
[Federal Register Volume 80, Number 88 (Thursday, May 7, 2015)]
[Notices]
[Pages 26306-26310]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-10957]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74857; File No. SR-MIAX-2015-32]


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

May 1, 2015.
    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 April 28, 2015, Miami International Securities Exchange LLC 
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``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 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/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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Fee Schedule to establish 
monthly fees for Internal Distributors and External Distributors of 
MIAX Order Feed

[[Page 26307]]

(``MOR'') data product. The proposed fees are similar to those of 
another options exchange.\3\
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    \3\ See NASDAQ OMX PHLX LLC Pricing Schedule, section IX. The 
Exchange notes that while the proposed fees for Distributors is 
similar to the distributor fees for PHLX Orders; the Exchange does 
not at this time propose to establish the additional $1 per month 
for Non-Professional Subscribers and the $40 per month for 
Professional Subscribers that PHLX charges for PHLX Orders.
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    MOR provides real-time information to enable users to keep track of 
the simple order book for all symbols listed on MIAX.\4\ MOR provides 
real-time data including the limit price, origin, and size of each 
order for the entire order book to its users. It is a compilation of 
data for orders residing on the Exchange's order book for options 
traded on the Exchange that the Exchange provides through a real-time 
data feed. The Exchange updates the information upon receipt of each 
order or change in status to any order resting on the book (e.g., 
routing, trading, or cancelling of the order).
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    \4\ See Securities Exchange Act Release No. 74759 (April 17, 
2015), 80 FR 22749 (April 23, 2015) (SR-MIAX-2015-28).
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    The Exchange proposes to establish monthly fees to Distributors of 
the MOR market data product that receive a feed of data either directly 
from MIAX or indirectly through another entity and then distributes it 
either internally (within that entity) or externally (outside that 
entity). The monthly Distributor Fee charged depends on whether the 
Distributor is an ``Internal Distributor'' \5\ or an ``External 
Distributor''.\6\ The Exchange notes that all Distributors are required 
to execute a MIAX Distributor Agreement. Specifically, the Exchange 
proposes to assess Internal Distributors of MOR $3,000 per month and 
External Distributors of MOR from $3,500 per month. Market Data Fees 
for MOR will be reduced for new Distributors for the first month during 
which they subscribe to MOR, based on the number of trading days that 
have been held during the month prior to the date on which they 
subscribe. Such new Distributors will be assessed a pro-rata percentage 
of the fees described above, which is the percentage of the number of 
trading days remaining in the affected calendar month as of the date on 
which they begin to receive the MOR feed, divided by the total number 
of trading days in the affected calendar month. The proposed fees for 
the MOR data feed are in the range of similar fees found on another 
exchange.\7\
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    \5\ An Internal Distributor is an organization that subscribes 
to the Exchange for the use of MOR, and is permitted by agreement 
with the Exchange to provide MOR data to internal users (i.e., users 
within their own organization).
    \6\ An External Distributor is an organization that subscribes 
to the Exchange for the use of MOR, and is permitted by agreement 
with the Exchange to provide MOR data to both internal users and to 
external users (i.e., users outside of their own organization).
    \7\ See NASDAQ OMX PHLX LLC Pricing Schedule, Section IX.
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    In addition, the Exchange notes that it is making non-substantive 
technical changes to the Fee Schedule to consolidate the market data 
fees in one section and to make corresponding changes to the outline 
numbering.
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 the proposed fees are a reasonable allocation 
of its costs and expenses among its Members and other persons using its 
facilities since it is recovering not only the costs of the data 
distribution infrastructure, but also the costs of designing, 
maintaining, and operating the exchange's transaction execution 
platform and the cost of regulating the exchange to ensure its fair 
operation and maintain investor confidence. Access to the Exchange is 
provided on fair and non-discriminatory terms. The proposed fees for 
MOR are reasonable since they are in the range of similar fees charged 
by another exchange.\10\ The Exchange believes the proposed fees are 
equitable and not unfairly discriminatory because the fee level results 
in a reasonable and equitable allocation of fees amongst External 
Distributors and Internal Distributors for similar services. Moreover, 
the decision as to whether or not to subscribe to MOR is entirely 
optional to all parties. Potential subscribers are not required to 
purchase the MOR market data feed, and the Exchange is not required to 
make the MOR market data feeds available. Subscribers can discontinue 
their use at any time and for any reason, including due to their 
assessment of the reasonableness of fees charged. The allocation of 
fees among subscribers is fair and reasonable because, if the market 
deems the proposed fees to be unfair or inequitable, firms can diminish 
or discontinue their use of this data.
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    \10\ See supra note 3.
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    In adopting Regulation NMS, the Commission granted self-regulatory 
organizations and broker-dealers increased authority and flexibility to 
offer new and unique market data to the public. It was believed that 
this authority would expand the amount of data available to consumers, 
and also spur innovation and competition for the provision of market 
data:

    [E]fficiency is promoted when broker-dealers who do not need the 
data beyond the prices, sizes, market center identifications of the 
NBBO and consolidated last sale information are not required to 
receive (and pay for) such data [sic] when broker-dealers may choose 
to receive (and pay for) additional market data based on their own 
internal analysis of the need for such data.\11\
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    \11\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496 (June 29, 2005).

    By removing ``unnecessary regulatory restrictions'' on the ability 
of exchanges to sell their own data, Regulation NMS advanced the goals 
of the Act and the principles reflected in its legislative history. If 
the free market should determine whether proprietary data is sold to 
broker-dealers at all, it follows that the price at which such data is 
sold should be set by the market as well.
    In July, 2010, Congress adopted H.R. 4173, the Dodd-Frank Wall 
Street Reform and Consumer Protection Act of 2010 (``Dodd-Frank Act''), 
which amended section 19 of the Act. Among other things, section 916 of 
the Dodd-Frank Act amended paragraph (A) of section 19(b)(3) of the Act 
by inserting the phrase ``on any person, whether or not the person is a 
member of the self-regulatory organization'' after ``due, fee or other 
charge imposed by the self-regulatory organization.'' As a result, all 
SRO rule proposals establishing or changing dues, fees or other charges 
are immediately effective upon filing regardless of whether such dues, 
fees or other charges are imposed on members of the SRO, non-members, 
or both. Section 916 further amended paragraph (C) of section 19(b)(3) 
of the Act to read, in pertinent part, ``At any time within the 60-day 
period beginning on the date of filing of such a proposed rule change 
in accordance with the provisions of paragraph (1) [of Section 19(b)], 
the Commission summarily may temporarily suspend the change in the 
rules of the self-regulatory organization made thereby, 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 this title. If the Commission takes such 
action, the Commission shall institute proceedings under paragraph 
(2)(B) [of Section 19(b)] to determine

[[Page 26308]]

whether the proposed rule should be approved or disapproved.''
    The Exchange believes that these amendments to section 19 of the 
Act reflect Congress's intent to allow the Commission to rely upon the 
forces of competition to ensure that fees for market data are 
reasonable and equitably allocated. Although section 19(b) had formerly 
authorized immediate effectiveness for a ``due, fee or other charge 
imposed by the self-regulatory organization,'' the Commission adopted a 
policy and subsequently a rule stating that fees for data and other 
products available to persons that are not members of the self-
regulatory organization must be approved by the Commission after first 
being published for comment. At the time, the Commission supported the 
adoption of the policy and the rule by pointing out that unlike 
members, whose representation in self-regulatory organization 
governance was mandated by the Act, non-members should be given the 
opportunity to comment on fees before being required to pay them, and 
that the Commission should specifically approve all such fees. The 
Exchange believes that the amendment to section 19 reflects Congress's 
conclusion that the evolution of self-regulatory organization 
governance and competitive market structure have rendered the 
Commission's prior policy on non-member fees obsolete. Specifically, 
many exchanges have evolved from member-owned, not-for-profit 
corporations into for-profit, investor-owned corporations (or 
subsidiaries of investor-owned corporations). Accordingly, exchanges no 
longer have narrow incentives to manage their affairs for the exclusive 
benefit of their members, but rather have incentives to maximize the 
appeal of their products to all customers, whether members or non-
members, so as to broaden distribution and grow revenues. Moreover, the 
Exchange believes that the change also reflects an endorsement of the 
Commission's determinations that reliance on competitive markets is an 
appropriate means to ensure equitable and reasonable prices. Simply 
put, the change reflects a presumption that all fee changes should be 
permitted to take effect immediately, since the level of all fees are 
constrained by competitive forces. The Exchange therefore believes that 
the fees for MOR are properly assessed on non-member Distributors.
    The decision of the United States Court of Appeals for the District 
of Columbia Circuit in NetCoalition v. SEC, No. 09-1042 (D.C. Cir. 
2010), although reviewing a Commission decision made prior to the 
effective date of the Dodd-Frank Act, upheld the Commission's reliance 
upon competitive markets to set reasonable and equitably allocated fees 
for market data:

    In fact, the legislative history indicates that the Congress 
intended that the market system `evolve through the interplay of 
competitive forces as unnecessary regulatory restrictions are 
removed' and that the SEC wield its regulatory power `in those 
situations where competition may not be sufficient,' such as in the 
creation of a `consolidated transactional reporting system.' \12\
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    \12\ NetCoalition, at 15 (quoting H.R. Rep. No. 94-229, at 92 
(1975), as reprinted in 1975 U.S.C.C.A.N. 321, 323).

    The court's conclusions about Congressional intent are therefore 
reinforced by the Dodd-Frank Act amendments, which create a presumption 
that exchange fees, including market data fees, may take effect 
immediately, without prior Commission approval, and that the Commission 
should take action to suspend a fee change and institute a proceeding 
to determine whether the fee change should be approved or disapproved 
only where the Commission has concerns that the change may not be 
consistent with the Act.

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

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. Notwithstanding 
its determination that the Commission may rely upon competition to 
establish fair and equitably allocated fees for market data, the 
NetCoalition Court found that the Commission had not, in that case, 
compiled a record that adequately supported its conclusion that the 
market for the data at issue in the case was competitive. The Exchange 
believes that a record may readily be established to demonstrate the 
competitive nature of the market in question.
    There is intense competition between trading platforms that provide 
transaction execution and routing services and proprietary data 
products. Transaction execution and proprietary data products are 
complementary in that market data is both an input and a byproduct of 
the execution service. In fact, market data and trade execution are a 
representative example of joint products with joint costs. The decision 
whether and on which platform to post an order will depend on the 
attributes of the platform where the order can be posted, including the 
execution fees, data quality and price and distribution of its data 
products. Without the prospect of a taking order seeing and reacting to 
a posted order on a particular platform, the posting of the order would 
accomplish little.
    Without trade executions, exchange data products cannot exist. Data 
products are valuable to many end subscribers only insofar as they 
provide information that end subscribers expect will assist them or 
their customers in making trading decisions. The costs of producing 
market data include not only the costs of the data distribution 
infrastructure, but also the costs of designing, maintaining, and 
operating the exchange's transaction execution platform and the cost of 
regulating the exchange to ensure its fair operation and maintain 
investor confidence. The total return that a trading platform earns 
reflects the revenues it receives from both products and the joint 
costs it incurs. Moreover, an exchange's customers view the costs of 
transaction executions and of data as a unified cost of doing business 
with the exchange. A broker-dealer will direct orders to a particular 
exchange only if the expected revenues from executing trades on the 
exchange exceed net transaction execution costs and the cost of data 
that the broker-dealer chooses to buy to support its trading decisions 
(or those of its customers). The choice of data products is, in turn, a 
product of the value of the products in making profitable trading 
decisions. If the cost of the product exceeds its expected value, the 
broker-dealer will choose not to buy it.
    Moreover, as a broker-dealer chooses to direct fewer orders to a 
particular exchange, the value of the product to the broker-dealer 
decreases, for two reasons. First, the product will contain less 
information, because executions of the broker-dealer's orders will not 
be reflected in it. Second, and perhaps more important, the product 
will be less valuable to that broker-dealer because it does not provide 
information about the venue to which it is directing its orders. Data 
from the competing venue to which the broker-dealer is directing orders 
will become correspondingly more valuable.
    Thus, a super-competitive increase in the fees charged for either 
transactions or data has the potential to impair revenues from both 
products. ``No one disputes that competition for order flow is 
`fierce'.'' \13\ However, the existence of fierce competition for order 
flow

[[Page 26309]]

implies a high degree of price sensitivity on the part of broker-
dealers with order flow, since they may readily reduce costs by 
directing orders toward the lowest-cost trading venues. A broker-dealer 
that shifted its order flow from one platform to another in response to 
order execution price differentials would both reduce the value of that 
platform's market data and reduce its own need to consume data from the 
disfavored platform. Similarly, if a platform increases its market data 
fees, the change will affect the overall cost of doing business with 
the platform, and affected broker-dealers will assess whether they can 
lower their trading costs by directing orders elsewhere and thereby 
lessening the need for the more expensive data.
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    \13\ NetCoalition at 24.
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    Analyzing the cost of market data distribution in isolation from 
the cost of all of the inputs supporting the creation of market data 
will inevitably underestimate the cost of the data. Thus, because it is 
impossible to create data without a fast, technologically robust, and 
well-regulated execution system, system costs and regulatory costs 
affect the price of market data. It would be equally misleading, 
however, to attribute all of the exchange's costs to the market data 
portion of an exchange's joint product. Rather, all of the exchange's 
costs are incurred for the unified purposes of attracting order flow, 
executing and/or routing orders, and generating and selling data about 
market activity. The total return that an exchange earns reflects the 
revenues it receives from the joint products and the total costs of the 
joint products.
    Competition among trading platforms can be expected to constrain 
the aggregate return each platform earns from the sale of its joint 
products, but different platforms may choose from a range of possible, 
and equally reasonable, pricing strategies as the means of recovering 
total costs. For example, some platforms may choose to pay rebates to 
attract orders, charge relatively low prices for market information (or 
provide information free of charge) and charge relatively high prices 
for accessing posted liquidity. Other platforms may choose a strategy 
of paying lower rebates (or no rebates) to attract orders, setting 
relatively high prices for market information, and setting relatively 
low prices for accessing posted liquidity. In this environment, there 
is no economic basis for regulating maximum prices for one of the joint 
products in an industry in which suppliers face competitive constraints 
with regard to the joint offering. This would be akin to strictly 
regulating the price that an automobile manufacturer can charge for car 
sound systems despite the existence of a highly competitive market for 
cars and the availability of aftermarket alternatives to the 
manufacturer-supplied system.
    The market for market data products is competitive and inherently 
contestable because there is fierce competition for the inputs 
necessary to the creation of proprietary data and strict pricing 
discipline for the proprietary products themselves. Numerous exchanges 
compete with each other for listings, trades, and market data itself, 
providing virtually limitless opportunities for entrepreneurs who wish 
to produce and distribute their own market data. This proprietary data 
is produced by each individual exchange, as well as other entities, in 
a vigorously competitive market.
    Broker-dealers currently have numerous alternative venues for their 
order flow, including eleven existing options markets. Each SRO market 
competes to produce transaction reports via trade executions. 
Competitive markets for order flow, executions, and transaction reports 
provide pricing discipline for the inputs of proprietary data products. 
The large number of SROs that currently produce proprietary data or are 
currently capable of producing it provides further pricing discipline 
for proprietary data products. Each SRO is currently permitted to 
produce proprietary data products, and many in addition to MIAX 
currently do, including NASDAQ, CBOE, ISE, NYSE Amex, and NYSEArca. 
Additionally, order routers and market data vendors can facilitate 
single or multiple broker-dealers' production of proprietary data 
products. The potential sources of proprietary products are virtually 
limitless.
    Market data vendors provide another form of price discipline for 
proprietary data products because they control the primary means of 
access to end subscribers. Vendors impose price restraints based upon 
their business models. For example, vendors such as Bloomberg and 
Thomson Reuters that assess a surcharge on data they sell may refuse to 
offer proprietary products that end subscribers will not purchase in 
sufficient numbers. Internet portals, such as Google, impose a 
discipline by providing only data that will enable them to attract 
``eyeballs'' that contribute to their advertising revenue. Retail 
broker-dealers, such as Schwab and Fidelity, offer their customers 
proprietary data only if it promotes trading and generates sufficient 
commission revenue. Although the business models may differ, these 
vendors' pricing discipline is the same: They can simply refuse to 
purchase any proprietary data product that fails to provide sufficient 
value. The Exchange and other producers of proprietary data products 
must understand and respond to these varying business models and 
pricing disciplines in order to market proprietary data products 
successfully.
    In addition to the competition and price discipline described 
above, the market for proprietary data products is also highly 
contestable because market entry is rapid, inexpensive, and profitable. 
The history of electronic trading is replete with examples of entrants 
that swiftly grew into some of the largest electronic trading platforms 
and proprietary data producers: Archipelago, BATS Trading and Direct 
Edge. Regulation NMS, by deregulating the market for proprietary data, 
has increased the contestability of that market. While broker-dealers 
have previously published their proprietary data individually, 
Regulation NMS encourages market data vendors and broker-dealers to 
produce proprietary products cooperatively in a manner never before 
possible. Multiple market data vendors already have the capability to 
aggregate data and disseminate it on a profitable scale, including 
Bloomberg, and Thomson Reuters.
    The Court in NetCoalition concluded that the Commission had failed 
to demonstrate that the market for market data was competitive based on 
the reasoning of the Commission's NetCoalition order because, in the 
Court's view, the Commission had not adequately demonstrated that the 
proprietary data at issue in the case is used to attract order flow. 
The Exchange believes, however, that evidence not then before the court 
clearly demonstrates that availability of data attracts order flow. Due 
to competition among platforms, the Exchange intends to improve its 
platform data offerings on a continuing basis, and to respond promptly 
to customers' data needs.
    The intensity of competition for proprietary information is 
significant and the Exchange believes that this proposal itself clearly 
evidences such competition. The Exchange is offering MOR in order to 
keep pace with changes in the industry and evolving customer needs. It 
is entirely optional and is geared towards attracting new Member 
Applicants and customers. MIAX competitors continue to create new 
market data products and innovative pricing in this space. The Exchange 
expects to see firms challenge its pricing on the basis of the 
Exchange's explicit fees being higher than the zero-priced fees from 
other competitors such as BATS. In all cases, the Exchange

[[Page 26310]]

expects firms to make decisions on how much and what types of data to 
consume on the basis of the total cost of interacting with MIAX or 
other exchanges. Of course, the explicit data fees are only one factor 
in a total platform analysis. Some competitors have lower transactions 
fees and higher data fees, and others are vice versa. The market for 
this proprietary information is highly competitive and continually 
evolves as products develop and change.

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

    Written comments were neither solicited nor received.

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

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A)(ii) of the Act.\14\ At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.
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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-MIAX-2015-32 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-2015-32. 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 offices 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-2015-32, 
and should be submitted on or before May 28, 2015.

    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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Brent J. Fields,
Secretary.
[FR Doc. 2015-10957 Filed 5-6-15; 8:45 am]
 BILLING CODE 8011-01-P


