[Federal Register Volume 79, Number 171 (Thursday, September 4, 2014)]
[Notices]
[Pages 52785-52789]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-20999]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72943; File No. SR-MIAX-2014-45]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change to Amend the MIAX Fee Schedule to Adopt Fees for
MIAX PRIME
August 28, 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 August 15, 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.
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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 the
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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Fee Schedule to adopt
transaction fees and rebates for Members that participate in the price
improvement auction (``PRIME Auction'' or ``PRIME'') pursuant to Rule
515A.\3\ The Exchange intends to implement the PRIME Auction mechanism
August 8, 2014 and therefore proposes to add PRIME Auction transaction
fees and rebates to the Fee Schedule so that such fees and rebates will
be in place once the PRIME Auction mechanism is implemented.
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\3\ See Exchange Rule 515A. See also Securities Exchange Act
Release Nos. 71640 (March 4, 2014), 79 FR 13334 (March 10, 2014)
(SR-MIAX-2014-09) (``Notice''); 72009 (April 23, 2014), 79 FR 24032
(April 29, 2014) (SR-MIAX-2014-09).
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PRIME is a process by which a Member may electronically submit for
execution (``Auction'') an order it represents as agent (``Agency
Order'') against principal interest and/or an Agency Order against
solicited interest. The Agency Order is referred to as a PRIME Agency
Order for purposes of the Fee Schedule. The Member that submits the
PRIME Agency Order (the ``Initiating Member'') agrees to guarantee the
execution of the PRIME Agency Order by submitting a contra-side order
representing principal interest or solicited interest (``Contra-side
Order'').\4\ When the Exchange receives a properly designated Agency
Order for Auction processing, a Request for Responses (``RFR'')
detailing the option, side, size, and initiating price will be sent to
all subscribers of the Exchange's data feeds. Members may submit
responses to the RFR (specifying prices and sizes). RFR responses can
be
[[Page 52786]]
either an Auction or Cancel (``AOC'') order or an AOC eQuote.\5\
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\4\ The paired order submitted to PRIME that includes both the
PRIME Agency Order and the Contra-side Order is referred to as the
PRIME Order for purposes of the Fee Schedule.
\5\ See Exchange Rules 515A(a)(2)(i)(D), 516(b)(4),
517(a)(2)(ii).
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As described above, there are three ways to participate in a PRIME
Auction: (i) As an Agency Order, also known as a PRIME Agency Order;
(ii) as the Contra-side Order guaranteeing the execution of the PRIME
Order; and (iii) any RFR response in the form of an AOC order or AOC
eQuote.
The Exchange proposes to charge the following transaction fees for
participation in the PRIME Auction:
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PRIME Order Responder to PRIME Auction
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Types of market participants Per contract Per contract Per contract Per contract
fee for agency fee for contra- fee for penny fee for non-
order side order Classes penny classes
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Priority Customer............................... $0.00 $0.00 $0.45 $0.90
Public Customer That Is Not a Priority Customer. 0.30 0.05 0.45 0.90
MIAX Market Maker............................... 0.30 0.05 0.45 0.90
Non-MIAX Market Maker........................... 0.30 0.05 0.45 0.90
Non-Member Broker-Dealer........................ 0.30 0.05 0.45 0.90
Firm............................................ 0.30 0.05 0.45 0.90
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The Exchange also proposes to adopt the following rebates to be
paid to the Initiating Member for each PRIME Order contract that trades
with a PRIME AOC Response:
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PRIME break-up
-------------------------------
Types of market participants Per contract Per contract
credit for credit for non-
penny classes penny classes
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Priority Customer....................... $0.25 $0.60
Public Customer That Is Not a Priority 0.25 0.60
Customer...............................
MIAX Market Maker....................... 0.25 0.60
Non-MIAX Market Maker................... 0.25 0.60
Non-Member Broker-Dealer................ 0.25 0.60
Firm.................................... 0.25 0.60
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MIAX will apply the PRIME Break-up credit to the EEM that submitted
the PRIME Order for contracts that are submitted to the PRIME Auction
that trade with a PRIME AOC Response. The applicable fee for PRIME
Orders will be applied to any contracts for which a credit is
provided.\6\ Transaction fees in mini-options will be 1/10th of the
standard per contract fee or rebate shown above for the PRIME Auction.
However, the Exchange will assess the standard transaction fees to a
PRIME AOC Response if they execute against unrelated orders.
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\6\ For example, BD1 submits a Firm PRIME Order into PRIME for
100 contracts in a penny options class. 60 contracts trade with MM1
AOC Response and 40 contracts trade with the Contra-side Order. The
Exchange would assess the following transaction fees: (i) PRIME
Agency Order, 100 contracts x $0.30 per contract, plus 60 x $0.25
break-up credit; (ii) Contra-side Order, 40 contracts x $0.05; and
(iii) Responder, 60 contracts x $0.45.
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The Exchange proposes to amend the Priority Customer Rebate Program
to provide that the Exchange will credit each Member $0.10 per contract
credit for each Priority Customer order executed as a PRIME Agency
Order. However, no rebates will be paid if the PRIME Agency Order
executes against a Contra-side Order which is also a Priority Customer.
The $0.10 per contract credit would be applied in lieu of the
applicable credit that would otherwise apply to the transaction based
on the volume thresholds or whether the options class was a MIAX Select
Symbol. In addition, the Exchange proposes to exclude from the Priority
Customer Rebate Program, and the corresponding volume calculation,
orders that are executed as a Priority Customer-to-Priority Customer
Order, PRIME AOC Response, and PRIME Contra-side Order.
The Exchange proposes to provide that transaction fees resulting
from participation in a PRIME Auction as a PRIME AOC Response, or
rebates from the PRIME Break-up credit, will not count towards the
Monthly Firm Fee Cap. Transaction fees from Firm orders that
participate in the PRIME Auction as a PRIME Agency Order or Contra-side
Order will count towards the Monthly Firm Fee Cap.
Finally, the Exchange proposes to add text to clarify that PRIME
Agency Order, Contra-side Order, or PRIME AOC Response executions will
not result in the collection of marketing fees. Specifically, the
Exchange will not assess a marketing fee to Market Makers for contracts
executed as a PRIME Order or PRIME AOC Response in the PRIME Auction;
unless, it executes against an unrelated order. Unrelated Market Maker
orders or quotes that execute against the PRIME Order will still be
subject to marketing fees.
The Exchange proposes to implement the new PRIME Auction
transaction fees and rebates beginning August 8, 2014.\7\
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\7\ MIAX initially filed its fees for PRIME on August 6, 2014
(SR-MIAX-2014-43). On August 15, 2014, MIAX withdrew that filing and
submitted this filing.
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2. Statutory Basis
The Exchange believes that its proposal to amend its fee schedule
is consistent with Section 6(b) of the Act \8\ in general, and furthers
the objectives of Section 6(b)(4) of the Act \9\ in particular, in that
it is an equitable allocation of reasonable fees and other charges
among Exchange members.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that the proposed fee structure for PRIME
Auction transaction fees is reasonable, equitable and not unfairly
discriminatory. The proposed fee
[[Page 52787]]
structure is reasonably designed because it will incent market
participants to send order flow to the Exchange in order to participate
in the price improvement mechanism 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 fees and rebates are within
the range of fees and rebates assessed by other exchanges employing
similar fee structures for price improvement mechanisms.\10\ Other
competing exchanges offer different fees and rebates for agency orders,
contra-side order, and responders to the auction in a manner similar to
the proposal.\11\ Other competing exchanges also charge different rates
for transactions in their price improvement mechanisms for customers
versus their non-customers in a manner similar to the proposal.\12\ As
proposed, all applicable fees and rebates are within the range of fees
and rebates for executions in price improvement mechanisms assessed by
other exchanges employing similar fee structures for price improvement
mechanisms.
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\10\ See e.g., NYSE Amex Options Fee Schedule, p. 7;
International Securities Exchange LLC Schedule of Fees, p. 6; BOX
Options Exchange Fee Schedule, p. 1.
\11\ Id.
\12\ Id.
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The fee structure is reasonable, equitable, and not unfairly
discriminatory because it will apply equally amongst all Priority
Customer orders in each category of PRIME Auction participation and it
will also apply equally amongst all non-Priority Customer orders in
each category of PRIME Auction participation. All similarly situated
orders for Priority Customers are subject to the same transaction fee
and rebate schedule. All similarly situated orders for market
participants that are not Priority Customers are subject to the same
transaction fee and rebate schedule, and access to the Exchange is
offered on terms that are not unfairly discriminatory. The Exchange
believes that is equitable and not unfairly discriminatory that
Priority Customers be charged lower fees in PRIME than other market
participants. The exchanges in general have historically aimed to
improve markets for investors and develop various features within
market structure for customer benefit. The Exchange does not assess
Priority Customers transactions fees because Priority Customer order
flow enhances liquidity on the Exchange for the benefit of all market
participants. Priority Customer liquidity benefits all market
participants by providing more trading opportunities, which attracts
Market Makers. An increase in the activity of these market participants
in turn facilitates tighter spreads, which may cause an additional
corresponding increase in order flow from other market participants.
Moreover, the Exchange believes that assessing all other market
participants a higher transaction fee than Priority Customers for PRIME
Order transactions is reasonable, equitable, and not unfairly
discriminatory because these types of market participants are more
sophisticated and have higher levels of order flow activity and system
usage. This level of trading activity draws on a greater amount of
system resources than that of Priority Customers, and thus, generates
greater ongoing operational costs. Further, the Exchange believes that
charging all market participants that are not Priority Customers the
same fee for all [sic] \13\ PRIME transactions is not unfairly
discriminatory as the fees will apply to all these market participants
equally.
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\13\ The Commission notes that non-Priority Customers are not
charged the same fee for all transactions, but rather, the fee
varies based on whether the transaction is in a penny or non-penny
class and whether the non-Priority Customer was participating as a
PRIME Agency Order, Contra-side Order, or a responder in the PRIME
Auction.
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The Exchange believes that it is reasonable for PRIME Orders to be
assessed lower fees than those providing responses. Contra-side Orders
guarantee the PRIME Agency Order, and are subject to market risk during
the time period that the PRIME Agency Order is exposed to other market
participants. The Exchange believes that the Contra-side Order acts as
a critical role in the PRIME as their willingness to guarantee the
PRIME Agency Order is the keystone to the PRIME Agency Order gaining
the opportunity for price improvement.
The Exchange believes that it is equitable and not unfairly
discriminatory to assess fees to responders to the PRIME and credit
another participant to provide incentive for participants to submit
order flow to PRIME. The Exchange believes that it is appropriate to
provide incentives to market participants to direct orders to
participate in PRIME. Further, the Exchange believes that the
transaction fees for responding to the auction will not deter market
participants from providing price improvement.
The Exchange believes that it is reasonable to assess lower
transaction and credit rates to penny option classes than non-penny
option classes. The Exchange believes that options which trade at these
wider spreads merit offering greater inducement [sic] for market
participants. In particular, within the PRIME, option classes that
typically trade in minimum increments of $.05 or $.10 provide greater
opportunity for market participants to offer price improvement. As
such, the Exchange believes that the opportunity for additional price
improvement provided by these wider spreads again merits offering
greater incentive [sic] for market participants to increase the
potential price improvement for customer orders in these transactions.
The Exchange believes that the proposed Priority Customer Rebate
Program rebates for Priority Customer orders submitted into PRIME are
fair, equitable and not unreasonably discriminatory. The rebate 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 proposed rebate program
is fair, equitable, and not unreasonably [sic] discriminatory because
it will apply equally to all Priority Customer orders submitted as a
PRIME Agency Order. 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 rebate 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. 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.
The Exchange believes excluding Priority Customer-to-Priority
Customer Orders, Priority Customer responses,
[[Page 52788]]
contra-side orders, and Priority Customer-to-Priority Customer PRIME
transactions from the number of options contracts executed on the
Exchange by any Member for purposes of the volume thresholds and the
rebate program is reasonable, equitable, and not unfairly
discriminatory because participating Members could otherwise game the
rebate program and volume thresholds by executing excess volumes in
these types of transactions in which no transaction fees are charged on
the Exchange. Further, the Exchange believes that excluding these PRIME
transactions from the volume thresholds is reasonable, equitable, and
not unfairly discriminatory because the volume thresholds and rebate
program was established prior to the introduction of the PRIME Auction
based on non-auction transaction fee and volume calculations. In
contrast, the Exchange proposes to target new volume to the Exchange to
compete with electronic price improvement mechanisms on other
exchanges. The Exchange believes that the new rebate for Priority
Customer agency orders in the PRIME Auction is reasonably designed to
incentivize additional retail customer order flow to the PRIME Auction.
The Exchange further believes that subjecting Priority Customer-to-
Priority Customer Orders to the same treatment as Priority Customer-to-
Priority Customer PRIME transactions is reasonable and not unfairly
discriminatory because these transactions are substantially similar; as
such, they should be subject to similar fees. Participating Members
could otherwise game the rebate program and volume thresholds by
executing excess volumes in these types of transactions in which no
transaction fees are charged on the Exchange.
The Exchange believes that specifying that transaction fees for
responses and the break-up credit will not count towards the Monthly
Firm Fee Cap is reasonable and not unfairly discriminatory because the
fee cap was established prior to the introduction of the PRIME Auction
based on non-auction transaction fee and volume calculations. With the
PRIME Auction, the Exchange proposes to target new volume to the
Exchange to compete with electronic price improvement mechanisms
available on other exchanges. Any transaction fees and volume that
would be executed as part of the PRIME Action was not factored into the
creation of the Exchange's previous Monthly Firm Fee Cap. As such, the
Exchange believes that it is reasonable to exclude responses and the
break-up credit that will result from the PRIME Auction from this cap,
because market participants would not be using the new PRIME Auction in
order to meet the Monthly Firm Fee Cap.
The Exchange believes that specifying that PRIME Order executions
are not subject to marketing fees is reasonable, equitable and not
unfairly discriminatory. The Exchange is seeking to encourage all
participants, including Market Makers, to send PRIME Orders and to
respond to PRIME Auction RFR messages; the Exchange believes that
collecting marketing fees from Market Makers may discourage such
participation. By encouraging as many participants as possible to
respond, the Exchange believes that it will lead to greater
opportunities for price improvement for all PRIME Orders, not just
those entered on behalf of customers. For these reasons, the Exchange
believes that excluding PRIME Orders and responses from the marketing
fees is reasonable, equitable and not unfairly discriminatory. The
Exchange believes that it is equitable and not unfairly discriminatory
to continue to charge a marketing fee if an unrelated order executes in
the PRIME, because that unrelated order is not subject to the
specialized fee structure for PRIME that is designed to incentivize
participation. The market participant receives the benefit of a PRIME
execution and would already expect to be charged a marketing fee that
is no different than the fee the market participant was expecting to
pay trading against unrelated orders outside the auction.
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 will enhance the competiveness of the Exchange relative
to other exchanges that offer their own electronic crossing mechanism.
The Exchange believes that the proposed fees and rebates for
participation in the PRIME Auction are not going to have an impact on
intra-market competition based on the total cost for participants to
transact as respondents to the Auction as compared to the cost for
participants to engage in non-Auction electronic transactions on the
Exchange. As noted above, the Exchange believes that the proposed
pricing for the PRIME Auction is comparable to that of other exchanges
offering similar electronic price improvement mechanisms, and the
Exchange believes that, based on experience with electronic price
improvement crossing mechanisms on other markets, market participants
understand that the price-improving benefits offered by the Auction
justify and offset the transaction costs associated with Auction. To
the extent that there is a difference between non-Auction transactions
and Auction transactions, the Exchange does not believe this difference
will cause participants to refrain from responding to Auctions. In
addition, the Exchange does not believe that the proposed transaction
fees and credits burden competition by creating a disparity of
transaction fees between the PRIME Order and the transaction fees a
responder pays would result in certain participants being unable to
compete with the Contra-side Order. The Exchange expects to see robust
competition within the PRIME Auction, despite the apparent differences
in non-Auction versus Auction responses. 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 establishes a fee structure in a manner that
encourages market participants to direct their order flow, to provide
liquidity, and to attract additional transaction volume to the
Exchange.
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
[[Page 52789]]
institute proceedings to determine whether the proposed rule should be
approved or disapproved.
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\14\ 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-2014-45 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-2014-45. 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-2014-45, and should be
submitted on or before September 25, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-20999 Filed 9-3-14; 8:45 am]
BILLING CODE 8011-01-P