Document ID: SEC-2022-1437-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Miami International Securities Exchange, LLC
Posted Date: 2022-11-07T05:00Z

[Federal Register Volume 87, Number 214 (Monday, November 7, 2022)]
[Notices]
[Pages 67100-67103]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-24143]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96198; File No. SR-MIAX-2022-38]

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

November 1, 2022.
    Pursuant to 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, 2022, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 
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 amend footnote 
``*'' of the MIAX Price Improvement Mechanism (``PRIME'') Fees table 
\3\ to increase the enhanced PRIME Break-up credit of $0.69 to $0.73 
for EEMs that submit a Priority Customer PRIME Order in Non-Penny 
Classes that is submitted to the PRIME Auction that trades with PRIME 
AOC Reponses and/or PRIME Participating Quotes or Orders, if the PRIME 
Order experiences a break-up of greater than forty percent (40%). The 
Exchange initially filed this proposal on September 30, 2022 (SR-MIAX-
2022-34). On October 12, 2022, the Exchange withdrew SR-MIAX-2022-34 
and resubmitted the proposal (SR-MIAX-2022-36). On October 19, 2022, 
the Exchange withdrew SR-MIAX-2022-36 and resubmitted this proposal 
(SR-MIAX-2022-38).
---------------------------------------------------------------------------

    \3\ See Section 1)a)v) of the Exchange's Fee Schedule on its 
public website (available at www.miaxoptions.com/fees).
---------------------------------------------------------------------------

    The proposed changes are immediately effective.
Background
    The MIAX Price Improvement Mechanism (``PRIME'') is a process by 
which a Member \4\ may electronically submit for execution an order it 
represents as agent (an ``Agency Order'') against principal interest 
and/or solicited interest. The Member that submits the Agency Order 
(``Initiating Member'') agrees to guarantee the execution of the Agency 
Order by submitting a contra-side order representing principal interest 
or solicited interest (``Contra-Side Order'').\5\ When the Exchange 
receives a properly designated Agency Order for Auction processing, a 
request for response (``RFR'') detailing the option, side, size and 
initiating price is broadcasted to MIAX participants up to an optional 
designated limit price.\6\ Members may submit responses to the RFR, 
which can be either an Auction or Cancel (``AOC'') order \7\ or an AOC

[[Page 67101]]

eQuote.\8\ The PRIME mechanism is used for orders on the Exchange's 
Simple Order Book.\9\
---------------------------------------------------------------------------

    \4\ 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.
    \5\ See Exchange Rule 515A(a).
    \6\ See Exchange Rule 515A(a)(2)(B).
    \7\ An Auction-or-Cancel or ``AOC'' order is a limit order used 
to provide liquidity during a specific Exchange process (such as the 
Opening Imbalance process described in Rule 503) with a time in 
force that corresponds with that event. AOC orders are not displayed 
to any market participant, are not included in the MBBO and 
therefore are not eligible for trading outside of the event, may not 
be routed, and may not trade at a price inferior to the away 
markets. See Exchange Rule 516(b)(4).
    \8\ AOC eQuote An Auction or Cancel or ``AOC'' eQuote is a quote 
submitted by a Market Maker to provide liquidity in a specific 
Exchange process (such as the Opening Imbalance Process described in 
Rule 503) with a time in force that corresponds with the duration of 
that event and will automatically expire at the end of that event. 
AOC eQuotes are not displayed to any market participant, are not 
included in the MBBO and therefore are not eligible for trading 
outside of the event. An AOC eQuote does not automatically cancel or 
replace the Market Maker's previous Standard quote or eQuote. See 
Exchange Rule 517(a)(2)(ii).
    \9\ The ``Simple Order Book'' is the Exchange's regular 
electronic book of orders and quotes. See Exchange Rule 518(a)(15).
---------------------------------------------------------------------------

    The Exchange provides a PRIME Break-up credit of $0.60 per contract 
for Non-Penny Classes in a PRIME Auction.\10\ The Exchange subsequently 
adopted an enhanced PRIME Break-up credit of $0.69 per contract for 
Priority Customer PRIME Orders in Non-Penny Classes when the order 
break-up percentage was greater than 40%.\11\ The enhanced PRIME Break-
up credit of $0.69 per contract is applied to the EEM that submitted a 
PRIME Order in Non-Penny classes that is submitted to a PRIME Auction 
that trades with PRIME AOC Responses and/or PRIME Participating Quotes 
or Orders, if the PRIME Order experiences a break-up of greater than 
forty percent (40%). The Exchange now proposes to increase the per 
contract credit from $0.69 to $0.73. The decision to increase the 
enhanced Priority Customer Break-up credit is based on an analysis of 
current revenue and volume levels and is designed to continue to 
encourage Priority Customer order flow to PRIME Auctions.
---------------------------------------------------------------------------

    \10\ See Section 1)a)v) of the Exchange's Fee Schedule on its 
public website (available at www.miaxoptions.com/fees).
    \11\ See Securities Exchange Act Release No. 93306 (October 13, 
2021), 86 FR 57869 (October 19, 2021) (SR-MIAX-2021-42).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \12\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \13\ in 
particular, in that it is an equitable allocation of reasonable dues, 
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 \14\ 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.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
    \14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes its proposal provides for the equitable 
allocation of reasonable dues and fees and is not unfairly 
discriminatory for the following reasons. The decision to increase the 
enhanced Priority Customer Break-up credit is based on an analysis of 
current revenue and volume levels and is designed to continue to 
encourage Priority Customer order flow to PRIME Auctions. The Exchange 
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 one of 16 registered 
options exchanges competing for order flow. Based on publicly-available 
information, and excluding index-based options, no single exchange has 
more than approximately 11% of the market share of executed volume of 
multiply-listed equity and exchange-traded fund (``ETF'') options 
trades as of September 26, 2022, for the month of September 2022.\15\ 
Therefore, no exchange possesses significant pricing power in the 
execution of multiply-listed equity and ETF options order flow. More 
specifically, as of September 26, 2022, the Exchange has a total market 
share of 5.23% of all equity options volume, for the month of September 
2022.\16\
---------------------------------------------------------------------------

    \15\ See MIAX's ``The market at a glance/MTD AVERAGE'', 
available at https://www.miaxoptions.com/ (Data as of 9/1/2022-9/26/
2022).
    \16\ See id.
---------------------------------------------------------------------------

    The Exchange believes that the ever-shifting market share among the 
exchanges from month to month demonstrates that market participants can 
shift order flow, or discontinue use of certain categories of products, 
in response to 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.\17\ 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.
---------------------------------------------------------------------------

    \17\ See Securities Exchange Act Release No. 85301 (March 13, 
2019), 84 FR 10166 (March 19, 2019) (SR-MIAX-2019-09).
---------------------------------------------------------------------------

    Accordingly, competitive forces constrain the Exchange's 
transaction fees, and market participants can readily trade on 
competing venues if they deem pricing levels at those other venues to 
be more favorable. In response to the competitive environment, the 
Exchange offers specific rates and credits in its Fee Schedule, like 
those of other options exchanges' fees schedules, which the Exchange 
believes provides incentives to Members to increase order flow of 
certain qualifying orders.
    The Exchange believes its proposal to increase the enhanced PRIME 
Break-up Credit for Non-Penny Classes for Priority Customers is 
reasonable, equitably allocated and not unfairly discriminatory because 
this change is for business and competitive reasons. In order to 
attract order flow the Exchange initially set its rebates and fees for 
its PRIME Auctions so that they were meaningfully higher/lower than 
other options exchanges that provide comparable price improvement 
mechanisms.\18\ The Exchange now believes that it is appropriate to 
further adjust these fees so that they are competitive with other 
Exchanges that offer similar price improvement functionality and 
maintain a similar credit methodology. Specifically, the Cboe Exchange 
provides a Break-up Credit of $0.60 in Non-Penny Classes \19\ and the 
BOX Exchange provides a Break-up Credit of $0.81 in Non-Penny 
Classes,\20\ therefore the Exchange's proposed enhanced Break-up credit 
of $0.73 in Non-Penny Classes is in line with Break-up credits in Non-
Penny Classes currently available on other exchanges. The Exchange 
believes its proposed enhanced Break-up credit in Non-Penny Classes 
will allow the Exchange to remain competitive and should enable the 
Exchange to continue to attract order flow to PRIME Auctions and to 
also maintain market share.
---------------------------------------------------------------------------

    \18\ See Cboe Exchange Rule 5.73 and 5.74; See also BOX Exchange 
Rule 7150 and 7245.
    \19\ See Cboe Exchange Fee Schedule, ``Break-Up Credits,'' on 
its public website (available at https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf).
    \20\ See Section IV. Electronic Transaction Fees, B. PIP and 
COPIP Transactions, of the BOX Options Exchange Fee Schedule on its 
public website (available at https://boxoptions.com/fee-schedule/).
---------------------------------------------------------------------------

    The Exchange believes that its proposal will continue to encourage 
Priority Customer order flow to PRIME

[[Page 67102]]

Auctions. Increased Priority Customer order flow benefits all market 
participants because it continues to attract liquidity to the Exchange 
by providing more trading opportunities. This attracts Market Makers 
and other liquidity providers, thus, facilitating price improvement in 
the auction process, signaling additional corresponding increase in 
order flow from other market participants, and, as a result, increasing 
liquidity on the Exchange.
    As noted above, the Exchange operates in a highly competitive 
market. The Exchange is only one of several options venues to which 
market participants may direct their order flow, and it represents a 
small percentage of the overall market. The Exchange believes that the 
proposed fees are reasonable, equitable, and not unfairly 
discriminatory in that at least one competing options exchange offers 
similar fees and credits in connection with similar price improvement 
auctions.\21\
---------------------------------------------------------------------------

    \21\ See supra note 20.
---------------------------------------------------------------------------

    The Exchange also believes that this proposal is consistent with 
Section 6(b)(5) of the Act \22\ because it perfects the mechanisms of a 
free and open market and a national market system and protects 
investors and the public interest because it provides an additional 
incentive for Members to increase Priority Customer order flow to the 
Exchange in order to obtain the highest volume threshold, which 
benefits all market participants by providing more trading 
opportunities and tighter spreads.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78f(b)(1) and (b)(5).
---------------------------------------------------------------------------

    In addition, The Exchange believes that its proposal is consistent 
with Section 6(b)(5) of the Act \23\ because it perfects the mechanisms 
of a free and open market and a national market system and protects 
investors and the public interest because Priority Customer order flow 
will bring greater volume and liquidity to the Exchange, which benefits 
all market participants by providing more trading opportunities and 
tighter spreads. To the extent Priority Customer order flow is 
increased by this proposal, market participants will increasingly 
compete for the opportunity to trade on the Exchange including sending 
more orders and provided narrower and larger-sized quotations in the 
effort to trade with such Priority Customer order flow.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    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.'' \24\
---------------------------------------------------------------------------

    \24\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005).
---------------------------------------------------------------------------

    The Exchange 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 non-transaction fee 
changes. Accordingly, competitive forces constrain the Exchange's 
transaction fees and rebates, and market participants can readily trade 
on competing venues if they deem pricing levels at those other venues 
to be more favorable. The Exchange believes the proposal reflects a 
reasonable and competitive pricing structure which will continue to 
incentivize market participants to direct liquidity adding orders to 
the Exchange, which the Exchange believes would enhance liquidity and 
market quality on the exchange to the benefit of all Members.
    For the reasons discussed above, the Exchange submits that the 
proposal satisfies the requirements of Sections 6(b)(4) and 6(b)(5) of 
the Act \25\ in that it provides for the equitable allocation of 
reasonable dues, fees and other charges among its Members and other 
persons using its facilities and is not designed to unfairly 
discriminate between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

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

    In accordance with Section 6(b)(8) of the Act,\26\ the Exchange 
does not believe that the proposed rule change will impose any burden 
on intra-market or intra-market competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
believes its proposal to increase its enhanced PRIME Break-up Credit 
for Non-Penny Classes for Priority Customers is reasonable, equitably 
allocated and not unfairly discriminatory as the credit will be applied 
equally to all Members eligible to receive the credit. The Exchange 
believes that its proposal will continue to encourage Priority Customer 
order flow to PRIME Auctions. Increased Priority Customer order flow 
benefits all market participants because it continues to attract 
liquidity to the Exchange by providing more trading opportunities and 
tighter spreads.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    The Exchange does not believe that its proposal will impose any 
burden on inter-market competition that is not necessary or appropriate 
in furtherance of the purposes of the Act because, as noted above, at 
least one other competing options exchange currently has similar 
rebates in place in connection with similar price improvement 
auctions.\27\ Additionally, 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 or incentives to be insufficient. In such an environment, 
the Exchange must continually adjust its fees and incentives to remain 
competitive with other exchanges and to attract order flow to the 
Exchange. The Exchange is one of 16 options exchanges competing for 
order flow. Based on publicly available information, and excluding 
index-based options, no single options exchange has more than 
approximately 11% of the market share of executed multiply-listed 
equity and ETF options as of September 26, 2022, for the month of 
September 2022.\28\ Market participants can readily choose to send 
their orders to other exchanges if they deem fee levels or incentives 
at those other venues to be more favorable. In such an environment, the 
Exchange must continually adjust its fees and incentives to remain 
competitive with other exchanges and to attract order flow. The 
Exchange believes that the proposed rule change reflects this 
competitive environment.
---------------------------------------------------------------------------

    \27\ See supra note 20.
    \28\ See supra note 15.
---------------------------------------------------------------------------

    Moreover, the Commission has repeatedly expressed its preference 
for competition over regulatory intervention in determining prices, 
products, and services in the securities markets. Specifically, in 
Regulation NMS, the Commission highlighted the importance of market 
forces in 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.'' \29\ The

[[Page 67103]]

fact that this market is competitive has also long been recognized by 
the courts. In NetCoalition v. Securities and Exchange Commission, the 
D.C. Circuit stated as follows: ``[n]o one disputes that competition 
for order flow is `fierce.' . . . As the SEC explained, `[i]n the U.S. 
national market system, buyers and sellers of securities, and the 
broker-dealers that act as their order-routing agents, have a wide 
range of choices of where to route orders for execution'; [and] `no 
exchange can afford to take its market share percentages for granted' 
because `no exchange possesses a monopoly, regulatory or otherwise, in 
the execution of order flow from broker dealers'. . . .''.\30\ 
Accordingly, the Exchange does not believe its proposed fee change 
imposes any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \29\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 47396, 37499 (June 29, 2005).
    \30\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
---------------------------------------------------------------------------

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,\31\ and Rule 19b-4(f)(2) \32\ 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.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \32\ 17 CFR 24.19b-4(f)(2).
---------------------------------------------------------------------------

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-2022-38 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-2022-38. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of 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-2022-38, and should be submitted on 
or before November 28, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
---------------------------------------------------------------------------

    \33\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-24143 Filed 11-4-22; 8:45 am]
BILLING CODE 8011-01-P