
[Federal Register Volume 78, Number 111 (Monday, June 10, 2013)]
[Notices]
[Pages 34691-34693]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-13607]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69686; File No. SR-MIAX-2013-24]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Amend Rule 605 Regarding Orders in a Market Maker's 
Appointed Classes

June 3, 2013.
    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 May 22, 2013, Miami International Securities Exchange LLC (``MIAX'' 
or ``Exchange'') 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 Exchange. 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 Rule 605 to delete the 
provision that includes executions resulting from orders in a Market 
Maker's appointed classes as part of the limitation on executions in a 
Market Maker's non-appointed classes.
    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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to eliminate an 
unnecessary provision in Rule 605 that places a limitation on orders 
that can be submitted by a Market Maker in its appointed classes. Rule 
605 governs the submission of orders by Market Makers; differentiating 
between orders submitted in classes to which the Market Maker is 
appointed and orders submitted in classes to which the Market Maker is 
not appointed. Paragraph (a) governs option classes to which the Market 
Maker is appointed and limits the types of orders that can be submitted 
by a Market Maker in its appointed classes. Paragraph (b) governs 
option classes other than those to which the Market Maker was 
appointed. Market Makers can submit all types of orders in non-
appointed classes, but subparagraphs (b)(2) and (b)(3) place 
limitations on the overall percentage of executions that can occur in 
the non-appointed classes. Specifically, subparagraph (b)(2) limits a 
Registered Market Maker's total number of contracts executed in non-
appointed option classes to 25% of the Registered Market Maker's total 
number of contracts executed in its appointed option classes and 
subparagraph (b)(3) limits a Lead Market Maker's total number of 
contracts executed in non-appointed option classes to 10% of the Lead 
Market Maker's total number of contracts executed in its appointed 
option classes. The Exchange places further limitations in 
subparagraphs (b)(2) and (b)(3) by including in the 25% limitation for 
Registered Market Makers and in the 10% limitation for Lead Market 
Makers, contracts resulting from the execution of orders in appointed 
classes.
    Traditionally, the purpose of limiting the number of contracts 
executed in non-appointed classes to a small percentage of contracts 
executed in appointed classes was to encourage Market Makers to provide 
liquidity in their appointed classes. Such a limitation was important 
at ``floor-based'' exchanges, since market makers were limited in the 
number of classes in which they could physically make markets and it 
was in the floor-based

[[Page 34692]]

exchange's interest that market makers focus their market making 
abilities on their appointed classes. Although, limitations on trading 
in non-appointed classes is less important on a fully electronic 
exchange, since electronic quoting and trading systems allow market 
makers to make markets and provide liquidity in many more option 
classes than on a floor-based exchange, MIAX still believes focusing 
its Registered Market Makers and its Lead Market Makers on trading in 
their appointed classes is important for providing the greatest amount 
of liquidity in those classes and intends to keep that part of the 
limitation intact.
    The second provision in subparagraphs (b)(2) and (b)(3) includes 
contracts resulting from the execution of orders in appointed classes 
as part of the 25% limitation for Registered Market Makers and the 10% 
limitation for Lead Market Makers. By including orders in appointed 
classes, MIAX sought to encourage the use of quotes by Market Makers in 
their appointed classes by limiting the use of orders in their 
appointed classes.
    The Exchange is now proposing to eliminate the provisions in 
subparagraphs (b)(2) and (b)(3) of Rule 605 that includes contracts 
resulting from the execution of orders in appointed classes in the 25% 
limitation for Registered Market Makers and in the 10% limitation for 
Lead Market Makers. The Exchange believes that the elimination of these 
provisions is appropriate since they are unnecessary given the 
restrictions on the use of orders in appointed classes set forth 
elsewhere in Rule 605. Specifically, Rule 605(a) limits the types of 
orders a Market Maker can enter in an appointed class; and Rule 605(c) 
accords a lower priority to executions resulting from Market Maker 
orders (i.e., allocated with all other Professional Interest \3\) than 
to executions resulting from Market Maker priority quotes, which have 
precedence over other Professional Interest. These provisions provide a 
significant incentive for Market Makers to use quotes rather than 
orders in their appointed classes, which renders the further limitation 
on Market Maker orders in subparagraphs (b)(2) and (b)(3) unnecessary. 
In addition, a Market Maker's affirmative obligations to continuously 
quote in appointed classes for a significant part of the trading day as 
set forth in Rule 604 provides an additional incentive for Market 
Makers to use quotes and provides the Exchange with means for enforcing 
use of quotes by Market Makers in their appointed classes.
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    \3\ Exchange Rule 100 defines ``Professional Interest'' as (i) 
an order that is for the account of a person or entity that is not a 
Priority Customer, or (ii) an order or non-priority quote for the 
account of a Market Maker.
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    It should be noted that while some of the other options exchanges 
place limitations on market maker trading in non-appointed classes,\4\ 
none of those exchanges include orders in appointed classes in those 
limitations. The Exchange does not believe the proposed rule change 
will adversely impact the quality of the Exchange's markets or lead to 
a material decrease in liquidity. Rather, the Exchange believes that 
eliminating an unnecessary obligation on Market Makers, one that is not 
in place at other options exchanges, may increase the level of market 
making activity across all of a Market Makers appointed and non-
appointed classes.
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    \4\ CBOE Rule 8.7, Interpretations and Policies .03 provides 
that 75% of a market maker's total contract volume must be in 
classes to which the market maker is appointed, thus, only 25% of a 
market maker's contract volume can be in non-appointed classes. ISE 
Rule 805(b)(2) provides the total number of contracts executed 
during a quarter by a Competitive Market Maker (``CMM'') in classes 
to which he is not appointed may not exceed 25% of the total number 
of contracts traded by such CMM in its appointed classes, and ISE 
Rule 805(b)(3) provides the total number of contracts executed 
during a quarter by a Primary Market Maker (``PMM'') in classes to 
which he is not appointed may not exceed 10% of the total number of 
contracts traded by such PMM in its appointed classes. PHLX Rule 
1014, Commentary .03 provides that 50% of Registered Options 
Trader's trading activity in any quarter (measured in terms of 
contract volume) shall ordinarily be in assigned classes. None of 
these exchanges includes executions resulting from orders in 
appointed classes when calculating the contract volume resulting 
from executions in non-appointed classes.
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2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \5\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \6\ 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.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes this proposed rule change 
promotes just and equitable principles of trade because it reduces a 
burden and unnecessary restrictiveness on Market Makers. The Exchange 
still imposes many obligations on all Market Makers to maintain a fair 
and orderly market in their appointed classes, which the Exchange 
believes eliminates the risk of a material decrease in liquidity. While 
executions resulting from orders in appointed classes will no longer be 
used to calculate a Registered Market Maker's or a Lead Market Maker's 
percentage of contracts executed in non-appointed classes; MIAX still 
has in place rules that limit the use of orders in appointed classes 
and rules that both encourage and require the use of quotes by Market 
Makers. Accordingly, the proposal supports the quality of MIAX's 
markets by helping to ensure that Market Makers will continue to be 
obligated to and have incentives to use quotes rather than orders in 
their appointed classes. The benefit provided to the Market Maker from 
the proposed elimination of orders in appointed classes from the 
calculation of a Market Maker's trading activity in non-appointed 
classes is offset by the continued limitations on the use of orders and 
the affirmative obligations of Market Makers to provide continuous 
quotes. Ultimately, the benefit the proposed rule change confers upon 
Market Makers is offset by the continued responsibilities to provide 
significant liquidity to the market to the benefit of market 
participants.
    In addition, the Exchange believes this proposed rule change 
promotes just and equitable principles of trade because it reduces a 
burden and unnecessary restrictiveness on Market Makers. The Exchange 
believes the proposal removes a Market Maker limitation that is 
unnecessary, as evidenced by the fact that it does not exist on other 
competitive markets.
    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 change 
obligations currently in place for Market Makers; however, the Exchange 
does not believe that these changes reduce the overall obligations 
applicable to Market Makers. In this respect, the Exchange notes that 
its Market Makers are subject to many limitations and obligations, such 
as the types of orders that can be submitted in appointed classes, the 
fact that executions resulting from orders in appointed classes confer 
a lower level of priority on Market Makers, and the Market Maker's 
affirmative obligations to continuously quote in appointed classes for 
a significant part of the trading day provides an additional incentive 
for Market Makers to use quotes and provides the Exchange with means 
for enforcing use of quotes by Market Makers in their appointed 
classes.

[[Page 34693]]

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. 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. The proposed rule 
change allows the Exchange to eliminate a limitation on the use of 
orders in appointed classes that is not in place at other option 
exchanges, thus allowing MIAX to attract more Market Makers to its 
developing options marketplace. By providing Market Maker limitations 
and obligations that are more consistent with market maker limitations 
and 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 \7\ and Rule 19b-4(f)(6) thereunder.\8\ 
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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    \7\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \8\ 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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    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. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) of the Act \9\ to determine whether the proposed 
rule change should be approved or disapproved.
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    \9\ 15 U.S.C. 78s(b)(2)(B).
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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 No. SR-MIAX-2013-24 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 No. SR-MIAX-2013-24. 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 available publicly. All 
submissions should refer to File No. SR-MIAX-2013-24 and should be 
submitted on or before July 1, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-13607 Filed 6-7-13; 8:45 am]
BILLING CODE 8011-01-P


