Appendix A to Subpart C of Part 41 - —Guidance on and Acceptable Practices for Position Limits and Position Accountability for Security Futures Products

Appendix A to Subpart C of Part 41 - Guidance on and Acceptable Practices for Position Limits and Position Accountability for Security Futures Products

(a) Guidance for estimating deliverable supply.

(1) For an equity security, deliverable supply should be no greater than the free float of the security.

(2) For a debt security, deliverable supply should not include securities that are committed for long-term agreements (e.g., closed-end investment companies, structured products, or similar securities).

(3) Further guidance on estimating deliverable supply, including consideration of whether the underlying security is readily available, is found in appendix C to part 38 of this chapter.

(b) Guidance and acceptable practices for setting limits on cash-settled equity index security futures products -

(1) Guidance for setting limits on cash-settled equity index security futures products. For a security futures product cash settled to a narrow-based security index of equity securities, a designated contract market:

(i) May set the level of a position limit to that of a similar narrow-based equity index option listed on a national security exchange or association; or

(ii) Should consider the deliverable supply of equity securities underlying the index, and should consider the index weighting and contract multiplier.

(2) Acceptable practices for setting limits on cash-settled equity index security futures products. For a security futures product cash settled to a narrow-based security index of equity securities weighted by the number of shares outstanding, a designated contract market may set a position limit as follows: First, determine the limit on a security futures product on each underlying equity security pursuant to § 41.25(b)(3)(i); second, multiply each such limit by the ratio of the 100-share contract size and the shares of the equity securities in the index; and third, determine the minimum level from step two and set the limit to that level, given a contract size of one U.S. dollar times the index, or for a larger contract size, reduce the level proportionately. If under these procedures each of the equity securities underlying the index is determined to be eligible for position accountability levels, the security futures product on the index itself is eligible for a position accountability level.

(c) Guidance and acceptable practices for setting limits on debt security futures products -

(1) Guidance for setting limits on debt security futures products. A designated contract market should set the level of a position limit to no greater than the equivalent of 12.5 percent of the par value of the estimated deliverable supply of the underlying debt security. For a security futures product on more than one debt security, the limit should be based on the underlying debt security with the lowest estimated deliverable supply.

(2) Acceptable practices for setting limits on debt security futures products. [Reserved]

(d) Guidance on position accountability. A designated contract market may adopt a position accountability rule for any security futures product, in addition to a position limit rule required or adopted under § 41.25. Upon request by the designated contract market, traders who hold positions, either net or on the same side of the market, greater than such level specified pursuant to the rules of the designated contract market must provide information to the designated contract market and consent to halt increasing their positions when so ordered by the designated contract market.

(e) Guidance on exemptions from position limits. A designated contract market may approve exemptions from these position limits pursuant to rules that are consistent with § 150.5 of this chapter, or to rules that are consistent with rules of a national securities exchange or association regarding exemptions to securities option position limits or exercise limits.

[84 FR 51022, Sept. 27, 2019]