Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend Its Rules Relating to Position and Exercise Limits, 86701-86705 [2023-27397]
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Federal Register / Vol. 88, No. 239 / Thursday, December 14, 2023 / Notices
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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
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you should submit only information
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publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–NYSEAMER–2023–62 and should
be submitted on or before January 4,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.44
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–27399 Filed 12–13–23; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
1. Purpose
[Release No. 34–99119; File No. SR–CBOE–
2023–063]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing of a
Proposed Rule Change To Amend Its
Rules Relating to Position and
Exercise Limits
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December 8, 2023.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (‘‘Act’’)
and Rule 19b–4 thereunder,2 notice is
hereby given that on November 29,
2023, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, 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.
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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 the
Statutory Basis for, the Proposed Rule
Change
BILLING CODE 8011–01–P
44 17
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 amend
its rules relating to position and exercise
limits. The text of the proposed rule
change is in Exhibit 5.
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.
Background
The Exchange proposes to amend its
rules relating to position limits. By way
of background, in March 2005, the
Securities and Exchange Commission
(the ‘‘Commission’’) approved the
current position limit (and exercise
limit) structure, which incorporates five
categories of limits ranging from 25,000
to 250,000 contracts, based on two
criteria: (1) the securities trading
volume over the prior six months and
(2) the number of shares outstanding.3
3 See Securities Exchange Act Release No. 51244
(February 23, 2005), 70 FR 10010 (March 1, 2005)
(order approving SR–CBOE–2003–30, as amended),
which adopted two pilot programs that increase
position and exercise limits for equity options)
(‘‘Pilot Program Order’’). The Pilot Programs were
extended 5 times for 6-month periods by the
Commission, and expired on March 1, 2008. See
Securities Exchange Act Release No. 52262 (August
15, 2005), 70 FR 48995 (August 22, 2005) (SR–
CBOE–2005–61), Securities Exchange Act Release
No. 53348 (February 22, 2006), 71 FR 10574 (March
1, 2006) (SR–CBOE–2006–11), Securities Exchange
Act Release No. 54336 (August 18, 2006), 71 FR
50952 (August 28, 2006) (SR–CBOE–2006–69),
Securities Exchange Act Release No. 55266
(February 9, 2007), 72 FR 7698 (February 16, 2007)
(SR–CBOE–2007–12), and Securities Exchange Act
Release No. 56266 (August 15, 2007), 72 FR 47094
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86701
More specifically, Cboe Options Rule
8.30 sets forth the position limits for
equity options. 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 (i.e., the position limit
applicable to a class is determined
based on the trading volume and
outstanding shares of the underlying
security). These categories have
remained unchanged for the last 18
years.4
By way of further background,
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.
Proposal
To modernize the position limit rule,
while minimizing impact of such
change on industry participants, the
Exchange is proposing the addition of
three additional position limit
categories: 500,000, 1,000,000 and
2,000,000 option contracts. Particularly,
the proposed rule would adopt new
Rule 8.30.02(f) which would provide
that in order to be eligible for the
500,000-option contract limit, either the
most recent six-month trading volume
of the underlying security must have
totaled at least 500,000,000 shares; or
the most recent six-month trading
volume of the underlying security must
have totaled at least 375,000,000 shares
and the underlying security must have
(August 22, 2007) (SR–CBOE–2007–97). The Pilot
Programs were made permanent in 2008. See
Securities Exchange Act Release No. 57352
(February 19, 2007), 73 FR 10076 (February 25,
2008) (SR–CBOE–2008–007).
4 See Cboe Options Rule 8.30. 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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at least 1,500,000,000 shares currently
outstanding. The Exchange also
proposes to adopt Rule 8.30.02(g) which
would provide that in order to be
eligible for the 1,000,000-option
contract limit, either the most recent
six-month trading volume of the
underlying security must have totaled at
least 1,000,000,000 shares; or the most
recent six-month trading volume of the
underlying security must have totaled at
least 750,000,000 shares and the
underlying security must have at least
3,000,000,000 shares currently
outstanding. Finally, the Exchange
proposes to adopt Rule 8.30.02(h) which
provides that in order to be eligible for
the 2,000,000-option contract limit,
either the most recent six-month trading
volume of the underlying security must
have totaled at least 5,000,000,000
shares; or the most recent six-month
trading volume of the underlying
security must have totaled at least
3,750,000,000 shares and the underlying
security must have at least
15,000,000,000 shares currently
outstanding.5
As noted above, the current position
limit categories were last updated 18
years ago. Since that time, there has
been a significant increase in the overall
volume of exchange traded equity
options and a steady increase in the
number of accounts that approach the
current highest position limit (i.e.,
250,000 option contracts). The below
chart demonstrates this growth in equity
options trading industry-wide between
2005 and 2023.6 Indeed, annual equity
options trading volume in recent years
is nearly seven times the volume
amount when the current position tier
limits were adopted in 2005 and has
more than doubled since 2017.
Year
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2005
2006
2007
2008
2009
2010
2011
2012
2013
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
Annual
industry
equity
options
trading
volume
(contracts)
1,369,048,282
1,844,181,918
2,592,102,961
3,284,761,345
3,366,967,321
3,610,436,931
4,224,604,529
3,681,820,659
3,725,864,134
5 Current Rule 8.30.02(f) will be renumbered to
Rule 8.30.02(i).
6 See Options Clearing Corporation (‘‘OCC’’),
Annual Historical Volume Statistics at https://
www.theocc.com/market-data/market-data-reports/
volume-and-open-interest/historical-volumestatistics. Annual Industry Options Trading Volume
for 2023 is as of November 24, 2023.
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Annual
industry
equity
options
trading
volume
(contracts)
Year
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
....................................
3,845,073,167
3,727,919,066
3,626,455,947
3,689,013,636
4,572,482,342
4,420,542,768
7,004,304,148
9,366,823,566
9,599,301,629
9,285,621,375
By way of further example, based on
the proposed criteria, over 300 equity
options classes that currently are
limited to the maximum position limit
tier of 250,000 contracts would qualify
for one of the three proposed position
limit tiers. Particularly, the Exchange
has determined that 182 equity options
classes would be eligible for the 500,000
contracts tier limit; 110 equity options
classes would be eligible for the
1,000,000 contracts tier limit and 13
equity options classes would be eligible
for the 2,000,000 tier limit.7
By way of further example, prior to
the stock split in August 2020,8 equity
options class AAPL had approximately
4,000,000,000 shares outstanding and
the position limit of 250,000 contracts
represented control of 25,000,000 shares
or 0.625% of the shares outstanding.
After the stock split, AAPL had
approximately 16,000,000,000 shares
outstanding. The immediate adjustment
of the position limit from 250,000
contracts to 1,000,000 contracts reflects
control of 100,000,000 shares or 0.625%
of the shares outstanding which retains
the pre-stock split ratio. When the last
AAPL option listed at the time of the
stock split in 2020 expired in September
2022, the OCC reverted back to the
original position limit for AAPL of
25,000,000 shares (250,000 contracts),
which is the maximum stock option
position limits permitted under the
Exchange’s rules.9 Although this
position limit technically adheres to the
Exchange’s rules, it is more restrictive
than the original position limit.
Particularly, readjusting the position
limit back to 25,000,000 shares (250,000
7 As
of October 12, 2023.
Notice, 88 FR at 29728, citing OCC Memo
#47509, Apple Inc.—4 for 1 Stock Split (August 28,
2020).
9 Position limit increases that result in the case of
a stock split remain in effect until the expiration of
all listed options that existed at the time of the split,
at which time the position limits revert to pre-split
levels. This is an industry practice applied by OCC,
which currently administers position limit levels on
behalf of U.S. options exchanges.
8 See
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contracts) when there are
16,000,000,000 shares outstanding
reduces the position limit to 0.156% of
the shares outstanding, making the poststock split position limit more
restrictive than the pre-stock split
position limit and would [sic] arguably
no longer be meaningfully related to the
current shares outstanding. Further, the
Exchange notes that the current 250,000
position limit for AAPL forces market
participants to reduce trading activity
because the maximum position limit
only represents 0.156% of the total
shares outstanding. This reduction in
trading volume also represents a
reduction in available liquidity and
negatively impacts liquidity, trading
volume, and possibly execution prices.
By comparison, under the proposed
criteria, AAPL options would qualify for
the 2,000,000 contract position limit,
which is over 12% higher than the
current maximum position limit. The
adjustment of the position limit from
250,000 contracts to 2,000,000 contracts
reflects control of 200,000,000 shares or
1.25% of the shares outstanding, which
is well within ratios provided by the
prior methodology and the Exchange
believes would lead to a more liquid
and competitive market environment for
these options, which will benefit
customers that trade these options.
Further, given the total increased
volume in trading, the Exchange
believes it is reasonable to conclude that
in addition to AAPL, position limits for
many classes is [sic] currently more
restrictive than they were when adopted
in 2005.
The Exchange also believes that the
increase in options volume and lack of
evidence of market manipulation
occurrences over the past twenty years
justifies the proposed increases in the
position and exercise limits. Moreover,
several market participants across the
industry have petitioned the industry to
increase the current levels.
The Commission has previously
stated,
Since the inception of standardized
options trading, the options exchanges have
had rules imposing limits on the aggregate
number of options contracts that a member
or customer could hold or exercise. These
rules are intended to prevent the
establishment of options positions that can
be used or might create incentives to
manipulate or disrupt the underlying market
so as to benefit the options position. In
particular, position and exercise limits are
designed to minimize the potential for minimanipulations and for corners or squeezes of
the underlying market. In addition, such
limits serve to reduce the possibility for
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disruption of the options market itself,
especially in illiquid options classes.10
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The Exchange believes that the
existing surveillance procedures and
reporting requirements at the Exchange
are adequate to identify violative trading
activity. These procedures include daily
monitoring of market activity via
automated surveillance techniques to
identify unusual activities in both
options and underlying stocks and
Exchange Traded Products (‘‘ETPs’’).
The Exchange believes that increasing
the position limits for qualifying equity
options would lead to a more liquid and
competitive market environment for
these options, which will benefit
customers that trade these options.
Further, the reporting requirement for
such options would remain unchanged.
Thus, the Exchange will still require
that each TPH or TPH organization that
maintains positions in impacted 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
includes, but would not be limited to,
the options’ positions, whether such
positions are hedged and, if so, a
description of the hedge(s). MarketMakers (including Designated Primary
Market-Makers (‘‘DPMs’’)) 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
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
10 See Securities Exchange Act Release No. 39489
(December 24, 1997), 63 FR 276 (January 5, 1998)
(SR–CBOE–1997–11).
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.
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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. The
Exchange also notes that large stock
holdings must be disclosed to the
Commission by way of Schedules 13D
or 13G,13 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
equity 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.14 In addition,
Rule 15c3–1 15 imposes a capital charge
on TPHs to the extent of any margin
deficiency resulting from the higher
margin requirement.
The Exchange also has no reason to
believe that the growth in trading
volume in equity options will not
continue. Rather, the Exchange expects
continued options volume growth as
opportunities for investors to participate
in the options markets increase and
evolve. The Exchange believes that the
current position and exercise limits are
restrictive, and not adopting increased
position and exercise limit categories
will hamper the listed options markets
from being able to compete fairly and
effectively with the 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. In fact,
the Commission previously highlighted
competition with the OTC markets as a
reason for increasing the standard
position and exercise limits.16
Specifically, the Commission stated,
The increase in position and exercise
limits for standardized equity options should
13 17
CFR 240.13d–1.
Rule 10.3 for a description of margin
requirements.
15 17 CFR 240.15c3–1.
16 See Securities Exchange Act Release No. 40875
(December 31, 1998), 64 FR 1842 (January 12, 1999)
(SR–CBOE–1998–25).
14 See
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86703
allow the Exchanges to better compete with
the growing OTC market in customized
equity options, thereby encouraging fair
competition among brokers and exchange
markets.17
In addition, the Exchange believes
that without the proposed changes to
position and exercise limits, market
participants will find the standard
equity position limits an impediment to
their business and investment
objectives. As such, market participants
may find the less transparent OTC
markets a more attractive alternative to
achieve their investment and hedging
objectives, leading to a retreat from the
listed options markets, where trades are
subject to reporting requirements and
daily surveillance.
Implementation Date
Given this is an industry-wide
proposal, implementation will require
that all U.S. listed options exchanges
adopt similar rule language regarding
position limits. The Exchange will wait
to announce implementation date for
the proposed rule change (via Exchange
Notice) until all exchanges have
received regulatory approval for similar
rule language.
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.18 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 19 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) 20 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 adoption of three increased
17 Id.
18 15
19 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
20 Id.
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position limit categories 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 more
effectively execute their trading and
hedging activities. Also, adopting
increased position limit categories for
equity options may allow MarketMakers to maintain their liquidity in
these options in amounts commensurate
with the continued high consumer
demand in the impacted underlyings’
options market. The proposed higher
position limits 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 current liquidity in shares of
and options on the underlyings will
mitigate concerns regarding potential
manipulation of the products and/or
disruption of the underlying markets
upon increasing the relevant position
limits. As a general principle, increases
in active trading volume and deep
liquidity of the underlying securities do
not lead to manipulation and/or
disruption. This general principle
applies to the recently observed
increased levels of trading volume and
liquidity in shares of and options on the
underlyings (as described above), and,
as a result, the Exchange does not
believe that the options markets or
underlying markets would become
susceptible to manipulation and/or
disruption as a result of the proposed
higher position limit categories. Further,
as noted above, the Exchange has no
reason to believe that the growth in
trading volume in equity options will
not continue. Rather, the Exchange
expects continued options volume
growth as opportunities for investors to
participate in the options markets
continue to increase and evolve.
Additionally, the Exchange continues to
maintain a process in which every sixmonths, the status of the underlying
securities are reviewed to determine
what limit should apply.21 Accordingly,
in the event stock trading volume and/
or outstanding shares for particular
securities significantly declines in the
future, such overlying options classes
will merely be moved to a lower
corresponding, position tier limit under
the rules at the next regularly scheduled
review.
21 See
Current Cboe Options Rule 8.30.02(f).
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Further, the Exchange notes that the
proposed rule change to adopt increased
position limits for actively traded
options is not novel. 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.22 The Commission also has
approved similar proposed rule changes
by the Exchange to increase position
limits for options on highly liquid and
actively traded ETPs (e.g., iShares
Russell 2000 ETF (‘‘IWM’’), the iShares
MSCI Emerging Markets ETF (‘‘EEM’’),
iShares China Large-Cap ETF (‘‘FXI’’),
and iShares MSCI EAFE ETF (‘‘EFA’’),
VanEck Vectors Gold Miners ETF
(‘‘GDX’’), and iShares iBoxx $
Investment Grade Corporate Bond ETF
(‘‘LQD’’)).23 While those are ETPs and
the current proposal applies to equity
options, pursuant to Rule 8.30, the
position limits for options on stock and
ETPs are generally calculated in the
same manner and based in part on
trading volume of the underlying.
Further, by way of comparison, the
outstanding shares of AAPL stock is
significantly higher than that of IWM,
EEM, FXI and EFA, which have an
overlying options position limit of
1,000,000 (as compared to the 250,000
position limit for AAPL options).24
Particularly, while the outstanding
shares of AAPL is currently nearly 16
billion shares, the outstanding shares of
IWM, EEM, FXI and EFA range between
approximately 187 million and 673
million. The Exchange notes that the
criteria under the proposed new
position limit tier categories of
1,000,000 and 2,000,000 for equity
options require the most recent sixmonth trading volume of the underlying
security to have totaled at least 1 billion
or 5 billion shares, respectively or have
at least 3 billion or 15 billion shares,
22 See Securities Exchange Act Release No. 40969
(January 22, 1999), 64 FR 4911, 4913 (February 1,
1999) (SR–CBOE–98–23).
23 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).
24 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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respectively, of the underlying security
outstanding.25 The proposed criteria
under the 500,000 position limit
category requires the most recent sixmonth trading volume of the underlying
security to have totaled at least 500
million shares or have at least 1.5
billion shares of the underlying security
outstanding 26 (by comparison, LQD and
GDX, have approximately 275 million
shares and 395 million shares
outstanding, and have an overlying
options position limit of 500,000). The
Exchange therefore believes it is
reasonable and appropriate to increase
the position limit of options as proposed
to similar position limits that apply for
certain ETPs.
Finally, as discussed above, 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
the options on the underlying securities,
further promoting just and equitable
principles of trading, the maintenance
of a fair and orderly market, and the
protection of investors.
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 that
the proposed rule change will impose
any burden on intra-market competition
as the rules of the Exchange apply
equally to all TPHs of the Exchange and
all TPHs of the Exchange are required to
adhere to the position limits established
by the Exchange’s rules. The Exchange
believes that the proposed rule change
will also provide additional
opportunities for market participants to
continue to efficiently achieve their
investment and trading objectives for
equity options on the Exchange.
The Exchange does not believe that
the proposed rule change will impose
any burden on inter-market competition
as the proposal is not competitive in
25 There is also a corresponding recent six-month
volume of the underlying security requirement that
must be satisfied in addition to the requirement
relating to total outstanding shares.
26 There is also a corresponding recent six-month
volume of the underlying security requirement that
must be satisfied in addition to the requirement
relating to total outstanding shares.
E:\FR\FM\14DEN1.SGM
14DEN1
Federal Register / Vol. 88, No. 239 / Thursday, December 14, 2023 / Notices
nature. The Exchange expects that all
option exchanges will adopt
substantively similar proposals for
adopting the additional position limit
tiers, such that the Exchange’s proposal
would benefit competition. For these
reasons, the Exchange does not believe
that the proposed rule change will
impose any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
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:
lotter on DSK11XQN23PROD with NOTICES1
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
CBOE–2023–063 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–CBOE–2023–063. 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/
VerDate Sep<11>2014
17:39 Dec 13, 2023
Jkt 262001
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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–CBOE–2023–063 and should be
submitted on or before January 4, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–27397 Filed 12–13–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99125; File No. SR-Phlx2023–53]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change to Amend Its GPS
Antenna Fees at General 8, Section 1
December 8, 2023.
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
29, 2023, Nasdaq PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘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
27 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00084
Fmt 4703
Sfmt 4703
86705
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 the
Exchange’s GPS antenna fees at General
8, Section 1, as described further below.
The text of the proposed rule change is
available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/phlx/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
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 3
The Exchange offers a GPS antenna,
which allows co-location customers 4 to
synchronize their time recording
systems to the U.S. Government’s Global
Positioning System (‘‘GPS’’) network
time (the ‘‘Service’’). The Exchange
proposes to modify its monthly fees for
the Service at General 8, Section 1(d).
GPS network time is the atomic time
scale implemented by the atomic clocks
in the GPS ground control stations and
GPS satellites. Each GPS satellite
contains multiple atomic clocks that
contribute precise time data to the GPS
signals. GPS receivers decode these
signals, synchronizing the receivers to
the atomic clocks. A GPS antenna serves
as a time signal receiver and feeds a
primary clock device the GPS network
time using precise time data. Firms can
3 The Exchange initially filed the proposed
pricing changes on September 29, 2023 with an
effective date of October 1, 2023 (SR–Phlx–2023–
46). On November 15, 2023, the Exchange withdrew
SR–Phlx–2023–46 and replaced with SR–Phlx–
2023–50. The instant filing replaces SR–Phlx–2023–
50, which was withdrawn on November 29, 2023.
4 The Exchange offers customers the opportunity
to co-locate their servers and equipment within the
Exchange’s primary data center, located in Carteret,
New Jersey.
E:\FR\FM\14DEN1.SGM
14DEN1
]]>Agencies
[Federal Register Volume 88, Number 239 (Thursday, December 14, 2023)]
[Notices]
[Pages 86701-86705]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-27397]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99119; File No. SR-CBOE-2023-063]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Amend Its Rules Relating to
Position and Exercise Limits
December 8, 2023.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') and Rule 19b-4 thereunder,\2\ notice is hereby given
that on November 29, 2023, Cboe Exchange, Inc. (the ``Exchange'' or
``Cboe Options'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, 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 amend its rules relating to position and exercise limits. The text
of the proposed rule change is in Exhibit 5.
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Background
The Exchange proposes to amend its rules relating to position
limits. By way of background, in March 2005, the Securities and
Exchange Commission (the ``Commission'') approved the current position
limit (and exercise limit) structure, which incorporates five
categories of limits ranging from 25,000 to 250,000 contracts, based on
two criteria: (1) the securities trading volume over the prior six
months and (2) the number of shares outstanding.\3\ More specifically,
Cboe Options Rule 8.30 sets forth the position limits for equity
options. 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 (i.e., the position limit applicable to a class is
determined based on the trading volume and outstanding shares of the
underlying security). These categories have remained unchanged for the
last 18 years.\4\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 51244 (February 23,
2005), 70 FR 10010 (March 1, 2005) (order approving SR-CBOE-2003-30,
as amended), which adopted two pilot programs that increase position
and exercise limits for equity options) (``Pilot Program Order'').
The Pilot Programs were extended 5 times for 6-month periods by the
Commission, and expired on March 1, 2008. See Securities Exchange
Act Release No. 52262 (August 15, 2005), 70 FR 48995 (August 22,
2005) (SR-CBOE-2005-61), Securities Exchange Act Release No. 53348
(February 22, 2006), 71 FR 10574 (March 1, 2006) (SR-CBOE-2006-11),
Securities Exchange Act Release No. 54336 (August 18, 2006), 71 FR
50952 (August 28, 2006) (SR-CBOE-2006-69), Securities Exchange Act
Release No. 55266 (February 9, 2007), 72 FR 7698 (February 16, 2007)
(SR-CBOE-2007-12), and Securities Exchange Act Release No. 56266
(August 15, 2007), 72 FR 47094 (August 22, 2007) (SR-CBOE-2007-97).
The Pilot Programs were made permanent in 2008. See Securities
Exchange Act Release No. 57352 (February 19, 2007), 73 FR 10076
(February 25, 2008) (SR-CBOE-2008-007).
\4\ See Cboe Options Rule 8.30. 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.
---------------------------------------------------------------------------
By way of further background, 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.
Proposal
To modernize the position limit rule, while minimizing impact of
such change on industry participants, the Exchange is proposing the
addition of three additional position limit categories: 500,000,
1,000,000 and 2,000,000 option contracts. Particularly, the proposed
rule would adopt new Rule 8.30.02(f) which would provide that in order
to be eligible for the 500,000-option contract limit, either the most
recent six-month trading volume of the underlying security must have
totaled at least 500,000,000 shares; or the most recent six-month
trading volume of the underlying security must have totaled at least
375,000,000 shares and the underlying security must have
[[Page 86702]]
at least 1,500,000,000 shares currently outstanding. The Exchange also
proposes to adopt Rule 8.30.02(g) which would provide that in order to
be eligible for the 1,000,000-option contract limit, either the most
recent six-month trading volume of the underlying security must have
totaled at least 1,000,000,000 shares; or the most recent six-month
trading volume of the underlying security must have totaled at least
750,000,000 shares and the underlying security must have at least
3,000,000,000 shares currently outstanding. Finally, the Exchange
proposes to adopt Rule 8.30.02(h) which provides that in order to be
eligible for the 2,000,000-option contract limit, either the most
recent six-month trading volume of the underlying security must have
totaled at least 5,000,000,000 shares; or the most recent six-month
trading volume of the underlying security must have totaled at least
3,750,000,000 shares and the underlying security must have at least
15,000,000,000 shares currently outstanding.\5\
---------------------------------------------------------------------------
\5\ Current Rule 8.30.02(f) will be renumbered to Rule
8.30.02(i).
---------------------------------------------------------------------------
As noted above, the current position limit categories were last
updated 18 years ago. Since that time, there has been a significant
increase in the overall volume of exchange traded equity options and a
steady increase in the number of accounts that approach the current
highest position limit (i.e., 250,000 option contracts). The below
chart demonstrates this growth in equity options trading industry-wide
between 2005 and 2023.\6\ Indeed, annual equity options trading volume
in recent years is nearly seven times the volume amount when the
current position tier limits were adopted in 2005 and has more than
doubled since 2017.
---------------------------------------------------------------------------
\6\ See Options Clearing Corporation (``OCC''), Annual
Historical Volume Statistics at https://www.theocc.com/market-data/market-data-reports/volume-and-open-interest/historical-volume-statistics. Annual Industry Options Trading Volume for 2023 is as of
November 24, 2023.
------------------------------------------------------------------------
Annual
industry
equity options
Year trading
volume
(contracts)
------------------------------------------------------------------------
2005................................................... 1,369,048,282
2006................................................... 1,844,181,918
2007................................................... 2,592,102,961
2008................................................... 3,284,761,345
2009................................................... 3,366,967,321
2010................................................... 3,610,436,931
2011................................................... 4,224,604,529
2012................................................... 3,681,820,659
2013................................................... 3,725,864,134
2014................................................... 3,845,073,167
2015................................................... 3,727,919,066
2016................................................... 3,626,455,947
2017................................................... 3,689,013,636
2018................................................... 4,572,482,342
2019................................................... 4,420,542,768
2020................................................... 7,004,304,148
2021................................................... 9,366,823,566
2022................................................... 9,599,301,629
2023................................................... 9,285,621,375
------------------------------------------------------------------------
By way of further example, based on the proposed criteria, over 300
equity options classes that currently are limited to the maximum
position limit tier of 250,000 contracts would qualify for one of the
three proposed position limit tiers. Particularly, the Exchange has
determined that 182 equity options classes would be eligible for the
500,000 contracts tier limit; 110 equity options classes would be
eligible for the 1,000,000 contracts tier limit and 13 equity options
classes would be eligible for the 2,000,000 tier limit.\7\
---------------------------------------------------------------------------
\7\ As of October 12, 2023.
---------------------------------------------------------------------------
By way of further example, prior to the stock split in August
2020,\8\ equity options class AAPL had approximately 4,000,000,000
shares outstanding and the position limit of 250,000 contracts
represented control of 25,000,000 shares or 0.625% of the shares
outstanding. After the stock split, AAPL had approximately
16,000,000,000 shares outstanding. The immediate adjustment of the
position limit from 250,000 contracts to 1,000,000 contracts reflects
control of 100,000,000 shares or 0.625% of the shares outstanding which
retains the pre-stock split ratio. When the last AAPL option listed at
the time of the stock split in 2020 expired in September 2022, the OCC
reverted back to the original position limit for AAPL of 25,000,000
shares (250,000 contracts), which is the maximum stock option position
limits permitted under the Exchange's rules.\9\ Although this position
limit technically adheres to the Exchange's rules, it is more
restrictive than the original position limit. Particularly, readjusting
the position limit back to 25,000,000 shares (250,000 contracts) when
there are 16,000,000,000 shares outstanding reduces the position limit
to 0.156% of the shares outstanding, making the post-stock split
position limit more restrictive than the pre-stock split position limit
and would [sic] arguably no longer be meaningfully related to the
current shares outstanding. Further, the Exchange notes that the
current 250,000 position limit for AAPL forces market participants to
reduce trading activity because the maximum position limit only
represents 0.156% of the total shares outstanding. This reduction in
trading volume also represents a reduction in available liquidity and
negatively impacts liquidity, trading volume, and possibly execution
prices. By comparison, under the proposed criteria, AAPL options would
qualify for the 2,000,000 contract position limit, which is over 12%
higher than the current maximum position limit. The adjustment of the
position limit from 250,000 contracts to 2,000,000 contracts reflects
control of 200,000,000 shares or 1.25% of the shares outstanding, which
is well within ratios provided by the prior methodology and the
Exchange believes would lead to a more liquid and competitive market
environment for these options, which will benefit customers that trade
these options. Further, given the total increased volume in trading,
the Exchange believes it is reasonable to conclude that in addition to
AAPL, position limits for many classes is [sic] currently more
restrictive than they were when adopted in 2005.
---------------------------------------------------------------------------
\8\ See Notice, 88 FR at 29728, citing OCC Memo #47509, Apple
Inc.--4 for 1 Stock Split (August 28, 2020).
\9\ Position limit increases that result in the case of a stock
split remain in effect until the expiration of all listed options
that existed at the time of the split, at which time the position
limits revert to pre-split levels. This is an industry practice
applied by OCC, which currently administers position limit levels on
behalf of U.S. options exchanges.
---------------------------------------------------------------------------
The Exchange also believes that the increase in options volume and
lack of evidence of market manipulation occurrences over the past
twenty years justifies the proposed increases in the position and
exercise limits. Moreover, several market participants across the
industry have petitioned the industry to increase the current levels.
The Commission has previously stated,
Since the inception of standardized options trading, the options
exchanges have had rules imposing limits on the aggregate number of
options contracts that a member or customer could hold or exercise.
These rules are intended to prevent the establishment of options
positions that can be used or might create incentives to manipulate
or disrupt the underlying market so as to benefit the options
position. In particular, position and exercise limits are designed
to minimize the potential for mini-manipulations and for corners or
squeezes of the underlying market. In addition, such limits serve to
reduce the possibility for
[[Page 86703]]
disruption of the options market itself, especially in illiquid
options classes.\10\
---------------------------------------------------------------------------
\10\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
The Exchange believes that the existing surveillance procedures and
reporting requirements at the Exchange are adequate to identify
violative trading activity. These procedures include daily monitoring
of market activity via automated surveillance techniques to identify
unusual activities in both options and underlying stocks and Exchange
Traded Products (``ETPs'').
The Exchange believes that increasing the position limits for
qualifying equity options would lead to a more liquid and competitive
market environment for these options, which will benefit customers that
trade these options. Further, the reporting requirement for such
options would remain unchanged. Thus, the Exchange will still require
that each TPH or TPH organization that maintains positions in impacted
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 includes, 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 (including Designated Primary Market-
Makers (``DPMs'')) 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 and will continue to serve as an important part of the
Exchange's surveillance efforts.\12\
---------------------------------------------------------------------------
\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. The Exchange also notes
that large stock holdings must be disclosed to the Commission by way of
Schedules 13D or 13G,\13\ 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\ 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 equity
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.\14\ In addition, Rule 15c3-1 \15\
imposes a capital charge on TPHs to the extent of any margin deficiency
resulting from the higher margin requirement.
---------------------------------------------------------------------------
\14\ See Rule 10.3 for a description of margin requirements.
\15\ 17 CFR 240.15c3-1.
---------------------------------------------------------------------------
The Exchange also has no reason to believe that the growth in
trading volume in equity options will not continue. Rather, the
Exchange expects continued options volume growth as opportunities for
investors to participate in the options markets increase and evolve.
The Exchange believes that the current position and exercise limits are
restrictive, and not adopting increased position and exercise limit
categories will hamper the listed options markets from being able to
compete fairly and effectively with the 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. In fact, the Commission
previously highlighted competition with the OTC markets as a reason for
increasing the standard position and exercise limits.\16\ Specifically,
the Commission stated,
---------------------------------------------------------------------------
\16\ See Securities Exchange Act Release No. 40875 (December 31,
1998), 64 FR 1842 (January 12, 1999) (SR-CBOE-1998-25).
The increase in position and exercise limits for standardized
equity options should allow the Exchanges to better compete with the
growing OTC market in customized equity options, thereby encouraging
fair competition among brokers and exchange markets.\17\
---------------------------------------------------------------------------
\17\ Id.
In addition, the Exchange believes that without the proposed
changes to position and exercise limits, market participants will find
the standard equity position limits an impediment to their business and
investment objectives. As such, market participants may find the less
transparent OTC markets a more attractive alternative to achieve their
investment and hedging objectives, leading to a retreat from the listed
options markets, where trades are subject to reporting requirements and
daily surveillance.
Implementation Date
Given this is an industry-wide proposal, implementation will
require that all U.S. listed options exchanges adopt similar rule
language regarding position limits. The Exchange will wait to announce
implementation date for the proposed rule change (via Exchange Notice)
until all exchanges have received regulatory approval for similar rule
language.
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.\18\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \19\ 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) \20\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78f(b)(5).
\20\ Id.
---------------------------------------------------------------------------
The Exchange believes that the proposed adoption of three increased
[[Page 86704]]
position limit categories 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 more effectively
execute their trading and hedging activities. Also, adopting increased
position limit categories for equity options may allow Market-Makers to
maintain their liquidity in these options in amounts commensurate with
the continued high consumer demand in the impacted underlyings' options
market. The proposed higher position limits 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 current liquidity in
shares of and options on the underlyings will mitigate concerns
regarding potential manipulation of the products and/or disruption of
the underlying markets upon increasing the relevant position limits. As
a general principle, increases in active trading volume and deep
liquidity of the underlying securities do not lead to manipulation and/
or disruption. This general principle applies to the recently observed
increased levels of trading volume and liquidity in shares of and
options on the underlyings (as described above), and, as a result, the
Exchange does not believe that the options markets or underlying
markets would become susceptible to manipulation and/or disruption as a
result of the proposed higher position limit categories. Further, as
noted above, the Exchange has no reason to believe that the growth in
trading volume in equity options will not continue. Rather, the
Exchange expects continued options volume growth as opportunities for
investors to participate in the options markets continue to increase
and evolve. Additionally, the Exchange continues to maintain a process
in which every six-months, the status of the underlying securities are
reviewed to determine what limit should apply.\21\ Accordingly, in the
event stock trading volume and/or outstanding shares for particular
securities significantly declines in the future, such overlying options
classes will merely be moved to a lower corresponding, position tier
limit under the rules at the next regularly scheduled review.
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\21\ See Current Cboe Options Rule 8.30.02(f).
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Further, the Exchange notes that the proposed rule change to adopt
increased position limits for actively traded options is not novel.
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.\22\ The Commission also has
approved similar proposed rule changes by the Exchange to increase
position limits for options on highly liquid and actively traded ETPs
(e.g., iShares Russell 2000 ETF (``IWM''), the iShares MSCI Emerging
Markets ETF (``EEM''), iShares China Large-Cap ETF (``FXI''), and
iShares MSCI EAFE ETF (``EFA''), VanEck Vectors Gold Miners ETF
(``GDX''), and iShares iBoxx $ Investment Grade Corporate Bond ETF
(``LQD'')).\23\ While those are ETPs and the current proposal applies
to equity options, pursuant to Rule 8.30, the position limits for
options on stock and ETPs are generally calculated in the same manner
and based in part on trading volume of the underlying. Further, by way
of comparison, the outstanding shares of AAPL stock is significantly
higher than that of IWM, EEM, FXI and EFA, which have an overlying
options position limit of 1,000,000 (as compared to the 250,000
position limit for AAPL options).\24\ Particularly, while the
outstanding shares of AAPL is currently nearly 16 billion shares, the
outstanding shares of IWM, EEM, FXI and EFA range between approximately
187 million and 673 million. The Exchange notes that the criteria under
the proposed new position limit tier categories of 1,000,000 and
2,000,000 for equity options require the most recent six-month trading
volume of the underlying security to have totaled at least 1 billion or
5 billion shares, respectively or have at least 3 billion or 15 billion
shares, respectively, of the underlying security outstanding.\25\ The
proposed criteria under the 500,000 position limit category requires
the most recent six-month trading volume of the underlying security to
have totaled at least 500 million shares or have at least 1.5 billion
shares of the underlying security outstanding \26\ (by comparison, LQD
and GDX, have approximately 275 million shares and 395 million shares
outstanding, and have an overlying options position limit of 500,000).
The Exchange therefore believes it is reasonable and appropriate to
increase the position limit of options as proposed to similar position
limits that apply for certain ETPs.
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\22\ See Securities Exchange Act Release No. 40969 (January 22,
1999), 64 FR 4911, 4913 (February 1, 1999) (SR-CBOE-98-23).
\23\ 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).
\24\ 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).
\25\ There is also a corresponding recent six-month volume of
the underlying security requirement that must be satisfied in
addition to the requirement relating to total outstanding shares.
\26\ There is also a corresponding recent six-month volume of
the underlying security requirement that must be satisfied in
addition to the requirement relating to total outstanding shares.
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Finally, as discussed above, 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 the options on the
underlying securities, further promoting just and equitable principles
of trading, the maintenance of a fair and orderly market, and the
protection of investors.
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 that the proposed rule change will
impose any burden on intra-market competition as the rules of the
Exchange apply equally to all TPHs of the Exchange and all TPHs of the
Exchange are required to adhere to the position limits established by
the Exchange's rules. The Exchange believes that the proposed rule
change will also provide additional opportunities for market
participants to continue to efficiently achieve their investment and
trading objectives for equity options on the Exchange.
The Exchange does not believe that the proposed rule change will
impose any burden on inter-market competition as the proposal is not
competitive in
[[Page 86705]]
nature. The Exchange expects that all option exchanges will adopt
substantively similar proposals for adopting the additional position
limit tiers, such that the Exchange's proposal would benefit
competition. For these reasons, the Exchange does not believe that the
proposed rule change will impose any burden on competition not
necessary or appropriate in furtherance of the purposes of the Act.
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-2023-063 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-CBOE-2023-063. 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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-CBOE-2023-063 and should be
submitted on or before January 4, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-27397 Filed 12-13-23; 8:45 am]
BILLING CODE 8011-01-P
