
[Federal Register Volume 81, Number 68 (Friday, April 8, 2016)]
[Notices]
[Pages 20716-20718]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08042]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77507; File No. SR-MIAX-2016-08]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing of a Proposed Rule Change To Amend the 
Exchange's Amended and Restated By-Laws

April 4, 2016.
    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 March 29, 2016, 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 Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the Exchange's Amended 
and Restated By-Laws.
    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 Amended and Restated By-Laws 
(``By-Laws'') to eliminate the last sentence of Article II, Section 
2.2(d),\3\ the last sentence of Article II, Section 2.2(g)(ii) \4\ and 
the last sentence of Article IV, Section 4.2(b) \5\ as well as the 
defined

[[Page 20717]]

terms set forth in Article I (p) and (oo) \6\ which are used only in 
connection with the foregoing By-Law provisions proposed to be 
eliminated. Article I of the By-Laws will be re-lettered accordingly. 
These By-Law provisions restrict an individual who is a Director,\7\ 
Observer \8\ or committee member of MIAX from also serving as a member 
of the board of directors or similar governing body of a Specified 
Entity and would cause such individual to immediately cease being a 
Director, Observer or committee member, as applicable, of the 
Exchange's Board of Directors (``Board'') upon such individual becoming 
a member of the board of directors or similar governing body of a 
Specified Entity. The term ``Specified Entity'' generally refers to any 
U.S. securities option exchange (or facility thereof) or U.S. 
alternative trading system on which securities options are traded which 
competes with the Exchange, or an affiliate of the foregoing.\9\
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    \3\ Article II, Section 2.2(d) of the By-Laws reads in relevant 
part: In the event a Director appointed after the Effective Date 
becomes a member of the board of directors or similar governing body 
of a Specified Entity, such individual shall immediately cease to be 
a Director of the Company and the resulting vacancy shall be filled 
pursuant to the provisions of Article II, Section 2.2(e).
    \4\ Article II, Section 2.2(g)(ii) of the By-Laws reads in 
relevant part: In the event an individual designated as an Observer 
becomes a member of the board of directors or similar governing body 
of a Specified Entity after the Effective Date, such individual 
shall immediately cease to be an Observer and the resulting vacancy 
shall be filled pursuant to the provisions of Article II, Section 
2.2(e).
    \5\ Article IV, Section 4.2(b) of the By-Laws reads in relevant 
part: In the event a committee member appointed after the Effective 
Date becomes a member of the board of directors or similar governing 
body of a Specified Entity, such individual shall immediately cease 
to be even a committee member and the resulting vacancy shall be 
filled pursuant to the provisions of Article IV.
    \6\ The term ``Specified Entity'' means (i) any U.S. securities 
option exchange (or facility thereof) or U.S. alternative trading 
system on which securities options are traded (other than the 
Company or any of its affiliates) that lists for trading any option 
contract that competes with an Exchange Contract, (ii) any person 
that owns or controls such U.S. securities option exchange or U.S. 
alternative trading system, and (iii) any affiliate of a person 
described in clause (i) or (ii) above. See By-Laws Article I (oo). 
The term ``Exchange Contract'' means a contract that is then listed 
for trading by the Exchange or that is contemplated by the then 
current business plan of the Company to be listed for trading by the 
Exchange within ninety (90) days following such date. See By-Laws 
Article I (p).
    \7\ The term ``Director'' means the persons elected or appointed 
to the [MIAX] Board of Directors from time to time in accordance 
with the LLC Agreement [of MIAX] and these By-Laws in their capacity 
as managers of the Company. See By-Laws Article I (j).
    \8\ The term ``Observer'' means a person invited to attend 
meetings of the [MIAX] Board of Directors in a nonvoting observer 
capacity as further described in Article II, Section 2.2(g)(i)-(iii) 
of the By-Laws. See By-Laws Article II, Section 2.2(g).
    \9\ See supra note 6.
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    This restriction was added to the By-Laws in connection with the 
Equity Rights Program (``ERP'') \10\ established by the Exchange in 
2013.\11\ This prohibition was intended to prevent any potential 
conflicts of interest that might arise by virtue of such MIAX Director, 
Observer or committee member also serving as a member of the governing 
body of a competitor. MIAX has since learned through experience that 
such prohibition is unnecessarily restrictive because (1) any such 
potential conflicts of interest are more effectively and more 
efficiently addressed by other means, and (2) it results in the 
unavailability to MIAX (or to its competitors) of many excellent Board 
(or other governing body) candidates.
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    \10\ Pursuant to the ERP, units representing the right to 
acquire equity in the Exchange's parent holding company, Miami 
International Holdings, Inc., were issued to participating Members 
in exchange for payment of an initial purchase price or the 
prepayment of certain transaction fees and the achievement of 
certain liquidity addition volume thresholds on the Exchange over a 
fixed period of time. The By-Laws were also then amended to 
incorporate rights granted to Members participating in the ERP to 
appoint representation on the MIAX Board.
    \11\ See Securities Exchange Act Release No. 70498 (September 
25, 2013), 78 FR 60348 (October 1, 2013) (SR-MIAX-2013-43) and 
Securities Exchange Act Release No. 71172 (December 23, 2013), 78 FR 
79530 (December 30, 2013) (SR-MIAX-2013-58).
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    MIAX has found that potential conflicts of interest are best 
addressed through such vehicles as the covenant of good faith and fair 
dealing and fiduciary duties applicable to limited liability company 
(``LLC'') managers under the Delaware Limited Liability Company Act 
(``LLC Act'') \12\ and self-regulatory obligations imposed upon 
directors of a self-regulatory organization (``SRO'') such as MIAX 
under the Act,\13\ which generally apply to Directors, Observers and 
committee members of MIAX, as well as the confidentiality agreements 
that MIAX generally enters into with Directors, Observers and committee 
members, By-Law provisions directly addressing potential conflicts of 
interest \14\ and MIAX policies relating to confidentiality of MIAX 
information and addressing the aforementioned fiduciary and other 
obligations of company directors generally and as directors of a SRO. 
MIAX has also found that any potential benefit that could be derived 
from prohibiting a MIAX Director, Observer or committee member from 
also serving as member of a governing body of a competitor is by far 
out-weighed by the loss to MIAX of the experience, knowledge and 
expertise of potential Board members who are disqualified from such 
service simply by virtue of their service as a member of a governing 
body of a competitor. The proposed rule change is designed to enable 
MIAX to engage the best suited and most qualified leaders to serve in 
the capacity of Director, Observer or committee member, regardless of 
their service on the governing body of a competitor.
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    \12\ 6 Del. C. Sec.  18-101 et seq. Fiduciary duties of LLC 
managers include the duty of loyalty (requires managers to serve the 
best interest of the company and avoid conflicts of interest) and 
the duty of care (requires managers to act as a prudent person would 
in similar circumstances).
    \13\ 15 U.S.C. 78 et seq.
    \14\ See By-Laws Article II, Section 2.20.
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    Further, MIAX has reviewed the rules of other U.S. securities 
option exchanges and noted that most other option exchanges do not 
restrict their board (or other governing body) members from sitting on 
the board of directors or other governing body of another options 
exchange.\15\
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    \15\ None of the BATS Exchange, Inc., BOX Options Exchange LLC, 
Chicago Board Options Exchange, Incorporated, Nasdaq OMX PHLX LLC, 
Nasdaq Options Market or International Securities Exchange, LLC have 
such a restriction. Only one U.S. securities options exchange 
restricts those of its directors designated by its founding firm 
members (i.e., investors in its strategic founding transaction) from 
sitting on the board of directors or other governing body of another 
options exchange. See Amended and Restated Limited Liability Company 
Agreement of NYSE Amex Options LLC, Article VIII, 8.1(h). See also 
Securities Exchange Act Release No. 71408 (January 27, 2014), 79 FR 
5481 (January 31, 2014) (SR-NYSEMKT-2014-08) (Exhibit 5A).
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2. Statutory Basis
    MIAX believes that this proposed rule change is consistent with 
Section 6(b) of the Act \16\ in general, and furthers the objectives of 
Sections 6(b)(1) and 6(b)(5) of the Act \17\ in particular, in that it 
enables the Exchange to be so organized as to have the capacity to 
carry out the purposes of the Act and to comply, and to enforce 
compliance by its Members and persons associated with its Members with, 
the provisions of the Act, the rules and regulations thereunder, and 
the rules of the Exchange; and that it is designed to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system and, in general, to protect 
investors and the public interest.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(1) and (b)(5).
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    MIAX is proposing to eliminate the restriction in its By-Laws 
prohibiting a Director, Observer or committee member of the Exchange's 
Board of Directors from simultaneously serving as a member of the 
governing body of a competitor. This proposed rule change is consistent 
with and will facilitate a Board structure and composition by MIAX that 
will strengthen its ability to carry out the purposes of the Act and 
comply with the provisions of the Act and the rules and regulations 
thereunder, and to enforce compliance by Exchange Members and persons 
associated with Exchange Members with the provisions of the Act and the 
rules and regulations thereunder and the rules of the Exchange. This 
proposed rule change is also consistent with the

[[Page 20718]]

protection of investors and the public interest. Specifically, the 
proposed rule change will allow for the selection by MIAX of nominees 
best qualified to serve as Directors, Observers or committee members on 
the Exchange's Board of Directors based on the overall strategic needs 
of the Board, the Exchange and its constituents, regardless of such 
individuals' service as a member of the governing body of a competitor. 
(Conversely, this proposed rule change will also allow for the 
selection by MIAX's competitors of nominees best qualified to serve on 
their governing bodies, regardless of such individuals' service on the 
Exchange's Board). In addition, the proposed rule change will alleviate 
the disruption that might occur if a Director, Observer or committee 
member of MIAX were to become a member of the board of directors or 
similar governing body of a Specified Entity and thereby immediately 
cease to be a Director, Observer or committee member of MIAX, thus 
resulting in the loss of a valuable Director, Observer or committee 
member and a vacancy on the MIAX Board which the Exchange would have to 
divert efforts to refill, and potentially disrupting compliance with 
MIAX's Board composition requirements as set forth in its By-Laws.

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed change to the 
By-Laws relates to the corporate governance of MIAX, and as such, is 
not a competitive filing and does not impose a burden on competition.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

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-2016-08 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-2016-08. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-MIAX-2016-08 and should be 
submitted on or before April 29, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-08042 Filed 4-7-16; 8:45 am]
 BILLING CODE 8011-01-P


