Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 307, Position Limits, and Exchange Rule 309, Exercise Limits, To Increase the Position and Exercise Limits on Certain Exchange-Traded Funds, 31239-31245 [2020-11040]
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Federal Register / Vol. 85, No. 100 / Friday, May 22, 2020 / Notices
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
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You should submit only information
that you wish to make available
publicly.
All submissions should refer to File
Number SR–OCC–2020–803 and should
be submitted on or before June 8, 2020.
By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–11122 Filed 5–21–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
FEDERAL REGISTER CITATION OF PREVIOUS
ANNOUNCEMENT: 85 FR 29773, May 18,
2020.
PREVIOUSLY ANNOUNCED TIME AND DATE OF
THE MEETING: Wednesday, May 20, 2020
at 2:00 p.m.
The Closed
Meeting scheduled for Wednesday, May
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cancelled.
CHANGES IN THE MEETING:
CONTACT PERSON FOR MORE INFORMATION:
For further information; please contact
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of the Secretary at (202) 551–5400.
Dated: May 20, 2020.
Secretary.
[FR Doc. 2020–11216 Filed 5–20–20; 11:15 am]
BILLING CODE 8011–01–P
[Release No. 34–88893; File No. SR–MIAX–
2020–10]
Self-Regulatory Organizations; Miami
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend Exchange Rule 307,
Position Limits, and Exchange Rule
309, Exercise Limits, To Increase the
Position and Exercise Limits on
Certain Exchange-Traded Funds
May 18, 2020.
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 May 8,
2020, Miami International Securities
Exchange, LLC (‘‘MIAX’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
Sunshine Act Meeting; Cancellation
Vanessa A. Countryman,
SECURITIES AND EXCHANGE
COMMISSION
The Exchange is filing a proposal to
amend Interpretation and Policy .01 to
Exchange Rule 307, Position Limits, and
Interpretation and Policy .01 to
Exchange Rule 309, Exercise Limits, to
increase the position and exercise limits
on certain exchange-traded funds
(‘‘ETFs’’) and to make minor nonsubstantive technical corrections to each
Policy.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/ at MIAX’s principal office, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
1 15
2
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17 CFR 240.19b–4.
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31239
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
Interpretation and Policy .01 to
Exchange Rule 307, Position Limits, and
Interpretation and Policy .01 to
Exchange Rule 309, Exercise Limits, to
increase the position and exercise limits
for options on certain ETFs. These
proposed rule changes are based on the
similar proposal by Cboe Exchange, Inc.
(‘‘Cboe’’).3 The Exchange also proposes
to make certain minor non-substantive
technical corrections to certain ETF
names and symbols in each of the tables
in Interpretations and Policies .01 to
Exchange Rules 307 and 309, as
described below.
Position limits are designed to
address potential manipulative schemes
and adverse market impacts
surrounding the use of options, such as
disrupting the market in the security
underlying the options. While position
limits should address and discourage
the potential for manipulative schemes
and adverse market impact, if such
limits are set too low, participation in
the options market may be discouraged.
The Exchange believes that position
limits must therefore be balanced
between mitigating concerns of any
potential manipulation and the cost of
inhibiting potential hedging activity that
could be used for legitimate economic
purposes.
3 See Securities Exchange Act Release No. 88768
(April 29, 2020) (SR–CBOE–2020–015) (Notice of
Filing of Amendment No. 1 and Order Granting
Accelerated Approval of a Proposed Rule Change,
as Modified by Amendment No. 1, to Increase
Position Limits for Options on Certain ExchangeTraded Funds and Indexes). The Cboe proposal also
proposed to increase position limits for options
overlying the MSCI Emerging Markets Index
(‘‘MXEF’’) and the MSCI EAFE Index (‘‘MXEA’’).
The Exchange, however, does not list options on the
MXEF or MXEA indexes. Accordingly, this
proposal is limited to the ETFs described above
[sic].
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Federal Register / Vol. 85, No. 100 / Friday, May 22, 2020 / Notices
The Exchange has observed an
ongoing increase in demand in options
on the SPDR® S&P 500® ETF Trust
(‘‘SPY’’), iShares® MSCI EAFE ETF
(‘‘EFA’’), iShares® China Large-Cap ETF
(‘‘FXI’’), iShares® iBoxx® $ High Yield
Corporate Bond ETF (‘‘HYG’’), and the
Financial Select Sector SPDR® Fund
(‘‘XLF’’) (collectively, with the
aforementioned ETFs, the ‘‘Underlying
ETFs’’) for both trading and hedging
purposes. Though the demand for these
options appears to have increased,
position limits (and corresponding
exercise limits) for options on the
Underlying ETFs have remained the
same. The Exchange believes these
unchanged position limits may have
impeded, and may continue to impede,
trading activity and strategies of
investors, such as use of effective
hedging vehicles or income generating
strategies (e.g., buy-write or put-write),
and the ability of Market Makers 4 to
make liquid markets with tighter
spreads in these options resulting in the
transfer of volume to over-the-counter
(‘‘OTC’’) markets. OTC transactions
occur through bilateral agreements, the
terms of which are not publically
disclosed to the marketplace. As such,
OTC transactions do not contribute to
the price discovery process on a public
exchange or other lit markets. Therefore,
the Exchange believes that the proposed
increases in position limits (and
exercise limits) for options on the
Underlying ETFs may enable liquidity
providers to provide additional liquidity
to the Exchange and other market
participants to transfer their liquidity
demands from OTC markets to the
Exchange, as well as other options
exchanges on which they participate. As
described in further detail below, the
Exchange believes that the continuously
increasing market capitalization of the
Underlying ETFs and ETF component
securities, as well as the highly liquid
markets for those securities, reduces the
concerns for potential market
manipulation and/or disruption in the
underlying markets upon increasing
position limits, while the rising demand
for trading options on the Underlying
ETFs for legitimate economic purposes
compels an increase in position limits
(and corresponding exercise limits).
Proposed Position and Exercise Limits
for Options on the Underlying ETFs
Position limits for options on ETFs
are determined pursuant to Exchange
Rule 307, and vary according to the
number of outstanding shares and the
trading volumes of the underlying
stocks or ETFs over the past six months.
Pursuant to Exchange Rule 307, the
largest in capitalization and the most
frequently traded stocks and ETFs have
an option position limit of 250,000
contracts (with adjustments for splits,
re-capitalizations, etc.) on the same side
of the market; and smaller capitalization
stocks and ETFs have position limits of
200,000, 75,000, 50,000 or 25,000
contracts (with adjustments for splits,
recapitalizations, etc.) on the same side
of the market. Options on HYG and XLF
are currently subject to the maximum
standard position limit of 250,000
contracts as set forth in Exchange Rule
307. Interpretation and Policy .01 to
Exchange Rule 307 sets forth separate
position limits for options on specific
ETFs, including SPY, FXI and EFA.
The Exchange proposes to amend
Interpretation and Policy .01 to
Exchange Rule 307 to double the
position limits for options on each of
HYG, XLF, FXI, EFA and SPY. The
Exchange also proposes to amend
Interpretation and Policy .01 to
Exchange Rule 309 to double the
exercise limits for options on each of
HYG, XLF, FXI, EFA and SPY. The table
below represents the current, and
proposed, position and exercise limits
for options on the Underlying ETFs
subject to this proposal:
Current position/
exercise limit
ETF
SPY ..............................................................................................................................................................
EFA ..............................................................................................................................................................
FXI ...............................................................................................................................................................
HYG .............................................................................................................................................................
XLF ..............................................................................................................................................................
The Exchange notes that the proposed
position limits for options on EFA and
FXI are consistent with existing position
limits for options on the iShares®
Russell 2000 ETF (‘‘IWM’’) and the
iShares® MSCI Emerging Markets ETF
(‘‘EEM’’), while the proposed limits for
options on XLF and HYG are consistent
with current position limits for options
on the iShares® MSCI Brazil ETF
(‘‘EWZ’’), iShares® 20+ Year Treasury
Bond ETF (‘‘TLT’’), and iShares® MSCI
Japan ETF (‘‘EWJ’’). The Exchange
represents that the Underlying ETFs
qualify for either 1) the initial listing
criteria set forth in Exchange Rule
402(i)(5)(ii) for ETFs holding non-U.S.
component securities, or 2) the generic
listing standards for series of portfolio
depository receipts and index fund
shares based on international or global
indexes under which a comprehensive
surveillance agreement (‘‘CSA’’) is not
required, as well as the continued
listing criteria in Exchange Rule 403.5 In
compliance with its listing rules, the
Exchange also represents that non-U.S.
component securities that are not
subject to a CSA do not, in the
aggregate, represent more than 50% of
the weight of any of the Underlying
ETFs.6
4 The term ‘‘Market Makers’’ refers to ‘‘Lead
Market Makers’’, ‘‘Primary Lead Market Makers’’
and ‘‘Registered Market Makers’’ collectively. See
Exchange Rule 100. A Market Maker has the rights
and responsibilities set forth in Chapter VI of the
Exchange’s Rulebook.
5 The Exchange notes that the initial listing
criteria for options on ETFs that hold non-U.S.
component securities are more stringent than the
maintenance listing criteria for those same ETF
options. See Exchange Rule 402(i)(5)(ii) and
Exchange Rule 403(g).
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1,800,000
500,000
500,000
250,000
250,000
Proposed position/
exercise limit
3,600,000
1,000,000
1,000,000
500,000
500,000
Composition and Growth Analysis for
Underlying ETFs
As stated above, position (and
exercise) limits are intended to prevent
the establishment of options positions
that can be used or might create
incentives to manipulate the underlying
market so as to benefit options
positions. The Commission has
recognized that these limits are
designed to minimize the potential for
mini-manipulations and for corners or
squeezes of the underlying market, as
well as serve to reduce the possibility
for disruption of the options market
itself, especially in illiquid classes.7 The
6 See
Exchange Rule 402(i)(5)(ii).
Securities Exchange Act Release No. 67672
(August 15, 2012), 77 FR 50750 (August 22, 2012)
(SR–NYSEAmex–2012–29).
7 See
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Federal Register / Vol. 85, No. 100 / Friday, May 22, 2020 / Notices
Underlying ETFs as well as the ETF
components are highly liquid, and are
based on a broad set of highly liquid
securities and other reference assets, as
demonstrated through the trading
statistics presented in this proposal.
Indeed, the Commission recognized the
liquidity of the securities comprising
the underlying interest of SPY and
permitted no position limits on SPY
options from 2012 through 2018.8
To support the proposed position
limit increases (and corresponding
increase in exercise limits), the
Exchange considered both the liquidity
of the Underlying ETFs and the
component securities of the Underlying
ETFs, as well as the availability of
economically equivalent products to the
overlying options and their respective
position limits. For instance, some of
the Underlying ETFs are based upon
broad-based indices that underlie cashsettled options, and therefore the
options on the Underlying ETFs are
economically equivalent to the options
on those indices, which have no
position limits. Other Underlying ETFs
are based upon broad-based indices that
underlie cash-settled options with
position limits reflecting notional values
that are larger than current position
limits for options on the ETF analogues.
For indexes that are tracked by an
Underlying ETF but on which there are
no options listed, the Exchange believes,
based on the liquidity, depth and
breadth of the underlying market of the
components of the indexes, that each of
the indexes referenced by the applicable
ETFs would be considered a broadbased index under the Exchange’s
ADV 10
(ETF shares)
(million)
Product
SPY ..............................................................
FXI ................................................................
EFA ..............................................................
HYG .............................................................
XLF ...............................................................
70.3
26.1
25.1
20.0
48.8
The Exchange is presenting the
following data collected by Cboe as part
of its initial filing, that the Commission
has approved,14 for the same trading
statistics, where applicable, as above
2.8 million .................
196,600 .....................
155,900 .....................
193,700 .....................
102,100 .....................
ADV
(option
contracts)
Shares
outstanding
(ETFs)
(million)
968.7
106.8
928.2
216.6
793.6
312.9
4.8
64.9
19.1
24.6
Total market cap of
ETF components 12
29.3 trillion.
28.0 trillion.
19.3 trillion.
906.4 billion.13
3.8 trillion.
support of proposed position limit
increases for options on a number of the
Underlying ETFs (see further discussion
below):
Fund market
cap
(USD)
(billion)
The Exchange believes that, overall,
the liquidity in the shares of the
Underlying ETFs and in the component
securities of the Underlying ETFs and in
their overlying options, as well as the
large market capitalizations and
structure of each of the Underlying ETFs
support the proposal to increase the
position limits for each option class
(and corresponding exercise limits).
Given the robust liquidity and
capitalization in the Underlying ETFs
and in the component securities of the
Underlying ETFs the Exchange does not
anticipate that the proposed increase in
position limits and exercise limits
would create significant price
movements. Also, the Exchange believes
the market capitalization of the
underlying component securities of the
applicable index or reference asset are
large enough to adequately absorb
potential price movements that may be
caused by large trades.
The following analyses for the
Underlying ETFs, which MIAX agrees
with in support of this proposal, as well
as the statistics presented in support
thereof, were presented by Cboe in their
initial filing, which was approved by
8 See Securities Exchange Act Release No. 68341
(December 3, 2012), 77 FR 73065 (December 7,
2012) (In the Matter of the Application of Miami
International Securities Exchange, LLC for
Registration as a National Securities Exchange:
Findings, Opinion, and Order of the Commission)
(Order that approved MIAX’s implementation of the
pilot program that ran through 2017, during which
there were no position limits for options on SPY).
See also Securities Exchange Act Release No. 83349
(May 30, 2018), 83 FR 26123 (June 5, 2018) (SR–
MIAX–2018–11). The Exchange notes that
throughout the duration of the pilot program it was
not aware of any problems created or adverse
consequences as a result of the pilot program.
9 See supra note 3.
10 Average daily volume (‘‘ADV’’) data for ETF
shares and options contracts presented below, are
for all of 2019. Additionally, reference to ADV in
ETF shares and ETF options herein this proposal
are for all of 2019, unless otherwise indicated.
11 See Amendment No. 1 to SR–CBOE–2020–015,
at page 4, available at https://www.sec.gov/
comments/sr-cboe-2020-015/srcboe20200157081714-215592.pdf (‘‘Amendment No. 1’’).
12 See Amendment No. 1, at page 4.
13 See Notice, at note 13.
14 See supra note 3.
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11.3
17.5
14.2
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10.1 trillion ..........
234.6 billion ........
N/A .....................
3 trillion ...............
Current
position
limits
30.2
26.7
9.6
7.2
18:59 May 21, 2020
410.3
233
128.1
236.6
Total market cap
of ETF
components
QQQ ................................................
EWZ ................................................
TLT ..................................................
EWJ .................................................
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670,200
186,500
95,200
5,700
Fund market
cap
(USD)
(billion)
Shares
outstanding
(ETFs) 11
(million)
ADV
(option
contracts)
regarding a sample of other ETFs, as
well as the current position limits for
options on such ETFs pursuant to
Exchange Rule 307, Interpretation and
Policy .01, to draw comparisons in
ADV
(ETF shares)
(million)
Product
Rules. Additionally, if in some cases
certain position limits are appropriate
for the options overlying comparable
indexes or basket of securities that the
Underlying ETFs track, or are
appropriate for those ETFs that track the
Underlying Indexes [sic], then those
economically equivalent position limits
should be appropriate for the options
overlying the Underlying ETFs or
Indexes [sic].
The Exchange is presenting data
collected by Cboe as part of its initial
filing to increase position and exercise
limits on the Underlying ETFs, that the
Commission has approved,9 following
trading statistics regarding shares of and
options on the Underlying ETFs, as well
as the component securities:
22MYN1
1,800,000
500,000
500,000
500,000
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Federal Register / Vol. 85, No. 100 / Friday, May 22, 2020 / Notices
the Commission.15 The Exchange notes
that SPY tracks the performance of the
S&P 500® Index, which is an index of
diversified large cap U.S. companies.16
It is composed of approximately 500
selected stocks spanning over
approximately 24 separate industry
groups. The S&P 500® is one of the most
commonly followed equity indices, and
is widely considered to be the best
indicator of stock market performance
as a whole. SPY is one of the most
actively traded ETFs, and, since 2017,17
its ADV has increased from
approximately 64.6 million shares to
70.3 million shares by the end of 2019.
Similarly, its ADV in options contracts
has increased from 2.6 million to 2.8
million through 2019.18 As noted, the
demand for options trading on SPY has
continued to increase, however, the
position limits have remained the same,
which the Exchange believes may have
impacted growth in SPY option volume
from 2017 through 2019. The Exchange
also notes that SPY shares are more
liquid than Invesco QQQ Trust SM
(‘‘QQQ’’) shares, which are also
currently subject to a position limit of
1,800,000 contracts. Specifically, SPY
currently experiences over twice the
ADV in shares and over four times the
ADV in options than that of QQQ.19
EFA tracks the performance of MSCI
EAFE Index, which is comprised of over
900 large and mid-cap securities across
21 developed markets, including
countries in Europe, Australia and the
Far East, excluding the U.S. and
Canada.20 The Exchange notes that from
2017 through 2019, ADV has grown
significantly in shares of EFA and in
options on EFA, from approximately
19.4 million shares in 2017 to 25.1
million through 2019, and from
approximately 98,800 options contracts
in 2017 to 155,900 through 2019. The
Exchange notes that options are
15 See
supra note 3.
Supplement dated March 25, 2020 to the
Prospectus dated January 16, 2020 for the SPDR®
S&P 500® ETF Trust, available at https://
www.ssga.com/us/en/individual/etfs/funds/spdr-sp500-etf-trust-spy.
17 See Securities Exchange Release No. 82931
(March 22, 2018), 83 FR 13323 (March 28, 2018)
(SR–MIAX–2018–10) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change
To Amend Exchange Rule 307, Position Limits, and
Exchange Rule 309, Exercise Limits). See also supra
note 3.
18 See Securities Exchange Act Release No. 83349
(May 30, 2018), 83 FR 26123 (June 5, 2018) (Notice
of Filing and Immediate Effectiveness of a Proposed
Rule Change To Amend Exchange Rule 307,
Position Limits, and Exchange Rule 309, Exercise
Limits) (SR–MIAX–2018–11).
19 The 2019 ADV for QQQ shares is 30.2 million
and for options on QQQ is 670,200.
20 See iShares MSCI EAFE ETF, available at
https://www.ishares.com/us/products/239623/
ishares-msci-eafe-etf (April 30, 2020).
16 See
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18:07 May 21, 2020
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available for trading on Cboe on the
MXEA, the analogue index (also subject
to a proposed position limit increase
described in the Cboe proposal), which
was subject to a position limit of 25,000
contracts. Utilizing the notional value
comparison of EFA’s share price of
$69.44 and MXEA’s index level of
2036.94, approximately 29 EFA option
contracts equal one MXEA option
contract. Based on the above
comparison of notional values, a
position limit for EFA options that
would be economically equivalent to
that of MXEA options equates to
725,000 contracts (currently) and
1,450,000 (for Cboe’s proposed—and
approved—50,000 contracts position
limit increase for MXEA options). Also,
MXEA index options have an ADV of
594 options contracts, which equates to
an ADV of 17,226 EFA options contracts
(as that is 29 times the size of 594). EFA
options, which are more actively traded
and held than MXEA options, are
currently subject to a position limit of
500,000 options contracts despite their
much higher ADV of approximately
156,700 options contracts.
FXI tracks the performance of the
FTSE China 50 Index, which is
composed of the 50 largest Chinese
stocks.21 FXI shares and options have
also experienced increased liquidity
since 2017, as ADV has grown from
approximately 15.1 million shares in
2017 to 26.1 million through 2019, as
well as approximately 71,900 options
contracts in 2017 to 196,600 through
2019. Although there are currently no
options on the FTSE China 50 Index
listed for trading, the components of the
FTSE China 50 Index, which can be
used to create a basket of stocks that
equate to the FXI ETF, currently have a
market capitalization of approximately
$28 trillion and FXI has a market
capitalization of $4.8 billion (as
indicated above), which the Exchange
believes are both large enough to absorb
potential price movements caused by a
large trade in FXI.
XLF invests in a wide array of
financial service firms with diversified
business lines ranging from investment
management to commercial and
investment banking. It generally
corresponds to the price and yield
performance of publicly traded equity
securities of companies in the SPDR
Financial Select Sector Index.22 XLF
experiences ADV in shares and in
options that is significantly greater that
21 See iShares China Large-Cap ETF, available at
https://www.ishares.com/us/products/239536/
ishares-china-largecap-etf (April 30, 2020).
22 See Select Sector SPDR ETFs, XLF, available at
https://www.sectorspdr.com/sectorspdr/sector/xlf
(April 30, 2020).
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the ADV in shares and options for EWZ
(26.7 million shares and 186,500
options contracts), TLT (9.6 million
shares and 95,200 options contracts),
and EWJ (7.2 million shares and 5,700
options contracts), each of which
already have a position limit of 500,000
contracts—the proposed position limit
for XLF options. Although there are no
options listed on the SPDR Financial
Select Sector Index listed for trading,
the components of the index, which can
be used to create a basket of stocks that
equate to the XLF ETF, currently have
a market capitalization of $3.8 trillion
(indicated above). Additionally, XLF
has a market capitalization of $24.6
billion. The Exchange believes that both
of these are large enough to absorb
potential price movements caused by a
large trade in XLF.
Finally, HYG attempts to track the
investment results of Markit iBoxx®
USD Liquid High Yield Index, which is
composed of U.S. dollar-denominated,
high-yield corporate bonds and is one of
the most widely used high-yield bond
ETFs.23 HYG experiences significantly
higher ADV in shares and options than
both TLT (9.6 million shares and 95,200
options contracts), and EWJ (7.2 million
shares and 5,700 options contracts),
which are currently subject to a position
limit of 500,000 options contracts—the
proposed limit for options on HYG.
While HYG does not have an index
option analogue listed for trading, the
Exchange believes that its market
capitalization of $19.1 billion, and of
$906.4 billion in component securities,
is adequate to absorb a potential price
movement that may be caused by large
trades in HYG.
Creation and Redemption for ETFs
The Exchange believes that the
creation and redemption process for
ETFs will lessen the potential for
manipulative activity with options on
the Underlying ETFs. When an ETF
provider wants to create more shares, it
looks to an Authorized Participant
(generally a market maker or other large
financial institution) to acquire the
securities the ETF is to hold. For
instance, when an ETF is designed to
track the performance of an index, the
Authorized Participant can purchase all
the constituent securities in the exact
same weight as the index, then deliver
those shares to the ETF provider. In
exchange, the ETF provider gives the
Authorized Participant a block of
equally valued ETF shares, on a one-for23 See iShares iBoxx $ High Yield Corporate Bond
ETF, available at https://www.ishares.com/us/
products/239565/ishares-iboxx-high-yieldcorporatebond-etf (April 30, 2020).
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one fair value basis. The price is based
on the net asset value, not the market
value at which the ETF is trading. The
creation of new ETF units can be
conducted during an entire trading day,
and is not subject to position limits.
This process works in reverse where the
ETF provider seeks to decrease the
number of shares that are available to
trade. The creation and redemption
process, therefore, creates a direct link
to the underlying components of the
ETF, and serves to mitigate potential
price impact of the ETF shares that
might otherwise result from increased
position limits for the ETF options.
The Exchange understands that the
ETF creation and redemption process
seeks to keep an ETF’s share price
trading in line with the ETF’s
underlying net asset value. Because an
ETF trades like a stock, its share price
will fluctuate during the trading day,
due to simple supply and demand. If
demand to buy an ETF is high, for
instance, the ETF’s share price might
rise above the value of its underlying
securities. When this happens, the
Authorized Participant believes the ETF
may now be overpriced, so it may buy
shares of the component securities and
then sell ETF shares in the open market
(i.e. creations). This may drive the ETF’s
share price back toward the underlying
net asset value. Likewise, if the ETF
share price starts trading at a discount
to the securities it holds, the Authorized
Participant can buy shares of the ETF
and redeem them for the underlying
securities (i.e. redemptions). Buying
undervalued ETF shares may drive the
share price of the ETF back toward fair
value. This arbitrage process helps to
keep an ETF’s share price in line with
the value of its underlying portfolio.
Surveillance and Reporting
Requirements
The Exchange believes that increasing
the position limits for the options on the
Underlying ETFs would lead to a more
liquid and competitive market
environment for these options, which
will benefit customers interested in
trading these products. The reporting
requirement for the options on the
Underlying ETFs would remain
unchanged. Thus, the Exchange would
still require that each Member 24 that
maintains positions in the options on
the same side of the market, for its own
account or for the account of a
customer, report certain information to
the Exchange. This information would
24 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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18:07 May 21, 2020
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include, but would not be limited to, the
options’ positions, whether such
positions are hedged and, if so, a
description of the hedge(s). Market
Makers would continue to be exempt
from this reporting requirement,
however, the Exchange may access
Market Maker position information. 25
Moreover, the Exchange’s requirement
that Members file reports with the
Exchange for any customer who held
aggregate large long or short positions
on the same side of the market of 200
or more options contracts of any single
class for the previous day will remain at
this level for the options subject to this
proposal and will continue to serve as
an important part of the Exchange’s
surveillance efforts.26
The Exchange believes that the
existing surveillance procedures and
reporting requirements at the Exchange
and other SROs are capable of properly
identifying disruptive and/or
manipulative trading activity. The
Exchange also represents that it has
adequate surveillances in place to detect
potential manipulation, as well as
reviews in place to identify potential
changes in composition of the
Underlying ETFs and continued
compliance with the Exchange’s listing
standards. These procedures utilize
daily monitoring of market activity via
automated surveillance techniques to
identify unusual activity in both options
and the underlyings, as applicable.27
The Exchange also notes that large stock
holdings must be disclosed to the
Commission by way of Schedules 13D
or 13G,28 which are used to report
ownership of stock which exceeds 5%
of a company’s total stock issue and
may assist in providing information in
monitoring for any potential
manipulative schemes.
The Exchange believes that the
current financial requirements imposed
by the Exchange and by the Commission
adequately address concerns regarding
potentially large, unhedged positions in
the options on the Underlying ETFs.
Current margin and risk-based haircut
methodologies serve to limit the size of
25 The Options Clearing Corporation (‘‘OCC’’)
through the Large Option Position Reporting
(‘‘LOPR’’) system acts as a centralized service
provider for Member compliance with position
reporting requirements by collecting data from each
Member, consolidating the information, and
ultimately providing detailed listings of each
Member’s report to the Exchange, as well as
Financial Industry Regulatory Authority, Inc.
(‘‘FINRA’’), acting as its agent pursuant to a
regulatory services agreement (‘‘RSA’’).
26 See Exchange Rule 310.
27 The Exchange believes these procedures have
been effective for the surveillance of trading the
options subject to this proposal, and will continue
to employ them.
28 17 CFR 240.13d–1.
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31243
positions maintained by any one
account by increasing the margin and/
or capital that a Member must maintain
for a large position held by itself or by
its customer.29 In addition, Rule 15c3–
1 30 imposes a capital charge on
Members to the extent of any margin
deficiency resulting from the higher
margin requirement.
Additionally, the Exchange proposes
to make minor non-substantive
technical changes to the charts in
Interpretations and Policies .01 of both
Exchange Rules 307 and 309 to reflect
the current names of the underlying
securities listed therein. Specifically,
the Exchange proposes to update the
names of the following ETFs to reflect
the current names in the prospectus for
each: Powershares QQQ Trust; iShares
China Large-Cap ETF; iShares MSCI
EAFE ETF; iShares MSCI Brazil Capped
ETF; iShares 20+ Year Treasury Bond
Fund ETF; and the iShares MSCI Japan
ETF.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the Act
and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.31 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 32 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 33 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange believes that the
proposed increase in position limits for
options on the Underlying ETFs will
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, protect investors and the public
29 See Exchange Rule 1502 for a description of
margin requirements.
30 17 CFR 240.15c3–1.
31 15 U.S.C. 78f(b).
32 15 U.S.C. 78f(b)(5).
33 Id.
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Federal Register / Vol. 85, No. 100 / Friday, May 22, 2020 / Notices
interest, because it will provide market
participants with the ability to more
effectively execute their trading and
hedging activities. The proposed
increases will allow market participants
to more fully implement hedging
strategies in related derivative products
and to further use options to achieve
investment strategies (e.g., there are
Exchange-Traded Products (‘‘ETPs’’)
that use options on the Underlying ETFs
as part of their investment strategy, and
the applicable position limits (and
corresponding exercise limits) as they
stand today may inhibit these ETPs in
achieving their investment objectives, to
the detriment of investors). Also,
increasing the applicable position limits
may allow Market Makers to provide the
markets for these options with more
liquidity in amounts commensurate
with increased consumer demand in
such markets. The proposed position
limit increases may also encourage other
liquidity providers to shift liquidity, as
well as encourage consumers to shift
demand, from OTC markets onto the
Exchange, which will enhance the
process of price discovery conducted on
the Exchange through increased order
flow.
In addition, the Exchange believes
that the structure of the Underlying
ETFs, the considerable market
capitalization of the funds, underlying
component securities, and the liquidity
of the markets for the applicable options
and underlying component securities
will mitigate concerns regarding
potential manipulation of the products
and/or disruption of the underlying
markets upon increasing the relevant
position limits. As a general principle,
increases in market capitalizations,
active trading volume, and deep
liquidity of securities do not lead to
manipulation and/or disruption. This
general principle applies to the recently
observed increased levels of market
capitalization, trading volume, and
liquidity in shares of the Underlying
ETFs, and the components of the
Underlying ETFs (as described above),
the Exchange does not believe that the
options markets or underlying markets
would become susceptible to
manipulation and/or disruption as a
result of the proposed position limit
increases. Indeed, the Commission has
previously expressed the belief that
removing position and exercise limits
may bring additional depth and
liquidity to the options markets without
increasing concerns regarding
intermarket manipulation or disruption
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18:07 May 21, 2020
Jkt 250001
of the options or the underlying
securities.34
Further, the Exchange notes that the
proposed rule change to increase
position limits for select actively traded
options, is not novel and has been
previously approved by the
Commission. The proposed increase to
the position and exercise limits on the
Underlying ETFs has recently been
approved by the Commission.35 The
Commission has also previously
approved, on a pilot basis, eliminating
position limits for options on SPY.36
Additionally, the Commission has
approved similar proposed rule changes
by the Exchange to increase position
limits for options on highly liquid,
actively traded ETFs.37 In approving the
permanent elimination of position (and
exercise limits) for such options, the
Commission relied heavily upon the
exchange’s surveillance capabilities,
expressing trust in the enhanced
surveillances and reporting safeguards
that the exchange took in order to detect
and deter possible manipulative
behavior which might arise from
eliminating position and exercise limits.
Furthermore, the Exchange again
notes that that the proposed position
limits for options on EFA and FXI are
consistent with existing position limits
for options on IWM and EEM, and the
proposed limits for options on XLF and
HYG are consistent with current
position limits for options on EWZ,
TLT, and EWJ.
The Exchange’s surveillance and
reporting safeguards continue to be
designed to deter and detect possible
manipulative behavior that might arise
from increasing or eliminating position
and exercise limits in certain classes.
The Exchange believes that the current
financial requirements imposed by the
Exchange and by the Commission
adequately address concerns regarding
potentially large, unhedged position in
the options on the Underlying ETFs,
further promoting just and equitable
principles of trading, the maintenance
of a fair and orderly market, and the
protection of investors.
Finally, the Exchange believes the
proposed technical changes to the
names and symbols of certain ETFs in
both tables in Interpretations and
Policies .01 to Exchange Rules 307 and
309 promotes just and equitable
principles of trade and remove
impediments to and perfect the
mechanism of a free and open market
34 See Securities Exchange Act Release No. 62147
(October 28, 2005) (SR–CBOE–2005–41), at 62149.
35 See supra note 3.
36 See supra notes 7 and 8.
37 See supra note 18.
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Frm 00110
Fmt 4703
Sfmt 4703
and a national market system because
the proposed changes make clarifying
edits to the names and symbols for
certain ETFs to provide uniformity
throughout the Exchange’s rules. The
Exchange believes that these proposed
changes will provide greater clarity to
Members and the public regarding the
Exchange’s rules and that it is in the
public interest for rules to be accurate
and concise so as to eliminate the
potential for confusion.
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. The
Exchange does not believe the proposed
rule change will impose any burden on
intramarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act because the
increased position limits (and exercise
limits) will be available to all market
participants and apply to each in the
same manner. The Exchange believes
that the proposed rule change will
provide additional opportunities for
market participants to more efficiently
achieve their investment and trading
objectives of market participants.
The Exchange does not believe that
the proposed rule change will impose
any burden on intermarket competition
that is not necessary or appropriate in
furtherance of the Act. On the contrary,
the Exchange believes the proposal
promotes competition because it may
attract additional order flow from the
OTC market to exchanges, which would
in turn compete amongst each other for
those orders.38 The Exchange believes
market participants would benefit from
being able to trade options with
increased position limits in an exchange
environment in several ways, including
but not limited to the following: (1)
Enhanced efficiency in initiating and
closing out position; (2) increased
market transparency; and (3) heightened
contra-party creditworthiness due to the
role of OCC as issuer and guarantor. The
Exchange understands that other
options exchanges intend to file similar
proposed rule changes with the
Commission to increase position limits
on options on the Underlying ETFs.
38 Additionally, several other options exchange
have the same position limits as the Exchange, as
they incorporate by reference to the Exchange’s
position limits, and as a result the position limits
for options on the Underlying ETFs will increase at
those exchanges. For example, Nasdaq Options
position limits are determined by the position
limits established by the Exchange. See Nasdaq
Stock Market LLC Rules, Options 9, Sec. 13
(Position Limits).
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Federal Register / Vol. 85, No. 100 / Friday, May 22, 2020 / Notices
This may further contribute to fair
competition among exchanges for
multiply listed options.
The proposed changes to the names
and symbols of certain ETFs will have
no impact on competition as they are
not designed to address any competitive
issues but rather are designed to remedy
minor non-substantive issues and
provide added clarity to the rule text of
Exchange Rules 307 and 309. In
addition, the Exchange does not believe
the proposal will impose any burden on
inter-market competition as the
proposal does not address any
competitive issues and is intended to
protect investors by providing further
clarity regarding the Exchange’s rules.
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 foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days 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 39 and Rule 19b–
4(f)(6) thereunder.40
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 41 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 42
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has asked
the Commission to waive the 30-day
operative delay so that the proposed
rule change may become operative upon
filing. The Exchange states that waiver
of the operative delay would be
consistent with the protection of
investors and the public interest
because it would allow the Exchange to
immediately increase its position and
39 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
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.
41 17 CFR 240.19b–4(f)(6).
42 17 CFR 240.19b–4(f)(6)(iii).
40 17
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18:07 May 21, 2020
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31245
exercise limits for the products subject
to this proposal to those of Cboe, which
the Exchange believes will ensure fair
competition among exchanges and
provide consistency and uniformity
among members of both Cboe and MIAX
by subjecting members of both
exchanges to the same position and
exercise limits for these multiply-listed
options classes. For this reason, the
Commission believes that waiver of the
30-day operative delay is consistent
with the protection of investors and the
public interest. Therefore, the
Commission hereby waives the
operative delay and designates the
proposal as operative upon filing.43
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.
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 such
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–2020–10, and
should be submitted on or before June
12, 2020.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.44
J. Matthew DeLesDernier,
Assistant Secretary.
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MIAX–2020–10 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–2020–10. 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
43 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).
PO 00000
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[FR Doc. 2020–11040 Filed 5–21–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IA–5504]
Intention To Cancel Registration
Pursuant to Section 203(H) of the
Investment Advisers Act of 1940
May 18, 2020.
Notice is given that the Securities and
Exchange Commission (the
‘‘Commission’’) intends to issue an
order, pursuant to Section 203(h) of the
Investment Advisers Act of 1940 (the
‘‘Act’’), cancelling the registration of
Strategic Options, LLC [File No. 801–
106576], hereinafter referred to as the
‘‘registrant.’’
Section 203(h) provides, in pertinent
part, that if the Commission finds that
any person registered under Section
203, or who has pending an application
for registration filed under that section,
is no longer in existence, is not engaged
in business as an investment adviser, or
is prohibited from registering as an
44 17
E:\FR\FM\22MYN1.SGM
CFR 200.30–3(a)(12).
22MYN1
]]>Agencies
[Federal Register Volume 85, Number 100 (Friday, May 22, 2020)]
[Notices]
[Pages 31239-31245]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11040]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88893; File No. SR-MIAX-2020-10]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Exchange Rule 307, Position Limits, and
Exchange Rule 309, Exercise Limits, To Increase the Position and
Exercise Limits on Certain Exchange-Traded Funds
May 18, 2020.
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 May 8, 2020, Miami International Securities Exchange, LLC (``MIAX''
or the ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange is filing a proposal to amend Interpretation and
Policy .01 to Exchange Rule 307, Position Limits, and Interpretation
and Policy .01 to Exchange Rule 309, Exercise Limits, to increase the
position and exercise limits on certain exchange-traded funds
(``ETFs'') and to make minor non-substantive technical corrections to
each Policy.
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxoptions.com/rule-filings/ at MIAX's principal
office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Interpretation and Policy .01 to
Exchange Rule 307, Position Limits, and Interpretation and Policy .01
to Exchange Rule 309, Exercise Limits, to increase the position and
exercise limits for options on certain ETFs. These proposed rule
changes are based on the similar proposal by Cboe Exchange, Inc.
(``Cboe'').\3\ The Exchange also proposes to make certain minor non-
substantive technical corrections to certain ETF names and symbols in
each of the tables in Interpretations and Policies .01 to Exchange
Rules 307 and 309, as described below.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 88768 (April 29,
2020) (SR-CBOE-2020-015) (Notice of Filing of Amendment No. 1 and
Order Granting Accelerated Approval of a Proposed Rule Change, as
Modified by Amendment No. 1, to Increase Position Limits for Options
on Certain Exchange-Traded Funds and Indexes). The Cboe proposal
also proposed to increase position limits for options overlying the
MSCI Emerging Markets Index (``MXEF'') and the MSCI EAFE Index
(``MXEA''). The Exchange, however, does not list options on the MXEF
or MXEA indexes. Accordingly, this proposal is limited to the ETFs
described above [sic].
---------------------------------------------------------------------------
Position limits are designed to address potential manipulative
schemes and adverse market impacts surrounding the use of options, such
as disrupting the market in the security underlying the options. While
position limits should address and discourage the potential for
manipulative schemes and adverse market impact, if such limits are set
too low, participation in the options market may be discouraged. The
Exchange believes that position limits must therefore be balanced
between mitigating concerns of any potential manipulation and the cost
of inhibiting potential hedging activity that could be used for
legitimate economic purposes.
[[Page 31240]]
The Exchange has observed an ongoing increase in demand in options
on the SPDR[supreg] S&P 500[supreg] ETF Trust (``SPY''),
iShares[supreg] MSCI EAFE ETF (``EFA''), iShares[supreg] China Large-
Cap ETF (``FXI''), iShares[supreg] iBoxx[supreg] $ High Yield Corporate
Bond ETF (``HYG''), and the Financial Select Sector SPDR[supreg] Fund
(``XLF'') (collectively, with the aforementioned ETFs, the ``Underlying
ETFs'') for both trading and hedging purposes. Though the demand for
these options appears to have increased, position limits (and
corresponding exercise limits) for options on the Underlying ETFs have
remained the same. The Exchange believes these unchanged position
limits may have impeded, and may continue to impede, trading activity
and strategies of investors, such as use of effective hedging vehicles
or income generating strategies (e.g., buy-write or put-write), and the
ability of Market Makers \4\ to make liquid markets with tighter
spreads in these options resulting in the transfer of volume to over-
the-counter (``OTC'') markets. OTC transactions occur through bilateral
agreements, the terms of which are not publically disclosed to the
marketplace. As such, OTC transactions do not contribute to the price
discovery process on a public exchange or other lit markets. Therefore,
the Exchange believes that the proposed increases in position limits
(and exercise limits) for options on the Underlying ETFs may enable
liquidity providers to provide additional liquidity to the Exchange and
other market participants to transfer their liquidity demands from OTC
markets to the Exchange, as well as other options exchanges on which
they participate. As described in further detail below, the Exchange
believes that the continuously increasing market capitalization of the
Underlying ETFs and ETF component securities, as well as the highly
liquid markets for those securities, reduces the concerns for potential
market manipulation and/or disruption in the underlying markets upon
increasing position limits, while the rising demand for trading options
on the Underlying ETFs for legitimate economic purposes compels an
increase in position limits (and corresponding exercise limits).
---------------------------------------------------------------------------
\4\ The term ``Market Makers'' refers to ``Lead Market Makers'',
``Primary Lead Market Makers'' and ``Registered Market Makers''
collectively. See Exchange Rule 100. A Market Maker has the rights
and responsibilities set forth in Chapter VI of the Exchange's
Rulebook.
---------------------------------------------------------------------------
Proposed Position and Exercise Limits for Options on the Underlying
ETFs
Position limits for options on ETFs are determined pursuant to
Exchange Rule 307, and vary according to the number of outstanding
shares and the trading volumes of the underlying stocks or ETFs over
the past six months. Pursuant to Exchange Rule 307, the largest in
capitalization and the most frequently traded stocks and ETFs have an
option position limit of 250,000 contracts (with adjustments for
splits, re-capitalizations, etc.) on the same side of the market; and
smaller capitalization stocks and ETFs have position limits of 200,000,
75,000, 50,000 or 25,000 contracts (with adjustments for splits,
recapitalizations, etc.) on the same side of the market. Options on HYG
and XLF are currently subject to the maximum standard position limit of
250,000 contracts as set forth in Exchange Rule 307. Interpretation and
Policy .01 to Exchange Rule 307 sets forth separate position limits for
options on specific ETFs, including SPY, FXI and EFA.
The Exchange proposes to amend Interpretation and Policy .01 to
Exchange Rule 307 to double the position limits for options on each of
HYG, XLF, FXI, EFA and SPY. The Exchange also proposes to amend
Interpretation and Policy .01 to Exchange Rule 309 to double the
exercise limits for options on each of HYG, XLF, FXI, EFA and SPY. The
table below represents the current, and proposed, position and exercise
limits for options on the Underlying ETFs subject to this proposal:
------------------------------------------------------------------------
Current position/ Proposed position/
ETF exercise limit exercise limit
------------------------------------------------------------------------
SPY............................... 1,800,000 3,600,000
EFA............................... 500,000 1,000,000
FXI............................... 500,000 1,000,000
HYG............................... 250,000 500,000
XLF............................... 250,000 500,000
------------------------------------------------------------------------
The Exchange notes that the proposed position limits for options on
EFA and FXI are consistent with existing position limits for options on
the iShares[supreg] Russell 2000 ETF (``IWM'') and the iShares[supreg]
MSCI Emerging Markets ETF (``EEM''), while the proposed limits for
options on XLF and HYG are consistent with current position limits for
options on the iShares[supreg] MSCI Brazil ETF (``EWZ''),
iShares[supreg] 20+ Year Treasury Bond ETF (``TLT''), and
iShares[supreg] MSCI Japan ETF (``EWJ''). The Exchange represents that
the Underlying ETFs qualify for either 1) the initial listing criteria
set forth in Exchange Rule 402(i)(5)(ii) for ETFs holding non-U.S.
component securities, or 2) the generic listing standards for series of
portfolio depository receipts and index fund shares based on
international or global indexes under which a comprehensive
surveillance agreement (``CSA'') is not required, as well as the
continued listing criteria in Exchange Rule 403.\5\ In compliance with
its listing rules, the Exchange also represents that non-U.S. component
securities that are not subject to a CSA do not, in the aggregate,
represent more than 50% of the weight of any of the Underlying ETFs.\6\
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\5\ The Exchange notes that the initial listing criteria for
options on ETFs that hold non-U.S. component securities are more
stringent than the maintenance listing criteria for those same ETF
options. See Exchange Rule 402(i)(5)(ii) and Exchange Rule 403(g).
\6\ See Exchange Rule 402(i)(5)(ii).
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Composition and Growth Analysis for Underlying ETFs
As stated above, position (and exercise) limits are intended to
prevent the establishment of options positions that can be used or
might create incentives to manipulate the underlying market so as to
benefit options positions. The Commission has recognized that these
limits are designed to minimize the potential for mini-manipulations
and for corners or squeezes of the underlying market, as well as serve
to reduce the possibility for disruption of the options market itself,
especially in illiquid classes.\7\ The
[[Page 31241]]
Underlying ETFs as well as the ETF components are highly liquid, and
are based on a broad set of highly liquid securities and other
reference assets, as demonstrated through the trading statistics
presented in this proposal. Indeed, the Commission recognized the
liquidity of the securities comprising the underlying interest of SPY
and permitted no position limits on SPY options from 2012 through
2018.\8\
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\7\ See Securities Exchange Act Release No. 67672 (August 15,
2012), 77 FR 50750 (August 22, 2012) (SR-NYSEAmex-2012-29).
\8\ See Securities Exchange Act Release No. 68341 (December 3,
2012), 77 FR 73065 (December 7, 2012) (In the Matter of the
Application of Miami International Securities Exchange, LLC for
Registration as a National Securities Exchange: Findings, Opinion,
and Order of the Commission) (Order that approved MIAX's
implementation of the pilot program that ran through 2017, during
which there were no position limits for options on SPY). See also
Securities Exchange Act Release No. 83349 (May 30, 2018), 83 FR
26123 (June 5, 2018) (SR-MIAX-2018-11). The Exchange notes that
throughout the duration of the pilot program it was not aware of any
problems created or adverse consequences as a result of the pilot
program.
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To support the proposed position limit increases (and corresponding
increase in exercise limits), the Exchange considered both the
liquidity of the Underlying ETFs and the component securities of the
Underlying ETFs, as well as the availability of economically equivalent
products to the overlying options and their respective position limits.
For instance, some of the Underlying ETFs are based upon broad-based
indices that underlie cash-settled options, and therefore the options
on the Underlying ETFs are economically equivalent to the options on
those indices, which have no position limits. Other Underlying ETFs are
based upon broad-based indices that underlie cash-settled options with
position limits reflecting notional values that are larger than current
position limits for options on the ETF analogues. For indexes that are
tracked by an Underlying ETF but on which there are no options listed,
the Exchange believes, based on the liquidity, depth and breadth of the
underlying market of the components of the indexes, that each of the
indexes referenced by the applicable ETFs would be considered a broad-
based index under the Exchange's Rules. Additionally, if in some cases
certain position limits are appropriate for the options overlying
comparable indexes or basket of securities that the Underlying ETFs
track, or are appropriate for those ETFs that track the Underlying
Indexes [sic], then those economically equivalent position limits
should be appropriate for the options overlying the Underlying ETFs or
Indexes [sic].
The Exchange is presenting data collected by Cboe as part of its
initial filing to increase position and exercise limits on the
Underlying ETFs, that the Commission has approved,\9\ following trading
statistics regarding shares of and options on the Underlying ETFs, as
well as the component securities:
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\9\ See supra note 3.
----------------------------------------------------------------------------------------------------------------
Shares
ADV \10\ (ETF ADV (option outstanding Fund market Total market
Product shares) contracts) (ETFs) \11\ cap (USD) cap of ETF
(million) (million) (billion) components \12\
----------------------------------------------------------------------------------------------------------------
SPY.......................... 70.3 2.8 million..... 968.7 312.9 29.3 trillion.
FXI.......................... 26.1 196,600......... 106.8 4.8 28.0 trillion.
EFA.......................... 25.1 155,900......... 928.2 64.9 19.3 trillion.
HYG.......................... 20.0 193,700......... 216.6 19.1 906.4
billion.\13\
XLF.......................... 48.8 102,100......... 793.6 24.6 3.8 trillion.
----------------------------------------------------------------------------------------------------------------
The Exchange is presenting the following data collected by Cboe as
part of its initial filing, that the Commission has approved,\14\ for
the same trading statistics, where applicable, as above regarding a
sample of other ETFs, as well as the current position limits for
options on such ETFs pursuant to Exchange Rule 307, Interpretation and
Policy .01, to draw comparisons in support of proposed position limit
increases for options on a number of the Underlying ETFs (see further
discussion below):
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\10\ Average daily volume (``ADV'') data for ETF shares and
options contracts presented below, are for all of 2019.
Additionally, reference to ADV in ETF shares and ETF options herein
this proposal are for all of 2019, unless otherwise indicated.
\11\ See Amendment No. 1 to SR-CBOE-2020-015, at page 4,
available at https://www.sec.gov/comments/sr-cboe-2020-015/srcboe2020015-7081714-215592.pdf (``Amendment No. 1'').
\12\ See Amendment No. 1, at page 4.
\13\ See Notice, at note 13.
\14\ See supra note 3.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Shares
ADV (ETF ADV (option outstanding Fund market Total market cap of ETF Current
Product shares) contracts) (ETFs) cap (USD) components position
(million) (million) (billion) limits
--------------------------------------------------------------------------------------------------------------------------------------------------------
QQQ...................................... 30.2 670,200 410.3 88.7 10.1 trillion.............. 1,800,000
EWZ...................................... 26.7 186,500 233 11.3 234.6 billion.............. 500,000
TLT...................................... 9.6 95,200 128.1 17.5 N/A........................ 500,000
EWJ...................................... 7.2 5,700 236.6 14.2 3 trillion................. 500,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
The Exchange believes that, overall, the liquidity in the shares of
the Underlying ETFs and in the component securities of the Underlying
ETFs and in their overlying options, as well as the large market
capitalizations and structure of each of the Underlying ETFs support
the proposal to increase the position limits for each option class (and
corresponding exercise limits). Given the robust liquidity and
capitalization in the Underlying ETFs and in the component securities
of the Underlying ETFs the Exchange does not anticipate that the
proposed increase in position limits and exercise limits would create
significant price movements. Also, the Exchange believes the market
capitalization of the underlying component securities of the applicable
index or reference asset are large enough to adequately absorb
potential price movements that may be caused by large trades.
The following analyses for the Underlying ETFs, which MIAX agrees
with in support of this proposal, as well as the statistics presented
in support thereof, were presented by Cboe in their initial filing,
which was approved by
[[Page 31242]]
the Commission.\15\ The Exchange notes that SPY tracks the performance
of the S&P 500[supreg] Index, which is an index of diversified large
cap U.S. companies.\16\ It is composed of approximately 500 selected
stocks spanning over approximately 24 separate industry groups. The S&P
500[supreg] is one of the most commonly followed equity indices, and is
widely considered to be the best indicator of stock market performance
as a whole. SPY is one of the most actively traded ETFs, and, since
2017,\17\ its ADV has increased from approximately 64.6 million shares
to 70.3 million shares by the end of 2019. Similarly, its ADV in
options contracts has increased from 2.6 million to 2.8 million through
2019.\18\ As noted, the demand for options trading on SPY has continued
to increase, however, the position limits have remained the same, which
the Exchange believes may have impacted growth in SPY option volume
from 2017 through 2019. The Exchange also notes that SPY shares are
more liquid than Invesco QQQ Trust \SM\ (``QQQ'') shares, which are
also currently subject to a position limit of 1,800,000 contracts.
Specifically, SPY currently experiences over twice the ADV in shares
and over four times the ADV in options than that of QQQ.\19\
---------------------------------------------------------------------------
\15\ See supra note 3.
\16\ See Supplement dated March 25, 2020 to the Prospectus dated
January 16, 2020 for the SPDR[supreg] S&P 500[supreg] ETF Trust,
available at https://www.ssga.com/us/en/individual/etfs/funds/spdr-sp-500-etf-trust-spy.
\17\ See Securities Exchange Release No. 82931 (March 22, 2018),
83 FR 13323 (March 28, 2018) (SR-MIAX-2018-10) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend Exchange
Rule 307, Position Limits, and Exchange Rule 309, Exercise Limits).
See also supra note 3.
\18\ See Securities Exchange Act Release No. 83349 (May 30,
2018), 83 FR 26123 (June 5, 2018) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Amend Exchange Rule 307,
Position Limits, and Exchange Rule 309, Exercise Limits) (SR-MIAX-
2018-11).
\19\ The 2019 ADV for QQQ shares is 30.2 million and for options
on QQQ is 670,200.
---------------------------------------------------------------------------
EFA tracks the performance of MSCI EAFE Index, which is comprised
of over 900 large and mid-cap securities across 21 developed markets,
including countries in Europe, Australia and the Far East, excluding
the U.S. and Canada.\20\ The Exchange notes that from 2017 through
2019, ADV has grown significantly in shares of EFA and in options on
EFA, from approximately 19.4 million shares in 2017 to 25.1 million
through 2019, and from approximately 98,800 options contracts in 2017
to 155,900 through 2019. The Exchange notes that options are available
for trading on Cboe on the MXEA, the analogue index (also subject to a
proposed position limit increase described in the Cboe proposal), which
was subject to a position limit of 25,000 contracts. Utilizing the
notional value comparison of EFA's share price of $69.44 and MXEA's
index level of 2036.94, approximately 29 EFA option contracts equal one
MXEA option contract. Based on the above comparison of notional values,
a position limit for EFA options that would be economically equivalent
to that of MXEA options equates to 725,000 contracts (currently) and
1,450,000 (for Cboe's proposed--and approved--50,000 contracts position
limit increase for MXEA options). Also, MXEA index options have an ADV
of 594 options contracts, which equates to an ADV of 17,226 EFA options
contracts (as that is 29 times the size of 594). EFA options, which are
more actively traded and held than MXEA options, are currently subject
to a position limit of 500,000 options contracts despite their much
higher ADV of approximately 156,700 options contracts.
---------------------------------------------------------------------------
\20\ See iShares MSCI EAFE ETF, available at https://www.ishares.com/us/products/239623/ishares-msci-eafe-etf (April 30,
2020).
---------------------------------------------------------------------------
FXI tracks the performance of the FTSE China 50 Index, which is
composed of the 50 largest Chinese stocks.\21\ FXI shares and options
have also experienced increased liquidity since 2017, as ADV has grown
from approximately 15.1 million shares in 2017 to 26.1 million through
2019, as well as approximately 71,900 options contracts in 2017 to
196,600 through 2019. Although there are currently no options on the
FTSE China 50 Index listed for trading, the components of the FTSE
China 50 Index, which can be used to create a basket of stocks that
equate to the FXI ETF, currently have a market capitalization of
approximately $28 trillion and FXI has a market capitalization of $4.8
billion (as indicated above), which the Exchange believes are both
large enough to absorb potential price movements caused by a large
trade in FXI.
---------------------------------------------------------------------------
\21\ See iShares China Large-Cap ETF, available at https://www.ishares.com/us/products/239536/ishares-china-largecap-etf (April
30, 2020).
---------------------------------------------------------------------------
XLF invests in a wide array of financial service firms with
diversified business lines ranging from investment management to
commercial and investment banking. It generally corresponds to the
price and yield performance of publicly traded equity securities of
companies in the SPDR Financial Select Sector Index.\22\ XLF
experiences ADV in shares and in options that is significantly greater
that the ADV in shares and options for EWZ (26.7 million shares and
186,500 options contracts), TLT (9.6 million shares and 95,200 options
contracts), and EWJ (7.2 million shares and 5,700 options contracts),
each of which already have a position limit of 500,000 contracts--the
proposed position limit for XLF options. Although there are no options
listed on the SPDR Financial Select Sector Index listed for trading,
the components of the index, which can be used to create a basket of
stocks that equate to the XLF ETF, currently have a market
capitalization of $3.8 trillion (indicated above). Additionally, XLF
has a market capitalization of $24.6 billion. The Exchange believes
that both of these are large enough to absorb potential price movements
caused by a large trade in XLF.
---------------------------------------------------------------------------
\22\ See Select Sector SPDR ETFs, XLF, available at https://www.sectorspdr.com/sectorspdr/sector/xlf (April 30, 2020).
---------------------------------------------------------------------------
Finally, HYG attempts to track the investment results of Markit
iBoxx[supreg] USD Liquid High Yield Index, which is composed of U.S.
dollar-denominated, high-yield corporate bonds and is one of the most
widely used high-yield bond ETFs.\23\ HYG experiences significantly
higher ADV in shares and options than both TLT (9.6 million shares and
95,200 options contracts), and EWJ (7.2 million shares and 5,700
options contracts), which are currently subject to a position limit of
500,000 options contracts--the proposed limit for options on HYG. While
HYG does not have an index option analogue listed for trading, the
Exchange believes that its market capitalization of $19.1 billion, and
of $906.4 billion in component securities, is adequate to absorb a
potential price movement that may be caused by large trades in HYG.
---------------------------------------------------------------------------
\23\ See iShares iBoxx $ High Yield Corporate Bond ETF,
available at https://www.ishares.com/us/products/239565/ishares-iboxx-high-yield-corporatebond-etf (April 30, 2020).
---------------------------------------------------------------------------
Creation and Redemption for ETFs
The Exchange believes that the creation and redemption process for
ETFs will lessen the potential for manipulative activity with options
on the Underlying ETFs. When an ETF provider wants to create more
shares, it looks to an Authorized Participant (generally a market maker
or other large financial institution) to acquire the securities the ETF
is to hold. For instance, when an ETF is designed to track the
performance of an index, the Authorized Participant can purchase all
the constituent securities in the exact same weight as the index, then
deliver those shares to the ETF provider. In exchange, the ETF provider
gives the Authorized Participant a block of equally valued ETF shares,
on a one-for-
[[Page 31243]]
one fair value basis. The price is based on the net asset value, not
the market value at which the ETF is trading. The creation of new ETF
units can be conducted during an entire trading day, and is not subject
to position limits. This process works in reverse where the ETF
provider seeks to decrease the number of shares that are available to
trade. The creation and redemption process, therefore, creates a direct
link to the underlying components of the ETF, and serves to mitigate
potential price impact of the ETF shares that might otherwise result
from increased position limits for the ETF options.
The Exchange understands that the ETF creation and redemption
process seeks to keep an ETF's share price trading in line with the
ETF's underlying net asset value. Because an ETF trades like a stock,
its share price will fluctuate during the trading day, due to simple
supply and demand. If demand to buy an ETF is high, for instance, the
ETF's share price might rise above the value of its underlying
securities. When this happens, the Authorized Participant believes the
ETF may now be overpriced, so it may buy shares of the component
securities and then sell ETF shares in the open market (i.e.
creations). This may drive the ETF's share price back toward the
underlying net asset value. Likewise, if the ETF share price starts
trading at a discount to the securities it holds, the Authorized
Participant can buy shares of the ETF and redeem them for the
underlying securities (i.e. redemptions). Buying undervalued ETF shares
may drive the share price of the ETF back toward fair value. This
arbitrage process helps to keep an ETF's share price in line with the
value of its underlying portfolio.
Surveillance and Reporting Requirements
The Exchange believes that increasing the position limits for the
options on the Underlying ETFs would lead to a more liquid and
competitive market environment for these options, which will benefit
customers interested in trading these products. The reporting
requirement for the options on the Underlying ETFs would remain
unchanged. Thus, the Exchange would still require that each Member \24\
that maintains positions in the options on the same side of the market,
for its own account or for the account of a customer, report certain
information to the Exchange. This information would include, but would
not be limited to, the options' positions, whether such positions are
hedged and, if so, a description of the hedge(s). Market Makers would
continue to be exempt from this reporting requirement, however, the
Exchange may access Market Maker position information. \25\ Moreover,
the Exchange's requirement that Members file reports with the Exchange
for any customer who held aggregate large long or short positions on
the same side of the market of 200 or more options contracts of any
single class for the previous day will remain at this level for the
options subject to this proposal and will continue to serve as an
important part of the Exchange's surveillance efforts.\26\
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\24\ 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.
\25\ The Options Clearing Corporation (``OCC'') through the
Large Option Position Reporting (``LOPR'') system acts as a
centralized service provider for Member compliance with position
reporting requirements by collecting data from each Member,
consolidating the information, and ultimately providing detailed
listings of each Member's report to the Exchange, as well as
Financial Industry Regulatory Authority, Inc. (``FINRA''), acting as
its agent pursuant to a regulatory services agreement (``RSA'').
\26\ See Exchange Rule 310.
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The Exchange believes that the existing surveillance procedures and
reporting requirements at the Exchange and other SROs are capable of
properly identifying disruptive and/or manipulative trading activity.
The Exchange also represents that it has adequate surveillances in
place to detect potential manipulation, as well as reviews in place to
identify potential changes in composition of the Underlying ETFs and
continued compliance with the Exchange's listing standards. These
procedures utilize daily monitoring of market activity via automated
surveillance techniques to identify unusual activity in both options
and the underlyings, as applicable.\27\ The Exchange also notes that
large stock holdings must be disclosed to the Commission by way of
Schedules 13D or 13G,\28\ which are used to report ownership of stock
which exceeds 5% of a company's total stock issue and may assist in
providing information in monitoring for any potential manipulative
schemes.
---------------------------------------------------------------------------
\27\ The Exchange believes these procedures have been effective
for the surveillance of trading the options subject to this
proposal, and will continue to employ them.
\28\ 17 CFR 240.13d-1.
---------------------------------------------------------------------------
The Exchange believes that the current financial requirements
imposed by the Exchange and by the Commission adequately address
concerns regarding potentially large, unhedged positions in the options
on the Underlying ETFs. Current margin and risk-based haircut
methodologies serve to limit the size of positions maintained by any
one account by increasing the margin and/or capital that a Member must
maintain for a large position held by itself or by its customer.\29\ In
addition, Rule 15c3-1 \30\ imposes a capital charge on Members to the
extent of any margin deficiency resulting from the higher margin
requirement.
---------------------------------------------------------------------------
\29\ See Exchange Rule 1502 for a description of margin
requirements.
\30\ 17 CFR 240.15c3-1.
---------------------------------------------------------------------------
Additionally, the Exchange proposes to make minor non-substantive
technical changes to the charts in Interpretations and Policies .01 of
both Exchange Rules 307 and 309 to reflect the current names of the
underlying securities listed therein. Specifically, the Exchange
proposes to update the names of the following ETFs to reflect the
current names in the prospectus for each: Powershares QQQ Trust;
iShares China Large-Cap ETF; iShares MSCI EAFE ETF; iShares MSCI Brazil
Capped ETF; iShares 20+ Year Treasury Bond Fund ETF; and the iShares
MSCI Japan ETF.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\31\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \32\ requirements that the rules
of an exchange be designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \33\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78f(b).
\32\ 15 U.S.C. 78f(b)(5).
\33\ Id.
---------------------------------------------------------------------------
The Exchange believes that the proposed increase in position limits
for options on the Underlying ETFs will remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, protect investors and the public
[[Page 31244]]
interest, because it will provide market participants with the ability
to more effectively execute their trading and hedging activities. The
proposed increases will allow market participants to more fully
implement hedging strategies in related derivative products and to
further use options to achieve investment strategies (e.g., there are
Exchange-Traded Products (``ETPs'') that use options on the Underlying
ETFs as part of their investment strategy, and the applicable position
limits (and corresponding exercise limits) as they stand today may
inhibit these ETPs in achieving their investment objectives, to the
detriment of investors). Also, increasing the applicable position
limits may allow Market Makers to provide the markets for these options
with more liquidity in amounts commensurate with increased consumer
demand in such markets. The proposed position limit increases may also
encourage other liquidity providers to shift liquidity, as well as
encourage consumers to shift demand, from OTC markets onto the
Exchange, which will enhance the process of price discovery conducted
on the Exchange through increased order flow.
In addition, the Exchange believes that the structure of the
Underlying ETFs, the considerable market capitalization of the funds,
underlying component securities, and the liquidity of the markets for
the applicable options and underlying component securities will
mitigate concerns regarding potential manipulation of the products and/
or disruption of the underlying markets upon increasing the relevant
position limits. As a general principle, increases in market
capitalizations, active trading volume, and deep liquidity of
securities do not lead to manipulation and/or disruption. This general
principle applies to the recently observed increased levels of market
capitalization, trading volume, and liquidity in shares of the
Underlying ETFs, and the components of the Underlying ETFs (as
described above), the Exchange does not believe that the options
markets or underlying markets would become susceptible to manipulation
and/or disruption as a result of the proposed position limit increases.
Indeed, the Commission has previously expressed the belief that
removing position and exercise limits may bring additional depth and
liquidity to the options markets without increasing concerns regarding
intermarket manipulation or disruption of the options or the underlying
securities.\34\
---------------------------------------------------------------------------
\34\ See Securities Exchange Act Release No. 62147 (October 28,
2005) (SR-CBOE-2005-41), at 62149.
---------------------------------------------------------------------------
Further, the Exchange notes that the proposed rule change to
increase position limits for select actively traded options, is not
novel and has been previously approved by the Commission. The proposed
increase to the position and exercise limits on the Underlying ETFs has
recently been approved by the Commission.\35\ The Commission has also
previously approved, on a pilot basis, eliminating position limits for
options on SPY.\36\ Additionally, the Commission has approved similar
proposed rule changes by the Exchange to increase position limits for
options on highly liquid, actively traded ETFs.\37\ In approving the
permanent elimination of position (and exercise limits) for such
options, the Commission relied heavily upon the exchange's surveillance
capabilities, expressing trust in the enhanced surveillances and
reporting safeguards that the exchange took in order to detect and
deter possible manipulative behavior which might arise from eliminating
position and exercise limits.
---------------------------------------------------------------------------
\35\ See supra note 3.
\36\ See supra notes 7 and 8.
\37\ See supra note 18.
---------------------------------------------------------------------------
Furthermore, the Exchange again notes that that the proposed
position limits for options on EFA and FXI are consistent with existing
position limits for options on IWM and EEM, and the proposed limits for
options on XLF and HYG are consistent with current position limits for
options on EWZ, TLT, and EWJ.
The Exchange's surveillance and reporting safeguards continue to be
designed to deter and detect possible manipulative behavior that might
arise from increasing or eliminating position and exercise limits in
certain classes. The Exchange believes that the current financial
requirements imposed by the Exchange and by the Commission adequately
address concerns regarding potentially large, unhedged position in the
options on the Underlying ETFs, further promoting just and equitable
principles of trading, the maintenance of a fair and orderly market,
and the protection of investors.
Finally, the Exchange believes the proposed technical changes to
the names and symbols of certain ETFs in both tables in Interpretations
and Policies .01 to Exchange Rules 307 and 309 promotes just and
equitable principles of trade and remove impediments to and perfect the
mechanism of a free and open market and a national market system
because the proposed changes make clarifying edits to the names and
symbols for certain ETFs to provide uniformity throughout the
Exchange's rules. The Exchange believes that these proposed changes
will provide greater clarity to Members and the public regarding the
Exchange's rules and that it is in the public interest for rules to be
accurate and concise so as to eliminate the potential for confusion.
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. The Exchange does not
believe the proposed rule change will impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act because the increased position limits (and exercise
limits) will be available to all market participants and apply to each
in the same manner. The Exchange believes that the proposed rule change
will provide additional opportunities for market participants to more
efficiently achieve their investment and trading objectives of market
participants.
The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the Act. On the contrary, the Exchange
believes the proposal promotes competition because it may attract
additional order flow from the OTC market to exchanges, which would in
turn compete amongst each other for those orders.\38\ The Exchange
believes market participants would benefit from being able to trade
options with increased position limits in an exchange environment in
several ways, including but not limited to the following: (1) Enhanced
efficiency in initiating and closing out position; (2) increased market
transparency; and (3) heightened contra-party creditworthiness due to
the role of OCC as issuer and guarantor. The Exchange understands that
other options exchanges intend to file similar proposed rule changes
with the Commission to increase position limits on options on the
Underlying ETFs.
[[Page 31245]]
This may further contribute to fair competition among exchanges for
multiply listed options.
---------------------------------------------------------------------------
\38\ Additionally, several other options exchange have the same
position limits as the Exchange, as they incorporate by reference to
the Exchange's position limits, and as a result the position limits
for options on the Underlying ETFs will increase at those exchanges.
For example, Nasdaq Options position limits are determined by the
position limits established by the Exchange. See Nasdaq Stock Market
LLC Rules, Options 9, Sec. 13 (Position Limits).
---------------------------------------------------------------------------
The proposed changes to the names and symbols of certain ETFs will
have no impact on competition as they are not designed to address any
competitive issues but rather are designed to remedy minor non-
substantive issues and provide added clarity to the rule text of
Exchange Rules 307 and 309. In addition, the Exchange does not believe
the proposal will impose any burden on inter-market competition as the
proposal does not address any competitive issues and is intended to
protect investors by providing further clarity regarding the Exchange's
rules.
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 foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days 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 \39\ and Rule 19b-
4(f)(6) thereunder.\40\
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\39\ 15 U.S.C. 78s(b)(3)(A).
\40\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-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 \41\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \42\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay so that
the proposed rule change may become operative upon filing. The Exchange
states that waiver of the operative delay would be consistent with the
protection of investors and the public interest because it would allow
the Exchange to immediately increase its position and exercise limits
for the products subject to this proposal to those of Cboe, which the
Exchange believes will ensure fair competition among exchanges and
provide consistency and uniformity among members of both Cboe and MIAX
by subjecting members of both exchanges to the same position and
exercise limits for these multiply-listed options classes. For this
reason, the Commission believes that waiver of the 30-day operative
delay is consistent with the protection of investors and the public
interest. Therefore, the Commission hereby waives the operative delay
and designates the proposal as operative upon filing.\43\
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\41\ 17 CFR 240.19b-4(f)(6).
\42\ 17 CFR 240.19b-4(f)(6)(iii).
\43\ 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-2020-10 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-2020-10. 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 such 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-2020-10, and should be submitted on
or before June 12, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\44\
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\44\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11040 Filed 5-21-20; 8:45 am]
BILLING CODE 8011-01-P
