[Federal Register Volume 79, Number 103 (Thursday, May 29, 2014)]
[Notices]
[Pages 30908-30911]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-12424]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72228; File No. SR-MIAX-2014-18]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Exchange Rule 503
May 22, 2014.
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 13, 2014, 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 the
Substance of the Proposed Rule Change
The Exchange is filing a proposal to amend MIAX Rule 503 with
respect to the Opening Process in an option series.
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 Rule 503 to change the definition of
a valid width NBBO and valid width quote to correspond to the standard
bid-ask differential specified under Rule 603(b)(4)(i). The Exchange's
current methodology to start the Opening Process is not conducive to a
quick and efficient opening on the Exchange. The proposed rule change
will amend the current process to provide that the bid-ask differential
to allow for the Exchange System to start the Opening Process based on
the bid-ask differentials specified in Rule 603(b)(4)(i), which are
wider than the bid-ask differential of Rule 603(b)(4)(ii).\3\ In
addition, the Exchange proposes some technical changes related to the
removal of the narrow-width quote standard from Rule 603(b)(4)(ii), as
it would no longer be necessary once the definition of a valid width
NBBO and valid width quote is updated to correspond to Rule
603(b)(4)(i).
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\3\ For purposes of this filing, the quote width in Rule
603(b)(4)(i) will be referred to as the ``standard-width quote'' and
that of Rule 603(b)(40(ii) [sic] will be referred to as the
``narrow-width quote.''
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Current Opening Process
Currently, Rule 503 describes the process pursuant to which the
Exchange System opens an option series. Pursuant to the procedures
described in Rule 503(e), after an initial pause following the
dissemination of a quote or trade in the market for the underlying
security, the Opening Process starts with one of the following events:
(i) The Primary Lead Market Maker's valid width quote has been
submitted; (ii) the valid width quotes of at least two Market Makers,
where at least one is a Lead Market Maker have been submitted; or (iii)
for multiply listed option classes, at least one Eligible Exchange (as
defined in Rule 1400(f)) has disseminated a quote in the individual
option in accordance with Rule 1402(a), there is a valid width NBBO
available and the valid width quote of at least one Lead Market Maker
[[Page 30909]]
has been submitted.\4\ For the purposes of Rule 503(e) both a valid
width NBBO and valid width quote is one where the bid and offer differ
by no more than the differences outlined in Rule 603(b)(4)(ii), the
narrow-width quote.\5\ Additionally, if after two minutes following the
dissemination of a quote or trade in the market for the underlying
security none of the provisions described above have occurred, then the
opening process can begin when one Market Maker has submitted its valid
width quote.\6\ The Primary Lead Market Maker assigned in a particular
equity option class must enter valid width quotes not later than one
minute following the dissemination of a quote or trade by the market
for the underlying security.\7\ A Registered Market Maker that submits
a quote pursuant to this Rule 503 in any series when a Lead Market
Maker's or Primary Lead Market Maker's quote has not been submitted
shall be required to submit continuous, two-sided quotes in such series
until such time as a Lead Market Maker submits his/her quote, after
which the Registered Market Maker that submitted such quote shall be
obligated to submit quotations pursuant to Rule 604(e)(3).\8\
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\4\ See Rule 503(e).
\5\ See Rule 603(b)(4)(ii). The bid-ask guidelines specified in
Rule 603(b)(4)(ii) that are required to start the Opening Process
are narrower than the $5 wide bid-ask differential for options
traded after the opening rotation. See also Rule 603(b)(4)(i). Rule
603(b)(4)(i) provides that options traded after the opening rotation
may be quoted with a difference not to exceed $5 between the bid and
offer regardless of the price of the bid.
\6\ See Rule 503(e)(4).
\7\ See Rule 503(e)(5).
\8\ See Rule 503(e)(6).
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Once the Opening Process has been started, the Exchange System will
either open with a quote or a trade. Rule 503(f)(1) provides the
mechanism by which the Exchange System will open on a quote.\9\
Pursuant to Rule 503(f)(1), the Exchange System, if there are no quotes
or orders that lock or cross each other, will open by disseminating the
Exchange's best bid and offer among quotes and orders that exist in the
System at that time. The remainder of Rule 503(f) provides how the
Exchange System operates when opening with a trade--scenarios where
there are quotes or orders that lock or cross an order. Rule 503(f)(2)-
(11) provides the mechanics of how the Exchange System calculates the
price of an opening trade and handles any imbalance that may occur.\10\
For purposes of opening with a trade, Rule 503(f) utilizes the narrow-
width quote used to first start the Opening Process pursuant to Rule
503(e).
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\9\ See Rule 503(f)(1).
\10\ See Rule 503(f).
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Proposed Change to Opening Process
The Exchange proposes to amend Rule 503(e)(2) and (3) to change the
definition of a valid width NBBO \11\ and valid width quote \12\ to
correspond to the standard bid-ask differential specified under Rule
603(b)(4)(i). As noted above, the Exchange currently uses the narrow-
width quote to define a valid width NBBO and valid width quote. The
Exchange proposes to replace references to Rule 603(b)(4)(ii) in Rule
503(e)(2) and (3) with the standard-width quote of Rule 603(b)(4)(i).
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\11\ See Rule 503(e)(2).
\12\ See Rule 503(e)(3).
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Rule 603(b)(4)(i) provides that options, following the opening
rotation, may be quoted with a difference not to exceed $5 between the
bid and offer regardless of the price of the bid. The proposed change
will align the requirements to open the unopened series on a quote with
the existing Market Marker quoting requirements following the opening
rotation.
The Exchange believes that the application of the narrow-width
quoting requirement of Rule 603(b)(4)(ii) to start the Opening Process
prevents series from opening promptly and thus unnecessarily delays the
execution of orders on the Exchange. The Exchange believes that setting
a wider quote differential requirement to start the Opening Process
would expedite the opening of all options series on the Exchange
promptly after the opening of the underlying security. The Exchange
believes that market participants will benefit by having the ability to
execute orders on the Exchange without unnecessary delay. In addition,
applying the standard-width quote bid-ask differential to start the
Opening Process is consistent with the quoting requirements that are
applicable following the start of regular trading.
The Exchange further believes that applying the standard-width
quote to start the Opening Process is appropriate because it would more
closely align the Exchange's Rules with the rules of other option
exchanges with respect to opening a series--specifically in the area of
opening a series on a quote. Other options exchanges have the ability
to open a series for trading when there are no executable orders and/or
quotes to conduct an auction. BOX Options Exchange (``BOX'') and NASDAQ
Options Market (``NOM''), allow for the opening of series without
conducting an opening auction. Similar to the Exchange's proposal, NYSE
Arca opens option series for trading after receiving notification of an
initial NBBO disseminated by OPRA for the series or on a Market Maker
quote, provided that the bid-ask differential does not exceed its
standard-width quote of $5 when not opening with a trade.\13\ On BOX,
the BOX system attempts to conduct an opening match (similar to the
Exchange's Opening Process) to determine a single price at which a
particular option series will be opened.\14\ However, if the BOX system
is not able to determine an opening price, the option series will
nevertheless move from the ``Pre-Opening Phase'' to the continuous
trading phase and the option series will be open for trading. When the
option series move from Pre-Opening Phase to the continuous trading
phase, there is no requirement for a bid-ask differential to be met.
Market makers on BOX would only be required to meet the $5 bid-ask
differential in the option series if and when they ever decided to
quote.\15\ Similarly, NOM has no bid-ask differential requirements to
open a series if an ``Opening Cross'' (similar to Trading Auction)
cannot be initiated because there are no opening quotes or orders that
lock or cross each other.\16\ Specifically, if an Opening Cross cannot
be initiated because there are no opening quotes or orders that lock or
cross each other, the option series will open for trading on NOM.\17\
Market makers on NOM would only be required to meet the $5 bid-ask
differentials in the option series if and when they ever decided to
quote.\18\ Both, BOX and NOM could open options series and disseminate
a protected quotation without the benefit of Market Maker quotation to
facilitate price discovery.
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\13\ See NYSE Arca Rule 6.64(b)(E). See also Securities Exchange
Release No. 68290 (November 26, 2012), 77 FR 71469 (November 30,
2012) (SR-NYSEArca-2012-126).
\14\ See BOX Rule 7070(e).
\15\ See BOX Rule 7070(f). See also BOX Rule 8040, which sets
forth BOX market maker quoting obligations.
\16\ See NOM Chapter VI, Section 8(c)(1).
\17\ See id.
\18\ See NOM Chapter VII, Section 6(d).
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By contrast, currently, if the options series does not meet the
narrow-width quotes, the series will not start the Opening Process and
not open at all on the Exchange, which differs from NYSE Arca, BOX and
NOM. As noted above, NYSE Arca requires a Market Maker quote that meets
the standard-width requirement to open with a quote and neither BOX nor
NOM require any bid-ask differential to be met prior to opening series
for trading with a quote. The current inability of the Exchange to
[[Page 30910]]
open a series without quotes subject to a narrow-width quote
requirement puts the Exchange at a competitive disadvantage to other
options exchanges that do not have that similar restriction. By not
opening the option series, the Exchange cannot display orders in the
Exchange System and thus has no protected quotation in the options
series. Until the options series officially opens for trading, the
Exchange cannot route out orders in the Exchange System pursuant to
Linkage, nor can it have a protected quote that draws trading interest
from other options markets. The Exchange believes that the delay in
execution of orders on the Exchange in this situation is unnecessary
and harmful to market participants. The Exchange's proposal would
provide for the ability to open an option series on a quote in a
similar fashion as NYSE Arca, BOX, and NOM. The Exchange believes that
having a bid-ask differential requirement to open a series is
beneficial for opening series and helps ensure there is a sufficient
quoted market in the options series, whether it is via NBBO from OPRA
or Market Maker generated quote, prior to opening of the series on the
Exchange to facilitate transactions in securities on the Exchange.
Technical Changes
To clarify that the Exchange System uses the standard-width quote
standard to start the Opening Process, the Exchange proposes to delete
Rule 603(b)(4)(ii). Related to the proposed deletion of Rule
603(b)(4)(ii), the Exchange further proposes replacing the reference to
Rule 603(b)(4)(ii) within Rule 521 (Obvious and Catastrophic Errors)
with the specific bid-ask differential contained in Rule 603(b)(4)(ii)
so that Rule 521 will be substantially unchanged and remain operatively
the same.
2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with Section 6(b) \19\ of the Act in general, and furthers the
objectives of Section 6(b)(5) \20\ of the Act 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.
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\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(5).
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The proposed rule change is designed to remove impediments to, and
perfect the mechanism of, a free and open market and a national market
system because it would permit the Exchange to utilize the standard-
width quote bid-ask differential to start the Opening Process which
will expedite the opening of all options series on the Exchange
promptly after the opening of the underlying security, and thus remove
impediments to and perfect the mechanism of a free and open market in a
way that benefits market participants and enables them to execute their
orders on the Exchange.
The proposed rule change contributes to the protection of investors
and the public interest by ensuring that if the Exchange should open a
series on a quote the opening quote will be within the standard bid-ask
differential of Rule 603(b)(4)(i). The Exchange believes this offers
better protection than the alternative of requiring no bid-ask
differential when opening an option series on a quote.
The proposal would provide fair and orderly means to open a series
when the Exchange does not have sufficient executable quotes and/or
orders to conduct an Opening Process and would reasonably ensure that
the Exchange does not open the series at a price that is beyond the
price at which Market Makers are permitted to quote for the series
during the trading session, which also contributes to the protection of
investors and the public interest, generally. The proposed rule change
is also designed to promote just and equitable principles of trade
because it would permit the Exchange to open a series in a manner that
is more consistent with the opening of individual series on other
option exchanges.\21\
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\21\ See supra notes 13, 14, and 16.
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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 proposed changes are
designed to facilitate the opening of series on the Exchange in a
manner that is fair, orderly and more consistent with the practice of
other option exchanges. Thus, the Exchange believes that the filing is
pro-competitive and should increase intermarket and intramarket
competition for options transactions during and immediately after the
opening.
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 \22\ and Rule 19b-4(f)(6) \23\
thereunder.
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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 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-2014-18 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.
[[Page 30911]]
All submissions should refer to File Number SR-MIAX-2014-18. 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 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-2014-18, and should be
submitted on or before June 19, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-12424 Filed 5-28-14; 8:45 am]
BILLING CODE 8011-01-P