Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To List and Trade Option Contracts Overlying 10 Shares of Certain Securities, 17259-17262 [2013-06393]

Download as PDF Federal Register / Vol. 78, No. 54 / Wednesday, March 20, 2013 / Notices to the vigorous competition for order flow among the options exchanges, the proposal addresses a regulatory situation common to all options exchanges. To the extent that market participants disagree with the particular approach taken by the Exchange herein, market participants can easily and readily direct order flow to competing venues. The Exchange believes this proposal will not impose a burden on competition and will help provide certainty during periods of extraordinary volatility in an NMS stock. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission shall: (a) By order approve or disapprove such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be disapproved. comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–BX– 2013–026 and should be submitted on or before April 4, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–06396 Filed 3–19–13; 8:45 am] Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–BX–2013–026 on the subject line. srobinson on DSK4SPTVN1PROD with NOTICES IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To List and Trade Option Contracts Overlying 10 Shares of Certain Securities Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–BX–2013–026. This file number should be included on the subject line if email is used. To help the Commission process and review your 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 March 4, 2013, Miami International Securities Exchange LLC (‘‘MIAX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the VerDate Mar<14>2013 18:04 Mar 19, 2013 Jkt 229001 BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69136; File No. SR–MIAX– 2013–06] March 14, 2013. 22 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 17259 proposed rule change as described in Items I and II 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 Exchange Rule 404 to list and trade option contracts overlying 10 shares of a security (‘‘mini-option contracts’’). The text of the proposed rule change is provided in Exhibit 5. The text of the proposed rule change is also available on the Exchange’s Web site at https:// www.miaxoptions.com/filter/wotitle/ rule_filing, at MIAX’s principal office, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to amend MIAX rules to enable the listing and trading of option contracts overlying 10 shares of a security (‘‘mini-option contracts’’). This is a competitive filing based on filings submitted by NYSE Arca, Inc. (‘‘NYSE Arca’’), International Securities Exchange, LLC (‘‘ISE’’), and Chicago Board of Options Exchange, Inc. (‘‘CBOE’’) which the Commission recently approved.3 3 See Securities Exchange Act Release No. 67948 (September 28, 2012), 77 FR 60735 (October 4, 2012) (Notice of Filing of Amendments No. 1 and Order Granting Accelerated Approval of Proposed Rule Changes as Modified by Amendments No. 1 to List and Trade Option Contracts Overlying 10 Shares of Certain Securities) (SR–NYSEArca–2012– 64 and SR–ISE–2012–58). See also Securities Exchange Act Release No. 68656 (January 15, 2013) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change to List and Trade Option Continued E:\FR\FM\20MRN1.SGM 20MRN1 17260 Federal Register / Vol. 78, No. 54 / Wednesday, March 20, 2013 / Notices srobinson on DSK4SPTVN1PROD with NOTICES Pursuant to MIAX Rule 404, the Exchange currently lists and trades standardized option contracts on a number of equities, and soon will add exchange-traded fund shares (‘‘ETFs’’), each with a unit of trading of 100 shares. The purpose of this proposed rule change is to expand investors’ choices by listing and trading option contracts on a select number of highpriced and actively traded securities, each with a unit of trading ten times lower than that of standard-sized option contracts, or 10 shares. Specifically, the Exchange proposes to list and trade mini-options overlying five (5) highpriced securities for which the standard contract overlying the same security has significant liquidity.4 The Exchange believes that mini-options will appeal to retail investors who may not currently be able to participate in the trading of options on such high priced securities. The Exchange believes that investors would benefit from the availability of mini-options contracts by making options overlying high priced securities more readily available as an investing tool and at more affordable and realistic prices, most notably for the average retail investor. For example, with AAPL trading at $638.17 on October 8, 2012, ($63,817 for 100 shares underlying a standard contract), the call option with a strike price of 640 expiring on October 19 was trading at $8.30. The cost of the standard contract overlying 100 shares would be $830, which is substantially higher in notional terms than the average equity option price of $255.02.5 Proportionately equivalent mini-options contracts on AAPL would provide investors with the ability to manage and hedge their portfolio risk on their underlying investment, at a price of $83.00 per contract. In addition, investors who hold a position in AAPL at less than the round lot size would still be able to avail themselves of options to manage their portfolio risk. For example, the holder of 50 shares of AAPL could write covered calls for five mini-options contracts. The table below demonstrates the proposed differences Contracts Overlying 10 Shares of Certain Securities) (SR–CBOE–2013–001) 78 FR 4526 (January 22, 2013). 4 The Exchange proposes to list Mini Options on SPDR S&P 500 (‘‘SPY’’), Apple, Inc. (‘‘AAPL’’), SPDR Gold Trust (‘‘GLD’’), Google Inc. (‘‘GOOG’’) and Amazon.com Inc. (‘‘AMZN’’). The Exchange notes that any expansion of the program would require that a subsequent proposed rule change be submitted to the Commission. 5 Year-to-date through September 28, 2012. A high priced underlying security may have relatively expensive options, because a low percentage move in the share price may mean a large movement in the options in terms of absolute dollars. VerDate Mar<14>2013 18:04 Mar 19, 2013 Jkt 229001 between a mini-options contract and a standard contract with a strike price of $125 per share and a bid or offer of $3.20 per share: Standard Share Deliverable Upon Exercise. Strike Price ........... Bid/offer ................ Premium Multiplier Total Value of Deliverable. Total Value of Contract. Mini 100 shares 10 shares. 125 .......... 3.20 ......... $100 ......... $12,500 .... 125. 3.20. $10. $1,250. $320 ........ $32. The Exchange believes that the proposal to list and trade mini-option contracts will not lead to investor confusion. There are two important distinctions between mini-options and standard options that are designed to ease the likelihood of any investor confusion. First, the premium multiplier for the proposed mini-options will be $10, rather than $100, to reflect the smaller unit of trading. To reflect this change, the Exchange proposes to add Rule 509(c) which notes that bids and offers for an option contract overlying 10 shares will be expressed in terms of dollars per 1⁄10th part of the total value of the contract. Thus, an offer of ‘‘.50’’ shall represent an offer $5.00 for an option contract having a unit of trading consisting of 10 shares. Additionally, the Exchange will designate mini-option contracts with different trading symbols than their related standard contract.6 The Exchange believes that the clarity of this approach is appropriate and transparent and the Exchange believes that the terms of mini-option contracts are consistent with the terms of the Options Disclosure Document. The Exchange recognizes the need to differentiate mini-option contracts from standard options and therefore is proposing the following changes to its rules. The Exchange proposes to add new Interpretation and Policy .08(a) to Rule 404 (Series of Option Contracts Open for Trading) to permit the listing of minioptions after an option class on a stock, ETF share, Trust Issued Receipt (TIR), and Equity Index-Linked Security with a 100 share deliverable has been approved for listing and trading on the Exchange. This new subparagraph also identifies the five specific securities on which the Exchange may list minioptions. The Exchange proposes to add new Interpretation and Policy .08(b) to Rule 6 The Options Clearing Corporation (‘‘OCC’’) symbology is structured for contracts with other than 100 shares to be designated with a numerical suffix to the standard trading symbol, e.g., AAPL8. PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 404 to reflect that strike prices for minioptions shall be set at the same level as for standard options. For example, a call series strike price to deliver 10 shares of stock at $125 per share has a total deliverable value of $1250, and the strike price will be set at 125. Further, pursuant to proposed new Interpretation and Policy .08(c) to Rule 404, the Exchange proposes to not permit the listing of additional series of minioptions if the underlying is trading at $90 or less to limit the number of strikes once the underlying is no longer a high priced security. The Exchange proposes a $90.01 minimum for continued qualification so that additional series of mini-options that correspond to standard strikes may be added even though the underlying has fallen slightly below the initial qualification standard. In addition, the underlying security must be trading above $90 for five consecutive days before the listing of mini-option contracts in a new expiration month. This restriction will allow the Exchange to list strikes in mini-options without disruption when a new expiration month is added even if the underlying has had a minor decline in price. The Exchange also proposes to add Interpretation and Policy .03 to Rule 307 (Position Limits) to reflect that, for purposes of compliance with the position limits set forth in Rule 307, ten mini-option contracts will equal one standard contract overlying 100 shares. The Exchange also proposes to add subparagraph (c) to Rule 509 (Meaning of Premium Bids and Offers) to extend the explanation of bids and offers with respect to mini-option contracts. Mini-options with non-standard expiration dates (e.g., weekly series, quarterly option series and LEAPs) will be permitted under this proposal and in accordance with relevant MIAX rules. MIAX may list mini-options on SPY, AAPL, GLD, GOOG and AMZN for all expirations applicable to 100-share options on the same underlying.7 The Exchange’s rules that apply to the trading of standard options would apply to mini-options and the Exchange’s market maker quoting obligations would apply to mini-options.8 Intermarket trade-through protection would apply to mini-options; however, price protection would not apply across standard and mini-options on an intramarket basis, as these are separate products.9 With regard to the impact of this proposal on system capacity, the Exchange has analyzed its capacity and 7 See 77 FR at 60737. MIAX Rule 604 and 77 FR at 60737 [sic]. 9 See 77 FR at 60736 and 60738. 8 See E:\FR\FM\20MRN1.SGM 20MRN1 Federal Register / Vol. 78, No. 54 / Wednesday, March 20, 2013 / Notices represents that it and the Options Price Reporting Authority have the necessary systems capacity to handle the potential additional traffic associated with the listing and trading of mini-option contracts. MIAX also understand that the OCC will be able to accommodate mini-option contracts. The Exchange notes that the current MIAX Fee Schedule will not apply to the trading of mini-option contracts. The Exchange will not commence trading of mini-option contracts until specific fees for mini-option contracts trading have been filed with the Commission. srobinson on DSK4SPTVN1PROD with NOTICES 2. Statutory Basis MIAX believes that its proposed rule change is consistent with Section 6(b) of the Act 10 in general, and furthers the objectives of Section 6(b)(5) of the Act 11 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, and it is not designed to permit unfair discrimination among customers, brokers, or dealers. Specifically, the Exchange believes that investors would benefit from the availability of mini-options contracts by, making options on high priced securities more readily available as an investing tool and at more affordable and realistic prices, most notably for the average retail investor. As described above, the proposal contains a number of features designed to protect investors by reducing investor confusion, such as the mini-option contracts being designated by different trading symbols from their related standard contracts. Moreover, the proposal is designed to protect investors and the public interest by providing investors with an enhanced tool to reduce risk in high priced securities. In particular, the proposed contracts will provide retail customers who invest in high priced issues in lots of less than 100 shares with a means of protecting their investments that is presently only available to those who have positions of 100 shares or more. Further, the proposal currently is limited to five high priced securities for which there is already significant options liquidity, 10 15 11 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). VerDate Mar<14>2013 18:04 Mar 19, 2013 Jkt 229001 and therefore significant customer demand and trading volume. 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. In this regard and as indicated above, the Exchange notes that the rule change is being proposed as a competitive response to recently approved NYSE Arca, ISE and CBOE filings. MIAX believes this proposed rule change is necessary to permit fair competition among the options exchanges. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments were neither solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change: (1) Does not significantly affect the protection of investors or the public interest; (2) does not impose any significant burden on competition; and (3) by its terms does not become operative for 30 days after the date of this filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 12 and Rule 19b–4(f)(6) thereunder.13 A proposed rule change filed under Rule 19b–4(f)(6) normally does not become operative for 30 days after the date of filing. However, Rule 19b– 4(f)(6)(iii) permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange requests that the Commission waive the 30-day operative delay so that it can list and trade the proposed minioptions contracts as soon as it is able.14 12 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires a self-regulatory organization to provide the Commission with written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has fulfilled this requirement. 14 The Commission notes that the Exchange’s current Fee Schedule will not apply to the trading of mini-option contracts, and the Exchange will not commence trading of mini-option contracts until specific fees for mini-option contracts trading have been filed with the Commission. 13 17 PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 17261 The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest.15 The Commission notes the proposal is substantively identical to proposals that were recently approved by the Commission, and does not raise any new regulatory issues.16 For these reasons, the Commission designates the proposed rule change as operative upon filing. 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. 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 rulecomments@sec.gov. Please include File Number SR–MIAX–2013–06 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–MIAX–2013–06. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml ).Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the 15 For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 16 See Securities Exchange Act Release No. 67948 (September 28, 2012), 77 FR 60735 (October 4, 2012) (SR–NYSEArca–2012–64 and SR–ISE–2012– 58). E:\FR\FM\20MRN1.SGM 20MRN1 17262 Federal Register / Vol. 78, No. 54 / Wednesday, March 20, 2013 / Notices proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–MIAX– 2013–06 and should be submitted on or before April 10, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–06393 Filed 3–19–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69141; File No. SR–Phlx– 2013–29] Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing of Proposed Rule Change To Address Obvious and Catastrophic Options Errors in Response to the Regulation NMS Plan To Address Extraordinary Market Volatility srobinson on DSK4SPTVN1PROD with NOTICES March 15, 2013. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on March 14, 2013, NASDAQ OMX PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 17 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 1 15 VerDate Mar<14>2013 18:04 Mar 19, 2013 Jkt 229001 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to adopt new Exchange Rule 1047(f)(v) to provide for how the Exchange proposes to treat obvious and catastrophic options errors in response to the Regulation NMS Plan to Address Extraordinary Market Volatility. The text of the proposed rule change is below; proposed new language is in italics. * * * * * Rule 1047. Trading Rotations, Halts and Suspensions (a)–(e) No change. (f) This paragraph shall be in effect during a pilot period to coincide with the pilot period for the Plan to Address Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS, as it may be amended from time to time (‘‘LULD Plan’’), except as specified in subparagraph (v) below. Capitalized terms used in this paragraph shall have the same meaning as provided for in the LULD Plan. During a Limit State and Straddle State in the Underlying NMS stock: (i)–(iv) No change. (v) For a one year period following the adoption of this subparagraph (v), electronic trades are not subject to an obvious error or catastrophic error review pursuant to Rule 1092(a)(i) or (ii) nor are they subject to nullification or adjustment pursuant to Rule 1092(c)(ii)(E) or (F). Nothing in this provision shall prevent electronic trades from review on Exchange motion pursuant to Rule 1092(e)(i)(B). (g) No change. * * * Commentary: .01–.03 No change. * * * * * 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. PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to adopt Exchange Rule 1047(f)(v) 4 to provide for how the Exchange will treat options obvious and catastrophic options errors in response to the Regulation NMS Plan to Address Extraordinary Market Volatility (the ‘‘Plan’’), which is applicable to all NMS stocks, as defined in Regulation NMS Rule 600(b)(47). The Exchange proposes to adopt new Rule 1047(f)(v) for a one year pilot period.5 Background Since May 6, 2010, when the markets experienced excessive volatility in an abbreviated time period, i.e., the ‘‘flash crash,’’ the equities exchanges and the Financial Industry Regulatory Authority (‘‘FINRA’’) have implemented marketwide measures designed to restore investor confidence by reducing the potential for excessive market volatility. Among the measures adopted include pilot plans for stock-by-stock trading pauses,6 related changes to the equities market clearly erroneous execution rules,7 and more stringent equities market maker quoting requirements.8 On May 31, 2012, the Commission approved the Plan, as amended, on a one-year pilot basis.9 In addition, the Commission approved changes to the equities market-wide circuit breaker 4 The provisions of Rule 1047(f)(i)–(iii) and (g) were filed and became effective on February 28, 2013, with a 30 day operative delay, on a pilot basis. See Securities Exchange Act Release No. 69118 (March 12, 2013) (SR–Phlx–2013–20). Rule 1047(f)(iv) was filed as SR–Phlx–2013–21. See Securities Exchange Act Release No. 69068 (March 7, 2013). 5 The Exchange will conduct its own analysis concerning the elimination of obvious and catastrophic error provisions during Limit States and Straddle States and agrees to provide the Commission with relevant data to assess the impact of this proposed rule change. As part of its analysis, the Exchange will evaluate: (1) The options market quality during Limit States and Straddle States; (2) assess the character of incoming order flow and transactions during Limit States and Straddle States; and (3) review any complaints from members and their customers concerning executions during Limit States and Straddle States. Additionally, the Exchange agrees to provide to the Commission data requested to evaluate the impact of the elimination of the obvious and catastrophic error provisions, including data relevant to assessing the various analyses noted above. 6 See e.g., Exchange Rule 3100. 7 See e.g., Exchange Rule 3312. 8 See e.g., NASDAQ Rule 4613. 9 See Securities Exchange Act Release No. 67091 (May 31, 2012), 77 FR 33498 (June 6, 2012) (File No. 4–631) (Order Approving the Plan on a Pilot Basis). E:\FR\FM\20MRN1.SGM 20MRN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 78, Number 54 (Wednesday, March 20, 2013)]
[Notices]
[Pages 17259-17262]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-06393]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69136; File No. SR-MIAX-2013-06]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To List and Trade Option Contracts Overlying 10 Shares of 
Certain Securities

March 14, 2013.
    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 March 4, 2013, Miami International Securities Exchange LLC (``MIAX'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II 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.
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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 Exchange Rule 404 to 
list and trade option contracts overlying 10 shares of a security 
(``mini-option contracts'').
    The text of the proposed rule change is provided in Exhibit 5. The 
text of the proposed rule change is also available on the Exchange's 
Web site at https://www.miaxoptions.com/filter/wotitle/rule_filing, at 
MIAX's principal office, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The purpose of the proposed rule change is to amend MIAX rules to 
enable the listing and trading of option contracts overlying 10 shares 
of a security (``mini-option contracts''). This is a competitive filing 
based on filings submitted by NYSE Arca, Inc. (``NYSE Arca''), 
International Securities Exchange, LLC (``ISE''), and Chicago Board of 
Options Exchange, Inc. (``CBOE'') which the Commission recently 
approved.\3\
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    \3\ See Securities Exchange Act Release No. 67948 (September 28, 
2012), 77 FR 60735 (October 4, 2012) (Notice of Filing of Amendments 
No. 1 and Order Granting Accelerated Approval of Proposed Rule 
Changes as Modified by Amendments No. 1 to List and Trade Option 
Contracts Overlying 10 Shares of Certain Securities) (SR-NYSEArca-
2012-64 and SR-ISE-2012-58). See also Securities Exchange Act 
Release No. 68656 (January 15, 2013) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change to List and Trade Option 
Contracts Overlying 10 Shares of Certain Securities) (SR-CBOE-2013-
001) 78 FR 4526 (January 22, 2013).

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[[Page 17260]]

    Pursuant to MIAX Rule 404, the Exchange currently lists and trades 
standardized option contracts on a number of equities, and soon will 
add exchange-traded fund shares (``ETFs''), each with a unit of trading 
of 100 shares. The purpose of this proposed rule change is to expand 
investors' choices by listing and trading option contracts on a select 
number of high-priced and actively traded securities, each with a unit 
of trading ten times lower than that of standard-sized option 
contracts, or 10 shares. Specifically, the Exchange proposes to list 
and trade mini-options overlying five (5) high-priced securities for 
which the standard contract overlying the same security has significant 
liquidity.\4\ The Exchange believes that mini-options will appeal to 
retail investors who may not currently be able to participate in the 
trading of options on such high priced securities. The Exchange 
believes that investors would benefit from the availability of mini-
options contracts by making options overlying high priced securities 
more readily available as an investing tool and at more affordable and 
realistic prices, most notably for the average retail investor.
---------------------------------------------------------------------------

    \4\ The Exchange proposes to list Mini Options on SPDR S&P 500 
(``SPY''), Apple, Inc. (``AAPL''), SPDR Gold Trust (``GLD''), Google 
Inc. (``GOOG'') and Amazon.com Inc. (``AMZN''). The Exchange notes 
that any expansion of the program would require that a subsequent 
proposed rule change be submitted to the Commission.
---------------------------------------------------------------------------

    For example, with AAPL trading at $638.17 on October 8, 2012, 
($63,817 for 100 shares underlying a standard contract), the call 
option with a strike price of 640 expiring on October 19 was trading at 
$8.30. The cost of the standard contract overlying 100 shares would be 
$830, which is substantially higher in notional terms than the average 
equity option price of $255.02.\5\ Proportionately equivalent mini-
options contracts on AAPL would provide investors with the ability to 
manage and hedge their portfolio risk on their underlying investment, 
at a price of $83.00 per contract. In addition, investors who hold a 
position in AAPL at less than the round lot size would still be able to 
avail themselves of options to manage their portfolio risk. For 
example, the holder of 50 shares of AAPL could write covered calls for 
five mini-options contracts. The table below demonstrates the proposed 
differences between a mini-options contract and a standard contract 
with a strike price of $125 per share and a bid or offer of $3.20 per 
share:
---------------------------------------------------------------------------

    \5\ Year-to-date through September 28, 2012. A high priced 
underlying security may have relatively expensive options, because a 
low percentage move in the share price may mean a large movement in 
the options in terms of absolute dollars.

------------------------------------------------------------------------
                                        Standard              Mini
------------------------------------------------------------------------
Share Deliverable Upon Exercise..  100 shares........  10 shares.
Strike Price.....................  125...............  125.
Bid/offer........................  3.20..............  3.20.
Premium Multiplier...............  $100..............  $10.
Total Value of Deliverable.......  $12,500...........  $1,250.
Total Value of Contract..........  $320..............  $32.
------------------------------------------------------------------------

    The Exchange believes that the proposal to list and trade mini-
option contracts will not lead to investor confusion. There are two 
important distinctions between mini-options and standard options that 
are designed to ease the likelihood of any investor confusion. First, 
the premium multiplier for the proposed mini-options will be $10, 
rather than $100, to reflect the smaller unit of trading. To reflect 
this change, the Exchange proposes to add Rule 509(c) which notes that 
bids and offers for an option contract overlying 10 shares will be 
expressed in terms of dollars per \1/10\th part of the total value of 
the contract. Thus, an offer of ``.50'' shall represent an offer $5.00 
for an option contract having a unit of trading consisting of 10 
shares. Additionally, the Exchange will designate mini-option contracts 
with different trading symbols than their related standard contract.\6\ 
The Exchange believes that the clarity of this approach is appropriate 
and transparent and the Exchange believes that the terms of mini-option 
contracts are consistent with the terms of the Options Disclosure 
Document. The Exchange recognizes the need to differentiate mini-option 
contracts from standard options and therefore is proposing the 
following changes to its rules.
---------------------------------------------------------------------------

    \6\ The Options Clearing Corporation (``OCC'') symbology is 
structured for contracts with other than 100 shares to be designated 
with a numerical suffix to the standard trading symbol, e.g., AAPL8.
---------------------------------------------------------------------------

    The Exchange proposes to add new Interpretation and Policy .08(a) 
to Rule 404 (Series of Option Contracts Open for Trading) to permit the 
listing of mini-options after an option class on a stock, ETF share, 
Trust Issued Receipt (TIR), and Equity Index-Linked Security with a 100 
share deliverable has been approved for listing and trading on the 
Exchange. This new subparagraph also identifies the five specific 
securities on which the Exchange may list mini-options.
    The Exchange proposes to add new Interpretation and Policy .08(b) 
to Rule 404 to reflect that strike prices for mini-options shall be set 
at the same level as for standard options. For example, a call series 
strike price to deliver 10 shares of stock at $125 per share has a 
total deliverable value of $1250, and the strike price will be set at 
125. Further, pursuant to proposed new Interpretation and Policy .08(c) 
to Rule 404, the Exchange proposes to not permit the listing of 
additional series of mini-options if the underlying is trading at $90 
or less to limit the number of strikes once the underlying is no longer 
a high priced security. The Exchange proposes a $90.01 minimum for 
continued qualification so that additional series of mini-options that 
correspond to standard strikes may be added even though the underlying 
has fallen slightly below the initial qualification standard. In 
addition, the underlying security must be trading above $90 for five 
consecutive days before the listing of mini-option contracts in a new 
expiration month. This restriction will allow the Exchange to list 
strikes in mini-options without disruption when a new expiration month 
is added even if the underlying has had a minor decline in price.
    The Exchange also proposes to add Interpretation and Policy .03 to 
Rule 307 (Position Limits) to reflect that, for purposes of compliance 
with the position limits set forth in Rule 307, ten mini-option 
contracts will equal one standard contract overlying 100 shares. The 
Exchange also proposes to add subparagraph (c) to Rule 509 (Meaning of 
Premium Bids and Offers) to extend the explanation of bids and offers 
with respect to mini-option contracts.
    Mini-options with non-standard expiration dates (e.g., weekly 
series, quarterly option series and LEAPs) will be permitted under this 
proposal and in accordance with relevant MIAX rules. MIAX may list 
mini-options on SPY, AAPL, GLD, GOOG and AMZN for all expirations 
applicable to 100-share options on the same underlying.\7\
---------------------------------------------------------------------------

    \7\ See 77 FR at 60737.
---------------------------------------------------------------------------

    The Exchange's rules that apply to the trading of standard options 
would apply to mini-options and the Exchange's market maker quoting 
obligations would apply to mini-options.\8\ Intermarket trade-through 
protection would apply to mini-options; however, price protection would 
not apply across standard and mini-options on an intramarket basis, as 
these are separate products.\9\
---------------------------------------------------------------------------

    \8\ See MIAX Rule 604 and 77 FR at 60737 [sic].
    \9\ See 77 FR at 60736 and 60738.
---------------------------------------------------------------------------

    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and

[[Page 17261]]

represents that it and the Options Price Reporting Authority have the 
necessary systems capacity to handle the potential additional traffic 
associated with the listing and trading of mini-option contracts. MIAX 
also understand that the OCC will be able to accommodate mini-option 
contracts.
    The Exchange notes that the current MIAX Fee Schedule will not 
apply to the trading of mini-option contracts. The Exchange will not 
commence trading of mini-option contracts until specific fees for mini-
option contracts trading have been filed with the Commission.
2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \10\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \11\ 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, and it is not designed to 
permit unfair discrimination among customers, brokers, or dealers. 
Specifically, the Exchange believes that investors would benefit from 
the availability of mini-options contracts by, making options on high 
priced securities more readily available as an investing tool and at 
more affordable and realistic prices, most notably for the average 
retail investor. As described above, the proposal contains a number of 
features designed to protect investors by reducing investor confusion, 
such as the mini-option contracts being designated by different trading 
symbols from their related standard contracts. Moreover, the proposal 
is designed to protect investors and the public interest by providing 
investors with an enhanced tool to reduce risk in high priced 
securities. In particular, the proposed contracts will provide retail 
customers who invest in high priced issues in lots of less than 100 
shares with a means of protecting their investments that is presently 
only available to those who have positions of 100 shares or more. 
Further, the proposal currently is limited to five high priced 
securities for which there is already significant options liquidity, 
and therefore significant customer demand and trading volume.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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. In this regard and as indicated 
above, the Exchange notes that the rule change is being proposed as a 
competitive response to recently approved NYSE Arca, ISE and CBOE 
filings. MIAX believes this proposed rule change is necessary to permit 
fair competition among the options exchanges.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments were neither solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(6) 
thereunder.\13\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its intent to file the proposed rule change, 
along with a brief description and text of the proposed rule change, 
at least five business days prior to the date of filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has fulfilled this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange requests that the Commission waive 
the 30-day operative delay so that it can list and trade the proposed 
mini-options contracts as soon as it is able.\14\ The Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest.\15\ The Commission 
notes the proposal is substantively identical to proposals that were 
recently approved by the Commission, and does not raise any new 
regulatory issues.\16\ For these reasons, the Commission designates the 
proposed rule change as operative upon filing.
---------------------------------------------------------------------------

    \14\ The Commission notes that the Exchange's current Fee 
Schedule will not apply to the trading of mini-option contracts, and 
the Exchange will not commence trading of mini-option contracts 
until specific fees for mini-option contracts trading have been 
filed with the Commission.
    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \16\ See Securities Exchange Act Release No. 67948 (September 
28, 2012), 77 FR 60735 (October 4, 2012) (SR-NYSEArca-2012-64 and 
SR-ISE-2012-58).
---------------------------------------------------------------------------

    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.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-MIAX-2013-06 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.
All submissions should refer to File Number SR-MIAX-2013-06. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml 
).Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the

[[Page 17262]]

proposed rule change between the Commission and any person, other than 
those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-MIAX-2013-06 and should be 
submitted on or before April 10, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Kevin M. O'Neill,
Deputy Secretary.
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. 2013-06393 Filed 3-19-13; 8:45 am]
BILLING CODE 8011-01-P

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