[Federal Register Volume 79, Number 157 (Thursday, August 14, 2014)]
[Notices]
[Pages 47698-47701]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-19225]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72799; File No. SR-MIAX-2014-40]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Its Fee Schedule
August 8, 2014.
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 July 29, 2014, 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 is filing a proposal to amend the MIAX Options Fee
Schedule.
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its current Priority Customer Rebate
Program (the ``Program'') to modify the volume thresholds of tiers 1,
2, and 3.\3\ The Program is based on the substantially similar fees of
another competing options exchange.\4\ Under the Program, the Exchange
shall credit each Member the per contract amount set forth in the table
below resulting from each Priority Customer \5\ order transmitted by
that Member which is executed on the Exchange in all
[[Page 47699]]
multiply-listed option classes (excluding mini-options and executions
related to contracts that are routed to one or more exchanges in
connection with the Options Order Protection and Locked/Crossed Market
Plan referenced in Rule 1400), provided the Member meets certain volume
thresholds in a month as described below. For each Priority Customer
order transmitted by that Member which is executed electronically on
the Exchange in MIAX Select Symbols, MIAX shall credit each member at
the separate per contract rate for MIAX Select Symbols.\6\ The volume
thresholds are calculated based on the customer average daily volume
over the course of the month. Volume will be recorded for and credits
will be delivered to the Member Firm that submits the order to the
Exchange.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release Nos. 72355 (June 10,
2014), 79 FR 34368 (June 16, 2014) (SR-MIAX-2014-25); 71698 (March
12, 2014), 79 FR 15185 (March 18, 2014) (SR-MIAX-2014-12); 71283
(January 10, 2014), 79 FR 2914 (January 16, 2014) (SR-MIAX-2013-63);
71009 (December 6, 2013), 78 FR 75629 (December 12, 2013) (SR-MIAX-
2013-56).
\4\ See Chicago Board Options Exchange, Incorporated (``CBOE'')
Fees Schedule, p. 3. See also Securities Exchange Act Release Nos.
66054 (December 23, 2011), 76 FR 82332 (December 30, 2011) (SR-CBOE-
2011-120); 68887 (February 8, 2013), 78 FR 10647 (February 14, 2013)
(SR-CBOE-2013-017).
\5\ 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 accounts(s). See MIAX Rule
100.
\6\ See Securities Exchange Release Nos. 71700 (March 12, 2014),
79 FR 15188 (March 18, 2014) (SR-MIAX-2014-13); 72356 (June 10,
2014), 79 FR 34384 (June 16, 2014) (SR-MIAX-2014-26); 72567 (July 8,
2014), 79 FR 40818 (July 14, 2014) (SR-MIAX-2014-34). The Exchange
will credit each Member $0.20 per contract resulting from each
Priority Customer order transmitted by that Member executed on
Exchange in MIAX Select Symbols. The $0.20 per contract credit is in
lieu of the applicable credit that would otherwise apply to the
transaction based on the volume thresholds.
------------------------------------------------------------------------
Per
Percentage thresholds of national customer volume in multiply- contract
listed options classes listed on MIAX (Monthly) credit
------------------------------------------------------------------------
0.00%-0.35%.................................................. $0.00
Above 0.35%-0.45%............................................ 0.10
Above 0.45%-1.25%............................................ 0.15
Above 1.25%-2.00%............................................ 0.17
Above 2.00%.................................................. 0.18
------------------------------------------------------------------------
The Exchange will aggregate the contracts resulting from Priority
Customer orders transmitted and executed electronically on the Exchange
from affiliated Members for purposes of the thresholds above, provided
there is at least 75% common ownership between the firms as reflected
on each firm's Form BD, Schedule A. In the event of a MIAX System
outage or other interruption of electronic trading on MIAX, the
Exchange will adjust the national customer volume in multiply-listed
options for the duration of the outage. A Member may request to receive
its credit under the Priority Customer Rebate Program as a separate
direct payment.
In addition, the rebate payments will be calculated from the first
executed contract at the applicable threshold per contract credit with
the rebate payments made at the highest achieved volume tier for each
contract traded in that month. For example, if Member Firm XYZ, Inc.
(``XYZ'') has enough Priority Customer contracts to achieve 2.75% of
the national customer volume in multiply-listed option contracts during
the month of October, XYZ will receive a credit of $0.18 for each
Priority Customer contract executed in the month of October.
The purpose of the Program is to encourage Members to direct
greater Priority Customer trade volume to the Exchange. Increased
Priority Customer volume will provide for greater liquidity, which
benefits all market participants. The practice of incentivizing
increased retail customer order flow in order to attract professional
liquidity providers (Market-Makers) is, and has been, commonly
practiced in the options markets. As such, marketing fee programs,\7\
and customer posting incentive programs,\8\ are based on attracting
public customer order flow. The Program similarly intends to attract
Priority Customer order flow, which will increase liquidity, thereby
providing greater trading opportunities and tighter spreads for other
market participants and causing a corresponding increase in order flow
from such other market participants.
---------------------------------------------------------------------------
\7\ See MIAX Fee Schedule, Section 1(b).
\8\ See NYSE Arca, Inc. Fees Schedule, page 4 (section titled
``Customer Monthly Posting Credit Tiers and Qualifications for
Executions in Penny Pilot Issues'').
---------------------------------------------------------------------------
The specific volume thresholds of the Program's tiers were set
based upon business determinations and an analysis of current volume
levels. The volume thresholds are intended to incentivize firms that
route some Priority Customer orders to the Exchange to increase the
number of orders that are sent to the Exchange to achieve the next
threshold and to incent new participants to send Priority Customer
orders as well. Increasing the number of orders sent to the Exchange
will in turn provide tighter and more liquid markets, and therefore
attract more business overall. Similarly, the different credit rates at
the different tier levels were based on an analysis of revenue and
volume levels and are intended to provide increasing ``rewards'' for
increasing the volume of trades sent to the Exchange. The specific
amounts of the tiers and rates were set in order to encourage suppliers
of Priority Customer order flow to reach for higher tiers.
The Exchange limits the Program to multiply-listed options classes
on MIAX because MIAX does not compete with other exchanges for order
flow in the proprietary, singly-listed products.\9\ In addition, the
Exchange does not trade any singly-listed products at this time, but
may develop such products in the future. If at such time the Exchange
develops proprietary products, the Exchange anticipates having to
devote a lot of resources to develop them, and therefore would need to
retain funds collected in order to recoup those expenditures.
---------------------------------------------------------------------------
\9\ If a multiply-listed options class is not listed on MIAX,
then the trading volume in that options class will be omitted from
the calculation of national customer volume in multiply-listed
options classes.
---------------------------------------------------------------------------
The Exchange excludes mini-options and executions related to
contracts that are routed to one or more exchanges in connection with
the Options Order Protection and Locked/Crossed Market Plan referenced
in Exchange Rule 1400 from the Program. The Exchange notes these
exclusions are nearly identical to the ones made by CBOE.\10\ Mini-
options contracts are excluded from the Program because the cost to the
Exchange to process quotes, orders and trades in mini-options is the
same as for standard options. This, coupled with the lower per-contract
transaction fees charged to other market participants, makes it
impractical to offer Members a credit for Priority Customer mini-option
volume that they transact. Providing rebates to Priority Customer
executions that occur on other trading venues would be inconsistent
with the proposal. Therefore, routed away volume is excluded from the
Program in order to promote the underlying goal of the proposal, which
is to increase liquidity and execution volume on the Exchange.
---------------------------------------------------------------------------
\10\ See CBOE Fee Schedule, page 3. CBOE also excludes QCC
trades from their rebate program. CBOE excluded QCC trades because a
bulk of those trades on CBOE are facilitation orders which are
charged at the $0.00 fee rate on their exchange.
---------------------------------------------------------------------------
The credits paid out as part of the program will be drawn from the
general revenues of the Exchange.\11\ The Exchange calculates volume
thresholds on a monthly basis.
---------------------------------------------------------------------------
\11\ Despite providing credits under the Program, the Exchange
represents that it will continue to have adequate resources to fund
its regulatory program and fulfill its responsibilities as a self-
regulatory organization while the Program will be in effect.
---------------------------------------------------------------------------
The proposed changes will become operative on August 1, 2014.
2. Statutory Basis
The Exchange believes that its proposal to amend its fee schedule
is consistent with Section 6(b) of the Act \12\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \13\ in
particular, in that it is an equitable allocation of reasonable fees
and other charges among Exchange members.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
The Exchange believes that the proposed Priority Customer Rebate
[[Page 47700]]
Program is fair, equitable and not unreasonably discriminatory. The
Program is reasonably designed because it will incent providers of
Priority Customer order flow to send that Priority Customer order flow
to the Exchange in order to receive a credit in a manner that enables
the Exchange to improve its overall competitiveness and strengthen its
market quality for all market participants. The Program is also
reasonably designed because the proposed credits are within the range
of credits assessed by other exchanges employing similar rebate
programs. The proposed rebate program is fair and equitable and not
unreasonably discriminatory because it will apply equally to all
Priority Customer orders. All similarly situated Priority Customer
orders are subject to the same rebate schedule, and access to the
Exchange is offered on terms that are not unfairly discriminatory. In
addition, the Program is equitable and not unfairly discriminatory
because, while only Priority Customer order flow qualifies for the
Program, an increase in Priority Customer order flow will bring greater
volume and liquidity, which benefit all market participants by
providing more trading opportunities and tighter spreads. Similarly,
offering increasing credits for executing higher percentages of total
national customer volume (increased credit rates at increased volume
tiers) is equitable and not unfairly discriminatory because such
increased rates and tiers encourage Members to direct increased amounts
of Priority Customer contracts to the Exchange. Market participants
want to trade with Priority Customer order flow. To the extent Priority
Customer order flow is increased by the proposal, market participants
will increasingly compete for the opportunity to trade on the Exchange
including sending more orders and providing narrower and larger sized
quotations in the effort to trade with such Priority Customer order
flow. The resulting increased volume and liquidity will benefit those
Members who receive the lower tier levels, or do not qualify for the
Program at all, by providing more trading opportunities and tighter
spreads.
Limiting the Program to multiply-listed options classes listed on
MIAX is reasonable because those parties trading heavily in multiply-
listed classes will now begin to receive a credit for such trading, and
is equitable and not unfairly discriminatory because the Exchange does
not trade any singly-listed products at this time. If at such time the
Exchange develops proprietary products, the Exchange anticipates having
to devote a lot of resources to develop them, and therefore would need
to retain funds collected in order to recoup those expenditures.
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 Exchange believes that the
proposed change would increase both intermarket and intramarket
competition by incenting Members to direct their Priority Customer
orders to the Exchange, which will enhance the quality of quoting and
increase the volume of contracts traded here. To the extent that there
is additional competitive burden on non-Priority Customers, the
Exchange believes that this is appropriate because the rebate program
should incent Members to direct additional order flow to the Exchange
and thus provide additional liquidity that enhances the quality of its
markets and increases the volume of contracts traded here. To the
extent that this purpose is achieved, all the Exchange's market
participants should benefit from the improved market liquidity.
Enhanced market quality and increased transaction volume that results
from the anticipated increase in order flow directed to the Exchange
will benefit all market participants and improve competition on the
Exchange. The Exchange notes that it operates in a highly competitive
market in which market participants can readily favor competing venues
if they deem fee levels at a particular venue to be excessive. In such
an environment, the Exchange must continually adjust its fees to remain
competitive with other exchanges and to attract order flow to the
Exchange. The Exchange believes that the proposed rule change reflects
this competitive environment because it reduces the Exchange's fees in
a manner that encourages market participants to direct their customer
order flow, to provide liquidity, and to attract additional transaction
volume to the Exchange. Given the robust competition for volume among
options markets, many of which offer the same products, implementing a
volume based customer rebate program to attract order flow like the one
being proposed in this filing is consistent with the above-mentioned
goals of the Act. This is especially true for the smaller options
markets, such as MIAX, which is competing for volume with much larger
exchanges that dominate the options trading industry. MIAX has a
nominal percentage of the average daily trading volume in options, so
it is unlikely that the customer rebate program could cause any
competitive harm to the options market or to market participants.
Rather, the customer rebate program is a modest attempt by a small
options market to attract order volume away from larger competitors by
adopting an innovative pricing strategy. The Exchange notes that if the
rebate program resulted in a modest percentage increase in the average
daily trading volume in options executing on MIAX, while such
percentage would represent a large volume increase for MIAX, it would
represent a minimal reduction in volume of its larger competitors in
the industry. The Exchange believes that the proposal will help further
competition, because market participants will have yet another
additional option in determining where to execute orders and post
liquidity if they factor the benefits of a customer rebate program into
the determination.
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.\14\ 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.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------
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
[[Page 47701]]
Send an email to [email protected]. Please
include File Number SR-MIAX-2014-40 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-2014-40. 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-2014-40 and should be
submitted on or before September 4, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
---------------------------------------------------------------------------
\15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-19225 Filed 8-8-14; 8:45 am]
BILLING CODE 8011-01-P