Notice2021-17086
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 Modified by Amendment No. 1, To Increase Position Limits for Options on Certain Exchange-Traded Funds and an Exchange-Traded Note
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 11, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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[Federal Register Volume 86, Number 152 (Wednesday, August 11, 2021)]
[Notices]
[Pages 44118-44122]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-17086]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92581; File No. SR-CBOE-2021-029]
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
Modified by Amendment No. 1, To Increase Position Limits for Options on
Certain Exchange-Traded Funds and an Exchange-Traded Note
August 5, 2021.
I. Introduction
On April 21, 2021, Cboe Exchange, Inc. (``Exchange'') 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 8.30, Position Limits,
to increase the position limits for options on the following exchange
traded funds (``ETFs'') and exchange traded note (``ETN'')
(collectively, ``Exchange Traded Products'' or ``ETP(s)''): SPDR Gold
Shares (``GLD''), iShares iBoxx $ Investment Grade Corporate Bond ETF
(``LQD''), iShares Silver Trust (``SLV''), iPath S&P 500 VIX Short-Term
Futures ETN (``VXX''), ProShares Ultra VIX Short-Term Futures ETF
(``UVXY''), and VanEck Vectors Gold Miners ETF (``GDX''). The proposed
rule change was published for comment in the Federal Register on May
10, 2021.\3\ On June 17, 2021, 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\ On July 27, 2021, the Exchange submitted
Amendment No. 1 to the proposed rule change, which replaced and
superseded the proposed rule change as originally filed.\6\ The
Commission is publishing this notice and order to solicit comments on
the proposed rule change, as modified by Amendment No. 1, 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 modified by Amendment No. 1.
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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. 91767 (May 4, 2021),
86 FR 25026.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 92204, 86 FR 33395
(June 24, 2021). The Commission designated August 8, 2021, 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: (1) Reduced the proposed
position limit for GLD options from 1,000,000 contracts to 500,000
contracts; and (2) provided additional justification and analysis in
support of the proposal. The additional justification and analysis
provided by Amendment No. 1 is included in the description below of
the proposal as amended. The full text of Amendment No. 1 is
available on the Commission's website at: <a href="https://www.sec.gov/comments/sr-cboe-2021-029/srcboe2021029-9094584-246812.pdf">https://www.sec.gov/comments/sr-cboe-2021-029/srcboe2021029-9094584-246812.pdf</a>.
\7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposal, as Modified by Amendment No. 1
Currently, position limits for options on ETFs and ETNs traded on
the Exchange, such as those subject to this
[[Page 44119]]
proposal, as amended, are determined pursuant to Exchange Rule 8.30,
and generally vary according to the number of outstanding shares and
past six-month trading volume of the underlying security. Options on
the securities with the largest numbers of outstanding shares and
trading volume have a standard option position limit of 250,000
contracts (with adjustments for splits, re-capitalizations, etc.) on
the same side of the market.\8\ In addition, Interpretation and Policy
.07 of Exchange Rule 8.30 currently sets forth separate position limits
for options on certain ETFs that range from 300,000 to 3.6 million
contracts.
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\8\ See Interpretation and Policy .02(e) to Exchange Rule 8.30.
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Options on GLD, SLV, LQD, GDX, VXX, and UVXY are currently subject
to the standard position limit of 250,000 contracts as set forth in
Exchange Rule 8.30.\9\ The purpose of the proposed rule change, as
modified by Amendment No.1, is to amend Interpretation and Policy .07
to Exchange Rule 8.30 to increase the position limits for options on
GLD, SLV, LQD, GDX, VXX, and UVXY from 250,000 contracts to 500,000
contracts.\10\ The Exchange believes that the proposed position limit
increases will lead to a more liquid and competitive market environment
for these options that will benefit customers interested in trading
these products.\11\ The Exchange states that, to support the proposed
position limit increases, it has considered, and provided statistics
regarding, the liquidity of the underlying ETPs, the value of the
underlying securities or index components and relevant marketplace, the
share and option volume for the underlying ETPs, and, where applicable,
the availability or comparison of economically equivalent products to
options on the underlying ETPs.
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\9\ See Amendment No. 1, supra note 6, at 6; see also id. at 10,
12, 16, 17, 19, for descriptions provided by the Exchange regarding
the composition, design, and investment objectives of the ETPs
underlying each of the options subject to this proposal.
\10\ Pursuant to Exchange Rule 8.42, Interpretation and Policy
.02, the text of which is not being amended by this proposal, the
exercise limits for GLD, SLV, LQD, GDX, VXX, and UVXY options would
be similarly increased as a result of this proposal.
\11\ See Amendment No. 1, supra note 6, at 24.
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Specifically, in support of its proposal to increase the position
limits for options on GLD and SLV from 250,000 contracts to 500,000
contracts, the Exchange, among other things, compares the trading
characteristics of GLD and SLV to those of the iShares MSCI Brazil
Capped ETF (``EWZ''), the iShares 20+ Year Treasury Bond Fund ETF
(``TLT''), the iShares MSCI Japan ETF (``EWJ''), and the iShares iBoxx
High Yield Corporate Bond Fund (``HYG''), all of which currently have a
position limit of 500,000 contracts.\12\ The Exchange states that the
average daily trading volume (``ADV'') in calendar year 2020 for GLD
was 12.3 million shares and SLV was 33.1 million shares compared to
29.2 million shares for EWZ, 11.5 million shares for TLT, 8.2 million
shares for EWJ, and 30.5 million shares for HYG; \13\ the total shares
outstanding as of April 5, 2021 for GLD was 354.3 million and SLV was
619.3 million compared to 173.8 million for EWZ, 103.7 million for TLT,
185.3 million for EWJ, and 254.5 million for HYG; \14\ and the fund
market cap as of January 14, 2021 for GLD was $70,195.7 and SLV was
$14,228.4 million compared to $6,506.8 million for EWZ, $17,121.3
million for TLT, $13,860.7 million for EWJ, and $24,067.5 million for
HYG.\15\
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\12\ See id. at 9-13. See also Exchange Rule 8.30,
Interpretation and Policy .07. Prior to the submission of Amendment
No. 1, the Exchange originally proposed to increase the position
limit for options on GLD to 1,000,000 contracts.
\13\ See Amendment No. 1, supra note 6, at 11-12.
\14\ See id. at 9-10.
\15\ See id. at 9-12. The Exchange also states that demand for
trading GLD and SLV options has increased whereas the position
limits for these products have remained the same, which may impact
the ability of Trading Permit Holders (``TPHs'') to effectively
hedge against exposure to physical gold and silver. See id. at 13.
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In addition, the Exchange states that it recognizes that the spot
metal markets underlying SLV and GLD differ from the equities markets
underlying EWZ, EWJ, TLT, and HYG, but that it does not believe that
position limit increases for options on GLD and SLV will have any
adverse impact on the underlying spot gold and silver markets.\16\
Specifically, the Exchange states that gold futures currently have a
value of approximately $93.2 billion in open interest, have experienced
an ADV of approximately 264,000 contracts (equivalent to approximately
264 million GLD contracts) from January through May 2021, and currently
are subject to a position limit of 6,000 contracts, which is notionally
equivalent to 6,000,000 GLD option contracts.\17\ The Exchange
similarly states that silver futures currently have a value of
approximately $25.7 billion in open interest, have experienced an ADV
of approximately 93,000 contracts (equivalent to approximately 465
million SLV contracts) from January through May 2021, and currently are
subject to a position limit of 3,000 contracts, which is notionally
equivalent to 15,000,000 SLV option contracts.\18\ The Exchange
believes that the volume in and value of the gold and silver futures
markets indicate that the underlying markets are sufficiently large and
liquid enough to absorb potential price movements and large-sized
trades as a result of position limit increases for options on GLD and
SLV.\19\
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\16\ See id. at 14.
\17\ See id. The Exchange understands that its market-makers use
both GLD and gold futures to hedge their GLD options positions,
which the Exchange believes provides for a balance across the gold-
related marketplaces, mitigating potential concerns that either the
underlying or the futures market might experience additional
pressure as a result of an increase in activity in the GLD options
space. See id.
\18\ See id.
\19\ See id. at 14-15.
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The Exchange also provides data showing that the volume-weighted
average of the absolute value of deltas for GLD and SLV options trades
from March 2019 through June 2021 was approximately 0.34 per GLD
options trade and approximately 0.28 per SLV options trade.\20\ The
Exchange believes these low absolute value deltas indicate that
increases in GLD and SLV options trading would have minimal impact on
the ability of the underlying metals markets to absorb any additional
volume related to increased position limits and hedging activity.\21\
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\20\ See id. at 15.
\21\ See id. at 15-16.
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In support of its proposal to increase the position limits for
options on VXX and UVXY from 250,000 contracts to 500,000 contracts,
the Exchange, among other things, compares the trading characteristics
of VXX and UVXY to those of EWZ, TLT, EWJ, and HYG, all of which
currently have a position limit of 500,000 contracts.\22\ The Exchange
states that the ADV in calendar year 2020 for VXX was 39.3 million
shares and UVXY was 29.3 million shares compared to 29.2 million shares
for EWZ, 11.5 million shares for TLT, 8.2 million shares for EWJ, and
30.5 million shares for HYG; \23\ the total shares outstanding as of
April 14, 2021 for VXX was 110.8 million and UVXY was 228.7 million
compared to 173.8 million for EWZ, 103.7 million for TLT, 185.3 million
for EWJ, and 254.5 million for HYG; \24\ and the fund market cap as of
January 14, 2021 for VXX was $1,023 million and UVXY was $1,580.6
million compared to $6,506.8 million for EWZ, $17,121.3 million for
TLT, $13,860.7
[[Page 44120]]
million for EWJ, and $24,067.5 million for HYG.\25\ The Exchange also
states that the 2020 ADV for trading in VIX futures was approximately
192,000 contracts and VIX futures currently have a value of
approximately $7.6 billion in open interest.\26\ The Exchange believes
that its proffered data indicates that the market for VXX and UVXY is
sufficiently large and liquid enough to absorb price movements and
large-sized trades.\27\
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\22\ See id. at 9-10, 19-20. See also Exchange Rule 8.30,
Interpretation and Policy .07. The Exchange also states that, while
VIX options share similar trading characteristics with options on
VXX and UVXY, VIX options are not currently subject to position
limits. See Amendment No. 1, supra note 6, at 20.
\23\ See Amendment No. 1, supra note 6, at 19-20.
\24\ See id. at 9-10.
\25\ See id.
\26\ See id. at 20.
\27\ See id.
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The Exchange further states that the VIX futures that comprise both
VXX and UVXY are a perfect hedge to the underlying delta risk, but that
such futures are not recognized as hedges for options contract
equivalent of the net delta (``OCEND'') purposes.\28\ A TPH that is not
delta neutral must be hedged to the extent that the OCEND stays within
the applicable position limit.\29\ According to the Exchange, due to
the OCEND limitations and current position limits for options on VXX
and UVXY, heightened demand for liquidity in VXX and UVXY options can
cause TPHs that are hedged via the component futures to approach
position limits more rapidly.\30\ In order to stay within the
applicable position limit, TPHs may shift out of futures hedges into
hedges with options or may purchase or create shares of the underlying
ETPs. As a result, TPHs may be unable to provide the most concise
pricing to customers participating in these ETPs due to increased costs
associated with transacting in additional or alternative hedging
vehicles, and risk may concentrate in the ETP issuer rather than being
spread across multiple market participants, which may exacerbate an
already volatile market.\31\ The Exchange believes that increasing
position limits for options on VXX and UVXY may assist in maintaining a
fair and orderly market during times of higher market volatility, and
may reduce any potential additional impact on the futures markets as a
result of an increased demand (or, conversely, supply) for shares of
the ETPs during periods of higher market volatility or illiquidity.\32\
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\28\ See id.
\29\ See id.
\30\ See id. at 20-21.
\31\ See id. at 21.
\32\ See id. at 21-22. In contrast, the Exchange believes that
the current position limits for VXX and UVXY options may, at times
in which there is higher volatility and, thus, higher demand in
connection with these options, reduce liquidity and create further
volatility. See id. at 21.
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The Exchange further believes that the VIX futures markets,
including in the Trade at Settlement (``TAS'') VIX futures market,
wherein VXX and UVXY are primarily rebalanced, maintain robust, liquid
markets such that they can sufficiently handle any additional options
delta exposure and resulting increase in volatility options trading,
including during the rebalancing period.\33\ Specifically, the Exchange
states that it has observed that the ADV in the VIX futures TAS market
has grown from approximately 32,200 contracts in 2018 to approximately
42,200 contracts in 2021.\34\
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\33\ See id. at 22.
\34\ See id.
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In support of its proposal to increase the position limits for
options on GDX from 250,000 contracts to 500,000 contracts, the
Exchange, among other things, compares the trading characteristics of
GDX to those of EWZ, TLT, EWJ, and HYG, all of which currently have a
position limit of 500,000 contracts.\35\ The Exchange states that the
ADV in calendar year 2020 for GDX was 39.4 million shares compared to
29.2 million shares for EWZ, 11.5 million shares for TLT, 8.2 million
shares for EWJ, and 30.5 million shares for HYG; \36\ the total shares
outstanding as of April 5, 2021 for GDX was 419.8 million compared to
173.8 million for EWZ, 103.7 million for TLT, 185.3 million for EWJ,
and 254.5 million for HYG; \37\ and the fund market cap as of January
14, 2021 for GDX was $16,170.5 million compared to $6,506.8 million for
EWZ, $17,121.3 million for TLT, $13,860.7 million for EWJ, and
$24,067.5 million for HYG.\38\ The Exchange also states that many of
the Brazil-based gold mining constituents included in GDX are also
included in EWZ, and that the Exchange has not identified any issues
with the continued listing and trading of EWZ options or any adverse
market impact on EWZ in connection with the current 500,000 position
limit in place for EWZ options.\39\ Further, the Exchange states that
the components of the NYSE Arca Gold Miners Index--the price and yield
performance of which GDX seeks to replicate as closely as possible--can
be used to create the GDX ETF, and currently must each have a market
capitalization greater than $750 million, an ADV of at least 50,000
shares, and an average daily value traded of at least $1 million in
order to be eligible for inclusion in the index.\40\
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\35\ See id. at 9-10, 18. See also Exchange Rule 8.30,
Interpretation and Policy .07.
\36\ See Amendment No. 1, supra note 6, at 18.
\37\ See id. at 9-10.
\38\ See id. at 9-10, 18.
\39\ See id. at 18.
\40\ See id. at 17-18.
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In support of its proposal to increase the position limit for LQD
from 250,000 contracts to 500,000 contracts, the Exchange, among other
things, compared the trading characteristics of LQD to those of EWZ,
TLT, and EWJ, all of which currently have a position limit of 500,000
contracts.\41\ The Exchange provides data demonstrating that the ADV in
calendar year 2020 for LQD was 14.1 million shares compared to 29.2
million shares for EWZ, 11.5 million shares for TLT, and 8.2 million
shares for EWJ; \42\ the total shares outstanding as of April 5, 2021
for LQD was 308.1 million compared to 173.8 million for EWZ, 103.7
million for TLT, and 185.3 million for EWJ; \43\ and the fund market
cap as of January 14, 2021 for LQD was $54,113.7 million compared to
$6,506.8 million for EWZ, $17,121.3 million for TLT, and $13,860.7
million for EWJ.\44\ The Exchange also states that LQD tracks the
performance of the Markit iBoxx USD Liquid Investment Grade Index,
which is an index designed as a subset of the broader U.S. dollar-
denominated corporate bond market and can be used in creating a basket
of securities that equate to the LQD ETF, and which is comprised of
over 8,000 bonds for which the outstanding face value of each must be
greater than or equal to $2 billion.\45\
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\41\ See id. at 9-10, 16-17. See also Exchange Rule 8.30,
Interpretation and Policy .07.
\42\ See Amendment No. 1, supra note 6, at 16.
\43\ See id. at 9-10.
\44\ See id. at 9-10, 16.
\45\ See id. at 16-17.
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The Exchange states that the current position limits for the
options subject to the proposal may have impeded the ability of market
makers to make markets on the Exchange.\46\ Specifically, the Exchange
avers, the proposal is designed to encourage liquidity providers to
provide additional liquidity to the Exchange and other market
participants to shift liquidity from over-the-counter markets onto the
Exchange, which, it believes, would enhance the process of price
discovery conducted on the Exchange through increased order flow.\47\
The proposal also would benefit market participants, the Exchange
maintains, by providing them with the ability to more effectively
execute their trading and hedging activities.\48\
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\46\ See id. at 5.
\47\ See id. at 5, 27-28.
\48\ See id. at 5, 28.
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With regard to the concerns that position limits generally are
meant to address, the Exchange represents that the structure of the
underlying ETPs subject to this proposal, the considerable market
capitalization of the ETPs and their underlying
[[Page 44121]]
component securities, and the liquidity of the market for options on
these ETPs and the underlying component securities mitigate concerns
regarding potential manipulation of the products and disruption of the
underlying markets due to the increased position limits.\49\ The
Exchange also describes: (i) The creation and redemption process for
ETFs (and a similar process for the ETN to which the proposal relates);
\50\ (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, in
the Exchange's view, serve to mitigate the potential price impact of
the ETF or ETN shares that might otherwise result from increased
position limits.\51\
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\49\ See id.
\50\ With regard to the ETN option included in the proposal--
VXX--the Exchange stated 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 id. at 23.
\51\ See id. at 22-24.
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In addition, the Exchange states that the options reporting
requirements of Exchange Rule 8.43 would continue to be applicable to
the options subject to this proposal.\52\ As set forth in Exchange Rule
8.43(a), each 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.\53\
Further, Exchange Rule 8.43(b) requires each TPH (other than an
Exchange market-maker or designated primary market-maker) \54\ 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.\55\
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\52\ See id. at 24-25.
\53\ 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 8.43(a).
\54\ 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
Amendment No. 1, supra note 6, at 25.
\55\ 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. See id.
at 24-25.
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The Exchange also represents that the existing surveillance
procedures and reporting requirements at the Exchange and other self-
regulatory organizations are capable of properly identifying disruptive
and/or manipulative trading activity.\56\ According to the Exchange,
its surveillance procedures utilize daily monitoring of market activity
via automated surveillance techniques to identify unusual activity in
both options and the underlying products.\57\ 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.\58\
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\56\ See id. at 25.
\57\ See id. at 25-26.
\58\ See id. at 26 n.36. The Exchange represents that non-U.S.
component securities that are not subject to a comprehensive
surveillance agreement do not, in the aggregate, represent more than
50% of the weight of any of the underlying ETPs that are ETFs. See
id. at 7.
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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.\59\ 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.\60\ In
addition, the Exchange notes that the Commission's net capital rule,
Rule 15c3-1 under the Act,\61\ imposes a capital charge on TPHs to the
extent of any margin deficiency resulting from the higher margin
requirement.\62\
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\59\ See id. at 26.
\60\ See id.
\61\ 17 CFR 240.15c3-1.
\62\ See Amendment No. 1, supra note 6, at 26.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-CBOE-
2021-029, as Modified by Amendment No. 1, and Grounds for Disapproval
Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \63\ to determine whether the proposed rule
change, as modified by Amendment No. 1, 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 modified by Amendment No. 1.
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\63\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\64\ the Commission is
providing notice of the grounds for disapproval under consideration.
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 modified by Amendment No. 1, with the
Act and, in particular, Section 6(b)(5) of the Act,\65\ 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.
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\64\ Id.
\65\ 15 U.S.C. 78f(b)(5).
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Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the [Act]
and the rules and regulations issued thereunder . . . is on the self-
regulatory organization that proposed the rule change.'' \66\ The
description of a proposed rule change, its purpose and operation, its
effect, and a legal analysis of its consistency with applicable
requirements must all be sufficiently detailed and specific to support
an affirmative Commission finding,\67\ and any failure of a self-
regulatory organization to provide this information may result in the
Commission not having a sufficient basis to make an affirmative finding
that a proposed rule change is consistent with the Act and the
applicable rules and regulations.\68\
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\66\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\67\ See id.
\68\ See id.
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Position and exercise limits serve as a regulatory tool designed to
address manipulative schemes and adverse
[[Page 44122]]
market impact surrounding the use of options.\69\ As discussed above,
the Exchange has proposed to increase the position and exercise limits
for options on GLD, SLV, LQD, GDX, VXX, and UVXY from 250,000 contracts
to 500,000 contracts. The proposed doubling of the position and
exercise limits for these options would be a substantial increase from
current levels, and raises the potential for adverse impacts in the
underlying markets implicated by this proposal. The initial proposal
did not provide sufficient information to explain why all of these
underlying markets are sufficiently comparable to the markets
underlying the option products currently subject to a 500,000 contract
position limit or sufficient information to independently support a
finding that all of the proposed position limit increases would not
have an adverse market impact. Accordingly, the initial proposal did
not provide an adequate basis for the Commission to conclude that the
proposal would be consistent with Section 6(b)(5) of the Act.
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\69\ See, e.g., Securities Exchange Act Release No. 68086
(October 23, 2012), 77 FR 65600 (October 29, 2012) (SR-CBOE-2012-
066).
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The Exchange recently provided additional analysis and
justification for its proposal in Amendment No. 1. Amendment No. 1 was
submitted shortly before the expiration of the statutory deadline for
the Commission to act on the Exchange's proposal, leaving the
Commission, as well as any potential commenters, with insufficient time
to carefully consider the new data and analysis before the deadline. In
the proceedings that the Commission is instituting today, the
Commission will be evaluating, among other things, the Exchange's
amended statements, and invites comment on the extent to which they
justify approval of the proposal.
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 modified by Amendment No. 1, 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,\70\ any request for an
opportunity to make an oral presentation.\71\
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\70\ 17 CFR 240.19b-4.
\71\ 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).
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The Commission asks that commenters address the sufficiency and
merit of the Exchange's statements in support of the proposal, as
modified by Amendment No. 1, 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 modified by
Amendment No. 1, should be approved or disapproved by September 1,
2021. Any person who wishes to file a rebuttal to any other person's
submission must file that rebuttal by September 15, 2021. Comments may
be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#b6c4c3dad39bd5d9dbdbd3d8c2c5f6c5d3d598d1d9c0"><span class="__cf_email__" data-cfemail="057770696028666a6868606b7176457660662b626a73">[email protected]</span></a>. Please include
File No. SR-CBOE-2021-029 on the subject line.
Paper Comments
<bullet> 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-2021-029. 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 website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of 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-2021-029 and should be submitted by
September 1, 2021. Rebuttal comments should be submitted by September
15, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\72\
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\72\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-17086 Filed 8-10-21; 8:45 am]
BILLING CODE 8011-01-P
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