
[Federal Register Volume 82, Number 157 (Wednesday, August 16, 2017)]
[Notices]
[Pages 38942-38960]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-17272]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81371; File No. SR-MIAX-2017-39]


Self-Regulatory Organizations; Miami International Securities 
Exchange, LLC; Notice of Filing of a Proposed Rule Change To Adopt 
Rules Relating to Trading in Index Options

August 10, 2017.
    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 August 9, 2017, Miami International Securities 
Exchange, LLC (``MIAX Options'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'') a proposed rule 
change as described in Items I, II, and III 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 adopt rules relating to 
trading in index options.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.miaxoptions.com/rule-filings, 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 adopt rules to allow the Exchange to 
list and trade options on indices. The proposed rules include listing 
and maintenance criteria for options on underlying indices, rules on 
dissemination of index values, position and exercise limits for index 
options, exemptions from the limits, and terms of index options 
contracts. All of the proposed rules and changes to existing Exchange 
Rules are based on the existing rules of other options exchanges.\3\ 
The proposed rule change is intended to expand the Exchange's 
capability to introduce and trade both existing and new and innovative 
index products on the MIAX Options System.\4\
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    \3\ See Nasdaq ISE, LLC (``ISE'') Rules, Chapter 20, Index 
Rules; NASDAQ PHLX LLC (``Phlx'') Rules 1000A-1108A; and Chicago 
Board Options Exchange, Inc. (``CBOE'') Rules, Chapter XXIV, Index 
Options.
    \4\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
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    Because the rules related to trading options on indices are product 
specific in many areas, the Exchange will need to file additional 
proposed rule changes with the Commission when the Exchange identifies 
specific products. For purposes of this proposed rule

[[Page 38943]]

change, certain rules indicate that they apply to ``Specified'' 
indices. Proposed MIAX Options Rules 1800, 1801(n), 1804(a), 1807(a), 
1809, and 1811 all contain provisions that are dependent upon the 
Exchange identifying specific index products in the rule. Accordingly, 
MIAX Options Rule 1800 states that where the rules in Chapter XVIII 
indicate that particular indices or requirements with respect to 
particular indices will be ``Specified,'' MIAX Options will file a 
proposed rule change with the Commission pursuant to Section 19 of the 
Act \5\ and Rule 19b-4 \6\ thereunder to specify such indices or 
requirements. MIAX Options proposes to add new Chapter XVIII to the 
Exchange rules, together with conforming changes to certain existing 
MIAX Options rules.
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    \5\ 15 U.S.C. 78s.
    \6\ 17 CFR 240.19b-4.
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Proposed Index Rules
    The Exchange is proposing to adopt new Chapter XVIII, Index 
Options, in the MIAX Options Rules. Proposed Rule 1800, Application of 
Index Rules, states that the Rules in proposed Chapter XVIII are 
applicable only to index options (options on indices of securities as 
defined below). The Rules in current Chapters I through XVII are also 
applicable to the options provided for in proposed Chapter XVIII, 
unless such current Rules are specifically replaced or are supplemented 
by Rules in Chapter XVIII. Where the Rules in Chapter XVIII indicate 
that particular indices or requirements with respect to particular 
indices will be ``Specified,'' the Exchange shall file a proposed rule 
change with the Commission to specify such indices or requirements.
Definitions
    Proposed MIAX Options Rule 1801, Definitions, contains the 
necessary definitions for index options trading.\7\ Specifically, the 
following definitions will apply to index options on MIAX Options:
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    \7\ The proposed Rule is based on ISE Rule 2001.
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    (a) The term ``aggregate exercise price'' means the exercise price 
of the options contract times the index multiplier.
    (b) The term ``American-style index option'' means an option on an 
industry or market index that can be exercised on any business day 
prior to expiration, including the business day of expiration in the 
case of an option contract expiring on a business day.
    (c) The term ``A.M.-settled index option'' means an index options 
contract for which the current index value at expiration shall be 
determined as provided in Rule 1809(a)(5).\8\
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    \8\ The last day of trading for A.M.-settled index options shall 
be the business day preceding the business day of expiration, or, in 
the case of an option contract expiring on a day that is not a 
business day, the business day preceding the last day of trading in 
the underlying securities prior to the expiration date. The current 
index value at the expiration of an A.M.-settled index option shall 
be determined, for all purposes under these Rules and the Rules of 
the Clearing Corporation, on the last day of trading in the 
underlying securities prior to expiration, by reference to the 
reported level of such index as derived from first reported sale 
(opening) prices of the underlying securities on such day, except 
that: (i) In the event that the primary market for an underlying 
security does not open for trading on that day, the price of that 
security shall be determined, for the purposes of calculating the 
current index value at expiration, as set forth in Rule 1808(g), 
unless the current index value at expiration is fixed in accordance 
with the Rules and By-Laws of the Clearing Corporation; and (ii) in 
the event that the primary market for an underlying security is open 
for trading on that day, but that particular security does not open 
for trading on that day, the price of that security, for the 
purposes of calculating the current index value at expiration, shall 
be the last reported sale price of the security. See proposed Rule 
1809(a)(5).
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    (d) The term ``call'' means an options contract under which the 
holder of the option has the right, in accordance with the terms of the 
option, to purchase from the Clearing Corporation the current index 
value times the index multiplier.
    (e) The term ``current index value'' with respect to a particular 
index options contract means the level of the underlying index reported 
by the reporting authority for the index, or any multiple or fraction 
of such reported level specified by the Exchange. The current index 
value with respect to a reduced-value long term options contract is 
one-tenth of the current index value of the related index option. The 
``closing index value'' shall be the last index value reported on a 
business day.
    (f) The term ``exercise price'' means the specified price per unit 
at which the current index value may be purchased or sold upon the 
exercise of the option.
    (g) The term ``European-style index option'' means an option on an 
industry or market index that can be exercised only on the business day 
of expiration, or, in the case of an option contract expiring on a day 
that is not a business day, the last business day prior to the day it 
expires.
    (h) The term ``Foreign Currency Index'' means an index designed to 
track the performance of a basket of currencies, as provided in the 
table in MIAX Rule 1805A.
    (i) The term ``index multiplier'' means the amount specified in the 
contract by which the current index value is to be multiplied to arrive 
at the value required to be delivered to the holder of a call or by the 
holder of a put upon valid exercise of the contract.
    (j) The terms ``industry index'' and ``narrow-based index'' mean an 
index designed to be representative of a particular industry or a group 
of related industries or an index whose constituents are all 
headquartered within a single country.
    (k) The term ``market index'' and ``broad-based index'' mean an 
index designed to be representative of a stock market as a whole or of 
a range of companies in unrelated industries.
    (l) The term ``put'' means an options contract under which the 
holder of the option has the right, in accordance with the terms and 
provisions of the option, to sell to the Clearing Corporation the 
current index value times the index multiplier.
    (m) The term ``Quarterly Options Series'' means, for the purposes 
of Chapter XVIII, a series in an index options 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.
    (n) The term ``reporting authority'' with respect to a particular 
index means the institution or reporting service designated by the 
Exchange as the official source for (1) calculating the level of the 
index from the reported prices of the underlying securities that are 
the basis of the index and (2) reporting such level. The reporting 
authority for each index approved for options trading on the Exchange 
shall be Specified (as provided in Rule 1800) in a table in 
Interpretations and Policies .01 to this Rule 1801.
    (o) The term ``Short Term Option Series'' means, for the purposes 
of Chapter XVIII, a series in an index option class that is approved 
for listing and trading on the Exchange in which the series is opened 
for trading on any Thursday or Friday that is a business day and that 
expires on the Friday of the following business week that is a business 
day. If a Friday is not a business day, the series may be opened (or 
shall expire) on the first business day immediately prior to that 
Friday.
    (p) The term ``underlying security'' or ``underlying securities'' 
with respect to an index options contract means any of the securities 
that are the basis for the calculation of the index.
Listing Standards
    Proposed Rule 1802, Designation of an Index, contains the general 
listing standards for index options. Proposed Rule 1802(a) provides 
that the

[[Page 38944]]

component securities of an index underlying an index option contract 
need not meet the requirements of Rule 402.\9\ Except as set forth in 
subparagraph (b) and (d) (as described below), the listing of a class 
of index options requires the filing of a proposed rule change to be 
approved by the Commission.
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    \9\ Exchange Rule 402, Criteria for Underlying Securities, sets 
forth the criteria that must be met by underlying equity securities 
with respect to which put or call option contracts are approved for 
listing and trading on the Exchange.
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    Proposed Rule 1802(b) describes the initial listing standards for a 
narrow-based index to be traded on the Exchange. The term ``narrow 
based index'' means an index designed to be representative of a 
particular industry or a group of related industries or an index whose 
constituents are all headquartered within a single country. Pursuant to 
proposed Rule 1802(b), the Exchange may trade options on a narrow-based 
index pursuant to Rule 19b-4(e) of the Act,\10\ if each of the 
following conditions is satisfied:
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    \10\ 17 CFR 242.19b-4(e).
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    (1) The options are designated as A.M.-settled index options;
    (2) The index is capitalization-weighted, price-weighted, equal 
dollar-weighted, or modified capitalization-weighted, and consists of 
10 or more component securities;
    (3) Each component security has a market capitalization of at least 
$75 million, except that for each of the lowest weighted component 
securities in the index that in the aggregate account for no more than 
10 percent of the weight of the index, the market capitalization is at 
least $50 million;
    (4) Trading volume of each component security has been at least one 
million shares for each of the last six months, except that for each of 
the lowest weighted component securities in the index that in the 
aggregate account for no more than 10 percent of the weight of the 
index, trading volume has been at least 500,000 shares for each of the 
last six months;
    (5) In a capitalization-weighted index or a modified 
capitalization-weighted index, the lesser of the five highest weighted 
component securities in the index or the highest weighted component 
securities in the index that in the aggregate represent at least 30 
percent of the total number of component securities in the index each 
have had an average monthly trading volume of at least 2,000,000 shares 
over the past six months;
    (6) No single component security represents more than 30 percent of 
the weight of the index, and the five highest weighted component 
securities in the index do not in the aggregate account for more than 
50 percent (65 percent for an index consisting of fewer than 25 
component securities) of the weight of the index;
    (7) Component securities that account for at least 90 percent of 
the weight of the index and at least 80 percent of the total number of 
component securities in the index satisfy the requirements of Rule 402 
applicable to individual underlying securities;
    (8) Each component security must be an ``NMS stock'' as defined in 
Rule 600 of Regulation NMS under the Act; \11\
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    \11\ 17 CFR 242.11Aa3-1.
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    (9) Non-U.S. component securities (stocks or ADRs) that are not 
subject to comprehensive surveillance agreements do not in the 
aggregate represent more than 20 percent of the weight of the index;
    (10) The current index value is widely disseminated at least once 
every 15 seconds by OPRA, CTA/CQ, NIDS or one or more major market data 
vendors during the time the index options are traded on the Exchange;
    (11) An equal dollar-weighted index will be rebalanced at least 
once every calendar quarter; and
    (12) If an underlying index is maintained by a broker-dealer, the 
index is calculated by a third party who is not a broker-dealer, and 
the broker-dealer has erected an information barrier around its 
personnel who have access to information concerning changes in and 
adjustments to the index.
    The above initial listing standards are the same as the initial 
listing standards currently in place on other exchanges.\12\
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    \12\ See, e.g., Nasdaq ISE, LLC (``ISE'') Rule 2002(b); NASDAQ 
PHLX LLC (``Phlx'') Rule 1009A(b); and Chicago Board Options 
Exchange, Inc. (``CBOE'') Rule 24.2(b).
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    In addition to the initial listing standards, certain maintenance 
listing standards, listed below, apply to each class of index options 
originally listed pursuant to proposed Rule 1802(b).
    Specifically, proposed Rule 1802(c) provides that the requirements 
stated in proposed Rules 1802(b)(1), (3), (6), (7), (8), (9), (10), 
(11) and (12) (set forth above) must continue to be satisfied, provided 
that the requirements stated in proposed Rule 1802(b)(6) below 
(relating to broad-based indices) must be satisfied only as of the 
first day of January and July in each year.
    In addition to maintaining the initial criteria in the proposed 
sub-paragraphs listed above, proposed Rule 1802(c) states that, in 
order for an index to remain listed on the Exchange:
    (1) The total number of component securities in the index may not 
increase or decrease by more than 33\1/3\ percent from the number of 
component securities in the index at the time of its initial listing, 
and in no event may be less than nine component securities;
    (2) Trading volume of each component security in the index must be 
at least 500,000 shares for each of the last six months, except that 
for each of the lowest weighted component securities in the index that 
in the aggregate account for no more than 10 percent of the weight of 
the index, trading volume must be at least 400,000 shares for each of 
the last six months; and
    (3) In a capitalization-weighted index or a modified 
capitalization-weighted index, the lesser of the five highest weighted 
component securities in the index or the highest weighted component 
securities in the index that in the aggregate represent at least 30 
percent of the total number of stocks in the index each have had an 
average monthly trading volume of at least 1,000,000 shares over the 
past six months. In the event a class of index options listed on the 
Exchange fails to satisfy the maintenance listing standards set forth 
herein, the Exchange shall not open for trading any additional series 
of options of that class unless such failure is determined by the 
Exchange not to be significant and the SEC concurs in that 
determination, or unless the continued listing of that class of index 
options has been approved by the SEC under Section 19(b)(2) of the 
Act.\13\
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    \13\ 15 U.S.C. 78s(b)(2).
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    These maintenance listing standards are the same as the maintenance 
standards currently in place on other exchanges.\14\
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    \14\ See, e.g., ISE Rule 2002(c); Phlx Rule 1009A(c); and CBOE 
Rule 24.2(c).
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    Proposed Rule 1802(d) states that the Exchange may trade options on 
a broad-based index \15\ if each of the following conditions is 
satisfied:
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    \15\ The term ``market index'' and ``broad-based index'' mean an 
index designed to be representative of a stock market as a whole or 
of a range of companies in unrelated industries. See proposed Rule 
1801(k).
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    (1) The index is broad-based, as defined in Rule 1801(k);
    (2) Options on the index are designated as A.M.-settled;
    (3) The index is capitalization-weighted, modified capitalization-
weighted, price-weighted, or equal dollar-weighted;
    (4) The index consists of 50 or more component securities;
    (5) Component securities that account for at least ninety-five 
percent (95%) of the weight of the index have a market

[[Page 38945]]

capitalization of at least $75 million, except that component 
securities that account for at least sixty-five percent (65%) of the 
weight of the index have a market capitalization of at least $100 
million;
    (6) Component securities that account for at least eighty percent 
(80%) of the weight of the index satisfy the requirements of Rule 402 
applicable to individual underlying securities;
    (7) Each component security that accounts for at least one percent 
(1%) of the weight of the index has an average daily trading volume of 
at least 90,000 shares during the last six month period;
    (8) No single component security accounts for more than ten percent 
(10%) of the weight of the index, and the five highest weighted 
component securities in the index do not, in the aggregate, account for 
more than thirty-three percent (33%) of the weight of the index;
    (9) Each component security must be an ``NMS stock'' as defined in 
Rule 600 of Regulation NMS under the Act; \16\
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    \16\ 17 CFR 242.600.
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    (10) Non-U.S. component securities (stocks or ADRs) that are not 
subject to comprehensive surveillance agreements do not, in the 
aggregate, represent more than twenty percent (20%) of the weight of 
the index;
    (11) The current index value is widely disseminated at least once 
every fifteen (15) seconds by the Options Price Reporting Authority 
(``OPRA''), the Consolidated Tape Association (``CTA''), the Nasdaq 
Index Dissemination Service (``NIDS''), or one or more major market 
data vendors during the time options on the index are traded on the 
Exchange;
    (12) The Exchange reasonably believes it has adequate system 
capacity to support the trading of options on the index, based on a 
calculation of the Exchange's current ISCA allocation and the number of 
new messages per second expected to be generated by options on such 
index;
    (13) An equal dollar-weighted index is rebalanced at least once 
every calendar quarter;
    (14) If an index is maintained by a broker-dealer, the index is 
calculated by a third-party who is not a broker-dealer, and the broker-
dealer has erected an informational barrier around its personnel who 
have access to information concerning changes in, and adjustments to, 
the index;
    (15) The Exchange has written surveillance procedures in place with 
respect to surveillance of trading of options on the index.
    These initial listing standards are the same as the initial listing 
standards for broad-based indices currently in place on other 
exchanges.\17\
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    \17\ See, e.g., ISE Rule 2002(d); Phlx Rule 1009A(d); and CBOE 
Rule 24.2(f).
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    Proposed Rule 1802(e) sets forth the maintenance listing standards 
for broad-based indices. Specifically, the following maintenance 
listing standards shall apply to each class of index options originally 
listed pursuant to proposed Rule 1802(d).
    First, the requirements set forth in the proposed initial listing 
standards set forth in proposed Rules 1802(d)(1)-(d)(3), and proposed 
Rules 1802(d)(9)-(d)(15) must continue to be satisfied. The 
requirements set forth in proposed Rules 1802(d)(5)-(d)(8) must be 
satisfied only as of the first day of January and July in each year.
    Additionally, for broad-based indices, the total number of 
component securities in the index may not increase or decrease by more 
than ten percent (10%) from the number of component securities in the 
index at the time of its initial listing.
    Finally, proposed Rule 1802(e) states that, in the event a class of 
index options listed on the Exchange fails to satisfy the maintenance 
listing standards set forth in the proposed Rule, the Exchange shall 
not open for trading any additional series of options of that class 
unless the continued listing of that class of index options has been 
approved by the Commission under Section 19(b)(2) of the Act.\18\
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    \18\ 15 U.S.C. 78s(b)(2).
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    These maintenance listing standards are the same as the maintenance 
standards for broad-based indices that are currently in place on other 
exchanges.\19\
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    \19\ See, e.g., ISE Rule 2002(e); Phlx Rule 1009A(e); and CBOE 
Rule 24.2(g).
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    The Exchange believes that the requirements in the proposed listing 
standards regarding, among other things, the minimum market 
capitalization, trading volume, and relative weightings of an 
underlying index's component stocks are designed to ensure that the 
markets for the index's component stocks are adequately capitalized and 
sufficiently liquid, and that no one stock dominates the index. The 
Exchange believes that these requirements minimize the potential for 
manipulating the underlying index.
    The Exchange further believes that the requirement in proposed Rule 
1802(b)(10) (with respect to narrow-based index options) that the 
current underlying index value will be reported at least once every 15 
seconds during the time the index options are traded on the Exchange, 
and the requirement in proposed Rule 1802(d)(11) (with respect to 
broad-based index options) that the current index value be widely 
disseminated at least once every 15 seconds by the OPRA, CTA/CQ, NIDS 
or by one or more major market data vendors during the time an index 
option trades on MIAX Options should provide transparency with respect 
to current index values and contribute to the transparency of the 
market for index options. In addition, the Exchange believes that the 
requirement in proposed Rule 1802(d)(2) that an index option be A.M.-
settled, rather than on closing prices, should help to reduce the 
potential impact of expiring index options on the market for the 
index's component securities.
    Proposed Rule 1803, Dissemination of Information, requires the 
dissemination of index values as a condition to the trading of options 
on an index. The proposed Rule includes the requirement that the 
Exchange disseminate, or assure that the current index value is 
disseminated, after the close of business and from time-to-time on days 
on which transactions in index options are made on the Exchange. The 
proposed Rule also requires the Exchange to maintain, in files 
available to the public, information identifying the components whose 
prices are the basis for calculation of the index and the method used 
to determine the current index value.\20\
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    \20\ This proposed Rule is substantially similar to ISE Rule 
2003 and CBOE Rule 24.3.
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    The Exchange is proposing to adopt Rules 1804 through 1807 relating 
to position limits, exemptions from position limits, and exercise 
limits in index options. These proposed rules contain the standard 
position limit and exercise limits for Broad-Based, Industry (narrow-
based) and Foreign Currency index options, as well as exemption 
standards and the procedures for requesting exemptions from those 
proposed rules.\21\
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    \21\ These proposed Rules are based on ISE Rule 2006.
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    Proposed Rule 1804, Position Limits for Broad-Based Index Options, 
states that Exchange Rule 307 generally shall govern position limits 
for broad-based index options, as modified by proposed Rule 1804. 
Specifically, the proposed rule states that there may be no position 
limit for certain Specified (as provided in Rule 1800) \22\ broad-based 
index

[[Page 38946]]

options contracts. Except as otherwise indicated below, the position 
limit for a broad-based index option shall be 25,000 contracts on the 
same side of the market. Reduced-value options \23\ on broad-based 
security indexes for which full-value options have no position and 
exercise limits will similarly have no position and exercise limits. 
All other broad-based index options contracts shall be subject to a 
contract limitation fixed by the Exchange, which shall not be larger 
than the limits provided in the chart below.
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    \22\ Where the Rules in proposed Chapter XVIII indicate that 
particular indices or requirements with respect to particular 
indices will be ``Specified,'' the Exchange shall file a proposed 
rule change with the Commission to specify such indices or 
requirements. See proposed Rule 1800.
    \23\ See proposed Rule 1809(b)(2).

------------------------------------------------------------------------
                               Standard limit (on
Broad-based underlying index  the same side of the      Restrictions
                                     market)
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To be Specified.............  To be Specified.....  To be Specified
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    Proposed Rules 1804 (b) through (d) describe situations in which 
index option contracts will, or will not, be aggregated for purposes of 
establishing the number of contracts in a position. Specifically, 
proposed Rule 1804(b) states that that index options contracts shall 
not be aggregated with options contracts on any stocks whose prices are 
the basis for calculation of the index. Proposed Rule 1804(c) states 
that positions in reduced-value index options shall be aggregated with 
positions in full-value indices. For such purposes, ten reduced-value 
contracts shall equal one contract. Finally, proposed Rule 1804(d) 
states that positions in Short Term Option Series and Quarterly Options 
Series shall be aggregated with positions in options contracts on the 
same index.\24\
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    \24\ This is substantially similar to ISE Rule 2004 and CBOE 
Rule 24.4.
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    Proposed Rule 1805, Position Limits for Industry Index Options, 
states that Rule 307 generally shall govern position limits for 
industry index \25\ options, as modified by proposed Rule 1805.
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    \25\ For purposes of this proposed rule change and these 
proposed rules, the term ``industry index'' has the same meaning as 
the term ``narrow-based index.''
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    Proposed Rule 1805(a) sets forth position limits position limits 
for industry index options. These position limits, once established by 
the Exchange, must be reviewed and determined on a semi-annual basis, 
as described below.
    The specific position limits applicable to an industry index are:
    (i) 18,000 contracts if the Exchange determines, at the time of a 
review conducted as described below, that any single underlying stock 
accounted, on average, for thirty percent (30%) or more of the index 
value during the thirty (30)-day period immediately preceding the 
review; or
    (ii) 24,000 contracts if the Exchange determines, at the time of a 
review conducted as set forth below, that any single underlying stock 
accounted, on average, for twenty percent (20%) or more of the index 
value or that any five (5) underlying stocks together accounted, on 
average, for more than fifty percent (50%) of the index value, but that 
no single stock in the group accounted, on average, for thirty percent 
(30%) or more of the index value, during the thirty (30)-day period 
immediately preceding the review; or
    (iii) 31,500 contracts if the Exchange determines that the 
conditions specified above which would require the establishment of a 
lower limit have not occurred.
    Proposed Rule 1805(a)(2) requires the Exchange shall make the 
determinations of these specific position limits described above with 
respect to options on each industry index, first at the commencement of 
trading of such options on the Exchange and thereafter review the 
determination semi-annually on January 1 and July 1.
    Proposed Rule 1805(a)(3) describes the procedures to be taken by 
the Exchange at the time of each semi-annual review. Specifically, if 
the Exchange determines, at the time of the semi-annual review, that 
the position limit in effect with respect to options on a particular 
industry index is lower than the maximum position limit permitted by 
the criteria set forth in Rule 1805(a)(1), the Exchange may effect an 
appropriate position limit increase immediately.\26\
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    \26\ For example, if the conditions specified in proposed Rule 
1805(a)(ii) are determined to exist which would allow a position 
limit of 24,000 contracts and the current position limit for the 
option, based upon the previous review, has been established as 
18,000 contracts, the Exchange may effect a position limit increase 
to 24,000 contracts immediately.
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    Conversely, if the Exchange determines, at the time of a semi-
annual review, that the position limit in effect with respect to 
options on a particular industry index exceeds the maximum position 
limit permitted by the criteria set forth in proposed Rule 1805(a)(1), 
the Exchange shall reduce the position limit applicable to such options 
to a level consistent with such criteria. Such a reduction would not 
become effective until after the expiration date of the most distantly 
expiring options series relating to the industry index that is open for 
trading on the date of the review, and such a reduction shall not 
become effective if the Exchange determines, at the next semi-annual 
review, that the existing position limit applicable to such options is 
consistent with the criteria set forth in proposed Rule 1805(a)(1).\27\ 
The purpose of this provision is to protect investors with open 
positions as of the date of the review from inadvertently violating the 
new, reduced position limit. Additionally, an Exchange determination 
(prior to the effectiveness of the new, lower position limit due to 
remaining unexpired series) that the criteria permitting the higher 
position limit again exist obviates the need for the lower position 
limit and the lower position limit will not take effect.
---------------------------------------------------------------------------

    \27\ The proposed Rule is virtually identical to CBOE Rule 
24.4A.
---------------------------------------------------------------------------

    Proposed Rules 1805(b)-(d) describe situations in which industry 
index option contracts will, or will not, be aggregated for purposes of 
establishing the number of contracts in a position. Just as with broad-
based index options,\28\ proposed Rules 1805(b)-(d) state that index 
options contracts shall not be aggregated with options contracts on any 
stocks whose prices are the basis for calculation of the index. 
Positions in reduced-value index options shall be aggregated with 
positions in full-value index options. For such purposes, ten (10) 
reduced-value options shall equal one (1) full-value contract. 
Positions in Short Term Option Series and Quarterly Options Series 
shall be aggregated with positions in options contracts on the same 
index.
---------------------------------------------------------------------------

    \28\ See proposed Rules 1804(b)-(d).
---------------------------------------------------------------------------

    Proposed Rule 1805A, Position Limits for Foreign Currency Index 
Options, includes a table to be completed by the Exchange upon the 
Exchange's determination to list and trade options overlying a Foreign 
Currency Index (subject to the Commission's approval of a proposed rule 
change). Under the proposed rule, option contracts on a

[[Page 38947]]

Foreign Currency Index shall be subject to the position limits 
described in the table below.

------------------------------------------------------------------------
                               Standard limit (on
   Foreign currency index     the same side of the      Restrictions
                                     market)
------------------------------------------------------------------------
To be Specified.............  To be Specified.....  To be Specified
------------------------------------------------------------------------

    Proposed Rule 1806, Exemptions from Position Limits, describes the 
broad-based index hedge exemption, the industry index hedge exemption, 
the application on the Exchange of exemptions granted by other options 
exchanges, and the delta-based index hedge exemption.
    Proposed Rule 1806(a) describes the broad-based index hedge 
exemption. The broad-based index hedge exemption is in addition to the 
other exemptions available under Exchange Rules, Interpretations and 
Policies.\29\ The proposed rule sets forth the procedures and criteria 
which must be satisfied to qualify for a broad-based index hedge 
exemption.
---------------------------------------------------------------------------

    \29\ See, e.g., Exchange Rule 308.
---------------------------------------------------------------------------

    First, proposed Rule 1806(a)(1) states that the account in which 
the exempt options positions are held (``hedge exemption account'') 
must have received prior Exchange approval for the hedge exemption 
specifying the maximum number of contracts that may be exempt under the 
proposed Rule. The hedge exemption account must have provided all 
information required on Exchange-approved forms and must have kept such 
information current. Exchange approval may be granted on the basis of 
verbal representations, in which event the hedge exemption account 
shall within two business days, or such other time period designated by 
the Exchange, furnish the Exchange with appropriate forms and 
documentation substantiating the basis for the exemption. The hedge 
exemption account may apply from time to time for an increase in the 
maximum number of contracts exempt from the position limits.
    Proposed Rule 1806(a)(2) states that a hedge exemption account that 
is not carried by a Member must be carried by a member of a self-
regulatory organization participating in the Intermarket Surveillance 
Group (``ISG''), which is comprised of an international group of 
exchanges, market centers, and market regulators.\30\
---------------------------------------------------------------------------

    \30\ The purpose of the ISG is to provide a framework for the 
sharing of information and the coordination of regulatory efforts 
among exchanges trading securities and related products to address 
potential intermarket manipulations and trading abuses. The ISG 
plays a crucial role in information sharing among markets that trade 
securities, options on securities, security futures products, and 
futures and options on broad-based security indexes. A list 
identifying the current ISG members is available at https://www.isgportal.org/home.html.
---------------------------------------------------------------------------

    Proposed Rule 1806(a)(3) requires that the hedge exemption account 
maintain a qualified portfolio, or will effect transactions necessary 
to obtain a qualified portfolio concurrent with or at or about the same 
time as the execution of the exempt options positions, of:
    (i) A net long or short position in common stocks in at least four 
industry groups and contains at least twenty (20) stocks, none of which 
accounts for more than fifteen percent (15%) of the value of the 
portfolio or in securities readily convertible, and additionally in the 
case of convertible bonds economically convertible, into common stocks 
which would comprise a portfolio; or
    (ii) a net long or short position in index futures contracts or in 
options on index futures contracts, or long or short positions in index 
options or index warrants, for which the underlying index is included 
in the same margin or cross-margin product group cleared at the 
Clearing Corporation as the index options class to which the hedge 
exemption applies.
    To remain qualified, a portfolio must at all times meet these 
standards notwithstanding trading activity.
    Proposed Rule 1806(a)(4) contains the requirement that, in order to 
qualify for the broad-based exemption, the exemption must apply to 
positions in broad-based index options dealt in on the Exchange and is 
applicable to the unhedged value of the qualified portfolio. The 
unhedged value will be determined as follows:
    (i) The values of the net long or short positions of all qualifying 
products in the portfolio are totaled;
    (ii) for positions in excess of the standard limit, the underlying 
market value (A) of any economically equivalent opposite side of the 
market calls and puts in broad-based index options, and (B) of any 
opposite side of the market positions in stock index futures, options 
on stock index futures, and any economically equivalent opposite side 
of the market positions, assuming no other hedges for these contracts 
exist, is subtracted from the qualified portfolio; and
    (iii) the market value of the resulting unhedged portfolio is 
equated to the appropriate number of exempt contracts as follows: The 
unhedged qualified portfolio is divided by the correspondent closing 
index value and the quotient is then divided by the index multiplier or 
100.
    Proposed Rule 1806(a)(5) states that positions in broad-based index 
options that are traded on the Exchange are exempt from the standard 
limits to the extent specified in the table below.

------------------------------------------------------------------------
                                                           Broad-based
                                                           index hedge
             Broad-based index option type                exemption (in
                                                           addition to
                                                         standard limit)
------------------------------------------------------------------------
Broad-based indexes other than for those that do not             75,000
 have any position limits..............................
------------------------------------------------------------------------

    Proposed Rule 1806(a)(6) lists the types of transactions that are 
available for hedging. Specifically, only the following qualified 
hedging transactions and positions are eligible for purposes of hedging 
a qualified portfolio (i.e. stocks, futures, options and warrants) 
pursuant to the proposed Rule:
    (i) Long put(s) used to hedge the holdings of a qualified 
portfolio;
    (ii) Long call(s) used to hedge a short position in a qualified 
portfolio;
    (iii) Short call(s) used to hedge the holdings of a qualified 
portfolio; and
    (iv) Short put(s) used to hedge a short position in a qualified 
portfolio.
    Proposed Rule 1806(a)(6) then identifies the following strategies, 
which may be effected only in conjunction with a qualified stock 
portfolio for non-P.M. settled, European style index options only:
    (v) A short call position accompanied by long put(s), where the 
short call(s) expires with the long put(s), and the strike price of the 
short call(s) equals or exceeds the strike price of the long put(s) (a 
``collar''). Neither side of the collar transaction can be in-the-money 
at the time the position is established. For purposes of determining 
compliance with Rule 306 and proposed Rule 1806, a collar position will 
be treated as one contract;
    (vi) A long put position coupled with a short put position 
overlying the same broad-based index and having an

[[Page 38948]]

equivalent underlying aggregate index value, where the short put(s) 
expires with the long put(s), and the strike price of the long put(s) 
exceeds the strike price of the short put(s) (a ``debit put spread 
position''); and
    (vii) A short call position accompanied by a debit put spread 
position, where the short call(s) expires with the puts and the strike 
price of the short call(s) equals or exceeds the strike price of the 
long put(s). Neither side of the short call, long put transaction can 
be in-the-money at the time the position is established. For purposes 
of determining compliance with Rule 307 and this Rule 1806, the short 
call and long put positions will be treated as one contract.
    Proposed Rule 1806(a)(7) describes certain permitted and prohibited 
activities for hedge exemption accounts. Specifically, the proposed 
Rule states that the hedge exemption account shall:
    (i) Liquidate and establish options, stock positions, their 
equivalent or other qualified portfolio products in an orderly fashion; 
not initiate or liquidate positions in a manner calculated to cause 
unreasonable price fluctuations or unwarranted price changes; and not 
initiate or liquidate a stock position or its equivalent with an 
equivalent index options position with a view toward taking advantage 
of any differential in price between a group of securities and an 
overlying stock index option;
    (ii) liquidate any options prior to or contemporaneously with a 
decrease in the hedged value of the qualified portfolio which options 
would thereby be rendered excessive; and
    (iii) promptly notify the Exchange of any material change in the 
qualified portfolio which materially affects the unhedged value of the 
qualified portfolio.
    Proposed Rules 1806(a)(8)-(12) contain several regulatory 
requirements for hedge exemption accounts. Specifically, the proposed 
Rules state that if an exemption is granted, it will be effective at 
the time the decision is communicated. Retroactive exemptions will not 
be granted. The proposed Rules also require that the hedge exemption 
account shall promptly provide to the Exchange any information 
requested concerning the qualified portfolio. Positions included in a 
qualified portfolio that serve to secure an index hedge exemption may 
not also be used to secure any other position limit exemption granted 
by the Exchange or any other self- regulatory organization or futures 
contract market. Any Member that maintains a broad-based index options 
position in such Member's own account or in a customer account, and has 
reason to believe that such position is in excess of the applicable 
limit, shall promptly take the action necessary to bring the position 
into compliance. Failure to abide by this provision shall be deemed to 
be a violation of Rules 307 and this Rule 1806 by the Member. Finally, 
violation of any of the provisions of the proposed Rule, absent 
reasonable justification or excuse, shall result in withdrawal of the 
index hedge exemption and may form the basis for subsequent denial of 
an application for an index hedge exemption.
    Proposed Rule 1806(b) describes the Industry Index Hedge Exemption. 
The industry (narrow-based) index hedge exemption is in addition to the 
other exemptions available under Exchange Rules, Interpretations and 
Policies, and may not exceed twice the standard limit established under 
Rule 1805. Industry index options positions may be exempt from 
established position limits for each options contract ``hedged'' by an 
equivalent dollar amount of the underlying component securities or 
securities convertible into such components; provided that, in applying 
such hedge, each options position to be exempted is hedged by a 
position in at least seventy-five percent (75%) of the number of 
component securities underlying the index. In addition, the underlying 
value of the options position may not exceed the value of the 
underlying portfolio. The value of the underlying portfolio is: (1) The 
total market value of the net stock position; and (2) for positions in 
excess of the standard limit, subtract the underlying market value of: 
(i) Any offsetting calls and puts in the respective index option; (ii) 
any offsetting positions in related stock index futures or options; and 
(iii) any economically equivalent positions (assuming no other hedges 
for these contracts exist). The following procedures and criteria must 
be satisfied to qualify for an industry index hedge exemption:
    (1) The hedge exemption account must have received prior Exchange 
approval for the hedge exemption specifying the maximum number of 
contracts that may be exempt under this Interpretation. The hedge 
exemption account must have provided all information required on 
Exchange-approved forms and must have kept such information current. 
Exchange approval may be granted on the basis of verbal 
representations, in which event the hedge exemption account shall 
within two business days, or such other time period designated by the 
Exchange, furnish the Exchange with appropriate forms and documentation 
substantiating the basis for the exemption. The hedge exemption account 
may apply from time to time for an increase in the maximum number of 
contracts exempt from the position limits.
    (2) A hedge exemption account that is not carried by a Member must 
be carried by a member of a self-regulatory organization participating 
in the Intermarket Surveillance Group.
    (3) The hedge exemption account shall liquidate and establish 
options, stock positions, or economically equivalent positions in an 
orderly fashion; shall not initiate or liquidate positions in a manner 
calculated to cause unreasonable price fluctuations or unwarranted 
price changes; and shall not initiate or liquidate a stock position or 
its equivalent with an equivalent index options position with a view 
toward taking advantage of any differential in price between a group of 
securities and an overlying stock index option. The hedge exemption 
account shall liquidate any options prior to or contemporaneously with 
a decrease in the hedged value of the portfolio which options would 
thereby be rendered excessive. The hedge exemption account shall 
promptly notify the Exchange of any change in the portfolio which 
materially affects the unhedged value of the portfolio.
    (4) If an exemption is granted, it will be effective at the time 
the decision is communicated. Retroactive exemptions will not be 
granted.
    (5) The hedge exemption account shall promptly provide to the 
Exchange any information requested concerning the portfolio.
    (6) Positions included in a portfolio that serve to secure an index 
hedge exemption may not also be used to secure any other position limit 
exemption granted by the Exchange or any other self-regulatory 
organization or futures contract market.
    (7) Any Member that maintains an industry index options position in 
such Member's own account or in a customer account, and has reason to 
believe that such position is in excess of the applicable limit, shall 
promptly take the action necessary to bring the position into 
compliance. Failure to abide by this provision shall be deemed to be a 
violation of Rule 307 and proposed Rule 1806 by the Member.
    (8) Violation of any of the provisions of proposed Rule 1806, 
absent reasonable justification or excuse, shall result in withdrawal 
of the index hedge exemption and may form the basis for subsequent 
denial of an application for an index hedge exemption hereunder.
    Proposed Rule 1806(c) Exemptions Granted by Other Options 
Exchanges, states that a Member may rely upon any

[[Page 38949]]

available exemptions from applicable position limits granted from time 
to time by another options exchange for any options contract traded on 
the Exchange provided that such Member:
    (1) Provides the Exchange with a copy of any written exemption 
issued by another options exchange or a written description of any 
exemption issued by another options exchange other than in writing 
containing sufficient detail for Exchange regulatory staff to verify 
the validity of that exemption with the issuing options exchange, and
    (2) fulfills all conditions precedent for such exemption and 
complies at all times with the requirements of such exemption with 
respect to the Member's trading on the Exchange.
    Proposed Rule 1806(d), Delta-Based Index Hedge Exemption, describes 
the Delta-Based Index Hedge Exemption as in addition to the standard 
limit and other exemptions available under Exchange rules. The proposed 
rule states that an index option position of a Member or non-Member 
affiliate of a Member that is delta neutral shall be exempt from 
established position limits as prescribed under Rules 1804 and 1805, 
subject to the following:
    (1) The term ``delta neutral'' refers to an index option position 
that is hedged, in accordance with a permitted pricing model, by a 
position in one or more correlated instruments, for the purpose of 
offsetting the risk that the value of the option position will change 
with incremental changes in the value of the underlying index. The term 
``correlated instruments'' means securities and/or other instruments 
that track the performance of or are based on the same underlying index 
as the index underlying the option position (but not including baskets 
of securities).
    (2) An index option position that is not delta neutral shall be 
subject to position limits in accordance with proposed Rules 1804 and 
1805 (subject to the availability of other position limit exemptions). 
Only the options contract equivalent of the net delta of such position 
shall be subject to the appropriate position limit. The ``options 
contract equivalent of the net delta'' is the net delta divided by 
units of trade that equate to one option contract on a delta basis. The 
term ``net delta'' means, at any time, the number of shares and/or 
other units of trade (either long or short) required to offset the risk 
that the value of an index option position will change with incremental 
changes in the value of the underlying index, as determined in 
accordance with a permitted pricing model.
    (3) A ``permitted pricing model'' shall have the meaning as defined 
in Rule 308(a)(7)(iii).\31\
---------------------------------------------------------------------------

    \31\ A ``permitted pricing model'' means: (A) A pricing model 
maintained and operated by the Clearing Corporation (``OCC Model''); 
(B) A pricing model maintained and used by a Member subject to 
consolidated supervision by the SEC pursuant to Appendix E of SEC 
Rule 15c3-1, or by an affiliate that is part of such Member's 
consolidated supervised holding company group, in accordance with 
its internal risk management control system and consistent with the 
requirements of Appendices E or G, as applicable, to SEC Rule 15c3-1 
and SEC Rule 15c3-4 under the Exchange Act, as amended from time to 
time, in connection with the calculation of risk-based deductions 
from capital or capital allowances for market risk thereunder, 
provided that the Member or affiliate of a Member relying on this 
exemption in connection with the use of such model is an entity that 
is part of such Member's consolidated supervised holding company 
group; (C) A pricing model maintained and used by a financial 
holding company or a company treated as a financial holding company 
under the Bank Holding Company Act of 1956, or by an affiliate that 
is part of either such company's consolidated supervised holding 
company group, in accordance with its internal risk management 
control system and consistent with: 1. The requirements of the Board 
of Governors of the Federal Reserve System, as amended from time to 
time, in connection with the calculation of risk based adjustments 
to capital for market risk under capital requirements of the Board 
of Governors of the Federal Reserve System, provided that the Member 
or affiliate of a Member relying on this exemption in connection 
with the use of such model is an entity that is part of such 
company's consolidated supervised holding company group; or 2. the 
standards published by the Basel Committee on Banking Supervision, 
as amended from time to time and as implemented by such company's 
principal regulator, in connection with the calculation of risk-
based deductions or adjustments to or allowances for the market risk 
capital requirements of such principal regulator applicable to such 
company--where ``principal regulator'' means a member of the Basel 
Committee on Banking Supervision that is the home country 
consolidated supervisor of such company--provided that the Member or 
affiliate of a Member relying on this exemption in connection with 
the use of such model is an entity that is part of such company's 
consolidated supervised holding company group. (D) A pricing model 
maintained and used by an OTC derivatives dealer registered with the 
SEC pursuant to SEC Rule 15c3-1(a)(5) in accordance with its 
internal risk management control system and consistent with the 
requirements of Appendix F to SEC Rule 15c3-1 and SEC Rule 15c3-4 
under the Exchange Act, as amended from time to time, in connection 
with the calculation of risk-based deductions from capital for 
market risk thereunder, provided that only such OTC derivatives 
dealer and no other affiliated entity (including a Member) may rely 
on this subparagraph (D); or (E) A pricing model used by a national 
bank under the National Bank Act maintained and used in accordance 
with its internal risk management control system and consistent with 
the requirements of the Office of the Comptroller of the Currency, 
as amended from time to time, in connection with the calculation of 
risk based adjustments to capital for market risk under capital 
requirements of the Office of the Comptroller of the Currency, 
provided that only such national bank and no other affiliated entity 
(including a Member) may rely on this subparagraph (E).
---------------------------------------------------------------------------

    Proposed Rule 1806(d)(4), Effect on Aggregation of Accounts, states 
that (i) Members and non-Member affiliates who rely on this exemption 
must ensure that the permitted pricing model is applied to all 
positions in correlated instruments that are owned or controlled by 
such Member or non-Member affiliate.
    Notwithstanding subparagraph (i), above, the net delta of an option 
position held by an entity entitled to rely on this exemption, or by a 
separate and distinct trading unit of such entity, may be calculated 
without regard to positions in correlated instruments held by an 
affiliated entity or by another trading unit within the same entity, 
provided that:
    (A) The entity demonstrates to the Exchange's satisfaction that no 
control relationship, as defined in Rule 307(f), exists between such 
affiliates or trading units; and
    (B) the entity has provided (by the Member carrying the account as 
applicable) the Exchange written notice in advance that it intends to 
be considered separate and distinct from any affiliate or, as 
applicable, which trading units within the entity are to be considered 
separate and distinct from each other for purposes of this exemption.
    Proposed Rule 1806(d)(4)(iii) states that, notwithstanding 
subparagraphs (i) and (ii) of proposed Rule 1806(d)(4)(i) and (ii), a 
Member or non-Member affiliate who relies on this exemption shall 
designate, by prior written notice to the Exchange (to be obtained and 
provided by the Member carrying the account as applicable), each 
trading unit or entity whose option positions are required under 
Exchange Rules to be aggregated with the option positions of such 
Member or non-Member affiliate that is relying on this exemption for 
purposes of compliance with Exchange position limits or exercise 
limits. In any such case: (A) The permitted pricing model shall be 
applied, for purposes of calculating such Member's or affiliate's net 
delta, only to the positions in correlated instruments owned and 
controlled by those entities and trading units who are relying on this 
exemption; and (B) the net delta of the positions owned or controlled 
by the entities and trading units who are relying on this exemption 
shall be aggregated with the non-exempt option positions of all other 
entities and trading units whose options positions are required under 
Exchange Rules to be aggregated with the option positions of such 
Member or affiliate.
    Proposed Rule 1806(d)(5) describes the obligations of Members 
seeking the Delta Hedge Exemption. First, a Member that relies on this 
exemption for a proprietary index options position: (A) Must provide a 
written certification to

[[Page 38950]]

the Exchange that it is using a permitted pricing model as defined 
above, and (B) by such reliance authorizes any other person carrying 
for such Member an account including, or with whom such Member has 
entered into, a position in a correlated instrument to provide to the 
Exchange or the Clearing Corporation such information regarding such 
account or position as the Exchange or Clearing Corporation may request 
as part of the Exchange's confirmation or verification of the accuracy 
of any net delta calculation under this exemption. The index option 
positions of a non-Member relying on this exemption must be carried by 
a Member with which it is affiliated.
    Proposed Rule 1806(d)(5)(iii) requires that a Member carrying an 
account that includes an index option position for a non-Member 
affiliate that intends to rely on the Delta-Based Hedge Exemption must 
obtain from such non-Member affiliate and must provide to the Exchange: 
(A) A written certification to the Exchange that the non-Member 
affiliate is using a permitted pricing model as described above; and 
(B) a written statement confirming that such non-Member affiliate: (1) 
Is relying on this exemption; (2) will use only a permitted pricing 
model for purposes of calculating the net delta of its option positions 
for purposes of this exemption; (3) will promptly notify the Member if 
it ceases to rely on this exemption; (4) authorizes the Member to 
provide to the Exchange or the Clearing Corporation such information 
regarding positions of the non-Member affiliate as the Exchange or 
Clearing Corporation may request as part of the Exchange's confirmation 
or verification of the accuracy of any net delta calculation under this 
exemption; and (5) if the non-Member affiliate is using the Clearing 
Corporation Model, has duly executed and delivered to the Member such 
documents as the Exchange may require to be executed and delivered to 
the Exchange as a condition to reliance on the exemption.
    Proposed Rule 1806(d)(6) requires each Member (other than an 
Exchange market maker using the Clearing Corporation Model) that holds 
or carries an account that relies on the Delta-Based Hedge Exemption 
shall report, in accordance with Exchange Rule 310,\32\ all index 
option positions (including those that are delta neutral) that are 
reportable thereunder. Each such Member on its own behalf or on behalf 
of a designated aggregation unit pursuant to Rule 1806(d)(4) shall also 
report, in accordance with Exchange Rule 310 for each such account that 
holds an index option position subject to the Delta-Based Hedge 
Exemption in excess of the levels specified in Rules 1804 and 1805, the 
net delta and the options contract equivalent of the net delta of such 
position.
---------------------------------------------------------------------------

    \32\ Each Member is required under Exchange Rule 310, Reports 
Related to Position Limits, to file with the Exchange the name, 
address and social security or tax identification number of any 
customer, as well as any Member, any general or special partner of 
the Member, any officer or director of the Member or any 
participant, as such, in any joint, group or syndicate account with 
the Member or with any partner, officer or director thereof, who, on 
the previous business day held aggregate long or short positions of 
200 or more option contracts of any single class of options traded 
on the Exchange. The report shall indicate for each such class of 
option contracts the number of option contracts comprising each such 
position and, in case of short positions, whether covered or 
uncovered. (b) Electronic Exchange Members that maintain an end of 
day position in excess of 10,000 non-FLEX equity option contracts on 
the same side of the market on behalf of its own account or for the 
account of a customer, shall report whether such position is hedged 
and provide documentation as to how such position is hedged. This 
report is required at the time the subject account exceeds the 
10,000 contract threshold and thereafter, for customer accounts, 
when the position increases by 2,500 contracts and for proprietary 
accounts when the position increases by 5,000 contracts. (c) In 
addition to the reports required by paragraph (a) and (b) of this 
Rule, each Member shall report promptly to the Exchange any instance 
in which the Member has reason to believe that a person included in 
paragraph (a), acting alone or in concert with others, has exceeded 
or is attempting to exceed the position limits established pursuant 
to Rule 307. Interpretations and Policies: .01 For purposes of 
calculating the aggregate long or short position under paragraph (a) 
above, Members shall combine (i) long positions in put options with 
short positions in call options, and (ii) short positions in put 
options with long positions in call options. See Exchange Rule 310.
---------------------------------------------------------------------------

    Finally, proposed Rule 1806(d)(7) requires that each Member relying 
on the Delta-Based Hedge Exemption shall: (i) Retain, and undertake 
reasonable efforts to ensure that any non-Member affiliate of the 
Member relying on this exemption retains, a list of the options, 
securities and other instruments underlying each option position net 
delta calculation reported to the Exchange hereunder, and (ii) produce 
such information to the Exchange upon request.
    The proposed Rules relating to position limits and exemptions from 
position limits are based on, and substantially similar to, rules that 
are currently in place on other exchanges.\33\
---------------------------------------------------------------------------

    \33\ See, e.g., ISE Rule 2006; CBOE Rule 24.4, Interpretations 
and Policies .01, .05, and Rule 24.4A; and Phlx Rule 1001A and 
Interpretations and Policies .01-.04 thereto.
---------------------------------------------------------------------------

    Proposed MIAX Options Rule 1808, Trading Sessions, provides that 
index options will trade between the hours of 9:30 a.m. and 4:15 p.m. 
Eastern time, the same as on other exchanges. The proposed rule also 
contains procedures for trading rotations, as well as trading halts and 
suspensions.
    Specifically, proposed Rule 1808(a) states that, except as 
otherwise provided in this Rule or under unusual conditions as may be 
determined by the Exchange, (i) transactions in index options may be 
effected on the Exchange between the hours of 9:30 a.m. and 4:15 p.m. 
Eastern time, and (ii) transactions in options on a Foreign Currency 
Index may be effected on the Exchange between the hours of 7:30 a.m. 
and 4:15 p.m. Eastern time. With respect to options on foreign indexes, 
the Exchange shall determine the days and hours of business. The 
proposed Rule and the various enumerated times are consistent with 
rules in place on other exchanges.\34\
---------------------------------------------------------------------------

    \34\ See ISE Rule 2008; CBOE Rule 24.6, and Phlx Rule 101.
---------------------------------------------------------------------------

    Proposed Rule 1808(b), Trading Rotations, states that, except as 
otherwise provided in the proposed Rule, the opening process for index 
options shall be governed by Rule 503.\35\ The opening rotation for 
index options shall be held at or as soon as practicable after 9:30 
a.m. Eastern time. The Exchange may delay the commencement of the 
opening rotation in an index option whenever in the judgment of the 
Exchange such action is appropriate in the interests of a fair and 
orderly market. Among the factors that may be considered in making 
these determinations are: (1) Unusual conditions or circumstances in 
other markets; (2) an influx of orders that has adversely affected the 
ability of the Primary Lead Market Maker to provide and to maintain 
fair and orderly markets; (3) activation of opening price limits in 
stock index futures on one or more futures exchanges; (4) activation of 
daily price limits in stock index futures on one or more futures 
exchanges; (5) the extent to which either there has been a delay in 
opening or trading is not occurring in stocks underlying the index; and 
(6) circumstances such as those which would result in the declaration 
of a fast market under Rule 506(d).
---------------------------------------------------------------------------

    \35\ See Exchange Rule 503. Openings on the Exchange, governs 
the opening of trading on the Exchange with respect to, among other 
things, the Pre-Opening Phase, possible opening imbalances and 
establishment of an opening price with or without opening orders. 
These and other provisions will apply to openings in index options.
---------------------------------------------------------------------------

    Proposed Rule 1808(c) describes circumstances and procedures 
relating to halts and suspensions in index options. Specifically, 
trading on the Exchange in any index option shall be halted or 
suspended whenever trading in underlying securities whose weighted

[[Page 38951]]

value represents more than twenty percent (20%), in the case of a broad 
based index, and ten percent (10%) for all other indices, of the index 
value is halted or suspended. The Exchange also may halt trading in an 
index option, including in options on a Foreign Currency Index, when, 
in its judgment, such action is appropriate in the interests of a fair 
and orderly market and to protect investors. Among the facts that may 
be considered are the following:
    (1) Whether all trading has been halted or suspended in the market 
that is the primary market for a plurality of the underlying stocks, or 
in the case of a Foreign Currency Index, in the underlying foreign 
currency market;
    (2) whether the current calculation of the index derived from the 
current market prices of the stocks is not available, or in the case of 
a Foreign Currency Index, the current prices of the underlying foreign 
currency is not available;
    (3) the extent to which the rotation has been completed or other 
factors regarding the status of the rotation; and
    (4) other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present, including, but 
not limited to, the activation of price limits on futures exchanges.
    Proposed Rule 1808(d) describes the resumption of trading following 
a halt or suspension in an index option. Trading in options of a class 
or series that has been the subject of a halt or suspension by the 
Exchange may resume if the Exchange determines that the interests of a 
fair and orderly market are served by a resumption of trading. Among 
the factors to be considered in making this determination are whether 
the conditions that led to the halt or suspension are no longer 
present, and the extent to which trading is occurring in stocks or 
currencies underlying an index. Upon reopening, a rotation shall be 
held in each class of index options unless the Exchange concludes that 
a different method of reopening is appropriate under the circumstances, 
including but not limited to, no rotation, an abbreviated rotation or 
any other variation in the manner of the rotation.
    Proposed Rule 1808(e) states that Rule 504, Interpretations and 
Policies .03 applies to index options trading with respect to the 
initiation of a market wide trading halt commonly known as a ``circuit 
breaker.'' \36\
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    \36\ The Exchange shall halt trading in all securities whenever 
a market-wide trading halt commonly known as a circuit breaker is 
initiated on the New York Stock Exchange in response to 
extraordinary market conditions. See Exchange Rule 504, 
Interpretations and Policies .03. Rule 530(e) provides that the 
Exchange shall halt trading in all options whenever the equities 
markets initiate a market-wide trading halt commonly known as a 
circuit breaker in response to extraordinary market conditions.
---------------------------------------------------------------------------

    Proposed Rule 1808(f) addresses the hours for trading foreign 
currency options. Specifically, when the hours of trading of the 
underlying primary securities market for an index option do not overlap 
or coincide with those of the Exchange, all of the provisions as 
described in paragraphs (c), (d) and (e) above shall not apply except 
for (c)(4).
    Proposed Rule 1808(g) governs the situation where the primary 
market for a security underlying the current index value of an index 
option does not open for trading on a given day. In such a 
circumstance, the price of that security shall be determined, for the 
purposes of calculating the current index value at expiration, based on 
the opening price of that security on the next day that its primary 
market is open for trading. This procedure shall not be used if the 
current index value at expiration is fixed in accordance with the Rules 
and By-Laws of the Clearing Corporation.
    The proposed rules governing trading sessions, including trading 
rotations, halts and suspensions, resumption of trading following a 
halt or suspension, circuit breakers, special provisions for foreign 
indices, and pricing when the primary market does not open are based 
on, and substantially similar to, the rules in place on other 
exchanges.\37\
---------------------------------------------------------------------------

    \37\ See, e.g., ISE Rule 2008; CBOE Rule 24.7; and Phlx Rule 
1047A.
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    Proposed MIAX Options Rule 1809, Terms of Index Options Contracts, 
outlines the terms of index options contracts in terms of the meaning 
of premium bids and offers; exercise prices; expiration months and the 
trading of European Style Index options.\38\ The proposed Rule also 
applies to A.M. Settled Index Options, and Long-Term Option Series 
(including Reduced-Value Long Term Options Series), which would also 
require a filing with the Commission for the specific index option(s) 
to which the proposed rule is applicable.
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    \38\ The Exchange would be required under proposed Rule 1800 to 
file a proposed rule change with the Commission to specify such 
indices and any requirements that apply.
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    Proposed Rule 1809(a) contains general provisions applicable to the 
trading of index options on the Exchange. Specifically, the proposed 
Rule states generally that bids and offers shall be expressed in terms 
of dollars and cents per unit of the index. The Exchange shall 
determine fixed-point intervals of exercise prices for call and put 
options. With respect to expirations, proposed Rule 1809(a)(3) states 
that index options contracts, including option contracts on a Foreign 
Currency Index, may expire at three (3)-month intervals or in 
consecutive months. The Exchange may list up to six (6) expiration 
months at any one time, but will not list index options that expire 
more than twelve (12) months out. Notwithstanding the preceding 
restriction, the Exchange may list up to seven expiration months at any 
one time for any broad-based security index option contracts on which 
any exchange calculates a constant three-month volatility index.
    Proposed Rule 1809(a)(4) permits the Exchange to list and trade 
certain European-style index options to be Specified by the Exchange, 
some of which may be A.M.-settled as provided in paragraph (a)(5). The 
Exchange will file a proposed rule change and any such listing and 
trading is subject to the approval of the Commission.
    Proposed Rule 1809(a)(5) governs A.M.-Settled Index Options. The 
last day of trading for A.M.-settled index options shall be the 
business day preceding the business day of expiration, or, in the case 
of an option contract expiring on a day that is not a business day, the 
business day preceding the last day of trading in the underlying 
securities prior to the expiration date. The current index value at the 
expiration of an A.M.-settled index option shall be determined, for all 
purposes under these proposed Rules and the Rules of the Clearing 
Corporation, on the last day of trading in the underlying securities 
prior to expiration, by reference to the reported level of such index 
as derived from first reported sale (opening) prices of the underlying 
securities on such day, except that:
    (i) In the event that the primary market for an underlying security 
does not open for trading on that day, the price of that security shall 
be determined, for the purposes of calculating the current index value 
at expiration, as set forth in Rule 1808(g), unless the current index 
value at expiration is fixed in accordance with the Rules and By-Laws 
of the Clearing Corporation; and
    (ii) In the event that the primary market for an underlying 
security is open for trading on that day, but that particular security 
does not open for trading on that day, the price of that security, for 
the purposes of calculating the current index value at expiration, 
shall be the last reported sale price of the security.

[[Page 38952]]

    Proposed Rule 1809(a)(5)(ii) permits the Exchange to list specific 
A.M.-settled index options that are approved for trading on the 
Exchange, subject to the filing of a proposed rule change and the 
approval of the Commission.
    Proposed Rule 1809(b)(1) permits the Exchange, notwithstanding the 
permitted expiration months set forth in proposed Rule 1809(a)(3) (as 
described above), to list long-term index options series that expire 
from twelve (12) to sixty (60) months from the date of issuance. Under 
the proposal, long term index options series may be based on either the 
full or reduced value of the underlying index. There may be up to ten 
(10) expiration months, none further out than sixty (60) months. Strike 
price interval, bid/ask differential and continuity Rules shall not 
apply to such options series until the time to expiration is less than 
twelve (12) months. When a new long term index options series is 
listed, such series will be opened for trading either when there is 
buying or selling interest, or forty (40) minutes prior to the close, 
whichever occurs first. No quotations will be posted for such options 
until they are opened for trading.
    Proposed Rule 1809(b)(2) governs the trading of reduced-value long 
term options series.\39\ Proposed Rule 1809(b)(2)(i) permits the 
Exchange to list the specific reduced-Value long term options series 
traded on the Exchange (subject to an Exchange filing and Commission 
approval). Reduced-value long term options series may expire at six-
month intervals. When a new expiration month is listed, series may be 
near or bracketing the current index value. Additional series may be 
added when the value of the underlying index increases or decreases by 
ten (10) to fifteen (15) percent.
---------------------------------------------------------------------------

    \39\ A reduced-value options series is an option series 
overlying an index that trades in units based upon a percentage of 
the value of the underlying index, for example, ten percent of the 
value of the index.
---------------------------------------------------------------------------

    Proposed Rule 1809(c) sets forth the procedures for adding and 
deleting strike prices. The procedures for adding and deleting strike 
prices for index options are provided in Exchange Rule 404, as amended 
by the following:
    (1) The interval between strike prices will be no less than $5.00; 
provided that in the case of certain classes of index options, the 
interval between strike prices will be no less than $2.50 and such must 
be listed specifically in the Rule.
    (2) New series of index options contracts may be added up to, but 
not on or after, the fourth business day prior to expiration for an 
option contract expiring on a business day, or, in the case of an 
option contract expiring on a day that is not a business day, the fifth 
business day prior to expiration.
    (3) When new series of index options with a new expiration date are 
opened for trading, or when additional series of index options in an 
existing expiration date are opened for trading as the current value of 
the underlying index to which such series relate moves substantially 
from the exercise prices of series already opened, the exercise prices 
of such new or additional series shall be reasonably related to the 
current value of the underlying index at the time such series are first 
opened for trading. In the case of all classes of index options, the 
term ``reasonably related to the current value of the underlying 
index'' shall have the meaning set forth in proposed Rule 1809(c)(4), 
described below.
    (4) Proposed Rule 1809(c)(4) states that, notwithstanding any other 
provision of proposed Rule 1809(c), the Exchange may open for trading 
additional series of the same class of index options as the current 
index value of the underlying index moves substantially from the 
exercise price of those index options that already have been opened for 
trading on the Exchange. The exercise price of each series of index 
options opened for trading on the Exchange shall be reasonably related 
to the current index value of the underlying index to which such series 
relates at or about the time such series of options is first opened for 
trading on the Exchange. The term ``reasonably related to the current 
index value of the underlying index'' means that the exercise price is 
within thirty percent (30%) of the current index value.
    The Exchange may also open for trading additional series of index 
options that are more than thirty percent (30%) away from the current 
index value, provided that demonstrated customer interest exists for 
such series, as expressed by institutional, corporate, or individual 
customers or their brokers. Market Makers trading for their own account 
shall not be considered when determining customer interest under this 
provision.
    Proposed Rule 1809(d) states that the reported level of the 
underlying index that is calculated by the reporting authority on the 
business day of expiration, or, in the case of an option contract 
expiring on a day that is not a business day, the last day of trading 
in the underlying securities prior to the expiration date for purposes 
of determining the current index value at the expiration of an A.M.-
settled index option, may differ from the level of the index that is 
separately calculated and reported by the reporting authority and that 
reflects trading activity subsequent to the opening of trading in any 
of the underlying securities.
    Proposed Rule 1809(e) provides that the Rules of the Clearing 
Corporation specify that, unless the Rules of the Exchange provide 
otherwise, the current index value used to settle the exercise of an 
index options contract shall be the closing index value for the day on 
which the index options contract is exercised in accordance with the 
Rules of the Clearing Corporation or, if such day is not a business 
day, for the most recent business day. The closing settlement value for 
options on a Foreign Currency Index shall be specified by the Exchange.
    Proposed Rule 1809, Interpretations and Policies .01, Short Term 
Option Series Program, specifies that, notwithstanding the restriction 
in Rule 1809(a)(3), after an option class has been approved for listing 
and trading on the Exchange, the Exchange may open for trading on any 
Thursday or Friday that is a business day (``Short Term Option Opening 
Date'') series of options on that class that expire at the close of 
business on each of the next five Fridays that are business days and 
are not Fridays in which monthly options series or Quarterly Options 
Series expire (``Short Term Option Expiration Dates''). The Exchange 
may have no more than a total of five Short Term Option Expiration 
Dates. If the Exchange is not open for business on the respective 
Thursday or Friday, the Short Term Option Opening Date will be the 
first business day immediately prior to that respective Thursday or 
Friday. Similarly, if the Exchange is not open for business on a 
Friday, the Short Term Option Expiration Date will be the first 
business day immediately prior to that Friday.
    Proposed Interpretations and Policies .01(a) to Rule 1809 permits 
the Exchange to select up to thirty (30) currently listed option 
classes on which Short Term Option Series may be opened on any Short 
Term Option Opening Date. In addition to the 30 option class 
restriction, the Exchange may also list Short Term Option Series on any 
option classes that are selected by other securities exchanges that 
employ a similar program under their respective rules. For each index 
option class eligible for participation in the Short Term Option Series 
Program, the Exchange may open up to 30 Short Term Option Series on 
index options for each expiration date in that class. The Exchange may 
also open Short Term Option Series that are opened by other

[[Page 38953]]

securities exchanges in option classes selected by such exchanges under 
their respective short term option rules.
    Proposed Interpretations and Policies .01(b) to proposed Rule 1809 
states that no Short Term Option Series on an index option class may 
expire in the same week during which any monthly option series on the 
same index class expires or, in the case of Quarterly Options Series, 
on an expiration that coincides with an expiration of Quarterly Options 
Series on the same index class.
    Proposed Interpretations and Policies .01(c) to Rule 1809 governs 
the listing and trading of initial series in short-term options. The 
Exchange may open up to 20 initial series for each option class that 
participates in the Short Term Option Series Program. The strike price 
of each Short Term Option Series will be fixed at a price per share, 
with approximately the same number of strike prices above and below the 
calculated index value of the underlying index at about the time that 
Short Term Option Series are initially opened for trading on the 
Exchange (e.g., if seven series are initially opened, there will be at 
least three strike prices above and three strike prices below the 
calculated index value). Any strike prices listed by the Exchange shall 
be within thirty percent (30%) above or below the current value of the 
underlying index.
    Proposed Interpretations and Policies .01(d) to Rule 1809, 
Additional Series, states that the Exchange may open up to 10 
additional series for each option class that participates in the Short 
Term Option Series Program when the Exchange deems it necessary to 
maintain an orderly market, to meet customer demand or when the current 
value of the underlying index moves substantially from the exercise 
price or prices of the series already opened. Any additional strike 
prices listed by the Exchange shall be within thirty percent (30%) 
above or below the current value of the underlying index. The Exchange 
may also open additional strike prices on Short Term Option Series that 
are more than 30% above or below the current value of the underlying 
index provided that demonstrated customer interest exists for such 
series, as expressed by institutional, corporate or individual 
customers or their brokers. Market Makers trading for their own account 
shall not be considered when determining customer interest under this 
provision. In the event that the underlying security has moved such 
that there are no series that are at least 10% above or below the 
current price of the underlying security, the Exchange will delist any 
series with no open interest in both the call and the put series having 
a: (i) Strike higher than the highest strike price with open interest 
in the put and/or call series for a given expiration month; and (ii) 
strike lower than the lowest strike price with open interest in the put 
and/or the call series for a given expiration month, so as to list 
series that are at least 10% but not more than 30% above or below the 
current price of the underlying security. In the event that the 
underlying security has moved such that there are no series that are at 
least 10% above or below the current price of the underlying security 
and all existing series have open interest, the Exchange may list 
additional series, in excess of the 30 allowed under this 
Interpretations and Policies .01. The opening of the new Short Term 
Option Series shall not affect the series of options of the same class 
previously opened. Notwithstanding any other provisions in proposed 
Rule 1809, Short Term Option Series may be added up to, and including 
on, the Short Term Option Expiration Date for that options series.
    Proposed Interpretations and Policies .01(e) to Rule 1809 governs 
strike price intervals for short term index option series. The interval 
between strike prices on Short Term Option Series shall be the same as 
the strike prices for series in that same index option class that 
expire in accordance with the normal monthly expiration cycle. During 
the month prior to expiration of an index option class that is selected 
for the Short Term Option Series Program pursuant to this rule (``Short 
Term Option''), the strike price intervals for the related index non-
Short Term Option (``Related non-Short Term Option'') shall be the same 
as the strike price intervals for the index Short Term Option.
    Proposed Interpretations and Policies .02 to Rule 1809 governs the 
Quarterly Options Series Program. Notwithstanding the restriction in 
proposed Rule 1809(a)(3) (described above), the Exchange may list and 
trade options series that expire at the close of business on the last 
business day of a calendar quarter (``Quarterly Options Series''). The 
Exchange may list Quarterly Options Series for up to five (5) currently 
listed options classes that are either index options or options on 
exchange traded funds (``ETFs''). In addition, the Exchange may also 
list Quarterly Options Series on any options classes that are selected 
by other securities exchanges that employ a similar pilot program under 
their respective rules. The Exchange may list 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. The Exchange will not list a 
Short Term Option Series on an options class whose expiration coincides 
with that of a Quarterly Options Series on that same options class. 
Quarterly Options Series shall be P.M. settled.
    Proposed Interpretations and Policies .02(d) to Rule 1809, Initial 
Series, states that the strike price of each Quarterly Options Series 
will be fixed at a price per share, with at least two, but no more than 
five, strike prices above and at least two, but no more than five, 
strike prices below the value of the underlying index at about the time 
that a Quarterly Options Series is opened for trading on the Exchange. 
The Exchange shall list strike prices for Quarterly Options Series that 
are reasonably related to the current index value of the underlying 
index to which such series relates at about the time such series of 
options is first opened for trading on the Exchange. The term 
``reasonably related to the current index value of the underlying 
index'' means that the exercise price is within thirty percent (30%) of 
the current index value.
    Proposed Interpretations and Policies .02(e) to Rule 1809, 
Additional Series, permits the Exchange to open for trading additional 
Quarterly Options Series of the same class when the Exchange deems it 
necessary to maintain an orderly market, to meet customer demand or 
when the market price of the underlying security moves substantially 
from the initial exercise price or prices. The Exchange may also open 
for trading additional Quarterly Options Series that are more than 
thirty percent (30%) away from the current index value, provided that 
demonstrated customer interest exists for such series, as expressed by 
institutional, corporate, or individual customers or their brokers. 
Market-makers trading for their own account shall not be considered 
when determining customer interest under this provision. The Exchange 
may open additional strike prices of a Quarterly Options Series that 
are above the value of the underlying index provided that the total 
number of strike prices above the value of the underlying is no greater 
than five. The Exchange may open additional strike prices of a 
Quarterly Options Series that are below the value of the underlying 
index provided that the total number of strike prices below the value 
of the underlying index is no greater than five. The opening of any new 
Quarterly Options Series shall not affect the series of options of the 
same class previously opened.

[[Page 38954]]

    Proposed Interpretations and Policies .02(f) to Rule 1809, Strike 
Interval, states that the interval between strike prices on Quarterly 
Options Series shall be the same as the interval for strike prices for 
series in that same options class that expire in accordance with the 
normal monthly expiration cycle.
    Proposed Interpretations and Policies .03 to Rule 1809 states that, 
notwithstanding the requirements set forth in proposed Rule 1809, the 
Exchange may list additional series of index options classes if such 
series are listed on at least one other national securities exchange in 
accordance with the applicable rules of such exchange for the listing 
of index options. For each options series listed pursuant to this 
Interpretations and Policies .03, the Exchange will submit a proposed 
rule change with the Securities and Exchange Commission that is 
effective upon filing within the meaning of Section 19(b)(3)(A) under 
Act.
    Proposed Interpretations and Policies .04 to Rule 1809 states that, 
notwithstanding the requirements set forth in proposed Rule 1809 and 
any Interpretations and Policies thereto, the Exchange may list 
additional expiration months on options classes opened for trading on 
the Exchange if such expiration months are opened for trading on at 
least one other registered national securities exchange.
    Proposed Interpretations and Policies .05 to Rule 1809 states that, 
notwithstanding the requirements set forth in this Rule 1809 and any 
Interpretations and Policies thereto, the Exchange may open for trading 
Short Term Option Series on the Short Term Option Opening Date that 
expire on the Short Term Option Expiration Date at strike price 
intervals of (i) $0.50 or greater where the strike price is less than 
$75, and $1 or greater where the strike price is between $75 and $150 
for all index option classes that participate in the Short Term Options 
Series Program; or (ii) $0.50 for index option classes that trade in 
one dollar increments and are in the Short Term Option Series Program.
    The proposed rules concerning the terms of options contracts are 
based on, and substantially similar to, rules that are currently 
operative on other exchanges.\40\
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    \40\ See, e.g., ISE Rule 2009; CBOE Rule 24.9; and Phlx Rule 
1101A.
---------------------------------------------------------------------------

    Proposed MIAX Options Rule 1810 applies to debit put spreads. Debit 
put spread positions in European-style, broad-based index options 
traded on the Exchange (hereinafter ``debit put spreads'') may be 
maintained in a cash account as defined by Federal Reserve Board 
Regulation T Section 220.8 \41\ by a Public Customer, provided that the 
following procedures and criteria are met:
---------------------------------------------------------------------------

    \41\ 12 CFR 220.8.
---------------------------------------------------------------------------

    (a) approval to maintain debit put spreads in a cash account 
carried by an Exchange Member. A customer so approved is hereinafter 
referred to as a ``spread exemption customer.''
    (b) The spread exemption customer has provided all information 
required on Exchange-approved forms and has kept such information 
current.
    (c) The customer holds a net long position in each of the stocks of 
a portfolio that has been previously established or in securities 
readily convertible, and additionally in the case of convertible bonds 
economically convertible, into common stocks which would comprise a 
portfolio. The debit put spread position must be carried in an account 
with a member of a self-regulatory organization participating in the 
Intermarket Surveillance Group.
    (d) The stock portfolio or its equivalent is composed of net long 
positions in common stocks in at least four industry groups and 
contains at least twenty (20) stocks, none of which accounts for more 
than fifteen percent (15%) of the value of the portfolio (hereinafter 
``qualified portfolio''). To remain qualified, a portfolio must at all 
times meet these standards notwithstanding trading activity in the 
stocks.
    (e) The exemption applies to European-style broad-based index 
options dealt in on the Exchange to the extent the underlying value of 
such options position does not exceed the unhedged value of the 
qualified portfolio. The unhedged value would be determined as follows: 
(1) The values of the net long or short positions of all qualifying 
products in the portfolio are totaled; (2) for positions in excess of 
the standard limit, the underlying market value (A) of any economically 
equivalent opposite side of the market calls and puts in broad-based 
index options, and (B) of any opposite side of the market positions in 
stock index futures, options on stock index futures, and any 
economically equivalent opposite side of the market positions, assuming 
no other hedges for these contracts exist, is subtracted from the 
qualified portfolio; and (3) the market value of the resulting unhedged 
portfolio is equated to the appropriate number of exempt contracts as 
follows--the unhedged qualified portfolio is divided by the 
correspondent closing index value and the quotient is then divided by 
the index multiplier or 100.
    (f) A debit put spread in Exchange-traded broad-based index options 
with European-style exercises is defined as a long put position coupled 
with a short put position overlying the same broad-based index and 
having an equivalent underlying aggregate index value, where the short 
put(s) expires with the long put(s), and the strike price of the long 
put(s) exceeds the strike price of the short put(s). A debit put spread 
will be permitted in the cash account as long as it is continuously 
associated with a qualified portfolio of securities with a current 
market value at least equal to the underlying aggregate index value of 
the long side of the debit put spread.
    (g) The qualified portfolio must be maintained with either a 
Member, another broker-dealer, a bank, or securities depository.
    (h) The spread exemption customer shall agree promptly to provide 
the Exchange any information requested concerning the dollar value and 
composition of the customer's stock portfolio, and the current debit 
put spread positions.
    (1) The spread exemption customer shall agree to and any Member 
carrying an account for the customer shall:
    (i) Comply with all Exchange Rules and regulations;
    (ii) liquidate any debit put spreads prior to or contemporaneously 
with a decrease in the market value of the qualified portfolio, which 
debit put spreads would thereby be rendered excessive; and
    (iii) promptly notify the Exchange of any change in the qualified 
portfolio or the debit put spread position which causes the debit put 
spreads maintained in the cash account to be rendered excessive.
    (i) If any Member carrying a cash account for a spread exemption 
customer with a debit put spread position dealt in on the Exchange has 
a reason to believe that as a result of an opening options transaction 
the customer would violate this spread exemption, and such opening 
transaction occurs, then the Member has violated this Rule 1810.
    (j) Violation of any of these provisions, absent reasonable 
justification or excuse, shall result in withdrawal of the spread 
exemption and may form the basis for subsequent denial of an 
application for a spread exemption hereunder.
    Proposed Rule 1811, Disclaimers, disclaims liability for index 
reporting authorities. The Disclaimer shall apply

[[Page 38955]]

to the reporting authorities \42\ identified in the Interpretations and 
Policies to proposed Rule 1801.\43\
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    \42\ The term ``reporting authority'' with respect to a 
particular index means the institution or reporting service 
designated by the Exchange as the official source for (1) 
calculating the level of the index from the reported prices of the 
underlying securities that are the basis of the index and (2) 
reporting such level. The reporting authority for each index 
approved for options trading on the Exchange shall be Specified (as 
provided in Rule 1800) in the Interpretations and Policies to Rule 
1801. See proposed Rule 1801(n). Proposed Rule 1800 states that 
where the rules in Chapter XVIII indicate that particular indices or 
requirements with respect to particular indices will be 
``Specified,'' MIAX Options will file a proposed rule change with 
the Commission pursuant to Section 19 of the Act and Rule 19b-4 
thereunder to specify such indices or requirements, including the 
designated reporting authority for each index listed on the 
Exchange.
    \43\ The reporting authorities designated by the Exchange in 
respect of each index underlying an index options contract traded on 
the Exchange are as provided in a chart in proposed Rule 1801, 
Interpretations and Policies .01.
---------------------------------------------------------------------------

    Proposed Rule 1811(b), Disclaimer, provides that no reporting 
authority, and no affiliate of a reporting authority (each such 
reporting authority, its affiliates, and any other entity identified in 
this Rule are referred to collectively as a ``Reporting Authority''), 
makes any warranty, express or implied, as to the results to be 
obtained by any person or entity from the use of an index it publishes, 
any opening, intra-day or closing value therefor, or any data included 
therein or relating thereto, in connection with the trading of any 
options contract based thereon or for any other purpose. The Reporting 
Authority shall obtain information for inclusion in, or for use in the 
calculation of, such index from sources it believes to be reliable, but 
the Reporting Authority does not guarantee the accuracy or completeness 
of such index, any opening, intra-day or closing value therefor, or any 
date included therein or related thereto. The Reporting Authority 
hereby disclaims all warranties of merchantability or fitness for a 
particular purpose or use with respect to such index, any opening, 
intra-day, or closing value therefor, any data included therein or 
relating thereto, or any options contract based thereon. The Reporting 
Authority shall have no liability for any damages, claims, losses 
(including any indirect or consequential losses), expenses, or delays, 
whether direct or indirect, foreseen or unforeseen, suffered by any 
person arising out of any circumstance or occurrence relating to the 
person's use of such index, any opening, intra-day or closing value 
therefor, any data included therein or relating thereto, or any options 
contract based thereon, or arising out of any errors or delays in 
calculating or disseminating such index.
    Proposed Rule 1811 concerning Disclaimers is based on, and 
substantially similar to, rules that are currently operative on other 
exchanges.\44\
---------------------------------------------------------------------------

    \44\ See, e.g., ISE Rule 2011 and CBOE Rule 24.14.
---------------------------------------------------------------------------

    Proposed Rule 1812, Exercise of American-Style Index Options, 
contains standards for exercising American-style index options. The 
proposed Rule provides that no Member may prepare, time stamp or submit 
an exercise instruction for an American-style index options series if 
the Member knows or has reason to know that the exercise instruction 
calls for the exercise of more contracts than the ``net long position'' 
of the account for which the exercise instruction is to be tendered. 
For purposes of this Rule: (i) The term ``net long position'' shall 
mean the net position of the account in such option at the opening of 
business of the day of such exercise instruction, plus the total number 
of such options purchased that day in opening purchase transactions up 
to the time of exercise, less the total number of such options sold 
that day in closing sale transactions up to the time of exercise; (ii) 
the ``account'' shall be the individual account of the particular 
customer, market-maker or ``non-customer'' (as that term is defined in 
the By-Laws of the Clearing Corporation) who wishes to exercise; and 
(iii) every transaction in an options series effected by a market-maker 
in a market-maker's account shall be deemed to be a closing transaction 
in respect of the market-maker's then positions in such options series. 
No Member may adjust the designation of an ``opening transaction'' in 
any such option to a ``closing transaction'' except to remedy mistakes 
or errors made in good faith.
Restrictions on Position and Exercise Limits
    Exchange Rule 307 currently establishes position limits for 
Members.\45\ Rule 308 sets forth rules that apply to Market Makers 
seeking an exemption from the established position limits for an option 
class. Generally, an exemption will be granted only to a Market Maker 
who has requested an exemption, who is appointed to the options class 
in which the exemption is requested, whose positions are near the 
current position limit and who is significant in terms of daily 
volume.\46\ The positions must generally be within ten percent (10%) of 
the limits contained in Rule 307 for equity options. Under the 
proposal, the positions must generally be within ten percent (10%) of 
the limits contained in Rule 307 for equity and narrow-based index 
options, and twenty percent (20%) of those limits for broad-based index 
options. The purpose of this provision is to ensure that the Market 
Maker requesting the exemption is compliant with the current 
requirement to be a Market Maker whose positions are near the current 
position limit and who is significant in terms of daily volume. 
Proposed Rules 1804 through 1807 described below) contain the standard 
position limit and exercise limits for Broad-Based, Industry (narrow-
based) and Foreign Currency index options, as well as exemption 
standards and the procedures for requesting exemptions from those 
proposed rules.
---------------------------------------------------------------------------

    \45\ Members may not enter into opening transactions if the 
Member has reason to believe that as a result of such transaction 
the Member or its customer would, acting alone or in concert with 
others, directly or indirectly control an aggregate position in an 
option contract traded on the Exchange in excess of 25,000 or 50,000 
or 75,000 or 200,000 or 250,000 option contracts (whether long or 
short) of the put type and the call type on the same side of the 
market respecting the same underlying security, combining for 
purposes of this position limit long positions in put options with 
short positions in call options, and short positions in put options 
with long positions in call options, or such other number of option 
contracts as may be fixed from time to time by the Exchange as the 
position limit for one or more classes or series of options; or (2) 
exceed the applicable position limit fixed from time to time by 
another exchange for an option contract not traded on the Exchange, 
when the Member is not a member of the other exchange on which the 
transaction was effected. See Exchange Rule 307.
    \46\ See Exchange Rule 308(b)(3).
---------------------------------------------------------------------------

    Proposed Rule 308(b)(8) states that a Market Maker may rely upon 
any available exemptions from applicable position limits granted from 
time to time by another options exchange for any options contract 
traded on the Exchange provided that such Market Maker: (i) Provides 
the Exchange with a copy of any written exemption issued by another 
options exchange or a written description of any exemption issued by 
another options exchange other than in writing containing sufficient 
detail for Exchange regulatory staff to verify the validity of that 
exemption with the issuing options exchange, and (ii) fulfills all 
conditions precedent for such exemption and complies at all times with 
the requirements of such exemption with respect to the Market Maker's 
trading on the Exchange.\47\ The purpose of this provision is to afford 
Market Makers the same exemptions available on other exchanges that are 
not explicitly set forth in MIAX Options Rules.
---------------------------------------------------------------------------

    \47\ This proposed rule is based on ISE Rule 413(d).

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[[Page 38956]]

    Proposed amended Rule 313, Other Restrictions on Options 
Transactions and Exercises will govern the restrictions on the exercise 
of cash settled index options. Specifically, the Exchange is proposing 
to amend Rule 313(a)(2) to state that during the ten (10) business days 
prior to the expiration date of a given series of options, other than 
index options, no restriction on exercise under this Rule may be in 
effect with respect to that series of options. With respect to index 
options, restrictions on exercise may be in effect until the opening of 
business on the last business day before the expiration date.
    Proposed Rule 313(a)(3) prohibits exercises under certain 
conditions, and certain exceptions to those prohibitions. As an initial 
matter, exercises of American-style, cash-settled index options shall 
be prohibited during any time when trading in such options is delayed, 
halted, or suspended, subject to the exceptions set forth in the 
remainder of the Rule. The purpose of this prohibition is to promote 
just and equitable principles of trade by minimizing the ability of the 
holder of such an option to take advantage of such a delay, halt or 
suspension, during which market participants with short positions, 
cannot act in response to the conditions causing the delay, halt or 
suspension.
    Proposed Rule 313(a)(3) provides specific exceptions to the 
prohibition. First, the exercise of an American-style, cash-settled 
index option may be processed and given effect in accordance with and 
subject to the Rules of the Clearing Corporation while trading in the 
option is delayed, halted, or suspended if it can be documented, in a 
form prescribed by the Exchange, that the decision to exercise the 
option was made during allowable time frames prior to the delay, halt, 
or suspension. The purpose of this exception is to provide relief from 
the prohibition when the holder of the option to be exercised has made 
a legitimate decision to exercise prior to the delay, halt, or 
suspension. For the same reason, proposed Rule 313(a)(3)(ii) states 
that exercises of expiring American-style, cash-settled index options 
shall not be prohibited on the last business day prior to their 
expiration. Proposed Rule 313(a)(iv) states that exercises of American-
style, cash-settled index options shall not be prohibited during a 
trading halt that occurs at or after 4:00 p.m. Eastern time. In the 
event of such a trading halt, exercises may occur through 4:20 p.m. 
Eastern time. In addition, if trading resumes following such a trading 
halt (such as by closing rotation), exercises may occur during the 
resumption of trading and for five (5) minutes after the close of the 
resumption of trading. The provisions of this subparagraph are subject 
to the authority of the Exchange to impose restrictions on transactions 
and exercises pursuant to paragraph (a) of the Rule.
    Finally, the Exchange may determine to permit the exercise of 
American-style, cash-settled index options while trading in such 
options is delayed, halted, or suspended. The Exchange believes that it 
is consistent with just and equitable principles of trade to determine 
if circumstances exist to grant or deny a request to exercise an 
American-style, cash-settled index option while trading in such options 
is delayed, halted, or suspended.
Openings
    The Exchange proposes to amend Rule 503, Openings, to include index 
options in the Rule by stating that, for a period of time before the 
scheduled opening in the underlying security the Exchange will accept 
orders and quotes in equity and index options during the ``Pre-Opening 
Phase''.
Trading Halts
    The Exchange proposes to amend Rule 504, Trading Halts, 
Interpretations and Policies .04 to address the handling of trade 
nullifications in index options due to trading halts. Specifically, 
Interpretations and Policies .04 would be amended to state that, with 
respecting to index options, trades on the Exchange will be nullified 
if the trade occurred during a trading halt on the primary market in 
underlying securities representing more than 10 percent of the current 
index value for narrow-based stock index options, and 20 percent of the 
current index value for broad-based index options. New Interpretations 
and Policies .05 to Rule 504 states that trading halts, resumptions, 
trading pauses and post-halt notifications involving index options are 
governed by Rules 1808(c)-(f) (described above).
Limitation on Exchange Liability
    The Exchange proposes to amend Rule 527, Exchange Liability, to 
state that the Exchange shall have no liability to any person for any 
loss, expense, damages or claims that result from any error, omission 
or delay in calculating or disseminating any current or closing index 
value or any reports of transactions in or quotations for options or 
other securities, including underlying securities. The proposed Rule is 
based on the rules of other Exchanges.\48\ The Exchange believes that 
and such error, omission or delay is outside the scope of its function 
and purpose, and thus it should not incur loss, damages or claims due 
to conditions caused by the action or inaction of other persons. In 
conjunction with MIAX Options Rule 1811, this proposed rule also limits 
liability regarding the dissemination of index information.
---------------------------------------------------------------------------

    \48\ See, e.g., ISE Rule 705(a); CBOE Rule 6.7(a); and Phlx Rule 
1102A.
---------------------------------------------------------------------------

Obligations of Market Makers
    Currently, Rule 603, Obligations of Market Makers, Rule 603(a), 
imposes obligations on Market Makers to refrain from purchasing a call 
option or a put option at a price more than $0.25 below parity, and 
places restrictions on the maximum permissible bid/ask differential for 
an option, depending on the width of the quote in the underlying 
security.
    Current Rule 603(b)(4) requires Market Makers to price option 
contracts fairly by, among other things, bidding and offering so as to 
create differences of no more than $5 between the bid and offer (``bid/
ask differentials'') following the opening rotation in an equity option 
contract; current Rule 603(b)(5), however, states that the bid/ask 
differentials stated in subparagraph (b)(4) of the Rule shall not apply 
to in-the-money options where the underlying security's market is wider 
than the differentials set forth above. For these options, the bid/ask 
differential may be as wide as the quotation on the primary market of 
the underlying security.
    The Exchange proposes to amend Rule 603(b)(5) to state, in new sub-
paragraph (b)(5)(ii), that the Exchange or its authorized agent may 
calculate bids and asks for various indices for the sole purpose of 
determining permissible bid/ask differentials on options on these 
indices. These values will be calculated by determining the weighted 
average of the bids and asks for the components of the corresponding 
index. These bids and asks will be disseminated by the Exchange at 
least every fifteen (15) seconds during the trading day solely for the 
purpose of determining the permissible bid/ask differential that 
market-makers may quote on an in-the-money option on the indices. For 
in-the-money series in index options where the calculated bid/ask 
differential is wider than the applicable differential set out in 
subparagraph (b)(4) of this Rule, the bid/ask differential in the index 
options series may be as wide as the calculated bid/ask differential in 
the underlying

[[Page 38957]]

index. The Exchange will not make a market in the basket of stock 
comprising the indices and is not guaranteeing the accuracy or the 
availability of the bid/ask values. The Exchange believes that the 
calculation of a bid/ask differential for the underlying index perfects 
the mechanisms of a free and open market and a national market system 
by using a weighted average method to determine allowable bid/ask 
differentials in options overlying an index. This calculation should 
provide an accurate standard for Market Makers to follow when 
establishing their markets. The Exchange believes that the proposed 
rule will result in narrower bid/ask differentials in index option 
quotations on the Exchange, all to the benefit of investors and the 
marketplace as a whole.
    In conjunction with the amendments to Rule 308, the Exchange is 
proposing to adopt new Rule 700(h) to set forth the process to be 
followed by Clearing Members and Members when exercising American-style 
cash-settled options.
    Specifically, Clearing Members must follow the procedures of the 
Clearing Corporation when exercising American-style cash-settled index 
options contracts issued or to be issued in any account at the Clearing 
Corporation. Members must also follow the procedures set forth below 
with respect to American-style cash-settled index options:
    First, for all contracts exercised by the Member or by any customer 
of the Member, an ``exercise advice'' must be delivered by the Member 
in such form or manner prescribed by the Exchange no later than 4:20 
p.m. Eastern time, or if trading hours are extended or modified in the 
applicable options class, no later than five (5) minutes after the 
close of trading on that day. Subsequent to the delivery of an 
``exercise advice,'' should the Member or a customer of the Member 
determine not to exercise all or part of the advised contracts, the 
Member must also deliver an ``advice cancel'' in such form or manner 
prescribed by the Exchange no later than 4:20 p.m. Eastern time, or if 
trading hours are extended or modified in the applicable options class, 
no later than five (5) minutes after the close of trading on that day. 
This is to ensure that the Exchange and the Clearing Corporation are 
given adequate notice to process the ``exercise advice'' or ``advice 
cancel''. The Exchange may determine to extend the applicable deadline 
for the delivery of ``exercise advice'' and ``advice cancel'' 
notifications pursuant to this paragraph (h) if unusual circumstances 
are present. The purpose of this provision is to provide a fair and 
equitable determination to allow more time for such delivery if the 
circumstances warrant.
    Proposed Rule 700(h)(4) states that no Member may prepare, time 
stamp or submit an ``exercise advice'' prior to the purchase of the 
contracts to be exercised if the Member knew or had reason to know that 
the contracts had not yet been purchased. The proposed Rule is intended 
to further just and equitable principles of trade by stating in 
proposed Rule 700(h)(5) that the failure of any Member to follow the 
procedures in this paragraph (h) may result in the assessment of a 
fine, which may include but is not limited to disgorgement of potential 
economic gain obtained or loss avoided by the subject exercise, as 
determined by the Exchange. Additionally, under proposed Rule 700(h)(6) 
preparing or submitting an ``exercise advice'' or ``advice cancel'' 
after the applicable deadline on the basis of material information 
released after such deadline, in addition to constituting a violation 
of the Rule, is activity inconsistent with just and equitable 
principles of trade.
    Proposed Rules 700(h)(7) and (8) include prohibitions and 
exceptions to the submission of corresponding ``exercise advice'' and 
``advice cancel'' forms that are similar to the prohibitions and 
exceptions to the exercise of index options in Rule 313(a)(3).
    The proposed rule relating to the exercise of American-style 
options is based on, and substantially similar to, rules currently 
operative on other Exchanges.\49\
---------------------------------------------------------------------------

    \49\ See, e.g., ISE Rule 2012; CBOE Rule 24.18; and Phlx Rule 
1042A.
---------------------------------------------------------------------------

Surveillance and Capacity
    The Exchange represents that is has an adequate surveillance 
program in place for index options. The Exchange is a member of the 
ISG, which ``is comprised of an international group of exchanges, 
market centers, and market regulators.'' The purpose of the ISG is to 
provide a framework for the sharing of information and the coordination 
of regulatory efforts among exchanges trading securities and related 
products to address potential intermarket manipulations and trading 
abuses. The ISG plays a crucial role in information sharing among 
markets that trade securities, options on securities, security futures 
products, and futures and options on broad-based security indexes. A 
list identifying the current ISG members is available at https://www.isgportal.org/home.html.
    MIAX Options has analyzed its capacity and represents that it 
believes the Exchange and the Options Price Reporting Authority 
(``OPRA'') have the necessary systems capacity to handle the additional 
traffic associated with the listing and trading of index options.
    The Exchange will announce the implementation date of the proposed 
rule change by Regulatory Circular to be published no later than 90 
days following the date the Commission issues an order approving the 
proposed rule change. The implementation date will be no later than 90 
days following the issuance of the Regulatory Circular.
2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with 
Section 6(b) of the Act \50\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \51\ 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 regulating, clearing, settling, 
processing information with respect to, and 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.
---------------------------------------------------------------------------

    \50\ 15 U.S.C. 78f(b).
    \51\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change will expand the 
Exchange's capability to introduce and trade both existing and new and 
innovative index products on the MIAX Options System. The added 
capability is consistent with the Act in that it should foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, specifically index options. 
The Exchange believes that there is unmet market demand on MIAX Options 
for exchange-listed index options and the listing and trading of index 
options on the Exchange is designed to attract both liquidity and order 
flow to the Exchange, all to the benefit of the marketplace as a whole.
    The Exchange believes that the requirements in the proposed listing 
standards regarding, among other things, the minimum market 
capitalization, trading volume, and relative weightings of an 
underlying index's component stocks are designed to ensure that the 
markets for the index's component stocks are adequately capitalized and 
sufficiently liquid, and that no one stock dominates the index. These 
requirements are

[[Page 38958]]

designed 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, by ensuring that unusual or 
extreme volatility in any single component of an index could not cause 
the entire index to become so volatile that it puts investors at undue 
and unplanned risk. These requirements also minimize the potential for 
manipulating the underlying index, which protects investors and the 
public interest.
    The Exchange further believes that the requirement in proposed Rule 
1802(b)(10) that the current underlying index value will be reported at 
least once every 15 seconds during the time the index options are 
traded on the Exchange, and the requirement in proposed Rule 
1802(d)(11) (with respect to broad-based index options) that the 
current index value be widely disseminated at least once every 15 
seconds by OPRA, the CTA, NIDS or one or more major market data vendors 
during the time the index options are traded on the Exchange removes 
impediments to and perfects the mechanisms of a free and open market 
and a national market system by providing transparency with respect to 
current index values and by contributing to the overall transparency of 
the market for index options. In addition, the Exchange believes that 
the requirement in proposed Rule 1802(d)(2) that an index option be 
A.M.-settled, rather than based on closing prices, should help to 
reduce the potential impact of expiring index options on the market for 
an index's component securities.
    The Exchange believes that the requirement in proposed Rule 1803 to 
disseminate of index values as a condition to the trading of options on 
an index fosters cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in, securities by requiring absolute 
transparency regarding the dissemination of index values. The 
requirement that the Exchange disseminate, or assure that the current 
index value is disseminated, and the requirement that the Exchange 
maintain, in files available to the public, information identifying the 
components whose prices are the basis for calculation of the index and 
the method used to determine the current index value, protects 
investors and the public interest by ensuring that the current index 
value is disseminated regularly and consistently.
    The Exchange's proposal to adopt Rules 1804 through 1807 relating 
to position limits, exemptions from position limits, exercise limits in 
index options, and regular maintenance reviews are designed 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, by limiting investors' levels of concentration in a 
single index position. Not only would an investor be at undue risk by 
assuming such a position, but the market for the affected index option 
could be disproportionately affected by the trading activities of that 
single investor with an unusually large long or short position. The 
Exchange is proposing to mitigate this risk by establishing the same 
position and exercise limits, and hedging rules, that already exist on 
other exchanges, all designed for the protection of investors and the 
public interest.
    Proposed Rule 1808, Trading Sessions, is designed to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in, securities, by establishing the same, 
uniform trading hours for index options as other exchanges. The 
Exchange's proposal to establish rules and procedures for openings, 
halts and reopenings, together with the designation by the Board of an 
Exchange official authorized to halt trading when, in his or her 
judgment, such action is appropriate in the interests of a fair and 
orderly market is designed to protect investors and the public interest 
by ensuring that there are multiple safeguards available during times 
of unusual or particularly volatile market activity.
    Proposed MIAX Options Rule 1809, Terms of Index Options Contracts, 
outlines the terms of index options contracts in terms of the meaning 
of premium bids and offers; exercise prices; expiration months; the 
trading of European Style Index options. This proposed Rule is the same 
as the rules concerning terms of index options contracts on other 
exchanges. \52\ Proposed Rule 1809 is a generic rule concerning the 
manner of trading of index option contracts. The Exchange's proposal to 
adopt existing uniform rules governing terms of index option contracts 
is designed to perfect the mechanisms of a free and open market and a 
national market system and, in general, to protect investors and the 
public interest by adopting standards and rules for index option 
contracts that are consistent with other exchanges' standards and 
rules. The Exchange believes that this benefits investors and the 
marketplace as a whole because investors who determine to trade index 
options on MIAX Options will not need to rely on an unfamiliar set of 
rules and contract terms when they begin trading index options here.
---------------------------------------------------------------------------

    \52\ See ISE Rule 2009; CBOE Rule 24.9; and Phlx Rule 1101A.
---------------------------------------------------------------------------

    The Exchange believes that its proposal to include index options in 
the Short Term Options Series Program removes impediments to, and 
perfects the mechanisms of, a free and open market and a national 
market system, and will benefit market participants by giving them more 
flexibility to closely tailor their investment and hedging decisions in 
a greater number of securities. The Exchange also believes that 
expanding the Short Term Options Series Program to include index 
options will provide the investing public and other market participants 
with additional opportunities to hedge their investment, thus allowing 
these investors to better manage their acceptable risk tolerance 
levels, all to the benefit of the investing public and the marketplace 
as a whole.
    The Exchange's proposal to adopt Rule 1810 relating to debit put 
spreads fosters cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitates transactions in, securities, by maintaining uniformity 
in its rules governing this strategy with the same specificity as the 
rules on other exchanges.
    Proposed Rule 1811 concerning Disclaimers is based on, and 
substantially similar to, rules that are currently operative on other 
exchanges.\53\ The proposed Rule promotes just and equitable principles 
of trade by stating that a Reporting Authority shall have no liability 
for any damages, claims, losses (including any indirect or 
consequential losses), expenses, or delays, whether direct or indirect, 
foreseen or unforeseen, suffered by any person arising out of any 
circumstance or occurrence relating to the person's use of an index, 
any opening, intra-day or closing value therefor, any data included 
therein or relating thereto, or any options contract based thereon, or 
arising out of any errors or delays in calculating or disseminating 
such index.
---------------------------------------------------------------------------

    \53\ See, e.g., ISE Rule 2011 and CBOE Rule 24.14.
---------------------------------------------------------------------------

    Proposed Rule 1812, Exercise of American-Style Index Options, is

[[Page 38959]]

designed to prevent fraudulent and manipulative acts and practices and 
to promote just and equitable principles of trade by providing that no 
Member may prepare, time stamp or submit an exercise instruction for an 
American-style index options series if the Member knows or has reason 
to know that the exercise instruction calls for the exercise of more 
contracts than the then ``net long position'' of the account for which 
the exercise instruction is to be tendered. The proposed Rule contains 
standards for exercising American-style index options that are in 
effect on other exchanges.\54\
---------------------------------------------------------------------------

    \54\ See, e.g., ISE Rule 2012; CBOE Rule 24.18; and Phlx Rule 
1042A.
---------------------------------------------------------------------------

    The Exchange's proposal to adopt a requirement that a Market Maker 
requesting a position limit exemption must have a position that is 
within twenty percent of the existing limits contained in Rule 307 
removes impediments to and perfects the mechanisms of a free and open 
market by requiring Market Makers seeking the exemption to have 
positions that are within a reasonable range of existing position 
limits. This should ensure that the Market Makers seeking the position 
limit exemption are those whose positions are near the current position 
limit and who have significant daily volume, as required by the current 
Rule.
    Additionally, the proposed amendments to Rule 313 prohibiting 
exercise of American-style, cash settled index options during any time 
when trading in such options is delayed, halted, or suspended, protects 
investors and the public interest by limiting the ability of holders of 
such options to take advantage of such a delay, halt or suspension, 
during which all market participants cannot act in response to the 
conditions causing the delay, halt or suspension.
    The Exchange believes that proposed Rule 603(b)(5)(ii) to permit 
the Exchange or its authorized agent may calculate bids and asks for 
various indices for the sole purpose of determining permissible bid/ask 
differentials on options on these indices perfects the mechanisms of a 
free and open market and a national market system by using a weighted 
average method of determining allowable bid/ask differentials. The 
Exchange believes that the calculation of a bid/ask differential for 
the underlying index perfects the mechanisms of a free and open market 
and a national market system by determining reasonable allowable bid/
ask differentials in options overlying an index. This calculation 
should provide an accurate standard for Market Makers to follow when 
establishing their markets. The Exchange believes that the proposed 
rule will result in narrower bid/ask differentials in index option 
quotations on the Exchange, all to the benefit of investors and the 
marketplace as a whole.
    The Exchange believes that its proposed surveillance program and 
available capacity with respect to the listing and trading of index 
options perfects the mechanisms of a free and open market and a 
national market system through, among other things, its membership in 
ISG and its current available capacity. As discussed above, the 
Exchange represents that has an adequate surveillance program in place 
for index options. The Exchange is a member of the ISG, which ``is 
comprised of an international group of exchanges, market centers, and 
market regulators.'' The purpose of the ISG is to provide a framework 
for the sharing of information and the coordination of regulatory 
efforts among exchanges trading securities and related products to 
address potential intermarket manipulations and trading abuses. The ISG 
plays a crucial role in information sharing among markets that trade 
securities, options on securities, security futures products, and 
futures and options on broad-based security indexes. A list identifying 
the current ISG members is available at https://www.isgportal.org/home.html. MIAX Options has analyzed its capacity and represents that 
it believes the Exchange and the Options Price Reporting Authority 
(``OPRA'') have the necessary systems capacity to handle the additional 
traffic associated with the listing and trading of index options.

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. On the contrary, the 
Exchange believes that the proposed rule change will enable the 
Exchange to compete for order flow in index options products with other 
exchanges that currently have rules and functionality in place to list 
and trade index options.
    The Exchange further believes that the proposed rule change will 
enhance intra-market competition, as more varied index products become 
available for trading on the Exchange, which should encourage a greater 
number of Market Makers to trade index options, resulting in greater 
liquidity and more competitive quoting 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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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-2017-39 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-MIAX-2017-39. 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

[[Page 38960]]

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-2017-39 and should be 
submitted on or before September 6, 2017.
---------------------------------------------------------------------------

    \55\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\55\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-17272 Filed 8-15-17; 8:45 am]
 BILLING CODE 8011-01-P


