Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Increase Position Limits for Options on Two Exchange-Traded Funds, 72669-72674 [2021-27661]
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Federal Register / Vol. 86, No. 243 / Wednesday, December 22, 2021 / Notices
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
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;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–C2–
2021–017 and should be submitted on
or before January 12, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–27657 Filed 12–21–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93801; File No. SR–MIAX–
2021–61]
Self-Regulatory Organizations; Miami
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change To Increase Position Limits for
Options on Two Exchange-Traded
Funds
December 16, 2021.
khammond on DSKJM1Z7X2PROD with NOTICES
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 December
3, 2021, Miami International Securities
Exchange, LLC (‘‘MIAX Options’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange is filing a proposal to
amend Exchange Rule 307 (Position
Limits) and Exchange Rule 309
(Exercise Limits).
17 17
CFR 200.30–3(a)(12).
15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1
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The text of the proposed rule change
is available on the Exchange’s website,
at https://www.miaxoptions.com/rulefilings/ at MIAX Options’ principal
office, and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Exchange Rule 307 (Position Limits) and
Exchange Rule 309 (Exercise Limits) to
increase the position and exercise limits
for options on certain exchange-traded
funds (‘‘ETFs’’). These proposed rule
changes are based on the similar
proposal by Cboe Exchange, Inc.
(‘‘Cboe’’) and approved by the
Commission.3
Position limits are designed to
address potential manipulative schemes
and adverse market impacts
surrounding the use of options, such as
disrupting the market in the security
underlying the options. While position
limits should address and discourage
the potential for manipulative schemes
and adverse market impact, if such
limits are set too low, participation in
the options market may be discouraged.
The Exchange believes that position
limits must therefore be balanced
between mitigating concerns of any
potential manipulation and the cost of
inhibiting potential hedging activity that
could be used for legitimate economic
purposes.
The Exchange has observed an
ongoing increase in demand, for both
trading and hedging purposes in options
on iShares® iBoxx $ Investment Grade
3 See Securities Exchange Act Release No. 93525
(November 4, 2021), 86 FR 62584 (November 10,
2021) (SR–Cboe–2021–029) (Notice of Filing of
Amendment Nos. 2 and 3 and Order Granting
Accelerated Approval of a Proposed Rule Change,
as Modified by Amendment Nos. 1, 2, and 3, To
Increase Position Limits for Options on TwoExchange-Traded Funds).
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72669
Corporate Bond ETF (‘‘LQD’’) and
VanEck Vectors Gold Miners ETF
(‘‘GDX,’’ and collectively, with the
aforementioned ETF, the ‘‘Underlying
ETFs’’). Though the demand for these
options appears to have increased,
position limits for options on the
Underlying ETFs have remained the
same. The Exchange believes these
unchanged position limits may have
impeded, and may continue to impede,
trading activity and strategies of
investors, such as use of effective
hedging vehicles or income generating
strategies (e.g., buy-write or put-write),
and the ability of Market Makers 4 to
make liquid markets with tighter
spreads in these options resulting in the
transfer of volume to over-the-counter
(‘‘OTC’’) markets. OTC transactions
occur through bilateral agreements, the
terms of which are not publicly
disclosed to the marketplace. As such,
OTC transactions do not contribute to
the price discovery process on a public
exchange or other lit markets. Therefore,
the Exchange believes that the proposed
increases in position limits (and
exercise limits) for options on the
Underlying ETFs may enable liquidity
providers to provide additional liquidity
to the Exchange and other market
participants to transfer their liquidity
demands from OTC markets to the
Exchange. As described in further detail
below, the Exchange believes that the
continuously increasing market
capitalization of the Underlying ETFs,
ETF components, as well as the highly
liquid markets for each, reduces the
concerns for potential market
manipulation and/or disruption in the
underlying markets upon increasing
position limits, while the rising demand
for trading options on the Underlying
ETFs for legitimate economic purposes
compels an increase in position limits.
Proposed Position Limits for Options on
the Underlying ETFs
Position limits for options on ETFs
are determined pursuant to Exchange
Rule 307 and vary according to the
number of outstanding shares and the
trading volumes of the underlying
equity security (which includes ETFs)
over the past six months. Pursuant to
Rule 307, the largest in capitalization
and the most frequently traded stocks
and ETFs have an option position limit
of 250,000 contracts (with adjustments
for splits, re-capitalizations, etc.) on the
same side of the market; and smaller
4 ‘‘Market Makers’’ means ‘‘Lead Market Makers,’’
‘‘Primary Lead Market Makers’’ and ‘‘Registered
Market Makers’’ collectively. See Exchange Rule
100. A Market Maker has the rights and
responsibilities set forth in Chapter VI of the
Exchange’s Rulebook.
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Federal Register / Vol. 86, No. 243 / Wednesday, December 22, 2021 / Notices
capitalization stocks and ETFs have
position limits of 200,000, 75,000,
50,000, or 25,000 contracts (with
adjustments for splits, re-capitalizations,
etc.) on the same side of the market.
Options on LQD and GDX are currently
subject to the standard position limit of
250,000 contracts as set forth in
Exchange Rule 307, Policy .01 of
Exchange Rule 307 sets forth separate,
higher position limits for specific equity
options (including options on specific
ETFs).5
The Exchange proposes to amend
Policy .01 of Exchange Rule 307 to
increase the position limits for options
on each of LQD and GDX. The Exchange
also proposes to amend Policy .01 of
Exchange Rule 309 to increase the
exercise limits for options on each of
LQD and GDX. The table below
represents the current, and proposed,
position and exercise limits for options
on the Underlying ETFs subject to this
proposal:
Current
position/
exercise
limit
Product
LQD ..........................................................................................................................................................................
GDX .........................................................................................................................................................................
The Exchange notes that the proposed
position limit for options on LQD and
GDX are consistent with current
position limits for options on the
iShares® MSCI Brazil ETF (‘‘EWZ’’),
iShares® 20+ Year Treasury Bond Fund
ETF (‘‘TLT’’), iShares® MSCI Japan ETF
(‘‘EWJ’’), and iShares® iBoxx $ High
Yield Corporate Bond Fund (‘‘HYG’’).6
The Exchange represents that the
Underlying ETFs qualify for either (1)
the initial listing criteria set forth in
Rule 402(i)(5)(ii) for ETFs holding nonU.S. component securities, (2) the
generic listing standards for series of
portfolio depository receipts and index
fund shares based on international or
global indexes under which a
comprehensive surveillance agreement
(‘‘CSA’’) is not required, or (3) the
continued listing criteria in Exchange
Rule 403 (for ETFs).7 In compliance
with its listing rules, the Exchange also
represents that non-U.S. component
securities that are not subject to a CSA
do not, in the aggregate, represent more
than 50% of the weight of any of the
Underlying ETFs.8
Composition and Growth Analysis for
Underlying ETFs
As stated above, position (and
exercise) limits are intended to prevent
the establishment of options positions
that can be used to, or potentially create
incentives to, manipulate the
underlying market so as to benefit
options positions. The Commission has
recognized that these limits are
designed to minimize the potential for
mini-manipulations and for corners or
squeezes of the underlying market, as
well as serve to reduce the possibility
for disruption of the options market
itself, especially in illiquid classes.9 The
Underlying ETFs, as well as the ETF
ADV 11
(ETF shares
millions)
Product
khammond on DSKJM1Z7X2PROD with NOTICES
LQD .....................................................................................
GDX .....................................................................................
I
14.1
39.4
ADV
(options
contracts)
I
30,300
166,000
Proposed
position/
exercise
limit
250,000
250,000
500,000
500,000
components, are highly liquid and are
based on a broad set of highly liquid
securities and other reference assets, as
demonstrated through the trading
statistics presented in this proposal. To
support the proposed position limit
increases (and corresponding exercise
limit increases), the Exchange
considered the liquidity of the
Underlying ETFs, the Value of the
underlying ETFs, their components and
the relevant marketplace, the share and
option volume for the Underlying ETFs,
and, where applicable, the availability
or comparison of economically
equivalent products to options on the
Underlying ETFs.
Cboe demonstrated the below trading
statistics regarding shares of and options
on the Underlying ETFs and the values
of the Underlying ETFs and their
components: 10
Shares
outstanding
(millions) 12
308.1
419.8
I
Fund market
cap (USD
millions) 13
I
54,113.7
16,170.5
Share value 14
(USD)
I
130.13 (NAV)
33.80 (NAV)
Cboe collected the same trading
statistics as above regarding a sample of
other ETFs, as well as the current
position limits for options on such ETFs
pursuant to its Rule 13.07, to draw
comparisons in support of the proposed
position limit increases for options on
the Underlying ETFs (see further
discussion below).15
5 Adjusted option series, in which one option
contract in the series represents the delivery of
other than 100 shares of the underlying security as
a result of a corporate action by the issuer of the
security underlying such option series, do not
impact the notional value of the underlying security
represented by those options. When an underlying
security undergoes a corporate action resulting in
adjusted series, the Exchange lists new standard
option series across all appropriate expiration
months the day after the existing series are
adjusted. The adjusted series are generally actively
traded for a short period of time following
adjustment, but orders to open options positions in
the underlying security are almost exclusively
placed in the new standard option series contracts.
6 See Exchange Rule 307, Interpretation and
Policy .01.
7 The Exchange notes that the initial listing
criteria for options on ETFs that hold non-U.S.
component securities are more stringent than the
maintenance listing criteria for those same ETF
options. See Exchange Rule 402(i)(5)(ii) and
Exchange Rule 403(g).
8 See Exchange Rule 402(i)(5)(ii).
9 See Securities Exchange Act Release No. 67672
(August 15, 2012), 77 FR 50750 (August 22, 2012)
(SR–NYSEAmex–2012–29).
10 See supra note 3.
11 Average daily volume (ADV) data for ETF
shares and option contracts, as well as for ETF
shares and options on the comparative ETFs
presented below, are for all of 2020. Additionally,
reference to ADV in ETF shares and ETF options,
and indexes herein this proposal are for all of
calendar year 2020, unless otherwise indicated.
12 Shares Outstanding and Net Asset Values
(‘‘NAV’’), as well as for the comparative ETFs
presented below, are as of April 5, 2021 for all
ETFs.
13 Fund Market Capitalization data, as well as for
the comparative ETFs presented below, are as of
January 14, 2021.
14 See supra note 12.
15 See supra note 3.
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Federal Register / Vol. 86, No. 243 / Wednesday, December 22, 2021 / Notices
ADV
(ETF shares
millions)
Product
khammond on DSKJM1Z7X2PROD with NOTICES
EWZ .........................................................
TLT ..........................................................
EWJ .........................................................
HYG .........................................................
29.2
11.5
8.2
30.5
ADV
(options
contract)
Shares
outstanding
(millions)
139,400
111,800
15,500
261,600
Fund
market cap
(USD millions)
173.8
103.7
185.3
254.5
The Exchange believes that, overall,
the liquidity in the shares of the
Underlying ETFs and in their overlying
options, the larger market
capitalizations for each of the
Underlying ETFs, and the overall
market landscape relevant to each of the
Underlying ETFs support the proposal
to increase the position limits for each
option class. Given the robust liquidity
in, and value of, the Underlying ETFs
and their components, the Exchange
does not anticipate that the proposed
increase in position limits would create
significant price movements as the
relevant markets are large enough to
adequately absorb potential price
movements that may be caused by larger
trades.
LQD tracks the performance of the
Markit iBoxx USD Liquid Investment
Grade (‘‘IBOXIG’’) Index, which is an
index designed as a subset of the
broader U.S. dollar-denominated
corporate bond market which can be
used as a basis for tradable products,
such as ETFs, and is comprised of over
8,000 bonds.16 Cboe noted that from
2019 through 2020, ADV has grown
significantly in shares of LQD and in
options on LQD, from approximately 9.7
million shares in 2019 to 14.1 million
through 2020, and from approximately
8,200 option contracts in 2019 to 30,300
option contracts through 2020. LQD also
continued to experience significant
growth in ADV in the first quarter of
2021 with an ADV of approximately
140,200 options contracts. Further, LQD
generally experiences higher ADV in
shares than both TLT (11.5 million
shares) and EWJ (8.2 million share) and
almost double the ADV in option
contracts than EWJ (15,500 option
contracts). Options on each of EWZ,
TLT, and EWJ are currently subject to a
position limit of 500,000 contracts—the
proposed limit for options on LQD. The
NAV of LQD is also higher than, or
comparable to, that of the NAV of the
ETFs underlying the options that are
currently subject to a position limit of
500,000 option contracts (as presented
in the table above), which is indicative
that the total value of its underlying
components is generally higher or
comparable. Per the tables above, LQD’s
total market capitalization of
approximately $54.1 billion is also
higher than or comparable to the total
market capitalization of the ETFs
underlying the options currently subject
to a position limit of 500,000 contracts.
In addition to this, Cboe noted that,
although there are currently no options
listed for trading on the IBOXIG Index,
the components 17 of the IBOXIG Index,
which can be used in creating a basket
of securities that equate to the LQD ETF,
are made up of over 8,000 bonds for
which the outstanding face value of
each must be greater than or equal to $2
billion.18 The Exchange believes that the
total value of the bonds in the IBOXIG
Index, coupled with LQD’s share and
option volume, total market
capitalization, and NAV price indicates
that the market is large enough to absorb
potential price movements caused by a
large trade in LQD. Also, as evidenced
above, trading volume in LQD shares
has increased over the past few years,
and the Exchange understands that
market participants’ need for options
has continued to grow alongside the
ETF. Particularly, the Exchange notes
that in the last year, market participants
have sought more cost-effective hedging
strategies through the use of LQD
options as a result of the borrow on
other fixed income ETFs, such as HYG.
Therefore, the Exchange believes that
because LQD options are being
increasingly utilized as an alternative to
similar products, such as HYG options,
then it is appropriate that options on
LQD be subject to the same 500,000
contract position limit that currently
exists for options on HYG.
GDX seeks to replicate as closely as
possible the price and yield
performance of the NYSE Arca Gold
Miners (‘‘GDMNTR’’) Index, which is
intended to track the overall
performance of companies involved in
the gold mining industry.19 Cboe noted
16 See Markit iBoxx USD Liquid Investment
Grade Index, available at https://cdn.ihs.com/www/
pdf/MKT-iBoxx-USD-Liquid-Investment-GradeIndex-factsheet.pdf. (March 31, 2021).
Investment grade corporate bonds.
See supra note 16.
19 See VanEck Vectors Gold Miners ETF,
available at https://www.vaneck.com/library/
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17
6,506.8
17,121.3
13,860.7
24,067.5
Share
value
(USD)
33.71 (NAV) ...
136.85 (NAV)
69.72 (NAV) ...
86.86 (NAV) ...
72671
Current
position limits
500,000
500,000
500,000
500,000
ADV in GDX options has increased from
2019 through 2020, with an ADV of
approximately 117,400 option contracts
in 2019 to an ADV of approximately
166,000 option contracts in 2020. Cboe
noted that ADV in GDX shares did not
increase from 2019 to 2020. GDX
options also experienced an ADV of
approximately 287,800 option contracts
in the first quarter of 2021. Cboe noted
that the ADV in GDX shares (39.4
million) and options on GDX (166,000
option contracts) are greater than the
ADV in EWZ (29.2 million shares and
139,300 option contracts), TLT (11.5
million shares and 111,800 option
contracts), EWJ (8.2 million shares and
15,500 option contracts), and HYG (30.5
million shares and 261,600 option
contracts), each of which is currently
subject to a position limit of 500,000
option contracts—the proposed limit for
options on GDX. GDX also experiences
a comparable, or higher, market
capitalization (approximately $16.2
billion) than EWZ, TLT and EWJ. Cboe
noted that many of the Brazil-based gold
mining constituents included in GDX
are also included in EWZ, which tracks
the investment results of an index
composed of Brazilian equities, and that
Cboe had not identified any issues with
the continued listing and trading of
EWZ options or any adverse market
impact on EWZ in connection with the
current 500,000 position limit in place
for EWZ options. Additionally, like that
of LDQ [sic] above, there is currently no
index option analogue for the GDX ETF
on the GDMNTR Index approved for
options trading; however, the
components of the GDMNTR Index,
which can be used to create the GDX
ETF, currently must each have a market
capitalization greater than $750 million,
an ADV of at least 50,000 shares, and an
average daily value traded of at least $1
million in order to be eligible for
inclusion in the GDMNTR Index. The
Exchange believes that the GDMNTR
Index component inclusion
requirements, as well as GDX’s share
and option volume and total market
capitalization, indicate that the GDX
18
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31, 2021).
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market is sufficiently large and liquid
enough to absorb price movements as a
result of potentially oversized trades.
khammond on DSKJM1Z7X2PROD with NOTICES
Creation and Redemption for ETFs
The Exchange believes that the
creation and redemption process for the
ETFs subject to this proposal will lessen
the potential for manipulative activity
with options on the Underlying ETFs.
When an ETF provider wants to create
more shares, it looks to an Authorized
Participant (‘‘AP’’) (generally a MarketMaker or other large financial
institution) to acquire the securities the
ETF is to hold. For instance, when an
ETF is designed to track the
performance of an index, the AP can
purchase all the constituent securities in
the exact same weight as the index, then
deliver those shares to the ETF provider.
In exchange, the ETF provider gives the
AP a block of equally valued ETF
shares, on a one-for-one fair value basis.
The price is based on the NAV, not the
market value at which the ETF is
trading. The creation of new ETF units
can be conducted during an entire
trading day and is not subject to
position limits. This process works in
reverse where the ETF provider seeks to
decrease the number of shares that are
available to trade. The creation and
redemption processes for the
Underlying ETFs creates a direct link to
the underlying components of the ETF
and serves to mitigate potential price
impact of the ETF shares that might
otherwise result from increased position
limits for the options on the Underlying
ETFs.
The Exchange understands that the
ETF creation and redemption processes
seek to keep an ETF’s share price
trading in line with the product’s
underlying net asset value. Because an
ETF trades like a stock, its share price
will fluctuate during the trading day,
due to simple supply and demand. If
demand to buy an ETF is high, for
instance, an ETF’s share price might rise
above the value of its underlying
components. When this happens, the
AP or issuer believes the ETF may now
be overpriced, so it may buy shares of
the component securities or assets and
then sell ETF shares in the open market.
This may drive the ETF’s share price
back toward the underlying net asset
value. Likewise, if an ETF share price
starts trading at a discount to the
component securities or assets it holds,
the AP or issuer can buy shares of the
ETF and redeem them for the
underlying components. Buying
undervalued ETF shares may drive the
share price of an ETF back toward fair
value. This arbitrage process helps to
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keep an ETF’s share price in line with
the value of its underlying portfolio.
Surveillance and Reporting
Requirements
The Exchange believes that increasing
the position limits (and exercise limits)
for the options on the Underlying ETFs
would lead to a more liquid and
competitive market environment for
these options, which will benefit
customers interested in trading these
products. The reporting requirement for
the options on the Underlying ETFs
would remain unchanged. Thus, the
Exchange would still require that each
Member 20 maintains that positions in
the options on the same side of the
market, for its own account or for the
account of a customer, report certain
information to the Exchange. This
information would include, but would
not be limited to, the options positions,
whether such positions are hedged and,
if so, a description of the hedge(s).
Market-Makers (including Primary Lead
Market-Makers) 21 would continue to be
exempt from this reporting requirement;
however, the Exchange may access
Market-Maker position information.22
Moreover, the Exchange’s requirement
that Members file reports with the
Exchange for any customer who held
aggregate large long or short positions
on the same side of the market of 200
or more option contracts of any single
class for the previous day will remain at
this level for the options subject to this
proposal and will continue to serve as
an important part of the Exchange’s
surveillance efforts.23
The Exchange believes that the
existing surveillance procedures and
reporting requirements at the Exchange
and other SROs are capable of properly
identifying disruptive and/or
manipulative trading activity. The
20 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.
21 ‘‘Primary Lead Market Maker’’ means a Lead
Market Maker appointed by the Exchange to act as
the Primary Lead Market Maker for the purpose of
making markets in securities traded on the
Exchange. The Primary Lead Market Maker is
vested with certain rights and responsibility
specified Chapter VI of the Rulebook. See Exchange
Rule 100.
22 The Options Clearing Corporation (‘‘OCC’’)
through the Large Option Position Reporting
(‘‘LOPR’’) system acts as a centralized service
provider for Member compliance with position
reporting requirements by collecting data from each
Member, consolidating the information, and
ultimately providing detailed listings of each
Member’s report to the Exchange, as well as
Financial Industry Regulatory Authority, Inc.
(‘‘FINRA’’), acting as its agent pursuant to a
regulatory services agreement (‘‘RSA’’) with the
Exchange.
23 See Rule 310(a).
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Exchange also represents that it has
adequate surveillances in place to detect
potential manipulation, as well as
reviews in place to identify potential
changes in composition of the
Underlying ETFs and continued
compliance with the Exchange’s listing
standards. These procedures utilize
daily monitoring of market activity via
automated surveillance techniques to
identify unusual activity in both options
and the Underlying ETFs, as
applicable.24 The Exchange also notes
that large stock holdings must be
disclosed to the Commission by way of
Schedules 13D or 13G,25 which are used
to report ownership of stock that
exceeds 5% of a company’s total stock
issue and may assist in providing
information in monitoring for any
potential manipulative schemes.
The Exchange believes that the
current financial requirements imposed
by the Exchange and by the Commission
adequately address concerns regarding
potentially large, unhedged positions in
the options on the Underlying ETFs.
Current margin and risk-based haircut
methodologies serve to limit the size of
positions maintained by any one
account by increasing the margin and/
or capital that a Member must maintain
for a large position held by itself or by
its customer.26 In addition, Rule
15c3–1 27 imposes a capital charge on
Members to the extent of any margin
deficiency resulting from the higher
margin requirement.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the Act
and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.28 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 29 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
24 The Exchange believes these procedures have
been effective for the surveillance of trading the
options subject to this proposal and will continue
to employ them.
25 17 CFR 240.13d–1.
26 See Exchange Rule 1502 for a description of
margin requirements.
27 17 CFR 240.15c3–1.
28 15 U.S.C. 78f(b).
29 15 U.S.C. 78f(b)(5).
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open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 30 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange believes that the
proposed increase in position limits for
options on the Underlying ETFs will
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, protect investors and the public
interest, because it will provide market
participants with the ability to more
effectively execute their trading and
hedging activities. The proposed
increases will allow market participants
to more fully implement hedging
strategies in related derivative products
and to further use options to achieve
investment strategies (e.g., there are
other exchange-traded products
(‘‘ETPs’’) that use options on the ETFs
subject to this proposal as part of their
investment strategy, and the applicable
position limits as they stand today may
inhibit these other ETPs in achieving
their investment objectives to the
detriment of investors). Also, increasing
the applicable position limits may allow
Market-Makers to provide the markets
for these options with more liquidity in
amounts commensurate with increased
consumer demand in such markets. The
proposed position limit increases may
also encourage other liquidity providers
to shift liquidity, as well as encourage
consumers to shift demand, from over
the counter markets onto the Exchange,
which will enhance the process of price
discovery conducted on the Exchange
through increased order flow.
In addition, the Exchange believes
that the structure of the Underlying
ETFs, the considerable market
capitalization of the funds and
underlying components, and the
liquidity of the markets for the
applicable options and underlying
component securities will mitigate
concerns regarding potential
manipulation of the products and/or
disruption of the underlying markets
upon increasing the relevant position
limits. As a general principle, increases
in market capitalizations, active trading
volume, and deep liquidity of the
underlying components do not lead to
manipulation and/or disruption. This
general principle applies to the recently
observed increased levels of market
capitalization and trading volume and
liquidity in shares of and options on the
30 Id.
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17:55 Dec 21, 2021
Jkt 256001
Underlying ETFs (as described above),
and, as a result, the Exchange does not
believe that the options markets or
underlying markets would become
susceptible to manipulation and/or
disruption as a result of the proposed
position limit increases. Indeed, the
Commission has previously expressed
the belief that not just increasing, but
removing, position and exercise limits
may bring additional depth and
liquidity to the options markets without
increasing concerns regarding
intermarket manipulation or disruption
of the options or the underlying
securities.31
The proposed increase to the position
and exercise limits on the Underlying
ETFs has recently been approved by the
Commission.32 Further, the Exchange
notes that the proposed rule change to
increase position limits for select
actively traded options is not novel and
the Commission has approved similar
proposed rule changes by Cboe to
increase position limits for options on
similar, highly liquid and actively
traded ETPs.33 Furthermore, the
Exchange again notes that the proposed
position limits for options on LQD and
GDX are consistent with existing
position limits for options on other
ETFs in Rule 307, Policy .01.34
The Exchange’s surveillance and
reporting safeguards continue to be
designed to deter and detect possible
manipulative behavior that might arise
from increasing or eliminating position
and exercise limits in certain classes.
The Exchange believes that the current
financial requirements imposed by the
Exchange and by the Commission
adequately address concerns regarding
potentially large, unhedged position in
the options on the Underlying ETFs,
further promoting just and equitable
principles of trading, the maintenance
of a fair and orderly market, and the
protection of investors.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not believe the proposed
rule change will impose any burden on
31 See Securities Exchange Act Release No. 62147
(October 28, 2005) (SR–CBOE–2005–41), at 62149.
32 See supra note 3.
33 See Securities Exchange Act Release Nos.
88768 (April 29, 2020), 85 FR 26736 (May 5, 2020)
(SR–CBOE–2021–015); 83415 (June 12, 2018), 83 FR
28274 (June 18, 2018) (SR–CBOE–2018–042); and
68086 (October 23, 2012), 77 FR 65600 (October 29,
2012) (SR–CBOE–2012–066).
34 See supra note 6.
PO 00000
Frm 00100
Fmt 4703
Sfmt 4703
72673
intramarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act because the
increased position limits (and exercise
limits) will be available to all market
participants and apply to each in the
same manner. The Exchange believes
that the proposed rule change will
provide additional opportunities for
market participants to more efficiently
achieve their investment and trading
objectives of market participants.
The Exchange does not believe that
the proposed rule change will impose
any burden on intermarket competition
that is not necessary or appropriate in
furtherance of the Act. On the contrary,
the Exchange believes the proposal
promotes competition because it may
attract additional order flow from the
OTC market to exchanges, which would
in turn compete amongst each other for
those orders.35 The Exchange believes
market participants would benefit from
being able to trade options with
increased position limits in an exchange
environment in several ways, including
but not limited to the following: (1)
Enhanced efficiency in initiating and
closing out positions; (2) increased
market transparency; and (3) heightened
contra-party creditworthiness due to the
role of OCC as issuer and guarantor.
Additionally, BOX Exchange LLC
(‘‘BOX’’), Nasdaq ISE, LLC (‘‘ISE’’), and
Nasdaq PHLX LLC (‘‘PHLX’’) have
recently filed similar proposed rule
changes to increase position limits and
exercise limits on options on the
Underlying ETFs.36
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
35 Additionally, several other options exchanges
have the same position limits as the Exchange, as
they incorporate by reference to the position limits
established by Cboe, and as a result, the position
limits for options on the Underlying ETFs will
increase at those exchanges. For example, The
Nasdaq Options Markets LLC (‘‘NOM’’) and Nasdaq
BX, Inc. (‘‘BX’’) position limits are determined by
the position limits established by Cboe. See NOM
and BX Rules, Options 9, Sec. 13 (Position Limits).
36 See Securities Exchange Act Release No. 93659
(November 23, 2021) (SR–BOX–2021–27);
Securities Exchange Act Release No. 93658
(November 23, 2021) (SR–ISE–2021–25); Securities
Exchange Act Release No. 93661 (November 23,
2021) (SR–Phlx–2021–70).
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burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 37 and Rule 19b–
4(f)(6) thereunder.38
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 39 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 40
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has asked
the Commission to waive the 30-day
operative delay so that the proposed
rule change may become operative upon
filing. The Exchange states that waiver
of the operative delay would be
consistent with the protection of
investors and the public interest
because it will ensure fair competition
among exchanges by allowing the
Exchange to amend the position and
exercise limits and immediately benefit
a greater number of participants who are
MIAX Members and members of Cboe
by ensuring consistency and uniformity
among competing options exchanges as
to the position and exercise limits for
these multiply-listed options classes.
For this reason, the Commission
believes that waiver of the 30-day
operative delay is consistent with the
protection of investors and the public
interest. Therefore, the Commission
hereby waives the operative delay and
designates the proposal as operative
upon filing.41
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
15 U.S.C. 78s(b)(3)(A).
17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
39 17 CFR 240.19b–4(f)(6).
40 17 CFR 240.19b–4(f)(6)(iii).
41 For purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
37
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change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MIAX–2021–61 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–MIAX–2021–61. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–MIAX–2021–61, and
should be submitted on or before
January 12, 2022.
Frm 00101
Fmt 4703
[FR Doc. 2021–27661 Filed 12–21–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93797; File No. SR–
NYSEArca–2021–47]
Electronic Comments
PO 00000
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
J. Matthew DeLesDernier,
Assistant Secretary.
Sfmt 4703
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Designation of
Longer Period for Commission Action
on Proceedings To Determine Whether
To Approve or Disapprove a Proposed
Rule Change, as Modified by
Amendment No. 1, To Adopt New
Rules 6.1P–O, 6.37AP–O, 6.40P–O,
6.41P–O, 6.62P–O, 6.64P–O, 6.76P–O,
and 6.76AP–O and Amendments to
Rules 1.1, 6.1–O, 6.1A–O, 6.37–O,
6.65A–O and 6.96–O
December 16, 2021.
On June 21, 2021, NYSE Arca, Inc.
(‘‘NYSE Arca’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to adopt new Rules 6.1P–O
(Applicability), 6.37AP–O (Market
Maker Quotations), 6.40P–O (Pre-Trade
and Activity-Based Risk Controls),
6.41P–O (Price Reasonability Checks—
Orders and Quotes), 6.62P–O (Orders
and Modifiers), 6.64P–O (Auction
Process), 6.76P–O (Order Ranking and
Display), and 6.76AP–O (Order
Execution and Routing) and proposed
amendments to Rules 1.1 (Definitions),
6.1–O (Applicability, Definitions and
References), 6.1A–O (Definitions and
References—OX), 6.37–O (Obligations of
Market Makers), 6.65A–O (Limit-Up and
Limit-Down During Extraordinary
Market Volatility), and 6.96–O
(Operation of Routing Broker) to reflect
the implementation of the Exchange’s
Pillar trading technology on its options
market. The proposed rule change was
published for comment in the Federal
Register on July 9, 2021.3
On August 18, 2021, pursuant to
Section 19(b)(2) of the Act,4 the
Commission designated a longer period
within which to approve the proposed
42 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 92304
(June 30, 2021), 86 FR 36440 (‘‘Notice’’).
4 15 U.S.C. 78s(b)(2).
1 15
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]]>Agencies
[Federal Register Volume 86, Number 243 (Wednesday, December 22, 2021)]
[Notices]
[Pages 72669-72674]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-27661]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93801; File No. SR-MIAX-2021-61]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Increase Position Limits for Options on Two Exchange-
Traded Funds
December 16, 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 December 3, 2021, Miami International Securities Exchange, LLC
(``MIAX Options'' or the ``Exchange'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change as
described in Items I and II below, which Items have been prepared by
the Exchange. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange is filing a proposal to amend Exchange Rule 307
(Position Limits) and Exchange Rule 309 (Exercise Limits).
The text of the proposed rule change is available on the Exchange's
website, at https://www.miaxoptions.com/rule-filings/ at MIAX Options'
principal office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Exchange Rule 307 (Position Limits)
and Exchange Rule 309 (Exercise Limits) to increase the position and
exercise limits for options on certain exchange-traded funds
(``ETFs''). These proposed rule changes are based on the similar
proposal by Cboe Exchange, Inc. (``Cboe'') and approved by the
Commission.\3\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 93525 (November 4,
2021), 86 FR 62584 (November 10, 2021) (SR-Cboe-2021-029) (Notice of
Filing of Amendment Nos. 2 and 3 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1,
2, and 3, To Increase Position Limits for Options on Two-Exchange-
Traded Funds).
---------------------------------------------------------------------------
Position limits are designed to address potential manipulative
schemes and adverse market impacts surrounding the use of options, such
as disrupting the market in the security underlying the options. While
position limits should address and discourage the potential for
manipulative schemes and adverse market impact, if such limits are set
too low, participation in the options market may be discouraged. The
Exchange believes that position limits must therefore be balanced
between mitigating concerns of any potential manipulation and the cost
of inhibiting potential hedging activity that could be used for
legitimate economic purposes.
The Exchange has observed an ongoing increase in demand, for both
trading and hedging purposes in options on iShares[supreg] iBoxx $
Investment Grade Corporate Bond ETF (``LQD'') and VanEck Vectors Gold
Miners ETF (``GDX,'' and collectively, with the aforementioned ETF, the
``Underlying ETFs''). Though the demand for these options appears to
have increased, position limits for options on the Underlying ETFs have
remained the same. The Exchange believes these unchanged position
limits may have impeded, and may continue to impede, trading activity
and strategies of investors, such as use of effective hedging vehicles
or income generating strategies (e.g., buy-write or put-write), and the
ability of Market Makers \4\ to make liquid markets with tighter
spreads in these options resulting in the transfer of volume to over-
the-counter (``OTC'') markets. OTC transactions occur through bilateral
agreements, the terms of which are not publicly disclosed to the
marketplace. As such, OTC transactions do not contribute to the price
discovery process on a public exchange or other lit markets. Therefore,
the Exchange believes that the proposed increases in position limits
(and exercise limits) for options on the Underlying ETFs may enable
liquidity providers to provide additional liquidity to the Exchange and
other market participants to transfer their liquidity demands from OTC
markets to the Exchange. As described in further detail below, the
Exchange believes that the continuously increasing market
capitalization of the Underlying ETFs, ETF components, as well as the
highly liquid markets for each, reduces the concerns for potential
market manipulation and/or disruption in the underlying markets upon
increasing position limits, while the rising demand for trading options
on the Underlying ETFs for legitimate economic purposes compels an
increase in position limits.
---------------------------------------------------------------------------
\4\ ``Market Makers'' means ``Lead Market Makers,'' ``Primary
Lead Market Makers'' and ``Registered Market Makers'' collectively.
See Exchange Rule 100. A Market Maker has the rights and
responsibilities set forth in Chapter VI of the Exchange's Rulebook.
---------------------------------------------------------------------------
Proposed Position Limits for Options on the Underlying ETFs
Position limits for options on ETFs are determined pursuant to
Exchange Rule 307 and vary according to the number of outstanding
shares and the trading volumes of the underlying equity security (which
includes ETFs) over the past six months. Pursuant to Rule 307, the
largest in capitalization and the most frequently traded stocks and
ETFs have an option position limit of 250,000 contracts (with
adjustments for splits, re-capitalizations, etc.) on the same side of
the market; and smaller
[[Page 72670]]
capitalization stocks and ETFs have position limits of 200,000, 75,000,
50,000, or 25,000 contracts (with adjustments for splits, re-
capitalizations, etc.) on the same side of the market. Options on LQD
and GDX are currently subject to the standard position limit of 250,000
contracts as set forth in Exchange Rule 307, Policy .01 of Exchange
Rule 307 sets forth separate, higher position limits for specific
equity options (including options on specific ETFs).\5\
---------------------------------------------------------------------------
\5\ Adjusted option series, in which one option contract in the
series represents the delivery of other than 100 shares of the
underlying security as a result of a corporate action by the issuer
of the security underlying such option series, do not impact the
notional value of the underlying security represented by those
options. When an underlying security undergoes a corporate action
resulting in adjusted series, the Exchange lists new standard option
series across all appropriate expiration months the day after the
existing series are adjusted. The adjusted series are generally
actively traded for a short period of time following adjustment, but
orders to open options positions in the underlying security are
almost exclusively placed in the new standard option series
contracts.
---------------------------------------------------------------------------
The Exchange proposes to amend Policy .01 of Exchange Rule 307 to
increase the position limits for options on each of LQD and GDX. The
Exchange also proposes to amend Policy .01 of Exchange Rule 309 to
increase the exercise limits for options on each of LQD and GDX. The
table below represents the current, and proposed, position and exercise
limits for options on the Underlying ETFs subject to this proposal:
------------------------------------------------------------------------
Current Proposed
Product position/ position/
exercise limit exercise limit
------------------------------------------------------------------------
LQD..................................... 250,000 500,000
GDX..................................... 250,000 500,000
------------------------------------------------------------------------
The Exchange notes that the proposed position limit for options on
LQD and GDX are consistent with current position limits for options on
the iShares[supreg] MSCI Brazil ETF (``EWZ''), iShares[supreg] 20+ Year
Treasury Bond Fund ETF (``TLT''), iShares[supreg] MSCI Japan ETF
(``EWJ''), and iShares[supreg] iBoxx $ High Yield Corporate Bond Fund
(``HYG'').\6\ The Exchange represents that the Underlying ETFs qualify
for either (1) the initial listing criteria set forth in Rule
402(i)(5)(ii) for ETFs holding non-U.S. component securities, (2) the
generic listing standards for series of portfolio depository receipts
and index fund shares based on international or global indexes under
which a comprehensive surveillance agreement (``CSA'') is not required,
or (3) the continued listing criteria in Exchange Rule 403 (for
ETFs).\7\ In compliance with its listing rules, the Exchange also
represents that non-U.S. component securities that are not subject to a
CSA do not, in the aggregate, represent more than 50% of the weight of
any of the Underlying ETFs.\8\
---------------------------------------------------------------------------
\6\ See Exchange Rule 307, Interpretation and Policy .01.
\7\ The Exchange notes that the initial listing criteria for
options on ETFs that hold non-U.S. component securities are more
stringent than the maintenance listing criteria for those same ETF
options. See Exchange Rule 402(i)(5)(ii) and Exchange Rule 403(g).
\8\ See Exchange Rule 402(i)(5)(ii).
---------------------------------------------------------------------------
Composition and Growth Analysis for Underlying ETFs
As stated above, position (and exercise) limits are intended to
prevent the establishment of options positions that can be used to, or
potentially create incentives to, manipulate the underlying market so
as to benefit options positions. The Commission has recognized that
these limits are designed to minimize the potential for mini-
manipulations and for corners or squeezes of the underlying market, as
well as serve to reduce the possibility for disruption of the options
market itself, especially in illiquid classes.\9\ The Underlying ETFs,
as well as the ETF components, are highly liquid and are based on a
broad set of highly liquid securities and other reference assets, as
demonstrated through the trading statistics presented in this proposal.
To support the proposed position limit increases (and corresponding
exercise limit increases), the Exchange considered the liquidity of the
Underlying ETFs, the Value of the underlying ETFs, their components and
the relevant marketplace, the share and option volume for the
Underlying ETFs, and, where applicable, the availability or comparison
of economically equivalent products to options on the Underlying ETFs.
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release No. 67672 (August 15,
2012), 77 FR 50750 (August 22, 2012) (SR-NYSEAmex-2012-29).
---------------------------------------------------------------------------
Cboe demonstrated the below trading statistics regarding shares of
and options on the Underlying ETFs and the values of the Underlying
ETFs and their components: \10\
---------------------------------------------------------------------------
\10\ See supra note 3.
----------------------------------------------------------------------------------------------------------------
Shares
ADV \11\ (ETF ADV (options outstanding Fund market Share value \14\
Product shares contracts) (millions) cap (USD (USD)
millions) \12\ millions) \13\
----------------------------------------------------------------------------------------------------------------
LQD......................... 14.1 30,300 308.1 54,113.7 130.13 (NAV)
GDX......................... 39.4 166,000 419.8 16,170.5 33.80 (NAV)
----------------------------------------------------------------------------------------------------------------
Cboe collected the same trading statistics as above regarding a
sample of other ETFs, as well as the current position limits for
options on such ETFs pursuant to its Rule 13.07, to draw comparisons in
support of the proposed position limit increases for options on the
Underlying ETFs (see further discussion below).\15\
---------------------------------------------------------------------------
\11\ Average daily volume (ADV) data for ETF shares and option
contracts, as well as for ETF shares and options on the comparative
ETFs presented below, are for all of 2020. Additionally, reference
to ADV in ETF shares and ETF options, and indexes herein this
proposal are for all of calendar year 2020, unless otherwise
indicated.
\12\ Shares Outstanding and Net Asset Values (``NAV''), as well
as for the comparative ETFs presented below, are as of April 5, 2021
for all ETFs.
\13\ Fund Market Capitalization data, as well as for the
comparative ETFs presented below, are as of January 14, 2021.
\14\ See supra note 12.
\15\ See supra note 3.
[[Page 72671]]
--------------------------------------------------------------------------------------------------------------------------------------------------------
ADV (ETF Shares Fund market Current
Product shares ADV (options outstanding cap (USD Share value (USD) position
millions) contract) (millions) millions) limits
--------------------------------------------------------------------------------------------------------------------------------------------------------
EWZ..................................... 29.2 139,400 173.8 6,506.8 33.71 (NAV)................... 500,000
TLT..................................... 11.5 111,800 103.7 17,121.3 136.85 (NAV).................. 500,000
EWJ..................................... 8.2 15,500 185.3 13,860.7 69.72 (NAV)................... 500,000
HYG..................................... 30.5 261,600 254.5 24,067.5 86.86 (NAV)................... 500,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
The Exchange believes that, overall, the liquidity in the shares of
the Underlying ETFs and in their overlying options, the larger market
capitalizations for each of the Underlying ETFs, and the overall market
landscape relevant to each of the Underlying ETFs support the proposal
to increase the position limits for each option class. Given the robust
liquidity in, and value of, the Underlying ETFs and their components,
the Exchange does not anticipate that the proposed increase in position
limits would create significant price movements as the relevant markets
are large enough to adequately absorb potential price movements that
may be caused by larger trades.
LQD tracks the performance of the Markit iBoxx USD Liquid
Investment Grade (``IBOXIG'') Index, which is an index designed as a
subset of the broader U.S. dollar-denominated corporate bond market
which can be used as a basis for tradable products, such as ETFs, and
is comprised of over 8,000 bonds.\16\ Cboe noted that from 2019 through
2020, ADV has grown significantly in shares of LQD and in options on
LQD, from approximately 9.7 million shares in 2019 to 14.1 million
through 2020, and from approximately 8,200 option contracts in 2019 to
30,300 option contracts through 2020. LQD also continued to experience
significant growth in ADV in the first quarter of 2021 with an ADV of
approximately 140,200 options contracts. Further, LQD generally
experiences higher ADV in shares than both TLT (11.5 million shares)
and EWJ (8.2 million share) and almost double the ADV in option
contracts than EWJ (15,500 option contracts). Options on each of EWZ,
TLT, and EWJ are currently subject to a position limit of 500,000
contracts--the proposed limit for options on LQD. The NAV of LQD is
also higher than, or comparable to, that of the NAV of the ETFs
underlying the options that are currently subject to a position limit
of 500,000 option contracts (as presented in the table above), which is
indicative that the total value of its underlying components is
generally higher or comparable. Per the tables above, LQD's total
market capitalization of approximately $54.1 billion is also higher
than or comparable to the total market capitalization of the ETFs
underlying the options currently subject to a position limit of 500,000
contracts. In addition to this, Cboe noted that, although there are
currently no options listed for trading on the IBOXIG Index, the
components \17\ of the IBOXIG Index, which can be used in creating a
basket of securities that equate to the LQD ETF, are made up of over
8,000 bonds for which the outstanding face value of each must be
greater than or equal to $2 billion.\18\ The Exchange believes that the
total value of the bonds in the IBOXIG Index, coupled with LQD's share
and option volume, total market capitalization, and NAV price indicates
that the market is large enough to absorb potential price movements
caused by a large trade in LQD. Also, as evidenced above, trading
volume in LQD shares has increased over the past few years, and the
Exchange understands that market participants' need for options has
continued to grow alongside the ETF. Particularly, the Exchange notes
that in the last year, market participants have sought more cost-
effective hedging strategies through the use of LQD options as a result
of the borrow on other fixed income ETFs, such as HYG. Therefore, the
Exchange believes that because LQD options are being increasingly
utilized as an alternative to similar products, such as HYG options,
then it is appropriate that options on LQD be subject to the same
500,000 contract position limit that currently exists for options on
HYG.
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\16\ See Markit iBoxx USD Liquid Investment Grade Index,
available at https://cdn.ihs.com/www/pdf/MKT-iBoxx-USD-Liquid-Investment-Grade-Index-factsheet.pdf. (March 31, 2021).
\17\ Investment grade corporate bonds.
\18\ See supra note 16.
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GDX seeks to replicate as closely as possible the price and yield
performance of the NYSE Arca Gold Miners (``GDMNTR'') Index, which is
intended to track the overall performance of companies involved in the
gold mining industry.\19\ Cboe noted ADV in GDX options has increased
from 2019 through 2020, with an ADV of approximately 117,400 option
contracts in 2019 to an ADV of approximately 166,000 option contracts
in 2020. Cboe noted that ADV in GDX shares did not increase from 2019
to 2020. GDX options also experienced an ADV of approximately 287,800
option contracts in the first quarter of 2021. Cboe noted that the ADV
in GDX shares (39.4 million) and options on GDX (166,000 option
contracts) are greater than the ADV in EWZ (29.2 million shares and
139,300 option contracts), TLT (11.5 million shares and 111,800 option
contracts), EWJ (8.2 million shares and 15,500 option contracts), and
HYG (30.5 million shares and 261,600 option contracts), each of which
is currently subject to a position limit of 500,000 option contracts--
the proposed limit for options on GDX. GDX also experiences a
comparable, or higher, market capitalization (approximately $16.2
billion) than EWZ, TLT and EWJ. Cboe noted that many of the Brazil-
based gold mining constituents included in GDX are also included in
EWZ, which tracks the investment results of an index composed of
Brazilian equities, and that Cboe had not identified any issues with
the continued listing and trading of EWZ options or any adverse market
impact on EWZ in connection with the current 500,000 position limit in
place for EWZ options. Additionally, like that of LDQ [sic] above,
there is currently no index option analogue for the GDX ETF on the
GDMNTR Index approved for options trading; however, the components of
the GDMNTR Index, which can be used to create the GDX ETF, currently
must each have a market capitalization greater than $750 million, an
ADV of at least 50,000 shares, and an average daily value traded of at
least $1 million in order to be eligible for inclusion in the GDMNTR
Index. The Exchange believes that the GDMNTR Index component inclusion
requirements, as well as GDX's share and option volume and total market
capitalization, indicate that the GDX
[[Page 72672]]
market is sufficiently large and liquid enough to absorb price
movements as a result of potentially oversized trades.
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\19\ See VanEck Vectors Gold Miners ETF, available at https://www.vaneck.com/library/vaneck-vectors-etfs/gdx-fact-sheet-pdf/.
(October 31, 2021).
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Creation and Redemption for ETFs
The Exchange believes that the creation and redemption process for
the ETFs subject to this proposal will lessen the potential for
manipulative activity with options on the Underlying ETFs. When an ETF
provider wants to create more shares, it looks to an Authorized
Participant (``AP'') (generally a Market-Maker or other large financial
institution) to acquire the securities the ETF is to hold. For
instance, when an ETF is designed to track the performance of an index,
the AP can purchase all the constituent securities in the exact same
weight as the index, then deliver those shares to the ETF provider. In
exchange, the ETF provider gives the AP a block of equally valued ETF
shares, on a one-for-one fair value basis. The price is based on the
NAV, not the market value at which the ETF is trading. The creation of
new ETF units can be conducted during an entire trading day and is not
subject to position limits. This process works in reverse where the ETF
provider seeks to decrease the number of shares that are available to
trade. The creation and redemption processes for the Underlying ETFs
creates a direct link to the underlying components of the ETF and
serves to mitigate potential price impact of the ETF shares that might
otherwise result from increased position limits for the options on the
Underlying ETFs.
The Exchange understands that the ETF creation and redemption
processes seek to keep an ETF's share price trading in line with the
product's underlying net asset value. Because an ETF trades like a
stock, its share price will fluctuate during the trading day, due to
simple supply and demand. If demand to buy an ETF is high, for
instance, an ETF's share price might rise above the value of its
underlying components. When this happens, the AP or issuer believes the
ETF may now be overpriced, so it may buy shares of the component
securities or assets and then sell ETF shares in the open market. This
may drive the ETF's share price back toward the underlying net asset
value. Likewise, if an ETF share price starts trading at a discount to
the component securities or assets it holds, the AP or issuer can buy
shares of the ETF and redeem them for the underlying components. Buying
undervalued ETF shares may drive the share price of an ETF back toward
fair value. This arbitrage process helps to keep an ETF's share price
in line with the value of its underlying portfolio.
Surveillance and Reporting Requirements
The Exchange believes that increasing the position limits (and
exercise limits) for the options on the Underlying ETFs would lead to a
more liquid and competitive market environment for these options, which
will benefit customers interested in trading these products. The
reporting requirement for the options on the Underlying ETFs would
remain unchanged. Thus, the Exchange would still require that each
Member \20\ maintains that positions in the options on the same side of
the market, for its own account or for the account of a customer,
report certain information to the Exchange. This information would
include, but would not be limited to, the options positions, whether
such positions are hedged and, if so, a description of the hedge(s).
Market-Makers (including Primary Lead Market-Makers) \21\ would
continue to be exempt from this reporting requirement; however, the
Exchange may access Market-Maker position information.\22\ Moreover,
the Exchange's requirement that Members file reports with the Exchange
for any customer who held aggregate large long or short positions on
the same side of the market of 200 or more option contracts of any
single class for the previous day will remain at this level for the
options subject to this proposal and will continue to serve as an
important part of the Exchange's surveillance efforts.\23\
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\20\ 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.
\21\ ``Primary Lead Market Maker'' means a Lead Market Maker
appointed by the Exchange to act as the Primary Lead Market Maker
for the purpose of making markets in securities traded on the
Exchange. The Primary Lead Market Maker is vested with certain
rights and responsibility specified Chapter VI of the Rulebook. See
Exchange Rule 100.
\22\ The Options Clearing Corporation (``OCC'') through the
Large Option Position Reporting (``LOPR'') system acts as a
centralized service provider for Member compliance with position
reporting requirements by collecting data from each Member,
consolidating the information, and ultimately providing detailed
listings of each Member's report to the Exchange, as well as
Financial Industry Regulatory Authority, Inc. (``FINRA''), acting as
its agent pursuant to a regulatory services agreement (``RSA'') with
the Exchange.
\23\ See Rule 310(a).
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The Exchange believes that the existing surveillance procedures and
reporting requirements at the Exchange and other SROs are capable of
properly identifying disruptive and/or manipulative trading activity.
The Exchange also represents that it has adequate surveillances in
place to detect potential manipulation, as well as reviews in place to
identify potential changes in composition of the Underlying ETFs and
continued compliance with the Exchange's listing standards. These
procedures utilize daily monitoring of market activity via automated
surveillance techniques to identify unusual activity in both options
and the Underlying ETFs, as applicable.\24\ The Exchange also notes
that large stock holdings must be disclosed to the Commission by way of
Schedules 13D or 13G,\25\ which are used to report ownership of stock
that exceeds 5% of a company's total stock issue and may assist in
providing information in monitoring for any potential manipulative
schemes.
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\24\ The Exchange believes these procedures have been effective
for the surveillance of trading the options subject to this proposal
and will continue to employ them.
\25\ 17 CFR 240.13d-1.
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The Exchange believes that the current financial requirements
imposed by the Exchange and by the Commission adequately address
concerns regarding potentially large, unhedged positions in the options
on the Underlying ETFs. Current margin and risk-based haircut
methodologies serve to limit the size of positions maintained by any
one account by increasing the margin and/or capital that a Member must
maintain for a large position held by itself or by its customer.\26\ In
addition, Rule 15c3-1 \27\ imposes a capital charge on Members to the
extent of any margin deficiency resulting from the higher margin
requirement.
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\26\ See Exchange Rule 1502 for a description of margin
requirements.
\27\ 17 CFR 240.15c3-1.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\28\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \29\ requirements that the rules
of an exchange be designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and
[[Page 72673]]
open market and a national market system, and, in general, to protect
investors and the public interest. Additionally, the Exchange believes
the proposed rule change is consistent with the Section 6(b)(5) \30\
requirement that the rules of an exchange not be designed to permit
unfair discrimination between customers, issuers, brokers, or dealers.
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\28\ 15 U.S.C. 78f(b).
\29\ 15 U.S.C. 78f(b)(5).
\30\ Id.
---------------------------------------------------------------------------
The Exchange believes that the proposed increase in position limits
for options on the Underlying ETFs will remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, protect investors and the public interest,
because it will provide market participants with the ability to more
effectively execute their trading and hedging activities. The proposed
increases will allow market participants to more fully implement
hedging strategies in related derivative products and to further use
options to achieve investment strategies (e.g., there are other
exchange-traded products (``ETPs'') that use options on the ETFs
subject to this proposal as part of their investment strategy, and the
applicable position limits as they stand today may inhibit these other
ETPs in achieving their investment objectives to the detriment of
investors). Also, increasing the applicable position limits may allow
Market-Makers to provide the markets for these options with more
liquidity in amounts commensurate with increased consumer demand in
such markets. The proposed position limit increases may also encourage
other liquidity providers to shift liquidity, as well as encourage
consumers to shift demand, from over the counter markets onto the
Exchange, which will enhance the process of price discovery conducted
on the Exchange through increased order flow.
In addition, the Exchange believes that the structure of the
Underlying ETFs, the considerable market capitalization of the funds
and underlying components, and the liquidity of the markets for the
applicable options and underlying component securities will mitigate
concerns regarding potential manipulation of the products and/or
disruption of the underlying markets upon increasing the relevant
position limits. As a general principle, increases in market
capitalizations, active trading volume, and deep liquidity of the
underlying components do not lead to manipulation and/or disruption.
This general principle applies to the recently observed increased
levels of market capitalization and trading volume and liquidity in
shares of and options on the Underlying ETFs (as described above), and,
as a result, the Exchange does not believe that the options markets or
underlying markets would become susceptible to manipulation and/or
disruption as a result of the proposed position limit increases.
Indeed, the Commission has previously expressed the belief that not
just increasing, but removing, position and exercise limits may bring
additional depth and liquidity to the options markets without
increasing concerns regarding intermarket manipulation or disruption of
the options or the underlying securities.\31\
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\31\ See Securities Exchange Act Release No. 62147 (October 28,
2005) (SR-CBOE-2005-41), at 62149.
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The proposed increase to the position and exercise limits on the
Underlying ETFs has recently been approved by the Commission.\32\
Further, the Exchange notes that the proposed rule change to increase
position limits for select actively traded options is not novel and the
Commission has approved similar proposed rule changes by Cboe to
increase position limits for options on similar, highly liquid and
actively traded ETPs.\33\ Furthermore, the Exchange again notes that
the proposed position limits for options on LQD and GDX are consistent
with existing position limits for options on other ETFs in Rule 307,
Policy .01.\34\
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\32\ See supra note 3.
\33\ See Securities Exchange Act Release Nos. 88768 (April 29,
2020), 85 FR 26736 (May 5, 2020) (SR-CBOE-2021-015); 83415 (June 12,
2018), 83 FR 28274 (June 18, 2018) (SR-CBOE-2018-042); and 68086
(October 23, 2012), 77 FR 65600 (October 29, 2012) (SR-CBOE-2012-
066).
\34\ See supra note 6.
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The Exchange's surveillance and reporting safeguards continue to be
designed to deter and detect possible manipulative behavior that might
arise from increasing or eliminating position and exercise limits in
certain classes. The Exchange believes that the current financial
requirements imposed by the Exchange and by the Commission adequately
address concerns regarding potentially large, unhedged position in the
options on the Underlying ETFs, further promoting just and equitable
principles of trading, the maintenance of a fair and orderly market,
and the protection of investors.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe the proposed rule change will impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act because the increased position limits (and exercise
limits) will be available to all market participants and apply to each
in the same manner. The Exchange believes that the proposed rule change
will provide additional opportunities for market participants to more
efficiently achieve their investment and trading objectives of market
participants.
The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the Act. On the contrary, the Exchange
believes the proposal promotes competition because it may attract
additional order flow from the OTC market to exchanges, which would in
turn compete amongst each other for those orders.\35\ The Exchange
believes market participants would benefit from being able to trade
options with increased position limits in an exchange environment in
several ways, including but not limited to the following: (1) Enhanced
efficiency in initiating and closing out positions; (2) increased
market transparency; and (3) heightened contra-party creditworthiness
due to the role of OCC as issuer and guarantor. Additionally, BOX
Exchange LLC (``BOX''), Nasdaq ISE, LLC (``ISE''), and Nasdaq PHLX LLC
(``PHLX'') have recently filed similar proposed rule changes to
increase position limits and exercise limits on options on the
Underlying ETFs.\36\
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\35\ Additionally, several other options exchanges have the same
position limits as the Exchange, as they incorporate by reference to
the position limits established by Cboe, and as a result, the
position limits for options on the Underlying ETFs will increase at
those exchanges. For example, The Nasdaq Options Markets LLC
(``NOM'') and Nasdaq BX, Inc. (``BX'') position limits are
determined by the position limits established by Cboe. See NOM and
BX Rules, Options 9, Sec. 13 (Position Limits).
\36\ See Securities Exchange Act Release No. 93659 (November 23,
2021) (SR-BOX-2021-27); Securities Exchange Act Release No. 93658
(November 23, 2021) (SR-ISE-2021-25); Securities Exchange Act
Release No. 93661 (November 23, 2021) (SR-Phlx-2021-70).
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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
[[Page 72674]]
burden on competition; and (iii) become operative for 30 days from the
date on which it was filed, or such shorter time as the Commission may
designate, it has become effective pursuant to Section 19(b)(3)(A) of
the Act \37\ and Rule 19b-4(f)(6) thereunder.\38\
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\37\ 15 U.S.C. 78s(b)(3)(A).
\38\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \39\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \40\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay so that
the proposed rule change may become operative upon filing. The Exchange
states that waiver of the operative delay would be consistent with the
protection of investors and the public interest because it will ensure
fair competition among exchanges by allowing the Exchange to amend the
position and exercise limits and immediately benefit a greater number
of participants who are MIAX Members and members of Cboe by ensuring
consistency and uniformity among competing options exchanges as to the
position and exercise limits for these multiply-listed options classes.
For this reason, the Commission believes that waiver of the 30-day
operative delay is consistent with the protection of investors and the
public interest. Therefore, the Commission hereby waives the operative
delay and designates the proposal as operative upon filing.\41\
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\39\ 17 CFR 240.19b-4(f)(6).
\40\ 17 CFR 240.19b-4(f)(6)(iii).
\41\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-MIAX-2021-61 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-MIAX-2021-61. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-MIAX-2021-61, and should be submitted on
or before January 12, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
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\42\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27661 Filed 12-21-21; 8:45 am]
BILLING CODE 8011-01-P
