
[Federal Register Volume 78, Number 135 (Monday, July 15, 2013)]
[Notices]
[Pages 42138-42140]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-16817]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69947; File No. SR-MIAX-2013-31]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Adopt a Priority Customer Rebate Program

July 9, 2013.
    Pursuant to 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 27, 2013, Miami International Securities Exchange LLC 
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
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 adopt a Priority Customer 
Rebate Program.
    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 purpose of the proposed rule change is to implement a Priority 
Customer Rebate Program (the ``Program'') for the period beginning July 
1, 2013 and ending September 30, 2013.\3\ The new Priority Customer 
Rebate 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. 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\ The Exchange notes that at the end of the period, the 
Program will expire unless the Exchange files another 19b-4 Rule 
Filing to amend its fees.
    \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.

------------------------------------------------------------------------
  Percentage thresholds of national customer volume in     Per contract
multiply-listed options classes listed on MIAX (Monthly)      credit
------------------------------------------------------------------------
0.00%-0.25%.............................................           $0.00
Above 0.25%-0.50%.......................................            0.10
Above 0.50%-1.00%.......................................            0.11
Above 1.00%-2.00%.......................................            0.12
Above 2.00%.............................................            0.14
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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 July, XYZ will receive a credit of $0.14 for each Priority 
Customer contract executed in the month of July.
    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,\6\ 
and customer posting incentive programs,\7\ 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

[[Page 42139]]

participants and causing a corresponding increase in order flow from 
such other market participants.
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    \6\ See MIAX Fee Schedule, Section 1(b).
    \7\ See NYSE Arca, Inc. Fees Schedule, page 3 (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 proposes limiting 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.\8\ 
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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    \8\ 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 proposes 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 Exchange Rule 1400 from the Program. The Exchange notes 
these exclusions are nearly identical to the ones made by CBOE.\9\ 
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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    \9\ 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.\10\ The Exchange calculates volume 
thresholds on a monthly basis. The proposed rule change is to take 
effect July 1, 2013.
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    \10\ 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 during the limited period that the Program 
will be in effect.
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2. Statutory Basis
    The Exchange believes that its proposal to amend its fee schedule 
is consistent with Section 6(b) of the Act \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 fees 
and other charges among Exchange members.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 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 for a limited period 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 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

[[Page 42140]]

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.\13\ 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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    \13\ 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 rule-comments@sec.gov. Please include 
File No. SR-MIAX-2013-31 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File No. SR-MIAX-2013-31. 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 such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File No. SR-MIAX-2013-31 and should be 
submitted on or before August 5, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-16817 Filed 7-12-13; 8:45 am]
BILLING CODE 8011-01-P


