
[Federal Register Volume 81, Number 25 (Monday, February 8, 2016)]
[Notices]
[Pages 6556-6558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-02335]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77035; File No. SR-MIAX-2016-02]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Exchange Rule 301

February 2, 2016.
    Pursuant to the provisions of 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 January 20, 2016, Miami International 
Securities Exchange LLC (``MIAX'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'') a 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 301, Just 
and Equitable Principles of Trade, to add Interpretations and Policies 
.03 to Rule 301 to state in the Exchange's rules that the practice of 
unbundling an order is considered conduct inconsistent with just and 
equitable principles of trade.
    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 proposes to amend Exchange Rule 301, Just and 
Equitable Principles of Trade, to add Interpretations and Policies .03 
to Rule 301 that states that the practice of unbundling an order is 
considered conduct inconsistent with just and equitable principles of 
trade. The proposal codifies existing Exchange procedures when dealing 
with the unlawful bundling of orders.
    The purpose of the proposed rule change is to amend Exchange Rule 
301 by adding a new Interpretations and Policies .03 to Rule 301 which 
will expressly prohibit the splitting-up of an order into smaller 
orders; a practice also known as unbundling, or trade shredding. More 
specifically, the Exchange is proposing to add language to its existing 
rules to prohibit Members \3\ from splitting orders into multiple 
smaller orders for any purpose other than best execution.
---------------------------------------------------------------------------

    \3\ The term ``Member'' means an individual or organization 
approved to exercise trading rights associated with a Trading 
Permit. Members are deemed ``members'' under the Exchange Act. See 
Exchange Rule 100.
---------------------------------------------------------------------------

    Unbundling, or trade shredding, is the practice of breaking up an 
order into multiple smaller orders for some purpose other than best 
execution of the order. The practice of unbundling has in the past been 
used for such purposes as improperly maximizing commissions and fees 
charged to customers, distorting trade data, or circumventing rules 
pertaining to maximum order size. In addition, the unbundling of a 
large order into several smaller orders could be done so as to affect 
the allocation of a trade among market participants pursuant to the 
allocation methodology

[[Page 6557]]

used by the Exchange.\4\ Finally, the Exchange believes that the 
unbundling of orders generally serves no purpose to the customer that 
entered the order and may cause unnecessary delays in the execution of 
said orders.
---------------------------------------------------------------------------

    \4\ For example, pursuant to Exchange Rule 514(g)(2), small size 
orders, or orders of five contracts or less, are allocated to the 
Primary Lead Market Maker (``PLMM'') if the PLMM has a priority 
quote at the NBBO. If a Member was to break up a large order into 
several smaller orders of five contracts or less, the PLMM could 
unfairly garner a greater trade allocation than it was otherwise 
entitled to.
---------------------------------------------------------------------------

    Pursuant to Exchange Rule 301, Members must observe high standards 
of commercial honor and just and equitable principles of trade. The 
Exchange would consider a Member to have engaged in conduct 
inconsistent with just and equitable principles of trade were they to 
unbundle an order which (1) distorts fees and/or commissions to the 
detriment of a customer or the Exchange, (2) causes an unnecessary 
delay in the execution of an order, or (3) circumvents an Exchange rule 
or federal securities law, including those rules pertaining to order 
size and trade allocation. Members engaging in conduct inconsistent 
with just and equitable principles of trade are subject to formal 
disciplinary action by the Exchange.
    The Exchange now proposes to adopt Interpretations and Policies .03 
to Rule 301, which will expressly state that the Exchange considers it 
to be conduct inconsistent with just and equitable principles of trade 
for a Member to split an order into multiple smaller orders for any 
purpose other than seeking the best execution of the entire order.
    The Exchange believes that, by adopting this proposed language 
which serves to codify existing Exchange procedures when dealing with 
the unlawful unbundling of orders, it will deter and help to prevent 
this distortive practice, and therefore promote just and equitable 
principles of trade.
    The Exchange notes that it considers unbundling, among other 
things, to be conduct inconsistent with just and equitable principles 
of trade in the rules governing its price improvement mechanism, MIAX 
PRIME.\5\ The Exchange notes further that other US options exchanges 
have rules prohibiting the unbundling of orders for a variety of 
reasons, including the early termination of any price improvement 
mechanism auction conducted by an exchange, and violations of these 
rules may be considered conduct inconsistent with just and equitable 
principles of trade.\6\
---------------------------------------------------------------------------

    \5\ Specifically, it shall be considered conduct inconsistent 
with just and equitable principles of trade, in accordance with Rule 
301, for any Member to enter orders, quotes, Agency Orders, or other 
responses for the purpose of disrupting or manipulating the Auction. 
Such conduct includes, but is not limited to, engaging in a pattern 
or practice of submitting unrelated orders that cause an Auction to 
conclude before the end of the RFR period and engaging in a pattern 
of conduct where the Member submitting the Agency Order into the 
PRIME breaks up the Agency Order into separate orders for two (2) or 
fewer contracts for the purpose of gaining a higher allocation 
percentage than the Member would have otherwise received in 
accordance with the allocation procedures contained in paragraph 
(a)(2)(iii) or (b)(2)(iii) above. See Exchange Rule 515A, 
Interpretations and Policies .01.
    \6\ See Securities Exchange Act Release Nos. 62667 (August 9, 
2010), 75 FR 50013 (August 16, 2010) (SR-NYSEAmex-2010-77) (adopting 
NYSE Amex Rule 995NY(d)); and 52872 (December 1, 2005), 70 FR 73043 
(December 8, 2005), (SR-CBOE-2005-92) (adopting CBOE Rule 4.23). See 
also International Securities Exchange LLC Rule 723 Supplementary 
Material .01 (prohibiting the entering of orders, quotes, Agency 
Orders, Counter-Side Orders or Improvement Orders for the purpose of 
disrupting or manipulating the Price Improvement Mechanism Auction), 
CBOE Rule 6.74A Interpretations and Policies .02 (prohibiting the 
submission of unrelated orders that cause an Automated Improvement 
Mechanism Auction to conclude before the end of the RFR period) and 
NASDAQ OMX PHLX LLC Rule 1080(b)(iii).
---------------------------------------------------------------------------

2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \7\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \8\ 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.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The proposed rule change is designed to protect investors and the 
public interest and to promote just and equitable principles of trade 
by preventing the distortive practice of unbundling, or trade 
shredding, which conduct is considered inconsistent with the just and 
equitable principles of trade.

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. Specifically, the Exchange 
believes the proposed changes will not impose any burden on intra-
market competition because it applies to all MIAX participants equally. 
In addition, the Exchange does not believe the proposal will impose any 
burden on inter-market competition as the proposal is intended to 
protect investors by preventing the distortive practice of unbundling, 
or trade shredding.

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 Section 19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(6) 
\10\ thereunder.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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.
---------------------------------------------------------------------------

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \11\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \12\ permits the 
Commission to 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. The 
Exchange states that waiver of the operative delay would enable market 
participants to benefit from the proposed language codifying existing 
Exchange procedures when dealing with the unlawful unbundling of orders 
and would help to prevent this distortive practice. For this reason, 
the Commission believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Therefore, the Commission hereby waives the operative delay and 
designates the proposed rule change operative upon filing.\13\
---------------------------------------------------------------------------

    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ 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).

---------------------------------------------------------------------------

[[Page 6558]]

    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-2016-02 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-2016-02. 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 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-2016-02 and should be 
submitted on or before February 29, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Robert W. Errett,
Deputy Secretary.
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. 2016-02335 Filed 2-5-16; 8:45 am]
BILLING CODE 8011-01-P


