[Federal Register Volume 80, Number 187 (Monday, September 28, 2015)]
[Notices]
[Pages 58323-58326]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-24516]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75962; File No. SR-MIAX-2015-57]


Self-Regulatory Organizations: Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Exchange Rule 503

September 22, 2015.
    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 September 21, 2015, 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 503.
    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 codify existing 
functionality during the Exchange's Opening Process. Specifically, the 
Exchange is amending Rule 503(f) to address a discrepancy between the 
rule text description of how this process works and how it is actually 
working in production. Specifically, the Exchange proposes to amend the 
rule to provide that the System will use the Expanded Quote Range 
(``EQR'') when there are quotes and orders that lock or cross each 
other. The proposal codifies the actual existing functionality during 
the Exchange's Opening Process. In addition, the Exchange proposes to 
relocate the EQR subsection that is currently in Rule 503(f)(5) to 
proposed Rule 503(f)(2)(i).
    Currently Rule 503(f) provides that when there are quotes and 
orders that lock or cross an order, the System will use the highest bid 
and the lowest offer among valid width quotations received that have a 
bid/ask differential that is compliant with Rule 603(b)(4) to determine 
the highest quote bid and lowest quote offer.\3\ If that price is 
within the highest valid width quote bid and lowest valid width quote 
offer and leaves no imbalance, the Exchange will open at that price, 
executing marketable trading interest, as long as the opening price 
includes only Exchange interest. Current Rule 503(f) also provides that 
the EQR \4\ is only calculated when an imbalance occurs due to 
insufficient liquidity to satisfy all trading interest due an execution 
at a certain price.\5\ In contrast, the System calculates and uses an 
EQR in all situations during the Exchange's Opening Process when there 
are quotes and orders that lock or cross--whether the lock or cross 
involves an order or a quote and whether or not there is an order 
imbalance.
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    \3\ See Exchange Rule 603(b)(4). See also Exchange Rule 
503(e)(3), which states that ``valid width quotations'' are 
quotations that are compliant with Rule 603(b)(4) which provides the 
following criteria: (i) To price option contracts fairly by, among 
other things, bidding and offering so as to create differences of no 
more than $5 between the bid and offer (``bid/ask differentials'') 
following the opening rotation in an equity option contract; and 
(ii) Exchange may establish differences other than the bid/ask 
differentials described in (i) above for one or more option series 
or classes.
    \4\ See Exchange Rule 503(f)(5).
    \5\ See Exchange Rule 503(f)(5). Where there is an imbalance at 
the price at which the maximum number of contracts can trade that is 
also at or within the highest valid width quote bid and lowest valid 
width quote offer, the System will calculate an EQR. The EQR will be 
recalculated any time a Route Timer or Imbalance Timer expires if 
material conditions of the market (imbalance size, ABBO price or 
size, liquidity price or size, etc.) have changed during the timer. 
Once calculated, the EQR will represent the limits of the range in 
which transactions may occur during the opening process.
    The EQR calculation itself varies depending upon the specific 
situation, as specified in current Rule 503(f)(5). The EQR 
calculation will differ depending upon whether one or more away 
markets have disseminated valid width quotes in the affected series 
(or) no away markets have disseminated valid width quotes in the 
affected series. See Exchange Rule 503(f).
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    While the System calculates EQR in either situation, it does not 
necessarily use the EQR in determining the calculated opening price 
where the maximum quantity of contracts may trade. For example, 
proposed Rule 503(f)(2)(iii) would state that in situations where there 
is matched interest that does not represent an imbalance and there is 
no valid width NBBO, the System will calculate a ``quality opening 
market range'' (as defined in a table to be determined by

[[Page 58324]]

the Exchange and published in a Regulatory Circular) in such option 
series. If the matched interest would trade at a price outside of the 
quality opening market range, the imbalance process will be used.
    The Exchange notes that in most situations there is no impact in 
the outcome of the opening due to the proposed change in the rule text 
to use the EQR instead of the highest bid and the lowest offer among 
valid width quotations received that have a bid/ask differential that 
is compliant with Rule 603(b)(4). For example--assume a quote bid of 
$1.00 for 5 contracts and a quote offer of $0.90 for 5 contracts on 
MIAX; away market 1 has a bid $0.01; away market 2 has an offer of 
$5.05. The Exchange should open because $.90-$1.00 for 5 contracts on 
either side is within a $5 bid/ask differential and leaves no 
imbalance. Instead, however, the System in this situation calculates a 
price range for the open based on an EQR to include the one or more 
away markets. After determining that the away markets do not have a 
valid width quote and that it is a crossed market ($0.01 bid by $5.05 
offer is not a valid quote range), the System will calculate the EQR 
using the Exchange's highest valid width bid and lowest valid width 
offer ($.90 offer by $1.00 bid is a valid quote range). In this 
example, the Exchange would open the same under the proposed changes to 
Rule 503 as it does in the current version of the rule.
    If the current rule were applied in situations where quotes or 
orders lock or cross, and there are no valid-width away markets, the 
System would have nonetheless calculated the highest bid and the lowest 
offer among valid width quotations received on MIAX that have a bid/ask 
differential that is compliant with Rule 603(b)(4). The following 
example illustrates this scenario.
Invalid Width ABBO
    Assume a quote bid of $1.00 for 5 contracts and quote offer of 
$0.90 for 5 contracts on MIAX; assume away market 1 has a bid $0.10; 
away market 2 has an offer of $5.20 (an invalid width ABBO). The System 
in this situation calculates a price range for the open based on an EQR 
that does not include the one or more away markets. In this example, 
the System sets the EQR to $0.90-$1.00, using the lowest quote offer 
and the highest quote bid.
Valid Width ABBO
    Assume again a quote bid of $1.00 for 5 contracts and a quote offer 
of $0.90 for 5 contracts on MIAX; assume away market 1 has a bid $0.85; 
away market 2 has an offer of $1.10 (a valid width ABBO). The System in 
this situation calculates a price range for the open based on an EQR 
that includes the one or more away markets. After determining that the 
away markets have a valid width quote and that the MIAX market is 
crossed, the System sets the EQR to $0.85-$1.10, using the valid-width 
ABBO.
    If the current rule were applied, the System would have calculated 
the EQR if there had been an imbalance, using the Exchange's highest 
valid width bid and lowest valid width offer ($.90 offer by $1.00 bid 
is a valid quote range), and would open only within the limited $0.90-
$1.00 range. In each of the above examples, under the current rule and 
under the proposed change, the System would open with a trade of 5 
contracts at $0.95, the price at which the greatest number of contracts 
can trade.
    The following examples illustrate that the EQR is calculated in all 
situations, i.e., whether there is an imbalance or not. In the first 
example, assume quote bids of $0.90 and $0.80 for 5 contracts each, and 
quote offers of $1.00 and $1.10 of 5 contracts each on MIAX; assume 
away market 1 has a bid $0.10; away market 2 has an offer of $5.20 
(invalid width ABBO). No Imbalance exists. Under the proposed Rule, an 
EQR calculation occurs, setting the EQR Minimum at the lowest bid minus 
the allowance per EQR Table ($0.75 in this case), and the EQR Maximum 
at the highest bid plus the allowance per EQR Table ($1.15 in this 
case). With no Imbalance and no crossing liquidity, no trade takes 
place.
    Assume again quote bids of $0.90 and $0.80 for 5 contracts each, 
and quote offers of $1.00 and $1.10 of 5 contracts each on MIAX; assume 
away market 1 has a bid $0.10; away market 2 has an offer of $5.20 
(invalid width ABBO). No Imbalance exists. If the current Rule were to 
be applied, since there is no Imbalance, an EQR calculation would not 
occur. With no Imbalance and no crossing quotes or orders, no trade 
would occur. In each of these examples, because there is no trade, the 
Exchange would open by disseminating a quote as described in current 
Rule 503(f)(1).\6\
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    \6\ Current Rule 503(f)(1) states that if there are no quotes or 
orders that lock or cross each other, the System will open by 
disseminating the Exchange's best bid and offer among quotes and 
orders that exist in the System at that time.
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    In Examples 3 and 4, the only difference is whether an EQR is 
calculated or not. But no trade takes place in either case.
    The Exchange believes that using the EQR instead of the current 
price range in Rule 503(f) is beneficial to market participants because 
the EQR provides a more accurate measure as to whether there is 
sufficient available liquidity in the broader market system to provide 
a fair and orderly opening process and sufficient price discovery for 
the options to open for trading because it incorporates the prices on 
away markets into its evaluation.
    The Exchange also proposes to amend current Rule 503(f)(3) to 
provide that the provision applies to situations when the lock or cross 
involves an order or a quote, not just an order. Specifically, the 
Exchange proposes to provide that if there are quotes or orders that 
lock or cross, the System will use the EQR to determine the highest and 
lowest price of the opening price range. Currently, to calculate the 
opening price, the System will take into consideration all valid 
Exchange quotes and all valid orders, together with other exchanges' 
markets for the series and identify the price at which the maximum 
number of contracts can trade. If that price is within the EQR and 
leaves no imbalance, the Exchange will open at that price, executing 
marketable trading interest, as long as the opening price includes only 
Exchange interest.
    In addition, the Exchange proposes relocating the EQR subsection 
that is currently in Rule 503(f)(5) to proposed Rule 503(f)(2)(i). The 
Exchange believes that this change will reduce the potential for any 
confusion on the part of its members as to when the EQR is calculated 
and used during the Exchange's Opening Process. The Exchange also 
proposes deleting language regarding the imbalance from current Rule 
503(f)(7) and relocating the subsection that is currently in Rule 
503(f)(7) to proposed Rule 503(f)(2)(iii). In addition, the Exchange 
also proposes technical changes to the number formatting in current 
Rule 503(f) in order to reduce the potential for confusion as to which 
provisions in Rule 503(f) apply to situations where there are quotes 
and orders that lock and cross each other.
2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
section 6(b) of the Act \7\ in general, and furthers the objectives of 
section 6(b)(5) of the Act \8\ 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

[[Page 58325]]

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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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The proposed amendments remove impediments to and perfect the 
mechanisms of a free and open market and a national market system and, 
in general, protect investors and the public interest by amending the 
rules regarding the Exchange's Opening Process. The inclusion of the 
functionality of the System in the rules promotes transparency and 
clarity in the Exchange's Opening Process. The transparency and 
accuracy resulting from the codification of this functionality is 
consistent with the Act because it removes impediments to and perfects 
the mechanism of a free and open market and a national market system, 
and, in general, protects investors and the public interest, by 
accurately describing the steps taken by the System in the limited 
scenario where the Exchange's opening quote is crossed by orders that 
have the same size. Participants in the Exchange's opening will have a 
better understanding of the Exchange's opening process when there are 
quotes and orders that lock and cross each other. In addition, the 
Exchange believes that the function of the EQR itself is designed to 
promote just and equitable principles of trade by providing a clear and 
objective method to enable a fair and orderly opening on the exchange 
to the benefits of investors and the public interest.
    The Exchange believes that using the EQR instead of the current 
price range in Rule 503(f) is beneficial to market participants because 
the EQR represents a more accurate measure of the true market for an 
option on the opening (especially after providing participants with an 
opportunity to submit new quotes before the EQR is calculated). This 
step providing that opportunity, now codified in the Rule should reduce 
the probability of imbalances and will assure participants in the 
Exchange's opening process that they have the ability to submit new 
opening quotes in response to an imbalance message. This process is 
fair because it provides such an opportunity for all participants, and 
is orderly because that opportunity must take place before the EQR is 
calculated. Moreover, the imbalance message followed by the EQR 
calculation is more efficient because it functions to eliminate 
unnecessary delays in the opening process by allowing participants to 
submit new quotations against which opening orders and quotes may 
trade.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Specifically, the Exchange 
believes the proposed changes will not impose any burden on intra-
market competition because it applies to all MIAX participants equally. 
In addition, the Exchange does not believe the proposal will impose any 
burden on inter-market competition as the proposal is intended to 
protect investors by providing further transparency regarding the 
Exchange's Opening Process. The Exchange believes that using the EQR 
instead of the current price range in Rule 503(f) is beneficial to 
market participants because the EQR provides a more accurate measure as 
to whether there is sufficient available liquidity in the broader 
market system to provide a fair and orderly opening process and 
sufficient price discovery for the options to open for trading to the 
benefit of investors. As such, the Exchange believes that the EQR will 
not be a burden on competition, but rather promote more trading 
opportunities and competition during the opening since it is designed 
to promote just and equitable principles of trade by providing a clear 
and objective method to enable a fair and orderly opening on the 
exchange to the benefits of investors and the public interest.

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 \9\ and Rule 19b-4(f)(6) \10\ 
thereunder.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 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-2015-57 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-2015-57. 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

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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-2015-57 and should be 
submitted on or before October 19, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-24516 Filed 9-25-15; 8:45 am]
BILLING CODE 8011-01-P