Federal Register / Vol. 83, No. 147 / Tuesday, July 31, 2018 / Proposed Rules 36799 

1All Commission regulations referred to herein 

are found in chapter I of title 17 of the Code of 

Federal Regulations. Commission regulations are 

accessible on the Commission’s website, http://

www.cftc.gov. 

addition, FSIS offers an email 

subscription service which provides 

automatic and customized access to 

selected food safety news and 

information. This service is available at: 

http://www.fsis.usda.gov/subscribe. 

Options range from recalls to export 

information, regulations, directives, and 

notices. Customers can add or delete 

subscriptions themselves, and have the 

option to password protect their 

accounts. 

List of Subjects 

9 CFR Part 318 

Food additives, Food packaging, 

Laboratories, Meat inspection, Reporting 

and recordkeeping requirements, Signs 

and symbols. 

9 CFR Part 381 

Administrative practice and 

procedure, Animal diseases, Crime, 

Exports, Food grades and standards, 

Food labeling, Food packaging, 

Government employees, Grant 

programs-agriculture, Intergovernmental 

relations, Laboratories, Meat inspection, 

Nutrition, Polychlorinated biphenyls, 

Poultry and poultry products, Reporting 

and recordkeeping requirements, 

Seizures and forfeitures, Signs and 

symbols, Technical Assistance, 

Transportation. 

For the reasons set forth in the 

preamble, FSIS is proposing to amend 9 

CFR parts 318 and 381 as follows: 

PART 318—ENTRY INTO OFFICIAL 

ESTABLISHMENTS; REINSPECTION 

AND PREPARATION OF PRODUCTS 

■ 1. The authority citation for part 318 

continues to read as follows: 

Authority: 7 U.S.C. 138f, 450, 1901–1906; 

21 U.S.C. 601–695; 7 CFR 2.18, 2.53. 

■ 2. Section 318.12 is revised to read as 

follows: 

§ 318.12 Manufacture of uninspected, 

inedible products at official establishments. 

(a) Official establishments may 

manufacture pet food or similar 

uninspected, inedible products in areas 

where edible products also are 

produced, provided that the 

manufacture of uninspected, inedible 

products does not: 

(1) Adulterate edible products; 

(2) Create insanitary conditions in the 

official establishment whereby edible 

products may be adulterated; or 

(3) Prevent or interfere with 

inspection or other program tasks 

performed by FSIS personnel in the 

official establishment. 

(b) Pet food and similar uninspected, 

inedible products must be distinguished 

from edible products so as to avoid their 

distribution as human food. Pet food or 

similar uninspected, inedible products 

must be labeled or otherwise identified 

in accordance with § 325.11(d) of this 

subchapter. 

PART 381—POULTRY PRODUCTS 

INSPECTIONS REGULATIONS 

■ 3. The authority citation for part 381 

continues to read as follows: 

Authority: 7 U.S.C. 138f; 7 U.S.C. 450; 21 

U.S.C. 451–470; 7 CFR 2.18, 2.53. 

■ 4. Section 381.152 is revised to read 

as follows: 

§ 381.152 Manufacture of uninspected, 

inedible products at official establishments. 

(a) Official establishments may 

manufacture pet food or similar 

uninspected, inedible products in areas 

where edible products also are 

produced, provided that the 

manufacture of uninspected, inedible 

products does not: 

(1) Adulterate edible products; 

(2) Create insanitary conditions in the 

official establishment whereby edible 

products may be adulterated; or 

(3) Prevent or interfere with 

inspection or other program tasks 

performed by FSIS personnel in the 

official establishment. 

(b) The immediate container of 

uninspected, inedible products 

manufactured in an official 

establishment shall be conspicuously 

labeled so as to distinguish them from 

human food. 

Done in Washington, DC. 

Paul Kiecker, 

Acting Administrator. 

[FR Doc. 2018–16339 Filed 7–30–18; 8:45 am] 

BILLING CODE 3410–DM–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 41 

RIN 3038–AE61 

Position Limits and Position 

Accountability for Security Futures 

Products 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Proposed rule. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘CFTC’’ or 

‘‘Commission’’) is proposing to amend 

its position limits rules for security 

futures products (‘‘SFPs’’) by: Increasing 

the default level of equity SFP position 

limits, and modifying the criteria for 

setting a higher level of position limits 

and position accountability levels. In 

addition, the proposed amended 

position limit regulation would provide 

discretion to a designated contract 

market (‘‘DCM’’) to apply limits to either 

a person’s net position or a person’s 

position on the same side of the market. 

The Commission also proposes criteria 

for setting position limits on an SFP on 

other than an equity security, generally 

based on an estimate of deliverable 

supply. 

DATES: Comments must be received on 

or before October 1, 2018. 

ADDRESSES: You may submit comments, 

identified by RIN 3038–AE61 and 

‘‘Position Limits and Position 

Accountability for Security Futures 

Products,’’ by any of the following 

methods: 

• CFTC website: http://

comments.cftc.gov. Follow the 

instructions for submitting comments 

through the Comments Online process 

on the website. 

• Mail: Christopher Kirkpatrick, 

Secretary of the Commission, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street NW, Washington, DC 

20581. 

• Hand delivery/courier: Same as 

Mail above. 

Please submit your comments using 

only one method. 

All comments must be submitted in 

English, or if not, accompanied by an 

English translation. Comments will be 

posted as received to http://

www.cftc.gov. You should submit only 

information that you wish to make 

available publicly. If you wish the 

Commission to consider information 

that is exempt from disclosure under the 

Freedom of Information Act, a petition 

for confidential treatment of the exempt 

information may be submitted according 

to the procedures set forth in section 

145.9 of the Commission’s regulations.1

The Commission reserves the right, 

but shall have no obligation, to review, 

pre-screen, filter, redact, refuse or 

remove any or all of your submission 

from http://www.cftc.gov that it may 

deem to be inappropriate for 

publication, such as obscene language. 

All submissions that have been redacted 

or removed that contain comments on 

the merits of the rulemaking will be 

retained in the public comment file and 

will be considered as required under the 

Administrative Procedure Act and other 


daltland on DSKBBV9HB2PROD with PROPOSALS
36800 Federal Register / Vol. 83, No. 147 / Tuesday, July 31, 2018 / Proposed Rules 

2See section 251(a) of the CFMA. This trading 

previously was prohibited by 7 U.S.C. 2(a)(1)(B)(v). 

3See 7 U.S.C. 1a(35) for the definition of 

‘‘narrow-based security index.’’ 

4The term ‘‘security futures product’’ is defined 

in section 1a(45) of the CEA and section 3(a)(56) of 

the Exchange Act to mean a security future or any 

put, call, straddle, option, or privilege on any 

security future. The term ‘‘security future’’ is 

defined in section 1a(44) of the CEA and section 

3(a)(55)(A) of the Exchange Act to include futures 

contracts on individual securities and on narrowbased security indexes. The term ‘‘narrow-based 

security index’’ is defined in section 1a(35) of the 

CEA and section 3(a)(55)(B) of the Exchange Act. 

5See 7 U.S.C. 2(a)(1)(D)(i). 

6 7 U.S.C. 2(a)(1)(D)(i)(VII). 

7See Listing Standards and Conditions for 

Trading Security Futures Products, proposed rules, 

66 FR 37932, 37933 (July 20, 2001) (‘‘2001 Proposed 

SFP Rules’’). The Commission further noted, ‘‘The 

speculative position limit level adopted by a [DCM] 

should be consistent with the obligation in section 

2(a)(1)(D)(i)(VII) of the CEA that the [DCM] 

maintain procedures to prevent manipulation of the 

price of the [SFP] and the underlying security or 

securities.’’ Id. at 37935. 

8See Listing Standards and Conditions for 

Trading Security Futures Products, 66 FR 55078, 

55082 (November 1, 2001) (‘‘2001 Final SFP 

Rules’’). 

9 17 CFR 41.25(a)(3)(i). The 13,500 limit level is 

premised on an SFP contract size of 100 shares of 

an underlying equity security. 

10 17 CFR 41.25(a)(3)(i)(A). 

11 17 CFR 41.25(a)(3)(i)(B). 

12 Id. 

13 Id. 

14Although part 150 previously provided 

requirements for exchange-set position limits, it 

was rendered ‘‘mere guidance’’ by the CFMA. See, 

e.g., 81 FR 96704, 96742 (Dec. 30, 2016); see also 

74 FR 12178, 12183 (March 23, 2009) (noting ‘‘the 

part 150 rules essentially constitute guidance for 

DCMs administering position limits regimes’’). 

15The Commission understands that ‘‘gross’’ in 

this context means on the same side of the market, 

as discussed infra. 

16 2001 Final SFP Rules at 55081. 

17 Id. at 55082. 

18See infra discussion regarding part 150 of the 

Commission’s regulations. 

19 2001 Final SFP Rules at 55082. 

20Although DCMs may adopt for certain SFPs 

position accountability provisions with an 

accountability level of 22,500 (100-share) SFP 

contracts, in lieu of position limits, the analogous 

security option is subject to a position limit likely 

applicable laws, and may be accessible 

under the Freedom of Information Act. 

FOR FURTHER INFORMATION CONTACT: 

Thomas M. Leahy, Jr., Associate 

Director, Product Review, Division of 

Market Oversight, 202–418–5278, 

TLeahy@cftc.gov; or Riva Spear 

Adriance, Senior Special Counsel, Chief 

Counsel’s Office, Division of Market 

Oversight, 202–418–5494, radriance@

cftc.gov; Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street NW, Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Overview 

On December 21, 2000, the 

Commodity Futures Modernization Act 

(‘‘CFMA’’) became law and amended the 

Commodity Exchange Act (‘‘CEA’’). The 

CFMA removed a long-standing ban 2 on 

trading futures on single securities and 

narrow-based security indexes 3 in the 

United States. As amended by the 

CFMA, in order for a DCM to list SFPs,4

the SFPs and the securities underlying 

the SFPs must meet a number of 

criteria.5 One of the criteria requires that 

trading in the SFP is not readily 

susceptible to manipulation of the price 

of such SFP, nor to causing or being 

used in the manipulation of the price of 

any underlying security, option on such 

security, or option on a group or index 

including such securities.6

As the Commission noted when it 

proposed to adopt criteria for trading of 

SFPs: 

It is important that the listing standards 

and conditions in the CEA and the 

[Securities Exchange Act of 1934 (‘‘Exchange 

Act’’)] be easily understood and applied by 

[DCMs]. The rules proposed today address 

issues related to these standards and 

establish uniform requirements related to 

position limits, as well as provisions to 

minimize the potential for manipulation and 

disruption to the futures markets and 

underlying securities markets.7

Among those provisions is current 

Commission regulation 41.25(a)(3), 

which requires a DCM that lists SFPs to 

establish position limits or position 

accountability standards. The 

Commission’s SFP position limits 

regulations were set at levels that are 

generally comparable but not identical 

to the limits that currently apply to 

options on individual securities.8

Under the existing regulations, a DCM 

is required to establish for each SFP a 

position limit, applicable to positions 

held during the last five trading days of 

an expiring contract month, of no 

greater than 13,500 (100-share) 

contracts, except under specific 

conditions.9 If a security underlying an 

SFP has either (i) an average daily 

trading volume of at least 20 million 

shares; or (ii) an average daily trading 

volume of at least 15 million shares and 

at least 40 million shares outstanding, 

then the DCM may establish a position 

limit for the SFP of no more than 22,500 

contracts.10 A DCM may adopt position 

accountability for an SFP on a security 

that has: (i) An average daily trading 

volume of at least 20 million shares; and 

(ii) at least 40 million shares 

outstanding.11 Under any position 

accountability regime, upon a request 

from a DCM, traders holding a position 

of greater than 22,500 contracts, or such 

lower threshold as specified by the 

DCM, must provide information to the 

exchange regarding the nature of the 

position.12 Under position 

accountability, traders must also 

consent to halt increases in the size of 

their positions upon the direction of the 

DCM.13 The position limits and position 

accountability trigger levels specified in 

the Commission’s regulations are based 

on a contract size of 100 shares in the 

underlying security. DCMs may use part 

150 of the Commission’s regulations as 

guidance when approving exemptions 

from SFP position limit rules.14

B. Differences Between Initially Adopted 

SFP and Equity Option Position Limit 

Rules 

In response to the 2001 Proposed SFP 

rules, three commenters noted several 

differences between the SFP position 

limit regulations and position limit 

rules for equity security options listed 

on national security exchanges or 

associations (‘‘NSE’’) approved by the 

Securities and Exchange Commission 

(‘‘SEC’’): (1) The specification that 

position limits for SFPs are on a net, 

rather than a gross,15 basis; (2) the 

numerical limits on SFPs differ from 

those on security options; and (3) the 

position limits for SFPs are applicable 

only during the last five trading days 

prior to expiration, rather than at any 

time in the lifespan of a security option 

contract.16 Commenters also requested 

that the Commission coordinate with 

the SEC so that the SFP position limit 

regulations are the same as those 

applicable to security and securities 

index options, or, alternatively, that 

such position limit regulations more 

closely resemble existing limits on 

security and securities index options.17

The Commission noted that the 

provisions in Commission regulation 

41.25(a)(3) as finalized were consistent 

with the Commission’s customary 

approach for all other futures markets,18

were necessary to effectively oversee the 

markets, and were consistent with the 

obligation of a DCM to prevent 

manipulation of the price of an SFP and 

its underlying security or securities.19

There was one other difference 

between the position limit rules for 

SFPs and security options, on which no 

one commented. Specifically, the 

volume test adopted by the Commission 

for position limits on SFPs was based on 

average trading volume over a sixmonth period while the volume test for 

security options was based on total 

trading volume over a six-month period. 

This difference typically results in 

position limits for SFPs that are more 

restrictive than those on analogous 

security options.20


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Federal Register / Vol. 83, No. 147 / Tuesday, July 31, 2018 / Proposed Rules 36801 

to be set at a level of 250,000 (100-share) option 

contracts, as shown below in Table A. 

21 7 U.S.C. 2(a)(1)(D)(i)(III). 

22 7 U.S.C. 2(a)(1)(D)(v)(I). 

23See Joint Order Granting the Modification of 

Listing Standards Requirements under section 6(h) 

of the Securities Exchange Act of 1934 and the 

Criteria under section 2(a)(1) of the Commodity 

Exchange Act, August 20, 2001 https://

www.sec.gov/rules/other/34-44725.htm. 

24See 67 FR 42760 (June 25, 2002). 

25See 17 CFR 41.21(a)(2)(iii) (providing that the 

underlying security of an SFP may include a note, 

bond, debenture, or evidence of indebtedness); see 

also 71 FR 39534 (July 13, 2006) (describing debt 

securities to include notes, bonds, debentures, or 

evidences of indebtedness). 

26See, e.g., the Cboe Exchange, Inc. (‘‘Cboe’’) rule 

4.11, Nasdaq ISE, LLC (‘‘ISE’’) rule 412, NYSE 

American LLC (‘‘NYSE American’’) rule 904, 

Nasdaq PHLX LLC (‘‘Phlx’’) rule 1001. 27See, e.g., 73 FR 10076 (February 25, 2008) 

(granting permanent approval of an increase in 

position and exercise limits for equity security 

options). 28 Id. at 10076–77. 29For example, Cboe applies limits to an 

aggregate position in an option contract ‘‘of the put 

type and call type on the same side of the market.’’ 

Cboe rule 4.11. For this purpose, under the rule, 

long positions in put options are combined with 

short positions in call options; and short positions 

in put options are combined with long position in 

call options. 30NSEs have established position limits higher 

than shown in Table A for certain security options 

on products with broad-based holdings of 

underlying securities; for example, the Cboe 

position limit in the DIAMONDS Trust option is 

300,000 contracts, iShares Russell 2000 Index Fund 

option is 500,000 contracts, PowerShares QQQ 

Trust option is 900,000 contracts, and iShares MSCI 

Emerging Markets Index Fund option is 500,000 

contracts. Similarly, BOX Options Exchange, Inc., 

Cboe, Nasdaq ISE, LLC, Nasdaq PHLX, LLC, NYSE 

American, LLC, and NYSE Arca, Inc. all recently 

adopted position limits for security options on the 

Standard and Poor’s Depositary Receipts Trust that 

are 1,800,000 contracts. See, e.g., 83 FR 28274 (June 

18, 2018) (allowing the SPY Pilot Program to 

terminate and making immediately effective the 

new limit). 

31See, e.g., Cboe rule 4.12, ISE rule 414, NYSE 

American rule 905, and Phlx rule 1001. 

C. Subsequent Developments in SFP 

Position Limit Regulations 

Since the 2001 Final SFP Rules, the 

Commission’s SFP position limit 

regulations have not been substantively 

amended to account for SFPs on 

securities other than common stock, 

although the statute authorizes it. CEA 

section 2(a)(1)(D)(i) authorizes DCMs to 

list for trading SFPs based upon 

common stock and such other equity 

securities as the Commission and the 

Securities and Exchange Commission 

jointly determine appropriate.21 The 

CFMA further authorized the 

Commission and the SEC (collectively 

‘‘Commissions’’) to allow SFPs to be 

based on securities other than equity 

securities.22 The Commissions used 

their authority to allow SFPs on 

Depositary Receipts; 23 Exchange Traded 

Funds, Trust Issued Receipts and Closed 

End Funds; 24 and debt securities.25

D. Subsequent Equity Security Option 

Position Limit Increases 

Since the Commission’s initial 

adoption of SFP position limits, the SEC 

has granted approval to increase 

position limits for equity security 

options listed on NSEs, but the 

Commission has not amended its SFP 

regulations to reflect those changes. For 

example, under current position limits 

for equity security options that are 

uniform across rules of NSEs,26 position 

limits are at least 25,000 option 

contacts.27 Also, as noted above, NSEs 

set higher levels based on six-month 

total trading volume or, alternatively, a 

combination of six-month total trading 

volume and shares outstanding, as 

shown in Table A.28

TABLE A—NSE EQUITY SECURITY OPTION POSITION LIMITS

[As of Dec. 6, 2017] 

Option contract limit 

(100 shares/contract) 

Six-month total trading volume is 

at least: 

Or, if six-month total trading volume and shares currently outstanding 

are at least: 

Trading volume 

(shares) 

Trading volume 

(shares) Shares outstanding 

25,000 ............................................ Default .......................................... Default .......................................... Default. 

50,000 ............................................ 20 million ...................................... 15 million ...................................... 40 million. 

75,000 ............................................ 40 million ...................................... 30 million ...................................... 120 million. 

200,000 .......................................... 80 million ...................................... 60 million ...................................... 240 million. 

250,000 .......................................... 100 million .................................... 75 million ...................................... 300 million. 

Each equity security option contract 

limit is applicable on a gross basis to 

option positions on both sides of the 

market.29 The NSEs permit certain 

exemptions, including for qualified 

hedging transactions and positions and 

for facilitation of orders with customers. 

Generally, limits for options on 

registered investment companies, 

organized as open-end management 

companies, unit investment trusts or 

similar entities, are the same as the 

positions limits applicable to equity 

options.30

In addition to position limits under 

NSE rules, NSEs establish uniform 

exercise limits for the aggregate exercise 

of a long position in any option contract 

within any five consecutive business 

days, generally at the levels of the 

applicable position limits.31 This 

exercise limit may serve to reduce the 

potential for manipulation (such as a 

squeeze on short option position 

holders) by restricting the number of 

shares demanded for delivery by a long 

call option position holder, in a similar 

manner to a DCM’s position limit, under 

current Commission regulation 

41.25(a)(3), thus restricting the number 

of shares that may be demanded during 

the last five days of trading. 

E. Commission’s Position Limit 

Approach in Other Commodity Futures 

The Commission’s customary 

approach for position limits in futures 

contracts other than SFPs is found in 

part 150 of the Commission’s 

regulations, which establishes a position 

limits regime that generally includes 

three components: (1) The level of the 

limits, which sets a threshold that 

restricts the number of speculative 

positions that a person may hold in the 

spot-month, individual month, and all 

months combined; (2) exemptions for 

positions that constitute bona fide 

hedging transactions and certain other 

types of transactions; and (3) rules to 

determine which accounts and positions 

a person must aggregate for the purpose 

of determining compliance with the 

position limit levels. For exchange-set 

position limits, on physically-delivered 

contracts, the spot month limit level 

should be no greater than one-quarter of 

the estimated spot month deliverable 

supply, calculated separately for each 

month to be listed, and for cash settled 

contracts, the spot month limit level 

should be no greater than necessary to 

minimize the potential for manipulation 


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36802 Federal Register / Vol. 83, No. 147 / Tuesday, July 31, 2018 / Proposed Rules 

32See 17 CFR 150.5(b)(1); see also supra note 14. 

33For example, the price of a long call option 

with a strike price well below the prevailing market 

price of the underlying security is expected to move 

almost in lock step with the price of a long SFP on 

the same underlying security. Similarly, the price 

of a long put option with a strike price well above 

the prevailing market price of the underlying 

security is expected to move almost in lock step 

with the price of a short SFP on the same 

underlying security. 

34As the Commission notes above, commenters 

also requested that the SFP position limit 

regulations be the same as those applicable to 

security and securities index options, or, 

alternatively, that such position limit regulations 

more closely resemble existing limits on security 

and securities index options. See supra note 17 and 

accompanying text. 

35See 2001 Final SFP Rules at 55082. The 

approach NSEs may use to set an equity option’s 

position limit is not consistent with existing 

Commission policy and may, in the Commission’s 

opinion, as noted previously, render position limits 

ineffective. 

36See infra regarding proposed guidance on 

estimated deliverable supply. 

37The current criteria for a level higher than 

13,500 100-share contracts are six-month average 

daily trading volume in the underlying security 

exceeds 20 million shares, or exceeds 15 million 

shares and there are more than 40 million shares 

of the underlying security outstanding. 

38The SFP definition permits the listing of SFPs 

on debt securities (other than exempted securities). 

See supra note 22 and accompanying text. While an 

SFP may not be listed on a debt security that is an 

exempted security, futures contracts may be listed 

on an exempted security. See infra note 69 and 

accompanying text. 

39The Commission notes that, although it has not 

proposed an aggregation rule that would define 

‘‘person’’ for purposes of SFP position limits, 

current 17 CFR 150.5(g) provides guidance to DCMs 

in setting aggregation standards for exchange-set 

position limits. The Commission believes a DCM 

should have reasonable discretion to set aggregate 

standards based on a person’s control or ownership 

of SFP positions, including in the same manner as 

that of an NSE for equity security options. 

or distortion of the contract’s or the 

underlying commodity’s price.32

II. The Proposal 

A. Overview 

The Commission notes that SFPs and 

security options may serve 

economically equivalent or similar 

functions.33 As noted above, when 

adopted, the Commission’s SFP position 

limits regulations were set at levels that 

are generally comparable but not 

identical to the limits that currently 

apply to options on individual 

securities. However, over time, while 

the default level for position limits for 

SFPs did not change, those of security 

options on the same security have in 

some cases changed, allowing the 

position limit for the security option, as 

observed above, to be set at a much 

higher default level. This may place 

SFPs at a competitive disadvantage. One 

goal of this proposal, therefore, is to 

provide a level regulatory playing 

field.34

When determining appropriate limit 

levels, the Commission took note of the 

experience of NSEs over several years 

with higher position limit levels on 

security options, with no apparent 

significant issues, suggesting, therefore, 

that it may be reasonable for SFP 

position limits to closely resemble 

existing contract limits for equity 

options at NSEs. To allow DCMs to 

adapt as NSE position limits change, the 

current draft would be flexible, 

providing a formula for a DCM to set a 

higher level, rather than the specific 

levels in a current rule of an NSE. 

However, as has been noted, some 

aspects of the position limits regime 

under current Commission regulation 

41.25 differ from those on security 

options as the Commission determined 

certain approaches were necessary to 

effectively oversee the markets, and 

consistent with the obligation of a DCM 

to prevent manipulation of the price of 

an SFP and its underlying security or 

securities.35 In light of its experience 

since the first adoption of a position 

limits regime for SFPs in 2001, the 

Commission believes in the merit of 

updating Commission regulation 41.25 

under an incremental approach, for 

example, by providing DCMs with 

discretion to increase limits, generally 

consistent with those currently 

permitted for equity options listed by an 

NSE, while allowing the Commission to 

assess the impact on SFP markets. 

The Commission proposes to 

maintain the requirement in current 

Commission regulation 41.25(a)(3) that 

DCMs establish position limits or, in 

certain cases, accountability standards 

for SFPs. The proposal would increase 

the default level for speculative position 

limits in SFPs in equity securities to 

25,000 100-share contracts (or the 

equivalent if the contract size is 

different than 100 shares per contract) 

from 13,500 100-share contracts. The 

proposal would change the criterion 

that DCMs use to set higher levels of 

speculative position limits to no more 

than 12.5 percent of the estimated 

deliverable supply 36 of the relevant 

underlying security, from no greater 

than 22,500 100-share contracts if 

certain criteria are met in current 

Commission regulation 41.25(a)(3)(i).37

The proposed 12.5 percent criterion is 

discussed further below. In this regard, 

the Commission believes that exchangeset position limits for SFPs based on 

estimated deliverable supply would 

provide flexibility to DCMs while 

ensuring that position limits 

appropriately reflect current market 

conditions for the specific securities 

that underlie their SFPs. 

The Commission also proposes to 

amend the position accountability 

provisions so that a DCM could 

substitute position accountability for 

position limits when six-month total 

trading volume in the underlying 

security exceeds 2.5 billion shares and 

there are more than 40 million shares of 

estimated deliverable supply, rather 

than the current criteria of six-month 

average daily trading volume in the 

underlying security exceeds 20 million 

shares and there are more than 40 

million outstanding shares. In addition, 

the maximum accountability level 

under the position accountability 

regime would be increased to 25,000 

contracts, from the current level of 

22,500 contracts. 

This proposal also addresses SFPs 

based on products other than a single 

equity security. As discussed below, 

these products are a physicallydelivered basket equity SFP, a cashsettled equity index SFP, and an SFP on 

one or more debt securities.38

The Commission proposes to 

maintain the provision that requires 

position limits to be applied during a 

period of time of no shorter than the last 

five trading days in an expiring contract 

month. However, the proposed 

regulation would require a longer period 

than five trading days in the event the 

terms of an SFP provide for delivery 

prior to the last five trading days. 

The Commission proposes that a DCM 

should have discretion to apply position 

limits or position accountability levels 

either on a net basis, as under current 

regulations, or on the same side of the 

market.39 If a DCM imposes limits on 

the same side of the market, then the 

DCM could not net positions in SFPs in 

the same security on opposite sides of 

the market. 

This proposal permits DCMs to 

approve exemptions to limits, provided 

such exemptions are consistent with the 

guidance in current Commission 

regulation 150.5, which addresses 

exchange-set position limits, rather than 

consistent with current Commission 

regulation 150.3, which addresses 

exemptions to Commission-set position 

limits. In addition, the proposal permits 

DCMs to approve exemptions consistent 

with those of an NSE. 

Under this proposal, DCMs would be 

required to calculate estimated 

deliverable supply and six-month total 

trading volume no less frequently than 

semi-annually, rather than the monthly 

requirement under the current 

regulations. The proposal requires that a 

DCM lower the position limit levels if 

the estimated deliverable supply 


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40 In connection with adding the definitions into 

a new paragraph (a), paragraphs (a) through (d) 

would be re-designated as paragraphs (b) through 

(e). 

41Under CEA section 2(a)(1)(D)(iii)(II), the CFTC 

and SEC may, by Order, jointly determine to permit 

the listing of options on SFPs; that authority has not 

been exercised. 

42Core Principle 3, 7 U.S.C. 7(d)(3), provides that 

DCMs shall list only contracts that are not readily 

susceptible to manipulation, while Core Principle 5, 

7 U.S.C. 7(d)(5), provides for the adoption of 

position limits and position accountability, as is 

necessary and appropriate, to deter the threat of 

manipulation. Moreover, 7 U.S.C. 2(a)(1)(D)(i)(VII) 

and 17 CFR 41.22(f) require that trading in an SFP: 

(i) Be not readily susceptible to manipulation of the 

SFP; or (ii) cause the manipulation of any 

underlying security, an option on such security, or 

an option on a group or index including such 

security or securities. 

43For example, the price of a long call option 

with a strike price well below the prevailing market 

price of the underlying security is expected to move 

almost in lock step with the price of a long SFP on 

the same underlying security. Similarly, the price 

of a long put option with a strike price well above 

the prevailing market price of the underlying 

security is expected to move almost in lock step 

with the price of a short SFP on the same 

underlying security. 

44See current Cboe rule 4.11. 

justifies lower position limits. Similarly, 

the proposal requires that a DCM adopt 

position limits if the estimated 

deliverable supply or six-month total 

trading volume no longer supports 

position accountability provisions. 

Finally, as discussed further below, 

these proposed regulations provide the 

definitions for ‘‘estimated deliverable 

supply and ‘‘same side of the market’’, 

terms used in Commission regulation 

41.25, by adding those definitions into 

a new paragraph (a).40

B. Section-by-Section Discussion 

1. Commission Regulation 41.25(a), 

Definitions 

The proposal includes two definitions 

used in Commission regulation 41.25: 

Estimated deliverable supply; and same 

side of the market. These definitions are 

included in new paragraph (a). 

Estimated deliverable supply is 

defined under the proposal as the 

quantity of the security underlying a 

security futures product that reasonably 

can be expected to be readily available 

to short traders and salable by long 

traders at its market value in normal 

cash marketing channels during the 

specified delivery period. The proposal 

provides guidance for estimating 

deliverable supply in proposed 

appendix A to subpart C of part 41, as 

discussed below. 

The proposal defines same side of the 

market to mean long positions in 

physically-delivered security futures 

contracts and cash settled security 

futures contracts, in the same security, 

and, separately, short positions in 

physically-delivered security futures 

contracts and cash settled security 

futures contracts, in the same security. 

The Commission invites comment on 

whether it should also include options 

on security futures contracts in this 

definition, although options on SFPs are 

not currently permitted to be listed.41

Generally, a long call and a short put, 

on a futures equivalent basis, would be 

aggregated with a long futures contract; 

and a short call and a long put, on a 

futures equivalent basis, would be 

aggregated with a short futures contract. 

2. Commission Regulation 41.25(b)(3), 

Position Limits or Accountability Rules 

Required 

As with current Commission 

regulation 41.25(a)(3), under this 

proposal, the paragraph, as redesignated regulation 41.25(b)(3), would 

continue to require a DCM to establish 

position limits or position 

accountability rules in each SFP for the 

expiring futures contract month. 

3. Commission Regulation 41.25(b)(3)(i), 

Limits for Equity SFPs 

Proposed changes to regulation 

41.25(a)(3)(i), re-designated as 

regulation 41.25(b)(3)(i), would increase 

the default level of position limits in an 

equity SPF to no greater than 25,000 

100-share contracts (or the equivalent if 

the contract size is different than 100 

shares per contract), either net or on the 

same side of the market, from the 

existing regulation’s default level of no 

greater than 13,500 100-share contracts 

on a net basis. The default level of 

25,000 100-share contracts is equal to 

2,500,000 shares. The Commission notes 

that 12.5 percent of 20 million shares 

equals 2,500,000 shares. Thus, for an 

equity security with less than 20 million 

shares of estimated deliverable supply, 

the default position limit level for the 

equity SFP would be larger than 12.5 

percent of estimated deliverable supply. 

While a DCM could adopt the default 

position limit for SFPs in equity 

securities with fewer than 20 million 

shares, consistent with a position limit 

applicable to an option on that security, 

the Commission would expect a DCM to 

assess the liquidity of trading in the 

underlying security to determine 

whether the DCM should set a lower 

position limit level, as appropriate to 

ensure compliance with DCM Core 

Principles 3 and 5. In this regard, the 

Commission seeks comment on whether 

it should provide greater specificity 

with respect to this liquidity assessment 

and whether there are circumstances 

where the position limit level should be 

set lower than 25,000 100-share 

contracts (for example, no greater than 

12.5 percent of estimated deliverable 

supply).42

The Commission notes that minimum 

position limits for equity security option 

positions on NSEs are 25,000 100-share 

option contracts on the same side of the 

market. Thus, the proposal would allow 

a DCM to coordinate the default 

position limit level for SFPs to that of 

an equity option traded on a NSE. 

Accordingly, as previously requested by 

commenters in the context of the 

CFTC’s adoption of its current SFP 

position limit requirements, this 

proposed default level for SFP limits 

would closely resemble existing 

minimum limit levels on security 

options. 

As noted above, SFPs and security 

options may serve economically 

equivalent or similar functions.43

However, under current Commission 

regulation 41.25(a)(3), as previously 

detailed, the default level for position 

limits for SFPs must be set no greater 

than 13,500 (100-share) contracts, while 

security options on the same security 

may be, and currently are, set at a much 

higher default level of 25,000 

contracts,44 which may place SFPs at a 

competitive disadvantage. Closer 

coordination of limit levels is intended 

to provide a level regulatory playing 

field. 

However, because limit levels would 

not apply to a market participant’s 

combined position between SFPs and 

security options, the Commission is not 

proposing a default limit level for an 

SFP higher than 12.5 percent of 

estimated deliverable supply. That is, 

under the proposal, a market participant 

with positions at the limits in each of an 

SFP and a security option on the same 

underlying security might be equivalent 

to about 25 percent of estimated 

deliverable supply, which is at the outer 

bound of where the Commission has 

historically permitted spot month limit 

levels. The Commission invites 

comment on whether this proposed 

default level is appropriate. 

The proposal would include, in the 

requirements for limits for equity SFPs, 

securities such as exchange trading 

funds (‘‘ETFs’’) and other securities that 

represent ownership in a group of 

underlying securities. The Commission 

requests comment on whether this is 

appropriate and invites further 

comment, below, in the discussion of 

estimated deliverable supply. 

This proposal would provide 

discretion to a DCM to apply position 

limits on a gross basis (‘‘on the same 

side of the market’’) or net basis, rather 

than the current regulation’s net basis. 


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45CEA section 2(a)(1)(D)(i)(VII) requires that 

trading in SFPs is not readily susceptible to 

manipulation of the price of the SFP, the SFP’s 

underlying security, or an option on the SFP’s 

underlying security. 

46Although no DCM currently lists both 

physically-delivered SFPs contracts and cashsettled SFP contracts for the same underlying 

security, and this concern may be theoretical, the 

Commission believes that providing clarity reduces 

uncertainty regarding netting in such 

circumstances, which may facilitate listing of such 

contracts in the future. Therefore, the Commission 

proposes to provide in 17 CFR 41.25(b)(3)(vii) that, 

for a DCM applying limits on a net basis, netting 

of physically-delivered contracts and cash settledcontracts in the same security is not permitted as 

it would render position limits ineffective. This 

concern is not applicable to a DCM applying limits 

on the same side of the market, as limits are applied 

separately to long positions and to short positions. 

47As noted above, the proposal would redesignate 17 CFR 41.25(a)(3)(i)(A) as 17 CFR 

41.25(b)(3)(i)(A). 

48 Generally, under CEA section 5(d)(1)(B), unless 

otherwise restricted by a Commission regulation, a 

DCM has reasonable discretion in establishing the 

manner in which it complies with core principles, 

including Core Principle 5 regarding position limits 

or position accountability. See 7 U.S.C. 7(d)(1) and 

(5). 

49Under current 17 CFR 41.25(a)(3)(i)(A), for 

example, a DCM may adopt a net position limit no 

greater than 22,500 shares, provided the six-month 

average daily trading volume exceeds 15 million 

shares and there are more than 40 million shares 

of the security outstanding. The Commission notes 

that almost all stocks with at least 40 million shares 

outstanding also had a six-month average trading 

volume of at least 15 million shares. Thus, the 

current trading volume criterion generally is not a 

meaningful restriction. 

50 17 CFR 150.5(c). 

51See supra discussion of the impact of the 

CFMA on part 150; see also 74 FR 12177 at 12183 

(March 23, 2009). 

52 17 CFR 150.5(c)(1). 

For example, if there were a physicallydelivered SFP on equity XYZ, a 

dividend-adjusted SFP on equity XYZ, 

and a cash-settled SFP on equity XYZ, 

then a DCM’s rules could provide that 

long positions held by the same person 

across each of these classes of SFP based 

on equity XYZ would be aggregated for 

the purpose of determining compliance 

with the position limit. A gross position 

in a futures contract is larger than a net 

position in the event a person holds 

positions on opposite sides of the 

market. That is, a net basis is computed 

by subtracting a person’s short futures 

position from that person’s long futures 

positions, and, under current 

regulations, a single position limit 

applies on a net basis to that net long 

or net short position. Under the 

proposal, at the discretion of a DCM, a 

person’s long futures position would be 

subject to the position limit and, 

separately, a person’s short futures 

position also would be subject to the 

position limit. As previously requested 

by commenters, adding this proposed 

gross basis approach (in addition to net 

basis) to SFP limits would more closely 

resemble existing limits on security 

options that apply on the same side of 

the market per the rules of the NSEs. A 

DCM that elects to implement limits on 

a gross basis would be providing its 

market participants with the same 

metric for position limit compliance as 

is currently the case on NSEs, which 

may reduce compliance costs and 

encourage cross-market participation. 

However, limits on a gross basis may be 

more restrictive than limits on a net 

basis, which could reduce the position 

sizes that may be held, without an 

applicable exemption. 

In addition, the Commission would 

continue to permit DCMs to apply limits 

on a net basis at the DCM’s discretion. 

In this regard, the Commission believes 

it is possible for a DCM’s application of 

limits to further the goals of the CEA 

whether applied on a net or a gross 

basis.45 This would be true, for example, 

if a DCM applied limits on a net basis 

and did not permit netting of 

physically-delivered contracts with cash 

settled contracts. But if, instead, the 

DCM permitted netting of physicallydelivered contracts and cash settled 

contracts in the same security, it would 

render position limits ineffective.46 For 

example, a person should not be 

permitted to avoid limits by obtaining a 

large long position in a physicallydelivered contract (which could be used 

to corner or squeeze) and a similarly 

large short position in a cash settled 

contract that would net to zero. 

4. Commission Regulation 

41.25(b)(3)(i)(A), Higher Position Limits 

in Equity SFPs 47

For an SFP based on an underlying 

security with an estimated deliverable 

supply of more than 20 million shares, 

the proposal would permit a DCM to set 

a higher limit level based on 12.5 

percent of the estimated deliverable 

supply of the underlying security, if 

appropriate in light of the liquidity of 

trading in the underlying security. By 

way of example, if the estimated 

deliverable supply were 40 million 

shares, then the proposed regulation 

would permit a DCM to set a limit level 

of no greater than 50,000 100-share 

contracts; computed as 40 million 

shares times 12.5 percent divided by 

100 shares per contract. 

This level of 50,000 100-share 

contracts is the same as permitted under 

current rules of NSEs for an underlying 

security with 40 million shares 

outstanding, although an NSE would 

also require the most recent six-month 

trading volume of the underlying 

security to have totaled at least 15 

million shares. While this proposed 

provision for SFP position limits would 

more closely resemble existing limits on 

security options, the Commission is 

proposing to permit a DCM to use its 

discretion in assessing the liquidity of 

trading in the underlying security, 

rather than imposing a prescriptive 

trading volume requirement.48 The 

Commission preliminarily does not 

believe that trading volume alone is an 

appropriate indicator of liquidity.49 In 

this regard, the proposed regulation 

would permit a DCM to set a position 

limit at a level lower than 12.5 percent 

of estimated deliverable supply. The 

Commission invites comment on 

whether it is appropriate to provide a 

DCM with discretion in its assessment 

of liquidity in the underlying security, 

rather than the Commission imposing a 

liquidity requirement. Core Principle 5 

requires DCMs to adopt, as is necessary 

and appropriate, position limits to deter 

the adverse market impact of 

manipulation. The Commission invites 

comment on whether estimated 

deliverable supply alone serves as an 

adequate proxy for market impact. 

Although the Commission is 

proposing a criterion of 12.5 percent of 

estimated deliverable supply, the 

Commission expects a DCM to conduct 

a reasoned analysis as to whether setting 

a level for a limit based on such 

criterion is appropriate. In this regard, 

for example, assume security QRS and 

security XYZ have equal free float of 

shares. Assume, however, that trading 

in QRS is not as liquid as trading in 

XYZ. Under these assumptions, it may 

be appropriate for a DCM to adopt a 

position limit for XYZ equivalent to 

12.5 percent of deliverable supply, but 

to adopt a lower limit for QRS because 

a lesser number of shares would be 

readily available for shorts to make 

delivery. 

The Commission notes that the 

proposed criterion of 12.5 percent of 

estimated deliverable supply is half the 

level for DCM-set spot month 

speculative position limits in current 

Commission regulation 150.5(c),50

which, as previously noted, has been 

rendered ‘‘mere guidance’’ since the 

CFMA.51 That regulation provides that, 

for physically-delivered contracts, the 

spot month limit level should be no 

greater than one-quarter of the estimated 

spot month deliverable supply.52 The 

Commission is proposing a lower 

percent of estimated deliverable supply 

in light of current limits on equity 

security options listed at NSEs. In this 

regard, the proposal would result in SFP 

position limits that closely resemble the 

existing 25,000 and 50,000 contract 


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53For example, Cboe rules also permit a 50,000 

contract position limit based on the total most 

recent six-month trading volume of 20 million 

shares, without regard to shares outstanding. 

54As noted above, the proposal would redesignate 17 CFR 41.25(a)(3)(i)(B) as 17 CFR 

41.25(b)(3)(i)(B). 

55 20 million shares times 125 trading days in a 

typical six-month period equals 2.5 billion shares. 

In regards to total trading volume rather than 

average daily trading volume, the Commission 

notes that use of total trading volume is consistent 

with the rules of NSEs, which use six-month total 

trading volume in their criteria for setting position 

limits, as shown in Table A above. 

56Treasury stock means any shares that a 

company holds itself. Such treasury stock may be 

authorized by the corporate charter but not yet 

issued to the public or, in contrast, may have been 

previously issued to the public but was the subject 

of a stock repurchase program to buy back the 

shares from the public. 

57By way of comparison, under 17 CFR 15.03, the 

Commission’s reporting level for large traders 

(‘‘reportable position’’) is 1,000 contracts for 

individual equity SFPs and 200 contracts for 

narrow-based SFPs. Under 17 CFR 18.05, the 

Commission may request any pertinent information 

concerning such a reportable position. 

58The Commission notes that there is not a limit 

per se on the maximum number of securities in a 

narrow-based security index. Rather, under CEA 

section 1a(35), a narrow-based security index 

generally means, among other criteria, an index that 

Continued 

limits for equity options at NSEs, set 

when certain trading volume has been 

reached or a combination of trading 

volume and shares currently 

outstanding, as shown in Table A above. 

For example, a position at a 50,000 (100- 

share) option contract limit is 

equivalent to 5 million shares. 12.5 

percent of 40 million shares equals 5 

million shares; that is, the proposed 

criterion for a DCM to set a limit would 

be similar to that of the criteria for an 

NSE to set such a limit. Under this 

proposal, a similar 50,000 contract 

position limit on an SFP on such a 

security would be an increase from the 

22,500 contract limit currently 

permitted for such an SFP. The 

Commission believes the proposed 

incremental approach to increasing SFP 

limits is a measured response to changes 

in the SFP markets, while retaining 

consistency with the existing 

requirements for equity security options 

listed by NSEs. 

However, as noted above, SFPs and 

equity security options in the same 

underlying security are not subject to a 

combined position limit across DCMs 

and NSEs. Accordingly, the Commission 

is proposing a maximum SFP limit level 

that is half the guidance level for DCMset spot month futures contract limits of 

25 percent of estimated deliverable 

supply. 

Further, as shown in Table A above, 

the Commission notes that limits for 

equity security options at NSEs do not 

increase in a linear manner for all 

increases in shares outstanding; for 

example, upon a doubling of shares 

outstanding, the 100-share equity 

security option contract limit increases 

only to 75,000 contracts from 50,000 

contracts, while, under similar 

circumstances of a doubling of 

estimated deliverable supply, the 

Commission proposes to permit a linear 

increase for a SFP limit to 100,000 

contracts from 50,000 contracts. The 

Commission invites comments as to 

whether the proposed linear approach 

based on estimated deliverable supply is 

appropriate. 

Alternative Criteria for Setting Levels 

of Limits. As an alternative to the 

proposed criteria for setting position 

limit levels based on estimated 

deliverable supply, the Commission 

invites comments on whether the 

Commission should permit a DCM to 

mirror the position limit level set by an 

NSE in a security option with the same 

underlying security or securities as that 

of the DCM’s SFP. This alternative has 

the advantage of consistency in position 

limits across exchange-traded 

derivatives based on the same security. 

However, the Commission notes that 

NSEs may set an equity option’s 

position limit by the use of trading 

volume as a sole criterion. That 

approach is not consistent with existing 

Commission policy regarding use of 

estimated deliverable supply to support 

position limits in an expiring contract 

month, as stated in part 150 of the 

Commission’s regulations.53 The 

Commission notes that use of trading 

volume as a sole criterion for setting the 

level of a position limit could result in 

a position limit that exceeds the number 

of outstanding shares when the 

underlying security exhibits a very high 

degree of turnover. Such a resulting 

high limit level would render position 

limits ineffective. 

5. Commission Regulation 

41.25(b)(3)(i)(B), Position 

Accountability in Lieu of Limits 54

This proposal would continue to 

permit a DCM to substitute position 

accountability for a position limit in an 

equity SFP that meets two criteria. The 

proposal would require six-month total 

trading volume of at least 2.5 billion 

shares, which generally is equivalent to 

the current first criterion that six-month 

average daily trading volume in the 

underlying security must exceed 20 

million shares.55 The proposal would 

tighten the second criterion. Rather than 

require that the underlying security 

have more than 40 million shares 

outstanding, under the proposal the 

second criterion would require the 

underlying security to have more than 

40 million shares of estimated 

deliverable supply, which generally 

would be smaller than shares 

outstanding. This change conforms to 

the proposed use of estimated 

deliverable supply in setting a position 

limit. The Commission believes an 

appropriate refinement to its criterion 

for position accountability is to quantify 

those equity shares that are readily 

available in the market, rather than all 

shares outstanding. Generally, a short 

position holder may expect to obtain at 

or close to fair value shares that are 

readily available in the market and a 

long position holder may expect to sell 

such shares at or close to fair value. 

However, in contrast, shares that are 

issued and outstanding by a corporation 

may not be readily available in a timely 

manner, such as shares held by the 

corporation as treasury stock.56

Therefore, to ensure that position 

holders will generally be able to obtain 

equity shares at or close to fair value, 

the DCM should consider whether the 

shares are readily available in the 

market when estimating deliverable 

supply. 

In addition, the proposal would 

amend the accountability level to no 

greater than 25,000 contracts, either net 

or on the same side of the market, from 

22,500 contracts net, conforming to the 

proposed default position limit level. 

The Commission notes a DCM would be 

able to set a lower accountability level, 

should it desire. The Commission 

preliminarily believes it is appropriate 

to set a position accountability level no 

higher than 25,000 contracts because the 

Commission believes a DCM should 

have the authority, but not the 

obligation, to inquire with very large 

position holders and to order such 

position holders not to increase 

positions.57 The Commission 

preliminarily believes a maximum 

position accountability level of 25,000 

contracts is at the outer bounds for 

purposes of providing a DCM with 

authority to obtain information from 

position holders; for example, a position 

of 25,000 100-share contracts has a 

notional size of $125 million when the 

price of the underlying stock is $50 per 

share. 

6. Commission Regulation 

41.25(b)(3)(ii), Limits for PhysicallyDelivered Basket Equity SFPs 

This proposal would amend the 

existing position limits and position 

accountability provisions for a 

physically-delivered SFP comprised of 

more than one equity security 58 by 


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has 9 or fewer component securities; in which a 

component security comprises more than 30 

percent of the index’s weighting; in which the five 

highest weighted component securities in the 

aggregate comprise more than 60 percent of the 

index’s weight; or in which the lowest weighted 

component securities, comprising the lowest 25 

percent of the index’s weight, have an aggregate 

dollar value of average daily trading volume of less 

than $50 million. 

59This means that, under proposed 17 CFR 

41.25(b)(3)(i), the default level position limit would 

be no greater than 25,000 100-share contracts, 

unless the underlying equity security with the 

lowest estimated deliverable supply supports a 

higher level. 

60As noted above, as proposed, 17 CFR 

41.25(a)(3)(i)(A) and (B) would be re-designated as 

17 CFR 41.25(b)(3)(i)(A) and (B). 

61For example, assume the level of a simple 

price-weighted index is computed by adding the 

price of each equity security in the index and 

dividing by the number of different equity 

securities. For such a simple index, a given 

percentage change in the price of a company with 

a higher share price would have a greater impact 

on the index than a given percentage change in the 

price of a company with a lower share price. In 

such a circumstance, the Commission preliminarily 

believes the DCM should have discretion, in setting 

the position limit, to give consideration to the 

equity (or equities) with the greater weight(s) in the 

index, rather than only with regard to the equity 

with the lowest number of shares outstanding. 

62For example, the level of a value-weighted 

index will change in relation to the change in the 

market capitalization of each component equity 

security. In such a circumstance, a given percentage 

change in the market value of a higher capitalized 

company would have a greater impact on the index 

than a given percentage change in the market value 

of a lower capitalized company. In such a 

circumstance, the Commission preliminarily 

believes the DCM should have discretion, in setting 

the position limit, to give consideration to the 

equity (or equities) with the greater weight(s) in the 

index, rather than only with regard to the equity 

with the lowest number of shares outstanding. 

63As noted above, as proposed, 17 CFR 

41.25(a)(3) would be re-designated as 17 CFR 

41.25(b)(3). 

64American exercise style refers to the right of an 

option holder to exercise the option at any time 

prior to, and including, expiration. In contrast, a 

European exercise style option only can be 

exercised at expiration. 

65The proposal would re-designate 17 CFR 

41.25(a)(3)(iv) to 17 CFR 41.25(b)(3)(vi). 

basing the criteria on the underlying 

equity security with the lowest 

estimated deliverable supply, rather 

than the lowest average daily trading 

volume.59 Specifically, under the 

proposal, for an SFP on more than one 

security, the criteria in proposed 

regulations 41.25(b)(3)(i)(A) and (B) 60

would apply to the underlying security 

with the lowest estimated deliverable 

supply in the basket, with an 

appropriate adjustment to the level of 

the position limit or accountability level 

for a contract size different than 100 

shares per underlying security. 

The proposal is based on the premise 

that the limit on a physically-delivered 

basket equity SFP should be consistent 

with the most restrictive of each limit 

that would be applicable to SFPs based 

on each component of such basket of 

deliverable securities. This would 

restrict a person from obtaining a larger 

exposure to a particular security 

through a physically-delivered basket 

equity SFP, than could be obtained 

directly in a single equity SFP. 

However, this proposal would not 

aggregate positions in single equity SFPs 

with positions in basket deliverable 

SFPs. 

7. Commission Regulation 

41.25(b)(3)(iii), Limits for Cash-Settled 

Equity Index SFPs 

For setting levels of limits on an SFP 

comprised of more than one security, 

current Commission regulation 

41.25(a)(3)(ii) specifies certain criteria 

for trading volume and shares 

outstanding that must be applied to the 

security in the index with the lowest 

average daily trading volume. However, 

the Commission is not proposing to 

retain those criteria for setting levels of 

limits for cash-settled equity index SFPs 

for a number of reasons. For an equity 

index that is price weighted, it appears 

that use of shares outstanding or trading 

volume may result in an inappropriately 

restrictive level for a position limit.61

For an equity index that is value 

weighted, it also appears that such use 

may result in an inappropriately 

restrictive level for a position limit.62

The Commission observes that while 

trading volume, as an indicator of 

liquidity, may be an appropriate factor 

for a DCM to consider in setting position 

limits, trading volume is not generally 

used in construction of equity indexes. 

Proposed appendix A to subpart C 

provides guidance and acceptable 

practices for setting the limit level for a 

cash-settled equity index SFP, discussed 

below. However, as noted above, the 

proposal would continue to require a 

DCM, for cash-settled equity index 

SFPs, to establish position limits or 

position accountability rules in each 

SFP for the expiring futures contract 

month in the last five trading days of an 

expiring contract month. As also 

discussed above, the proposal provides 

discretion to a DCM to set such a limit 

either net or on the same side of the 

market. 

8. Commission Regulation 

41.25(b)(3)(iv), Limits for Debt SFPs 63

As previously detailed, for setting 

levels of limits on an SFP comprised of 

more than one security, current 

Commission regulation 41.25(a)(3)(ii) 

specifies certain criteria for trading 

volume and shares outstanding that 

must be applied to the security in the 

index with the lowest average daily 

trading volume. However, the 

Commission is not proposing to retain 

those criteria for setting levels of limits 

for debt SFPs because debt securities 

generally are neither issued in terms of 

shares nor trading volume measured in 

terms of shares. 

Proposed appendix A to subpart C 

provides guidance and acceptable 

practices for setting the limit level for a 

debt SFP, discussed below. This 

proposal would require a DCM to set a 

position limit on a debt SFP, either net 

or on the same side of the market, 

applicable to positions held during the 

last five trading days of an expiring 

contract month, as is the case for equity 

SFPs under the proposal. 

9. Commission Regulation 

41.25(b)(3)(v), Required Minimum 

Position Limit Time Period 

Although DCMs do not currently list 

SFPs where the product permits 

delivery before the close of trading, the 

Commission proposes that, for such a 

product, the DCM would be required to 

apply position limits beginning no later 

than the first day that long position 

holders may be assigned delivery 

notices, if such period is longer than the 

last five trading days of an expiring 

contract month. The Commission notes 

that the current DCM practice for other 

commodity futures contracts is to apply 

spot month position limits at the close 

of business before delivery notices are 

assigned to holders of long positions in 

futures contracts that provide for 

physical delivery prior to the close of 

trading. Further, this provision is 

analogous to provisions of NSEs that 

apply exercise limits for any five 

consecutive business days, applicable to 

American exercise style equity 

options.64

10. Commission Regulation 

41.25(b)(3)(vi), Requirements for ReSetting Levels of Position Limits 65

This proposal would require a DCM to 

consider, on at least a semi-annual 

basis, whether position limits were set 

at appropriate levels, through 

consideration of estimated deliverable 

supply. In the event that estimated 

deliverable supply has decreased, then 

a DCM would be required to lower the 

level of a position limit in light of that 

decreased deliverable supply. In the 

event that estimated deliverable supply 

has increased, then a DCM would have 

discretion to increase the level of a 

position limit. In addition, a DCM that 

has substituted a position accountability 

rule for a position limit would be 

required to consider whether estimated 

deliverable supply and total six-month 


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Federal Register / Vol. 83, No. 147 / Tuesday, July 31, 2018 / Proposed Rules 36807 

66For a general discussion of restricted and 

control securities, see https://www.sec.gov/ 

reportspubs/investor-publications/investorpubs

rule144htm.html. 

67An authorized participant generally is an 

institutional investor, such as a broker dealer, who 

acts to create or redeem ETF shares. The authorized 

participant buys shares that underlie the ETF and 

exchanges those underlying shares with the ETF 

sponsor for shares in the ETF, thus creating new 

ETF shares that it may sell to the public. An 

authorized participant may also purchase ETF 

shares in the market place and redeem those shares 

with the ETF sponsor, thus reducing the number of 

ETF shares outstanding. 

68An interest bearing bond may be structured in 

a conduit and divided into separate obligations, 

where the cash flow from the principal of the bond 

and the cash flow from each coupon may be sold 

as separate securities. Each such separate security 

is a zero-coupon security. 

69 In this regard, an exempted security refers to 

certain exempted securities under the Securities 

Act of 1933 or the Securities Exchange Act of 1934. 

See CEA section 2(a)(1)(C). 

trading volume continue to justify that 

position accountability rule. 

Current provisions require a DCM to 

calculate trading volume monthly. The 

Commission believes that review of 

position limit levels and position 

accountability rules on at least a semiannual basis rather than a monthly basis 

generally should be adequate to ensure 

appropriate levels because deliverable 

supply generally does not change to a 

great degree from month to month. For 

example, the number of shares 

outstanding may increase through 

periodic issuance of additional shares, 

and may decrease through stock 

repurchase programs, but, as a general 

observation, such issuance or 

repurchases are not a large percentage of 

free float. Of course, there could be 

situations where deliverable supply 

changes to a great degree before the 

semi-annual period and the rule does 

not prevent a DCM from considering 

those changes before such period. 

The Commission also proposes a 

technical change to the filing 

requirement whenever a DCM makes 

such changes to limit levels. While the 

proposal continues to provide that 

changes to limit levels be filed pursuant 

to the requirements of Commission 

regulation 41.24, it removes the 

superfluous provision in the current 

regulation that provides that the change 

be effective no earlier than the day after 

the DCM has provided notification to 

the Commission and to the public. 

Instead, the regulation simply cites to 

Commission regulation 41.24, which 

specifies that changes must be received 

by the Commission no later than the day 

prior to the implementation. 

11. Appendix A to Subpart C of Part 41, 

Guidance and Acceptable Practices for 

Position Limits and Position 

Accountability for SFPs 

Section (a), Guidance on Estimating 

Deliverable Supply. The proposal 

provides guidance for estimating 

deliverable supply. For an equity 

security, deliverable supply should be 

no greater than the free float of the 

security. For a debt security, deliverable 

supply should not include securities 

that are committed for long-term 

agreements (e.g., closed-end investment 

companies, structured products, or 

similar securities). 

Regarding the guidance for estimating 

deliverable supply for equity securities, 

free float of the security generally means 

issued and outstanding shares less 

restricted shares. Restricted shares 

include restricted and control securities, 

which are not registered with the SEC 

to sell in a public marketplace.66 The 

Commission requests comment on 

whether there are any other adjustments 

that should be made in estimating 

deliverable supply for equities. For 

example, should the guidance exclude 

from deliverable supply any equity 

shares held by ETFs, mutual funds, or 

similar investment vehicles? If so, how 

would such counts of shares be 

determined or estimated? 

Also regarding the guidance for 

estimating deliverable supply for equity 

securities, the Commission notes that 

authorized participants may increase 

the number of outstanding shares in an 

ETF.67 In setting a position limit for an 

ETF, the Commission has not proposed 

that DCMs look through the ETF to the 

lowest deliverable supply in an 

underlying security, as is the case in the 

proposal for limits for physicallydelivered basket equity SFPs. Rather, 

the Commission has proposed to restrict 

the estimate of deliverable supply in an 

ETF to existing shares of the ETF. As an 

alternative, the Commission requests 

comment on whether an estimate of 

deliverable supply for an ETF should 

include an allowance for the creation of 

ETF shares. If so, how would one 

estimate such an allowance? 

Section (b), Guidance on Setting 

Limits on Cash-Settled Equity Index 

SFPs. As noted above, the Commission 

is proposing guidance for setting limits 

on cash-settled equity index SFPs. This 

proposed guidance would permit a DCM 

to set the limit level for a cash-settled 

SFP on a narrow-based security index of 

equity securities to that of a similar 

narrow-based security index equity 

option listed on an NSE. As an 

alternative for setting the level based on 

that of a similar equity option, the 

proposal provides guidance and 

acceptable practices that would allow a 

DCM, in setting a limit, to consider the 

deliverable supply of securities 

underlying the equity index, and the 

equity index weighting and SFP 

contract multiplier. 

As an example of an acceptable 

practice, for a cash-settled equity index 

SFP on a security index weighted by the 

number of shares outstanding, a DCM 

could set a position limit as follows: 

First, compute the limit on an SFP on 

each underlying security under 

proposed regulation (b)(3)(i)(A) 

(currently designated as (a)(3)(i)(A)); 

second, multiply each such limit by the 

ratio of the 100-share contract size and 

the shares of the security in the index; 

and third, determine the minimum level 

from step two and set the limit to that 

level, given a contract size of one dollar 

times the index, or for a larger contract 

size, reduce the level proportionately. 

As the Commission is proposing for 

physically-delivered basket equity SFPs, 

the proposal is based on the premise 

that the limit on a cash-settled SFP on 

a narrow-based security index of equity 

securities should be as restrictive as the 

limit for an SFP based on the underlying 

security with the most restrictive limit. 

Section (c), Guidance on Setting 

Limits on Debt SFPs. The proposal 

would provide guidance that an 

appropriate level for limits on debt SFPs 

generally would be no greater than the 

equivalent of 12.5 percent of the par 

value of the estimated deliverable 

supply of the underlying debt security. 

The Commission notes that this 

approach is guidance because there may 

be other reasonable bases for setting 

levels of debt SFPs position limits and 

the Commission does not want to 

foreclose those bases. For example, a 

coupon stripped from an interest 

bearing corporate bond does not have a 

par value in terms of such corporate 

bond, but instead such coupon is the 

amount of interest due at the time the 

corporate issuer is scheduled to pay 

such coupon under the corporate bond 

indenture.68

Although no DCM currently lists an 

SFP based on a debt security, the 

Commission believes a framework for 

position limits may reduce uncertainty 

regarding acceptable practices for listing 

such contracts on non-exempted 

securities and, thereby, may facilitate 

listing of such contracts. The 

Commission notes that futures contracts 

in exempted securities, such as U.S. 

Treasury notes, have been listed for 

many years.69 The Commission is 

proposing 12.5 percent of the par value 

of the estimated deliverable supply of 

the underlying debt security as guidance 


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36808 Federal Register / Vol. 83, No. 147 / Tuesday, July 31, 2018 / Proposed Rules 

70 In addition to re-designating 17 CFR 41.25(a)(3) 

as 17 CFR 41.25(b)(3), the proposal would redesignate current 17 CFR 41.25(a)(3)(iii) to 

appendix A to subpart C. 

71 5 U.S.C. 601 et seq. 

72See Policy Statement and Establishment of 

Definitions of ‘‘Small Entities’’ for Purposes of the 

Regulatory Flexibility Act, 47 FR 18618, 18619 

(Apr. 30, 1982). 

73 44 U.S.C. 3501 et seq. 

74Regarding Security Futures Products (OMB 

Control No. 3038–0059), the Commission recently 

published a notice of a request for extension of the 

currently approved information collection. See 82 

FR 48496 (Oct. 18, 2017). 

75Similarly, the Commission previously 

determined that a rule expanding the listing 

standards for security futures did not require a new 

collection of information on the part of any entities. 

See 71 FR 39534 at 39539 (July 13, 2006) (adopting 

a rule to permit security futures to be based on 

individual debt securities or a narrow-based 

security index comprised of such securities). 

76 7 U.S.C. 19(a). 

on an appropriate basis based on the 

existing levels of limits for equity option 

contracts on NSEs. The Commission 

invites comment on whether a level 

based on par value is appropriate, or 

whether some other metric would be 

appropriate. 

Section (d), Guidance on Position 

Accountability. The Commission 

proposes, as guidance, that a DCM may 

adopt a position accountability rule for 

any SFP, including an SFP where a 

position limit is required or adopted. 

Under the proposal, a position 

accountability rule would provide, at a 

minimum, that the DCM have authority 

to obtain information from a market 

participant with a position at or above 

the accountability level and that the 

DCM have authority, in its discretion, to 

order such a market participant to halt 

increasing their position. The 

Commission notes that position 

accountability can work in tandem with 

a position limit rule, particularly where 

the accountability level is set at a low 

level, in comparison to the level of the 

position limit. Further, the Commission 

notes that a DCM may adopt a position 

accountability rule to provide authority 

to the DCM to order market participants 

to reduce position sizes, for example, to 

maintain orderly trading or to ensure an 

orderly delivery. 

Section (e), Guidance for 

Exemptions.70 The proposed regulation 

would continue to provide a DCM with 

discretion to grant exemptions to 

position limits. The proposal provides 

guidance that such exemptions may be 

consistent with current Commission 

regulation 150.5 regarding exchange-set 

position limits or consistent with rules 

of an NSE regarding securities option 

exemptions. This guidance differs from 

the provisions of the current regulation, 

which references Commission 

regulation 150.3 regarding federal 

position limits in certain physical 

commodity futures contracts. The 

Commission believes the guidance 

should reference exemption provisions 

applicable to exchange-set limits in 

Commission regulation 150.5, rather 

than federal limits, because the 

exemptions for federal limits are written 

largely in terms of the federal limits on 

physical commodity contracts in 

Commission regulation 150.2. 

III. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) 71 requires that federal agencies 

consider whether a proposed rule will 

have a significant economic impact on 

a substantial number of small entities 

and, if so, provide a regulatory 

flexibility analysis of the impact. The 

proposed amendments generally apply 

to exchange-set position limits. The 

proposed amendments would permit a 

DCM to increase the level of position 

limits for SFPs and may change the 

application of those limits from a 

trader’s net position to a trader’s gross 

position. The proposed amendments 

would affect DCMs. The Commission 

has previously established certain 

definitions of ‘‘small entities’’ to be used 

in evaluating the impact of its rules on 

small entities in accordance with the 

RFA, and has previously determined 

that DCMs are not small entities for 

purpose of the RFA.72

Therefore, the Commission believes 

that the amendments to the SFP 

position limits regulations would not 

have a significant economic impact on 

a substantial number of small entities. 

Accordingly, the Chairman, on behalf of 

the Commission, hereby certifies, 

pursuant to 5 U.S.C. 605(b), that the 

proposed amendments will not have a 

significant economic impact on a 

substantial number of small entities. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(‘‘PRA’’) 73 provides that a federal 

agency may not conduct or sponsor, and 

a person is not required to respond to, 

a collection of information unless it 

displays a currently valid control 

number issued by the Office of 

Management and Budget (‘‘OMB’’). The 

collection of information related to this 

proposed rule is OMB control number 

3038–0059—Security Futures 

Products.74 As a general matter, the 

proposed amendments to the SFP 

position limits regulation (1) permit a 

DCM to increase the level of limits; and 

(2) may change the application of 

exchange-set limits from a net basis to 

a gross basis. The Commission believes 

that the proposed amendments will not 

impose any new information collection 

requirements that require approval of 

OMB under the PRA. As such, the 

proposed amendments do not impose 

any new burden or any new information 

collection requirements in addition to 

those that already exist in connection 

with filing to list SFPs under 

Commission regulation 41.23 or to 

amend exchange rules for SFPs under 

Commission regulation 41.24.75

C. Cost-Benefit Considerations 

1. Introduction 

Section 15(a) of the CEA requires the 

CFTC to consider the costs and benefits 

of its actions before promulgating a 

regulation under the CEA or issuing 

certain orders.76 CEA section 15(a) 

further specifies that the costs and 

benefits shall be evaluated in light of 

five broad areas of market and public 

concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness, and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. The 

CFTC considers the costs and benefits 

resulting from its discretionary 

determinations with respect to the 

section 15(a) factors below. 

Where reasonably feasible, the CFTC 

has endeavored to estimate quantifiable 

costs and benefits. Where quantification 

is not feasible, the CFTC identifies and 

describes costs and benefits 

qualitatively. 

The CFTC requests comment on the 

costs and benefits associated with the 

proposed rule amendments. In 

particular, the CFTC requests that 

commenters provide data and any other 

information or statistics that the 

commenters relied on to reach any 

conclusions regarding the CFTC’s 

proposed considerations of costs and 

benefits. 

2. Economic Baseline 

The CFTC’s economic baseline for 

this proposed rule amendment analysis 

is the SFP position limits rule 

requirement that exists today. In the 

2001 Final SFP Rules, the Commission 

adopted an SFP position limits rule that 

is consistent with the statutory 

requirements of CEA section 2(a)(1)(D). 

In particular, CEA section 

2(a)(1)(D)(i)(VII) requires generally that 


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77 17 CFR 41.25(a)(3). 

78 17 CFR 41.25(a)(3). 

79 In this regard, OneChicago, LLC 

(‘‘OneChicago’’), a DCM listing SFPs, permits 

concurrent long and short positions to be held. See 

OneChicago exchange rule 424, available at https:// 

www.onechicago.com/wp-content/uploads/content/ 

OneChicago_Current_Rulebook.pdf. 

80These two definitions would be added into a 

new paragraph (a) of 17 CFR 41.25; in conjunction 

with the addition of the new paragraph (a), current 

paragraphs (a) through (d) would be re-designated 

as paragraphs (b) through (e). 

81Re-designated under the proposal as 17 CFR 

41.25(b)(3). 

trading in an SFP is not readily 

susceptible to manipulation of the price 

of that SFP or its underlying security. 

The CFTC regulation that is in effect 

currently states that, ‘‘the [DCM] shall 

have rules in place establishing position 

limits or position accountability 

procedures for the expiring futures 

contract month.’’ 77 The 2001 Final SFP 

Rules also provide criteria for a 

maximum level of position limits and 

criteria that permit a DCM to adopt an 

exchange rule for position 

accountability in lieu of position 

limits.78 In addition, the 2001 Final SFP 

Rules permit a DCM to approve 

exemptions from position limits 

pursuant to exchange rules that are 

consistent with CFTC regulation 150.3. 

The CFTC will analyze the costs and 

benefits of the rules in this proposal 

against the current default net position 

limit level of 13,500 (100-share) 

contracts; or a higher net position limit 

level of 22,500 (100-share) contracts for 

equity SFPs meeting either a criterion of 

at least 20 million shares of average 

daily trading volume, or criteria of at 

least 15 million shares of average daily 

trading volume and more than 40 

million shares of the underlying 

security outstanding. 

The current regulation permits (but 

does not require) a DCM to adopt an 

exchange rule for position 

accountability in lieu of position limits, 

provided that average daily trading 

volume in the underlying security 

exceeds 20 million shares and there are 

more than 40 million shares of the 

underlying security outstanding. 

3. Summary of Proposed Requirements 

For equity SFPs, the proposed 

amendment would increase the default 

position limit level from 13,500 (100- 

share) contracts to 25,000 (100-share) 

contracts. The proposed amendment 

also permits a DCM to establish a higher 

position limit level than 25,000 (100- 

share) contracts, equivalent to 12.5 

percent of estimated deliverable supply 

of the underlying security (which, under 

proposed guidance, should not exceed 

the free float of the underlying security). 

In connection with this change, a DCM 

would be required to estimate 

deliverable supply at least semiannually, rather than to calculate the 

average daily trading volume at least 

monthly. 

Also for equity SFPs, the proposed 

amendment would change one of the 

criteria that permit a DCM to adopt an 

exchange rule for position 

accountability in lieu of position limits, 

from more than 40 million shares of the 

underlying security outstanding, to an 

estimated deliverable supply of more 

than 40 million shares. The proposal 

generally would retain the other 

criterion, namely six-month average 

daily trading volume in the underlying 

security exceeding 20 million shares, 

but convert that criterion to 2.5 billion 

shares of six-month total trading 

volume, based on 125 trading days in a 

typical six-month period. 

For physically-delivered basket equity 

SFPs, the proposed amendment would 

change the criteria for the position limit 

to the underlying security with the 

lowest estimated deliverable supply, 

from the security in the index with the 

lowest average daily trading volume. 

The proposed amendment also would 

clarify that an appropriate adjustment 

would be made to the level of the limit 

for a contract size different than 100 

shares per underlying security. 

For SFPs that are cash settled to a 

narrow-based security index of equity 

securities, the proposed amendment 

provides guidance that a DCM may set 

the limit level to that of a similar 

narrow-based security index equity 

option. The proposal also provides 

guidance and an acceptable practice, 

which would provide a safe harbor for 

a DCM itself to set such a limit level. 

For SFPs in debt securities, the 

proposal would establish a requirement 

that a DCM must adopt a position limit 

either net or on the same side of the 

market, and would provide guidance 

that the level of such limit generally 

should be set no greater than the 

equivalent of 12.5 percent of the par 

value of the estimated deliverable 

supply of the underlying debt security. 

There currently are no SFPs in debt 

securities listed for trading. 

The proposal would establish a 

required minimum position limit time 

period beginning no later than the first 

day that a holder of a long position may 

be assigned a delivery notice, if such 

period is longer than the last five 

trading days, where the SFP permits 

delivery before the close of trading. 

There currently are no SFPs listed for 

trading that provide for delivery before 

the close of trading. 

The proposed amendment would 

provide DCMs with the discretion to 

alter the basis for applying a position 

limit from a net position to a gross 

position on the same side of the 

market.79

The proposal would establish 

guidance that a DCM may adopt an 

exchange rule for position 

accountability in addition to an 

exchange rule for a position limit. 

The proposal would amend the 

guidance for exemptions from position 

limits by changing the reference to 

CFTC regulation 150.3, regarding 

exemptions to federal position limits, to 

CFTC regulation 150.5, regarding 

guidance for exchange-set limits. The 

proposal also would add guidance for 

exemptions from position limits to 

permit a DCM to provide exemptions 

consistent with those of a NSE regarding 

securities options position limits or 

exercise limits. 

The proposal would amend the 

requirements for re-setting levels of 

position limits by changing the required 

review period from monthly to semiannually; and imposing a requirement 

that a DCM must lower the position 

limit for an SFP with data that no longer 

justifies a higher limit level, rather than 

guidance that a DCM may lower such 

position limit. The proposal also would 

make clear that a DCM must impose a 

position limit for an SFP with data that 

no longer justifies an exchange rule for 

position accountability in lieu of a 

position limit. The proposal would 

continue to permit a DCM to use 

discretion as to whether to increase the 

level of a position limit for an SFP with 

data that justifies a higher level. 

The proposal would establish a 

general definition of estimated 

deliverable supply, consistent with the 

guidance on estimating deliverable 

supply in appendix C to part 38, and 

provide guidance on estimating delivery 

supply that is specific to an SFP. 

Finally, the proposal would establish 

a definition of same side of the market, 

for clarity in the proposed limit levels 

on a gross basis. The definition would 

distinguish long positions for an SFP in 

the same security from short positions 

in an SFP in the same security.80

4. Costs 

The proposal would as a general 

matter reduce costs relative to the 

existing Commission regulation 

41.25(a)(3),81 since it will reduce the 

frequency of hedge exemption requests 

(as discussed in the benefits section) 

and reduce the frequency of required 

DCM reviews of position limits from 

monthly to semi-annually. Under the 


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36810 Federal Register / Vol. 83, No. 147 / Tuesday, July 31, 2018 / Proposed Rules 

82OneChicago describes itself on its website, 

https://onechicago.com, as ‘‘the Securities Finance 

Exchange’’ and states that ‘‘single stock futures are 

ideally suited to replace ‘agreements’ in equity repo 

and securities lending transactions.’’ 

proposal, DCMs that list SFPs for 

trading would continue to be required to 

adopt position limits or position 

accountability, but the proposal would 

generally increase the levels of position 

limits. The Commission preliminarily 

believes that the proposal would impose 

certain costs on such DCMs, and that 

these costs are necessary to establish 

appropriate position limits or position 

accountability trigger levels based on 

deliverable supply and such additional 

criteria that the listing DCM determines 

to be appropriate. The Commission also 

believes that these costs are comparable 

to those incurred under current 

regulations (whereby DCMs must 

calculate average daily trading volume) 

and notes that these costs will be 

incurred only semi-annually under the 

proposal rather than monthly as under 

current regulations. The Commission 

believes that DCMs would be able to 

exercise control over the extent of these 

costs depending on the degree of 

standardization such DCMs use to 

determine position limits and 

accountability and the Commission 

anticipates that DCMs will choose from 

among the lower-cost options. For 

example, a DCM could, consistent with 

the proposal, adopt a simple rule for 

equity securities based on the number of 

free-float outstanding shares. For equity 

securities, free-float information is 

readily available on certain publiclyavailable market websites and on 

Bloomberg terminals and similar 

services (which DCMs are likely to have 

access to for other business reasons). 

Reducing the frequency with which 

DCMs are required to review position 

limits and accountability to semiannually from monthly will reduce 

costs to DCMs. Thus, the Commission 

anticipates that estimating deliverable 

supply would not be more costly (and 

would likely be less costly) than 

estimating average daily trading volume 

as required under current regulations. 

The Commission notes that under the 

proposed rule, DCMs have the 

discretion to implement the default 

position limit of 25,000 contracts 

regardless of deliverable supply and that 

this may result in position limit levels 

in some contracts greater than 12.5 

percent of deliverable supply. However, 

this discretion is limited by Core 

Principle 5 (which requires DCMs to set 

position levels at necessary and 

appropriate levels to deter 

manipulation) and by Core Principle 3 

(which requires that DCMs may only list 

contracts that are not readily susceptible 

to manipulation). To the extent that 

DCMs comply with these core 

principles, this DCM discretion should 

not impair the protection of market 

participants and the public or otherwise 

impose significant costs on the markets 

for SFPs market or related securities. 

To the extent that a DCM lists equity 

SFPs on deliverable baskets, the costs of 

implementing the proposed position 

limit provisions for such SFPs would be 

similar to the costs of the analogous 

provisions for single stock SFPs, but 

there are no current costs associated 

with those proposed changes to the 

regulations since such SFPs are not 

currently listed for trading. There are 

also no listed SFPs at this time on debt 

securities. To the extent that there is 

less publicly-available information 

related to the deliverable supply of debt 

securities, estimating deliverable supply 

may be more costly for debt securities 

than for equity securities. However, 

these costs will only be incurred in the 

event that a DCM begins listing security 

futures on non-exempted debt 

securities. Moreover, these deliverable 

supply provisions are set out as 

guidance so that DCMs are free to 

implement less costly methods to 

comply with the rule, which provides 

only that futures on debt securities must 

have position limits. While DCMs have 

not listed debt security SFPs absent the 

proposed changes to the regulation, it is 

theoretically possible that the costs 

associated with estimating deliverable 

supply or otherwise determining 

position limit levels may affect future 

decisions regarding whether or not to 

list such SFPs. The costs of the 

proposed regulation for debt securities 

would be otherwise similar to the costs 

of the proposed regulation for equity 

securities. 

The proposal to permit DCMs to 

implement position limits on a net basis 

or on positions on the same side of the 

market (e.g., on physically-delivered 

and cash settled contracts on the same 

security, should a DCM ever list both 

types of contracts) would not require 

DCMs to change their current practice, 

and will thus not impose new costs on 

DCMs. Any change that imposes new 

costs on market participants would be 

made at the discretion of the DCM. 

The proposal to establish a required 

minimum position limit time period 

beginning no later than the first day that 

a holder of a long position may be 

assigned a delivery notice, if such 

period is longer than the last five 

trading days, in instances where the SFP 

permits delivery before the close of 

trading currently imposes no costs since 

contracts of this nature are not currently 

listed for trading. If a DCM listed such 

contracts, the proposal would require 

market participants to incur the costs of 

complying with position limits or 

applying for hedge exemptions (and 

would require DCMs to incur the costs 

of reviewing such applications) earlier 

in the life of the contract than absent the 

proposal. 

5. Benefits 

The Commission reviews its 

regulations to help ensure they keep 

pace with technological developments 

and industry trends, and to reduce 

regulatory burden where needed. The 

proposal would allow DCMs to adopt 

position limits that they deem to be 

appropriate. The Commission 

preliminarily believes that DCMs will 

adopt position limits that are large 

enough not to significantly inhibit 

liquidity, but will appropriately mitigate 

against potential manipulations and 

other concerns that may be associated 

with overly large positions in SFPs. 

Moreover, to the extent that the 

proposal would lead to position limits 

that are higher than current position 

limits, the proposal could alleviate the 

costs to hedgers of filing hedge 

exemptions for positions that are larger 

than a current position limit, but lower 

than a new position limit under the 

proposal. In that regard, Commission 

staff reviewed the largest positions in 

SFPs that were held during the calendar 

year 2017 and found that there were 16 

positions held during the last five 

trading days of expiring SFP contract 

months across all listed SFPs on 

OneChicago, currently the only DCM to 

list SFPs for trading. These positions 

generally appear to have been associated 

with securities lending agreements 82

and thus appear to have been eligible for 

hedge exemptions. These 16 positions 

exceeded the current applicable limit 

for their underlying securities of the 

default 13,500 contracts. If the proposed 

default position limit of 25,000 

contracts had been in effect in 2017, 

fewer than four positions would have 

been above that default position limit 

and would have required hedge 

exemptions. While the Commission 

believes that the monetary cost of filing 

a hedge exemption form is very small 

for an entity large enough to maintain a 

position that exceeds a position limit 

(perhaps less than $100), it is possible 

that the burden of filing a hedge 

exemption may discourage hedging at 

sizes exceeding position limits and, 

thus, that raising position limits may 

encourage larger hedges. The 

Commission also notes that to the extent 

SFPs are now or in the future used for 


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Federal Register / Vol. 83, No. 147 / Tuesday, July 31, 2018 / Proposed Rules 36811 

83As noted above, SFPs may be used for 

securities finance transactions that are not 

speculative in nature. 

speculation,83 speculators could 

establish larger positions under the 

proposal without a need for concern 

about position limits and may thus 

increase their trading activity. Any 

potential increase in trading activity 

could improve liquidity in the SFP 

markets. 

Requiring DCMs to set position limits 

and accountability based on semiannual deliverable supply estimates 

should help ensure on an ongoing basis 

that position limits and accountability 

are set at levels that are necessary and 

appropriate to deter manipulation 

consistent with DCM Core Principles 3 

and 5. 

The Commission preliminarily 

believes that the proposed frameworks 

for position limits in SFPs on 

deliverable equity baskets and debt 

securities (all based on deliverable 

supply estimates) should help ensure 

that such products, if they are ever 

listed for trading, are reasonably 

protected from manipulation. Further, 

the Commission preliminarily believes 

that the proposal may help foster 

position limits consistent with those in 

analogous securities options (where 

applicable). 

The proposal to permit DCMs to 

implement position limits on a net basis 

or on positions on the same side of the 

market (such as physically-delivered or 

cash settled contracts on the same 

security, should a DCM ever list both 

types of contracts) will give DCMs the 

discretion to implement position limits 

in a manner that they see fit. 

The proposal to establish a required 

minimum position limit time period 

beginning no later than the first day that 

a holder of a long position may be 

assigned a delivery notice, if such 

period is longer than the last five 

trading days, where the SFP permits 

delivery before the close of trading 

currently provides no benefits since 

contracts of this nature are not listed for 

trading. If a DCM listed such contracts, 

the proposal would help ensure that 

such contracts are not readily 

susceptible to manipulation during the 

entire delivery period. 

6. CEA Section 15(a) Factors 

i. Protection of Market Participants and 

the Public 

The Commission preliminarily 

believes that this proposal maintains the 

protection of market participants and 

the public provided by the current 

regulation. The proposal will continue 

to protect market participants and the 

public by maintaining the requirement 

that DCMs that list SFPs adopt and 

enforce appropriate position limits or 

position accountability consistent with 

DCM Core Principle 5 and 

implementing for SFPs the longstanding 

Commission policy that spot-month 

position limits should be set based on 

estimates of deliverable supply. Linking 

the levels of position limits and 

accountability to deliverable supply 

protects market participants and the 

public by helping prevent congestion, 

manipulation, or other problems that 

can be associated with speculative 

positions in expiring contracts that are 

overly large relative to deliverable 

supply. 

ii. Efficiency, Competitiveness, and 

Financial Integrity of Markets 

As discussed above, under the 

proposal, it is reasonable to anticipate 

that many or most SFPs would be 

subject to higher position limits 

compared to the current position limits. 

Therefore, hedgers may be able to take 

larger positions without the need to 

apply for hedge exemptions. This also 

could alleviate the DCM’s need to 

review hedge exemptions improving 

resource allocation efficiency for 

exchanges and certain market 

participants. Moreover, with less 

restrictive position limits, it is 

theoretically possible that more traders 

could be enticed into the market and 

thus improve the liquidity and pricing 

efficiency of the SFP market. 

The current position limit regulation 

(a default of 13,500 contracts) often 

leads to position limits that are tighter 

than analogous position limits for 

security options (a default of 25,000 

contracts). The proposal would raise the 

default limit level in SFPs to match that 

in securities options. More closely 

aligning the position limits in SFPs to 

those in securities options may enhance 

the competitiveness of the SFP market 

relative to the securities option market. 

iii. Price Discovery 

The Commission believes that price 

discovery typically occurs in the liquid 

and generally transparent security 

markets underlying existing SFPs rather 

than the relatively low-volume SFPs 

themselves. Nevertheless, as noted 

above, to the extent that trading activity 

in SFP markets increases due to less 

restrictive position limits, the price 

discovery function of SFPs could be 

enhanced by reducing liquidity risk and 

thereby facilitating arbitrage between 

the underlying security and SFP 

markets. 

iv. Sound Risk Management Practices 

The current position limit regulation 

often leads to position limits that are 

tighter than analogous position limits 

for security options. It is conceivable 

that this could discourage potential 

hedgers or other risk managers from 

using SFPs rather than security options 

because of burdens associated with the 

hedge exemption process. Risk 

managers might also find that the 

liquidity risk in the current SFP market 

is too high, due to a lack of speculators 

in the SFP market (among other causes). 

In this regard, it is possible that the 

current position limits might be too 

tight for speculators to perform 

adequately their role of providing 

liquidity in a futures market. Because 

the proposal raises the default limit to 

25,000 contracts to match the default in 

security options, and thus would likely 

lead to higher position limits for many 

SFPs, it is possible that both risk 

managers and speculators enter or 

increase trading in the SFP market 

under the proposal. 

v. Other Public Interest Considerations 

The Commission has not identified 

any additional public interest 

considerations associated with the 

proposal. 

7. Consideration of Alternatives 

The Commission considered 

regulations that would require DCMs to 

conform the position limits in SFPs to 

those in securities options to a greater 

degree than under the proposal 

(consistent with comments to the 

original SFP rule proposal), including 

applying position limits throughout the 

life of the contract (rather than only in 

the last five trading days) and no longer 

permitting position accountability for 

SFPs on securities with higher trading 

volume and deliverable supply. The 

Commission believes that permitting 

position accountability for certain SFPs 

and only requiring spot month limits is 

consistent with Core Principle 5 and 

that these requirements are sufficient to 

ensure that SFPs are not readily 

susceptible to manipulation as required 

by Core Principle 3. Thus, not 

permitting position accountability and 

requiring DCMs to apply position limits 

throughout the life of the contract 

would significantly increase costs on 

market participants while not 

significantly enhancing protection of 

market participants and the public or 

providing significant benefits beyond 

those of the proposed position limits 

framework. 

The Commission also considered not 

setting default position limits for equity 


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36812 Federal Register / Vol. 83, No. 147 / Tuesday, July 31, 2018 / Proposed Rules 

84See supra discussion of the 2001 Final SFP 

Rules. 85 7 U.S.C. 19(b). 

SFPs and simply requiring that position 

limits and accountability be set based 

on deliverable supply, as is done in 

many other futures products. However, 

the Commission preliminarily 

determined not to make such a proposal 

because some exchanges and market 

participants (based on past 

comments) 84 appear to believe that 

there are benefits to conforming position 

limits in SFPs to those in securities 

options to the extent practicable. 

8. Request for Comments 

The Commission invites public 

comment on its cost-benefit 

considerations, including the CEA 

section 15(a) factors described above. 

Commenters are also invited to submit 

any data or other information that they 

may have quantifying or qualifying the 

costs and benefits of the proposal with 

their comment letters. 

The Commission specifically seeks 

comment on the following: 

1. Are there alternatives to the 

proposal (whether discussed in this 

release or not) that would be superior 

from a cost-benefit standpoint? 

2. Would the proposal affect costs for 

those market participants that seek 

hedge exemptions? 

3. Would DCMs that list for trading 

SFPs face additional costs in adopting 

and setting position limits and position 

accountability levels for SFPs under the 

proposal that are not discussed in this 

consideration of costs and benefits? 

4. Do DCMs and market participants 

expect to see benefits under the 

proposal that are not discussed in this 

consideration of costs and benefits? 

Please quantify or describe such 

benefits. 

5. Should the Commission eliminate 

default position limits for equity SFPs 

and instead simply require that position 

limits and accountability be set based 

on deliverable supply, as is done in 

many other futures products? 

6. Is it feasible to estimate deliverable 

supply for debt securities at reasonable 

cost? 

7. Are there benefits associated with 

the Commission implementing rules for 

types of SFPs that are not currently 

listed for trading? Does implementing 

such rules have the potential to impose 

costs associated with possibly deterring 

innovation? 

D. Anti-Trust Considerations 

CEA Section 15(b) requires the 

Commission to take into consideration 

the public interest to be protected by the 

antitrust laws and endeavor to take the 

least anticompetitive means of 

achieving the objectives, polices and 

purposes of the CEA, in issuing any 

order or adopting any Commission rule 

or regulation (including any exemption 

under section 4(c) or 4c(b)), or in 

requiring or approving any bylaw, rule, 

or regulation of a contract market or 

registered futures association 

established pursuant to CEA section 

17.85

The Commission believes that the 

public interest to be protected by the 

antitrust laws is generally to protect 

competition. The Commission requests 

comment on whether the proposal 

implicates any other specific public 

interest to be protected by the antitrust 

laws. The Commission has considered 

the proposal to determine whether it is 

anticompetitive and has preliminarily 

identified no anticompetitive effects. 

The Commission requests comment on 

whether the proposal is anticompetitive 

and, if it is, what the anticompetitive 

effects are. 

Because the Commission has 

preliminarily determined that the 

proposal is not anticompetitive and has 

no anticompetitive effects, the 

Commission has not identified any less 

anticompetitive means of achieving the 

purposes of the Act. The Commission 

requests comment on whether there are 

less anticompetitive means of achieving 

the relevant purposes of the Act that 

would further the objective of this 

proposal, such as leveling the regulatory 

playing field between SFPs and security 

options listed on NSEs. 

List of Subjects in 17 CFR Part 41 

Position accountability, Position 

limits, Security futures products. 

For the reasons discussed in the 

preamble, the Commodity Futures 

Trading Commission proposes to amend 

17 CFR part 41 as set forth below: 

PART 41—SECURITY FUTURES 

PRODUCTS 

■ 1. The authority citation for part 41 

continues to read as follows: 

Authority: Sections 206, 251 and 252, Pub. 

L. 106–554, 114 Stat. 2763, 7 U.S.C. 1a, 2, 6f, 

6j, 7a–2, 12a; 15 U.S.C. 78g(c)(2). 

■ 2. In § 41.25: 

■ a. Redesignate paragraphs (a) through 

(d) as paragraphs (b) through (e); 

■ b. Add new paragraph (a); 

■ c. Revise newly redesignated 

paragraphs (b)(3), (c)(2) and (3), and (e). 

The addition and revisions read as 

follows: 

§ 41.25 Additional conditions for trading 

for security futures products. 

(a) Definitions. For purposes of this 

section: 

Estimated deliverable supply means 

the quantity of the security underlying 

a security futures product that 

reasonably can be expected to be readily 

available to short traders and salable by 

long traders at its market value in 

normal cash marketing channels during 

the specified delivery period. For 

guidance on estimating deliverable 

supply, designated contract markets 

may refer to appendix A of this subpart. 

Same side of the market means the 

aggregate of long positions in 

physically-delivered security futures 

products and cash-settled security 

futures products, in the same security, 

and, separately, the aggregate of short 

positions in physically-delivered 

security futures products and cashsettled security futures products, in the 

same security. 

(b) * * * 

(3) Speculative position limits. A 

designated contract market shall have 

rules in place establishing position 

limits or position accountability 

procedures for the expiring futures 

contract month as specified in this 

paragraph (b)(3). 

(i) Limits for equity security futures 

products. For a security futures product 

on a single equity security, including a 

security futures product on an 

underlying security that represents 

ownership in a group of securities, e.g., 

an exchange traded fund, a designated 

contract market shall adopt a position 

limit no greater than 25,000 100-share 

contracts (or the equivalent if the 

contract size is different than 100 

shares), either net or on the same side 

of the market, applicable to positions 

held during the last five trading days of 

an expiring contract month; except 

where: 

(A) For a security futures product on 

a single equity security where the 

estimated deliverable supply of the 

underlying security exceeds 20 million 

shares, a designated contract market 

may adopt, if appropriate in light of the 

liquidity of trading in the underlying 

security, a position limit no greater than 

the equivalent of 12.5 percent of the 

estimated deliverable supply of the 

underlying security, either net or on the 

same side of the market, applicable to 

positions held during the last five 

trading days of an expiring contract 

month; or 

(B) For a security futures product on 

a single equity security where the sixmonth total trading volume in the 

underlying security exceeds 2.5 billion 

shares and there are more than 40 


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Federal Register / Vol. 83, No. 147 / Tuesday, July 31, 2018 / Proposed Rules 36813 

million shares of estimated deliverable 

supply, a designated contract market 

may adopt a position accountability 

rule, either net or on the same side of 

the market, applicable to positions held 

during the last five trading days of an 

expiring contract month. Upon request 

by a designated contract market, traders 

who hold positions greater than 25,000 

100-share contracts (or the equivalent if 

the contract size is different than 100 

shares), or such lower level specified 

pursuant to the rules of the designated 

contract market, must provide 

information to the designated contract 

market and consent to halt increasing 

their positions when so ordered by the 

designated contract market. 

(ii) Limits for physically-delivered 

basket equity security futures products. 

For a physically-delivered security 

futures product on more than one equity 

security, e.g., a basket of deliverable 

securities, a designated contract market 

shall adopt a position limit, either net 

or on the same side of the market, 

applicable to positions held during the 

last five trading days of an expiring 

contract month and the criteria in 

paragraph (b)(3)(i) of this section must 

apply to the underlying security with 

the lowest estimated deliverable supply. 

For a physically-delivered security 

futures product on more than one equity 

security with a contract size different 

than 100 shares per underlying security, 

an appropriate adjustment to the limit 

must be made. If each of the underlying 

equity securities in the basket of 

deliverable securities is eligible for a 

position accountability level under 

paragraph (b)(3)(i)(B) of this section, 

then the security futures product is 

eligible for a position accountability 

level in lieu of position limits. 

(iii) Limits for cash-settled equity 

index security futures products. For a 

security futures product cash settled to 

a narrow-based security index of equity 

securities, a designated contract market 

shall adopt a position limit, either net 

or on the same side of the market, 

applicable to positions held during the 

last five trading days of an expiring 

contract month. For guidance on setting 

limits for a cash-settled equity index 

security futures product, designated 

contract markets may refer to section (b) 

of appendix A of this subpart. 

(iv) Limits for debt security futures 

products. For a security futures product 

on one or more debt securities, a 

designated contract market shall adopt a 

position limit, either net or on the same 

side of the market, applicable to 

positions held during the last five 

trading days of an expiring contract 

month. For guidance on setting limits 

for a debt security futures product, 

designated contract markets may refer to 

section (c) of appendix A of this 

subpart. 

(v) Required minimum position limit 

time period. For position limits required 

under this section where the security 

futures product permits delivery before 

the termination of trading, a designated 

contract market shall apply such 

position limits for a period beginning no 

later than the first day that long position 

holders may be assigned delivery 

notices, if such period is longer than the 

last five trading days of an expiring 

contract month. 

(vi) Requirements for re-setting levels 

of position limits. A designated contract 

market shall calculate estimated 

deliverable supply and six-month total 

trading volume no less frequently than 

semi-annually. 

(A) If the estimated deliverable supply 

data supports a lower speculative limit 

for a security futures product, then the 

designated contract market shall lower 

the position limit for that security 

futures product pursuant to the 

submission requirements of § 41.24. If 

the data require imposition of a reduced 

position limit for a security futures 

product, the designated contract market 

may permit any trader holding a 

position in compliance with the 

previous position limit, but in excess of 

the reduced limit, to maintain such 

position through the expiration of the 

security futures contract; provided, that 

the designated contract market does not 

find that the position poses a threat to 

the orderly expiration of such contract. 

(B) If the estimated deliverable supply 

or six-month total trading volume data 

no longer supports a position 

accountability rule in lieu of a position 

limit for a security futures product, then 

the designated contract market shall 

establish a position limit for that 

security futures product pursuant to the 

submission requirements of § 41.24. 

(C) If the estimated deliverable supply 

data supports a higher speculative limit 

for a security futures product, as 

provided under paragraph (b)(3)(i)(A) of 

this section, then the designated 

contract market may raise the position 

limit for that security futures product 

pursuant to the submission 

requirements of § 41.24. 

(vii) Restriction on netting of 

positions. If the designated contract 

market lists both physically-delivered 

contracts and cash settled-contracts in 

the same security, it shall not permit 

netting of positions in the physicallydelivered contract with that of the cashsettled contract for purposes of 

determining applicability of position 

limits. 

(c) * * * 

(2) Notwithstanding paragraph (c)(1) 

of this section, if an opening price for 

one or more securities underlying a 

security futures product is not readily 

available, the final settlement price of 

the security futures product shall fairly 

reflect: 

(i) The price of the underlying 

security or securities during the most 

recent regular trading session for such 

security or securities; or 

(ii) The next available opening price 

of the underlying security or securities. 

(3) Notwithstanding paragraph (c)(1) 

or (2) of this section, if a derivatives 

clearing organization registered under 

Section 5b of the Act or a clearing 

agency exempt from registration 

pursuant to Section 5b(a)(2) of the Act, 

to which the final settlement price of a 

security futures product is or would be 

reported determines, pursuant to its 

rules, that such final settlement price is 

not consistent with the protection of 

customers and the public interest, 

taking into account such factors as 

fairness to buyers and sellers of the 

affected security futures product, the 

maintenance of a fair and orderly 

market in such security futures product, 

and consistency of interpretation and 

practice, the clearing organization shall 

have the authority to determine, under 

its rules, a final settlement price for 

such security futures product. 

* * * * * 

(e) Exemptions. The Commission may 

exempt a designated contract market 

from the provisions of paragraphs (b)(2) 

and (c) of this section, either 

unconditionally or on specified terms 

and conditions, if the Commission 

determines that such exemption is 

consistent with the public interest and 

the protection of customers. An 

exemption granted pursuant to this 

paragraph shall not operate as an 

exemption from any Securities and 

Exchange Commission rules. Any 

exemption that may be required from 

such rules must be obtained separately 

from the Securities and Exchange 

Commission. 

■ 3. Add appendix A to subpart C to 

read as follows: 

Appendix A to Subpart C of Part 41— 

Guidance on and Acceptable Practices 

for Position Limits and Position 

Accountability for Security Futures 

Products 

(a) Guidance for estimating deliverable 

supply. (1) For an equity security, deliverable 

supply should be no greater than the free 

float of the security. 

(2) For a debt security, deliverable supply 

should not include securities that are 

committed for long-term agreements (e.g., 

closed-end investment companies, structured 

products, or similar securities). 


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36814 Federal Register / Vol. 83, No. 147 / Tuesday, July 31, 2018 / Proposed Rules 

(3) Further guidance on estimating 

deliverable supply, including consideration 

of whether the underlying security is readily 

available, is found in appendix C to part 38 

of this chapter. 

(b) Guidance and acceptable practices for 

setting limits on cash-settled equity index 

security futures products—(1) Guidance for 

setting limits on cash-settled equity index 

security futures products. For a security 

futures product cash settled to a narrowbased security index of equity securities, a 

designated contract market: 

(i) May set the level of a position limit to 

that of a similar equity index option listed on 

a national security exchange or association; 

or 

(ii) Should consider the deliverable supply 

of equity securities underlying the index, and 

should consider the index weighting and 

contract multiplier. 

(2) Acceptable practices for setting limits 

on cash-settled equity index security futures 

products. For a security futures product cash 

settled to a narrow-based security index of 

equity securities weighted by the number of 

shares outstanding, a designated contract 

market may set a position limit as follows: 

First, determine the limit on a security 

futures product on each underlying equity 

security pursuant to § 41.25(b)(3)(i); second, 

multiply each such limit by the ratio of the 

100-share contract size and the shares of the 

equity securities in the index; and third, 

determine the minimum level from step two 

and set the limit to that level, given a 

contract size of one U.S. dollar times the 

index, or for a larger contract size, reduce the 

level proportionately. If under these 

procedures each of the equity securities 

underlying the index is determined to be 

eligible for position accountability levels, the 

security futures product on the index itself is 

eligible for a position accountability level. 

(c) Guidance and acceptable practices for 

setting limits on debt security futures 

products—(1) Guidance for setting limits on 

debt security futures products. A designated 

contract market should set the level of a 

position limit to no greater than the 

equivalent of 12.5 percent of the par value of 

the estimated deliverable supply of the 

underlying debt security. For a security 

futures product on more than one debt 

security, the limit should be based on the 

underlying debt security with the lowest 

estimated deliverable supply. 

(2) Acceptable practices for setting limits 

on debt security futures products. 

[Reserved.] 

(d) Guidance on position accountability. A 

designated contract market may adopt a 

position accountability rule for any security 

futures product, in addition to a position 

limit rule required or adopted under this 

section. Upon request by the designated 

contract market, traders who hold positions, 

either net or on the same side of the market, 

greater than such level specified pursuant to 

the rules of the designated contract market 

must provide information to the designated 

contract market and consent to halt 

increasing their positions when so ordered by 

the designated contract market. 

(e) Guidance on exemptions from position 

limits. A designated contract market may 

approve exemptions from these position 

limits pursuant to rules that are consistent 

with § 150.5 of this chapter, or to rules that 

are consistent with rules of a national 

securities exchange or association regarding 

exemptions to securities option position 

limits or exercise limits. 

Issued in Washington, DC, on July 24, 

2018, by the Commission. 

Robert Sidman, 

Deputy Secretary of the Commission. 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendices to Position Limits and 

Position Accountability for Security 

Futures Products—Commission Voting 

Summary and Commissioner’s 

Statement 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Giancarlo and 

Commissioners Quintenz and Behnam voted 

in the affirmative. No Commissioner voted in 

the negative. 

Appendix 2—Concurring Statement of 

Commissioner Rostin Behnam 

I respectfully concur with the Commodity 

Futures Trading Commission’s approval of its 

proposed rule regarding Position Limits and 

Position Accountability for Security Futures 

Products (the ‘‘Proposal’’). I commend staff 

on their hard work in producing this 

Proposal, and for their thoughtful responses 

to my questions. I look forward to hearing 

from market participants and other 

stakeholders regarding the amendments to 

the existing position limits rules for security 

futures products. In particular, I will be 

interested in comments regarding the 

appropriateness of increasing the default 

level of equity security futures products 

position limits from 13,500 contracts to 

25,000 contracts. While today’s Proposal only 

would amend the Commission’s Part 41 rules 

regarding security futures products, I 

nonetheless encourage market participants 

and interested stakeholders to consider how 

the Proposal might impact or interplay with 

the Commission’s position limits rules in 

Part 150 and any future amendments to them. 

[FR Doc. 2018–16079 Filed 7–30–18; 8:45 am] 

BILLING CODE 6351–01–P 

DEPARTMENT OF EDUCATION 

34 CFR Chapter VI 

[Docket ID ED–2018–OPE–0076] 

Negotiated Rulemaking Committee; 

Public Hearings 

AGENCY: Office of Postsecondary 

Education, Department of Education. 

ACTION: Intent to establish negotiated 

rulemaking committee. 

SUMMARY: We announce our intention to 

establish a negotiated rulemaking 

committee to prepare proposed 

regulations for the Federal Student Aid 

programs authorized under title IV of 

the Higher Education Act of 1965, as 

amended (HEA) (title IV, HEA 

programs). We also announce our 

intention to create two subcommittees 

for this committee. In addition, we 

announce three public hearings at 

which interested parties may comment 

on the topics suggested by the 

Department and may suggest additional 

topics that should be considered for 

action by the negotiating committee. We 

will also accept written comments on 

the topics suggested by the Department 

and suggestions for additional topics 

that should be considered for action by 

the negotiating committee. The 

Department will present negotiators 

with proposed regulatory language at 

the first negotiating session. 

DATES: The dates, times, and locations 

for the public hearings are listed under 

SUPPLEMENTARY INFORMATION. We must 

receive written comments on the topics 

suggested by the Department and 

additional topics that should be 

considered for action by the negotiating 

committee on or before September 14, 

2018. 

ADDRESSES: Submit your comments 

through the Federal eRulemaking Portal 

or via postal mail, commercial delivery, 

or hand delivery. We will not accept 

comments by fax or by email. To ensure 

that we do not receive duplicate copies, 

please submit your comments only 

once. In addition, please include the 

Docket ID at the top of your comments. 

• Federal eRulemaking Portal: Go to 

www.regulations.gov to submit your 

comments electronically. Information 

on using Regulations.gov, including 

instructions for accessing agency 

documents, submitting comments, and 

viewing the docket, is available on the 

site under ‘‘Help.’’ 

• Postal Mail, Commercial Delivery, 

or Hand Delivery: The Department 

strongly encourages commenters to 

submit their comments electronically. 

However, if you mail or deliver your 

comments, address them to Aaron 

Washington, U.S. Department of 

Education, 400 Maryland Ave. SW, 

Room 294–12, Washington, DC 20202. 

Privacy Note: The Department’s 

policy is to make all comments received 

from members of the public available for 

public viewing in their entirety on the 

Federal eRulemaking Portal at 

www.regulations.gov. Therefore, 

commenters should be careful to 

include in their comments only 

information that they wish to make 

publicly available. 

FOR FURTHER INFORMATION CONTACT:


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