
[Federal Register Volume 78, Number 57 (Monday, March 25, 2013)]
[Notices]
[Pages 17970-17972]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-06693]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69166; File No. SR-MIAX-2013-10]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Permit the Minimum Price Variation for Mini-
Option Contracts To Be the Same as Permitted for Standard Options on 
the Same Underlying Security

March 18, 2013.
    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 March 15, 2013, 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 permit the minimum price 
variation for mini-option contracts that deliver 10 shares to be the 
same as permitted for standard options that deliver 100 shares on the 
same security.
    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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    MIAX recently amended its rules to allow for the listing of mini-
options that deliver 10 physical shares on SPDR S&P 500 (``SPY''), 
Apple, Inc. (``AAPL''), SPDR Gold Trust (``GLD''), Google Inc. 
(``GOOG'') and Amazon.com Inc. (``AMZN'').\3\ Mini-options trading is 
expected to commence in March 2013. Prior to the commencement of 
trading mini-options, the Exchange proposes to establish and permit the 
minimum price variation for mini-option contracts to be the same as 
permitted for standard options on the same security. In addition to 
giving market participants clarity as to the minimum pricing increments 
for mini-options, the filing would harmonize penny pricing between 
mini-options and standard options on the same security.
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    \3\ See Securities Exchange Act Release No. 34-69136 (March 14, 
2013) (Notice of Filing and Immediate Effectiveness of a Proposed 
Rule Change to List and Trade Option Contracts Overlying 10 Shares 
of Certain Securities) (SR-MIAX-2013-06).
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    Of the five securities on which mini-options are permitted, four of 
them (SPY, AAPL, GLD and AMZN) participate in the Penny Pilot Program. 
Under the Penny Pilot Program:
     The minimum price variation for AAPL, GLD and AMZN options 
is $0.01 for all quotations in series that are quoted at less than $3 
per contract and $0.05 for all quotations in series that are quoted at 
$3 per contract or greater; and
     The minimum price variation for SPY options is $0.01 for 
all quotations in all series.
    Another options exchange, as stated in a recent rule filing, has 
polled firms with customer bases of potential product users and they 
have indicated a preference that premium pricing for mini-options match 
what is currently permitted for standard options that deliver 100 
physical shares on the same securities.\4\ Specifically, firms' systems 
are configured using the ``root symbol'' of an underlying security and 
cannot differentiate, for purposes of minimum variation pricing, 
between contracts on the same security. Mini-options will be loaded 
into firms' systems using the same ``root symbol'' that is used for 
standard options on the same security. As a result, it is believed that 
existing systems will not be able to assign different minimum pricing 
variations to different contracts on the same security. As a result, 
firms have indicated their preference that there be matched pricing 
between mini-options and standard options on the same security because 
their systems, which are programmed using ``root symbols,'' would not 
be able to assign different minimum pricing variations to mini-options 
and standard options on the same security.
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    \4\ See Securities Exchange Act Release No. 34-68873 (February 
8, 2013), 78 FR 10671 (February 14, 2013) (Notice of Filing Proposed 
Rule Change To Permit the Minimum Price Variation for Mini-Options 
To Be the Same as Permitted for Standard Options on the Same 
Security) (SR-CBOE-2013-016).
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    Because mini-options are a separate class from standard options on 
the same security, mini-options would have to qualify separately for 
entry into the Penny Pilot Program. This, however, is not possible by 
product launch (or possibly ever) for a number of reasons. First, there 
is a six calendar month trading volume criteria for entry into the 
Penny Pilot Program, which mini-options cannot satisfy prior to launch. 
Second, even if mini-options met the trading volume criteria, 
replacement classes are only added to the Penny Pilot Program on the 
second trading day following January 1 and July 1 in a given year. 
Finally, there is a price test for entry into the Penny Pilot Program 
which excludes ``high premium'' classes, which are defined as classes 
priced at $200 per share or higher at the time of selection. As of the 
date of this filing, three of the five securities (AAPL, AMZN and GOOG) 
eligible for mini-options would be excluded as ``high premium'' 
classes, even though two of those securities (AAPL and AMZN) are in the 
Penny Pilot Program for standard options. The Exchange notes that GOOG 
is not in the Penny Pilot Program.\5\
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    \5\ The minimum price variation for standard options on GOOG is 
$0.05 for all quotations in series that are quoted at less than $3 
per contract and $0.10 for all quotations in series that are quoted 
at $3 per contract or greater. See MIAX Rule 510(a).
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    The Exchange, therefore, is proposing to establish a pricing regime 
for mini-options separate from the Penny Pilot Program that permits the 
minimum price variation for mini-option contracts to be the same as 
permitted for standard options on the same security, which would 
encompass penny pricing for mini-option contracts on securities that 
participate in the Penny Pilot Program.\6\
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    \6\ As noted in the Exchange's original mini-option filing, 
mini-options are limited to five securities and any expansion of the 
program would require that a subsequent proposed rule change be 
submitted to the Commission. The current proposal is limited to the 
five securities originally approved to underlie mini-options. The 
Exchange anticipates that a similar minimum pricing variation regime 
would be included in any rule change to expand the mini-option 
program.
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    As to the Penny Pilot Program, the Exchange believes that there are 
several good reasons to allow penny pricing for

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mini-options on securities that currently participate in the Penny 
Pilot Program, without requiring mini-options to separately qualify for 
the Penny Pilot Program. First, the Penny Pilot Program applies to the 
most actively-traded, multiply-listed option classes. Likewise, the 
five securities which may underlie mini-options were chosen because of 
the significant liquidity in standard options on the same security. The 
Exchange also believes that the marketplace and investors will be 
expecting the minimum price variation for contracts on the same 
security to be the same. Second, one of the primary goals of the Penny 
Pilot Program is to narrow the bid-ask spreads of exchange-traded 
options to reduce the cost of entering and exiting positions. This same 
goal can similarly be accomplished by permitting penny pricing for 
mini-option contracts on securities that already participate in the 
Penny Pilot Program. Finally, the Exchange believes that penny pricing 
for mini-options is desirable for a product that is geared toward 
retail investors. Mini-options are on high priced securities and are 
meant to be an investment tool with more affordable and realistic 
prices for the average retail investor. Penny pricing for mini-options 
on securities that are currently in the Penny Pilot Program would 
benefit the anticipated users of mini-options by providing more price 
points. The Exchange notes that it is not requesting penny pricing for 
all of the five securities eligible for mini-options trading; but 
rather is seeking to permit matched penny pricing for mini-options on 
those securities for which standard options already trade in pennies.
    In addition to an expressed market preference for matched minimum 
increment pricing (including penny pricing) between mini-options and 
standard options on the same securities, the Exchange believes that the 
rules of another options exchange, Chicago Board of Options Exchange 
(``CBOE''), has established precedent for the current proposal. 
Specifically, CBOE Rule 6.42.03 provides, among other things, that 
matched penny pricing between SPY and Mini-S&P 500 Index (``XSP'') 
options is permitted. As to SPY and XSP options, the rationale for 
matched pricing was that the underlying SPY ETF is designed to track 
the performance of the S&P 500 Index and XSP options are options based 
on the S&P 500 Index.\7\ In support of this earlier filing, CBOE 
asserted that having the same minimum price variation for SPY and XSP 
options was necessary for consistency and for competitive reasons.
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    \7\ See Securities Exchange Act Release No. 56565 (September 27, 
2007), 72 FR 56403 (October 3, 2007) (Order Granting Approval to a 
Proposed Rule Change Regarding the Extension and Expansion of the 
Penny Pilot Program) (SR-CBOE-2007-98).
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    To effect the current proposed rule changes, MIAX proposes to amend 
MIAX Rules 510 and 404. As to MIAX Rule 510 (Minimum Price Variations 
and Minimum Trading Increments), MIAX proposes adding new 
Interpretation and Policy .02 that would be an internal cross reference 
to new proposed Interpretation and Policy .08(d) to MIAX Rule 404 as 
the provision that sets forth the minimum price variation for bids and 
offers for mini-options. Proposed Interpretation and Policy .8(d) to 
MIAX Rule 404 would provide as follows:

    The minimum price variation for bids and offers for mini-options 
shall be the same as permitted for standard options on the same 
security. For example, if a security participates in the Penny Pilot 
Program, mini options on the same underlying security may be quoted 
in the same minimum increments, e.g., $0.01 for all quotations in 
series that are quoted at less than $3 per contract and $0.05 for 
all quotations in series that are quoted at $3 per contract or 
greater, $0.01 for all SPY option series, and mini-options do not 
separately need to qualify for the Penny Pilot Program.

    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it and the 
Options Price Reporting Authority have the necessary systems capacity 
to handle the potential additional traffic associated with this 
proposal. The Exchange does not believe that this increased traffic 
will become unmanageable since mini-options are limited to a fixed 
number of underlying securities.
2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \8\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \9\ 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.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes that investors and other market 
participants would benefit from the current rule proposal because it 
would clarify and establish the minimum price variation for mini-
options prior to the commencement of trading. The Exchange believes 
that the marketplace and investors will be expecting the minimum price 
variation for contracts on the same security to be the same. As a 
result, the Exchange believes that this change would lessen investor 
and marketplace confusion because mini-options and standard options on 
the same security would have the same minimum price variation.
    While price protection between mini-options and standard options on 
the same security is not required, the Exchange believes that 
consistency between mini-options and standard options as to the minimum 
price variation is desirable and is designed to promote just and 
equitable principles of trade. Matching the minimum price variation 
between mini-options and standard options on the same security would 
help to eliminate any unnecessary arbitrage opportunities that could 
result from having contracts on the same underlying security traded in 
different minimum price increments. Similarly, matched minimum pricing 
would hopefully generate enhanced competition among liquidity 
providers. The Exchange believes that matched pricing for mini-options 
and standard options on the same security would attract additional 
liquidity providers who would make markets in mini-options and standard 
options on the same security. In addition to the possibility of more 
liquidity providers, the Exchange believes that the ability to quote 
mini-options and standard options on the same security in the same 
minimum increments would hopefully result in more efficient pricing via 
arbitrage and possible price improvement in both contracts on the same 
security. The Exchange also believes that allowing penny pricing for 
mini-options on securities that currently participate in the Penny 
Pilot Program (without mini-options having to qualify separately for 
entry into the Penny Pilot Program) will benefit the marketplace and 
investors because penny pricing in mini-options may also accomplish one 
of the primary goals of the Penny Pilot Program, which is to narrow the 
bid-ask spreads of exchange-traded options to reduce the cost of 
entering and exiting positions. Finally, the proposed rule would be 
beneficial from a logistical perspective since firms' existing systems

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are configured using the ``root symbol'' of an underlying security and 
would not be able to assign different minimum pricing variations to 
mini-options and standard options on the same security.

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. Specifically, since mini-
options are permitted on multiply-listed classes, other exchanges that 
have received approval to trade mini-options will have the opportunity 
to similarly establish the minimum price variation for mini-options 
prior to the anticipated launch in March 2013. MIAX also believes that 
the proposed rule change will enhance competition by allowing products 
on the same security to be priced in the same minimum price increments.

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 \10\ and Rule 19b-4(f)(6) 
thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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 Commission has waived the five-day prefiling 
requirement in this case.
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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 the proposed rule change may 
coincide with the anticipated launch of trading in Mini Options. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public 
interest.\12\ Waiver of the operative delay will allow the Exchange to 
implement its proposal consistent with the commencement of trading in 
Mini Options as scheduled and expected by members and other 
participants on March 18, 2013. For these reasons, the Commission 
designates the proposed rule change as operative upon filing.
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    \12\ 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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    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 rule-comments@sec.gov. Please include 
File Number SR-MIAX-2013-10 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-2013-10. 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-2013-10 and should be 
submitted on or before April 15, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-06693 Filed 3-22-13; 8:45 am]
BILLING CODE 8011-01-P


