[Federal Register Volume 79, Number 121 (Tuesday, June 24, 2014)]
[Notices]
[Pages 35833-35838]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-14693]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72418; File No. SR-MIAX-2014-23]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Exchange Rule 515A

June 18, 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 June 5, 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 Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend Exchange Rule 515A.
    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 adopted Rule 515A to establish a price improvement 
auction (``PRIME Auction'') and a solicited order mechanism 
(``Solicitation Auction'').\3\ The Exchange has identified several 
additional enhancements to the functionality that the Exchange believes 
should be included in the Rules prior to deployment of the new PRIME 
Auction and Solicitation Auction functionality. The Exchange proposes 
to amend Exchange Rules 515A accordingly.
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    \3\ See Securities Exchange Act Release Nos. 71640 (March 4, 
2014), 79 FR 13334 (March 10, 2014) (SR-MIAX-2014-09) (``Notice''); 
72009 (April 23, 2014), 79 FR 24032 (April 29, 2014) (SR-MIAX-2014-
09).
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    The Exchange proposes to amend Rule 515A(a)(2)(ii)(B) and Rule 
515A(b)(2)(ii)(B) in order to provide that the PRIME Auction and 
Solicitation Auction will conclude upon the receipt by the System of an 
unrelated order (in the same option as the Agency Order) on the 
opposite side of the market from the RFR responses, that is marketable 
against either the NBBO, the initiating price,\4\ or the RFR responses. 
In addition, the Exchange proposes to separately provide in amended 
Rule 515A(a)(2)(ii)(C) and Rule 515A(b)(2)(ii)(C) that the PRIME 
Auction and Solicitation Auction will conclude upon the receipt by the 
System of an unrelated order (in the same option as the Agency Order) 
on the same side of the market as the RFR responses, that is marketable 
against the NBBO. Currently, the Rules state that the PRIME Auction and 
a Solicitation Auction will conclude upon the receipt by the System of 
an unrelated order on the same side or opposite side of the market from 
the RFR responses, that is marketable against either the MBBO (when 
such quote is the NBBO) or the RFR responses.\5\ The proposed change 
will add the initiating price of the Auction as an additional trigger 
to cause the early termination of an Auction upon the receipt of an 
unrelated order on the opposite side of the market from the RFR 
responses. The proposed change will also use the NBBO as a trigger to 
cause the early termination of an Auction in lieu of the MBBO when such 
quote is the NBBO. In addition, the proposed change will restructure 
the Rules so that the treatment of same side and opposite side 
unrelated orders are described in separate provisions in order to 
provide additional clarity and reduce the potential for confusion on 
behalf of market participants. The Exchange proposes to make these 
enhancements to further ensure that the PRIME Auction and Solicitation 
Auction will work seamlessly with the

[[Page 35834]]

Exchange's Book in a manner that would ensure a fair and orderly market 
by maintaining priority of orders and quotes while still affording the 
opportunity for price improvement on each Auction commenced on the 
Exchange. The Exchange believes that by using such additional reasons 
for terminating an Auction early will improve the interaction between 
the Auction and the Exchange's Book and the national market system.
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    \4\ The ``initiating price'' is the stopped price specified by 
the Initiating Member on the Agency Order. See Rule 
515A(a)(2)(i)(A).
    \5\ See Rules 515A(a)(2)(ii)(B) and 515A(b)(2)(ii)(B). See also 
CBOE Rules 6.74A(b)(2) and 6.74B(b)(2).
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    The following examples show how the proposed amendments described 
above would affect the outcome of the PRIME Auction.

Example 1--Early Conclusion of Auction, limit order on the same 
side of the market as RFR Responses that is marketable against NBBO 
at the time of arrival

NBBO = $1.20-$1.24 200 x 100
BBO = $1.20-$1.24 100 x 100
Agency Order to buy 50 contracts with a limit of $1.24
Initiating Member's Contra Order selling 50 contracts with a stop 
price of $1.24
RFR sent identifying the option, side and size, initiating price of 
$1.24 (Auction Starts)
 @ 200 milliseconds MM3 response received, AOC eQuote to 
Sell 50 at $1.22
 @ 210 milliseconds MM1 response received, AOC eQuote to 
Sell 50 at $1.22
 @ 230 milliseconds MM4 response received, AOC eQuote to 
Sell 50 at $1.23
 @ 400 milliseconds BD1 Unrelated Order received Sell 10 at 
$1.20 (Opposite-side order marketable against the NBB causes an 
early conclusion to the Auction)

    Under this scenario, the Agency Order would be executed as 
follows:

1. 10 contracts trade with the unrelated order for BD1 @ 
$1.21(midpoint of the best RFR response of $1.22 and the opposite 
side of the market from the RFR response of $1.20)
2. 20 contracts trade with MM3 @ $1.22
3. 20 contracts trade with MM1 @ $1.22 (This fills the entire Agency 
Order)
4. MM4 does not trade any contracts
5. Contra Order does not trade any contracts

Example 2--Early Conclusion of Auction, limit order on the same 
side of the market as RFR Responses that is marketable against NBBO 
at the time of arrival

NBBO = $1.20-$1.24 200 x 100
BBO = $1.18-$1.26 100 x 100
Agency Order to buy 50 contracts with a limit of $1.24
Initiating Member's Contra Order selling 50 contracts with a stop 
price of $1.24
RFR sent identifying the option, side and size, initiating price of 
$1.24
(Auction Starts)
 @ 200 milliseconds MM3 response received, AOC eQuote to 
Sell 50 at $1.22
 @ 210 milliseconds MM1 response received, AOC eQuote to 
Sell 50 at $1.22
 @ 230 milliseconds MM4 response received, AOC eQuote to 
Sell 50 at $1.23
 @ 400 milliseconds BD1 Unrelated Order received Sell 10 at 
$1.20 (Opposite-side order marketable against the NBB causes an 
early conclusion to the Auction)

    Under this scenario, the Agency Order would be executed as 
follows:

1. 10 contracts trade with the unrelated order for BD1 @ 
$1.21(midpoint of the best RFR response of $1.22 and the opposite 
side of the market from the RFR response of $1.20)
2. 20 contracts trade with MM3 @ $1.22
3. 20 contracts trade with MM1 @ $1.22 (This fills the entire Agency 
Order)
4. MM4 does not trade any contracts
5. Contra Order does not trade any contracts

    In Example 1, since the MBBO is the same as the NBBO, the outcome 
of the PRIME Auction will be identical under the proposal as the 
current approved Rule.\6\ However, in Example 2, under the proposal, 
the PRIME Auction terminates early upon the receipt of the unrelated 
order that is marketable against the NBBO, but not the MBBO. In 
contrast, in Example 2 under the current approved Rule, the PRIME 
Auction would not have terminated early upon the receipt of the 
unrelated order that is marketable against the NBBO and could have 
continued another 100 milliseconds.\7\
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    \6\ See Notice, supra note 3, Example 17. See Rule 
515A(a)(2)(ii)(B).
    \7\ See Rule 515A(a)(2)(ii)(B).
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Example 3--Early Conclusion of Auction, IOC marketable against 
either side of NBBO at time of arrival

NBBO = $1.20-$1.24 200 x 200
BBO = $1.20-$1.24 100 x 100
Agency Order to buy with a limit price of $1.22 for 20 contracts
Initiating Member's Contra Order selling 20 contracts at $1.22
RFR sent identifying the option, side and size, with initiating 
price of $1.22
(Auction Starts)
 @ 100 milliseconds MM3 response received, AOC eQuote to 
Sell 20 at $1.22
 @ 210 milliseconds MM1 response received, AOC eQuote to 
Sell 20 at $1.22
 @ 330 milliseconds MM4 response received, AOC eQuote to 
Sell 20 at $1.22
 @ 400 milliseconds C1 Unrelated IOC Order received Buy 100 
at $1.24 (Same side IOC order to buy marketable against the NBO 
causes the Auction to conclude early)

    Under this scenario, the Agency Order would be executed as 
follows:

1. 8 contracts trade with the Contra Order @ $1.22 (This satisfies 
their 40% participation guarantee)
2. 4 contracts trades with MM3 @ $1.22
3. 4 contracts trades with MM1 @ $1.22
4. 4 contracts trade with MM4 @ $1.22 (This fills the entire Agency 
Order)
5. C1 unrelated IOC order then executes as follows:

    a. 16 contracts trade with MM3 @ $1.22
    b. 16 contracts trade with MM1 @ $1.22
    c. 16 contracts trade with MM4 @ $1.22
    d. Remaining 52 contracts then executes with the posted market 
at the Exchange's $1.24 BO

Example 4--Early Conclusion of Auction, IOC marketable against 
either side of NBBO at time of arrival

NBBO = $1.20-$1.24 200 x 200
BBO = $1.18-$1.26 100 xx 100
Agency Order to buy with a limit price of $1.22 for 20 contracts
Initiating Member's Contra Order selling 20 contracts at $1.22
RFR sent identifying the option, side and size, with initiating 
price of $1.22
(Auction Starts)
 @ 100 milliseconds MM3 response received, AOC eQuote to 
Sell 20 at $1.22
 @ 210 milliseconds MM1 response received, AOC eQuote to 
Sell 20 at $1.22
 @ 330 milliseconds MM4 response received, AOC eQuote to 
Sell 20 at $1.22
 @ 400 milliseconds C1 Unrelated IOC Order received Buy 100 
at $1.24 (Same side IOC order to buy marketable against the NBO 
causes the Auction to conclude early)

    Under this scenario, the Agency Order would be executed as 
follows:

1. 8 contracts trade with the Contra Order @ $1.22 (This satisfies 
their 40% participation guarantee)
2. 4 contracts trades with MM3 @ $1.22
3. 4 contracts trades with MM1 @ $1.22
4. 4 contracts trade with MM4 @ $1.22 (This fills the entire Agency 
Order)
5. C1 unrelated IOC order then executes as follows:

    a. 16 contracts trade with MM3 @ $1.22
    b. 16 contracts trade with MM1 @ $1.22
    c. 16 contracts trade with MM4 @ $1.22
    d. Remaining 52 contracts are then canceled

    Similarly, in Example 3, since the MBBO is the same as the NBBO, 
the outcome of the PRIME Auction will be identical under the proposal 
as the current approved Rule.\8\ However, in Example 4, under the 
proposal, the PRIME Auction terminates early upon the receipt of the 
unrelated order that is marketable against the NBBO, not the MBBO. In 
contrast, in Example 4 under the current approved Rule, the PRIME 
Auction would not have terminated early upon the receipt of the 
unrelated order that is marketable against the NBBO and could have 
continued another 100 milliseconds.\9\
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    \8\ See Notice, supra note 3, Example 24.
    \9\ See Rule 515A(a)(2)(ii)(D).
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    As mentioned above, in Examples 2 and 4, the PRIME Auctions could 
have continued for another 100 milliseconds under the current approved 
rule, with the potential for additional price improvement beyond the 
NBBO to the MBBO. However, there is no guarantee that the market would 
not move to the detriment of the Agency Order, providing no additional 
price improvement. In other words, if market prices moved away from the 
Agency Order's price and better prices for the

[[Page 35835]]

Member's trading interest exist outside the PRIME Auction, Members 
might be unwilling to continue to provide additional price improvement 
even if the PRIME Auction continued. Further, the marketable unrelated 
order could have also executed prior to the end of the Auction Period, 
thus reducing the potential price improvement for the Agency Order 
which would be left to execute against any remaining RFR Responses or 
the initiating member's stop price. Under the proposal, the unrelated 
order benefits from receiving an execution sooner than anticipated 
against liquidity that they may not have known was there at the time. 
The Exchange believes that the benefits of terminating the PRIME 
Auction early for both the Agency Order and the marketable unrelated 
order outweigh any marginal loss of opportunity from terminating at the 
NBBO versus the MBBO.
    The following examples show how the proposed amendments to 
terminate the PRIME Auction and Solicitation Auction early upon the 
receipt of an unrelated order on the opposite side of the market from 
the RFR Responses that is marketable against the initiating price would 
affect the outcome of the PRIME Auction and Solicitation Auction.

Example 5--Early Conclusion of Auction, limit order on the opposite 
side of the market from RFR Responses improves initiating price

NBBO = $1.20-$1.24 200 x 200
BBO = $1.20-$1.24 100 x 100
Agency Order to buy 20 contracts with a limit price of $1.22
Initiating Member's Contra Order selling 20 contracts at $1.22
RFR sent identifying the option, side and size, with an initiating 
price of $1.22
(Auction Starts)
 @ 300 milliseconds MM3 response received, AOC eQuote to 
Sell 20 at $1.22
 @ 310 milliseconds MM1 response received, AOC eQuote to 
Sell 20 at $1.22
 @ 430 milliseconds MM4 response received, AOC eQuote to 
Sell 20 at $1.22
 @ 450 milliseconds C1 Unrelated Order received Buy 100 at 
$1.23 (limit order to buy on the opposite side of the market from 
RFR Responses that improves (i.e., is priced higher than) the Agency 
Order's initiating price causes the Auction to conclude early)

    Under this scenario, the Agency Order would be executed as 
follows:

1. 8 contracts trade with the Contra Order @ $1.22 (This satisfies 
their 40% participation guarantee)
2. 4 contracts trades with MM3 @ $1.22
3. 4 contracts trades with MM1 @ $1.22
4. 4 contracts trade with MM4 @ $1.22 (This fills the entire Agency 
Order)
5. C1 unrelated order then executes as follows:

    a. 16 contracts trade with MM3 @ $1.22
    b. 16 contracts trade with MM1 @ $1.22
    c. 16 contracts trade with MM4 @ $1.22
    d. Remaining contracts post to the Book as new BB paying $1.23 
for 52 contracts

Example 6--Early Conclusion of Auction, limit order on the opposite 
side of the market from RFR Responses matches the initiating price

NBBO = $1.20-$1.24 200 x200
BBO = $1.20-$1.24 100 x 100
Agency Order to buy 20 contracts with a limit price of $1.22
Initiating Member's Contra Order selling 20 contracts at $1.22
RFR sent identifying the option, side and size, with an initiating 
price of $1.22
(Auction Starts)
 @ 300 milliseconds MM3 response received, AOC eQuote to 
Sell 20 at $1.22
 @ 310 milliseconds MM1 response received, AOC eQuote to 
Sell 20 at $1.22
 @ 430 milliseconds MM4 response received, AOC eQuote to 
Sell 20 at $1.22
 @ 450 milliseconds C1 Unrelated Order received Buy 100 at 
$1.22 (limit order to buy on the opposite side of the market from 
RFR Responses that matches the Agency Order's initiating price 
causes the Auction to conclude early)

    Under this scenario, the Agency Order would be executed as 
follows:

1. 8 contracts trade with the Contra Order @ $1.22 (This satisfies 
their 40% participation guarantee)
2. 4 contracts trades with MM3 @ $1.22
3. 4 contracts trades with MM1 @ $1.22
4. 4 contracts trade with MM4 @ $1.22 (This fills the entire Agency 
Order)
5. C1 unrelated order then executes as follows:

    a. 16 contracts trade with MM3 @ $1.22
    b. 16 contracts trade with MM1 @ $1.22
    c. 16 contracts trade with MM4 @ $1.22
    d. Remaining contracts post to the Book as new BB paying $1.22 
for 52 contracts

Example 7--Solicitation Auction--Customer gets price improved for 
AON size, unrelated order on the opposite side of the market from 
RFR Responses ends auction and trades vs. responses

XYZ Jan 50 Calls
NBBO--1.10-1.25
BBO--1.10-1.30
Paired order to execute 2000 contracts AON (customer selling) @ 1.10
A RFR is broadcast to all subscribers showing option, size, side, 
and price; timer is started
System starts the auction at the Initiating Customer price to sell @ 
1.10
 @ 100 milliseconds Response 1 to buy @ 1.10 2000 AOC order 
arrives
 @ 200 milliseconds Response 2 to buy @ 1.10 2000 AOC order 
arrives
 @ 220 milliseconds Response 3 to buy @ 1.10 5000 AOC order 
arrives
 @ 332 milliseconds Response 4 to buy @ 1.20 1000 AOC order 
arrives
 @ 400 milliseconds Response 5 to buy @ 1.15 2000 AOC order 
arrives
 @ 450 milliseconds, unrelated same side order arrives 
selling 100 @ 1.10--(limit order to sell on the opposite side of the 
market from RFR Responses that is marketable against Initiating 
Price or RFR responses causes the Auction to conclude early)

    Trade is allocated against Initiating Customer:

1. 1000 trade vs. Response 4 @ 1.20
2. 1000 trade vs. Response 5 @ 1.15
3. Solicited contra does not participate because entire size was 
price improved
4. Unrelated same side order trades 100 vs. Response 5 @ 1.15; 
balance of response size is cancelled

    In Examples 5, 6,\10\ and 7, the outcome of both the PRIME Auction 
and Solicitation Auction will be identical under the proposal as the 
current approved Rule.\11\ The Exchange notes that there will be no 
impact on the allocation or priority.
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    \10\ The Commission notes that with respect to Examples 5 and 6, 
while the outcome of the PRIME auction is the same under the 
proposal as under the current Rule, the cause of early termination 
under the proposal differs from the current Rule. Under the current 
Rule, the PRIME auctions in Examples 5 and 6 would end early due to 
the receipt of an unrelated order on the same side of the market as 
the Agency Order that is marketable against an RFR response. See 
Rule 515A(a)(2)(ii)(B). However, under the amended Rule, the PRIME 
auctions would end early due to the receipt of an unrelated order on 
the same side as the Agency Order that is marketable against either 
the RFR responses or the initiating price. See amended Rule 
515A(a)(2)(ii)(B). In both examples, the best RFR response matches 
the initiating price.
    \11\ See Notice, supra note 3, Examples 23 and 28.
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    The Exchange proposes to amend Rule 515A(a)(2)(ii) and Rule 
515A(b)(2)(ii) to provide that the PRIME Auction and Solicitation 
Auction will conclude any time an RFR response matches the NBBO on the 
opposite side of the market from RFR responses. Currently, the Rules 
state that the PRIME Auction will conclude any time an RFR response 
matches the MBBO on the opposite side of the market from the RFR 
responses.\12\ The proposed change will use the NBBO as a trigger to 
cause the early termination of an Auction in lieu of the MBBO. The 
Exchange proposes to make this enhancement to further ensure that the 
PRIME Auction and Solicitation Auction will work seamlessly with the 
national market system in a manner that would ensure a fair and orderly 
market by maintaining priority of orders and quotes while still 
affording the opportunity for price improvement on each Auction 
commenced on the Exchange. The Exchange believes that by using the NBBO 
instead of the MBBO as a reason for terminating an Auction early will 
improve the interaction between the Auction and the national market 
system.
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    \12\ See Rules 515A(a)(2)(ii) and 515A(b)(2)(ii). See also CBOE 
Rules 6.74A(b)(2) and 6.74B(b)(2).
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    The following examples show how the proposed amendments to use the 
NBBO as a trigger to cause the early termination of an Auction in lieu 
of the

[[Page 35836]]

MBBO would affect the outcome of the PRIME Auction.

Example 8--Single Price Submission, priority customer order on the 
Book on the same side locks the final Auction Price

NBBO = $1.15-$1.25 200 x 200
BBO = $1.15-$1.25 100 x 100
Agency Order to buy 50 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts with a single 
stop price of $1.20
RFR sent identifying the option, side and size, with initiating 
price of $1.20
(Auction Starts)
 @ 110 milliseconds MM1 response received, AOC eQuote to 
Sell 10 at $1.22
 @ 230 milliseconds MM4 response received, AOC eQuote to 
Sell 50 at $1.15 (response matches the opposite side NBB causes the 
Auction to conclude early)

    Under this scenario the Agency Order would be executed as 
follows:

1. 50 contracts trade with MM4 @ $1.15 (This fills the entire Agency 
Order and Contra Order does not receive an execution)

Example 9--Single Price Submission, priority customer order on the 
Book on the same side

NBBO = $1.15-$1.25 200 x 200
BBO = $1.14-$1.25 100 x 100
Agency Order to buy 50 contracts with a limit price of $1.20
Initiating Member's Contra Order selling 50 contracts with a single 
stop price of $1.20
RFR sent identifying the option, side and size, with initiating 
price of $1.20
(Auction Starts)
 @ 110 milliseconds MM1 response received, AOC eQuote to 
Sell 10 at $1.22
 @ 230 milliseconds MM4 response received, AOC eQuote to 
Sell 50 at $1.15 (response matches the opposite side NBB causes the 
Auction to conclude early)
    Under this scenario the Agency Order would be executed as 
follows:

1. 50 contracts trade with MM4 @ $1.15 (This fills the entire Agency 
Order and Contra Order does not receive an execution)

    In Example 8, since the MBBO is the same as the NBBO, the outcome 
of the PRIME Auction will be identical under the proposal as the 
current approved Rule.\13\ However, in Example 9, under the proposal, 
the PRIME Auction terminates early anytime an RFR Response matches the 
NBBO on the opposite side of the market from the RFR Response, but not 
the MBBO. In contrast, in Example 9 under the current approved Rule, 
the PRIME Auction would not have terminated early upon the receipt of 
the unrelated order that is marketable against the NBBO and could have 
continued another 270 milliseconds.\14\
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    \13\ See Notice, supra note 3; Rule 515A(a)(2)(ii)(D).
    \14\ See Rule 515A(a)(2)(ii)(D).
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    The Exchange notes that the proposed changes detailed above will 
likely result in both the shortening of the Auction Period and an 
increase in the frequency of early conclusions of the Auction for both 
the PRIME Auction and Solicitation Auction and the Agency Order 
potentially receiving less opportunity for price improvement. However, 
the Exchange believes that the benefits to market participants 
(including those participating in the Auctions and outside of the 
Auctions) as a result of the new proposed enhancements to make both the 
PRIME Auction and Solicitation Auction more integrated with the 
Exchange's Book and the national market system, exceed any potential 
loss of opportunity for price improvement caused by the proposed 
changes.
    The Exchange proposes to amend Interpretations and Policies .06 and 
.07 of Rule 515A to provide that same treatment for interest subject to 
a route timer as the Rules currently provide for managed interest. 
Specifically, the Exchange proposes to amend Interpretation and Policy 
.06 to provide that if trading interest exists on the Exchange's Book 
that is subject to the managed interest process pursuant to Rule 515(c) 
or a route timer pursuant to Rule 529 for the option on the opposite of 
side of the market as the Agency Order and when the MBBO is equal to 
the NBBO, the Agency Order will be automatically executed against the 
managed interest or route timer interest if the execution would be at a 
price equal to or better than the initiating price of the Agency Order. 
If the Agency Order is not fully executed after the managed interest or 
route timer interest is fully exhausted and is no longer at a price 
equal to the initiating price of the Agency Order, the Auction will be 
initiated for the balance of the order as provided in this rule. With 
respect to any portion of an Agency Order that is automatically 
executed against managed interest or route timer interest pursuant to 
this paragraph .06, the exposure requirements contained in Rule 520(b) 
and (c) will not be satisfied just because the member utilized the 
PRIME. Trading interest subject to a route timer on the opposite side 
of the market as the Agency Order pursuant to Rule 515(c) is posted at 
one minimum trading increment away from the NBBO, but is available for 
execution at the NBBO. In order to preserve the priority of trading 
interest subject to a route timer against incoming RFR responses to the 
Auction of the Agency Order, the System will execute the Agency Order 
to the extent possible. The Exchange believes that this provision is 
necessary to ensure that PRIME works seamlessly with the Exchange's 
Book in a manner that would ensure a fair and orderly market by 
maintaining priority of orders and quotes while still affording the 
opportunity for price improvement on each Auction commenced on the 
Exchange.
    In addition, the Exchange proposes to amend Interpretation and 
Policy .07 to provide that if trading interest exists on the Exchange's 
Book that is subject to the managed interest process pursuant to Rule 
515(c) or a route timer pursuant to Rule 529 for the option on the same 
side of the market as the Agency Order, the Agency Order will be 
rejected by the System prior to initiating an Auction or a Solicitation 
Auction. The Exchange also proposes to provide that if trading interest 
exists on the MIAX Book that is subject to the liquidity refresh pause 
pursuant to Rule 515(c) for the option on the same side or opposite 
side of the market as the Agency Order, the Agency Order will be 
rejected by the System prior to initiating an Auction or a Solicitation 
Auction. Trading interest subject to a liquidity refresh pause or a 
route timer is posted at one minimum trading increment away from the 
NBBO, but is available for execution at the NBBO. In order to preserve 
the priority of trading interest subject to a liquidity refresh pause 
or a route timer against incoming RFR responses to the Auction of the 
Agency Order, the System will reject the Agency Order. The Exchange 
believes that this provision is necessary to ensure that PRIME works 
seamlessly with the Exchange's Book in a manner that would ensure a 
fair and orderly market by maintaining priority of orders and quotes 
while still affording the opportunity for price improvement on each 
Auction commenced on the Exchange.
    Finally, the Exchange proposes new Interpretation and Policy .09 to 
provide that if the market is locked or crossed as defined in Rule 1402 
for the option, the Agency Order will be rejected by the System prior 
to initiating a PRIME Auction or a Solicitation Auction. The Exchange 
believes that this provision is necessary to ensure that PRIME works 
seamlessly with the national market system in a manner that would 
ensure a fair and orderly market by maintaining priority of orders and 
quotes while still affording the opportunity for price improvement on 
each Auction commenced on the Exchange.
    The Exchange also proposes a couple minor technical changes to the 
Rules. The Exchange also proposes an updated comprehensive list of the 
data that the Exchange represents that it will collect in order to aid 
the Commission in its

[[Page 35837]]

evaluation of the PRIME that incorporates the changes proposed.\15\
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    \15\ See Rule 515A, Interpretations and Policies .08; Exhibit 3.
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2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) \16\ of the Act in general, and furthers the 
objectives of Section 6(b)(5) \17\ 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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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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    The proposal to add the initiating price of the Auction and to use 
the NBBO as a trigger to cause the early termination of an Auction is 
designed to facilitate transactions, to remove impediments to and 
perfect the mechanism of a free and open market by freeing up interest 
in the Auction when conditions have changed that renders the initiating 
order no longer marketable to the benefit of market participants. The 
proposed enhancements to the Rules are designed to further ensure that 
the Auctions will work seamlessly with the national market system in a 
manner that would ensure a fair and orderly market by maintaining 
priority of orders and quotes while still affording the opportunity for 
price improvement on each Auction commenced on the Exchange. The 
Exchange believes that by using the NBBO instead of the MBBO as a 
reason for terminating an Auction early will improve the interaction 
between the Auction and the national market system.
    The proposal to provide similar treatment for interest subject to a 
liquidity refresh pause and a route timer as the Rules currently 
provide for managed interest is also designed to ensure that PRIME 
works seamlessly with the Exchange's Book in a manner that would ensure 
a fair and orderly market by maintaining priority of orders and quotes 
while still affording the opportunity for price improvement on each 
Auction commenced on the Exchange in a manner that also protects 
investors and the public interest.
    Finally, the proposal to reject Agency Orders if the market is 
locked or crossed is designed to ensure that PRIME works seamlessly 
with the national market system in a manner that would ensure a fair 
and orderly market by maintaining priority of orders and quotes while 
still affording the opportunity for price improvement on each Auction 
commenced 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 PRIME Auction and 
Solicitation Auction are designed to increase competition for order 
flow on the Exchange in a manner intended to be beneficial to investors 
seeking to effect option orders with an opportunity to access 
additional liquidity and receive price improvement. 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. The Exchange believes that the proposed 
changes to the Auctions are pro-competitive by providing market 
participants with functionality that is similar to that of other 
options exchanges. The Exchange notes that not having the PRIME Auction 
and Solicitation Auction places the Exchange at a competitive 
disadvantage versus other exchanges that offer similar price 
improvement functionality.

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 \18\ and Rule 19b-4(f)(6) \19\ 
thereunder.
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 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-2014-23 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-2014-23. 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

[[Page 35838]]

information that you wish to make available publicly. All submissions 
should refer to File Number SR-MIAX-2014-23 and should be submitted on 
or before July 15, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-14693 Filed 6-23-14; 8:45 am]
BILLING CODE 8011-01-P