[Federal Register Volume 81, Number 197 (Wednesday, October 12, 2016)]
[Notices]
[Pages 70453-70455]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-24573]



[[Page 70453]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79048; File No. SR-MIAX-2016-35]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Exchange Rule 503 Openings on the 
Exchange and Rule 603 Obligations of Market Makers

October 5, 2016.
    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 23, 2016, 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, 
Openings on the Exchange; and Rule 603, Obligations of Market Makers, 
to adopt new Interpretations and Policies .01 to each existing rule.
    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 Exchange Rule 503, Openings on the 
Exchange, to adopt new Interpretations and Policies .01 to state that 
if the Primary Lead Market Maker (``PLMM'') \3\ assigned in a 
particular equity option class has not submitted valid width quotes in 
any series of such class within one minute following the dissemination 
of a quote or trade by the market for the underlying security and the 
affected series of such class has opened for trading within such one 
minute period, such failure to submit valid width quotes will not be 
considered a violation of Rule 503(e)(5) by the Primary Lead Market 
Maker, unless the PLMM demonstrates a pattern or practice of not 
submitting valid width quotes within one minute following the 
dissemination of a quote or trade by the market for the underlying 
security, irrespective of whether the series have opened for trading. 
Additionally, the Exchange proposes to amend Exchange Rule 603, 
Obligations of Market Makers, to adopt new Interpretations and Policies 
.01 to state that if the Primary Lead Market Maker assigned in a 
particular equity option class has not submitted valid width quotes in 
any series of such class within one minute following the dissemination 
of a quote or trade by the market for the underlying security if the 
affected series of such class have opened for trading within such one 
minute period, such failure to submit valid width quotes will not be 
considered a violation of Rule 603(c) by the Primary Lead Market Maker, 
unless the PLMM demonstrates a pattern or practice of not submitting 
valid width quotes within one minute following the dissemination of a 
quote or trade by the market for the underlying security, irrespective 
of whether the series have opened for trading.
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    \3\ The term ``Market Makers'' refers to ``Lead Market Makers'', 
``Primary Lead Market Makers'' and ``Registered Market Makers'' 
collectively. The term ``Lead Market Maker'' means a Member 
registered with the Exchange for the purpose of making markets in 
securities traded on the Exchange and that is vested with the rights 
and responsibilities specified in Chapter VI of the Exchange's Rules 
with respect to Lead Market Makers. When a Lead Market Maker is 
appointed to act in the capacity of a Primary Lead Market Maker, the 
additional rights and responsibilities of a Primary Lead Market 
Maker specified in Chapter VI of the Exchange's Rules will apply. 
The term ``Primary Lead Market Maker'' means a Lead Market Maker 
appointed by the Exchange to act as the Primary Lead Market Maker 
for the purpose of making markets in securities traded on the 
Exchange. The Primary Lead Market Maker is vested with the rights 
and responsibilities specified in Chapter VI of the Exchange's Rules 
with respect to Primary Lead Market Makers. The term ``Registered 
Market Maker'' means a Member registered with the Exchange for the 
purpose of making markets in securities traded on the Exchange, who 
is not a Lead Market Maker and is vested with the rights and 
responsibilities specified in Chapter VI of the Exchange's Rules 
with respect to Registered Market Makers. See Exchange Rule 100.
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    To open a series for trading the Exchange employs an automated 
Opening Process \4\ which begins after a pause for a period of time no 
longer than one half second following the dissemination of a quote or 
trade in the market for the underlying security when any one of three 
separate sets of criteria is met: The first requires that a PLMM's 
valid width quote \5\ has been submitted; \6\ the second requires that 
valid width quotes of at least two Market Makers, where at least one is 
a Lead Market Maker, have been submitted; \7\ the third,\8\ applicable 
to multiply listed option classes, requires that at least one Eligible 
Exchange (as defined in Rule 1400(f)) \9\ has disseminated a quote in 
the individual option in accordance with Rule 1402(a),\10\ there is a 
valid width NBBO available and the valid width quote of at least one 
Lead Market Maker has been submitted. If any one of these criteria can 
be satisfied, the opening process will begin.\11\
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    \4\ See Exchange Rule 503(e), Starting the Opening Process.
    \5\ A valid width quote is one where the bid and offer, 
comprised of a Market Maker's Standard quotes and Day eQuotes, 
differ by no more than the differences outlined in Exchange Rule 
603(b)(4)(i). See Exchange Rule 503(e)(3).
    \6\ See Exchange Rule 503(e)(1)(i).
    \7\ See Exchange Rule 503(e)(1)(ii).
    \8\ See Exchange Rule 503(e)(1)(iii).
    \9\ The term ``Eligible Exchange'' means a national securities 
exchange registered with the SEC in accordance with Section 6(a) of 
the Exchange Act that: (1) Is a Participant Exchange in OCC (as that 
term is defined in Section VII of the OCC by-laws); (2) is a party 
to the OPRA Plan (as that term is described in Section I of the OPRA 
Plan); and (3) if the national securities exchange is not a party to 
the Options Order Protection and Locked/Crossed Markets Plan as 
defined below, is a participant in another plan approved by the 
Commission providing for comparable Trade-Through and Locked and 
Crossed Market protection. See Exchange Rule 1400(f).
    \10\ Except for quotations that fall within the provisions of 
paragraph (b) or this Rule, Members shall reasonably avoid 
displaying, and shall not engage in a pattern or practice of 
displaying any quotations that lock or cross a Protected Quotation. 
See Exchange Rule 1402(a), Prohibition.
    \11\ See Exchange Rule 503.
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    The requirement that a PLMM enter valid width quotes not later than 
one minute following the dissemination of a quote or trade by the 
market for the underlying security is intended to ensure that the 
option class is opened

[[Page 70454]]

for trading in a timely fashion. However, there are two additional 
methods which the Opening Process may use to open the option class for 
trading which do not require the presence of a PLMM's valid width 
quote. If series of the option class are opened for trading within one 
minute following the dissemination of a quote or trade by the market 
for the underlying security, the requirement that a PLMM enter valid 
width quotes within one minute following the dissemination of a quote 
or trade by the market for the underlying security is unnecessary.
    The MIAX Options Exchange became a registered national securities 
exchange on December 7, 2012.\12\ Two months later, in February 2013, 
the Exchange revised its opening quoting obligations for market makers 
to better align its rules to those of the other then existing option 
exchanges.\13\ In its rule filing the Exchange stated that, ``[w]hile 
MIAX agrees that eliminating its opening quoting obligations for Market 
Makers would be pro-competitive in that it will attract more market 
makers and additional liquidity to the Exchange, MIAX believes that the 
PLMM should still have the responsibility to assure a timely start to 
the opening process in each of its appointed classes and is therefore 
continuing to require the PLMM to submit valid width quotes not later 
than one minute after a trade or quote in the underlying security has 
been disseminated. As it builds its options marketplace, MIAX believes 
a consistently timely opening of its options classes is essential for 
attracting order flow.'' \14\
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    \12\ See Securities Exchange Act Release No. 68341 (December 3, 
2012), 77 FR 73065 (December 7, 2012) (File No. 10-207).
    \13\ See Securities Exchange Act Release No. 68954 (February 20, 
2013), 78 FR 13107 (February 26, 2013) (SR-MIAX-2013-04).
    \14\ See Securities Exchange Act Release No. 68954 (February 20, 
2013), 78 FR 13107 (February 26, 2013) (SR-MIAX-2013-04).
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    The Exchange remains committed to ensuring that its options classes 
open in a consistently timely manner and nothing in the current rule 
proposal diminishes the affirmative obligation the PLMM bears to open 
series in a timely fashion. The Exchange has reviewed data for the 
first two quarters of 2016 for series opening on the Exchange within 
one minute following the dissemination of a quote or trade by the 
market for the underlying security and found that 99.92% \15\ of all 
series listed on the Exchange were opened for trading within such one 
minute period. During this review period, the Exchange found that a 
valid width PLMM quote was present for 95.57% of all series which 
opened within one minute following the dissemination of a quote or 
trade by the market for the underlying security. For the remaining 
4.35% of series, 98.13% were opened within one minute by an alternative 
method which did not require the presence of a PLMM quote.
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    \15\ The Exchange determined that for Q1 2016, 99.83%, and for 
Q2 2016, 99.95%, of all series listed on the Exchange were opened 
within one minute following the dissemination of a quote or trade by 
the market for the underlying security.
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    Under the proposed rule filing, the PLMM maintains an affirmative 
obligation to provide a valid width quote within one minute following 
the dissemination of a quote or trade by the market for the underlying 
security to ensure that the series are opened in a timely manner. The 
Exchange seeks only to eliminate unnecessary disciplinary action 
against a PLMM for not providing a valid width quote within such one 
minute period when the series is opened within that period by an 
alternative method. The Exchange notes that the proposed rule change 
will not prohibit the Exchange from taking disciplinary action against 
a PLMM for failing to provide valid width quotes within one minute 
following the dissemination of a quote or trade by the market for the 
underlying security if the affected series do not open within such one 
minute period. Additionally, the proposed rule provides that a PLMM 
that demonstrates a pattern or practice of not submitting valid width 
quotes within one minute following the dissemination of a quote or 
trade by the market for the underlying security, irrespective of 
whether the series have opened for trading or not, will be subject to 
disciplinary action by the Exchange. This ensures that the incentive 
for PLMMs to provide valid width quotes within one minute following the 
dissemination of a quote or trade by the market for the underlying 
security remains intact, and ensures that the participation rates 
established by the PLMM community remain high.
    Further, the Exchange notes that the proposed rule change will not 
relieve Market Makers of their continuous quoting obligations under 
Exchange Rule 604 \16\ and under Reg NMS Rule 602.\17\ Nor will the 
proposed rule change prohibit the Exchange from taking disciplinary 
action against a Market Maker for failing to meet their continuous 
quoting obligation each trading day.
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    \16\ See Exchange Rule 604(e)(1)(i) which states, ``[a] Primary 
Lead Market Maker must provide continuous two-sided Standard quotes 
and/or Day eQuotes, which for the purpose of this paragraph shall 
mean 90% of the time, for the options classes to which it is 
appointed.
    \17\ 17 CFR 242.602.
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    The Exchange now proposes to adopt Interpretations and Policies .01 
to Rule 503, which will establish that a PLMM assigned in a particular 
equity option class will not be in violation of subsection (e)(5) if 
the PLMM has not submitted valid width quotes in any series of such 
class within one minute following the dissemination of a quote or trade 
by the market for the underlying security if the affected series of 
such class have opened for trading within such one minute period, 
unless the PLMM demonstrates a pattern and practice of not submitting 
valid width quotes within one minute following the dissemination of a 
quote or trade by the market for the underlying security, irrespective 
of whether the series have opened for trading. Additionally, the 
Exchange now proposes to adopt Interpretations and Policies .01 to Rule 
603, which will establish that a PLMM assigned in a particular equity 
option class will not be in violation of subsection (c) if the PLMM has 
not submitted valid width quotes in any series of such class within one 
minute following the dissemination of a quote or trade by the market 
for the underlying security if the affected series of such class have 
opened for trading within such one minute period, unless the PLMM 
demonstrates a pattern and practice of not submitting valid width 
quotes within one minute following the dissemination of a quote or 
trade by the market for the underlying security, irrespective of 
whether the series have opened for trading. The Exchange believes that 
by adopting the proposed Rule it will harmonize the intent of the rule 
with its enforcement.
2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \18\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \19\ 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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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
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    The Exchange notes that the proposed rule change is not a material 
change to either Rule 503, Openings on the

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Exchange, or Rule 603, Obligations of Market Makers. The proposed rule 
change is designed to promote just and equitable principles of trade by 
better aligning the enforcement of a Market Maker's obligations on the 
Exchange with the objective of the Rule which is to ensure that option 
classes on the Exchange are opened in a consistently timely fashion. 
Further, the proposed rule change will foster cooperation and 
coordination with persons engaged in regulating and facilitating 
transactions in securities as the proposed rule change articulates the 
specific conditions under which a Market Maker has met, or has failed 
to meet, a quoting obligation 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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
not designed to address any competitive issues.

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 \20\ and Rule 19b-4(f)(6) \21\ 
thereunder.
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 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-2016-35 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-2016-35. 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-2016-35 and should be 
submitted on or before November 2, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-24573 Filed 10-11-16; 8:45 am]
 BILLING CODE 8011-01-P