Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 510, Minimum Price Variations and Minimum Trading Increments, To Conform the Rule to Section 3.1 of the Plan for the Purpose of Developing and Implementing Procedures Designed To Facilitate the Listing and Trading of Standardized Options, 34785-34788 [2020-12276]
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Federal Register / Vol. 85, No. 110 / Monday, June 8, 2020 / Notices
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to 19(b)(3)(A)
of the Act 14 and Rule 19b–4(f)(6) 15
thereunder.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
PEARL–2020–06 on the subject line.
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Paper Comments
• Send paper comments in triplicate
to Vanessa Countryman, Secretary,
Securities and Exchange Commission,
100 F Street NE, Washington, DC
20549–1090.
All submissions should refer to File
Number SR–PEARL–2020–06. This file
14 15
U.S.C. 78s(b)(3)(A).
15 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
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17:09 Jun 05, 2020
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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. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–PEARL–2020–06 and
should be submitted on or before June
29, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–12275 Filed 6–5–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88993; File No. SR–
EMERALD–2020–05]
Self-Regulatory Organizations; MIAX
Emerald, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Exchange
Rule 510, Minimum Price Variations
and Minimum Trading Increments, To
Conform the Rule to Section 3.1 of the
Plan for the Purpose of Developing
and Implementing Procedures
Designed To Facilitate the Listing and
Trading of Standardized Options
June 2, 2020.
Pursuant to the provisions of Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
PO 00000
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
thereunder,2 notice is hereby given that
on May 29, 2020, MIAX Emerald, LLC
(‘‘MIAX Emerald’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
certain of the Exchange’s rules to
conform to Section 3.1 of the Plan for
the Purpose of Developing and
Implementing Procedures Designed to
Facilitate the Listing and Trading of
Standardized Options (the ‘‘OLPP’’) and
add new subparagraphs (a)(3)(i)–(iii)
and (b) to Exchange Rule 510.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/emerald at MIAX Emerald’s
principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of this rule change is to
amend Exchange Rule 510, Minimum
Price Variations and Minimum Trading
Increments, to align the Exchange’s
rules with the recently approved
amendment to the OLPP.
Background
On January 23, 2007, the Commission
approved on a limited basis a Penny
Pilot in option classes in certain issues
(‘‘Penny Pilot’’). The Penny Pilot was
designed to determine whether
16 17
1 15
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investors would benefit from options
being quoted in penny increments, and
in which classes the benefits were most
significant. The Penny Pilot was
initiated at the then existing option
exchanges in January 2007 3 and
expanded and extended numerous times
over the last 13 years.4 In each instance,
these approvals relied upon the
consideration of data periodically
provided by the Exchanges that
analyzed how quoting options in penny
increments affects spreads, liquidity,
quote traffic, and volume. Today, the
Penny Pilot includes 363 option classes,
which are among the most actively
traded, multiply listed option classes.
The Penny Pilot is scheduled to expire
by its own terms on June 30, 2020.5
In light of the imminent expiration of
the Penny Pilot, on June 30, 2020, the
Exchange, together with other
participating exchanges, filed on July
18, 2019, a proposal to amend the
OLPP.6 On April 1, 2020, the U.S.
Securities and Exchange Commission
(‘‘Commission’’) approved the
amendment to the OLPP to make
permanent the Pilot Program (the
‘‘OLPP Program’’).7
The OLPP Program replaces the
Penny Pilot by instituting a permanent
program that would permit quoting in
penny increments for certain option
classes. Under the terms of the OLPP
Program, designated option classes
would continue to be quoted in $0.01
and $0.05 increments according to the
same parameters for the Penny Pilot. In
addition, the OLPP Program would: (i)
Establish an annual review process to
add option classes to, or to remove
option classes from, the OLPP Program;
(ii) allow an option class to be added to
the OLPP Program if it is a newly listed
option class and it meets certain criteria;
(iii) allow an option class to be added
3 See Securities Exchange Act Release Nos. 55154
(January 23, 2007), 72 FR 4743 (February 1, 2007)
(SR–CBOE–2006–92); 55161 (January 24, 2007), 72
FR 4754 (February 1, 2007) (SR–ISE–2006–62);
54886 (December 6, 2006), 71 FR 74979 (December
13, 2006) (SR–Phlx–2006–74); 54590 (October 12,
2006), 71 FR 61525 (October 18, 2006) (SR–
NYSEArca–2006–73); and 54741 (November 9,
2006), 71 FR 67176 (November 20, 2006) (SR–
Amex–2006–106).
4 See Securities Exchange Act Release Nos. 85225
(March 1, 2019), 84 FR 8353 (March 7, 2019) (SR–
EMERALD–2019–06); 86048 (June 6, 2019), 84 FR
27382 (June 12, 2019) (SR–EMERALD–2019–23);
87608 (November 25, 2019), 84 FR 66046
(December 2, 2019) (SR–EMERALD–2019–36).
5 See Securities Exchange Act Release No. 87608
(November 25, 2019), 84 FR 66046 (December 2,
2019) (SR–EMERALD–2019–36).
6 See Securities Exchange Act Release No. 87681
(December 9, 2019), 84 FR 68960 (December 17,
2019) (‘‘Notice’’).
7 See Securities Exchange Act Release No. 88532
(April 1, 2020), 85 FR 19545 (April 7, 2020) (File
No. 4–443) (‘‘Approval Order’’).
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to the OLPP Program if it is an option
class that has seen significant growth in
activity; (iv) provide that if a corporate
action involves one or more option
classes in the OLPP Program, all
adjusted and unadjusted series and
classes emerging as a result of the
corporate action will be included in the
OLPP Program; and (v) provide that any
series in an option class participating in
the OLPP Program that have been
delisted, or are identified by OCC as
ineligible for opening Customer
transactions, will continue to trade
pursuant to the OLPP Program until
they expire.
To conform its rules with the OLPP
Program, the Exchange proposes to
delete Interpretation and Policy .01 to
Exchange Rule 510 (the ‘‘Penny Pilot
Rule’’), which will be ‘‘Reserved,’’ and
replace it with new Exchange Rule
510(b) (Requirements for Penny Interval
Program), which is described below.
The Exchange also proposes to amend
Exchange Rule 510, Minimum Price
Variations and Minimum Trading
Increments, to amend the hierarchical
heading scheme. Currently, Exchange
Rule 510 only has subparagraphs (1) and
(2). The Exchange now proposes that the
first unnumbered paragraph of
Exchange Rule 510 will be renumbered
subparagraph (a), and subparagraphs (1)
and (2) will be renumbered as
subparagraphs (a)(1) and (a)(2). The
purpose of this change is for uniformity
and clarity throughout the Exchange’s
rulebook.
The Exchange also proposes to adopt
subparagraphs (a)(3)(i)–(iii) to conform
the Exchange’s rules regarding
minimum price variations for options in
the proposed Penny Interval Program
with similar rules of other option
exchanges.8 In particular, the Exchange
proposes to adopt subparagraphs
(a)(3)(i)–(iii), which will describe that
for options contracts traded pursuant to
the proposed Penny Interval Program
(which the Exchange has proposed as
new Exchange Rule 510(b)): (i) All
option contracts in QQQ, SPY and IWM
will quote in a minimum of one cent
($0.01) price variations; (ii) for all other
option contracts included in the Penny
Interval Program that are trading at less
than $3, those option contracts will
quote in a minimum of one cent ($0.01)
price variations; and (iii) for all other
option contracts included in the Penny
Interval Program that are trading at or
above $3, those option contracts will
quote in a minimum of five cents ($0.05)
price variations. The Exchange notes
8 See NYSE Arca Rule 6.72–O (Trading
Differentials); see also Nasdaq Stock Market,
Options 3, Section 3, Supplementary Material .01.
PO 00000
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that the Commission previously
approved minimum quoting increments
of one cent ($0.01) for all option
contracts in QQQ, IWM and SPY,
regardless of price, over the course of
the expansion of the Penny Pilot rules.9
Accordingly, the Exchange proposes to
align its rules regarding minimum price
variations for option contracts in the
Penny Interval Program with other
option exchanges.
Penny Interval Program
The Exchange proposes to codify the
OLPP Program in new Exchange Rule
510(b) (Requirements for Penny Interval
Program) (the ‘‘Penny Program’’), which
will replace the Penny Pilot Rule and
permanently permit the Exchange to
quote certain option classes in
minimum increments of one cent
($0.01) and five cents ($0.05) (‘‘penny
increments’’). The penny increments
that currently apply under the Penny
Pilot will continue to apply for option
classes included in the Penny Program.
Specifically, (i) the minimum quoting
increment for all series in the QQQ,
SPY, and IWM would continue to be
$0.01, regardless of price (which the
Exchange proposes to codify in
proposed Exchange Rule 510(a)(3)(i)–
(iii)); (ii) all series of an option class
included in the Penny Program with a
price of less than $3.00 would be quoted
in $0.01 increments; and (iii) all series
of an option class included in the Penny
Program with a price of $3.00 or higher
would be quoted in $0.05 increments.10
The Penny Program would initially
apply to the 363 most actively traded
multiply listed option classes, based on
National Cleared Volume at The
Options Clearing Corporation (‘‘OCC’’)
in the six full calendar months ending
in the month of approval (i.e.,
November 2019–April 2020) that
currently quote in penny increments, or
overlie securities priced below $200, or
any index at an index level below $200.
Eligibility for inclusion in the Penny
Program will be determined at the close
of trading on the monthly Expiration
Friday of the second full month
following April 1, 2020 (i.e., June 19,
2020).
Once in the Penny Program, an option
class will remain included until it is no
longer among the 425 most actively
9 See Securities Exchange Act Release Nos. 55156
(January 23, 2007), 72 FR 4759 (February 1, 2007)
(SR–NYSEArca–2006–73) (Order Granting Approval
to Proposed rule Change as Modified by
Amendment No. 1 Thereto, To Create an Options
Penny Pilot Program); 61061 (November 24, 2009),
74 FR 62857 (December 1, 2009) (SR–NYSEArca–
2009–44) (Order Granting Partial Approval of a
Proposed Rule Change, as Modified by Amendment
No. 4 Thereto, Expanding the Penny Pilot Program).
10 See proposed Exchange Rule 510(a)(3)(i)–(iii).
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Federal Register / Vol. 85, No. 110 / Monday, June 8, 2020 / Notices
traded option classes at the time the
annual review is conducted (described
below), at which point it will be
removed from the Penny Program. As
described in more detail below, the
removed class will be replaced by the
next most actively traded multiply
listed option class overlying securities
priced below $200 per share, or any
index at an index level below $200, and
not yet in the Penny Program. Advanced
notice regarding the option classes
included, added, or removed from the
Penny Program will be provided to the
Exchange’s Members via Regulatory
Circular and published by the Exchange
on its website.
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Annual Review
The Penny Program would include an
annual review process that applies
objective criteria to determine option
classes to be added to, or removed from,
the Penny Program. Specifically, on an
annual basis beginning in December
2020 and occurring every December
thereafter, the Exchange will review and
rank all multiply listed option classes
based on National Cleared Volume at
OCC for the six full calendar months
from June 1st through November 30th
for determination of the most actively
traded option classes. Any option
classes not yet in the Penny Program
may be added to the Penny Program if
the class is among the 300 most actively
traded multiply listed option classes
and priced below $200 per share, or any
index at an index level below $200.
Following the annual review, option
classes to be added to the Penny
Program would begin quoting in penny
increments (i.e., $0.01 if trading at less
than $3.00; and $0.05 if trading at $3.00
and above) on the first trading day of
January. In addition, following the
annual review, any option class in the
Penny Program that falls outside of the
425 most actively traded option classes
would be removed from the Penny
Program. After the annual review,
option classes that are removed from the
Penny Program will be subject to the
minimum trading increments set forth
in Exchange Rule 510, effective on the
first trading day of April.
Changes to the Composition of the
Penny Program Outside of the Annual
Review Newly Listed Option Classes
and Option Classes With Significant
Growth in Activity
The Penny Program would specify a
process and parameters for including
option classes in the Penny Program
outside the annual review process in
two circumstances. These provisions are
designed to provide objective criteria to
add to the Penny Program new option
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classes in issues with the most
demonstrated trading interest from
market participants and investors on an
expedited basis prior to the annual
review, with the benefit that market
participants and investors will then be
able to trade these new option classes
based upon quotes expressed in finer
trading increments.
First, the Penny Program provides for
certain newly listed option classes to be
added to the Penny Program outside of
the annual review process, provided
that (i) the class is among the 300 most
actively traded, multiply listed option
classes, as ranked by National Cleared
Volume at OCC, in its first full calendar
month of trading and (ii) the underlying
security is priced below $200 or the
underlying index is at an index level
below $200. Such newly listed option
classes added to the Penny Program
pursuant to this process would remain
in the Penny Program for one full
calendar year and then would be subject
to the annual review process.
Second, the Penny Program would
allow an option class to be added to the
Penny Program outside of the annual
review process if it is an option class
that meets certain specific criteria.
Specifically, new option classes may be
added to the Penny Program if: (i) The
option class is among the 75 most
actively traded multiply listed option
classes, as ranked by National Cleared
Volume at OCC, in the prior six full
calendar months of trading and (ii) the
underlying security is priced below
$200 or the underlying index is at an
index level below $200. Any option
class added under this provision will be
added on the first trading day of the
second full month after it qualifies and
will remain in the Penny Program for
the rest of the calendar year, after which
it will be subject to the annual review
process.
Corporate Actions
The Penny Program would also
specify a process to address option
classes in the Penny Program that
undergo a corporate action and is
designed to ensure continuous liquidity
in the affected option classes.
Specifically, if a corporate action
involves one or more option classes in
the Penny Program, all adjusted and
unadjusted series of an option class
would continue to be included in the
Penny Program.11 Furthermore, neither
11 For example, if Company A acquires Company
B and Company A is not in the Penny Program but
Company B is in the Penny Program, once the
merger is consummated and an options contract
adjustment is effective, then Company A would be
added to the Penny Program and remain in the
Penny Program for one calendar year.
PO 00000
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Fmt 4703
Sfmt 4703
34787
the trading volume threshold, nor the
initial price test would apply to option
classes added to the Penny Program as
a result of the corporate action. Finally,
the newly added adjusted and
unadjusted series of the option class
would remain in the Penny Program for
one full calendar year and then would
become subject to the annual review
process.
Delisted or Ineligible Option Classes
Finally, the Penny Program would
provide a mechanism to address option
classes that have been delisted or those
that are no longer eligible for listing.
Specifically, any series in an option
class participating in the Penny Program
in which the underlying has been
delisted, or is identified by OCC as
ineligible for opening customer
transactions, would continue to quote
pursuant to the terms of the Penny
Program until all options series have
expired.
Implementation
This proposed rule change will
become operative on July 1, 2020, upon
expiration of the current Penny Pilot on
June 30, 2020. The Exchange proposes
to implement the Penny Program on
July 1, 2020, which is the first trading
day of the third month following the
Approval Order issued on April 1,
2020—i.e., July 1, 2020.
2. Statutory Basis
The Exchange believes that its
proposed rule change is consistent with
Section 6(b) of the Act 12 in general, and
furthers the objectives of Section 6(b)(5)
of the Act 13 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanisms of a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
In particular, the proposed rule
change, which conforms the Exchange
rules to the recently adopted OLPP
Program, allows the Exchange to
provide market participants with a
permanent Penny Program for quoting
options in penny increments, which
maximizes the benefit of quoting in a
finer quoting increment to investors
while minimizing the burden that a
finer quoting increment places on quote
traffic.
12 15
13 15
E:\FR\FM\08JNN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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Accordingly, the Exchange believes
that the proposal is consistent with the
Act because, in conforming the
Exchange rules to the OLPP Program,
the Penny Program would employ
processes, based upon objective criteria,
that would rebalance the composition of
the Penny Program, thereby helping to
ensure that the most actively traded
option classes are included in the Penny
Program, which helps facilitate the
maintenance of a fair and orderly
market.
The Exchange believes the proposed
changes to the hierarchical heading
scheme in Exchange Rule 510 promote
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 rule changes
provide uniformity in the Exchange’s
rulebook and do not alter the
application of the rule. As such, the
proposed changes would foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities and would
remove impediments to and perfect the
mechanism of a free and open market
and a national exchange system by
providing greater clarity to Members
and the public regarding the Exchange’s
Rules. 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
proposed Penny Program, which
modifies the Exchange’s rules to align
them with the Commission approved
OLPP Program, is not designed to be a
competitive filing nor does it impose an
undue burden on intermarket
competition as the Exchange anticipates
that the options exchanges will adopt
substantially identical rules. Moreover,
the Exchange believes that by
conforming Exchange rules to the OLPP
Program, the Exchange would promote
regulatory clarity and consistency,
thereby reducing burdens on the
marketplace and facilitating investor
protection. To the extent that there is a
competitive burden on those option
classes that do not qualify for the Penny
Program, the Exchange believes that it is
appropriate because the proposal should
benefit all market participants and
investors by maximizing the benefit of
a finer quoting increment in those
option classes with the most trading
interest while minimizing the burden of
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greater quote traffic in option classes
with less trading interest. The Exchange
believes that adopting rules, which it
anticipates will likewise be adopted by
all option exchanges that are
participants in the OLPP, would allow
for continued competition between
Exchange market participants trading
similar products as their counterparts
on other exchanges, while at the same
time allowing the Exchange to continue
to compete for order flow with other
exchanges.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited 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 after the date of
the filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to 19(b)(3)(A)
of the Act 14 and Rule 19b–4(f)(6) 15
thereunder.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
14 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
15 17
PO 00000
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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–
EMERALD–2020–05 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Vanessa Countryman, Secretary,
Securities and Exchange Commission,
100 F Street NE, Washington, DC
20549–1090.
All submissions should refer to File
Number SR–EMERALD–2020–05. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml).
Copies of the submission, all
subsequent amendments, all written
statements with respect to the proposed
rule change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–EMERALD–2020–05 and
should be submitted on or before June
29, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–12276 Filed 6–5–20; 8:45 am]
BILLING CODE 8011–01–P
16 17
E:\FR\FM\08JNN1.SGM
CFR 200.30–3(a)(12).
08JNN1
]]>Agencies
[Federal Register Volume 85, Number 110 (Monday, June 8, 2020)]
[Notices]
[Pages 34785-34788]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12276]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88993; File No. SR-EMERALD-2020-05]
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Exchange Rule 510, Minimum Price Variations and Minimum Trading
Increments, To Conform the Rule to Section 3.1 of the Plan for the
Purpose of Developing and Implementing Procedures Designed To
Facilitate the Listing and Trading of Standardized Options
June 2, 2020.
Pursuant to the provisions of Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on May 29, 2020, MIAX Emerald, LLC (``MIAX
Emerald'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') a proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend certain of the Exchange's rules to
conform to Section 3.1 of the Plan for the Purpose of Developing and
Implementing Procedures Designed to Facilitate the Listing and Trading
of Standardized Options (the ``OLPP'') and add new subparagraphs
(a)(3)(i)-(iii) and (b) to Exchange Rule 510.
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxoptions.com/rule-filings/emerald at MIAX
Emerald's principal office, and at the Commission's Public Reference
Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this rule change is to amend Exchange Rule 510,
Minimum Price Variations and Minimum Trading Increments, to align the
Exchange's rules with the recently approved amendment to the OLPP.
Background
On January 23, 2007, the Commission approved on a limited basis a
Penny Pilot in option classes in certain issues (``Penny Pilot''). The
Penny Pilot was designed to determine whether
[[Page 34786]]
investors would benefit from options being quoted in penny increments,
and in which classes the benefits were most significant. The Penny
Pilot was initiated at the then existing option exchanges in January
2007 \3\ and expanded and extended numerous times over the last 13
years.\4\ In each instance, these approvals relied upon the
consideration of data periodically provided by the Exchanges that
analyzed how quoting options in penny increments affects spreads,
liquidity, quote traffic, and volume. Today, the Penny Pilot includes
363 option classes, which are among the most actively traded, multiply
listed option classes. The Penny Pilot is scheduled to expire by its
own terms on June 30, 2020.\5\
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\3\ See Securities Exchange Act Release Nos. 55154 (January 23,
2007), 72 FR 4743 (February 1, 2007) (SR-CBOE-2006-92); 55161
(January 24, 2007), 72 FR 4754 (February 1, 2007) (SR-ISE-2006-62);
54886 (December 6, 2006), 71 FR 74979 (December 13, 2006) (SR-Phlx-
2006-74); 54590 (October 12, 2006), 71 FR 61525 (October 18, 2006)
(SR-NYSEArca-2006-73); and 54741 (November 9, 2006), 71 FR 67176
(November 20, 2006) (SR-Amex-2006-106).
\4\ See Securities Exchange Act Release Nos. 85225 (March 1,
2019), 84 FR 8353 (March 7, 2019) (SR-EMERALD-2019-06); 86048 (June
6, 2019), 84 FR 27382 (June 12, 2019) (SR-EMERALD-2019-23); 87608
(November 25, 2019), 84 FR 66046 (December 2, 2019) (SR-EMERALD-
2019-36).
\5\ See Securities Exchange Act Release No. 87608 (November 25,
2019), 84 FR 66046 (December 2, 2019) (SR-EMERALD-2019-36).
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In light of the imminent expiration of the Penny Pilot, on June 30,
2020, the Exchange, together with other participating exchanges, filed
on July 18, 2019, a proposal to amend the OLPP.\6\ On April 1, 2020,
the U.S. Securities and Exchange Commission (``Commission'') approved
the amendment to the OLPP to make permanent the Pilot Program (the
``OLPP Program'').\7\
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\6\ See Securities Exchange Act Release No. 87681 (December 9,
2019), 84 FR 68960 (December 17, 2019) (``Notice'').
\7\ See Securities Exchange Act Release No. 88532 (April 1,
2020), 85 FR 19545 (April 7, 2020) (File No. 4-443) (``Approval
Order'').
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The OLPP Program replaces the Penny Pilot by instituting a
permanent program that would permit quoting in penny increments for
certain option classes. Under the terms of the OLPP Program, designated
option classes would continue to be quoted in $0.01 and $0.05
increments according to the same parameters for the Penny Pilot. In
addition, the OLPP Program would: (i) Establish an annual review
process to add option classes to, or to remove option classes from, the
OLPP Program; (ii) allow an option class to be added to the OLPP
Program if it is a newly listed option class and it meets certain
criteria; (iii) allow an option class to be added to the OLPP Program
if it is an option class that has seen significant growth in activity;
(iv) provide that if a corporate action involves one or more option
classes in the OLPP Program, all adjusted and unadjusted series and
classes emerging as a result of the corporate action will be included
in the OLPP Program; and (v) provide that any series in an option class
participating in the OLPP Program that have been delisted, or are
identified by OCC as ineligible for opening Customer transactions, will
continue to trade pursuant to the OLPP Program until they expire.
To conform its rules with the OLPP Program, the Exchange proposes
to delete Interpretation and Policy .01 to Exchange Rule 510 (the
``Penny Pilot Rule''), which will be ``Reserved,'' and replace it with
new Exchange Rule 510(b) (Requirements for Penny Interval Program),
which is described below.
The Exchange also proposes to amend Exchange Rule 510, Minimum
Price Variations and Minimum Trading Increments, to amend the
hierarchical heading scheme. Currently, Exchange Rule 510 only has
subparagraphs (1) and (2). The Exchange now proposes that the first
unnumbered paragraph of Exchange Rule 510 will be renumbered
subparagraph (a), and subparagraphs (1) and (2) will be renumbered as
subparagraphs (a)(1) and (a)(2). The purpose of this change is for
uniformity and clarity throughout the Exchange's rulebook.
The Exchange also proposes to adopt subparagraphs (a)(3)(i)-(iii)
to conform the Exchange's rules regarding minimum price variations for
options in the proposed Penny Interval Program with similar rules of
other option exchanges.\8\ In particular, the Exchange proposes to
adopt subparagraphs (a)(3)(i)-(iii), which will describe that for
options contracts traded pursuant to the proposed Penny Interval
Program (which the Exchange has proposed as new Exchange Rule 510(b)):
(i) All option contracts in QQQ, SPY and IWM will quote in a minimum of
one cent ($0.01) price variations; (ii) for all other option contracts
included in the Penny Interval Program that are trading at less than
$3, those option contracts will quote in a minimum of one cent ($0.01)
price variations; and (iii) for all other option contracts included in
the Penny Interval Program that are trading at or above $3, those
option contracts will quote in a minimum of five cents ($0.05) price
variations. The Exchange notes that the Commission previously approved
minimum quoting increments of one cent ($0.01) for all option contracts
in QQQ, IWM and SPY, regardless of price, over the course of the
expansion of the Penny Pilot rules.\9\ Accordingly, the Exchange
proposes to align its rules regarding minimum price variations for
option contracts in the Penny Interval Program with other option
exchanges.
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\8\ See NYSE Arca Rule 6.72-O (Trading Differentials); see also
Nasdaq Stock Market, Options 3, Section 3, Supplementary Material
.01.
\9\ See Securities Exchange Act Release Nos. 55156 (January 23,
2007), 72 FR 4759 (February 1, 2007) (SR-NYSEArca-2006-73) (Order
Granting Approval to Proposed rule Change as Modified by Amendment
No. 1 Thereto, To Create an Options Penny Pilot Program); 61061
(November 24, 2009), 74 FR 62857 (December 1, 2009) (SR-NYSEArca-
2009-44) (Order Granting Partial Approval of a Proposed Rule Change,
as Modified by Amendment No. 4 Thereto, Expanding the Penny Pilot
Program).
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Penny Interval Program
The Exchange proposes to codify the OLPP Program in new Exchange
Rule 510(b) (Requirements for Penny Interval Program) (the ``Penny
Program''), which will replace the Penny Pilot Rule and permanently
permit the Exchange to quote certain option classes in minimum
increments of one cent ($0.01) and five cents ($0.05) (``penny
increments''). The penny increments that currently apply under the
Penny Pilot will continue to apply for option classes included in the
Penny Program. Specifically, (i) the minimum quoting increment for all
series in the QQQ, SPY, and IWM would continue to be $0.01, regardless
of price (which the Exchange proposes to codify in proposed Exchange
Rule 510(a)(3)(i)-(iii)); (ii) all series of an option class included
in the Penny Program with a price of less than $3.00 would be quoted in
$0.01 increments; and (iii) all series of an option class included in
the Penny Program with a price of $3.00 or higher would be quoted in
$0.05 increments.\10\
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\10\ See proposed Exchange Rule 510(a)(3)(i)-(iii).
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The Penny Program would initially apply to the 363 most actively
traded multiply listed option classes, based on National Cleared Volume
at The Options Clearing Corporation (``OCC'') in the six full calendar
months ending in the month of approval (i.e., November 2019-April 2020)
that currently quote in penny increments, or overlie securities priced
below $200, or any index at an index level below $200. Eligibility for
inclusion in the Penny Program will be determined at the close of
trading on the monthly Expiration Friday of the second full month
following April 1, 2020 (i.e., June 19, 2020).
Once in the Penny Program, an option class will remain included
until it is no longer among the 425 most actively
[[Page 34787]]
traded option classes at the time the annual review is conducted
(described below), at which point it will be removed from the Penny
Program. As described in more detail below, the removed class will be
replaced by the next most actively traded multiply listed option class
overlying securities priced below $200 per share, or any index at an
index level below $200, and not yet in the Penny Program. Advanced
notice regarding the option classes included, added, or removed from
the Penny Program will be provided to the Exchange's Members via
Regulatory Circular and published by the Exchange on its website.
Annual Review
The Penny Program would include an annual review process that
applies objective criteria to determine option classes to be added to,
or removed from, the Penny Program. Specifically, on an annual basis
beginning in December 2020 and occurring every December thereafter, the
Exchange will review and rank all multiply listed option classes based
on National Cleared Volume at OCC for the six full calendar months from
June 1st through November 30th for determination of the most actively
traded option classes. Any option classes not yet in the Penny Program
may be added to the Penny Program if the class is among the 300 most
actively traded multiply listed option classes and priced below $200
per share, or any index at an index level below $200.
Following the annual review, option classes to be added to the
Penny Program would begin quoting in penny increments (i.e., $0.01 if
trading at less than $3.00; and $0.05 if trading at $3.00 and above) on
the first trading day of January. In addition, following the annual
review, any option class in the Penny Program that falls outside of the
425 most actively traded option classes would be removed from the Penny
Program. After the annual review, option classes that are removed from
the Penny Program will be subject to the minimum trading increments set
forth in Exchange Rule 510, effective on the first trading day of
April.
Changes to the Composition of the Penny Program Outside of the Annual
Review Newly Listed Option Classes and Option Classes With Significant
Growth in Activity
The Penny Program would specify a process and parameters for
including option classes in the Penny Program outside the annual review
process in two circumstances. These provisions are designed to provide
objective criteria to add to the Penny Program new option classes in
issues with the most demonstrated trading interest from market
participants and investors on an expedited basis prior to the annual
review, with the benefit that market participants and investors will
then be able to trade these new option classes based upon quotes
expressed in finer trading increments.
First, the Penny Program provides for certain newly listed option
classes to be added to the Penny Program outside of the annual review
process, provided that (i) the class is among the 300 most actively
traded, multiply listed option classes, as ranked by National Cleared
Volume at OCC, in its first full calendar month of trading and (ii) the
underlying security is priced below $200 or the underlying index is at
an index level below $200. Such newly listed option classes added to
the Penny Program pursuant to this process would remain in the Penny
Program for one full calendar year and then would be subject to the
annual review process.
Second, the Penny Program would allow an option class to be added
to the Penny Program outside of the annual review process if it is an
option class that meets certain specific criteria. Specifically, new
option classes may be added to the Penny Program if: (i) The option
class is among the 75 most actively traded multiply listed option
classes, as ranked by National Cleared Volume at OCC, in the prior six
full calendar months of trading and (ii) the underlying security is
priced below $200 or the underlying index is at an index level below
$200. Any option class added under this provision will be added on the
first trading day of the second full month after it qualifies and will
remain in the Penny Program for the rest of the calendar year, after
which it will be subject to the annual review process.
Corporate Actions
The Penny Program would also specify a process to address option
classes in the Penny Program that undergo a corporate action and is
designed to ensure continuous liquidity in the affected option classes.
Specifically, if a corporate action involves one or more option classes
in the Penny Program, all adjusted and unadjusted series of an option
class would continue to be included in the Penny Program.\11\
Furthermore, neither the trading volume threshold, nor the initial
price test would apply to option classes added to the Penny Program as
a result of the corporate action. Finally, the newly added adjusted and
unadjusted series of the option class would remain in the Penny Program
for one full calendar year and then would become subject to the annual
review process.
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\11\ For example, if Company A acquires Company B and Company A
is not in the Penny Program but Company B is in the Penny Program,
once the merger is consummated and an options contract adjustment is
effective, then Company A would be added to the Penny Program and
remain in the Penny Program for one calendar year.
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Delisted or Ineligible Option Classes
Finally, the Penny Program would provide a mechanism to address
option classes that have been delisted or those that are no longer
eligible for listing. Specifically, any series in an option class
participating in the Penny Program in which the underlying has been
delisted, or is identified by OCC as ineligible for opening customer
transactions, would continue to quote pursuant to the terms of the
Penny Program until all options series have expired.
Implementation
This proposed rule change will become operative on July 1, 2020,
upon expiration of the current Penny Pilot on June 30, 2020. The
Exchange proposes to implement the Penny Program on July 1, 2020, which
is the first trading day of the third month following the Approval
Order issued on April 1, 2020--i.e., July 1, 2020.
2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with Section 6(b) of the Act \12\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \13\ in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, to remove impediments to and perfect the
mechanisms of a free and open market and a national market system and,
in general, to protect investors and the public interest.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
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In particular, the proposed rule change, which conforms the
Exchange rules to the recently adopted OLPP Program, allows the
Exchange to provide market participants with a permanent Penny Program
for quoting options in penny increments, which maximizes the benefit of
quoting in a finer quoting increment to investors while minimizing the
burden that a finer quoting increment places on quote traffic.
[[Page 34788]]
Accordingly, the Exchange believes that the proposal is consistent
with the Act because, in conforming the Exchange rules to the OLPP
Program, the Penny Program would employ processes, based upon objective
criteria, that would rebalance the composition of the Penny Program,
thereby helping to ensure that the most actively traded option classes
are included in the Penny Program, which helps facilitate the
maintenance of a fair and orderly market.
The Exchange believes the proposed changes to the hierarchical
heading scheme in Exchange Rule 510 promote 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 rule changes provide uniformity in the Exchange's rulebook and
do not alter the application of the rule. As such, the proposed changes
would foster cooperation and coordination with persons engaged in
facilitating transactions in securities and would remove impediments to
and perfect the mechanism of a free and open market and a national
exchange system by providing greater clarity to Members and the public
regarding the Exchange's Rules. 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 proposed Penny Program,
which modifies the Exchange's rules to align them with the Commission
approved OLPP Program, is not designed to be a competitive filing nor
does it impose an undue burden on intermarket competition as the
Exchange anticipates that the options exchanges will adopt
substantially identical rules. Moreover, the Exchange believes that by
conforming Exchange rules to the OLPP Program, the Exchange would
promote regulatory clarity and consistency, thereby reducing burdens on
the marketplace and facilitating investor protection. To the extent
that there is a competitive burden on those option classes that do not
qualify for the Penny Program, the Exchange believes that it is
appropriate because the proposal should benefit all market participants
and investors by maximizing the benefit of a finer quoting increment in
those option classes with the most trading interest while minimizing
the burden of greater quote traffic in option classes with less trading
interest. The Exchange believes that adopting rules, which it
anticipates will likewise be adopted by all option exchanges that are
participants in the OLPP, would allow for continued competition between
Exchange market participants trading similar products as their
counterparts on other exchanges, while at the same time allowing the
Exchange to continue to compete for order flow with other exchanges.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited 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 after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) \15\
thereunder.
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-EMERALD-2020-05 on the subject line.
Paper Comments
Send paper comments in triplicate to Vanessa Countryman,
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-EMERALD-2020-05.
This file number should be included on the subject line if email is
used. To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-EMERALD-2020-05 and should be submitted
on or before June 29, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12276 Filed 6-5-20; 8:45 am]
BILLING CODE 8011-01-P
