Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Fee Schedule, 14995-14999 [2020-05235]

Download as PDF Federal Register / Vol. 85, No. 51 / Monday, March 16, 2020 / Notices available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–BOX–2020–05, and should be submitted on or before April 6, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–05240 Filed 3–13–20; 8:45 am] BILLING CODE 8011–01–P [Release No. 34–88349; File No. SR–MIAX– 2020–05] Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Fee Schedule March 10, 2020. lotter on DSKBCFDHB2PROD with NOTICES Pursuant to the provisions of Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on February 28, 2020, Miami International Securities Exchange LLC (‘‘MIAX Options’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 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 (‘‘Fee Schedule’’). While changes to the Fee Schedule pursuant to this proposal are effective CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 18:29 Mar 13, 2020 Jkt 250001 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 SECURITIES AND EXCHANGE COMMISSION 14 17 upon filing, the Exchange has designated these changes to be operative on March 1, 2020. The text of the proposed rule change is available on the Exchange’s website at https://www.miaxoptions.com/rulefilings, at MIAX’s principal office, and at the Commission’s Public Reference Room. 1. Purpose The Exchange proposes to amend the Fee Schedule to: (i) Waive the cap of 1,000 contracts per leg for complex PRIME (‘‘cPRIME’’) 3 Agency Order rebates for all tiers under the Priority Customer Rebate Program (‘‘PCRP’’) 4 until May 31, 2020; (ii) lower the alternative cPRIME Agency Order rebate for PCRP Members 5 in Tier 4 that 3 ‘‘cPRIME’’ is the process by which a Member may electronically submit a ‘‘cPRIME Order’’ (as defined in Rule 518(b)(7)) it represents as agent (a ‘‘cPRIME Agency Order’’) against principal or solicited interest for execution (a ‘‘cPRIME Auction’’), subject to the restrictions set forth in Exchange Rule 515A, Interpretation and Policy .12. See Exchange Rule 515A. 4 Under the PCRP, MIAX credits each Member the per contract amount resulting from each Priority Customer order transmitted by that Member which is executed electronically on the Exchange in all multiply-listed option classes (excluding, in simple or complex as applicable, QCC and cQCC Orders, mini-options, Priority Customer-to-Priority Customer Orders, C2C and cC2C Orders, PRIME and cPRIME AOC Responses, PRIME and cPRIME Contra-side Orders, PRIME and cPRIME Orders for which both the Agency and Contra-side Order are Priority Customers, and executions related to contracts that are routed to one or more exchanges in connection with the Options Order Protection and Locked/Crossed Market Plan referenced in Exchange Rule 1400), provided the Member meets certain percentage thresholds in a month as described in the PCRP table. See Fee Schedule, Section 1)a)iii. 5 The term ‘‘Member’’ means an individual or organization approved to exercise the trading rights associated with a Trading Permit. Members are deemed ‘‘members’’ under the Exchange Act. See Exchange Rule 100. PO 00000 Frm 00124 Fmt 4703 Sfmt 4703 14995 execute Priority Customer 6 standard non-paired complex volume at least equal to or greater than their Priority Customer cPRIME agency volume; and (iii) decrease the per contract fee for Contra-side Orders (defined below) in Penny and non-Penny options classes in a cPRIME Auction assessable to all market participants, except Priority Customers. Background Exchange Rule 518(b)(7) defines a cPRIME Order as a type of complex order 7 that is submitted for participation in a cPRIME Auction and trading of cPRIME Orders is governed by Rule 515A, Interpretations and Policies .12.8 cPRIME Orders are processed and executed in the Exchange’s PRIME mechanism, the same mechanism that the Exchange uses to process and execute simple PRIME orders, pursuant to Exchange Rule 515A.9 PRIME is a process by which a Member may electronically submit for execution an order it represents as agent (an ‘‘Agency Order’’) against principal interest and/or solicited interest. The Member that submits the Agency Order (‘‘Initiating Member’’) agrees to guarantee the execution of the Agency Order by submitting a contra-side order representing principal interest or solicited interest (‘‘Contra-Side Order’’). When the Exchange receives a properly designated Agency Order for Auction processing, a request for response (‘‘RFR’’) detailing the option, side, size 6 ‘‘Priority Customer’’ means a person or entity that (i) is not a broker or dealer in securities, and (ii) does not place more than 390 orders in listed options per day on average during a calendar month for its own beneficial accounts(s). A ‘‘Priority Customer Order’’ means an order for the account of a Priority Customer. See Exchange Rule 100. 7 A ‘‘complex order’’ is any order involving the concurrent purchase and/or sale of two or more different options in the same underlying security (the ‘‘legs’’ or ‘‘components’’ of the complex order), for the same account, in a ratio that is equal to or greater than one-to-three (.333) and less than or equal to three-to-one (3.00) and for the purposes of executing a particular investment strategy. A complex order can also be a ‘‘stock-option’’ order, which is an order to buy or sell a stated number of units of an underlying security coupled with the purchase or sale of options contract(s) on the opposite side of the market, subject to certain contingencies set forth in the proposed rules governing complex orders. For a complete definition of a ‘‘complex order,’’ see Exchange Rule 518(a)(5). See also Securities Exchange Act Release No. 78620 (August 18, 2016), 81 FR 58770 (August 25, 2016) (SR–MIAX–2016–26). 8 See Securities Exchange Act Release No. 81131 (July 12, 2017), 82 FR 32900 (July 18, 2017) (SR– MIAX–2017–19). (Order Granting Approval of a Proposed Rule Change to Amend MIAX Options Rules 515, Execution of Orders and Quotes; 515A, MIAX Price Improvement Mechanism (‘‘PRIME’’) and PRIME Solicitation Mechanism; and 518, Complex Orders). 9 Id. E:\FR\FM\16MRN1.SGM 16MRN1 14996 Federal Register / Vol. 85, No. 51 / Monday, March 16, 2020 / Notices and initiating price is broadcasted to MIAX Options participants up to an optional designated limit price. Members may submit responses to the RFR, which can be either an Auction or Cancel (‘‘AOC’’) order or an AOC eQuote. A cPRIME Auction is the priceimprovement mechanism of the Exchange’s System pursuant to which an Initiating Member electronically submits a complex Agency Order into a cPRIME Auction. The Initiating Member, in submitting an Agency Order, must be willing to either (i) cross the Agency Order at a single price against principal or solicited interest, or (ii) automatically match against principal or solicited interest, the price and size of a RFR that is broadcast to MIAX Options participants up to an optional designated limit price. Such responses are defined as cPRIME AOC Responses or cPRIME eQuotes. The PRIME mechanism is used for orders on the Exchange’s Simple Order Book.10 The cPRIME mechanism is used for Complex Orders 11 on the Exchange’s Strategy Book,12 with the cPRIME mechanism operates in the same manner for processing and execution of cPRIME Orders that is used for PRIME Orders on the Simple Order Book. lotter on DSKBCFDHB2PROD with NOTICES PCRP cPRIME Agency Order Credit Limit First, the Exchange proposes to amend footnote ‘‘*’’ of the PCRP in Section 1)a)iii) of the Fee Schedule to waive the contracts cap per leg for cPRIME Agency Order rebates for all tiers under the PCRP for a set period of time. Currently, the Exchange limits the cPRIME Agency Order Credit to be payable only to the first 1,000 contracts per leg for each cPRIME Agency Order in all tiers under the PCRP. The Exchange now proposes to waive the cap of 1,000 contracts per leg for cPRIME Agency Order rebates for all 10 The ‘‘Simple Order Book’’ is the Exchange’s regular electronic book of orders and quotes. See Exchange Rule 518(a)(15). 11 A ‘‘complex order’’ is any order involving the concurrent purchase and/or sale of two or more different options in the same underlying security (the ‘‘legs’’ or ‘‘components’’ of the complex order), for the same account, in a ratio that is equal to or greater than one-to-three (.333) and less than or equal to three-to-one (3.00) and for the purposes of executing a particular investment strategy. Minioptions may only be part of a complex order that includes other mini-options. Only those complex orders in the classes designated by the Exchange and communicated to Members via Regulatory Circular with no more than the applicable number of legs, as determined by the Exchange on a classby-class basis and communicated to Members via Regulatory Circular, are eligible for processing. See Exchange Rule 518(a)(5). 12 The ‘‘Strategy Book’’ is the Exchange’s electronic book of complex orders and complex quotes. See Exchange Rule 518(a)(17). VerDate Sep<11>2014 18:29 Mar 13, 2020 Jkt 250001 tiers under the PCRP until May 31, 2020. The purpose of this proposed change is for business and competitive reasons and to entice market participants to submit larger sized cPRIME Agency Orders. Alternative Credit for cPRIME Agency Orders Next, the Exchange proposes to amend footnote ‘‘**’’ of the PCRP in Section 1)a)iii) of the Fee Schedule to lower the cPRIME Agency Order rebate for PCRP Members in Tier 4 that execute Priority Customer standard non-paired complex volume at least equal to or greater than their Priority Customer cPRIME agency volume. Currently, under the PCRP, the Exchange provides a higher credit of $0.22 per contract for cPRIME Agency Orders if any Member or its Affiliate 13 qualifies for PCRP Tier 4 and executes Priority Customer standard, non-paired complex volume at least equal to or greater than their Priority Customer cPRIME Agency Order volume, on a monthly basis instead of the $0.10 credit otherwise applicable for Tier 4. The Exchange now proposes to lower the alternative cPRIME Agency Order rebate for PCRP Members in Tier 4 that execute Priority Customer standard non-paired complex volume at least equal to or greater than their Priority Customer cPRIME agency 13 For purposes of the MIAX Options Fee Schedule, the term ‘‘Affiliate’’ means (i) an affiliate of a Member of at least 75% common ownership between the firms as reflected on each firm’s Form BD, Schedule A, (‘‘Affiliate’’), or (ii) the Appointed Market Maker of an Appointed EEM (or, conversely, the Appointed EEM of an Appointed Market Maker). An ‘‘Appointed Market Maker’’ is a MIAX Market Maker (who does not otherwise have a corporate affiliation based upon common ownership with an EEM) that has been appointed by an EEM and an ‘‘Appointed EEM’’ is an EEM (who does not otherwise have a corporate affiliation based upon common ownership with a MIAX Market Maker) that has been appointed by a MIAX Market Maker, pursuant to the following process. A MIAX Market Maker appoints an EEM and an EEM appoints a MIAX Market Maker, for the purposes of the Fee Schedule, by each completing and sending an executed Volume Aggregation Request Form by email to membership@miaxoptions.com no later than 2 business days prior to the first business day of the month in which the designation is to become effective. Transmittal of a validly completed and executed form to the Exchange along with the Exchange’s acknowledgement of the effective designation to each of the Market Maker and EEM will be viewed as acceptance of the appointment. The Exchange will only recognize one designation per Member. A Member may make a designation not more than once every 12 months (from the date of its most recent designation), which designation shall remain in effect unless or until the Exchange receives written notice submitted 2 business days prior to the first business day of the month from either Member indicating that the appointment has been terminated. Designations will become operative on the first business day of the effective month and may not be terminated prior to the end of the month. Execution data and reports will be provided to both parties. PO 00000 Frm 00125 Fmt 4703 Sfmt 4703 volume from $0.22 per contract to $0.12 per contract. The Exchange initially adopted the higher alternative credit for cPRIME Agency Orders in order to encourage market participants to submit more complex and cPRIME orders and therefore increase Priority Customer order flow. The Exchange now believes that it is appropriate to adjust this credit to be a slightly higher alternative credit of $0.12 per contract than the other credits for cPRIME Agency Orders, thereby continuing to encourage market participants to submit more complex orders and therefore increase Priority Customer order flow. The Exchange believes that by encouraging market participants to execute Priority Customer standard, non-paired complex volume and cPRIME volume will result in increased liquidity that benefits all Exchange participants by providing more trading opportunities and tighter spreads. The purpose of this proposed change is for business and competitive reasons. cPRIME Fees for Contra-Side Orders in Penny and Non-Penny Classes Next, the Exchange proposes to decrease the per contract fee for ContraSide Orders in Penny and non-Penny classes in a cPRIME Auction assessable to all market participants, except Priority Customers. Currently, the Exchange assesses a cPRIME ContraSide Order Fee of $0.05 per contract for options in Penny classes and $0.07 per contract for options in non-Penny classes for all market participants except Priority Customers. The Exchange now proposes to decrease the fees assessed to all market participants except Priority Customers for cPRIME Contra-Side Orders for options in Penny classes from $0.05 to $0.04 per contract and for options in non-Penny classes from $0.07 to $0.04 per contract. The purpose of these proposed changes is for business and competitive reasons. The Commission has repeatedly expressed its preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. In Regulation NMS, the Commission highlighted the importance of market forces in determining prices and selfregulatory organization (‘‘SRO’’) revenues and, also, recognized that current regulation of the market system ‘‘has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.’’ 14 There are currently 16 registered 14 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005). E:\FR\FM\16MRN1.SGM 16MRN1 Federal Register / Vol. 85, No. 51 / Monday, March 16, 2020 / Notices options exchanges competing for order flow. Based on publicly-available information, and excluding index-based options, no single exchange has more than approximately 15% of the market share of executed volume of multiplylisted equity and exchange-traded fund (‘‘ETF’’) options trades as of February 24, 2020, for the month of February 2020.15 Therefore, no exchange possesses significant pricing power in the execution of multiply-listed equity and ETF options order flow. More specifically, for all of January 2020, the Exchange had a total market share of 4.44% of all equity options volume.16 The Exchange believes that the evershifting market shares among the exchanges from month to month demonstrates that market participants can shift order flow (as further described below), or discontinue or reduce use of certain categories of products, in response to transaction and non-transaction fee changes. For example, on March 1, 2019, the Exchange filed with the Commission an immediately effective filing to decrease certain credits assessable to Members pursuant to the PCRP.17 The Exchange experienced a decrease in total market share between the months of February and March of 2019. Accordingly, the Exchange believes that the March 1, 2019 fee change may have contributed to the decrease in the Exchange’s market share and, as such, the Exchange believes competitive forces constrain options exchange transaction and nontransaction fees. lotter on DSKBCFDHB2PROD with NOTICES 2. Statutory Basis The Exchange believes that its proposal to amend its Fee Schedule is consistent with Section 6(b) of the Act 18 in general, and furthers the objectives of Section 6(b)(4) of the Act 19 in particular, in that it is an equitable allocation of reasonable fees and other charges among its members and issuers and other persons using its facilities. The Exchange also believes the proposal furthers the objectives of Section 6(b)(5) of the Act in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect 15 The OCC publishes options and futures volume in a variety of formats, including daily and monthly volume by exchange, available at: https:// www.theocc.com/market-data/volume/default.jsp. 16 See id. 17 See Securities Exchange Act Release No. 85301 (March 13, 2019), 84 FR 10166 (March 19, 2019) (SR–MIAX–2019–09). 18 15 U.S.C. 78f(b). 19 15 U.S.C. 78f(b)(4) and (5). VerDate Sep<11>2014 18:29 Mar 13, 2020 Jkt 250001 investors and the public interest and is not designed to permit unfair discrimination between customers, issuers, brokers and dealers. The Exchange believes its proposal to waive the cap of 1,000 contracts per leg for cPRIME Agency Order rebates for all tiers under the PCRP until May 31, 2020, lower the alternative cPRIME Agency Order rebate for PCRP Members in Tier 4 that execute Priority Customer standard non-paired complex volume at least equal to or greater than their Priority Customer cPRIME agency volume and decrease the per contract fee for Contra-side Orders in Penny and non-Penny options classes in a cPRIME Auction assessable to all market participants, except Priority Customers, provides for the equitable allocation of reasonable dues and fees and is not unfairly discriminatory for the following reasons. The Exchange operates in a highly competitive market. The Commission has repeatedly expressed its preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. In Regulation NMS, the Commission highlighted the importance of market forces in determining prices and SRO revenues and, also, recognized that current regulation of the market system ‘‘has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.’’ 20 There are currently 16 registered options exchanges competing for order flow. Based on publicly-available information, and excluding index-based options, no single exchange has more than approximately 15% of the market share of executed volume of multiplylisted equity and ETF options trades as of February 24, 2020, for the month of February 2020.21 Therefore, no exchange possesses significant pricing power in the execution of multiplylisted equity and ETF options order flow. More specifically, for all of January 2020, the Exchange had a total market share of 4.44% of all equity options volume.22 The Exchange believes that the evershifting market shares among the exchanges from month to month demonstrates that market participants can shift order flow, or discontinue or reduce use of certain categories of products, in response to transaction and/or non-transaction fee changes. For example, on March 1, 2019, the 20 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005). 21 See supra note 15. 22 See id. PO 00000 Frm 00126 Fmt 4703 Sfmt 4703 14997 Exchange filed with the Commission an immediately effective filing to decrease certain credits assessable to Members pursuant to the PCRP.23 The Exchange experienced a decrease in total market share between the months of February and March of 2019. Accordingly, the Exchange believes that the March 1, 2019 fee change may have contributed to the decrease in the Exchange’s market share and, as such, the Exchange believes competitive forces constrain options exchange transaction and nontransaction fees and market participants can shift order flow based on fee changes instituted by the exchanges. The Exchange believes that its proposal to waive the 1,000 contracts cap per leg for cPRIME Agency Order rebates for all tiers in the PCRP until May 31, 2020, lower the alternative cPRIME Agency Order rebate for PCRP Members in Tier 4 that execute Priority Customer standard non-paired complex volume at least equal to or greater than their Priority Customer cPRIME agency volume and decrease the per contract fee for Contra-side Orders in Penny and non-Penny classes in a cPRIME Auction assessable to all market participants, except Priority Customers, is reasonable, equitably allocated and not unfairly discriminatory because these changes are for business and competitive reasons and available equally to all market participants. The Exchange cannot predict with certainty whether any market participant would submit cPRIME Agency Orders in excess of 1,000 contracts per leg in light of the proposed change to waive the cap of 1,000 contracts per leg for cPRIME Agency Order rebates for all tiers under the PCRP, but believes that market participants would be encouraged to submit larger orders to obtain the additional credits. The Exchange believes that this proposed change would encourage increased cPRIME Agency Order flow, which will bring greater volume and liquidity to the Exchange, which benefits all market participants by providing more trading opportunities and tighter spreads. The Exchange believes that it is reasonable, equitable and not unfairly discriminatory that Priority Customers continue to be charged lower fees in cPRIME Auctions than other market participants in Penny and non-Penny options classes. The exchanges, in general, have historically aimed to improve markets for investors and develop various features within their market structure for customer benefit. The Exchange assesses Priority Customers lower or no transactions fees 23 See E:\FR\FM\16MRN1.SGM supra note 17. 16MRN1 lotter on DSKBCFDHB2PROD with NOTICES 14998 Federal Register / Vol. 85, No. 51 / Monday, March 16, 2020 / Notices because Priority Customer order flow enhances liquidity on the Exchange for the benefit of all market participants. Priority Customer liquidity benefits all market participants by providing more trading opportunities, which attracts market makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. Moreover, the Exchange believes that assessing all other market participants that are not Priority Customers a higher transaction fee than Priority Customers for cPRIME Order transactions is reasonable, equitable, and not unfairly discriminatory because these types of market participants are more sophisticated and have higher levels of order flow activity and system usage. This level of trading activity draws on a greater amount of system resources than that of Priority Customers, and thus, generates greater ongoing operational costs. Further, the Exchange believes that charging all market participants that are not Priority Customers the same fee for all cPRIME transactions is not unfairly discriminatory as the fees will apply to all these market participants equally. The Exchange believes its proposal to lower the higher alternative cPRIME Agency Order Credit amount for cPRIME Agency Orders in Tier 4 of the PCRP is consistent with Section 6(b)(4) of the Act 24 because it applies equally to all participants with similar order flow in that tier. The Exchange believes that by encouraging market participants to execute Priority Customer standard, non-paired complex volume at least equal to or greater than their Priority Customer cPRIME Agency Order volume in order to continue to receive a higher alternative credit of $0.12 per contract for cPRIME Agency Orders instead of the credit otherwise applicable to such orders in Tier 4 of the PCRP, is reasonable, equitably allocated and not unfairly discriminatory because it will continue to encourage increased volume of Priority Customer standard, non-paired complex orders and Priority Customer cPRIME orders, which will result in increased liquidity that benefits all Exchange participants by providing more trading opportunities and tighter spreads. The PCRP is reasonably designed because it will incentivize providers of Priority Customer order flow to send that Priority Customer order flow to the Exchange in order to obtain the highest volume threshold and receive a credit in a manner that enables the Exchange to improve its overall competitiveness and strengthen its market quality for all market participants. In addition, the proposal is also consistent with Section 6(b)(5) of the Act 25 because it perfects the mechanisms of a free and open market and a national market system and protects investors and the public interest because, while only certain Priority Customer order flow qualifies for the rebate program under the PCRP and specifically only order flow by Members in Tier 4 of the PCRP that meet the additional threshold will continue to receive the higher alternative cPRIME Agency Order rebate, an increase in Priority Customer order flow will bring greater volume and liquidity, which benefits all market participants by providing more trading opportunities and tighter spreads. To the extent Priority Customer order flow continues to increase by the proposal, market participants will increasingly compete for the opportunity to trade on the Exchange including sending more orders and providing narrower and larger-sized quotations in the effort to trade with such Priority Customer order flow. assessable to all market participants, except Priority Customers. The proposed changes are designed to attract additional order flow to the Exchange. The Exchange further believes that its proposal to lower the alternative cPRIME Agency Order Credit amount for cPRIME Agency Orders in Tier 4 of the PCRP that will apply instead of the credit otherwise applicable to such orders, if a certain threshold is satisfied by the Member, will not have an impact on intra-market competition. Specifically, the Exchange believes that this proposal will continue to encourage Members to submit both Priority Customer standard, non-paired complex orders and Priority Customer complex orders, which will increase liquidity and benefit all market participants by providing more trading opportunities and tighter spreads. Accordingly, the Exchange believes that the proposed changes will not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act because they will continue to encourage order flow, which provides greater volume and liquidity, benefiting all market participants by providing more trading opportunities and tighter spreads. B. Self-Regulatory Organization’s Statement on Burden on Competition In accordance with Section 6(b)(8) of the Act,26 the Exchange believes that the proposed rule changes would not impose any burden on competition that are not necessary or appropriate in furtherance of the purposes of the Act. Instead, as discussed above, the Exchange believes that the proposed changes would encourage the submission of additional liquidity to a public exchange, thereby promoting market depth, price discovery and transparency and enhancing order execution opportunities for all market participants. As a result, the Exchange believes that the proposed change furthers the Commission’s goal in adopting Regulation NMS of fostering integrated competition among orders. Inter-Market Competition The Exchange operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive. There are currently 16 registered options exchanges competing for order flow. Based on publicly-available information, and excluding index-based options, no single exchange has more than approximately 15% of the market share of executed volume of multiplylisted equity and ETF options trades as of February 24, 2020, for the month of February 2020.27 Therefore, no exchange possesses significant pricing power in the execution of multiplylisted equity and ETF options order flow. More specifically, for all of January 2020, the Exchange had a total market share of 4.44% for all equity options volume.28 In such an environment, the Exchange must continually adjust its transaction and non-transaction fees to remain competitive with other exchanges and to attract order flow. The Exchange believes that the proposed rule changes reflect this competitive environment because they modify the Exchange’s fees in a manner that encourages market participants to provide and to send Intra-Market Competition The Exchange does not believe that other market participants at the Exchange would be placed at a relative disadvantage by the proposed changes to waive the cap of 1,000 contracts per leg for cPRIME Agency Order rebates for all tiers under the PCRP until May 31, 2020 and decrease the per contract fee for Contra-side Orders in Penny and non-Penny classes in a cPRIME Auction 25 15 24 15 U.S.C. 78f(b)(4). VerDate Sep<11>2014 18:29 Mar 13, 2020 26 15 Jkt 250001 PO 00000 U.S.C. 78f(b)(1) and (b)(5). U.S.C. 78f(b)(8). Frm 00127 Fmt 4703 Sfmt 4703 27 See 28 See E:\FR\FM\16MRN1.SGM supra note 15. id. 16MRN1 Federal Register / Vol. 85, No. 51 / Monday, March 16, 2020 / Notices order flow to the Exchange. To the extent this is achieved, all the Exchange’s market participants should benefit from the improved market quality. 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,29 and Rule 19b–4(f)(2) 30 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. 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: lotter on DSKBCFDHB2PROD with NOTICES 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–2020–05 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–2020–05. 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 website (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 website 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. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–MIAX–2020–05, and should be submitted on or before April 6, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.31 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–05235 Filed 3–13–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88356; File No. SR–ICEEU– 2020–001] Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing and Immediate Effectiveness of Proposed Rule Changes Relating to Clearing Member Transaction Fees for Certain Equity Derivatives Contracts, Specifically the Fee Caps for the Block Only Standard and Flexible Single Stock Futures and Options (‘‘the Contracts’’) March 10, 2020. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on February 25, 2020, ICE Clear Europe Limited (‘‘ICE Clear Europe’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 29 15 U.S.C. 78s(b)(3)(A)(ii). 30 17 CFR 240.19b–4(f)(2). VerDate Sep<11>2014 18:29 Mar 13, 2020 1 15 Jkt 250001 changes described in Items I, II, and III below, which Items have been primarily prepared by ICE Clear Europe. ICE Clear Europe filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f)(2) 4 thereunder, such that the proposed rule change was immediately effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change ICE Clear Europe Limited (‘‘ICE Clear Europe’’) proposes rule changes relating to fees payable by Clearing Members for certain Equity Derivatives contracts, specifically the fee caps for the Block Only Standard and Flexible Single Stock Futures and Options (‘‘the Contracts’’). The revisions do not involve any changes to the ICE Clear Europe Clearing Rules or Procedures.5 II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, ICE Clear Europe included statements concerning the purpose of and basis for the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. ICE Clear Europe has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of such statements. (A) Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change (a) Purpose The purpose of the proposed rule changes is for ICE Clear Europe to update certain fees payable by Clearing Members for certain Equity Derivatives contracts which are cleared by ICEU Clear Europe. Specifically, ICE Clear Europe proposes changing the Clearing Member fee caps for the Block Only Standard and Flexible Single Stock Futures and Options. No changes will be made to the underlying fee rate per contract (‘‘RPC’’) for these products. Attached as Exhibit 5 is the table listing the new fee caps for the Block Only Standard and Flexible Single Stock Futures and Options that will be included in a Circular in advance of the proposed effective date. The new 3 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(2). 5 Capitalized terms used but not defined herein have the meanings specified in the ICE Clear Europe Clearing Rules. 4 17 31 17 PO 00000 Frm 00128 Fmt 4703 Sfmt 4703 14999 E:\FR\FM\16MRN1.SGM 16MRN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 51 (Monday, March 16, 2020)]
[Notices]
[Pages 14995-14999]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05235]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88349; File No. SR-MIAX-2020-05]


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

March 10, 2020.
    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on February 28, 2020, Miami International 
Securities Exchange LLC (``MIAX Options'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') a proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared by the Exchange. The Commission is publishing this notice 
to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Options Fee 
Schedule (``Fee Schedule'').
    While changes to the Fee Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on March 1, 2020.
    The text of the proposed rule change is available on the Exchange's 
website at https://www.miaxoptions.com/rule-filings, at MIAX's principal 
office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the Fee Schedule to: (i) Waive the 
cap of 1,000 contracts per leg for complex PRIME (``cPRIME'') \3\ 
Agency Order rebates for all tiers under the Priority Customer Rebate 
Program (``PCRP'') \4\ until May 31, 2020; (ii) lower the alternative 
cPRIME Agency Order rebate for PCRP Members \5\ in Tier 4 that execute 
Priority Customer \6\ standard non-paired complex volume at least equal 
to or greater than their Priority Customer cPRIME agency volume; and 
(iii) decrease the per contract fee for Contra-side Orders (defined 
below) in Penny and non-Penny options classes in a cPRIME Auction 
assessable to all market participants, except Priority Customers.
---------------------------------------------------------------------------

    \3\ ``cPRIME'' is the process by which a Member may 
electronically submit a ``cPRIME Order'' (as defined in Rule 
518(b)(7)) it represents as agent (a ``cPRIME Agency Order'') 
against principal or solicited interest for execution (a ``cPRIME 
Auction''), subject to the restrictions set forth in Exchange Rule 
515A, Interpretation and Policy .12. See Exchange Rule 515A.
    \4\ Under the PCRP, MIAX credits each Member the per contract 
amount resulting from each Priority Customer order transmitted by 
that Member which is executed electronically on the Exchange in all 
multiply-listed option classes (excluding, in simple or complex as 
applicable, QCC and cQCC Orders, mini-options, Priority Customer-to-
Priority Customer Orders, C2C and cC2C Orders, PRIME and cPRIME AOC 
Responses, PRIME and cPRIME Contra-side Orders, PRIME and cPRIME 
Orders for which both the Agency and Contra-side Order are Priority 
Customers, and executions related to contracts that are routed to 
one or more exchanges in connection with the Options Order 
Protection and Locked/Crossed Market Plan referenced in Exchange 
Rule 1400), provided the Member meets certain percentage thresholds 
in a month as described in the PCRP table. See Fee Schedule, Section 
1)a)iii.
    \5\ The term ``Member'' means an individual or organization 
approved to exercise the trading rights associated with a Trading 
Permit. Members are deemed ``members'' under the Exchange Act. See 
Exchange Rule 100.
    \6\ ``Priority Customer'' means a person or entity that (i) is 
not a broker or dealer in securities, and (ii) does not place more 
than 390 orders in listed options per day on average during a 
calendar month for its own beneficial accounts(s). A ``Priority 
Customer Order'' means an order for the account of a Priority 
Customer. See Exchange Rule 100.
---------------------------------------------------------------------------

Background
    Exchange Rule 518(b)(7) defines a cPRIME Order as a type of complex 
order \7\ that is submitted for participation in a cPRIME Auction and 
trading of cPRIME Orders is governed by Rule 515A, Interpretations and 
Policies .12.\8\ cPRIME Orders are processed and executed in the 
Exchange's PRIME mechanism, the same mechanism that the Exchange uses 
to process and execute simple PRIME orders, pursuant to Exchange Rule 
515A.\9\ PRIME is a process by which a Member may electronically submit 
for execution an order it represents as agent (an ``Agency Order'') 
against principal interest and/or solicited interest. The Member that 
submits the Agency Order (``Initiating Member'') agrees to guarantee 
the execution of the Agency Order by submitting a contra-side order 
representing principal interest or solicited interest (``Contra-Side 
Order''). When the Exchange receives a properly designated Agency Order 
for Auction processing, a request for response (``RFR'') detailing the 
option, side, size

[[Page 14996]]

and initiating price is broadcasted to MIAX Options participants up to 
an optional designated limit price. Members may submit responses to the 
RFR, which can be either an Auction or Cancel (``AOC'') order or an AOC 
eQuote. A cPRIME Auction is the price-improvement mechanism of the 
Exchange's System pursuant to which an Initiating Member electronically 
submits a complex Agency Order into a cPRIME Auction. The Initiating 
Member, in submitting an Agency Order, must be willing to either (i) 
cross the Agency Order at a single price against principal or solicited 
interest, or (ii) automatically match against principal or solicited 
interest, the price and size of a RFR that is broadcast to MIAX Options 
participants up to an optional designated limit price. Such responses 
are defined as cPRIME AOC Responses or cPRIME eQuotes. The PRIME 
mechanism is used for orders on the Exchange's Simple Order Book.\10\ 
The cPRIME mechanism is used for Complex Orders \11\ on the Exchange's 
Strategy Book,\12\ with the cPRIME mechanism operates in the same 
manner for processing and execution of cPRIME Orders that is used for 
PRIME Orders on the Simple Order Book.
---------------------------------------------------------------------------

    \7\ A ``complex order'' is any order involving the concurrent 
purchase and/or sale of two or more different options in the same 
underlying security (the ``legs'' or ``components'' of the complex 
order), for the same account, in a ratio that is equal to or greater 
than one-to-three (.333) and less than or equal to three-to-one 
(3.00) and for the purposes of executing a particular investment 
strategy. A complex order can also be a ``stock-option'' order, 
which is an order to buy or sell a stated number of units of an 
underlying security coupled with the purchase or sale of options 
contract(s) on the opposite side of the market, subject to certain 
contingencies set forth in the proposed rules governing complex 
orders. For a complete definition of a ``complex order,'' see 
Exchange Rule 518(a)(5). See also Securities Exchange Act Release 
No. 78620 (August 18, 2016), 81 FR 58770 (August 25, 2016) (SR-MIAX-
2016-26).
    \8\ See Securities Exchange Act Release No. 81131 (July 12, 
2017), 82 FR 32900 (July 18, 2017) (SR-MIAX-2017-19). (Order 
Granting Approval of a Proposed Rule Change to Amend MIAX Options 
Rules 515, Execution of Orders and Quotes; 515A, MIAX Price 
Improvement Mechanism (``PRIME'') and PRIME Solicitation Mechanism; 
and 518, Complex Orders).
    \9\ Id.
    \10\ The ``Simple Order Book'' is the Exchange's regular 
electronic book of orders and quotes. See Exchange Rule 518(a)(15).
    \11\ A ``complex order'' is any order involving the concurrent 
purchase and/or sale of two or more different options in the same 
underlying security (the ``legs'' or ``components'' of the complex 
order), for the same account, in a ratio that is equal to or greater 
than one-to-three (.333) and less than or equal to three-to-one 
(3.00) and for the purposes of executing a particular investment 
strategy. Mini-options may only be part of a complex order that 
includes other mini-options. Only those complex orders in the 
classes designated by the Exchange and communicated to Members via 
Regulatory Circular with no more than the applicable number of legs, 
as determined by the Exchange on a class-by-class basis and 
communicated to Members via Regulatory Circular, are eligible for 
processing. See Exchange Rule 518(a)(5).
    \12\ The ``Strategy Book'' is the Exchange's electronic book of 
complex orders and complex quotes. See Exchange Rule 518(a)(17).
---------------------------------------------------------------------------

PCRP cPRIME Agency Order Credit Limit
    First, the Exchange proposes to amend footnote ``*'' of the PCRP in 
Section 1)a)iii) of the Fee Schedule to waive the contracts cap per leg 
for cPRIME Agency Order rebates for all tiers under the PCRP for a set 
period of time. Currently, the Exchange limits the cPRIME Agency Order 
Credit to be payable only to the first 1,000 contracts per leg for each 
cPRIME Agency Order in all tiers under the PCRP. The Exchange now 
proposes to waive the cap of 1,000 contracts per leg for cPRIME Agency 
Order rebates for all tiers under the PCRP until May 31, 2020. The 
purpose of this proposed change is for business and competitive reasons 
and to entice market participants to submit larger sized cPRIME Agency 
Orders.
Alternative Credit for cPRIME Agency Orders
    Next, the Exchange proposes to amend footnote ``**'' of the PCRP in 
Section 1)a)iii) of the Fee Schedule to lower the cPRIME Agency Order 
rebate for PCRP Members in Tier 4 that execute Priority Customer 
standard non-paired complex volume at least equal to or greater than 
their Priority Customer cPRIME agency volume. Currently, under the 
PCRP, the Exchange provides a higher credit of $0.22 per contract for 
cPRIME Agency Orders if any Member or its Affiliate \13\ qualifies for 
PCRP Tier 4 and executes Priority Customer standard, non-paired complex 
volume at least equal to or greater than their Priority Customer cPRIME 
Agency Order volume, on a monthly basis instead of the $0.10 credit 
otherwise applicable for Tier 4. The Exchange now proposes to lower the 
alternative cPRIME Agency Order rebate for PCRP Members in Tier 4 that 
execute Priority Customer standard non-paired complex volume at least 
equal to or greater than their Priority Customer cPRIME agency volume 
from $0.22 per contract to $0.12 per contract. The Exchange initially 
adopted the higher alternative credit for cPRIME Agency Orders in order 
to encourage market participants to submit more complex and cPRIME 
orders and therefore increase Priority Customer order flow. The 
Exchange now believes that it is appropriate to adjust this credit to 
be a slightly higher alternative credit of $0.12 per contract than the 
other credits for cPRIME Agency Orders, thereby continuing to encourage 
market participants to submit more complex orders and therefore 
increase Priority Customer order flow. The Exchange believes that by 
encouraging market participants to execute Priority Customer standard, 
non-paired complex volume and cPRIME volume will result in increased 
liquidity that benefits all Exchange participants by providing more 
trading opportunities and tighter spreads. The purpose of this proposed 
change is for business and competitive reasons.
---------------------------------------------------------------------------

    \13\ For purposes of the MIAX Options Fee Schedule, the term 
``Affiliate'' means (i) an affiliate of a Member of at least 75% 
common ownership between the firms as reflected on each firm's Form 
BD, Schedule A, (``Affiliate''), or (ii) the Appointed Market Maker 
of an Appointed EEM (or, conversely, the Appointed EEM of an 
Appointed Market Maker). An ``Appointed Market Maker'' is a MIAX 
Market Maker (who does not otherwise have a corporate affiliation 
based upon common ownership with an EEM) that has been appointed by 
an EEM and an ``Appointed EEM'' is an EEM (who does not otherwise 
have a corporate affiliation based upon common ownership with a MIAX 
Market Maker) that has been appointed by a MIAX Market Maker, 
pursuant to the following process. A MIAX Market Maker appoints an 
EEM and an EEM appoints a MIAX Market Maker, for the purposes of the 
Fee Schedule, by each completing and sending an executed Volume 
Aggregation Request Form by email to [email protected] no 
later than 2 business days prior to the first business day of the 
month in which the designation is to become effective. Transmittal 
of a validly completed and executed form to the Exchange along with 
the Exchange's acknowledgement of the effective designation to each 
of the Market Maker and EEM will be viewed as acceptance of the 
appointment. The Exchange will only recognize one designation per 
Member. A Member may make a designation not more than once every 12 
months (from the date of its most recent designation), which 
designation shall remain in effect unless or until the Exchange 
receives written notice submitted 2 business days prior to the first 
business day of the month from either Member indicating that the 
appointment has been terminated. Designations will become operative 
on the first business day of the effective month and may not be 
terminated prior to the end of the month. Execution data and reports 
will be provided to both parties.
---------------------------------------------------------------------------

cPRIME Fees for Contra-Side Orders in Penny and Non-Penny Classes
    Next, the Exchange proposes to decrease the per contract fee for 
Contra-Side Orders in Penny and non-Penny classes in a cPRIME Auction 
assessable to all market participants, except Priority Customers. 
Currently, the Exchange assesses a cPRIME Contra-Side Order Fee of 
$0.05 per contract for options in Penny classes and $0.07 per contract 
for options in non-Penny classes for all market participants except 
Priority Customers. The Exchange now proposes to decrease the fees 
assessed to all market participants except Priority Customers for 
cPRIME Contra-Side Orders for options in Penny classes from $0.05 to 
$0.04 per contract and for options in non-Penny classes from $0.07 to 
$0.04 per contract. The purpose of these proposed changes is for 
business and competitive reasons.
    The Commission has repeatedly expressed its preference for 
competition over regulatory intervention in determining prices, 
products, and services in the securities markets. In Regulation NMS, 
the Commission highlighted the importance of market forces in 
determining prices and self-regulatory organization (``SRO'') revenues 
and, also, recognized that current regulation of the market system 
``has been remarkably successful in promoting market competition in its 
broader forms that are most important to investors and listed 
companies.'' \14\ There are currently 16 registered

[[Page 14997]]

options exchanges competing for order flow. Based on publicly-available 
information, and excluding index-based options, no single exchange has 
more than approximately 15% of the market share of executed volume of 
multiply-listed equity and exchange-traded fund (``ETF'') options 
trades as of February 24, 2020, for the month of February 2020.\15\ 
Therefore, no exchange possesses significant pricing power in the 
execution of multiply-listed equity and ETF options order flow. More 
specifically, for all of January 2020, the Exchange had a total market 
share of 4.44% of all equity options volume.\16\
---------------------------------------------------------------------------

    \14\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005).
    \15\ The OCC publishes options and futures volume in a variety 
of formats, including daily and monthly volume by exchange, 
available at: https://www.theocc.com/market-data/volume/default.jsp.
    \16\ See id.
---------------------------------------------------------------------------

    The Exchange believes that the ever-shifting market shares among 
the exchanges from month to month demonstrates that market participants 
can shift order flow (as further described below), or discontinue or 
reduce use of certain categories of products, in response to 
transaction and non-transaction fee changes. For example, on March 1, 
2019, the Exchange filed with the Commission an immediately effective 
filing to decrease certain credits assessable to Members pursuant to 
the PCRP.\17\ The Exchange experienced a decrease in total market share 
between the months of February and March of 2019. Accordingly, the 
Exchange believes that the March 1, 2019 fee change may have 
contributed to the decrease in the Exchange's market share and, as 
such, the Exchange believes competitive forces constrain options 
exchange transaction and non-transaction fees.
---------------------------------------------------------------------------

    \17\ See Securities Exchange Act Release No. 85301 (March 13, 
2019), 84 FR 10166 (March 19, 2019) (SR-MIAX-2019-09).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \18\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \19\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among its members and issuers and other persons using 
its facilities. The Exchange also believes the proposal furthers the 
objectives of Section 6(b)(5) of the Act in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest and is not designed to permit unfair discrimination between 
customers, issuers, brokers and dealers.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Exchange believes its proposal to waive the cap of 1,000 
contracts per leg for cPRIME Agency Order rebates for all tiers under 
the PCRP until May 31, 2020, lower the alternative cPRIME Agency Order 
rebate for PCRP Members in Tier 4 that execute Priority Customer 
standard non-paired complex volume at least equal to or greater than 
their Priority Customer cPRIME agency volume and decrease the per 
contract fee for Contra-side Orders in Penny and non-Penny options 
classes in a cPRIME Auction assessable to all market participants, 
except Priority Customers, provides for the equitable allocation of 
reasonable dues and fees and is not unfairly discriminatory for the 
following reasons. The Exchange operates in a highly competitive 
market. The Commission has repeatedly expressed its preference for 
competition over regulatory intervention in determining prices, 
products, and services in the securities markets. In Regulation NMS, 
the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \20\ There are currently 
16 registered options exchanges competing for order flow. Based on 
publicly-available information, and excluding index-based options, no 
single exchange has more than approximately 15% of the market share of 
executed volume of multiply-listed equity and ETF options trades as of 
February 24, 2020, for the month of February 2020.\21\ Therefore, no 
exchange possesses significant pricing power in the execution of 
multiply-listed equity and ETF options order flow. More specifically, 
for all of January 2020, the Exchange had a total market share of 4.44% 
of all equity options volume.\22\
---------------------------------------------------------------------------

    \20\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005).
    \21\ See supra note 15.
    \22\ See id.
---------------------------------------------------------------------------

    The Exchange believes that the ever-shifting market shares among 
the exchanges from month to month demonstrates that market participants 
can shift order flow, or discontinue or reduce use of certain 
categories of products, in response to transaction and/or non-
transaction fee changes. For example, on March 1, 2019, the Exchange 
filed with the Commission an immediately effective filing to decrease 
certain credits assessable to Members pursuant to the PCRP.\23\ The 
Exchange experienced a decrease in total market share between the 
months of February and March of 2019. Accordingly, the Exchange 
believes that the March 1, 2019 fee change may have contributed to the 
decrease in the Exchange's market share and, as such, the Exchange 
believes competitive forces constrain options exchange transaction and 
non-transaction fees and market participants can shift order flow based 
on fee changes instituted by the exchanges.
---------------------------------------------------------------------------

    \23\ See supra note 17.
---------------------------------------------------------------------------

    The Exchange believes that its proposal to waive the 1,000 
contracts cap per leg for cPRIME Agency Order rebates for all tiers in 
the PCRP until May 31, 2020, lower the alternative cPRIME Agency Order 
rebate for PCRP Members in Tier 4 that execute Priority Customer 
standard non-paired complex volume at least equal to or greater than 
their Priority Customer cPRIME agency volume and decrease the per 
contract fee for Contra-side Orders in Penny and non-Penny classes in a 
cPRIME Auction assessable to all market participants, except Priority 
Customers, is reasonable, equitably allocated and not unfairly 
discriminatory because these changes are for business and competitive 
reasons and available equally to all market participants. The Exchange 
cannot predict with certainty whether any market participant would 
submit cPRIME Agency Orders in excess of 1,000 contracts per leg in 
light of the proposed change to waive the cap of 1,000 contracts per 
leg for cPRIME Agency Order rebates for all tiers under the PCRP, but 
believes that market participants would be encouraged to submit larger 
orders to obtain the additional credits. The Exchange believes that 
this proposed change would encourage increased cPRIME Agency Order 
flow, which will bring greater volume and liquidity to the Exchange, 
which benefits all market participants by providing more trading 
opportunities and tighter spreads.
    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory that Priority Customers continue to be charged 
lower fees in cPRIME Auctions than other market participants in Penny 
and non-Penny options classes. The exchanges, in general, have 
historically aimed to improve markets for investors and develop various 
features within their market structure for customer benefit. The 
Exchange assesses Priority Customers lower or no transactions fees

[[Page 14998]]

because Priority Customer order flow enhances liquidity on the Exchange 
for the benefit of all market participants. Priority Customer liquidity 
benefits all market participants by providing more trading 
opportunities, which attracts market makers. An increase in the 
activity of these market participants in turn facilitates tighter 
spreads, which may cause an additional corresponding increase in order 
flow from other market participants.
    Moreover, the Exchange believes that assessing all other market 
participants that are not Priority Customers a higher transaction fee 
than Priority Customers for cPRIME Order transactions is reasonable, 
equitable, and not unfairly discriminatory because these types of 
market participants are more sophisticated and have higher levels of 
order flow activity and system usage. This level of trading activity 
draws on a greater amount of system resources than that of Priority 
Customers, and thus, generates greater ongoing operational costs. 
Further, the Exchange believes that charging all market participants 
that are not Priority Customers the same fee for all cPRIME 
transactions is not unfairly discriminatory as the fees will apply to 
all these market participants equally.
    The Exchange believes its proposal to lower the higher alternative 
cPRIME Agency Order Credit amount for cPRIME Agency Orders in Tier 4 of 
the PCRP is consistent with Section 6(b)(4) of the Act \24\ because it 
applies equally to all participants with similar order flow in that 
tier. The Exchange believes that by encouraging market participants to 
execute Priority Customer standard, non-paired complex volume at least 
equal to or greater than their Priority Customer cPRIME Agency Order 
volume in order to continue to receive a higher alternative credit of 
$0.12 per contract for cPRIME Agency Orders instead of the credit 
otherwise applicable to such orders in Tier 4 of the PCRP, is 
reasonable, equitably allocated and not unfairly discriminatory because 
it will continue to encourage increased volume of Priority Customer 
standard, non-paired complex orders and Priority Customer cPRIME 
orders, which will result in increased liquidity that benefits all 
Exchange participants by providing more trading opportunities and 
tighter spreads. The PCRP is reasonably designed because it will 
incentivize providers of Priority Customer order flow to send that 
Priority Customer order flow to the Exchange in order to obtain the 
highest volume threshold and receive a credit in a manner that enables 
the Exchange to improve its overall competitiveness and strengthen its 
market quality for all market participants.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    In addition, the proposal is also consistent with Section 6(b)(5) 
of the Act \25\ because it perfects the mechanisms of a free and open 
market and a national market system and protects investors and the 
public interest because, while only certain Priority Customer order 
flow qualifies for the rebate program under the PCRP and specifically 
only order flow by Members in Tier 4 of the PCRP that meet the 
additional threshold will continue to receive the higher alternative 
cPRIME Agency Order rebate, an increase in Priority Customer order flow 
will bring greater volume and liquidity, which benefits all market 
participants by providing more trading opportunities and tighter 
spreads. To the extent Priority Customer order flow continues to 
increase by the proposal, market participants will increasingly compete 
for the opportunity to trade on the Exchange including sending more 
orders and providing narrower and larger-sized quotations in the effort 
to trade with such Priority Customer order flow.
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78f(b)(1) and (b)(5).
---------------------------------------------------------------------------

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

    In accordance with Section 6(b)(8) of the Act,\26\ the Exchange 
believes that the proposed rule changes would not impose any burden on 
competition that are not necessary or appropriate in furtherance of the 
purposes of the Act. Instead, as discussed above, the Exchange believes 
that the proposed changes would encourage the submission of additional 
liquidity to a public exchange, thereby promoting market depth, price 
discovery and transparency and enhancing order execution opportunities 
for all market participants. As a result, the Exchange believes that 
the proposed change furthers the Commission's goal in adopting 
Regulation NMS of fostering integrated competition among orders.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

Intra-Market Competition
    The Exchange does not believe that other market participants at the 
Exchange would be placed at a relative disadvantage by the proposed 
changes to waive the cap of 1,000 contracts per leg for cPRIME Agency 
Order rebates for all tiers under the PCRP until May 31, 2020 and 
decrease the per contract fee for Contra-side Orders in Penny and non-
Penny classes in a cPRIME Auction assessable to all market 
participants, except Priority Customers. The proposed changes are 
designed to attract additional order flow to the Exchange. The Exchange 
further believes that its proposal to lower the alternative cPRIME 
Agency Order Credit amount for cPRIME Agency Orders in Tier 4 of the 
PCRP that will apply instead of the credit otherwise applicable to such 
orders, if a certain threshold is satisfied by the Member, will not 
have an impact on intra-market competition. Specifically, the Exchange 
believes that this proposal will continue to encourage Members to 
submit both Priority Customer standard, non-paired complex orders and 
Priority Customer complex orders, which will increase liquidity and 
benefit all market participants by providing more trading opportunities 
and tighter spreads. Accordingly, the Exchange believes that the 
proposed changes will not impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Act 
because they will continue to encourage order flow, which provides 
greater volume and liquidity, benefiting all market participants by 
providing more trading opportunities and tighter spreads.
Inter-Market Competition
    The Exchange operates in a highly competitive market in which 
market participants can readily favor competing venues if they deem fee 
levels at a particular venue to be excessive. There are currently 16 
registered options exchanges competing for order flow. Based on 
publicly-available information, and excluding index-based options, no 
single exchange has more than approximately 15% of the market share of 
executed volume of multiply-listed equity and ETF options trades as of 
February 24, 2020, for the month of February 2020.\27\ Therefore, no 
exchange possesses significant pricing power in the execution of 
multiply-listed equity and ETF options order flow. More specifically, 
for all of January 2020, the Exchange had a total market share of 4.44% 
for all equity options volume.\28\ In such an environment, the Exchange 
must continually adjust its transaction and non-transaction fees to 
remain competitive with other exchanges and to attract order flow. The 
Exchange believes that the proposed rule changes reflect this 
competitive environment because they modify the Exchange's fees in a 
manner that encourages market participants to provide and to send

[[Page 14999]]

order flow to the Exchange. To the extent this is achieved, all the 
Exchange's market participants should benefit from the improved market 
quality.
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    \27\ See supra note 15.
    \28\ See id.
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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,\29\ and Rule 19b-4(f)(2) \30\ thereunder. 
At any time within 60 days of the filing of the proposed rule change, 
the Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or disapproved.
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    \29\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \30\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-MIAX-2020-05 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-2020-05. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MIAX-2020-05, and should be submitted on 
or before April 6, 2020.
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    \31\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-05235 Filed 3-13-20; 8:45 am]
 BILLING CODE 8011-01-P

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