
[Federal Register Volume 80, Number 37 (Wednesday, February 25, 2015)]
[Notices]
[Pages 10194-10196]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-03813]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74304; File Nos. SR-MIAX-2014-30 and SR-MIAX-2014-39]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Order Disapproving Proposed Rule Changes To List and 
Trade Options on Shares of the iShares ETFs and Market Vectors ETFs

February 19, 2015.

I. Introduction

    On June 17, 2014, Miami International Securities Exchange LLC 
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Exchange Act'' or ``Act'') \1\ and 
Rule 19b-4 thereunder,\2\ a proposed rule change to list and trade 
options on 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 ``iShares ETFs''). The proposed rule change 
was published for comment in the Federal Register on July 3, 2014.\3\ 
On August 13, 2014, the Commission extended the time period in which to 
either approve the proposed rule change, disapprove the proposed rule 
change, or institute proceedings to determine whether to approve or 
disapprove the proposed rule change, to October 1, 2014.\4\ On 
September 25, 2014, the Commission instituted proceedings to determine 
whether to approve or disapprove the proposed rule change.\5\ The 
Commission received a letter from MIAX on the proposal.\6\ On December 
17, 2014, the Commission issued a notice of designation of a longer 
period for Commission action on proceedings to determine whether to 
approve or disapprove the proposed rule change.\7\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 72492 (June 27, 
2014), 79 FR 38099 (SR-MIAX-2014-30) (``iShares ETFs Proposal'').
    \4\ See Securities Exchange Act Release No. 72835, 79 FR 49140 
(August 19, 2014).
    \5\ See Securities Exchange Act Release No. 73211, 79 FR 59338 
(October 1, 2014).
    \6\ See Letter to Elizabeth M. Murphy, Secretary, Commission, 
from Brian O'Neill, Vice President and Senior Counsel, MIAX, dated 
October 22, 2014 (providing comment on SR-MIAX-2014-30 and SR-MIAX-
2014-39) (``MIAX Letter'').
    \7\ See Securities Exchange Act Release No. 73856, 79 FR 77075 
(December 23, 2014).
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    In addition, on July 28, 2014, the Exchange filed with the 
Commission a proposed rule change to list and trade options on shares 
of the Market Vectors

[[Page 10195]]

Brazil Small-Cap ETF, Market Vectors Indonesia Index ETF, Market 
Vectors Poland ETF, and Market Vectors Russia ETF (collectively 
``Market Vectors ETFs''). The proposed rule change was published for 
comment in the Federal Register on August 12, 2014.\8\ On September 25, 
2014, the Commission instituted proceedings to determine whether to 
approve or disapprove the proposed rule change.\9\ The Commission 
received a letter from MIAX on the proposal.\10\ On January 27, 2015, 
the Commission issued a notice of designation of a longer period for 
Commission action on proceedings to determine whether to approve or 
disapprove the proposed rule change.\11\ This order disapproves the 
iShares ETFs Proposal and the Market Vectors ETFs Proposal.
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    \8\ See Securities Exchange Act Release No. 72777 (August 6, 
2014), 79 FR 47165 (SR-MIAX-2014-39) (``Market Vectors ETFs 
Proposal'').
    \9\ See Securities Exchange Act Release No. 73212, 79 FR 59332 
(October 1, 2014).
    \10\ See MIAX Letter, supra note 6.
    \11\ See Securities Exchange Act Release No. 74150, 80 FR 5597 
(February 2, 2015).
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II. Description of the Proposal

    The Exchange proposes to list for trading on the Exchange options 
on shares of the iShares and Market Vectors ETFs. According to the 
Exchange, the iShares ETFs are registered pursuant to the Investment 
Company Act of 1940 as management investment companies designed to hold 
a portfolio of securities that track the MSCI Brazil 25/50 Index 
(``Brazil Index''), which consists of stocks traded primarily on 
BM&FBOVESPA MSCI Chile Investable Market Index (IMI) 25/50 (``Chile 
Index''), which consists of stocks traded primarily on the Santiago 
Stock Exchange; MSCI All Peru Capped Index (``Peru Index''), which 
consists of stocks traded primarily on Bolsa de Valores de Lima; and 
MSCI Spain 25/50 Index (``Spain Index''), which consists of stocks 
traded primarily on Bolsa de Madrid.\12\
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    \12\ See iShares ETFs Proposal, supra note 3. Morgan Stanley 
Capital International Inc. (``MSCI'') created and maintains the 
Brazil Index, Chile Index, Peru Index, and Spain Index.
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    Similarly, according to the Exchange, the Market Vectors ETFs are 
registered pursuant to the Investment Company Act of 1940 as management 
investment companies designed to hold a portfolio of securities that 
track the Market Vectors Brazil Small-Cap Index (``Brazil Small-Cap 
Index''), which consists of stocks traded primarily on BM&FBOVESPA the 
Market Vectors Indonesia Index (``Indonesia Index''), which consists of 
stocks traded primarily on the Indonesia Stock Exchange; the Market 
Vectors Poland Index (``Poland Index''), which consists of stocks 
traded primarily on the Warsaw Stock Exchange; and the Market Vectors 
Russia Index (``Russia Index''), which consists of stocks traded 
primarily on the Moscow Exchange.\13\
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    \13\ See Market Vectors ETFs Proposal, supra note 8. Market 
Vectors Index Solutions created and maintains the Brazil Small-Cap 
Index, Indonesia Index, Poland Index, and Russia Index.
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    MIAX Rule 402 establishes the Exchange's initial listing standards 
for equity options (the ``Listing Standards'') pursuant to which the 
Exchange can list and trade options on the shares of open-end 
investment companies, such as the iShares ETFs and Market Vectors 
ETFs.\14\ According to the Exchange, options on the iShares ETFs and 
Market Vectors ETFs do not meet the Listing Standards. In particular, 
options on the iShares ETFs and Market Vectors ETFs do not meet the 
requirement that the component securities of an index or portfolio of 
securities on which the Exchange Traded Fund Shares are based, for 
which the primary market is in any one country that is not subject to a 
comprehensive surveillance sharing agreement (``CSSA''), not represent 
20% or more of the weight of the index.\15\ Accordingly, the Exchange 
may not list and trade options on the iShares ETFs or Market Vectors 
ETFs without a separate proposed rule change filed with and approved by 
the Commission.\16\
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    \14\ MIAX Rule 402(i) provides the listing standards for options 
on 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. If an option on 
Exchange-Traded Fund Shares meets these listing standards, it can be 
listed without the filing of a proposed rule change with the 
Commission, but the Exchange must comply with the requirements of 
Rule 19b-4(e). See 17 CFR 240.19b-4(e).
    \15\ See MIAX Rule 402(i)(5)(ii)(B). The Exchange represents 
that each of the iShares ETFs and Market Vectors ETFs are comprised 
of component securities for which the primary market is a single 
foreign market, and that, for each ETF, MIAX does not have a CSSA 
with its foreign counterpart in the applicable foreign market.
    \16\ See supra note 14.
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    According to the Exchange, it has attempted, but not entered into, 
CSSAs with the applicable foreign markets. In its proposals, the 
Exchange requested that the Commission allow it to rely on agreements 
between the Commission and the applicable foreign regulators, in place 
of the requirement to have a CSSA, with respect to the listing and 
trading of options on shares of the iShares ETFs and Market Vectors 
ETFs. Specifically, the Exchange cited to the agreements between the 
Commission and the Comissao de Valores Mobiliarios (``CVM''),\17\ which 
has responsibility for the Brazilian exchanges and over-the-counter 
markets; the Superintendencia de Valores y Seguros de Chile 
(``SVS''),\18\ which has the responsibility for the Chilean securities 
markets; the Comision Nacional del Mercado de Valores (``CNMV''),\19\ 
which has the responsibility for the Spanish stock exchanges; and the 
Federal Commission on Securities and the Capital Market of the 
Government of the Russian Federation (``FCSCM''), a forerunner of the 
Federal Commission on Securities Market of Russia, which has 
responsibility for the Russian stock exchanges.\20\ In addition, the 
Exchange noted that the Indonesia Financial Services Authority, which 
has responsibility for the Indonesian stock exchanges; the Polish 
Financial Supervision Authority, which has responsibility for the 
Polish stock exchanges; the Superintendencia del Mercado de Valores, 
which has responsibility for the Peruvian stock exchanges, and the 
Commission are signatories to the International Organization of 
Securities Commissions Multilateral Memorandum of Understanding.\21\
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    \17\ See iShares ETFs Proposal, supra note 3, and Market Vectors 
ETFs Proposal, supra note 8 (citing to Memorandum of Understanding 
with the CVM dated as of July 24, 2012).
    \18\ See iShares ETFs Proposal, supra note 3 (citing to 
Memorandum of Understanding with the SVS dated as of June 3, 1993).
    \19\ See iShares ETFs Proposal, supra note 3 (citing to 
Memorandum of Understanding with the CNMV dated as of July 22, 
2013).
    \20\ See Market Vectors ETFs Proposal, supra note 8 (citing to 
the Memorandum of Understanding with the FCSCM dated December 6, 
1995).
    \21\ See iShares ETFs Proposal, supra note 3, and Market Vectors 
ETFs Proposal, supra note 8.
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    In its letter, MIAX stated its belief that the proposals were 
consistent with the requirements of the Act and that the Commission 
should approve the filings. In addition, MIAX believes that its 
proposals are consistent with the approach previously allowed by the 
Commission. Specifically, MIAX noted that the Commission has, in the 
past, allowed exchanges to rely on agreements between the Commission 
and foreign regulators in lieu of a CSSA between an exchange and the 
applicable foreign market.\22\ The Exchange believes

[[Page 10196]]

the proposed rule changes are consistent with Section 6 of the Act ``by 
avoiding the regulatory compliance issue of improperly listing the ETFs 
without CSSAs, or without Commission approval, while providing a clear 
mechanism to acquire surveillance and trading information when 
necessary from a foreign regulator via the Commission.'' \23\
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    \22\ The following agreements were at issue in the orders cited 
by MIAX: Memorandum of Understanding with the CVM, see Securities 
Exchange Act Release No. 40298 (August 3, 1998), 63 FR 43435 (August 
13, 1998) (SR-Amex-98-28; SR-CBOE-98-32; and SR-Phlx-98-33) (citing 
a separate agreement with the CVM than the agreement relied upon by 
MIAX in the iShares ETFs and Market Vectors ETFs Proposals); and 
Memorandum of Understanding with the Mexican National Commission for 
Banking and Securities dated as of October 18, 1990, see Securities 
Exchange Act Release Nos. 53824 (May 17, 2006), 71 FR 30003 (May 24, 
2006) (SR-Amex-2006-43), 56324 (August 27, 2007), 72 FR 50426 
(August 31, 2007) (SR-ISE-2007-72), 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), and 57014 
(December 20, 2007), 72 FR 73934 (December 28, 2007) (SR-ISE-2007-
111). See MIAX Letter, supra note 6, at 3 nn.7-9 and accompanying 
text. The Commission notes that these agreements are not at issue in 
the present proposed rule changes. MIAX also noted that it had 
previously filed another proposed rule change that was immediately 
effective using a similar approach to list options on shares of the 
iShares MSCI Mexico Index Fund. See Securities Exchange Act Release 
No. 72213 (May 21, 2014), 79 FR 30669 (May 28, 2014) (SR-MIAX-2014-
19). In that instance, the Exchange relied on an agreement between 
The National Commission for Banking and Securities and the 
Commission dated as of October 18, 1990. The Commission notes that 
the Commission had previously determined that this agreement could 
be used for surveillance purposes. See Securities Exchange Act 
Release No. 36415 (October 25, 1995), 60 FR 55620 (November 1, 1995) 
(SR-CBOE-95-45).
    \23\ See MIAX Letter, supra note 6 at 4.
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III. Discussion

    Under section 19(b)(2)(C) of the Act, the Commission shall approve 
a proposed rule change of a self-regulatory organization (``SRO'') if 
it finds that such proposed rule change is consistent with the 
requirements of the Act, and the rules and regulations thereunder that 
are applicable to such organization.\24\ The Commission shall 
disapprove a proposed rule change if it does not make such a 
finding.\25\
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    \24\ See 15 U.S.C. 78s(b)(2)(C)(i).
    \25\ See 15 U.S.C. 78s(b)(2)(C)(ii); see also 17 CFR 
201.700(b)(3) (``The burden to demonstrate that a proposed rule 
change is consistent with the Exchange Act and the rules and 
regulations issued thereunder . . . is on the self-regulatory 
organization that proposed the rule change. . . . A mere assertion 
that the proposed rule change is consistent with those requirements 
. . . is not sufficient.''). The description of a proposed rule 
change, its purpose and operation, its effect, and a legal analysis 
of its consistency with applicable requirements must all be 
sufficiently detailed and specific to support an affirmative 
Commission finding. See 17 CFR 201.700(b)(3). Any failure of a SRO 
to provide the information elicited by Form 19b-4 may result in the 
Commission not having a sufficient basis to make an affirmative 
finding that a proposed rule change is consistent with the Exchange 
Act and the rules and regulations issued thereunder that are 
applicable to the SRO. Id.
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    After careful consideration, the Commission does not find that the 
proposed rule changes are consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange.\26\ In particular, the Commission does not find 
that the proposed rule changes are consistent with Section 6(b)(5) of 
the Act, which requires that the rules of a national securities 
exchange be designed, among other things, ``to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest.'' \27\
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    \26\ In disapproving the proposed rule changes, the Commission 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \27\ 15 U.S.C. 78f(b)(5).
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    As noted by MIAX, the Commission has permitted an SRO to rely on an 
agreement between the Commission and the applicable foreign regulator 
in the absence of a CSSA only if the SRO receives an assurance from the 
Commission that such an agreement can be relied on for surveillance 
purposes and provides, at a minimum, for the exchange of transaction, 
clearing and customer information necessary to conduct an 
investigation.\28\ This assurance is necessary, because the Commission 
may enter into a variety of agreements with foreign regulators some of 
which may be unrelated to the sharing of surveillance information. 
After carefully and thoroughly reviewing the agreements cited by the 
Exchange in its proposals, the Commission is unable to provide the 
necessary assurance that such agreements can be relied on for 
surveillance purposes.\29\ Accordingly, the Commission cannot approve 
MIAX's request to allow the listing and trading of options on iShares 
ETFs and Market Vectors ETFs, upon reliance on agreements entered into 
between the Commission and the applicable foreign regulators in place 
of a CSSA, in satisfaction of the Exchange's Listing Standards.\30\ 
According to MIAX, such approval would be necessary to make the ETFs 
compliant with all of the applicable Listing Standards.\31\
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    \28\ See Securities Exchange Act Release No. 40761 (December 8, 
1998), 63 FR 70952, 70959 n.101 (December 22, 1998).
    \29\ The Commission also notes that the particular agreements 
referenced in MIAX's letter, which the Commission has previously 
allowed exchanges to rely on in lieu of a CSSA between an exchange 
and the applicable foreign market, are not at issue in the present 
proposed rule changes. See supra note 22.
    \30\ See iShares ETFs Proposal, supra note 3, and Market Vectors 
ETFs Proposal, supra note 8.
    \31\ Id.
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    The Commission notes that Rule 700(b)(3) of its Rules of Practice 
reiterates that ``[t]he burden to demonstrate that a proposed rule 
change is consistent with the Exchange Act . . . is on the self-
regulatory organization that proposed the rule change.'' \32\ For the 
reasons articulated above, the Commission does not believe that MIAX 
has met that burden in this case.
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    \32\ 17 CFR 201.700(b)(3).
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IV. Conclusion

    For the foregoing reasons, the Commission does not find that the 
proposed rule changes are consistent with the Act and the rules and 
regulations thereunder applicable to a national securities exchange, 
and, in particular, with Section 6(b)(5) of the Act.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule changes (SR-MIAX-2014-30 and SR-MIAX-2014-39) 
be, and hereby are, disapproved.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-03813 Filed 2-24-15; 8:45 am]
BILLING CODE 8011-01-P


