Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Increase Position and Exercise Limits for Options on Apple Inc. Stock (“AAPL”), 72568-72572 [2022-25664]
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Federal Register / Vol. 87, No. 226 / Friday, November 25, 2022 / Notices
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–GEMX–2022–10 and
should be submitted on or before
December 16, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.69
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022–25673 Filed 11–23–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96353; File No. SR–CBOE–
2022–057]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing of a
Proposed Rule Change To Increase
Position and Exercise Limits for
Options on Apple Inc. Stock (‘‘AAPL’’)
November 18, 2022.
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 November
7, 2022, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to increase
position and exercise limits for options
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69 17
CFR 200.30–3(a)(12).
15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
18:43 Nov 23, 2022
Rules of Cboe Exchange, Inc.
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Rule 8.30. Position Limits
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Interpretations and Policies
.01 No change.
.02 Option Contract Limits.
(a)–(f) No change.
(g) Notwithstanding paragraphs (a) through
(e) above, the position limit for AAPL options
is 1,000,000 option contracts. However, if the
most recent six-month trading volume of
AAPL stock totals less than 200,000,000
shares or the most recent six-month trading
volume of AAPL stock totals less than
150,000,000 shares and AAPL stock has
fewer than 600,000,000 shares currently
outstanding, the position limit for AAPL
options will be determined as set forth in
paragraphs (a) through (e) above.
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Rule 8.42. Exercise Limits
(a) General. Except with the prior
permission of the President or his designee,
to be confirmed in writing, no Trading Permit
Holder shall exercise, for any account in
which it has an interest or for the account of
any customer, a long position in any option
contract where such Trading Permit Holder
or customer, acting alone or in concert with
others, directly or indirectly:
(1) has or will have exercised within any
five consecutive business days aggregate long
positions in any class of options dealt in on
the Exchange in excess of 25,000 or 50,000
or 75,000 or 200,000, or 250,000 or 1,000,000
option contracts or such other number of
options contracts as may be fixed from time
to time by the Exchange as the exercise limit
for that class of options; or
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The text of the proposed rule change
is [also] available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/CBOELegalRegulatory
Home.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
1
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on Apple Inc. stock (‘‘AAPL’’). The text
of the proposed rule change is provided
below.
(additions are italicized; deletions are
[bracketed])
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concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Position limits are designed to
address potential manipulative schemes
and adverse market impacts
surrounding the use of options, such as
disrupting the market in the security
underlying the options. While position
limits should address and discourage
the potential for manipulative schemes
and adverse market impact, if such
limits are set too low, participation in
the options market may be discouraged.
The Exchange believes that position
limits must therefore be balanced
between mitigating concerns of any
potential manipulation and the cost of
inhibiting potential hedging activity that
could be used for legitimate economic
purposes.
Cboe Options Rule 8.30 sets forth the
position limits for equity options.3
Specifically, Rule 8.30 provides that the
position limits for equity options are
25,000 or 50,000 or 75,000 or 200,000 or
250,000 option contracts (with
adjustments for splits, re-capitalizations,
etc.) on the same side of the market or
such other number of option contracts
as may be fixed from time to time by the
Exchange. Interpretation and Policy .02
to Rule 8.30 describes how the
Exchange determines which of the five
position limit amounts will apply to an
equity option class. Specifically, the
position limit applicable to a class is
determined based on the trading volume
and outstanding shares of the
underlying security.
3 Pursuant to Rule 8.42, the exercise limit for an
equity option is the same as the position limit
established in Rule 8.30 for that equity option.
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Federal Register / Vol. 87, No. 226 / Friday, November 25, 2022 / Notices
When an underlying security
undergoes a stock split, the number of
outstanding options is proportionately
increased and the exercise price is
proportionately decreased.4 For
example, if a security undergoes a 4–1
stock split, and before the stock split, an
investor holds one option on 100 shares
of stock ABC with an exercise price of
$100, after adjustment for the split, the
investor will hold four ABC options,
each on 100 shares and each with an
exercise price of $25. In response to this
increase in option positions that results
from a stock split for the underlying, if
an underlying security undergoes a
stock split, the position (and exercise)
limit for the option overlying that
security is multiplied by the number of
shares issued per single outstanding
share as part of the stock split. Using the
same 4–1 example, if the position limit
for an option before the stock split is
250,000, the position limit for the
option overlying that security will be
multiplied by four to 1,000,000. This
will prevent investors holding the
maximum positions from immediately
being over the position limit at the time
of the stock split. However, this position
limit increase is temporary and lasts
until the last outstanding option
position at the time of the stock split has
expired, at which time the position limit
reverts to the pre-stock split level.
Based on the criteria in Rule 8.30,
Interpretation and Policy .02, the
position limit for AAPL options is
currently 250,000 (and pursuant to Rule
8.42, the exercise limit is also 250,000).
It was also 250,000 at the time of the
AAPL 4–1 stock split on August 31,
2020, at which time the position limit
was increased to 1,000,000. The
position limit for AAPL options
remained at 1,000,000, until September
16, 2022 (when the last option position
that was outstanding at the time of the
stock split expired), at which time the
position limit reverted back to 250,000.
However, given the significant activity
in AAPL options (and the underlying
security), the Exchange understands that
numerous customers held more than
250,000 AAPL option contracts at that
time, putting their holdings above the
position limit. The Exchange further
understands from these customers that
the reduced position limit may be
impeding trading activity and ability to
implement their investment strategies in
AAPL options, such as use of effective
hedging vehicles or income generating
strategies (e.g., buy-write or put-write),
and the ability of market-makers to
make liquid markets with tighter
spreads in these options, potentially
causing the transfer of volume to overthe-counter (‘‘OTC’’) markets. OTC
transactions occur through bilateral
agreements, the terms of which are not
publicly disclosed to the marketplace.
As such, OTC transactions do not
contribute to the price discovery process
on a public exchange or other lit
markets. Therefore, the Exchange
believes it is appropriate to increase the
AAPL position limit back to 1,000,000
option contracts 5 so market participants
may continue to trade AAPL options in
the same manner and at the same levels
they have been for the prior two years.
The Exchange believes this may enable
liquidity providers to maintain liquidity
levels on the Exchange and other market
participants to continue to trade on the
Exchange rather than shift their volume
to the OTC markets. The Exchange
believes the larger market capitalization
of AAPL stock, as well as the continued
highly liquid market for this security
since the stock split, reduces the
concerns for potential market
manipulation and/or disruption in the
underlying market upon increasing
position limits, while the continued
demand for trading AAPL options for
legitimate economic purposes despite
the reduced position limit warrants
reversion to the position limit that
existed for the prior two years.
As stated above, position (and
exercise) limits are intended to prevent
the establishment of options positions
that can be used to or potentially create
incentives to manipulate the underlying
market so as to benefit options
positions. The Commission has
recognized that these limits are
designed to minimize the potential for
mini-manipulations and for corners or
squeezes of the underlying market, as
well as serve to reduce the possibility
for disruption of the options market
itself, especially in illiquid classes.6 As
demonstrated below, AAPL stock (and
the overlying options) is highly liquid.
The Exchange notes that the proposed
position limit of 1,000,000 contracts for
AAPL options, which was the AAPL
options position limit for two years, is
the same as existing position limits for
options on the iShares Russell 2000 ETF
(‘‘IWM’’), the iShares MSCI Emerging
Markets ETF (‘‘EEM’’), iShares China
Large-Cap ETF (‘‘FXI’’), and iShares
MSCI EAFE ETF (‘‘EFA’’).7 To support
the proposed position limit increase, the
Exchange considered the liquidity of the
underlying security, the value of the
underlying security and relevant
marketplace, the AAPL share and option
volume, and, the liquidity of the abovereferenced exchange-traded products
(‘‘ETPs’’) that currently have position
limits of 1,000,000.
The below table shows the average
daily volume (‘‘ADV’’) of each of shares
of and option contracts on AAPL stock
traded during specified time periods
prior to the 2020 stock split, between
the stock split and the position limit
reversion, and since the position limit
reversion.
ADV
(shares)
Date range
January 3, 2020 through August 31, 2020 (date of stock split) ..............................................................
September 1, 2020 through December 31, 2021 ...................................................................................
January 1, 2022 through September 16, 2022 (date of position limit reversion) ...................................
September 17, 2022 through October 24, 2022 (time since position limit reversion) ............................
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170,468,316
101,001,141
88,458,041
91,683,969
ADV
(option contracts)
870,304
1,661,627
1,354,430
1,425,372
Additionally, as of October 24, 2022,
there were 16.07 billion outstanding
shares of AAPL stock, which had a per
share price of $149.45 on that date,
giving it a market capitalization of $2.4
trillion.
For comparison, below is the same
data for IWM, EEM, FXI, and EFA from
January 1, 2022 through October 24,
2022, with outstanding shares, share
value (net asset value (‘‘NAV’’), and
market capitalization (fund value) as of
4 See Options Clearing Corporation (‘‘OCC’’)
Bylaws, Article VI, Section 11A(a); and
Characteristics and Risks of Standardized Options
at 19.
5 See proposed Rule 8.30, Interpretation and
Policy .02(g).
6 See Securities Exchange Act Release No. 67672
(August 15, 2012), 77 FR 50750 (August 22, 2012)
(SR–NYSEAmex–2012–29).
7 See Cboe Options Rule 8.30, Interpretation and
Policy .07, which provides that the position limits
for options on shares or other securities that
represent interests in registered investment
companies organized as open-end management
investment companies, unit investment trusts, or
similar entities that satisfy the criteria set forth in
Rule 4.3, Interpretation and Policy .06 are the same
as equity options pursuant to Rule 8.30, except for
certain securities listed in Interpretation and Policy
.07.
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Federal Register / Vol. 87, No. 226 / Friday, November 25, 2022 / Notices
October 24, 2022. While these are ETPs
as opposed to stocks, ETP shares trade
in the same manner as stocks and other
than the few set forth in Rule 8.30,
Interpretation and Policy .07, position
limits for options on ETPs are
ADV
(ETF shares)
Product
IWM ......................................................................................
EEM .....................................................................................
FXI ........................................................................................
EFA ......................................................................................
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The Exchange believes that, overall,
the liquidity in the AAPL shares and in
their overlying options, AAPL’s
significantly large market capitalization,
and the overall market landscape for
AAPL stock and options support the
proposal to increase its position limit.
Given the robust liquidity in and value
of AAPL stock, the Exchange does not
anticipate that the proposed increase in
the position limit would create
significant price movements as the
relevant market is large enough to
adequately absorb potential price
movements that may be caused by larger
trades.
The proposed rule change is based on
current trading statistics of AAPL
options and stock. If the volume of
trading were to significantly decline, the
Exchange appreciates the need to adjust
the proposed 1,000,000 position limit to
address that decline in trading activity
to reduce the changes [sic] of potential
manipulation. Therefore, the Exchange
proposes to add to proposed Rule 8.30,
Interpretation and Policy .02(g) that if
the most recent six-month trading
volume of AAPL stock totals less than
200,000,000 shares or the most recent
six-month trading volume of AAPL
stock totals less than 150,000,000 shares
and AAPL stock has fewer than
600,000,000 shares currently
outstanding, the position limit for AAPL
options will be determined as set forth
in paragraphs (a) through (e) of
Interpretation and Policy .02.8 These
proposed levels are twice the current
volume and share levels of an
underlying security for the overlying
8 Pursuant to Rule 8.30, Interpretation and Policy
.02(f), every six months, the Exchange will review
the status of underlying securities to determine
which limit should apply. A higher limit will be
effective on the date set by the Exchange, while any
change to a lower limit will take effect after the last
expiration then trading, unless the requirement for
the same or a higher limit is met at the time of the
intervening six-month review. This will continue to
apply to AAPL options, and if the trading levels are
below the criteria in proposed paragraph (g) at the
time of this review, AAPL options will be subject
to the standard position limits applicable to other
equity options.
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18:43 Nov 23, 2022
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ADV
(option
contracts)
31,358,610
47,767,767
39,007,654
29,953,566
Surveillance and Reporting
Requirements
The Exchange believes that increasing
the position limit for AAPL options
would lead to a more liquid and
competitive market environment for
these options, which will benefit
customers that trade these options. The
reporting requirement for AAPL options
would remain unchanged. Thus, the
Exchange would still require that each
TPH or TPH organization that maintains
positions in AAPL options on the same
side of the market, for its own account
or for the account of a customer, report
certain information to the Exchange.
This information would include, but
would not be limited to, the options’
positions, whether such positions are
hedged and, if so, a description of the
hedge(s). Market-Makers 9 (including
Designated Primary Market-Makers
(‘‘DPMs’’)) 10 would continue to be
exempt from this reporting requirement,
however, the Exchange may access
Market-Maker position information.11
Moreover, the Exchange’s requirement
that TPHs file reports with the Exchange
for any customer who held aggregate
large long or short positions on the same
side of the market of 200 or more option
9 A Market-Maker is a ‘‘Trading Permit Holder
registered with the Exchange pursuant to Rule 3.52
for the purpose of making markets in option
contracts traded on the Exchange and that has the
rights and responsibilities set forth in Chapter 5,
Section D of the Rules.’’ See Rule 1.1.
10 A Designated Primary Market-Maker is a ‘‘TPH
organization that is approved by the Exchange to
function in allocated securities as a Market-Maker
(as defined in Rule 8.1) and is subject to the
obligations under Rule 5.54 or as otherwise
provided under the rules of the Exchange.’’ See
Rule 1.1.
11 The Options Clearing Corporation (‘‘OCC’’)
through the Large option Position Reporting
(‘‘LOPR’’) system acts as a centralized service
provider for TPH compliance with position
reporting requirements by collecting data from each
TPH or TPH organization, consolidating the
information, and ultimately providing detailed
listings of each TPH’s report to the Exchange, as
well as Financial Industry Regulatory Authority,
Inc. (‘‘FINRA’’), acting as its agent pursuant to a
regulatory services agreement (‘‘RSA’’).
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Shares outstanding
(millions)
840,721
183,342
159,703
123,262
option to be eligible for the 250,000
option contract position limit.
PO 00000
determined in the same manner as
options on stocks.
291.10
578.25
176.70
705.60
Fund market
cap
(USD)
(billions)
50.49
19.62
3.80
41.83
Share value
(USD)
173.44
33.93
21.53
59.28
contracts of any single class for the
previous day will remain at this level
for AAPL options and will continue to
serve as an important part of the
Exchange’s surveillance efforts.12
The Exchange believes that the
existing surveillance procedures and
reporting requirements at the Exchange
and other SROs are capable of properly
identifying disruptive and/or
manipulative trading activity. The
Exchange also represents that it has
adequate surveillances in place to detect
potential manipulation, as well as
reviews in place to identify continued
compliance with the Exchange’s listing
standards. These procedures utilize
daily monitoring of market activity via
automated surveillance techniques to
identify unusual activity in both options
and the underlyings, as applicable.13
The Exchange also notes that large stock
holdings must be disclosed to the
Commission by way of Schedules 13D
or 13G,14 which are used to report
ownership of stock which exceeds 5%
of a company’s total stock issue and
may assist in providing information in
monitoring for any potential
manipulative schemes.
The Exchange believes that the
current financial requirements imposed
by the Exchange and by the Commission
adequately address concerns regarding
potentially large, unhedged positions in
AAPL options. Current margin and riskbased haircut methodologies serve to
limit the size of positions maintained by
any one account by increasing the
margin and/or capital that a TPH must
maintain for a large position held by
itself or by its customer.15 In addition,
Rule 15c3–1 16 imposes a capital charge
on TPHs to the extent of any margin
deficiency resulting from the higher
margin requirement.
See Rule 8.43 for reporting requirements.
The Exchange believes these procedures have
been effective for the surveillance of trading AAPL
options and will continue to employ them.
14 17 CFR 240.13d–1.
15 See Rule 10.3 for a description of margin
requirements.
16 17 CFR 240.15c3–1.
12
13
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Federal Register / Vol. 87, No. 226 / Friday, November 25, 2022 / Notices
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.17 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 18 requirements that the rules of
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) 19 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange believes that the
proposed increase in the position limit
for AAPL options will remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, protect investors and the public
interest, because it will provide market
participants with the ability to execute
their trading and hedging activities and
use AAPL options to achieve investment
strategies in the same manner and at the
same levels they have been since the
2020 stock split. Also, increasing the
position limit may allow Market-Makers
to maintain their liquidity in AAPL
options in amounts commensurate with
the continued high consumer demand
in the AAPL options market. The
proposed position limit increase may
also encourage other liquidity providers
to continue to trade on the Exchange
rather than shift their volume to OTC
markets, which will enhance the
process of price discovery conducted on
the Exchange through increased order
flow.
In addition, the Exchange believes
that the considerable market
capitalization of AAPL stock and the
liquidity of the markets for AAPL stock
and options will mitigate concerns
regarding potential manipulation of the
products and/or disruption of the
underlying markets upon increasing the
15 U.S.C. 78f(b).
15 U.S.C. 78f(b)(5).
19 Id.
17
18
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relevant position limits. The Exchange
has not observed manipulation or
disruption of the AAPL stock or options
market in the past two years while the
position limit was 1,000,000. As a
general principle, increases in market
capitalization, active trading volume,
and deep liquidity of securities do not
lead to manipulation and/or disruption.
The Exchange does not believe that the
AAPL stock or options markets would
become susceptible to manipulation
and/or disruption as a result of
permanently increasing the position
limit to that level. Indeed, the
Commission has previously expressed
the belief that not just increasing, but
removing, position and exercise limits
may bring additional depth and
liquidity to the options markets without
increasing concerns regarding
intermarket manipulation or disruption
of the options or the underlying
securities.20
Further, the Exchange notes that the
proposed rule change to increase
position limits for select actively traded
options is not novel. The Commission
has approved similar proposed rule
changes by the Exchange to increase
position limits for options on similar,
highly liquid and actively traded
ETPs.21 While those are ETPs and AAPL
is stock, pursuant to Rule 8.30, the
position limits for options on stock and
ETPs are generally calculated in the
same manner and based on trading
volume and market capitalization of the
underlying. As demonstrated above, the
AAPL stock and options ADV (both
before and after the stock split) and the
AAPL market capitalization are
significantly higher than that of ETPs for
the position limit for the overlying
options, which the Commission
previously approved to be increased to
1,000,000. While the ADV of AAPL
stock is lower than it was prior to the
2020 stock split, it is still more than
50% of the pre-stock split ADV and is
currently approximately two to three
times higher than the ADV of IWM,
EEM, FXI, and EFA, the options on
which are subject to a 1,000,000
position limit. Additionally, the ADV of
AAPL options since the 2020 stock split
is almost double the ADV prior to the
stock split and is currently anywhere
from almost twice to more than ten
20 See Securities Exchange Act Release No. 40969
(January 22, 1999), 64 FR 4911, 4913 (February 1,
1999) (SR–CBOE–98–23).
21 See Securities Exchange Act Release Nos.
93525 (November 4, 2021), 86 FR 62584 (November
10, 2021) (SR–CBOE–2021–029); 88768 (April 29,
2020), 85 FR 26736 (May 5, 2020) (SR–CBOE–2020–
015); 83415 (June 12, 2018), 83 FR 28274 (June 18,
2018) (SR–CBOE–2018–042); and 68086 (October
23, 2012), 77 FR 65600 (October 29, 2012) (SR–
CBOE–2012–066).
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72571
times the ADV of IWM, EEM, FXI, and
EFA options, which are currently
subject to a position limit four times
higher than that of AAPL options.
Further, the market capitalization of
AAPL stock is approximately $2.4
trillion (as of October 24, 2022),
compared to the market capitalizations
of approximately $50.49 billion, $19.62
billion, $3.80 billion, and $41.83 billion
for IWM, EEM, FXI, and EFA,
respectively (as of that same date).
Given the significantly higher levels of
AAPL options and stock trading than
that of the above-referenced ETPs and
the overlying options, and the
considerably higher market
capitalization of AAPL stock compared
to that of the ETPs, the Exchange
believes it is reasonable and appropriate
to increase the position limit of AAPL
options to the same position limit of
1,000,000 that currently exists for these
ETP options. The proposed rule change
also includes criteria for the AAPL
option position limit to be determined
in the same manner as other equity
options in the event AAPL stock trading
volume and outstanding shares
significantly declines in the future. This
would occur if those numbers were less
than twice the current criteria an
underlying security needs to satisfy for
the overlying option to be eligible for
the 250,000 position limit. The
Exchange believes this is a reasonable
level to cause the position limit to revert
back to the standard position limit
levels in order to reduce the likelihood
of potential manipulation.
The Exchange’s surveillance and
reporting safeguards continue to be
designed to deter and detect possible
manipulative behavior that might arise
from increasing or eliminating position
and exercise limits in certain classes.
The Exchange believes that the current
financial requirements imposed by the
Exchange and by the Commission
adequately address concerns regarding
potentially large, unhedged positions in
AAPL options, further promoting just
and equitable principles of trading, the
maintenance of a fair and orderly
market, and the protection of investors.
As noted above, the Exchange has not
observed manipulation or disruption of
the AAPL stock or options market in the
past two years while the position limit
was 1,000,000, nor does it believe that
the AAPL stock or options markets
would become susceptible to
manipulation and/or disruption as a
result of permanently increasing the
position limit to that same level.
E:\FR\FM\25NON1.SGM
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72572
Federal Register / Vol. 87, No. 226 / Friday, November 25, 2022 / Notices
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not believe the proposed
rule change will impose any burden on
intramarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act because the
increased position limit (and exercise
limit) will be available to all market
participants and apply to each in the
same manner. The Exchange believes
that the proposed rule change will
provide additional opportunities for
market participants to continue to
efficiently achieve their investment and
trading objectives for AAPL options on
the Exchange.
The Exchange does not believe that
the proposed rule change will impose
any burden on intermarket competition
that is not necessary or appropriate in
furtherance of the Act. On the contrary,
the Exchange believes the proposal
promotes competition because it may
maintain order flow on exchanges,
which would in turn compete amongst
each other for those orders, and prevent
a transfer of trading activity to the
nontransparent OTC market.22 The
Exchange believes market participants
would benefit from being able to trade
options with increased position limits
in an exchange environment in several
ways, including but not limited to the
following: (1) enhanced efficiency in
initiating and closing out position; (2)
increased market transparency; and (3)
heightened contra-party
creditworthiness due to the role of OCC
as issuer and guarantor. The Exchange
notes that other options exchanges may
choose to file similar proposals with the
Commission to increase the position
limit on AAPL options.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
khammond on DSKJM1Z7X2PROD with NOTICES
The Exchange neither solicited nor
received comments on the proposed
rule change.
22 Additionally, several other options exchanges
have the same position limits as the Exchange, as
they incorporate by reference to the Exchange’s
position limits, and as a result the position limits
for options on AAPL options will increase at those
exchanges. For example, Nasdaq Options position
limits are determined by the position limits
established by the Exchange. See Nasdaq Stock
Market LLC Rules, Options 9, Sec. 13 (Position
Limits).
VerDate Sep<11>2014
18:43 Nov 23, 2022
Jkt 259001
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will:
A. by order approve or disapprove
such proposed rule change, or
B. institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
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–2022–057, and
should be submitted on or before
December 16,2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Sherry R. Haywood,
Assistant Secretary.
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:
[FR Doc. 2022–25664 Filed 11–23–22; 8:45 am]
Electronic Comments
[Release No. 34–96355; File No. SR–BOX–
2022–29]
• 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–2022–057.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CBOE–2022–057. 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
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
PO 00000
Frm 00131
Fmt 4703
Sfmt 4703
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend IM–5050–6
(Short Term Option Series Program)
November 18, 2022.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
16, 2022, BOX Exchange LLC (the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend IM–
5050–6 (Short Term Option Series
Program). The text of the proposed rule
change is available from the principal
office of the Exchange, at the
Commission’s Public Reference Room
and also on the Exchange’s internet
website at https://
rules.boxexchange.com/rulefilings.
17 CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
23
1 15
E:\FR\FM\25NON1.SGM
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]]>Agencies
[Federal Register Volume 87, Number 226 (Friday, November 25, 2022)]
[Notices]
[Pages 72568-72572]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-25664]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96353; File No. SR-CBOE-2022-057]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Increase Position and Exercise
Limits for Options on Apple Inc. Stock (``AAPL'')
November 18, 2022.
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 November 7, 2022, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe
Options'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to increase position and exercise limits for options on Apple Inc.
stock (``AAPL''). The text of the proposed rule change is provided
below.
(additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe Exchange, Inc.
* * * * *
Rule 8.30. Position Limits
* * * * *
Interpretations and Policies
.01 No change.
.02 Option Contract Limits.
(a)-(f) No change.
(g) Notwithstanding paragraphs (a) through (e) above, the
position limit for AAPL options is 1,000,000 option contracts.
However, if the most recent six-month trading volume of AAPL stock
totals less than 200,000,000 shares or the most recent six-month
trading volume of AAPL stock totals less than 150,000,000 shares and
AAPL stock has fewer than 600,000,000 shares currently outstanding,
the position limit for AAPL options will be determined as set forth
in paragraphs (a) through (e) above.
* * * * *
Rule 8.42. Exercise Limits
(a) General. Except with the prior permission of the President
or his designee, to be confirmed in writing, no Trading Permit
Holder shall exercise, for any account in which it has an interest
or for the account of any customer, a long position in any option
contract where such Trading Permit Holder or customer, acting alone
or in concert with others, directly or indirectly:
(1) has or will have exercised within any five consecutive
business days aggregate long positions in any class of options dealt
in on the Exchange in excess of 25,000 or 50,000 or 75,000 or
200,000, or 250,000 or 1,000,000 option contracts or such other
number of options contracts as may be fixed from time to time by the
Exchange as the exercise limit for that class of options; or
* * * * *
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
Position limits are designed to address potential manipulative
schemes and adverse market impacts surrounding the use of options, such
as disrupting the market in the security underlying the options. While
position limits should address and discourage the potential for
manipulative schemes and adverse market impact, if such limits are set
too low, participation in the options market may be discouraged. The
Exchange believes that position limits must therefore be balanced
between mitigating concerns of any potential manipulation and the cost
of inhibiting potential hedging activity that could be used for
legitimate economic purposes.
Cboe Options Rule 8.30 sets forth the position limits for equity
options.\3\ Specifically, Rule 8.30 provides that the position limits
for equity options are 25,000 or 50,000 or 75,000 or 200,000 or 250,000
option contracts (with adjustments for splits, re-capitalizations,
etc.) on the same side of the market or such other number of option
contracts as may be fixed from time to time by the Exchange.
Interpretation and Policy .02 to Rule 8.30 describes how the Exchange
determines which of the five position limit amounts will apply to an
equity option class. Specifically, the position limit applicable to a
class is determined based on the trading volume and outstanding shares
of the underlying security.
---------------------------------------------------------------------------
\3\ Pursuant to Rule 8.42, the exercise limit for an equity
option is the same as the position limit established in Rule 8.30
for that equity option.
---------------------------------------------------------------------------
[[Page 72569]]
When an underlying security undergoes a stock split, the number of
outstanding options is proportionately increased and the exercise price
is proportionately decreased.\4\ For example, if a security undergoes a
4-1 stock split, and before the stock split, an investor holds one
option on 100 shares of stock ABC with an exercise price of $100, after
adjustment for the split, the investor will hold four ABC options, each
on 100 shares and each with an exercise price of $25. In response to
this increase in option positions that results from a stock split for
the underlying, if an underlying security undergoes a stock split, the
position (and exercise) limit for the option overlying that security is
multiplied by the number of shares issued per single outstanding share
as part of the stock split. Using the same 4-1 example, if the position
limit for an option before the stock split is 250,000, the position
limit for the option overlying that security will be multiplied by four
to 1,000,000. This will prevent investors holding the maximum positions
from immediately being over the position limit at the time of the stock
split. However, this position limit increase is temporary and lasts
until the last outstanding option position at the time of the stock
split has expired, at which time the position limit reverts to the pre-
stock split level.
---------------------------------------------------------------------------
\4\ See Options Clearing Corporation (``OCC'') Bylaws, Article
VI, Section 11A(a); and Characteristics and Risks of Standardized
Options at 19.
---------------------------------------------------------------------------
Based on the criteria in Rule 8.30, Interpretation and Policy .02,
the position limit for AAPL options is currently 250,000 (and pursuant
to Rule 8.42, the exercise limit is also 250,000). It was also 250,000
at the time of the AAPL 4-1 stock split on August 31, 2020, at which
time the position limit was increased to 1,000,000. The position limit
for AAPL options remained at 1,000,000, until September 16, 2022 (when
the last option position that was outstanding at the time of the stock
split expired), at which time the position limit reverted back to
250,000. However, given the significant activity in AAPL options (and
the underlying security), the Exchange understands that numerous
customers held more than 250,000 AAPL option contracts at that time,
putting their holdings above the position limit. The Exchange further
understands from these customers that the reduced position limit may be
impeding trading activity and ability to implement their investment
strategies in AAPL options, such as use of effective hedging vehicles
or income generating strategies (e.g., buy-write or put-write), and the
ability of market-makers to make liquid markets with tighter spreads in
these options, potentially causing the transfer of volume to over-the-
counter (``OTC'') markets. OTC transactions occur through bilateral
agreements, the terms of which are not publicly disclosed to the
marketplace. As such, OTC transactions do not contribute to the price
discovery process on a public exchange or other lit markets. Therefore,
the Exchange believes it is appropriate to increase the AAPL position
limit back to 1,000,000 option contracts \5\ so market participants may
continue to trade AAPL options in the same manner and at the same
levels they have been for the prior two years. The Exchange believes
this may enable liquidity providers to maintain liquidity levels on the
Exchange and other market participants to continue to trade on the
Exchange rather than shift their volume to the OTC markets. The
Exchange believes the larger market capitalization of AAPL stock, as
well as the continued highly liquid market for this security since the
stock split, reduces the concerns for potential market manipulation
and/or disruption in the underlying market upon increasing position
limits, while the continued demand for trading AAPL options for
legitimate economic purposes despite the reduced position limit
warrants reversion to the position limit that existed for the prior two
years.
---------------------------------------------------------------------------
\5\ See proposed Rule 8.30, Interpretation and Policy .02(g).
---------------------------------------------------------------------------
As stated above, position (and exercise) limits are intended to
prevent the establishment of options positions that can be used to or
potentially create incentives to manipulate the underlying market so as
to benefit options positions. The Commission has recognized that these
limits are designed to minimize the potential for mini-manipulations
and for corners or squeezes of the underlying market, as well as serve
to reduce the possibility for disruption of the options market itself,
especially in illiquid classes.\6\ As demonstrated below, AAPL stock
(and the overlying options) is highly liquid. The Exchange notes that
the proposed position limit of 1,000,000 contracts for AAPL options,
which was the AAPL options position limit for two years, is the same as
existing position limits for options on the iShares Russell 2000 ETF
(``IWM''), the iShares MSCI Emerging Markets ETF (``EEM''), iShares
China Large-Cap ETF (``FXI''), and iShares MSCI EAFE ETF (``EFA'').\7\
To support the proposed position limit increase, the Exchange
considered the liquidity of the underlying security, the value of the
underlying security and relevant marketplace, the AAPL share and option
volume, and, the liquidity of the above-referenced exchange-traded
products (``ETPs'') that currently have position limits of 1,000,000.
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 67672 (August 15,
2012), 77 FR 50750 (August 22, 2012) (SR-NYSEAmex-2012-29).
\7\ See Cboe Options Rule 8.30, Interpretation and Policy .07,
which provides that the position limits for options on shares or
other securities that represent interests in registered investment
companies organized as open-end management investment companies,
unit investment trusts, or similar entities that satisfy the
criteria set forth in Rule 4.3, Interpretation and Policy .06 are
the same as equity options pursuant to Rule 8.30, except for certain
securities listed in Interpretation and Policy .07.
---------------------------------------------------------------------------
The below table shows the average daily volume (``ADV'') of each of
shares of and option contracts on AAPL stock traded during specified
time periods prior to the 2020 stock split, between the stock split and
the position limit reversion, and since the position limit reversion.
------------------------------------------------------------------------
ADV (option
Date range ADV (shares) contracts)
------------------------------------------------------------------------
January 3, 2020 through August 170,468,316 870,304
31, 2020 (date of stock split).
September 1, 2020 through 101,001,141 1,661,627
December 31, 2021..............
January 1, 2022 through 88,458,041 1,354,430
September 16, 2022 (date of
position limit reversion)......
September 17, 2022 through 91,683,969 1,425,372
October 24, 2022 (time since
position limit reversion)......
------------------------------------------------------------------------
Additionally, as of October 24, 2022, there were 16.07 billion
outstanding shares of AAPL stock, which had a per share price of
$149.45 on that date, giving it a market capitalization of $2.4
trillion.
For comparison, below is the same data for IWM, EEM, FXI, and EFA
from January 1, 2022 through October 24, 2022, with outstanding shares,
share value (net asset value (``NAV''), and market capitalization (fund
value) as of
[[Page 72570]]
October 24, 2022. While these are ETPs as opposed to stocks, ETP shares
trade in the same manner as stocks and other than the few set forth in
Rule 8.30, Interpretation and Policy .07, position limits for options
on ETPs are determined in the same manner as options on stocks.
----------------------------------------------------------------------------------------------------------------
Shares Fund market
Product ADV (ETF ADV (option outstanding cap (USD) Share value
shares) contracts) (millions) (billions) (USD)
----------------------------------------------------------------------------------------------------------------
IWM............................. 31,358,610 840,721 291.10 50.49 173.44
EEM............................. 47,767,767 183,342 578.25 19.62 33.93
FXI............................. 39,007,654 159,703 176.70 3.80 21.53
EFA............................. 29,953,566 123,262 705.60 41.83 59.28
----------------------------------------------------------------------------------------------------------------
The Exchange believes that, overall, the liquidity in the AAPL
shares and in their overlying options, AAPL's significantly large
market capitalization, and the overall market landscape for AAPL stock
and options support the proposal to increase its position limit. Given
the robust liquidity in and value of AAPL stock, the Exchange does not
anticipate that the proposed increase in the position limit would
create significant price movements as the relevant market is large
enough to adequately absorb potential price movements that may be
caused by larger trades.
The proposed rule change is based on current trading statistics of
AAPL options and stock. If the volume of trading were to significantly
decline, the Exchange appreciates the need to adjust the proposed
1,000,000 position limit to address that decline in trading activity to
reduce the changes [sic] of potential manipulation. Therefore, the
Exchange proposes to add to proposed Rule 8.30, Interpretation and
Policy .02(g) that if the most recent six-month trading volume of AAPL
stock totals less than 200,000,000 shares or the most recent six-month
trading volume of AAPL stock totals less than 150,000,000 shares and
AAPL stock has fewer than 600,000,000 shares currently outstanding, the
position limit for AAPL options will be determined as set forth in
paragraphs (a) through (e) of Interpretation and Policy .02.\8\ These
proposed levels are twice the current volume and share levels of an
underlying security for the overlying option to be eligible for the
250,000 option contract position limit.
---------------------------------------------------------------------------
\8\ Pursuant to Rule 8.30, Interpretation and Policy .02(f),
every six months, the Exchange will review the status of underlying
securities to determine which limit should apply. A higher limit
will be effective on the date set by the Exchange, while any change
to a lower limit will take effect after the last expiration then
trading, unless the requirement for the same or a higher limit is
met at the time of the intervening six-month review. This will
continue to apply to AAPL options, and if the trading levels are
below the criteria in proposed paragraph (g) at the time of this
review, AAPL options will be subject to the standard position limits
applicable to other equity options.
---------------------------------------------------------------------------
Surveillance and Reporting Requirements
The Exchange believes that increasing the position limit for AAPL
options would lead to a more liquid and competitive market environment
for these options, which will benefit customers that trade these
options. The reporting requirement for AAPL options would remain
unchanged. Thus, the Exchange would still require that each TPH or TPH
organization that maintains positions in AAPL options on the same side
of the market, for its own account or for the account of a customer,
report certain information to the Exchange. This information would
include, but would not be limited to, the options' positions, whether
such positions are hedged and, if so, a description of the hedge(s).
Market-Makers \9\ (including Designated Primary Market-Makers
(``DPMs'')) \10\ would continue to be exempt from this reporting
requirement, however, the Exchange may access Market-Maker position
information.\11\ Moreover, the Exchange's requirement that TPHs file
reports with the Exchange for any customer who held aggregate large
long or short positions on the same side of the market of 200 or more
option contracts of any single class for the previous day will remain
at this level for AAPL options and will continue to serve as an
important part of the Exchange's surveillance efforts.\12\
---------------------------------------------------------------------------
\9\ A Market-Maker is a ``Trading Permit Holder registered with
the Exchange pursuant to Rule 3.52 for the purpose of making markets
in option contracts traded on the Exchange and that has the rights
and responsibilities set forth in Chapter 5, Section D of the
Rules.'' See Rule 1.1.
\10\ A Designated Primary Market-Maker is a ``TPH organization
that is approved by the Exchange to function in allocated securities
as a Market-Maker (as defined in Rule 8.1) and is subject to the
obligations under Rule 5.54 or as otherwise provided under the rules
of the Exchange.'' See Rule 1.1.
\11\ The Options Clearing Corporation (``OCC'') through the
Large option Position Reporting (``LOPR'') system acts as a
centralized service provider for TPH compliance with position
reporting requirements by collecting data from each TPH or TPH
organization, consolidating the information, and ultimately
providing detailed listings of each TPH's report to the Exchange, as
well as Financial Industry Regulatory Authority, Inc. (``FINRA''),
acting as its agent pursuant to a regulatory services agreement
(``RSA'').
\12\ See Rule 8.43 for reporting requirements.
---------------------------------------------------------------------------
The Exchange believes that the existing surveillance procedures and
reporting requirements at the Exchange and other SROs are capable of
properly identifying disruptive and/or manipulative trading activity.
The Exchange also represents that it has adequate surveillances in
place to detect potential manipulation, as well as reviews in place to
identify continued compliance with the Exchange's listing standards.
These procedures utilize daily monitoring of market activity via
automated surveillance techniques to identify unusual activity in both
options and the underlyings, as applicable.\13\ The Exchange also notes
that large stock holdings must be disclosed to the Commission by way of
Schedules 13D or 13G,\14\ which are used to report ownership of stock
which exceeds 5% of a company's total stock issue and may assist in
providing information in monitoring for any potential manipulative
schemes.
---------------------------------------------------------------------------
\13\ The Exchange believes these procedures have been effective
for the surveillance of trading AAPL options and will continue to
employ them.
\14\ 17 CFR 240.13d-1.
---------------------------------------------------------------------------
The Exchange believes that the current financial requirements
imposed by the Exchange and by the Commission adequately address
concerns regarding potentially large, unhedged positions in AAPL
options. Current margin and risk-based haircut methodologies serve to
limit the size of positions maintained by any one account by increasing
the margin and/or capital that a TPH must maintain for a large position
held by itself or by its customer.\15\ In addition, Rule 15c3-1 \16\
imposes a capital charge on TPHs to the extent of any margin deficiency
resulting from the higher margin requirement.
---------------------------------------------------------------------------
\15\ See Rule 10.3 for a description of margin requirements.
\16\ 17 CFR 240.15c3-1.
---------------------------------------------------------------------------
[[Page 72571]]
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.\17\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \18\ requirements that the rules of 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) \19\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
\19\ Id.
---------------------------------------------------------------------------
The Exchange believes that the proposed increase in the position
limit for AAPL options will remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, protect investors and the public interest, because it will
provide market participants with the ability to execute their trading
and hedging activities and use AAPL options to achieve investment
strategies in the same manner and at the same levels they have been
since the 2020 stock split. Also, increasing the position limit may
allow Market-Makers to maintain their liquidity in AAPL options in
amounts commensurate with the continued high consumer demand in the
AAPL options market. The proposed position limit increase may also
encourage other liquidity providers to continue to trade on the
Exchange rather than shift their volume to OTC markets, which will
enhance the process of price discovery conducted on the Exchange
through increased order flow.
In addition, the Exchange believes that the considerable market
capitalization of AAPL stock and the liquidity of the markets for AAPL
stock and options will mitigate concerns regarding potential
manipulation of the products and/or disruption of the underlying
markets upon increasing the relevant position limits. The Exchange has
not observed manipulation or disruption of the AAPL stock or options
market in the past two years while the position limit was 1,000,000. As
a general principle, increases in market capitalization, active trading
volume, and deep liquidity of securities do not lead to manipulation
and/or disruption. The Exchange does not believe that the AAPL stock or
options markets would become susceptible to manipulation and/or
disruption as a result of permanently increasing the position limit to
that level. Indeed, the Commission has previously expressed the belief
that not just increasing, but removing, position and exercise limits
may bring additional depth and liquidity to the options markets without
increasing concerns regarding intermarket manipulation or disruption of
the options or the underlying securities.\20\
---------------------------------------------------------------------------
\20\ See Securities Exchange Act Release No. 40969 (January 22,
1999), 64 FR 4911, 4913 (February 1, 1999) (SR-CBOE-98-23).
---------------------------------------------------------------------------
Further, the Exchange notes that the proposed rule change to
increase position limits for select actively traded options is not
novel. The Commission has approved similar proposed rule changes by the
Exchange to increase position limits for options on similar, highly
liquid and actively traded ETPs.\21\ While those are ETPs and AAPL is
stock, pursuant to Rule 8.30, the position limits for options on stock
and ETPs are generally calculated in the same manner and based on
trading volume and market capitalization of the underlying. As
demonstrated above, the AAPL stock and options ADV (both before and
after the stock split) and the AAPL market capitalization are
significantly higher than that of ETPs for the position limit for the
overlying options, which the Commission previously approved to be
increased to 1,000,000. While the ADV of AAPL stock is lower than it
was prior to the 2020 stock split, it is still more than 50% of the
pre-stock split ADV and is currently approximately two to three times
higher than the ADV of IWM, EEM, FXI, and EFA, the options on which are
subject to a 1,000,000 position limit. Additionally, the ADV of AAPL
options since the 2020 stock split is almost double the ADV prior to
the stock split and is currently anywhere from almost twice to more
than ten times the ADV of IWM, EEM, FXI, and EFA options, which are
currently subject to a position limit four times higher than that of
AAPL options. Further, the market capitalization of AAPL stock is
approximately $2.4 trillion (as of October 24, 2022), compared to the
market capitalizations of approximately $50.49 billion, $19.62 billion,
$3.80 billion, and $41.83 billion for IWM, EEM, FXI, and EFA,
respectively (as of that same date). Given the significantly higher
levels of AAPL options and stock trading than that of the above-
referenced ETPs and the overlying options, and the considerably higher
market capitalization of AAPL stock compared to that of the ETPs, the
Exchange believes it is reasonable and appropriate to increase the
position limit of AAPL options to the same position limit of 1,000,000
that currently exists for these ETP options. The proposed rule change
also includes criteria for the AAPL option position limit to be
determined in the same manner as other equity options in the event AAPL
stock trading volume and outstanding shares significantly declines in
the future. This would occur if those numbers were less than twice the
current criteria an underlying security needs to satisfy for the
overlying option to be eligible for the 250,000 position limit. The
Exchange believes this is a reasonable level to cause the position
limit to revert back to the standard position limit levels in order to
reduce the likelihood of potential manipulation.
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\21\ See Securities Exchange Act Release Nos. 93525 (November 4,
2021), 86 FR 62584 (November 10, 2021) (SR-CBOE-2021-029); 88768
(April 29, 2020), 85 FR 26736 (May 5, 2020) (SR-CBOE-2020-015);
83415 (June 12, 2018), 83 FR 28274 (June 18, 2018) (SR-CBOE-2018-
042); and 68086 (October 23, 2012), 77 FR 65600 (October 29, 2012)
(SR-CBOE-2012-066).
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The Exchange's surveillance and reporting safeguards continue to be
designed to deter and detect possible manipulative behavior that might
arise from increasing or eliminating position and exercise limits in
certain classes. The Exchange believes that the current financial
requirements imposed by the Exchange and by the Commission adequately
address concerns regarding potentially large, unhedged positions in
AAPL options, further promoting just and equitable principles of
trading, the maintenance of a fair and orderly market, and the
protection of investors. As noted above, the Exchange has not observed
manipulation or disruption of the AAPL stock or options market in the
past two years while the position limit was 1,000,000, nor does it
believe that the AAPL stock or options markets would become susceptible
to manipulation and/or disruption as a result of permanently increasing
the position limit to that same level.
[[Page 72572]]
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe the proposed rule change will impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act because the increased position limit (and exercise
limit) will be available to all market participants and apply to each
in the same manner. The Exchange believes that the proposed rule change
will provide additional opportunities for market participants to
continue to efficiently achieve their investment and trading objectives
for AAPL options on the Exchange.
The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the Act. On the contrary, the Exchange
believes the proposal promotes competition because it may maintain
order flow on exchanges, which would in turn compete amongst each other
for those orders, and prevent a transfer of trading activity to the
nontransparent OTC market.\22\ The Exchange believes market
participants would benefit from being able to trade options with
increased position limits in an exchange environment in several ways,
including but not limited to the following: (1) enhanced efficiency in
initiating and closing out position; (2) increased market transparency;
and (3) heightened contra-party creditworthiness due to the role of OCC
as issuer and guarantor. The Exchange notes that other options
exchanges may choose to file similar proposals with the Commission to
increase the position limit on AAPL options.
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\22\ Additionally, several other options exchanges have the same
position limits as the Exchange, as they incorporate by reference to
the Exchange's position limits, and as a result the position limits
for options on AAPL options will increase at those exchanges. For
example, Nasdaq Options position limits are determined by the
position limits established by the Exchange. See Nasdaq Stock Market
LLC Rules, Options 9, Sec. 13 (Position Limits).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. by order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CBOE-2022-057.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2022-057. 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 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-2022-057, and should be submitted
on or before December 16, 2022.
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\23\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-25664 Filed 11-23-22; 8:45 am]
BILLING CODE 8011-01-P
