Document ID: SEC-2019-0182-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Miami International Securities Exchange, LLC
Posted Date: 2019-02-21T05:00Z

[Federal Register Volume 84, Number 35 (Thursday, February 21, 2019)]
[Notices]
[Pages 5524-5526]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-02897]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85138; File No. SR-MIAX-2019-02]

Self-Regulatory Organizations; Miami International Securities 
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Exchange Rule 521, Nullification and 
Adjustment of Options Transactions Including Obvious Errors

February 14, 2019.
    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 February 6, 2019, Miami International 
Securities Exchange, LLC (``MIAX Options'' or the ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend Rule 521, Nullification 
and Adjustment of Options Transactions Including Obvious Errors.
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/ at MIAX Options' 
principal office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On October 12, 2018, the Securities and Exchange Commission 
(``SEC'') approved a proposal by the MIAX Exchange (the ``Exchange'') 
to list and trade on the Exchange, options on the SPIKES\TM\ Index, a 
new index that measures expected 30-day volatility of the SPDR S&P 500 
ETF Trust.\3\ To establish the settlement value for the Index, a final 
settlement price calculation will occur once per month, on the morning 
of SPIKES Index options expiration.\4\
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    \3\ See Securities Exchange Act Release No. 84417 (October 12, 
2018), 83 FR 52865 (October 18, 2018) (SR-MIAX-2018-14) (Order 
Granting Approval of a Proposed Rule Change to List and Trade 
Options on the SPIKES\TM\ Index).
    \4\ See Exchange Rule 503.02.
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    The Exchange proposes to amend Exchange Rule 521, Nullification and 
Adjustment of Options Transactions Including Obvious Errors, to adopt a 
provision specifically related to its volatility index product. 
Currently, subparagraph (b)(1), Transactions at the Open, of Rule 521, 
provides that for a transaction occurring as part of the Opening 
Process \5\ (as described in Rule 503) the Exchange will determine the 
Theoretical Price \6\ if there is no NBB (National Best Bid) or NBO 
(National Best Offer) for the affected series just prior to the 
erroneous transaction or if the bid/ask differential of the NBB and NBO 
just prior to the erroneous transaction is equal to or greater than the 
Minimum Amount set forth in the chart contained in sub-paragraph (b)(3) 
of this rule.\7\ If the bid/ask differential is less than the Minimum 
Amount, the Theoretical Price is the NBB or NBO just prior to the 
erroneous transaction. The Exchange now proposes to adopt new 
subparagraph (A) to state that for transactions occurring in any option 
series being used to calculate the final settlement price of a 
volatility index on the final settlement day, the Theoretical

[[Page 5525]]

Price is the first quote after the transaction(s) in question that does 
not reflect the erroneous transaction(s), provided that the quote size 
is for at least the overall size of the opening trade, if the quote 
size is for less than the overall size of the opening trade, then 
paragraph (c) and (d) shall not apply.
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    \5\ See Exchange Rule 503(f).
    \6\ See Exchange Rule 521(b).
    \7\ If the bid price at the time of the trade was below $2.00 
the Minimum Amount is $0.75, similarly if the bid price at the time 
of the trade is between $2.00 and $5.00, the Minimum Amount is 
$1.25; above $5.00 to $10.00, $1.50; above $10.00 to $20.00, $2.50; 
above $20.00 to $50.00, $3.00; above $50.00 to $100.00, $4.50; above 
$100, $6.00. See Exchange Rule 521(b)(3).
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    For erroneous sell transactions, the size of the bid would be used 
and for erroneous buy transactions, the size of the offer would be 
used. For example, if the opening trade in Series XYZ is for a total of 
200 contracts and the bid or offer, as applicable, of the first quote 
after the transaction(s) in question that does not reflect the 
erroneous transaction(s) is for 500 contracts, the transaction in 
question would qualify for treatment under the Exchange's obvious error 
rule. If the bid or offer, as applicable, of the quote is for only 100 
contracts, then the transaction in question would not be subject to 
consideration under the Exchange's obvious error rule. Upon the 
completion of the final settlement price calculation the proposed 
provision would no longer be applicable and all provisions of Rule 521 
would again be in force.
    By establishing a size threshold for certain transactions occurring 
during the Exchange's Opening Process, the proposal ensures that there 
is sufficient liquidity in a series for which a valid Theoretical Price 
can be established for use in determining whether a transaction meets 
the conditions necessary to qualify as an Obvious \8\ or Catastrophic 
Error.\9\ Further, due to the importance and finality of the final 
settlement price for expiring SPIKES Index Options, establishing a 
threshold based upon transaction size for obvious and catastrophic 
error consideration, and only for those options being used in the final 
settlement price calculation, ensures the timely completion of the 
settlement price calculation and protects the integrity of the 
calculation process from being unduly impacted by relatively small 
transactions.
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    \8\ See Exchange Rule 521(c).
    \9\ See Exchange Rule 521(d).
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    Using the size of a transaction as the threshold for determining 
whether the transaction in question warrants consideration for obvious 
or catastrophic error review under the rule is a widely accepted 
standard and long standing practice in the industry.\10\ The Exchange 
notes that its proposed provision is substantially similar in all 
material respects to a provision found in the Cboe Exchange's rule 
pertaining to the treatment of transactions in option series being used 
to calculate the final settlement price of a volatility index on the 
final settlement day.\11\ Further, the Exchange notes that the industry 
has undertaken an effort to harmonize obvious error handling across all 
option exchanges and the Exchange's proposal aligns to currently 
accepted practices.\12\
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    \10\ See Securities Exchange Act Release No. 59981 (May 27, 
2009), 74 FR 26447 (June 2, 2009) (SR-CBOE-2009-024) (Order Granting 
Approval of a Proposed Rule Change Related to Its Obvious Error 
Rules).
    \11\ See Cboe Exchange Rule 6.25(b)(1)(a).
    \12\ See Securities Exchange Act Release Nos. 74918 (May 8, 
2015), 80 FR 27781 (May 14, 2015) (SR-MIAX-2015-35); 74911 (May 8, 
2015), 80 FR 27717 (May 14, 2015) (SR-BOX-2015-18); 74898 (May 7, 
2015), 80 FR 27354 (May 13, 2015) (SR-CBOE-2015-039); 74919 (May 8, 
2015), 80 FR 27766 (May 15, 2015) (SR-PHLX-2015-43).
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2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \13\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \14\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanisms of a free and open market and a national market 
system and, in general, to protect investors and the public interest.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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    The proposed rule promotes just and equitable principles of trade 
and removes impediments to and perfects the mechanism of a free and 
open market and a national market system and, in general, protects 
investors and the public interest by ensuring that there is sufficient 
liquidity in the market by which to derive a Theoretical Price for 
options being used in the final index settlement value calculation. 
Additionally, the proposed rule promotes just and equitable principles 
of trade and removes impediments to and perfects the mechanisms of a 
free and open market and a national market system and, in general, 
protects investors and the public interest by ensuring that the SPIKES 
index settlement value calculation is completed on a timely basis 
without unnecessary interruption.
    Additionally, the proposed rule promotes cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, by harmonizing the Exchange's obvious error rule with 
that of another exchange that has a similar process for determining the 
settlement price of an index.\15\
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    \15\ See supra note 10.
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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 inter-market competition as the proposed rule change is 
not a competitive filing and is designed to harmonize the Exchange's 
obvious error rule with that of the Cboe Exchange, which similarly 
offers a volatility index product that requires the calculation of a 
final settlement price.
    Additionally, the Exchange does not believe the proposed rule 
change will impose any burden on intra-market competition as the rules 
of the Exchange apply equally to all Members \16\ of the Exchange.
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    \16\ The term ``Member'' means an individual or organization 
approved to exercise the trading rights associated with a Trading 
Permit. Members are deemed ``members'' under the Exchange Act. See 
Exchange Rule 100.
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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 \17\ and Rule 19b-
4(f)(6) thereunder.\18\
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 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

[[Page 5526]]

Act \19\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \20\ 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. The 
Exchange believes that waiver of the operative delay is consistent with 
the protection of investors and the public interest because it would 
ensure that the Exchange will have a provision immediately available 
for handling obvious errors in option series being used to calculate 
the final settlement price of a volatility index on the final 
settlement day. 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.\21\
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    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ 17 CFR 240.19b-4(f)(6)(iii).
    \21\ 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-2019-02 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-2019-02. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MIAX-2019-02 and should be submitted on 
or before March 14, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-02897 Filed 2-20-19; 8:45 am]
 BILLING CODE 8011-01-P