Document ID: SEC-2021-1688-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2021-11-30T05:00Z

[Federal Register Volume 86, Number 227 (Tuesday, November 30, 2021)]
[Notices]
[Pages 68018-68023]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25990]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93658; File No. SR-ISE-2021-25]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Increase 
Position Limits for Options on Certain Exchange-Traded Funds

November 23, 2021.
    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 November 19, 2021, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to increase position limits for options on 
certain exchange-traded funds (``ETFs'').
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/ise/rules, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

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

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

1. Purpose
    ISE proposes to increase certain position and exercise limits 
within Options 9, Section 13 and 15, respectively, similar to the Cboe 
Options Exchange, Inc. (``Cboe'').\3\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 93525 (November 4, 
2021), 86 FR 62584 (November 10, 2021) (SR-Cboe-2021-029) (Notice of 
Filing of Amendment Nos. 2 and 3 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1, 
2, and 3, To Increase Position Limits for Options on Two Exchange-
Traded Funds).
---------------------------------------------------------------------------

    Position limits are designed to address potential manipulative 
schemes and adverse market impacts surrounding the use of options, such 
as disrupting the market in the security underlying the options. While 
position limits should address and discourage the potential for 
manipulative schemes and adverse market impact, if such limits are set 
too low, participation in the options market may be discouraged. The 
Exchange believes that position limits must therefore be balanced 
between mitigating concerns of any potential manipulation and the cost 
of inhibiting potential hedging activity that could be used for 
legitimate economic purposes.
    The Exchange has observed an ongoing increase in demand, for both 
trading and hedging purposes, in options on the following exchange-
traded funds (``ETFs''): (1) iShares iBoxx $ Investment Grade Corporate 
Bond ETF (``LQD''); and (2) VanEck Vectors Gold Miners ETF (``GDX''), 
(collectively ``Underlying ETFs''). Though the demand for these options 
appears to have increased, position limits for options on the 
Underlying ETFs have remained the same. The Exchange believes these 
unchanged position limits may have impeded, and may continue to impede, 
trading activity and strategies of investors, such as use of effective 
hedging vehicles or income generating strategies (e.g., buy-write or 
put-write), and the ability of Market Makers to make liquid markets 
with tighter spreads in these options resulting in the transfer of 
volume to over-the-counter (``OTC'') markets. OTC transactions occur 
through bilateral agreements, the terms of which are not publicly 
disclosed to the marketplace. As such, OTC transactions do not 
contribute to the price discovery process on a public exchange or other 
lit markets. Therefore, the Exchange believes that the proposed 
increases in position limits for options on the Underlying ETFs may 
enable liquidity providers to provide additional liquidity to the 
Exchange and other market participants to transfer their liquidity 
demands from OTC markets to the Exchange. As described in further 
detail below, the Exchange believes that the continuously increasing 
market capitalization of the Underlying ETFs, ETF components, as well 
as the highly liquid markets for each, reduces the concerns for 
potential market manipulation and/or disruption in the underlying 
markets upon increasing position limits, while the rising demand for 
trading options on the Underlying ETFs for legitimate economic purposes 
compels an increase in position limits.
Proposed Position Limits for Options on the Underlying ETFs
    Proposed Position Limits for options on ETFs are determined 
pursuant to Options 9, Section 13 and vary according to the number of 
outstanding shares and the trading volumes of the underlying equity 
security (which includes ETFs) over the past six months. Pursuant to 
Options 9, Section 13, the

[[Page 68019]]

largest in capitalization and the most frequently traded ETFs have an 
option position limit of 250,000 contracts (with adjustments for 
splits, re-capitalizations, etc.) on the same side of the market; and 
smaller capitalization stocks and ETFs have position limits of 200,000, 
75,000, 50,000 or 25,000 contracts (with adjustments for splits, 
recapitalizations, etc.) on the same side of the market. Options on LQD 
and GDX are currently subject to the standard position limit of 250,000 
contracts as set forth in Options 9, Section 13. Supplementary .01 to 
Options 9, Section 13 sets forth separate, higher position limits for 
specific equity options (including options on specific ETFs).\4\ The 
Exchange proposes to amend Supplementary .01 to Options 9, Section 13 
to increase the position limits and [sic] for options on each of LQD 
and GDX.\5\ The table below represents the current, and proposed, 
position limits for options on the ETFs subject to this proposal:
---------------------------------------------------------------------------

    \4\ Adjusted option series, in which one option contract in the 
series represents the delivery of other than 100 shares of the 
underlying security as a result of a corporate action by the issuer 
of the security underlying such option series, do not impact the 
notional value of the underlying security represented by those 
options. When an underlying security undergoes a corporate action 
resulting in adjusted series, the Exchange lists new standard option 
series across all appropriate expiration months the day after the 
existing series are adjusted. The adjusted series are generally 
actively traded for a short period of time following adjustment, but 
orders to open options positions in the underlying security are 
almost exclusively placed in the new standard option series 
contracts.
    \5\ Similar amendments are being proposed for the exercise 
limits for LQD and GDX options within Options 9, Section 15. 
Exercise limits have been established for the corresponding options 
at the same levels as the corresponding security's position limits.

------------------------------------------------------------------------
                                              Current        Proposed
                 Product                  position limit  position limit
------------------------------------------------------------------------
LQD.....................................         250,000         500,000
GDX.....................................         250,000         500,000
------------------------------------------------------------------------

    The Exchange notes that the proposed position limit 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''). The Exchange represents 
that the Underlying ETFs qualify for either (1) the initial listing 
criteria set forth in Options 4, Section 3(h) for ETFs holding non-U.S. 
component securities, (2) the generic listing standards for series of 
portfolio depository receipts and index fund shares based on 
international or global indexes under which a comprehensive 
surveillance agreement (``CSA'') is not required, as well as (3) the 
continued listing criteria in Options 4, Section 4(b) (for ETFs).\6\ In 
compliance with its listing rules, the Exchange also represents that 
non-U.S. component securities that are not subject to a comprehensive 
surveillance agreement (``CSA'') do not, in the aggregate, represent 
more than more than 50% of the weight of any of the Underlying ETFs.\7\
---------------------------------------------------------------------------

    \6\ The Exchange notes that the initial listing criteria for 
options on ETFs that hold non-U.S. component securities are more 
stringent than the maintenance listing criteria for those same ETF 
options. See Options 4, Section 3(h); Options 4, Section 4(b).
    \7\ See Options 4, Section 3(h).
---------------------------------------------------------------------------

Composition and Growth Analysis for Underlying ETPs
    As stated above, position (and exercise) limits are intended to 
prevent the establishment of options positions that can be used to or 
potentially create incentives to manipulate the underlying market so as 
to benefit options positions. The Commission has recognized that these 
limits are designed to minimize the potential for mini-manipulations 
and for corners or squeezes of the underlying market, as well as serve 
to reduce the possibility for disruption of the options market itself, 
especially in illiquid classes.\8\ The Underlying ETFs, as well as the 
ETF components, are highly liquid and are based on a broad set of 
highly liquid securities and other reference assets, as demonstrated 
through the trading statistics presented in this proposal. To support 
the proposed position limit increases, the Exchange considered the 
liquidity of the Underlying ETFs, the value of the Underlying. ETFs, 
their components and the 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.
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 67672 (August 15, 
2012), 77 FR 50750 (August 22, 2012) (SR-NYSEAmex-2012-29).
---------------------------------------------------------------------------

    Cboe demonstrated the below trading statistics regarding shares of 
and options on the Underlying ETFs and the values of the Underlying 
ETFs and their components:

----------------------------------------------------------------------------------------------------------------
                                                                   Shares
                                ADV \9\ (ETF    ADV (options     outstanding     Fund market    Share value \12\
           Product                 shares        contracts)      (millions)       cap (USD           (USD)
                                  millions)                         \10\        millions)\11\
----------------------------------------------------------------------------------------------------------------
LQD..........................            14.1          30,300           308.1        54,113.7       130.13 (NAV)
GDX..........................            39.4         166,000           419.8        16,170.5        33.80 (NAV)
----------------------------------------------------------------------------------------------------------------

    Cboe collected the same trading statistics as above regarding a 
sample of other ETFs, as well as the current position limits for 
options on such ETFs pursuant to its Rule 13.07, to draw comparisons in 
support of the proposed position limit increases for options on the 
Underlying ETFs (see further discussion below).
---------------------------------------------------------------------------

    \9\ Average 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.
    \10\ Shares Outstanding and Net Asset Values (``NAV''), as well 
as for the comparative ETFs presented below, are as of April 5, 2021 
for all ETFs.
    \11\ Fund Market Capitalization data, as well as for the 
comparative ETFs presented below, are as of January 14, 2021.
    \12\ See note 10 above.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          ADV (ETF                         Shares        Fund market                          Current
                       Product                             shares       ADV (options     outstanding      cap (USD     Share value (USD)     position
                                                          millions)       contract)      (millions)       millions)                           limits
--------------------------------------------------------------------------------------------------------------------------------------------------------
EWZ..................................................            29.2         139,400           173.8         6,506.8        33.71 (NAV)         500,000
TLT..................................................            11.5         111,800           103.7        17,121.3       136.85 (NAV)         500,000
EWJ..................................................             8.2          15,500           185.3        13,860.7        69.72 (NAV)         500,000

[[Page 68020]]

 
HYG..................................................            30.5         261,600           254.5        24,067.5        86.86 (NAV)         500,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The Exchange believes 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 components, the 
Exchange 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.
    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.\13\ Cboe noted that 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 5000,000 [sic] contracts. In addition to this, Cboe 
noted that, although there are currently no options listed for trading 
on the IBOXIG Index, the components \14\ 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.\15\ The Exchange 
believes 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 the Exchange understands that market participants' need for 
options have continued to grow alongside the ETF. Particularly, the 
Exchange notes 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, the Exchange believes 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.
---------------------------------------------------------------------------

    \13\ See Markit iBoxx USD Liquid Investment Grade Index, 
available at https://cdn.ihsmarkit.com/www/pdf/MKT-iBoxx-USD-Liquid-Investment-GradeIndex-factsheet.pdf (January 14, 2021).
    \14\ Investment grade corporate bonds.
    \15\ See note 13 above.
---------------------------------------------------------------------------

    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.\16\ Cboe noted ADV in GDX options 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. Cboe noted that 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. Cboe noted that 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 EWZ. Cboe noted that many of the Brazil-
based 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 Cboe had not identified any issues with 
the continued listing and trading of EWZ options or any adverse market 
impact on EWZ in connection with the current 500,000 position limit in 
place for EWZ options. 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. The 
Exchange believes 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 movements as a result of potentially 
oversized trades.
---------------------------------------------------------------------------

    \16\ See VanEck Vectors Gold Miners ETF, available at https://www.vaneck.com/library/vaneck-vectors-etfs/gdx-fact-sheet-pdf/ 
(January 14, 2021).
---------------------------------------------------------------------------

Creation and Redemption for ETFs
    The Exchange believes that the creation and redemption process for 
the ETFs subject to this proposal will lessen the potential for 
manipulative activity with options on the Underlying ETFs. When an ETF 
provider wants to create more shares, it looks to an Authorized 
Participant (``AP'') (generally a market maker or other large financial 
institution) to acquire the underlying

[[Page 68021]]

components the ETF is to hold. For instance, when an ETF is designed to 
track the performance of an index, the AP 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 AP a block of equally valued ETF shares, on a one-for-one 
fair value basis. The price is based on the NAV, 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 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.
    The Exchange understands that the ETF creation and redemption 
processes seek 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, an ETF's share price might rise above the value of its 
underlying components. When this happens, the AP or issuer believes the 
ETF may now be overpriced, so it may buy shares of the component 
securities or assets and then sell ETF shares in the open market. This 
may drive the ETF's share price back toward the underlying net asset 
value. Likewise, if an ETF share price starts trading at a discount to 
the component securities or assets it holds, the AP or issuer can buy 
shares of the ETF and redeem them for the underlying components. Buying 
undervalued ETF shares may drive the share price of an 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.
Surveillance and Reporting Requirements
    The Exchange believes that increasing the position limits (and 
exercise limits) for the options on the Underlying ETFs would lead to a 
more liquid and competitive market environment for these options, which 
will benefit customers interested in trading these products. The 
reporting requirement for the options on the Underlying ETFs would 
remain unchanged. Thus, the Exchange would still require that each 
Member that maintains positions in the options on the same side of the 
market, for its own account or for the account of a customer, report 
certain information to the Exchange. This information would include, 
but would not be limited to, the options' positions, whether such 
positions are hedged and, if so, a description of the hedge(s). Market 
Makers \17\ would continue to be exempt from this reporting 
requirement, however, the Exchange may access Market Maker position 
information.\18\ Moreover, the Exchange's requirement that Members file 
reports with the Exchange for any customer who held aggregate large 
long or short positions on the same side of the market of 200 or more 
option contracts of any single class for the previous day will remain 
at this level for the options subject to this proposal and will 
continue to serve as an important part of the Exchange's surveillance 
efforts.\19\
---------------------------------------------------------------------------

    \17\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See Options 1, 
Section 1(a)(21). The term ``Competitive Market Maker'' means a 
Member that is approved to exercise trading privileges associated 
with CMM Rights. See Options 1, Section 1(a)(12). The term ``Primary 
Market Maker'' means a Member that is approved to exercise trading 
privileges associated with PMM Rights. See Options 1, Section 
1(a)(36).
    \18\ The Options Clearing Corporation (``OCC'') through the 
Large Option Position Reporting (``LOPR'') system acts as a 
centralized service provider for compliance with position reporting 
requirements by collecting data from each Member, consolidating the 
information, and ultimately providing detailed listings of each 
Member's report to the Exchange, as well as Financial Industry 
Regulatory Authority, Inc. (``FINRA''), acting as its agent pursuant 
to a regulatory services agreement (``RSA'') with the Exchange.
    \19\ See Options 9, Section 16, Reports Related to Position 
Limits.
---------------------------------------------------------------------------

    The Exchange believes that the existing surveillance procedures and 
reporting requirements at the Exchange and other SROs are capable of 
properly identifying disruptive and/or manipulative trading activity. 
The Exchange also represents that it has adequate surveillances in 
place to detect potential manipulation, as well as reviews in place to 
identify potential changes in composition of the Underlying ETFs and 
continued compliance with the Exchange's listing standards. These 
procedures utilize daily monitoring of market activity via automated 
surveillance techniques to identify unusual activity in both options 
and the underlyings, as applicable.\20\ The Exchange also notes that 
large stock holdings must be disclosed to the Commission by way of 
Schedules 13D or 13G,\21\ which are used to report ownership of stock 
which exceeds 5% of a company's total stock issue and may assist in 
providing information in monitoring for any potential manipulative 
schemes.
---------------------------------------------------------------------------

    \20\ The Exchange believes these procedures have been effective 
for the surveillance of trading the options subject to this proposal 
and will continue to employ them.
    \21\ 17 CFR 240.13d-1.
---------------------------------------------------------------------------

    The Exchange believes that the current financial requirements 
imposed by the Exchange and by the Commission adequately address 
concerns regarding potentially large, unhedged positions in the options 
on the Underlying ETFs. Current margin and risk-based haircut 
methodologies serve to limit the size of positions maintained by any 
one account by increasing the margin and/or capital that a Member must 
maintain for a large position held by itself or by its customer.\22\ In 
addition, Rule 15c3-1 \23\ imposes a capital charge on Members to the 
extent of any margin deficiency resulting from the higher margin 
requirement.
---------------------------------------------------------------------------

    \22\ See Options 6C, Section 3, Margin Requirements.
    \23\ 17 CFR 240.15c3-1.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) \24\ of the Act,\25\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act. Specifically, the Exchange believes the 
proposed rule change is consistent with the Section 6(b)(5) \26\ 
requirements that the rules of an exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. Additionally, the Exchange 
believes the proposed rule change is consistent with the Section 
6(b)(5) \27\ requirement that the rules of an exchange not be designed 
to permit unfair discrimination between customers, issuers, brokers, or 
dealers.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78f(b)(5).
    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(5).
    \27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed increase in position limits 
for options on the Underlying ETFs will remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, protect investors and the public interest, 
because it will provide market participants with the ability to more

[[Page 68022]]

effectively execute their trading and hedging activities. The proposed 
increases will allow market participants to more fully implement 
hedging strategies in related derivative products and to further use 
options to achieve investment strategies (e.g., there are other 
exchange-traded products (``ETPs'') that use options on the ETFs 
subject to this proposal as part of their investment strategy, and the 
applicable position limits as they stand today may inhibit these other 
ETPs in achieving their investment objectives, to the detriment of 
investors). Also, increasing the applicable position limits may allow 
Market Makers to provide the markets for these options with more 
liquidity in amounts commensurate with increased consumer demand in 
such markets. The proposed position limit increases may also encourage 
other liquidity providers to shift liquidity, as well as encourage 
consumers to shift demand, from OTC markets onto the Exchange, which 
will enhance the process of price discovery conducted on the Exchange 
through increased order flow.
    In addition, the Exchange believes that the structure of the 
Underlying ETFs, the considerable market capitalization of the funds 
and underlying components, and the liquidity of the markets for the 
applicable options and underlying components will mitigate concerns 
regarding potential manipulation of the products and/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 the underlying components do not 
lead to manipulation and/or disruption. This general principle applies 
to the recently observed increased levels of market capitalization and 
trading volume and liquidity in shares of and options on the Underlying 
ETFs (as described above), and, as a result, the Exchange does not 
believe that the options markets or underlying markets would become 
susceptible to manipulation and/or disruption as a result of the 
proposed position limit increases. Indeed, the Commission has 
previously expressed the belief that not just increasing, but removing, 
position and exercise limits may bring additional depth and liquidity 
to the options markets without increasing concerns regarding 
intermarket manipulation or disruption of the options or the underlying 
securities.\28\
---------------------------------------------------------------------------

    \28\ See Securities Exchange Act Release No. 62147 (October 28, 
2005) (SR-CBOE-2005-41), at 62149.
---------------------------------------------------------------------------

    Further, the Exchange notes that the proposed rule change to 
increase position limits for select actively traded options is not 
novel and the Commission has approved similar proposed rule changes by 
the Exchange to increase position limits for options on similar, highly 
liquid and actively traded ETPs.\29\ Furthermore, the Exchange again 
notes that that the proposed position limits for options on LQD and GDX 
are consistent with existing position limits for options on comparable 
ETFs in Options 9, Section 13.
---------------------------------------------------------------------------

    \29\ See Securities Exchange Act Release Nos. 88768 (April 29, 
2020), 85 FR 26736 (May 5, 2020) (SR-CBOE-2020-015); 83415 (June 12, 
2018), 83 FR 28274 (June 18, 2018) (SR-CBOE-2018-042); and 68086 
(October 23, 2012), 77 FR 65600 (October 29, 2012) (SR-CBOE-2012-
066).
---------------------------------------------------------------------------

    The Exchange's surveillance and reporting safeguards continue to be 
designed to deter and detect possible manipulative behavior that might 
arise from increasing or eliminating position and exercise limits in 
certain classes. The Exchange believes that the current financial 
requirements imposed by the Exchange and by the Commission adequately 
address concerns regarding potentially large, unhedged position in the 
options on the Underlying ETFs, further promoting just and equitable 
principles of trading, the maintenance of a fair and orderly market, 
and the protection of investors.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange does not believe 
the proposed rule change will impose any burden on intra-market 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because the increased position limits (and exercise 
limits) will be available to all market participants and apply to each 
in the same manner. The Exchange believes that the proposed rule change 
will provide additional opportunities for market participants to more 
efficiently achieve their investment and trading objectives of market 
participants.
    The Exchange does not believe that the proposed rule change will 
impose any burden on inter-market competition that is not necessary or 
appropriate in furtherance of the Act. On the contrary, the Exchange 
believes the proposal promotes competition because it may attract 
additional order flow from the OTC market to exchanges, which would in 
turn compete amongst each other for those orders.\30\ The Exchange 
believes market participants would benefit from being able to trade 
options with increased position limits in an exchange environment in 
several ways, including but not limited to the following: (1) Enhanced 
efficiency in initiating and closing out position; (2) increased market 
transparency; and (3) heightened contra-party creditworthiness due to 
the role of OCC as issuer and guarantor. The Exchange notes that other 
options exchanges may choose to file similar proposals with the 
Commission to increase position limits on options on the Underlying 
ETFs.
---------------------------------------------------------------------------

    \30\ Additionally, several other options exchanges have the same 
position limits as the Exchange, as they incorporate by reference to 
the Exchange's position limits, and as a result the position limits 
for options on the Underlying ETFs will increase at those exchanges. 
For example, The Nasdaq Options Market LLC (``NOM'') and Nasdaq BX, 
Inc. (``BX'') position limits are determined by the position limits 
established by Cboe. See NOM and BX Options 9, Section 13, Position 
Limits.
---------------------------------------------------------------------------

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or 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 from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \31\ and Rule 19b-
4(f)(6) thereunder.\32\
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78s(b)(3)(A).
    \32\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
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. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \33\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \34\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the proposed rule change may become operative upon

[[Page 68023]]

filing. The Exchange states that waiver of the operative delay would be 
consistent with the protection of investors and the public interest 
because it will ensure fair competition among the exchanges by allowing 
the Exchange to immediately increase the position limits for the 
products subject to this proposal, which the Exchange believes will 
provide consistency for ISE Members that are also members at Cboe where 
these increased position limits are currently in place. For this 
reason, the Commission believes that waiver of 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 as operative upon filing.\35\
---------------------------------------------------------------------------

    \33\ 17 CFR 240.19b-4(f)(6).
    \34\ 17 CFR 240.19b-4(f)(6)(iii).
    \35\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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 change should be approved or 
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-ISE-2021-25 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-ISE-2021-25. 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 such 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-ISE-2021-25, 
and should be submitted on or before December 21, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
---------------------------------------------------------------------------

    \36\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25990 Filed 11-29-21; 8:45 am]
BILLING CODE 8011-01-P