Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Position Limit for SPY Options, 28274-28277 [2018-12931]
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Federal Register / Vol. 83, No. 117 / Monday, June 18, 2018 / Notices
SECURITIES AND EXCHANGE
COMMISSION
Proposed Collection; Comment
Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736.
Extension: Rule 17g–5, SEC File. No 270–
581, OMB Control No. 3235–0649
Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(‘‘PRA’’) (44 U.S.C. 3501 et seq.), the
Securities and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the existing collection of information
provided for in Rule 17g–5 (17 CFR
240.17g–5) under the Securities
Exchange Act of 1934 (15 U.S.C. 78a et
seq.) (‘‘Exchange Act’’). The
Commission plans to submit this
existing collection of information to the
Office of Management and Budget
(‘‘OMB’’) for extension and approval.
Rule 17g–5 requires the disclosure of
and establishment of procedures to
manage certain NRSRO conflicts of
interest, prohibits certain other NRSRO
conflicts of interest, and contains
requirements regarding the disclosure of
information in the case of the conflict of
interest of an NRSRO issuing or
maintaining a credit rating on an assetbacked security that was paid for by the
issuer, sponsor, or underwriter of the
security. The Commission previously
estimated that the total annual burden
for respondents to comply with Rule
17g–5 is 261,295 hours.
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Commission, including whether the
information shall have practical utility;
(b) the accuracy of the Commission’s
estimates of the burden of the proposed
collection of information; (c) ways to
enhance the quality, utility, and clarity
of the information on respondents; and
(d) ways to minimize the burden of the
collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Consideration will be given to
comments and suggestions submitted in
writing within 60 days of this
publication.
The Commission may not conduct or
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subject to the PRA that does not display
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Please direct your written comments
to: Pamela Dyson, Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Candace
Kenner, 100 F St NE, Washington, DC
20549 or send an email to: PRA_
Mailbox@sec.gov.
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of
the Act 3 and Rule 19b–4(f)(6)
thereunder.4 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
Dated: June 13, 2018.
Eduardo A. Aleman,
Assistant Secretary.
Rules
[FR Doc. 2018–12981 Filed 6–15–18; 8:45 am]
Rule 4.11. Position Limits
BILLING CODE 8011–01–P
(No change).
. . . Interpretations and Policies:
.01–.06 (No change).
.07 The position limits under Rule
4.11 applicable to options on shares or
other securities that represent interests
in registered investment companies (or
series thereof) organized as open-end
management investment companies,
unit investment trusts or similar entities
that satisfy the criteria set forth in
Interpretation and Policy .06 under Rule
5.3 shall be the same as the position
limits applicable to equity options
under Rule 4.11 and Interpretations and
Policies thereunder; except that the
position limits under Rule 4.11
applicable to option contracts on the
securities listed in the below chart are
as follows:
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 4.11 to amend the position limit
for options on SPDR S&P 500 ETF Trust
(‘‘SPY’’).
(additions are italicized; deletions are
[bracketed])
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Cboe Exchange, Inc.
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83415; File No. SR–CBOE–
2018–042]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the Position
Limit for SPY Options
June 12, 2018.
Pursuant to 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 June 4,
2018, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
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Security underlying option
Position limit
The DIAMONDS Trust (DIA) ..........................................................................................................................................
The Standard and Poor’s Depositary Receipts Trust (SPY) ..........................................................................................
The iShares Russell 2000 ETF (IWM) ...........................................................................................................................
The PowerShares QQQ Trust (QQQQ) .........................................................................................................................
The iShares MSCI Emerging Markets ETF (EEM) ........................................................................................................
iShares China Large-Cap ETF (‘‘FXI’’) ...........................................................................................................................
iShares MSCI EAFE ETF (‘‘EFA’’) .................................................................................................................................
iShares MSCI Brazil Capped ETF (‘‘EWZ’’) ...................................................................................................................
iShares 20+ Year Treasury Bond Fund ETF (‘‘TLT’’) ....................................................................................................
iShares MSCI Japan ETF (‘‘EWJ’’) ................................................................................................................................
300,000 contracts.
[None] 1,800,000 contracts.
1,000,000 contracts.
1,800,000 contracts.
1,000,000 contracts.
500,000 contracts.
500,000 contracts.
500,000 contracts.
500,000 contracts.
500,000 contracts.
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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4 17
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U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
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Federal Register / Vol. 83, No. 117 / Monday, June 18, 2018 / Notices
[Position limits for SPY options are
subject to a pilot program through July
12, 2018.]
.08 No change.
*
*
*
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*
The text of the proposed rule change
is also available on the Exchange’s
website (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
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1. Purpose
Rule 4.11 establishes position limits
for aggregate positions in option
contracts traded on the Exchange.
Interpretation and Policy .07 to Rule
4.11 lists specific position limits for
certain select underlying securities.5
SPY is among the certain select
underlying securities listed in that Rule.
Currently, the Rule provides that there
is no position limit (or exercise limit) on
options overlying SPY pursuant to a
pilot program, which is scheduled to
expire on July 12, 2018 (‘‘SPY Pilot
Program’’).6
The Exchange proposes to amend
Rule 4.11, Interpretation and Policy .07
to allow the SPY Pilot Program to
terminate on July 12, 2018, the current
expiration date of the SPY Pilot
5 Pursuant to Rule 4.12, Interpretation and Policy
.02, the exercise limits for options on those
securities are the same as the position limits set
forth in Rule 4.11, Interpretation and Policy .07.
6 See Securities Exchange Act Release Nos. 67937
(September 27, 2012), 77 FR 60489 (October 3,
2012) (SR–CBOE–2012–091); 70878 (November 14,
2013), 78 FR 69737 (November 20, 2013) (SR–
CBOE–2013–106); 74149 (January 27, 2015), 80 FR
5606 (February 2, 2015) (SR–CBOE–2015–008);
75381 (July 7, 2015), 80 FR 40111 (July 13, 2015)
(SR–CBOE–2015–065); 78131 (June 22, 2016), 81 FR
42011 (June 28, 2016) (SR–CBOE–2016–052); and
81017 (June 26, 2017), 82 FR 29960 (June 30, 2017)
(SR–CBOE–2017–050).
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Program. In lieu of extending the SPY
Pilot Program another year, the
Exchange proposes to allow the SPY
Pilot Program to terminate and to
establish position (and exercise) limits
of 1,800,000 contracts for options on
SPY, with such change becoming
operative on July 12, 2018, so that there
is no lapse in time between termination
of the SPY Pilot Program and the
establishment of the new limits.
Furthermore, as a result of the
termination of the SPY Pilot Program,
the Exchange does not believe it is
necessary to submit a SPY Pilot Program
Report at the end of the SPY Pilot
Program. Based on the prior SPY Pilot
Program Reports provided to the
Commission,7 the Exchange believes it
is appropriate to terminate the SPY Pilot
Program and that permanent position
(and exercise) limits should be
established for SPY.
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. The
level of those position limits must be
balanced between curtailing potential
manipulation and the cost of preventing
potential hedging activity that could be
used for legitimate economic purposes.
The SPY Pilot Program was
established in 2012 in order to eliminate
the position (and exercise) limit for
physically-settled SPY options.8 In
2005, the position (and exercise) limit
for SPY options was increased from
75,000 contracts to 300,000 contracts on
the same side of the market.9 In July
2011, the position limit (and exercise)
for these options was again increased
from 300,000 contracts to 900,000
contracts on the same side of the
market.10 Then, in 2012, the position
(and exercise) limit for SPY options
were eliminated as part of the SPY Pilot
Program.11
The underlying SPY tracks the
performance of the S&P 500 Index and
the Exchange notes that the SPY and
7 Id.
8 See
Securities Exchange Act Release Nos. 67672
(August 15, 2012), 77 FR 50750 (August 22, 2012)
(SR–NYSEAmex–2012–29); and 67937 (September
27, 2012), 77 FR 60489 (October 3, 2012) (SR–
CBOE–2012–091).
9 See Securities Exchange Act Release No. 51041
(January 14, 2005), 70 FR 3408 (January 24, 2005)
(SR–CBOE–2005–06).
10 See Securities Exchange Act Release No. 64928
(July 20, 2011), 76 FR 44633 (July 26, 2011) (SR–
CBOE–2011–065).
11 See supra note 8.
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28275
SPY options have deep, liquid markets
that reduce concern regarding
manipulation and disruption in the
underlying markets. In support of this
proposed rule change, the Exchange has
collected the following trading statistics
for SPY and SPY options: (1) The
average daily volume (‘‘ADV’’) to date
(as of May 15, 2018) for SPY is 108.32
million shares; (2) the ADV to date in
2018 for SPY options is 3.9 million
contracts per day; (3) the total shares
outstanding for SPY are 965.43 million;
and (4) the fund market cap for SPY is
261.65 billion. The Exchange represents
further that there is tremendous
liquidity in the securities that make up
the S&P 500 Index.
Accordingly, the Exchange proposes
to amend Rule 4.11, Interpretation and
Policy .07 to set forth that the position
limit for options on SPY would be
1,800,000 contracts on the same side of
the market.12 This position (and
exercise) limit equal the current
position (and exercise) limit for options
on QQQ, which the Commission
previously approved to be increased
from 900,000 contracts on the same side
of the market to 1,800,000 contracts on
the same side of the market.13 The
Exchange notes that SPY is more liquid
than QQQ.14 The Exchange believes that
establishing a position (and exercise)
limit for the SPY options in the amount
of 1,800,000 contracts on the same side
of the market subject to this proposal
would allow for the maintenance of the
liquid and competitive market
environment for these options, which
will benefit customers interested in
these products. Under the proposal, the
reporting requirement for the options
would be unchanged.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
Securities Exchange Act of 1934 (the
‘‘Act’’) and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.15 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 16 requirements that the rules of
12 Pursuant to Rule 4.12, Interpretation and Policy
.02, the exercise limit for options on SPY would be
1,800,000 contracts on the same side of the market.
13 See Securities Exchange Act Release No. 82770
(February 23, 2018), 83 FR 8907 (March 1, 2018)
(SR–CBOE–2017–057).
14 From the beginning of the year, through May
15, 2018, the ADV for SPY was 108.32 million
shares while the ADV for QQQ was 46.64 million
shares (calculated using data from Yahoo Finance
as of May 15, 2018).
15 15 U.S.C. 78f(b).
16 15 U.S.C. 78f(b)(5).
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an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism 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
the Section 6(b)(5) 17 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the Exchange believes
that establishing a permanent position
(and exercise) limit for SPY options
subject to this proposal will encourage
Market Makers to continue to provide
sufficient liquidity in SPY options on
the Exchange, which will enhance the
process of price discovery conducted on
the Exchange. The proposal will also
benefit institutional investors as well as
retail traders, and public customers, by
continuing to provide them with an
effective trading and hedging vehicle. In
addition, the Exchange believes that the
structure of the SPY options subject to
this proposal and the considerable
liquidity of the market for those options
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 (increased as compared
to the 900,000 limit in place prior to the
SPY Pilot Program),18 is not novel and
has been previously approved by the
Commission. For example, the
Commission has previously approved a
rule change permitting the Exchange to
double the position (and exercise) limits
for FXI, EEM, IWM, EFA, EWZ, TLT,
QQQ, and EWJ.19 Furthermore, as
previously mentioned, the Commission
specifically approved a proposal by the
Exchange to increase the position (and
exercise) limit for options on QQQ from
900,000 contracts on the same side of
the market to 1,800,000 contracts on the
same side of the market; similar to the
current proposal for options on SPY.20
The Exchange also notes that SPY is
more liquid than QQQ.21
Lastly, the Commission expressed the
belief that implementing a higher
position (and exercise) limit may bring
additional depth and liquidity without
increasing concerns regarding
intermarket manipulation or disruption
of the options or the underlying
securities.22 The Exchange’s existing
surveillance and reporting safeguards
are designed to deter and detect possible
manipulative behavior which might
arise from increasing the position (and
exercise) limit (increased as compared
to the 900,000 limit in place prior to the
SPY Pilot Program).23
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Cboe Options does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes the entire proposal is
consistent with Section 6(b)(8) of the
Act 24 in that it does not impose any
burden on competition that is 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 the option exchanges to
attract additional order flow from the
over-the-counter market, which in turn
compete for those orders. The Exchange
believes that the proposed rule change
will result in continued 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. The Exchange believes this
proposed rule change is necessary to
permit fair competition among the
options exchanges and to establish
uniform position limits for additional
multiply listed option classes. Another
options exchange recently filed a similar
proposal,25 and the Exchange believes
that the other options exchanges will
file similar proposals with the
Commission.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
17 Id.
18 See
19 See
supra note 10.
supra note 13.
22 See
supra note 13.
supra note 10.
24 15 U.S.C. 78f(b)(8).
25 See SR–MIAX–2018–11 (May 24, 2018).
23 See
20 Id.
21 See
supra note 14.
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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 Section
19(b)(3)(A) of the Act 26 and Rule 19b–
4(f)(6) 27 thereunder.
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2018–042 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE, Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CBOE–2018–042. 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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
26 15
U.S.C. 78s(b)(3)(A).
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.
27 17
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Federal Register / Vol. 83, No. 117 / Monday, June 18, 2018 / Notices
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–CBOE–2018–042 and
should be submitted on or before July 9,
2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–12931 Filed 6–15–18; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83413; File No. SR–
NYSEArca–2018–44]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Commentary
.06 to Rule 6.8–O
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June 12, 2018.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on June 8,
2018, NYSE Arca, Inc. (the ‘‘Exchange’’
or ‘‘NYSE Arca’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Commentary .06 to Rule 6.8–O to amend
the position limits for options on SPDR
S&P 500 ETF (‘‘SPY’’). The proposed
rule change is available on the
Exchange’s website at www.nyse.com, at
the principal office of the Exchange, 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
self-regulatory organization 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 those 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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
BILLING CODE 8011–01–P
28 17
solicit comments on the proposed rule
change from interested persons.
Rule 6.8–O (Position Limits)
establishes position limits for aggregate
positions in option contracts traded on
the Exchange. Commentary .06 to Rule
6.8–O lists specific position limits for
certain select underlying securities. SPY
is among the certain select underlying
securities listed in the Rule. Currently,
Rule 6.8–O provides that there are no
position limits on options overlying
SPY pursuant to a pilot program, which
is scheduled to expire on July 12, 2018
(‘‘SPY Pilot Program’’).4
The Exchange proposes to amend
Rule 6.8–O, Commentary .06, to allow
the SPY Pilot Program to terminate on
July 12, 2018, the current expiration
date of the SPY Pilot Program. In lieu of
extending the SPY Pilot Program, the
Exchange proposes to allow the SPY
Pilot Program to terminate and to
4 See Securities Exchange Act Release No. 68001
(October 5, 2012), 77 FR 62303 (October 12, 2012).
The SPY Pilot Program was subsequently extended.
See Securities Exchange Act Release Nos. 70968
(December 3, 2013), 78 FR 73899 (December 9,
2013); 74029 (January 9, 2015), 80 FR 2161 (January
15, 2015); 75415 (July 9, 2015), 80 FR 41541 (July
15, 2015); 78242 (July 7, 2016), 81 FR 45330 (July
13, 2016); and 81129 (July 12, 2017), 82 FR 32908
(July 18, 2017).
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28277
establish position limits of 1,800,000
contracts, for options on SPY, with such
change becoming operative on July 12,
2018, so that there is no lapse in time
between termination of the SPY Pilot
Program and the establishment of the
new limits.5 Furthermore, as a result of
the termination of the SPY Pilot
Program, the Exchange does not believe
it is necessary to submit a SPY Pilot
Program Report at the end of the SPY
Pilot Program. Based on the prior SPY
Pilot Program Reports provided to the
Commission,6 the Exchange believes it
is appropriate to terminate the SPY Pilot
Program and establish permanent
position limits for SPY.
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. The
level of those position limits must be
balanced between curtailing potential
manipulation and the cost of preventing
potential hedging activity that could be
used for legitimate economic purposes.
The SPY Pilot Program was
established in 2012 in order to eliminate
position and exercise limits for
physically-settled SPY options.7 In
2005, the position limits for SPY
options were increased from 75,000
contracts to 300,000 contracts on the
same side of the market.8 In July 2011,
the position limit for these options was
again increased from 300,000 contracts
to 900,000 contracts on the same side of
the market.9 Then, in 2012, the position
limits for SPY options were eliminated
as part of the SPY Pilot Program.10
The underlying SPY tracks the
performance of the S&P 500 Index and
the Exchange notes that the SPY and
SPY options have deep, liquid markets
that reduce concerns regarding
manipulation and disruption in the
underlying markets. In support of this
5 Pursuant to Rule 6.9–O, the exercise limit for
options on SPY is equivalent to the position limit
for SPY options and would also be amended
pursuant to this proposal.
6 See supra, note 4.
7 See Securities Exchange Act Release Nos. 67672
(August 15, 2012), 77 FR 50750 (August 22, 2012)
(SR–NYSEAmex–2012–29); and 67937 (September
27, 2012), 77 FR 60489 (October 3, 2012) (SR–
CBOE–2012–091).
8 See Securities Exchange Act Release No. 51041
(January 14, 2005), 70 FR 3408 (January 24, 2005)
(SR–CBOE–2005–06).
9 See Securities Exchange Act Release No. 64928
(July 20, 2011), 76 FR 44633 (July 26, 2011) (SR–
CBOE–2011–065).
10 See supra, note 7.
E:\FR\FM\18JNN1.SGM
18JNN1
]]>Agencies
[Federal Register Volume 83, Number 117 (Monday, June 18, 2018)]
[Notices]
[Pages 28274-28277]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-12931]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83415; File No. SR-CBOE-2018-042]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
the Position Limit for SPY Options
June 12, 2018.
Pursuant to 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 June 4, 2018, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe
Options'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The Exchange
filed the proposal as a ``non-controversial'' proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ 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.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 4.11 to amend the position
limit for options on SPDR S&P 500 ETF Trust (``SPY'').
(additions are italicized; deletions are [bracketed])
* * * * *
Cboe Exchange, Inc.
Rules
* * * * *
Rule 4.11. Position Limits
(No change).
. . . Interpretations and Policies:
.01-.06 (No change).
.07 The position limits under Rule 4.11 applicable to options on
shares or other securities that represent interests in registered
investment companies (or series thereof) organized as open-end
management investment companies, unit investment trusts or similar
entities that satisfy the criteria set forth in Interpretation and
Policy .06 under Rule 5.3 shall be the same as the position limits
applicable to equity options under Rule 4.11 and Interpretations and
Policies thereunder; except that the position limits under Rule 4.11
applicable to option contracts on the securities listed in the below
chart are as follows:
----------------------------------------------------------------------------------------------------------------
Security underlying option Position limit
----------------------------------------------------------------------------------------------------------------
The DIAMONDS Trust (DIA)................................... 300,000 contracts.
The Standard and Poor's Depositary Receipts Trust (SPY).... [None] 1,800,000 contracts.
The iShares Russell 2000 ETF (IWM)......................... 1,000,000 contracts.
The PowerShares QQQ Trust (QQQQ)........................... 1,800,000 contracts.
The iShares MSCI Emerging Markets ETF (EEM)................ 1,000,000 contracts.
iShares China Large-Cap ETF (``FXI'')...................... 500,000 contracts.
iShares MSCI EAFE ETF (``EFA'')............................ 500,000 contracts.
iShares MSCI Brazil Capped ETF (``EWZ'')................... 500,000 contracts.
iShares 20+ Year Treasury Bond Fund ETF (``TLT'').......... 500,000 contracts.
iShares MSCI Japan ETF (``EWJ'')........................... 500,000 contracts.
----------------------------------------------------------------------------------------------------------------
[[Page 28275]]
[Position limits for SPY options are subject to a pilot program
through July 12, 2018.]
.08 No change.
* * * * *
The text of the proposed rule change is also available on the
Exchange's website (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
Rule 4.11 establishes position limits for aggregate positions in
option contracts traded on the Exchange. Interpretation and Policy .07
to Rule 4.11 lists specific position limits for certain select
underlying securities.\5\ SPY is among the certain select underlying
securities listed in that Rule. Currently, the Rule provides that there
is no position limit (or exercise limit) on options overlying SPY
pursuant to a pilot program, which is scheduled to expire on July 12,
2018 (``SPY Pilot Program'').\6\
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\5\ Pursuant to Rule 4.12, Interpretation and Policy .02, the
exercise limits for options on those securities are the same as the
position limits set forth in Rule 4.11, Interpretation and Policy
.07.
\6\ See Securities Exchange Act Release Nos. 67937 (September
27, 2012), 77 FR 60489 (October 3, 2012) (SR-CBOE-2012-091); 70878
(November 14, 2013), 78 FR 69737 (November 20, 2013) (SR-CBOE-2013-
106); 74149 (January 27, 2015), 80 FR 5606 (February 2, 2015) (SR-
CBOE-2015-008); 75381 (July 7, 2015), 80 FR 40111 (July 13, 2015)
(SR-CBOE-2015-065); 78131 (June 22, 2016), 81 FR 42011 (June 28,
2016) (SR-CBOE-2016-052); and 81017 (June 26, 2017), 82 FR 29960
(June 30, 2017) (SR-CBOE-2017-050).
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The Exchange proposes to amend Rule 4.11, Interpretation and Policy
.07 to allow the SPY Pilot Program to terminate on July 12, 2018, the
current expiration date of the SPY Pilot Program. In lieu of extending
the SPY Pilot Program another year, the Exchange proposes to allow the
SPY Pilot Program to terminate and to establish position (and exercise)
limits of 1,800,000 contracts for options on SPY, with such change
becoming operative on July 12, 2018, so that there is no lapse in time
between termination of the SPY Pilot Program and the establishment of
the new limits. Furthermore, as a result of the termination of the SPY
Pilot Program, the Exchange does not believe it is necessary to submit
a SPY Pilot Program Report at the end of the SPY Pilot Program. Based
on the prior SPY Pilot Program Reports provided to the Commission,\7\
the Exchange believes it is appropriate to terminate the SPY Pilot
Program and that permanent position (and exercise) limits should be
established for SPY.
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\7\ Id.
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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. The level of those position limits
must be balanced between curtailing potential manipulation and the cost
of preventing potential hedging activity that could be used for
legitimate economic purposes.
The SPY Pilot Program was established in 2012 in order to eliminate
the position (and exercise) limit for physically-settled SPY
options.\8\ In 2005, the position (and exercise) limit for SPY options
was increased from 75,000 contracts to 300,000 contracts on the same
side of the market.\9\ In July 2011, the position limit (and exercise)
for these options was again increased from 300,000 contracts to 900,000
contracts on the same side of the market.\10\ Then, in 2012, the
position (and exercise) limit for SPY options were eliminated as part
of the SPY Pilot Program.\11\
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\8\ See Securities Exchange Act Release Nos. 67672 (August 15,
2012), 77 FR 50750 (August 22, 2012) (SR-NYSEAmex-2012-29); and
67937 (September 27, 2012), 77 FR 60489 (October 3, 2012) (SR-CBOE-
2012-091).
\9\ See Securities Exchange Act Release No. 51041 (January 14,
2005), 70 FR 3408 (January 24, 2005) (SR-CBOE-2005-06).
\10\ See Securities Exchange Act Release No. 64928 (July 20,
2011), 76 FR 44633 (July 26, 2011) (SR-CBOE-2011-065).
\11\ See supra note 8.
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The underlying SPY tracks the performance of the S&P 500 Index and
the Exchange notes that the SPY and SPY options have deep, liquid
markets that reduce concern regarding manipulation and disruption in
the underlying markets. In support of this proposed rule change, the
Exchange has collected the following trading statistics for SPY and SPY
options: (1) The average daily volume (``ADV'') to date (as of May 15,
2018) for SPY is 108.32 million shares; (2) the ADV to date in 2018 for
SPY options is 3.9 million contracts per day; (3) the total shares
outstanding for SPY are 965.43 million; and (4) the fund market cap for
SPY is 261.65 billion. The Exchange represents further that there is
tremendous liquidity in the securities that make up the S&P 500 Index.
Accordingly, the Exchange proposes to amend Rule 4.11,
Interpretation and Policy .07 to set forth that the position limit for
options on SPY would be 1,800,000 contracts on the same side of the
market.\12\ This position (and exercise) limit equal the current
position (and exercise) limit for options on QQQ, which the Commission
previously approved to be increased from 900,000 contracts on the same
side of the market to 1,800,000 contracts on the same side of the
market.\13\ The Exchange notes that SPY is more liquid than QQQ.\14\
The Exchange believes that establishing a position (and exercise) limit
for the SPY options in the amount of 1,800,000 contracts on the same
side of the market subject to this proposal would allow for the
maintenance of the liquid and competitive market environment for these
options, which will benefit customers interested in these products.
Under the proposal, the reporting requirement for the options would be
unchanged.
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\12\ Pursuant to Rule 4.12, Interpretation and Policy .02, the
exercise limit for options on SPY would be 1,800,000 contracts on
the same side of the market.
\13\ See Securities Exchange Act Release No. 82770 (February 23,
2018), 83 FR 8907 (March 1, 2018) (SR-CBOE-2017-057).
\14\ From the beginning of the year, through May 15, 2018, the
ADV for SPY was 108.32 million shares while the ADV for QQQ was
46.64 million shares (calculated using data from Yahoo Finance as of
May 15, 2018).
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\15\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \16\ requirements that the rules of
[[Page 28276]]
an exchange be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism 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 the Section 6(b)(5) \17\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
\17\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes that establishing a permanent
position (and exercise) limit for SPY options subject to this proposal
will encourage Market Makers to continue to provide sufficient
liquidity in SPY options on the Exchange, which will enhance the
process of price discovery conducted on the Exchange. The proposal will
also benefit institutional investors as well as retail traders, and
public customers, by continuing to provide them with an effective
trading and hedging vehicle. In addition, the Exchange believes that
the structure of the SPY options subject to this proposal and the
considerable liquidity of the market for those options 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 (increased as compared to the 900,000 limit in
place prior to the SPY Pilot Program),\18\ is not novel and has been
previously approved by the Commission. For example, the Commission has
previously approved a rule change permitting the Exchange to double the
position (and exercise) limits for FXI, EEM, IWM, EFA, EWZ, TLT, QQQ,
and EWJ.\19\ Furthermore, as previously mentioned, the Commission
specifically approved a proposal by the Exchange to increase the
position (and exercise) limit for options on QQQ from 900,000 contracts
on the same side of the market to 1,800,000 contracts on the same side
of the market; similar to the current proposal for options on SPY.\20\
The Exchange also notes that SPY is more liquid than QQQ.\21\
---------------------------------------------------------------------------
\18\ See supra note 10.
\19\ See supra note 13.
\20\ Id.
\21\ See supra note 14.
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Lastly, the Commission expressed the belief that implementing a
higher position (and exercise) limit may bring additional depth and
liquidity without increasing concerns regarding intermarket
manipulation or disruption of the options or the underlying
securities.\22\ The Exchange's existing surveillance and reporting
safeguards are designed to deter and detect possible manipulative
behavior which might arise from increasing the position (and exercise)
limit (increased as compared to the 900,000 limit in place prior to the
SPY Pilot Program).\23\
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\22\ See supra note 13.
\23\ See supra note 10.
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B. Self-Regulatory Organization's Statement on Burden on Competition
Cboe Options does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes the
entire proposal is consistent with Section 6(b)(8) of the Act \24\ in
that it does not impose any burden on competition that is 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 the option exchanges to attract additional order
flow from the over-the-counter market, which in turn compete for those
orders. The Exchange believes that the proposed rule change will result
in continued 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. The Exchange believes this proposed rule change
is necessary to permit fair competition among the options exchanges and
to establish uniform position limits for additional multiply listed
option classes. Another options exchange recently filed a similar
proposal,\25\ and the Exchange believes that the other options
exchanges will file similar proposals with the Commission.
---------------------------------------------------------------------------
\24\ 15 U.S.C. 78f(b)(8).
\25\ See SR-MIAX-2018-11 (May 24, 2018).
---------------------------------------------------------------------------
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
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 Section 19(b)(3)(A) of the Act \26\ and Rule 19b-4(f)(6)
\27\ thereunder.
---------------------------------------------------------------------------
\26\ 15 U.S.C. 78s(b)(3)(A).
\27\ 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.
---------------------------------------------------------------------------
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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CBOE-2018-042 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2018-042. 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 (https://www.sec.gov/rules/sro.shtml).
Copies of the
[[Page 28277]]
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-CBOE-2018-042 and should be submitted on
or before July 9, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-12931 Filed 6-15-18; 8:45 am]
BILLING CODE 8011-01-P
