[Federal Register Volume 78, Number 54 (Wednesday, March 20, 2013)]
[Notices]
[Pages 17259-17262]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-06393]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69136; File No. SR-MIAX-2013-06]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To List and Trade Option Contracts Overlying 10 Shares of
Certain Securities
March 14, 2013.
Pursuant to 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 March 4, 2013, Miami International Securities Exchange LLC (``MIAX''
or ``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 Exchange Rule 404 to
list and trade option contracts overlying 10 shares of a security
(``mini-option contracts'').
The text of the proposed rule change is provided in Exhibit 5. The
text of the proposed rule change is also available on the Exchange's
Web site at http://www.miaxoptions.com/filter/wotitle/rule_filing, at
MIAX's 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
The purpose of the proposed rule change is to amend MIAX rules to
enable the listing and trading of option contracts overlying 10 shares
of a security (``mini-option contracts''). This is a competitive filing
based on filings submitted by NYSE Arca, Inc. (``NYSE Arca''),
International Securities Exchange, LLC (``ISE''), and Chicago Board of
Options Exchange, Inc. (``CBOE'') which the Commission recently
approved.\3\
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\3\ See Securities Exchange Act Release No. 67948 (September 28,
2012), 77 FR 60735 (October 4, 2012) (Notice of Filing of Amendments
No. 1 and Order Granting Accelerated Approval of Proposed Rule
Changes as Modified by Amendments No. 1 to List and Trade Option
Contracts Overlying 10 Shares of Certain Securities) (SR-NYSEArca-
2012-64 and SR-ISE-2012-58). See also Securities Exchange Act
Release No. 68656 (January 15, 2013) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change to List and Trade Option
Contracts Overlying 10 Shares of Certain Securities) (SR-CBOE-2013-
001) 78 FR 4526 (January 22, 2013).
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[[Page 17260]]
Pursuant to MIAX Rule 404, the Exchange currently lists and trades
standardized option contracts on a number of equities, and soon will
add exchange-traded fund shares (``ETFs''), each with a unit of trading
of 100 shares. The purpose of this proposed rule change is to expand
investors' choices by listing and trading option contracts on a select
number of high-priced and actively traded securities, each with a unit
of trading ten times lower than that of standard-sized option
contracts, or 10 shares. Specifically, the Exchange proposes to list
and trade mini-options overlying five (5) high-priced securities for
which the standard contract overlying the same security has significant
liquidity.\4\ The Exchange believes that mini-options will appeal to
retail investors who may not currently be able to participate in the
trading of options on such high priced securities. The Exchange
believes that investors would benefit from the availability of mini-
options contracts by making options overlying high priced securities
more readily available as an investing tool and at more affordable and
realistic prices, most notably for the average retail investor.
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\4\ The Exchange proposes to list Mini Options on SPDR S&P 500
(``SPY''), Apple, Inc. (``AAPL''), SPDR Gold Trust (``GLD''), Google
Inc. (``GOOG'') and Amazon.com Inc. (``AMZN''). The Exchange notes
that any expansion of the program would require that a subsequent
proposed rule change be submitted to the Commission.
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For example, with AAPL trading at $638.17 on October 8, 2012,
($63,817 for 100 shares underlying a standard contract), the call
option with a strike price of 640 expiring on October 19 was trading at
$8.30. The cost of the standard contract overlying 100 shares would be
$830, which is substantially higher in notional terms than the average
equity option price of $255.02.\5\ Proportionately equivalent mini-
options contracts on AAPL would provide investors with the ability to
manage and hedge their portfolio risk on their underlying investment,
at a price of $83.00 per contract. In addition, investors who hold a
position in AAPL at less than the round lot size would still be able to
avail themselves of options to manage their portfolio risk. For
example, the holder of 50 shares of AAPL could write covered calls for
five mini-options contracts. The table below demonstrates the proposed
differences between a mini-options contract and a standard contract
with a strike price of $125 per share and a bid or offer of $3.20 per
share:
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\5\ Year-to-date through September 28, 2012. A high priced
underlying security may have relatively expensive options, because a
low percentage move in the share price may mean a large movement in
the options in terms of absolute dollars.
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Standard Mini
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Share Deliverable Upon Exercise.. 100 shares........ 10 shares.
Strike Price..................... 125............... 125.
Bid/offer........................ 3.20.............. 3.20.
Premium Multiplier............... $100.............. $10.
Total Value of Deliverable....... $12,500........... $1,250.
Total Value of Contract.......... $320.............. $32.
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The Exchange believes that the proposal to list and trade mini-
option contracts will not lead to investor confusion. There are two
important distinctions between mini-options and standard options that
are designed to ease the likelihood of any investor confusion. First,
the premium multiplier for the proposed mini-options will be $10,
rather than $100, to reflect the smaller unit of trading. To reflect
this change, the Exchange proposes to add Rule 509(c) which notes that
bids and offers for an option contract overlying 10 shares will be
expressed in terms of dollars per \1/10\th part of the total value of
the contract. Thus, an offer of ``.50'' shall represent an offer $5.00
for an option contract having a unit of trading consisting of 10
shares. Additionally, the Exchange will designate mini-option contracts
with different trading symbols than their related standard contract.\6\
The Exchange believes that the clarity of this approach is appropriate
and transparent and the Exchange believes that the terms of mini-option
contracts are consistent with the terms of the Options Disclosure
Document. The Exchange recognizes the need to differentiate mini-option
contracts from standard options and therefore is proposing the
following changes to its rules.
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\6\ The Options Clearing Corporation (``OCC'') symbology is
structured for contracts with other than 100 shares to be designated
with a numerical suffix to the standard trading symbol, e.g., AAPL8.
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The Exchange proposes to add new Interpretation and Policy .08(a)
to Rule 404 (Series of Option Contracts Open for Trading) to permit the
listing of mini-options after an option class on a stock, ETF share,
Trust Issued Receipt (TIR), and Equity Index-Linked Security with a 100
share deliverable has been approved for listing and trading on the
Exchange. This new subparagraph also identifies the five specific
securities on which the Exchange may list mini-options.
The Exchange proposes to add new Interpretation and Policy .08(b)
to Rule 404 to reflect that strike prices for mini-options shall be set
at the same level as for standard options. For example, a call series
strike price to deliver 10 shares of stock at $125 per share has a
total deliverable value of $1250, and the strike price will be set at
125. Further, pursuant to proposed new Interpretation and Policy .08(c)
to Rule 404, the Exchange proposes to not permit the listing of
additional series of mini-options if the underlying is trading at $90
or less to limit the number of strikes once the underlying is no longer
a high priced security. The Exchange proposes a $90.01 minimum for
continued qualification so that additional series of mini-options that
correspond to standard strikes may be added even though the underlying
has fallen slightly below the initial qualification standard. In
addition, the underlying security must be trading above $90 for five
consecutive days before the listing of mini-option contracts in a new
expiration month. This restriction will allow the Exchange to list
strikes in mini-options without disruption when a new expiration month
is added even if the underlying has had a minor decline in price.
The Exchange also proposes to add Interpretation and Policy .03 to
Rule 307 (Position Limits) to reflect that, for purposes of compliance
with the position limits set forth in Rule 307, ten mini-option
contracts will equal one standard contract overlying 100 shares. The
Exchange also proposes to add subparagraph (c) to Rule 509 (Meaning of
Premium Bids and Offers) to extend the explanation of bids and offers
with respect to mini-option contracts.
Mini-options with non-standard expiration dates (e.g., weekly
series, quarterly option series and LEAPs) will be permitted under this
proposal and in accordance with relevant MIAX rules. MIAX may list
mini-options on SPY, AAPL, GLD, GOOG and AMZN for all expirations
applicable to 100-share options on the same underlying.\7\
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\7\ See 77 FR at 60737.
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The Exchange's rules that apply to the trading of standard options
would apply to mini-options and the Exchange's market maker quoting
obligations would apply to mini-options.\8\ Intermarket trade-through
protection would apply to mini-options; however, price protection would
not apply across standard and mini-options on an intramarket basis, as
these are separate products.\9\
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\8\ See MIAX Rule 604 and 77 FR at 60737 [sic].
\9\ See 77 FR at 60736 and 60738.
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With regard to the impact of this proposal on system capacity, the
Exchange has analyzed its capacity and
[[Page 17261]]
represents that it and the Options Price Reporting Authority have the
necessary systems capacity to handle the potential additional traffic
associated with the listing and trading of mini-option contracts. MIAX
also understand that the OCC will be able to accommodate mini-option
contracts.
The Exchange notes that the current MIAX Fee Schedule will not
apply to the trading of mini-option contracts. The Exchange will not
commence trading of mini-option contracts until specific fees for mini-
option contracts trading have been filed with the Commission.
2. Statutory Basis
MIAX 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 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, and it is not designed to
permit unfair discrimination among customers, brokers, or dealers.
Specifically, the Exchange believes that investors would benefit from
the availability of mini-options contracts by, making options on high
priced securities more readily available as an investing tool and at
more affordable and realistic prices, most notably for the average
retail investor. As described above, the proposal contains a number of
features designed to protect investors by reducing investor confusion,
such as the mini-option contracts being designated by different trading
symbols from their related standard contracts. Moreover, the proposal
is designed to protect investors and the public interest by providing
investors with an enhanced tool to reduce risk in high priced
securities. In particular, the proposed contracts will provide retail
customers who invest in high priced issues in lots of less than 100
shares with a means of protecting their investments that is presently
only available to those who have positions of 100 shares or more.
Further, the proposal currently is limited to five high priced
securities for which there is already significant options liquidity,
and therefore significant customer demand and trading volume.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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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 not necessary or appropriate in
furtherance of the purposes of the Act. In this regard and as indicated
above, the Exchange notes that the rule change is being proposed as a
competitive response to recently approved NYSE Arca, ISE and CBOE
filings. MIAX believes this proposed rule change is necessary to permit
fair competition among the options exchanges.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change: (1) Does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) by its terms does not become operative for 30 days after the
date of this filing, or such shorter time as the Commission may
designate if consistent with the protection of investors and the public
interest, the proposed rule change has become effective pursuant to
Section 19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(6)
thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to provide the Commission
with 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 fulfilled this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of filing. However,
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter
time if such action is consistent with the protection of investors and
the public interest. The Exchange requests that the Commission waive
the 30-day operative delay so that it can list and trade the proposed
mini-options contracts as soon as it is able.\14\ The Commission
believes that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest.\15\ The Commission
notes the proposal is substantively identical to proposals that were
recently approved by the Commission, and does not raise any new
regulatory issues.\16\ For these reasons, the Commission designates the
proposed rule change as operative upon filing.
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\14\ The Commission notes that the Exchange's current Fee
Schedule will not apply to the trading of mini-option contracts, and
the Exchange will not commence trading of mini-option contracts
until specific fees for mini-option contracts trading have been
filed with the Commission.
\15\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\16\ See Securities Exchange Act Release No. 67948 (September
28, 2012), 77 FR 60735 (October 4, 2012) (SR-NYSEArca-2012-64 and
SR-ISE-2012-58).
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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.
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-2013-06 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-MIAX-2013-06. 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 Web site (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
[[Page 17262]]
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 Web site 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; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-MIAX-2013-06 and should be
submitted on or before April 10, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
Kevin M. O'Neill,
Deputy Secretary.
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\17\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2013-06393 Filed 3-19-13; 8:45 am]
BILLING CODE 8011-01-P