Document ID: SEC-2016-1554-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Miami International Securities Exchange, LLC
Posted Date: 2016-08-31T04:00Z

[Federal Register Volume 81, Number 169 (Wednesday, August 31, 2016)]
[Notices]
[Pages 60077-60080]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-20894]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78681; File No. SR-MIAX-2016-28]

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 25, 2016.
    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on August 11, 2016, Miami International Securities 
Exchange LLC (``MIAX'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``Commission'') a proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the Exchange. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Options Fee 
Schedule (the ``Fee Schedule'').
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.miaxoptions.com/filter/wotitle/rule_filing, at 
MIAX's principal office, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Section 1)b) of the Fee Schedule, 
Marketing Fee, to add to the list of symbols for which the Exchange 
assesses a $0.12 per contract Posted Liquidity Marketing Fee. In 
addition to the current symbols listed in Section 1)b), the Exchange is 
proposing to assess the Posted Liquidity Marketing Fee for contracts 
executed in DIA, FB, GDX, SLV, USO, UVXY, and VXX. The Exchange also 
proposes to assess the applicable per contract non-Market Maker 
transaction fees for executions in these new symbols, as described more 
fully below.
    A Marketing Fee is assessed on certain transactions of all Market 
Makers.\3\ Currently, Section 1) b) of the Fee Schedule provides that 
the Exchange will assess:
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    \3\ See MIAX Fee Schedule, Section 1)b), entitled ``Marketing 
Fee'' for more detail regarding the Marketing Fee.
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    (i) A Marketing Fee to all Market Makers for contracts, including 
mini options, they execute in their assigned classes when the contra-
party to the execution is a Priority Customer. MIAX will not assess a 
Marketing Fee to Market Makers for contracts executed as a PRIME Agency 
Order, Contra-side Order, Qualified Contingent Cross Order, PRIME 
Participating Quote or Order, or a PRIME AOC Response in the PRIME 
Auction, unless it executes against an unrelated order.
    (ii) an additional $0.12 per contract Posted Liquidity Marketing 
Fee to all Market Makers for any standard options overlying EEM, GLD, 
IWM, QQQ, and SPY that Market Makers execute in their assigned class 
when the contra-party to the execution is a Priority Customer and the 
Priority Customer order was posted on the MIAX Book at the time of the 
execution. MIAX will not assess the additional Posted Liquidity 
Marketing Fee to Market Makers for contracts executed as a PRIME Agency 
Order, Contra-side Order, Qualified Contingent Cross Order, or a PRIME 
AOC Response or PRIME Participating Quote or Order in the PRIME 
Auction. MIAX will also not assess the additional Posted Liquidity 
Marketing Fee to Market Makers for contracts executed pursuant to a 
Liquidity Refresh Pause, route timer, or during the Opening Process. 
This Posted Liquidity Marketing Fee is in addition to the current 
Marketing Fee of $0.25 per contract for standard options overlying 
these enumerated symbols that Market Makers execute in their assigned 
class when the contra-party to the execution is a Priority Customer.\4\
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    \4\ See Securities Exchange Act Release No. 73848 (December 16, 
2014), 79 FR 76421 (December 22, 2014) (SR-MIAX-2014-62) (Notice of 
Filing and Immediate Effectiveness of MIAX Posted Liquidity 
Marketing Fee with respect to EEM, GLD, IWM, QQQ and SPY).
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    Funds collected via the Marketing Fee, including the additional 
$0.12 per contract Posted Liquidity Marketing Fee, are put into 
``pools'' controlled by Primary Lead Market Makers (``PLMMs'') \5\ and 
Lead Market Makers (``LMMs'').\6\ So for example, the $0.12 per 
contract Posted Liquidity Marketing Fee goes into the broader Marketing 
Fee pool for the Directed LMM or the PLMM

[[Page 60078]]

in EEM, GLD, IWM, QQQ or SPY, as applicable. The PLMM or LMM 
controlling a certain pool of funds can then determine the Electronic 
Exchange Member(s) (``EEM'') \7\ to which the funds should be directed 
in order to encourage such EEM(s) to send orders to the Exchange. In 
accordance with Exchange Rule 514, an EEM can designate an order 
(``Directed Order'') to a specific LMM.
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    \5\ The term ``Primary Lead Market Maker'' means a Lead Market 
Maker appointed by the Exchange to act as the Primary Lead Market 
Maker for the purpose of making markets in securities traded on the 
Exchange. The Primary Lead Market Maker is vested with the rights 
and responsibilities specified in Chapter VI of these Rules with 
respect to Primary Lead Market Makers. See Exchange Rule 100.
    \6\ The term ``Lead Market Maker'' means a Member registered 
with the Exchange for the purpose of making markets in securities 
traded on the Exchange and that is vested with the rights and 
responsibilities specified in Chapter VI of these Rules with respect 
to Lead Market Makers. When a Lead Market Maker is appointed to act 
in the capacity of a Primary Lead Market Maker, the additional 
rights and responsibilities of a Primary Lead Market Maker specified 
in Chapter VI of these Rules will apply. See Exchange Rule 100.
    \7\ 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 Act. See Exchange Rule 100.
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    The purpose of the Posted Liquidity Marketing Fee is to further 
encourage Members to post additional Priority Customer orders on the 
Exchange's Book in the enumerated high volume symbols. Increased 
Priority Customer orders on the Exchange's Book in these symbols 
provides for greater liquidity, which benefits all market participants 
on the Exchange. The Exchange now proposes to add to the following high 
volume symbols to its Posted Liquidity Marketing Fee program: DIA, FB, 
GDX, SLV, USO, UVXY, and VXX,\8\ as reflected in the proposed 
amendments to Section (1)(b) and Footnote 15 of the Fee Schedule. The 
practice of encouraging increased retail customer order flow in order 
to attract professional liquidity providers (Market Makers) is, and has 
been, commonly applied in the options markets. As such, marketing fee 
programs \9\ and posting incentive programs \10\ are based on 
attracting public customer order flow. Additional incentives intended 
to increase order flow in high volume symbols are, and have been, 
commonly offered in the options markets.\11\ The proposed Posted 
Liquidity Marketing Fee with respect to high volume symbols DIA, FB, 
GDX, SLV, USO, UVXY, and VXX similarly is intended to attract Priority 
Customer order flow, which will increase liquidity, thereby providing 
greater trading opportunities and tighter spreads for other market 
participants and causing a corresponding increase in order flow from 
such other market participants. Increasing the number of orders sent to 
the Exchange will in turn provide tighter and more liquid markets, and 
therefore attract more business overall.
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    \8\ DIA, FB, GDX, SLV, USO, UVXY, and VXX had among the highest 
MIAX volume by class as reported by the Options Clearing Corporation 
(``OCC'') for June 2016. See http://www.optionsclearing.com/webapps/volbyclass-reports?reportClass=miax.
    \9\ See MIAX Fee Schedule, Section (1)( b); Chicago Board 
Options Exchange, Incorporated (``CBOE'') Fees Schedule, p. 4; NYSE 
Amex Options Fee Schedule, p. 7.
    \10\ See NYSE Arca, Inc. (``Arca'') Options Fees and Charges 
Schedule, page 5.
    \11\ See International Securities Exchange, LLC (``ISE'') 
Schedule of Fees, p. 6 ; Arca Option Fees and Charges Schedule, p. 
5.
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    The Exchange also proposes to adopt the same additional $0.50 per 
contract transaction fee for options overlying DIA, FB, GDX, SLV, USO, 
UVXY, and VXX executed by non-MIAX Market Makers as currently applies 
to options overlying EEM, GLD, IWM, QQQ, and SPY executed by non-MIAX 
Market Makers as set forth in footnote 8, Section (1)(a)(ii) of the Fee 
Schedule.\12\ The purpose of the proposed fee change is to assess the 
transaction fee for non-MIAX Market Makers in the new symbols (DIA, FB, 
GDX, SLV, USO, UVXY, and VXX) that are being added to the Exchange's 
Posted Liquidity Marketing Fee, in the same manner as the current 
symbols that are included in each fee.
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    \12\ See Securities Exchange Act Release No. 73850 (December 16, 
2014), 79 FR 76424 (December 22, 2014) (SR-MIAX-2014-63) (Notice of 
Filing and Immediate Effectiveness of MIAX non-Market Maker 
Transaction Fee with respect to EEM, GLD, IWM, QQQ and SPY).
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2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \13\ in general, and in particular, furthers 
the objectives of Section 6(b)(4) of the Act,\14\ in that it is an 
equitable allocation of reasonable dues, fees, and other charges among 
its Members and other persons using its facilities, and 6(b)(5) of the 
Act,\15\ 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, 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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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
    \15\ 15 U.S.C. 78f(b)(1) and (b)(5).
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    The proposed changes are designed to incentivize order flow 
providers to post additional Priority Customer orders in DIA, FB, GDX, 
SLV, USO, UVXY, and VXX options on the Exchange's Book. The proposed 
marketing fee rate is reasonable in that although it may result in a 
marketing fee that is slightly higher than similar marketing fee 
programs, it is still in the range of marketing fee programs on other 
competing exchanges which charge lower marketing fees for Penny Pilot 
options classes versus non-Penny Pilot options classes.\16\ The 
proposed marketing fee is fair, equitable, and not unreasonably 
discriminatory because it will apply equally to all Market Makers that 
execute against Priority Customer orders in DIA, FB, GDX, SLV, USO, 
UVXY, and VXX options posted on the Exchange's Book. All similarly 
situated Market Makers that execute against Priority Customer orders in 
DIA, FB, GDX, SLV, USO, UVXY, and VXX options that are posted to the 
Exchange's Book are subject to the same marketing fee, and access to 
the Exchange is offered on terms that are not unfairly discriminatory. 
In addition, the proposal is equitable and not unfairly discriminatory 
because, while only posted Priority Customer order flow qualifies for 
the additional marketing fee, an increase in Priority Customer orders 
posted to the Exchange's Book will bring greater volume and liquidity 
as market participants compete to trade with the additional Priority 
Customer order flow, which benefits all market participants by 
providing more trading opportunities and tighter spreads. Market 
participants want to trade with Priority Customer order flow. To the 
extent the posting of Priority Customer orders on the Exchange's Book 
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 their 
effort to trade with such Priority Customer order flow. The resulting 
increased volume and liquidity will benefit non-Market Makers that do 
not pay the proposed fee and do not qualify for the marketing fee 
program at all, by providing more trading opportunities and tighter 
spreads as market participants increasingly compete by sending more 
orders and providing narrower and larger sized quotations in the effort 
to trade with such Priority Customer order flow. In addition, the 
proposed change is equitable and not unfairly discriminatory because it 
is designed to allow LMMs to encourage greater order flow to be sent to 
the Exchange. The Exchange believes it is equitable to assess marketing 
fees on Market Makers and not non-Market Makers because the benefits of 
the marketing fee program flow to PLMM and Directed LMMs that can use 
the marketing fee funds to attract additional flow to the Exchange, 
which benefits Market Makers. An LMM could amass a greater pool of 
funds to use to incentivize order flow providers to send order flow to 
the Exchange. This increased order flow would benefit all market 
participants on the Exchange as well.
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    \16\ See CBOE Fees Schedule, p. 4; NYSE Amex Options Fee 
Schedule, p. 7.

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[[Page 60079]]

    The Exchange believes that its proposal to assess the additional 
Posted Liquidity Marketing Fee for transactions in DIA, FB, GDX, SLV, 
USO, UVXY, and VXX options, and not other options classes, is 
consistent with other options markets that provide additional 
incentives to increase order flow in high volume symbols including 
assessing different marketing fees for Penny options classes as 
compared to non-Penny options classes.\17\ The Exchange believes that 
establishing different pricing for DIA, FB, GDX, SLV, USO, UVXY, and 
VXX Penny Pilot options is reasonable, equitable, and not unfairly 
discriminatory because DIA, FB, GDX, SLV, USO, UVXY, and VXX options 
are more liquid options \18\ as compared to other Penny Pilot options 
and the Exchange wants to provide incentive for order flow providers to 
send such orders to MIAX in order to increase trading opportunities and 
overall volume executed on the Exchange.
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    \17\ See CBOE Fees Schedule, p. 4; NYSE Amex Options Fee 
Schedule, p. 7; ISE Schedule of Fees, p. 13; NYSE Arca Options Fees 
and Charges Schedule, p. 5.
    \18\ See supra note 8.
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    Further, the Exchange's proposed transaction fees for non-MIAX 
Market Makers in DIA, FB, GDX, SLV, USO, UVXY, and VXX are reasonable 
in order to ensure that the net transaction fees for non-MIAX Market 
Makers remain higher than Market Makers in a manner that is designed to 
encourage market participants to become members and register as Market 
Makers versus otherwise sending orders to the Exchange as a non-MIAX 
Market Maker in order to avoid a higher transaction fee.

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

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The proposal is 
designed to encourage an increase in Priority Customer orders in DIA, 
FB, GDX, SLV, USO, UVXY, and VXX options posted to the Exchange's Book 
in order to bring greater volume and liquidity, which benefit all 
market participants by providing more trading opportunities and tighter 
spreads. An increase in the submission of Priority Customer orders in 
DIA, FB, GDX, SLV, USO, UVXY, and VXX options on the Exchange's Book 
should result in an increase in competition for the opportunity to 
trade on the Exchange by, among other things, sending more orders and 
providing narrower and larger sized quotations in the effort to trade 
with such Priority Customer order flow. The resulting increased volume 
and liquidity will benefit non-Market Makers that do not pay the 
proposed fee and do not qualify for the marketing fee program at all, 
by providing more trading opportunities and tighter spreads.
    To the extent that there is additional competitive burden on market 
participants that are not Priority Customers or Market Makers or 
trading in other symbols, the Exchange believes that this is 
appropriate because the proposal should encourage Members to direct 
additional order flow to the Exchange and thus provide additional 
liquidity that enhances the quality of its markets and increases the 
volume of contracts traded on the Exchange. The Exchange believes that 
all of the Exchange's market participants will benefit from the 
improved market liquidity. Enhanced market quality and increased 
transaction volume that results from the anticipated increase in order 
flow directed to the Exchange will benefit all market participants and 
improve competition on the Exchange.
    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 to the 
Exchange. The Exchange believes that the proposed rule change reflects 
this competitive environment because it establishes a fee structure in 
a manner that encourages market participants to direct their order 
flow, to provide liquidity, and to attract additional transaction 
volume 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,\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 rule-comments@sec.gov. Please include 
File Number SR-MIAX-2016-28 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-MIAX-2016-28. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-MIAX-

[[Page 60080]]

2016-28, and should be submitted on or before September 21, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-20894 Filed 8-30-16; 8:45 am]
 BILLING CODE 8011-01-P