Self-Regulatory Organizations: Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Implement an Equity Rights Program, 4011-4015 [2015-01248]
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Federal Register / Vol. 80, No. 16 / Monday, January 26, 2015 / Notices
potential for investor confusion as to
when an opening cross occurs, how the
price for the opening cross is
determined, and how orders involved in
the opening cross are handled. The
Commission also believes that the
proposed opening cross process is
reasonably designed to open trading in
a fair and orderly manner, which is
consistent with the protection of
investors and the public interest.
Additionally, to extent the proposal
results in additional liquidity during
NOM’s opening at the beginning of the
trading day or following a trading halt,
and a more orderly transition to regular
trading, it should further promote the
goals of Section 6(b)(5) of the Act.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,41 that the
proposed rule change (SR–NASDAQ–
2014–116) be, and it hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
Brent J. Fields,
Secretary.
[FR Doc. 2015–01249 Filed 1–23–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74095; File No. SR–MIAX–
2015–02]
Self-Regulatory Organizations: Miami
International Securities Exchange LLC;
Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Implement an Equity Rights
Program
emcdonald on DSK67QTVN1PROD with NOTICES
January 20, 2015.
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 January 6, 2015, 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 and II 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.
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
42 17
18:48 Jan 23, 2015
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 implement
an equity rights program (‘‘Program’’)
pursuant to which units representing
the right to acquire equity in the
Exchange’s parent holding company,
Miami International Holdings, Inc.
(‘‘MIH’’) would be issued to a
participating Member in exchange for
payment of an initial purchase price or
the prepayment of certain transaction
fees and the achievement of certain
liquidity volume thresholds on the
Exchange over a 29-month period. The
purpose of the Program is to promote
the long-term interests of MIAX by
providing incentives designed to
encourage future MIH owners and
MIAX market participants to contribute
to the growth and success of MIAX, by
being active liquidity providers and
takers to provide enhanced levels of
trading volume to MIAX’s market,
through an opportunity to increase their
proprietary interests in MIAX’s
enterprise value.
Members that participate in the
Program will have two options to
choose from: (i) an offering of C-Units;
and/or (ii) an offering of D-Units.3
3 The Program which provides equity-like
consideration in exchange for market making or the
provision of liquidity, order flow or volume is open
to market participants generally. All MIAX
Members may participate subject to their
41 15
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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
implement an equity rights program.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://www.miaxoptions.com/filter/
wotitle/rule_filing, at MIAX’s principal
office, and at the Commission’s Public
Reference Room.
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C-Units Option
Members that participate in the CUnit option of the Program will be
issued for each unit (i) 52,021 shares of
MIH common stock and (ii) warrants to
purchase 1,752,670 shares of common
stock of MIH in exchange for such
participant Member’s initial cash capital
contribution of $312,125, and with such
warrants being exercisable upon the
achievement by the participating
Member of certain volume thresholds on
the Exchange during a 29-month
measurement period commencing
February 1, 2015. A total of 20 C-Units
will be offered. The total equity
ownership of MIH common stock held
by any one participant Member will be
subject to a cap of 19.9%.4
The warrants will vest in six (6)
tranches: (i) One (1) tranche, upon
initial investment; and (ii) five (5)
tranches during a measurement period
of months 1—29 of the Program. In
addition, the participant Members may
earn or lose the right to exercise
warrants on a pro-rata basis based upon
meeting volume commitments during
the measurement periods, as detailed
below.
Upon the initial investment, the
participant Member would receive
common shares equal to 52,021 shares
of the common stock and 10% of the
warrants will vest. A participant
Member will be eligible to earn [sic] the
remaining warrants during
measurement periods provided that the
participant has achieved a specified
percentage of the total national average
daily volume of options contracts
reported to The Options Clearing
Corporation (‘‘OCC’’) (‘‘OCC ADV’’) on
satisfaction of eligibility requirements. To be
designated as a participant Member, an applicant
must: (i) Be a Member in good standing of MIAX;
(ii) qualify as an ‘‘accredited investor’’ as such term
is defined in Regulation D of the Securities Act of
1933; and (iii) have executed all required
documentation for Program participation. Members
may elect to participate in either or both of the
options. If either the C-Unit or the D-Unit option is
oversubscribed, the units in the oversubscribed
option will be allocated on a pro-rata basis that may
result in a fractional allocation.
4 See Ninth Article (b)(i)(B), Amended and
Restated Certificate of Incorporation of Miami
International Holdings, Inc., dated August 31, 2012
(providing that no Exchange Member, either alone
or together with its Related Persons, may own,
directly or indirectly, of record or beneficially,
shares constituting more than twenty percent (20%)
of any class of capital stock of the Corporation).
Any purported transfer of shares or ownership of
shares in violation of the ownership cap by a
Member would be subject to the limitations of the
Certificate of Incorporation, including the nonrecognition of voting rights of shares in excess of
the cap and a redemption right by MIH for excess
shares. See Ninth Article (d) and (e), Amended and
Restated Certificate of Incorporation of Miami
International Holdings, Inc., dated August 31, 2012.
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emcdonald on DSK67QTVN1PROD with NOTICES
MIAX of all option classes listed on
MIAX.5
The remaining five (5) tranches, of
90% of the warrants, will vest during
the following measurement periods: (i)
3.76% of the warrants resulting from
months 1–5, with a volume commitment
of 0.084% of OCC ADV on MIAX per CUnit; 6 (ii) 16.82% of the warrants
resulting from months 6–11, with a
volume commitment of 0.313% of OCC
ADV on MIAX per C-Unit; (iii) 20.15%
of the warrants resulting from months
12–17, with a volume commitment of
0.375% of OCC ADV on MIAX per CUnit; (iv) 22.41% of the warrants
resulting from months 18–23, with a
volume commitment of 0.417% of OCC
ADV on MIAX per C-Unit; and (v)
26.86% of the warrants resulting from
months 24–29, with a volume
commitment of 0.5% of OCC ADV on
MIAX per C-Unit. If a participant
Member exceeds 100% of the volume
commitment during a tranche’s
measurement period, the Member is
able to earn, on a pro-rata basis,
warrants not earned by other participant
Members. If a participant Member
reaches 70–99% of the volume
commitment during a tranche’s
measurement period, the Member will
earn [sic] a reduced amount of warrants
on a pro-rata basis applicable to such
measurement period. If a participant
Member fails to reach a minimum of
70% of the volume commitment during
a tranche’s measurement period, the
Member will lose all right to that
tranche of warrants. Notwithstanding, in
the event a participant Member has not
satisfied the volume commitment for
5 If an options class is not listed on MIAX, then
the trading volume in that options class will be
omitted from the calculation of % OCC ADV.
Priority Customer-to-Priority Customer Crossing
transactions where no fees are paid to the Exchange,
special strategies, and contracts as to which a
Member acts solely as clearing agent will not be
counted in the number of option contracts executed
on the Exchange by any Member. (Incidental
Priority Customer-to-Priority Customer transactions,
that are not crossing transactions, will be counted
in the number of options contracts executed on the
Exchange by a Member.) Special strategies for the
purpose of calculating trading volume include: (i)
Dividend strategy; (ii) merger strategy; (iii) short
stock interest strategy; (iv) reversal and conversion
strategies; (v) jelly roll strategy; and (vi) similar
strategies offered by an options exchange that are
subject to a fee cap. Trading in special strategies
currently is not available on MIAX. Special
strategies will be omitted from the calculation of %
OCC ADV to the extent it is possible to identify
such transactions. Calculation of % OCC ADV will
be discounted by 5% of ADV for complex order
functionality not yet established on the Exchange
until such time that functionality is available on
MIAX.
6 The first measurement period will begin on
February 1, 2015 and end June 30, 2015. Therefore,
February 1, 2015 through June 30, 2015 will count
as months 1–5 for purposes of the measurement
period.
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any one measurement period (other than
measurement period 5), the participant
Member will have an opportunity to
vest those warrants if such participant
Member applies a portion of the
Members performance from up to two
measurement periods immediately
following to the prior measurement
period to ensure a minimum of 70% of
the volume commitment in prior period
and in addition has satisfied the volume
commitment for the measurement
periods immediately following.7
D-Units Option
Members that participate in the DUnit option of the Program will be
issued for each unit warrants to
purchase 1,353,518 shares of common
stock of MIH in exchange for the
prepayment of Exchange fees in the
amount of $250,000 for the 29-month
period commencing February 1, 2015,
and with such warrants being
exercisable upon the achievement by
the participating Member of certain
volume thresholds on the Exchange
during a 29-month measurement period
commencing February 1, 2015. A total
of 20 D-Units will be offered. The total
equity ownership of MIH common stock
held by any one participant Member
will be subject to a cap of 19.9%.
The warrants will vest in five (5)
tranches during the following
measurement periods: (i) 4.18% of the
warrants resulting from months 1–5,
with a volume commitment of 0.084%
of OCC ADV on MIAX per D-Unit; 8 (ii)
18.69% of the warrants resulting from
months 6–11, with a volume
commitment of 0.313% of OCC ADV on
MIAX per D-Unit; (iii) 22.39% of the
warrants resulting from months 12–17,
with a volume commitment of 0.375%
of OCC ADV on MIAX per D-Unit; (iv)
24.90% of the warrants resulting from
months 18–23, with a volume
commitment of 0.417% of OCC ADV on
MIAX per D-Unit; and (v) 29.84% of the
warrants resulting from months 24–29,
with a volume commitment of 0.5% of
OCC ADV on MIAX per D-Unit. If a
participant Member exceeds 100% of
the volume commitment during any one
tranche’s measurement period, the
Member is able to earn, on a pro-rata
7 The Exchange notes that if a participant Member
has not satisfied the volume commitment for
measurement period 4, the participant Member
would only have one remaining measurement
period immediately following to vest warrants from
measurement period 4 versus up to two
measurement periods for measurement periods 1–
3.
8 The first measurement period will begin on
February 1, 2015 and end June 30, 2015. Therefore,
February 1, 2015 through June 30, 2015 will count
as months 1–5 for purposes of the measurement
period.
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basis, warrants not earned by other
participant Members. If a participant
Member reaches 70–99% of the volume
commitment during any one tranche’s
measurement period, the Member will
earn [sic] a reduced amount of warrants
on a pro-rata basis applicable to such
measurement period. If a participant
Member fails to reach a minimum of
70% of the volume commitment during
the measurement period, the Member
will lose all right to that tranche of
warrants. Notwithstanding, in the event
a participant Member has not satisfied
the volume commitment for any one
measurement period (other than
measurement period 5), the participant
Member will have an opportunity to
vest those warrants if such participant
Member applies a portion of the
Member’s performance from up to two
measurement periods immediately
following to the prior measurement
period to ensure a minimum of 70% of
the volume commitment in prior period
and in addition has satisfied the volume
commitment for the measurement
periods immediately following.9
Once a participant Member has
prepaid Exchange fees for the initial 29month period, each month the
participant Member may execute
contracts and accumulate transaction
fees based on the prevailing MIAX
Options Fee Schedule in effect at the
time. Once a D-Unit participant Member
has executed contract volume whereby
the total accumulated transaction fees
equal the prepaid amount, all
subsequently executed contracts will be
billed and collected at the appropriate
rate as defined in the MIAX Options Fee
Schedule.
Provisions Applicable to Both C-Units
and D-Units
Each participant Member will have a
standard piggyback registration right to
include the common shares and the
common shares issuable upon exercise
of the warrants should MIH file a
Registration Statement under the
Securities Act of 1933. Each participant
Member will also have the right to
participate pro rata in all future
offerings of MIH securities for so long as
the participant Member holds at least
51% of the common shares purchased
by the participating Member directly or
issuable upon the exercise of warrants
included in at least one D-Unit. MIH
9 The Exchange notes that if a participant Member
has not satisfied the volume commitment for
measurement period 4, the participant Member
would only have one remaining measurement
period immediately following to vest warrants from
measurement period 4 versus up to two
measurement periods for measurement periods 1–
3.
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will have the right of first refusal to
purchase any common shares or warrant
shares that a participant Member
decides to transfer or sell. Other
participant Members will have the
secondary right of first refusal to
purchase any common shares or warrant
shares that a participant Member
decides to transfer or sell.
In addition, beginning one (1) year
after the last month of the final
measurement period, for a period of 90
days, the participant Member will have
a right to sell the shares back to MIH at
a price per share equal to a fixed
percentage of fair market value 10 of the
common stock. The right to sell the
shares back will reoccur on an annual
basis and last for a 90-day period. Years
1 and 2 after the final measurement
period, the participant Member may sell
back 10% of the common shares vested
at a price equal to 50% of the fair
market value. Year 3 after the final
measurement period, the participant
Member may sell back 30% of the
common shares vested at a price equal
to 60% of the fair market value. Year 4
after the final measurement period, the
participant Member may sell back 60%
of the common shares vested at a price
equal to 70% of the fair market value.
Year 5 after the final measurement
period, the participant Member may sell
back 90% of the common shares vested
at a price equal to 80% of the fair
market value. Year 6 after the final
measurement period, the participant
Member may sell back 100% of the
common shares vested at a price equal
to 90% of the fair market value.
When a participating Member
acquires a certain number of units, the
Member can appoint one director to the
MIH Board and/or the MIAX Board. The
Exchange notes that the number of nonindustry directors on the MIAX Board,
including at least one independent
director, must equal or exceed the
number of industry directors and
Member representatives, and that
additional new non-industry directors
and Member representative directors
will need to be added in order to
maintain this status. The Exchange also
notes that any directors that may be
selected by a participating Member
would not be counted towards the 20%
Member representative requirement on
the MIAX Board. In addition, the
Exchange notes that a Member is only
entitled to a new seat if they are not
10 ‘Fair market value’ means the value of the MIH
common stock as determined by a nationallyrecognized firm of independent certified public
accountants to be jointly selected by the MIH and
the participant Member, if such common stock is
not publicly traded.
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currently represented on the MIAX
board.
All applicants will be subject to the
same eligibility and designation criteria,
and all participant Members will
participate in the Program on the same
terms, conditions and restrictions. To be
designated as a participant Member, an
applicant must: (i) Be a Member in good
standing of MIAX; (ii) qualify as an
‘‘accredited investor’’ as such term is
defined in Regulation D of the Securities
Act of 1933; 11 and (iii) have executed
all required documentation for Program
participation. Participant Members must
have executed the definitive
documentation, satisfied the eligibility
criteria required of Program participants
enumerated above, and tendered the
minimum cash investment or
prepayment of fees by January 27, 2015,
with a closing to occur on January 30,
2015.
As discussed above, the purpose of
the Program is to encourage Members to
direct greater trade volume to MIAX to
enhance trading volume in MIAX’s
market. Increased volume will provide
for greater liquidity and enhanced price
discovery, which benefits all market
participants. Other exchanges currently
engage in the practice of incentivizing
increased order flow in order to attract
liquidity providers through equity
sharing arrangements.12 In addition, the
Exchange previously adopted a
substantially similar program to
incentivize increased order flow in
order to attract liquidity providers
through an equity sharing
arrangement.13 The Program similarly
intends to attract 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 these other market
participants. The Program will similarly
reward the liquidity providers that
11 The purpose of this criterion relates to the
ability of MIH to sell shares of common stock
pursuant to an exemption from registration under
the Securities Act of 1933. The definition of
‘‘accredited investor’’ under Rule 501(a)(1) of the
Securities Act of 1933 includes any broker or dealer
registered pursuant to Section 15 of the Act. MIAX
Rule 200(b) requires a Member to be registered as
a broker or dealer pursuant to Section 15 of the Act,
therefore all MIAX Members will satisfy this
criterion.
12 See, e.g., Securities Exchange Act Release Nos.
62358 (June 22, 2010), 75 FR 37861 (June 30, 2010)
(SR–NSX–2010–06); 64742 (June 24, 2011), 76 FR
38436 (June 30, 2011) (SR–NYSEAmex–2011–018);
69200 (March 21, 2013), 78 FR 18657 (March 27,
2013) (SR–CBOE–2013–31).
13 See Securities Exchange Act Release No. 70498
(September 25, 2013), 78 FR 60348 (October 1,
2013) (SR–MIAX–2013–43).
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provide this additional volume with a
potential proprietary interest in MIAX.
The specific volume thresholds of the
Program’s measurement periods were
set based upon business determinations
and analysis of current volume levels.
The volume thresholds are intended to
incentivize firms to increase the number
of orders that are sent to MIAX to
achieve the next threshold. Increasing
the number of orders that are sent to
MIAX will in turn provide tighter and
more liquid markets, and therefore
attract more business as well.
MIAX will initiate the measurement
period on February 1, 2015. The
Exchange will notify Members of the
implementation of the Program and the
dates of the enrollment period by
Regulatory Circular, and will post a
copy of this rule filing on its Web site.
Any MIAX Member that is interested in
participating in the Program may
contact MIAX for more information and
legal documentation and will be
required to enter into a nondisclosure
agreement regarding this additional
Program information.
2. Statutory Basis
The Exchange believes that its
proposed rule change is consistent with
Section 6(b) of the Act 14 in general, and
furthers the objectives of Section 6(b)(5)
of the Act 15 in particular, 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. Additionally, the
Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) of the Act 16 requirement that the
rules of an exchange not be designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange also believes the
proposed rule change is consistent with
Section 6(b)(4) of the Act,17 which
requires that Exchange rules provide for
the equitable allocation of reasonable
dues, fees, and other charges among its
members and other persons using its
facilities.
In particular, the proposed rule
change is equitable and not unfairly
discriminatory, because all Members
may elect to participate (or elect to not
14 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
16 15 U.S.C. 78f(b)(5).
17 15 U.S.C. 78f(b)(4).
15 15
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participate) in the Program and earn
units on the same terms and conditions,
assuming they satisfy the same
eligibility criteria as described above.
The eligibility criteria are objective;
thus, all Members have the ability to
satisfy them. The Board also has
authorized MIAX to offer common
shares in MIH to any Member that
requests designation to participate in
the Program and otherwise satisfies the
eligibility criteria to ensure that all
Members will have the opportunity to
own common shares and thus
participate in the Program if they so
choose. In addition, participant
Members will earn [sic] warrants on a
pro-rata basis upon meeting fixed
volume threshold amounts during the
measurement periods that will apply to
all participant Members.
The Exchange believes that the
methodology used to calculate the
volume thresholds is fair, reasonable
and not unfairly discriminatory because
it is based on objective criteria that are
designed to omit from the calculation
functionality that is not available on the
Exchange and types of transactions that
are subject to little or no transaction
fees. Specifically, the Exchange believes
excluding Priority Customer-to-Priority
Customer Crossing transactions where
no fees are paid to the Exchange, special
strategies, and contracts as to which a
Member acts solely as clearing agent
from the number of option contracts
executed on the Exchange by any
Member is reasonable and not unfairly
discriminatory because participating
Members could otherwise game the
volume thresholds by executing excess
volumes in these types of transactions
in which either no transaction fees are
charged on the Exchange, or the
transaction is subject to a fee cap. The
Program is designed to reward
participating Members for bringing their
orders and quotes to the Exchange to be
executed on the Exchange. The
Exchange believes it is appropriate to
exclude special strategies from the OCC
volume calculation since those
transactions are not executed on the
Exchange. The Exchange believes that
omitting clearing only transactions from
the calculation to be fair and reasonable
because the fact that a Member is
clearing a trade is coincidental to the
choice of where to execute that trade.
And, because clearing only transactions
are not executed on the MIAX, they
don’t fall within the intended
transactions that qualify for the
Program. In addition, if the Exchange
were to reward the party clearing a
trade, the Exchange would possibly be
double counting that trade—once for the
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executing party and once for the
clearing party. Furthermore, the
Exchange believes that counting
incidental Priority Customer-to-Priority
Customer transactions, which are not
crossing transactions, in the number of
options contracts executed on the
Exchange by a Member is fair and
reasonable because in these situations
the Priority Customer is not necessarily
choosing to execute against another
Priority Customer in order to avoid a
transaction fee.
The Exchange believes the Program is
equitable and reasonable because an
increase in volume and liquidity would
benefit all market participants by
providing more trading opportunities
and tighter spreads, even to those
market participants that do not
participate in the Program.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Act because, as described above, the
Program is designed to bring greater
volume and liquidity to the Exchange,
which will benefit all market
participants by providing tighter
quoting and better prices, all of which
perfects the mechanism for a free and
open market and national market
system.
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
Exchange believes that the proposed
rule change will improve competition
by providing market participants with
another option when determining where
to execute orders and post liquidity.
The Exchange believes that the
proposed change would increase both
intermarket and intramarket
competition by incenting participant
Members to direct their orders to the
Exchange, which will enhance the
quality of quoting and increase the
volume of contracts traded here. To the
extent that there is an additional
competitive burden on non-participant
Members, the Exchange believes that
this is appropriate because the Program
should incent 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 here. To the extent that this
purpose is achieved, all of 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
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order flow directed to the Exchange will
benefit all market participants and
improve competition on the Exchange.
Given the robust competition for
volume among options markets, many of
which offer the same products,
implementing a program to attract order
flow like the one being proposed in this
filing is consistent with the abovementioned goals of the Act. This is
especially true for the smaller options
markets, such as MIAX, which is
competing for volume with much larger
exchanges that dominate the options
trading industry. As a newer exchange,
MIAX has a nominal percentage of the
average daily trading volume in options,
so it is unlikely that the Program could
cause any competitive harm to the
options market or to market
participants. Rather, the Program is a
modest attempt by a small options
market to attract order volume away
from larger competitors by adopting an
innovative pricing strategy, as
evidenced by the volume thresholds of
the Program that represent fractions of
1% of OCC ADV. The Exchange notes
that if the Program resulted in a modest
percentage increase in the average daily
trading volume in options executing on
MIAX, while such percentage would
represent a large volume increase for
MIAX, it would represent a minimal
reduction in volume of its larger
competitors in the industry. The
Exchange believes that the Program will
help further competition, because
market participants will have yet
another additional option in
determining where to execute orders
and post liquidity if they factor the
benefits of MIAX equity participation
into the determination.
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)
of the Act 18 and paragraph (f) of Rule
19b–4 thereunder.19 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
18 15
19 17
E:\FR\FM\26JAN1.SGM
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
26JAN1
Federal Register / Vol. 80, No. 16 / Monday, January 26, 2015 / Notices
investors, or otherwise in furtherance of
the purposes of the Act.
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:
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MIAX–2015–02 on the subject line.
Paper Comments
emcdonald on DSK67QTVN1PROD with NOTICES
• 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–2015–02. 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 (https://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–2015–02 and should
be submitted on or before February 17,
2015.
19:34 Jan 23, 2015
[FR Doc. 2015–01248 Filed 1–23–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74093: File No. SR–
NYSEArca-2014–126]
Electronic Comments
VerDate Sep<11>2014
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Brent J. Fields,
Secretary.
Jkt 235001
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Approving a
Proposed Rule Change, as Modified by
Amendment No. 1, Relating to the
Listing and Trading of Shares of the
AdvisorShares Pacific Asset Enhanced
Floating Rate ETF Under NYSE Arca
Equities Rule 8.600
January 20, 2015.
I. Introduction
On November 19, 2014, NYSE Arca,
Inc. (‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b-4 thereunder,2 a proposed rule
change to list and trade shares
(‘‘Shares’’) of the AdvisorShares Pacific
Asset Enhanced Floating Rate ETF
(‘‘Fund’’) under NYSE Arca Equities
Rule 8.600. On November 26, 2014, the
Exchange filed Amendment No. 1 to the
proposal.3 The proposed rule change, as
modified by Amendment No. 1 thereto,
was published for comment in the
Federal Register on December 8, 2014.4
The Commission received no comments
on the proposal. This order approves the
proposed rule change, as modified by
Amendment No. 1.
II. Description of the Proposal
The Exchange proposes to list and
trade Shares of the Fund under NYSE
Arca Equities Rule 8.600 (‘‘Managed
Fund Shares’’), which governs the
20 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Amendment No. 1 amended the proposed rule
change in the following ways: (1) Specified that the
floating rate high yield corporate bonds in which
the Fund invests generally must have a $100
million par amount outstanding at the time of
investment; (2) clarified that senior loans in which
the Fund may invest includes leveraged loans; and
(3) specified that the U.S. exchange-traded futures
contracts, U.S. exchange-traded options on futures
contracts, and U.S. exchange-traded put and call
options in which the Fund invests will trade on
exchanges that are members of the Intermarket
Surveillance Group (‘‘ISG’’).
4 See Securities Exchange Act Release No. 73717
(December 2, 2014), 79 FR 72730 (‘‘Notice’’).
1 15
PO 00000
Frm 00076
Fmt 4703
Sfmt 4703
4015
listing and trading of Managed Fund
Shares on the Exchange. The Shares will
be offered by AdvisorShares Trust
(‘‘Trust’’), a statutory trust organized
under the laws of the State of Delaware
and registered with the Commission as
an open-end management investment
company.5 AdvisorShares Investments,
LLC (‘‘Adviser’’) will be the investment
adviser to the Fund, and Pacific Asset
Management (‘‘Sub-Adviser’’), will be
the sub-adviser to the Fund.6 The Bank
of New York Mellon (‘‘Administrator’’)
will serve as the administrator,
custodian, transfer agent and fund
accounting agent for the Fund. Foreside
Fund Services, LLC will be the principal
underwriter and distributor of the
Fund’s Shares.
The Exchange has made the following
representations and statements in
describing the Fund and its investment
strategy, including other portfolio
holdings and investment restrictions.7
5 The Trust is registered under the Investment
Company Act of 1940 (‘‘1940 Act’’). The Exchange
states that on June 25, 2014, the Trust filed with the
Commission an amendment to its registration
statement on Form N–1A under the Securities Act
of 1933 (15 U.S.C. 77a) and under the 1940 Act
relating to the Fund (File Nos. 333–157876 and
811–22110) (‘‘Registration Statement’’). In addition,
according to the Exchange, the Commission has
issued an order granting certain exemptive relief to
the Trust under the 1940 Act. See Investment
Company Act Release No. 29291 (May 28, 2010)
(File No. 812–13677).
6 The Exchange represents that the Adviser is not
registered as a broker-dealer or affiliated with a
broker-dealer. The Sub-Adviser is not registered as
a broker-dealer but is affiliated with Pacific Select
Disteributors, Inc., a registered broker-dealer. The
Exchange states that the Sub-Adviser represetnts
that Pacific Select Distributors, Inc. is a limited
purpose broker-dealer with a primary business
purpose of serving as distributor for mutual funds
and variable annuity products, and that Pacific
Select Distributors, Inc. does not engage in any
borkerage or trading activity. The Exchange states
that in the event (a) the Adviser or the Sub-Adviser
becomes a registered broker-dealer or becomes
newly affilitated with a broker-dealer, or (b) any
new adviser or sub-adviser is a registered brokerdealer or becomes affiliated with a broker-dealer,
such adviser or sub-adviser will implement a fire
wall with respect to its relevant personnel or its
broker-dealer affiliate regarding access to
information concerning the composition of or
changes to the portfolio, and the adviser or subadviser will be subject to procedures designed to
prevent the use and dissemination of material nonpublic information regarding the portfolio.
7 The Commission notes that additional
information regarding the Fund, the Trust, and the
Shares, including investment strategies, risks,
creation and redemption procedures, fees, portfolio
holdings disclosure policies, distributions, and
taxes, among other things, can be found in the
Notice and the Registration Statement, as
applicable. See Notice, supra note 4, and
Registration Statement, supra note 5, respectively.
E:\FR\FM\26JAN1.SGM
26JAN1
]]>Agencies
[Federal Register Volume 80, Number 16 (Monday, January 26, 2015)]
[Notices]
[Pages 4011-4015]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-01248]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74095; File No. SR-MIAX-2015-02]
Self-Regulatory Organizations: Miami International Securities
Exchange LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Implement an Equity Rights Program
January 20, 2015.
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 January 6, 2015, 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 and II 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 implement an equity rights
program.
The text of the proposed rule change is available on the Exchange's
Web site at https://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 implement an equity rights program
(``Program'') pursuant to which units representing the right to acquire
equity in the Exchange's parent holding company, Miami International
Holdings, Inc. (``MIH'') would be issued to a participating Member in
exchange for payment of an initial purchase price or the prepayment of
certain transaction fees and the achievement of certain liquidity
volume thresholds on the Exchange over a 29-month period. The purpose
of the Program is to promote the long-term interests of MIAX by
providing incentives designed to encourage future MIH owners and MIAX
market participants to contribute to the growth and success of MIAX, by
being active liquidity providers and takers to provide enhanced levels
of trading volume to MIAX's market, through an opportunity to increase
their proprietary interests in MIAX's enterprise value.
Members that participate in the Program will have two options to
choose from: (i) an offering of C-Units; and/or (ii) an offering of D-
Units.\3\
---------------------------------------------------------------------------
\3\ The Program which provides equity-like consideration in
exchange for market making or the provision of liquidity, order flow
or volume is open to market participants generally. All MIAX Members
may participate subject to their satisfaction of eligibility
requirements. To be designated as a participant Member, an applicant
must: (i) Be a Member in good standing of MIAX; (ii) qualify as an
``accredited investor'' as such term is defined in Regulation D of
the Securities Act of 1933; and (iii) have executed all required
documentation for Program participation. Members may elect to
participate in either or both of the options. If either the C-Unit
or the D-Unit option is oversubscribed, the units in the
oversubscribed option will be allocated on a pro-rata basis that may
result in a fractional allocation.
---------------------------------------------------------------------------
C-Units Option
Members that participate in the C-Unit option of the Program will
be issued for each unit (i) 52,021 shares of MIH common stock and (ii)
warrants to purchase 1,752,670 shares of common stock of MIH in
exchange for such participant Member's initial cash capital
contribution of $312,125, and with such warrants being exercisable upon
the achievement by the participating Member of certain volume
thresholds on the Exchange during a 29-month measurement period
commencing February 1, 2015. A total of 20 C-Units will be offered. The
total equity ownership of MIH common stock held by any one participant
Member will be subject to a cap of 19.9%.\4\
---------------------------------------------------------------------------
\4\ See Ninth Article (b)(i)(B), Amended and Restated
Certificate of Incorporation of Miami International Holdings, Inc.,
dated August 31, 2012 (providing that no Exchange Member, either
alone or together with its Related Persons, may own, directly or
indirectly, of record or beneficially, shares constituting more than
twenty percent (20%) of any class of capital stock of the
Corporation). Any purported transfer of shares or ownership of
shares in violation of the ownership cap by a Member would be
subject to the limitations of the Certificate of Incorporation,
including the non-recognition of voting rights of shares in excess
of the cap and a redemption right by MIH for excess shares. See
Ninth Article (d) and (e), Amended and Restated Certificate of
Incorporation of Miami International Holdings, Inc., dated August
31, 2012.
---------------------------------------------------------------------------
The warrants will vest in six (6) tranches: (i) One (1) tranche,
upon initial investment; and (ii) five (5) tranches during a
measurement period of months 1--29 of the Program. In addition, the
participant Members may earn or lose the right to exercise warrants on
a pro-rata basis based upon meeting volume commitments during the
measurement periods, as detailed below.
Upon the initial investment, the participant Member would receive
common shares equal to 52,021 shares of the common stock and 10% of the
warrants will vest. A participant Member will be eligible to earn [sic]
the remaining warrants during measurement periods provided that the
participant has achieved a specified percentage of the total national
average daily volume of options contracts reported to The Options
Clearing Corporation (``OCC'') (``OCC ADV'') on
[[Page 4012]]
MIAX of all option classes listed on MIAX.\5\
---------------------------------------------------------------------------
\5\ If an options class is not listed on MIAX, then the trading
volume in that options class will be omitted from the calculation of
% OCC ADV. Priority Customer-to-Priority Customer Crossing
transactions where no fees are paid to the Exchange, special
strategies, and contracts as to which a Member acts solely as
clearing agent will not be counted in the number of option contracts
executed on the Exchange by any Member. (Incidental Priority
Customer-to-Priority Customer transactions, that are not crossing
transactions, will be counted in the number of options contracts
executed on the Exchange by a Member.) Special strategies for the
purpose of calculating trading volume include: (i) Dividend
strategy; (ii) merger strategy; (iii) short stock interest strategy;
(iv) reversal and conversion strategies; (v) jelly roll strategy;
and (vi) similar strategies offered by an options exchange that are
subject to a fee cap. Trading in special strategies currently is not
available on MIAX. Special strategies will be omitted from the
calculation of % OCC ADV to the extent it is possible to identify
such transactions. Calculation of % OCC ADV will be discounted by 5%
of ADV for complex order functionality not yet established on the
Exchange until such time that functionality is available on MIAX.
---------------------------------------------------------------------------
The remaining five (5) tranches, of 90% of the warrants, will vest
during the following measurement periods: (i) 3.76% of the warrants
resulting from months 1-5, with a volume commitment of 0.084% of OCC
ADV on MIAX per C-Unit; \6\ (ii) 16.82% of the warrants resulting from
months 6-11, with a volume commitment of 0.313% of OCC ADV on MIAX per
C-Unit; (iii) 20.15% of the warrants resulting from months 12-17, with
a volume commitment of 0.375% of OCC ADV on MIAX per C-Unit; (iv)
22.41% of the warrants resulting from months 18-23, with a volume
commitment of 0.417% of OCC ADV on MIAX per C-Unit; and (v) 26.86% of
the warrants resulting from months 24-29, with a volume commitment of
0.5% of OCC ADV on MIAX per C-Unit. If a participant Member exceeds
100% of the volume commitment during a tranche's measurement period,
the Member is able to earn, on a pro-rata basis, warrants not earned by
other participant Members. If a participant Member reaches 70-99% of
the volume commitment during a tranche's measurement period, the Member
will earn [sic] a reduced amount of warrants on a pro-rata basis
applicable to such measurement period. If a participant Member fails to
reach a minimum of 70% of the volume commitment during a tranche's
measurement period, the Member will lose all right to that tranche of
warrants. Notwithstanding, in the event a participant Member has not
satisfied the volume commitment for any one measurement period (other
than measurement period 5), the participant Member will have an
opportunity to vest those warrants if such participant Member applies a
portion of the Members performance from up to two measurement periods
immediately following to the prior measurement period to ensure a
minimum of 70% of the volume commitment in prior period and in addition
has satisfied the volume commitment for the measurement periods
immediately following.\7\
---------------------------------------------------------------------------
\6\ The first measurement period will begin on February 1, 2015
and end June 30, 2015. Therefore, February 1, 2015 through June 30,
2015 will count as months 1-5 for purposes of the measurement
period.
\7\ The Exchange notes that if a participant Member has not
satisfied the volume commitment for measurement period 4, the
participant Member would only have one remaining measurement period
immediately following to vest warrants from measurement period 4
versus up to two measurement periods for measurement periods 1-3.
---------------------------------------------------------------------------
D-Units Option
Members that participate in the D-Unit option of the Program will
be issued for each unit warrants to purchase 1,353,518 shares of common
stock of MIH in exchange for the prepayment of Exchange fees in the
amount of $250,000 for the 29-month period commencing February 1, 2015,
and with such warrants being exercisable upon the achievement by the
participating Member of certain volume thresholds on the Exchange
during a 29-month measurement period commencing February 1, 2015. A
total of 20 D-Units will be offered. The total equity ownership of MIH
common stock held by any one participant Member will be subject to a
cap of 19.9%.
The warrants will vest in five (5) tranches during the following
measurement periods: (i) 4.18% of the warrants resulting from months 1-
5, with a volume commitment of 0.084% of OCC ADV on MIAX per D-Unit;
\8\ (ii) 18.69% of the warrants resulting from months 6-11, with a
volume commitment of 0.313% of OCC ADV on MIAX per D-Unit; (iii) 22.39%
of the warrants resulting from months 12-17, with a volume commitment
of 0.375% of OCC ADV on MIAX per D-Unit; (iv) 24.90% of the warrants
resulting from months 18-23, with a volume commitment of 0.417% of OCC
ADV on MIAX per D-Unit; and (v) 29.84% of the warrants resulting from
months 24-29, with a volume commitment of 0.5% of OCC ADV on MIAX per
D-Unit. If a participant Member exceeds 100% of the volume commitment
during any one tranche's measurement period, the Member is able to
earn, on a pro-rata basis, warrants not earned by other participant
Members. If a participant Member reaches 70-99% of the volume
commitment during any one tranche's measurement period, the Member will
earn [sic] a reduced amount of warrants on a pro-rata basis applicable
to such measurement period. If a participant Member fails to reach a
minimum of 70% of the volume commitment during the measurement period,
the Member will lose all right to that tranche of warrants.
Notwithstanding, in the event a participant Member has not satisfied
the volume commitment for any one measurement period (other than
measurement period 5), the participant Member will have an opportunity
to vest those warrants if such participant Member applies a portion of
the Member's performance from up to two measurement periods immediately
following to the prior measurement period to ensure a minimum of 70% of
the volume commitment in prior period and in addition has satisfied the
volume commitment for the measurement periods immediately following.\9\
---------------------------------------------------------------------------
\8\ The first measurement period will begin on February 1, 2015
and end June 30, 2015. Therefore, February 1, 2015 through June 30,
2015 will count as months 1-5 for purposes of the measurement
period.
\9\ The Exchange notes that if a participant Member has not
satisfied the volume commitment for measurement period 4, the
participant Member would only have one remaining measurement period
immediately following to vest warrants from measurement period 4
versus up to two measurement periods for measurement periods 1-3.
---------------------------------------------------------------------------
Once a participant Member has prepaid Exchange fees for the initial
29-month period, each month the participant Member may execute
contracts and accumulate transaction fees based on the prevailing MIAX
Options Fee Schedule in effect at the time. Once a D-Unit participant
Member has executed contract volume whereby the total accumulated
transaction fees equal the prepaid amount, all subsequently executed
contracts will be billed and collected at the appropriate rate as
defined in the MIAX Options Fee Schedule.
Provisions Applicable to Both C-Units and D-Units
Each participant Member will have a standard piggyback registration
right to include the common shares and the common shares issuable upon
exercise of the warrants should MIH file a Registration Statement under
the Securities Act of 1933. Each participant Member will also have the
right to participate pro rata in all future offerings of MIH securities
for so long as the participant Member holds at least 51% of the common
shares purchased by the participating Member directly or issuable upon
the exercise of warrants included in at least one D-Unit. MIH
[[Page 4013]]
will have the right of first refusal to purchase any common shares or
warrant shares that a participant Member decides to transfer or sell.
Other participant Members will have the secondary right of first
refusal to purchase any common shares or warrant shares that a
participant Member decides to transfer or sell.
In addition, beginning one (1) year after the last month of the
final measurement period, for a period of 90 days, the participant
Member will have a right to sell the shares back to MIH at a price per
share equal to a fixed percentage of fair market value \10\ of the
common stock. The right to sell the shares back will reoccur on an
annual basis and last for a 90-day period. Years 1 and 2 after the
final measurement period, the participant Member may sell back 10% of
the common shares vested at a price equal to 50% of the fair market
value. Year 3 after the final measurement period, the participant
Member may sell back 30% of the common shares vested at a price equal
to 60% of the fair market value. Year 4 after the final measurement
period, the participant Member may sell back 60% of the common shares
vested at a price equal to 70% of the fair market value. Year 5 after
the final measurement period, the participant Member may sell back 90%
of the common shares vested at a price equal to 80% of the fair market
value. Year 6 after the final measurement period, the participant
Member may sell back 100% of the common shares vested at a price equal
to 90% of the fair market value.
---------------------------------------------------------------------------
\10\ `Fair market value' means the value of the MIH common stock
as determined by a nationally-recognized firm of independent
certified public accountants to be jointly selected by the MIH and
the participant Member, if such common stock is not publicly traded.
---------------------------------------------------------------------------
When a participating Member acquires a certain number of units, the
Member can appoint one director to the MIH Board and/or the MIAX Board.
The Exchange notes that the number of non-industry directors on the
MIAX Board, including at least one independent director, must equal or
exceed the number of industry directors and Member representatives, and
that additional new non-industry directors and Member representative
directors will need to be added in order to maintain this status. The
Exchange also notes that any directors that may be selected by a
participating Member would not be counted towards the 20% Member
representative requirement on the MIAX Board. In addition, the Exchange
notes that a Member is only entitled to a new seat if they are not
currently represented on the MIAX board.
All applicants will be subject to the same eligibility and
designation criteria, and all participant Members will participate in
the Program on the same terms, conditions and restrictions. To be
designated as a participant Member, an applicant must: (i) Be a Member
in good standing of MIAX; (ii) qualify as an ``accredited investor'' as
such term is defined in Regulation D of the Securities Act of 1933;
\11\ and (iii) have executed all required documentation for Program
participation. Participant Members must have executed the definitive
documentation, satisfied the eligibility criteria required of Program
participants enumerated above, and tendered the minimum cash investment
or prepayment of fees by January 27, 2015, with a closing to occur on
January 30, 2015.
---------------------------------------------------------------------------
\11\ The purpose of this criterion relates to the ability of MIH
to sell shares of common stock pursuant to an exemption from
registration under the Securities Act of 1933. The definition of
``accredited investor'' under Rule 501(a)(1) of the Securities Act
of 1933 includes any broker or dealer registered pursuant to Section
15 of the Act. MIAX Rule 200(b) requires a Member to be registered
as a broker or dealer pursuant to Section 15 of the Act, therefore
all MIAX Members will satisfy this criterion.
---------------------------------------------------------------------------
As discussed above, the purpose of the Program is to encourage
Members to direct greater trade volume to MIAX to enhance trading
volume in MIAX's market. Increased volume will provide for greater
liquidity and enhanced price discovery, which benefits all market
participants. Other exchanges currently engage in the practice of
incentivizing increased order flow in order to attract liquidity
providers through equity sharing arrangements.\12\ In addition, the
Exchange previously adopted a substantially similar program to
incentivize increased order flow in order to attract liquidity
providers through an equity sharing arrangement.\13\ The Program
similarly intends to attract 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 these other market participants. The Program will similarly
reward the liquidity providers that provide this additional volume with
a potential proprietary interest in MIAX.
---------------------------------------------------------------------------
\12\ See, e.g., Securities Exchange Act Release Nos. 62358 (June
22, 2010), 75 FR 37861 (June 30, 2010) (SR-NSX-2010-06); 64742 (June
24, 2011), 76 FR 38436 (June 30, 2011) (SR-NYSEAmex-2011-018); 69200
(March 21, 2013), 78 FR 18657 (March 27, 2013) (SR-CBOE-2013-31).
\13\ See Securities Exchange Act Release No. 70498 (September
25, 2013), 78 FR 60348 (October 1, 2013) (SR-MIAX-2013-43).
---------------------------------------------------------------------------
The specific volume thresholds of the Program's measurement periods
were set based upon business determinations and analysis of current
volume levels. The volume thresholds are intended to incentivize firms
to increase the number of orders that are sent to MIAX to achieve the
next threshold. Increasing the number of orders that are sent to MIAX
will in turn provide tighter and more liquid markets, and therefore
attract more business as well.
MIAX will initiate the measurement period on February 1, 2015. The
Exchange will notify Members of the implementation of the Program and
the dates of the enrollment period by Regulatory Circular, and will
post a copy of this rule filing on its Web site. Any MIAX Member that
is interested in participating in the Program may contact MIAX for more
information and legal documentation and will be required to enter into
a nondisclosure agreement regarding this additional Program
information.
2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with Section 6(b) of the Act \14\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \15\ in particular, 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. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) of the Act \16\ requirement that the rules of an
exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers. The Exchange also believes the
proposed rule change is consistent with Section 6(b)(4) of the Act,\17\
which requires that Exchange rules provide for the equitable allocation
of reasonable dues, fees, and other charges among its members and other
persons using its facilities.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
\16\ 15 U.S.C. 78f(b)(5).
\17\ 15 U.S.C. 78f(b)(4).
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In particular, the proposed rule change is equitable and not
unfairly discriminatory, because all Members may elect to participate
(or elect to not
[[Page 4014]]
participate) in the Program and earn units on the same terms and
conditions, assuming they satisfy the same eligibility criteria as
described above. The eligibility criteria are objective; thus, all
Members have the ability to satisfy them. The Board also has authorized
MIAX to offer common shares in MIH to any Member that requests
designation to participate in the Program and otherwise satisfies the
eligibility criteria to ensure that all Members will have the
opportunity to own common shares and thus participate in the Program if
they so choose. In addition, participant Members will earn [sic]
warrants on a pro-rata basis upon meeting fixed volume threshold
amounts during the measurement periods that will apply to all
participant Members.
The Exchange believes that the methodology used to calculate the
volume thresholds is fair, reasonable and not unfairly discriminatory
because it is based on objective criteria that are designed to omit
from the calculation functionality that is not available on the
Exchange and types of transactions that are subject to little or no
transaction fees. Specifically, the Exchange believes excluding
Priority Customer-to-Priority Customer Crossing transactions where no
fees are paid to the Exchange, special strategies, and contracts as to
which a Member acts solely as clearing agent from the number of option
contracts executed on the Exchange by any Member is reasonable and not
unfairly discriminatory because participating Members could otherwise
game the volume thresholds by executing excess volumes in these types
of transactions in which either no transaction fees are charged on the
Exchange, or the transaction is subject to a fee cap. The Program is
designed to reward participating Members for bringing their orders and
quotes to the Exchange to be executed on the Exchange. The Exchange
believes it is appropriate to exclude special strategies from the OCC
volume calculation since those transactions are not executed on the
Exchange. The Exchange believes that omitting clearing only
transactions from the calculation to be fair and reasonable because the
fact that a Member is clearing a trade is coincidental to the choice of
where to execute that trade. And, because clearing only transactions
are not executed on the MIAX, they don't fall within the intended
transactions that qualify for the Program. In addition, if the Exchange
were to reward the party clearing a trade, the Exchange would possibly
be double counting that trade--once for the executing party and once
for the clearing party. Furthermore, the Exchange believes that
counting incidental Priority Customer-to-Priority Customer
transactions, which are not crossing transactions, in the number of
options contracts executed on the Exchange by a Member is fair and
reasonable because in these situations the Priority Customer is not
necessarily choosing to execute against another Priority Customer in
order to avoid a transaction fee.
The Exchange believes the Program is equitable and reasonable
because an increase in volume and liquidity would benefit all market
participants by providing more trading opportunities and tighter
spreads, even to those market participants that do not participate in
the Program. Additionally, the Exchange believes the proposed rule
change is consistent with the Act because, as described above, the
Program is designed to bring greater volume and liquidity to the
Exchange, which will benefit all market participants by providing
tighter quoting and better prices, all of which perfects the mechanism
for a free and open market and national market system.
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 Exchange believes that the
proposed rule change will improve competition by providing market
participants with another option when determining where to execute
orders and post liquidity.
The Exchange believes that the proposed change would increase both
intermarket and intramarket competition by incenting participant
Members to direct their orders to the Exchange, which will enhance the
quality of quoting and increase the volume of contracts traded here. To
the extent that there is an additional competitive burden on non-
participant Members, the Exchange believes that this is appropriate
because the Program should incent 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 here. To the extent that this purpose is achieved, all
of 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.
Given the robust competition for volume among options markets, many
of which offer the same products, implementing a program to attract
order flow like the one being proposed in this filing is consistent
with the above-mentioned goals of the Act. This is especially true for
the smaller options markets, such as MIAX, which is competing for
volume with much larger exchanges that dominate the options trading
industry. As a newer exchange, MIAX has a nominal percentage of the
average daily trading volume in options, so it is unlikely that the
Program could cause any competitive harm to the options market or to
market participants. Rather, the Program is a modest attempt by a small
options market to attract order volume away from larger competitors by
adopting an innovative pricing strategy, as evidenced by the volume
thresholds of the Program that represent fractions of 1% of OCC ADV.
The Exchange notes that if the Program resulted in a modest percentage
increase in the average daily trading volume in options executing on
MIAX, while such percentage would represent a large volume increase for
MIAX, it would represent a minimal reduction in volume of its larger
competitors in the industry. The Exchange believes that the Program
will help further competition, because market participants will have
yet another additional option in determining where to execute orders
and post liquidity if they factor the benefits of MIAX equity
participation into the determination.
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) of the Act \18\ and paragraph (f) of Rule 19b-4
thereunder.\19\ 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
[[Page 4015]]
investors, or otherwise in furtherance of the purposes of the Act.
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-4(f).
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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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-MIAX-2015-02 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-2015-02. 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 (https://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-2015-02 and
should be submitted on or before February 17, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-01248 Filed 1-23-15; 8:45 am]
BILLING CODE 8011-01-P
