[Federal Register Volume 78, Number 77 (Monday, April 22, 2013)]
[Notices]
[Pages 23806-23810]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-09340]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69381; File No. SR-MIAX-2013-16 ]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Modify the MIAX Fee Schedule
April 16, 2013.
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 April 5, 2013, Miami International Securities
Exchange LLC (``MIAX'' or ``Exchange'') filed with the Securities and
Exchange Commission (``Commission'') a proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the Exchange. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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[[Page 23807]]
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange is filing a proposal to modify the MIAX Fee Schedule
(``Fee Schedule'') to establish fees for option contracts overlying 10
shares of a security (``Mini Options''). The Exchange proposes to
implement these fee changes to coincide with the Exchange's listing and
trading of Mini Options on April 17, 2013.
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 modify the Fee Schedule to establish fees
for Mini Options. The Exchange represented in its filing with the
Securities and Exchange Commission (``SEC'' or the ``Commission'') to
establish Mini Options that, ``the current schedule of Fees will not
apply to the trading of mini-options contracts. The Exchange will not
commence trading of mini-option contracts until specific fees for mini-
options contracts trading have been filed with the Commission.'' \3\ As
the Exchange intends to begin trading Mini Options on April 17, 2013 it
is submitting this filing to describe the transaction fees that will be
applicable to the trading of Mini Options.
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\3\ See Securities Exchange Act Release No. 69136 (March 14,
2013), 78 FR 17259 (March 20, 2013) (SR-MIAX-2013-06). The
Commission notes that the actual language from the Exchange's filing
is: ``the current MIAX Fee Schedule will not apply to the trading of
mini-option contracts. The Exchange will not commence trading of
mini-option contracts until specific fees for mini-option contracts
trading have been filed with the Commission.''
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Mini Options have a smaller exercise and assignment value due to
the reduced number of shares they deliver as compared to standard
option contracts. As such, the Exchange is proposing generally lower
per contract fees as compared to standard option contracts, with some
exceptions to be fully described below. Despite the smaller exercise
and assignment value of a Mini Option, the cost to the Exchange to
process quotes and orders in Mini Options, perform regulatory
surveillance and retain quotes and orders for archival purposes is the
same as for a standard contract. This leaves the Exchange in a position
of trying to strike the right balance of fees applicable to Mini
Options--too low and the costs of processing Mini Options quotes and
orders will necessarily cause the Exchange to either raise fees for
everyone or only for participants trading Mini Options; too high and
participants may be deterred from trading Mini Options, leaving the
Exchange less able to recoup costs associated with development of the
product, which is designed to offer investors a way to take less risk
in high dollar securities. The Exchange, therefore, believes that
adopting fees for Mini Options that are in some cases lower than fees
for standard contracts, and in other cases the same as for standard
contracts, is appropriate, not unreasonable, not unfairly
discriminatory and not burdensome on competition between participants,
or between the Exchange and other exchanges in the listed options
market place.
Exchange Transaction Fees
The Exchange proposes establishing Mini Options transaction fees
for all Market Makers and other market participants that would be 10%
of the fee associated with standard options. The Mini Options
transaction fee, as its standard option counterpart, would apply per
executed contract to Registered Market Makers, Lead Market Makers,
Directed Order-Lead Market Makers, Primary Lead Market Makers, Directed
Order-Primary Lead Market Makers, Public Customers that are not
Priority Customers, Non-MIAX Market Makers, Non-Member Broker-Dealers,
and Firms. Below is a chart providing a comparison of the transaction
fees for standard options and to the proposed fees for Mini Options:
------------------------------------------------------------------------
Standard options Mini options
transaction fee transaction fee
Type of MIAX Market Maker (per executed (per executed
contract) contract)
------------------------------------------------------------------------
Registered Market Maker......... $0.23 $0.023
Lead Market Maker............... 0.20 0.020
Directed Order--Lead Market 0.18 0.018
Maker..........................
Primary Lead Market Maker....... 0.18 0.018
Directed Order--Primary Lead 0.16 0.016
Market Maker...................
Priority Customer............... 0.00 0.000
Public Customer that is Not a 0.25 0.025
Priority Customer..............
Non-MIAX Market Maker........... 0.45 0.045
Non-Member Broker-Dealer........ 0.45 0.045
Firm............................ 0.25 0.025
------------------------------------------------------------------------
In proposing Mini Options transaction fees that are 10% of the
related standard option transaction fee, the Exchange acknowledges and
takes into account that Mini Options have a smaller exercise and
assignment value due to the reduced number of shares to be delivered as
compared to standard option contracts. The Mini Options transaction fee
charged to Priority Customers \4\ would remain at $0.00
[[Page 23808]]
because the transaction fee for standard options, currently set at
$0.00, cannot be reduced any lower.
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\4\ The term ``Priority Customer'' means a person or entity that
(i) is not a broker or dealer in securities, and (ii) does not place
more than 390 orders in listed options per day on average during a
calendar month for its own beneficial account(s). See Exchange Rule
100.
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Marketing Fee
Currently, the Exchange assesses a Marketing Fee to all Market
Makers for contracts they execute in their assigned classes when the
contra-party to the execution is a Priority Customer. The Exchange
proposes assessing a Marketing Fee for applicable transactions in Mini
Options and setting the fee to be 10% of the associated fee for
standard options. As noted above, the Exchange bases this proposal on
the smaller exercise and assignment value due to the reduced number of
shares to be delivered with Mini Options as compared to standard option
contracts. Below is a chart providing a comparison of the Marketing
Fees for standard options and to the proposed fees for Mini Options:
------------------------------------------------------------------------
Amount of marketing fee assessed Option classes
------------------------------------------------------------------------
$0.70 (per contract).............. Transactions in Standard Option
Classes that are not in the Penny
Pilot Program.
$0.25 (per contract).............. Transactions in Standard Option
Classes that are in the Penny Pilot
Program.
$0.070 (per contract)............. Transactions in Mini Options where
the corresponding Standard Option
is not in the Penny Pilot Program.
$0.025 (per contract)............. Transactions in Mini Options where
the corresponding Standard Option
is in the Penny Pilot Program
------------------------------------------------------------------------
Fixed Fee Surcharge
In order to comply with the requirements of the Distributive
Linkage Plan,\5\ the Exchange uses various means of accessing better
priced interest located on other exchanges. Presently, the Exchange
charges a Fixed Fee Surcharge of $0.10 per contract plus a pass through
of the fees associated with the execution of the routed order on the
other exchanges. The $0.10 is designed to recover the Exchange's costs
in routing orders to the other exchanges. Those costs include clearance
charges imposed by The Options Clearing Corporation (``OCC'') and per
contract routing fees charged by the broker dealers who charge the
Exchange for the use of their systems to route orders to other
exchanges. It is the Exchange's understanding that both the OCC and the
broker dealers have kept their charges applicable to Mini Options the
same as for standard option contracts, as their cost to process a
contract (i.e., routing or clearing) is the same irrespective of the
exercise and assignment value of the contract. As such, the Exchange
intends to charge the same Fixed Fee Surcharge for Mini Options as it
presently does for standard options, as described in Section (1)(c) of
the current Fee Schedule. The Exchange notes that participants can
avoid the Fixed Fee Surcharge in several ways. First, they can simply
route to the exchange with the best priced interest. The Exchange, in
recognition of the fact that markets can move while orders are in
flight, also offers participants the ability to utilize an order type
that does not route to other exchanges. Specifically, the Do Not Route
(``DNR'') order modifier is one such order that would never route to
another exchange. Given this ability to avoid the Fixed Fee Surcharge,
coupled with the fixed third-party costs associated with routing, the
Exchange believes it is reasonable to charge the same Routing Surcharge
for Mini Options that is charged for standard option contracts.
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\5\ See Exchange Rule 529.
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Options Regulatory Fee
Presently the Exchange charges an Options Regulatory Fee (``ORF'')
of $0.004 per contract. The ORF is assessed on each MIAX Member for all
options transactions executed or cleared by the MIAX Member that are
cleared by the OCC in the customer range, regardless of the exchange on
which the transaction occurs. The Exchange is proposing to charge the
same rate for transactions in Mini Options, $0.004 per contract, since,
as noted, the costs to the Exchange to process quotes, orders, trades
and the necessary regulatory surveillance programs and procedures in
Mini Options are the same as for standard option contracts. As such,
the Exchange feels that it is appropriate to charge the ORF at the same
rate as the standard option contract.
2. Statutory Basis
MIAX believes that its proposal to amend fee schedule is consistent
with Section 6(b) of the Act \6\ in general, and furthers the
objectives of Section 6(b)(4) of the Act \7\ in particular, in that it
is an equitable allocation of reasonable fees and other charges among
its members, issuers and other persons using its facilities and does
not unfairly discriminate between customers, issuers, brokers or
dealers.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(4).
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The Exchange noted earlier that, while Mini Options have a smaller
exercise and assignment value due to the reduced number of shares to be
delivered as compared to standard option contracts, and despite the
smaller exercise and assignment value of a Mini Option, the cost to the
Exchange to process quotes and orders in Mini Options, perform
regulatory surveillance and retain quotes and orders for archival
purposes is the same as for a standard contract. This leaves the
Exchange in a position of trying to strike the right balance of fees
applicable to Mini Options--too low and the costs of processing Mini
Options quotes and orders will necessarily cause the Exchange to either
raise fees for everyone or only for participants trading Mini Options;
too high and participants may be deterred from trading Mini Options,
leaving the Exchange less able to recoup costs associated with
development of the product, which is designed to offer investors a way
to take less risk in high dollar securities. Given these realities, the
Exchange believes that adopting fees for Mini Options that are in some
cases lower than standard contracts, and in other cases the same as for
standard contracts, is appropriate, not unreasonable, not unfairly
discriminatory and not burdensome on competition between participants,
or between the Exchange and other exchanges in the listed options
market place.
In the case of most trade related charges, the Exchange has decided
to offer lower per contract fees to participants as part of trying to
strike the right balance between recovering costs associated with
trading Mini Options and encouraging use of the new Mini Option
contracts, which are designed to allow investors to reduce risk in high
dollar underlying securities.
The Exchange proposal to establish transaction fees applicable to
Market Makers and all other participants to be 10% of the fee charged
for standard options is reasonable in light of the fact that the Mini
Options do have a smaller exercise and assignment value, specifically
1/10th that of a standard
[[Page 23809]]
option contract. The Exchange's proposal is based on the already
established classification of Market Makers and other market
participants for standard option contracts, which is an effective fee
on the Exchange and has not been determined to be inequitable or
unfairly discriminatory. Therefore, the Exchange believes the proposed
pricing for Mini Options to be equitable and not unfairly
discriminatory as it would apply to all members of a given class (i.e.,
the Mini Options transaction fee for Register Market Makers would apply
to all Register Market Makers).
The Exchange believes the proposal to charge Priority Customers
$.00 per contract to be reasonable, as Priority Customers have traded
for free all options on the Exchange since the inception of the
Exchange. The ability to trade for free attracts Priority Customer
order flow to the Exchange, which is beneficial to all other
participants on the Exchange who generally seek to trade with Priority
Customer order flow. The proposed fee of $.00 per contract is the same
fee charged to Priority Customer orders in standard option contracts,
which is an effective fee on the Exchange and has not been determined
to be inequitable or unfairly discriminatory. Therefore, the proposed
Priority Customer pricing for Mini Options would be equitable and not
unfairly discriminatory.
The Exchange believes its proposal to assess a Marketing Fee to all
Market Makers for Mini Options contracts they execute in their assigned
classes when the contra-party to the execution is a Priority Customer
with such Marketing Fee set at 10% of the related fee charged for
standard options to be reasonable in light of the fact that the Minis
do have a smaller exercise and assignment value, specifically 1/10th
that of a standard contract. The Exchange does not believe its proposal
to be unfairly discriminatory because it applies to all applicable
Market Makers evenly.
The Exchange proposal to treat Mini Options the same as standard
options for purposes of the Fixed Fee Surcharge is reasonable,
equitable and not unfairly discriminatory for the following reasons.
Presently, the Exchange charges a Routing Surcharge of $0.10 per
contract plus a pass through of the fees associated with the execution
of the routed order on the other exchanges. The $0.10 is designed to
recover the Exchange's costs in routing orders to the other exchanges.
Those costs include clearance charges imposed by the OCC and per
contract routing fees charged by the broker dealers who charge the
Exchange for the use of their systems to route orders to other
exchanges. The Exchange understands that both the OCC and the broker
dealers have kept their charges applicable to Mini Options the same as
for standard option contracts, as their cost to process a contract
(i.e., routing or clearing) is the same irrespective of the exercise
and assignment value of the contract. As such, the Exchange intends to
charge the same Fixed Fee Surcharge for Mini Options as it presently
does for standard options, as described in Section (1)(c) of the
current Fee Schedule. The Exchange notes that participants can avoid
the Fixed Fee Surcharge in several ways. First they can simply route to
the exchange with the best priced interest. The Exchange, in
recognition of the fact that markets can move while orders are in
flight, also offers participants the ability to utilize an order type
that does not route to other exchanges. Specifically, the DNR order
type is an order that would never route to another exchange. Given this
ability to avoid the Fixed Fee Surcharge, coupled with the fixed third
party costs associated with routing, the Exchange feels it is
reasonable and equitable to charge the same Fixed Fee Surcharge for
Mini Options that is charged for standard option contracts. Since the
Fixed Fee Surcharge will apply to all participants in Mini Options as
it is applied for standard options, and because such surcharge has not
previously been found to be unreasonable, inequitable or unfairly
discriminatory, the Exchange believes it is the case for Mini Options
as well.
The Exchange notes, particularly in the context of the ORF, that
the cost to perform surveillance to ensure compliance with various
Exchange and industry-wide rules is no different for a Mini Option than
it is for a standard option contract. Reducing the ORF for Mini options
could result in a higher ORF for standard options. Such an outcome
would arguably be discriminatory towards investors in standard options
for the benefit of investors in Minis. As such, the appropriate
approach is to treat both Mini Options and standard options the same
with respect to the amount of the ORF that is being charged.
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 proposed change designed to
provide greater specificity and precision within the Fee Schedule with
respect to the fees that will be applicable to Mini Options when they
begin trading on the Exchange on or about April 17, 2013.
The Exchange believes that adopting fees for Mini Options that are
in some cases lower than for standard contracts, but in other cases the
same as for standard contracts, strikes the appropriate balance between
fees applicable to standard contracts versus fees applicable to Mini
Options, and will not impose a burden on competition among various
market participants on the Exchange, or between the Exchange and other
exchanges in the listed options market place, not necessary or
appropriate in furtherance of the purposes of the Act. In this regard,
as Mini Options are a new product being introduced into the listed
options marketplace, the Exchange is unable at this time to absolutely
determine the impact that the fees proposed herein will have on trading
in Mini Options. That said, however, the Exchange believes that the
rates proposed for Mini Options, would not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act.
Finally, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues. In such an environment, the Exchange must continually
review, and consider adjusting, its fees and credits to remain
competitive with other exchanges. For the reasons described above, the
Exchange believes that the proposed rule change reflects this
competitive environment.
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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\8\ 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
[[Page 23810]]
whether the proposed rule should be approved or disapproved.
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\8\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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-2013-16 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-MIAX-2013-16. 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 such 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-2013-16, and should be
submitted on or before May 13, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-09340 Filed 4-19-13; 8:45 am]
BILLING CODE 8011-01-P