[Federal Register Volume 82, Number 143 (Thursday, July 27, 2017)]
[Notices]
[Pages 34998-35001]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-15771]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81183; File No. SR-MIAX-2017-33]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend MIAX Options Rule 404, Series of Option 
Contracts Open for Trading

July 21, 2017.
    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on July 18, 2017, Miami International Securities 
Exchange, LLC (``MIAX Options'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'') a proposed rule 
change as described in Items I and II below, which Items have been 
prepared by the Exchange. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.

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[[Page 34999]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend Rule 404, Series of 
Option Contracts Open for Trading, Interpretations and Policies .10, to 
include the iShares S&P 500 Index ETF (``IVV'') in the list of 
Exchange-Traded Funds (``ETFs'') that are eligible for $1 strike price 
intervals.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.miaxoptions.com/rule-filings, 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Exchange Rule 404, Series of Option 
Contracts Open for Trading, to modify the strike setting regime for IVV 
options by including IVV in the list of ETFs that are eligible for $1 
strike price intervals under Interpretations and Policies .10. The 
Exchange notes that this is a competitive filing based on an 
immediately effective filing recently submitted by the Chicago Board 
Options Exchange, Incorporated (``CBOE'').\3\
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    \3\ See Securities Exchange Act Release No. 80913 (June 13, 
2017), 82 FR 27907 (June 19, 2017) (SR-CBOE-2017-048).
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    Specifically, the Exchange proposes to modify the interval setting 
regime for IVV options to allow $1 strike price intervals above $200. 
The Exchange believes that the proposed rule change would make IVV 
options easier for investors and traders to use and more tailored to 
their investment needs. Additionally, the interval setting regime the 
Exchange proposes to apply to IVV options is currently applied to 
options on units of the Standard & Poor's Depository Receipts Trust 
(``SPY''),\4\ which is an ETF that is identical in all material 
respects to the IVV ETF.
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    \4\ See Exchange Rule 404.10.
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    The SPY and IVV ETFs are identical in all material respects. The 
SPY and IVV ETFs are designed to roughly track the performance of the 
S&P 500 Index with the price of SPY and IVV designed to roughly 
approximate 1/10th of the price of the S&P 500 Index. Accordingly, SPY 
and IVV strike prices having a multiplier of $100 reflect a value 
roughly equal to 1/10th of the value of the S&P 500 Index. For example, 
if the S&P 500 Index is at 1972.56, SPY and IVV options might have a 
value of approximately 197.26 with a notional value of $19,726. In 
general, SPY and IVV options provide retail investors and traders with 
the benefit of trading the broad market in a manageably sized contract. 
As options with an ETF underlying, SPY and IVV options are listed in 
the same manner as equity options under the Rules.
    However, under current Interpretation and Policies .05 to Rule 404, 
the interval between strike prices in series of options on Index-Linked 
Securities,\5\ as defined in Rule 402(k)(1), will be $1 or greater 
where the strike price is $200 or less and $5 or greater where the 
strike price is greater than $200. In addition, under Exchange Rule 
404, Interpretation and Policies .02(e),
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    \5\ The Exchange notes that IVV is treated as an Index-Linked 
Security under current Exchange rules.

    Strike Price Interval. The strike price interval for Short Term 
Option series may be $0.50 or greater for option classes that trade 
in $1 strike price intervals and are in the Short Term Option Series 
Program. If the class does not trade in $1 strike price intervals, 
the strike price interval for Short Term Option series may be $0.50 
or greater where the strike price is less than $100 and $1.00 or 
greater where the strike price is between $100 and $150, and $2.50 
or greater for strike prices greater than $150. A non-Short Term 
Option Series that is included in a class that has been selected to 
participate in the Short Term Option Series Program is referred to 
as a ``Related non-Short Term Option.'' Notwithstanding any other 
provision regarding strike prices in this rule, Related non-Short 
Term Option series shall be opened during the month prior to 
expiration in the same manner as permitted in Rule 404, 
Interpretations and Policies .02 and in the same strike price 
intervals for the Short Term Option Series permitted in this Rule 
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404, Interpretations and Policies .02(e).

    The Exchange's proposal seeks to narrow the strike price intervals 
to $1 for IVV options above $200, in effect matching the strike setting 
regime for strike intervals in IVV options below $200 and matching the 
strike setting regime applied to SPY options.
    Currently, the S&P 500 Index is above 2000. The S&P 500 Index is 
widely regarded as the best single gauge of large cap U.S. equities and 
is widely quoted as an indicator of stock prices and investor 
confidence in the securities market. As a result, individual investors 
often use S&P 500 Index-related products to diversify their portfolios 
and benefit from market trends. Accordingly, the Exchange believes that 
offering a wider range of S&P 500 Index-based option strikes affords 
traders and investors important hedging and trading opportunities. The 
Exchange believes that not having the proposed $1 strike price 
intervals above $200 in IVV significantly constricts investors' hedging 
and trading possibilities.
    The Exchange proposes to amend Interpretations and Policies .10 to 
Rule 404 to allow IVV options to trade in $1 increments above a strike 
price of $200. Specifically, the Exchange proposes to amend 
Interpretations and Policies .10 to state that, ``[n]otwithstanding any 
other provision regarding the interval of strike prices of series of 
options on Exchange-Traded Fund Shares in this rule, the interval of 
strike prices on SPDR S&P 500 ETF (``SPY''), iShares S&P 500 Index ETF 
(``IVV''), and the SPDR Dow Jones Industrial Average ETF (``DIA'') 
options will be $1 or greater.'' The Exchange believes that by having 
smaller strike intervals in IVV, investors would have more efficient 
hedging and trading opportunities due to the lower $1 interval 
ascension. The proposed $1 intervals, particularly above the $200 
strike price, will result in having at-the-money series based upon the 
underlying moving less than 1%. The Exchange believes that the proposed 
strike setting regime is in line with the slower movements of broad-
based indices. Furthermore, the proposed $1 intervals would allow 
option trading strategies (such as, for example, risk reduction/hedging 
strategies using IVV weekly options), to remain viable. Considering the 
fact that $1 intervals already exist below the $200 price point and 
that IVV is above the $200 level, the Exchange believes that continuing 
to maintain the artificial $200 level (above which intervals increase 
500% to $5), would have a negative effect on investing, trading and 
hedging opportunities, and volume. The Exchange believes that the 
investing, trading, and hedging opportunities available with IVV 
options far outweighs any potential negative impact of allowing IVV 
options to trade in more finely tailored intervals above the $200 price 
point.

[[Page 35000]]

    The proposed strike setting regime would permit strikes to be set 
to more closely reflect values in the underlying S&P 500 Index and 
allow investors and traders to roll open positions from a lower strike 
to a higher strike in conjunction with the price movement of the 
underlying. Under the current rule, where the next higher available 
series would be $5 away above a $200 strike price, the ability to roll 
such positions is effectively negated. Accordingly, to move a position 
from a $200 strike to a $205 strike under the current rule, an investor 
would need for the underlying product to move 2.5%, and would not be 
able to execute a roll up until such a large movement occurred. With 
the proposed rule change, however, the investor would be in a 
significantly safer position of being able to roll his open options 
position from a $200 to a $201 strike price, which is only a 0.5% move 
for the underlying. The proposed rule change will allow the Exchange to 
better respond to customer demand for IVV strike prices more precisely 
aligned with current S&P 500 Index values. The Exchange believes that 
the proposed rule change, like the other strike price programs 
currently offered by the Exchange, will benefit investors by providing 
investors the flexibility to more closely tailor their investment and 
hedging decisions using IVV options.
    By allowing series of IVV options to be listed in $1 intervals 
between strike prices over $200, the proposal will moderately augment 
the potential total number of option series available on the Exchange. 
However, the Exchange believes it and the Options Price Reporting 
Authority (``OPRA'') have the necessary systems capacity to handle any 
potential additional traffic associated with this proposed rule change. 
The Exchange also believes that Members \6\ will not have a capacity 
issue due to the proposed rule change. In addition, the Exchange 
represents that it does not believe that this expansion will cause 
fragmentation of liquidity.
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    \6\ 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.
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    In addition, the interval setting regime the Exchange proposes to 
apply to IVV options is currently applied to options on SPY,\7\ which 
is an ETF that is identical in all material respects to the IVV ETF.
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    \7\ See Exchange Rule 404.10.
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2. Statutory Basis
    MIAX believes the proposed rule change is consistent with the 
Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ 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 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) \10\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
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    In particular, the proposed rule change will allow investors to 
more easily use IVV options. Moreover, the proposed rule change would 
allow investors to better trade and hedge positions in IVV options 
where the strike price is greater than $200, and ensure that IVV 
options investors are not at a disadvantage simply because of the 
strike price.
    The Exchange also believes the proposed rule change is consistent 
with Section 6(b)(1) of the Act, which provides that the Exchange be 
organized and have the capacity to be able to carry out the purposes of 
the Act and the rules and regulations thereunder, and the rules of the 
Exchange. The rule change proposal allows the Exchange to respond to 
customer demand to allow IVV options to trade in $1 intervals above a 
$200 strike price. The Exchange does not believe that the proposed rule 
would create additional capacity issues or affect market functionality.
    As noted above, some ETF options trade in wider $5 intervals above 
a $200 strike price, whereby options at or below a $200 strike price 
trade in $1 intervals. This creates a situation where contracts on the 
same option class effectively may not be able to execute certain 
strategies such as, for example, rolling to a higher strike price, 
simply because of the arbitrary $200 strike price above which options 
intervals increase by 500%. This proposal remedies this situation by 
establishing an exception to the current interval regime for IVV 
options to allow such options to trade in $1 or greater intervals at 
all strike prices.
    The Exchange believes that the proposed rule change, like other 
strike price programs currently offered by the Exchange, will benefit 
investors by giving them increased flexibility to more closely tailor 
their investment and hedging decisions. Moreover, the proposed rule 
change is consistent with the rules of other exchanges.\11\
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    \11\ See Nasdaq Phlx Rule 1012.05(a)(iv)(C) and CBOE Rule 
5.5.08(b).
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    With regard to the impact of this proposal on system capacity, the 
Exchange believes it and OPRA have the necessary systems capacity to 
handle any potential additional traffic associated with this proposed 
rule change. The Exchange believes that its Members will not have a 
capacity issue as a result of this proposal.
    In addition, the interval setting regime the Exchange proposes to 
apply to IVV options is currently applied to options on SPY,\12\ which 
is an ETF that is identical in all material respects to the IVV ETF.
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    \12\ See Exchange Rule 404.10.
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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 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. Rather, the 
Exchange believes that the proposed rule change will result in 
additional investment options and opportunities to achieve the 
investment and trading objectives of market participants seeking 
efficient trading and hedging vehicles, to the benefit of investors, 
market participants, and the marketplace in general. Specifically, the 
Exchange believes that IVV options investors and traders will 
significantly benefit from the availability of finer strike price 
intervals above a $200 price point. In addition, the interval setting 
regime the Exchange proposes to apply to IVV options is currently 
applied to options on SPY,\13\ which is an ETF that is identical in all 
material respects to the IVV ETF. Thus, applying the same strike 
setting regime to SPY and IVV options will help level the playing field 
for options on similar, competing ETFs.
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    \13\ Id.
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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.

[[Page 35001]]

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) \15\ 
thereunder.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \16\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\17\ the Commission may 
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 proposal 
may become operative immediately upon filing. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest as it will immediately 
provide investors with additional flexibility in trading and hedging 
positions in IVV options on the Exchange. The Commission also notes 
that the proposed rule change is consistent with the strike price 
intervals in IVV options that is permitted on other exchanges and thus 
raises no new novel or substantive issues.\18\ Accordingly, the 
Commission hereby waives the 30-day operative delay requirement and 
designates the proposed rule change as operative upon filing.\19\
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    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ See supra note 11.
    \19\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-MIAX-2017-33 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-2017-33. 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-2017-33, and should be 
submitted on or before August 17, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-15771 Filed 7-26-17; 8:45 am]
 BILLING CODE 8011-01-P