Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 521, Nullification and Adjustment of Options Transactions Including Obvious Errors, Interpretation and Policy .01, and Exchange Rule 530, Limit Up-Limit Down, 57072-57076 [2019-23156]

Download as PDF 57072 Federal Register / Vol. 84, No. 206 / Thursday, October 24, 2019 / Notices consider enhancements to the MWCB processes such as modifications to the Level 3 process. Further, the Exchange understands that FINRA and other national securities exchanges have filed or will file proposals to extend their rules regarding the MWCB pilot. Thus, the proposed rule change will help to ensure consistency across market centers without implicating any competitive issues. Additionally, the clarity to be provided by re-designating paragraph (e) as a separate rule implementing the LULD provisions, and paragraphs (g) and (h) as a separate rule providing the authority under which the Exchange can initiate a trading halt ‘‘in circumstances in which LTSE deems it necessary to protect investors and the public interest,’’ and the procedures by which LTSE can both initiate and terminate a trading halt, would not have an impact on 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 The Exchange has designated this rule filing as non-controversial under Section 19(b)(3)(A) 9 of the Act and Rule 19b–4(f)(6) 10 thereunder. 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 and Rule 19b– 4(f)(6) thereunder.11 A proposed rule change filed under Rule 19b–4(f)(6) 12 normally does not become operative for 30 days after the date of filing. However, pursuant to Rule 19b–4(f)(6)(iii),13 the Commission may designate a shorter time if such action is consistent with the protection 9 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 11 In addition, Rule 19b–4(f)(6)(iii) requires the Exchange to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the filing of the proposed rule change, or such shorter time as designated by the Commission. The Commission has waived this requirement. 12 Id. 13 17 CFR 240.19b–4(f)(6)(iii). khammond on DSKJM1Z7X2PROD with NOTICES 10 17 VerDate Sep<11>2014 17:34 Oct 23, 2019 Jkt 250001 of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative upon filing. Extending the pilot for an additional year will allow the uninterrupted operation of the existing pilot to halt trading across the U.S. markets. Therefore, the Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. The Commission hereby designates the proposed rule change to be operative upon filing.14 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule change should be approved or disapproved. 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 website 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. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–LTSE–2019–03 and should be submitted on or before November 14, 2019. 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: For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 Eduardo A. Aleman, Deputy Secretary. 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– LTSE–2019–03 on the subject line. SECURITIES AND EXCHANGE COMMISSION 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–LTSE–2019–03. 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 website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written 14 For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 [FR Doc. 2019–23160 Filed 10–23–19; 8:45 am] BILLING CODE 8011–01–P [Release No. 34–87361; File No. SR–MIAX– 2019–44] Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 521, Nullification and Adjustment of Options Transactions Including Obvious Errors, Interpretation and Policy .01, and Exchange Rule 530, Limit Up-Limit Down October 18, 2019. 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 October 16, 2019, Miami International Securities Exchange, LLC (‘‘MIAX Options’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change as described in 15 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\24OCN1.SGM 24OCN1 Federal Register / Vol. 84, No. 206 / Thursday, October 24, 2019 / Notices Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing a proposal to amend Exchange Rule 521, Nullification and Adjustment of Options Transactions Including Obvious Errors, Interpretation and Policy .01, and Exchange Rule 530, Limit Up-Limit Down, to make permanent certain options market rules that are linked to the equity market Plan to Address Extraordinary Market Volatility. The text of the proposed rule change is available on the Exchange’s website at https://www.miaxoptions.com/rulefilings/ at MIAX Options’ 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. khammond on DSKJM1Z7X2PROD with NOTICES A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to make permanent certain options market rules in connection with the equity market Plan to Address Extraordinary Market Volatility (the ‘‘Limit Up-Limit Down Plan’’ or the ‘‘Plan’’). This change is being proposed in connection with the recently approved amendment to the Limit UpLimit Down Plan that allows the Plan to continue to operate on a permanent basis (‘‘Amendment 18’’).3 In an attempt to address extraordinary market volatility in NMS Stock, and, in particular, events like the severe volatility on May 6, 2010, U.S. national securities exchanges and the Financial 3 See Securities Exchange Act Release No. 85623 (April 11, 2019), 84 FR 16086 (April 17, 2019) (Order Approving Amendment No. 18). VerDate Sep<11>2014 17:34 Oct 23, 2019 Jkt 250001 Industry Regulatory Authority, Inc. (collectively, ‘‘Participants’’) drafted the Plan pursuant to Rule 608 of Regulation NMS and under the Act.4 On May 31, 2012, the Commission approved the Plan, as amended, on a one-year pilot basis.5 Though the Plan was primarily designed for equity markets, the Exchange believed it would, indirectly, potentially impact the options markets as well. Thus, the Exchange has previously adopted and amended Exchange Rule 521, Interpretation and Policy .01, and Exchange Rule 530, to ensure the option markets were not harmed as a result of the Plan’s implementation and implemented such rules on a pilot basis that has coincided with the pilot period for the Plan (collectively, the ‘‘Options Pilots’’).6 Exchange Rule 530 essentially serves as a roadmap for the Exchange’s universal changes due to the implementation of the Plan and provides for trading halts whenever a market-wide trading halt is initiated due to extraordinary market conditions pursuant to the Plan. Exchange Rule 521, Interpretation and Policy .01, provides that transactions executed during a limit or straddle state are not subject to the obvious and catastrophic error rules. A limit or straddle state occurs when at least one side of the National Best Bid (‘‘NBB’’) or Offer (‘‘NBO’’) bid/ask is priced at a non-tradable level. Specifically, a straddle state exists when the NBB is below the lower price band while the NBO is inside the price band or when the NBO is above the upper price band and the NBB is within the band, while a limit state occurs when the NBO equals the lower price band (without crossing the NBB), or the NBB equals the upper price band (without crossing the NBO). The Exchange adopted the Options Pilots to protect investors because when an underlying security is in a limit or straddle state, there will not be a reliable price for the security to serve as 4 See Securities Exchange Act Release No. 64547 (May 25, 2011), 76 FR 31647 (June 1, 2011) (File No. 4–631). 5 See Securities and Exchange Act Release No. 67091 (May 31, 2012) 77 FR 33498 (June 6, 2012). 6 See Securities Exchange Act Release Nos. 69181 (March 19, 2013), 78 FR 18403 (March 26, 2013) (SR–MIAX–2013–07); 69342 (April 8, 2013), 78 FR 22017 (April 12, 2013) (SR–MIAX–2013–12); 69354 (April 9, 2013), 78 FR 22357 (April 15, 2013) (SR– MIAX–2013–15); 69997 (July 17, 2013), 78 FR 44180 (July 23, 2013) (SR–MIAX–2013–33); 71881 (April 4, 2014), 79 FR 19956 (April 10, 2014) (SR– MIAX–2014–14); 74307 (February 19, 2015), 80 FR 10196 (February 25, 2015) (SR–MIAX–2015–11); 74918 (May 8, 2015), 80 FR 27781 (May 14, 2015) (SR–MIAX–2015–25); 76237 (October 22, 2015), 80 FR 66100 (October 28, 2015) (SR–MIAX–2015–60); 81321 (August 7, 2017), 82 FR 37633 (August 11, 2017) (SR–MIAX–2017–38); 85567 (April 9, 2019), 84 FR 15245 (April 15, 2019) (SR–MIAX–2019–19). PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 57073 a benchmark for the price of the option. Specifically, the Exchange adopted Exchange Rule 521, Interpretation and Policy .01, because the application of the obvious and catastrophic error rules would be impracticable given the potential for lack of a reliable NBBO in the options market during limit and straddle states. When adjusting or busting a trade pursuant to the obvious error rule, the determination of theoretical value of a trade generally references the NBB (for erroneous sell transactions) or NBO (for erroneous buy transactions) just prior to the trade in question, and is therefore not reliable when at least one side of the NBBO is priced at a non-tradeable level, as is the case in limit and straddle states. In such a situation, determining theoretical value may often times be a very subjective rather than an objective determination and could give rise to additional uncertainty and confusion for investors. As a result, application of the obvious and catastrophic error rules would be impracticable given the lack of a reliable NBBO in the options market during limit and straddle states, and may produce undesirable effects or unanticipated consequences. The Exchange adopted additional measures via other Options Pilot rules that are designed to protect investors during limit and straddle states. For example, the Exchange will reject market orders and not elect stop orders 7 during a Limit Up-Limit Down state to ensure that only those orders with a limit price will be executed during a limit or straddle state given the uncertainty of market prices during such a state. Furthermore, the Exchange believes that eliminating the application of obvious error rules during a limit or straddle state eliminates the reevaluation of a transaction executed during such a state that could potentially create an unreasonable adverse selection opportunity due to lack of a reliable reference price on one side of the market or another and discourage participants from providing liquidity during limit and straddle states, which is contrary to the goal in limiting participants’ adverse selection with the application of the obvious error rule during normal trading states. For these reasons, the Exchange believes the Options Pilots are designed to add 7 This includes rules in connection with special handling for market orders, market-on-close orders, stop orders, and stock-option orders, as well as for certain electronic order handling features in a Limit Up-Limit Down state, the obvious error rules, and providing that the Exchange will not require Market-Makers to quote in series of options when the underlying security is in a Limit Up-Limit Down state. E:\FR\FM\24OCN1.SGM 24OCN1 khammond on DSKJM1Z7X2PROD with NOTICES 57074 Federal Register / Vol. 84, No. 206 / Thursday, October 24, 2019 / Notices certainty on the options markets, which encourages more investors to participate in light of the changes associated with the Plan. The Plan was originally implemented on a pilot-basis in order to allow the public, the participating exchanges, and the Commission to assess the operation of the Plan and whether the Plan should be modified prior to approval on a permanent basis. As stated, the Exchange adopted the Option Pilots to coincide with this pilot; to continue the protections therein while the industry gains further experience operating the Plan. In connection with the order approving the establishment of the obvious error pilot, as well as the extensions of the obvious error pilot, the Exchange committed to submit monthly data regarding the program and to submit an overall analysis of the obvious error pilot in conjunction with the data submitted under the Plan and any other data as requested by the Commission. Pursuant to a rule filing, approved on April 8, 2013, each month, the Exchange committed to provide the Commission, and the public, a dataset containing the data for each straddle and limit state in optionable stocks that had at least one trade on the Exchange.8 The Exchange has continued to provide the Commission with this data on a monthly basis since April 2013. For each trade on the Exchange, the Exchange provides (a) the stock symbol, option symbol, time at the start of the straddle or limit state, an indicator for whether it is a straddle or limit state, and (b) for the trades on the Exchange, the executed volume, time-weighted quoted bid-ask spread, time-weighted average quoted depth at the bid, timeweighted average quoted depth at the offer, high execution price, low execution price, number of trades for which a request for review for error was received during straddle and limit states, an indicator variable for whether those options outlined above have a price change exceeding 30% during the underlying stock’s limit or straddle state compared to the last available option price as reported by OPRA before the start of the limit or straddle state. In addition, to help evaluate the impact of the pilot program, the Exchange has provided to the Commission, and the public, assessments relating to the impact of the operation of the obvious error rules during limit and straddle states including: (1) An evaluation of 8 See Securities Exchange Act Release No. 69342 (April 8, 2013), 78 FR 22017 (April 12, 2013) (SR– MIAX–2013–12); see also MIAX Options, LULD Pilot Reports, available at https:// www.miaxoptions.com/pilot-reports. VerDate Sep<11>2014 17:34 Oct 23, 2019 Jkt 250001 the statistical and economic impact of limit and straddle states on liquidity and market quality in the options markets, and (2) an assessment of whether the lack of obvious error rules in effect during the straddle and limit states are problematic. The Exchange has concluded that the Options Pilots do not negatively impact market quality during normal market conditions,9 and that there has been insufficient data to assess whether a lack of obvious error rules is problematic; however, the Exchange believes the continuation of Exchange Rule 521, Interpretation and Policy .01, functions to protect against any unanticipated consequences in the options markets during a limit or straddle state and add certainty on the options markets. The Commission recently approved the Plan on a permanent basis (Amendment 18).10 In connection with this approval, the Exchange now proposes to amend Exchange Rule 521, Interpretation and Policy .01, and Exchange Rule 530 that currently implement the provisions of the Plan on a pilot basis to eliminate the pilot basis, which effectiveness expires on October 18, 2019, and to make such rules permanent. In its approval order to make the Plan permanent, the Commission recognized that, as a result of the Participants’ and industry analysis of the Plan’s operation, the Limit Up-Limit Down mechanism effectively addresses extraordinary market volatility. Indeed, the Plan benefits markets and market participants by helping to ensure orderly markets, but also, the Exchange believes, based on the data made available to the public and the Commission during the pilot period, that the obvious error pilot does not negatively impact market quality during normal market conditions.11 Rather, the Exchange believes the obvious error pilot functions to protect against any unanticipated consequences in the options markets during a limit or straddle state and add certainty on the options markets. The Exchange also believes the other Options Pilots rules provide additional measures designed to protect investors during limit and straddle states. For example, the Exchange will reject market orders and not elect stop orders 12 during a Limit Up-Limit Down state to ensure that only those orders with a limit price will be executed during a limit or straddle state given the uncertainty of market prices during such a state. This removes impediments to and perfects the mechanism of a free and open market and national market system by encouraging more investors to participate in light of the changes associated with the Plan. The Exchange believes that if approved on a permanent basis, the Options Pilots would permanently provide investors with the above-described additional certainty of market prices and mitigation of unanticipated consequences and unreasonable adverse selection risk during limit and straddle states. The Exchange understands that the other national securities exchanges will also file similar proposals to make permanent their respective pilot programs. Since the Commission’s approval of Amendment 18 allowing the Plan to operate on a permanent basis, the Exchange and other national securities exchanges have determined that no further amendments should be made to the Options Pilots; 13 the current Options Pilots effectively address extraordinary market volatility, are reasonably designed to comply with the requirements of the Plan, facilitate compliance with the Plan and should now operate on a permanent basis, consistent with the Plan. The Exchange does not propose any substantive or additional changes to Exchange Rule 521, Interpretation and Policy .01, or Exchange Rule 530. The Exchange also proposes to amend Exchange Rule 530 to remove the following sentence from the first paragraph: ‘‘The Exchange will provide the Commission with data and analysis during the duration of this pilot as requested.’’ The purpose of this proposed change is to further align the Exchange’s Limit Up-Limit Down rules with competing options exchanges that have proposed rules consistent with this proposal. For example, Cboe Exchange, Inc. (‘‘Cboe’’) removed a similar provision in a 2015 rule filing 14 and continued to provide the Commission, and the public, each month with a 12 See 9 See also MIAX Options, LULD Pilot Reports, available at https://www.miaxoptions.com/pilotreports. During the most recent Review Period the Exchange did not receive any obvious error review requests for Limit-Up-Limit Down trades, and Limit Up-Limit Down trade volume accounted for nominal overall trade volume. 10 See supra note 3. 11 See supra note 9. PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 supra note 7. Securities Exchange Act Release No. 85567 (April 9, 2019), 84 FR 15245 (April 15, 2019) (SR– MIAX–2019–19). 14 See Securities Exchange Act Release No. 74898 (May 7, 2015), 80 FR 27354 (May 13, 2015(SR– CBOE–2015–039) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Nullification and Adjustment of Options Transactions Including Obvious Errors). 13 See E:\FR\FM\24OCN1.SGM 24OCN1 Federal Register / Vol. 84, No. 206 / Thursday, October 24, 2019 / Notices dataset containing the data for each straddle and limit state in optionable stocks that had at least one trade on the Exchange. Additionally, the proposed changes would align the Exchange’s rules with the similar rule by Cboe.15 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.16 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 17 requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. Additionally, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 18 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. In particular, the Exchange believes that the proposed rule changes support the objectives of perfecting the mechanism of a free and open market and the national market system because they promote transparency and uniformity across markets concerning rules for options markets adopted to coincide with the Plan. The Exchange believes that eliminating the pilot basis for the Options Pilots and making such rules permanent facilitates compliance with the Plan by adding certainty to the markets during periods of market volatility, which has been approved and found by the Commission to be reasonably designed to prevent potentially harmful price volatility in NMS Stocks. It has been determined by the Commission that the Plan benefits markets and market participants by helping to ensure orderly markets, and, khammond on DSKJM1Z7X2PROD with NOTICES 15 See Securities Exchange Act Release No. 87311 (October 15, 2019) (SR–CBOE–2019–049) (Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, to Make Permanent Certain Options Market Rules That Are Linked to the Equity Market Plan to Address Extraordinary Market Volatility). 16 15 U.S.C. 78f(b). 17 15 U.S.C. 78f(b)(5). 18 Id. VerDate Sep<11>2014 17:34 Oct 23, 2019 Jkt 250001 based on the data made available to the public and the Commission during the pilot period for Exchange Rule 521, Interpretation and Policy .01, the Plan does not negatively impact options market quality during normal market conditions. Rather, the Plan, as it is implemented under the obvious error pilot, functions to protect against any unanticipated consequences in the options markets during a limit or straddle state and add certainty on the options markets. During a limit or straddle state, determining theoretical value of an option may be a subjective rather than an objective determination given the lack of a reliable NBBO, which may create an unreasonable adverse selection opportunity and discourage participants from providing liquidity during limit and straddle states. Therefore, the Exchange believes eliminating obvious error review in such states would, in turn, eliminate uncertainty and confusion for investors and benefit investors by encouraging more participation in light of the changes associated with the Plan. As stated, the Exchange believes the other Options Pilots rules provide additional measures designed to protect investors during limit and straddle states. For example, the Exchange will reject market orders and not elect stop orders 19 during a Limit Up-Limit Down state to ensure that only those orders with a limit price will be executed during a limit or straddle state given the uncertainty of market prices during such a state. Accordingly, the Exchange believes that making the Options Pilots permanent will further the goals of investor protection and fair and orderly markets as the rules effectively address extraordinary market volatility pursuant to the Plan. Further, the Exchange believes that the proposed rule change to remove text in the first paragraph of Exchange Rule 530 regarding the Exchange providing the Commission with data and analysis during the duration of the pilot as requested supports the objectives of perfecting the mechanism of a free and open market and the national market system because it furthers aligns the Exchange’s Limit Up-Limit Down rules with competing options exchanges.20 B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The 19 See 20 See PO 00000 supra note 7. supra note 14. Frm 00077 Fmt 4703 Sfmt 4703 57075 proposed rule change is necessary to reflect that the Plan no longer operates as a pilot and has been approved to operate on a permanent basis by the Commission. As such, Exchange Rule 521, Interpretation and Policy .01 and Exchange Rule 530, which implement protections in connection with the Plan, should be amended to operate on a permanent basis. The Exchange understands that the other national securities exchanges will also file similar proposals to make permanent their respective pilot programs. Thus, the proposed rule change will help to ensure consistency across market centers without implicating any competitive issues. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days 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)(iii) of the Act 21 and subparagraph (f)(6) of Rule 19b–4 thereunder.22 A proposed rule change filed under Rule 19b–4(f)(6) 23 normally does not become operative prior to 30 days after the date of the filing. However, Rule 19b–4(f)(6)(iii) 24 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 rule change may become effective and operative immediately upon filing. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest, as it will allow the 21 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and 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. The Exchange has satisfied this requirement. 23 17 CFR 240.19b–4(f)(6). 24 17 CFR 240.19b–4(f)(6)(iii). 22 17 E:\FR\FM\24OCN1.SGM 24OCN1 khammond on DSKJM1Z7X2PROD with NOTICES 57076 Federal Register / Vol. 84, No. 206 / Thursday, October 24, 2019 / Notices current Options Pilots to continue on a permanent basis without any changes, prior to the pilot expiration on October 18, 2019. For this reason, the Commission hereby waives the 30-day operative delay and designates the proposed rule change as operative upon filing.25 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: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. provisions of 5 U.S.C. 552, will be available for website 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. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–MIAX–2019–44 and should be submitted on or before November 14, 2019. 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: For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 Eduardo A. Aleman, Deputy Secretary. 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–2019–44 on the subject line. SECURITIES AND EXCHANGE COMMISSION Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–MIAX–2019–44. 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 website (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 25 For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). VerDate Sep<11>2014 17:34 Oct 23, 2019 Jkt 250001 [FR Doc. 2019–23156 Filed 10–23–19; 8:45 am] BILLING CODE 8011–01–P [Release No. 34–87344; File No. SR–FINRA– 2019–025] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Extend the Pilot Program Related to FINRA Rule 11892 (Clearly Erroneous Transactions in Exchange-Listed Securities) October 18, 2019. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on October 10, 2019, Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by FINRA. 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 FINRA is proposing to extend the current pilot program related to FINRA 26 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 Rule 11892 (Clearly Erroneous Transactions in Exchange-Listed Securities) (‘‘Clearly Erroneous Transaction Pilot’’ or ‘‘Pilot’’) until April 20, 2020. The text of the proposed rule change is available on FINRA’s website at https://www.finra.org, at the principal office of FINRA 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, FINRA 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. FINRA 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 FINRA is proposing a rule change to extend the current pilot program related to FINRA Rule 11892 governing clearly erroneous transactions in exchangelisted securities until the close of business on April 20, 2020. Extending the Pilot would provide FINRA and the national securities exchanges additional time to consider a permanent proposal for clearly erroneous transaction reviews. On September 10, 2010, the Commission approved, on a pilot basis, changes to FINRA Rule 11892 that, among other things: (i) Provided for uniform treatment of clearly erroneous transaction reviews in multistock events involving twenty or more securities; and (ii) reduced the ability of FINRA to deviate from the objective standards set forth in the rule.3 In 2013, FINRA adopted a provision designed to address the operation of the Plan to Address Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS (‘‘Plan’’).4 Finally, in 2014, FINRA adopted two additional provisions addressing (i) erroneous transactions that occur over one or more trading days 3 See Securities Exchange Act Release No. 62885 (September 10, 2010), 75 FR 56641 (September 16, 2010) (Order Approving File No. SR–FINRA–2010– 032). 4 See Securities Exchange Act Release No. 68808 (February 1, 2013), 78 FR 9083 (February 7, 2013) (Notice of Filing and Immediate Effectiveness of File No. SR–FINRA–2013–012). E:\FR\FM\24OCN1.SGM 24OCN1

Agencies

[Federal Register Volume 84, Number 206 (Thursday, October 24, 2019)]
[Notices]
[Pages 57072-57076]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23156]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87361; File No. SR-MIAX-2019-44]


Self-Regulatory Organizations; Miami International Securities 
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Exchange Rule 521, Nullification and 
Adjustment of Options Transactions Including Obvious Errors, 
Interpretation and Policy .01, and Exchange Rule 530, Limit Up-Limit 
Down

October 18, 2019.
    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 October 16, 2019, Miami International 
Securities Exchange, LLC (``MIAX Options'' or the ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change as described in

[[Page 57073]]

Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend Exchange Rule 521, 
Nullification and Adjustment of Options Transactions Including Obvious 
Errors, Interpretation and Policy .01, and Exchange Rule 530, Limit Up-
Limit Down, to make permanent certain options market rules that are 
linked to the equity market Plan to Address Extraordinary Market 
Volatility.
    The text of the proposed rule change is available on the Exchange's 
website at https://www.miaxoptions.com/rule-filings/ at MIAX Options' 
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 purpose of the proposed rule change is to make permanent 
certain options market rules in connection with the equity market Plan 
to Address Extraordinary Market Volatility (the ``Limit Up-Limit Down 
Plan'' or the ``Plan''). This change is being proposed in connection 
with the recently approved amendment to the Limit Up-Limit Down Plan 
that allows the Plan to continue to operate on a permanent basis 
(``Amendment 18'').\3\
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    \3\ See Securities Exchange Act Release No. 85623 (April 11, 
2019), 84 FR 16086 (April 17, 2019) (Order Approving Amendment No. 
18).
---------------------------------------------------------------------------

    In an attempt to address extraordinary market volatility in NMS 
Stock, and, in particular, events like the severe volatility on May 6, 
2010, U.S. national securities exchanges and the Financial Industry 
Regulatory Authority, Inc. (collectively, ``Participants'') drafted the 
Plan pursuant to Rule 608 of Regulation NMS and under the Act.\4\ On 
May 31, 2012, the Commission approved the Plan, as amended, on a one-
year pilot basis.\5\ Though the Plan was primarily designed for equity 
markets, the Exchange believed it would, indirectly, potentially impact 
the options markets as well. Thus, the Exchange has previously adopted 
and amended Exchange Rule 521, Interpretation and Policy .01, and 
Exchange Rule 530, to ensure the option markets were not harmed as a 
result of the Plan's implementation and implemented such rules on a 
pilot basis that has coincided with the pilot period for the Plan 
(collectively, the ``Options Pilots'').\6\ Exchange Rule 530 
essentially serves as a roadmap for the Exchange's universal changes 
due to the implementation of the Plan and provides for trading halts 
whenever a market-wide trading halt is initiated due to extraordinary 
market conditions pursuant to the Plan. Exchange Rule 521, 
Interpretation and Policy .01, provides that transactions executed 
during a limit or straddle state are not subject to the obvious and 
catastrophic error rules. A limit or straddle state occurs when at 
least one side of the National Best Bid (``NBB'') or Offer (``NBO'') 
bid/ask is priced at a non-tradable level. Specifically, a straddle 
state exists when the NBB is below the lower price band while the NBO 
is inside the price band or when the NBO is above the upper price band 
and the NBB is within the band, while a limit state occurs when the NBO 
equals the lower price band (without crossing the NBB), or the NBB 
equals the upper price band (without crossing the NBO).
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 64547 (May 25, 
2011), 76 FR 31647 (June 1, 2011) (File No. 4-631).
    \5\ See Securities and Exchange Act Release No. 67091 (May 31, 
2012) 77 FR 33498 (June 6, 2012).
    \6\ See Securities Exchange Act Release Nos. 69181 (March 19, 
2013), 78 FR 18403 (March 26, 2013) (SR-MIAX-2013-07); 69342 (April 
8, 2013), 78 FR 22017 (April 12, 2013) (SR-MIAX-2013-12); 69354 
(April 9, 2013), 78 FR 22357 (April 15, 2013) (SR-MIAX-2013-15); 
69997 (July 17, 2013), 78 FR 44180 (July 23, 2013) (SR-MIAX-2013-
33); 71881 (April 4, 2014), 79 FR 19956 (April 10, 2014) (SR-MIAX-
2014-14); 74307 (February 19, 2015), 80 FR 10196 (February 25, 2015) 
(SR-MIAX-2015-11); 74918 (May 8, 2015), 80 FR 27781 (May 14, 2015) 
(SR-MIAX-2015-25); 76237 (October 22, 2015), 80 FR 66100 (October 
28, 2015) (SR-MIAX-2015-60); 81321 (August 7, 2017), 82 FR 37633 
(August 11, 2017) (SR-MIAX-2017-38); 85567 (April 9, 2019), 84 FR 
15245 (April 15, 2019) (SR-MIAX-2019-19).
---------------------------------------------------------------------------

    The Exchange adopted the Options Pilots to protect investors 
because when an underlying security is in a limit or straddle state, 
there will not be a reliable price for the security to serve as a 
benchmark for the price of the option. Specifically, the Exchange 
adopted Exchange Rule 521, Interpretation and Policy .01, because the 
application of the obvious and catastrophic error rules would be 
impracticable given the potential for lack of a reliable NBBO in the 
options market during limit and straddle states. When adjusting or 
busting a trade pursuant to the obvious error rule, the determination 
of theoretical value of a trade generally references the NBB (for 
erroneous sell transactions) or NBO (for erroneous buy transactions) 
just prior to the trade in question, and is therefore not reliable when 
at least one side of the NBBO is priced at a non-tradeable level, as is 
the case in limit and straddle states. In such a situation, determining 
theoretical value may often times be a very subjective rather than an 
objective determination and could give rise to additional uncertainty 
and confusion for investors. As a result, application of the obvious 
and catastrophic error rules would be impracticable given the lack of a 
reliable NBBO in the options market during limit and straddle states, 
and may produce undesirable effects or unanticipated consequences.
    The Exchange adopted additional measures via other Options Pilot 
rules that are designed to protect investors during limit and straddle 
states. For example, the Exchange will reject market orders and not 
elect stop orders \7\ during a Limit Up-Limit Down state to ensure that 
only those orders with a limit price will be executed during a limit or 
straddle state given the uncertainty of market prices during such a 
state. Furthermore, the Exchange believes that eliminating the 
application of obvious error rules during a limit or straddle state 
eliminates the re-evaluation of a transaction executed during such a 
state that could potentially create an unreasonable adverse selection 
opportunity due to lack of a reliable reference price on one side of 
the market or another and discourage participants from providing 
liquidity during limit and straddle states, which is contrary to the 
goal in limiting participants' adverse selection with the application 
of the obvious error rule during normal trading states. For these 
reasons, the Exchange believes the Options Pilots are designed to add

[[Page 57074]]

certainty on the options markets, which encourages more investors to 
participate in light of the changes associated with the Plan. The Plan 
was originally implemented on a pilot-basis in order to allow the 
public, the participating exchanges, and the Commission to assess the 
operation of the Plan and whether the Plan should be modified prior to 
approval on a permanent basis. As stated, the Exchange adopted the 
Option Pilots to coincide with this pilot; to continue the protections 
therein while the industry gains further experience operating the Plan.
---------------------------------------------------------------------------

    \7\ This includes rules in connection with special handling for 
market orders, market-on-close orders, stop orders, and stock-option 
orders, as well as for certain electronic order handling features in 
a Limit Up-Limit Down state, the obvious error rules, and providing 
that the Exchange will not require Market-Makers to quote in series 
of options when the underlying security is in a Limit Up-Limit Down 
state.
---------------------------------------------------------------------------

    In connection with the order approving the establishment of the 
obvious error pilot, as well as the extensions of the obvious error 
pilot, the Exchange committed to submit monthly data regarding the 
program and to submit an overall analysis of the obvious error pilot in 
conjunction with the data submitted under the Plan and any other data 
as requested by the Commission. Pursuant to a rule filing, approved on 
April 8, 2013, each month, the Exchange committed to provide the 
Commission, and the public, a dataset containing the data for each 
straddle and limit state in optionable stocks that had at least one 
trade on the Exchange.\8\ The Exchange has continued to provide the 
Commission with this data on a monthly basis since April 2013. For each 
trade on the Exchange, the Exchange provides (a) the stock symbol, 
option symbol, time at the start of the straddle or limit state, an 
indicator for whether it is a straddle or limit state, and (b) for the 
trades on the Exchange, the executed volume, time-weighted quoted bid-
ask spread, time-weighted average quoted depth at the bid, time-
weighted average quoted depth at the offer, high execution price, low 
execution price, number of trades for which a request for review for 
error was received during straddle and limit states, an indicator 
variable for whether those options outlined above have a price change 
exceeding 30% during the underlying stock's limit or straddle state 
compared to the last available option price as reported by OPRA before 
the start of the limit or straddle state. In addition, to help evaluate 
the impact of the pilot program, the Exchange has provided to the 
Commission, and the public, assessments relating to the impact of the 
operation of the obvious error rules during limit and straddle states 
including: (1) An evaluation of the statistical and economic impact of 
limit and straddle states on liquidity and market quality in the 
options markets, and (2) an assessment of whether the lack of obvious 
error rules in effect during the straddle and limit states are 
problematic. The Exchange has concluded that the Options Pilots do not 
negatively impact market quality during normal market conditions,\9\ 
and that there has been insufficient data to assess whether a lack of 
obvious error rules is problematic; however, the Exchange believes the 
continuation of Exchange Rule 521, Interpretation and Policy .01, 
functions to protect against any unanticipated consequences in the 
options markets during a limit or straddle state and add certainty on 
the options markets.
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 69342 (April 8, 
2013), 78 FR 22017 (April 12, 2013) (SR-MIAX-2013-12); see also MIAX 
Options, LULD Pilot Reports, available at https://www.miaxoptions.com/pilot-reports.
    \9\ See also MIAX Options, LULD Pilot Reports, available at 
https://www.miaxoptions.com/pilot-reports. During the most recent 
Review Period the Exchange did not receive any obvious error review 
requests for Limit-Up-Limit Down trades, and Limit Up-Limit Down 
trade volume accounted for nominal overall trade volume.
---------------------------------------------------------------------------

    The Commission recently approved the Plan on a permanent basis 
(Amendment 18).\10\ In connection with this approval, the Exchange now 
proposes to amend Exchange Rule 521, Interpretation and Policy .01, and 
Exchange Rule 530 that currently implement the provisions of the Plan 
on a pilot basis to eliminate the pilot basis, which effectiveness 
expires on October 18, 2019, and to make such rules permanent. In its 
approval order to make the Plan permanent, the Commission recognized 
that, as a result of the Participants' and industry analysis of the 
Plan's operation, the Limit Up-Limit Down mechanism effectively 
addresses extraordinary market volatility. Indeed, the Plan benefits 
markets and market participants by helping to ensure orderly markets, 
but also, the Exchange believes, based on the data made available to 
the public and the Commission during the pilot period, that the obvious 
error pilot does not negatively impact market quality during normal 
market conditions.\11\ Rather, the Exchange believes the obvious error 
pilot functions to protect against any unanticipated consequences in 
the options markets during a limit or straddle state and add certainty 
on the options markets. The Exchange also believes the other Options 
Pilots rules provide additional measures designed to protect investors 
during limit and straddle states. For example, the Exchange will reject 
market orders and not elect stop orders \12\ during a Limit Up-Limit 
Down state to ensure that only those orders with a limit price will be 
executed during a limit or straddle state given the uncertainty of 
market prices during such a state. This removes impediments to and 
perfects the mechanism of a free and open market and national market 
system by encouraging more investors to participate in light of the 
changes associated with the Plan. The Exchange believes that if 
approved on a permanent basis, the Options Pilots would permanently 
provide investors with the above-described additional certainty of 
market prices and mitigation of unanticipated consequences and 
unreasonable adverse selection risk during limit and straddle states.
---------------------------------------------------------------------------

    \10\ See supra note 3.
    \11\ See supra note 9.
    \12\ See supra note 7.
---------------------------------------------------------------------------

    The Exchange understands that the other national securities 
exchanges will also file similar proposals to make permanent their 
respective pilot programs. Since the Commission's approval of Amendment 
18 allowing the Plan to operate on a permanent basis, the Exchange and 
other national securities exchanges have determined that no further 
amendments should be made to the Options Pilots; \13\ the current 
Options Pilots effectively address extraordinary market volatility, are 
reasonably designed to comply with the requirements of the Plan, 
facilitate compliance with the Plan and should now operate on a 
permanent basis, consistent with the Plan. The Exchange does not 
propose any substantive or additional changes to Exchange Rule 521, 
Interpretation and Policy .01, or Exchange Rule 530.
---------------------------------------------------------------------------

    \13\ See Securities Exchange Act Release No. 85567 (April 9, 
2019), 84 FR 15245 (April 15, 2019) (SR-MIAX-2019-19).
---------------------------------------------------------------------------

    The Exchange also proposes to amend Exchange Rule 530 to remove the 
following sentence from the first paragraph: ``The Exchange will 
provide the Commission with data and analysis during the duration of 
this pilot as requested.'' The purpose of this proposed change is to 
further align the Exchange's Limit Up-Limit Down rules with competing 
options exchanges that have proposed rules consistent with this 
proposal. For example, Cboe Exchange, Inc. (``Cboe'') removed a similar 
provision in a 2015 rule filing \14\ and continued to provide the 
Commission, and the public, each month with a

[[Page 57075]]

dataset containing the data for each straddle and limit state in 
optionable stocks that had at least one trade on the Exchange.
---------------------------------------------------------------------------

    \14\ See Securities Exchange Act Release No. 74898 (May 7, 
2015), 80 FR 27354 (May 13, 2015(SR-CBOE-2015-039) (Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change Relating to 
Nullification and Adjustment of Options Transactions Including 
Obvious Errors).
---------------------------------------------------------------------------

    Additionally, the proposed changes would align the Exchange's rules 
with the similar rule by Cboe.\15\
---------------------------------------------------------------------------

    \15\ See Securities Exchange Act Release No. 87311 (October 15, 
2019) (SR-CBOE-2019-049) (Notice of Filing of Amendment No. 2 and 
Order Granting Accelerated Approval of a Proposed Rule Change, as 
Modified by Amendment Nos. 1 and 2, to Make Permanent Certain 
Options Market Rules That Are Linked to the Equity Market Plan to 
Address Extraordinary Market Volatility).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\16\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \17\ requirements that the rules 
of an exchange be designed to prevent fraudulent and manipulative acts 
and practices, to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \18\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes that the proposed rule changes 
support the objectives of perfecting the mechanism of a free and open 
market and the national market system because they promote transparency 
and uniformity across markets concerning rules for options markets 
adopted to coincide with the Plan. The Exchange believes that 
eliminating the pilot basis for the Options Pilots and making such 
rules permanent facilitates compliance with the Plan by adding 
certainty to the markets during periods of market volatility, which has 
been approved and found by the Commission to be reasonably designed to 
prevent potentially harmful price volatility in NMS Stocks. It has been 
determined by the Commission that the Plan benefits markets and market 
participants by helping to ensure orderly markets, and, based on the 
data made available to the public and the Commission during the pilot 
period for Exchange Rule 521, Interpretation and Policy .01, the Plan 
does not negatively impact options market quality during normal market 
conditions. Rather, the Plan, as it is implemented under the obvious 
error pilot, functions to protect against any unanticipated 
consequences in the options markets during a limit or straddle state 
and add certainty on the options markets. During a limit or straddle 
state, determining theoretical value of an option may be a subjective 
rather than an objective determination given the lack of a reliable 
NBBO, which may create an unreasonable adverse selection opportunity 
and discourage participants from providing liquidity during limit and 
straddle states. Therefore, the Exchange believes eliminating obvious 
error review in such states would, in turn, eliminate uncertainty and 
confusion for investors and benefit investors by encouraging more 
participation in light of the changes associated with the Plan. As 
stated, the Exchange believes the other Options Pilots rules provide 
additional measures designed to protect investors during limit and 
straddle states. For example, the Exchange will reject market orders 
and not elect stop orders \19\ during a Limit Up-Limit Down state to 
ensure that only those orders with a limit price will be executed 
during a limit or straddle state given the uncertainty of market prices 
during such a state. Accordingly, the Exchange believes that making the 
Options Pilots permanent will further the goals of investor protection 
and fair and orderly markets as the rules effectively address 
extraordinary market volatility pursuant to the Plan.
---------------------------------------------------------------------------

    \19\ See supra note 7.
---------------------------------------------------------------------------

    Further, the Exchange believes that the proposed rule change to 
remove text in the first paragraph of Exchange Rule 530 regarding the 
Exchange providing the Commission with data and analysis during the 
duration of the pilot as requested supports the objectives of 
perfecting the mechanism of a free and open market and the national 
market system because it furthers aligns the Exchange's Limit Up-Limit 
Down rules with competing options exchanges.\20\
---------------------------------------------------------------------------

    \20\ See supra note 14.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
necessary to reflect that the Plan no longer operates as a pilot and 
has been approved to operate on a permanent basis by the Commission. As 
such, Exchange Rule 521, Interpretation and Policy .01 and Exchange 
Rule 530, which implement protections in connection with the Plan, 
should be amended to operate on a permanent basis. The Exchange 
understands that the other national securities exchanges will also file 
similar proposals to make permanent their respective pilot programs. 
Thus, the proposed rule change will help to ensure consistency across 
market centers without implicating any competitive issues.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days 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)(iii) of the Act \21\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\22\
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \22\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and 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. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \23\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, Rule 19b-4(f)(6)(iii) \24\ 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 
rule change may become effective and operative immediately upon filing. 
The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, as 
it will allow the

[[Page 57076]]

current Options Pilots to continue on a permanent basis without any 
changes, prior to the pilot expiration on October 18, 2019. For this 
reason, the Commission hereby waives the 30-day operative delay and 
designates the proposed rule change as operative upon filing.\25\
---------------------------------------------------------------------------

    \23\ 17 CFR 240.19b-4(f)(6).
    \24\ 17 CFR 240.19b-4(f)(6)(iii).
    \25\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-MIAX-2019-44 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-MIAX-2019-44. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MIAX-2019-44 and should be submitted on 
or before November 14, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
---------------------------------------------------------------------------

    \26\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-23156 Filed 10-23-19; 8:45 am]
BILLING CODE 8011-01-P
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