Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 404, Series of Option Contracts Open for Trading, 23098-23101 [2019-10510]
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23098
Federal Register / Vol. 84, No. 98 / Tuesday, May 21, 2019 / Notices
underlying Volatility Indexes. By
contrast, synthetic futures, like those
proposed by OCC, can be used to
generate a continuous time series of
futures contract prices across multiple
expirations. Additionally, OCC proposes
to modify the statistical distribution that
it uses to model price returns of
synthetic futures such that the resulting
curve would better fit the historical
data. Finally, OCC proposes to reduce
the potential for sudden margin
increases resulting from market
corrections of abnormally low volatility
levels through the implementation of a
floor on variance estimates for Volatility
Index Futures. The Commission
believes that OCC’s proposal to use
synthetic futures to model Volatility
Index Futures contracts, taken together
with modification of the relevant
statistical distribution and inclusion of
a variance floor, is consistent with the
promotion of robust risk management
because it is designed to address a
known limitation of OCC’s current
models—namely an inability to account
for the term structure of Volatility Index
Futures—and produce margin
requirements that respond more
appropriately to market volatility.
Similarly, these changes are
consistent with the promotion of safety
and soundness and the reduction of
systemic risk because they are designed
to increase the accuracy of OCC’s
margin requirements while avoiding
sudden shocks to OCC’s Clearing
Members. Finally, the inclusion of a
variance floor designed to reduce the
likelihood of sudden margin increases
resulting from expected corrections in
market volatility is consistent with
supporting the stability of the broader
financial system.
Accordingly, and for the reasons
stated, the Commission believes the
changes proposed in the Advance
Notice are consistent with Section
805(b) of the Clearing Supervision
Act.27
of each relevant product, portfolio, and
market.28
OCC proposes to base its estimation of
final settlement prices for Volatility
Index Futures on synthetic futures
rather than the Volatility Indexes
underlying Volatility Index Futures. As
described above, a margin process based
on synthetic futures, as opposed to an
underlying index, could more
accurately model future price
movements for Volatility Index Futures
because the synthetic futures can be
used to generate a continuous time
series of futures contract prices across
multiple expirations, while the
underlying index alone is insufficient to
model the term structure of the futures
market. OCC further proposes to adjust
the econometric model that it would use
to estimate final settlement prices by
applying a distribution that better fits
observable data of the Volatility Index
Futures. Finally, OCC’s proposal
includes a variance estimate floor to
avoid sudden margin increases where
the immediate volatility of the Volatility
Index Futures deviates significantly
from the long-run volatility of the
underlying index. The Commission
believes, therefore, that OCC’s proposal
is designed to better account for the
term structure of futures contracts, align
margin requirements with observable
data, and incorporate historical
volatility data, thereby producing
margin levels commensurate with the
particular attributes of Volatility Index
Futures. Further, the Commission
believes the proposed changes could
result in margin requirements that
respond more appropriately to changes
in market volatility.
Accordingly, based on the foregoing,
the Commission believes that the
proposed change to OCC’s margin
methodology for Volatility Index
Futures is consistent with Exchange Act
Rule 17Ad–22(e)(6)(i).29
B. Consistency With Rule 17Ad–
22(e)(6)(i) Under the Exchange Act
IV. Conclusion
Rule 17Ad–22(e)(6)(i) under the
Exchange Act requires that a covered
clearing agency establish, implement,
maintain, and enforce written policies
and procedures reasonably designed to
cover, if the covered clearing agency
provides central counterparty services,
its credit exposures to its participants by
establishing a risk-based margin system
that, at a minimum, considers, and
produces margin levels commensurate
with, the risks and particular attributes
It is therefore noticed, pursuant to
Section 806(e)(1)(I) of the Clearing
Supervision Act, that the Commission
does not object to the Advance Notice
(SR–OCC–2019–801) and that OCC is
authorized to implement the proposed
change as of the date of this notice or
the date of an order by the Commission
approving proposed rule change SR–
OCC–2019–002, whichever is later.
U.S.C. 5464(b).
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17:50 May 20, 2019
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85865; File No. SR–MIAX–
2019–24]
Self-Regulatory Organizations; Miami
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend Exchange Rule 404,
Series of Option Contracts Open for
Trading
May 15, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 7,
2019, Miami International Securities
Exchange, LLC (‘‘MIAX Options’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend Exchange Rule 404, Series of
Option Contracts Open for Trading,
Interpretation and Policy .10, to allow
for $1 strike prices above $200 on
additional series of options of certain
exchange-traded fund (‘‘ETF’’) shares.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/ at MIAX Options’ 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
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
2 17
CFR 240.17Ad–22(e)(6)(i).
29 Id.
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28 17
27 12
By the Commission.
Eduardo A. Aleman,
Deputy Secretary.
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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.
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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
Exchange Rule 404, Series of Option
Contracts Open for Trading,
Interpretation and Policy .10, to allow
for the interval between strike prices of
series of options on ETF shares of the
PowerShares QQQ Trust (‘‘QQQ’’) and
iShares Russell 2000 ETF (‘‘IWM’’) to be
$1 or greater where the strike price is
greater than $200.
Currently, Exchange Rule 404, Series
of Option Contracts Open for Trading,
Interpretation and Policy .10, allows for
the interval between strike prices of
series of options on ETF shares of SPDR
S&P 500 ETF (‘‘SPY’’), iShares S&P 500
Index ETF (‘‘IVV’’), and SPDR Dow
Jones Industrial Average ETF (‘‘DIA’’) to
be $1 or greater where the strike price
is greater than $200.5 Under Exchange
Rule 404(g), the interval between strike
prices of series of options on ETF shares
approved for options trading 6 shall be
fixed at a price per share which is
reasonably close to the price per share
at which the underlying security is
traded in the primary market at or about
the same time such series of options is
first open for trading on the Exchange,
or at such intervals as may have been
established on another options exchange
prior to the initiation of trading on the
Exchange.7 The Exchange generally sets
the interval between strike prices of
series of options on ETF shares at $5 or
greater where the strike price is greater
than $200, in accordance with such
intervals that have been established on
other options exchanges and Exchange
Rule 404(g).8 Specifically, the Exchange
proposes to modify the interval setting
regime to allow for $1 strike price
intervals where the strike price is above
$200 for IWM and QQQ options. The
Exchange believes that the proposed
rule change would make QQQ and IWM
options easier for investors and traders
5 See Exchange Rule 404, Interpretation and
Policy .10.
6 See Exchange Rule 402(i).
7 See Exchange Rule 404(g).
8 See id.
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to use and more tailored to their
investment needs.
Options on QQQ and IWM are
designed to provide investors different
ways to efficiently gain exposure to the
equity markets and execute risk
management, hedging, asset allocation
and income generation strategies. The
QQQ is an investment trust designed to
closely track the price and performance
of the Nasdaq-100 Index (‘‘NDX’’),
which represents the largest and most
active non-financial domestic and
international issues listed on The
Nasdaq Stock Market based on market
capitalization. Likewise, the IWM is an
index ETF designed to closely track the
price and performance of the Russell
2000 Index (‘‘RUT’’), which represents
the small capitalization sector of the
U.S. equity market. In general, QQQ and
IWM options provide investors with the
benefit of trading broader markets in a
manageably sized contract.
The value of QQQ is designed to
approximate 1/40 the value of the
underlying NDX. For example, if the
NDX price level is 1400, QQQ strike
prices generally would be expected to
be priced around $35. The value of IWM
is designed to approximate 1/10 the
value of the underlying RUT. In the past
year, the NDX has climbed above a price
level of 7500, and the RUT climbed to
a price level of approximately 1700
(both prior to the December 2018
market-wide decline). As the value of
the underlying ETF (and the index the
ETF tracks) and resulting strike prices
for each option continues to appreciate,
market participants have requested the
listing of additional strike prices ($1
increments) in QQQ and IWM options
above $200. The QQQ is among the
most actively traded ETFs on the
market. It is widely quoted as an
indicator of technology stock prices and
investor confidence in the technology
and telecommunication market spaces, a
significant indicator of overall economic
health. Similarly, IWM is among the
most actively traded ETFs on the market
and provides investors with an
investment tool to gain exposure to
small U.S. public companies. Industrywide trade volume in QQQ more than
doubled from 2017 to 2018. As a result,
QQQ options and IWM options have
grown to become two of the largest
options contracts in terms of trading
volume. Investors use these products to
diversify their portfolios and benefit
from market trends.
Accordingly, the Exchange believes
that offering a wider base of QQQ and
IWM options affords traders and
investors important hedging and trading
opportunities, particularly in the midst
of current price trends. The Exchange
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believes that not having the proposed $1
strike price intervals above $200 in
QQQ and IWM classes significantly
constricts investors’ hedging and trading
possibilities. The Exchange therefore
believes that by having smaller strike
intervals in QQQ and IWM, investors
would have more efficient hedging and
trading opportunities due to the lower
$1 interval ascension. The proposed $1
intervals above the $200 strike price
will result in having at-the-money series
based upon the underlying ETFs moving
less than 1%. The Exchange believes
that the proposed strike setting regime
is in line with the slower movements of
broad-based indices. Considering the
fact that $1 intervals already exist below
the $200 price point and that both QQQ
and IWM have consistently inclined in
price toward the $200 level, the
Exchange believes that continuing to
maintain the current $200 level (above
which intervals increase 500% to $5),
may have a negative effect on investing,
trading and hedging opportunities, and
volume. The Exchange believes that the
investing, trading, and hedging
opportunities available with QQQ and
IWM options far outweighs any
potential negative impact of allowing
QQQ and IWM options to trade in more
finely tailored intervals above the $200
price point.
The proposed strike setting regime
would permit strikes to be set to more
closely reflect the increasing values in
the underlying indices and allow
investors and traders to roll open
positions from a lower strike to a higher
strike in conjunction with the price
movements of the underlying ETFs.
Under the current rule, where the next
higher available series would be $5
away above a $200 strike price, the
ability to roll such positions is
effectively negated. Accordingly, to
move a position from a $200 strike to a
$205 strike under the current rule, an
investor would need for the underlying
product to move 2.5%, and would not
be able to execute a roll up until such
a large movement occurred. As stated,
the NDX and RUT have experienced
continued, steady growth. The Exchange
believes that with the proposed rule
change, the investor would be in a
significantly safer position of being able
to roll his open options position from a
$200 to a $201 strike price, which is
only a 0.5% move for the underlying. As
a result, the proposed rule change will
allow the Exchange to better respond to
customer demand for QQQ and IWM
strike prices more precisely aligned
with the smaller, longer-term
incremental increases in respective
underlying ETFs. The Exchange believes
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that the proposed rule change, like the
other strike price programs currently
offered by the Exchange, will benefit
investors by providing investors the
flexibility to more closely tailor their
investment and hedging decisions using
QQQ and IWM options. Moreover, by
allowing series of QQQ and IWM
options to be listed in $1 intervals
between strike prices over $200, the
proposal will moderately augment the
potential total number of options series
available on the Exchange. However, the
Exchange believes it and the Options
Price Reporting Authority (‘‘OPRA’’)
have the necessary systems capacity to
handle any potential additional traffic
associated with this proposed rule
change. The Exchange also believes that
Members 9 will not have a capacity issue
due to the proposed rule change. In
addition, the Exchange represents that it
does not believe that this expansion will
cause fragmentation of liquidity, but
rather, believes that finer strike intervals
will serve to increase liquidity available
as well as price efficiency by providing
more trading opportunities for all
market participants.
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2. Statutory Basis
The Exchange believes that its
proposed rule change is consistent with
Section 6(b) of the Act 10 in general, and
furthers the objectives of Section 6(b)(5)
of the Act 11 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
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. Additionally, the
Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) requirement that the rules of an
exchange not be designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the proposed rule
change to Exchange Rule 404, Series of
Option Contracts Open for Trading,
Interpretation and Policy .10, will allow
investors to more easily use QQQ and
IWM options. Moreover, the proposed
rule change would allow investors to
9 The term ‘‘Member’’ means an individual or
organization approved to exercise the trading rights
associated with a Trading Permit. Members are
deemed ‘‘members’’ under the Exchange Act. See
Exchange Rule 100.
10 15 U.S.C. 78f(b).
11 15 U.S.C. 78f(b)(5).
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better trade and hedge positions in QQQ
and IWM options where the strike price
is greater than $200, and ensure that
investors in both options are not at a
disadvantage simply because of the
strike price.
The Exchange believes the proposed
rule change is consistent with Section
6(b)(1) of the Act, which provides that
the Exchange be organized and have the
capacity to be able to carry out the
purposes of the Act and the rules and
regulations thereunder, and the rules of
the Exchange. The rule change proposal
allows the Exchange to respond to
customer demand to allow QQQ and
IWM options to trade in $1 intervals
above a $200 strike price. The Exchange
does not believe that the proposed rule
would create additional capacity issues
or affect market functionality.
As noted above, ETF options trade in
wider $5 intervals above a $200 strike
price, whereby options at or below a
$200 strike price trade in $1 intervals.
This creates a situation where contracts
on the same option class effectively may
not be able to execute certain strategies
such as, for example, rolling to a higher
strike price, simply because of the $200
strike price above which options
intervals increase by 500%. This
proposal remedies the situation by
establishing an exception to the current
ETF interval regime for QQQ and IWM
options to allow such options to trade
in $1 or greater intervals at all strike
prices.
The Exchange believes that the
proposed rule change, like other strike
price programs currently offered by the
Exchange, will benefit investors by
giving them increased flexibility to more
closely tailor their investment and
hedging decisions. Moreover, the
proposed rule change is consistent with
the change adopted by Cboe Exchange,
Inc. (‘‘Cboe’’).12
With regard to the impact of this
proposal on system capacity, the
Exchange believes it and OPRA have the
necessary systems capacity to handle
any potential additional traffic
associated with this proposed rule
change. The Exchange believes that its
members will not have a capacity issue
as a result of this proposal.
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. Rather, the
12 See Securities Exchange Act Release No. 85754
(April 30, 2019), 84 FR 19823 (May 6, 2019) (SR–
CBOE–2019–015).
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Exchange believes that the proposed
rule change will result in additional
investment options and opportunities to
achieve the investment and trading
objectives of market participants seeking
efficient trading and hedging vehicles,
to the benefit of investors, market
participants, and the marketplace in
general. Specifically, the Exchange
believes that QQQ and IWM options
investors and traders will significantly
benefit from the availability of finer
strike price intervals above a $200 price
point. In addition, the interval setting
regime the Exchange proposes to apply
to QQQ and IWM options is currently
applied to SPY, IVV, and DIA options,
which are similarly popular and widely
traded ETF products and track indexes
at similarly high price levels. Thus, the
proposed strike setting regime for QQQ
and IWM options will allow options on
the most actively traded ETFs with
index levels at corresponding price
levels to trade pursuant to the same
strike setting regime. This will permit
investors to employ similar investment
and hedging strategies for each of these
options.
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
Because the proposed rule change
does not: (i) significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 13 and
subparagraph (f)(6) of Rule 19b–4
thereunder.14
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 15 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 16
permits the Commission to designate a
13 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
15 17 CFR 240.19b–4(f)(6).
16 17 CFR 240.19b–4(f)(6)(iii).
14 17
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Federal Register / Vol. 84, No. 98 / Tuesday, May 21, 2019 / Notices
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has asked
the Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Exchange stated that waiver
of this requirement will ensure fair
competition among the exchanges by
allowing the Exchange to set the interval
between strike prices of series of options
on ETF shares of QQQ and IWM in a
manner consistent with another
exchange. Further, the Exchange stated
that because the proposed rule change is
based on the rules of another SelfRegulatory Organization,17 it does not
introduce any new or novel regulatory
issues. For these reasons, the
Commission believes that waiving the
30-day operative delay is consistent
with the protection of investors and the
public interest. Accordingly, the
Commission hereby waives the
operative delay and designates the
proposed rule change operative upon
filing.18
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Commission, 100 F Street NE,
Washington, DC 20549–1090.
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MIAX–2019–24 on the subject line.
All submissions should refer to File
Number SR–MIAX–2019–24. 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–MIAX–2019–24 and should
be submitted on or before June 11, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Eduardo A. Aleman,
Deputy Secretary.
BILLING CODE 8011–01–P
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• Send paper comments in triplicate
to Secretary, Securities and Exchange
supra note 12.
purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
17 See
18 For
17:50 May 20, 2019
Jkt 247001
[Release No. 34–85869; File No. SR–
CboeBZX–2019–040]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend the
BZX Equities Fee Schedule To Correct
an Inadvertent Drafting Error
Introduced in a Previous Rule Filing
May 15, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 1,
2019, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(the ‘‘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
Cboe BZX Exchange, Inc. (‘‘BZX’’ or
the ‘‘Exchange’’) is filing with the
Securities and Exchange Commission
(the ‘‘Commission’’) a proposed rule
change to amend the BZX Equities fee
schedule to correct an inadvertent
drafting error introduced in a previous
rule filing. The text of the proposed rule
change is attached as Exhibit 5 (sic).
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
equities/regulation/rule_filings/bzx/), at
the Exchange’s Office of the Secretary,
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.
Paper Comments
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COMMISSION
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19 17
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CFR 200.30–3(a)(12).
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2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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]]>Agencies
[Federal Register Volume 84, Number 98 (Tuesday, May 21, 2019)]
[Notices]
[Pages 23098-23101]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-10510]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85865; File No. SR-MIAX-2019-24]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Exchange Rule 404, Series of Option
Contracts Open for Trading
May 15, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on May 7, 2019, Miami International Securities Exchange, LLC
(``MIAX Options'' or the ``Exchange'') filed with the Securities and
Exchange Commission (the ``Commission'') the proposed rule change as
described in Items I and II below, which Items have been prepared by
the Exchange. The Exchange filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend Exchange Rule 404,
Series of Option Contracts Open for Trading, Interpretation and Policy
.10, to allow for $1 strike prices above $200 on additional series of
options of certain exchange-traded fund (``ETF'') shares.
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxoptions.com/rule-filings/ at MIAX Options'
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
[[Page 23099]]
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 Exchange Rule 404, Series of Option
Contracts Open for Trading, Interpretation and Policy .10, to allow for
the interval between strike prices of series of options on ETF shares
of the PowerShares QQQ Trust (``QQQ'') and iShares Russell 2000 ETF
(``IWM'') to be $1 or greater where the strike price is greater than
$200.
Currently, Exchange Rule 404, Series of Option Contracts Open for
Trading, Interpretation and Policy .10, allows for the interval between
strike prices of series of options on ETF shares of SPDR S&P 500 ETF
(``SPY''), iShares S&P 500 Index ETF (``IVV''), and SPDR Dow Jones
Industrial Average ETF (``DIA'') to be $1 or greater where the strike
price is greater than $200.\5\ Under Exchange Rule 404(g), the interval
between strike prices of series of options on ETF shares approved for
options trading \6\ shall be fixed at a price per share which is
reasonably close to the price per share at which the underlying
security is traded in the primary market at or about the same time such
series of options is first open for trading on the Exchange, or at such
intervals as may have been established on another options exchange
prior to the initiation of trading on the Exchange.\7\ The Exchange
generally sets the interval between strike prices of series of options
on ETF shares at $5 or greater where the strike price is greater than
$200, in accordance with such intervals that have been established on
other options exchanges and Exchange Rule 404(g).\8\ Specifically, the
Exchange proposes to modify the interval setting regime to allow for $1
strike price intervals where the strike price is above $200 for IWM and
QQQ options. The Exchange believes that the proposed rule change would
make QQQ and IWM options easier for investors and traders to use and
more tailored to their investment needs.
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\5\ See Exchange Rule 404, Interpretation and Policy .10.
\6\ See Exchange Rule 402(i).
\7\ See Exchange Rule 404(g).
\8\ See id.
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Options on QQQ and IWM are designed to provide investors different
ways to efficiently gain exposure to the equity markets and execute
risk management, hedging, asset allocation and income generation
strategies. The QQQ is an investment trust designed to closely track
the price and performance of the Nasdaq-100 Index (``NDX''), which
represents the largest and most active non-financial domestic and
international issues listed on The Nasdaq Stock Market based on market
capitalization. Likewise, the IWM is an index ETF designed to closely
track the price and performance of the Russell 2000 Index (``RUT''),
which represents the small capitalization sector of the U.S. equity
market. In general, QQQ and IWM options provide investors with the
benefit of trading broader markets in a manageably sized contract.
The value of QQQ is designed to approximate 1/40 the value of the
underlying NDX. For example, if the NDX price level is 1400, QQQ strike
prices generally would be expected to be priced around $35. The value
of IWM is designed to approximate 1/10 the value of the underlying RUT.
In the past year, the NDX has climbed above a price level of 7500, and
the RUT climbed to a price level of approximately 1700 (both prior to
the December 2018 market-wide decline). As the value of the underlying
ETF (and the index the ETF tracks) and resulting strike prices for each
option continues to appreciate, market participants have requested the
listing of additional strike prices ($1 increments) in QQQ and IWM
options above $200. The QQQ is among the most actively traded ETFs on
the market. It is widely quoted as an indicator of technology stock
prices and investor confidence in the technology and telecommunication
market spaces, a significant indicator of overall economic health.
Similarly, IWM is among the most actively traded ETFs on the market and
provides investors with an investment tool to gain exposure to small
U.S. public companies. Industry-wide trade volume in QQQ more than
doubled from 2017 to 2018. As a result, QQQ options and IWM options
have grown to become two of the largest options contracts in terms of
trading volume. Investors use these products to diversify their
portfolios and benefit from market trends.
Accordingly, the Exchange believes that offering a wider base of
QQQ and IWM options affords traders and investors important hedging and
trading opportunities, particularly in the midst of current price
trends. The Exchange believes that not having the proposed $1 strike
price intervals above $200 in QQQ and IWM classes significantly
constricts investors' hedging and trading possibilities. The Exchange
therefore believes that by having smaller strike intervals in QQQ and
IWM, investors would have more efficient hedging and trading
opportunities due to the lower $1 interval ascension. The proposed $1
intervals above the $200 strike price will result in having at-the-
money series based upon the underlying ETFs moving less than 1%. The
Exchange believes that the proposed strike setting regime is in line
with the slower movements of broad-based indices. Considering the fact
that $1 intervals already exist below the $200 price point and that
both QQQ and IWM have consistently inclined in price toward the $200
level, the Exchange believes that continuing to maintain the current
$200 level (above which intervals increase 500% to $5), may have a
negative effect on investing, trading and hedging opportunities, and
volume. The Exchange believes that the investing, trading, and hedging
opportunities available with QQQ and IWM options far outweighs any
potential negative impact of allowing QQQ and IWM options to trade in
more finely tailored intervals above the $200 price point.
The proposed strike setting regime would permit strikes to be set
to more closely reflect the increasing values in the underlying indices
and allow investors and traders to roll open positions from a lower
strike to a higher strike in conjunction with the price movements of
the underlying ETFs. Under the current rule, where the next higher
available series would be $5 away above a $200 strike price, the
ability to roll such positions is effectively negated. Accordingly, to
move a position from a $200 strike to a $205 strike under the current
rule, an investor would need for the underlying product to move 2.5%,
and would not be able to execute a roll up until such a large movement
occurred. As stated, the NDX and RUT have experienced continued, steady
growth. The Exchange believes that with the proposed rule change, the
investor would be in a significantly safer position of being able to
roll his open options position from a $200 to a $201 strike price,
which is only a 0.5% move for the underlying. As a result, the proposed
rule change will allow the Exchange to better respond to customer
demand for QQQ and IWM strike prices more precisely aligned with the
smaller, longer-term incremental increases in respective underlying
ETFs. The Exchange believes
[[Page 23100]]
that the proposed rule change, like the other strike price programs
currently offered by the Exchange, will benefit investors by providing
investors the flexibility to more closely tailor their investment and
hedging decisions using QQQ and IWM options. Moreover, by allowing
series of QQQ and IWM options to be listed in $1 intervals between
strike prices over $200, the proposal will moderately augment the
potential total number of options series available on the Exchange.
However, the Exchange believes it and the Options Price Reporting
Authority (``OPRA'') have the necessary systems capacity to handle any
potential additional traffic associated with this proposed rule change.
The Exchange also believes that Members \9\ will not have a capacity
issue due to the proposed rule change. In addition, the Exchange
represents that it does not believe that this expansion will cause
fragmentation of liquidity, but rather, believes that finer strike
intervals will serve to increase liquidity available as well as price
efficiency by providing more trading opportunities for all market
participants.
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\9\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100.
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2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with Section 6(b) of the Act \10\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \11\ in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in 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.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) requirement that the rules of an
exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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In particular, the proposed rule change to Exchange Rule 404,
Series of Option Contracts Open for Trading, Interpretation and Policy
.10, will allow investors to more easily use QQQ and IWM options.
Moreover, the proposed rule change would allow investors to better
trade and hedge positions in QQQ and IWM options where the strike price
is greater than $200, and ensure that investors in both options are not
at a disadvantage simply because of the strike price.
The Exchange believes the proposed rule change is consistent with
Section 6(b)(1) of the Act, which provides that the Exchange be
organized and have the capacity to be able to carry out the purposes of
the Act and the rules and regulations thereunder, and the rules of the
Exchange. The rule change proposal allows the Exchange to respond to
customer demand to allow QQQ and IWM options to trade in $1 intervals
above a $200 strike price. The Exchange does not believe that the
proposed rule would create additional capacity issues or affect market
functionality.
As noted above, ETF options trade in wider $5 intervals above a
$200 strike price, whereby options at or below a $200 strike price
trade in $1 intervals. This creates a situation where contracts on the
same option class effectively may not be able to execute certain
strategies such as, for example, rolling to a higher strike price,
simply because of the $200 strike price above which options intervals
increase by 500%. This proposal remedies the situation by establishing
an exception to the current ETF interval regime for QQQ and IWM options
to allow such options to trade in $1 or greater intervals at all strike
prices.
The Exchange believes that the proposed rule change, like other
strike price programs currently offered by the Exchange, will benefit
investors by giving them increased flexibility to more closely tailor
their investment and hedging decisions. Moreover, the proposed rule
change is consistent with the change adopted by Cboe Exchange, Inc.
(``Cboe'').\12\
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\12\ See Securities Exchange Act Release No. 85754 (April 30,
2019), 84 FR 19823 (May 6, 2019) (SR-CBOE-2019-015).
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With regard to the impact of this proposal on system capacity, the
Exchange believes it and OPRA have the necessary systems capacity to
handle any potential additional traffic associated with this proposed
rule change. The Exchange believes that its members will not have a
capacity issue as a result of this proposal.
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. Rather, the Exchange
believes that the proposed rule change will result in additional
investment options and opportunities to achieve the investment and
trading objectives of market participants seeking efficient trading and
hedging vehicles, to the benefit of investors, market participants, and
the marketplace in general. Specifically, the Exchange believes that
QQQ and IWM options investors and traders will significantly benefit
from the availability of finer strike price intervals above a $200
price point. In addition, the interval setting regime the Exchange
proposes to apply to QQQ and IWM options is currently applied to SPY,
IVV, and DIA options, which are similarly popular and widely traded ETF
products and track indexes at similarly high price levels. Thus, the
proposed strike setting regime for QQQ and IWM options will allow
options on the most actively traded ETFs with index levels at
corresponding price levels to trade pursuant to the same strike setting
regime. This will permit investors to employ similar investment and
hedging strategies for each of these options.
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
Because the proposed rule change does not: (i) significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, it has become effective pursuant to Section
19(b)(3)(A) of the Act \13\ and subparagraph (f)(6) of Rule 19b-4
thereunder.\14\
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6). In addition, Rule19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \15\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \16\ permits the
Commission to designate a
[[Page 23101]]
shorter time if such action is consistent with the protection of
investors and the public interest. The Exchange has asked the
Commission to waive the 30-day operative delay so that the proposal may
become operative immediately upon filing. The Exchange stated that
waiver of this requirement will ensure fair competition among the
exchanges by allowing the Exchange to set the interval between strike
prices of series of options on ETF shares of QQQ and IWM in a manner
consistent with another exchange. Further, the Exchange stated that
because the proposed rule change is based on the rules of another Self-
Regulatory Organization,\17\ it does not introduce any new or novel
regulatory issues. For these reasons, the Commission believes that
waiving the 30-day operative delay is consistent with the protection of
investors and the public interest. Accordingly, the Commission hereby
waives the operative delay and designates the proposed rule change
operative upon filing.\18\
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\15\ 17 CFR 240.19b-4(f)(6).
\16\ 17 CFR 240.19b-4(f)(6)(iii).
\17\ See supra note 12.
\18\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-MIAX-2019-24 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-MIAX-2019-24. 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-MIAX-2019-24 and should be submitted on
or before June 11, 2019.
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\19\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-10510 Filed 5-20-19; 8:45 am]
BILLING CODE 8011-01-P
