[Federal Register Volume 84, Number 35 (Thursday, February 21, 2019)]
[Notices]
[Pages 5524-5526]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-02897]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85138; File No. SR-MIAX-2019-02]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Exchange Rule 521, Nullification and
Adjustment of Options Transactions Including Obvious Errors
February 14, 2019.
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 February 6, 2019, Miami International
Securities Exchange, LLC (``MIAX Options'' or the ``Exchange'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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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 is filing a proposal to amend Rule 521, Nullification
and Adjustment of Options Transactions Including Obvious Errors.
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
On October 12, 2018, the Securities and Exchange Commission
(``SEC'') approved a proposal by the MIAX Exchange (the ``Exchange'')
to list and trade on the Exchange, options on the SPIKES\TM\ Index, a
new index that measures expected 30-day volatility of the SPDR S&P 500
ETF Trust.\3\ To establish the settlement value for the Index, a final
settlement price calculation will occur once per month, on the morning
of SPIKES Index options expiration.\4\
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\3\ See Securities Exchange Act Release No. 84417 (October 12,
2018), 83 FR 52865 (October 18, 2018) (SR-MIAX-2018-14) (Order
Granting Approval of a Proposed Rule Change to List and Trade
Options on the SPIKES\TM\ Index).
\4\ See Exchange Rule 503.02.
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The Exchange proposes to amend Exchange Rule 521, Nullification and
Adjustment of Options Transactions Including Obvious Errors, to adopt a
provision specifically related to its volatility index product.
Currently, subparagraph (b)(1), Transactions at the Open, of Rule 521,
provides that for a transaction occurring as part of the Opening
Process \5\ (as described in Rule 503) the Exchange will determine the
Theoretical Price \6\ if there is no NBB (National Best Bid) or NBO
(National Best Offer) for the affected series just prior to the
erroneous transaction or if the bid/ask differential of the NBB and NBO
just prior to the erroneous transaction is equal to or greater than the
Minimum Amount set forth in the chart contained in sub-paragraph (b)(3)
of this rule.\7\ If the bid/ask differential is less than the Minimum
Amount, the Theoretical Price is the NBB or NBO just prior to the
erroneous transaction. The Exchange now proposes to adopt new
subparagraph (A) to state that for transactions occurring in any option
series being used to calculate the final settlement price of a
volatility index on the final settlement day, the Theoretical
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Price is the first quote after the transaction(s) in question that does
not reflect the erroneous transaction(s), provided that the quote size
is for at least the overall size of the opening trade, if the quote
size is for less than the overall size of the opening trade, then
paragraph (c) and (d) shall not apply.
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\5\ See Exchange Rule 503(f).
\6\ See Exchange Rule 521(b).
\7\ If the bid price at the time of the trade was below $2.00
the Minimum Amount is $0.75, similarly if the bid price at the time
of the trade is between $2.00 and $5.00, the Minimum Amount is
$1.25; above $5.00 to $10.00, $1.50; above $10.00 to $20.00, $2.50;
above $20.00 to $50.00, $3.00; above $50.00 to $100.00, $4.50; above
$100, $6.00. See Exchange Rule 521(b)(3).
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For erroneous sell transactions, the size of the bid would be used
and for erroneous buy transactions, the size of the offer would be
used. For example, if the opening trade in Series XYZ is for a total of
200 contracts and the bid or offer, as applicable, of the first quote
after the transaction(s) in question that does not reflect the
erroneous transaction(s) is for 500 contracts, the transaction in
question would qualify for treatment under the Exchange's obvious error
rule. If the bid or offer, as applicable, of the quote is for only 100
contracts, then the transaction in question would not be subject to
consideration under the Exchange's obvious error rule. Upon the
completion of the final settlement price calculation the proposed
provision would no longer be applicable and all provisions of Rule 521
would again be in force.
By establishing a size threshold for certain transactions occurring
during the Exchange's Opening Process, the proposal ensures that there
is sufficient liquidity in a series for which a valid Theoretical Price
can be established for use in determining whether a transaction meets
the conditions necessary to qualify as an Obvious \8\ or Catastrophic
Error.\9\ Further, due to the importance and finality of the final
settlement price for expiring SPIKES Index Options, establishing a
threshold based upon transaction size for obvious and catastrophic
error consideration, and only for those options being used in the final
settlement price calculation, ensures the timely completion of the
settlement price calculation and protects the integrity of the
calculation process from being unduly impacted by relatively small
transactions.
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\8\ See Exchange Rule 521(c).
\9\ See Exchange Rule 521(d).
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Using the size of a transaction as the threshold for determining
whether the transaction in question warrants consideration for obvious
or catastrophic error review under the rule is a widely accepted
standard and long standing practice in the industry.\10\ The Exchange
notes that its proposed provision is substantially similar in all
material respects to a provision found in the Cboe Exchange's rule
pertaining to the treatment of transactions in option series being used
to calculate the final settlement price of a volatility index on the
final settlement day.\11\ Further, the Exchange notes that the industry
has undertaken an effort to harmonize obvious error handling across all
option exchanges and the Exchange's proposal aligns to currently
accepted practices.\12\
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\10\ See Securities Exchange Act Release No. 59981 (May 27,
2009), 74 FR 26447 (June 2, 2009) (SR-CBOE-2009-024) (Order Granting
Approval of a Proposed Rule Change Related to Its Obvious Error
Rules).
\11\ See Cboe Exchange Rule 6.25(b)(1)(a).
\12\ See Securities Exchange Act Release Nos. 74918 (May 8,
2015), 80 FR 27781 (May 14, 2015) (SR-MIAX-2015-35); 74911 (May 8,
2015), 80 FR 27717 (May 14, 2015) (SR-BOX-2015-18); 74898 (May 7,
2015), 80 FR 27354 (May 13, 2015) (SR-CBOE-2015-039); 74919 (May 8,
2015), 80 FR 27766 (May 15, 2015) (SR-PHLX-2015-43).
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2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with Section 6(b) of the Act \13\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \14\ 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 regulating,
clearing, settling, processing information with respect to, and
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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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
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The proposed rule promotes just and equitable principles of trade
and removes impediments to and perfects the mechanism of a free and
open market and a national market system and, in general, protects
investors and the public interest by ensuring that there is sufficient
liquidity in the market by which to derive a Theoretical Price for
options being used in the final index settlement value calculation.
Additionally, the proposed rule promotes just and equitable principles
of trade and removes impediments to and perfects the mechanisms of a
free and open market and a national market system and, in general,
protects investors and the public interest by ensuring that the SPIKES
index settlement value calculation is completed on a timely basis
without unnecessary interruption.
Additionally, the proposed rule promotes cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, by harmonizing the Exchange's obvious error rule with
that of another exchange that has a similar process for determining the
settlement price of an index.\15\
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\15\ See supra note 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
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
The Exchange does not believe the proposed rule change will impose
any burden on inter-market competition as the proposed rule change is
not a competitive filing and is designed to harmonize the Exchange's
obvious error rule with that of the Cboe Exchange, which similarly
offers a volatility index product that requires the calculation of a
final settlement price.
Additionally, the Exchange does not believe the proposed rule
change will impose any burden on intra-market competition as the rules
of the Exchange apply equally to all Members \16\ of the Exchange.
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\16\ 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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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant 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 \17\ and Rule 19b-
4(f)(6) thereunder.\18\
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
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Act \19\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \20\ 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. The
Exchange believes that waiver of the operative delay is consistent with
the protection of investors and the public interest because it would
ensure that the Exchange will have a provision immediately available
for handling obvious errors in option series being used to calculate
the final settlement price of a volatility index on the final
settlement day. For this reason, the Commission believes that waiver of
the 30-day operative delay is consistent with the protection of
investors and the public interest. Therefore, the Commission hereby
waives the operative delay and designates the proposal as operative
upon filing.\21\
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\19\ 17 CFR 240.19b-4(f)(6).
\20\ 17 CFR 240.19b-4(f)(6)(iii).
\21\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-MIAX-2019-02 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-2019-02. 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 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. 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-2019-02 and should be submitted on
or before March 14, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-02897 Filed 2-20-19; 8:45 am]
BILLING CODE 8011-01-P