[Federal Register Volume 82, Number 86 (Friday, May 5, 2017)]
[Notices]
[Pages 21288-21291]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-09062]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80570; File No. SR-MIAX-2017-16]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing of a Proposed Rule Change To Amend MIAX 
Options Rule 515A, MIAX Price Improvement Mechanism (``PRIME'') and 
PRIME Solicitation Mechanism

May 1, 2017.
    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 April 25, 2017, Miami International Securities 
Exchange LLC (``MIAX Options'' 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, MIAX 
Price Improvement Mechanism (``PRIME'') and PRIME Solicitation 
Mechanism.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.miaxoptions.com/rule-filings, 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 515A, MIAX Price Improvement 
Mechanism (``PRIME'') and PRIME Solicitation Mechanism, to amend the 
duration of a PRIME Auction. PRIME is a process by which a Member \3\ 
may electronically submit for execution (``Auction'') an order \4\ it 
represents as agent (``Agency Order'') against principal interest, and/
or an Agency Order against solicited interest (``Solicitation 
Auction''). When the Exchange receives a properly designated Agency 
Order for auction processing, a Request for Responses (``RFR'') 
detailing the option, side, size, and initiating price is sent to all 
subscribers of the Exchange's data feeds. Currently, the Auction and 
Solicitation Auction period lasts for 500 milliseconds, unless it is 
concluded early.\5\ The Exchange proposes to amend Rule 
515A(a)(2)(i)(C) so that the duration of the Auction and Solicitation 
Auction shall be a time period designated by the Exchange, which shall 
be no less than 100 milliseconds and no more than 1 second, consistent 
with the rule of other exchanges, such as the International Securities 
Exchange (``ISE''), NASDAQ BX (``BX''), NASDAQ PHLX (``PHLX''), and 
Chicago Board Options Exchange (``CBOE'').\6\ When approving the change

[[Page 21289]]

to exposure periods in these mechanisms, the Securities and Exchange 
Commission (``SEC'') concluded that reducing the time periods was 
consistent with the Securities Exchange Act of 1934 (the ``Act'').\7\
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    \3\ The term ``Member'' means an individual or organization 
approved to exercise the trading rights associated with a Trading 
Permit. Members are deemed ``members'' under the Exchange Act. See 
Exchange Rule 100.
    \4\ The term ``order'' means a firm commitment to buy or sell 
option contracts. See Exchange Rule 100.
    \5\ A PRIME and PRIME Solicitation Auction will conclude at the 
sooner of (1) Upon 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, or the RFR responses; (2) Upon 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; (3) Upon receipt by the System 
of an unrelated limit order (in the same option as the Agency Order) 
on the opposite of the market from the Agency Order that improves 
any RFR response; (4) Any time an RFR response matches the NBBO on 
the opposite side of the market from the RFR responses; (5) Any time 
there is a quote lock in the subject option on the Exchange pursuant 
to Rule 1402; or (6) Any time there is a trading halt in the option 
on the Exchange. See Exchange Rule 515A.
    \6\ See Securities Exchange Act Release Nos. 79733 (January 4, 
2017), 82 FR 3055 (January 10, 2017) (SR-ISE-2016-26); 76301 
(October 29, 2015), 80 FR 68347 (November 4, 2015) (SR-BX-2015-032); 
77557 (April 7, 2016), 81 FR 21935 (April 13, 2016) (SR-PHLX-2016-
40); and 80421 (April 10, 2017), 82 FR 18048 (April 14, 2017) (SR-
CBOE-2017-029). The Commission notes that CBOE's proposed rule 
change to amend its auction response period was published in the 
Federal Register on April 14, 2017 and is subject to a public 
comment period expiring on May 5, 2017.
    \7\ Id.
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    The Exchange believes that moving to a range structure provides the 
Exchange with greater flexibility in establishing the optimal duration 
for Auctions and Solicitation Auctions. The Exchange believes that 
permitting a shorter duration of as low as 100 milliseconds will reduce 
market risk for all Members executing trades on the Exchange via the 
PRIME and PRIME Solicitation Mechanism. Initiating participants are 
required to guarantee an execution at the NBBO \8\ or at a better 
price, and are subject to market risk as their PRIME order is exposed 
to other Members of the Exchange. While other participants are also 
subject to market risk, those providing responses may cancel their 
responses. The Exchange believes that the initiating participant plays 
a critical role in the Auction and Solicitation Auction processes. 
Their willingness to guarantee the orders entered into the PRIME and 
PRIME Solicitation Mechanism an execution at the NBBO or, in some 
cases, a better price, is the catalyst for an order gaining the 
opportunity for price improvement. The Exchange believes that allowing 
an Auction period of no less than 100 milliseconds and no more than 1 
second will benefit Members utilizing the PRIME and PRIME Solicitation 
Mechanism. The Exchange believes it is in these Members' best interests 
to minimize the Auction and Solicitation Auction duration while 
continuing to allow Members adequate time to respond. The Exchange 
notes the Commission previously approved other exchanges' rules that 
provide for an auction response time as low as 100 milliseconds \9\ and 
that the Exchange is not proposing to go lower than the lowest 
previously approved timer range.
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    \8\ The term ``NBBO'' means the national best bid or offer as 
calculated by the Exchange based on market information received by 
the Exchange from OPRA. See Exchange Rule 100.
    \9\ See supra note 6.
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    Accordingly, the Exchange proposes to amend Rule 515A(b)(2)(i)(C) 
to remove the reference to the duration of the current timer setting. 
Currently the rule states that, ``[m]embers may submit responses to the 
RFR (specifying prices and sizes) during the response period (which 
shall be 500 milliseconds).'' The Exchange proposes to replace this 
sentence with the proposed language used in 515A(a)(2)(i)(C) which 
provides that ``[t]he RFR will last for a period of time, as determined 
by the Exchange and announced through a Regulatory Circular. The RFR 
will be no less than 100 milliseconds and no more than 1 second.''
    The Exchange does not believe that requiring the Auction and 
Solicitation Auction to run for 500 milliseconds is necessary in 
today's market where, generally, Members' systems have the capability 
to respond within 100 milliseconds or less. As such, reducing the 
response time in the PRIME and PRIME Solicitation Mechanism is 
appropriate as Members no longer need up to 500 milliseconds to respond 
to an Auction or Solicitation Auction. Reducing the response time will 
allow Members the opportunity to seek out liquidity in an expedient 
manner that is consistent with today's system capabilities.
    The Exchange's Members operate electronic systems that enable them 
to react and respond to orders in a meaningful way in fractions of a 
second. The Exchange anticipates that its Members will continue to 
compete within the proposed response times designated by the Exchange. 
In particular, the Exchange believes that the proposed response times--
which will be no less than 100 milliseconds and no more than 1 second--
will continue to provide Members with sufficient time to respond to, 
compete for, and provide price improvement for orders, and will provide 
investors and other market participants with more timely executions, 
and reduce their market risk.
    Reducing the duration of Auctions and Solicitation Auctions from 
500 milliseconds to as low as 100 milliseconds will benefit Members 
trading in the PRIME and PRIME Solicitation Mechanism. The Exchange 
believes that it is in these Members' best interest to minimize the 
response time while continuing to allow Members adequate time to 
electronically respond. Both the order being exposed and the Members' 
responses are subject to market risk during the Auction or Solicitation 
Auction. While a limited number of Members wait to respond until later 
in the Auction or Solicitation Auction, presumably to minimize their 
market risk, the majority of Members respond within the first 100 
milliseconds. The Exchange believes that a response time as low as 100 
milliseconds will continue to provide market participants with 
sufficient time to respond, compete, and provide price improvement for 
orders and will provide investors and other market participants with 
more timely executions, thereby reducing their market risk.
    To substantiate that Members can receive, process, and communicate 
a response to an auction broadcast within 100 milliseconds, the 
Exchange surveyed all Members that responded to an auction broadcast in 
the period beginning November 2016 and ending January 2017 (the 
``review period''). The Exchange received responses from all of the 
Members surveyed, and each Member confirmed that they can receive, 
process, and communicate a response back to the Exchange within 100 
milliseconds.
    Also, in consideration with this proposed rule change, the Exchange 
reviewed all responses received in PRIME and PRIME Solicitation 
Auctions from its Members for the review period. During the review 
period, on average, approximately 60% of responses were submitted 
within the first 50 milliseconds, and approximately 90% of responses 
were submitted within 100 milliseconds.\10\
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    \10\ The Exchange notes that the average percentages for 
responses within 50 milliseconds and 100 milliseconds were 61.03% 
and 88.19% respectively.
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    Accordingly, the Exchange believes that a response time as low as 
100 milliseconds will continue to provide Members with sufficient time 
to respond to, compete for, and provide price improvement for orders, 
and will provide investors and other market participants with more 
timely executions, and reduce their market risk. The Exchange also 
believes it is likely that the number of PRIME transactions will 
increase, thereby providing customers a greater opportunity to benefit 
from price improvement.
    The Exchange believes that the information outlined above regarding 
price improving transactions in the PRIME and PRIME Solicitation 
Mechanism provides substantial support for its assertion that reducing 
the response time from 500 milliseconds to as low as 100 milliseconds 
will continue to provide Members with sufficient time to ensure 
competition for orders entered into the PRIME and PRIME Solicitation 
Mechanism, and could provide customer orders with additional 
opportunities for price improvement.
    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and

[[Page 21290]]

represents that it has the necessary systems capacity to handle the 
potential additional traffic associated with the additional 
transactions that may occur with the implementation of the proposed 
reduction in the response time duration to no less than 100 
milliseconds. Additionally, the Exchange represents that its System 
will be able to sufficiently maintain an audit trail for order and 
trade information with the reduction in the response timer.
2. Statutory Basis
    MIAX Options believes that its proposed rule change is consistent 
with Section 6(b) of the Act \11\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \12\ 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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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    In particular, the proposed rule change will provide investors with 
more timely execution of their option orders, while ensuring that there 
is an adequate exposure of orders in the mechanisms. Additionally, the 
proposed change will allow more investors the opportunity to receive 
price improvement through the PRIME and PRIME Solicitation Mechanism 
and will reduce market risk for Members using these mechanisms. 
Finally, as mentioned above, other exchanges such as ISE, BX, PHLX, and 
CBOE [sic],\13\ have already amended their rules to permit response 
times consistent with the instant proposal--i.e., no less than 100 
milliseconds and no more than 1 second.\14\ As such, the Exchange 
believes the proposed rule change would help perfect the mechanism for 
a free and open national market system, and generally help protect 
investors and the public's interest.
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    \13\ The Commission notes that CBOE's proposed rule change to 
amend its auction response period was published in the Federal 
Register on April 14, 2017 and is subject to a public comment period 
expiring on May 5, 2017.
    \14\ See supra note 6.
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    The Exchange believes the proposed rule change is not unfairly 
discriminatory because the response time duration would be the same for 
all Members. All Members in the PRIME and PRIME Solicitation Mechanism 
have today, and will continue to have, an equal opportunity to receive 
the broadcast and respond with their best prices during the auction. 
Additionally, the Exchange believes the reduction of the response time 
for an auction reduces the market risk for all Members. The reduction 
of the time period reduces the market risk for the initiating member as 
well as any Members providing orders in response to an RFR.

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 to provide the Exchange flexibility in 
determining potentially shorter durations for Auctions and Solicitation 
Auctions does not impose an undue burden on intra-market competition as 
the Exchange believes that allowing for an auction period of no less 
than 100 milliseconds and no more than 1 second will benefit Members 
utilizing the PRIME and PRIME Solicitation Mechanism. The Exchange 
believes it is in these Members' best interest to minimize the Auction 
and Solicitation Auction duration while continuing to allow Members 
adequate time to respond electronically.
    The proposed rule allows Members to respond quickly at the most 
favorable price while reducing the risk that the market will move 
against the response. The Exchange believes that its Members will be 
able to compete within a timer range of no less than 100 milliseconds 
and no more than 1 second, and that any specific duration within this 
range is a sufficient amount of time to respond to, compete for, and 
provide price improvement for orders, and will provide investors and 
other market participants more timely executions, and reduce their 
market risk.
    The Exchange does not believe its proposed rule change will impose 
an undue burden on inter-market competition as the Exchange notes other 
exchanges offer similar functionality with similar auction duration 
lengths.\15\
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    \15\ See NASDAQ BX Rules, Chapter VI, Section 9(ii)(A)(3), CBOE 
Rule 6.74A and 6.74B, ISE Rule 723(c)(1), and NASDAQ PHLX Rule 
1080(n)(ii)(A)(4). The Commission notes that CBOE's proposed rule 
change to amend its auction response period was published in the 
Federal Register on April 14, 2017 and is subject to a public 
comment period expiring on May 5, 2017.
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    For all the reasons stated, 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, and 
believes the proposed change will enhance competition.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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-2017-16 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-2017-16. 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

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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-2017-16 and should be 
submitted on or before May 26, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Eduardo A. Aleman,
Assistant Secretary.
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    \16\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2017-09062 Filed 5-4-17; 8:45 am]
 BILLING CODE 8011-01-P