2)(i)(C).30 Members may enter
RFR responses on the opposite side of
the market from the cPRIME Agency
Order at net prices, and bids and offers
for complex orders may participate in
the execution of an order as provided in
Rule 515A.31 Bids and offers for the
individual legs of a complex order may
also participate; however, except as
provided in proposed Interpretations
and Policies .12(c) to Rule 515A, the
order allocation rules contained in Rule
disseminated MBBO on the opposite side of the
market from the response, because an Auction will
already conclude under Rule 515A(a)(2)(ii)(E) if an
RFR response matches the NBBO on the opposite
side of the market from the RFR responses, which
cannot be inferior to the MBBO. See proposed edits
to Rule 515A(a)(2)(i)(D).
28 See proposed Interpretations and Policies .12 to
Rule 515A.
29 See proposed Interpretations and Policies
.12(a)(i) to Rule 515A.
30 See proposed Interpretations and Policies
.12(c)(i) to Rule 515A. The Commission notes that,
on June 15, 2017, MIAX Options amended the
duration of the RFR period described in Rule
515A(a)(2)(i)(c) such that the RFR period will be a
period of time within a range of no less than 100
milliseconds and no more than 1 second, as
determined by the Exchange. See Securities
Exchange Act Release No. 80940 (June 15, 2017), 82
FR 28369 (June 21, 2017) (order approving SR–
MIAX–2017–16).
31 RFR responses shall be an AOC order or an
AOC eQuote. See Rule 515A(a)(2)(i)(D). This
applies by reference to cPRIME Auctions (and
cAOC eQuotes and cAOC orders, as defined below).
See proposed Interpretations and Policies .12(a) to
Rule 515A.
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514 will apply.32 If an improved net
price for the complex order being
executed can be achieved from bids and
offers for the individual legs of the
complex order in the simple market,
and the complex order is otherwise
eligible for Legging pursuant to Rule
518(c)(2)(iii), the Strategy being
matched will receive an execution at the
better net price.33
2. cPRIME Order Execution and
Allocation
The Exchange proposes to not apply
the size and bid/ask differential and
conclusion of auction provisions
contained in Rule 515A(a)(1)(iii) and
(iv) to cPRIME Orders.34 Instead, a
cPRIME Auction will conclude at the
sooner of the following events, with the
cPRIME Agency Order executing
pursuant to the cPRIME Auction
allocation provisions: (1) The end of the
RFR period; (2) when an AOC eQuote 35
or cAOC Order 36 on the opposite side
of the market from the cPRIME Agency
Order locks or crosses the icMBBO or
the best net price of a complex order in
the same strategy on the Strategy Book,
whichever is more aggressive; (3) when
unrelated interest on the same side of
the market as the cPRIME Agency Order
locks or crosses the best price on the
opposite side of the market; (4) when
unrelated interest on the opposite side
of the market from the cPRIME Agency
Order locks or crosses the icMBBO or
the best net price of a complex order in
the same strategy on the Strategy Book,
whichever is more aggressive, or
improves the price of any RFR response;
(5) when a simple order or quote in a
component of the strategy on the same
side of the market as the cPRIME
Agency Order locks or crosses the
NBBO for such component; or (6) when
a simple order or quote in a component
of the strategy on the opposite side of
the market from the cPRIME Agency
Order locks or crosses the NBBO for
such component or causes the icMBBO
32 See proposed Interpretations and Policies
.12(a)(iii) to Rule 515A.
33 See proposed Interpretations and Policies
.12(a)(iv) to Rule 515A.
34 See proposed Interpretations and Policies
.12(c)(iii) and (iv) to Rule 515A.
35 A ‘‘Complex Auction or Cancel eQuote’’ or
‘‘cAOC eQuote,’’ is an eQuote submitted by a
Market Maker that is used to provide liquidity
during a specific Complex Auction with a time in
force that corresponds with the duration of the
Complex Auction. See Interpretations and Policies
.02(c)(1) to Rule 518.
36 A Complex Auction-or-Cancel or ‘‘cAOC’’ order
is a complex limit order used to provide liquidity
during a specific Complex Auction with a time in
force that corresponds with that event. See Rule
518(b)(3).
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to be equal to or better than the
initiating price.37
At the conclusion of a cPRIME
Auction, the Exchange will apply the
order allocation provisions applicable to
the simple PRIME Auction,38 provided
that: (A) All references to contracts will
be considered references to complex
strategies; and (B) the last priority
allocation option described in Rule
515A(a)(2)(iii)(L) will not be available
for Initiating Members that submit
cPRIME Agency Orders.39 The Exchange
further proposes that participants that
submit simple orders that are executed
as individual legs of complex orders at
the execution price point will be
allocated contracts only after all
complex interest at such price point
have received allocations.40
Specifically, cPRIME Orders will be
matched first against other complex
orders and have priority over all simple
orders that are on the Simple Order
Book and ‘‘legged,’’ at the execution
price.41 According to the Exchange, it
proposes to provide priority to complex
interest over simple interest because the
initiating price of the cPRIME Agency
Order will always be superior to the net
price of simple orders resting on the
Simple Order Book, which would not
necessarily be intended to trade with
the legs of the Agency Order.42
However, if new interest is received in
the simple market that causes the
icMBBO on the opposite side of the
market from the cPRIME Agency Order
to be equal to or better than the
initiating price, the cPRIME Auction
will conclude before the expiration of
the RFR period and the standard
cPRIME execution and allocation
process will commence early.43
Regardless of when the cPRIME Auction
ends, contracts at each price point will
first be allocated by matching complex
strategies.44
37 See proposed Interpretations and Policies
.12(d) to Rule 515A.
38 See Rule 515A(a)(2)(iii). For an example of
cPRIME Order executions with and without the
Auto-Match feature, see Examples 3 and 4, Notice,
supra note 3, at 25352.
39 See proposed Interpretations and Policies
.12(c)(v) to Rule 515A.
40 See proposed Interpretations and Policies
.12(c)(ii) to Rule 515A.
41 The Exchange notes that other exchanges afford
priority to complex interest over simple interest
when allocating interest after a price improvement
auction. See Notice, supra note 3, at 25353 n.39
(citing as an example NASDAQ PHLX LLC (‘‘Phlx’’)
Rule 1098(e)(vi)(A)(2) and (viii)(C)(3)).
42 See Notice, supra note 3, at 25353.
43 See id. See also Example 5, Notice, supra note
3, at 25352.
44 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
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17:47 Jul 17, 2017
Jkt 241001
D. Implementation Date
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 change.45 The
implementation date will be no later
than 60 days following the issuance of
the Regulatory Circular.46
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange and, in particular,
with Section 6(b) of the Act.47 In
particular, the Commission finds that
the proposed rule change is consistent
with Sections 6(b)(5) and 6(b)(8) of the
Act,48 which require, among other
things, that the rules of a national
securities exchange be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest and
that the rules of an exchange do not
impose any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
The Commission believes that the
Exchange’s proposed cC2C rules are
consistent with the Act. They allow for
the crossing of complex orders in a
manner similar to other crossing rules
that the Commission has previously
approved for other exchanges and do
not appear to raise any novel or
significant issues.49
The Commission believes that the
Exchange’s proposed cQCC rules, which
would permit complex orders to
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 Rule 518(a)(6).
45 See Notice, supra note 3, at 25356.
46 See id.
47 15 U.S.C. 78f(b). In approving this proposed
rule change, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
48 15 U.S.C. 78f(b)(5), (b)(8).
49 See, e.g., Chicago Board Options Exchange,
Incorporated Rule 6.74A.08(b) and Phlx Rule
1080(n)(vi).
PO 00000
Frm 00119
Fmt 4703
Sfmt 4703
32903
participate in a clean cross of the
options leg of a subset of qualified
contingent trades in a similar manner as
QCC Orders already permitted on the
Exchange, are appropriate and
consistent with the Act.50 The
Commission notes that the proposal to
permit cQCC Orders in a manner similar
to QCC Orders already permitted on
MIAX Options, while requiring that the
cQCC Order: (1) Be part of a qualified
contingent trade under Regulation NMS;
(2) each option leg be for at least 1,000
contracts; and (3) with respect to each
option leg of the cQCC Order, that the
execution is not at the same price as a
Priority Customer Order on the Simple
Order Book and is at or between the
NBBO, establishes a limited exception
to the general principle of exposure and
retains the general principle of customer
priority in the options markets.
Furthermore, not only must a cQCC
Order be part of a qualified contingent
trade by satisfying each of the six
underlying requirements of the NMS
QCT Exemption,51 the requirement that
a cQCC Order be for a minimum size of
1,000 contracts per leg provides another
limit to its use by ensuring only
transactions of significant size may avail
themselves of this order type.
By allowing MIAX Options Members
to enter complex orders into PRIME, the
Commission believes that the proposal
could provide opportunities for
complex orders to receive price
improvement. Under the proposal, a
complex order entered into a cPRIME
Auction must be stopped at a price that
is better than the icMBBO for the
strategy and any other complex orders
on the Strategy Book.52 As noted above,
a Member enters a cPRIME Agency
Order against principal or solicited
interest for execution.53 At the
conclusion of a cPRIME Auction, the
cPRIME Agency Order is executed in
full at the best prices available, taking
into consideration orders and quotes in
50 See also Securities Exchange Act Release Nos.
64653 (June 13, 2011), 76 FR 35491 (June 17, 2011)
(order approving SR–CBOE–2011–041); 63955
(February 24, 2011), 76 FR 11533 (March 2, 2011)
(order approving SR–ISE–2010–73). The
Commission has granted an exemption for qualified
contingent trades that meet certain requirements
from Rule 611(a) of Regulation NMS, 17 CFR
242.611(a) (the ‘‘NMS QCT Exemption’’). See
Securities Exchange Act Release No. 57620 (April
4, 2008), 73 FR 19271 (April 9, 2008) (which
supersedes a release initially granting the NMS QCT
Exemption, Securities Exchange Act Release No.
54389 (August 31, 2006), 71 FR 52829 (September
7, 2006)).
51 See supra note 17.
52 See proposed Interpretations and Policies .12(a)
to Rule 515A; see also Notice, supra note 3, at
25352, for an example of an eligible cPRIME Order.
53 See proposed Interpretations and Policies .12(a)
to Rule 515A.
E:\FR\FM\18JYN1.SGM
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32904
Federal Register / Vol. 82, No. 136 / Tuesday, July 18, 2017 / Notices
the MIAX Options market, RFR
responses, and the Initiating Member’s
submission. Thus, a complex order
entered into a cPRIME Auction would
receive an execution at the best price
available at the conclusion of the
Auction and, at a minimum, would be
executed in full at the improved net
price. In addition, if an improved net
price for a complex order entered in a
cPRIME Auction could be achieved
from bids and offers for the individual
legs of the complex order in the MIAX
Options market, the complex order
would be executed at the better net
price. The Commission further notes
that other exchanges have previously
adopted similar rules to permit the entry
of complex orders into a price
improvement mechanism.54
For the foregoing reasons, the
Commission finds that the proposed
rule change is consistent with Sections
6(b)(5) and 6(b)(8) of the Act.55
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,56 that the
proposed rule change (SR–MIAX–2017–
19), be and hereby is approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.57
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2017–14984 Filed 7–17–17; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–81133; File No. SR–
NASDAQ–2017–065]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Increase the
Trading Rights Fee
sradovich on DSK3GMQ082PROD with NOTICES
July 12, 2017.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 29,
2017, The NASDAQ Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by the Exchange. The
e.g., Phlx Rule 1080(n).
U.S.C. 78f(b)(5), (b)(8).
56 15 U.S.C. 78s(b)(2).
57 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
55 15
VerDate Sep<11>2014
17:47 Jul 17, 2017
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Exchange’s trading rights fee at Rule
7001(a) to increase the fee from $1,000
per month to $1,250 per month, as
described further below. While these
amendments are effective upon filing,
the Exchange has designated the
proposed amendments to be operative
on July 1, 2017.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://nasdaq.cchwallstreet.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
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
SECURITIES AND EXCHANGE
COMMISSION
54 See,
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
1. Purpose
The purpose of the proposed rule
change is to increase its monthly trading
rights fee under Rule 7001(a). The
trading rights fee is assessed on all
Nasdaq members and helps defray the
cost of regulating the Nasdaq market.
The Exchange last increased the fee in
2012,3 increasing the fee from $500 per
month to $1,000 per month, while the
cost of regulation has increased since
that time. In proposing the change, the
Exchange is more closely aligning the
fee assessed with the benefit provided
by allowing members to trade on a wellregulated market, the cost of which is
incurred by the Exchange in the systems
and people that support oversight of the
market. Nasdaq believes that even with
the fee increase, the cost of Nasdaq
membership will continue to be
3 See Securities Exchange Act Release No. 66905
(May 2, 2012), 77 FR 27105 (May 8, 2012) (SR–
NASDAQ–2012–056).
Jkt 241001
PO 00000
Frm 00120
Fmt 4703
Sfmt 4703
generally lower than the cost of
membership in other SROs.4
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,5 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,6 in particular, in that it
provides for the equitable allocation of
reasonable dues, fees and other charges
among members and issuers and other
persons using any facility, and is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
Nasdaq believes that the fee change is
reasonable because the increased fee
continues to be less than the analogous
fees of other markets. For example, the
Exchange’s membership fees will
continue to remain substantially lower
than the analogous fees assessed by the
New York Stock Exchange for
membership, which assesses an annual
fee of $50,000 for the first license held
by a member organization. The
Exchange believes that the proposed fee
increase is an equitable allocation and is
not unfairly discriminatory because the
Exchange must adjust fees from time to
time so that it can continue to cover
costs and to make a profit on the
products and services it offers. The
proposed increased fee will apply to all
members and it will allow the Exchange
to cover the costs of providing its
members with a well-regulated market.
These costs include investing in the
systems and people that support
oversight of the market
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. In terms of
inter-market competition, the Exchange
notes that it operates in a highly
competitive market in which market
participants can readily favor competing
venues if they deem fee levels at a
particular venue to be excessive, or
4 For example, the Exchange believes that the
New York Stock Exchange (‘‘NYSE’’) Trading
License Fee is analogous to membership fees of
NASDAQ as they both provide access to the trading
facilities of their respective exchanges. In this
regard, NYSE assesses an annual fee of $50,000 for
the first license held by a member organization. See
https://www.nyse.com/publicdocs/nyse/markets/
nyse/NYSE_Price_List.pdf. By contrast, NASDAQ
would assess the proposed a [sic] monthly trading
rights fee of $1,250 ($15,000 annually), together
with an annual membership fee of $3,000, and a
monthly market participant identifier fee of $550
per MPID ($6,600 annually). See Rule 7001.
5 15 U.S.C. 78f(b).
6 15 U.S.C. 78f(b)(4) and (5).
E:\FR\FM\18JYN1.SGM
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]]>Agencies
[Federal Register Volume 82, Number 136 (Tuesday, July 18, 2017)]
[Notices]
[Pages 32900-32904]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-14984]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-81131; File No. SR-MIAX-2017-19]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Order Granting Approval of a Proposed Rule Change To
Amend MIAX Options Rules 515, Execution of Orders and Quotes; 515A,
MIAX Price Improvement Mechanism (``PRIME'') and PRIME Solicitation
Mechanism; and 518, Complex Orders
July 12, 2017.
I. Introduction
On May 12, 2017, Miami International Securities Exchange, LLC
(``MIAX Options'' or ``Exchange'') filed with the Securities and
Exchange Commission (``Commission''), pursuant to the provisions of
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder,\2\ a proposed rule change to establish three
new types of complex orders--Complex Customer Cross (``cC2C'') Orders,
Complex Qualified Contingent Cross (``cQCC'') Orders, and Complex PRIME
(``cPRIME'') Orders--and to adopt new provisions that relate to the
processing of those new complex order types. The proposed rule change
was published for comment in the Federal Register on June 1, 2017.\3\
The Commission received no comments regarding the proposal.
[[Page 32901]]
This order approves the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 80768 (May 25,
2017), 82 FR 25347 (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposal
The Exchange proposes to establish three new types of complex
orders,\4\ and to adopt new provisions that relate to the processing of
those new complex order types. In particular, the Exchange is proposing
to modify its rules, including its rule related to the MIAX Price
Improvement Mechanism (``PRIME''), to permit the entry and execution of
cC2C Orders, cQCC Orders, and cPRIME Orders, each as discussed more
fully below.
---------------------------------------------------------------------------
\4\ For a description of the trading of complex orders on the
Exchange, see Rule 518. See also Securities Exchange Act Release No.
79072 (October 7, 2016), 81 FR 71131 (October 14, 2016) (SR-MIAX-
2016-26).
---------------------------------------------------------------------------
A. cC2C Orders
The Exchange proposes to define a cC2C Order as a type of complex
order that is comprised of one Priority Customer \5\ complex order to
buy and one Priority Customer complex order to sell the same strategy
at the same price (which must be better than the icMBBO \6\ or the best
net price of the complex order on the Strategy Book \7\ for the
strategy, whichever is more aggressive) and for the same quantity.\8\
The Exchange proposes that cC2C Orders be automatically executed upon
entry provided that the execution is at least $0.01 better than the
icMBBO price or the best net price of a complex order on the Strategy
Book, whichever is more aggressive.\9\ The Exchange will reject a cC2C
Order if, at the time of its receipt, (i) the strategy is subject to a
cPRIME Auction pursuant to proposed Interpretations and Policies .12 to
Rule 515A or to a Complex Auction pursuant to Rule 518(d); or (ii) any
component of the strategy is subject to a SMAT Event as described in
Rule 518(a)(16).\10\ Unlike simple Customer Cross Orders, the Exchange
proposes to not reject a cC2C Order when a component of the strategy is
subject to the managed interest process \11\ pursuant to Rule
515(c).\12\ cC2C Orders will be automatically cancelled if they cannot
be executed,\13\ and may only be entered in the minimum trading
increments applicable to complex orders under Rule 518(c)(1)(i).\14\
The Exchange further proposes to state that Interpretations and
Policies .01 to Rule 520 applies to the entry and execution of cC2C
Orders.\15\
---------------------------------------------------------------------------
\5\ 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 Rule 100.
\6\ The Implied Complex MIAX Best Bid or Offer (``icMBBO'') is a
calculation that uses the best price from the Simple Order Book for
each component of a complex strategy including displayed and non-
displayed trading interest. For stock-option orders, the icMBBO for
a complex strategy will be calculated using the best price (whether
displayed or non-displayed) on the Simple Order Book in the
individual option component(s), and the National Best Bid and Offer
(``NBBO'') in the stock component. See Rule 518(a)(11). The ``Simple
Order Book'' is the Exchange's regular electronic book of orders and
quotes. See Rule 518(a)(15).
\7\ The ``Strategy Book'' is the Exchange's electronic book of
complex orders and complex quotes. See Rule 518(a)(17).
\8\ See proposed Rules 515(h)(3) and 518(b)(5).
\9\ See proposed Rule 515(h)(3).
\10\ A Simple Market Auction or Timer, or ``SMAT'' Event, is
defined as any of the following: (i) a PRIME Auction (pursuant to
Rule 515A); (ii) a Route Timer (pursuant to Rule 529); or (iii) a
liquidity refresh pause (pursuant to Rule 515(c)(2)). See Rule
518(a)(16).
\11\ Under the managed interest process, if the limit price of a
non-routable order locks or crosses the current opposite side NBBO,
the System will display the order one Minimum Price Variation away
from the current opposite side NBBO, and book the order at a price
that will lock the current opposite side NBBO. See Rule 515(c)(ii).
\12\ The Exchange states that it is not necessary to reject a
cC2C Order in this scenario because, in accordance with the
execution price requirements for cC2C Orders, the order would
already have a guaranteed execution price at the better of $0.01
inside the icMBBO price or at the best net price of a complex order
on the Strategy Book. See Notice, supra note 3, at 25349. See also
proposed Rule 515(h)(3). According to the Exchange, because the
execution price requirements ensure that each participant in the
complex order receives a better price than it would have received if
its order were submitted as a single complex order, it is not
necessary or desirable to preclude the execution of a cC2C Order
where one component is subject to the managed interest process in
the simple market. See Notice, supra note 3, at 25349.
\13\ See proposed Rule 515(h)(3)(A).
\14\ See proposed Rule 515(h)(3)(B). Bids and offers on complex
orders and quotes may be expressed in $0.01 increments, and the
component(s) of a complex order may be executed in $0.01 increments,
regardless of the minimum increments otherwise applicable to
individual components of the complex order. See Rule 518(c)(1)(i).
\15\ See proposed Rule 515(h)(3)(C). Rule 520(b) prevents an
Electronic Exchange Member from executing agency orders to increase
its economic gain from trading against the order without first
giving other trading interest on the Exchange an opportunity to
either trade with the agency order or to trade at the execution
price when the Electronic Exchange Member was already bidding or
offering on the Simple Order Book. It would be a violation of Rule
520(b) for an Electronic Exchange Member to be a party to any
arrangement designed to circumvent Rule 520(b) by providing an
opportunity for a customer or other person (including an affiliate)
to regularly execute against agency orders handled by the Electronic
Exchange Member immediately upon their entry into the System. See
Interpretations and Policies .01 to Rule 520. The term ``Electronic
Exchange Member'' means the holder of a Trading Permit who is not a
Market Maker. See Rule 100.
---------------------------------------------------------------------------
The Exchange will determine, on a class-by-class basis, the option
classes in which cC2C Orders are available for trading on the Exchange,
and will announce such classes to Members via Regulatory Circular.\16\
---------------------------------------------------------------------------
\16\ See proposed Rule 515(h)(3)(D). The term ``Member'' means
an individual or organization approved to exercise the trading
rights associated with a Trading Permit. See Rule 100.
---------------------------------------------------------------------------
B. cQCC Orders
The Exchange proposes to define a cQCC Order as a type of complex
order that is identified as being part of a qualified contingent
trade\17\ which is comprised of a complex order to buy or sell where
each component is at least 1,000 contracts, coupled with a contra-side
complex order or orders (for the same strategy) totaling an equal
number of contracts.\18\ cQCC Orders are automatically executed upon
entry provided that, with respect to each option leg of the cQCC Order,
the execution (i) is not at the same price as a Priority Customer Order
on the Simple Order Book; and (ii) is at or between the NBBO.\19\ The
Exchange states that, as is currently the case with QCC orders, it will
require that the Member entering a cQCC Order provide certain
information to the Exchange regarding the execution of the stock
component, such as the underlying price, quantity, price delta,
execution time, and executing venue.\20\
---------------------------------------------------------------------------
\17\ A ``qualified contingent trade'' is a transaction
consisting of two or more component orders, executed as agent or
principal, where: (a) At least one component is an NMS Stock, as
defined in Rule 600 of Regulation NMS under the Act; (b) all
components are effected with a product or price contingency that
either has been agreed to by all the respective counterparties or
arranged for by a broker-dealer as principal or agent; (c) the
execution of one component is contingent upon the execution of all
other components at or near the same time; (d) the specific
relationship between the component orders (e.g., the spread between
the prices of the component orders) is determined by the time the
contingent order is placed; (e) the component orders bear a
derivative relationship to one another, represent different classes
of shares of the same issuer, or involve the securities of
participants in mergers or with intentions to merge that have been
announced or cancelled; and (f) the transaction is fully hedged
(without regard to any prior existing position) as a result of other
components of the contingent trade. See Interpretations and Policies
.01 to Rule 516.
\18\ See proposed Rule 518(b)(6).
\19\ See proposed Rule 515(h)(4).
\20\ See Notice, supra note 3, at 25350.
---------------------------------------------------------------------------
The Exchange will reject a cQCC Order if, at the time of receipt of
the cQCC Order, (i) the strategy is subject to a cPRIME Auction
pursuant to proposed Interpretations and Policies .12 to Rule 515A, or
to a Complex Auction pursuant to Rule 518(d); or (ii) any component of
the strategy is subject to a SMAT Event as described in Rule
518(a)(16).\21\ The Exchange will not reject a cQCC Order when a
component of the strategy is subject to the managed interest process
pursuant to Rule 515(c). cQCC Orders will be automatically cancelled if
they
[[Page 32902]]
cannot be executed,\22\ and may only be entered in the minimum trading
increments applicable to complex orders under Rule 518(c)(1)(i).\23\
---------------------------------------------------------------------------
\21\ See proposed Rule 515(h)(4).
\22\ See proposed Rule 515(h)(4)(A).
\23\ See proposed Rule 515(h)(4)(B).
---------------------------------------------------------------------------
The Exchange will determine, on a class-by-class basis, the option
classes in which cQCC Orders are available for trading on the Exchange,
and will announce such classes to Members via Regulatory Circular.\24\
---------------------------------------------------------------------------
\24\ See proposed Rule 515(h)(4)(C).
---------------------------------------------------------------------------
C. cPRIME Orders
PRIME is a price-improvement mechanism pursuant to which a Member
(``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'') against principal or solicited
interest, or (ii) automatically match (``auto-match''), against
principal or solicited interest, 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.\25\
---------------------------------------------------------------------------
\25\ See 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. 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.
---------------------------------------------------------------------------
As described below, the Exchange proposes to add a cPRIME order
type \26\ which will be processed and executed in the same manner in
which simple PRIME Orders are currently processed and executed, except
as otherwise provided in proposed Interpretations and Policies .12 to
Rule 515A or unless the context otherwise requires.\27\ The Exchange
will determine, on a class-by-class basis, the option classes in which
complex orders are available for trading on PRIME on the Exchange, and
will announce such classes to Members via Regulatory Circular.\28\
---------------------------------------------------------------------------
\26\ The Exchange proposes to define a cPRIME Order as a type of
complex order that is submitted for participation in a cPRIME
Auction. See proposed Rule 518(b)(7). A Member may electronically
submit a ``cPRIME Order'' it represents as agent (a ``cPRIME Agency
Order'') against principal or solicited interest for execution (a
``cPRIME Auction''). See proposed Interpretations and Policies
.12(a) to Rule 515A.
\27\ In addition, MIAX proposes to state that any references to
the NBBO in Rule 515A are inapplicable to cPRIME Auctions. See
proposed Interpretations and Policies .12(a)(v) to Rule 515A. The
Exchange also proposes to modify its simple PRIME Rule to (1) state
clearly that it will reject RFR responses submitted with a price
that is not equal to or better than the initiating price to avoid
handling RFR responses that could not be executed in an Auction
because they are inferior to the initiating price; and (2) delete
unnecessary text stating that an RFR response cannot cross the
disseminated MBBO on the opposite side of the market from the
response, because an Auction will already conclude under Rule
515A(a)(2)(ii)(E) if an RFR response matches the NBBO on the
opposite side of the market from the RFR responses, which cannot be
inferior to the MBBO. See proposed edits to Rule 515A(a)(2)(i)(D).
\28\ See proposed Interpretations and Policies .12 to Rule 515A.
---------------------------------------------------------------------------
1. Auction Eligibility and Auction Process
The initiating price for a cPRIME Agency Order must be better than
the icMBBO for the strategy and any other complex orders on the
Strategy Book.\29\ The Exchange will reject cPRIME Agency Orders
submitted with an initiating price that is equal to or worse than the
icMBBO or any other complex orders on the Strategy Book. The Exchange
also will reject a cPRIME Agency Order if, at the time of receipt of
the cPRIME Agency Order: (i) the strategy is subject to a cPRIME
Auction or to a Complex Auction pursuant to Rule 518(d); (ii) any
component of the strategy is subject to a SMAT Event as described in
Rule 518(a)(16); or (iii) any component of the strategy is subject to
the managed interest process described in Rule 515(c)(1)(ii).
---------------------------------------------------------------------------
\29\ See proposed Interpretations and Policies .12(a)(i) to Rule
515A.
---------------------------------------------------------------------------
The RFR period for cPRIME Auctions will be independent from the RFR
for PRIME Auctions and will last for a period of time as set forth in
Rule 515A(a)(2)(i)(C).\30\ Members may enter RFR responses on the
opposite side of the market from the cPRIME Agency Order at net prices,
and bids and offers for complex orders may participate in the execution
of an order as provided in Rule 515A.\31\ Bids and offers for the
individual legs of a complex order may also participate; however,
except as provided in proposed Interpretations and Policies .12(c) to
Rule 515A, the order allocation rules contained in Rule 514 will
apply.\32\ If an improved net price for the complex order being
executed can be achieved from bids and offers for the individual legs
of the complex order in the simple market, and the complex order is
otherwise eligible for Legging pursuant to Rule 518(c)(2)(iii), the
Strategy being matched will receive an execution at the better net
price.\33\
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\30\ See proposed Interpretations and Policies .12(c)(i) to Rule
515A. The Commission notes that, on June 15, 2017, MIAX Options
amended the duration of the RFR period described in Rule
515A(a)(2)(i)(c) such that the RFR period will be a period of time
within a range of no less than 100 milliseconds and no more than 1
second, as determined by the Exchange. See Securities Exchange Act
Release No. 80940 (June 15, 2017), 82 FR 28369 (June 21, 2017)
(order approving SR-MIAX-2017-16).
\31\ RFR responses shall be an AOC order or an AOC eQuote. See
Rule 515A(a)(2)(i)(D). This applies by reference to cPRIME Auctions
(and cAOC eQuotes and cAOC orders, as defined below). See proposed
Interpretations and Policies .12(a) to Rule 515A.
\32\ See proposed Interpretations and Policies .12(a)(iii) to
Rule 515A.
\33\ See proposed Interpretations and Policies .12(a)(iv) to
Rule 515A.
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2. cPRIME Order Execution and Allocation
The Exchange proposes to not apply the size and bid/ask
differential and conclusion of auction provisions contained in Rule
515A(a)(1)(iii) and (iv) to cPRIME Orders.\34\ Instead, a cPRIME
Auction will conclude at the sooner of the following events, with the
cPRIME Agency Order executing pursuant to the cPRIME Auction allocation
provisions: (1) The end of the RFR period; (2) when an AOC eQuote \35\
or cAOC Order \36\ on the opposite side of the market from the cPRIME
Agency Order locks or crosses the icMBBO or the best net price of a
complex order in the same strategy on the Strategy Book, whichever is
more aggressive; (3) when unrelated interest on the same side of the
market as the cPRIME Agency Order locks or crosses the best price on
the opposite side of the market; (4) when unrelated interest on the
opposite side of the market from the cPRIME Agency Order locks or
crosses the icMBBO or the best net price of a complex order in the same
strategy on the Strategy Book, whichever is more aggressive, or
improves the price of any RFR response; (5) when a simple order or
quote in a component of the strategy on the same side of the market as
the cPRIME Agency Order locks or crosses the NBBO for such component;
or (6) when a simple order or quote in a component of the strategy on
the opposite side of the market from the cPRIME Agency Order locks or
crosses the NBBO for such component or causes the icMBBO
[[Page 32903]]
to be equal to or better than the initiating price.\37\
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\34\ See proposed Interpretations and Policies .12(c)(iii) and
(iv) to Rule 515A.
\35\ A ``Complex Auction or Cancel eQuote'' or ``cAOC eQuote,''
is an eQuote submitted by a Market Maker that is used to provide
liquidity during a specific Complex Auction with a time in force
that corresponds with the duration of the Complex Auction. See
Interpretations and Policies .02(c)(1) to Rule 518.
\36\ A Complex Auction-or-Cancel or ``cAOC'' order is a complex
limit order used to provide liquidity during a specific Complex
Auction with a time in force that corresponds with that event. See
Rule 518(b)(3).
\37\ See proposed Interpretations and Policies .12(d) to Rule
515A.
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At the conclusion of a cPRIME Auction, the Exchange will apply the
order allocation provisions applicable to the simple PRIME Auction,\38\
provided that: (A) All references to contracts will be considered
references to complex strategies; and (B) the last priority allocation
option described in Rule 515A(a)(2)(iii)(L) will not be available for
Initiating Members that submit cPRIME Agency Orders.\39\ The Exchange
further proposes that participants that submit simple orders that are
executed as individual legs of complex orders at the execution price
point will be allocated contracts only after all complex interest at
such price point have received allocations.\40\ Specifically, cPRIME
Orders will be matched first against other complex orders and have
priority over all simple orders that are on the Simple Order Book and
``legged,'' at the execution price.\41\ According to the Exchange, it
proposes to provide priority to complex interest over simple interest
because the initiating price of the cPRIME Agency Order will always be
superior to the net price of simple orders resting on the Simple Order
Book, which would not necessarily be intended to trade with the legs of
the Agency Order.\42\ However, if new interest is received in the
simple market that causes the icMBBO on the opposite side of the market
from the cPRIME Agency Order to be equal to or better than the
initiating price, the cPRIME Auction will conclude before the
expiration of the RFR period and the standard cPRIME execution and
allocation process will commence early.\43\ Regardless of when the
cPRIME Auction ends, contracts at each price point will first be
allocated by matching complex strategies.\44\
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\38\ See Rule 515A(a)(2)(iii). For an example of cPRIME Order
executions with and without the Auto-Match feature, see Examples 3
and 4, Notice, supra note 3, at 25352.
\39\ See proposed Interpretations and Policies .12(c)(v) to Rule
515A.
\40\ See proposed Interpretations and Policies .12(c)(ii) to
Rule 515A.
\41\ The Exchange notes that other exchanges afford priority to
complex interest over simple interest when allocating interest after
a price improvement auction. See Notice, supra note 3, at 25353 n.39
(citing as an example NASDAQ PHLX LLC (``Phlx'') Rule
1098(e)(vi)(A)(2) and (viii)(C)(3)).
\42\ See Notice, supra note 3, at 25353.
\43\ See id. See also Example 5, Notice, supra note 3, at 25352.
\44\ 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 Rule 518(a)(6).
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D. Implementation Date
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 change.\45\ The
implementation date will be no later than 60 days following the
issuance of the Regulatory Circular.\46\
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\45\ See Notice, supra note 3, at 25356.
\46\ See id.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange
and, in particular, with Section 6(b) of the Act.\47\ In particular,
the Commission finds that the proposed rule change is consistent with
Sections 6(b)(5) and 6(b)(8) of the Act,\48\ which require, among other
things, that the rules of a national securities exchange be designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest and that the rules of an
exchange do not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act.
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\47\ 15 U.S.C. 78f(b). In approving this proposed rule change,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\48\ 15 U.S.C. 78f(b)(5), (b)(8).
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The Commission believes that the Exchange's proposed cC2C rules are
consistent with the Act. They allow for the crossing of complex orders
in a manner similar to other crossing rules that the Commission has
previously approved for other exchanges and do not appear to raise any
novel or significant issues.\49\
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\49\ See, e.g., Chicago Board Options Exchange, Incorporated
Rule 6.74A.08(b) and Phlx Rule 1080(n)(vi).
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The Commission believes that the Exchange's proposed cQCC rules,
which would permit complex orders to participate in a clean cross of
the options leg of a subset of qualified contingent trades in a similar
manner as QCC Orders already permitted on the Exchange, are appropriate
and consistent with the Act.\50\ The Commission notes that the proposal
to permit cQCC Orders in a manner similar to QCC Orders already
permitted on MIAX Options, while requiring that the cQCC Order: (1) Be
part of a qualified contingent trade under Regulation NMS; (2) each
option leg be for at least 1,000 contracts; and (3) with respect to
each option leg of the cQCC Order, that the execution is not at the
same price as a Priority Customer Order on the Simple Order Book and is
at or between the NBBO, establishes a limited exception to the general
principle of exposure and retains the general principle of customer
priority in the options markets. Furthermore, not only must a cQCC
Order be part of a qualified contingent trade by satisfying each of the
six underlying requirements of the NMS QCT Exemption,\51\ the
requirement that a cQCC Order be for a minimum size of 1,000 contracts
per leg provides another limit to its use by ensuring only transactions
of significant size may avail themselves of this order type.
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\50\ See also Securities Exchange Act Release Nos. 64653 (June
13, 2011), 76 FR 35491 (June 17, 2011) (order approving SR-CBOE-
2011-041); 63955 (February 24, 2011), 76 FR 11533 (March 2, 2011)
(order approving SR-ISE-2010-73). The Commission has granted an
exemption for qualified contingent trades that meet certain
requirements from Rule 611(a) of Regulation NMS, 17 CFR 242.611(a)
(the ``NMS QCT Exemption''). See Securities Exchange Act Release No.
57620 (April 4, 2008), 73 FR 19271 (April 9, 2008) (which supersedes
a release initially granting the NMS QCT Exemption, Securities
Exchange Act Release No. 54389 (August 31, 2006), 71 FR 52829
(September 7, 2006)).
\51\ See supra note 17.
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By allowing MIAX Options Members to enter complex orders into
PRIME, the Commission believes that the proposal could provide
opportunities for complex orders to receive price improvement. Under
the proposal, a complex order entered into a cPRIME Auction must be
stopped at a price that is better than the icMBBO for the strategy and
any other complex orders on the Strategy Book.\52\ As noted above, a
Member enters a cPRIME Agency Order against principal or solicited
interest for execution.\53\ At the conclusion of a cPRIME Auction, the
cPRIME Agency Order is executed in full at the best prices available,
taking into consideration orders and quotes in
[[Page 32904]]
the MIAX Options market, RFR responses, and the Initiating Member's
submission. Thus, a complex order entered into a cPRIME Auction would
receive an execution at the best price available at the conclusion of
the Auction and, at a minimum, would be executed in full at the
improved net price. In addition, if an improved net price for a complex
order entered in a cPRIME Auction could be achieved from bids and
offers for the individual legs of the complex order in the MIAX Options
market, the complex order would be executed at the better net price.
The Commission further notes that other exchanges have previously
adopted similar rules to permit the entry of complex orders into a
price improvement mechanism.\54\
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\52\ See proposed Interpretations and Policies .12(a) to Rule
515A; see also Notice, supra note 3, at 25352, for an example of an
eligible cPRIME Order.
\53\ See proposed Interpretations and Policies .12(a) to Rule
515A.
\54\ See, e.g., Phlx Rule 1080(n).
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For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with Sections 6(b)(5) and 6(b)(8) of the
Act.\55\
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\55\ 15 U.S.C. 78f(b)(5), (b)(8).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\56\ that the proposed rule change (SR-MIAX-2017-19), be and hereby
is approved.
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\56\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\57\
Jill M. Peterson,
Assistant Secretary.
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\57\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2017-14984 Filed 7-17-17; 8:45 am]
BILLING CODE 8011-01-P
