
[Federal Register Volume 82, Number 38 (Tuesday, February 28, 2017)]
[Notices]
[Pages 12153-12156]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-03843]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80089; File No. SR-MIAX-2017-06]


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

February 22, 2017.
    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 February 14, 2017, Miami International 
Securities Exchange, LLC (``MIAX Options'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') a 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 MIAX Options Rule 518, 
Complex Orders, to reflect a new price protection feature, the Complex 
MIAX Options Price Collar.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.miaxoptions.com/rule-filings, 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
    In October 2016, the Exchange adopted rules governing the trading 
in, and detailing the functionality of the MIAX Options System \3\ in 
the handling of, complex orders on the Exchange.\4\ In order to further 
support the trading of complex orders on the Exchange, the Exchange is 
proposing to establish an additional price protection feature for 
complex orders, the Complex MIAX Options Price Collar (``MPC''). The 
proposed MPC price protection feature is designed to help maintain a 
fair and orderly market by helping to mitigate the potential risk of 
executions at prices that are extreme and potentially erroneous.
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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\ See Securities Exchange Act Release No. 79072 (October 7, 
2016), 81 FR 71131 (October 14, 2016) (SR-MIAX-2016-26).
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    The MPC would prevent complex orders from automatically executing 
at potentially erroneous prices by establishing a price range outside 
of which a complex order will not be

[[Page 12154]]

executed. Accordingly, the Exchange proposes to amend Rule 518(c)(1) by 
adding new sub-paragraph (iv), which will state that a complex order or 
eQuote (as defined in Interpretations and Policies .02 of Rule 518) 
will not be executed at a price that is outside of its MPC Price (as 
defined in proposed Interpretations and Policies .05(f) of the Rule) or 
its limit price.
    The Exchange also proposes to amend Exchange Rule 518(c)(2)(ii) 
concerning prices at which complex orders are executed on the Exchange. 
Specifically, the Exchange proposes to amend Rule 518(c)(2)(ii) by 
adding to existing rule text that states that complex orders and quotes 
and are subject to the MPC price protection feature described in 
proposed Interpretations and Policies .05(f) of Rule 518.
    Proposed Rule 518, Interpretations and Policies .05, Price and 
Other Protections, lists several features that protect and help Members 
manage their risk in the trading of complex orders on MIAX Options. 
Proposed new Interpretations and Policies .05(f) describes the MPC 
protection feature and its functionality.
    The MPC price protection feature is an Exchange-wide price 
protection mechanism, meaning that it will apply to all options listed 
on the Exchange for which complex orders are traded.\5\ Under proposed 
Rule 518, Interpretations and Policies .05(f), a complex order or 
complex eQuote \6\ to sell will not be displayed or executed at a price 
that is lower than the opposite side Complex National Best Bid and 
Offer (``cNBBO'') \7\ bid at the time the MPC is assigned by the System 
(i.e., upon receipt or upon opening) by more than a specific dollar 
amount expressed in $0.01 increments (the ``MPC Setting''), and under 
which a complex order or eQuote to buy will not be displayed or 
executed at a price that is higher than the opposite side cNBBO offer 
at the time the MPC is assigned by the System by more than the MPC 
Setting (each the ``MPC Price''). A complex order or a portion of a 
complex order that cannot be executed at or within the MPC Price will 
be placed on the Strategy Book, or be cancelled if it would otherwise 
be executed or placed on the Strategy Book at a price that is outside 
of the MPC Price. All complex orders and eQuotes are subject to the MPC 
price protection feature.
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    \5\ Only those complex orders in the classes designated by the 
Exchange and communicated to Members via Regulatory Circular with no 
more than the applicable number of legs, as determined by the 
Exchange on a class-by-class basis and communicated to Members via 
Regulatory Circular, are eligible for processing. See Exchange Rule 
518(a)(5).
    \6\ Market Maker complex quotes may be entered as either complex 
Standard quotes or complex eQuotes. A complex Standard quote is a 
complex quote submitted by a Market Maker that cancels and replaces 
the Market Maker's previous complex Standard quote for that side of 
the strategy, if any. A complex eQuote is a complex quote submitted 
by a Market Maker with a specific time in force that does not 
automatically cancel and replace the Market Maker's previous complex 
Standard quote or complex eQuote. See Exchange Rule 518, 
Interpretations and Policies .02(a)(2).
    \7\ The cNBBO is calculated using the NBBO for each component of 
a complex strategy to establish the best net bid and offer for a 
complex strategy. For stock option orders, the cNBBO for a complex 
strategy will be calculated using the NBBO in the individual option 
component(s) and the NBBO in the stock component. See Exchange Rule 
518(a)(2).
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MPC Example #1--Order Cancelled Due to Price Protection
    The MPC Setting is $0.05 through the opposite cNBBO at the time of 
receipt.

The Displayed Complex MIAX Best Bid or Offer (dcMBBO) is $1.00 x $1.15
The Complex National Best Bid or Offer (cNBBO) is $1.00 x $1.07

    A market order to buy 10 Strategies is received.

The order's protected offer price (the MPC Price) is $1.12 ($1.07 + 
$0.05 = $1.12)
The MIAX Options Best Offer in the Strategy is $1.15, however the order 
will not trade through its MPC Price ($1.12) and is cancelled due to 
price protection

    In order to account for changes in market conditions, volatility, 
outside events and other issues that affect the marketplace, the 
Exchange is proposing to make the MPC Setting configurable, subject to 
a minimum and maximum value that is expressed as a dollar amount. 
Proposed Rule 518, Interpretations and Policies .05(f)(2) would provide 
that the minimum MPC Setting is $0.00 and the maximum MPC Setting is 
$1.00, as determined by the Exchange and communicated to Members via 
Regulatory Circular. The MPC Setting will apply equally to all options 
listed on the Exchange in which complex orders are available, and will 
be the same dollar amount for both buy and sell transactions. The 
Exchange is proposing to adopt the MPC Setting as a specific dollar 
amount to be added to the cNBBO offer in the case of buy orders, and 
subtracted from the cNBBO bid in the case of sell orders.
    The MPC price protection feature is similar to price protections 
that are currently operative on other exchanges,\8\ however the 
Exchange's proposal would establish a specific dollar amount, rather 
than a percentage, as the MPC Setting. The Exchange believes that it is 
more efficient to establish the MPC Setting as a specific Exchange-wide 
dollar amount because percentages can grow very large or very small on 
a relative basis depending on the price of the order or the size of the 
bid/ask spread. For instance, a 10% MPC Setting through a $0.09 offer 
is $0.009, not even one minimum increment in a penny class, whereas a 
10% MPC Setting through a $25.00 offer is $2.50 or 250 minimum 
increments through the offer in a penny class (25 minimum increments 
through the offer in a class where the increment is $0.10). The 
Exchange believes that the establishment of a percentage, rather than a 
dollar amount, could render the MPC price protection feature less 
effective at relatively low or high prices, especially taking into 
account the different trading increments that apply, depending upon the 
price. Therefore, the Exchange has determined to establish the MPC 
Setting as a dollar amount.
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    \8\ See, e.g., Chicago Board Options Exchange, Inc. (``CBOE'') 
Rule 6.53C.08(e); NASDAQ PHLX LLC (``Phlx'') Rule 1098(h)(i). The 
instant MIAX proposal is similar to each of these rules, with slight 
differences as described in detail in Section 8 below. It is also 
substantially similar to current Exchange rules concerning price 
protection of simple orders as described below, under which market 
participants may specify the level of price protection by the number 
of price-points at which an order may trade. See Exchange Rule 
515(c)(1).
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    Proposed Rule 518.05(f)(3) states that the MPC Price is established 
(i) upon receipt of the complex order or eQuote during free trading,\9\ 
or (ii) if the complex order or eQuote is not received during free 
trading: (A) At the beginning of a Complex Auction; (B) at the opening 
(or reopening following a halt) of trading in the complex strategy; or 
(C) upon evaluation of the Strategy Book by the System when a wide 
market condition, as described in Exchange Rule 518, Interpretations 
and Policies .05(e)(1) \10\ of this Rule, no longer exists. Once 
established, the MPC Price will not change during the life of the 
complex order.\11\ The purpose of this provision is to ensure that the 
MPC Price is established against the opposite side of the market (using 
the cNBBO) at

[[Page 12155]]

the time the order is evaluated by the System either, as stated above, 
upon receipt or pursuant to the enumerated conditions in proposed Rule 
518.05(f)(3)(ii) giving rise to the commencement or re-commencement of 
trading. By establishing this limit only one time and retaining it for 
the life of the order, the Exchange believes that it preserves the 
added systemic value of price protection and de facto drill-through 
protection for the order or quote measured against the opposite side 
cNBBO at or near its initial execution price.
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    \9\ The term ``free trading'' means trading that occurs during a 
trading session other than: (i) at the opening or re-opening for 
trading following a halt, or (ii) during the Complex Auction Process 
(as described in Rule 518(d)). See Exchange Rule 518(a)(10).
    \10\ A ``wide market condition'' is defined as any individual 
component of a complex strategy having, at the time of evaluation, 
an MBBO quote width that is wider than the permissible valid quote 
width as defined in Rule 603(b)(4). See Exchange Rule 518.05(e)(1).
    \11\ Complex orders (and unexecuted portions of complex orders) 
with a time-in-force of Good Til Cancelled (``GTC'') will retain 
their initial MPC Price in the System until executed or cancelled.
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    If the MPC Price is priced less aggressively than the limit price 
of the complex order or eQuote (i.e., the MPC Price is less than the 
complex order or eQuote's bid price for a buy, or the MPC Price is 
greater than the complex order or eQuote's offer price for a sell), or 
if the complex order is a market order, the complex order or eQuote 
will be displayed and/or executed up to its MPC Price. Any unexecuted 
portion of such a complex order or eQuote: (A) Will be cancelled if it 
would otherwise be displayed or executed at a price that is outside the 
MPC Price, and (B) may be subject to the managed interest process 
described in Rule 518(c)(4).
    In addition to the proposed amendments relating to the MPC, 
proposed amended Rule 518(c)(4) is intended to address the situation in 
which a complex order is priced more aggressively than the icMBBO in 
the managed interest process. Specifically, should the Implied Complex 
MIAX Best Bid or Offer (``icMBBO'') \12\ change, the complex order's 
book and display price will, as today, continuously re-price to the new 
icMBBO until the complex order has been executed in its entirety. Under 
the proposal, if not executed, the complex order's book and display 
price will continuously re-price to the new icMBBO until the complex 
order has been placed on the Strategy Book at prices up to and 
including its limit price or, in the case of a complex market order or 
a limit order that is priced more aggressively than the new icMBBO 
(i.e., lower than the icMBBO bid for an order to sell or higher than 
the icMBBO offer for an order to buy), at the new icMBBO.
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    \12\ The icMBBO is a calculation that uses the best price from 
the Simple Order Book for each component of a complex strategy 
including displayed and nondisplayed trading interest. For stock-
option orders, the icMBBO for a complex strategy will be calculated 
using the best price (whether displayed or non-displayed) on the 
Simple Order Book in the individual option component(s), and the 
NBBO in the stock component. See Exchange Rule 518(a)(11).
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    The cancellation in this circumstance would apply only if the MPC 
Price is priced less aggressively than the limit price because the 
System will not place complex orders on the Strategy Book at a price 
that is through the MPC Price. Once the MPC Price would be exceeded, 
any unexecuted portion is cancelled back to the submitting participant 
so the submitting participant can decide how they would like to proceed 
with the order once it has reached its MPC Price and contracts remain 
to be executed. The purpose of this provision is to ensure that the 
Exchange will not display a complex order at a price at which it would 
never be executed (i.e., outside of the MPC Price).
    If the MPC Price is priced more aggressively than the limit price 
of the complex order or eQuote, (i.e., the MPC Price is greater than 
the complex order or eQuote's bid price for a buy, or the MPC Price is 
less than the complex order or eQuote's offer price for a sell), the 
complex order or eQuote will be displayed and/or executed up to its 
limit price. Any unexecuted portion of such a complex order will be 
submitted, if eligible, to the managed interest process described in 
Rule 518(c)(4), or placed on the Strategy Book at its limit price. Any 
unexecuted portion of such a complex eQuote will be cancelled.\13\
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    \13\ A complex eQuote is either a Complex Auction or Cancel 
eQuote (``cAOC eQuote'') or a Complex Immediate or Cancel eQuote 
(``cIOC eQuote''). See Exchange Rule 518, Interpretations and 
Policies .02(c). Because an eQuote has a time-in-force of IOC, the 
unexecuted portion of an eQuote would be cancelled if not executed 
immediately.
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MPC Example #2--Order is Managed as Part of the Managed Interest 
Process
    The MPC Setting is $0.05 through the opposite cNBBO at the time of 
receipt.

The dcMBBO is $1.00 x $1.10
The icMBBO is also $1.00 x $1.10
The cNBBO is $1.00 x $1.07

    A market order to buy 10 Strategies is received. The Strategy is 
not eligible for legging.

The MPC Price is $1.12 ($1.07 + $0.05 = $1.12)
The order is placed on the Strategy Book and managed to the icMBBO 
offer of $1.10
The offer remains displayed at the dcMBBO of $1.10

    The Exchange is also proposing to include the MPC Price as part of 
the evaluation process undertaken by the System upon receipt of a 
complex order. In order to account for such an evaluation by the 
System, the Exchange proposes to amend current Rule 518(c)(5)(i), 
Evaluation Upon Receipt During Trading, to state that, in addition to 
the other factors the System evaluates upon receipt of a complex order, 
the System will also evaluate and determine the complex order's MPC 
Price.
    The Exchange believes that the proposed MPC Price and MPC Setting 
will enhance the ability of MIAX participants to mitigate the potential 
risk of executions at prices that are extreme and potentially 
erroneous, and thus better manage their risk tolerance levels.
    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 \14\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \15\ 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, and it is not designed to 
permit unfair discrimination among customers, brokers, or dealers.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed MIAX Options Price Collar 
is consistent with the Act because it is designed 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, by avoiding execution of complex orders at prices that are 
significantly away from the cNBBO at the time the MPC Price is 
initially established pursuant to proposed Rule 518.05(f)(3). The 
Exchange believes that the cNBBO provides reasonable guidance with 
respect to the current value of a complex order.
    The Exchange further believes that the proposed MPC price 
protection parameters and mechanisms for orders and quotes protect 
investors and the public interest in that they are reasonably designed 
to provide MIAX Options participants with additional tools to assist 
them in managing their risk exposure. Specifically, the proposed MPC 
Price and MPC Setting should help MIAX Options participants

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mitigate the potential risks associated with entering complex orders or 
eQuotes that result in the execution of contracts at prices that are 
the result of extremely volatile market conditions that were not 
present at the time of receipt or evaluation of the complex order or 
eQuote.
    The Exchange believes that the proposed amendments to Exchange Rule 
518(c)(4) is designed to protect investors and the public interest 
because those amendments ensure that the MPC provides price protection 
in the managed interest process in the situation where a complex limit 
order is priced more aggressively than the icMBBO, in the same manner 
as a complex market order.
    Additionally, the proposed MPC Price and MPC Setting are designed 
to remove impediments to and perfect the mechanisms of a free and open 
market and a national market system and by helping MIAX Options 
participants avoid executions at extreme and erroneous prices that may 
result from, for example, technology issues with the MIAX Options 
participant's electronic trading system. To this extent, the MPC Price 
and MPC Setting may help act as a backstop to the MIAX Options 
participant's own controls and provide an additional layer of 
protection.

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.
    The Complex MIAX Options Price Collar is available to all 
participants trading complex orders, and should provide MIAX Options 
participants with additional price protection from extreme and 
erroneous executions. Thus, the Exchange does not believe the proposal 
creates any significant impact on competition.
    Additionally, respecting intra-market competition, the proposed 
MIAX Options Price Collar enhances competition because it is similar to 
price protections on other exchanges,\16\ and thus should enable the 
Exchange to compete for order flow by ensuring the same or similar 
protection.
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    \16\ See supra note 8.
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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-2017-06 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-2017-06. 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-2017-06 and should be 
submitted on or before March 21, 2017.

    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. 2017-03843 Filed 2-27-17; 8:45 am]
 BILLING CODE 8011-01-P


