
[Federal Register Volume 81, Number 232 (Friday, December 2, 2016)]
[Notices]
[Pages 87086-87089]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-28928]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79405; File No. SR-MIAX-2016-44]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Exchange Rule 518, Complex Orders

November 28, 2016.
    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 November 18, 2016, 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 Exchange Rule 518, 
Complex Orders.
    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 518, Complex Orders, 
to state that (i) the System \3\ will not commence a Complex Auction 
\4\ within a defined time period prior to the end of the trading 
session as described below; and (ii) the size of an RFR Response 
(defined below) that is submitted with a size greater than the 
aggregate auctioned size (described below) will be capped for 
allocation purposes at the aggregate auctioned size (defined below).
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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\ Certain option classes, as determined by the Exchange and 
communicated to Members via Regulatory Circular, will be eligible to 
participate in a Complex Auction (an ``eligible class''). Upon 
evaluation as set forth in Exchange Rule 518(c)(5), the Exchange may 
determine to automatically submit a Complex Auction-eligible order 
into a Complex Auction. Upon entry into the System or upon 
evaluation of a complex order resting at the top of the Strategy 
Book, Complex Auction-eligible orders may be subject to an automated 
request for responses (``RFR''). See Exchange Rule 518(d).
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Complex Auction Defined Time Period
    Certain option classes, as determined by the Exchange and 
communicated to Members via Regulatory Circular, are eligible to 
participate in a Complex Auction for possible price improvement.\5\ 
Members may submit Complex Auction-on-Arrival (``cAOA'') orders \6\ 
that may initiate a Complex Auction, and the Exchange may determine to 
automatically submit a Complex Auction-eligible order \7\ into a 
Complex Auction. Upon receipt of a Complex Auction-eligible order or 
upon an evaluation by the System \8\ indicating that there is a Complex 
Auction-eligible order resting on the Strategy Book,\9\ the Exchange 
may begin the Complex Auction process by sending a request for 
responses (``RFR'') message. Members may submit a response to the RFR 
message (an ``RFR Response'') during the ``Response Time Interval.'' 
\10\ At the end of the Response Time Interval, Complex Auction-eligible 
orders (and other complex orders and quotes) may be executed in whole 
or in part against the best priced contra side interest.\11\
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    \5\ See id.
    \6\ A cAOA order is a complex order designated to be placed into 
a Complex Auction upon receipt or upon evaluation. Complex orders 
that are not designated as cAOA will, by default, not initiate a 
Complex Auction upon arrival, but except as described herein will be 
eligible to participate in a Complex Auction that is in progress 
when such complex order arrives or if placed on the Strategy Book 
may participate in or may initiate a Complex Auction. See Exchange 
Rule 518(b)(2)(i).
    \7\ A ``Complex Auction-eligible order'' means a complex order 
that, as determined by the Exchange, is eligible to initiate or join 
a Complex Auction based in a variety of factors. See Exchange Rule 
518(d)(1).
    \8\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \9\ The ``Strategy Book'' is the Exchange's electronic book of 
complex orders and complex Quotes. See Exchange Rule 518(a)(17).
    \10\ The ``Response Time Interval'' means the period of time 
during which responses to the RFR may be entered. The Exchange will 
determine the duration of the Response Time Interval, which shall 
not exceed 500 milliseconds, and will communicate it to Members via 
Regulatory Circular. See Exchange Rule 518(d)(3).
    \11\ For a complete description of the Complex Auction process, 
see Exchange Rule 518(d).
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    Exchange Rule 518(d)(2) governs the commencement of a Complex 
Auction. Upon receipt of a Complex Auction-eligible order or upon an 
evaluation by the System indicating that there is a Complex Auction-
eligible order resting on the Strategy Book, the Exchange may begin the 
Complex Auction process by sending an RFR message to all subscribers to 
the Exchange's data feeds that deliver RFR messages.
    The Exchange proposes to amend Exchange Rule 518(d)(2) by stating 
that, notwithstanding the foregoing provisions of the rule, the System 
will not commence a Complex Auction within a defined time period prior 
to the end of the trading session (the ``Defined Time Period'') 
established by the Exchange and communicated to Members via Regulatory 
Circular. The Defined Time Period shall be at least 100 milliseconds, 
and may not exceed 10 seconds. The Exchange believes that this proposed 
flexibility in the duration of the Defined Time Period is necessary 
because the duration of the Response Time Interval is flexible \12\ and 
must not be able to exceed the Defined Time Period. For example, if the 
Response Time Interval is 300 milliseconds and the Defined Time Period 
is 200 milliseconds, a Complex Auction with a 300 millisecond Response 
Time Interval could commence within 200 milliseconds of the end of the 
trading session, and the Complex Auction could therefore not be 
completed. Flexibility in the establishment of the duration of the 
Defined Time Period would enable the Exchange to make the duration of 
the Response Time Interval and the Defined Time Period consistent in 
this regard. The 10-second maximum duration for the Defined Time Period 
is intended as an outlier to address situations where the Exchange may 
need to ensure a fair and orderly marketplace during times of extreme

[[Page 87087]]

volatility and thus may deem it necessary not to commence Complex 
Auctions as the end of the trading session approaches.
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    \12\ See supra note 10.
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    For consistency, the Exchange is proposing a corresponding 
amendment to the definition of a cAOA order \13\ in Exchange Rule 
518(b)(2)(i) by stating that a cAOA order received during the Defined 
Time Period prior to the end of the trading session (as described in 
proposed Rule 518(d)(2)) will not initiate a new Complex Auction.
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    \13\ See supra note 6.
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    The purpose of this provision is to ensure that Complex Auctions 
that are commenced on the Exchange can be completed prior to the close 
of trading. Upon receipt of a Complex Auction-eligible order or upon an 
evaluation by the System indicating that there is a Complex Auction-
eligible order resting on the Strategy Book, the Exchange may begin the 
Complex Auction process by sending an RFR message, which then begins 
the Response Time Interval during which Complex Auction responses may 
be submitted.
    The Exchange believes it is necessary to ensure that a Complex 
Auction will not commence when the trading session would end prior to 
the end of the Response Time Interval. Thus, any Complex Auction 
commenced on the Exchange will be completed during the trading session.
Capping the RFR Response Size
    The Exchange proposes to amend rules relating to the Complex 
Auction to limit the size of RFR Responses for trade allocation 
purposes.
    Exchange Rule 518(d)(4), RFR Response, states that RFR Responses 
must be a Complex Auction-or-Cancel order (a ``cAOC order'') \14\ or a 
Complex Auction or Cancel eQuote (a ``cAOC eQuote'').\15\ RFR Responses 
must indicate their size and are firm (i.e., guaranteed at the RFR 
Response price and size) at the end of the Response Time Interval. The 
Exchange is proposing to amend Exchange Rule 518(d)(4) to cap the size 
of RFR Responses (i.e., cAOC orders and cAOC eQuotes) by stating that 
an RFR Response with a size greater than the aggregate size of interest 
at the same price on the same side of the market as the initiating 
Complex Auction-eligible order (the ``aggregate auctioned size'') \16\ 
will be capped for allocation purposes at the aggregate auctioned size. 
Thus, an RFR Response with a size greater than the aggregate auctioned 
size will be deemed to be for a size that is equal to the aggregate 
auctioned size.
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    \14\ A cAOC order is a complex limit order used to provide 
liquidity during a specific Complex Auction with a time in force 
that corresponds with that event. cAOC orders are not displayed to 
any market participant, and are not eligible for trading outside of 
the event. See Exchange Rule 518(b)(3).
    \15\ cAOC eQuote is an eQuote submitted by a Market Maker that 
is used to provide liquidity during a specific Complex Auction with 
a time in force that corresponds with the duration of the Complex 
Auction. cAOC eQuotes will not: (i) Be executed against individual 
orders and quotes resting on the Simple Order Book; (ii) be eligible 
to initiate a Complex Auction, but may join a Complex Auction in 
progress; (iii) rest on the Strategy Book; or (iv) be displayed. See 
Exchange Rule 518, Interpretations and Policies .02(c)(1).
    \16\ Incoming unrelated complex orders and quotes that are 
eligible to join a Complex Auction and are received during the 
Response Time Interval for a Complex Auction-eligible order will 
join the Complex Auction, will be ranked by price, and will be 
allocated pursuant to Rule 518(d)(7). See Exchange Rule 518(d)(8).
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    For consistency, the Exchange is proposing to amend Exchange Rule 
518(b)(3), which defines a cAOC order, to state that a cAOC order with 
a size greater than the aggregate auctioned size will be capped for 
allocation purposes at the aggregate auctioned size. Additionally, the 
Exchange is proposing to amend Rule 518, Interpretations and Policies 
.02, which defines a cAOC eQuote, to state that a cAOC eQuote with a 
size greater than the aggregate auctioned size (as defined in Rule 
518(d)(4)) will be capped for allocation purposes at the aggregate 
auctioned size.
    The purpose of capping the size of RFR Responses is to ensure that 
the System allocates contracts among participants in the Complex 
Auction based on the aggregate size of the Complex Auction-eligible 
order and interest joining the Complex Auction-eligible order being 
auctioned. Contracts in the Complex Auction are allocated on a pro-rata 
basis pursuant to Exchange Rule 514(c)(2) \17\ among participants in 
various categories that are ranked in priority order \18\ in Rule 
518(d)(7).
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    \17\ Exchange Rule 514(c)(2), Pro-Rata Allocation, states that 
under this method, resting quotes and orders on the Book are 
prioritized according to price. If there are two or more quotes or 
orders at the best price then the contracts are allocated 
proportionally according to size (in a pro-rata fashion). If the 
executed quantity cannot be evenly allocated, the remaining 
contracts will be distributed one at a time based upon price-size-
time priority.
    \18\ Orders and quotes executed in a Complex Auction are 
allocated pursuant to Exchange Rule 518(d)(7).
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    Capping the size of RFR Responses for purposes of pro-rata 
allocation is also designed to reduce the possibility that participants 
could circumvent or ``game'' the allocation rules through the 
submission of oversized RFR Responses. In fact, for the same purpose, 
the Exchange currently caps the size of certain orders in the simple 
market for allocation purposes. For example, the System will cap 
individual responses received during a liquidity refresh pause timer on 
the opposite side from the initiating order to the size of the 
initiating order and any same side joiners received during the 
liquidity refresh pause timer for purposes of pro-rata allocation 
against the initiating order and any same side joining interest 
received during the liquidity refresh pause.\19\ Also, in the MIAX 
PRIME Auction for simple orders, an RFR response with a size greater 
than the size of the Agency Order will be capped at the size of the 
Agency Order.\20\ The Exchange believes that adding the additional 
language regarding a cap applied to the size of RFR Responses will 
clarify the manner in which the System allocates contracts at the end 
of the Complex Auction so that market participants more clearly 
understand the treatment of their orders and quotes during the Complex 
Auction process, and will also reduce the impact of potentially 
manipulative behavior by market participants to alter the pro-rata 
allocation.
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    \19\ See Exchange Rule 515, Interpretations and Policies .03.
    \20\ See Exchange Rule 515A(a)(2)(i)(G).
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2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \21\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \22\ 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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    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange's proposal to set a Defined Time Period 
during which a Complex Auction will not be commenced is designed to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system and to protect investors and the 
public interest by ensuring that the System can complete the Complex 
Auction process before the end of the trading session. This guarantees 
that investors will receive the full benefit of the Complex Auction 
process and that Complex auctions on the Exchange will be

[[Page 87088]]

completed prior to the end of the trading session.
    The proposed rule change promotes just and equitable principles of 
trade by capping the size of RFR Responses, which ensures that the 
system allocates contracts among participants in the Complex Auction 
based on the actual aggregate size of the Complex Auction-eligible 
order and interest joining the Complex Auction-eligible order being 
auctioned.
    Furthermore, capping the size of RFR Responses for purposes of pro-
rata allocation is designed to prevent fraudulent and manipulative acts 
and practices by reducing the possibility that participants could 
circumvent or ``game'' the allocation rules through the submission of 
an oversized RFR Response. Moreover, the Exchange believes that adding 
the additional language regarding a cap applied to the size of RFR 
Responses removes impediments to and perfects the mechanisms of a free 
and open market and a national market system by clarifying the manner 
in which the System allocates contracts at the end of the Complex 
Auction so that market participants more clearly understand the 
treatment of their orders and quotes during the Complex Auction 
process.

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 that its proposal to cap the 
size of RFR Responses enhances competition in the Complex Auction by 
eliminating the ability of Complex Auction participants to ``game'' the 
pro-rata allocation, thus encouraging participants to submit 
competitive RFR Responses and ensuring that the size associated with 
their RFR Response will be calculated fairly as a percentage of the 
size associated with RFR Responses submitted to the Complex Auction.
    Additionally, the Exchange's proposal to establish a Defined Time 
Period prior to the end of the trading session within which the 
Exchange will not commence a Complex Auction is not competitive in 
nature. This proposal is intended to ensure that the Complex Auction 
process can be completed once it has begun, and to safeguard the 
orderliness of the MIAX marketplace at the end of the trading session.
    For all the reasons stated, 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, and 
believes the proposed change will in fact enhance competition.

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 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 from the date on which it was filed, or such shorter time as the 
Commission may designate, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \23\ and Rule 19b-4(f)(6) 
thereunder.\24\
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    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 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.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) \25\ 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 to allow the proposal to 
become immediately effective. As discussed above, the Exchange states 
that the proposal to set a Defined Time Period will help guarantee that 
Complex Auctions on the Exchange will be completed prior to the end of 
the trading session. The Exchange also states that its proposal to cap 
the size of RFR Responses for purposes of pro-rata allocation is 
designed to reduce the possibility that participants could circumvent 
or ``game'' the allocation rules through the submission of an oversized 
RFR Response. In addition, as discussed above, MIAX also caps the size 
of responses to its PRIME Auction and responses received during a 
liquidity refresh pause in its simple market. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest because the proposed 
rule change will allow the Exchange to implement the Defined Time 
Period in its Complex Auction, which the Exchange states will ensure 
that Complex Auctions begun just prior to the end of the trading 
session will be completed before the end of the trading session. In 
addition, the Commission believes that waiving the 30-day operative 
delay for the Exchange's proposal to cap the size of RFR Responses is 
consistent with the protection of investors and the public interest 
because the proposed rule change is consistent with treatment of 
certain orders in the Exchange's simple market.\26\
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    \25\ 17 CFR 19b-4(f)(6)(iii).
    \26\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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-2016-44 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-2016-44. 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

[[Page 87089]]

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-2016-44 and should be submitted on or before 
December 23, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-28928 Filed 12-1-16; 8:45 am]
 BILLING CODE 8011-01-P


