
[Federal Register Volume 80, Number 145 (Wednesday, July 29, 2015)]
[Notices]
[Pages 45256-45259]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-18537]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75509; File No. SR-MIAX-2015-47]


Self-Regulatory Organizations: Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Exchange Rule 612 Regarding the Reset on 
Quote Functionality Included in the MIAX Aggregate Risk Manager

July 23, 2015.
    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 July 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 is filing a proposal to amend Exchange Rule 612 
concerning the Reset on Quote functionality included in the MIAX 
Aggregate Risk Manager.
    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.

[[Page 45257]]

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

1. Purpose
    The Exchange proposes to amend Exchange Rule 612, Aggregate Risk 
Manager (``ARM'') to make optional and more specifically define the 
current ARM ``Reset on Quote'' functionality, as described below.
    The MIAX System \3\ maintains a counting program (``counting 
program'') for Market Makers \4\ in their assigned option classes. 
Using the counting program, ARM protects Market Makers by limiting the 
number of contracts they execute in an option class on the Exchange 
within a specified time period that has been established by the Market 
Maker (a ``specified time period''). MIAX Market Makers establish a 
percentage of their quotations (the ``Allowable Engagement 
Percentage'') and the specified time period for each option class in 
which they are appointed.\5\ When an execution against a Market Maker's 
Standard quote \6\ or Day eQuote (as defined below) occurs, the System 
looks back over the specified time period to determine whether the 
execution is of sufficient size to trigger the Aggregate Risk Manager. 
The System activates the Aggregate Risk Manager when it has determined 
that a Market Maker has traded a number of contracts equal to or above 
their Allowable Engagement Percentage during the specified time period. 
The Aggregate Risk Manager then automatically cancels and removes the 
Market Maker's Standard quotes from the Exchange's disseminated 
quotation in all series of that particular option class until the 
Market Maker sends a notification to the System of the intent to 
reengage quoting and submits a new revised quotation in the affected 
class. Any eQuotes \7\ other than Day eQuotes \8\ present in the market 
are not cancelled by the Aggregate Risk Manager.
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    \3\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \4\ The term ``Market Maker'' refers to a ``Lead Market Maker,'' 
``Primary Lead Market Maker'' and ``Registered Market Maker'' 
collectively. A Lead Market Maker is a Member registered with the 
Exchange for the purpose of making markets in securities traded on 
the Exchange and that is vested with the rights and responsibilities 
specified in Chapter VI of these Rules with respect to Lead Market 
Makers. A Primary Lead Market Maker is a Lead Market Maker appointed 
by the Exchange to act as the Primary Lead Market Maker for the 
purpose of making markets in securities traded on the Exchange. A 
Registered Market Maker is a Member registered with the Exchange for 
the purpose of making markets in securities traded on the Exchange, 
who is not a Lead Market Maker. See Exchange Rule 100.
    \5\ The Exchange's Board or designated committee appoints one 
Primary Lead Market Maker and other Market Makers to each options 
class traded on the Exchange. For a complete description of the 
Exchange's appointment process, see Exchange Rule 602.
    \6\ A Standard quote is a quote submitted by a Market Maker that 
cancels and replaces the Market Maker's previous Standard quote, if 
any. See Exchange Rule 517(a)(1).
    \7\ An eQuote is a quote with a specific time in force that does 
not automatically cancel and replace a previous Standard quote or 
eQuote. An eQuote can be cancelled by the Market Maker at any time, 
or can be replaced by another eQuote that contains specific 
instructions to cancel an existing eQuote. See Exchange Rule 
517(a)(2).
    \8\ A Day eQuote is a quote submitted by a Market Maker that 
does not automatically cancel or replace the Market Maker's previous 
Standard quote or eQuote. Day eQuotes will expire at the close of 
trading each trading day. See Exchange Rule 517(a)(2)(i).
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    Currently, Exchange Rule 612(b)(1) states that, when a Market Maker 
revises his/her quotation on the buy side or sell side of an individual 
option, that side of the individual option will not be included in the 
Allowable Engagement Percentage and Net Offset calculations until it 
trades again.
    Proposed Rule 612(b)(1)(i) would clarify the existing rule to more 
precisely define this functionality. Proposed sub-paragraph (b)(1)(i) 
would clarify that when a Market Maker revises his/her quotation on the 
buy side or sell side of an individual option, contracts executed on 
that side will not be included in the Allowable Engagement Percentage 
and Net Offset calculations. For ease of reference, the Exchange 
proposes to establish the name ``Reset on Quote'' to describe this 
functionality in the new sub-paragraph. The Exchange believes that this 
change more precisely and accurately describes the Reset on Quote 
functionality and should better serve to inform Members and investors 
of what happens to the counting program when a Standard quote replaces 
another Standard quote.\9\ The proposed rule will specifically state 
that, in such a situation, the counting program is reset to zero (i.e., 
the counting system will be reset and begin anew) on that side upon 
receipt of the revised quotation for the affected individual option 
until it trades again. The Exchange believes this proposed amendment 
more precisely describes the current functionality.
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    \9\ eQuotes, including Day eQuotes, do not cancel or replace 
existing eQuotes. See supra notes 7 and 8.
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    Additionally, the proposed rule would give Market Makers the 
ability to opt out of the Reset on Quote functionality, and to opt back 
in at any time following the Market Maker's determination to opt out. 
Under the proposed rule, a Market Maker may determine to disengage or 
re-engage the Reset on Quote functionality for an option class.\10\ A 
Market Maker may disengage Reset on Quote by notifying the Exchange of 
its determination to disengage in a manner required by the Exchange and 
communicated to Members by Regulatory Circular. If a Market Maker 
determines to disengage the Reset on Quote functionality, the counting 
program will continue to count the number of contracts executed during 
the specified time period despite the submission by the Market Maker of 
a new Standard quote on that side of the market. If the Reset on Quote 
functionality is disengaged, the System will not reset the counting 
program to zero upon receipt of a revised quotation and instead will 
continue to add the number of contracts executed against the new quote 
to the number of contracts executed against any previous quotes on that 
side of the individual option during the specified time period. Absent 
notification to the Exchange to disengage Reset on Quote, the ARM 
counting system will, by default, continue to function as it does 
currently.
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    \10\ The terms ``class of options'' or ``option class'' mean all 
option contracts covering the same underlying security. See Exchange 
Rule 100.
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    Once a Market Maker has determined to disengage Reset on Quote, it 
will not be re-engaged until the Market Maker determines to do so by 
notifying the Exchange of such a determination in a manner required by 
the Exchange and communicated to Members by Regulatory Circular. This 
non-automated notification requires the Exchange to re-engage the Reset 
on Quote functionality, as opposed to the method of re-engaging the 
standard ARM protections, where the Market Maker re-engages the ARM by 
sending a notification to the System of the intent to re-engage quoting 
and submits a new revised quotation in the affected class. The purpose 
of the non-automated method of re-engaging Reset on Quote is to give 
Market Makers the ability to reconsider and re-engage Reset on Quote 
during times of peak or unusual market activity, rather than an 
automated re-engagement. The Exchange believes that this non-automated 
contact will strengthen the efficiency of Reset on Quote by providing 
Market Makers with the ability to thoroughly assess current market 
conditions in setting risk management levels and controls.
    The System will consider disengagement of Reset on Quote to be a 
persistent state; disengagement of the Reset on Quote functionality 
will remain in place indefinitely (i.e., for an

[[Page 45258]]

entire trading session and across multiple trading sessions) until the 
Market Maker notifies the Exchange to re-engage it. A Market Maker may 
determine to disengage and re-engage Reset on Quote multiple times 
intra-day.
    The purpose of the proposed rule change is to enable individual 
Market Makers to tailor their risk management by disengaging or re-
engaging the ARM Reset on Quote functionality for an individual option 
class or for multiple classes as market conditions warrant, based on 
their own risk tolerance and quoting behavior. The proposed rule change 
would provide Market Makers with flexibility to choose to have ARM 
count contracts executed during the specified time period that result 
from all executions on that side of the market, regardless of the 
number, price and/or size of the quotes against which executions occur 
during the counting period. This flexibility means that Market Makers 
may still elect to have the Reset on Quote functionality engaged, and 
thus only count contracts executed against their most recently 
submitted quote for purposes of calculating the Allowable Engagement 
Percentage. This will provide greater customization of risk controls 
based on each individual Market Maker's risk thresholds.
    The Exchange will announce the implementation date of the proposed 
rule change by Regulatory Circular to be published no later than 60 
days following the operative date of the proposed rule. The 
implementation date will be no later than 60 days following the 
issuance of the Regulatory Circular.
2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \11\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \12\ 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 regulating, clearing, settling, 
processing information with respect to, and 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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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that Members will benefit from the proposed 
rule change. Market Makers, who are obligated to submit continuous two-
sided quotations in a certain number of series in their appointed 
option classes for a certain percentage of each trading session,\13\ 
are vulnerable to the risk from unusual market conditions, volatility 
in specific option classes, and other market events that may cause them 
to receive multiple, extremely rapid automatic executions before they 
can adjust their quotations and overall risk exposure in the market. 
The Reset on Quote functionality is a valuable tool in assisting Market 
Makers in risk management; the ability of a Market Maker to determine 
if and when it is engaged or disengaged enables them to further tailor 
their risk management based on their expectation of market behavior and 
volatility or on actual real-time market conditions.
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    \13\ For a complete description of MIAX Market Maker quoting 
obligations, see Exchange Rule 604.
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    Without adequate risk management tools in place on the Exchange, 
the incentive for Exchange Market Makers to quote aggressively 
respecting both price and size could be diminished, and could result in 
a concomitant reduction in the depth and liquidity they provide to the 
market. Such a result may undermine the quality of the markets that 
would otherwise be available to customers and other market 
participants. Accordingly, the Exchange proposes to help Market Makers 
better manage their risk exposure by giving them the ability to opt out 
of the Reset on Quote functionality. This should encourage Market 
Makers to provide additional depth and liquidity to the Exchange's 
markets, thereby removing impediments to and perfecting the mechanisms 
of a free and open market and a national market system and, in general, 
protecting investors and the public interest.
    In addition, the proposed rule change promotes just and equitable 
principles of trade by providing Exchange Market Makers with the 
ability to refine and tailor their participation in risk management 
mechanisms on the Exchange to give them confidence that protections are 
in place to reduce the risks associated with their Market Making 
obligations. Finally, the proposed rule change is designed to protect 
investors and the public interest by helping Market Makers prevent 
executions resulting from activity that exceeds their risk tolerance 
level under these rules as established by the Exchange.
    The amendments to the existing Reset on Quote functionality in the 
proposed rule are intended to remove impediments to and perfect the 
mechanisms of a free and open market by adding precision and ease of 
reference to the Exchange's rules, thus promoting transparency and 
clarity for Market Makers seeking to determine their risk management 
settings.
    The Exchange notes that the proposed rule change will not relieve 
Exchange Market Makers of their continuous quoting obligations under 
Exchange Rule 604 and under Reg NMS Rule 602.\14\ All of a Market 
Maker's quotes in each option class will be considered firm until such 
time as the Allowable Engagement Percentage threshold has been equaled 
or crossed and the Market Maker's quotes are removed by the Aggregate 
Risk Manager in all series of that option class.\15\
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    \14\ 17 CFR 242.602.
    \15\ See Exchange Rule 612(c).
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    With regard to the impact of this proposal on system capacity, the 
Exchange notes that it has analyzed its capacity and represents that it 
and the Options Price Reporting Authority (``OPRA'') have the necessary 
systems capacity to handle any potential additional traffic associated 
with the proposed rule change. The Exchange believes that its members 
will not have a capacity issue as a result of this proposal.

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act.
    On the contrary, the Exchange believes that the proposed rule 
change will foster competition by providing Exchange Market Makers with 
the ability to enhance and specifically customize their use of the 
Exchange's risk management tools to use in submitting quotations with 
the best possible price and size in order to compete for executions and 
order flow. The Exchange further believes the proposed rule change will 
not impose any burden on intra-market competition because its use is 
voluntary and is available to all Exchange Market Makers and Market 
Maker organizations.
    As to inter-market competition, the Exchange believes that the 
proposed rule change should promote competition because it is designed 
to protect Exchange Market Makers from unusual market conditions or 
events that may cause them to receive multiple, automatic executions 
before they can adjust their quotation exposure in the market.
    For all the reasons stated, the Exchange does not believe that the 
proposed rule change will impose any

[[Page 45259]]

burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act, and believes the proposed change will in fact 
enhance competition.\16\
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    \16\ The Commission notes that, in the Form 19b-4, the Exchange 
states that the proposed rule change ``is based in part on the rules 
of another options exchange,'' Chicago Board Options Exchange, Inc. 
Rule 8.18, ``which gives Market Makers the ability to specify a 
maximum cumulative percentage, defined as the sum of the percentages 
of the original quoted size of each side of each series within a 
class that traded, that a Market Maker is willing to trade during a 
rolling time period after which their quotations in the affected 
class are removed .''
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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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \17\ and Rule 19b-4(f)(6) \18\ 
thereunder.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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 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 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-MIAX-2015-47 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-2015-47. 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 offices 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-2015-47, 
and should be submitted on or before August 19, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-18537 Filed 7-28-15; 8:45 am]
BILLING CODE 8011-01-P


