[Federal Register Volume 88, Number 151 (Tuesday, August 8, 2023)]
[Notices]
[Pages 53555-53560]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-16881]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98045; File No. SR-MIAX-2023-19]


Self-Regulatory Organizations; MIAX International Securities 
Exchange LLC; Order Instituting Proceedings To Determine Whether To 
Approve or Disapprove a Proposed Rule Change To Amend MIAX Rule 307, 
Position Limits

August 2, 2023.

I. Introduction

    On April 21, 2023, Miami International Securities Exchange LLC 
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (the ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend Exchange Rule 307, 
Position Limits, to establish a process for adjusting option position 
limits following a stock split or reverse stock split in the underlying 
security. The proposed rule change was published for comment in the 
Federal Register on May 8, 2023.\3\ On June 14, 2023, pursuant to 
Section 19(b)(2) of the Act,\4\ the Commission designated a longer 
period within which to approve the

[[Page 53556]]

proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to approve or disapprove the proposed 
rule change.\5\ The Commission has received one comment regarding the 
proposal.\6\ This order institutes proceedings pursuant to Section 
19(b)(2)(B) of the Act \7\ to determine whether to approve or 
disapprove the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 97421 (May 2, 2023), 
88 FR 29725 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 97727 (June 14, 
2023), 88 FR 40366 (June 21, 2023). The Commission designated August 
6, 2023, as the date by which the Commission shall approve or 
disapprove, or institute proceedings to determine whether to approve 
or disapprove, the proposed rule change.
    \6\ See letter from Ellen Greene, Managing Director, Equities & 
Options Market Structure, SIFMA, to Vanessa Countryman, Secretary, 
Commission, dated July 5, 2023 (``SIFMA Letter'').
    \7\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

II. Description of the Proposal

    Currently, Exchange Rule 307(d) establishes option position limits 
of 25,000 contracts, 50,000 contracts, 75,000 contracts, 200,000 
contracts, or 250,000 contracts on the same side of the market for the 
same underlying security or such other number of option contracts as 
may be fixed from time to time by the Exchange. The position limit 
applicable to an option is based on the trading volume and outstanding 
shares of the underlying security.\8\ Exchange Rule 307(e) states that 
the Exchange will review the status of underlying securities every six 
months to determine which position limit should apply. A higher limit 
will be effective on the date set by the Exchange, and any change to a 
lower limit will take effect after the last expiration then trading, 
unless the requirement for the same or a higher limit is met at the 
time of the intervening six month review.\9\ If, subsequent to a six 
month review, an increase in volume and/or outstanding shares would 
make a stock eligible for a higher position limit prior to the next 
review, the Exchange in its discretion may immediately increase such 
position limit.\10\
---------------------------------------------------------------------------

    \8\ Exchange Rule 307(d) establishes the following position 
limits: 25,000 contracts for an option on an underlying security 
that does not meet the requirements for a higher option contract 
limit; 50,000 contracts for an option on an underlying security that 
has either a most recent six month trading volume of at least 20 
million shares, or a most recent six month trading volume of at 
least 15 million shares and at least 40 million shares outstanding; 
75,000 contracts for an option on an underlying security that has 
either a most recent six month trading volume of at least 40 million 
shares, or a most recent six month trading volume of at least 30 
million shares and at least 120 million shares outstanding; 200,000 
contracts for an option on an underlying security that has either a 
most recent six month trading volume of at least 80 million shares 
or a most recent six month trading volume of at least 60 million 
shares and at least 240 million shares outstanding; and 250,000 
contracts for an option on an underlying security that has either a 
most recent six month trading volume of at least 100 million shares, 
or a most recent six month trading volume of at least 75 million 
shares and at least 300 million shares outstanding. In addition, 
Exchange Rule 307, Interpretation and Policy .01 establishes 
position limits over 250,000 contracts for options on certain 
underlying exchange-traded funds. See Notice, 88 FR at 29726.
    \9\ See Exchange Rule 307(e).
    \10\ Id.
---------------------------------------------------------------------------

    The Exchange proposes to amend Exchange Rule 307 to make permanent 
the position limit changes that currently occur when an underlying 
security undergoes a corporate stock split.\11\ The Exchange states 
that following a stock split, the Options Clearing Corporation 
(``OCC'') adjusts the position limit for options on the underlying 
security by the factor of the split.\12\ The Exchange states, for 
example, that when a stock underlying an option with a position limit 
of 250,000 contracts undergoes a four-for-one stock split, the option 
will have a new position limit of 1,000,000 contracts.\13\ The Exchange 
further states that although the stock split is a permanent corporate 
action in the underlying stock, the position limit adjustment is 
temporary and lasts only until the time of expiration of the last 
option listed at the time of the stock split.\14\
---------------------------------------------------------------------------

    \11\ See Notice, 88 FR at 29726-7.
    \12\ See Notice, 88 FR at 29727. The Exchange does not believe 
that the OCC immediately adjusts position limits for reverse stock 
splits. See id. at n.8.
    \13\ See Notice, 88 FR at 29727.
    \14\ Id.
---------------------------------------------------------------------------

    Proposed Exchange Rule 307(g) would apply the split adjustment 
factor to the current position limit to establish a new option position 
limit following a stock split in the underlying security.\15\ 
Specifically, proposed Exchange Rule 307(g)(1) states that the position 
limit that was in effect at the time of the stock split shall be 
adjusted by multiplying the current position limit value in effect for 
the underlying by the stock split ratio.\16\ (For example, if the 
current position limit is 250,000 contracts and there is a four-for-one 
(4:1) stock split in the underlying, the new position limit would be 
1,000,000 contracts (4 x 250,000)). Proposed Exchange Rule 3071(g)(2) 
further states that the position limit that was in effect at the time 
of a reverse stock split shall be adjusted by dividing the current 
position limit value in effect for the underlying by the reverse stock 
split ratio. For example, if the current position limit is 250,000 
contracts and there is a one-for-two (1:2) reverse stock split in the 
underlying, the new position limit would be 125,000 contracts (250,000/
2). Further, for reverse stock splits, the new position limit would be 
the greater of the adjusted position limit or the lowest position limit 
defined in Exchange Rule 307(d).\17\
---------------------------------------------------------------------------

    \15\ Id.
    \16\ Proposed Exchange Rule 307(g)(3) states that for purposes 
of Exchange Rule 307(g), the term ``stock'' shall pertain solely to 
equity securities and not be inclusive of exchange-traded funds.
    \17\ See proposed Exchange Rule 307(g)(2).
---------------------------------------------------------------------------

    The Exchange states that its proposal presents a logical approach 
to addressing stock splits in underlying securities because it 
maintains the integrity of the position limit to shares outstanding 
ratio pre- and post-split, and promotes consistency and stability in 
the marketplace.\18\ The Exchange states, by way of example, that a 
position limit of 250,000 contracts on an underlying security that has 
4,000,000,000 shares outstanding represents control of 25,000,000 
shares or 0.625% of the total shares outstanding.\19\ If the underlying 
security has a four-for-one stock split, the number of shares 
outstanding would increase to 16,000,000,000.\20\ The Exchange states 
that to maintain the same position limit to shares outstanding ratio, 
the option position limit should increase fourfold to 1,000,000 
contracts, where control of 100,000,000 shares would represent control 
of 0.625% of the total shares outstanding.\21\
---------------------------------------------------------------------------

    \18\ See Notice, 88 FR at 29727.
    \19\ Id.
    \20\ Id.
    \21\ Id.
---------------------------------------------------------------------------

    The Exchange states that, today, when the last option listed at the 
time of the stock split expires, the position limit is re-evaluated 
according to the criteria in Exchange Rule 307(d)(1)-(5), (where the 
maximum contract limit is 250,000 contracts), and the position limit is 
permanently readjusted in accordance with that criteria.\22\ The 
Exchange states that the reversion of the position limit, even to the 
maximum limit of 250,000 contracts, unnecessarily restricts trading by 
imposing a stricter position limit relative to the number of shares 
outstanding post-stock split than existed pre-stock split.\23\ The 
Exchange states that its proposal will maintain the position limit to 
shares outstanding ratio so that the pre-split ratio and post-split 
ratio are identical, and will eliminate any market disruptions that may 
occur as a result of the current process for handling stock splits.\24\
---------------------------------------------------------------------------

    \22\ Id.
    \23\ Id.
    \24\ Id.
---------------------------------------------------------------------------

    The Exchange also proposes to amend Exchange Rule 307(e) to apply 
the split

[[Page 53557]]

factor to the reevaluation process provided in that rule. The Exchange 
proposes to amend Exchange Rule 307(e) to provide that for underlying 
securities whose position limit has been adjusted pursuant to paragraph 
(g), the split factor shall be used for analysis under paragraph (d). 
For example, paragraph (d)(5) establishes the position limit based on 
either the most recent six-month trading volume of the underlying 
security totaling at least 100 million shares, or the most recent six-
month trading volume of the underlying security totaling at least 75 
million shares and the underlying security having at least 300 million 
share outstanding. Therefore, to be eligible for the 250,000-contract 
limit, an underlying stock that underwent a four-for-one stock split 
would be required to have either most-recent six-month trading volume 
of at least 400 million shares (100,000,000 x 4), or most-recent six-
month trading volume of at least 300 million shares (75,000,000 x 4) 
with at least 1,200,000,000 shares outstanding (300,000,000 x 4). For 
reverse stock splits, the split factor would be similarly applied and 
used as a divisor in the calculations rather than as a multiplier.
    The Exchange states that the proposal provides a uniform and 
consistent approach for reevaluating position limits for underlying 
securities that were subject to a stock split because the split factor 
is properly applied (multiplied for share splits and divided for 
reverse share splits) to each threshold value under Exchange Rule 
307(d) to establish the proper position limit.\25\ The Exchange states 
that the current reversion process, in which position limits are 
adjusted at the time of the stock split but revert back to the original 
position limit when the last listed option at the time of the split 
expires, does not benefit investors or the public interest because the 
original position limit is no longer meaningfully related to the 
current shares outstanding.\26\ The Exchange states that the proposal 
maintains the established position limit relative to shares outstanding 
pre- and post-stock split and provides a defined calculation in the 
Exchange's rule to account for stock splits in underlying 
securities.\27\ In addition, the Exchange states that the proposal 
provides a corollary method for handling reverse stock splits that 
employs similar logic.\28\
---------------------------------------------------------------------------

    \25\ Id.
    \26\ See Notice, 88 FR at 29728.
    \27\ Id.
    \28\ Id.
---------------------------------------------------------------------------

    The Exchange states that in August 2020 the industry experienced an 
issue with a four-for-one stock split in Apple Inc. (``AAPL'') that the 
proposal is tangentially designed to address.\29\ The Exchange states 
that prior to the stock split, there were approximately 4,000,000,000 
shares of AAPL outstanding and the position limit for AAPL was 250,000 
contracts (25,000,000 shares).\30\ The Exchange states that on August 
28, 2020, the OCC indicated that that effective August 31, 2020, a 
contract multiplier of four and a strike divisor of four would be 
applied to AAPL contracts and strikes.\31\ The Exchange states that the 
OCC also adjusted the position limit for AAPL by the same factor, 
setting the position limit to 100,000,000 shares (1,000,000 
contracts).\32\ The Exchange states that when the last AAPL option 
listed at the time of the stock split in 2020 expired in 2022, the OCC 
reverted back to the original position limit for AAPL of 25,000,000 
shares (250,000 contracts).\33\ The Exchange states that although this 
position limit technically adheres to the Exchange's rules, it is more 
restrictive than the original position limit.\34\ The Exchange states 
that prior to the stock split, AAPL had approximately 4,000,000,000 
shares outstanding and the position limit of 250,000 contracts 
represented control of 25,000,000 shares or 0.625% of the outstanding 
shares.\35\ The Exchange further states that, after the stock split, 
AAPL had approximately 16,000,000,000 shares outstanding.\36\ The 
Exchange states that the immediate adjustment of the position limit 
from 250,000 contracts to 1,000,000 contracts reflects control of 
100,000,000 shares or 0.625% of the shares outstanding, which retains 
the pre-stock split ratio.\37\ The Exchange states that readjusting the 
position limit back to 25,000,000 shares (250,000 contracts) when there 
are 16,000,000,000 shares outstanding reduces the position limit to 
0.156% of the shares outstanding, making the post-stock split position 
limit more restrictive than the pre-stock split position limit.\38\
---------------------------------------------------------------------------

    \29\ Id.
    \30\ Id.
    \31\ See Notice, 88 FR at 29728, citing OCC Memo #47509, Apple 
Inc.--4 for 1 Stock Split (August 28, 2020) available on its public 
website at https://infomemo.theocc.com/infomemos?number=47509.
    \32\ See Notice, 88 FR at 29728. The Exchange states that the 
OCC publishes position limits each day on its website.
    \33\ Id.
    \34\ Id.
    \35\ Id.
    \36\ Id.
    \37\ Id.
    \38\ Id.
---------------------------------------------------------------------------

    The Exchange states that the reversion to the pre-stock split 
position limit disrupts the market in a number of ways.\39\ The 
Exchange states that the reversion to the pre-split position limit 
prevents market participants from effectively pursuing their trading 
and investment strategies because the position limit relative to shares 
outstanding has become more restrictive.\40\ In addition, the Exchange 
states that the reversion to the pre-stock split position limit 
introduces an element of risk because market participants must unwind 
their post-split positions to remain compliant with position limit 
rules.\41\ The Exchange also states that the reversion to the pre-split 
position limit may negatively impact trading volumes because market 
participants that use option contracts to hedge their risks will not be 
able to maintain the same levels of market exposure.\42\
---------------------------------------------------------------------------

    \39\ Id.
    \40\ Id.
    \41\ Id.
    \42\ Id.
---------------------------------------------------------------------------

    Using AAPL as an example, the Exchange states that pre-split, a 
market participant could have had an options position of 250,000 
contracts that represented 0.0625% [sic] of the total shares 
outstanding and that, post-split, the market participant could have had 
an options position of 1,000,000 contracts, which would still represent 
0.0625% [sic] of the total shares outstanding.\43\ The Exchange states 
that after the reversion to the pre-split position limit (250,000 
contracts), the market participant would be forced to reduce its 
trading activity because the maximum position limit would then 
represent 0.1563% of the total shares outstanding.\44\ The Exchange 
states that this reduction in trading volume also represents a 
reduction in available liquidity.\45\ The Exchange further states that 
robust liquidity facilitates price discovery and benefits competition 
by improving bid/ask spreads, and that tighter bid/ask spreads lead to 
better execution prices.\46\ The Exchange states that the reversion to 
the pre-split position limit negatively impacts liquidity, trading 
volume, and possibly execution prices.\47\
---------------------------------------------------------------------------

    \43\ Id. The Commission understands the percentage figure 
referenced by the Exchange in this example should be 0.625%, not 
0.0625%.
    \44\ Id.
    \45\ Id.
    \46\ Id.
    \47\ Id.
---------------------------------------------------------------------------

    The Exchange states that other options exchanges could adopt 
similar rules to harmonize position limit adjustments as a result of 
stock splits in

[[Page 53558]]

the underlying securities.\48\ The Exchange states that all market 
participants are able to determine position limits on a daily basis 
because the OCC publishes a Position Limit file and a Position Limit 
Change file, which reflects position limit adjustments and provides the 
Start Date and Starting Position Limit coupled with the End Date and 
Ending Position Limit.\49\
---------------------------------------------------------------------------

    \48\ Id.
    \49\ See Notice, 88 FR at 29728-9.
---------------------------------------------------------------------------

III. Proceedings To Determine Whether To Approve or Disapprove SR-MIAX-
2023-19 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \50\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of proceedings is 
appropriate at this time in view of the legal and policy issues raised 
by the proposal, as discussed below. Institution of proceedings does 
not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide comment 
on the proposed rule change.
---------------------------------------------------------------------------

    \50\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\51\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of, and input from commenters with respect to, the consistency 
of the proposed rule change with the Act and, in particular, Section 
6(b)(5) of the Act,\52\ which requires 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 not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \51\ Id.
    \52\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the [Act] 
and the rules and regulations issued thereunder . . . is on the self-
regulatory organization that proposed the rule change.'' \53\ The 
description of a proposed rule change, its purpose and operation, its 
effect, and a legal analysis of its consistency with applicable 
requirements must all be sufficiently detailed and specific to support 
an affirmative Commission finding,\54\ and any failure of a self-
regulatory organization to provide this information may result in the 
Commission not having a sufficient basis to make an affirmative finding 
that a proposed rule change is consistent with the Act and the 
applicable rules and regulations.\55\
---------------------------------------------------------------------------

    \53\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \54\ See id.
    \55\ See id.
---------------------------------------------------------------------------

    As discussed above, the Exchange proposes to adopt new rule 
provisions that would automatically adjust an option's position limit 
proportional to and following a stock split or reverse stock split in 
the underlying security. Specifically, proposed Exchange Rule 307(g)(1) 
would provide that, following a stock split, the new position limit for 
options on the stock would be a value equal to the option position 
limit in effect at the time of the split multiplied by the stock split 
ratio. For a reverse stock split, the position limit in effect at the 
time of the reverse stock split would be adjusted by dividing the 
position limit value by the reverse stock split ratio. In addition, the 
Exchange proposes to amend Exchange Rule 307(e) to provide that, for an 
option with a position limit that has been adjusted pursuant to 
proposed Exchange Rule 307(g), the split factor would be used for the 
position limit analysis in Exchange Rule 307(d).
    The Exchange states that the current reversion to the pre-stock 
split position limit following the expiration of the last option listed 
at the time of the split prevents market participants from effectively 
pursuing their trading and investment strategies because the option 
position limit relative to shares outstanding becomes more 
restrictive.\56\ The Exchange also states that the reversion to the 
pre-stock split position limit introduces an element of risk because 
market participants must unwind their post-split positions prior to the 
reversion to the pre-split position limit level to remain compliant 
with position limit rules.\57\ Further, the Exchange states that the 
reversion to the pre-split position limit may negatively impact trading 
volumes because market participants that use option contracts to hedge 
their risks would not be able to maintain the same levels of market 
exposure.\58\
---------------------------------------------------------------------------

    \56\ See Notice, 88 FR at 29728.
    \57\ Id.
    \58\ Id.
---------------------------------------------------------------------------

    The Commission has received one comment regarding the proposal.\59\ 
The commenter expressed broad support for the proposal, reiterating 
many of the statements made by the Exchange. According to the 
commenter, the reversion to the original position limit when the last 
listed option at the time of a split expires renders the limit no 
longer meaningfully related to the current shares outstanding, and 
unnecessarily restricts trading by imposing a stricter position limit 
relative to the number of shares outstanding post-stock split.\60\ The 
commenter stated that the proposal would eliminate this disparate 
treatment between the underlying stock split and the options position 
limit because both adjustments would be permanent.\61\ The commenter 
also stated that the proposal maintains the integrity of the position 
limit to shares outstanding ratio both pre- and post-split, provides a 
consistent and uniform approach for reevaluating position limits on 
underlying securities that were subject to a stock split, and creates 
stability in the marketplace by preserving the expectations of market 
participants who are trading and hedging in the options contracts 
subject to the position limit changes.\62\ In addition, the commenter 
stated that, besides AAPL, several other companies with significant 
market capitalization have undergone recent stock splits, including 
Tesla Inc., Alphabet Inc. and Nvidia Corporation (``NVDA'').\63\ The 
commenter stated that NVDA shares underwent a four-for-one stock split, 
increasing the option position limit from 250,000 contracts to 
1,000,000 contracts until the last contract expired in June 2023, at 
which point the limit reverted to 250,000 contracts.\64\ The commenter 
stated that allowing the position limit to remain at 1,000,000 
contracts would allow investors who are trading and hedging in the 
options contracts to manage their positions consistent with the new 
amount of shares outstanding.\65\
---------------------------------------------------------------------------

    \59\ See SIFMA Letter.
    \60\ Id. at 1-2.
    \61\ Id. at 2.
    \62\ Id.
    \63\ Id.
    \64\ Id.
    \65\ Id.
---------------------------------------------------------------------------

    Position and exercise limits serve as a regulatory tool designed to 
address manipulative schemes and adverse market impact surrounding the 
use of options.\66\ Currently, the maximum stock option position limits 
permitted

[[Page 53559]]

under exchange rules are 250,000 contracts. Although OCC provides a 
temporary adjustment to option position limits following a stock split, 
exchange rules currently do not provide for the automatic adjustment of 
an option's position limit proportional to splits in the underlying 
stock. The proposal is novel because it would amend the Exchange's 
rules to permit such automatic position limit adjustments, including 
adjustments that could result in increases in stock option position 
limits to levels that exceed 250,000 contracts. For example, in 2022, 
Amazon.com, Inc. (``Amazon'') underwent a 20:1 stock split.\67\ Under 
the proposal, the position limit for options on a stock that undergoes 
a 20:1 split would increase by a factor of 20--for example, from 
250,000 contracts to 5,000,000 contracts--regardless of the most recent 
six-month trading volume or number of shares outstanding of the 
underlying stock. Even a more modest position limit increase, such as a 
fourfold increase for an option on a stock that undergoes a 4:1 stock 
split, would be a substantial increase from current levels. The 
proposed automatic increase in position limits for options on stocks 
that undergo a stock split raises the potential for adverse impacts in 
the market for the underlying stocks.
---------------------------------------------------------------------------

    \66\ See, e.g., Securities Exchange Act Release No. 68086 
(October 23, 2012), 77 FR 65600 (October 29, 2012) (SR-CBOE-2012-
066).
    \67\ See Amazon.com, Inc. Current Report (Form 8-K) (March 9, 
2022), available at https://www.sec.gov/Archives/edgar/data/1018724/000101872422000009/amzn-20220309.htm.
---------------------------------------------------------------------------

    As discussed above, the Exchange and the commenter state that 
increasing the option position limit by the stock split factor will 
allow a market participant to continue to maintain an options position 
representing the same percentage of outstanding shares of the 
underlying stock following a stock split. However, the trading volume 
in the underlying stock--not the ability to establish an options 
position representing a consistent percentage of the outstanding shares 
pre- and post-split--is one of the relevant metrics for determining the 
position limit for options on stocks.\68\ Neither the Exchange nor the 
commenter have provided data indicating that trading volume in a stock 
generally increases following a stock split, or that any such 
increases, to the extent that they exist, generally are sufficient to 
support an increase in the option position limit by an amount equal to 
the stock split factor. For example, neither the Exchange nor the 
commenter present data demonstrating that, in general, the trading 
volume in a stock that undergoes a 4:1 stock split increases to such an 
extent that the position limit for options on that stock should 
increase fourfold over the pre-split option position limit. On the 
contrary, the Commission understands that some data suggest that 
trading volume in a stock may be unchanged or decrease following a 
stock split.\69\
---------------------------------------------------------------------------

    \68\ See, e.g., Exchange Rule 307(d).
    \69\ A Cboe study on the impact of stock splits on trading 
activities finds that split-adjusted median executed share volume in 
mega-capitalization stocks increased slightly one-week post-split 
but, in the two-week to six-month period post-split, the median 
executed share volume decreased about 48%, compared to volume a week 
pre-split. See Cboe study on the impact of stock split on trading 
activities at: https://www.cboe.com/insights/posts/stock-splits-lead-to-split-results-in-trading/. This study also finds that the 
median number of options contracts traded in mega-capitalization 
stocks decreased approximately 49% one week post-split and remained 
down through the six-month period post-split. Further, this study 
finds that split-adjusted median executed share volume in large-
capitalization stocks increased slightly two weeks post-split but 
then decreased in the one to six-month period post-split, and that 
split-adjusted median executed share volume in mid- and small-cap 
stocks decreased in the one-week to six-month period post-split. In 
addition, the Commission understands that some evidence suggests 
that, as a general matter, share trading volume may be unchanged or 
decrease after a stock split. See, e.g., Patrick Dennis, Stock 
Splits and Liquidity: the Case of the Nasdaq-100 Index Tracking 
Stock, the Financial Review, 38, 2003, 415-433; Thomas E. Copeland, 
Liquidity Changes Following Stock Splits, the Journal of Finance, 
34, 1, 1979, 115-141.
---------------------------------------------------------------------------

    Further, the proposal does not explain why it would be appropriate 
for a stock option potentially to have a split-factor-adjusted position 
limit that is higher than what is allowed by Exchange Rule 307(d) for 
corresponding underlying stock-volume-traded measures. For example, 
under Exchange Rule 307(d), a most recent six-month trading volume in 
the underlying security of at least 20 million shares qualifies the 
option for a 50,000-contract position limit, and a most recent six-
month trading volume in the underlying security of at least 40 million 
shares qualifies the option for a 75,000-contract position limit. Under 
the proposal, if an option at the 50,000-contract limit had a most 
recent six-month trading volume in its underlying stock of 20 million 
shares and the stock split two-for-one, the option's position limit 
would increase to 100,000 contracts and could remain there so long as 
the underlying stock's most recent six-month trading volume was at 
least 40 million shares. Under Exchange Rule 307(d), however, a most 
recent six-month trading volume of 40 million shares in the underlying 
security qualifies an option for a 75,000-contract limit, not a 
100,000-contract limit. The proposal does not explain why this and 
other potential discrepancies with position limits currently allowed by 
Exchange Rule 307(d) are appropriate for options with stock-split 
adjusted position limits.
    In addition, although the Exchange states that the reversion to 
pre-split option position limits prevents market participants from 
effectively pursuing their trading, hedging, and investment strategies 
following a stock split, the proposal provides no details to support 
these assertions, such as the number of customers affected or the 
trading, hedging, or investment strategies that these customers are 
unable to execute because of lower post-split position limits. 
Similarly, although the Exchange states that the reversion to pre-split 
position limits negatively impacts liquidity, trading volume, and 
possibly execution prices,\70\ the proposal provides no data to support 
these assertions.
---------------------------------------------------------------------------

    \70\ See Notice, 88 FR at 29728.
---------------------------------------------------------------------------

    The proposal also does not describe how the Exchange would 
implement the proposed split-factor adjusted position limit increases 
or the proposed review of their appropriateness. The proposal does not 
specify, for example, whether the Exchange intends to follow the OCC's 
policy of increasing the option position limit immediately after a 
stock split and allowing the new limit to remain in effect until the 
last option listed at the time of the stock split expires, regardless 
of the trading volume or shares outstanding of the underlying stock. 
Similarly, the proposal does not specify the timing for the proposed 
split-factor adjusted reviews in Exchange Rule 307(e). Exchange Rule 
307(e) currently provides for a six-month review of option position 
limits. However, the proposal does not specify, for example, whether 
the review for purposes of determining the appropriateness of a split-
factor adjusted position limit would occur six months after the stock 
split, six months following the expiration of the last option listed at 
the time of the stock split, or at some other point in time following 
the stock split.
    Finally, the Exchange does not propose a corresponding change to 
the option exercise limits in Exchange Rule 309. Apart from the 
exemptions in Exchange Rule 308, Exchange Rule 309(a)(1) generally 
prohibits members from exercising within any five consecutive business 
days aggregate long positions in any class of options traded on the 
Exchange in excess of 25,000 or 50,000 or 75,000 or 200,000 or 250,000 
option contracts or such other number of option contracts as may be 
fixed from time to time by the Exchange as the exercise limit for that 
class of options. It is not clear whether the

[[Page 53560]]

proposed change to option position limits would accomplish the goals of 
the proposal without a corresponding change to Exchange Rule 
309(a)(1).\71\
---------------------------------------------------------------------------

    \71\ Although Exchange Rule 309(c) states that ``limits shall be 
determined in the manner described in Rule 307,'' Exchange Rule 
309(a)(1) establishes a maximum exercise limit of 250,000 contracts.
---------------------------------------------------------------------------

    Accordingly, the proposal does not provide an adequate basis for 
the Commission to conclude that the proposal would be consistent with 
Section 6(b)(5) of the Act.

IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their data, views, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposed rule change 
is consistent with Section 6(b)(5), or any other provision of the Act, 
or the rules and regulations thereunder. Although there do not appear 
to be any issues relevant to approval or disapproval which would be 
facilitated by an oral presentation of data, views, and arguments, the 
Commission will consider, pursuant to Rule 19b-4 under the Act,\72\ any 
request for an opportunity to make an oral presentation.\73\
---------------------------------------------------------------------------

    \72\ 17 CFR 240.19b-4.
    \73\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts Amendments of 1975, Pub. L. 94-29 (June 4, 1975), grants to the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Acts Amendments of 1975, Senate Comm. 
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
---------------------------------------------------------------------------

    The Commission asks that commenters address the sufficiency and 
merit of the Exchange's statements in support of the proposal in 
addition to any other comments they may wish to submit about the 
proposed rule change. In particular, the Commission seeks comment on 
its concerns expressed above regarding the proposal's consistency with 
the Act, and seeks commenters' views as to whether the proposal could 
have an adverse market impact.
    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change should be approved 
or disapproved by August 29, 2023. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
September 12, 2023. 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 No. SR-MIAX-2023-19 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-2023-19. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-MIAX-2023-19 and should be 
submitted on or before August 29, 2023. Rebuttal comments should be 
submitted September 12, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\74\
---------------------------------------------------------------------------

    \74\ 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------

Sherry R. Haywood.
Assistant Secretary.
[FR Doc. 2023-16881 Filed 8-7-23; 8:45 am]
BILLING CODE 8011-01-P