[Federal Register Volume 79, Number 115 (Monday, June 16, 2014)]
[Notices]
[Pages 34368-34371]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-13930]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72355; File No. SR-MIAX-2014-25]


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

June 10, 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 May 27, 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 Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend its 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 3, 
4, and 5.\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 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.
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    \3\ See Securities Exchange Act Release Nos. 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. 4. 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); (SR-MIAX-2014-26). 
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.

[[Page 34369]]



------------------------------------------------------------------------
                                                                  Per
    Percentage thresholds of national customer volume in       contract
  multiply-listed options classes listed on MIAX (monthly)      credit
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0.00%-0.25%.................................................       $0.00
Above 0.25%-0.35%...........................................        0.10
Above 0.35%-1.25%...........................................        0.15
Above 1.25%-2.00%...........................................        0.17
Above 2.00%.................................................        0.18
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    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 2.5% 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.
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    \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'').
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    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.
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    \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.
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    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.
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    \10\ See CBOE Fee Schedule, page 4. 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.
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    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.
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    \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.
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    The proposed changes will become operative on June 2, 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.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed Priority Customer Rebate 
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 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

[[Page 34370]]

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. 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. As a new 
exchange, 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.
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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-2014-25 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-2014-25. 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-

[[Page 34371]]

2014-25 and should be submitted on or before July 7, 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. 2014-13930 Filed 6-13-14; 8:45 am]
BILLING CODE 8011-01-P