[Federal Register Volume 79, Number 187 (Friday, September 26, 2014)]
[Notices]
[Pages 57999-58001]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-22909]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73177; File No. SR-MIAX-2014-49]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change to Amend Exchange Rule 404
September 22, 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 September 18, 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 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 Rule 404.
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 is proposing to amend Exchange Rule 404 to allow $1 or
greater strike price intervals for options listed on the SPDR S&P 500
ETF (``SPY'') and the SPDR Dow Jones Industrial Average ETF (``DIA''),
consistent with recent changes proposed by NASDAQ OMX PHLX (``Phlx'')
and approved by the Commission.\3\ Options on SPY and DIA have
historically traded on the MIAX with $1 intervals up to a strike price
of $200 pursuant to Rule 404(g), which permits options on Exchange-
Traded Fund Shares to be traded in intervals that were established on
other exchanges prior to listing on the Exchange. Above $200 these
options classes trade with significantly wider $5 strike price
intervals. As the underlying securities have been steadily approaching,
and in the case of SPY has recently surpassed, the $200 mark, and in
response to increased investor and member demand to list additional
strikes in these heavily traded options classes, the Exchange now
proposes to list options on SPY and DIA in dollar intervals regardless
of the strike price.
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\3\ See Securities Exchange Act Release Nos. 72949 (August 29,
2014), 79 FR 53089 (September 5, 2014) (SR-Phlx-2014-46); 72998
(September 4, 2014), 79 FR 53813 (September 10, 2014) (SR-ISE-2014-
42); 72990 (September 4, 2014), 79 FR 53799 (September 10, 2014)
(SR-CBOE-2014-068).
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Specifically, the Exchange proposes to add Interpretations and
Policies .10 to Rule 404 to state that notwithstanding any other
provision regarding the interval of strike prices of series of options
on Exchange-Traded Fund Shares in Rule 404, the interval of strike
prices on SPY and DIA options will be $1 or greater. By having smaller
strike intervals in SPY and DIA, investors will have more efficient
hedging and trading opportunities. The proposed $1 intervals above a
$200 strike price will result in having at-the-money series based on
the underlying SPY or DIA moving less than 1%, which falls in line with
slower price movements of a broad-based index. Furthermore, the
proposed $1 intervals will allow members to continue to employ current
option trading and hedging strategies in SPY and DIA. Considering that
$1 intervals already exist below the $200 price point, and that SPY and
DIA are both trading close to or at the $200 level, continuing to
maintain the artificial $200 ceiling (above which intervals increase
500% to $5), will have a negative effect on investing, trading and
hedging opportunities and volume. The continued demand for highly
liquid options such as SPY and DIA, and the investing, trading, and
hedging opportunities they represent, far outweighs any potential
negative impact of allowing SPY and DIA options to trade in more finely
tailored intervals above a $200 price point.
With the proposal, for example, investors and traders would be able
to roll open positions from a lower strike to a higher strike in
conjunction with the price movement of the underlying. Under the
current rule, where the next higher available series would be $5 away
above a $200 strike price, the ability to roll such positions is
effectively negated. Thus, to move a position from a $200 strike to a
$205 strike under the current rule, an investor would need for the
underlying product to move 2.5%, and would not be able to execute a
roll up until such a large movement occurred. With the proposed rule
change, however, the investor would be in a significantly safer
position of being able to roll his open options position from a $200 to
a $201 strike price, which is only a 0.5% move for the underlying.
By allowing SPY and DIA options in $1 intervals over a $200 strike
price, the proposal will moderately augment the total number of options
series available on the Exchange. However, the
[[Page 58000]]
Exchange notes that it has analyzed its capacity and represents that it
and the Options Price Reporting Authority (``OPRA'') have the necessary
systems capacity to handle any potential additional traffic associated
with this proposed rule change. The Exchange believes that its members
will not have a capacity issue as a result of this proposal. The
Exchange also represents that it does not believe this expansion will
cause fragmentation of liquidity. The Exchange's beliefs are supported
by the limited nature of the proposal, which applies to two symbols
rather than to all Exchange-Traded Fund Shares. Moreover, while under
current rules there is ample liquidity, such liquidity is constricted
above $200. This proposal enhances liquidity by offering more rational
strike price intervals as the stock market appreciates in value.
The Exchange believes that the proposed rule change, like the other
strike price programs currently offered by the Exchange, will benefit
investors by giving them more flexibility to more closely tailor their
investment and hedging decisions.
2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with Section 6(b) \4\ of the Act in general, and furthers the
objectives of Section 6(b)(5) \5\ of the Act 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.
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\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78f(b)(5).
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In particular, the proposed rule change would add consistency to
the SPY and DIA options markets and allow investors to use SPY and DIA
options more easily and effectively. Moreover, the proposed rule change
would allow investors and traders, whether big or small, to better
trade and hedge positions in SPY and DIA options where the strike price
is greater than $200, and ensure that SPY and DIA options investors and
traders are not at a disadvantage simply because of the strike price.
The rule change proposal allows the Exchange to respond to customer
demand to allow SPY and DIA options to trade in $1 intervals above a
$200 strike price. The Exchange does not believe that the proposed rule
would create additional capacity issues or affect market functionality.
As noted above, options on Exchange-Traded Fund Shares generally trade
in wider $5 intervals above a $200 strike price, whereas options at or
below a $200 strike price trade in $1 intervals. This creates a
situation where contracts on the same option class, namely SPY and DIA
options, effectively may not be able to execute certain strategies,
such as rolling to a higher strike price, simply because of the
arbitrary $200 strike price above which options intervals increase by
500%. This proposal remedies the situation by establishing an exception
to the current strike price interval regime, for SPY and DIA options
only, to allow such options to trade in $1 or greater intervals at all
strike prices.
The Exchange believes that the proposed rule change, like other
strike price programs currently offered by the Exchange, will benefit
investors by giving them increased flexibility to more closely tailor
their investment and hedging decisions. Moreover, the proposed rule
change is consistent with changes proposed by Phlx and approved by the
Commission.\6\
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\6\ See supra note 3.
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With regard to the impact of this proposal on system capacity, the
Exchange notes that it has analyzed its capacity and represents that it
and the Options Price Reporting Authority (``OPRA'') have the necessary
systems capacity to handle any potential additional traffic associated
with the proposed rule change. The Exchange believes that its members
will not have a capacity issue as a result of this proposal.
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. The Exchange believes this
proposed rule change will benefit investors by providing additional
methods to trade options on the liquid securities, and providing
greater ability to mitigate risk in managing large portfolios.
Specifically, the Exchange believes that investors would benefit from
the introduction and availability of additional series by more series
available as an investing tool. The Exchange also believes the proposed
changes will provide investors with an additional tool for hedging risk
in highly liquid securities. For all the reasons stated, 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
Because the proposed rule change does not (i) significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act \7\ and Rule 19b-4(f)(6)
thereunder.\8\
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\7\ 15 U.S.C. 78s(b)(3)(A).
\8\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the 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.
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The Exchange has asked the Commission to waive the 30-day operative
delay so that the proposal may become operative immediately upon
filing. The Exchange stated that waiver of this requirement will allow
the Exchange to respond to current customer demand for strike prices in
SPY options and more effectively tailor the investing, trading, and
hedging decisions in respect of SPY and DIA options by using finer $1
increments. The Exchange also stated that given the current level of
the S&P 500 Index, the Exchange believes that it is important to be
able to list the requested strikes as soon as possible so that
investors have the hedging tools they need given the current market
conditions. For these reasons, the Commission believes that the
proposed rule change presents no novel issues and that waiver of the
30-day operative delay is consistent with the protection of investors
and the public interest; and will allow the Exchange to remain
competitive with other exchanges. Therefore, the Commission designates
the proposed rule change to be operative upon filing.\9\
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\9\ 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).
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[[Page 58001]]
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. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or 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:
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-2014-49 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-MIAX-2014-49. 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-2014-49 and should be
submitted on or before October 17, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-22909 Filed 9-25-14; 8:45 am]
BILLING CODE 8011-01-P