[Federal Register Volume 83, Number 117 (Monday, June 18, 2018)]
[Notices]
[Pages 28274-28277]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-12931]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83415; File No. SR-CBOE-2018-042]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
the Position Limit for SPY Options

June 12, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 4, 2018, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe 
Options'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The Exchange 
filed the proposal as a ``non-controversial'' proposed rule change 
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 4.11 to amend the position 
limit for options on SPDR S&P 500 ETF Trust (``SPY'').
    (additions are italicized; deletions are [bracketed])
* * * * *

Cboe Exchange, Inc.

Rules

* * * * *
Rule 4.11. Position Limits
    (No change).
    . . . Interpretations and Policies:
    .01-.06 (No change).
    .07 The position limits under Rule 4.11 applicable to options on 
shares or other securities that represent interests in registered 
investment companies (or series thereof) organized as open-end 
management investment companies, unit investment trusts or similar 
entities that satisfy the criteria set forth in Interpretation and 
Policy .06 under Rule 5.3 shall be the same as the position limits 
applicable to equity options under Rule 4.11 and Interpretations and 
Policies thereunder; except that the position limits under Rule 4.11 
applicable to option contracts on the securities listed in the below 
chart are as follows:

----------------------------------------------------------------------------------------------------------------
                 Security underlying option                                     Position limit
----------------------------------------------------------------------------------------------------------------
The DIAMONDS Trust (DIA)...................................  300,000 contracts.
The Standard and Poor's Depositary Receipts Trust (SPY)....  [None] 1,800,000 contracts.
The iShares Russell 2000 ETF (IWM).........................  1,000,000 contracts.
The PowerShares QQQ Trust (QQQQ)...........................  1,800,000 contracts.
The iShares MSCI Emerging Markets ETF (EEM)................  1,000,000 contracts.
iShares China Large-Cap ETF (``FXI'')......................  500,000 contracts.
iShares MSCI EAFE ETF (``EFA'')............................  500,000 contracts.
iShares MSCI Brazil Capped ETF (``EWZ'')...................  500,000 contracts.
iShares 20+ Year Treasury Bond Fund ETF (``TLT'')..........  500,000 contracts.
iShares MSCI Japan ETF (``EWJ'')...........................  500,000 contracts.
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[[Page 28275]]

    [Position limits for SPY options are subject to a pilot program 
through July 12, 2018.]
    .08 No change.
* * * * *
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Rule 4.11 establishes position limits for aggregate positions in 
option contracts traded on the Exchange. Interpretation and Policy .07 
to Rule 4.11 lists specific position limits for certain select 
underlying securities.\5\ SPY is among the certain select underlying 
securities listed in that Rule. Currently, the Rule provides that there 
is no position limit (or exercise limit) on options overlying SPY 
pursuant to a pilot program, which is scheduled to expire on July 12, 
2018 (``SPY Pilot Program'').\6\
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    \5\ Pursuant to Rule 4.12, Interpretation and Policy .02, the 
exercise limits for options on those securities are the same as the 
position limits set forth in Rule 4.11, Interpretation and Policy 
.07.
    \6\ See Securities Exchange Act Release Nos. 67937 (September 
27, 2012), 77 FR 60489 (October 3, 2012) (SR-CBOE-2012-091); 70878 
(November 14, 2013), 78 FR 69737 (November 20, 2013) (SR-CBOE-2013-
106); 74149 (January 27, 2015), 80 FR 5606 (February 2, 2015) (SR-
CBOE-2015-008); 75381 (July 7, 2015), 80 FR 40111 (July 13, 2015) 
(SR-CBOE-2015-065); 78131 (June 22, 2016), 81 FR 42011 (June 28, 
2016) (SR-CBOE-2016-052); and 81017 (June 26, 2017), 82 FR 29960 
(June 30, 2017) (SR-CBOE-2017-050).
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    The Exchange proposes to amend Rule 4.11, Interpretation and Policy 
.07 to allow the SPY Pilot Program to terminate on July 12, 2018, the 
current expiration date of the SPY Pilot Program. In lieu of extending 
the SPY Pilot Program another year, the Exchange proposes to allow the 
SPY Pilot Program to terminate and to establish position (and exercise) 
limits of 1,800,000 contracts for options on SPY, with such change 
becoming operative on July 12, 2018, so that there is no lapse in time 
between termination of the SPY Pilot Program and the establishment of 
the new limits. Furthermore, as a result of the termination of the SPY 
Pilot Program, the Exchange does not believe it is necessary to submit 
a SPY Pilot Program Report at the end of the SPY Pilot Program. Based 
on the prior SPY Pilot Program Reports provided to the Commission,\7\ 
the Exchange believes it is appropriate to terminate the SPY Pilot 
Program and that permanent position (and exercise) limits should be 
established for SPY.
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    \7\ Id.
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    Position limits are designed to address potential manipulative 
schemes and adverse market impact surrounding the use of options, such 
as disrupting the market in the security underlying the options. The 
potential manipulative schemes and adverse market impact are balanced 
against the potential of setting the limits so low as to discourage 
participation in the options market. The level of those position limits 
must be balanced between curtailing potential manipulation and the cost 
of preventing potential hedging activity that could be used for 
legitimate economic purposes.
    The SPY Pilot Program was established in 2012 in order to eliminate 
the position (and exercise) limit for physically-settled SPY 
options.\8\ In 2005, the position (and exercise) limit for SPY options 
was increased from 75,000 contracts to 300,000 contracts on the same 
side of the market.\9\ In July 2011, the position limit (and exercise) 
for these options was again increased from 300,000 contracts to 900,000 
contracts on the same side of the market.\10\ Then, in 2012, the 
position (and exercise) limit for SPY options were eliminated as part 
of the SPY Pilot Program.\11\
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    \8\ See Securities Exchange Act Release Nos. 67672 (August 15, 
2012), 77 FR 50750 (August 22, 2012) (SR-NYSEAmex-2012-29); and 
67937 (September 27, 2012), 77 FR 60489 (October 3, 2012) (SR-CBOE-
2012-091).
    \9\ See Securities Exchange Act Release No. 51041 (January 14, 
2005), 70 FR 3408 (January 24, 2005) (SR-CBOE-2005-06).
    \10\ See Securities Exchange Act Release No. 64928 (July 20, 
2011), 76 FR 44633 (July 26, 2011) (SR-CBOE-2011-065).
    \11\ See supra note 8.
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    The underlying SPY tracks the performance of the S&P 500 Index and 
the Exchange notes that the SPY and SPY options have deep, liquid 
markets that reduce concern regarding manipulation and disruption in 
the underlying markets. In support of this proposed rule change, the 
Exchange has collected the following trading statistics for SPY and SPY 
options: (1) The average daily volume (``ADV'') to date (as of May 15, 
2018) for SPY is 108.32 million shares; (2) the ADV to date in 2018 for 
SPY options is 3.9 million contracts per day; (3) the total shares 
outstanding for SPY are 965.43 million; and (4) the fund market cap for 
SPY is 261.65 billion. The Exchange represents further that there is 
tremendous liquidity in the securities that make up the S&P 500 Index.
    Accordingly, the Exchange proposes to amend Rule 4.11, 
Interpretation and Policy .07 to set forth that the position limit for 
options on SPY would be 1,800,000 contracts on the same side of the 
market.\12\ This position (and exercise) limit equal the current 
position (and exercise) limit for options on QQQ, which the Commission 
previously approved to be increased from 900,000 contracts on the same 
side of the market to 1,800,000 contracts on the same side of the 
market.\13\ The Exchange notes that SPY is more liquid than QQQ.\14\ 
The Exchange believes that establishing a position (and exercise) limit 
for the SPY options in the amount of 1,800,000 contracts on the same 
side of the market subject to this proposal would allow for the 
maintenance of the liquid and competitive market environment for these 
options, which will benefit customers interested in these products. 
Under the proposal, the reporting requirement for the options would be 
unchanged.
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    \12\ Pursuant to Rule 4.12, Interpretation and Policy .02, the 
exercise limit for options on SPY would be 1,800,000 contracts on 
the same side of the market.
    \13\ See Securities Exchange Act Release No. 82770 (February 23, 
2018), 83 FR 8907 (March 1, 2018) (SR-CBOE-2017-057).
    \14\ From the beginning of the year, through May 15, 2018, the 
ADV for SPY was 108.32 million shares while the ADV for QQQ was 
46.64 million shares (calculated using data from Yahoo Finance as of 
May 15, 2018).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\15\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \16\ requirements that the rules of

[[Page 28276]]

an exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \17\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
    \17\ Id.
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    In particular, the Exchange believes that establishing a permanent 
position (and exercise) limit for SPY options subject to this proposal 
will encourage Market Makers to continue to provide sufficient 
liquidity in SPY options on the Exchange, which will enhance the 
process of price discovery conducted on the Exchange. The proposal will 
also benefit institutional investors as well as retail traders, and 
public customers, by continuing to provide them with an effective 
trading and hedging vehicle. In addition, the Exchange believes that 
the structure of the SPY options subject to this proposal and the 
considerable liquidity of the market for those options diminishes the 
opportunity to manipulate this product and disrupt the underlying 
market that a lower position limit may protect against.
    Increased position limits for select actively traded options, such 
as that proposed herein (increased as compared to the 900,000 limit in 
place prior to the SPY Pilot Program),\18\ is not novel and has been 
previously approved by the Commission. For example, the Commission has 
previously approved a rule change permitting the Exchange to double the 
position (and exercise) limits for FXI, EEM, IWM, EFA, EWZ, TLT, QQQ, 
and EWJ.\19\ Furthermore, as previously mentioned, the Commission 
specifically approved a proposal by the Exchange to increase the 
position (and exercise) limit for options on QQQ from 900,000 contracts 
on the same side of the market to 1,800,000 contracts on the same side 
of the market; similar to the current proposal for options on SPY.\20\ 
The Exchange also notes that SPY is more liquid than QQQ.\21\
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    \18\ See supra note 10.
    \19\ See supra note 13.
    \20\ Id.
    \21\ See supra note 14.
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    Lastly, the Commission expressed the belief that implementing a 
higher position (and exercise) limit may bring additional depth and 
liquidity without increasing concerns regarding intermarket 
manipulation or disruption of the options or the underlying 
securities.\22\ The Exchange's existing surveillance and reporting 
safeguards are designed to deter and detect possible manipulative 
behavior which might arise from increasing the position (and exercise) 
limit (increased as compared to the 900,000 limit in place prior to the 
SPY Pilot Program).\23\
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    \22\ See supra note 13.
    \23\ See supra note 10.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Cboe Options does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes the 
entire proposal is consistent with Section 6(b)(8) of the Act \24\ in 
that it does not impose any burden on competition that is not necessary 
or appropriate in furtherance of the purposes of the Act. On the 
contrary, the Exchange believes the proposal promotes competition 
because it will enable the option exchanges to attract additional order 
flow from the over-the-counter market, which in turn compete for those 
orders. The Exchange believes that the proposed rule change will result 
in continued opportunities to achieve the investment and trading 
objectives of market participants seeking efficient trading and hedging 
vehicles, to the benefit of investors, market participants, and the 
marketplace in general. The Exchange believes this proposed rule change 
is necessary to permit fair competition among the options exchanges and 
to establish uniform position limits for additional multiply listed 
option classes. Another options exchange recently filed a similar 
proposal,\25\ and the Exchange believes that the other options 
exchanges will file similar proposals with the Commission.
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    \24\ 15 U.S.C. 78f(b)(8).
    \25\ See SR-MIAX-2018-11 (May 24, 2018).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \26\ and Rule 19b-4(f)(6) 
\27\ thereunder.
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    \26\ 15 U.S.C. 78s(b)(3)(A).
    \27\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CBOE-2018-042 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2018-042. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the

[[Page 28277]]

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 Number SR-CBOE-2018-042 and should be submitted on 
or before July 9, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-12931 Filed 6-15-18; 8:45 am]
 BILLING CODE 8011-01-P