
[Federal Register Volume 79, Number 14 (Wednesday, January 22, 2014)]
[Notices]
[Pages 3655-3657]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-01106]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71310; File No. SR-MIAX-2014-01]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Modify the Quarterly Options Series Program To 
Eliminate the Cap on the Number of Additional Series That May Be Listed 
per Expiration Month for Each Quarterly Options Series in ETF Options

January 15, 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 January 13, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 to eliminate 
the cap on the number of additional series that may be listed per 
expiration month for each Quarterly Option Series (``QOS'') in 
exchange-traded fund (``ETF'') options.
    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 eliminate 
the cap on the number of additional series that may be listed per 
expiration month for each QOS in ETF options.\3\ This is a competitive 
filing that is based on proposals recently submitted by NYSE Arca, Inc. 
(``NYSE Acra'') and NYSE MKT LLC (``NYSE MKT'').\4\ As set out in 
Exchange Rule 404.03, the Exchange may list QOS for up to five 
currently listed options classes that are options on ETFs. The Exchange 
may also list QOS on any option classes that are selected by other 
securities exchanges that employ a similar program under their 
respective rules. Currently, for each QOS in ETF options that has been 
initially listed on the Exchange, the Exchange may list up to 60 
additional series per expiration month.\5\
---------------------------------------------------------------------------

    \3\ A Quarterly Option Series is a series of an option class 
that is approved for listing and trading on the Exchange in which 
the series is opened for trading on any business day, and that 
expires at the close of business on the last business day of a 
calendar quarter. The Exchange lists series that expire at the end 
of the next consecutive four (4) calendar quarters, as well as the 
fourth quarter of the next calendar year. See Rule 404.03.
    \4\ See Securities Exchange Act Release Nos. 70855 (November 13, 
2013) 78 FR 69493 (November 19, 2013) (SR-NYSEArca-2013-120); 70854 
(November 13, 2013) 78 FR 69465 (November 19, 2013) (SR-NYSEMKT-
2013-90).
    \5\ See Exchange Rule 404.03(d).
---------------------------------------------------------------------------

    The Exchange is proposing to amend Rule 404.03(d) to make the 
treatment of QOS in ETF options consistent with the treatment of QOS on 
other options exchanges.\6\ The Exchange believes that the proposed 
revision to the QOS Program would provide market participants with the 
ability to better tailor their trading to meet their investment 
objectives, including hedging securities positions, by permitting the 
Exchange to list additional QOS in ETF options that meet such 
objectives. The Exchange has observed that situations arise in which 
additional strike prices in smaller intervals would be valuable to 
investors. However, due to the cap on additional QOS series the 
Exchange cannot always provide these important at-the-money strikes. 
Elimination of the cap would remedy this issue.
---------------------------------------------------------------------------

    \6\ See NYSE Arca Rule 6.4 Commentary .08(ii) and NYSE MKT Rule 
903 Commentary .09(d).
---------------------------------------------------------------------------

    Currently, the Exchange lists quarterly expiration options on ETFs, 
but the cap restricts the number of strikes on these options, which 
often results in a lack of strike continuity. For example, the Exchange 
lists quarterly expiration options on SPDR Gold Trust (``GLD''). On 
January 2, 2013, the Exchange could have initially listed December 31, 
2013 quarterly expiration options (``December 2013 Quarterlies'') on 
GLD, which closed the previous trading day at $162.02, with initial 
strikes from $115 to $210, and additional strikes in $1 intervals from 
$131 to $189. But during 2013, GLD has closed at a range of $115.94 to 
$163.67 and is currently trading around $118. As a result of the cap, 
the Exchange could not offer December 2013 Quarterlies on GLD in $1 
intervals within $10 of the closing price of GLD because the number of 
strikes would exceed the cap of 60 additional strikes. Consequently, 
the Exchange is not able to list important at-the-money strikes due to 
the cap on additional strikes. While the Exchange has the ability to 
delist strikes with no open interest so that it may list strikes that 
are closer to the money, delisting is not always possible. If all of 
the existing strikes have open interest, the Exchange cannot delist 
strikes so that it may list strikes closer to the money.

[[Page 3656]]

    But the Exchange is not subject to a similar cap on the number of 
additional monthly expiration options it can list on ETFs. So, for 
example, the Exchange can list additional monthly expiration options on 
GLD in $1 intervals from $85 to $178. Therefore, due to the cap, the 
Exchange cannot list, and an investor cannot structure an investment on 
a quarterly basis with the same granularity that can be achieved on 
monthly basis.
    Similarly, the Exchange lists quarterly options on SPDR S&P 500 ETF 
(``SPY''), which during 2013 closed at a range of $145.55 to $173.05. 
Again, due to the cap, the Exchange cannot offer quarterly expiration 
options on SPY in $1 intervals above $170 because the number of 
additional strikes would exceed the cap of 60. Instead, the Exchange is 
forced to list quarterly expiration options on SPY at $5 intervals 
above $170, despite the fact that SPY has recently traded between $165 
and $170. As such, if SPY would again increase to $170, then the 
Exchange would only be able to offer options with a strike price $5 
away from the price of the underlying ETF due to the cap on additional 
strikes.
    Elimination of the cap would also help market participants meet 
their investment objectives by providing expanded opportunities to roll 
ETF options into later quarters. For example, a market participant that 
holds one or more contracts in a QOS in an ETF put option that has a 
strike price of $120 and an expiration date of the last day of the 
third quarter may wish to roll that position into the fourth quarter. 
That is, the market participant may wish to close out the contracts set 
to expire at the end of the third quarter and instead establish a 
position in the same number of contracts in a QOS in a put on the same 
ETF with the same strike price of $120, but with an expiration date of 
the last day of the fourth quarter. Because of the cap on additional 
QOS in ETF options, however, the Exchange may not be able to list 
additional QOS in the ETF. Elimination of the cap, though, would allow 
the Exchange to meet the investment needs of market participants in 
such situations.
    The Exchange believes that it possesses sufficient capacity to 
handle increased quote and trade reporting traffic that might be 
expected to result from listing additional QOS in ETF options.\7\ In 
the Exchange's view, it would be inconsistent to prohibit the listing 
of additional QOS beyond a specified cap when each exchange 
independently purchases capacity to meet its quote and trade reporting 
traffic needs.\8\
---------------------------------------------------------------------------

    \7\ The SEC has relied upon an exchange's representation that it 
has sufficient capacity to support new options series in approving a 
rule amendment permitting the listing of additional option series. 
See Securities Exchange Act Release No. 57410 (Jan. 17, 2008), 73 FR 
12483, 12484 (Mar. 7, 2008) (SR-CBOE-2007-96) (amendments to CBOE 
Rule 5.5(e)(3)) (``In approving the proposed rule change, the 
Commission has relied upon the Exchange's representation that it has 
the necessary systems capacity to support new options series that 
will result from this proposal'').
    \8\ See Securities Exchange Act Release No. 48822 (Nov. 21, 
2003), 68 FR 66892 (Nov. 28, 2003) (SR-OPRA-2003-01) (requiring 
exchanges to acquire options market data transmission capacity 
independently, rather than jointly).
---------------------------------------------------------------------------

    Moreover, the Exchange has in place a quote mitigation plan that 
helps it maintain sufficient capacity to handle quote traffic.\9\
---------------------------------------------------------------------------

    \9\ See Exchange Rule 404A.
---------------------------------------------------------------------------

    To help ensure that only active options series are listed, the 
Exchange also has in place procedures to delist inactive series. 
Exchange Rule 404.03(f) requires the Exchange to review QOS that are 
outside of a range of five strikes above and five strikes below the 
current price of the underlying ETF. Based on that review, the Exchange 
must delist series with no open interest in both the call and the put 
series having (i) a strike price higher than the highest price with 
open interest in the put and/or call series for a given expiration 
month, and (ii) a strike price lower than the lowest strike price with 
open interest in the put and/or call series for a given expiration 
month.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) \10\ of the Act in general, and furthers the 
objectives of Section 6(b)(5) \11\ 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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
remove impediments to and perfect the mechanism of a free and open 
market because it will expand the investment options available to 
investors and will allow for more efficient risk management. The 
Exchange believes that removing the cap on the number of QOS in ETF 
options permitted to be listed on the Exchange will result in a 
continuing benefit to investors by giving them more flexibility to 
closely tailor their investment and hedging decisions to their needs, 
and therefore, the proposal is designed to protect investors and the 
public interest. Additionally, by removing the cap, the proposed rule 
change will make the treatment of QOS in ETF options consistent with 
the treatment of QOS in index options on other option exchanges, thus 
resulting in similar regulatory treatment for similar options products.
    While the expansion of the number of QOS in ETF options is expected 
to generate additional quote traffic, the Exchange believes that this 
increased traffic will be manageable and will not present capacity 
problems. As previously stated, the Exchange has in place a quote 
mitigation plan that helps it maintain sufficient capacity to handle 
quote traffic. To help ensure that only active options series are 
listed, Exchange procedures are designed to delist inactive series, 
ensuring that any additional quote traffic is a result of interest in 
active series.

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, the Exchange 
believes that investors would benefit from the introduction of 
additional QOS in ETF options by providing investors with more 
flexibility to closely tailor their investment and hedging decisions to 
their needs. Additionally, Exchange procedures for delisting inactive 
series will ensure that only active series with sufficient investor 
interest will be made available and maintained on the Exchange.

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

[[Page 3657]]

effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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.
---------------------------------------------------------------------------

    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 make the treatment of QOS in ETF options consistent 
with the treatment of QOS in index options at other option exchanges. 
The proposal will also allow the Exchange to meet investor demand for 
an expanded number of QOS in ETF options, allowing investors to meet 
investment objectives, including hedging securities positions, 
currently unavailable because of the limited number of QOS in ETF 
options available. 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.\14\
---------------------------------------------------------------------------

    \14\ 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).
---------------------------------------------------------------------------

    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 rule-comments@sec.gov. Please include 
File Number SR-MIAX-2014-01 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-2014-01. 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-2014-01 and should be 
submitted on or before February 12, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-01106 Filed 1-21-14; 8:45 am]
BILLING CODE 8011-01-P


