[Federal Register Volume 82, Number 129 (Friday, July 7, 2017)]
[Notices]
[Pages 31668-31671]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-14243]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81063; File No. SR-MIAX-2017-31]


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

June 30, 2017.
    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 June 23, 2017, Miami International Securities 
Exchange LLC (``MIAX Options'' 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 the MIAX Options Fee 
Schedule (the ``Fee Schedule'') to clarify the manner in which the 
Exchange assesses its Options Regulatory Fee (``ORF''), and also to 
align its ORF rule text to rule text recently adopted by the Exchange's 
affiliate, MIAX PEARL, LLC (``MIAX PEARL''), with respect to its 
ORF.\3\
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    \3\ See Securities Exchange Act Release Nos. 80035 (February 14, 
2017), 82 FR 11272 (February 21, 2017) (SR-PEARL-2017-09); 80035 
(March 30, 2017), 82 FR 18045 (April 10, 2017) (SR-PEARL-2017-15); 
80875 (June 7, 2017), 82 FR 27096 (June 13, 2017) (SR-PEARL-2017-
26). The replacement filings did not increase or decrease the amount 
of the ORF, but rather clarified the application of the ORF.
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.miaxoptions.com/rule-filings, 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
    Currently, the Exchange charges an ORF in the amount of $0.0045 per 
contract side. The proposed rule change does not change the amount of 
the ORF, but instead modifies the rule text to clarify how the ORF is 
assessed and collected. The proposed rule change also aligns the ORF 
rule text of the Exchange to rule text recently adopted by the 
Exchange's affiliate, MIAX PEARL, with respect to its ORF.\4\
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    \4\ Id.
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    The per-contract ORF will continue to be assessed by MIAX Options 
to each MIAX Options Member for all options transactions, including 
Mini Options, cleared or ultimately cleared by the Member which are 
cleared by the Options Clearing Corporation (``OCC'')

[[Page 31669]]

in the ``customer'' range, regardless of the exchange on which the 
transaction occurs. The ORF will be collected by OCC on behalf of MIAX 
Options from either (1) a Member that was the ultimate clearing firm 
for the transaction or (2) a non-Member that was the ultimate clearing 
firm where a Member was the executing clearing firm for the 
transaction. The Exchange uses reports from OCC to determine the 
identity of the executing clearing firm and ultimate clearing firm.
    To illustrate how the ORF is assessed and collected, the Exchange 
provides the following set of examples. If the transaction is executed 
on the Exchange and the ORF is assessed, if there is no change to the 
clearing account of the original transaction, then the ORF is collected 
from the Member that is the executing clearing firm for the 
transaction. (The Exchange notes that, for purposes of the Fee 
Schedule, when there is no change to the clearing account of the 
original transaction, the executing clearing firm is deemed to be the 
ultimate clearing firm.) If there is a change to the clearing account 
of the original transaction (i.e., the executing clearing firm ``gives-
up'' or ``CMTAs'' the transaction to another clearing firm), then the 
ORF is collected from the clearing firm that ultimately clears the 
transaction--the ultimate clearing firm. The ultimate clearing firm may 
be either a Member or non-Member of the Exchange. If the transaction is 
executed on an away exchange and the ORF is assessed, then the ORF is 
collected from the ultimate clearing firm for the transaction. Again, 
the ultimate clearing firm may be either a Member or non-Member of the 
Exchange. The Exchange notes, however, that when the transaction is 
executed on an away exchange, the Exchange does not assess the ORF when 
neither the executing clearing firm nor the ultimate clearing firm is a 
Member (even if a Member is ``given-up'' or ``CMTAed'' and then such 
Member subsequently ``gives-up'' or ``CMTAs'' the transaction to 
another non-Member via a CMTA reversal). Finally, the Exchange will not 
assess the ORF on outbound linkage trades, whether executed at the 
Exchange or an away exchange. ``Linkage trades'' are tagged in the 
Exchange's system, so the Exchange can readily tell them apart from 
other trades. A customer order routed to another exchange results in 
two customer trades, one from the originating exchange and one from the 
recipient exchange. Charging ORF on both trades could result in double-
billing of ORF for a single customer order, thus the Exchange will not 
assess ORF on outbound linkage trades in a linkage scenario. This 
assessment practice is identical to the assessment practice currently 
utilized by the Exchange's affiliate, MIAX PEARL.
    As a practical matter, when a transaction that is subject to the 
ORF is not executed on the Exchange, the Exchange lacks the information 
necessary to identify the order entering member for that transaction. 
There are countless order entering market participants, and each day 
such participants can and often do drop their connection to one market 
center and establish themselves as participants on another. For these 
reasons, it is not possible for the Exchange to identify, and thus 
assess fees such as an ORF, on order entering participants on away 
markets on a given trading day. Clearing members, however, are 
distinguished from order entering participants because they remain 
identified to the Exchange on information the Exchange receives from 
OCC regardless of the identity of the order entering participant, their 
location, and the market center on which they execute transactions. 
Therefore, the Exchange believes it is more efficient for the operation 
of the Exchange and for the marketplace as a whole to collect the ORF 
from clearing members.
    As discussed below, the Exchange believes it is appropriate to 
charge the ORF only to transactions that clear as customer at the OCC. 
The Exchange believes that its broad regulatory responsibilities with 
respect to a Member's activities supports applying the ORF to 
transactions cleared but not executed by a Member. The Exchange's 
regulatory responsibilities are the same regardless of whether a Member 
enters a transaction or clears a transaction executed on its behalf. 
The Exchange regularly reviews all such activities, including 
performing surveillance for position limit violations, manipulation, 
front-running, contrary exercise advice violations and insider trading. 
These activities span across multiple exchanges.
    The ORF is designed to recover a material portion of the costs to 
the Exchange of the supervision and regulation of Members' customer 
options business, including performing routine surveillances and 
investigations, as well as policy, rulemaking, interpretive and 
enforcement activities. The Exchange believes that revenue generated 
from the ORF, when combined with all of the Exchange's other regulatory 
fees and fines, will cover a material portion, but not all, of the 
Exchange's regulatory costs. The Exchange notes that its regulatory 
responsibilities with respect to Member compliance with options sales 
practice rules have been allocated to the Financial Industry Regulatory 
Authority (``FINRA'') under a 17d-2 Agreement. The ORF is not designed 
to cover the cost of options sales practice regulation.
    The Exchange will continue to monitor the amount of revenue 
collected from the ORF to ensure that it, in combination with its other 
regulatory fees and fines, does not exceed the Exchange's total 
regulatory costs. The Exchange will continue to monitor MIAX Options 
regulatory costs and revenues at a minimum on a semi-annual basis. If 
the Exchange determines regulatory revenues exceed or are insufficient 
to cover a material portion of its regulatory costs, the Exchange will 
adjust the ORF by submitting a fee change filing to the Commission. The 
Exchange will notify Members of adjustments to the ORF via regulatory 
circular at least 30 days prior to the effective date of the change.
    The Exchange believes it is reasonable and appropriate for the 
Exchange to charge the ORF for options transactions regardless of the 
exchange on which the transactions occur. The Exchange has a statutory 
obligation to enforce compliance by Members and their associated 
persons under the Act and the rules of the Exchange and to surveil for 
other manipulative conduct by market participants (including non-
Members) trading on the Exchange. The Exchange cannot effectively 
surveil for such conduct without looking at and evaluating activity 
across all options markets. Many of the Exchange's market surveillance 
programs require the Exchange to look at and evaluate activity across 
all options markets, such as surveillance for position limit 
violations, manipulation, front-running and contrary exercise advice 
violations/expiring exercise declarations. While much of this activity 
relates to the execution of orders, the ORF is assessed on and 
collected from clearing firms. The Exchange, because it lacks access to 
information on the identity of the entering firm for executions that 
occur on away markets, believes it is appropriate to assess the ORF on 
its Members' clearing activity, based on information the Exchange 
receives from OCC, including for away market activity. Among other 
reasons, doing so better and more accurately captures activity that 
occurs away from the Exchange over which the Exchange has a degree of 
regulatory responsibility. In so doing, the Exchange believes that 
assessing ORF on Member clearing firms equitably distributes the 
collection of ORF in a fair and reasonable manner.

[[Page 31670]]

Also, the Exchange and the other options exchanges are required to 
populate a consolidated options audit trail (``COATS'') \5\ system in 
order to surveil a Member's activities across markets.
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    \5\ COATS effectively enhances intermarket options surveillance 
by enabling the options exchanges to reconstruct the market promptly 
to effectively surveil certain rules.
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    In addition to its own surveillance programs, the Exchange works 
with other SROs and exchanges on intermarket surveillance related 
issues. Through its participation in the Intermarket Surveillance Group 
(``ISG''),\6\ the Exchange shares information and coordinates inquiries 
and investigations with other exchanges designed to address potential 
intermarket manipulation and trading abuses. The Exchange's 
participation in ISG helps it to satisfy the requirement that it has 
coordinated surveillance with markets on which security futures are 
traded and markets on which any security underlying security futures 
are traded to detect manipulation and insider trading.\7\
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    \6\ ISG is an industry organization formed in 1983 to coordinate 
intermarket surveillance among the SROs by co-operatively sharing 
regulatory information pursuant to a written agreement between the 
parties. The goal of the ISG's information sharing is to coordinate 
regulatory efforts to address potential intermarket trading abuses 
and manipulations.
    \7\ See Section 6(h)(3)(I) of the Act.
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    The Exchange believes that charging the ORF across markets will 
avoid having Members direct their trades to other markets in order to 
avoid the fee and to thereby avoid paying for their fair share for 
regulation. If the ORF did not apply to activity across markets then a 
Member would send their orders to the least cost, least regulated 
exchange. Other exchanges do impose a similar fee on their member's 
activity,\8\ including the activity of those members on MIAX PEARL.\9\
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    \8\ Similar regulatory fees have been instituted by Nasdaq PHLX 
(See Securities Exchange Act Release No. 61133 (December 9, 2009), 
74 FR 66715 (December 16, 2009) (SR-Phlx-2009-100)); Nasdaq ISE (See 
Securities Exchange Act Release No. 61154 (December 11, 2009), 74 FR 
67278 (December 18, 2009) (SR-ISE-2009-105)); and Nasdaq GEMX (See 
Securities Exchange Act Release No. 70200 (August 14, 2013) 78 FR 
51242 (August 20, 2013) (SR-Topaz-2013-01)).
    \9\ See supra note 3.
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    The Exchange notes that there is established precedent for an SRO 
charging a fee across markets, namely, FINRAs Trading Activity Fee \10\ 
and the NYSE MKT, NYSE Arca, CBOE, Nasdaq PHLX, Nasdaq ISE, Nasdaq GEMX 
and BOX ORF. While the Exchange does not have all the same regulatory 
responsibilities as FINRA, the Exchange believes that, like other 
exchanges that have adopted an ORF, its broad regulatory 
responsibilities with respect to a Member's activities, irrespective of 
where their transactions take place, supports a regulatory fee 
applicable to transactions on other markets. Unlike FINRA's Trading 
Activity Fee, the ORF would apply only to a Member's customer options 
transactions.
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    \10\ See Securities Exchange Act Release No. 47946 (May 30, 
2003), 68 FR 34021 (June 6, 2003) (SR-NASD-2002-148).
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    Additionally, the Exchange specifies in the Fee Schedule that the 
Exchange may only increase or decrease the ORF semi-annually, and any 
such fee change will be effective on the first business day of February 
or August. In addition to submitting a proposed rule change to the 
Commission as required by the Act to increase or decrease the ORF, the 
Exchange will notify participants via a Regulatory Circular of any 
anticipated change in the amount of the fee at least 30 calendar days 
prior to the effective date of the change. The Exchange believes that 
by providing guidance on the timing of any changes to the ORF, the 
Exchange would make it easier for participants to ensure their systems 
are configured to properly account for the ORF.
2. Statutory Basis
    The Exchange believes that its proposal to amend its fee schedule 
is consistent with Section 6(b) of the Act \11\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \12\ in 
particular, in that it is an equitable allocation of reasonable dues, 
fees, and other charges among its members and issuers and other persons 
using its facilities. The Exchange also believes the proposal furthers 
the objectives of Section 6(b)(5) of the Act \13\ in that it is 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general to protect investors and the 
public interest and is not designed to permit unfair discrimination 
between customers, issuers, brokers and dealers.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4).
    \13\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposed clarifications in the Fee 
Schedule to the ORF furthers the objectives of Section 6(b)(4) of the 
Act and are equitable and reasonable since they expressly describe the 
Exchange's existing practices regarding the manner in which the 
Exchange assesses its ORF.
    The Exchange believes the ORF is equitable and not unfairly 
discriminatory because it is objectively allocated to Members in that 
it is charged to all Members on all their transactions that clear as 
customer at the OCC. Moreover, the Exchange believes the ORF ensures 
fairness by assessing fees to those Members that are directly based on 
the amount of customer options business they conduct. Regulating 
customer trading activity is much more labor intensive and requires 
greater expenditure of human and technical resources than regulating 
non-customer trading activity, which tends to be more automated and 
less labor-intensive. As a result, the costs associated with 
administering the customer component of the Exchange's overall 
regulatory program are materially higher than the costs associated with 
administering the non-customer component (e.g., Member proprietary 
transactions) of its regulatory program.
    The ORF is designed to recover a material portion of the costs of 
supervising and regulating Members' customer options business including 
performing routine surveillances, investigations, examinations, 
financial monitoring, and policy, rulemaking, interpretive, and 
enforcement activities. The Exchange will monitor, on at least a semi-
annual basis the amount of revenue collected from the ORF to ensure 
that it, in combination with its other regulatory fees and fines, does 
not exceed the Exchange's total regulatory costs. The Exchange has 
designed the ORF to generate revenues that, when combined with all of 
the Exchange's other regulatory fees, will be less than or equal to the 
Exchange's regulatory costs, which is consistent with the Commission's 
view that regulatory fees be used for regulatory purposes and not to 
support the Exchange's business side. In this regard, the Exchange 
believes that the current amount of the fee is reasonable.
    The Exchange believes that limiting changes to the ORF to twice a 
year on specific dates with advance notice is reasonable because it 
will give participants certainty on the timing of changes, if any, and 
better enable them to properly account for ORF charges among their 
customers. The Exchange believes that the proposed change is equitable 
and not unfairly discriminatory because it will apply in the same 
manner to all Members that are subject to the ORF and provide them with 
additional advance notice of changes to that fee.
    The Exchange believes that collecting the ORF from non-Members when 
such non-Members ultimately clear the transaction (that is, when the 
non-

[[Page 31671]]

Member is the ``ultimate clearing firm'' for a transaction in which a 
Member was assessed the ORF) is an equitable allocation of reasonable 
dues, fees, and other charges among its members and issuers and other 
persons using its facilities. The Exchange notes that there is a 
material distinction between ``assessing'' the ORF and ``collecting'' 
the ORF. The ORF is only assessed to a Member with respect to a 
particular transaction in which it is either the executing clearing 
firm or ultimate clearing firm. The Exchange does not assess the ORF to 
non-Members. Once, however, the ORF is assessed to a Member for a 
particular transaction, the ORF may be collected from the Member or a 
non-Member, depending on how the transaction is cleared at OCC. If 
there was no change to the clearing account of the original 
transaction, the ORF would be collected from the Member. If there was a 
change to the clearing account of the original transaction and a non-
Member becomes the ultimate clearing firm for that transaction, then 
the ORF will be collected from that non-Member. The Exchange believes 
that this collection practice is reasonable and appropriate, and was 
originally instituted for the benefit of clearing firms that desired to 
have the ORF be collected from the clearing firm that ultimately clears 
the transaction.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The ORF is not 
intended to have any impact on competition. Rather, it is designed to 
enable the Exchange to recover a material portion of the Exchange's 
cost related to its regulatory activities. The Exchange is obligated to 
ensure that the amount of regulatory revenue collected from the ORF, in 
combination with its other regulatory fees and fines, does not exceed 
regulatory costs. Unilateral action by MIAX Options in establishing 
fees for services provided to its Members and others using its 
facilities will not have an impact on competition. In the highly 
competitive environment for equity options trading, MIAX Options does 
not have the market power necessary to set prices for services that are 
unreasonable or unfairly discriminatory in violation of the Act. The 
Exchange's ORF, as described herein, is comparable to fees charged by 
other options exchanges for the same or similar services. The Exchange 
believes that limiting the changes to the ORF to twice a year on 
specific dates with advance notice is not intended to address a 
competitive issue but rather to provide Members with better notice of 
any change that the Exchange may make to the ORF.

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\ and Rule 19b-4(f)(2) \15\ thereunder. 
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).
    \15\ 17 CFR 240.19b-4(f)(2).
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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 No. SR-MIAX-2017-31 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 No. SR-MIAX-2017-31. 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 No. SR-MIAX-2017-31, and should be 
submitted on or before July 28, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2017-14243 Filed 7-6-17; 8:45 am]
 BILLING CODE 8011-01-P