Notice2023-13218
Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing of a Proposed Rule Change To Amend Exchange Rule 404, Series of Option Contracts Open for Trading, To Implement a Low Priced Stock Strike Price Interval Program
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Published
June 22, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 119 (Thursday, June 22, 2023)</title>
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[Federal Register Volume 88, Number 119 (Thursday, June 22, 2023)]
[Notices]
[Pages 40887-40890]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-13218]
[[Page 40887]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97733; File No. SR-MIAX-2023-22]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC; Notice of Filing of a Proposed Rule Change To Amend
Exchange Rule 404, Series of Option Contracts Open for Trading, To
Implement a Low Priced Stock Strike Price Interval Program
June 15, 2023.
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 June 5, 2023, Miami International Securities Exchange LLC (``MIAX''
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 404,
Series of Option Contracts Open for Trading.
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's principal
office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 404, Series of Option Contracts
Open for Trading. Specifically, the Exchange proposes to adopt new
Interpretations and Policies .12 to Rule 404 to implement a new strike
interval program for stocks that are priced less than $2.50 and have
open interest equal to or greater than 1,000 contracts.
Background
Currently, Exchange Rule 404, Series of Option Contracts Open for
Trading, describes the process and procedures for listing and trading
series of options \3\ on the Exchange. Rule 404 provides for a $2.50
Strike Price Program, where the Exchange may select up to 60 option
classes \4\ on individual stocks for which the interval of strike
prices will be $2.50 where the strike price is greater than $25.00 but
less than $50.00.\5\ Rule 404 also provides for a $1 Strike Price
Interval Program, where the interval between strike prices of series of
options \6\ on individual stocks may be $1.00 or greater provided the
strike price is $50.00 or less, but not less than $1.00.\7\
Additionally, Rule 404 provides for a $0.50 Strike Program.\8\ The
interval of strike prices of series of options on individual stocks may
be $0.50 or greater beginning at $0.50 where the strike price is $5.50
or less, but only for options classes whose underlying security closed
at or below $5.00 in its primary market on the previous trading day and
which have national average daily volume that equals or exceeds 1,000
contracts per day as determined by The Options Clearing Corporation
during the preceding three calendar months. The listing of $0.50 strike
prices is limited to options classes overlying no more than 20
individual stocks (the ``$0.50 Strike Program'') as specifically
designated by the Exchange. The Exchange may list $0.50 strike prices
on any other option classes if those classes are specifically
designated by other securities exchanges that employ a similar $0.50
Strike Program under their respective rules. A stock shall remain in
the $0.50 Strike Program until otherwise designated by the Exchange.\9\
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\3\ The term ``option contract'' means a put or a call issued,
or subject to issuance, by the Clearing Corporation pursuant to the
Rules of the Clearing Corporation. See Exchange Rule 100.
\4\ The terms ``class of options'' or ``option class'' means all
option contracts covering the same underlying security. See Exchange
Rule 100.
\5\ See Exchange Rule 404(f).
\6\ The term ``series of options'' means all option contracts of
the same class having the same exercise price and expiration date.
See Exchange Rule 100.
\7\ See Interpretations and Policies .01(a) of Rule 404.
\8\ See Interpretations and Policies .04 of Rule 404.
\9\ Id.
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Proposal
At this time, the Exchange proposes to adopt a new strike interval
program for stocks that are not in the aforementioned $0.50 Strike
Program (or the Short Term Option Series Program) \10\ and that close
below $2.50 and have open interest equal to or greater than 1,000
contracts. The $0.50 Strike Program considers stocks that have a
closing price at or below $5.00 whereas the Exchange's proposal will
consider stocks that have a closing price below $2.50. Currently, there
is a subset of stocks that are not included in the $0.50 Strike Program
as a result of the limitations of that program which provides that the
listing of $0.50 strike prices shall be limited to option classes
overlying no more than 20 individual stocks as specifically designated
by the Exchange and requires a national average daily volume that
equals or exceeds 1,000 contracts per day as determined by The Options
Clearing Corporation during the preceding three calendar months.\11\
Therefore, the Exchange is proposing to implement a new strike interval
program termed the ``Low Priced Stock Strike Price Interval Program.''
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\10\ See Interpretations and Policies .02 of Rule 404.
\11\ See Interpretations and Policies .04 of Rule 404.
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To be eligible for the inclusion in the Low Priced Stock Strike
Price Interval Program, an underlying stock must (i) close below $2.50
in its primary market on the previous trading day; and (ii) have open
interest equal to or greater than 1,000 contracts. The Exchange notes
that there is no limit to the number of classes that will be eligible
for inclusion in the proposed program, provided, of course, that the
underlyings satisfy both the price and open interest requirements of
the proposed program.
The Exchange also proposes that after a stock is added to the Low
Priced Stock Strike Price Interval Program, the Exchange may list $0.50
strike price intervals from $0.50 up to $2.00. For the purpose of
adding strikes under the Low Priced Stock Strike Price Interval
Program, the ``price of the underlying stock'' shall be measured in the
same way as ``the price of the underlying security'' as set forth in
Rule
[[Page 40888]]
404A(b)(1).\12\ Further, no additional series in $0.50 intervals may be
listed if the underlying stock closes at or above $2.50 in its primary
market. Additional series in $0.50 intervals may not be added until the
underlying stock again closes below $2.50.
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\12\ The Exchange notes this is the same methodology used in the
$1 Strike Price Interval Program. See Interpretations and Policies
.01(c)(3) of Rule 404.
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The Exchange's proposal addresses a gap in strike coverage for low
priced stocks. The $0.50 Strike Program considers stocks that close
below $5.00 and limits the number of option classes listed to no more
than 20 individual stocks (provided that the open interest criteria is
also satisfied). Whereas, the Exchange's proposal has a narrower focus,
with respect to the underlying's stock price, and is targeted on those
stocks that close below $2.50 and does not limit the number of stocks
that may participate in the program (provided that the open interest
criteria is also satisfied). The Exchange does not believe that any
market disruptions will be encountered with the addition of these new
strikes. The Exchange represents that it has the necessary capacity and
surveillance programs in place to support and properly monitor trading
in the proposed Low Priced Stock Strike Price Interval Program.
Impact of Proposal
The Exchange recognizes that its proposal will introduce new
strikes in the marketplace and further acknowledges that there has been
significant effort undertaken by the industry to curb strike
proliferation. This initiative has been spearheaded by the Nasdaq BX
who filed an initial proposal focused on the removal, and prevention of
the listing, of strikes which are extraneous and do not add value to
the marketplace (the ``Strike Interval Proposal'').\13\ The Strike
Interval Proposal was intended to remove repetitive and unnecessary
strike listings across the weekly expiries. Specifically, the Strike
Interval Proposal aimed to reduce the density of strike intervals that
would be listed in the later weeks, by creating limitations for
intervals between strikes which have an expiration date more than
twenty-one days from the listing date.\14\ The Strike Interval Proposal
took into account OCC customer-cleared volume, using it as an
appropriate proxy for demand. The Strike Interval Proposal was designed
to maintain strikes where there was customer demand and eliminate
strikes where there wasn't. At the time of its proposal Nasdaq BX
estimated that the Strike Interval Proposal would reduce the number of
strikes it listed by 81,000.\15\
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\13\ See Securities Exchange Act No. 91225 (February 12, 2021),
86 FR 10375 (February 12, 2021) (SR-BX-2020-032) (BX Strike Approval
Order); see also BX Options Strike Proliferation Proposal (February
25, 2021) available at: <a href="https://www.nasdaq.com/solutions/bx-options-strike-proliferation-proposal">https://www.nasdaq.com/solutions/bx-options-strike-proliferation-proposal</a>.
\14\ See Securities Exchange Act No. 91225 (February 12, 2021),
86 FR 10375 (February 12, 2021) (SR-BX-2020-032).
\15\ See id.
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The Exchange recognizes that its proposal will moderately increase
the total number of option series available on the Exchange. However,
the Exchange's proposal is designed to only add strikes where there is
investor demand \16\ which will improve market quality. Under the
requirements for the Low Priced Stock Strike Price Interval Program as
described herein, the Exchange determined that as of March 31, 2023,
413 symbols met the proposed criteria. Of those symbols 99 are
currently in the $1 Strike Price Interval Program with $1.00 and $2.00
strikes listed. Under the Exchange's proposal the Exchange would add
the $0.50 and $1.50 strikes for these symbols for the current
expiration terms. The remaining 314 symbols eligible under the
Exchange's proposal would have $0.50, $1.00, $1.50 and $2.00 strikes
added to their current expiration terms. Therefore, for the 413 symbols
eligible for the Low Priced Stock Strike Price Interval Program a total
of approximately 13,000 options would be added. As of March 31, 2023,
the Exchange listed 1,090,896 options, therefore the additional options
that would be listed under this proposal would represent a relatively
minor increase of 1.19% in the number of options listed on the
Exchange.
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\16\ See proposed Interpretations and Policies .12(b) of Rule
404 which requires that an underlying stock have open interest equal
to or greater than 1,000 contracts to be eligible for inclusion in
the Low Priced Stock Strike Price Interval Program.
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The Exchange does not believe that its proposal contravenes the
industry's efforts to curtail unnecessary strikes. The Exchange's
proposal is targeted to only underlying stocks that close at less than
$2.50 and that also meet the open interest requirement. Additionally,
because the strike increment is $0.50 there are only a total of four
strikes that may be listed under the program ($0.50, $1.00, $1.50, and
$2.00) for an eligible underlying. Finally, if an eligible underlying
is in another program (e.g., the $0.50 Strike Program or the $1 Strike
Price Interval Program) the number of strikes that may be added is
further reduced if there are pre-existing strikes as part of another
strike listing program. Therefore, the Exchange does not believe that
it will list any unnecessary or repetitive strikes as part of its
program, and that the strikes that will be listed will improve market
quality and satisfy investor demand.
The Exchange further believes that the Options Price Reporting
Authority (``OPRA''), has the necessary systems capacity to handle any
additional messaging traffic associated with this proposed rule change.
The Exchange also believes that Members \17\ will not have a capacity
issue as a result of the proposed rule change. Finally, the Exchange
believes that the additional options will serve to increase liquidity,
provide additional trading and hedging opportunities for all market
participants, and improve market quality.
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\17\ 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.
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2. Statutory Basis
The Exchange believes that its 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,\18\ in that it is designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in, securities, to remove impediments to
and perfect the mechanisms of a free and open market and a national
market system and, in general, to protect investors and the public
interest. Additionally, the Exchange believes the proposed rule change
is consistent with the Section (6)(b)(5) \19\ requirement that the
rules of an exchange not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
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\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78(f)(b)(5).
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The Exchange believes its proposal promotes just and equitable
principles of trade and removes impediments to and perfects the
mechanisms of a free and open market and a national market system as
the Exchange has identified a subset of stocks that are trading under
$2.50 and do not have meaningful strikes available. For example, on
March 20, 2023, symbol SOND closed at $0.82 and had open interest of
34,566
[[Page 40889]]
contracts.\20\ Currently the lowest strike listed is for $2.50, making
the lowest strike 200% away from the closing stock price. Another
symbol, POL, closed at $0.56 on March 20, 2023, and had open interest
of 22,780 contracts.\21\ Similarly, the lowest strike listed is for
$2.50, making the lowest strike more than 300% away from the closing
stock price. Currently, such products have no at-the-money options, as
well as no in-the-money calls or out-of-the-money puts. The Exchange's
proposal will provide additional strikes in $0.50 increments from $0.50
up to $2.00 to provide more meaningful trading and hedging
opportunities for this subset of stocks. Given the increased
granularity of strikes as proposed under the Exchange's proposal out-
of-the-money puts and in-the-money calls will be created. The Exchange
believes this will allow market participants to tailor their investment
and hedging needs more effectively.
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\20\ See Yahoo! Finance, <a href="https://finance.yahoo.com/quote/SOND/history?p=SOND">https://finance.yahoo.com/quote/SOND/history?p=SOND</a> (last visited June 1, 2023).
\21\ See Yahoo! Finance, <a href="https://finance.yahoo.com/quote/POL/history?p=POL">https://finance.yahoo.com/quote/POL/history?p=POL</a> (last visited June 1, 2023).
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The Exchange believes its proposal promotes just and equitable
principles of trade and removes impediments to and perfects the
mechanisms of a free and open market and a national market system and,
in general, protects investors and the public interest by adding
strikes that improves market quality and satisfies investor demand. The
Exchange does not believe that the number of strikes that will be added
under the program will negatively impact the market. Additionally, the
proposal does not run counter to the efforts undertaken by the industry
to curb strike proliferation as that effort focused on the removal and
prevention of extraneous strikes where there was no investor demand.
The Exchange's proposal requires the satisfaction of an open interest
threshold in addition to the underlying closing at a price below $2.50
to be eligible for the program. The Exchange believes that the open
interest requirement threshold of the program ensures that only strikes
with investor demand will be listed. Further, being that the strike
interval is $0.50, there are only a maximum of four strikes that may be
added ($0.50, $1.00, $1.50, and $2.00). Therefore, the Exchange does
not believe that its proposal will undermine the industry's efforts to
eliminate repetitive and unnecessary strikes in any fashion.
The Exchange believes that the proposed rule change is consistent
with Section 6(b)(1) of the Act, which provides that the Exchange be
organized and have the capacity to be able to carry out the purposes of
the Act and the rules and regulations thereunder, and the rules of the
Exchange. The proposed rule change allows the Exchange to respond to
customer demand to provide meaningful strikes for low priced stocks.
The Exchange does not believe that the proposed rule would create any
capacity issue or negatively affect market functionality. Additionally,
the Exchange represents that it has the necessary systems capacity to
support the new options series and handle additional messaging traffic
associated with this proposed rule change. The Exchange also believes
that its Members will not experience any capacity issues as a result of
this proposal. In addition, the Exchange represents that it believes
that additional strikes for low priced stocks will serve to increase
liquidity available as well and improve price efficiency by providing
more trading opportunities for all market participants. The Exchange
believes that the proposed rule change will benefit investors by giving
them increased opportunities to execute their investment and hedging
decisions.
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 that its proposed rule change will
impose any burden on intra-market competition as the Rules of the
Exchange apply equally to all Members of the Exchange and all Members
may trade the new proposed strikes if they so choose. Specifically, the
Exchange believes that investors and market participants will
significantly benefit from the availability of finer strike price
intervals for stocks priced below $2.50, which will allow them to
tailor their investment and hedging needs more effectively.
The Exchange does not believe that its proposed rule change will
impose any burden on inter-market competition, as nothing prevents
other options exchanges from proposing similar rules to list and trade
options on low priced stocks. Rather the Exchange believes that its
proposal will promote inter-market competition, as the Exchange's
proposal will result in additional opportunities for investors to
achieve their investment and trading objectives, to the benefit of
investors, market participants, and the marketplace in general.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) by order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#87f5f2ebe2aae4e8eaeae2e9f3f4c7f4e2e4a9e0e8f1"><span class="__cf_email__" data-cfemail="7200071e175f111d1f1f171c0601320117115c151d04">[email protected]</span></a>. Please include
file number SR-MIAX-2023-22 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-2023-22. 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="https://www.sec.gov/rules/sro.shtml">https://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
[[Page 40890]]
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-MIAX-2023-22 and should be
submitted on or before July 13, 2023.
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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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-13218 Filed 6-21-23; 8:45 am]
BILLING CODE 8011-01-P
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