[Federal Register Volume 83, Number 108 (Tuesday, June 5, 2018)]
[Notices]
[Pages 26123-26125]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-11985]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83349; File No. SR-MIAX-2018-11]


Self-Regulatory Organizations; Miami International Securities 
Exchange LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Exchange Rule 307, Position Limits, and 
Exchange Rule 309, Exercise Limits

May 30, 2018.
    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 May 24, 2018, 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 amend Exchange Rule 307, 
Position Limits, Interpretations and Policies .01, and Exchange Rule 
309, Exercise Limits, Interpretations and Policies .01, to amend the 
position and exercise limits for options on the SPDR[supreg] S&P 
500[supreg] ETF Trust (``SPY'').
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/ at MIAX Options' 
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
    Exchange Rule 307, Position Limits, and Exchange Rule 309, Exercise 
Limits, establish position and exercise limits, respectively, for 
aggregate positions in option contracts traded on the Exchange. 
Interpretations and Policies .01 to Exchange Rule 307 lists specific 
position limits for certain select underlying securities, and 
Interpretations and Policies .01 to Exchange Rule 309 lists specific 
exercise limits for certain select underlying securities. SPY is among 
the certain select underlying securities listed in each such Rule. 
Currently, these Rules provide that there are no position limits and 
there are no exercise limits on options overlying SPY pursuant to a 
pilot program, which is

[[Page 26124]]

scheduled to expire on July 12, 2018 (``SPY Pilot Program'').\3\
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    \3\ See Securities Exchange Act Release No. 81020 (June 26, 
2017), 82 FR 29951 (June 30, 2017)(SR-MIAX-2017-30)(extending the 
SPY Pilot Program to July 12, 2018); see also Securities Exchange 
Act Release Nos. 67672 (August 15, 2012), 77 FR 50750 (August 22, 
2012)(SR-NYSEAmex-2012-29); 67937 (September 27, 2012), 77 FR 60489 
(October 3, 2012)(SR-CBOE-2012-091).
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    The Exchange proposes to amend Exchange Rule 307, Interpretations 
and Policies .01, and Exchange Rule 309, Interpretations and Policies 
.01, to allow the SPY Pilot Program to terminate on July 12, 2018, the 
current expiration date of the SPY Pilot Program. In lieu of extending 
the SPY Pilot Program for another year, the Exchange proposes to allow 
the SPY Pilot Program to terminate and to establish position and 
exercise limits of 1,800,000 contracts, for options on SPY, with such 
change becoming operative on July 12, 2018, so that there is no lapse 
in time between termination of the SPY Pilot Program and the 
establishment of the new limits. Furthermore, as a result of the 
termination of the SPY Pilot Program, the Exchange does not believe it 
is necessary to submit a SPY Pilot Program Report at the end of the SPY 
Pilot Program. Based on the prior SPY Pilot Program Reports provided to 
the Commission,\4\ the Exchange believes it is appropriate to terminate 
the SPY Pilot Program and that permanent position and exercise limits 
should be established for SPY.
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    \4\ Id.
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    Position limits are designed to address potential manipulative 
schemes and adverse market impact surrounding the use of options, such 
as disrupting the market in the security underlying the options. The 
potential manipulative schemes and adverse market impact are balanced 
against the potential of setting the limits so low as to discourage 
participation in the options market. The level of those position limits 
must be balanced between curtailing potential manipulation and the cost 
of preventing potential hedging activity that could be used for 
legitimate economic purposes.
    The SPY Pilot Program was established in 2012 in order to eliminate 
position and exercise limits for physically-settled SPY options. \5\ In 
2005, the position limits for SPY options were increased from 75,000 
contracts to 300,000 contracts on the same side of the market.\6\ In 
July 2011, the position limit for these options was again increased 
from 300,000 contracts to 900,000 contracts on the same side of the 
market.\7\ Then, in 2012, the position limits for SPY options were 
eliminated as part of the SPY Pilot Program.\8\
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    \5\ See Securities Exchange Act Release Nos. 67672 (August 15, 
2012), 77 FR 50750 (August 22, 2012)(SR-NYSEAmex-2012-29); 67937 
(September 27, 2012), 77 FR 60489 (October 3, 2012)(SR-CBOE-2012-
091).
    \6\ See Securities Exchange Act Release No. 51041 (January 14, 
2005), 70 FR 3408 (January 24, 2005)(SR-CBOE-2005-06).
    \7\ See Securities Exchange Act Release No. 64928 (July 20, 
2011), 76 FR 44633 (July 26, 2011)(SR-CBOE-2011-065).
    \8\ See supra note 5.
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    The underlying SPY tracks the performance of the S&P 500 Index and 
the Exchange notes that the SPY and SPY options have deep, liquid 
markets that reduce concerns regarding manipulation and disruption in 
the underlying markets. In support of this proposed rule change, the 
Exchange has collected the following trading statistics for SPY and SPY 
Options: (1) The average daily volume (``ADV'') to date (as of May 15, 
2018) for SPY is 108.32 million shares; (2) the ADV to date in 2018 for 
SPY options is 3.9 million contracts per day; (3) the total shares 
outstanding for SPY are 965.43 million; and (4) the fund market cap for 
SPY is 261.65 billion. The Exchange represents further that there is 
tremendous liquidity in the securities that make up the S&P 500 Index.
    Accordingly, the Exchange proposes to amend Interpretations and 
Policies .01 to Exchange Rule 307 and Interpretations and Policies .01 
to Exchange Rule 309 to set forth that the position and exercise limits 
for options on SPY would be 1,800,000 contracts on the same side of the 
market. These position and exercise limits equal the current position 
and exercise limits for options on QQQ, which the Commission previously 
approved to be increased from 900,000 contracts on the same side of the 
market, to 1,800,000 contracts on the same side of the market. \9\ The 
Exchange also notes that SPY is more liquid than QQQ.\10\ The Exchange 
believes that establishing position and exercise limits for the SPY 
options in the amount of 1,800,000 contracts on the same side of the 
market subject to this proposal would allow for the maintenance of the 
liquid and competitive market environment for these options, which will 
benefit customers interested in these products. Under the proposal, the 
reporting requirement for the options would be unchanged.
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    \9\ See Securities Exchange Act Release No. 82931 (March 22, 
2018), 83 FR 13323 (March 28, 2018)(SR-MIAX-2018-10); see also 
Securities Exchange Act Release No. 82770 (February 23, 2018), 83 FR 
8907 (March 1, 2018)(SR-CBOE-2017-057).
    \10\ From the beginning of the year, through May 15, 2018, the 
ADV for SPY was 108.32 million shares while the ADV for QQQ was 
46.64 million shares (calculated using data from Yahoo Finance as of 
May 15, 2018).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange, and, in particular, 
with the requirements of Section 6(b) of the Act.\11\ Specifically, the 
proposal is consistent with Section 6(b)(5) of the Act \12\ because it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, to remove impediments to, and perfect the 
mechanism of, a free and open market and a national market system and, 
in general, to protect investors and the public interest. The Exchange 
believes that establishing permanent position and exercise limits for 
SPY options subject to this proposal will encourage Market Makers to 
continue to provide sufficient liquidity in SPY options on the 
Exchange, which will enhance the process of price discovery conducted 
on the Exchange. The proposal will also benefit institutional investors 
as well as retail traders, and public customers, by continuing to 
provide them with an effective trading and hedging vehicle. In 
addition, the Exchange believes that the structure of the SPY options 
subject to this proposal and the considerable liquidity of the market 
for those options diminishes the opportunity to manipulate this product 
and disrupt the underlying market that a lower position limit may 
protect against.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    Increased position limits for select actively traded options, such 
as that proposed herein (increased as compared to the 900,000 limit in 
place prior to the SPY Pilot Program),\13\ is not novel and has been 
previously approved by the Commission. For example, the Commission has 
previously approved a rule change permitting the Exchange to double the 
position and exercise limits for FXI, EEM, IWM, EFA, EWZ, TLT, QQQ, and 
EWJ.\14\ Furthermore, as previously mentioned, the Commission 
specifically approved a proposal by the Exchange to increase the 
position and exercise limits for options on QQQ from 900,000 contracts 
on the same side of the market to 1,800,000 contracts on the same side 
of the market; similar to the

[[Page 26125]]

current proposal for options on SPY. \15\ The Exchange also notes that 
SPY is more liquid than QQQ.\16\
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    \13\ See supra note 7.
    \14\ See supra note 9.
    \15\ Id.
    \16\ See supra note 10.
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    Lastly, the Commission expressed the belief that implementing 
higher position and exercise limits may bring additional depth and 
liquidity without increasing concerns regarding intermarket 
manipulation or disruption of the options or the underlying 
securities.\17\ The Exchange's existing surveillance and reporting 
safeguards are designed to deter and detect possible manipulative 
behavior which might arise from increasing position and exercise limits 
(increased as compared to the 900,000 limit in place prior to the SPY 
Pilot Program).\18\
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    \17\ See supra note 9.
    \18\ See supra note 7.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    MIAX Options 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. The Exchange believes the 
entire proposal is consistent with Section (6)(b)(8) of the Act \19\ in 
that it does not 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 the proposal promotes competition 
because it will enable the option exchanges to attract additional order 
flow from the over-the-counter market, who in turn compete for those 
orders. The Exchange believes that the proposed rule change will result 
in continued opportunities to achieve the investment and trading 
objectives of market participants seeking efficient trading and hedging 
vehicles, to the benefit of investors, market participants, and the 
marketplace in general. MIAX Options believes this proposed rule change 
is necessary to permit fair competition among the options exchanges and 
to establish uniform position limits for additional multiply listed 
option classes. Furthermore, MIAX Options believes that the other 
options exchanges will file similar proposals with the Commission.
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    \19\ 15 U.S.C. 78f(b)(8).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \20\ and Rule 19b-4(f)(6) \21\ 
thereunder.
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-MIAX-2018-11 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MIAX-2018-11. 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 website (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 website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MIAX-2018-11 and should be submitted on 
or before June 26, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-11985 Filed 6-4-18; 8:45 am]
 BILLING CODE 8011-01-P


