Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend MIAX Options Rule 404, Series of Option Contracts Open for Trading, 34998-35001 [2017-15771]
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34998
Federal Register / Vol. 82, No. 143 / Thursday, July 27, 2017 / Notices
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are calculated for the on-the-run
instrument in each index family.6
Once Variability Levels are
calculated, ICC proposed to convert
Variability Levels into Variability
Bands, which correspond to a range of
Variability Levels. Once Variability
Levels and Variability Bands have been
determined, ICC proposed to create
market groups and assign each index
instrument to one of these market
groups. For example, the CDX.NA.IG
and CDX.NA.HY would be assigned to
the North American group. After
assigning each index instrument to a
market group, ICC would use the largest
Variability Band of any instrument
within a market group as the Variability
Band for that market group as a whole.
ICC refers to this Variability Band as the
‘‘Market-Proxy Variability Band.’’ 7 The
proposed automated BOW algorithm
would then adjust the EOD BOW
(Regime 1, 2, or 3) for the market group
as a whole by one regime (moving from
Regime 1 to Regime 2, or from Regime
2 to Regime 3) or two regimes (from
Regime 1 to Regime 3), with higher
Market-Proxy Variability Bands
resulting in a two-regime adjustment,
and smaller Market-Proxy Variability
Bands resulting in a one-regime
adjustment, or no adjustment.8
For single-name instruments, ICC
proposes to introduce a new scaling
factor that would be applied, along with
other scaling factors used in the current
process, to the EOD BOW, as calculated
based on BOW data received from
participants. The Variability Scaling
Factor for single-name instruments
would depend on the Market-Proxy
Variability Band for the market to which
each single-name instrument is
assigned. A higher Market-Proxy
Variability Band will result in a larger
scaling factor being applied.9
In addition to proposing to automate
the process for increasing selected
BOWs, ICC also proposed to remove a
footnote from its Pricing Policy that set
forth details of an intraday filtering
algorithm that was planned but never
implemented. Also, ICC proposed to
correct inaccurate references in the
Pricing Policy.10
III. Discussion and Commission
Findings
Section 19(b)(2)(C) of the Act directs
the Commission to approve a propose
rule change of a self-regulatory
organization if it finds that such
6 Id.
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to such organization.11
Section 17A(b)(3)(F) of the Act requires,
among other things, that the rules of a
registered clearing agency be designed
to promote the prompt and accurate
clearance and settlement of securities
transactions and, to the extent
applicable, derivative agreements,
contracts, and transactions.12 Rule
17Ad–22(d)(4) requires, in relevant part,
that a registered clearing agency shall
establish, implement, maintain, and
enforce written policies and procedures
reasonably designed to identify sources
of operational risk and minimize them
through the development of appropriate
systems, controls, and procedures; and
implement systems that are reliable,
resilient and secure, and have adequate,
scalable capacity.13
The Commission finds that the
proposed rule change, which modifies
ICC’s Pricing Policy to implement an
automated process for widening the
EOD BOW for index and single-name
instruments is consistent with Section
17A of the Act and Rule 17Ad–22
thereunder. By automating the process
for widening the EOD BOWs when
necessary, the Commission believes that
ICC will likely reduce the risk of error
or delay in the end-of-day pricing
process in connection with a potentially
significant number of adjustments to
BOWs that would need to be made
manually and in a short period of time
absent the proposed changes. Since the
end-of-day BOW is an input in ICC’s
end-of-day price discovery process, the
Commission believes that the proposed
rule changes will likely enhance the
speed and accuracy of that process,
thereby promoting the prompt clearance
and settlement of derivative agreements,
contracts and transactions, consistent
with Section 17A(b)(3)(F) of the Act.
For similar reasons, the Commission
finds that the proposed rule changes are
also consistent with Rule 17Ad–22(d)(4)
in that they are designed to reduce
operational risk. Specifically, the
proposed rule changes are intended to
reduce ICC’s operational risk in the endof-day pricing process by establishing
an automated process that will more
quickly implement the widening of
BOWs, if appropriate, based on a set of
well-defined criteria. As a result, the
risk of error that accompanies manual
observation of market conditions and
manual input of a potentially significant
amount of adjustments in a small period
7 Id.
8 Id.
11 15
9 Id.
12 15
10 Id.
U.S.C. 78s(b)(2)(C).
U.S.C. 78q–1(b)(3)(F).
13 17 CFR 240.17Ad–22(d)(4).
at 27540–41.
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of time during volatile market
conditions is significantly reduced.
Therefore, the Commission finds that
the proposed rule changes are consistent
with the requirements of Rule 17Ad–
22(d)(4) that the registered clearing
agencies establish, implement,
maintain, and enforce written policies
and procedures reasonably designed to
identify sources of operational risk and
minimize them through the
development of appropriate systems,
controls, and procedures; and
implement systems that are reliable,
resilient and secure, and have adequate,
scalable capacity.
IV. Conclusion
It is therefore ordered pursuant to
Section 19(b)(2) of the Act that the
proposed rule change (SR–ICC–2017–
006) be, and hereby is, approved.14
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.15
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–15774 Filed 7–26–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81183; File No. SR–MIAX–
2017–33]
Self-Regulatory Organizations; Miami
International Securities Exchange LLC;
Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend MIAX Options Rule
404, Series of Option Contracts Open
for Trading
July 21, 2017.
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 July 18, 2017, Miami International
Securities Exchange, LLC (‘‘MIAX
Options’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I 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.
14 In approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
15 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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Federal Register / Vol. 82, No. 143 / Thursday, July 27, 2017 / Notices
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend Rule 404, Series of Option
Contracts Open for Trading,
Interpretations and Policies .10, to
include the iShares S&P 500 Index ETF
(‘‘IVV’’) in the list of Exchange-Traded
Funds (‘‘ETFs’’) that are eligible for $1
strike price intervals.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://www.miaxoptions.com/rulefilings, 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 the
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The Exchange proposes to amend
Exchange Rule 404, Series of Option
Contracts Open for Trading, to modify
the strike setting regime for IVV options
by including IVV in the list of ETFs that
are eligible for $1 strike price intervals
under Interpretations and Policies .10.
The Exchange notes that this is a
competitive filing based on an
immediately effective filing recently
submitted by the Chicago Board Options
Exchange, Incorporated (‘‘CBOE’’).3
Specifically, the Exchange proposes to
modify the interval setting regime for
IVV options to allow $1 strike price
intervals above $200. The Exchange
believes that the proposed rule change
would make IVV options easier for
investors and traders to use and more
tailored to their investment needs.
Additionally, the interval setting regime
the Exchange proposes to apply to IVV
options is currently applied to options
on units of the Standard & Poor’s
Depository Receipts Trust (‘‘SPY’’),4
which is an ETF that is identical in all
material respects to the IVV ETF.
The SPY and IVV ETFs are identical
in all material respects. The SPY and
IVV ETFs are designed to roughly track
the performance of the S&P 500 Index
with the price of SPY and IVV designed
to roughly approximate 1/10th of the
price of the S&P 500 Index.
Accordingly, SPY and IVV strike prices
having a multiplier of $100 reflect a
value roughly equal to 1/10th of the
value of the S&P 500 Index. For
example, if the S&P 500 Index is at
1972.56, SPY and IVV options might
have a value of approximately 197.26
with a notional value of $19,726. In
general, SPY and IVV options provide
retail investors and traders with the
benefit of trading the broad market in a
manageably sized contract. As options
with an ETF underlying, SPY and IVV
options are listed in the same manner as
equity options under the Rules.
However, under current Interpretation
and Policies .05 to Rule 404, the interval
between strike prices in series of
options on Index-Linked Securities,5 as
defined in Rule 402(k)(1), will be $1 or
greater where the strike price is $200 or
less and $5 or greater where the strike
price is greater than $200. In addition,
under Exchange Rule 404, Interpretation
and Policies .02(e),
Strike Price Interval. The strike price
interval for Short Term Option series may be
$0.50 or greater for option classes that trade
in $1 strike price intervals and are in the
Short Term Option Series Program. If the
class does not trade in $1 strike price
intervals, the strike price interval for Short
Term Option series may be $0.50 or greater
where the strike price is less than $100 and
$1.00 or greater where the strike price is
between $100 and $150, and $2.50 or greater
for strike prices greater than $150. A nonShort Term Option Series that is included in
a class that has been selected to participate
in the Short Term Option Series Program is
referred to as a ‘‘Related non-Short Term
Option.’’ Notwithstanding any other
provision regarding strike prices in this rule,
Related non-Short Term Option series shall
be opened during the month prior to
expiration in the same manner as permitted
in Rule 404, Interpretations and Policies .02
and in the same strike price intervals for the
Short Term Option Series permitted in this
Rule 404, Interpretations and Policies .02(e).
The Exchange’s proposal seeks to
narrow the strike price intervals to $1
for IVV options above $200, in effect
matching the strike setting regime for
strike intervals in IVV options below
4 See
3 See
Securities Exchange Act Release No. 80913
(June 13, 2017), 82 FR 27907 (June 19, 2017) (SR–
CBOE–2017–048).
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Exchange Rule 404.10.
Exchange notes that IVV is treated as an
Index-Linked Security under current Exchange
rules.
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5 The
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34999
$200 and matching the strike setting
regime applied to SPY options.
Currently, the S&P 500 Index is above
2000. The S&P 500 Index is widely
regarded as the best single gauge of large
cap U.S. equities and is widely quoted
as an indicator of stock prices and
investor confidence in the securities
market. As a result, individual investors
often use S&P 500 Index-related
products to diversify their portfolios
and benefit from market trends.
Accordingly, the Exchange believes that
offering a wider range of S&P 500 Indexbased option strikes affords traders and
investors important hedging and trading
opportunities. The Exchange believes
that not having the proposed $1 strike
price intervals above $200 in IVV
significantly constricts investors’
hedging and trading possibilities.
The Exchange proposes to amend
Interpretations and Policies .10 to Rule
404 to allow IVV options to trade in $1
increments above a strike price of $200.
Specifically, the Exchange proposes to
amend Interpretations and Policies .10
to state that, ‘‘[n]otwithstanding any
other provision regarding the interval of
strike prices of series of options on
Exchange-Traded Fund Shares in this
rule, the interval of strike prices on
SPDR S&P 500 ETF (‘‘SPY’’), iShares
S&P 500 Index ETF (‘‘IVV’’), and the
SPDR Dow Jones Industrial Average ETF
(‘‘DIA’’) options will be $1 or greater.’’
The Exchange believes that by having
smaller strike intervals in IVV, investors
would have more efficient hedging and
trading opportunities due to the lower
$1 interval ascension. The proposed $1
intervals, particularly above the $200
strike price, will result in having at-themoney series based upon the underlying
moving less than 1%. The Exchange
believes that the proposed strike setting
regime is in line with the slower
movements of broad-based indices.
Furthermore, the proposed $1 intervals
would allow option trading strategies
(such as, for example, risk reduction/
hedging strategies using IVV weekly
options), to remain viable. Considering
the fact that $1 intervals already exist
below the $200 price point and that IVV
is above the $200 level, the Exchange
believes that continuing to maintain the
artificial $200 level (above which
intervals increase 500% to $5), would
have a negative effect on investing,
trading and hedging opportunities, and
volume. The Exchange believes that the
investing, trading, and hedging
opportunities available with IVV
options far outweighs any potential
negative impact of allowing IVV options
to trade in more finely tailored intervals
above the $200 price point.
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Federal Register / Vol. 82, No. 143 / Thursday, July 27, 2017 / Notices
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The proposed strike setting regime
would permit strikes to be set to more
closely reflect values in the underlying
S&P 500 Index and allow investors and
traders to roll open positions from a
lower strike to a higher strike in
conjunction with the price movement of
the underlying. Under the current rule,
where the next higher available series
would be $5 away above a $200 strike
price, the ability to roll such positions
is effectively negated. Accordingly, to
move a position from a $200 strike to a
$205 strike under the current rule, an
investor would need for the underlying
product to move 2.5%, and would not
be able to execute a roll up until such
a large movement occurred. With the
proposed rule change, however, the
investor would be in a significantly
safer position of being able to roll his
open options position from a $200 to a
$201 strike price, which is only a 0.5%
move for the underlying. The proposed
rule change will allow the Exchange to
better respond to customer demand for
IVV strike prices more precisely aligned
with current S&P 500 Index values. The
Exchange believes that the proposed
rule change, like the other strike price
programs currently offered by the
Exchange, will benefit investors by
providing investors the flexibility to
more closely tailor their investment and
hedging decisions using IVV options.
By allowing series of IVV options to
be listed in $1 intervals between strike
prices over $200, the proposal will
moderately augment the potential total
number of option series available on the
Exchange. However, the Exchange
believes it and the Options Price
Reporting Authority (‘‘OPRA’’) have the
necessary systems capacity to handle
any potential additional traffic
associated with this proposed rule
change. The Exchange also believes that
Members 6 will not have a capacity issue
due to the proposed rule change. In
addition, the Exchange represents that it
does not believe that this expansion will
cause fragmentation of liquidity.
In addition, the interval setting regime
the Exchange proposes to apply to IVV
options is currently applied to options
on SPY,7 which is an ETF that is
identical in all material respects to the
IVV ETF.
2. Statutory Basis
MIAX believes the proposed rule
change is consistent with the Securities
Exchange Act of 1934 (the ‘‘Act’’) and
6 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.
7 See Exchange Rule 404.10.
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the rules and regulations thereunder
applicable to the Exchange and, in
particular, the requirements of Section
6(b) of the Act.8 Specifically, the
Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 9 requirements that the rules of
an exchange be 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 regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, 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.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 10 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the proposed rule
change will allow investors to more
easily use IVV options. Moreover, the
proposed rule change would allow
investors to better trade and hedge
positions in IVV options where the
strike price is greater than $200, and
ensure that IVV options investors are
not at a disadvantage simply because of
the strike price.
The Exchange also believes the
proposed rule change is consistent with
Section 6(b)(1) of the Act, which
provides that the Exchange be organized
and have the capacity to be able to carry
out the purposes of the Act and the
rules and regulations thereunder, and
the rules of the Exchange. The rule
change proposal allows the Exchange to
respond to customer demand to allow
IVV options to trade in $1 intervals
above a $200 strike price. The Exchange
does not believe that the proposed rule
would create additional capacity issues
or affect market functionality.
As noted above, some ETF options
trade in wider $5 intervals above a $200
strike price, whereby options at or
below a $200 strike price trade in $1
intervals. This creates a situation where
contracts on the same option class
effectively may not be able to execute
certain strategies such as, for example,
rolling to a higher strike price, simply
because of the arbitrary $200 strike price
above which options intervals increase
by 500%. This proposal remedies this
situation by establishing an exception to
the current interval regime for IVV
PO 00000
U.S.C. 78f(b).
9 15 U.S.C. 78f(b)(5).
10 Id.
Fmt 4703
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. Rather, the
Exchange believes that the proposed
rule change will result in additional
investment options and opportunities to
achieve the investment and trading
objectives of market participants seeking
efficient trading and hedging vehicles,
to the benefit of investors, market
participants, and the marketplace in
general. Specifically, the Exchange
believes that IVV options investors and
traders will significantly benefit from
the availability of finer strike price
intervals above a $200 price point. In
addition, the interval setting regime the
Exchange proposes to apply to IVV
options is currently applied to options
on SPY,13 which is an ETF that is
identical in all material respects to the
IVV ETF. Thus, applying the same strike
setting regime to SPY and IVV options
will help level the playing field for
options on similar, competing ETFs.
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.
11 See Nasdaq Phlx Rule 1012.05(a)(iv)(C) and
CBOE Rule 5.5.08(b).
12 See Exchange Rule 404.10.
13 Id.
8 15
Frm 00078
options to allow such options to trade
in $1 or greater intervals at all strike
prices.
The Exchange believes that the
proposed rule change, like other strike
price programs currently offered by the
Exchange, will benefit investors by
giving them increased flexibility to more
closely tailor their investment and
hedging decisions. Moreover, the
proposed rule change is consistent with
the rules of other exchanges.11
With regard to the impact of this
proposal on system capacity, the
Exchange believes it and OPRA have the
necessary systems capacity to handle
any potential additional traffic
associated with this proposed rule
change. The Exchange believes that its
Members will not have a capacity issue
as a result of this proposal.
In addition, the interval setting regime
the Exchange proposes to apply to IVV
options is currently applied to options
on SPY,12 which is an ETF that is
identical in all material respects to the
IVV ETF.
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Federal Register / Vol. 82, No. 143 / Thursday, July 27, 2017 / Notices
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to 19(b)(3)(A)
of the Act 14 and Rule 19b–4(f)(6) 15
thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) 16 normally does not
become operative for 30 days after the
date of filing. However, pursuant to
Rule 19b–4(f)(6)(iii),17 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest. The
Exchange has asked the Commission to
waive the 30-day operative delay so that
the proposal may become operative
immediately upon filing. The
Commission believes that waiving the
30-day operative delay is consistent
with the protection of investors and the
public interest as it will immediately
provide investors with additional
flexibility in trading and hedging
positions in IVV options on the
Exchange. The Commission also notes
that the proposed rule change is
consistent with the strike price intervals
in IVV options that is permitted on
other exchanges and thus raises no new
novel or substantive issues.18
Accordingly, the Commission hereby
waives the 30-day operative delay
requirement and designates the
proposed rule change as operative upon
filing.19
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
14 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
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 satisfied this
requirement.
16 17 CFR 240.19b–4(f)(6).
17 17 CFR 240.19b–4(f)(6)(iii).
18 See supra note 11.
19 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).
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15 17
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Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
35001
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–15771 Filed 7–26–17; 8:45 am]
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:
BILLING CODE 8011–01–P
Electronic Comments
Submission for OMB Review;
Comment Request
• 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–2017–33 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–MIAX–2017–33. 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
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–
2017–33, and should be submitted on or
before August 17, 2017.
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SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–094; OMB Control No.
3235–0085]
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE., Washington, DC
20549–2736.
Extension:
Rule 17a–11
Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.) the Securities
and Exchange Commission
(‘‘Commission’’) has submitted to the
Office of Management and Budget a
request for approval of extension of the
previously approved collection of
information provided for in Rule 17a–11
(17 CFR 240.17a–11) under the
Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.) (‘‘Exchange Act’’).
In response to an operational crisis in
the securities industry between 1967
and 1970, the Commission adopted Rule
17a–11 under the Exchange Act on July
11, 1971. Rule 17a–11 requires brokerdealers that are experiencing financial
or operational difficulties to provide
notice to the Commission, the brokerdealer’s designated examining authority
(‘‘DEA’’), and the Commodity Futures
Trading Commission (‘‘CFTC’’) if the
broker-dealer is registered with the
CFTC as a futures commission
merchant. Rule 17a–11 is an integral
part of the Commission’s financial
responsibility program which enables
the Commission, a broker-dealer’s DEA,
and the CFTC to increase surveillance of
a broker-dealer experiencing difficulties
and to obtain any additional
information necessary to gauge the
broker-dealer’s financial or operational
condition.
Rule 17a–11 also requires over-thecounter (‘‘OTC’’) derivatives dealers and
broker-dealers that are permitted to
compute net capital pursuant to
Appendix E to Exchange Act Rule 15c3–
1 to notify the Commission when their
tentative net capital drops below certain
levels.
20 17
E:\FR\FM\27JYN1.SGM
CFR 200.30–3(a)(12).
27JYN1
Agencies
[Federal Register Volume 82, Number 143 (Thursday, July 27, 2017)]
[Notices]
[Pages 34998-35001]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-15771]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-81183; File No. SR-MIAX-2017-33]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend MIAX Options Rule 404, Series of Option
Contracts Open for Trading
July 21, 2017.
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 July 18, 2017, Miami International Securities
Exchange, LLC (``MIAX Options'' or ``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') a proposed rule
change as described in Items I 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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[[Page 34999]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend Rule 404, Series of
Option Contracts Open for Trading, Interpretations and Policies .10, to
include the iShares S&P 500 Index ETF (``IVV'') in the list of
Exchange-Traded Funds (``ETFs'') that are eligible for $1 strike price
intervals.
The text of the proposed rule change is available on the Exchange's
Web site at https://www.miaxoptions.com/rule-filings, at MIAX's
principal office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Exchange Rule 404, Series of Option
Contracts Open for Trading, to modify the strike setting regime for IVV
options by including IVV in the list of ETFs that are eligible for $1
strike price intervals under Interpretations and Policies .10. The
Exchange notes that this is a competitive filing based on an
immediately effective filing recently submitted by the Chicago Board
Options Exchange, Incorporated (``CBOE'').\3\
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\3\ See Securities Exchange Act Release No. 80913 (June 13,
2017), 82 FR 27907 (June 19, 2017) (SR-CBOE-2017-048).
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Specifically, the Exchange proposes to modify the interval setting
regime for IVV options to allow $1 strike price intervals above $200.
The Exchange believes that the proposed rule change would make IVV
options easier for investors and traders to use and more tailored to
their investment needs. Additionally, the interval setting regime the
Exchange proposes to apply to IVV options is currently applied to
options on units of the Standard & Poor's Depository Receipts Trust
(``SPY''),\4\ which is an ETF that is identical in all material
respects to the IVV ETF.
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\4\ See Exchange Rule 404.10.
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The SPY and IVV ETFs are identical in all material respects. The
SPY and IVV ETFs are designed to roughly track the performance of the
S&P 500 Index with the price of SPY and IVV designed to roughly
approximate 1/10th of the price of the S&P 500 Index. Accordingly, SPY
and IVV strike prices having a multiplier of $100 reflect a value
roughly equal to 1/10th of the value of the S&P 500 Index. For example,
if the S&P 500 Index is at 1972.56, SPY and IVV options might have a
value of approximately 197.26 with a notional value of $19,726. In
general, SPY and IVV options provide retail investors and traders with
the benefit of trading the broad market in a manageably sized contract.
As options with an ETF underlying, SPY and IVV options are listed in
the same manner as equity options under the Rules.
However, under current Interpretation and Policies .05 to Rule 404,
the interval between strike prices in series of options on Index-Linked
Securities,\5\ as defined in Rule 402(k)(1), will be $1 or greater
where the strike price is $200 or less and $5 or greater where the
strike price is greater than $200. In addition, under Exchange Rule
404, Interpretation and Policies .02(e),
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\5\ The Exchange notes that IVV is treated as an Index-Linked
Security under current Exchange rules.
Strike Price Interval. The strike price interval for Short Term
Option series may be $0.50 or greater for option classes that trade
in $1 strike price intervals and are in the Short Term Option Series
Program. If the class does not trade in $1 strike price intervals,
the strike price interval for Short Term Option series may be $0.50
or greater where the strike price is less than $100 and $1.00 or
greater where the strike price is between $100 and $150, and $2.50
or greater for strike prices greater than $150. A non-Short Term
Option Series that is included in a class that has been selected to
participate in the Short Term Option Series Program is referred to
as a ``Related non-Short Term Option.'' Notwithstanding any other
provision regarding strike prices in this rule, Related non-Short
Term Option series shall be opened during the month prior to
expiration in the same manner as permitted in Rule 404,
Interpretations and Policies .02 and in the same strike price
intervals for the Short Term Option Series permitted in this Rule
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404, Interpretations and Policies .02(e).
The Exchange's proposal seeks to narrow the strike price intervals
to $1 for IVV options above $200, in effect matching the strike setting
regime for strike intervals in IVV options below $200 and matching the
strike setting regime applied to SPY options.
Currently, the S&P 500 Index is above 2000. The S&P 500 Index is
widely regarded as the best single gauge of large cap U.S. equities and
is widely quoted as an indicator of stock prices and investor
confidence in the securities market. As a result, individual investors
often use S&P 500 Index-related products to diversify their portfolios
and benefit from market trends. Accordingly, the Exchange believes that
offering a wider range of S&P 500 Index-based option strikes affords
traders and investors important hedging and trading opportunities. The
Exchange believes that not having the proposed $1 strike price
intervals above $200 in IVV significantly constricts investors' hedging
and trading possibilities.
The Exchange proposes to amend Interpretations and Policies .10 to
Rule 404 to allow IVV options to trade in $1 increments above a strike
price of $200. Specifically, the Exchange proposes to amend
Interpretations and Policies .10 to state that, ``[n]otwithstanding any
other provision regarding the interval of strike prices of series of
options on Exchange-Traded Fund Shares in this rule, the interval of
strike prices on SPDR S&P 500 ETF (``SPY''), iShares S&P 500 Index ETF
(``IVV''), and the SPDR Dow Jones Industrial Average ETF (``DIA'')
options will be $1 or greater.'' The Exchange believes that by having
smaller strike intervals in IVV, investors would have more efficient
hedging and trading opportunities due to the lower $1 interval
ascension. The proposed $1 intervals, particularly above the $200
strike price, will result in having at-the-money series based upon the
underlying moving less than 1%. The Exchange believes that the proposed
strike setting regime is in line with the slower movements of broad-
based indices. Furthermore, the proposed $1 intervals would allow
option trading strategies (such as, for example, risk reduction/hedging
strategies using IVV weekly options), to remain viable. Considering the
fact that $1 intervals already exist below the $200 price point and
that IVV is above the $200 level, the Exchange believes that continuing
to maintain the artificial $200 level (above which intervals increase
500% to $5), would have a negative effect on investing, trading and
hedging opportunities, and volume. The Exchange believes that the
investing, trading, and hedging opportunities available with IVV
options far outweighs any potential negative impact of allowing IVV
options to trade in more finely tailored intervals above the $200 price
point.
[[Page 35000]]
The proposed strike setting regime would permit strikes to be set
to more closely reflect values in the underlying S&P 500 Index and
allow investors and traders to roll open positions from a lower strike
to a higher strike in conjunction with the price movement of the
underlying. Under the current rule, where the next higher available
series would be $5 away above a $200 strike price, the ability to roll
such positions is effectively negated. Accordingly, to move a position
from a $200 strike to a $205 strike under the current rule, an investor
would need for the underlying product to move 2.5%, and would not be
able to execute a roll up until such a large movement occurred. With
the proposed rule change, however, the investor would be in a
significantly safer position of being able to roll his open options
position from a $200 to a $201 strike price, which is only a 0.5% move
for the underlying. The proposed rule change will allow the Exchange to
better respond to customer demand for IVV strike prices more precisely
aligned with current S&P 500 Index values. The Exchange believes that
the proposed rule change, like the other strike price programs
currently offered by the Exchange, will benefit investors by providing
investors the flexibility to more closely tailor their investment and
hedging decisions using IVV options.
By allowing series of IVV options to be listed in $1 intervals
between strike prices over $200, the proposal will moderately augment
the potential total number of option series available on the Exchange.
However, the Exchange believes it and the Options Price Reporting
Authority (``OPRA'') have the necessary systems capacity to handle any
potential additional traffic associated with this proposed rule change.
The Exchange also believes that Members \6\ will not have a capacity
issue due to the proposed rule change. In addition, the Exchange
represents that it does not believe that this expansion will cause
fragmentation of liquidity.
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\6\ 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.
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In addition, the interval setting regime the Exchange proposes to
apply to IVV options is currently applied to options on SPY,\7\ which
is an ETF that is identical in all material respects to the IVV ETF.
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\7\ See Exchange Rule 404.10.
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2. Statutory Basis
MIAX believes the proposed rule change is consistent with the
Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\8\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \9\ requirements that the rules of an exchange be
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 regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, 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. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \10\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ Id.
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In particular, the proposed rule change will allow investors to
more easily use IVV options. Moreover, the proposed rule change would
allow investors to better trade and hedge positions in IVV options
where the strike price is greater than $200, and ensure that IVV
options investors are not at a disadvantage simply because of the
strike price.
The Exchange also believes the proposed rule change is consistent
with Section 6(b)(1) of the Act, which provides that the Exchange be
organized and have the capacity to be able to carry out the purposes of
the Act and the rules and regulations thereunder, and the rules of the
Exchange. The rule change proposal allows the Exchange to respond to
customer demand to allow IVV options to trade in $1 intervals above a
$200 strike price. The Exchange does not believe that the proposed rule
would create additional capacity issues or affect market functionality.
As noted above, some ETF options trade in wider $5 intervals above
a $200 strike price, whereby options at or below a $200 strike price
trade in $1 intervals. This creates a situation where contracts on the
same option class effectively may not be able to execute certain
strategies such as, for example, rolling to a higher strike price,
simply because of the arbitrary $200 strike price above which options
intervals increase by 500%. This proposal remedies this situation by
establishing an exception to the current interval regime for IVV
options to allow such options to trade in $1 or greater intervals at
all strike prices.
The Exchange believes that the proposed rule change, like other
strike price programs currently offered by the Exchange, will benefit
investors by giving them increased flexibility to more closely tailor
their investment and hedging decisions. Moreover, the proposed rule
change is consistent with the rules of other exchanges.\11\
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\11\ See Nasdaq Phlx Rule 1012.05(a)(iv)(C) and CBOE Rule
5.5.08(b).
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With regard to the impact of this proposal on system capacity, the
Exchange believes it and OPRA have the necessary systems capacity to
handle any potential additional traffic associated with this proposed
rule change. The Exchange believes that its Members will not have a
capacity issue as a result of this proposal.
In addition, the interval setting regime the Exchange proposes to
apply to IVV options is currently applied to options on SPY,\12\ which
is an ETF that is identical in all material respects to the IVV ETF.
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\12\ See Exchange Rule 404.10.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. Rather, the
Exchange believes that the proposed rule change will result in
additional investment options and opportunities to achieve the
investment and trading objectives of market participants seeking
efficient trading and hedging vehicles, to the benefit of investors,
market participants, and the marketplace in general. Specifically, the
Exchange believes that IVV options investors and traders will
significantly benefit from the availability of finer strike price
intervals above a $200 price point. In addition, the interval setting
regime the Exchange proposes to apply to IVV options is currently
applied to options on SPY,\13\ which is an ETF that is identical in all
material respects to the IVV ETF. Thus, applying the same strike
setting regime to SPY and IVV options will help level the playing field
for options on similar, competing ETFs.
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\13\ Id.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
[[Page 35001]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) \15\
thereunder.
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file 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 satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \16\ normally
does not become operative for 30 days after the date of filing.
However, pursuant to Rule 19b-4(f)(6)(iii),\17\ the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Commission believes
that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest as it will immediately
provide investors with additional flexibility in trading and hedging
positions in IVV options on the Exchange. The Commission also notes
that the proposed rule change is consistent with the strike price
intervals in IVV options that is permitted on other exchanges and thus
raises no new novel or substantive issues.\18\ Accordingly, the
Commission hereby waives the 30-day operative delay requirement and
designates the proposed rule change as operative upon filing.\19\
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\16\ 17 CFR 240.19b-4(f)(6).
\17\ 17 CFR 240.19b-4(f)(6)(iii).
\18\ See supra note 11.
\19\ 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).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
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-2017-33 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-MIAX-2017-33. 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 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-2017-33, and should be
submitted on or before August 17, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-15771 Filed 7-26-17; 8:45 am]
BILLING CODE 8011-01-P