81 FR 54911 - Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 517

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 159 (August 17, 2016)

[Federal Register Volume 81, Number 159 (Wednesday, August 17, 2016)]
[Notices]
[Pages 54911-54912]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-19578]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78547; File No. SR-MIAX-2016-24]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Exchange Rule 517

August 11, 2016.
    Pursuant to 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 August 4, 2016, Miami International Securities Exchange LLC 
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend Exchange Rule 517, Quote 
Types Defined, to adopt new Interpretations and Policies .01 and to 
make a non-substantive technical correction to the Rule. The text of 
the proposed rule change is available on the Exchange's Web site at 
http://www.miaxoptions.com/filter/wotitle/rule_filing, at MIAX's 
principal office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Exchange Rule 517, Quote Types 
Defined, to adopt new Interpretations and Policies .01 to clarify that 
to be considered a priority quote (as described below), a quote for a 
long-term option contract \3\ must meet the priority quote requirements 
established in Rule 517(b). The Exchange also proposes to make a non-
substantive technical correction to section 517(b)(1)(ii) to correct a 
typographical error in the Rule.
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    \3\ The Exchange may list long-term option contracts that expire 
from twelve (12) to thirty-nine (39) months from the time they are 
listed. See Exchange Rule 406.
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    For trade allocation purposes, quotes will be considered either 
priority quotes and trade allocation will be in accordance with Rule 
514(e)(1),\4\ or non-priority quotes and trade allocation will be in 
accordance with Rule 514(e)(2),\5\ based upon a Market Maker's quote 
width at certain times.\6\
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    \4\ After all Priority Customer Orders (if any) at the NBBO have 
been filled, executions at that price will be first allocated to 
other remaining Market Maker priority quotes, which have not 
received a participation entitlement, and have precedence over 
Professional Interest. See Exchange Rule 514(e)(1).
    \5\ If after all Market Maker priority quotes have been filled 
in accordance with Rule 514(e)(1) and there remains interest at the 
NBBO, executions will be allocated to all Professional Interest at 
that price. Professional Interest is defined in Rule 100 and 
includes among other interest, Market Maker non-priority quotes (as 
described in Rule 517(b)(1)(iii)) and Market Maker orders in both 
assigned and non-assigned classes. See Exchange Rule 514(e)(2).
    \6\ See Exchange Rule 517(b)(1).
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    MIAX Rule 517(b), Quote Priority, describes the requirements for 
quotes on the Exchange to be considered priority quotes for allocation 
purposes. Specifically, MIAX Rule 517(b)(1)(i) establishes the 
standards which must be met to establish a quote as a priority quote at 
the time of execution. First, the bid/ask differential of a Market 
Maker's two-sided quote pair must be valid width (no wider than the 
bid/ask differentials outlined in Rule 603(b)(4)).\7\ Second, the 
initial size of both the Market Maker's bid and the offer must be in 
compliance with the requirements of Rule 604(b)(2).\8\ Third, the bid/
ask differential of a Market Maker's two-sided quote pair must meet the 
priority quote width requirements as defined by rule \9\ for each 
option. Fourth, at the time a locking or crossing quote or order enters 
the System,\10\ the Market Maker's two-sided quote pair must be valid 
width for that option and must have been resting on the Book or,\11\ 
immediately prior to the time the Market Maker enters a new quote that 
locks or crosses the MBBO,\12\ the Market Maker must have had a valid 
width quote already existing (i.e., exclusive of the Market Maker's new 
marketable quote or update) among his two-sided quotes for that 
option.\13\
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    \7\ A Market Maker is expected to price option contracts fairly 
by, among other things, bidding and offering so as to create 
differences of no more than $5 between the bid and offer (``bid/ask 
differentials'') following the opening rotation in an equity option 
contract. See Exchange Rule 603(b)(4).
    \8\ The initial size of a Market Maker incoming Standard Quote, 
Day eQuote and all other types of eQuotes must be for the minimum 
number of contracts, which minimum number shall be at least one (1) 
contract. The minimum number of contracts will be determined by the 
Exchange on a class-by-class basis and announced to the Members 
through a Regulatory Circular. See Exchange Rule 604(b)(2).
    \9\ The priority quote width standard established by the 
Exchange can have bid/ask differentials as narrow as one MPV, as 
wide but never wider than the bid/ask differentials outlined in Rule 
603(b)(4), or somewhere in between. See Exchange Rule 517(b)(1)(ii).
    \10\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \11\ See Exchange Rule 517(b)(1)(i)(D)(1).
    \12\ The term ``MBBO'' means the bid or offer on the Exchange. 
See Exchange Rule 100.
    \13\ See Exchange Rule 517(b)(1)(i)(D)(2).
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    The Exchange notes that strike price interval, bid/ask differential 
and continuous quoting requirements do not apply to long-term options 
series until the time to expiration is less than nine (9) months.\14\ 
Notwithstanding these exceptions, any quote (including a quote in a 
long term option) must comply with Rule 517(b) to be considered a 
priority quote. Accordingly, the Exchange proposes to adopt 
Interpretations and Policies .01 to Rule 517 which will expressly state 
that a quote on a long-term option contract must satisfy the 
requirements outlined in Rule 517(b) to be considered a priority quote 
on the Exchange. The Exchange believes that adding proposed 
Interpretations and Policies .01 will clarify the requirements for 
establishing priority quotes for long-term option contracts on the 
Exchange. Further, the Exchange believes that providing additional 
information on how priority quotes are established for options with a 
time to expiration greater than nine (9) months will provide

[[Page 54912]]

additional clarity of Exchange rules regarding priority quotes and 
allocations.
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    \14\ See Exchange Rule 406.
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    The Exchange is also proposing to make a technical amendment to 
current Exchange Rule 517(b)(ii) by deleting the repetitive words 
``than the'' from the Rule, which are stated twice consecutively.
2. Statutory Basis
    MIAX 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 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 proposed rule change is designed to promote just and equitable 
principles of trade by clarifying the operation of Exchange rules to 
ensure that Market Makers have complete information as to how priority 
quotes are established on the Exchange. Further, the proposed rule 
change is designed 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, by providing enhanced 
guidance to Market Makers on establishing priority quotes on options 
with a time to expiration greater than nine (9) months. The Exchange 
believes that the priority quote status afforded to Market Makers 
quoting in long-term options should result in more liquidity and 
tighter spreads in these options. Clarity in the Exchange's rules 
regarding the establishment of priority quote status in long-term 
options benefits and protects the public interest by explicitly stating 
that Market Makers submitting quotes in long-term options can establish 
priority quote status by submitting such quotes with the required bid/
ask differential. This should encourage more Market Makers to submit 
quotes on long-term options to the Exchange, and should thus result in 
better prices and increased liquidity in long-term options.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Specifically, the Exchange 
believes the proposed changes will not impose any burden on intra-
market competition because it applies to all MIAX participants equally. 
In addition, the Exchange does not believe the proposal will impose any 
burden on inter-market competition as the proposal is intended to 
clarify the operation of existing Exchange rules.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \17\ and Rule 19b-4(f)(6) \18\ 
thereunder.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 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 No. SR-MIAX-2016-24 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MIAX-2016-24. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-MIAX-2016-24 and should be 
submitted on or before September 7, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-19578 Filed 8-16-16; 8:45 am]
 BILLING CODE 8011-01-P