Document ID: SEC-2020-0809-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Miami International Securities Exchange, LLC
Posted Date: 2020-05-22T04:00Z

[Federal Register Volume 85, Number 100 (Friday, May 22, 2020)]
[Notices]
[Pages 31239-31245]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11040]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88893; File No. SR-MIAX-2020-10]

Self-Regulatory Organizations; Miami International Securities 
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Exchange Rule 307, Position Limits, and 
Exchange Rule 309, Exercise Limits, To Increase the Position and 
Exercise Limits on Certain Exchange-Traded Funds

May 18, 2020.
    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 May 8, 2020, Miami International Securities Exchange, LLC (``MIAX'' 
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 Interpretation and 
Policy .01 to Exchange Rule 307, Position Limits, and Interpretation 
and Policy .01 to Exchange Rule 309, Exercise Limits, to increase the 
position and exercise limits on certain exchange-traded funds 
(``ETFs'') and to make minor non-substantive technical corrections to 
each Policy.
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/ 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 Interpretation and Policy .01 to 
Exchange Rule 307, Position Limits, and Interpretation and Policy .01 
to Exchange Rule 309, Exercise Limits, to increase the position and 
exercise limits for options on certain ETFs. These proposed rule 
changes are based on the similar proposal by Cboe Exchange, Inc. 
(``Cboe'').\3\ The Exchange also proposes to make certain minor non-
substantive technical corrections to certain ETF names and symbols in 
each of the tables in Interpretations and Policies .01 to Exchange 
Rules 307 and 309, as described below.
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    \3\ See Securities Exchange Act Release No. 88768 (April 29, 
2020) (SR-CBOE-2020-015) (Notice of Filing of Amendment No. 1 and 
Order Granting Accelerated Approval of a Proposed Rule Change, as 
Modified by Amendment No. 1, to Increase Position Limits for Options 
on Certain Exchange-Traded Funds and Indexes). The Cboe proposal 
also proposed to increase position limits for options overlying the 
MSCI Emerging Markets Index (``MXEF'') and the MSCI EAFE Index 
(``MXEA''). The Exchange, however, does not list options on the MXEF 
or MXEA indexes. Accordingly, this proposal is limited to the ETFs 
described above [sic].
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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.

[[Page 31240]]

    The Exchange has observed an ongoing increase in demand in options 
on the SPDR[supreg] S&P 500[supreg] ETF Trust (``SPY''), 
iShares[supreg] MSCI EAFE ETF (``EFA''), iShares[supreg] China Large-
Cap ETF (``FXI''), iShares[supreg] iBoxx[supreg] $ High Yield Corporate 
Bond ETF (``HYG''), and the Financial Select Sector SPDR[supreg] Fund 
(``XLF'') (collectively, with the aforementioned ETFs, the ``Underlying 
ETFs'') for both trading and hedging purposes. Though the demand for 
these options appears to have increased, position limits (and 
corresponding exercise 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 publically 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 well as other options exchanges on which 
they participate. As described in further detail below, the Exchange 
believes that the continuously increasing market capitalization of the 
Underlying ETFs and ETF component securities, as well as the highly 
liquid markets for those securities, 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 (and corresponding exercise limits).
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    \4\ The term ``Market Makers'' refers to ``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 and Exercise 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 stocks or ETFs over 
the past six months. Pursuant to Exchange 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 capitalization stocks and ETFs have position limits of 200,000, 
75,000, 50,000 or 25,000 contracts (with adjustments for splits, 
recapitalizations, etc.) on the same side of the market. Options on HYG 
and XLF are currently subject to the maximum standard position limit of 
250,000 contracts as set forth in Exchange Rule 307. Interpretation and 
Policy .01 to Exchange Rule 307 sets forth separate position limits for 
options on specific ETFs, including SPY, FXI and EFA.
    The Exchange proposes to amend Interpretation and Policy .01 to 
Exchange Rule 307 to double the position limits for options on each of 
HYG, XLF, FXI, EFA and SPY. The Exchange also proposes to amend 
Interpretation and Policy .01 to Exchange Rule 309 to double the 
exercise limits for options on each of HYG, XLF, FXI, EFA and SPY. The 
table below represents the current, and proposed, position and exercise 
limits for options on the Underlying ETFs subject to this proposal:

 
------------------------------------------------------------------------
                                    Current position/  Proposed position/
                ETF                   exercise limit     exercise limit
------------------------------------------------------------------------
SPY...............................          1,800,000          3,600,000
EFA...............................            500,000          1,000,000
FXI...............................            500,000          1,000,000
HYG...............................            250,000            500,000
XLF...............................            250,000            500,000
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    The Exchange notes that the proposed position limits for options on 
EFA and FXI are consistent with existing position limits for options on 
the iShares[supreg] Russell 2000 ETF (``IWM'') and the iShares[supreg] 
MSCI Emerging Markets ETF (``EEM''), while the proposed limits for 
options on XLF and HYG are consistent with current position limits for 
options on the iShares[supreg] MSCI Brazil ETF (``EWZ''), 
iShares[supreg] 20+ Year Treasury Bond ETF (``TLT''), and 
iShares[supreg] MSCI Japan ETF (``EWJ''). The Exchange represents that 
the Underlying ETFs qualify for either 1) the initial listing criteria 
set forth in Exchange Rule 402(i)(5)(ii) for ETFs holding non-U.S. 
component securities, or 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, as well as the 
continued listing criteria in Exchange Rule 403.\5\ 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.\6\
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    \5\ 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).
    \6\ 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 or 
might 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.\7\ The

[[Page 31241]]

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. Indeed, the Commission recognized the 
liquidity of the securities comprising the underlying interest of SPY 
and permitted no position limits on SPY options from 2012 through 
2018.\8\
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    \7\ See Securities Exchange Act Release No. 67672 (August 15, 
2012), 77 FR 50750 (August 22, 2012) (SR-NYSEAmex-2012-29).
    \8\ See Securities Exchange Act Release No. 68341 (December 3, 
2012), 77 FR 73065 (December 7, 2012) (In the Matter of the 
Application of Miami International Securities Exchange, LLC for 
Registration as a National Securities Exchange: Findings, Opinion, 
and Order of the Commission) (Order that approved MIAX's 
implementation of the pilot program that ran through 2017, during 
which there were no position limits for options on SPY). See also 
Securities Exchange Act Release No. 83349 (May 30, 2018), 83 FR 
26123 (June 5, 2018) (SR-MIAX-2018-11). The Exchange notes that 
throughout the duration of the pilot program it was not aware of any 
problems created or adverse consequences as a result of the pilot 
program.
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    To support the proposed position limit increases (and corresponding 
increase in exercise limits), the Exchange considered both the 
liquidity of the Underlying ETFs and the component securities of the 
Underlying ETFs, as well as the availability of economically equivalent 
products to the overlying options and their respective position limits. 
For instance, some of the Underlying ETFs are based upon broad-based 
indices that underlie cash-settled options, and therefore the options 
on the Underlying ETFs are economically equivalent to the options on 
those indices, which have no position limits. Other Underlying ETFs are 
based upon broad-based indices that underlie cash-settled options with 
position limits reflecting notional values that are larger than current 
position limits for options on the ETF analogues. For indexes that are 
tracked by an Underlying ETF but on which there are no options listed, 
the Exchange believes, based on the liquidity, depth and breadth of the 
underlying market of the components of the indexes, that each of the 
indexes referenced by the applicable ETFs would be considered a broad-
based index under the Exchange's Rules. Additionally, if in some cases 
certain position limits are appropriate for the options overlying 
comparable indexes or basket of securities that the Underlying ETFs 
track, or are appropriate for those ETFs that track the Underlying 
Indexes [sic], then those economically equivalent position limits 
should be appropriate for the options overlying the Underlying ETFs or 
Indexes [sic].
    The Exchange is presenting data collected by Cboe as part of its 
initial filing to increase position and exercise limits on the 
Underlying ETFs, that the Commission has approved,\9\ following trading 
statistics regarding shares of and options on the Underlying ETFs, as 
well as the component securities:
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    \9\ See supra note 3.

----------------------------------------------------------------------------------------------------------------
                                                                     Shares
                                ADV \10\ (ETF     ADV (option      outstanding     Fund market     Total market
           Product                 shares)        contracts)       (ETFs) \11\      cap (USD)       cap of ETF
                                  (million)                         (million)       (billion)    components \12\
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SPY..........................            70.3  2.8 million.....           968.7           312.9  29.3 trillion.
FXI..........................            26.1  196,600.........           106.8             4.8  28.0 trillion.
EFA..........................            25.1  155,900.........           928.2            64.9  19.3 trillion.
HYG..........................            20.0  193,700.........           216.6            19.1  906.4
                                                                                                  billion.\13\
XLF..........................            48.8  102,100.........           793.6            24.6  3.8 trillion.
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    The Exchange is presenting the following data collected by Cboe as 
part of its initial filing, that the Commission has approved,\14\ for 
the same trading statistics, where applicable, as above regarding a 
sample of other ETFs, as well as the current position limits for 
options on such ETFs pursuant to Exchange Rule 307, Interpretation and 
Policy .01, to draw comparisons in support of proposed position limit 
increases for options on a number of the Underlying ETFs (see further 
discussion below):
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    \10\ Average daily volume (``ADV'') data for ETF shares and 
options contracts presented below, are for all of 2019. 
Additionally, reference to ADV in ETF shares and ETF options herein 
this proposal are for all of 2019, unless otherwise indicated.
    \11\ See Amendment No. 1 to SR-CBOE-2020-015, at page 4, 
available at https://www.sec.gov/comments/sr-cboe-2020-015/srcboe2020015-7081714-215592.pdf (``Amendment No. 1'').
    \12\ See Amendment No. 1, at page 4.
    \13\ See Notice, at note 13.
    \14\ See supra note 3.

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                                                                                 Shares
                                              ADV (ETF        ADV (option      outstanding     Fund market     Total market cap of ETF        Current
                 Product                       shares)        contracts)         (ETFs)         cap (USD)             components             position
                                              (million)                         (million)       (billion)                                     limits
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QQQ......................................            30.2           670,200           410.3            88.7  10.1 trillion..............       1,800,000
EWZ......................................            26.7           186,500             233            11.3  234.6 billion..............         500,000
TLT......................................             9.6            95,200           128.1            17.5  N/A........................         500,000
EWJ......................................             7.2             5,700           236.6            14.2  3 trillion.................         500,000
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    The Exchange believes that, overall, the liquidity in the shares of 
the Underlying ETFs and in the component securities of the Underlying 
ETFs and in their overlying options, as well as the large market 
capitalizations and structure of each of the Underlying ETFs support 
the proposal to increase the position limits for each option class (and 
corresponding exercise limits). Given the robust liquidity and 
capitalization in the Underlying ETFs and in the component securities 
of the Underlying ETFs the Exchange does not anticipate that the 
proposed increase in position limits and exercise limits would create 
significant price movements. Also, the Exchange believes the market 
capitalization of the underlying component securities of the applicable 
index or reference asset are large enough to adequately absorb 
potential price movements that may be caused by large trades.
    The following analyses for the Underlying ETFs, which MIAX agrees 
with in support of this proposal, as well as the statistics presented 
in support thereof, were presented by Cboe in their initial filing, 
which was approved by

[[Page 31242]]

the Commission.\15\ The Exchange notes that SPY tracks the performance 
of the S&P 500[supreg] Index, which is an index of diversified large 
cap U.S. companies.\16\ It is composed of approximately 500 selected 
stocks spanning over approximately 24 separate industry groups. The S&P 
500[supreg] is one of the most commonly followed equity indices, and is 
widely considered to be the best indicator of stock market performance 
as a whole. SPY is one of the most actively traded ETFs, and, since 
2017,\17\ its ADV has increased from approximately 64.6 million shares 
to 70.3 million shares by the end of 2019. Similarly, its ADV in 
options contracts has increased from 2.6 million to 2.8 million through 
2019.\18\ As noted, the demand for options trading on SPY has continued 
to increase, however, the position limits have remained the same, which 
the Exchange believes may have impacted growth in SPY option volume 
from 2017 through 2019. The Exchange also notes that SPY shares are 
more liquid than Invesco QQQ Trust \SM\ (``QQQ'') shares, which are 
also currently subject to a position limit of 1,800,000 contracts. 
Specifically, SPY currently experiences over twice the ADV in shares 
and over four times the ADV in options than that of QQQ.\19\
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    \15\ See supra note 3.
    \16\ See Supplement dated March 25, 2020 to the Prospectus dated 
January 16, 2020 for the SPDR[supreg] S&P 500[supreg] ETF Trust, 
available at https://www.ssga.com/us/en/individual/etfs/funds/spdr-sp-500-etf-trust-spy.
    \17\ See Securities Exchange Release No. 82931 (March 22, 2018), 
83 FR 13323 (March 28, 2018) (SR-MIAX-2018-10) (Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change To Amend Exchange 
Rule 307, Position Limits, and Exchange Rule 309, Exercise Limits). 
See also supra note 3.
    \18\ See Securities Exchange Act Release No. 83349 (May 30, 
2018), 83 FR 26123 (June 5, 2018) (Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change To Amend Exchange Rule 307, 
Position Limits, and Exchange Rule 309, Exercise Limits) (SR-MIAX-
2018-11).
    \19\ The 2019 ADV for QQQ shares is 30.2 million and for options 
on QQQ is 670,200.
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    EFA tracks the performance of MSCI EAFE Index, which is comprised 
of over 900 large and mid-cap securities across 21 developed markets, 
including countries in Europe, Australia and the Far East, excluding 
the U.S. and Canada.\20\ The Exchange notes that from 2017 through 
2019, ADV has grown significantly in shares of EFA and in options on 
EFA, from approximately 19.4 million shares in 2017 to 25.1 million 
through 2019, and from approximately 98,800 options contracts in 2017 
to 155,900 through 2019. The Exchange notes that options are available 
for trading on Cboe on the MXEA, the analogue index (also subject to a 
proposed position limit increase described in the Cboe proposal), which 
was subject to a position limit of 25,000 contracts. Utilizing the 
notional value comparison of EFA's share price of $69.44 and MXEA's 
index level of 2036.94, approximately 29 EFA option contracts equal one 
MXEA option contract. Based on the above comparison of notional values, 
a position limit for EFA options that would be economically equivalent 
to that of MXEA options equates to 725,000 contracts (currently) and 
1,450,000 (for Cboe's proposed--and approved--50,000 contracts position 
limit increase for MXEA options). Also, MXEA index options have an ADV 
of 594 options contracts, which equates to an ADV of 17,226 EFA options 
contracts (as that is 29 times the size of 594). EFA options, which are 
more actively traded and held than MXEA options, are currently subject 
to a position limit of 500,000 options contracts despite their much 
higher ADV of approximately 156,700 options contracts.
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    \20\ See iShares MSCI EAFE ETF, available at https://www.ishares.com/us/products/239623/ishares-msci-eafe-etf (April 30, 
2020).
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    FXI tracks the performance of the FTSE China 50 Index, which is 
composed of the 50 largest Chinese stocks.\21\ FXI shares and options 
have also experienced increased liquidity since 2017, as ADV has grown 
from approximately 15.1 million shares in 2017 to 26.1 million through 
2019, as well as approximately 71,900 options contracts in 2017 to 
196,600 through 2019. Although there are currently no options on the 
FTSE China 50 Index listed for trading, the components of the FTSE 
China 50 Index, which can be used to create a basket of stocks that 
equate to the FXI ETF, currently have a market capitalization of 
approximately $28 trillion and FXI has a market capitalization of $4.8 
billion (as indicated above), which the Exchange believes are both 
large enough to absorb potential price movements caused by a large 
trade in FXI.
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    \21\ See iShares China Large-Cap ETF, available at https://www.ishares.com/us/products/239536/ishares-china-largecap-etf (April 
30, 2020).
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    XLF invests in a wide array of financial service firms with 
diversified business lines ranging from investment management to 
commercial and investment banking. It generally corresponds to the 
price and yield performance of publicly traded equity securities of 
companies in the SPDR Financial Select Sector Index.\22\ XLF 
experiences ADV in shares and in options that is significantly greater 
that the ADV in shares and options for EWZ (26.7 million shares and 
186,500 options contracts), TLT (9.6 million shares and 95,200 options 
contracts), and EWJ (7.2 million shares and 5,700 options contracts), 
each of which already have a position limit of 500,000 contracts--the 
proposed position limit for XLF options. Although there are no options 
listed on the SPDR Financial Select Sector Index listed for trading, 
the components of the index, which can be used to create a basket of 
stocks that equate to the XLF ETF, currently have a market 
capitalization of $3.8 trillion (indicated above). Additionally, XLF 
has a market capitalization of $24.6 billion. The Exchange believes 
that both of these are large enough to absorb potential price movements 
caused by a large trade in XLF.
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    \22\ See Select Sector SPDR ETFs, XLF, available at http://www.sectorspdr.com/sectorspdr/sector/xlf (April 30, 2020).
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    Finally, HYG attempts to track the investment results of Markit 
iBoxx[supreg] USD Liquid High Yield Index, which is composed of U.S. 
dollar-denominated, high-yield corporate bonds and is one of the most 
widely used high-yield bond ETFs.\23\ HYG experiences significantly 
higher ADV in shares and options than both TLT (9.6 million shares and 
95,200 options contracts), and EWJ (7.2 million shares and 5,700 
options contracts), which are currently subject to a position limit of 
500,000 options contracts--the proposed limit for options on HYG. While 
HYG does not have an index option analogue listed for trading, the 
Exchange believes that its market capitalization of $19.1 billion, and 
of $906.4 billion in component securities, is adequate to absorb a 
potential price movement that may be caused by large trades in HYG.
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    \23\ See iShares iBoxx $ High Yield Corporate Bond ETF, 
available at https://www.ishares.com/us/products/239565/ishares-iboxx-high-yield-corporatebond-etf (April 30, 2020).
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Creation and Redemption for ETFs
    The Exchange believes that the creation and redemption process for 
ETFs 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 (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 Authorized Participant 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 Authorized Participant a block of equally valued ETF shares, 
on a one-for-

[[Page 31243]]

one fair value basis. The price is based on the net asset value, 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 process, therefore, 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 ETF options.
    The Exchange understands that the ETF creation and redemption 
process seeks to keep an ETF's share price trading in line with the 
ETF'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, the 
ETF's share price might rise above the value of its underlying 
securities. When this happens, the Authorized Participant believes the 
ETF may now be overpriced, so it may buy shares of the component 
securities and then sell ETF shares in the open market (i.e. 
creations). This may drive the ETF's share price back toward the 
underlying net asset value. Likewise, if the ETF share price starts 
trading at a discount to the securities it holds, the Authorized 
Participant can buy shares of the ETF and redeem them for the 
underlying securities (i.e. redemptions). Buying undervalued ETF shares 
may drive the share price of the 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 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 \24\ 
that maintains 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 would 
continue to be exempt from this reporting requirement, however, the 
Exchange may access Market Maker position information. \25\ 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 options 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.\26\
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    \24\ 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.
    \25\ 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'').
    \26\ See Exchange Rule 310.
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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 underlyings, as applicable.\27\ The Exchange also notes that 
large stock holdings must be disclosed to the Commission by way of 
Schedules 13D or 13G,\28\ which are used to report ownership of stock 
which 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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    \27\ 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.
    \28\ 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.\29\ In 
addition, Rule 15c3-1 \30\ imposes a capital charge on Members to the 
extent of any margin deficiency resulting from the higher margin 
requirement.
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    \29\ See Exchange Rule 1502 for a description of margin 
requirements.
    \30\ 17 CFR 240.15c3-1.
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    Additionally, the Exchange proposes to make minor non-substantive 
technical changes to the charts in Interpretations and Policies .01 of 
both Exchange Rules 307 and 309 to reflect the current names of the 
underlying securities listed therein. Specifically, the Exchange 
proposes to update the names of the following ETFs to reflect the 
current names in the prospectus for each: Powershares QQQ Trust; 
iShares China Large-Cap ETF; iShares MSCI EAFE ETF; iShares MSCI Brazil 
Capped ETF; iShares 20+ Year Treasury Bond Fund ETF; and the iShares 
MSCI Japan ETF.
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.\31\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \32\ 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. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \33\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \31\ 15 U.S.C. 78f(b).
    \32\ 15 U.S.C. 78f(b)(5).
    \33\ 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

[[Page 31244]]

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 
Exchange-Traded Products (``ETPs'') that use options on the Underlying 
ETFs as part of their investment strategy, and the applicable position 
limits (and corresponding exercise limits) as they stand today may 
inhibit these 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 OTC 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, 
underlying component securities, 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 
securities do not lead to manipulation and/or disruption. This general 
principle applies to the recently observed increased levels of market 
capitalization, trading volume, and liquidity in shares of the 
Underlying ETFs, and the components of the Underlying ETFs (as 
described above), 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 
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.\34\
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    \34\ See Securities Exchange Act Release No. 62147 (October 28, 
2005) (SR-CBOE-2005-41), at 62149.
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    Further, the Exchange notes that the proposed rule change to 
increase position limits for select actively traded options, is not 
novel and has been previously approved by the Commission. The proposed 
increase to the position and exercise limits on the Underlying ETFs has 
recently been approved by the Commission.\35\ The Commission has also 
previously approved, on a pilot basis, eliminating position limits for 
options on SPY.\36\ Additionally, the Commission has approved similar 
proposed rule changes by the Exchange to increase position limits for 
options on highly liquid, actively traded ETFs.\37\ In approving the 
permanent elimination of position (and exercise limits) for such 
options, the Commission relied heavily upon the exchange's surveillance 
capabilities, expressing trust in the enhanced surveillances and 
reporting safeguards that the exchange took in order to detect and 
deter possible manipulative behavior which might arise from eliminating 
position and exercise limits.
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    \35\ See supra note 3.
    \36\ See supra notes 7 and 8.
    \37\ See supra note 18.
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    Furthermore, the Exchange again notes that that the proposed 
position limits for options on EFA and FXI are consistent with existing 
position limits for options on IWM and EEM, and the proposed limits for 
options on XLF and HYG are consistent with current position limits for 
options on EWZ, TLT, and EWJ.
    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.
    Finally, the Exchange believes the proposed technical changes to 
the names and symbols of certain ETFs in both tables in Interpretations 
and Policies .01 to Exchange Rules 307 and 309 promotes just and 
equitable principles of trade and remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because the proposed changes make clarifying edits to the names and 
symbols for certain ETFs to provide uniformity throughout the 
Exchange's rules. The Exchange believes that these proposed changes 
will provide greater clarity to Members and the public regarding the 
Exchange's rules and that it is in the public interest for rules to be 
accurate and concise so as to eliminate the potential for confusion.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The 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.\38\ 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 position; (2) increased market 
transparency; and (3) heightened contra-party creditworthiness due to 
the role of OCC as issuer and guarantor. The Exchange understands that 
other options exchanges intend to file similar proposed rule changes 
with the Commission to increase position limits on options on the 
Underlying ETFs.

[[Page 31245]]

This may further contribute to fair competition among exchanges for 
multiply listed options.
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    \38\ Additionally, several other options exchange have the same 
position limits as the Exchange, as they incorporate by reference to 
the Exchange's position limits, and as a result the position limits 
for options on the Underlying ETFs will increase at those exchanges. 
For example, Nasdaq Options position limits are determined by the 
position limits established by the Exchange. See Nasdaq Stock Market 
LLC Rules, Options 9, Sec. 13 (Position Limits).
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    The proposed changes to the names and symbols of certain ETFs will 
have no impact on competition as they are not designed to address any 
competitive issues but rather are designed to remedy minor non-
substantive issues and provide added clarity to the rule text of 
Exchange Rules 307 and 309. In addition, the Exchange does not believe 
the proposal will impose any burden on inter-market competition as the 
proposal does not address any competitive issues and is intended to 
protect investors by providing further clarity regarding the Exchange's 
rules.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days 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 \39\ and Rule 19b-
4(f)(6) thereunder.\40\
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    \39\ 15 U.S.C. 78s(b)(3)(A).
    \40\ 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 \41\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \42\ 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 would allow 
the Exchange to immediately increase its position and exercise limits 
for the products subject to this proposal to those of Cboe, which the 
Exchange believes will ensure fair competition among exchanges and 
provide consistency and uniformity among members of both Cboe and MIAX 
by subjecting members of both exchanges to the same 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.\43\
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    \41\ 17 CFR 240.19b-4(f)(6).
    \42\ 17 CFR 240.19b-4(f)(6)(iii).
    \43\ 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

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-MIAX-2020-10 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-MIAX-2020-10. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of 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-2020-10, and should be submitted on 
or before June 12, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\44\
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    \44\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11040 Filed 5-21-20; 8:45 am]
 BILLING CODE 8011-01-P