
[Federal Register Volume 78, Number 38 (Tuesday, February 26, 2013)]
[Notices]
[Pages 13107-13109]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-04368]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68954; File No. SR-MIAX-2013-04]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Revise Market Maker Obligations Regarding the 
Opening Process on the Exchange

February 20, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'')\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on February 11, 2013, Miami International Securities Exchange LLC 
(``Exchange'' or ``MIAX'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend Rules 503, 603 and 604 
to revise Market Maker obligations regarding the opening process on the 
Exchange.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.miaxoptions.com/filter/wotitle/rule_filing, at 
MIAX's principal office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to revise the quoting 
obligations of Market Makers prior to and during the opening process. 
Specifically, (i) Lead Market Makers (``LMMs''), including those 
appointed Primary Lead Market Maker (``PLMM''), will not be required to 
enter quotes before or during the opening process in their assigned 
option classes; and (ii) PLMMs will, however, be required to submit 
valid width quotes not later than one minute following the 
dissemination of a quote or trade by the market for the underlying 
security. These changes, which are described in detail below, will make 
MIAX's Market Maker obligations more consistent with market maker 
obligations at other options exchanges.
    Currently, Rules 503(e)(5), 603(c), 604(e)(1)(i) and 604(e)(2)(i) 
require PLMMs and LMMs to participate in the opening process by 
submitting valid width quotes and entering into any transactions 
resulting from their participation. MIAX proposes to amend each of 
these rules to revise the PLMM obligations and eliminate the LMM 
obligations. Rule 503(e) specifies that the opening process can begin 
following the dissemination of a quote or trade by the market for the 
underlying security and a pause of no longer than one half second. The 
pause allows the market place to absorb the dissemination of the 
underlying security's quote or trade. Thereafter, the option's opening 
process can be initiated by the occurrence of one of three triggers. 
These triggers are (i) a valid width quote being submitted by the PLMM 
in the option class; (ii) the valid width quotes of at least two Market 
Makers (one of whom must be a LMM) being submitted in the option; or 
(iii) the valid width quote of one LMM being submitted in the option 
with at least one other options exchange disseminating a quote in the 
option and a valid width NBBO being available for that option. Trigger 
(iii) can only occur in multiply listed option classes; for singly 
listed option classes either trigger (i) or (ii) must occur to initiate 
the option's opening process.
    While the PLMM can submit a valid width quote to start the option's 
opening process, there are, as described above, other ways in which the 
option opening process can begin. Pursuant to the revisions being 
proposed herein, MIAX will require the PLMM to submit valid width 
quotes in each of the

[[Page 13108]]

PLMM's appointed classes within one minute of a trade or quote in the 
underlying security being disseminated, thus assuring a timely start of 
the opening process if none of the other triggers for starting the 
opening process have occurred.\3\ As described above, an LMM's valid 
width quotes can also be used to trigger the start of the opening 
process, however, MIAX now proposes to eliminate the requirement that 
PLMMs and LMMs submit such quotes as part of the opening process.
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    \3\ See NASDAQ OMX PHLX (``PHLX'') Rule 1017(k), which requires 
``the specialist assigned in a particular equity option must enter 
opening quotes not later than one minute following the dissemination 
of a quote or trade by the market for the underlying security.'' 
PHLX does not require any of its other market makers to enter 
opening quotes, see also, PHLX Rule 1014.
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    By eliminating the specific obligations for PLMMs and LMMs to 
submit valid width quotes prior to regular options trading and only 
require continuous quoting during regular options trading, the opening 
obligations for MIAX Market Makers would be consistent with opening 
obligations for market makers at other options exchanges. For example, 
in addition to the PHLX rule for their non-specialist market makers 
referred to in footnote three above, NYSE Amex Options does not require 
either its specialist or its market makers to submit quotes or 
participate in the opening process.\4\ In addition, NASDAQ Options 
Market, LLC (``NOM'') \5\, NASDAQ OMX BX, Inc (``BX Options'') \6\, and 
BOX Options Exchange LLC (``BOX'') \7\ eliminated market maker pre-
opening quoting obligations in 2012. As a result of these filings, NOM, 
BX Options and BOX do not impose obligations on their respective 
options market makers to continuously quote prior to the regular 
options trading.
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    \4\ See NYSE Amex Options Rules 925NY (Obligations of Market 
Makers), 925.1NY (Market Maker Quotes), 927NY (Specialists), 927.5NY 
(e-Specialists Obligations) and 952NY (Opening Process). None of 
these rules require specialist or market maker participation in the 
opening process.
    \5\ See Securities Exchange Act Release No. 67722 (August 23, 
2012) 77 FR 52375 (August 29, 2012) (SR-NASDAQ-2012-095).
    \6\ See Securities Exchange Act Release No. 68116 (October 26, 
2012) 77 FR 66204 (November 2, 2012) (SR-BX-2012-069).
    \7\ See Securities Exchange Act Release No. 68412 (December 12, 
2012) 77 FR 74902 (December 18, 2012) (SR-BOX-2012-022).
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    Market Makers have advised the Exchange that other option exchanges 
do not have opening quoting obligations for their market makers and 
have requested that MIAX eliminate its opening quoting obligations so 
that MIAX rules are similar to the other options exchanges. While MIAX 
agrees that eliminating its opening quoting obligations for Market 
Makers would be pro-competitive in that it will attract more market 
makers and additional liquidity to the Exchange, MIAX believes that the 
PLMM should still have the responsibility to assure a timely start to 
the opening process in each of its appointed classes and is therefore 
continuing to require the PLMM to submit valid width quotes not later 
than one minute after a trade or quote in the underlying security has 
been disseminated. As it builds its options marketplace, MIAX believes 
a consistently timely opening of its options classes is essential for 
attracting order flow.
    Moreover, the Exchange believes that its proposal to put LMMs in 
the same position as market makers on other exchanges with respect to 
opening obligations will not have a negative effect on MIAX's options 
market. In particular, the Exchange believes the removal of opening 
quoting obligations for LMMs will have no impact on the functioning of 
the MIAX opening process and will not negatively impact MIAX market 
participants. Exchange rules continue to provide that the PLMM will be 
required to assure a timely opening by submitting valid width quotes in 
its appointed option classes if none of the other triggers for opening 
its appointed option classes have occurred. MIAX, therefore, believes 
its market participants will continue to experience a quality opening 
on the Exchange.
2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \8\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \9\ in particular, in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanisms of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest, and it is not designed to 
permit unfair discrimination among customers, brokers, or dealers. The 
Exchange believes the proposal to conform Market Maker obligations to 
the requirements of competing markets will promote the application of 
consistent trading practices.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    Additionally, the Exchange believes the proposal removes a market 
maker quoting requirement that is unnecessary, as evidenced by the fact 
that it does not exist on other competitive markets. The Exchange 
operates in a highly competitive market comprised of eleven U.S. 
options exchanges in which sophisticated and knowledgeable market 
participants can, and do, send order flow to competing exchanges if 
they deem trading practices at a particular exchange to be onerous or 
cumbersome. With this proposal, LMMs will be relieved of a market maker 
requirement that does not materially improve the quality of the 
markets. On the contrary, the opening quoting obligation creates an 
additional obligation and burden on LMMs that does not exist on 
numerous other competitive markets. The Exchange believes that in this 
competitive marketplace, the impact of the opening quoting obligation 
that exists on the Exchange today compels this proposal. It will allow 
LMMs on the Exchange to follow rules that are similar to the rules of 
other options exchanges that do not impose opening obligations on their 
market makers, and will allow LMMs to focus on aspects of their 
operations that contribute to the market in a more efficient and 
meaningful way. However, as the newest entrant into this competitive 
marketplace, MIAX also believes it is important to provide consistently 
timely openings for its options, therefore, MIAX has a requirement that 
the PLMM in each of its appointed option classes be required to submit 
valid width quotes within one minute of the dissemination of a quote or 
trade in the underlying security. This requirement for the PLMM is also 
consistent with requirements at other options exchanges.
    Finally, in determining to revise requirements for its Market 
Makers, MIAX is mindful of the balance between the obligations and the 
benefits bestowed on its Market Makers. The proposal will reduce 
obligations currently in place for PLMMs and LMMs without a 
corresponding reduction in the benefits currently bestowed upon them. 
MIAX nevertheless believes this shifting in the balance of obligations 
and benefits is appropriate given (i) the obligation is not necessary 
for LMMs; (ii) the obligation is being revised and not eliminated for 
the PLMM; and (iii) the changes being proposed herein are in place at 
other options exchanges. MIAX believes that its proposal is consistent 
with the Act in that the relieving of an unnecessary requirement for 
LMMs does not detract from the overall market making obligations of 
LMMs. The requirement that a market maker hold

[[Page 13109]]

itself out as willing to buy and sell options for its own account on a 
regular or continuous basis is better supported by requirements to 
quote continuously throughout the trading day rather than by a 
requirement to quote at the opening. The LMM's continuous quoting 
obligations are the equivalent of obligations in place for other 
similarly situated market makers at other options exchanges. 
Maintaining the PLMM requirement to submit valid width quotes within 
one minute of a trade or quote in the underlying security being 
disseminated is consistent with the heightened level of obligations 
imposed by MIAX rules on PLMMs.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. MIAX's proposal to eliminate 
the obligation for Market Makers to submit quotes and participate in 
the opening process for each of its appointed option classes is 
consistent with what is already occurring on other markets. By 
providing Market Maker obligations that are more consistent with market 
maker obligations in place at other option exchanges, competition for 
the liquidity providing services of market makers is enhanced. MIAX is 
better able to compete for the services of market makers when its 
requirements for market makers are consistent with the other options 
exchanges.

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 filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \10\ and Rule 19b-4(f)(6) thereunder.\11\ 
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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \10\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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.
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    A proposed rule change filed under Rule 19b-4(f)(6) \12\ normally 
does not become operative prior to 30 days after the date of the 
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 of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay, noting that doing 
so will allow Market Makers on the Exchange to follow rules concerning 
Market Maker quoting obligations prior to the commencement of daily 
trading that are similar to the rules of other options Exchanges. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public 
interest.\14\ Accordingly, the Commission hereby grants the Exchange's 
request and designates the proposal operative upon filing.\15\
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    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ The Commission notes that it recently waived the operative 
delay for a similar filing submitted by BX Options. See supra note 
6.
    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission 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 such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-MIAX-2013-04 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MIAX-2013-04. 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 (http://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 such 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 publicly available. All 
submissions should refer to File Number SR-MIAX-2013-04 and should be 
submitted on or before March 19, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-04368 Filed 2-25-13; 8:45 am]
BILLING CODE 8011-01-P


