[Federal Register Volume 83, Number 157 (Tuesday, August 14, 2018)]
[Notices]
[Pages 40373-40379]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-17393]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83797; File No. SR-MIAX-2018-22]


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

August 8, 2018.
    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 1, 2018, Miami International Securities 
Exchange LLC (``MIAX Options'' or the ``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 ``Fee Schedule'').
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings, at MIAX's principal 
office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Fee Schedule to (i) increase 
certain fees in certain Tiers for options transactions by MIAX Options 
Market Makers \3\ in standard option classes in the Penny Pilot Program 
\4\ (``Penny classes'') and in standard option classes which are not in 
the Penny Pilot Program (``non-Penny classes'') executed in the complex 
order \5\ book; (ii) increase the per contract surcharge assessed for 
transactions by all market participants, except for Priority 
Customers,\6\ which remove liquidity against a resting Priority 
Customer complex order on the strategy book for options in Penny 
classes and for options in non-Penny classes (``Complex Taker 
Surcharge'') and to broaden the application of the Complex Taker 
Surcharge to other types of transactions (described below) and 
consequently to rename it as the ``Complex Surcharge;'' (iii) increase 
the per contract credit assessable to Agency Orders (defined below) in 
a cPRIME Auction (``cPRIME Agency Order Credit'') by Members \7\ in 
Tier 4 of the Priority Customer Rebate Program (``PCRP'') \8\ and 
establish a limit as to

[[Page 40374]]

how many contracts that the cPRIME Agency Order Credit shall apply; 
(iv) increase the per contract fee for Contra-side Orders (defined 
below) in non-Penny classes in a cPRIME Auction assessable to all 
market participants, except Priority Customers; (v) establish an 
enhanced cPRIME Break-up Credit (defined below) for options in Penny 
classes and non-Penny classes assessable to all market participants who 
experience a greater than sixty percent (60%) break-up of their order 
in a cPRIME Auction; and (vi) remove the discounted cPRIME Response Fee 
(defined below) for Members or its Affiliates that qualify for Priority 
Customer Rebate Program (defined below) volume tiers 3 or higher, for 
standard complex order options in Penny classes and non-Penny classes.
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    \3\ The term ``Market Makers'' refers to Lead Market Makers 
(``LMMs''), Primary Lead Market Makers (``PLMMs''), and Registered 
Market Makers (``RMMs'') collectively. See Exchange Rule 100. A 
Directed Order Lead Market Maker (``DLMM'') and Directed Primary 
Lead Market Maker (``DPLMM'') is a party to a transaction being 
allocated to the LMM or PLMM and is the result of an order that has 
been directed to the LMM or PLMM. See Fee Schedule note 2.
    \4\ See Securities Exchange Act Release No. 83515 (June 25, 
2018), 83 FR 30786 (June 29, 2018) (SR-MIAX-2018-12).
    \5\ A ``complex order'' is any order involving the concurrent 
purchase and/or sale of two or more different options in the same 
underlying security (the ``legs'' or ``components'' of the complex 
order), for the same account, in a ratio that is equal to or greater 
than one-to-three (.333) and less than or equal to three-to-one 
(3.00) and for the purposes of executing a particular investment 
strategy. A complex order can also be a ``stock-option'' order, 
which is an order to buy or sell a stated number of units of an 
underlying security coupled with the purchase or sale of options 
contract(s) on the opposite side of the market, subject to certain 
contingencies set forth in the proposed rules governing complex 
orders. For a complete definition of a ``complex order,'' see 
Exchange Rule 518(a)(5). See also Securities Exchange Act Release 
No. 78620 (August 18, 2016), 81 FR 58770 (August 25, 2016) (SR-MIAX-
2016-26).
    \6\ ``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). A ``Priority 
Customer Order'' means an order for the account of a Priority 
Customer. See Exchange Rule 100.
    \7\ The term ``Member'' means an individual or organization 
approved to exercise the trading rights associated with a Trading 
Permit. Members are deemed ``members'' under the Exchange Act. See 
Exchange Rule 100.
    \8\ Under the PCRP, MIAX Options credits each Member the per 
contract amount resulting from each Priority Customer order 
transmitted by that Member which is executed electronically on the 
Exchange in all multiply-listed option classes (excluding, in simple 
or complex as applicable, QCC and cQCC Orders, mini-options, 
Priority Customer-to-Priority Customer Orders, C2C and cC2C Orders, 
PRIME and cPRIME AOC Responses, PRIME and cPRIME Contra-side Orders, 
PRIME and cPRIME Orders for which both the Agency and Contra-side 
Order are Priority Customers, 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), provided the Member meets certain percentage 
thresholds in a month as described in the Priority Customer Rebate 
Program table. See Fee Schedule, Section 1)a)iii.
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Market Maker Complex Transaction Fees
    Section 1(a)(i) of the Fee Schedule sets forth the Exchange's 
Market Maker Sliding Scale for Market Maker Transaction Fees (the 
``Sliding Scale''). The Sliding Scale assesses a per contract 
transaction fee on a Market Maker for the execution of simple orders 
and quotes (collectively, ``simple orders'') and complex orders and 
quotes (collectively, ``complex orders''). The percentage threshold by 
tier is based on the Market Maker's percentage of total national market 
maker volume in all options classes that trade on the Exchange during a 
particular calendar month, or total aggregated volume (``TAV''), and 
the Exchange aggregates the volume executed by Market Makers in both 
simple orders and complex orders for purposes of determining the 
applicable tier and corresponding per contract transaction fee 
amount.\9\ The Sliding Scale applies to all MIAX Options Market Makers 
for transactions in all products (except for mini-options, for which 
there are separate product fees), with fees for standard options in 
both Penny classes and non-Penny classes.
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    \9\ The calculation of the volume thresholds does not include 
QCC and cQCC Orders, PRIME and cPRIME AOC Responses, and unrelated 
MIAX Market Maker quotes or unrelated MIAX Market Maker orders that 
are received during the Response Time Interval and executed against 
the PRIME Order (``PRIME Participating Quotes or Orders'') and 
unrelated MIAX Market Maker complex quotes or unrelated MIAX Market 
Maker complex orders that are received during the Response Time 
Interval and executed against a cPRIME Order (``cPRIME Participating 
Quote or Order'') (herein ``Excluded Contracts''). See Fee Schedule, 
page 2.
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    Additionally, the Exchange assesses one per contract fee for 
complex orders in each tier for Penny classes, and one per contract fee 
for complex orders in non-Penny classes, with a surcharge for removing 
liquidity in a specific scenario, as described below. For simple 
orders, the Sliding Scale assesses a per contract transaction fee, 
which is based upon whether the Market Maker is a ``Maker'' or a 
``Taker.'' \10\ Members that place resting liquidity, i.e., quotes or 
orders on the MIAX Options System,\11\ are assessed the ``maker'' fee 
(each a ``Maker'') and Members that execute against (remove) resting 
liquidity are assessed a higher ``taker'' fee (each a ``Taker''). As an 
incentive for Market Makers to provide liquidity on the Exchange, the 
Exchange's Maker fees are lower than the Taker fees.
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    \10\ See Securities Exchange Act Release Nos. 78519 (August 9, 
2016), 81 FR 54162 (August 15, 2016)(SR-MIAX-2016-21); 79157 
(October 26, 2016), 81 FR 75885 (November 1, 2016 (SR-MIAX-2016-38).
    \11\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
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    Further, the Exchange provides certain discounted Market Maker 
transaction fees for Members and their qualified Affiliates \12\ that 
achieve certain volume thresholds through the submission of Priority 
Customer orders under the Exchange's PCRP, which is set forth on two 
tables: one setting forth the transaction fees applicable to Members 
and their Affiliates that are in PCRP Volume Tier 3 or higher; and the 
other setting forth the transaction fees applicable to Members and 
their Affiliates that are not in PCRP Volume Tier 3 or higher. The 
Sliding Scale also includes Maker and Taker fees in both tables in each 
Tier for simple orders in Penny classes and non-Penny classes where the 
fees are discounted/differentiated between the tables.
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    \12\ For purposes of the MIAX Options Fee Schedule, the term 
``Affiliate'' means (i) an affiliate of a Member of at least 75% 
common ownership between the firms as reflected on each firm's Form 
BD, Schedule A, (``Affiliate''), or (ii) the Appointed Market Maker 
of an Appointed EEM (or, conversely, the Appointed EEM of an 
Appointed Market Maker). An ``Appointed Market Maker'' is a MIAX 
Market Maker (who does not otherwise have a corporate affiliation 
based upon common ownership with an EEM) that has been appointed by 
an EEM and an ``Appointed EEM'' is an EEM (who does not otherwise 
have a corporate affiliation based upon common ownership with a MIAX 
Market Maker) that has been appointed by a MIAX Market Maker, 
pursuant to the following process. A MIAX Market Maker appoints an 
EEM and an EEM appoints a MIAX Market Maker, for the purposes of the 
Fee Schedule, by each completing and sending an executed Volume 
Aggregation Request Form by email to [email protected] no 
later than 2 business days prior to the first business day of the 
month in which the designation is to become effective. Transmittal 
of a validly completed and executed form to the Exchange along with 
the Exchange's acknowledgement of the effective designation to each 
of the Market Maker and EEM will be viewed as acceptance of the 
appointment. The Exchange will only recognize one designation per 
Member. A Member may make a designation not more than once every 12 
months (from the date of its most recent designation), which 
designation shall remain in effect unless or until the Exchange 
receives written notice submitted 2 business days prior to the first 
business day of the month from either Member indicating that the 
appointment has been terminated. Designations will become operative 
on the first business day of the effective month and may not be 
terminated prior to the end of the month. Execution data and reports 
will be provided to both parties.
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    The Exchange proposes to make the following changes for both 
Members and their Affiliates in PCRP Volume Tier 3 or higher and 
Members and their Affiliates not in PCRP Volume Tier 3 or higher: (i) 
Increase the fees in certain Sliding Scale Tiers for options 
transactions in Penny classes executed in the complex order book; and 
(ii) increase the fees in all Sliding Scale Tiers for options 
transactions in non-Penny classes executed in the complex order book. 
Specifically, the Exchange proposes to increase the fees for complex 
orders in options in Penny classes in Tier 2 from $0.19 to $0.24, in 
Tier 3 from $0.12 to $0.21, in Tier 4 from $0.07 to $0.20, and in Tier 
5 from $0.05 to $0.19. The Exchange also proposes to increase the fees 
for complex orders in options in non-Penny classes in Tier 1 from $0.29 
to $0.32, in Tier 2 from $0.23 to $0.29, in Tier 3 from $0.16 to $0.25, 
in Tier 4 from $0.11 to $0.24, and in Tier 5 from $0.09 to $0.23.
Complex Surcharge
    The Exchange does not currently distinguish between a Maker and a 
Taker for complex order executions as it does in the traditional 
construct for simple orders and instead assesses the per contract 
transaction fee for all executions and a potential surcharge of $0.10 
per executed contract for executions in complex orders. The current 
surcharge is assessed to a Market Maker and all other market 
participants except Priority Customers, when they remove liquidity by 
trading against a Priority Customer order that is resting on the 
Strategy Book.\13\ This surcharge is currently referred to as the

[[Page 40375]]

``Complex Taker Surcharge''. This surcharge is similar in structure to 
Cboe Exchange, Inc. (``Cboe'') and NYSE American LLC (``NYSE 
American'') surcharges of the same type.\14\
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    \13\ The ``Strategy Book'' is the Exchange's electronic book of 
complex orders and complex quotes. See Exchange Rule 518(a)(17).
    \14\ See Cboe Fees Schedule, p. 1, and footnote 35 (charging a 
Complex Surcharge of $0.12 per contract per side for noncustomer 
complex order executions that remove liquidity from the COB and 
auction responses in the Complex Order Auction (``COA'') and the 
Automated Improvement Mechanism (``AIM'') in all classes except 
Sector Indexes and Underlying Symbol List A. The surcharge will not 
be assessed, however, on noncustomer complex order executions 
originating from a Floor Broker PAR, electronic executions against 
single leg markets, or for stock-option order executions. Auction 
responses in COA and AIM for noncustomer complex orders in Penny 
classes will be subject to a cap of $0.50 per contract, which 
includes the applicable transaction fee, Complex Surcharge and 
Marketing Fee (if applicable); see also NYSE American Fee Schedule, 
p. 8, footnote 6 (charging $0.12 per contract to any Electronic Non-
Customer Complex Order that executes against a Customer Complex 
Order, regardless of whether the execution occurs in a Complex Order 
Auction (``COA''). The surcharge does not apply to executions in 
CUBE Auctions. NYSE American reduces this per contract surcharge to 
$0.10 for ATP Holders that achieve at least 0.20% of TCADV of 
Electronic Non-Customer Complex Orders in a month).
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    First, the Exchange proposes to increase the Complex Taker 
Surcharge on MIAX Market Makers in the Sliding Scale for both Members 
and their Affiliates in PCRP Volume Tier 3 or higher, and for Members 
and their Affiliates not in PCRP Volume Tier 3 or higher, in Section 
1)a)i) of the Fee Schedule, from $0.10 to $0.12 in all Tiers. The 
Exchange also proposes to increase the Complex Taker Surcharge on other 
market participants (except for Priority Customers), including Public 
Customers \15\ that are not Priority Customers, non-MIAX Market 
Makers,\16\ non-Member Broker-Dealers,\17\ and Firms \18\ 
(collectively, the ``Other Market Participants'') in Section 1)a)ii) of 
the Fee Schedule, from $0.10 to $0.12.
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    \15\ The term ``Public Customer'' means a person that is not a 
broker or dealer in securities. See Exchange Rule 100.
    \16\ A ``non-MIAX Market Maker'' is a market maker registered as 
such on another options exchange. See Fee Schedule, Section 1)a)ii.
    \17\ A ``non-Member Broker-Dealer'' is a broker-dealer that is 
not a member of the OCC, and that is not registered as a Member at 
MIAX or another options exchange. See Fee Schedule, Section 1)a)ii.
    \18\ A ``Firm'' fee is assessed on a MIAX Electronic Exchange 
Member ``EEM'' that enters an order that is executed for an account 
identified by the EEM for clearing in the Options Clearing 
Corporation (``OCC'') ``Firm'' range. See Fee Schedule, Section 
1)a)ii.
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    Second, the Exchange proposes to broaden the application of the 
Complex Taker Surcharge so that it will now apply to a Market Maker and 
Other Market Participants (other than Priority Customers) when trading 
against a Priority Customer (i) on the Strategy Book; or (ii) as a 
Response or unrelated quote or order in a complex order auction other 
than a cPRIME Auction.
    Exchange Rule 518(d) describes the process for determining if a 
complex order is eligible to begin a Complex Order Auction and to 
participate in a Complex Order Auction that is in progress, and 
provides that upon entry into the System or upon evaluation of a 
complex order resting at the top of the Strategy Book, complex auction-
eligible orders may be subject to an automated request for responses 
(``RFR'').\19\ Members may submit Responses to the RFR, which can be 
either a complex Auction or Cancel (``AOC'') order or a complex AOC 
eQuote.
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    \19\ See Securities Exchange Act Release No. 79072 (October 7, 
2016), 81 FR 71131 (October 14, 2016) (SR-MIAX-2016-26).
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    Exchange Rule 518(b)(7) defines a cPRIME Order as a type of complex 
order that is submitted for participation in a cPRIME Auction and 
trading of cPRIME Orders is governed by Rule 515A, Interpretations and 
Policies .12.\20\ cPRIME Orders are processed and executed in the 
Exchange's PRIME mechanism, the same mechanism that the Exchange uses 
to process and execute simple PRIME orders, pursuant to Exchange Rule 
515A.\21\ PRIME is a process by which a Member may electronically 
submit for execution an order it represents as agent (an ``Agency 
Order'') against principal interest and/or solicited interest. The 
Member that submits the Agency Order (``Initiating Member'') agrees to 
guarantee the execution of the Agency Order by submitting a contra-side 
order representing principal interest or solicited interest (``Contra-
Side Order''). When the Exchange receives a properly designated Agency 
Order for Auction processing, an RFR detailing the option, side, size 
and initiating price is broadcasted to MIAX Options participants up to 
an optional designated limit price. Members may submit responses to the 
RFR, which can be either an AOC order or an AOC eQuote. A cPRIME 
Auction is the price-improvement mechanism of the Exchange's System 
pursuant to which an Initiating Member electronically submits a complex 
Agency Order into a cPRIME Auction. The Initiating Member, in 
submitting an Agency Order, must be willing to either (i) cross the 
Agency Order at a single price against principal or solicited interest, 
or (ii) automatically match against principal or solicited interest, 
the price and size of a RFR that is broadcast to MIAX Options 
participants up to an optional designated limit price. Such responses 
are defined as cPRIME AOC Responses or cPRIME eQuotes.
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    \20\ See Securities Exchange Act Release No. 81131 (July 12, 
2017), 82 FR 32900 (July 18, 2017)(SR-MIAX-2017-19). (Order Granting 
Approval of a Proposed Rule Change to Amend MIAX Options Rules 515, 
Execution of Orders and Quotes; 515A, MIAX Price Improvement 
Mechanism (``PRIME'') and PRIME Solicitation Mechanism; and 518, 
Complex Orders).
    \21\ Id.
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    Specifically, the Exchange proposes to broaden the application of 
the Complex Taker Surcharge so that it will apply to an Electronic 
Exchange Member (``EEM''),\22\ for trading against a Priority Customer 
Complex Order for Penny and Non-Penny Classes, when trading against a 
Priority Customer: (i) On the Strategy Book; or (ii) as a Response or 
unrelated order in a complex order auction other than a cPRIME Auction. 
Consequently, the Exchange proposes to change the name of the surcharge 
from ``Complex Taker Surcharge'' to ``Complex Surcharge'' since the 
surcharge will apply to more complex transactions than just those 
transactions which remove liquidity from the Strategy Book. The 
Exchange notes that both Cboe and NYSE American apply their respective 
surcharges in a more expansive manner than the Exchange's current 
application of its surcharge, and similar to how the Exchange is 
proposing to expand its surcharge. However, Cboe caps its fees at $0.50 
per contract in its complex order auction mechanisms. And NYSE American 
does not assess its surcharge in its paired complex auction mechanism. 
As proposed, the Exchange will apply its surcharge in its single-sided 
complex auction mechanism (COA), but it will not apply the surcharge in 
its paired complex auction mechanism (cPRIME). Accordingly, as proposed 
to be expanded, the Exchange's surcharge will be more in line with 
Cboe's and NYSE American's surcharges, but it will be no more expansive 
than either such exchange.\23\
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    \22\ The term ``Electronic Exchange Member'' means the holder of 
a Trading Permit who is not a Market Maker. Electronic Exchange 
Members are deemed ``members'' under the Exchange Act.
    \23\ See supra note 14.
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    Additionally, the Exchange proposes to remove the Discounted cPRIME 
Response Fee of $0.46 per contract for Members or its Affiliates that 
qualify for Priority Customer Rebate Program volume tiers 3 or higher 
and submit a cPRIME AOC Response that is received during the Response 
Time Interval and executed against the cPRIME Order, or a cPRIME 
Participating Quote or Order that is received during the Response Time 
Interval and executed against the cPRIME Order for standard complex 
order options in Penny classes; and

[[Page 40376]]

remove the Discounted cPRIME Response Fee of $0.95 per contract in the 
same tiers, for standard complex order options in non-Penny classes. By 
removing these discounts, the Exchange will charge such Members and 
their Affiliates the standard cPRIME rates in the cPRIME tier that 
otherwise apply to such transactions. The Exchange notes that this is a 
business decision to discontinue offering the discount, and as a 
result, it will align its fees more closely to those of NYSE 
American.\24\
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    \24\ See NYSE American Fee Schedule, p. 17, Complex CUBE Auction 
(charging a RFR Response Fee Non-Customer in Penny Pilot issues of 
$0.50 and an RFR Response Fee Non-Customer in Non-Penny Pilot issues 
of $1.05).
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cPRIME Agency Order Fees
    In the PCRP, the Exchange assesses an Agency Order Credit for 
cPRIME Agency Orders. The Exchange currently credits each Member $0.10 
per contract per leg for each Priority Customer complex order submitted 
into the cPRIME Auction as a cPRIME Agency Order in each Tier. However, 
no credit is paid if the cPRIME Agency Order executes against a Contra-
Side Order which is also a Priority Customer. The Exchange proposes to 
increase the Agency Order Credit for cPRIME Agency Orders submitted by 
Members who are in PCRP Volume Tier 4 from $0.10 to $0.22. The purpose 
of such increase in Tier 4 is to encourage market participants to 
submit more Priority Customer cPRIME Agency Orders and therefore 
increase Priority Customer order flow. The Exchange additionally 
proposes to limit the cPRIME Agency Order Credit to be payable to the 
first 1,000 contracts per leg for each cPRIME Agency Order. Such limit 
will be applicable to all Tiers of the PCRP.
cPRIME Contra-Side Order Fees
    The Exchange assesses a per contract fee to all market participants 
except Priority Customers for Contra-Side Orders in cPRIME Auctions. 
Currently, the cPRIME Contra-Side Order Fee is $0.05 for options in 
Penny classes and non-Penny classes. The Exchange proposes to increase 
the fee assessed to all market participants except Priority Customers 
for cPRIME Contra-Side Orders for options in non-Penny classes from 
$0.05 to $0.07. To implement this change on the Fee Schedule, the 
Exchange is proposing to bifurcate the fee for Penny classes and non-
Penny classes by adding a new column to the table under Section 1)a)vi) 
of the Fee Schedule for the cPRIME Contra-Side Order fees assessable 
for orders in non-Penny classes setting forth the increased fee of 
$0.07 for all market participants except Priority Customers. The 
purpose of increasing such fee for options in non-Penny classes is to 
more closely align the Exchange's fees for cPRIME Contra-Side Orders 
with similar fees of other exchanges.\25\
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    \25\ See Securities Exchange Act Release No. 83532 (June 28, 
2018), 83 FR 31205 (July 3, 2018) (SR-NYSEAMER-2018-32) (Notice of 
Filing and Immediate Effectiveness of Proposed Change to Modify the 
NYSE American Options Fee Schedule).
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cPRIME Break-Up Credit
    The Exchange applies a break-up credit to an EEM that submitted a 
cPRIME Order for agency contracts that are submitted to the cPRIME 
Auction that trade with a cPRIME AOC Response or a cPRIME Participating 
Quote or Order that trades with the cPRIME Order (``cPRIME Break-up 
Credit''). Currently, the per contract cPRIME Break-up Credit payable 
to all market participants for options in Penny classes is $0.25 and 
for options in non-Penny classes is $0.60. The current cPRIME Break-up 
Credit does not take into account the degree to which the cPRIME Order 
was broken up.
    The Exchange now proposes to take into account the degree to which 
the cPRIME Order was broken up, through paying a higher credit amount 
if the cPRIME Order experienced a greater degree of break-up. In 
particular, the Exchange proposes to pay an enhanced cPRIME Break-up 
Credit to all market participants who experience a greater than sixty 
percent (60%) break-up of their cPRIME Order in a cPRIME Auction, 
instead of the regular cPRIME Break-up Credit specified in the Fee 
Schedule. If the market participant experiences a greater than sixty 
percent (60%) break-up of their cPRIME Order in a cPRIME Auction, then 
it shall be credited $0.28, an additional $0.03 per contract, for 
options in Penny classes, and $0.72, an additional $0.12 per contract, 
for options in non-Penny classes. For example, if the original cPRIME 
Agency Order in a Penny class was for 100 contracts and the Member 
received only 30 contracts of the original cPRIME Order as a result of 
the break-up, and the other 70 contracts traded with a cPRIME AOC 
response or a cPRIME Participating Quote or Order (which equals 70%), 
then they would be credited $0.28 as a cPRIME Break-up Credit. As 
another example, if the original cPRIME Agency Order in a Penny class 
was for 100 contracts and the Member received 40 contracts of the 
original cPRIME Order as a result of the break-up and the other 60 
contracts traded with a cPRIME AOC response or a cPRIME Participating 
Quote or Order (which equals 60%), then they would only be credited 
$0.25 as a cPRIME Break-up Credit. The decision to offer an enhanced 
cPRIME Break-up Credit is based on an analysis of current revenue and 
volume levels and is intended to encourage market participants to 
continue participating in cPRIME Auctions. The Exchange believes that 
by offering Members this enhanced cPRIME Break-up Credit, it will be 
able to further incentivize Members to send cPRIME orders to the 
Exchange, and enable it to better compete with NYSE American. Although 
it is a business decision to bifurcate the Exchange's enhanced cPRIME 
Break-up Credit based on the degree to which the cPRIME Order is broken 
up, the Exchange notes that its credit still remains lower than those 
of NYSE American, which the Exchange believes will serve to enhance 
competition. There are several approaches used by Exchanges to attract 
certain types of order flow, and many approaches often rely on the 
existence of certain conditions and thresholds being met.\26\ This 
proposed approach of offering an enhanced credit based on the degree of 
break-up of a cPRIME Order is another variation of one such type of 
condition.
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    \26\ See for example NYSE American Fee Schedule, p. 18, 
Initiating Participant Credit. (NYSE American offers a ``break-up'' 
credit to Initiating Participants for each contract in a Complex 
Contra Order paired with a Complex CUBE Order that does not trade 
with the Complex CUBE Order because it is replaced at auction. 
Depending on the Tier for which the ATP holder qualifies, it may 
receive anywhere from a $0.20 to a $0.35 credit in Penny Pilot 
issues and anywhere from $0.50 to $0.75 in non-Penny Pilot issues, 
with those who qualify for ACE Tier 5, and execute more than 1% 
TCADV in monthly Initiating Complex CUBE Orders being eligible to 
receive an alternative enhance Initiating Participant Credit of 
$0.45 per contract for Penny Pilot issues and $0.90 per contract for 
non-Penny Pilot issues.
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    The proposed rule changes are scheduled to become operative August 
1, 2018.
2. Statutory Basis
    The Exchange believes that its proposal to amend its fee schedule 
is consistent with Section 6(b) of the Act \27\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act,\28\ in that it 
is an equitable allocation of reasonable fees and other charges among 
Exchange members and issuers and other persons using its facilities, 
and 6(b)(5) of the Act,\29\ in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities,

[[Page 40377]]

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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    \27\ 15 U.S.C. 78f(b).
    \28\ 15 U.S.C. 78f(b)(4).
    \29\ 15 U.S.C. 78f(b)(1) and (b)(5).
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    The proposed fee increases for the various Sliding Scale tiers in 
Penny and non-Penny classes for complex orders is equitable and not 
unfairly discriminatory because all MIAX Options Market Makers are 
subject to the same fees and access to the Exchange is offered on terms 
that are not unfairly discriminatory. The Exchange initially set its 
complex order fees at the various volume levels based upon business 
determinations and an analysis of current complex order fees and volume 
levels at other exchanges. When the Exchange initially adopted complex 
order fees, it set its complex order fees lower than other exchanges in 
order to encourage its Market Makers to reach for higher volume levels 
in order to achieve greater discounts. For competitive and business 
reasons, the Exchange believes that it is now appropriate to increase 
complex order fees to be more in line with competing exchanges. The 
Exchange notes that the increased complex order fees are comparable to 
those assessed by other exchanges.\30\
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    \30\ See supra notes 14, 24, 25 and 26.
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    Furthermore, the proposed increases to the fees for complex orders 
in Penny and non-Penny classes in the specified tiers promotes just and 
equitable principles of trade, fosters cooperation and coordination 
with persons engaged in facilitating transactions in securities, and 
protects investors and the public interest, because even with the 
increases, the Exchange's proposed fees for Market Makers complex 
orders still remain competitive with certain other options exchanges 
offering comparable pricing models, and should enable the Exchange to 
continue to attract order flow and grow market share. The Exchange 
believes that the amount of such fees, as proposed to be increased, 
will continue to encourage MIAX Options Market Makers to send complex 
orders to the Exchange. To the extent that order flow is increased by 
the proposal, market participants will increasingly compete for the 
opportunity to trade on the Exchange, including sending more orders 
which will have the potential to be assessed lower fees and higher 
rebates than certain other competing options exchanges. The resulting 
increased volume and liquidity will benefit all Exchange participants 
by providing more trading opportunities and tighter spreads.
    The Exchange's proposal to increase the Complex Taker Surcharge and 
broaden its application and rename it as the ``Complex Surcharge'' is 
consistent with Section 6(b)(4) of the Act \31\ because it applies 
equally to all market participants (both MIAX Market Makers and Other 
Market Participants, except Priority Customers) that would be charged 
such Complex Surcharge. Assessing the Complex Surcharge to MIAX Market 
Makers and Other Market Participants (except Priority Customers), in a 
broader application, similar to that of other exchanges, is reasonable 
and not unfairly discriminatory because it will provide MIAX Options 
Market Makers and Other Market Participants with equal surcharges when 
trading against a Priority Customer. As stated above, the Complex 
Surcharge is similar to surcharges assessed on Cboe and NYSE 
American.\32\ The Exchange notes that, although the increase of the 
Complex Surcharge represents a slight fee increase, the Exchange 
believes that this increase is fair and equitable because it is in line 
with the amount of surcharges assessed on other options exchanges, when 
trading against Priority Customer Complex Orders, including trading in 
a complex order book, complex order auctions, and complex order price 
improvement mechanisms.\33\
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    \31\ 15 U.S.C. 78f(b)(4).
    \32\ See supra note 14.
    \33\ See Cboe Fees Schedule, footnote 35; see also NYSE American 
Fee Schedule, p. 11; see Securities Exchange Act Release No. 83532 
(June 28, 2018), 83 FR 31206 (July 3, 2018) (SR-NYSEAMER-2018-32).
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    The Exchange's proposal to broaden the application of the Complex 
Taker Surcharge and to rename it as the ``Complex Surcharge'' is also 
consistent with Section 6(b)(5) of the Act \34\ because it perfects the 
mechanisms of a free and open market and a national market system and 
protect investors and the public interest by aligning the broader 
application of the Complex Surcharge and the definition of Complex 
Surcharge to that of other options exchanges,\35\ which will help to 
create consistency and uniformity in the marketplace. The proposed 
Complex Surcharge increase is similar to the surcharge increase 
effected by Cboe and NYSE American.\36\ The Exchange believes for these 
reasons that the Complex Surcharge and the broadened application of it, 
is equitable, reasonable and not unfairly discriminatory, and thus 
consistent with the Act.
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    \34\ 15 U.S.C. 78f(b)(1) and (b)(5).
    \35\ See supra note 14.
    \36\ Id.
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    The Exchange's proposal to remove the Discounted cPRIME Response 
Fee of $0.46 per contract for Members or its Affiliates that qualify 
for Priority Customer Rebate Program volume tiers 3 or higher and 
submit a cPRIME AOC Response that is received during the Response Time 
Interval and executed against the cPRIME Order, or a cPRIME 
Participating Quote or Order that is received during the Response Time 
Interval and executed against the cPRIME Order for standard complex 
order options in Penny classes; and remove the Discounted cPRIME 
Response Fee of $0.95 per contract in the same tiers, for standard 
complex order options in non-Penny classes, is consistent with Section 
6(b)(4) of the Act \37\ because it applies equally to all market 
participants and although by removing this discount, the Exchange notes 
this would increase the cPRIME Response Fee for some market 
participants, it represents a slight increase, and the Exchange 
believes that this increase is fair and equitable because it is in line 
with the amount of surcharges assessed on other options exchanges.\38\ 
Further, the proposal is also consistent with Section 6(b)(5) of the 
Act \39\ because it perfects the mechanisms of a free and open market 
and a national market system and protects investors and the public 
interest because it will align the Exchange's rule to that of other 
options exchanges, which will help to create consistency and uniformity 
in the marketplace. In addition, the removal of the discounted for the 
cPRIME Response Fee would align the Exchange's fees closer to those of 
another options exchange.\40\
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    \37\ 15 U.S.C. 78f(b)(4).
    \38\ See supra note 26.
    \39\ 15 U.S.C. 78f(b)(1) and (b)(5).
    \40\ See supra note 26.
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    The Exchange's proposal to increase the cPRIME Agency Order Credit 
assessable to cPRIME Agency Orders by Members in Tier 4 of the PCRP is 
consistent with Section 6(b)(4) of the Act \41\ because it applies 
equally to all participants in that tier. The Exchange believes that 
the proposed PCRP rebate increase in Tier 4 for Priority Customer 
orders submitted into cPRIME Auctions is fair, equitable, and not 
unreasonably discriminatory. The PCRP is reasonably designed because it 
will incentivize providers of Priority Customer order flow to send that 
Priority Customer order flow to the Exchange in order to obtain the 
highest volume threshold and receive a credit in a manner that enables 
the Exchange to improve its overall competitiveness and strengthen its

[[Page 40378]]

market quality for all market participants.
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    \41\ 15 U.S.C. 78f(b)(4).
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    In addition, the proposal is also consistent with Section 6(b)(5) 
of the Act \42\ because it perfects the mechanisms of a free and open 
market and a national market system and protects investors and the 
public interest because, while only Priority Customer order flow 
qualifies for the rebate program under the PCRP and specifically only 
order flow by Members in Tier 4 of the PCRP will receive the greater 
rebate, 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. 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.
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    \42\ 15 U.S.C. 78f(b)(1) and (b)(5).
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    The Exchange's proposal to establish a limit as to how many 
contracts the cPRIME Agency Order Credit shall apply to is consistent 
with Section 6(b)(4) of the Act \43\ because it applies equally to all 
market participants who submit cPRIME Agency Orders. Further, the 
proposal is also consistent with Section 6(b)(5) of the Act \44\ 
because it perfects the mechanisms of a free and open market and a 
national market system and protects investors and the public interest 
because it will align the Exchange's rule to that of other options 
exchanges, which will help to create consistency and uniformity in the 
marketplace. It is also not novel since other exchanges similarly limit 
a similar rebate to the first 1,000 contracts.\45\
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    \43\ 15 U.S.C. 78f(b)(4).
    \44\ 15 U.S.C. 78f(b)(1) and (b)(5).
    \45\ See Cboe Fees Schedule, p. 3; see also NYSE American Fee 
Schedule, p. 18, footnote 2 under Section I.G.
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    The Exchange's proposal to increase the cPRIME Contra-Side Orders 
fees assessable to all market participants except for Priority 
Customers in non-Penny classes is consistent with Section 6(b)(4) of 
the Act \46\ because the Exchange believes that it is reasonable to 
assess lower transaction and credit rates to options in Penny classes 
than non-Penny classes. The Exchange believes that options which trade 
at these wider spreads merit offering greater inducement for market 
participants.
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    \46\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that is equitable and not unfairly 
discriminatory that Priority Customers be charged lower fees in cPRIME 
Auctions than other market participants. The exchanges, in general, 
have historically aimed to improve markets for investors and develop 
various features within their market structure for customer benefit. 
The Exchange assesses Priority Customers lower or no 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 that are not Priority Customers a higher transaction fee 
than Priority Customers for cPRIME 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 cPRIME 
transactions is not unfairly discriminatory as the fees will apply to 
all these market participants equally.
    In addition, the proposal is also consistent with Section 6(b)(5) 
of the Act \47\ because it perfects the mechanisms of a free and open 
market and a national market system and protects investors and the 
public interest because, within the cPRIME Auction, the fee difference 
between Penny and non-Penny classes provides 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 for 
market participants to increase the potential price improvement for 
customer orders in these transactions.
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    \47\ 15 U.S.C. 78f(b)(1) and (b)(5).
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    The Exchange's proposal to pay an enhanced cPRIME Break-up Credit 
for options in Penny classes and non-Penny classes to all market 
participants who experience a greater than sixty percent (60%) break-up 
of their cPRIME Order in a cPRIME Auction is consistent with Section 
6(b)(4) of the Act \48\ because it will encourage market participants 
to continue participating in cPRIME Auctions. The Exchange believes 
that the enhanced cPRIME Break-up Credit should improve market quality 
for all market participants. Additionally, the Exchange believes that 
by offering this enhanced cPRIME Break-up Credit, it will be able to 
incentivize initiating orders in order to compete with NYSE American. 
Although it is a business decision to bifurcate the Exchange's enhanced 
cPRIME Break-up Credit, the Exchange notes that its credit still 
remains lower than those of NYSE American, which the Exchange believes 
will serve to enhance competition.\49\
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    \48\ 15 U.S.C. 78f(b)(4).
    \49\ See supra note 26.
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    In addition, the proposal is also consistent with Section 6(b)(5) 
of the Act \50\ because it perfects the mechanisms of a free and open 
market and a national market system and protects investors and the 
public interest because it applies equally to all cPRIME orders which 
are subject to a break-up and access to the Exchange is offered on 
terms that are not unfairly discriminatory.
---------------------------------------------------------------------------

    \50\ 15 U.S.C. 78f(b)(1) and (b)(5).
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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 increase in the Complex Surcharge for complex transactions is 
intended to promote narrower spreads and greater liquidity at the best 
prices. The fee-based incentives for market participants to provide 
liquidity by submitting complex orders to the Exchange, and thereby 
improve liquidity on the Exchange, should enable the Exchange to 
attract order flow and compete with other exchanges which also provide 
such incentives to their market participants for similar transactions.
    The Exchange believes that increased complex order flow will bring 
greater volume and liquidity which in turn benefits all market 
participants by providing more trading opportunities and tighter 
spreads. Therefore, any potential effects that the increased Complex 
Surcharge for complex transactions may have on intra-market competition 
are justifiable due to the reasons stated above.

[[Page 40379]]

    The Exchange believes that the proposed changes to the rebates and 
fees for participation in a cPRIME Auction are not going to have an 
impact on intra-market competition based on the total cost for 
participants to transact in such order types versus the cost for 
participants to transact in the other order types available for trading 
on the Exchange. As noted above, the Exchange believes that the 
proposed changes in the rebates and fees for the cPRIME Auction are 
comparable to that of other exchanges offering similar electronic price 
improvement mechanisms for complex orders 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 cPRIME Auction justify the 
transaction costs associated with the cPRIME Auction. To the extent 
that there is a difference between non-cPRIME Auction transactions and 
cPRIME Auction transactions, the Exchange does not believe this 
difference will cause participants to refrain from responding to cPRIME 
Auctions.
    With respect to cPRIME Auctions, the Exchange notes that Cboe caps 
its fees at $0.50 per contract in its complex order auction mechanisms. 
And NYSE American does not assess its surcharge in its paired complex 
auction mechanism. As proposed, the Exchange will apply its surcharge 
in its single-sided complex auction mechanism (COA), but it will not 
apply the surcharge in its paired complex auction mechanism (cPRIME). 
Accordingly, as proposed to be expanded, the Exchange's surcharge will 
be more in line with Cboe's and NYSE American's surcharges, but it will 
be no more expansive than either such exchange.\51\ Because the Complex 
Surcharge will not be applied in its cPRIME Auction, the Exchange 
believes that the proposed rule change will not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act.
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    \51\ See supra note 14.
---------------------------------------------------------------------------

    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. The 
Exchange believes that the proposed rule change reflects this 
competitive environment because they modify the Exchange's fees in a 
manner that encourages market participants to provide liquidity and to 
send order flow 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,\52\ and Rule 19b-4(f)(2) \53\ thereunder. 
At any time within 60 days of the filing of the proposed rule change, 
the Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or disapproved.
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    \52\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \53\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-MIAX-2018-22 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-2018-22. 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 website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MIAX-2018-22, and should be submitted on 
or before September 4, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\54\
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    \54\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-17393 Filed 8-13-18; 8:45 am]
 BILLING CODE 8011-01-P


