Notice2025-10748
Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Rule 1327, In-Kind Exchange of Options Positions and ETF Shares and UIT Units
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
June 13, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 113 (Friday, June 13, 2025)</title>
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[Federal Register Volume 90, Number 113 (Friday, June 13, 2025)]
[Notices]
[Pages 25097-25102]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-10748]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103213; File No. SR-MIAX-2025-25]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Adopt Rule 1327, In-Kind Exchange of Options
Positions and ETF Shares and UIT Units
June 9, 2025.
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, 2025, 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 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 Substance
of the Proposed Rule Change
The Exchange proposes to adopt Rule 1327, In-Kind Exchange of
Options Positions and ETF Shares and UIT Units. Specifically, the
Exchange is proposing to adopt Rule 1327, which would permit positions
in options listed on the Exchange to be transferred off the Exchange by
a Member \3\ in connection with transactions (a) to purchase or redeem
creation units of ETF shares between an authorized member and the
issuer of such ETF shares, or (b) to create or redeem units of a UIT
between a broker-dealer and the issuer of such UIT units, which
transfers would occur at the price used to calculate the net asset
value (``NAV'') of such ETF shares or UIT units, respectively.
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\3\ 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 Act. See Exchange
Rule 100.
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The text of the proposed rule change is available on the Exchange's
website at <a href="https://www.miaxglobal.com/markets/us-options/all-options-exchanges/rule-filings">https://www.miaxglobal.com/markets/us-options/all-options-exchanges/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 purpose of the proposed rule change is to adopt Rule 1327
regarding in-kind exchanges of options positions and exchange-traded
fund (``ETF'') shares and unit investment trust (``UIT'') interests.
The Exchange notes that this filing is based on a proposal submitted by
Cboe C2 Exchange, Inc. (``C2'') to the Securities and Exchange
Commission (the ``SEC'' or the ``Commission'').\4\
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\4\ See Cboe C2 Exchange, Inc. (``C2'') Rule 6.9; see also
Securities Exchange Act Release No. 89056 (June 12, 2020), 85 FR
36888 (June 18, 2020) (SR-C2-2020-006) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Adopt Chapter
6, Section G Regarding Off-Floor Transactions and Transfers). In
this instance the Exchange is specifically proposing to add the `In-
Kind Exchange of Options Positions and ETF Shares and UIT Interests'
rule. See also Cboe Exchange, Inc (``CBOE'') Rule 6.9; see also
Securities Exchange Act Release No. 87340 (October 17, 2019), 84 FR
56877 (October 23, 2019) (SRCBOE-2019-048) (Order Approving on an
Accelerated Basis a Proposed Rule Change, as Modified by Amendment
Nos. 2 and 3, to Adopt Rule 6.9 (In-Kind Exchange of Options
Positions and ETF Shares)). See also Nasdaq PHLX LLC (``Phlx'')
Options 6, Section 7; see also Securities Exchange Act Release No.
87768 (December 17, 2019), 84 FR 70605 (December 23, 2019) (SR-Phlx-
2019-53) (Notice of Filing and Immediate Effectiveness of Proposed
Rule Change to Adopt a New Rule 1059). In 2020, PHLX filed SR-Phlx-
2020-03 to relocate the Phlx Rulebook into their new Rulebook Shell,
Phlx Rule 1059 was relocated to Options 6, Section 7. See Securities
Exchange Act Release No. 88213 (March 12, 2020), 85 FR 9859
(February 20, 2020) (SR-Phlx-2020-03) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change To Relocate Rules
From Its Current Rulebook Into Its New Rulebook Shell). See also
NYSE Arca, Inc. Rule 6.78C-O; see also Securities Exchange Act
Release No. 95644 (August 31, 2022), 87 FR 54727 (August 31, 2022)
(SR-NYSEARCA-2022-55) (Notice of Filing and Immediate Effectiveness
of Proposed Rule Change To Modify Rule 6.78-O and Adopt New Rules
Related Thereto and Delete Paragraph (d) to Rule 6.69-O). See also
NYSE American, LLC Rule 997.3NY; see also Securities Exchange Act
Release 95646 (August 31,2022), 87 FR 54720 (August 31, 2022) (SR-
NYSEAMER-2022-36) (Notice of Filing and Immediate Effectiveness of
Proposed Rule Change to Adopt New Rules 997NY, 997.1NY, 997.2NY and
997.3NY and Delete Paragraph (d) to Rule 957NY).
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[[Page 25098]]
Background
As discussed further below, the ability to effect ``in kind''
transfers is a key component of the operational structure of an ETF and
a UIT. Currently, in general, ETFs and UITs can effect in kind
transfers with respect to equity securities and fixed-income
securities. The in-kind process is a major benefit to ETF shareholders
and UIT unit holders, enabling tax efficient addition and removal of
assets from these investment vehicles. In-kind transfers protect ETF
shareholders and UIT unit holders from the undesirable tax effects of
frequent ``creations and redemptions'' (described below) and improve
the overall tax efficiency of the products. However, currently,
Exchange Rules do not provide for ETFs and UITs to effect in-kind
transfers of options off of the Exchange, resulting in tax
inefficiencies for the ETFs and UITs that hold them. As a result, the
use of options by ETFs and UITs is substantially limited.
Currently, Exchange Rule 1326(a) permits existing positions in
options listed on the Exchange of a Member or person associated with
the Member or non- Member or person associated with a non-Member that
are to be transferred on, from, or to the books of a Clearing Member
\5\ to be transferred off the Exchange if the transfer involves one or
more of the following events: (1) pursuant to Rule 301, an adjustment
or transfer in connection with the correction of a bona fide error in
the recording of a transaction or the transferring of a position to
another account, provided that the original trade documentation
confirms the error; (2) the transfer of positions from one account to
another account where no change in ownership is involved (i.e.,
accounts of the same Person (as defined in Rule 100) \6\), provided the
accounts are not in separate aggregation units or otherwise subject to
information barrier or account segregation requirements; (3) the
consolidation of accounts where no change in ownership is involved; (4)
a merger, acquisition, consolidation, or similar non-recurring
transaction for a Person; (5) the dissolution of a joint account in
which the remaining Member assumes the positions of the joint account;
(6) the dissolution of a corporation or partnership in which a former
nominee of the corporation or partnership assumes the positions; (7)
positions transferred as part of a Member's capital contribution to a
new joint account, partnership, or corporation; (8) the donation of
positions to a not-for-profit corporation; (9) the transfer of
positions to a minor under the Uniform Gifts to Minors Act; or (10) the
transfer of positions through operation of law from death, bankruptcy,
or otherwise. At present, the list of limited circumstances in Rule
1326 that allows Members to transfer their options positions off the
Exchange does not include an exception for in-kind transfers.
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\5\ The term ``Clearing Member'' means a Member that has been
admitted to membership in the Clearing Corporation pursuant to the
provisions of the rules of the Clearing Corporation. See Exchange
Rule 100. The term ``Clearing Corporation'' means The Options
Clearing Corporation. See Exchange Rule 100.
\6\ The term ``Person'' shall refer to a natural person,
corporation, partnership (general or limited), limited liability
company, association, joint stock company, trust, trustee of a trust
fund, or any organized group of persons whether incorporated or not
and a government or agency or political subdivision thereof. See
Exchange Rule 100.
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The Exchange proposes to add a new circumstance under which off-
Exchange transfers of options positions would be permitted to occur.
Specifically, under proposed Rule 1327, positions in options listed on
the Exchange would be permitted to be transferred off the Exchange by a
Member or Member organization in connection with transactions (a) to
purchase or redeem ``creation units'' of ETF shares between an
``authorized member'' \7\ and the issuer \8\ of such ETF shares \9\ or
(b) to create or redeem units of a UIT between a broker-dealer and the
issuer \10\ of such UIT units, which transfers would occur at the price
used to calculate the net asset value (``NAV'') of such ETF shares or
UIT units, respectively. This proposed new exception, although limited
in scope, would have a significant impact in that it would help protect
ETF shareholders and UIT holders from undesirable tax consequences and
facilitate tax efficient operations. The frequency with which ETFs and
authorized members, and UITs and sponsors, would rely on the proposed
exception would depend upon such factors as the number of ETFs and
UITs, respectively, holding options positions traded on the Exchange,
the market demand for the shares of such ETFs and units of such UITs,
the redemption activity of authorized members and sponsors,
respectively, and the investment strategies employed by such ETFs and
UITs.
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\7\ The Exchange is proposing that, for purposes of proposed
Rule 1327, the term ``authorized member'' would be defined as an
entity that has a written agreement with the issuer of ETF shares or
one of its service providers, which allows the authorized member to
place orders for the purchase and redemption of creation units
(i.e., specified numbers of ETF shares). While an authorized member
may be a Member and directly effect transactions in options on the
Exchange, an authorized member that is not a Member may effect
transactions in options on the Exchange through a Member on its
behalf.
\8\ The Exchange proposes that, for purposes of proposed Rule
1327, any issuer of ETF shares would be registered with the
Commission as an open-end management investment company under the
Investment Company Act of 1940 (the ``1940 Act'').
\9\ An ETF share is a share or other security traded on a
national securities exchange and defined as an NMS stock, which
includes interest in open-end management investment companies. See
Exchange Rule 402.
\10\ The Exchange proposes that, for purposes of proposed Rule
1327, any issuer of UIT units would be a trust registered with the
Commission as a unit investment trust under the 1940 Act.
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While the Exchange recognizes that, in general, the execution of
options transactions on exchanges provides certain benefits, such as
price discovery and transparency, based on the circumstances under
which proposed Rule 1327 would apply, the Exchange does not believe
that such benefits would be compromised. In this regard, as discussed
more fully below, the Exchange notes that in conjunction with the
creation and redemption process, positions would be transferred at a
price(s) used to calculate the NAV of such ETF shares and UIT units. In
addition, although options positions would be transferred off of the
Exchange, they would not be closed or ``traded.'' Rather, they would
reside in a different clearing account until closed in a trade on the
Exchange or until they expire. Further, as discussed below, proposed
Rule 1327 would be clearly delineated and limited in scope, given that
the proposed exception would only apply to transfers of options
effected in connection with the creation and redemption process.
ETFs
As described in further detail below, while ETFs do not sell and
redeem individual shares to and from investors, they do sell large
blocks of their shares to, and redeem them from, authorized members in
conjunction with what is known as the ETF creation and redemption
process. Under the proposed exception, ETFs that hold options listed on
the Exchange would be permitted to effect creation and redemption
transactions with authorized members on an ``in kind'' basis, which is
the process that may generally be utilized by ETFs for other asset
types. This ability would allow such ETFs to function as more tax
efficient investment vehicles to the benefit of investors that hold ETF
shares. In addition, it may also result in
[[Page 25099]]
transaction cost savings for the ETFs, which may be passed along to
investors.
Due to their ability to effect in-kind transfers with authorized
members in conjunction with the creation and redemption process
described below, ETFs have the potential to be significantly more tax-
efficient than other pooled investment products, such as mutual
funds.\11\ ETFs issue shares that may be purchased or sold during the
day in the secondary market at market-determined prices. Similar to
other types of investment companies, ETFs invest their assets in
accordance with their investment objectives and investment strategies,
and ETF shares represent interests in an ETF's underlying assets. ETFs
are, in certain respects, similar to mutual funds in that they
continuously offer their shares for sale. In contrast to mutual funds,
however, ETFs do not sell or redeem individual shares. Rather, through
the creation and redemption process referenced above, authorized
members have contractual arrangements with an ETF and/or its service
provider (e.g., its distributor) purchase and redeem shares directly
from that ETF in large aggregations known as ``creation units.'' In
general terms, to purchase a creation unit of ETF shares from an ETF,
in return for depositing a ``basket'' of securities and/or other assets
identified by the ETF on a particular day, the authorized member will
receive a creation unit of ETF shares. The basket deposited by the
authorized member is generally expected to be representative of the
ETF's portfolio \12\ and, when combined with a cash balancing amount
(i.e., generally an amount of cash intended to account for any
difference between the value of the basket and the NAV of a creation
unit), if any, will be equal in value to the aggregate NAV of the
shares of the ETF comprising the creation unit. The NAV for ETF shares
is represented by the traded price for ETFs holding options positions
on days of creation or redemption, and an options pricing model on days
in which creations and redemptions do not occur. After purchasing a
creation unit, an authorized member may then hold individual shares of
the ETF and/or sell them in the secondary market. In connection with
effecting redemptions, the creation process described above is
reversed. More specifically, the authorized member will redeem a
creation unit of ETF shares to the ETF in return for a basket of
securities and/or other assets (along with any cash balancing account).
The ETF creation and redemption process, coupled with the secondary
market trading of ETF shares, facilitates arbitrage opportunities that
are intended to help keep the market price of ETF shares at or close to
the NAV per share of the ETF. Authorized members play an important role
because of their ability, in general terms, to add ETF shares to, or
remove them from, the market. In this regard, if shares of an ETF are
trading at a discount (i.e., below NAV per share), an authorized member
may purchase ETF shares in the secondary market, accumulate enough
shares for a creation unit and then redeem them from the ETF in
exchange for the ETF's more valuable redemption basket. Accordingly,
the authorized member will profit because it paid less for the ETF
shares than it received for the underlying assets. The reduction in the
supply of ETF shares available on the secondary market, together with
the sale of the ETF's basket assets, may cause the price of ETF shares
to increase, the price of the basket assets to decrease, or both,
thereby causing the market price of the ETF shares and the value of the
ETF's holdings to move closer together. In contrast, if the ETF shares
are trading at a premium (i.e., above NAV per share), the transactions
are reversed (and the authorized member would deliver the creation
basket in exchange for ETF shares), resulting in an increase in the
supply of ETF shares which may also help to keep the price of the
shares of an ETF close to the value of its holdings.
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\11\ This summary of the ETF creation and redemption process is
based largely on portions of the discussion set forth in Investment
Company Act Release No. 33140 (June 28, 2018), 83 FR 37332 (July 31,
2018) (the ``Proposed ETF Rule Release'') in which the Commission
proposed a new rule under the 1940 Act that would permit ETFs
registered as open-end management investment companies that satisfy
certain conditions to operate without the need to obtain an
exemptive order. The proposed rule was adopted on September 25,
2019. See Investment Company Act Release No. 33646 (September 25,
2019).
\12\ Under certain circumstances, however, and subject to the
provisions of its exemptive relief from various provisions of the
1940 Act obtained from the Commission, an ETF may substitute cash
and/or other instruments in lieu of some or all of the ETF's
portfolio holdings. For example, today, positions in options traded
on the Exchange would be generally substituted with cash.
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In comparison to other pooled investment vehicles, one of the
significant benefits associated with an ETF's in-kind redemption
feature is tax efficiency. In this regard, by effecting redemptions on
an in-kind basis (i.e., delivering certain assets from the ETF's
portfolio instead of cash), there is no need for the ETF to sell assets
and potentially realize capital gains that would be distributed to
shareholders. As indicated above, however, because Exchange Rules
currently do not allow ETFs to effect in-kind transfers of options off
of the Exchange, ETFs that invest in options traded on the Exchange are
generally required to substitute cash in lieu of such options when
effecting redemption transactions with authorized members. Because they
must sell the options to obtain the requisite cash, such ETFs (and
therefore, investors that hold shares of those ETFs) are not able to
benefit from the tax efficiencies afforded by in-kind transactions.
An additional benefit associated with the in-kind feature is the
potential for transaction cost savings. In this regard, by transacting
on an in-kind basis, ETFs may avoid certain transaction costs they
would otherwise incur in connection with purchases and sales of
securities and other assets. Again, however, this benefit is not
available today to ETFs with respect to their options holdings.
UITs
Although UITs operate differently than ETFs in certain respects, as
described below, the anticipated potential benefits to UIT investors
(i.e., greater tax efficiencies and transaction cost savings) from the
proposed exemption would be similar as discussed below. Specifically,
under the 1940 Act,\13\ a UIT is an investment company organized under
a trust indenture or similar instrument that issues redeemable
securities, each of which represents an undivided interest in a unit of
specified securities.\14\ A UIT's investment portfolio is relatively
fixed, and, unlike an ETF, a UIT has a fixed life (a termination date
for the trust is established when the trust is created). Similar to
other types of investment companies (including ETFs), UITs invest their
assets in accordance with their investment objectives and investment
strategies, and UIT units represent interests in a UIT's underlying
assets. Like ETFs, UITs do not sell or redeem individual shares, but
instead, through the creation and redemption process, a UIT's sponsor
(a broker-dealer) may purchase and redeem shares directly from the
UIT's trustee in aggregations known as ``units.'' A broker-dealer
purchases a unit of UIT shares from the UIT's trustee by depositing a
basket of securities and/or other assets identified by the UIT. These
transactions are largely effected by ``in-kind'' transfers, or the
exchange of
[[Page 25100]]
securities, non-cash assets, and/or other non-cash positions. The
basket deposited by the broker-dealer is generally expected to be
representative of the UIT's units and will be equal in value to the
aggregate NAV of the shares of the UIT comprising a unit.\15\ The UIT
then issues units that are publicly offered and sold. Unlike ETFs, UITs
typically do not continuously offer their shares for sale, but rather,
make a one-time or limited public offering of only a specific, fixed
number of units like a closed-end fund (i.e., the primary period, which
may range from a single day to a few months). Similar to the process
for ETFs, UITs allow investor-owners of units to redeem their units
back to the UIT's trustee on a daily basis and, upon redemption, such
investor-owners are entitled to receive the redemption price at the
UIT's NAV. While UITs provide for daily redemptions directly with the
UIT's trustee, UIT sponsors frequently maintain a secondary market for
units, also like that of ETFs, and will buy back units at the
applicable redemption price per unit. To satisfy redemptions, a UIT
typically sells securities and/or other assets, which results in
negative tax implications and an incurrence of trading costs borne by
remaining unit holders.
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\13\ 15 U.S.C. 80a-4(2).
\14\ The Exchange also notes that, though a majority of ETFs are
structured as open-ended funds, some ETFs are structured as UITs,
and currently represent a significant amount of assets within the
ETF industry. These include, for example, SPDR S&P 500 ETF Trust
(``SPY'') and PowerShares QQQ Trust, Series 1 (``QQQ'').
\15\ The NAV is an investment company's total assets minus its
total liabilities. UITs must calculate their NAV at least once every
business day, typically after market close. See Sec. 270.2a-4(c),
which provides that any interim determination of current net asset
value between calculations made as of the close of the New York
Stock Exchange on the preceding business day and the current
business day may be estimated so as to reflect any change in current
net asset value since the closing calculation on the preceding
business day. This, however, is notwithstanding the requirements of
Sec. 270.2a-4(a), which provides for other events that would
trigger computation of a UIT's NAV.
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Proposed Rule
The Exchange believes that it is appropriate to permit off-Exchange
transfers of options positions in connection with the creation and
redemption process and recognizes that the prevalence and popularity of
ETFs have increased greatly. Currently, ETFs serve both as popular
investment vehicles and trading tools and, as discussed above, the
creation and redemption process, along with the arbitrage opportunities
that accompany it, are key ETF features. Although ETFs and UITs operate
differently in certain respects, the ability to effect in-kind
transfers is also significant for UITs. As described above, UITs and
ETFs are situated in substantially the same manner; the key differences
being a UIT's fixed duration, and that a UIT generally makes a one-time
public offering of only a specific, fixed number of units. Negative tax
implication and trading costs for remaining unit holders would be
mitigated by allowing a UIT sponsor or another broker-dealer to receive
an in-kind distribution of options upon redemption. Accordingly, the
Exchange believes that providing for an additional, narrow circumstance
to make it possible for ETFs and UITs that invest in options to effect
creations and redemptions on an in-kind basis is justified.
The Exchange submits that its proposal is clearly delineated and
limited in scope and not intended to facilitate ``trading'' options off
of the Exchange. In this regard, the proposed circumstance would be
available solely in the context of transfers of options positions
effected in connection with transactions to purchase or redeem creation
units of ETF shares between ETFs and authorized members,\16\ and units
of UITs between UITs and sponsors. As a result of this process, such
transfers would occur at the price(s) used to calculate the NAV of such
ETF shares and UIT units (as discussed above), which removes the need
for price discovery on an Exchange for pricing these transfers.
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\16\ See supra note 6. The term ``authorized member'' is
specific and narrowly defined. As noted in the Proposed ETF Rule
Release, the requirement that only authorized members of an ETF may
purchase creation units from (or sell creation units to) an ETF ``is
designed to preserve an orderly creation unit issuance and
redemption process between ETFs and authorized members.''
Furthermore, an ``orderly creation unit issuance and redemption
process is of central importance to the arbitrage mechanism.'' See
Proposed ETF Rule Release at 83 FR 37348.
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Moreover, as described above, ETFs and authorized members, and UITs
and sponsors, are not seeking to effect the opening or closing of new
options positions in connection with the creation and redemption
process. Rather, the options positions would reside in a different
clearing account until closed in a trade on the Exchange or until they
expire. The proposed transfers, while occurring between two different
parties, will occur off the Exchange and will not be considered
transactions. While the prices of options transactions effected on the
Exchange are disseminated to Options Price Reporting Authority
(``OPRA''), back-office transfers of options positions in clearing
accounts held at OCC (in accordance with OCC Rules) \17\ are not
disseminated to OPRA or otherwise publicly available, as they are
considered position transfers, rather than executions. The Exchange
believes that price transparency is important in the options markets.
However, the Exchange expects any transfers pursuant to the proposed
rule will constitute a minimal percentage of the total average daily
volume of options. Today, the trading of ETFs and UITs that invest in
options is substantially limited on the Exchange, primarily because the
current rules do not permit ETFs or UITs to effect in-kind transfers of
options off the Exchange. The Exchange continues to expect that any
impact this proposal could have on price transparency in the options
market is minimal because proposed Rule 1327 is limited in scope and is
intended to provide market members with an efficient and effective
means to transfer options positions under clearly delineated, specified
circumstances. Additionally, as noted above, the NAV for ETF and UIT
transfers will generally be based on the disseminated closing price for
an options series on the day of a creation or redemption, and thus the
price (although not the time or quantity of the transfer) at which
these transfers will generally be effected will be publicly
available.\18\ Further, the Exchange generally expects creations or
redemptions to include corresponding transactions by the authorized
member that will occur on an exchange and be reported to OPRA.\19\
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\17\ OCC has informed the Exchange that it has the operational
capabilities to effect the proposed position transfers. All
transfers pursuant to proposed Rule 1327 would be required to comply
with OCC rules.
\18\ If there is no disseminated closing price, the ETF or UIT
would price according to a pricing model or procedure as described
in the fund's prospectus.
\19\ The Exchange notes that for in-kind creations, an
authorized member will acquire the necessary options positions in an
on-exchange transaction that will be reported to OPRA. For in-kind
redemptions, the Exchange generally expects that an authorized
member will acquire both the shares necessary to effect the
redemption and an options position to offset the position that it
will receive as proceeds for the redemption. Such an options
position would likely be acquired in an on-exchange transaction that
would be reported to OPRA. Such transactions are generally identical
to the way that creations and redemptions work for equities and
fixed income transactions--while the transfer between the authorized
member and the fund is not necessarily reported, there are generally
corresponding transactions that would be reported, providing
transparency into the transactions.
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Therefore, the Exchange expects that any impact the proposed rule
change could have on price transparency in the options market would be
de minimis.
Other than the transfers covered by the proposed rule, transactions
involving options, whether held by an ETF or an authorized member, or a
UIT or a sponsor would be fully subject to all applicable trading
Rules.\20\
[[Page 25101]]
Accordingly, the Exchange does not believe that the proposed new
exception would compromise price discovery or transparency.
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\20\ As indicated above, the operation of the arbitrage
mechanism accompanying the creation and redemption process generally
contemplates ongoing interactions between authorized members and the
market in transactions involving both ETF shares and the assets
comprising an ETF's creation/redemption basket.
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Further, the Exchange believes that providing an additional
exception to make it possible for ETFs and UITs that invest in options
to effect creations and redemptions on an in-kind basis is justified
because, while the proposed exception would be limited in scope, the
benefits that may flow to ETFs that hold options and their investors
may be significant. Specifically, the Exchange expects such ETFs and
UITs and their investors would benefit from increased tax efficiencies
and potential transaction cost savings. By making such ETFs and UITs
more attractive to both current and prospective investors, the proposed
rule change would enable them to compete more effectively with other
ETFs and UITs that, due to their particular portfolio holdings, may
effect in-kind creations and redemptions without restriction.
The Exchange notes that Exchange Rule 1327 as proposed to be
adopted by this filing, is incorporated by reference into the rulebooks
of the Exchange's affiliates, MIAX PEARL, LLC (``MIAX Pearl''), MIAX
Emerald, LLC (``MIAX Emerald''), and MIAX Sapphire, LLC (``MIAX
Sapphire''). As such, the addition of Exchange Rule 1327 as proposed
herein will also apply to MIAX Pearl, MIAX Emerald, and MIAX Sapphire
members.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\21\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \22\ 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 open market and a national market system, and,
in general, to protect investors and the public interest.
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\21\ 15 U.S.C. 78f(b).
\22\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that proposed Rule 1327 to permit off-
Exchange transfers in connection with the in-kind ETF and UIT creation
and redemption process will promote just and equitable principles of
trade and help remove impediments to and perfect the mechanism of a
free and open market and a national market system, as it would permit
ETFs and UITs that invest in options traded on the Exchange to utilize
the in-kind creation and redemption process that is available for ETFs
and UITs that invest in equities and fixed-income securities. This
process represents a significant feature of the ETF and UIT structure
generally, with advantages that distinguish ETFs and UITs from other
types of pooled investment vehicles. In light of the associated tax
efficiencies and potential transaction cost savings, the Exchange
believes the ability to utilize an in-kind process would make such ETFs
and UITs more attractive to both current and prospective investors and
enable them to compete more effectively with other ETFs and UITs that,
based on their portfolio holdings, may effect in-kind creations and
redemptions without restriction. In addition, the Exchange believes
that because it would permit ETFs and UITs that invest in options
traded on the Exchange to benefit from tax efficiencies and potential
transaction cost savings afforded by the in-kind creation and
redemption process, which benefits the Exchange expects would generally
be passed along to investors that hold ETF shares and UIT units, the
proposed rule change would protect investors and the public interest.
Moreover, the Exchange submits that the proposed exception is
clearly delineated and limited in scope and not intended to facilitate
``trading'' options off the Exchange. Other than the transfers covered
by the proposed exception, transactions involving options, whether held
by an ETF or an authorized member, or a UIT or a sponsor, would be
fully subject to the applicable trading Rules. Additionally, the
transfers covered by the proposed exception would occur at a price(s)
used to calculate the NAV of the applicable ETF shares or UIT units,
which removes the need for price discovery on the Exchange.
Accordingly, the Exchange does not believe that the proposed rule
change would compromise price discovery or transparency.
Currently, the Exchange Rules do not allow ETFs or UITs to effect
in-kind transfers of options off of the Exchange, resulting in tax
inefficiencies for ETFs and UITs that hold them. As a result, the use
of options by ETFs and UITs is substantially limited. While the
proposed exception would be limited in scope, the Exchange believes the
benefits that may flow to ETFs and UITs that hold options and their
investors may be significant. Specifically, the Exchange expects that
such ETFs and UITs and their investors could benefit from increased tax
efficiencies and potential transaction cost savings. By making such
ETFs and UITs more attractive to both current and prospective
investors, the proposed rule change would enable them to compete more
effectively with other ETFs and UITs, and other investment vehicles,
that, due to their particular portfolio holdings, may effect in-kind
creations and redemptions without restriction. This may lead to further
development of ETFs and UITs that invest in options, thereby fostering
competition and resulting in additional choices for investors, which
ultimately benefits the marketplace and the public.
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.
Intra-Market Competition
The Exchange does not believe the proposed rule change regarding
off-floor in-kind transfers will impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. Utilizing the proposed exception would be
voluntary. Proposed Rule 1327 would provide market participants with an
efficient and effective means to transfer positions as part of the
creation and redemption process for ETFs and UITs under specified
circumstances. The proposed exception would enable all ETFs and UITs
that hold options to enjoy the benefits of in-kind creations and
redemptions already available to other ETFs and UITs (and to pass these
benefits along to investors). The proposed rule change would apply in
the same manner to all authorized members and sponsor broker-dealers
that choose to use the proposed process.
Inter-Market Competition
The Exchange does not believe the proposed rule change will impose
any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. As indicated
above, it is intended to provide an additional clearly delineated and
limited circumstance in which
[[Page 25102]]
options positions can be transferred off an exchange. Further, the
Exchange believes the proposed rule change will eliminate a significant
competitive disadvantage for ETFs and UITs that invest in options.
Furthermore, as indicated above, in light of the significant benefits
provided (e.g., tax efficiencies and potential transaction cost
savings), the proposed exception may lead to further development of
ETFs and UITs that invest in options, thereby fostering competition and
resulting in additional choices for investors, which ultimately
benefits the marketplace and the public. Lastly, the Exchange notes
that the proposed rule change is based on C2 Rule 6.9.\23\ As such, the
Exchange believes that its proposal enhances fair competition between
markets by providing for additional listing venues for ETFs and UITs
that hold options to utilize the in-kind transfers proposed herein.
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\23\ See supra note 4.
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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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A) of the Act \24\ and Rule 19b-4(f)(6) \25\ thereunder.
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 Section
19(b)(3)(A)(iii) of the Act \26\ and subparagraph (f)(6) of Rule 19b-4
thereunder.\27\
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\24\ 15 U.S.C. 78s(b)(3)(A).
\25\ 17 CFR 240.19b-4(f)(6).
\26\ 15 U.S.C. 78s(b)(3)(A)(iii).
\27\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires the Exchange 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 under Rule 19b-4(f)(6) \28\ under the
Act normally does not become operative prior to 30 days after the date
of the filing. However, pursuant to Rule 19b4(f)(6)(iii),\29\ the
Commission may designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has requested that the Commission waive the 30-day operative delay so
that the proposed rule change may become operative immediately upon
filing. The Exchange states that the proposed position transfer rules
are substantially similar in all material respects to C2 Rule 6.9 and
will provide for fair competition among options exchanges. For these
reasons, and because the proposed rule change does not raise any novel
regulatory issues, the Commission believes that waiving the 30-day
operative delay is consistent with the protection of investors and the
public interest. Accordingly, the Commission hereby waives the 30-day
operative delay and designates the proposed rule change to be operative
upon filing.\30\
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\28\ 17 CFR 240.19b-4(f)(6).
\29\ 17 CFR 240.19b-4(f)(6)(iii).
\30\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of this 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 will 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="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#aedcdbc2cb83cdc1c3c3cbc0daddeeddcbcd80c9c1d8"><span class="__cf_email__" data-cfemail="e193948d84cc828e8c8c848f9592a1928482cf868e97">[email protected]</span></a>. Please include
file number SR-MIAX-2025-25 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-2025-25. 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
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-2025-25 and should be
submitted on or before July 7, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-10748 Filed 6-12-25; 8:45 am]
BILLING CODE 8011-01-P
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