[Federal Register Volume 80, Number 20 (Friday, January 30, 2015)]
[Notices]
[Pages 5161-5163]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-01748]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74131; File No. SR-MIAX-2015-04]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing of a Proposed Rule Change To Amend MIAX 
Rule 402

January 26, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on January 16, 2015, Miami International Securities Exchange LLC 
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 402 to allow the listing of 
options overlying Exchange-Traded Fund Shares (``ETFs'') that are 
listed pursuant to generic listing standards on equities exchanges for 
series of portfolio depositary receipts and index fund shares based on 
international or global indexes under which a comprehensive 
surveillance agreement is not required.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.miaxoptions.com/filter/wotitle/rule_filing, at 
MIAX's principal office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 402 to allow the listing of 
options overlying ETFs that are listed pursuant to generic listing 
standards on equities exchanges for series of portfolio depositary 
receipts and index fund shares based on international or global indexes 
under which a comprehensive surveillance sharing agreement 
(``comprehensive surveillance agreement'' or ``CSSA'') is not 
required.\3\ This proposal will enable the Exchange to list and trade 
options on ETFs without a CSSA provided that the ETF is listed on an 
equities exchange pursuant to the generic listings standards that do 
not require a CSSA pursuant to Rule 19b-4(e) \4\ of the Exchange Act. 
Rule 19b-4(e) provides that the listing and trading of a new derivative 
securities product by a self-regulatory organization (``SRO'') shall 
not be deemed a proposed rule change, pursuant to paragraph (c)(1) of 
Rule 19b-4, if the Commission has approved, pursuant to Section 19(b) 
of the Exchange Act, the SRO's trading rules, procedures and listing 
standards for the product class that would include the new derivatives 
securities product, and the SRO has a surveillance program for the 
product class.\5\ In other words, the proposal will amend the listing 
standards to allow the Exchange to list and trade options on ETFs based 
on international or global indexes to a similar degree that they are 
allowed to be listed on several equities exchanges.\6\
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    \3\ See e.g., NYSE MKT Rule 1000 Commentary .03(a)(B); NYSE Arca 
Equities Rule 5.2(j)(3) Commentary .01(a)(B); NASDAQ Rule 
5705(a)(3)(A)(ii); and BATS Rule 14.11(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(e).
    \5\ When relying on Rule 19b-4(e), the SRO must submit Form 19b-
4(e) to the Commission within five business days after the SRO 
begins trading the new derivative securities products. See 
Securities Exchange Act Release No. 40761 (December 8, 1998), 63 FR 
70952 (December 22, 1998).
    \6\ See NYSE MKT Rule 1000 Commentary .03(a)(B); NYSE Arca 
Equities Rule 5.2(j)(3) Commentary .01(a)(B); NASDAQ Rule 
5705(a)(3)(A)(ii); and BATS Rule 14.11(b)(3)(A)(ii). See also 
Securities Exchange Act Release Nos. 54739 (November 9, 2006), 71 FR 
66993 (SR-Amex-2006-78); 55269 (February 9, 2007), 72 FR 7490 
(February 15, 2007) (SR-NASDAQ-2006-050); 55621 (April 12, 2007), 72 
FR 19571 (April 18, 2007) (SR-NYSEArca-2006-86).
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Exchange-Traded Funds
    The Exchange allows for the listing and trading of options on ETFs. 
Rule 402(i)(5)(ii)(A)-(C) provide the listings standards for options on 
ETFs with non-U.S. component securities, such as ETFs based on 
international or global indexes. Rule 402(i)(5)(ii)(A) requires that 
any non-U.S. component securities of an index or portfolio of 
securities on which the Exchange-Traded Fund Shares are based that are 
not subject to comprehensive surveillance agreements do not in the 
aggregate represent more than 50% of the weight of the index or 
portfolio.\7\ Rule 402(i)(5)(ii)(B) requires that component securities 
of an index or portfolio of securities on which the Exchange-Traded 
Fund Shares are based for which the primary market is in any one 
country that is not subject to a comprehensive surveillance agreement 
do not represent 20% or more of the weight of the index.\8\ Rule 
402(i)(5)(ii)(C) requires that component securities of an index or 
portfolio of securities on which the Exchange-Traded Fund Shares are 
based for which the primary market is in any two countries that are not 
subject to comprehensive surveillance agreements

[[Page 5162]]

do not represent 33% or more of the weight of the index.\9\
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    \7\ See Rule 402(i)(5)(ii)(A).
    \8\ See Rule 402(i)(5)(ii)(B).
    \9\ See Rule 402(i)(5)(ii)(C).
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Generic Listing Standards for Exchange-Traded Funds
    The Exchange notes that the Commission has previously approved 
generic listing standards pursuant to Rule 19b-4(e) \10\ of the 
Exchange Act for ETFs based on indexes that consist of stocks listed on 
U.S. exchanges.\11\ In general, the criteria for the underlying 
component securities in the international and global indexes are 
similar to those for the domestic indexes, but with modifications as 
appropriate for the issues and risks associated with non-U.S. 
securities.
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    \10\ 17 CFR 240.19b-4(e).
    \11\ See Commentary .03 to Amex Rule 1000 and Commentary .02 to 
Amex Rule 1000A. See also Securities Exchange Act Release No. 42787 
(May 15, 2000), 65 FR 33598 (May 24, 2000).
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    In addition, the Commission has previously approved the listing and 
trading of ETFs based on international indexes--those based on non-U.S. 
component stocks--as well as global indexes--those based on non-U.S. 
and U.S. component stocks.\12\
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    \12\ See, e.g., Securities Exchange Act Release Nos. 50189 
(August 12, 2004), 69 FR 51723 (August 20, 2004) (approving the 
listing and trading of certain Vanguard International Equity Index 
Funds); 44700 (August 14, 2001), 66 FR 43927 (August 21, 2001) 
(approving the listing and trading of series of the iShares Trust 
based on certain S&P global indexes).
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    In approving ETFs for equities exchange trading, the Commission 
thoroughly considered the structure of the ETFs, their usefulness to 
investors and to the markets, and SRO rules that govern their trading. 
The Exchange believes that allowing the listing of options overlying 
ETFs that are listed pursuant to the generic listing standards on 
equities exchanges for ETFs based on international and global indexes 
and applying Rule 19b-4(e) \13\ should fulfill the intended objective 
of that Rule by allowing options on those ETFs that have satisfied the 
generic listing standards to commence trading, without the need for the 
public comment period and Commission approval. The proposed rule has 
the potential to reduce the time frame for bringing options on ETFs to 
market, thereby reducing the burdens on issuers and other market 
participants. The failure of a particular ETF to comply with the 
generic listing standards under Rule 19b-4(e) \14\ would not, however, 
preclude the Exchange from submitting a separate filing pursuant to 
Section 19(b)(2),\15\ requesting Commission approval to list and trade 
options on a particular ETF.
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    \13\ 17 CFR 240.19b-4(e).
    \14\ 17 CFR 240.19b-4(e).
    \15\ 15 U.S.C. 78s(b)(2).
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Requirements for Listing and Trading Options Overlying ETFs Based on 
International and Global Indexes
    Options on ETFs listed pursuant to these generic standards for 
international and global indexes would be traded, in all other 
respects, under the Exchange's existing trading rules and procedures 
that apply to options on ETFs and would be covered under the Exchange's 
surveillance program for options on ETFs.
    Pursuant to proposed Rule 402(i)(E)(2)(i), the Exchange may list 
and trade options on an ETF without a CSSA provided that the ETF is 
listed pursuant to generic listing standards for series of portfolio 
depositary receipts and index fund shares based on international or 
global indexes under which a comprehensive surveillance agreement is 
not required. MIAX believes that these generic listing standards are 
intended to ensure that stocks with substantial market capitalization 
and trading volume account for a substantial portion of the weight of 
an index or portfolio.
    The Exchange believes that this proposed listing standard for 
options on ETFs is reasonable for international and global indexes, 
and, when applied in conjunction with the other listing requirements, 
and [sic] will result in options overlying ETFs that are sufficiently 
broad-based in scope and not readily susceptible to manipulation. The 
Exchange also believes that allowing the Exchange to list options 
overlying ETFs that are listed on equities exchanges pursuant to 
generic standards for series of portfolio depositary receipts and index 
fund shares based on international or global indexes under which a CSSA 
is not required, will result in options overlying ETFs that are 
adequately diversified in weighting for any single security or small 
group of securities to significantly reduce concerns that trading in 
options overlying ETFs based on international or global indexes could 
become a surrogate for trading in unregistered securities.
    The Exchange believes that ETFs based on international and global 
indexes that have been listed pursuant to the generic standards are 
sufficiently broad-based enough as to make options overlying such ETFs 
not susceptible instruments for manipulation. The Exchange believes 
that the threat of manipulation is sufficiently mitigated for 
underlying ETFs that have been listed on equities exchanges pursuant to 
generic listing standards for series of portfolio depositary receipts 
and index fund shares based on international or global indexes under 
which a comprehensive surveillance agreement is not required and for 
the overlying options, that the Exchange does not see the need for CSSA 
[sic] to be in place before listing and trading options on such ETFs. 
The Exchange notes that its proposal does not replace the need for a 
CSSA as provided in current Rule 402(i)(5)(ii). The provisions of 
current Rule 402(i)(5)(ii), including the need for a CSSA, remain 
materially unchanged in proposed Rule 402(i)(E)(2)(ii) and will 
continue to apply to options on ETFs that are not listed on an equities 
exchange pursuant to generic listing standards for series of portfolio 
depositary receipts and index fund shares based on international or 
global indexes under which a comprehensive surveillance agreement is 
not required. Instead, proposed Rule 402(i)(E)(2)(i) adds an additional 
listing mechanism for certain qualifying options on ETFs to be listed 
on the Exchange.
    Finally, the Exchange proposes several technical changes to the 
formatting of Rule 402(i), including relocating current Rule 
402(i)(5)(ii)(E) to proposed Rule 402(i)(E)(1)(iii) and the re-
numbering of current Rule 402(i)(5)(ii) to proposed Rule 
402(i)(E)(2)(ii). In addition, the Exchange proposes making corrections 
to inaccurate citations located in Rule 403(g)(1) and (2), so that Rule 
403(g)(1) properly cites to Rule 402(i)(E)(1)(i) regarding closed-end 
ETFs and Rule 403(g)(2) properly cites to Rule 402(i)(E)(1)(ii) 
regarding open-end ETFs. The Exchange believes that these technical 
changes are necessary for Rule 402(i) and Rule 403(g) to correspond 
with other option exchanges.\16\
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    \16\ See i.e., NYSE Arca Rule 5.3(g).
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2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \17\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \18\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanisms of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest. In particular, the proposed 
rules have the potential to

[[Page 5163]]

reduce the time frame for bringing options on ETFs to market, thereby 
reducing the burdens on issuers and other market participants. The 
Exchange also believes enabling the listing and trading of options on 
ETFs pursuant to this new listing standard will benefit investors by 
providing them with valuable risk management tools. The Exchange notes 
that its proposal does not replace the need for a CSSA as provided in 
current Rule 402(i)(5)(ii). The provisions of current Rule 
402(i)(5)(ii), including the need for a comprehensive surveillance 
sharing agreement, remain materially unchanged in proposed Rule 
402(i)(E)(2)(ii) and will continue to apply to options on ETFs that are 
not listed on an equities exchange pursuant to generic listing 
standards for series of portfolio depositary receipts and index fund 
shares based on international or global indexes under which a 
comprehensive surveillance agreement is not required. Instead, proposed 
Rule 402(i)(E)(2)(i) adds an additional listing mechanism for certain 
qualifying options on ETFs to be listed on the Exchange in a manner 
that is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanisms of a free and open market and a national market system and, 
in general, to protect investors and the public interest.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
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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 not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes this 
proposed rule change will benefit investors by providing additional 
methods to trade options on ETFs, and by providing them with valuable 
risk management tools. Specifically, the Exchange believes that market 
participants on MIAX would benefit from the introduction and 
availability of options on ETFs in a manner that is similar to equities 
exchanges and will provide investors with a venue on which to trade 
options on these products. For all the reasons stated above, the 
Exchange does not believe that the proposed rule change will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act, and believes the proposed change will enhance 
competition.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) by order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-MIAX-2015-04 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-MIAX-2015-04. 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 Web site (http://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 Web site 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-MIAX-2015-04 and should be 
submitted on or before February 20, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-01748 Filed 1-29-15; 8:45 am]
BILLING CODE 8011-01-P