Self-Regulatory Organizations; CBOE Futures Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt and Amend Certain Rules That Are Applicable to Security Futures, 65747-65751 [2012-26642]

Download as PDF Federal Register / Vol. 77, No. 210 / Tuesday, October 30, 2012 / Notices Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove such proposed rule change, or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. 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–BATS– 2012–042 and should be submitted on or before November 20, 2012. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.28 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–26639 Filed 10–29–12; 8:45 am] Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–BATS–2012–042 on the subject line. wreier-aviles on DSK7SPTVN1PROD with NOTICES 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: Self-Regulatory Organizations; CBOE Futures Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt and Amend Certain Rules That Are Applicable to Security Futures Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–BATS–2012–042. 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 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; VerDate Mar<15>2010 13:17 Oct 29, 2012 Jkt 229001 BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–68100; File No. SR–CFE– 2012–001] October 24, 2012. Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 (‘‘Act’’),1 notice is hereby given that on October 17, 2012, CBOE Futures Exchange, LLC (‘‘CFE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change described in Items I, II, and III below, which Items have been prepared by CFE. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. CFE also has filed this proposed rule change with the Commodity Futures Trading Commission (‘‘CFTC’’). CFE filed a written certification with the CFTC under Section 5c(c) of the Commodity Exchange Act (‘‘CEA’’) 2 on October 2, 2012 for effectiveness on October 17, 2012. I. Self-Regulatory Organization’s Description of the Proposed Rule Change The Exchange proposes to adopt and amend certain rules that are applicable to security futures traded on CFE. The only security futures currently traded on CFE are traded under Chapter 16 of CFE’s Rulebook which is applicable to Individual Stock Based and ExchangeTraded Fund Based Volatility Index (‘‘Volatility Index’’) security futures. The rule amendments included as part CFR 200.30–3(a)(12). U.S.C. 78s(b)(7). 2 7 U.S.C. 7a–2(c). of this rule change relate generally to improper trading practices, recordkeeping, reporting, and coordinated trading halts. The text of the proposed rule change is attached as Exhibit 4. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, CFE 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. CFE 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 purpose of the proposed CFE rule amendments included as part of this rule change is to amend CFE rules consistent with the rules, acceptable practices, and guidance adopted by the Commodity Futures Trading Commission (‘‘CFTC’’) under the caption Core Principles and Other Requirements for Designated Contract Markets (‘‘DCMs’’) and published in the Federal Register at 77 FR 36611 (June 19, 2012) (‘‘CFTC Rulemaking’’). The rule amendments included as part of this rule change are to apply to all products traded on CFE, including both non-security futures and security futures. CFE is making these rule amendments in conjunction with other rule amendments being made by CFE consistent with the CFTC Rulemaking that are not required to be submitted to the Commission pursuant to Section 19(b)(7) of the Act 3 and thus are not included as part of this rule change. Improper Trading Practices CFE is proposing to add to its Rules CFE Rule 616 relating to wash trades, CFE Rule 617 relating to money passes, CFE Rule 618 relating to accommodation trading, and CFE Rule 619 relating to front-running. In addition, CFE is proposing to add CFE Rule 620 to its Rulebook in order to specifically prohibit the disruptive practices enumerated in Section 4c(a)(5) of the Commodity Exchange Act,4 28 17 1 15 PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 65747 3 15 47 U.S.C. 78s(b)(7). U.S.C. 6c(a)(5). E:\FR\FM\30OCN1.SGM 30OCN1 wreier-aviles on DSK7SPTVN1PROD with NOTICES 65748 Federal Register / Vol. 77, No. 210 / Tuesday, October 30, 2012 / Notices which were added to the Act by Section 747 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.5 These abusive trading practices are already prohibited by CFE Rules. For example, CFE Rule 604 prohibits CFE Trading Privilege Holders and their Related Parties from engaging in conduct in violation of Applicable Law (which includes, among other things, the CEA,6 CFTC regulations, and to the extent applicable, the Act 7 as well as Regulations under the Act), and CFE Rule 608 prohibits conduct inconsistent with just and equitable principles of trade. Although these practices are already prohibited by other CFE rules, each of these practices as they relate to futures trading is now also proposed to be specifically addressed in CFE’s Rulebook through the addition of the above rules. The addition of these rules is consistent with CFTC Regulation 38.152 8 which provides that DCMs must specifically prohibit certain trading practices and any other manipulative or disruptive practices prohibited by the CEA.9 CFE Rule 616 is proposed to provide that no Trading Privilege Holder nor any of its Related Parties shall place or accept buy and sell orders in the same CFE Contract and expiration month, and, for a put or call option, the same strike price, where the Trading Privilege Holder or Related Party knows or reasonably should know that the purpose of the orders is to avoid taking a bona fide market position exposed to market risk (transactions commonly known or referred to as wash trades). Buy and sell orders for different accounts with common beneficial ownership that are entered with the intent to negate market risk or price competition would also be deemed to violate the prohibition on wash trades. Additionally, Rule 616 is proposed to provide that no Trading Privilege Holder nor any of its Related Parties shall knowingly execute or accommodate the execution of such orders by direct or indirect means. CFE Rule 617 regarding money passes is proposed to provide that no Trading Privilege Holder nor any of its Related Parties shall prearrange the execution of transactions on the Exchange for the purpose of passing money between accounts. Rule 617 would also require that all transactions executed on the 5 Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111–203, 124 Stat. 1376 (2010). 6 7 U.S.C. 1 et seq. 7 15 U.S.C. 78a et seq. 8 17 CFR 38.152. 9 7 U.S.C. 1 et seq. VerDate Mar<15>2010 13:17 Oct 29, 2012 Jkt 229001 Exchange must be made in good faith for the purpose of executing bona fide transactions and that prearranged trades intended to effectuate a transfer of funds from one account to another are prohibited. CFE Rule 618 regarding accommodation trading is proposed to provide that no Trading Privilege Holder nor any of its Related Parties shall enter into non-competitive transactions on the Exchange for the purpose of assisting another Person to engage in transactions that are in violation of the Rules of the Exchange or Applicable Law. CFE Rule 619 regarding front running is proposed to provide that no Trading Privilege Holder nor any of its Related Parties shall take a position in a CFE Contract based upon non-public information regarding an impending transaction by another Person in the same or a related Contract, except as expressly permitted by other enumerated Exchange Rules or in accordance with any policies or procedures for pre-execution discussions from time to time adopted by the Exchange. CFE Rule 620 regarding disruptive practices is proposed to provide that no Trading Privilege Holder nor any of its Related Parties shall engage in any trading, practice, or conduct on the Exchange or subject to the Rules of the Exchange that (i) violates bids or offers; (ii) demonstrates intentional or reckless disregard for the orderly execution of transactions during the closing period; or (iii) is, is of the character of, or is commonly known in the trade as ‘‘spoofing’’ (bidding or offering with the intent to cancel the bid or offer before execution). Rule 608, which already prohibits any act detrimental to the Exchange and conduct inconsistent with just and equitable principles of trade, is proposed to be revised to also prohibit abusive practices, including without limitation, fraudulent, noncompetitive, or unfair actions. The addition of this language is consistent with CFTC Regulation 38.651 10 which provides that a DCM must have and enforce rules that are designed to promote fair and equitable trading and to protect the market and market participants from abusive practices, including fraudulent, noncompetitive, or unfair actions, committed by any party. Rule 608 and Rule 604 are also proposed to be amended to eliminate redundancy between the two rules. Rule 604 relates to adherence to law and is proposed to be amended to also prohibit Trading Privilege Holders and their Related Parties from engaging in conduct in violation of an agreement with the Exchange. This provision is currently in Rule 608, and CFE believes that a more logical place for it is in Rule 604. Therefore, the provision is proposed to be moved to Rule 604. Rule 608 is also proposed to be amended to delete a prohibition on violating Exchange and Clearing Corporation rules since this prohibition already exists in Rule 604. Recordkeeping CFE is proposing to further specify certain recordkeeping requirements in CFE’s rules. New CFE Rule 414(f) is proposed to be added to Rule 414 relating to Exchange of Contract for Related Position (‘‘ECRP’’) transactions and CFE Rule 415(e) relating to Block Trades is proposed to be amended to require every Trading Privilege Holder handling, executing, clearing, or carrying ECRP transactions, Block Trades, or ECRP or Block Trade positions to mark as such by appropriate symbol or designation all of these transactions or positions and all orders, records, and memoranda pertaining thereto. This change incorporates a requirement that already exists under CFTC Regulation 1.38(b) 11 and generally under CFE Rule 604, which requires adherence to CFTC regulations, and will now be specifically stated in CFE’s rules. Additionally, current Rule 414(f) is proposed to be re-numbered as Rule 414(g) and to be amended to make clear that each Trading Privilege Holder involved in an ECRP transaction must maintain or be able to obtain from its Customer documentation relating to the Related Position portion of the ECRP transaction, including those documents customarily generated in accordance with Related Position market practices which demonstrate the existence and nature of the Related Position portion of the transaction. CFE Rule 418(d) is proposed to be amended to provide that CFE will submit to the CFTC in accordance with CFTC Regulation 40.6 12 information on all regulatory actions carried out by CFE pursuant to Rule 418, which authorizes CFE to take various emergency actions. CFE Rule 501(a) is proposed to be amended to provide that the books and records which each Trading Privilege Holder and CFE Clearing Member must maintain shall include, without limitation, records of the activity, positions, and transactions of each 11 17 10 17 PO 00000 CFR 38.651. Frm 00087 Fmt 4703 12 17 Sfmt 4703 E:\FR\FM\30OCN1.SGM CFR 1.38(b). CFR 40.6. 30OCN1 wreier-aviles on DSK7SPTVN1PROD with NOTICES Federal Register / Vol. 77, No. 210 / Tuesday, October 30, 2012 / Notices Trading Privilege Holder and Clearing Member in the underlying commodity or reference market and related derivatives markets in relation to a CFE Contract. Additionally, Rule 501(c) is proposed to be revised to provide that if a CFE Contract is settled by reference to the price of a contract or commodity traded in another venue, including a price or index derived from prices on another designated contract market, Trading Privilege Holders shall make available to the Exchange upon request in a form and manner prescribed by the Exchange and within the time frame designated by the Exchange information and their books and records regarding their activities in the reference market. The addition of these requirements is consistent with the requirements of CFTC Regulation 38.253(b).13 CFE is proposing to specifically incorporate into its Rulebook certain CFTC Regulations relating to recordkeeping and to provide that a violation of any of those regulations shall be deemed a violation of a specific CFE Rule. These requirements are proposed to be incorporated into an Appendix to Chapter 5 of CFE’s Rulebook, and CFE Rule 518 is proposed to be added as the first rule in this Appendix. Rule 518 is proposed to provide that without limiting the generality and applicability of the prior rules in Chapter 5, any other CFE rules, and Applicable Law, Trading Privilege Holders shall comply with the CFTC regulations relating to minimum financial requirements, financial reporting requirements, and protection of customer funds that are set forth in the Appendix to Chapter 5 to the extent that Trading Privilege Holders are subject to those CFTC regulations. Rule 518 is also proposed to provide that to the extent that any of the CFTC regulations set forth in the Appendix to Chapter 5 are amended from time to time by the CFTC, Trading Privilege Holders are required to comply with the CFTC regulations as amended, to the extent applicable, regardless of whether CFE has yet amended the Appendix to Chapter 5 to incorporate the amendments. The recordkeeping requirements proposed to be included in the Appendix to Chapter 5 already exist generally under CFE Rule 604, which requires adherence to CFTC regulations, and will now be specifically incorporated into CFE’s rules consistent with the provisions of CFTC Regulation 38.603.14 In particular, CFE is proposing to add as part of the Appendix to 13 17 14 17 CFR 38.253(b). CFR 38.603. VerDate Mar<15>2010 13:17 Oct 29, 2012 Jkt 229001 Chapter 5 CFE Rule 522 which incorporates into CFE’s Rulebook CFTC Regulation 1.18 (Records for and relating to Financial Reporting and Monthly Computation by Futures Commission Merchants and Introducing Brokers),15 CFE Rule 528 which incorporates in CFE’s Rulebook CFTC Regulation 1.25 (Investment of Customer Funds),16 CFE Rule 530 which incorporates into CFE’s Rulebook CFTC Regulation 1.27 (Record of Investments),17 CFE Rule 534 which incorporates into CFE’s Rulebook CFTC Regulation 1.31 (Books and Records; Keeping and Inspection),18 CFE Rule 535 which incorporates into CFE’s Rulebook CFTC Regulation 1.32 (Segregated Account; Daily Computation and Record),19 and CFE Rule 536 which incorporates into CFE’s Rulebook CFTC Regulation 1.36 (Record of Securities and Property Received from Customers and Options Customers).20 Reporting Rule 501(a) is proposed to be revised to make clear that books and records required to be prepared and kept current under Rule 501(a) shall be made available to the Exchange in a form and manner prescribed by the Exchange and within the time frame designated by the Exchange when requested by the Exchange. Similarly, CFE Rules 502, 611(e), and 702(b) are proposed to be amended to make clear either that books and records requested by the Exchange be made available in a form and manner prescribed by the Exchange and/or within a time frame designated by the Exchange to the extent that this is not already stated explicitly in these rules. CFE is also proposing to add CFE Rule 503A to its Rulebook which contains two reporting requirements. First, each Trading Privilege Holder that is a Futures Commission Merchant or Introducing Broker would be required, in a form and manner prescribed by the Exchange, to concurrently file with the Exchange a copy of all Form 1–FR– FCM, Form 1–FR–IB, or FOCUS Report Part II, IIA, or Part II CSE submissions, as applicable, made by the Trading Privilege Holder. Second, each Trading Privilege Holder that is a Futures Commission Merchant and (i) is not Clearing Member or (ii) is a Clearing Member that utilizes another Clearing Member for purposes of clearing CFR 1.18. CFR 1.25. 17 17 CFR 1.27. 18 17 CFR 1.31. 19 17 CFR 1.32. 20 17 CFR 1.36. Exchange Contracts would, in a form and manner prescribed by the Exchange, be required to provide a report to the Exchange on a daily basis which sets forth the positions, if any, in CFE Contracts of the Trading Privilege Holder’s customers held by any Clearing Member in the customer range at CFE’s Clearing Corporation. The receipt of this information will assist CFE in meeting its obligations under CFTC Regulations 38.603 21 and 38.604.22 As CFE is proposing to do with various recordkeeping requirements, CFE is also proposing to specifically incorporate into the new Appendix to Chapter 5 of its Rulebook a CFTC Regulation relating to reporting and to provide that a violation of this regulation shall be deemed a violation of a specific CFE Rule. Like with the foregoing recordkeeping requirements, the reporting requirements under this regulation already exist generally under CFE Rule 604, which requires adherence to CFTC regulations, and will now be specifically incorporated into CFE’s rules consistent with the provisions of CFTC Regulation 38.603.23 In particular, CFE is proposing to add CFE Rule 519 which incorporates into CFE’s Rulebook CFTC Regulation 1.10 (Financial Reports of Futures Commission Merchants and Introducing Brokers).24 Trading Halts CFE Rule 1602(i) already provides that trading in Volatility Index security futures shall be halted to the extent required by CFE Rule 417 relating to ‘‘regulatory halts’’ (as that term is defined in CFTC Regulation 41.1(l) 25). One instance of a regulatory halt under CFTC Regulation 41.1(l) 26 is the operation of circuit breaker procedures to halt or suspend trading in all equity securities trading on a national securities exchange or national securities association. Consistent with the foregoing and with other CFE Contract rule chapters, Rule 1602(i) also currently provides that trading in Volatility Index security futures shall be halted whenever a market-wide trading halt commonly known as a circuit breaker is in effect on the New York Stock Exchange in response to extraordinary market conditions. Because circuit breaker trading halt rules on securities exchanges are 15 17 21 17 16 17 22 17 PO 00000 Frm 00088 Fmt 4703 CFR 38.603. CFR 38.604. 23 17 CFR 38.603. 24 17 CFR 1.10. 25 17 CFR 41.1(l). 26 17 CFR 41.1(l). Sfmt 4703 65749 E:\FR\FM\30OCN1.SGM 30OCN1 wreier-aviles on DSK7SPTVN1PROD with NOTICES 65750 Federal Register / Vol. 77, No. 210 / Tuesday, October 30, 2012 / Notices changing effective February 4, 2013,27 CFE is proposing to add substantively similar circuit breaker trading halt provisions which will be applicable to all CFE products in new CFE Rule 417A. CFE is also proposing to amend Rule 1602(i) to provide that its current reference to halting for New York Stock Exchange circuit breaker halts will apply prior to February 4, 2013 and that trading shall halt pursuant to the circuit breaker halt provisions of new Rule 417A on or after February 4, 2013. New Rule 417A is proposed to provide that CFE shall halt trading in all CFE Contracts and shall not reopen for specified time periods if there is a Level 1, 2, or 3 Market Decline. Specifically, Rule 417A is proposed to provide that: A ‘‘Market Decline’’ means a decline in price of the S&P 500 Index between 8:30 a.m. and 3:00 p.m. (all times are CT) on a trading day as compared to the closing price of the S&P 500 Index for the immediately preceding trading day. The Level 1, Level 2, and Level 3 Market Declines that will be applicable for the trading day will be the levels publicly disseminated by securities information processors.28 A ‘‘Level 1 Market Decline’’ means a Market Decline of 7%, a ‘‘Level 2 Market Decline’’ means a Market Decline of 13%, and a ‘‘Level 3 Market Decline’’ means a Market Decline of 20%. If a Level 1 or Level 2 Market Decline occurs after 8:30 a.m. and up to and including 2:25 p.m. or, in the case of an early scheduled close, 11:25 a.m., the Exchange shall halt trading in all CFE Contracts for 15 minutes after a Level 1 or Level 2 Market Decline. The Exchange shall halt trading based on a Level 1 or Level 2 Market Decline only once per trading day. The Exchange will not halt trading if a Level 1 or Level 2 Market Decline occurs after 2:25 p.m. or, in the case of an early scheduled close, 11:25 a.m. If a Level 3 Market Decline occurs at any time during the trading day, the Exchange shall halt trading in all CFE Contracts until the next trading day. If a circuit breaker is initiated in all Contracts due to a Level 1 or Level 2 Market Decline, the Exchange may resume trading in each CFE Contract anytime after the 15-minute halt period. These changes to CFE’s trading halt provisions are consistent with CFTC Regulation 38.255 29 which provides that DCMs must establish and maintain 27 See, e.g., Chicago Board Options Exchange, Incorporated Rule 6.3B. 28 CFE represents that the Level 1, Level 2, and Level 3 Market Declines that will be applicable for the trading day will be the levels publicly disseminated by securities information processors before 8:30 a.m. 29 17 CFR 38.255. VerDate Mar<15>2010 13:17 Oct 29, 2012 Jkt 229001 risk control mechanisms to prevent and reduce the potential risk of price distortions and market disruptions, including, but not limited to, market restrictions that pause or halt trading in market conditions prescribed by the designated contract market. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,30 in general, and furthers the objectives of Section 6(b)(5) 31 in particular in that it is 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 facilitating transactions in securities, and 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. The addition of Rule 616 relating to wash trades, Rule 617 relating to money passes, Rule 618 relating to accommodation trading, Rule 619 relating to front-running, and Rule 620 relating to disruptive practices as well as the changes to Rules 604 and 608 will augment CFE’s existing rules that prohibit fraudulent and manipulative acts and practices and conduct inconsistent with just and equitable principles of trade. By specifically enumerating these provisions in CFE’s Rulebook and expanding the description of improper trading practices under CFE Rules, CFE’s ability to protect investors and the public interest will be enhanced. The recordkeeping provisions that CFE is adding to Rules 414, 415, 418, 501, 518, 522, 528, 530, and 534–536 and the reporting provisions that CFE is adding to Rules 501, 502, 503A, 519, 611, and 702 will also enhance CFE’s ability to protect investors and the public interest and to enforce CFE Rules that prohibit fraudulent and manipulative acts and conduct inconsistent with just and equitable principles of trade. These recordkeeping requirements are designed to ensure that Trading Privilege Holders maintain records that enable CFE and/or other regulators to investigate whether Trading Privilege Holders are complying with applicable rules and regulations by requiring the maintenance of information that may be reviewed to determine whether or not a Trading Privilege Holder is complying with applicable regulatory requirements. 30 15 31 15 PO 00000 U.S.C. 78f(b). U.S.C. 78f(b)(5). Frm 00089 Fmt 4703 Similarly, these reporting requirements are designed to enable CFE to receive and request information that allows CFE to monitor for compliance with rules and regulations, to investigate for noncompliance when appropriate, and to conduct financial monitoring with regard to CFE Trading Privilege Holders that are Futures Commission Merchants. The new circuit breaker trading halt provisions that CFE is including in Rule 1602(i) and Rule 417A are designed to foster cooperation and coordination with persons engaged in facilitating transactions in securities and to remove impediments to and perfect the mechanism of a free and open market and a national market system. Specifically, these provisions promote uniformity across securities and futures markets concerning when and how to halt trading as a result of extraordinary market volatility which in turn facilitates the protection of investors and the public interest. B. Self-Regulatory Organization’s Statement on Burden on Competition CFE does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.32 C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The proposed rule change will become effective on October 17, 2012. At any time within 60 days of the date of effectiveness of the proposed rule change, the Commission, after consultation with the CFTC, may summarily abrogate the proposed rule change and require that the proposed rule change be refiled in accordance with the provisions of Section 19(b)(1) of the Act.33 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: 32 15 33 15 Sfmt 4703 E:\FR\FM\30OCN1.SGM U.S.C. 78a et seq. U.S.C. 78s(b)(1). 30OCN1 Federal Register / Vol. 77, No. 210 / Tuesday, October 30, 2012 / Notices Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–CFE–2012–001 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. wreier-aviles on DSK7SPTVN1PROD with NOTICES All submissions should refer to File Number SR–CFE–2012–001. 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 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 offices 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–CFE– 2012–001, and should be submitted on or before November 20, 2012. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.34 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–26642 Filed 10–29–12; 8:45 am] BILLING CODE 8011–01–P 34 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 13:17 Oct 29, 2012 Jkt 229001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–68095, File No. SR–CBOE– 2012–085] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving Proposed Rule Change Relating to the Complex Order Auction Process October 24, 2012. I. Introduction On August 30, 2012, the Chicago Board Options Exchange (‘‘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 modify CBOE Rule 6.53C(d), ‘‘Process for Complex Order RFR Auction,’’ to: (i) Include the side of the market in the request for response (‘‘RFR’’) message sent to Trading Permit Holders at the start of a Complex Order Auction (‘‘COA’’); and (ii) require responses to an RFR message (‘‘RFR Responses’’) to be on the opposite side of the market from the order being auctioned in a COA. The proposed rule change was published for comment in the Federal Register on September 17, 2012.3 The Commission received no comment letters regarding the proposal. This order approves the proposed rule change. 65751 sides of the market.7 Because RFR Responses on the same side of the market as the COA-eligible order cannot trade with the order and thus are unnecessary, CBOE’s trading system automatically rejects these RFR Responses.8 The Exchange proposes to amend CBOE Rule 6.53C(d) to: (i) Include the side of the market in the RFR message sent to Trading Permit Holders at the start of a COA; and (ii) require RFR Responses to be on the opposite side of the market from the order being auctioned in a COA. CBOE believes that these proposed changes will make the COA process more efficient by eliminating the entry of unnecessary RFR Responses that cannot trade with the COA order.9 CBOE also believes that this increased efficiency could lead to more meaningful and competitively priced RFR Responses, which could result in better prices for customers.10 III. Discussion After careful consideration of the proposed rule change, the Commission finds that the proposal is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.11 The Commission believes that the proposed rule change is consistent with Section 6(b) of the Act, in general, and Section 6(b)(5) of the Act,12 in particular, in that it is designed to promote just and equitable principles II. Description of the Proposal of trade, to foster cooperation and COA is an automated RFR auction coordination with persons engaged in process for COA-eligible orders.4 On regulating, clearing, settling, processing receipt of a COA-eligible order and a information with respect to, and request from the Trading Permit Holder facilitating transactions in securities, to representing the order that the order be remove impediments to and perfect the subjected to a COA, CBOE sends an RFR mechanism of a free and open market message to all Trading Permit Holders and a national market system, and, in that have elected to receive RFR general, to protect investors and the messages.5 The RFR message identifies public interest. More specifically, the the component series, the size of the Commission believes that the proposal COA-eligible order, and any could improve the efficiency of the COA contingencies, if applicable, but not the process by eliminating unnecessary RFR side of the market (i.e. whether the order Responses, which otherwise would have is to buy or to sell).6 Responders to the been rejected automatically by CBOE’s COA, who do not know the side of the trading system. market of the order being auctioned, IV. Conclusion may submit RFR Responses on both It is therefore ordered, pursuant to 1 15 U.S.C. 78s(b)(1). Section 19(b)(2) of the Act,13 that the 2 17 CFR 240.19b–4. Securities Exchange Act Release No. 67827 (September 11, 2012), 77 FR 57171 (‘‘Notice’’). 4 A ‘‘COA-eligible order’’ is a complex order that, as determined by the Exchange on a class-by-class basis, is eligible for a COA considering the order’s marketability (defined as a number of ticks away from the current market), size, complex order type, and complex order origin type. See CBOE Rule 6.53C(d)(i)(2). 5 See CBOE Rule 6.53C(d)(ii). 6 See id. 3 See PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 7 See Notice, supra note 3, at 57172. id. 9 See id. 10 See id. 11 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). 12 15 U.S.C. 78f(b)(5). 13 15 U.S.C. 78s(b)(2). 8 See E:\FR\FM\30OCN1.SGM 30OCN1

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[Federal Register Volume 77, Number 210 (Tuesday, October 30, 2012)]
[Notices]
[Pages 65747-65751]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-26642]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68100; File No. SR-CFE-2012-001]


Self-Regulatory Organizations; CBOE Futures Exchange, LLC; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Adopt and Amend Certain Rules That Are Applicable to Security Futures

October 24, 2012.
    Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 17, 2012, CBOE 
Futures Exchange, LLC (``CFE'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change described in Items I, II, and III below, which 
Items have been prepared by CFE. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons. CFE also has filed this proposed rule change with the 
Commodity Futures Trading Commission (``CFTC''). CFE filed a written 
certification with the CFTC under Section 5c(c) of the Commodity 
Exchange Act (``CEA'') \2\ on October 2, 2012 for effectiveness on 
October 17, 2012.
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    \1\ 15 U.S.C. 78s(b)(7).
    \2\ 7 U.S.C. 7a-2(c).
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I. Self-Regulatory Organization's Description of the Proposed Rule 
Change

    The Exchange proposes to adopt and amend certain rules that are 
applicable to security futures traded on CFE. The only security futures 
currently traded on CFE are traded under Chapter 16 of CFE's Rulebook 
which is applicable to Individual Stock Based and Exchange-Traded Fund 
Based Volatility Index (``Volatility Index'') security futures. The 
rule amendments included as part of this rule change relate generally 
to improper trading practices, recordkeeping, reporting, and 
coordinated trading halts. The text of the proposed rule change is 
attached as Exhibit 4.

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

    In its filing with the Commission, CFE 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. CFE 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 purpose of the proposed CFE rule amendments included as part of 
this rule change is to amend CFE rules consistent with the rules, 
acceptable practices, and guidance adopted by the Commodity Futures 
Trading Commission (``CFTC'') under the caption Core Principles and 
Other Requirements for Designated Contract Markets (``DCMs'') and 
published in the Federal Register at 77 FR 36611 (June 19, 2012) 
(``CFTC Rulemaking''). The rule amendments included as part of this 
rule change are to apply to all products traded on CFE, including both 
non-security futures and security futures. CFE is making these rule 
amendments in conjunction with other rule amendments being made by CFE 
consistent with the CFTC Rulemaking that are not required to be 
submitted to the Commission pursuant to Section 19(b)(7) of the Act \3\ 
and thus are not included as part of this rule change.
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    \3\ 15 U.S.C. 78s(b)(7).
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Improper Trading Practices
    CFE is proposing to add to its Rules CFE Rule 616 relating to wash 
trades, CFE Rule 617 relating to money passes, CFE Rule 618 relating to 
accommodation trading, and CFE Rule 619 relating to front-running. In 
addition, CFE is proposing to add CFE Rule 620 to its Rulebook in order 
to specifically prohibit the disruptive practices enumerated in Section 
4c(a)(5) of the Commodity Exchange Act,\4\

[[Page 65748]]

which were added to the Act by Section 747 of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act.\5\
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    \4\ 7 U.S.C. 6c(a)(5).
    \5\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-203, 124 Stat. 1376 (2010).
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    These abusive trading practices are already prohibited by CFE 
Rules. For example, CFE Rule 604 prohibits CFE Trading Privilege 
Holders and their Related Parties from engaging in conduct in violation 
of Applicable Law (which includes, among other things, the CEA,\6\ CFTC 
regulations, and to the extent applicable, the Act \7\ as well as 
Regulations under the Act), and CFE Rule 608 prohibits conduct 
inconsistent with just and equitable principles of trade.
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    \6\ 7 U.S.C. 1 et seq.
    \7\ 15 U.S.C. 78a et seq.
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    Although these practices are already prohibited by other CFE rules, 
each of these practices as they relate to futures trading is now also 
proposed to be specifically addressed in CFE's Rulebook through the 
addition of the above rules. The addition of these rules is consistent 
with CFTC Regulation 38.152 \8\ which provides that DCMs must 
specifically prohibit certain trading practices and any other 
manipulative or disruptive practices prohibited by the CEA.\9\
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    \8\ 17 CFR 38.152.
    \9\ 7 U.S.C. 1 et seq.
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    CFE Rule 616 is proposed to provide that no Trading Privilege 
Holder nor any of its Related Parties shall place or accept buy and 
sell orders in the same CFE Contract and expiration month, and, for a 
put or call option, the same strike price, where the Trading Privilege 
Holder or Related Party knows or reasonably should know that the 
purpose of the orders is to avoid taking a bona fide market position 
exposed to market risk (transactions commonly known or referred to as 
wash trades). Buy and sell orders for different accounts with common 
beneficial ownership that are entered with the intent to negate market 
risk or price competition would also be deemed to violate the 
prohibition on wash trades. Additionally, Rule 616 is proposed to 
provide that no Trading Privilege Holder nor any of its Related Parties 
shall knowingly execute or accommodate the execution of such orders by 
direct or indirect means.
    CFE Rule 617 regarding money passes is proposed to provide that no 
Trading Privilege Holder nor any of its Related Parties shall 
prearrange the execution of transactions on the Exchange for the 
purpose of passing money between accounts. Rule 617 would also require 
that all transactions executed on the Exchange must be made in good 
faith for the purpose of executing bona fide transactions and that 
prearranged trades intended to effectuate a transfer of funds from one 
account to another are prohibited.
    CFE Rule 618 regarding accommodation trading is proposed to provide 
that no Trading Privilege Holder nor any of its Related Parties shall 
enter into non-competitive transactions on the Exchange for the purpose 
of assisting another Person to engage in transactions that are in 
violation of the Rules of the Exchange or Applicable Law.
    CFE Rule 619 regarding front running is proposed to provide that no 
Trading Privilege Holder nor any of its Related Parties shall take a 
position in a CFE Contract based upon non-public information regarding 
an impending transaction by another Person in the same or a related 
Contract, except as expressly permitted by other enumerated Exchange 
Rules or in accordance with any policies or procedures for pre-
execution discussions from time to time adopted by the Exchange.
    CFE Rule 620 regarding disruptive practices is proposed to provide 
that no Trading Privilege Holder nor any of its Related Parties shall 
engage in any trading, practice, or conduct on the Exchange or subject 
to the Rules of the Exchange that (i) violates bids or offers; (ii) 
demonstrates intentional or reckless disregard for the orderly 
execution of transactions during the closing period; or (iii) is, is of 
the character of, or is commonly known in the trade as ``spoofing'' 
(bidding or offering with the intent to cancel the bid or offer before 
execution).
    Rule 608, which already prohibits any act detrimental to the 
Exchange and conduct inconsistent with just and equitable principles of 
trade, is proposed to be revised to also prohibit abusive practices, 
including without limitation, fraudulent, noncompetitive, or unfair 
actions. The addition of this language is consistent with CFTC 
Regulation 38.651 \10\ which provides that a DCM must have and enforce 
rules that are designed to promote fair and equitable trading and to 
protect the market and market participants from abusive practices, 
including fraudulent, noncompetitive, or unfair actions, committed by 
any party.
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    \10\ 17 CFR 38.651.
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    Rule 608 and Rule 604 are also proposed to be amended to eliminate 
redundancy between the two rules. Rule 604 relates to adherence to law 
and is proposed to be amended to also prohibit Trading Privilege 
Holders and their Related Parties from engaging in conduct in violation 
of an agreement with the Exchange. This provision is currently in Rule 
608, and CFE believes that a more logical place for it is in Rule 604. 
Therefore, the provision is proposed to be moved to Rule 604. Rule 608 
is also proposed to be amended to delete a prohibition on violating 
Exchange and Clearing Corporation rules since this prohibition already 
exists in Rule 604.
Recordkeeping
    CFE is proposing to further specify certain recordkeeping 
requirements in CFE's rules.
    New CFE Rule 414(f) is proposed to be added to Rule 414 relating to 
Exchange of Contract for Related Position (``ECRP'') transactions and 
CFE Rule 415(e) relating to Block Trades is proposed to be amended to 
require every Trading Privilege Holder handling, executing, clearing, 
or carrying ECRP transactions, Block Trades, or ECRP or Block Trade 
positions to mark as such by appropriate symbol or designation all of 
these transactions or positions and all orders, records, and memoranda 
pertaining thereto. This change incorporates a requirement that already 
exists under CFTC Regulation 1.38(b) \11\ and generally under CFE Rule 
604, which requires adherence to CFTC regulations, and will now be 
specifically stated in CFE's rules. Additionally, current Rule 414(f) 
is proposed to be re-numbered as Rule 414(g) and to be amended to make 
clear that each Trading Privilege Holder involved in an ECRP 
transaction must maintain or be able to obtain from its Customer 
documentation relating to the Related Position portion of the ECRP 
transaction, including those documents customarily generated in 
accordance with Related Position market practices which demonstrate the 
existence and nature of the Related Position portion of the 
transaction.
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    \11\ 17 CFR 1.38(b).
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    CFE Rule 418(d) is proposed to be amended to provide that CFE will 
submit to the CFTC in accordance with CFTC Regulation 40.6 \12\ 
information on all regulatory actions carried out by CFE pursuant to 
Rule 418, which authorizes CFE to take various emergency actions.
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    \12\ 17 CFR 40.6.
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    CFE Rule 501(a) is proposed to be amended to provide that the books 
and records which each Trading Privilege Holder and CFE Clearing Member 
must maintain shall include, without limitation, records of the 
activity, positions, and transactions of each

[[Page 65749]]

Trading Privilege Holder and Clearing Member in the underlying 
commodity or reference market and related derivatives markets in 
relation to a CFE Contract. Additionally, Rule 501(c) is proposed to be 
revised to provide that if a CFE Contract is settled by reference to 
the price of a contract or commodity traded in another venue, including 
a price or index derived from prices on another designated contract 
market, Trading Privilege Holders shall make available to the Exchange 
upon request in a form and manner prescribed by the Exchange and within 
the time frame designated by the Exchange information and their books 
and records regarding their activities in the reference market. The 
addition of these requirements is consistent with the requirements of 
CFTC Regulation 38.253(b).\13\
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    \13\ 17 CFR 38.253(b).
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    CFE is proposing to specifically incorporate into its Rulebook 
certain CFTC Regulations relating to recordkeeping and to provide that 
a violation of any of those regulations shall be deemed a violation of 
a specific CFE Rule. These requirements are proposed to be incorporated 
into an Appendix to Chapter 5 of CFE's Rulebook, and CFE Rule 518 is 
proposed to be added as the first rule in this Appendix. Rule 518 is 
proposed to provide that without limiting the generality and 
applicability of the prior rules in Chapter 5, any other CFE rules, and 
Applicable Law, Trading Privilege Holders shall comply with the CFTC 
regulations relating to minimum financial requirements, financial 
reporting requirements, and protection of customer funds that are set 
forth in the Appendix to Chapter 5 to the extent that Trading Privilege 
Holders are subject to those CFTC regulations. Rule 518 is also 
proposed to provide that to the extent that any of the CFTC regulations 
set forth in the Appendix to Chapter 5 are amended from time to time by 
the CFTC, Trading Privilege Holders are required to comply with the 
CFTC regulations as amended, to the extent applicable, regardless of 
whether CFE has yet amended the Appendix to Chapter 5 to incorporate 
the amendments.
    The recordkeeping requirements proposed to be included in the 
Appendix to Chapter 5 already exist generally under CFE Rule 604, which 
requires adherence to CFTC regulations, and will now be specifically 
incorporated into CFE's rules consistent with the provisions of CFTC 
Regulation 38.603.\14\ In particular, CFE is proposing to add as part 
of the Appendix to Chapter 5 CFE Rule 522 which incorporates into CFE's 
Rulebook CFTC Regulation 1.18 (Records for and relating to Financial 
Reporting and Monthly Computation by Futures Commission Merchants and 
Introducing Brokers),\15\ CFE Rule 528 which incorporates in CFE's 
Rulebook CFTC Regulation 1.25 (Investment of Customer Funds),\16\ CFE 
Rule 530 which incorporates into CFE's Rulebook CFTC Regulation 1.27 
(Record of Investments),\17\ CFE Rule 534 which incorporates into CFE's 
Rulebook CFTC Regulation 1.31 (Books and Records; Keeping and 
Inspection),\18\ CFE Rule 535 which incorporates into CFE's Rulebook 
CFTC Regulation 1.32 (Segregated Account; Daily Computation and 
Record),\19\ and CFE Rule 536 which incorporates into CFE's Rulebook 
CFTC Regulation 1.36 (Record of Securities and Property Received from 
Customers and Options Customers).\20\
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    \14\ 17 CFR 38.603.
    \15\ 17 CFR 1.18.
    \16\ 17 CFR 1.25.
    \17\ 17 CFR 1.27.
    \18\ 17 CFR 1.31.
    \19\ 17 CFR 1.32.
    \20\ 17 CFR 1.36.
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Reporting
    Rule 501(a) is proposed to be revised to make clear that books and 
records required to be prepared and kept current under Rule 501(a) 
shall be made available to the Exchange in a form and manner prescribed 
by the Exchange and within the time frame designated by the Exchange 
when requested by the Exchange. Similarly, CFE Rules 502, 611(e), and 
702(b) are proposed to be amended to make clear either that books and 
records requested by the Exchange be made available in a form and 
manner prescribed by the Exchange and/or within a time frame designated 
by the Exchange to the extent that this is not already stated 
explicitly in these rules.
    CFE is also proposing to add CFE Rule 503A to its Rulebook which 
contains two reporting requirements. First, each Trading Privilege 
Holder that is a Futures Commission Merchant or Introducing Broker 
would be required, in a form and manner prescribed by the Exchange, to 
concurrently file with the Exchange a copy of all Form 1-FR-FCM, Form 
1-FR-IB, or FOCUS Report Part II, IIA, or Part II CSE submissions, as 
applicable, made by the Trading Privilege Holder. Second, each Trading 
Privilege Holder that is a Futures Commission Merchant and (i) is not 
Clearing Member or (ii) is a Clearing Member that utilizes another 
Clearing Member for purposes of clearing Exchange Contracts would, in a 
form and manner prescribed by the Exchange, be required to provide a 
report to the Exchange on a daily basis which sets forth the positions, 
if any, in CFE Contracts of the Trading Privilege Holder's customers 
held by any Clearing Member in the customer range at CFE's Clearing 
Corporation. The receipt of this information will assist CFE in meeting 
its obligations under CFTC Regulations 38.603 \21\ and 38.604.\22\
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    \21\ 17 CFR 38.603.
    \22\ 17 CFR 38.604.
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    As CFE is proposing to do with various recordkeeping requirements, 
CFE is also proposing to specifically incorporate into the new Appendix 
to Chapter 5 of its Rulebook a CFTC Regulation relating to reporting 
and to provide that a violation of this regulation shall be deemed a 
violation of a specific CFE Rule. Like with the foregoing recordkeeping 
requirements, the reporting requirements under this regulation already 
exist generally under CFE Rule 604, which requires adherence to CFTC 
regulations, and will now be specifically incorporated into CFE's rules 
consistent with the provisions of CFTC Regulation 38.603.\23\ In 
particular, CFE is proposing to add CFE Rule 519 which incorporates 
into CFE's Rulebook CFTC Regulation 1.10 (Financial Reports of Futures 
Commission Merchants and Introducing Brokers).\24\
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    \23\ 17 CFR 38.603.
    \24\ 17 CFR 1.10.
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Trading Halts
    CFE Rule 1602(i) already provides that trading in Volatility Index 
security futures shall be halted to the extent required by CFE Rule 417 
relating to ``regulatory halts'' (as that term is defined in CFTC 
Regulation 41.1(l) \25\). One instance of a regulatory halt under CFTC 
Regulation 41.1(l) \26\ is the operation of circuit breaker procedures 
to halt or suspend trading in all equity securities trading on a 
national securities exchange or national securities association. 
Consistent with the foregoing and with other CFE Contract rule 
chapters, Rule 1602(i) also currently provides that trading in 
Volatility Index security futures shall be halted whenever a market-
wide trading halt commonly known as a circuit breaker is in effect on 
the New York Stock Exchange in response to extraordinary market 
conditions. Because circuit breaker trading halt rules on securities 
exchanges are

[[Page 65750]]

changing effective February 4, 2013,\27\ CFE is proposing to add 
substantively similar circuit breaker trading halt provisions which 
will be applicable to all CFE products in new CFE Rule 417A. CFE is 
also proposing to amend Rule 1602(i) to provide that its current 
reference to halting for New York Stock Exchange circuit breaker halts 
will apply prior to February 4, 2013 and that trading shall halt 
pursuant to the circuit breaker halt provisions of new Rule 417A on or 
after February 4, 2013.
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    \25\ 17 CFR 41.1(l).
    \26\ 17 CFR 41.1(l).
    \27\ See, e.g., Chicago Board Options Exchange, Incorporated 
Rule 6.3B.
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    New Rule 417A is proposed to provide that CFE shall halt trading in 
all CFE Contracts and shall not reopen for specified time periods if 
there is a Level 1, 2, or 3 Market Decline. Specifically, Rule 417A is 
proposed to provide that: A ``Market Decline'' means a decline in price 
of the S&P 500 Index between 8:30 a.m. and 3:00 p.m. (all times are CT) 
on a trading day as compared to the closing price of the S&P 500 Index 
for the immediately preceding trading day. The Level 1, Level 2, and 
Level 3 Market Declines that will be applicable for the trading day 
will be the levels publicly disseminated by securities information 
processors.\28\ A ``Level 1 Market Decline'' means a Market Decline of 
7%, a ``Level 2 Market Decline'' means a Market Decline of 13%, and a 
``Level 3 Market Decline'' means a Market Decline of 20%. If a Level 1 
or Level 2 Market Decline occurs after 8:30 a.m. and up to and 
including 2:25 p.m. or, in the case of an early scheduled close, 11:25 
a.m., the Exchange shall halt trading in all CFE Contracts for 15 
minutes after a Level 1 or Level 2 Market Decline. The Exchange shall 
halt trading based on a Level 1 or Level 2 Market Decline only once per 
trading day. The Exchange will not halt trading if a Level 1 or Level 2 
Market Decline occurs after 2:25 p.m. or, in the case of an early 
scheduled close, 11:25 a.m. If a Level 3 Market Decline occurs at any 
time during the trading day, the Exchange shall halt trading in all CFE 
Contracts until the next trading day. If a circuit breaker is initiated 
in all Contracts due to a Level 1 or Level 2 Market Decline, the 
Exchange may resume trading in each CFE Contract anytime after the 15-
minute halt period.
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    \28\ CFE represents that the Level 1, Level 2, and Level 3 
Market Declines that will be applicable for the trading day will be 
the levels publicly disseminated by securities information 
processors before 8:30 a.m.
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    These changes to CFE's trading halt provisions are consistent with 
CFTC Regulation 38.255 \29\ which provides that DCMs must establish and 
maintain risk control mechanisms to prevent and reduce the potential 
risk of price distortions and market disruptions, including, but not 
limited to, market restrictions that pause or halt trading in market 
conditions prescribed by the designated contract market.
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    \29\ 17 CFR 38.255.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\30\ in general, and furthers the 
objectives of Section 6(b)(5) \31\ in particular in that it is 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 facilitating transactions in 
securities, and 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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    \30\ 15 U.S.C. 78f(b).
    \31\ 15 U.S.C. 78f(b)(5).
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    The addition of Rule 616 relating to wash trades, Rule 617 relating 
to money passes, Rule 618 relating to accommodation trading, Rule 619 
relating to front-running, and Rule 620 relating to disruptive 
practices as well as the changes to Rules 604 and 608 will augment 
CFE's existing rules that prohibit fraudulent and manipulative acts and 
practices and conduct inconsistent with just and equitable principles 
of trade. By specifically enumerating these provisions in CFE's 
Rulebook and expanding the description of improper trading practices 
under CFE Rules, CFE's ability to protect investors and the public 
interest will be enhanced.
    The recordkeeping provisions that CFE is adding to Rules 414, 415, 
418, 501, 518, 522, 528, 530, and 534-536 and the reporting provisions 
that CFE is adding to Rules 501, 502, 503A, 519, 611, and 702 will also 
enhance CFE's ability to protect investors and the public interest and 
to enforce CFE Rules that prohibit fraudulent and manipulative acts and 
conduct inconsistent with just and equitable principles of trade. These 
recordkeeping requirements are designed to ensure that Trading 
Privilege Holders maintain records that enable CFE and/or other 
regulators to investigate whether Trading Privilege Holders are 
complying with applicable rules and regulations by requiring the 
maintenance of information that may be reviewed to determine whether or 
not a Trading Privilege Holder is complying with applicable regulatory 
requirements. Similarly, these reporting requirements are designed to 
enable CFE to receive and request information that allows CFE to 
monitor for compliance with rules and regulations, to investigate for 
noncompliance when appropriate, and to conduct financial monitoring 
with regard to CFE Trading Privilege Holders that are Futures 
Commission Merchants.
    The new circuit breaker trading halt provisions that CFE is 
including in Rule 1602(i) and Rule 417A are designed to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities and to remove impediments to and perfect the 
mechanism of a free and open market and a national market system. 
Specifically, these provisions promote uniformity across securities and 
futures markets concerning when and how to halt trading as a result of 
extraordinary market volatility which in turn facilitates the 
protection of investors and the public interest.

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

    CFE does not believe that the proposed rule change will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.\32\
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    \32\ 15 U.S.C. 78a et seq.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The proposed rule change will become effective on October 17, 2012.
    At any time within 60 days of the date of effectiveness of the 
proposed rule change, the Commission, after consultation with the CFTC, 
may summarily abrogate the proposed rule change and require that the 
proposed rule change be refiled in accordance with the provisions of 
Section 19(b)(1) of the Act.\33\
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    \33\ 15 U.S.C. 78s(b)(1).
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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:

[[Page 65751]]

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-CFE-2012-001 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CFE-2012-001. 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 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 offices 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-CFE-2012-001, and should be submitted on or before 
November 20, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-26642 Filed 10-29-12; 8:45 am]
BILLING CODE 8011-01-P
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