82_FR_57733 82 FR 57501 - Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Amended, To Amend Interpretation and Policy .07 of Exchange Rule 4.11, Position Limits, To Increase the Position Limits for Options on Certain Exchange Traded Products

82 FR 57501 - Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Amended, To Amend Interpretation and Policy .07 of Exchange Rule 4.11, Position Limits, To Increase the Position Limits for Options on Certain Exchange Traded Products

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 232 (December 5, 2017)

Page Range57501-57505
FR Document2017-26122

Federal Register, Volume 82 Issue 232 (Tuesday, December 5, 2017)
[Federal Register Volume 82, Number 232 (Tuesday, December 5, 2017)]
[Notices]
[Pages 57501-57505]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-26122]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82168; File No. SR-CBOE-2017-057]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing of Amendment No. 1 and Order Instituting Proceedings To 
Determine Whether To Approve or Disapprove a Proposed Rule Change, as 
Amended, To Amend Interpretation and Policy .07 of Exchange Rule 4.11, 
Position Limits, To Increase the Position Limits for Options on Certain 
Exchange Traded Products

November 29, 2017.

I. Introduction

    On August 15, 2017, Cboe Exchange, Inc. (``Exchange'' or ``Cboe'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
amend Interpretation and Policy .07 of Exchange Rule 4.11, Position 
Limits, to increase the position limits for options on the following 
exchange traded funds (``ETFs'') and exchange traded note (``ETN''): 
iShares China Large-Cap ETF (``FXI''), iShares MSCI EAFE ETF (``EFA''), 
iShares MSCI Emerging Markets ETF (``EEM''), iShares Russell 2000 ETF 
(``IWM''), iShares MSCI Brazil Capped ETF (``EWZ''), iShares 20+ Year 
Treasury Bond Fund ETF (``TLT''), iPath S&P 500 VIX Short-Term Futures 
ETN (``VXX''), PowerShares QQQ Trust (``QQQQ''), and iShares MSCI Japan 
ETF (``EWJ''). The proposed rule change was published for comment in 
the Federal Register on August 31, 2017.\3\ On

[[Page 57502]]

October 11, 2017, pursuant to Section 19(b)(2) of the Act,\4\ the 
Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to approve or disapprove the proposed 
rule change.\5\ The Commission received no comments regarding the 
proposal. On November 22, 2017, the Exchange submitted Amendment No. 1 
to the proposed rule change.\6\ The Commission is publishing this 
notice and order to solicit comments on the proposed rule change, as 
amended, from interested persons and to institute proceedings pursuant 
to Section 19(b)(2)(B) of the Act \7\ to determine whether to approve 
or disapprove the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 81483 (August 25, 
2017), 82 FR 41457 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 81853, 82 FR 48300 
(October 17, 2017). The Commission designated November 29, 2017 as 
the date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to approve or disapprove, 
the proposed rule change.
    \6\ In Amendment No. 1, the Exchange provided additional 
justification and analysis in support of the proposal, which is 
summarized below. The full text of Amendment No. 1 has been placed 
in the public comment file for SR-CBOE-2017-57 and is available at: 
https://www.sec.gov/comments/sr-cboe-2017-057/cboe2017057-2715774-161526.pdf.
    \7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposal, as Amended

    Currently, position limits for options on ETFs and ETNs, such as 
those subject to this proposal, are determined pursuant to Exchange 
Rule 4.11, and, with certain exceptions, vary according to the number 
of outstanding shares and past six-month trading volume of the 
underlying stocks, ETFs, or ETNs. Options on the securities with the 
largest numbers of outstanding shares and trading volume have an option 
position limit of 250,000 contracts (with adjustments for splits, re-
capitalizations, etc.) on the same side of the market; and stocks, 
ETFs, and ETNs with fewer outstanding shares and lower trading volume 
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.\8\ Interpretation and Policy .07 of 
Exchange Rule 4.11 currently sets forth separate position limits for 
options on certain ETFs, including 500,000 contracts for options on EEM 
and IWM, and 900,000 contracts for options on QQQQ.\9\
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    \8\ See Notice, supra note 3, at 41457. The Exchange states that 
FXI tracks the performance of the FTSE China 50 Index, which is 
composed of the 50 largest Chinese stocks and EFA tracks the 
performance of MSCI EAFE Index, which has over 900 component 
securities. Id. at 41458. The Exchange also states that 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.'' Id. According to the Exchange, EWZ tracks the performance 
of the MSCI Brazil 25/50 Index, which is composed of shares of large 
and mid-size companies in Brazil and TLT tracks the performance of 
ICE U.S. Treasury 20+ Year Bond Index, which is composed of long-
term U.S. Treasury bonds. Id. The Exchange also states that VXX 
tracks the performance of S&P 500 VIX Short-Term Futures Index Total 
Return. Id. According to the Exchange, ``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.'' Id. The Exchange also states that EWJ tracks 
the MSCI Japan Index, which tracks the performance of large and mid-
sized companies in Japan. Id.
    \9\ The Exchange states that EEM tracks the performance of the 
MSCI Emerging Markets Index, which is composed of approximately 800 
component securities. According to the Exchange, 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.'' Id. The Exchange also states that IWM tracks the 
performance of the Russell 2000 Index, which is composed of 2,000 
small-cap domestic stocks, and 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. Id.
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    The purpose of the proposed rule change, as amended, is to amend 
Interpretation and Policy .07 to Exchange Rule 4.11 to increase the 
position and exercise limits for options on FXI, EFA, EWZ, TLT, VXX, 
and EWJ to from 250,000 contracts to 500,000 contracts.\10\ The 
Exchange further proposes to amend Interpretation and Policy .07 to 
Exchange Rule 4.11 to increase the position limits for options on EEM 
and IWM from 500,000 contracts to 1,000,000 contracts, and to increase 
the position limits for options on QQQQ from 900,000 contracts to 
1,800,000 contracts.\11\ The Exchange states its belief that increasing 
position limits for the options subject to this proposal will lead to a 
more liquid and competitive market environment for these options that 
will benefit customers interested in this product.\12\
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    \10\ Pursuant to Exchange Rule 4.12, Interpretation and Policy 
.02, which is not being amended by the proposed rule change, the 
exercise limits for FXI, EFA, EWZ, TLT, VXX, and EWJ options would 
be similarly increased.
    \11\ Pursuant to Exchange Rule 4.12, Interpretation and Policy 
.02, which is not being amended by the proposed rule change, the 
exercise limits for EEM, IWM, and QQQQ options would be similarly 
increased. The Exchange also proposes to make non-substantive 
corrections to the names of IWM and EEM in Rule 4.11, Interpretation 
and Policy .07.
    \12\ See Notice, supra note 3, at 41459.
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    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 currently has no position limits.\13\ The Exchange states that 
the average daily trading volume through August 14, 2017 for QQQQ was 
26.25 million shares compared to 64.63 million shares for SPY.\14\ The 
total shares outstanding for QQQQ were 351.6 million compared to 976.23 
million for SPY.\15\ The fund market cap for QQQQ was $50,359.7 million 
compared to $240,540 million for SPY.\16\
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    \13\ See id. at 41458. See also Exchange Rule 4.11, 
Interpretation and Policy .07. The Commission notes that the lack of 
position limits for SPY is currently subject to a pilot program. See 
Securities Exchange Act Release Nos. 67937 (September 27, 2012), 77 
FR 60489 (October 3, 2012) (SR-CBOE-2012-091) (eliminating position 
and exercise limits for SPY options on a pilot basis); and 81017 
(June 26, 2017), 82 FR 29960 (June 30, 2017) (SR-CBOE-2017-050) 
(extending the SPY pilot program to July 12, 2018).
    \14\ See Notice, supra note 3, at 41458.
    \15\ See id.
    \16\ See id.
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    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.\17\ The 
Exchange states that the average daily trading volume through July 31, 
2017 for EEM was 52.12 million shares and IWM was 27.46 million shares 
compared to 26.25 million shares for QQQQ.\18\ The total shares 
outstanding for EEM were 797.4 million and for IWM were 253.1 million 
compared to 351.6 million for QQQQ.\19\ The fund market cap for EEM was 
$34,926.1 million and IWM was $35,809.1 million compared to $50,359.7 
million for QQQQ.\20\
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    \17\ See id. See also Exchange Rule 4.11, Interpretation and 
Policy .07.
    \18\ See Notice, supra note 3, at 41458-59.
    \19\ See id. at 41459.
    \20\ See id.
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    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.\21\ The Exchange 
states that the average daily

[[Page 57503]]

trading volume through July 31, 2017 for FXI was 15.08 million shares, 
EFA was 19.42 million shares, EWZ was 17.08 million shares, TLT was 
8.53 million shares, VXX was 55.04 million shares, and EWJ was 6.06 
million shares compared to 52.12 million shares for EEM and 27.46 
million shares for IWM.\22\ The total shares outstanding for FXI was 
78.6 million, EFA was 1178.4 million, EWZ was 159.4 million, TLT was 60 
million, VXX was 96.7 million, and EWJ was 303.6 million compared to 
797.4 million for EEM and 253.1 million for IWM.\23\ The fund market 
cap for FXI was $3,343.6 million, EFA was $78,870.3 million, EWZ was 
$6,023.4 million, TLT was $7,442.4 million, VXX was $1,085.6 million, 
and EWJ was $16,625.1 million compared to $34,926.1 million for EEM and 
$35,809.1 million for IWM.\24\
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    \21\ See id. See also Exchange Rule 4.11, Interpretation and 
Policy .07.
    \22\ See Notice, supra note 3, at 41459.
    \23\ See id.
    \24\ See id.
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    The Exchange notes that the options reporting requirements of 
Exchange Rule 4.13 would continue to be applicable to the options 
subject to this proposal.\25\ As set forth in Exchange Rule 4.13(a), 
each Trading Permit Holder (``TPH'') must report to the Exchange 
certain information in relation to any customer who, acting alone, or 
in concert with others, on the previous business day maintained 
aggregate long or short positions on the same side of the market of 200 
or more contracts in any single class of option contracts dealt in on 
the Exchange.\26\ Further, Exchange Rule 4.13(b) requires each TPH 
(other than an Exchange market-maker or Designated Primary Market-
Maker) \27\ that maintains a position in excess of 10,000 non-FLEX 
equity option contracts on the same side of the market, on behalf of 
its own account or for the account of a customer, to report to the 
Exchange information as to whether such positions are hedged, and 
provide documentation as to how such contracts are hedged.\28\
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    \25\ See id.
    \26\ The report must include, for each such class of options, 
the number of option contracts comprising each such position and, in 
the case of short positions, whether covered or uncovered. See 
Exchange Rule 4.13(a).
    \27\ According to the Exchange, market-makers (including 
Designated Primary Market-Makers) are exempt from the referenced 
reporting requirement because market-maker information can be 
accessed through the Exchange's market surveillance systems. See 
Notice, supra note 3, at 41459.
    \28\ According to the Exchange, this information would include, 
but would not be limited to, the option position, whether such 
position is hedged and, if so, a description of the hedge, and the 
collateral used to carry the position, if applicable. See id.
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    The Exchange 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.\29\ According to the Exchange, its 
surveillance procedures utilize daily monitoring of market movements 
via automated surveillance techniques to identify unusual activity in 
both options and underlying stocks.\30\ In addition, the Exchange 
states that its surveillance procedures have been effective for the 
surveillance of trading in the options subject to this proposal, and 
will continue to be employed.\31\
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    \29\ See id.
    \30\ See id.
    \31\ See id. at 41459 n.23. The Exchange represents that more 
than 50% of the weight of the securities held by the options subject 
to this proposal are also subject to a comprehensive surveillance 
agreement (``CSA''). See id. at 41458. Additionally, the Exchange 
states that 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. See id. 
Further, the Exchange states that 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% or more of the weight of the MSCI Emerging 
Markets Index. See id.
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    The Exchange further states its belief that the current financial 
requirements imposed by the Exchange and by the Commission adequately 
address concerns that a TPH or its customer may try to maintain an 
inordinately large unhedged position in the options subject to this 
proposal.\32\ Current margin and risk-based haircut methodologies, the 
Exchange states, serve to limit the size of positions maintained by any 
one account by increasing the margin and/or capital that a TPH must 
maintain for a large position held by itself or by its customer.\33\ In 
addition, the Exchange notes that the Commission's net capital rule, 
Rule 15c3-1 under the Act,\34\ imposes a capital charge on TPHs to the 
extent of any margin deficiency resulting from the higher margin 
requirement.\35\
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    \32\ See id. at 41459.
    \33\ See id. at 41459-60.
    \34\ 17 CFR 240.15c3-1.
    \35\ See Notice, supra note 3, at 41460.
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Amendment No.1

    As noted above, on November 22, 2017, the Exchange filed Amendment 
No. 1 to the proposed rule change to provide additional justification 
and support for the proposal. In Amendment No. 1, the Exchange states 
that it submitted the proposal at the request of market participants 
whose on-exchange activity has been ``hindered by existing position 
limits, causing them to be unable to provide additional liquidity not 
just on the Exchange, but also on other options exchanges on which they 
participate.'' \36\ In further support of its proposed increases in 
position limits, in Amendment No. 1, the Exchange describes at length: 
(i) The creation and redemption process for ETFs (and a similar process 
for the ETN to which the proposal relates \37\); (ii) the arbitrage 
activity that ensues when such instruments are overpriced or are 
trading at a discount to the securities on which they are based and 
helps to keep the instrument's price in line with the value of its 
underlying portfolio; and (iii) how these processes serve to mitigate 
the potential price impact of the ETF or ETN shares that might 
otherwise result from increased position limits.\38\
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    \36\ See Amendment No. 1 at 4-5. The Exchange reiterates its 
understanding that certain market participants are opting to execute 
trades involving large numbers of options contracts in the symbols 
subject to the proposal in the over-the-counter market, and argues 
that these large trades do not contribute to the price discovery 
process performed on a lit market. See id. at 5.
    \37\ With regard to the ETN option included in the proposal--
VXX--the Exchange acknowledged that there is no direct analogue to 
ETF ``creation,'' but observed that the ETN issuer may sell 
additional VXX shares from its inventory. Regardless of whether VXX 
shares are redeemed or new VXX shares are issued, the Exchange 
stated, an issuer may transact in VIX futures in order to hedge its 
exposure, resulting in an arbitrage process similar to the one 
described for ETFs described above, thereby helping to keep an ETN's 
price in line with the value of its underlying index. See Amendment 
No. 1 at 7-8.
    \38\ See id. at 6-7.
---------------------------------------------------------------------------

    In addition, in Amendment No. 1, the Exchange notes that some of 
the ETFs and the ETN to which the proposal relates are based on broad-
based indices that underlie cash-settled options that are economically 
equivalent to the relevant ETF or similar to the relevant ETN, but 
where the option on the index is either subject to no position limit or 
is subject to a position limit reflecting a notional value that is 
larger than the position limit for the option on the ETF absent the 
proposed increase.\39\ For the other ETFs in the proposal where this 
does not apply, the Exchange argues that, based on the liquidity, 
breadth, and depth of the underlying market, the index referenced by 
the ETF would be considered a broad-based index under the Exchange's 
rules.\40\ According to the Exchange, if certain position limits are 
appropriate for the options overlying the

[[Page 57504]]

same index or is an analogue to the basket of securities that the ETF 
tracks, then those same economically equivalent position limits should 
be appropriate for the option overlying the ETF.\41\ The Exchange 
believes that the new position limits it is proposing meet this 
criterion.\42\ The Exchange also cites data in support of its argument 
that the market capitalization of the underlying index or reference 
asset of each of the ETFs and the ETN is large enough to absorb any 
price movements that may be caused by an oversized trade.\43\
---------------------------------------------------------------------------

    \39\ See id. at 8, and the Exchange's discussion of QQQQ, IWM, 
VXX, and EEM, and EFA, id. at 8-11.
    \40\ See id. at 8, and the Exchange's discussion of FXI, EWZ, 
TLT, and EWJ, id. at 12-14.
    \41\ See id. at 8.
    \42\ See id. at 8-14. For each of the ETFs and the ETN subject 
to the proposal, the Exchange cites specific data to illustrate its 
argument.
    \43\ See id. at 8-14.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-CBOE-
2017-057, as Amended, and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \44\ to determine whether the proposed rule 
change, as amended, should be approved or disapproved. Institution of 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposal, as discussed below. Institution of 
proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, as 
described below, the Commission seeks and encourages interested persons 
to provide comment on the proposed rule change, as amended.
---------------------------------------------------------------------------

    \44\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\45\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission notes that position and exercise limits serve as a 
regulatory tool designed to address manipulative schemes and adverse 
market impact surrounding the use of options.\46\ As discussed above, 
the Exchange has proposed to increase the position and exercise limits 
for options on FXI, EFA, EWZ, TLT, VXX, and EWJ from 250,000 contracts 
to 500,000 contracts, for options on EEM and IWM from 500,000 contracts 
to 1,000,000 contracts, and for options on QQQQ from 900,000 contracts 
to 1,800,000 contracts. The proposed increase in position and exercise 
limits for each marks a substantial increase from current levels, for 
which the Exchange recently has provided additional justification and 
analysis.\47\
---------------------------------------------------------------------------

    \45\ Id.
    \46\ See, e.g., Securities Exchange Act Release No. 68086 
(October 23, 2012), 77 FR 65600 (October 29, 2012) (SR-CBOE-2012-
066).
    \47\ The Commission notes that the Exchange filed Amendment No. 
1 to provide additional justification and analysis in support of the 
proposed position and exercise limits on November 22, 2017. See 
supra note 6.
---------------------------------------------------------------------------

    The Commission is instituting proceedings to allow for additional 
analysis of, and input from commenters with respect to, the consistency 
of the proposed rule change, as amended, with Section 6(b)(5) of the 
Act,\48\ which requires that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest, and not be designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \48\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their data, views, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposed rule 
change, as amended, is consistent with Section 6(b)(5), or any other 
provision of the Act, or the rules and regulations thereunder. Although 
there do not appear to be any issues relevant to approval or 
disapproval which would be facilitated by an oral presentation of data, 
views, and arguments, the Commission will consider, pursuant to Rule 
19b-4 under the Act,\49\ any request for an opportunity to make an oral 
presentation.\50\
---------------------------------------------------------------------------

    \49\ 17 CFR 240.19b-4.
    \50\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants to 
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is 
appropriate for consideration of a particular proposal by a self-
regulatory organization. See Securities Acts Amendments of 1975, 
Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 
94th Cong., 1st Sess. 30 (1975).
---------------------------------------------------------------------------

    The Commission asks that commenters address the sufficiency and 
merit of the Exchange's statements in support of the proposal, as 
amended, in addition to any other comments they may wish to submit 
about the proposed rule change. In particular, the Commission seeks 
comment on whether the position and exercise limit for each option as 
proposed could impact markets adversely.
    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change, as amended, 
should be approved or disapproved by December 26, 2017. Any person who 
wishes to file a rebuttal to any other person's submission must file 
that rebuttal by January 9, 2018. 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 No. 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 No. SR-CBOE-2017-057. The 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, as 
amended, that are filed with the Commission, and all written 
communications relating to the proposed rule change, as amended, 
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. 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 No. SR-CBOE-2017-057 and 
should be submitted by December 26, 2017.

[[Page 57505]]

Rebuttal comments should be submitted by January 9, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\51\
Eduardo A. Aleman,
Assistant Secretary.
---------------------------------------------------------------------------

    \51\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------

[FR Doc. 2017-26122 Filed 12-4-17; 8:45 am]
 BILLING CODE 8011-01-P



                                                                             Federal Register / Vol. 82, No. 232 / Tuesday, December 5, 2017 / Notices                                                    57501

                                                Shares will be calculated after 4:00 p.m.,               markets as determined in accordance                     IV. Conclusion
                                                Eastern Time each trading day.                           with Commission staff guidance.                           It is therefore ordered, pursuant to
                                                   (6) The Exchange represents that, for                    (13) Each Fund’s investments will be                 Section 19(b)(2) of the Act,27 that the
                                                initial and continued listing, the Fund                  consistent with its investment objective                proposed rule change (SR–NYSEArca–
                                                will be in compliance with Rule
                                                                                                         and will not be used to provide multiple                2017–90), as modified by Amendment
                                                10A–3 24 under the Act, as provided by
                                                                                                         returns of a benchmark or to produce                    No. 2, be, and it hereby is, approved.
                                                NYSE Arca Rule 5.3–E.
                                                   (7) Under normal market conditions,                   leveraged returns.                                        For the Commission, by the Division of
                                                at least 80% of the Fund’s net assets                       The Exchange also represents that all                Trading and Markets, pursuant to delegated
                                                must be invested in Municipal                            statements and representations made in                  authority.28
                                                Securities.                                              this filing regarding (a) the description               Eduardo A. Aleman,
                                                   (8) The Fund’s investments will be                    of the portfolio, (b) limitations on                    Assistant Secretary.
                                                consistent with its investment goal and                  portfolio holdings or reference assets, or              [FR Doc. 2017–26120 Filed 12–4–17; 8:45 am]
                                                will not be used to provide multiple                     (c) the applicability of Exchange listing               BILLING CODE 8011–01–P
                                                returns of a benchmark or to produce                     rules specified in this rule filing shall
                                                leveraged returns.                                       constitute continued listing
                                                   (9) All ETFs will be listed and traded                requirements for listing the Shares of                  SECURITIES AND EXCHANGE
                                                in the U.S. on a national securities                     the Fund on the Exchange.                               COMMISSION
                                                exchange. While the Fund may invest in
                                                inverse ETFs, the Fund will not invest                      The issuer has represented to the                    [Release No. 34–82168; File No. SR–CBOE–
                                                in leveraged (e.g., 2X, –2X, 3X or –3X)                  Exchange that it will advise the                        2017–057]
                                                ETFs.                                                    Exchange of any failure by the Fund to
                                                   (10) The Fund’s portfolio will meet all               comply with the continued listing                       Self-Regulatory Organizations; Cboe
                                                the requirements set forth in                            requirements, and, pursuant to its                      Exchange, Inc.; Notice of Filing of
                                                Commentary .01 to NYSE Arca Equities                     obligations under Section 19(g)(1) of the               Amendment No. 1 and Order Instituting
                                                Rule 8.600–E except for those set forth                  Act, the Exchange will monitor for                      Proceedings To Determine Whether To
                                                in Commentary .01(b)(1).                                 compliance with the continued listing                   Approve or Disapprove a Proposed
                                                   (11) Under normal market conditions,                  requirements.25 If the Fund is not in                   Rule Change, as Amended, To Amend
                                                except for periods of high cash inflows                  compliance with the applicable listing                  Interpretation and Policy .07 of
                                                or outflows, the Fund will satisfy the                   requirements, the Exchange will                         Exchange Rule 4.11, Position Limits,
                                                following criteria in lieu of the criteria               commence delisting procedures under                     To Increase the Position Limits for
                                                in Commentary .01(b)(1): (a) The Fund                    NYSE Arca Rule 5.5–E(m).                                Options on Certain Exchange Traded
                                                will have a minimum of 20 non-                              The Commission believes that the                     Products
                                                affiliated issuers; (b) no single                        Exchange’s initial and continued listing                November 29, 2017.
                                                municipal securities issuer will account                 requirements, combined with the
                                                for more than 10% of the weight of the                   Fund’s investment criteria that would                   I. Introduction
                                                Fund’s portfolio; (c) no individual bond                 apply to Municipal Securities in the                      On August 15, 2017, Cboe Exchange,
                                                will account for more than 5% of the                     portfolio, are designed to mitigate the                 Inc. (‘‘Exchange’’ or ‘‘Cboe’’) filed with
                                                weight of the Fund’s portfolio; (d) the                  potential for price manipulation of the                 the Securities and Exchange
                                                Fund will limit its investments in                       Shares. This approval order is based on                 Commission (‘‘Commission’’), pursuant
                                                Municipal Securities of any one state to                 all of the Exchange’s representations,                  to Section 19(b)(1) of the Securities
                                                20% of the Fund’s total assets and will                  including those set forth above and in                  Exchange Act of 1934 (‘‘Act’’) 1 and Rule
                                                be diversified among issuers in at least                 the Notice, and the Exchange’s                          19b–4 thereunder,2 a proposed rule
                                                10 states; and (e) the Fund will be                      description of the Fund. The                            change to amend Interpretation and
                                                diversified among a minimum of five                      Commission notes that the Fund and the                  Policy .07 of Exchange Rule 4.11,
                                                different sectors of the municipal bond                  Shares must comply with the                             Position Limits, to increase the position
                                                market.                                                  requirements of NYSE Arca Equities                      limits for options on the following
                                                   (12) The Fund may hold up to an                       Rule 8.600–E to be listed and traded on                 exchange traded funds (‘‘ETFs’’) and
                                                aggregate amount of 15% of its net                       the Exchange.                                           exchange traded note (‘‘ETN’’): iShares
                                                assets in illiquid assets (calculated at
                                                                                                            For the foregoing reasons, the                       China Large-Cap ETF (‘‘FXI’’), iShares
                                                the time of investment) deemed illiquid
                                                                                                         Commission finds that the proposed                      MSCI EAFE ETF (‘‘EFA’’), iShares MSCI
                                                by the Adviser, consistent with
                                                                                                         rule change is consistent with Section                  Emerging Markets ETF (‘‘EEM’’), iShares
                                                Commission guidance. The Fund will
                                                                                                         6(b)(5) of the Act 26 and the rules and                 Russell 2000 ETF (‘‘IWM’’), iShares
                                                monitor its portfolio liquidity on an
                                                                                                         regulations thereunder applicable to a                  MSCI Brazil Capped ETF (‘‘EWZ’’),
                                                ongoing basis to determine whether, in
                                                                                                         national securities exchange.                           iShares 20+ Year Treasury Bond Fund
                                                light of current circumstances, an
                                                                                                                                                                 ETF (‘‘TLT’’), iPath S&P 500 VIX Short-
                                                adequate level of liquidity is being
                                                                                                           25 The Commission notes that certain other            Term Futures ETN (‘‘VXX’’),
                                                maintained, and the Fund will consider                   proposals for the listing and trading of Managed        PowerShares QQQ Trust (‘‘QQQQ’’),
                                                taking appropriate steps in order to                     Fund Shares include a representation that the           and iShares MSCI Japan ETF (‘‘EWJ’’).
                                                maintain adequate liquidity if, through                  exchange will ‘‘surveil’’ for compliance with the
                                                                                                         continued listing requirements. See, e.g., Securities
                                                                                                                                                                 The proposed rule change was
                                                a change in values, net assets, or other
                                                                                                         Exchange Act Release No. 78005 (Jun. 7, 2016), 81       published for comment in the Federal
sradovich on DSK3GMQ082PROD with NOTICES




                                                circumstances, more than 15% of the                      FR 38247 (Jun. 13, 2016) (SR–BATS–2015–100). In         Register on August 31, 2017.3 On
                                                Fund’s net assets are held in illiquid                   the context of this representation, it is the
                                                assets. Illiquid assets may include                      Commission’s view that ‘‘monitor’’ and ‘‘surveil’’        27 15
                                                                                                         both mean ongoing oversight of a fund’s compliance              U.S.C. 78s(b)(2)
                                                securities subject to contractual or other                                                                         28 17 CFR 200.30–3(a)(12).
                                                                                                         with the continued listing requirements. Therefore,
                                                restrictions on resale and other                         the Commission does not view ‘‘monitor’’ as a more        1 15 U.S.C. 78s(b)(1).
                                                instruments that lack readily available                  or less stringent obligation than ‘‘surveil’’ with        2 17 CFR 240.19b–4.

                                                                                                         respect to the continued listing requirements.            3 See Securities Exchange Act Release No. 81483
                                                  24 17   CFR 240.10A–3.                                   26 15 U.S.C. 78f(b)(5).                               (August 25, 2017), 82 FR 41457 (‘‘Notice’’).



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                                                57502                       Federal Register / Vol. 82, No. 232 / Tuesday, December 5, 2017 / Notices

                                                October 11, 2017, pursuant to Section                   Exchange Rule 4.11 currently sets forth                 these options that will benefit customers
                                                19(b)(2) of the Act,4 the Commission                    separate position limits for options on                 interested in this product.12
                                                designated a longer period within which                 certain ETFs, including 500,000                            In support of its proposal to increase
                                                to approve the proposed rule change,                    contracts for options on EEM and IWM,                   the position limits for QQQQ to
                                                disapprove the proposed rule change, or                 and 900,000 contracts for options on                    1,800,000 contracts, the Exchange
                                                institute proceedings to determine                      QQQQ.9                                                  compared the trading characteristics of
                                                whether to approve or disapprove the                      The purpose of the proposed rule                      QQQQ to that of the SPDR S&P 500 ETF
                                                proposed rule change.5 The Commission                   change, as amended, is to amend                         (‘‘SPY’’), which currently has no
                                                received no comments regarding the                      Interpretation and Policy .07 to                        position limits.13 The Exchange states
                                                proposal. On November 22, 2017, the                     Exchange Rule 4.11 to increase the                      that the average daily trading volume
                                                Exchange submitted Amendment No. 1                      position and exercise limits for options                through August 14, 2017 for QQQQ was
                                                to the proposed rule change.6 The                       on FXI, EFA, EWZ, TLT, VXX, and EWJ                     26.25 million shares compared to 64.63
                                                Commission is publishing this notice                    to from 250,000 contracts to 500,000                    million shares for SPY.14 The total
                                                and order to solicit comments on the                    contracts.10 The Exchange further                       shares outstanding for QQQQ were
                                                proposed rule change, as amended, from                  proposes to amend Interpretation and                    351.6 million compared to 976.23
                                                interested persons and to institute                     Policy .07 to Exchange Rule 4.11 to                     million for SPY.15 The fund market cap
                                                proceedings pursuant to Section                         increase the position limits for options                for QQQQ was $50,359.7 million
                                                19(b)(2)(B) of the Act 7 to determine                   on EEM and IWM from 500,000                             compared to $240,540 million for
                                                whether to approve or disapprove the                    contracts to 1,000,000 contracts, and to                SPY.16
                                                proposed rule change, as amended.                       increase the position limits for options                   In support of its proposal to increase
                                                                                                        on QQQQ from 900,000 contracts to                       the position limits for EEM and IWM
                                                II. Description of the Proposal, as                     1,800,000 contracts.11 The Exchange                     from 500,000 contracts to 1,000,000
                                                Amended                                                 states its belief that increasing position              contracts, the Exchange compared the
                                                   Currently, position limits for options               limits for the options subject to this                  trading characteristics of EEM and IWM
                                                on ETFs and ETNs, such as those                         proposal will lead to a more liquid and                 to that of QQQQ, which currently has a
                                                subject to this proposal, are determined                competitive market environment for                      position limit of 900,000 contracts.17
                                                pursuant to Exchange Rule 4.11, and,                                                                            The Exchange states that the average
                                                with certain exceptions, vary according                 including countries in Europe, Australasia and the      daily trading volume through July 31,
                                                to the number of outstanding shares and                 Far East, excluding the U.S. and Canada.’’ Id.          2017 for EEM was 52.12 million shares
                                                                                                        According to the Exchange, EWZ tracks the
                                                past six-month trading volume of the                    performance of the MSCI Brazil 25/50 Index, which       and IWM was 27.46 million shares
                                                underlying stocks, ETFs, or ETNs.                       is composed of shares of large and mid-size             compared to 26.25 million shares for
                                                Options on the securities with the                      companies in Brazil and TLT tracks the                  QQQQ.18 The total shares outstanding
                                                largest numbers of outstanding shares                   performance of ICE U.S. Treasury 20+ Year Bond          for EEM were 797.4 million and for
                                                                                                        Index, which is composed of long-term U.S.
                                                and trading volume have an option                       Treasury bonds. Id. The Exchange also states that       IWM were 253.1 million compared to
                                                position limit of 250,000 contracts (with               VXX tracks the performance of S&P 500 VIX Short-        351.6 million for QQQQ.19 The fund
                                                adjustments for splits, re-capitalizations,             Term Futures Index Total Return. Id. According to       market cap for EEM was $34,926.1
                                                etc.) on the same side of the market; and               the Exchange, ‘‘the Index is designed to provide        million and IWM was $35,809.1 million
                                                                                                        access to equity market volatility through CBOE
                                                stocks, ETFs, and ETNs with fewer                       Volatility Index futures. The Index offers exposure     compared to $50,359.7 million for
                                                outstanding shares and lower trading                    to a daily rolling long position in the first and       QQQQ.20
                                                volume have position limits of 200,000,                 second month VIX futures contracts and reflects            In support of its proposal to increase
                                                75,000, 50,000, or 25,000 contracts (with               market participants’ views of the future direction of   the position limits for FXI, EFA, EWZ,
                                                                                                        the VIX index at the time of expiration of the VIX
                                                adjustments for splits, re-capitalizations,             futures contracts comprising the Index.’’ Id. The       TLT, VXX, and EWJ from 250,000
                                                etc.) on the same side of the market.                   Exchange also states that EWJ tracks the MSCI Japan     contracts to 500,000 contracts, the
                                                Options on FXI, EFA, EWZ, TLT, VXX,                     Index, which tracks the performance of large and        Exchange compared the trading
                                                and EWJ are currently subject to the                    mid-sized companies in Japan. Id.
                                                                                                           9 The Exchange states that EEM tracks the
                                                                                                                                                                characteristics of FXI, EFA, EWZ, TLT,
                                                standard position limit of 250,000                      performance of the MSCI Emerging Markets Index,         VXX, and EWJ to that of EEM and IWM,
                                                contracts as set forth in Exchange Rule                 which is composed of approximately 800                  both of which currently have a position
                                                4.11.8 Interpretation and Policy .07 of                 component securities. According to the Exchange,        limit of 500,000 contracts.21 The
                                                                                                        the MSCI Emerging Markets Index ‘‘consists of the       Exchange states that the average daily
                                                  4 15                                                  following 21 emerging market country indices:
                                                       U.S.C. 78s(b)(2).
                                                  5 See
                                                                                                        Brazil, Chile, China, Colombia, Czech Republic,
                                                        Securities Exchange Act Release No. 81853,      Egypt, Hungary, India, Indonesia, Korea, Malaysia,        12 See Notice, supra note 3, at 41459.
                                                82 FR 48300 (October 17, 2017). The Commission          Mexico, Morocco, Peru, Philippines, Poland,               13 See id. at 41458. See also Exchange Rule 4.11,
                                                designated November 29, 2017 as the date by which       Russia, South Africa, Taiwan, Thailand, and             Interpretation and Policy .07. The Commission
                                                the Commission shall approve or disapprove, or          Turkey.’’ Id. The Exchange also states that IWM         notes that the lack of position limits for SPY is
                                                institute proceedings to determine whether to           tracks the performance of the Russell 2000 Index,       currently subject to a pilot program. See Securities
                                                approve or disapprove, the proposed rule change.        which is composed of 2,000 small-cap domestic           Exchange Act Release Nos. 67937 (September 27,
                                                  6 In Amendment No. 1, the Exchange provided
                                                                                                        stocks, and QQQQ tracks the performance of the          2012), 77 FR 60489 (October 3, 2012) (SR–CBOE–
                                                additional justification and analysis in support of     Nasdaq-100 Index, which is composed of 100 of the       2012–091) (eliminating position and exercise limits
                                                the proposal, which is summarized below. The full       largest domestic and international nonfinancial         for SPY options on a pilot basis); and 81017 (June
                                                text of Amendment No. 1 has been placed in the          companies listed on the Nasdaq Stock Market LLC.        26, 2017), 82 FR 29960 (June 30, 2017) (SR–CBOE–
                                                public comment file for SR–CBOE–2017–57 and is          Id.                                                     2017–050) (extending the SPY pilot program to July
                                                available at: https://www.sec.gov/comments/sr-             10 Pursuant to Exchange Rule 4.12, Interpretation    12, 2018).
                                                cboe-2017-057/cboe2017057-2715774-161526.pdf.           and Policy .02, which is not being amended by the         14 See Notice, supra note 3, at 41458.
                                                  7 15 U.S.C. 78s(b)(2)(B).
                                                                                                        proposed rule change, the exercise limits for FXI,
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                                                                                                                                                                  15 See id.
                                                  8 See Notice, supra note 3, at 41457. The             EFA, EWZ, TLT, VXX, and EWJ options would be              16 See id.
                                                Exchange states that FXI tracks the performance of      similarly increased.                                      17 See id. See also Exchange Rule 4.11,
                                                the FTSE China 50 Index, which is composed of the          11 Pursuant to Exchange Rule 4.12, Interpretation
                                                                                                                                                                Interpretation and Policy .07.
                                                50 largest Chinese stocks and EFA tracks the            and Policy .02, which is not being amended by the         18 See Notice, supra note 3, at 41458–59.
                                                performance of MSCI EAFE Index, which has over          proposed rule change, the exercise limits for EEM,
                                                                                                                                                                  19 See id. at 41459.
                                                900 component securities. Id. at 41458. The             IWM, and QQQQ options would be similarly
                                                                                                                                                                  20 See id.
                                                Exchange also states that the MSCI EAFE Index ‘‘is      increased. The Exchange also proposes to make
                                                designed to represent the performance of large and      non-substantive corrections to the names of IWM           21 See id. See also Exchange Rule 4.11,

                                                mid-cap securities across 21 developed markets,         and EEM in Rule 4.11, Interpretation and Policy .07.    Interpretation and Policy .07.



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                                                                             Federal Register / Vol. 82, No. 232 / Tuesday, December 5, 2017 / Notices                                                     57503

                                                trading volume through July 31, 2017                       The Exchange believes that the                       market participants whose on-exchange
                                                for FXI was 15.08 million shares, EFA                   existing surveillance procedures and                    activity has been ‘‘hindered by existing
                                                was 19.42 million shares, EWZ was                       reporting requirements at the Exchange,                 position limits, causing them to be
                                                17.08 million shares, TLT was 8.53                      other options exchanges, and at the                     unable to provide additional liquidity
                                                million shares, VXX was 55.04 million                   several clearing firms are capable of                   not just on the Exchange, but also on
                                                shares, and EWJ was 6.06 million shares                 properly identifying unusual and/or                     other options exchanges on which they
                                                compared to 52.12 million shares for                    illegal trading activity.29 According to                participate.’’ 36 In further support of its
                                                EEM and 27.46 million shares for                        the Exchange, its surveillance                          proposed increases in position limits, in
                                                IWM.22 The total shares outstanding for                 procedures utilize daily monitoring of                  Amendment No. 1, the Exchange
                                                FXI was 78.6 million, EFA was 1178.4                    market movements via automated                          describes at length: (i) The creation and
                                                million, EWZ was 159.4 million, TLT                     surveillance techniques to identify                     redemption process for ETFs (and a
                                                was 60 million, VXX was 96.7 million,                   unusual activity in both options and                    similar process for the ETN to which the
                                                and EWJ was 303.6 million compared to                   underlying stocks.30 In addition, the                   proposal relates 37); (ii) the arbitrage
                                                797.4 million for EEM and 253.1 million                 Exchange states that its surveillance                   activity that ensues when such
                                                for IWM.23 The fund market cap for FXI                  procedures have been effective for the                  instruments are overpriced or are
                                                was $3,343.6 million, EFA was                           surveillance of trading in the options                  trading at a discount to the securities on
                                                $78,870.3 million, EWZ was $6,023.4                     subject to this proposal, and will                      which they are based and helps to keep
                                                million, TLT was $7,442.4 million, VXX                  continue to be employed.31                              the instrument’s price in line with the
                                                was $1,085.6 million, and EWJ was                          The Exchange further states its belief               value of its underlying portfolio; and
                                                $16,625.1 million compared to                           that the current financial requirements                 (iii) how these processes serve to
                                                $34,926.1 million for EEM and                           imposed by the Exchange and by the                      mitigate the potential price impact of
                                                                                                        Commission adequately address                           the ETF or ETN shares that might
                                                $35,809.1 million for IWM.24
                                                                                                        concerns that a TPH or its customer may                 otherwise result from increased position
                                                   The Exchange notes that the options                  try to maintain an inordinately large                   limits.38
                                                reporting requirements of Exchange                      unhedged position in the options                           In addition, in Amendment No. 1, the
                                                Rule 4.13 would continue to be                          subject to this proposal.32 Current                     Exchange notes that some of the ETFs
                                                applicable to the options subject to this               margin and risk-based haircut                           and the ETN to which the proposal
                                                proposal.25 As set forth in Exchange                    methodologies, the Exchange states,                     relates are based on broad-based indices
                                                Rule 4.13(a), each Trading Permit                       serve to limit the size of positions                    that underlie cash-settled options that
                                                Holder (‘‘TPH’’) must report to the                     maintained by any one account by                        are economically equivalent to the
                                                Exchange certain information in relation                increasing the margin and/or capital                    relevant ETF or similar to the relevant
                                                to any customer who, acting alone, or in                that a TPH must maintain for a large                    ETN, but where the option on the index
                                                concert with others, on the previous                    position held by itself or by its                       is either subject to no position limit or
                                                business day maintained aggregate long                  customer.33 In addition, the Exchange                   is subject to a position limit reflecting
                                                or short positions on the same side of                  notes that the Commission’s net capital                 a notional value that is larger than the
                                                the market of 200 or more contracts in                  rule, Rule 15c3–1 under the Act,34                      position limit for the option on the ETF
                                                any single class of option contracts dealt              imposes a capital charge on TPHs to the                 absent the proposed increase.39 For the
                                                in on the Exchange.26 Further, Exchange                 extent of any margin deficiency                         other ETFs in the proposal where this
                                                Rule 4.13(b) requires each TPH (other                   resulting from the higher margin                        does not apply, the Exchange argues
                                                than an Exchange market-maker or                        requirement.35                                          that, based on the liquidity, breadth,
                                                Designated Primary Market-Maker) 27                                                                             and depth of the underlying market, the
                                                                                                        Amendment No.1
                                                that maintains a position in excess of                                                                          index referenced by the ETF would be
                                                10,000 non-FLEX equity option                             As noted above, on November 22,                       considered a broad-based index under
                                                contracts on the same side of the                       2017, the Exchange filed Amendment                      the Exchange’s rules.40 According to the
                                                market, on behalf of its own account or                 No. 1 to the proposed rule change to                    Exchange, if certain position limits are
                                                for the account of a customer, to report                provide additional justification and                    appropriate for the options overlying the
                                                to the Exchange information as to                       support for the proposal. In Amendment
                                                whether such positions are hedged, and                  No. 1, the Exchange states that it                        36 See Amendment No. 1 at 4–5. The Exchange

                                                provide documentation as to how such                    submitted the proposal at the request of                reiterates its understanding that certain market
                                                                                                                                                                participants are opting to execute trades involving
                                                contracts are hedged.28                                                                                         large numbers of options contracts in the symbols
                                                                                                          29 See  id.                                           subject to the proposal in the over-the-counter
                                                                                                          30 See  id.
                                                  22 See  Notice, supra note 3, at 41459.                                                                       market, and argues that these large trades do not
                                                                                                           31 See id. at 41459 n.23. The Exchange represents
                                                  23 See                                                                                                        contribute to the price discovery process performed
                                                          id.                                           that more than 50% of the weight of the securities
                                                   24 See id.
                                                                                                                                                                on a lit market. See id. at 5.
                                                                                                        held by the options subject to this proposal are also     37 With regard to the ETN option included in the
                                                   25 See id.
                                                                                                        subject to a comprehensive surveillance agreement       proposal—VXX—the Exchange acknowledged that
                                                   26 The report must include, for each such class of   (‘‘CSA’’). See id. at 41458. Additionally, the          there is no direct analogue to ETF ‘‘creation,’’ but
                                                options, the number of option contracts comprising      Exchange states that the component securities of the    observed that the ETN issuer may sell additional
                                                each such position and, in the case of short            MSCI Emerging Markets Index on which EEM is             VXX shares from its inventory. Regardless of
                                                positions, whether covered or uncovered. See            based for which the primary market is in any one        whether VXX shares are redeemed or new VXX
                                                Exchange Rule 4.13(a).                                  country that is not subject to a CSA do not represent   shares are issued, the Exchange stated, an issuer
                                                   27 According to the Exchange, market-makers          20% or more of the weight of the MSCI Emerging          may transact in VIX futures in order to hedge its
                                                (including Designated Primary Market-Makers) are        Markets Index. See id. Further, the Exchange states     exposure, resulting in an arbitrage process similar
                                                exempt from the referenced reporting requirement        that the component securities of the MSCI Emerging      to the one described for ETFs described above,
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                                                because market-maker information can be accessed        Markets Index on which EEM is based for which the       thereby helping to keep an ETN’s price in line with
                                                through the Exchange’s market surveillance              primary market is in any two countries that are not     the value of its underlying index. See Amendment
                                                systems. See Notice, supra note 3, at 41459.            subject to CSAs do not represent 33% or more of         No. 1 at 7–8.
                                                   28 According to the Exchange, this information       the weight of the MSCI Emerging Markets Index.            38 See id. at 6–7.
                                                                                                        See id.                                                   39 See id. at 8, and the Exchange’s discussion of
                                                would include, but would not be limited to, the            32 See id. at 41459.
                                                option position, whether such position is hedged                                                                QQQQ, IWM, VXX, and EEM, and EFA, id. at
                                                                                                           33 See id. at 41459–60.
                                                and, if so, a description of the hedge, and the                                                                 8–11.
                                                                                                           34 17 CFR 240.15c3–1.
                                                collateral used to carry the position, if applicable.                                                             40 See id. at 8, and the Exchange’s discussion of

                                                See id.                                                    35 See Notice, supra note 3, at 41460.               FXI, EWZ, TLT, and EWJ, id. at 12–14.



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                                                57504                       Federal Register / Vol. 82, No. 232 / Tuesday, December 5, 2017 / Notices

                                                same index or is an analogue to the                     Exchange recently has provided                          the position and exercise limit for each
                                                basket of securities that the ETF tracks,               additional justification and analysis.47                option as proposed could impact
                                                then those same economically                              The Commission is instituting                         markets adversely.
                                                equivalent position limits should be                    proceedings to allow for additional                       Interested persons are invited to
                                                appropriate for the option overlying the                analysis of, and input from commenters                  submit written data, views, and
                                                ETF.41 The Exchange believes that the                   with respect to, the consistency of the                 arguments regarding whether the
                                                new position limits it is proposing meet                proposed rule change, as amended, with                  proposed rule change, as amended,
                                                this criterion.42 The Exchange also cites               Section 6(b)(5) of the Act,48 which                     should be approved or disapproved by
                                                data in support of its argument that the                requires that the rules of a national                   December 26, 2017. Any person who
                                                market capitalization of the underlying                 securities exchange be designed to                      wishes to file a rebuttal to any other
                                                index or reference asset of each of the                 prevent fraudulent and manipulative                     person’s submission must file that
                                                ETFs and the ETN is large enough to                     acts and practices, to promote just and                 rebuttal by January 9, 2018. Comments
                                                absorb any price movements that may                     equitable principles of trade, to remove                may be submitted by any of the
                                                                                                        impediments to and perfect the                          following methods:
                                                be caused by an oversized trade.43
                                                                                                        mechanism of a free and open market
                                                III. Proceedings To Determine Whether                   and a national market system and, in                    Electronic Comments
                                                To Approve or Disapprove SR–CBOE–                       general, to protect investors and the                     • Use the Commission’s Internet
                                                2017–057, as Amended, and Grounds                       public interest, and not be designed to                 comment form (http://www.sec.gov/
                                                for Disapproval Under Consideration                     permit unfair discrimination between                    rules/sro.shtml); or
                                                                                                        customers, issuers, brokers, or dealers.                  • Send an email to rule-comments@
                                                   The Commission is instituting                                                                                sec.gov. Please include File No. SR–
                                                proceedings pursuant to Section                         IV. Procedure: Request for Written
                                                                                                        Comments                                                CBOE–2017–057 on the subject line.
                                                19(b)(2)(B) of the Act 44 to determine
                                                whether the proposed rule change, as                      The Commission requests that                          Paper Comments
                                                amended, should be approved or                          interested persons provide written                         • Send paper comments in triplicate
                                                disapproved. Institution of proceedings                 submissions of their data, views, and                   to Secretary, Securities and Exchange
                                                is appropriate at this time in view of the              arguments with respect to the issues                    Commission, 100 F Street NE.,
                                                legal and policy issues raised by the                   identified above, as well as any other                  Washington, DC 20549–1090.
                                                proposal, as discussed below.                           concerns they may have with the
                                                                                                        proposal. In particular, the Commission                 All submissions should refer to File No.
                                                Institution of proceedings does not                                                                             SR–CBOE–2017–057. The file number
                                                indicate that the Commission has                        invites the written views of interested
                                                                                                        persons concerning whether the                          should be included on the subject line
                                                reached any conclusions with respect to                                                                         if email is used. To help the
                                                any of the issues involved. Rather, as                  proposed rule change, as amended, is
                                                                                                        consistent with Section 6(b)(5), or any                 Commission process and review your
                                                described below, the Commission seeks                                                                           comments more efficiently, please use
                                                and encourages interested persons to                    other provision of the Act, or the rules
                                                                                                        and regulations thereunder. Although                    only one method. The Commission will
                                                provide comment on the proposed rule                                                                            post all comments on the Commission’s
                                                change, as amended.                                     there do not appear to be any issues
                                                                                                        relevant to approval or disapproval                     Internet Web site (http://www.sec.gov/
                                                   Pursuant to Section 19(b)(2)(B) of the               which would be facilitated by an oral                   rules/sro.shtml). Copies of the
                                                Act,45 the Commission is providing                      presentation of data, views, and                        submission, all subsequent
                                                notice of the grounds for disapproval                   arguments, the Commission will                          amendments, all written statements
                                                under consideration. The Commission                     consider, pursuant to Rule 19b–4 under                  with respect to the proposed rule
                                                notes that position and exercise limits                 the Act,49 any request for an                           change, as amended, that are filed with
                                                serve as a regulatory tool designed to                  opportunity to make an oral                             the Commission, and all written
                                                address manipulative schemes and                        presentation.50                                         communications relating to the
                                                adverse market impact surrounding the                     The Commission asks that                              proposed rule change, as amended,
                                                use of options.46 As discussed above,                   commenters address the sufficiency and                  between the Commission and any
                                                the Exchange has proposed to increase                   merit of the Exchange’s statements in                   person, other than those that may be
                                                the position and exercise limits for                    support of the proposal, as amended, in                 withheld from the public in accordance
                                                options on FXI, EFA, EWZ, TLT, VXX,                     addition to any other comments they                     with the provisions of 5 U.S.C. 552, will
                                                and EWJ from 250,000 contracts to                       may wish to submit about the proposed                   be available for Web site viewing and
                                                500,000 contracts, for options on EEM                   rule change. In particular, the                         printing in the Commission’s Public
                                                and IWM from 500,000 contracts to                       Commission seeks comment on whether                     Reference Room, 100 F Street NE.,
                                                1,000,000 contracts, and for options on                                                                         Washington, DC 20549, on official
                                                QQQQ from 900,000 contracts to                             47 The Commission notes that the Exchange filed      business days between the hours of
                                                1,800,000 contracts. The proposed                       Amendment No. 1 to provide additional                   10:00 a.m. and 3:00 p.m. Copies of the
                                                                                                        justification and analysis in support of the proposed   filing also will be available for
                                                increase in position and exercise limits                position and exercise limits on November 22, 2017.
                                                for each marks a substantial increase                   See supra note 6.                                       inspection and copying at the principal
                                                from current levels, for which the                         48 15 U.S.C. 78f(b)(5).                              office of the Exchange. All comments
                                                                                                           49 17 CFR 240.19b–4.                                 received will be posted without change.
                                                  41 See id. at 8.
                                                                                                           50 Section 19(b)(2) of the Act, as amended by the    Persons submitting comments are
                                                                                                        Securities Acts Amendments of 1975, Public Law          cautioned that we do not redact or edit
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                                                  42 See id. at 8–14. For each of the ETFs and the
                                                                                                        94–29 (June 4, 1975), grants to the Commission
                                                ETN subject to the proposal, the Exchange cites
                                                                                                        flexibility to determine what type of proceeding—
                                                                                                                                                                personal identifying information from
                                                specific data to illustrate its argument.                                                                       comment submissions. You should
                                                  43 See id. at 8–14.
                                                                                                        either oral or notice and opportunity for written
                                                  44 15 U.S.C. 78s(b)(2)(B).
                                                                                                        comments—is appropriate for consideration of a          submit only information that you wish
                                                                                                        particular proposal by a self-regulatory                to make available publicly.
                                                  45 Id.
                                                                                                        organization. See Securities Acts Amendments of
                                                  46 See, e.g., Securities Exchange Act Release No.     1975, Senate Comm. on Banking, Housing & Urban
                                                                                                                                                                   All submissions should refer to File
                                                68086 (October 23, 2012), 77 FR 65600 (October 29,      Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30       No. SR–CBOE–2017–057 and should be
                                                2012) (SR–CBOE–2012–066).                               (1975).                                                 submitted by December 26, 2017.


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                                                                            Federal Register / Vol. 82, No. 232 / Tuesday, December 5, 2017 / Notices                                           57505

                                                Rebuttal comments should be submitted                   Exchange has prepared summaries, set                  Entities’ rulebooks for ease of use by
                                                by January 9, 2018.                                     forth in sections A, B, and C below, of               Members, who are members of more
                                                  For the Commission, by the Division of                the most significant aspects of such                  than one Nasdaq Entity. This proposal
                                                Trading and Markets, pursuant to delegated              statements.                                           would not amend the current Rulebook
                                                authority.51                                            A. Self-Regulatory Organization’s                     and is therefore not a substantive
                                                Eduardo A. Aleman,                                      Statement of the Purpose of, and                      change. A Member would continue to be
                                                Assistant Secretary.                                    Statutory Basis for, the Proposed Rule                able to view the current Rulebook
                                                [FR Doc. 2017–26122 Filed 12–4–17; 8:45 am]             Change                                                alongside the proposed reorganized
                                                                                                                                                              Rulebook. Subsequent rule changes will
                                                BILLING CODE 8011–01–P
                                                                                                        1. Purpose                                            be filed to move the rule text into the
                                                                                                           On March 9, 2016, Nasdaq, Inc.                     shell Rulebook.
                                                SECURITIES AND EXCHANGE                                 acquired the capital stock of U.S.                    2. Statutory Basis
                                                COMMISSION                                              Exchange Holdings, thereby indirectly
                                                                                                        acquiring all of the interests of the                    The Exchange believes that its
                                                [Release No. 34–82173; File No. SR–ISE–
                                                                                                        International Securities Exchange, LLC                proposal is consistent with Section 6(b)
                                                2017–102]                                                                                                     of the Act,5 in general, and furthers the
                                                                                                        (now ISE), ISE Gemini, LLC (now
                                                                                                        Nasdaq GEMX, LLC) (‘‘GEMX’’) and ISE                  objectives of Section 6(b)(5) of the Act,6
                                                Self-Regulatory Organizations; Nasdaq                                                                         in particular, in that it is designed to
                                                ISE, LLC; Notice of Filing and                          Mercury, LLC (now Nasdaq MRX, LLC)
                                                                                                        (‘‘MRX’’).3 The acquisition resulted in a             promote just and equitable principles of
                                                Immediate Effectiveness of Proposed                                                                           trade, to remove impediments to and
                                                Rule Change To Adopt a Shell                            total of six self-regulatory organization
                                                                                                        licenses for Nasdaq, Inc. which, in                   perfect the mechanism of a free and
                                                Structure for the ISE Rulebook                                                                                open market and a national market
                                                                                                        addition to the three aforementioned
                                                November 29, 2017.                                      exchanges, also include The Nasdaq                    system, and, in general to protect
                                                   Pursuant to Section 19(b)(1) of the                  Stock Market LLC (‘‘Nasdaq’’), Nasdaq                 investors and the public interest, by
                                                Securities Exchange Act of 1934                         PHLX LLC (‘‘Phlx’’) and Nasdaq BX, Inc.               starting the process of organizing its
                                                (‘‘Act’’),1 and Rule 19b–4 thereunder,2                 (‘‘BX’’) (collectively, ‘‘Nasdaq Entities’’).         rules in a manner which is clear and
                                                notice is hereby given that on November                    The Exchange is planning to conform                consistent across the Nasdaq Entities.
                                                17, 2017, Nasdaq ISE, LLC (‘‘ISE’’ or                   the chapters of the various Nasdaq                    The Exchange believes that coordinating
                                                ‘‘Exchange’’) filed with the Securities                 Entity rulebooks for efficiency, and                  the chapters of the rulebooks among the
                                                and Exchange Commission                                 conformity of certain Nasdaq Entity                   Nasdaq Entities will provide Members,
                                                (‘‘Commission’’) the proposed rule                      processes. The Exchange believes that                 who are members of more than one
                                                change as described in Items I and II                   aligning the rules of the Nasdaq Entities             Nasdaq Entity, with consistency and
                                                below, which Items have been prepared                   will assist market participants in                    ease of reference in locating rules.
                                                by the Exchange. The Commission is                      navigating the various rulebooks.                     B. Self-Regulatory Organization’s
                                                publishing this notice to solicit                       Specifically, the Exchange proposes to                Statement on Burden on Competition
                                                comments on the proposed rule change                    add a shell structure which would
                                                from interested persons.                                reside alongside the current rulebook.                  The Exchange does not believe that
                                                                                                        The proposed shell would outline the                  the proposed rule change will impose
                                                I. Self-Regulatory Organization’s                       various chapters of the future rulebook               any burden on competition not
                                                Statement of the Terms of the Substance                 and contains new chapter numbering. A                 necessary or appropriate in furtherance
                                                of the Proposed Rule Change                             similar shell would be filed to add the               of the purposes of the Act. The
                                                   The Exchange proposes to adopt a                     same structure to each of the other                   proposed changes do not impose a
                                                shell structure for the ISE rulebook                    Nasdaq Entities. The proposed chapters                burden on competition because the
                                                (‘‘Rulebook’’) as part of its initiative to             would be similar for each shell filed for             proposed amendments are non-
                                                structure its Rulebook.                                 each of the Nasdaq Entities. In                       substantive, are intended to start the
                                                   The text of the proposed rule change                 subsequent rule changes, each of the                  process to organize the rules of the
                                                is available on the Exchange’s Web site                 Nasdaq Entities would file rule changes               Exchange in a manner that will be more
                                                at http://ise.cchwallstreet.com/, at the                to move their current rules into the                  user-friendly to Nasdaq Entity members.
                                                principal office of the Exchange, and at                various chapters of the proposed shells               C. Self-Regulatory Organization’s
                                                the Commission’s Public Reference                       for all six markets and delete the                    Statement on Comments on the
                                                Room.                                                   migrated rule from the current location               Proposed Rule Change Received From
                                                                                                        in the Rulebook.4 The proposed shell                  Members, Participants, or Others
                                                II. Self-Regulatory Organization’s                      would contain a general rule section
                                                Statement of the Purpose of, and                        and product specific section, in this                   No written comments were either
                                                Statutory Basis for, the Proposed Rule                  case options, which would encompass                   solicited or received.
                                                Change                                                  all the rules of the Exchange.                        III. Date of Effectiveness of the
                                                   In its filing with the Commission, the                  The Exchange believes this new                     Proposed Rule Change and Timing for
                                                Exchange included statements                            structure would align the Nasdaq                      Commission Action
                                                concerning the purpose of and basis for
                                                the proposed rule change and discussed                     3 See Securities Exchange Act Release No. 78119       Because the foregoing proposed rule
                                                any comments it received on the                         (June 21, 2016), 81 FR 41611 (June 27, 2016) (SR–     change does not: (i) Significantly affect
                                                                                                        ISE–2016–11; SR–ISE Gemini–2016–05; SR–ISE
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                                                proposed rule change. The text of these                                                                       the protection of investors or the public
                                                                                                        Mercury–2016–10) (Order Granting Accelerated
                                                statements may be examined at the                       Approval of Proposed Rule Changes, Each as            interest; (ii) impose any significant
                                                places specified in Item IV below. The                  Modified by Amendment No. 1 Thereto, Relating to      burden on competition; and (iii) become
                                                                                                        a Corporate Transaction in Which Nasdaq, Inc. Will    operative for 30 days from the date on
                                                                                                        Become the Indirect Parent of ISE, ISE Gemini, and
                                                  51 17 CFR 200.30–3(a)(12); 17 CFR 200.30–
                                                                                                        ISE Mercury).
                                                                                                                                                              which it was filed, or such shorter time
                                                3(a)(57).                                                  4 When relocating the current rule text into the
                                                  1 15 U.S.C. 78s(b)(1).                                                                                        5 15   U.S.C. 78f(b).
                                                                                                        new shell, the Exchange shall not amend the rule
                                                  2 17 CFR 240.19b–4.                                   text but simply move existing rule text.                6 15   U.S.C. 78f(b)(5).



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Document Created: 2017-12-04 23:44:37
Document Modified: 2017-12-04 23:44:37
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation82 FR 57501 

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