FR 2020-29134

Editorial Commentary

The document under review pertains to a notice from the Miami International Securities Exchange LLC (known as MIAX Options), detailing a proposed amendment to their fee schedule. This amendment aims to extend the waiver on certain non-transaction fees relevant to Market Makers, specifically those trading exclusively in Proprietary Products like options on the SPIKES Index. The waiver, initially set to end in 2020, has been pushed to continue until March 31, 2021. The section in focus is being shared with the public for feedback, underlining a procedural transparency objective.

Summary and Context

In essence, MIAX Options is proposing to continue not charging certain fees, such as those for membership applications and API testing, for Market Makers engaged exclusively in Proprietary Products through March 2021. The underlying motive appears to be fostering greater participation in trading these Products, thereby enhancing overall market liquidity. These proposed changes have been filed with the Securities and Exchange Commission (SEC), which is responsible for overseeing exchanges and is now calling for public comments.

Significant Issues

Several issues arise from this proposal. First, the persistent extension of these fee waivers represents a potential revenue sacrifice for the Exchange. While this strategy may aim to bring more market activity, it could also impact the Exchange's financial stability if not judiciously managed.

Another key concern is the differential treatment of two types of participants: Market Makers and Electronic Exchange Members (EEMs). The waivers are strongly biased in favor of Market Makers, who have specific trading obligations but not EEMs, raising potential equity and fairness issues. The document explains that Market Makers have distinct responsibilities which justify the fee waivers, but a more thorough rationale might be necessary to dispel any perception of favoritism.

Public Impact

For the general public and investors, these fee waivers could indirectly lead to more robust and liquid markets for certain specialized financial products, potentially yielding better pricing and trading opportunities. However, the technical nature and dense presentation might obscure easy understanding of these impacts for non-experts.

Stakeholder Impact

The effects of this proposal bifurcate along the lines of different market participants. For Market Makers, the fee waivers are decidedly positive, reducing operational costs and potentially making MIAX a more attractive venue for trading these unique Proprietary Products. Conversely, EEMs may feel sidelined by these changes, especially if they perceive a competitive disadvantage due to the unequal application of fee structures.

Additionally, the ongoing extensions of fee waivers could encourage existing Market Makers to prioritize trading in Proprietary Products, possibly boosting liquidity while inhibiting the Exchange’s ability to incentivize through standard fee mechanisms post-March 2021.

Conclusion

In conclusion, while MIAX's proposal could enhance market participation and liquidity for Proprietary Products, it carries potential financial and equity concerns tied to prolonged fee waivers and participant treatment. Stakeholders might benefit or feel disadvantaged depending on their roles, and the Exchange needs to carefully balance these dynamics to foster a fair and efficient marketplace. The SEC's solicitation of comments represents a chance for public and industry players to voice concerns or support before final determinations are made.

The Federal Register document discusses several financial references related to the fee structure proposed by the Miami International Securities Exchange LLC (MIAX), specifically focusing on extending waivers for various fees applicable to Market Makers. Here is a breakdown of the financial aspects mentioned and their relation to the issues raised.

Financial References and Summaries

The document outlines a proposal to extend waivers on certain fees that Market Makers face when trading solely in Proprietary Products until March 31, 2021. These fees include:

• Membership Application Fee: Market Makers are assessed a one-time fee of $3,000 for their application. The waiver extension until March 31, 2021, means this fee is temporarily not collected, which is intended to encourage more applications from potential Market Makers.

• API Testing and Certification Fee: A fee of $2,500 is required from Market Makers for testing and certifying their software systems with the exchange's software. This fee is also waived until March 31, 2021, aimed at incentivizing the development of trading software for Proprietary Products.

The repetitive extensions of these waivers, as highlighted in the issues section, suggest a strategy by MIAX to forego immediate revenue from these fees in favor of possibly larger long-term gains through increased liquidity and market participation. This strategy might, however, be perceived as a potential revenue loss in the short term.

Relation to Identified Issues

One issue identified is the potential for loss of revenue due to these consistent fee waivers. By not collecting the otherwise mandated fees, MIAX may be sacrificing immediate financial intake. However, this temporary revenue loss could be justified if it leads to increased long-term participation and income from transaction fees as Market Makers engage more with Proprietary Products.

The document also raises concerns about fairness between Market Makers and Electronic Exchange Members (EEMs). Waivers seem to favor Market Makers, offering no similar concessions to EEMs. The decision not to extend similar waivers to EEMs could cause disputes regarding equity unless MIAX provides a solid rationale for its selective approach. This situation could be perceived as discriminatory unless further justification is provided, detailing why Market Makers receive these financial incentives exclusively.

The text's technical nature, filled with industry-specific terminology, could affect its accessibility to a broader audience. Simplifying the language or providing explanations for technical terms could improve comprehension for those less familiar with securities exchange operations.

Transparency and Rationale

The document's rationale behind fee waivers is not extensively detailed, which could hint at a lack of transparency. For stakeholders and potential Market Makers, understanding the reasons behind the incentives is crucial. Clear communication about why MIAX offers these waivers and the expected benefits would mitigate concerns about fairness and strategic intent.

In conclusion, while the waivers may foster greater market activity and long-term benefits, this approach should be accompanied by detailed explanations to maintain transparency, fairness, and confidence among the broader participant community.