Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing of a Proposed Rule Change To Amend the Exchange's By-Laws, 79530-79533 [2013-31128]
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maindgalligan on DSK5TPTVN1PROD with NOTICES
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Federal Register / Vol. 78, No. 250 / Monday, December 30, 2013 / Notices
broker-dealer can offer sub-penny
executions, provided that such
executions do not result from
impermissible sub-penny orders or
quotations. Accordingly, OTC market
makers typically select a sub-penny
price for a trade without quoting at that
exact amount or accepting orders from
retail customers seeking that exact price.
Exchanges—and exchange member
firms that submit orders and quotations
to exchanges—cannot compete for
marketable retail order flow on the same
basis, because it would be impractical
for exchange electronic systems to
generate sub-penny executions without
exchange liquidity providers or retail
brokerage firms having first submitted
sub-penny orders or quotations, which
the Sub-Penny Rule expressly prohibits.
The limited exemption granted today
should promote competition between
exchanges and OTC market makers in a
manner that is reasonably designed to
minimize the problems that the
Commission identified when adopting
the Sub-Penny Rule. Under the Program,
sub-penny prices will not be
disseminated through the consolidated
quotation data stream, which should
avoid quote flickering and associated
reduced depth at the inside quotation.
Furthermore, while the Commission
remains concerned about providing
enough incentives for market
participants to display limit orders, the
Commission does not believe that
granting this exemption (and approving
the accompanying proposed rule
change) will reduce such incentives.
Market participants that display limit
orders currently are not able to interact
with marketable retail order flow
because it is almost entirely routed to
internalizing OTC market makers that
offer sub-penny executions.
Consequently, enabling the Exchange to
compete for this retail order flow
through the Program should not
materially detract from the current
incentives to display limit orders, while
potentially resulting in greater order
interaction and price improvement for
marketable retail orders. To the extent
that the Program may raise Manning and
best execution issues for broker-dealers,
these issues are already presented by the
existing practices of OTC market
makers.
The exemption being granted today is
limited to a one-year pilot. The
Exchange has stated that ‘‘sub-penny
trading and pricing could potentially
result in undesirable market behavior,’’
and, therefore, it will ‘‘monitor the
and that ‘‘sub-penny executions due to price
improvement are generally beneficial to retail
investors.’’ Id. at 37556.
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Program in an effort to identify and
address any such behavior.’’ 46
Furthermore, the Exchange has
represented that it ‘‘will produce data
throughout the pilot, which will include
statistics about participation, the
frequency and level of price
improvement provided by the Program,
and any effects on the broader market
structure.’’ 47 The Commission expects
to review the data and observations of
the Exchange before determining
whether and, if so, how to extend the
exemption from the Sub-Penny Rule.48
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,49 that the
proposed rule change (SR–NYSEArca–
2013–107) be, and hereby is, approved
on a one-year pilot basis.
It is also hereby ordered that,
pursuant to Rule 612(c) of Regulation
NMS, the Exchange is given a limited
exemption from Rule 612 of Regulation
NMS to allow it to accept and rank
orders priced equal to or greater than
$1.00 per share in increments of $0.001,
in the manner described in the proposed
rule changes above, on a one-year pilot
basis beginning with the effectiveness of
the proposed rule change.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.50
Kevin O’Neill,
Deputy Secretary.
[FR Doc. 2013–31131 Filed 12–27–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–71172; File No. SR–MIAX–
2013–58]
Self-Regulatory Organizations; Miami
International Securities Exchange LLC;
Notice of Filing of a Proposed Rule
Change To Amend the Exchange’s ByLaws
December 23, 2013.
Pursuant to the provisions of Section
19(b)(1) of the Securities Exchange Act
46 See Request for Sub-Penny Rule Exemption,
supra note 5, at 3, n.5.
47 See supra note 34 and accompanying text.
48 In particular, the Commission expects the
Exchange to observe how maker/taker transaction
charges, whether imposed by the Exchange or by
other markets, might impact the use of the Program.
Market distortions could arise where the size of a
transaction rebate, whether for providing or taking
liquidity, is greater than the size of the minimum
increment permitted by the Program ($0.001 per
share).
49 15 U.S.C. 78s(b)(2).
50 17 CFR 200.30–3(a)(12); 17 CFR 200.30–
3(a)(83).
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of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
on December 9, 2013, Miami
International Securities Exchange LLC
(‘‘MIAX’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I, II, and III below,
which Items have been prepared by the
Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange is filing a proposal to
amend the Exchange’s By-Laws.
The text of the proposed rule change
is available on the Exchange’s Web site
at 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: (i) Amend
certain sections of its By-Laws to
correspond with an Equity Rights
Program (‘‘ERP’’) recently established by
the Exchange; 3 and (ii) make other nonsubstantive revisions to reflect changes
since the Commission granted the
Exchange’s registration as a national
securities exchange on December 3,
2012.4
The filing corresponds with the
recently implemented ERP, pursuant to
which units representing the right to
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 70498
(September 25, 2013), 78 FR 60348 (October 1,
2013) (SR–MIAX–2013–43).
4 See Securities Exchange Act Release No. 68341
(December 3, 2012), 77 FR 73089 (December 7,
2012) (File No. 10–207).
2 17
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acquire equity in the Exchange’s parent
holding company, Miami International
Holdings (‘‘LLM Member’’),5 were
issued to participating Members in
exchange for payment of an initial
purchase price or the prepayment of
certain transaction fees and the
achievement of certain liquidity
addition volume thresholds on the
Exchange over a 23-month period. This
filing amends the By-Laws to the extent
necessary to incorporate rights to
participating Members in an ERP to
appoint representation to the MIAX
Board.
options are traded (other than the
Company or any of its affiliates) that
lists for trading any option contract that
competes with an Exchange Contract,
(ii) any person that owns or controls
such U.S. securities option exchange or
U.S. alternative trading system, and (iii)
any affiliate of a person described in
clause (i) or (ii) above.6
• ‘‘Unit’’ means a combination of
securities or types of securities
packaged together as one.
The Exchange will renumber the preexisting definitions accordingly to
accommodate the additions.
Article I, Definitions
The Exchange proposes to amend the
By-Laws to provide definitions for key
terms used to incorporate provisions
related to the ERP. Specifically, the
Exchange proposes the following
definitions:
• ‘‘Effective Date’’ means the date of
effectiveness of these Amended and
Restated By-Laws.
• ‘‘ERP Agreement’’ means the
agreement pursuant to which Units
were issued.
• ‘‘ERP Director’’ means an Industry
Director who has been nominated by an
ERP Member and appointed to the
Board of Directors.
• ‘‘ERP Member’’ means an Exchange
Member who acquired Units pursuant to
an ERP Agreement sufficient to acquire
an ERP Director or an Observer position.
• ‘‘Exchange Contract’’ means a
contract that is then listed for trading by
the Exchange or that is contemplated by
the then current business plan of the
Company to be listed for trading by the
Exchange within ninety (90) days
following such date.
• ‘‘Measurement Period’’ means the
time period over which Units are
vested.
• ‘‘Observer’’ has the meaning set
forth in Article II, Section 2.2 of these
By-Laws.
• ‘‘Performance Criteria’’ means the
trades on MIAX in an amount equal to
a percentage of the average daily volume
of contracts traded on all options
exchanges for all option classes listed
on MIAX as reported to The Options
Clearing Corporation for a specified
Measurement Period in an amount such
that the ERP Member earns Units during
such specified Measurement Period.
• ‘‘Specified Entity’’ means (i) any
U.S. securities option exchange (or
facility thereof) or U.S. alternative
trading system on which securities
Article II, Section 2.2, Composition of
the Board
The Exchange proposes to amend the
Board of Directors composition
provisions to provide that ERP Directors
will be included in the number of
Industry Directors for purposes of
calculating the composition of the
Board. In addition, the Exchange
proposes to specify that Member
Representative Directors will not
include ERP Directors for purposes of
calculating the Board composition.
The Exchange proposes to add a
restriction to the qualifications of a
Director so that after the effective date
of the Amended and Restated By-Laws,
in the event a Director becomes a
member of the board of directors or
similar governing body of a competing
options exchange or alternative trading
system that trades options, such
individual shall immediately cease to be
a Director of the Company and the
resulting vacancy shall be filled by the
standard nominating and appointment
procedures.7 Existing Directors that may
be in violation would be grandfathered
in and not subject to the new restriction.
In addition, the Exchange proposes to
provide that an ERP Member has a right
to nominate a Director or appoint an
Observer to the Board of Directors. If the
ERP Member is otherwise able to
nominate an ERP Director, an Observer
appointment would be in lieu of such
ERP Director nomination.8 As discussed
5 The Commission notes that the defined term
‘‘LLM Member’’ is a typographical error. The
Commission understands that the Exchange meant
‘‘LLC Member’’ here, a term used throughout this
notice.
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6 The Exchange notes that this definition is nearly
identical to that used by another competing options
exchange. See Limited Liability Company
Agreement of NYSE Amex Options, Article I, 1.1.
See also Securities Exchange Act Release No. 64742
(June 24, 2011), 76 FR 38436 (June 30, 2011) (SR–
NYSEAmex–2011–018) (Exhibit 5A).
7 The Exchange notes that this restriction is
nearly identical to that used by another competing
options exchange. See Limited Liability Company
Agreement of NYSE Amex Options, Article VIII,
8.1(h). See also Securities Exchange Act Release No.
64742 (June 24, 2011), 76 FR 38436 (June 30, 2011)
(SR–NYSEAmex–2011–018) (Exhibit 5A).
8 At this time, an ERP Member may only have at
most a Member Representative Director and an ERP
Director, or a Member Representative Director and
an Observer, but not an ERP Director and an
Observer.
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below, the Nominating Committee shall
formally nominate only those persons
whose names have been approved and
submitted by the applicable ERP
Members. The LLC Member is then
obligated to vote for the nominated ERP
Director. The nominee shall be
appointed at the first annual meeting of
the Company following the effective
date of the By-Law amendment.
Observers appointed by ERP Members
will be subject to the same statutory
disqualification restrictions as Directors.
Similar to Directors, in the event an
Observer appointed after the effective
date of the Amended and Restated ByLaws becomes a member of the board of
directors or similar governing body of a
competing options exchange or
alternative trading system that trades
options, such individual shall
immediately cease to be an Observer of
the Company.9 Observers will have the
right to attend all meetings of the Board
of Directors in a nonvoting observer
capacity and, in this respect, the
Company shall give such representative
copies of all notices, minutes, consents,
and other materials that it provides to
its directors at the same time and in the
same manner as provided to such
Directors; provided, however, that such
representative shall agree to hold in
confidence and trust and to act in a
fiduciary manner with respect to all
information so provided; and provided
further, that the Company reserves the
right to withhold any information and to
exclude such representative from any
meeting or portion thereof if access to
such information or attendance at such
meeting could adversely affect the
attorney-client privilege between the
Company and its counsel or result in
disclosure of trade secrets or a conflict
of interest.
The Exchange believes these changes
are reasonably designed to ensure that
the Board of Directors maintains the
appropriate composition after the ERP
and that Directors and Observers are
qualified to represent ERP Members on
the Board. The changes will also help to
ensure that Directors, ERP Directors,
and Observers, are qualified and held to
the same restrictions against statutory
disqualification and conflicts of
interests by being a member of the board
of directors or similar body of a
competitor. The Exchange notes that no
substantive changes are being proposed
to the Board’s composition; the Board
size will increase, but the current
composition will remain.
9 See
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Article II, Section 2.3, Terms of Office
The Exchange proposes to amend this
Section to provide that in the event that
an ERP Member who has the right to
nominate an ERP Director and which
fails to meet its Performance Criteria
under the ERP Agreement for three
consecutive Measurement Periods such
that it only meets the required
performance criteria of an ERP Member
that may appoint an Observer, then the
individual designated by the nonperforming ERP Member shall
immediately cease to be an ERP Director
of the Company and such ERP Member
shall cease to have the right to nominate
an ERP Director. Such non-performing
ERP Member shall continue to maintain
Observer rights as set forth in the ByLaws. Notwithstanding the foregoing, in
the event that the non-performing ERP
Member satisfies the Performance
Criteria for a subsequent Measurement
Period, then such ERP Member may
reappoint an ERP Director at the
immediately following annual meeting
of the Company. Additionally, in the
event that an ERP Member who has the
right to appoint an Observer and which
fails to meet its Performance Criteria for
three consecutive Measurement Periods,
then the individual designated by the
non-performing ERP Member shall
immediately cease to be an Observer
and such non-performing ERP Member
shall cease to have the right to appoint
an Observer. Notwithstanding the
foregoing, in the event that the nonperforming ERP Member satisfies the
Performance Criteria for a subsequent
Measurement Period, then such ERP
Member may reappoint an Observer.
The Exchange believes that it is fair and
reasonable to treat non-performing ERP
Member’s that can nominate an ERP
Director differently than non-performing
ERP Member’s that can only appoint
Observers. ERP Members that can
nominate ERP Directors have assumed
greater performance obligations under
the ERP Agreement, and thus even at
the non-performing level are entitled to
more protections to their representation
on the Board than non-performing ERP
Members that can only appoint
Observers.
The Exchange also proposes to
provide that an individual ERP Director
or Observer position shall be
immediately terminated following the
transfer of common stock or warrants of
the LLC Member acquired pursuant to
the ERP Agreement by an ERP Member
which, after giving effect to such
transfer, results in such ERP Member
holding less than 20% of the aggregate
number of shares of common stock of
the LLC Member issued or issuable
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pursuant to the Units acquired pursuant
to the ERP Agreement collectively.
The Exchange believes these changes
regarding Terms of Office are reasonably
designed to account for the removal of
Directors or Observers of nonperforming ERP Members and Members
that no longer have a controlling interest
in the shares that provided them the
right to such appointments.
alternative trading system that trades
options, such individual shall
immediately cease to be a committee
member of the Company.10 The
Exchange believes these changes are
reasonably designed to ensure that
committee members are qualified and
held to the same standards as Directors
and Observers.
Article II, Section 2.4, Nomination and
Election
The Exchange proposes to provide
that the Nominating Committee shall
nominate to ERP Director positions only
those persons whose names have been
approved and submitted by the
applicable ERP Members having the
right to nominate such person. As
mentioned above, the LLC Member is
then obligated to vote for the nominated
ERP Director. The nominee shall be
appointed at the first annual meeting of
the Company following September 30,
2013, which was the closing date of the
ERP Program.
The Exchange proposes to provide
that Observers will be subject to the
same participation rights on the Board
during meetings pertaining to the selfregulatory function of the Company as
other members of the Board. In addition,
Observers will be subject to the same
requirements to maintain the
confidentiality of all books and records
of the Company reflecting confidential
information pertaining to the selfregulatory function of the Company.
Article II, Section 2.8, Vacancies
The Exchange proposes to provide
that in the event that an ERP Director
position becomes vacant that the
applicable ERP Member will retain the
ability to nominate a person to fill the
vacant ERP Director position. To
eliminate any potential confusion
between the treatment of true vacancies
and the non-performance provisions in
Article II, Section 2.3(c), the Exchange
proposes to specify that Section 2.8(c)
will not apply for a vacancy resulting
from an ERP Director position becoming
vacant due to a non-performing ERP
Member. In the situation of nonperformance of an ERP Member, the
provisions of Article II, Section 2.3(c)
would apply.
Article II, Section 2.9, Removal and
Resignation
The Exchange proposes to provide
that ERP Directors may only be removed
for cause, which shall include, without
limitation, such Director being subject
to a statutory disqualification.
Article IV, Section 4.2, Board
Committees
The Exchange proposes to provide
that committee members will be subject
to the same statutory disqualification
restrictions as Directors and Observers.
Similar to Directors and Observers, in
the event a committee member
appointed after the effective date of the
Amended and Restated By-Laws
becomes a member of the board of
directors or similar governing body of a
competing options exchange or
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Article X, Sections 10.3 and 10.4
Miscellaneous Non-Substantive
Changes.
In addition to the changes set forth
above, the Exchange proposes to make
the following non-substantive changes
to the current By-Laws. The Exchange
proposes to delete dated references to
time periods and events that have
expired since the proposal of the New
By-Laws. Specifically, the Exchange
proposes to delete provisions in Article
II, Section 2.5, and Article III, Section
3.1(b), regarding Interim Directors and
Interim Member Representative
Directors since these appointments have
already occurred. Consistent with this
change, the Exchange proposes to
remove references to Article II, Section
2.5 and Interim Directors and Interim
Member Representative Directors from
Article I(bb) and Article II, Section
2.2(b)(i).
2. Statutory Basis
MIAX believes that its proposed rule
change is consistent with Section 6(b) of
the Act 11 in general, and furthers the
objectives of Sections 6(b)(1) and 6(b)(5)
of the Act 12 in particular, in that it
enables the Exchange to be so organized
as to have the capacity to carry out the
purposes of the Act and to comply, and
to enforce compliance by its Members
and persons associated with its
Members, with the provisions of the
Act, the rules and regulations
10 The Exchange notes that this restriction is
nearly identical to that used by another competing
options exchange. See Limited Liability Company
Agreement of NYSE Amex Options, Article VIII,
8.3(d). See also Securities Exchange Act Release No.
64742 (June 24, 2011), 76 FR 38436 (June 30, 2011)
(SR–NYSEAmex-2011–018) (Exhibit 5A).
11 15 U.S.C. 78f(b).
12 15 U.S.C. 78f(b)(5).
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thereunder, and the rules of the
Exchange; and that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, to remove
impediments to and perfect the
mechanisms of a free and open market
and a national market system and, in
general, to protect investors and the
public interest. In addition, the
proposed change is consistent with
Section 6(b)(3) of the Act,13 in that it
enables the Exchange to assure a fair
representation of its members in the
selection of its directors and
administration of its affairs and provide
that one or more directors shall be
representative of issuers and investors
and not be associated with a member of
the exchange, broker, or dealer.
Specifically, the proposed
amendments to the By-Laws are
reasonably designed to incorporate
provisions related to the ERP in a
manner that ensures that the Exchange
will remain so organized as to have the
capacity to carry out the purposes of the
Act and to comply, and to enforce
compliance by its Members and persons
associated with its Members, with the
provisions of the Act, the rules and
regulations thereunder, and the rules of
the Exchange. The changes will also
help to ensure that Directors, ERP
Directors, Observers, and committee
members are qualified and held to the
same restrictions against statutory
disqualification and conflicts of
interests by being a member of the board
of directors or similar body of a
competitor. The proposed ERP Directors
will be subject to the same restrictions
as current Directors including
evaluating proposals with the
Company’s self-regulatory status in
mind, restricting participation in
activities where there is a conflict of
interest, and [sic] requirement to
maintain the confidentiality of
information related to the Company’s
self-regulatory function. The proposed
Observers will be subject to the same
restrictions as current Directors
regarding maintain [sic] the
confidentiality of information related to
the Company’s self-regulatory function.
However, Observers will be not be
subject to the same restrictions as
current Directors regarding evaluating
proposals with the Company’s selfregulatory status in mind and restricting
participation in activities where there is
a conflict of interest. The Exchange
believes that treating Observers
13 15
U.S.C. 78f(b)(3).
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differently than Directors in these
circumstances is reasonable because
Observers will not be affirmatively
voting on any such proposals in their
non-voting observer capacity.
In addition, the Exchange’s proposed
amendments address other nonsubstantive revisions to reflect changes
since the Commission granted the
Exchange’s registration as a national
securities exchange.
The proposal will continue to assure
a fair representation of its Members in
that ERP Directors will not affect the
current Member Representation Director
calculation or process in any way. The
Exchange notes that no substantive
changes are being proposed to the
Board’s composition; the Board size will
increase, but the current composition
will remain.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed changes to the Exchange ByLaws are designed to enable the
Exchange to be so organized as to have
the capacity to carry out the purposes of
the Act and to comply, and to enforce
compliance by its Members and persons
associated with its Members, with the
provisions of the Act, the rules and
regulations thereunder, and the rules of
the Exchange. As such, this is not a
competitive filing and thus should not
impose any burden on competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission shall: (a) By order
approve or disapprove such proposed
rule change, or (b) institute proceedings
to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
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79533
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–2013–58 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–MIAX–2013–58. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (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
offices of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–MIAX–
2013–58, and should be submitted on or
before January 21, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–31128 Filed 12–27–13; 8:45 am]
BILLING CODE 8011–01–P
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Agencies
[Federal Register Volume 78, Number 250 (Monday, December 30, 2013)]
[Notices]
[Pages 79530-79533]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-31128]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71172; File No. SR-MIAX-2013-58]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing of a Proposed Rule Change To Amend the
Exchange's By-Laws
December 23, 2013.
Pursuant to the provisions of Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on December 9, 2013, Miami International
Securities Exchange LLC (``MIAX'' or ``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') a proposed rule
change as described in Items I, II, and III below, which Items have
been prepared by the Exchange. The Commission is publishing this notice
to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange is filing a proposal to amend the Exchange's By-Laws.
The text of the proposed rule change is available on the Exchange's
Web site at 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: (i) Amend certain sections of its By-Laws
to correspond with an Equity Rights Program (``ERP'') recently
established by the Exchange; \3\ and (ii) make other non-substantive
revisions to reflect changes since the Commission granted the
Exchange's registration as a national securities exchange on December
3, 2012.\4\
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\3\ See Securities Exchange Act Release No. 70498 (September 25,
2013), 78 FR 60348 (October 1, 2013) (SR-MIAX-2013-43).
\4\ See Securities Exchange Act Release No. 68341 (December 3,
2012), 77 FR 73089 (December 7, 2012) (File No. 10-207).
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The filing corresponds with the recently implemented ERP, pursuant
to which units representing the right to
[[Page 79531]]
acquire equity in the Exchange's parent holding company, Miami
International Holdings (``LLM Member''),\5\ were issued to
participating Members in exchange for payment of an initial purchase
price or the prepayment of certain transaction fees and the achievement
of certain liquidity addition volume thresholds on the Exchange over a
23-month period. This filing amends the By-Laws to the extent necessary
to incorporate rights to participating Members in an ERP to appoint
representation to the MIAX Board.
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\5\ The Commission notes that the defined term ``LLM Member'' is
a typographical error. The Commission understands that the Exchange
meant ``LLC Member'' here, a term used throughout this notice.
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Article I, Definitions
The Exchange proposes to amend the By-Laws to provide definitions
for key terms used to incorporate provisions related to the ERP.
Specifically, the Exchange proposes the following definitions:
``Effective Date'' means the date of effectiveness of
these Amended and Restated By-Laws.
``ERP Agreement'' means the agreement pursuant to which
Units were issued.
``ERP Director'' means an Industry Director who has been
nominated by an ERP Member and appointed to the Board of Directors.
``ERP Member'' means an Exchange Member who acquired Units
pursuant to an ERP Agreement sufficient to acquire an ERP Director or
an Observer position.
``Exchange Contract'' means a contract that is then listed
for trading by the Exchange or that is contemplated by the then current
business plan of the Company to be listed for trading by the Exchange
within ninety (90) days following such date.
``Measurement Period'' means the time period over which
Units are vested.
``Observer'' has the meaning set forth in Article II,
Section 2.2 of these By-Laws.
``Performance Criteria'' means the trades on MIAX in an
amount equal to a percentage of the average daily volume of contracts
traded on all options exchanges for all option classes listed on MIAX
as reported to The Options Clearing Corporation for a specified
Measurement Period in an amount such that the ERP Member earns Units
during such specified Measurement Period.
``Specified Entity'' means (i) any U.S. securities option
exchange (or facility thereof) or U.S. alternative trading system on
which securities options are traded (other than the Company or any of
its affiliates) that lists for trading any option contract that
competes with an Exchange Contract, (ii) any person that owns or
controls such U.S. securities option exchange or U.S. alternative
trading system, and (iii) any affiliate of a person described in clause
(i) or (ii) above.\6\
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\6\ The Exchange notes that this definition is nearly identical
to that used by another competing options exchange. See Limited
Liability Company Agreement of NYSE Amex Options, Article I, 1.1.
See also Securities Exchange Act Release No. 64742 (June 24, 2011),
76 FR 38436 (June 30, 2011) (SR-NYSEAmex-2011-018) (Exhibit 5A).
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``Unit'' means a combination of securities or types of
securities packaged together as one.
The Exchange will renumber the pre-existing definitions accordingly
to accommodate the additions.
Article II, Section 2.2, Composition of the Board
The Exchange proposes to amend the Board of Directors composition
provisions to provide that ERP Directors will be included in the number
of Industry Directors for purposes of calculating the composition of
the Board. In addition, the Exchange proposes to specify that Member
Representative Directors will not include ERP Directors for purposes of
calculating the Board composition.
The Exchange proposes to add a restriction to the qualifications of
a Director so that after the effective date of the Amended and Restated
By-Laws, in the event a Director becomes a member of the board of
directors or similar governing body of a competing options exchange or
alternative trading system that trades options, such individual shall
immediately cease to be a Director of the Company and the resulting
vacancy shall be filled by the standard nominating and appointment
procedures.\7\ Existing Directors that may be in violation would be
grandfathered in and not subject to the new restriction.
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\7\ The Exchange notes that this restriction is nearly identical
to that used by another competing options exchange. See Limited
Liability Company Agreement of NYSE Amex Options, Article VIII,
8.1(h). See also Securities Exchange Act Release No. 64742 (June 24,
2011), 76 FR 38436 (June 30, 2011) (SR-NYSEAmex-2011-018) (Exhibit
5A).
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In addition, the Exchange proposes to provide that an ERP Member
has a right to nominate a Director or appoint an Observer to the Board
of Directors. If the ERP Member is otherwise able to nominate an ERP
Director, an Observer appointment would be in lieu of such ERP Director
nomination.\8\ As discussed below, the Nominating Committee shall
formally nominate only those persons whose names have been approved and
submitted by the applicable ERP Members. The LLC Member is then
obligated to vote for the nominated ERP Director. The nominee shall be
appointed at the first annual meeting of the Company following the
effective date of the By-Law amendment.
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\8\ At this time, an ERP Member may only have at most a Member
Representative Director and an ERP Director, or a Member
Representative Director and an Observer, but not an ERP Director and
an Observer.
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Observers appointed by ERP Members will be subject to the same
statutory disqualification restrictions as Directors. Similar to
Directors, in the event an Observer appointed after the effective date
of the Amended and Restated By-Laws becomes a member of the board of
directors or similar governing body of a competing options exchange or
alternative trading system that trades options, such individual shall
immediately cease to be an Observer of the Company.\9\ Observers will
have the right to attend all meetings of the Board of Directors in a
nonvoting observer capacity and, in this respect, the Company shall
give such representative copies of all notices, minutes, consents, and
other materials that it provides to its directors at the same time and
in the same manner as provided to such Directors; provided, however,
that such representative shall agree to hold in confidence and trust
and to act in a fiduciary manner with respect to all information so
provided; and provided further, that the Company reserves the right to
withhold any information and to exclude such representative from any
meeting or portion thereof if access to such information or attendance
at such meeting could adversely affect the attorney-client privilege
between the Company and its counsel or result in disclosure of trade
secrets or a conflict of interest.
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\9\ See id.
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The Exchange believes these changes are reasonably designed to
ensure that the Board of Directors maintains the appropriate
composition after the ERP and that Directors and Observers are
qualified to represent ERP Members on the Board. The changes will also
help to ensure that Directors, ERP Directors, and Observers, are
qualified and held to the same restrictions against statutory
disqualification and conflicts of interests by being a member of the
board of directors or similar body of a competitor. The Exchange notes
that no substantive changes are being proposed to the Board's
composition; the Board size will increase, but the current composition
will remain.
[[Page 79532]]
Article II, Section 2.3, Terms of Office
The Exchange proposes to amend this Section to provide that in the
event that an ERP Member who has the right to nominate an ERP Director
and which fails to meet its Performance Criteria under the ERP
Agreement for three consecutive Measurement Periods such that it only
meets the required performance criteria of an ERP Member that may
appoint an Observer, then the individual designated by the non-
performing ERP Member shall immediately cease to be an ERP Director of
the Company and such ERP Member shall cease to have the right to
nominate an ERP Director. Such non-performing ERP Member shall continue
to maintain Observer rights as set forth in the By-Laws.
Notwithstanding the foregoing, in the event that the non-performing ERP
Member satisfies the Performance Criteria for a subsequent Measurement
Period, then such ERP Member may reappoint an ERP Director at the
immediately following annual meeting of the Company. Additionally, in
the event that an ERP Member who has the right to appoint an Observer
and which fails to meet its Performance Criteria for three consecutive
Measurement Periods, then the individual designated by the non-
performing ERP Member shall immediately cease to be an Observer and
such non-performing ERP Member shall cease to have the right to appoint
an Observer. Notwithstanding the foregoing, in the event that the non-
performing ERP Member satisfies the Performance Criteria for a
subsequent Measurement Period, then such ERP Member may reappoint an
Observer. The Exchange believes that it is fair and reasonable to treat
non-performing ERP Member's that can nominate an ERP Director
differently than non-performing ERP Member's that can only appoint
Observers. ERP Members that can nominate ERP Directors have assumed
greater performance obligations under the ERP Agreement, and thus even
at the non-performing level are entitled to more protections to their
representation on the Board than non-performing ERP Members that can
only appoint Observers.
The Exchange also proposes to provide that an individual ERP
Director or Observer position shall be immediately terminated following
the transfer of common stock or warrants of the LLC Member acquired
pursuant to the ERP Agreement by an ERP Member which, after giving
effect to such transfer, results in such ERP Member holding less than
20% of the aggregate number of shares of common stock of the LLC Member
issued or issuable pursuant to the Units acquired pursuant to the ERP
Agreement collectively.
The Exchange believes these changes regarding Terms of Office are
reasonably designed to account for the removal of Directors or
Observers of non-performing ERP Members and Members that no longer have
a controlling interest in the shares that provided them the right to
such appointments.
Article II, Section 2.4, Nomination and Election
The Exchange proposes to provide that the Nominating Committee
shall nominate to ERP Director positions only those persons whose names
have been approved and submitted by the applicable ERP Members having
the right to nominate such person. As mentioned above, the LLC Member
is then obligated to vote for the nominated ERP Director. The nominee
shall be appointed at the first annual meeting of the Company following
September 30, 2013, which was the closing date of the ERP Program.
Article II, Section 2.8, Vacancies
The Exchange proposes to provide that in the event that an ERP
Director position becomes vacant that the applicable ERP Member will
retain the ability to nominate a person to fill the vacant ERP Director
position. To eliminate any potential confusion between the treatment of
true vacancies and the non-performance provisions in Article II,
Section 2.3(c), the Exchange proposes to specify that Section 2.8(c)
will not apply for a vacancy resulting from an ERP Director position
becoming vacant due to a non-performing ERP Member. In the situation of
non-performance of an ERP Member, the provisions of Article II, Section
2.3(c) would apply.
Article II, Section 2.9, Removal and Resignation
The Exchange proposes to provide that ERP Directors may only be
removed for cause, which shall include, without limitation, such
Director being subject to a statutory disqualification.
Article IV, Section 4.2, Board Committees
The Exchange proposes to provide that committee members will be
subject to the same statutory disqualification restrictions as
Directors and Observers. Similar to Directors and Observers, in the
event a committee member appointed after the effective date of the
Amended and Restated By-Laws becomes a member of the board of directors
or similar governing body of a competing options exchange or
alternative trading system that trades options, such individual shall
immediately cease to be a committee member of the Company.\10\ The
Exchange believes these changes are reasonably designed to ensure that
committee members are qualified and held to the same standards as
Directors and Observers.
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\10\ The Exchange notes that this restriction is nearly
identical to that used by another competing options exchange. See
Limited Liability Company Agreement of NYSE Amex Options, Article
VIII, 8.3(d). See also Securities Exchange Act Release No. 64742
(June 24, 2011), 76 FR 38436 (June 30, 2011) (SR-NYSEAmex-2011-018)
(Exhibit 5A).
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Article X, Sections 10.3 and 10.4
The Exchange proposes to provide that Observers will be subject to
the same participation rights on the Board during meetings pertaining
to the self-regulatory function of the Company as other members of the
Board. In addition, Observers will be subject to the same requirements
to maintain the confidentiality of all books and records of the Company
reflecting confidential information pertaining to the self-regulatory
function of the Company.
Miscellaneous Non-Substantive Changes.
In addition to the changes set forth above, the Exchange proposes
to make the following non-substantive changes to the current By-Laws.
The Exchange proposes to delete dated references to time periods and
events that have expired since the proposal of the New By-Laws.
Specifically, the Exchange proposes to delete provisions in Article II,
Section 2.5, and Article III, Section 3.1(b), regarding Interim
Directors and Interim Member Representative Directors since these
appointments have already occurred. Consistent with this change, the
Exchange proposes to remove references to Article II, Section 2.5 and
Interim Directors and Interim Member Representative Directors from
Article I(bb) and Article II, Section 2.2(b)(i).
2. Statutory Basis
MIAX believes that its proposed rule change is consistent with
Section 6(b) of the Act \11\ in general, and furthers the objectives of
Sections 6(b)(1) and 6(b)(5) of the Act \12\ in particular, in that it
enables the Exchange to be so organized as to have the capacity to
carry out the purposes of the Act and to comply, and to enforce
compliance by its Members and persons associated with its Members, with
the provisions of the Act, the rules and regulations
[[Page 79533]]
thereunder, and the rules of the Exchange; and that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanisms of a
free and open market and a national market system and, in general, to
protect investors and the public interest. In addition, the proposed
change is consistent with Section 6(b)(3) of the Act,\13\ in that it
enables the Exchange to assure a fair representation of its members in
the selection of its directors and administration of its affairs and
provide that one or more directors shall be representative of issuers
and investors and not be associated with a member of the exchange,
broker, or dealer.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
\13\ 15 U.S.C. 78f(b)(3).
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Specifically, the proposed amendments to the By-Laws are reasonably
designed to incorporate provisions related to the ERP in a manner that
ensures that the Exchange will remain so organized as to have the
capacity to carry out the purposes of the Act and to comply, and to
enforce compliance by its Members and persons associated with its
Members, with the provisions of the Act, the rules and regulations
thereunder, and the rules of the Exchange. The changes will also help
to ensure that Directors, ERP Directors, Observers, and committee
members are qualified and held to the same restrictions against
statutory disqualification and conflicts of interests by being a member
of the board of directors or similar body of a competitor. The proposed
ERP Directors will be subject to the same restrictions as current
Directors including evaluating proposals with the Company's self-
regulatory status in mind, restricting participation in activities
where there is a conflict of interest, and [sic] requirement to
maintain the confidentiality of information related to the Company's
self-regulatory function. The proposed Observers will be subject to the
same restrictions as current Directors regarding maintain [sic] the
confidentiality of information related to the Company's self-regulatory
function. However, Observers will be not be subject to the same
restrictions as current Directors regarding evaluating proposals with
the Company's self-regulatory status in mind and restricting
participation in activities where there is a conflict of interest. The
Exchange believes that treating Observers differently than Directors in
these circumstances is reasonable because Observers will not be
affirmatively voting on any such proposals in their non-voting observer
capacity.
In addition, the Exchange's proposed amendments address other non-
substantive revisions to reflect changes since the Commission granted
the Exchange's registration as a national securities exchange.
The proposal will continue to assure a fair representation of its
Members in that ERP Directors will not affect the current Member
Representation Director calculation or process in any way. The Exchange
notes that no substantive changes are being proposed to the Board's
composition; the Board size will increase, but the current composition
will remain.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The proposed changes to the
Exchange By-Laws are designed to enable the Exchange to be so organized
as to have the capacity to carry out the purposes of the Act and to
comply, and to enforce compliance by its Members and persons associated
with its Members, with the provisions of the Act, the rules and
regulations thereunder, and the rules of the Exchange. As such, this is
not a competitive filing and thus should not impose any burden on
competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-MIAX-2013-58 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-MIAX-2013-58. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (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 offices of the Exchange.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-MIAX-2013-58,
and should be submitted on or before January 21, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-31128 Filed 12-27-13; 8:45 am]
BILLING CODE 8011-01-P