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Self-Regulatory Organizations: Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Implement an Equity Rights Program

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 implement an equity rights program (“Program”) pursuant to which units representing the right to acquire equity in the Exchange’s parent holding company, Miami International Holdings, Inc. (“MIH”) would be issued to a participating Member in exchange for payment of an initial purchase price or the prepayment of certain transaction fees and the achievement of certain liquidity volume thresholds on the Exchange over a 29-month period. The purpose of the Program is to promote the long-term interests of MIAX by providing incentives designed to encourage future MIH owners and MIAX market participants to contribute to the growth and success of MIAX, by being active liquidity providers and takers to provide enhanced levels of trading volume to MIAX’s market, through an opportunity to increase their proprietary interests in MIAX’s enterprise value.
Members that participate in the Program will have two options to choose from: (i) an offering of C-Units; and/or (ii) an offering of D-Units.
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C-Units Option
Members that participate in the C-Unit option of the Program will be issued for each unit (i) 52,021 shares of MIH common stock and (ii) warrants to purchase 1,752,670 shares of common stock of MIH in exchange for such participant Member’s initial cash capital contribution of $312,125, and with such warrants being exercisable upon the achievement by the participating Member of certain volume thresholds on the Exchange during a 29-month measurement period commencing February 1, 2015. A total of 20 C-Units will be offered. The total equity ownership of MIH common stock held by any one participant Member will be subject to a cap of 19.9%.
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The warrants will vest in six (6) tranches: (i) One (1) tranche, upon initial investment; and (ii) five (5) tranches during a measurement period of months 1—29 of the Program. In addition, the participant Members may earn or lose the right to exercise warrants on a pro-rata basis based upon meeting volume commitments during the measurement periods, as detailed below.

Upon the initial investment, the participant Member would receive common shares equal to 52,021 shares of the common stock and 10% of the warrants will vest. A participant Member will be eligible to earn [sic] the remaining warrants during measurement periods provided that the participant has achieved a specified percentage of the total national average daily volume of options contracts reported to The Options Clearing Corporation (“OCC”) (“OCC ADV”) on MIAX of all option classes listed on MIAX.
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The remaining five (5) tranches, of 90% of the warrants, will vest during the following measurement periods: (i) 3.76% of the warrants resulting from months 1-5, with a volume commitment of 0.084% of OCC ADV on MIAX per C-Unit;
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(ii) 16.82% of the warrants resulting from months 6-11, with a volume commitment of 0.313% of OCC ADV on MIAX per C-Unit; (iii) 20.15% of the warrants resulting from months 12-17, with a volume commitment of 0.375% of OCC ADV on MIAX per C-Unit; (iv) 22.41% of the warrants resulting from months 18-23, with a volume commitment of 0.417% of OCC ADV on MIAX per C-Unit; and (v) 26.86% of the warrants resulting from months 24-29, with a volume commitment of 0.5% of OCC ADV on MIAX per C-Unit. If a participant Member exceeds 100% of the volume commitment during a tranche’s measurement period, the Member is able to earn, on a pro-rata basis, warrants not earned by other participant Members. If a participant Member reaches 70-99% of the volume commitment during a tranche’s measurement period, the Member will earn [sic] a reduced amount of warrants on a pro-rata basis applicable to such measurement period. If a participant Member fails to reach a minimum of 70% of the volume commitment during a tranche’s measurement period, the Member will lose all right to that tranche of warrants. Notwithstanding, in the event a participant Member has not satisfied the volume commitment for any one measurement period (other than measurement period 5), the participant Member will have an opportunity to vest those warrants if such participant Member applies a portion of the Members performance from up to two measurement periods immediately following to the prior measurement period to ensure a minimum of 70% of the volume commitment in prior period and in addition has satisfied the volume commitment for the measurement periods immediately following.
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D-Units Option
Members that participate in the D-Unit option of the Program will be issued for each unit warrants to purchase 1,353,518 shares of common stock of MIH in exchange for the prepayment of Exchange fees in the amount of $250,000 for the 29-month period commencing February 1, 2015, and with such warrants being exercisable upon the achievement by the participating Member of certain volume thresholds on the Exchange during a 29-month measurement period commencing February 1, 2015. A total of 20 D-Units will be offered. The total equity ownership of MIH common stock held by any one participant Member will be subject to a cap of 19.9%.
The warrants will vest in five (5) tranches during the following measurement periods: (i) 4.18% of the warrants resulting from months 1-5, with a volume commitment of 0.084% of OCC ADV on MIAX per D-Unit;
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(ii) 18.69% of the warrants resulting from months 6-11, with a volume commitment of 0.313% of OCC ADV on MIAX per D-Unit; (iii) 22.39% of the warrants resulting from months 12-17, with a volume commitment of 0.375% of OCC ADV on MIAX per D-Unit; (iv) 24.90% of the warrants resulting from months 18-23, with a volume commitment of 0.417% of OCC ADV on MIAX per D-Unit; and (v) 29.84% of the warrants resulting from months 24-29, with a volume commitment of 0.5% of OCC ADV on MIAX per D-Unit. If a participant Member exceeds 100% of the volume commitment during any one tranche’s measurement period, the Member is able to earn, on a pro-rata basis, warrants not earned by other participant Members. If a participant Member reaches 70-99% of the volume commitment during any one tranche’s measurement period, the Member will earn [sic] a reduced amount of warrants on a pro-rata basis applicable to such measurement period. If a participant Member fails to reach a minimum of 70% of the volume commitment during the measurement period, the Member will lose all right to that tranche of warrants. Notwithstanding, in the event a participant Member has not satisfied the volume commitment for any one measurement period (other than measurement period 5), the participant Member will have an opportunity to vest those warrants if such participant Member applies a portion of the Member’s performance from up to two measurement periods immediately following to the prior measurement period to ensure a minimum of 70% of the volume commitment in prior period and in addition has satisfied the volume commitment for the measurement periods immediately following.
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Once a participant Member has prepaid Exchange fees for the initial 29-month period, each month the participant Member may execute contracts and accumulate transaction fees based on the prevailing MIAX Options Fee Schedule in effect at the time. Once a D-Unit participant Member has executed contract volume whereby the total accumulated transaction fees equal the prepaid amount, all subsequently executed contracts will be billed and collected at the appropriate rate as defined in the MIAX Options Fee Schedule.
Provisions Applicable to Both C-Units and D-Units

Each participant Member will have a standard piggyback registration right to include the common shares and the common shares issuable upon exercise of the warrants should MIH file a Registration Statement under the Securities Act of 1933. Each participant Member will also have the right to participate pro rata in all future offerings of MIH securities for so long as the participant Member holds at least 51% of the common shares purchased by the participating Member directly or issuable upon the exercise of warrants included in at least one D-Unit. MIH will have the right of first refusal to purchase any common shares or warrant shares that a participant Member decides to transfer or sell. Other participant Members will have the secondary right of first refusal to purchase any common shares or warrant shares that a participant Member decides to transfer or sell.
In addition, beginning one (1) year after the last month of the final measurement period, for a period of 90 days, the participant Member will have a right to sell the shares back to MIH at a price per share equal to a fixed percentage of fair market value
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of the common stock. The right to sell the shares back will reoccur on an annual basis and last for a 90-day period. Years 1 and 2 after the final measurement period, the participant Member may sell back 10% of the common shares vested at a price equal to 50% of the fair market value. Year 3 after the final measurement period, the participant Member may sell back 30% of the common shares vested at a price equal to 60% of the fair market value. Year 4 after the final measurement period, the participant Member may sell back 60% of the common shares vested at a price equal to 70% of the fair market value. Year 5 after the final measurement period, the participant Member may sell back 90% of the common shares vested at a price equal to 80% of the fair market value. Year 6 after the final measurement period, the participant Member may sell back 100% of the common shares vested at a price equal to 90% of the fair market value.

When a participating Member acquires a certain number of units, the Member can appoint one director to the MIH Board and/or the MIAX Board. The Exchange notes that the number of non-industry directors on the MIAX Board, including at least one independent director, must equal or exceed the number of industry directors and Member representatives, and that additional new non-industry directors and Member representative directors will need to be added in order to maintain this status. The Exchange also notes that any directors that may be selected by a participating Member would not be counted towards the 20% Member representative requirement on the MIAX Board. In addition, the Exchange notes that a Member is only entitled to a new seat if they are not currently represented on the MIAX board.
All applicants will be subject to the same eligibility and designation criteria, and all participant Members will participate in the Program on the same terms, conditions and restrictions. To be designated as a participant Member, an applicant must: (i) Be a Member in good standing of MIAX; (ii) qualify as an “accredited investor” as such term is defined in Regulation D of the Securities Act of 1933;
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and (iii) have executed all required documentation for Program participation. Participant Members must have executed the definitive documentation, satisfied the eligibility criteria required of Program participants enumerated above, and tendered the minimum cash investment or prepayment of fees by January 27, 2015, with a closing to occur on January 30, 2015.

As discussed above, the purpose of the Program is to encourage Members to direct greater trade volume to MIAX to enhance trading volume in MIAX’s market. Increased volume will provide for greater liquidity and enhanced price discovery, which benefits all market participants. Other exchanges currently engage in the practice of incentivizing increased order flow in order to attract liquidity providers through equity sharing arrangements.
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In addition, the Exchange previously adopted a substantially similar program to incentivize increased order flow in order to attract liquidity providers through an equity sharing arrangement.
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The Program similarly intends to attract order flow, which will increase liquidity, thereby providing greater trading opportunities and tighter spreads for other market participants and causing a corresponding increase in order flow from these other market participants. The Program will similarly reward the liquidity providers that provide this additional volume with a potential proprietary interest in MIAX.

The specific volume thresholds of the Program’s measurement periods were set based upon business determinations and analysis of current volume levels. The volume thresholds are intended to incentivize firms to increase the number of orders that are sent to MIAX to achieve the next threshold. Increasing the number of orders that are sent to MIAX will in turn provide tighter and more liquid markets, and therefore attract more business as well.
MIAX will initiate the measurement period on February 1, 2015. The Exchange will notify Members of the implementation of the Program and the dates of the enrollment period by Regulatory Circular, and will post a copy of this rule filing on its Web site. Any MIAX Member that is interested in participating in the Program may contact MIAX for more information and legal documentation and will be required to enter into a nondisclosure agreement regarding this additional Program information.
2. Statutory Basis
The Exchange believes that its proposed rule change is consistent with Section 6(b) of the Act
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in general, and furthers the objectives of Section 6(b)(5) of the Act
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in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, to protect investors and the public interest. Additionally, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) of the Act
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requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The Exchange also believes the proposed rule change is consistent with Section 6(b)(4) of the Act,
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which requires that Exchange rules provide for the equitable allocation of reasonable dues, fees, and other charges among its members and other persons using its facilities.

In particular, the proposed rule change is equitable and not unfairly discriminatory, because all Members may elect to participate (or elect to not participate) in the Program and earn units on the same terms and conditions, assuming they satisfy the same eligibility criteria as described above. The eligibility criteria are objective; thus, all Members have the ability to satisfy them. The Board also has authorized MIAX to offer common shares in MIH to any Member that requests designation to participate in the Program and otherwise satisfies the eligibility criteria to ensure that all Members will have the opportunity to own common shares and thus participate in the Program if they so choose. In addition, participant Members will earn [sic] warrants on a pro-rata basis upon meeting fixed volume threshold amounts during the measurement periods that will apply to all participant Members.
The Exchange believes that the methodology used to calculate the volume thresholds is fair, reasonable and not unfairly discriminatory because it is based on objective criteria that are designed to omit from the calculation functionality that is not available on the Exchange and types of transactions that are subject to little or no transaction fees. Specifically, the Exchange believes excluding Priority Customer-to-Priority Customer Crossing transactions where no fees are paid to the Exchange, special strategies, and contracts as to which a Member acts solely as clearing agent from the number of option contracts executed on the Exchange by any Member is reasonable and not unfairly discriminatory because participating Members could otherwise game the volume thresholds by executing excess volumes in these types of transactions in which either no transaction fees are charged on the Exchange, or the transaction is subject to a fee cap. The Program is designed to reward participating Members for bringing their orders and quotes to the Exchange to be executed on the Exchange. The Exchange believes it is appropriate to exclude special strategies from the OCC volume calculation since those transactions are not executed on the Exchange. The Exchange believes that omitting clearing only transactions from the calculation to be fair and reasonable because the fact that a Member is clearing a trade is coincidental to the choice of where to execute that trade. And, because clearing only transactions are not executed on the MIAX, they don’t fall within the intended transactions that qualify for the Program. In addition, if the Exchange were to reward the party clearing a trade, the Exchange would possibly be double counting that trade—once for the executing party and once for the clearing party. Furthermore, the Exchange believes that counting incidental Priority Customer-to-Priority Customer transactions, which are not crossing transactions, in the number of options contracts executed on the Exchange by a Member is fair and reasonable because in these situations the Priority Customer is not necessarily choosing to execute against another Priority Customer in order to avoid a transaction fee.
The Exchange believes the Program is equitable and reasonable because an increase in volume and liquidity would benefit all market participants by providing more trading opportunities and tighter spreads, even to those market participants that do not participate in the Program. Additionally, the Exchange believes the proposed rule change is consistent with the Act because, as described above, the Program is designed to bring greater volume and liquidity to the Exchange, which will benefit all market participants by providing tighter quoting and better prices, all of which perfects the mechanism for a free and open market and national market system.
B. Self-Regulatory Organization’s Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that the proposed rule change will improve competition by providing market participants with another option when determining where to execute orders and post liquidity.
The Exchange believes that the proposed change would increase both intermarket and intramarket competition by incenting participant Members to direct their orders to the Exchange, which will enhance the quality of quoting and increase the volume of contracts traded here. To the extent that there is an additional competitive burden on non-participant Members, the Exchange believes that this is appropriate because the Program should incent Members to direct additional order flow to the Exchange and thus provide additional liquidity that enhances the quality of its markets and increases the volume of contracts traded here. To the extent that this purpose is achieved, all of the Exchange’s market participants should benefit from the improved market liquidity. Enhanced market quality and increased transaction volume that results from the anticipated increase in order flow directed to the Exchange will benefit all market participants and improve competition on the Exchange.
Given the robust competition for volume among options markets, many of which offer the same products, implementing a program to attract order flow like the one being proposed in this filing is consistent with the above-mentioned goals of the Act. This is especially true for the smaller options markets, such as MIAX, which is competing for volume with much larger exchanges that dominate the options trading industry. As a newer exchange, MIAX has a nominal percentage of the average daily trading volume in options, so it is unlikely that the Program could cause any competitive harm to the options market or to market participants. Rather, the Program is a modest attempt by a small options market to attract order volume away from larger competitors by adopting an innovative pricing strategy, as evidenced by the volume thresholds of the Program that represent fractions of 1% of OCC ADV. The Exchange notes that if the Program resulted in a modest percentage increase in the average daily trading volume in options executing on MIAX, while such percentage would represent a large volume increase for MIAX, it would represent a minimal reduction in volume of its larger competitors in the industry. The Exchange believes that the Program will help further competition, because market participants will have yet another additional option in determining where to execute orders and post liquidity if they factor the benefits of MIAX equity participation into the determination.
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.


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