[Federal Register Volume 88, Number 221 (Friday, November 17, 2023)]
[Notices]
[Pages 80361-80362]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25385]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98917; File No. SR-MIAX-2023-36]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Order Approving a Proposed Rule Change To Amend Exchange
Rule 404, Series of Option Contracts Open for Trading
November 13, 2023.
I. Introduction
On September 14, 2023, 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 amend Exchange Rule 404,
Series of Option Contracts Open for Trading. The proposed rule change
was published for comment in the Federal Register on October 2,
2023.\3\ 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\ See Securities Exchange Act Release No. 98534 (September 26,
2023), 88 FR 67830 (``Notice''). The Commission received no comment
letters on the proposed rule change.
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II. Description of the Proposed Rule Change
The Exchange proposes to amend Exchange Rule 404, Series of Option
Contracts Open for Trading, to adopt Interpretations and Policies .12
to Exchange Rule 404 to implement a strike interval program for stocks
that are priced less than $2.50 and have an average daily trading
volume of at least 1,000,000 shares per day for the three preceding
calendar months (the ``Low Priced Stock Strike Price Interval
Program''). The Exchange also proposes to amend the table in Exchange
Rule 404, Interpretations and Policies .11 to harmonize that table to
the proposed rule change.
The Exchange proposes to adopt the Low Priced Stock Strike Price
Interval Program for underlying stocks that are not in the $0.50 Strike
Program \4\ (or the Short Term Option Series Program) \5\ and that
close below $2.50 and have an average daily trading volume of at least
1,000,000 shares per day for the three preceding calendar months. To be
eligible for the inclusion in the proposed Low Priced Stock Strike
Price Interval Program, an underlying stock must (i) close below $2.50
in its primary market on the previous trading day and (ii) have an
average daily trading volume of at least 1,000,000 shares per day for
the three (3) preceding calendar months.\6\ For stocks added to the Low
Priced Stock Strike Price Interval Program, if the underlying stock
closes at or above $2.50 in its primary market no additional series in
$0.50 intervals may be listed, and additional series in $0.50 intervals
may not be added until the underlying stock again closes below
$2.50.\7\
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\4\ See Interpretations and Policies .04 of Exchange Rule 404.
Exchange Rule 404 includes several different strike interval
programs, including the $0.50 Strike Program, the $1 Strike Price
Interval Program, and the $2.50 Strike Price Program. See
Interpretations and Policies .04 of Exchange Rule 404,
Interpretations and Policies .01 of Exchange Rule 404, and Exchange
Rule 404(f).
\5\ See Interpretations and Policies .02 of Exchange Rule 404.
\6\ The Exchange notes this is the same methodology used in the
$1 Strike Price Interval Program. See Interpretations and Policies
.01(c)(3) of Exchange Rule 404. For the purpose of adding strikes
under the Low Priced Stock Strike Price Interval Program, the
``price of the underlying stock'' shall be measured in the same way
as ``the price of the underlying security'' as set forth in Exchange
Rule 404A(b)(1).
\7\ See Notice, supra note 3, at 67831.
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After a stock is added to the Low Priced Stock Strike Price
Interval Program, the Exchange proposes that it may list $0.50 strike
price intervals from $0.50 up to $2.00.\8\ The Exchange represents that
there will be no limit to the number of classes eligible for inclusion
in the proposed program, so long as the underlying stock satisfies both
the price and average daily trading volume requirements.\9\
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\8\ While the Exchange may list new strikes on underlying stocks
that meet the eligibility requirements of the new program, the
Exchange states that it will exercise its discretion and will not
list strikes on underlying stocks the Exchange believes are subject
to imminent delisting from their primary exchange. See Notice, supra
note 3, at 67831 n.12.
\9\ See Notice, supra note 3, at 67831.
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Additionally, the Exchange proposes to amend the table in Exchange
Rule 404, Interpretations and Policies .11 to insert a column to
harmonize the Exchange's proposal to the strike intervals for Short
Term Options Series as described in Interpretations and Policies .02 of
Exchange Rule 404. The table in Interpretations and Policies .11 is
intended to limit the intervals between strikes for multiply listed
equity options within the Short Term
[[Page 80362]]
Options Series program that have an expiration date more than twenty-
one days from the listing date. Specifically, the table defines the
applicable strike intervals for options on underlying stocks given the
closing price on the primary market on the last day of the calendar
quarter, and a corresponding average daily volume of the total number
of options contracts traded in a given security for the applicable
calendar quarter divided by the number of trading days in the
applicable calendar quarter.\10\ However, the lowest share price column
is titled ``Less than $25.'' The Exchange proposes to insert a column
entitled ``Less than $2.50'' and to set the strike interval at $0.50
for each average daily volume tier represented in the table. Also, the
Exchange proposes to amend the heading of the column currently titled
``Less than $25'' to ``$2.50 to less than $25'' as a result of the new
column entitled, ``Less than $2.50.'' \11\
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\10\ See Securities Exchange Release Act No. 91125 (February 21,
2021), 86 FR 10375 (February 19, 2021) (SR-BX-2020-032) (Order
Granting Accelerated Approval of a Proposed Rule Change, as Modified
by Amendment No. 1, To Amend Options 4, Section 5, To Limit Short
Term Options Series Intervals Between Strikes That Are Available for
Quoting and Trading on BX).
\11\ See Notice, supra note 3, at 67831.
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III. Discussion and Commission Findings
The Commission finds that the proposed rule change is consistent
with the Act and the rules and regulations thereunder applicable to a
national securities exchange.\12\ In particular, the Commission finds
that the proposed rule change is consistent with Section 6(b)(5) of the
Act,\13\ which requires, among other things, that the Exchange's rules
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.
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\12\ 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).
\13\ 15 U.S.C. 78f(b)(5).
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The Exchange recognizes that its proposal will increase the total
number of option series available on the Exchange; however, it believes
this is appropriate to address a gap in strike coverage for low priced
stocks, and the Exchange represents that it will only add strikes where
there is investor demand and adequate liquidity.\14\ The Exchange
represents that as of August 9, 2023, 106 symbols met the criteria for
inclusion in the proposed program.\15\ Of those symbols, 36 are
currently in the $1 Strike Price Interval Program with $1.00 and $2.00
strikes listed.\16\ If MIAX adds $0.50 and $1.50 strikes for these
symbols for the current expiration terms, and $0.50, $1.00, $1.50 and
$2.00 strikes to current expiration terms for the remaining 70 symbols
eligible under the proposal, a total of approximately 3,250 options
would be added, which represents an increase of only 0.294% in the
number of options listed on the Exchange.\17\
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\14\ See Notice, supra note 3, at 67831-32.
\15\ See Notice, supra note 3, at 67832.
\16\ See id.
\17\ See id.
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In support of its proposal, the Exchange provided examples of
symbols that would qualify for the new program but are not currently in
pre-existing strike price interval programs. For example, the Exchange
states that on August 9, 2023, symbol SOND closed at $0.50 and had open
interest of over 44,000 contracts and an average daily trading volume
in the underlying stock of over 1,900,000 shares for the three
preceding calendar months.\18\ In the absence of the Low Priced Stock
Strike Price Interval Program, the lowest strike listed for the symbol
is for $2.50, making the lowest strike 400% away from the closing stock
price. Similarly, according to the Exchange, symbol CTXR, which closed
at $0.92 on August 9, 2023 and had open interest of over 63,000
contracts and an average daily trading volume in the underlying stock
of over 1,900,000 shares for the three preceding calendar months, had a
lowest strike listed at $2.50 which is more than 170% away from the
closing stock price.\19\
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\18\ See id.
\19\ See id.
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The Exchange states that for these and similar symbols that
presently have no at-the-money options, as well as no in-the-money
calls or out-of-the-money puts, the Low Priced Stock Strike Price
Interval Program will provide for more effective and tailored trading
and hedging opportunities for this subset of stocks.\20\
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\20\ See id.
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The Exchange believes that the proposed average daily trading
volume requirement of 1,000,000 shares is a reasonable threshold to
ensure adequate liquidity in eligible underlying stocks.\21\
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\21\ See Notice, supra note 3, at 67833.
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The Exchange represents that it has the necessary capacity and
surveillance programs in place to support and properly monitor trading
in the proposed Low Priced Stock Strike Price Interval Program; it
believes that the Options Price Reporting Authority (``OPRA'') has the
necessary systems capacity to handle any additional messaging traffic
associated with this proposed rule change; and that Members will not
have capacity issues as a result of the proposed rule change.
Finally, the Exchange believes the change proposed to the table in
Interpretations and Policies .11 to Exchange Rule 404 will remove any
potential conflict between the strike intervals under the Short Term
Options Series Program and those described under the proposed Low
Priced Stock Strike Price Interval Program. The Commission believes
that this change would add clarity to the Exchange rulebook and help
avoid investor confusion.
The Commission believes that the proposal to add the Low Priced
Stock Strike Price Interval Program to Exchange Rule 404, and the
corresponding changes to the table in Exchange Rule 404,
Interpretations and Policies .11, strikes a reasonable balance between
the Exchange's desire to offer a wider array of products with the need
to avoid unnecessary proliferation of options series and the
corresponding increase in quotes. The proposal adds a limited range of
more granular strike intervals where they are more relevant and likely
more in demand from customers, but only for those lower priced
underlying stocks where there is adequate liquidity. In addition, the
Commission believes that the proposed rule change is reasonably
designed to effectuate the Exchange's goals of increasing liquidity,
providing more tailored and effective trading and hedging opportunities
for market participants, and improving market quality. Accordingly, the
Commission finds that the proposed rule change is consistent with
Section 6(b)(5) of the Act \22\ and the rules and regulations
thereunder applicable to a national securities exchange.
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\22\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\23\ that the proposed rule change (SR-MIAX-2023-36), be and hereby
is, approved.
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\23\ 15 U.S.C. 78f(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25385 Filed 11-16-23; 8:45 am]
BILLING CODE 8011-01-P