[Federal Register Volume 86, Number 208 (Monday, November 1, 2021)]
[Notices]
[Pages 60322-60325]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-23673]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93424; File No. SR-MIAX-2021-49]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Its Fee Schedule To Adopt an Incentive 
Program for Market Makers in SPIKES[supreg] Options

October 26, 2021.
    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 October 12, 2021, Miami International 
Securities Exchange LLC (``MIAX'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'') a proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared by the Exchange. The Commission is publishing this notice 
to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Options Fee 
Schedule (the ``Fee Schedule'') to adopt an incentive program for 
Market Makers \3\ in SPIKES[supreg] options.
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    \3\ 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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    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 implement a 
SPIKES Options Market Maker Incentive Program (the ``Incentive 
Program'') for the period beginning October 1, 2021, and ending 
December 31, 2021.\4\ The Incentive Program is designed to improve 
liquidity, volume, and quote width spreads in SPIKES options. Technical 
details regarding the Incentive Program were published in a Regulatory 
Circular on September 30, 2021.\5\ The Exchange originally filed this 
proposal on September 30, 2021, (SR-MIAX-2021-45). On October 12, 2021, 
the Exchange withdrew SR-MIAX-2021-45 and refiled this proposal.
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    \4\ The Exchange notes that at the end of the period, the 
Program will expire unless the Exchange files another 19b-4 Filing 
to amend its fees.
    \5\ See MIAX Options Regulatory Circular 2021-56, SPIKES Options 
Market Maker Incentive Program (September 30, 2021) available at 
https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Options_RC_2021_56.pdf.
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Background
    On October 12, 2018, the Exchange received approval from the 
Commission to list and trade options on the SPIKES[supreg] Index, which 
measures expected 30-day volatility of the SPDR[supreg] S&P 500 ETF 
Trust (commonly known and referred to by its ticker symbol, 
``SPY'').\6\ The Exchange adopted its initial SPIKES transaction fees 
on February 15, 2019.\7\ Options on the SPIKES Index began trading on 
the Exchange on February 19, 2019.
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    \6\ See Securities Exchange Act Release No. 84417 (October 12, 
2018), 83 FR 52865 (October 18, 2018) (SR-MIAX-2018-14) (Order 
Granting Approval of a Proposed Rule Change by Miami International 
Securities Exchange, LLC to List and Trade on the Exchange Options 
on the SPIKES[supreg] Index).
    \7\ See Securities Exchange Release No. 85283 (March 11, 2019), 
84 FR 9567 (March 15, 2019) (SR-MIAX-2019-11). On September 30, 
2020, the Exchange filed its proposal to, among other things, 
reorganize the Fee Schedule to adopt new Section 1(b), Proprietary 
Products Exchange Fees, and moved the fees and rebates for SPIKES 
options into new Section 1(b)(i). See Securities Exchange Act 
Release No. 90146 (October 9, 2020), 85 FR 65443 (October 15, 2020) 
(SR-MIAX-2020-32).
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SPIKES Options Market Maker Incentive Program
    The Exchange proposes to implement a SPIKES Options Market Maker 
Incentive Program for SPIKES options to incentivize Market Makers to 
improve liquidity, available volume, and the quote spread width of 
SPIKES options. To be eligible to participate in the Incentive Program, 
a Market Maker must meet certain minimum requirements related to quote 
spread width in certain in-the-money (ITM) and out-of-the-money (OTM) 
options as determined by the Exchange and communicated to Members via 
Regulatory Circular.\8\ Market Makers must also satisfy a minimum time 
in the market in the front 2 expiry months of 70%, and have an average 
quote size of 25 contracts.
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    \8\ Supra note 5.
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    The Exchange proposes to establish two separate incentive 
compensation pools that will be used to compensate Market Makers that 
satisfy the criteria pursuant to the proposed Incentive Program.
Incentive 1 Pool
    The first pool (Incentive 1) will be a total amount of $40,000 per 
month, which will be allocated to Market Makers that meet the minimum 
requirements of the Incentive Program. Market Makers will be required 
to meet minimum spread width requirements in a select number of ITM and 
OTM SPIKES option contracts as determined by the Exchange and 
communicated to

[[Page 60323]]

Members \9\ via Regulatory Circular.\10\ A complete description of how 
the Exchange calculates the minimum spread width requirements in ITM 
and OTM SPIKES options can be found in the published Regulatory 
Circular,\11\ additionally an example is provided below. Market Makers 
will also be required to maintain the minimum spread width, described 
above, for at least 70% of the time in the front two (2) SPIKES options 
contract expiry months and maintain an average quote size of at least 
25 SPIKES options contracts. The amount available to each individual 
Market Maker will be capped at $10,000 per month for satisfying the 
minimum requirements of the Incentive Program. In the event that more 
than four Market Makers meet the requirements of the Incentive Program, 
each qualifying Market Maker will be entitled to receive a pro-rated 
share of the $40,000 monthly compensation pool dependent upon the 
number of qualifying Market Makers in that particular month. For 
example, if five Market Makers qualify for compensation under Incentive 
1 of the Incentive Program, each Market Maker would receive a rebate of 
$8,000 for that particular month.
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    \9\ 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.
    \10\ Supra note 5.
    \11\ Id.
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Incentive 2 Pool
    The second pool (Incentive 2 Pool) will be capped at a total amount 
of $100,000 per month which will be used during the Incentive Program 
to further incentivize Market Makers who meet or exceed the 
requirements of Incentive 1 (``qualifying Market Makers'') to provide 
tighter quote width spreads. The Exchange will rank each qualifying 
Market Maker's quote width spread relative to each other qualifying 
Market Maker's quote width spread. Market Makers with tighter spreads 
in certain strikes, as determined by the Exchange and communicated to 
Members via Regulatory Circular,\12\ will be eligible to receive a pro-
rated share of the compensation pool as calculated by the Exchange and 
communicated to Members via Regulatory Circular,\13\ not to exceed 
$25,000 per Member per month. Qualifying Market Makers will be ranked 
relative to each other based on the quality of their spread width 
(i.e., tighter spreads are ranked higher than wider spreads) and the 
Market Maker with the best quality spread width will receive the 
highest rebate, while other eligible qualifying Market Makers will 
receive a rebate relative to their quality spread width.
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    \12\ Id.
    \13\ Id.
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Incentive Pool 2 Example
    Each qualifying Market Maker's ITM/OTM market width for eligible 
Incentive Program options will be calculated, weighted, and ranked. ITM 
market width will be given a 25% weighting and OTM market width will be 
given a 75% weighting. Eligible ITM options require a maximum quote 
width spread of 150 basis points (``bps'') and each eligible OTM option 
requires a maximum quote width of 100 bps (as calculated below).
    The formula employed by the Exchange to calculate the bps for an 
individual strike is: {(Ask Quote-Bid Quote)/Futures price{time}  * 
10,000, where the futures price is in the same expiry being measured. 
For example, a SPIKE 19 Put expiring on 10/20/2021 has a bid quote of 
$0.25 and an ask quote of $.45 and the October SPIKE Future is trading 
at 20.30. Using the aforementioned formula the Exchange can calculate 
the Member's bps on that strike as: {($0.45-$0.25)/20.30{time}  * 
10,000; or ($0.20/20.30) * 10,000; or .009852 * 10,000 = 98.52217 bps. 
To establish the market quality baseline bps the Exchange combines 
target bps in ITM and OTM options (150 bps * 25% = 37.5 bps and 100 bps 
* 75% = 75 bps; 37.5 bps + 75 bps = 112.50 bps).
    To determine the pool amount the Exchange will contribute $5,000 
for each basis point improvement from the Exchange established baseline 
of 112.50 bps. The Exchange will calculate a Member's Improvement Value 
(``MIV'') by subtracting the Member's monthly average bps from the 
Exchange established baseline of 112.50 bps. If for the month ``Market 
Maker A'' has an average score of 109 and ``Market Maker B'' has an 
average score of 107 the Exchange will calculate the amount of 
Incentive Pool 2 based on the average total improvement of the 
qualifying Market Makers from the baseline and for every bps of 
improvement the Exchange will contribute $5,000 to Incentive Pool 2. In 
this example, the average of ``Market Maker A'' (109) and ``Market 
Maker B'' (107) is 108. The Exchange would therefore contribute $22,500 
to Incentive Pool 2 (112.5-108 = 4.5 * $5,000).
    The Exchange will calculate a pro-rata distribution for each Market 
Maker based upon their improvement value, which is the number of bps 
improvement from the Exchange established baseline of 112.5. ``Market 
Maker A'' has an MIV of 3.5 (112.5-109) and ``Market Maker B'' has an 
MIV of 5.5 bps (112.5 = 107). To determine each Market Makers' pro-rata 
share of the Incentive 2 Pool the Exchange sums the MIVs of each Market 
Maker (3.5 + 5.5) = 9 and divides each Market Maker's MIV by that total 
to establish their weighted percentage: 38.89% and 61.11% for ``Market 
Maker A'' and ``Market Maker B,'' respectively. ``Market Maker A'' 
would then be entitled to 38.89% of the $22,500 Incentive 2 Pool or 
$8,750. Whereas ``Market Maker B'' would be entitled to 61.11% of the 
$22,500 Incentive 2 Pool or $13,750.
    The total amount in Incentive Pool 2 is capped at $100,000 per 
month and the total amount allocated to any one Member is capped at 
$25,000 per month.
    The details of the Incentive Program are contained in a Regulatory 
Circular distributed to all Members.\14\
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    \14\ Id.
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2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \15\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \16\ 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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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that it is reasonable, equitable, and not 
unfairly discriminatory to adopt an Incentive Program for Market Makers 
in SPIKES options. The Incentive Program is reasonably designed because 
it will incent Market Makers to provide quotes and increased liquidity 
in select SPIKES options contracts. The proposed Incentive Program is 
reasonable, equitably allocated and not unfairly discriminatory because 
all Market Makers in SPIKES options may qualify for Incentive 1 and 
Incentive 2, dependent upon each Market Maker's quoting in SPIKES 
options in a particular month. Additionally, if a

[[Page 60324]]

SPIKES Market Maker does not satisfy the requirements of Incentive Pool 
1 or 2, then it simply will not receive the rebate offered by the 
Incentive Program for that month.
    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to offer this financial incentive to SPIKES 
Market Makers because it benefits all market participants trading in 
SPIKES. SPIKES Options is a Proprietary Product \17\ on the Exchange 
and this Incentive Program encourages SPIKES Market Makers to satisfy a 
heightened quoting standard, average quote size, and time in market. An 
increase in quoting activity and tighter quotes may yield a 
corresponding increase in order flow from other market participants, 
which benefits all investors by deepening the Exchange's liquidity 
pool, potentially providing greater execution incentives and 
opportunities, while promoting market transparency and improving 
investor protection.
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    \17\ The term ``Proprietary Product'' means a class of options 
that is listed exclusively on the Exchange. See Exchange Rule 100.
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    The Exchange believes that the Incentive Program is equitable and 
not unfairly discriminatory because it will promote an increase in 
SPIKES options liquidity, which may facilitate tighter spreads and an 
increase in trading opportunities to the benefit of all market 
participants. The Exchange believes it is reasonable to operate the 
Incentive Program for a limited period of time to strengthen market 
quality for all market participants. The resulting increased volume and 
liquidity will benefit those Members who are eligible to participate in 
the Incentive Program and will also benefit those Members who are not 
eligible to participate in the Incentive Program by providing more 
trading opportunities and tighter spreads.

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.
Intra-Market Competition
    The Exchange believes that the proposal to adopt an Incentive 
Program does not impose any burden on intra-market competition that is 
not necessary or appropriate in furtherance of the purposes of the Act.
    The Exchange believes that the proposal would increase intra-market 
competition by incentivizing Market Makers to quote SPIKES options, 
which will enhance the quality of quoting and increase the volume of 
contracts available to trade in SPIKES options. To the extent that this 
purpose is achieved, all the Exchange's market participants should 
benefit from the improved market liquidity for SPIKES options. Enhanced 
market quality and increased transaction volume in SPIKES options that 
results from the anticipated increase in Market Maker activity on the 
Exchange will benefit all market participants and improve competition 
on the Exchange.
Inter-Market Competition
    The Exchange believes the proposed rule change does not impose any 
burden on inter-market competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed changes in 
connection with the Incentive Program are limited to SPIKES options 
which are a proprietary product of the Exchange and as such are listed 
and traded exclusively on the Exchange.
    Additionally, as noted above, the Incentive Program is designed to 
improve volume and liquidity in SPIKES options. Greater volume and 
liquidity benefits all market participants by providing more trading 
opportunities, tighter spreads, and added market transparency and price 
discovery. The Exchange notes that it operates in a highly competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or incentives to be insufficient. More specifically, the 
Exchange is only one of 16 options venues to which market participants 
may direct their order flow. Based on publicly available information, 
no single options exchange has more than 13% of the market share.\18\ 
Thus, in such a low-concentrated and highly competitive market, no 
single options exchange possess significant pricing power in the 
execution of option order flow.
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    \18\ See MIAX's ``The Market at a Glance'', available at https://www.miaxoptions.com/ (last visited September 28, 2021).
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    Accordingly, the Exchange does not believe its proposal to adopt an 
Incentive Program imposes any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Act.

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,\19\ and Rule 19b-4(f)(2) \20\ 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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    \19\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \20\ 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-2021-49 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-2021-49. 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

[[Page 60325]]

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-2021-49 and should be 
submitted on or before November 22, 2021.
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    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-23673 Filed 10-29-21; 8:45 am]
BILLING CODE 8011-01-P


