[Federal Register Volume 82, Number 248 (Thursday, December 28, 2017)]
[Notices]
[Pages 61638-61641]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-28080]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82394; File No. SR-MIAX-2017-49]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend MIAX Options Rule 612, Aggregate Risk 
Manager (ARM) and Rule 518, Complex Orders

December 22, 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 December 15, 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 Rule 612, Aggregate Risk 
Manager (ARM), and Rule 518, Complex Orders.
    The text of the proposed rule change is available on the Exchange's 
website 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 612, Aggregate Risk Manager 
(ARM), and Rule 518, Complex Orders, to enhance the Aggregate Risk 
Manager (``ARM'') protections available to Market Makers \3\ on the 
Exchange, for both simple and complex quotes. Specifically, the 
Exchange proposes to adopt a Market Maker single side protection 
(``SSP'') feature, which is an additional, optional, and more granular 
feature of the ARM protections that are currently offered by the 
Exchange. Accordingly, the Exchange proposes to modify: (i) Rule 612, 
Interpretations and Policies .02, to adopt new subsection (c), Market 
Maker Single Side Protection, as well as to make minor, non-substantive 
clarifications to subsections (a) and (b) for greater precision for 
simple quotes; and (ii) Rule 518, Interpretations and Policies .05, to 
adopt new subsection (g), Market Maker Single Side Protection for 
complex quotes.
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    \3\ The term ``Market Makers'' refers to ``Lead Market Makers'', 
``Primary Lead Market Makers'' and ``Registered Market Makers'' 
collectively. See Exchange Rule 100.
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    The Exchange currently offers a number of risk protection 
mechanisms to its Members in both the simple and complex markets. For 
Market Makers, an important risk protection mechanism is the ARM. The 
purpose of the ARM is to remove the Market Maker from the market, once 
certain pre-determined trading limit thresholds (set up in advance by 
the Market Maker) have

[[Page 61639]]

been triggered, to limit the risk exposure of the Market Maker. ARM was 
implemented by the Exchange upon its launch in 2012, and the Exchange 
has continued to refine and enhance the ARM over time based on Member 
feedback. For example, in 2015, the Exchange enhanced the ARM to 
include a `class protection' feature, which provides that when the 
Allowable Engagement Percentage for a particular option class in which 
the Market Maker is appointed, has been equaled or exceeded a specified 
number of times within the ARM trigger counting period, the Class 
Protection feature will remove the Market Maker's quotations from the 
Exchange's disseminated quotation in such appointed option class until 
the Market Maker instructs the Exchange to reset the Class Protection 
feature.\4\ Additionally at that time, the Exchange also enhanced the 
ARM to include an `aggregate class protection' feature, which would 
remove the Market Maker organization's quotations in all of the Market 
Maker organization's appointed option classes when the Allowable 
Engagement Percentage had been equaled or exceeded in the Market Maker 
organization's specified number of appointed option classes within the 
ARM trigger counting period, regardless of how many individual Market 
Makers in the same Market Maker organization are submitting quotations 
on MIAX Options.\5\
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    \4\ See Securities Exchange Act Release No. 75361 (July 6, 
2015), 80 FR 39824 (July 10, 2015) (SR-MIAX-2015-44).
    \5\ See id.
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    Now, based on additional Member feedback, the Exchange is proposing 
to further enhance the ARM to introduce an SSP feature. The SSP 
feature, which is optional, will provide an additional level of 
granularity to the ARM, as this protection will apply only to quotes 
that are on the same side (bid or offer) of an individual option.\6\ 
Market Makers who avail themselves of the SSP feature will have even 
greater precision to tailor their risk tolerance levels.
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    \6\ The term ``individual option'' means an option contract that 
is either a put or a call, covering a specific underlying security 
and having a specific exercise price and expiration date. See 
Exchange Rule 100.
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    To implement the SSP feature in the simple market, the Exchange 
proposes to adopt new subsection (c) to Interpretations and Policies 
.02 of Rule 612, entitled Market Maker Single Side Protection. 
Subsection (c) will provide that a Market Maker may determine to engage 
the Market Maker Single Side Protection (``SSP'') feature. If engaged, 
if the full remaining size of a Market Maker's Standard quote,\7\ IOC 
eQuote,\8\ or FOK eQuote,\9\ in an individual option, is exhausted by a 
trade, the System \10\ will trigger the SSP. When triggered, the System 
will cancel all Standard quotes and block all new inbound Standard 
quotes, IOC eQuotes, and FOK eQuotes, for that particular side of that 
individual option for that MPID. The System will provide a notification 
message to the Market Maker that the SSP has been triggered. The block 
will remain in effect until the Market Maker notifies the Exchange (in 
a manner required by the Exchange and communicated to Members by 
Regulatory Circular) to reset the SSP (``SSP Reset''). The SSP feature 
is optionally available and may be enabled for a Market Maker's 
MPID.\11\
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    \7\ A Standard quote is a quote submitted by a Market Maker that 
cancels and replaces the Market Maker's previous Standard quote, if 
any. See Exchange Rule 517(a)(1).
    \8\ An immediate or cancel or ``IOC'' eQuote is an eQuote 
submitted by a Market Maker that must be matched with another quote 
or order for an execution in whole or in part upon receipt into the 
System. See Exchange Rule 517(a)(2)(iv).
    \9\ A fill or kill or ``FOK'' eQuote is an eQuote submitted by a 
Market Maker that must be matched with another quote or order for an 
execution in its entirety at a single price upon receipt into the 
System or will be immediately cancelled. See Exchange Rule 
517(a)(2)(v).
    \10\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \11\ The term ``MPID'' means Market Participant Identifier.
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    Additionally, the Exchange proposes to amend Rule 612, 
Interpretations and Policies .02, to make clarifying amendments to 
existing rule text. Specifically, current Interpretations and Policies 
.02, Enhanced Aggregate Risk Manager Protections, provides that Market 
Makers may determine to engage any of the following Enhanced Aggregate 
Risk Manager Protections in the System. Currently it provides for two 
protections; Class Protection, in subsection (a), and Market Maker 
Protection, in subsection (b). The Exchange now proposes to amend 
subsection (a) to make a non-substantive amendment to the rule text to 
change the title of the rule from Class Protection to Market Maker 
Single Class Protection, to provide greater specificity concerning the 
scope of the protection. Further, the Exchange proposes to amend the 
rule text to clarify that the scope of the risk protection available 
under this rule is for a single class of options only, by changing the 
first sentence of the rule to provide that, ``[a] Market Maker may 
determine to engage the Market Maker Single Class Protection feature 
for a particular option class in which the Market Maker is appointed 
(an ``appointed option class'')''. The Exchange proposes to make the 
same clarifying change throughout the rule to provide additional 
clarity regarding the scope of the rule.
    Additionally, the Exchange proposes to amend the text in subsection 
(b), Market Maker Protection, to make a non-substantive amendment to 
the rule text to change the title of the rule from Market Maker 
Protection, to Market Maker Aggregate Class Protection, to provide 
greater specificity concerning the scope of the protection. Further, 
the Exchange proposes to amend the rule text to refer to the Market 
Maker Aggregate Class Protection feature. Specifically, the Exchange 
proposes to amend the first sentence of the rule to provide that, ``[a] 
Market Maker may determine to engage the Market Maker Aggregate Class 
Protection feature for all of the Market Maker's appointed option 
classes.'' The Exchange proposes to make the same clarifying change 
throughout the rule to provide additional clarity regarding the scope 
of the rule.
    To implement the SSP feature in the complex market, the Exchange 
proposes to adopt new subsection (g) to Interpretations and Policies 
.05 of Rule 518, entitled Market Maker Single Side Protection. 
Subsection (g) will provide that a Market Maker may determine to engage 
the Market Maker Single Side Protection (``SSP'') feature. If engaged, 
if the full remaining size of a Market Maker's complex Standard quote 
\12\ or cIOC eQuote \13\ in a strategy is exhausted by a trade, the 
System will trigger the SSP for the traded side of the strategy for 
that MPID. When triggered, the System will cancel all complex Standard 
quotes and block all new inbound complex Standard quotes and cIOC 
eQuotes for that particular side of that strategy. The System will 
provide a notification message to the Market Maker that the SSP has 
been triggered. The block will remain in effect until the Market Maker 
notifies the Exchange (in a manner required by the Exchange and 
communicated to Members by Regulatory Circular) to reset the SSP (``SSP 
Reset'').
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    \12\ A complex Standard quote is a complex quote submitted by a 
Market Maker that cancels and replaces the Market Maker's previous 
complex Standard quote for that side of the strategy, if any. See 
Exchange Rule 518.02(a)(1).
    \13\ A ``Complex Immediate or Cancel eQuote'' or ``cIOC 
eQuote,'' which is a complex eQuote with a time-in-force of IOC that 
may be matched with another complex quote or complex order for an 
execution to occur in whole or in part upon receipt into the System. 
See Exchange Rule 518.02(c)(2).
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    The SSP feature is optionally available and may be enabled for a 
Market Maker's MPID. If enabled, the

[[Page 61640]]

SSP protection will cover both the simple market and complex 
market,\14\ with each market requiring its own SSP Reset when the SSP 
is triggered as discussed above. However, the protections operate 
independently, that is, if an eQuote on the bid side of series A 
triggers the SSP in the simple market, a simple market SSP Reset is 
required to re-enable quoting on the bid side of series A; however a 
complex eQuote for a strategy which includes the bid side of series A 
would not be blocked as the complex market SSP was not triggered.
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    \14\ The Exchange notes that complex cAOC eQuotes are not 
impacted by the SSP. A ``Complex Auction or Cancel eQuote'' or 
``cAOC eQuote,'' which [sic] is an eQuote submitted by a Market 
Maker that is used to provide liquidity during a specific Complex 
Auction with a time in force that corresponds with the duration of 
the Complex Auction. See Exchange Rule 518.02(c)(1).
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    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
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \15\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \16\ 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 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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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposed changes remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system and, in general, protects [sic] investors and the public 
interest by providing Market Makers with an additional risk management 
tool for both simple and complex quotes. Market Makers on the simple 
market have a heightened obligation on the Exchange and are obligated 
to submit continuous two-sided quotations in a certain number of series 
in their appointed classes for a certain percentage of time in each 
trading session,\17\ rendering them vulnerable to risk from market 
conditions. Market Makers are vulnerable to risk from market events 
that may cause them to receive automatic executions before they can 
adjust their exposure in the market. Market Makers on the complex 
market are also vulnerable to risk from market events and the Exchange 
believes providing this risk protection feature on both the simple and 
complex markets promotes just and equitable principles of trade and 
helps to perfect the mechanisms of a free and open market and a 
national market system.
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    \17\ See Exchange Rule 604(e).
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    Without adequate risk management tools Market Makers could reduce 
the size of their quotations which could undermine the quality of the 
markets available to customers and other market participants. The 
ability of a Market Maker to engage the SSP feature of ARM is a 
valuable tool in assisting Market Makers in risk management. The 
proposed rule change removes impediments to and perfects the mechanism 
of a free and open market by giving Market Makers the ability to 
further refine their risk protections from an option class level to a 
single side of an individual option in the simple market and to a 
single side of a complex strategy in the complex market. Accordingly, 
the SSP feature is designed to provide Market Makers greater control 
over their quotations in the market thereby removing impediments to and 
helping perfect the mechanisms of a free and open market and a national 
market system and, in general, protecting investors and the public 
interest. In addition, providing Market Makers with more tools for 
managing risk will facilitate transactions in securities because, as 
noted above, the Market Makers will have more confidence that 
protections are in place that reduce the risks from market events. As a 
result, the new functionality has the potential to promote just and 
equitable principles of trade.
    The Exchange notes that the proposed rule change will not relieve 
Exchange Market Makers of their continuous quoting obligations under 
Exchange Rule 604 or any other obligations under Reg NMS Rule 602.\18\ 
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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    \18\ 17 CFR 242.602.
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    The Exchange believes the proposed changes to MIAX Rule 612.02(a) 
and (b) promote just and equitable principles of trade, remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because they seek to improve the accuracy of 
the Exchange's rules. In particular, the Exchange believes that 
clarifying the scope of single class protection and aggregate class 
protection features of ARM for Market Makers will provide greater 
clarity to Members and the public regarding the Exchange's Rules, and 
it is in the public interest for rules to be accurate and concise so as 
to eliminate the potential for confusion.

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 Exchange believes that the proposed rule change will foster 
competition by providing Exchange Market Makers with the ability to 
specifically customize their use of the Exchange's risk management 
tools in order to compete for executions and order flow.
    Additionally, the Exchange believes that the proposed rule change 
should promote competition as it is designed to allow Exchange Market 
Makers greater flexibility and control of their risk exposure to 
protect them from market conditions that may increase their risk 
exposure in the market. The Exchange does not believe the proposed rule 
change will impose a burden on intra-market competition as the optional 
risk protection feature is equally available to all Market Makers on 
the Exchange.
    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

    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

[[Page 61641]]

become effective pursuant to 19(b)(3)(A) of the Act \19\ and Rule 19b-
4(f)(6) \20\ thereunder.
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 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-2017-49 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-2017-49. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MIAX-2017-49 and should be submitted on 
or before January 18, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-28080 Filed 12-27-17; 8:45 am]
 BILLING CODE 8011-01-P