Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX Options Fee Schedule, 62233-62237 [2014-24540]

Download as PDF Federal Register / Vol. 79, No. 200 / Thursday, October 16, 2014 / Notices 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: [FR Doc. 2014–24542 Filed 10–15–14; 8:45 am] BILLING CODE 8011–01–P • 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–2014–50 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–MIAX–2014–50. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–MIAX– 2014–50 and should be submitted on or before November 6, 2014. [Release No. 34–73326; File No. SR–MIAX– 2014–51] Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX Options Fee Schedule October 9, 2014. 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 29, 2014, 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 Substance of the Proposed Rule Change The Exchange is filing a proposal to amend the MIAX Options Fee Schedule. 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 14 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 17:19 Oct 15, 2014 Jkt 235001 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 Electronic Comments asabaliauskas on DSK5VPTVN1PROD with NOTICES For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Kevin M. O’Neill, Deputy Secretary. 62233 PO 00000 Frm 00142 Fmt 4703 Sfmt 4703 The Exchange proposes to amend the Fee Schedule to reduce several testing and certification fees, and System connectivity fees for non-Members. Specifically, the Exchange proposes to: (i) Eliminate the Member and nonMember API testing and certification fee for AIS; 3 (ii) eliminate the non-Member networking connectivity fee for AIS; (iii) eliminate the AIS Port fees; (iv) add a monthly fee for Internal Distributors and External Distributors of AIS; and (v) clarify that non-Member fees that apply to Third Party Vendors and Service Bureaus also apply to other nonMembers. API Testing and Certification The Exchange assesses a one-time Application Programming Interface (‘‘API’’) testing and certification fee on Members and non-Members for AIS. Specifically, the Exchange assesses a one-time API Testing and Certification fee of $1,000.00 Members and $1,000.00 on third party vendors 4 and Service Bureaus 5 whose software interfaces with MIAX software in order to receive the AIS market data feed. The API makes it possible for third party vendors’ and Service Bureaus’ software to communicate with MIAX software applications, and is subject to testing with, and certification by, the Exchange. The Exchange plans on migrating the AIS data feed to a multicast data format and thus will no longer need to assess 3 AIS market data feed includes: Opening imbalance condition information; opening routing information; Expanded Quote Range information, as provided in MIAX Rule 503(f)(5); Post-Halt Notification, as provided in MIAX Rule 504(d); and Liquidity Refresh condition information, as provided in MIAX Rule 515(c)(2). This additional information (the ‘‘administrative information’’) is included in the ToM feed and is not top of market information. The administrative information is also currently available to MIAX Market Makers via connectivity with the MIAX Express Interface (‘‘MEI’’), for which they are assessed connectivity fees. 4 Third party vendors are subscribers of MIAX’s market and other data feeds, which they in turn use for redistribution purposes. Third party vendors do not provide connectivity and therefore are not subject to Network testing and certification. 5 A Service Bureau is a technology provider that offers and supplies technology and technology services to a trading firm that does not have its own proprietary system. The technology and technology services supplied by Service Bureaus includes both software applications and connectivity, thus Service Bureaus are subject to both API testing and certification and Network testing and certification. E:\FR\FM\16OCN1.SGM 16OCN1 62234 Federal Register / Vol. 79, No. 200 / Thursday, October 16, 2014 / Notices API Testing and Certification fees to market participants that receive AIS. Therefore, the Exchange proposes to eliminate the API testing and certification fee for both Members and non-Members because the Exchange will no longer offer the AIS data feed in a format that necessitates API testing and certification. AIS Port Fees The Exchange assesses monthly AIS Port fees for the use of AIS Ports, which provide the connectivity necessary to receive the AIS from the MIAX System. The Exchange assesses monthly AIS Port fees based on the number of Exchange matching engines to which a subscriber connects. Specifically, the Exchange assesses a monthly AIS Port fee of $1,000.00 for the first matching engine on which an AIS has two ports, $250.00 each for the second through fifth matching engines on which an AIS has two ports, and $125.00 each for the sixth matching engine and any additional engines on which the AIS has the two ports. As mentioned above, the Exchange plans on migrating the AIS data feed to a multicast data format and thus will no longer needs to assess API Port fees to market participants that receive AIS. Therefore, the Exchange proposes to eliminate the AIS Port fees because the Exchange will no longer offer the AIS data feed in a format that necessitates the use of AIS Ports. asabaliauskas on DSK5VPTVN1PROD with NOTICES Internal Distributors and External Distributors The Exchange proposes to charge monthly fees to Distributors of the AIS market data product that receive a feed of AIS data either directly from MIAX or indirectly through another entity and then distributes it either internally (within that entity) or externally (outside that entity). The monthly Distributor Fee charged depends on whether the Distributor is an ‘‘Internal Distributor’’ 6 or an ‘‘External Distributor’’.7 The Exchange will assess Internal Distributor’s a monthly fee of $1,000.00 and External Distributor’s a monthly fee of $1,500.00 for the AIS market data product. The Exchange notes that all Distributors are required to execute a MIAX Distributor Agreement. The fees for AIS will be reduced for new 6 An Internal Distributor is an organization that subscribes to the Exchange for the use of ToM, and is permitted by agreement with the Exchange to provide ToM data to internal users (i.e., users within their own organization). 7 An External Distributor is an organization that subscribes to the Exchange for the use of ToM, and is permitted by agreement with the Exchange to provide ToM data to both internal users and to external users (i.e., users outside of their own organization). VerDate Sep<11>2014 17:19 Oct 15, 2014 Jkt 235001 Distributors for the first month during which they subscribe to AIS, based on the number of trading days that have been held during the month prior to the date on which they subscribe. Such new Distributors will be assessed a pro-rata percentage of the fees described above, which is the percentage of the number of trading days remaining in the affected calendar month as of the date on which they begin to receive the AIS feed, divided by the total number of trading days in the affected calendar month. The monthly fee for Internal Distributors and External Distributors of AIS will be waived if they also subscribe to the ToM market data product. The Exchange believes that waiving the fees for Internal Distributors and External Distributors of AIS will encourage additional market participants that currently subscribe to ToM to use the service to receive administrative information.8 Finally, the Exchange proposes to amend the Fee Schedule in several places to clarify that non-Member fees that apply to Third Party Vendors and Service Bureaus also apply to other nonMembers. The Exchange believes that this change may reduce the potential for confusion by market participants as to which type of non-Members the nonMember fees apply to. The Exchange also believes that clarification may encourage more non-Members, other than Third Party Vendors and Service Bureaus, to use the Exchange’s market data products. 2. Statutory Basis The Exchange believes that its proposal to amend its fee schedule is consistent with Section 6(b) of the Act 9 in general, and furthers the objectives of Section 6(b)(4) of the Act 10 in particular, in that it is an equitable allocation of reasonable fees and other charges among Exchange members. The Exchange believes the proposed changes to eliminate several fees are reasonable in that they are designed to correspond with the migration of the data feed to a new format that no longer necessitates the fees being assessed. The Exchange anticipates the changes will 8 The Exchange notes that in a companion filing that the Exchange proposes to eventually to remove messages related to administrative information and Liquidity Seeking Events (‘‘LSE’’) from ToM and MEI and add them to the AIS data feed to the extent that they are not already included in AIS. See SR– MIAX–2014–53. Thus, waiving the fees for Internal Distributors and External Distributors of AIS will allow market participants that subscribe to ToM to continue to receive administrative information and LSE related messages at no additional cost than what is currently being assessed today. 9 15 U.S.C. 78f(b). 10 15 U.S.C. 78f(b)(4). PO 00000 Frm 00143 Fmt 4703 Sfmt 4703 result in a reasonable allocation of its costs and expenses among its Members and other persons using its facilities because the proposed fees would enable the Exchange to recover the costs associated with providing such infrastructure, and with offering access through the network connections and access and services, responding to customer requests, configuring MIAX systems, and administering the various services [sic] connectivity services. The Exchange believes the proposed fees are equitable and not unfairly discriminatory because the new fee levels result in a more reasonable and equitable allocation of fees amongst non-Members and Members for similar services. Access to the Exchange is provided on fair and non-discriminatory terms. Moreover, the decision as to whether or not to subscribe to AIS is entirely optional to all parties. Potential subscribers are not required to purchase the AIS market data feed. Subscribers can discontinue their use at any time and for any reason, including due to their assessment of the reasonableness of fees charged. The allocation of fees among subscribers is fair and reasonable because, if the market deems the proposed fees to be unfair or inequitable, firms can diminish or discontinue their use of this data. In adopting Regulation NMS, the Commission granted self-regulatory organizations and broker-dealers increased authority and flexibility to offer new and unique market data to the public. It was believed that this authority would expand the amount of data available to consumers, and also spur innovation and competition for the provision of market data: [E]fficiency is promoted when brokerdealers who do not need the data beyond the prices, sizes, market center identifications of the NBBO and consolidated last sale information are not required to receive (and pay for) such data when broker-dealers may choose to receive (and pay for) additional market data based on their own internal analysis of the need for such data.11 By removing ‘‘unnecessary regulatory restrictions’’ on the ability of exchanges to sell their own data, Regulation NMS advanced the goals of the Act and the principles reflected in its legislative history. If the free market should determine whether proprietary data is sold to broker-dealers at all, it follows that the price at which such data is sold should be set by the market as well. In July, 2010, Congress adopted H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 11 Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005). E:\FR\FM\16OCN1.SGM 16OCN1 asabaliauskas on DSK5VPTVN1PROD with NOTICES Federal Register / Vol. 79, No. 200 / Thursday, October 16, 2014 / Notices 2010 (‘‘Dodd-Frank Act’’), which amended Section 19 of the Act. Among other things, Section 916 of the DoddFrank Act amended paragraph (A) of Section 19(b)(3) of the Act by inserting the phrase ‘‘on any person, whether or not the person is a member of the selfregulatory organization’’ after ‘‘due, fee or other charge imposed by the selfregulatory organization.’’ As a result, all SRO rule proposals establishing or changing dues, fees or other charges are immediately effective upon filing regardless of whether such dues, fees or other charges are imposed on members of the SRO, non-members, or both. Section 916 further amended paragraph (C) of Section 19(b)(3) of the Act to read, in pertinent part, ‘‘At any time within the 60-day period beginning on the date of filing of such a proposed rule change in accordance with the provisions of paragraph (1) [of Section 19(b)], the Commission summarily may temporarily suspend the change in the rules of the self-regulatory organization made thereby, 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 this title. If the Commission takes such action, the Commission shall institute proceedings under paragraph (2)(B) [of Section 19(b)] to determine whether the proposed rule should be approved or disapproved.’’ The Exchange believes that these amendments to Section 19 of the Act reflect Congress’s intent to allow the Commission to rely upon the forces of competition to ensure that fees for market data are reasonable and equitably allocated. Although Section 19(b) had formerly authorized immediate effectiveness for a ‘‘due, fee or other charge imposed by the selfregulatory organization,’’ the Commission adopted a policy and subsequently a rule stating that fees for data and other products available to persons that are not members of the selfregulatory organization must be approved by the Commission after first being published for comment. At the time, the Commission supported the adoption of the policy and the rule by pointing out that unlike members, whose representation in self-regulatory organization governance was mandated by the Act, non-members should be given the opportunity to comment on fees before being required to pay them, and that the Commission should specifically approve all such fees. The Exchange believes that the amendment to Section 19 reflects Congress’s conclusion that the evolution of self- VerDate Sep<11>2014 17:19 Oct 15, 2014 Jkt 235001 regulatory organization governance and competitive market structure have rendered the Commission’s prior policy on non-member fees obsolete. Specifically, many exchanges have evolved from member-owned, not-forprofit corporations into for-profit, investor-owned corporations (or subsidiaries of investor-owned corporations). Accordingly, exchanges no longer have narrow incentives to manage their affairs for the exclusive benefit of their members, but rather have incentives to maximize the appeal of their products to all customers, whether members or non-members, so as to broaden distribution and grow revenues. Moreover, the Exchange believes that the change also reflects an endorsement of the Commission’s determinations that reliance on competitive markets is an appropriate means to ensure equitable and reasonable prices. Simply put, the change reflects a presumption that all fee changes should be permitted to take effect immediately, since the level of all fees are constrained by competitive forces. The Exchange therefore believes that the fees for AIS are properly assessed on non-member Distributors. The decision of the United States Court of Appeals for the District of Columbia Circuit in NetCoaliton v. SEC, No. 09–1042 (D.C. Cir. 2010), although reviewing a Commission decision made prior to the effective date of the DoddFrank Act, upheld the Commission’s reliance upon competitive markets to set reasonable and equitably allocated fees for market data: In fact, the legislative history indicates that the Congress intended that the market system ‘evolve through the interplay of competitive forces as unnecessary regulatory restrictions are removed’ and that the SEC wield its regulatory power ‘in those situations where competition may not be sufficient,’ such as in the creation of a ‘consolidated transactional reporting system.’ 12 The court’s conclusions about Congressional intent are therefore reinforced by the Dodd-Frank Act amendments, which create a presumption that exchange fees, including market data fees, may take effect immediately, without prior Commission approval, and that the Commission should take action to suspend a fee change and institute a proceeding to determine whether the fee change should be approved or disapproved only where the Commission has concerns that the 12 NetCoalition, at 15 (quoting H.R. Rep. No. 94– 229, at 92 (1975), as reprinted in 1975 U.S.C.C.A.N. 321, 323). PO 00000 Frm 00144 Fmt 4703 Sfmt 4703 62235 change may not be consistent with the Act. B. Self-Regulatory Organization’s Statement on Burden on Competition Notwithstanding its determination that the Commission may rely upon competition to establish fair and equitably allocated fees for market data, the NetCoalition Court found that the Commission had not, in that case, compiled a record that adequately supported its conclusion that the market for the data at issue in the case was competitive. The Exchange believes that a record may readily be established to demonstrate the competitive nature of the market in question. There is intense competition between trading platforms that provide transaction execution and routing services and proprietary data products. Transaction execution and proprietary data products are complementary in that market data is both an input and a byproduct of the execution service. In fact, market data and trade execution are a representative example of joint products with joint costs. The decision whether and on which platform to post an order will depend on the attributes of the platform where the order can be posted, including the execution fees, data quality and price and distribution of its data products. Without the prospect of a taking order seeing and reacting to a posted order on a particular platform, the posting of the order would accomplish little. Without trade executions, exchange data products cannot exist. Data products are valuable to many end subscribers only insofar as they provide information that end subscribers expect will assist them or their customers in making trading decisions. The costs of producing market data include not only the costs of the data distribution infrastructure, but also the costs of designing, maintaining, and operating the exchange’s transaction execution platform and the cost of regulating the exchange to ensure its fair operation and maintain investor confidence. The total return that a trading platform earns reflects the revenues it receives from both products and the joint costs it incurs. Moreover, an exchange’s customers view the costs of transaction executions and of data as a unified cost of doing business with the exchange. A broker-dealer will direct orders to a particular exchange only if the expected revenues from executing trades on the exchange exceed net transaction execution costs and the cost of data that the broker-dealer chooses to buy to support its trading decisions (or those of its customers). The choice of data E:\FR\FM\16OCN1.SGM 16OCN1 asabaliauskas on DSK5VPTVN1PROD with NOTICES 62236 Federal Register / Vol. 79, No. 200 / Thursday, October 16, 2014 / Notices products is, in turn, a product of the value of the products in making profitable trading decisions. If the cost of the product exceeds its expected value, the broker-dealer will choose not to buy it. Moreover, as a broker-dealer chooses to direct fewer orders to a particular exchange, the value of the product to the broker-dealer decreases, for two reasons. First, the product will contain less information, because executions of the broker-dealer’s orders will not be reflected in it. Second, and perhaps more important, the product will be less valuable to that broker-dealer because it does not provide information about the venue to which it is directing its orders. Data from the competing venue to which the broker-dealer is directing orders will become correspondingly more valuable. Thus, a super-competitive increase in the fees charged for either transactions or data has the potential to impair revenues from both products. ‘‘No one disputes that competition for order flow is ‘fierce’.’’ However, the existence of fierce competition for order flow implies a high degree of price sensitivity on the part of broker-dealers with order flow, since they may readily reduce costs by directing orders toward the lowest-cost trading venues. A brokerdealer that shifted its order flow from one platform to another in response to order execution price differentials would both reduce the value of that platform’s market data and reduce its own need to consume data from the disfavored platform. Similarly, if a platform increases its market data fees, the change will affect the overall cost of doing business with the platform, and affected broker-dealers will assess whether they can lower their trading costs by directing orders elsewhere and thereby lessening the need for the more expensive data. Analyzing the cost of market data distribution in isolation from the cost of all of the inputs supporting the creation of market data will inevitably underestimate the cost of the data. Thus, because it is impossible to create data without a fast, technologically robust, and well-regulated execution system, system costs and regulatory costs affect the price of market data. It would be equally misleading, however, to attribute all of the exchange’s costs to the market data portion of an exchange’s joint product. Rather, all of the exchange’s costs are incurred for the unified purposes of attracting order flow, executing and/or routing orders, and generating and selling data about market activity. The total return that an exchange earns reflects the revenues it VerDate Sep<11>2014 17:19 Oct 15, 2014 Jkt 235001 receives from the joint products and the total costs of the joint products. Competition among trading platforms can be expected to constrain the aggregate return each platform earns from the sale of its joint products, but different platforms may choose from a range of possible, and equally reasonable, pricing strategies as the means of recovering total costs. For example, some platforms may choose to pay rebates to attract orders, charge relatively low prices for market information (or provide information free of charge) and charge relatively high prices for accessing posted liquidity. Other platforms may choose a strategy of paying lower rebates (or no rebates) to attract orders, setting relatively high prices for market information, and setting relatively low prices for accessing posted liquidity. In this environment, there is no economic basis for regulating maximum prices for one of the joint products in an industry in which suppliers face competitive constraints with regard to the joint offering. This would be akin to strictly regulating the price that an automobile manufacturer can charge for car sound systems despite the existence of a highly competitive market for cars and the availability of aftermarket alternatives to the manufacturer-supplied system. The market for market data products is competitive and inherently contestable because there is fierce competition for the inputs necessary to the creation of proprietary data and strict pricing discipline for the proprietary products themselves. Numerous exchanges compete with each other for listings, trades, and market data itself, providing virtually limitless opportunities for entrepreneurs who wish to produce and distribute their own market data. This proprietary data is produced by each individual exchange, as well as other entities, in a vigorously competitive market. Broker-dealers currently have numerous alternative venues for their order flow, including eleven existing options markets. Each SRO market competes to produce transaction reports via trade executions. Competitive markets for order flow, executions, and transaction reports provide pricing discipline for the inputs of proprietary data products. The large number of SROs that currently produce proprietary data or are currently capable of producing it provides further pricing discipline for proprietary data products. Each SRO is currently permitted to produce proprietary data products, and many in addition to MIAX currently do, including NASDAQ, CBOE, ISE, NYSE Amex, and NYSEArca. Additionally, PO 00000 Frm 00145 Fmt 4703 Sfmt 4703 order routers and market data vendors can facilitate single or multiple brokerdealers’ production of proprietary data products. The potential sources of proprietary products are virtually limitless. Market data vendors provide another form of price discipline for proprietary data products because they control the primary means of access to end subscribers. Vendors impose price restraints based upon their business models. For example, vendors such as Bloomberg and Thomson Reuters that assess a surcharge on data they sell may refuse to offer proprietary products that end subscribers will not purchase in sufficient numbers. Internet portals, such as Google, impose a discipline by providing only data that will enable them to attract ‘‘eyeballs’’ that contribute to their advertising revenue. Retail broker-dealers, such as Schwab and Fidelity, offer their customers proprietary data only if it promotes trading and generates sufficient commission revenue. Although the business models may differ, these vendors’ pricing discipline is the same: They can simply refuse to purchase any proprietary data product that fails to provide sufficient value. The Exchange and other producers of proprietary data products must understand and respond to these varying business models and pricing disciplines in order to market proprietary data products successfully. In addition to the competition and price discipline described above, the market for proprietary data products is also highly contestable because market entry is rapid, inexpensive, and profitable. The history of electronic trading is replete with examples of entrants that swiftly grew into some of the largest electronic trading platforms and proprietary data producers: Archipelago, BATS Trading and Direct Edge. Regulation NMS, by deregulating the market for proprietary data, has increased the contestability of that market. While broker-dealers have previously published their proprietary data individually, Regulation NMS encourages market data vendors and broker-dealers to produce proprietary products cooperatively in a manner never before possible. Multiple market data vendors already have the capability to aggregate data and disseminate it on a profitable scale, including Bloomberg, and Thomson Reuters. The Court in NetCoalition concluded that the Commission had failed to demonstrate that the market for market data was competitive based on the reasoning of the Commission’s NetCoalition order because, in the Court’s view, the Commission had not E:\FR\FM\16OCN1.SGM 16OCN1 Federal Register / Vol. 79, No. 200 / Thursday, October 16, 2014 / Notices adequately demonstrated that the proprietary data at issue in the case is used to attract order flow. The Exchange believes, however, that evidence not then before the court clearly demonstrates that availability of data attracts order flow. Due to competition among platforms, the Exchange intends to improve its platform data offerings on a continuing basis, and to respond promptly to customers’ data needs. The intensity of competition for proprietary information is significant and the Exchange believes that this proposal itself clearly evidences such competition. The Exchange is offering AIS in order to keep pace with changes in the industry and evolving customer needs. It is entirely optional and is geared towards attracting new Member Applicants and customers. MIAX competitors continue to create new market data products and innovative pricing in this space. The Exchange expects to see firms challenge its pricing on the basis of the Exchange’s explicit fees being higher than the zero-priced fees from other competitors such as BATS. In all cases, the Exchange expects firms to make decisions on how much and what types of data to consume on the basis of the total cost of interacting with MIAX or other exchanges. Of course, the explicit data fees are only one factor in a total platform analysis. Some competitors have lower transactions fees and higher data fees, and others are vice versa. The market for this proprietary information is highly competitive and continually evolves as products develop and change. asabaliauskas on DSK5VPTVN1PROD with NOTICES 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.13 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 13 15 U.S.C. 78s(b)(3)(A)(ii). VerDate Sep<11>2014 17:19 Oct 15, 2014 Jkt 235001 whether the proposed rule should be approved or 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: 62237 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–24540 Filed 10–15–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Electronic Comments [Release No. 34–73327; File No. SR–CBOE– 2014–072] • 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–2014–51 on the subject line. Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fees Schedule Paper Comments October 9, 2014. • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–MIAX–2014–51. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–MIAX– 2014–51 and should be submitted on or before November 6, 2014. PO 00000 Frm 00146 Fmt 4703 Sfmt 4703 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 October 1, 2014, Chicago Board Options Exchange, Incorporated (the ‘‘Exchange’’ or ‘‘CBOE’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the 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 Substance of the Proposed Rule Change The Exchange proposes to amend its Fees Schedule. The text of the proposed rule change is available on the Exchange’s Web site (https:// www.cboe.com/AboutCBOE/ CBOELegalRegulatoryHome.aspx), at the Exchange’s Office of the Secretary, 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 14 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\16OCN1.SGM 16OCN1

Agencies

[Federal Register Volume 79, Number 200 (Thursday, October 16, 2014)]
[Notices]
[Pages 62233-62237]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-24540]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73326; File No. SR-MIAX-2014-51]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend the MIAX Options Fee Schedule

October 9, 2014.
    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 29, 2014, 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 Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Options Fee 
Schedule.
    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 amend the Fee Schedule to reduce several 
testing and certification fees, and System connectivity fees for non-
Members. Specifically, the Exchange proposes to: (i) Eliminate the 
Member and non-Member API testing and certification fee for AIS; \3\ 
(ii) eliminate the non-Member networking connectivity fee for AIS; 
(iii) eliminate the AIS Port fees; (iv) add a monthly fee for Internal 
Distributors and External Distributors of AIS; and (v) clarify that 
non-Member fees that apply to Third Party Vendors and Service Bureaus 
also apply to other non-Members.
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    \3\ AIS market data feed includes: Opening imbalance condition 
information; opening routing information; Expanded Quote Range 
information, as provided in MIAX Rule 503(f)(5); Post-Halt 
Notification, as provided in MIAX Rule 504(d); and Liquidity Refresh 
condition information, as provided in MIAX Rule 515(c)(2). This 
additional information (the ``administrative information'') is 
included in the ToM feed and is not top of market information. The 
administrative information is also currently available to MIAX 
Market Makers via connectivity with the MIAX Express Interface 
(``MEI''), for which they are assessed connectivity fees.
---------------------------------------------------------------------------

API Testing and Certification
    The Exchange assesses a one-time Application Programming Interface 
(``API'') testing and certification fee on Members and non-Members for 
AIS. Specifically, the Exchange assesses a one-time API Testing and 
Certification fee of $1,000.00 Members and $1,000.00 on third party 
vendors \4\ and Service Bureaus \5\ whose software interfaces with MIAX 
software in order to receive the AIS market data feed. The API makes it 
possible for third party vendors' and Service Bureaus' software to 
communicate with MIAX software applications, and is subject to testing 
with, and certification by, the Exchange. The Exchange plans on 
migrating the AIS data feed to a multicast data format and thus will no 
longer need to assess

[[Page 62234]]

API Testing and Certification fees to market participants that receive 
AIS. Therefore, the Exchange proposes to eliminate the API testing and 
certification fee for both Members and non-Members because the Exchange 
will no longer offer the AIS data feed in a format that necessitates 
API testing and certification.
---------------------------------------------------------------------------

    \4\ Third party vendors are subscribers of MIAX's market and 
other data feeds, which they in turn use for redistribution 
purposes. Third party vendors do not provide connectivity and 
therefore are not subject to Network testing and certification.
    \5\ A Service Bureau is a technology provider that offers and 
supplies technology and technology services to a trading firm that 
does not have its own proprietary system. The technology and 
technology services supplied by Service Bureaus includes both 
software applications and connectivity, thus Service Bureaus are 
subject to both API testing and certification and Network testing 
and certification.
---------------------------------------------------------------------------

AIS Port Fees
    The Exchange assesses monthly AIS Port fees for the use of AIS 
Ports, which provide the connectivity necessary to receive the AIS from 
the MIAX System. The Exchange assesses monthly AIS Port fees based on 
the number of Exchange matching engines to which a subscriber connects. 
Specifically, the Exchange assesses a monthly AIS Port fee of $1,000.00 
for the first matching engine on which an AIS has two ports, $250.00 
each for the second through fifth matching engines on which an AIS has 
two ports, and $125.00 each for the sixth matching engine and any 
additional engines on which the AIS has the two ports. As mentioned 
above, the Exchange plans on migrating the AIS data feed to a multicast 
data format and thus will no longer needs to assess API Port fees to 
market participants that receive AIS. Therefore, the Exchange proposes 
to eliminate the AIS Port fees because the Exchange will no longer 
offer the AIS data feed in a format that necessitates the use of AIS 
Ports.
Internal Distributors and External Distributors
    The Exchange proposes to charge monthly fees to Distributors of the 
AIS market data product that receive a feed of AIS data either directly 
from MIAX or indirectly through another entity and then distributes it 
either internally (within that entity) or externally (outside that 
entity). The monthly Distributor Fee charged depends on whether the 
Distributor is an ``Internal Distributor'' \6\ or an ``External 
Distributor''.\7\ The Exchange will assess Internal Distributor's a 
monthly fee of $1,000.00 and External Distributor's a monthly fee of 
$1,500.00 for the AIS market data product. The Exchange notes that all 
Distributors are required to execute a MIAX Distributor Agreement. The 
fees for AIS will be reduced for new Distributors for the first month 
during which they subscribe to AIS, based on the number of trading days 
that have been held during the month prior to the date on which they 
subscribe. Such new Distributors will be assessed a pro-rata percentage 
of the fees described above, which is the percentage of the number of 
trading days remaining in the affected calendar month as of the date on 
which they begin to receive the AIS feed, divided by the total number 
of trading days in the affected calendar month. The monthly fee for 
Internal Distributors and External Distributors of AIS will be waived 
if they also subscribe to the ToM market data product. The Exchange 
believes that waiving the fees for Internal Distributors and External 
Distributors of AIS will encourage additional market participants that 
currently subscribe to ToM to use the service to receive administrative 
information.\8\
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    \6\ An Internal Distributor is an organization that subscribes 
to the Exchange for the use of ToM, and is permitted by agreement 
with the Exchange to provide ToM data to internal users (i.e., users 
within their own organization).
    \7\ An External Distributor is an organization that subscribes 
to the Exchange for the use of ToM, and is permitted by agreement 
with the Exchange to provide ToM data to both internal users and to 
external users (i.e., users outside of their own organization).
    \8\ The Exchange notes that in a companion filing that the 
Exchange proposes to eventually to remove messages related to 
administrative information and Liquidity Seeking Events (``LSE'') 
from ToM and MEI and add them to the AIS data feed to the extent 
that they are not already included in AIS. See SR-MIAX-2014-53. 
Thus, waiving the fees for Internal Distributors and External 
Distributors of AIS will allow market participants that subscribe to 
ToM to continue to receive administrative information and LSE 
related messages at no additional cost than what is currently being 
assessed today.
---------------------------------------------------------------------------

    Finally, the Exchange proposes to amend the Fee Schedule in several 
places to clarify that non-Member fees that apply to Third Party 
Vendors and Service Bureaus also apply to other non-Members. The 
Exchange believes that this change may reduce the potential for 
confusion by market participants as to which type of non-Members the 
non-Member fees apply to. The Exchange also believes that clarification 
may encourage more non-Members, other than Third Party Vendors and 
Service Bureaus, to use the Exchange's market data products.
2. Statutory Basis
    The Exchange believes that its proposal to amend its fee schedule 
is consistent with Section 6(b) of the Act \9\ in general, and furthers 
the objectives of Section 6(b)(4) of the Act \10\ in particular, in 
that it is an equitable allocation of reasonable fees and other charges 
among Exchange members.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes the proposed changes to eliminate several 
fees are reasonable in that they are designed to correspond with the 
migration of the data feed to a new format that no longer necessitates 
the fees being assessed. The Exchange anticipates the changes will 
result in a reasonable allocation of its costs and expenses among its 
Members and other persons using its facilities because the proposed 
fees would enable the Exchange to recover the costs associated with 
providing such infrastructure, and with offering access through the 
network connections and access and services, responding to customer 
requests, configuring MIAX systems, and administering the various 
services [sic] connectivity services. The Exchange believes the 
proposed fees are equitable and not unfairly discriminatory because the 
new fee levels result in a more reasonable and equitable allocation of 
fees amongst non-Members and Members for similar services. Access to 
the Exchange is provided on fair and non-discriminatory terms. 
Moreover, the decision as to whether or not to subscribe to AIS is 
entirely optional to all parties. Potential subscribers are not 
required to purchase the AIS market data feed. Subscribers can 
discontinue their use at any time and for any reason, including due to 
their assessment of the reasonableness of fees charged. The allocation 
of fees among subscribers is fair and reasonable because, if the market 
deems the proposed fees to be unfair or inequitable, firms can diminish 
or discontinue their use of this data.
    In adopting Regulation NMS, the Commission granted self-regulatory 
organizations and broker-dealers increased authority and flexibility to 
offer new and unique market data to the public. It was believed that 
this authority would expand the amount of data available to consumers, 
and also spur innovation and competition for the provision of market 
data:

    [E]fficiency is promoted when broker-dealers who do not need the 
data beyond the prices, sizes, market center identifications of the 
NBBO and consolidated last sale information are not required to 
receive (and pay for) such data when broker-dealers may choose to 
receive (and pay for) additional market data based on their own 
internal analysis of the need for such data.\11\
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    \11\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496 (June 29, 2005).

    By removing ``unnecessary regulatory restrictions'' on the ability 
of exchanges to sell their own data, Regulation NMS advanced the goals 
of the Act and the principles reflected in its legislative history. If 
the free market should determine whether proprietary data is sold to 
broker-dealers at all, it follows that the price at which such data is 
sold should be set by the market as well.
    In July, 2010, Congress adopted H.R. 4173, the Dodd-Frank Wall 
Street Reform and Consumer Protection Act of

[[Page 62235]]

2010 (``Dodd-Frank Act''), which amended Section 19 of the Act. Among 
other things, Section 916 of the Dodd-Frank Act amended paragraph (A) 
of Section 19(b)(3) of the Act by inserting the phrase ``on any person, 
whether or not the person is a member of the self-regulatory 
organization'' after ``due, fee or other charge imposed by the self-
regulatory organization.'' As a result, all SRO rule proposals 
establishing or changing dues, fees or other charges are immediately 
effective upon filing regardless of whether such dues, fees or other 
charges are imposed on members of the SRO, non-members, or both. 
Section 916 further amended paragraph (C) of Section 19(b)(3) of the 
Act to read, in pertinent part, ``At any time within the 60-day period 
beginning on the date of filing of such a proposed rule change in 
accordance with the provisions of paragraph (1) [of Section 19(b)], the 
Commission summarily may temporarily suspend the change in the rules of 
the self-regulatory organization made thereby, 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 this title. If the Commission takes such action, the 
Commission shall institute proceedings under paragraph (2)(B) [of 
Section 19(b)] to determine whether the proposed rule should be 
approved or disapproved.''
    The Exchange believes that these amendments to Section 19 of the 
Act reflect Congress's intent to allow the Commission to rely upon the 
forces of competition to ensure that fees for market data are 
reasonable and equitably allocated. Although Section 19(b) had formerly 
authorized immediate effectiveness for a ``due, fee or other charge 
imposed by the self-regulatory organization,'' the Commission adopted a 
policy and subsequently a rule stating that fees for data and other 
products available to persons that are not members of the self-
regulatory organization must be approved by the Commission after first 
being published for comment. At the time, the Commission supported the 
adoption of the policy and the rule by pointing out that unlike 
members, whose representation in self-regulatory organization 
governance was mandated by the Act, non-members should be given the 
opportunity to comment on fees before being required to pay them, and 
that the Commission should specifically approve all such fees. The 
Exchange believes that the amendment to Section 19 reflects Congress's 
conclusion that the evolution of self-regulatory organization 
governance and competitive market structure have rendered the 
Commission's prior policy on non-member fees obsolete. Specifically, 
many exchanges have evolved from member-owned, not-for-profit 
corporations into for-profit, investor-owned corporations (or 
subsidiaries of investor-owned corporations). Accordingly, exchanges no 
longer have narrow incentives to manage their affairs for the exclusive 
benefit of their members, but rather have incentives to maximize the 
appeal of their products to all customers, whether members or non-
members, so as to broaden distribution and grow revenues. Moreover, the 
Exchange believes that the change also reflects an endorsement of the 
Commission's determinations that reliance on competitive markets is an 
appropriate means to ensure equitable and reasonable prices. Simply 
put, the change reflects a presumption that all fee changes should be 
permitted to take effect immediately, since the level of all fees are 
constrained by competitive forces. The Exchange therefore believes that 
the fees for AIS are properly assessed on non-member Distributors.
    The decision of the United States Court of Appeals for the District 
of Columbia Circuit in NetCoaliton v. SEC, No. 09-1042 (D.C. Cir. 
2010), although reviewing a Commission decision made prior to the 
effective date of the Dodd-Frank Act, upheld the Commission's reliance 
upon competitive markets to set reasonable and equitably allocated fees 
for market data:

    In fact, the legislative history indicates that the Congress 
intended that the market system `evolve through the interplay of 
competitive forces as unnecessary regulatory restrictions are 
removed' and that the SEC wield its regulatory power `in those 
situations where competition may not be sufficient,' such as in the 
creation of a `consolidated transactional reporting system.' \12\
---------------------------------------------------------------------------

    \12\ NetCoalition, at 15 (quoting H.R. Rep. No. 94-229, at 92 
(1975), as reprinted in 1975 U.S.C.C.A.N. 321, 323).

    The court's conclusions about Congressional intent are therefore 
reinforced by the Dodd-Frank Act amendments, which create a presumption 
that exchange fees, including market data fees, may take effect 
immediately, without prior Commission approval, and that the Commission 
should take action to suspend a fee change and institute a proceeding 
to determine whether the fee change should be approved or disapproved 
only where the Commission has concerns that the change may not be 
consistent with the Act.

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

    Notwithstanding its determination that the Commission may rely upon 
competition to establish fair and equitably allocated fees for market 
data, the NetCoalition Court found that the Commission had not, in that 
case, compiled a record that adequately supported its conclusion that 
the market for the data at issue in the case was competitive. The 
Exchange believes that a record may readily be established to 
demonstrate the competitive nature of the market in question.
    There is intense competition between trading platforms that provide 
transaction execution and routing services and proprietary data 
products. Transaction execution and proprietary data products are 
complementary in that market data is both an input and a byproduct of 
the execution service. In fact, market data and trade execution are a 
representative example of joint products with joint costs. The decision 
whether and on which platform to post an order will depend on the 
attributes of the platform where the order can be posted, including the 
execution fees, data quality and price and distribution of its data 
products. Without the prospect of a taking order seeing and reacting to 
a posted order on a particular platform, the posting of the order would 
accomplish little.
    Without trade executions, exchange data products cannot exist. Data 
products are valuable to many end subscribers only insofar as they 
provide information that end subscribers expect will assist them or 
their customers in making trading decisions. The costs of producing 
market data include not only the costs of the data distribution 
infrastructure, but also the costs of designing, maintaining, and 
operating the exchange's transaction execution platform and the cost of 
regulating the exchange to ensure its fair operation and maintain 
investor confidence. The total return that a trading platform earns 
reflects the revenues it receives from both products and the joint 
costs it incurs. Moreover, an exchange's customers view the costs of 
transaction executions and of data as a unified cost of doing business 
with the exchange. A broker-dealer will direct orders to a particular 
exchange only if the expected revenues from executing trades on the 
exchange exceed net transaction execution costs and the cost of data 
that the broker-dealer chooses to buy to support its trading decisions 
(or those of its customers). The choice of data

[[Page 62236]]

products is, in turn, a product of the value of the products in making 
profitable trading decisions. If the cost of the product exceeds its 
expected value, the broker-dealer will choose not to buy it.
    Moreover, as a broker-dealer chooses to direct fewer orders to a 
particular exchange, the value of the product to the broker-dealer 
decreases, for two reasons. First, the product will contain less 
information, because executions of the broker-dealer's orders will not 
be reflected in it. Second, and perhaps more important, the product 
will be less valuable to that broker-dealer because it does not provide 
information about the venue to which it is directing its orders. Data 
from the competing venue to which the broker-dealer is directing orders 
will become correspondingly more valuable.
    Thus, a super-competitive increase in the fees charged for either 
transactions or data has the potential to impair revenues from both 
products. ``No one disputes that competition for order flow is 
`fierce'.'' However, the existence of fierce competition for order flow 
implies a high degree of price sensitivity on the part of broker-
dealers with order flow, since they may readily reduce costs by 
directing orders toward the lowest-cost trading venues. A broker-dealer 
that shifted its order flow from one platform to another in response to 
order execution price differentials would both reduce the value of that 
platform's market data and reduce its own need to consume data from the 
disfavored platform. Similarly, if a platform increases its market data 
fees, the change will affect the overall cost of doing business with 
the platform, and affected broker-dealers will assess whether they can 
lower their trading costs by directing orders elsewhere and thereby 
lessening the need for the more expensive data.
    Analyzing the cost of market data distribution in isolation from 
the cost of all of the inputs supporting the creation of market data 
will inevitably underestimate the cost of the data. Thus, because it is 
impossible to create data without a fast, technologically robust, and 
well-regulated execution system, system costs and regulatory costs 
affect the price of market data. It would be equally misleading, 
however, to attribute all of the exchange's costs to the market data 
portion of an exchange's joint product. Rather, all of the exchange's 
costs are incurred for the unified purposes of attracting order flow, 
executing and/or routing orders, and generating and selling data about 
market activity. The total return that an exchange earns reflects the 
revenues it receives from the joint products and the total costs of the 
joint products.
    Competition among trading platforms can be expected to constrain 
the aggregate return each platform earns from the sale of its joint 
products, but different platforms may choose from a range of possible, 
and equally reasonable, pricing strategies as the means of recovering 
total costs. For example, some platforms may choose to pay rebates to 
attract orders, charge relatively low prices for market information (or 
provide information free of charge) and charge relatively high prices 
for accessing posted liquidity. Other platforms may choose a strategy 
of paying lower rebates (or no rebates) to attract orders, setting 
relatively high prices for market information, and setting relatively 
low prices for accessing posted liquidity. In this environment, there 
is no economic basis for regulating maximum prices for one of the joint 
products in an industry in which suppliers face competitive constraints 
with regard to the joint offering. This would be akin to strictly 
regulating the price that an automobile manufacturer can charge for car 
sound systems despite the existence of a highly competitive market for 
cars and the availability of aftermarket alternatives to the 
manufacturer-supplied system.
    The market for market data products is competitive and inherently 
contestable because there is fierce competition for the inputs 
necessary to the creation of proprietary data and strict pricing 
discipline for the proprietary products themselves. Numerous exchanges 
compete with each other for listings, trades, and market data itself, 
providing virtually limitless opportunities for entrepreneurs who wish 
to produce and distribute their own market data. This proprietary data 
is produced by each individual exchange, as well as other entities, in 
a vigorously competitive market.
    Broker-dealers currently have numerous alternative venues for their 
order flow, including eleven existing options markets. Each SRO market 
competes to produce transaction reports via trade executions. 
Competitive markets for order flow, executions, and transaction reports 
provide pricing discipline for the inputs of proprietary data products. 
The large number of SROs that currently produce proprietary data or are 
currently capable of producing it provides further pricing discipline 
for proprietary data products. Each SRO is currently permitted to 
produce proprietary data products, and many in addition to MIAX 
currently do, including NASDAQ, CBOE, ISE, NYSE Amex, and NYSEArca. 
Additionally, order routers and market data vendors can facilitate 
single or multiple broker-dealers' production of proprietary data 
products. The potential sources of proprietary products are virtually 
limitless.
    Market data vendors provide another form of price discipline for 
proprietary data products because they control the primary means of 
access to end subscribers. Vendors impose price restraints based upon 
their business models. For example, vendors such as Bloomberg and 
Thomson Reuters that assess a surcharge on data they sell may refuse to 
offer proprietary products that end subscribers will not purchase in 
sufficient numbers. Internet portals, such as Google, impose a 
discipline by providing only data that will enable them to attract 
``eyeballs'' that contribute to their advertising revenue. Retail 
broker-dealers, such as Schwab and Fidelity, offer their customers 
proprietary data only if it promotes trading and generates sufficient 
commission revenue. Although the business models may differ, these 
vendors' pricing discipline is the same: They can simply refuse to 
purchase any proprietary data product that fails to provide sufficient 
value. The Exchange and other producers of proprietary data products 
must understand and respond to these varying business models and 
pricing disciplines in order to market proprietary data products 
successfully.
    In addition to the competition and price discipline described 
above, the market for proprietary data products is also highly 
contestable because market entry is rapid, inexpensive, and profitable. 
The history of electronic trading is replete with examples of entrants 
that swiftly grew into some of the largest electronic trading platforms 
and proprietary data producers: Archipelago, BATS Trading and Direct 
Edge. Regulation NMS, by deregulating the market for proprietary data, 
has increased the contestability of that market. While broker-dealers 
have previously published their proprietary data individually, 
Regulation NMS encourages market data vendors and broker-dealers to 
produce proprietary products cooperatively in a manner never before 
possible. Multiple market data vendors already have the capability to 
aggregate data and disseminate it on a profitable scale, including 
Bloomberg, and Thomson Reuters.
    The Court in NetCoalition concluded that the Commission had failed 
to demonstrate that the market for market data was competitive based on 
the reasoning of the Commission's NetCoalition order because, in the 
Court's view, the Commission had not

[[Page 62237]]

adequately demonstrated that the proprietary data at issue in the case 
is used to attract order flow. The Exchange believes, however, that 
evidence not then before the court clearly demonstrates that 
availability of data attracts order flow. Due to competition among 
platforms, the Exchange intends to improve its platform data offerings 
on a continuing basis, and to respond promptly to customers' data 
needs.
    The intensity of competition for proprietary information is 
significant and the Exchange believes that this proposal itself clearly 
evidences such competition. The Exchange is offering AIS in order to 
keep pace with changes in the industry and evolving customer needs. It 
is entirely optional and is geared towards attracting new Member 
Applicants and customers. MIAX competitors continue to create new 
market data products and innovative pricing in this space. The Exchange 
expects to see firms challenge its pricing on the basis of the 
Exchange's explicit fees being higher than the zero-priced fees from 
other competitors such as BATS. In all cases, the Exchange expects 
firms to make decisions on how much and what types of data to consume 
on the basis of the total cost of interacting with MIAX or other 
exchanges. Of course, the explicit data fees are only one factor in a 
total platform analysis. Some competitors have lower transactions fees 
and higher data fees, and others are vice versa. The market for this 
proprietary information is highly competitive and continually evolves 
as products develop and change.

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.\13\ 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.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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-2014-51 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MIAX-2014-51. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-MIAX-2014-51 and should be 
submitted on or before November 6, 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. 2014-24540 Filed 10-15-14; 8:45 am]
BILLING CODE 8011-01-P
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