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, 60348-60352 [2013-23826]
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Federal Register / Vol. 78, No. 190 / Tuesday, October 1, 2013 / Notices
Commission may extend the period for
issuing an order approving or
disapproving the proposed rule change,
however, by not more than 60 days if
the Commission determines that a
longer period is appropriate and
publishes the reasons for such
determination.11 The Proposed Rule
Change was published for notice and
comment in the Federal Register on
April 10, 2013. The 180th day after that
publication date is October 7, 2013.
The Commission finds it appropriate
to designate a longer period within
which to issue an order approving or
disapproving the Proposed Rule Change,
as amended, so that it has sufficient
time to consider the amended proposal,
the issues raised in the comment letters
to the amended proposal, including
comment letters submitted in response
to the Order Instituting Proceedings,
and NSCC’s responses to such
comments.
Accordingly, the Commission,
pursuant to Section 19(b)(2)(B)(ii)(II) of
the Exchange Act,12 designates
December 6, 2013, as the date by which
the Commission should either approve
or disapprove the Proposed Rule Change
(SR–NSCC–2013–02).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–23829 Filed 9–30–13; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–70498; File No. SR–MIAX–
2013–43]
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
September 25, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’)1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 13, 2013, Miami
International Securities Exchange LLC
(‘‘Exchange’’ or ‘‘MIAX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
U.S.C. 78s(b)(2)(B)(ii)(II).
12 Id.
13 17
CFR 200.30–3(a)(57).
U.S.C.78s(b)(1).
2 17 CFR 240.19b–4.
1 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.
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
SECURITIES AND EXCHANGE
COMMISSION
11 15
III below, which Items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
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 (‘‘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
addition volume thresholds on the
Exchange over a 23-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
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choose from: (i) An offering of A-Units;
and/or (ii) an offering of B-Units.3
A-Units Option
Members that participate in the AUnit option of the Program will be
issued for each unit (i) 101,695 shares
of MIH common stock and (ii) warrants
to purchase 2,182,639 shares of common
stock of MIH in exchange for such
participant Member’s initial cash capital
contribution of $508,475, and with such
warrants being exercisable upon the
achievement by the participating
Member of certain volume thresholds on
the Exchange during a 23-month
measurement period commencing
September 13, 2013. A total of 10 AUnits 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 1–23 of the Program. In
addition, the participant Members may
earn or lose 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 101,695 shares
of the common stock and 10% of the
warrants will vest. A participant
Member will be eligible to earn the
remaining warrants during
measurement periods provided that the
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. See infra
note 9, and accompanying text. Members may elect
to participate in either or both of the options. If
either the A-Unit or the B-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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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
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)
8.1% of the warrants resulting from
months 1–3, with a volume commitment
of 0.225% of OCC ADV on MIAX per AUnit6; (ii) 11.7% of the warrants
resulting from months 4–5, with a
volume commitment of 0.335% of OCC
ADV on MIAX per A-Unit; (iii) 19.8%
of the warrants resulting from months
6–10, with a volume commitment of
0.445% of OCC ADV on MIAX per AUnit; (iv) 23.4% of the warrants
resulting from months 11–16, with a
volume commitment of 0.556% of OCC
ADV on MIAX per A-Unit; and (v) 27%
of the warrants resulting from months
17–23, with a volume commitment of
0.667% of OCC ADV on MIAX per AUnit. 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 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
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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 the
date of filing and end November 30, 2013.
Therefore, September 13, 2013 through November
30, 2013 will count as months 1–3 for purposes of
the measurement period.
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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 the
measurement period 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
period immediately following.
B-Units Option
Members that participate in the BUnit option of the Program will be
issued for each unit warrants to
purchase 1,713,251 shares of common
stock of MIH in exchange for the
prepayment of Exchange fees in the
amount of $500,000 for the 22-month
period commencing October 1, 2013,
and with such warrants being
exercisable upon the achievement by
the participating Member of certain
volume thresholds on the Exchange
during a 23-month measurement period
commencing September 13, 2013. A
total of 10 B-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) 9% of the
warrants resulting from months 1–3,
with a volume commitment of 0.225%
of OCC ADV on MIAX per B-Unit7; (ii)
13% of the warrants resulting from
months 4–5, with a volume commitment
of 0.335% of OCC ADV on MIAX per BUnit; (iii) 22% of the warrants resulting
from months 6–10, with a volume
commitment of 0.445% of OCC ADV on
MIAX per B-Unit; (iv) 26% of the
warrants resulting from months 11–16,
with a volume commitment of 0.556%
of OCC ADV on MIAX per B-Unit; and
(v) 30% of the warrants resulting from
months 17–23, with a volume
commitment of 0.667% of OCC ADV on
MIAX per B-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
7 The first measurement period will begin on the
date of filing and end November 30, 2013.
Therefore, September 13, 2013 through November
30, 2013 will count as months 1–3 for purposes of
the measurement period.
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60349
reaches 70–99% of the volume
commitment during any one tranche’s
measurement period, the Member will
earn 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
Members performance from the
measurement period 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
period immediately following.
Once a participant Member has
prepaid Exchange fees for the initial 22month 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 B-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 A-Units
and B-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 Exchange Act of 1933 [sic].
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 B-Unit.
MIH 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.
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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 8 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.9
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
8 ‘‘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.
9 The Commission notes that MIAX will need to
submit a separate proposed rule change to make
changes to its corporate governance documents to
accommodate aspects of the proposal that involve
or affect the boards of MIAX and Miami
International Holdings.
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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;10 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 September 27,
2013, with a closing to occur on
September 30, 2013.
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.11 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.
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.
10 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
Act 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.
11 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).
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MIAX will initiate the measurement
period on the date of filing, September
13, 2013.12 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 13 in general, and
furthers the objectives of Section 6(b)(5)
of the Act 14 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 15 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,16 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
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
12 MIAX previously provided notice to Members
on August 21, 2013 that the measurement period for
the volume thresholds would be commencing on
September 3, 2013. See MIAX Regulatory Circular,
RC–2013–52. However, MIAX has decided instead
to use September 13, 2013, to coincide with the
date of filing.
13 15 U.S.C. 78f(b).
14 15 U.S.C. 78f(b)(5).
15 15 U.S.C. 78f(b)(5).
16 15 U.S.C. 78f(b)(4).
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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 warrants on a prorata 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
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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
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60351
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 new 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)(ii) of the Act.17 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.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
17 15
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01OCN1
60352
Federal Register / Vol. 78, No. 190 / Tuesday, October 1, 2013 / Notices
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:
[FR Doc. 2013–23826 Filed 9–30–13; 8:45 am]
Electronic Comments
BILLING CODE 8011–01–P
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–MIAX–2013–43 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.
emcdonald on DSK67QTVN1PROD with NOTICES
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Kevin M. O’Neill,
Deputy Secretary.
All submissions should refer to File
Number SR–MIAX–2013–43. 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 such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
publicly available. All submissions
should refer to File Number SR–MIAX–
2013–43 and should be submitted on or
before October 22, 2013.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70505; File No. SR–MIAX–
2013–44]
Self-Regulatory Organizations; Notice
of Filing and Immediate Effectiveness
of a Proposed Rule Change by Miami
International Securities Exchange LLC
To Amend Exchange Rule 604 in
Connection With Market Maker
Continuous Quoting Obligations
September 25, 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 September 17, 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 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend Rule 604 in connection with
Market Maker continuous quoting
obligations.
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
18 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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14:45 Sep 30, 2013
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Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 604 to exclude intra-day add-on
series (‘‘Intra-day Adds’’) from the
Market Makers’ continuous quoting
obligations on the day such series are
added for trading. Additionally, the
proposed rule change clarifies in the
Interpretations and Policies to Rule 604
that: (1) Lead Market Makers
(‘‘LMMs’’) 3 may still receive directed
orders and participation entitlements in
all Intra-day Adds on the day such
series are added for trading provided the
LMM is quoting the Intra-day Add and
meets all other directed order and
participation entitlement requirements
set forth in Rules 514(h) and (i); and (2)
Primary Lead Market Makers
(‘‘PLMMs’’) 4 may still receive
participation entitlements in all Intraday Adds on the day such series are
added for trading provided the PLMM is
quoting the Intra-day Add and meets all
other participation entitlement
requirements set forth in Rules 514(g)
and (i). The proposal is based on the
recently approved change by Chicago
Board Options Exchange, Incorporated
(‘‘CBOE’’).5
Intra-day Adds are series that can be
added to the System after the opening
of trading on the Exchange. These series
may be added at any time during the
trading day and differ from other newly
added series, which are added prior to
the opening of trading. In the event a
series is added after the opening of
trading, the Exchange will disseminate
3 Exchange Rule 100 defines a Lead Market Maker
as a Member registered with the Exchange for the
purpose of making markets in securities traded on
the Exchange and that is vested with the rights and
responsibilities specified in Chapter VI of these
Rules with respect to Lead Market Makers. When
a Lead Market Maker is appointed to act in the
capacity of a Primary Lead Market Maker, the
additional rights and responsibilities of a Primary
Lead Market Maker specified in Chapter VI of these
Rules will apply.
4 Exchange Rule 100 defines a Primary Lead
Market Maker as a Lead Market Maker appointed
by the Exchange to act as the Primary Lead Market
Maker for the purpose of making markets in
securities traded on the Exchange. The Primary
Lead Market Maker is vested with the rights and
responsibilities specified in Chapter VI of these
Rules with respect to Primary Lead Market Makers.
5 See Securities Exchange Act Release Nos. 69338
(April 8, 2013), 78 FR 21981 (April 12, 2013) (SR–
CBOE–2013–019) (Order approving); 68944
(February 15, 2013), 78 FR 12377 (February 22,
2013) (SR–CBOE–2013–019).
E:\FR\FM\01OCN1.SGM
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]]>Agencies
[Federal Register Volume 78, Number 190 (Tuesday, October 1, 2013)]
[Notices]
[Pages 60348-60352]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-23826]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70498; File No. SR-MIAX-2013-43]
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
September 25, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'')\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on September 13, 2013, Miami International Securities Exchange LLC
(``Exchange'' or ``MIAX'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the self-
regulatory organization. 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 (``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
addition volume thresholds on the Exchange over a 23-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 A-Units; and/or (ii) an offering of B-
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. See infra note 9, and
accompanying text. Members may elect to participate in either or
both of the options. If either the A-Unit or the B-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.
---------------------------------------------------------------------------
A-Units Option
Members that participate in the A-Unit option of the Program will
be issued for each unit (i) 101,695 shares of MIH common stock and (ii)
warrants to purchase 2,182,639 shares of common stock of MIH in
exchange for such participant Member's initial cash capital
contribution of $508,475, and with such warrants being exercisable upon
the achievement by the participating Member of certain volume
thresholds on the Exchange during a 23-month measurement period
commencing September 13, 2013. A total of 10 A-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.
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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 1-23 of the Program. In addition, the
participant Members may earn or lose 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 101,695 shares of the common stock and 10% of
the warrants will vest. A participant Member will be eligible to earn
the remaining warrants during measurement periods provided that the
[[Page 60349]]
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 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) 8.1% of the warrants
resulting from months 1-3, with a volume commitment of 0.225% of OCC
ADV on MIAX per A-Unit\6\; (ii) 11.7% of the warrants resulting from
months 4-5, with a volume commitment of 0.335% of OCC ADV on MIAX per
A-Unit; (iii) 19.8% of the warrants resulting from months 6-10, with a
volume commitment of 0.445% of OCC ADV on MIAX per A-Unit; (iv) 23.4%
of the warrants resulting from months 11-16, with a volume commitment
of 0.556% of OCC ADV on MIAX per A-Unit; and (v) 27% of the warrants
resulting from months 17-23, with a volume commitment of 0.667% of OCC
ADV on MIAX per A-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 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 the measurement period 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 period immediately following.
---------------------------------------------------------------------------
\6\ The first measurement period will begin on the date of
filing and end November 30, 2013. Therefore, September 13, 2013
through November 30, 2013 will count as months 1-3 for purposes of
the measurement period.
---------------------------------------------------------------------------
B-Units Option
Members that participate in the B-Unit option of the Program will
be issued for each unit warrants to purchase 1,713,251 shares of common
stock of MIH in exchange for the prepayment of Exchange fees in the
amount of $500,000 for the 22-month period commencing October 1, 2013,
and with such warrants being exercisable upon the achievement by the
participating Member of certain volume thresholds on the Exchange
during a 23-month measurement period commencing September 13, 2013. A
total of 10 B-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) 9% of the warrants resulting from months 1-3,
with a volume commitment of 0.225% of OCC ADV on MIAX per B-Unit\7\;
(ii) 13% of the warrants resulting from months 4-5, with a volume
commitment of 0.335% of OCC ADV on MIAX per B-Unit; (iii) 22% of the
warrants resulting from months 6-10, with a volume commitment of 0.445%
of OCC ADV on MIAX per B-Unit; (iv) 26% of the warrants resulting from
months 11-16, with a volume commitment of 0.556% of OCC ADV on MIAX per
B-Unit; and (v) 30% of the warrants resulting from months 17-23, with a
volume commitment of 0.667% of OCC ADV on MIAX per B-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 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 Members performance from
the measurement period 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 period immediately following.
---------------------------------------------------------------------------
\7\ The first measurement period will begin on the date of
filing and end November 30, 2013. Therefore, September 13, 2013
through November 30, 2013 will count as months 1-3 for purposes of
the measurement period.
---------------------------------------------------------------------------
Once a participant Member has prepaid Exchange fees for the initial
22-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 B-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 A-Units and B-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 Exchange Act of 1933 [sic]. 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 B-Unit.
MIH 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.
[[Page 60350]]
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 \8\ 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.
---------------------------------------------------------------------------
\8\ ``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.\9\ 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.
---------------------------------------------------------------------------
\9\ The Commission notes that MIAX will need to submit a
separate proposed rule change to make changes to its corporate
governance documents to accommodate aspects of the proposal that
involve or affect the boards of MIAX and Miami International
Holdings.
---------------------------------------------------------------------------
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;\10\
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 September 27, 2013, with a closing to occur on
September 30, 2013.
---------------------------------------------------------------------------
\10\ 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 Act 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.\11\ 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.
---------------------------------------------------------------------------
\11\ 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).
---------------------------------------------------------------------------
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 the date of filing,
September 13, 2013.\12\ 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.
---------------------------------------------------------------------------
\12\ MIAX previously provided notice to Members on August 21,
2013 that the measurement period for the volume thresholds would be
commencing on September 3, 2013. See MIAX Regulatory Circular, RC-
2013-52. However, MIAX has decided instead to use September 13,
2013, to coincide with the date of filing.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with Section 6(b) of the Act \13\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \14\ 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 \15\ 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,\16\
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.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
\15\ 15 U.S.C. 78f(b)(5).
\16\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
In particular, the proposed rule change is equitable and not
unfairly discriminatory, because all Members may elect to participate
(or elect to not 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
[[Page 60351]]
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 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 new 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)(ii) of the Act.\17\ 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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\17\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
[[Page 60352]]
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-2013-43 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-2013-43. 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 such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make publicly available. All
submissions should refer to File Number SR-MIAX-2013-43 and should be
submitted on or before October 22, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-23826 Filed 9-30-13; 8:45 am]
BILLING CODE 8011-01-P
