[Federal Register Volume 84, Number 195 (Tuesday, October 8, 2019)]
[Notices]
[Pages 53786-53787]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-21879]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87199; File No. SR-MIAX-2019-37]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Order Approving a Proposed Rule Change To Amend Exchange
Rule 518, Complex Orders, To Adopt New Interpretation and Policy .07,
SPIKES Combo Orders
October 2, 2019.
I. Introduction
On August 9, 2019, Miami International Securities Exchange, LLC
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to provide for the trading of
SPIKES Combo Orders.\3\ The proposed rule change was published for
comment in the Federal Register on August 20, 2019.\4\ The Commission
received no comment letters regarding the proposed rule change. This
order approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ SPIKES Combo Orders are comprised of multiple series of
SPIKESTM Index (``SPIKES'') options. The SPIKES Index
measures expected 30-day volatility of the SPDR S&P 500 ETF Trust
(``SPY''). See Securities Exchange Act Release No. 84417 (October
12, 2018), 83 FR 52865 (October 18, 2018) (File No. SR-MIAX-2018-14)
(approving the listing and trading of SPIKES Index options).
\4\ See Securities Exchange Act Release No. 86682 (August 14,
2019), 84 FR 43212 (``Notice'').
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II. Description of the Proposed Rule Change
The Exchange proposes to amend MIAX Rule 518, Complex Orders, to
adopt new Interpretation and Policy .07 to provide for the trading of
SPIKES Combo Orders. A SPIKES Combo Order is an order to purchase or
sell one or more SPIKES option series and the offsetting number of
SPIKES Combinations defined by the delta.\5\ A SPIKES Combination is a
purchase (sale) of a SPIKES call option and the sale (purchase) of a
SPIKES put option having the same expiration date and strike price.\6\
The delta is the positive (negative) number of SPIKES Combinations that
must be sold (purchased) to establish a market neutral hedge with one
or more SPIKES option series.\7\
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\5\ See proposed MIAX Rule 518, Interpretation and Policy
.07(a)(3).
\6\ See proposed MIAX Rule 518, Interpretation and Policy
.07(a)(1).
\7\ See proposed MIAX Rule 518, Interpretation and Policy
.07(a)(2). The delta is a measure of the change in an option's price
resulting from a change in the underlying security. See Notice, 84
FR at 43212.
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Under the proposed rule, a SPIKES Combo Order may not have a ratio
greater than eight options to one Spikes Combination.\8\ In addition, a
SPIKES Combo Orders will be subject to all of the provisions in MIAX
Rule 518 that are applicable to complex orders, other than the
requirement that the component legs of a complex order have a ratio
that is equal to or greater than one-to-three and less than or equal to
three-to-one.\9\ The proposal is designed to facilitate delta neutral
hedging for SPIKES options.\10\ MIAX states that delta hedging aims to
reduce the risk associated with price movements in the underlying
asset.\11\ MIAX notes that an options position may be delta hedged with
other options \12\ or with shares of the underlying stock.\13\ Although
SPIKES options, which are based on an index, do not have an underlying
stock that may serve as a hedge, a SPIKES Combination Order creates a
synthetic underlying position that is the functional equivalent of the
stock leg of a stock-option order.\14\ MIAX believes that permitting
SPIKES Combo Orders with an 8:1 ratio will align the treatment of
SPIKES Combo Orders with the treatment of stock-option orders and
permit additional hedging opportunities.\15\
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\8\ See proposed MIAX Rule 518, Interpretation and Policy
.07(a)(4). MIAX notes that its rules governing stock-option orders
currently permit the trading of stock-option orders with an 8:1
ratio, where the ratio represents the number of option contracts to
the underlying security. See Notice, 84 FR at 43214. See also MIAX
Rule 518(a)(5) (defining stock-option order as an order to buy or
sell a stated number of units of an underlying security (stock or
Exchange Traded Fund Share) or a security convertible into the
underlying stock (``convertible security'') coupled with the
purchase or sale of options contract(s) on the opposite side of the
market representing either (i) the same number of units of the
underlying security or convertible security, or (ii) the number of
units of the underlying stock necessary to create a delta neutral
position, but in no case in a ratio greater than eight-to-one
(8.00), where the ratio represents the total number of units of the
underlying security or convertible security (i.e., contracts) in the
option leg to the total number of units of the underlying security
(i.e., 100 shares) or convertible security in the stock leg).
\9\ See proposed MIAX Rule 518, Interpretation and Policy
.07(a)(4)(i). MIAX's rules defines a complex order as any order
involving the concurrent purchase and/or sale of two or more
different options in the same underlying security (the ``legs'' or
``components'' of the complex order), for the same account, in a
ratio that is equal to or greater than one-to-three (.333) and less
than or equal to three-to-one (3.00) and for the purposes of
executing a particular investment strategy. See MIAX Rule 518(a)(5).
\10\ See Notice, 84 FR at 43214.
\11\ See id. at 43213.
\12\ For example, a call option with a delta of 0.50 could be
hedged by a put option with a delta of -0.50, resulting in a
position with a delta of zero. See id.
\13\ See id.
\14\ See id. at 43214.
\15\ MIAX notes that market participants that transact in SPIKES
options currently may submit complex orders that are delta neutral
as long as the ratio for the component legs of the transaction
conforms to the current 1:3/3:1 ratio applicable to complex orders.
See id.
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MIAX states that it has the system capacity and capability to
handle the potential increase in transaction rates that could result
from the trading of SPIKES Combo Orders.\16\ In addition, MIAX states
that it will have surveillance to monitor compliance with the
Exchange's rules, specifically as they pertain to delta neutral
transactions.\17\
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\16\ See id. at 43215.
\17\ See id.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act,\18\ and the
rules and regulations thereunder applicable to a national securities
exchange.\19\ In particular, the Commission finds that the proposed
rule change is consistent with Section
[[Page 53787]]
6(b)(5) of the Act,\20\ which requires, among other things, that the
rules of a national securities exchange be designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest, and that the
rules are not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\18\ 15 U.S.C. 78f.
\19\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\20\ 15 U.S.C. 78f(b)(5).
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The Commission believes that the proposal will protect investors
and the public interest by helping market participants to hedge
positions in SPIKES options and execute delta neutral trading
strategies involving SPIKES options. All of the provisions in MIAX Rule
518 that are applicable to complex orders will apply to SPIKES Combo
Orders, other than the requirement that the component legs of a complex
order have a ratio that is equal to or greater than one-to-three and
less than or equal to three-to-one.\21\ The Commission notes that
permitting SPIKES Combo Orders to have a ratio of no more than eight
options to one SPIKES Combination is consistent with the 8:1 ratio
permitted for stock-option orders.\22\ As noted above, a SPIKES
Combination Order creates a synthetic underlying position that is the
functional equivalent of the stock leg in stock-option orders,\23\ and
the SPIKES Combination hedges one or more SPIKES option series.\24\
Finally, as discussed above, MIAX has represented that it has the
system capacity to accommodate the trading of SPIKES Combo Orders as
well as surveillance procedures to monitor compliance with its rules
relating to delta neutral transactions.\25\
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\21\ See proposed MIAX Rule 518(a)(4)(i).
\22\ See note 8, supra.
\23\ See Notice, 84 FR at 43214.
\24\ See proposed MIAX Rule 518, Interpretation and Policy
.07(a)(3).
\25\ See id. at 43215.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\26\ that the proposed rule change (SR-MIAX-2019-37) is approved.
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\26\ 15 U.S.C. 78s(b)(2).
\27\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-21879 Filed 10-7-19; 8:45 am]
BILLING CODE 8011-01-P