[Federal Register Volume 78, Number 154 (Friday, August 9, 2013)]
[Notices]
[Pages 48742-48744]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-19259]



[[Page 48742]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70109; File No. SR-MIAX-2013-38]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend the MIAX Options Fee Schedule

August 5, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on July 23, 2013, Miami International Securities Exchange LLC 
(``Exchange'' or ``MIAX'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Options Fee 
Schedule (the ``Fee Schedule'') to allow certain Lead Market Makers 
(``LMMs'') to be allocated Marketing Fees for orders directed to that 
LMM.
    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 its marketing fee.\3\ The marketing 
fee is assessed on certain transactions of all Market Makers.\4\ The 
funds collected via this marketing fee are then put into pools 
controlled by Primary Lead Market Makers (``PLMMs'') and LMMs. The PLMM 
or LMM controlling a certain pool of funds can then determine the 
Electronic Exchange Member(s) (``EEM'') to which the funds should be 
directed in order to encourage such EEM(s) to send orders to the 
Exchange. In accordance with Exchange Rule 514, an EEM can designate an 
order (``Directed Order'') to a specific LMM.
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    \3\ The proposal is based on a substantially similar filing by 
the Chicago Board Options Exchange, Incorporated. See Securities 
Exchange Act Release No. 68131 (November 1, 2012), 77 FR 67032 
(November 8, 2012) (SR-CBOE-2012-101).
    \4\ See MIAX Options Fee Schedule, Section (1)(b), entitled 
Marketing Fee for more detail regarding the marketing fee. The 
Exchange is also proposing [sic] changes to its Directed Order 
program in order to allow LMMs in unassigned options classes to 
receive Directed Orders in a related companion filing SR-MIAX-2013-
20. See Securities Exchange Act Release No. 69507 (May 3, 2013), 78 
FR 27269 (May 9, 2013) (SR-MIAX-2013-20).
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    Currently, Section 1(b) of the Fee Schedule, which relates to the 
marketing fee, states that an LMM will only be given access to 
marketing fee funds generated from a Directed Order if the LMM has an 
appointment in the class in which the Directed Order is received and 
executed. However, other options exchanges allow an LMM (or similar 
position) to have access to the marketing fee funds generated from a 
Directed Order (or similar order type) regardless of whether the LMM 
has an appointment in a class in which the Directed Order is received 
and executed.\5\ The Exchange has determined to offer similar 
functionality on MIAX in order to be on even competitive footing as 
these other exchanges.\6\
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    \5\ See CBOE Fees Schedule, fn. 6; NASDAQ OMX Phlx, LLC 
(``Phlx'') Pricing Schedule, section on Payment for Order Flow Fee; 
NYSE Amex Options Fee Schedule, fn. 10; International Securities 
Exchange, LLC (``ISE'') Schedule of Fees, Section IV(D). None of 
which contain requirements that a PLMM or LMM (or similar position) 
have an appointment in the class in which a Directed Order (or 
similar order type) is received and executed in order to have access 
to the marketing fee funds generated from that Preferred order.
    \6\ See Securities Exchange Act Release No. 69507 (May 3, 2013), 
78 FR 27269 (May 9, 2013) (SR-MIAX-2013-20).
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    The Exchange proposes amending the Fee Schedule to allow qualifying 
LMMs to receive an allocation of marketing fees generated by Directed 
Orders sent to the qualifying LMM. Specifically, the Exchange proposes 
that for an LLM to qualify to be allocated Marketing Fees for Directed 
Orders for an applicable month, the LMM must either: (i) Have an 
appointment in the relevant option class at the time of being directed 
the order; or (ii) for the month preceding the applicable month (the 
``qualifying month'') have an appointment as an LMM for at least ten 
(10) trading days in a minimum of fifty percent (50%) of the option 
classes listed on the Exchange for the entire qualifying month. The 
first prong is a carry-over from the current requirements and thus no 
change is proposed to this means of qualification. The Exchange 
proposes in the second prong a new means of qualifying for allocation 
of marketing fees, one which would allow qualifying LMMs without an 
appointment in the relevant class access to marketing fees. The 
Exchange designed the additional means of qualifying for access to 
marketing fee funds to be an appropriate counterbalance to the benefit 
of being allocated marketing fees. The Exchange believes that 
qualifying LMMs have demonstrated a commitment to providing liquidity 
on the Exchange through meeting the quoting and other regulatory 
obligations required of an LMM in either the relevant option class or a 
significant portion of option classes traded on the Exchange (i.e., 
50%) for a significant portion of the previous trading month (i.e., 10 
trading days). In contrast, the Exchange proposes that orders directed 
to non-qualifying LMMs be treated similar to non-directed orders and 
the marketing fee be allocated to the PLMM's ``pool.''
    Permitting qualifying LMMs to be allocated marketing fees generated 
from a Directed Order would allow LMMs to encourage greater order flow 
to be sent to the Exchange. This increased order flow would benefit all 
market participants on the Exchange, such as customer orders with 
resting orders on the Exchange and LMMs that have an appointment and 
quote in the relevant option. Allowing qualifying LMMs to be allocated 
marketing fees generated from a Directed Order would provide LMMs with 
an incentive to encourage the routing of order flow into classes in 
which the LMM otherwise would not (such as classes in which the LMM is 
not appointed and quoting). Further, this will also provide LMMs with 
more flexibility to change their appointments, as they will not have to 
be concerned with whether or not they have made arrangements to pay for 
order flow in a

[[Page 48743]]

specific class prior to changing appointments.
    The proposed fee changes are to take effect on August 1, 2013.
2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \7\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \8\ 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 and, in general, to 
protect investors and the public interest.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that this proposal removes a requirement that 
other exchanges do not share and perfects the mechanism for a free and 
open market and a national market system by allowing the Exchange's 
marketing fee program to operate in a manner similar to competing 
options exchanges. In addition, the proposal promotes just and 
equitable principles of trade by encouraging greater order flow to be 
sent to the Exchange through Directed Orders in a manner that will 
benefit all market participants on the Exchange.
    The Exchange also believes that allowing qualifying LMMs to be 
allocated marketing fees generated by a Directed Order is consistent 
with Section 6(b)(4) of the Act \9\ which provides that Exchange rules 
may provide for the equitable allocation of reasonable dues, fees, and 
other charges among its members and other persons using its facilities. 
The proposed change is reasonable because it will allow LMMs greater 
access to marketing fee funds. The proposed change is equitable and not 
unfairly discriminatory because it is designed to allow LMMs to 
encourage greater order flow to be sent to the Exchange. A qualifying 
LMM could be able to amass a greater pool of funds with which to use to 
incent order flow providers to send order flow to the Exchange. This 
increased order flow would benefit all market participants on the 
Exchange. Further, allowing a qualified LMM to access marketing fee 
funds generated from a Directed Order would provide certain LMMs with 
an incentive to encourage the routing of order flow into classes in 
which the LMM otherwise would not (i.e., classes in which the 
qualifying LMM is not appointed and quoting).
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    \9\ 15 U.S.C. 78f(b)(4).
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    Additionally, the Exchange designed the qualifying criteria for 
LMMs, either (i) having an appointment in the relevant option class the 
time of being directed the order or (ii) having an appointment as an 
LMM for at least ten (10) trading days in a minimum of fifty percent 
(50%) of the option classes listed on the Exchange for the entire 
qualifying month, to be an appropriate counterbalance to the benefit of 
being allocated marketing fees. The Exchange believes that qualifying 
LMMs have demonstrated a commitment to providing liquidity on the 
Exchange through meeting the quoting and other regulatory obligations 
required of an LMM in either the specific option class or a significant 
portion of option classes traded on the Exchange (i.e., 50%) and for a 
significant portion of the previous trading month (i.e., 10 trading 
days).
    Lastly, the Exchange believes it to be equitable to treat orders 
directed to non-qualifying LMMs similar to non-directed order and 
allocate any applicable marketing fees to the PLMM's ``pool'' because 
the PLMM faces the highest quoting standard of any Market Maker in the 
relevant option class.

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 rule change would 
place the Exchange on equal footing as other exchanges that allow their 
LMM equivalents to be allocated marketing fees generated by Directed 
Orders, regardless of having an appointment in the relevant option 
class. The Exchange believes that such an even playing field will 
promote competition among options exchanges.
    The Exchange designed the qualifying criteria for LMMs to be an 
appropriate counterbalance to the benefit of being allocated marketing 
fees. The Exchange believes that qualifying LMMs have demonstrated a 
commitment to providing liquidity on the Exchange through meeting the 
quoting and other regulatory obligations required of an LMM in either 
the specific option class or a significant portion of option classes 
traded on the Exchange (i.e., 50%) and for a significant portion of the 
previous trading month (i.e., 10 trading days). The Exchange believes 
that the proposal to treat orders directed to non-qualifying LMMs 
similar to non-directed order and allocate any applicable marketing 
fees to the PLMM's ``pool'' would not create an undue burden on 
competition because the PLMM faces the highest quoting standard of any 
Market Maker in the relevant option class.
    The Exchange notes that it operates in a highly competitive market 
in which market participants can readily direct order flow to competing 
venues who offer similar fee structures. Many competing venues offer 
similar fee structures to market participants. To this end, the 
Exchange is proposing a market enhancement to encourage market 
participants to trade on the Exchange. The Exchange believes the 
proposed rule change is procompetitive because it would enable the 
Exchange to provide member organizations with a fee structure that is 
similar to that of other exchanges.

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.\10\ 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.
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    \10\ 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-2013-38 on the subject line.

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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-2013-38. 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 publicly available. All 
submissions should refer to File Number SR-MIAX-2013-38 and should be 
submitted on or before August 30, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-19259 Filed 8-8-13; 8:45 am]
BILLING CODE 8011-01-P