Federal Register / Vol. 87, No. 72 / Thursday, April 14, 2022 / Notices 22245 

30NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. 

Cir. 2010) (quoting Securities Exchange Act Release 

No. 59039 (December 2, 2008), 73 FR 74770, 74782– 

83 (December 9, 2008) (SR–NYSE–2006–21)). 

31 15 U.S.C. 78s(b)(3)(A)(ii). 

32 17 CFR 240.19b–4(f)(2). 33 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 17 CFR 240.19b–4(f)(6). 

to route orders for execution’; [and] ‘no 

exchange can afford to take its market 

share percentages for granted’ because 

‘no exchange possess a monopoly, 

regulatory or otherwise, in the execution 

of order flow from broker dealers’ 

. . .’’.30 Accordingly, the Exchange does 

not believe its proposed pricing changes 

impose any burden on competition that 

is not necessary or appropriate in 

furtherance of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 

19(b)(3)(A)(ii) of the Act,31 and Rule 

19b–4(f)(2) 32 thereunder. At any time 

within 60 days of the filing of the 

proposed rule change, the Commission 

summarily may temporarily suspend 

such rule change if it appears to the 

Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Act. If the Commission 

takes such action, the Commission shall 

institute proceedings to determine 

whether the proposed rule should be 

approved or disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

PEARL–2022–10 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Vanessa Countryman, Secretary, 

Securities and Exchange Commission, 

100 F Street NE, Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–PEARL–2022–10. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–PEARL–2022–10 and 

should be submitted on or before May 

5, 2022. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.33

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 2022–07952 Filed 4–13–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94643; File No. SR–FINRA– 

2022–007] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change To Amend FINRA Rule 

2360 (Options) To Increase the 

Position and Exercise Limits for 

Conventional Options on Certain 

Exchange-Traded Funds 

April 8, 2022. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on March 29, 

2022, the Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I and 

II below, which Items have been 

prepared by FINRA. FINRA has 

designated the proposed rule change as 

constituting a ‘‘non-controversial’’ rule 

change under paragraph (f)(6) of Rule 

19b–4 under the Act,3 which renders 

the proposal effective upon receipt of 

this filing by the Commission. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

FINRA is proposing to amend Rule 

2360 (Options) to increase the position 

and exercise limits for conventional 

options on certain exchange-traded 

funds (‘‘ETFs’’). 

The text of the proposed rule change 

is available on FINRA’s website at 

http://www.finra.org, at the principal 

office of FINRA and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

FINRA included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. FINRA has prepared 

summaries, set forth in sections A, B, 


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22246 Federal Register / Vol. 87, No. 72 / Thursday, April 14, 2022 / Notices 

4See Securities Exchange Act Release No. 40969 

(January 22, 1999), 64 FR 4911, 4912–13 (February 

1, 1999) (Order Approving File No. SR–CBOE–98– 

23) (citing H.R. No. IFC–3, 96th Cong., 1st Sess. at 

189–91 (Comm. Print 1978)). 

5See supra note 4, at 4913. 

6See e.g., Cboe Rule 8.30; ISE Options 9 Section 

13; Nasdaq PHLX Options 9 Section 13; NYSE 

American Rule 904; NYSE Arca Rule 6.8–0; MIAX 

Rule 307; BOX Rule 3120 and IM–3120–2; Nasdaq 

Options 9 Section 13; BX Options 9 Section 13; and 

BZX Rule 18.7. 

7Conventional options are over-the-counter 

options and are defined in Rule 2360(a)(9) as ‘‘(A) 

any option contract not issued, or subject to 

issuance, by The Options Clearing Corporation; or 

(B) an OCC Cleared OTC Option.’’ 8See Securities Exchange Act Release No. 93525 

(November 4, 2021), 86 FR 62584 (November 10, 

2021) (Order Approving File No. SR–CBOE–2021– 

029). 9See e.g., CBOE Rule 8.30, Interpretation and 

Policy .02. 

10Average daily volume (ADV) data for ETF 

shares and option contracts, as well as for ETF 

shares and options on the comparative ETFs 

presented below, are for all of 2020. Additionally, 

reference to ADV in ETF shares and ETF options, 

and indexes herein this proposal are for all of 

calendar year 2020, unless otherwise indicated. 

11Shares Outstanding and Net Asset Values 

(‘‘NAV’’), as well as for the comparative ETFs 

presented below, are as of April 5, 2021. 

12 Fund Market Capitalization data, as well as for 

the comparative ETFs presented below, are as of 

January 14, 2021. 

13See supra note 11. 

and C below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

FINRA Rule 2360(b)(3)(A) imposes a 

position limit on the number of equity 

options contracts in each class on the 

same side of the market that can be held 

or written by a member, a person 

associated with a member, or a customer 

or a group of customers acting in 

concert. Position limits are intended to 

prevent the establishment of options 

positions that can be used to manipulate 

or disrupt the underlying market or 

might create incentives to manipulate or 

disrupt the underlying market so as to 

benefit the options position. In addition, 

position limits serve to reduce the 

potential for disruption of the options 

market itself, especially in illiquid 

options classes.4 This consideration has 

been balanced by the concern that the 

limits ‘‘not be established at levels that 

are so low as to discourage participation 

in the options market by institutions 

and other investors with substantial 

hedging needs or to prevent specialists 

and market makers from adequately 

meeting their obligations to maintain a 

fair and orderly market.’’ 5

Rule 2360(b)(3)(A)(i) does not 

independently establish a position limit 

for standardized equity options. Rather, 

the position limit established by the 

rules of an options exchange for a 

particular equity option is the 

applicable position limit for purposes of 

Rule 2360.6 Rule 2360(b)(3)(A)(iii) 

provides that conventional equity 

options 7 are subject to a basic position 

limit of 25,000 contracts or a higher tier 

for conventional option contracts on 

securities that underlie exchange-traded 

options qualifying for such higher tier as 

determined by the rules of the options 

exchanges. In addition, FINRA lists 

position limits for options on securities 

that have higher position limits— 

currently, only the ETFs listed in Rule 

2360(b)(3)(A)(iii)a.6.—that also 

generally mirror the options exchange 

position limits. At this time, FINRA 

proposes to conform its conventional 

options position limits to the Cboe 

Exchange, Inc.’s (‘‘Cboe’’) recent 

amendments that increased the position 

limit options due to an ongoing increase 

in demand in options on the following 

ETFs: (1) iShares iBoxx $ Investment 

Grade Corporate Bond ETF (‘‘LQD’’), 

and (2) VanEck Vectors Gold Miners 

ETF (‘‘GDX’’) (together, the ‘‘Underlying 

ETFs’’).8

The proposed rule change would add 

to the table provided in Rule 

2360(b)(3)(A)(iii)a.6. as follows, with the 

effect of each ETF being increased from 

the current position limit of 250,000 

contracts: 

• The position limit for options on 

LQD would be increased to 500,000 

contracts. 

• The position limit for options on 

GDX would be increased to 500,000 

contracts. 

FINRA notes the proposed position 

limits for options on LQD and GDX are 

consistent with current position limits 

for options on the iShares MSCI Brazil 

Capped ETF (‘‘EWZ’’), iShares 20+Year 

Treasury Bond Fund ETF (‘‘TLT’’), 

iShares MSCI Japan ETF (‘‘EWJ’’), and 

iShares iBoxx High Yield Corporate 

Bond Fund (‘‘HYG’’). 

In support of the proposed rule 

change, as noted by Cboe, position 

limits are determined by the option 

exchange’s rules.9 The ETFs that 

underlie options subject to the proposed 

rule change are highly liquid and are 

based on a broad set of highly liquid 

securities and other reference assets. 

The above listed ETFs are listed on 

various national securities exchanges 

and meet their listing standards. 

In supporting the proposed position 

limit increases, FINRA considered the 

liquidity of the Underlying ETFs, the 

value of the underlying securities or 

index components and relevant 

marketplace, the share and option 

volume for the Underlying ETFs, and, 

where applicable, the availability or 

comparison of economically equivalent 

products to options on the Underlying 

ETFs. 

FINRA notes that Cboe has compiled 

the following trading statistics regarding 

shares of and options on the Underlying 

ETFs and the values of the Underlying 

ETFs and their component securities or 

index components, as applicable: 

Product 

ADV10

(ETF shares 

millions) 

ADV 

(option 

contracts) 

Shares 

outstanding 11

(millions) 

Fund Market 

Capitalization 12

(USD millions) 

Share value 13

(USD) 

(NAV) 

LQD .............................................................................. 14.1 30,300 308.1 54,113.7 130.13 

GDX ............................................................................. 39.4 166,000 419.8 16,170.5 33.80 

FINRA notes Cboe collected the same 

trading statistics, where applicable, as 

above regarding a sample of other ETFs, 

as well as the current position limits for 

options on such ETFs, to draw 

comparisons in support of proposed 

position limit increases for options on 

the Underlying ETFs (see further 

discussion below): 

Product 

ADV 

(ETF shares 

millions) 

ADV 

(option 

contracts) 

Shares 

outstanding 

(millions) 

Fund Market 

Capitalization 

(USD millions) 

Share value 

(USD) 

(NAV) 

Current 

position 

limit 

EWZ ....................................................... 29.2 139,400 173.8 6,506.8 33.71 500,000 


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14See Markit iBoxx USD Liquid Investment Grade 

Index, available at https://cdn.ihsmarkit.com/www/ 

pdf/MKT-iBoxx-USD-Liquid-Investment-GradeIndex-factsheet.pdf (March 3, 2021). 

15 Investment grade corporate bonds. 

16See supra note 14. 

17See VanEck Vectors Gold Miners ETF, available 

at https://www.vaneck.com/library/vaneck-vectorsetfs/gdx-fact-sheet-pdf (February 28, 2022). 

Product 

ADV 

(ETF shares 

millions) 

ADV 

(option 

contracts) 

Shares 

outstanding 

(millions) 

Fund Market 

Capitalization 

(USD millions) 

Share value 

(USD) 

(NAV) 

Current 

position 

limit 

TLT ......................................................... 11.5 111,800 103.7 17,121.3 136.85 500,000 

EWJ ........................................................ 8.2 15,500 185.3 13,860.7 69.72 500,000 

HYG ....................................................... 30.5 261,600 254.5 24,067.5 86.86 500,000 

FINRA echoes the Cboe’s belief that, 

overall, the liquidity in the shares of the 

Underlying ETFs and in their overlying 

options, the larger market 

capitalizations for each of the 

Underlying ETFs, and the overall 

market landscape relevant to each of the 

Underlying ETFs support the proposal 

to increase the position limits for each 

option class. Given the robust liquidity 

in and value of the Underlying ETFs 

and their component securities, FINRA 

does not anticipate that the proposed 

increase in position limits would create 

significant price movements as the 

relevant markets are large enough to 

adequately absorb potential price 

movements that may be caused by larger 

trades. 

The following analyses for the 

Underlying ETFs, which FINRA agrees 

with in support of the proposed rule 

change, as well as the statistics 

presented in support thereof, were 

presented by Cboe in their rule filing, 

which was approved by the 

Commission. 

LQD tracks the performance of the 

Markit iBoxx USD Liquid Investment 

Grade (‘‘IBOXIG’’) Index, which is an 

index designed as a subset of the 

broader U.S. dollar-denominated 

corporate bond market which can be 

used as a basis for tradable products, 

such as ETFs, and is comprised of over 

8,000 bonds.14 From 2019 through 2020, 

ADV has grown significantly in shares 

of LQD and in options on LQD, from 

approximately 9.7 million shares in 

2019 to 14.1 million through 2020, and 

from approximately 8,200 option 

contracts in 2019 to 30,300 through 

2020. LQD also continued to experience 

significant growth in ADV in the first 

quarter of 2021 with an ADV of 

approximately 140,200 option contracts. 

Further, LQD generally experiences 

higher ADV in shares than both TLT 

(11.5 million shares) and EWJ (8.2 

million shares) and almost double the 

ADV in option contracts than EWJ 

(15,500 option contracts). Options on 

each EWZ, TLT and EWJ are currently 

subject to a position limit of 500,000 

contracts—the proposed limit for 

options on LQD. The NAV of LQD is 

also higher than, or comparable to, that 

of the NAV of the ETFs underlying the 

options that are currently subject to a 

position limit of 500,000 option 

contracts (as presented in the table 

above), which is indicative that the total 

value of its underlying components is 

generally higher or comparable. Per the 

tables above, LQD’s total market 

capitalization of approximately $54.1 

billion is also higher than or comparable 

to the total market capitalization of the 

ETFs underlying the options currently 

subject to a position limit of 500,000 

contracts. In addition to this, although 

there are currently no options listed for 

trading on the IBOXIG Index, the 

components 15 of the IBOXIG Index, 

which can be used in creating a basket 

of securities that equate to the LQD ETF, 

are made up of over 8,000 bonds for 

which the outstanding face value of 

each must be greater than or equal to $2 

billion.16 FINRA echoes Cboe’s belief 

that the total value of the bonds in the 

IBOXIG Index, coupled with LQD’s 

share and option volume, total market 

capitalization, and NAV price indicates 

that the market is large enough to absorb 

potential price movements caused by a 

large trade in LQD. Also, as evidenced 

above, trading volume in LQD shares 

has increased over the past few years 

and market participants’ need for 

options have continued to grow 

alongside the ETF. Particularly, Cboe 

notes in its filing that in the last year, 

market participants have sought more 

cost-effective hedging strategies through 

the use of LQD options as a result of the 

borrow on other fixed income ETFs, 

such as HYG. Therefore, FINRA agrees 

with Cboe’s belief that because LQD 

options are being increasingly utilized 

as an alternative to similar products, 

such as HYG options, then it is 

appropriate that options on LQD be 

subject to the same 500,000 contract 

position limit that currently exists for 

options on HYG. 

GDX seeks to replicate as closely as 

possible the price and yield 

performance of the NYSE Arca Gold 

Miners (‘‘GDMNTR’’) Index, which is 

intended to track the overall 

performance of companies involved in 

the gold mining industry.17 ADV in 

GDX options has increased from 2019 

through 2020, with an ADV of 

approximately 117,400 option contracts 

in 2019 to an ADV of approximately 

166,000 option contracts in 2020. 

ADV in GDX shares did not increase 

from 2019 to 2020. GDX options also 

experienced an ADV of approximately 

287,800 option contracts in the first 

quarter of 2021. The ADV in GDX shares 

(39.4 million) and options on GDX 

(166,000 option contracts) are greater 

than the ADV in EWZ (29.2 million 

shares and 139,300 option contracts), 

TLT (11.5 million shares and 111,800 

option contracts), EWJ (8.2 million 

shares and 15,500 option contracts) and 

HYG (30.5 million shares and 261,600 

option contracts), each of which is 

currently subject to a position limit of 

500,000 option contracts—the proposed 

limit for options on GDX. GDX also 

experiences a comparable, or higher, 

market capitalization (approximately 

$16.2 billion) than EWZ, TLT and EWJ. 

Cboe noted that many of the Brazilbased gold mining constituents 

included in GDX are also included in 

EWZ, which tracks the investment 

results of an index composed of 

Brazilian equities, and that there have 

been no identified issues with the 

continued listing and trading of EWZ 

options or any adverse market impact 

on EWZ in connection with the current 

500,000 position limit in place for EWZ 

options. Additionally, like that of LDQ 

above, there is currently no index 

option analogue for the GDX ETF on the 

GDMNTR Index approved for options 

trading, however, the components of the 

GDMNTR Index, which can be used to 

create the GDX ETF, currently must 

each have a market capitalization 

greater than $750 million, an ADV of at 

least 50,000 shares, and an average daily 

value traded of at least $1 million in 

order to be eligible for inclusion in the 

GDMNTR Index. FINRA echoes Cboe’s 

belief that the GDMNTR Index 

component inclusion requirements, as 

well as GDX’s share and option volume 

and total market capitalization, indicate 

that the GDX market is sufficiently large 

and liquid enough to absorb price 


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18See Rule 2360(b)(5) for the options reporting 

requirements. 

19These procedures have been effective for the 

surveillance of options trading and will continue to 

be employed. 

20 17 CFR 240.13d–1. 

21 17 CFR 240.15c3–1. 

22 15 U.S.C. 78o–3(b)(6). 

23See supra note 8. 

movements as a result of potentially 

oversized trades. 

FINRA believes that increasing the 

position limits for conventional options 

subject to the proposed rule change 

would lead to a more liquid and 

competitive market for these options, 

which will benefit customers interested 

in these products. 

Creation and Redemption for ETFs 

FINRA believes that the creation and 

redemption process for ETFs subject to 

this proposed rule change will lessen 

the potential for manipulative activity 

with options on the Underlying ETFs. 

Regarding ETFs, when an ETF provider 

wants to create more shares, it looks to 

an Authorized Participant (generally a 

market maker or other large financial 

institution) to acquire the securities the 

ETF is to hold. For instance, when an 

ETF is designed to track the 

performance of an index, the 

Authorized Participant can purchase all 

the constituent securities in the exact 

same weight as the index, then deliver 

those shares to the ETF provider. In 

exchange, the ETF provider gives the 

Authorized Participant a block of 

equally valued ETF shares, on a one-forone fair value basis. The price is based 

on the net asset value, not the market 

value at which the ETF is trading. The 

creation of new ETF units can be 

conducted during an entire trading day, 

and is not subject to position limits. 

This process works in reverse where the 

ETF provider seeks to decrease the 

number of shares that are available to 

trade. The applicable creation and 

redemption processes for the 

Underlying ETFs creates a direct link to 

the underlying components of the ETF 

and serves to mitigate potential price 

impact of the ETF shares that might 

otherwise result from increased position 

limits for the options on the Underlying 

ETFs. 

FINRA understands that the ETF 

creation and redemption process seeks 

to keep an ETF’s share price trading in 

line with the product’s underlying net 

asset value. Because an ETF trades like 

a stock, its share price will fluctuate 

during the trading day, due to simple 

supply and demand. If demand to buy 

an ETF is high, for instance, the ETF’s 

share price might rise above the value 

of its underlying securities. When this 

happens, the Authorized Participant or 

issuer believes the ETF may now be 

overpriced, so it may buy shares of the 

component securities and then sell ETF 

shares in the open market. This may 

drive the ETF’s share price back toward 

the underlying net asset value or 

indicative index value. Likewise, if the 

ETF share price starts trading at a 

discount to the securities it holds or its 

index components, the Authorized 

Participant or issuer can buy shares of 

the ETF and redeem them for the 

underlying securities or index 

component instruments. Buying 

undervalued ETF shares may drive the 

share price of the ETF back toward fair 

value. This arbitrage process helps to 

keep an ETF’s share price in line with 

the value of its underlying portfolio or 

index components. 

Surveillance and Reporting 

FINRA believes that the increased 

position limits provisions are 

appropriate in light of the existing 

surveillance procedures and reporting 

requirements at FINRA,18 the options 

exchanges, and at the several clearing 

firms, which are capable of properly 

identifying unusual or illegal trading 

activity. These procedures use daily 

monitoring of market movements by 

automated surveillance techniques to 

identify unusual activity in both options 

and underlying stocks.19

In addition, large stock holdings must 

be disclosed to the Commission by way 

of Schedules 13D or 13G.20 Options 

positions are part of any reportable 

positions and cannot legally be hidden. 

Moreover, the previously noted Rule 

2360(b)(5) requirement that members 

must file reports with FINRA for any 

customer that held aggregate large long 

or short positions of any single class for 

the previous day will continue to serve 

as an important part of FINRA’s 

surveillance efforts. 

Finally, FINRA believes that the 

current financial requirements imposed 

by FINRA and by the Commission 

adequately address financial 

responsibility concerns that a member 

or its customer will maintain an 

inordinately large unhedged position in 

any option with a higher position limit. 

Current margin and risk-based haircut 

methodologies serve to limit the size of 

positions maintained by any one 

account by increasing the margin or 

capital that a member must maintain for 

a large position. Under Rule 

4210(f)(8)(A), FINRA also may impose a 

higher margin requirement upon a 

member when FINRA determines a 

higher requirement is warranted. In 

addition, the Commission’s net capital 

rule 21 imposes a capital charge on 

members to the extent of any margin 

deficiency resulting from the higher 

margin requirement. 

FINRA has filed the proposed rule 

change for immediate effectiveness and 

has requested that the SEC waive the 

requirement that the proposed rule 

change not become operative for 30 days 

after the date of the filing, so FINRA can 

implement the proposed rule change 

immediately. 

2. Statutory Basis 

FINRA believes that the proposed rule 

change is consistent with the provisions 

of Section 15A(b)(6) of the Act,22 which 

requires, among other things, that 

FINRA rules must be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, and, in 

general, to protect investors and the 

public interest. FINRA believes that the 

proposed rule change promotes 

consistent regulation by harmonizing 

position limits with those of the other 

self-regulatory organizations. FINRA 

further believes that increasing the 

position limit on conventional options 

promotes consistent regulation by 

harmonizing the position limit with its 

standardized counterpart. In addition, 

FINRA believes the proposed rule 

change will be beneficial to large market 

makers and institutions (which 

generally have the greatest ability to 

provide liquidity and depth in products 

that may be subject to higher position 

limits as has been the case with recently 

approved increased position limits),23

as well as retail traders and public 

customers, by providing them with a 

more effective trading and hedging 

vehicle. 

In addition, FINRA believes that the 

structure of the Underlying ETFs, the 

considerable market capitalization of 

the funds, underlying component 

securities and indexed component 

securities, and the liquidity of the 

markets for the applicable options and 

underlying component securities will 

mitigate concerns regarding potential 

manipulation of the products or 

disruption of the underlying markets 

upon increasing the relevant position 

limits. As a general principle, increases 

in market capitalizations, active trading 

volume, and deep liquidity of securities 

tend to deter manipulation or 

disruption. This general principle 

applies to the recently observed 

increased levels of market 

capitalization, trading volume, and 

liquidity in shares of and options on the 

Underlying ETFs (as described above). 

FINRA does not believe that the options 


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24See supra note 8. See also Securities Exchange 

Act Release Nos. 88768 (April 29, 2020), 85 FR 

26736 (May 5, 2020) (Order Approving File No. SR– 

CBOE–2020–015); 83415 (June 12, 2018), 83 FR 

28274 (June 18, 2018) (Notice of Filing and 

Immediate Effectiveness of File No. SR–CBOE– 

2018–042); and 68086 (October 23, 2012), 77 FR 

65600 (October 29, 2012) (Order Approving File No. 

SR–CBOE–2012–066). 

25See supra note 8. 26See supra note 8. 

markets or underlying markets would 

become susceptible to manipulation or 

disruption as a result of the proposed 

position limit increases. 

Increased position limits for select 

actively traded options, such as those 

proposed herein, are not novel and have 

been previously approved by the 

Commission.24 Furthermore, FINRA 

notes that the proposed position limits 

for options on LQD and GDX are 

consistent with existing position limits 

for options on comparable ETFs in Rule 

2360(b)(3)(A)(iii)a.6. 

FINRA’s existing surveillance and 

reporting safeguards are designed to 

deter and detect possible manipulative 

behavior that might arise from changing 

position and exercise limits. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

FINRA does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

Economic Impact Analysis 

FINRA has undertaken an economic 

impact assessment, as set forth below, to 

analyze the potential economic impacts, 

including anticipated costs, benefits, 

and distributional and competitive 

effects, transfers of wealth, relative to 

the current baseline, and the 

alternatives FINRA considered in 

assessing how to best meet its regulatory 

objectives. 

Regulatory Objective 

FINRA is proposing to amend Rule 

2360 to harmonize FINRA’s position 

limits for conventional options with the 

position limit for standardized 

options.25

Economic Baseline 

Per FINRA Rule 2360(b)(3)(A)(iii) 

conventional equity options are subject 

to a basic position limit of 25,000 

contracts or higher for conventional 

option contracts on securities that 

underlie exchange-traded options 

qualifying for a higher tier as 

determined by option exchange rules. 

The existing position limits for 

conventional options on LQD and GDX 

are 250,000 contracts. Cboe has recently 

increased position limits for options on 

these ETFs. 

Economic Impact 

Benefits 

As noted above, the proposed rule 

change would amend Rule 2360 to 

harmonize FINRA’s position limits for 

conventional options with the position 

limits for standardized options.26 If the 

existing position limits for conventional 

equity options on select ETFs constrains 

trading in these ETFs, then investors 

may be able to better manage risk and 

trade on information when the position 

limit is relaxed. In general, the 

improvement in risk management and 

informational efficiency may increase 

more when position limits are 

increased. We acknowledge, however, 

that the conventional options on these 

ETFs, the ETFs themselves, and the 

securities underlying these ETFs are 

liquid, so improvements in 

informational efficiency may be 

relatively small. 

For investors that trade conventional 

equity options, there is likely to be a 

natural size for an executed order that 

minimizes fixed and variable 

transaction costs, including but not 

limited to, the bid-ask spread, price 

impact, and transaction fees. If the 

existing position limits for conventional 

equity options on select ETFs constrains 

the order size such that fixed and 

variable transaction costs are higher 

than optimal, then investors may benefit 

if the new position limit is no less than 

the natural size. In such an event, the 

cost to hedge an ETF would decline, 

thereby making it less costly to manage 

downside risk. 

In addition, if the existing position 

limits serve as a constraint, then an 

increase in the position limits for 

conventional options on select ETFs 

could permit investors to more easily 

find a counterparty. If the number of 

counterparties increases, then the cost 

of hedging should decline as the halfspread narrows, thereby making it less 

expensive to manage downside risk. 

The extent of the constraint imposed 

by the current limit on conventional 

options is related to the ability of an 

investor to achieve similar economic 

exposure through other means. If there 

are other securities, such as an option 

on a closely related index, that exist and 

provide similar economic exposure less 

expensively, then the value of lessening 

the position limits on conventional 

options on ETFs is lower. 

Members may rely on information and 

data feeds from the Options Clearing 

Corporation to assist in their monitoring 

position limits. Because position limits 

on the standardized and conventional 

side have traditionally been consistent, 

members have relied on this feed for 

both standardized and conventional 

options. If the position limits between 

standardized and conventional options 

are conformed, then the cost from 

monitoring position limits should 

decline for member firms. Having the 

same position limits on standardized 

and conventional options, reduces the 

potential for excess loss that may be 

incurred when different limits are 

applied to the standardized versus 

conventional options on the same ETF. 

The economic loss may arise from 

building and maintaining trading and 

compliance systems to support the 

different regimes. Furthermore, the 

harmonization of position limits on 

standardized and conventional options 

eliminates the potential risk and cost 

arising from regulatory arbitrage. 

Costs 

The proposed rule change may 

impose limited operational cost on 

member firms that trade conventional 

options on ETFs, as these same firms 

would need to revise position limits that 

are used in trading systems. However, 

the proposed rule change should not 

impose additional costs, because it is 

difficult to disrupt or manipulate the 

underlying market, create an incentive 

to disrupt or manipulate the underlying 

market for the purpose of profiting from 

the options position, or disrupt or 

manipulate the options market for 

conventional options on ETFs affected 

by this proposed rule. ETFs that 

underlie options subject to the proposed 

rule change are highly liquid and are 

based on a broad set of highly liquid 

securities, which makes the market 

difficult to manipulate or disrupt. In 

fact, options on certain broad-based 

security indexes have no position limits. 

Furthermore, the applicable creation 

and redemption process for these ETFs 

reduces the potential for disruptive or 

manipulative activity. New ETF units 

may be created at any time during the 

trading day and are not subject to 

position limits. Consequently, there is a 

direct link between the underlying 

components of the ETF, which keeps 

ETF’s share prices trading in line with 

the ETF’s underlying net asset value. 

Alternatives 

No further alternatives are under 

consideration. 


lotter on DSK11XQN23PROD with NOTICES1
22250 Federal Register / Vol. 87, No. 72 / Thursday, April 14, 2022 / Notices 

27 15 U.S.C. 78s(b)(3)(A). 

28 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 

4(f)(6) requires a self-regulatory organization to give 

the Commission written notice of its intent to file 

the proposed rule change, along with a brief 

description and text of the proposed rule change, 

at least five business days prior to the date of filing 

of the proposed rule change, or such shorter time 

as designated by the Commission. FINRA has 

satisfied this requirement. 

29 17 CFR 240.19b–4(f)(6). 

30 17 CFR 240.19b–4(f)(6)(iii). 

31For purposes only of waiving the 30-day 

operative delay, the Commission has considered the 

proposed rule’s impact on efficiency, competition, 

and capital formation. See 15 U.S.C. 78c(f). 32 17 CFR 200.30–3(a)(12). 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing proposed rule 

change does not: (i) Significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days after the date of 

the filing, or such shorter time as the 

Commission may designate if consistent 

with the protection of investors and the 

public interest, it has become effective 

pursuant to Section 19(b)(3)(A) of the 

Act 27 and Rule 19b–4(f)(6) 28

thereunder. 

A proposed rule change filed under 

Rule 19b–4(f)(6) 29 normally does not 

become operative prior to 30 days after 

the date of the filing. However, pursuant 

to Rule 19b–4(f)(6)(iii),30 the 

Commission may designate a shorter 

time if such action is consistent with the 

protection of investors and the public 

interest. FINRA has asked the 

Commission to waive the 30-day 

operative delay so that the proposed 

rule change may become operative upon 

filing. FINRA states that waiver of the 

operative delay would be consistent 

with the protection of investors and the 

public interest because it would enable 

FINRA to immediately harmonize 

position limits with those of other selfregulatory organizations to ensure 

consistent regulation. For this reason, 

the Commission believes that waiving 

the 30-day operative delay is consistent 

with the protection of investors and the 

public interest. Therefore, the 

Commission hereby waives the 

operative delay and designates the 

proposal operative upon filing.31

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

should be approved or disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

FINRA–2022–007 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–FINRA–2022–007. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of such filing 

also will be available for inspection and 

copying at the principal office of 

FINRA. All comments received will be 

posted without change. Persons 

submitting comments are cautioned that 

we do not redact or edit personal 

identifying information from comment 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–FINRA– 

2022–007 and should be submitted on 

or before May 5, 2022. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.32

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 2022–07946 Filed 4–13–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Investment Company Act Release No. 

34556; File No. 812–15255] 

Stellus Capital Investment 

Corporation, et al. 

April 11, 2022. 

AGENCY: Securities and Exchange 

Commission (‘‘Commission’’). 

ACTION: Notice. 

Notice of application for an order 

(‘‘Order’’) under sections 17(d) and 57(i) 

of the Investment Company Act of 1940 

(the ‘‘Act’’) and rule 17d–1 under the 

Act to permit certain joint transactions 

otherwise prohibited by sections 17(d) 

and 57(a)(4) of the Act and rule 17d–1 

under the Act. 

SUMMARY OF APPLICATION: Applicants 

request an Order to permit certain 

business development companies 

(‘‘BDCs’’) and certain closed-end 

management investment companies to 

co-invest in portfolio companies with 

each other and with affiliated 

investment entities. 

APPLICANTS: Stellus Capital Investment 

Corporation (the ‘‘Company’’); Stellus 

Private Credit BDC (the ‘‘SPBDC’’); 

Stellus Credit Master Fund I, LLC, 

Stellus Credit VCOC Fund I, LLC, 

Stellus Credit Master Fund II, LLC, 

Stellus Credit VCOC Fund II, LLC, 

Stellus Credit VCOC Fund III, LLC, 

Stellus Credit Master Fund III, LLC, 

Stellus Senior Secured Loan Fund, LLC, 

Stellus Credit Funds Investor A, LLC, 

and Stellus Credit Funds Investor B, LP 

(collectively, ‘‘Existing Affiliated 

Funds’’); Stellus Capital SBIC LP, 

Stellus Capital SBIC GP, LLC, SCIC– 

Consolidated Blocker 1, Inc., SCIC–CC 

Blocker 1, Inc., SCIC–ERC Blocker 1, 

Inc., SCIC–SKP Blocker 1, Inc., SCIC– 

APE Blocker 1, Inc., SCIC–HUF Blocker 

1, Inc., SCIC–Hollander Blocker 1, Inc., 

Stellus Capital SBIC II, LP, SCIC– 

Invincible Blocker 1, Inc., SCIC–FBO 

Blocker 1, Inc., SCIC–ICD Blocker 1, 

Inc., SCIC–Venbrook Blocker 1, Inc., 

PBDC Consolidated Blocker, LLC 


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