82 FR 41457 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change To Amend Interpretation and Policy .07 of Exchange Rule 4.11, Position Limits, To Increase the Position Limits for Options on Certain ETFs
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 168 (August 31, 2017)
Federal Register Volume 82, Issue 168 (August 31, 2017)
| Page Range | 41457-41461 | |
| FR Document | 2017-18446 |
[Federal Register Volume 82, Number 168 (Thursday, August 31, 2017)] [Notices] [Pages 41457-41461] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-18446] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-81483; File No. SR-CBOE-2017-057] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change To Amend Interpretation and Policy .07 of Exchange Rule 4.11, Position Limits, To Increase the Position Limits for Options on Certain ETFs August 25, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on August 15, 2017, Chicago Board Options Exchange, Incorporated (the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange Commission (the ``Commission'') the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The purpose of this filing is to amend Interpretation and Policy .07 of Exchange Rule 4.11, Position Limits, to increase the position limits for options on the following exchange traded funds (``ETFs'') and exchange traded notes (``ETNs''): iShares China Large-Cap ETF (``FXI''), iShares MSCI EAFE ETF (``EFA''), iShares MSCI Emerging Markets ETF (``EEM''), iShares Russell 2000 ETF (``IWM''), iShares MSCI EAFE ETF (``EFA''), iShares MSCI Brazil Capped ETF (``EWZ''), iShares 20+ Year Treasury Bond Fund ETF (``TLT''), iPath S&P 500 VIX Short-Term Futures ETN (``VXX''), PowerShares QQQ Trust (``QQQQ''), and iShares MSCI Japan Index [sic] (``EWJ''). The text of the proposed rule change is also available on the Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the Secretary, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose 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. Position limits for options on ETFs and ETNs, such as those subject to this proposal, are determined pursuant to Exchange Rule 4.11, and vary according to the number of outstanding shares and the trading volume of the underlying stocks, ETFs, or ETNs over the past six-months. Pursuant to Exchange Rule 4.11, the largest in capitalization and the most frequently traded stocks, ETFs, and ETNs 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, ETFs, and ETNs 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, VXX, and EWJ are currently subject to the standard position limit of 250,000 contracts as set forth in Exchange Rule 4.11.\3\ Interpretation and Policy .07 of Exchange Rule 4.11 sets forth separate position limits for options on specific ETFs and ETNs as follows: --------------------------------------------------------------------------- \3\ See https://www.theocc.com/webapps/delo-search. ---------------------------------------------------------------------------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 Interpretation and Policy .07 to Exchange Rule 4.11 to double the position and exercise limits for FXI, EEM, IWM, EFA, EWZ, TLT, VXX, QQQQ, and EWJ.\4\ As such, options on FXI, EFA, EWZ, TLT, VXX, and EWJ would no longer be subject to the standard position limits set forth under Exchange Rule 4.11. Accordingly, Interpretation and Policy .07 to Exchange Rule 4.11 would be amended to set forth that the position limits for option on FXI, EFA, EWZ, TLT, VXX, 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 Interpretation and Policy .07 to Exchange Rule 4.11. Interpretation and Policy .07 to Exchange Rule 4.11 would be further amended to increase the position limits for the remaining options subject to this proposal as follows: --------------------------------------------------------------------------- \4\ By virtue of Exchange Rule 4.12, Interpretation and Policy .02, which is not being amended by this filing, the exercise limit for FXI, EEM, IWM, EFA, EWZ, TLT, VXX, QQQQ, and EWJ options would be similarly increased. The Exchange also proposed to make non-substantive corrections to the names of IWM and EEM in Rule 4.11, Interpretation and Policy .07. --------------------------------------------------------------------------- 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 and ETNs qualify for either: (i) The initial listing criteria set forth in Exchange Rule 5.3.06(C) for ETFs holding non-U.S. component securities; or (ii) for ETFs and ETNs listed pursuant to generic listing standards for series of portfolio depository receipts and index fund shares based on [[Page 41458]] international or global indexes under which a comprehensive surveillance agreement (``CSA'') is not required.\5\ FXI tracks the performance of the FTSE China 50 Index, which is composed of the 50 largest Chinese stocks.\6\ EEM tracks the performance of the MSCI Emerging Markets Index, which is composed of approximately 800 component securities.\7\ ``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.'' \8\ IWM tracks the performance of the Russell 2000 Index, which is composed of 2,000 small-cap domestic stocks.\9\ EFA tracks the performance of MSCI EAFE Index, which has over 900 component securities.\10\ ``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.'' \11\ EWZ tracks the performance of the MSCI Brazil 25/50 Index, which is composed of shares of large and mid-size companies in Brazil.\12\ TLT tracks the performance of ICE U.S. Treasury 20+ Year Bond Index, which is composed of long-term U.S. Treasury bonds.\13\ VXX tracks the performance of S&P 500 VIX Short-Term Futures Index Total Return. ``The Index is designed to provide access to equity market volatility through CBOE Volatility Index futures. The Index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects market participants' views of the future direction of the VIX index at the time of expiration of the VIX futures contracts comprising the Index.'' \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\ --------------------------------------------------------------------------- \5\ The Exchange notes that the initial listing criteria for options on ETFs and ETNs that hold non-U.S. component securities are more stringent than the maintenance listing criteria for those same ETF options. See Exchange Rule 5.3.06(C); Exchange Rule 5.4.08. \6\ See https://www.ishares.com/us/products/239536/ishares-china-largecap-etf. \7\ See http://us.ishares.com/product_info/fund/overview/EEM.htm. \8\ See http://www.msci.com/products/indices/tools/index.html#EM. \9\ See https://www.ishares.com/us/products/239710/ishares-russell-2000-etf. \10\ See https://www.ishares.com/us/products/239623/. \11\ See https://www.msci.com/eafe. \12\ See https://www.ishares.com/us/products/239612/ishares-msci-brazil-capped-etf. \13\ See https://www.ishares.com/us/products/239454/. \14\ See http://www.ipathetn.com/US/16/en/details.app?instrumentId=259118. \15\ See https://www.invesco.com/portal/site/us/financial-professional/etfs/product-detail?productId=QQQ&ticker=QQQ&title=powershares-qqq. \16\ See https://www.ishares.com/us/products/239665/EWJ. --------------------------------------------------------------------------- CBOE 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, 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\ --------------------------------------------------------------------------- \17\ See Exchange Rule 5.3.06(C). \18\ See Exchange Rule 5.3.06(C)(ii)(b). \19\ See Exchange Rule 5.3.06(C)(ii)(c). --------------------------------------------------------------------------- Market participants have increased their demand for options on FXI, EFA, EWZ, TLT, VXX, 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. The Exchange has the collected following trading statistics on the ETFs and ETNs that are subject to this proposal: ---------------------------------------------------------------------------------------------------------------- 2017 ADV Shares ETF 2017 ADV (mil. (option outstanding Fund market shares) contracts) (mil.) cap ($mil.) ---------------------------------------------------------------------------------------------------------------- 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 VXX............................................. 55.04 336,331 96.7 1,085.6 QQQQ............................................ 26.25 579,404 351.6 50,359.7 EWJ............................................. 6.06 4,715 303.6 16,625.1 SPY............................................. 64.63 2,575,153 976.23 240,540.0 ---------------------------------------------------------------------------------------------------------------- In support of its proposal to increase the position limits for QQQQ to 1,800,000 contracts, the Exchange compared the trading characteristics of QQQQ to that of the SPDR S&P 500 ETF (``SPY''), which has no position limits. As shown in the 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 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, the Exchange 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 [[Page 41459]] 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 [sic] 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 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 of shares outstanding than IWM and a much higher market cap than EEM and IWM which justify doubling the positon 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 its underlying the options. In support of its proposal to increase the position limits for FXI, EFA, EWZ, TLT, VXX, and EWJ from 250,000 contracts to 500,000 contracts, the Exchange compared the trading characteristics of FXI, EFA, EWZ, TLT, VXX 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, VXX is 55.04 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, VXX is 96.7 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, VXX is $1,085.6 million, and EWJ is $16,625.1 million compared to $34.926.1 [sic] million for EEM and $35,809.1 million for IWM. Market participants' trading activity has been adversely impacted by the current position limits for FXI, EFA, EWZ, TLT, VXX and EWJ and such limits have caused options trading in these symbols to move from exchanges to the over-the-counter market. The above trading characteristics of FXI, EFA, EWZ, TLT, VXX 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 that may arise. Specifically, VXX has an average daily trading volume similar to EEM and higher than IWM. VXX has an options volume higher than EEM, more shares outstanding than IWM and a larger fund market cap than both EEM and IWM. 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 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 the several clearing firms are capable of properly identifying unusual and/ or illegal trading activity. 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 Trading Permit Holder (``TPH'') or TPH organization 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 \20\ (including Designated Primary Market-Makers) \21\ would continue to be exempt from this reporting requirement, as Market- Maker information can be accessed through the Exchange's market surveillance systems. 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.\22\ --------------------------------------------------------------------------- \20\ A Market-Maker ``is an individual Trading Permit Holder or a TPH organization that is registered with the Exchange for the purpose of making transactions as dealer-specialist on the Exchange in accordance with the provisions of this Chapter.'' See Exchange Rule 8.1. \21\ A Designated Primary Market-Maker ``is TPH organization that is approved by the Exchange to function in allocated securities as a Market-Maker (as defined in Rule 8.1) and is subject to the obligations under Rule 8.85 or as otherwise provided under the rules of the Exchange.'' See Exchange Rule 8.80(a). \22\ See Exchange Rule 4.13 for reporting requirements. --------------------------------------------------------------------------- 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.\23\ --------------------------------------------------------------------------- \23\ These procedures have been effective for the surveillance of trading the options subject to this proposal and will continue to be employed. --------------------------------------------------------------------------- Furthermore, large stock holdings must be disclosed to the Commission by way of Schedules 13D or 13G.\24\ 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 TPHs 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. --------------------------------------------------------------------------- \24\ 17 CFR 240.13d-1. --------------------------------------------------------------------------- The Exchange believes that the current financial requirements imposed by the Exchange and by the Commission adequately address concerns that a TPH or its customer may try to maintain an inordinately large 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 TPH must maintain for a large position held by itself or by its [[Page 41460]] customer.\25\ In addition, Rule 15c3-1 \26\ imposes a capital charge on TPHs to the extent of any margin deficiency resulting from the higher margin requirement. --------------------------------------------------------------------------- \25\ See Exchange Rule 12.3 for a description of margin requirements. \26\ 17 CFR 240.15c3-1. --------------------------------------------------------------------------- 2. Statutory Basis The Exchange believes that its proposal is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6(b) of the Act.\27\ In particular, the proposal is consistent with Section 6(b)(5) of the Act \28\ because 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 and ETNs subject to this proposal and the considerable liquidity of the market for options on those ETFs and ETNs diminishes the opportunity to manipulate this product and disrupt the underlying market that a lower position limit may protect against. --------------------------------------------------------------------------- \27\ 15 U.S.C. 78f(b). \28\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- 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.\29\ Additionally, the Commission has approved similar proposed rule changes to increase position limits for options on highly liquid, actively- traded ETFs,\30\ 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.\31\ In approving the permanent elimination of position and exercise limits, the Commission relied heavily upon the Exchange's surveillance capabilities, the Commission expressed trust in the enhanced surveillance and reporting safeguards that the Exchange took in order to detect and deter possible manipulative behavior which might arise from eliminating position and exercise limits.\32\ Furthermore, as described more fully above, options on other ETFs a have the position limits proposed herein with similar trading characteristics and trading volumes than similar to the ETFs and ETNs subject to the proposed rule change. --------------------------------------------------------------------------- \29\ 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). \30\ 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.). \31\ 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''). \32\ See NDX Approval at 62149. --------------------------------------------------------------------------- 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.\33\ The Exchange'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. --------------------------------------------------------------------------- \33\ Id. --------------------------------------------------------------------------- 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. On the contrary, the Exchange believes the proposal promotes competition because it will enable other exchanges who refer to the Exchange's rules concerning position limits to attract additional order flow from the over-the-counter market to exchanges, who would in turn compete amongst each other for those orders.\34\ 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. --------------------------------------------------------------------------- \34\ For example, Nasdaq position limits are determined by the position limits established by the Exchange. See Nasdaq Rule Sec. 7 (Position Limits). --------------------------------------------------------------------------- C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any written comments from members or other interested parties. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission will: A. By order approve or disapprove such proposed rule change, or B. institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-CBOE-2017-057 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-CBOE-2017-057. This file number should be included on the subject line if email is used. To help the Commission process and review your [[Page 41461]] 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 Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; 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-CBOE-2017-057 and should be submitted on or before September 21, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\35\ --------------------------------------------------------------------------- \35\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-18446 Filed 8-30-17; 8:45 am] BILLING CODE 8011-01-P
![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
sradovich on DSK3GMQ082PROD with NOTICES
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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![Federal Register / Vol. 82, No. 168 / Thursday, August 31, 2017 / Notices 41459
and IWM was 27.46 million shares to the over-the-counter market. The Makers) 21 would continue to be exempt
compared to 26.25 million shares for above trading characteristics of FXI, from this reporting requirement, as
QQQQ. The total shares outstanding for EFA, EWZ, TLT, VXX and EWJ is either Market-Maker information can be
EEM are 797.4 million and for IWM are similar to that of EEM and IWM or accessed through the Exchange’s market
253.1 million compared to 351.6 million sufficiently active enough so that the surveillance systems. In addition, the
for QQQQ. The fund market cap for proposed limit would continue to general reporting requirement for
EEM is $34,926.1 million and IWM is address potential manipulative that may customer accounts that maintain an
$35.809 [sic] million compared to arise. Specifically, VXX has an average aggregate position of 200 or more
$50,359.7 million for QQQQ. EEM, IWM daily trading volume similar to EEM options contracts would remain at this
and QQQQ have similar trading and higher than IWM. VXX has an level for the options subject to this
characteristics and subjecting EEM and options volume higher than EEM, more proposal.22
IWM to the proposed higher position shares outstanding than IWM and a The Exchange believes that the
limit would continue be designed to larger fund market cap than both EEM existing surveillance procedures and
address potential manipulate schemes and IWM. EFA has far more shares reporting requirements at the Exchange,
that may arise from trading in the outstanding and a larger fund market other options exchanges, and at the
options and their underlying securities. cap than EEM, IWM, and QQQQ. EWJ several clearing firms are capable of
These above trading characteristics for has a more shares outstanding than properly identifying unusual and/or
QQQQ when compared to EEM and IWM and only slightly less shares illegal trading activity. In addition,
IWM also justify increasing the position outstanding than QQQQ. routine oversight inspections of the
limit for QQQQ. QQQQ has a higher On the other hand, while FXI, EWZ, Exchange’s regulatory programs by the
options ADV than EEM and IWM, a and TLT do not exceed EEM, IWM or Commission have not uncovered any
higher numbers of shares outstanding QQQQ is any of the specified areas, they material inconsistencies or
than IWM and a much higher market are all actively trading so that market shortcomings in the manner in which
cap than EEM and IWM which justify participant’s trading activity has been the Exchange’s market surveillance is
doubling the positon limit for QQQQ. impacted by them being restricted by conducted. These procedures utilize
Based on these statistics, and as stated the current position limits. The daily monitoring of market movements
above, the proposed position limit Exchange believes that the trading via automated surveillance techniques
coupled with QQQQ’s trading behavior activity and these securities being based to identify unusual activity in both
would continue to address potential on a broad basket of underlying options and underlying stocks.23
manipulative schemes and adverse securities alleviates any potential Furthermore, large stock holdings
market impact surrounding the use of manipulative activity that may arise. In must be disclosed to the Commission by
options and trading in its underlying the addition, as discussed in more detail way of Schedules 13D or 13G.24 The
options. below, the Exchange’s existing positions for options subject to this
In support of its proposal to increase surveillance procedures and reporting proposal are part of any reportable
the position limits for FXI, EFA, EWZ,
requirements at the Exchange, other positions and, thus, cannot be legally
TLT, VXX, and EWJ from 250,000
options exchanges, and at the several hidden. Moreover, the Exchange’s
contracts to 500,000 contracts, the
clearing firms are capable of properly requirement that TPHs file reports with
Exchange compared the trading
identifying unusual and/or illegal the Exchange for any customer who
characteristics of FXI, EFA, EWZ, TLT,
trading activity. held aggregate large long or short
VXX and EWJ to that of EEM and IWM,
both of which currently have a position The Exchange believes that increasing positions of any single class for the
limit of 500,000 contracts. As shown in the position limits for the options previous day will continue to serve as
the above table, the average daily subject to this proposal would lead to a an important part of the Exchange’s
trading volume through July 31, 2017 more liquid and competitive market surveillance efforts.
for FXI is 15.08 million shares, EFA is environment for these options, which The Exchange believes that the
19.42 million shares, EWZ is 17.08 will benefit customers interested in this current financial requirements imposed
million shares, TLT is 8.53 million product. Under the proposal, the by the Exchange and by the Commission
shares, VXX is 55.04 million shares, and reporting requirement for the above adequately address concerns that a TPH
EWJ is 6.06 million shares compared to options would be unchanged. Thus, the or its customer may try to maintain an
52.12 million shares for EEM and 27.46 Exchange would still require that each inordinately large un-hedged position in
million shares for IWM. The total shares Trading Permit Holder (‘‘TPH’’) or TPH the options subject to this proposal.
outstanding for FXI is 78.6 million, EFA organization that maintains a position in Current margin and risk-based haircut
is 1178.4 million, EWZ is 159.4 million, the options on the same side of the methodologies serve to limit the size of
TLT is 60 million, VXX is 96.7 million, market, for its own account or for the positions maintained by any one
and EWJ is 303.6 million compared to account of a customer, report certain account by increasing the margin and/
797.4 million for EEM and 253.1 million information to the Exchange. This or capital that a TPH must maintain for
for IWM. The fund market cap for FXI information would include, but would a large position held by itself or by its
is $3,343.6 million, EFA is $78,870.3 not be limited to, the options’ position,
million, EWZ is $6,023.4 million, TLT whether such position is hedged and, if 21 A Designated Primary Market-Maker ‘‘is TPH
is $7,442.4 million, VXX is $1,085.6 so, a description of the hedge, and the organization that is approved by the Exchange to
collateral used to carry the position, if function in allocated securities as a Market-Maker
million, and EWJ is $16,625.1 million (as defined in Rule 8.1) and is subject to the
applicable. Exchange Market-Makers 20
sradovich on DSK3GMQ082PROD with NOTICES
compared to $34.926.1 [sic] million for obligations under Rule 8.85 or as otherwise
EEM and $35,809.1 million for IWM. (including Designated Primary Market- provided under the rules of the Exchange.’’ See
Market participants’ trading activity Exchange Rule 8.80(a).
22 See Exchange Rule 4.13 for reporting
has been adversely impacted by the 20 A Market-Maker ‘‘is an individual Trading
Permit Holder or a TPH organization that is requirements.
current position limits for FXI, EFA, 23 These procedures have been effective for the
registered with the Exchange for the purpose of
EWZ, TLT, VXX and EWJ and such making transactions as dealer-specialist on the surveillance of trading the options subject to this
limits have caused options trading in Exchange in accordance with the provisions of this proposal and will continue to be employed.
these symbols to move from exchanges Chapter.’’ See Exchange Rule 8.1. 24 17 CFR 240.13d–1.
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![Federal Register / Vol. 82, No. 168 / Thursday, August 31, 2017 / Notices 41461
comments more efficiently, please use are subject to advance registration and Ammon, in Bingham & Bonneville
only one method. The Commission will provision of required security Counties, Idaho, 360 I.C.C. 91 (1979). To
post all comments on the Commission’s information. Procedures for registration address whether this condition
Internet Web site (http://www.sec.gov/ are included with each meeting adequately protects affected employees,
rules/sro.shtml). Copies of the announcement, no later than fifteen a petition for partial revocation under
submission, all subsequent business days before each meeting. 49 U.S.C. 10502(d) must be filed.
amendments, all written statements OBO’s mission is to provide safe, Provided no formal expression of
with respect to the proposed rule secure and functional facilities that intent to file an offer of financial
change that are filed with the represent the U.S. government to the assistance (OFA) to subsidize continued
Commission, and all written host nation and support our staff in the rail service has been received, this
communications relating to the achievement of U.S. foreign policy exemption will be effective September
proposed rule change between the objectives. These facilities represent 30, 2017, unless stayed pending
Commission and any person, other than American values and the best in reconsideration. Petitions to stay that do
those that may be withheld from the American architecture, engineering, not involve environmental issues and
public in accordance with the technology, sustainability, art, culture, formal expressions of intent to file an
provisions of 5 U.S.C. 552, will be and construction execution. OFA to subsidize continued rail service
available for Web site viewing and For further information, please under 49 CFR 1152.27(c)(2),1 must be
printing in the Commission’s Public contact Christine Foushee at 312–353– filed by September 8, 2017.2 Petitions
Reference Room, 100 F Street NE., 1242 or FousheeCT@state.gov. for reconsideration must be filed by
Washington, DC 20549 on official September 30, 2017, with the Surface
William Moser,
business days between the hours of Transportation Board, 395 E Street SW.,
Director, Acting, Overseas Buildings Washington, DC 20423–0001.
10:00 a.m. and 3:00 p.m. Copies of the Operations, Department of State.
filing also will be available for A copy of any petition filed with
[FR Doc. 2017–18507 Filed 8–30–17; 8:45 am] Board should be sent to WCL’s
inspection and copying at the principal
office of the Exchange. All comments
BILLING CODE 4710–51–P representative, Audrey L. Brodrick,
received will be posted without change; Fletcher & Sippell LLC, 29 North
the Commission does not edit personal Wacker Drive, Suite 920, Chicago, IL
identifying information from SURFACE TRANSPORTATION BOARD 60606.
If the verified notice contains false or
submissions. You should submit only [Docket No. AB 303 (Sub-No. 48X)]
misleading information, the exemption
information that you wish to make
Wisconsin Central Ltd.— is void ab initio.
available publicly. All submissions Board decisions and notices are
should refer to File Number SR–CBOE– Discontinuance of Service
Exemption—in Waupaca County, Wis available on our Web site at
2017–057 and should be submitted on ‘‘WWW.STB.GOV.’’
or before September 21, 2017. Wisconsin Central Ltd. (WCL) has Decided: August 28, 2017.
For the Commission, by the Division of filed a verified notice of exemption
Trading and Markets, pursuant to delegated By the Board, Rachel D. Campbell,
under 49 CFR pt. 1152 subpart F— Director, Office of Proceedings.
authority.35 Exempt Abandonments and
Eduardo A. Aleman, Marline Simeon,
Discontinuances of Service to
Clearance Clerk.
Assistant Secretary. discontinue service over approximately
[FR Doc. 2017–18483 Filed 8–30–17; 8:45 am]
[FR Doc. 2017–18446 Filed 8–30–17; 8:45 am] 10.3 miles of rail line extending from
BILLING CODE 4915–01–P
BILLING CODE 8011–01–P milepost 40.0 in New London, Wis. to
milepost 50.3 in Manawa, Wis.,
Waupaca County, Wis. (the Line). The
SURFACE TRANSPORTATION BOARD
DEPARTMENT OF STATE Line traverses United States Postal
Service Zip Code 54949 and 54961. [Docket No. AB 1244X]
[Public Notice 10105] WCL has certified that: (1) No local
traffic has moved over the Line for at Columbia & Cowlitz Railway, LLC—
Industry Advisory Group: Notice of Abandonment Exemption—in Cowlitz
least two years; (2) no overhead traffic
Charter Renewal County, Wash
on the Line needs to be rerouted; (3) no
The Department of State has approved formal complaint filed by a user of a rail Columbia & Cowlitz Railway, LLC
the renewal of the charter for the Bureau service on the Line (or by a state or local (CLC), has filed a verified notice of
of Overseas Buildings Operations’ government entity acting on behalf of exemption under 49 CFR pt. 1152
(OBO) Industry Advisory Group for an such user) regarding cessation of service subpart F—Exempt Abandonments to
additional two-year period. The group’s over the Line is pending either with the abandon an approximately 7-mile rail
annual meeting is held in the Harry S Surface Transportation Board (Board) or line between milepost 1.5 at Longview
Truman Building at the U.S. Department with any U.S. District Court or has been and milepost 8.5 at Ostrander Junction,
of State, located at 2201 C Street NW., decided in favor of a complainant
Washington, DC. Each meeting is within the two-year period; and (4) the 1 Each OFA must be accompanied by the filing
devoted to an exchange of ideas requirements at 49 CFR 1105.12 fee, which currently is set at $1,700. See 49 CFR
between OBO’s senior management and (newspaper publication) and 49 CFR 1002.2(f)(25). Effective on September 1, 2017, the
fee will increase to $1,800. See Regulations
sradovich on DSK3GMQ082PROD with NOTICES
the group members on issues relating to 1152.50(d)(1) (notice to governmental Governing Fees for Servs. Performed in Connection
property management; site acquisition; agencies) have been met. with Licensing & Related Servs.—2017 Update, EP
project planning; design and As a condition to this exemption, any 542 (Sub-No. 25) (STB served July 28, 2017).
engineering; construction; facility employee adversely affected by the 2 Because this is a discontinuance proceeding and
maintenance; and building operations. discontinuance of service shall be not an abandonment, trail use/rail banking and
public use conditions are not appropriate. Because
The meetings are open to the public and protected under Oregon Short Line there will be an environmental review during
Railroad—Abandonment Portion abandonment, this discontinuance does not require
35 17 CFR 200.30–3(a)(12). Goshen Branch Between Firth & environmental review.
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Document Created: 2017-09-23 10:08:35
Document Modified: 2017-09-23 10:08:35
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 82 FR 41457 |
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