SOV FLUTURES EXCHANGE

October 31. 2006

Via Electronic Mail

Ms. Iuleen A. Donovan

Acting Secretary

Commodity Futures Trading Comnnssion
Three Lafayette Centre

55 21st Street, N.W

ashington, D.C. 20581

Ww

Re: CBOE Futures Exchange, LLC Rule Certification i
ubmission Number CFE-2006-19 ©

Dear Ms. Donovan:

Pursuant to Section Sc(ce)(1) of the Commodity Exchange Act, as amended ("Act"), and
§40.6(a) of the regulations promulgated by the Commodity Futures Trading Commission
(°Commission") under the Act, CBOE Futures Exchange. LLC ("CFE" or "Exchange") hereby
submits this rule change ("Amendment") to amend ¢ Rule 1202(d) to change the position
limits for CBOE Volaulity Index ("VIX") futures.

Asa preliminary matter. CFE notes that the position limits in VIX futures were increased
once before in May 2006. At that time, CFE noted that it was taking an incremental approach to
increasing the position limits in VIX futures, by coupling the increase in the all months combined
hmit with a spot month limit instead of moving solely to a higher all months combined hmit.
CFI: also expressed its intent to evaluate its experience with the newly prescribed limits so that it
could determine whether to implement further changes to the VIX position limits in light of that
experience.

CFE has evaluated the position limits in VIX futures since May 2006 and has determined
to continue at the present ime with the ineremental approach of having an all months combined
linut and a spot month limit and has determined to increase both limits in response to increased
open interest and trading volume in VIX futures. Specifically. this Amendment changes the
general position hmit in VIX futures from 10.600 to 25,000 contracts net long or net short in all
VIX futures contract months combined and changes the position limit in the expiring VIX futures
contract. month from $,000 to 15,000 contracts net long or net short. Additionally. this
Amendment ch: s the day on which the position hit in the expiring VEX futures contract
month comes into effect from the Wednesday prior to the final settlement date to the Fnday prior
to the final settlement date

CFE took the followimg into consideration in determining to change the positon hmits
for VIX futures in the manner set forth in this Amendment.

Since the first position hmit increase in VIX futures, the open interest in VIX futures has
significantly increased from in excess of 31.000 contracts (May 2006) to in excess of 49,000
contracts (current). In addition, the trading volume in VIX futures recently reached a new all-
time high on October 10, 2006 of 10,673 contracts traded on that day. This 1s the first tme that

400 South LaSaiie

Chicago, lilinois 60605-1023 www.cboe.comicfe



Ms. Eileen A. Donovan
Page 2 of 3

the trading volume in VIX futures has exceeded the 10.000-contract mark in a single day. The
previous high in VIX futures traded on a single day since the first posivon limit increase in VIX
futures went into effect on May 30, 2006 was 8.080 on August 10. 2006. Further, the average
daily trading volume in Standard & Poor's S00 Index ("SPX") options, which are used to calculate
the VIX. has increased markedly since May 2006. Specifically. the average daily trading volume
in SPX options in May 2006 was approximately 375,000 contracts and today is approximately
439,000 contracts. It should also be noted that the SPX option market remains the most liquid
domestic index options market in the United States.

This Amendment continues CFE's incremental approach with regard to position limits in
VIX futures. CFE intends to continue to evaluate its experience with the position limits for VIX
futures and may determine to make future changes to them in light of that experience.

The Amendment will become effective on November 1, 2006

CEE is not aware of any substantive opposing views to the Amendment. CFE hereby

certifies that the Amendment comphes with the Act and the regulations thereunder

The Amendment, marked to show additions in underlined text and deletions in
[bracketed] text. consists of the following:

aR
Rule 1202. CBOE Volatility Index Futures Contract Specifications

Rae
(d) Position Limits. A person may not own or control at any time more than [10,000] 25,000

contracts net long or net short in al) VIX futures contract months combined. Commencing on the
| Wednesday] ay prior to the final settlement date of the expirmg VIX futures contract month,
@ person may not own or control more than {5,000} 15,000 contracts net long or net short in the
expiring VIX futures contract month

For the purposes of this rule, the positions of all accounts directly or indirectly owned or
controlled by a person or persons, and the positions of al] accounts of a person or persons acting
pursuant to an expressed or implied agreement or understanding shal] be cumulated.

The foregoing position limits shall not apply to positions that are subject to a position limit
exemption meeting the requirements of Commission Regulations and CFE Rules.

eR


Ms. Eileen A. Donovan
Page 3 of 3

Questions regarding this submission may be directed to Arthur Reinstein at (312) 786-
7570 or Jennifer Klebes at (312) 786-7466. Please reference our submission number CF
19 in any related correspondence

CBOE Futures Exchange. LLC

Managing Director

ce: Steven B. Benton (CFTC)
Edward Dasso (NI
Thomas Leahy (CFTC)
Phe Options Clearing Corporation