[Federal Register Volume 84, Number 98 (Tuesday, May 21, 2019)]
[Notices]
[Pages 23098-23101]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-10510]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85865; File No. SR-MIAX-2019-24]


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

May 15, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on May 7, 2019, Miami International Securities Exchange, LLC 
(``MIAX Options'' or the ``Exchange'') filed with the Securities and 
Exchange Commission (the ``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
the Exchange. The Exchange filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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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 Exchange Rule 404, 
Series of Option Contracts Open for Trading, Interpretation and Policy 
.10, to allow for $1 strike prices above $200 on additional series of 
options of certain exchange-traded fund (``ETF'') shares.
    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

[[Page 23099]]

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

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

1. Purpose
    The Exchange proposes to amend Exchange Rule 404, Series of Option 
Contracts Open for Trading, Interpretation and Policy .10, to allow for 
the interval between strike prices of series of options on ETF shares 
of the PowerShares QQQ Trust (``QQQ'') and iShares Russell 2000 ETF 
(``IWM'') to be $1 or greater where the strike price is greater than 
$200.
    Currently, Exchange Rule 404, Series of Option Contracts Open for 
Trading, Interpretation and Policy .10, allows for the interval between 
strike prices of series of options on ETF shares of SPDR S&P 500 ETF 
(``SPY''), iShares S&P 500 Index ETF (``IVV''), and SPDR Dow Jones 
Industrial Average ETF (``DIA'') to be $1 or greater where the strike 
price is greater than $200.\5\ Under Exchange Rule 404(g), the interval 
between strike prices of series of options on ETF shares approved for 
options trading \6\ shall be fixed at a price per share which is 
reasonably close to the price per share at which the underlying 
security is traded in the primary market at or about the same time such 
series of options is first open for trading on the Exchange, or at such 
intervals as may have been established on another options exchange 
prior to the initiation of trading on the Exchange.\7\ The Exchange 
generally sets the interval between strike prices of series of options 
on ETF shares at $5 or greater where the strike price is greater than 
$200, in accordance with such intervals that have been established on 
other options exchanges and Exchange Rule 404(g).\8\ Specifically, the 
Exchange proposes to modify the interval setting regime to allow for $1 
strike price intervals where the strike price is above $200 for IWM and 
QQQ options. The Exchange believes that the proposed rule change would 
make QQQ and IWM options easier for investors and traders to use and 
more tailored to their investment needs.
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    \5\ See Exchange Rule 404, Interpretation and Policy .10.
    \6\ See Exchange Rule 402(i).
    \7\ See Exchange Rule 404(g).
    \8\ See id.
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    Options on QQQ and IWM are designed to provide investors different 
ways to efficiently gain exposure to the equity markets and execute 
risk management, hedging, asset allocation and income generation 
strategies. The QQQ is an investment trust designed to closely track 
the price and performance of the Nasdaq-100 Index (``NDX''), which 
represents the largest and most active non-financial domestic and 
international issues listed on The Nasdaq Stock Market based on market 
capitalization. Likewise, the IWM is an index ETF designed to closely 
track the price and performance of the Russell 2000 Index (``RUT''), 
which represents the small capitalization sector of the U.S. equity 
market. In general, QQQ and IWM options provide investors with the 
benefit of trading broader markets in a manageably sized contract.
    The value of QQQ is designed to approximate 1/40 the value of the 
underlying NDX. For example, if the NDX price level is 1400, QQQ strike 
prices generally would be expected to be priced around $35. The value 
of IWM is designed to approximate 1/10 the value of the underlying RUT. 
In the past year, the NDX has climbed above a price level of 7500, and 
the RUT climbed to a price level of approximately 1700 (both prior to 
the December 2018 market-wide decline). As the value of the underlying 
ETF (and the index the ETF tracks) and resulting strike prices for each 
option continues to appreciate, market participants have requested the 
listing of additional strike prices ($1 increments) in QQQ and IWM 
options above $200. The QQQ is among the most actively traded ETFs on 
the market. It is widely quoted as an indicator of technology stock 
prices and investor confidence in the technology and telecommunication 
market spaces, a significant indicator of overall economic health. 
Similarly, IWM is among the most actively traded ETFs on the market and 
provides investors with an investment tool to gain exposure to small 
U.S. public companies. Industry-wide trade volume in QQQ more than 
doubled from 2017 to 2018. As a result, QQQ options and IWM options 
have grown to become two of the largest options contracts in terms of 
trading volume. Investors use these products to diversify their 
portfolios and benefit from market trends.
    Accordingly, the Exchange believes that offering a wider base of 
QQQ and IWM options affords traders and investors important hedging and 
trading opportunities, particularly in the midst of current price 
trends. The Exchange believes that not having the proposed $1 strike 
price intervals above $200 in QQQ and IWM classes significantly 
constricts investors' hedging and trading possibilities. The Exchange 
therefore believes that by having smaller strike intervals in QQQ and 
IWM, investors would have more efficient hedging and trading 
opportunities due to the lower $1 interval ascension. The proposed $1 
intervals above the $200 strike price will result in having at-the-
money series based upon the underlying ETFs moving less than 1%. The 
Exchange believes that the proposed strike setting regime is in line 
with the slower movements of broad-based indices. Considering the fact 
that $1 intervals already exist below the $200 price point and that 
both QQQ and IWM have consistently inclined in price toward the $200 
level, the Exchange believes that continuing to maintain the current 
$200 level (above which intervals increase 500% to $5), may have a 
negative effect on investing, trading and hedging opportunities, and 
volume. The Exchange believes that the investing, trading, and hedging 
opportunities available with QQQ and IWM options far outweighs any 
potential negative impact of allowing QQQ and IWM options to trade in 
more finely tailored intervals above the $200 price point.
    The proposed strike setting regime would permit strikes to be set 
to more closely reflect the increasing values in the underlying indices 
and allow investors and traders to roll open positions from a lower 
strike to a higher strike in conjunction with the price movements of 
the underlying ETFs. 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. As stated, the NDX and RUT have experienced continued, steady 
growth. The Exchange believes that with the proposed rule change, 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. As a result, the proposed 
rule change will allow the Exchange to better respond to customer 
demand for QQQ and IWM strike prices more precisely aligned with the 
smaller, longer-term incremental increases in respective underlying 
ETFs. The Exchange believes

[[Page 23100]]

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 QQQ and IWM options. Moreover, by allowing 
series of QQQ and IWM options to be listed in $1 intervals between 
strike prices over $200, the proposal will moderately augment the 
potential total number of options 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 \9\ 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, but rather, believes that finer strike 
intervals will serve to increase liquidity available as well as price 
efficiency by providing more trading opportunities for all market 
participants.
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    \9\ 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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2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \10\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \11\ 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. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) requirement that the rules of an 
exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    In particular, the proposed rule change to Exchange Rule 404, 
Series of Option Contracts Open for Trading, Interpretation and Policy 
.10, will allow investors to more easily use QQQ and IWM options. 
Moreover, the proposed rule change would allow investors to better 
trade and hedge positions in QQQ and IWM options where the strike price 
is greater than $200, and ensure that investors in both options are not 
at a disadvantage simply because of the strike price.
    The Exchange 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 QQQ and IWM 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, 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 $200 strike price above which options intervals 
increase by 500%. This proposal remedies the situation by establishing 
an exception to the current ETF interval regime for QQQ and IWM 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 change adopted by Cboe Exchange, Inc. 
(``Cboe'').\12\
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    \12\ See Securities Exchange Act Release No. 85754 (April 30, 
2019), 84 FR 19823 (May 6, 2019) (SR-CBOE-2019-015).
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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.

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. 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 
QQQ and IWM 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 QQQ and IWM options is currently applied to SPY, 
IVV, and DIA options, which are similarly popular and widely traded ETF 
products and track indexes at similarly high price levels. Thus, the 
proposed strike setting regime for QQQ and IWM options will allow 
options on the most actively traded ETFs with index levels at 
corresponding price levels to trade pursuant to the same strike setting 
regime. This will permit investors to employ similar investment and 
hedging strategies for each of these options.

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 \13\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule19b-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 
Act \15\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \16\ permits the 
Commission to designate a

[[Page 23101]]

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 Exchange stated that 
waiver of this requirement will ensure fair competition among the 
exchanges by allowing the Exchange to set the interval between strike 
prices of series of options on ETF shares of QQQ and IWM in a manner 
consistent with another exchange. Further, the Exchange stated that 
because the proposed rule change is based on the rules of another Self-
Regulatory Organization,\17\ it does not introduce any new or novel 
regulatory issues. For these reasons, the Commission believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest. Accordingly, the Commission hereby 
waives the operative delay and designates the proposed rule change 
operative upon filing.\18\
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    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 17 CFR 240.19b-4(f)(6)(iii).
    \17\ See supra note 12.
    \18\ 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-2019-24 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-2019-24. 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-2019-24 and should be submitted on 
or before June 11, 2019.
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    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-10510 Filed 5-20-19; 8:45 am]
BILLING CODE 8011-01-P