
[Federal Register Volume 78, Number 84 (Wednesday, May 1, 2013)]
[Notices]
[Pages 25502-25504]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-10302]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69457; File No. SR-MIAX-2013-17]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Increase the Position and Exercise Limits for Options on 
iShares MSCI Emerging Markets Index Fund

April 25, 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 April 16, 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 its rules to increase 
the position and exercise limits for options on iShares MSCI Emerging 
Markets Index Fund (``EEM'').
    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 purpose of the proposed rule change is to amend Rule 307, 
Interpretations and Policies .01 and Rule 309, Interpretations and 
Policies .01 to increase position and exercise limits, respectively, 
for EEM options.
    Position limits for exchange-traded fund (``ETFs'') options, such 
as EEM options, are determined pursuant to Rule 307 and vary according 
to the number of outstanding shares and trading volume during the most 
recent six-month trading period of the underlying stock or ETF. The 
largest in capitalization and most frequently traded stocks and ETFs 
have an option position limit of 250,000 contracts (with adjustments 
for splits, re-capitalizations, etc.) on the same side of the market; 
smaller capitalization stocks and ETFs have position limits of 200,000, 
75,000, 50,000 or 25,000 contracts (with adjustments for splits, re-
capitalizations, etc.) on the same side of the market. The current 
position limit for EEM options is 250,000 contracts. The purpose of the 
proposed rule change is to amend Rules 307 and 309 to increase the 
position and exercise limits for EEM options to 500,000 contracts. As 
discussed below, EEM is an actively-traded ETF and there is precedent 
for establishing position limits for options on actively-traded ETFs. 
Position limit levels for actively-traded ETFs are set forth in Rule 
307, Interpretations and Policies .01.\3\
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    \3\ Rule 307, Interpretations and Policies .01, provides for 
exceptions to standard position limits as follows: put or call 
option contracts overlying the PowerShares QQQ Trust (``QQQQ''), for 
which the position limit is currently 900,000 contracts on the same 
side of the market; options overlying the Standard and Poor's 
Depository Receipts[supreg] Trust (``SPY''), which currently does 
not have any position limits; options overlying the iShares[supreg] 
Russell 2000[supreg] Index Fund (``IWM''), for which the position 
limit is currently 500,000 contracts on the same side of the market; 
and options overlying the Diamonds Trust (``DIA''), for which the 
position limit is currently 300,000 contracts on the same side of 
the market.
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    This proposed increase in position and exercise limits for EEM 
options has been adopted by the Chicago Board Options Exchange, 
Incorporated (``CBOE''), BOX Options Exchange LLC (``BOX''), 
International Securities Exchange, LLC (``ISE''), NASDAQ OMX PHLX, LLC 
(``PHLX''), NYSE MKT LLC (``NYSE Amex Options''), and NYSE Arca, Inc. 
(``NYSE Arca'').\4\
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    \4\ See Securities Exchange Act Release No. 68086 (October 23, 
2012), 77 FR 65600 (October 29, 2012) (SR-CBOE-2012-066); Securities 
Exchange Act Release No. 68478 (December 19, 2012), 77 FR 76132 
(December 26, 2012) (SR-BOX-2012-023); Securities Exchange Act 
Release No. 68398 (December 11, 2012), 77 FR 74700 (December 17, 
2012) (SR-ISE-2012-093); Securities Exchange Act Release No. 68293 
(November 27, 2012), 77 FR 71644 (December 3, 2012) (SR-Phlx-2012-
132); Securities Exchange Act Release No. 68358 (December 5, 2012), 
77 FR 73708 (December 11, 2012) (SR-NYSEMKT-2012-071); and 
Securities Exchange Act Release No. 68359 (December 5, 2012), 77 FR 
73716 (December 11, 2012) (SR-NYSEArca-2012-132).
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    In support of this proposed rule change, the following trading 
statistics compare EEM to IWM and SPY, which are both actively-traded 
ETF options with exceptions to the standard position and exercise 
limits. As shown on the table below, the average daily volume in 2012 
for EEM was 49.4 million shares compared to 45.7 million shares for IWM 
and 143 million shares for SPY. The total shares outstanding for EEM 
was 1,182 million compared to 220 million shares for IWM and 820.5 
million shares for SPY. Further, the fund market cap for EEM was $52.19 
billion compared to $18.35 billion for IWM and $125.63 billion for SPY.

[[Page 25503]]



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                                                                                      Shares        Fund Market
                                                 2012 ADV (mil.     2012 ADV     Outstanding--as     Cap as of
                      ETF                            Shares)         (option      of January 31.    January 31,
                                                                   contracts)      2013 (Mil.)      2013 ($bil)
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EEM............................................            49.4         255,096            1,182          $52.19
IWM............................................            45.7         494,150              220           18.35
SPY............................................             143       2,325,188            820.5          125.63
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    The MSCI Emerging Markets Index, which has approximately 800 
component securities, is a free float-adjusted market capitalization 
index that is designed to measure equity market performance of emerging 
markets. The MSCI Emerging Markets Index consists of the following 21 
emerging market country indices: Brazil, Chile, China, Colombia, Czech 
Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, 
Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, 
Thailand, and Turkey.\5\ MIAX does not currently trade options on EEM, 
however, MIAX anticipates listing such options in the near future. 
Since MIAX's listing standards for options on ETFs holding non-U.S. 
component securities \6\ are identical to the listing standards at the 
other options exchanges that currently trade EEM options, MIAX 
anticipates its analysis of EEM and the MSCI Emerging Markets Index, 
which will be undertaken prior to its listing of options on EEM, will 
confirm that more than 50% of the weight of the securities held by EEM 
are subject to a comprehensive surveillance agreement (``CSA'').\7\ 
Additionally, MIAX will confirm that the component securities of the 
MSCI Emerging Markets Index, on which EEM is based, and for which the 
primary market is in any one country that is not subject to a CSA, do 
not represent 20% or more of the weight of the MSCI Emerging Markets 
Index.\8\ Finally, MIAX will confirm that the component securities of 
the MSCI Emerging Markets Index for which the primary market is in any 
two countries that are not subject to CSAs do not represent 33% or more 
of the weight of the MSCI Emerging Markets Index.\9\
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    \5\ See http://www.msci.com/products/indices/tools/index.html#EM.
    \6\ See MIAX Rule 402(i).
    \7\ See MIAX Rule 402(i)(5)(ii)(A).
    \8\ See MIAX Rule 402(i)(5)(ii)(B).
    \9\ See MIAX Rule 402(i)(5)(ii)(C).
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    The Exchange believes that the liquidity in the underlying ETF and 
the liquidity in EEM options support its request to increase the 
position and exercise limits for EEM options. As to the underlying ETF, 
through January 31, 2013, the year-to-date average daily trading volume 
for EEM across all exchanges was 50.9 million shares. As to EEM options 
through January 31, 2013, the year-to-date average daily trading volume 
for EEM options across all exchanges was 317,399 contracts. The 
Exchange believes that increasing position limits for EEM options will 
lead to a more liquid and competitive market environment for EEM 
options that will benefit customers interested in this product.
    Under the Exchange's proposal, the options reporting requirement 
for EEM options will remain unchanged. Thus, the Exchange will still 
require each Member that maintains a position in EEM options on the 
same side of the market, for its own account or for the account of a 
customer, to report certain information to the Exchange. Specifically, 
Rule 310 governs position limit reporting requirements and provides, in 
paragraph (a), that Members must report information with respect to any 
customer or Member account holding in the aggregate long or short 
positions of 200 or more option contracts of a single class. Paragraph 
(b) of Rule 310 further requires Electronic Exchange Members \10\ to 
provide additional information for end of day option positions in 
excess of 10,000 option contracts on the same side of the market. This 
additional information includes, but is not limited to, the option 
position, whether such position is hedged and, if so, a description of 
the hedge, and the collateral used to carry the position. Each of these 
reporting requirements will remain at the current levels for EEM 
options. The Exchange believes that the existing surveillance 
procedures and reporting requirements are capable of properly 
identifying unusual and/or illegal options trading activity. These 
procedures utilize daily monitoring of market movements via automated 
surveillance techniques to identify unusual activity in both options 
and underlying stocks. Furthermore, large stock holdings must be 
disclosed to the Commission by way of Schedules 13D or 13G.\11\ Options 
positions are part of any reportable positions and, thus, cannot be 
legally hidden. Moreover, the Exchange's requirement that Members file 
reports with the Exchange for any customer who held aggregate large 
long or short positions of any single class for the previous day will 
continue to serve as an important part of the Exchange's surveillance 
efforts.
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    \10\ An Electronic Exchange Member is defined in Rule 100 as 
``the holder of a Trading Permit who is not a Market Maker''. Thus, 
Rule 310(b) does not apply to Market Makers. Market Maker position 
limit information is accessed and monitored through the Exchange's 
market surveillance systems.
    \11\ 17 CFR 240.13d-1.
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    The Exchange believes that the current financial requirements 
imposed by the Exchange and by the Commission adequately address 
concerns that a Member or its customer may try to maintain an 
inordinately large un-hedged position in an option, particularly on 
EEM. Current margin and risk-based haircut methodologies serve to limit 
the size of positions maintained by any one account by increasing the 
margin and/or capital that a Member must maintain for a large position 
held by it or by its customer.\12\ In addition, the Commission's net 
capital rule, Rule 15c3-1 \13\ under the Securities Exchange Act of 
1934 (the ``Act''), imposes a capital charge on members to the extent 
of any margin deficiency resulting from the higher margin requirement.
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    \12\ See MIAX Rule 1502.
    \13\ 17 CFR 240.15c3-1.
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2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \14\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \15\ 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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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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    Specifically, the proposed rule change will benefit large market 
makers (which generally have the greatest potential and

[[Page 25504]]

actual ability to provide liquidity and depth in the product), as well 
as retail traders, investors, and public customers, by providing them 
with a more effective trading and hedging vehicle. In addition, the 
Exchange believes that the structure of EEM options and the 
considerable liquidity of the market for EEM options diminish the 
opportunity to manipulate this product and disrupt the underlying 
market that a lower position limit may protect against. The Exchange 
also believes that the proposed rule change will benefit a greater 
number of market participants who are MIAX Members and members of other 
exchanges. This is because EEM is a multiply-listed options class and 
currently there is not a uniform and consistent position and exercise 
limits regime across all of the exchanges that list EEM options. The 
proposed filing will benefit market participants because it will ensure 
consistency and uniformity among the competing options exchanges as to 
the position and exercise limits for a multiply listed options class.

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 changes put in place at other options 
exchanges. MIAX believes this proposed rule change is necessary to 
permit fair competition among the options exchanges and to establish 
uniform position limits for a multiply listed option class.

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 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 \16\ and Rule 19b-4(f)(6) 
thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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 increase the position and 
exercise limits for EEM options immediately, which will result in 
consistency and uniformity among the competing options exchanges as to 
the position and exercise limits for EEM options. The Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest.\18\ The Commission 
notes the proposal is substantively identical to a proposal that was 
recently approved by the Commission, and does not raise any new 
regulatory issues.\19\ For these reasons, the Commission designates the 
proposed rule change as operative upon filing.
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    \18\ 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).
    \19\ See Securities Exchange Act Release No. 68086 (October 23, 
2012), 77 FR 65600 (October 29, 2012) (SR-CBOE-2012-066).
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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-2013-17 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-2013-17. 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-2013-17 and should be 
submitted on or before May 22, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-10302 Filed 4-30-13; 8:45 am]
BILLING CODE 8011-01-P


