Notice2021-23673
Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule To Adopt an Incentive Program for Market Makers in SPIKES® Options
Primary source
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Published
November 1, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 208 (Monday, November 1, 2021)</title>
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[Federal Register Volume 86, Number 208 (Monday, November 1, 2021)]
[Notices]
[Pages 60322-60325]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-23673]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93424; File No. SR-MIAX-2021-49]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Its Fee Schedule To Adopt an Incentive
Program for Market Makers in SPIKES[supreg] Options
October 26, 2021.
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 October 12, 2021, 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 ``Fee Schedule'') to adopt an incentive program for
Market Makers \3\ in SPIKES[supreg] options.
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\3\ The term ``Market Makers'' refers to ``Lead Market Makers'',
``Primary Lead Market Makers'' and ``Registered Market Makers''
collectively. See Exchange Rule 100.
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The text of the proposed rule change is available on the Exchange's
website at <a href="http://www.miaxoptions.com/rule-filings">http://www.miaxoptions.com/rule-filings</a>, 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 implement a
SPIKES Options Market Maker Incentive Program (the ``Incentive
Program'') for the period beginning October 1, 2021, and ending
December 31, 2021.\4\ The Incentive Program is designed to improve
liquidity, volume, and quote width spreads in SPIKES options. Technical
details regarding the Incentive Program were published in a Regulatory
Circular on September 30, 2021.\5\ The Exchange originally filed this
proposal on September 30, 2021, (SR-MIAX-2021-45). On October 12, 2021,
the Exchange withdrew SR-MIAX-2021-45 and refiled this proposal.
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\4\ The Exchange notes that at the end of the period, the
Program will expire unless the Exchange files another 19b-4 Filing
to amend its fees.
\5\ See MIAX Options Regulatory Circular 2021-56, SPIKES Options
Market Maker Incentive Program (September 30, 2021) available at
<a href="https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Options_RC_2021_56.pdf">https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Options_RC_2021_56.pdf</a>.
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Background
On October 12, 2018, the Exchange received approval from the
Commission to list and trade options on the SPIKES[supreg] Index, which
measures expected 30-day volatility of the SPDR[supreg] S&P 500 ETF
Trust (commonly known and referred to by its ticker symbol,
``SPY'').\6\ The Exchange adopted its initial SPIKES transaction fees
on February 15, 2019.\7\ Options on the SPIKES Index began trading on
the Exchange on February 19, 2019.
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\6\ See Securities Exchange Act Release No. 84417 (October 12,
2018), 83 FR 52865 (October 18, 2018) (SR-MIAX-2018-14) (Order
Granting Approval of a Proposed Rule Change by Miami International
Securities Exchange, LLC to List and Trade on the Exchange Options
on the SPIKES[supreg] Index).
\7\ See Securities Exchange Release No. 85283 (March 11, 2019),
84 FR 9567 (March 15, 2019) (SR-MIAX-2019-11). On September 30,
2020, the Exchange filed its proposal to, among other things,
reorganize the Fee Schedule to adopt new Section 1(b), Proprietary
Products Exchange Fees, and moved the fees and rebates for SPIKES
options into new Section 1(b)(i). See Securities Exchange Act
Release No. 90146 (October 9, 2020), 85 FR 65443 (October 15, 2020)
(SR-MIAX-2020-32).
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SPIKES Options Market Maker Incentive Program
The Exchange proposes to implement a SPIKES Options Market Maker
Incentive Program for SPIKES options to incentivize Market Makers to
improve liquidity, available volume, and the quote spread width of
SPIKES options. To be eligible to participate in the Incentive Program,
a Market Maker must meet certain minimum requirements related to quote
spread width in certain in-the-money (ITM) and out-of-the-money (OTM)
options as determined by the Exchange and communicated to Members via
Regulatory Circular.\8\ Market Makers must also satisfy a minimum time
in the market in the front 2 expiry months of 70%, and have an average
quote size of 25 contracts.
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\8\ Supra note 5.
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The Exchange proposes to establish two separate incentive
compensation pools that will be used to compensate Market Makers that
satisfy the criteria pursuant to the proposed Incentive Program.
Incentive 1 Pool
The first pool (Incentive 1) will be a total amount of $40,000 per
month, which will be allocated to Market Makers that meet the minimum
requirements of the Incentive Program. Market Makers will be required
to meet minimum spread width requirements in a select number of ITM and
OTM SPIKES option contracts as determined by the Exchange and
communicated to
[[Page 60323]]
Members \9\ via Regulatory Circular.\10\ A complete description of how
the Exchange calculates the minimum spread width requirements in ITM
and OTM SPIKES options can be found in the published Regulatory
Circular,\11\ additionally an example is provided below. Market Makers
will also be required to maintain the minimum spread width, described
above, for at least 70% of the time in the front two (2) SPIKES options
contract expiry months and maintain an average quote size of at least
25 SPIKES options contracts. The amount available to each individual
Market Maker will be capped at $10,000 per month for satisfying the
minimum requirements of the Incentive Program. In the event that more
than four Market Makers meet the requirements of the Incentive Program,
each qualifying Market Maker will be entitled to receive a pro-rated
share of the $40,000 monthly compensation pool dependent upon the
number of qualifying Market Makers in that particular month. For
example, if five Market Makers qualify for compensation under Incentive
1 of the Incentive Program, each Market Maker would receive a rebate of
$8,000 for that particular month.
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\9\ 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.
\10\ Supra note 5.
\11\ Id.
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Incentive 2 Pool
The second pool (Incentive 2 Pool) will be capped at a total amount
of $100,000 per month which will be used during the Incentive Program
to further incentivize Market Makers who meet or exceed the
requirements of Incentive 1 (``qualifying Market Makers'') to provide
tighter quote width spreads. The Exchange will rank each qualifying
Market Maker's quote width spread relative to each other qualifying
Market Maker's quote width spread. Market Makers with tighter spreads
in certain strikes, as determined by the Exchange and communicated to
Members via Regulatory Circular,\12\ will be eligible to receive a pro-
rated share of the compensation pool as calculated by the Exchange and
communicated to Members via Regulatory Circular,\13\ not to exceed
$25,000 per Member per month. Qualifying Market Makers will be ranked
relative to each other based on the quality of their spread width
(i.e., tighter spreads are ranked higher than wider spreads) and the
Market Maker with the best quality spread width will receive the
highest rebate, while other eligible qualifying Market Makers will
receive a rebate relative to their quality spread width.
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\12\ Id.
\13\ Id.
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Incentive Pool 2 Example
Each qualifying Market Maker's ITM/OTM market width for eligible
Incentive Program options will be calculated, weighted, and ranked. ITM
market width will be given a 25% weighting and OTM market width will be
given a 75% weighting. Eligible ITM options require a maximum quote
width spread of 150 basis points (``bps'') and each eligible OTM option
requires a maximum quote width of 100 bps (as calculated below).
The formula employed by the Exchange to calculate the bps for an
individual strike is: {(Ask Quote-Bid Quote)/Futures price{time} *
10,000, where the futures price is in the same expiry being measured.
For example, a SPIKE 19 Put expiring on 10/20/2021 has a bid quote of
$0.25 and an ask quote of $.45 and the October SPIKE Future is trading
at 20.30. Using the aforementioned formula the Exchange can calculate
the Member's bps on that strike as: {($0.45-$0.25)/20.30{time} *
10,000; or ($0.20/20.30) * 10,000; or .009852 * 10,000 = 98.52217 bps.
To establish the market quality baseline bps the Exchange combines
target bps in ITM and OTM options (150 bps * 25% = 37.5 bps and 100 bps
* 75% = 75 bps; 37.5 bps + 75 bps = 112.50 bps).
To determine the pool amount the Exchange will contribute $5,000
for each basis point improvement from the Exchange established baseline
of 112.50 bps. The Exchange will calculate a Member's Improvement Value
(``MIV'') by subtracting the Member's monthly average bps from the
Exchange established baseline of 112.50 bps. If for the month ``Market
Maker A'' has an average score of 109 and ``Market Maker B'' has an
average score of 107 the Exchange will calculate the amount of
Incentive Pool 2 based on the average total improvement of the
qualifying Market Makers from the baseline and for every bps of
improvement the Exchange will contribute $5,000 to Incentive Pool 2. In
this example, the average of ``Market Maker A'' (109) and ``Market
Maker B'' (107) is 108. The Exchange would therefore contribute $22,500
to Incentive Pool 2 (112.5-108 = 4.5 * $5,000).
The Exchange will calculate a pro-rata distribution for each Market
Maker based upon their improvement value, which is the number of bps
improvement from the Exchange established baseline of 112.5. ``Market
Maker A'' has an MIV of 3.5 (112.5-109) and ``Market Maker B'' has an
MIV of 5.5 bps (112.5 = 107). To determine each Market Makers' pro-rata
share of the Incentive 2 Pool the Exchange sums the MIVs of each Market
Maker (3.5 + 5.5) = 9 and divides each Market Maker's MIV by that total
to establish their weighted percentage: 38.89% and 61.11% for ``Market
Maker A'' and ``Market Maker B,'' respectively. ``Market Maker A''
would then be entitled to 38.89% of the $22,500 Incentive 2 Pool or
$8,750. Whereas ``Market Maker B'' would be entitled to 61.11% of the
$22,500 Incentive 2 Pool or $13,750.
The total amount in Incentive Pool 2 is capped at $100,000 per
month and the total amount allocated to any one Member is capped at
$25,000 per month.
The details of the Incentive Program are contained in a Regulatory
Circular distributed to all Members.\14\
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\14\ Id.
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2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \15\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \16\ 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.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange believes that it is reasonable, equitable, and not
unfairly discriminatory to adopt an Incentive Program for Market Makers
in SPIKES options. The Incentive Program is reasonably designed because
it will incent Market Makers to provide quotes and increased liquidity
in select SPIKES options contracts. The proposed Incentive Program is
reasonable, equitably allocated and not unfairly discriminatory because
all Market Makers in SPIKES options may qualify for Incentive 1 and
Incentive 2, dependent upon each Market Maker's quoting in SPIKES
options in a particular month. Additionally, if a
[[Page 60324]]
SPIKES Market Maker does not satisfy the requirements of Incentive Pool
1 or 2, then it simply will not receive the rebate offered by the
Incentive Program for that month.
The Exchange believes that it is reasonable, equitable and not
unfairly discriminatory to offer this financial incentive to SPIKES
Market Makers because it benefits all market participants trading in
SPIKES. SPIKES Options is a Proprietary Product \17\ on the Exchange
and this Incentive Program encourages SPIKES Market Makers to satisfy a
heightened quoting standard, average quote size, and time in market. An
increase in quoting activity and tighter quotes may yield a
corresponding increase in order flow from other market participants,
which benefits all investors by deepening the Exchange's liquidity
pool, potentially providing greater execution incentives and
opportunities, while promoting market transparency and improving
investor protection.
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\17\ The term ``Proprietary Product'' means a class of options
that is listed exclusively on the Exchange. See Exchange Rule 100.
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The Exchange believes that the Incentive Program is equitable and
not unfairly discriminatory because it will promote an increase in
SPIKES options liquidity, which may facilitate tighter spreads and an
increase in trading opportunities to the benefit of all market
participants. The Exchange believes it is reasonable to operate the
Incentive Program for a limited period of time to strengthen market
quality for all market participants. The resulting increased volume and
liquidity will benefit those Members who are eligible to participate in
the Incentive Program and will also benefit those Members who are not
eligible to participate in the Incentive Program by providing more
trading opportunities and tighter spreads.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Intra-Market Competition
The Exchange believes that the proposal to adopt an Incentive
Program does not impose any burden on intra-market competition that is
not necessary or appropriate in furtherance of the purposes of the Act.
The Exchange believes that the proposal would increase intra-market
competition by incentivizing Market Makers to quote SPIKES options,
which will enhance the quality of quoting and increase the volume of
contracts available to trade in SPIKES options. To the extent that this
purpose is achieved, all the Exchange's market participants should
benefit from the improved market liquidity for SPIKES options. Enhanced
market quality and increased transaction volume in SPIKES options that
results from the anticipated increase in Market Maker activity on the
Exchange will benefit all market participants and improve competition
on the Exchange.
Inter-Market Competition
The Exchange believes the proposed rule change does not impose any
burden on inter-market competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed changes in
connection with the Incentive Program are limited to SPIKES options
which are a proprietary product of the Exchange and as such are listed
and traded exclusively on the Exchange.
Additionally, as noted above, the Incentive Program is designed to
improve volume and liquidity in SPIKES options. Greater volume and
liquidity benefits all market participants by providing more trading
opportunities, tighter spreads, and added market transparency and price
discovery. The Exchange notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of 16 options venues to which market participants
may direct their order flow. Based on publicly available information,
no single options exchange has more than 13% of the market share.\18\
Thus, in such a low-concentrated and highly competitive market, no
single options exchange possess significant pricing power in the
execution of option order flow.
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\18\ See MIAX's ``The Market at a Glance'', available at <a href="https://www.miaxoptions.com/">https://www.miaxoptions.com/</a> (last visited September 28, 2021).
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Accordingly, the Exchange does not believe its proposal to adopt an
Incentive Program imposes any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
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,\19\ and Rule 19b-4(f)(2) \20\ 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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\19\ 15 U.S.C. 78s(b)(3)(A)(ii).
\20\ 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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#196b6c757c347a7674747c776d6a596a7c7a377e766f"><span class="__cf_email__" data-cfemail="7c0e091019511f1311111912080f3c0f191f521b130a">[email protected]</span></a>. Please include
File Number SR-MIAX-2021-49 on the subject line.
Paper Comments
<bullet> 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-2021-49. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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
[[Page 60325]]
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-2021-49 and should be
submitted on or before November 22, 2021.
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\21\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-23673 Filed 10-29-21; 8:45 am]
BILLING CODE 8011-01-P
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