
[Federal Register Volume 79, Number 153 (Friday, August 8, 2014)]
[Notices]
[Pages 46489-46490]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-18745]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72747; File No. SR-MIAX-2014-28]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Order Approving Proposed Rule Change To Amend Rule 515 To 
Terminate the Liquidity Refresh Pause Early in Certain Situations

August 4, 2014.

I. Introduction

    On June 5, 2014, Miami International Securities Exchange LLC 
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend MIAX Rule 515. The 
proposed rule change was published for comment in the Federal Register 
on June 23, 2014.\3\ The Commission did not receive any comments on the 
proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 72408 (June 17, 
2014), 79 FR 35625.
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II. Description of the Proposal

    The Liquidity Refresh Pause, set forth in MIAX Rule 515(c)(2), 
provides an opportunity for additional orders or quotes to be received 
where an incoming order (``initiating order'') exhausts a Market 
Maker's quote that was all or part of the MIAX best bid or offer 
(``MBBO'') when MIAX was alone at the national best bid or offer 
(``NBBO'') and there are unexecuted contracts remaining from the 
initiating order. Specifically, the Liquidity Refresh Pause is utilized 
in instances where (a) either the initiating order is a limit order 
that crosses the NBBO or the initiating order is a market order, and 
the limit order or market order could only be partially executed; (b) a 
Market Maker quote was all or part of the MBBO when the MBBO is alone 
at the NBBO; and (c) the Market Maker quote was exhausted.\4\
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    \4\ At the start of the Liquidity Refresh Pause, the system 
broadcasts a ``liquidity refresh message'' to subscribers of the 
Exchange's data feeds, providing a description of the option and the 
size and side of the order and the exhausted MBBO price. During the 
pause, the system displays the unexecuted remainder of the 
initiating order at the original NBBO price (i.e., the exhausted 
MBBO price) and MIAX's next bid or offer on the opposite side is 
displayed as non-firm.
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    The Exchange proposes to amend MIAX Rule 515(c)(2) in order to 
address the case where, during the Liquidity Refresh Pause, an Away 
Best Bid or Offer (``ABBO'') on the same side of the market as the 
initiating order (a ``same-side ABBO'') crosses the original NBBO price 
on the opposite side of the market. The proposed rule change would 
provide that, in such a situation, the Liquidity Refresh Pause will be 
terminated early and normal trading will resume. The Exchange states 
that the proposed change is designed to codify existing functionality 
during the liquidity refresh pause.\5\
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    \5\ See Notice, supra note 3, at 35625.
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    The following examples describe how a new revised same-side ABBO 
that crosses the original NBBO on the opposite side of the market will 
terminate the Liquidity Refresh Pause early.

[[Page 46490]]

    Example 1:  Same Side ABBO Terminates the Liquidity Refresh 
Pause Early
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    \6\ A ``PLMM'' is a MIAX Primary Lead Market Maker; an ``LMM'' 
is a MIAX Lead Market Maker; and an ``RMM'' is a MIAX Registered 
Market Maker.

------------------------------------------------------------------------
                                                    Bid          Ask
------------------------------------------------------------------------
ABBO..........................................    1.00 (10)    1.14 (10)
MIAX Book: PLMM \6\...........................    1.00 (10)    1.10 (10)
LMM 1.........................................    1.00 (10)    1.12 (10)
LMM 2.........................................    1.00 (10)    1.15 (10)
RMM 1.........................................    1.00 (10)    1.16 (10)
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     Order 1: Buy limit of 1.13 for 20 contacts with a price 
protection instruction of 3 MPVs.\7\
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    \7\ Executions of non-market maker orders on MIAX are subject to 
the ``price protection'' provisions of Exchange Rule 515(c)(1). 
Price protection prevents an order from being executed beyond the 
price designated in the order's price protection instructions, which 
are expressed in units of ``MPV'' away from the NBBO at the time of 
the order's receipt, or the MBBO if the ABBO is crossing the MBBO. 
(The MPV is the minimum price variation, or minimum increment, by 
which bids and offers may be separated.) Market participants may 
designate or disable price protection instructions on an order by 
order basis. The default price protection is one MPV. When 
triggered, price protection cancels an order or the remaining 
contracts of an order.
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     NBBO at time of Order 1's arrival = 1.00 (50) x 1.10 
(10).
     Order 1 is price protected at 1.13 (which is 1.10 + 3 
MPV = 1.13).
     Order 1 trades 10 contracts with PLMM @1.10.
     Liquidity Refresh Pause is triggered because the MBO of 
1.10 \8\ was alone at NBBO and PLMM's 1.10 offer was exhausted.
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    \8\ ``MBO'' and ``MBB'' refer to the two components of the MBBO 
separately. ``NBB'' and ``NBO'' and ``ABB'' and ``ABO'' and are the 
equivalent conventions used for components of the ABBO and MBBO 
separately.
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     New MBBO = 1.10 (10) x 1.12 (10). \9\
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    \9\ The remaining 10 contracts of Order 1 to buy are posted at 
1.10 (the price at which the first 10 contracts were bought), which 
becomes the new MBB. Note that the new MBO is displayed as non-firm. 
See supra note 4.
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     ABB updates to 1.12 for 10 contracts; ABBO = 1.12 (10) 
x 1.14 (10).
     Liquidity Refresh Pause is terminated early due to the 
ABB crossing the original NBO of 1.10.
     Because no responses to the Liquidity Refresh Pause 
were received before it terminated early, Order 1 trades 10 
contracts with LMM1 @1.12, after which Order 1 has been fully 
executed.
     New MBBO: 1.00 (40) x 1.15 (10). New NBBO: 1.12 (10) x 
1.14 (10).

III. Discussion and Commission Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\10\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\11\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, 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. 
The Commission believes that the proposal is reasonable in its 
rationale that terminating the Liquidity Refresh Pause, when the ABBO 
on the same side of the market as the initiating order crosses the 
original NBBO price on the opposite side of the market, could allow 
interest in the Liquidity Refresh Pause to execute, because a move of 
this kind in the ABBO indicates that conditions may be changing so as 
to render the initiating order and same side orders/quotes no longer 
marketable. Terminating the Liquidity Refresh Pause early and 
permitting normal trading to resume may thus provide an opportunity for 
the broker routing the initiating order or any remainder thereof to 
further pursue an execution, assuming that subsequent responses to the 
Liquidity Refresh Pause would be unlikely when the ABBO moves in such a 
manner, even if the pause were to run its full course.
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    \10\ 15 U.S.C. 78f. In approving this proposed rule change, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-MIAX-2014-28), is approved.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18745 Filed 8-7-14; 8:45 am]
BILLING CODE 8011-01-P


