Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 404 To Limit Short Term Options Series Intervals Between Strikes, 25906-25911 [2021-09885]
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25906
Federal Register / Vol. 86, No. 89 / Tuesday, May 11, 2021 / Notices
Exchange, discontinuing the use of the
quote mitigation plan set forth in NYSE
American 970.1NY would result in all
Market Maker quotes (including those
currently being suppressed because they
are considered inactive) being displayed
and reflected in the market, benefitting
market participants by providing notice
of such liquidity and removing the
element of potential confusion.16
Further, the Exchange states the
proposed rule change would not change
the amount of capacity needed at OPRA
to accommodate the inclusion of quotes
in dark series because the Exchange
already includes such quotes in the
Exchange’s current capacity planning
requests to OPRA.17 According to the
Exchange, the proposal would not
impact market participants or
downstream users that consume
Exchange or OPRA data because the
quote capacity information OPRA
currently publishes already reflects
quotes in dark series because they are
part of the Exchange’s current capacity
request.18 Thus, according to the
Exchange, market participants
(including data vendors and
subscribers) currently have the
opportunity to prepare for and make
necessary accommodations for
anticipated quote traffic (including
quotes in dark series).19 Further, the
Exchange anticipates that the proposed
increase in quote message traffic due to
the dissemination of quotes in inactive
series is likely to be minimal and
therefore unlikely to impact the flow of
message traffic and/or harm
downstream consumers of OPRA data.20
In support of this assertion, the
Exchange states that on the two trading
days that OPRA processed the most
messages in its history (March 4, 2021
and March 5, 2021), quotes in dark
series from NYSE Arca and NYSE
American combined were only 0.5095%
and 0.2562%, respectively, compared to
OPRA message traffic.21 Finally, the
Exchange states its additional existing
expressed confusion regarding what quotes are
being published and which are being suppressed’’).
16 See Notice, supra note 3, at 8660.
17 See Notice, supra note 3, at 8660. The
Exchange represents that it has always factored the
total quote traffic it receives from Market Makers,
including quotes in dark series, when making its
capacity requests to OPRA. Specifically, the
Exchange ‘‘presumes that all series will be active
and therefore requests capacity to accommodate
sending quotes in all series to OPRA.’’ Id.
18 See Notice, supra note 3, at 8660.
19 See id.
20 See id. at 8661. See also Amendment No.1,
supra note 6.
21 See Amendment No.1, supra note 6.
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quote mitigation strategies are sufficient
to continue to mitigate quote traffic.22
The Commission believes that
eliminating the exclusion of inactive or
dark series from the requirements of
NYSE American Rule 970NY should
increase transparency and may enhance
opportunities for price discovery.
Publishing all quotes (not just those in
active series) in the disseminated quote
feed may benefit market participants
because it will provide notice of
additional liquidity. Further, because
the Exchange currently includes Market
Maker quotes in inactive series in its
capacity planning request to OPRA 23
and because publication of dark quotes
from both the Exchange and NYSE Arca
combined would result in a percentage
increase in OPRA disseminated quotes
that is de minimis according to the
Exchange’s data,24 the Commission
believes that dissemination of these
quotes as part of the Exchange’s quote
feed to OPRA is not likely to negatively
impact systems capacity. In addition,
the Exchange has existing additional
quote mitigation strategies that also
serve to reduce the potential for
excessive quoting.25
Accordingly, for the reasons set forth
above, the Commission finds that the
proposed rule change, as modified by
Amendment No.1, is consistent with
Section 6(b)(5) of the Act 26 and the
rules and regulations thereunder
applicable to a national securities
exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,27 that the
proposed rule change (SR–NYSEAMER–
2021–05), as modified by Amendment
No. 1, hereby is approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–09887 Filed 5–10–21; 8:45 am]
BILLING CODE 8011–01–P
22 See Notice, supra note 3, at 8660 (discussing
three quote mitigation strategies the exchange
currently employs to reduce the potential for
excessive quoting and to reduce quote traffic).
23 See id. at 8660.
24 See Amendment No.1, supra note 6. In
addition, the Exchange states that there is sufficient
capacity at OPRA to accommodate any additional
quote traffic that will result from the elimination of
dark series. See Notice, supra note 3, at 8660. The
Exchange further notes that it does not believe its
proposal will impact any other exchange’s capacity
at OPRA. See id. at 8660 n.8.
25 See Notice, supra note 3, at 8660.
26 15 U.S.C. 78f(b)(5).
27 15 U.S.C. 78s(b)(2).
28 17 CFR 200.30–3(a)(12).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91777; File No. SR–
PEARL–2021–19]
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Exchange
Rule 404 To Limit Short Term Options
Series Intervals Between Strikes
May 5, 2021.
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 April 22, 2021, MIAX PEARL, LLC
(‘‘MIAX Pearl)’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend Exchange Rule 404, Series of
Option Contracts Open for Trading.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/pearl at MIAX Pearl’s principal
office, and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
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
Rule 404, Series of Option Contracts
Open for Trading. Specifically, this
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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proposal seeks to limit the intervals
between strikes for multiply listed
equity options classes within the Short
Term Options Series program that have
an expiration date more than twentyone days from the listing date.
Background
Today, Exchange Rule 404 permits the
Exchange, after a particular class of
options (call option contracts or put
option contracts relating to a specific
underlying stock, Exchange-Traded
Fund Share,3 or ETNs) has been
approved for listing and trading on the
Exchange, to open for trading series of
options therein. The Exchange may list
series of options for trading on a
weekly,4 monthly,5 or quarterly 6 basis.
Exchange Rule 404(d) sets forth the
intervals between strike prices of series
of options on individual stocks.7 In
addition to those intervals, the
Exchange may list series of options
pursuant to the $1 Strike Price Interval
Program,8 the $0.50 Strike Program,9
and the $2.50 Strike Price Program.10
The Exchange’s proposal seeks to
amend the listing of weekly series of
options as proposed within Policy .02(f)
of Exchange Rule 404, by limiting the
intervals between strikes in multiply
listed equity options, excluding
Exchange-Traded Fund Shares and
ETNs, that have an expiration date more
than twenty-one days from the listing
date. This proposal does not amend
monthly or quarterly listing rules nor
does it amend the $1 Strike Price
Interval Program, the $0.50 Strike
3 Securities
deemed appropriate for options
trading shall include share or other securities
(‘‘Exchange-Traded Fund Shares’’) that are traded
on a national securities exchange and are defined
as an ‘‘NMS stock’’ under Rule 600 of Regulation
NMS. See Exchange Rule 402(i).
4 The weekly listing program is known as the
Short Term Options Series Program and is
described in Policy .02 of Exchange Rule 404.
5 Except as other provided in Exchange Rule 404
and Interpretations and Policies hereto, at the
commencement of trading on the Exchange of a
particular type of option of a class of options, the
Exchange shall open a minimum of one expiration
month and series for each class of options open for
trading on the Exchange. See Exchange Rule 404(b).
6 The quarterly listing program is known as the
Quarterly Options Series Program and is described
in Policy .03 of Exchange Rule 404.
7 Except as otherwise provided in Interpretations
and Policies of Exchange Rule 404, the interval
between strike prices of series of options on
individual stocks will be: (1) $2.50 or greater where
the strike price is $25.00 or less; (2) $5.00 or greater
where the strike price is greater than $25.00; and
(3) $10.00 or greater where the strike price is greater
than $200.00.
8 The $1 Strike Price Interval Program is
described within Policy .01 of Exchange Rule 404.
9 The $0.50 Strike Program is described in Policy
.04 of Exchange Rule 404.
10 The $2.50 Strike Price Program is described in
Exchange Rule 404(f).
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Program, or the $2.50 Strike Price
Program.
Short Term Options Series Program
Today, Policy .02 of Exchange Rule
404 permits the Exchange to open for
trading on any Thursday or Friday that
is a business day (‘‘Short Term Option
Opening Date’’) series of options on an
option class that expires at the close of
business on each of the next five Fridays
that are business days and are not
Fridays in which monthly options series
or Quarterly Options Series expire
(‘‘Short Term Option Expiration Dates’’),
provided an option class has been
approved for listing and trading on the
Exchange.11 Today, the Exchange may
open up to thirty initial series for each
option class that participates in the
Short Term Options Series Program.12
Further, if the Exchange opens less than
thirty (30) Short Term Option Series for
a Short Term Option Expiration Date,
additional series may be opened for
trading on the Exchange when the
Exchange deems it necessary to
maintain an orderly market, to meet
customer demand or when the market
price of the underlying security moves
substantially from the exercise price or
prices of the series already opened.13
The Exchange may open for trading
Short Term Option Series on the Short
Term Option Opening Date that expire
on the Short Term Option Expiration
Date. The strike price interval for Short
Term Option Series may be $0.50 or
greater for option classes that trade in $1
11 The Exchange may have no more than a total
of five Short Term Option Expiration Dates.
Monday and Wednesday SPY Expirations
(described in the paragraph below) are not included
as part of this count. If the Exchange is not open
for business on the respective Thursday or Friday,
the Short Term Option Opening Date will be the
first business day immediately prior to that
respective Thursday or Friday. Similarly, if the
Exchange is not open for business on a Friday, the
Short Term Option Expiration Date will be the first
business day immediately prior to that Friday. The
Exchange may open for trading on any Tuesday or
Wednesday that is a business day (‘‘Wednesday
SPY Expiration Opening Date’’) series of options on
the SPDR S&P 500 ETF Trust (‘‘SPY’’) that expire
at the close of business on each of the next five
Wednesdays that are business days and are not
Wednesdays on which Quarterly Options Series
expire (‘‘Wednesday SPY Expirations’’). The
Exchange may have no more than a total of five
Wednesday SPY Expirations. Non-Wednesday SPY
Expirations (described in the paragraph above) are
not included as part of this count. If the Exchange
is not open for business on the respective Tuesday
or Wednesday, the Wednesday SPY Expiration
Opening Date will be the first business day
immediately prior to that respective Tuesday or
Wednesday. Similarly, if the Exchange is not open
for business on a Wednesday, the expiration date
for a Wednesday SPY Expiration will be the first
business day immediately prior to that Wednesday.
See Policy .02 of Exchange Rule 404.
12 See Policy .02(c) of Exchange Rule 404.
13 See Policy .02(d) of Exchange Rule 404.
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strike price intervals and are in the
Short Term Option Series Program. If
the class does not trade in $1 strike
price intervals, the strike price interval
for Short Term Option Series may be
$0.50 or greater where the strike price
is less than $100 and $1.00 or greater
where the strike price is between $100
and $150, and $2.50 or greater for strike
prices greater than $150.14 A non-Short
Term Option series that is included in
a class that has been selected to
participate in the Short Term Option
Series Program is referred to as a
‘‘Related non-Short Term Option.’’
Notwithstanding any other provision
regarding strike prices in Exchange Rule
404, Related non-Short Term Option
series shall be opened during the month
prior to expiration in the same manner
as permitted in Exchange Rule 404,
Interpretations and Policies .02, and in
the same strike price intervals for the
Short Term Option Series.15
The Exchange may select up to fifty
(50) currently listed option classes on
which Short Term Option Series may be
opened on any Short Term Option
Opening Date. In addition to the 50
option class restriction, the Exchange
may also list Short Term Option Series
on any option classes that are selected
by other securities exchanges that
employ a similar program under their
respective rules. For each option class
eligible for participation in the Short
Term Option Series Program, the
Exchange may open up to thirty (30)
Short Term Option Series for each
expiration date in that class.16
The Exchange notes that listings in
the weekly program comprise a
significant part of the standard listing in
options markets and that over the five
years the industry has observed a
notable increase in the compound
annual growth rate (‘‘CAGR’’) of weekly
strikes as compared to CAGR for
standard third-Friday expirations.17
Proposal
The Exchange proposes to limit the
intervals between strikes in options
listed as part of the Short Term Option
Series Program that have an expiration
date more than twenty-one days from
the listing date, by adopting proposed
Policy .11 to Exchange Rule 404, as well
as paragraph (f) of Policy .02 to
Exchange Rule 404, with respect to
listing Short Term Option Series in
equity options, (excluding ExchangeTraded Fund Shares and ETNs)
14 See
Policy .02(e) of Exchange Rule 404.
Policy .02(e) of Exchange Rule 404.
16 See Policy .02(a) of Exchange Rule 404.
17 See Securities Exchange Act Release No. 91125
(February 12, 2021), 86 FR 10375 (February 19,
2021) (SR–BX–2020–032).
15 See
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(collectively ‘‘Strike Interval Proposal’’).
The Exchange notes that this proposal is
substantively identical to the strike
interval proposal recently submitted by
the Nasdaq BX exchange (‘‘BX
proposal’’) and approved by the
Commission.18
The Exchange’s Strike Interval
Proposal would limit the intervals
between strikes by utilizing the table
proposed within Policy .11 of Exchange
Rule 404. With the Strike Interval
Proposal, the Exchange would limit
intervals between strikes for expiration
dates of option series beyond twentyone days utilizing the below three-tiered
table which considers both the share
price and average daily volume for the
option series.
Share price
Tier
Average daily volume
Less than $25
1 .............
2 .............
3 .............
Greater than 5,000 ..........................................
Greater than 1,000 to 5,000 19 ........................
0 to 1,000 ........................................................
The table indicates the applicable
strike intervals and supersedes Policy
.02(d) of Rule 404, which currently
allows the Exchange to open additional
series for trading on the Exchange when
the Exchange deems it necessary to
maintain an orderly market, to meet
customer demand or when the market
price of the underlying security moves
substantially from the exercise price or
prices of the series already opened. As
a result of the proposal, Policy .02(d)
would not permit an additional series of
an equity option to have an expiration
date more than 21 days from the listing
date to be opened for trading on the
Exchange despite the noted
circumstances in Policy .02(d) when
such additional series may otherwise be
added.
The Share Price would be the closing
price on the primary market on the last
day of the calendar quarter. This value
would be used to derive the column
from which to apply strike intervals
throughout the next calendar quarter.
The Average Daily Volume would be the
total number of options contracts traded
in a given security for the applicable
calendar quarter divided by the number
of trading days in the applicable
calendar quarter. Beginning on the
second trading day in the first month of
each calendar quarter, the Average Daily
Volume shall be calculated by utilizing
data from the prior calendar quarter
based on Customer-cleared volume at
OCC. For options listed on the first
trading day of a given calendar quarter,
the Average Daily Volume shall be
calculated using the calendar quarter
prior to the last trading calendar
quarter.20 In the event of a corporate
action, the Share Price of the surviving
18 See
id.
Exchange notes that while the term
‘‘greater than’’ is not present in this cell in the
corresponding BX rule, the Exchange has inserted
it for clarity, otherwise an Average Daily Volume
of 1,000 contracts could be read to fall into two
categories.
19 The
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$25 to less
than $75
$0.50
1.00
2.50
$75 to less
than $150
$1.00
1.00
5.00
$1.00
1.00
5.00
$150 to less
than $500
$5.00
5.00
5.00
$500 or
greater
$5.00
10.00
10.00
company would be utilized. These
metrics are intended to align
expectations for determining which
strike intervals will be utilized. Finally,
notwithstanding the limitation imposed
by proposed Policy .11 of Exchange
Rule 404, this Strike Interval Proposal
does not amend the range of strikes that
may be listed pursuant to Policy .02 of
Exchange Rule 404, regarding the Short
Term Option Series Program.
By way of example, if the Share Price
for a symbol was $142 at the end of a
calendar quarter, with an Average Daily
Volume greater than 5,000, thereby,
requiring strike intervals to be listed
$1.00 apart, that strike interval would
apply for the calendar quarter,
regardless of whether the Share Price
changed to greater than $150 that
calendar quarter. The proposed table
within Policy .11 of Exchange Rule 404
takes into account the notional value of
a security, as well as Average Daily
Volume in the underlying stock, in
order to limit the intervals between
strikes in the Short Term Options listing
program. The Exchange will utilize OCC
Customer-cleared volume, as customer
volume is an appropriate proxy for
demand. The OCC Customer-cleared
volume represents the majority of
options volume executed on the
Exchange that, in turn, reflects the
demand in the marketplace. The options
series listed on the Exchange are
intended to meet customer demand by
offering an appropriate number of
strikes. Non-Customer cleared OCC
volume represents the supply side.
The strike intervals for listing strikes
in certain options are intended to
remove repetitive and unnecessary
strike listings across the weekly
expiries. The Exchange’s Strike Interval
Proposal seeks to reduce the number of
strikes in the furthest weeklies, where
there exist wider markets and therefore
lower market quality.
The proposal is intended to remove
repetitive and unnecessary strike
listings across the weekly expiries.
Specifically, the proposal seeks to
reduce the number of strikes listed in
the furthest weeklies, which generally
have wider markets and therefore lower
market quality. The proposed strike
intervals are intended to widen
permissible strike intervals in multiply
listed equity options (excluding options
on ETFs and ETNs) where there is less
volume as measured by the Average
Daily Volume tiers. Therefore, the lower
the Average Daily Volume, the greater
the proposed spread between strike
intervals. Options classes with higher
volume contain the most liquid symbols
and strikes, which the Exchange
believes makes the finer proposed
spread between strike intervals for those
symbols appropriate. Additionally,
lower-priced shares have finer strike
intervals than higher-priced shares
when comparing the proposed spread
between strike intervals. Today,
weeklies are available on 16% of
underlying products. The proposal
limits the density of strikes listed in
series of options, without reducing the
classes of options available for trading
on the Exchange. Short Term Option
Series with an expiration date greater
than 21 days from the listing date
currently equate to 7.5% of the total
number of strikes in the options market,
which equals 81,00 strikes.21 The
Exchange expects this proposal to result
in the limitation of approximately
20 For example, options listed as of January 4,
2021 would be calculated on January 5, 2021 using
the Average Daily Volume from July 1, 2020 to
September 30, 2020.
21 The Exchange notes that this proposal is an
initial attempt at reducing strikes and anticipates
filing additional proposals to continue reducing
strikes. The percentage of underlying products and
percentage of and total number of strikes, are
approximations and may vary at the time of this
filing.
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20,000 strikes within the Short Term
Option Series, which is approximately
2% of the total strikes in the options
markets.22 The Exchange understands
there has been an inconsistency of
demand for series of options beyond 21
calendar days.23 The proposal takes into
account customer demand for certain
option classes, by considering both the
Share Price and the Average Daily
Volume, in order to remove certain
strike intervals where there exist
clusters of strikes whose characteristics
closely resemble one another and,
therefore, do not serve different trading
needs,24 rendering these strikes less
useful. The Exchange also notes that the
proposal focuses on strikes in multiply
listed equity options, and excludes ETFs
and ETNs, as the majority of strikes
reside within equity options.
Additionally, proposed Policy .11 of
Exchange Rule 404 provides that
options that are newly eligible for listing
pursuant to Exchange Rule 402 and
designated to participate in the Short
Term Option Series program pursuant to
Policy .02 of Rule 404 will not be
subject to proposed Policy .11 of
Exchange Rule 404 until after the end of
the first full calendar quarter following
the date the option class was first listed
for trading on any options market.25 As
proposed, the Exchange is permitted to
list options on newly eligible listing,
without having to apply the wider strike
intervals, until the end of the first full
calendar after such options were listed.
The proposal thereby permits the
Exchange to add strikes to meet
customer demand in a newly listed
options class. A newly eligible option
class may fluctuate in price after its
initial listing; such volatility reflects a
natural uncertainty about the security.
By deferring the application of the
proposed wider strike intervals until
after the end of the first full calendar
quarter, additional information on the
underlying security will be available to
market participants and public
investors, as the price of the underlying
has an opportunity to settle based on the
price discovery that has occurred in the
primary market during this deferment
period. Also, the Exchange has the
22 From information drawn from the time period
between January 2020 and May 2020. See BX
proposal, supra note 17.
23 See BX proposal, supra note 17.
24 For example, two strikes that are densely
clustered may have the same risk properties and
may also be the same percentage out-of-the money.
25 For example, if an options class became newly
eligible for listing pursuant to Exchange Rule 402
on March 1, 2021 (and was actually listed for
trading that day), the first full quarterly lookback
would be available on July 1, 2021. This option
would become subject to the proposed strike
intervals on July 2, 2021.
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ability to list as many strikes as
permissible for the Short Term Option
Series once the expiry is no more than
21 days. Short Term Option Series that
have an expiration date no more than 21
days from the listing date are not subject
to the proposed strike intervals, which
allows the Exchange to list additional,
and potentially narrower, strikes in the
event of market volatility or other
market events. These metrics are
intended to align expectations for
determining which strike intervals will
be utilized. Finally, proposed Policy .11
of Rule 404 provides that the proposal
does not amend the range of strikes that
may be listed pursuant to Policy .02,
regarding the Short Term Option Series
Program.
While the current listing rules permit
the Exchange to list a number of weekly
strikes on its market, in an effort to
encourage Market Makers 26 to deploy
capital more efficiently, as well as
improve displayed market quality, the
Exchange’s Strike Interval Proposal
reduces the number of listed weekly
options. As the Exchange’s Strike
Interval Proposal seeks to reduce the
number of weekly options that would be
listed on its market in later weeks,
Market Makers would be required to
quote in fewer weekly strikes as a result
of the Strike Interval Proposal.
Specifically, the Strike Interval Proposal
aims to reduce the density of strike
intervals that would be listed in later
weeks, by creating limitations for
intervals between strikes which have an
expiration date more than twenty-one
days from the listing date. The table
takes into account customer demand for
certain option classes, by considering
both the Share Price and the Average
Daily Volume, to arrive at the manner
which weekly strike intervals may be
listed. The intervals for listing strikes in
equity options is intended to remove
certain strike intervals where there exist
clusters of strikes whose characteristics
closely resemble one another and,
therefore, do not serve different trading
needs,27 rendering these strikes less
useful.
The Strike Interval Proposal is
intended to be the first in a series of
proposals to limit the number of listed
options series listed on MIAX Pearl
Options and other affiliated markets.
The Exchange intends to decrease the
overall number of strikes listed on
MIAX exchanges in a methodical
26 The term ‘‘Market Makers’’ refers to ‘‘Lead
Market Makers’’, ‘‘Primary Lead Market Makers’’
and ‘‘Registered Market Makers’’ collectively. See
Exchange Rule 100.
27 For example, two strikes that are densely
clustered may have the same risk properties and
may also be the same percentage out-of-the-money.
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25909
fashion, so that it may monitor progress
and feedback from its membership.
While limiting the intervals between
listed strikes is the goal of this rule
change, the Exchange’s Strike Interval
Proposal is intended to balance that goal
with the needs of market participants.
The Exchange believes that various
strike intervals continue to offer market
participants the ability to select the
appropriate strike interval to meet the
market participant’s investment
objective.
Implementation
The Exchange will announce the
implementation date of the proposed
rule change by Regulatory Circular to be
published no later than 90 days
following the operative date of the
proposed rule. The implementation date
will be no later than 90 days following
the issuance of the Regulatory Circular.
The Exchange will issue a notice to its
Members 28 whenever the Exchange is
the first exchange to list an eligible
Short Term Option Series pursuant to
Policy .11 of Exchange Rule 404.29
2. Statutory Basis
The Exchange believes that its
proposed rule change is consistent with
Section 6(b) of the Act 30 in general, and
furthers the objectives of Section 6(b)(5)
of the Act 31 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
remove impediments to and perfect the
mechanisms of a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
The Strike Proposal seeks to limit the
intervals between the strikes listed in
the Short Term Options Series program
that have an expiration date more than
twenty-one days. While the current
28 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.
29 When the Exchange is the first exchange to list
an option class under Policy .11 of Exchange Rule
404 the Exchange shall provide a notice to its
Members regarding the Short Term Option Series to
be listed. Such notice will include for each eligible
option class: The closing price of the underlying,
the Average Daily Volume of the option class; and
the eligible strike category (per the proposed table)
in which the eligible option class falls under as a
result of the closing price and the Average Daily
Volume.
30 15 U.S.C. 78f(b).
31 15 U.S.C. 78f(b)(5).
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listing rules permit the Exchange to list
a number of weekly strikes on its
market, the Exchange’s Strike Interval
Proposal removes impediments to and
perfects the mechanism of a free and
open market and a national market
system by encouraging Market Makers
to deploy capital more efficiently and
improving market quality overall on the
Exchange through limiting the intervals
between the strikes when applying the
strike interval table to multiply listed
equity options that have an expiration
date more than twenty-one days from
the listing date. Also, as the Exchange’s
Strike Interval Proposal seeks to reduce
the number of weekly options that
would be listed on its market in later
weeks, Market Makers would be
required to quote in fewer weekly
strikes as a result of the Strike Interval
Proposal. Amending the Exchange’s
listing rules to limit the intervals
between strikes for multiply listed
equity options that have an expiration
date more than twenty-one days causes
less disruption in the market as the
majority of the volume traded in weekly
options exists in options series which
have an expiration date of twenty-one
days or less. The Exchange’s Strike
Interval Proposal curtails the number of
strike intervals listed in series of options
without reducing the number of classes
of options available for trading on the
Exchange.
The Strike Interval Program takes into
account customer demand for certain
option classes by considering both the
Share Price and the Average Daily
Volume in the underlying security to
arrive at the manner in which weekly
strike intervals would be listed in the
later weeks for each multiply listed
equity options class. The Exchange
utilizes OCC Customer-cleared volume,
as customer volume is an appropriate
proxy for demand. The OCC Customercleared volume represents the majority
of options volume executed on the
Exchange that, in turn, reflects the
demands in the marketplace. The
options series listed on the Exchange is
intended to meet customer demand by
offering an appropriate number of
strikes. Non-Customer cleared OCC
volume represents the supply side.
The Strike Interval Proposal for listing
strikes in certain multiply listed equity
options is intended to remove certain
strikes where there exist clusters of
strikes whose characteristics closely
resemble one another and, therefore, do
not serve different trading needs that
renders the strikes less useful and
thereby protects investors and the
general public by removing an
abundance of unnecessary choices for
an options series, while also improving
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17:13 May 10, 2021
Jkt 253001
market quality. The Exchange’s Strike
Interval Proposal seeks to reduce the
number of strikes in the furthest
weeklies, where there exist wider
markets, and, therefore, lower market
quality. The implementation of the
proposed table is intended to spread
strike intervals in multiply listed equity
options, where there is less volume that
is measured by the average daily volume
tiers. Therefore, the lower the average
daily volume, the greater the proposed
spread between strike intervals. Options
classes with higher volume contain the
most liquid symbols and strikes,
therefore the finer the proposed spread
between strike intervals. Additionally,
lower-priced shares have finer strike
intervals than higher-priced shares
when comparing the proposed spread
between strike intervals.
Beginning on the second trading day
in the first month of each calendar
quarter, the Average Daily Volume shall
be calculated by utilizing data from the
prior calendar quarter based on OCC
Customer-cleared volume. Utilizing the
second trading day allows the Exchange
to accumulate data regarding OCC
Customer-cleared volume from the
entire prior quarter. Beginning on the
second trading day would allow trades
executed on the last day of the previous
calendar quarter to have settled 32 and
be accounted for in the calculation of
Average Daily Volume. Utilizing the
previous three months is appropriate
because this time period would help
reduce the impact of unusual trading
activity as a result of unique market
events, such as a corporate action (i.e.,
it would result in a more reliable
measure of average daily trading volume
than would a shorter period).
Today, the Exchange requires Market
Makers to quote a certain amount of
time in the trading day in their assigned
due options series to maintain liquidity
in the market.33 With an increasing
number of strikes due to tighter
intervals being listed across options
exchanges, Market Makers must expend
their capital to ensure that they have the
appropriate infrastructure to meet their
quoting obligations on all options
markets in which they are assigned in
options series. The Exchange believes
that this Strike Interval Proposal would
limit the intervals between strikes listed
on the Exchange and thereby allow
Market Makers to expend their capital
in the options market in a more efficient
manner that removes impediments to
32 Options contracts settle one business day after
trade date. Strike listing determinations are made
the day prior to the start of trading in each series.
33 See Exchange Rule 604(e)(1); 604(e)(2); and
604(e)(3).
PO 00000
Frm 00074
Fmt 4703
Sfmt 4703
and perfects the mechanism of a free
and open market and a national market
system. The Exchange also believes that
this Strike Interval Proposal would
improve overall market quality on the
Exchange for the protection of investors
and the general public by limiting the
intervals between strikes when applying
the strike interval table to multiply
listed equity options which have an
expiration date more than twenty-one
days from the listing date.
This Strike Interval Proposal is
intended to be the first in a series of
proposals to limit the number of listed
option series listed on the Exchange and
other affiliated markets. The Exchange
intends to decrease the overall number
of strikes listed on the MIAX exchanges
in a methodical fashion in order that it
may monitor progress and feedback
from its membership. While limiting the
intervals between strikes listed is the
goal of this rule change, the Exchange’s
Strike Interval Proposal is intended to
balance that goal with the needs of
market participants. The Exchange
believes that varied strike intervals
continue to offer market participants the
ability to select the appropriate strike
interval to meet that market
participant’s investment objective.
The Exchange notes that its proposal
is substantively identical to the strike
interval proposal recently submitted by
the Nasdaq BX exchange and approved
by the Commission.34 The Exchange
notes that it has reviewed the data
presented in the BX proposal and agrees
with the analysis of the data as
presented in the BX proposal. The
Exchange believes the varied strike
intervals will continue to offer market
participants the ability to select the
appropriate strike interval to meet that
market participants’ investment
objectives.
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 Strike
Interval Proposal limits the number of
Short Term Options Series strike
intervals available for quoting and
trading on the Exchange for all
Exchange participants. While the
current listing rules permit the
Exchange to list a number of weekly
strikes on its market, in an effort to
encourage Market Makers to deploy
capital more efficiently, as well as
improve displayed market quality, the
Exchange’s Strike Interval Proposal
34 See
E:\FR\FM\11MYN1.SGM
supra note 17.
11MYN1
Federal Register / Vol. 86, No. 89 / Tuesday, May 11, 2021 / Notices
seeks to reduce the number of weekly
options that would be listed on its
market in later weeks, without reducing
the number of series or classes of
options available for trading on the
Exchange. As the Exchange’s Strike
Interval Proposal seeks to reduce the
number of weekly options that would be
listed on its market in later weeks,
Market Makers would be required to
quote in fewer weekly strikes as a result
of the Strike Interval Proposal.
The Exchange’s Strike Interval
Proposal, which is intended to decrease
the overall number of strikes listed on
the Exchange, does not impose an
undue burden on intra-market
competition as all Participants may only
transact options in the strike intervals
listed for trading on the Exchange.
While limiting the intervals of strikes
listed on the Exchange is the goal of this
Strike Interval Proposal, the goal
continues to balance the needs of
market participants by continuing to
offer a number of strikes to meet a
market participant’s investment
objective.
The Exchange’s Strike Interval
Proposal does not impose an undue
burden on inter-market competition as
this Strike Interval Proposal does not
impact the listings available at another
self-regulatory organization. In fact, the
Exchange is proposing to list a smaller
amount of weekly equity options in an
effort to curtail the increasing number of
strikes that are required to be quoted by
market makers in the options industry.
Other options markets may choose to
replicate the Exchange’s Strike Interval
Proposal and, thereby, further decrease
the overall number of strikes within the
options industry.
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
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) 35 of the Act and Rule
19b–4(f)(6) thereunder.36 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
35 15
U.S.C. 78s(b)(3)(A)(iii).
36 17 CFR 240.19b–4(f)(6).
VerDate Sep<11>2014
17:13 May 10, 2021
Jkt 253001
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act and
subparagraph (f)(6) of Rule 19b–4
thereunder.37
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–2021–19 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–PEARL–2021–19. 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
37 In addition, Rule 19b–4(f)(6)(iii) requires the
Exchange 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.
PO 00000
Frm 00075
Fmt 4703
Sfmt 4703
25911
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–PEARL–2021–19, and
should be submitted on or before June
1, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.38
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–09885 Filed 5–10–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91773; File No. SR–BX–
2021–019]
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Delay the
Implementation of BX’s Rule
Amendment To Limit Short Term
Options Series Intervals to July 1, 2021
May 5, 2021.
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 April 22,
2021, Nasdaq BX, Inc. (‘‘BX’’ or
‘‘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 Substance of
the Proposed Rule Change
The Exchange proposes to delay the
implementation of BX’s rule
amendment to limit Short Term Options
Series intervals between strikes which
38 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\11MYN1.SGM
11MYN1
]]>Agencies
[Federal Register Volume 86, Number 89 (Tuesday, May 11, 2021)]
[Notices]
[Pages 25906-25911]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-09885]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91777; File No. SR-PEARL-2021-19]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange
Rule 404 To Limit Short Term Options Series Intervals Between Strikes
May 5, 2021.
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 April 22, 2021, MIAX PEARL, LLC (``MIAX
Pearl)'' or the ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') a proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend Exchange Rule 404,
Series of Option Contracts Open for Trading.
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxoptions.com/rule-filings/pearl at MIAX
Pearl's principal office, and at the Commission's Public Reference
Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
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 Rule 404, Series of Option Contracts
Open for Trading. Specifically, this
[[Page 25907]]
proposal seeks to limit the intervals between strikes for multiply
listed equity options classes within the Short Term Options Series
program that have an expiration date more than twenty-one days from the
listing date.
Background
Today, Exchange Rule 404 permits the Exchange, after a particular
class of options (call option contracts or put option contracts
relating to a specific underlying stock, Exchange-Traded Fund Share,\3\
or ETNs) has been approved for listing and trading on the Exchange, to
open for trading series of options therein. The Exchange may list
series of options for trading on a weekly,\4\ monthly,\5\ or quarterly
\6\ basis. Exchange Rule 404(d) sets forth the intervals between strike
prices of series of options on individual stocks.\7\ In addition to
those intervals, the Exchange may list series of options pursuant to
the $1 Strike Price Interval Program,\8\ the $0.50 Strike Program,\9\
and the $2.50 Strike Price Program.\10\
---------------------------------------------------------------------------
\3\ Securities deemed appropriate for options trading shall
include share or other securities (``Exchange-Traded Fund Shares'')
that are traded on a national securities exchange and are defined as
an ``NMS stock'' under Rule 600 of Regulation NMS. See Exchange Rule
402(i).
\4\ The weekly listing program is known as the Short Term
Options Series Program and is described in Policy .02 of Exchange
Rule 404.
\5\ Except as other provided in Exchange Rule 404 and
Interpretations and Policies hereto, at the commencement of trading
on the Exchange of a particular type of option of a class of
options, the Exchange shall open a minimum of one expiration month
and series for each class of options open for trading on the
Exchange. See Exchange Rule 404(b).
\6\ The quarterly listing program is known as the Quarterly
Options Series Program and is described in Policy .03 of Exchange
Rule 404.
\7\ Except as otherwise provided in Interpretations and Policies
of Exchange Rule 404, the interval between strike prices of series
of options on individual stocks will be: (1) $2.50 or greater where
the strike price is $25.00 or less; (2) $5.00 or greater where the
strike price is greater than $25.00; and (3) $10.00 or greater where
the strike price is greater than $200.00.
\8\ The $1 Strike Price Interval Program is described within
Policy .01 of Exchange Rule 404.
\9\ The $0.50 Strike Program is described in Policy .04 of
Exchange Rule 404.
\10\ The $2.50 Strike Price Program is described in Exchange
Rule 404(f).
---------------------------------------------------------------------------
The Exchange's proposal seeks to amend the listing of weekly series
of options as proposed within Policy .02(f) of Exchange Rule 404, by
limiting the intervals between strikes in multiply listed equity
options, excluding Exchange-Traded Fund Shares and ETNs, that have an
expiration date more than twenty-one days from the listing date. This
proposal does not amend monthly or quarterly listing rules nor does it
amend the $1 Strike Price Interval Program, the $0.50 Strike Program,
or the $2.50 Strike Price Program.
Short Term Options Series Program
Today, Policy .02 of Exchange Rule 404 permits the Exchange to open
for trading on any Thursday or Friday that is a business day (``Short
Term Option Opening Date'') series of options on an option class that
expires at the close of business on each of the next five Fridays that
are business days and are not Fridays in which monthly options series
or Quarterly Options Series expire (``Short Term Option Expiration
Dates''), provided an option class has been approved for listing and
trading on the Exchange.\11\ Today, the Exchange may open up to thirty
initial series for each option class that participates in the Short
Term Options Series Program.\12\ Further, if the Exchange opens less
than thirty (30) Short Term Option Series for a Short Term Option
Expiration Date, additional series may be opened for trading on the
Exchange when the Exchange deems it necessary to maintain an orderly
market, to meet customer demand or when the market price of the
underlying security moves substantially from the exercise price or
prices of the series already opened.\13\
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\11\ The Exchange may have no more than a total of five Short
Term Option Expiration Dates. Monday and Wednesday SPY Expirations
(described in the paragraph below) are not included as part of this
count. If the Exchange is not open for business on the respective
Thursday or Friday, the Short Term Option Opening Date will be the
first business day immediately prior to that respective Thursday or
Friday. Similarly, if the Exchange is not open for business on a
Friday, the Short Term Option Expiration Date will be the first
business day immediately prior to that Friday. The Exchange may open
for trading on any Tuesday or Wednesday that is a business day
(``Wednesday SPY Expiration Opening Date'') series of options on the
SPDR S&P 500 ETF Trust (``SPY'') that expire at the close of
business on each of the next five Wednesdays that are business days
and are not Wednesdays on which Quarterly Options Series expire
(``Wednesday SPY Expirations''). The Exchange may have no more than
a total of five Wednesday SPY Expirations. Non-Wednesday SPY
Expirations (described in the paragraph above) are not included as
part of this count. If the Exchange is not open for business on the
respective Tuesday or Wednesday, the Wednesday SPY Expiration
Opening Date will be the first business day immediately prior to
that respective Tuesday or Wednesday. Similarly, if the Exchange is
not open for business on a Wednesday, the expiration date for a
Wednesday SPY Expiration will be the first business day immediately
prior to that Wednesday. See Policy .02 of Exchange Rule 404.
\12\ See Policy .02(c) of Exchange Rule 404.
\13\ See Policy .02(d) of Exchange Rule 404.
---------------------------------------------------------------------------
The Exchange may open for trading Short Term Option Series on the
Short Term Option Opening Date that expire on the Short Term Option
Expiration Date. The strike price interval for Short Term Option Series
may be $0.50 or greater for option classes that trade in $1 strike
price intervals and are in the Short Term Option Series Program. If the
class does not trade in $1 strike price intervals, the strike price
interval for Short Term Option Series may be $0.50 or greater where the
strike price is less than $100 and $1.00 or greater where the strike
price is between $100 and $150, and $2.50 or greater for strike prices
greater than $150.\14\ A non-Short Term Option series that is included
in a class that has been selected to participate in the Short Term
Option Series Program is referred to as a ``Related non-Short Term
Option.'' Notwithstanding any other provision regarding strike prices
in Exchange Rule 404, Related non-Short Term Option series shall be
opened during the month prior to expiration in the same manner as
permitted in Exchange Rule 404, Interpretations and Policies .02, and
in the same strike price intervals for the Short Term Option
Series.\15\
---------------------------------------------------------------------------
\14\ See Policy .02(e) of Exchange Rule 404.
\15\ See Policy .02(e) of Exchange Rule 404.
---------------------------------------------------------------------------
The Exchange may select up to fifty (50) currently listed option
classes on which Short Term Option Series may be opened on any Short
Term Option Opening Date. In addition to the 50 option class
restriction, the Exchange may also list Short Term Option Series on any
option classes that are selected by other securities exchanges that
employ a similar program under their respective rules. For each option
class eligible for participation in the Short Term Option Series
Program, the Exchange may open up to thirty (30) Short Term Option
Series for each expiration date in that class.\16\
---------------------------------------------------------------------------
\16\ See Policy .02(a) of Exchange Rule 404.
---------------------------------------------------------------------------
The Exchange notes that listings in the weekly program comprise a
significant part of the standard listing in options markets and that
over the five years the industry has observed a notable increase in the
compound annual growth rate (``CAGR'') of weekly strikes as compared to
CAGR for standard third-Friday expirations.\17\
---------------------------------------------------------------------------
\17\ See Securities Exchange Act Release No. 91125 (February 12,
2021), 86 FR 10375 (February 19, 2021) (SR-BX-2020-032).
---------------------------------------------------------------------------
Proposal
The Exchange proposes to limit the intervals between strikes in
options listed as part of the Short Term Option Series Program that
have an expiration date more than twenty-one days from the listing
date, by adopting proposed Policy .11 to Exchange Rule 404, as well as
paragraph (f) of Policy .02 to Exchange Rule 404, with respect to
listing Short Term Option Series in equity options, (excluding
Exchange-Traded Fund Shares and ETNs)
[[Page 25908]]
(collectively ``Strike Interval Proposal''). The Exchange notes that
this proposal is substantively identical to the strike interval
proposal recently submitted by the Nasdaq BX exchange (``BX proposal'')
and approved by the Commission.\18\
---------------------------------------------------------------------------
\18\ See id.
---------------------------------------------------------------------------
The Exchange's Strike Interval Proposal would limit the intervals
between strikes by utilizing the table proposed within Policy .11 of
Exchange Rule 404. With the Strike Interval Proposal, the Exchange
would limit intervals between strikes for expiration dates of option
series beyond twenty-one days utilizing the below three-tiered table
which considers both the share price and average daily volume for the
option series.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Share price
-------------------------------------------------------------------------------
Tier Average daily volume $25 to less $75 to less $150 to less $500 or
Less than $25 than $75 than $150 than $500 greater
--------------------------------------------------------------------------------------------------------------------------------------------------------
1......................................... Greater than 5,000.......... $0.50 $1.00 $1.00 $5.00 $5.00
2......................................... Greater than 1,000 to 5,000 1.00 1.00 1.00 5.00 10.00
\19\.
3......................................... 0 to 1,000.................. 2.50 5.00 5.00 5.00 10.00
--------------------------------------------------------------------------------------------------------------------------------------------------------
The table indicates the applicable strike intervals and supersedes
Policy .02(d) of Rule 404, which currently allows the Exchange to open
additional series for trading on the Exchange when the Exchange deems
it necessary to maintain an orderly market, to meet customer demand or
when the market price of the underlying security moves substantially
from the exercise price or prices of the series already opened. As a
result of the proposal, Policy .02(d) would not permit an additional
series of an equity option to have an expiration date more than 21 days
from the listing date to be opened for trading on the Exchange despite
the noted circumstances in Policy .02(d) when such additional series
may otherwise be added.
---------------------------------------------------------------------------
\19\ The Exchange notes that while the term ``greater than'' is
not present in this cell in the corresponding BX rule, the Exchange
has inserted it for clarity, otherwise an Average Daily Volume of
1,000 contracts could be read to fall into two categories.
---------------------------------------------------------------------------
The Share Price would be the closing price on the primary market on
the last day of the calendar quarter. This value would be used to
derive the column from which to apply strike intervals throughout the
next calendar quarter. The Average Daily Volume would be the total
number of options contracts traded in a given security for the
applicable calendar quarter divided by the number of trading days in
the applicable calendar quarter. Beginning on the second trading day in
the first month of each calendar quarter, the Average Daily Volume
shall be calculated by utilizing data from the prior calendar quarter
based on Customer-cleared volume at OCC. For options listed on the
first trading day of a given calendar quarter, the Average Daily Volume
shall be calculated using the calendar quarter prior to the last
trading calendar quarter.\20\ In the event of a corporate action, the
Share Price of the surviving company would be utilized. These metrics
are intended to align expectations for determining which strike
intervals will be utilized. Finally, notwithstanding the limitation
imposed by proposed Policy .11 of Exchange Rule 404, this Strike
Interval Proposal does not amend the range of strikes that may be
listed pursuant to Policy .02 of Exchange Rule 404, regarding the Short
Term Option Series Program.
---------------------------------------------------------------------------
\20\ For example, options listed as of January 4, 2021 would be
calculated on January 5, 2021 using the Average Daily Volume from
July 1, 2020 to September 30, 2020.
---------------------------------------------------------------------------
By way of example, if the Share Price for a symbol was $142 at the
end of a calendar quarter, with an Average Daily Volume greater than
5,000, thereby, requiring strike intervals to be listed $1.00 apart,
that strike interval would apply for the calendar quarter, regardless
of whether the Share Price changed to greater than $150 that calendar
quarter. The proposed table within Policy .11 of Exchange Rule 404
takes into account the notional value of a security, as well as Average
Daily Volume in the underlying stock, in order to limit the intervals
between strikes in the Short Term Options listing program. The Exchange
will utilize OCC Customer-cleared volume, as customer volume is an
appropriate proxy for demand. The OCC Customer-cleared volume
represents the majority of options volume executed on the Exchange
that, in turn, reflects the demand in the marketplace. The options
series listed on the Exchange are intended to meet customer demand by
offering an appropriate number of strikes. Non-Customer cleared OCC
volume represents the supply side.
The strike intervals for listing strikes in certain options are
intended to remove repetitive and unnecessary strike listings across
the weekly expiries. The Exchange's Strike Interval Proposal seeks to
reduce the number of strikes in the furthest weeklies, where there
exist wider markets and therefore lower market quality.
The proposal is intended to remove repetitive and unnecessary
strike listings across the weekly expiries. Specifically, the proposal
seeks to reduce the number of strikes listed in the furthest weeklies,
which generally have wider markets and therefore lower market quality.
The proposed strike intervals are intended to widen permissible strike
intervals in multiply listed equity options (excluding options on ETFs
and ETNs) where there is less volume as measured by the Average Daily
Volume tiers. Therefore, the lower the Average Daily Volume, the
greater the proposed spread between strike intervals. Options classes
with higher volume contain the most liquid symbols and strikes, which
the Exchange believes makes the finer proposed spread between strike
intervals for those symbols appropriate. Additionally, lower-priced
shares have finer strike intervals than higher-priced shares when
comparing the proposed spread between strike intervals. Today, weeklies
are available on 16% of underlying products. The proposal limits the
density of strikes listed in series of options, without reducing the
classes of options available for trading on the Exchange. Short Term
Option Series with an expiration date greater than 21 days from the
listing date currently equate to 7.5% of the total number of strikes in
the options market, which equals 81,00 strikes.\21\ The Exchange
expects this proposal to result in the limitation of approximately
[[Page 25909]]
20,000 strikes within the Short Term Option Series, which is
approximately 2% of the total strikes in the options markets.\22\ The
Exchange understands there has been an inconsistency of demand for
series of options beyond 21 calendar days.\23\ The proposal takes into
account customer demand for certain option classes, by considering both
the Share Price and the Average Daily Volume, in order to remove
certain strike intervals where there exist clusters of strikes whose
characteristics closely resemble one another and, therefore, do not
serve different trading needs,\24\ rendering these strikes less useful.
The Exchange also notes that the proposal focuses on strikes in
multiply listed equity options, and excludes ETFs and ETNs, as the
majority of strikes reside within equity options.
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\21\ The Exchange notes that this proposal is an initial attempt
at reducing strikes and anticipates filing additional proposals to
continue reducing strikes. The percentage of underlying products and
percentage of and total number of strikes, are approximations and
may vary at the time of this filing.
\22\ From information drawn from the time period between January
2020 and May 2020. See BX proposal, supra note 17.
\23\ See BX proposal, supra note 17.
\24\ For example, two strikes that are densely clustered may
have the same risk properties and may also be the same percentage
out-of-the money.
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Additionally, proposed Policy .11 of Exchange Rule 404 provides
that options that are newly eligible for listing pursuant to Exchange
Rule 402 and designated to participate in the Short Term Option Series
program pursuant to Policy .02 of Rule 404 will not be subject to
proposed Policy .11 of Exchange Rule 404 until after the end of the
first full calendar quarter following the date the option class was
first listed for trading on any options market.\25\ As proposed, the
Exchange is permitted to list options on newly eligible listing,
without having to apply the wider strike intervals, until the end of
the first full calendar after such options were listed. The proposal
thereby permits the Exchange to add strikes to meet customer demand in
a newly listed options class. A newly eligible option class may
fluctuate in price after its initial listing; such volatility reflects
a natural uncertainty about the security. By deferring the application
of the proposed wider strike intervals until after the end of the first
full calendar quarter, additional information on the underlying
security will be available to market participants and public investors,
as the price of the underlying has an opportunity to settle based on
the price discovery that has occurred in the primary market during this
deferment period. Also, the Exchange has the ability to list as many
strikes as permissible for the Short Term Option Series once the expiry
is no more than 21 days. Short Term Option Series that have an
expiration date no more than 21 days from the listing date are not
subject to the proposed strike intervals, which allows the Exchange to
list additional, and potentially narrower, strikes in the event of
market volatility or other market events. These metrics are intended to
align expectations for determining which strike intervals will be
utilized. Finally, proposed Policy .11 of Rule 404 provides that the
proposal does not amend the range of strikes that may be listed
pursuant to Policy .02, regarding the Short Term Option Series Program.
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\25\ For example, if an options class became newly eligible for
listing pursuant to Exchange Rule 402 on March 1, 2021 (and was
actually listed for trading that day), the first full quarterly
lookback would be available on July 1, 2021. This option would
become subject to the proposed strike intervals on July 2, 2021.
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While the current listing rules permit the Exchange to list a
number of weekly strikes on its market, in an effort to encourage
Market Makers \26\ to deploy capital more efficiently, as well as
improve displayed market quality, the Exchange's Strike Interval
Proposal reduces the number of listed weekly options. As the Exchange's
Strike Interval Proposal seeks to reduce the number of weekly options
that would be listed on its market in later weeks, Market Makers would
be required to quote in fewer weekly strikes as a result of the Strike
Interval Proposal. Specifically, the Strike Interval Proposal aims to
reduce the density of strike intervals that would be listed in later
weeks, by creating limitations for intervals between strikes which have
an expiration date more than twenty-one days from the listing date. The
table takes into account customer demand for certain option classes, by
considering both the Share Price and the Average Daily Volume, to
arrive at the manner which weekly strike intervals may be listed. The
intervals for listing strikes in equity options is intended to remove
certain strike intervals where there exist clusters of strikes whose
characteristics closely resemble one another and, therefore, do not
serve different trading needs,\27\ rendering these strikes less useful.
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\26\ The term ``Market Makers'' refers to ``Lead Market
Makers'', ``Primary Lead Market Makers'' and ``Registered Market
Makers'' collectively. See Exchange Rule 100.
\27\ For example, two strikes that are densely clustered may
have the same risk properties and may also be the same percentage
out-of-the-money.
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The Strike Interval Proposal is intended to be the first in a
series of proposals to limit the number of listed options series listed
on MIAX Pearl Options and other affiliated markets. The Exchange
intends to decrease the overall number of strikes listed on MIAX
exchanges in a methodical fashion, so that it may monitor progress and
feedback from its membership. While limiting the intervals between
listed strikes is the goal of this rule change, the Exchange's Strike
Interval Proposal is intended to balance that goal with the needs of
market participants. The Exchange believes that various strike
intervals continue to offer market participants the ability to select
the appropriate strike interval to meet the market participant's
investment objective.
Implementation
The Exchange will announce the implementation date of the proposed
rule change by Regulatory Circular to be published no later than 90
days following the operative date of the proposed rule. The
implementation date will be no later than 90 days following the
issuance of the Regulatory Circular. The Exchange will issue a notice
to its Members \28\ whenever the Exchange is the first exchange to list
an eligible Short Term Option Series pursuant to Policy .11 of Exchange
Rule 404.\29\
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\28\ 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.
\29\ When the Exchange is the first exchange to list an option
class under Policy .11 of Exchange Rule 404 the Exchange shall
provide a notice to its Members regarding the Short Term Option
Series to be listed. Such notice will include for each eligible
option class: The closing price of the underlying, the Average Daily
Volume of the option class; and the eligible strike category (per
the proposed table) in which the eligible option class falls under
as a result of the closing price and the Average Daily Volume.
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2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with Section 6(b) of the Act \30\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \31\ in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanisms of a free and open market and a national market
system and, in general, to protect investors and the public interest.
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\30\ 15 U.S.C. 78f(b).
\31\ 15 U.S.C. 78f(b)(5).
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The Strike Proposal seeks to limit the intervals between the
strikes listed in the Short Term Options Series program that have an
expiration date more than twenty-one days. While the current
[[Page 25910]]
listing rules permit the Exchange to list a number of weekly strikes on
its market, the Exchange's Strike Interval Proposal removes impediments
to and perfects the mechanism of a free and open market and a national
market system by encouraging Market Makers to deploy capital more
efficiently and improving market quality overall on the Exchange
through limiting the intervals between the strikes when applying the
strike interval table to multiply listed equity options that have an
expiration date more than twenty-one days from the listing date. Also,
as the Exchange's Strike Interval Proposal seeks to reduce the number
of weekly options that would be listed on its market in later weeks,
Market Makers would be required to quote in fewer weekly strikes as a
result of the Strike Interval Proposal. Amending the Exchange's listing
rules to limit the intervals between strikes for multiply listed equity
options that have an expiration date more than twenty-one days causes
less disruption in the market as the majority of the volume traded in
weekly options exists in options series which have an expiration date
of twenty-one days or less. The Exchange's Strike Interval Proposal
curtails the number of strike intervals listed in series of options
without reducing the number of classes of options available for trading
on the Exchange.
The Strike Interval Program takes into account customer demand for
certain option classes by considering both the Share Price and the
Average Daily Volume in the underlying security to arrive at the manner
in which weekly strike intervals would be listed in the later weeks for
each multiply listed equity options class. The Exchange utilizes OCC
Customer-cleared volume, as customer volume is an appropriate proxy for
demand. The OCC Customer-cleared volume represents the majority of
options volume executed on the Exchange that, in turn, reflects the
demands in the marketplace. The options series listed on the Exchange
is intended to meet customer demand by offering an appropriate number
of strikes. Non-Customer cleared OCC volume represents the supply side.
The Strike Interval Proposal for listing strikes in certain
multiply listed equity options is intended to remove certain strikes
where there exist clusters of strikes whose characteristics closely
resemble one another and, therefore, do not serve different trading
needs that renders the strikes less useful and thereby protects
investors and the general public by removing an abundance of
unnecessary choices for an options series, while also improving market
quality. The Exchange's Strike Interval Proposal seeks to reduce the
number of strikes in the furthest weeklies, where there exist wider
markets, and, therefore, lower market quality. The implementation of
the proposed table is intended to spread strike intervals in multiply
listed equity options, where there is less volume that is measured by
the average daily volume tiers. Therefore, the lower the average daily
volume, the greater the proposed spread between strike intervals.
Options classes with higher volume contain the most liquid symbols and
strikes, therefore the finer the proposed spread between strike
intervals. Additionally, lower-priced shares have finer strike
intervals than higher-priced shares when comparing the proposed spread
between strike intervals.
Beginning on the second trading day in the first month of each
calendar quarter, the Average Daily Volume shall be calculated by
utilizing data from the prior calendar quarter based on OCC Customer-
cleared volume. Utilizing the second trading day allows the Exchange to
accumulate data regarding OCC Customer-cleared volume from the entire
prior quarter. Beginning on the second trading day would allow trades
executed on the last day of the previous calendar quarter to have
settled \32\ and be accounted for in the calculation of Average Daily
Volume. Utilizing the previous three months is appropriate because this
time period would help reduce the impact of unusual trading activity as
a result of unique market events, such as a corporate action (i.e., it
would result in a more reliable measure of average daily trading volume
than would a shorter period).
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\32\ Options contracts settle one business day after trade date.
Strike listing determinations are made the day prior to the start of
trading in each series.
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Today, the Exchange requires Market Makers to quote a certain
amount of time in the trading day in their assigned due options series
to maintain liquidity in the market.\33\ With an increasing number of
strikes due to tighter intervals being listed across options exchanges,
Market Makers must expend their capital to ensure that they have the
appropriate infrastructure to meet their quoting obligations on all
options markets in which they are assigned in options series. The
Exchange believes that this Strike Interval Proposal would limit the
intervals between strikes listed on the Exchange and thereby allow
Market Makers to expend their capital in the options market in a more
efficient manner that removes impediments to and perfects the mechanism
of a free and open market and a national market system. The Exchange
also believes that this Strike Interval Proposal would improve overall
market quality on the Exchange for the protection of investors and the
general public by limiting the intervals between strikes when applying
the strike interval table to multiply listed equity options which have
an expiration date more than twenty-one days from the listing date.
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\33\ See Exchange Rule 604(e)(1); 604(e)(2); and 604(e)(3).
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This Strike Interval Proposal is intended to be the first in a
series of proposals to limit the number of listed option series listed
on the Exchange and other affiliated markets. The Exchange intends to
decrease the overall number of strikes listed on the MIAX exchanges in
a methodical fashion in order that it may monitor progress and feedback
from its membership. While limiting the intervals between strikes
listed is the goal of this rule change, the Exchange's Strike Interval
Proposal is intended to balance that goal with the needs of market
participants. The Exchange believes that varied strike intervals
continue to offer market participants the ability to select the
appropriate strike interval to meet that market participant's
investment objective.
The Exchange notes that its proposal is substantively identical to
the strike interval proposal recently submitted by the Nasdaq BX
exchange and approved by the Commission.\34\ The Exchange notes that it
has reviewed the data presented in the BX proposal and agrees with the
analysis of the data as presented in the BX proposal. The Exchange
believes the varied strike intervals will continue to offer market
participants the ability to select the appropriate strike interval to
meet that market participants' investment objectives.
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\34\ See supra note 17.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Strike Interval Proposal
limits the number of Short Term Options Series strike intervals
available for quoting and trading on the Exchange for all Exchange
participants. While the current listing rules permit the Exchange to
list a number of weekly strikes on its market, in an effort to
encourage Market Makers to deploy capital more efficiently, as well as
improve displayed market quality, the Exchange's Strike Interval
Proposal
[[Page 25911]]
seeks to reduce the number of weekly options that would be listed on
its market in later weeks, without reducing the number of series or
classes of options available for trading on the Exchange. As the
Exchange's Strike Interval Proposal seeks to reduce the number of
weekly options that would be listed on its market in later weeks,
Market Makers would be required to quote in fewer weekly strikes as a
result of the Strike Interval Proposal.
The Exchange's Strike Interval Proposal, which is intended to
decrease the overall number of strikes listed on the Exchange, does not
impose an undue burden on intra-market competition as all Participants
may only transact options in the strike intervals listed for trading on
the Exchange. While limiting the intervals of strikes listed on the
Exchange is the goal of this Strike Interval Proposal, the goal
continues to balance the needs of market participants by continuing to
offer a number of strikes to meet a market participant's investment
objective.
The Exchange's Strike Interval Proposal does not impose an undue
burden on inter-market competition as this Strike Interval Proposal
does not impact the listings available at another self-regulatory
organization. In fact, the Exchange is proposing to list a smaller
amount of weekly equity options in an effort to curtail the increasing
number of strikes that are required to be quoted by market makers in
the options industry. Other options markets may choose to replicate the
Exchange's Strike Interval Proposal and, thereby, further decrease the
overall number of strikes within the options industry.
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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) \35\ of the Act and Rule 19b-4(f)(6) thereunder.\36\
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)(iii) of the Act and subparagraph (f)(6) of Rule
19b-4 thereunder.\37\
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\35\ 15 U.S.C. 78s(b)(3)(A)(iii).
\36\ 17 CFR 240.19b-4(f)(6).
\37\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange 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-PEARL-2021-19 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-PEARL-2021-19. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street, NE, Washington,
DC 20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-PEARL-2021-19, and should be submitted
on or before June 1, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
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\38\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-09885 Filed 5-10-21; 8:45 am]
BILLING CODE 8011-01-P
