[Federal Register Volume 78, Number 90 (Thursday, May 9, 2013)]
[Notices]
[Pages 27269-27271]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-11000]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69507; File No. SR-MIAX-2013-20]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Allow All Lead Market Makers To Receive 
Directed Orders

May 3, 2013.
    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 May 1, 2013, 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, 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 provide that an Electronic 
Exchange Member can designate a Lead Market Maker, regardless of 
appointment, on orders it enters into the System.
    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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to provide that an Electronic Exchange Member 
(``EEM'') can designate a Lead Market Maker (``LMM''), regardless of 
appointment, on orders it enters into the System. Currently, Rule 
514(h) provides that a ``Lead Market Maker must have an appointment in 
the relevant option class in order to receive a Directed Order in that 
option class.'' The Exchange proposes modifying that sentence so that 
it would apply to eligibility for the Directed Lead Market Maker 
(``DLMM'') participation entitlement rather than the ability to be sent 
a Directed Order by an EEM. As proposed, the sentence would read: 
``[t]he Directed Lead Market Maker must have an appointment in the 
relevant option class at the time of receipt of the Directed Order to 
be eligible to receive the Directed Lead Market Maker participation 
entitlement.'' The proposal would allow an EEM to send a Directed Order 
to any LMMs--which includes both (i) LMMs with an appointment in the 
relevant option class and (ii) LMMs without an appointment in the 
relevant option class. The first group, LMMs with an appointment, 
represents no change from the current rule. The second group, however, 
would be a new addition to the current rule. This modification would 
preserve the current structure of reserving the DLMM participation 
entitlement for DLMMs with an appointment in the relevant option class, 
yet would allow an EEM to send a Directed Order to any LMM as 
consistent with the proposed language of Rule 100, described below.
    The Exchange believes that allowing EEMs to direct orders to LMMs 
regardless of appointment promotes increased order flow to the Exchange 
while maintaining the existing appropriate balance between benefits and 
obligations regarding the DLMM participation entitlement. Directed 
Orders serve as a tool for LMMs to attract order flow to the exchange. 
An LMM without an appointment in an option class cannot quote in that 
option class and will therefore most likely never trade with a Directed 
Order sent to it in that option class. However, the LMM without an 
appointment can be incentivized to attract Directed Orders

[[Page 27270]]

in such option classes through the collection of related marketing 
fees.\3\ The increased order flow provided by these Directed Orders 
benefits Exchange market participants, such as customers with resting 
orders on the System and LMMs with an appointment in the relevant 
option class that can quote in the option. However, LMMs without an 
appointment in the relevant option class cannot partake in the DLMM 
participation entitlement. Instead, this benefit is reserved for LMMs 
appointed in the relevant option class, who must meet various quoting 
and other obligations not applicable to LMMs without an appointment in 
the relevant option class.\4\ Additionally, pursuant to Rule 514(h)(1) 
the DLMM participation entitlement can only be earned, among other 
things, if the DLMM has a priority quote at the national best bid or 
offer.
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    \3\ See Securities Exchange Act Release No. 68131 (November 1, 
2012), 77 FR 67032 (November 8, 2012) (SR-CBOE-2012-101) in which 
CBOE amended its Fees Schedule to allow PMMs to access marketing 
fees generated from Preferred Orders (its equivalent of Directed 
Orders), regardless of whether the order is for a class in which the 
PMM has an appointment. The Exchange notes that this proposal is 
limited to changes to Rule 514 only and not the Exchange's Fee 
Schedule, which will be addressed in a separate filing.
    \4\ See Exchange Rule 603 (Obligations of Market Makers) and 
Rule 604 (Market Maker Quotations).
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    The Exchange notes that several other options exchanges also have 
Directed Order programs.\5\ The Chicago Board of Options Exchange, LLC 
(``CBOE''), for instance, operates its ``Preferred Market-Maker 
Program'' where members can designate a specific Market-Maker 
(``Preferred Market-Maker'' or ``PMM'') on an order sent to CBOE.\6\ 
CBOE allows the PMM to collect marketing fees, regardless of whether 
the PMM has an appointment in the relevant option class.\7\ Finally, 
CBOE reserves its participation entitlement for PMMs with an 
appointment in the relevant option class quoting at the best bid or 
offer on the CBOE.\8\ The Exchange believes that its proposal would 
allow the Exchange's Directed Order program to operate similar to and 
in a consistent manner as equivalent programs at the exchanges cited 
above.
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    \5\ See Chicago Board of Options Exchange, LLC Rule 8.13; NASDAQ 
OMX Phlx, LLC Rule 1080(l); NYSE Amex Options Rule 964.1NY; 
International Securities Exchange, LLC Rule 811.
    \6\ See CBOE Rule 8.13 (Preferred Market-Maker Program).
    \7\ See CBOE Fees Schedule, table entitled ``Marketing Fee'' and 
Footnote 6 for more details regarding the marketing fee. See also 
Securities Exchange Act Release No. 68131 (November 1, 2012), 77 FR 
67032 (November 8, 2012) (SR-CBOE-2012-101) in which CBOE amended 
its Fees Schedule to allow PMMs to access marketing fees generated 
from Preferred Orders (which are similar to Directed Orders), 
regardless of whether the order is for a class in which the PMM has 
an appointment.
    \8\ See CBOE Rule 8.13(b).
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    The Exchange also proposes a technical change to relocate existing 
language found in 514(a) and (h) to the definition section in Rule 100. 
Specifically, the Exchange proposes adding ``Directed Order'' as a 
defined term in Rule 100. In Rule 100, ``Directed Order'' would be 
defined as ``an order entered into the System by an Electronic Exchange 
Member with a designation for a Lead Market Maker (referred to as a 
``Directed Lead Market Maker''). Only Priority Customer Orders will be 
eligible to be entered into the System as a Directed Order by an 
Electronic Exchange Member.'' The Exchange proposes replacing the 
definition of ``Directed Order'' currently found in Rule 514(a) with a 
reference to the proposed Rule 100 definition. The language of the 
proposed Rule 100 definition contains a slight change from Rule 514(a) 
to reflect that an EEM technically ``enters'' a Directed Order into the 
Exchange System rather than ``routes'' such a Directed Order.
    Because of the technology changes associated with this rule 
proposal, the Exchange will announce the implementation date of the 
proposal in a Regulatory Circular to be published no later than 30 days 
after the publication of the notice in the Federal Register. The 
implementation date will be no later than 30 days following publication 
of the Regulatory Circular announcing publication of the notice in the 
Federal Register.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \9\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \10\ 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, and it is not 
designed to permit unfair discrimination among customers, issuers, 
brokers, or dealers.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that this proposal removes a requirement that 
other exchanges do not share and perfects the mechanism for a free and 
open market and a national market system by allowing the Exchange's 
Directed Order program to operate in a manner similar to competing 
options exchanges.
    The Exchange believes that allowing LMMs without an appointment in 
the relevant option class to be sent Directed Orders promotes just and 
equitable principles of trade because such LMMs have provided a valued 
service to the Exchange through their appointment in other options 
traded on the Exchange in a manner that protects investors and the 
public interest. In other options classes, these LMMs have met 
additional quoting and other regulatory obligations compared to other 
Exchange participants and have thus demonstrated a commitment to 
providing liquidity on the Exchange. The proposal preserves the benefit 
of the DLMM participation entitlement to LMMs who have an appointment 
in the relevant option class and must therefore satisfy additional 
quoting and other obligations not faced by Market Makers in the 
relevant class and LMMs without an appointment in the relevant class. 
The Exchange believes that satisfying such additional quoting and other 
obligations balances the benefit of the DLMM participation entitlement 
and justifies limiting the DLMM participation entitlement to LMMs with 
an appointment in the relevant option class.
    Finally, the Exchange believes the proposal will encourage greater 
order flow to be sent to the Exchange through Directed Orders and that 
this increased order flow will benefit all market participants on the 
Exchange.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes that 
allowing EEMs to be able to direct orders to all LMMs will increase 
order flow and liquidity for all market participants on the Exchange. 
The Exchange believes that limiting the class of market participants 
that can be directed orders to LMMs to be fair and reasonable because 
LMMs provided a valued service to the Exchange through their 
appointment in options traded on the Exchange. LMMs meet additional 
quoting and other regulatory obligations compared to other Exchange 
participants and have thus demonstrated a commitment to providing 
liquidity on the Exchange. The Exchange believes that limiting the 
benefit of the DLMM participation entitlement to DLMMs who have an 
appointment in the relevant option class

[[Page 27271]]

to be fair and reasonable because these DLMMs satisfy additional 
quoting and other obligations in the specific option class not faced by 
either Market Makers in the relevant class or DLMMs without an 
appointment in the relevant class. The Exchange believes that 
satisfying additional quoting and other obligations balances the 
benefit of the DLMM participation entitlement and justifies limiting it 
to DLMMs with an appointment in the relevant option class. The Exchange 
notes that such a limitation on the DLMM participation is not new to 
this proposal, but is a continuation of the current operation of Rule 
514(h).
    The Exchange notes that it operates in a highly competitive market 
in which market participants can readily direct order flow to competing 
venues who offer similar functionality. Many competing venues offer 
similar functionality to market participants. To this end, the Exchange 
is proposing a market enhancement to encourage market participants to 
trade on the Exchange. The Exchange believes the proposed rule change 
is procompetitive because it would enable the Exchange to provide 
member organizations with functionality that is similar to that of 
other exchanges.

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 \11\ and Rule 19b-4(f)(6) \12\ 
thereunder.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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 [email protected]. Please include 
File Number SR-MIAX-2013-20 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-MIAX-2013-20. 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-2013-20 and should be 
submitted on or before May 30, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Kevin M. O'Neill,
Deputy Secretary.
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    \13\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2013-11000 Filed 5-8-13; 8:45 am]
BILLING CODE 8011-01-P