[Federal Register Volume 79, Number 107 (Wednesday, June 4, 2014)]
[Notices]
[Pages 32345-32347]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-12886]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72273; File No. SR-MIAX-2014-22]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend MIAX Rule 516 To Remove the Size 
Restrictions on Contra-Party Participation on a Qualified Contingent 
Cross Order

May 29, 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 21, 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 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 MIAX Rule 516(j) to 
remove the size restrictions on contra-party participation on a 
Qualified Contingent Cross Order (``QCC Order'').
    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 purpose of this rule filing is to amend Rule 516(j) to remove 
the size restriction on contra-party participation on a QCC Order. The 
proposed rule change, which mirrors a recently adopted rule by the 
International Securities Exchange (``ISE'') and NYSE Arca,\3\ would 
expand the availability of QCC Orders by permitting multiple contra-
parties on a QCC Order, each of which may consist of an order for less 
than 1,000 contracts; provided however, that the originating QCC Order 
is a single order that meets the 1,000 contract minimum (as well as the 
other requirements of a QCC Order), as discussed below.\4\ The proposed 
change

[[Page 32346]]

is intended to allow the Exchange to compete fairly and equally with 
other options exchanges, including the ISE, that have recently adopted 
similar rule changes.\5\ Additionally, the Exchange proposes adding 
language to Rule 516(j) to account for mini-options that currently 
trade on the Exchange and that an originating order in mini-options 
must be at least 10,000 contracts to qualify as an QCC Order under Rule 
516(j).
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    \3\ See Securities Exchange Act Release Nos. 71863 (April, 3, 
2014), 79 FR 19680 (April 9, 2014) (SR-ISE-2013-72); 71965 (April 
17, 2014), 79 FR 22737 (April 23, 2014) (SR-NYSEArca-2014-43).
    \4\ In the case of mini-options, as proposed, the minimum size 
is 10,000 contracts.
    \5\ See supra n. 3.
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    Rule 516(j) provides that a QCC Order must be comprised of an order 
to buy or sell at least 1,000 contracts \6\ that is identified as being 
part of a qualified contingent trade,\7\ coupled with a contra-side 
order to buy or sell an equal number of contracts. As Qualified 
Contingent Crosses, QCC Orders are automatically executed upon entry 
provided that the execution (i) is not at the same price as a Priority 
Customer Order on the Exchange Book and (ii) is at or between the 
NBBO.\8\ In addition, QCC Orders that cannot be executed when entered 
will automatically cancel.\9\ Finally, QCC Orders may only be entered 
in the regular trading increments applicable to the options class under 
Rule 510 (Minimum Price Variations and Minimum Trading Increments).
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    \6\ See supra n. 3.
    \7\ A ``qualified contingent trade'' must meet the following 
conditions: (i) At least one component must be an NMS Stock; (ii) 
all the components must be effected with a product price contingency 
that either has been agreed to by all the respective counterparties 
or arranged for by a broker-dealer as principal or agent; (iii) the 
execution of one component must be contingent upon the execution of 
all other components at or near the same time; (iv) the specific 
relationship between the component orders (e.g., the spread between 
the prices of the component orders) must be determined by the time 
the contingent order is placed; (v) the component orders must bear a 
derivative relationship to one another, represent different classes 
of shares of the same issuer, or involve the securities of 
participants in mergers or with intentions to merge that have been 
announced or cancelled; and (vi) the transaction must be fully 
hedged (without regard to any prior existing position) as a result 
of other components of the contingent trade. In addition, ATP 
Holders must demonstrate that the transaction is fully hedged using 
reasonable risk-valuation methodologies. See Securities Exchange Act 
Release No. 57620 (April 4, 2008), 73 FR 19271 (April 9, 2008).
    \8\ See Rule 515(h)(2).
    \9\ Id.
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    As discussed above, the Exchange now proposes to amend Rule 516(j) 
to remove the size limitation placed on each contra-party to a QCC 
Order.\10\ The Exchange is proposing this change for competitive 
reasons, as it will allow the Exchange to compete fairly and equally 
with other option exchanges that have similarly amended their rules, 
including ISE and NYSE Arca.\11\ The Exchange does not propose to 
remove the size requirement on the originating order of a QCC Order.
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    \10\ Per proposed Rule 516(j): ``A Qualified Contingent Cross 
Order is comprised of an originating order to buy or sell at least 
1,000 contracts, or 10,000 mini-option contracts, that is identified 
as being part of a qualified contingent trade, as that term is 
defined in Interpretations and Policies .01 below, coupled with a 
contra-side order or orders totaling an equal number of contracts.''
    \11\ See supra n. 3.
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    In connection with this proposal, the Exchange represents that it 
will track and monitor QCC Orders to determine which is the originating 
side of the order and which is the contra-side(s) of the order to 
ensure that Members are complying with the minimum 1,000 contract size 
requirement on the originating side of the QCC Order. In this regard, 
the Exchange will monitor whether Members are aggregating multiple 
orders to meet the 1,000 contract minimum on the originating side of 
the trade in violation of the requirements of the rule. The rule 
requires that the originating side of the trade consist of one party 
who is submitting a QCC Order for at least 1,000 contracts.
    The Exchange represents that it will enforce compliance with this 
portion of the rule by checking to see if a Member breaks up the 
originating side of the order in a post trade allocation to different 
Clearing Members, allocating less than 1,000 contracts to a party or 
multiple parties. For example, a Member enters a QCC Order into the 
system for 1,500 contracts and receives an execution. Subsequent to the 
execution, the Member allocates the originating side of the order to 
two different clearing firms on a post trade allocation basis, thereby 
allocating 500 contracts to one Clearing Member and 1,000 contracts to 
another Clearing Member. The Exchange states that this type of 
transaction would not meet the requirements of a QCC Order under the 
current rule. With regard to order entry, the Exchange notes that 
Members must designate orders entered in the system as either the 
originating side or the contra-side(s). The Exchange will monitor order 
entries to ensure that Members are properly entering QCC Orders into 
the system.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) \12\ of the Act in general, and furthers the 
objectives of Section 6(b)(5) \13\ 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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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    Specifically, because the proposal leaves unchanged the minimum 
size requirement for the originating order, the Exchange believes that 
the proposal should provide more opportunity to participate in QCC 
trades, consistent with the key principles behind the QCC Order.
    The Exchange believes the proposed rule change is consistent with 
Section 6(b)(8) of the Act, as it will enable the Exchange to compete 
with other options exchanges, including the ISE and NYSE Arca,\14\ for 
QCC Orders. In addition, the proposed rule change will be beneficial to 
market participants because allowing multiple parties of any size on 
the contra-side of a QCC Order should foster competition for filling 
QCC Orders and thereby result in potentially better prices.
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    \14\ Id.
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    Furthermore, the Exchange believes that the proposed rule change 
should improve the utility of the QCC Order without raising novel 
regulatory issues, because the proposal does not impact the fundamental 
aspects of the QCC Order type. Rather, the proposal merely permits 
multiple contra-parties, regardless of size, on one side, while 
preserving the 1,000 contract minimum on the originating QCC Order.

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. In fact, the proposal is 
intended to relieve a burden on competition, which results from 
different exchanges interpreting their rules differently. Among the 
options exchanges, the Exchange believes that the proposal should 
foster competition for filling the contra-side of a QCC Order and 
thereby result in potentially better prices for such orders. In 
addition, the proposal will enable the Exchange to more effectively 
compete with other option exchanges like the ISE and NYSE Arca that 
have already implemented similar rule changes.\15\
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    \15\ Id.

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[[Page 32347]]

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \16\ and Rule 19b-4(f)(6) thereunder.\17\ 
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 \18\ and Rule 19b-4(f)(6)(iii) \19\ thereunder.
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    \16\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6)(iii). 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) \20\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\21\ the Commission 
may 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 so that the proposal 
may become operative immediately upon filing. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest, as it will help 
eliminate investor confusion and promote competition among the option 
exchanges.\22\ Therefore, the Commission designates the proposed rule 
change to be operative upon filing.
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    \20\ 17 CFR 240.19b-4(f)(6).
    \21\ 17 CFR 240.19b-4(f)(6)(iii).
    \22\ 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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    The Commission notes that, given the differing requirements as 
between the originating side and contra-side for QCC Orders, it is 
essential that the Exchange be able to clearly identify and monitor--
throughout the life of a QCC Order, beginning at time of order entry on 
the Exchange through the post-trade allocation process--each side of 
the QCC Order and ensure that the requirements of the order type are 
being satisfied including, importantly, those relating to the 
originating side. The Commission believes this to be critical so that 
the Exchange can ensure that market participants are not able to 
circumvent the requirements of the QCC Order (as amended by this 
proposed rule change), each of which the Commission continues to 
believe are critical to ensuring that the QCC Order is narrowly 
drawn.\23\ Further, the Commission notes that the Exchange has made 
certain representations regarding its enforcement and surveillance of 
its Members' use of QCC Orders, including, for example, not only at the 
time of order entry, but through the post-trade allocation process as 
well.
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    \23\ The Commission expects the Exchange to have the capability 
to enable it to surveil that such requirements are being met. Though 
the Exchange has stated its ability to do so, if the Exchange is not 
able to have such monitoring at any point in time, the Commission 
would expect the Exchange to take other steps to ensure that the QCC 
Order cannot be improperly used. For example, if the Exchange were 
not able to identify and monitor which side of a QCC Order is the 
originating order, the Commission would expect that it would require 
that both sides of the QCC Order meet the more stringent 
requirements of the originating side, i.e., that it be for a single 
order for at least 1,000 contracts.
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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-2014-22 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-2014-22. 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-2014-22, and should be 
submitted on or before June 25, 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. 2014-12886 Filed 6-3-14; 8:45 am]
BILLING CODE 8011-01-P