82 FR 13895 - Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Fee Schedule Relating to the Professional Rebate Program

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 49 (March 15, 2017)

[Federal Register Volume 82, Number 49 (Wednesday, March 15, 2017)]
[Notices]
[Pages 13895-13897]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-05091]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80190; File No. SR-MIAX-2017-11]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Amend Its Fee Schedule Relating to the Professional 
Rebate Program

March 9, 2017.
    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 February 28, 2017, Miami International 
Securities Exchange LLC (``MIAX Options'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') a proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared by the Exchange. The Commission is publishing this 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/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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Fee Schedule to make adjustments 
to its Professional Rebate Program (the ``Program''). Under the 
Program, which is set forth in Section (1)(a)(iv) of the Fee Schedule, 
the Exchange credits each Member \3\ a per contract amount resulting 
from any contracts executed from an order submitted by that Member for 
the account of a: (i) Public

[[Page 13896]]

Customer \4\ that is not a Priority Customer; \5\ (ii) non-MIAX Options 
Market Maker; \6\ (iii) non-Member Broker-Dealer; or (iv) Firm \7\ 
(each, a ``Professional''), which is executed electronically on the 
Exchange in all multiply-listed option classes (excluding, in simple or 
complex as applicable, mini-options, non-Priority Customer-to-non-
Priority Customer orders, QCC orders, PRIME orders, PRIME AOC 
responses, PRIME contra-side orders, and executions related to 
contracts that are routed to one or more exchanges in connection with 
the Options Order Protection and Locked/Crossed Market Plan referenced 
in MIAX Options Rule 1400 (collectively, ``Excluded Contracts'')), 
provided the Member achieves certain Professional volume increase 
percentage thresholds in the month relative to a baseline period.
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    \3\ 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.
    \4\ The term ``Public Customer'' means a person that is not a 
broker or dealer in securities. See Exchange Rule 100.
    \5\ ``Priority Customer'' means a person or entity that (i) is 
not a broker or dealer in securities, and (ii) does not place more 
than 390 orders in listed options per day on average during a 
calendar month for its own beneficial accounts(s). See Exchange Rule 
100, including Interpretations and Policies .01.
    \6\ The term ``Market Makers'' refers to Lead Market Makers 
(``LMMs''), Primary Lead Market Makers (``PLMMs''), and Registered 
Market Makers (``RMMs'') collectively. See Exchange Rule 100. A 
Directed Order Lead Market Maker (``DLMM'') and Directed Primary 
Lead Market Maker (``DPLMM'') is a party to a transaction being 
allocated to the LMM or PLMM and is the result of an order that has 
been directed to the LMM or PLMM. See Fee Schedule note 2.
    \7\ A ``Firm'' fee is assessed on a MIAX Electronic Exchange 
Member ``EEM'' that enters an order that is executed for an account 
identified by the EEM for clearing in the Options Clearing 
Corporation (``OCC'') ``Firm'' range. See Fee Schedule, Section 
(1)(a)ii.
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    The percentage thresholds in each tier are based upon the increase 
in the total volume submitted by a Member and executed for the 
account(s) of a Professional on MIAX Options (not including Excluded 
Contracts) during a particular month, as a percentage of the total 
volume reported by OCC in MIAX Options classes during the same month 
(the ``Current Percentage''), less the total volume submitted by that 
Member and executed for the account(s) of a Professional on MIAX 
Options (not including Excluded Contracts) during the fourth quarter of 
2015 as a percentage of the total volume reported by OCC in MIAX 
Options classes during the fourth quarter of 2015 (the ``Baseline 
Percentage''). For Members who did not execute contracts for the 
account(s) of a Professional during the fourth quarter of 2015, the 
Exchange currently assigns such Member a Baseline Percentage of .03%. 
The Member's percentage increase is calculated as the Current 
Percentage less the Baseline Percentage. Members receive rebates for 
contracts that they submit on behalf of a Professional(s) that are 
executed within a particular percentage tier based upon that percentage 
tier only, and do not receive rebates for such contracts that apply to 
any other tier.
    The purpose of the Program is to encourage Members to direct 
greater Professional order flow to the Exchange. Increased Professional 
order flow provides for greater liquidity, which benefits all market 
participants. The practice of incentivizing increased retail customer 
order flow in order to attract liquidity is, and has been, commonly 
practiced in the options markets. As such, marketing fee programs,\8\ 
and customer posting incentive programs,\9\ are based on attracting 
public customer order flow.\10\
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    \8\ See MIAX Fee Schedule, Section 1(b).
    \9\ See NYSE Arca, Inc. Fees Schedule, page 4 (section titled 
``Customer Monthly Posting Credit Tiers and Qualifications for 
Executions in Penny Pilot Issues'').
    \10\ For a complete description of the Program, see Securities 
Exchange Act Release Nos. 77097 (February 9, 2016), 81 FR 7877 
(February 16, 2016) (SR-MIAX-2016-05); 77777 (May 6, 2016), 81 FR 
29603 (May 12, 2016) (SR-MIAX-2016-09); 79157 (October 26, 2016), 81 
FR 75885 (November 1, 2016) (SR-MIAX-2016-38).
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    The Exchange now proposes to adjust the method of calculating the 
Baseline Percentage, for purposes of determining whether the Member 
qualifies for rebates under the Program. Pursuant to the new 
calculation, the Baseline Percentage shall now be the greater of (x) 
total volume submitted by that Member and executed for the account(s) 
of a Professional on MIAX Options (not including Excluded Contracts) 
during the fourth quarter of 2015 as a percentage of the total volume 
reported by OCC in MIAX Options classes during the fourth quarter of 
2015, and (y) 0.065%. The Exchange also proposes to change the default 
Baseline Percentage (for Members who did not execute contracts for the 
account(s) of a Professional during the fourth quarter of 2015) to 
0.065%, so that it is consistent with the new calculation method.
    The purpose for making these adjustments is to update the Program 
to better reflect the Exchange's current operating environment and 
business strategy. It is intended to continue to incentivize Members to 
send a greater amount of Professional order flow to the Exchange so 
that they can achieve rebates under the Program, as adjusted and in 
line with current market conditions. The Baseline Percentage and other 
thresholds amounts contained in the Program were initially established 
over a year ago, and thus were based on the then-current business and 
economic conditions. The Exchange believes that a number of events have 
occurred and certain business factors have change since the 
establishment of the Program (including, but not limited to, the launch 
of complex orders on the Exchange), and thus the Exchange believes it 
is reasonable and appropriate to update the Program to align it with 
current economic conditions and business strategy. The Exchange notes 
that the Baseline Percentage definition is also used as a factor for 
determining whether a Member qualifies for certain additional credits 
under the Exchange's Priority Customer Rebate Program (``PCRP''), which 
is contained in Section (1)(a)(iii) of the Exchange's Fee Schedule, and 
the Exchange incorporated this indirect impact into its determination 
as well. As overall market conditions continue to evolve, the Exchange 
will continue to analyze and re-assess the calculation of the Baseline 
Percentage and other threshold amounts contained in the Program, and if 
its analysis justifies a further change, the Exchange will submit a 
proposed rule change reflecting this.
    The credits paid out as part of the program will be drawn from the 
general revenues of the Exchange.\11\ The proposed rule change is to 
take effect March 1, 2017.
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    \11\ Despite providing credits under the Program, the Exchange 
represents that it will continue to have adequate resources to fund 
its regulatory program and fulfill its responsibilities as a self-
regulatory organization during the limited period that the Program 
will be in effect.
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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 \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 fees 
and other charges among Exchange members and other persons using its 
facilities.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed changes to the Program are 
fair, equitable and not unreasonably discriminatory. The Program itself 
is reasonably designed because it encourages providers of Professional 
order flow to send that Professional order flow to the Exchange in 
order to receive credits, in a manner that enables the Exchange to 
improve its overall competitiveness and strengthen its market quality 
for all market participants. The proposed changes to the Program are 
fair and equitable and

[[Page 13897]]

not unreasonably discriminatory because they apply equally to all 
Members submitting orders for the account(s) of Professionals. All 
similarly situated Professional orders are subject to the same rebate 
schedule, and access to the Exchange is offered on terms that are not 
unfairly discriminatory. In addition, the proposed changes to the 
Program are equitable and not unfairly discriminatory because, while 
only Professional order flow qualifies for the Program, an increase in 
Professional order flow will bring greater volume and liquidity, which 
benefit all market participants by providing more trading opportunities 
and tighter spreads. Similarly, offering increasing credits to Members 
for submitting and executing higher percentages of total national 
customer volume (increased credit rates at increased volume tiers) is 
equitable and not unfairly discriminatory because such increased rates 
and tiers encourage Members to direct increased amounts of Professional 
contracts to the Exchange.

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 Exchange 
believes that the proposed rule change would increase both intermarket 
and intramarket competition by incenting Members to direct orders for 
the account(s) of Professionals to the Exchange, which should enhance 
the quality of the Exchange's markets and increase the volume of 
contracts traded here. To the extent that this purpose is achieved, all 
the Exchange's market participants should 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 reduces the Exchange's fees through rebates in a 
manner that encourages market participants to direct their customer 
order flow, to provide liquidity, and to attract additional transaction 
volume to the Exchange. Given the robust competition for volume among 
options markets, many of which offer the same products, implementing a 
volume increase based rebate program to attract order flow like the one 
being proposed in this filing is consistent with the above-mentioned 
goals 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,\14\ and Rule 19b-4(f)(2) \15\ 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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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 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-2017-11 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-2017-11. 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 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; 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-2017-11, and should be 
submitted on or before April 5, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-05091 Filed 3-14-17; 8:45 am]
 BILLING CODE 8011-01-P