[Federal Register Volume 83, Number 60 (Wednesday, March 28, 2018)]
[Notices]
[Pages 13330-13336]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-06138]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82930; File No. SR-BOX-2018-10]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
IM-3120-2 of BOX Rule 3120 (Position Limits) To Increase the Position 
Limits for Options on the Following Exchange Traded Funds: iShares 
China Large-Cap ETF, iShares MSCI EAFE ETF, iShares MSCI Emerging 
Markets ETF, iShares Russell 2000 ETF, iShares MSCI Brazil Capped ETF, 
iShares 20+ Year Treasury Bond Fund ETF, PowerShares QQQ Trust, and 
iShares MSCI Japan ETF

March 22, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 15, 2018, BOX Options Exchange LLC (the ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the self-regulatory organization. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend BOX Rule 3120 (Position Limits) to 
increase the position limits for options on the following exchange 
traded funds (``ETFs''): 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''), 
PowerShares QQQ Trust (``QQQQ''), and iShares MSCI Japan ETF (``EWJ''). 
The text of the proposed rule change is available from the principal 
office of the Exchange, at the Commission's Public Reference Room and 
also on the Exchange's internet website at http://boxoptions.com.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included

[[Page 13331]]

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 self-regulatory organization 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
    The Exchange proposes to amend IM-3120-2 to BOX Rule 3120 (Position 
Limits) to increase the position limits for options on the following 
exchange trade funds (``ETFs''): 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''), PowerShares QQQ Trust (``QQQQ''), and iShares MSCI Japan ETF 
(``EWJ'').This is a competitive filing that is based on a proposal 
recently submitted by the Chicago Board Options Exchange Incorporated 
(``CBOE'') and approved by the Commission.\3\
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    \3\ See Securities Exchange Act Release No. 82770 (February 23, 
2018), 83 FR 8907 (March 1, 2018)(Order Granting Accelerated 
Approval SR-SR-CBOE-2017-057).
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    Position limits are designed to address potential manipulative 
schemes and adverse market impact surrounding the use of options, such 
as disrupting the market in the security underlying the options. The 
potential manipulative schemes and adverse market impact are balanced 
against the potential of setting the limits so low as to discourage 
participation in the options market. The level of those position limits 
must be balanced between curtailing potential manipulation and the cost 
of preventing potential hedging activity that could be used for 
legitimate economic purposes. Position limits for options on ETFs, such 
as those subject to this proposal, are determined pursuant to BOX Rule 
3120, and vary according to the number of outstanding shares and the 
trading volume of the underlying stocks or ETFs over the past six-
months. Pursuant to BOX Rule 3120, the largest in capitalization and 
the most frequently traded stocks and ETFs have an option position 
limit of 250,000 contracts (with adjustments for splits, re-
capitalizations, etc.) on the same side of the market; and smaller 
capitalization stocks and ETFs have position limits of 200,000, 75,000, 
50,000 or 25,000 contracts (with adjustments for splits, re-
capitalizations, etc.) on the same side of the market. Options on FXI, 
EFA, EWZ, TLT, and EWJ are currently subject to the standard position 
limit of 250,000 contracts as set forth in BOX Rule 3120.\4\ IM-3120-2 
of BOX Rule 3120 sets forth separate position limits for options on 
specific ETFs as follows:
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    \4\ See https://www.theocc.com/webapps/delo-search.
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     Options on EEM are 500,000 contracts;
     Options on IWM are 500,000 contracts; and
     Options on QQQQ are 900,000 contracts.
    The purpose of this proposal is to amend IM-3120-2 to BOX Rule 3120 
to double the position and exercise limits for FXI, EEM, IWM, EFA, EWZ, 
TLT, QQQQ, and EWJ.\5\ As such, options on FXI, EFA, EWZ, TLT, and EWJ 
would no longer be subject to the standard position limits set forth 
under BOX Rule 3120. Accordingly, IM-3120-2 would be amended to set 
forth that the position limits for options on FXI, EFA, EWZ, TLT, and 
EWJ would be 500,000 contracts. These position limits equal the current 
position limits for option on IWM and EMM and are similar to the 
current position limit for options on QQQQ set forth in IM-3120-2. IM-
3120-2 would be further amended to increase the position limits for the 
remaining options subject to this proposal as follows:
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    \5\ By virtue of IM-3140-1 of BOX Rule 3140, which is not being 
amended by this filing, the exercise limit for FXI, EEM, IWM, EFA, 
EWZ, TLT, QQQQ, and EWJ options would be similarly increased. The 
Exchange notes that it also proposes to make non-substantive 
corrections to the names of IWM and EEM in IM-3120-2.
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     The position limits for options on EEM would be increased 
from 500,000 contracts to 1,000,000 contracts;
     The position limits on options on IWM would be increased 
from 500,000 contracts to 1,000,000 contracts; and
     The position limits on options on QQQQ would be increased 
from 900,000 contracts to 1,800,000 contracts.
    In support of this proposal, the Exchange represents that the above 
listed ETFs qualify for either: (i) The initial listing criteria set 
forth in Exchange Rule 5020(h)(2) for ETFs holding non-U.S. component 
securities; or (ii) for ETFs listed pursuant to generic listing 
standards for series of portfolio depository receipts and index fund 
shares based on international or global indexes under which a 
comprehensive surveillance agreement (``CSA'') is not required.\6\ FXI 
tracks the performance of the FTSE China 50 Index, which is composed of 
the 50 largest Chinese stocks.\7\ EEM tracks the performance of the 
MSCI Emerging Markets Index, which is composed of approximately 800 
component securities.\8\ ``The MSCI Emerging Markets Index consists of 
the following 21 emerging market country indices: Brazil, Chile, China, 
Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, 
Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South 
Africa, Taiwan, Thailand, and Turkey.'' \9\ IWM tracks the performance 
of the Russell 2000 Index, which is composed of 2,000 small-cap 
domestic stocks.\10\ EFA tracks the performance of MSCI EAFE Index, 
which has over 900 component securities.\11\ ``The MSCI EAFE Index is 
designed to represent the performance of large and mid-cap securities 
across 21 developed markets, including countries in Europe, Australasia 
and the Far East, excluding the U.S. and Canada.'' \12\ EWZ tracks the 
performance of the MSCI Brazil 25/50 Index, which is composed of shares 
of large and mid-size companies in Brazil.\13\ TLT tracks the 
performance of ICE U.S. Treasury 20+ Year Bond Index, which is composed 
of long-term U.S. Treasury bonds.\14\ QQQQ tracks the performance of 
the Nasdaq-100 Index, which is composed of 100 of the largest domestic 
and international nonfinancial companies listed on the Nasdaq Stock 
Market LLC (``Nasdaq'').\15\ EWJ tracks the MSCI Japan Index, which 
tracks the performance of large and mid-sized companies in Japan.\16\
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    \6\ The Exchange notes that the initial listing criteria for 
options on ETFs that hold non-U.S. component securities are more 
stringent than the maintenance listing criteria for those same ETF 
options. See BOX Rule 5020(h)(2); BOX Rule 5030(h).
    \7\ See https://www.ishares.com/us/products/239536/ishares-china-largecap-etf.
    \8\ See http://us.ishares.com/product_info/fund/overview/EEM.htm.
    \9\ See http://www.msci.com/products/indices/tools/index.html#EM.
    \10\ See https://www.ishares.com/us/products/239710/ishares-russell-2000-etf.
    \11\ See https://www.ishares.com/us/products/239623/.
    \12\ See https://www.msci.com/eafe.
    \13\ See https://www.ishares.com/us/products/239612/ishares-msci-brazil-capped-etf.
    \14\ See https://www.ishares.com/us/products/239454/.
    \15\ See https://www.invesco.com/portal/site/us/financial-professional/etfs/productdetail?productId=QQQ&ticker=QQQ&title=powershares-qqq.
    \16\ See https://www.ishares.com/us/products/239665/EWJ.
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    BOX represents that more than 50% of the weight of the securities 
held by the options subject to this proposal are also subject to a 
CSA.\17\ Additionally,

[[Page 13332]]

the component securities of the MSCI Emerging Markets Index on which 
EEM is based for which the primary market is in any one country that is 
not subject to a CSA do not represent 20% or more of the weight of the 
MSCI Emerging Markets Index.\18\ Finally, the component securities of 
the MSCI Emerging Markets Index on which EEM is based, for which the 
primary market is in any two countries that are not subject to CSAs do 
not represent 33% of more of the weight of the MSCI Emerging Markets 
Index.\19\
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    \17\ See BOX Rule 5020(h)(2).
    \18\ See BOX Rule 5020(h)(2)(ii)(B).
    \19\ See BOX Rule 5020(h)(2)(ii)(C).
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    According to CBOE, market participants have increased their demand 
for options on FXI, EFA, EWZ, TLT, and EWJ for hedging and trading 
purposes and the Exchange believes the current position limits are too 
low and may be a deterrent to successful trading of options on these 
securities.\20\ CBOE has collected the following trading statistics on 
the ETFs that are subject to this proposal:
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    \20\ See supra note 3.
    \21\ SPY is included here for comparison purposes.

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                                                     2017 ADV        2017 ADV         Shares
                       ETF                           (million         (option       outstanding     Fund market
                                                      shares)       contracts)       (million)    cap ($million)
----------------------------------------------------------------------------------------------------------------
FXI.............................................           15.08          71,944            78.6        $3,343.6
EEM.............................................           52.12         287,357           797.4        34,926.1
IWM.............................................           27.46         490,070           253.1        35,809.1
EFA.............................................           19.42          98,844          1178.4        78,870.3
EWZ.............................................           17.08          95,152           159.4         6,023.4
TLT.............................................            8.53          80,476            60.0         7,442.4
QQQQ............................................           26.25         579,404           351.6        50,359.7
EWJ.............................................            6.06           4,715           303.6        16,625.1
SPY \21\........................................           64.63       2,575,153          976.23       240,540.0
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    The following analysis was conducted by CBOE in support of its 
proposal. BOX agrees with CBOE's analysis discussed below.
    In support of its proposal to increase the position limits for QQQQ 
to 1,800,000 contracts, CBOE compared the trading characteristics of 
QQQQ to that of the SPDR S&P 500 ETF (``SPY''), which has no position 
limits. As shown in CBOE's above table, the average daily trading 
volume through August 14, 2017 for QQQQ was 26.25 million shares 
compared to 64.63 million shares for SPY. The total shares outstanding 
for QQQQ are 351.6 million compared to 976.23 million for SPY. The fund 
market cap for QQQQ is $50,359.7 million compared to $240,540 million 
for SPY. SPY is one of the most actively trading ETFs and is, 
therefore, subject to no position limits. QQQQ is also very actively 
traded, and while not to the level of SPY, should be subject to the 
proposed higher position limits based its trading characteristics when 
compared to SPY. The proposed position limit coupled with QQQQ's 
trading behavior would continue to address potential manipulative 
schemes and adverse market impact surrounding the use of options and 
trading in its [sic] underlying the options.
    In support of its proposal to increase the position limits for EEM 
and IWM from 500,000 contracts to 1,000,000 contracts, CBOE also 
compared the trading characteristics of EEM and IWM to that of QQQQ, 
which currently has a position limit of 900,000 contracts. As shown in 
the above table, the average daily trading volume through July 31, 2017 
for EEM was 52.12 million shares and IWM was 27.46 million shares 
compared to 26.25 million shares for QQQQ. The total shares outstanding 
for EEM are 797.4 million and for IWM are 253.1 million compared to 
351.6 million for QQQQ. The fund market cap for EEM is $34,926.1 
million and IWM is $35,809 million compared to $50,359.7 million for 
QQQQ. EEM, IWM and QQQQ have similar trading characteristics and 
subjecting EEM and IWM to the proposed higher position limit would 
continue be designed to address potential manipulate [sic] schemes that 
may arise from trading in the options and their underlying securities. 
These above trading characteristics for QQQQ when compared to EEM and 
IWM also justify increasing the position limit for QQQQ. QQQQ has a 
higher options ADV than EEM and IWM, a higher numbers [sic] of shares 
outstanding than IWM and a much higher market cap than EEM and IWM 
which justify doubling the position limit for QQQQ. Based on these 
statistics, and as stated above, the proposed position limit coupled 
with QQQQ's trading behavior would continue to address potential 
manipulative schemes and adverse market impact surrounding the use of 
options and trading in the securities underlying the options.
    In support of its proposal to increase the position limits for FXI, 
EFA, EWZ, TLT, and EWJ from 250,000 contracts to 500,000 contracts, 
CBOE compared the trading characteristics of FXI, EFA, EWZ, TLT and EWJ 
to that of EEM and IWM, both of which currently have a position limit 
of 500,000 contracts. As shown in the above table, the average daily 
trading volume through July 31, 2017 for FXI is 15.08 million shares, 
EFA is 19.42 million shares, EWZ is 17.08 million shares, TLT is 8.53 
million shares, and EWJ is 6.06 million shares compared to 52.12 
million shares for EEM and 27.46 million shares for IWM. The total 
shares outstanding for FXI is 78.6 million, EFA is 1178.4 million, EWZ 
is 159.4 million, TLT is 60 million and EWJ is 303.6 million compared 
to 797.4 million for EEM and 253.1 million for IWM. The fund market cap 
for FXI is $3,343.6 million, EFA is $78,870.3 million, EWZ is $6,023.4 
million, TLT is $7,442.4 million,, and EWJ is $16,625.1 million 
compared to $34,926.1 million for EEM and $35,809.1 million for IWM. 
The above trading characteristics of FXI, EFA, EWZ, TLT and EWJ is 
either similar to that of EEM and IWM or sufficiently active enough so 
that the proposed limit would continue to address potential 
manipulative [sic] that may arise. EFA has far more shares outstanding 
and a larger fund market cap than EEM, IWM, and QQQQ. EWJ has a more 
shares outstanding than IWM and only slightly less shares outstanding 
than QQQQ.
    On the other hand, while FXI, EWZ, and TLT do not exceed EEM, IWM 
or QQQQ is any of the specified areas, they are all actively trading so 
that market participant's trading activity has been impacted by them 
being restricted by the current position limits. The Exchange believes 
that the trading activity and these securities being based on a broad 
basket of underlying

[[Page 13333]]

securities alleviates any potential manipulative activity that may 
arise. In addition, as discussed in more detail below, the Exchange's 
existing surveillance procedures and reporting requirements at the 
Exchange, other options exchanges, and at several clearing firms are 
capable of properly identifying unusual and/or illegal trading 
activity.
    According to CBOE, market participants' trading activity has been 
adversely impacted by the current position limits for FXI, EFA, EWZ, 
TLT, and EWJ and such limits have caused options trading in these 
symbols to move from exchanges to the over-the-counter market. The 
Exchange understands that certain market participants wishing to make 
trades involving a large number of options contracts in the symbols 
subject to the proposal are opting to execute those trades in the over-
the-counter market. The over-the-counter transactions occur via bi-
lateral agreements, the terms of which are not publicly disclosed to 
other market participants. Therefore, these large trades do not 
contribute to the price discovery process performed on a lit market.
    The Exchange notes that the ETFs that underlie options subject to 
this proposal are highly liquid, and are based on a broad set of highly 
liquid securities and other reference assets.\22\ The Exchange notes 
that the Commission has generally looked through to the liquidity of 
securities comprising an index in establishing position limits for 
cash-settled index options. The Exchange further notes that options on 
certain broad-based security indexes have no position limits. Likewise, 
the Commission has recognized the liquidity of the securities 
comprising the underlying interest of the SPDR S&P 500 ETF (``SPY'') in 
permitting no position limits on SPY options since 2012,\23\ and 
expanded position limits for options on EEM, IWM, and QQQQ.
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    \22\ See supra providing trading statistics for each ETF.
    \23\ See Securities Exchange Act Release No. 67936 (September 
27, 2012), 77 FR 60491 (October 3, 2012) (SR-BOX-2012-013).
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    The proposed position limits set forth in the proposal would 
continue to address potential manipulative activity while allowing for 
potential hedging activity for appropriate economic purposes. The 
creation and redemption process for these ETFs also lessen the 
potential for manipulative activity. When an ETF company wants to 
create more ETF shares, it looks to an Authorized Participant, which is 
a market maker or other large financial institution, to acquire the 
securities the ETF is to hold. For instance, IWM is designed to track 
the performance of the Russell 2000 Index, the Authorized Participant 
will purchase all the Russell 2000 constituent securities in the exact 
same weight as the index, then deliver those shares to the ETF 
provider. In exchange, the ETF provider gives the Authorized 
Participant a block of equally valued ETF shares, on a one-for-one fair 
value basis. The price is based on the net asset value, not the market 
value at which the ETF is trading. The creation of new ETF units can be 
conducted all trading day and is not subject to position limits. This 
process can also work in reverse where the ETF company seeks to 
decrease the number of shares that are available to trade. The creation 
and redemption process, therefore, creates a direct link to the 
underlying components of the ETF, and serves to mitigate potential 
price impact of the ETF shares that might otherwise result from 
increased position limits.
    The ETF creation and redemption seeks to keep ETF share prices 
trading in line with the ETF's underlying net asset value. Because an 
ETF trades like a stock, its price will fluctuate during the trading 
day, due to simple supply and demand. If demand to buy an ETF is high, 
for instance, the ETF's share price might rise above the value of its 
underlying securities. When this happens, the Authorized Participant 
believes the ETF may now be overpriced, and can buy the underlying 
shares that compose the ETF and then sell ETF shares on the open 
market. This should help drive the ETF's share price back toward fair 
value. Likewise, if the ETF starts trading at a discount to the 
securities it holds, the Authorized Participant can buy shares of the 
ETF and redeem them for the underlying securities. Buying undervalued 
ETF shares should drive the price of the ETF back toward fair value. 
This arbitrage process helps to keep an ETF's price in line with the 
value of its underlying portfolio.
    Some of the ETFs underlying options subject to the proposal are 
based on broad-based indices that underlie cash settled options that 
are economically equivalent to the ETF options that are the subject of 
the proposal and have no position limits. Other ETFs are based on 
broad-based indexes that underlie cash-settled options with position 
limits reflecting notional values that are larger than the current 
position limits for ETF analogues (EEM, EFA). Where there was no 
approved index analogue, the Exchange believes, based on the liquidity, 
breadth and depth of the underlying market, that the index referenced 
by the ETF would be considered a broad-based index.\24\ The Exchange 
argues that if certain position limits are appropriate for the options 
overlying the same index or is 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. In 
addition, the market capitalization of the underlying index or 
reference asset is large enough to absorb any price movements that may 
be caused by an oversized trade. Also, the Authorized Participant or 
issuer may look to the stocks comprising the analogous underlying index 
or reference asset when seeking to create additional ETF shares are 
part of the creation/redemption process to address supply and demand or 
to mitigate the price movement the price of the ETF.
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    \24\ See BOX Rule 6040, which sets forth the position limits for 
broad-based index options.
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    For example, the PowerShares QQQ Trust or QQQQ is an ETF that 
tracks the Nasdaq 100 Index or NDX, which is an index composed of 100 
of the largest non-financial securities listed on the Nasdaq Stock 
Market LLC (``Nasdaq''). Options on NDX are currently subject to the 
standard position limit of 25,000 contracts for broad-based index 
options but share similar trading characteristics as QQQQ.\25\ Based on 
QQQQ's share price of $154.54 \26\ and NDX's index level of 6,339.14, 
approximately 40 contracts of QQQQ equals one contract of NDX. Based on 
the above comparison of notional values, this would result in a 
position limit equivalent to 1,000,000 contracts for QQQQ as NDX's 
analogue. NDX is subject to the standard position limit of 25,000 
contracts for broad-based index options and has an average daily 
trading volume of 15,300 contracts. QQQQ is currently subject to a 
position limit of 900,000 contracts but has a much higher average daily 
trading volume of 579,404 contracts. Furthermore, NDX currently has a 
market capitalization of $17.2 trillion and QQQQ has a market 
capitalization of $50,359.7 million, and the component securities of 
NDX, in aggregate, have traded an average of 440 million shares per day 
in 2017, both large enough to absorb any price movement caused by a 
large trade in the QQQQ. The Exchange notes that other exchanges allow 
no position limits for NDX,\27\ although it has a much lower

[[Page 13334]]

average daily trading volume than its analogue, the QQQQ. Therefore, 
the Exchange believes it is reasonable to increase the position limit 
for options on the QQQQ from 900,000 to 1,800,000 contracts.
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    \25\ Id.
    \26\ All share prices used herein are based on the closing price 
of the security on November 16, 2017. Source: Yahoo Finance.
    \27\ See CBOE Rule 24.4 sets forth the position limits for 
broad-based index options.
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    The iShare [sic] Russell 2000 ETF or IWM, is an ETF that also 
tracks the Russell 2000 Index or RUT, which is an index that composed 
of 2,000 small-cap domestic companies in the Russell 3000 index. 
Options on RUT are currently subject to the standard position limit of 
25,000 contracts for broad-based index options but share similar 
trading characteristics as IWM.\28\ Based on IWM's share price of 
$144.77 and RUT's index level of 1,486.88, approximately 10 contracts 
of IWM equals one contract of RUT. Based on the above comparison of 
notional values, this would result in a position limit equivalent to 
250,000 contracts for IWM as RUT's analogue. The Exchange notes that at 
other exchanges RUT is not subject to position limits and has an 
average daily trading volume of 66,200 contracts.\29\ IWM is currently 
subject to a position limit of 500,000 contracts but has a much higher 
average daily trading volume of 490,070 contracts. As mentioned above, 
other exchanges have no position limits for RUT,\30\ although it has a 
much lower average daily trading volume than its analogue, the IWM. 
Furthermore, RUT currently has a market capitalization of $2.4 trillion 
and IWM has a market capitalization of $35,809.1 million, and the 
component securities of RUT, in aggregate, have traded an average of 
270 million shares per day in 2017, both large enough to absorb any 
price movement cause by a large trade in the IWM. Therefore, the 
Exchange believes it is reasonable to increase the position limit for 
options on the IWM from 500,000 to 1,000,000 contracts.
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    \28\ See BOX Rule 6040, which sets forth the position limits for 
broad-based index options.
    \29\ See CBOE Rule 24.4.
    \30\ Id.
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    EEM tracks the performance of the MSCI Emerging Markets Index or 
MXEF, which is composed of approximately 800 component securities 
following 21 emerging market country indices: Brazil, Chile, China, 
Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, 
Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South 
Africa, Taiwan, Thailand, and Turkey. Below makes the same notional 
value comparison as made above. Based on EEM's share price of $47.06 
and MXEF's index level of 1,136.45, approximately 24 contracts of EEM 
equals one contract of MXEF. MXEF is currently subject to the standard 
position limit of 25,000 contracts for broad-based index options under 
BOX Rule 6040(a). Based on the above comparison of notional values, 
this would result in a position limit economically equivalent to 
604,000 contracts for EEM as MXEF's analogue. However, MXEF has an 
average daily trading volume of 180 contracts. EEM is currently subject 
to a position limit of 500,000 contracts but has a much higher average 
daily trading volume of 287,357 contracts. Furthermore, MXEF currently 
has a market capitalization of $5.18 trillion and EEM has a market 
capitalization of $34,926.1 million, and the component securities of 
MXEF, in aggregate, have traded an average of 33.6 billion shares per 
day in 2017, both large enough to absorb any price movement cause by a 
large trade in the EEM. Therefore, based on the comparison of average 
daily trading volume, the Exchange believes it is reasonable to 
increase the position limit for options on the EEM from 500,000 to 
1,000,000 contracts.
    EFA tracks the performance of MSCI EAFE Index or MXEA, which has 
over 900 component securities designed to represent the performance of 
large and mid-cap securities across 21 developed markets, including 
countries in Europe, Australasia and the Far East, excluding the U.S. 
and Canada. Below makes the same notional value comparison as made 
above. Based on EFA's share price of $69.16 and MXEA's index level of 
1,986.15, approximately 29 contracts of EFA equals one contract of 
MXEA. MXEA is currently subject to the standard position limit of 
25,000 contracts for broad-based index options under BOX Rule 6040(a). 
Based on the above comparison of notional values, this would result in 
a position limit economically equivalent to 721,000 contracts for EFA 
as MXEA's analogue. Furthermore, MXEA currently has a market 
capitalization of $18.7 trillion and EFA has a market capitalization of 
$78,870.3 million, and the component securities of MXEA, in aggregate, 
have traded an average of 4.6 billion shares per day in 2017, both 
large enough to absorb any price movement cause by a large trade in the 
EEM. However, MXEA has an average daily trading volume of 270 
contracts. EFA is currently subject to a position limit of 250,000 
contracts but has a much higher average daily trading volume of 98,844 
contracts. Based on the above comparisons, the Exchange believes it is 
reasonable to increase the position limit for options on the EFA from 
250,000 to 500,000 contracts.
    FXI tracks the performance of the FTSE China 50 Index, which is 
composed of the 50 largest Chinese stocks. There is currently no index 
analogue for FXI approved for options trading. However, the FTSE China 
50 Index currently has a market capitalization of $1.7 trillion and FXI 
has a market capitalization of $2,623.18 million, both large enough to 
absorb any price movement cause by a large trade in FXI. The components 
of the FTSE China 50 Index, in aggregate, have an average daily trading 
volume of 2.3 billion shares. FXI is currently subject to a position 
limit of 000 contracts but has a much higher average daily trading 
volume of 15.08 million shares. Based on the above comparisons, the 
Exchange believes it is reasonable to increase the position limit for 
options on the FXI from 250,000 to 500,000 contracts.
    EWZ tracks the performance of the MSCI Brazil 25/50 Index, which is 
composed of shares of large and mid-size companies in Brazil. There is 
currently no index analogue for EWZ approved for options trading. 
However, the MSCI Brazil 25/50 Index currently has a market 
capitalization of $700 billion and EWZ has a market capitalization of 
$6,023.4 million, both large enough to absorb any price movement cause 
by a large trade in EWZ. The components of the MSCI Brazil 25/50 Index, 
in aggregate, have an average daily trading volume of 285 million 
shares. EWZ is currently subject to a position limit of 250,000 
contracts but has a much higher average daily trading volume of 17.08 
million shares. Based on the above comparisons, the Exchange believes 
it is reasonable to increase the position limit for options on the EWZ 
from 250,000 to 500,000 contracts.
    TLT tracks the performance of ICE U.S. Treasury 20+ Year Bond 
Index, which is composed of long-term U.S. Treasury bonds. There is 
currently no index analogue for TLT approved for options trading. 
However, the U.S. Treasury market is one of the largest and most liquid 
markets in the world, with over $14 trillion outstanding and turnover 
of approximately $500 billion per day. TLT currently has a market 
capitalization of $7,442.4 million, both large enough to absorb any 
price movement cause by a large trade in TLT. Therefore, the potential 
for manipulation will not increase solely due the increase in position 
limits as set forth in this proposal. Based on the above comparisons, 
the Exchange believes it is reasonable to increase the position limit 
for options on the TLT from 250,000 to 500,000 contracts.
    EWJ tracks the MSCI Japan Index, which tracks the performance of 
large and mid-sized companies in Japan. There is currently no index 
analogue for

[[Page 13335]]

EWJ approved for options trading. However, the MSCI Japan Index has a 
market capitalization of $3.5 trillion and EWJ has a market 
capitalization of $16,625.1 million, and the component securities of 
the MSCI Japan Index, in aggregate, have traded an average of 1.1 
billion shares per day in 2017, both large enough to absorb any price 
movement cause by a large trade in EWJ. EWJ is currently subject to a 
position limit of 250,000 contracts and has an average daily trading 
volume of 6.6 million shares. Based on the above comparisons, the 
Exchange believes it is reasonable to increase the position limit for 
options on EWJ from 250,000 to 500,000 contracts.
    The Exchange believes that increasing the position limits for the 
options subject to this proposal would lead to a more liquid and 
competitive market environment for these options, which will benefit 
customers interested in this product. Under the proposal, the reporting 
requirement for the above options would be unchanged. Thus, the 
Exchange would still require that each BOX Participant that maintains a 
position in the options on the same side of the market, for its own 
account or for the account of a customer, report certain information to 
the Exchange. This information would include, but would not be limited 
to, the options' position, whether such position is hedged and, if so, 
a description of the hedge, and the collateral used to carry the 
position, if applicable. Exchange Market Makers \31\ would continue to 
be exempt from this reporting requirement, as Market Maker information 
can be accessed through the Exchange's market surveillance systems.\32\ 
In addition, the general reporting requirement for customer accounts 
that maintain an aggregate position of 200 or more options contracts 
would remain at this level for the options subject to this 
proposal.\33\
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    \31\ A Market Maker ``is an Options Participant registered with 
the Exchange for the purpose of making markets in options contracts 
traded on the Exchange and that is vested with the rights and 
responsibilities specified in the Rule 8000 Series. All Market 
Makers are designated as specialists on the Exchange for all 
purposes under the Exchange Act or Rules thereunder.'' See BOX Rule 
100(a)(31).
    \32\ The Exchange notes that the Financial Industry Regulatory 
Authority (``FINRA''), pursuant to a regulatory services agreement, 
operates surveillance on behalf of BOX. This type of Market Maker 
information can be found through FINRA.
    \33\ See BOX Rule 3150 for reporting requirements.
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    The Exchange believes 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. In addition, routine oversight 
inspections of the Exchange's regulatory programs by the Commission 
have not uncovered any material inconsistencies or shortcomings in the 
manner in which the Exchange's market surveillance is conducted. These 
procedures utilize daily monitoring of market movements via automated 
surveillance techniques to identify unusual activity in both options 
and underlying stocks.\34\
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    \34\ These procedures have been effective for the surveillance 
of trading the options subject to this proposal and will continue to 
be employed by FINRA on behalf of BOX.
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    Furthermore, large stock holdings must be disclosed to the 
Commission by way of Schedules 13D or 13G.\35\ The positions for 
options subject to this proposal are part of any reportable positions 
and, thus, cannot be legally hidden. Moreover, the Exchange's 
requirement that BOX Participants file reports with the Exchange for 
any customer who held aggregate large long or short positions of any 
single class for the previous day will continue to serve as an 
important part of the Exchange's surveillance efforts.\36\
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    \35\ 17 CFR 240.13d-1.
    \36\ The Exchange again notes that these surveillance efforts 
are carried out by FINRA on behalf of BOX.
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    The Exchange believes that the current financial requirements 
imposed by the Exchange and by the Commission adequately address 
concerns that a BOX Participant or its customer may try to maintain an 
inordinately large un-hedged position in the options subject to this 
proposal. 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 BOX Participant must maintain for a 
large position held by itself or by its customer.\37\ In addition, Rule 
15c3-1 \38\ imposes a capital charge on BOX Participants to the extent 
of any margin deficiency resulting from the higher margin requirement.
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    \37\ See BOX Rule 10100 Series for a description of margin 
requirements.
    \38\ 17 CFR 240.15c3-1.
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2. Statutory Basis

    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Securities Exchange Act of 1934 
(the ``Act''),\39\ in general, and Section 6(b)(5) of the Act,\40\ in 
particular, in that it is 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 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. The current position limits for the options subject to 
this proposal have inhibited the ability of Market Makers to make 
markets on the Exchange. Specifically, the proposal is designed to 
encourage Market Makers to shift liquidity from over the counter 
markets onto the Exchange, which will enhance the process of price 
discovery conducted on the Exchange through increased order flow. The 
proposal will also benefit institutional investors as well as retail 
traders, and public customers, by providing them with a more effective 
trading and hedging vehicle. In addition, the Exchange believes 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 this product and disrupt the underlying 
market that a lower position limit may protect against.
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    \39\ 15 U.S.C. 78f(b).
    \40\ 15 U.S.C. 78f(b)(5).
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    Increased position limits for select actively traded options, such 
as that proposed herein, is not novel and has been previously approved 
by the Commission. For example, the Commission has previously approved, 
on a pilot basis, eliminating position limits for options on SPY.\41\ 
Additionally, the Commission has approved similar proposed rule changes 
to increase position limits for options on highly liquid, actively-
traded ETFs,\42\ including a proposal to permanently eliminate the 
position and exercise limits for options overlaying the S&P 500 Index, 
S&P 100 Index, Dow Jones Industrial Average, and Nasdaq 100 Index.\43\ 
In approving the permanent elimination of position and exercise limits, 
the Commission relied heavily upon CBOE's surveillance capabilities, 
the Commission expressed trust in the enhanced surveillance and 
reporting

[[Page 13336]]

safeguards that CBOE took in order to detect and deter possible 
manipulative behavior which might arise from eliminating position and 
exercise limits.\44\ Furthermore, as described more fully above, 
options on other ETFs have the position limits proposed herein, but 
their trading volumes are significantly lower than the ETFs subject to 
the proposed rule change.
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    \41\ See Securities Exchange Act Release Nos. 67672 (August 15, 
2012), 77 FR 50750 (August 22, 2012)(SR-NYSEAmex-2012-29); 67937 
(September 27, 2012), 77 FR 60489 (October 3, 2012) (SR-CBOE-2012-
091); 67936 (September 27, 2012), 77 FR 60491 (October 3, 2012) (SR-
BOX-2012-013).
    \42\ See Securities Exchange Act Release Nos. 68086 (October 23, 
2012), 77 FR 65600 (October 29, 2012)(SR-CBOE-2012-066); 64928 (July 
20, 2011), 76 FR 44633 (July 26, 2011) (SR-CBOE-2011-065); 64695 
(June 17, 2011), 76 FR 36942 (June 23, 2011) (SR-PHLX-2011-58); and 
55155 (January 23, 2007), 72 FR 4741 (February 1, 2017) (SR-CBOE-
2007-008.).
    \43\ See Securities Exchange Act Release Nos. 44994 (October 26, 
2001), 66 FR 55722 (November 2, 2001) (SR-CBOE-2001-22); 52650 
(October 21, 2005), 70 FR 62147 (October 28, 2005) (SR-CBOE-2005-41) 
(``NDX Approval'').
    \44\ See NDX Approval at 62149.
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    Lastly, the Commission expressed the belief that removing position 
and exercise limits may bring additional depth and liquidity without 
increasing concerns regarding intermarket manipulation or disruption of 
the options or the underlying securities.\45\ The Exchange believes 
that BOX's enhanced surveillance and reporting safeguards continue to 
be designed to deter and detect possible manipulative behavior which 
might arise from eliminating position and exercise limits.
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    \45\ Id.
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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 not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes that the 
proposed rule change will result in additional opportunities to achieve 
the investment and trading objectives of market participants seeking 
efficient trading and hedging vehicles, to the benefit of investors, 
market participants, and the marketplace in general.
    Further, the Exchange notes that the rule change is being proposed 
as a competitive response to a filing submitted by CBOE that was 
recently approved by the Commission.\46\
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    \46\ See supra, note 3.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants, or Others

    The Exchange has neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the proposed rule change does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \47\ and Rule 19b-4(f)(6) thereunder.\48\
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    \47\ 15 U.S.C. 78s(b)(3)(A).
    \48\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \49\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \50\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the proposed rule change may become operative upon filing. The Exchange 
states that waiver of the operative delay would be consistent with the 
protection of investors and the public interest because it will ensure 
fair competition among the exchanges by allowing the Exchange to 
immediately increase the position limits for the products subject to 
this proposal, which the Exchange believes will provide consistency for 
BOX Participants that are also members at CBOE where these increased 
position limits are currently in place. The Commission believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest. Therefore, the Commission hereby 
waives the operative delay and designates the proposal as operative 
upon filing.\51\
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    \49\ 17 CFR 240.19b-4(f)(6).
    \50\ 17 CFR 240.19b-4(f)(6)(iii).
    \51\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BOX-2018-10 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-BOX-2018-10. 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 such filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-BOX-2018-10, and should be submitted on 
or before April 18, 2018.
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    \52\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\52\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-06138 Filed 3-27-18; 8:45 am]
 BILLING CODE 8011-01-P


