[Federal Register Volume 79, Number 128 (Thursday, July 3, 2014)]
[Notices]
[Pages 38099-38105]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-15608]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72492; File No. SR-MIAX-2014-30]
Self-Regulatory Organizations: Notice of Filing of a Proposed
Rule Change by Miami International Securities Exchange LLC To List and
Trade Options on Shares of the iShare ETFs
June 27, 2014.
Pursuant to the provisions of 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 June 17, 2014, Miami International Securities
Exchange LLC (``MIAX'' or ``Exchange'') filed with the Securities and
Exchange Commission (``Commission'') a proposed rule change as
described in Items I, II, and III 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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[[Page 38100]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to list and trade on the Exchange
options on shares of the iShares MSCI Brazil Capped ETF (``EWZ''),
iShares MSCI Chile Capped ETF (``ECH''), iShares MSCI Peru Capped ETF
(``EPU''), and iShares MSCI Spain Capped ETF (``EWP'').
The text of the proposed rule change is 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 Exchange proposes to list for trading on the Exchange options
on the shares of the iShares MSCI Brazil Capped ETF, iShares MSCI Chile
Capped ETF, iShares MSCI Peru Capped ETF, and iShares MSCI Spain Capped
ETF (collectively the ``iShare ETFs''). MIAX Rule 402 establishes the
Exchange's initial listing standards for equity options (the ``Listing
Standards''). The Listing Standards permit the Exchange to list options
on the shares of open-end investment companies, such as the iShare
ETFs, without having to file for approval with the Commission.\3\ The
Exchange submits that each of the iShare ETFs substantially meet all of
the initial listing requirements. In particular, all of the
requirements set forth in Rule 402(i) for each of the iShare ETFs are
met except for the requirement concerning the existence of a
comprehensive surveillance sharing agreement (``CSSA''). However, as
explained below, the Exchange submits that sufficient mechanisms exist
in order to provide adequate surveillance and regulatory information
with respect to the portfolio securities of each of the iShare ETFs.
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\3\ MIAX Rule 402(i) provides the Listing Standards for shares
or other securities (``Exchange-Traded Fund Shares'') that are
traded on a national securities exchange and are defined as an ``NMS
stock'' under Rule 600 of Regulation NMS.
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iShares MSCI Brazil Capped ETF (``EWZ'')
EWZ is registered pursuant to the Investment Company Act of 1940 as
a management investment company designed to hold a portfolio of
securities which track the MSCI Brazil 25/50 Index (``Brazil
Index'').\4\ The Brazil Index consists of stocks traded primarily on
BM&FBOVESPA. EWZ employs a ``representative sampling'' methodology to
track the Brazil Index by investing in a representative sample of
Brazil Index securities having a similar investment profile as the
Brazil Index.\5\ BlackRock Fund Advisors (``BFA'' or the ``Adviser'')
expects EWZ to closely track the Brazil Index so that, over time, a
tracking error of 5%, or less, is exhibited. Securities selected by EWZ
have aggregate investment characteristics (based on market
capitalization and industry weightings), fundamental characteristics
(such as return variability, earnings valuation and yield) and
liquidity measures similar to those of the Brazil Index. EWZ will not
concentrate its investments (i.e., hold 25% or more of its total assets
in the stocks of a particular industry or group of industries), except,
to the extent practicable, to reflect the concentration in the Brazil
Index. EWZ will invest at least eighty percent (80%) of its assets in
the securities comprising the Brazil Index and/or related American
Depositary Receipts (``ADRs''). EWZ may also invest its other assets in
futures contracts, options on futures contracts, other types of options
and swaps related to the Brazil Index, as well as cash and cash
equivalents. The Exchange believes that these requirements and policies
prevent the EWZ from being excessively weighted in any single security
or small group of securities and significantly reduce concerns that
trading in EWZ could become a surrogate for trading in unregistered
securities.
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\4\ Morgan Stanley Capital International Inc. (``MSCI'') created
and maintains the Brazil 25/50 Index.
\5\ As of March 20, 2014, EWZ was comprised of 78 securities.
ITAU UNIBANCO HOLDING SA PREF had the greatest individual weight at
8.51%. The aggregate percentage weighting of the top 5 and 10
securities in the Fund were 33.30% and 49.78%, respectively.
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Shares of the EWZ (``EWZ Shares'') are issued and redeemed, on a
continuous basis, at net asset value (``NAV'') in aggregation size of
50,000 shares, or multiples thereof (a ``Creation Unit''). Following
issuance, EWZ Shares are traded on an exchange like other equity
securities. EWZ Shares trade in the secondary markets in amounts less
than a Creation Unit and the price per EWZ Share may differ from its
NAV which is calculated once daily as of the regularly scheduled close
of business of NYSE Arca.\6\
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\6\ The regularly scheduled close of trading on NYSE Arca is
normally 4:00 p.m. Eastern Time (``ET'') and 4:15 p.m. for ETFs.
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State Street Bank and Trust Company, the administrator, custodian,
and transfer agent for EWZ. Detailed information on EWZ can be found at
www.ishares.com.
The Exchange has reviewed EWZ and determined that the EWZ Shares
satisfy the initial listing standards, except for the requirement set
forth in MIAX Rule 402(i)(5)(ii)(A) which requires EWZ to meet the
following condition:
Any non-U.S. component securities of an index or portfolio
of securities on which the Exchange-Traded Fund Shares are based that
are not subject to comprehensive surveillance agreements do not in the
aggregate represent more than 50% of the weight of the index or
portfolio.
The Exchange currently does not have in place a surveillance
agreement with BOVESPA.
The Exchange submits that the Commission, in the past, has been
willing to allow a national securities exchange to rely on a memorandum
of understanding entered into between regulators in the event that the
exchanges themselves cannot enter into a CSSA. The Exchange notes that
BM&FBOVESPA is under the regulatory oversight of the Comissao de
Valores Mobiliarios (``CMV''), which has the responsibility for both
Brazilian exchanges and over-the-counter markets. The Exchange further
notes that the Commission executed a memorandum of understanding with
the CMV dated as of July 24, 2012 (``Brazil-US MOU''), which provides a
framework for mutual assistance in investigatory and regulatory issues.
Based on the relationship between the SEC and CMV and the terms of the
Brazil-US MOU, the Exchange submits that both the Commission and the
CMV could acquire information from and provide information to the other
similar to that which would be required in a
[[Page 38101]]
CSSA between exchanges. Moreover, the Commission could make a request
for information under the Brazil-US MOU on behalf of an SRO that needed
the information for regulatory purposes. Thus, should MIAX need
information on Brazilian trading in the Brazil Index component
securities to investigate incidents involving trading of EWZ options,
the SEC could request such information from the CMV under the Brazil-US
MOU. While this arrangement certainly would be enhanced by the
existence of direct exchange to exchange surveillance sharing
agreements, it is nonetheless consistent with other instances where the
Commission has explored alternatives when the relevant foreign exchange
was unwilling or unable to enter into a CSSA.\7\
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\7\ See, e.g., Securities Exchange Act Release No. 36415
(October 25, 1995), 60 FR 55620 (November 1, 1995) (SR-CBOE-95-45)
(Order Approving Proposed Rule Change Relating to the Listing and
Trading of Options on the CBOE Mexico 30 Index).
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The practice of relying on surveillance agreements or MOUs between
regulators when a foreign exchange was unable, or unwilling, to provide
an information sharing agreement was affirmed by the Commission in the
Commission's New Product Release (``New Product Release'').\8\ The
Commission noted in the New Product Release that if securing a CSSA is
not possible, an exchange should contact the Commission prior to
listing a new derivative securities product. The Commission also noted
that the Commission may determine instead that it is appropriate to
rely on a memorandum of understanding between the Commission and the
foreign regulator.
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\8\ See Securities Exchange Act Release No. 40761 (December 8,
1998), 63 FR 70952, 70959 at fn. 101 (December 22, 1998).
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The Exchange has recently contacted BM&FBOVESPA with a request to
enter into a CSSA. Until the Exchange is able to secure a CSSA with
BM&FBOVESPA, the Exchange requests that the Commission allow the
listing and trading of options on EWZ without a CSSA, upon reliance of
the Brazil-US MOU entered into between the Commission and the CMV. The
Exchange believes this request is reasonable and notes that the
Commission has provided similar relief in the past. For example, the
Commission approved the Philadelphia Stock Exchange, Inc. (``PHLX'') to
rely on an MOU between the Commission and the CMV instead of a direct
CSSA with BM&FBOVESPA in order to list and trade options on Telebras
Portoflio Certicate American Depository Receipts.\9\ Additionally, the
Commission approved, on a pilot basis, proposals of competing exchanges
to list and trade options on the iShares MSCI Emerging Markets Fund
\10\ and the iShares MSCI Mexico Indext Fund [sic].\11\
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\9\ See Securities Exchange Act Release No. 40298 (August 3,
1998), 63 FR 43435 (August 13, 1998) (SR-Phlx-1998-33).
\10\ See Securities Exchange Act Release Nos. 53824 (May 17,
2006), 71 FR 30003 (May 24, 2006) (SR-Amex-2006-43); 54081 (June 30,
2006), 71 FR 38911 (July 10, 2006) (SR-Amex-2006-60); 54553
(September 29, 2006), 71 FR 59561 (October 10, 2006) (SR-Amex-2006-
91); 55040 (January 3, 2007), 72 FR 1348 (January 11, 2007) (SR-
Amex-2007-01); and 55955 (June 25, 2007), 72 FR 36079 (July 2, 2007)
(SR-Amex-2007-57); 56324 (August 27, 2007), 72 FR 50426 (August 31,
2007) (SR-ISE-2007-72).
\11\ See Securities Exchange Act Release Nos. 72213 (May 21,
2014), [sic] FR 30699 (May 28, 2014) (SR-MIAX-2014-19); 56778
(November 9, 2007), 72 FR 65113 (November 19, 2007) (SR-Amex-2007-
100); 57013 (December 20, 2007), 72 FR 73923 (December 28, 2007)
(SR-CBOE-2007-140); 57014 (December 20, 2007), 72 FR 73934 (December
28, 2007) (SR-ISE-2007-111).
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The Commission's approval of this request to list and trade options
on the EWZ would otherwise render EWZ compliant with all of the
applicable Listing Standards.
The Exchange shall continue to use its best efforts to obtain a
CSSA with BM&FBOVESPA, which shall reflect the following: (1) Express
language addressing market trading activity, clearing activity, and
customer identity; (2) BM&FBOVESPA's reasonable ability to obtain
access to and produce requested information; and (3) based on the CSSA
and other information provided by the BM&FBOVESPA, the absence of
existing rules, law or practices that would impede the Exchange from
obtaining foreign information relating to market activity, clearing
activity, or customer identity, or in the event such rules, laws, or
practices exist, they would not materially impede the production of
customer or other information.
iShares MSCI Chile Capped ETF (``ECH'')
ECH is registered pursuant to the Investment Company Act of 1940 as
a management investment company designed to hold a portfolio of
securities which track the MSCI Chile Investable Market Index (IMI) 25/
50 (``Chile Index'').\12\ The Chile Index consists of stocks traded
primarily on the Santiago Stock Exchange (``SSE''). ECH employs a
``representative sampling'' methodology to track the Chile Index by
investing in a representative sample of Chile Index securities having a
similar investment profile as the Chile Index.\13\ BFA, ECH's Adviser
expects ECH to closely track the Chile Index so that, over time, a
tracking error of 5%, or less, is exhibited. Securities selected by ECH
have aggregate investment characteristics (based on market
capitalization and industry weightings), fundamental characteristics
(such as return variability, earnings valuation and yield) and
liquidity measures similar to those of the Chile Index. ECH will not
concentrate its investments (i.e., hold 25% or more of its total assets
in the stocks of a particular industry or group of industries), except,
to the extent practicable, to reflect the concentration in the Chile
Index. ECH will invest at least ninety percent (90%) of its assets in
the securities comprising the Chile Index and/or related ADRs. ECH may
also invest its other assets in futures contracts, options on futures
contracts, other types of options and swaps related to the Chile Index,
as well as cash and cash equivalents. The Exchange believes that these
requirements and policies prevent the ECH from being excessively
weighted in any single security or small group of securities and
significantly reduce concerns that trading in ECH could become a
surrogate for trading in unregistered securities.
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\12\ Morgan Stanley Capital International Inc. (``MSCI'')
created and maintains the MSCI Chile Investable Market Index (IMI)
25/50.
\13\ As of March 21, 2014, ECH was comprised of 41 securities.
S.A.C.I. FALABELLA had the greatest individual weight at 9.25%. The
aggregate percentage weighting of the top 5 and 10 securities in the
Fund were 39.92% and 62.57%, respectively.
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Shares of the ECH (``ECH Shares'') are issued and redeemed, on a
continuous basis, at NAV in aggregation size of 50,000 shares, or
multiples thereof (a ``Creation Unit''). Following issuance, ECH Shares
are traded on an exchange like other equity securities. ECH Shares
trade in the secondary markets in amounts less than a Creation Unit and
the price per ECH Share may differ from its NAV which is calculated
once daily as of the regularly scheduled close of business of NYSE
Arca.\14\
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\14\ See supra note 6.
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State Street Bank and Trust Company, the administrator, custodian,
and transfer agent for ECH. Detailed information on ECH can be found at
www.ishares.com.
The Exchange has reviewed ECH and determined that the ECH Shares
satisfy the initial listing standards, except for the requirement set
forth in MIAX Rule 402(i)(5)(ii)(A) which requires ECH to meet the
following condition:
Any non-U.S. component securities of an index or portfolio
of securities on which the Exchange-Traded Fund Shares are based that
are not subject to
[[Page 38102]]
comprehensive surveillance agreements do not in the aggregate represent
more than 50% of the weight of the index or portfolio. The Exchange
currently does not have in place a surveillance agreement with SSE.
The Exchange submits that the Commission, in the past, has been
willing to allow a national securities exchange to rely on a memorandum
of understanding entered into between regulators in the event that the
exchanges themselves cannot enter into a CSSA. The Exchange notes that
SSE is under the regulatory oversight of the Superintendencia de
Valores y Seguros de Chile (``SVS''), which has the responsibility for
Chilean securities markets. The Exchange further notes that the
Commission executed a memorandum of understanding with the SVS dated as
of June 3, 1993 (``Chile-US MOU''), which provides a framework for
mutual assistance in investigatory and regulatory issues. Based on the
relationship between the SEC and SVS and the terms of the Chile-US MOU,
the Exchange submits that both the Commission and the SVS could acquire
information from and provide information to the other similar to that
which would be required in a CSSA between exchanges. Moreover, the
Commission could make a request for information under the Chile-US MOU
on behalf of an SRO that needed the information for regulatory
purposes. Thus, should MIAX need information on Chilean trading in the
Chile Index component securities to investigate incidents involving
trading of ECH options, the SEC could request such information from the
SVS under the Chile-US MOU. While this arrangement certainly would be
enhanced by the existence of direct exchange to exchange surveillance
sharing agreements, it is nonetheless consistent with other instances
where the Commission has explored alternatives when the relevant
foreign exchange was unwilling or unable to enter into a CSSA.\15\
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\15\ See supra note 7.
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The practice of relying on surveillance agreements or MOUs between
regulators when a foreign exchange was unable, or unwilling, to provide
an information sharing agreement was affirmed by the Commission in the
Commission's New Product Release.\16\ The Commission noted in the New
Product Release that if securing a CSSA is not possible, an exchange
should contact the Commission prior to listing a new derivative
securities product. The Commission also noted that the Commission may
determine instead that it is appropriate to rely on a memorandum of
understanding between the Commission and the foreign regulator.
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\16\ See supra note 8.
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The Exchange has recently contacted SSE with a request to enter
into a CSSA. Until the Exchange is able to secure a CSSA with SSE, the
Exchange requests that the Commission allow the listing and trading of
options on ECH without a CSSA, upon reliance of the MOU entered into
between the Commission and the SVS. The Exchange believes this request
is reasonable and notes that the Commission has provided similar relief
in the past. For example, the Commission approved, on a pilot basis,
proposals of competing exchanges to list and trade options on the
iShares MSCI Emerging Markets Fund \17\ and the iShares MSCI Mexico
Index Fund.\18\
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\17\ See supra note 10.
\18\ See supra note 11.
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The Commission's approval of this request to list and trade options
on the ECH would otherwise render ECH compliant with all of the
applicable Listing Standards.
The Exchange shall continue to use its best efforts to obtain a
CSSA with SSE, which shall reflect the following: (1) Express language
addressing market trading activity, clearing activity, and customer
identity; (2) SSE's reasonable ability to obtain access to and produce
requested information; and (3) based on the CSSA and other information
provided by SSE, the absence of existing rules, law or practices that
would impede the Exchange from obtaining foreign information relating
to market activity, clearing activity, or customer identity, or in the
event such rules, laws, or practices exist, they would not materially
impede the production of customer or other information.
iShares MSCI Peru Capped ETF (``EPU'')
EPU is registered pursuant to the Investment Company Act of 1940 as
a management investment company designed to hold a portfolio of
securities which track the MSCI All Peru Capped Index (``Peru
Index'').\19\ The Peru Index consists of stocks traded primarily on
Bolsa de Valores de Lima (``BVL''). EPU employs a ``representative
sampling'' methodology to track the Peru Index by investing in a
representative sample of Peru Index securities having a similar
investment profile as the Peru Index.\20\ BFA expects EPU to closely
track the Peru Index so that, over time, a tracking error of 5%, or
less, is exhibited. Securities selected by EPU have aggregate
investment characteristics (based on market capitalization and industry
weightings), fundamental characteristics (such as return variability,
earnings valuation and yield) and liquidity measures similar to those
of the Peru Index. EPU will not concentrate its investments (i.e., hold
25% or more of its total assets in the stocks of a particular industry
or group of industries), except, to the extent practicable, to reflect
the concentration in the Peru Index. EPU will invest at least eighty
percent (80%) of its assets in the securities comprising the Peru Index
and/or related ADRs. EPU may also invest its other assets in futures
contracts, options on futures contracts, other types of options and
swaps related to the Peru Index, as well as cash and cash equivalents.
The Exchange believes that these requirements and policies prevent the
EPU from being excessively weighted in any single security or small
group of securities and significantly reduce concerns that trading in
EPU could become a surrogate for trading in unregistered securities.
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\19\ Morgan Stanley Capital International Inc. (``MSCI'')
created and maintains the All Peru Capped Index.
\20\ As of March 20, 2014, EPU was comprised of 25 securities.
CREDICORP LTD had the greatest individual weight at 26.72%. The
aggregate percentage weighting of the top 5 and 10 securities in the
Fund were 55.60% and 73.11%, respectively.
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Shares of the EPU (``EPU Shares'') are issued and redeemed, on a
continuous basis, at NAV in aggregation size of 50,000 shares, or
multiples thereof (a ``Creation Unit''). Following issuance, EPU Shares
are traded on an exchange like other equity securities. EPU Shares
trade in the secondary markets in amounts less than a Creation Unit and
the price per EPU Share may differ from its NAV which is calculated
once daily as of the regularly scheduled close of business of NYSE
Arca.\21\
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\21\ See supra note 6.
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State Street Bank and Trust Company, the administrator, custodian,
and transfer agent for EPU. Detailed information on EPU can be found at
www.ishares.com.
The Exchange has reviewed EPU and determined that the EPU Shares
satisfy the initial listing standards, except for the requirement set
forth in MIAX Rule 402(i)(5)(ii)(A) which requires EPU to meet the
following condition:
Any non-U.S. component securities of an index or portfolio
of securities on which the Exchange-Traded Fund Shares are based that
are not subject to comprehensive surveillance agreements do not in the
aggregate represent more than 50% of the weight of the index or
portfolio.
The Exchange currently does not have in place a surveillance
agreement with BVL.
[[Page 38103]]
The Exchange submits that the Commission, in the past, has been
willing to allow a national securities exchange to rely on a memorandum
of understanding entered into between regulators in the event that the
exchanges themselves cannot enter into a CSSA. The Exchange notes that
BVL is under the regulatory oversight of the Superintendencia del
Mercado de Valores (``SMV''), which has the responsibility for Peruvian
stock exchanges. The Exchange further notes that both the Commission
and SMV are signatories to the International Organization of Securities
Commissions (``IOSCO'') Multilateral Memorandum of Understanding
(``MMOU''), which provides a framework for mutual assistance in
investigatory and regulatory issues. Based on the relationship between
the SEC and SMV and the terms of the MMOU, the Exchange submits that
both the Commission and the SMV could acquire information from and
provide information to the other similar to that which would be
required in a CSSA between exchanges. Moreover, the Commission could
make a request for information under the MMOU on behalf of an SRO that
needed the information for regulatory purposes. Thus, should MIAX need
information on Peruvian trading in the Peru Index component securities
to investigate incidents involving trading of EPU options, the SEC
could request such information from the SMV under the MMOU. While this
arrangement certainly would be enhanced by the existence of direct
exchange to exchange surveillance sharing agreements, it is nonetheless
consistent with other instances where the Commission has explored
alternatives when the relevant foreign exchange was unwilling or unable
to enter into a CSSA.\22\
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\22\ See supra, note 7.
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The practice of relying on surveillance agreements or MOUs between
regulators when a foreign exchange was unable, or unwilling, to provide
an information sharing agreement was affirmed by the Commission in the
New Product Release.\23\ The Commission noted in the New Product
Release that if securing a CSSA is not possible, an exchange should
contact the Commission prior to listing a new derivative securities
product. The Commission also noted that the Commission may determine
instead that it is appropriate to rely on a memorandum of understanding
between the Commission and the foreign regulator.
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\23\ See supra, note 8.
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The Exchange has recently contacted BVL with a request to enter
into a CSSA. Until the Exchange is able to secure a CSSA with BVL, the
Exchange requests that the Commission allow the listing and trading of
options on EPU without a CSSA, upon reliance of the MMOU entered into
between the Commission and the SMV. The Exchange believes this request
is reasonable and notes that the Commission has provided similar relief
in the past. Additionally, the Commission approved, on a pilot basis,
proposals of competing exchanges to list and trade options on the
iShares MSCI Emerging Markets Fund \24\ and the iShares MSCI Mexico
Index Fund.\25\
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\24\ See supra note 10.
\25\ See supra note 11.
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The Commission's approval of this request to list and trade options
on the EPU would otherwise render EPU compliant with all of the
applicable Listing Standards.
The Exchange shall continue to use its best efforts to obtain a
CSSA with BVL, which shall reflect the following: (1) Express language
addressing market trading activity, clearing activity, and customer
identity; (2) BVL's reasonable ability to obtain access to and produce
requested information; and (3) based on the CSSA and other information
provided by the BVL, the absence of existing rules, law or practices
that would impede the Exchange from obtaining foreign information
relating to market activity, clearing activity, or customer identity,
or in the event such rules, laws, or practices exist, they would not
materially impede the production of customer or other information.
iShares MSCI Spain Capped ETF (``EWP'')
EWP is registered pursuant to the Investment Company Act of 1940 as
a management investment company designed to hold a portfolio of
securities which track the MSCI Spain 25/50 Index (``Spain
Index'').\26\ The Spain Index consists of stocks traded primarily on
Bolsa de Madrid (``BME''). EWP employs a ``representative sampling''
methodology to track the Spain Index by investing in a representative
sample of Spain Index securities having a similar investment profile as
the Spain Index.\27\ BFA expects EWP to closely track the Spain Index
so that, over time, a tracking error of 5%, or less, is exhibited.
Securities selected by EWP have aggregate investment characteristics
(based on market capitalization and industry weightings), fundamental
characteristics (such as return variability, earnings valuation and
yield) and liquidity measures similar to those of the Spain Index. EWP
will not concentrate its investments (i.e., hold 25% or more of its
total assets in the stocks of a particular industry or group of
industries), except, to the extent practicable, to reflect the
concentration in the Spain Index. EWP will invest at least eighty
percent (80%) of its assets in the securities comprising the Spain
Index and/or related ADRs. EWP may also invest its other assets in
futures contracts, options on futures contracts, other types of options
and swaps related to the Spain Index, as well as cash and cash
equivalents. The Exchange believes that these requirements and policies
prevent the EWP from being excessively weighted in any single security
or small group of securities and significantly reduce concerns that
trading in EWP could become a surrogate for trading in unregistered
securities.
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\26\ Morgan Stanley Capital International Inc. (``MSCI'')
created and maintains the Spain 25/50 Index.
\27\ As of March 28, 2014, EWP was comprised of 24 securities.
BANCO SANTANDER SA had the greatest individual weight at 22.37%. The
aggregate percentage weighting of the top 5 and 10 securities in the
Fund were 56.88% and 74.52%, respectively.
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Shares of the EWP (``EWP Shares'') are issued and redeemed, on a
continuous basis, at NAV in aggregation size of 75,000 shares, or
multiples thereof (a ``Creation Unit''). Following issuance, EWP Shares
are traded on an exchange like other equity securities. EWP Shares
trade in the secondary markets in amounts less than a Creation Unit and
the price per EWP Share may differ from its NAV which is calculated
once daily as of the regularly scheduled close of business of NYSE
Arca.\28\
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\28\ See supra note 6.
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State Street Bank and Trust Company, the administrator, custodian,
and transfer agent for EWP. Detailed information on EWP can be found at
ww.ishares.com.
The Exchange has reviewed EWP and determined that the EWP Shares
satisfy the initial listing standards, except for the requirement set
forth in MIAX Rule 402(i)(5)(ii)(A) which requires EWP to meet the
following condition:
Any non-U.S. component securities of an index or portfolio
of securities on which the Exchange-Traded Fund Shares are based that
are not subject to comprehensive surveillance agreements do not in the
aggregate represent more than 50% of the weight of the index or
portfolio.
[[Page 38104]]
The Exchange currently does not have in place a surveillance
agreement with BME.
The Exchange submits that the Commission, in the past, has been
willing to allow a national securities exchange to rely on a memorandum
of understanding entered into between regulators in the event that the
exchanges themselves cannot enter into a CSSA. The Exchange notes that
BME is under the regulatory oversight of the Comision Nacional del
Mercado de Valores (``CNMV''), which has the responsibility for Spanish
stock exchanges. The Exchange further notes that the Commission
executed a memorandum of understanding with the CNMV dated as of July
22, 2013 (``Spain-US MOU''), which provides a framework for mutual
assistance in investigatory and regulatory issues. Based on the
relationship between the SEC and CNMV and the terms of the Spain-US
MOU, the Exchange submits that both the Commission and the CNMV could
acquire information from and provide information to the other similar
to that which would be required in a CSSA between exchanges. Moreover,
the Commission could make a request for information under the Spain-US
MOU on behalf of an SRO that needed the information for regulatory
purposes. Thus, should MIAX need information on Spanish trading in the
Spain Index component securities to investigate incidents involving
trading of EWP options, the SEC could request such information from the
CNMV under the Spain-US MOU. While this arrangement certainly would be
enhanced by the existence of direct exchange to exchange surveillance
sharing agreements, it is nonetheless consistent with other instances
where the Commission has explored alternatives when the relevant
foreign exchange was unwilling or unable to enter into a CSSA.\29\
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\29\ See supra, note 7.
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The practice of relying on surveillance agreements or MOUs between
regulators when a foreign exchange was unable, or unwilling, to provide
an information sharing agreement was affirmed by the Commission in the
New Product Release.\30\ The Commission noted in the New Product
Release that if securing a CSSA is not possible, an exchange should
contact the Commission prior to listing a new derivative securities
product. The Commission also noted that the Commission may determine
instead that it is appropriate to rely on a memorandum of understanding
between the Commission and the foreign regulator.
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\30\ See supra, note 8.
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The Exchange has recently contacted BME with a request to enter
into a CSSA. Until the Exchange is able to secure a CSSA with BME, the
Exchange requests that the Commission allow the listing and trading of
options on EWP without a CSSA, upon reliance of the Spain-US MOU
entered into between the Commission and the CNMV. The Exchange believes
this request is reasonable and notes that the Commission has provided
similar relief in the past. Additionally, the Commission approved, on a
pilot basis, proposals of competing exchanges to list and trade options
on the iShares MSCI Emerging Markets Fund \31\ and the iShares MSCI
Mexico Index Fund.\32\
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\31\ See supra note 10.
\32\ See supra note 11.
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The Commission's approval of this request to list and trade options
on the EWP would otherwise render EWP compliant with all of the
applicable Listing Standards.
The Exchange shall continue to use its best efforts to obtain a
CSSA with BME, which shall reflect the following: (1) Express language
addressing market trading activity, clearing activity, and customer
identity; (2) BME's reasonable ability to obtain access to and produce
requested information; and (3) based on the CSSA and other information
provided by the BME, the absence of existing rules, law or practices
that would impede the Exchange from obtaining foreign information
relating to market activity, clearing activity, or customer identity,
or in the event such rules, laws, or practices exist, they would not
materially impede the production of customer or other information.
2. Statutory Basis
MIAX believes that its proposed rule change is consistent with
Section 6(b) of the Act \33\ in general, and furthers the objectives of
Section 6(b)(5) of the Act \34\ 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. In particular, the Exchange
believes listing and trading of options on the iShare ETFs will benefit
investors by providing them with valuable risk management tools.
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\33\ 15 U.S.C. 78f(b).
\34\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes this proposed rule change will benefit
investors by providing additional methods to trade options on the
iShares ETFs, and by providing them with valuable risk management
tools. Specifically, the Exchange believes that market participants on
MIAX would benefit from the introduction and availability of options on
the iShares ETFs in a manner that is similar to other exchanges and
will provide investors with yet another venue on which to trade these
products. The Exchange notes that the rule change is being proposed as
a competitive response to other competing options exchanges that
already list and trade options on the iShare ETFs and believes this
proposed rule change is necessary to permit fair competition among the
options exchanges. For all the reasons stated above, 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, and believes the proposed change will enhance competition.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be 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:
[[Page 38105]]
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-2014-30 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-2014-30. 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 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-2014-30 and should be
submitted on or before July 24, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-15608 Filed 7-2-14; 8:45 am]
BILLING CODE 8011-01-P