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, Rule 518, Complex Orders, and Rule 519A, Risk Protection Monitor, 36023-36030 [2017-16209]
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Federal Register / Vol. 82, No. 147 / Wednesday, August 2, 2017 / Notices
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
Phlx–2017–57 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–Phlx–2017–57. 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
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before August 23, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–16266 Filed 8–1–17; 8:45 am]
sradovich on DSKBCFCHB2PROD with NOTICES
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81229; File No. SR–MIAX–
2017–34]
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, Rule 518,
Complex Orders, and Rule 519A, Risk
Protection Monitor
July 27, 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 July 13, 2017, Miami International
Securities Exchange, LLC (‘‘MIAX
Options’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I and II below,
which Items have been prepared by the
Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Exchange Rule 515A, MIAX Price
Improvement Mechanism (‘‘PRIME’’)
and PRIME Solicitation Mechanism, to
state that the Exchange’s System 3 will
reject an Agency Order (as defined
below) if, at the time of receipt of the
Agency Order, the option is a
component of a complex strategy that is
the subject of a cPRIME Auction (as
defined below). The Exchange also
proposes to amend Rule 518, Complex
Orders, and Rule 519A, Risk Protection
Monitor (‘‘RPM’’), so that the price and
other trade protections contained in
those rules address certain new complex
order types on the Exchange. In
addition, the Exchange proposes to
amend Exchange Rule 518,
Interpretations and Policies .05, to state
that, unless otherwise specifically set
forth in the Rule, the price and other
protections contained in Interpretations
and Policies .05 (including proposed
amendments to the Rule, described
below) apply to all complex order types
set forth in Rule 518(b), as described
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
2 17
21 17
CFR 200.30–3(a)(12).
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36023
below. The Exchange also proposes to
amend Rule 519A to set forth clearly the
manner in which the RPM handles the
various complex order types listed in
that Rule, as described below. amend
Exchange Rule 515A to reflect changes
to the MIAX Options Price Improvement
Mechanism (‘‘PRIME’’) [sic].
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
state that the Exchange’s System will
reject an Agency Order if, at the time of
receipt of the Agency Order, the option
is a component of a complex strategy
that is the subject of a cPRIME Auction
(as defined below). The Exchange also
proposes to amend Rule 518, Complex
Orders, and Rule 519A, RPM, so that the
price and other trade protections
contained in those rules address certain
new complex order types on the
Exchange, as described below. In
addition, the Exchange proposes to
amend Exchange Rule 518,
Interpretations and Policies .05, to state
that, unless otherwise specifically set
forth in the Rule, the price and other
protections contained in Interpretations
and Policies .05 (including proposed
amendments to the Rule, described
below) apply to all complex order types
set forth in Rule 518(b), as described
below. The Exchange also proposes to
amend Rule 519A to set forth clearly the
manner in which the RPM handles the
various complex order types listed in
that Rule, as described below.
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Background
The Exchange began trading complex
orders 4 in October, 2016.5 As part of its
effort to continue to build out its
complex order market segment, the
Exchange recently adopted rules to
establish three new types of complex
orders—complex PRIME (‘‘cPRIME’’)
Orders, Complex Customer Cross
(‘‘cC2C’’) Orders, and Complex
Qualified Contingent Cross (‘‘cQCC’’)
Orders—and to adopt new provisions
that relate to the processing of those
new complex order types.6 A cPRIME
Order is a complex order that is
submitted for participation in a cPRIME
Auction. A cC2C Order is comprised of
one Priority Customer complex order to
buy and one Priority Customer complex
order to sell the same complex strategy
at the same initiating price (which must
be better than (inside) the icMBBO 7
price or the best net price of a complex
order for the strategy) and for the same
quantity. A cQCC Order is comprised of
an originating complex order to buy or
sell where each leg is at least 1,000
contracts and that is identified as being
part of a qualified contingent trade, as
defined in Rule 516, Interpretations and
Policies .01,8 coupled with a contra-side
complex order or orders for the same
strategy totaling an equal number of
contracts. cPRIME orders will be
processed and executed in the
4 A ‘‘complex order’’ is any order involving the
concurrent purchase and/or sale of two or more
different options in the same underlying security
(the ‘‘legs’’ or ‘‘components’’ of the complex order),
for the same account, in a ratio that is equal to or
greater than one-to-three (.333) and less than or
equal to three-to-one (3.00) and for the purposes of
executing a particular investment strategy. Minioptions may only be part of a complex order that
includes other mini-options. Only those complex
orders in the classes designated by the Exchange
and communicated to Members via Regulatory
Circular with no more than the applicable number
of legs, as determined by the Exchange on a classby-class basis and communicated to Members via
Regulatory Circular, are eligible for processing. See
Exchange Rule 518(a)(5).
5 For a complete description of the trading of
complex orders on the Exchange, 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 See Securities Exchange Act Release No. 81131
(July 12, 2017) (SR–MIAX–2017–19). (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).
7 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 NBBO in
the stock component. See Exchange Rule 518(a)(11).
8 See id.
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Exchange’s PRIME mechanism, the
same mechanism that the Exchange uses
to process and execute simple PRIME
orders, pursuant to Exchange Rule
515A. cC2C and cQCC Orders will be
processed and executed in the same
mechanism that the Exchange uses to
cross simple Customer Cross orders and
QCC orders, pursuant to Exchange Rule
515.
The Exchange is proposing to modify
Exchange Rule 518, Complex Orders,
and Rule 519A, RPM, which govern
certain price and other trade protection
features in the Exchange’s System so
that they address (through inclusion or
exclusion) cPRIME Orders, cC2C
Orders, and cQCC Orders in those
features.
Proposal
The Exchange is proposing to amend
Exchange Rules 515A, MIAX Price
Improvement Mechanism (‘‘PRIME’’)
and PRIME Solicitation Mechanism, to
state that the Exchange’s System will
reject an Agency Order if, at the time of
receipt of the Agency Order, the option
is a component of a complex strategy
that is the subject of a cPRIME Auction
(as defined below). The Exchange also
proposes to amend Rule 518, Complex
Orders, Interpretations and Policies .05,
Price and Other Protections, and
Interpretations and Policies .06, MIAX
Order Monitor for Complex Orders
(‘‘cMOM’’), and Exchange Rule 519A,
RPM, by stating in those rules how the
new cPRIME Order, cC2C Order, and
cQCC Order types will be handled by
the System with respect to those price
and other protections. The Exchange is
also proposing to amend Exchange Rule
518, Interpretations and Policies .05, to
state that, unless otherwise specifically
set forth in the Rule, the price and other
protections contained in Interpretations
and Policies .05 (including proposed
amendments to the Rule, described
below) apply to all complex order types
set forth in Rule 518(b), as described
below. The Exchange is also proposing
to amend Rule 519A, Interpretations
and Policies .02, to set forth clearly the
manner in which the RPM handles the
various complex order types listed in
that Rule, as described below.
MIAX PRIME
The Exchange is proposing to amend
Rule 515A, MIAX Price Improvement
Mechanism (‘‘PRIME’’) and PRIME
Solicitation Mechanism. PRIME is a
process by which a Member may
electronically submit for execution
(‘‘Auction’’) an order it represents as
agent (‘‘Agency Order’’) against
principal interest, and/or an Agency
Order against solicited interest.
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The Exchange proposes to amend
Rule 515A(a)(2) to add cPRIME Orders 9
to the list of price-improvement
auctions that are prohibited by the
Exchange’s System from occurring
simultaneously on the Exchange.
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. Currently, the Rule
states that the System 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 10 that is the subject of a
Complex Auction pursuant to Rule
518(d). The proposed amendment
would state that the System will reject
an Agency Order if, at the time of
receipt of the Agency Order, the option
is a component of a complex strategy
that is the subject of a cPRIME Auction.
The Exchange believes that the rejection
of Agency Orders that are received in an
option in which an Auction, cPRIME
Auction, or Complex Auction is ongoing
ensures that there will not be any
interference with the potential for price
improvement for the Agency Order as a
result of overlapping, concurrent
auctions on the Exchange.
The Exchange further 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, or involving the
same strategy or components of 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 protects
investors and the public interest by
ensuring orderliness in the PRIME,
cPRIME and Complex Auction process.
Complex Order Price and Other
Protections in Rule 518
The Exchange proposes to amend
Rule 518, Interpretations and Policies
.05, to state that, unless otherwise
9 ‘‘cPRIME’’ is the process by which a Member
may electronically submit a ‘‘cPRIME Order’’ (as
defined in Rule 518(b)(7)) it represents as agent (a
‘‘cPRIME Agency Order’’) against principal or
solicited interest for execution (a ‘‘cPRIME
Auction’’). See Exchange Rule 515A, Interpretations
and Policies .12(a).
10 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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specifically set forth in the Rule, the
price and other protections contained in
Interpretations and Policies .05 apply to
all complex order types set forth in Rule
518(b).11 The Exchange believes that the
application of existing protections to all
complex order types as described in
proposed Rule 518, Interpretations and
Policies .05 is consistent with the Act
because such application is designed to
protect investors and the public interest,
by assisting investors in maintaining
their established risk tolerance levels on
the Exchange when making investment
decisions concerning these order types.
The Exchange is proposing to modify
Rule 518, Interpretations and Policies
.05, Price and Other Protections, to
describe the manner in which the
System will handle cPRIME Orders,
cC2C Orders, and cQCC Orders with
respect to the protections described in
the Rule. The Exchange is proposing to
apply these protections to complex
orders so that investors submitting
complex orders are better able to
manage their risk tolerance levels with
respect to complex orders they submit
to the Exchange, just as they are
currently able to manage their risk
tolerance levels with respect to orders in
the simple market and certain types of
complex orders listed in Rule 518(b).12
The Exchange believes that extending
the application of existing protections to
all complex order types, including the
recently added cPRIME Orders, cC2C
Orders, and cQCC Orders, as described
in the proposed rules is consistent with
the Act because such application is
designed to protect investors and the
public interest, by ensuring that
investors that participate in these order
types are afforded the price protections
that already apply to all order types
currently listed in Rule 518(b).13 These
protections are designed to assist
investors in maintaining their
established risk tolerance levels on the
Exchange when making investment
decisions concerning complex orders.
11 In addition to a general description, Rule 518(b)
defines the following complex orders: a ‘‘Complex
Auction-on-Arrival’’ or ‘‘cAOA’’ order, which is a
complex order designated to be placed into a
Complex Auction upon receipt or upon evaluation;
a Complex Auction-or-Cancel or ‘‘cAOC’’ order,
which is a complex limit order used to provide
liquidity during a specific Complex Auction with
a time in force that corresponds with that event;
and a Complex Immediate-or-Cancel or ‘‘cIOC’’
order, which is a complex order that is to be
executed in whole or in part upon receipt. See
Exchange Rule 518(b). The Exchange recently
amended Rule 518(b) to add cPRIME, cC2C and
cQCC Orders to the complex order types defined in
the Rule. See supra note 6.
12 Id.
13 See Exchange Rule 518(b). See also supra note
6.
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The remaining proposed amendments
to Rule 518, Interpretations and Policies
.05, are intended to exclude certain
order types from certain provisions in
the Rule.
ixABBO Protection
First, the Exchange proposes to
modify Rule 518, Interpretations and
Policies .05(d) to state that the Implied
Away Best Bid or Offer (‘‘ixABBO’’)
Price Protection feature is not available
for cPRIME Orders, cC2C Orders, and
cQCC Orders. The ixABBO price
protection feature is a price protection
mechanism under which, when in
operation as requested by the submitting
Member, a buy order will not be
executed at a price that is higher than
each other single exchange’s best
displayed offer for the complex strategy,
and under which a sell order will not be
executed at a price that is lower than
each other single exchange’s best
displayed bid for the complex strategy.
The ixABBO is calculated using the best
net bid and offer for a complex strategy
using each other exchange’s displayed
best bid or offer on their simple order
book. For stock-option orders, the
ixABBO for a complex strategy is
calculated using the BBO for each
component on each individual away
options market and the NBBO for the
stock component. The ixABBO price
protection feature must be engaged on
an order-by-order basis by the
submitting Member and is not available
for complex Standard quotes, complex
eQuotes, or cAOC orders.14
The ixABBO protection will not be
available because this type of protection
isn’t necessary for these new complex
order types. Specifically, with respect to
cPRIME Orders, a cPRIME Agency
Order is received by the Exchange
accompanied by, and guarantees an
execution against, a contra-side order at
a single price or at multiple prices with
a ‘‘stop’’ price outside of which the
cPRIME Agency Order, the contra-side
order, and auction responses will not be
executed.15 Additionally, cC2C Orders
are automatically executed upon entry
provided that: (i) The execution is at
least $0.01 better than (inside) the
icMBBO price, or (ii) the best net price
of a complex order (as defined in Rule
518(a)(5)) on the Strategy Book (as
defined in Rule 518(a)(17)),16 whichever
is more aggressive (i.e., the higher bid
and/or lower offer).17cQCC Orders, on
14 See Exchange Rule 518, Interpretations and
Policies .05(d).
15 See supra note 6.
16 The ‘‘Strategy Book’’ is the Exchange’s
electronic book of complex orders and complex
quotes. See Exchange Rule 518(a)(17).
17 See supra note 6.
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36025
the other hand, 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 18
order on the Exchange’s Book; and (ii)
is at or between the NBBO.19 Therefore,
the System will not consider the
ixABBO protection parameters (each
other single exchange’s best displayed
bid or offer for the complex strategy)
with respect to cPRIME Orders, cC2C
Orders, and cQCC Orders.
Wide Market Conditions
Current Exchange Rule 518,
Interpretations and Policies .05(e),
describes the handling of complex
orders when a component of a complex
strategy is in a wide market condition,20
a Simple Market Auction or Timer
(‘‘SMAT’’) Event,21 or a Halt. Complex
orders will be handled in accordance
with current Rule 518, Interpretations
and Policies .05(e)(2), with respect to
SMAT Events, and Interpretations and
Policies .05(e)(3), with respect to Halts.
The Exchange is not proposing to
amend these rules.
The Exchange is proposing to amend
Rule 518, Interpretations and Policies
.05, with respect to wide market
conditions. Currently, during free
trading, if a wide market condition
exists for a component of a complex
strategy, trading in the complex strategy
will be suspended.22 Similarly, if a wide
market condition exists for a component
of a complex strategy following a
Complex Auction, trading in the
complex strategy will be suspended.23
The Exchange is proposing to exclude
cPRIME Orders, cC2C Orders, and cQCC
Orders from these current trade
protection provisions relating to wide
market conditions.
The purpose of this ‘‘carve-out’’ is
similar to the purpose of the ixABBO
carve-out described above: cPRIME
Orders, cC2C Orders, and cQCC Orders
18 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.
19 See supra note 6.
20 A ‘‘wide market condition’’ is defined as any
individual component of a complex strategy having,
at the time of evaluation, an MBBO quote width
that is wider than the permissible valid quote width
as defined in Rule 603(b)(4). See Exchange Rule
518.05(e)(1).
21 A SMAT Event is defined as a PRIME Auction
(pursuant to Rule 515A); a Route Timer (pursuant
to Rule 529); or a liquidity refresh pause (pursuant
to Rule 515(c)(2)). See Exchange Rule 518(a)(16).
22 See Exchange Rule 518, Interpretations and
Policies .05(e)(1)(i).
23 See Exchange Rule 518, Interpretations and
Policies .05(e)(1)(ii).
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are all received with either a paired
cPRIME Agency Order (in the case of a
cPRIME Order) or a contra-side order or
orders. cPRIME and cC2C orders are
received with an execution price at least
$0.01 better than (inside) the icMBBO
price or the best net price of a complex
order on the Strategy Book, whichever
is more aggressive. cQCC Orders are
received with an execution price that (i)
is not at the same price as a Priority
Customer Order on the Exchange’s
Book; and (ii) is at or between the
NBBO. Therefore, these three order
types, all of which consist of paired
orders with execution price
requirements, are not affected by wide
market conditions because they may
only be executed at or inside of their
obligatory prices. Accordingly,
proposed Rule 518, Interpretations and
Policies .05(e)(iii), states that a wide
market condition shall have no impact
on the trading of cPRIME Orders and
processing of cPRIME Auctions
(including the processing of cPRIME
Auction responses) pursuant to Rule
515A, Interpretations and Policies .12,
or on the trading of cC2C and cQCC
Orders pursuant to Rule 515(h)(3) and
(4). Such trading and processing will
not be suspended and will continue
during wide market conditions.
MIAX Order Monitor for Complex
Orders (‘‘cMOM’’)
The Exchange is also proposing to
amend Exchange Rule 518,
Interpretations and Policies .06(a), to
exclude cPRIME Orders, cC2C Orders,
and cQCC Orders from the System’s
cMOM feature. cMOM defines a price
range outside of which a complex limit
order will not be accepted by the
System. A complex limit order that is
priced through the cMOM range will be
rejected. cMOM is a number defined by
the Exchange and communicated to
Members via Regulatory Circular. The
default price range for cMOM will be
greater than or equal to a price through
the cNBBO for the complex strategy to
be determined by the Exchange and
communicated to Members via
Regulatory Circular. Such price will not
be greater than $2.50. A complex limit
order to sell will not be accepted at a
price that is lower than the cNBBO bid,
and a complex limit order to buy will
not be accepted at a price that is higher
than the cNBBO offer, by more than
cMOM. A complex limit order that is
priced through this range will be
rejected.24
The Exchange is proposing to amend
Rule 518, Interpretations and Policies
24 See Exchange Rule 518, Interpretations and
Policies .06.
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.06(a), by stating that the cMOM price
protection feature shall not apply to
cPRIME Orders, cC2C Orders, and cQCC
Orders. Under the proposal, the new
order types will therefore not be rejected
for being outside of cMOM price
parameters upon receipt. The purpose of
excluding these complex order types
from the cMOM price protection feature
is that cPRIME Orders, cC2C Orders and
cQCC Orders are all guaranteed an
execution at a price or prices
determined by the participants, and
cPRIME Orders are subject to further
price improvement. Therefore, the
cMOM price protection feature isn’t
necessary for these complex order types,
and thus these complex order types will
not be rejected based upon cMOM price
parameters. In order to remain
consistent in the Rule, the Exchange is
also proposing to make a conforming
change to Rule 518, Interpretations and
Policies .06(e). Specifically, the
Exchange is proposing to carve out
cPRIME, cC2C and cQCC Orders from
the Rule by stating, in Rule 518,
Interpretations and Policies .06(e), that,
except as provided in sub-paragraph
.06(a) above (which excludes cPRIME,
cC2C and cQCC Orders), the protections
set forth in Interpretations and Policies
.06 will be available for complex orders
as determined by the Exchange and
communicated to Members via
Regulatory Circular.
RPM
The Exchange is proposing to amend
Rule 519A, RPM. RPM is a feature of the
MIAX System which maintains a
counting program (‘‘counting program’’)
for each participating Member that will
count the number of orders entered and
the number of contracts traded via an
order entered by a Member on the
Exchange within a specified time period
that has been established by the Member
(the ‘‘specified time period’’). The
maximum duration of the specified time
period is established by the Exchange
and announced via a Regulatory
Circular. The RPM maintains one or
more Member-configurable Allowable
Order Rate settings and Allowable
Contract Execution Rate settings. When
a Member’s order is entered or when an
execution of a Member’s order occurs,
the System will look back over the
specified time period to determine if the
Member has: (i) Entered during the
specified time period a number of
orders exceeding their Allowable Order
Rate setting(s), or (ii) executed during
the specified time period a number of
contracts exceeding their Allowable
Contract Execution Rate setting(s). Once
engaged, the RPM will then, as
determined by the Member:
PO 00000
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Fmt 4703
Sfmt 4703
Automatically either (A) prevent the
System from receiving any new orders
in all series in all classes from the
Member; (B) prevent the System from
receiving any new orders in all series in
all classes from the Member and cancel
all existing orders with a time-in-force
of Day in all series in all classes from
the Member; or (C) send a notification
to the Member without any further
preventative or cancellation action by
the System. When engaged, the RPM
will still allow the Member to interact
with existing orders entered prior to
exceeding the Allowable Order Rate
setting or the Allowable Contract
Execution Rate setting, including
sending cancel order messages and
receiving trade executions from those
orders. The RPM remains engaged until
the Member communicates with the
Help Desk to enable the acceptance of
new orders.
The Exchange is proposing to amend
Interpretations and Policies .02 to Rule
519A by setting forth the specific
circumstances under which the Rule
will apply to cPRIME Orders, QCC
Orders, cQCC Orders, Customer Cross
Orders, and cC2C Orders, in addition to
the order types currently set forth in the
rule (PRIME Orders, PRIME Solicitation
Orders, and GTC Orders). Rather than
‘‘carve-out’’ these new complex order
types, the Exchange is proposing to state
in the Rule how these order types will
participate in the RPM.
Rule 519A, Interpretations and
Policies .02, currently states that PRIME
Orders, PRIME Solicitation Orders, and
GTC Orders do not participate in the
RPM. However, the System does include
such PRIME Orders, PRIME Solicitation
Orders, and GTC Orders in the counting
program for purposes of this Rule.
Under current Rule 519A,
Interpretations and Policies .02(b),
PRIME Orders, PRIME Solicitation
Orders, and Customer Cross Orders 25
will each be counted as two orders for
the purpose of calculating the Allowable
Order Rate. Current Rule 519A,
Interpretations and Policies .02(c),
further provides that, once engaged, the
RPM will not cancel any existing PRIME
Orders, PRIME Solicitation Orders, AOC
orders, OPG orders, or GTC orders.
PRIME Orders, PRIME Solicitation
Orders, and GTC Orders remain in the
System available for trading when the
RPM is engaged.
The Exchange is proposing to amend
Interpretations and Policies .02 by
adding the new order types to the Rule
25 The Exchange is proposing a technical
amendment to refer in the Rule to ‘‘Customer
Cross’’ orders and to delete an erroneous reference
to ‘‘Customer-to-Customer Orders.’’
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where appropriate (as described below)
and to re-word and reorganize the Rule
to clearly describe the functionality of
the RPM as it relates to both existing
and the proposed new order types.
These proposed amendments are
designed to remove impediments to and
perfect the mechanisms of a free and
open market and to eliminate possible
confusion by establishing clearly in the
Rule the manner in which the RPM
handles each existing and proposed
order type. This should assist MIAX
Options participants in managing their
risk tolerance levels with respect to the
order types that are included in the
RPM’s counting program.
First, the Exchange proposes to
amend the introduction of Rule 519A,
Interpretations and Policies .02, to add
cPRIME Orders, QCC Orders, cQCC
Orders, Customer Cross Orders, and
cC2C Orders to the currently
enumerated order types (PRIME Orders,
PRIME Solicitation Orders, and GTC
Orders). Thus, as amended, Rule 519A,
Interpretations and Policies .02 applies
to all of these order types.
Currently, Rule 519A, Interpretations
and Policies .02(a), states that the
System includes PRIME Orders, PRIME
Solicitation Orders, and GTC Orders in
the counting program for purposes of
this Rule. The Exchange is proposing to
amend the Rule by expanding it to list
all order types (i.e., cPRIME Orders,
QCC Orders, cQCC Orders, Customer
Cross Orders, and cC2C Orders) that are
subject to the RPM counting program.26
The Exchange believes that the
inclusion of all of these order types in
the rules and System functionality is
consistent with the Act because it
removes impediments to, and perfects
the mechanisms of a free and open
market, by correctly and accurately
describing how existing orders are
handled by RPM and, also describing
the handling of the proposed new order
types. This is consistent with the Act
because it is intended to remove
impediments to and perfect the
mechanisms of a free and open market
by applying the counting program to all
of the order types mentioned, thus
instilling confidence in participants that
an unusually high number of orders
and/or contracts submitted within a
specified time period during, for
example, periods of unusually high
market volatility, will be counted
towards the possible prevention of
additional orders and quotes that
26 The counting program counts the number of
orders entered and the number of contracts traded
via an order entered by a Member on the Exchange
within a specified time period that has been
established by the Member (the ‘‘specified time
period’’). See Exchange Rule 519A(a).
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subject them to higher risk levels than
they are prepared to tolerate. The
Exchange believes that this should
result in more order flow on the
Exchange, all to the benefit of the
marketplace.
Proposed new Rule 519A,
Interpretations and Policies .02(b), will
continue to state, just as Interpretations
and Policies .02(b) states today, that
PRIME Orders, PRIME Solicitation
Orders, and Customer Cross Orders will
each be counted as two orders for the
purpose of calculating the Allowable
Order Rate. These order types included
in the current Rule all consist of orders
that are paired with contra-side orders
upon receipt, with certain execution
guarantees. For consistency, the
Exchange is proposing to include a list
of all paired orders that are counted as
two orders for purposes of the RPM in
the Rule. Orders received by the
Exchange are from various sources, and
order consolidators may submit them as
components of crossing orders where
appropriate. The purpose of counting
these order types as two separate orders
is to protect investors whose orders are
submitted on their behalf as a
component of crossing orders from the
risk that an automated trading system or
algorithm could inadvertently send an
exponential number of paired orders
during times of high volatility. By
counting each paired order as two
separate orders for purposes of the RPM,
the Exchange believes that the
likelihood of a participant engaging in
activity that exceeds participants’
established risk thresholds is mitigated
and accounted for. Counting these order
types as two separate orders thus
protects investors and the public
interest, and is therefore consistent with
the Act.
Additionally, these order types are
counted as two separate orders for a
systemic reason. Specifically, these
paired order types are counted in the
counting program as two orders when
calculating the Allowable Order Rate
because a participant sending such a
paired order submits just one single
message representing two orders. The
RPM does not count the number of
messages submitted; it counts orders.
Therefore, for the foregoing reasons, the
Exchange is proposing to add the
following order types to be counted as
two orders for purposes of the RPM:
cPRIME Orders, QCC Orders, cQCC
Orders, Customer Cross Orders and
cC2C Orders. The proposed amended
Rule thus accurately and correctly
reflects the manner in which paired
order types are submitted (as a single
message representing two orders) for
PO 00000
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Fmt 4703
Sfmt 4703
36027
purposes of calculating the Allowable
Order Rate.
The Exchange notes that, as of the
date of this proposal, the Exchange is
not aware of any Member whose best
execution obligation has been
compromised based upon the Member’s
level of RPM settings, and is not aware
of any Member whose RPM settings
were so stringent that the Member’s
Agency Order did not receive an
execution it should have received.
Additionally, Exchange members are
expected to consider their best
execution obligations when setting
parameters for the RPM. In connection
with this proposal, the Exchange will
issue a Regulatory Circular reminding
Members of their best execution
obligations.
Rule 519A, Interpretations and
Policies .02, currently states that, once
engaged, the RPM will not cancel any
existing PRIME Orders, PRIME
Solicitation Orders, AOC orders, OPG
orders, or GTC orders, and that PRIME
Orders, PRIME Solicitation Orders and
GTC Orders will remain in the System
available for trading when the RPM is
engaged. The Exchange is proposing to
add new sub-paragraph (c) to
Interpretations and Policies .02, to
include cPRIME Orders in the list of
order types that will remain in the
System instead of being cancelled by the
RPM. The Exchange believes that, just
as PRIME Orders are not cancelled
under the current rule, cPRIME Orders,
which are similarly paired and
guaranteed an execution on receipt,
should not be cancelled and instead be
retained by the System so that they can
be executed according to their terms,
regardless of whether the RPM is
engaged.
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 27 in general, and furthers the
objectives of Section 6(b)(5) of the Act 28
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
27 15
28 15
E:\FR\FM\02AUN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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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 believes that the
application of existing protections to all
complex order types as described in
proposed Rule 518, Interpretations and
Policies .05 is consistent with the Act
because such application is designed to
protect investors and the public interest,
by assisting investors in maintaining
their established risk tolerance levels on
the Exchange when making investment
decisions concerning these order types.
The Exchange believes that the
proposed amendment to Rule
515A(a)(2), specifically adding to the
existing limitations against
simultaneous Auctions and Complex
Auctions by stating that the System will
reject an Agency Order if, at the time of
receipt of the Agency Order, the option
is a component of a complex strategy
that is the subject of a cPRIME Auction,
is consistent with the Act. Specifically,
the proposal perfects the mechanisms of
a free and open market and a national
market system and, in general, protects
investors and the public interest
because, without such a limitation,
investors could be faced with an
unusually large number of simultaneous
PRIME, cPRIME 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 protects investors and the
public interest by establishing the same
limitation with respect to any
combination of concurrent PRIME,
cPRIME and Complex Auctions. The
Exchange notes that other exchanges
also limit concurrent auctions involving
the same option.29
The Exchange believes that the
proposed amendments to Rule 518,
Interpretations and Policies .05(d), to
exclude cPRIME Orders, cC2C Orders,
and cQCC Orders from the ixABBO
protection facilitates transactions in
securities and removes impediments to
and perfects the mechanisms of a free
and open market and a national market
system. The Exchange believes that, if
not excluded, such protection feature
could unnecessarily impede certain
transactions in order types submitted
with contra-side participation and
guaranteed executions.
29 See, e.g., NASDAQ PHLX LLC (‘‘Phlx’’) Rule
1080(n)(ii). See also, Chicago Board Options
Exchange, Inc. (‘‘CBOE’’) Rule 6.74A(b).
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The Exchange believes that its
proposal to adopt Rule 518,
Interpretations and Policies .05(e)(1)(iii),
to state that a wide market condition
shall have no impact on the trading of
cPRIME Orders, cC2C Orders, and cQCC
Orders perfects the mechanisms of a free
and open market and a national market
system and, in general, protects
investors and the public interest, by
ensuring participants submitting these
order types that such paired orders will
be executed at the submitted price
regardless of wide market conditions.
The Exchange does not believe that such
orders should be affected by wide
market conditions since the execution of
these order types is guaranteed. The
Exchange believes that preventing the
execution of these orders would
unnecessarily preclude executions on
the Exchange that should occur
regardless of wide market conditions.
Additionally, the Exchange believes
that proposed Rule 518, Interpretations
and Policies .05(e)(1)(i), stating that
trading and processing in these order
types will not be suspended and will
continue during wide market conditions
perfects the mechanisms of a free and
open market and a national market
system and, in general, protects
investors and the public interest by
systemically avoiding the unnecessary
preclusion of executions of paired order
types during market conditions that do
not affect such executions. The
suspension of trading in these order
types due to wide market conditions
would unnecessarily preclude the
execution of transactions that are
guaranteed at protected prices upon
receipt.
The Exchange is proposing to apply
these protections to complex orders so
that investors submitting complex
orders are better able to manage their
risk tolerance levels with respect to
complex orders they submit to the
Exchange, just as they are currently able
to manage their risk tolerance levels
with respect to orders in the simple
market and certain types of complex
orders listed in Rule 518(b).30 The
Exchange believes that extending the
application of existing protections to all
complex order types, including the
recently added cPRIME Orders, cC2C
Orders, and cQCC Orders, as described
in the proposed rules is consistent with
the Act because such application is
designed to protect investors and the
public interest, by ensuring that
investors that participate in these order
types are afforded the price protections
that already apply to all order types
30 See
PO 00000
supra note 11.
Frm 00103
Fmt 4703
currently listed in Rule 518(b).31 These
protections are designed to assist
investors in maintaining their
established risk tolerance levels on the
Exchange when making investment
decisions concerning complex orders.
The Exchange further believes that its
proposal in Rule 518, Interpretations
and Policies .06(a), that the cMOM Price
Protection feature shall not apply to
cPRIME Orders, cC2C Orders, and cQCC
Orders removes impediments to and
perfects the mechanisms of a free and
open market and a national market
system and, in general, protects
investors and the public interest. Under
the proposal, these new order types will
not be rejected for being outside of the
cMOM price upon receipt, and will thus
be executed instead of being rejected
unnecessarily. These order types are
already effectively executed when they
are received (and, in the case of cPRIME
Orders, subject to price improvement)
because they are paired orders with a
guaranteed execution. The Exchange
believes that accepting these orders,
rather than rejecting them, protects
investors that have established crossing
orders at a specific execution price.
The Exchange believes that its
proposal to amend, re-word and
reorganize Rule 519A, Interpretations
and Policies .02, is designed to facilitate
transactions in securities and to remove
impediments to and perfect the
mechanisms of a free and open market,
by amending the existing Rule to
indicate that PRIME Orders, PRIME
Solicitation Orders, and GTC Orders
participate in the RPM, and by
expanding the Rule to identify the
proposed new order types and to
describe how RPM handles each order
type.
The Exchange’s proposal to add
cPRIME Orders, QCC Orders, cQCC
Orders, Customer Cross Orders and
cC2C Orders to the list of order types in
which Rule 519A, Interpretations and
Policies .02 applies, and to the list of
order types to be counted as two orders
for purposes of the RPM’s open order
protection in Rule 519A, Interpretations
and Policies .02(b), perfects the
mechanisms of a free and open market
and a national market system by
assisting investors in managing their
acceptable risk levels respecting open
orders. The submission of a single
message into the System for the
execution of a paired order type is a
submission representing two orders, and
the RPM counts them as such for
purposes of calculating the Allowable
Order Rate. Participants thus will know
that their single message for these order
31 See
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supra note 11.
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types represents two orders for purposes
of the counting system and may
determine their appropriate risk
tolerance parameters accordingly.
The Exchange’s proposal in Rule
519A, Interpretations and Policies
.02(c), not to cancel existing cPRIME
Orders once the RPM is engaged ensures
that paired orders that are guaranteed
executions are not unnecessarily
cancelled. CPRIME Agency Orders are
submitted with a contra side order at a
guaranteed improved price; the
engagement of RPM has no effect on the
cPRIME price guarantee. Therefore, the
Exchange believes that this proposal
removes impediments to and perfects
the mechanisms of a free and open
market and a national market system
and, in general, protects investors and
the public interest, by permitting
existing cPRIME Orders to be executed
despite the engagement of RPM.
The Exchange believes that the
proposed amendments to its trade
protection rules should instill
additional confidence in Members that
submit orders to the Exchange that their
risk tolerance levels are protected, and
thus should encourage such Members to
submit additional order flow and
liquidity to the Exchange with the
understanding that they retain necessary
protections and avoid unnecessary
protections with respect to all orders
they submit to the Exchange, including
complex orders, thereby removing
impediments to and perfecting the
mechanisms of a free and open market
and a national market system and, in
general, protecting investors and the
public interest.
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 in
complex orders through PRIME.
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.
On the contrary, the proposed rule
change is intended to promote
competition by ensuring that necessary
trade protections are available on the
Exchange, and by avoiding unnecessary
protections that would preclude
executions, enabling MIAX Options
participants to execute more complex
orders on the Exchange. The Exchange
believes that this enhances inter-market
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19:43 Aug 01, 2017
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competition by enabling MIAX Options
to compete for this type of order flow
with other exchanges that have similar
functionalities in place.
The Exchange further believes that
enhancing the trade protections
promotes intra-market competition by
protecting new order types through
which competing MIAX Options
participants may submit complex orders
into the System. Furthermore, the price
protections and limitations on
simultaneous auctions described in this
proposal are available, and apply
equally, to all market participants,
resulting in an even playing field on the
Exchange with respect to available trade
and price protections on the Exchange.
This should result in enhanced liquidity
and more competition on the Exchange.
Additionally, the Exchange believes
that the proposed limitation on
simultaneous auctions involving the
same options should encourage
participants to submit more PRIME and
cPRIME Agency Orders to the Exchange,
thus increasing the number of such
orders, and responses to those orders on
the Exchange, which should enhance
the Exchange’s position with respect to
inter-market competition.
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.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the 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 from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 32 and Rule 19b–
4(f)(6) thereunder.33
32 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). As required under Rule
19b–4(f)(6)(iii), the Exchange provided the
Commission with written notice of its intent to file
the proposed rule change, along with a brief
description and the text of 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.
33 17
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Fmt 4703
Sfmt 4703
36029
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 34 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 35
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has asked
the Commission to waive the 30-day
operative delay so that the proposed
trade and price protections will be
operative at the commencement of
trading in the new crossing and cPRIME
order types on the Exchange.36 The
Exchange believes that the trade and
price protections proposed for the new
order types are indispensable tools for
participants in managing their risk
levels, and that a waiver of the operative
delay will ensure the protection of
investors and the public interest,
consistent with the Act. The
Commission believes the waiver of the
operative delay is consistent with the
protection of investors and the public
interest to assure that the Risk
Protection Monitor provisions and the
price and other protections in MIAX
Rule 518, Interpretation and Policy .05,
except as otherwise provided therein,
will apply to the new cPRIME Orders,
cC2C Orders, and cQCC Orders at the
time these orders begin trading on
MIAX.37 As noted above, MIAX states
that the trade and price protections are
indispensable tools for participants to
manage their risk tolerance levels.
Therefore, the Commission hereby
waives the operative delay and
designates the proposed rule change
operative upon filing.38
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
34 17
CFR 240.19b–4(f)(6).
CFR 240.19b–4(f)(6)(iii).
36 See supra note 6.
37 See id. The Commission notes that the proposal
also provides that the ixABBO Price Protection and
the wide market condition provisions in MIAX Rule
518, Interpretation and Policy .05, and the cMOM
Price Protection feature in MIAX Rule 518,
Interpretation and Policy .06, will not apply to
cPRIME, cC2C, and cQCC Orders because, as
described more fully above, cPRIME, cC2C, and
cQCC Orders are submitted as paired orders and are
guaranteed executions.
38 For purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
35 17
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to determine whether the proposed rule
change 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–2017–34 on the subject line.
Paper Comments
sradovich on DSKBCFCHB2PROD with NOTICES
• 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–2017–34. 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–
2017–34 and should be submitted on or
before August 23, 2017.
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19:43 Aug 01, 2017
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.39
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–16209 Filed 8–1–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81224; File No. SR–
NYSEArca–2017–05]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Designation of a
Longer Period for Commission Action
on Proceedings To Determine Whether
To Approve or Disapprove a Proposed
Rule Change, as Modified by
Amendment No. 1, To List and Trade
Shares of Direxion Daily Crude Oil Bull
3x Shares and Direxion Daily Crude Oil
Bear 3x Shares Under NYSE Arca
Equities Rule 8.200
July 27, 2017.
On January 23, 2017, NYSE Arca, Inc.
(‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
list and trade shares of Direxion Daily
Crude Oil Bull 3x Shares and Direxion
Daily Crude Oil Bear 3x Shares under
NYSE Arca Equities Rule 8.200. The
proposed rule change was published for
comment in the Federal Register on
February 7, 2017.3
On March 16, 2017, pursuant to
Section 19(b)(2) of the Act,4 the
Commission designated a longer period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to disapprove the
proposed rule change.5 On May 5, 2017,
the Commission instituted proceedings
to determine whether to approve or
disapprove the proposed rule change.6
39 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 79916
(February 1, 2017), 82 FR 9608.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 80265,
82 FR 14778 (March 22, 2017).
6 See Securities Exchange Act Release No. 80606,
82 FR 22042 (May 11, 2017). Specifically, the
Commission instituted proceedings to allow for
additional analysis of the proposed rule change’s
consistency with Section 6(b)(5) of the Act, which
requires, among other things, that the rules of a
national securities exchange be ‘‘designed to
prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles
of trade,’’ and ‘‘to protect investors and the public
interest.’’ See id. at 22043.
PO 00000
Frm 00105
Fmt 4703
Sfmt 4703
On June 23, 2017, the Exchange filed
Amendment No. 1 to the proposed rule
change.7 The Commission has received
no comments on the proposed rule
change.
Section 19(b)(2) of the Act 8 provides
that, after initiating disapproval
proceedings, the Commission shall issue
an order approving or disapproving the
proposed rule change not later than 180
days after the date of publication of
notice of filing of the proposed rule
change. The Commission may extend
the period for issuing an order
approving or disapproving the proposed
rule change by not more than 60 days
if the Commission determines that a
longer period is appropriate and
publishes the reasons for such
determination. The proposed rule
change was published for notice and
comment in the Federal Register on
February 7, 2017. August 6, 2017 is 180
days from that date, and October 5, 2017
is 240 days from that date.
The Commission finds it appropriate
to designate a longer period within
which to issue an order approving or
disapproving the proposed rule change
so that it has sufficient time to consider
this proposed rule change. Accordingly,
the Commission, pursuant to Section
19(b)(2) of the Act,9 designates October
5, 2017 as the date by which the
Commission shall either approve or
disapprove the proposed rule change
(File No. SR–NYSEArca–2017–05), as
modified by Amendment No. 1.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–16205 Filed 8–1–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IC–32764]
Notice of Applications for
Deregistration Under Section 8(f) of the
Investment Company Act of 1940
July 28, 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 July 2017.
7 Amendment No. 1, which amended and
replaced the proposed rule change in its entirety,
is available on the Commission’s Web site at:
https://www.sec.gov/comments/sr-nysearca-201705/nysearca201705-1822806-154288.pdf.
8 15 U.S.C. 78s(b)(2).
9 Id.
10 17 CFR 200.30–3(a)(57).
E:\FR\FM\02AUN1.SGM
02AUN1
]]>Agencies
[Federal Register Volume 82, Number 147 (Wednesday, August 2, 2017)]
[Notices]
[Pages 36023-36030]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-16209]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-81229; File No. SR-MIAX-2017-34]
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,
Rule 518, Complex Orders, and Rule 519A, Risk Protection Monitor
July 27, 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 July 13, 2017, Miami International Securities
Exchange, LLC (``MIAX Options'' or ``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') a proposed rule
change as described in Items I and II below, which Items have been
prepared by the Exchange. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Exchange Rule 515A, MIAX Price
Improvement Mechanism (``PRIME'') and PRIME Solicitation Mechanism, to
state that the Exchange's System \3\ will reject an Agency Order (as
defined below) if, at the time of receipt of the Agency Order, the
option is a component of a complex strategy that is the subject of a
cPRIME Auction (as defined below). The Exchange also proposes to amend
Rule 518, Complex Orders, and Rule 519A, Risk Protection Monitor
(``RPM''), so that the price and other trade protections contained in
those rules address certain new complex order types on the Exchange. In
addition, the Exchange proposes to amend Exchange Rule 518,
Interpretations and Policies .05, to state that, unless otherwise
specifically set forth in the Rule, the price and other protections
contained in Interpretations and Policies .05 (including proposed
amendments to the Rule, described below) apply to all complex order
types set forth in Rule 518(b), as described below. The Exchange also
proposes to amend Rule 519A to set forth clearly the manner in which
the RPM handles the various complex order types listed in that Rule, as
described below. amend Exchange Rule 515A to reflect changes to the
MIAX Options Price Improvement Mechanism (``PRIME'') [sic].
---------------------------------------------------------------------------
\3\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
---------------------------------------------------------------------------
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
state that the Exchange's System will reject an Agency Order if, at the
time of receipt of the Agency Order, the option is a component of a
complex strategy that is the subject of a cPRIME Auction (as defined
below). The Exchange also proposes to amend Rule 518, Complex Orders,
and Rule 519A, RPM, so that the price and other trade protections
contained in those rules address certain new complex order types on the
Exchange, as described below. In addition, the Exchange proposes to
amend Exchange Rule 518, Interpretations and Policies .05, to state
that, unless otherwise specifically set forth in the Rule, the price
and other protections contained in Interpretations and Policies .05
(including proposed amendments to the Rule, described below) apply to
all complex order types set forth in Rule 518(b), as described below.
The Exchange also proposes to amend Rule 519A to set forth clearly the
manner in which the RPM handles the various complex order types listed
in that Rule, as described below.
[[Page 36024]]
Background
The Exchange began trading complex orders \4\ in October, 2016.\5\
As part of its effort to continue to build out its complex order market
segment, the Exchange recently adopted rules to establish three new
types of complex orders--complex PRIME (``cPRIME'') Orders, Complex
Customer Cross (``cC2C'') Orders, and Complex Qualified Contingent
Cross (``cQCC'') Orders--and to adopt new provisions that relate to the
processing of those new complex order types.\6\ A cPRIME Order is a
complex order that is submitted for participation in a cPRIME Auction.
A cC2C Order is comprised of one Priority Customer complex order to buy
and one Priority Customer complex order to sell the same complex
strategy at the same initiating price (which must be better than
(inside) the icMBBO \7\ price or the best net price of a complex order
for the strategy) and for the same quantity. A cQCC Order is comprised
of an originating complex order to buy or sell where each leg is at
least 1,000 contracts and that is identified as being part of a
qualified contingent trade, as defined in Rule 516, Interpretations and
Policies .01,\8\ coupled with a contra-side complex order or orders for
the same strategy totaling an equal number of contracts. cPRIME orders
will be processed and executed in the Exchange's PRIME mechanism, the
same mechanism that the Exchange uses to process and execute simple
PRIME orders, pursuant to Exchange Rule 515A. cC2C and cQCC Orders will
be processed and executed in the same mechanism that the Exchange uses
to cross simple Customer Cross orders and QCC orders, pursuant to
Exchange Rule 515.
---------------------------------------------------------------------------
\4\ A ``complex order'' is any order involving the concurrent
purchase and/or sale of two or more different options in the same
underlying security (the ``legs'' or ``components'' of the complex
order), for the same account, in a ratio that is equal to or greater
than one-to-three (.333) and less than or equal to three-to-one
(3.00) and for the purposes of executing a particular investment
strategy. Mini-options may only be part of a complex order that
includes other mini-options. Only those complex orders in the
classes designated by the Exchange and communicated to Members via
Regulatory Circular with no more than the applicable number of legs,
as determined by the Exchange on a class-by-class basis and
communicated to Members via Regulatory Circular, are eligible for
processing. See Exchange Rule 518(a)(5).
\5\ For a complete description of the trading of complex orders
on the Exchange, 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\ See Securities Exchange Act Release No. 81131 (July 12,
2017) (SR-MIAX-2017-19). (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).
\7\ 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 NBBO in the stock component.
See Exchange Rule 518(a)(11).
\8\ See id.
---------------------------------------------------------------------------
The Exchange is proposing to modify Exchange Rule 518, Complex
Orders, and Rule 519A, RPM, which govern certain price and other trade
protection features in the Exchange's System so that they address
(through inclusion or exclusion) cPRIME Orders, cC2C Orders, and cQCC
Orders in those features.
Proposal
The Exchange is proposing to amend Exchange Rules 515A, MIAX Price
Improvement Mechanism (``PRIME'') and PRIME Solicitation Mechanism, to
state that the Exchange's System will reject an Agency Order if, at the
time of receipt of the Agency Order, the option is a component of a
complex strategy that is the subject of a cPRIME Auction (as defined
below). The Exchange also proposes to amend Rule 518, Complex Orders,
Interpretations and Policies .05, Price and Other Protections, and
Interpretations and Policies .06, MIAX Order Monitor for Complex Orders
(``cMOM''), and Exchange Rule 519A, RPM, by stating in those rules how
the new cPRIME Order, cC2C Order, and cQCC Order types will be handled
by the System with respect to those price and other protections. The
Exchange is also proposing to amend Exchange Rule 518, Interpretations
and Policies .05, to state that, unless otherwise specifically set
forth in the Rule, the price and other protections contained in
Interpretations and Policies .05 (including proposed amendments to the
Rule, described below) apply to all complex order types set forth in
Rule 518(b), as described below. The Exchange is also proposing to
amend Rule 519A, Interpretations and Policies .02, to set forth clearly
the manner in which the RPM handles the various complex order types
listed in that Rule, as described below.
MIAX PRIME
The Exchange is proposing to amend Rule 515A, MIAX Price
Improvement Mechanism (``PRIME'') and PRIME Solicitation Mechanism.
PRIME is a process by which a Member may electronically submit for
execution (``Auction'') an order it represents as agent (``Agency
Order'') against principal interest, and/or an Agency Order against
solicited interest.
The Exchange proposes to amend Rule 515A(a)(2) to add cPRIME Orders
\9\ to the list of price-improvement auctions that are prohibited by
the Exchange's System from occurring simultaneously on the Exchange.
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. Currently,
the Rule states that the System 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 \10\ that is the subject of a Complex
Auction pursuant to Rule 518(d). The proposed amendment would state
that the System will reject an Agency Order if, at the time of receipt
of the Agency Order, the option is a component of a complex strategy
that is the subject of a cPRIME Auction. The Exchange believes that the
rejection of Agency Orders that are received in an option in which an
Auction, cPRIME Auction, or Complex Auction is ongoing ensures that
there will not be any interference with the potential for price
improvement for the Agency Order as a result of overlapping, concurrent
auctions on the Exchange.
---------------------------------------------------------------------------
\9\ ``cPRIME'' is the process by which a Member may
electronically submit a ``cPRIME Order'' (as defined in Rule
518(b)(7)) it represents as agent (a ``cPRIME Agency Order'')
against principal or solicited interest for execution (a ``cPRIME
Auction''). See Exchange Rule 515A, Interpretations and Policies
.12(a).
\10\ 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 further 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,
or involving the same strategy or components of 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 protects investors and the public interest by
ensuring orderliness in the PRIME, cPRIME and Complex Auction process.
Complex Order Price and Other Protections in Rule 518
The Exchange proposes to amend Rule 518, Interpretations and
Policies .05, to state that, unless otherwise
[[Page 36025]]
specifically set forth in the Rule, the price and other protections
contained in Interpretations and Policies .05 apply to all complex
order types set forth in Rule 518(b).\11\ The Exchange believes that
the application of existing protections to all complex order types as
described in proposed Rule 518, Interpretations and Policies .05 is
consistent with the Act because such application is designed to protect
investors and the public interest, by assisting investors in
maintaining their established risk tolerance levels on the Exchange
when making investment decisions concerning these order types.
---------------------------------------------------------------------------
\11\ In addition to a general description, Rule 518(b) defines
the following complex orders: a ``Complex Auction-on-Arrival'' or
``cAOA'' order, which is a complex order designated to be placed
into a Complex Auction upon receipt or upon evaluation; a Complex
Auction-or-Cancel or ``cAOC'' order, which is a complex limit order
used to provide liquidity during a specific Complex Auction with a
time in force that corresponds with that event; and a Complex
Immediate-or-Cancel or ``cIOC'' order, which is a complex order that
is to be executed in whole or in part upon receipt. See Exchange
Rule 518(b). The Exchange recently amended Rule 518(b) to add
cPRIME, cC2C and cQCC Orders to the complex order types defined in
the Rule. See supra note 6.
---------------------------------------------------------------------------
The Exchange is proposing to modify Rule 518, Interpretations and
Policies .05, Price and Other Protections, to describe the manner in
which the System will handle cPRIME Orders, cC2C Orders, and cQCC
Orders with respect to the protections described in the Rule. The
Exchange is proposing to apply these protections to complex orders so
that investors submitting complex orders are better able to manage
their risk tolerance levels with respect to complex orders they submit
to the Exchange, just as they are currently able to manage their risk
tolerance levels with respect to orders in the simple market and
certain types of complex orders listed in Rule 518(b).\12\ The Exchange
believes that extending the application of existing protections to all
complex order types, including the recently added cPRIME Orders, cC2C
Orders, and cQCC Orders, as described in the proposed rules is
consistent with the Act because such application is designed to protect
investors and the public interest, by ensuring that investors that
participate in these order types are afforded the price protections
that already apply to all order types currently listed in Rule
518(b).\13\ These protections are designed to assist investors in
maintaining their established risk tolerance levels on the Exchange
when making investment decisions concerning complex orders.
---------------------------------------------------------------------------
\12\ Id.
\13\ See Exchange Rule 518(b). See also supra note 6.
---------------------------------------------------------------------------
The remaining proposed amendments to Rule 518, Interpretations and
Policies .05, are intended to exclude certain order types from certain
provisions in the Rule.
ixABBO Protection
First, the Exchange proposes to modify Rule 518, Interpretations
and Policies .05(d) to state that the Implied Away Best Bid or Offer
(``ixABBO'') Price Protection feature is not available for cPRIME
Orders, cC2C Orders, and cQCC Orders. The ixABBO price protection
feature is a price protection mechanism under which, when in operation
as requested by the submitting Member, a buy order will not be executed
at a price that is higher than each other single exchange's best
displayed offer for the complex strategy, and under which a sell order
will not be executed at a price that is lower than each other single
exchange's best displayed bid for the complex strategy. The ixABBO is
calculated using the best net bid and offer for a complex strategy
using each other exchange's displayed best bid or offer on their simple
order book. For stock-option orders, the ixABBO for a complex strategy
is calculated using the BBO for each component on each individual away
options market and the NBBO for the stock component. The ixABBO price
protection feature must be engaged on an order-by-order basis by the
submitting Member and is not available for complex Standard quotes,
complex eQuotes, or cAOC orders.\14\
---------------------------------------------------------------------------
\14\ See Exchange Rule 518, Interpretations and Policies .05(d).
---------------------------------------------------------------------------
The ixABBO protection will not be available because this type of
protection isn't necessary for these new complex order types.
Specifically, with respect to cPRIME Orders, a cPRIME Agency Order is
received by the Exchange accompanied by, and guarantees an execution
against, a contra-side order at a single price or at multiple prices
with a ``stop'' price outside of which the cPRIME Agency Order, the
contra-side order, and auction responses will not be executed.\15\
Additionally, cC2C Orders are automatically executed upon entry
provided that: (i) The execution is at least $0.01 better than (inside)
the icMBBO price, or (ii) the best net price of a complex order (as
defined in Rule 518(a)(5)) on the Strategy Book (as defined in Rule
518(a)(17)),\16\ whichever is more aggressive (i.e., the higher bid
and/or lower offer).\17\cQCC Orders, on the other hand, 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 \18\ order on the Exchange's Book; and
(ii) is at or between the NBBO.\19\ Therefore, the System will not
consider the ixABBO protection parameters (each other single exchange's
best displayed bid or offer for the complex strategy) with respect to
cPRIME Orders, cC2C Orders, and cQCC Orders.
---------------------------------------------------------------------------
\15\ See supra note 6.
\16\ The ``Strategy Book'' is the Exchange's electronic book of
complex orders and complex quotes. See Exchange Rule 518(a)(17).
\17\ See supra note 6.
\18\ 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.
\19\ See supra note 6.
---------------------------------------------------------------------------
Wide Market Conditions
Current Exchange Rule 518, Interpretations and Policies .05(e),
describes the handling of complex orders when a component of a complex
strategy is in a wide market condition,\20\ a Simple Market Auction or
Timer (``SMAT'') Event,\21\ or a Halt. Complex orders will be handled
in accordance with current Rule 518, Interpretations and Policies
.05(e)(2), with respect to SMAT Events, and Interpretations and
Policies .05(e)(3), with respect to Halts. The Exchange is not
proposing to amend these rules.
---------------------------------------------------------------------------
\20\ A ``wide market condition'' is defined as any individual
component of a complex strategy having, at the time of evaluation,
an MBBO quote width that is wider than the permissible valid quote
width as defined in Rule 603(b)(4). See Exchange Rule 518.05(e)(1).
\21\ A SMAT Event is defined as a PRIME Auction (pursuant to
Rule 515A); a Route Timer (pursuant to Rule 529); or a liquidity
refresh pause (pursuant to Rule 515(c)(2)). See Exchange Rule
518(a)(16).
---------------------------------------------------------------------------
The Exchange is proposing to amend Rule 518, Interpretations and
Policies .05, with respect to wide market conditions. Currently, during
free trading, if a wide market condition exists for a component of a
complex strategy, trading in the complex strategy will be
suspended.\22\ Similarly, if a wide market condition exists for a
component of a complex strategy following a Complex Auction, trading in
the complex strategy will be suspended.\23\ The Exchange is proposing
to exclude cPRIME Orders, cC2C Orders, and cQCC Orders from these
current trade protection provisions relating to wide market conditions.
---------------------------------------------------------------------------
\22\ See Exchange Rule 518, Interpretations and Policies
.05(e)(1)(i).
\23\ See Exchange Rule 518, Interpretations and Policies
.05(e)(1)(ii).
---------------------------------------------------------------------------
The purpose of this ``carve-out'' is similar to the purpose of the
ixABBO carve-out described above: cPRIME Orders, cC2C Orders, and cQCC
Orders
[[Page 36026]]
are all received with either a paired cPRIME Agency Order (in the case
of a cPRIME Order) or a contra-side order or orders. cPRIME and cC2C
orders are received with an execution price at least $0.01 better than
(inside) the icMBBO price or the best net price of a complex order on
the Strategy Book, whichever is more aggressive. cQCC Orders are
received with an execution price that (i) is not at the same price as a
Priority Customer Order on the Exchange's Book; and (ii) is at or
between the NBBO. Therefore, these three order types, all of which
consist of paired orders with execution price requirements, are not
affected by wide market conditions because they may only be executed at
or inside of their obligatory prices. Accordingly, proposed Rule 518,
Interpretations and Policies .05(e)(iii), states that a wide market
condition shall have no impact on the trading of cPRIME Orders and
processing of cPRIME Auctions (including the processing of cPRIME
Auction responses) pursuant to Rule 515A, Interpretations and Policies
.12, or on the trading of cC2C and cQCC Orders pursuant to Rule
515(h)(3) and (4). Such trading and processing will not be suspended
and will continue during wide market conditions.
MIAX Order Monitor for Complex Orders (``cMOM'')
The Exchange is also proposing to amend Exchange Rule 518,
Interpretations and Policies .06(a), to exclude cPRIME Orders, cC2C
Orders, and cQCC Orders from the System's cMOM feature. cMOM defines a
price range outside of which a complex limit order will not be accepted
by the System. A complex limit order that is priced through the cMOM
range will be rejected. cMOM is a number defined by the Exchange and
communicated to Members via Regulatory Circular. The default price
range for cMOM will be greater than or equal to a price through the
cNBBO for the complex strategy to be determined by the Exchange and
communicated to Members via Regulatory Circular. Such price will not be
greater than $2.50. A complex limit order to sell will not be accepted
at a price that is lower than the cNBBO bid, and a complex limit order
to buy will not be accepted at a price that is higher than the cNBBO
offer, by more than cMOM. A complex limit order that is priced through
this range will be rejected.\24\
---------------------------------------------------------------------------
\24\ See Exchange Rule 518, Interpretations and Policies .06.
---------------------------------------------------------------------------
The Exchange is proposing to amend Rule 518, Interpretations and
Policies .06(a), by stating that the cMOM price protection feature
shall not apply to cPRIME Orders, cC2C Orders, and cQCC Orders. Under
the proposal, the new order types will therefore not be rejected for
being outside of cMOM price parameters upon receipt. The purpose of
excluding these complex order types from the cMOM price protection
feature is that cPRIME Orders, cC2C Orders and cQCC Orders are all
guaranteed an execution at a price or prices determined by the
participants, and cPRIME Orders are subject to further price
improvement. Therefore, the cMOM price protection feature isn't
necessary for these complex order types, and thus these complex order
types will not be rejected based upon cMOM price parameters. In order
to remain consistent in the Rule, the Exchange is also proposing to
make a conforming change to Rule 518, Interpretations and Policies
.06(e). Specifically, the Exchange is proposing to carve out cPRIME,
cC2C and cQCC Orders from the Rule by stating, in Rule 518,
Interpretations and Policies .06(e), that, except as provided in sub-
paragraph .06(a) above (which excludes cPRIME, cC2C and cQCC Orders),
the protections set forth in Interpretations and Policies .06 will be
available for complex orders as determined by the Exchange and
communicated to Members via Regulatory Circular.
RPM
The Exchange is proposing to amend Rule 519A, RPM. RPM is a feature
of the MIAX System which maintains a counting program (``counting
program'') for each participating Member that will count the number of
orders entered and the number of contracts traded via an order entered
by a Member on the Exchange within a specified time period that has
been established by the Member (the ``specified time period''). The
maximum duration of the specified time period is established by the
Exchange and announced via a Regulatory Circular. The RPM maintains one
or more Member-configurable Allowable Order Rate settings and Allowable
Contract Execution Rate settings. When a Member's order is entered or
when an execution of a Member's order occurs, the System will look back
over the specified time period to determine if the Member has: (i)
Entered during the specified time period a number of orders exceeding
their Allowable Order Rate setting(s), or (ii) executed during the
specified time period a number of contracts exceeding their Allowable
Contract Execution Rate setting(s). Once engaged, the RPM will then, as
determined by the Member: Automatically either (A) prevent the System
from receiving any new orders in all series in all classes from the
Member; (B) prevent the System from receiving any new orders in all
series in all classes from the Member and cancel all existing orders
with a time-in-force of Day in all series in all classes from the
Member; or (C) send a notification to the Member without any further
preventative or cancellation action by the System. When engaged, the
RPM will still allow the Member to interact with existing orders
entered prior to exceeding the Allowable Order Rate setting or the
Allowable Contract Execution Rate setting, including sending cancel
order messages and receiving trade executions from those orders. The
RPM remains engaged until the Member communicates with the Help Desk to
enable the acceptance of new orders.
The Exchange is proposing to amend Interpretations and Policies .02
to Rule 519A by setting forth the specific circumstances under which
the Rule will apply to cPRIME Orders, QCC Orders, cQCC Orders, Customer
Cross Orders, and cC2C Orders, in addition to the order types currently
set forth in the rule (PRIME Orders, PRIME Solicitation Orders, and GTC
Orders). Rather than ``carve-out'' these new complex order types, the
Exchange is proposing to state in the Rule how these order types will
participate in the RPM.
Rule 519A, Interpretations and Policies .02, currently states that
PRIME Orders, PRIME Solicitation Orders, and GTC Orders do not
participate in the RPM. However, the System does include such PRIME
Orders, PRIME Solicitation Orders, and GTC Orders in the counting
program for purposes of this Rule. Under current Rule 519A,
Interpretations and Policies .02(b), PRIME Orders, PRIME Solicitation
Orders, and Customer Cross Orders \25\ will each be counted as two
orders for the purpose of calculating the Allowable Order Rate. Current
Rule 519A, Interpretations and Policies .02(c), further provides that,
once engaged, the RPM will not cancel any existing PRIME Orders, PRIME
Solicitation Orders, AOC orders, OPG orders, or GTC orders. PRIME
Orders, PRIME Solicitation Orders, and GTC Orders remain in the System
available for trading when the RPM is engaged.
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\25\ The Exchange is proposing a technical amendment to refer in
the Rule to ``Customer Cross'' orders and to delete an erroneous
reference to ``Customer-to-Customer Orders.''
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The Exchange is proposing to amend Interpretations and Policies .02
by adding the new order types to the Rule
[[Page 36027]]
where appropriate (as described below) and to re-word and reorganize
the Rule to clearly describe the functionality of the RPM as it relates
to both existing and the proposed new order types. These proposed
amendments are designed to remove impediments to and perfect the
mechanisms of a free and open market and to eliminate possible
confusion by establishing clearly in the Rule the manner in which the
RPM handles each existing and proposed order type. This should assist
MIAX Options participants in managing their risk tolerance levels with
respect to the order types that are included in the RPM's counting
program.
First, the Exchange proposes to amend the introduction of Rule
519A, Interpretations and Policies .02, to add cPRIME Orders, QCC
Orders, cQCC Orders, Customer Cross Orders, and cC2C Orders to the
currently enumerated order types (PRIME Orders, PRIME Solicitation
Orders, and GTC Orders). Thus, as amended, Rule 519A, Interpretations
and Policies .02 applies to all of these order types.
Currently, Rule 519A, Interpretations and Policies .02(a), states
that the System includes PRIME Orders, PRIME Solicitation Orders, and
GTC Orders in the counting program for purposes of this Rule. The
Exchange is proposing to amend the Rule by expanding it to list all
order types (i.e., cPRIME Orders, QCC Orders, cQCC Orders, Customer
Cross Orders, and cC2C Orders) that are subject to the RPM counting
program.\26\ The Exchange believes that the inclusion of all of these
order types in the rules and System functionality is consistent with
the Act because it removes impediments to, and perfects the mechanisms
of a free and open market, by correctly and accurately describing how
existing orders are handled by RPM and, also describing the handling of
the proposed new order types. This is consistent with the Act because
it is intended to remove impediments to and perfect the mechanisms of a
free and open market by applying the counting program to all of the
order types mentioned, thus instilling confidence in participants that
an unusually high number of orders and/or contracts submitted within a
specified time period during, for example, periods of unusually high
market volatility, will be counted towards the possible prevention of
additional orders and quotes that subject them to higher risk levels
than they are prepared to tolerate. The Exchange believes that this
should result in more order flow on the Exchange, all to the benefit of
the marketplace.
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\26\ The counting program counts the number of orders entered
and the number of contracts traded via an order entered by a Member
on the Exchange within a specified time period that has been
established by the Member (the ``specified time period''). See
Exchange Rule 519A(a).
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Proposed new Rule 519A, Interpretations and Policies .02(b), will
continue to state, just as Interpretations and Policies .02(b) states
today, that PRIME Orders, PRIME Solicitation Orders, and Customer Cross
Orders will each be counted as two orders for the purpose of
calculating the Allowable Order Rate. These order types included in the
current Rule all consist of orders that are paired with contra-side
orders upon receipt, with certain execution guarantees. For
consistency, the Exchange is proposing to include a list of all paired
orders that are counted as two orders for purposes of the RPM in the
Rule. Orders received by the Exchange are from various sources, and
order consolidators may submit them as components of crossing orders
where appropriate. The purpose of counting these order types as two
separate orders is to protect investors whose orders are submitted on
their behalf as a component of crossing orders from the risk that an
automated trading system or algorithm could inadvertently send an
exponential number of paired orders during times of high volatility. By
counting each paired order as two separate orders for purposes of the
RPM, the Exchange believes that the likelihood of a participant
engaging in activity that exceeds participants' established risk
thresholds is mitigated and accounted for. Counting these order types
as two separate orders thus protects investors and the public interest,
and is therefore consistent with the Act.
Additionally, these order types are counted as two separate orders
for a systemic reason. Specifically, these paired order types are
counted in the counting program as two orders when calculating the
Allowable Order Rate because a participant sending such a paired order
submits just one single message representing two orders. The RPM does
not count the number of messages submitted; it counts orders.
Therefore, for the foregoing reasons, the Exchange is proposing to add
the following order types to be counted as two orders for purposes of
the RPM: cPRIME Orders, QCC Orders, cQCC Orders, Customer Cross Orders
and cC2C Orders. The proposed amended Rule thus accurately and
correctly reflects the manner in which paired order types are submitted
(as a single message representing two orders) for purposes of
calculating the Allowable Order Rate.
The Exchange notes that, as of the date of this proposal, the
Exchange is not aware of any Member whose best execution obligation has
been compromised based upon the Member's level of RPM settings, and is
not aware of any Member whose RPM settings were so stringent that the
Member's Agency Order did not receive an execution it should have
received. Additionally, Exchange members are expected to consider their
best execution obligations when setting parameters for the RPM. In
connection with this proposal, the Exchange will issue a Regulatory
Circular reminding Members of their best execution obligations.
Rule 519A, Interpretations and Policies .02, currently states that,
once engaged, the RPM will not cancel any existing PRIME Orders, PRIME
Solicitation Orders, AOC orders, OPG orders, or GTC orders, and that
PRIME Orders, PRIME Solicitation Orders and GTC Orders will remain in
the System available for trading when the RPM is engaged. The Exchange
is proposing to add new sub-paragraph (c) to Interpretations and
Policies .02, to include cPRIME Orders in the list of order types that
will remain in the System instead of being cancelled by the RPM. The
Exchange believes that, just as PRIME Orders are not cancelled under
the current rule, cPRIME Orders, which are similarly paired and
guaranteed an execution on receipt, should not be cancelled and instead
be retained by the System so that they can be executed according to
their terms, regardless of whether the RPM is engaged.
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 \27\ in general, and furthers the objectives of
Section 6(b)(5) of the Act \28\ 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
[[Page 36028]]
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.
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\27\ 15 U.S.C. 78f(b).
\28\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the application of existing protections
to all complex order types as described in proposed Rule 518,
Interpretations and Policies .05 is consistent with the Act because
such application is designed to protect investors and the public
interest, by assisting investors in maintaining their established risk
tolerance levels on the Exchange when making investment decisions
concerning these order types.
The Exchange believes that the proposed amendment to Rule
515A(a)(2), specifically adding to the existing limitations against
simultaneous Auctions and Complex Auctions by stating that the System
will reject an Agency Order if, at the time of receipt of the Agency
Order, the option is a component of a complex strategy that is the
subject of a cPRIME Auction, is consistent with the Act. Specifically,
the proposal perfects the mechanisms of a free and open market and a
national market system and, in general, protects investors and the
public interest because, without such a limitation, investors could be
faced with an unusually large number of simultaneous PRIME, cPRIME 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 protects investors and
the public interest by establishing the same limitation with respect to
any combination of concurrent PRIME, cPRIME and Complex Auctions. The
Exchange notes that other exchanges also limit concurrent auctions
involving the same option.\29\
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\29\ See, e.g., NASDAQ PHLX LLC (``Phlx'') Rule 1080(n)(ii). See
also, Chicago Board Options Exchange, Inc. (``CBOE'') Rule 6.74A(b).
---------------------------------------------------------------------------
The Exchange believes that the proposed amendments to Rule 518,
Interpretations and Policies .05(d), to exclude cPRIME Orders, cC2C
Orders, and cQCC Orders from the ixABBO protection facilitates
transactions in securities and removes impediments to and perfects the
mechanisms of a free and open market and a national market system. The
Exchange believes that, if not excluded, such protection feature could
unnecessarily impede certain transactions in order types submitted with
contra-side participation and guaranteed executions.
The Exchange believes that its proposal to adopt Rule 518,
Interpretations and Policies .05(e)(1)(iii), to state that a wide
market condition shall have no impact on the trading of cPRIME Orders,
cC2C Orders, and cQCC Orders perfects the mechanisms of a free and open
market and a national market system and, in general, protects investors
and the public interest, by ensuring participants submitting these
order types that such paired orders will be executed at the submitted
price regardless of wide market conditions. The Exchange does not
believe that such orders should be affected by wide market conditions
since the execution of these order types is guaranteed. The Exchange
believes that preventing the execution of these orders would
unnecessarily preclude executions on the Exchange that should occur
regardless of wide market conditions.
Additionally, the Exchange believes that proposed Rule 518,
Interpretations and Policies .05(e)(1)(i), stating that trading and
processing in these order types will not be suspended and will continue
during wide market conditions perfects the mechanisms of a free and
open market and a national market system and, in general, protects
investors and the public interest by systemically avoiding the
unnecessary preclusion of executions of paired order types during
market conditions that do not affect such executions. The suspension of
trading in these order types due to wide market conditions would
unnecessarily preclude the execution of transactions that are
guaranteed at protected prices upon receipt.
The Exchange is proposing to apply these protections to complex
orders so that investors submitting complex orders are better able to
manage their risk tolerance levels with respect to complex orders they
submit to the Exchange, just as they are currently able to manage their
risk tolerance levels with respect to orders in the simple market and
certain types of complex orders listed in Rule 518(b).\30\ The Exchange
believes that extending the application of existing protections to all
complex order types, including the recently added cPRIME Orders, cC2C
Orders, and cQCC Orders, as described in the proposed rules is
consistent with the Act because such application is designed to protect
investors and the public interest, by ensuring that investors that
participate in these order types are afforded the price protections
that already apply to all order types currently listed in Rule
518(b).\31\ These protections are designed to assist investors in
maintaining their established risk tolerance levels on the Exchange
when making investment decisions concerning complex orders.
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\30\ See supra note 11.
\31\ See supra note 11.
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The Exchange further believes that its proposal in Rule 518,
Interpretations and Policies .06(a), that the cMOM Price Protection
feature shall not apply to cPRIME Orders, cC2C Orders, and cQCC Orders
removes impediments to and perfects the mechanisms of a free and open
market and a national market system and, in general, protects investors
and the public interest. Under the proposal, these new order types will
not be rejected for being outside of the cMOM price upon receipt, and
will thus be executed instead of being rejected unnecessarily. These
order types are already effectively executed when they are received
(and, in the case of cPRIME Orders, subject to price improvement)
because they are paired orders with a guaranteed execution. The
Exchange believes that accepting these orders, rather than rejecting
them, protects investors that have established crossing orders at a
specific execution price.
The Exchange believes that its proposal to amend, re-word and
reorganize Rule 519A, Interpretations and Policies .02, is designed to
facilitate transactions in securities and to remove impediments to and
perfect the mechanisms of a free and open market, by amending the
existing Rule to indicate that PRIME Orders, PRIME Solicitation Orders,
and GTC Orders participate in the RPM, and by expanding the Rule to
identify the proposed new order types and to describe how RPM handles
each order type.
The Exchange's proposal to add cPRIME Orders, QCC Orders, cQCC
Orders, Customer Cross Orders and cC2C Orders to the list of order
types in which Rule 519A, Interpretations and Policies .02 applies, and
to the list of order types to be counted as two orders for purposes of
the RPM's open order protection in Rule 519A, Interpretations and
Policies .02(b), perfects the mechanisms of a free and open market and
a national market system by assisting investors in managing their
acceptable risk levels respecting open orders. The submission of a
single message into the System for the execution of a paired order type
is a submission representing two orders, and the RPM counts them as
such for purposes of calculating the Allowable Order Rate. Participants
thus will know that their single message for these order
[[Page 36029]]
types represents two orders for purposes of the counting system and may
determine their appropriate risk tolerance parameters accordingly.
The Exchange's proposal in Rule 519A, Interpretations and Policies
.02(c), not to cancel existing cPRIME Orders once the RPM is engaged
ensures that paired orders that are guaranteed executions are not
unnecessarily cancelled. CPRIME Agency Orders are submitted with a
contra side order at a guaranteed improved price; the engagement of RPM
has no effect on the cPRIME price guarantee. Therefore, the Exchange
believes that this proposal removes impediments to and perfects the
mechanisms of a free and open market and a national market system and,
in general, protects investors and the public interest, by permitting
existing cPRIME Orders to be executed despite the engagement of RPM.
The Exchange believes that the proposed amendments to its trade
protection rules should instill additional confidence in Members that
submit orders to the Exchange that their risk tolerance levels are
protected, and thus should encourage such Members to submit additional
order flow and liquidity to the Exchange with the understanding that
they retain necessary protections and avoid unnecessary protections
with respect to all orders they submit to the Exchange, including
complex orders, thereby removing impediments to and perfecting the
mechanisms of a free and open market and a national market system and,
in general, protecting investors and the public interest.
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 in complex orders through PRIME.
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.
On the contrary, the proposed rule change is intended to promote
competition by ensuring that necessary trade protections are available
on the Exchange, and by avoiding unnecessary protections that would
preclude executions, enabling MIAX Options participants to execute more
complex orders on the Exchange. The Exchange believes that this
enhances inter-market competition by enabling MIAX Options to compete
for this type of order flow with other exchanges that have similar
functionalities in place.
The Exchange further believes that enhancing the trade protections
promotes intra-market competition by protecting new order types through
which competing MIAX Options participants may submit complex orders
into the System. Furthermore, the price protections and limitations on
simultaneous auctions described in this proposal are available, and
apply equally, to all market participants, resulting in an even playing
field on the Exchange with respect to available trade and price
protections on the Exchange. This should result in enhanced liquidity
and more competition on the Exchange.
Additionally, the Exchange believes that the proposed limitation on
simultaneous auctions involving the same options should encourage
participants to submit more PRIME and cPRIME Agency Orders to the
Exchange, thus increasing the number of such orders, and responses to
those orders on the Exchange, which should enhance the Exchange's
position with respect to inter-market competition.
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.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the 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 from the date on which it was filed, or such shorter time as the
Commission may designate, it has become effective pursuant to Section
19(b)(3)(A) of the Act \32\ and Rule 19b-4(f)(6) thereunder.\33\
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\32\ 15 U.S.C. 78s(b)(3)(A).
\33\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of 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.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \34\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \35\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay so that
the proposed trade and price protections will be operative at the
commencement of trading in the new crossing and cPRIME order types on
the Exchange.\36\ The Exchange believes that the trade and price
protections proposed for the new order types are indispensable tools
for participants in managing their risk levels, and that a waiver of
the operative delay will ensure the protection of investors and the
public interest, consistent with the Act. The Commission believes the
waiver of the operative delay is consistent with the protection of
investors and the public interest to assure that the Risk Protection
Monitor provisions and the price and other protections in MIAX Rule
518, Interpretation and Policy .05, except as otherwise provided
therein, will apply to the new cPRIME Orders, cC2C Orders, and cQCC
Orders at the time these orders begin trading on MIAX.\37\ As noted
above, MIAX states that the trade and price protections are
indispensable tools for participants to manage their risk tolerance
levels. Therefore, the Commission hereby waives the operative delay and
designates the proposed rule change operative upon filing.\38\
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\34\ 17 CFR 240.19b-4(f)(6).
\35\ 17 CFR 240.19b-4(f)(6)(iii).
\36\ See supra note 6.
\37\ See id. The Commission notes that the proposal also
provides that the ixABBO Price Protection and the wide market
condition provisions in MIAX Rule 518, Interpretation and Policy
.05, and the cMOM Price Protection feature in MIAX Rule 518,
Interpretation and Policy .06, will not apply to cPRIME, cC2C, and
cQCC Orders because, as described more fully above, cPRIME, cC2C,
and cQCC Orders are submitted as paired orders and are guaranteed
executions.
\38\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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
[[Page 36030]]
to determine whether the proposed rule change 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-2017-34 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-2017-34. 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-2017-34 and should be
submitted on or before August 23, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
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\39\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-16209 Filed 8-1-17; 8:45 am]
BILLING CODE 8011-01-P
