Document ID: SEC-2021-0693-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MIAX PEARL, LLC
Posted Date: 2021-05-11T04:00Z

[Federal Register Volume 86, Number 89 (Tuesday, May 11, 2021)]
[Notices]
[Pages 25906-25911]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-09885]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91777; File No. SR-PEARL-2021-19]

Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange 
Rule 404 To Limit Short Term Options Series Intervals Between Strikes

May 5, 2021.
    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 April 22, 2021, MIAX PEARL, LLC (``MIAX 
Pearl)'' or the ``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend Exchange Rule 404, 
Series of Option Contracts Open for Trading.
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/pearl at MIAX 
Pearl's principal office, and at the Commission's Public Reference 
Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Rule 404, Series of Option Contracts 
Open for Trading. Specifically, this

[[Page 25907]]

proposal seeks to limit the intervals between strikes for multiply 
listed equity options classes within the Short Term Options Series 
program that have an expiration date more than twenty-one days from the 
listing date.
Background
    Today, Exchange Rule 404 permits the Exchange, after a particular 
class of options (call option contracts or put option contracts 
relating to a specific underlying stock, Exchange-Traded Fund Share,\3\ 
or ETNs) has been approved for listing and trading on the Exchange, to 
open for trading series of options therein. The Exchange may list 
series of options for trading on a weekly,\4\ monthly,\5\ or quarterly 
\6\ basis. Exchange Rule 404(d) sets forth the intervals between strike 
prices of series of options on individual stocks.\7\ In addition to 
those intervals, the Exchange may list series of options pursuant to 
the $1 Strike Price Interval Program,\8\ the $0.50 Strike Program,\9\ 
and the $2.50 Strike Price Program.\10\
---------------------------------------------------------------------------

    \3\ Securities deemed appropriate for options trading shall 
include share or other securities (``Exchange-Traded Fund Shares'') 
that are traded on a national securities exchange and are defined as 
an ``NMS stock'' under Rule 600 of Regulation NMS. See Exchange Rule 
402(i).
    \4\ The weekly listing program is known as the Short Term 
Options Series Program and is described in Policy .02 of Exchange 
Rule 404.
    \5\ Except as other provided in Exchange Rule 404 and 
Interpretations and Policies hereto, at the commencement of trading 
on the Exchange of a particular type of option of a class of 
options, the Exchange shall open a minimum of one expiration month 
and series for each class of options open for trading on the 
Exchange. See Exchange Rule 404(b).
    \6\ The quarterly listing program is known as the Quarterly 
Options Series Program and is described in Policy .03 of Exchange 
Rule 404.
    \7\ Except as otherwise provided in Interpretations and Policies 
of Exchange Rule 404, the interval between strike prices of series 
of options on individual stocks will be: (1) $2.50 or greater where 
the strike price is $25.00 or less; (2) $5.00 or greater where the 
strike price is greater than $25.00; and (3) $10.00 or greater where 
the strike price is greater than $200.00.
    \8\ The $1 Strike Price Interval Program is described within 
Policy .01 of Exchange Rule 404.
    \9\ The $0.50 Strike Program is described in Policy .04 of 
Exchange Rule 404.
    \10\ The $2.50 Strike Price Program is described in Exchange 
Rule 404(f).
---------------------------------------------------------------------------

    The Exchange's proposal seeks to amend the listing of weekly series 
of options as proposed within Policy .02(f) of Exchange Rule 404, by 
limiting the intervals between strikes in multiply listed equity 
options, excluding Exchange-Traded Fund Shares and ETNs, that have an 
expiration date more than twenty-one days from the listing date. This 
proposal does not amend monthly or quarterly listing rules nor does it 
amend the $1 Strike Price Interval Program, the $0.50 Strike Program, 
or the $2.50 Strike Price Program.
Short Term Options Series Program
    Today, Policy .02 of Exchange Rule 404 permits the Exchange to open 
for trading on any Thursday or Friday that is a business day (``Short 
Term Option Opening Date'') series of options on an option class that 
expires at the close of business on each of the next five Fridays that 
are business days and are not Fridays in which monthly options series 
or Quarterly Options Series expire (``Short Term Option Expiration 
Dates''), provided an option class has been approved for listing and 
trading on the Exchange.\11\ Today, the Exchange may open up to thirty 
initial series for each option class that participates in the Short 
Term Options Series Program.\12\ Further, if the Exchange opens less 
than thirty (30) Short Term Option Series for a Short Term Option 
Expiration Date, additional series may be opened for trading on the 
Exchange when the Exchange deems it necessary to maintain an orderly 
market, to meet customer demand or when the market price of the 
underlying security moves substantially from the exercise price or 
prices of the series already opened.\13\
---------------------------------------------------------------------------

    \11\ The Exchange may have no more than a total of five Short 
Term Option Expiration Dates. Monday and Wednesday SPY Expirations 
(described in the paragraph below) are not included as part of this 
count. If the Exchange is not open for business on the respective 
Thursday or Friday, the Short Term Option Opening Date will be the 
first business day immediately prior to that respective Thursday or 
Friday. Similarly, if the Exchange is not open for business on a 
Friday, the Short Term Option Expiration Date will be the first 
business day immediately prior to that Friday. The Exchange may open 
for trading on any Tuesday or Wednesday that is a business day 
(``Wednesday SPY Expiration Opening Date'') series of options on the 
SPDR S&P 500 ETF Trust (``SPY'') that expire at the close of 
business on each of the next five Wednesdays that are business days 
and are not Wednesdays on which Quarterly Options Series expire 
(``Wednesday SPY Expirations''). The Exchange may have no more than 
a total of five Wednesday SPY Expirations. Non-Wednesday SPY 
Expirations (described in the paragraph above) are not included as 
part of this count. If the Exchange is not open for business on the 
respective Tuesday or Wednesday, the Wednesday SPY Expiration 
Opening Date will be the first business day immediately prior to 
that respective Tuesday or Wednesday. Similarly, if the Exchange is 
not open for business on a Wednesday, the expiration date for a 
Wednesday SPY Expiration will be the first business day immediately 
prior to that Wednesday. See Policy .02 of Exchange Rule 404.
    \12\ See Policy .02(c) of Exchange Rule 404.
    \13\ See Policy .02(d) of Exchange Rule 404.
---------------------------------------------------------------------------

    The Exchange may open for trading Short Term Option Series on the 
Short Term Option Opening Date that expire on the Short Term Option 
Expiration Date. The strike price interval for Short Term Option Series 
may be $0.50 or greater for option classes that trade in $1 strike 
price intervals and are in the Short Term Option Series Program. If the 
class does not trade in $1 strike price intervals, the strike price 
interval for Short Term Option Series may be $0.50 or greater where the 
strike price is less than $100 and $1.00 or greater where the strike 
price is between $100 and $150, and $2.50 or greater for strike prices 
greater than $150.\14\ A non-Short Term Option series that is included 
in a class that has been selected to participate in the Short Term 
Option Series Program is referred to as a ``Related non-Short Term 
Option.'' Notwithstanding any other provision regarding strike prices 
in Exchange Rule 404, Related non-Short Term Option series shall be 
opened during the month prior to expiration in the same manner as 
permitted in Exchange Rule 404, Interpretations and Policies .02, and 
in the same strike price intervals for the Short Term Option 
Series.\15\
---------------------------------------------------------------------------

    \14\ See Policy .02(e) of Exchange Rule 404.
    \15\ See Policy .02(e) of Exchange Rule 404.
---------------------------------------------------------------------------

    The Exchange may select up to fifty (50) currently listed option 
classes on which Short Term Option Series may be opened on any Short 
Term Option Opening Date. In addition to the 50 option class 
restriction, the Exchange may also list Short Term Option Series on any 
option classes that are selected by other securities exchanges that 
employ a similar program under their respective rules. For each option 
class eligible for participation in the Short Term Option Series 
Program, the Exchange may open up to thirty (30) Short Term Option 
Series for each expiration date in that class.\16\
---------------------------------------------------------------------------

    \16\ See Policy .02(a) of Exchange Rule 404.
---------------------------------------------------------------------------

    The Exchange notes that listings in the weekly program comprise a 
significant part of the standard listing in options markets and that 
over the five years the industry has observed a notable increase in the 
compound annual growth rate (``CAGR'') of weekly strikes as compared to 
CAGR for standard third-Friday expirations.\17\
---------------------------------------------------------------------------

    \17\ See Securities Exchange Act Release No. 91125 (February 12, 
2021), 86 FR 10375 (February 19, 2021) (SR-BX-2020-032).
---------------------------------------------------------------------------

Proposal
    The Exchange proposes to limit the intervals between strikes in 
options listed as part of the Short Term Option Series Program that 
have an expiration date more than twenty-one days from the listing 
date, by adopting proposed Policy .11 to Exchange Rule 404, as well as 
paragraph (f) of Policy .02 to Exchange Rule 404, with respect to 
listing Short Term Option Series in equity options, (excluding 
Exchange-Traded Fund Shares and ETNs)

[[Page 25908]]

(collectively ``Strike Interval Proposal''). The Exchange notes that 
this proposal is substantively identical to the strike interval 
proposal recently submitted by the Nasdaq BX exchange (``BX proposal'') 
and approved by the Commission.\18\
---------------------------------------------------------------------------

    \18\ See id.
---------------------------------------------------------------------------

    The Exchange's Strike Interval Proposal would limit the intervals 
between strikes by utilizing the table proposed within Policy .11 of 
Exchange Rule 404. With the Strike Interval Proposal, the Exchange 
would limit intervals between strikes for expiration dates of option 
series beyond twenty-one days utilizing the below three-tiered table 
which considers both the share price and average daily volume for the 
option series.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                            Share price
                                                                         -------------------------------------------------------------------------------
                   Tier                         Average daily volume                        $25 to less     $75 to less    $150 to less       $500 or
                                                                           Less than $25     than $75        than $150       than $500        greater
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.........................................  Greater than 5,000..........           $0.50           $1.00           $1.00           $5.00           $5.00
2.........................................  Greater than 1,000 to 5,000             1.00            1.00            1.00            5.00           10.00
                                             \19\.
3.........................................  0 to 1,000..................            2.50            5.00            5.00            5.00           10.00
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The table indicates the applicable strike intervals and supersedes 
Policy .02(d) of Rule 404, which currently allows the Exchange to open 
additional series for trading on the Exchange when the Exchange deems 
it necessary to maintain an orderly market, to meet customer demand or 
when the market price of the underlying security moves substantially 
from the exercise price or prices of the series already opened. As a 
result of the proposal, Policy .02(d) would not permit an additional 
series of an equity option to have an expiration date more than 21 days 
from the listing date to be opened for trading on the Exchange despite 
the noted circumstances in Policy .02(d) when such additional series 
may otherwise be added.
---------------------------------------------------------------------------

    \19\ The Exchange notes that while the term ``greater than'' is 
not present in this cell in the corresponding BX rule, the Exchange 
has inserted it for clarity, otherwise an Average Daily Volume of 
1,000 contracts could be read to fall into two categories.
---------------------------------------------------------------------------

    The Share Price would be the closing price on the primary market on 
the last day of the calendar quarter. This value would be used to 
derive the column from which to apply strike intervals throughout the 
next calendar quarter. The Average Daily Volume would be the total 
number of options contracts traded in a given security for the 
applicable calendar quarter divided by the number of trading days in 
the applicable calendar quarter. Beginning on the second trading day in 
the first month of each calendar quarter, the Average Daily Volume 
shall be calculated by utilizing data from the prior calendar quarter 
based on Customer-cleared volume at OCC. For options listed on the 
first trading day of a given calendar quarter, the Average Daily Volume 
shall be calculated using the calendar quarter prior to the last 
trading calendar quarter.\20\ In the event of a corporate action, the 
Share Price of the surviving company would be utilized. These metrics 
are intended to align expectations for determining which strike 
intervals will be utilized. Finally, notwithstanding the limitation 
imposed by proposed Policy .11 of Exchange Rule 404, this Strike 
Interval Proposal does not amend the range of strikes that may be 
listed pursuant to Policy .02 of Exchange Rule 404, regarding the Short 
Term Option Series Program.
---------------------------------------------------------------------------

    \20\ For example, options listed as of January 4, 2021 would be 
calculated on January 5, 2021 using the Average Daily Volume from 
July 1, 2020 to September 30, 2020.
---------------------------------------------------------------------------

    By way of example, if the Share Price for a symbol was $142 at the 
end of a calendar quarter, with an Average Daily Volume greater than 
5,000, thereby, requiring strike intervals to be listed $1.00 apart, 
that strike interval would apply for the calendar quarter, regardless 
of whether the Share Price changed to greater than $150 that calendar 
quarter. The proposed table within Policy .11 of Exchange Rule 404 
takes into account the notional value of a security, as well as Average 
Daily Volume in the underlying stock, in order to limit the intervals 
between strikes in the Short Term Options listing program. The Exchange 
will utilize OCC Customer-cleared volume, as customer volume is an 
appropriate proxy for demand. The OCC Customer-cleared volume 
represents the majority of options volume executed on the Exchange 
that, in turn, reflects the demand in the marketplace. The options 
series listed on the Exchange are intended to meet customer demand by 
offering an appropriate number of strikes. Non-Customer cleared OCC 
volume represents the supply side.
    The strike intervals for listing strikes in certain options are 
intended to remove repetitive and unnecessary strike listings across 
the weekly expiries. The Exchange's Strike Interval Proposal seeks to 
reduce the number of strikes in the furthest weeklies, where there 
exist wider markets and therefore lower market quality.
    The proposal is intended to remove repetitive and unnecessary 
strike listings across the weekly expiries. Specifically, the proposal 
seeks to reduce the number of strikes listed in the furthest weeklies, 
which generally have wider markets and therefore lower market quality. 
The proposed strike intervals are intended to widen permissible strike 
intervals in multiply listed equity options (excluding options on ETFs 
and ETNs) where there is less volume as measured by the Average Daily 
Volume tiers. Therefore, the lower the Average Daily Volume, the 
greater the proposed spread between strike intervals. Options classes 
with higher volume contain the most liquid symbols and strikes, which 
the Exchange believes makes the finer proposed spread between strike 
intervals for those symbols appropriate. Additionally, lower-priced 
shares have finer strike intervals than higher-priced shares when 
comparing the proposed spread between strike intervals. Today, weeklies 
are available on 16% of underlying products. The proposal limits the 
density of strikes listed in series of options, without reducing the 
classes of options available for trading on the Exchange. Short Term 
Option Series with an expiration date greater than 21 days from the 
listing date currently equate to 7.5% of the total number of strikes in 
the options market, which equals 81,00 strikes.\21\ The Exchange 
expects this proposal to result in the limitation of approximately

[[Page 25909]]

20,000 strikes within the Short Term Option Series, which is 
approximately 2% of the total strikes in the options markets.\22\ The 
Exchange understands there has been an inconsistency of demand for 
series of options beyond 21 calendar days.\23\ The proposal takes into 
account customer demand for certain option classes, by considering both 
the Share Price and the Average Daily Volume, in order to remove 
certain strike intervals where there exist clusters of strikes whose 
characteristics closely resemble one another and, therefore, do not 
serve different trading needs,\24\ rendering these strikes less useful. 
The Exchange also notes that the proposal focuses on strikes in 
multiply listed equity options, and excludes ETFs and ETNs, as the 
majority of strikes reside within equity options.
---------------------------------------------------------------------------

    \21\ The Exchange notes that this proposal is an initial attempt 
at reducing strikes and anticipates filing additional proposals to 
continue reducing strikes. The percentage of underlying products and 
percentage of and total number of strikes, are approximations and 
may vary at the time of this filing.
    \22\ From information drawn from the time period between January 
2020 and May 2020. See BX proposal, supra note 17.
    \23\ See BX proposal, supra note 17.
    \24\ For example, two strikes that are densely clustered may 
have the same risk properties and may also be the same percentage 
out-of-the money.
---------------------------------------------------------------------------

    Additionally, proposed Policy .11 of Exchange Rule 404 provides 
that options that are newly eligible for listing pursuant to Exchange 
Rule 402 and designated to participate in the Short Term Option Series 
program pursuant to Policy .02 of Rule 404 will not be subject to 
proposed Policy .11 of Exchange Rule 404 until after the end of the 
first full calendar quarter following the date the option class was 
first listed for trading on any options market.\25\ As proposed, the 
Exchange is permitted to list options on newly eligible listing, 
without having to apply the wider strike intervals, until the end of 
the first full calendar after such options were listed. The proposal 
thereby permits the Exchange to add strikes to meet customer demand in 
a newly listed options class. A newly eligible option class may 
fluctuate in price after its initial listing; such volatility reflects 
a natural uncertainty about the security. By deferring the application 
of the proposed wider strike intervals until after the end of the first 
full calendar quarter, additional information on the underlying 
security will be available to market participants and public investors, 
as the price of the underlying has an opportunity to settle based on 
the price discovery that has occurred in the primary market during this 
deferment period. Also, the Exchange has the ability to list as many 
strikes as permissible for the Short Term Option Series once the expiry 
is no more than 21 days. Short Term Option Series that have an 
expiration date no more than 21 days from the listing date are not 
subject to the proposed strike intervals, which allows the Exchange to 
list additional, and potentially narrower, strikes in the event of 
market volatility or other market events. These metrics are intended to 
align expectations for determining which strike intervals will be 
utilized. Finally, proposed Policy .11 of Rule 404 provides that the 
proposal does not amend the range of strikes that may be listed 
pursuant to Policy .02, regarding the Short Term Option Series Program.
---------------------------------------------------------------------------

    \25\ For example, if an options class became newly eligible for 
listing pursuant to Exchange Rule 402 on March 1, 2021 (and was 
actually listed for trading that day), the first full quarterly 
lookback would be available on July 1, 2021. This option would 
become subject to the proposed strike intervals on July 2, 2021.
---------------------------------------------------------------------------

    While the current listing rules permit the Exchange to list a 
number of weekly strikes on its market, in an effort to encourage 
Market Makers \26\ to deploy capital more efficiently, as well as 
improve displayed market quality, the Exchange's Strike Interval 
Proposal reduces the number of listed weekly options. As the Exchange's 
Strike Interval Proposal seeks to reduce the number of weekly options 
that would be listed on its market in later weeks, Market Makers would 
be required to quote in fewer weekly strikes as a result of the Strike 
Interval Proposal. Specifically, the Strike Interval Proposal aims to 
reduce the density of strike intervals that would be listed in later 
weeks, by creating limitations for intervals between strikes which have 
an expiration date more than twenty-one days from the listing date. The 
table takes into account customer demand for certain option classes, by 
considering both the Share Price and the Average Daily Volume, to 
arrive at the manner which weekly strike intervals may be listed. The 
intervals for listing strikes in equity options is intended to remove 
certain strike intervals where there exist clusters of strikes whose 
characteristics closely resemble one another and, therefore, do not 
serve different trading needs,\27\ rendering these strikes less useful.
---------------------------------------------------------------------------

    \26\ The term ``Market Makers'' refers to ``Lead Market 
Makers'', ``Primary Lead Market Makers'' and ``Registered Market 
Makers'' collectively. See Exchange Rule 100.
    \27\ For example, two strikes that are densely clustered may 
have the same risk properties and may also be the same percentage 
out-of-the-money.
---------------------------------------------------------------------------

    The Strike Interval Proposal is intended to be the first in a 
series of proposals to limit the number of listed options series listed 
on MIAX Pearl Options and other affiliated markets. The Exchange 
intends to decrease the overall number of strikes listed on MIAX 
exchanges in a methodical fashion, so that it may monitor progress and 
feedback from its membership. While limiting the intervals between 
listed strikes is the goal of this rule change, the Exchange's Strike 
Interval Proposal is intended to balance that goal with the needs of 
market participants. The Exchange believes that various strike 
intervals continue to offer market participants the ability to select 
the appropriate strike interval to meet the market participant's 
investment objective.
Implementation
    The Exchange will announce the implementation date of the proposed 
rule change by Regulatory Circular to be published no later than 90 
days following the operative date of the proposed rule. The 
implementation date will be no later than 90 days following the 
issuance of the Regulatory Circular. The Exchange will issue a notice 
to its Members \28\ whenever the Exchange is the first exchange to list 
an eligible Short Term Option Series pursuant to Policy .11 of Exchange 
Rule 404.\29\
---------------------------------------------------------------------------

    \28\ 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.
    \29\ When the Exchange is the first exchange to list an option 
class under Policy .11 of Exchange Rule 404 the Exchange shall 
provide a notice to its Members regarding the Short Term Option 
Series to be listed. Such notice will include for each eligible 
option class: The closing price of the underlying, the Average Daily 
Volume of the option class; and the eligible strike category (per 
the proposed table) in which the eligible option class falls under 
as a result of the closing price and the Average Daily Volume.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \30\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \31\ 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.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78f(b).
    \31\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Strike Proposal seeks to limit the intervals between the 
strikes listed in the Short Term Options Series program that have an 
expiration date more than twenty-one days. While the current

[[Page 25910]]

listing rules permit the Exchange to list a number of weekly strikes on 
its market, the Exchange's Strike Interval Proposal removes impediments 
to and perfects the mechanism of a free and open market and a national 
market system by encouraging Market Makers to deploy capital more 
efficiently and improving market quality overall on the Exchange 
through limiting the intervals between the strikes when applying the 
strike interval table to multiply listed equity options that have an 
expiration date more than twenty-one days from the listing date. Also, 
as the Exchange's Strike Interval Proposal seeks to reduce the number 
of weekly options that would be listed on its market in later weeks, 
Market Makers would be required to quote in fewer weekly strikes as a 
result of the Strike Interval Proposal. Amending the Exchange's listing 
rules to limit the intervals between strikes for multiply listed equity 
options that have an expiration date more than twenty-one days causes 
less disruption in the market as the majority of the volume traded in 
weekly options exists in options series which have an expiration date 
of twenty-one days or less. The Exchange's Strike Interval Proposal 
curtails the number of strike intervals listed in series of options 
without reducing the number of classes of options available for trading 
on the Exchange.
    The Strike Interval Program takes into account customer demand for 
certain option classes by considering both the Share Price and the 
Average Daily Volume in the underlying security to arrive at the manner 
in which weekly strike intervals would be listed in the later weeks for 
each multiply listed equity options class. The Exchange utilizes OCC 
Customer-cleared volume, as customer volume is an appropriate proxy for 
demand. The OCC Customer-cleared volume represents the majority of 
options volume executed on the Exchange that, in turn, reflects the 
demands in the marketplace. The options series listed on the Exchange 
is intended to meet customer demand by offering an appropriate number 
of strikes. Non-Customer cleared OCC volume represents the supply side.
    The Strike Interval Proposal for listing strikes in certain 
multiply listed equity options is intended to remove certain strikes 
where there exist clusters of strikes whose characteristics closely 
resemble one another and, therefore, do not serve different trading 
needs that renders the strikes less useful and thereby protects 
investors and the general public by removing an abundance of 
unnecessary choices for an options series, while also improving market 
quality. The Exchange's Strike Interval Proposal seeks to reduce the 
number of strikes in the furthest weeklies, where there exist wider 
markets, and, therefore, lower market quality. The implementation of 
the proposed table is intended to spread strike intervals in multiply 
listed equity options, where there is less volume that is measured by 
the average daily volume tiers. Therefore, the lower the average daily 
volume, the greater the proposed spread between strike intervals. 
Options classes with higher volume contain the most liquid symbols and 
strikes, therefore the finer the proposed spread between strike 
intervals. Additionally, lower-priced shares have finer strike 
intervals than higher-priced shares when comparing the proposed spread 
between strike intervals.
    Beginning on the second trading day in the first month of each 
calendar quarter, the Average Daily Volume shall be calculated by 
utilizing data from the prior calendar quarter based on OCC Customer-
cleared volume. Utilizing the second trading day allows the Exchange to 
accumulate data regarding OCC Customer-cleared volume from the entire 
prior quarter. Beginning on the second trading day would allow trades 
executed on the last day of the previous calendar quarter to have 
settled \32\ and be accounted for in the calculation of Average Daily 
Volume. Utilizing the previous three months is appropriate because this 
time period would help reduce the impact of unusual trading activity as 
a result of unique market events, such as a corporate action (i.e., it 
would result in a more reliable measure of average daily trading volume 
than would a shorter period).
---------------------------------------------------------------------------

    \32\ Options contracts settle one business day after trade date. 
Strike listing determinations are made the day prior to the start of 
trading in each series.
---------------------------------------------------------------------------

    Today, the Exchange requires Market Makers to quote a certain 
amount of time in the trading day in their assigned due options series 
to maintain liquidity in the market.\33\ With an increasing number of 
strikes due to tighter intervals being listed across options exchanges, 
Market Makers must expend their capital to ensure that they have the 
appropriate infrastructure to meet their quoting obligations on all 
options markets in which they are assigned in options series. The 
Exchange believes that this Strike Interval Proposal would limit the 
intervals between strikes listed on the Exchange and thereby allow 
Market Makers to expend their capital in the options market in a more 
efficient manner that removes impediments to and perfects the mechanism 
of a free and open market and a national market system. The Exchange 
also believes that this Strike Interval Proposal would improve overall 
market quality on the Exchange for the protection of investors and the 
general public by limiting the intervals between strikes when applying 
the strike interval table to multiply listed equity options which have 
an expiration date more than twenty-one days from the listing date.
---------------------------------------------------------------------------

    \33\ See Exchange Rule 604(e)(1); 604(e)(2); and 604(e)(3).
---------------------------------------------------------------------------

    This Strike Interval Proposal is intended to be the first in a 
series of proposals to limit the number of listed option series listed 
on the Exchange and other affiliated markets. The Exchange intends to 
decrease the overall number of strikes listed on the MIAX exchanges in 
a methodical fashion in order that it may monitor progress and feedback 
from its membership. While limiting the intervals between strikes 
listed is the goal of this rule change, the Exchange's Strike Interval 
Proposal is intended to balance that goal with the needs of market 
participants. The Exchange believes that varied strike intervals 
continue to offer market participants the ability to select the 
appropriate strike interval to meet that market participant's 
investment objective.
    The Exchange notes that its proposal is substantively identical to 
the strike interval proposal recently submitted by the Nasdaq BX 
exchange and approved by the Commission.\34\ The Exchange notes that it 
has reviewed the data presented in the BX proposal and agrees with the 
analysis of the data as presented in the BX proposal. The Exchange 
believes the varied strike intervals will continue to offer market 
participants the ability to select the appropriate strike interval to 
meet that market participants' investment objectives.
---------------------------------------------------------------------------

    \34\ See supra note 17.
---------------------------------------------------------------------------

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 Strike Interval Proposal 
limits the number of Short Term Options Series strike intervals 
available for quoting and trading on the Exchange for all Exchange 
participants. While the current listing rules permit the Exchange to 
list a number of weekly strikes on its market, in an effort to 
encourage Market Makers to deploy capital more efficiently, as well as 
improve displayed market quality, the Exchange's Strike Interval 
Proposal

[[Page 25911]]

seeks to reduce the number of weekly options that would be listed on 
its market in later weeks, without reducing the number of series or 
classes of options available for trading on the Exchange. As the 
Exchange's Strike Interval Proposal seeks to reduce the number of 
weekly options that would be listed on its market in later weeks, 
Market Makers would be required to quote in fewer weekly strikes as a 
result of the Strike Interval Proposal.
    The Exchange's Strike Interval Proposal, which is intended to 
decrease the overall number of strikes listed on the Exchange, does not 
impose an undue burden on intra-market competition as all Participants 
may only transact options in the strike intervals listed for trading on 
the Exchange. While limiting the intervals of strikes listed on the 
Exchange is the goal of this Strike Interval Proposal, the goal 
continues to balance the needs of market participants by continuing to 
offer a number of strikes to meet a market participant's investment 
objective.
    The Exchange's Strike Interval Proposal does not impose an undue 
burden on inter-market competition as this Strike Interval Proposal 
does not impact the listings available at another self-regulatory 
organization. In fact, the Exchange is proposing to list a smaller 
amount of weekly equity options in an effort to curtail the increasing 
number of strikes that are required to be quoted by market makers in 
the options industry. Other options markets may choose to replicate the 
Exchange's Strike Interval Proposal and, thereby, further decrease the 
overall number of strikes within the options industry.

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)(iii) \35\ of the Act and Rule 19b-4(f)(6) thereunder.\36\ 
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)(iii) of the Act and subparagraph (f)(6) of Rule 
19b-4 thereunder.\37\
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \36\ 17 CFR 240.19b-4(f)(6).
    \37\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to 
give the Commission written notice of its intent to file 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.
---------------------------------------------------------------------------

    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 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-PEARL-2021-19 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-PEARL-2021-19. 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-PEARL-2021-19, and should be submitted 
on or before June 1, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
---------------------------------------------------------------------------

    \38\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-09885 Filed 5-10-21; 8:45 am]
BILLING CODE 8011-01-P