83 FR 10533 - Self-Regulatory Organizations; MIAX PEARL, LLC ; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 403, Withdrawal of Approval of Underlying Securities

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 47 (March 9, 2018)

[Federal Register Volume 83, Number 47 (Friday, March 9, 2018)]
[Notices]
[Pages 10533-10536]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-04790]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82812; File No. SR-PEARL-2018-05]


Self-Regulatory Organizations; MIAX PEARL, LLC ; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange 
Rule 403, Withdrawal of Approval of Underlying Securities

March 6, 2018.
    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 21, 2018, MIAX PEARL, LLC (``MIAX 
PEARL'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend Exchange Rule 403, 
Withdrawal of Approval of Underlying Securities, to allow the Exchange 
to delist an option class if open for trading on another national 
securities exchange, and to not open for trading or restrict securities 
with open interest to closing transactions, if open for trading solely 
on the Exchange.
    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 seeks to amend Rule 403 to add Interpretations and 
Policies .02, to allow the Exchange to delist an option class if it is 
open for trading on another securities exchange; restrict option series 
to closing transactions when an option class is open for trading solely 
on the Exchange and the underlying security continues to meet the 
requirements for approval; restrict series with open interest to 
closing transactions, provided that, opening transactions by Market 
Makers executed to accommodate closing transactions of other market 
participants may be permitted; and to delist the option class

[[Page 10534]]

when all series within that class have expired. The Exchange believes 
the ability to restrict option series to closing transactions when an 
option class is open for trading solely on the Exchange and the 
underlying security continues to meet the requirements for approval 
will allow the Exchange to delist option series in a timely and 
efficient manner. The Exchange believes the proposed rule amendment is 
necessary in connection with the listing and trading of option classes 
that are open for trading solely on the Exchange, including, but not 
limited to, cash-settled index option products.\3\ The proposed rule 
change is based on a proposal recently submitted by Cboe Exchange, Inc. 
(``Cboe'').\4\
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    \3\ MIAX PEARL recently submitted a filing to list cash-settled 
index option products, which, if approved, will be applicable to 
this proposed rule amendment. See SR-PEARL-2018-02 (filed February 
8, 2018).
    \4\ See Securities Exchange Act Release No. 82346 (December 18, 
2017), 82 FR 60778 (December 22, 2017)(SR-CBOE-2017-076).
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    Currently, whenever the Exchange determines that an underlying 
security previously approved for Exchange options transactions does not 
meet the then current requirements for continuance of such approval or 
for any other reason should no longer be approved, the Exchange will 
not open for trading any additional series of options of the class 
covering that underlying security and may prohibit any opening 
transactions in series of options of that class previously opened 
(except that opening transactions by Market Makers executed to 
accommodate closing transactions of other market participants may be 
permitted). The Exchange seeks to add Interpretations and Policies .02 
to provide that when an option class is trading on another exchange, 
MIAX PEARL may delist such option class immediately, regardless of 
whether the option class continues to meet the requirements for 
approval. When an option class that no longer meets the requirements 
for approval is trading solely on the Exchange, the Exchange may not 
add any additional series, may restrict series with open interest to 
closing transactions, and may delist any series without open interest. 
However, when an option class continues to meet the requirements for 
approval and is trading solely on the Exchange, the Exchange may not 
restrict series with open interest to closing transactions; instead, 
the Exchange may only delist series with no open interest and determine 
to not open for trading any additional series in that option class, and 
may delist the option class when all series within that class have 
expired.
    There are various business reasons why the Exchange may choose to 
no longer list an option class (e.g., lack of trading interest, lack of 
market-making interest, etc.). The Exchange believes restricting such 
classes to closing transactions will allow open interest to be closed 
in a timelier and more efficient manner. When seeking to delist an 
option class the Exchange believes that restricting series to closing 
transactions is a better way to transition the class to a delisted 
state than the current method of not adding additional series and 
allowing market participants to continue to add new positions in the 
existing series. Restricting trading to closing transactions encourages 
market participants to close transactions, which helps to limit any 
potential negative effects associated with delisting a class. For 
example, restricting trading to closing transactions helps prevent 
market participants from adding new positions that cannot be rolled 
into the following expiration (a common options strategy).
    The Exchange notes that this proposal is consistent with the manner 
in which Rule 403 operates in relation to option classes with 
underlying securities that no longer meet the requirements for 
approval--additional series are not added, series with open interest 
are restricted to closing only, and series without open interest are 
delisted. As proposed, when the Exchange seeks to delist an option 
class with an underlying security that continues to meet the 
requirements for approval the Exchange will not open additional series 
in the option class and will restrict trading to closing transactions.
    Allowing Market Makers to facilitate closing transactions of other 
market participants will help market participants close positions in 
classes that will be delisted by the Exchange, which helps to protect 
investors and the public interest. It is reasonable to restrict series 
to closing only pursuant to current Rule 403 when underlying securities 
no longer meet requirements for approval. The Exchange believes it is 
also reasonable to restrict series to closing when the options class no 
longer satisfies business justifications for listing the class.
    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 notes that this filing is substantially similar to a 
companion MIAX Options filing, amending Rule 403 to allow the Exchange 
to delist an option class if open for trading on another national 
securities exchange, and to not open for trading or restrict securities 
with open interest to closing transactions, if open for trading solely 
on the Exchange.
2. Statutory Basis
    MIAX PEARL believes that its proposed rule change is consistent 
with Section 6(b) of the Act \5\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \6\ 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 facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanisms of a free and open market and a national market system and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with 
Section 6(b)(5) \7\ requirements that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ Id.
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    In particular, when seeking to delist an option class--whether or 
not the underlying security continues to meet the requirements for 
approval--the Exchange believes that restricting series to closing 
transactions is a better way to transition the class to a delisted 
state than the current method of not adding additional series and 
allowing market participants to continue to add new positions in the 
existing series. Restricting trading to closing transactions encourages 
market participants to close transactions, which helps to limit any 
potential negative effects associated with delisting a class and helps 
to protect customers and the public interest.
    The Exchange notes that this proposal is consistent with the manner 
in which Rule 403 operates in relation to option classes with 
underlying securities that no longer meet the requirements for 
approval--additional series are not added, series with open interest 
are restricted to closing only, and series without open interest are 
delisted. As proposed, when the Exchange seeks to delist an option 
class with an underlying security that continues to meet the 
requirements for approval the

[[Page 10535]]

Exchange will not open additional series in the option class and will 
restrict trading to closing transactions. Also consistent with current 
Rule 403, opening transactions by Market Makers executed to accommodate 
closing transactions of other market participants may be permitted. 
Allowing Market Makers and market participants to facilitate closing 
transactions will help close positions in classes that will be delisted 
by the Exchange, which helps to protect investors and the public 
interest. It is reasonable to restrict series to closing only pursuant 
to current Rule 403 when underlying securities no longer meet 
requirements for approval. The Exchange believes it is also reasonable 
to restrict series to closing when the option class no longer satisfies 
business justifications for listing the class.
    The Exchange also believes the proposed changes promote 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 rule is designed to allow the Exchange to 
facilitate transactions in products solely listed on the Exchange in a 
uniform manner. Additionally, the proposed amendment would foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities and would remove impediments to and perfect 
the mechanism of a free and open market and a national exchange system 
because the proposed amendment would make the rules of Exchange 
consistent with other options exchanges which trade index options.\8\ 
In particular, the Exchange believes that the proposed changes will 
provide greater clarity to Members \9\ and the public regarding the 
Exchange's Rules as they pertain to index options. It is in the public 
interest for rules to be uniform and consistent across options 
exchanges so as to eliminate the potential for confusion.
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    \8\ See supra notes 3 and 4.
    \9\ The term ``Member'' means an individual or organization that 
is registered with the Exchange, pursuant to Exchange rules, for the 
purposes of trading on the Exchange as an ``Electronic Exchange 
Member'' or ``Market Maker.'' See Exchange Rule 100.
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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 proposed rule change is 
consistent with the manner in which Rule 403 operates in relation to 
option classes with underlying securities that no longer meet the 
requirements for approval--additional series are not added, series with 
open interest are restricted to closing only, and series without open 
interest are delisted. Also consistent with current Rule 403, opening 
transactions by Market Makers executed to accommodate closing 
transactions of other market participants may be permitted. Allowing 
Market Makers to facilitate closing transactions of other market 
participants will help close positions in classes that will be delisted 
by the Exchange, which helps to protect investors and the public 
interest and does not impose any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. 
Additionally, the proposed rule change is consistent with the rules of 
other options exchanges that currently list for trading index options, 
therefore, the Exchange believes that this proposed rule change will 
add clarity and uniformity to the rule governing index options.\10\
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    \10\ See supra note 3.
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    The Exchange does not believe that the proposed rule change will 
impose any burden on intermarket competition as the Rules apply equally 
to all Exchange Members.

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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) \12\ 
thereunder.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization 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.
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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 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 [email protected]. Please include 
File Number SR-PEARL-2018-05 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-2018-05. 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-2018-05, and

[[Page 10536]]

should be submitted on or before March 30, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Eduardo A. Aleman,
Assistant Secretary.
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    \13\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2018-04790 Filed 3-8-18; 8:45 am]
 BILLING CODE 8011-01-P