[Federal Register Volume 85, Number 110 (Monday, June 8, 2020)]
[Notices]
[Pages 34785-34788]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12276]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88993; File No. SR-EMERALD-2020-05]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Exchange Rule 510, Minimum Price Variations and Minimum Trading 
Increments, To Conform the Rule to Section 3.1 of the Plan for the 
Purpose of Developing and Implementing Procedures Designed To 
Facilitate the Listing and Trading of Standardized Options

June 2, 2020.
    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 29, 2020, MIAX Emerald, LLC (``MIAX 
Emerald'' 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 proposes to amend certain of the Exchange's rules to 
conform to Section 3.1 of the Plan for the Purpose of Developing and 
Implementing Procedures Designed to Facilitate the Listing and Trading 
of Standardized Options (the ``OLPP'') and add new subparagraphs 
(a)(3)(i)-(iii) and (b) to Exchange Rule 510.
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/emerald at MIAX 
Emerald'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 purpose of this rule change is to amend Exchange Rule 510, 
Minimum Price Variations and Minimum Trading Increments, to align the 
Exchange's rules with the recently approved amendment to the OLPP.
Background
    On January 23, 2007, the Commission approved on a limited basis a 
Penny Pilot in option classes in certain issues (``Penny Pilot''). The 
Penny Pilot was designed to determine whether

[[Page 34786]]

investors would benefit from options being quoted in penny increments, 
and in which classes the benefits were most significant. The Penny 
Pilot was initiated at the then existing option exchanges in January 
2007 \3\ and expanded and extended numerous times over the last 13 
years.\4\ In each instance, these approvals relied upon the 
consideration of data periodically provided by the Exchanges that 
analyzed how quoting options in penny increments affects spreads, 
liquidity, quote traffic, and volume. Today, the Penny Pilot includes 
363 option classes, which are among the most actively traded, multiply 
listed option classes. The Penny Pilot is scheduled to expire by its 
own terms on June 30, 2020.\5\
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    \3\ See Securities Exchange Act Release Nos. 55154 (January 23, 
2007), 72 FR 4743 (February 1, 2007) (SR-CBOE-2006-92); 55161 
(January 24, 2007), 72 FR 4754 (February 1, 2007) (SR-ISE-2006-62); 
54886 (December 6, 2006), 71 FR 74979 (December 13, 2006) (SR-Phlx-
2006-74); 54590 (October 12, 2006), 71 FR 61525 (October 18, 2006) 
(SR-NYSEArca-2006-73); and 54741 (November 9, 2006), 71 FR 67176 
(November 20, 2006) (SR-Amex-2006-106).
    \4\ See Securities Exchange Act Release Nos. 85225 (March 1, 
2019), 84 FR 8353 (March 7, 2019) (SR-EMERALD-2019-06); 86048 (June 
6, 2019), 84 FR 27382 (June 12, 2019) (SR-EMERALD-2019-23); 87608 
(November 25, 2019), 84 FR 66046 (December 2, 2019) (SR-EMERALD-
2019-36).
    \5\ See Securities Exchange Act Release No. 87608 (November 25, 
2019), 84 FR 66046 (December 2, 2019) (SR-EMERALD-2019-36).
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    In light of the imminent expiration of the Penny Pilot, on June 30, 
2020, the Exchange, together with other participating exchanges, filed 
on July 18, 2019, a proposal to amend the OLPP.\6\ On April 1, 2020, 
the U.S. Securities and Exchange Commission (``Commission'') approved 
the amendment to the OLPP to make permanent the Pilot Program (the 
``OLPP Program'').\7\
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    \6\ See Securities Exchange Act Release No. 87681 (December 9, 
2019), 84 FR 68960 (December 17, 2019) (``Notice'').
    \7\ See Securities Exchange Act Release No. 88532 (April 1, 
2020), 85 FR 19545 (April 7, 2020) (File No. 4-443) (``Approval 
Order'').
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    The OLPP Program replaces the Penny Pilot by instituting a 
permanent program that would permit quoting in penny increments for 
certain option classes. Under the terms of the OLPP Program, designated 
option classes would continue to be quoted in $0.01 and $0.05 
increments according to the same parameters for the Penny Pilot. In 
addition, the OLPP Program would: (i) Establish an annual review 
process to add option classes to, or to remove option classes from, the 
OLPP Program; (ii) allow an option class to be added to the OLPP 
Program if it is a newly listed option class and it meets certain 
criteria; (iii) allow an option class to be added to the OLPP Program 
if it is an option class that has seen significant growth in activity; 
(iv) provide that if a corporate action involves one or more option 
classes in the OLPP Program, all adjusted and unadjusted series and 
classes emerging as a result of the corporate action will be included 
in the OLPP Program; and (v) provide that any series in an option class 
participating in the OLPP Program that have been delisted, or are 
identified by OCC as ineligible for opening Customer transactions, will 
continue to trade pursuant to the OLPP Program until they expire.
    To conform its rules with the OLPP Program, the Exchange proposes 
to delete Interpretation and Policy .01 to Exchange Rule 510 (the 
``Penny Pilot Rule''), which will be ``Reserved,'' and replace it with 
new Exchange Rule 510(b) (Requirements for Penny Interval Program), 
which is described below.
    The Exchange also proposes to amend Exchange Rule 510, Minimum 
Price Variations and Minimum Trading Increments, to amend the 
hierarchical heading scheme. Currently, Exchange Rule 510 only has 
subparagraphs (1) and (2). The Exchange now proposes that the first 
unnumbered paragraph of Exchange Rule 510 will be renumbered 
subparagraph (a), and subparagraphs (1) and (2) will be renumbered as 
subparagraphs (a)(1) and (a)(2). The purpose of this change is for 
uniformity and clarity throughout the Exchange's rulebook.
    The Exchange also proposes to adopt subparagraphs (a)(3)(i)-(iii) 
to conform the Exchange's rules regarding minimum price variations for 
options in the proposed Penny Interval Program with similar rules of 
other option exchanges.\8\ In particular, the Exchange proposes to 
adopt subparagraphs (a)(3)(i)-(iii), which will describe that for 
options contracts traded pursuant to the proposed Penny Interval 
Program (which the Exchange has proposed as new Exchange Rule 510(b)): 
(i) All option contracts in QQQ, SPY and IWM will quote in a minimum of 
one cent ($0.01) price variations; (ii) for all other option contracts 
included in the Penny Interval Program that are trading at less than 
$3, those option contracts will quote in a minimum of one cent ($0.01) 
price variations; and (iii) for all other option contracts included in 
the Penny Interval Program that are trading at or above $3, those 
option contracts will quote in a minimum of five cents ($0.05) price 
variations. The Exchange notes that the Commission previously approved 
minimum quoting increments of one cent ($0.01) for all option contracts 
in QQQ, IWM and SPY, regardless of price, over the course of the 
expansion of the Penny Pilot rules.\9\ Accordingly, the Exchange 
proposes to align its rules regarding minimum price variations for 
option contracts in the Penny Interval Program with other option 
exchanges.
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    \8\ See NYSE Arca Rule 6.72-O (Trading Differentials); see also 
Nasdaq Stock Market, Options 3, Section 3, Supplementary Material 
.01.
    \9\ See Securities Exchange Act Release Nos. 55156 (January 23, 
2007), 72 FR 4759 (February 1, 2007) (SR-NYSEArca-2006-73) (Order 
Granting Approval to Proposed rule Change as Modified by Amendment 
No. 1 Thereto, To Create an Options Penny Pilot Program); 61061 
(November 24, 2009), 74 FR 62857 (December 1, 2009) (SR-NYSEArca-
2009-44) (Order Granting Partial Approval of a Proposed Rule Change, 
as Modified by Amendment No. 4 Thereto, Expanding the Penny Pilot 
Program).
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Penny Interval Program
    The Exchange proposes to codify the OLPP Program in new Exchange 
Rule 510(b) (Requirements for Penny Interval Program) (the ``Penny 
Program''), which will replace the Penny Pilot Rule and permanently 
permit the Exchange to quote certain option classes in minimum 
increments of one cent ($0.01) and five cents ($0.05) (``penny 
increments''). The penny increments that currently apply under the 
Penny Pilot will continue to apply for option classes included in the 
Penny Program. Specifically, (i) the minimum quoting increment for all 
series in the QQQ, SPY, and IWM would continue to be $0.01, regardless 
of price (which the Exchange proposes to codify in proposed Exchange 
Rule 510(a)(3)(i)-(iii)); (ii) all series of an option class included 
in the Penny Program with a price of less than $3.00 would be quoted in 
$0.01 increments; and (iii) all series of an option class included in 
the Penny Program with a price of $3.00 or higher would be quoted in 
$0.05 increments.\10\
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    \10\ See proposed Exchange Rule 510(a)(3)(i)-(iii).
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    The Penny Program would initially apply to the 363 most actively 
traded multiply listed option classes, based on National Cleared Volume 
at The Options Clearing Corporation (``OCC'') in the six full calendar 
months ending in the month of approval (i.e., November 2019-April 2020) 
that currently quote in penny increments, or overlie securities priced 
below $200, or any index at an index level below $200. Eligibility for 
inclusion in the Penny Program will be determined at the close of 
trading on the monthly Expiration Friday of the second full month 
following April 1, 2020 (i.e., June 19, 2020).
    Once in the Penny Program, an option class will remain included 
until it is no longer among the 425 most actively

[[Page 34787]]

traded option classes at the time the annual review is conducted 
(described below), at which point it will be removed from the Penny 
Program. As described in more detail below, the removed class will be 
replaced by the next most actively traded multiply listed option class 
overlying securities priced below $200 per share, or any index at an 
index level below $200, and not yet in the Penny Program. Advanced 
notice regarding the option classes included, added, or removed from 
the Penny Program will be provided to the Exchange's Members via 
Regulatory Circular and published by the Exchange on its website.
Annual Review
    The Penny Program would include an annual review process that 
applies objective criteria to determine option classes to be added to, 
or removed from, the Penny Program. Specifically, on an annual basis 
beginning in December 2020 and occurring every December thereafter, the 
Exchange will review and rank all multiply listed option classes based 
on National Cleared Volume at OCC for the six full calendar months from 
June 1st through November 30th for determination of the most actively 
traded option classes. Any option classes not yet in the Penny Program 
may be added to the Penny Program if the class is among the 300 most 
actively traded multiply listed option classes and priced below $200 
per share, or any index at an index level below $200.
    Following the annual review, option classes to be added to the 
Penny Program would begin quoting in penny increments (i.e., $0.01 if 
trading at less than $3.00; and $0.05 if trading at $3.00 and above) on 
the first trading day of January. In addition, following the annual 
review, any option class in the Penny Program that falls outside of the 
425 most actively traded option classes would be removed from the Penny 
Program. After the annual review, option classes that are removed from 
the Penny Program will be subject to the minimum trading increments set 
forth in Exchange Rule 510, effective on the first trading day of 
April.
Changes to the Composition of the Penny Program Outside of the Annual 
Review Newly Listed Option Classes and Option Classes With Significant 
Growth in Activity
    The Penny Program would specify a process and parameters for 
including option classes in the Penny Program outside the annual review 
process in two circumstances. These provisions are designed to provide 
objective criteria to add to the Penny Program new option classes in 
issues with the most demonstrated trading interest from market 
participants and investors on an expedited basis prior to the annual 
review, with the benefit that market participants and investors will 
then be able to trade these new option classes based upon quotes 
expressed in finer trading increments.
    First, the Penny Program provides for certain newly listed option 
classes to be added to the Penny Program outside of the annual review 
process, provided that (i) the class is among the 300 most actively 
traded, multiply listed option classes, as ranked by National Cleared 
Volume at OCC, in its first full calendar month of trading and (ii) the 
underlying security is priced below $200 or the underlying index is at 
an index level below $200. Such newly listed option classes added to 
the Penny Program pursuant to this process would remain in the Penny 
Program for one full calendar year and then would be subject to the 
annual review process.
    Second, the Penny Program would allow an option class to be added 
to the Penny Program outside of the annual review process if it is an 
option class that meets certain specific criteria. Specifically, new 
option classes may be added to the Penny Program if: (i) The option 
class is among the 75 most actively traded multiply listed option 
classes, as ranked by National Cleared Volume at OCC, in the prior six 
full calendar months of trading and (ii) the underlying security is 
priced below $200 or the underlying index is at an index level below 
$200. Any option class added under this provision will be added on the 
first trading day of the second full month after it qualifies and will 
remain in the Penny Program for the rest of the calendar year, after 
which it will be subject to the annual review process.
Corporate Actions
    The Penny Program would also specify a process to address option 
classes in the Penny Program that undergo a corporate action and is 
designed to ensure continuous liquidity in the affected option classes. 
Specifically, if a corporate action involves one or more option classes 
in the Penny Program, all adjusted and unadjusted series of an option 
class would continue to be included in the Penny Program.\11\ 
Furthermore, neither the trading volume threshold, nor the initial 
price test would apply to option classes added to the Penny Program as 
a result of the corporate action. Finally, the newly added adjusted and 
unadjusted series of the option class would remain in the Penny Program 
for one full calendar year and then would become subject to the annual 
review process.
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    \11\ For example, if Company A acquires Company B and Company A 
is not in the Penny Program but Company B is in the Penny Program, 
once the merger is consummated and an options contract adjustment is 
effective, then Company A would be added to the Penny Program and 
remain in the Penny Program for one calendar year.
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Delisted or Ineligible Option Classes
    Finally, the Penny Program would provide a mechanism to address 
option classes that have been delisted or those that are no longer 
eligible for listing. Specifically, any series in an option class 
participating in the Penny Program in which the underlying has been 
delisted, or is identified by OCC as ineligible for opening customer 
transactions, would continue to quote pursuant to the terms of the 
Penny Program until all options series have expired.
Implementation
    This proposed rule change will become operative on July 1, 2020, 
upon expiration of the current Penny Pilot on June 30, 2020. The 
Exchange proposes to implement the Penny Program on July 1, 2020, which 
is the first trading day of the third month following the Approval 
Order issued on April 1, 2020--i.e., July 1, 2020.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \12\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \13\ 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.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    In particular, the proposed rule change, which conforms the 
Exchange rules to the recently adopted OLPP Program, allows the 
Exchange to provide market participants with a permanent Penny Program 
for quoting options in penny increments, which maximizes the benefit of 
quoting in a finer quoting increment to investors while minimizing the 
burden that a finer quoting increment places on quote traffic.

[[Page 34788]]

    Accordingly, the Exchange believes that the proposal is consistent 
with the Act because, in conforming the Exchange rules to the OLPP 
Program, the Penny Program would employ processes, based upon objective 
criteria, that would rebalance the composition of the Penny Program, 
thereby helping to ensure that the most actively traded option classes 
are included in the Penny Program, which helps facilitate the 
maintenance of a fair and orderly market.
    The Exchange believes the proposed changes to the hierarchical 
heading scheme in Exchange Rule 510 promote just and equitable 
principles of trade and remove impediments to and perfect the mechanism 
of a free and open market and a national market system because the 
proposed rule changes provide uniformity in the Exchange's rulebook and 
do not alter the application of the rule. As such, the proposed changes 
would foster cooperation and coordination with persons engaged in 
facilitating transactions in securities and would remove impediments to 
and perfect the mechanism of a free and open market and a national 
exchange system by providing greater clarity to Members and the public 
regarding the Exchange's Rules. It is in the public interest for rules 
to be accurate and concise so as to eliminate the potential for 
confusion.

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 proposed Penny Program, 
which modifies the Exchange's rules to align them with the Commission 
approved OLPP Program, is not designed to be a competitive filing nor 
does it impose an undue burden on intermarket competition as the 
Exchange anticipates that the options exchanges will adopt 
substantially identical rules. Moreover, the Exchange believes that by 
conforming Exchange rules to the OLPP Program, the Exchange would 
promote regulatory clarity and consistency, thereby reducing burdens on 
the marketplace and facilitating investor protection. To the extent 
that there is a competitive burden on those option classes that do not 
qualify for the Penny Program, the Exchange believes that it is 
appropriate because the proposal should benefit all market participants 
and investors by maximizing the benefit of a finer quoting increment in 
those option classes with the most trading interest while minimizing 
the burden of greater quote traffic in option classes with less trading 
interest. The Exchange believes that adopting rules, which it 
anticipates will likewise be adopted by all option exchanges that are 
participants in the OLPP, would allow for continued competition between 
Exchange market participants trading similar products as their 
counterparts on other exchanges, while at the same time allowing the 
Exchange to continue to compete for order flow with other exchanges.

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 \14\ and Rule 19b-4(f)(6) \15\ 
thereunder.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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 rule-comments@sec.gov. Please include 
File Number SR-EMERALD-2020-05 on the subject line.

Paper Comments

     Send paper comments in triplicate to Vanessa Countryman, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-EMERALD-2020-05. 
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-EMERALD-2020-05 and should be submitted 
on or before June 29, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12276 Filed 6-5-20; 8:45 am]
 BILLING CODE 8011-01-P


