Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing of a Proposed Rule Change To Adopt Rules Relating to Trading in Index Options, 8538-8554 [2018-03894]
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Federal Register / Vol. 83, No. 39 / Tuesday, February 27, 2018 / Notices
knowledge content currently covered on
the Series 99 examination, since that
content will be covered in the corequisite SIE examination. In addition,
the proposed revisions will further the
purposes of the Act by updating the
examination program to reflect changes
to the laws, rules and regulations
covered by the examination and to
incorporate the functions and associated
tasks currently performed by an
Operations Professional.
to determine whether the proposed rule
should be approved or disapproved.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Electronic Comments
FINRA 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. The updated
examination aligns with the functions
and associated tasks currently
performed by an Operations
Professional and tests knowledge of the
most current laws, rules, regulations
and skills relevant to those functions
and associated tasks. As such, the
proposed revisions would make the
examination more effective. FINRA also
provided a detailed economic impact
assessment regarding the introduction of
the SIE examination and the
restructuring of the representative-level
examinations as part of the proposed
rule change to restructure the FINRA
representative-level qualification
examination program.23
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 24 and paragraph (f)(1) of Rule
19b–4 thereunder.25 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
23 See Securities Exchange Act Release No. 80371
(April 4, 2017), 82 FR 17336 (April 10, 2017)
(Notice of Filing of File No. SR–FINRA–2017–007).
24 15 U.S.C. 78s(b)(3)(A).
25 17 CFR 240.19b–4(f)(1).
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IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
• 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–
FINRA–2018–006 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–FINRA–2018–006. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (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 website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of FINRA. All comments received
will be posted without change. Persons
submitting comments are cautioned that
we do not redact or edit personal
identifying information from comment
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–FINRA–
2018–006 and should be submitted on
or before March 20, 2018.
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–03891 Filed 2–26–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82756; File No. SR–
PEARL–2018–02]
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Filing of a
Proposed Rule Change To Adopt Rules
Relating to Trading in Index Options
February 21, 2018.
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 February 8, 2018, MIAX PEARL, LLC
(‘‘MIAX PEARL’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to adopt rules
relating to trading in index options.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/pearl at MIAX PEARL’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.
26 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
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The Exchange is proposing to adopt
new rules and amend existing rules to
allow the Exchange to list and trade
options on indices. The proposed rules
include listing and maintenance criteria
for options on underlying indices, rules
on dissemination of index values,
position and exercise limits for index
options, exemptions from the limits,
and terms of index options contracts.
All of the proposed rules and changes
to existing Exchange rules are based on
existing rules of other options
exchanges.3 The proposed rules are
intended to expand the Exchange’s
capability to introduce and trade both
existing and new and innovative index
products on the MIAX PEARL System.4
Because the rules related to trading
options on indices are product specific
in many areas, the Exchange will need
to file additional proposed rule changes
with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
when the Exchange identifies specific
products.5 For purposes of this
proposed rule change, certain rules
indicate that they apply to ‘‘Specified’’
indices. Proposed MIAX PEARL Rules
1800, 1801(n), 1804(a), 1807(a), 1809,
and 1811 all contain provisions that are
dependent upon the Exchange
identifying specific index products in
the rule. Accordingly, MIAX PEARL
Rule 1800 states that where the rules in
Chapter XVIII indicate that particular
indices or requirements with respect to
particular indices will be ‘‘Specified,’’
MIAX PEARL’s rules will be amended
when MIAX Options 6 files a proposed
rule change with the Commission
pursuant to Section 19 of the Act 7 and
Rule 19b–4 8 thereunder to specify such
indices or requirements.
3 See Miami International Securities Exchange,
LLC (‘‘MIAX Options’’) Rules, Chapter XVIII, Index
Options; Nasdaq ISE, (‘‘Nasdaq ISE’’) Rules, Chapter
20, Index Rules; Nasdaq PHLX (‘‘Phlx’’) Rules
1000A–1108A; and Cboe Options Exchange
(‘‘Cboe’’) Rules, Chapter XXIV, Index Options.
4 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
5 The Exchange proposes to separately file a
request for an exemption from the rule filing
requirements of Section 19(b) of the Act for changes
to MIAX PEARL Chapter XVIII to the extent such
rules are effected solely by virtue of a change to
MIAX Options Chapter XVIII, including when
MIAX Options identifies specific new products to
list.
6 See id.
7 15 U.S.C. 78s.
8 17 CFR 240.19b–4.
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MIAX PEARL proposes to adopt new
Chapter XVIII to the Exchange’s rules,
which incorporate by reference Chapter
XVIII of rules of the Exchange’s affiliate,
MIAX Options.9 In addition, MIAX
PEARL proposes to amend Exchange
Rule 504, Trading Halts. The Exchange
notes that MIAX Options filed a
substantially similar proposed rule
change to adopt rules relating to trading
index options (the ‘‘MIAX Options Rule
Filing’’), which was approved by the
Commission on September 27, 2017.10
The Exchange also notes that the MIAX
Options Rule Filing proposed rule
amendments to MIAX Options Rule 308,
Exemptions from Position Limits; MIAX
Options Rule 313, Other Restrictions on
Options Transactions and Exercises; and
MIAX Options Rule 700, Exercise of
Option Contracts, all of which have
already been incorporated by reference
into MIAX PEARL’s rules, and thus are
already applicable to MIAX PEARL
members.11 Each of the proposed rules
to be incorporated by reference are
discussed in detail below, but the text
of the proposed rule change as set forth
in Exhibit 5 of this rule filing specifies
that the rules contained in MIAX
Options Chapter XVIII are hereby
incorporated by reference into these
MIAX PEARL Rules, and are thus MIAX
PEARL Rules and thereby applicable to
MIAX PEARL Members.
Specifically, the rule provides: ‘‘[t]he
rules contained in MIAX Options
Exchange Chapter XVIII, as such rules
may be in effect from time to time (the
‘‘Chapter XVIII Rules’’), are hereby
incorporated by reference into this
MIAX PEARL Chapter XVIII, and are
thus MIAX PEARL Rules and thereby
applicable to MIAX PEARL Members.
MIAX PEARL Members shall comply
with the Chapter XVIII Rules as though
such rules were fully-set forth herein.
All defined terms, including any
variations thereof, contained in Chapter
XVIII Rules shall be read to refer to the
MIAX PEARL related meaning of such
term. Solely by way of example, and not
in limitation or in exhaustion: The
9 The Exchange notes that it is not amending
MIAX PEARL Rule 503, Openings on the Exchange,
because unlike MIAX Options Rule 503, MIAX
PEARL Rule 503 does not distinguish between
equity and index options. In addition, the Exchange
notes that it is not amending MIAX PEARL Rule
603, Obligations of Market Makers, because unlike
MIAX Options, MIAX PEARL does not use bid/ask
differentials on the Exchange. Additionally, the
Exchange is not amending MIAX PEARL Rule 527,
Exchange Liability, because the amendment to the
corresponding MIAX Options Rule was duplicative
and the Exchange anticipates deleting the
duplicative rule text in the future.
10 See Securities Exchange Act Release No. 81739
(September 27, 2017), 82 FR 46111 (October 3,
2017) (SR–MIAX–2017–39) (‘‘Approval Order’’).
11 Id.
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defined term ‘‘Exchange’’ in Chapter
XVIII Rules shall be read to refer to
MIAX PEARL; the defined term ‘‘Rule’’
in the Chapter XVIII Rules shall be read
to refer to the MIAX PEARL Rule; and
the defined term ‘‘Member’’ in the
Chapter XVIII Rules shall be read to
refer to the MIAX PEARL Member. Any
reference to MIAX Options Rule 506(d)
will be construed to reference
corresponding MIAX PEARL Rule
506(e).’’
Proposed Index Rules
The Exchange is proposing to adopt
Chapter XVIII, Index Options, in the
MIAX PEARL Rules. Proposed Rule
1800, Application of Index Rules, states
that the Rules in proposed Chapter
XVIII are applicable only to index
options (options on indices of securities
as defined below). The Rules in current
Chapters I through XVII are also
applicable to the options provided for in
proposed Chapter XVIII, unless such
current Rules are specifically replaced
or are supplemented by Rules in
Chapter XVIII. Where the Rules in
Chapter XVIII indicate that particular
indices or requirements with respect to
particular indices will be ‘‘Specified,’’
the Exchange shall file a proposed rule
change with the Commission to specify
such indices or requirements.12
Definitions
Proposed MIAX PEARL Rule 1801,
Definitions, contains the necessary
definitions for index options trading.13
Specifically, the following definitions
will apply to index options on MIAX
PEARL:
(a) The term ‘‘aggregate exercise
price’’ means the exercise price of the
options contract times the index
multiplier.
(b) The term ‘‘American-style index
option’’ means an option on an industry
or market index that can be exercised on
any business day prior to expiration,
including the business day of expiration
in the case of an option contract
expiring on a business day.
(c) The term ‘‘A.M.-settled index
option’’ means an index options
contract for which the current index
value at expiration shall be determined
as provided in Rule 1809(a)(5).14
12 See
13 The
supra note 5.
proposed Rule is based on Nasdaq ISE Rule
2001.
14 The last day of trading for A.M.-settled index
options shall be the business day preceding the
business day of expiration, or, in the case of an
option contract expiring on a day that is not a
business day, the business day preceding the last
day of trading in the underlying securities prior to
the expiration date. The current index value at the
expiration of an A.M.-settled index option shall be
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(d) The term ‘‘call’’ means an options
contract under which the holder of the
option has the right, in accordance with
the terms of the option, to purchase
from the Clearing Corporation the
current index value times the index
multiplier.
(e) The term ‘‘current index value’’
with respect to a particular index
options contract means the level of the
underlying index reported by the
reporting authority for the index, or any
multiple or fraction of such reported
level specified by the Exchange. The
current index value with respect to a
reduced-value long term options
contract is one-tenth of the current
index value of the related index option.
The ‘‘closing index value’’ shall be the
last index value reported on a business
day.
(f) The term ‘‘exercise price’’ means
the specified price per unit at which the
current index value may be purchased
or sold upon the exercise of the option.
(g) The term ‘‘European-style index
option’’ means an option on an industry
or market index that can be exercised
only on the business day of expiration,
or, in the case of an option contract
expiring on a day that is not a business
day, the last business day prior to the
day it expires.
(h) The term ‘‘Foreign Currency
Index’’ means an index designed to
track the performance of a basket of
currencies, as provided in the table in
Rule 1805A.
(i) The term ‘‘index multiplier’’ means
the amount specified in the contract by
which the current index value is to be
multiplied to arrive at the value
required to be delivered to the holder of
a call or by the holder of a put upon
valid exercise of the contract.
(j) The terms ‘‘industry index’’ and
‘‘narrow-based index’’ mean an index
designed to be representative of a
particular industry or a group of related
industries or an index whose
determined, for all purposes under these Rules and
the Rules of the Clearing Corporation, on the last
day of trading in the underlying securities prior to
expiration, by reference to the reported level of
such index as derived from first reported sale
(opening) prices of the underlying securities on
such day, except that: (i) In the event that the
primary market for an underlying security does not
open for trading on that day, the price of that
security shall be determined, for the purposes of
calculating the current index value at expiration, as
set forth in Rule 1808(g), unless the current index
value at expiration is fixed in accordance with the
Rules and By-Laws of the Clearing Corporation; and
(ii) in the event that the primary market for an
underlying security is open for trading on that day,
but that particular security does not open for
trading on that day, the price of that security, for
the purposes of calculating the current index value
at expiration, shall be the last reported sale price
of the security. See proposed Rule 1809(a)(5).
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constituents are all headquartered
within a single country.
(k) The term ‘‘market index’’ and
‘‘broad-based index’’ mean an index
designed to be representative of a stock
market as a whole or of a range of
companies in unrelated industries.
(l) The term ‘‘put’’ means an options
contract under which the holder of the
option has the right, in accordance with
the terms and provisions of the option,
to sell to the Clearing Corporation the
current index value times the index
multiplier.
(m) The term ‘‘Quarterly Options
Series’’ means, for the purposes of
Chapter XVIII, a series in an index
options class that is approved for listing
and trading on the Exchange in which
the series is opened for trading on any
business day and that expires at the
close of business on the last business
day of a calendar quarter.
(n) The term ‘‘reporting authority’’
with respect to a particular index means
the institution or reporting service
designated by the Exchange as the
official source for (1) calculating the
level of the index from the reported
prices of the underlying securities that
are the basis of the index and (2)
reporting such level. The reporting
authority for each index approved for
options trading on the Exchange shall be
Specified (as provided in Rule 1800) in
a table in Interpretations and Policies
.01 to Rule 1801.
(o) The term ‘‘Short Term Option
Series’’ means, for the purposes of
Chapter XVIII, a series in an index
option class that is approved for listing
and trading on the Exchange in which
the series is opened for trading on any
Thursday or Friday that is a business
day and that expires on the Friday of the
following business week that is a
business day. If a Friday is not a
business day, the series may be opened
(or shall expire) on the first business
day immediately prior to that Friday.
(p) The term ‘‘underlying security’’ or
‘‘underlying securities’’ with respect to
an index options contract means any of
the securities that are the basis for the
calculation of the index.
Proposed Rule 1802, Designation of
an Index, contains the general listing
standards for index options. Proposed
Rule 1802(a) provides that the
component securities of an index
underlying an index option contract
need not meet the requirements of Rule
402.15 Except as set forth in
subparagraph (b) and (d) (as described
below), the listing of a class of index
options requires the filing of a proposed
rule change to be approved by the
Commission.
Proposed Rule 1802(b) describes the
initial listing standards for a narrowbased index to be traded on the
Exchange. The term ‘‘narrow based
index’’ means an index designed to be
representative of a particular industry or
a group of related industries or an index
whose constituents are all
headquartered within a single country.
Pursuant to proposed Rule 1802(b), the
Exchange may trade options on a
narrow-based index pursuant to Rule
19b–4(e) of the Act,16 if each of the
following conditions is satisfied:
(1) The options are designated as
A.M.-settled index options;
(2) The index is capitalizationweighted, price-weighted, equal dollarweighted, or modified capitalizationweighted, and consists of 10 or more
component securities;
(3) Each component security has a
market capitalization of at least $75
million, except that for each of the
lowest weighted component securities
in the index that in the aggregate
account for no more than ten percent
(10%) of the weight of the index, the
market capitalization is at least $50
million;
(4) Trading volume of each
component security has been at least
1,000,000 shares for each of the last six
months, except that for each of the
lowest weighted component securities
in the index that in the aggregate
account for no more than ten percent
(10%) of the weight of the index, trading
volume has been at least 500,000 shares
for each of the last six months;
(5) In a capitalization-weighted index
or a modified capitalization-weighted
index, the lesser of the five highest
weighted component securities in the
index or the highest weighted
component securities in the index that
in the aggregate represent at least thirty
percent (30%) of the total number of
component securities in the index each
have had an average monthly trading
volume of at least 2,000,000 shares over
the past six months;
(6) No single component security
represents more than thirty percent
(30%) of the weight of the index, and
the five highest weighted component
securities in the index do not in the
aggregate account for more than fifty
percent (50%) (sixty five percent (65%)
for an index consisting of fewer than
15 Exchange Rule 402, Criteria for Underlying
Securities, sets forth the criteria that must be met
by underlying equity securities with respect to
which put or call option contracts are approved for
listing and trading on the Exchange.
16 17 CFR 242.19b–4(e).
Listing Standards
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twenty five (25) component securities)
of the weight of the index;
(7) Component securities that account
for at least ninety percent (90%) of the
weight of the index and at least eighty
percent (80%) of the total number of
component securities in the index
satisfy the requirements of Rule 402
applicable to individual underlying
securities;
(8) Each component security must be
an ‘‘NMS stock’’ as defined in Rule 600
of Regulation NMS under the Act; 17
(9) Non-U.S. component securities
(stocks or ADRs) that are not subject to
comprehensive surveillance agreements
do not in the aggregate represent more
than twenty percent (20%) of the weight
of the index;
(10) The current index value is widely
disseminated at least once every fifteen
(15) seconds by the Options Price
Reporting Authority (‘‘OPRA’’), the
Consolidated Tape Association
(‘‘CTA’’), the Nasdaq Index
Dissemination Service (‘‘NIDS’’), or one
or more major market data vendors
during the time options on the index are
traded on the Exchange;
(11) An equal dollar-weighted index
will be rebalanced at least once every
calendar quarter; and
(12) If an underlying index is
maintained by a broker-dealer, the index
is calculated by a third party who is not
a broker-dealer, and the broker-dealer
has erected an information barrier
around its personnel who have access to
information concerning changes in and
adjustments to the index.
The above initial listing standards are
the same as the initial listing standards
currently in place on other exchanges.18
In addition to the initial listing
standards, certain maintenance listing
standards, listed below, apply to each
class of index options originally listed
pursuant to proposed Rule 1802(b).
Specifically, proposed Rule 1802(c)
provides that the requirements stated in
proposed Rules 1802(b)(1), (3), (6), (7),
(8), (9), (10), (11) and (12) (set forth
above) must continue to be satisfied,
provided that the requirements stated in
proposed Rule 1802(b)(6) below
(relating to broad-based indices) must be
satisfied only as of the first day of
January and July in each year.
In addition to maintaining the initial
criteria in the proposed sub-paragraphs
listed above, proposed Rule1802(c)
states that, in order for an index to
remain listed on the Exchange:
17 17
CFR 242.11Aa3–1.
e.g., Miami International Securities
Exchange (‘‘MIAX Options’’) Rule 1802(b); Nasdaq
ISE, (‘‘Nasdaq ISE’’) Rule 2002(b); Nasdaq PHLX
(‘‘Phlx’’) Rule 1009A(b); and Cboe Options
Exchange, Inc. (‘‘Cboe’’) Rule 24.2(b).
18 See,
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(1) The total number of component
securities in the index may not increase
or decrease by more than 33 1⁄3 percent
from the number of component
securities in the index at the time of its
initial listing, and in no event may be
less than nine component securities;
(2) Trading volume of each
component security in the index must
be at least 500,000 shares for each of the
last six months, except that for each of
the lowest weighted component
securities in the index that in the
aggregate account for no more than ten
percent (10%) of the weight of the
index, trading volume must be at least
400,000 shares for each of the last six (6)
months; and
(3) In a capitalization-weighted index
or a modified capitalization-weighted
index, the lesser of the five highest
weighted component securities in the
index or the highest weighted
component securities in the index that
in the aggregate represent at least thirty
percent (30%) of the total number of
stocks in the index each have had an
average monthly trading volume of at
least 1,000,000 shares over the past six
months. In the event a class of index
options listed on the Exchange fails to
satisfy the maintenance listing
standards set forth herein, the Exchange
shall not open for trading any additional
series of options of that class unless
such failure is determined by the
Exchange not to be significant and the
SEC concurs in that determination, or
unless the continued listing of that class
of index options has been approved by
the SEC under Section 19(b) (2) of the
Act.19
These maintenance listing standards
are the same as the maintenance
standards currently in place on other
exchanges.20
Proposed Rule 1802(d) states that the
Exchange may trade options on a broadbased index 21 if each of the following
conditions is satisfied:
(1) The index is broad-based, as
defined in Rule 1801(k);
(2) Options on the index are
designated as A.M.-settled;
(3) The index is capitalizationweighted, modified capitalizationweighted, price-weighted, or equal
dollar-weighted;
(4) The index consists of 50 or more
component securities;
19 15
U.S.C. 78s(b)(2).
e.g., MIAX Options Rule 1802(c); Nasdaq
ISE Rule 2002(c); Nasdaq Phlx Rule 1009A(c); and
Cboe Rule 24.2(c).
21 The term ‘‘market index’’ and ‘‘broad-based
index’’ mean an index designed to be representative
of a stock market as a whole or of a range of
companies in unrelated industries. See proposed
Rule 1801(k).
20 See,
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(5) Component securities that account
for at least ninety-five percent (95%) of
the weight of the index have a market
capitalization of at least $75 million,
except that component securities that
account for at least sixty-five percent
(65%) of the weight of the index have
a market capitalization of at least $100
million;
(6) Component securities that account
for at least eighty percent (80%) of the
weight of the index satisfy the
requirements of Rule 402 applicable to
individual underlying securities;
(7) Each component security that
accounts for at least one percent (1%) of
the weight of the index has an average
daily trading volume of at least 90,000
shares during the last six month period;
(8) No single component security
accounts for more than ten percent
(10%) of the weight of the index, and
the five highest weighted component
securities in the index do not, in the
aggregate, account for more than thirtythree percent (33%) of the weight of the
index;
(9) Each component security must be
an ‘‘NMS stock’’ as defined in Rule 600
of Regulation NMS under the Act; 22
(10) Non-U.S. component securities
(stocks or ADRs) that are not subject to
comprehensive surveillance agreements
do not, in the aggregate, represent more
than twenty percent (20%) of the weight
of the index;
(11) The current index value is widely
disseminated at least once every fifteen
(15) seconds by the Options Price
Reporting Authority (‘‘OPRA’’), the
Consolidated Tape Association
(‘‘CTA’’), the Nasdaq Index
Dissemination Service (‘‘NIDS’’), or one
or more major market data vendors
during the time options on the index are
traded on the Exchange;
(12) The Exchange reasonably
believes it has adequate system capacity
to support the trading of options on the
index, based on a calculation of the
Exchange’s current ISCA allocation and
the number of new messages per second
expected to be generated by options on
such index;
(13) An equal dollar-weighted index
is rebalanced at least once every
calendar quarter;
(14) If an index is maintained by a
broker-dealer, the index is calculated by
a third-party who is not a broker-dealer,
and the broker-dealer has erected an
informational barrier around its
personnel who have access to
information concerning changes in, and
adjustments to, the index; and
(15) The Exchange has written
surveillance procedures in place with
22 17
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respect to surveillance of trading of
options on the index.
These initial listing standards are the
same as the initial listing standards for
broad-based indices currently in place
on other exchanges.23
Proposed Rule 1802(e) sets forth the
maintenance listing standards for broadbased indices. Specifically, the
following maintenance listing standards
shall apply to each class of index
options originally listed pursuant to
proposed Rule 1802(d).
First, the requirements set forth in the
proposed initial listing standards set
forth in proposed Rules 1802(d)(1)–
(d)(3), and proposed Rules 1802(d)(9)–
(d)(15) must continue to be satisfied.
The requirements set forth in proposed
Rules 1802(d)(5)–(d)(8) must be satisfied
only as of the first day of January and
July in each year.
Additionally, for broad-based indices,
the total number of component
securities in the index may not increase
or decrease by more than ten percent
(10%) from the number of component
securities in the index at the time of its
initial listing.
Finally, proposed Rule 1802(e) states
that, in the event a class of index
options listed on the Exchange fails to
satisfy the maintenance listing
standards set forth in the proposed Rule,
the Exchange shall not open for trading
any additional series of options of that
class unless the continued listing of that
class of index options has been
approved by the Commission under
Section 19(b)(2) of the Act.24
These maintenance listing standards
are the same as the maintenance
standards for broad-based indices that
are currently in place on other
exchanges.25
The Exchange believes that the
requirements in the proposed listing
standards regarding, among other
things, the minimum market
capitalization, trading volume, and
relative weightings of an underlying
index’s component stocks are designed
to ensure that the markets for the
index’s component stocks are
adequately capitalized and sufficiently
liquid, and that no one stock dominates
the index. The Exchange believes that
these requirements minimize the
potential for manipulating the
underlying index.
The Exchange further believes that the
requirement in proposed Rule
1802(b)(10) (with respect to narrowbased index options) that the current
underlying index value will be reported
at least once every fifteen (15) seconds
during the time the index options are
traded on the Exchange, and the
requirement in proposed Rule
1802(d)(11) (with respect to broad-based
index options) that the current index
value be widely disseminated at least
once every fifteen (15) seconds by the
OPRA, CTA/CQ, NIDS or by one or
more major market data vendors during
the time an index option trades on
MIAX PEARL should provide
transparency with respect to current
index values and contribute to the
transparency of the market for index
options. In addition, the Exchange
believes that the requirement in
proposed Rule 1802(d)(2) that an index
option be A.M.-settled, rather than on
closing prices, should help to reduce the
potential impact of expiring index
options on the market for the index’s
component securities.
Proposed Rule 1803, Dissemination of
Information, requires the dissemination
of index values as a condition to the
trading of options on an index. The
proposed rule includes the requirement
that the Exchange disseminate, or assure
that the current index value is
disseminated, after the close of business
and from time-to-time on days on which
transactions in index options are made
on the Exchange. The proposed rule also
requires the Exchange to maintain, in
files available to the public, information
identifying the components whose
prices are the basis for calculation of the
index and the method used to determine
the current index value.26
The Exchange is proposing to adopt
Rules 1804 through 1807 relating to
position limits, exemptions from
position limits, and exercise limits in
index options. These proposed rules
contain the standard position limit and
exercise limits for Broad-Based,
Industry (narrow-based) and Foreign
Currency index options, as well as
exemption standards and the
procedures for requesting exemptions
from those proposed rules.27
Proposed Rule 1804, Position Limits
for Broad-Based Index Options, states
that Exchange Rule 307 generally shall
govern position limits for broad-based
index options, as modified by proposed
Rule 1804. Specifically, the proposed
rule states that there may be no position
limit for certain Specified (as provided
in Rule 1800) 28 broad-based index
options contracts. Except as otherwise
indicated below, the position limit for a
broad-based index option shall be
25,000 contracts on the same side of the
market. Reduced-value options 29 on
broad-based security indexes for which
full-value options have no position and
exercise limits will similarly have no
position and exercise limits. All other
broad-based index options contracts
shall be subject to a contract limitation
fixed by the Exchange, which shall not
be larger than the limits provided in the
chart below.
Standard limit
(on the same side of the market)
To be Specified .....................................................................
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Broad-based underlying index
To be Specified ...................................................................
Restrictions
To be Specified.
Proposed Rules 1804(b) through (d)
describe situations in which index
option contracts will, or will not, be
aggregated for purposes of establishing
the number of contracts in a position.
Specifically, proposed Rule 1804(b)
states that that index options contracts
shall not be aggregated with options
contracts on any stocks whose prices are
the basis for calculation of the index.
Proposed Rule 1804(c) states that
positions in reduced-value index
options shall be aggregated with
positions in full-value indices. For such
purposes, ten reduced-value contracts
shall equal one contract. Finally,
proposed Rule 1804(d) states that
positions in Short Term Option Series
and Quarterly Options Series shall be
aggregated with positions in options
contracts on the same index.30
Proposed Rule 1805, Position Limits
for Industry Index Options, states that
Rule 307 generally shall govern position
23 See, e.g., MIAX Options Rule 1802(d); Nasdaq
ISE Rule 2002(d); Nasdaq Phlx Rule 1009A(d); and
Cboe Rule 24.2(f).
24 15 U.S.C 78s(b)(2).
25 See, e.g., MIAX Options Rule 1802(e); Nasdaq
ISE Rule 2002(e); Nasdaq Phlx Rule 1009A(e); and
Cboe Rule 24.2(g).
26 This proposed Rule is substantially similar to
Nasdaq ISE Rule 2003 and Cboe Rule 24.3.
27 These proposed Rules are based on Nasdaq ISE
Rule 2006.
28 See supra note 5.
29 See proposed Rule 1809(b)(2).
30 This is substantially similar to Nasdaq ISE Rule
2004 and Cboe Rule 24.4.
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limits for industry index 31 options, as
modified by proposed Rule 1805.
Proposed Rule 1805(a) sets forth
position limits for industry index
options. These position limits, once
established by the Exchange, must be
reviewed and determined on a semiannual basis, as described below.
The specific position limits applicable
to an industry index are:
(i) 18,000 contracts if the Exchange
determines, at the time of a review
conducted as described below, that any
single underlying stock accounted, on
average, for thirty percent (30%) or
more of the index value during the
thirty (30)-day period immediately
preceding the review; or
(ii) 24,000 contracts if the Exchange
determines, at the time of a review
conducted as set forth below, that any
single underlying stock accounted, on
average, for twenty percent (20%) or
more of the index value or that any five
(5) underlying stocks together
accounted, on average, for more than
fifty percent (50%) of the index value,
but that no single stock in the group
accounted, on average, for thirty percent
(30%) or more of the index value,
during the thirty (30)-day period
immediately preceding the review; or
(iii) 31,500 contracts if the Exchange
determines that the conditions specified
above which would require the
establishment of a lower limit have not
occurred.
Proposed Rule 1805(a)(2) requires the
Exchange make the determinations of
these specific position limits described
above with respect to options on each
industry index, first at the
commencement of trading of such
options on the Exchange and thereafter
review the determination semi-annually
on January 1 and July 1.
Proposed Rule 1805(a)(3) describes
the procedures to be taken by the
Exchange at the time of each semiannual review. Specifically, if the
Exchange determines, at the time of the
semi-annual review, that the position
limit in effect with respect to options on
a particular industry index is lower than
the maximum position limit permitted
by the criteria set forth in Rule
1805(a)(1), the Exchange may effect an
appropriate position limit increase
immediately.32
Conversely, if the Exchange
determines, at the time of a semi-annual
review, that the position limit in effect
with respect to options on a particular
industry index exceeds the maximum
position limit permitted by the criteria
set forth in proposed Rule 1805(a)(1),
the Exchange shall reduce the position
limit applicable to such options to a
level consistent with such criteria. Such
a reduction would not become effective
until after the expiration date of the
most distantly expiring options series
relating to the industry index that is
open for trading on the date of the
review, and such a reduction shall not
become effective if the Exchange
determines, at the next semi-annual
review, that the existing position limit
applicable to such options is consistent
with the criteria set forth in proposed
Rule 1805(a)(1).33 The purpose of this
provision is to protect investors with
open positions as of the date of the
review from inadvertently violating the
new, reduced position limit.
Additionally, an Exchange
determination (prior to the effectiveness
of the new, lower position limit due to
remaining unexpired series) that the
criteria permitting the higher position
limit again exist obviates the need for
the lower position limit and the lower
position limit will not take effect.
Proposed Rules 1805(b)–(d) describe
situations in which industry index
option contracts will, or will not, be
aggregated for purposes of establishing
the number of contracts in a position.
Just as with broad-based index
options,34 proposed Rules 1805(b)–(d)
state that index options contracts shall
not be aggregated with options contracts
on any stocks whose prices are the basis
for calculation of the index. Positions in
reduced-value index options shall be
aggregated with positions in full-value
index options. For such purposes, ten
(10) reduced-value options shall equal
one (1) full-value contract. Positions in
Short Term Option Series and Quarterly
Options Series shall be aggregated with
positions in options contracts on the
same index.
Proposed Rule 1805A, Position Limits
for Foreign Currency Index Options,
includes a table to be completed by the
Exchange upon the Exchange’s
determination to list and trade options
overlying a Foreign Currency Index
(subject to the Commission’s approval of
a proposed rule change). Under the
proposed rule, option contracts on a
Foreign Currency Index shall be subject
to the position limits described in the
table below.
Standard limit
(on the same side of the market)
To be Specified .....................................................................
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Foreign currency index
To be Specified ...................................................................
Restrictions
To be Specified.
Proposed Rule 1806, Exemptions from
Position Limits, describes the broadbased index hedge exemption, the
industry index hedge exemption, the
application on the Exchange of
exemptions granted by other options
exchanges, and the delta-based index
hedge exemption.
Proposed Rule 1806(a) describes the
broad-based index hedge exemption.
The broad-based index hedge exemption
is in addition to the other exemptions
available under Exchange Rules,
Interpretations and Policies.35 The
proposed rule sets forth the procedures
and criteria which must be satisfied to
qualify for a broad-based index hedge
exemption.
First, proposed Rule 1806(a)(1) states
that the account in which the exempt
options positions are held (‘‘hedge
exemption account’’) must have
received prior Exchange approval for
the hedge exemption specifying the
maximum number of contracts that may
be exempt under the proposed Rule.
The hedge exemption account must
have provided all information required
on Exchange-approved forms and must
have kept such information current.
Exchange approval may be granted on
the basis of verbal representations, in
which event the hedge exemption
account shall within two business days,
or such other time period designated by
the Exchange, furnish the Exchange
with appropriate forms and
documentation substantiating the basis
for the exemption. The hedge exemption
account may apply from time to time for
an increase in the maximum number of
31 For purposes of this proposed rule change and
these proposed rules, the term ‘‘industry index’’ has
the same meaning as the term ‘‘narrow-based
index.’’
32 For example, if the conditions specified in
proposed Rule 1805(a)(ii) are determined to exist
which would allow a position limit of 24,000
contracts and the current position limit for the
option, based upon the previous review, has been
established as 18,000 contracts, the Exchange may
effect a position limit increase to 24,000 contracts
immediately.
33 The proposed Rule is virtually identical to
Cboe Rule 24.4A.
34 See proposed Rules 1804(b)–(d).
35 See, e.g., Exchange Rule 308.
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contracts exempt from the position
limits.
Proposed Rule 1806(a)(2) states that a
hedge exemption account that is not
carried by a Member must be carried by
a member of a self-regulatory
organization participating in the
Intermarket Surveillance Group (‘‘ISG’’),
which is comprised of an international
group of exchanges, market centers, and
market regulators.36
Proposed Rule 1806(a)(3) requires that
the hedge exemption account maintain
a qualified portfolio, or will effect
transactions necessary to obtain a
qualified portfolio concurrent with or at
or about the same time as the execution
of the exempt options positions, of:
(i) A net long or short position in
common stocks in at least four industry
groups and contains at least twenty (20)
stocks, none of which accounts for more
than fifteen percent (15%) of the value
of the portfolio or in securities readily
convertible, and additionally in the case
of convertible bonds economically
convertible, into common stocks which
would comprise a portfolio; or
(ii) a net long or short position in
index futures contracts or in options on
index futures contracts, or long or short
positions in index options or index
warrants, for which the underlying
index is included in the same margin or
cross-margin product group cleared at
the Clearing Corporation as the index
options class to which the hedge
exemption applies.
To remain qualified, a portfolio must
at all times meet these standards
notwithstanding trading activity.
Proposed Rule 1806(a)(4) contains the
requirement that, in order to qualify for
the broad-based exemption, the
exemption must apply to positions in
broad-based index options dealt in on
the Exchange and is applicable to the
unhedged value of the qualified
portfolio. The unhedged value will be
determined as follows:
(i) The values of the net long or short
positions of all qualifying products in
the portfolio are totaled;
(ii) for positions in excess of the
standard limit, the underlying market
value (A) of any economically
equivalent opposite side of the market
calls and puts in broad-based index
36 The purpose of the ISG is to provide a
framework for the sharing of information and the
coordination of regulatory efforts among exchanges
trading securities and related products to address
potential intermarket manipulations and trading
abuses. The ISG plays a crucial role in information
sharing among markets that trade securities, options
on securities, security futures products, and futures
and options on broad-based security indexes. A list
identifying the current ISG members is available at
https://www.isgportal.org/isgPortal/public/
members.htm.
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options, and (B) of any opposite side of
the market positions in stock index
futures, options on stock index futures,
and any economically equivalent
opposite side of the market positions,
assuming no other hedges for these
contracts exist, is subtracted from the
qualified portfolio; and
(iii) the market value of the resulting
unhedged portfolio is equated to the
appropriate number of exempt contracts
as follows: The unhedged qualified
portfolio is divided by the
correspondent closing index value and
the quotient is then divided by the
index multiplier or 100.
Proposed Rule 1806(a)(5) states that
positions in broad-based index options
that are traded on the Exchange are
exempt from the standard limits to the
extent specified in the table below.
Broad-based index option
type
Broad-based
index hedge
exemption
(in addition to
standard limit)
Broad-based indexes other
than for those that do not
have any position limits ....
75,000
Proposed Rule 1806(a)(6) lists the
types of transactions that are available
for hedging. Specifically, only the
following qualified hedging transactions
and positions are eligible for purposes
of hedging a qualified portfolio (i.e.
stocks, futures, options and warrants)
pursuant to the proposed Rule:
(i) Long put(s) used to hedge the
holdings of a qualified portfolio;
(ii) Long call(s) used to hedge a short
position in a qualified portfolio;
(iii) Short call(s) used to hedge the
holdings of a qualified portfolio; and
(iv) Short put(s) used to hedge a short
position in a qualified portfolio.
Proposed Rule 1806(a)(6) then
identifies the following strategies,
which may be effected only in
conjunction with a qualified stock
portfolio for non-P.M. settled, European
style index options only:
(v) A short call position accompanied
by long put(s), where the short call(s)
expires with the long put(s), and the
strike price of the short call(s) equals or
exceeds the strike price of the long
put(s) (a ‘‘collar’’). Neither side of the
collar transaction can be in-the-money
at the time the position is established.
For purposes of determining compliance
with Rule 306 and proposed Rule 1806,
a collar position will be treated as one
contract;
(vi) A long put position coupled with
a short put position overlying the same
broad-based index and having an
equivalent underlying aggregate index
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value, where the short put(s) expires
with the long put(s), and the strike price
of the long put(s) exceeds the strike
price of the short put(s)(a ‘‘debit put
spread position’’); and
(vii) A short call position
accompanied by a debit put spread
position, where the short call(s) expires
with the puts and the strike price of the
short call(s) equals or exceeds the strike
price of the long put(s). Neither side of
the short call, long put transaction can
be in-the-money at the time the position
is established. For purposes of
determining compliance with Rule 307
and this Rule 1806, the short call and
long put positions will be treated as one
contract.
Proposed Rule 1806(a)(7) describes
certain permitted and prohibited
activities for hedge exemption accounts.
Specifically, the proposed Rule states
that the hedge exemption account shall:
(i) Liquidate and establish options,
stock positions, their equivalent or other
qualified portfolio products in an
orderly fashion; not initiate or liquidate
positions in a manner calculated to
cause unreasonable price fluctuations or
unwarranted price changes; and not
initiate or liquidate a stock position or
its equivalent with an equivalent index
options position with a view toward
taking advantage of any differential in
price between a group of securities and
an overlying stock index option;
(ii) liquidate any options prior to or
contemporaneously with a decrease in
the hedged value of the qualified
portfolio which options would thereby
be rendered excessive; and
(iii) promptly notify the Exchange of
any material change in the qualified
portfolio which materially affects the
unhedged value of the qualified
portfolio.
Proposed Rules 1806(a)(8)–(12)
contain several regulatory requirements
for hedge exemption accounts.
Specifically, the proposed Rules state
that if an exemption is granted, it will
be effective at the time the decision is
communicated. Retroactive exemptions
will not be granted. The proposed rules
also require that the hedge exemption
account shall promptly provide to the
Exchange any information requested
concerning the qualified portfolio.
Positions included in a qualified
portfolio that serve to secure an index
hedge exemption may not also be used
to secure any other position limit
exemption granted by the Exchange or
any other self- regulatory organization
or futures contract market. Any Member
that maintains a broad-based index
options position in such Member’s own
account or in a customer account, and
has reason to believe that such position
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is in excess of the applicable limit, shall
promptly take the action necessary to
bring the position into compliance.
Failure to abide by this provision shall
be deemed to be a violation of Rules 307
and Rule 1806 by the Member. Finally,
violation of any of the provisions of the
proposed rule, absent reasonable
justification or excuse, shall result in
withdrawal of the index hedge
exemption and may form the basis for
subsequent denial of an application for
an index hedge exemption.
Proposed Rule 1806(b) describes the
Industry Index Hedge Exemption. The
industry (narrow-based) index hedge
exemption is in addition to the other
exemptions available under Exchange
Rules, Interpretations and Policies, and
may not exceed twice the standard limit
established under Rule 1805. Industry
index options positions may be exempt
from established position limits for each
options contract ‘‘hedged’’ by an
equivalent dollar amount of the
underlying component securities or
securities convertible into such
components; provided that, in applying
such hedge, each options position to be
exempted is hedged by a position in at
least seventy-five percent (75%) of the
number of component securities
underlying the index. In addition, the
underlying value of the options position
may not exceed the value of the
underlying portfolio. The value of the
underlying portfolio is: (1) The total
market value of the net stock position;
and (2) for positions in excess of the
standard limit, subtract the underlying
market value of: (i) Any offsetting calls
and puts in the respective index option;
(ii) any offsetting positions in related
stock index futures or options; and (iii)
any economically equivalent positions
(assuming no other hedges for these
contracts exist). The following
procedures and criteria must be satisfied
to qualify for an industry index hedge
exemption:
(1) The hedge exemption account
must have received prior Exchange
approval for the hedge exemption
specifying the maximum number of
contracts that may be exempt under this
Interpretation. The hedge exemption
account must have provided all
information required on Exchangeapproved forms and must have kept
such information current. Exchange
approval may be granted on the basis of
verbal representations, in which event
the hedge exemption account shall
within two business days, or such other
time period designated by the Exchange,
furnish the Exchange with appropriate
forms and documentation substantiating
the basis for the exemption. The hedge
exemption account may apply from time
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to time for an increase in the maximum
number of contracts exempt from the
position limits.
(2) A hedge exemption account that is
not carried by a Member must be carried
by a member of a self-regulatory
organization participating in the
Intermarket Surveillance Group.
(3) The hedge exemption account
shall liquidate and establish options,
stock positions, or economically
equivalent positions in an orderly
fashion; shall not initiate or liquidate
positions in a manner calculated to
cause unreasonable price fluctuations or
unwarranted price changes; and shall
not initiate or liquidate a stock position
or its equivalent with an equivalent
index options position with a view
toward taking advantage of any
differential in price between a group of
securities and an overlying stock index
option. The hedge exemption account
shall liquidate any options prior to or
contemporaneously with a decrease in
the hedged value of the portfolio which
options would thereby be rendered
excessive. The hedge exemption
account shall promptly notify the
Exchange of any change in the portfolio
which materially affects the unhedged
value of the portfolio.
(4) If an exemption is granted, it will
be effective at the time the decision is
communicated. Retroactive exemptions
will not be granted.
(5) The hedge exemption account
shall promptly provide to the Exchange
any information requested concerning
the portfolio.
(6) Positions included in a portfolio
that serve to secure an index hedge
exemption may not also be used to
secure any other position limit
exemption granted by the Exchange or
any other self-regulatory organization or
futures contract market.
(7) Any Member that maintains an
industry index options position in such
Member’s own account or in a customer
account, and has reason to believe that
such position is in excess of the
applicable limit, shall promptly take the
action necessary to bring the position
into compliance. Failure to abide by this
provision shall be deemed to be a
violation of Rule 307 and proposed Rule
1806 by the Member.
(8) Violation of any of the provisions
of proposed Rule 1806, absent
reasonable justification or excuse, shall
result in withdrawal of the index hedge
exemption and may form the basis for
subsequent denial of an application for
an index hedge exemption hereunder.
Proposed Rule 1806(c), Exemptions
Granted by Other Options Exchanges,
states that a Member may rely upon any
available exemptions from applicable
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8545
position limits granted from time to
time by another options exchange for
any options contract traded on the
Exchange provided that such Member:
(1) Provides the Exchange with a copy
of any written exemption issued by
another options exchange or a written
description of any exemption issued by
another options exchange other than in
writing containing sufficient detail for
Exchange regulatory staff to verify the
validity of that exemption with the
issuing options exchange, and
(2) fulfills all conditions precedent for
such exemption and complies at all
times with the requirements of such
exemption with respect to the Member’s
trading on the Exchange.
Proposed Rule 1806(d), Delta-Based
Index Hedge Exemption, describes the
Delta-Based Index Hedge Exemption as
in addition to the standard limit and
other exemptions available under
Exchange rules. The proposed rule
states that an index option position of
a Member or non-Member affiliate of a
Member that is delta neutral shall be
exempt from established position limits
as prescribed under Rules 1804 and
1805, subject to the following:
(1) The term ‘‘delta neutral’’ refers to
an index option position that is hedged,
in accordance with a permitted pricing
model, by a position in one or more
correlated instruments, for the purpose
of offsetting the risk that the value of the
option position will change with
incremental changes in the value of the
underlying index. The term ‘‘correlated
instruments’’ means securities and/or
other instruments that track the
performance of or are based on the same
underlying index as the index
underlying the option position (but not
including baskets of securities).
(2) An index option position that is
not delta neutral shall be subject to
position limits in accordance with
proposed Rules 1804 and 1805 (subject
to the availability of other position limit
exemptions). Only the options contract
equivalent of the net delta of such
position shall be subject to the
appropriate position limit. The ‘‘options
contract equivalent of the net delta’’ is
the net delta divided by units of trade
that equate to one option contract on a
delta basis. The term ‘‘net delta’’ means,
at any time, the number of shares and/
or other units of trade (either long or
short) required to offset the risk that the
value of an index option position will
change with incremental changes in the
value of the underlying index, as
determined in accordance with a
permitted pricing model.
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(3) A ‘‘permitted pricing model’’ shall
have the meaning as defined in Rule
308(a)(7)(iii).37
Proposed Rule 1806(d)(4), Effect on
Aggregation of Accounts, states that (i)
Members and non-Member affiliates
37 A ‘‘permitted pricing model’’ means: (A) A
pricing model maintained and operated by the
Clearing Corporation (‘‘OCC Model’’); (B) A pricing
model maintained and used by a Member subject
to consolidated supervision by the SEC pursuant to
Appendix E of SEC Rule 15c3–1, or by an affiliate
that is part of such Member’s consolidated
supervised holding company group, in accordance
with its internal risk management control system
and consistent with the requirements of
Appendices E or G, as applicable, to SEC Rule
15c3–1 and SEC Rule 15c3–4 under the Exchange
Act, as amended from time to time, in connection
with the calculation of risk-based deductions from
capital or capital allowances for market risk
thereunder, provided that the Member or affiliate of
a Member relying on this exemption in connection
with the use of such model is an entity that is part
of such Member’s consolidated supervised holding
company group; (C) A pricing model maintained
and used by a financial holding company or a
company treated as a financial holding company
under the Bank Holding Company Act of 1956, or
by an affiliate that is part of either such company’s
consolidated supervised holding company group, in
accordance with its internal risk management
control system and consistent with: 1. the
requirements of the Board of Governors of the
Federal Reserve System, as amended from time to
time, in connection with the calculation of risk
based adjustments to capital for market risk under
capital requirements of the Board of Governors of
the Federal Reserve System, provided that the
Member or affiliate of a Member relying on this
exemption in connection with the use of such
model is an entity that is part of such company’s
consolidated supervised holding company group; or
2. the standards published by the Basel Committee
on Banking Supervision, as amended from time to
time and as implemented by such company’s
principal regulator, in connection with the
calculation of risk-based deductions or adjustments
to or allowances for the market risk capital
requirements of such principal regulator applicable
to such company—where ‘‘principal regulator’’
means a member of the Basel Committee on
Banking Supervision that is the home country
consolidated supervisor of such company—
provided that the Member or affiliate of a Member
relying on this exemption in connection with the
use of such model is an entity that is part of such
company’s consolidated supervised holding
company group. (D) A pricing model maintained
and used by an OTC derivatives dealer registered
with the SEC pursuant to SEC Rule 15c3–1(a)(5) in
accordance with its internal risk management
control system and consistent with the
requirements of Appendix F to SEC Rule 15c3–1
and SEC Rule 15c3–4 under the Exchange Act, as
amended from time to time, in connection with the
calculation of risk-based deductions from capital for
market risk thereunder, provided that only such
OTC derivatives dealer and no other affiliated entity
(including a Member) may rely on this
subparagraph (D); or (E) A pricing model used by
a national bank under the National Bank Act
maintained and used in accordance with its internal
risk management control system and consistent
with the requirements of the Office of the
Comptroller of the Currency, as amended from time
to time, in connection with the calculation of risk
based adjustments to capital for market risk under
capital requirements of the Office of the
Comptroller of the Currency, provided that only
such national bank and no other affiliated entity
(including a Member) may rely on this
subparagraph (E).
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who rely on this exemption must ensure
that the permitted pricing model is
applied to all positions in correlated
instruments that are owned or
controlled by such Member or nonMember affiliate.
Notwithstanding subparagraph (i),
above, the net delta of an option
position held by an entity entitled to
rely on this exemption, or by a separate
and distinct trading unit of such entity,
may be calculated without regard to
positions in correlated instruments held
by an affiliated entity or by another
trading unit within the same entity,
provided that:
(A) The entity demonstrates to the
Exchange’s satisfaction that no control
relationship, as defined in Rule 307(f),
exists between such affiliates or trading
units; and
(B) the entity has provided (by the
Member carrying the account as
applicable) the Exchange written notice
in advance that it intends to be
considered separate and distinct from
any affiliate or, as applicable, which
trading units within the entity are to be
considered separate and distinct from
each other for purposes of this
exemption.
Proposed Rule 1806(d)(4)(iii) states
that, notwithstanding subparagraphs (i)
and (ii) of proposed Rule 1806(d)(4), a
Member or non-Member affiliate who
relies on this exemption shall designate,
by prior written notice to the Exchange
(to be obtained and provided by the
Member carrying the account as
applicable), each trading unit or entity
whose option positions are required
under Exchange Rules to be aggregated
with the option positions of such
Member or non-Member affiliate that is
relying on this exemption for purposes
of compliance with Exchange position
limits or exercise limits. In any such
case: (A) The permitted pricing model
shall be applied, for purposes of
calculating such Member’s or affiliate’s
net delta, only to the positions in
correlated instruments owned and
controlled by those entities and trading
units who are relying on this exemption;
and (B) the net delta of the positions
owned or controlled by the entities and
trading units who are relying on this
exemption shall be aggregated with the
non-exempt option positions of all other
entities and trading units whose options
positions are required under Exchange
Rules to be aggregated with the option
positions of such Member or affiliate.
Proposed Rule 1806(d)(5) describes
the obligations of Members seeking the
Delta Hedge Exemption. First, a Member
that relies on this exemption for a
proprietary index options position: (A)
Must provide a written certification to
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the Exchange that it is using a permitted
pricing model as defined above, and (B)
by such reliance authorizes any other
person carrying for such Member an
account including, or with whom such
Member has entered into, a position in
a correlated instrument to provide to the
Exchange or the Clearing Corporation
such information regarding such
account or position as the Exchange or
Clearing Corporation may request as
part of the Exchange’s confirmation or
verification of the accuracy of any net
delta calculation under this exemption.
The index option positions of a nonMember relying on this exemption must
be carried by a Member with which it
is affiliated.
Proposed Rule 1806(d)(5)(iii) requires
that a Member carrying an account that
includes an index option position for a
non-Member affiliate that intends to rely
on the Delta-Based Hedge Exemption
must obtain from such non-Member
affiliate and must provide to the
Exchange: (A) A written certification to
the Exchange that the non-Member
affiliate is using a permitted pricing
model as described above; and (B) a
written statement confirming that such
non-Member affiliate: (1) Is relying on
this exemption; (2) will use only a
permitted pricing model for purposes of
calculating the net delta of its option
positions for purposes of this
exemption; (3) will promptly notify the
Member if it ceases to rely on this
exemption; (4) authorizes the Member to
provide to the Exchange or the Clearing
Corporation such information regarding
positions of the non-Member affiliate as
the Exchange or Clearing Corporation
may request as part of the Exchange’s
confirmation or verification of the
accuracy of any net delta calculation
under this exemption; and (5) if the
non-Member affiliate is using the
Clearing Corporation Model, has duly
executed and delivered to the Member
such documents as the Exchange may
require to be executed and delivered to
the Exchange as a condition to reliance
on the exemption.
Proposed Rule 1806(d)(6) requires
each Member (other than an Exchange
market maker using the Clearing
Corporation Model) that holds or carries
an account that relies on the DeltaBased Hedge Exemption shall report, in
accordance with Exchange Rule 310,38
38 Each Member is required under Exchange Rule
310, Reports Related to Position Limits, to file with
the Exchange the name, address and social security
or tax identification number of any customer, as
well as any Member, any general or special partner
of the Member, any officer or director of the
Member or any participant, as such, in any joint,
group or syndicate account with the Member or
with any partner, officer or director thereof, who,
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all index option positions (including
those that are delta neutral) that are
reportable thereunder. Each such
Member on its own behalf or on behalf
of a designated aggregation unit
pursuant to Rule 1806(d)(4) shall also
report, in accordance with Exchange
Rule 310 for each such account that
holds an index option position subject
to the Delta-Based Hedge Exemption in
excess of the levels specified in Rules
1804 and 1805, the net delta and the
options contract equivalent of the net
delta of such position.
Finally, proposed Rule 1806(d)(7)
requires that each Member relying on
the Delta-Based Hedge Exemption shall:
(i) Retain, and undertake reasonable
efforts to ensure that any non-Member
affiliate of the Member relying on this
exemption retains, a list of the options,
securities and other instruments
underlying each option position net
delta calculation reported to the
Exchange hereunder, and (ii) produce
such information to the Exchange upon
request.
The proposed Rules relating to
position limits and exemptions from
position limits are based on, and
substantially similar to, rules that are
currently in place on other exchanges.39
Proposed Rule 1808, Trading
Sessions, provides that index options
will trade between the hours of 9:30
a.m. and 4:15 p.m. Eastern time, the
same as on other exchanges. The
proposed rule also contains procedures
on the previous business day held aggregate long or
short positions of 200 or more option contracts of
any single class of options traded on the Exchange.
The report shall indicate for each such class of
option contracts the number of option contracts
comprising each such position and, in case of short
positions, whether covered or uncovered. (b)
Electronic Exchange Members that maintain an end
of day position in excess of 10,000 non-FLEX equity
option contracts on the same side of the market on
behalf of its own account or for the account of a
customer, shall report whether such position is
hedged and provide documentation as to how such
position is hedged. This report is required at the
time the subject account exceeds the 10,000
contract threshold and thereafter, for customer
accounts, when the position increases by 2,500
contracts and for proprietary accounts when the
position increases by 5,000 contracts. (c) In addition
to the reports required by paragraph (a) and (b) of
this Rule, each Member shall report promptly to the
Exchange any instance in which the Member has
reason to believe that a person included in
paragraph (a), acting alone or in concert with
others, has exceeded or is attempting to exceed the
position limits established pursuant to Rule 307.
Interpretations and Policies: .01 For purposes of
calculating the aggregate long or short position
under paragraph (a) above, Members shall combine
(i) long positions in put options with short
positions in call options, and (ii) short positions in
put options with long positions in call options. See
Exchange Rule 310.
39 See, e.g., Nasdaq ISE Rule 2006; Cboe Rule
24.4, Interpretations and Policies .01, .05, and Rule
24.4A; and Nasdaq Phlx Rule 1001A and
Interpretations and Policies .01–.04 thereto.
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for trading rotations, as well as trading
halts and suspensions.
Specifically, proposed Rule 1808(a)
states that, except as otherwise provided
in this Rule or under unusual
conditions as may be determined by the
Exchange, (i) transactions in index
options may be effected on the
Exchange between the hours of 9:30
a.m. and 4:15 p.m. Eastern time, and (ii)
transactions in options on a Foreign
Currency Index may be effected on the
Exchange between the hours of 7:30
a.m. and 4:15 p.m. Eastern time. With
respect to options on foreign indexes,
the Exchange shall determine the days
and hours of business. The proposed
Rule and the various enumerated times
are consistent with rules in place on
other exchanges.40
Proposed Rule 1808(b), Trading
Rotations, states that, except as
otherwise provided in the proposed
Rule, the opening process for index
options shall be governed by Rule 503.41
The opening rotation for index options
shall be held at or as soon as practicable
after 9:30 a.m. Eastern time. The
Exchange may delay the commencement
of the opening rotation in an index
option whenever in the judgment of the
Exchange such action is appropriate in
the interests of a fair and orderly
market. Among the factors that may be
considered in making these
determinations are: (1) Unusual
conditions or circumstances in other
markets; (2) an influx of orders that has
adversely affected the ability of the
Market Maker to provide and to
maintain fair and orderly markets; (3)
activation of opening price limits in
stock index futures on one or more
futures exchanges; (4) activation of daily
price limits in stock index futures on
one or more futures exchanges; (5) the
extent to which either there has been a
delay in opening or trading is not
occurring in stocks underlying the
index; and (6) circumstances such as
those which would result in the
declaration of a fast market under Rule
506(d).42
Proposed Rule 1808(c) describes
circumstances and procedures relating
to halts and suspensions in index
options. Specifically, trading on the
Exchange in any index option shall be
halted or suspended whenever trading
40 See MIAX Options Rule 1808; Nasdaq ISE Rule
2008; Cboe Rule 24.6, and Nasdaq Phlx Rule 101.
41 See Exchange Rule 503. Openings on the
Exchange, governs the opening of trading on the
Exchange with respect to, among other things,
determining the opening price and matching orders
and quotes in the system. These and other
provisions will apply to openings in index options.
42 This reference to MIAX Options Rule 506(d)
will be construed to reference corresponding MIAX
PEARL Rule 506(e).
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8547
in underlying securities whose weighted
value represents more than twenty
percent (20%), in the case of a broad
based index, and ten percent (10%) for
all other indices, of the index value is
halted or suspended. The Exchange also
may halt trading in an index option,
including in options on a Foreign
Currency Index, when, in its judgment,
such action is appropriate in the
interests of a fair and orderly market
and to protect investors. Among the
facts that may be considered are the
following:
(1) Whether all trading has been
halted or suspended in the market that
is the primary market for a plurality of
the underlying stocks, or in the case of
a Foreign Currency Index, in the
underlying foreign currency market;
(2) whether the current calculation of
the index derived from the current
market prices of the stocks is not
available, or in the case of the a Foreign
Currency Index, the current prices of the
underlying foreign currency is not
available;
(3) the extent to which the rotation
has been completed or other factors
regarding the status of the rotation; and
(4) other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present, including, but not
limited to, the activation of price limits
on futures exchanges.
Proposed Rule 1808(d) describes the
resumption of trading following a halt
or suspension in an index option.
Trading in options of a class or series
that has been the subject of a halt or
suspension by the Exchange may
resume if the Exchange determines that
the interests of a fair and orderly market
are served by a resumption of trading.
Among the factors to be considered in
making this determination are whether
the conditions that led to the halt or
suspension are no longer present, and
the extent to which trading is occurring
in stocks or currencies underlying an
index. Upon reopening, a rotation shall
be held in each class of index options
unless the Exchange concludes that a
different method of reopening is
appropriate under the circumstances,
including but not limited to, no rotation,
an abbreviated rotation or any other
variation in the manner of the rotation.
Proposed Rule 1808(e) states that Rule
504, Interpretations and Policies .03
applies to index options trading with
respect to the initiation of a market wide
trading halt commonly known as a
‘‘circuit breaker.’’ 43
43 The Exchange shall halt trading in all securities
whenever a market-wide trading halt commonly
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Proposed Rule 1808(f) addresses the
hours for trading foreign currency
options. Specifically, when the hours of
trading of the underlying primary
securities market for an index option do
not overlap or coincide with those of the
Exchange, all of the provisions as
described in paragraphs (c), (d) and (e)
above shall not apply except for (c)(4).
Proposed Rule 1808(g) governs the
situation where the primary market for
a security underlying the current index
value of an index option does not open
does not open for trading on a given
day. In such a circumstance, the price
of that security shall be determined, for
the purposes of calculating the current
index value at expiration, based on the
opening price of that security on the
next day that its primary market is open
for trading. This procedure shall not be
used if the current index value at
expiration is fixed in accordance with
the Rules and By-Laws of the Clearing
Corporation.
The proposed rules governing trading
sessions, including trading rotations,
halts and suspensions, resumption of
trading following a halt or suspension,
circuit breakers, special provisions for
foreign indices, and pricing when the
primary market does not open are based
on, and substantially similar to, the
rules in place on other exchanges.44
Proposed Rule 1809, Terms of Index
Options Contracts, outlines the terms of
index options contracts in terms of the
meaning of premium bids and offers;
exercise prices; expiration months and
the trading of European Style Index
options. The proposed Rule also applies
to A.M. Settled Index Options, and
Long-Term Option Series (including
Reduced-Value Long Term Options
Series), which would also require a
filing with the Commission for the
specific index option(s) to which the
proposed rule is applicable.45
Proposed Rule 1809(a) contains
general provisions applicable to the
trading of index options on the
Exchange. Specifically, the proposed
Rule states generally that bids and offers
shall be expressed in terms of dollars
and cents per unit of the index. The
Exchange shall determine fixed-point
intervals of exercise prices for call and
known as a circuit breaker is initiated on the New
York Stock Exchange in response to extraordinary
market conditions. See Exchange Rule 504,
Interpretations and Policies .03. Rule 530(e)
provides that the Exchange shall halt trading in all
options whenever the equities markets initiate a
market-wide trading halt commonly known as a
circuit breaker in response to extraordinary market
conditions.
44 See, e.g., MIAX Options Rule 1808; Nasdaq ISE
Rule 2008; Cboe Rule 24.7; and Nasdaq Phlx Rule
1047A.
45 See supra note 5.
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put options. With respect to expirations,
proposed Rule 1809(a)(3) states that
index options contracts, including
option contracts on a Foreign Currency
Index, may expire at three (3)-month
intervals or in consecutive months. The
Exchange may list up to six (6)
expiration months at any one time, but
will not list index options that expire
more than twelve (12) months out.
Notwithstanding the preceding
restriction, the Exchange may list up to
seven expiration months at any one time
for any broad-based security index
option contracts on which any exchange
calculates a constant three (3)-month
volatility index.
Proposed Rule 1809(a)(4) permits the
Exchange to list and trade certain
European-style index options to be
Specified by the Exchange, some of
which may be A.M.-settled as provided
in paragraph (a)(5). The Exchange will
file a proposed rule change and any
such listing and trading is subject to the
approval of the Commission.46
Proposed Rule 1809(a)(5) governs
A.M.-Settled Index Options. The last
day of trading for A.M.-settled index
options shall be the business day
preceding the business day of
expiration, or, in the case of an option
contract expiring on a day that is not a
business day, the business day
preceding the last day of trading in the
underlying securities prior to the
expiration date. The current index value
at the expiration of an A.M.-settled
index option shall be determined, for all
purposes under these proposed Rules
and the Rules of the Clearing
Corporation, on the last day of trading
in the underlying securities prior to
expiration, by reference to the reported
level of such index as derived from first
reported sale (opening) prices of the
underlying securities on such day,
except that:
(i) In the event that the primary
market for an underlying security does
not open for trading on that day, the
price of that security shall be
determined, for the purposes of
calculating the current index value at
expiration, as set forth in Rule 1808(g),
unless the current index value at
expiration is fixed in accordance with
the Rules and By-Laws of the Clearing
Corporation; and
(ii) In the event that the primary
market for an underlying security is
open for trading on that day, but that
particular security does not open for
trading on that day, the price of that
security, for the purposes of calculating
the current index value at expiration,
46 Id.
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shall be the last reported sale price of
the security.
Proposed Rule 1809(a)(5)(ii) permits
the Exchange to list specific A.M.settled index options that are approved
for trading on the Exchange, subject to
the filing of a proposed rule change and
the approval of the Commission.
Proposed Rule 1809(b)(1) permits the
Exchange, notwithstanding the
permitted expiration months set forth in
proposed Rule 1809(a)(3) (as described
above), to list long-term index options
series that expire from twelve (12) to
sixty (60) months from the date of
issuance. Under the proposal, long term
index options series may be based on
either the full or reduced value of the
underlying index. There may be up to
ten (10) expiration months, none further
out than sixty (60) months. Strike price
interval, bid/ask differential and
continuity Rules shall not apply to such
options series until the time to
expiration is less than twelve (12)
months. When a new long term index
options series is listed, such series will
be opened for trading either when there
is buying or selling interest, or forty (40)
minutes prior to the close, whichever
occurs first. No quotations will be
posted for such options until they are
opened for trading.
Proposed Rule 1809(b)(2) governs the
trading of reduced-value long term
options series.47 Proposed Rule
1809(b)(2)(i) permits the Exchange to
list the specific reduced-Value long term
options series traded on the Exchange
(subject to an Exchange filing and
Commission approval).48 Reduced-value
long term options series may expire at
six-month intervals. When a new
expiration month is listed, series may be
near or bracketing the current index
value. Additional series may be added
when the value of the underlying index
increases or decreases by ten (10) to
fifteen percent (15%).
Proposed Rule 1809(c) sets forth the
procedures for adding and deleting
strike prices. The procedures for adding
and deleting strike prices for index
options are provided in Exchange Rule
404, as amended by the following:
(1) The interval between strike prices
will be no less than $5.00; provided that
in the case of certain classes of index
options, the interval between strike
prices will be no less than $2.50 and
such must be listed specifically in the
Rule.
47 A reduced-value options series is an option
series overlying an index that trades in units based
upon a percentage of the value of the underlying
index, for example, ten percent (10%) of the value
of the index.
48 See supra note 5.
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(2) New series of index options
contracts may be added up to, but not
on or after, the fourth business day prior
to expiration for an option contract
expiring on a business day, or, in the
case of an option contract expiring on a
day that is not a business day, the fifth
business day prior to expiration.
(3) When new series of index options
with a new expiration date are opened
for trading, or when additional series of
index options in an existing expiration
date are opened for trading as the
current value of the underlying index to
which such series relate moves
substantially from the exercise prices of
series already opened, the exercise
prices of such new or additional series
shall be reasonably related to the
current value of the underlying index at
the time such series are first opened for
trading. In the case of all classes of
index options, the term ‘‘reasonably
related to the current value of the
underlying index’’ shall have the
meaning set forth in proposed Rule
1809(c)(4), described below.
(4) Notwithstanding any other
provision of this paragraph (c), the
Exchange may open for trading
additional series of the same class of
index options as the current index value
of the underlying index moves
substantially from the exercise price of
those index options that already have
been opened for trading on the
Exchange. The exercise price of each
series of index options opened for
trading on the Exchange shall be
reasonably related to the current index
value of the underlying index to which
such series relates at or about the time
such series of options is first opened for
trading on the Exchange. The term
‘‘reasonably related to the current index
value of the underlying index’’ means
that the exercise price is within thirty
percent (30%) of the current index
value.
The Exchange may also open for
trading additional series of index
options that are more than thirty percent
(30%) away from the current index
value, provided that demonstrated
customer interest exists for such series,
as expressed by institutional, corporate,
or individual customers or their brokers.
Market Makers trading for their own
account shall not be considered when
determining customer interest under
this provision.
Proposed Rule 1809(d) states that the
reported level of the underlying index
that is calculated by the reporting
authority on the business day of
expiration, or, in the case of an option
contract expiring on a day that is not a
business day, the last day of trading in
the underlying securities prior to the
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expiration date for purposes of
determining the current index value at
the expiration of an A.M.-settled index
option, may differ from the level of the
index that is separately calculated and
reported by the reporting authority and
that reflects trading activity subsequent
to the opening of trading in any of the
underlying securities.
Proposed Rule 1809(e) provides that
the Rules of the Clearing Corporation
specify that, unless the Rules of the
Exchange provide otherwise, the current
index value used to settle the exercise
of an index options contract shall be the
closing index value for the day on
which the index options contract is
exercised in accordance with the Rules
of the Clearing Corporation or, if such
day is not a business day, for the most
recent business day. The closing
settlement value for options on a
Foreign Currency Index shall be
specified by the Exchange.
Proposed Rule 1809, Interpretations
and Policies .01, Short Term Option
Series Program, specifies that,
notwithstanding the restriction in Rule
1809(a)(3), after an option class has been
approved for listing and trading on the
Exchange, the Exchange may open for
trading on any Thursday or Friday that
is a business day (‘‘Short Term Option
Opening Date’’) series of options on that
class that expire at the close of business
on each of the next five Fridays that are
business days and are not Fridays in
which monthly options series or
Quarterly Options Series expire (‘‘Short
Term Option Expiration Dates’’). The
Exchange may have no more than a total
of five Short Term Option Expiration
Dates. If the Exchange is not open for
business on the respective Thursday or
Friday, the Short Term Option Opening
Date will be the first business day
immediately prior to that respective
Thursday or Friday. Similarly, if the
Exchange is not open for business on a
Friday, the Short Term Option
Expiration Date will be the first business
day immediately prior to that Friday.
Proposed Interpretations and Policies
.01(a) to Rule 1809 permits the
Exchange to select up to thirty (30)
currently listed option classes on which
Short Term Option Series may be
opened on any Short Term Option
Opening Date. In addition to the thirty
(30) option class restriction, the
Exchange may also list Short Term
Option Series on any option classes that
are selected by other securities
exchanges that employ a similar
program under their respective rules.
For each index option class eligible for
participation in the Short Term Option
Series Program, the Exchange may open
up to thirty (30) Short Term Option
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8549
Series on index options for each
expiration date in that class. The
Exchange may also open Short Term
Option Series that are opened by other
securities exchanges in option classes
selected by such exchanges under their
respective short term option rules.
Proposed Interpretations and Policies
.01(b) to proposed Rule 1809 states that
no Short Term Option Series on an
index option class may expire in the
same week during which any monthly
option series on the same index class
expires or, in the case of Quarterly
Options Series, on an expiration that
coincides with an expiration of
Quarterly Options Series on the same
index class.
Proposed Interpretations and Policies
.01(c) to Rule 1809 governs the listing
and trading of initial series in short-term
options. The Exchange may open up to
twenty (20) initial series for each option
class that participates in the Short Term
Option Series Program. The strike price
of each Short Term Option Series will
be fixed at a price per share, with
approximately the same number of
strike prices above and below the
calculated index value of the underlying
index at about the time that Short Term
Option Series are initially opened for
trading on the Exchange (e.g., if seven
series are initially opened, there will be
at least three strike prices above and
three strike prices below the calculated
index value). Any strike prices listed by
the Exchange shall be within thirty
percent (30%) above or below the
current value of the underlying index.
Proposed Interpretations and Policies
.01(d) to Rule 1809, Additional Series,
states that the Exchange may open up to
ten (10) additional series for each option
class that participates in the Short Term
Option Series Program when the
Exchange deems it necessary to
maintain an orderly market, to meet
customer demand or when the current
value of the underlying index moves
substantially from the exercise price or
prices of the series already opened. Any
additional strike prices listed by the
Exchange shall be within thirty percent
(30%) above or below the current value
of the underlying index. The Exchange
may also open additional strike prices
on Short Term Option Series that are
more than thirty percent (30%) above or
below the current value of the
underlying index provided that
demonstrated customer interest exists
for such series, as expressed by
institutional, corporate or individual
customers or their brokers. Market
Makers trading for their own account
shall not be considered when
determining customer interest under
this provision. In the event that the
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underlying security has moved such
that there are no series that are at least
ten percent (10%) above or below the
current price of the underlying security,
the Exchange will delist any series with
no open interest in both the call and the
put series having a: (i) Strike higher
than the highest strike price with open
interest in the put and/or call series for
a given expiration month; and (ii) strike
lower than the lowest strike price with
open interest in the put and/or the call
series for a given expiration month, so
as to list series that are at least ten
percent (10%) but not more than thirty
percent (30%) above or below the
current price of the underlying security.
In the event that the underlying security
has moved such that there are no series
that are at least ten percent (10%) above
or below the current price of the
underlying security and all existing
series have open interest, the Exchange
may list additional series, in excess of
the thirty (30) allowed under this
Interpretations and Policies .01. The
opening of the new Short Term Option
Series shall not affect the series of
options of the same class previously
opened. Notwithstanding any other
provisions in proposed Rule 1809, Short
Term Option Series may be added up to,
and including on, the Short Term
Option Expiration Date for that options
series.
Proposed Interpretations and Policies
.01(e) to Rule 1809 governs strike price
intervals for short term index option
series. The interval between strike
prices on Short Term Option Series
shall be the same as the strike prices for
series in that same index option class
that expire in accordance with the
normal monthly expiration cycle.
During the month prior to expiration of
an index option class that is selected for
the Short Term Option Series Program
pursuant to this rule (‘‘Short Term
Option’’), the strike price intervals for
the related index non-Short Term
Option (‘‘Related non-Short Term
Option’’) shall be the same as the strike
price intervals for the index Short Term
Option.
Proposed Interpretations and Policies
.02 to Rule 1809 governs the Quarterly
Options Series Program.
Notwithstanding the restriction in
proposed Rule 1809(a)(3) (described
above), the Exchange may list and trade
options series that expire at the close of
business on the last business day of a
calendar quarter (‘‘Quarterly Options
Series’’). The Exchange may list
Quarterly Options Series for up to five
(5) currently listed options classes that
are either index options or options on
exchange traded funds (‘‘ETFs’’). In
addition, the Exchange may also list
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Quarterly Options Series on any options
classes that are selected by other
securities exchanges that employ a
similar pilot program under their
respective rules. The Exchange may list
series that expire at the end of the next
consecutive four (4) calendar quarters,
as well as the fourth quarter of the next
calendar year. The Exchange will not
list a Short Term Option Series on an
options class whose expiration
coincides with that of a Quarterly
Options Series on that same options
class. Quarterly Options Series shall be
P.M. settled.
Proposed Interpretations and Policies
.02(d) to Rule 1809, Initial Series, states
that the strike price of each Quarterly
Options Series will be fixed at a price
per share, with at least two, but no more
than five, strike prices above and at least
two, but no more than five, strike prices
below the value of the underlying index
at about the time that a Quarterly
Options Series is opened for trading on
the Exchange. The Exchange shall list
strike prices for Quarterly Options
Series that are reasonably related to the
current index value of the underlying
index to which such series relates at
about the time such series of options is
first opened for trading on the
Exchange. The term ‘‘reasonably related
to the current index value of the
underlying index’’ means that the
exercise price is within thirty percent
(30%) of the current index value.
Proposed Interpretations and Policies
.02(e) to Rule 1809, Additional Series,
permits the Exchange to open for
trading additional Quarterly Options
Series of the same class when the
Exchange deems it necessary to
maintain an orderly market, to meet
customer demand or when the market
price of the underlying security moves
substantially from the initial exercise
price or prices. The Exchange may also
open for trading additional Quarterly
Options Series that are more than thirty
percent (30%) away from the current
index value, provided that
demonstrated customer interest exists
for such series, as expressed by
institutional, corporate, or individual
customers or their brokers. Marketmakers trading for their own account
shall not be considered when
determining customer interest under
this provision. The Exchange may open
additional strike prices of a Quarterly
Options Series that are above the value
of the underlying index provided that
the total number of strike prices above
the value of the underlying is no greater
than five. The Exchange may open
additional strike prices of a Quarterly
Options Series that are below the value
of the underlying index provided that
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the total number of strike prices below
the value of the underlying index is no
greater than five. The opening of any
new Quarterly Options Series shall not
affect the series of options of the same
class previously opened.
Proposed Interpretations and Policies
.02(f) to Rule 1809, Strike Interval, states
that the interval between strike prices
on Quarterly Options Series shall be the
same as the interval for strike prices for
series in that same options class that
expire in accordance with the normal
monthly expiration cycle.
Proposed Interpretations and Policies
.03 to Rule 1809 states that,
notwithstanding the requirements set
forth in proposed Rule 1809, the
Exchange may list additional series of
index options classes if such series are
listed on at least one other national
securities exchange in accordance with
the applicable rules of such exchange
for the listing of index options.49
Proposed Interpretations and Policies
.04 to Rule 1809 states that,
notwithstanding the requirements set
forth in proposed Rule 1809 and any
Interpretations and Policies thereto, the
Exchange may list additional expiration
months on options classes opened for
trading on the Exchange if such
expiration months are opened for
trading on at least one other registered
national securities exchange.
Proposed Interpretations and Policies
.05 to Rule 1809 states that,
notwithstanding the requirements set
forth in this Rule 1809 and any
Interpretations and Policies thereto, the
Exchange may open for trading Short
Term Option Series on the Short Term
Option Opening Date that expire on the
Short Term Option Expiration Date at
strike price intervals of (i) $0.50 or
greater where the strike price is less
than $75, and $1 or greater where the
strike price is between $75 and $150 for
all index option classes that participate
in the Short Term Options Series
Program; or (ii) $0.50 for index option
classes that trade in one dollar
increments and are in the Short Term
Option Series Program.
The proposed rules concerning the
terms of options contracts are based on,
and substantially similar to, rules that
are currently operative on other
exchanges.50
Proposed Rule 1810 applies to debit
put spreads. Debit put spread positions
in European-style, broad-based index
options traded on the Exchange
(hereinafter ‘‘debit put spreads’’) may be
49 See
supra note 3.
e.g., MIAX Options Rule 1809; Nasdaq ISE
Rule 2009; Cboe Rule 24.9; and Nasdaq Phlx Rule
1101A.
50 See,
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maintained in a cash account as defined
by Federal Reserve Board Regulation T
Section 220.8 51 by a Public Customer,
provided that the following procedures
and criteria are met:
(a) Approval to maintain debit put
spreads in a cash account carried by an
Exchange Member. A customer so
approved is hereinafter referred to as a
‘‘spread exemption customer.’’
(b) The spread exemption customer
has provided all information required
on Exchange-approved forms and has
kept such information current.
(c) The customer holds a net long
position in each of the stocks of a
portfolio that has been previously
established or in securities readily
convertible, and additionally in the case
of convertible bonds economically
convertible, into common stocks which
would comprise a portfolio. The debit
put spread position must be carried in
an account with a member of a selfregulatory organization participating in
the ISG.
(d) The stock portfolio or its
equivalent is composed of net long
positions in common stocks in at least
four industry groups and contains at
least twenty (20) stocks, none of which
accounts for more than fifteen percent
(15%) of the value of the portfolio
(hereinafter ‘‘qualified portfolio’’). To
remain qualified, a portfolio must at all
times meet these standards
notwithstanding trading activity in the
stocks.
(e) The exemption applies to
European-style broad-based index
options dealt in on the Exchange to the
extent the underlying value of such
options position does not exceed the
unhedged value of the qualified
portfolio. The unhedged value would be
determined as follows: (1) The values of
the net long or short positions of all
qualifying products in the portfolio are
totaled; (2) for positions in excess of the
standard limit, the underlying market
value (A) of any economically
equivalent opposite side of the market
calls and puts in broad-based index
options, and (B) of any opposite side of
the market positions in stock index
futures, options on stock index futures,
and any economically equivalent
opposite side of the market positions,
assuming no other hedges for these
contracts exist, is subtracted from the
qualified portfolio; and (3) the market
value of the resulting unhedged
portfolio is equated to the appropriate
number of exempt contracts as
follows—the unhedged qualified
portfolio is divided by the
correspondent closing index value and
51 12
CFR 220.8.
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the quotient is then divided by the
index multiplier or 100.
(f) A debit put spread in Exchangetraded broad-based index options with
European-style exercises is defined as a
long put position coupled with a short
put position overlying the same broadbased index and having an equivalent
underlying aggregate index value, where
the short put(s) expires with the long
put(s), and the strike price of the long
put(s) exceeds the strike price of the
short put(s). A debit put spread will be
permitted in the cash account as long as
it is continuously associated with a
qualified portfolio of securities with a
current market value at least equal to
the underlying aggregate index value of
the long side of the debit put spread.
(g) The qualified portfolio must be
maintained with either a Member,
another broker-dealer, a bank, or
securities depository.
(h) The spread exemption customer
shall agree promptly to provide the
Exchange any information requested
concerning the dollar value and
composition of the customer’s stock
portfolio, and the current debit put
spread positions.
(1) The spread exemption customer
shall agree to and any Member carrying
an account for the customer shall:
(i) Comply with all Exchange Rules
and regulations;
(ii) liquidate any debit put spreads
prior to or contemporaneously with a
decrease in the market value of the
qualified portfolio, which debit put
spreads would thereby be rendered
excessive; and
(iii) promptly notify the Exchange of
any change in the qualified portfolio or
the debit put spread position which
causes the debit put spreads maintained
in the cash account to be rendered
excessive.
(i) If any Member carrying a cash
account for a spread exemption
customer with a debit put spread
position dealt in on the Exchange has a
reason to believe that as a result of an
opening options transaction the
customer would violate this spread
exemption, and such opening
transaction occurs, then the Member has
violated Rule 1810.
(j) Violation of any of these
provisions, absent reasonable
justification or excuse, shall result in
withdrawal of the spread exemption and
may form the basis for subsequent
denial of an application for a spread
exemption hereunder.
Proposed Rule 1811, Disclaimers,
disclaims liability for index reporting
authorities. The Disclaimer shall apply
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8551
to the reporting authorities 52 identified
in the Interpretations and Policies to
proposed Rule 1801.53
Proposed Rule 1811(b), Disclaimer,
provides that no reporting authority,
and no affiliate of a reporting authority
(each such reporting authority, its
affiliates, and any other entity identified
in this Rule are referred to collectively
as a ‘‘Reporting Authority’’), makes any
warranty, express or implied, as to the
results to be obtained by any person or
entity from the use of an index it
publishes, any opening, intra-day or
closing value therefor, or any data
included therein or relating thereto, in
connection with the trading of any
options contract based thereon or for
any other purpose. The Reporting
Authority shall obtain information for
inclusion in, or for use in the
calculation of, such index from sources
it believes to be reliable, but the
Reporting Authority does not guarantee
the accuracy or completeness of such
index, any opening, intra-day or closing
value therefor, or any date included
therein or related thereto. The Reporting
Authority hereby disclaims all
warranties of merchantability or fitness
for a particular purpose or use with
respect to such index, any opening,
intra-day, or closing value therefor, any
data included therein or relating thereto,
or any options contract based thereon.
The Reporting Authority shall have no
liability for any damages, claims, losses
(including any indirect or consequential
losses), expenses, or delays, whether
direct or indirect, foreseen or
unforeseen, suffered by any person
arising out of any circumstance or
occurrence relating to the person’s use
of such index, any opening, intra-day or
closing value therefor, any data
included therein or relating thereto, or
any options contract based thereon, or
arising out of any errors or delays in
calculating or disseminating such index.
Proposed Rule 1811 concerning
Disclaimers is based on, and
substantially similar to, rules that are
52 The term ‘‘reporting authority’’ with respect to
a particular index means the institution or reporting
service designated by the Exchange as the official
source for (1) calculating the level of the index from
the reported prices of the underlying securities that
are the basis of the index and (2) reporting such
level. The reporting authority for each index
approved for options trading on the Exchange shall
be Specified (as provided in Rule 1800) in the
Interpretations and Policies to Rule 1801. See
proposed Rule 1801(n). See also supra note 5.
53 The reporting authorities designated by the
Exchange in respect of each index underlying an
index options contract traded on the Exchange are
as provided in a chart in proposed Rule 1801,
Interpretations and Policies .01.
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currently operative on other
exchanges.54
Proposed Rule 1812, Exercise of
American-Style Index Options, contains
standards for exercising American-style
index options. The proposed rule
provides that no Member may prepare,
time stamp or submit an exercise
instruction for an American-style index
options series if the Member knows or
has reason to know that the exercise
instruction calls for the exercise of more
contracts than the ‘‘net long position’’ of
the account for which the exercise
instruction is to be tendered. For
purposes of this rule: (i) The term ‘‘net
long position’’ shall mean the net
position of the account in such option
at the opening of business of the day of
such exercise instruction, plus the total
number of such options purchased that
day in opening purchase transactions up
to the time of exercise, less the total
number of such options sold that day in
closing sale transactions up to the time
of exercise; (ii) the ‘‘account’’ shall be
the individual account of the particular
customer, market-maker or ‘‘noncustomer’’ (as that term is defined in the
By-Laws of the Clearing Corporation)
who wishes to exercise; and (iii) every
transaction in an options series effected
by a market-maker in a market-maker’s
account shall be deemed to be a closing
transaction in respect of the marketmaker’s then positions in such options
series. No Member may adjust the
designation of an ‘‘opening transaction’’
in any such option to a ‘‘closing
transaction’’ except to remedy mistakes
or errors made in good faith.
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Trading Halts
The Exchange proposes to amend
Rule 504, Trading Halts, Interpretations
and Policies .04 to address the handling
of trade nullifications in index options
due to trading halts. Specifically,
Interpretations and Policies .04 would
be amended to state that, with respect
to index options, trades on the Exchange
will be nullified if the trade occurred
during a regulatory halt as declared by
the primary market in underlying
securities representing more than ten
percent (10%) of the current index value
for narrow-based stock index options,
and twenty percent (20%) of the current
index value for broad-based index
options. New Interpretations and
Policies .05 to Rule 504 states that
trading halts, resumptions, trading
pauses and post-halt notifications
involving index options are governed by
Rules 1808(c)–(f) (described above).
54 See, e.g., MIAX Options Rule 1811; Nasdaq ISE
Rule 2011 and Cboe Rule 24.14.
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Surveillance and Capacity
The Exchange represents that is has
an adequate surveillance program in
place for index options. The Exchange
is a member of the ISG, which ‘‘is
comprised of an international group of
exchanges, market centers, and market
regulators.’’ The purpose of the ISG is to
provide a framework for the sharing of
information and the coordination of
regulatory efforts among exchanges
trading securities and related products
to address potential intermarket
manipulations and trading abuses. The
ISG plays a crucial role in information
sharing among markets that trade
securities, options on securities,
security futures products, and futures
and options on broad-based security
indexes. A list identifying the current
ISG members is available at https://
www.isgportal.org/isgportal/public/
members.htm.
MIAX PEARL has analyzed its
capacity and represents that it believes
the Exchange and the Options Price
Reporting Authority (‘‘OPRA’’) have the
necessary systems capacity to handle
the additional traffic associated with the
listing and trading of index options.
The Exchange will announce the
implementation date of the proposed
rule change by Regulatory Circular to be
published no later than 90 days
following the date the Commission
issues an order approving the proposed
rule change. The implementation date
will be no later than 90 days following
the issuance of the Regulatory Circular.
2. Statutory Basis
MIAX PEARL believes that its
proposed rule change is consistent with
Section 6(b) of the Act 55 in general, and
furthers the objectives of Section 6(b)(5)
of the Act 56 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
regulating, clearing, settling, processing
information with respect to, and
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.
The Exchange believes that the
proposed rule change will expand the
Exchange’s capability to introduce and
trade both existing and new and
innovative index products on the MIAX
PEARL System. The added capability is
consistent with the Act in that it should
55 15
56 15
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U.S.C. 78f(b)(5).
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foster cooperation and coordination
with persons engaged in regulating,
clearing, settling, processing
information with respect to, and
facilitating transactions in securities,
specifically index options. The
Exchange believes that there is unmet
market demand on MIAX PEARL for
exchange-listed index options and the
listing and trading of index options on
the Exchange is designed to attract both
liquidity and order flow to the
Exchange, all to the benefit of the
marketplace as a whole.
The Exchange believes that the
requirements in the proposed listing
standards regarding, among other
things, the minimum market
capitalization, trading volume, and
relative weightings of an underlying
index’s component stocks are designed
to ensure that the markets for the
index’s component stocks are
adequately capitalized and sufficiently
liquid, and that no one stock dominates
the index. These requirements are
designed 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, by
ensuring that unusual or extreme
volatility in any single component of an
index could not cause the entire index
to become so volatile that it puts
investors at undue and unplanned risk.
These requirements also minimize the
potential for manipulating the
underlying index, which protects
investors and the public interest.
The Exchange further believes that the
requirement in proposed Rule
1802(b)(10) that the current underlying
index value will be reported at least
once every fifteen (15) seconds during
the time the index options are traded on
the Exchange, and the requirement in
proposed Rule 1802(d)(11) (with respect
to broad-based index options) that the
current index value be widely
disseminated at least once every fifteen
(15) seconds by OPRA, the CTA, NIDS
or one or more major market data
vendors during the time the index
options are traded on the Exchange
removes impediments to and perfects
the mechanisms of a free and open
market and a national market system by
providing transparency with respect to
current index values and by
contributing to the overall transparency
of the market for index options. In
addition, the Exchange believes that the
requirement in proposed Rule
1802(d)(2) that an index option be A.M.settled, rather than based on closing
prices, should help to reduce the
potential impact of expiring index
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options on the market for an index’s
component securities.
The Exchange believes that the
requirement in proposed Rule 1803 to
disseminate index values as a condition
to the trading of options on an index
fosters cooperation and coordination
with persons engaged in regulating,
clearing, settling, processing
information with respect to, and
facilitating transactions in, securities by
requiring absolute transparency
regarding the dissemination of index
values. The requirement that the
Exchange disseminate, or assure that the
current index value is disseminated,
and the requirement that the Exchange
maintain, in files available to the public,
information identifying the components
whose prices are the basis for
calculation of the index and the method
used to determine the current index
value, protects investors and the public
interest by ensuring that the current
index value is disseminated regularly
and consistently.
The Exchange’s proposal to adopt
Rules 1804 through 1807 relating to
position limits, exemptions from
position limits, exercise limits in index
options, and regular maintenance
reviews are designed 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, by limiting investors’
levels of concentration in a single index
position. Not only would an investor be
at undue risk by assuming such a
position, but the market for the affected
index option could be
disproportionately affected by the
trading activities of that single investor
with an unusually large long or short
position. The Exchange is proposing to
mitigate this risk by establishing the
same position and exercise limits, and
hedging rules, that already exist on
other exchanges, all designed for the
protection of investors and the public
interest.
Proposed Rule 1808, Trading
Sessions, is designed to foster
cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in, securities, by establishing the same,
uniform trading hours for index options
as other exchanges. The Exchange’s
proposal to establish rules and
procedures for openings, halts and
reopenings, together with the
designation by the Board of an Exchange
official authorized to halt trading when,
in his or her judgment, such action is
appropriate in the interests of a fair and
orderly market is designed to protect
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investors and the public interest by
ensuring that there are multiple
safeguards available during times of
unusual or particularly volatile market
activity.
Proposed Rule 1809, Terms of Index
Options Contracts, outlines the terms of
index options contracts in terms of the
meaning of premium bids and offers;
exercise prices; expiration months; the
trading of European Style Index options.
This proposed rule is the same as the
rules concerning terms of index options
contracts on other exchanges.57
Proposed Rule 1809 is a generic rule
concerning the manner of trading of
index option contracts. The Exchange’s
proposal to adopt existing uniform rules
governing terms of index option
contracts is designed to perfect the
mechanisms of a free and open market
and a national market system and, in
general, to protect investors and the
public interest by adopting standards
and rules for index option contracts that
are consistent with other exchanges’
standards and rules. The Exchange
believes that this benefits investors and
the marketplace as a whole because
investors who determine to trade index
options on MIAX PEARL will not need
to rely on an unfamiliar set of rules and
contract terms when they begin trading
index options here.
The Exchange believes that its
proposal to include index options in the
Short Term Options Series Program
removes impediments to, and perfects
the mechanisms of, a free and open
market and a national market system,
and will benefit market participants by
giving them more flexibility to closely
tailor their investment and hedging
decisions in a greater number of
securities. The Exchange also believes
that expanding the Short Term Options
Series Program to include index options
will provide the investing public and
other market participants with
additional opportunities to hedge their
investment, thus allowing these
investors to better manage their
acceptable risk tolerance levels, all to
the benefit of the investing public and
the marketplace as a whole.
The Exchange’s proposal to adopt
Rule 1810 relating to debit put spreads
fosters cooperation and coordination
with persons engaged in regulating,
clearing, settling, processing
information with respect to, and
facilitates transactions in, securities, by
maintaining uniformity in its rules
governing this strategy with the same
specificity as the rules on other
exchanges.
57 See MIAX Options Rule 1809; Nasdaq ISE Rule
2009; Cboe Rule 24.9; and Nasdaq Phlx Rule 1101A.
PO 00000
Frm 00136
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8553
Proposed Rule 1811 concerning
Disclaimers is based on, and
substantially similar to, rules that are
currently operative on other
exchanges.58 The proposed rule
promotes just and equitable principles
of trade by stating that a Reporting
Authority shall have no liability for any
damages, claims, losses (including any
indirect or consequential losses),
expenses, or delays, whether direct or
indirect, foreseen or unforeseen,
suffered by any person arising out of
any circumstance or occurrence relating
to the person’s use of an index, any
opening, intra-day or closing value
therefor, any data included therein or
relating thereto, or any options contract
based thereon, or arising out of any
errors or delays in calculating or
disseminating such index.
Proposed Rule 1812, Exercise of
American-Style Index Options, is
designed to prevent fraudulent and
manipulative acts and practices and to
promote just and equitable principles of
trade by providing that no Member may
prepare, time stamp or submit an
exercise instruction for an Americanstyle index options series if the Member
knows or has reason to know that the
exercise instruction calls for the
exercise of more contracts than the then
‘‘net long position’’ of the account for
which the exercise instruction is to be
tendered. The proposed rule contains
standards for exercising American-style
index options that are in effect on other
exchanges.59
The Exchange believes that its
proposed surveillance program and
available capacity with respect to the
listing and trading of index options
perfects the mechanisms of a free and
open market and a national market
system through, among other things, its
membership in ISG and its current
available capacity. As discussed above,
the Exchange represents that has an
adequate surveillance program in place
for index options. The Exchange is a
member of the ISG, which ‘‘is
comprised of an international group of
exchanges, market centers, and market
regulators.’’ The purpose of the ISG is to
provide a framework for the sharing of
information and the coordination of
regulatory efforts among exchanges
trading securities and related products
to address potential intermarket
manipulations and trading abuses. The
ISG plays a crucial role in information
sharing among markets that trade
58 See, e.g., MIAX Options Rule 1811; Nasdaq ISE
Rule 2011 and Cboe Rule 24.14.
59 See, e.g., MIAX Options Rule 1812; Nasdaq ISE
Rule 2012; Cboe Rule 24.18; and Nasdaq Phlx Rule
1042A.
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27FEN1
8554
Federal Register / Vol. 83, No. 39 / Tuesday, February 27, 2018 / Notices
securities, options on securities,
security futures products, and futures
and options on broad-based security
indexes. A list identifying the current
ISG members is available at https://
www.isgportal.org/isgportal/public/
members.htm. MIAX PEARL has
analyzed its capacity and represents that
it believes the Exchange and the
Options Price Reporting Authority
(‘‘OPRA’’) have the necessary systems
capacity to handle the additional traffic
associated with the listing and trading
of index options.
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 that is not
necessary or appropriate in furtherance
of the purposes of the Act. On the
contrary, the Exchange believes that the
proposed rule change will enable the
Exchange to compete for order flow in
index options products with other
exchanges that currently have rules and
functionality in place to list and trade
index options.
The Exchange further believes that the
proposed rule change will enhance
intra-market competition, as more
varied index products become available
for trading on the Exchange, which
should encourage a greater number of
Market Makers to trade index options,
resulting in greater liquidity and more
competitive quoting on the Exchange.
daltland on DSKBBV9HB2PROD with NOTICES
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
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.
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.
VerDate Sep<11>2014
19:49 Feb 26, 2018
Jkt 244001
Comments may be submitted by any of
the following methods:
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
[Release No. 34–82749; File No. SR–ISE–
2018–15]
• 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–
PEARL–2018–02 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–PEARL–2018–02. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (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 website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–PEARL–2018–02 and
should be submitted on or before March
20,2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.60
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–03894 Filed 2–26–18; 8:45 am]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Relating to Gateway Fees
February 21, 2018.
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 February
12, 2018, Nasdaq ISE, LLC (‘‘ISE’’ 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 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 proposes to amend the
Exchange’s Schedule of Fees to remove
obsolete text and amend the current rule
text to provide a more accurate
description of the Gateway Fees which
are currently offered on ISE.
The text of the proposed rule change
is available on the Exchange’s website at
https://ise.cchwallstreet.com/, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
ISE’s current pricing related to
BILLING CODE 8011–01–P
1 15
60 17
PO 00000
CFR 200.30–3(a)(12).
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U.S.C. 78s(b)(1).
CFR 240.19b 4.
27FEN1
]]>Agencies
[Federal Register Volume 83, Number 39 (Tuesday, February 27, 2018)]
[Notices]
[Pages 8538-8554]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-03894]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82756; File No. SR-PEARL-2018-02]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
of a Proposed Rule Change To Adopt Rules Relating to Trading in Index
Options
February 21, 2018.
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 February 8, 2018, MIAX PEARL, LLC (``MIAX
PEARL'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') a proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt rules relating to trading in index
options.
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxoptions.com/rule-filings/pearl at MIAX
PEARL'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.
[[Page 8539]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is proposing to adopt new rules and amend existing
rules to allow the Exchange to list and trade options on indices. The
proposed rules include listing and maintenance criteria for options on
underlying indices, rules on dissemination of index values, position
and exercise limits for index options, exemptions from the limits, and
terms of index options contracts. All of the proposed rules and changes
to existing Exchange rules are based on existing rules of other options
exchanges.\3\ The proposed rules are intended to expand the Exchange's
capability to introduce and trade both existing and new and innovative
index products on the MIAX PEARL System.\4\
---------------------------------------------------------------------------
\3\ See Miami International Securities Exchange, LLC (``MIAX
Options'') Rules, Chapter XVIII, Index Options; Nasdaq ISE,
(``Nasdaq ISE'') Rules, Chapter 20, Index Rules; Nasdaq PHLX
(``Phlx'') Rules 1000A-1108A; and Cboe Options Exchange (``Cboe'')
Rules, Chapter XXIV, Index Options.
\4\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
---------------------------------------------------------------------------
Because the rules related to trading options on indices are product
specific in many areas, the Exchange will need to file additional
proposed rule changes with the Securities and Exchange Commission
(``SEC'' or ``Commission'') when the Exchange identifies specific
products.\5\ For purposes of this proposed rule change, certain rules
indicate that they apply to ``Specified'' indices. Proposed MIAX PEARL
Rules 1800, 1801(n), 1804(a), 1807(a), 1809, and 1811 all contain
provisions that are dependent upon the Exchange identifying specific
index products in the rule. Accordingly, MIAX PEARL Rule 1800 states
that where the rules in Chapter XVIII indicate that particular indices
or requirements with respect to particular indices will be
``Specified,'' MIAX PEARL's rules will be amended when MIAX Options \6\
files a proposed rule change with the Commission pursuant to Section 19
of the Act \7\ and Rule 19b-4 \8\ thereunder to specify such indices or
requirements.
---------------------------------------------------------------------------
\5\ The Exchange proposes to separately file a request for an
exemption from the rule filing requirements of Section 19(b) of the
Act for changes to MIAX PEARL Chapter XVIII to the extent such rules
are effected solely by virtue of a change to MIAX Options Chapter
XVIII, including when MIAX Options identifies specific new products
to list.
\6\ See id.
\7\ 15 U.S.C. 78s.
\8\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
MIAX PEARL proposes to adopt new Chapter XVIII to the Exchange's
rules, which incorporate by reference Chapter XVIII of rules of the
Exchange's affiliate, MIAX Options.\9\ In addition, MIAX PEARL proposes
to amend Exchange Rule 504, Trading Halts. The Exchange notes that MIAX
Options filed a substantially similar proposed rule change to adopt
rules relating to trading index options (the ``MIAX Options Rule
Filing''), which was approved by the Commission on September 27,
2017.\10\ The Exchange also notes that the MIAX Options Rule Filing
proposed rule amendments to MIAX Options Rule 308, Exemptions from
Position Limits; MIAX Options Rule 313, Other Restrictions on Options
Transactions and Exercises; and MIAX Options Rule 700, Exercise of
Option Contracts, all of which have already been incorporated by
reference into MIAX PEARL's rules, and thus are already applicable to
MIAX PEARL members.\11\ Each of the proposed rules to be incorporated
by reference are discussed in detail below, but the text of the
proposed rule change as set forth in Exhibit 5 of this rule filing
specifies that the rules contained in MIAX Options Chapter XVIII are
hereby incorporated by reference into these MIAX PEARL Rules, and are
thus MIAX PEARL Rules and thereby applicable to MIAX PEARL Members.
---------------------------------------------------------------------------
\9\ The Exchange notes that it is not amending MIAX PEARL Rule
503, Openings on the Exchange, because unlike MIAX Options Rule 503,
MIAX PEARL Rule 503 does not distinguish between equity and index
options. In addition, the Exchange notes that it is not amending
MIAX PEARL Rule 603, Obligations of Market Makers, because unlike
MIAX Options, MIAX PEARL does not use bid/ask differentials on the
Exchange. Additionally, the Exchange is not amending MIAX PEARL Rule
527, Exchange Liability, because the amendment to the corresponding
MIAX Options Rule was duplicative and the Exchange anticipates
deleting the duplicative rule text in the future.
\10\ See Securities Exchange Act Release No. 81739 (September
27, 2017), 82 FR 46111 (October 3, 2017) (SR-MIAX-2017-39)
(``Approval Order'').
\11\ Id.
---------------------------------------------------------------------------
Specifically, the rule provides: ``[t]he rules contained in MIAX
Options Exchange Chapter XVIII, as such rules may be in effect from
time to time (the ``Chapter XVIII Rules''), are hereby incorporated by
reference into this MIAX PEARL Chapter XVIII, and are thus MIAX PEARL
Rules and thereby applicable to MIAX PEARL Members. MIAX PEARL Members
shall comply with the Chapter XVIII Rules as though such rules were
fully-set forth herein. All defined terms, including any variations
thereof, contained in Chapter XVIII Rules shall be read to refer to the
MIAX PEARL related meaning of such term. Solely by way of example, and
not in limitation or in exhaustion: The defined term ``Exchange'' in
Chapter XVIII Rules shall be read to refer to MIAX PEARL; the defined
term ``Rule'' in the Chapter XVIII Rules shall be read to refer to the
MIAX PEARL Rule; and the defined term ``Member'' in the Chapter XVIII
Rules shall be read to refer to the MIAX PEARL Member. Any reference to
MIAX Options Rule 506(d) will be construed to reference corresponding
MIAX PEARL Rule 506(e).''
Proposed Index Rules
The Exchange is proposing to adopt Chapter XVIII, Index Options, in
the MIAX PEARL Rules. Proposed Rule 1800, Application of Index Rules,
states that the Rules in proposed Chapter XVIII are applicable only to
index options (options on indices of securities as defined below). The
Rules in current Chapters I through XVII are also applicable to the
options provided for in proposed Chapter XVIII, unless such current
Rules are specifically replaced or are supplemented by Rules in Chapter
XVIII. Where the Rules in Chapter XVIII indicate that particular
indices or requirements with respect to particular indices will be
``Specified,'' the Exchange shall file a proposed rule change with the
Commission to specify such indices or requirements.\12\
---------------------------------------------------------------------------
\12\ See supra note 5.
---------------------------------------------------------------------------
Definitions
Proposed MIAX PEARL Rule 1801, Definitions, contains the necessary
definitions for index options trading.\13\ Specifically, the following
definitions will apply to index options on MIAX PEARL:
---------------------------------------------------------------------------
\13\ The proposed Rule is based on Nasdaq ISE Rule 2001.
---------------------------------------------------------------------------
(a) The term ``aggregate exercise price'' means the exercise price
of the options contract times the index multiplier.
(b) The term ``American-style index option'' means an option on an
industry or market index that can be exercised on any business day
prior to expiration, including the business day of expiration in the
case of an option contract expiring on a business day.
(c) The term ``A.M.-settled index option'' means an index options
contract for which the current index value at expiration shall be
determined as provided in Rule 1809(a)(5).\14\
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\14\ The last day of trading for A.M.-settled index options
shall be the business day preceding the business day of expiration,
or, in the case of an option contract expiring on a day that is not
a business day, the business day preceding the last day of trading
in the underlying securities prior to the expiration date. The
current index value at the expiration of an A.M.-settled index
option shall be determined, for all purposes under these Rules and
the Rules of the Clearing Corporation, on the last day of trading in
the underlying securities prior to expiration, by reference to the
reported level of such index as derived from first reported sale
(opening) prices of the underlying securities on such day, except
that: (i) In the event that the primary market for an underlying
security does not open for trading on that day, the price of that
security shall be determined, for the purposes of calculating the
current index value at expiration, as set forth in Rule 1808(g),
unless the current index value at expiration is fixed in accordance
with the Rules and By-Laws of the Clearing Corporation; and (ii) in
the event that the primary market for an underlying security is open
for trading on that day, but that particular security does not open
for trading on that day, the price of that security, for the
purposes of calculating the current index value at expiration, shall
be the last reported sale price of the security. See proposed Rule
1809(a)(5).
---------------------------------------------------------------------------
[[Page 8540]]
(d) The term ``call'' means an options contract under which the
holder of the option has the right, in accordance with the terms of the
option, to purchase from the Clearing Corporation the current index
value times the index multiplier.
(e) The term ``current index value'' with respect to a particular
index options contract means the level of the underlying index reported
by the reporting authority for the index, or any multiple or fraction
of such reported level specified by the Exchange. The current index
value with respect to a reduced-value long term options contract is
one-tenth of the current index value of the related index option. The
``closing index value'' shall be the last index value reported on a
business day.
(f) The term ``exercise price'' means the specified price per unit
at which the current index value may be purchased or sold upon the
exercise of the option.
(g) The term ``European-style index option'' means an option on an
industry or market index that can be exercised only on the business day
of expiration, or, in the case of an option contract expiring on a day
that is not a business day, the last business day prior to the day it
expires.
(h) The term ``Foreign Currency Index'' means an index designed to
track the performance of a basket of currencies, as provided in the
table in Rule 1805A.
(i) The term ``index multiplier'' means the amount specified in the
contract by which the current index value is to be multiplied to arrive
at the value required to be delivered to the holder of a call or by the
holder of a put upon valid exercise of the contract.
(j) The terms ``industry index'' and ``narrow-based index'' mean an
index designed to be representative of a particular industry or a group
of related industries or an index whose constituents are all
headquartered within a single country.
(k) The term ``market index'' and ``broad-based index'' mean an
index designed to be representative of a stock market as a whole or of
a range of companies in unrelated industries.
(l) The term ``put'' means an options contract under which the
holder of the option has the right, in accordance with the terms and
provisions of the option, to sell to the Clearing Corporation the
current index value times the index multiplier.
(m) The term ``Quarterly Options Series'' means, for the purposes
of Chapter XVIII, a series in an index options class that is approved
for listing and trading on the Exchange in which the series is opened
for trading on any business day and that expires at the close of
business on the last business day of a calendar quarter.
(n) The term ``reporting authority'' with respect to a particular
index means the institution or reporting service designated by the
Exchange as the official source for (1) calculating the level of the
index from the reported prices of the underlying securities that are
the basis of the index and (2) reporting such level. The reporting
authority for each index approved for options trading on the Exchange
shall be Specified (as provided in Rule 1800) in a table in
Interpretations and Policies .01 to Rule 1801.
(o) The term ``Short Term Option Series'' means, for the purposes
of Chapter XVIII, a series in an index option class that is approved
for listing and trading on the Exchange in which the series is opened
for trading on any Thursday or Friday that is a business day and that
expires on the Friday of the following business week that is a business
day. If a Friday is not a business day, the series may be opened (or
shall expire) on the first business day immediately prior to that
Friday.
(p) The term ``underlying security'' or ``underlying securities''
with respect to an index options contract means any of the securities
that are the basis for the calculation of the index.
Listing Standards
Proposed Rule 1802, Designation of an Index, contains the general
listing standards for index options. Proposed Rule 1802(a) provides
that the component securities of an index underlying an index option
contract need not meet the requirements of Rule 402.\15\ Except as set
forth in subparagraph (b) and (d) (as described below), the listing of
a class of index options requires the filing of a proposed rule change
to be approved by the Commission.
---------------------------------------------------------------------------
\15\ Exchange Rule 402, Criteria for Underlying Securities, sets
forth the criteria that must be met by underlying equity securities
with respect to which put or call option contracts are approved for
listing and trading on the Exchange.
---------------------------------------------------------------------------
Proposed Rule 1802(b) describes the initial listing standards for a
narrow-based index to be traded on the Exchange. The term ``narrow
based index'' means an index designed to be representative of a
particular industry or a group of related industries or an index whose
constituents are all headquartered within a single country. Pursuant to
proposed Rule 1802(b), the Exchange may trade options on a narrow-based
index pursuant to Rule 19b-4(e) of the Act,\16\ if each of the
following conditions is satisfied:
---------------------------------------------------------------------------
\16\ 17 CFR 242.19b-4(e).
---------------------------------------------------------------------------
(1) The options are designated as A.M.-settled index options;
(2) The index is capitalization-weighted, price-weighted, equal
dollar-weighted, or modified capitalization-weighted, and consists of
10 or more component securities;
(3) Each component security has a market capitalization of at least
$75 million, except that for each of the lowest weighted component
securities in the index that in the aggregate account for no more than
ten percent (10%) of the weight of the index, the market capitalization
is at least $50 million;
(4) Trading volume of each component security has been at least
1,000,000 shares for each of the last six months, except that for each
of the lowest weighted component securities in the index that in the
aggregate account for no more than ten percent (10%) of the weight of
the index, trading volume has been at least 500,000 shares for each of
the last six months;
(5) In a capitalization-weighted index or a modified
capitalization-weighted index, the lesser of the five highest weighted
component securities in the index or the highest weighted component
securities in the index that in the aggregate represent at least thirty
percent (30%) of the total number of component securities in the index
each have had an average monthly trading volume of at least 2,000,000
shares over the past six months;
(6) No single component security represents more than thirty
percent (30%) of the weight of the index, and the five highest weighted
component securities in the index do not in the aggregate account for
more than fifty percent (50%) (sixty five percent (65%) for an index
consisting of fewer than
[[Page 8541]]
twenty five (25) component securities) of the weight of the index;
(7) Component securities that account for at least ninety percent
(90%) of the weight of the index and at least eighty percent (80%) of
the total number of component securities in the index satisfy the
requirements of Rule 402 applicable to individual underlying
securities;
(8) Each component security must be an ``NMS stock'' as defined in
Rule 600 of Regulation NMS under the Act; \17\
---------------------------------------------------------------------------
\17\ 17 CFR 242.11Aa3-1.
---------------------------------------------------------------------------
(9) Non-U.S. component securities (stocks or ADRs) that are not
subject to comprehensive surveillance agreements do not in the
aggregate represent more than twenty percent (20%) of the weight of the
index;
(10) The current index value is widely disseminated at least once
every fifteen (15) seconds by the Options Price Reporting Authority
(``OPRA''), the Consolidated Tape Association (``CTA''), the Nasdaq
Index Dissemination Service (``NIDS''), or one or more major market
data vendors during the time options on the index are traded on the
Exchange;
(11) An equal dollar-weighted index will be rebalanced at least
once every calendar quarter; and
(12) If an underlying index is maintained by a broker-dealer, the
index is calculated by a third party who is not a broker-dealer, and
the broker-dealer has erected an information barrier around its
personnel who have access to information concerning changes in and
adjustments to the index.
The above initial listing standards are the same as the initial
listing standards currently in place on other exchanges.\18\
---------------------------------------------------------------------------
\18\ See, e.g., Miami International Securities Exchange (``MIAX
Options'') Rule 1802(b); Nasdaq ISE, (``Nasdaq ISE'') Rule 2002(b);
Nasdaq PHLX (``Phlx'') Rule 1009A(b); and Cboe Options Exchange,
Inc. (``Cboe'') Rule 24.2(b).
---------------------------------------------------------------------------
In addition to the initial listing standards, certain maintenance
listing standards, listed below, apply to each class of index options
originally listed pursuant to proposed Rule 1802(b).
Specifically, proposed Rule 1802(c) provides that the requirements
stated in proposed Rules 1802(b)(1), (3), (6), (7), (8), (9), (10),
(11) and (12) (set forth above) must continue to be satisfied, provided
that the requirements stated in proposed Rule 1802(b)(6) below
(relating to broad-based indices) must be satisfied only as of the
first day of January and July in each year.
In addition to maintaining the initial criteria in the proposed
sub-paragraphs listed above, proposed Rule1802(c) states that, in order
for an index to remain listed on the Exchange:
(1) The total number of component securities in the index may not
increase or decrease by more than 33 \1/3\ percent from the number of
component securities in the index at the time of its initial listing,
and in no event may be less than nine component securities;
(2) Trading volume of each component security in the index must be
at least 500,000 shares for each of the last six months, except that
for each of the lowest weighted component securities in the index that
in the aggregate account for no more than ten percent (10%) of the
weight of the index, trading volume must be at least 400,000 shares for
each of the last six (6) months; and
(3) In a capitalization-weighted index or a modified
capitalization-weighted index, the lesser of the five highest weighted
component securities in the index or the highest weighted component
securities in the index that in the aggregate represent at least thirty
percent (30%) of the total number of stocks in the index each have had
an average monthly trading volume of at least 1,000,000 shares over the
past six months. In the event a class of index options listed on the
Exchange fails to satisfy the maintenance listing standards set forth
herein, the Exchange shall not open for trading any additional series
of options of that class unless such failure is determined by the
Exchange not to be significant and the SEC concurs in that
determination, or unless the continued listing of that class of index
options has been approved by the SEC under Section 19(b) (2) of the
Act.\19\
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
These maintenance listing standards are the same as the maintenance
standards currently in place on other exchanges.\20\
---------------------------------------------------------------------------
\20\ See, e.g., MIAX Options Rule 1802(c); Nasdaq ISE Rule
2002(c); Nasdaq Phlx Rule 1009A(c); and Cboe Rule 24.2(c).
---------------------------------------------------------------------------
Proposed Rule 1802(d) states that the Exchange may trade options on
a broad-based index \21\ if each of the following conditions is
satisfied:
---------------------------------------------------------------------------
\21\ The term ``market index'' and ``broad-based index'' mean an
index designed to be representative of a stock market as a whole or
of a range of companies in unrelated industries. See proposed Rule
1801(k).
---------------------------------------------------------------------------
(1) The index is broad-based, as defined in Rule 1801(k);
(2) Options on the index are designated as A.M.-settled;
(3) The index is capitalization-weighted, modified capitalization-
weighted, price-weighted, or equal dollar-weighted;
(4) The index consists of 50 or more component securities;
(5) Component securities that account for at least ninety-five
percent (95%) of the weight of the index have a market capitalization
of at least $75 million, except that component securities that account
for at least sixty-five percent (65%) of the weight of the index have a
market capitalization of at least $100 million;
(6) Component securities that account for at least eighty percent
(80%) of the weight of the index satisfy the requirements of Rule 402
applicable to individual underlying securities;
(7) Each component security that accounts for at least one percent
(1%) of the weight of the index has an average daily trading volume of
at least 90,000 shares during the last six month period;
(8) No single component security accounts for more than ten percent
(10%) of the weight of the index, and the five highest weighted
component securities in the index do not, in the aggregate, account for
more than thirty-three percent (33%) of the weight of the index;
(9) Each component security must be an ``NMS stock'' as defined in
Rule 600 of Regulation NMS under the Act; \22\
---------------------------------------------------------------------------
\22\ 17 CFR 242.600.
---------------------------------------------------------------------------
(10) Non-U.S. component securities (stocks or ADRs) that are not
subject to comprehensive surveillance agreements do not, in the
aggregate, represent more than twenty percent (20%) of the weight of
the index;
(11) The current index value is widely disseminated at least once
every fifteen (15) seconds by the Options Price Reporting Authority
(``OPRA''), the Consolidated Tape Association (``CTA''), the Nasdaq
Index Dissemination Service (``NIDS''), or one or more major market
data vendors during the time options on the index are traded on the
Exchange;
(12) The Exchange reasonably believes it has adequate system
capacity to support the trading of options on the index, based on a
calculation of the Exchange's current ISCA allocation and the number of
new messages per second expected to be generated by options on such
index;
(13) An equal dollar-weighted index is rebalanced at least once
every calendar quarter;
(14) If an index is maintained by a broker-dealer, the index is
calculated by a third-party who is not a broker-dealer, and the broker-
dealer has erected an informational barrier around its personnel who
have access to information concerning changes in, and adjustments to,
the index; and
(15) The Exchange has written surveillance procedures in place with
[[Page 8542]]
respect to surveillance of trading of options on the index.
These initial listing standards are the same as the initial listing
standards for broad-based indices currently in place on other
exchanges.\23\
---------------------------------------------------------------------------
\23\ See, e.g., MIAX Options Rule 1802(d); Nasdaq ISE Rule
2002(d); Nasdaq Phlx Rule 1009A(d); and Cboe Rule 24.2(f).
---------------------------------------------------------------------------
Proposed Rule 1802(e) sets forth the maintenance listing standards
for broad-based indices. Specifically, the following maintenance
listing standards shall apply to each class of index options originally
listed pursuant to proposed Rule 1802(d).
First, the requirements set forth in the proposed initial listing
standards set forth in proposed Rules 1802(d)(1)-(d)(3), and proposed
Rules 1802(d)(9)-(d)(15) must continue to be satisfied. The
requirements set forth in proposed Rules 1802(d)(5)-(d)(8) must be
satisfied only as of the first day of January and July in each year.
Additionally, for broad-based indices, the total number of
component securities in the index may not increase or decrease by more
than ten percent (10%) from the number of component securities in the
index at the time of its initial listing.
Finally, proposed Rule 1802(e) states that, in the event a class of
index options listed on the Exchange fails to satisfy the maintenance
listing standards set forth in the proposed Rule, the Exchange shall
not open for trading any additional series of options of that class
unless the continued listing of that class of index options has been
approved by the Commission under Section 19(b)(2) of the Act.\24\
---------------------------------------------------------------------------
\24\ 15 U.S.C 78s(b)(2).
---------------------------------------------------------------------------
These maintenance listing standards are the same as the maintenance
standards for broad-based indices that are currently in place on other
exchanges.\25\
---------------------------------------------------------------------------
\25\ See, e.g., MIAX Options Rule 1802(e); Nasdaq ISE Rule
2002(e); Nasdaq Phlx Rule 1009A(e); and Cboe Rule 24.2(g).
---------------------------------------------------------------------------
The Exchange believes that the requirements in the proposed listing
standards regarding, among other things, the minimum market
capitalization, trading volume, and relative weightings of an
underlying index's component stocks are designed to ensure that the
markets for the index's component stocks are adequately capitalized and
sufficiently liquid, and that no one stock dominates the index. The
Exchange believes that these requirements minimize the potential for
manipulating the underlying index.
The Exchange further believes that the requirement in proposed Rule
1802(b)(10) (with respect to narrow-based index options) that the
current underlying index value will be reported at least once every
fifteen (15) seconds during the time the index options are traded on
the Exchange, and the requirement in proposed Rule 1802(d)(11) (with
respect to broad-based index options) that the current index value be
widely disseminated at least once every fifteen (15) seconds by the
OPRA, CTA/CQ, NIDS or by one or more major market data vendors during
the time an index option trades on MIAX PEARL should provide
transparency with respect to current index values and contribute to the
transparency of the market for index options. In addition, the Exchange
believes that the requirement in proposed Rule 1802(d)(2) that an index
option be A.M.-settled, rather than on closing prices, should help to
reduce the potential impact of expiring index options on the market for
the index's component securities.
Proposed Rule 1803, Dissemination of Information, requires the
dissemination of index values as a condition to the trading of options
on an index. The proposed rule includes the requirement that the
Exchange disseminate, or assure that the current index value is
disseminated, after the close of business and from time-to-time on days
on which transactions in index options are made on the Exchange. The
proposed rule also requires the Exchange to maintain, in files
available to the public, information identifying the components whose
prices are the basis for calculation of the index and the method used
to determine the current index value.\26\
---------------------------------------------------------------------------
\26\ This proposed Rule is substantially similar to Nasdaq ISE
Rule 2003 and Cboe Rule 24.3.
---------------------------------------------------------------------------
The Exchange is proposing to adopt Rules 1804 through 1807 relating
to position limits, exemptions from position limits, and exercise
limits in index options. These proposed rules contain the standard
position limit and exercise limits for Broad-Based, Industry (narrow-
based) and Foreign Currency index options, as well as exemption
standards and the procedures for requesting exemptions from those
proposed rules.\27\
---------------------------------------------------------------------------
\27\ These proposed Rules are based on Nasdaq ISE Rule 2006.
---------------------------------------------------------------------------
Proposed Rule 1804, Position Limits for Broad-Based Index Options,
states that Exchange Rule 307 generally shall govern position limits
for broad-based index options, as modified by proposed Rule 1804.
Specifically, the proposed rule states that there may be no position
limit for certain Specified (as provided in Rule 1800) \28\ broad-based
index options contracts. Except as otherwise indicated below, the
position limit for a broad-based index option shall be 25,000 contracts
on the same side of the market. Reduced-value options \29\ on broad-
based security indexes for which full-value options have no position
and exercise limits will similarly have no position and exercise
limits. All other broad-based index options contracts shall be subject
to a contract limitation fixed by the Exchange, which shall not be
larger than the limits provided in the chart below.
---------------------------------------------------------------------------
\28\ See supra note 5.
\29\ See proposed Rule 1809(b)(2).
------------------------------------------------------------------------
Standard limit (on the
Broad-based underlying index same side of the Restrictions
market)
------------------------------------------------------------------------
To be Specified............... To be Specified....... To be Specified.
------------------------------------------------------------------------
Proposed Rules 1804(b) through (d) describe situations in which
index option contracts will, or will not, be aggregated for purposes of
establishing the number of contracts in a position. Specifically,
proposed Rule 1804(b) states that that index options contracts shall
not be aggregated with options contracts on any stocks whose prices are
the basis for calculation of the index. Proposed Rule 1804(c) states
that positions in reduced-value index options shall be aggregated with
positions in full-value indices. For such purposes, ten reduced-value
contracts shall equal one contract. Finally, proposed Rule 1804(d)
states that positions in Short Term Option Series and Quarterly Options
Series shall be aggregated with positions in options contracts on the
same index.\30\
---------------------------------------------------------------------------
\30\ This is substantially similar to Nasdaq ISE Rule 2004 and
Cboe Rule 24.4.
---------------------------------------------------------------------------
Proposed Rule 1805, Position Limits for Industry Index Options,
states that Rule 307 generally shall govern position
[[Page 8543]]
limits for industry index \31\ options, as modified by proposed Rule
1805.
---------------------------------------------------------------------------
\31\ For purposes of this proposed rule change and these
proposed rules, the term ``industry index'' has the same meaning as
the term ``narrow-based index.''
---------------------------------------------------------------------------
Proposed Rule 1805(a) sets forth position limits for industry index
options. These position limits, once established by the Exchange, must
be reviewed and determined on a semi-annual basis, as described below.
The specific position limits applicable to an industry index are:
(i) 18,000 contracts if the Exchange determines, at the time of a
review conducted as described below, that any single underlying stock
accounted, on average, for thirty percent (30%) or more of the index
value during the thirty (30)-day period immediately preceding the
review; or
(ii) 24,000 contracts if the Exchange determines, at the time of a
review conducted as set forth below, that any single underlying stock
accounted, on average, for twenty percent (20%) or more of the index
value or that any five (5) underlying stocks together accounted, on
average, for more than fifty percent (50%) of the index value, but that
no single stock in the group accounted, on average, for thirty percent
(30%) or more of the index value, during the thirty (30)-day period
immediately preceding the review; or
(iii) 31,500 contracts if the Exchange determines that the
conditions specified above which would require the establishment of a
lower limit have not occurred.
Proposed Rule 1805(a)(2) requires the Exchange make the
determinations of these specific position limits described above with
respect to options on each industry index, first at the commencement of
trading of such options on the Exchange and thereafter review the
determination semi-annually on January 1 and July 1.
Proposed Rule 1805(a)(3) describes the procedures to be taken by
the Exchange at the time of each semi-annual review. Specifically, if
the Exchange determines, at the time of the semi-annual review, that
the position limit in effect with respect to options on a particular
industry index is lower than the maximum position limit permitted by
the criteria set forth in Rule 1805(a)(1), the Exchange may effect an
appropriate position limit increase immediately.\32\
---------------------------------------------------------------------------
\32\ For example, if the conditions specified in proposed Rule
1805(a)(ii) are determined to exist which would allow a position
limit of 24,000 contracts and the current position limit for the
option, based upon the previous review, has been established as
18,000 contracts, the Exchange may effect a position limit increase
to 24,000 contracts immediately.
---------------------------------------------------------------------------
Conversely, if the Exchange determines, at the time of a semi-
annual review, that the position limit in effect with respect to
options on a particular industry index exceeds the maximum position
limit permitted by the criteria set forth in proposed Rule 1805(a)(1),
the Exchange shall reduce the position limit applicable to such options
to a level consistent with such criteria. Such a reduction would not
become effective until after the expiration date of the most distantly
expiring options series relating to the industry index that is open for
trading on the date of the review, and such a reduction shall not
become effective if the Exchange determines, at the next semi-annual
review, that the existing position limit applicable to such options is
consistent with the criteria set forth in proposed Rule 1805(a)(1).\33\
The purpose of this provision is to protect investors with open
positions as of the date of the review from inadvertently violating the
new, reduced position limit. Additionally, an Exchange determination
(prior to the effectiveness of the new, lower position limit due to
remaining unexpired series) that the criteria permitting the higher
position limit again exist obviates the need for the lower position
limit and the lower position limit will not take effect.
---------------------------------------------------------------------------
\33\ The proposed Rule is virtually identical to Cboe Rule
24.4A.
---------------------------------------------------------------------------
Proposed Rules 1805(b)-(d) describe situations in which industry
index option contracts will, or will not, be aggregated for purposes of
establishing the number of contracts in a position. Just as with broad-
based index options,\34\ proposed Rules 1805(b)-(d) state that index
options contracts shall not be aggregated with options contracts on any
stocks whose prices are the basis for calculation of the index.
Positions in reduced-value index options shall be aggregated with
positions in full-value index options. For such purposes, ten (10)
reduced-value options shall equal one (1) full-value contract.
Positions in Short Term Option Series and Quarterly Options Series
shall be aggregated with positions in options contracts on the same
index.
---------------------------------------------------------------------------
\34\ See proposed Rules 1804(b)-(d).
---------------------------------------------------------------------------
Proposed Rule 1805A, Position Limits for Foreign Currency Index
Options, includes a table to be completed by the Exchange upon the
Exchange's determination to list and trade options overlying a Foreign
Currency Index (subject to the Commission's approval of a proposed rule
change). Under the proposed rule, option contracts on a Foreign
Currency Index shall be subject to the position limits described in the
table below.
------------------------------------------------------------------------
Standard limit (on the
Foreign currency index same side of the Restrictions
market)
------------------------------------------------------------------------
To be Specified............... To be Specified....... To be Specified.
------------------------------------------------------------------------
Proposed Rule 1806, Exemptions from Position Limits, describes the
broad-based index hedge exemption, the industry index hedge exemption,
the application on the Exchange of exemptions granted by other options
exchanges, and the delta-based index hedge exemption.
Proposed Rule 1806(a) describes the broad-based index hedge
exemption. The broad-based index hedge exemption is in addition to the
other exemptions available under Exchange Rules, Interpretations and
Policies.\35\ The proposed rule sets forth the procedures and criteria
which must be satisfied to qualify for a broad-based index hedge
exemption.
---------------------------------------------------------------------------
\35\ See, e.g., Exchange Rule 308.
---------------------------------------------------------------------------
First, proposed Rule 1806(a)(1) states that the account in which
the exempt options positions are held (``hedge exemption account'')
must have received prior Exchange approval for the hedge exemption
specifying the maximum number of contracts that may be exempt under the
proposed Rule. The hedge exemption account must have provided all
information required on Exchange-approved forms and must have kept such
information current. Exchange approval may be granted on the basis of
verbal representations, in which event the hedge exemption account
shall within two business days, or such other time period designated by
the Exchange, furnish the Exchange with appropriate forms and
documentation substantiating the basis for the exemption. The hedge
exemption account may apply from time to time for an increase in the
maximum number of
[[Page 8544]]
contracts exempt from the position limits.
Proposed Rule 1806(a)(2) states that a hedge exemption account that
is not carried by a Member must be carried by a member of a self-
regulatory organization participating in the Intermarket Surveillance
Group (``ISG''), which is comprised of an international group of
exchanges, market centers, and market regulators.\36\
---------------------------------------------------------------------------
\36\ The purpose of the ISG is to provide a framework for the
sharing of information and the coordination of regulatory efforts
among exchanges trading securities and related products to address
potential intermarket manipulations and trading abuses. The ISG
plays a crucial role in information sharing among markets that trade
securities, options on securities, security futures products, and
futures and options on broad-based security indexes. A list
identifying the current ISG members is available at https://www.isgportal.org/isgPortal/public/members.htm.
---------------------------------------------------------------------------
Proposed Rule 1806(a)(3) requires that the hedge exemption account
maintain a qualified portfolio, or will effect transactions necessary
to obtain a qualified portfolio concurrent with or at or about the same
time as the execution of the exempt options positions, of:
(i) A net long or short position in common stocks in at least four
industry groups and contains at least twenty (20) stocks, none of which
accounts for more than fifteen percent (15%) of the value of the
portfolio or in securities readily convertible, and additionally in the
case of convertible bonds economically convertible, into common stocks
which would comprise a portfolio; or
(ii) a net long or short position in index futures contracts or in
options on index futures contracts, or long or short positions in index
options or index warrants, for which the underlying index is included
in the same margin or cross-margin product group cleared at the
Clearing Corporation as the index options class to which the hedge
exemption applies.
To remain qualified, a portfolio must at all times meet these
standards notwithstanding trading activity.
Proposed Rule 1806(a)(4) contains the requirement that, in order to
qualify for the broad-based exemption, the exemption must apply to
positions in broad-based index options dealt in on the Exchange and is
applicable to the unhedged value of the qualified portfolio. The
unhedged value will be determined as follows:
(i) The values of the net long or short positions of all qualifying
products in the portfolio are totaled;
(ii) for positions in excess of the standard limit, the underlying
market value (A) of any economically equivalent opposite side of the
market calls and puts in broad-based index options, and (B) of any
opposite side of the market positions in stock index futures, options
on stock index futures, and any economically equivalent opposite side
of the market positions, assuming no other hedges for these contracts
exist, is subtracted from the qualified portfolio; and
(iii) the market value of the resulting unhedged portfolio is
equated to the appropriate number of exempt contracts as follows: The
unhedged qualified portfolio is divided by the correspondent closing
index value and the quotient is then divided by the index multiplier or
100.
Proposed Rule 1806(a)(5) states that positions in broad-based index
options that are traded on the Exchange are exempt from the standard
limits to the extent specified in the table below.
------------------------------------------------------------------------
Broad-based
index hedge
Broad-based index option type exemption (in
addition to
standard limit)
------------------------------------------------------------------------
Broad-based indexes other than for those that do not 75,000
have any position limits..............................
------------------------------------------------------------------------
Proposed Rule 1806(a)(6) lists the types of transactions that are
available for hedging. Specifically, only the following qualified
hedging transactions and positions are eligible for purposes of hedging
a qualified portfolio (i.e. stocks, futures, options and warrants)
pursuant to the proposed Rule:
(i) Long put(s) used to hedge the holdings of a qualified
portfolio;
(ii) Long call(s) used to hedge a short position in a qualified
portfolio;
(iii) Short call(s) used to hedge the holdings of a qualified
portfolio; and
(iv) Short put(s) used to hedge a short position in a qualified
portfolio.
Proposed Rule 1806(a)(6) then identifies the following strategies,
which may be effected only in conjunction with a qualified stock
portfolio for non-P.M. settled, European style index options only:
(v) A short call position accompanied by long put(s), where the
short call(s) expires with the long put(s), and the strike price of the
short call(s) equals or exceeds the strike price of the long put(s) (a
``collar''). Neither side of the collar transaction can be in-the-money
at the time the position is established. For purposes of determining
compliance with Rule 306 and proposed Rule 1806, a collar position will
be treated as one contract;
(vi) A long put position coupled with a short put position
overlying the same broad-based index and having an equivalent
underlying aggregate index value, where the short put(s) expires with
the long put(s), and the strike price of the long put(s) exceeds the
strike price of the short put(s)(a ``debit put spread position''); and
(vii) A short call position accompanied by a debit put spread
position, where the short call(s) expires with the puts and the strike
price of the short call(s) equals or exceeds the strike price of the
long put(s). Neither side of the short call, long put transaction can
be in-the-money at the time the position is established. For purposes
of determining compliance with Rule 307 and this Rule 1806, the short
call and long put positions will be treated as one contract.
Proposed Rule 1806(a)(7) describes certain permitted and prohibited
activities for hedge exemption accounts. Specifically, the proposed
Rule states that the hedge exemption account shall:
(i) Liquidate and establish options, stock positions, their
equivalent or other qualified portfolio products in an orderly fashion;
not initiate or liquidate positions in a manner calculated to cause
unreasonable price fluctuations or unwarranted price changes; and not
initiate or liquidate a stock position or its equivalent with an
equivalent index options position with a view toward taking advantage
of any differential in price between a group of securities and an
overlying stock index option;
(ii) liquidate any options prior to or contemporaneously with a
decrease in the hedged value of the qualified portfolio which options
would thereby be rendered excessive; and
(iii) promptly notify the Exchange of any material change in the
qualified portfolio which materially affects the unhedged value of the
qualified portfolio.
Proposed Rules 1806(a)(8)-(12) contain several regulatory
requirements for hedge exemption accounts. Specifically, the proposed
Rules state that if an exemption is granted, it will be effective at
the time the decision is communicated. Retroactive exemptions will not
be granted. The proposed rules also require that the hedge exemption
account shall promptly provide to the Exchange any information
requested concerning the qualified portfolio. Positions included in a
qualified portfolio that serve to secure an index hedge exemption may
not also be used to secure any other position limit exemption granted
by the Exchange or any other self- regulatory organization or futures
contract market. Any Member that maintains a broad-based index options
position in such Member's own account or in a customer account, and has
reason to believe that such position
[[Page 8545]]
is in excess of the applicable limit, shall promptly take the action
necessary to bring the position into compliance. Failure to abide by
this provision shall be deemed to be a violation of Rules 307 and Rule
1806 by the Member. Finally, violation of any of the provisions of the
proposed rule, absent reasonable justification or excuse, shall result
in withdrawal of the index hedge exemption and may form the basis for
subsequent denial of an application for an index hedge exemption.
Proposed Rule 1806(b) describes the Industry Index Hedge Exemption.
The industry (narrow-based) index hedge exemption is in addition to the
other exemptions available under Exchange Rules, Interpretations and
Policies, and may not exceed twice the standard limit established under
Rule 1805. Industry index options positions may be exempt from
established position limits for each options contract ``hedged'' by an
equivalent dollar amount of the underlying component securities or
securities convertible into such components; provided that, in applying
such hedge, each options position to be exempted is hedged by a
position in at least seventy-five percent (75%) of the number of
component securities underlying the index. In addition, the underlying
value of the options position may not exceed the value of the
underlying portfolio. The value of the underlying portfolio is: (1) The
total market value of the net stock position; and (2) for positions in
excess of the standard limit, subtract the underlying market value of:
(i) Any offsetting calls and puts in the respective index option; (ii)
any offsetting positions in related stock index futures or options; and
(iii) any economically equivalent positions (assuming no other hedges
for these contracts exist). The following procedures and criteria must
be satisfied to qualify for an industry index hedge exemption:
(1) The hedge exemption account must have received prior Exchange
approval for the hedge exemption specifying the maximum number of
contracts that may be exempt under this Interpretation. The hedge
exemption account must have provided all information required on
Exchange-approved forms and must have kept such information current.
Exchange approval may be granted on the basis of verbal
representations, in which event the hedge exemption account shall
within two business days, or such other time period designated by the
Exchange, furnish the Exchange with appropriate forms and documentation
substantiating the basis for the exemption. The hedge exemption account
may apply from time to time for an increase in the maximum number of
contracts exempt from the position limits.
(2) A hedge exemption account that is not carried by a Member must
be carried by a member of a self-regulatory organization participating
in the Intermarket Surveillance Group.
(3) The hedge exemption account shall liquidate and establish
options, stock positions, or economically equivalent positions in an
orderly fashion; shall not initiate or liquidate positions in a manner
calculated to cause unreasonable price fluctuations or unwarranted
price changes; and shall not initiate or liquidate a stock position or
its equivalent with an equivalent index options position with a view
toward taking advantage of any differential in price between a group of
securities and an overlying stock index option. The hedge exemption
account shall liquidate any options prior to or contemporaneously with
a decrease in the hedged value of the portfolio which options would
thereby be rendered excessive. The hedge exemption account shall
promptly notify the Exchange of any change in the portfolio which
materially affects the unhedged value of the portfolio.
(4) If an exemption is granted, it will be effective at the time
the decision is communicated. Retroactive exemptions will not be
granted.
(5) The hedge exemption account shall promptly provide to the
Exchange any information requested concerning the portfolio.
(6) Positions included in a portfolio that serve to secure an index
hedge exemption may not also be used to secure any other position limit
exemption granted by the Exchange or any other self-regulatory
organization or futures contract market.
(7) Any Member that maintains an industry index options position in
such Member's own account or in a customer account, and has reason to
believe that such position is in excess of the applicable limit, shall
promptly take the action necessary to bring the position into
compliance. Failure to abide by this provision shall be deemed to be a
violation of Rule 307 and proposed Rule 1806 by the Member.
(8) Violation of any of the provisions of proposed Rule 1806,
absent reasonable justification or excuse, shall result in withdrawal
of the index hedge exemption and may form the basis for subsequent
denial of an application for an index hedge exemption hereunder.
Proposed Rule 1806(c), Exemptions Granted by Other Options
Exchanges, states that a Member may rely upon any available exemptions
from applicable position limits granted from time to time by another
options exchange for any options contract traded on the Exchange
provided that such Member:
(1) Provides the Exchange with a copy of any written exemption
issued by another options exchange or a written description of any
exemption issued by another options exchange other than in writing
containing sufficient detail for Exchange regulatory staff to verify
the validity of that exemption with the issuing options exchange, and
(2) fulfills all conditions precedent for such exemption and
complies at all times with the requirements of such exemption with
respect to the Member's trading on the Exchange.
Proposed Rule 1806(d), Delta-Based Index Hedge Exemption, describes
the Delta-Based Index Hedge Exemption as in addition to the standard
limit and other exemptions available under Exchange rules. The proposed
rule states that an index option position of a Member or non-Member
affiliate of a Member that is delta neutral shall be exempt from
established position limits as prescribed under Rules 1804 and 1805,
subject to the following:
(1) The term ``delta neutral'' refers to an index option position
that is hedged, in accordance with a permitted pricing model, by a
position in one or more correlated instruments, for the purpose of
offsetting the risk that the value of the option position will change
with incremental changes in the value of the underlying index. The term
``correlated instruments'' means securities and/or other instruments
that track the performance of or are based on the same underlying index
as the index underlying the option position (but not including baskets
of securities).
(2) An index option position that is not delta neutral shall be
subject to position limits in accordance with proposed Rules 1804 and
1805 (subject to the availability of other position limit exemptions).
Only the options contract equivalent of the net delta of such position
shall be subject to the appropriate position limit. The ``options
contract equivalent of the net delta'' is the net delta divided by
units of trade that equate to one option contract on a delta basis. The
term ``net delta'' means, at any time, the number of shares and/or
other units of trade (either long or short) required to offset the risk
that the value of an index option position will change with incremental
changes in the value of the underlying index, as determined in
accordance with a permitted pricing model.
[[Page 8546]]
(3) A ``permitted pricing model'' shall have the meaning as defined
in Rule 308(a)(7)(iii).\37\
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\37\ A ``permitted pricing model'' means: (A) A pricing model
maintained and operated by the Clearing Corporation (``OCC Model'');
(B) A pricing model maintained and used by a Member subject to
consolidated supervision by the SEC pursuant to Appendix E of SEC
Rule 15c3-1, or by an affiliate that is part of such Member's
consolidated supervised holding company group, in accordance with
its internal risk management control system and consistent with the
requirements of Appendices E or G, as applicable, to SEC Rule 15c3-1
and SEC Rule 15c3-4 under the Exchange Act, as amended from time to
time, in connection with the calculation of risk-based deductions
from capital or capital allowances for market risk thereunder,
provided that the Member or affiliate of a Member relying on this
exemption in connection with the use of such model is an entity that
is part of such Member's consolidated supervised holding company
group; (C) A pricing model maintained and used by a financial
holding company or a company treated as a financial holding company
under the Bank Holding Company Act of 1956, or by an affiliate that
is part of either such company's consolidated supervised holding
company group, in accordance with its internal risk management
control system and consistent with: 1. the requirements of the Board
of Governors of the Federal Reserve System, as amended from time to
time, in connection with the calculation of risk based adjustments
to capital for market risk under capital requirements of the Board
of Governors of the Federal Reserve System, provided that the Member
or affiliate of a Member relying on this exemption in connection
with the use of such model is an entity that is part of such
company's consolidated supervised holding company group; or 2. the
standards published by the Basel Committee on Banking Supervision,
as amended from time to time and as implemented by such company's
principal regulator, in connection with the calculation of risk-
based deductions or adjustments to or allowances for the market risk
capital requirements of such principal regulator applicable to such
company--where ``principal regulator'' means a member of the Basel
Committee on Banking Supervision that is the home country
consolidated supervisor of such company--provided that the Member or
affiliate of a Member relying on this exemption in connection with
the use of such model is an entity that is part of such company's
consolidated supervised holding company group. (D) A pricing model
maintained and used by an OTC derivatives dealer registered with the
SEC pursuant to SEC Rule 15c3-1(a)(5) in accordance with its
internal risk management control system and consistent with the
requirements of Appendix F to SEC Rule 15c3-1 and SEC Rule 15c3-4
under the Exchange Act, as amended from time to time, in connection
with the calculation of risk-based deductions from capital for
market risk thereunder, provided that only such OTC derivatives
dealer and no other affiliated entity (including a Member) may rely
on this subparagraph (D); or (E) A pricing model used by a national
bank under the National Bank Act maintained and used in accordance
with its internal risk management control system and consistent with
the requirements of the Office of the Comptroller of the Currency,
as amended from time to time, in connection with the calculation of
risk based adjustments to capital for market risk under capital
requirements of the Office of the Comptroller of the Currency,
provided that only such national bank and no other affiliated entity
(including a Member) may rely on this subparagraph (E).
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Proposed Rule 1806(d)(4), Effect on Aggregation of Accounts, states
that (i) Members and non-Member affiliates who rely on this exemption
must ensure that the permitted pricing model is applied to all
positions in correlated instruments that are owned or controlled by
such Member or non-Member affiliate.
Notwithstanding subparagraph (i), above, the net delta of an option
position held by an entity entitled to rely on this exemption, or by a
separate and distinct trading unit of such entity, may be calculated
without regard to positions in correlated instruments held by an
affiliated entity or by another trading unit within the same entity,
provided that:
(A) The entity demonstrates to the Exchange's satisfaction that no
control relationship, as defined in Rule 307(f), exists between such
affiliates or trading units; and
(B) the entity has provided (by the Member carrying the account as
applicable) the Exchange written notice in advance that it intends to
be considered separate and distinct from any affiliate or, as
applicable, which trading units within the entity are to be considered
separate and distinct from each other for purposes of this exemption.
Proposed Rule 1806(d)(4)(iii) states that, notwithstanding
subparagraphs (i) and (ii) of proposed Rule 1806(d)(4), a Member or
non-Member affiliate who relies on this exemption shall designate, by
prior written notice to the Exchange (to be obtained and provided by
the Member carrying the account as applicable), each trading unit or
entity whose option positions are required under Exchange Rules to be
aggregated with the option positions of such Member or non-Member
affiliate that is relying on this exemption for purposes of compliance
with Exchange position limits or exercise limits. In any such case: (A)
The permitted pricing model shall be applied, for purposes of
calculating such Member's or affiliate's net delta, only to the
positions in correlated instruments owned and controlled by those
entities and trading units who are relying on this exemption; and (B)
the net delta of the positions owned or controlled by the entities and
trading units who are relying on this exemption shall be aggregated
with the non-exempt option positions of all other entities and trading
units whose options positions are required under Exchange Rules to be
aggregated with the option positions of such Member or affiliate.
Proposed Rule 1806(d)(5) describes the obligations of Members
seeking the Delta Hedge Exemption. First, a Member that relies on this
exemption for a proprietary index options position: (A) Must provide a
written certification to the Exchange that it is using a permitted
pricing model as defined above, and (B) by such reliance authorizes any
other person carrying for such Member an account including, or with
whom such Member has entered into, a position in a correlated
instrument to provide to the Exchange or the Clearing Corporation such
information regarding such account or position as the Exchange or
Clearing Corporation may request as part of the Exchange's confirmation
or verification of the accuracy of any net delta calculation under this
exemption. The index option positions of a non-Member relying on this
exemption must be carried by a Member with which it is affiliated.
Proposed Rule 1806(d)(5)(iii) requires that a Member carrying an
account that includes an index option position for a non-Member
affiliate that intends to rely on the Delta-Based Hedge Exemption must
obtain from such non-Member affiliate and must provide to the Exchange:
(A) A written certification to the Exchange that the non-Member
affiliate is using a permitted pricing model as described above; and
(B) a written statement confirming that such non-Member affiliate: (1)
Is relying on this exemption; (2) will use only a permitted pricing
model for purposes of calculating the net delta of its option positions
for purposes of this exemption; (3) will promptly notify the Member if
it ceases to rely on this exemption; (4) authorizes the Member to
provide to the Exchange or the Clearing Corporation such information
regarding positions of the non-Member affiliate as the Exchange or
Clearing Corporation may request as part of the Exchange's confirmation
or verification of the accuracy of any net delta calculation under this
exemption; and (5) if the non-Member affiliate is using the Clearing
Corporation Model, has duly executed and delivered to the Member such
documents as the Exchange may require to be executed and delivered to
the Exchange as a condition to reliance on the exemption.
Proposed Rule 1806(d)(6) requires each Member (other than an
Exchange market maker using the Clearing Corporation Model) that holds
or carries an account that relies on the Delta-Based Hedge Exemption
shall report, in accordance with Exchange Rule 310,\38\
[[Page 8547]]
all index option positions (including those that are delta neutral)
that are reportable thereunder. Each such Member on its own behalf or
on behalf of a designated aggregation unit pursuant to Rule 1806(d)(4)
shall also report, in accordance with Exchange Rule 310 for each such
account that holds an index option position subject to the Delta-Based
Hedge Exemption in excess of the levels specified in Rules 1804 and
1805, the net delta and the options contract equivalent of the net
delta of such position.
---------------------------------------------------------------------------
\38\ Each Member is required under Exchange Rule 310, Reports
Related to Position Limits, to file with the Exchange the name,
address and social security or tax identification number of any
customer, as well as any Member, any general or special partner of
the Member, any officer or director of the Member or any
participant, as such, in any joint, group or syndicate account with
the Member or with any partner, officer or director thereof, who, on
the previous business day held aggregate long or short positions of
200 or more option contracts of any single class of options traded
on the Exchange. The report shall indicate for each such class of
option contracts the number of option contracts comprising each such
position and, in case of short positions, whether covered or
uncovered. (b) Electronic Exchange Members that maintain an end of
day position in excess of 10,000 non-FLEX equity option contracts on
the same side of the market on behalf of its own account or for the
account of a customer, shall report whether such position is hedged
and provide documentation as to how such position is hedged. This
report is required at the time the subject account exceeds the
10,000 contract threshold and thereafter, for customer accounts,
when the position increases by 2,500 contracts and for proprietary
accounts when the position increases by 5,000 contracts. (c) In
addition to the reports required by paragraph (a) and (b) of this
Rule, each Member shall report promptly to the Exchange any instance
in which the Member has reason to believe that a person included in
paragraph (a), acting alone or in concert with others, has exceeded
or is attempting to exceed the position limits established pursuant
to Rule 307. Interpretations and Policies: .01 For purposes of
calculating the aggregate long or short position under paragraph (a)
above, Members shall combine (i) long positions in put options with
short positions in call options, and (ii) short positions in put
options with long positions in call options. See Exchange Rule 310.
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Finally, proposed Rule 1806(d)(7) requires that each Member relying
on the Delta-Based Hedge Exemption shall: (i) Retain, and undertake
reasonable efforts to ensure that any non-Member affiliate of the
Member relying on this exemption retains, a list of the options,
securities and other instruments underlying each option position net
delta calculation reported to the Exchange hereunder, and (ii) produce
such information to the Exchange upon request.
The proposed Rules relating to position limits and exemptions from
position limits are based on, and substantially similar to, rules that
are currently in place on other exchanges.\39\
---------------------------------------------------------------------------
\39\ See, e.g., Nasdaq ISE Rule 2006; Cboe Rule 24.4,
Interpretations and Policies .01, .05, and Rule 24.4A; and Nasdaq
Phlx Rule 1001A and Interpretations and Policies .01-.04 thereto.
---------------------------------------------------------------------------
Proposed Rule 1808, Trading Sessions, provides that index options
will trade between the hours of 9:30 a.m. and 4:15 p.m. Eastern time,
the same as on other exchanges. The proposed rule also contains
procedures for trading rotations, as well as trading halts and
suspensions.
Specifically, proposed Rule 1808(a) states that, except as
otherwise provided in this Rule or under unusual conditions as may be
determined by the Exchange, (i) transactions in index options may be
effected on the Exchange between the hours of 9:30 a.m. and 4:15 p.m.
Eastern time, and (ii) transactions in options on a Foreign Currency
Index may be effected on the Exchange between the hours of 7:30 a.m.
and 4:15 p.m. Eastern time. With respect to options on foreign indexes,
the Exchange shall determine the days and hours of business. The
proposed Rule and the various enumerated times are consistent with
rules in place on other exchanges.\40\
---------------------------------------------------------------------------
\40\ See MIAX Options Rule 1808; Nasdaq ISE Rule 2008; Cboe Rule
24.6, and Nasdaq Phlx Rule 101.
---------------------------------------------------------------------------
Proposed Rule 1808(b), Trading Rotations, states that, except as
otherwise provided in the proposed Rule, the opening process for index
options shall be governed by Rule 503.\41\ The opening rotation for
index options shall be held at or as soon as practicable after 9:30
a.m. Eastern time. The Exchange may delay the commencement of the
opening rotation in an index option whenever in the judgment of the
Exchange such action is appropriate in the interests of a fair and
orderly market. Among the factors that may be considered in making
these determinations are: (1) Unusual conditions or circumstances in
other markets; (2) an influx of orders that has adversely affected the
ability of the Market Maker to provide and to maintain fair and orderly
markets; (3) activation of opening price limits in stock index futures
on one or more futures exchanges; (4) activation of daily price limits
in stock index futures on one or more futures exchanges; (5) the extent
to which either there has been a delay in opening or trading is not
occurring in stocks underlying the index; and (6) circumstances such as
those which would result in the declaration of a fast market under Rule
506(d).\42\
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\41\ See Exchange Rule 503. Openings on the Exchange, governs
the opening of trading on the Exchange with respect to, among other
things, determining the opening price and matching orders and quotes
in the system. These and other provisions will apply to openings in
index options.
\42\ This reference to MIAX Options Rule 506(d) will be
construed to reference corresponding MIAX PEARL Rule 506(e).
---------------------------------------------------------------------------
Proposed Rule 1808(c) describes circumstances and procedures
relating to halts and suspensions in index options. Specifically,
trading on the Exchange in any index option shall be halted or
suspended whenever trading in underlying securities whose weighted
value represents more than twenty percent (20%), in the case of a broad
based index, and ten percent (10%) for all other indices, of the index
value is halted or suspended. The Exchange also may halt trading in an
index option, including in options on a Foreign Currency Index, when,
in its judgment, such action is appropriate in the interests of a fair
and orderly market and to protect investors. Among the facts that may
be considered are the following:
(1) Whether all trading has been halted or suspended in the market
that is the primary market for a plurality of the underlying stocks, or
in the case of a Foreign Currency Index, in the underlying foreign
currency market;
(2) whether the current calculation of the index derived from the
current market prices of the stocks is not available, or in the case of
the a Foreign Currency Index, the current prices of the underlying
foreign currency is not available;
(3) the extent to which the rotation has been completed or other
factors regarding the status of the rotation; and
(4) other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present, including, but
not limited to, the activation of price limits on futures exchanges.
Proposed Rule 1808(d) describes the resumption of trading following
a halt or suspension in an index option. Trading in options of a class
or series that has been the subject of a halt or suspension by the
Exchange may resume if the Exchange determines that the interests of a
fair and orderly market are served by a resumption of trading. Among
the factors to be considered in making this determination are whether
the conditions that led to the halt or suspension are no longer
present, and the extent to which trading is occurring in stocks or
currencies underlying an index. Upon reopening, a rotation shall be
held in each class of index options unless the Exchange concludes that
a different method of reopening is appropriate under the circumstances,
including but not limited to, no rotation, an abbreviated rotation or
any other variation in the manner of the rotation.
Proposed Rule 1808(e) states that Rule 504, Interpretations and
Policies .03 applies to index options trading with respect to the
initiation of a market wide trading halt commonly known as a ``circuit
breaker.'' \43\
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\43\ The Exchange shall halt trading in all securities whenever
a market-wide trading halt commonly known as a circuit breaker is
initiated on the New York Stock Exchange in response to
extraordinary market conditions. See Exchange Rule 504,
Interpretations and Policies .03. Rule 530(e) provides that the
Exchange shall halt trading in all options whenever the equities
markets initiate a market-wide trading halt commonly known as a
circuit breaker in response to extraordinary market conditions.
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[[Page 8548]]
Proposed Rule 1808(f) addresses the hours for trading foreign
currency options. Specifically, when the hours of trading of the
underlying primary securities market for an index option do not overlap
or coincide with those of the Exchange, all of the provisions as
described in paragraphs (c), (d) and (e) above shall not apply except
for (c)(4).
Proposed Rule 1808(g) governs the situation where the primary
market for a security underlying the current index value of an index
option does not open does not open for trading on a given day. In such
a circumstance, the price of that security shall be determined, for the
purposes of calculating the current index value at expiration, based on
the opening price of that security on the next day that its primary
market is open for trading. This procedure shall not be used if the
current index value at expiration is fixed in accordance with the Rules
and By-Laws of the Clearing Corporation.
The proposed rules governing trading sessions, including trading
rotations, halts and suspensions, resumption of trading following a
halt or suspension, circuit breakers, special provisions for foreign
indices, and pricing when the primary market does not open are based
on, and substantially similar to, the rules in place on other
exchanges.\44\
---------------------------------------------------------------------------
\44\ See, e.g., MIAX Options Rule 1808; Nasdaq ISE Rule 2008;
Cboe Rule 24.7; and Nasdaq Phlx Rule 1047A.
---------------------------------------------------------------------------
Proposed Rule 1809, Terms of Index Options Contracts, outlines the
terms of index options contracts in terms of the meaning of premium
bids and offers; exercise prices; expiration months and the trading of
European Style Index options. The proposed Rule also applies to A.M.
Settled Index Options, and Long-Term Option Series (including Reduced-
Value Long Term Options Series), which would also require a filing with
the Commission for the specific index option(s) to which the proposed
rule is applicable.\45\
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\45\ See supra note 5.
---------------------------------------------------------------------------
Proposed Rule 1809(a) contains general provisions applicable to the
trading of index options on the Exchange. Specifically, the proposed
Rule states generally that bids and offers shall be expressed in terms
of dollars and cents per unit of the index. The Exchange shall
determine fixed-point intervals of exercise prices for call and put
options. With respect to expirations, proposed Rule 1809(a)(3) states
that index options contracts, including option contracts on a Foreign
Currency Index, may expire at three (3)-month intervals or in
consecutive months. The Exchange may list up to six (6) expiration
months at any one time, but will not list index options that expire
more than twelve (12) months out. Notwithstanding the preceding
restriction, the Exchange may list up to seven expiration months at any
one time for any broad-based security index option contracts on which
any exchange calculates a constant three (3)-month volatility index.
Proposed Rule 1809(a)(4) permits the Exchange to list and trade
certain European-style index options to be Specified by the Exchange,
some of which may be A.M.-settled as provided in paragraph (a)(5). The
Exchange will file a proposed rule change and any such listing and
trading is subject to the approval of the Commission.\46\
---------------------------------------------------------------------------
\46\ Id.
---------------------------------------------------------------------------
Proposed Rule 1809(a)(5) governs A.M.-Settled Index Options. The
last day of trading for A.M.-settled index options shall be the
business day preceding the business day of expiration, or, in the case
of an option contract expiring on a day that is not a business day, the
business day preceding the last day of trading in the underlying
securities prior to the expiration date. The current index value at the
expiration of an A.M.-settled index option shall be determined, for all
purposes under these proposed Rules and the Rules of the Clearing
Corporation, on the last day of trading in the underlying securities
prior to expiration, by reference to the reported level of such index
as derived from first reported sale (opening) prices of the underlying
securities on such day, except that:
(i) In the event that the primary market for an underlying security
does not open for trading on that day, the price of that security shall
be determined, for the purposes of calculating the current index value
at expiration, as set forth in Rule 1808(g), unless the current index
value at expiration is fixed in accordance with the Rules and By-Laws
of the Clearing Corporation; and
(ii) In the event that the primary market for an underlying
security is open for trading on that day, but that particular security
does not open for trading on that day, the price of that security, for
the purposes of calculating the current index value at expiration,
shall be the last reported sale price of the security.
Proposed Rule 1809(a)(5)(ii) permits the Exchange to list specific
A.M.-settled index options that are approved for trading on the
Exchange, subject to the filing of a proposed rule change and the
approval of the Commission.
Proposed Rule 1809(b)(1) permits the Exchange, notwithstanding the
permitted expiration months set forth in proposed Rule 1809(a)(3) (as
described above), to list long-term index options series that expire
from twelve (12) to sixty (60) months from the date of issuance. Under
the proposal, long term index options series may be based on either the
full or reduced value of the underlying index. There may be up to ten
(10) expiration months, none further out than sixty (60) months. Strike
price interval, bid/ask differential and continuity Rules shall not
apply to such options series until the time to expiration is less than
twelve (12) months. When a new long term index options series is
listed, such series will be opened for trading either when there is
buying or selling interest, or forty (40) minutes prior to the close,
whichever occurs first. No quotations will be posted for such options
until they are opened for trading.
Proposed Rule 1809(b)(2) governs the trading of reduced-value long
term options series.\47\ Proposed Rule 1809(b)(2)(i) permits the
Exchange to list the specific reduced-Value long term options series
traded on the Exchange (subject to an Exchange filing and Commission
approval).\48\ Reduced-value long term options series may expire at
six-month intervals. When a new expiration month is listed, series may
be near or bracketing the current index value. Additional series may be
added when the value of the underlying index increases or decreases by
ten (10) to fifteen percent (15%).
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\47\ A reduced-value options series is an option series
overlying an index that trades in units based upon a percentage of
the value of the underlying index, for example, ten percent (10%) of
the value of the index.
\48\ See supra note 5.
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Proposed Rule 1809(c) sets forth the procedures for adding and
deleting strike prices. The procedures for adding and deleting strike
prices for index options are provided in Exchange Rule 404, as amended
by the following:
(1) The interval between strike prices will be no less than $5.00;
provided that in the case of certain classes of index options, the
interval between strike prices will be no less than $2.50 and such must
be listed specifically in the Rule.
[[Page 8549]]
(2) New series of index options contracts may be added up to, but
not on or after, the fourth business day prior to expiration for an
option contract expiring on a business day, or, in the case of an
option contract expiring on a day that is not a business day, the fifth
business day prior to expiration.
(3) When new series of index options with a new expiration date are
opened for trading, or when additional series of index options in an
existing expiration date are opened for trading as the current value of
the underlying index to which such series relate moves substantially
from the exercise prices of series already opened, the exercise prices
of such new or additional series shall be reasonably related to the
current value of the underlying index at the time such series are first
opened for trading. In the case of all classes of index options, the
term ``reasonably related to the current value of the underlying
index'' shall have the meaning set forth in proposed Rule 1809(c)(4),
described below.
(4) Notwithstanding any other provision of this paragraph (c), the
Exchange may open for trading additional series of the same class of
index options as the current index value of the underlying index moves
substantially from the exercise price of those index options that
already have been opened for trading on the Exchange. The exercise
price of each series of index options opened for trading on the
Exchange shall be reasonably related to the current index value of the
underlying index to which such series relates at or about the time such
series of options is first opened for trading on the Exchange. The term
``reasonably related to the current index value of the underlying
index'' means that the exercise price is within thirty percent (30%) of
the current index value.
The Exchange may also open for trading additional series of index
options that are more than thirty percent (30%) away from the current
index value, provided that demonstrated customer interest exists for
such series, as expressed by institutional, corporate, or individual
customers or their brokers. Market Makers trading for their own account
shall not be considered when determining customer interest under this
provision.
Proposed Rule 1809(d) states that the reported level of the
underlying index that is calculated by the reporting authority on the
business day of expiration, or, in the case of an option contract
expiring on a day that is not a business day, the last day of trading
in the underlying securities prior to the expiration date for purposes
of determining the current index value at the expiration of an A.M.-
settled index option, may differ from the level of the index that is
separately calculated and reported by the reporting authority and that
reflects trading activity subsequent to the opening of trading in any
of the underlying securities.
Proposed Rule 1809(e) provides that the Rules of the Clearing
Corporation specify that, unless the Rules of the Exchange provide
otherwise, the current index value used to settle the exercise of an
index options contract shall be the closing index value for the day on
which the index options contract is exercised in accordance with the
Rules of the Clearing Corporation or, if such day is not a business
day, for the most recent business day. The closing settlement value for
options on a Foreign Currency Index shall be specified by the Exchange.
Proposed Rule 1809, Interpretations and Policies .01, Short Term
Option Series Program, specifies that, notwithstanding the restriction
in Rule 1809(a)(3), after an option class has been approved for listing
and trading on the Exchange, the Exchange may open for trading on any
Thursday or Friday that is a business day (``Short Term Option Opening
Date'') series of options on that class that expire at the close of
business on each of the next five Fridays that are business days and
are not Fridays in which monthly options series or Quarterly Options
Series expire (``Short Term Option Expiration Dates''). The Exchange
may have no more than a total of five Short Term Option Expiration
Dates. If the Exchange is not open for business on the respective
Thursday or Friday, the Short Term Option Opening Date will be the
first business day immediately prior to that respective Thursday or
Friday. Similarly, if the Exchange is not open for business on a
Friday, the Short Term Option Expiration Date will be the first
business day immediately prior to that Friday.
Proposed Interpretations and Policies .01(a) to Rule 1809 permits
the Exchange to select up to thirty (30) currently listed option
classes on which Short Term Option Series may be opened on any Short
Term Option Opening Date. In addition to the thirty (30) option class
restriction, the Exchange may also list Short Term Option Series on any
option classes that are selected by other securities exchanges that
employ a similar program under their respective rules. For each index
option class eligible for participation in the Short Term Option Series
Program, the Exchange may open up to thirty (30) Short Term Option
Series on index options for each expiration date in that class. The
Exchange may also open Short Term Option Series that are opened by
other securities exchanges in option classes selected by such exchanges
under their respective short term option rules.
Proposed Interpretations and Policies .01(b) to proposed Rule 1809
states that no Short Term Option Series on an index option class may
expire in the same week during which any monthly option series on the
same index class expires or, in the case of Quarterly Options Series,
on an expiration that coincides with an expiration of Quarterly Options
Series on the same index class.
Proposed Interpretations and Policies .01(c) to Rule 1809 governs
the listing and trading of initial series in short-term options. The
Exchange may open up to twenty (20) initial series for each option
class that participates in the Short Term Option Series Program. The
strike price of each Short Term Option Series will be fixed at a price
per share, with approximately the same number of strike prices above
and below the calculated index value of the underlying index at about
the time that Short Term Option Series are initially opened for trading
on the Exchange (e.g., if seven series are initially opened, there will
be at least three strike prices above and three strike prices below the
calculated index value). Any strike prices listed by the Exchange shall
be within thirty percent (30%) above or below the current value of the
underlying index.
Proposed Interpretations and Policies .01(d) to Rule 1809,
Additional Series, states that the Exchange may open up to ten (10)
additional series for each option class that participates in the Short
Term Option Series Program when the Exchange deems it necessary to
maintain an orderly market, to meet customer demand or when the current
value of the underlying index moves substantially from the exercise
price or prices of the series already opened. Any additional strike
prices listed by the Exchange shall be within thirty percent (30%)
above or below the current value of the underlying index. The Exchange
may also open additional strike prices on Short Term Option Series that
are more than thirty percent (30%) above or below the current value of
the underlying index provided that demonstrated customer interest
exists for such series, as expressed by institutional, corporate or
individual customers or their brokers. Market Makers trading for their
own account shall not be considered when determining customer interest
under this provision. In the event that the
[[Page 8550]]
underlying security has moved such that there are no series that are at
least ten percent (10%) above or below the current price of the
underlying security, the Exchange will delist any series with no open
interest in both the call and the put series having a: (i) Strike
higher than the highest strike price with open interest in the put and/
or call series for a given expiration month; and (ii) strike lower than
the lowest strike price with open interest in the put and/or the call
series for a given expiration month, so as to list series that are at
least ten percent (10%) but not more than thirty percent (30%) above or
below the current price of the underlying security. In the event that
the underlying security has moved such that there are no series that
are at least ten percent (10%) above or below the current price of the
underlying security and all existing series have open interest, the
Exchange may list additional series, in excess of the thirty (30)
allowed under this Interpretations and Policies .01. The opening of the
new Short Term Option Series shall not affect the series of options of
the same class previously opened. Notwithstanding any other provisions
in proposed Rule 1809, Short Term Option Series may be added up to, and
including on, the Short Term Option Expiration Date for that options
series.
Proposed Interpretations and Policies .01(e) to Rule 1809 governs
strike price intervals for short term index option series. The interval
between strike prices on Short Term Option Series shall be the same as
the strike prices for series in that same index option class that
expire in accordance with the normal monthly expiration cycle. During
the month prior to expiration of an index option class that is selected
for the Short Term Option Series Program pursuant to this rule (``Short
Term Option''), the strike price intervals for the related index non-
Short Term Option (``Related non-Short Term Option'') shall be the same
as the strike price intervals for the index Short Term Option.
Proposed Interpretations and Policies .02 to Rule 1809 governs the
Quarterly Options Series Program. Notwithstanding the restriction in
proposed Rule 1809(a)(3) (described above), the Exchange may list and
trade options series that expire at the close of business on the last
business day of a calendar quarter (``Quarterly Options Series''). The
Exchange may list Quarterly Options Series for up to five (5) currently
listed options classes that are either index options or options on
exchange traded funds (``ETFs''). In addition, the Exchange may also
list Quarterly Options Series on any options classes that are selected
by other securities exchanges that employ a similar pilot program under
their respective rules. The Exchange may list series that expire at the
end of the next consecutive four (4) calendar quarters, as well as the
fourth quarter of the next calendar year. The Exchange will not list a
Short Term Option Series on an options class whose expiration coincides
with that of a Quarterly Options Series on that same options class.
Quarterly Options Series shall be P.M. settled.
Proposed Interpretations and Policies .02(d) to Rule 1809, Initial
Series, states that the strike price of each Quarterly Options Series
will be fixed at a price per share, with at least two, but no more than
five, strike prices above and at least two, but no more than five,
strike prices below the value of the underlying index at about the time
that a Quarterly Options Series is opened for trading on the Exchange.
The Exchange shall list strike prices for Quarterly Options Series that
are reasonably related to the current index value of the underlying
index to which such series relates at about the time such series of
options is first opened for trading on the Exchange. The term
``reasonably related to the current index value of the underlying
index'' means that the exercise price is within thirty percent (30%) of
the current index value.
Proposed Interpretations and Policies .02(e) to Rule 1809,
Additional Series, permits the Exchange to open for trading additional
Quarterly Options Series of the same class when the Exchange deems it
necessary to maintain an orderly market, to meet customer demand or
when the market price of the underlying security moves substantially
from the initial exercise price or prices. The Exchange may also open
for trading additional Quarterly Options Series that are more than
thirty percent (30%) away from the current index value, provided that
demonstrated customer interest exists for such series, as expressed by
institutional, corporate, or individual customers or their brokers.
Market-makers trading for their own account shall not be considered
when determining customer interest under this provision. The Exchange
may open additional strike prices of a Quarterly Options Series that
are above the value of the underlying index provided that the total
number of strike prices above the value of the underlying is no greater
than five. The Exchange may open additional strike prices of a
Quarterly Options Series that are below the value of the underlying
index provided that the total number of strike prices below the value
of the underlying index is no greater than five. The opening of any new
Quarterly Options Series shall not affect the series of options of the
same class previously opened.
Proposed Interpretations and Policies .02(f) to Rule 1809, Strike
Interval, states that the interval between strike prices on Quarterly
Options Series shall be the same as the interval for strike prices for
series in that same options class that expire in accordance with the
normal monthly expiration cycle.
Proposed Interpretations and Policies .03 to Rule 1809 states that,
notwithstanding the requirements set forth in proposed Rule 1809, the
Exchange may list additional series of index options classes if such
series are listed on at least one other national securities exchange in
accordance with the applicable rules of such exchange for the listing
of index options.\49\ Proposed Interpretations and Policies .04 to Rule
1809 states that, notwithstanding the requirements set forth in
proposed Rule 1809 and any Interpretations and Policies thereto, the
Exchange may list additional expiration months on options classes
opened for trading on the Exchange if such expiration months are opened
for trading on at least one other registered national securities
exchange.
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\49\ See supra note 3.
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Proposed Interpretations and Policies .05 to Rule 1809 states that,
notwithstanding the requirements set forth in this Rule 1809 and any
Interpretations and Policies thereto, the Exchange may open for trading
Short Term Option Series on the Short Term Option Opening Date that
expire on the Short Term Option Expiration Date at strike price
intervals of (i) $0.50 or greater where the strike price is less than
$75, and $1 or greater where the strike price is between $75 and $150
for all index option classes that participate in the Short Term Options
Series Program; or (ii) $0.50 for index option classes that trade in
one dollar increments and are in the Short Term Option Series Program.
The proposed rules concerning the terms of options contracts are
based on, and substantially similar to, rules that are currently
operative on other exchanges.\50\
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\50\ See, e.g., MIAX Options Rule 1809; Nasdaq ISE Rule 2009;
Cboe Rule 24.9; and Nasdaq Phlx Rule 1101A.
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Proposed Rule 1810 applies to debit put spreads. Debit put spread
positions in European-style, broad-based index options traded on the
Exchange (hereinafter ``debit put spreads'') may be
[[Page 8551]]
maintained in a cash account as defined by Federal Reserve Board
Regulation T Section 220.8 \51\ by a Public Customer, provided that the
following procedures and criteria are met:
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\51\ 12 CFR 220.8.
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(a) Approval to maintain debit put spreads in a cash account
carried by an Exchange Member. A customer so approved is hereinafter
referred to as a ``spread exemption customer.''
(b) The spread exemption customer has provided all information
required on Exchange-approved forms and has kept such information
current.
(c) The customer holds a net long position in each of the stocks of
a portfolio that has been previously established or in securities
readily convertible, and additionally in the case of convertible bonds
economically convertible, into common stocks which would comprise a
portfolio. The debit put spread position must be carried in an account
with a member of a self-regulatory organization participating in the
ISG.
(d) The stock portfolio or its equivalent is composed of net long
positions in common stocks in at least four industry groups and
contains at least twenty (20) stocks, none of which accounts for more
than fifteen percent (15%) of the value of the portfolio (hereinafter
``qualified portfolio''). To remain qualified, a portfolio must at all
times meet these standards notwithstanding trading activity in the
stocks.
(e) The exemption applies to European-style broad-based index
options dealt in on the Exchange to the extent the underlying value of
such options position does not exceed the unhedged value of the
qualified portfolio. The unhedged value would be determined as follows:
(1) The values of the net long or short positions of all qualifying
products in the portfolio are totaled; (2) for positions in excess of
the standard limit, the underlying market value (A) of any economically
equivalent opposite side of the market calls and puts in broad-based
index options, and (B) of any opposite side of the market positions in
stock index futures, options on stock index futures, and any
economically equivalent opposite side of the market positions, assuming
no other hedges for these contracts exist, is subtracted from the
qualified portfolio; and (3) the market value of the resulting unhedged
portfolio is equated to the appropriate number of exempt contracts as
follows--the unhedged qualified portfolio is divided by the
correspondent closing index value and the quotient is then divided by
the index multiplier or 100.
(f) A debit put spread in Exchange-traded broad-based index options
with European-style exercises is defined as a long put position coupled
with a short put position overlying the same broad-based index and
having an equivalent underlying aggregate index value, where the short
put(s) expires with the long put(s), and the strike price of the long
put(s) exceeds the strike price of the short put(s). A debit put spread
will be permitted in the cash account as long as it is continuously
associated with a qualified portfolio of securities with a current
market value at least equal to the underlying aggregate index value of
the long side of the debit put spread.
(g) The qualified portfolio must be maintained with either a
Member, another broker-dealer, a bank, or securities depository.
(h) The spread exemption customer shall agree promptly to provide
the Exchange any information requested concerning the dollar value and
composition of the customer's stock portfolio, and the current debit
put spread positions.
(1) The spread exemption customer shall agree to and any Member
carrying an account for the customer shall:
(i) Comply with all Exchange Rules and regulations;
(ii) liquidate any debit put spreads prior to or contemporaneously
with a decrease in the market value of the qualified portfolio, which
debit put spreads would thereby be rendered excessive; and
(iii) promptly notify the Exchange of any change in the qualified
portfolio or the debit put spread position which causes the debit put
spreads maintained in the cash account to be rendered excessive.
(i) If any Member carrying a cash account for a spread exemption
customer with a debit put spread position dealt in on the Exchange has
a reason to believe that as a result of an opening options transaction
the customer would violate this spread exemption, and such opening
transaction occurs, then the Member has violated Rule 1810.
(j) Violation of any of these provisions, absent reasonable
justification or excuse, shall result in withdrawal of the spread
exemption and may form the basis for subsequent denial of an
application for a spread exemption hereunder.
Proposed Rule 1811, Disclaimers, disclaims liability for index
reporting authorities. The Disclaimer shall apply to the reporting
authorities \52\ identified in the Interpretations and Policies to
proposed Rule 1801.\53\
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\52\ The term ``reporting authority'' with respect to a
particular index means the institution or reporting service
designated by the Exchange as the official source for (1)
calculating the level of the index from the reported prices of the
underlying securities that are the basis of the index and (2)
reporting such level. The reporting authority for each index
approved for options trading on the Exchange shall be Specified (as
provided in Rule 1800) in the Interpretations and Policies to Rule
1801. See proposed Rule 1801(n). See also supra note 5.
\53\ The reporting authorities designated by the Exchange in
respect of each index underlying an index options contract traded on
the Exchange are as provided in a chart in proposed Rule 1801,
Interpretations and Policies .01.
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Proposed Rule 1811(b), Disclaimer, provides that no reporting
authority, and no affiliate of a reporting authority (each such
reporting authority, its affiliates, and any other entity identified in
this Rule are referred to collectively as a ``Reporting Authority''),
makes any warranty, express or implied, as to the results to be
obtained by any person or entity from the use of an index it publishes,
any opening, intra-day or closing value therefor, or any data included
therein or relating thereto, in connection with the trading of any
options contract based thereon or for any other purpose. The Reporting
Authority shall obtain information for inclusion in, or for use in the
calculation of, such index from sources it believes to be reliable, but
the Reporting Authority does not guarantee the accuracy or completeness
of such index, any opening, intra-day or closing value therefor, or any
date included therein or related thereto. The Reporting Authority
hereby disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to such index, any opening,
intra-day, or closing value therefor, any data included therein or
relating thereto, or any options contract based thereon. The Reporting
Authority shall have no liability for any damages, claims, losses
(including any indirect or consequential losses), expenses, or delays,
whether direct or indirect, foreseen or unforeseen, suffered by any
person arising out of any circumstance or occurrence relating to the
person's use of such index, any opening, intra-day or closing value
therefor, any data included therein or relating thereto, or any options
contract based thereon, or arising out of any errors or delays in
calculating or disseminating such index.
Proposed Rule 1811 concerning Disclaimers is based on, and
substantially similar to, rules that are
[[Page 8552]]
currently operative on other exchanges.\54\
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\54\ See, e.g., MIAX Options Rule 1811; Nasdaq ISE Rule 2011 and
Cboe Rule 24.14.
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Proposed Rule 1812, Exercise of American-Style Index Options,
contains standards for exercising American-style index options. The
proposed rule provides that no Member may prepare, time stamp or submit
an exercise instruction for an American-style index options series if
the Member knows or has reason to know that the exercise instruction
calls for the exercise of more contracts than the ``net long position''
of the account for which the exercise instruction is to be tendered.
For purposes of this rule: (i) The term ``net long position'' shall
mean the net position of the account in such option at the opening of
business of the day of such exercise instruction, plus the total number
of such options purchased that day in opening purchase transactions up
to the time of exercise, less the total number of such options sold
that day in closing sale transactions up to the time of exercise; (ii)
the ``account'' shall be the individual account of the particular
customer, market-maker or ``non-customer'' (as that term is defined in
the By-Laws of the Clearing Corporation) who wishes to exercise; and
(iii) every transaction in an options series effected by a market-maker
in a market-maker's account shall be deemed to be a closing transaction
in respect of the market-maker's then positions in such options series.
No Member may adjust the designation of an ``opening transaction'' in
any such option to a ``closing transaction'' except to remedy mistakes
or errors made in good faith.
Trading Halts
The Exchange proposes to amend Rule 504, Trading Halts,
Interpretations and Policies .04 to address the handling of trade
nullifications in index options due to trading halts. Specifically,
Interpretations and Policies .04 would be amended to state that, with
respect to index options, trades on the Exchange will be nullified if
the trade occurred during a regulatory halt as declared by the primary
market in underlying securities representing more than ten percent
(10%) of the current index value for narrow-based stock index options,
and twenty percent (20%) of the current index value for broad-based
index options. New Interpretations and Policies .05 to Rule 504 states
that trading halts, resumptions, trading pauses and post-halt
notifications involving index options are governed by Rules 1808(c)-(f)
(described above).
Surveillance and Capacity
The Exchange represents that is has an adequate surveillance
program in place for index options. The Exchange is a member of the
ISG, which ``is comprised of an international group of exchanges,
market centers, and market regulators.'' The purpose of the ISG is to
provide a framework for the sharing of information and the coordination
of regulatory efforts among exchanges trading securities and related
products to address potential intermarket manipulations and trading
abuses. The ISG plays a crucial role in information sharing among
markets that trade securities, options on securities, security futures
products, and futures and options on broad-based security indexes. A
list identifying the current ISG members is available at https://
www.isgportal.org/isgportal/public/members.htm.
MIAX PEARL has analyzed its capacity and represents that it
believes the Exchange and the Options Price Reporting Authority
(``OPRA'') have the necessary systems capacity to handle the additional
traffic associated with the listing and trading of index options.
The Exchange will announce the implementation date of the proposed
rule change by Regulatory Circular to be published no later than 90
days following the date the Commission issues an order approving the
proposed rule change. The implementation date will be no later than 90
days following the issuance of the Regulatory Circular.
2. Statutory Basis
MIAX PEARL believes that its proposed rule change is consistent
with Section 6(b) of the Act \55\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \56\ 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 regulating,
clearing, settling, processing information with respect to, and
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.
---------------------------------------------------------------------------
\55\ 15 U.S.C. 78f(b).
\56\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change will expand the
Exchange's capability to introduce and trade both existing and new and
innovative index products on the MIAX PEARL System. The added
capability is consistent with the Act in that it should foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, specifically index options.
The Exchange believes that there is unmet market demand on MIAX PEARL
for exchange-listed index options and the listing and trading of index
options on the Exchange is designed to attract both liquidity and order
flow to the Exchange, all to the benefit of the marketplace as a whole.
The Exchange believes that the requirements in the proposed listing
standards regarding, among other things, the minimum market
capitalization, trading volume, and relative weightings of an
underlying index's component stocks are designed to ensure that the
markets for the index's component stocks are adequately capitalized and
sufficiently liquid, and that no one stock dominates the index. These
requirements are designed 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, by ensuring
that unusual or extreme volatility in any single component of an index
could not cause the entire index to become so volatile that it puts
investors at undue and unplanned risk. These requirements also minimize
the potential for manipulating the underlying index, which protects
investors and the public interest.
The Exchange further believes that the requirement in proposed Rule
1802(b)(10) that the current underlying index value will be reported at
least once every fifteen (15) seconds during the time the index options
are traded on the Exchange, and the requirement in proposed Rule
1802(d)(11) (with respect to broad-based index options) that the
current index value be widely disseminated at least once every fifteen
(15) seconds by OPRA, the CTA, NIDS or one or more major market data
vendors during the time the index options are traded on the Exchange
removes impediments to and perfects the mechanisms of a free and open
market and a national market system by providing transparency with
respect to current index values and by contributing to the overall
transparency of the market for index options. In addition, the Exchange
believes that the requirement in proposed Rule 1802(d)(2) that an index
option be A.M.-settled, rather than based on closing prices, should
help to reduce the potential impact of expiring index
[[Page 8553]]
options on the market for an index's component securities.
The Exchange believes that the requirement in proposed Rule 1803 to
disseminate index values as a condition to the trading of options on an
index fosters cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in, securities by requiring absolute
transparency regarding the dissemination of index values. The
requirement that the Exchange disseminate, or assure that the current
index value is disseminated, and the requirement that the Exchange
maintain, in files available to the public, information identifying the
components whose prices are the basis for calculation of the index and
the method used to determine the current index value, protects
investors and the public interest by ensuring that the current index
value is disseminated regularly and consistently.
The Exchange's proposal to adopt Rules 1804 through 1807 relating
to position limits, exemptions from position limits, exercise limits in
index options, and regular maintenance reviews are designed 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, by limiting investors' levels of concentration in a
single index position. Not only would an investor be at undue risk by
assuming such a position, but the market for the affected index option
could be disproportionately affected by the trading activities of that
single investor with an unusually large long or short position. The
Exchange is proposing to mitigate this risk by establishing the same
position and exercise limits, and hedging rules, that already exist on
other exchanges, all designed for the protection of investors and the
public interest.
Proposed Rule 1808, Trading Sessions, is designed to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in, securities, by establishing the same,
uniform trading hours for index options as other exchanges. The
Exchange's proposal to establish rules and procedures for openings,
halts and reopenings, together with the designation by the Board of an
Exchange official authorized to halt trading when, in his or her
judgment, such action is appropriate in the interests of a fair and
orderly market is designed to protect investors and the public interest
by ensuring that there are multiple safeguards available during times
of unusual or particularly volatile market activity.
Proposed Rule 1809, Terms of Index Options Contracts, outlines the
terms of index options contracts in terms of the meaning of premium
bids and offers; exercise prices; expiration months; the trading of
European Style Index options. This proposed rule is the same as the
rules concerning terms of index options contracts on other
exchanges.\57\ Proposed Rule 1809 is a generic rule concerning the
manner of trading of index option contracts. The Exchange's proposal to
adopt existing uniform rules governing terms of index option contracts
is designed to perfect the mechanisms of a free and open market and a
national market system and, in general, to protect investors and the
public interest by adopting standards and rules for index option
contracts that are consistent with other exchanges' standards and
rules. The Exchange believes that this benefits investors and the
marketplace as a whole because investors who determine to trade index
options on MIAX PEARL will not need to rely on an unfamiliar set of
rules and contract terms when they begin trading index options here.
---------------------------------------------------------------------------
\57\ See MIAX Options Rule 1809; Nasdaq ISE Rule 2009; Cboe Rule
24.9; and Nasdaq Phlx Rule 1101A.
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The Exchange believes that its proposal to include index options in
the Short Term Options Series Program removes impediments to, and
perfects the mechanisms of, a free and open market and a national
market system, and will benefit market participants by giving them more
flexibility to closely tailor their investment and hedging decisions in
a greater number of securities. The Exchange also believes that
expanding the Short Term Options Series Program to include index
options will provide the investing public and other market participants
with additional opportunities to hedge their investment, thus allowing
these investors to better manage their acceptable risk tolerance
levels, all to the benefit of the investing public and the marketplace
as a whole.
The Exchange's proposal to adopt Rule 1810 relating to debit put
spreads fosters cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitates transactions in, securities, by maintaining uniformity
in its rules governing this strategy with the same specificity as the
rules on other exchanges.
Proposed Rule 1811 concerning Disclaimers is based on, and
substantially similar to, rules that are currently operative on other
exchanges.\58\ The proposed rule promotes just and equitable principles
of trade by stating that a Reporting Authority shall have no liability
for any damages, claims, losses (including any indirect or
consequential losses), expenses, or delays, whether direct or indirect,
foreseen or unforeseen, suffered by any person arising out of any
circumstance or occurrence relating to the person's use of an index,
any opening, intra-day or closing value therefor, any data included
therein or relating thereto, or any options contract based thereon, or
arising out of any errors or delays in calculating or disseminating
such index.
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\58\ See, e.g., MIAX Options Rule 1811; Nasdaq ISE Rule 2011 and
Cboe Rule 24.14.
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Proposed Rule 1812, Exercise of American-Style Index Options, is
designed to prevent fraudulent and manipulative acts and practices and
to promote just and equitable principles of trade by providing that no
Member may prepare, time stamp or submit an exercise instruction for an
American-style index options series if the Member knows or has reason
to know that the exercise instruction calls for the exercise of more
contracts than the then ``net long position'' of the account for which
the exercise instruction is to be tendered. The proposed rule contains
standards for exercising American-style index options that are in
effect on other exchanges.\59\
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\59\ See, e.g., MIAX Options Rule 1812; Nasdaq ISE Rule 2012;
Cboe Rule 24.18; and Nasdaq Phlx Rule 1042A.
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The Exchange believes that its proposed surveillance program and
available capacity with respect to the listing and trading of index
options perfects the mechanisms of a free and open market and a
national market system through, among other things, its membership in
ISG and its current available capacity. As discussed above, the
Exchange represents that has an adequate surveillance program in place
for index options. The Exchange is a member of the ISG, which ``is
comprised of an international group of exchanges, market centers, and
market regulators.'' The purpose of the ISG is to provide a framework
for the sharing of information and the coordination of regulatory
efforts among exchanges trading securities and related products to
address potential intermarket manipulations and trading abuses. The ISG
plays a crucial role in information sharing among markets that trade
[[Page 8554]]
securities, options on securities, security futures products, and
futures and options on broad-based security indexes. A list identifying
the current ISG members is available at https://www.isgportal.org/
isgportal/public/members.htm. MIAX PEARL has analyzed its capacity and
represents that it believes the Exchange and the Options Price
Reporting Authority (``OPRA'') have the necessary systems capacity to
handle the additional traffic associated with the listing and trading
of index options.
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 that is not necessary or appropriate
in furtherance of the purposes of the Act. On the contrary, the
Exchange believes that the proposed rule change will enable the
Exchange to compete for order flow in index options products with other
exchanges that currently have rules and functionality in place to list
and trade index options.
The Exchange further believes that the proposed rule change will
enhance intra-market competition, as more varied index products become
available for trading on the Exchange, which should encourage a greater
number of Market Makers to trade index options, resulting in greater
liquidity and more competitive quoting on the Exchange.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
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.
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 [email protected]. Please include
File Number SR-PEARL-2018-02 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-PEARL-2018-02. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-PEARL-2018-02 and should be submitted on
or before March 20, 2018.
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\60\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\60\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-03894 Filed 2-26-18; 8:45 am]
BILLING CODE 8011-01-P
