[Federal Register Volume 84, Number 187 (Thursday, September 26, 2019)]
[Notices]
[Pages 50862-50869]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-20873]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87041; File No. SR-MIAX-2019-40]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Its Fee Schedule
September 20, 2019.
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 September 10, 2019, 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
[[Page 50863]]
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'').
The Exchange previously filed the proposal on August 30, 2019 (SR-
MIAX-2019-39). That filing has been withdrawn and replaced with the
current filing (SR-MIAX-2019-40).
The text of the proposed rule change is available on the Exchange's
website 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Fee Schedule to: (i) Increase
the Priority Customer Rebate Program (``PCRP'') per contract credit for
Complex Orders \3\ assessable to Members and Affiliates (defined below)
who qualify for the volume thresholds in Tiers 1, 3 and 4 of the PCRP;
(ii) adopt new Initiator rebates for QCC Orders (defined below) for any
Public Customer \4\ that is not a Priority Customer,\5\ MIAX Market
Maker,\6\ non-MIAX Market Maker, non-Member Broker-Dealer, and Firm
(collectively, for the purposes of this filing, ``Professionals'') who
is the Initiator of a QCC transaction and when the contra is an Origin
other than Priority Customer; and (iii) adopt new Initiator rebates for
cQCC Orders (defined below) for any Public Customer that is not a
Priority Customer, MIAX Market Maker, non-MIAX Market Maker, non-Member
Broker-Dealer, and Firm who is the Initiator of a cQCC transaction and
when the contra is an Origin other than Priority Customer.
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\3\ A ``complex order'' is any order involving the concurrent
purchase and/or sale of two or more different options in the same
underlying security (the ``legs'' or ``components'' of the complex
order), for the same account, in a ratio that is equal to or greater
than one-to-three (.333) and less than or equal to three-to-one
(3.00) and for the purposes of executing a particular investment
strategy. Mini-options may only be part of a complex order that
includes other mini-options. Only those complex orders in the
classes designated by the Exchange and communicated to Members via
Regulatory Circular with no more than the applicable number of legs,
as determined by the Exchange on a class-by-class basis and
communicated to Members via Regulatory Circular, are eligible for
processing. A complex order can also be a ``stock-option order'' as
described further, and subject to the limitations set forth, in
Interpretations and Policies .01 of Exchange Rule 518. See Exchange
Rule 518.
\4\ The term ``Public Customer'' means a person that is not a
broker or dealer in securities. See Exchange Rule 100.
\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 Exchange Rule
100.
\6\ The term ``Market Makers'' refers to ``Lead Market Makers'',
``Primary Lead Market Makers'' and ``Registered Market Makers''
collectively. See Exchange Rule 100.
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Background
Under the PCRP, the Priority Customer rebate payment is calculated
from the first executed contract at the applicable threshold per
contract credit with rebate payments made at the highest achieved
volume tier for each contract traded in that month. The percentage
thresholds are calculated based on the percentage of national customer
volume in multiply-listed options classes listed on MIAX entered and
executed over the course of the month (excluding QCC and cQCC Orders,
Priority Customer-to-Priority Customer Orders, C2C and cC2C Orders,
PRIME and cPRIME AOC Responses, PRIME and cPRIME Contra-side Orders,
and PRIME and cPRIME Orders for which both the Agency and Contra-side
Order are Priority Customers). Volume for transactions in both simple
and complex orders are aggregated to determine the appropriate volume
tier threshold applicable to each transaction. Volume is recorded for
and credits are delivered to the Member that submits the order to MIAX.
MIAX aggregates the contracts resulting from Priority Customer orders
transmitted and executed electronically on MIAX from Members and
Affiliates \7\ for purposes of the thresholds described in the PCRP
table. Currently, Members and Affiliates that qualify for the PCRP and
execute Priority Customer non-paired complex volume receive the
following rebates for Complex Orders: (i) $0.00 per contract in Tier 1;
(ii) $0.21 per contract in Tier 2; (iii) $0.24 per contract in Tier 3;
and (iv) $0.25 per contract in Tier 4.\8\
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\7\ For purposes of the MIAX Options Fee Schedule, the term
``Affiliate'' means (i) an affiliate of a Member of at least 75%
common ownership between the firms as reflected on each firm's Form
BD, Schedule A, (``Affiliate''), or (ii) the Appointed Market Maker
of an Appointed EEM (or, conversely, the Appointed EEM of an
Appointed Market Maker). An ``Appointed Market Maker'' is a MIAX
Market Maker (who does not otherwise have a corporate affiliation
based upon common ownership with an EEM) that has been appointed by
an EEM and an ``Appointed EEM'' is an EEM (who does not otherwise
have a corporate affiliation based upon common ownership with a MIAX
Market Maker) that has been appointed by a MIAX Market Maker,
pursuant to the following process. A MIAX Market Maker appoints an
EEM and an EEM appoints a MIAX Market Maker, for the purposes of the
Fee Schedule, by each completing and sending an executed Volume
Aggregation Request Form by email to [email protected] no
later than 2 business days prior to the first business day of the
month in which the designation is to become effective. Transmittal
of a validly completed and executed form to the Exchange along with
the Exchange's acknowledgement of the effective designation to each
of the Market Maker and EEM will be viewed as acceptance of the
appointment. The Exchange will only recognize one designation per
Member. A Member may make a designation not more than once every 12
months (from the date of its most recent designation), which
designation shall remain in effect unless or until the Exchange
receives written notice submitted 2 business days prior to the first
business day of the month from either Member indicating that the
appointment has been terminated. Designations will become operative
on the first business day of the effective month and may not be
terminated prior to the end of the month. Execution data and reports
will be provided to both parties. See Fee Schedule, note 1.
\8\ See Fee Schedule, Section (1)(a)iii.
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Next, a QCC Order is comprised of an order to buy or sell at least
1,000 contracts that is identified as being part of a qualified
contingent trade, coupled with a contra side order to buy or sell an
equal number of contracts.\9\ Currently, the Exchange provides an
Initiator transaction rebate for all types of market participants of
$0.14 per contract for a QCC Order. The rebate is paid to the Member
\10\ that enters the QCC Order into the System,\11\ but is only paid on
the initiating side of the QCC transaction. No rebates are paid for QCC
transactions in which both the
[[Page 50864]]
Initiator and contra-side orders are from Priority Customers. The
Exchange notes that with regard to order entry, the first order
submitted into the System is marked as the initiating side and the
second order is marked as the contra side.
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\9\ A Qualified Contingent Cross Order is comprised of an
originating order to buy or sell at least 1,000 contracts, or 10,000
mini-option contracts, that is identified as being part of a
qualified contingent trade, as that term is defined in
Interpretation and Policy .01 to Rule 516, coupled with a contra-
side order or orders totaling an equal number of contracts. See
Exchange Rule 516(j); see also Fee Schedule, Section (1)(a)vii.
\10\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100.
\11\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
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A cQCC Order is comprised of an initiating complex order to buy or
sell where each component is at least 1,000 contracts that is
identified as being part of a qualified contingent trade, coupled with
a contra-side complex order or orders to sell or buy an equal number of
contracts.\12\ Currently, the Exchange provides an Initiator
transaction rebate for all types of market participants of $0.14 per
contract for a cQCC Order. All fees and rebates are per contract per
leg. Rebates are delivered to the Member that enters the order into the
System, but are only paid on the initiating side of the cQCC
transaction. However, no rebates are paid for cQCC transactions for
which both the Initiator and contra-side orders are Priority Customers.
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\12\ A Complex Qualified Contingent Cross or ``cQCC'' Order is
comprised of an originating complex order to buy or sell where each
component is at least 1,000 contracts that is identified as being
part of a qualified contingent trade, as defined in Rule 516,
Interpretation and Policy .01, coupled with a contra-side complex
order or orders totaling an equal number of contracts. See Exchange
Rule 518(b)(6); see also Fee Schedule, Section (1)(a)viii.
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The Exchange notes that QCC and cQCC Orders are excluded from: (i)
The volume threshold calculations for the Market Maker Sliding Scale;
(ii) the rebates and volume calculations as part of the PCRP; (iii)
participation in the Professional Rebate Program; and (iv) the
Marketing Fee that is assessed to Market Makers in their assigned
classes in simple or complex order executions when the contra-party to
the execution is a Priority Customer.
Proposed Changes
First, the Exchange proposes to amend Section (1)(a)iii of the Fee
Schedule to increase the PCRP per contract credit for Complex Orders
assessable to Members and Affiliates who qualify for the volume
thresholds in Tiers 1, 3 and 4 of the PCRP. The Exchange proposes to
increase the PCRP per contract credit for Complex Orders assessable to
Members and Affiliates who qualify for the volume thresholds in Tier 1
of the PCRP from the current $0.00 per contract to the proposed $0.20
per contract. The Exchange also proposes to increase the PCRP per
contract credit for Complex Orders assessable to Members and Affiliates
who qualify for the volume thresholds in Tiers 3 and 4 of the PCRP
depending on whether (i) the executing buyer and seller are the same
Member or are Affiliates or, (ii) the executing buyer and seller are
not the same Member or are not Affiliates. The Exchange proposes to
increase PCRP per contract credit for Complex Orders assessable to
Members and Affiliates who qualify for the volume threshold in Tier 3
of the PCRP from the current $0.24 per contract to: (i) The proposed
$0.26 per contract when the executing buyer and seller are the same
Member or are Affiliates, or (ii) the proposed $0.27 per contract when
the executing buyer and seller are not the same Member or are not
Affiliates. Similarly, the Exchange proposes to increase PCRP per
contract credit for Complex Orders assessable to Members and Affiliates
who qualify for the volume threshold in Tier 4 of the PCRP from the
current $0.25 per contract to: (i) The proposed $0.27 per contract when
the executing buyer and seller are the same Member or are Affiliates,
or (ii) the proposed $0.28 per contract when the executing buyer and
seller are not the same Member or are not Affiliates.
In order to differentiate between the proposed increased Complex
Order credits for Members and Affiliates who qualify for Tiers 3 and 4
in the PCRP, which are dependent upon whether the executing buyer and
seller are the same Member or Affiliates, the Exchange proposes to
insert two new symbols after the symbol ``**'' \13\ immediately
following the PCRP table of rebates in Section (1)(a)iii of the Fee
Schedule. In particular, the Exchange proposes to adopt new symbol
``K,'' and the following explanatory sentence: ``This rebate is for
executed Priority Customer non-paired Complex Orders when the executing
buyer and seller are the same Member or Affiliates.'' The Exchange also
proposes to adopt new symbol ``[ssquf],'' and the following explanatory
sentence: ``This rebate is for executed Priority Customer non-paired
Complex Orders when the executing buyer and seller are not the same
Member or Affiliates.'' Accordingly, the Exchange proposes to insert
each symbol following the proposed new increased credits for Members
and Affiliates who qualify for Tiers 3 and 4 for Complex Orders in the
PCRP, corresponding to the new proposed rebate in each Tier.
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\13\ See Fee Schedule, Section (1)(a)iii.
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The Exchange believes the proposed changes to increase rebates for
certain Tiers of the PCRP for Complex Orders will encourage market
participants to submit more Priority Customer Complex Orders and
therefore increase Priority Customer order flow, resulting in increased
liquidity which benefits all Exchange participants by providing more
trading opportunities and tighter spreads. The Exchange believes it is
reasonable and appropriate to adopt a higher PCRP per contract credit
for Complex Orders when the executing buyer and seller are not the same
Member or Affiliates (versus when the executing buyer and seller are
the same Member or Affiliates) since the Exchange already offers
certain transaction fee discounts to Members and their Affiliates that
aggregate their order flow on these types of transactions through
various tier-based pricing structures, such as in Section (1)(a)i of
the Fee Schedule for Market Maker transaction fees \14\ and in Section
(1)(a)ii of the Fee Schedule for Other Market Participants transaction
fees.\15\ Accordingly, the Exchange believes it is reasonable,
equitable, and not unfairly discriminatory to offer a higher PCRP per
contract credit for Complex Orders when the executing buyer and seller
are not the same Members or Affiliates, as other fee discount programs
currently exist for the same Members and Affiliates. The Exchange also
notes that at least one other competing exchange similarly provides for
different pricing dependent upon whether the executing buyer and seller
are the same market participant or have some form of common
ownership.\16\
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\14\ See Fee Schedule, Section (1)(a)i.
\15\ See Fee Schedule, Section (1)(a)ii.
\16\ See Nasdaq Options Pricing Schedule, Options 7, Section
2(1), note 2 (Participants that add 1.30% of Customer, Professional,
Firm, Broker-Dealer or Non-NOM Market Maker liquidity in Penny Pilot
Options and/or Non-Penny Pilot Options of total industry customer
equity and ETF option ADV contracts per day in a month will be
subject to the following pricing applicable to executions: A $0.48
per contract Penny Pilot Options Fee for Removing Liquidity when the
Participant is (i) both the buyer and the seller or (ii) the
Participant removes liquidity from another Participant under Common
Ownership. Participants that add 1.50% of Customer, Professional,
Firm, Broker-Dealer or Non-NOM Market Maker liquidity in Penny Pilot
Options and/or Non-Penny Pilot Options of total industry customer
equity and ETF option ADV contracts per day in a month and meet or
exceed the cap for The Nasdaq Stock Market Opening Cross during the
month will be subject to the following pricing applicable to
executions less than 10,000 contracts: A $0.32 per contract Penny
Pilot Options Fee for Removing Liquidity when the Participant is (i)
both the buyer and seller or (ii) the Participant removes liquidity
from another Participant under Common Ownership. Participants that
add 1.75% of Customer, Professional, Firm, Broker-Dealer or Non-NOM
Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot
Options of total industry customer equity and ETF option ADV
contracts per day in a month will be subject to the following
pricing applicable to executions less than 10,000 contracts: A $0.32
per contract Penny Pilot Options Fee for Removing Liquidity when the
Participant is (i) both the buyer and seller or (ii) the Participant
removes liquidity from another Participant under Common Ownership.).
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Next, the Exchange proposes to amend Section (1)(a)vii of the Fee
[[Page 50865]]
Schedule to adopt new Initiator rebates for QCC Orders for any
Professional who is the Initiator of a QCC Order and when the contra is
an Origin other than Priority Customer. In particular, the Exchange
proposes to adopt a new Initiator rebate of $0.27 per contract for a
Public Customer that is not a Priority Customer who is the Initiator of
a QCC Order and when the contra is an Origin other than Priority
Customer. The Exchange also proposes to adopt a new Initiator rebate of
$0.22 per contract for a MIAX Market Maker, Non-MIAX Market Maker, non-
Member Broker-Dealer and Firm that is the Initiator of a QCC Order and
when the contra is an Origin other than Priority Customer. The Exchange
notes that the current Initiator rebate of $0.14 per contract will
continue to apply when a Priority Customer is the Initiator of a QCC
transaction. The Exchange notes that no rebates are paid for QCC
transactions in which both the Initiator and contra-side orders are
from Priority Customers. Pursuant to this proposal, the Exchange would
add a new Initiator rebate column on the right side of the QCC
transaction fees and rebates table in Section (1)(a)vii of the Fee
Schedule. With the proposed changes, the QCC transaction fees and
rebates in Section (1)(a)vii of the Fee Schedule would be as follows:
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QCC Order
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Per contract
rebate for
Types of market participants Per contract initiator when
Per contract fee Per contract fee rebate for contra is origin
for initiator for contra-side initiator other than
priority
customer
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Priority Customer................... $0.00 $0.00 $0.14 $0.14
Public Customer that is Not a 0.15 0.17 0.14 0.27
Priority Customer..................
MIAX Market Maker................... 0.15 0.17 0.14 0.22
Non-MIAX Market Maker............... 0.15 0.17 0.14 0.22
Non-Member Broker-Dealer............ 0.15 0.17 0.14 0.22
Firm................................ 0.15 0.17 0.14 0.22
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Rebates will be delivered to the Member firm that enters the order into the MIAX system, but will only be paid
on the initiating side of the QCC transaction. However, no rebates will be paid for QCC transactions for which
both the initiator and contra-side orders are Priority Customers. A QCC transaction is comprised of an
`initiating order' to buy (sell) at least 1000 contracts or 10,000 mini-option contracts, coupled with a
contra-side order to sell (buy) an equal number of contracts. QCC orders comprised of mini-contracts will be
assessed QCC fees and afforded rebates equal to 10% of the fees and rebates applicable to QCC Orders comprised
of standard option contracts.
Next, the Exchange proposes to amend Section (1)(a)viii of the Fee
Schedule to adopt new Initiator rebates for cQCC Orders for any
Professional who is the Initiator of a cQCC Order and when the contra
is an Origin other than Priority Customer. In particular, the Exchange
proposes to adopt a new Initiator rebate of $0.27 per contract for a
Public Customer that is not a Priority Customer who is the Initiator of
a cQCC Order and when the contra is an Origin other than Priority
Customer. The Exchange also proposes to adopt a new Initiator rebate of
$0.22 per contract for a MIAX Market Maker, non-MIAX Market Maker, non-
Member Broker-Dealer and Firm that is the Initiator of a cQCC Order and
when the contra is an Origin other than Priority Customer. The Exchange
notes that the current Initiator rebate of $0.14 per contract will
continue to apply when a Priority Customer is the Initiator of a cQCC
transaction. The Exchange notes that no rebates are paid for cQCC
transactions in which both the Initiator and contra-side orders are
from Priority Customers. Pursuant to this proposal, the Exchange would
add a new Initiator rebate column on the right side of the cQCC
transaction fees and rebates table in Section (1)(a)viii of the Fee
Schedule. With the proposed changes, the cQCC transaction fees and
rebates in Section (1)(a)viii of the Fee Schedule would be as follows:
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cQCC Order
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Per contract
rebate for
Types of market participants Per contract initiator when
Per contract fee Per contract fee rebate for contra is origin
for initiator for contra-side initiator other than
priority
customer
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Priority Customer................... $0.00 $0.00 $0.14 $0.14
Public Customer that is Not a 0.15 0.17 0.14 0.27
Priority Customer..................
MIAX Market Maker................... 0.15 0.17 0.14 0.22
Non-MIAX Market Maker............... 0.15 0.17 0.14 0.22
Non-Member Broker-Dealer............ 0.15 0.17 0.14 0.22
Firm................................ 0.15 0.17 0.14 0.22
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All fees and rebates are per contract per leg. Rebates will be delivered to the Member firm that enters the
order into the MIAX system, but will only be paid on the initiating side of the cQCC transaction. However, no
rebates will be paid for cQCC transactions for which both the initiator and contra-side orders are Priority
Customers. A cQCC transaction is comprised of an `initiating complex order' to buy (sell) where each component
is at least 1,000 contracts that is identified as being part of a qualified contingent trade, coupled with a
contra-side complex order or orders to sell (buy) an equal number of contracts.
[[Page 50866]]
The purpose of adopting new Initiator rebates for QCC and cQCC
Orders for any Professional who is the Initiator of a QCC or cQCC Order
and when the contra is an Origin other than Priority Customer is for
business and competitive reasons. The Exchange has different net
transaction revenues based on different combinations of Origins and
Contra. For example, when Priority Customer is both the Initiator and
Contra-side, no rebates are paid (for both QCC and cQCC transactions).
This is in the Exchange's current Fee Schedule and in competitors' fee
schedules as well. The Exchange notes that Priority Customers are
generally assessed a $0.00 transaction fee. Accordingly, the Exchange
has made a business decision to adopt the proposed new Initiator
rebates for QCC and cQCC Orders for Professionals when they are the
Initiator of a QCC or cQCC Order and when they trade against an Origin
other than Priority Customer, in order to increase competition and
potentially attract different combinations of additional QCC and cQCC
order flow to the Exchange. The Exchange believes that it is
appropriate to adopt these new Initiator rebates in order to attract
additional QCC and cQCC order flow and grow the Exchange's market share
in this segment, through offering newly structured and higher rebates.
The Exchange also believes it is appropriate to adopt higher Initiator
rebates for QCC and cQCC Orders for Professionals when they trade
against Origins other than Priority Customers, since Priority Customers
are already incentivized by a reduced fee for submitting QCC and cQCC
Orders. The Exchange also notes that other competing exchanges
similarly provide rebates on QCC and cQCC initiating orders.\17\
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\17\ See BOX Fee Schedule, Section I(D)(1) (a $0.14 per contract
rebate will be applied to the Agency Order where at least one party
to the QCC transaction is a Non-Public Customer); see also Cboe Fee
Schedule, ``QCC Rate Table,'' Page 5 (a $0.10 per contract credit
will be delivered to the TPH Firm that enters the order into Cboe
Command but will only be paid on the initiating side of the QCC
transaction); see also NYSE American Options Fee Schedule, Section
I.F (a $0.07 credit is applied to Floor Brokers executing 300,000 or
fewer contracts in a month and a $0.10 credit is applied to Floor
Brokers executing more than 300,000 contracts in a month); see also
Nasdaq ISE Pricing Schedule, Options 7, Section 6, Other Options
Fees and Rebate, A. QCC and Solicitation Rebate (rebates range from
$0.00 to $0.11 per contract).
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The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. In Regulation NMS,
the Commission highlighted the importance of market forces in
determining prices and self-regulatory organization (``SRO'') revenues
and, also, recognized that current regulation of the market system
``has been remarkably successful in promoting market competition in its
broader forms that are most important to investors and listed
companies.'' \18\ There are currently 16 registered options exchanges
competing for order flow. Based on publicly-available information, and
excluding index-based options, no single exchange has exceeded
approximately 15% of the market share of executed volume of multiply-
listed equity and exchange-traded fund (``ETF'') options as of August
26, 2019, for the month of August 2019.\19\ Therefore, no exchange
possesses significant pricing power in the execution of multiple-listed
equity and ETF options order flow. More specifically, for all of July
2019, the Exchange had a total market share of 3.61% of all equity
options and ETF volume.\20\ The Exchange believes that the ever-
shifting market shares among the exchanges from month to month
demonstrates that market participants can shift order flow (as further
described below), or discontinue or reduce use of certain categories of
products, in response to transaction and non-transaction fee changes.
For example, on March 1, 2019, the Exchange filed with the Commission
an immediately effective filing to decrease certain credits assessable
to Members pursuant to the PCRP.\21\ The Exchange experienced a
decrease in total market share between the months of February and March
of 2019. Accordingly, the Exchange believes that the March 1, 2019 fee
change may have contributed to the decrease in the Exchange's market
share and, as such, the Exchange believes competitive forces constrain
options exchange transaction and non-transaction fees.
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\18\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
\19\ The OCC publishes options and futures volume in a variety
of formats, including daily and monthly volume by exchange,
available at: https://www.theocc.com/market-data/volume/default.jsp.
\20\ See id.
\21\ See Securities Exchange Act Release No. 85301 (March 13,
2019), 84 FR 10166 (March 19, 2019) (SR-MIAX-2019-09).
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The Exchange cannot predict with certainty whether any Priority
Customers would avail themselves of the proposed fee changes to the
PCRP, but the Exchange believes that approximately three Members have
the potential to achieve the applicable Tier volume thresholds to
receive the proposed increased Complex Order credits for Members in
Tiers 3 or 4 of the PCRP. Similarly, the Exchange cannot predict with
certainty whether any Professional Customer that is not a Priority
Customer, MIAX Market Maker, non-MIAX Market Maker, non-Member Broker-
Dealer or Firm will initiate a QCC or cQCC transaction to receive the
proposed new Initiator rebates for those types of market participants
of QCC or cQCC transactions when the contra is an Origin other than
Priority Customer. The Exchange does not currently have any Members
that are actively sending QCC or cQCC Orders to the Exchange on a
regular basis. Therefore, no current Members will be impacted by this
proposed change. However, this proposal is intended to encourage
Members to start actively sending QCC or cQCC Orders to the Exchange on
a regular basis.
The proposed rule change is immediately effective upon filing with
the Commission pursuant to Section 19(b)(3)(A) of the Act.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \22\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \23\ in
particular, in that it is an equitable allocation of reasonable 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 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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\22\ 15 U.S.C. 78f(b).
\23\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange believes its proposal to increase the PCRP per
contract credit for Complex Orders assessable to Members and Affiliates
who qualify for the volume thresholds in Tiers 1, 3 and 4 of PCRP and
adopt new Initiator rebates for QCC and cQCC Orders provides for the
equitable allocation of reasonable dues and fees and is not unfairly
discriminatory for the following reasons. First, the Exchange operates
in a highly competitive market. The Commission has repeatedly expressed
its preference for competition over regulatory intervention in
determining prices, products, and services in the securities markets.
In Regulation NMS, the Commission highlighted the importance of market
forces in
[[Page 50867]]
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \24\ There are currently
16 registered options exchanges competing for order flow. Based on
publicly-available information, and excluding index-based options, no
single exchange has exceeded approximately 15% of the market share of
executed volume of multiply-listed equity and ETF options as of August
26, 2019, for the month of August 2019.\25\ Therefore, no exchange
possesses significant pricing power in the execution of multiply-listed
equity and ETF options order flow. More specifically, for all of July
2019, the Exchange had a total market share of 3.61% for all equity
options volume.\26\
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\24\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
\25\ See supra note 19.
\26\ See id.
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The Exchange also believes that the ever-shifting market shares
among the exchanges from month to month demonstrates that market
participants can shift order flow, or discontinue or reduce use of
certain categories of products, in response to transaction and/or non-
transaction fee changes. For example, on March 1, 2019, the Exchange
filed with the Commission an immediately effective filing to decrease
certain credits assessable to Members pursuant to the PCRP.\27\ The
Exchange experienced a decrease in total market share between the
months of February and March of 2019. Accordingly, the Exchange
believes that the March 1, 2019 fee change may have contributed to the
decrease in the Exchange's market share and, as such, the Exchange
believes competitive forces constrain options exchange transaction and
non-transaction fees and market participants can shift order flow based
on fee changes instituted by the exchanges.
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\27\ See supra note 21.
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Second, the Exchange believes its proposal to increase the PCRP per
contract credit for Complex Orders assessable to Members and Affiliates
who qualify for the volume thresholds in Tiers 1, 3 and 4 of PCRP and
adopt new Initiator rebates for QCC and cQCC Orders is an equitable
allocation of reasonable dues and fees pursuant to Section 6(b)(4) of
the Act \28\ because the proposed changes are designed to incentivize
overall Priority Customer and QCC and cQCC order flow, respectively.
The Exchange believes that with the proposed changes, providers of
Priority Customer or QCC and cQCC order flow will be incentivized to
send that order flow to the Exchange in order to obtain the highest
volume threshold or Initiator rebate and receive credits in a manner
that enables the Exchange to improve its overall competitiveness and
strengthen its market quality for all market participants. The Exchange
believes that increased Priority Customer or QCC and cQCC order flow
will attract liquidity providers, which in turn should make the MIAX
marketplace an attractive venue where Market Makers may submit narrow
quotations with greater size, deepening and enhancing the quality of
the MIAX marketplace. This should provide more trading opportunities
and tighter spreads for other market participants and result in a
corresponding increase in order flow from such other market
participants.
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\28\ 15 U.S.C. 78f(b)(4).
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The Exchange believes the proposal to adopt a higher PCRP per
contract credit for Complex Orders when the executing buyer and seller
are not the same Member or Affiliates (versus when the executing buyer
and seller are the same Member or Affiliates) provides for the
equitable allocation of reasonable dues and fees and is not unfairly
discriminatory since the Exchange already offers certain transaction
fee discounts to Members and their Affiliates that aggregate their
order flow on these types of transactions through various tier-based
pricing structures, such as in Section (1)(a)i of the Fee Schedule for
Market Maker transaction fees \29\ and in Section (1)(a)ii of the Fee
Schedule for Other Market Participants transaction fees.\30\
Accordingly, the Exchange believes it is reasonable, equitable, and not
unfairly discriminatory to offer a higher PCRP per contract credit for
Complex Orders when the executing buyer and seller are not the same
Members or Affiliates, as other discount programs currently exist for
the same Member and Affiliates.
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\29\ See supra note 14.
\30\ See supra note 15.
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The Exchange believes the proposal to adopt new Initiator rebates
for QCC and cQCC Orders for any Professional who is the Initiator of a
QCC or cQCC Order and when the contra is an Origin other than Priority
Customer provides for the equitable allocation of reasonable dues and
fees and is not unfairly discriminatory since the Exchange has
different net transaction revenues based on different combinations of
Origins and Contra. For example, when Priority Customer is both the
Initiator and Contra-side, no rebates are paid (for both QCC and cQCC
transactions). This is in the Exchange's current Fee Schedule and in
competitors' fee schedules as well. The Exchange notes that Priority
Customers are generally assessed a $0.00 transaction fee. Accordingly,
the Exchange believes that it is reasonable, equitable, and not
unfairly discriminatory to adopt the proposed new Initiator rebates for
QCC and cQCC Orders for Professionals when they are the Initiator of a
QCC or cQCC Order and when they trade against an Origin other than
Priority Customer, in order to increase competition and potentially
attract different combinations of additional QCC and cQCC order flow to
the Exchange. The Exchange also believes it is reasonable, equitable,
and not unfairly discriminatory to adopt higher Initiator rebates for
QCC and cQCC Orders for Professionals when they trade against Origins
other than Priority Customers, since Priority Customers are already
incentivized by a reduced fee for submitting QCC and cQCC Orders.
The Exchange believes that the proposed rule changes would be an
equitable allocation of reasonable dues and fees and would not permit
unfair discrimination between market participants. The Exchange cannot
predict with certainty whether any Priority Customers would avail
themselves of the proposed fee changes to the PCRP, but the Exchange
believes that approximately three Members have the potential to achieve
the applicable Tier volume thresholds to receive the proposed increased
Complex Order credits for Members in Tiers 3 or 4 of the PCRP.
Similarly, the Exchange cannot predict with certainty whether any
Professional Customer that is not a Priority Customer, MIAX Market
Maker, non-MIAX Market Maker, non-Member Broker-Dealer or Firm will
initiate a QCC or cQCC transaction to receive the proposed new
Initiator rebates for those types of market participants of QCC or cQCC
transaction when the contra is an Origin other than Priority Customer.
The Exchange does not currently have any Members that are actively
sending QCC or cQCC Orders to the Exchange on a regular basis.
Therefore, no current Members will be impacted by this proposed change.
However, this proposal is intended to encourage Members to start
actively sending QCC or cQCC Orders to the Exchange on a regular basis.
The Exchange also believes its proposal is consistent with Section
6(b)(5) of the Act \31\ and is designed to
[[Page 50868]]
prevent fraudulent and manipulative acts and practices, promotes just
and equitable principles of trade, fosters cooperation and coordination
with persons engaged in regulating, clearing, setting, processing
information with respect to, and facilitating transaction in
securities, removes impediments to and perfects the mechanism of a free
and open market and a national market system, and, in general, protects
investors and the public interest; and is not designed to permit unfair
discrimination. This is because the Exchange believes the proposed
changes will incentivize Priority Customer or QCC and cQCC order flow
and an increase in such order flow will bring greater volume and
liquidity, which benefits all market participants by providing more
trading opportunities and tighter spreads. To the extent Priority
Customer, QCC and cQCC 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 order flow.
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\31\ 15 U.S.C. 78f(b)(1) and (b)(5).
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Further, based on the current Tier volume thresholds achieved by
the Exchange's Members and the potential changes going forward as a
result of the proposed fee change to the PCRP, the Exchange believes
that the proposed increase to certain credit amounts for Complex Orders
in the PCRP may result in many Members receiving higher credit amounts
per contract.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\32\ the Exchange
believes that the proposed rule change would not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. Instead, as discussed above, the Exchange believes
that the proposed changes would encourage the submission of additional
liquidity to a public exchange, thereby promoting market depth, price
discovery and transparency and enhancing order execution opportunities
for all market participants. As a result, the Exchange believes that
the proposed change furthers the Commission's goal in adopting
Regulation NMS of fostering integrated competition among orders.
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\32\ 15 U.S.C. 78f(b)(8).
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Intra-Market Competition
The Exchange does not believe that other market participants at the
Exchange would be placed at a relative disadvantage by the proposed
changes to increase the PCRP per contract credit for Complex Orders
assessable to Members and Affiliates who qualify for the volume
thresholds in Tiers 1, 3 and 4 of PCRP, or by the proposed adoption of
the new Initiator rebates for QCC and cQCC Orders. The proposed changes
are designed to attract additional order flow to the Exchange.
Accordingly, the Exchange believes that increasing the PCRP per
contract credit for Complex Orders assessable to Members and Affiliates
who qualify for the volume thresholds in Tiers 1, 3 and 4 of PCRP and
adopting new Initiator rebates for QCC and cQCC Orders will not impose
any burden on competition not necessary or appropriate in furtherance
of the purposes of the Act because it will continue to encourage
Priority Customer or QCC and cQCC Order flow, which will bring greater
volume and liquidity, thereby benefiting all market participants by
providing more trading opportunities and tighter spreads.
Further, based on the current Tier volume thresholds achieved by
the Exchange's Members and the potential changes going forward as a
result of the proposed fee change to the PCRP, the Exchange believes
that the proposed increase to certain credit amounts for Complex Orders
in the PCRP may not result in any Member receiving a lower credit
amount per contract, and may result in three Members receiving a higher
credit amount per contract.
Inter-Market Competition
The Exchange 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. There are currently 16
registered options exchanges competing for order flow. Based on
publicly-available information, and excluding index-based options, no
single exchange has exceeded approximately 15% of the market share of
executed volume of multiply-listed equity and ETF options as of August
26, 2019, for the month of August 2019.\33\ Therefore, no exchange
possesses significant pricing power in the execution of multiply-listed
equity and ETF options order flow. More specifically, for all of July
2019, the Exchange had a total market share of 3.61% for all equity
options volume.\34\ In such an environment, the Exchange must
continually adjust its transaction and non-transaction fees to remain
competitive with other exchanges and to attract order flow. The
Exchange believes that the proposed rule changes reflect this
competitive environment because they modify the Exchange's fees in a
manner that encourages market participants to provide Priority
Customer, QCC and cQCC liquidity and to send order flow to the
Exchange. To the extent this is achieved, all the Exchange's market
participants should benefit from the improved market quality.
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\33\ See supra note 19.
\34\ See id.
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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,\35\ and Rule 19b-4(f)(2) \36\ 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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\35\ 15 U.S.C. 78s(b)(3)(A)(ii).
\36\ 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 Number SR-MIAX-2019-40 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-MIAX-2019-40. This file
number should be included on the subject line if email is used. To help
the
[[Page 50869]]
Commission process and review your comments more efficiently, please
use only one method. The Commission will post all comments on the
Commission's internet website (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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-MIAX-2019-40 and should be submitted on
or before October 17, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
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\37\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-20873 Filed 9-25-19; 8:45 am]
BILLING CODE 8011-01-P