
[Federal Register Volume 80, Number 83 (Thursday, April 30, 2015)]
[Notices]
[Pages 24297-24300]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-10040]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74809; File No. SR-MIAX-2015-19]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing of a Proposed Rule Change To Amend 
Exchange Rule 515

April 24, 2015.
    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 April 13, 2015, 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, II, and III 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 proposes to amend Exchange Rule 515.
    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 Exchange has identified several additional enhancements to the 
functionality of two order types--Customer Cross Order \3\ and 
Qualified Contingent Cross Order \4\--that the Exchange believes should 
be included in the Rules prior to deployment of the Qualified 
Contingent Cross Order functionality. The Exchange proposes to amend 
Exchange Rule 515 accordingly. The Exchange notes that both order types 
were included in the original MIAX Rules that were approved as part of 
its registration as a national securities exchange. The Customer Cross 
Order was deployed when the Exchange deployed PRIME functionality.\5\ 
The proposed changes would codify existing functionality for Customer 
Cross Orders that is not currently detailed in the Exchange's Rules. 
The Qualified Contingent Cross Order is currently not deployed, 
however, will be available after approval of this filing.
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    \3\ See MIAX Rules 515(h)(1), 516(i).
    \4\ See MIAX Rules 515(h)(2), 516(j). See also MIAX Rule 516, 
Interpretations and Policies .01.
    \5\ See MIAX Options Regulatory Circulars, RC-2014-64 and RC-
2015-05.
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    Rule 515(h)(1) provides that Customer Cross Orders are 
automatically executed upon entry provided that the execution (i) is at 
or between the best bid and offer on the Exchange; (ii) is not at the 
same price as a Priority Customer Order on the Exchange's Book; and 
(iii) will not trade at a price inferior to the NBBO. Customer Cross 
Orders will be automatically canceled if they cannot be executed. 
Customer Cross Orders may only be entered in the minimum trading 
increments applicable to the options class under Rule 510.\6\ Rule 
515(h)(2) provides that Qualified Contingent Cross Orders are 
automatically executed upon entry provided that the execution (i) is 
not at the same price as a Priority Customer Order on the Exchange's 
Book; and (ii) is at or between the NBBO. Qualified Contingent Cross 
Orders will be automatically canceled if they cannot be executed. 
Qualified Contingent Cross Orders may only be entered in the minimum 
trading increments applicable to the options class under Rule 510.\7\
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    \6\ See MIAX Rule 515(h)(1).
    \7\ See MIAX Rule 515(h)(2).
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    Although neither the Customer Cross Order nor the Qualified 
Contingent Cross Order may be executed at a price inferior to the NBBO, 
the Exchange notes that there are situations at the

[[Page 24298]]

Exchange during which trading interest may exist in the Exchange's 
System that could be executable at prices up to the NBBO but is not 
automatically executed because the Exchange is either attempting to 
obtain additional price improvement for the order or additional 
liquidity to trade against the order on the Exchange. The Exchange 
employs a variety of timers and auctions to provide market participants 
with opportunity to obtain additional price improvement for their order 
or access additional liquidity to trade against the order on the 
Exchange. Specifically, during the liquidity refresh pause or managed 
interest process pursuant to Rule 515(c),\8\ or a route timer pursuant 
to Rule 529, \9\ the Exchange has trading interest that exists that may 
be executable up to the NBBO but is displayed at a price one minimum 
price increment away. In addition, during the price improvement 
mechanisms such as PRIME Auction or PRIME Solicitation Auction pursuant 
to Rule 515A,\10\ the Exchange has trading interest that exists that 
may be executable up to the NBBO but is not displayed. The Exchange 
believes that the execution of a Customer Cross Order or Qualified 
Contingent Cross Order that arrives during a timer or auction at a 
potentially better price than the interest subject to the timer or 
auction, has the potential to cause confusion and perceived disruption 
to market participants that are subject to the pre-existing timers or 
auctions that may see executions occurring at better prices than their 
trading interest. In addition, the Exchange believes that the timers 
and auctions provide a valuable service to market participants and that 
the use of these mechanisms, that provide market participants with 
opportunities to obtain additional price improvement for their orders 
or access additional liquidity to trade against the orders, should be 
promoted on the Exchange. Therefore, the Exchange proposes to modify 
its Rules in order to maintain the priority of trading interest subject 
to timers and auctions that are initiated prior to the arrival of these 
specified order types.
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    \8\ The ``liquidity refresh pause'' is a process during which 
the System will pause the market for a time period not to exceed one 
second to allow additional orders or quotes refreshing the liquidity 
at the MBBO to be received when at the time of receipt or 
reevaluation of the initiating order by the System: (A) either the 
initiating order is a limit order whose limit price 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) and the Market Maker quote was exhausted. See MIAX 
Rule 515(c)(2). The ``managed interest process'' is a process for 
non-routable orders during which, if the limit price locks or 
crosses the current opposite side NBBO, the System will display the 
order one MPV away from the current opposite side NBBO, and book the 
order at a price that will lock the current opposite side NBBO. 
Should the NBBO price change to an inferior price level, the order's 
Book price will continuously re-price to lock the new NBBO and the 
managed order's displayed price will continuously re-price one MPV 
away from the new NBBO until (i) the order has traded to and 
including its limit price, (ii) the order has traded to and 
including its price protection limit at which any remaining 
contracts are cancelled, (iii) the order is fully executed or (iv) 
the order is cancelled. See MIAX Rule 515(c)(1)(ii).
    \9\ See MIAX Rule 529. The ``route timer'' is a process for 
those initiating Public Customer orders that are routable, but do 
not meet the additional criteria for Immediate Routing, during which 
the System will implement a route timer not to exceed one second, in 
order to allow Market Makers and other participants an opportunity 
to interact with the initiating order.
    \10\ The ``PRIME Auction'' is a process by which a Member may 
electronically submit for execution (``auction'') an order it 
represents as agent (``agency order'') against principal interest, 
and/or an agency order against solicited interest. See MIAX Rule 
515A(a). The ``PRIME Solicitation Mechanism'' is a process by which 
a Member that represents agency orders of a size of 500 contracts or 
more may electronically execute against solicited orders provided it 
submits both the agency order and solicited orders for electronic 
execution into the PRIME Solicitation Mechanism pursuant to Rule 
515A. See MIAX Rule 515A(b).
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    The Exchange proposes to amend Rule 515(h)(1) and Rule 515(h)(2) to 
provide that the Customer Cross Order and Qualified Contingent Cross 
Order will be rejected if there is a timer or price improvement auction 
in progress when either of these orders are received. Specifically, the 
Exchange proposes to amend Rule 515(h)(1) to provide that if trading 
interest exists on the MIAX Book that is subject to the liquidity 
refresh pause or managed interest process pursuant to Rule 515(c), or a 
route timer pursuant to Rule 529 when the Exchange receives a Customer 
Cross Order, the System will reject the Customer Cross Order. If 
trading interest exists that is subject to a PRIME Auction or PRIME 
Solicitation Auction pursuant to Rule 515A when the Exchange receives a 
Customer Cross Order, the System will reject the Customer Cross Order. 
In addition, the Exchange proposes to amend Rule 515(h)(2) to provide 
that if trading interest exists on the MIAX Book that is subject to the 
liquidity refresh pause or managed interest process pursuant to Rule 
515(c), or a route timer pursuant to Rule 529 when the Exchange 
receives a Qualified Contingent Cross Order, the System will reject the 
Qualified Contingent Cross Order. If trading interest exists that is 
subject to a PRIME Auction or PRIME Solicitation Auction pursuant to 
Rule 515A when the Exchange receives a Qualified Contingent Cross 
Order, the System will reject the Qualified Contingent Cross Order. The 
Exchange notes that the Exchange proposes no changes to the Customer 
Cross Order and the Qualified Contingent Cross Order order types 
themselves; both order types will continue to be subject to the same 
requirements as before.\11\
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    \11\ See supra notes 3 and 4.
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    The Exchange proposes to make these enhancements to ensure that 
both the Customer Cross Order and the Qualified Contingent Cross Order 
will work seamlessly with the Exchange's timers and auctions in a 
manner that would ensure a fair and orderly market by maintaining 
priority of orders and quotes that initiated a timer or auction prior 
to the receipt of a Customer Cross Order or Qualified Contingent Cross 
Order on the Exchange. The Exchange believes that by using such 
additional reasons for rejecting these two order types during a timer 
or auction will improve the interaction between the timers and auctions 
and the Exchange's Book and the national market system. Without such 
proposed changes, the Exchange believes that the deployment of the 
Customer Cross Order and Qualified Contingent Cross Order functionality 
would reduce the benefits of its timer and auction functionality that 
currently provides market participants with opportunities to obtain 
additional price improvement for their orders or access additional 
liquidity to trade against the order on the Exchange. While rejecting 
Customer Cross Orders and Qualified Contingent Cross Orders received 
during timers and auctions may cause a disruption to market 
participants sending such orders in such situations, the Exchange 
believes the benefits to market participants participating in timers 
and auctions and to the national market system, as a whole, outweigh 
the temporary opportunity costs of a Customer Cross Orders and 
Qualified Contingent Cross Orders rejection. The Exchange notes 
Customer Cross Orders and Qualified Contingent Cross Orders are readily 
available on other competing exchanges; \12\ if rejected by the 
Exchange's System, market participants can either choose to route their 
Customer Cross Orders and Qualified Contingent Cross Orders to those 
competing venues or simply just resubmit their orders to the Exchange. 
The Exchange believes that the proposed changes to its Rules will 
provide clear notice to market participants that their Customer Cross 
Orders and Qualified Contingent Cross

[[Page 24299]]

Orders may be rejected during auctions and timers.
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    \12\ See e.g., ISE Rule 715(i), (j); NYSE Arca Options Rules 
6.47(e) and 6.62(bb).
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    The Exchange notes that the proposed changes detailed above will 
likely result in fewer executions of Customer Cross Orders and 
Qualified Contingent Cross Orders on the Exchange. However, the 
Exchange notes that rejecting these orders may likely result in better 
opportunities for market participants with orders subject to timers and 
auctions for price improvement on the Exchange as more liquidity may be 
available to trade against trading interest in the timers and auctions. 
The Exchange believes that the proposed changes will reduce the 
potential of confusion and perceived disruption to market participants 
when a Customer Cross Order or Qualified Contingent Cross Order arrives 
during a timer or auction, potentially executing at a better price than 
their trading interest that subject to the timer or auction. The 
Exchange believes that the benefits to market participants (including 
those participating in timers/auctions and outside of timers/auctions) 
as a result of the new proposed enhancements to make both the Customer 
Cross Order and Qualified Contingent Cross Order more integrated with 
the Exchange's Book and the national market system, exceed any 
potential loss of opportunity for executions caused by the proposed 
changes.
2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
section 6(b) of the Act \13\ in general, and furthers the objectives of 
section 6(b)(5) of the Act \14\ 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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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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    The proposal to reject the Customer Cross Order and Qualified 
Contingent Cross Order if there is a timer or price improvement auction 
at the time of receipt of these order types is designed to facilitate 
transactions, to remove impediments to and perfect the mechanism of a 
free and open market to the benefit of market participants by promoting 
the use of timer and auction functionality on the Exchange which 
provide market participants with opportunities to obtain additional 
price improvement for their orders or access additional liquidity to 
trade against the orders. The proposed enhancements to the Rules are 
designed to further ensure that the Customer Cross Order and Qualified 
Contingent Cross Order types will work seamlessly with the auctions and 
timers on the Exchange in a manner that would ensure a fair and orderly 
market by maintaining priority of orders and quotes subject to timers 
and auctions on the Exchange.
    The Exchange believes that the proposed changes to its Rules will 
provide clear notice to market participants that their Customer Cross 
Orders and Qualified Contingent Cross Orders may be rejected during 
auctions and timers in a manner that is designed 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.

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 proposed enhancements to 
reject Customer Cross Orders and Qualified Contingent Cross Orders 
during timers and price improvement auctions are designed to increase 
competition for order flow on the Exchange by promoting the use of 
timer and auction functionality on the Exchange which provide market 
participants with opportunities to obtain additional price improvement 
for their orders or access additional liquidity to trade against the 
orders in a manner intended to be beneficial to investors seeking to 
effect option orders with an opportunity to access additional liquidity 
and receive price improvement. The Exchange notes that it operates in a 
highly competitive market in which market participants can readily 
direct order flow to competing venues who offer similar functionality. 
The Exchange believes that the proposed changes to the order types are 
pro-competitive by providing market participants with functionality 
that would ensure a fair and orderly market by maintaining priority of 
orders and quotes that initiated a timer or auction prior to the 
receipt of a Customer Cross Order or Qualified Contingent Cross Order 
on the Exchange.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) by order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-MIAX-2015-19 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MIAX-2015-19. 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

[[Page 24300]]

printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-MIAX-2015-19 and should be 
submitted on or before May 21, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-10040 Filed 4-29-15; 8:45 am]
 BILLING CODE 8011-01-P


