Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Order Granting Approval of a Proposed Rule Change To Amend Certain MIAX Options Exchange Rules To Permit the Listing and Trading of Options on the Bloomberg US Large Cap Price Return Index

I. Introduction

On March 10, 2025, Miami International Securities Exchange, LLC (“MIAX” or the “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) ^[1] and Rule 19b-4 thereunder,^[2] a proposed rule change to permit the listing and trading of A.M.- and P.M.-settled index options on the Bloomberg US Large Cap Price Return Index (“B500 Index”). The proposed rule change was published for comment in the Federal Register on ( printed page 19237) March 17, 2025.^[3] The Commission received one letter from MIAX regarding the proposed rule change.^[4] As discussed further below, the Commission is approving the proposed rule change.

II. Description of the Proposal

The Exchange proposes to permit the listing and trading of A.M.- and P.M.-settled index options on the B500 Index with third Friday-of-the month expirations, and to allow the Exchange to list broad-based index options with nonstandard expirations (which are P.M. settled).^[5] According to the Exchange, the B500 Index is a broad-based, float market-capitalization-weighted benchmark of the 500 most highly capitalized U.S.-listed companies.^[6] The Exchange further states that all constituents of the B500 Index are securities consisting of common stocks, real estate investment trusts, and tracking stocks, which are primarily listed on a U.S. securities exchange.^[7] Moreover, the components of the B500 Index are determined from the U.S.-listed companies that have the largest cumulative free-float market capitalization. Each component security of the B500 Index must meet certain minimum eligibility and liquidity screening requirements, and Bloomberg Index Services Limited (“BISL”), as the administrator of the B500 Index, monitors and maintains the B500 Index, including handling the quarterly and semi-annual rebalances.^[8]

According to the Exchange, the proposed A.M.-settled B500 Index options with third Friday-of-the-month expirations would satisfy the initial listing criteria for options on a broad-based index as set forth in Exchange Rule 1802(d), and would be subject to the maintenance listing standards for such indexes as set forth in Exchange Rule 1802(e).^[9] The Exchange also states that A.M.-settlement is consistent with the generic listing criteria for broad-based indexes, and thus it is common for index options to be A.M.-settled.^[10] Accordingly, the Exchange proposes to amend Exchange Rule 1809(a)(5), A.M.-Settled Index Options, to specify that the B500 Index options may be A.M.-settled, cash-settled contracts.^[11] In addition, the Exchange proposes to amend Exchange Rule 1809 to permit the listing and trading of P.M.-settled, cash-settled options on the B500 Index with third Friday-of-the-month expirations, whose exercise settlement value would be based on the closing index value of the B500 Index on the expiration day.^[12] The Exchange states that all B500 Index options would be subject to the same rules that presently govern the trading of index options, including sales practice rules, margin requirements, and trading rules.^[13]

Under the proposed rule change, the Exchange may list up to twelve (12) standard expiration months for A.M.- and P.M.-settled series of B500 Index options with third Friday-of-the-month expirations ^[14] and European-style exercise.^[15] The notional value of each A.M.- and P.M.-settled B500 Index option contract would be calculated using a $100 multiplier, and the minimum trading increment would be $0.05 for options trading below $3.00 and $0.10 for all other series.^[16] The Exchange states that strike price intervals would be set at no less than $5.00.^[17] Further, options on the B500 Index (all expirations) would not be subject to position or exercise limits.^[18] According to the Exchange, the B500 Index would settle using published prices from the 500 most highly capitalized U.S.-listed companies.^[19] Because the market for each of the underlying component securities of the B500 Index is so large, the Exchange believes that there is minimal risk of manipulation by virtue of position size in B500 Index options.^[20] The Exchange also proposes to amend Exchange Rule 1808(a) to establish new subparagraph (a)(1), to provide that transactions in P.M.-settled B500 Index options may be effected on the Exchange between the hours of 9:30 a.m. and 4:15 p.m. Eastern Time, except on the last trading day, on which the trading hours would be between 9:30 a.m. and 4:00 p.m. Eastern Time.^[21] According to the Exchange, the proposed A.M.- and P.M.-settled B500 Index options would be similar to other broad-based equity index options that are listed on other exchanges in terms of expirations listed, exercise style, settlement, and trading hours.^[22]

As noted above, the Exchange also proposes to establish rules to permit the listing and trading of P.M.-settled index options on broad-based indexes with nonstandard expiration dates.^[23] Specifically, the Exchange proposes to establish rules to permit both weekly expirations (“Weekly Expirations”) and end of month expirations (“EOM Expirations”).^[24] Pursuant to proposed Interpretation and Policy .06 to ( printed page 19238) Exchange Rule 1809, the Exchange would be able to open for trading Weekly Expirations to expire on any Monday, Tuesday, Wednesday, Thursday or Friday (other than the third Friday-of-the-month or days that coincide with an EOM Expiration).^[25] In addition, the Exchange would be able to open for trading EOM Expirations to expire on the last trading day of the month.^[26] Currently, the only options the Exchange proposes to list with nonstandard expirations are options on the B500 Index.^[27]

The Exchange states that contract terms for the Weekly Expirations and EOM Expirations would be similar to those for the A.M.-settled index options, except that the exercise settlement value would be based on the index value derived from the closing prices of component stocks on the expiration date, i.e., for the B500 Index, the closing prices of the component securities comprising the B500 Index.^[28] Weekly and EOM Expirations would be subject to all provisions of Exchange Rule 1809 and would be treated the same as options on the same underlying index that expire on the third Friday of the expiration month,^[29] including being subject to the same rules that govern the trading of standard monthly broad-based index options, such as sales practice rules and margin requirements.^[30] The Exchange further states that option positions on a broad-based index with nonstandard expirations would be aggregated for any applicable reporting and other requirements.^[31] For instance, according to the Exchange, the reporting requirements described under Exchange Rule 310(a) would apply to a Member's aggregated position in B500 Index options, which would include all positions held in A.M.-settled B500 Index options, P.M.-settled B500 Index options with third Friday-of-the-month expirations, B500 Index options with Weekly Expirations and EOM Expirations, and any other B500 Index option expirations the Exchange may list pursuant to its rules ( e.g., Quarterly Options Series).^[32] In addition, the Exchange proposes to add nonstandard expirations to its rule regarding position limits for broad-based index options to reflect the Exchange's default aggregation requirement for broad-based index option position holders.^[33] The Exchange states that the proposed aggregation requirement is consistent with the aggregation requirements for other types of option series ( e.g., quarterly expiring options) that are listed on the Exchange, which do not expire on the customary third Friday.^[34] Moreover, the Exchange states that its proposed rule for Weekly Expirations and EOM Expirations is substantively similar to the rules approved by the Commission in place at other exchanges.^[35]

The Exchange also represents that it has in place adequate surveillance procedures to monitor trading in B500 Index options in order to ensure the maintenance of fair and orderly markets.^[36] The Exchange states that its surveillance program includes real-time patterns for price and volume movements and post-trade surveillance patterns ( e.g., spoofing, marking the close, pinging, and phishing) and that it would apply those same program procedures to trading in B500 Index options, including nonstandard expirations.^[37] The Exchange further states that it will review activity in the underlying components of the B500 Index when conducting surveillances for market abuse or manipulation in the options on the B500 Index.^[38] Additionally, the Exchange states that it is a member of the Intermarket Surveillance Group (“ISG”) and that members of ISG work together to coordinate surveillance and investigative information sharing in the stock, options, and futures markets.^[39] Further, the Exchange has a Regulatory Services Agreement with the Financial Industry Regulatory Authority, Inc. (“FINRA”), and pursuant to a multi-party Rule 17d-2 joint plan, all options exchanges allocate regulatory responsibilities to FINRA for certain options-related market surveillance.^[40] The Exchange also represents that it believes the Exchange and the Options Price Reporting Authority (“OPRA”) have the necessary systems capacity to handle any additional messages associated with the listing of the maximum number of expirations permitted for B500 Index options.^[41]

The Exchange also commits to providing an annual report for a period of five years from the launch of B500 Index options (“Annual Report”).^[42] The Exchange states that the purpose of the Annual Report would be to study, among other things, the impact, if any, of B500 Index options with P.M.-settlement on the underlying securities that comprise the B500 Index, as well as other linked-markets ( e.g., hedging instruments for B500 Index options), such as B500 Index futures and B500 Index ETFs, to the extent possible.^[43] For example, the Exchange would seek to analyze whether listing and offering P.M.-settled B500 Index options for trading would increase volatility around the market close in linked-markets, as well as its underlying component securities.^[44] The Exchange states that the Annual Report would, generally, contain an analysis of volume, end-of-day open interest, exercised contracts, and trading patterns, to the extent possible, in B500 Index options and B500 Index futures.^[45] Furthermore, as determined by the Exchange in light of the growth of the B500 Index option market after launch, or upon request by the Commission, the Exchange would provide an additional in-depth analysis of volatility and trading activity around B500 Index options P.M.-settlement ( e.g., within 15 minutes of the market close with respect to the B500 Index, component securities of the B500 Index, and other linked-markets ( e.g., B500 Index futures and B500 Index ETFs)). The Exchange would make all underlying data of data items included in the Annual Report and in-depth analysis publicly available in machine-readable format.^[46]

III. Discussion and Commission's Findings

After careful review, the Commission finds that the proposed rule change is consistent with Section 6 of the Act. ^[47] ( printed page 19239) Specifically, the Commission finds that the proposed rule change is consistent with Section 6(b)(1) of the Act,^[48] which requires, among other things, that the Exchange be so organized and have the capacity to be able to carry out the purposes of the Act and to enforce compliance by its members and persons associated with its members with the provisions of the Act, Commission rules and regulations thereunder, and its own rules; Section 6(b)(5) of the Act,^[49] which requires that the proposal be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, 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; and Section (b)(8) of the Act,^[50] which requires that the proposal not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.

The Commission believes that the listing and trading of the proposed B500 Index options does not raise unique regulatory concerns. Options on broad-based indexes are not novel. As discussed above, the Exchange's rules already allow for the listing of options on certain broad-based indexes, and the Exchange has represented that the proposed standard A.M.-settled options on the B500 Index would satisfy the Exchange's current initial listing criteria for such options as set forth in Exchange Rule 1802(d).^[51] The proposed options on the B500 Index also would be subject to the same Exchange rules that presently govern the trading of index options, including sales practice rules, margin requirements, and trading rules.^[52] Moreover, other options exchanges currently have rules that allow those exchanges to list and trade A.M.- and P.M.-settled broad-based index options that expire on the third Friday-of-the-month, including options on the S&P 500 Index,^[53] which index is comprised of security components nearly identical to those that comprise the B500 index.^[54] In addition, other options exchanges set forth rules allowing those exchanges to list and trade nonstandard expirations (with P.M. settlement) for broad-based index options that are substantively similar to the Exchange's proposal.^[55] Further, there would be futures contracts overlying the same B500 Index, which could be an important hedging instrument for market makers and other market participants that establish positions in B500 index options.^[56]

Permitting the trading of options on an index of securities enables investors to participate in the price movements of the index's underlying securities and allows investors holding positions in some or all such securities to hedge the risks associated with their portfolios. The Exchange's proposal to permit the listing and trading of options on the B500 Index, including B500 index options with nonstandard expirations and P.M. settlement, could benefit investors and enhance competition by providing investors with additional investment and hedging alternatives on a broad-based index composed of actively traded, well-capitalized stocks.

Specifically, B500 Index options could benefit investors and enhance competition by providing new and additional opportunities for investors to hedge the market risk associated with, and gain directional exposure to, the broader U.S. equity market. In addition, the Exchange's proposal to provide B500 Index options with nonstandard expirations could benefit investors and remove impediments to a free and open market by allowing market participants to purchase B500 Index options in a manner more aligned with their specific timing needs and to roll their positions on more trading days, which may enable market participants to more precisely spread risk across more trading days and incorporate daily changes in the markets. Further, the P.M. settlement feature permits trading in B500 Index options throughout the expiration day, which should enable market participants to trade out of their positions up until the time the contract settles and may permit market participants to more effectively manage overnight risk and reduce residual risk on the day of expiration.

Importantly, as discussed above, the Exchange has committed to providing an Annual Report for five years after the launch of B500 Index options, the purpose of which is to study the market impact of P.M.-settled B500 Index options. Further, as determined by the Exchange in light of the growth of the B500 Index options market or upon request by the Commission, the Exchange will provide an additional in-depth analysis of volatility and trading activity around P.M. settlement of B500 Index options. These Exchange commitments are designed to protect investors and the public interest, as they should provide the Commission with data and analysis that sheds light on the development of the market for B500 Index options and enables the Commission to monitor for and assess any potential adverse market effects after the introduction of B500 Index options to the market.

The Commission believes the Exchange's proposal to impose no position or exercise limits for options on the B500 Index is appropriate and consistent with the Act because the potential for manipulation or market disruption stemming from excessively large B500 Index option positions is mitigated. As discussed above, the B500 Index consists of 500 of the most highly capitalized U.S.-listed companies. The ( printed page 19240) large number of underlying securities contained in the B500 Index as well as their enormous capitalization and deep, liquid markets significantly reduces concerns regarding the potential for market manipulation or disruption in the market underlying B500 Index options. In addition, the Exchange has in place reporting and other requirements that should enable it to guard against the potential for manipulation or adverse market impact stemming from B500 Index option positions.^[57] Moreover, the Exchange's proposal is consistent with the rules of other exchanges that do not impose position or exercise limits on certain broad-based index options, including options on the S&P 500 Index.^[58]

The Commission also believes that the potential risks of trading B500 Index options without position and exercise limits are mitigated by the Exchange's surveillances mechanisms, consistent with Sections 6(b)(1) and 6(b)(5) of the Act.^[59] The Exchange represents that it has an adequate surveillance program in place for options, that it intends to apply those same program procedures to B500 Index options, and that its surveillance procedures are designed to deter and detect possibility manipulative behavior which might potentially arise from listing and trading B500 Index options.^[60] The Exchange also represents that it will review activity in the underlying components of the B500 Index when conducting surveillances for market abuse or manipulation in the options on the B500 Index, and that as an ISG member, it works with other ISG members to coordinate surveillance and investigative information sharing in the stock, options, and futures markets.^[61] Further, the Exchange represents that it will implement any new surveillance procedures it deems necessary to effectively monitor the trading of B500 Index options.^[62]

In light of the foregoing, the Commission believes that the proposal is consistent with Sections 6(b)(1), 6(b)(5) and 6(b)(8) of the Act.^[63]

IV. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the Act,^[64] that the proposed rule change (SR-MIAX-2025-08), be, and hereby is, approved.

April 30, 2025.