82 FR 41454 - Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of Filing of Proposed Rule Change Relating to ICC's Liquidity Risk Management Framework and ICC's Stress Testing Framework
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 168 (August 31, 2017)
Federal Register Volume 82, Issue 168 (August 31, 2017)
| Page Range | 41454-41457 | |
| FR Document | 2017-18449 |
[Federal Register Volume 82, Number 168 (Thursday, August 31, 2017)] [Notices] [Pages 41454-41457] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-18449] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-81486; File No. SR-ICC-2017-012] Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of Filing of Proposed Rule Change Relating to ICC's Liquidity Risk Management Framework and ICC's Stress Testing Framework August 25, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 \1\ and Rule 19b-4,\2\ notice is hereby given that on August 22, 2017, ICE Clear Credit LLC (``ICC'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change described in Items I, II, and III below, which Items have been primarily prepared by ICC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Clearing Agency's Statement of the Terms of Substance of the Proposed Rule Change The principal purpose of the proposed rule change is to revise the ICC Liquidity Risk Management Framework and the ICC Stress Testing Framework. These revisions do not require any changes to the ICC Clearing Rules (``Rules''). II. Clearing Agency's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, ICC 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. ICC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of these statements. (A) Clearing Agency's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change (a) Purpose ICC proposes revisions to its Stress Testing Framework and its Liquidity Risk Management Framework. Specifically, ICC proposes changes to enhance ICC's stress testing and liquidity stress testing practices following the clearing of Single Name (``SN'') credit default swaps (``CDS'') referencing ICC Clearing Participants [[Page 41455]] (``CPs''). ICC also proposes changes to the Stress Testing Framework to enhance compliance with U.S. Commodity Futures Trading Commission (``CFTC'') regulations including 17 CFR 39.36. ICC believes such revisions will facilitate the prompt and accurate clearance and settlement of securities transactions and derivative agreements, contracts, and transactions for which it is responsible. The proposed revisions are described in detail as follows. Stress Testing Framework ICC proposes changes to its Stress Testing Framework following clearing of SN CDS referencing ICC CPs. ICC proposes amendments to the `Predefined Scenarios' section of the Stress Testing Framework to amend scenarios classified as Hypothetically Constructed (Forward Looking) Extreme but Plausible Market Scenarios to incorporate additional losses related to the Expected Loss-Given-Default (``ELGD'') of all names not explicitly assumed to enter a state of default in a CP's portfolio, and not limited to those in the Banking or Sovereign sectors. The ELGD amount will accumulate the LGD of all of the SNs in the portfolio that do not explicitly enter a state of default, weighted by the market observed 1-year end-of-day Default Probability.\3\ --------------------------------------------------------------------------- \3\ ``Default Probability'' as referenced throughout the ICC Stress Testing Framework and ICC Liquidity Risk Management Framework is calculated using the Open Source ISDA CDS Standard Model (available at http://www.cdsmodel.com/cdsmodel/). --------------------------------------------------------------------------- ICC proposes to incorporate an enhanced analysis into the `General Wrong Way Risk and Contagion Stress Tests' section of the Stress Testing Framework that estimates profits and losses (``P/L'') arising from general wrong way risk (``GWWR'') generated by index and SN RFs that exhibit high degree of association with CPs. All positions in the index and SN instruments are used to construct for each CP a hypothetical sub-portfolio subject to an additional stress test analysis. Under the proposed analysis, if the constructed sub-portfolio presents GWWR stemming from positions in SN Risk Factors (``RFs'') that belong to the Banking and Sovereign Sections, additional GWWR related stress losses, deemed to be `extreme but plausible, will be added. These additional GWWR losses are computed as the product of the correlation-weighted uncollateralized LGDs and the SN-specific Default Probabilities. The proposed analysis is based on ICC's current GWWR P/L calculation, but assumes that the GWWR Kendall-Tau correlation (currently the greatest of the estimate from the full historical time series, the immediate 250 observations prior to the analysis date, or the 250 observations associated with a relevant stress period) of each CP-Sovereign or Banking RF pair are assumed to approach one, modeling the simultaneous occurrence of losses. The Default Probabilities utilized under the proposed approach will reflect the greater of the average 1-year CP SN Default Probability and the Default Probability implied by a 500-bp spread level at the 1-year tenor. Further, ICC proposes moving the current contagion GWWR P/L calculation from the `Methodology' section to the `General Wrong Way Risk and Contagion Stress Tests' section of the framework. ICC proposes adding language to the description of the current contagion GWWR P/L calculation, consisting of the correlation-weighted uncollateralized LGDs, to clarify that such scenario is considered extreme (as opposed to extreme but plausible). The extreme scenario is for information purposes only. ICC proposes adding a new `Guaranty Fund Sizing Sensitivity Analysis' section to the Stress Testing Framework, which describes ICC's approach to Guaranty Fund (``GF'') sizing. ICC's GF model aims to establish financial resources that are sufficient to cover hypothetical losses associated with the simultaneous credit events where up to five SNs are impacted. Currently, two of the selected SNs are CP SNs (i.e., ``cover-2'' GF sizing) and the other three SNs are non-CP SNs. ICC proposes amending the framework to add an additional combination of impacted five SNs, for monitoring and comparison purposes. Specifically, ICC proposes analyzing three CP SNs (i.e., ``cover-3'' GF sizing) and two non-CP SNs. This alternative combination analysis is intended to provide guidance to the ICC Risk Department and ICC Risk Committee in situations when changes to the GF sizing approach are considered. For example, if a cover-2 deficiency is observed under the current GF size configuration, ICC will analyze the results from the cover-3 analysis as a potential remedy to address the cover-2 deficiency. Monthly summary reports detailing the analysis will be provided to the ICC Risk Committee. ICC also proposes changes to the Stress Testing Framework to ensure compliance with CFTC Regulation 17 CFR 39.36. Specifically, ICC proposes adding an `Interest Rate Sensitivity Analysis' section to the Stress Testing Framework to ensure compliance with CFTC Regulation 17 CFR 39.36(b). Under the proposed analysis, ICC would shock the Euro and USD interest rate curves up and down to see which scenario lead to further erosion of the GF under the two worst spread based stress test scenarios. The addition of the interest rate sensitivity analysis will have no impact on ICC's GF sizing methodology. ICC also proposes changes to the `Methodology' section of the Stress Testing Framework related to the calculation of the P/L attributable to sequential or simultaneous defaults, to ensure compliance with 17 CFR 39.36(a). Under the current framework, for each CP Affiliate Group (``AG''), the Specific Wrong Way Risk (``SWWR'') P/L shows losses associated with positions that are self referencing to that CP AG; the remaining GF is then calculated for each CP AG. Under the proposed changes, the SWWR P/ L will be expanded to also reflect the accumulation of losses associated with defaulted CP specific exposure and re-labeled ``CP-WWR P/L'', where the new CP-WWR P/L for each CP AG will include losses associated with exposure to itself, i.e., SWWR P/L, as well as on previously defaulted CP AG(s). Finally, ICC proposes edits to the `Portfolio Selection' section of the Stress Testing Framework, to incorporate a description of ICC's current client stress testing practices. There are no changes being proposed to ICC's client stress testing practices; rather the proposed edits are designed to explicitly state and document ICC's current client stress testing practices. Specifically, ICC applies the stress test scenarios to all currently cleared portfolios consisting of a CP's House and/or Client accounts. ICC executes individual client legal entity stress testing at least monthly, and the results are reported on a monthly basis to the Risk Committee. The clients selected for analysis exhibit the largest stress loss over financial resources being tested for each of the top Futures Commission Merchants (``FCMs'') and Broker Dealers (``BDs'') with the largest client Initial Margin. This selection is designed to capture the clients with the largest risk exposure, who are deemed to be ``large traders.'' Liquidity Risk Management Framework ICC proposes revisions to its Liquidity Risk Management Framework to ensure unification of the stress testing scenarios in the Liquidity Risk Management Framework and the Stress Testing Framework. ICC operates its stress testing and liquidity stress testing on a unified set of stress testing scenarios and system. As such, revisions to the liquidity stress testing scenarios are [[Page 41456]] necessary to ensure scenario unification, in light of the proposed changes to the stress testing scenarios related to ICC's clearing of SN CDS on its CPs. Specifically, ICC proposes to revise the ``Hypothetically Constructed (Forward Looking) Extreme but Plausible Market Scenarios'' to ensure consistency with the proposed changes to the Stress Testing Framework to incorporate additional losses related to the ELGD of all names in a CP's portfolio, not limited to those in the Banking or Sovereign sectors. The ELGD amount will accumulate the LGD of all of the SNs in the portfolio that do not explicitly enter a state of default, weighted by the market observed 1-year end-of-day Default Probability. (b) Statutory Basis Section 17A(b)(3)(F) of the Act \4\ requires, among other things, that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions, and to the extent applicable, derivative agreements, contracts and transactions and to comply with the provisions of the Act and the rules and regulations thereunder. ICC believes that the proposed rule changes are consistent with the requirements of the Act and the rules and regulations thereunder applicable to ICC, in particular, to Section 17(A)(b)(3)(F),\5\ because ICC believes that the proposed rule changes will promote the prompt and accurate clearance and settlement of securities transactions, derivatives agreements, contracts, and transactions. ICC's Stress Testing Framework describes ICC's stress testing practices, which are designed to ensure the adequacy of systemic risk protections. The Stress Testing Framework sets forth the methodology by which ICC evaluates potential portfolio profits/losses, compared to the Initial Margin and GF funds maintained, in order to identify any potential weakness in the risk methodology. The proposed changes to the Stress Testing Framework enhance ICC's approach to identifying potential weaknesses in the risk methodology. As such, the proposed rule changes are designed to promote the prompt and accurate clearance and settlement of securities transactions, derivatives agreements, contracts, and transactions within the meaning of Section 17A(b)(3)(F) \6\ of the Act. The proposed changes will also satisfy the requirements of Rule 17Ad-22.\7\ In particular, the proposed changes to the stress testing practices set forth in the Stress Testing Framework ensure that ICC maintains sufficient financial resources to withstand a default by the CP family to which it has the largest exposure in extreme but plausible market conditions, consistent with the requirements of Rule 17Ad-22(b)(3).\8\ Finally, the proposed changes to the Stress Testing Framework ensure regulatory compliance with CFTC regulations, including 17 CFR 39.36. --------------------------------------------------------------------------- \4\ 15 U.S.C. 78q-1(b)(3)(F). \5\ Id. \6\ Id. \7\ 17 CFR 240.17Ad-22. \8\ 17 CFR 240.17Ad-22(b)(3). --------------------------------------------------------------------------- Further, the changes to the Liquidity Risk Management Framework to unify the liquidity stress testing scenarios with the stress testing scenarios set forth in Stress Testing Framework are necessary given the proposed changes to the Stress Testing Framework, as ICC operates its stress testing and liquidity stress testing on a unified set of stress testing scenarios and system. ICC's liquidity stress testing practices will continue to ensure the sufficiency of ICC's liquidity resources. As such, the proposed rule changes are designed to promote the prompt and accurate clearance and settlement of securities transactions, derivatives agreements, contracts, and transactions within the meaning of Section 17A(b)(3)(F) \9\ of the Act. --------------------------------------------------------------------------- \9\ Id. --------------------------------------------------------------------------- (B) Clearing Agency's Statement on Burden on Competition ICC does not believe the proposed rule changes would have any impact, or impose any burden, on competition. To the extent the Stress Testing Framework and Liquidity Risk Management Framework changes impact CPs, the Stress Testing Framework and Liquidity Risk Management Framework apply uniformly across all CPs. Therefore, ICC does not believe the proposed rule changes impose any burden on competition that is inappropriate in furtherance of the purposes of the Act. (C) Clearing Agency's Statement on Comments on the Proposed Rule Received From Members, Participants or Others Written comments relating to the proposed rule change have not been solicited or received. ICC will notify the Commission of any written comments received by ICC. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic CommentsUse 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-ICC-2017-012 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-ICC-2017-012. 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 Web site (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 Web site viewing and printing in the Commission's Public Reference Section, 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 filings will also be available for [[Page 41457]] inspection and copying at the principal office of ICE Clear Credit and on ICE Clear Credit's Web site at https://www.theice.com/clear-credit/regulation. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-ICC-2017-012 and should be submitted on or before September 21, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\10\ --------------------------------------------------------------------------- \10\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-18449 Filed 8-30-17; 8:45 am] BILLING CODE 8011-01-P
![41454 Federal Register / Vol. 82, No. 168 / Thursday, August 31, 2017 / Notices
changes during the third quarter of requirements of Rule 203(b)(1) of the SECURITIES AND EXCHANGE
2017.23 Act or any exception thereto. COMMISSION
III. Discussion and Commission The Commission believes that the [Release No. 34–81486; File No. SR–ICC–
Findings Exchange’s proposal to subject all 2017–012]
inbound and outbound communications
After careful review, the Commission Self-Regulatory Organizations; ICE
related to Market Maker Peg Orders,
finds that the proposed rule change is Clear Credit LLC; Notice of Filing of
consistent with the requirements of the including the automatic repricing of
such orders, to POP latency is consistent Proposed Rule Change Relating to
Act and the rules and regulations ICC’s Liquidity Risk Management
thereunder that are applicable to a with the Act. In particular, this
Framework and ICC’s Stress Testing
national securities exchange.24 treatment of the Market Maker Peg
Framework
Specifically, the Commission finds that Order places a market maker using this
the proposed rule change is consistent order type in the same position as August 25, 2017.
with Section 6(b)(5) of the Act,25 which another market maker placing and Pursuant to Section 19(b)(1) of the
requires, among other things, that the updating its own quote directly without Securities Exchange Act of 1934 1 and
rules of a national securities exchange using the Market Maker Peg Order Rule 19b–4,2 notice is hereby given that
be designed to prevent fraudulent and type—both will be subject to the POP on August 22, 2017, ICE Clear Credit
manipulative acts and practices, to and experience the same latency. In LLC (‘‘ICC’’) filed with the Securities
promote just and equitable principles of addition, this approach is consistent and Exchange Commission
trade, to foster cooperation and with the treatment of other displayed (‘‘Commission’’) the proposed rule
coordination with persons engaged in orders on the Exchange, all of which are change described in Items I, II, and III
facilitating transactions in securities, to subject to the POP latency. below, which Items have been primarily
remove impediments to and perfect the prepared by ICC. The Commission is
Further, the Commission believes that publishing this notice to solicit
mechanism of a free and open market
the Exchange’s proposal to specify how comments on the proposed rule change
and a national market system, and, in
Market Maker Peg Orders will be priced from interested persons.
general, to protect investors and the
public interest. The Commission finds in order to comply with the Tick Pilot
I. Clearing Agency’s Statement of the
that the proposed rule change also is Plan is consistent with the Act and Rule
Terms of Substance of the Proposed
designed to support the principles of 608 of Regulation NMS 27 because it
Rule Change
Section 11A(a)(1) 26 of the Act in that it implements the Tick Pilot Plan and
conforms Exchange rules to those The principal purpose of the
seeks to assure fair competition among proposed rule change is to revise the
brokers and dealers and among requirements.28
ICC Liquidity Risk Management
exchange markets. Finally, the Commission notes that Framework and the ICC Stress Testing
The Commission finds that the other national securities exchanges offer Framework. These revisions do not
Exchange’s proposal is consistent with similar order types to the Exchange’s require any changes to the ICC Clearing
the Act because it provides an optional proposed Market Maker Peg Order,29 Rules (‘‘Rules’’).
tool that market makers may use as a and the Commission received no
backstop to help maintain a continuous comments on the Exchange’s proposed II. Clearing Agency’s Statement of the
quote in satisfaction of the Exchange’s Purpose of, and Statutory Basis for, the
rule change.
minimum continuous quoting Proposed Rule Change
requirements, which may assist in the IV. Conclusion In its filing with the Commission, ICC
maintenance of fair and orderly markets. included statements concerning the
The Commission notes, however, that It is therefore ordered, pursuant to
purpose of and basis for the proposed
notwithstanding the availability of the Section 19(b)(2) of the Act,30 that the
rule change and discussed any
Market Maker Peg Order functionality, proposed rule change (SR–IEX–2017– comments it received on the proposed
the market maker remains responsible 22), be and hereby is, approved. rule change. The text of these statements
for meeting its obligations under IEX For the Commission, by the Division of may be examined at the places specified
Rule 11.151, including entering, Trading and Markets, pursuant to delegated in Item IV below. ICC has prepared
monitoring, and re-submitting, as authority.31 summaries, set forth in sections (A), (B),
applicable, compliant quotations. At the Eduardo A. Aleman, and (C) below, of the most significant
same time, the Commission finds that Assistant Secretary. aspects of these statements.
the proposal is reasonably designed to
assist market makers in complying with
[FR Doc. 2017–18455 Filed 8–30–17; 8:45 am] (A) Clearing Agency’s Statement of the
the regulatory requirements of the BILLING CODE 8011–01–P Purpose of, and Statutory Basis for, the
Market Access Rule and Regulation Proposed Rule Change
SHO. The Commission notes, however, (a) Purpose
the Market Maker Peg Order does not by ICC proposes revisions to its Stress
itself ensure that the market maker is Testing Framework and its Liquidity
satisfying the requirements of the Risk Management Framework.
Market Access Rule or Regulation SHO, Specifically, ICC proposes changes to
27 17 CFR 242.608.
including the satisfaction of the locate
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28 The Commission notes that in this regard IEX’s
enhance ICC’s stress testing and
proposal is substantially similar to Bats BZX liquidity stress testing practices
23 See id. at 32029.
Exchange, Inc. (‘‘Bats’’) Rule 11.27(c)(5). following the clearing of Single Name
24 In approving this rule change, the Commission
has considered the rule’s impact on efficiency,
29 See, e.g., Bats Rule 11.9(c)(16), Nasdaq Stock (‘‘SN’’) credit default swaps (‘‘CDS’’)
competition, and capital formation. See 15 U.S.C. Market LLC Rule 4702(b)(7), and Bats EDGX referencing ICC Clearing Participants
78c(f). Exchange, Inc. Rule 11.8(e).
25 15 U.S.C. 78f(b)(5). 30 15 U.S.C. 78s(b)(2). 1 15 U.S.C. 78s(b)(1).
26 15 U.S.C. 78k–1(a)(1). 31 17 CFR 200.30–3(a)(12). 2 17 CFR 240.19b–4.
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![Federal Register / Vol. 82, No. 168 / Thursday, August 31, 2017 / Notices 41457
inspection and copying at the principal (‘‘EFA’’), iShares MSCI Emerging etc.) on the same side of the market.
office of ICE Clear Credit and on ICE Markets ETF (‘‘EEM’’), iShares Russell Options on FXI, EFA, EWZ, TLT, VXX,
Clear Credit’s Web site at https:// 2000 ETF (‘‘IWM’’), iShares MSCI EAFE and EWJ are currently subject to the
www.theice.com/clear-credit/regulation. ETF (‘‘EFA’’), iShares MSCI Brazil standard position limit of 250,000
All comments received will be posted Capped ETF (‘‘EWZ’’), iShares 20+ Year contracts as set forth in Exchange Rule
without change; the Commission does Treasury Bond Fund ETF (‘‘TLT’’), iPath 4.11.3 Interpretation and Policy .07 of
not edit personal identifying S&P 500 VIX Short-Term Futures ETN Exchange Rule 4.11 sets forth separate
information from submissions. You (‘‘VXX’’), PowerShares QQQ Trust position limits for options on specific
should submit only information that (‘‘QQQQ’’), and iShares MSCI Japan ETFs and ETNs as follows:
you wish to make available publicly. All Index [sic] (‘‘EWJ’’). • Options on EEM are 500,000
submissions should refer to File The text of the proposed rule change contracts;
Number SR–ICC–2017–012 and should is also available on the Exchange’s Web • Options on IWM are 500,000
be submitted on or before September 21, site (http://www.cboe.com/AboutCBOE/ contracts; and
2017. CBOELegalRegulatoryHome.aspx), at • Options on QQQQ are 900,000
For the Commission, by the Division of the Exchange’s Office of the Secretary, contracts.
Trading and Markets, pursuant to delegated and at the Commission’s Public The purpose of this proposal is to
authority.10 Reference Room. amend Interpretation and Policy .07 to
Eduardo A. Aleman, Exchange Rule 4.11 to double the
II. Self-Regulatory Organization’s
Assistant Secretary. position and exercise limits for FXI,
Statement of the Purpose of, and
[FR Doc. 2017–18449 Filed 8–30–17; 8:45 am] EEM, IWM, EFA, EWZ, TLT, VXX,
Statutory Basis for, the Proposed Rule
BILLING CODE 8011–01–P QQQQ, and EWJ.4 As such, options on
Change
FXI, EFA, EWZ, TLT, VXX, and EWJ
In its filing with the Commission, the would no longer be subject to the
SECURITIES AND EXCHANGE Exchange included statements standard position limits set forth under
COMMISSION concerning the purpose of and basis for Exchange Rule 4.11. Accordingly,
the proposed rule change and discussed Interpretation and Policy .07 to
[Release No. 34–81483; File No. SR–CBOE–
any comments it received on the Exchange Rule 4.11 would be amended
2017–057]
proposed rule change. The text of these to set forth that the position limits for
Self-Regulatory Organizations; statements may be examined at the option on FXI, EFA, EWZ, TLT, VXX,
Chicago Board Options Exchange, places specified in Item IV below. The and EWJ would be 500,000 contracts.
Incorporated; Notice of Filing of a Exchange has prepared summaries, set These position limits equal the current
Proposed Rule Change To Amend forth in sections A, B, and C below, of position limits for option on IWM and
Interpretation and Policy .07 of the most significant aspects of such EMM and are similar to the current
Exchange Rule 4.11, Position Limits, statements. position limit for options on QQQQ set
To Increase the Position Limits for A. Self-Regulatory Organization’s forth in Interpretation and Policy .07 to
Options on Certain ETFs Statement of the Purpose of, and Exchange Rule 4.11. Interpretation and
Statutory Basis for, the Proposed Rule Policy .07 to Exchange Rule 4.11 would
August 25, 2017. be further amended to increase the
Pursuant to Section 19(b)(1) of the Change
position limits for the remaining options
Securities Exchange Act of 1934 (the 1. Purpose subject to this proposal as follows:
‘‘Act’’),1 and Rule 19b–4 thereunder,2 • The position limits for options on
Position limits are designed to
notice is hereby given that on August EEM would be increased from 500,000
address potential manipulative schemes
15, 2017, Chicago Board Options contracts to 1,000,000 contracts;
and adverse market impact surrounding
Exchange, Incorporated (the ‘‘Exchange’’
the use of options, such as disrupting • The position limits on options on
or ‘‘CBOE’’) filed with the Securities IWM would be increased from 500,000
the market in the security underlying
and Exchange Commission (the contracts to 1,000,000 contracts; and
the options. The potential manipulative
‘‘Commission’’) the proposed rule
schemes and adverse market impact are • The position limits on options on
change as described in Items I and II QQQQ would be increased from 900,000
balanced against the potential of setting
below, which Items have been prepared contracts to 1,800,000 contracts.
the limits so low as to discourage
by the Exchange. The Commission is In support of this proposal, the
participation in the options market.
publishing this notice to solicit Exchange represents that the above
Position limits for options on ETFs and
comments on the proposed rule change listed ETFs and ETNs qualify for either:
ETNs, such as those subject to this
from interested persons. (i) The initial listing criteria set forth in
proposal, are determined pursuant to
I. Self-Regulatory Organization’s Exchange Rule 4.11, and vary according Exchange Rule 5.3.06(C) for ETFs
Statement of the Terms of Substance of to the number of outstanding shares and holding non-U.S. component securities;
the Proposed Rule Change the trading volume of the underlying or (ii) for ETFs and ETNs listed
stocks, ETFs, or ETNs over the past six- pursuant to generic listing standards for
The purpose of this filing is to amend series of portfolio depository receipts
Interpretation and Policy .07 of months. Pursuant to Exchange Rule
4.11, the largest in capitalization and and index fund shares based on
Exchange Rule 4.11, Position Limits, to
increase the position limits for options the most frequently traded stocks, ETFs, 3 See https://www.theocc.com/webapps/delo-
and ETNs have an option position limit
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on the following exchange traded funds search.
(‘‘ETFs’’) and exchange traded notes of 250,000 contracts (with adjustments 4 By virtue of Exchange Rule 4.12, Interpretation
(‘‘ETNs’’): iShares China Large-Cap ETF for splits, re-capitalizations, etc.) on the and Policy .02, which is not being amended by this
(‘‘FXI’’), iShares MSCI EAFE ETF same side of the market; and smaller filing, the exercise limit for FXI, EEM, IWM, EFA,
capitalization stocks, ETFs, and ETNs EWZ, TLT, VXX, QQQQ, and EWJ options would
be similarly increased.
10 17 CFR 200.30–3(a)(12). have position limits of 200,000, 75,000, The Exchange also proposed to make non-
1 15 U.S.C. 78s(b)(1). 50,000 or 25,000 contracts (with substantive corrections to the names of IWM and
2 17 CFR 240.19b–4. adjustments for splits, re-capitalizations, EEM in Rule 4.11, Interpretation and Policy .07.
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Document Created: 2017-09-23 10:08:28
Document Modified: 2017-09-23 10:08:28
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| Collection | Federal Register | |
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| FR Citation | 82 FR 41454 |
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