
[Federal Register Volume 79, Number 171 (Thursday, September 4, 2014)]
[Notices]
[Pages 52785-52789]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-20999]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72943; File No. SR-MIAX-2014-45]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change to Amend the MIAX Fee Schedule to Adopt Fees for 
MIAX PRIME

August 28, 2014.
    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on August 15, 2014, Miami International Securities 
Exchange LLC (``MIAX'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``Commission'') a proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the Exchange. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Options Fee 
Schedule.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.miaxoptions.com/filter/wotitle/
rulefiling, 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 adopt 
transaction fees and rebates for Members that participate in the price 
improvement auction (``PRIME Auction'' or ``PRIME'') pursuant to Rule 
515A.\3\ The Exchange intends to implement the PRIME Auction mechanism 
August 8, 2014 and therefore proposes to add PRIME Auction transaction 
fees and rebates to the Fee Schedule so that such fees and rebates will 
be in place once the PRIME Auction mechanism is implemented.
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    \3\ See Exchange Rule 515A. See also Securities Exchange Act 
Release Nos. 71640 (March 4, 2014), 79 FR 13334 (March 10, 2014) 
(SR-MIAX-2014-09) (``Notice''); 72009 (April 23, 2014), 79 FR 24032 
(April 29, 2014) (SR-MIAX-2014-09).
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    PRIME is a process by which a Member may electronically submit for 
execution (``Auction'') an order it represents as agent (``Agency 
Order'') against principal interest and/or an Agency Order against 
solicited interest. The Agency Order is referred to as a PRIME Agency 
Order for purposes of the Fee Schedule. The Member that submits the 
PRIME Agency Order (the ``Initiating Member'') agrees to guarantee the 
execution of the PRIME Agency Order by submitting a contra-side order 
representing principal interest or solicited interest (``Contra-side 
Order'').\4\ When the Exchange receives a properly designated Agency 
Order for Auction processing, a Request for Responses (``RFR'') 
detailing the option, side, size, and initiating price will be sent to 
all subscribers of the Exchange's data feeds. Members may submit 
responses to the RFR (specifying prices and sizes). RFR responses can 
be

[[Page 52786]]

either an Auction or Cancel (``AOC'') order or an AOC eQuote.\5\
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    \4\ The paired order submitted to PRIME that includes both the 
PRIME Agency Order and the Contra-side Order is referred to as the 
PRIME Order for purposes of the Fee Schedule.
    \5\ See Exchange Rules 515A(a)(2)(i)(D), 516(b)(4), 
517(a)(2)(ii).
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    As described above, there are three ways to participate in a PRIME 
Auction: (i) As an Agency Order, also known as a PRIME Agency Order; 
(ii) as the Contra-side Order guaranteeing the execution of the PRIME 
Order; and (iii) any RFR response in the form of an AOC order or AOC 
eQuote.
    The Exchange proposes to charge the following transaction fees for 
participation in the PRIME Auction:

----------------------------------------------------------------------------------------------------------------
                                                            PRIME Order             Responder to PRIME Auction
                                                 ---------------------------------------------------------------
          Types of market participants             Per contract    Per contract    Per contract    Per contract
                                                  fee for agency  fee for contra-  fee for penny   fee for non-
                                                       order        side order        Classes      penny classes
----------------------------------------------------------------------------------------------------------------
Priority Customer...............................           $0.00           $0.00           $0.45           $0.90
Public Customer That Is Not a Priority Customer.            0.30            0.05            0.45            0.90
MIAX Market Maker...............................            0.30            0.05            0.45            0.90
Non-MIAX Market Maker...........................            0.30            0.05            0.45            0.90
Non-Member Broker-Dealer........................            0.30            0.05            0.45            0.90
Firm............................................            0.30            0.05            0.45            0.90
----------------------------------------------------------------------------------------------------------------

    The Exchange also proposes to adopt the following rebates to be 
paid to the Initiating Member for each PRIME Order contract that trades 
with a PRIME AOC Response:

------------------------------------------------------------------------
                                                  PRIME break-up
                                         -------------------------------
      Types of market participants         Per contract    Per contract
                                            credit for    credit for non-
                                           penny classes   penny classes
------------------------------------------------------------------------
Priority Customer.......................           $0.25           $0.60
Public Customer That Is Not a Priority              0.25            0.60
 Customer...............................
MIAX Market Maker.......................            0.25            0.60
Non-MIAX Market Maker...................            0.25            0.60
Non-Member Broker-Dealer................            0.25            0.60
Firm....................................            0.25            0.60
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    MIAX will apply the PRIME Break-up credit to the EEM that submitted 
the PRIME Order for contracts that are submitted to the PRIME Auction 
that trade with a PRIME AOC Response. The applicable fee for PRIME 
Orders will be applied to any contracts for which a credit is 
provided.\6\ Transaction fees in mini-options will be 1/10th of the 
standard per contract fee or rebate shown above for the PRIME Auction. 
However, the Exchange will assess the standard transaction fees to a 
PRIME AOC Response if they execute against unrelated orders.
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    \6\ For example, BD1 submits a Firm PRIME Order into PRIME for 
100 contracts in a penny options class. 60 contracts trade with MM1 
AOC Response and 40 contracts trade with the Contra-side Order. The 
Exchange would assess the following transaction fees: (i) PRIME 
Agency Order, 100 contracts x $0.30 per contract, plus 60 x $0.25 
break-up credit; (ii) Contra-side Order, 40 contracts x $0.05; and 
(iii) Responder, 60 contracts x $0.45.
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    The Exchange proposes to amend the Priority Customer Rebate Program 
to provide that the Exchange will credit each Member $0.10 per contract 
credit for each Priority Customer order executed as a PRIME Agency 
Order. However, no rebates will be paid if the PRIME Agency Order 
executes against a Contra-side Order which is also a Priority Customer. 
The $0.10 per contract credit would be applied in lieu of the 
applicable credit that would otherwise apply to the transaction based 
on the volume thresholds or whether the options class was a MIAX Select 
Symbol. In addition, the Exchange proposes to exclude from the Priority 
Customer Rebate Program, and the corresponding volume calculation, 
orders that are executed as a Priority Customer-to-Priority Customer 
Order, PRIME AOC Response, and PRIME Contra-side Order.
    The Exchange proposes to provide that transaction fees resulting 
from participation in a PRIME Auction as a PRIME AOC Response, or 
rebates from the PRIME Break-up credit, will not count towards the 
Monthly Firm Fee Cap. Transaction fees from Firm orders that 
participate in the PRIME Auction as a PRIME Agency Order or Contra-side 
Order will count towards the Monthly Firm Fee Cap.
    Finally, the Exchange proposes to add text to clarify that PRIME 
Agency Order, Contra-side Order, or PRIME AOC Response executions will 
not result in the collection of marketing fees. Specifically, the 
Exchange will not assess a marketing fee to Market Makers for contracts 
executed as a PRIME Order or PRIME AOC Response in the PRIME Auction; 
unless, it executes against an unrelated order. Unrelated Market Maker 
orders or quotes that execute against the PRIME Order will still be 
subject to marketing fees.
    The Exchange proposes to implement the new PRIME Auction 
transaction fees and rebates beginning August 8, 2014.\7\
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    \7\ MIAX initially filed its fees for PRIME on August 6, 2014 
(SR-MIAX-2014-43). On August 15, 2014, MIAX withdrew that filing and 
submitted this filing.
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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 \8\ in general, and furthers 
the objectives of Section 6(b)(4) of the Act \9\ in particular, in that 
it is an equitable allocation of reasonable fees and other charges 
among Exchange members.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed fee structure for PRIME 
Auction transaction fees is reasonable, equitable and not unfairly 
discriminatory. The proposed fee

[[Page 52787]]

structure is reasonably designed because it will incent market 
participants to send order flow to the Exchange in order to participate 
in the price improvement mechanism in a manner that enables the 
Exchange to improve its overall competitiveness and strengthen its 
market quality for all market participants. The Program is also 
reasonably designed because the proposed fees and rebates are within 
the range of fees and rebates assessed by other exchanges employing 
similar fee structures for price improvement mechanisms.\10\ Other 
competing exchanges offer different fees and rebates for agency orders, 
contra-side order, and responders to the auction in a manner similar to 
the proposal.\11\ Other competing exchanges also charge different rates 
for transactions in their price improvement mechanisms for customers 
versus their non-customers in a manner similar to the proposal.\12\ As 
proposed, all applicable fees and rebates are within the range of fees 
and rebates for executions in price improvement mechanisms assessed by 
other exchanges employing similar fee structures for price improvement 
mechanisms.
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    \10\ See e.g., NYSE Amex Options Fee Schedule, p. 7; 
International Securities Exchange LLC Schedule of Fees, p. 6; BOX 
Options Exchange Fee Schedule, p. 1.
    \11\ Id.
    \12\ Id.
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    The fee structure is reasonable, equitable, and not unfairly 
discriminatory because it will apply equally amongst all Priority 
Customer orders in each category of PRIME Auction participation and it 
will also apply equally amongst all non-Priority Customer orders in 
each category of PRIME Auction participation. All similarly situated 
orders for Priority Customers are subject to the same transaction fee 
and rebate schedule. All similarly situated orders for market 
participants that are not Priority Customers are subject to the same 
transaction fee and rebate schedule, and access to the Exchange is 
offered on terms that are not unfairly discriminatory. The Exchange 
believes that is equitable and not unfairly discriminatory that 
Priority Customers be charged lower fees in PRIME than other market 
participants. The exchanges in general have historically aimed to 
improve markets for investors and develop various features within 
market structure for customer benefit. The Exchange does not assess 
Priority Customers transactions fees because Priority Customer order 
flow enhances liquidity on the Exchange for the benefit of all market 
participants. Priority Customer liquidity benefits all market 
participants by providing more trading opportunities, which attracts 
Market Makers. An increase in the activity of these market participants 
in turn facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants.
    Moreover, the Exchange believes that assessing all other market 
participants a higher transaction fee than Priority Customers for PRIME 
Order transactions is reasonable, equitable, and not unfairly 
discriminatory because these types of market participants are more 
sophisticated and have higher levels of order flow activity and system 
usage. This level of trading activity draws on a greater amount of 
system resources than that of Priority Customers, and thus, generates 
greater ongoing operational costs. Further, the Exchange believes that 
charging all market participants that are not Priority Customers the 
same fee for all [sic] \13\ PRIME transactions is not unfairly 
discriminatory as the fees will apply to all these market participants 
equally.
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    \13\ The Commission notes that non-Priority Customers are not 
charged the same fee for all transactions, but rather, the fee 
varies based on whether the transaction is in a penny or non-penny 
class and whether the non-Priority Customer was participating as a 
PRIME Agency Order, Contra-side Order, or a responder in the PRIME 
Auction.
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    The Exchange believes that it is reasonable for PRIME Orders to be 
assessed lower fees than those providing responses. Contra-side Orders 
guarantee the PRIME Agency Order, and are subject to market risk during 
the time period that the PRIME Agency Order is exposed to other market 
participants. The Exchange believes that the Contra-side Order acts as 
a critical role in the PRIME as their willingness to guarantee the 
PRIME Agency Order is the keystone to the PRIME Agency Order gaining 
the opportunity for price improvement.
    The Exchange believes that it is equitable and not unfairly 
discriminatory to assess fees to responders to the PRIME and credit 
another participant to provide incentive for participants to submit 
order flow to PRIME. The Exchange believes that it is appropriate to 
provide incentives to market participants to direct orders to 
participate in PRIME. Further, the Exchange believes that the 
transaction fees for responding to the auction will not deter market 
participants from providing price improvement.
    The Exchange believes that it is reasonable to assess lower 
transaction and credit rates to penny option classes than non-penny 
option classes. The Exchange believes that options which trade at these 
wider spreads merit offering greater inducement [sic] for market 
participants. In particular, within the PRIME, option classes that 
typically trade in minimum increments of $.05 or $.10 provide greater 
opportunity for market participants to offer price improvement. As 
such, the Exchange believes that the opportunity for additional price 
improvement provided by these wider spreads again merits offering 
greater incentive [sic] for market participants to increase the 
potential price improvement for customer orders in these transactions.
    The Exchange believes that the proposed Priority Customer Rebate 
Program rebates for Priority Customer orders submitted into PRIME are 
fair, equitable and not unreasonably discriminatory. The rebate program 
is reasonably designed because it will incent providers of Priority 
Customer order flow to send that Priority Customer order flow to the 
Exchange in order to receive a credit in a manner that enables the 
Exchange to improve its overall competitiveness and strengthen its 
market quality for all market participants. The proposed rebate program 
is fair, equitable, and not unreasonably [sic] discriminatory because 
it will apply equally to all Priority Customer orders submitted as a 
PRIME Agency Order. 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 rebate 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. Market participants want to 
trade with Priority Customer order flow. To the extent Priority 
Customer 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 Priority Customer order 
flow. 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.
    The Exchange believes excluding Priority Customer-to-Priority 
Customer Orders, Priority Customer responses,

[[Page 52788]]

contra-side orders, and Priority Customer-to-Priority Customer PRIME 
transactions from the number of options contracts executed on the 
Exchange by any Member for purposes of the volume thresholds and the 
rebate program is reasonable, equitable, and not unfairly 
discriminatory because participating Members could otherwise game the 
rebate program and volume thresholds by executing excess volumes in 
these types of transactions in which no transaction fees are charged on 
the Exchange. Further, the Exchange believes that excluding these PRIME 
transactions from the volume thresholds is reasonable, equitable, and 
not unfairly discriminatory because the volume thresholds and rebate 
program was established prior to the introduction of the PRIME Auction 
based on non-auction transaction fee and volume calculations. In 
contrast, the Exchange proposes to target new volume to the Exchange to 
compete with electronic price improvement mechanisms on other 
exchanges. The Exchange believes that the new rebate for Priority 
Customer agency orders in the PRIME Auction is reasonably designed to 
incentivize additional retail customer order flow to the PRIME Auction. 
The Exchange further believes that subjecting Priority Customer-to-
Priority Customer Orders to the same treatment as Priority Customer-to-
Priority Customer PRIME transactions is reasonable and not unfairly 
discriminatory because these transactions are substantially similar; as 
such, they should be subject to similar fees. Participating Members 
could otherwise game the rebate program and volume thresholds by 
executing excess volumes in these types of transactions in which no 
transaction fees are charged on the Exchange.
    The Exchange believes that specifying that transaction fees for 
responses and the break-up credit will not count towards the Monthly 
Firm Fee Cap is reasonable and not unfairly discriminatory because the 
fee cap was established prior to the introduction of the PRIME Auction 
based on non-auction transaction fee and volume calculations. With the 
PRIME Auction, the Exchange proposes to target new volume to the 
Exchange to compete with electronic price improvement mechanisms 
available on other exchanges. Any transaction fees and volume that 
would be executed as part of the PRIME Action was not factored into the 
creation of the Exchange's previous Monthly Firm Fee Cap. As such, the 
Exchange believes that it is reasonable to exclude responses and the 
break-up credit that will result from the PRIME Auction from this cap, 
because market participants would not be using the new PRIME Auction in 
order to meet the Monthly Firm Fee Cap.
    The Exchange believes that specifying that PRIME Order executions 
are not subject to marketing fees is reasonable, equitable and not 
unfairly discriminatory. The Exchange is seeking to encourage all 
participants, including Market Makers, to send PRIME Orders and to 
respond to PRIME Auction RFR messages; the Exchange believes that 
collecting marketing fees from Market Makers may discourage such 
participation. By encouraging as many participants as possible to 
respond, the Exchange believes that it will lead to greater 
opportunities for price improvement for all PRIME Orders, not just 
those entered on behalf of customers. For these reasons, the Exchange 
believes that excluding PRIME Orders and responses from the marketing 
fees is reasonable, equitable and not unfairly discriminatory. The 
Exchange believes that it is equitable and not unfairly discriminatory 
to continue to charge a marketing fee if an unrelated order executes in 
the PRIME, because that unrelated order is not subject to the 
specialized fee structure for PRIME that is designed to incentivize 
participation. The market participant receives the benefit of a PRIME 
execution and would already expect to be charged a marketing fee that 
is no different than the fee the market participant was expecting to 
pay trading against unrelated orders outside the auction.

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 will enhance the competiveness of the Exchange relative 
to other exchanges that offer their own electronic crossing mechanism. 
The Exchange believes that the proposed fees and rebates for 
participation in the PRIME Auction are not going to have an impact on 
intra-market competition based on the total cost for participants to 
transact as respondents to the Auction as compared to the cost for 
participants to engage in non-Auction electronic transactions on the 
Exchange. As noted above, the Exchange believes that the proposed 
pricing for the PRIME Auction is comparable to that of other exchanges 
offering similar electronic price improvement mechanisms, and the 
Exchange believes that, based on experience with electronic price 
improvement crossing mechanisms on other markets, market participants 
understand that the price-improving benefits offered by the Auction 
justify and offset the transaction costs associated with Auction. To 
the extent that there is a difference between non-Auction transactions 
and Auction transactions, the Exchange does not believe this difference 
will cause participants to refrain from responding to Auctions. In 
addition, the Exchange does not believe that the proposed transaction 
fees and credits burden competition by creating a disparity of 
transaction fees between the PRIME Order and the transaction fees a 
responder pays would result in certain participants being unable to 
compete with the Contra-side Order. The Exchange expects to see robust 
competition within the PRIME Auction, despite the apparent differences 
in non-Auction versus Auction responses. The Exchange notes that it 
operates in a highly competitive market in which market participants 
can readily favor competing venues if they deem fee levels at a 
particular venue to be excessive. In such an environment, the Exchange 
must continually adjust its fees to remain competitive with other 
exchanges and to attract order flow to the Exchange. The Exchange 
believes that the proposed rule change reflects this competitive 
environment because it establishes a fee structure in a manner that 
encourages market participants to direct their order flow, to provide 
liquidity, and to attract additional transaction volume to the 
Exchange.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\14\ At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall

[[Page 52789]]

institute proceedings to determine whether the proposed rule should be 
approved or disapproved.
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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-MIAX-2014-45 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MIAX-2014-45. 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 Number SR-MIAX-2014-45, and should be 
submitted on or before September 25, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-20999 Filed 9-3-14; 8:45 am]
BILLING CODE 8011-01-P


