Document ID: SEC-2013-2253-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Miami International Securities Exchange LLC
Posted Date: 2013-12-30T05:00Z

[Federal Register Volume 78, Number 250 (Monday, December 30, 2013)]
[Notices]
[Pages 79530-79533]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-31128]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71172; File No. SR-MIAX-2013-58]

Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing of a Proposed Rule Change To Amend the 
Exchange's By-Laws

December 23, 2013.
    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 December 9, 2013, 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 the 
Substance of the Proposed Rule Change

    The Exchange is filing a proposal to amend the Exchange's By-Laws.
    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: (i) Amend certain sections of its By-Laws 
to correspond with an Equity Rights Program (``ERP'') recently 
established by the Exchange; \3\ and (ii) make other non-substantive 
revisions to reflect changes since the Commission granted the 
Exchange's registration as a national securities exchange on December 
3, 2012.\4\
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    \3\ See Securities Exchange Act Release No. 70498 (September 25, 
2013), 78 FR 60348 (October 1, 2013) (SR-MIAX-2013-43).
    \4\ See Securities Exchange Act Release No. 68341 (December 3, 
2012), 77 FR 73089 (December 7, 2012) (File No. 10-207).
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    The filing corresponds with the recently implemented ERP, pursuant 
to which units representing the right to

[[Page 79531]]

acquire equity in the Exchange's parent holding company, Miami 
International Holdings (``LLM Member''),\5\ were issued to 
participating Members in exchange for payment of an initial purchase 
price or the prepayment of certain transaction fees and the achievement 
of certain liquidity addition volume thresholds on the Exchange over a 
23-month period. This filing amends the By-Laws to the extent necessary 
to incorporate rights to participating Members in an ERP to appoint 
representation to the MIAX Board.
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    \5\ The Commission notes that the defined term ``LLM Member'' is 
a typographical error. The Commission understands that the Exchange 
meant ``LLC Member'' here, a term used throughout this notice.
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Article I, Definitions
    The Exchange proposes to amend the By-Laws to provide definitions 
for key terms used to incorporate provisions related to the ERP. 
Specifically, the Exchange proposes the following definitions:
     ``Effective Date'' means the date of effectiveness of 
these Amended and Restated By-Laws.
     ``ERP Agreement'' means the agreement pursuant to which 
Units were issued.
     ``ERP Director'' means an Industry Director who has been 
nominated by an ERP Member and appointed to the Board of Directors.
     ``ERP Member'' means an Exchange Member who acquired Units 
pursuant to an ERP Agreement sufficient to acquire an ERP Director or 
an Observer position.
     ``Exchange Contract'' means a contract that is then listed 
for trading by the Exchange or that is contemplated by the then current 
business plan of the Company to be listed for trading by the Exchange 
within ninety (90) days following such date.
     ``Measurement Period'' means the time period over which 
Units are vested.
     ``Observer'' has the meaning set forth in Article II, 
Section 2.2 of these By-Laws.
     ``Performance Criteria'' means the trades on MIAX in an 
amount equal to a percentage of the average daily volume of contracts 
traded on all options exchanges for all option classes listed on MIAX 
as reported to The Options Clearing Corporation for a specified 
Measurement Period in an amount such that the ERP Member earns Units 
during such specified Measurement Period.
     ``Specified Entity'' means (i) any U.S. securities option 
exchange (or facility thereof) or U.S. alternative trading system on 
which securities options are traded (other than the Company or any of 
its affiliates) that lists for trading any option contract that 
competes with an Exchange Contract, (ii) any person that owns or 
controls such U.S. securities option exchange or U.S. alternative 
trading system, and (iii) any affiliate of a person described in clause 
(i) or (ii) above.\6\
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    \6\ The Exchange notes that this definition is nearly identical 
to that used by another competing options exchange. See Limited 
Liability Company Agreement of NYSE Amex Options, Article I, 1.1. 
See also Securities Exchange Act Release No. 64742 (June 24, 2011), 
76 FR 38436 (June 30, 2011) (SR-NYSEAmex-2011-018) (Exhibit 5A).
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     ``Unit'' means a combination of securities or types of 
securities packaged together as one.
    The Exchange will renumber the pre-existing definitions accordingly 
to accommodate the additions.
Article II, Section 2.2, Composition of the Board
    The Exchange proposes to amend the Board of Directors composition 
provisions to provide that ERP Directors will be included in the number 
of Industry Directors for purposes of calculating the composition of 
the Board. In addition, the Exchange proposes to specify that Member 
Representative Directors will not include ERP Directors for purposes of 
calculating the Board composition.
    The Exchange proposes to add a restriction to the qualifications of 
a Director so that after the effective date of the Amended and Restated 
By-Laws, in the event a Director becomes a member of the board of 
directors or similar governing body of a competing options exchange or 
alternative trading system that trades options, such individual shall 
immediately cease to be a Director of the Company and the resulting 
vacancy shall be filled by the standard nominating and appointment 
procedures.\7\ Existing Directors that may be in violation would be 
grandfathered in and not subject to the new restriction.
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    \7\ The Exchange notes that this restriction is nearly identical 
to that used by another competing options exchange. See Limited 
Liability Company Agreement of NYSE Amex Options, Article VIII, 
8.1(h). See also Securities Exchange Act Release No. 64742 (June 24, 
2011), 76 FR 38436 (June 30, 2011) (SR-NYSEAmex-2011-018) (Exhibit 
5A).
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    In addition, the Exchange proposes to provide that an ERP Member 
has a right to nominate a Director or appoint an Observer to the Board 
of Directors. If the ERP Member is otherwise able to nominate an ERP 
Director, an Observer appointment would be in lieu of such ERP Director 
nomination.\8\ As discussed below, the Nominating Committee shall 
formally nominate only those persons whose names have been approved and 
submitted by the applicable ERP Members. The LLC Member is then 
obligated to vote for the nominated ERP Director. The nominee shall be 
appointed at the first annual meeting of the Company following the 
effective date of the By-Law amendment.
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    \8\ At this time, an ERP Member may only have at most a Member 
Representative Director and an ERP Director, or a Member 
Representative Director and an Observer, but not an ERP Director and 
an Observer.
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    Observers appointed by ERP Members will be subject to the same 
statutory disqualification restrictions as Directors. Similar to 
Directors, in the event an Observer appointed after the effective date 
of the Amended and Restated By-Laws becomes a member of the board of 
directors or similar governing body of a competing options exchange or 
alternative trading system that trades options, such individual shall 
immediately cease to be an Observer of the Company.\9\ Observers will 
have the right to attend all meetings of the Board of Directors in a 
nonvoting observer capacity and, in this respect, the Company shall 
give such representative copies of all notices, minutes, consents, and 
other materials that it provides to its directors at the same time and 
in the same manner as provided to such Directors; provided, however, 
that such representative shall agree to hold in confidence and trust 
and to act in a fiduciary manner with respect to all information so 
provided; and provided further, that the Company reserves the right to 
withhold any information and to exclude such representative from any 
meeting or portion thereof if access to such information or attendance 
at such meeting could adversely affect the attorney-client privilege 
between the Company and its counsel or result in disclosure of trade 
secrets or a conflict of interest.
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    \9\ See id.
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    The Exchange believes these changes are reasonably designed to 
ensure that the Board of Directors maintains the appropriate 
composition after the ERP and that Directors and Observers are 
qualified to represent ERP Members on the Board. The changes will also 
help to ensure that Directors, ERP Directors, and Observers, are 
qualified and held to the same restrictions against statutory 
disqualification and conflicts of interests by being a member of the 
board of directors or similar body of a competitor. The Exchange notes 
that no substantive changes are being proposed to the Board's 
composition; the Board size will increase, but the current composition 
will remain.

[[Page 79532]]

Article II, Section 2.3, Terms of Office
    The Exchange proposes to amend this Section to provide that in the 
event that an ERP Member who has the right to nominate an ERP Director 
and which fails to meet its Performance Criteria under the ERP 
Agreement for three consecutive Measurement Periods such that it only 
meets the required performance criteria of an ERP Member that may 
appoint an Observer, then the individual designated by the non-
performing ERP Member shall immediately cease to be an ERP Director of 
the Company and such ERP Member shall cease to have the right to 
nominate an ERP Director. Such non-performing ERP Member shall continue 
to maintain Observer rights as set forth in the By-Laws. 
Notwithstanding the foregoing, in the event that the non-performing ERP 
Member satisfies the Performance Criteria for a subsequent Measurement 
Period, then such ERP Member may reappoint an ERP Director at the 
immediately following annual meeting of the Company. Additionally, in 
the event that an ERP Member who has the right to appoint an Observer 
and which fails to meet its Performance Criteria for three consecutive 
Measurement Periods, then the individual designated by the non-
performing ERP Member shall immediately cease to be an Observer and 
such non-performing ERP Member shall cease to have the right to appoint 
an Observer. Notwithstanding the foregoing, in the event that the non-
performing ERP Member satisfies the Performance Criteria for a 
subsequent Measurement Period, then such ERP Member may reappoint an 
Observer. The Exchange believes that it is fair and reasonable to treat 
non-performing ERP Member's that can nominate an ERP Director 
differently than non-performing ERP Member's that can only appoint 
Observers. ERP Members that can nominate ERP Directors have assumed 
greater performance obligations under the ERP Agreement, and thus even 
at the non-performing level are entitled to more protections to their 
representation on the Board than non-performing ERP Members that can 
only appoint Observers.
    The Exchange also proposes to provide that an individual ERP 
Director or Observer position shall be immediately terminated following 
the transfer of common stock or warrants of the LLC Member acquired 
pursuant to the ERP Agreement by an ERP Member which, after giving 
effect to such transfer, results in such ERP Member holding less than 
20% of the aggregate number of shares of common stock of the LLC Member 
issued or issuable pursuant to the Units acquired pursuant to the ERP 
Agreement collectively.
    The Exchange believes these changes regarding Terms of Office are 
reasonably designed to account for the removal of Directors or 
Observers of non-performing ERP Members and Members that no longer have 
a controlling interest in the shares that provided them the right to 
such appointments.
Article II, Section 2.4, Nomination and Election
    The Exchange proposes to provide that the Nominating Committee 
shall nominate to ERP Director positions only those persons whose names 
have been approved and submitted by the applicable ERP Members having 
the right to nominate such person. As mentioned above, the LLC Member 
is then obligated to vote for the nominated ERP Director. The nominee 
shall be appointed at the first annual meeting of the Company following 
September 30, 2013, which was the closing date of the ERP Program.
Article II, Section 2.8, Vacancies
    The Exchange proposes to provide that in the event that an ERP 
Director position becomes vacant that the applicable ERP Member will 
retain the ability to nominate a person to fill the vacant ERP Director 
position. To eliminate any potential confusion between the treatment of 
true vacancies and the non-performance provisions in Article II, 
Section 2.3(c), the Exchange proposes to specify that Section 2.8(c) 
will not apply for a vacancy resulting from an ERP Director position 
becoming vacant due to a non-performing ERP Member. In the situation of 
non-performance of an ERP Member, the provisions of Article II, Section 
2.3(c) would apply.
Article II, Section 2.9, Removal and Resignation
    The Exchange proposes to provide that ERP Directors may only be 
removed for cause, which shall include, without limitation, such 
Director being subject to a statutory disqualification.
Article IV, Section 4.2, Board Committees
    The Exchange proposes to provide that committee members will be 
subject to the same statutory disqualification restrictions as 
Directors and Observers. Similar to Directors and Observers, in the 
event a committee member appointed after the effective date of the 
Amended and Restated By-Laws becomes a member of the board of directors 
or similar governing body of a competing options exchange or 
alternative trading system that trades options, such individual shall 
immediately cease to be a committee member of the Company.\10\ The 
Exchange believes these changes are reasonably designed to ensure that 
committee members are qualified and held to the same standards as 
Directors and Observers.
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    \10\ The Exchange notes that this restriction is nearly 
identical to that used by another competing options exchange. See 
Limited Liability Company Agreement of NYSE Amex Options, Article 
VIII, 8.3(d). See also Securities Exchange Act Release No. 64742 
(June 24, 2011), 76 FR 38436 (June 30, 2011) (SR-NYSEAmex-2011-018) 
(Exhibit 5A).
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Article X, Sections 10.3 and 10.4
    The Exchange proposes to provide that Observers will be subject to 
the same participation rights on the Board during meetings pertaining 
to the self-regulatory function of the Company as other members of the 
Board. In addition, Observers will be subject to the same requirements 
to maintain the confidentiality of all books and records of the Company 
reflecting confidential information pertaining to the self-regulatory 
function of the Company.
Miscellaneous Non-Substantive Changes.
    In addition to the changes set forth above, the Exchange proposes 
to make the following non-substantive changes to the current By-Laws. 
The Exchange proposes to delete dated references to time periods and 
events that have expired since the proposal of the New By-Laws. 
Specifically, the Exchange proposes to delete provisions in Article II, 
Section 2.5, and Article III, Section 3.1(b), regarding Interim 
Directors and Interim Member Representative Directors since these 
appointments have already occurred. Consistent with this change, the 
Exchange proposes to remove references to Article II, Section 2.5 and 
Interim Directors and Interim Member Representative Directors from 
Article I(bb) and Article II, Section 2.2(b)(i).
2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \11\ in general, and furthers the objectives of 
Sections 6(b)(1) and 6(b)(5) of the Act \12\ in particular, in that it 
enables the Exchange to be so organized as to have the capacity to 
carry out the purposes of the Act and to comply, and to enforce 
compliance by its Members and persons associated with its Members, with 
the provisions of the Act, the rules and regulations

[[Page 79533]]

thereunder, and the rules of the Exchange; and 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. In addition, the proposed 
change is consistent with Section 6(b)(3) of the Act,\13\ in that it 
enables the Exchange to assure a fair representation of its members in 
the selection of its directors and administration of its affairs and 
provide that one or more directors shall be representative of issuers 
and investors and not be associated with a member of the exchange, 
broker, or dealer.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ 15 U.S.C. 78f(b)(3).
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    Specifically, the proposed amendments to the By-Laws are reasonably 
designed to incorporate provisions related to the ERP in a manner that 
ensures that the Exchange will remain so organized as to have the 
capacity to carry out the purposes of the Act and to comply, and to 
enforce compliance by its Members and persons associated with its 
Members, with the provisions of the Act, the rules and regulations 
thereunder, and the rules of the Exchange. The changes will also help 
to ensure that Directors, ERP Directors, Observers, and committee 
members are qualified and held to the same restrictions against 
statutory disqualification and conflicts of interests by being a member 
of the board of directors or similar body of a competitor. The proposed 
ERP Directors will be subject to the same restrictions as current 
Directors including evaluating proposals with the Company's self-
regulatory status in mind, restricting participation in activities 
where there is a conflict of interest, and [sic] requirement to 
maintain the confidentiality of information related to the Company's 
self-regulatory function. The proposed Observers will be subject to the 
same restrictions as current Directors regarding maintain [sic] the 
confidentiality of information related to the Company's self-regulatory 
function. However, Observers will be not be subject to the same 
restrictions as current Directors regarding evaluating proposals with 
the Company's self-regulatory status in mind and restricting 
participation in activities where there is a conflict of interest. The 
Exchange believes that treating Observers differently than Directors in 
these circumstances is reasonable because Observers will not be 
affirmatively voting on any such proposals in their non-voting observer 
capacity.
    In addition, the Exchange's proposed amendments address other non-
substantive revisions to reflect changes since the Commission granted 
the Exchange's registration as a national securities exchange.
    The proposal will continue to assure a fair representation of its 
Members in that ERP Directors will not affect the current Member 
Representation Director calculation or process in any way. The Exchange 
notes that no substantive changes are being proposed to the Board's 
composition; the Board size will increase, but the current composition 
will remain.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed changes to the 
Exchange By-Laws are designed to enable the Exchange to be so organized 
as to have the capacity to carry out the purposes of the Act and to 
comply, and to enforce compliance by its Members and persons associated 
with its Members, with the provisions of the Act, the rules and 
regulations thereunder, and the rules of the Exchange. As such, this is 
not a competitive filing and thus should not impose any burden on 
competition.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

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-2013-58 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-MIAX-2013-58. 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 offices 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-2013-58, 
and should be submitted on or before January 21, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-31128 Filed 12-27-13; 8:45 am]
BILLING CODE 8011-01-P