[Federal Register Volume 80, Number 53 (Thursday, March 19, 2015)]
[Notices]
[Pages 14425-14426]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-06285]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74509; File No. SR-MIAX-2015-04]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Order Approving a Proposed Rule Change To Amend MIAX Rule 
402

March 13, 2015.

I. Introduction

    On January 16, 2015, Miami International Securities Exchange LLC 
(``MIAX'' or ``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 amend its listing standards 
under Exchange Rule 402 to eliminate a requirement that the Exchange 
obtain a comprehensive surveillance sharing agreement (``CSSA'') before 
listing and trading options that overlie certain exchange-traded fund 
shares (``ETFs''), provided such ETFs are listed pursuant to generic 
listing standards on an equities exchange for portfolio depositary 
receipts and index fund shares based on international or global indexes 
under which a CSSA with a foreign market is not required. The proposed 
rule change was published for comment in the Federal Register on 
January 30, 2015.\3\ The Commission received one comment letter 
supporting the proposed rule change.\4\ This order approves the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 74131 (January 26, 
2015), 80 FR 5161 (SR-MIAX-2015-04) (``Notice'').
    \4\ See Letter to Brent J. Fields, Secretary, Commission, from 
Elizabeth King, Secretary and General Counsel, New York Stock 
Exchange, dated February 6, 2015 (``NYSE Letter'') (stating that 
``NYSE Group agrees with . . . and is supportive of MIAX's efforts 
to make options available as a risk management tool for those ETFs 
listed on an equities exchange pursuant to generic listing standards 
without the requirement for a CSSA'').
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II. Description of the Proposal

    The Exchange allows for the listing and trading of options on ETFs 
that satisfy certain listing standards.\5\ These rules require, in 
part, that (i) any non-U.S. component securities of an index or 
portfolio of securities on which the ETFs are based that are not 
subject to CSSAs do not in the aggregate represent more than 50% of the 
weight of the index or portfolio; \6\ (ii) component securities of an 
index or portfolio of securities on which the ETFs are based for which 
the primary market is in any one country that is not subject to a CSSA 
do not represent 20% or more of the weight of the index; \7\ and (iii) 
component securities of an index or portfolio of securities on which 
the ETFs are based for which the primary market is in any two countries 
that are not subject to CSSAs do not represent 33% or more of the 
weight of the index.\8\ The generic listing standards on equities 
exchanges for the listing of portfolio depositary receipts and index 
fund shares based on international or global indexes do not, however, 
contain a parallel requirement regarding CSSAs.\9\
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    \5\ See MIAX Rule 402(i).
    \6\ See MIAX Rule 402(i)(5)(ii)(A) (renumbered as 
402(i)(E)(2)(ii)(A) as part of the proposed rule change).
    \7\ See MIAX Rule 402(i)(5)(ii)(B) (renumbered as 
402(i)(E)(2)(ii)(B) as part of the proposed rule change).
    \8\ See MIAX Rule 402(i)(5)(ii)(C) (renumbered as 
402(i)(E)(2)(ii)(C) as part of the proposed rule change).
    \9\ See, e.g., NYSE MKT Rule 1000, Commentary .03(a)(B); NYSE 
MKT Rule 1000A, Commentary .02(a)(B); NYSE Arca Equities Rule 
5.2(j)(3), Commentary .01(a)(B); NYSE Arca Equities Rule 8.100, 
Commentary .01(a)(B); NASDAQ Rule 5705(a)(3)(A)(ii); NASDAQ Rule 
5705(b)(3)(A)(ii); BATS Rule 14.11(b)(3)(A)(ii); and BATS Rule 
14.11(c)(3)(A)(ii). See also Securities Exchange Act Release Nos. 
54739 (November 9, 2006), 71 FR 66993 (November 17, 2006) (SR-Amex-
2006-78); 55621 (April 12, 2007), 72 FR 19571 (April 18, 2007) (SR-
NYSEArca-2006-86); and 55269 (February 9, 2007), 72 FR 7490 
(February 15, 2007) (SR-NASDAQ-2006-050).
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    The Exchange proposes to amend its listing standards to enable the 
Exchange to list and trade options on certain ETFs without a CSSA 
provided that such ETFs that underlie options are listed on an equities 
exchange pursuant to the generic listing standards for portfolio 
depositary receipts and index fund shares based on international or 
global indexes under which a CSSA is not required.\10\ Accordingly, the 
proposed rule change would provide a limited exception to the 
requirement regarding CSSAs under the Exchange's listing standards only 
in circumstances where the underlying ETF was listed on an equities 
exchange pursuant to generic listing standards for international or 
global indexes that do not require such exchange to enter into a CSSA 
with a foreign market.\11\ The requirement for the Exchange to enter 
into a CSSA with a foreign market would continue to apply with respect 
to products that do not fit under the proposed exception.\12\ In 
addition, options on ETFs that may be listed and traded without a CSSA 
under this proposal would be subject to, in all other respects, the 
Exchange's existing listing and trading rules that apply to options on 
ETFs and would be captured under the Exchange's surveillance program 
for options on ETFs.\13\
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    \10\ See Proposed MIAX Rule 402(i)(E)(2)(i). See also NYSE MKT 
Rule 1000, Commentary .03(a)(B); NYSE MKT Rule 1000A, Commentary 
.02(a)(B); NYSE Arca Equities Rule 5.2(j)(3), Commentary .01(a)(B); 
NYSE Arca Equities Rule 8.100, Commentary .01(a)(B); NASDAQ Rule 
5705(a)(3)(A)(ii); NASDAQ Rule 5705(b)(3)(A)(ii); BATS Rule 
14.11(b)(3)(A)(ii); and BATS Rule 14.11(c)(3)(A)(ii).
    \11\ Id.
    \12\ See Proposed MIAX Rules 402(i)(E)(2)(ii)(A)-(C).
    \13\ See Notice, supra note 3.
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    Finally, the Exchange proposes several technical and non-
substantive 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.

III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of section 6 of the Act \14\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\15\ Specifically, the Commission finds that the 
proposed rule change is consistent

[[Page 14426]]

with section 6(b)(5) of the Act,\16\ which requires, among other 
things, that the Exchange's rules be designed to promote just and 
equitable principles of trade, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest.
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    \14\ 15 U.S.C. 78f.
    \15\ Additionally, in approving the proposed rule change, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \16\ 15 U.S.C. 78f(b)(5).
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    MIAX proposes to eliminate the requirement that it obtain a CSSA 
with the applicable foreign market before trading options on certain 
ETFs that track broad-based indexes of securities.\17\ CSSAs help to 
ensure that the listing exchange has the ability to obtain the 
information necessary to detect and deter potential trading abuses.\18\ 
According to the Exchange, it 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, would result in options overlying ETFs that are 
sufficiently broad-based in scope and therefore not readily susceptible 
to manipulation.\19\ Moreover, the Exchange believes that the proposed 
rule change would benefit investors by providing valuable risk 
management tools.\20\ The NYSE Group agrees with these statements by 
the Exchange and supports the proposal.\21\
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    \17\ See Proposed MIAX Rule 402(i)(E)(2)(i). See also NYSE MKT 
Rule 1000, Commentary .03(a)(B); NYSE MKT Rule 1000A, Commentary 
.02(a)(B); NYSE Arca Equities Rule 5.2(j)(3), Commentary .01(a)(B); 
NYSE Arca Equities Rule 8.100, Commentary .01(a)(B); NASDAQ Rule 
5705(a)(3)(A)(ii); NASDAQ Rule 5705(b)(3)(A)(ii); BATS Rule 
14.11(b)(3)(A)(ii); and BATS Rule 14.11(c)(3)(A)(ii).
    \18\ See Securities Exchange Act Release No. 40761 (December 8, 
1998), 63 FR 70952, 70959 (December 22, 1998).
    \19\ See Notice, supra note 3.
    \20\ Id.
    \21\ See NYSE Letter, supra note 4.
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    The Commission approved generic listing standards for ETFs based on 
international or global indexes in 2006.\22\ At that time, the 
Commission determined that for certain ETFs based on broad-based 
indexes of securities, the generic listing standards for equities 
exchanges need not require the exchange to obtain a CSSA to list and 
trade such ETFs.\23\ These generic ETF listing standards contain 
quantitative criteria with respect to components included in the ETF's 
underlying index that provide minimum thresholds regarding trading 
volume, market capitalization, number of index components, and index 
concentration limits.\24\ They do not, however, require the listing 
exchange to obtain a CSSA with the home country market for the 
underlying index components.\25\ The Commission stated that a CSSA with 
the home country market was not required, because the listing standards 
provided for minimum levels of liquidity, concentration, and pricing 
transparency for index components.\26\ In addition, the Commission 
noted that the generic listing standards for ETFs based on global or 
international indexes applied in conjunction with the other applicable 
listing requirements would ``permit the listing only of ETFs that are 
sufficiently broad-based in scope to minimize potential manipulation . 
. . [and] are designed to preclude ETFs from becoming surrogates for 
trading in unregistered securities.'' \27\
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    \22\ See Securities Exchange Act Release No. 54739, supra note 9 
(SR-Amex-2006-78). Subsequently, other exchanges filed similar 
proposals that were approved by the Commission. See, e.g., 
Securities Exchange Act Release Nos. 55621, supra note 9 (approving 
SR-NYSEArca-2006-86); and 55269, supra note 9 (approving SR-NASDAQ-
2006-050).
    \23\ See id.
    \24\ For example, with respect to ETFs for portfolio depositary 
receipts based on international or global indexes, the generic 
listing standards generally contain the following requirements with 
respect to the underlying index: (1) Component stocks that in the 
aggregate account for at least 90% of the weight of the index or 
portfolio each shall have a minimum market value of at least $100 
million; (2) component stocks that in the aggregate account for at 
least 90% of the weight of the index or portfolio each shall have a 
minimum worldwide monthly trading volume over the most recent six-
month period of at least 250,000 shares; (3) that the index observe 
certain concentration limits (e.g., that no component may exceed 25% 
of the weight of the index and that the five most heavily weighted 
components may not exceed 60% of the weight of the index); (4) that 
there be a minimum number of 20 component stocks in the index; and 
(5) that each component either be an exchange-listed NMS stock or, 
if a non-U.S. stock, be listed and traded on an exchange that has 
last-sale reporting. See, e.g., NYSE MKT Rule 1000, Commentary .03; 
NYSE Arca Equities Rule 8.100, Commentary .01; NASDAQ Rule 5705(a); 
and BATS Rule 14.11(b). The requirements with respect to the 
underlying index under the generic listing standards for index fund 
shares based on international or global indexes are substantially 
similar. See, e.g., NYSE MKT Rule 1000A, Commentary .02; NYSE Arca 
Equities Rule 5.2(j)(3), Commentary .01; NASDAQ Rule 5705(b); and 
BATS Rule 14.11(c).
    \25\ See, e.g., Securities Exchange Act Release No. 54739, supra 
note 9.
    \26\ Id. at 71 FR 66995 n.18. See also supra note 24 and 
accompanying text.
    \27\ See Securities Exchange Act Release No. 54739, supra note 
9, at 71 FR 66997.
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    MIAX now seeks to establish parallel listing standards for options. 
The Commission believes that it is consistent with the Act for the 
Exchange to list and trade options that overlie ETFs, provided such 
ETFs are listed pursuant to generic listing standards on equities 
exchanges for portfolio depositary receipts and index fund shares based 
on international or global indexes under which a CSSA with a foreign 
market is not required.\28\ All of the other listing criteria under 
MIAX's rules would continue to apply to any such options. In addition, 
the Commission notes that the requirement for MIAX to obtain a CSSA 
will continue to apply to other products that do not fit this limited 
exception. The Commission believes that the proposed rule change should 
facilitate listing and trading of additional investment options for 
market participants seeking efficient trading and hedging vehicles and 
thereby, benefit investors by providing them with valuable risk 
management tools.
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    \28\ See supra note 24 and accompanying text.
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IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\29\ that the proposed rule change (File No. SR-MIAX-2015-04) be, 
and hereby is, approved.
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    \29\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-06285 Filed 3-18-15; 8:45 am]
 BILLING CODE 8011-01-P