Document ID: SEC-2020-0715-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2020-05-05T04:00Z

[Federal Register Volume 85, Number 87 (Tuesday, May 5, 2020)]
[Notices]
[Pages 26736-26740]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-09520]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88768; File No. SR-CBOE-2020-015]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To Increase 
Position Limits for Options on Certain Exchange-Traded Funds and 
Indexes

April 29, 2020.

I. Introduction

    On February 26, 2020, Cboe Exchange, Inc. (``Exchange'' or 
``Cboe'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend Interpretation and Policy .07 of Exchange 
Rule 8.30, Position Limits, and Rule 8.31, Position Limits for Broad-
Based Index Options, to increase the position limits for options on the 
following exchange-traded funds (``ETFs'') and indexes: The Standard 
and Poor's Depositary Receipts Trust (``SPY''), iShares China Large-Cap 
ETF (``FXI''), iShares MSCI EAFE ETF (``EFA''), iShares iBoxx High 
Yield Corporate Bond Fund (``HYG''), Financial Select Sector SPDR Fund 
(``XLF''), Market Vectors Oil Services ETF (``OIH''),\3\ MSCI Emerging 
Markets Index (``MXEF''), and MSCI EAFE Index (``MXEA''). The proposed 
rule change was published for comment in the Federal Register on March 
16, 2020.\4\ On April 16, 2020, the Exchange submitted Amendment No. 1 
to the proposed rule change.\5\ The Commission is publishing this 
notice to solicit comment on Amendment No. 1, and is approving the 
proposed rule change, as modified by Amendment No. 1, on an accelerated 
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ As noted below, the Exchange subsequently amended its 
proposal to remove the proposed increase in position limits for 
options on OIH. See infra note 5.
    \4\ See Securities Exchange Act Release No. 88350 (March 10, 
2020), 85 FR 15003 (``Notice''). Comments on the proposed rule 
change can be found at: https://www.sec.gov/comments/sr-cboe-2020-015/srcboe2020015.htm.
    \5\ In Amendment No. 1, the Exchange: (1) Provided additional 
justification and analysis in support of the proposal, which is 
summarized below; (2) revised its proposal to eliminate the proposed 
increase to position limits for options on OIH; and (3) made 
technical, corrective, and clarifying changes. The full text of 
Amendment No. 1 is available on the Commission's website at: https://www.sec.gov/comments/sr-cboe-2020-015/srcboe2020015-7081714-215592.pdf.
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II. Description of the Proposal, as Modified by Amendment No. 1

    Currently, position limits for options on ETFs such as those 
subject to the proposal, as amended,\6\ are determined pursuant to Rule 
8.30, and, with certain exceptions, vary by tier according to the 
number of outstanding shares and past six-month trading volume of the 
underlying security.\7\ Options in the highest tier--i.e., options that 
overlie securities with the largest numbers of outstanding shares and 
trading volume--have a standard option position limit of 250,000 
contracts (with adjustments for splits, re-capitalizations, etc.) on 
the same side of the market.\8\ In addition, Interpretation and Policy 
.07 of Rule 8.30 currently sets forth separate position limits for 
options on certain ETFs, including 1,800,000 contracts for options on 
SPY, and 500,000 contracts for options on FXI and EFA. Similarly, 
position limits for options on broad-based indexes such as those 
subject to the proposal, as amended,\9\ are determined pursuant to Rule 
8.31, which provides a position limit of 25,000 contracts for options, 
restricted to no more than 15,000 near-term, on all broad-based indexes 
except those specifically listed under Rule 8.31 for

[[Page 26737]]

which a separate position limit is provided.\10\
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    \6\ See Notice, supra note 4, at 15005-06, for descriptions 
provided by the Exchange regarding the composition and design of the 
underlying ETFs of each of the ETF options subject to this proposal.
    \7\ Pursuant to Rule 8.42, Interpretation and Policy .02, which 
provides that the exercise limits for ETF options are equivalent to 
their position limits, the exercise limits for each of these options 
would be increased to the level of the new position limits.
    \8\ To be eligible for this tier, either the recent six-month 
trading volume of the underlying security must have totaled at least 
100,000,000 shares; or the most recent six-month trading volume of 
the underlying security must have totaled at least 75,000,000 shares 
and the underlying security must have at least 300,000,000 shares 
currently outstanding. See Rule 8.30, Interpretation and Policy 
.02(e). Options on XLF and HYG currently fall into this tier.
    \9\ See Notice, supra note 4, at 15006-07, for descriptions 
provided by the Exchange regarding the composition and design of the 
underlying indexes of each of the index options subject to this 
proposal.
    \10\ Pursuant to Rule 8.42(b), which provides that the exercise 
limits for index options are equivalent to their position limits, 
the exercise limits for each of these options would be increased to 
the level of the new position limits.
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    In the proposal, as amended, the Exchange proposes to revise 
Interpretation and Policy .07 to Rule 8.30 and Rule 8.31 to increase 
the position limits for options on certain ETFs and index options, as 
described more fully below.\11\ The Exchange states its belief that 
increasing the position limits for these options will lead to a more 
liquid and competitive market environment for these options that will 
benefit customers interested in these products.\12\
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    \11\ The Exchange also proposes to update the PowerShares QQQ 
Trust (``QQQ'') symbol in Interpretation and Policy .07 of Rule 8.30 
from QQQQ to QQQ to accurately reflect the current ticker symbol. 
See Notice, supra note 4, at 15005 n.19.
    \12\ See id. at 15007.
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    First, the Exchange proposes to increase the position limits for 
options on XLF and HYG, each of which fall into the highest standard 
tier set forth in Rule 8.30. The Exchange proposes to increase the 
current position limit of 250,000 contracts for options on these 
securities to 500,000 contracts.\13\ In support of this change, the 
Exchange compares certain trading characteristics of XLF and HYG (the 
average daily trading volume of the security and of the overlying 
option), as well as the number of outstanding shares and market 
capitalization of each of these securities, to the same figures for the 
iShares 20+ Year Treasury Bond Fund ETF (``TLT'') and the iShares MSCI 
Japan ETF (``EWJ'') (and, for XLF only, the iShares MSCI Brazil Capped 
ETF (``EWZ'')), all of which currently have a position limit of 500,000 
contracts.\14\
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    \13\ In connection with this change, the exercise limits for 
these options would rise to 500,000 contracts. See supra note 7.
    \14\ See Notice, supra note 4, at 15005-06; Amendment No. 1, 
supra note 5, at 3-4. With respect to trading characteristics, 
specifically, the Exchange states that the average daily trading 
volumes of XLF and HYG for the periods analyzed were 48.8 million 
shares and 20.0 million shares, respectively. The figures for EWZ, 
TLT, and EWJ were 26.7 million shares, 9.6 million shares, and 7.2 
million shares, respectively. With regard to the overlying options, 
trading volumes for XLF options and HYG options were 102,100 
contracts and 193,700 contracts, respectively, while trading volumes 
for EWZ options, TLT options, and EWJ options were 186,500 
contracts, 95,200 contracts, and 5,700 contracts, respectively. The 
Exchange further states that the total shares outstanding was 793.6 
million for XLF and 216.6 million for HYG compared to 233 million 
for EWZ, 128.1 million for TLT, and 236.6 million for EWJ. Finally, 
the Exchange states that the fund market cap for XLF was $24.6 
billion and HYG was $19.1 billion compared to $11.3 billion for EWZ, 
$17.5 billion for TLT, and $14.2 billion for EWJ.
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    In addition, the Exchange proposes to increase the position limits 
for options on EFA and FXI from 500,000 contracts to 1,000,000 
contracts.\15\ In support of the change for EFA options, the Exchange 
provides the trading characteristics of EFA, and compares the position 
limits for options on EFA to those of MXEA, the analogue index, which 
currently has a position limit of 25,000 contracts (proposed herein to 
be increased to 50,000 contracts), as adjusted using a notional value 
comparison by which approximately 29 EFA option contracts equal one 
MXEA option contract.\16\ The Exchange states that, accordingly, a 
position limit for EFA options that would be economically equivalent to 
the current position limit for MXEA options would be 725,000 contracts, 
and 1,450,000 contracts at the proposed increased MXEA position limit 
level.\17\ The Exchange therefore believes that the higher actual and 
economically equivalent trading volumes, notional value, and 
economically equivalent position limits for EFA options as compared to 
MXEA options supports the proposed increase in position limits.\18\ In 
support of the change for FXI options, the Exchange provides the 
trading characteristics for FXI shares and options, as well as the 
market capitalization of FXI and the components of the underlying FTSE 
China 50 Index, which the Exchange believes are both large enough to 
absorb potential price movements caused by a large trade in FXI.\19\
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    \15\ In connection with this change, the exercise limits for 
these options would rise to 1,000,000 contracts. See supra note 7.
    \16\ See Notice, supra note 4, at 15005-06. Specifically, the 
Exchange states that the average daily trading volume for EFA was 
25.1 million shares, the average daily volume for the overlying 
options was 156,000 contracts, the total shares outstanding for EFA 
was 928.2 million, and the fund market cap for EFA was $64.9 
billion.
    \17\ See id. at 15006.
    \18\ See Amendment No. 1, supra note 5, at 9.
    \19\ See Notice, supra note 4, at 15005-06. Specifically, the 
Exchange states that the average daily trading volume for FXI was 
26.1 million shares, the average daily volume for the overlying 
options was 196,600 contracts, the total shares outstanding for FXI 
was 106.8 million, and the fund market cap for FXI was $4.8 billion, 
while the market capitalization of the components of the reference 
index, the FTSE China 50 Index, was $28 trillion.
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    The Exchange also proposes to increase the position limits for 
options on SPY from 1,800,000 contracts to 3,600,000 contracts.\20\ In 
support of this change, the Exchange compares the trading and other 
characteristics of SPY to those of QQQ and states that SPY is 
significantly more liquid than QQQ, which is also currently subject to 
a position limit of 1,800,000 contracts.\21\
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    \20\ In connection with this change, the exercise limits for 
these options would rise to 3,600,000 contracts. See supra note 7.
    \21\ See Notice, supra note 4, at 15005-06; Amendment No. 1, 
supra note 5, at 3-4. Specifically, the Exchange states that the 
average daily trading volume for SPY was 70.3 million shares 
compared to 30.2 million shares for QQQ, while the average daily 
volume for options contracts overlying SPY was 2.8 million, as 
compared to 670,200 for QQQ. The Exchange further states that the 
total shares outstanding for SPY was 968.7 million compared to 410.3 
million for QQQ. Finally, the Exchange states that the fund market 
cap for SPY was $312.9 billion compared to $88.7 billion for QQQ.
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    Finally, the Exchange proposes to increase the position limits for 
options on MXEA and MXEF from 25,000 contracts to 50,000 contracts and 
to eliminate the near-term position limit restriction on these 
options.\22\ In support of this change, the Exchange provides the 
trading characteristics and market capitalizations of MXEA and MXEF, 
and compares the notionally adjusted position limits for MXEA and MXEF 
to the position limits for options on EFA and EEM (currently 1,000,000 
contracts for EEM and proposed herein to be 1,000,000 contracts for 
EFA), the ETFs that track the MXEA and MXEF indexes, respectively.\23\ 
In Amendment No. 1, the Exchange provides additional support for its 
proposal to eliminate near-term position limit restrictions for MXEA 
and MXEF options by stating that such near-term restrictions introduce 
additional complexity for market participants utilizing these options 
to hedge.\24\ In addition, the Exchange provides near-term and total 
open interest statistics comparing MXEA and MXEF to options on the S&P 
100 Index (``OEX'' and ``XEO''), which are not currently subject to any 
near-term position limits.\25\ Based on the

[[Page 26738]]

information it gathered, the Exchange believes that the proposed 
elimination of near-term position limits for MXEA and MXEF is 
consistent with the existing limits of comparable indexes and would not 
raise any potential issues with respect to manipulation or disruption 
in the near months.\26\
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    \22\ In connection with this change, the exercise limits for 
these options would rise to 50,000 contracts. See supra note 10.
    \23\ See Notice, supra note 4, at 15005-07. Specifically, the 
Exchange states that the average daily volume for options contracts 
overlying MXEA and MXEF was 594 contracts and 1,055 contracts, 
respectively. The Exchange further states that the number of 
component securities for MXEA and MXEF were 917 and 1,404, 
respectively. Finally, the Exchange states that the index market cap 
was $14.9 trillion for MXEA and $6.2 trillion for MXEF.
    \24\ See Amendment No. 1, supra note 5, at 5.
    \25\ See id. at 5-6. Specifically, the Exchange states that the 
average near-term open interest for MXEA and MXEF was 3,022 
contracts and 10,915 contracts, respectively, as compared to 4,926 
contracts for OEX and 6,789 contracts for XEO. The Exchange further 
states that the average total open interest was 13,380 contracts and 
32,910 contracts for MXEA and MXEF, respectively, as compared to 
10,489 contracts for OEX and 9,970 contracts for XEO. Finally, the 
Exchange states that the average daily volume for OEX and XEO 
options was 1,454 contracts and 891 contracts, respectively, which 
the Exchange believes is comparable to the average daily volume for 
options contracts overlying MXEA and MXEF, which was 594 contracts 
and 1,055 contracts, respectively.
    \26\ See id. at 6.
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    The Exchange states that the current position limits for the 
options subject to the proposal may have impeded the ability of market 
makers to make markets on the Exchange.\27\ Specifically, the Exchange 
avers, the proposal is designed to encourage liquidity providers to 
provide additional liquidity to the Exchange and other market 
participants to shift liquidity from over-the-counter markets onto the 
Exchange, as well as other options exchanges on which they participate, 
which, it believes, will enhance the process of price discovery 
conducted on the Exchange through increased order flow.\28\ The 
proposal will also benefit market participants, the Exchange maintains, 
by providing them with a more effective trading and hedging 
vehicle.\29\
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    \27\ See Notice, supra note 4, at 15003.
    \28\ See id. at 15003, 15008.
    \29\ See id. at 15008.
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    With regard to the concerns that position limits generally are 
meant to address, the Exchange represents that the structure of the 
underlying ETFs and indexes of the options subject to this proposal; 
the considerable market capitalization of the funds, underlying 
component securities, and indexed component securities; and the 
liquidity of the market for options on those ETFs and indexes and the 
underlying component securities mitigates concerns regarding potential 
manipulation of the products and disruption of the underlying markets 
due to the increased position limits.\30\ The Exchange elaborates 
further and describes in detail: (i) The creation and redemption 
process for ETFs; (ii) the arbitrage activity that ensues when such 
instruments are overpriced or are trading at a discount to the 
securities on which they are based, and which, the Exchange maintains, 
helps to keep the instrument's price in line with the value of its 
underlying portfolio; and (iii) how these processes, in the Exchange's 
view, serve to mitigate the potential price impact of the ETF shares 
that might otherwise result from increased position limits.\31\
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    \30\ See id.
    \31\ See id. at 15007.
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    In addition, the Exchange states that (i) some of the subject ETFs 
are based on broad-based indexes that underlie cash-settled options 
that are economically equivalent to the relevant ETF and have no 
position limits; and (ii) others are based on broad-based indexes that 
underlie cash-settled options with position limits reflecting a 
notional value that is larger than the current position limit for their 
ETF analogue.\32\ According to the Exchange, if certain position limits 
are appropriate for the options overlying comparable indexes or 
comparable baskets of securities to those that the ETFs subject to the 
proposal track, or are appropriate for the ETFs that track the indexes 
subject to the proposal, then those same economically equivalent 
position limits should be appropriate for the options overlying the 
relevant ETFs or indexes.\33\ For the other ETFs in the proposal where 
this does not apply (because there are currently no options listed on 
an index tracked by the ETF), the Exchange argues that, based on the 
liquidity, breadth, and depth of the underlying market of the 
components of such indexes, the index referenced by the ETF would be 
considered a broad-based index under the Exchange's rules.\34\ 
Moreover, regarding the indexes subject to the proposal, the Exchange 
argues that the deep, liquid markets for and market capitalization of 
the component securities underlying such indexes support the proposed 
position limit increases for the options on those indexes.\35\ The 
Exchange also cites data in support of its argument that the market 
capitalization of the underlying index or reference asset of each of 
the ETFs and indexes is large enough to absorb any price movements that 
may be caused by an oversized trade, and thus justifies increasing 
position limits for the options on these products.\36\
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    \32\ See id. at 15004.
    \33\ See id. at 15005.
    \34\ See id. at 15004-05.
    \35\ See id. at 15005.
    \36\ See id.
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    As noted, in Amendment No. 1, the Exchange withdrew options on OIH 
from the subject of the proposal, stating that ``the Exchange may 
propose an increase for position limits for options on OIH through a 
separate proposed rule change submitted at a later date.'' \37\ 
Accordingly, this Order does not address position limits for options on 
OIH.
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    \37\ See Amendment No. 1, supra note 5, at 6-7.
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    The Exchange also refers to other provisions in its rules, noting, 
for example, that the options reporting requirements of Exchange Rule 
8.43 would continue to be applicable to the options subject to the 
proposal.\38\ As set forth in Exchange Rule 8.43(a), each Trading 
Permit Holder (``TPH'') must report to the Exchange certain information 
in relation to any customer who, acting alone, or in concert with 
others, on the previous business day maintained aggregate long or short 
positions on the same side of the market of 200 or more contracts in 
any single class of option contracts dealt in on the Exchange.\39\ 
Further, Exchange Rule 8.43(b) requires each TPH (other than an 
Exchange market-maker or Designated Primary Market-Maker) \40\ that 
maintains a position in excess of 10,000 non-FLEX equity option 
contracts on the same side of the market, on behalf of its own account 
or for the account of a customer, to report to the Exchange information 
as to whether such positions are hedged, and provide documentation as 
to how such contracts are hedged.\41\
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    \38\ See Notice, supra note 4, at 41460.
    \39\ The report must include, for each such class of options, 
the number of option contracts comprising each such position and, in 
the case of short positions, whether covered or uncovered. See Rule 
8.43(a).
    \40\ According to the Exchange, market-makers (including 
Designated Primary Market-Makers) are exempt from the referenced 
reporting requirement because market-maker information can be 
accessed by the Exchange. See Notice, supra note 4, at 15007.
    \41\ See id.
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    The Exchange also represents that the existing surveillance 
procedures and reporting requirements at the Exchange and other self-
regulatory organizations are capable of properly identifying disruptive 
and/or manipulative trading activity.\42\ The Exchange states that its 
surveillance procedures utilize daily monitoring of market activity via 
automated surveillance techniques to identify unusual activity in both 
options and the underlying ETFs and indexes, as applicable.\43\ In 
addition, the Exchange states that its surveillance procedures have 
been effective in the past for the surveillance of trading in the 
options subject to this proposal, and will continue to be employed.\44\
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    \42\ See id. at 15007-08.
    \43\ See id. at 15008.
    \44\ See id. at 15008 n.34.
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    The Exchange also argues that the current financial requirements 
imposed by the Exchange and by the Commission adequately address 
concerns that a TPH or its customer may try to maintain a potentially 
large, unhedged position in the options subject to this proposal.\45\ 
Current margin and risk-based haircut methodologies, the Exchange 
states, serve to limit the size of positions maintained by any one 
account by

[[Page 26739]]

increasing the margin and/or capital that a TPH must maintain for a 
large position held by itself or by its customer.\46\ In addition, the 
Exchange notes that the Commission's net capital rule, Rule 15c3-1 
under the Act,\47\ imposes a capital charge on TPHs to the extent of 
any margin deficiency resulting from the higher margin requirement.\48\
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    \45\ See id. at 15008.
    \46\ See id.
    \47\ 17 CFR 240.15c3-1.
    \48\ See Notice, supra note 4, at 15008.
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III. Discussion and Commission Findings

    The Commission finds that the proposed rule change, as modified by 
Amendment No. 1, is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\49\ In particular, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1, is consistent with Section 
6(b)(5) of the Act,\50\ which requires, among other things, that the 
rules of a national securities exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, 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.
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    \49\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \50\ 15 U.S.C. 78f(b)(5).
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    Position and exercise limits serve as a regulatory tool designed to 
address manipulative schemes and adverse market impact surrounding the 
use of options. Since the inception of standardized options trading, 
the options exchanges have had rules limiting the aggregate number of 
options contracts that a member or customer may hold or exercise.\51\ 
These position and exercise limits are intended to prevent the 
establishment of options positions that can be used or might create 
incentives to manipulate the underlying market so as to benefit the 
options positions.\52\ In particular, position and exercise limits are 
designed to minimize the potential for mini-manipulations and for 
corners or squeezes of the underlying market.\53\ In addition, such 
limits serve to reduce the possibility of disruption of the options 
market itself, especially in illiquid classes.\54\
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    \51\ See, e.g., Securities Exchange Act Release No. 45236 
(January 4, 2002), 67 FR 1378 (January 10, 2002) (SR-Amex-2001-42).
    \52\ See, e.g., Securities Exchange Act Release No. 47346 
(February 11, 2003), 68 FR 8316 (February 20, 2003) (SR-CBOE-2002-
26).
    \53\ See id.
    \54\ See id.
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    Over the years, the Commission has taken a gradual, evolutionary 
approach toward expansion of position and exercise limits for option 
products overlying certain ETFs where there is considerable liquidity 
in both the underlying cash markets and the options markets, and, in 
the case of certain broad-based index options, toward elimination of 
such limits altogether.\55\ The Commission has been careful to balance 
two competing concerns when considering proposals by self-regulatory 
organizations to change position and exercise limits. The Commission 
has recognized that the limits can be useful to prevent investors from 
disrupting the market in securities underlying the options.\56\ To this 
point, commenters, writing in support of the proposal, noted that the 
characteristics of the products subject to the Exchange's proposal help 
to allay concerns about disruption in the underlying markets.\57\ One 
commenter stated that the market capitalization of the underlying ETFs 
of the ETF options subject to the proposal, the ETF component 
securities, and the component securities of the underlying indexes 
subject to the proposal are all sufficiently large to mitigate any 
concern about potential manipulation and/or disruption in the 
underlying markets upon increasing position limits for the overlying 
options.\58\ Commenters also stated that the creation and redemption 
process for the underlying ETFs of the ETF options subject to the 
proposal will absorb price volatility caused by large trades in the 
underlying ETFs.\59\
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    \55\ The Commission's incremental approach to approving changes 
in position and exercise limits for option products overlying 
certain ETFs is well-established. See, e.g., Securities Exchange Act 
Release Nos. 82770 (February 23, 2018), 83 FR 8907 (March 1, 2018) 
(SR-CBOE-2017-057) (approving increase of position limits for 
options on certain ETFs); 67672 (August 15, 2012), 77 FR 50750, 
50752 & n.42 (August 22, 2012) (SR-NYSEAmex-2012-29) (approving 
proposed rule change to eliminate position limits for SPY options on 
a pilot basis); 64695 (June 17, 2011), 76 FR 36942, 36943 & n.19 
(June 23, 2011) (SR-Phlx-2011-58) (approving increase of SPY options 
position limit to 900,000 contracts). The Commission notes that the 
Exchange filed an immediately effective proposed rule change on June 
4, 2018 to terminate its pilot program and impose the current 
1,800,000 contract position limit for SPY options. See Securities 
Exchange Act Release No. 83415 (June 12, 2018), 83 FR 28274 (June 
18, 2018) (SR-CBOE-2018-042).
    \56\ See Securities Exchange Act Release No. 39489 (December 24, 
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-97-11).
    \57\ See letters to Vanessa Countryman, Secretary, Commission, 
dated April 6, 2020, from Ellen Greene, Managing Director, Equity 
and Options Market Structure, Securities Industry and Financial 
Markets Association (``SIFMA Letter''); Steve Crutchfield, Head of 
Market Structure, Chicago Trading Company (``CTC Letter''); and Venu 
Palaparthi, Managing Director, Dash Financial Technologies LLC 
(``Dash Letter''). One of these commenters agreed with the 
Exchange's statements in support of the proposal with respect to the 
highly liquid markets for the underlying securities, ``even to the 
extent that trading in such securities is presenting somewhat 
differently during the current market volatility.'' SIFMA Letter at 
2.
    \58\ See SIFMA Letter at 1-2. A second commenter also stated 
that the market capitalization and diverse composition of the ETFs 
subject to the proposal are of sufficient size to support the 
proposed increase in position limits for the associated options. See 
Dash Letter at 1.
    \59\ See SIFMA Letter at 2; CTC Letter at 1.
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    At the same time, the Commission has determined that limits should 
not be established in a manner that will unnecessarily 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.\60\ Commenters stated that failing to increase the 
position limits for the options subject to the proposal would impede 
trading activity and investor strategies, such as the use of effective 
hedging vehicles or income-generating strategies.\61\ One of those 
commenters further stated that failing to increase the position limits 
for the options subject to the proposal may also impede the ability of 
market makers to make liquid markets with tighter spreads in such 
options.\62\
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    \60\ See Securities Exchange Act Release No. 39489 (December 24, 
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-97-11).
    \61\ See SIFMA Letter at 2; CTC Letter at 1.
    \62\ See SIFMA Letter at 2.
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    After careful consideration of the proposal, as modified by 
Amendment No. 1, and the comments received, the Commission believes 
that it is reasonable for the Exchange to increase the position and 
exercise limits for options on XLF and HYG to 500,000 contracts, for 
options on EFA and FXI to 1,000,000 contracts, for options on SPY to 
3,600,000 contracts, and for options on MXEA and MXEF to 50,000 
contracts with no near-term position limit. As noted above, the markets 
for standardized options on these securities and for the underlying 
products themselves have substantial trading volume and liquidity. The 
Commission believes that this liquidity should reduce the possibility 
of manipulating these products and the disruption in the underlying 
markets that lower position limits may protect against.
    The Commission also has considered the creation and redemption 
process for the ETFs subject to the proposal; the existence of an 
issuer arbitrage

[[Page 26740]]

mechanism that helps keep each ETF's price in line with the value of 
its underlying portfolio when overpriced or trading at a discount to 
the securities on which it is based; and how these processes can serve 
to mitigate the potential price impact of the ETF shares that might 
otherwise result from increased position limits.\63\
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    \63\ See supra notes 30-31 and accompanying text.
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    In addition, as discussed above, the Exchange believes that current 
margin and net capital requirements serve to limit the size of 
positions maintained by any one account.\64\ The Commission agrees that 
these financial requirements should help to address concerns that a 
member or its customer may try to maintain an inordinately large 
unhedged position in the options subject to this proposal and will help 
to reduce risks if such a position is established.
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    \64\ See supra notes 45-48 and accompanying text.
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    The Commission further agrees with the Exchange that the reporting 
requirements imposed by Exchange Rule 8.43,\65\ as well as the 
Exchange's surveillance procedures, together with those of other self-
regulatory organizations,\66\ should help protect against potential 
manipulation. The Commission expects that the Exchange will continue to 
monitor trading in the options subject to this proposal for the purpose 
of discovering and sanctioning manipulative acts and practices, and to 
reassess the position and exercise limits, if and when appropriate, in 
light of its findings.
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    \65\ See supra notes 38-41 and accompanying text.
    \66\ See supra notes 42-44 and accompanying text.
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    In sum, given the measure of liquidity for the options subject to 
this proposal and the underlying products, the creation and redemption 
process and issuer arbitrage mechanisms that exist relating to the 
underlying instruments, the margin and capital requirements cited 
above, the Exchange's options reporting requirements, and the 
Exchange's surveillance procedures and agreements with other markets, 
the Commission believes that increasing the position and exercise 
limits for XLF and HYG options to 500,000 contracts, for EFA and FXI 
options to 1,000,000 contracts, for SPY options to 3,600,000 contracts, 
and for MXEA and MXEF options to 50,000 contracts with no near-term 
position limit is consistent with the Act.

IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 1 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-CBOE-2020-015 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-CBOE-2020-015. 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-CBOE-2020-015, and should be submitted 
on or before May 26, 2020.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
1 in the Federal Register. As discussed above, in Amendment No. 1, the 
Exchange: (1) Provided additional justification and analysis in support 
of the proposal, which is summarized above; (2) revised its proposal to 
eliminate the proposed increase to position limits for options on OIH; 
and (3) made technical, corrective, and clarifying changes. The 
Commission notes that Amendment No. 1 does not otherwise modify the 
proposed rule change, which was subject to a full notice-and-comment 
period. Rather, Amendment No. 1 serves to narrow the scope of the 
original proposal by maintaining the existing position limit of 250,000 
contracts for options on OIH. The Commission also notes that Amendment 
No. 1 provides additional accuracy, clarity, and justification to the 
proposal, thereby facilitating the Commission's ability to make the 
findings set forth above to approve the proposal. Accordingly, the 
Commission finds good cause, pursuant to Section 19(b)(2) of the 
Act,\67\ to approve the proposed rule change, as modified by Amendment 
No. 1, on an accelerated basis.
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    \67\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\68\ that the proposed rule change, as modified by Amendment No. 1 
(SR-CBOE-2020-015), be, and hereby is, approved on an accelerated 
basis.
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    \68\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\69\
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    \69\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-09520 Filed 5-4-20; 8:45 am]
 BILLING CODE 8011-01-P