83 FR 31812 - Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 602, Appointment of Market Makers

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 131 (July 9, 2018)

Page Range31812-31816
FR Document2018-14545

Federal Register, Volume 83 Issue 131 (Monday, July 9, 2018)
[Federal Register Volume 83, Number 131 (Monday, July 9, 2018)]
[Notices]
[Pages 31812-31816]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-14545]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83577; File No. SR-MIAX-2018-13]


Self-Regulatory Organizations; Miami International Securities 
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Exchange Rule 602, Appointment of Market 
Makers

July 2, 2018.
    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 June 26, 2018, Miami International Securities Exchange, LLC (``MIAX 
Options'' or the ``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 is filing a proposal to amend Rule 602, Appointment of 
Market Makers, to specify the new method by which Lead Market Makers 
\3\ (``LMMs'') and Registered Market Makers \4\ (``RMMs'') request 
appointments to one or more classes of option contracts traded on the 
Exchange.
---------------------------------------------------------------------------

    \3\ The term ``Lead Market Maker'' means a Member registered 
with the Exchange for the purpose of making markets in securities 
traded on the Exchange and that is vested with the rights and 
responsibilities specified in Chapter VI of the Exchange's Rules 
with respect to Lead Market Makers. See Exchange Rule 100.
    \4\ The term ``Registered Market Maker'' means a Member 
registered with the Exchange for the purpose of making markets in 
securities traded on the Exchange, who is not a Lead Market Maker 
and is vested with the rights and responsibilities specified in 
Chapter VI of the Exchange's Rules with respect to Registered Market 
Makers. See Exchange Rule 100.

---------------------------------------------------------------------------

[[Page 31813]]

    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/ at MIAX Options' 
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 MIAX Options Rule 602, Appointment 
of Market Makers, to specify the new method by which LMMs and RMMs 
would request appointments to (and relinquishment of appointments from) 
one or more classes of option contracts traded on the Exchange pursuant 
to Rule 602(a). The Exchange believes this proposal would improve the 
efficiency of the appointment process for both the Exchange and for 
these types of Market Makers.\5\ Other option exchanges also specify a 
method which governs the appointment of market makers to classes of 
option contracts traded on the exchange, however, these methods, while 
generally automated, differ somewhat across exchanges.\6\
---------------------------------------------------------------------------

    \5\ The term ``Market Makers'' refers to ``Lead Market Makers,'' 
``Primary Lead Market Makers'' and ``Registered Market Makers'' 
collectively. See Exchange Rule 100.
    \6\ See, e.g.., Cboe BZX Exchange, Inc. (``Cboe BZX'') Rules 
22.3(a),(b) (Market Maker Registration); see also Nasdaq PHLX, LLC 
(``Nasdaq Phlx'') Rule 3212(b) (Registration as a Market Maker); 
Nasdaq Options Market (``NOM''), Chapter VII (Market Participants), 
Section 3(a),(b) (Continuing Market Maker Registration); NYSE 
American, LLC (``NYSE American''), Rule 923NY (Appointment of Market 
Makers).
---------------------------------------------------------------------------

    Once a Member \7\ has qualified as either an LMM or an RMM, such 
Market Maker may request an appointment (or, following an appointment, 
relinquishment from an appointment) in one or more option classes 
pursuant to Rule 602. Currently, an LMM or RMM may request such an 
appointment by contacting Exchange staff, either by phone or via email, 
identifying those classes of option contracts in which the Market Maker 
is seeking an appointment. A Primary Lead Market Maker (``PLMM''),\8\ 
however, goes through a different, more extensive appointment process. 
Accordingly, the Exchange intentionally excluded PLMMs from this 
proposal. The Exchange believes it is appropriate to exclude PLMMs from 
this new appointment method because the Board or designated committee 
appoints only one PLMM to each options class traded on the Exchange, as 
opposed to the multiple number of LMMs and RMMs, and because of the 
heightened obligations associated with performing the responsibilities 
of a PLMM.\9\ Because of the heightened responsibilities of PLMMs, the 
Exchange believes that it is appropriate to have a different method for 
PLMMs on the one hand, and LMMs and RMMs on the other hand, with 
respect to the method by which appointments (and relinquishments of 
appointments) are requested.
---------------------------------------------------------------------------

    \7\ The term ``Member'' means an individual or organization 
approved to exercise the trading rights associated with a Trading 
Permit. Members are deemed ``members'' under the Exchange Act. See 
Exchange Rule 100.
    \8\ A ``Primary Lead Market Maker'' is a Lead Market Maker 
appointment by the Exchange to act as the Primary Lead Market Maker 
for the purpose of making markets in securities traded on the 
Exchange. The Primary Lead Market Maker is vested with the rights 
and responsibilities specified in Chapter VI of these Rules with 
respect to Primary Lead Market Makers. See Exchange Rule 100.
    \9\ See, for example, Exchange Rules 603 and 604 for certain 
heightened obligations of PLMMs.
---------------------------------------------------------------------------

    According to the Exchange's current practice, with respect to LMMs 
and RMMs, after the LMM or RMM contacts Exchange staff either by phone 
or via email, the Exchange staff then delivers that request to the 
Board or a committee designated by the Board for its approval. Upon the 
decision of the Board or committee designated by the Board regarding 
that appointment, Exchange staff then notifies the Market Maker of the 
determination, with such notification being made the next business day. 
The Exchange notes that it is not proposing to make any changes to 
timing of the notification, which will continue to be made the next 
business day.
    Specifically, Rule 602(a) provides that ``[t]he Board or a 
committee designated by the Board shall appoint Market Makers to one or 
more classes of option contracts traded on the Exchange.'' \10\ In 
addition to having the authority to appoint one PLMM to each options 
class, ``[t]he Exchange will impose an upper limit on the aggregate 
number of Market Makers that may quote in each class of options 
(``Class Quoting Limit'' or ``CQL'').'' Currently, the CQL is set at 
fifty (50) Market Makers per option class but the Exchange may 
``increase the CQL for an existing or new option class if the President 
determines that it would be appropriate.'' \11\ Further, Rule 602(c)(2) 
provides that ``Market Makers requesting an appointment in a class of 
options will be considered for the appointment in accordance with 
paragraphs (a), (b) and (f) of this Rule 602, provided the number of 
Market Makers appointed in the options class does not exceed the CQL.''
---------------------------------------------------------------------------

    \10\ See Rule 602(a).
    \11\ See Rule 602(c).
---------------------------------------------------------------------------

    In making appointments of Market Makers to one or more classes of 
option contracts traded on the Exchange, the Board or designated 
committee shall consider the financial resources available to the 
Market Maker; the Market Maker's experience and expertise in market 
making or options trading; the preferences of the Market Maker to 
receive appointment(s) in specific option class(es); and the 
maintenance and enhancement of competition among Market Makers in each 
class of option contracts to which they are appointed.\12\ Rule 
602(c)(2) also states that, when the number of Market Makers appointed 
in the options class equals the CQL, all other Market Makers requesting 
to be appointed in that options class will be wait-listed in the order 
in which they submitted their request.\13\
---------------------------------------------------------------------------

    \12\ See Rule 602(a).
    \13\ See Rule 602(c)(2).
---------------------------------------------------------------------------

    Under the current Rule, ``[t]he Board or designated committee may 
suspend or terminate any appointment of a Market Maker under this Rule 
[602] and may make additional appointments or change the option classes 
included in a Market Maker's appointed classes whenever, in the Board's 
or designated committee's judgment, the interests of a fair and orderly 
market are best served by such action.'' \14\ Moreover, the Exchange 
``shall periodically conduct an evaluation of Market Makers to 
determine whether they have fulfilled performance standards relating 
to, among other things, quality of markets, competition among Market 
Makers, observance of ethical standards, and administrative factors. 
The Exchange may consider any relevant information, including but not 
limited to the results of a Market Maker evaluation questionnaire, 
trading data, a Market Maker's regulatory history and such other 
factors and data as may be

[[Page 31814]]

pertinent in the circumstances.'' \15\ If the Exchange finds that a 
Market Maker has not met the performance standards, the Exchange may 
take action, including suspending, terminating or restricting a Market 
Maker's appointment or registration.\16\
---------------------------------------------------------------------------

    \14\ See Rule 602(e).
    \15\ See Rule 602(f).
    \16\ See id.
---------------------------------------------------------------------------

    The Exchange proposes to amend MIAX Options Rule 602 solely to 
specify the new method by which LMMs and RMMs would request 
appointments to (or relinquishment of appointments from) one or more 
classes of option contracts traded on the Exchange pursuant to Rule 
602(a). In particular, the Exchange proposes to adopt Interpretations & 
Policies .02 to Rule 602 to provide that, ``Lead Market Makers and 
Registered Market Makers shall request appointments to (and 
relinquishment of appointments from) one or more classes of option 
contracts traded on the Exchange pursuant to Rule 602(a) via an 
Exchange approved electronic interface, which request must be submitted 
prior to 6:00 p.m. Eastern Time of the business day immediately 
preceding the next trading day. The Exchange approved electronic 
interface will also ensure that, before any appointment request (or 
relinquishment of an appointment) is approved, the CQL established by 
Rule 602 has not been exceeded. Appointments (and relinquishments of 
appointments) shall become effective on the day after the request is 
submitted, provided that it has been approved. Approvals and denials of 
appointments (and relinquishment of appointments) shall be communicated 
by the Exchange via the same Exchange approved electronic interface 
through which the request was made.''
    The Exchange believes that requiring LMMs and RMMs to use an 
Exchange approved electronic interface to request appointments to one 
or more classes of option contracts would enable LMMs and RMMs to 
streamline the process by which they request appointments (and 
relinquishment of appointments) and get notified of approvals or 
denials related to such requests, which, in turn, would reduce the time 
and resources expended by such Market Makers and the Exchange on the 
appointment process.
    The Exchange also believes this proposal would provide LMMs and 
RMMs with more efficient access to the securities in which they want to 
make markets and disseminate competitive quotations, which would 
provide additional liquidity and enhance competition in those 
securities. The Exchange would retain the ability to suspend or 
terminate any appointment of a Market Maker if necessary to maintain a 
fair and orderly market.\17\ The Exchange also notes that the proposed 
changes to Rule 602 are similar in some respects to the rules of other 
exchanges \18\ and therefore raises no new or novel issues. 
Furthermore, the Exchange notes that it is only proposing to specify 
the new method by which LMMs and RMMs would request appointments to 
(and relinquishment of appointments from) one or more classes of option 
contracts traded on the Exchange pursuant to Rule 602(a), and would not 
change the substantive provisions of the rules including the CQL, 
quoting requirements, or the Exchange's ability to make additional 
appointments or change the option classes included in a Market Maker's 
requested appointment whenever, in the Board's or designated 
committee's judgment, the interests of a fair and orderly market are 
best served by such action.
---------------------------------------------------------------------------

    \17\ See Rule 602(e).
    \18\ See e.g., Phlx Rule 3212(b) (``A PSX Market Maker may 
become registered in an issue by entering a registration request via 
an Exchange approved electronic interface with PSX's systems or by 
contacting PSX Market Operations. Registration shall become 
effective on the day the registration request is entered''); Phlx 
Rule 3220(a) (``A market maker may voluntarily terminate its 
registration in a security by withdrawing its two-sided quotation 
from PSX. A PSX Market Maker that voluntarily terminates its 
registration in a security may not re-register as a market maker for 
one (1) business day.''). See also BZX Options Rules 22.3(b) (``An 
Options Market Maker may become registered in a series by entering a 
registration request via an Exchange approved electronic interface 
with the Exchange's systems by 9:00 a.m. Eastern time. Registration 
shall become effective on the day the registration request is 
entered''); NOM, Chapter VII, Section 3(b) (``An Options Market 
Maker may become registered in an option by entering a registration 
request via a Nasdaq approved electronic interface with Nasdaq's 
systems. Registration shall become effective on the day the 
registration request is entered.'').
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \19\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \20\ 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.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change removes 
impediments to a free and open market because it would streamline the 
process by which LMMs and RMMs request appointments to (and 
relinquishment of appointments from) one or more classes of option 
contracts traded on the Exchange and offer LMMs and RMMs the ability to 
manage their appointments in a more efficient manner, through use of an 
automated tool. The Exchange believes the proposed change would reduce 
the burden on both LMMs and RMMs, and Exchange staff, which would 
result in a fair and reasonable use of resources to the benefit of all 
market participants. In particular, the proposal to require LMMs and 
RMMs to use an Exchange approved electronic interface to request to be 
appointed to a class, and to make changes thereto, is consistent with 
Act because it would provide LMMs and RMMs with more efficient access 
to the securities in which they want to make markets. The Exchange also 
believes that allowing LMMs and RMMs to request relinquishment from 
appointments using the same process used by LMMs and RMMs to request 
appointments, would serve to promote just and equitable principles of 
trade and benefit investors and the public interest by establishing a 
more systematic way for LMMs and RMMs to manage their appointments and 
provide more clarity with respect to the process.
    In addition, the Exchange believes that improving the efficiency of 
the process by which LMMs and RMMs request appointments and 
relinquishment of appointments on an automated basis without having to 
manually contact Exchange staff is likewise consistent with the Act. 
First, the Board or a designated committee will continue to have 
responsibility for approving the appointments requested by LMMs and 
RMMs in one or more classes of options contracts traded on the 
Exchange. The Board or a designated committee would continue to 
consider the relevant factors and conduct an evaluation of Market 
Makers prior to their appointment. \21\ In addition, as noted above, 
the Exchange would continue to have authority to suspend or terminate 
any Market Maker appointment in the interest of a fair and orderly 
market, including, if necessary to prevent fraudulent and manipulative 
acts and practices and protect investors, or if a Market Maker does not 
satisfy its obligations with respect to an appointment.\22\ 
Furthermore, the

[[Page 31815]]

Exchange approved electronic interface utilized by LMMs and RMMs to 
request an appointment will ensure that, before any additions to a 
Market Maker's appointment are approved, the CQL established by Rule 
602 has not been exceeded. Accordingly, the Exchange believes this 
proposal is consistent with Section 6(b) of the Exchange Act.\23\
---------------------------------------------------------------------------

    \21\ See supra notes 10-14.
    \22\ See Rule 602(e). See also Rule 600(c) (regarding the 
Exchange's ability to suspend or terminate a Market Maker's 
registration based on ``a determination that such Member has failed 
to properly perform as a Market Maker.'').
    \23\ 15 U.S.C. 78f(b).
---------------------------------------------------------------------------

    The proposed rule change would not result in unfair discrimination, 
as it applies to all LMMs and RMMs equally. As noted above, the 
Exchange intentionally excluded PLMMs from this proposal. The Exchange 
believes it isn't unfairly discriminatory to exclude PLMMs from this 
new appointment method because the Board or designated committee 
appoints only one PLMM to each options class traded on the Exchange, as 
opposed to the multiple number of LMMs and RMMs, and because of the 
heightened obligations associated with performing the responsibilities 
of a PLMM.\24\ Because of these heightened responsibilities of PLMMs, 
the Exchange believes that it is not unfairly discriminatory to treat 
PLMMs differently from LMMs and RMMs with respect to the method by 
which appointments (and relinquishments of appointments) are requested.
---------------------------------------------------------------------------

    \24\ See supra note 9.
---------------------------------------------------------------------------

    Further, the proposed rule change would reduce the burden on LMMs 
and RMMs to manage their appointments, and thus provide greater 
liquidity to the Exchange while reducing the time and resources 
expended by such Market Makers and the Exchange on the appointment 
process. Nevertheless, Market Makers would still be required to comply 
with certain obligations to maintain their status as a Market Maker, 
including that they provide continuous, two-sided quotations in their 
appointed securities.\25\
---------------------------------------------------------------------------

    \25\ See Rule 604.
---------------------------------------------------------------------------

    Finally, as noted above, specifying the method of the appointment 
process would also align the rules of the Exchange with the rules of 
other options exchanges, where Market Makers presently have the ability 
to select and make changes to their appointments and registrations via 
an exchange-approved electronic interface.\26\ The Exchange believes 
this consistency across exchanges would remove impediments to and 
perfect the mechanism of a free and open market by ensuring that 
members, regulators and the public can more easily navigate the 
Exchange's rulebook and better understand the appointment process.
---------------------------------------------------------------------------

    \26\ See supra notes 6 and 18.
---------------------------------------------------------------------------

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

    MIAX Options 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 because it provides the same 
enhancement to a group of similarly situated market participants--LMMs 
and RMMs. The proposed rule change would reduce the burden on these 
Market Makers to manage their appointments and thus provide greater 
liquidity to the Exchange while reducing the time and resources 
expended by such Market Makers and the Exchange on the appointment 
process.
    The Exchange does not believe the proposed rule change would help 
these Market Makers to the detriment of market participants on other 
exchanges, particularly because the proposed appointment process for 
LMMs and RMMs is meant to simply create a more efficient process by 
which such Market Makers can request an appointment, and it is similar 
to the appointment and registration processes for market makers already 
in place on other exchanges.\27\ LMMs and RMMs would still be subject 
to the same obligations with respect to its appointment; however, the 
proposed rule change would make the appointment process more efficient 
for such Market Makers. The Exchange believes that the proposed rule 
change would relieve any burden on, or otherwise promote, competition, 
as it would enable LMMs and RMMs to streamline the process by which 
they request appointments (and relinquishment of appointments) and get 
notified of approvals or denials related to such requests, which, in 
turn, would reduce the time and resources expended by such Market 
Makers and the Exchange on the appointment process.
---------------------------------------------------------------------------

    \27\ Id.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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-2018-13 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-2018-13. 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

[[Page 31816]]

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-2018-13 and should be submitted on or before July 30, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
---------------------------------------------------------------------------

    \30\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-14545 Filed 7-6-18; 8:45 am]
BILLING CODE P


Current View
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation83 FR 31812 

2019 Federal Register | Disclaimer | Privacy Policy
USC | CFR | eCFR