Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fees Schedule, 3379-3382 [2017-00368]

Download as PDF Federal Register / Vol. 82, No. 7 / Wednesday, January 11, 2017 / Notices national securities exchange have rules 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. In particular, the proposed rule change reorganizes and attempts to clarify the description of the opening (and sometimes closing) procedures, deletes text that the Exchange believes is either obsolete or unnecessary, removes certain discretion for the Exchange to make determinations under the rule on a class-by-class basis where C2 no longer needs that discretion, and is intended to promote greater consistency across Rule 6.11. The Commission notes that these changes may offer market participants a better understanding of how the Exchange’s opening (and sometimes closing) procedures operate. To the extent the changes achieve that goal, they may promote transparency, reduce the potential for investor confusion, and assist market participants in deciding whether to participate in C2’s trading rotations and, if they do participate, have confidence and certainty as to how their orders will be processed by the C2 System. The Commission believes that the proposed rule change is designed to promote just and equitable principles of trade by seeking to ensure that series open in a fair and orderly manner with sufficient liquidity and opportunities for execution at prices that are determined by market forces. In particular, the Exchange notes that the proposed rule change is designed to ensure that market participants are aware of the circumstances under which the System may not open a series.38 The proposed rule change also sets out the circumstances when the Exchange may exercise discretion under the rule and strives to narrow that discretion within certain established parameters.39 The proposed rule change further requires sradovich on DSK3GMQ082PROD with NOTICES 38 See Notice, supra note 3, at 83319. determinations, including the establishment of parameters governing the opening process, will be set forth in Regulatory Circulars (or as otherwise specified by the Exchange under the proposed rule). On account of the critical importance of this information to investors’ understanding of how the Exchange’s System operates, C2 should ensure that such information is prominently displayed, readily searchable and retrievable, up-to-date, and comprehensive. 39 Exchange VerDate Sep<11>2014 19:05 Jan 10, 2017 Jkt 241001 3379 the Exchange to document and periodically review Exchange decisions made under the rule to deviate from the standard opening procedures, and stipulates that the Help Desk can so deviate in response to unusual market conditions with specific regard to the public interest.40 In this manner, such Exchange determinations made by highlevel senior Exchange personnel under the rule should be limited, transparent, and made with due regard to the Exchange’s obligations under the Act. For the foregoing reasons, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act and the rules and regulations thereunder applicable to a national securities exchange. solicit comments on the proposed rule change from interested persons. IV. Conclusion 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. It is therefore ordered, pursuant to Section 19(b)(2) of the Act,41 that the proposed rule change (SR–C2–2016– 021) be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.42 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–00367 Filed 1–10–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its Fees Schedule. The text of the proposed rule change is available on the Exchange’s Web site (https:// www.cboe.com/AboutCBOE/ CBOELegalRegulatoryHome.aspx), at the Exchange’s Office of the Secretary, 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 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose [Release No. 34–79745; File No. SR–CBOE– 2016–094] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fees Schedule January 5, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on December 23, 2016, Chicago Board Options Exchange, Incorporated (the ‘‘Exchange’’ or ‘‘CBOE’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to 40 See proposed Rule 6.11(e); see also Notice, supra note 3, at 83318. 41 15 U.S.C. 78s(b)(2). 42 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 The Exchange proposes to amend its Fees Schedule. Specifically, the Exchange proposes to waive transaction fees incurred from certain transactions executed in compression forums. SEC Rule 15c3–1 (Net Capital Requirements for Brokers or Dealers) (‘‘Net Capital Rules’’) requires every registered broker-dealer [sic] maintain certain specified minimum levels of capital.3 The Net Capital Rules are designed to protect securities customers, counterparties, and creditors by requiring broker-dealers to have sufficient liquid resources on hand, at all times, to meet their financial obligations. Notably, hedged positions, including offsetting futures and options contract positions, result in certain net capital requirement reductions under the Net Capital Rules.4 All Options Clearing Corporation (‘‘OCC’’) clearing members are subject to the Net Capital Rules. However, a subset 3 17 CFR 240.15c3–1. addition, the Net Capital Rules permit various offsets under which a percentage of an option position’s gain at any one valuation point is allowed to offset another position’s loss at the same valuation point (e.g., vertical spreads). 4 In E:\FR\FM\11JAN1.SGM 11JAN1 3380 Federal Register / Vol. 82, No. 7 / Wednesday, January 11, 2017 / Notices of clearing members are subsidiaries of U.S. bank holding companies, which, due to their affiliations with their parent U.S. bank holding companies, must comply with additional bank regulatory capital requirements pursuant to rulemaking required under the DoddFrank Wall Street Reform and Consumer Protection Act.5 Pursuant to this mandate, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation approved a comprehensive regulatory capital framework for subsidiaries of U.S. bank holding company clearing firms.6 Generally, these rules impose higher minimum capital requirements, more restrictive capital eligibility standards, and higher asset risk weights than were previously mandated for clearing members that are subsidiaries of U.S. bank holding companies under the Net Capital Rules. Furthermore, the rules do not permit deductions for hedged securities or offsetting options positions.7 Rather, capital charges under these standards are based on the aggregate notional value of short positions regardless of offsets. As a result, clearing Trading Permit Holders (‘‘TPHs’’) generally must hold substantially more bank regulatory capital than would otherwise be required under the Net Capital Rules. The impact of these regulatory capital rules are compounded in the SPX options market due to the large notional value of SPX contracts. The Exchange believes these regulatory capital requirements could impede efficient use of capital and undermine the critical liquidity role that Market-Makers play in the SPX options market by limiting the amount of capital sradovich on DSK3GMQ082PROD with NOTICES 5 H.R. 4173 (amending section 3(a) of the Securities Exchange Act of 1934 (the ‘‘Act’’) (15 U.S.C. 78c(a))). 6 12 CFR 50; 79 FR 61440 (Liquidity Coverage Ratio: Liquidity Risk Measurement Standards). 7 Many options strategies, including relatively simple strategies often used by retail customers and more sophisticated strategies used by marketmakers and institutions, are risk-limited strategies or options spread strategies that employ offsets or hedges to achieve certain investment outcomes. Such strategies typically involve the purchase and sale of multiple options (and may be coupled with purchases or sales of the underlying assets), executed simultaneously as part of the same strategy. In many cases, the potential market exposure of these strategies is limited and defined. Whereas regulatory capital requirements have historically reflected the risk-limited nature of carrying offsetting positions, these positions may now be subject to large regulatory capital requirements. Various factors, including administration costs; transaction fees; and limited market demand or counterparty interest, however, discourage market participants from closing these positions even though many market participants likely would prefer to close the positions rather than carry them to expiration. VerDate Sep<11>2014 19:05 Jan 10, 2017 Jkt 241001 clearing TPHs can allocate to clearing member transactions. Specifically, the rules may cause clearing TPHs to impose stricter position limits on their clearing members. These stricter position limits may impact the liquidity Market-Makers might supply in the SPX market, and this impact may be compounded when a clearing TPH has multiple Market-Maker client accounts, each having largely risk-neutral portfolio holdings.8 Currently, TPHs may reduce open interest in SPX options for regulatory capital purposes by simply trading out of positions at the end of each month as they would trade any open position. The Exchange currently waives transaction fees incurred as a result of transactions that compress or reduce certain open positions.9 However, the Exchange believes wide-scale reduction of open interest in SPX options in such a manner is burdensome and inefficient. Accordingly, the Exchange recently adopted a procedure to facilitate these types of transactions on the Exchange to allow TPHs seeking to close positions in SPX options to more easily identify counterparty interest and efficiently conduct closing transactions in SPX options on the Exchange in ‘‘compression forums’’ without interfering with normal SPX trading.10 In general, under this new process, each month, TPHs may submit to the Exchange lists of open SPX positions (these positions are referred to in Rule 6.56 as ‘‘compression-list positions’’) they wish to close against opposing (long/short) positions of other TPHs. 8 Several TPHs have indicated to the Exchange that these rules could hamper their ability to provide consistent liquidity in the SPX options market unless they reduce their positions in SPX by the end of the year. 9 See CBOE Fees Schedule, Footnote 41 (The Exchange rebates transaction fees if a transaction (i) involves a complex order with at least five (5) different series in S&P 500 Index (SPX) options, SPX Weeklys (SPXW) options or p.m.-settled SPX options (SPXPM), (ii) is a closing-only transaction or, if the transaction involves a Firm order (origin code ‘‘F’’), is an opening transaction executed to facilitate a compression of option positions for a market-maker or joint-back office (JBO) account executed as a cross pursuant to and in accordance with CBOE Rule 6.74(b) or (d); (iii) is a position with a required capital charge equal to the minimum capital charge under OCC rules RBH calculator or is a position comprised of option series with a delta of ten or less; and (iv) is entered on any of the final three (3) trading days of any calendar month. To receive this rebate, a rebate request with supporting documentation must be submitted to the Exchange within three business days of the transactions.); see also Securities Exchange Act Release Nos. 79279 (November 10, 2016), 81 FR 81200 (November 17, 2016) (SR– CBOE–2016–074) and 76842 (January 6, 2016), 81 FR 1455 (January 12, 2016) (SR–CBOE–2015–117). 10 See Rule 6.56; see also Securities Exchange Act Release No. 79610 (December 20, 2016) (SR–CBOE– 2016–090). PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 The Exchange would then aggregate these positions into a single list to allow TPHs to more easily identify those positions with counterparty interest on the Exchange. The Exchange will then provide a forum on the Exchange’s trading floor during which TPHs could conduct closing-only transactions in series of SPX options. The Exchange will hold compression forums on the last three trading days of each calendar month. To encourage TPHs to submit compression-list positions in advance of monthly compression forums and compress these positions during compression forums, the Exchange proposes to rebate all transaction fees for closing transactions involving SPX and SPXW compression-list positions executed in a compression forum (pursuant to Rule 6.56).11 The Exchange believes compression of these positions would improve market liquidity by freeing capital currently tied up in positions for which there is a minimal chance that a significant loss would occur. The Exchange further believes advanced submission of compressionlist positions to the Exchange will allow TPHs to more easily identify counterparty interest and efficiently conduct closing transactions of these positions during compression forums. The Exchange notes the submission of compression-list positions is completely voluntary, open to all TPHs with open positions in SPX, and does not require a TPH to trade any compression-list position or participate in a compression forum. To receive a rebate, a TPH must submit to the Exchange a rebate request with supporting documentation within three business days of the transactions. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.12 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 13 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 11 A rebate of transaction fees would include the transaction fee assessed along with any other surcharges assessed per contract (e.g., the Index License Surcharge). 12 15 U.S.C. 78f(b). 13 15 U.S.C. 78f(b)(5). E:\FR\FM\11JAN1.SGM 11JAN1 sradovich on DSK3GMQ082PROD with NOTICES Federal Register / Vol. 82, No. 7 / Wednesday, January 11, 2017 / Notices 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 Section 6(b)(4) of the Act,14 which requires Exchange rules to provide for the equitable allocation of reasonable dues, fees, and other charges among its Trading Permit Holders and other persons using its facilities. In particular, the Exchange believes rebating transaction fees to TPHs that submit compression-list positions to the Exchange in advance is reasonable and not unfairly discriminatory because it encourages TPHs to submit to the Exchange these positions in advance of compression forums. The Exchange may then aggregate these positions, which will allow TPHs to more easily identify counterparty interest and increase opportunities for TPHs to ultimately close these positions during a compression forum. The Exchange believes compression of these positions would improve market liquidity by freeing capital currently tied up in positions for which there is a minimal chance that a significant loss would occur. All TPHs may submit compression-list positions, are subject to the same submission deadline, and may participate in compression forums. The Exchange believes rebating transaction fees for transactions closing compression-list positions during compression forums is reasonable, equitable and not unfairly discriminatory because compression forums will provide an opportunity for TPHs to efficiently conduct closing transactions of these positions. These positions would result in extremely large bank capital requirements for Clearing TPHs even though there is minimal change [sic] for large losses to occur. Additionally, these positions have little or no economic benefit to the TPHs that hold these positions, who would likely prefer to close them but for the associated transaction fees. The fee rebate therefore allows TPHs to close out of these positions that are needlessly burdensome on themselves and Clearing TPHs. The Exchange believes it is reasonable and not unfairly discriminatory to limit the rebate to transactions that close compression-list positions, which must either have a required capital charge equal to the minimum capital charge pursuant to the RBH calculator in OCC’s rules or a delta of ten or less, because these criteria identify option positions that are truly out-of-the-money or spread positions that are essentially riskless strategies. Particularly, the Exchange notes theoretically riskless positions can be identified when the required capital charge equals the minimum capital charge under OCC’s RBH calculator. Transactions comprised of option series with a delta of no greater than 10 would indicate an option position that is, by definition, out-of-the-money. The Exchange believes it is reasonable, equitable and not unfairly discriminatory to limit the rebate to SPX options (including SPXW) because only SPX options may be traded in compression forums. SPX has a substantially higher notional value than other options classes. As such, open interest in SPX has a much greater effect on a bank’s regulatory capital requirements. Compressing riskless SPX option positions therefore has a greater impact on reducing a bank regulatory capital requirement. The Exchange believes it is reasonable to limit the rebate of transactions fees to closing-only transactions, [sic] only closing transactions are permitted during compression forums. If a transaction were to open interest, it would defeat the purpose of the proposed rebate, which is to encourage the closing of positions creating high bank regulatory capital requirements for positions that are of low economic benefit and risk and could otherwise be offset. The Exchange notes it already waives transaction fees for compression of certain eligible SPX positions.15 The Exchange believes requiring TPHs to submit a request for a rebate within three business days of the transactions clarifies the manner in which the rebate can be accomplished in a timely manner and will eliminate any confusion and provide a clear procedure for applicants to get a rebate for their compression transactions, removing impediments to and perfecting the mechanism of a free and open market. Additionally, the Exchange notes such requirement will apply to all TPHs and is similar to the current requirement for requesting a rebate of transaction fees for compression of certain eligible SPX positions.16 of the purposes of the Act. The Exchange does not believe the proposed rule change will impose any burden on intramarket competition not necessary or appropriate in furtherance of the Act because it applies to all TPHs in the same manner with positions that meet the eligible criteria. The proposed rule change would encourage closing of positions that needlessly result in burdensome capital requirements. Closing of the positions would alleviate the capital requirement constraints on TPHs and improve overall market liquidity by freeing capital currently tied up in certain out-of-the-money and riskless SPX positions. The proposed rule change also encourages TPHs to submit to the Exchange in advance a list of these positions, which will allow TPHs to more easily identify counterparty interest and increase opportunities for to efficiently conduct closing transactions of these positions during compression forums. The Exchange does not believe the proposed rule change will impose any burden on intermarket competition not necessary or appropriate in furtherance of the purposes of the Act because the proposed rule change applies only to the trading of SPX options, which are exclusively-listed on CBOE. To the extent the proposed rule change makes the Exchange a more attractive marketplace for market participants at other exchanges, such market participants are welcome to become CBOE market participants. Furthermore, as stated above, submission of lists of positions for compression is completely voluntary, open to all TPHs, and non-binding, in that submission of a list does not require a TPH to trade any position or even represent any position in a trading crowd. Lists of positions will be made available to all TPHs and contain very limited information regarding open interest in positions in SPX. The list will simply alert TPHs to certain SPX positions that other TPHs are interested in closing at the end of each calendar month. B. Self-Regulatory Organization’s Statement on Burden on Competition CBOE does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance The Exchange neither solicited nor received comments on the proposed rule change. 15 See 14 15 U.S.C. 78f(b)(4). VerDate Sep<11>2014 19:05 Jan 10, 2017 PO 00000 Frm 00102 Fmt 4703 C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others 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) supra note 9. 16 Id. Jkt 241001 3381 Sfmt 4703 E:\FR\FM\11JAN1.SGM 11JAN1 3382 Federal Register / Vol. 82, No. 7 / Wednesday, January 11, 2017 / Notices of the Act 17 and paragraph (f) of Rule 19b–4 18 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 will 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: sradovich on DSK3GMQ082PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– CBOE–2016–094 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–CBOE–2016–094. 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 Web site (https://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 Web site 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 17 15 18 17 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f). VerDate Sep<11>2014 19:05 Jan 10, 2017 inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–CBOE– 2016–094 and should be submitted on or before February 1, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–00442 Filed 1–10–17; 8:45 am] BILLING CODE 4710–AD–P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration [Summary Notice No. PE–2017–01] Petition for Exemption; Summary of Petition Received; The Boeing Company BILLING CODE 8011–01–P Federal Aviation Administration (FAA), DOT. ACTION: Notice of petition for exemption received. DEPARTMENT OF STATE SUMMARY: [FR Doc. 2017–00368 Filed 1–10–17; 8:45 am] [Public Notice 9849] E.O. 13224 Designation of Ali Damush, aka Ali Daghmoush, aka Ali Dagmoush, aka Ali Daamoush, aka Ali Dagmush, aka Shiekh Ali Musa Da’amoush as a Specially Designated Global Terrorist Acting under the authority of and in accordance with section 1(b) of Executive Order 13224 of September 23, 2001, as amended by Executive Order 13268 of July 2, 2002, and Executive Order 13284 of January 23, 2003, I hereby determine that the person known as Ali Damush, also known as Ali Daghmoush, also known as Ali Dagmoush, also known as Ali Daamoush, also known as Ali Dagmush, also known as Shiekh Ali Musa Da’amoush committed, or poses a significant risk of committing, acts of terrorism that threaten the security of U.S. nationals or the national security, foreign policy, or economy of the United States. Consistent with the determination in section 10 of Executive Order 13224 that prior notice to persons determined to be subject to the Order who might have a constitutional presence in the United States would render ineffectual the blocking and other measures authorized in the Order because of the ability to transfer funds instantaneously, I determine that no prior notice needs to be provided to any person subject to this determination who might have a constitutional presence in the United States, because to do so would render ineffectual the measures authorized in the Order. This notice shall be published in the Federal Register. 19 17 Jkt 241001 Dated: December 20, 2016. John F. Kerry, Secretary of State. PO 00000 CFR 200.30–3(a)(12). Frm 00103 Fmt 4703 Sfmt 4703 AGENCY: This notice contains a summary of a petition seeking relief from specified requirements of Title 14, Code of Federal Regulations (14 CFR). The purpose of this notice is to improve the public’s awareness of, and participation in, this aspect of the FAA’s regulatory activities. Neither publication of this notice nor the inclusion or omission of information in the summary is intended to affect the legal status of the petition or its final disposition. DATE: Comments on this petition must identify the petition docket number involved and must be received on or before January 23, 2017. ADDRESSES: You may send comments identified by docket number FAA– 2016–9340 using any of the following methods: • Government-wide rulemaking Web site: Go to https://www.regulations.gov and follow the instructions for sending your comments digitally. • Mail: Send comments to the Docket Management Facility; U.S. Department of Transportation, 1200 New Jersey Avenue, SE., West Building Ground Floor, Room W12–140, Washington, DC 20590. • Fax: Fax comments to the Docket Management Facility at 202–493–2251. • Hand Delivery: Bring comments to the Docket Management Facility in Room W12–140 of the West Building Ground Floor at 1200 New Jersey Avenue, SE., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. Privacy: We will post all comments we receive, without change, to https:// www.regulations.gov, including any personal information you provide. Using the search function of our docket Web site, anyone can find and read the comments received into any of our dockets, including the name of the E:\FR\FM\11JAN1.SGM 11JAN1

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[Federal Register Volume 82, Number 7 (Wednesday, January 11, 2017)]
[Notices]
[Pages 3379-3382]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-00368]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79745; File No. SR-CBOE-2016-094]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend the Fees Schedule

January 5, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 23, 2016, Chicago Board Options Exchange, Incorporated 
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I, II, and III 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its Fees Schedule. The text of the 
proposed rule change is available on the Exchange's Web site (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's 
Office of the Secretary, 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
    The Exchange proposes to amend its Fees Schedule. Specifically, the 
Exchange proposes to waive transaction fees incurred from certain 
transactions executed in compression forums.
    SEC Rule 15c3-1 (Net Capital Requirements for Brokers or Dealers) 
(``Net Capital Rules'') requires every registered broker-dealer [sic] 
maintain certain specified minimum levels of capital.\3\ The Net 
Capital Rules are designed to protect securities customers, 
counterparties, and creditors by requiring broker-dealers to have 
sufficient liquid resources on hand, at all times, to meet their 
financial obligations. Notably, hedged positions, including offsetting 
futures and options contract positions, result in certain net capital 
requirement reductions under the Net Capital Rules.\4\
---------------------------------------------------------------------------

    \3\ 17 CFR 240.15c3-1.
    \4\ In addition, the Net Capital Rules permit various offsets 
under which a percentage of an option position's gain at any one 
valuation point is allowed to offset another position's loss at the 
same valuation point (e.g., vertical spreads).
---------------------------------------------------------------------------

    All Options Clearing Corporation (``OCC'') clearing members are 
subject to the Net Capital Rules. However, a subset

[[Page 3380]]

of clearing members are subsidiaries of U.S. bank holding companies, 
which, due to their affiliations with their parent U.S. bank holding 
companies, must comply with additional bank regulatory capital 
requirements pursuant to rulemaking required under the Dodd-Frank Wall 
Street Reform and Consumer Protection Act.\5\ Pursuant to this mandate, 
the Board of Governors of the Federal Reserve System, the Office of the 
Comptroller of the Currency, and the Federal Deposit Insurance 
Corporation approved a comprehensive regulatory capital framework for 
subsidiaries of U.S. bank holding company clearing firms.\6\ Generally, 
these rules impose higher minimum capital requirements, more 
restrictive capital eligibility standards, and higher asset risk 
weights than were previously mandated for clearing members that are 
subsidiaries of U.S. bank holding companies under the Net Capital 
Rules. Furthermore, the rules do not permit deductions for hedged 
securities or offsetting options positions.\7\ Rather, capital charges 
under these standards are based on the aggregate notional value of 
short positions regardless of offsets. As a result, clearing Trading 
Permit Holders (``TPHs'') generally must hold substantially more bank 
regulatory capital than would otherwise be required under the Net 
Capital Rules. The impact of these regulatory capital rules are 
compounded in the SPX options market due to the large notional value of 
SPX contracts.
---------------------------------------------------------------------------

    \5\ H.R. 4173 (amending section 3(a) of the Securities Exchange 
Act of 1934 (the ``Act'') (15 U.S.C. 78c(a))).
    \6\ 12 CFR 50; 79 FR 61440 (Liquidity Coverage Ratio: Liquidity 
Risk Measurement Standards).
    \7\ Many options strategies, including relatively simple 
strategies often used by retail customers and more sophisticated 
strategies used by market-makers and institutions, are risk-limited 
strategies or options spread strategies that employ offsets or 
hedges to achieve certain investment outcomes. Such strategies 
typically involve the purchase and sale of multiple options (and may 
be coupled with purchases or sales of the underlying assets), 
executed simultaneously as part of the same strategy. In many cases, 
the potential market exposure of these strategies is limited and 
defined. Whereas regulatory capital requirements have historically 
reflected the risk-limited nature of carrying offsetting positions, 
these positions may now be subject to large regulatory capital 
requirements. Various factors, including administration costs; 
transaction fees; and limited market demand or counterparty 
interest, however, discourage market participants from closing these 
positions even though many market participants likely would prefer 
to close the positions rather than carry them to expiration.
---------------------------------------------------------------------------

    The Exchange believes these regulatory capital requirements could 
impede efficient use of capital and undermine the critical liquidity 
role that Market-Makers play in the SPX options market by limiting the 
amount of capital clearing TPHs can allocate to clearing member 
transactions. Specifically, the rules may cause clearing TPHs to impose 
stricter position limits on their clearing members. These stricter 
position limits may impact the liquidity Market-Makers might supply in 
the SPX market, and this impact may be compounded when a clearing TPH 
has multiple Market-Maker client accounts, each having largely risk-
neutral portfolio holdings.\8\
---------------------------------------------------------------------------

    \8\ Several TPHs have indicated to the Exchange that these rules 
could hamper their ability to provide consistent liquidity in the 
SPX options market unless they reduce their positions in SPX by the 
end of the year.
---------------------------------------------------------------------------

    Currently, TPHs may reduce open interest in SPX options for 
regulatory capital purposes by simply trading out of positions at the 
end of each month as they would trade any open position. The Exchange 
currently waives transaction fees incurred as a result of transactions 
that compress or reduce certain open positions.\9\ However, the 
Exchange believes wide-scale reduction of open interest in SPX options 
in such a manner is burdensome and inefficient. Accordingly, the 
Exchange recently adopted a procedure to facilitate these types of 
transactions on the Exchange to allow TPHs seeking to close positions 
in SPX options to more easily identify counterparty interest and 
efficiently conduct closing transactions in SPX options on the Exchange 
in ``compression forums'' without interfering with normal SPX 
trading.\10\ In general, under this new process, each month, TPHs may 
submit to the Exchange lists of open SPX positions (these positions are 
referred to in Rule 6.56 as ``compression-list positions'') they wish 
to close against opposing (long/short) positions of other TPHs. The 
Exchange would then aggregate these positions into a single list to 
allow TPHs to more easily identify those positions with counterparty 
interest on the Exchange. The Exchange will then provide a forum on the 
Exchange's trading floor during which TPHs could conduct closing-only 
transactions in series of SPX options. The Exchange will hold 
compression forums on the last three trading days of each calendar 
month.
---------------------------------------------------------------------------

    \9\ See CBOE Fees Schedule, Footnote 41 (The Exchange rebates 
transaction fees if a transaction (i) involves a complex order with 
at least five (5) different series in S&P 500 Index (SPX) options, 
SPX Weeklys (SPXW) options or p.m.-settled SPX options (SPXPM), (ii) 
is a closing-only transaction or, if the transaction involves a Firm 
order (origin code ``F''), is an opening transaction executed to 
facilitate a compression of option positions for a market-maker or 
joint-back office (JBO) account executed as a cross pursuant to and 
in accordance with CBOE Rule 6.74(b) or (d); (iii) is a position 
with a required capital charge equal to the minimum capital charge 
under OCC rules RBH calculator or is a position comprised of option 
series with a delta of ten or less; and (iv) is entered on any of 
the final three (3) trading days of any calendar month. To receive 
this rebate, a rebate request with supporting documentation must be 
submitted to the Exchange within three business days of the 
transactions.); see also Securities Exchange Act Release Nos. 79279 
(November 10, 2016), 81 FR 81200 (November 17, 2016) (SR-CBOE-2016-
074) and 76842 (January 6, 2016), 81 FR 1455 (January 12, 2016) (SR-
CBOE-2015-117).
    \10\ See Rule 6.56; see also Securities Exchange Act Release No. 
79610 (December 20, 2016) (SR-CBOE-2016-090).
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    To encourage TPHs to submit compression-list positions in advance 
of monthly compression forums and compress these positions during 
compression forums, the Exchange proposes to rebate all transaction 
fees for closing transactions involving SPX and SPXW compression-list 
positions executed in a compression forum (pursuant to Rule 6.56).\11\ 
The Exchange believes compression of these positions would improve 
market liquidity by freeing capital currently tied up in positions for 
which there is a minimal chance that a significant loss would occur. 
The Exchange further believes advanced submission of compression-list 
positions to the Exchange will allow TPHs to more easily identify 
counterparty interest and efficiently conduct closing transactions of 
these positions during compression forums. The Exchange notes the 
submission of compression-list positions is completely voluntary, open 
to all TPHs with open positions in SPX, and does not require a TPH to 
trade any compression-list position or participate in a compression 
forum. To receive a rebate, a TPH must submit to the Exchange a rebate 
request with supporting documentation within three business days of the 
transactions.
---------------------------------------------------------------------------

    \11\ A rebate of transaction fees would include the transaction 
fee assessed along with any other surcharges assessed per contract 
(e.g., the Index License Surcharge).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\12\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \13\ 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

[[Page 3381]]

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 Section 6(b)(4) of 
the Act,\14\ which requires Exchange rules to provide for the equitable 
allocation of reasonable dues, fees, and other charges among its 
Trading Permit Holders and other persons using its facilities.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    In particular, the Exchange believes rebating transaction fees to 
TPHs that submit compression-list positions to the Exchange in advance 
is reasonable and not unfairly discriminatory because it encourages 
TPHs to submit to the Exchange these positions in advance of 
compression forums. The Exchange may then aggregate these positions, 
which will allow TPHs to more easily identify counterparty interest and 
increase opportunities for TPHs to ultimately close these positions 
during a compression forum. The Exchange believes compression of these 
positions would improve market liquidity by freeing capital currently 
tied up in positions for which there is a minimal chance that a 
significant loss would occur. All TPHs may submit compression-list 
positions, are subject to the same submission deadline, and may 
participate in compression forums.
    The Exchange believes rebating transaction fees for transactions 
closing compression-list positions during compression forums is 
reasonable, equitable and not unfairly discriminatory because 
compression forums will provide an opportunity for TPHs to efficiently 
conduct closing transactions of these positions. These positions would 
result in extremely large bank capital requirements for Clearing TPHs 
even though there is minimal change [sic] for large losses to occur. 
Additionally, these positions have little or no economic benefit to the 
TPHs that hold these positions, who would likely prefer to close them 
but for the associated transaction fees. The fee rebate therefore 
allows TPHs to close out of these positions that are needlessly 
burdensome on themselves and Clearing TPHs.
    The Exchange believes it is reasonable and not unfairly 
discriminatory to limit the rebate to transactions that close 
compression-list positions, which must either have a required capital 
charge equal to the minimum capital charge pursuant to the RBH 
calculator in OCC's rules or a delta of ten or less, because these 
criteria identify option positions that are truly out-of-the-money or 
spread positions that are essentially riskless strategies. 
Particularly, the Exchange notes theoretically riskless positions can 
be identified when the required capital charge equals the minimum 
capital charge under OCC's RBH calculator. Transactions comprised of 
option series with a delta of no greater than 10 would indicate an 
option position that is, by definition, out-of-the-money.
    The Exchange believes it is reasonable, equitable and not unfairly 
discriminatory to limit the rebate to SPX options (including SPXW) 
because only SPX options may be traded in compression forums. SPX has a 
substantially higher notional value than other options classes. As 
such, open interest in SPX has a much greater effect on a bank's 
regulatory capital requirements. Compressing riskless SPX option 
positions therefore has a greater impact on reducing a bank regulatory 
capital requirement.
    The Exchange believes it is reasonable to limit the rebate of 
transactions fees to closing-only transactions, [sic] only closing 
transactions are permitted during compression forums. If a transaction 
were to open interest, it would defeat the purpose of the proposed 
rebate, which is to encourage the closing of positions creating high 
bank regulatory capital requirements for positions that are of low 
economic benefit and risk and could otherwise be offset. The Exchange 
notes it already waives transaction fees for compression of certain 
eligible SPX positions.\15\
---------------------------------------------------------------------------

    \15\ See supra note 9.
---------------------------------------------------------------------------

    The Exchange believes requiring TPHs to submit a request for a 
rebate within three business days of the transactions clarifies the 
manner in which the rebate can be accomplished in a timely manner and 
will eliminate any confusion and provide a clear procedure for 
applicants to get a rebate for their compression transactions, removing 
impediments to and perfecting the mechanism of a free and open market. 
Additionally, the Exchange notes such requirement will apply to all 
TPHs and is similar to the current requirement for requesting a rebate 
of transaction fees for compression of certain eligible SPX 
positions.\16\
---------------------------------------------------------------------------

    \16\ Id.
---------------------------------------------------------------------------

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

    CBOE does not believe that the proposed rule change will impose any 
burden on competition that is 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 intramarket 
competition not necessary or appropriate in furtherance of the Act 
because it applies to all TPHs in the same manner with positions that 
meet the eligible criteria. The proposed rule change would encourage 
closing of positions that needlessly result in burdensome capital 
requirements. Closing of the positions would alleviate the capital 
requirement constraints on TPHs and improve overall market liquidity by 
freeing capital currently tied up in certain out-of-the-money and 
riskless SPX positions. The proposed rule change also encourages TPHs 
to submit to the Exchange in advance a list of these positions, which 
will allow TPHs to more easily identify counterparty interest and 
increase opportunities for to efficiently conduct closing transactions 
of these positions during compression forums.
    The Exchange does not believe the proposed rule change will impose 
any burden on intermarket competition not necessary or appropriate in 
furtherance of the purposes of the Act because the proposed rule change 
applies only to the trading of SPX options, which are exclusively-
listed on CBOE. To the extent the proposed rule change makes the 
Exchange a more attractive marketplace for market participants at other 
exchanges, such market participants are welcome to become CBOE market 
participants.
    Furthermore, as stated above, submission of lists of positions for 
compression is completely voluntary, open to all TPHs, and non-binding, 
in that submission of a list does not require a TPH to trade any 
position or even represent any position in a trading crowd. Lists of 
positions will be made available to all TPHs and contain very limited 
information regarding open interest in positions in SPX. The list will 
simply alert TPHs to certain SPX positions that other TPHs are 
interested in closing at the end of each calendar month.

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

    The Exchange neither solicited nor received comments on the 
proposed rule change.

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)

[[Page 3382]]

of the Act \17\ and paragraph (f) of Rule 19b-4 \18\ 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 will institute proceedings to determine whether 
the proposed rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2016-094 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2016-094. 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 Web site (https://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 Web site 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CBOE-2016-094 and should be 
submitted on or before February 1, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-00368 Filed 1-10-17; 8:45 am]
 BILLING CODE 8011-01-P
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