[Federal Register Volume 83, Number 224 (Tuesday, November 20, 2018)]
[Notices]
[Pages 58671-58673]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-25237]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84585; File No. SR-PEARL-2018-24]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 
406, Long-Term Option Contracts

 November 14, 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 November 8, 2018, MIAX PEARL, LLC (``MIAX 
PEARL'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

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

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend MIAX PEARL Rule 406, 
Long-Term Option Contracts.
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/pearl at MIAX 
PEARL's principal office, and at the Commission's Public Reference 
Room.

[[Page 58672]]

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 proposes to amend MIAX PEARL Rule 406, Long-Term 
Option Contracts, to permit the listing and trading of up to ten (10) 
long-term expiration months for long term options on the SPDR[supreg] 
S&P 500[supreg] exchange-traded fund (``SPY'') in response to customer 
demand.\3\ Rule 406(a) currently provides that the Exchange may list 
long-term option contracts that expire from twelve (12) to thirty-nine 
(39) months from the time they are listed (``long-term expiration 
months'') until expiration. There may be up to six (6) long-term 
expiration months per option class.\4\ The proposal will add liquidity 
to the SPY options market by allowing market participants to hedge 
risks relating to SPY positions over a longer period with a known and 
limited cost.
---------------------------------------------------------------------------

    \3\ In contrast to Rule 406(a), MIAX Options Rule 1809(b), which 
is incorporated by reference into MIAX PEARL, and which applies to 
index options, permits the Exchange to list long-term index options 
series based on either the full or reduced value of the underlying 
index, adding up to ten (10) expiration months. The Exchange seeks 
to list ten (10) long-term expiration months on SPY, just as it now 
may list ten (10) expiration months on long-term index options 
series, in order to provide investors with a wider choice of 
investments.
    \4\ Strike price interval (Rule 404) and continuous quoting 
(Rule 605(d)) Rules shall not apply to such options series until the 
time to expiration is less than nine (9) months.
---------------------------------------------------------------------------

    The SPY options market today is characterized by its tremendous 
daily and annual liquidity. As a consequence the Exchange believes that 
the listing of additional SPY long-term expiration months would be well 
received by investors. This proposal to expand the number of permitted 
SPY long-term expiration months would not apply to long-term expiration 
months on any other class of options.\5\
---------------------------------------------------------------------------

    \5\ Historically, SPY is the largest and most actively traded 
ETF in the United States as measured by its assets under management 
and the value of shares traded.
---------------------------------------------------------------------------

    The Exchange proposes to implement the proposed rule change on 
November 16, 2018.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \6\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \7\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanisms of a free and open market and a national market system and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \8\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
---------------------------------------------------------------------------

    In particular, the proposed rule change offers market participants 
additional long-term expiration months on SPY options for their 
investment and risk management purposes. The proposal is intended 
simply to provide additional trading opportunities which have been 
requested by customers, thereby facilitating transactions in options 
and contributing to the protection of investors and the maintenance of 
fair and orderly markets. The proposed rule change responds to the 
continuing needs of market participants, particularly portfolio 
managers and other institutional customers, by providing protection 
from long-term market moves and by offering an alternative to hedging 
portfolios with future positions or off-exchange customized derivative 
instruments.
    Rule 406 has permitted up to six (6) long-term expiration months in 
option classes since the launch of the Exchange, in 2017. Other 
exchanges, such as Nasdaq PHLX LLC (``Phlx''), have permitted up to six 
``LEAPS'' since 1991, when it increased the number of permissible 
expiration months from four to six. As noted by Phlx (in its recent 
proposal to permit up to ten LEAPS expiration months for options on 
SPY), when the Commission approved the increase to six expiration 
months, the Commission stated that it did not believe that increasing 
the number of expiration months to six would cause, by itself, a 
proliferation of expiration months. The Commission also required that 
Phlx monitor the volume of additional options series listed as a result 
of the rule change, and the effect on Phlx's system capacity and 
quotation dissemination displays.\9\ MIAX PEARL believes that the 
addition today of four (4) additional long-term expiration months on 
SPY options likewise does not represent a proliferation of expiration 
months, but is instead a very modest expansion of long-term options in 
response to stated customer demand. Significantly, the proposal would 
feature new long-term expiration months in only a single class of 
options that are very liquid and heavily traded, as discussed above. 
Additionally, the Exchange notes by way of precedent, that ten (10) 
expiration months are already permitted for long-term index options 
series. Further, the Exchange has the necessary systems capacity to 
support the new SPY long-term expiration months.
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 84449 (October 18, 
2018), 83 FR 53699 (October 24, 2018) (SR-Phlx-2018-64). See also 
Securities Exchange Act Release No. 29103 (April 18, 1991), 56 FR 
19132 (April 25, 1991) (approving SR-Phlx-91-18).
---------------------------------------------------------------------------

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. The proposal merely provides 
investors additional investment and risk management opportunities by 
providing flexibility to the Exchange to list additional long-term 
options expiration series, expanding the number of SPY long-term 
expiration months offered on the Exchange from six (6) long-term 
expiration months to ten (10) long-term expiration months.

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

[[Page 58673]]

operative for 30 days from the date on which it was filed, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) 
thereunder.\11\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4. In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \12\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\13\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative on November 16, 2018, to coincide with the 
effective date of Phlx's proposed rule change on which the proposal is 
based.\14\ The Exchange's proposal would conform the Exchange's rules 
relating to permitted number of long-term expiration months on SPY 
options to those of Phlx. Accordingly, the Commission believes that the 
proposal raises no new or novel regulatory issues and waiver of the 30-
day operative delay is consistent with the protection of investors and 
the public interest. The Commission therefore waives the 30-day 
operative delay and designates the proposal operative on November 16, 
2018.\15\
---------------------------------------------------------------------------

    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ See Securities Exchange Act Release No. 84449 (October 18, 
2018), 83 FR 53699 (October 24, 2018) (SR-Phlx-2018-64).
    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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-PEARL-2018-24 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-PEARL-2018-24. 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-PEARL-2018-24 and should be submitted on 
or before December 11, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-25237 Filed 11-19-18; 8:45 am]
 BILLING CODE 8011-01-P


