Self-Regulatory Organizations; CBOE Futures Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Regarding Minor Rule Violations, 3949-3952 [2013-00875]

Download as PDF Federal Register / Vol. 78, No. 12 / Thursday, January 17, 2013 / Notices services performed by FINRA, regardless of whether or not such member organizations are FINRA members. 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 foregoing rule change is effective upon filing pursuant to Section 19(b)(3)(A) 21 of the Act and subparagraph (f)(2) of Rule 19b–4 22 thereunder, because it establishes a due, fee, or other charge imposed by NYSE MKT. At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 23 of the Act to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–NYSEMKT–2013–01 on the subject line. pmangrum on DSK3VPTVN1PROD with 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–NYSEMKT–2013–01. This U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(2). 23 15 U.S.C. 78s(b)(2)(B). 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 (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for 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 NYSE’s principal office and on its Web site at www.nyse.com. 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– NYSEMKT–2013–01, and should be submitted on or before February 7, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.24 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–00872 Filed 1–16–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–68634; File No. SR–CFE– 2013–001] Self-Regulatory Organizations; CBOE Futures Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Regarding Minor Rule Violations January 11, 2013. Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 (‘‘Act’’),1 notice is hereby given that on January 7, 2013, CBOE Futures Exchange, LLC (‘‘CFE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) 21 15 22 17 VerDate Mar<15>2010 14:19 Jan 16, 2013 Jkt 229001 PO 00000 CFR 200.30–3(a)(12). U.S.C. 78s(b)(7). the proposed rule change described in Items 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 January 7, 2013. I. Self-Regulatory Organization’s Description of the Proposed Rule Change CFE Rule 714 currently provides that there are no types of Exchange rule violations that are considered minor rule violations for purposes of CFE Rule 714. The rule change would (i) Identify ten categories of rules which primarily involve reporting and recordkeeping for which the Exchange may impose summary fines for violations of the applicable rule(s), (ii) enumerate the specific rule(s) within each category, (iii) set forth a summary fine schedule for violations of the rule(s) within each category; and (iv) provides examples of when the Exchange may aggregate violations as a single offense for purposes of CFE Rule 714. The rule change would apply to conduct in relation to all contracts listed and traded on the Exchange, including both security futures and non-security futures. The scope of this filing is limited solely to the application of the rule changes 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 text of the proposed rule change is available on the Exchange’s Web site at http:// www.cfe.cboe.com, on the Commission’s Web site at http://www.sec.gov, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, 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 24 17 1 15 Frm 00072 Fmt 4703 Sfmt 4703 3949 27 U.S.C. 7a–2(c). E:\FR\FM\17JAN1.SGM 17JAN1 3950 Federal Register / Vol. 78, No. 12 / Thursday, January 17, 2013 / Notices 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 pmangrum on DSK3VPTVN1PROD with 1. Purpose The purpose of this proposal is to amend CFE Rule 714 (Imposition of Fines for Minor Rule Violations), referred to herein sometimes as ‘‘Minor Rule Violation Rule.’’ CFE Rule 714 currently provides that there are no types of Exchange rule violations that are considered minor rule violations for purposes of CFE Rule 714. This Amendment would (i) Identify ten categories of rules which primarily involve reporting and recordkeeping for which the Exchange may impose summary fines for violations of the applicable rule(s), (ii) enumerate the specific rule(s) within each category, (iii) set forth a summary fine schedule for violations of the rule(s) within each category 3, and (iv) provide examples of when the Exchange may aggregate violations as a single offense for purposes of CFE Rule 714. Below are general descriptions of areas covered by the ten categories: • Order Entry Operator ID Designation and Recordkeeping • Account Type Identification • Front-End Audit Trail Information • Exchange of Contract for Related Position Transaction Recordkeeping and Authorized Reporter Designation • Block Trade Recordkeeping and Authorized Reporter Designation • Responsible Trader Designation The Exchange will have the ability to impose fines for violations of the rules covered in the Minor Rule Violation Rule both for matters that are currently pending for which a statement of charges has not yet been issued under CFE Rule 704(b) (Charges) and for future matters. The Exchange believes that these violations are suitable for incorporation into the Exchange’s Minor Rule Violation Rule because they are generally technical in nature. Further, CFE will be able to carry out its regulatory responsibility more quickly and efficiently by incorporating these violations into its Minor Rule Violation Rule. CFE may, whenever it determines 3 The proposed number of offenses leading up to a CFE Business Conduct Committee referral and the proposed fine amounts vary depending on the nature of the underlying violative conduct. This is because CFE regards violations of certain rule provisions under the Minor Rule Violation Rule to be more serious relative to violations of other rule provisions under the Minor Rule Violation Rule. VerDate Mar<15>2010 14:19 Jan 16, 2013 Jkt 229001 that any violation of a rule covered in the Minor Rule Violation Rule is intentional, egregious or otherwise not minor in nature, proceed under the Exchange’s formal disciplinary rules.4 CFE is proposing to make the following modifications to CFE Rule 714 with the number of offenses being calculated on a rolling twelve (12) month period: Order Entry Operator ID Designation and Recordkeeping CFE is proposing to modify its Minor Rule Violation Rule to cover violations of Order Entry Operator ID Designation and Recordkeeping requirements. First, the Exchange is proposing to modify CFE Rule 714 to add CFE Rule 303A(a) to the Minor Rule Violation Rule, which requires that each Trading Privilege Holder (‘‘TPH’’) include an Order Entry Operator ID with every order and quote from that TPH this is submitted to the CBOE System (i.e., CFE’s trading system). A first offense will result in the issuance of a letter of caution. The second offense will be subject to a $2,500 fine. The third offense will be subject to a $10,000 fine. Subsequent offenses will be referred to CFE’s Business Conduct Committee.5 Second, the Exchange is proposing to modify CFE Rule 714 to add CFE Rules 303A(b) and 303A(c) to the Minor Rule Violation Rule, which require that every order and quote from a TPH that is submitted to the CBOE system include an Order Entry Operator ID that represents: • The natural person physically responsible for entering an order or quote into the CBOE System (if a natural person entered the order or quote into the CBOE System); or • The natural person physically responsible for entering the order or quote directly or indirectly into a system of or used by a TPH that interfaces with the CBOE System (if no natural person entered the order or quote into the CBOE System and instead a natural person entered the order or quote directly or indirectly into a system of or used by a THP that interfaces with the CBOE System); or • The Automated Trading System (which is a system that automates the generation and routing of orders or quotes) that generated the order and quote. CFE Rules 303(A)(b) and 303A(c) also require that: (i) An Order Entry Operator ID issued for a natural person may only 4 See CFE Rule 714(d). referral to CFE’s Business Conduct Committee would result in the initiation of a regular disciplinary proceeding. 5A PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 be used by that natural person; (ii) an Order Entry Operator ID issued for a natural person may not be used by any other natural person or entity and may not be used as the Order Entry Operator ID for an Automated Trading System; (iii) an Order Entry Operator ID issued for an Automated Trading System may only be used for that Automated Trading System; and (iv) an Order Entry Operator ID issued for an Automated Trading System may not be used for any other Automated Trading System and may not be used as the Order Entry Operator ID for any natural person or entity. A first offense will result in the issuance of a letter of caution. The second offense will be subject to a $2,500 fine. The third offense will be subject to a $10,000 fine. Subsequent offenses will be referred to the Business Conduct Committee. Third, the Exchange is proposing to modify CFE Rule 714 to add CFE Rule 303A(d) to the Minor Rule Violation Rule, which sets forth issuance, recordkeeping and reporting requirements related to Order Entry Operator IDs. A first offense will result in the issuance of a letter of caution. The second offense will be subject to a $2,500 fine. The third offense will be subject to a $10,000 fine. Subsequent offenses will be referred to CFE’s Business Conduct Committee. Account Type Identification CFE is proposing to modify its Minor Rule Violation Rule to cover violations of Account Type Identification requirements. Specifically, the Exchange is proposing to modify CFE Rule 714 to add CFE Rule 403(a)(vii) to the Minor Rule Violation Rule, which requires that each Order must contain information about account type. A first offense will result in the issuance of a letter of caution. The second offense will be subject to a $2,500 fine. The third offense will be subject to a $5,000 fine. The fourth offense will be subject to a $7,500 fine. The fifth offense will be subject to a $10,000 fine. Subsequent offenses will be referred to CFE’s Business Conduct Committee. Front-End Audit Trail Information CFE is proposing to modify its Minor Rule Violation Rule to cover violations of Front-End Audit Trail Information requirements. Specifically, the Exchange is proposing to modify CFE Rule 714 to add CFE Rule 403(c) to the Minor Rule Violation Rule, which requires that each TPH maintain frontend audit trail information for all electronic orders entered into the CBOE System, including order modifications E:\FR\FM\17JAN1.SGM 17JAN1 Federal Register / Vol. 78, No. 12 / Thursday, January 17, 2013 / Notices and cancellations. The audit trail must contain all order entry, modification, cancellation and response receipt time(s) as well as Financial Information Exchange interface (FIX) tag information and fields or CBOE Market Interface (CMi) order structure, as applicable. A first offense will result in the issuance of a letter of caution. The second offense will be subject to a $2,500 fine. The third offense will be subject to a $10,000 fine. Subsequent offenses will be referred to the Business Conduct Committee. pmangrum on DSK3VPTVN1PROD with Exchange of Contract for Related Position (‘‘ECRP’’) Transaction Recordkeeping and Authorized Reporter Designation CFE is proposing to modify its Minor Rule Violation Rule to cover violations of ECRP Transactions Recordkeeping and Authorized Reporter Designation requirements. First, the Exchange is proposing to modify CFE Rule 714 to add CFE Rule 414(g) to the Minor Rule Violation Rule, which sets forth record keeping requirements relating to a TPH’s compliance with CFE Rule 414 (which governs ECRP transactions) or ability to obtain such records from its customer involved in the ECRP. A first offense will result in the issuance of a letter of caution. The second offense will be subject to a $2,500 fine. The third offense will be subject to a $10,000 fine. Subsequent offenses will be referred to CFE’s Business Conduct Committee. Second, the Exchange is proposing to modify CFE Rule 714 to add CFE Rule 414(h) to the Minor Rule Violation Rule, which requires each TPH executing an ECRP transaction to have at least one designated Person that is either a TPH or a Related Party of a TPH and is preauthorized by a Clearing Member to report ECRP transactions on behalf of the TPH. A first offense will result in the issuance of a letter of caution. The second offense will be subject to a $10,000 fine. Subsequent offenses will be referred to CFE’s Business Conduct Committee. Block Trade Recordkeeping and Authorized Reporter Designation CFE is proposing to modify its Minor Rule Violation Rule to cover violations of Block Trade Recordkeeping and Authorized Reporter Designation requirements. First, the Exchange is proposing to modify CFE Rule 714 to add CFE Rule 415(e) to the Minor Rule Violation Rule, which sets forth order ticket requirements for Block Trades and recordkeeping requirements evidencing a TPH’s compliance with CFE Rule 415 VerDate Mar<15>2010 14:19 Jan 16, 2013 Jkt 229001 (which governs Block Trades). A first offense will result in the issuance of a letter of caution. The second offense will be subject to a $2,500 fine. The third offense will be subject to a $10,000 fine. Subsequent offenses will be referred to CFE’s Business Conduct Committee. Second, the Exchange is proposing to modify CFE Rule 714 to add CFE Rule 415(f) to the Minor Rule Violation Rule, which requires each TPH executing a side of a Block Trade to have at least one designated Person that is either a TPH or a Related Party of a TPH and is pre-authorized by a Clearing Member to report Block Trades on behalf of the TPH. A first offense will result in the issuance of a letter of caution. The second offense will be subject to a $10,000 fine. Subsequent offenses will be referred to CFE’s Business Conduct Committee. Responsible Trader Designation CFE is proposing to modify its Minor Rule Violation Rule to cover violations of Account Responsible Trader Designation requirements. Specifically, the Exchange is proposing to modify CFE Rule 714 to add CFE Rule 513(a) to the Minor Rule Violation Rule, which requires that each TPH have at all times at least one employee or agent (‘‘Responsible Trader’’) designated by its administrator with respect to the use of the CBOE System by such TPH (including its Authorized Traders).6 A first offense will result in the issuance of a letter of caution. The second offense will be subject to a $10,000 fine. Subsequent offenses will be referred to CFE’s Business Conduct Committee. Reorganization of Aggregation Provisions and Examples Current CFE Rule 714(a), among other things, currently permits the Exchange to aggregate individual violations of particular CFE rules that are covered by the Minor Rule Violation Rule to and treat those violations as a single offense. In other instances, the Exchange may, if no exceptional circumstances are present, impose a fine based upon a determination that there exists a pattern or practice of violative conduct. The Exchange also may aggregate similar violations generally if the conduct was unintentional, there was no injury to public investors or the violations resulted from a single problem or cause that has been corrected. CFE is proposing to bolster the aggregation provisions of CFE Rule 714 6 CFE Rule 105 defines ‘‘Authorized Trader’’ to mean any natural person who is a TPH or who is authorized by a TPH to access the CBOE System on behalf of the TPH. PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 3951 by setting forth two additional examples of when aggregation may be appropriate. Specifically, the Exchange proposes to amend CFE Rule 714 to state that the Exchange may aggregate all similar violations found in an audit trail exam and may separately aggregate all similar violations found in a single review of exception report output. The Exchange proposes to reorganize the existing aggregation provisions in CFE Rule 714(a) and restate them, along with the above aggregation examples, in new subparagraph (e) to CFE Rule 714. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,7 in general, and furthers the objectives of Sections 6(b)(5) 8 and 6(b)(6) 9 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, • 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, and • To provide a fair procedure for the disciplining of members. The Exchange believes that the proposed rule change will strengthen its ability to carry out its responsibilities as a self-regulatory organization by adding violations to its Minor Rule Violation Rule. CFE also believes that these changes will serve as an effective deterrent to future violative conduct and as an effective and efficient means of disciplining for infractions that do not warrant a regular disciplinary proceeding. CFE additionally believes that the proposed changes will promote consistent application of sanctions by the Exchange for minor rule violations, establish a fair procedure for the disciplining of TPHs for minor rule violations and reinforce its surveillance and enforcement functions. Finally, the Exchange believes that the reorganization of the aggregation provisions of CFE Rule 714 and the addition of examples in which minor rule violations may be aggregated will benefit market participants because those provisions will now be contained in a single subparagraph for easier reference and those provisions will also substantively improve market 7 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 9 15 U.S.C. 78f(b)(6). 8 15 E:\FR\FM\17JAN1.SGM 17JAN1 3952 Federal Register / Vol. 78, No. 12 / Thursday, January 17, 2013 / Notices participants’ understanding of how the aggregation provisions of the Minor Rule Violation Rule will operate and be applied. 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.10 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 January 23, 2013. 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.11 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: only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for 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– 2013–001, and should be submitted on or before February 7, 2013. organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Kevin M. O’Neill, Deputy Secretary. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change [FR Doc. 2013–00875 Filed 1–16–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–68631; File No. SR–ISE– 2013–03] • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–CFE–2013–001 on the subject line. Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Schedule of Fees Paper Comments pmangrum on DSK3VPTVN1PROD with Electronic Comments January 11, 2013. • 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–2013–001. 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 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 January 3, 2013, the International Securities Exchange, LLC (the ‘‘Exchange’’ or the ‘‘ISE’’) filed with the Securities and Exchange Commission the proposed rule change, as described in Items I, II, and III below, which items have been prepared by the self-regulatory 12 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 10 15 U.S.C. 78a et seq. 11 15 U.S.C. 78s(b)(1). VerDate Mar<15>2010 14:19 Jan 16, 2013 1 15 Jkt 229001 PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The ISE proposes to amend its Schedule of Fees. The text of the proposed rule change is available on the Exchange’s Web site (http:// www.ise.com), at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization 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 self-regulatory organization has prepared summaries, set forth in sections A, B and C below, of the most significant aspects of such statements. 1. Purpose The Exchange currently assesses per contract transaction fees and provides rebates to market participants that add or remove liquidity from the Exchange (‘‘maker/taker fees and rebates’’) in 190 options classes (the ‘‘Select Symbols’’).3 The Exchange’s maker/taker fees and rebates are applicable to regular and complex orders executed in the Select Symbols. The Exchange also currently assesses maker/taker fees and rebates for complex orders in symbols that are in the Penny Pilot program but are not a Select Symbol (‘‘Non-Select Penny Pilot Symbols’’) 4 and in all symbols that are not in the Penny Pilot Program (‘‘NonPenny Pilot Symbols’’).5 3 Options classes subject to maker/taker fees and rebates are identified by their ticker symbol on the Exchange’s Schedule of Fees. 4 See Exchange Act Release Nos. 65724 (November 10, 2011), 76 FR 71413 (November 17, 2011) (SR–ISE–2011–72); 66597 (March 14, 2012), 77 FR 16295 (March 20, 2012) (SR–ISE–2012–17); 66961 (May 10, 2012), 77 FR 28914 (May 16, 2012) (SR–ISE–2012–38); 67628 (August 9, 2012), 77 FR 49049 (August 15, 2012) (SR–ISE–2012–71); and 68034 (October 11, 2012), 77 FR 63911 (October 17, 2012) (SR–ISE–2012–85). 5 See Exchange Act Release Nos. 66084 (January 3, 2012), 77 FR 1103 (January 9, 2012) (SR–ISE– 2011–84); 66392 (February 14, 2012), 77 FR 10016 E:\FR\FM\17JAN1.SGM 17JAN1

Agencies

[Federal Register Volume 78, Number 12 (Thursday, January 17, 2013)]
[Notices]
[Pages 3949-3952]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-00875]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68634; File No. SR-CFE-2013-001]


Self-Regulatory Organizations; CBOE Futures Exchange, LLC; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change 
Regarding Minor Rule Violations

January 11, 2013.
    Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on January 7, 2013, CBOE 
Futures Exchange, LLC (``CFE'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change described in Items 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 January 7, 2013.
---------------------------------------------------------------------------

    \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

    CFE Rule 714 currently provides that there are no types of Exchange 
rule violations that are considered minor rule violations for purposes 
of CFE Rule 714. The rule change would (i) Identify ten categories of 
rules which primarily involve reporting and recordkeeping for which the 
Exchange may impose summary fines for violations of the applicable 
rule(s), (ii) enumerate the specific rule(s) within each category, 
(iii) set forth a summary fine schedule for violations of the rule(s) 
within each category; and (iv) provides examples of when the Exchange 
may aggregate violations as a single offense for purposes of CFE Rule 
714. The rule change would apply to conduct in relation to all 
contracts listed and traded on the Exchange, including both security 
futures and non-security futures. The scope of this filing is limited 
solely to the application of the rule changes 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 text of the proposed rule 
change is available on the Exchange's Web site at http://www.cfe.cboe.com, on the Commission's Web site at http://www.sec.gov, 
at the principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

    In its filing with the Commission, 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

[[Page 3950]]

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 this proposal is to amend CFE Rule 714 (Imposition 
of Fines for Minor Rule Violations), referred to herein sometimes as 
``Minor Rule Violation Rule.'' CFE Rule 714 currently provides that 
there are no types of Exchange rule violations that are considered 
minor rule violations for purposes of CFE Rule 714. This Amendment 
would (i) Identify ten categories of rules which primarily involve 
reporting and recordkeeping for which the Exchange may impose summary 
fines for violations of the applicable rule(s), (ii) enumerate the 
specific rule(s) within each category, (iii) set forth a summary fine 
schedule for violations of the rule(s) within each category \3\, and 
(iv) provide examples of when the Exchange may aggregate violations as 
a single offense for purposes of CFE Rule 714. Below are general 
descriptions of areas covered by the ten categories:

    \3\ The proposed number of offenses leading up to a CFE Business 
Conduct Committee referral and the proposed fine amounts vary 
depending on the nature of the underlying violative conduct. This is 
because CFE regards violations of certain rule provisions under the 
Minor Rule Violation Rule to be more serious relative to violations 
of other rule provisions under the Minor Rule Violation Rule.
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 Order Entry Operator ID Designation and Recordkeeping
 Account Type Identification
 Front-End Audit Trail Information
 Exchange of Contract for Related Position Transaction 
Recordkeeping and Authorized Reporter Designation
 Block Trade Recordkeeping and Authorized Reporter Designation
 Responsible Trader Designation

    The Exchange will have the ability to impose fines for violations 
of the rules covered in the Minor Rule Violation Rule both for matters 
that are currently pending for which a statement of charges has not yet 
been issued under CFE Rule 704(b) (Charges) and for future matters. The 
Exchange believes that these violations are suitable for incorporation 
into the Exchange's Minor Rule Violation Rule because they are 
generally technical in nature. Further, CFE will be able to carry out 
its regulatory responsibility more quickly and efficiently by 
incorporating these violations into its Minor Rule Violation Rule. CFE 
may, whenever it determines that any violation of a rule covered in the 
Minor Rule Violation Rule is intentional, egregious or otherwise not 
minor in nature, proceed under the Exchange's formal disciplinary 
rules.\4\
---------------------------------------------------------------------------

    \4\ See CFE Rule 714(d).
---------------------------------------------------------------------------

    CFE is proposing to make the following modifications to CFE Rule 
714 with the number of offenses being calculated on a rolling twelve 
(12) month period:
Order Entry Operator ID Designation and Recordkeeping
    CFE is proposing to modify its Minor Rule Violation Rule to cover 
violations of Order Entry Operator ID Designation and Recordkeeping 
requirements.
    First, the Exchange is proposing to modify CFE Rule 714 to add CFE 
Rule 303A(a) to the Minor Rule Violation Rule, which requires that each 
Trading Privilege Holder (``TPH'') include an Order Entry Operator ID 
with every order and quote from that TPH this is submitted to the CBOE 
System (i.e., CFE's trading system). A first offense will result in the 
issuance of a letter of caution. The second offense will be subject to 
a $2,500 fine. The third offense will be subject to a $10,000 fine. 
Subsequent offenses will be referred to CFE's Business Conduct 
Committee.\5\
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    \5\ A referral to CFE's Business Conduct Committee would result 
in the initiation of a regular disciplinary proceeding.
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    Second, the Exchange is proposing to modify CFE Rule 714 to add CFE 
Rules 303A(b) and 303A(c) to the Minor Rule Violation Rule, which 
require that every order and quote from a TPH that is submitted to the 
CBOE system include an Order Entry Operator ID that represents:
     The natural person physically responsible for entering an 
order or quote into the CBOE System (if a natural person entered the 
order or quote into the CBOE System); or
     The natural person physically responsible for entering the 
order or quote directly or indirectly into a system of or used by a TPH 
that interfaces with the CBOE System (if no natural person entered the 
order or quote into the CBOE System and instead a natural person 
entered the order or quote directly or indirectly into a system of or 
used by a THP that interfaces with the CBOE System); or
     The Automated Trading System (which is a system that 
automates the generation and routing of orders or quotes) that 
generated the order and quote.
    CFE Rules 303(A)(b) and 303A(c) also require that: (i) An Order 
Entry Operator ID issued for a natural person may only be used by that 
natural person; (ii) an Order Entry Operator ID issued for a natural 
person may not be used by any other natural person or entity and may 
not be used as the Order Entry Operator ID for an Automated Trading 
System; (iii) an Order Entry Operator ID issued for an Automated 
Trading System may only be used for that Automated Trading System; and 
(iv) an Order Entry Operator ID issued for an Automated Trading System 
may not be used for any other Automated Trading System and may not be 
used as the Order Entry Operator ID for any natural person or entity.
    A first offense will result in the issuance of a letter of caution. 
The second offense will be subject to a $2,500 fine. The third offense 
will be subject to a $10,000 fine. Subsequent offenses will be referred 
to the Business Conduct Committee.
    Third, the Exchange is proposing to modify CFE Rule 714 to add CFE 
Rule 303A(d) to the Minor Rule Violation Rule, which sets forth 
issuance, recordkeeping and reporting requirements related to Order 
Entry Operator IDs. A first offense will result in the issuance of a 
letter of caution. The second offense will be subject to a $2,500 fine. 
The third offense will be subject to a $10,000 fine. Subsequent 
offenses will be referred to CFE's Business Conduct Committee.
Account Type Identification
    CFE is proposing to modify its Minor Rule Violation Rule to cover 
violations of Account Type Identification requirements. Specifically, 
the Exchange is proposing to modify CFE Rule 714 to add CFE Rule 
403(a)(vii) to the Minor Rule Violation Rule, which requires that each 
Order must contain information about account type. A first offense will 
result in the issuance of a letter of caution. The second offense will 
be subject to a $2,500 fine. The third offense will be subject to a 
$5,000 fine. The fourth offense will be subject to a $7,500 fine. The 
fifth offense will be subject to a $10,000 fine. Subsequent offenses 
will be referred to CFE's Business Conduct Committee.
Front-End Audit Trail Information
    CFE is proposing to modify its Minor Rule Violation Rule to cover 
violations of Front-End Audit Trail Information requirements. 
Specifically, the Exchange is proposing to modify CFE Rule 714 to add 
CFE Rule 403(c) to the Minor Rule Violation Rule, which requires that 
each TPH maintain front-end audit trail information for all electronic 
orders entered into the CBOE System, including order modifications

[[Page 3951]]

and cancellations. The audit trail must contain all order entry, 
modification, cancellation and response receipt time(s) as well as 
Financial Information Exchange interface (FIX) tag information and 
fields or CBOE Market Interface (CMi) order structure, as applicable. A 
first offense will result in the issuance of a letter of caution. The 
second offense will be subject to a $2,500 fine. The third offense will 
be subject to a $10,000 fine. Subsequent offenses will be referred to 
the Business Conduct Committee.
Exchange of Contract for Related Position (``ECRP'') Transaction 
Recordkeeping and Authorized Reporter Designation
    CFE is proposing to modify its Minor Rule Violation Rule to cover 
violations of ECRP Transactions Recordkeeping and Authorized Reporter 
Designation requirements.
    First, the Exchange is proposing to modify CFE Rule 714 to add CFE 
Rule 414(g) to the Minor Rule Violation Rule, which sets forth record 
keeping requirements relating to a TPH's compliance with CFE Rule 414 
(which governs ECRP transactions) or ability to obtain such records 
from its customer involved in the ECRP. A first offense will result in 
the issuance of a letter of caution. The second offense will be subject 
to a $2,500 fine. The third offense will be subject to a $10,000 fine. 
Subsequent offenses will be referred to CFE's Business Conduct 
Committee.
    Second, the Exchange is proposing to modify CFE Rule 714 to add CFE 
Rule 414(h) to the Minor Rule Violation Rule, which requires each TPH 
executing an ECRP transaction to have at least one designated Person 
that is either a TPH or a Related Party of a TPH and is pre-authorized 
by a Clearing Member to report ECRP transactions on behalf of the TPH. 
A first offense will result in the issuance of a letter of caution. The 
second offense will be subject to a $10,000 fine. Subsequent offenses 
will be referred to CFE's Business Conduct Committee.
Block Trade Recordkeeping and Authorized Reporter Designation
    CFE is proposing to modify its Minor Rule Violation Rule to cover 
violations of Block Trade Recordkeeping and Authorized Reporter 
Designation requirements.
    First, the Exchange is proposing to modify CFE Rule 714 to add CFE 
Rule 415(e) to the Minor Rule Violation Rule, which sets forth order 
ticket requirements for Block Trades and recordkeeping requirements 
evidencing a TPH's compliance with CFE Rule 415 (which governs Block 
Trades). A first offense will result in the issuance of a letter of 
caution. The second offense will be subject to a $2,500 fine. The third 
offense will be subject to a $10,000 fine. Subsequent offenses will be 
referred to CFE's Business Conduct Committee.
    Second, the Exchange is proposing to modify CFE Rule 714 to add CFE 
Rule 415(f) to the Minor Rule Violation Rule, which requires each TPH 
executing a side of a Block Trade to have at least one designated 
Person that is either a TPH or a Related Party of a TPH and is pre-
authorized by a Clearing Member to report Block Trades on behalf of the 
TPH. A first offense will result in the issuance of a letter of 
caution. The second offense will be subject to a $10,000 fine. 
Subsequent offenses will be referred to CFE's Business Conduct 
Committee.
Responsible Trader Designation
    CFE is proposing to modify its Minor Rule Violation Rule to cover 
violations of Account Responsible Trader Designation requirements. 
Specifically, the Exchange is proposing to modify CFE Rule 714 to add 
CFE Rule 513(a) to the Minor Rule Violation Rule, which requires that 
each TPH have at all times at least one employee or agent 
(``Responsible Trader'') designated by its administrator with respect 
to the use of the CBOE System by such TPH (including its Authorized 
Traders).\6\ A first offense will result in the issuance of a letter of 
caution. The second offense will be subject to a $10,000 fine. 
Subsequent offenses will be referred to CFE's Business Conduct 
Committee.
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    \6\ CFE Rule 105 defines ``Authorized Trader'' to mean any 
natural person who is a TPH or who is authorized by a TPH to access 
the CBOE System on behalf of the TPH.
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Reorganization of Aggregation Provisions and Examples
    Current CFE Rule 714(a), among other things, currently permits the 
Exchange to aggregate individual violations of particular CFE rules 
that are covered by the Minor Rule Violation Rule to and treat those 
violations as a single offense. In other instances, the Exchange may, 
if no exceptional circumstances are present, impose a fine based upon a 
determination that there exists a pattern or practice of violative 
conduct. The Exchange also may aggregate similar violations generally 
if the conduct was unintentional, there was no injury to public 
investors or the violations resulted from a single problem or cause 
that has been corrected.
    CFE is proposing to bolster the aggregation provisions of CFE Rule 
714 by setting forth two additional examples of when aggregation may be 
appropriate. Specifically, the Exchange proposes to amend CFE Rule 714 
to state that the Exchange may aggregate all similar violations found 
in an audit trail exam and may separately aggregate all similar 
violations found in a single review of exception report output. The 
Exchange proposes to reorganize the existing aggregation provisions in 
CFE Rule 714(a) and restate them, along with the above aggregation 
examples, in new subparagraph (e) to CFE Rule 714.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\7\ in general, and furthers the 
objectives of Sections 6(b)(5) \8\ and 6(b)(6) \9\ in particular in 
that it is designed:
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ 15 U.S.C. 78f(b)(6).
---------------------------------------------------------------------------

     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,
     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, and
     To provide a fair procedure for the disciplining of 
members.
    The Exchange believes that the proposed rule change will strengthen 
its ability to carry out its responsibilities as a self-regulatory 
organization by adding violations to its Minor Rule Violation Rule. CFE 
also believes that these changes will serve as an effective deterrent 
to future violative conduct and as an effective and efficient means of 
disciplining for infractions that do not warrant a regular disciplinary 
proceeding. CFE additionally believes that the proposed changes will 
promote consistent application of sanctions by the Exchange for minor 
rule violations, establish a fair procedure for the disciplining of 
TPHs for minor rule violations and reinforce its surveillance and 
enforcement functions. Finally, the Exchange believes that the 
reorganization of the aggregation provisions of CFE Rule 714 and the 
addition of examples in which minor rule violations may be aggregated 
will benefit market participants because those provisions will now be 
contained in a single subparagraph for easier reference and those 
provisions will also substantively improve market

[[Page 3952]]

participants' understanding of how the aggregation provisions of the 
Minor Rule Violation Rule will operate and be applied.

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.\10\
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    \10\ 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 January 23, 2013.
    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.\11\
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    \11\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CFE-2013-001 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-2013-001. 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 (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for 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-2013-001, and should be submitted on or before 
February 7, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-00875 Filed 1-16-13; 8:45 am]
BILLING CODE 8011-01-P