81 FR 90030 - Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing of a Proposed Rule Change To Amend Rule 515A, MIAX Price Improvement Mechanism (“PRIME”) and PRIME Solicitation Mechanism
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 239 (December 13, 2016)
Federal Register Volume 81, Issue 239 (December 13, 2016)
| Page Range | 90030-90033 | |
| FR Document | 2016-29805 |
[Federal Register Volume 81, Number 239 (Tuesday, December 13, 2016)] [Notices] [Pages 90030-90033] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-29805] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79500; File No. SR-MIAX-2016-46] Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing of a Proposed Rule Change To Amend Rule 515A, MIAX Price Improvement Mechanism (``PRIME'') and PRIME Solicitation Mechanism December 7, 2016. Pursuant to the provisions of Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on November 25, 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. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- 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 [[Page 90031]] Improvement Mechanism (``PRIME'') and PRIME Solicitation Mechanism. The text of the proposed rule change is available on the Exchange's Web site at http://www.miaxoptions.com/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 adopt new Rule 515A(a)(1)(iii) to state that, with respect to Agency Orders (as defined below) that have a size of less than 50 contracts, if at the time of receipt of the Agency Order, the National Best Bid and Offer (``NBBO'') has a bid/ask differential of $0.01, the System \3\ will reject the Agency Order. The Exchange also proposes to make permanent a pilot program that allows orders of less than 50 contracts or 500 mini-option contracts to initiate a PRIME Auction (the ``Pilot''), as described below. --------------------------------------------------------------------------- \3\ The term ``System'' means the automated trading system used by the Exchange for the trading of securities. See Exchange Rule 100. --------------------------------------------------------------------------- Background PRIME is a process by which a Member may electronically submit for execution an order it represents as agent (``Agency Order'') against principal interest and/or an Agency Order against solicited interest. The Member that submits the Agency Order (the ``Initiating Member'') agrees to guarantee the execution of the Agency Order by submitting a contra-side order representing principal interest or solicited interest (``Contra-side Order''). When the Exchange receives a properly designated Agency Order for Auction processing, a Request for Responses (``RFR'') detailing the option, side, size, and initiating price will be sent to all subscribers of the Exchange's data feeds. Members may submit responses to the RFR (specifying prices and sizes). RFR responses can be either an Auction or Cancel (``AOC'') order or an AOC eQuote.\4\ --------------------------------------------------------------------------- \4\ See Exchange Rule 515A(a)(2)(i)(D). --------------------------------------------------------------------------- Originally, for Agency Orders for less than 50 standard option contracts or 500 mini-option contracts, the Initiating Member was required to stop the entire Agency Order as principal or with a solicited order at the better of the NBBO price improved by a $0.01 increment or the Agency Order's limit price (if the order is a limit order). In addition, to initiate the PRIME Auction for auto-match submissions, the Initiating Member was required to stop the Agency Order for less than 50 standard option contracts or 500 mini-option contracts at the better of the NBBO price improved by a $0.01 increment or the Agency Order's limit price. In November 2014, MIAX filed to establish a pilot program to allow orders of less than 50 contracts or 500 mini-option contracts to initiate a PRIME Auction (the ``Pilot'').\5\ The Pilot allows Agency Orders of any size to initiate a PRIME Auction on MIAX at a price that is at or better than the NBBO. The Exchange has extended the Pilot several times, and the Pilot is currently set to expire January 18, 2017.\6\ The Exchange is proposing to make the Pilot permanent, with one modification, as described below. --------------------------------------------------------------------------- \5\ See Securities Exchange Act Release No. 73590 (November 13, 2014), 79 FR 68919 (November 19, 2014) (SR-MIAX-2014-56). \6\ See Securities Exchange Act Release No. 78265 (July 8, 2016), 81 FR 45578 (July 14, 2016) (SR-MIAX-2016-19). --------------------------------------------------------------------------- Proposal The Exchange is proposing to adopt new Rule 515A(a)(1)(iii) upon the expiration of the current Pilot to establish on a permanent basis that, with respect to Agency Orders that have a size of less than 50 contracts, if at the time of receipt of the Agency Order, the NBBO has a bid/ask differential of $0.01,\7\ the System will reject the Agency Order. Agency Orders with a size of under 50 contracts will be accepted and processed by the System when the NBBO bid/ask differential is greater than $0.01, and all Agency Orders with a size of 50 contracts or greater will be accepted and processed by the System, regardless of the NBBO bid/ask differential. --------------------------------------------------------------------------- \7\ Currently, if the market is locked or crossed as defined in Exchange Rule 1402 for the option, the Agency Order will be rejected by the System prior to initiating an Auction or a Solicitation Auction. See Exchange Rule 515A, Interpretations and Policies .09. The Exchange will continue to reject Agency Orders, regardless of their size, in this situation. --------------------------------------------------------------------------- Additionally, the Exchange is proposing to delete Interpretations and Policies .08 to Rule 515A. Interpretations and Policies .08 relates to the Pilot, and it states that the minimum size requirement for PRIME Auctions to start at the NBBO is subject to a Pilot Program ending January 18, 2017. Accordingly, the Exchange will continue after that date to accept and process Agency Orders of any size at the NBBO, except when the Agency Order is for a size of less than 50 contracts and the NBBO has a bid/ask differential of $0.01, in which case the System will reject the Agency Order. It also states that the Exchange will submit certain data to the Commission during the Pilot. Because the Pilot is being made permanent (and there is no ``Pilot''), the Exchange will no longer submit the referenced data. The purpose of providing the referenced data was to provide supporting evidence that, among other things, there is meaningful competition for all size orders within the PRIME, that there is significant price improvement for all orders executed through the PRIME, and that there is an active and liquid market functioning on the Exchange outside of the PRIME. The Exchange has analyzed this data and believes that there has been meaningful competition for all size orders within the PRIME Auction process, regardless of the size of the order or the bid/ask differential of the NBBO. Specifically from July, 2015 through January, 2016, there were a total of 961,152 PRIME Auctions on MIAX, which included more than 2,691,000 participants, for an average of 2.8 participants per PRIME Auction.\8\ Market Makers and other participants have submitted competitive bids and offers during the Response Time Interval and have shown interest in participating in trades stemming from PRIME Auctions, and the Exchange believes that the current allocation algorithm \9\ at multiple execution prices or at a single price supports competitive bidding and offering. --------------------------------------------------------------------------- \8\ See Exhibit 3 attached hereto. \9\ After Priority Customer interest at a given price point has been satisfied, remaining contracts are allocated in accordance with the priority rules set forth in Rule 515A(a)(2)(iii). --------------------------------------------------------------------------- The Exchange also believes that the data show that there is an active and liquid market functioning on the Exchange outside of the PRIME.\10\ [[Page 90032]] Competitive bidding and offering occurs outside of the PRIME and participants can submit bids/offers at improved prices or join a bid or offer (thus improving liquidity at that price) regardless of the bid/ ask differential of the NBBO. --------------------------------------------------------------------------- \10\ From July, 2015 through January, 2016, the Exchange executed 7,449,818 transactions for a total of 92,706,999 contracts outside of the PRIME. The Exchange believes that this represents an active and liquid market functioning on the Exchange outside of the PRIME. --------------------------------------------------------------------------- While the Exchange continues to believe that opportunities remain for price improvement of Agency Orders with a size of less than 50 contracts when the NBBO has a bid/ask differential of $0.01 (e.g., because market conditions may change during the PRIME Auction),\11\ the data have not demonstrated significant price improvement in this narrow circumstance, as indicated in the following table: --------------------------------------------------------------------------- \11\ For example, assume the NBBO is $1.00 bid, $1.01 offer and an Agency Order is submitted into MIAX PRIME to buy 20 contracts at $1.01. The Exchange believes that there is still a chance, however slight, that during the Response Time Interval the offer price could change to $1.00, and the Agency Order, while guaranteed an execution at $1.01, could buy 20 contracts at $1.00. PRIME Trades for Orders of Less Than 50 Contracts With NBBO Spread of $0.01 [5/1-10/25/2016] ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Total Number of Trades........................ 2,383,204 Total Number of Contracts....... 11,950,538 Trades Receiving Price Improvement............ 17,179 Contracts Receiving Price 154,338 Improvement. Percent of Trades Receiving Improvement....... 0.72% Percent of Contracts Receiving 1.29% Improvement. ---------------------------------------------------------------------------------------------------------------- The Exchange does believe, however, that based on the data there is significant price improvement, and significant opportunity for price improvement, for all Agency Orders submitted when the NBBO bid/ask differential is greater than $0.01. The data attached reflect an average price improvement of $0.045 per contract for all contracts executed in PRIME Auctions, regardless of the size of the Agency Order (i.e., less than 50 contracts or greater than 50 contracts).\12\ The maximum price improvement for any order can only be $0.01 per contract when the NBBO bid/ask differential is $0.01; the overall average price improvement, which is elevated to $0.045 per contract when considering all NBBO bid/ask differentials (i.e., including where the NBBO bid/ask differential is $0.02 or higher) reflects significant price improvement and opportunity for price improvement when the NBBO bid/ask differential is greater than $0.01 for orders of all sizes. --------------------------------------------------------------------------- \12\ See Exhibit 3 attached hereto. --------------------------------------------------------------------------- Moreover, the Exchange believes that, with respect to Agency Orders with a size of 50 contracts or greater, a PRIME Auction provides not only the opportunity for price improvement, but also a legitimate value proposition in certainty of execution. Continuing to allow PRIME Auctions to be initiated by Agency Orders with a size of 50 contracts or greater increases the opportunity for executions of larger size orders.\13\ For example, although the NBBO may have an associated size of 50 contracts, those 50 contracts at the best price may be fragmented across several exchanges (e.g., five exchanges disseminating the NBBO price for 10 contracts each). There is no guarantee that a participant wishing to buy or sell 50 contracts can access all of the posted liquidity in a fragmented marketplace in which (in this example) often only 10 contracts are executed on a particular exchange at the NBBO price, and thereafter the other 40 contracts are adjusted to inferior prices on the other exchanges before executing. The Exchange believes that maintaining the PRIME Auction for Agency Orders with a size of 50 contracts or greater when the bid/ask differential at the NBBO is $0.01 enables consolidated size discovery and provides certainty of larger sized executions. The Exchange believes that this represents an efficient way for market participants to access liquidity for larger sized orders. Therefore, the Exchange believes that it is appropriate to continue to support the acceptance of Agency Orders with a size of 50 contracts or greater, regardless of the bid/ask differential of the NBBO, even at $0.01, both now and in the future. --------------------------------------------------------------------------- \13\ According to the Options Clearing Corporation (``OCC''), for the year-to-date through September 2016 there were 130, 573,030 transactions for a total of 1,473,152,154 contracts traded, for an average execution size of 11.3 contracts. --------------------------------------------------------------------------- Based on its review of the data, the Exchange believes that there is meaningful competition for all size orders within the PRIME, that there is significant price improvement for all orders executed through the PRIME (except for Agency Orders with a size of less than 50 contracts that are entered into the PRIME Auction when the NBBO has a bid/ask differential of $0.01), and that there is an active and liquid market functioning on the Exchange outside of the PRIME. Accordingly, the Exchange proposes to adopt Rule 515A(a)(1)(iii) upon the expiration of the Pilot to establish on a permanent basis that, with respect to Agency Orders that have a size of less than 50 contracts, if at the time of receipt of the Agency Order, the NBBO has a bid/ask differential of $0.01, the System will reject the Agency Order. 2. Statutory Basis MIAX believes that its proposed rule change is consistent with Section 6(b) of the Act \14\ in general, and furthers the objectives of Section 6(b)(5) of the Act \15\ 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. --------------------------------------------------------------------------- \14\ 15 U.S.C. 78f(b). \15\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Exchange believes that the proposed rule change fosters cooperation and coordination with persons engaged in facilitating transactions in securities because, based on its communication with the Commission, the Exchange believes that all U.S. options exchanges will file similar proposals to address the handling of Agency Orders received with a size of under 50 contracts when the NBBO has a bid/ask differential of $0.01. The proposed rule change removes 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 way of meaningful competition for all size orders within the PRIME Auction process, regardless of the size of the order or the bid/ask differential of the NBBO. Further, with respect to Agency Orders with a size of 50 contracts or greater, the PRIME Auction process perfects the [[Page 90033]] mechanisms of a free and open market and a national market system by providing meaningful price improvement for orders executed through PRIME, regardless of the NBBO bid/ask differential. Additionally, the proposal protects investors and the public interest by showing that there is an active and liquid market functioning on the Exchange outside of the PRIME. Furthermore, the proposed rule change removes impediments to and perfects the mechanisms of a free and open market and a national market system by establishing the new manner in which the Exchange will handle Agency Orders received with a size of under 50 contracts when the NBBO has a bid/ask differential of $0.01. 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 not necessary or appropriate in furtherance of the purposes of the Act. The PRIME Auction enables the Exchange to compete for order flow with other exchanges that have similar price improvement mechanisms in place. As stated above, the Exchange believes that there is meaningful competition in PRIME Auctions for all size orders, there are opportunities for significant price improvement for orders executed through PRIME, and that there is an active and liquid market functioning on the Exchange outside of PRIME. The Exchange believes that approving the Pilot on a permanent basis will not significantly impact competition, as it will continue to accept and process Agency Orders for potential price improvement except in the very limited circumstance where the Agency Order is for a size of less than 50 contracts and the NBBO bid/ask differential is $0.01. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission shall: (a) By order approve or disapprove such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-MIAX-2016-46 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-2016-46. 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-2016-46 and should be submitted on or before January 3, 2017. --------------------------------------------------------------------------- \16\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\16\ Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2016-29805 Filed 12-12-16; 8:45 am] BILLING CODE 8011-01-P
![90030 Federal Register / Vol. 81, No. 239 / Tuesday, December 13, 2016 / Notices
Majority if: (i) The proposed of participating in new and existing Co- of the Regulated Funds and the
participation of each Regulated Fund Investment Transactions. Affiliated Funds, the pro rata
and each Affiliated Fund in such 10. Each Regulated Fund will transaction fees described above and
investment is proportionate to its maintain the records required by fees or other compensation described in
outstanding investments in the issuer Section 57(f)(3) of the Act as if each of condition 2(c)(iii)(C); and (b) in the case
immediately preceding the Follow-On the Regulated Funds were a BDC and of an Adviser, investment advisory fees
Investment; and (ii) the Board of the each of the investments permitted under paid in accordance with the agreement
Regulated Fund has approved as being these conditions were approved by the between the Adviser and the Regulated
in the best interests of the Regulated Required Majority under Section 57(f) of Fund or Affiliated Fund.
Fund the ability to participate in the Act. 14. If the Holders own in the aggregate
Follow-On Investments on a pro rata 11. No Non-Interested Director of a more than 25 percent of the Shares of
basis (as described in greater detail in Regulated Fund will also be a director, a Regulated Fund (other than Fidus
the application). In all other cases, the general partner, managing member or SBIC), then the Holders will vote such
Adviser will provide its written principal, or otherwise an ‘‘affiliated Shares as directed by an independent
recommendation as to the Regulated person’’ (as defined in the Act) of an third party when voting on (1) the
Fund’s participation to the Eligible Affiliated Fund. election of directors;
Directors, and the Regulated Fund will 12. The expenses, if any, associated (2) the removal of one or more
participate in such Follow-On with acquiring, holding or disposing of directors; or (3) any other matter under
Investment solely to the extent that a any securities acquired in a Co- either the Act or applicable State law
Required Majority determines that it is Investment Transaction (including, affecting the Board’s composition, size
in the Regulated Fund’s best interests. without limitation, the expenses of the or manner of election.
(c) If, with respect to any Follow-On distribution of any such securities For the Commission, by the Division of
Investment: registered for sale under the Securities Investment Management, under delegated
(i) the amount of the opportunity is Act) will, to the extent not payable by authority.
not based on the Regulated Funds’ and the Advisers under their respective Robert W. Errett,
the Affiliated Funds’ outstanding investment advisory agreements with Deputy Secretary.
investments immediately preceding the Affiliated Funds and the Regulated
[FR Doc. 2016–29795 Filed 12–12–16; 8:45 am]
Follow-On Investment; and Funds, be shared by the Regulated
BILLING CODE 8011–01–P
(ii) the aggregate amount Funds and the Affiliated Funds in
recommended by the applicable Adviser proportion to the relative amounts of the
to be invested by the applicable securities held or to be acquired or
SECURITIES AND EXCHANGE
Regulated Fund in the Follow-On disposed of, as the case may be.
COMMISSION
Investment, together with the amount 13. Any transaction fee 15 (including
proposed to be invested by the other break-up or commitment fees but [Release No. 34–79500; File No. SR–MIAX–
participating Regulated Funds and excluding broker’s fees contemplated by 2016–46]
Affiliated Funds, collectively, in the Section 17(e) or 57(k) of the Act, as
applicable), received in connection with Self-Regulatory Organizations; Miami
same transaction, exceeds the amount of
a Co-Investment Transaction will be International Securities Exchange LLC;
the investment opportunity; then the
distributed to the participating Notice of Filing of a Proposed Rule
investment opportunity will be
Regulated Funds and Affiliated Funds Change To Amend Rule 515A, MIAX
allocated among them pro rata based on
on a pro rata basis based on the amounts Price Improvement Mechanism
each participant’s Available Capital, up
they invested or committed, as the case (‘‘PRIME’’) and PRIME Solicitation
to the maximum amount proposed to be
may be, in such Co-Investment Mechanism
invested by each.
(d) The acquisition of Follow-On Transaction. If any transaction fee is to December 7, 2016.
Investments as permitted by this be held by an Adviser pending
Pursuant to the provisions of Section
condition will be considered a Co- consummation of the transaction, the
19(b)(1) of the Securities Exchange Act
Investment Transaction for all purposes fee will be deposited into an account
of 1934 (‘‘Act’’) 1 and Rule 19b–4
and subject to the other conditions set maintained by such Adviser at a bank or
thereunder,2 notice is hereby given that
forth in this application. banks having the qualifications
on November 25, 2016, Miami
9. The Non-Interested Directors of prescribed in Section 26(a)(1) of the Act,
International Securities Exchange LLC
each Regulated Fund will be provided and the account will earn a competitive
(‘‘MIAX’’ or ‘‘Exchange’’) filed with the
quarterly for review all information rate of interest that will also be divided
Securities and Exchange Commission
concerning Potential Co-Investment pro rata among the participating
(‘‘Commission’’) a proposed rule change
Transactions and Co-Investment Regulated Funds and Affiliated Funds
as described in Items I, II, and III below,
Transactions, including investments based on the amounts they invest in
which Items have been prepared by the
made by other Regulated Funds or such Co-Investment Transaction. None
Exchange. The Commission is
Affiliated Funds that the Regulated of the Affiliated Funds, the Advisers,
publishing this notice to solicit
Fund considered but declined to the other Regulated Funds or any
comments on the proposed rule change
participate in, so that the Non-Interested affiliated person of the Regulated Funds
from interested persons.
Directors may determine whether all or Affiliated Funds will receive
additional compensation or I. Self-Regulatory Organization’s
pmangrum on DSK3GDR082PROD with NOTICES
investments made during the preceding
quarter, including those investments remuneration of any kind as a result of Statement of the Terms of Substance of
that the Regulated Fund considered but or in connection with a Co-Investment the Proposed Rule Change
declined to participate in, comply with Transaction (other than (a) in the case The Exchange proposes to amend
the conditions of the Order. In addition, 15 Applicants are not requesting, and the staff is
Exchange Rule 515A, MIAX Price
the Non-Interested Directors will not providing, any relief for transaction fees
consider at least annually the continued received in connection with any Co-Investment 1 15 U.S.C. 78s(b)(1).
appropriateness for the Regulated Fund Transaction. 2 17 CFR 240.19b–4.
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Competitive bidding and offering occurs While the Exchange continues to the PRIME Auction),11 the data have not
outside of the PRIME and participants believe that opportunities remain for demonstrated significant price
can submit bids/offers at improved price improvement of Agency Orders improvement in this narrow
prices or join a bid or offer (thus with a size of less than 50 contracts circumstance, as indicated in the
improving liquidity at that price) when the NBBO has a bid/ask following table:
regardless of the bid/ask differential of differential of $0.01 (e.g., because
the NBBO. market conditions may change during
PRIME TRADES FOR ORDERS OF LESS THAN 50 CONTRACTS WITH NBBO SPREAD OF $0.01
[5/1–10/25/2016]
Total Number of Trades ............................................... 2,383,204 Total Number of Contracts ........................................... 11,950,538
Trades Receiving Price Improvement .......................... 17,179 Contracts Receiving Price Improvement ...................... 154,338
Percent of Trades Receiving Improvement .................. 0.72% Percent of Contracts Receiving Improvement ............. 1.29%
The Exchange does believe, however, 50 contracts can access all of the posted has a bid/ask differential of $0.01, the
that based on the data there is liquidity in a fragmented marketplace in System will reject the Agency Order.
significant price improvement, and which (in this example) often only 10
2. Statutory Basis
significant opportunity for price contracts are executed on a particular
improvement, for all Agency Orders exchange at the NBBO price, and MIAX believes that its proposed rule
submitted when the NBBO bid/ask thereafter the other 40 contracts are change is consistent with Section 6(b) of
differential is greater than $0.01. The adjusted to inferior prices on the other the Act 14 in general, and furthers the
data attached reflect an average price exchanges before executing. The objectives of Section 6(b)(5) of the Act 15
improvement of $0.045 per contract for Exchange believes that maintaining the in particular, in that it is designed to
all contracts executed in PRIME PRIME Auction for Agency Orders with prevent fraudulent and manipulative
Auctions, regardless of the size of the a size of 50 contracts or greater when acts and practices, to promote just and
Agency Order (i.e., less than 50 the bid/ask differential at the NBBO is equitable principles of trade, to foster
contracts or greater than 50 contracts).12 $0.01 enables consolidated size cooperation and coordination with
The maximum price improvement for discovery and provides certainty of persons engaged in facilitating
any order can only be $0.01 per contract larger sized executions. The Exchange transactions in securities, to remove
when the NBBO bid/ask differential is believes that this represents an efficient impediments to and perfect the
$0.01; the overall average price way for market participants to access mechanisms of a free and open market
improvement, which is elevated to liquidity for larger sized orders. and a national market system and, in
$0.045 per contract when considering Therefore, the Exchange believes that it general, to protect investors and the
all NBBO bid/ask differentials (i.e., is appropriate to continue to support the public interest.
including where the NBBO bid/ask acceptance of Agency Orders with a size The Exchange believes that the
differential is $0.02 or higher) reflects of 50 contracts or greater, regardless of proposed rule change fosters
cooperation and coordination with
significant price improvement and the bid/ask differential of the NBBO,
persons engaged in facilitating
opportunity for price improvement even at $0.01, both now and in the
transactions in securities because, based
when the NBBO bid/ask differential is future.
on its communication with the
greater than $0.01 for orders of all sizes. Based on its review of the data, the Commission, the Exchange believes that
Moreover, the Exchange believes that, Exchange believes that there is all U.S. options exchanges will file
with respect to Agency Orders with a meaningful competition for all size similar proposals to address the
size of 50 contracts or greater, a PRIME orders within the PRIME, that there is handling of Agency Orders received
Auction provides not only the significant price improvement for all with a size of under 50 contracts when
opportunity for price improvement, but orders executed through the PRIME the NBBO has a bid/ask differential of
also a legitimate value proposition in (except for Agency Orders with a size of $0.01.
certainty of execution. Continuing to less than 50 contracts that are entered The proposed rule change removes
allow PRIME Auctions to be initiated by into the PRIME Auction when the impediments to and perfect the
Agency Orders with a size of 50 NBBO has a bid/ask differential of mechanisms of a free and open market
contracts or greater increases the $0.01), and that there is an active and and a national market system and, in
opportunity for executions of larger size liquid market functioning on the general, to protect investors and the
orders.13 For example, although the Exchange outside of the PRIME. public interest by way of meaningful
NBBO may have an associated size of 50 Accordingly, the Exchange proposes to competition for all size orders within
contracts, those 50 contracts at the best adopt Rule 515A(a)(1)(iii) upon the the PRIME Auction process, regardless
price may be fragmented across several expiration of the Pilot to establish on a of the size of the order or the bid/ask
exchanges (e.g., five exchanges permanent basis that, with respect to differential of the NBBO. Further, with
disseminating the NBBO price for 10 Agency Orders that have a size of less respect to Agency Orders with a size of
contracts each). There is no guarantee than 50 contracts, if at the time of 50 contracts or greater, the PRIME
pmangrum on DSK3GDR082PROD with NOTICES
that a participant wishing to buy or sell receipt of the Agency Order, the NBBO Auction process perfects the
Exchange believes that this represents an active and however slight, that during the Response Time 2016 there were 130, 573,030 transactions for a total
liquid market functioning on the Exchange outside Interval the offer price could change to $1.00, and of 1,473,152,154 contracts traded, for an average
of the PRIME. the Agency Order, while guaranteed an execution execution size of 11.3 contracts.
11 For example, assume the NBBO is $1.00 bid, at $1.01, could buy 20 contracts at $1.00. 14 15 U.S.C. 78f(b).
$1.01 offer and an Agency Order is submitted into 12 See Exhibit 3 attached hereto.
15 15 U.S.C. 78f(b)(5).
MIAX PRIME to buy 20 contracts at $1.01. The 13 According to the Options Clearing Corporation
Exchange believes that there is still a chance, (‘‘OCC’’), for the year-to-date through September
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![Federal Register / Vol. 81, No. 239 / Tuesday, December 13, 2016 / Notices 90033
mechanisms of a free and open market approve or disapprove such proposed For the Commission, by the Division of
and a national market system by rule change, or (b) institute proceedings Trading and Markets, pursuant to delegated
providing meaningful price to determine whether the proposed rule authority.16
improvement for orders executed change should be disapproved. Eduardo A. Aleman,
through PRIME, regardless of the NBBO Assistant Secretary.
IV. Solicitation of Comments
bid/ask differential. Additionally, the [FR Doc. 2016–29805 Filed 12–12–16; 8:45 am]
proposal protects investors and the Interested persons are invited to BILLING CODE 8011–01–P
public interest by showing that there is submit written data, views, and
an active and liquid market functioning arguments concerning the foregoing,
on the Exchange outside of the PRIME. including whether the proposed rule SECURITIES AND EXCHANGE
Furthermore, the proposed rule change is consistent with the Act. COMMISSION
change removes impediments to and Comments may be submitted by any of [Release No. 34–79495; File No. SR–
perfects the mechanisms of a free and the following methods: NYSEARCA–2016–157]
open market and a national market
Electronic Comments
system by establishing the new manner Self-Regulatory Organizations; NYSE
in which the Exchange will handle • Use the Commission’s Internet Arca, Inc.; Notice of Filing and
Agency Orders received with a size of comment form (http://www.sec.gov/ Immediate Effectiveness of Proposed
under 50 contracts when the NBBO has rules/sro.shtml); or Rule Change To Extend the Pilot
a bid/ask differential of $0.01. • Send an email to rule-comments@ Period for the Exchange’s Retail
sec.gov. Please include File Number SR– Liquidity Program
B. Self-Regulatory Organization’s
MIAX–2016–46 on the subject line.
Statement on Burden on Competition December 7, 2016.
The Exchange does not believe that Paper Comments Pursuant to Section 19(b)(1) 1 of the
the proposed rule change will impose • Send paper comments in triplicate Securities Exchange Act of 1934 (the
any burden on competition not to Secretary, Securities and Exchange ‘‘Act’’) 2 and Rule 19b–4 thereunder,3
necessary or appropriate in furtherance Commission, 100 F Street NE., notice is hereby given that, on
of the purposes of the Act. Washington, DC 20549–1090. November 28, 2016, NYSE Arca, Inc.
The PRIME Auction enables the All submissions should refer to File (the ‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
Exchange to compete for order flow Number SR–MIAX–2016–46. This file with the Securities and Exchange
with other exchanges that have similar number should be included on the Commission (the ‘‘Commission’’) the
price improvement mechanisms in subject line if email is used. To help the proposed rule change as described in
place. As stated above, the Exchange Commission process and review your Items I, II, and III below, which Items
believes that there is meaningful comments more efficiently, please use have been prepared by the self-
competition in PRIME Auctions for all only one method. The Commission will regulatory organization. The
size orders, there are opportunities for post all comments on the Commission’s Commission is publishing this notice to
significant price improvement for orders Internet Web site (http://www.sec.gov/ solicit comments on the proposed rule
executed through PRIME, and that there rules/sro.shtml). Copies of the change from interested persons.
is an active and liquid market submission, all subsequent
functioning on the Exchange outside of I. Self-Regulatory Organization’s
amendments, all written statements Statement of the Terms of Substance of
PRIME. with respect to the proposed rule
The Exchange believes that approving the Proposed Rule Change
change that are filed with the
the Pilot on a permanent basis will not The Exchange, on behalf of its wholly-
Commission, and all written
significantly impact competition, as it owned corporation, NYSE Arca
communications relating to the
will continue to accept and process Equities, Inc., proposes to extend the
proposed rule change between the
Agency Orders for potential price pilot period for the Exchange’s Retail
Commission and any person, other than
improvement except in the very limited Liquidity Program (the ‘‘Retail Liquidity
those that may be withheld from the
circumstance where the Agency Order is Program’’ or the ‘‘Program’’), which is
public in accordance with the
for a size of less than 50 contracts and currently scheduled to expire on
provisions of 5 U.S.C. 552, will be
the NBBO bid/ask differential is $0.01. December 31, 2016, until June 30, 2017.
available for Web site viewing and
The proposed rule change is available
C. Self-Regulatory Organization’s printing in the Commission’s Public
on the Exchange’s Web site at
Statement on Comments on the Reference Room, 100 F Street NE.,
www.nyse.com, at the principal office of
Proposed Rule Change Received From Washington, DC 20549, on official
the Exchange, and at the Commission’s
Members, Participants, or Others business days between the hours of
Public Reference Room.
Written comments were neither 10:00 a.m. and 3:00 p.m. Copies of the
solicited nor received. filing also will be available for II. Self-Regulatory Organization’s
inspection and copying at the principal Statement of the Purpose of, and
III. Date of Effectiveness of the office of the Exchange. All comments Statutory Basis for, the Proposed Rule
Proposed Rule Change and Timing for received will be posted without change; Change
Commission Action the Commission does not edit personal In its filing with the Commission, the
Within 45 days of the date of identifying information from self-regulatory organization included
pmangrum on DSK3GDR082PROD with NOTICES
publication of this notice in the Federal submissions. You should submit only statements concerning the purpose of,
Register or within such longer period (i) information that you wish to make and basis for, the proposed rule change
as the Commission may designate up to available publicly. All submissions and discussed any comments it received
90 days of such date if it finds such should refer to File Number SR–MIAX– on the proposed rule change. The text
longer period to be appropriate and 2016–46 and should be submitted on or
publishes its reasons for so finding or before January 3, 2017. 1 15 U.S.C. 78s(b)(1).
(ii) as to which the Exchange consents, 2 15 U.S.C. 78a.
the Commission shall: (a) By order 16 17 CFR 200.30–3(a)(12). 3 17 CFR 240.19b–4.
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Document Created: 2016-12-13 02:44:01
Document Modified: 2016-12-13 02:44:01
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 81 FR 90030 |
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