Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change To Amend Interpretation and Policy .07 of Exchange Rule 4.11, Position Limits, To Increase the Position Limits for Options on Certain ETFs, 41457-41461 [2017-18446]
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office of ICE Clear Credit and on ICE
Clear Credit’s Web site at https://
www.theice.com/clear-credit/regulation.
All comments received will be posted
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submissions should refer to File
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be submitted on or before September 21,
2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–18449 Filed 8–30–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81483; File No. SR–CBOE–
2017–057]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of a
Proposed Rule Change To Amend
Interpretation and Policy .07 of
Exchange Rule 4.11, Position Limits,
To Increase the Position Limits for
Options on Certain ETFs
August 25, 2017.
sradovich on DSK3GMQ082PROD with NOTICES
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
15, 2017, Chicago Board Options
Exchange, Incorporated (the ‘‘Exchange’’
or ‘‘CBOE’’) filed with the Securities
and Exchange Commission (the
‘‘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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The purpose of this filing is to amend
Interpretation and Policy .07 of
Exchange Rule 4.11, Position Limits, to
increase the position limits for options
on the following exchange traded funds
(‘‘ETFs’’) and exchange traded notes
(‘‘ETNs’’): iShares China Large-Cap ETF
(‘‘FXI’’), iShares MSCI EAFE ETF
10 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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(‘‘EFA’’), iShares MSCI Emerging
Markets ETF (‘‘EEM’’), iShares Russell
2000 ETF (‘‘IWM’’), iShares MSCI EAFE
ETF (‘‘EFA’’), iShares MSCI Brazil
Capped ETF (‘‘EWZ’’), iShares 20+ Year
Treasury Bond Fund ETF (‘‘TLT’’), iPath
S&P 500 VIX Short-Term Futures ETN
(‘‘VXX’’), PowerShares QQQ Trust
(‘‘QQQQ’’), and iShares MSCI Japan
Index [sic] (‘‘EWJ’’).
The text of the proposed rule change
is also available on the Exchange’s Web
site (https://www.cboe.com/AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
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
Position limits are designed to
address potential manipulative schemes
and adverse market impact surrounding
the use of options, such as disrupting
the market in the security underlying
the options. The potential manipulative
schemes and adverse market impact are
balanced against the potential of setting
the limits so low as to discourage
participation in the options market.
Position limits for options on ETFs and
ETNs, such as those subject to this
proposal, are determined pursuant to
Exchange Rule 4.11, and vary according
to the number of outstanding shares and
the trading volume of the underlying
stocks, ETFs, or ETNs over the past sixmonths. Pursuant to Exchange Rule
4.11, the largest in capitalization and
the most frequently traded stocks, ETFs,
and ETNs have an option position limit
of 250,000 contracts (with adjustments
for splits, re-capitalizations, etc.) on the
same side of the market; and smaller
capitalization stocks, ETFs, and ETNs
have position limits of 200,000, 75,000,
50,000 or 25,000 contracts (with
adjustments for splits, re-capitalizations,
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41457
etc.) on the same side of the market.
Options on FXI, EFA, EWZ, TLT, VXX,
and EWJ are currently subject to the
standard position limit of 250,000
contracts as set forth in Exchange Rule
4.11.3 Interpretation and Policy .07 of
Exchange Rule 4.11 sets forth separate
position limits for options on specific
ETFs and ETNs as follows:
• Options on EEM are 500,000
contracts;
• Options on IWM are 500,000
contracts; and
• Options on QQQQ are 900,000
contracts.
The purpose of this proposal is to
amend Interpretation and Policy .07 to
Exchange Rule 4.11 to double the
position and exercise limits for FXI,
EEM, IWM, EFA, EWZ, TLT, VXX,
QQQQ, and EWJ.4 As such, options on
FXI, EFA, EWZ, TLT, VXX, and EWJ
would no longer be subject to the
standard position limits set forth under
Exchange Rule 4.11. Accordingly,
Interpretation and Policy .07 to
Exchange Rule 4.11 would be amended
to set forth that the position limits for
option on FXI, EFA, EWZ, TLT, VXX,
and EWJ would be 500,000 contracts.
These position limits equal the current
position limits for option on IWM and
EMM and are similar to the current
position limit for options on QQQQ set
forth in Interpretation and Policy .07 to
Exchange Rule 4.11. Interpretation and
Policy .07 to Exchange Rule 4.11 would
be further amended to increase the
position limits for the remaining options
subject to this proposal as follows:
• The position limits for options on
EEM would be increased from 500,000
contracts to 1,000,000 contracts;
• The position limits on options on
IWM would be increased from 500,000
contracts to 1,000,000 contracts; and
• The position limits on options on
QQQQ would be increased from 900,000
contracts to 1,800,000 contracts.
In support of this proposal, the
Exchange represents that the above
listed ETFs and ETNs qualify for either:
(i) The initial listing criteria set forth in
Exchange Rule 5.3.06(C) for ETFs
holding non-U.S. component securities;
or (ii) for ETFs and ETNs listed
pursuant to generic listing standards for
series of portfolio depository receipts
and index fund shares based on
3 See https://www.theocc.com/webapps/delosearch.
4 By virtue of Exchange Rule 4.12, Interpretation
and Policy .02, which is not being amended by this
filing, the exercise limit for FXI, EEM, IWM, EFA,
EWZ, TLT, VXX, QQQQ, and EWJ options would
be similarly increased.
The Exchange also proposed to make nonsubstantive corrections to the names of IWM and
EEM in Rule 4.11, Interpretation and Policy .07.
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international or global indexes under
which a comprehensive surveillance
agreement (‘‘CSA’’) is not required.5 FXI
tracks the performance of the FTSE
China 50 Index, which is composed of
the 50 largest Chinese stocks.6 EEM
tracks the performance of the MSCI
Emerging Markets Index, which is
composed of approximately 800
component securities.7 ‘‘The MSCI
Emerging Markets Index consists of the
following 21 emerging market country
indices: Brazil, Chile, China, Colombia,
Czech Republic, Egypt, Hungary, India,
Indonesia, Korea, Malaysia, Mexico,
Morocco, Peru, Philippines, Poland,
Russia, South Africa, Taiwan, Thailand,
and Turkey.’’ 8 IWM tracks the
performance of the Russell 2000 Index,
which is composed of 2,000 small-cap
domestic stocks.9 EFA tracks the
performance of MSCI EAFE Index,
which has over 900 component
securities.10 ‘‘The MSCI EAFE Index is
designed to represent the performance
of large and mid-cap securities across 21
developed markets, including countries
in Europe, Australasia and the Far East,
excluding the U.S. and Canada.’’ 11 EWZ
tracks the performance of the MSCI
Brazil 25/50 Index, which is composed
of shares of large and mid-size
companies in Brazil.12 TLT tracks the
performance of ICE U.S. Treasury 20+
Year Bond Index, which is composed of
long-term U.S. Treasury bonds.13 VXX
tracks the performance of S&P 500 VIX
Short-Term Futures Index Total Return.
‘‘The Index is designed to provide
access to equity market volatility
through CBOE Volatility Index futures.
The Index offers exposure to a daily
rolling long position in the first and
second month VIX futures contracts and
reflects market participants’ views of the
future direction of the VIX index at the
time of expiration of the VIX futures
contracts comprising the Index.’’ 14
QQQQ tracks the performance of the
Nasdaq-100 Index, which is composed
of 100 of the largest domestic and
international nonfinancial companies
listed on the Nasdaq Stock Market LLC
(‘‘Nasdaq’’).15 EWJ tracks the MSCI
Japan Index, which tracks the
performance of large and mid-sized
companies in Japan.16
2017 ADV
(mil. shares)
ETF
FXI ...................................................................................................................
EEM .................................................................................................................
IWM ..................................................................................................................
EFA ..................................................................................................................
EWZ .................................................................................................................
TLT ...................................................................................................................
VXX ..................................................................................................................
QQQQ ..............................................................................................................
EWJ .................................................................................................................
SPY ..................................................................................................................
15.08
52.12
27.46
19.42
17.08
8.53
55.04
26.25
6.06
64.63
CBOE represents that more than 50%
of the weight of the securities held by
the options subject to this proposal are
also subject to a CSA.17 Additionally,
the component securities of the MSCI
Emerging Markets Index on which EEM
is based for which the primary market
is in any one country that is not subject
to a CSA do not represent 20% or more
of the weight of the MSCI Emerging
Markets Index.18 Finally, the
component securities of the MSCI
Emerging Markets Index on which EEM
is based, for which the primary market
is in any two countries that are not
subject to CSAs do not represent 33% of
more of the weight of the MSCI
Emerging Markets Index.19
Market participants have increased
their demand for options on FXI, EFA,
EWZ, TLT, VXX, and EWJ for hedging
and trading purposes and the Exchange
believes the current position limits are
too low and may be a deterrent to
successful trading of options on these
securities. The Exchange has the
collected following trading statistics on
the ETFs and ETNs that are subject to
this proposal:
2017 ADV
(option
contracts)
71,944
287,357
490,070
98,844
95,152
80,476
336,331
579,404
4,715
2,575,153
Shares
outstanding
(mil.)
78.6
797.4
253.1
1178.4
159.4
60.0
96.7
351.6
303.6
976.23
Fund market
cap
($mil.)
$3,343.6
34,926.1
35,809.1
78,870.3
6,023.4
7,442.4
1,085.6
50,359.7
16,625.1
240,540.0
sradovich on DSK3GMQ082PROD with NOTICES
In support of its proposal to increase
the position limits for QQQQ to
1,800,000 contracts, the Exchange
compared the trading characteristics of
QQQQ to that of the SPDR S&P 500 ETF
(‘‘SPY’’), which has no position limits.
As shown in the above table, the average
daily trading volume through August
14, 2017 for QQQQ was 26.25 million
shares compared to 64.63 million shares
for SPY. The total shares outstanding for
QQQQ are 351.6 million compared to
976.23 million for SPY. The fund
market cap for QQQQ is $50,359.7
million compared to $240,540 million
for SPY. SPY is one of the most actively
trading ETFs and is, therefore, subject to
no position limits. QQQQ is also very
actively traded, and while not to the
level of SPY, should be subject to the
proposed higher position limits based
its trading characteristics when
compared to SPY. The proposed
position limit coupled with QQQQ’s
trading behavior would continue to
address potential manipulative schemes
and adverse market impact surrounding
the use of options and trading in its
underlying the options.
In support of its proposal to increase
the position limits for EEM and IWM
from 500,000 contracts to 1,000,000
contracts, the Exchange compared the
trading characteristics of EEM and IWM
to that of QQQQ, which currently has a
position limit of 900,000 contracts. As
shown in the above table, the average
daily trading volume through July 31,
2017 for EEM was 52.12 million shares
5 The Exchange notes that the initial listing
criteria for options on ETFs and ETNs that hold
non-U.S. component securities are more stringent
than the maintenance listing criteria for those same
ETF options. See Exchange Rule 5.3.06(C);
Exchange Rule 5.4.08.
6 See https://www.ishares.com/us/products/
239536/ishares-china-largecap-etf.
7 See https://us.ishares.com/product_info/fund/
overview/EEM.htm.
8 See https://www.msci.com/products/indices/
tools/#EM.
9 See https://www.ishares.com/us/products/
239710/ishares-russell-2000-etf.
10 See https://www.ishares.com/us/products/
239623/.
11 See https://www.msci.com/eafe.
12 See https://www.ishares.com/us/products/
239612/ishares-msci-brazil-capped-etf.
13 See https://www.ishares.com/us/products/
239454/.
14 See https://www.ipathetn.com/US/16/en/
details.app?instrumentId=259118.
15 See https://www.invesco.com/portal/site/us/
financial-professional/etfs/productdetail?productId=QQQ&ticker=QQQ&title=
powershares-qqq.
16 See https://www.ishares.com/us/products/
239665/EWJ.
17 See Exchange Rule 5.3.06(C).
18 See Exchange Rule 5.3.06(C)(ii)(b).
19 See Exchange Rule 5.3.06(C)(ii)(c).
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and IWM was 27.46 million shares
compared to 26.25 million shares for
QQQQ. The total shares outstanding for
EEM are 797.4 million and for IWM are
253.1 million compared to 351.6 million
for QQQQ. The fund market cap for
EEM is $34,926.1 million and IWM is
$35.809 [sic] million compared to
$50,359.7 million for QQQQ. EEM, IWM
and QQQQ have similar trading
characteristics and subjecting EEM and
IWM to the proposed higher position
limit would continue be designed to
address potential manipulate schemes
that may arise from trading in the
options and their underlying securities.
These above trading characteristics for
QQQQ when compared to EEM and
IWM also justify increasing the position
limit for QQQQ. QQQQ has a higher
options ADV than EEM and IWM, a
higher numbers of shares outstanding
than IWM and a much higher market
cap than EEM and IWM which justify
doubling the positon limit for QQQQ.
Based on these statistics, and as stated
above, the proposed position limit
coupled with QQQQ’s trading behavior
would continue to address potential
manipulative schemes and adverse
market impact surrounding the use of
options and trading in its underlying the
options.
In support of its proposal to increase
the position limits for FXI, EFA, EWZ,
TLT, VXX, and EWJ from 250,000
contracts to 500,000 contracts, the
Exchange compared the trading
characteristics of FXI, EFA, EWZ, TLT,
VXX and EWJ to that of EEM and IWM,
both of which currently have a position
limit of 500,000 contracts. As shown in
the above table, the average daily
trading volume through July 31, 2017
for FXI is 15.08 million shares, EFA is
19.42 million shares, EWZ is 17.08
million shares, TLT is 8.53 million
shares, VXX is 55.04 million shares, and
EWJ is 6.06 million shares compared to
52.12 million shares for EEM and 27.46
million shares for IWM. The total shares
outstanding for FXI is 78.6 million, EFA
is 1178.4 million, EWZ is 159.4 million,
TLT is 60 million, VXX is 96.7 million,
and EWJ is 303.6 million compared to
797.4 million for EEM and 253.1 million
for IWM. The fund market cap for FXI
is $3,343.6 million, EFA is $78,870.3
million, EWZ is $6,023.4 million, TLT
is $7,442.4 million, VXX is $1,085.6
million, and EWJ is $16,625.1 million
compared to $34.926.1 [sic] million for
EEM and $35,809.1 million for IWM.
Market participants’ trading activity
has been adversely impacted by the
current position limits for FXI, EFA,
EWZ, TLT, VXX and EWJ and such
limits have caused options trading in
these symbols to move from exchanges
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to the over-the-counter market. The
above trading characteristics of FXI,
EFA, EWZ, TLT, VXX and EWJ is either
similar to that of EEM and IWM or
sufficiently active enough so that the
proposed limit would continue to
address potential manipulative that may
arise. Specifically, VXX has an average
daily trading volume similar to EEM
and higher than IWM. VXX has an
options volume higher than EEM, more
shares outstanding than IWM and a
larger fund market cap than both EEM
and IWM. EFA has far more shares
outstanding and a larger fund market
cap than EEM, IWM, and QQQQ. EWJ
has a more shares outstanding than
IWM and only slightly less shares
outstanding than QQQQ.
On the other hand, while FXI, EWZ,
and TLT do not exceed EEM, IWM or
QQQQ is any of the specified areas, they
are all actively trading so that market
participant’s trading activity has been
impacted by them being restricted by
the current position limits. The
Exchange believes that the trading
activity and these securities being based
on a broad basket of underlying
securities alleviates any potential
manipulative activity that may arise. In
addition, as discussed in more detail
below, the Exchange’s existing
surveillance procedures and reporting
requirements at the Exchange, other
options exchanges, and at the several
clearing firms are capable of properly
identifying unusual and/or illegal
trading activity.
The Exchange believes that increasing
the position limits for the options
subject to this proposal would lead to a
more liquid and competitive market
environment for these options, which
will benefit customers interested in this
product. Under the proposal, the
reporting requirement for the above
options would be unchanged. Thus, the
Exchange would still require that each
Trading Permit Holder (‘‘TPH’’) or TPH
organization that maintains a position in
the options on the same side of the
market, for its own account or for the
account of a customer, report certain
information to the Exchange. This
information would include, but would
not be limited to, the options’ position,
whether such position is hedged and, if
so, a description of the hedge, and the
collateral used to carry the position, if
applicable. Exchange Market-Makers 20
(including Designated Primary Market20 A Market-Maker ‘‘is an individual Trading
Permit Holder or a TPH organization that is
registered with the Exchange for the purpose of
making transactions as dealer-specialist on the
Exchange in accordance with the provisions of this
Chapter.’’ See Exchange Rule 8.1.
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41459
Makers) 21 would continue to be exempt
from this reporting requirement, as
Market-Maker information can be
accessed through the Exchange’s market
surveillance systems. In addition, the
general reporting requirement for
customer accounts that maintain an
aggregate position of 200 or more
options contracts would remain at this
level for the options subject to this
proposal.22
The Exchange believes that the
existing surveillance procedures and
reporting requirements at the Exchange,
other options exchanges, and at the
several clearing firms are capable of
properly identifying unusual and/or
illegal trading activity. In addition,
routine oversight inspections of the
Exchange’s regulatory programs by the
Commission have not uncovered any
material inconsistencies or
shortcomings in the manner in which
the Exchange’s market surveillance is
conducted. These procedures utilize
daily monitoring of market movements
via automated surveillance techniques
to identify unusual activity in both
options and underlying stocks.23
Furthermore, large stock holdings
must be disclosed to the Commission by
way of Schedules 13D or 13G.24 The
positions for options subject to this
proposal are part of any reportable
positions and, thus, cannot be legally
hidden. Moreover, the Exchange’s
requirement that TPHs file reports with
the Exchange for any customer who
held aggregate large long or short
positions of any single class for the
previous day will continue to serve as
an important part of the Exchange’s
surveillance efforts.
The Exchange believes that the
current financial requirements imposed
by the Exchange and by the Commission
adequately address concerns that a TPH
or its customer may try to maintain an
inordinately large un-hedged position in
the options subject to this proposal.
Current margin and risk-based haircut
methodologies serve to limit the size of
positions maintained by any one
account by increasing the margin and/
or capital that a TPH must maintain for
a large position held by itself or by its
21 A Designated Primary Market-Maker ‘‘is TPH
organization that is approved by the Exchange to
function in allocated securities as a Market-Maker
(as defined in Rule 8.1) and is subject to the
obligations under Rule 8.85 or as otherwise
provided under the rules of the Exchange.’’ See
Exchange Rule 8.80(a).
22 See Exchange Rule 4.13 for reporting
requirements.
23 These procedures have been effective for the
surveillance of trading the options subject to this
proposal and will continue to be employed.
24 17 CFR 240.13d–1.
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customer.25 In addition, Rule 15c3–1 26
imposes a capital charge on TPHs to the
extent of any margin deficiency
resulting from the higher margin
requirement.
sradovich on DSK3GMQ082PROD with NOTICES
2. Statutory Basis
The Exchange believes that its
proposal is consistent with the
requirements of the Act and the rules
and regulations thereunder that are
applicable to a national securities
exchange, and, in particular, with the
requirements of Section 6(b) of the
Act.27 In particular, the proposal is
consistent with Section 6(b)(5) of the
Act 28 because 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 mechanism of, a free and open
market and a national market system
and, in general, to protect investors and
the public interest. The current position
limits for the options subject to this
proposal have inhibited the ability of
Market Makers to make markets on the
Exchange. Specifically, the proposal is
designed to encourage Market Makers to
shift liquidity from over the counter
markets onto the Exchange, which will
enhance the process of price discovery
conducted on the Exchange through
increased order flow. The proposal will
also benefit institutional investors as
well as retail traders, and public
customers, by providing them with a
more effective trading and hedging
vehicle. In addition, the Exchange
believes that the structure of the ETFs
and ETNs subject to this proposal and
the considerable liquidity of the market
for options on those ETFs and ETNs
diminishes the opportunity to
manipulate this product and disrupt the
underlying market that a lower position
limit may protect against.
Increased position limits for select
actively traded options, such as that
proposed herein, is not novel and has
been previously approved by the
Commission. For example, the
Commission has previously approved,
on a pilot basis, eliminating position
limits for options on.29 Additionally, the
Commission has approved similar
25 See Exchange Rule 12.3 for a description of
margin requirements.
26 17 CFR 240.15c3–1.
27 15 U.S.C. 78f(b).
28 15 U.S.C. 78f(b)(5).
29 See Securities Exchange Act Release Nos.
67672 (August 15, 2012), 77 FR 50750 (August 22,
2012) (SR–NYSEAmex–2012–29); 67937
(September 27, 2012), 77 FR 60489 (October 3,
2012) (SR–CBOE–2012–091).
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20:54 Aug 30, 2017
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proposed rule changes to increase
position limits for options on highly
liquid, actively-traded ETFs,30
including a proposal to permanently
eliminate the position and exercise
limits for options overlaying the S&P
500 Index, S&P 100 Index, Dow Jones
Industrial Average, and Nasdaq 100
Index.31 In approving the permanent
elimination of position and exercise
limits, the Commission relied heavily
upon the Exchange’s surveillance
capabilities, the Commission expressed
trust in the enhanced surveillance and
reporting safeguards that the Exchange
took in order to detect and deter
possible manipulative behavior which
might arise from eliminating position
and exercise limits.32 Furthermore, as
described more fully above, options on
other ETFs a have the position limits
proposed herein with similar trading
characteristics and trading volumes than
similar to the ETFs and ETNs subject to
the proposed rule change.
Lastly, the Commission expressed the
belief that removing position and
exercise limits may bring additional
depth and liquidity without increasing
concerns regarding intermarket
manipulation or disruption of the
options or the underlying securities.33
The Exchange’s enhanced surveillance
and reporting safeguards continue to be
designed to deter and detect possible
manipulative behavior which might
arise from eliminating position and
exercise limits.
orders.34 The Exchange believes that the
proposed rule change will result in
additional opportunities to achieve the
investment and trading objectives of
market participants seeking efficient
trading and hedging vehicles, to the
benefit of investors, market participants,
and the marketplace in general.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
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:
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. On the
contrary, the Exchange believes the
proposal promotes competition because
it will enable other exchanges who refer
to the Exchange’s rules concerning
position limits to attract additional
order flow from the over-the-counter
market to exchanges, who would in turn
compete amongst each other for those
30 See Securities Exchange Act Release Nos.
68086 (October 23, 2012), 77 FR 65600 (October 29,
2012) (SR–CBOE–2012–066); 64928 (July 20, 2011),
76 FR 44633 (July 26, 2011) (SR–CBOE–2011–065);
64695 (June 17, 2011), 76 FR 36942 (June 23, 2011)
(SR–PHLX–2011–58); and 55155 (January 23, 2007),
72 FR 4741 (February 1, 2017) (SR–CBOE–2007–
008.).
31 See Securities Exchange Act Release Nos.
44994 (October 26, 2001), 66 FR 55722 (November
2, 2001) (SR–CBOE–2001–22); 52650 (October 21,
2005), 70 FR 62147 (October 28, 2005) (SR–CBOE–
2005–41) (‘‘NDX Approval’’).
32 See NDX Approval at 62149.
33 Id.
PO 00000
Frm 00070
Fmt 4703
Sfmt 4703
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any written
comments from members or other
interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will:
A. By order approve or disapprove
such proposed rule change, or
B. institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2017–057 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–CBOE–2017–057. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
34 For example, Nasdaq position limits are
determined by the position limits established by the
Exchange. See Nasdaq Rule Sec. 7 (Position Limits).
E:\FR\FM\31AUN1.SGM
31AUN1
Federal Register / Vol. 82, No. 168 / Thursday, August 31, 2017 / Notices
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://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 Web site 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;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–CBOE–
2017–057 and should be submitted on
or before September 21, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–18446 Filed 8–30–17; 8:45 am]
BILLING CODE 8011–01–P
DEPARTMENT OF STATE
[Public Notice 10105]
sradovich on DSK3GMQ082PROD with NOTICES
Industry Advisory Group: Notice of
Charter Renewal
The Department of State has approved
the renewal of the charter for the Bureau
of Overseas Buildings Operations’
(OBO) Industry Advisory Group for an
additional two-year period. The group’s
annual meeting is held in the Harry S
Truman Building at the U.S. Department
of State, located at 2201 C Street NW.,
Washington, DC. Each meeting is
devoted to an exchange of ideas
between OBO’s senior management and
the group members on issues relating to
property management; site acquisition;
project planning; design and
engineering; construction; facility
maintenance; and building operations.
The meetings are open to the public and
35 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
20:54 Aug 30, 2017
Jkt 241001
are subject to advance registration and
provision of required security
information. Procedures for registration
are included with each meeting
announcement, no later than fifteen
business days before each meeting.
OBO’s mission is to provide safe,
secure and functional facilities that
represent the U.S. government to the
host nation and support our staff in the
achievement of U.S. foreign policy
objectives. These facilities represent
American values and the best in
American architecture, engineering,
technology, sustainability, art, culture,
and construction execution.
For further information, please
contact Christine Foushee at 312–353–
1242 or FousheeCT@state.gov.
William Moser,
Director, Acting, Overseas Buildings
Operations, Department of State.
[FR Doc. 2017–18507 Filed 8–30–17; 8:45 am]
BILLING CODE 4710–51–P
SURFACE TRANSPORTATION BOARD
[Docket No. AB 303 (Sub-No. 48X)]
Wisconsin Central Ltd.—
Discontinuance of Service
Exemption—in Waupaca County, Wis
Wisconsin Central Ltd. (WCL) has
filed a verified notice of exemption
under 49 CFR pt. 1152 subpart F—
Exempt Abandonments and
Discontinuances of Service to
discontinue service over approximately
10.3 miles of rail line extending from
milepost 40.0 in New London, Wis. to
milepost 50.3 in Manawa, Wis.,
Waupaca County, Wis. (the Line). The
Line traverses United States Postal
Service Zip Code 54949 and 54961.
WCL has certified that: (1) No local
traffic has moved over the Line for at
least two years; (2) no overhead traffic
on the Line needs to be rerouted; (3) no
formal complaint filed by a user of a rail
service on the Line (or by a state or local
government entity acting on behalf of
such user) regarding cessation of service
over the Line is pending either with the
Surface Transportation Board (Board) or
with any U.S. District Court or has been
decided in favor of a complainant
within the two-year period; and (4) the
requirements at 49 CFR 1105.12
(newspaper publication) and 49 CFR
1152.50(d)(1) (notice to governmental
agencies) have been met.
As a condition to this exemption, any
employee adversely affected by the
discontinuance of service shall be
protected under Oregon Short Line
Railroad—Abandonment Portion
Goshen Branch Between Firth &
PO 00000
Frm 00071
Fmt 4703
Sfmt 4703
41461
Ammon, in Bingham & Bonneville
Counties, Idaho, 360 I.C.C. 91 (1979). To
address whether this condition
adequately protects affected employees,
a petition for partial revocation under
49 U.S.C. 10502(d) must be filed.
Provided no formal expression of
intent to file an offer of financial
assistance (OFA) to subsidize continued
rail service has been received, this
exemption will be effective September
30, 2017, unless stayed pending
reconsideration. Petitions to stay that do
not involve environmental issues and
formal expressions of intent to file an
OFA to subsidize continued rail service
under 49 CFR 1152.27(c)(2),1 must be
filed by September 8, 2017.2 Petitions
for reconsideration must be filed by
September 30, 2017, with the Surface
Transportation Board, 395 E Street SW.,
Washington, DC 20423–0001.
A copy of any petition filed with
Board should be sent to WCL’s
representative, Audrey L. Brodrick,
Fletcher & Sippell LLC, 29 North
Wacker Drive, Suite 920, Chicago, IL
60606.
If the verified notice contains false or
misleading information, the exemption
is void ab initio.
Board decisions and notices are
available on our Web site at
‘‘WWW.STB.GOV.’’
Decided: August 28, 2017.
By the Board, Rachel D. Campbell,
Director, Office of Proceedings.
Marline Simeon,
Clearance Clerk.
[FR Doc. 2017–18483 Filed 8–30–17; 8:45 am]
BILLING CODE 4915–01–P
SURFACE TRANSPORTATION BOARD
[Docket No. AB 1244X]
Columbia & Cowlitz Railway, LLC—
Abandonment Exemption—in Cowlitz
County, Wash
Columbia & Cowlitz Railway, LLC
(CLC), has filed a verified notice of
exemption under 49 CFR pt. 1152
subpart F—Exempt Abandonments to
abandon an approximately 7-mile rail
line between milepost 1.5 at Longview
and milepost 8.5 at Ostrander Junction,
1 Each OFA must be accompanied by the filing
fee, which currently is set at $1,700. See 49 CFR
1002.2(f)(25). Effective on September 1, 2017, the
fee will increase to $1,800. See Regulations
Governing Fees for Servs. Performed in Connection
with Licensing & Related Servs.—2017 Update, EP
542 (Sub-No. 25) (STB served July 28, 2017).
2 Because this is a discontinuance proceeding and
not an abandonment, trail use/rail banking and
public use conditions are not appropriate. Because
there will be an environmental review during
abandonment, this discontinuance does not require
environmental review.
E:\FR\FM\31AUN1.SGM
31AUN1
]]>Agencies
[Federal Register Volume 82, Number 168 (Thursday, August 31, 2017)]
[Notices]
[Pages 41457-41461]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-18446]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-81483; File No. SR-CBOE-2017-057]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of a Proposed Rule Change To Amend
Interpretation and Policy .07 of Exchange Rule 4.11, Position Limits,
To Increase the Position Limits for Options on Certain ETFs
August 25, 2017.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 15, 2017, Chicago Board Options Exchange, Incorporated
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (the ``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.
---------------------------------------------------------------------------
\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 purpose of this filing is to amend Interpretation and Policy
.07 of Exchange Rule 4.11, Position Limits, to increase the position
limits for options on the following exchange traded funds (``ETFs'')
and exchange traded notes (``ETNs''): iShares China Large-Cap ETF
(``FXI''), iShares MSCI EAFE ETF (``EFA''), iShares MSCI Emerging
Markets ETF (``EEM''), iShares Russell 2000 ETF (``IWM''), iShares MSCI
EAFE ETF (``EFA''), iShares MSCI Brazil Capped ETF (``EWZ''), iShares
20+ Year Treasury Bond Fund ETF (``TLT''), iPath S&P 500 VIX Short-Term
Futures ETN (``VXX''), PowerShares QQQ Trust (``QQQQ''), and iShares
MSCI Japan Index [sic] (``EWJ'').
The text of the proposed rule change is also available on the
Exchange's Web site (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, 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
Position limits are designed to address potential manipulative
schemes and adverse market impact surrounding the use of options, such
as disrupting the market in the security underlying the options. The
potential manipulative schemes and adverse market impact are balanced
against the potential of setting the limits so low as to discourage
participation in the options market. Position limits for options on
ETFs and ETNs, such as those subject to this proposal, are determined
pursuant to Exchange Rule 4.11, and vary according to the number of
outstanding shares and the trading volume of the underlying stocks,
ETFs, or ETNs over the past six-months. Pursuant to Exchange Rule 4.11,
the largest in capitalization and the most frequently traded stocks,
ETFs, and ETNs have an option position limit of 250,000 contracts (with
adjustments for splits, re-capitalizations, etc.) on the same side of
the market; and smaller capitalization stocks, ETFs, and ETNs have
position limits of 200,000, 75,000, 50,000 or 25,000 contracts (with
adjustments for splits, re-capitalizations, etc.) on the same side of
the market. Options on FXI, EFA, EWZ, TLT, VXX, and EWJ are currently
subject to the standard position limit of 250,000 contracts as set
forth in Exchange Rule 4.11.\3\ Interpretation and Policy .07 of
Exchange Rule 4.11 sets forth separate position limits for options on
specific ETFs and ETNs as follows:
---------------------------------------------------------------------------
\3\ See https://www.theocc.com/webapps/delo-search.
---------------------------------------------------------------------------
Options on EEM are 500,000 contracts;
Options on IWM are 500,000 contracts; and
Options on QQQQ are 900,000 contracts.
The purpose of this proposal is to amend Interpretation and Policy
.07 to Exchange Rule 4.11 to double the position and exercise limits
for FXI, EEM, IWM, EFA, EWZ, TLT, VXX, QQQQ, and EWJ.\4\ As such,
options on FXI, EFA, EWZ, TLT, VXX, and EWJ would no longer be subject
to the standard position limits set forth under Exchange Rule 4.11.
Accordingly, Interpretation and Policy .07 to Exchange Rule 4.11 would
be amended to set forth that the position limits for option on FXI,
EFA, EWZ, TLT, VXX, and EWJ would be 500,000 contracts. These position
limits equal the current position limits for option on IWM and EMM and
are similar to the current position limit for options on QQQQ set forth
in Interpretation and Policy .07 to Exchange Rule 4.11. Interpretation
and Policy .07 to Exchange Rule 4.11 would be further amended to
increase the position limits for the remaining options subject to this
proposal as follows:
---------------------------------------------------------------------------
\4\ By virtue of Exchange Rule 4.12, Interpretation and Policy
.02, which is not being amended by this filing, the exercise limit
for FXI, EEM, IWM, EFA, EWZ, TLT, VXX, QQQQ, and EWJ options would
be similarly increased.
The Exchange also proposed to make non-substantive corrections
to the names of IWM and EEM in Rule 4.11, Interpretation and Policy
.07.
---------------------------------------------------------------------------
The position limits for options on EEM would be increased
from 500,000 contracts to 1,000,000 contracts;
The position limits on options on IWM would be increased
from 500,000 contracts to 1,000,000 contracts; and
The position limits on options on QQQQ would be increased
from 900,000 contracts to 1,800,000 contracts.
In support of this proposal, the Exchange represents that the above
listed ETFs and ETNs qualify for either: (i) The initial listing
criteria set forth in Exchange Rule 5.3.06(C) for ETFs holding non-U.S.
component securities; or (ii) for ETFs and ETNs listed pursuant to
generic listing standards for series of portfolio depository receipts
and index fund shares based on
[[Page 41458]]
international or global indexes under which a comprehensive
surveillance agreement (``CSA'') is not required.\5\ FXI tracks the
performance of the FTSE China 50 Index, which is composed of the 50
largest Chinese stocks.\6\ EEM tracks the performance of the MSCI
Emerging Markets Index, which is composed of approximately 800
component securities.\7\ ``The MSCI Emerging Markets Index consists of
the following 21 emerging market country indices: Brazil, Chile, China,
Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea,
Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South
Africa, Taiwan, Thailand, and Turkey.'' \8\ IWM tracks the performance
of the Russell 2000 Index, which is composed of 2,000 small-cap
domestic stocks.\9\ EFA tracks the performance of MSCI EAFE Index,
which has over 900 component securities.\10\ ``The MSCI EAFE Index is
designed to represent the performance of large and mid-cap securities
across 21 developed markets, including countries in Europe, Australasia
and the Far East, excluding the U.S. and Canada.'' \11\ EWZ tracks the
performance of the MSCI Brazil 25/50 Index, which is composed of shares
of large and mid-size companies in Brazil.\12\ TLT tracks the
performance of ICE U.S. Treasury 20+ Year Bond Index, which is composed
of long-term U.S. Treasury bonds.\13\ VXX tracks the performance of S&P
500 VIX Short-Term Futures Index Total Return. ``The Index is designed
to provide access to equity market volatility through CBOE Volatility
Index futures. The Index offers exposure to a daily rolling long
position in the first and second month VIX futures contracts and
reflects market participants' views of the future direction of the VIX
index at the time of expiration of the VIX futures contracts comprising
the Index.'' \14\ QQQQ tracks the performance of the Nasdaq-100 Index,
which is composed of 100 of the largest domestic and international
nonfinancial companies listed on the Nasdaq Stock Market LLC
(``Nasdaq'').\15\ EWJ tracks the MSCI Japan Index, which tracks the
performance of large and mid-sized companies in Japan.\16\
---------------------------------------------------------------------------
\5\ The Exchange notes that the initial listing criteria for
options on ETFs and ETNs that hold non-U.S. component securities are
more stringent than the maintenance listing criteria for those same
ETF options. See Exchange Rule 5.3.06(C); Exchange Rule 5.4.08.
\6\ See https://www.ishares.com/us/products/239536/ishares-china-largecap-etf.
\7\ See https://us.ishares.com/product_info/fund/overview/EEM.htm.
\8\ See https://www.msci.com/products/indices/tools/#EM.
\9\ See https://www.ishares.com/us/products/239710/ishares-russell-2000-etf.
\10\ See https://www.ishares.com/us/products/239623/.
\11\ See https://www.msci.com/eafe.
\12\ See https://www.ishares.com/us/products/239612/ishares-msci-brazil-capped-etf.
\13\ See https://www.ishares.com/us/products/239454/.
\14\ See https://www.ipathetn.com/US/16/en/details.app?instrumentId=259118.
\15\ See https://www.invesco.com/portal/site/us/financial-professional/etfs/product-detail?productId=QQQ&ticker=QQQ&title=powershares-qqq.
\16\ See https://www.ishares.com/us/products/239665/EWJ.
---------------------------------------------------------------------------
CBOE represents that more than 50% of the weight of the securities
held by the options subject to this proposal are also subject to a
CSA.\17\ Additionally, the component securities of the MSCI Emerging
Markets Index on which EEM is based for which the primary market is in
any one country that is not subject to a CSA do not represent 20% or
more of the weight of the MSCI Emerging Markets Index.\18\ Finally, the
component securities of the MSCI Emerging Markets Index on which EEM is
based, for which the primary market is in any two countries that are
not subject to CSAs do not represent 33% of more of the weight of the
MSCI Emerging Markets Index.\19\
---------------------------------------------------------------------------
\17\ See Exchange Rule 5.3.06(C).
\18\ See Exchange Rule 5.3.06(C)(ii)(b).
\19\ See Exchange Rule 5.3.06(C)(ii)(c).
---------------------------------------------------------------------------
Market participants have increased their demand for options on FXI,
EFA, EWZ, TLT, VXX, and EWJ for hedging and trading purposes and the
Exchange believes the current position limits are too low and may be a
deterrent to successful trading of options on these securities. The
Exchange has the collected following trading statistics on the ETFs and
ETNs that are subject to this proposal:
----------------------------------------------------------------------------------------------------------------
2017 ADV Shares
ETF 2017 ADV (mil. (option outstanding Fund market
shares) contracts) (mil.) cap ($mil.)
----------------------------------------------------------------------------------------------------------------
FXI............................................. 15.08 71,944 78.6 $3,343.6
EEM............................................. 52.12 287,357 797.4 34,926.1
IWM............................................. 27.46 490,070 253.1 35,809.1
EFA............................................. 19.42 98,844 1178.4 78,870.3
EWZ............................................. 17.08 95,152 159.4 6,023.4
TLT............................................. 8.53 80,476 60.0 7,442.4
VXX............................................. 55.04 336,331 96.7 1,085.6
QQQQ............................................ 26.25 579,404 351.6 50,359.7
EWJ............................................. 6.06 4,715 303.6 16,625.1
SPY............................................. 64.63 2,575,153 976.23 240,540.0
----------------------------------------------------------------------------------------------------------------
In support of its proposal to increase the position limits for QQQQ
to 1,800,000 contracts, the Exchange compared the trading
characteristics of QQQQ to that of the SPDR S&P 500 ETF (``SPY''),
which has no position limits. As shown in the above table, the average
daily trading volume through August 14, 2017 for QQQQ was 26.25 million
shares compared to 64.63 million shares for SPY. The total shares
outstanding for QQQQ are 351.6 million compared to 976.23 million for
SPY. The fund market cap for QQQQ is $50,359.7 million compared to
$240,540 million for SPY. SPY is one of the most actively trading ETFs
and is, therefore, subject to no position limits. QQQQ is also very
actively traded, and while not to the level of SPY, should be subject
to the proposed higher position limits based its trading
characteristics when compared to SPY. The proposed position limit
coupled with QQQQ's trading behavior would continue to address
potential manipulative schemes and adverse market impact surrounding
the use of options and trading in its underlying the options.
In support of its proposal to increase the position limits for EEM
and IWM from 500,000 contracts to 1,000,000 contracts, the Exchange
compared the trading characteristics of EEM and IWM to that of QQQQ,
which currently has a position limit of 900,000 contracts. As shown in
the above table, the average daily trading volume through July 31, 2017
for EEM was 52.12 million shares
[[Page 41459]]
and IWM was 27.46 million shares compared to 26.25 million shares for
QQQQ. The total shares outstanding for EEM are 797.4 million and for
IWM are 253.1 million compared to 351.6 million for QQQQ. The fund
market cap for EEM is $34,926.1 million and IWM is $35.809 [sic]
million compared to $50,359.7 million for QQQQ. EEM, IWM and QQQQ have
similar trading characteristics and subjecting EEM and IWM to the
proposed higher position limit would continue be designed to address
potential manipulate schemes that may arise from trading in the options
and their underlying securities. These above trading characteristics
for QQQQ when compared to EEM and IWM also justify increasing the
position limit for QQQQ. QQQQ has a higher options ADV than EEM and
IWM, a higher numbers of shares outstanding than IWM and a much higher
market cap than EEM and IWM which justify doubling the positon limit
for QQQQ. Based on these statistics, and as stated above, the proposed
position limit coupled with QQQQ's trading behavior would continue to
address potential manipulative schemes and adverse market impact
surrounding the use of options and trading in its underlying the
options.
In support of its proposal to increase the position limits for FXI,
EFA, EWZ, TLT, VXX, and EWJ from 250,000 contracts to 500,000
contracts, the Exchange compared the trading characteristics of FXI,
EFA, EWZ, TLT, VXX and EWJ to that of EEM and IWM, both of which
currently have a position limit of 500,000 contracts. As shown in the
above table, the average daily trading volume through July 31, 2017 for
FXI is 15.08 million shares, EFA is 19.42 million shares, EWZ is 17.08
million shares, TLT is 8.53 million shares, VXX is 55.04 million
shares, and EWJ is 6.06 million shares compared to 52.12 million shares
for EEM and 27.46 million shares for IWM. The total shares outstanding
for FXI is 78.6 million, EFA is 1178.4 million, EWZ is 159.4 million,
TLT is 60 million, VXX is 96.7 million, and EWJ is 303.6 million
compared to 797.4 million for EEM and 253.1 million for IWM. The fund
market cap for FXI is $3,343.6 million, EFA is $78,870.3 million, EWZ
is $6,023.4 million, TLT is $7,442.4 million, VXX is $1,085.6 million,
and EWJ is $16,625.1 million compared to $34.926.1 [sic] million for
EEM and $35,809.1 million for IWM.
Market participants' trading activity has been adversely impacted
by the current position limits for FXI, EFA, EWZ, TLT, VXX and EWJ and
such limits have caused options trading in these symbols to move from
exchanges to the over-the-counter market. The above trading
characteristics of FXI, EFA, EWZ, TLT, VXX and EWJ is either similar to
that of EEM and IWM or sufficiently active enough so that the proposed
limit would continue to address potential manipulative that may arise.
Specifically, VXX has an average daily trading volume similar to EEM
and higher than IWM. VXX has an options volume higher than EEM, more
shares outstanding than IWM and a larger fund market cap than both EEM
and IWM. EFA has far more shares outstanding and a larger fund market
cap than EEM, IWM, and QQQQ. EWJ has a more shares outstanding than IWM
and only slightly less shares outstanding than QQQQ.
On the other hand, while FXI, EWZ, and TLT do not exceed EEM, IWM
or QQQQ is any of the specified areas, they are all actively trading so
that market participant's trading activity has been impacted by them
being restricted by the current position limits. The Exchange believes
that the trading activity and these securities being based on a broad
basket of underlying securities alleviates any potential manipulative
activity that may arise. In addition, as discussed in more detail
below, the Exchange's existing surveillance procedures and reporting
requirements at the Exchange, other options exchanges, and at the
several clearing firms are capable of properly identifying unusual and/
or illegal trading activity.
The Exchange believes that increasing the position limits for the
options subject to this proposal would lead to a more liquid and
competitive market environment for these options, which will benefit
customers interested in this product. Under the proposal, the reporting
requirement for the above options would be unchanged. Thus, the
Exchange would still require that each Trading Permit Holder (``TPH'')
or TPH organization that maintains a position in the options on the
same side of the market, for its own account or for the account of a
customer, report certain information to the Exchange. This information
would include, but would not be limited to, the options' position,
whether such position is hedged and, if so, a description of the hedge,
and the collateral used to carry the position, if applicable. Exchange
Market-Makers \20\ (including Designated Primary Market-Makers) \21\
would continue to be exempt from this reporting requirement, as Market-
Maker information can be accessed through the Exchange's market
surveillance systems. In addition, the general reporting requirement
for customer accounts that maintain an aggregate position of 200 or
more options contracts would remain at this level for the options
subject to this proposal.\22\
---------------------------------------------------------------------------
\20\ A Market-Maker ``is an individual Trading Permit Holder or
a TPH organization that is registered with the Exchange for the
purpose of making transactions as dealer-specialist on the Exchange
in accordance with the provisions of this Chapter.'' See Exchange
Rule 8.1.
\21\ A Designated Primary Market-Maker ``is TPH organization
that is approved by the Exchange to function in allocated securities
as a Market-Maker (as defined in Rule 8.1) and is subject to the
obligations under Rule 8.85 or as otherwise provided under the rules
of the Exchange.'' See Exchange Rule 8.80(a).
\22\ See Exchange Rule 4.13 for reporting requirements.
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The Exchange believes that the existing surveillance procedures and
reporting requirements at the Exchange, other options exchanges, and at
the several clearing firms are capable of properly identifying unusual
and/or illegal trading activity. In addition, routine oversight
inspections of the Exchange's regulatory programs by the Commission
have not uncovered any material inconsistencies or shortcomings in the
manner in which the Exchange's market surveillance is conducted. These
procedures utilize daily monitoring of market movements via automated
surveillance techniques to identify unusual activity in both options
and underlying stocks.\23\
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\23\ These procedures have been effective for the surveillance
of trading the options subject to this proposal and will continue to
be employed.
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Furthermore, large stock holdings must be disclosed to the
Commission by way of Schedules 13D or 13G.\24\ The positions for
options subject to this proposal are part of any reportable positions
and, thus, cannot be legally hidden. Moreover, the Exchange's
requirement that TPHs file reports with the Exchange for any customer
who held aggregate large long or short positions of any single class
for the previous day will continue to serve as an important part of the
Exchange's surveillance efforts.
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\24\ 17 CFR 240.13d-1.
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The Exchange believes that the current financial requirements
imposed by the Exchange and by the Commission adequately address
concerns that a TPH or its customer may try to maintain an inordinately
large un-hedged position in the options subject to this proposal.
Current margin and risk-based haircut methodologies serve to limit the
size of positions maintained by any one account by increasing the
margin and/or capital that a TPH must maintain for a large position
held by itself or by its
[[Page 41460]]
customer.\25\ In addition, Rule 15c3-1 \26\ imposes a capital charge on
TPHs to the extent of any margin deficiency resulting from the higher
margin requirement.
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\25\ See Exchange Rule 12.3 for a description of margin
requirements.
\26\ 17 CFR 240.15c3-1.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with the
requirements of the Act and the rules and regulations thereunder that
are applicable to a national securities exchange, and, in particular,
with the requirements of Section 6(b) of the Act.\27\ In particular,
the proposal is consistent with Section 6(b)(5) of the Act \28\ because
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
mechanism of, a free and open market and a national market system and,
in general, to protect investors and the public interest. The current
position limits for the options subject to this proposal have inhibited
the ability of Market Makers to make markets on the Exchange.
Specifically, the proposal is designed to encourage Market Makers to
shift liquidity from over the counter markets onto the Exchange, which
will enhance the process of price discovery conducted on the Exchange
through increased order flow. The proposal will also benefit
institutional investors as well as retail traders, and public
customers, by providing them with a more effective trading and hedging
vehicle. In addition, the Exchange believes that the structure of the
ETFs and ETNs subject to this proposal and the considerable liquidity
of the market for options on those ETFs and ETNs diminishes the
opportunity to manipulate this product and disrupt the underlying
market that a lower position limit may protect against.
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\27\ 15 U.S.C. 78f(b).
\28\ 15 U.S.C. 78f(b)(5).
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Increased position limits for select actively traded options, such
as that proposed herein, is not novel and has been previously approved
by the Commission. For example, the Commission has previously approved,
on a pilot basis, eliminating position limits for options on.\29\
Additionally, the Commission has approved similar proposed rule changes
to increase position limits for options on highly liquid, actively-
traded ETFs,\30\ including a proposal to permanently eliminate the
position and exercise limits for options overlaying the S&P 500 Index,
S&P 100 Index, Dow Jones Industrial Average, and Nasdaq 100 Index.\31\
In approving the permanent elimination of position and exercise limits,
the Commission relied heavily upon the Exchange's surveillance
capabilities, the Commission expressed trust in the enhanced
surveillance and reporting safeguards that the Exchange took in order
to detect and deter possible manipulative behavior which might arise
from eliminating position and exercise limits.\32\ Furthermore, as
described more fully above, options on other ETFs a have the position
limits proposed herein with similar trading characteristics and trading
volumes than similar to the ETFs and ETNs subject to the proposed rule
change.
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\29\ See Securities Exchange Act Release Nos. 67672 (August 15,
2012), 77 FR 50750 (August 22, 2012) (SR-NYSEAmex-2012-29); 67937
(September 27, 2012), 77 FR 60489 (October 3, 2012) (SR-CBOE-2012-
091).
\30\ See Securities Exchange Act Release Nos. 68086 (October 23,
2012), 77 FR 65600 (October 29, 2012) (SR-CBOE-2012-066); 64928
(July 20, 2011), 76 FR 44633 (July 26, 2011) (SR-CBOE-2011-065);
64695 (June 17, 2011), 76 FR 36942 (June 23, 2011) (SR-PHLX-2011-
58); and 55155 (January 23, 2007), 72 FR 4741 (February 1, 2017)
(SR-CBOE-2007-008.).
\31\ See Securities Exchange Act Release Nos. 44994 (October 26,
2001), 66 FR 55722 (November 2, 2001) (SR-CBOE-2001-22); 52650
(October 21, 2005), 70 FR 62147 (October 28, 2005) (SR-CBOE-2005-41)
(``NDX Approval'').
\32\ See NDX Approval at 62149.
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Lastly, the Commission expressed the belief that removing position
and exercise limits may bring additional depth and liquidity without
increasing concerns regarding intermarket manipulation or disruption of
the options or the underlying securities.\33\ The Exchange's enhanced
surveillance and reporting safeguards continue to be designed to deter
and detect possible manipulative behavior which might arise from
eliminating position and exercise limits.
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\33\ Id.
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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 not necessary or appropriate in
furtherance of the purposes of the Act. On the contrary, the Exchange
believes the proposal promotes competition because it will enable other
exchanges who refer to the Exchange's rules concerning position limits
to attract additional order flow from the over-the-counter market to
exchanges, who would in turn compete amongst each other for those
orders.\34\ The Exchange believes that the proposed rule change will
result in additional opportunities to achieve the investment and
trading objectives of market participants seeking efficient trading and
hedging vehicles, to the benefit of investors, market participants, and
the marketplace in general.
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\34\ For example, Nasdaq position limits are determined by the
position limits established by the Exchange. See Nasdaq Rule Sec. 7
(Position Limits).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any written comments from members or other interested parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. By order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-CBOE-2017-057 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-CBOE-2017-057. This file
number should be included on the subject line if email is used. To help
the Commission process and review your
[[Page 41461]]
comments more efficiently, please use only one method. The Commission
will post all comments on the Commission's Internet Web site (https://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 Web site 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; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-CBOE-2017-057 and should be submitted on or before
September 21, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-18446 Filed 8-30-17; 8:45 am]
BILLING CODE 8011-01-P
