[Federal Register Volume 82, Number 147 (Wednesday, August 2, 2017)]
[Notices]
[Pages 36023-36030]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-16209]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81229; File No. SR-MIAX-2017-34]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend MIAX Options Rule 515A, MIAX Price 
Improvement Mechanism (``PRIME'') and PRIME Solicitation Mechanism, 
Rule 518, Complex Orders, and Rule 519A, Risk Protection Monitor

July 27, 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 July 13, 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 and II below, which Items have been 
prepared by the Exchange. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Exchange Rule 515A, MIAX Price 
Improvement Mechanism (``PRIME'') and PRIME Solicitation Mechanism, to 
state that the Exchange's System \3\ will reject an Agency Order (as 
defined below) if, at the time of receipt of the Agency Order, the 
option is a component of a complex strategy that is the subject of a 
cPRIME Auction (as defined below). The Exchange also proposes to amend 
Rule 518, Complex Orders, and Rule 519A, Risk Protection Monitor 
(``RPM''), so that the price and other trade protections contained in 
those rules address certain new complex order types on the Exchange. In 
addition, the Exchange proposes to amend Exchange Rule 518, 
Interpretations and Policies .05, to state that, unless otherwise 
specifically set forth in the Rule, the price and other protections 
contained in Interpretations and Policies .05 (including proposed 
amendments to the Rule, described below) apply to all complex order 
types set forth in Rule 518(b), as described below. The Exchange also 
proposes to amend Rule 519A to set forth clearly the manner in which 
the RPM handles the various complex order types listed in that Rule, as 
described below. amend Exchange Rule 515A to reflect changes to the 
MIAX Options Price Improvement Mechanism (``PRIME'') [sic].
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    \3\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
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    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 Exchange Rule 515A, MIAX Price 
Improvement Mechanism (``PRIME'') and PRIME Solicitation Mechanism, to 
state that the Exchange's System will reject an Agency Order if, at the 
time of receipt of the Agency Order, the option is a component of a 
complex strategy that is the subject of a cPRIME Auction (as defined 
below). The Exchange also proposes to amend Rule 518, Complex Orders, 
and Rule 519A, RPM, so that the price and other trade protections 
contained in those rules address certain new complex order types on the 
Exchange, as described below. In addition, the Exchange proposes to 
amend Exchange Rule 518, Interpretations and Policies .05, to state 
that, unless otherwise specifically set forth in the Rule, the price 
and other protections contained in Interpretations and Policies .05 
(including proposed amendments to the Rule, described below) apply to 
all complex order types set forth in Rule 518(b), as described below. 
The Exchange also proposes to amend Rule 519A to set forth clearly the 
manner in which the RPM handles the various complex order types listed 
in that Rule, as described below.

[[Page 36024]]

Background
    The Exchange began trading complex orders \4\ in October, 2016.\5\ 
As part of its effort to continue to build out its complex order market 
segment, the Exchange recently adopted rules to establish three new 
types of complex orders--complex PRIME (``cPRIME'') Orders, Complex 
Customer Cross (``cC2C'') Orders, and Complex Qualified Contingent 
Cross (``cQCC'') Orders--and to adopt new provisions that relate to the 
processing of those new complex order types.\6\ A cPRIME Order is a 
complex order that is submitted for participation in a cPRIME Auction. 
A cC2C Order is comprised of one Priority Customer complex order to buy 
and one Priority Customer complex order to sell the same complex 
strategy at the same initiating price (which must be better than 
(inside) the icMBBO \7\ price or the best net price of a complex order 
for the strategy) and for the same quantity. A cQCC Order is comprised 
of an originating complex order to buy or sell where each leg is at 
least 1,000 contracts and that is identified as being part of a 
qualified contingent trade, as defined in Rule 516, Interpretations and 
Policies .01,\8\ coupled with a contra-side complex order or orders for 
the same strategy totaling an equal number of contracts. cPRIME orders 
will be processed and executed in the Exchange's PRIME mechanism, the 
same mechanism that the Exchange uses to process and execute simple 
PRIME orders, pursuant to Exchange Rule 515A. cC2C and cQCC Orders will 
be processed and executed in the same mechanism that the Exchange uses 
to cross simple Customer Cross orders and QCC orders, pursuant to 
Exchange Rule 515.
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    \4\ A ``complex order'' is any order involving the concurrent 
purchase and/or sale of two or more different options in the same 
underlying security (the ``legs'' or ``components'' of the complex 
order), for the same account, in a ratio that is equal to or greater 
than one-to-three (.333) and less than or equal to three-to-one 
(3.00) and for the purposes of executing a particular investment 
strategy. Mini-options may only be part of a complex order that 
includes other mini-options. Only those complex orders in the 
classes designated by the Exchange and communicated to Members via 
Regulatory Circular with no more than the applicable number of legs, 
as determined by the Exchange on a class-by-class basis and 
communicated to Members via Regulatory Circular, are eligible for 
processing. See Exchange Rule 518(a)(5).
    \5\ For a complete description of the trading of complex orders 
on the Exchange, see Exchange Rule 518. See also, Securities 
Exchange Act Release No. 79072 (October 7, 2016), 81 FR 71131 
(October 14, 2016) (SR-MIAX-2016-26).
    \6\ See Securities Exchange Act Release No. 81131 (July 12, 
2017) (SR-MIAX-2017-19). (Order Granting Approval of a Proposed Rule 
Change to Amend MIAX Options Rules 515, Execution of Orders and 
Quotes; 515A, MIAX Price Improvement Mechanism (``PRIME'') and PRIME 
Solicitation Mechanism; and 518, Complex Orders).
    \7\ The Implied Complex MIAX Best Bid or Offer (``icMBBO'') is a 
calculation that uses the best price from the Simple Order Book for 
each component of a complex strategy including displayed and non-
displayed trading interest. For stock-option orders, the icMBBO for 
a complex strategy will be calculated using the best price (whether 
displayed or non-displayed) on the Simple Order Book in the 
individual option component(s), and the NBBO in the stock component. 
See Exchange Rule 518(a)(11).
    \8\ See id.
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    The Exchange is proposing to modify Exchange Rule 518, Complex 
Orders, and Rule 519A, RPM, which govern certain price and other trade 
protection features in the Exchange's System so that they address 
(through inclusion or exclusion) cPRIME Orders, cC2C Orders, and cQCC 
Orders in those features.
Proposal
    The Exchange is proposing to amend Exchange Rules 515A, MIAX Price 
Improvement Mechanism (``PRIME'') and PRIME Solicitation Mechanism, to 
state that the Exchange's System will reject an Agency Order if, at the 
time of receipt of the Agency Order, the option is a component of a 
complex strategy that is the subject of a cPRIME Auction (as defined 
below). The Exchange also proposes to amend Rule 518, Complex Orders, 
Interpretations and Policies .05, Price and Other Protections, and 
Interpretations and Policies .06, MIAX Order Monitor for Complex Orders 
(``cMOM''), and Exchange Rule 519A, RPM, by stating in those rules how 
the new cPRIME Order, cC2C Order, and cQCC Order types will be handled 
by the System with respect to those price and other protections. The 
Exchange is also proposing to amend Exchange Rule 518, Interpretations 
and Policies .05, to state that, unless otherwise specifically set 
forth in the Rule, the price and other protections contained in 
Interpretations and Policies .05 (including proposed amendments to the 
Rule, described below) apply to all complex order types set forth in 
Rule 518(b), as described below. The Exchange is also proposing to 
amend Rule 519A, Interpretations and Policies .02, to set forth clearly 
the manner in which the RPM handles the various complex order types 
listed in that Rule, as described below.
MIAX PRIME
    The Exchange is proposing to amend Rule 515A, MIAX Price 
Improvement Mechanism (``PRIME'') and PRIME Solicitation Mechanism. 
PRIME is a process by which a Member may electronically submit for 
execution (``Auction'') an order it represents as agent (``Agency 
Order'') against principal interest, and/or an Agency Order against 
solicited interest.
    The Exchange proposes to amend Rule 515A(a)(2) to add cPRIME Orders 
\9\ to the list of price-improvement auctions that are prohibited by 
the Exchange's System from occurring simultaneously on the Exchange. 
Specifically, Rule 515A(a)(2) will continue to state clearly that only 
one Auction may be ongoing at any given time in an option and Auctions 
in the same option may not queue or overlap in any manner. Currently, 
the Rule states that the System will reject an Agency Order if, at the 
time of receipt of the Agency Order, the option is in an Auction or is 
a component of a complex strategy \10\ that is the subject of a Complex 
Auction pursuant to Rule 518(d). The proposed amendment would state 
that the System will reject an Agency Order if, at the time of receipt 
of the Agency Order, the option is a component of a complex strategy 
that is the subject of a cPRIME Auction. The Exchange believes that the 
rejection of Agency Orders that are received in an option in which an 
Auction, cPRIME Auction, or Complex Auction is ongoing ensures that 
there will not be any interference with the potential for price 
improvement for the Agency Order as a result of overlapping, concurrent 
auctions on the Exchange.
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    \9\ ``cPRIME'' is the process by which a Member may 
electronically submit a ``cPRIME Order'' (as defined in Rule 
518(b)(7)) it represents as agent (a ``cPRIME Agency Order'') 
against principal or solicited interest for execution (a ``cPRIME 
Auction''). See Exchange Rule 515A, Interpretations and Policies 
.12(a).
    \10\ The term ``complex strategy'' means a particular 
combination of components and their ratios to one another. New 
complex strategies can be created as the result of the receipt of a 
complex order or by the Exchange for a complex strategy that is not 
currently in the System. The Exchange may limit the number of new 
complex strategies that may be in the System at a particular time 
and will communicate this limitation to Members via Regulatory 
Circular. See Exchange Rule 518(a)(6).
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    The Exchange further believes that, without such a limitation, 
investors could be faced with an unusually large number of simultaneous 
PRIME and/or Complex Auctions in the same option in the simple market, 
or involving the same strategy or components of the same strategy in 
the complex market, which in turn could impact the orderly function of 
the markets. The Exchange believes that this limitation is consistent 
with the Act because it protects investors and the public interest by 
ensuring orderliness in the PRIME, cPRIME and Complex Auction process.
Complex Order Price and Other Protections in Rule 518
    The Exchange proposes to amend Rule 518, Interpretations and 
Policies .05, to state that, unless otherwise

[[Page 36025]]

specifically set forth in the Rule, the price and other protections 
contained in Interpretations and Policies .05 apply to all complex 
order types set forth in Rule 518(b).\11\ The Exchange believes that 
the application of existing protections to all complex order types as 
described in proposed Rule 518, Interpretations and Policies .05 is 
consistent with the Act because such application is designed to protect 
investors and the public interest, by assisting investors in 
maintaining their established risk tolerance levels on the Exchange 
when making investment decisions concerning these order types.
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    \11\ In addition to a general description, Rule 518(b) defines 
the following complex orders: a ``Complex Auction-on-Arrival'' or 
``cAOA'' order, which is a complex order designated to be placed 
into a Complex Auction upon receipt or upon evaluation; a Complex 
Auction-or-Cancel or ``cAOC'' order, which is a complex limit order 
used to provide liquidity during a specific Complex Auction with a 
time in force that corresponds with that event; and a Complex 
Immediate-or-Cancel or ``cIOC'' order, which is a complex order that 
is to be executed in whole or in part upon receipt. See Exchange 
Rule 518(b). The Exchange recently amended Rule 518(b) to add 
cPRIME, cC2C and cQCC Orders to the complex order types defined in 
the Rule. See supra note 6.
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    The Exchange is proposing to modify Rule 518, Interpretations and 
Policies .05, Price and Other Protections, to describe the manner in 
which the System will handle cPRIME Orders, cC2C Orders, and cQCC 
Orders with respect to the protections described in the Rule. The 
Exchange is proposing to apply these protections to complex orders so 
that investors submitting complex orders are better able to manage 
their risk tolerance levels with respect to complex orders they submit 
to the Exchange, just as they are currently able to manage their risk 
tolerance levels with respect to orders in the simple market and 
certain types of complex orders listed in Rule 518(b).\12\ The Exchange 
believes that extending the application of existing protections to all 
complex order types, including the recently added cPRIME Orders, cC2C 
Orders, and cQCC Orders, as described in the proposed rules is 
consistent with the Act because such application is designed to protect 
investors and the public interest, by ensuring that investors that 
participate in these order types are afforded the price protections 
that already apply to all order types currently listed in Rule 
518(b).\13\ These protections are designed to assist investors in 
maintaining their established risk tolerance levels on the Exchange 
when making investment decisions concerning complex orders.
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    \12\ Id.
    \13\ See Exchange Rule 518(b). See also supra note 6.
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    The remaining proposed amendments to Rule 518, Interpretations and 
Policies .05, are intended to exclude certain order types from certain 
provisions in the Rule.
ixABBO Protection
    First, the Exchange proposes to modify Rule 518, Interpretations 
and Policies .05(d) to state that the Implied Away Best Bid or Offer 
(``ixABBO'') Price Protection feature is not available for cPRIME 
Orders, cC2C Orders, and cQCC Orders. The ixABBO price protection 
feature is a price protection mechanism under which, when in operation 
as requested by the submitting Member, a buy order will not be executed 
at a price that is higher than each other single exchange's best 
displayed offer for the complex strategy, and under which a sell order 
will not be executed at a price that is lower than each other single 
exchange's best displayed bid for the complex strategy. The ixABBO is 
calculated using the best net bid and offer for a complex strategy 
using each other exchange's displayed best bid or offer on their simple 
order book. For stock-option orders, the ixABBO for a complex strategy 
is calculated using the BBO for each component on each individual away 
options market and the NBBO for the stock component. The ixABBO price 
protection feature must be engaged on an order-by-order basis by the 
submitting Member and is not available for complex Standard quotes, 
complex eQuotes, or cAOC orders.\14\
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    \14\ See Exchange Rule 518, Interpretations and Policies .05(d).
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    The ixABBO protection will not be available because this type of 
protection isn't necessary for these new complex order types. 
Specifically, with respect to cPRIME Orders, a cPRIME Agency Order is 
received by the Exchange accompanied by, and guarantees an execution 
against, a contra-side order at a single price or at multiple prices 
with a ``stop'' price outside of which the cPRIME Agency Order, the 
contra-side order, and auction responses will not be executed.\15\ 
Additionally, cC2C Orders are automatically executed upon entry 
provided that: (i) The execution is at least $0.01 better than (inside) 
the icMBBO price, or (ii) the best net price of a complex order (as 
defined in Rule 518(a)(5)) on the Strategy Book (as defined in Rule 
518(a)(17)),\16\ whichever is more aggressive (i.e., the higher bid 
and/or lower offer).\17\cQCC Orders, on the other hand, are 
automatically executed upon entry provided that, with respect to each 
option leg of the cQCC Order, the execution (i) is not at the same 
price as a Priority Customer \18\ order on the Exchange's Book; and 
(ii) is at or between the NBBO.\19\ Therefore, the System will not 
consider the ixABBO protection parameters (each other single exchange's 
best displayed bid or offer for the complex strategy) with respect to 
cPRIME Orders, cC2C Orders, and cQCC Orders.
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    \15\ See supra note 6.
    \16\ The ``Strategy Book'' is the Exchange's electronic book of 
complex orders and complex quotes. See Exchange Rule 518(a)(17).
    \17\ See supra note 6.
    \18\ The term ``Priority Customer'' means a person or entity 
that (i) is not a broker or dealer in securities, and (ii) does not 
place more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial account(s). See 
Exchange Rule 100.
    \19\ See supra note 6.
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Wide Market Conditions
    Current Exchange Rule 518, Interpretations and Policies .05(e), 
describes the handling of complex orders when a component of a complex 
strategy is in a wide market condition,\20\ a Simple Market Auction or 
Timer (``SMAT'') Event,\21\ or a Halt. Complex orders will be handled 
in accordance with current Rule 518, Interpretations and Policies 
.05(e)(2), with respect to SMAT Events, and Interpretations and 
Policies .05(e)(3), with respect to Halts. The Exchange is not 
proposing to amend these rules.
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    \20\ A ``wide market condition'' is defined as any individual 
component of a complex strategy having, at the time of evaluation, 
an MBBO quote width that is wider than the permissible valid quote 
width as defined in Rule 603(b)(4). See Exchange Rule 518.05(e)(1).
    \21\ A SMAT Event is defined as a PRIME Auction (pursuant to 
Rule 515A); a Route Timer (pursuant to Rule 529); or a liquidity 
refresh pause (pursuant to Rule 515(c)(2)). See Exchange Rule 
518(a)(16).
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    The Exchange is proposing to amend Rule 518, Interpretations and 
Policies .05, with respect to wide market conditions. Currently, during 
free trading, if a wide market condition exists for a component of a 
complex strategy, trading in the complex strategy will be 
suspended.\22\ Similarly, if a wide market condition exists for a 
component of a complex strategy following a Complex Auction, trading in 
the complex strategy will be suspended.\23\ The Exchange is proposing 
to exclude cPRIME Orders, cC2C Orders, and cQCC Orders from these 
current trade protection provisions relating to wide market conditions.
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    \22\ See Exchange Rule 518, Interpretations and Policies 
.05(e)(1)(i).
    \23\ See Exchange Rule 518, Interpretations and Policies 
.05(e)(1)(ii).
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    The purpose of this ``carve-out'' is similar to the purpose of the 
ixABBO carve-out described above: cPRIME Orders, cC2C Orders, and cQCC 
Orders

[[Page 36026]]

are all received with either a paired cPRIME Agency Order (in the case 
of a cPRIME Order) or a contra-side order or orders. cPRIME and cC2C 
orders are received with an execution price at least $0.01 better than 
(inside) the icMBBO price or the best net price of a complex order on 
the Strategy Book, whichever is more aggressive. cQCC Orders are 
received with an execution price that (i) is not at the same price as a 
Priority Customer Order on the Exchange's Book; and (ii) is at or 
between the NBBO. Therefore, these three order types, all of which 
consist of paired orders with execution price requirements, are not 
affected by wide market conditions because they may only be executed at 
or inside of their obligatory prices. Accordingly, proposed Rule 518, 
Interpretations and Policies .05(e)(iii), states that a wide market 
condition shall have no impact on the trading of cPRIME Orders and 
processing of cPRIME Auctions (including the processing of cPRIME 
Auction responses) pursuant to Rule 515A, Interpretations and Policies 
.12, or on the trading of cC2C and cQCC Orders pursuant to Rule 
515(h)(3) and (4). Such trading and processing will not be suspended 
and will continue during wide market conditions.
MIAX Order Monitor for Complex Orders (``cMOM'')
    The Exchange is also proposing to amend Exchange Rule 518, 
Interpretations and Policies .06(a), to exclude cPRIME Orders, cC2C 
Orders, and cQCC Orders from the System's cMOM feature. cMOM defines a 
price range outside of which a complex limit order will not be accepted 
by the System. A complex limit order that is priced through the cMOM 
range will be rejected. cMOM is a number defined by the Exchange and 
communicated to Members via Regulatory Circular. The default price 
range for cMOM will be greater than or equal to a price through the 
cNBBO for the complex strategy to be determined by the Exchange and 
communicated to Members via Regulatory Circular. Such price will not be 
greater than $2.50. A complex limit order to sell will not be accepted 
at a price that is lower than the cNBBO bid, and a complex limit order 
to buy will not be accepted at a price that is higher than the cNBBO 
offer, by more than cMOM. A complex limit order that is priced through 
this range will be rejected.\24\
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    \24\ See Exchange Rule 518, Interpretations and Policies .06.
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    The Exchange is proposing to amend Rule 518, Interpretations and 
Policies .06(a), by stating that the cMOM price protection feature 
shall not apply to cPRIME Orders, cC2C Orders, and cQCC Orders. Under 
the proposal, the new order types will therefore not be rejected for 
being outside of cMOM price parameters upon receipt. The purpose of 
excluding these complex order types from the cMOM price protection 
feature is that cPRIME Orders, cC2C Orders and cQCC Orders are all 
guaranteed an execution at a price or prices determined by the 
participants, and cPRIME Orders are subject to further price 
improvement. Therefore, the cMOM price protection feature isn't 
necessary for these complex order types, and thus these complex order 
types will not be rejected based upon cMOM price parameters. In order 
to remain consistent in the Rule, the Exchange is also proposing to 
make a conforming change to Rule 518, Interpretations and Policies 
.06(e). Specifically, the Exchange is proposing to carve out cPRIME, 
cC2C and cQCC Orders from the Rule by stating, in Rule 518, 
Interpretations and Policies .06(e), that, except as provided in sub-
paragraph .06(a) above (which excludes cPRIME, cC2C and cQCC Orders), 
the protections set forth in Interpretations and Policies .06 will be 
available for complex orders as determined by the Exchange and 
communicated to Members via Regulatory Circular.
RPM
    The Exchange is proposing to amend Rule 519A, RPM. RPM is a feature 
of the MIAX System which maintains a counting program (``counting 
program'') for each participating Member that will count the number of 
orders entered and the number of contracts traded via an order entered 
by a Member on the Exchange within a specified time period that has 
been established by the Member (the ``specified time period''). The 
maximum duration of the specified time period is established by the 
Exchange and announced via a Regulatory Circular. The RPM maintains one 
or more Member-configurable Allowable Order Rate settings and Allowable 
Contract Execution Rate settings. When a Member's order is entered or 
when an execution of a Member's order occurs, the System will look back 
over the specified time period to determine if the Member has: (i) 
Entered during the specified time period a number of orders exceeding 
their Allowable Order Rate setting(s), or (ii) executed during the 
specified time period a number of contracts exceeding their Allowable 
Contract Execution Rate setting(s). Once engaged, the RPM will then, as 
determined by the Member: Automatically either (A) prevent the System 
from receiving any new orders in all series in all classes from the 
Member; (B) prevent the System from receiving any new orders in all 
series in all classes from the Member and cancel all existing orders 
with a time-in-force of Day in all series in all classes from the 
Member; or (C) send a notification to the Member without any further 
preventative or cancellation action by the System. When engaged, the 
RPM will still allow the Member to interact with existing orders 
entered prior to exceeding the Allowable Order Rate setting or the 
Allowable Contract Execution Rate setting, including sending cancel 
order messages and receiving trade executions from those orders. The 
RPM remains engaged until the Member communicates with the Help Desk to 
enable the acceptance of new orders.
    The Exchange is proposing to amend Interpretations and Policies .02 
to Rule 519A by setting forth the specific circumstances under which 
the Rule will apply to cPRIME Orders, QCC Orders, cQCC Orders, Customer 
Cross Orders, and cC2C Orders, in addition to the order types currently 
set forth in the rule (PRIME Orders, PRIME Solicitation Orders, and GTC 
Orders). Rather than ``carve-out'' these new complex order types, the 
Exchange is proposing to state in the Rule how these order types will 
participate in the RPM.
    Rule 519A, Interpretations and Policies .02, currently states that 
PRIME Orders, PRIME Solicitation Orders, and GTC Orders do not 
participate in the RPM. However, the System does include such PRIME 
Orders, PRIME Solicitation Orders, and GTC Orders in the counting 
program for purposes of this Rule. Under current Rule 519A, 
Interpretations and Policies .02(b), PRIME Orders, PRIME Solicitation 
Orders, and Customer Cross Orders \25\ will each be counted as two 
orders for the purpose of calculating the Allowable Order Rate. Current 
Rule 519A, Interpretations and Policies .02(c), further provides that, 
once engaged, the RPM will not cancel any existing PRIME Orders, PRIME 
Solicitation Orders, AOC orders, OPG orders, or GTC orders. PRIME 
Orders, PRIME Solicitation Orders, and GTC Orders remain in the System 
available for trading when the RPM is engaged.
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    \25\ The Exchange is proposing a technical amendment to refer in 
the Rule to ``Customer Cross'' orders and to delete an erroneous 
reference to ``Customer-to-Customer Orders.''
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    The Exchange is proposing to amend Interpretations and Policies .02 
by adding the new order types to the Rule

[[Page 36027]]

where appropriate (as described below) and to re-word and reorganize 
the Rule to clearly describe the functionality of the RPM as it relates 
to both existing and the proposed new order types. These proposed 
amendments are designed to remove impediments to and perfect the 
mechanisms of a free and open market and to eliminate possible 
confusion by establishing clearly in the Rule the manner in which the 
RPM handles each existing and proposed order type. This should assist 
MIAX Options participants in managing their risk tolerance levels with 
respect to the order types that are included in the RPM's counting 
program.
    First, the Exchange proposes to amend the introduction of Rule 
519A, Interpretations and Policies .02, to add cPRIME Orders, QCC 
Orders, cQCC Orders, Customer Cross Orders, and cC2C Orders to the 
currently enumerated order types (PRIME Orders, PRIME Solicitation 
Orders, and GTC Orders). Thus, as amended, Rule 519A, Interpretations 
and Policies .02 applies to all of these order types.
    Currently, Rule 519A, Interpretations and Policies .02(a), states 
that the System includes PRIME Orders, PRIME Solicitation Orders, and 
GTC Orders in the counting program for purposes of this Rule. The 
Exchange is proposing to amend the Rule by expanding it to list all 
order types (i.e., cPRIME Orders, QCC Orders, cQCC Orders, Customer 
Cross Orders, and cC2C Orders) that are subject to the RPM counting 
program.\26\ The Exchange believes that the inclusion of all of these 
order types in the rules and System functionality is consistent with 
the Act because it removes impediments to, and perfects the mechanisms 
of a free and open market, by correctly and accurately describing how 
existing orders are handled by RPM and, also describing the handling of 
the proposed new order types. This is consistent with the Act because 
it is intended to remove impediments to and perfect the mechanisms of a 
free and open market by applying the counting program to all of the 
order types mentioned, thus instilling confidence in participants that 
an unusually high number of orders and/or contracts submitted within a 
specified time period during, for example, periods of unusually high 
market volatility, will be counted towards the possible prevention of 
additional orders and quotes that subject them to higher risk levels 
than they are prepared to tolerate. The Exchange believes that this 
should result in more order flow on the Exchange, all to the benefit of 
the marketplace.
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    \26\ The counting program counts the number of orders entered 
and the number of contracts traded via an order entered by a Member 
on the Exchange within a specified time period that has been 
established by the Member (the ``specified time period''). See 
Exchange Rule 519A(a).
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    Proposed new Rule 519A, Interpretations and Policies .02(b), will 
continue to state, just as Interpretations and Policies .02(b) states 
today, that PRIME Orders, PRIME Solicitation Orders, and Customer Cross 
Orders will each be counted as two orders for the purpose of 
calculating the Allowable Order Rate. These order types included in the 
current Rule all consist of orders that are paired with contra-side 
orders upon receipt, with certain execution guarantees. For 
consistency, the Exchange is proposing to include a list of all paired 
orders that are counted as two orders for purposes of the RPM in the 
Rule. Orders received by the Exchange are from various sources, and 
order consolidators may submit them as components of crossing orders 
where appropriate. The purpose of counting these order types as two 
separate orders is to protect investors whose orders are submitted on 
their behalf as a component of crossing orders from the risk that an 
automated trading system or algorithm could inadvertently send an 
exponential number of paired orders during times of high volatility. By 
counting each paired order as two separate orders for purposes of the 
RPM, the Exchange believes that the likelihood of a participant 
engaging in activity that exceeds participants' established risk 
thresholds is mitigated and accounted for. Counting these order types 
as two separate orders thus protects investors and the public interest, 
and is therefore consistent with the Act.
    Additionally, these order types are counted as two separate orders 
for a systemic reason. Specifically, these paired order types are 
counted in the counting program as two orders when calculating the 
Allowable Order Rate because a participant sending such a paired order 
submits just one single message representing two orders. The RPM does 
not count the number of messages submitted; it counts orders. 
Therefore, for the foregoing reasons, the Exchange is proposing to add 
the following order types to be counted as two orders for purposes of 
the RPM: cPRIME Orders, QCC Orders, cQCC Orders, Customer Cross Orders 
and cC2C Orders. The proposed amended Rule thus accurately and 
correctly reflects the manner in which paired order types are submitted 
(as a single message representing two orders) for purposes of 
calculating the Allowable Order Rate.
    The Exchange notes that, as of the date of this proposal, the 
Exchange is not aware of any Member whose best execution obligation has 
been compromised based upon the Member's level of RPM settings, and is 
not aware of any Member whose RPM settings were so stringent that the 
Member's Agency Order did not receive an execution it should have 
received. Additionally, Exchange members are expected to consider their 
best execution obligations when setting parameters for the RPM. In 
connection with this proposal, the Exchange will issue a Regulatory 
Circular reminding Members of their best execution obligations.
    Rule 519A, Interpretations and Policies .02, currently states that, 
once engaged, the RPM will not cancel any existing PRIME Orders, PRIME 
Solicitation Orders, AOC orders, OPG orders, or GTC orders, and that 
PRIME Orders, PRIME Solicitation Orders and GTC Orders will remain in 
the System available for trading when the RPM is engaged. The Exchange 
is proposing to add new sub-paragraph (c) to Interpretations and 
Policies .02, to include cPRIME Orders in the list of order types that 
will remain in the System instead of being cancelled by the RPM. The 
Exchange believes that, just as PRIME Orders are not cancelled under 
the current rule, cPRIME Orders, which are similarly paired and 
guaranteed an execution on receipt, should not be cancelled and instead 
be retained by the System so that they can be executed according to 
their terms, regardless of whether the RPM is engaged.
    The Exchange will announce the implementation date of the proposed 
rule change by Regulatory Circular to be published no later than 60 
days following the operative date of the proposed rule. The 
implementation date will be no later than 60 days following the 
issuance of the Regulatory Circular.
2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \27\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \28\ 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 regulating, clearing, settling, 
processing information with

[[Page 36028]]

respect to, and 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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    \27\ 15 U.S.C. 78f(b).
    \28\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the application of existing protections 
to all complex order types as described in proposed Rule 518, 
Interpretations and Policies .05 is consistent with the Act because 
such application is designed to protect investors and the public 
interest, by assisting investors in maintaining their established risk 
tolerance levels on the Exchange when making investment decisions 
concerning these order types.
    The Exchange believes that the proposed amendment to Rule 
515A(a)(2), specifically adding to the existing limitations against 
simultaneous Auctions and Complex Auctions by stating that the System 
will reject an Agency Order if, at the time of receipt of the Agency 
Order, the option is a component of a complex strategy that is the 
subject of a cPRIME Auction, is consistent with the Act. Specifically, 
the proposal perfects the mechanisms of a free and open market and a 
national market system and, in general, protects investors and the 
public interest because, without such a limitation, investors could be 
faced with an unusually large number of simultaneous PRIME, cPRIME and/
or Complex Auctions in the same option in the simple market, and in the 
same strategy in the complex market, which in turn could impact the 
orderly function of the markets. The Exchange believes that this 
limitation is consistent with the Act because it protects investors and 
the public interest by establishing the same limitation with respect to 
any combination of concurrent PRIME, cPRIME and Complex Auctions. The 
Exchange notes that other exchanges also limit concurrent auctions 
involving the same option.\29\
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    \29\ See, e.g., NASDAQ PHLX LLC (``Phlx'') Rule 1080(n)(ii). See 
also, Chicago Board Options Exchange, Inc. (``CBOE'') Rule 6.74A(b).
---------------------------------------------------------------------------

    The Exchange believes that the proposed amendments to Rule 518, 
Interpretations and Policies .05(d), to exclude cPRIME Orders, cC2C 
Orders, and cQCC Orders from the ixABBO protection facilitates 
transactions in securities and removes impediments to and perfects the 
mechanisms of a free and open market and a national market system. The 
Exchange believes that, if not excluded, such protection feature could 
unnecessarily impede certain transactions in order types submitted with 
contra-side participation and guaranteed executions.
    The Exchange believes that its proposal to adopt Rule 518, 
Interpretations and Policies .05(e)(1)(iii), to state that a wide 
market condition shall have no impact on the trading of cPRIME Orders, 
cC2C Orders, and cQCC Orders perfects the mechanisms of a free and open 
market and a national market system and, in general, protects investors 
and the public interest, by ensuring participants submitting these 
order types that such paired orders will be executed at the submitted 
price regardless of wide market conditions. The Exchange does not 
believe that such orders should be affected by wide market conditions 
since the execution of these order types is guaranteed. The Exchange 
believes that preventing the execution of these orders would 
unnecessarily preclude executions on the Exchange that should occur 
regardless of wide market conditions.
    Additionally, the Exchange believes that proposed Rule 518, 
Interpretations and Policies .05(e)(1)(i), stating that trading and 
processing in these order types will not be suspended and will continue 
during wide market conditions perfects the mechanisms of a free and 
open market and a national market system and, in general, protects 
investors and the public interest by systemically avoiding the 
unnecessary preclusion of executions of paired order types during 
market conditions that do not affect such executions. The suspension of 
trading in these order types due to wide market conditions would 
unnecessarily preclude the execution of transactions that are 
guaranteed at protected prices upon receipt.
    The Exchange is proposing to apply these protections to complex 
orders so that investors submitting complex orders are better able to 
manage their risk tolerance levels with respect to complex orders they 
submit to the Exchange, just as they are currently able to manage their 
risk tolerance levels with respect to orders in the simple market and 
certain types of complex orders listed in Rule 518(b).\30\ The Exchange 
believes that extending the application of existing protections to all 
complex order types, including the recently added cPRIME Orders, cC2C 
Orders, and cQCC Orders, as described in the proposed rules is 
consistent with the Act because such application is designed to protect 
investors and the public interest, by ensuring that investors that 
participate in these order types are afforded the price protections 
that already apply to all order types currently listed in Rule 
518(b).\31\ These protections are designed to assist investors in 
maintaining their established risk tolerance levels on the Exchange 
when making investment decisions concerning complex orders.
---------------------------------------------------------------------------

    \30\ See supra note 11.
    \31\ See supra note 11.
---------------------------------------------------------------------------

    The Exchange further believes that its proposal in Rule 518, 
Interpretations and Policies .06(a), that the cMOM Price Protection 
feature shall not apply to cPRIME Orders, cC2C Orders, and cQCC Orders 
removes impediments to and perfects the mechanisms of a free and open 
market and a national market system and, in general, protects investors 
and the public interest. Under the proposal, these new order types will 
not be rejected for being outside of the cMOM price upon receipt, and 
will thus be executed instead of being rejected unnecessarily. These 
order types are already effectively executed when they are received 
(and, in the case of cPRIME Orders, subject to price improvement) 
because they are paired orders with a guaranteed execution. The 
Exchange believes that accepting these orders, rather than rejecting 
them, protects investors that have established crossing orders at a 
specific execution price.
    The Exchange believes that its proposal to amend, re-word and 
reorganize Rule 519A, Interpretations and Policies .02, is designed to 
facilitate transactions in securities and to remove impediments to and 
perfect the mechanisms of a free and open market, by amending the 
existing Rule to indicate that PRIME Orders, PRIME Solicitation Orders, 
and GTC Orders participate in the RPM, and by expanding the Rule to 
identify the proposed new order types and to describe how RPM handles 
each order type.
    The Exchange's proposal to add cPRIME Orders, QCC Orders, cQCC 
Orders, Customer Cross Orders and cC2C Orders to the list of order 
types in which Rule 519A, Interpretations and Policies .02 applies, and 
to the list of order types to be counted as two orders for purposes of 
the RPM's open order protection in Rule 519A, Interpretations and 
Policies .02(b), perfects the mechanisms of a free and open market and 
a national market system by assisting investors in managing their 
acceptable risk levels respecting open orders. The submission of a 
single message into the System for the execution of a paired order type 
is a submission representing two orders, and the RPM counts them as 
such for purposes of calculating the Allowable Order Rate. Participants 
thus will know that their single message for these order

[[Page 36029]]

types represents two orders for purposes of the counting system and may 
determine their appropriate risk tolerance parameters accordingly.
    The Exchange's proposal in Rule 519A, Interpretations and Policies 
.02(c), not to cancel existing cPRIME Orders once the RPM is engaged 
ensures that paired orders that are guaranteed executions are not 
unnecessarily cancelled. CPRIME Agency Orders are submitted with a 
contra side order at a guaranteed improved price; the engagement of RPM 
has no effect on the cPRIME price guarantee. Therefore, the Exchange 
believes that this proposal removes impediments to and perfects the 
mechanisms of a free and open market and a national market system and, 
in general, protects investors and the public interest, by permitting 
existing cPRIME Orders to be executed despite the engagement of RPM.
    The Exchange believes that the proposed amendments to its trade 
protection rules should instill additional confidence in Members that 
submit orders to the Exchange that their risk tolerance levels are 
protected, and thus should encourage such Members to submit additional 
order flow and liquidity to the Exchange with the understanding that 
they retain necessary protections and avoid unnecessary protections 
with respect to all orders they submit to the Exchange, including 
complex orders, thereby removing impediments to and perfecting the 
mechanisms of a free and open market and a national market system and, 
in general, protecting investors and the public interest.
    The Exchange also believes that the proposed rule change removes 
impediments to and perfects the mechanisms of a free and open market 
and a national market system by attracting more order flow and by 
increasing the frequency with which Initiating Members initiate 
Auctions in complex orders through PRIME.

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.
    On the contrary, the proposed rule change is intended to promote 
competition by ensuring that necessary trade protections are available 
on the Exchange, and by avoiding unnecessary protections that would 
preclude executions, enabling MIAX Options participants to execute more 
complex orders on the Exchange. The Exchange believes that this 
enhances inter-market competition by enabling MIAX Options to compete 
for this type of order flow with other exchanges that have similar 
functionalities in place.
    The Exchange further believes that enhancing the trade protections 
promotes intra-market competition by protecting new order types through 
which competing MIAX Options participants may submit complex orders 
into the System. Furthermore, the price protections and limitations on 
simultaneous auctions described in this proposal are available, and 
apply equally, to all market participants, resulting in an even playing 
field on the Exchange with respect to available trade and price 
protections on the Exchange. This should result in enhanced liquidity 
and more competition on the Exchange.
    Additionally, the Exchange believes that the proposed limitation on 
simultaneous auctions involving the same options should encourage 
participants to submit more PRIME and cPRIME Agency Orders to the 
Exchange, thus increasing the number of such orders, and responses to 
those orders on the Exchange, which should enhance the Exchange's 
position with respect to inter-market competition.
    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 in fact 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

    Because the 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 from the date on which it was filed, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \32\ and Rule 19b-4(f)(6) thereunder.\33\
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    \32\ 15 U.S.C. 78s(b)(3)(A).
    \33\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \34\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \35\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the proposed trade and price protections will be operative at the 
commencement of trading in the new crossing and cPRIME order types on 
the Exchange.\36\ The Exchange believes that the trade and price 
protections proposed for the new order types are indispensable tools 
for participants in managing their risk levels, and that a waiver of 
the operative delay will ensure the protection of investors and the 
public interest, consistent with the Act. The Commission believes the 
waiver of the operative delay is consistent with the protection of 
investors and the public interest to assure that the Risk Protection 
Monitor provisions and the price and other protections in MIAX Rule 
518, Interpretation and Policy .05, except as otherwise provided 
therein, will apply to the new cPRIME Orders, cC2C Orders, and cQCC 
Orders at the time these orders begin trading on MIAX.\37\ As noted 
above, MIAX states that the trade and price protections are 
indispensable tools for participants to manage their risk tolerance 
levels. Therefore, the Commission hereby waives the operative delay and 
designates the proposed rule change operative upon filing.\38\
---------------------------------------------------------------------------

    \34\ 17 CFR 240.19b-4(f)(6).
    \35\ 17 CFR 240.19b-4(f)(6)(iii).
    \36\ See supra note 6.
    \37\ See id. The Commission notes that the proposal also 
provides that the ixABBO Price Protection and the wide market 
condition provisions in MIAX Rule 518, Interpretation and Policy 
.05, and the cMOM Price Protection feature in MIAX Rule 518, 
Interpretation and Policy .06, will not apply to cPRIME, cC2C, and 
cQCC Orders because, as described more fully above, cPRIME, cC2C, 
and cQCC Orders are submitted as paired orders and are guaranteed 
executions.
    \38\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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

[[Page 36030]]

to determine whether the proposed rule change 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-2017-34 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-MIAX-2017-34. 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-2017-34 and should be 
submitted on or before August 23, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\39\
---------------------------------------------------------------------------

    \39\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-16209 Filed 8-1-17; 8:45 am]
 BILLING CODE 8011-01-P