Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 1, To Increase Position Limits for Options on Certain Exchange-Traded Funds and an Exchange-Traded Note, 44118-44122 [2021-17086]
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44118
Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Notices
V. Commission’s Solicitation of
Comments
The Commission requests written
views, data, and arguments with respect
to the concerns identified above as well
as any other relevant concerns. Such
comments should be submitted by
September 1, 2021. Rebuttal comments
should be submitted by September 15,
2021. Although there do not appear to
be any issues relevant to approval or
disapproval which would be facilitated
by an oral presentation of views, data,
and arguments, the Commission will
consider, pursuant to Rule 19b–4, any
request for an opportunity to make an
oral presentation.33
The Commission asks that
commenters address the sufficiency and
merit of the Exchange’s statements in
support of the proposal, in addition to
any other comments they may wish to
submit about the proposed rule change.
Interested persons are invited to
submit written data, views, and
arguments concerning the proposed rule
changes, 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 No. SR–
NYSEArca–2021–52 on the subject line.
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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 No.
SR–NYSEArca–2021–52. The 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
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
33 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act
grants the Commission flexibility to determine what
type of proceeding—either oral or notice and
opportunity for written comments—is appropriate
for consideration of a particular proposal by an
SRO. See Securities Acts Amendments of 1975,
Report of the Senate Committee on Banking,
Housing and Urban Affairs to Accompany S. 249,
S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975).
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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 such
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 publicly available. All
submissions should refer to File No.
SR–NYSEArca–2021–52 and should be
submitted on or before September 1,
2021. Rebuttal comments should be
submitted by September 15, 2021.
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(3)(C) of the Act,34 that File
No. SR–NYSEArca–2021–52, be and
hereby is, temporarily suspended. In
addition, the Commission is instituting
proceedings to determine whether the
proposed rule change should be
approved or disapproved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021–17087 Filed 8–10–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92581; File No. SR–CBOE–
2021–029]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing of
Amendment No. 1 and Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change, as Modified by
Amendment No. 1, To Increase
Position Limits for Options on Certain
Exchange-Traded Funds and an
Exchange-Traded Note
August 5, 2021.
I. Introduction
On April 21, 2021, Cboe Exchange,
Inc. (‘‘Exchange’’) filed with the
34 15
35 17
PO 00000
U.S.C. 78s(b)(3)(C).
CFR 200.30–3(a)(57) and (58).
Frm 00131
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Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend Interpretation and Policy .07 of
Exchange Rule 8.30, Position Limits, to
increase the position limits for options
on the following exchange traded funds
(‘‘ETFs’’) and exchange traded note
(‘‘ETN’’) (collectively, ‘‘Exchange
Traded Products’’ or ‘‘ETP(s)’’): SPDR
Gold Shares (‘‘GLD’’), iShares iBoxx $
Investment Grade Corporate Bond ETF
(‘‘LQD’’), iShares Silver Trust (‘‘SLV’’),
iPath S&P 500 VIX Short-Term Futures
ETN (‘‘VXX’’), ProShares Ultra VIX
Short-Term Futures ETF (‘‘UVXY’’), and
VanEck Vectors Gold Miners ETF
(‘‘GDX’’). The proposed rule change was
published for comment in the Federal
Register on May 10, 2021.3 On June 17,
2021, pursuant to Section 19(b)(2) of the
Act,4 the Commission designated a
longer period within which to approve
the proposed rule change, disapprove
the proposed rule change, or institute
proceedings to determine whether to
approve or disapprove the proposed
rule change.5 On July 27, 2021, the
Exchange submitted Amendment No. 1
to the proposed rule change, which
replaced and superseded the proposed
rule change as originally filed.6 The
Commission is publishing this notice
and order to solicit comments on the
proposed rule change, as modified by
Amendment No. 1, from interested
persons and to institute proceedings
pursuant to Section 19(b)(2)(B) of the
Act 7 to determine whether to approve
or disapprove the proposed rule change,
as modified by Amendment No. 1.
II. Description of the Proposal, as
Modified by Amendment No. 1
Currently, position limits for options
on ETFs and ETNs traded on the
Exchange, such as those subject to this
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 91767
(May 4, 2021), 86 FR 25026.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 92204,
86 FR 33395 (June 24, 2021). The Commission
designated August 8, 2021, as the date by which the
Commission shall approve or disapprove, or
institute proceedings to determine whether to
approve or disapprove, the proposed rule change.
6 In Amendment No. 1, the Exchange: (1) Reduced
the proposed position limit for GLD options from
1,000,000 contracts to 500,000 contracts; and (2)
provided additional justification and analysis in
support of the proposal. The additional justification
and analysis provided by Amendment No. 1 is
included in the description below of the proposal
as amended. The full text of Amendment No. 1 is
available on the Commission’s website at: https://
www.sec.gov/comments/sr-cboe-2021-029/
srcboe2021029-9094584-246812.pdf.
7 15 U.S.C. 78s(b)(2)(B).
2 17
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proposal, as amended, are determined
pursuant to Exchange Rule 8.30, and
generally vary according to the number
of outstanding shares and past sixmonth trading volume of the underlying
security. Options on the securities with
the largest numbers of outstanding
shares and trading volume have a
standard option position limit of
250,000 contracts (with adjustments for
splits, re-capitalizations, etc.) on the
same side of the market.8 In addition,
Interpretation and Policy .07 of
Exchange Rule 8.30 currently sets forth
separate position limits for options on
certain ETFs that range from 300,000 to
3.6 million contracts.
Options on GLD, SLV, LQD, GDX,
VXX, and UVXY are currently subject to
the standard position limit of 250,000
contracts as set forth in Exchange Rule
8.30.9 The purpose of the proposed rule
change, as modified by Amendment
No.1, is to amend Interpretation and
Policy .07 to Exchange Rule 8.30 to
increase the position limits for options
on GLD, SLV, LQD, GDX, VXX, and
UVXY from 250,000 contracts to
500,000 contracts.10 The Exchange
believes that the proposed position limit
increases will lead to a more liquid and
competitive market environment for
these options that will benefit customers
interested in trading these products.11
The Exchange states that, to support the
proposed position limit increases, it has
considered, and provided statistics
regarding, the liquidity of the
underlying ETPs, the value of the
underlying securities or index
components and relevant marketplace,
the share and option volume for the
underlying ETPs, and, where applicable,
the availability or comparison of
economically equivalent products to
options on the underlying ETPs.
Specifically, in support of its proposal
to increase the position limits for
options on GLD and SLV from 250,000
contracts to 500,000 contracts, the
Exchange, among other things,
compares the trading characteristics of
GLD and SLV to those of the iShares
MSCI Brazil Capped ETF (‘‘EWZ’’), the
iShares 20+ Year Treasury Bond Fund
8 See Interpretation and Policy .02(e) to Exchange
Rule 8.30.
9 See Amendment No. 1, supra note 6, at 6; see
also id. at 10, 12, 16, 17, 19, for descriptions
provided by the Exchange regarding the
composition, design, and investment objectives of
the ETPs underlying each of the options subject to
this proposal.
10 Pursuant to Exchange Rule 8.42, Interpretation
and Policy .02, the text of which is not being
amended by this proposal, the exercise limits for
GLD, SLV, LQD, GDX, VXX, and UVXY options
would be similarly increased as a result of this
proposal.
11 See Amendment No. 1, supra note 6, at 24.
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ETF (‘‘TLT’’), the iShares MSCI Japan
ETF (‘‘EWJ’’), and the iShares iBoxx
High Yield Corporate Bond Fund
(‘‘HYG’’), all of which currently have a
position limit of 500,000 contracts.12
The Exchange states that the average
daily trading volume (‘‘ADV’’) in
calendar year 2020 for GLD was 12.3
million shares and SLV was 33.1
million shares compared to 29.2 million
shares for EWZ, 11.5 million shares for
TLT, 8.2 million shares for EWJ, and
30.5 million shares for HYG; 13 the total
shares outstanding as of April 5, 2021
for GLD was 354.3 million and SLV was
619.3 million compared to 173.8 million
for EWZ, 103.7 million for TLT, 185.3
million for EWJ, and 254.5 million for
HYG; 14 and the fund market cap as of
January 14, 2021 for GLD was $70,195.7
and SLV was $14,228.4 million
compared to $6,506.8 million for EWZ,
$17,121.3 million for TLT, $13,860.7
million for EWJ, and $24,067.5 million
for HYG.15
In addition, the Exchange states that
it recognizes that the spot metal markets
underlying SLV and GLD differ from the
equities markets underlying EWZ, EWJ,
TLT, and HYG, but that it does not
believe that position limit increases for
options on GLD and SLV will have any
adverse impact on the underlying spot
gold and silver markets.16 Specifically,
the Exchange states that gold futures
currently have a value of approximately
$93.2 billion in open interest, have
experienced an ADV of approximately
264,000 contracts (equivalent to
approximately 264 million GLD
contracts) from January through May
2021, and currently are subject to a
position limit of 6,000 contracts, which
is notionally equivalent to 6,000,000
GLD option contracts.17 The Exchange
similarly states that silver futures
currently have a value of approximately
$25.7 billion in open interest, have
12 See id. at 9–13. See also Exchange Rule 8.30,
Interpretation and Policy .07. Prior to the
submission of Amendment No. 1, the Exchange
originally proposed to increase the position limit
for options on GLD to 1,000,000 contracts.
13 See Amendment No. 1, supra note 6, at 11–12.
14 See id. at 9–10.
15 See id. at 9–12. The Exchange also states that
demand for trading GLD and SLV options has
increased whereas the position limits for these
products have remained the same, which may
impact the ability of Trading Permit Holders
(‘‘TPHs’’) to effectively hedge against exposure to
physical gold and silver. See id. at 13.
16 See id. at 14.
17 See id. The Exchange understands that its
market-makers use both GLD and gold futures to
hedge their GLD options positions, which the
Exchange believes provides for a balance across the
gold-related marketplaces, mitigating potential
concerns that either the underlying or the futures
market might experience additional pressure as a
result of an increase in activity in the GLD options
space. See id.
PO 00000
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Fmt 4703
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44119
experienced an ADV of approximately
93,000 contracts (equivalent to
approximately 465 million SLV
contracts) from January through May
2021, and currently are subject to a
position limit of 3,000 contracts, which
is notionally equivalent to 15,000,000
SLV option contracts.18 The Exchange
believes that the volume in and value of
the gold and silver futures markets
indicate that the underlying markets are
sufficiently large and liquid enough to
absorb potential price movements and
large-sized trades as a result of position
limit increases for options on GLD and
SLV.19
The Exchange also provides data
showing that the volume-weighted
average of the absolute value of deltas
for GLD and SLV options trades from
March 2019 through June 2021 was
approximately 0.34 per GLD options
trade and approximately 0.28 per SLV
options trade.20 The Exchange believes
these low absolute value deltas indicate
that increases in GLD and SLV options
trading would have minimal impact on
the ability of the underlying metals
markets to absorb any additional
volume related to increased position
limits and hedging activity.21
In support of its proposal to increase
the position limits for options on VXX
and UVXY from 250,000 contracts to
500,000 contracts, the Exchange, among
other things, compares the trading
characteristics of VXX and UVXY to
those of EWZ, TLT, EWJ, and HYG, all
of which currently have a position limit
of 500,000 contracts.22 The Exchange
states that the ADV in calendar year
2020 for VXX was 39.3 million shares
and UVXY was 29.3 million shares
compared to 29.2 million shares for
EWZ, 11.5 million shares for TLT, 8.2
million shares for EWJ, and 30.5 million
shares for HYG; 23 the total shares
outstanding as of April 14, 2021 for
VXX was 110.8 million and UVXY was
228.7 million compared to 173.8 million
for EWZ, 103.7 million for TLT, 185.3
million for EWJ, and 254.5 million for
HYG; 24 and the fund market cap as of
January 14, 2021 for VXX was $1,023
million and UVXY was $1,580.6 million
compared to $6,506.8 million for EWZ,
$17,121.3 million for TLT, $13,860.7
18 See
id.
id. at 14–15.
20 See id. at 15.
21 See id. at 15–16.
22 See id. at 9–10, 19–20. See also Exchange Rule
8.30, Interpretation and Policy .07. The Exchange
also states that, while VIX options share similar
trading characteristics with options on VXX and
UVXY, VIX options are not currently subject to
position limits. See Amendment No. 1, supra note
6, at 20.
23 See Amendment No. 1, supra note 6, at 19–20.
24 See id. at 9–10.
19 See
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million for EWJ, and $24,067.5 million
for HYG.25 The Exchange also states that
the 2020 ADV for trading in VIX futures
was approximately 192,000 contracts
and VIX futures currently have a value
of approximately $7.6 billion in open
interest.26 The Exchange believes that
its proffered data indicates that the
market for VXX and UVXY is
sufficiently large and liquid enough to
absorb price movements and large-sized
trades.27
The Exchange further states that the
VIX futures that comprise both VXX and
UVXY are a perfect hedge to the
underlying delta risk, but that such
futures are not recognized as hedges for
options contract equivalent of the net
delta (‘‘OCEND’’) purposes.28 A TPH
that is not delta neutral must be hedged
to the extent that the OCEND stays
within the applicable position limit.29
According to the Exchange, due to the
OCEND limitations and current position
limits for options on VXX and UVXY,
heightened demand for liquidity in VXX
and UVXY options can cause TPHs that
are hedged via the component futures to
approach position limits more rapidly.30
In order to stay within the applicable
position limit, TPHs may shift out of
futures hedges into hedges with options
or may purchase or create shares of the
underlying ETPs. As a result, TPHs may
be unable to provide the most concise
pricing to customers participating in
these ETPs due to increased costs
associated with transacting in additional
or alternative hedging vehicles, and risk
may concentrate in the ETP issuer rather
than being spread across multiple
market participants, which may
exacerbate an already volatile market.31
The Exchange believes that increasing
position limits for options on VXX and
UVXY may assist in maintaining a fair
and orderly market during times of
higher market volatility, and may
reduce any potential additional impact
on the futures markets as a result of an
increased demand (or, conversely,
supply) for shares of the ETPs during
periods of higher market volatility or
illiquidity.32
The Exchange further believes that the
VIX futures markets, including in the
25 See
id.
id. at 20.
27 See id.
28 See id.
29 See id.
30 See id. at 20–21.
31 See id. at 21.
32 See id. at 21–22. In contrast, the Exchange
believes that the current position limits for VXX
and UVXY options may, at times in which there is
higher volatility and, thus, higher demand in
connection with these options, reduce liquidity and
create further volatility. See id. at 21.
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26 See
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Trade at Settlement (‘‘TAS’’) VIX futures
market, wherein VXX and UVXY are
primarily rebalanced, maintain robust,
liquid markets such that they can
sufficiently handle any additional
options delta exposure and resulting
increase in volatility options trading,
including during the rebalancing
period.33 Specifically, the Exchange
states that it has observed that the ADV
in the VIX futures TAS market has
grown from approximately 32,200
contracts in 2018 to approximately
42,200 contracts in 2021.34
In support of its proposal to increase
the position limits for options on GDX
from 250,000 contracts to 500,000
contracts, the Exchange, among other
things, compares the trading
characteristics of GDX to those of EWZ,
TLT, EWJ, and HYG, all of which
currently have a position limit of
500,000 contracts.35 The Exchange
states that the ADV in calendar year
2020 for GDX was 39.4 million shares
compared to 29.2 million shares for
EWZ, 11.5 million shares for TLT, 8.2
million shares for EWJ, and 30.5 million
shares for HYG; 36 the total shares
outstanding as of April 5, 2021 for GDX
was 419.8 million compared to 173.8
million for EWZ, 103.7 million for TLT,
185.3 million for EWJ, and 254.5 million
for HYG; 37 and the fund market cap as
of January 14, 2021 for GDX was
$16,170.5 million compared to $6,506.8
million for EWZ, $17,121.3 million for
TLT, $13,860.7 million for EWJ, and
$24,067.5 million for HYG.38 The
Exchange also states that many of the
Brazil-based gold mining constituents
included in GDX are also included in
EWZ, and that the Exchange has not
identified any issues with the continued
listing and trading of EWZ options or
any adverse market impact on EWZ in
connection with the current 500,000
position limit in place for EWZ
options.39 Further, the Exchange states
that the components of the NYSE Arca
Gold Miners Index—the price and yield
performance of which GDX seeks to
replicate as closely as possible—can be
used to create the GDX ETF, and
currently must each have a market
capitalization greater than $750 million,
an ADV of at least 50,000 shares, and an
average daily value traded of at least $1
million in order to be eligible for
inclusion in the index.40
33 See
id. at 22.
id.
35 See id. at 9–10, 18. See also Exchange Rule
8.30, Interpretation and Policy .07.
36 See Amendment No. 1, supra note 6, at 18.
37 See id. at 9–10.
38 See id. at 9–10, 18.
39 See id. at 18.
40 See id. at 17–18.
34 See
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In support of its proposal to increase
the position limit for LQD from 250,000
contracts to 500,000 contracts, the
Exchange, among other things,
compared the trading characteristics of
LQD to those of EWZ, TLT, and EWJ, all
of which currently have a position limit
of 500,000 contracts.41 The Exchange
provides data demonstrating that the
ADV in calendar year 2020 for LQD was
14.1 million shares compared to 29.2
million shares for EWZ, 11.5 million
shares for TLT, and 8.2 million shares
for EWJ; 42 the total shares outstanding
as of April 5, 2021 for LQD was 308.1
million compared to 173.8 million for
EWZ, 103.7 million for TLT, and 185.3
million for EWJ; 43 and the fund market
cap as of January 14, 2021 for LQD was
$54,113.7 million compared to $6,506.8
million for EWZ, $17,121.3 million for
TLT, and $13,860.7 million for EWJ.44
The Exchange also states that LQD
tracks the performance of the Markit
iBoxx USD Liquid Investment Grade
Index, which is an index designed as a
subset of the broader U.S. dollardenominated corporate bond market
and can be used in creating a basket of
securities that equate to the LQD ETF,
and which is comprised of over 8,000
bonds for which the outstanding face
value of each must be greater than or
equal to $2 billion.45
The Exchange states that the current
position limits for the options subject to
the proposal may have impeded the
ability of market makers to make
markets on the Exchange.46 Specifically,
the Exchange avers, the proposal is
designed to encourage liquidity
providers to provide additional liquidity
to the Exchange and other market
participants to shift liquidity from overthe-counter markets onto the Exchange,
which, it believes, would enhance the
process of price discovery conducted on
the Exchange through increased order
flow.47 The proposal also would benefit
market participants, the Exchange
maintains, by providing them with the
ability to more effectively execute their
trading and hedging activities.48
With regard to the concerns that
position limits generally are meant to
address, the Exchange represents that
the structure of the underlying ETPs
subject to this proposal, the
considerable market capitalization of
the ETPs and their underlying
41 See id. at 9–10, 16–17. See also Exchange Rule
8.30, Interpretation and Policy .07.
42 See Amendment No. 1, supra note 6, at 16.
43 See id. at 9–10.
44 See id. at 9–10, 16.
45 See id. at 16–17.
46 See id. at 5.
47 See id. at 5, 27–28.
48 See id. at 5, 28.
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component securities, and the liquidity
of the market for options on these ETPs
and the underlying component
securities mitigate concerns regarding
potential manipulation of the products
and disruption of the underlying
markets due to the increased position
limits.49 The Exchange also describes:
(i) The creation and redemption process
for ETFs (and a similar process for the
ETN to which the proposal relates); 50
(ii) the arbitrage activity that ensues
when such instruments are overpriced
or are trading at a discount to the
securities on which they are based and
helps to keep the instrument’s price in
line with the value of its underlying
portfolio; and (iii) how these processes,
in the Exchange’s view, serve to mitigate
the potential price impact of the ETF or
ETN shares that might otherwise result
from increased position limits.51
In addition, the Exchange states that
the options reporting requirements of
Exchange Rule 8.43 would continue to
be applicable to the options subject to
this proposal.52 As set forth in Exchange
Rule 8.43(a), each TPH must report to
the Exchange certain information in
relation to any customer who, acting
alone, or in concert with others, on the
previous business day maintained
aggregate long or short positions on the
same side of the market of 200 or more
contracts in any single class of option
contracts dealt in on the Exchange.53
Further, Exchange Rule 8.43(b) requires
each TPH (other than an Exchange
market-maker or designated primary
market-maker) 54 that maintains a
position in excess of 10,000 non-FLEX
equity option contracts on the same side
of the market, on behalf of its own
account or for the account of a
customer, to report to the Exchange
information as to whether such
49 See
id.
regard to the ETN option included in the
proposal—VXX—the Exchange stated that there is
no direct analogue to ETF ‘‘creation,’’ but observed
that the ETN issuer may sell additional VXX shares
from its inventory. Regardless of whether VXX
shares are redeemed or new VXX shares are issued,
the Exchange stated, an issuer may transact in VIX
futures in order to hedge its exposure, resulting in
an arbitrage process similar to the one described for
ETFs described above, thereby helping to keep an
ETN’s price in line with the value of its underlying
index. See id. at 23.
51 See id. at 22–24.
52 See id. at 24–25.
53 The report must include, for each such class of
options, the number of option contracts comprising
each such position and, in the case of short
positions, whether covered or uncovered. See
Exchange Rule 8.43(a).
54 According to the Exchange, market-makers
(including designated primary market-makers) are
exempt from the referenced reporting requirement
because market-maker information can be accessed
through the Exchange’s market surveillance
systems. See Amendment No. 1, supra note 6, at 25.
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positions are hedged, and provide
documentation as to how such contracts
are hedged.55
The Exchange also represents that the
existing surveillance procedures and
reporting requirements at the Exchange
and other self-regulatory organizations
are capable of properly identifying
disruptive and/or manipulative trading
activity.56 According to the Exchange,
its surveillance procedures utilize daily
monitoring of market activity via
automated surveillance techniques to
identify unusual activity in both options
and the underlying products.57 In
addition, the Exchange states that its
surveillance procedures have been
effective for the surveillance of trading
in the options subject to this proposal,
and will continue to be employed.58
The Exchange further states its belief
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
unhedged position in the options
subject to this proposal.59 Current
margin and risk-based haircut
methodologies, the Exchange states,
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
customer.60 In addition, the Exchange
notes that the Commission’s net capital
rule, Rule 15c3–1 under the Act,61
imposes a capital charge on TPHs to the
extent of any margin deficiency
resulting from the higher margin
requirement.62
III. Proceedings To Determine Whether
To Approve or Disapprove SR–CBOE–
2021–029, as Modified by Amendment
No. 1, and Grounds for Disapproval
Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 63 to determine
whether the proposed rule change, as
55 According to the Exchange, this information
would include, but would not be limited to, the
option position, whether such position is hedged
and, if so, a description of the hedge. See id. at 24–
25.
56 See id. at 25.
57 See id. at 25–26.
58 See id. at 26 n.36. The Exchange represents that
non-U.S. component securities that are not subject
to a comprehensive surveillance agreement do not,
in the aggregate, represent more than 50% of the
weight of any of the underlying ETPs that are ETFs.
See id. at 7.
59 See id. at 26.
60 See id.
61 17 CFR 240.15c3–1.
62 See Amendment No. 1, supra note 6, at 26.
63 15 U.S.C. 78s(b)(2)(B).
PO 00000
Frm 00134
Fmt 4703
Sfmt 4703
44121
modified by Amendment No. 1, should
be approved or disapproved. Institution
of proceedings is appropriate at this
time in view of the legal and policy
issues raised by the proposal, as
discussed below. Institution of
proceedings does not indicate that the
Commission has reached any
conclusions with respect to any of the
issues involved. Rather, as described
below, the Commission seeks and
encourages interested persons to
provide comment on the proposed rule
change, as modified by Amendment No.
1.
Pursuant to Section 19(b)(2)(B) of the
Act,64 the Commission is providing
notice of the grounds for disapproval
under consideration. The Commission is
instituting proceedings to allow for
additional analysis of, and input from
commenters with respect to, the
consistency of the proposed rule
change, as modified by Amendment No.
1, with the Act and, in particular,
Section 6(b)(5) of the Act,65 which
requires that the rules of a national
securities exchange be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest, and not be designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
Under the Commission’s Rules of
Practice, the ‘‘burden to demonstrate
that a proposed rule change is
consistent with the [Act] and the rules
and regulations issued thereunder . . .
is on the self-regulatory organization
that proposed the rule change.’’ 66 The
description of a proposed rule change,
its purpose and operation, its effect, and
a legal analysis of its consistency with
applicable requirements must all be
sufficiently detailed and specific to
support an affirmative Commission
finding,67 and any failure of a selfregulatory organization to provide this
information may result in the
Commission not having a sufficient
basis to make an affirmative finding that
a proposed rule change is consistent
with the Act and the applicable rules
and regulations.68
Position and exercise limits serve as
a regulatory tool designed to address
manipulative schemes and adverse
64 Id.
65 15
U.S.C. 78f(b)(5).
700(b)(3), Commission Rules of Practice,
17 CFR 201.700(b)(3).
67 See id.
68 See id.
66 Rule
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44122
Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Notices
jbell on DSKJLSW7X2PROD with NOTICES
market impact surrounding the use of
options.69 As discussed above, the
Exchange has proposed to increase the
position and exercise limits for options
on GLD, SLV, LQD, GDX, VXX, and
UVXY from 250,000 contracts to
500,000 contracts. The proposed
doubling of the position and exercise
limits for these options would be a
substantial increase from current levels,
and raises the potential for adverse
impacts in the underlying markets
implicated by this proposal. The initial
proposal did not provide sufficient
information to explain why all of these
underlying markets are sufficiently
comparable to the markets underlying
the option products currently subject to
a 500,000 contract position limit or
sufficient information to independently
support a finding that all of the
proposed position limit increases would
not have an adverse market impact.
Accordingly, the initial proposal did not
provide an adequate basis for the
Commission to conclude that the
proposal would be consistent with
Section 6(b)(5) of the Act.
The Exchange recently provided
additional analysis and justification for
its proposal in Amendment No. 1.
Amendment No. 1 was submitted
shortly before the expiration of the
statutory deadline for the Commission
to act on the Exchange’s proposal,
leaving the Commission, as well as any
potential commenters, with insufficient
time to carefully consider the new data
and analysis before the deadline. In the
proceedings that the Commission is
instituting today, the Commission will
be evaluating, among other things, the
Exchange’s amended statements, and
invites comment on the extent to which
they justify approval of the proposal.
IV. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their data, views, and
arguments with respect to the issues
identified above, as well as any other
concerns they may have with the
proposal. In particular, the Commission
invites the written views of interested
persons concerning whether the
proposed rule change, as modified by
Amendment No. 1, is consistent with
Section 6(b)(5), or any other provision of
the Act, or the rules and regulations
thereunder. Although there do not
appear to be any issues relevant to
approval or disapproval which would
be facilitated by an oral presentation of
69 See, e.g., Securities Exchange Act Release No.
68086 (October 23, 2012), 77 FR 65600 (October 29,
2012) (SR–CBOE–2012–066).
VerDate Sep<11>2014
23:05 Aug 10, 2021
Jkt 253001
data, views, and arguments, the
Commission will consider, pursuant to
Rule 19b–4 under the Act,70 any request
for an opportunity to make an oral
presentation.71
The Commission asks that
commenters address the sufficiency and
merit of the Exchange’s statements in
support of the proposal, as modified by
Amendment No. 1, in addition to any
other comments they may wish to
submit about the proposed rule change.
In particular, the Commission seeks
comment on whether the position and
exercise limit for each option as
proposed could impact markets
adversely.
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposed rule change, as modified by
Amendment No. 1, should be approved
or disapproved by September 1, 2021.
Any person who wishes to file a rebuttal
to any other person’s submission must
file that rebuttal by September 15, 2021.
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 No. SR–
CBOE–2021–029 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 No.
SR–CBOE–2021–029. The 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
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
70 17
CFR 240.19b–4.
19(b)(2) of the Act, as amended by the
Securities Acts Amendments of 1975, Public Law
94–29 (June 4, 1975), grants to the Commission
flexibility to determine what type of proceeding—
either oral or notice and opportunity for written
comments—is appropriate for consideration of a
particular proposal by a self-regulatory
organization. See Securities Acts Amendments of
1975, Senate Comm. on Banking, Housing & Urban
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
71 Section
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Fmt 4703
Sfmt 4703
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 No.
SR–CBOE–2021–029 and should be
submitted by September 1, 2021.
Rebuttal comments should be submitted
by September 15, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.72
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021–17086 Filed 8–10–21; 8:45 am]
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #17074 and #17075;
Oklahoma Disaster Number OK–00150]
Administrative Declaration of a
Disaster for the State of Oklahoma
Small Business Administration.
Notice.
AGENCY:
ACTION:
This is a notice of an
Administrative declaration of a disaster
for the State of OKLAHOMA dated 08/
05/2021.
Incident: Flooding.
Incident Period: 06/07/2021.
DATES: Issued on 08/05/2021.
Physical Loan Application Deadline
Date: 10/04/2021.
Economic Injury (EIDL) Loan
Application Deadline Date: 05/05/2022.
ADDRESSES: Submit completed loan
applications to:
U.S. Small Business Administration,
Processing and Disbursement Center,
14925 Kingsport Road, Fort Worth, TX
76155.
FOR FURTHER INFORMATION CONTACT: A.
Escobar, Office of Disaster Assistance,
U.S. Small Business Administration,
SUMMARY:
72 17 CFR 200.30–3(a)(12); 17 CFR 200.30–
3(a)(57).
E:\FR\FM\11AUN1.SGM
11AUN1
]]>Agencies
[Federal Register Volume 86, Number 152 (Wednesday, August 11, 2021)]
[Notices]
[Pages 44118-44122]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-17086]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92581; File No. SR-CBOE-2021-029]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of Amendment No. 1 and Order Instituting Proceedings To
Determine Whether To Approve or Disapprove a Proposed Rule Change, as
Modified by Amendment No. 1, To Increase Position Limits for Options on
Certain Exchange-Traded Funds and an Exchange-Traded Note
August 5, 2021.
I. Introduction
On April 21, 2021, Cboe Exchange, Inc. (``Exchange'') filed with
the Securities and Exchange Commission (``Commission''), pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder,\2\ a proposed rule change to amend
Interpretation and Policy .07 of Exchange Rule 8.30, Position Limits,
to increase the position limits for options on the following exchange
traded funds (``ETFs'') and exchange traded note (``ETN'')
(collectively, ``Exchange Traded Products'' or ``ETP(s)''): SPDR Gold
Shares (``GLD''), iShares iBoxx $ Investment Grade Corporate Bond ETF
(``LQD''), iShares Silver Trust (``SLV''), iPath S&P 500 VIX Short-Term
Futures ETN (``VXX''), ProShares Ultra VIX Short-Term Futures ETF
(``UVXY''), and VanEck Vectors Gold Miners ETF (``GDX''). The proposed
rule change was published for comment in the Federal Register on May
10, 2021.\3\ On June 17, 2021, pursuant to Section 19(b)(2) of the
Act,\4\ the Commission designated a longer period within which to
approve the proposed rule change, disapprove the proposed rule change,
or institute proceedings to determine whether to approve or disapprove
the proposed rule change.\5\ On July 27, 2021, the Exchange submitted
Amendment No. 1 to the proposed rule change, which replaced and
superseded the proposed rule change as originally filed.\6\ The
Commission is publishing this notice and order to solicit comments on
the proposed rule change, as modified by Amendment No. 1, from
interested persons and to institute proceedings pursuant to Section
19(b)(2)(B) of the Act \7\ to determine whether to approve or
disapprove the proposed rule change, as modified by Amendment No. 1.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 91767 (May 4, 2021),
86 FR 25026.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 92204, 86 FR 33395
(June 24, 2021). The Commission designated August 8, 2021, as the
date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to approve or disapprove,
the proposed rule change.
\6\ In Amendment No. 1, the Exchange: (1) Reduced the proposed
position limit for GLD options from 1,000,000 contracts to 500,000
contracts; and (2) provided additional justification and analysis in
support of the proposal. The additional justification and analysis
provided by Amendment No. 1 is included in the description below of
the proposal as amended. The full text of Amendment No. 1 is
available on the Commission's website at: https://www.sec.gov/comments/sr-cboe-2021-029/srcboe2021029-9094584-246812.pdf.
\7\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
II. Description of the Proposal, as Modified by Amendment No. 1
Currently, position limits for options on ETFs and ETNs traded on
the Exchange, such as those subject to this
[[Page 44119]]
proposal, as amended, are determined pursuant to Exchange Rule 8.30,
and generally vary according to the number of outstanding shares and
past six-month trading volume of the underlying security. Options on
the securities with the largest numbers of outstanding shares and
trading volume have a standard option position limit of 250,000
contracts (with adjustments for splits, re-capitalizations, etc.) on
the same side of the market.\8\ In addition, Interpretation and Policy
.07 of Exchange Rule 8.30 currently sets forth separate position limits
for options on certain ETFs that range from 300,000 to 3.6 million
contracts.
---------------------------------------------------------------------------
\8\ See Interpretation and Policy .02(e) to Exchange Rule 8.30.
---------------------------------------------------------------------------
Options on GLD, SLV, LQD, GDX, VXX, and UVXY are currently subject
to the standard position limit of 250,000 contracts as set forth in
Exchange Rule 8.30.\9\ The purpose of the proposed rule change, as
modified by Amendment No.1, is to amend Interpretation and Policy .07
to Exchange Rule 8.30 to increase the position limits for options on
GLD, SLV, LQD, GDX, VXX, and UVXY from 250,000 contracts to 500,000
contracts.\10\ The Exchange believes that the proposed position limit
increases will lead to a more liquid and competitive market environment
for these options that will benefit customers interested in trading
these products.\11\ The Exchange states that, to support the proposed
position limit increases, it has considered, and provided statistics
regarding, the liquidity of the underlying ETPs, the value of the
underlying securities or index components and relevant marketplace, the
share and option volume for the underlying ETPs, and, where applicable,
the availability or comparison of economically equivalent products to
options on the underlying ETPs.
---------------------------------------------------------------------------
\9\ See Amendment No. 1, supra note 6, at 6; see also id. at 10,
12, 16, 17, 19, for descriptions provided by the Exchange regarding
the composition, design, and investment objectives of the ETPs
underlying each of the options subject to this proposal.
\10\ Pursuant to Exchange Rule 8.42, Interpretation and Policy
.02, the text of which is not being amended by this proposal, the
exercise limits for GLD, SLV, LQD, GDX, VXX, and UVXY options would
be similarly increased as a result of this proposal.
\11\ See Amendment No. 1, supra note 6, at 24.
---------------------------------------------------------------------------
Specifically, in support of its proposal to increase the position
limits for options on GLD and SLV from 250,000 contracts to 500,000
contracts, the Exchange, among other things, compares the trading
characteristics of GLD and SLV to those of the iShares MSCI Brazil
Capped ETF (``EWZ''), the iShares 20+ Year Treasury Bond Fund ETF
(``TLT''), the iShares MSCI Japan ETF (``EWJ''), and the iShares iBoxx
High Yield Corporate Bond Fund (``HYG''), all of which currently have a
position limit of 500,000 contracts.\12\ The Exchange states that the
average daily trading volume (``ADV'') in calendar year 2020 for GLD
was 12.3 million shares and SLV was 33.1 million shares compared to
29.2 million shares for EWZ, 11.5 million shares for TLT, 8.2 million
shares for EWJ, and 30.5 million shares for HYG; \13\ the total shares
outstanding as of April 5, 2021 for GLD was 354.3 million and SLV was
619.3 million compared to 173.8 million for EWZ, 103.7 million for TLT,
185.3 million for EWJ, and 254.5 million for HYG; \14\ and the fund
market cap as of January 14, 2021 for GLD was $70,195.7 and SLV was
$14,228.4 million compared to $6,506.8 million for EWZ, $17,121.3
million for TLT, $13,860.7 million for EWJ, and $24,067.5 million for
HYG.\15\
---------------------------------------------------------------------------
\12\ See id. at 9-13. See also Exchange Rule 8.30,
Interpretation and Policy .07. Prior to the submission of Amendment
No. 1, the Exchange originally proposed to increase the position
limit for options on GLD to 1,000,000 contracts.
\13\ See Amendment No. 1, supra note 6, at 11-12.
\14\ See id. at 9-10.
\15\ See id. at 9-12. The Exchange also states that demand for
trading GLD and SLV options has increased whereas the position
limits for these products have remained the same, which may impact
the ability of Trading Permit Holders (``TPHs'') to effectively
hedge against exposure to physical gold and silver. See id. at 13.
---------------------------------------------------------------------------
In addition, the Exchange states that it recognizes that the spot
metal markets underlying SLV and GLD differ from the equities markets
underlying EWZ, EWJ, TLT, and HYG, but that it does not believe that
position limit increases for options on GLD and SLV will have any
adverse impact on the underlying spot gold and silver markets.\16\
Specifically, the Exchange states that gold futures currently have a
value of approximately $93.2 billion in open interest, have experienced
an ADV of approximately 264,000 contracts (equivalent to approximately
264 million GLD contracts) from January through May 2021, and currently
are subject to a position limit of 6,000 contracts, which is notionally
equivalent to 6,000,000 GLD option contracts.\17\ The Exchange
similarly states that silver futures currently have a value of
approximately $25.7 billion in open interest, have experienced an ADV
of approximately 93,000 contracts (equivalent to approximately 465
million SLV contracts) from January through May 2021, and currently are
subject to a position limit of 3,000 contracts, which is notionally
equivalent to 15,000,000 SLV option contracts.\18\ The Exchange
believes that the volume in and value of the gold and silver futures
markets indicate that the underlying markets are sufficiently large and
liquid enough to absorb potential price movements and large-sized
trades as a result of position limit increases for options on GLD and
SLV.\19\
---------------------------------------------------------------------------
\16\ See id. at 14.
\17\ See id. The Exchange understands that its market-makers use
both GLD and gold futures to hedge their GLD options positions,
which the Exchange believes provides for a balance across the gold-
related marketplaces, mitigating potential concerns that either the
underlying or the futures market might experience additional
pressure as a result of an increase in activity in the GLD options
space. See id.
\18\ See id.
\19\ See id. at 14-15.
---------------------------------------------------------------------------
The Exchange also provides data showing that the volume-weighted
average of the absolute value of deltas for GLD and SLV options trades
from March 2019 through June 2021 was approximately 0.34 per GLD
options trade and approximately 0.28 per SLV options trade.\20\ The
Exchange believes these low absolute value deltas indicate that
increases in GLD and SLV options trading would have minimal impact on
the ability of the underlying metals markets to absorb any additional
volume related to increased position limits and hedging activity.\21\
---------------------------------------------------------------------------
\20\ See id. at 15.
\21\ See id. at 15-16.
---------------------------------------------------------------------------
In support of its proposal to increase the position limits for
options on VXX and UVXY from 250,000 contracts to 500,000 contracts,
the Exchange, among other things, compares the trading characteristics
of VXX and UVXY to those of EWZ, TLT, EWJ, and HYG, all of which
currently have a position limit of 500,000 contracts.\22\ The Exchange
states that the ADV in calendar year 2020 for VXX was 39.3 million
shares and UVXY was 29.3 million shares compared to 29.2 million shares
for EWZ, 11.5 million shares for TLT, 8.2 million shares for EWJ, and
30.5 million shares for HYG; \23\ the total shares outstanding as of
April 14, 2021 for VXX was 110.8 million and UVXY was 228.7 million
compared to 173.8 million for EWZ, 103.7 million for TLT, 185.3 million
for EWJ, and 254.5 million for HYG; \24\ and the fund market cap as of
January 14, 2021 for VXX was $1,023 million and UVXY was $1,580.6
million compared to $6,506.8 million for EWZ, $17,121.3 million for
TLT, $13,860.7
[[Page 44120]]
million for EWJ, and $24,067.5 million for HYG.\25\ The Exchange also
states that the 2020 ADV for trading in VIX futures was approximately
192,000 contracts and VIX futures currently have a value of
approximately $7.6 billion in open interest.\26\ The Exchange believes
that its proffered data indicates that the market for VXX and UVXY is
sufficiently large and liquid enough to absorb price movements and
large-sized trades.\27\
---------------------------------------------------------------------------
\22\ See id. at 9-10, 19-20. See also Exchange Rule 8.30,
Interpretation and Policy .07. The Exchange also states that, while
VIX options share similar trading characteristics with options on
VXX and UVXY, VIX options are not currently subject to position
limits. See Amendment No. 1, supra note 6, at 20.
\23\ See Amendment No. 1, supra note 6, at 19-20.
\24\ See id. at 9-10.
\25\ See id.
\26\ See id. at 20.
\27\ See id.
---------------------------------------------------------------------------
The Exchange further states that the VIX futures that comprise both
VXX and UVXY are a perfect hedge to the underlying delta risk, but that
such futures are not recognized as hedges for options contract
equivalent of the net delta (``OCEND'') purposes.\28\ A TPH that is not
delta neutral must be hedged to the extent that the OCEND stays within
the applicable position limit.\29\ According to the Exchange, due to
the OCEND limitations and current position limits for options on VXX
and UVXY, heightened demand for liquidity in VXX and UVXY options can
cause TPHs that are hedged via the component futures to approach
position limits more rapidly.\30\ In order to stay within the
applicable position limit, TPHs may shift out of futures hedges into
hedges with options or may purchase or create shares of the underlying
ETPs. As a result, TPHs may be unable to provide the most concise
pricing to customers participating in these ETPs due to increased costs
associated with transacting in additional or alternative hedging
vehicles, and risk may concentrate in the ETP issuer rather than being
spread across multiple market participants, which may exacerbate an
already volatile market.\31\ The Exchange believes that increasing
position limits for options on VXX and UVXY may assist in maintaining a
fair and orderly market during times of higher market volatility, and
may reduce any potential additional impact on the futures markets as a
result of an increased demand (or, conversely, supply) for shares of
the ETPs during periods of higher market volatility or illiquidity.\32\
---------------------------------------------------------------------------
\28\ See id.
\29\ See id.
\30\ See id. at 20-21.
\31\ See id. at 21.
\32\ See id. at 21-22. In contrast, the Exchange believes that
the current position limits for VXX and UVXY options may, at times
in which there is higher volatility and, thus, higher demand in
connection with these options, reduce liquidity and create further
volatility. See id. at 21.
---------------------------------------------------------------------------
The Exchange further believes that the VIX futures markets,
including in the Trade at Settlement (``TAS'') VIX futures market,
wherein VXX and UVXY are primarily rebalanced, maintain robust, liquid
markets such that they can sufficiently handle any additional options
delta exposure and resulting increase in volatility options trading,
including during the rebalancing period.\33\ Specifically, the Exchange
states that it has observed that the ADV in the VIX futures TAS market
has grown from approximately 32,200 contracts in 2018 to approximately
42,200 contracts in 2021.\34\
---------------------------------------------------------------------------
\33\ See id. at 22.
\34\ See id.
---------------------------------------------------------------------------
In support of its proposal to increase the position limits for
options on GDX from 250,000 contracts to 500,000 contracts, the
Exchange, among other things, compares the trading characteristics of
GDX to those of EWZ, TLT, EWJ, and HYG, all of which currently have a
position limit of 500,000 contracts.\35\ The Exchange states that the
ADV in calendar year 2020 for GDX was 39.4 million shares compared to
29.2 million shares for EWZ, 11.5 million shares for TLT, 8.2 million
shares for EWJ, and 30.5 million shares for HYG; \36\ the total shares
outstanding as of April 5, 2021 for GDX was 419.8 million compared to
173.8 million for EWZ, 103.7 million for TLT, 185.3 million for EWJ,
and 254.5 million for HYG; \37\ and the fund market cap as of January
14, 2021 for GDX was $16,170.5 million compared to $6,506.8 million for
EWZ, $17,121.3 million for TLT, $13,860.7 million for EWJ, and
$24,067.5 million for HYG.\38\ The Exchange also states that many of
the Brazil-based gold mining constituents included in GDX are also
included in EWZ, and that the Exchange has not identified any issues
with the continued listing and trading of EWZ options or any adverse
market impact on EWZ in connection with the current 500,000 position
limit in place for EWZ options.\39\ Further, the Exchange states that
the components of the NYSE Arca Gold Miners Index--the price and yield
performance of which GDX seeks to replicate as closely as possible--can
be used to create the GDX ETF, and currently must each have a market
capitalization greater than $750 million, an ADV of at least 50,000
shares, and an average daily value traded of at least $1 million in
order to be eligible for inclusion in the index.\40\
---------------------------------------------------------------------------
\35\ See id. at 9-10, 18. See also Exchange Rule 8.30,
Interpretation and Policy .07.
\36\ See Amendment No. 1, supra note 6, at 18.
\37\ See id. at 9-10.
\38\ See id. at 9-10, 18.
\39\ See id. at 18.
\40\ See id. at 17-18.
---------------------------------------------------------------------------
In support of its proposal to increase the position limit for LQD
from 250,000 contracts to 500,000 contracts, the Exchange, among other
things, compared the trading characteristics of LQD to those of EWZ,
TLT, and EWJ, all of which currently have a position limit of 500,000
contracts.\41\ The Exchange provides data demonstrating that the ADV in
calendar year 2020 for LQD was 14.1 million shares compared to 29.2
million shares for EWZ, 11.5 million shares for TLT, and 8.2 million
shares for EWJ; \42\ the total shares outstanding as of April 5, 2021
for LQD was 308.1 million compared to 173.8 million for EWZ, 103.7
million for TLT, and 185.3 million for EWJ; \43\ and the fund market
cap as of January 14, 2021 for LQD was $54,113.7 million compared to
$6,506.8 million for EWZ, $17,121.3 million for TLT, and $13,860.7
million for EWJ.\44\ The Exchange also states that LQD tracks the
performance of the Markit iBoxx USD Liquid Investment Grade Index,
which is an index designed as a subset of the broader U.S. dollar-
denominated corporate bond market and can be used in creating a basket
of securities that equate to the LQD ETF, and which is comprised of
over 8,000 bonds for which the outstanding face value of each must be
greater than or equal to $2 billion.\45\
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\41\ See id. at 9-10, 16-17. See also Exchange Rule 8.30,
Interpretation and Policy .07.
\42\ See Amendment No. 1, supra note 6, at 16.
\43\ See id. at 9-10.
\44\ See id. at 9-10, 16.
\45\ See id. at 16-17.
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The Exchange states that the current position limits for the
options subject to the proposal may have impeded the ability of market
makers to make markets on the Exchange.\46\ Specifically, the Exchange
avers, the proposal is designed to encourage liquidity providers to
provide additional liquidity to the Exchange and other market
participants to shift liquidity from over-the-counter markets onto the
Exchange, which, it believes, would enhance the process of price
discovery conducted on the Exchange through increased order flow.\47\
The proposal also would benefit market participants, the Exchange
maintains, by providing them with the ability to more effectively
execute their trading and hedging activities.\48\
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\46\ See id. at 5.
\47\ See id. at 5, 27-28.
\48\ See id. at 5, 28.
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With regard to the concerns that position limits generally are
meant to address, the Exchange represents that the structure of the
underlying ETPs subject to this proposal, the considerable market
capitalization of the ETPs and their underlying
[[Page 44121]]
component securities, and the liquidity of the market for options on
these ETPs and the underlying component securities mitigate concerns
regarding potential manipulation of the products and disruption of the
underlying markets due to the increased position limits.\49\ The
Exchange also describes: (i) The creation and redemption process for
ETFs (and a similar process for the ETN to which the proposal relates);
\50\ (ii) the arbitrage activity that ensues when such instruments are
overpriced or are trading at a discount to the securities on which they
are based and helps to keep the instrument's price in line with the
value of its underlying portfolio; and (iii) how these processes, in
the Exchange's view, serve to mitigate the potential price impact of
the ETF or ETN shares that might otherwise result from increased
position limits.\51\
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\49\ See id.
\50\ With regard to the ETN option included in the proposal--
VXX--the Exchange stated that there is no direct analogue to ETF
``creation,'' but observed that the ETN issuer may sell additional
VXX shares from its inventory. Regardless of whether VXX shares are
redeemed or new VXX shares are issued, the Exchange stated, an
issuer may transact in VIX futures in order to hedge its exposure,
resulting in an arbitrage process similar to the one described for
ETFs described above, thereby helping to keep an ETN's price in line
with the value of its underlying index. See id. at 23.
\51\ See id. at 22-24.
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In addition, the Exchange states that the options reporting
requirements of Exchange Rule 8.43 would continue to be applicable to
the options subject to this proposal.\52\ As set forth in Exchange Rule
8.43(a), each TPH must report to the Exchange certain information in
relation to any customer who, acting alone, or in concert with others,
on the previous business day maintained aggregate long or short
positions on the same side of the market of 200 or more contracts in
any single class of option contracts dealt in on the Exchange.\53\
Further, Exchange Rule 8.43(b) requires each TPH (other than an
Exchange market-maker or designated primary market-maker) \54\ that
maintains a position in excess of 10,000 non-FLEX equity option
contracts on the same side of the market, on behalf of its own account
or for the account of a customer, to report to the Exchange information
as to whether such positions are hedged, and provide documentation as
to how such contracts are hedged.\55\
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\52\ See id. at 24-25.
\53\ The report must include, for each such class of options,
the number of option contracts comprising each such position and, in
the case of short positions, whether covered or uncovered. See
Exchange Rule 8.43(a).
\54\ According to the Exchange, market-makers (including
designated primary market-makers) are exempt from the referenced
reporting requirement because market-maker information can be
accessed through the Exchange's market surveillance systems. See
Amendment No. 1, supra note 6, at 25.
\55\ According to the Exchange, this information would include,
but would not be limited to, the option position, whether such
position is hedged and, if so, a description of the hedge. See id.
at 24-25.
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The Exchange also represents that the existing surveillance
procedures and reporting requirements at the Exchange and other self-
regulatory organizations are capable of properly identifying disruptive
and/or manipulative trading activity.\56\ According to the Exchange,
its surveillance procedures utilize daily monitoring of market activity
via automated surveillance techniques to identify unusual activity in
both options and the underlying products.\57\ In addition, the Exchange
states that its surveillance procedures have been effective for the
surveillance of trading in the options subject to this proposal, and
will continue to be employed.\58\
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\56\ See id. at 25.
\57\ See id. at 25-26.
\58\ See id. at 26 n.36. The Exchange represents that non-U.S.
component securities that are not subject to a comprehensive
surveillance agreement do not, in the aggregate, represent more than
50% of the weight of any of the underlying ETPs that are ETFs. See
id. at 7.
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The Exchange further states its belief 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 unhedged position in the options subject to this
proposal.\59\ Current margin and risk-based haircut methodologies, the
Exchange states, 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 customer.\60\ In
addition, the Exchange notes that the Commission's net capital rule,
Rule 15c3-1 under the Act,\61\ imposes a capital charge on TPHs to the
extent of any margin deficiency resulting from the higher margin
requirement.\62\
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\59\ See id. at 26.
\60\ See id.
\61\ 17 CFR 240.15c3-1.
\62\ See Amendment No. 1, supra note 6, at 26.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-CBOE-
2021-029, as Modified by Amendment No. 1, and Grounds for Disapproval
Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \63\ to determine whether the proposed rule
change, as modified by Amendment No. 1, should be approved or
disapproved. Institution of proceedings is appropriate at this time in
view of the legal and policy issues raised by the proposal, as
discussed below. Institution of proceedings does not indicate that the
Commission has reached any conclusions with respect to any of the
issues involved. Rather, as described below, the Commission seeks and
encourages interested persons to provide comment on the proposed rule
change, as modified by Amendment No. 1.
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\63\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\64\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of, and input from commenters with respect to, the consistency
of the proposed rule change, as modified by Amendment No. 1, with the
Act and, in particular, Section 6(b)(5) of the Act,\65\ which requires
that the rules of a national securities exchange be designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to remove impediments to and perfect the
mechanism of a free and open market and a national market system and,
in general, to protect investors and the public interest, and not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\64\ Id.
\65\ 15 U.S.C. 78f(b)(5).
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Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the [Act]
and the rules and regulations issued thereunder . . . is on the self-
regulatory organization that proposed the rule change.'' \66\ The
description of a proposed rule change, its purpose and operation, its
effect, and a legal analysis of its consistency with applicable
requirements must all be sufficiently detailed and specific to support
an affirmative Commission finding,\67\ and any failure of a self-
regulatory organization to provide this information may result in the
Commission not having a sufficient basis to make an affirmative finding
that a proposed rule change is consistent with the Act and the
applicable rules and regulations.\68\
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\66\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\67\ See id.
\68\ See id.
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Position and exercise limits serve as a regulatory tool designed to
address manipulative schemes and adverse
[[Page 44122]]
market impact surrounding the use of options.\69\ As discussed above,
the Exchange has proposed to increase the position and exercise limits
for options on GLD, SLV, LQD, GDX, VXX, and UVXY from 250,000 contracts
to 500,000 contracts. The proposed doubling of the position and
exercise limits for these options would be a substantial increase from
current levels, and raises the potential for adverse impacts in the
underlying markets implicated by this proposal. The initial proposal
did not provide sufficient information to explain why all of these
underlying markets are sufficiently comparable to the markets
underlying the option products currently subject to a 500,000 contract
position limit or sufficient information to independently support a
finding that all of the proposed position limit increases would not
have an adverse market impact. Accordingly, the initial proposal did
not provide an adequate basis for the Commission to conclude that the
proposal would be consistent with Section 6(b)(5) of the Act.
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\69\ See, e.g., Securities Exchange Act Release No. 68086
(October 23, 2012), 77 FR 65600 (October 29, 2012) (SR-CBOE-2012-
066).
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The Exchange recently provided additional analysis and
justification for its proposal in Amendment No. 1. Amendment No. 1 was
submitted shortly before the expiration of the statutory deadline for
the Commission to act on the Exchange's proposal, leaving the
Commission, as well as any potential commenters, with insufficient time
to carefully consider the new data and analysis before the deadline. In
the proceedings that the Commission is instituting today, the
Commission will be evaluating, among other things, the Exchange's
amended statements, and invites comment on the extent to which they
justify approval of the proposal.
IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their data, views, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposed rule
change, as modified by Amendment No. 1, is consistent with Section
6(b)(5), or any other provision of the Act, or the rules and
regulations thereunder. Although there do not appear to be any issues
relevant to approval or disapproval which would be facilitated by an
oral presentation of data, views, and arguments, the Commission will
consider, pursuant to Rule 19b-4 under the Act,\70\ any request for an
opportunity to make an oral presentation.\71\
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\70\ 17 CFR 240.19b-4.
\71\ Section 19(b)(2) of the Act, as amended by the Securities
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants to
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is
appropriate for consideration of a particular proposal by a self-
regulatory organization. See Securities Acts Amendments of 1975,
Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75,
94th Cong., 1st Sess. 30 (1975).
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The Commission asks that commenters address the sufficiency and
merit of the Exchange's statements in support of the proposal, as
modified by Amendment No. 1, in addition to any other comments they may
wish to submit about the proposed rule change. In particular, the
Commission seeks comment on whether the position and exercise limit for
each option as proposed could impact markets adversely.
Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change, as modified by
Amendment No. 1, should be approved or disapproved by September 1,
2021. Any person who wishes to file a rebuttal to any other person's
submission must file that rebuttal by September 15, 2021. 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 No. SR-CBOE-2021-029 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 No. SR-CBOE-2021-029. The 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 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 No. SR-CBOE-2021-029 and should be submitted by
September 1, 2021. Rebuttal comments should be submitted by September
15, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\72\
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\72\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-17086 Filed 8-10-21; 8:45 am]
BILLING CODE 8011-01-P
