[Federal Register Volume 83, Number 60 (Wednesday, March 28, 2018)]
[Notices]
[Pages 13323-13329]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-06139]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82931; File No. SR-MIAX-2018-10]


Self-Regulatory Organizations; Miami International Securities 
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Exchange Rule 307, Position Limits, and 
Exchange Rule 309, Exercise Limits

March 22, 2018.
    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 March 8, 2018, Miami International Securities 
Exchange, LLC (``MIAX Options'' or the ``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'') a proposed rule 
change as described in Items I and II below, which Items have been 
prepared by the Exchange. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange is filing a proposal to amend Exchange Rules 307, 
Position Limits, Interpretations and Policies .01, and 309, Exercise 
Limits, Interpretations and Policies .01, to increase the position and 
exercise limits for options on the following exchange traded funds 
(``ETFs''): iShares China Large-Cap ETF (``FXI''), iShares MSCI 
Emerging Markets ETF (``EEM''), iShares Russell 2000 ETF (``IWM''), 
iShares MSCI EAFE ETF (``EFA''), iShares MSCI Brazil Capped ETF 
(``EWZ''), iShares 20+ Year Treasury Bond Fund ETF (``TLT''), 
PowerShares QQQ Trust (``QQQ''), and iShares MSCI Japan ETF (``EWJ'').
    The text of the proposed rule change is available on the Exchange's 
website at http://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 purpose of the proposed rule change is to amend Exchange Rules 
307, Position Limits, Interpretations and Policies .01, and 309, 
Exercise Limits, Interpretations and Policies .01, to increase position 
and exercise limits, respectively, for options on the following ETFs: 
FXI, EEM, IWM, EFA, EWZ, TLT, QQQ, EWJ.
    Market participants' trading activity has been adversely impacted 
by the current position limits as such limits have caused options 
trading in the symbols subject to this proposal to move from exchanges 
to the over-the-counter market. The Exchange submits this proposal with 
the understanding that market participants' on-exchange activity has 
been hindered by the existing position limits, causing them to be 
unable to provide additional liquidity not just on the Exchange, but 
also on other options exchanges on which they participate.\3\ The 
Exchange understands that certain market participants wishing to make 
trades involving a large number of options contracts in the symbols 
subject to this proposal are opting to execute those trades in the 
over-the-counter market. The over-the-counter transactions occur via 
bi-lateral agreements, the terms of which are not publicly disclosed to 
other market participants. Therefore, these large trades do not 
contribute to the price discovery process performed on a lit market.
---------------------------------------------------------------------------

    \3\ Cboe has received approval from the Commission for its 
proposed rule change to increase its position limits for the 
following ETFs: FXI, EEM, IWM, EFA, EWZ, TLT, QQQ, EWJ. See 
Securities Exchange Act Release No. 82770 (February 23, 2018) (Order 
Granting Accelerated Approval of a Proposed Rule Change, as Modified 
by Amendment Nos. 1 and 2) (SR-CBOE-2017-057).
---------------------------------------------------------------------------

    Position limits are designed to address potential manipulative 
schemes and adverse market impact surrounding the use of options, such 
as disrupting the market in the security underlying the options. The 
potential manipulative schemes and adverse market impact are balanced 
against the potential of setting the limits so low as to discourage 
participation in the options market. The level of those position limits 
must be balanced between curtailing potential manipulation and the cost 
of preventing potential hedging activity that could be used for 
legitimate economic purposes. Position limits for options on ETFs, such 
as those subject to this proposal are determined pursuant to Exchange 
Rule 307, and vary according to the number of outstanding shares and 
the trading volume of the underlying stocks or ETFs over the past six-
months. The Exchange notes that the ETFs that underlie options subject 
to this proposal are highly liquid, and are based on a broad set of 
highly liquid securities and other reference assets. Likewise, the 
Commission has recognized the liquidity of the securities comprising 
the underlying interest of the SPDR S&P 500 ETF (``SPY'') in permitting 
no position limits on SPY options since 2012,\4\ and expanded position 
limits for options on EEM, IWM and QQQ.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release Nos. 67672 (August 15, 
2012), 77 FR 50750 (August 22, 2012) (SR-NYSEAmex-2012-29); 67937 
(September 27, 2012), 77 FR 60489 (October 3, 2012) (SR-CBOE-2012-
091).
---------------------------------------------------------------------------

    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 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 FXI, EFA, EWZ, TLT, and EWJ are currently subject to the 
standard position limit of 250,000 contracts, as set forth in Exchange 
Rule 307. Interpretation and Policy .01 of Exchange Rule 307 sets forth 
separate position limits for options on specific ETFs as follows:
     Options on EEM are 500,000 contracts;

[[Page 13324]]

     Options on IWM are 500,000 contracts; and
     Options on QQQ are 900,000 contracts.
    Interpretation and Policy .01 of Exchange Rule 307 also sets forth 
separate position limits for options on SPY (no limit) and options on 
DIA (300,000 contracts). However, the Exchange is not proposing to 
modify the position limits for options on SPY or DIA.
    The purpose of this proposal is to amend Rules 307, Position 
Limits, Interpretations and Policies .01, and 309, Exercise Limits, 
Interpretations and Policies .01 to double the position and exercise 
limits for FXI, EEM, IWM, EFA, EWZ, TLT, QQQ, and EWJ. As such, options 
on FXI, EFA, EWZ, TLT, and EWJ would no longer be subject to the 
standard position and exercise limits as set forth under Exchange Rules 
307 and 309. Accordingly, Interpretations and Policies .01 to Exchange 
Rule 307 and Interpretations and Policies .01 to Exchange Rule 309 
would be amended to set forth that the position and exercise limits for 
options on FXI, EFA, EWZ, TLT, and EWJ would be 500,000 contracts. 
These position and exercise limits equal the current position and 
exercise limits for options on IWM and EEM and are similar to the 
current position and exercise limits for options on QQQ, as set forth 
in Interpretations and Policies .01 to Exchange Rule 307 and 
Interpretations and Policies .01 to Exchange Rule 309.
    Interpretations and Policies .01 to Exchange Rule 307 and 
Interpretations and Policies .01 to Exchange Rule 309 would be further 
amended to increase the position and exercise limits for the remaining 
options subject to this proposal as follows:
     The position and exercise limits for options on EEM would 
be increased from 500,000 contracts to 1,000,000 contracts;
     The position and exercise limits for options on IWM would 
be increased from 500,000 contracts to 1,000,000 contracts; and
     The position and exercise limits for options on QQQ would 
be increased from 900,000 contracts to 1,800,000 contracts.
    The Exchange's proposal mirrors that of the Cboe Exchange, Inc. 
(``Cboe''), which seeks to increase the position and exercise limits 
for FXI, EEM, IWM, EFA, EWZ, TLT, QQQ, and EWJ which was filed by Cboe 
on August, 15, 2017.\5\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 81483 (August 25, 
2017), 82 FR 41457 (August 31, 2017) (SR-CBOE-2017-057 Notice of 
Filing of a Proposed Rule Change To Amend Interpretation and Policy 
.07 of Exchange Rule 4.11, Position Limits, To Increase the Position 
Limits for Options on Certain ETFs). See also SR-CBOE-2017-057, 
Partial Amendment No. 1 (November 22, 2017).
---------------------------------------------------------------------------

    In support of this proposal, the Exchange represents that the 
above-listed ETFs qualify for either: (i) The initial listing criteria 
set forth in Exchange Rule 402(i)(E)(2) for ETFs holding non-U.S. 
component securities; or (ii) for ETFs listed pursuant to 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.\6\
---------------------------------------------------------------------------

    \6\ 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)(E)(2); Exchange Rule 403(g).
---------------------------------------------------------------------------

    FXI tracks the performance of the FTSE China 50 Index, which is 
composed of the 50 largest Chinese stocks.\7\ EEM tracks the 
performance of the MSCI Emerging Markets Index, which is composed of 
approximately 800 component securities.\8\ The MSCI Emerging Markets 
Index consists of the following 21 emerging market country indices: 
Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, 
Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, 
Russia, South Africa, Taiwan, Thailand, and Turkey.\9\ IWM tracks the 
performance of the Russell 2000 Index, which is composed of 2,000 
small-cap domestic stocks.\10\ EFA tracks the performance of MSCI EAFE 
Index, which has over 900 component securities.\11\ The MSCI EAFE Index 
is designed to represent the performance of large and mid-cap 
securities across 21 developed markets, including countries in Europe, 
Australasia and the Far East, excluding the U.S. and Canada.\12\ EWZ 
tracks the performance of the MSCI Brazil 25/50 Index, which is 
composed of shares of large and mid-size companies in Brazil.\13\ TLT 
tracks the performance of ICE U.S. Treasury 20+ Year Bond Index, which 
is composed of long-term U.S. Treasury bonds.\14\ QQQ tracks the 
performance of the Nasdaq-100 Index, which is composed of 100 of the 
largest domestic and international nonfinancial companies listed on the 
Nasdaq Stock Market LLC (``Nasdaq'').\15\ EWJ tracks the MSCI Japan 
Index, which tracks the performance of large and mid-sized companies in 
Japan.\16\
---------------------------------------------------------------------------

    \7\ See https://www.ishares.com/us/products/239536/ishares-china-largecap-etf.
    \8\ See http://us.ishares.com/productinfo/fund/overview/EEM.htm.
    \9\ See http://www.msci.com/products/indices/tools/index.html#EM.
    \10\ See https://www.ishares.com/us/products/239710/ishares-russell-2000-etf.
    \11\ See https://www.ishares.com/us/products/239623/.
    \12\ See https://www.msci.com/eafe.
    \13\ See https://www.ishares.com/us/products/239612/ishares-msci-brazil-capped-etf.
    \14\ See https://www.ishares.com/us/products/239454/.
    \15\ See https://indexes.nasdaqomx.com/Index/Overview/NDX .
    \16\ See https://www.ishares.com/us/products/239665/EWJ.
---------------------------------------------------------------------------

    MIAX Options represents that more than 50% of the weight of the 
securities held by the options subject to this proposal are also 
subject to a CSA.\17\ Additionally, the component securities of the 
MSCI Emerging Markets Index on which EEM is based for which the primary 
market is in any one country that is not subject to a CSA do not 
represent 20% or more of the weight of the MSCI Emerging Markets 
Index.\18\ Finally, the component securities of the MSCI Emerging 
Markets Index on which EEM is based, for which the primary market is in 
any two countries that are not subject to CSAs do not represent 33% of 
more of the weight of the MSCI Emerging Markets Index.\19\
---------------------------------------------------------------------------

    \17\ See Exchange Rule 402(i)(E)(2)(ii).
    \18\ See Exchange Rule 402(i)(E)(2)(ii)(B).
    \19\ See Exchange Rule 402(i)(E)(2)(ii)(C).
---------------------------------------------------------------------------

    In support of this proposal, the following trading statistics have 
been compiled.

----------------------------------------------------------------------------------------------------------------
                                                                                      Shares
                       ETF                           2017 ADV        2017 ADV       outstanding     Fund market
                                                                                     (million)    cap ($million)
----------------------------------------------------------------------------------------------------------------
FXI.............................................           15.08          71,944            78.6         3,343.6
EEM.............................................           52.12         287,357           797.4        34,926.1
IWM.............................................           27.46         490,070           253.1        35,809.1
EFA.............................................           19.42          98,844         1,178.4        78,870.3
EWZ.............................................           17.08          95,152           159.4         6,023.4
TLT.............................................            8.53          80,476            60.0         7,442.4

[[Page 13325]]

 
QQQ.............................................           26.25         579,404           351.6        50,359.7
EWJ.............................................            6.06           4,715           303.6        16,625.1
----------------------------------------------------------------------------------------------------------------

    The Exchange believes that the liquidity in the underlying ETFs, 
and the liquidity in the ETF options support its request to increase 
the position limits for the options subject to this proposal. As to the 
underlying ETF shares, through July 31, 2017, the year-to-date average 
daily trading volume was: (i) FXI across all exchanges was 15.08 
million shares; (ii) EEM across all exchanges was 52.12 million shares; 
(iii) IWM across all exchanges was 27.46 million shares; (iv) EFA 
across all exchanges was 19.42 million shares; (v) EWZ across all 
exchanges was 17.08 million shares; (vi) TLT across all exchanges was 
8.53 million shares; (vii) QQQ across all exchanges was 26.25 million 
shares; and (vii) EWJ across all exchanges was 6.06 million shares.
    In proposing the increased position limits, the Exchange considered 
the availability of economically equivalent products and their 
respective position limits. For instance, some of the ETFs underlying 
options subject to this proposal are based on broad-based indices that 
underlie cash settled options that are economically equivalent to the 
ETF options that are the subject of this proposal and have no position 
limits. Other ETFs are based on broad-based indexes that underlie cash-
settled options with position limits reflecting notional values that 
are larger than the current position limits for ETF analogues (EEM, 
EFA). Where there was no approved index analogue, the Exchange 
believes, based on the liquidity, breadth and depth of the underlying 
market, that the index referenced by the ETF would be considered a 
broad-based index.\20\ The Exchange argues that if certain position 
limits are appropriate for the options overlying the same index or is 
an analogue to the basket of securities that the ETF tracks, then those 
same economically equivalent position limits should be appropriate for 
the option overlying the ETF. In addition, the market capitalization of 
the underlying index or reference is large enough to absorb any price 
movements that may be caused by an oversized trade. Also, the 
Authorized Participant or issuer may look to the stocks comprising the 
analogous underlying index or reference asset when seeking to create 
additional ETF shares which are part of the creation/redemption process 
to address supply and demand or to mitigate the price movement of the 
price of the ETF.
---------------------------------------------------------------------------

    \20\ Exchange Rule 1804 sets forth the position limits for 
broad-based index options.
---------------------------------------------------------------------------

    For example, the PowerShares QQQ Trust or QQQ is an ETF that tracks 
the Nasdaq 100 Index or NDX, which is an index composed of 100 of the 
largest non-financial securities listed on the Nasdaq Stock Market LLC 
(``Nasdaq''). Options on NDX are currently subject to no position 
limits but share similar trading characteristics as QQQ.\21\ Based on 
QQQ's share price of $154.54 \22\ and NDX's index level of 6,339.14, 
approximately 40 contracts of QQQ equals one contract of NDX. Assume 
that NDX was subject to the standard position limit of 25,000 contracts 
for broad-based index options under Exchange Rule 1804(a). Based on the 
above comparison of notional values, this would result in a position 
limit equivalent to 1,000,000 contracts for QQQ as NDX's analogue. 
However, NDX is not subject to position limits and has an average daily 
trading volume of 15,300 contracts. QQQ is currently subject to a 
position limit of 900,000 contracts but has a much higher average daily 
trading volume of 579,404 contracts. Furthermore, NDX currently has a 
market capitalization of $17.2 trillion and QQQ has a market 
capitalization of $50,359.7 million, and the component securities of 
NDX, in aggregate, have traded an average of 440 million shares per day 
in 2017, both large enough to absorb any price movement caused by a 
large trade in the QQQ. The Commission has also approved no position 
limit for NDX, although it has a much lower daily trading volume than 
its analogue, the QQQ. Therefore, the Exchange believes it is 
reasonable to increase the position limit for options on the QQQ from 
900,000 to 1,800,000 contracts.
---------------------------------------------------------------------------

    \21\ Id.
    \22\ All share prices used herein are based on the closing price 
of the security on November 16, 2017. Source: Yahoo Finance.
---------------------------------------------------------------------------

    The iShare [sic] Russell 2000 ETF or IWM, is an ETF that also 
tracks the Russell 2000 index or RUT, which is an index composed of 
2,000 small-cap domestic companies in the Russell 3000 index. Options 
on RUT are currently subject to no position limits but share similar 
trading characteristics as IWM.\23\ Based on IWM's share price of 
$144.77 and RUT's index level of 1,486.88, approximately 10 contracts 
of IWM equals one contract of RUT. Assume that RUT was subject to the 
standard position limit of 25,000 contracts for broad-based index 
options under Exchange Rule 1804(a). Based on the above comparison of 
notional values, this would result in a position limit equivalent to 
250,000 contracts for IWM as RUT's analogue. However, RUT is not 
subject to position limits and has an average daily trading volume of 
66,200 contracts. IWM is currently subject to a position limit of 
500,000 contracts but has a much higher average daily trading volume of 
490,070 contracts. The Commission has approved no position limit for 
RUT, although it has a much lower average daily trading volume than its 
analogue, the IWM. Furthermore, RUT currently has a market 
capitalization of $2.4 trillion and IWM has a market capitalization of 
$35,809.1 million, and the component securities of RUT, in aggregate, 
have traded an average of 270 million shares per day in 2017, both 
large enough to absorb any price movement caused by a large trade in 
the IWM. Therefore, the Exchange believes it is reasonable to increase 
the position limit for options on the IWM from 500,000 to 1,000,000 
contracts.
---------------------------------------------------------------------------

    \23\ See supra note 20.
---------------------------------------------------------------------------

    EEM tracks the performance of the MSCI Emerging Markets Index or 
MXEF, which is composed of approximately 800 component securities 
following 21 emerging market country indices: Brazil, Chile, China, 
Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, 
Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South 
Africa, Taiwan, Thailand, and Turkey. Below makes the same notional 
value comparisons as made above. Based on EEM's share price of $47.06 
and MXEF's index level of 1,136.45, approximately 24 contracts of EEM 
equals one contract of MXEF. Assume that MXEF was subject to the 
standard position limit of 25,000 contracts for broad-based index 
options under Exchange Rule 1804(a). Based on the above comparison of 
notional values, this would result in a position limit economically 
equivalent to 604,000 contracts for EEM as MXEF's

[[Page 13326]]

analogue. However, MXEF has an average daily trading volume of 180 
contracts. EEM is currently subject to a position limit of 500,000 
contracts but has a much higher average daily trading volume of 287,357 
contracts. Furthermore, MXEF currently has a market capitalization of 
$5.18 trillion and EEM has a market capitalization of $34,926.1 
million, and the component securities of MXEF, in aggregate, have 
traded an average of 33.6 billion shares per day in 2017, both large 
enough to absorb any price movement caused by a large trade in the EEM. 
Therefore, based on the comparison of average daily trading volume, the 
Exchange believes it is reasonable to increase the position limit for 
options on the EEM from 500,000 to 1,000,000 contracts.
    EFA tracks the performance of the MSCI EAFE Index or MXEA, which 
has over 900 component securities designed to represent the performance 
of large and mid-cap securities across 21 developed markets, including 
countries in Europe, Australia and the Far East, excluding the U.S. and 
Canada. Below makes the same notional value comparison as made above. 
Based on EFA's share price of $69.16 and MXEA's index level of 
1,986.15, approximately 29 contracts of EFA equals one contract of 
MXEA. Assume MXEA was subject to the standard position limit of 25,000 
contracts for broad-based index options under Exchange Rule 1804(a). 
Based on the above comparison of notional values, this would result in 
a position limit economically equivalent to 721,000 contracts for EFA 
as MXEA's analogue. Furthermore, MXEA currently has a market 
capitalization of $18.7 trillion and EFA has a market capitalization of 
$78,870.3 million, and the component securities of MXEA, in aggregate, 
have traded an average of 4.6 billion shares per day in 2017, both 
large enough to absorb any price movement cause by a large trade in 
EFA. However, MXEA has an average daily trading volume of 270 
contracts. EFA is currently subject to a position limit of 250,000 
contracts but has a much higher average daily trading volume of 98,844 
contracts. Based on the above comparisons, the Exchange believes it is 
reasonable to increase the position limit for options on the EFA from 
250,000 to 500,000 contracts.
    FXI tracks the performance of the FTSE China 50 Index, which is 
composed of the 50 largest Chinese stocks. There is currently no index 
analogue for FXI approved for options trading. However, the FTSE China 
50 Index currently has a market capitalization of $1.7 trillion and FXI 
has a market capitalization of $2,623.18 million, both large enough to 
absorb any price movement caused by a large trade in FXI. The 
components of the FTSE China 50 Index, in aggregate, have an average 
daily trading volume of 2.3 billion shares. FXI is currently subject to 
a position limit of 250,000 contracts but has a much higher average 
daily trading volume of 15.08 million shares. Based on the above 
comparisons, the Exchange believes it is reasonable to increase the 
position limit for options on the FXI from 250,000 to 500,000 
contracts.
    EWZ tracks the performance of the MSCI Brazil 25/50 Index, which is 
composed of shares of large and mid-size companies in Brazil. There is 
currently no index analogue for EWZ approved for options trading. 
However, the MSCI Brazil 25/50 Index currently has a market 
capitalization of $700 billion and EWZ has a market capitalization of 
$6,023.4 million, both large enough to absorb any price movement caused 
by a large trade in EWZ. The components of the MSCI Brazil 25/50 Index, 
in aggregate, have an average daily trading volume of 285 million 
shares. EWZ is currently subject to a position limit of 250,000 
contracts but has a much higher average daily trading volume of 17.08 
million shares. Based on the above comparisons, the Exchange believes 
it is reasonable to increase the position limit for options on the EWZ 
from 250,000 to 500,000 contracts.
    TLT tracks the performance of ICE U.S. Treasury 20+ Year Bond 
Index, which is composed of long-term U.S. Treasury bonds. There is 
currently no index analogue for TLT approved for options trading. 
However, the U.S. Treasury market is one of the largest and most liquid 
markets in the world, with over $14 trillion outstanding and turnover 
of approximately $500 billion per day. TLT currently has a market 
capitalization of $7,442.4 million, both large enough to absorb any 
price movement caused by a large trade in TLT. Therefore, the potential 
for manipulation will not increase solely due to the increase in 
position limits as set forth in this proposal. Based on the above 
comparisons, the Exchange believes it is reasonable to increase the 
position limit for options on TLT from 250,000 to 500,000 contracts.
    EWJ tracks the MSCI Japan Index, which tracks the performance of 
large and mid-sized companies in Japan. There is currently no index 
analogue for EWJ approved for options trading. However, the MSCI Japan 
Index has a market capitalization of $3.5 trillion and EWJ has a market 
capitalization of $16,625.1 million, and the component securities of 
the MSCI Japan Index, in aggregate, have traded an average of 1.1 
billion shares per day in 2017, both large enough to absorb any price 
movement caused by a large trade in EWJ. EWJ is currently subject to a 
position limit of 250,000 contracts and has an average daily trading 
volume of 6.6 million shares. Based on the above comparisons, the 
Exchange believes it is reasonable to increase the position limit for 
options on EWJ from 250,000 to 500,000.
    The Exchange believes that increasing the position limits for the 
options subject to this proposal would lead to a more liquid and 
competitive market environment for these options, which will benefit 
customers interested in these products. Under the proposal, the 
reporting requirement for the above options would be unchanged. Thus, 
the Exchange would still require that each Member that maintains a 
position in the options on the same side of the market, for its own 
account or for the account of a customer, to report certain information 
to the Exchange. This information would include, but would not be 
limited to, the options' position, whether such position is hedged and, 
if so, a description of the hedge, and the collateral used to carry the 
position, if applicable. Exchange Market Makers \24\ (including Primary 
Lead Market-Makers) \25\ would continue to be exempt from this 
reporting requirement, as Market Maker information can be accessed 
through the Exchange's market surveillance systems. In addition, the 
general reporting requirement for customer accounts that maintain an 
aggregate position of 200 or more options contracts would remain at 
this level for the options subject to this proposal.\26\
---------------------------------------------------------------------------

    \24\ The term ``Market Makers'' refers to ``Lead Market 
Makers'', ``Primary Lead Market Makers'' and ``Registered Market 
Makers'' collectively. See Exchange Rule 100.
    \25\ The term ``Primary Lead Market Maker'' means a Lead Market 
Maker appointed by the Exchange to act as the Primary Lead Market 
Maker for the purposes of making markets in securities traded on the 
Exchange. See Exchange Rule 100.
    \26\ See Exchange Rule 310 for reporting requirements.
---------------------------------------------------------------------------

    The Exchange believes that the existing surveillance procedures and 
reporting requirements at the Exchange, other options exchanges, and at 
the several clearing firms are capable of properly identifying unusual 
and/or illegal trading activity. In addition, routine oversight 
inspections of the Exchange's regulatory programs by the Commission 
have not uncovered any material inconsistencies or shortcomings in the 
manner in which the Exchange's market surveillance is conducted. These 
procedures utilize

[[Page 13327]]

daily monitoring of market movements via automated surveillance 
techniques to identify unusual activity in both options and underlying 
stocks.\27\ Furthermore, large stock holdings must be disclosed to the 
Commission by way of Schedules 13D or 13G.\28\ The positions for 
options subject to this proposal are part of any reportable positions 
and, thus, cannot be legally hidden. Moreover, the Exchange's 
requirement that Members file reports with the Exchange for any 
customer who held aggregate large long or short positions of any single 
class for the previous day will continue to serve as an important part 
of the Exchange's surveillance efforts.
---------------------------------------------------------------------------

    \27\ These procedures have been effective for the surveillance 
of trading the options subject to this proposal and will continue to 
be employed.
    \28\ 17 CFR 240.13d-1.
---------------------------------------------------------------------------

    The Exchange believes that the current financial requirements 
imposed by the Exchange and by the Commission adequately address 
concerns that a Member or its customer may try to maintain an 
inordinately large un-hedged position in the options subject to this 
proposal. 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.\29\ In addition, Rule 15c3-
1 \30\ imposes a capital charge on Members to the extent of any margin 
deficiency resulting from the higher margin requirement.
---------------------------------------------------------------------------

    \29\ See Exchange Rule 1502 for a description of margin 
requirements.
    \30\ 17 CFR 240.15c3-1.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange, and, in particular, 
with the requirements of Section 6(b) of the Act.\31\ Specifically, the 
proposal is consistent with Section 6(b)(5) of the Act \32\ because 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 
mechanism of, a free and open market and a national market system and, 
in general, to protect investors and the public interest. The current 
position limits for the options subject to this proposal have inhibited 
the ability of Market Makers to make markets on the Exchange. 
Specifically, the proposal is designed to encourage Market Makers to 
shift liquidity from over the counter markets onto the Exchange, which 
will enhance the process of price discovery conducted on the Exchange 
through increased order flow. The proposal will also benefit 
institutional investors as well as retail traders, and public 
customers, by providing them with a more effective trading and hedging 
vehicle. In addition, the Exchange believes that the structure of the 
options subject to this proposal and the considerable liquidity of the 
market for those options diminishes the opportunity to manipulate this 
product and disrupt the underlying market that a lower position limit 
may protect against.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78f(b).
    \32\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Increased position limits for select actively traded options, such 
as that proposed herein, is not novel and has been previously approved 
by the Commission. For example, the Commission has previously approved, 
on a pilot basis, eliminating position limits for options on the SPDR 
S&P 500 ETF (``SPY'').\33\ Additionally, the Commission has approved 
similar proposed rule changes by other exchanges to increase position 
and exercise limits for options on highly liquid, actively-traded 
ETFs,\34\ including a proposal to permanently eliminate the position 
and exercise limits for options overlaying the S&P 500 Index, S&P 100 
Index, Dow Jones Industrial Average, and Nasdaq 100 Index.\35\ In 
approving the permanent elimination of position and exercise limits, 
the Commission relied heavily upon the exchange's surveillance 
capabilities, the Commission expressed trust in the enhanced 
surveillance and reporting safeguards that the exchange took in order 
to detect and deter possible manipulative behavior which might arise 
from eliminating position and exercise limits.\36\ Furthermore, as 
described more fully above, options on other ETFs have the position 
limits proposed herein, but their trading volumes are significantly 
lower than the ETFs subject to the proposed rule change.
---------------------------------------------------------------------------

    \33\ See Securities Exchange Act Release Nos. 67672 (August 15, 
2012), 77 FR 50750 (August 22, 2012) (SR-NYSEAmex-2012-29); 67937 
(September 27, 2012), 77 FR 60489 (October 3, 2012) (SR-CBOE-2012-
091).
    \34\ See Securities Exchange Act Release Nos . 68086 (October 
23, 2012), 77 FR 65600 (October 29, 2012) (SR-CBOE-2012-066); 
Securities Exchange Act Release No. 68478 (December 19, 2012), 77 FR 
76132 (December 26, 2012) (SR-BOX-2012-023); Securities Exchange Act 
Release No. 68398 (December 11, 2012), 77 FR 74700 (December 17, 
2012) (SR-ISE-2012-093); Securities Exchange Act Release No. 68293 
(November 27, 2012), 77 FR 71644 (December 3, 2012) (SR-Phlx-2012-
132); Securities Exchange Act Release No. 68358 (December 5, 2012), 
77 FR 73708 (December 11, 2012) (SR-NYSE MKT-2012-071); Securities 
Exchange Act Release No. 68359 (December 5, 2012), 77 FR 73716 
(December 11, 2012) (SR-NYSE Arca-2012-132); and .69457 (April 25, 
2012), 78 FR 25502 (May 1, 2013) (SR-MIAX-2013-17).
    \35\ See Securities Exchange Act Release Nos. 44994 (October 26, 
2001), 66 FR 55722 (November 2, 2001) (SR-CBOE-2001-22); 52650 
(October 21, 2005), 70 FR 62147 (October 28, 2005) (SR-CBOE-2005-41) 
(``NDX Approval'').
    \36\ See NDX Approval at 62149.
---------------------------------------------------------------------------

    Furthermore, the proposed position limits set forth in this 
proposal would continue to address potential manipulative activity 
while allowing for potential hedging activity for appropriate economic 
purposes. The creation and redemption process for these ETFs also 
lessens the potential for manipulative activity. When an ETF company 
wants to create more ETF shares, it looks to an Authorized Participant, 
which is a market maker or other large financial institution, to 
acquire the securities the ETF is to hold. For instance, IWM is 
designed to track the performance of the Russell 2000 Index, the 
Authorized Participant will purchase all the Russell 2000 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 
Authorized Participant a block of equally valued ETF shares, on a one-
for-one fair value basis. The price is based on the net asset value, 
not the market value at which the ETF is trading. The creation of new 
ETF units can be conducted all trading day and is not subject to 
position limits. This process can also work in reverse where the ETF 
company seeks to decrease the number of shares that are available to 
trade. The creation and redemption process, therefore, 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.
    The ETF creation and redemption seeks to keep ETF share prices 
trading in line with the ETF's underlying net asset value. Because an 
ETF trades like a stock, its price will fluctuate during the trading 
day, due to simple supply and demand. If demand to buy an ETF is high, 
for instance, the ETF's share price might rise above the value of its 
underlying securities. When this happens, the Authorized Participant 
believes the ETF may now be overpriced, and can buy the underlying 
shares that compose the ETF and then sell the ETF shares on the open 
market. This should help drive the ETF's share price back toward fair 
value. Likewise,

[[Page 13328]]

if the ETF starts trading at a discount to the securities it holds, the 
Authorized Participant can buy shares of the ETF and redeem them for 
the underlying securities. Buying undervalued ETF shares should drive 
the price of the ETF back toward fair value. This arbitrage process 
helps to keep an ETF's price in line with the value of its underlying 
portfolio.
    Lastly, the Commission expressed the belief that removing position 
and exercise limits may bring additional depth and liquidity without 
increasing concerns regarding intermarket manipulation or disruption of 
the options or the underlying securities.\37\ The Exchange's existing 
surveillance and reporting safeguards are designed to deter and detect 
possible manipulative behavior which might arise from eliminating 
position and exercise limits.
---------------------------------------------------------------------------

    \37\ Id.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    MIAX Options 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 believes the 
entire proposal is consistent with Section (6)(b)(8) of the Act \38\ in 
that it does not impose any burden on competition that is not necessary 
or appropriate in furtherance of the purposes of the Act. On the 
contrary, the Exchange believes the proposal promotes competition 
because it will enable the listed option exchanges to attract 
additional order flow from the over-the-counter market, who in turn 
compete for those orders.\39\ The Exchange believes that the proposed 
rule change will result in additional 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.
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78f(b)(8).
    \39\ For example, Nasdaq position limits are determined by the 
position limits established by the Exchange. See Nasdaq Rule Sec. 7 
(Position Limits).
---------------------------------------------------------------------------

    In this regard and as indicated above, the Exchange notes that the 
rule change is being proposed as a competitive response to changes put 
in place at Cboe. MIAX Options believes this proposed rule change is 
necessary to permit fair competition among the options exchanges and to 
establish uniform position limits for additional multiply listed option 
classes.

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 proposed rule change does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \40\ and Rule 19b-4(f)(6) thereunder.\41\
---------------------------------------------------------------------------

    \40\ 15 U.S.C. 78s(b)(3)(A).
    \41\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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.
---------------------------------------------------------------------------

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \42\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \43\ 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 would allow 
the Exchange to immediately increase its position and exercise limits 
for the products subject to this proposal to those of Cboe, which the 
Exchange believes will ensure fair competition among exchanges and 
provide consistency and uniformity among members of both Cboe and MIAX 
Options by subjecting members of both exchanges to the same position 
and exercise limits for these multiply-listed options classes. The 
Commission believes that waiving 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.\44\
---------------------------------------------------------------------------

    \42\ 17 CFR 240.19b-4(f)(6).
    \43\ 17 CFR 240.19b-4(f)(6)(iii).
    \44\ 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).
---------------------------------------------------------------------------

    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-2018-10 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-2018-10. 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 (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 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

[[Page 13329]]

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-2018-10, 
and should be submitted on or before April 18, 2018.\45\
---------------------------------------------------------------------------

    \45\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-06139 Filed 3-27-18; 8:45 am]
BILLING CODE 8011-01-P