Notice2021-27661
Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Increase Position Limits for Options on Two Exchange-Traded Funds
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
December 22, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 243 (Wednesday, December 22, 2021)</title>
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[Federal Register Volume 86, Number 243 (Wednesday, December 22, 2021)]
[Notices]
[Pages 72669-72674]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-27661]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93801; File No. SR-MIAX-2021-61]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Increase Position Limits for Options on Two Exchange-
Traded Funds
December 16, 2021.
Pursuant to 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 December 3, 2021, Miami International Securities Exchange, LLC
(``MIAX Options'' or the ``Exchange'') filed with the Securities and
Exchange Commission (``Commission'') the 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.
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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 the
Substance of the Proposed Rule Change
The Exchange is filing a proposal to amend Exchange Rule 307
(Position Limits) and Exchange Rule 309 (Exercise Limits).
The text of the proposed rule change is available on the Exchange's
website, at <a href="http://www.miaxoptions.com/rule-filings/">http://www.miaxoptions.com/rule-filings/</a> 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
The Exchange proposes to amend Exchange Rule 307 (Position Limits)
and Exchange Rule 309 (Exercise Limits) to increase the position and
exercise limits for options on certain exchange-traded funds
(``ETFs''). These proposed rule changes are based on the similar
proposal by Cboe Exchange, Inc. (``Cboe'') and approved by the
Commission.\3\
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\3\ See Securities Exchange Act Release No. 93525 (November 4,
2021), 86 FR 62584 (November 10, 2021) (SR-Cboe-2021-029) (Notice of
Filing of Amendment Nos. 2 and 3 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1,
2, and 3, To Increase Position Limits for Options on Two-Exchange-
Traded Funds).
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Position limits are designed to address potential manipulative
schemes and adverse market impacts surrounding the use of options, such
as disrupting the market in the security underlying the options. While
position limits should address and discourage the potential for
manipulative schemes and adverse market impact, if such limits are set
too low, participation in the options market may be discouraged. The
Exchange believes that position limits must therefore be balanced
between mitigating concerns of any potential manipulation and the cost
of inhibiting potential hedging activity that could be used for
legitimate economic purposes.
The Exchange has observed an ongoing increase in demand, for both
trading and hedging purposes in options on iShares[supreg] iBoxx $
Investment Grade Corporate Bond ETF (``LQD'') and VanEck Vectors Gold
Miners ETF (``GDX,'' and collectively, with the aforementioned ETF, the
``Underlying ETFs''). Though the demand for these options appears to
have increased, position limits for options on the Underlying ETFs have
remained the same. The Exchange believes these unchanged position
limits may have impeded, and may continue to impede, trading activity
and strategies of investors, such as use of effective hedging vehicles
or income generating strategies (e.g., buy-write or put-write), and the
ability of Market Makers \4\ to make liquid markets with tighter
spreads in these options resulting in the transfer of volume to over-
the-counter (``OTC'') markets. OTC transactions occur through bilateral
agreements, the terms of which are not publicly disclosed to the
marketplace. As such, OTC transactions do not contribute to the price
discovery process on a public exchange or other lit markets. Therefore,
the Exchange believes that the proposed increases in position limits
(and exercise limits) for options on the Underlying ETFs may enable
liquidity providers to provide additional liquidity to the Exchange and
other market participants to transfer their liquidity demands from OTC
markets to the Exchange. As described in further detail below, the
Exchange believes that the continuously increasing market
capitalization of the Underlying ETFs, ETF components, as well as the
highly liquid markets for each, reduces the concerns for potential
market manipulation and/or disruption in the underlying markets upon
increasing position limits, while the rising demand for trading options
on the Underlying ETFs for legitimate economic purposes compels an
increase in position limits.
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\4\ ``Market Makers'' means ``Lead Market Makers,'' ``Primary
Lead Market Makers'' and ``Registered Market Makers'' collectively.
See Exchange Rule 100. A Market Maker has the rights and
responsibilities set forth in Chapter VI of the Exchange's Rulebook.
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Proposed Position Limits for Options on the Underlying ETFs
Position limits for options on ETFs are determined pursuant to
Exchange Rule 307 and vary according to the number of outstanding
shares and the trading volumes of the underlying equity security (which
includes ETFs) over the past six months. Pursuant to Rule 307, the
largest in capitalization and the most frequently traded stocks and
ETFs have an option position limit of 250,000 contracts (with
adjustments for splits, re-capitalizations, etc.) on the same side of
the market; and smaller
[[Page 72670]]
capitalization stocks and ETFs have position limits of 200,000, 75,000,
50,000, or 25,000 contracts (with adjustments for splits, re-
capitalizations, etc.) on the same side of the market. Options on LQD
and GDX are currently subject to the standard position limit of 250,000
contracts as set forth in Exchange Rule 307, Policy .01 of Exchange
Rule 307 sets forth separate, higher position limits for specific
equity options (including options on specific ETFs).\5\
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\5\ Adjusted option series, in which one option contract in the
series represents the delivery of other than 100 shares of the
underlying security as a result of a corporate action by the issuer
of the security underlying such option series, do not impact the
notional value of the underlying security represented by those
options. When an underlying security undergoes a corporate action
resulting in adjusted series, the Exchange lists new standard option
series across all appropriate expiration months the day after the
existing series are adjusted. The adjusted series are generally
actively traded for a short period of time following adjustment, but
orders to open options positions in the underlying security are
almost exclusively placed in the new standard option series
contracts.
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The Exchange proposes to amend Policy .01 of Exchange Rule 307 to
increase the position limits for options on each of LQD and GDX. The
Exchange also proposes to amend Policy .01 of Exchange Rule 309 to
increase the exercise limits for options on each of LQD and GDX. The
table below represents the current, and proposed, position and exercise
limits for options on the Underlying ETFs subject to this proposal:
------------------------------------------------------------------------
Current Proposed
Product position/ position/
exercise limit exercise limit
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LQD..................................... 250,000 500,000
GDX..................................... 250,000 500,000
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The Exchange notes that the proposed position limit for options on
LQD and GDX are consistent with current position limits for options on
the iShares[supreg] MSCI Brazil ETF (``EWZ''), iShares[supreg] 20+ Year
Treasury Bond Fund ETF (``TLT''), iShares[supreg] MSCI Japan ETF
(``EWJ''), and iShares[supreg] iBoxx $ High Yield Corporate Bond Fund
(``HYG'').\6\ The Exchange represents that the Underlying ETFs qualify
for either (1) the initial listing criteria set forth in Rule
402(i)(5)(ii) for ETFs holding non-U.S. component securities, (2) the
generic listing standards for series of portfolio depository receipts
and index fund shares based on international or global indexes under
which a comprehensive surveillance agreement (``CSA'') is not required,
or (3) the continued listing criteria in Exchange Rule 403 (for
ETFs).\7\ In compliance with its listing rules, the Exchange also
represents that non-U.S. component securities that are not subject to a
CSA do not, in the aggregate, represent more than 50% of the weight of
any of the Underlying ETFs.\8\
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\6\ See Exchange Rule 307, Interpretation and Policy .01.
\7\ The Exchange notes that the initial listing criteria for
options on ETFs that hold non-U.S. component securities are more
stringent than the maintenance listing criteria for those same ETF
options. See Exchange Rule 402(i)(5)(ii) and Exchange Rule 403(g).
\8\ See Exchange Rule 402(i)(5)(ii).
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Composition and Growth Analysis for Underlying ETFs
As stated above, position (and exercise) limits are intended to
prevent the establishment of options positions that can be used to, or
potentially create incentives to, manipulate the underlying market so
as to benefit options positions. The Commission has recognized that
these limits are designed to minimize the potential for mini-
manipulations and for corners or squeezes of the underlying market, as
well as serve to reduce the possibility for disruption of the options
market itself, especially in illiquid classes.\9\ The Underlying ETFs,
as well as the ETF components, are highly liquid and are based on a
broad set of highly liquid securities and other reference assets, as
demonstrated through the trading statistics presented in this proposal.
To support the proposed position limit increases (and corresponding
exercise limit increases), the Exchange considered the liquidity of the
Underlying ETFs, the Value of the underlying ETFs, their components and
the relevant marketplace, the share and option volume for the
Underlying ETFs, and, where applicable, the availability or comparison
of economically equivalent products to options on the Underlying ETFs.
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\9\ See Securities Exchange Act Release No. 67672 (August 15,
2012), 77 FR 50750 (August 22, 2012) (SR-NYSEAmex-2012-29).
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Cboe demonstrated the below trading statistics regarding shares of
and options on the Underlying ETFs and the values of the Underlying
ETFs and their components: \10\
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\10\ See supra note 3.
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Shares
ADV \11\ (ETF ADV (options outstanding Fund market Share value \14\
Product shares contracts) (millions) cap (USD (USD)
millions) \12\ millions) \13\
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LQD......................... 14.1 30,300 308.1 54,113.7 130.13 (NAV)
GDX......................... 39.4 166,000 419.8 16,170.5 33.80 (NAV)
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Cboe collected the same trading statistics as above regarding a
sample of other ETFs, as well as the current position limits for
options on such ETFs pursuant to its Rule 13.07, to draw comparisons in
support of the proposed position limit increases for options on the
Underlying ETFs (see further discussion below).\15\
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\11\ Average daily volume (ADV) data for ETF shares and option
contracts, as well as for ETF shares and options on the comparative
ETFs presented below, are for all of 2020. Additionally, reference
to ADV in ETF shares and ETF options, and indexes herein this
proposal are for all of calendar year 2020, unless otherwise
indicated.
\12\ Shares Outstanding and Net Asset Values (``NAV''), as well
as for the comparative ETFs presented below, are as of April 5, 2021
for all ETFs.
\13\ Fund Market Capitalization data, as well as for the
comparative ETFs presented below, are as of January 14, 2021.
\14\ See supra note 12.
\15\ See supra note 3.
[[Page 72671]]
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ADV (ETF Shares Fund market Current
Product shares ADV (options outstanding cap (USD Share value (USD) position
millions) contract) (millions) millions) limits
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EWZ..................................... 29.2 139,400 173.8 6,506.8 33.71 (NAV)................... 500,000
TLT..................................... 11.5 111,800 103.7 17,121.3 136.85 (NAV).................. 500,000
EWJ..................................... 8.2 15,500 185.3 13,860.7 69.72 (NAV)................... 500,000
HYG..................................... 30.5 261,600 254.5 24,067.5 86.86 (NAV)................... 500,000
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The Exchange believes that, overall, the liquidity in the shares of
the Underlying ETFs and in their overlying options, the larger market
capitalizations for each of the Underlying ETFs, and the overall market
landscape relevant to each of the Underlying ETFs support the proposal
to increase the position limits for each option class. Given the robust
liquidity in, and value of, the Underlying ETFs and their components,
the Exchange does not anticipate that the proposed increase in position
limits would create significant price movements as the relevant markets
are large enough to adequately absorb potential price movements that
may be caused by larger trades.
LQD tracks the performance of the Markit iBoxx USD Liquid
Investment Grade (``IBOXIG'') Index, which is an index designed as a
subset of the broader U.S. dollar-denominated corporate bond market
which can be used as a basis for tradable products, such as ETFs, and
is comprised of over 8,000 bonds.\16\ Cboe noted that from 2019 through
2020, ADV has grown significantly in shares of LQD and in options on
LQD, from approximately 9.7 million shares in 2019 to 14.1 million
through 2020, and from approximately 8,200 option contracts in 2019 to
30,300 option contracts through 2020. LQD also continued to experience
significant growth in ADV in the first quarter of 2021 with an ADV of
approximately 140,200 options contracts. Further, LQD generally
experiences higher ADV in shares than both TLT (11.5 million shares)
and EWJ (8.2 million share) and almost double the ADV in option
contracts than EWJ (15,500 option contracts). Options on each of EWZ,
TLT, and EWJ are currently subject to a position limit of 500,000
contracts--the proposed limit for options on LQD. The NAV of LQD is
also higher than, or comparable to, that of the NAV of the ETFs
underlying the options that are currently subject to a position limit
of 500,000 option contracts (as presented in the table above), which is
indicative that the total value of its underlying components is
generally higher or comparable. Per the tables above, LQD's total
market capitalization of approximately $54.1 billion is also higher
than or comparable to the total market capitalization of the ETFs
underlying the options currently subject to a position limit of 500,000
contracts. In addition to this, Cboe noted that, although there are
currently no options listed for trading on the IBOXIG Index, the
components \17\ of the IBOXIG Index, which can be used in creating a
basket of securities that equate to the LQD ETF, are made up of over
8,000 bonds for which the outstanding face value of each must be
greater than or equal to $2 billion.\18\ The Exchange believes that the
total value of the bonds in the IBOXIG Index, coupled with LQD's share
and option volume, total market capitalization, and NAV price indicates
that the market is large enough to absorb potential price movements
caused by a large trade in LQD. Also, as evidenced above, trading
volume in LQD shares has increased over the past few years, and the
Exchange understands that market participants' need for options has
continued to grow alongside the ETF. Particularly, the Exchange notes
that in the last year, market participants have sought more cost-
effective hedging strategies through the use of LQD options as a result
of the borrow on other fixed income ETFs, such as HYG. Therefore, the
Exchange believes that because LQD options are being increasingly
utilized as an alternative to similar products, such as HYG options,
then it is appropriate that options on LQD be subject to the same
500,000 contract position limit that currently exists for options on
HYG.
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\16\ See Markit iBoxx USD Liquid Investment Grade Index,
available at <a href="https://cdn.ihs.com/www/pdf/MKT-iBoxx-USD-Liquid-Investment-Grade-Index-factsheet.pdf">https://cdn.ihs.com/www/pdf/MKT-iBoxx-USD-Liquid-Investment-Grade-Index-factsheet.pdf</a>. (March 31, 2021).
\17\ Investment grade corporate bonds.
\18\ See supra note 16.
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GDX seeks to replicate as closely as possible the price and yield
performance of the NYSE Arca Gold Miners (``GDMNTR'') Index, which is
intended to track the overall performance of companies involved in the
gold mining industry.\19\ Cboe noted ADV in GDX options has increased
from 2019 through 2020, with an ADV of approximately 117,400 option
contracts in 2019 to an ADV of approximately 166,000 option contracts
in 2020. Cboe noted that ADV in GDX shares did not increase from 2019
to 2020. GDX options also experienced an ADV of approximately 287,800
option contracts in the first quarter of 2021. Cboe noted that the ADV
in GDX shares (39.4 million) and options on GDX (166,000 option
contracts) are greater than the ADV in EWZ (29.2 million shares and
139,300 option contracts), TLT (11.5 million shares and 111,800 option
contracts), EWJ (8.2 million shares and 15,500 option contracts), and
HYG (30.5 million shares and 261,600 option contracts), each of which
is currently subject to a position limit of 500,000 option contracts--
the proposed limit for options on GDX. GDX also experiences a
comparable, or higher, market capitalization (approximately $16.2
billion) than EWZ, TLT and EWJ. Cboe noted that many of the Brazil-
based gold mining constituents included in GDX are also included in
EWZ, which tracks the investment results of an index composed of
Brazilian equities, and that Cboe had not identified any issues with
the continued listing and trading of EWZ options or any adverse market
impact on EWZ in connection with the current 500,000 position limit in
place for EWZ options. Additionally, like that of LDQ [sic] above,
there is currently no index option analogue for the GDX ETF on the
GDMNTR Index approved for options trading; however, the components of
the GDMNTR Index, which can be used to create the GDX ETF, currently
must each have a market capitalization greater than $750 million, an
ADV of at least 50,000 shares, and an average daily value traded of at
least $1 million in order to be eligible for inclusion in the GDMNTR
Index. The Exchange believes that the GDMNTR Index component inclusion
requirements, as well as GDX's share and option volume and total market
capitalization, indicate that the GDX
[[Page 72672]]
market is sufficiently large and liquid enough to absorb price
movements as a result of potentially oversized trades.
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\19\ See VanEck Vectors Gold Miners ETF, available at <a href="https://www.vaneck.com/library/vaneck-vectors-etfs/gdx-fact-sheet-pdf/">https://www.vaneck.com/library/vaneck-vectors-etfs/gdx-fact-sheet-pdf/</a>.
(October 31, 2021).
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Creation and Redemption for ETFs
The Exchange believes that the creation and redemption process for
the ETFs subject to this proposal will lessen the potential for
manipulative activity with options on the Underlying ETFs. When an ETF
provider wants to create more shares, it looks to an Authorized
Participant (``AP'') (generally a Market-Maker or other large financial
institution) to acquire the securities the ETF is to hold. For
instance, when an ETF is designed to track the performance of an index,
the AP can purchase all the constituent securities in the exact same
weight as the index, then deliver those shares to the ETF provider. In
exchange, the ETF provider gives the AP a block of equally valued ETF
shares, on a one-for-one fair value basis. The price is based on the
NAV, not the market value at which the ETF is trading. The creation of
new ETF units can be conducted during an entire trading day and is not
subject to position limits. This process works in reverse where the ETF
provider seeks to decrease the number of shares that are available to
trade. The creation and redemption processes for the Underlying ETFs
creates a direct link to the underlying components of the ETF and
serves to mitigate potential price impact of the ETF shares that might
otherwise result from increased position limits for the options on the
Underlying ETFs.
The Exchange understands that the ETF creation and redemption
processes seek to keep an ETF's share price trading in line with the
product's underlying net asset value. Because an ETF trades like a
stock, its share price will fluctuate during the trading day, due to
simple supply and demand. If demand to buy an ETF is high, for
instance, an ETF's share price might rise above the value of its
underlying components. When this happens, the AP or issuer believes the
ETF may now be overpriced, so it may buy shares of the component
securities or assets and then sell ETF shares in the open market. This
may drive the ETF's share price back toward the underlying net asset
value. Likewise, if an ETF share price starts trading at a discount to
the component securities or assets it holds, the AP or issuer can buy
shares of the ETF and redeem them for the underlying components. Buying
undervalued ETF shares may drive the share price of an ETF back toward
fair value. This arbitrage process helps to keep an ETF's share price
in line with the value of its underlying portfolio.
Surveillance and Reporting Requirements
The Exchange believes that increasing the position limits (and
exercise limits) for the options on the Underlying ETFs would lead to a
more liquid and competitive market environment for these options, which
will benefit customers interested in trading these products. The
reporting requirement for the options on the Underlying ETFs would
remain unchanged. Thus, the Exchange would still require that each
Member \20\ maintains that positions in the options on the same side of
the market, for its own account or for the account of a customer,
report certain information to the Exchange. This information would
include, but would not be limited to, the options positions, whether
such positions are hedged and, if so, a description of the hedge(s).
Market-Makers (including Primary Lead Market-Makers) \21\ would
continue to be exempt from this reporting requirement; however, the
Exchange may access Market-Maker position information.\22\ Moreover,
the Exchange's requirement that Members file reports with the Exchange
for any customer who held aggregate large long or short positions on
the same side of the market of 200 or more option contracts of any
single class for the previous day will remain at this level for the
options subject to this proposal and will continue to serve as an
important part of the Exchange's surveillance efforts.\23\
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\20\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100.
\21\ ``Primary Lead Market Maker'' means a Lead Market Maker
appointed by the Exchange to act as the Primary Lead Market Maker
for the purpose of making markets in securities traded on the
Exchange. The Primary Lead Market Maker is vested with certain
rights and responsibility specified Chapter VI of the Rulebook. See
Exchange Rule 100.
\22\ The Options Clearing Corporation (``OCC'') through the
Large Option Position Reporting (``LOPR'') system acts as a
centralized service provider for Member compliance with position
reporting requirements by collecting data from each Member,
consolidating the information, and ultimately providing detailed
listings of each Member's report to the Exchange, as well as
Financial Industry Regulatory Authority, Inc. (``FINRA''), acting as
its agent pursuant to a regulatory services agreement (``RSA'') with
the Exchange.
\23\ See Rule 310(a).
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The Exchange believes that the existing surveillance procedures and
reporting requirements at the Exchange and other SROs are capable of
properly identifying disruptive and/or manipulative trading activity.
The Exchange also represents that it has adequate surveillances in
place to detect potential manipulation, as well as reviews in place to
identify potential changes in composition of the Underlying ETFs and
continued compliance with the Exchange's listing standards. These
procedures utilize daily monitoring of market activity via automated
surveillance techniques to identify unusual activity in both options
and the Underlying ETFs, as applicable.\24\ The Exchange also notes
that large stock holdings must be disclosed to the Commission by way of
Schedules 13D or 13G,\25\ which are used to report ownership of stock
that exceeds 5% of a company's total stock issue and may assist in
providing information in monitoring for any potential manipulative
schemes.
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\24\ The Exchange believes these procedures have been effective
for the surveillance of trading the options subject to this proposal
and will continue to employ them.
\25\ 17 CFR 240.13d-1.
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The Exchange believes that the current financial requirements
imposed by the Exchange and by the Commission adequately address
concerns regarding potentially large, unhedged positions in the options
on the Underlying ETFs. Current margin and risk-based haircut
methodologies serve to limit the size of positions maintained by any
one account by increasing the margin and/or capital that a Member must
maintain for a large position held by itself or by its customer.\26\ In
addition, Rule 15c3-1 \27\ imposes a capital charge on Members to the
extent of any margin deficiency resulting from the higher margin
requirement.
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\26\ See Exchange Rule 1502 for a description of margin
requirements.
\27\ 17 CFR 240.15c3-1.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\28\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \29\ requirements that the rules
of an exchange be 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 mechanism of a free and
[[Page 72673]]
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) \30\
requirement that the rules of an exchange not be designed to permit
unfair discrimination between customers, issuers, brokers, or dealers.
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\28\ 15 U.S.C. 78f(b).
\29\ 15 U.S.C. 78f(b)(5).
\30\ Id.
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The Exchange believes that the proposed increase in position limits
for options on the Underlying ETFs will remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, protect investors and the public interest,
because it will provide market participants with the ability to more
effectively execute their trading and hedging activities. The proposed
increases will allow market participants to more fully implement
hedging strategies in related derivative products and to further use
options to achieve investment strategies (e.g., there are other
exchange-traded products (``ETPs'') that use options on the ETFs
subject to this proposal as part of their investment strategy, and the
applicable position limits as they stand today may inhibit these other
ETPs in achieving their investment objectives to the detriment of
investors). Also, increasing the applicable position limits may allow
Market-Makers to provide the markets for these options with more
liquidity in amounts commensurate with increased consumer demand in
such markets. The proposed position limit increases may also encourage
other liquidity providers to shift liquidity, as well as encourage
consumers to shift demand, from over the counter markets onto the
Exchange, which will enhance the process of price discovery conducted
on the Exchange through increased order flow.
In addition, the Exchange believes that the structure of the
Underlying ETFs, the considerable market capitalization of the funds
and underlying components, and the liquidity of the markets for the
applicable options and underlying component securities will mitigate
concerns regarding potential manipulation of the products and/or
disruption of the underlying markets upon increasing the relevant
position limits. As a general principle, increases in market
capitalizations, active trading volume, and deep liquidity of the
underlying components do not lead to manipulation and/or disruption.
This general principle applies to the recently observed increased
levels of market capitalization and trading volume and liquidity in
shares of and options on the Underlying ETFs (as described above), and,
as a result, the Exchange does not believe that the options markets or
underlying markets would become susceptible to manipulation and/or
disruption as a result of the proposed position limit increases.
Indeed, the Commission has previously expressed the belief that not
just increasing, but removing, position and exercise limits may bring
additional depth and liquidity to the options markets without
increasing concerns regarding intermarket manipulation or disruption of
the options or the underlying securities.\31\
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\31\ See Securities Exchange Act Release No. 62147 (October 28,
2005) (SR-CBOE-2005-41), at 62149.
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The proposed increase to the position and exercise limits on the
Underlying ETFs has recently been approved by the Commission.\32\
Further, the Exchange notes that the proposed rule change to increase
position limits for select actively traded options is not novel and the
Commission has approved similar proposed rule changes by Cboe to
increase position limits for options on similar, highly liquid and
actively traded ETPs.\33\ Furthermore, the Exchange again notes that
the proposed position limits for options on LQD and GDX are consistent
with existing position limits for options on other ETFs in Rule 307,
Policy .01.\34\
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\32\ See supra note 3.
\33\ See Securities Exchange Act Release Nos. 88768 (April 29,
2020), 85 FR 26736 (May 5, 2020) (SR-CBOE-2021-015); 83415 (June 12,
2018), 83 FR 28274 (June 18, 2018) (SR-CBOE-2018-042); and 68086
(October 23, 2012), 77 FR 65600 (October 29, 2012) (SR-CBOE-2012-
066).
\34\ See supra note 6.
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The Exchange's surveillance and reporting safeguards continue to be
designed to deter and detect possible manipulative behavior that might
arise from increasing or eliminating position and exercise limits in
certain classes. The Exchange believes that the current financial
requirements imposed by the Exchange and by the Commission adequately
address concerns regarding potentially large, unhedged position in the
options on the Underlying ETFs, further promoting just and equitable
principles of trading, the maintenance of a fair and orderly market,
and the protection of investors.
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 Exchange does not
believe the proposed rule change will impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act because the increased position limits (and exercise
limits) will be available to all market participants and apply to each
in the same manner. The Exchange believes that the proposed rule change
will provide additional opportunities for market participants to more
efficiently achieve their investment and trading objectives of market
participants.
The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the Act. On the contrary, the Exchange
believes the proposal promotes competition because it may attract
additional order flow from the OTC market to exchanges, which would in
turn compete amongst each other for those orders.\35\ The Exchange
believes market participants would benefit from being able to trade
options with increased position limits in an exchange environment in
several ways, including but not limited to the following: (1) Enhanced
efficiency in initiating and closing out positions; (2) increased
market transparency; and (3) heightened contra-party creditworthiness
due to the role of OCC as issuer and guarantor. Additionally, BOX
Exchange LLC (``BOX''), Nasdaq ISE, LLC (``ISE''), and Nasdaq PHLX LLC
(``PHLX'') have recently filed similar proposed rule changes to
increase position limits and exercise limits on options on the
Underlying ETFs.\36\
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\35\ Additionally, several other options exchanges have the same
position limits as the Exchange, as they incorporate by reference to
the position limits established by Cboe, and as a result, the
position limits for options on the Underlying ETFs will increase at
those exchanges. For example, The Nasdaq Options Markets LLC
(``NOM'') and Nasdaq BX, Inc. (``BX'') position limits are
determined by the position limits established by Cboe. See NOM and
BX Rules, Options 9, Sec. 13 (Position Limits).
\36\ See Securities Exchange Act Release No. 93659 (November 23,
2021) (SR-BOX-2021-27); Securities Exchange Act Release No. 93658
(November 23, 2021) (SR-ISE-2021-25); Securities Exchange Act
Release No. 93661 (November 23, 2021) (SR-Phlx-2021-70).
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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
[[Page 72674]]
burden on competition; and (iii) become 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 \37\ and Rule 19b-4(f)(6) thereunder.\38\
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\37\ 15 U.S.C. 78s(b)(3)(A).
\38\ 17 CFR 240.19b-4(f)(6). 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.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \39\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \40\ permits the
Commission to 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 proposed rule change may become operative upon filing. The Exchange
states that waiver of the operative delay would be consistent with the
protection of investors and the public interest because it will ensure
fair competition among exchanges by allowing the Exchange to amend the
position and exercise limits and immediately benefit a greater number
of participants who are MIAX Members and members of Cboe by ensuring
consistency and uniformity among competing options exchanges as to the
position and exercise limits for these multiply-listed options classes.
For this reason, the Commission believes that waiver of the 30-day
operative delay is consistent with the protection of investors and the
public interest. Therefore, the Commission hereby waives the operative
delay and designates the proposal as operative upon filing.\41\
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\39\ 17 CFR 240.19b-4(f)(6).
\40\ 17 CFR 240.19b-4(f)(6)(iii).
\41\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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 change 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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#4a383f262f67292527272f243e390a392f29642d253c"><span class="__cf_email__" data-cfemail="ed9f988188c08e8280808883999ead9e888ec38a829b">[email protected]</span></a>. Please include
File Number SR-MIAX-2021-61 on the subject line.
Paper Comments
<bullet> 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-2021-61. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 such 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-2021-61, and should be submitted on
or before January 12, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
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\42\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27661 Filed 12-21-21; 8:45 am]
BILLING CODE 8011-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.