[Federal Register Volume 87, Number 72 (Thursday, April 14, 2022)]
[Notices]
[Pages 22245-22250]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-07946]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94643; File No. SR-FINRA-2022-007]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend FINRA Rule 2360 (Options) To Increase the 
Position and Exercise Limits for Conventional Options on Certain 
Exchange-Traded Funds

April 8, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 29, 2022, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by FINRA. FINRA has designated 
the proposed rule change as constituting a ``non-controversial'' rule 
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which 
renders the proposal effective upon receipt of this filing by the 
Commission. 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.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend Rule 2360 (Options) to increase the 
position and exercise limits for conventional options on certain 
exchange-traded funds (``ETFs'').
    The text of the proposed rule change is available on FINRA's 
website at http://www.finra.org, at the principal office of FINRA 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, FINRA 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. FINRA has prepared summaries, set forth in sections A, 
B,

[[Page 22246]]

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
    FINRA Rule 2360(b)(3)(A) imposes a position limit on the number of 
equity options contracts in each class on the same side of the market 
that can be held or written by a member, a person associated with a 
member, or a customer or a group of customers acting in concert. 
Position limits are intended to prevent the establishment of options 
positions that can be used to manipulate or disrupt the underlying 
market or might create incentives to manipulate or disrupt the 
underlying market so as to benefit the options position. In addition, 
position limits serve to reduce the potential for disruption of the 
options market itself, especially in illiquid options classes.\4\ This 
consideration has been balanced by the concern that the limits ``not be 
established at levels that are so low as to 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.'' \5\
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    \4\ See Securities Exchange Act Release No. 40969 (January 22, 
1999), 64 FR 4911, 4912-13 (February 1, 1999) (Order Approving File 
No. SR-CBOE-98-23) (citing H.R. No. IFC-3, 96th Cong., 1st Sess. at 
189-91 (Comm. Print 1978)).
    \5\ See supra note 4, at 4913.
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    Rule 2360(b)(3)(A)(i) does not independently establish a position 
limit for standardized equity options. Rather, the position limit 
established by the rules of an options exchange for a particular equity 
option is the applicable position limit for purposes of Rule 2360.\6\ 
Rule 2360(b)(3)(A)(iii) provides that conventional equity options \7\ 
are subject to a basic position limit of 25,000 contracts or a higher 
tier for conventional option contracts on securities that underlie 
exchange-traded options qualifying for such higher tier as determined 
by the rules of the options exchanges. In addition, FINRA lists 
position limits for options on securities that have higher position 
limits--currently, only the ETFs listed in Rule 
2360(b)(3)(A)(iii)a.6.--that also generally mirror the options exchange 
position limits. At this time, FINRA proposes to conform its 
conventional options position limits to the Cboe Exchange, Inc.'s 
(``Cboe'') recent amendments that increased the position limit options 
due to an ongoing increase in demand in options on the following ETFs: 
(1) iShares iBoxx $ Investment Grade Corporate Bond ETF (``LQD''), and 
(2) VanEck Vectors Gold Miners ETF (``GDX'') (together, the 
``Underlying ETFs'').\8\
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    \6\ See e.g., Cboe Rule 8.30; ISE Options 9 Section 13; Nasdaq 
PHLX Options 9 Section 13; NYSE American Rule 904; NYSE Arca Rule 
6.8-0; MIAX Rule 307; BOX Rule 3120 and IM-3120-2; Nasdaq Options 9 
Section 13; BX Options 9 Section 13; and BZX Rule 18.7.
    \7\ Conventional options are over-the-counter options and are 
defined in Rule 2360(a)(9) as ``(A) any option contract not issued, 
or subject to issuance, by The Options Clearing Corporation; or (B) 
an OCC Cleared OTC Option.''
    \8\ See Securities Exchange Act Release No. 93525 (November 4, 
2021), 86 FR 62584 (November 10, 2021) (Order Approving File No. SR-
CBOE-2021-029).
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    The proposed rule change would add to the table provided in Rule 
2360(b)(3)(A)(iii)a.6. as follows, with the effect of each ETF being 
increased from the current position limit of 250,000 contracts:
     The position limit for options on LQD would be increased 
to 500,000 contracts.
     The position limit for options on GDX would be increased 
to 500,000 contracts.
    FINRA notes the proposed position limits for options on LQD and GDX 
are consistent with current position limits for options on the iShares 
MSCI Brazil Capped ETF (``EWZ''), iShares 20+Year Treasury Bond Fund 
ETF (``TLT''), iShares MSCI Japan ETF (``EWJ''), and iShares iBoxx High 
Yield Corporate Bond Fund (``HYG'').
    In support of the proposed rule change, as noted by Cboe, position 
limits are determined by the option exchange's rules.\9\ The ETFs that 
underlie options subject to the proposed rule change are highly liquid 
and are based on a broad set of highly liquid securities and other 
reference assets. The above listed ETFs are listed on various national 
securities exchanges and meet their listing standards.
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    \9\ See e.g., CBOE Rule 8.30, Interpretation and Policy .02.
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    In supporting the proposed position limit increases, FINRA 
considered the liquidity of the Underlying ETFs, the value of the 
underlying securities or index components and relevant marketplace, the 
share and option volume for the Underlying ETFs, and, where applicable, 
the availability or comparison of economically equivalent products to 
options on the Underlying ETFs.
    FINRA notes that Cboe has compiled the following trading statistics 
regarding shares of and options on the Underlying ETFs and the values 
of the Underlying ETFs and their component securities or index 
components, as applicable:

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                                                                                  Fund Market
                               ADV \10\ (ETF    ADV (option        Shares       Capitalization     Share value
           Product                shares        contracts)      outstanding        \12\ (USD        \13\ (USD)
                                 millions)                    \11\ (millions)      millions)          (NAV)
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LQD.........................            14.1          30,300            308.1          54,113.7           130.13
GDX.........................            39.4         166,000            419.8          16,170.5            33.80
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    FINRA notes Cboe collected the same trading statistics, where 
applicable, as above regarding a sample of other ETFs, as well as the 
current position limits for options on such ETFs, to draw comparisons 
in support of proposed position limit increases for options on the 
Underlying ETFs (see further discussion below):
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    \10\ Average daily volume (ADV) data for ETF shares and option 
contracts, as well as for ETF shares and options on the comparative 
ETFs presented below, are for all of 2020. Additionally, reference 
to ADV in ETF shares and ETF options, and indexes herein this 
proposal are for all of calendar year 2020, unless otherwise 
indicated.
    \11\ Shares Outstanding and Net Asset Values (``NAV''), as well 
as for the comparative ETFs presented below, are as of April 5, 
2021.
    \12\ Fund Market Capitalization data, as well as for the 
comparative ETFs presented below, are as of January 14, 2021.
    \13\ See supra note 11.

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                                                            ADV (ETF                         Shares        Fund Market
                        Product                              shares        ADV (option     outstanding    Capitalization    Share value       Current
                                                            millions)      contracts)      (millions)     (USD millions)    (USD) (NAV)   position limit
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EWZ....................................................            29.2         139,400           173.8          6,506.8           33.71         500,000

[[Page 22247]]

 
TLT....................................................            11.5         111,800           103.7         17,121.3          136.85         500,000
EWJ....................................................             8.2          15,500           185.3         13,860.7           69.72         500,000
HYG....................................................            30.5         261,600           254.5         24,067.5           86.86         500,000
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    FINRA echoes the Cboe's belief that, overall, the liquidity in the 
shares of the Underlying ETFs and in their overlying options, the 
larger market capitalizations for each of the Underlying ETFs, and the 
overall market landscape relevant to each of the Underlying ETFs 
support the proposal to increase the position limits for each option 
class. Given the robust liquidity in and value of the Underlying ETFs 
and their component securities, FINRA does not anticipate that the 
proposed increase in position limits would create significant price 
movements as the relevant markets are large enough to adequately absorb 
potential price movements that may be caused by larger trades.
    The following analyses for the Underlying ETFs, which FINRA agrees 
with in support of the proposed rule change, as well as the statistics 
presented in support thereof, were presented by Cboe in their rule 
filing, which was approved by the Commission.
    LQD tracks the performance of the Markit iBoxx USD Liquid 
Investment Grade (``IBOXIG'') Index, which is an index designed as a 
subset of the broader U.S. dollar-denominated corporate bond market 
which can be used as a basis for tradable products, such as ETFs, and 
is comprised of over 8,000 bonds.\14\ From 2019 through 2020, ADV has 
grown significantly in shares of LQD and in options on LQD, from 
approximately 9.7 million shares in 2019 to 14.1 million through 2020, 
and from approximately 8,200 option contracts in 2019 to 30,300 through 
2020. LQD also continued to experience significant growth in ADV in the 
first quarter of 2021 with an ADV of approximately 140,200 option 
contracts. Further, LQD generally experiences higher ADV in shares than 
both TLT (11.5 million shares) and EWJ (8.2 million shares) and almost 
double the ADV in option contracts than EWJ (15,500 option contracts). 
Options on each EWZ, TLT and EWJ are currently subject to a position 
limit of 500,000 contracts--the proposed limit for options on LQD. The 
NAV of LQD is also higher than, or comparable to, that of the NAV of 
the ETFs underlying the options that are currently subject to a 
position limit of 500,000 option contracts (as presented in the table 
above), which is indicative that the total value of its underlying 
components is generally higher or comparable. Per the tables above, 
LQD's total market capitalization of approximately $54.1 billion is 
also higher than or comparable to the total market capitalization of 
the ETFs underlying the options currently subject to a position limit 
of 500,000 contracts. In addition to this, although there are currently 
no options listed for trading on the IBOXIG Index, the components \15\ 
of the IBOXIG Index, which can be used in creating a basket of 
securities that equate to the LQD ETF, are made up of over 8,000 bonds 
for which the outstanding face value of each must be greater than or 
equal to $2 billion.\16\ FINRA echoes Cboe's belief that the total 
value of the bonds in the IBOXIG Index, coupled with LQD's share and 
option volume, total market capitalization, and NAV price indicates 
that the market is large enough to absorb potential price movements 
caused by a large trade in LQD. Also, as evidenced above, trading 
volume in LQD shares has increased over the past few years and market 
participants' need for options have continued to grow alongside the 
ETF. Particularly, Cboe notes in its filing that in the last year, 
market participants have sought more cost-effective hedging strategies 
through the use of LQD options as a result of the borrow on other fixed 
income ETFs, such as HYG. Therefore, FINRA agrees with Cboe's belief 
that because LQD options are being increasingly utilized as an 
alternative to similar products, such as HYG options, then it is 
appropriate that options on LQD be subject to the same 500,000 contract 
position limit that currently exists for options on HYG.
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    \14\ See Markit iBoxx USD Liquid Investment Grade Index, 
available at https://cdn.ihsmarkit.com/www/pdf/MKT-iBoxx-USD-Liquid-Investment-Grade-Index-factsheet.pdf (March 3, 2021).
    \15\ Investment grade corporate bonds.
    \16\ See supra note 14.
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    GDX seeks to replicate as closely as possible the price and yield 
performance of the NYSE Arca Gold Miners (``GDMNTR'') Index, which is 
intended to track the overall performance of companies involved in the 
gold mining industry.\17\ ADV in GDX options has increased from 2019 
through 2020, with an ADV of approximately 117,400 option contracts in 
2019 to an ADV of approximately 166,000 option contracts in 2020.
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    \17\ See VanEck Vectors Gold Miners ETF, available at https://www.vaneck.com/library/vaneck-vectors-etfs/gdx-fact-sheet-pdf 
(February 28, 2022).
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    ADV in GDX shares did not increase from 2019 to 2020. GDX options 
also experienced an ADV of approximately 287,800 option contracts in 
the first quarter of 2021. The ADV in GDX shares (39.4 million) and 
options on GDX (166,000 option contracts) are greater than the ADV in 
EWZ (29.2 million shares and 139,300 option contracts), TLT (11.5 
million shares and 111,800 option contracts), EWJ (8.2 million shares 
and 15,500 option contracts) and HYG (30.5 million shares and 261,600 
option contracts), each of which is currently subject to a position 
limit of 500,000 option contracts--the proposed limit for options on 
GDX. GDX also experiences a comparable, or higher, market 
capitalization (approximately $16.2 billion) than EWZ, TLT and EWJ. 
Cboe noted that many of the Brazil-based gold mining constituents 
included in GDX are also included in EWZ, which tracks the investment 
results of an index composed of Brazilian equities, and that there have 
been no identified issues with the continued listing and trading of EWZ 
options or any adverse market impact on EWZ in connection with the 
current 500,000 position limit in place for EWZ options. Additionally, 
like that of LDQ above, there is currently no index option analogue for 
the GDX ETF on the GDMNTR Index approved for options trading, however, 
the components of the GDMNTR Index, which can be used to create the GDX 
ETF, currently must each have a market capitalization greater than $750 
million, an ADV of at least 50,000 shares, and an average daily value 
traded of at least $1 million in order to be eligible for inclusion in 
the GDMNTR Index. FINRA echoes Cboe's belief that the GDMNTR Index 
component inclusion requirements, as well as GDX's share and option 
volume and total market capitalization, indicate that the GDX market is 
sufficiently large and liquid enough to absorb price

[[Page 22248]]

movements as a result of potentially oversized trades.
    FINRA believes that increasing the position limits for conventional 
options subject to the proposed rule change would lead to a more liquid 
and competitive market for these options, which will benefit customers 
interested in these products.
Creation and Redemption for ETFs
    FINRA believes that the creation and redemption process for ETFs 
subject to this proposed rule change will lessen the potential for 
manipulative activity with options on the Underlying ETFs. Regarding 
ETFs, when an ETF provider wants to create more shares, it looks to an 
Authorized Participant (generally a market maker or other large 
financial institution) to acquire the securities the ETF is to hold. 
For instance, when an ETF is designed to track the performance of an 
index, the Authorized Participant can purchase all the 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 during an entire trading day, and is not 
subject to position limits. This process works in reverse where the ETF 
provider seeks to decrease the number of shares that are available to 
trade. The applicable creation and redemption processes for the 
Underlying ETFs 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 for the 
options on the Underlying ETFs.
    FINRA understands that the ETF creation and redemption process 
seeks to keep an ETF's share price trading in line with the product's 
underlying net asset value. Because an ETF trades like a stock, its 
share 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 or issuer believes the 
ETF may now be overpriced, so it may buy shares of the component 
securities and then sell ETF shares in the open market. This may drive 
the ETF's share price back toward the underlying net asset value or 
indicative index value. Likewise, if the ETF share price starts trading 
at a discount to the securities it holds or its index components, the 
Authorized Participant or issuer can buy shares of the ETF and redeem 
them for the underlying securities or index component instruments. 
Buying undervalued ETF shares may drive the share price of the ETF back 
toward fair value. This arbitrage process helps to keep an ETF's share 
price in line with the value of its underlying portfolio or index 
components.
Surveillance and Reporting
    FINRA believes that the increased position limits provisions are 
appropriate in light of the existing surveillance procedures and 
reporting requirements at FINRA,\18\ the options exchanges, and at the 
several clearing firms, which are capable of properly identifying 
unusual or illegal trading activity. These procedures use daily 
monitoring of market movements by automated surveillance techniques to 
identify unusual activity in both options and underlying stocks.\19\
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    \18\ See Rule 2360(b)(5) for the options reporting requirements.
    \19\ These procedures have been effective for the surveillance 
of options trading and will continue to be employed.
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    In addition, large stock holdings must be disclosed to the 
Commission by way of Schedules 13D or 13G.\20\ Options positions are 
part of any reportable positions and cannot legally be hidden. 
Moreover, the previously noted Rule 2360(b)(5) requirement that members 
must file reports with FINRA for any customer that held aggregate large 
long or short positions of any single class for the previous day will 
continue to serve as an important part of FINRA's surveillance efforts.
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    \20\ 17 CFR 240.13d-1.
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    Finally, FINRA believes that the current financial requirements 
imposed by FINRA and by the Commission adequately address financial 
responsibility concerns that a member or its customer will maintain an 
inordinately large unhedged position in any option with a higher 
position limit. Current margin and risk-based haircut methodologies 
serve to limit the size of positions maintained by any one account by 
increasing the margin or capital that a member must maintain for a 
large position. Under Rule 4210(f)(8)(A), FINRA also may impose a 
higher margin requirement upon a member when FINRA determines a higher 
requirement is warranted. In addition, the Commission's net capital 
rule \21\ imposes a capital charge on members to the extent of any 
margin deficiency resulting from the higher margin requirement.
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    \21\ 17 CFR 240.15c3-1.
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    FINRA has filed the proposed rule change for immediate 
effectiveness and has requested that the SEC waive the requirement that 
the proposed rule change not become operative for 30 days after the 
date of the filing, so FINRA can implement the proposed rule change 
immediately.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\22\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. FINRA believes that the proposed rule change promotes 
consistent regulation by harmonizing position limits with those of the 
other self-regulatory organizations. FINRA further believes that 
increasing the position limit on conventional options promotes 
consistent regulation by harmonizing the position limit with its 
standardized counterpart. In addition, FINRA believes the proposed rule 
change will be beneficial to large market makers and institutions 
(which generally have the greatest ability to provide liquidity and 
depth in products that may be subject to higher position limits as has 
been the case with recently approved increased position limits),\23\ as 
well as retail traders and public customers, by providing them with a 
more effective trading and hedging vehicle.
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    \22\ 15 U.S.C. 78o-3(b)(6).
    \23\ See supra note 8.
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    In addition, FINRA believes that the structure of the Underlying 
ETFs, the considerable market capitalization of the funds, underlying 
component securities and indexed component securities, and the 
liquidity of the markets for the applicable options and underlying 
component securities will mitigate concerns regarding potential 
manipulation of the products or disruption of the underlying markets 
upon increasing the relevant position limits. As a general principle, 
increases in market capitalizations, active trading volume, and deep 
liquidity of securities tend to deter manipulation or disruption. This 
general principle applies to the recently observed increased levels of 
market capitalization, trading volume, and liquidity in shares of and 
options on the Underlying ETFs (as described above). FINRA does not 
believe that the options

[[Page 22249]]

markets or underlying markets would become susceptible to manipulation 
or disruption as a result of the proposed position limit increases.
    Increased position limits for select actively traded options, such 
as those proposed herein, are not novel and have been previously 
approved by the Commission.\24\ Furthermore, FINRA notes that the 
proposed position limits for options on LQD and GDX are consistent with 
existing position limits for options on comparable ETFs in Rule 
2360(b)(3)(A)(iii)a.6.
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    \24\ See supra note 8. See also Securities Exchange Act Release 
Nos. 88768 (April 29, 2020), 85 FR 26736 (May 5, 2020) (Order 
Approving File No. SR-CBOE-2020-015); 83415 (June 12, 2018), 83 FR 
28274 (June 18, 2018) (Notice of Filing and Immediate Effectiveness 
of File No. SR-CBOE-2018-042); and 68086 (October 23, 2012), 77 FR 
65600 (October 29, 2012) (Order Approving File No. SR-CBOE-2012-
066).
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    FINRA's existing surveillance and reporting safeguards are designed 
to deter and detect possible manipulative behavior that might arise 
from changing position and exercise limits.

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
Economic Impact Analysis
    FINRA has undertaken an economic impact assessment, as set forth 
below, to analyze the potential economic impacts, including anticipated 
costs, benefits, and distributional and competitive effects, transfers 
of wealth, relative to the current baseline, and the alternatives FINRA 
considered in assessing how to best meet its regulatory objectives.
Regulatory Objective
    FINRA is proposing to amend Rule 2360 to harmonize FINRA's position 
limits for conventional options with the position limit for 
standardized options.\25\
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    \25\ See supra note 8.
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Economic Baseline
    Per FINRA Rule 2360(b)(3)(A)(iii) conventional equity options are 
subject to a basic position limit of 25,000 contracts or higher for 
conventional option contracts on securities that underlie exchange-
traded options qualifying for a higher tier as determined by option 
exchange rules. The existing position limits for conventional options 
on LQD and GDX are 250,000 contracts. Cboe has recently increased 
position limits for options on these ETFs.
Economic Impact
Benefits
    As noted above, the proposed rule change would amend Rule 2360 to 
harmonize FINRA's position limits for conventional options with the 
position limits for standardized options.\26\ If the existing position 
limits for conventional equity options on select ETFs constrains 
trading in these ETFs, then investors may be able to better manage risk 
and trade on information when the position limit is relaxed. In 
general, the improvement in risk management and informational 
efficiency may increase more when position limits are increased. We 
acknowledge, however, that the conventional options on these ETFs, the 
ETFs themselves, and the securities underlying these ETFs are liquid, 
so improvements in informational efficiency may be relatively small.
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    \26\ See supra note 8.
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    For investors that trade conventional equity options, there is 
likely to be a natural size for an executed order that minimizes fixed 
and variable transaction costs, including but not limited to, the bid-
ask spread, price impact, and transaction fees. If the existing 
position limits for conventional equity options on select ETFs 
constrains the order size such that fixed and variable transaction 
costs are higher than optimal, then investors may benefit if the new 
position limit is no less than the natural size. In such an event, the 
cost to hedge an ETF would decline, thereby making it less costly to 
manage downside risk.
    In addition, if the existing position limits serve as a constraint, 
then an increase in the position limits for conventional options on 
select ETFs could permit investors to more easily find a counterparty. 
If the number of counterparties increases, then the cost of hedging 
should decline as the half-spread narrows, thereby making it less 
expensive to manage downside risk.
    The extent of the constraint imposed by the current limit on 
conventional options is related to the ability of an investor to 
achieve similar economic exposure through other means. If there are 
other securities, such as an option on a closely related index, that 
exist and provide similar economic exposure less expensively, then the 
value of lessening the position limits on conventional options on ETFs 
is lower.
    Members may rely on information and data feeds from the Options 
Clearing Corporation to assist in their monitoring position limits. 
Because position limits on the standardized and conventional side have 
traditionally been consistent, members have relied on this feed for 
both standardized and conventional options. If the position limits 
between standardized and conventional options are conformed, then the 
cost from monitoring position limits should decline for member firms. 
Having the same position limits on standardized and conventional 
options, reduces the potential for excess loss that may be incurred 
when different limits are applied to the standardized versus 
conventional options on the same ETF. The economic loss may arise from 
building and maintaining trading and compliance systems to support the 
different regimes. Furthermore, the harmonization of position limits on 
standardized and conventional options eliminates the potential risk and 
cost arising from regulatory arbitrage.
Costs
    The proposed rule change may impose limited operational cost on 
member firms that trade conventional options on ETFs, as these same 
firms would need to revise position limits that are used in trading 
systems. However, the proposed rule change should not impose additional 
costs, because it is difficult to disrupt or manipulate the underlying 
market, create an incentive to disrupt or manipulate the underlying 
market for the purpose of profiting from the options position, or 
disrupt or manipulate the options market for conventional options on 
ETFs affected by this proposed rule. ETFs that underlie options subject 
to the proposed rule change are highly liquid and are based on a broad 
set of highly liquid securities, which makes the market difficult to 
manipulate or disrupt. In fact, options on certain broad-based security 
indexes have no position limits. Furthermore, the applicable creation 
and redemption process for these ETFs reduces the potential for 
disruptive or manipulative activity. New ETF units may be created at 
any time during the trading day and are not subject to position limits. 
Consequently, there is a direct link between the underlying components 
of the ETF, which keeps ETF's share prices trading in line with the 
ETF's underlying net asset value.
Alternatives
    No further alternatives are under consideration.

[[Page 22250]]

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

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

    Because the foregoing 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 after the date of the filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \27\ and Rule 19b-
4(f)(6) \28\ thereunder.
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    \27\ 15 U.S.C. 78s(b)(3)(A).
    \28\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and 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. 
FINRA has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \29\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\30\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. FINRA has asked the 
Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative upon filing. FINRA states that waiver 
of the operative delay would be consistent with the protection of 
investors and the public interest because it would enable FINRA to 
immediately harmonize position limits with those of other self-
regulatory organizations to ensure consistent regulation. For this 
reason, 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 operative upon filing.\31\
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    \29\ 17 CFR 240.19b-4(f)(6).
    \30\ 17 CFR 240.19b-4(f)(6)(iii).
    \31\ For purposes only of waiving the 30-day operative delay, 
the Commission has 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-FINRA-2022-007 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-FINRA-2022-007. 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 a.m. and 3 
p.m. Copies of such filing also will be available for inspection and 
copying at the principal office of FINRA. 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-
FINRA-2022-007 and should be submitted on or before May 5, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2022-07946 Filed 4-13-22; 8:45 am]
BILLING CODE 8011-01-P


