[Federal Register Volume 84, Number 187 (Thursday, September 26, 2019)]
[Notices]
[Pages 50862-50869]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-20873]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87041; File No. SR-MIAX-2019-40]


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

September 20, 2019.
    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 September 10, 2019, Miami International 
Securities Exchange LLC (``MIAX Options'' 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

[[Page 50863]]

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 ``Fee Schedule'').
    The Exchange previously filed the proposal on August 30, 2019 (SR-
MIAX-2019-39). That filing has been withdrawn and replaced with the 
current filing (SR-MIAX-2019-40).
    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 the Fee Schedule to: (i) Increase 
the Priority Customer Rebate Program (``PCRP'') per contract credit for 
Complex Orders \3\ assessable to Members and Affiliates (defined below) 
who qualify for the volume thresholds in Tiers 1, 3 and 4 of the PCRP; 
(ii) adopt new Initiator rebates for QCC Orders (defined below) for any 
Public Customer \4\ that is not a Priority Customer,\5\ MIAX Market 
Maker,\6\ non-MIAX Market Maker, non-Member Broker-Dealer, and Firm 
(collectively, for the purposes of this filing, ``Professionals'') who 
is the Initiator of a QCC transaction and when the contra is an Origin 
other than Priority Customer; and (iii) adopt new Initiator rebates for 
cQCC Orders (defined below) for any Public Customer that is not a 
Priority Customer, MIAX Market Maker, non-MIAX Market Maker, non-Member 
Broker-Dealer, and Firm who is the Initiator of a cQCC transaction and 
when the contra is an Origin other than Priority Customer.
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    \3\ 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. Mini-options may only be part of a complex order that 
includes other mini-options. Only those complex orders in the 
classes designated by the Exchange and communicated to Members via 
Regulatory Circular with no more than the applicable number of legs, 
as determined by the Exchange on a class-by-class basis and 
communicated to Members via Regulatory Circular, are eligible for 
processing. A complex order can also be a ``stock-option order'' as 
described further, and subject to the limitations set forth, in 
Interpretations and Policies .01 of Exchange Rule 518. See Exchange 
Rule 518.
    \4\ The term ``Public Customer'' means a person that is not a 
broker or dealer in securities. See Exchange Rule 100.
    \5\ The term ``Priority Customer'' means a person or entity that 
(i) is not a broker or dealer in securities, and (ii) does not place 
more than 390 orders in listed options per day on average during a 
calendar month for its own beneficial accounts(s). See Exchange Rule 
100.
    \6\ The term ``Market Makers'' refers to ``Lead Market Makers'', 
``Primary Lead Market Makers'' and ``Registered Market Makers'' 
collectively. See Exchange Rule 100.
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Background
    Under the PCRP, the Priority Customer rebate payment is calculated 
from the first executed contract at the applicable threshold per 
contract credit with rebate payments made at the highest achieved 
volume tier for each contract traded in that month. The percentage 
thresholds are calculated based on the percentage of national customer 
volume in multiply-listed options classes listed on MIAX entered and 
executed over the course of the month (excluding QCC and cQCC Orders, 
Priority Customer-to-Priority Customer Orders, C2C and cC2C Orders, 
PRIME and cPRIME AOC Responses, PRIME and cPRIME Contra-side Orders, 
and PRIME and cPRIME Orders for which both the Agency and Contra-side 
Order are Priority Customers). Volume for transactions in both simple 
and complex orders are aggregated to determine the appropriate volume 
tier threshold applicable to each transaction. Volume is recorded for 
and credits are delivered to the Member that submits the order to MIAX. 
MIAX aggregates the contracts resulting from Priority Customer orders 
transmitted and executed electronically on MIAX from Members and 
Affiliates \7\ for purposes of the thresholds described in the PCRP 
table. Currently, Members and Affiliates that qualify for the PCRP and 
execute Priority Customer non-paired complex volume receive the 
following rebates for Complex Orders: (i) $0.00 per contract in Tier 1; 
(ii) $0.21 per contract in Tier 2; (iii) $0.24 per contract in Tier 3; 
and (iv) $0.25 per contract in Tier 4.\8\
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    \7\ 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 membership@miaxoptions.com 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. See Fee Schedule, note 1.
    \8\ See Fee Schedule, Section (1)(a)iii.
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    Next, a QCC Order is comprised of an order to buy or sell at least 
1,000 contracts that is identified as being part of a qualified 
contingent trade, coupled with a contra side order to buy or sell an 
equal number of contracts.\9\ Currently, the Exchange provides an 
Initiator transaction rebate for all types of market participants of 
$0.14 per contract for a QCC Order. The rebate is paid to the Member 
\10\ that enters the QCC Order into the System,\11\ but is only paid on 
the initiating side of the QCC transaction. No rebates are paid for QCC 
transactions in which both the

[[Page 50864]]

Initiator and contra-side orders are from Priority Customers. The 
Exchange notes that with regard to order entry, the first order 
submitted into the System is marked as the initiating side and the 
second order is marked as the contra side.
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    \9\ A Qualified Contingent Cross Order is comprised of an 
originating order to buy or sell at least 1,000 contracts, or 10,000 
mini-option contracts, that is identified as being part of a 
qualified contingent trade, as that term is defined in 
Interpretation and Policy .01 to Rule 516, coupled with a contra-
side order or orders totaling an equal number of contracts. See 
Exchange Rule 516(j); see also Fee Schedule, Section (1)(a)vii.
    \10\ 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.
    \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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    A cQCC Order is comprised of an initiating complex order to buy or 
sell where each component is at least 1,000 contracts that is 
identified as being part of a qualified contingent trade, coupled with 
a contra-side complex order or orders to sell or buy an equal number of 
contracts.\12\ Currently, the Exchange provides an Initiator 
transaction rebate for all types of market participants of $0.14 per 
contract for a cQCC Order. All fees and rebates are per contract per 
leg. Rebates are delivered to the Member that enters the order into the 
System, but are only paid on the initiating side of the cQCC 
transaction. However, no rebates are paid for cQCC transactions for 
which both the Initiator and contra-side orders are Priority Customers.
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    \12\ A Complex Qualified Contingent Cross or ``cQCC'' Order is 
comprised of an originating complex order to buy or sell where each 
component is at least 1,000 contracts that is identified as being 
part of a qualified contingent trade, as defined in Rule 516, 
Interpretation and Policy .01, coupled with a contra-side complex 
order or orders totaling an equal number of contracts. See Exchange 
Rule 518(b)(6); see also Fee Schedule, Section (1)(a)viii.
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    The Exchange notes that QCC and cQCC Orders are excluded from: (i) 
The volume threshold calculations for the Market Maker Sliding Scale; 
(ii) the rebates and volume calculations as part of the PCRP; (iii) 
participation in the Professional Rebate Program; and (iv) the 
Marketing Fee that is assessed to Market Makers in their assigned 
classes in simple or complex order executions when the contra-party to 
the execution is a Priority Customer.
Proposed Changes
    First, the Exchange proposes to amend Section (1)(a)iii of the Fee 
Schedule to increase the PCRP per contract credit for Complex Orders 
assessable to Members and Affiliates who qualify for the volume 
thresholds in Tiers 1, 3 and 4 of the PCRP. The Exchange proposes to 
increase the PCRP per contract credit for Complex Orders assessable to 
Members and Affiliates who qualify for the volume thresholds in Tier 1 
of the PCRP from the current $0.00 per contract to the proposed $0.20 
per contract. The Exchange also proposes to increase the PCRP per 
contract credit for Complex Orders assessable to Members and Affiliates 
who qualify for the volume thresholds in Tiers 3 and 4 of the PCRP 
depending on whether (i) the executing buyer and seller are the same 
Member or are Affiliates or, (ii) the executing buyer and seller are 
not the same Member or are not Affiliates. The Exchange proposes to 
increase PCRP per contract credit for Complex Orders assessable to 
Members and Affiliates who qualify for the volume threshold in Tier 3 
of the PCRP from the current $0.24 per contract to: (i) The proposed 
$0.26 per contract when the executing buyer and seller are the same 
Member or are Affiliates, or (ii) the proposed $0.27 per contract when 
the executing buyer and seller are not the same Member or are not 
Affiliates. Similarly, the Exchange proposes to increase PCRP per 
contract credit for Complex Orders assessable to Members and Affiliates 
who qualify for the volume threshold in Tier 4 of the PCRP from the 
current $0.25 per contract to: (i) The proposed $0.27 per contract when 
the executing buyer and seller are the same Member or are Affiliates, 
or (ii) the proposed $0.28 per contract when the executing buyer and 
seller are not the same Member or are not Affiliates.
    In order to differentiate between the proposed increased Complex 
Order credits for Members and Affiliates who qualify for Tiers 3 and 4 
in the PCRP, which are dependent upon whether the executing buyer and 
seller are the same Member or Affiliates, the Exchange proposes to 
insert two new symbols after the symbol ``**'' \13\ immediately 
following the PCRP table of rebates in Section (1)(a)iii of the Fee 
Schedule. In particular, the Exchange proposes to adopt new symbol 
``K,'' and the following explanatory sentence: ``This rebate is for 
executed Priority Customer non-paired Complex Orders when the executing 
buyer and seller are the same Member or Affiliates.'' The Exchange also 
proposes to adopt new symbol ``[ssquf],'' and the following explanatory 
sentence: ``This rebate is for executed Priority Customer non-paired 
Complex Orders when the executing buyer and seller are not the same 
Member or Affiliates.'' Accordingly, the Exchange proposes to insert 
each symbol following the proposed new increased credits for Members 
and Affiliates who qualify for Tiers 3 and 4 for Complex Orders in the 
PCRP, corresponding to the new proposed rebate in each Tier.
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    \13\ See Fee Schedule, Section (1)(a)iii.
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    The Exchange believes the proposed changes to increase rebates for 
certain Tiers of the PCRP for Complex Orders will encourage market 
participants to submit more Priority Customer Complex Orders and 
therefore increase Priority Customer order flow, resulting in increased 
liquidity which benefits all Exchange participants by providing more 
trading opportunities and tighter spreads. The Exchange believes it is 
reasonable and appropriate to adopt a higher PCRP per contract credit 
for Complex Orders when the executing buyer and seller are not the same 
Member or Affiliates (versus when the executing buyer and seller are 
the same Member or Affiliates) since the Exchange already offers 
certain transaction fee discounts to Members and their Affiliates that 
aggregate their order flow on these types of transactions through 
various tier-based pricing structures, such as in Section (1)(a)i of 
the Fee Schedule for Market Maker transaction fees \14\ and in Section 
(1)(a)ii of the Fee Schedule for Other Market Participants transaction 
fees.\15\ Accordingly, the Exchange believes it is reasonable, 
equitable, and not unfairly discriminatory to offer a higher PCRP per 
contract credit for Complex Orders when the executing buyer and seller 
are not the same Members or Affiliates, as other fee discount programs 
currently exist for the same Members and Affiliates. The Exchange also 
notes that at least one other competing exchange similarly provides for 
different pricing dependent upon whether the executing buyer and seller 
are the same market participant or have some form of common 
ownership.\16\
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    \14\ See Fee Schedule, Section (1)(a)i.
    \15\ See Fee Schedule, Section (1)(a)ii.
    \16\ See Nasdaq Options Pricing Schedule, Options 7, Section 
2(1), note 2 (Participants that add 1.30% of Customer, Professional, 
Firm, Broker-Dealer or Non-NOM Market Maker liquidity in Penny Pilot 
Options and/or Non-Penny Pilot Options of total industry customer 
equity and ETF option ADV contracts per day in a month will be 
subject to the following pricing applicable to executions: A $0.48 
per contract Penny Pilot Options Fee for Removing Liquidity when the 
Participant is (i) both the buyer and the seller or (ii) the 
Participant removes liquidity from another Participant under Common 
Ownership. Participants that add 1.50% of Customer, Professional, 
Firm, Broker-Dealer or Non-NOM Market Maker liquidity in Penny Pilot 
Options and/or Non-Penny Pilot Options of total industry customer 
equity and ETF option ADV contracts per day in a month and meet or 
exceed the cap for The Nasdaq Stock Market Opening Cross during the 
month will be subject to the following pricing applicable to 
executions less than 10,000 contracts: A $0.32 per contract Penny 
Pilot Options Fee for Removing Liquidity when the Participant is (i) 
both the buyer and seller or (ii) the Participant removes liquidity 
from another Participant under Common Ownership. Participants that 
add 1.75% of Customer, Professional, Firm, Broker-Dealer or Non-NOM 
Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options of total industry customer equity and ETF option ADV 
contracts per day in a month will be subject to the following 
pricing applicable to executions less than 10,000 contracts: A $0.32 
per contract Penny Pilot Options Fee for Removing Liquidity when the 
Participant is (i) both the buyer and seller or (ii) the Participant 
removes liquidity from another Participant under Common Ownership.).
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    Next, the Exchange proposes to amend Section (1)(a)vii of the Fee

[[Page 50865]]

Schedule to adopt new Initiator rebates for QCC Orders for any 
Professional who is the Initiator of a QCC Order and when the contra is 
an Origin other than Priority Customer. In particular, the Exchange 
proposes to adopt a new Initiator rebate of $0.27 per contract for a 
Public Customer that is not a Priority Customer who is the Initiator of 
a QCC Order and when the contra is an Origin other than Priority 
Customer. The Exchange also proposes to adopt a new Initiator rebate of 
$0.22 per contract for a MIAX Market Maker, Non-MIAX Market Maker, non-
Member Broker-Dealer and Firm that is the Initiator of a QCC Order and 
when the contra is an Origin other than Priority Customer. The Exchange 
notes that the current Initiator rebate of $0.14 per contract will 
continue to apply when a Priority Customer is the Initiator of a QCC 
transaction. The Exchange notes that no rebates are paid for QCC 
transactions in which both the Initiator and contra-side orders are 
from Priority Customers. Pursuant to this proposal, the Exchange would 
add a new Initiator rebate column on the right side of the QCC 
transaction fees and rebates table in Section (1)(a)vii of the Fee 
Schedule. With the proposed changes, the QCC transaction fees and 
rebates in Section (1)(a)vii of the Fee Schedule would be as follows:

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                                                                       QCC Order
                                     ---------------------------------------------------------------------------
                                                                                                  Per contract
                                                                                                   rebate for
    Types of market  participants                                              Per contract      initiator when
                                       Per contract fee  Per contract  fee      rebate for      contra is origin
                                        for initiator     for  contra-side      initiator          other than
                                                                                                    priority
                                                                                                    customer
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Priority Customer...................              $0.00              $0.00              $0.14              $0.14
Public Customer that is Not a                      0.15               0.17               0.14               0.27
 Priority Customer..................
MIAX Market Maker...................               0.15               0.17               0.14               0.22
Non-MIAX Market Maker...............               0.15               0.17               0.14               0.22
Non-Member Broker-Dealer............               0.15               0.17               0.14               0.22
Firm................................               0.15               0.17               0.14               0.22
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Rebates will be delivered to the Member firm that enters the order into the MIAX system, but will only be paid
  on the initiating side of the QCC transaction. However, no rebates will be paid for QCC transactions for which
  both the initiator and contra-side orders are Priority Customers. A QCC transaction is comprised of an
  `initiating order' to buy (sell) at least 1000 contracts or 10,000 mini-option contracts, coupled with a
  contra-side order to sell (buy) an equal number of contracts. QCC orders comprised of mini-contracts will be
  assessed QCC fees and afforded rebates equal to 10% of the fees and rebates applicable to QCC Orders comprised
  of standard option contracts.

    Next, the Exchange proposes to amend Section (1)(a)viii of the Fee 
Schedule to adopt new Initiator rebates for cQCC Orders for any 
Professional who is the Initiator of a cQCC Order and when the contra 
is an Origin other than Priority Customer. In particular, the Exchange 
proposes to adopt a new Initiator rebate of $0.27 per contract for a 
Public Customer that is not a Priority Customer who is the Initiator of 
a cQCC Order and when the contra is an Origin other than Priority 
Customer. The Exchange also proposes to adopt a new Initiator rebate of 
$0.22 per contract for a MIAX Market Maker, non-MIAX Market Maker, non-
Member Broker-Dealer and Firm that is the Initiator of a cQCC Order and 
when the contra is an Origin other than Priority Customer. The Exchange 
notes that the current Initiator rebate of $0.14 per contract will 
continue to apply when a Priority Customer is the Initiator of a cQCC 
transaction. The Exchange notes that no rebates are paid for cQCC 
transactions in which both the Initiator and contra-side orders are 
from Priority Customers. Pursuant to this proposal, the Exchange would 
add a new Initiator rebate column on the right side of the cQCC 
transaction fees and rebates table in Section (1)(a)viii of the Fee 
Schedule. With the proposed changes, the cQCC transaction fees and 
rebates in Section (1)(a)viii of the Fee Schedule would be as follows:

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                                                                      cQCC Order
                                     ---------------------------------------------------------------------------
                                                                                                  Per contract
                                                                                                   rebate for
    Types of market  participants                                              Per contract      initiator when
                                       Per contract fee  Per contract  fee      rebate for      contra is origin
                                        for initiator     for  contra-side      initiator          other than
                                                                                                    priority
                                                                                                    customer
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Priority Customer...................              $0.00              $0.00              $0.14              $0.14
Public Customer that is Not a                      0.15               0.17               0.14               0.27
 Priority Customer..................
MIAX Market Maker...................               0.15               0.17               0.14               0.22
Non-MIAX Market Maker...............               0.15               0.17               0.14               0.22
Non-Member Broker-Dealer............               0.15               0.17               0.14               0.22
Firm................................               0.15               0.17               0.14               0.22
----------------------------------------------------------------------------------------------------------------
All fees and rebates are per contract per leg. Rebates will be delivered to the Member firm that enters the
  order into the MIAX system, but will only be paid on the initiating side of the cQCC transaction. However, no
  rebates will be paid for cQCC transactions for which both the initiator and contra-side orders are Priority
  Customers. A cQCC transaction is comprised of an `initiating complex order' to buy (sell) where each component
  is at least 1,000 contracts that is identified as being part of a qualified contingent trade, coupled with a
  contra-side complex order or orders to sell (buy) an equal number of contracts.


[[Page 50866]]

    The purpose of adopting new Initiator rebates for QCC and cQCC 
Orders for any Professional who is the Initiator of a QCC or cQCC Order 
and when the contra is an Origin other than Priority Customer is for 
business and competitive reasons. The Exchange has different net 
transaction revenues based on different combinations of Origins and 
Contra. For example, when Priority Customer is both the Initiator and 
Contra-side, no rebates are paid (for both QCC and cQCC transactions). 
This is in the Exchange's current Fee Schedule and in competitors' fee 
schedules as well. The Exchange notes that Priority Customers are 
generally assessed a $0.00 transaction fee. Accordingly, the Exchange 
has made a business decision to adopt the proposed new Initiator 
rebates for QCC and cQCC Orders for Professionals when they are the 
Initiator of a QCC or cQCC Order and when they trade against an Origin 
other than Priority Customer, in order to increase competition and 
potentially attract different combinations of additional QCC and cQCC 
order flow to the Exchange. The Exchange believes that it is 
appropriate to adopt these new Initiator rebates in order to attract 
additional QCC and cQCC order flow and grow the Exchange's market share 
in this segment, through offering newly structured and higher rebates. 
The Exchange also believes it is appropriate to adopt higher Initiator 
rebates for QCC and cQCC Orders for Professionals when they trade 
against Origins other than Priority Customers, since Priority Customers 
are already incentivized by a reduced fee for submitting QCC and cQCC 
Orders. The Exchange also notes that other competing exchanges 
similarly provide rebates on QCC and cQCC initiating orders.\17\
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    \17\ See BOX Fee Schedule, Section I(D)(1) (a $0.14 per contract 
rebate will be applied to the Agency Order where at least one party 
to the QCC transaction is a Non-Public Customer); see also Cboe Fee 
Schedule, ``QCC Rate Table,'' Page 5 (a $0.10 per contract credit 
will be delivered to the TPH Firm that enters the order into Cboe 
Command but will only be paid on the initiating side of the QCC 
transaction); see also NYSE American Options Fee Schedule, Section 
I.F (a $0.07 credit is applied to Floor Brokers executing 300,000 or 
fewer contracts in a month and a $0.10 credit is applied to Floor 
Brokers executing more than 300,000 contracts in a month); see also 
Nasdaq ISE Pricing Schedule, Options 7, Section 6, Other Options 
Fees and Rebate, A. QCC and Solicitation Rebate (rebates range from 
$0.00 to $0.11 per contract).
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    The Commission has repeatedly expressed its preference for 
competition over regulatory intervention in determining prices, 
products, and services in the securities markets. In Regulation NMS, 
the Commission highlighted the importance of market forces in 
determining prices and self-regulatory organization (``SRO'') revenues 
and, also, recognized that current regulation of the market system 
``has been remarkably successful in promoting market competition in its 
broader forms that are most important to investors and listed 
companies.'' \18\ There are currently 16 registered options exchanges 
competing for order flow. Based on publicly-available information, and 
excluding index-based options, no single exchange has exceeded 
approximately 15% of the market share of executed volume of multiply-
listed equity and exchange-traded fund (``ETF'') options as of August 
26, 2019, for the month of August 2019.\19\ Therefore, no exchange 
possesses significant pricing power in the execution of multiple-listed 
equity and ETF options order flow. More specifically, for all of July 
2019, the Exchange had a total market share of 3.61% of all equity 
options and ETF volume.\20\ The Exchange believes that the ever-
shifting market shares among the exchanges from month to month 
demonstrates that market participants can shift order flow (as further 
described below), or discontinue or reduce use of certain categories of 
products, in response to transaction and non-transaction fee changes. 
For example, on March 1, 2019, the Exchange filed with the Commission 
an immediately effective filing to decrease certain credits assessable 
to Members pursuant to the PCRP.\21\ The Exchange experienced a 
decrease in total market share between the months of February and March 
of 2019. Accordingly, the Exchange believes that the March 1, 2019 fee 
change may have contributed to the decrease in the Exchange's market 
share and, as such, the Exchange believes competitive forces constrain 
options exchange transaction and non-transaction fees.
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    \18\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005).
    \19\ The OCC publishes options and futures volume in a variety 
of formats, including daily and monthly volume by exchange, 
available at: https://www.theocc.com/market-data/volume/default.jsp.
    \20\ See id.
    \21\ See Securities Exchange Act Release No. 85301 (March 13, 
2019), 84 FR 10166 (March 19, 2019) (SR-MIAX-2019-09).
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    The Exchange cannot predict with certainty whether any Priority 
Customers would avail themselves of the proposed fee changes to the 
PCRP, but the Exchange believes that approximately three Members have 
the potential to achieve the applicable Tier volume thresholds to 
receive the proposed increased Complex Order credits for Members in 
Tiers 3 or 4 of the PCRP. Similarly, the Exchange cannot predict with 
certainty whether any Professional Customer that is not a Priority 
Customer, MIAX Market Maker, non-MIAX Market Maker, non-Member Broker-
Dealer or Firm will initiate a QCC or cQCC transaction to receive the 
proposed new Initiator rebates for those types of market participants 
of QCC or cQCC transactions when the contra is an Origin other than 
Priority Customer. The Exchange does not currently have any Members 
that are actively sending QCC or cQCC Orders to the Exchange on a 
regular basis. Therefore, no current Members will be impacted by this 
proposed change. However, this proposal is intended to encourage 
Members to start actively sending QCC or cQCC Orders to the Exchange on 
a regular basis.
    The proposed rule change is immediately effective upon filing with 
the Commission pursuant to Section 19(b)(3)(A) of the Act.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \22\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \23\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among its members and issuers and other persons using 
its facilities. The Exchange also believes the proposal furthers the 
objectives of Section 6(b)(5) of the Act in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest and is not designed to permit unfair discrimination between 
customers, issuers, brokers and dealers.
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    \22\ 15 U.S.C. 78f(b).
    \23\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes its proposal to increase the PCRP per 
contract credit for Complex Orders assessable to Members and Affiliates 
who qualify for the volume thresholds in Tiers 1, 3 and 4 of PCRP and 
adopt new Initiator rebates for QCC and cQCC Orders provides for the 
equitable allocation of reasonable dues and fees and is not unfairly 
discriminatory for the following reasons. First, the Exchange operates 
in a highly competitive market. The Commission has repeatedly expressed 
its preference for competition over regulatory intervention in 
determining prices, products, and services in the securities markets. 
In Regulation NMS, the Commission highlighted the importance of market 
forces in

[[Page 50867]]

determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \24\ There are currently 
16 registered options exchanges competing for order flow. Based on 
publicly-available information, and excluding index-based options, no 
single exchange has exceeded approximately 15% of the market share of 
executed volume of multiply-listed equity and ETF options as of August 
26, 2019, for the month of August 2019.\25\ Therefore, no exchange 
possesses significant pricing power in the execution of multiply-listed 
equity and ETF options order flow. More specifically, for all of July 
2019, the Exchange had a total market share of 3.61% for all equity 
options volume.\26\
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    \24\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005).
    \25\ See supra note 19.
    \26\ See id.
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    The Exchange also believes that the ever-shifting market shares 
among the exchanges from month to month demonstrates that market 
participants can shift order flow, or discontinue or reduce use of 
certain categories of products, in response to transaction and/or non-
transaction fee changes. For example, on March 1, 2019, the Exchange 
filed with the Commission an immediately effective filing to decrease 
certain credits assessable to Members pursuant to the PCRP.\27\ The 
Exchange experienced a decrease in total market share between the 
months of February and March of 2019. Accordingly, the Exchange 
believes that the March 1, 2019 fee change may have contributed to the 
decrease in the Exchange's market share and, as such, the Exchange 
believes competitive forces constrain options exchange transaction and 
non-transaction fees and market participants can shift order flow based 
on fee changes instituted by the exchanges.
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    \27\ See supra note 21.
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    Second, the Exchange believes its proposal to increase the PCRP per 
contract credit for Complex Orders assessable to Members and Affiliates 
who qualify for the volume thresholds in Tiers 1, 3 and 4 of PCRP and 
adopt new Initiator rebates for QCC and cQCC Orders is an equitable 
allocation of reasonable dues and fees pursuant to Section 6(b)(4) of 
the Act \28\ because the proposed changes are designed to incentivize 
overall Priority Customer and QCC and cQCC order flow, respectively. 
The Exchange believes that with the proposed changes, providers of 
Priority Customer or QCC and cQCC order flow will be incentivized to 
send that order flow to the Exchange in order to obtain the highest 
volume threshold or Initiator rebate and receive credits in a manner 
that enables the Exchange to improve its overall competitiveness and 
strengthen its market quality for all market participants. The Exchange 
believes that increased Priority Customer or QCC and cQCC order flow 
will attract liquidity providers, which in turn should make the MIAX 
marketplace an attractive venue where Market Makers may submit narrow 
quotations with greater size, deepening and enhancing the quality of 
the MIAX marketplace. This should provide more trading opportunities 
and tighter spreads for other market participants and result in a 
corresponding increase in order flow from such other market 
participants.
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    \28\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes the proposal to adopt a higher PCRP per 
contract credit for Complex Orders when the executing buyer and seller 
are not the same Member or Affiliates (versus when the executing buyer 
and seller are the same Member or Affiliates) provides for the 
equitable allocation of reasonable dues and fees and is not unfairly 
discriminatory since the Exchange already offers certain transaction 
fee discounts to Members and their Affiliates that aggregate their 
order flow on these types of transactions through various tier-based 
pricing structures, such as in Section (1)(a)i of the Fee Schedule for 
Market Maker transaction fees \29\ and in Section (1)(a)ii of the Fee 
Schedule for Other Market Participants transaction fees.\30\ 
Accordingly, the Exchange believes it is reasonable, equitable, and not 
unfairly discriminatory to offer a higher PCRP per contract credit for 
Complex Orders when the executing buyer and seller are not the same 
Members or Affiliates, as other discount programs currently exist for 
the same Member and Affiliates.
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    \29\ See supra note 14.
    \30\ See supra note 15.
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    The Exchange believes the proposal to adopt new Initiator rebates 
for QCC and cQCC Orders for any Professional who is the Initiator of a 
QCC or cQCC Order and when the contra is an Origin other than Priority 
Customer provides for the equitable allocation of reasonable dues and 
fees and is not unfairly discriminatory since the Exchange has 
different net transaction revenues based on different combinations of 
Origins and Contra. For example, when Priority Customer is both the 
Initiator and Contra-side, no rebates are paid (for both QCC and cQCC 
transactions). This is in the Exchange's current Fee Schedule and in 
competitors' fee schedules as well. The Exchange notes that Priority 
Customers are generally assessed a $0.00 transaction fee. Accordingly, 
the Exchange believes that it is reasonable, equitable, and not 
unfairly discriminatory to adopt the proposed new Initiator rebates for 
QCC and cQCC Orders for Professionals when they are the Initiator of a 
QCC or cQCC Order and when they trade against an Origin other than 
Priority Customer, in order to increase competition and potentially 
attract different combinations of additional QCC and cQCC order flow to 
the Exchange. The Exchange also believes it is reasonable, equitable, 
and not unfairly discriminatory to adopt higher Initiator rebates for 
QCC and cQCC Orders for Professionals when they trade against Origins 
other than Priority Customers, since Priority Customers are already 
incentivized by a reduced fee for submitting QCC and cQCC Orders.
    The Exchange believes that the proposed rule changes would be an 
equitable allocation of reasonable dues and fees and would not permit 
unfair discrimination between market participants. The Exchange cannot 
predict with certainty whether any Priority Customers would avail 
themselves of the proposed fee changes to the PCRP, but the Exchange 
believes that approximately three Members have the potential to achieve 
the applicable Tier volume thresholds to receive the proposed increased 
Complex Order credits for Members in Tiers 3 or 4 of the PCRP. 
Similarly, the Exchange cannot predict with certainty whether any 
Professional Customer that is not a Priority Customer, MIAX Market 
Maker, non-MIAX Market Maker, non-Member Broker-Dealer or Firm will 
initiate a QCC or cQCC transaction to receive the proposed new 
Initiator rebates for those types of market participants of QCC or cQCC 
transaction when the contra is an Origin other than Priority Customer. 
The Exchange does not currently have any Members that are actively 
sending QCC or cQCC Orders to the Exchange on a regular basis. 
Therefore, no current Members will be impacted by this proposed change. 
However, this proposal is intended to encourage Members to start 
actively sending QCC or cQCC Orders to the Exchange on a regular basis.
    The Exchange also believes its proposal is consistent with Section 
6(b)(5) of the Act \31\ and is designed to

[[Page 50868]]

prevent fraudulent and manipulative acts and practices, promotes just 
and equitable principles of trade, fosters cooperation and coordination 
with persons engaged in regulating, clearing, setting, processing 
information with respect to, and facilitating transaction in 
securities, removes impediments to and perfects the mechanism of a free 
and open market and a national market system, and, in general, protects 
investors and the public interest; and is not designed to permit unfair 
discrimination. This is because the Exchange believes the proposed 
changes will incentivize Priority Customer or QCC and cQCC order flow 
and an increase in such order flow will bring greater volume and 
liquidity, which benefits all market participants by providing more 
trading opportunities and tighter spreads. To the extent Priority 
Customer, QCC and cQCC 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 order flow.
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    \31\ 15 U.S.C. 78f(b)(1) and (b)(5).
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    Further, based on the current Tier volume thresholds achieved by 
the Exchange's Members and the potential changes going forward as a 
result of the proposed fee change to the PCRP, the Exchange believes 
that the proposed increase to certain credit amounts for Complex Orders 
in the PCRP may result in many Members receiving higher credit amounts 
per contract.

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

    In accordance with Section 6(b)(8) of the Act,\32\ the Exchange 
believes that the proposed rule change would not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. Instead, as discussed above, the Exchange believes 
that the proposed changes would encourage the submission of additional 
liquidity to a public exchange, thereby promoting market depth, price 
discovery and transparency and enhancing order execution opportunities 
for all market participants. As a result, the Exchange believes that 
the proposed change furthers the Commission's goal in adopting 
Regulation NMS of fostering integrated competition among orders.
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    \32\ 15 U.S.C. 78f(b)(8).
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Intra-Market Competition
    The Exchange does not believe that other market participants at the 
Exchange would be placed at a relative disadvantage by the proposed 
changes to increase the PCRP per contract credit for Complex Orders 
assessable to Members and Affiliates who qualify for the volume 
thresholds in Tiers 1, 3 and 4 of PCRP, or by the proposed adoption of 
the new Initiator rebates for QCC and cQCC Orders. The proposed changes 
are designed to attract additional order flow to the Exchange. 
Accordingly, the Exchange believes that increasing the PCRP per 
contract credit for Complex Orders assessable to Members and Affiliates 
who qualify for the volume thresholds in Tiers 1, 3 and 4 of PCRP and 
adopting new Initiator rebates for QCC and cQCC Orders will not impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Act because it will continue to encourage 
Priority Customer or QCC and cQCC Order flow, which will bring greater 
volume and liquidity, thereby benefiting all market participants by 
providing more trading opportunities and tighter spreads.
    Further, based on the current Tier volume thresholds achieved by 
the Exchange's Members and the potential changes going forward as a 
result of the proposed fee change to the PCRP, the Exchange believes 
that the proposed increase to certain credit amounts for Complex Orders 
in the PCRP may not result in any Member receiving a lower credit 
amount per contract, and may result in three Members receiving a higher 
credit amount per contract.
Inter-Market Competition
    The Exchange 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. There are currently 16 
registered options exchanges competing for order flow. Based on 
publicly-available information, and excluding index-based options, no 
single exchange has exceeded approximately 15% of the market share of 
executed volume of multiply-listed equity and ETF options as of August 
26, 2019, for the month of August 2019.\33\ Therefore, no exchange 
possesses significant pricing power in the execution of multiply-listed 
equity and ETF options order flow. More specifically, for all of July 
2019, the Exchange had a total market share of 3.61% for all equity 
options volume.\34\ In such an environment, the Exchange must 
continually adjust its transaction and non-transaction fees to remain 
competitive with other exchanges and to attract order flow. The 
Exchange believes that the proposed rule changes reflect this 
competitive environment because they modify the Exchange's fees in a 
manner that encourages market participants to provide Priority 
Customer, QCC and cQCC liquidity and to send order flow to the 
Exchange. To the extent this is achieved, all the Exchange's market 
participants should benefit from the improved market quality.
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    \33\ See supra note 19.
    \34\ See id.
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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,\35\ and Rule 19b-4(f)(2) \36\ 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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    \35\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \36\ 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 rule-comments@sec.gov. Please include 
File Number SR-MIAX-2019-40 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-2019-40. This file 
number should be included on the subject line if email is used. To help 
the

[[Page 50869]]

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 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. 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-2019-40 and should be submitted on 
or before October 17, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
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    \37\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-20873 Filed 9-25-19; 8:45 am]
 BILLING CODE 8011-01-P


