[Federal Register Volume 83, Number 41 (Thursday, March 1, 2018)]
[Notices]
[Pages 8907-8912]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-04128]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82770; File No. SR-CBOE-2017-057]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing of Amendment No. 2 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To Amend 
Interpretation and Policy .07 of Exchange Rule 4.11, Position Limits, 
To Increase the Position Limits for Options on Certain Exchange Traded 
Products

February 23, 2018.

I. Introduction

    On August 15, 2017, Cboe Exchange, Inc. (``Exchange'' or ``Cboe'') 
filed with

[[Page 8908]]

the Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change to amend 
Interpretation and Policy .07 of Exchange Rule 4.11, Position Limits, 
to increase the position limits for options on the following exchange 
traded funds (``ETFs'') and exchange traded note (``ETN''): iShares 
China Large-Cap ETF (``FXI''), iShares MSCI EAFE ETF (``EFA''), iShares 
MSCI Emerging Markets ETF (``EEM''), iShares Russell 2000 ETF 
(``IWM''), iShares MSCI Brazil Capped ETF (``EWZ''), iShares 20+ Year 
Treasury Bond Fund ETF (``TLT''), iPath S&P 500 VIX Short-Term Futures 
ETN (``VXX''),\3\ PowerShares QQQ Trust (``QQQQ''), and iShares MSCI 
Japan ETF (``EWJ''). The proposed rule change was published for comment 
in the Federal Register on August 31, 2017.\4\ On October 11, 2017, 
pursuant to Section 19(b)(2) of the Act,\5\ the Commission designated a 
longer period within which to approve the proposed rule change, 
disapprove the proposed rule change, or institute proceedings to 
determine whether to approve or disapprove the proposed rule change.\6\ 
The Commission received no comments on the original proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ As noted below, the Exchange subsequently amended its 
proposal to remove the proposed increase in position limits for 
options on the VXX ETN. See infra note 11.
    \4\ See Securities Exchange Act Release No. 81483 (August 25, 
2017), 82 FR 41457 (``Notice'').
    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 81853, 82 FR 48300 
(October 17, 2017). The Commission designated November 29, 2017 as 
the deadline for the Commission to approve or disapprove, or 
institute proceedings to determine whether to approve or disapprove, 
the proposed rule change.
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    On November 22, 2017, the Exchange submitted Amendment No. 1 to the 
proposed rule change.\7\ On November 29, 2017, the Commission published 
notice of Amendment No. 1 and instituted proceedings under Section 
19(b)(2)(B) of the Act \8\ to determine whether to approve or 
disapprove the proposed rule change, as modified by Amendment No. 1.\9\ 
The Commission received one comment letter on the proposed rule change 
in response to the Order Instituting Proceedings.\10\ On February 21, 
2018, the Exchange filed Amendment No. 2 to the proposed rule 
change.\11\ The Commission is publishing this notice to solicit comment 
on Amendment No. 2, and is approving the proposed rule change, as 
modified by Amendment Nos. 1 and 2, on an accelerated basis.
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    \7\ In Amendment No. 1, the Exchange provided additional 
justification and analysis in support of the proposal, which is 
summarized below. The full text of Amendment No. 1 has been placed 
in the public comment file for SR-CBOE-2017-57 and is available at: 
https://www.sec.gov/comments/sr-cboe-2017-057/cboe2017057-2715774-161526.pdf.
    \8\ 15 U.S.C. 78s(b)(2)(B).
    \9\ See Securities Exchange Act Release No. 82168, 82 FR 57501 
(December 5, 2017) (``Order Instituting Proceedings'').
    \10\ See Letter to Brent J. Fields, Secretary, Commission, from 
Ellen Greene, Managing Director, Securities Industry and Financial 
Markets Association, dated December 19, 2017 (``SIFMA Letter'').
    \11\ In Amendment No. 2, the Exchange revised its proposal to 
eliminate the proposed increase to position limits for options on 
VXX. The full text of Amendment No. 2 has been placed in the comment 
file for SR-CBOE-2017-57 and is available at: https://www.sec.gov/comments/sr-cboe-2017-057/cboe2017057-3120566-161917.pdf.
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II. Description of the Proposal, as Modified by Amendment Nos. 1 and 2

    Currently, position limits for options on ETFs such as those 
subject to the proposal, as amended,\12\ are determined pursuant to 
Exchange Rule 4.11, and, with certain exceptions, vary by tier 
according to the number of outstanding shares and past six-month 
trading volume of the underlying security.\13\ Options in the highest 
tier--i.e., options that overlie securities with the largest numbers of 
outstanding shares and trading volume--have a standard option position 
limit of 250,000 contracts (with adjustments for splits, re-
capitalizations, etc.) on the same side of the market.\14\ In addition, 
Interpretation and Policy .07 of Exchange Rule 4.11 currently sets 
forth separate position limits for options on certain ETFs, including 
500,000 contracts for options on EEM and IWM, and 900,000 contracts for 
options on QQQQ.
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    \12\ See Notice, supra note 4, at 41458, for descriptions 
provided by the Exchange regarding the composition and design of the 
underlying securities of each of the options subject to this 
proposal.
    \13\ Pursuant to Exchange Rule 4.12, Interpretation and Policy 
.02, which provides that the exercise limits for ETF options are 
equivalent to their position limits, the exercise limits for each of 
these options would be increased to the level of the new position 
limits.
    \14\ To be eligible for this tier, the recent six-month trading 
volume of the underlying security must have totaled at least 
100,000,000 shares; or the most recent six-month trading volume of 
the underlying security must have totaled at least 75,000,000 shares 
and the underlying security must have at least 300,000,000 shares 
currently outstanding.
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    In the proposal, as amended, the Exchange proposes to revise 
Interpretation and Policy .07 to Exchange Rule 4.11 to increase the 
position limits for options on certain ETFs, as described more fully 
below. The Exchange states its belief that increasing the position 
limits for these options will lead to a more liquid and competitive 
market environment for these options that will benefit customers 
interested in these products.\15\
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    \15\ See Notice, supra note 4, at 41459.
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    First, the Exchange proposes to increase the position limits for 
options on FXI, EFA, EWZ, TLT, and EWJ, each of which fall into the 
highest standard tier set forth in Rule 4.11. The Exchange proposes to 
increase the current position limit of 250,000 contracts for options on 
these securities to 500,000 contracts.\16\ In support of this change, 
the Exchange compares certain trading characteristics of FXI, EFA, EWZ, 
TLT, and EWJ (the average daily trading volume of the security and of 
the overlying option), as well as the number of outstanding shares and 
market capitalization of each of these securities, to the same figures 
for EEM and IWM, both of which currently have a position limit of 
500,000 contracts.\17\ Referencing this data, the Exchange maintains 
that the trading characteristics of FXI, EFA, EWZ, TLT, and EWJ are 
either similar to that of EEM and IWM or reflect trading activity 
sufficient to assure that the proposed position limit would continue to 
address potential manipulation.\18\
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    \16\ In connection with this change, the exercise limits for 
these options would rise to 500,000 contracts. See supra note 13.
    \17\ See Notice, supra note 4, at 41459. With respect to trading 
characteristics, specifically, the Exchange states that the average 
daily trading volumes of FXI, EFA, EWZ, TLT, and EWJ for the periods 
analyzed were 15.08 million shares, 19.42 million shares, 17.08 
million shares, 8.53 million shares, and 6.06 million shares, 
respectively. The figures for EEM and IWM were 52.12 million shares 
and 27.46 million shares. With regard to the overlying options, 
trading volumes for the first group were 71,944 contracts, 98,844 
contracts, 95,152 contracts, 80,476 contracts, and 4,715 contracts, 
while trading volumes for EEM options and IWM options were 287,357 
and 490,070, respectively. The Exchange further states that the 
total shares outstanding for FXI was 78.6 million, EFA was 1178.4 
million, EWZ was 159.4 million, TLT was 60 million, and EWJ was 
303.6 million compared to 797.4 million for EEM and 253.1 million 
for IWM. Finally, the Exchange states that the fund market cap for 
FXI was $3,343.6 million, EFA was $78,870.3 million, EWZ was 
$6,023.4 million, TLT was $7,442.4 million, and EWJ was $16,625.1 
million compared to $34,926.1 million for EEM and $35,809.1 million 
for IWM.
    \18\ See id. With respect to FXI, EWZ, and TLT, the Exchange 
acknowledges that these securities are not as actively traded as EEM 
and IWM, but notes that each is based on a broad basket of 
underlying securities and maintains that trading of each is 
sufficiently active so as to alleviate concerns about potential 
manipulative activity. Id.
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    In addition, the Exchange proposes to increase the position limits 
for options on EEM and IWM from 500,000 contracts to 1,000,000 
contracts.\19\ In support of this change, the Exchange compares the 
trading characteristics of

[[Page 8909]]

EEM and IWM to that of QQQQ, which currently has a position limit of 
900,000 contracts, and states its belief that, given the respective 
trading behaviors of EEM and IWM, the proposed position limits would 
continue to address potential manipulative schemes and adverse market 
impact on trading in the options and their underlying shares.\20\
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    \19\ In connection with this change, the exercise limits for 
these options would rise to 1,000,000 contracts. See supra note 13.
    \20\ See Notice, supra note 4, at 41458-59. Specifically, the 
Exchange states that the average daily trading volumes for EEM and 
IWM, respectively, were 52.12 million shares and 27.46 million 
shares, compared to 26.25 million shares for QQQQ. With regard to 
the overlying options, the average daily volumes for EEM and IWM 
options were 287,357 contracts and 490,070 contracts, respectively, 
as compared to 579,404 for QQQQ. The Exchange further states that 
the total shares outstanding for EEM were 797.4 million and for IWM 
were 253.1 million compared to 351.6 million for QQQQ. Finally, the 
Exchange states that the fund market cap for EEM was $34,926.1 
million and IWM was $35,809.1 million compared to $50,359.7 million 
for QQQQ.
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    Finally, the Exchange proposes to increase the position limits for 
options on QQQQ from 900,000 contracts to 1,800,000 contracts.\21\ In 
support of this change, the Exchange compares the trading and other 
characteristics of QQQQ to that of the SPDR S&P 500 ETF (``SPY''), 
which currently has no position limits, and states its belief that the 
proposed position limit and QQQQ's trading behavior would continue to 
address potential manipulative schemes and adverse market impact 
surrounding the use of options and trading in its underlying 
shares.\22\
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    \21\ In connection with this change, the exercise limits for 
these options would rise to 1.8 million contracts. See supra note 
13.
    \22\ See Notice, supra note 4, at 41458. Specifically, the 
Exchange states that the average daily trading volume for QQQQ was 
26.25 million shares compared to 64.63 million shares for SPY, while 
the average daily volume for options contracts overlying QQQQ was 
579,404, as compared to 2,575,153 for SPY. The Exchange further 
states that the total shares outstanding for QQQQ were 351.6 million 
compared to 976.23 million for SPY. Finally, the Exchange states 
that the fund market cap for QQQQ was $50,359.7 million compared to 
$240,540 million for SPY.
    The Commission notes that the lack of position limits for SPY is 
currently subject to a pilot program. See Securities Exchange Act 
Release Nos. 67937 (September 27, 2012), 77 FR 60489 (October 3, 
2012) (SR-CBOE-2012-091) (eliminating position and exercise limits 
for SPY options on a pilot basis); and 81017 (June 26, 2017), 82 FR 
29960 (June 30, 2017) (SR-CBOE-2017-050) (extending the SPY pilot 
program to July 12, 2018).
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    The Exchange states that the current position limits for the 
options subject to the proposal have inhibited the ability of Market 
Makers to make markets on the Exchange.\23\ Specifically, the Exchange 
avers, the proposal is designed to encourage Market Makers to shift 
liquidity from over-the-counter markets onto the Exchange, which, it 
believes, will enhance the process of price discovery conducted on the 
Exchange through increased order flow.\24\ The proposal will also 
benefit institutional investors, retail traders, and public customers, 
the Exchange maintains, by providing them with a more effective trading 
and hedging vehicle.\25\
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    \23\ See Notice, supra note 4, at 41460. See also Amendment No. 
1, in which the Exchange states that it submitted the proposal at 
the request of market participants whose on-exchange activity has 
been ``hindered by existing position limits, causing them to be 
unable to provide additional liquidity not just on the Exchange, but 
also on other options exchanges on which they participate.''
    \24\ See Notice, supra note 4, at 41460. See also Amendment No. 
1, in which the Exchange reiterates its understanding that certain 
market participants are opting to execute trades involving large 
numbers of options contracts in the symbols subject to the proposal 
in the over-the-counter market, and argues that these large trades 
do not contribute to the price discovery process performed on a lit 
market.
    \25\ See Notice, supra note 4, at 41460.
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    With regard to the concerns that position limits generally are 
meant to address, the Exchange represents that ``the structure of the 
[ETFs] subject to this proposal and the considerable liquidity of the 
market for options on those [ETFs] diminishes the opportunity to 
manipulate [these] product[s] and disrupt the underlying market[s] that 
a lower position limit may protect against.'' \26\ In Amendment No. 1, 
the Exchange elaborates further and describes at length: (i) The 
creation and redemption process for ETFs (and a similar process for the 
ETN that was originally subject to the proposal \27\); (ii) the 
arbitrage activity that ensues when such instruments are overpriced or 
are trading at a discount to the securities on which they are based and 
which, the Exchange maintains, helps to keep the instrument's price in 
line with the value of its underlying portfolio; and (iii) how these 
processes, in the Exchange's view, serve to mitigate the potential 
price impact of the ETF shares (or the ETN that was originally subject 
to the proposal) that might otherwise result from increased position 
limits.\28\
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    \26\ See id.
    \27\ With regard to the ETN option originally included in the 
proposal--VXX--the Exchange acknowledged that there is no direct 
analogue to ETF ``creation,'' but observed that the ETN issuer may 
sell additional VXX shares from its inventory. Regardless of whether 
VXX shares are redeemed or new VXX shares are issued, the Exchange 
stated, an issuer may transact in VIX futures in order to hedge its 
exposure, resulting in an arbitrage process similar to the one that 
exists for ETFs, as described above, thereby helping to keep an 
ETN's price in line with the value of its underlying index. See 
Amendment No. 1.
    \28\ See id.
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    In addition, in Amendment No. 1 the Exchange states that (i) some 
of the subject ETFs (and the ETN that was originally subject to the 
proposal) are based on broad-based indices that underlie cash-settled 
options that are economically equivalent to the relevant ETF and have 
no position limits; and (ii) others are based on broad-based indices 
that underlie cash-settled options with position limits reflecting a 
notional value that is larger than the current position limit for their 
ETF analogue.\29\ According to the Exchange, if certain position limits 
are appropriate for the options overlying the same index or an analogue 
to the basket of securities that the ETF tracks, then those same 
economically equivalent position limits should be appropriate for the 
option overlying the ETF.\30\ The Exchange believes that options on 
QQQ, IWM, EEM, and EFA meet the criterion of economic equivalence to 
cash-settled options.\31\ For the other ETFs in the proposal where this 
does not apply (because there is currently no index analogue approved 
for options trading), the Exchange argues that, based on the liquidity, 
breadth, and depth of the underlying market, the index referenced by 
the ETF would be considered a broad-based index under the Exchange's 
rules.\32\ The Exchange also cites data in support of its argument that 
the market capitalization of the underlying index or reference asset of 
each of the ETFs (and the ETN that was originally subject to the 
proposal) is large enough to absorb any price movements that may be 
caused by an oversized trade, and thus justifies increasing position 
limits for the options on these products.\33\
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    \29\ See id.
    \30\ See id.
    \31\ See id. The Exchange similarly included VXX in this 
discussion, but subsequently withdrew the increase in position 
limits for options on VXX from the proposal in Amendment No. 2, as 
previously noted. See supra note 11.
    \32\ See Amendment No. 1.
    \33\ See id.
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    As noted, in Amendment No. 2, the Exchange withdrew options on VXX 
from the subject of the proposal, stating that, ``doing so will allow 
the Exchange to provide the Commission with additional support for 
increasing the options on the VXX's position limits, which it expects 
to do through a separate proposed rule change to be submitted at a 
later date.'' \34\ Accordingly, this Order does not address position 
limits on options on VXX.
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    \34\ See Amendment No. 2.
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    The Exchange also refers to other provisions in its rules, noting, 
for example, that the options reporting requirements of Exchange Rule 
4.13 would continue to be applicable to the options subject to the 
proposal.\35\ As set

[[Page 8910]]

forth in Exchange Rule 4.13(a), each Trading Permit Holder (``TPH'') 
must report to the Exchange certain information in relation to any 
customer who, acting alone, or in concert with others, on the previous 
business day maintained aggregate long or short positions on the same 
side of the market of 200 or more contracts in any single class of 
option contracts dealt in on the Exchange.\36\ Further, Exchange Rule 
4.13(b) requires each TPH (other than an Exchange market-maker or 
Designated Primary Market-Maker) \37\ that maintains a position in 
excess of 10,000 non-FLEX equity option contracts on the same side of 
the market, on behalf of its own account or for the account of a 
customer, to report to the Exchange information as to whether such 
positions are hedged, and provide documentation as to how such 
contracts are hedged.\38\
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    \35\ See Notice, supra note 4, at 41460.
    \36\ The report must include, for each such class of options, 
the number of option contracts comprising each such position and, in 
the case of short positions, whether covered or uncovered. See 
Exchange Rule 4.13(a).
    \37\ According to the Exchange, market-makers (including 
Designated Primary Market-Makers) are exempt from the referenced 
reporting requirement because market-maker information can be 
accessed through the Exchange's market surveillance systems. See 
Notice, supra note 4, at 41459.
    \38\ According to the Exchange, this information would include, 
but would not be limited to, the option position, whether such 
position is hedged and, if so, a description of the hedge, and the 
collateral used to carry the position, if applicable. See id.
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    The Exchange also represents that the existing surveillance 
procedures and reporting requirements at the Exchange, other options 
exchanges, and at the several clearing firms are capable of properly 
identifying unusual and/or illegal trading activity.\39\ According to 
the Exchange, its surveillance procedures utilize daily monitoring of 
market movements via automated surveillance techniques to identify 
unusual activity in both options and underlying stocks.\40\ In 
addition, the Exchange states that its surveillance procedures have 
been effective for the surveillance of trading in the options subject 
to this proposal, and will continue to be employed.\41\
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    \39\ See id.
    \40\ See id.
    \41\ See id. at 41459 n.23.
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    The Exchange also argues that the current financial requirements 
imposed by the Exchange and by the Commission adequately address 
concerns that a TPH or its customer may try to maintain an inordinately 
large unhedged position in the options subject to this proposal.\42\ 
Current margin and risk-based haircut methodologies, the Exchange 
states, serve to limit the size of positions maintained by any one 
account by increasing the margin and/or capital that a TPH must 
maintain for a large position held by itself or by its customer.\43\ In 
addition, the Exchange notes that the Commission's net capital rule, 
Rule 15c3-1 under the Act,\44\ imposes a capital charge on TPHs to the 
extent of any margin deficiency resulting from the higher margin 
requirement.\45\
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    \42\ See id. at 41459.
    \43\ See id. at 41459-60.
    \44\ 17 CFR 240.15c3-1.
    \45\ See Notice, supra note 4, at 41460.
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III. Comment Received in Response to Order Instituting Proceedings

    As noted above, the Commission published an Order Instituting 
Proceedings to determine whether to approve or disapprove the proposed 
rule change, as modified by Amendment No. 1.\46\ In the Order 
Instituting Proceedings, the Commission sought comment on the 
sufficiency and merit of the Exchange's statements in support of the 
proposal, as modified by Amendment No. 1, including, in particular, 
whether the position and exercise limit for each option as proposed 
could impact markets adversely.\47\
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    \46\ See Order Instituting Proceedings, supra note 9.
    \47\ See id. at 57504.
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    The Commission received one comment letter in response to the Order 
Instituting Proceedings.\48\ The commenter expressed support for the 
proposal, as then modified by Amendment No. 1.\49\ The commenter stated 
that the markets underlying the ETFs subject to the proposal (and the 
ETN that was originally subject to the proposal), as modified by 
Amendment No. 1, are sufficiently large to justify an increase in 
position limits for the associated options.\50\ The commenter further 
stated that the creation and redemption process for the underlying 
products will absorb price volatility caused by large trades in the 
underlying ETFs (or the ETN that was originally subject to the 
proposal).\51\ The commenter also noted that the proposed increases in 
position limits may encourage existing trading activity in the over-
the-counter markets to move to the Exchange.\52\ The commenter added 
that even if it were assumed that the options positions established 
following a position limit increase represented only new market 
entrants (and not a migration of pre-existing over-the-counter 
positions), a position limit increase alone would not necessarily 
result in added volatility in the underlying instruments.\53\
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    \48\ See supra note 10.
    \49\ See SIFMA Letter at 1-2.
    \50\ See id. at 2.
    \51\ See id.
    \52\ See id.
    \53\ See id.
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IV. Discussion and Commission Findings

    The Commission finds that the proposed rule change, as modified by 
Amendment Nos. 1 and 2, is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange.\54\ In particular, the Commission finds that the 
proposed rule change, as modified by Amendment Nos. 1 and 2, is 
consistent with Section 6(b)(5) of the Act,\55\ which requires, among 
other things, that the rules of a national securities exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system and, in general, to protect investors and the public 
interest.
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    \54\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \55\ 15 U.S.C. 78f(b)(5).
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    Position and exercise limits serve as a regulatory tool designed to 
address manipulative schemes and adverse market impact surrounding the 
use of options. Since the inception of standardized options trading, 
the options exchanges have had rules limiting the aggregate number of 
options contracts that a member or customer may hold or exercise.\56\ 
These position and exercise limits are intended to prevent the 
establishment of options positions that can be used or might create 
incentives to manipulate the underlying market so as to benefit the 
options positions.\57\ In particular, position and exercise limits are 
designed to minimize the potential for mini-manipulations and for 
corners or squeezes of the underlying market.\58\ In addition, such 
limits serve to reduce the possibility for disruption of the options 
market itself, especially in illiquid classes.\59\
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    \56\ See, e.g., Securities Exchange Act Release No. 45236 
(January 4, 2002), 67 FR 1378 (January 10, 2002) (SR-Amex-2001-42).
    \57\ See, e.g., Securities Exchange Act Release No. 47346 
(February 11, 2003), 68 FR 8316 (February 20, 2003) (SR-CBOE-2002-
26).
    \58\ See id.
    \59\ See id.
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    Over the years, the Commission has taken a gradual, evolutionary 
approach toward expansion of position and exercise limits for option 
products

[[Page 8911]]

overlying certain ETFs where there is considerable liquidity in both 
the underlying cash markets and the options markets, and, in the case 
of certain broad-based index options, toward elimination of such limits 
altogether.\60\ The Commission has been careful to balance two 
competing concerns when considering proposals by self-regulatory 
organizations to change position and exercise limits. The Commission 
has recognized that the limits can be useful to prevent investors from 
disrupting the market in securities underlying the options.\61\ At the 
same time, the Commission has determined that limits should not be 
established in a manner that will unnecessarily discourage 
participation in the options market by institutions and other investors 
with substantial hedging needs or to prevent specialists and market 
makers from adequately meeting their obligations to maintain a fair and 
orderly market.\62\
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    \60\ The Commission's incremental approach to approving changes 
in position and exercise limits for option products overlying 
certain ETFs is well-established. See, e.g., Securities Exchange Act 
Release Nos. 67672 (August 15, 2012), 77 FR 50750, 50752 & n.42 
(August 22, 2012) (SR-NYSEAmex-2012-29) (approving proposed rule 
change to eliminate position limits for SPY options on a pilot 
basis); 64695 (June 17, 2011), 76 FR 36942, 36943 & n.19 (June 23, 
2011) (SR-Phlx-2011-58) (approving increase of SPY options position 
limit to 900,000 contracts).
    \61\ See Securities Exchange Act Release No. 39489 (December 24, 
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-97-11).
    \62\ See id.
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    After careful consideration of the proposal, as modified by 
Amendment Nos. 1 and 2, and the comment received, the Commission 
believes that it is reasonable for the Exchange to increase the 
position and exercise limits for options on FXI, EFA, EWZ, TLT, and EWJ 
to 500,000 contracts, for options on EEM and IWM to 1,000,000 
contracts, and for options on QQQQ to 1,800,000 contracts. As noted 
above, the markets for standardized options on these securities and for 
the underlying products themselves have substantial trading volume and 
liquidity. The Commission believes that this liquidity would reduce the 
possibility of manipulating these products and the disruption in the 
underlying markets that lower position limits may protect against.
    The Commission also has considered the creation and redemption 
process for the ETFs subject to the modified proposal; the existence of 
an issuer arbitrage mechanism that helps keep the ETF's price in line 
with the value of its underlying portfolio when overpriced or trading 
at a discount to the securities on which it is based; and how these 
processes serve to mitigate the potential price impact of the ETF 
shares that might otherwise result from increased position limits.\63\
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    \63\ See supra notes 27-28 and accompanying text.
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    In addition, as discussed above, the Exchange believes that current 
margin and net capital requirements serve to limit the size of 
positions maintained by any one account.\64\ The Commission agrees that 
these financial requirements should help to address concerns that a 
member or its customer may try to maintain an inordinately large 
unhedged position in the options subject to this proposal and will help 
to reduce risks if such a position is established.
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    \64\ See supra notes 42-45 and accompanying text.
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    The Commission further agrees with the Exchange that the reporting 
requirements imposed by Exchange Rule 4.13,\65\ as well as the 
Exchange's surveillance procedures, together with those of other 
exchanges and clearing firms,\66\ should help protect against potential 
manipulation. The Commission expects that the Exchange will continue to 
monitor trading in the options subject to this proposal for the purpose 
of discovering and sanctioning manipulative acts and practices, and to 
reassess the position and exercise limits, if and when appropriate, in 
light of its findings.
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    \65\ See supra notes 35-38 and accompanying text.
    \66\ See supra notes 39-41 and accompanying text.
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    In sum, given the measure of liquidity for the options subject to 
this proposal and the underlying products, the creation and redemption 
process and issuer arbitrage mechanisms that exist relating to the 
underlying instruments, the margin and capital requirements cited 
above, the Exchange's options reporting requirements, and the 
Exchange's surveillance procedures and agreements with other markets, 
the Commission believes that increasing the position and exercise 
limits for FXI, EFA, EWZ, TLT, and EWJ options to 500,000 contracts, 
EEM and IWM options to 1,000,000 contracts, and QQQQ options to 
1,800,000 contracts is consistent with the Act.

V. Solicitation of Comments on Amendment No. 2 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 2 is consistent with the 
Act. Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CBOE-2017-057 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2017-057. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://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-2017-057, and should be submitted 
on or before March 22, 2018.

VI. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment Nos. 1 and 2

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment Nos. 1 and 2, prior to the thirtieth 
day after the date of publication of notice of the filing of Amendment 
No. 2 in the Federal Register. As discussed above, in Amendment No. 2, 
the Exchange revised its proposal to eliminate the proposed increase to 
position limits for

[[Page 8912]]

options on VXX. The Commission notes that Amendment No. 2 does not 
otherwise modify the proposed rule change, as modified by Amendment No. 
1, which was subject to a full notice-and-comment period. Rather, 
Amendment No. 2 serves to narrow the scope of the original proposal by 
maintaining the existing position limit of 250,000 contracts for 
options on VXX. Accordingly, the Commission finds good cause, pursuant 
to Section 19(b)(2) of the Act,\67\ to approve the proposed rule 
change, as modified by Amendment Nos. 1 and 2, on an accelerated basis.
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    \67\ 15 U.S.C. 78s(b)(2).
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VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\68\ that the proposed rule change, as modified by Amendment Nos. 1 
and 2 (SR-CBOE-2017-057), be, and hereby is, approved on an accelerated 
basis.
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    \68\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\69\
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    \69\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018-04128 Filed 2-28-18; 8:45 am]
 BILLING CODE 8011-01-P


