82 FR 46315 - Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend MIAX Options Rule 529, Order Routing to Other Exchanges

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 191 (October 4, 2017)

[Federal Register Volume 82, Number 191 (Wednesday, October 4, 2017)]
[Notices]
[Pages 46315-46317]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-21278]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81753; File No. SR-MIAX-2017-41]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend MIAX Options Rule 529, Order Routing to 
Other Exchanges

September 28, 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 September 20, 2017, Miami International 
Securities Exchange, LLC (``MIAX Options'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') a proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared by the Exchange. The Commission is publishing this notice 
to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend Exchange Rule 529, Order 
Routing to Other Exchanges.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.miaxoptions.com/rule-filings, at MIAX's 
principal office, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Rule 529, Order Routing to Other 
Exchanges, to provide additional information in the Route Notification 
broadcast as described in subsection (b)(2)(i). Specifically, the 
Exchange proposes to include the expected price to which the interest 
will be routed in the Route Notification message distributed via the 
Exchange's data feed. Additionally, the Exchange proposes to amend the 
rule text to improve its clarity and precision. The Exchange also 
proposes to adopt new Interpretations and Policies .02 to clarify that, 
for purposes of Rule 529, the expected price to which the interest will 
be routed is the ABBO \3\ at the start of the Route Timer.
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    \3\ The term ``ABBO'' or ``Away Best Bid or Offer'' means the 
best bid(s) or offer(s) disseminated by other Eligible Exchanges and 
calculated by the Exchange based on market information received by 
the Exchange from OPRA. See Exchange Rule 100.
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    Under Exchange Rule 529 the Exchange may automatically route orders 
to other exchanges under certain circumstances. The Exchange will 
employ one of two Route Mechanisms, Immediate Routing or the Route 
Timer,\4\ when a Public Customer \5\ order is received and/or 
reevaluated that is both routable and marketable against the opposite 
side ABBO upon receipt and the Exchange's disseminated market is not 
equal to the opposite side ABBO, or is equal to the opposite side ABBO 
and of insufficient size to satisfy the order.\6\
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    \4\ A Route Timer is a brief timer that operates as a pause 
before marketable interest is routed to an away exchange. See 
Exchange Rule 529(b)(2)(i).
    \5\ The term ``Public Customer'' means a person that is not a 
broker or dealer in securities. See Exchange Rule 100.
    \6\ See Exchange Rule 529(b).
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    Under the Exchange's proposal, all existing functionality of the 
Route Timer will remain intact. Currently, Public Customer orders that 
are not eligible for Immediate Routing are subject to a Route Timer. 
The Route Timer, which will never exceed one second, allows Market 
Makers \7\ and

[[Page 46316]]

other market participants an opportunity to interact with the 
initiating order before it is routed to another options exchange.\8\ 
Contemporaneously with the start of the Route Timer, the Exchange's 
System \9\ broadcasts a Route Notification message to subscribers of 
the Exchange's Administrative Information Subscriber (``AIS'') data 
feed. The Route Notification message includes the option contract size 
and side of the market of the initiating Public Customer order.\10\ The 
Exchange now proposes to also include the expected price to which the 
interest will be routed in the Route Notification message. 
Additionally, the Exchange proposes to adopt new Interpretations and 
Policies .02 to state that, for purposes of this Rule, the expected 
price to which the interest will be routed is the ABBO at the start of 
the Route Timer.\11\
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    \7\ The term ``Market Makers'' refers to ``Lead Market Makers'', 
``Primary Lead Market Makers'' and ``Registered Market Makers'' 
collectively. See Exchange Rule 100.
    \8\ See Exchange Rule 529(b)(2)(i).
    \9\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \10\ See Exchange Rule 529(b)(2)(i).
    \11\ The Exchange notes that the expected price to which the 
interest will be routed may differ from the actual price to which 
the interest is routed due to changes in the market that occur 
during the duration of the Route Timer.
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    The System will display and book the initiating order at its limit 
price, or if the limit price locks or crosses the current opposite side 
NBBO,\12\ display the initiating order one Minimum Price Variation 
(``MPV'') \13\ away from the current opposite side NBBO and book the 
initiating order at a price that will internally lock the current 
opposite side NBBO. The initiating order will remain available for 
execution up to its original bid or down to its original offer.\14\
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    \12\ The term ``NBBO'' means the national best bid or offer as 
calculated by the Exchange based on market information received from 
OPRA. See Exchange Rule 100.
    \13\ See Exchange Rule 510.
    \14\ See Exchange Rule 529(b)(2)(i).
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    If, during the Route Timer, the Exchange receives a new order or 
quote on the opposite side of the market from the initiating order that 
can be executed, the System will immediately execute the remaining 
contracts from the initiating order to the extent possible, provided 
that the execution price does not violate the current NBBO.\15\ 
Conversely, if during the Route Timer the Exchange receives orders or 
quotes on the same side of the market as the initiating order, such new 
orders or quotes will join the initiating order in the Route Timer.\16\
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    \15\ Id.
    \16\ See Exchange Rule 529(b)(2)(iii).
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    If at any point during the Route Timer the initiating order and all 
joining interest on the same side of the market is either traded in 
full or cancelled in full, the Route Timer will be terminated and 
normal trading will resume.\17\ In addition, if at any point during the 
Route Timer a change in the ABBO would allow all or part of the 
initiating order and any joining interest on the same side of the 
market to trade on the Exchange at the revised NBBO, the Route Timer 
will be terminated and normal trading will resume.\18\
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    \17\ Id.
    \18\ Id.
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    At the end of the Route Timer, the System will route Intermarket 
Sweep Orders \19\ representing the initiating order's remaining 
contracts to away markets disseminating the ABBO. The System will price 
the routed order at the opposite side ABBO with a size equal to the 
exchange's disseminated ABBO size as needed. If there are still 
additional contracts to be executed from the initiating order after the 
Intermarket Sweep Orders have been routed to the away markets 
disseminating the ABBO for the away markets' full size, the System will 
handle remaining interest from the initiating order in accordance with 
the provisions of Exchange Rule 515, Execution of Orders and 
Quotes.\20\
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    \19\ See Exchange Rule 516(f).
    \20\ See Exchange Rule 529(b)(2)(iv).
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    The Exchange also proposes to amend Rule 529(b)(2)(i) to correct 
the sentence which reads, ``[c]ontemporaneously with the start of the 
Timer, the System will broadcast a Route Notification to subscribers of 
the Exchange's data feeds. . . .'' The Exchange broadcasts the Route 
Notification on a single data feed, the AIS feed. Therefore, the 
Exchange proposes to amend the rule text to specifically identify the 
data feed by its name, the Administrative Information Subscriber 
(``AIS'') data feed.
    The Exchange also notes that other option exchanges offer similar 
functionality in their respective routing mechanisms. Those routing 
mechanisms (i) expose eligible initiating interest at the best price, 
(ii) contain an exposure period, the duration of which does not exceed 
one second, and (iii) route remaining interest to away markets at the 
conclusion of the exposure period.\21\ In particular, those routing 
mechanisms also expose their expected route price, which the Exchange 
is now proposing to expose as well pursuant to this proposed rule 
change. For example, BATS EDGX Exchange, Inc. (``BATS EDGX'') Rule 
21.18 provides for a Step Up Mechanism (``SUM'') which electronically 
exposes eligible orders at the NBBO price immediately upon receipt. As 
well, the BATS EDGX rule prescribes that the exposure period shall be 
for a period of time determined by the Exchange on a class-by-class 
basis, which period of time shall not exceed one second.\22\ Following 
the exposure period, BATS EDGX routes the remaining portion of the 
exposed order to other exchanges.\23\ Accordingly, pursuant to the 
proposed rule change, the Exchange is merely proposing to make 
available the same type of information about the order to be routed as 
is currently made available by other options exchanges.\24\
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    \21\ See BATS EDGX Rule 21.18, Nasdaq PHLX Rule 1080(m)(iv)(B) 
and (C), and NYSE American Rule 994NY.
    \22\ See BATS EDGX 21.18(b)(1).
    \23\ See BATS EDGX 21.18(b)(4).
    \24\ See supra note 21.
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2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \25\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \26\ 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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    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposed changes 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 the proposed rule changes 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.
    The Exchange believes that including the expected price to which 
the interest will be routed in the Route Notification message promotes 
just and equitable principles of trade and removes impediments to a 
free and open market by providing greater transparency concerning the 
operation of Exchange functionality. The Exchange also believes the 
proposal will contribute to

[[Page 46317]]

the protection of investors and the public interest by clarifying the 
Exchange's rules. The Exchange believes that additional clarity and 
transparency in the Exchange's rules will strengthen investor 
confidence in the market and facilitate fair competition among market 
participants. The Exchange notes that other option exchanges that offer 
similar functionality have similar rules in place.\27\
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    \27\ See supra note 21.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. Specifically, 
the Exchange believes the proposed rule change will not impose any 
burden on competition as the Exchange is merely providing supplemental 
information that may be derived by market participants independently. 
The Exchange's proposal does not substantively modify any Exchange 
functionality and is not designed to address any competitive issues, 
but rather to provide additional information in the Route Notification 
message and add further clarity to the Exchange's rules. Since the 
Exchange does not propose to substantively modify the operation of 
exchange functionality, the proposed rule change will not impose any 
burden on inter-market competition. Additionally, the Exchange does not 
believe the proposed rule change will impose any burden on intra-market 
competition as the Rules apply equally to all Exchange Members.

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 \28\ and Rule 19b-4(f)(6) \29\ 
thereunder.
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    \28\ 15 U.S.C. 78s(b)(3)(A).
    \29\ 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-2017-41 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MIAX-2017-41. 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-2017-41 and should be 
submitted on or before October 25, 2017. For the Commission, by the 
Division of Trading and Markets, pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-21278 Filed 10-3-17; 8:45 am]
 BILLING CODE 8011-01-P