Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving a Proposed Rule Change To Amend Various CBOE Rules Governing Letters of Guarantee and Authorization, 11249-11252 [2013-03428]
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Federal Register / Vol. 78, No. 32 / Friday, February 15, 2013 / Notices
equity securities. In support of this
proposal, the Exchange has made
representations, including:
(1) The Shares will conform to the
initial and continued listing criteria
under NYSE Arca Equities Rule 8.600.
(2) The Exchange has appropriate
rules to facilitate transactions in the
Shares during all trading sessions.
(3) The Exchange’s surveillance
procedures applicable to derivative
products, which include Managed Fund
Shares, are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
applicable federal securities laws.
(4) Prior to the commencement of
trading, the Exchange will inform its
Equity Trading Permit (‘‘ETP’’) Holders
in an Information Bulletin of the special
characteristics and risks associated with
trading the Shares. Specifically, the
Information Bulletin will discuss the
following: (a) The procedures for
purchases and redemptions of Shares in
Creation Unit aggregations (and that
Shares are not individually redeemable);
(b) NYSE Arca Equities Rule 9.2(a),
which imposes a duty of due diligence
on its ETP Holders to learn the essential
facts relating to every customer prior to
trading the Shares; (c) the risks involved
in trading the Shares during the
Opening and Late Trading Sessions
when an updated IOPV will not be
calculated or publicly disseminated; (d)
how information regarding the IOPV is
disseminated; (e) the requirement that
ETP Holders deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (f)
trading information.
(5) For initial and/or continued
listing, the Fund will be in compliance
with Rule 10A–3 under the Act,27 as
provided by NYSE Arca Equities Rule
5.3.
(6) Initially, at least 50% of the Fund’s
net assets invested in Preferred
Securities and Income Securities will be
exchange-listed.28 In addition, at least
80% of the Preferred Securities and
Income Securities held by the Fund will
have a minimum original principal
amount outstanding of $100 million or
more. Specifically with respect to
corporate bonds, under normal market
conditions, at least 80% of the Fund’s
investments in U.S. corporate bonds
must have $100 million or more par
amount outstanding to be considered as
an eligible investment, and a non-U.S.
corporate bond must have $200 million
or more par amount outstanding and
significant par value traded to be
considered as an eligible investment.
Further, the Fund’s portfolio will
comprise a minimum of 13 nonaffiliated issuers.
(7) The Fund will invest at least 80%
of its net assets in Income Securities of
issuing firms having a long-term issuer
credit rating of investment grade at the
time of investment.
(8) The Fund may hold up to an
aggregate amount of 15% of its net
assets in illiquid securities, including
non-negotiable certificates of deposit
and master demand notes; Rule 144A
securities; and senior loans, second lien
loans, and loan participation interests.
(9) The Fund will not: (a) Take short
positions in securities; and (b) pursuant
to the terms of the Exemptive Order,
invest in options contracts, futures
contracts, or swap agreements. In
addition, the Fund’s investments will be
consistent with its investment objective
and will not be used to enhance
leverage.
(10) A minimum of 100,000 Shares of
the Fund will be outstanding at the
commencement of trading on the
Exchange.
This approval order is based on all of
the Exchange’s representations and
description of the Fund, including those
set forth above and in the Notice.
For the foregoing reasons, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act 29 and the rules and
regulations thereunder applicable to a
national securities exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,30 that the
proposed rule change (SR–NYSEArca–
2012–139) be, and it hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–03489 Filed 2–14–13; 8:45 am]
BILLING CODE 8011–01–P
17 CFR 240.10A–3.
28 See supra note 26 and accompanying text.
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68879; File No. SR–CBOE–
2012–124]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Order Approving a
Proposed Rule Change To Amend
Various CBOE Rules Governing
Letters of Guarantee and Authorization
February 8, 2013.
On December 14, 2012, the Chicago
Board Options Exchange, Incorporated
(‘‘Exchange’’ or ‘‘CBOE’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’)1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend various CBOE Rules governing
letters of guarantee and authorization.
The proposed rule change was
published for comment in the Federal
Register on December 27, 2012.3 The
Commission did not receive any
comment letters on the proposal. This
order approves the proposed rule
change.
I. Description of the Proposal
As further described below, each
Trading Permit Holder (‘‘TPH’’) that has
trading functions on CBOE currently is
required to submit to CBOE a letter of
guarantee or authorization for its trading
activities on CBOE from a Clearing
Trading Permit Holder (‘‘Clearing
TPH’’). Typically, by a letter of
guarantee, the Clearing TPH guarantees
any trades made its TPH customer and,
by a letter of authorization, a Clearing
TPH accepts financial responsibility for
all transactions on CBOE made by a
guaranteed Floor Broker.
The purpose of the proposal is to
amend various CBOE rules governing
letters of guarantee and authorization to:
• Give CBOE the ability to prevent
access to its marketplace if a TPH does
not have an effective letter of guarantee
or authorization on file with the
Exchange;
• Provide that any written revocation
of a letter of guarantee or authorization
will be given effect as quickly as CBOE
can process it;
• Give CBOE the ability to take any
action necessary to give effect to actions
1 15
29 15
27 See
U.S.C. 78f(b)(5).
U.S.C. 78s(b)(2).
31 17 CFR 200.30–3(a)(12).
30 15
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11249
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Securities Exchange Act Release No. 68487
(December 20, 2012), 77 FR 76320
(‘‘Notice’’).
2 17
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by the Clearing Corporation,4 such as
restricting the activities of a Clearing
TPH or suspending a Clearing TPH;
• Automatically terminate the trading
permit(s) and TPH status of a TPH if the
TPH does not have a required letter of
guarantee or authorization in place for
ninety consecutive days;
• Delete obsolete and outdated rule
text; and
• Make technical, non-substantive
rule text changes.
Generally, these substantive changes
are designed to ensure that TPHs who
engage in trading activities always have
a valid letter of guarantee or
authorization from a Clearing TPH.
Changes to Rule 3.28 (Letters of
Guarantee). The Exchange proposes to
amend CBOE Rule 3.28 so that it will
govern both letters of guarantee and
authorization.5 The Exchange proposes
to add new paragraphs (b) through (g) to
expressly provide CBOE with remedial
powers in the event the OCC restricts or
suspends a Clearing TPH. The Exchange
also proposes to add new paragraph (h)
to Rule 3.28 to govern the termination
of TPH status when a TPH is without a
required letter of guarantee or
authorization for a period of ninety
consecutive days.
Under new paragraph (b) of the rule,
a TPH may not engage in any trading
activities on the Exchange if an effective
letter of guarantee or authorization
required to engage in those activities is
not on file with the Exchange. If a
Trading Permit Holder does not have an
effective letter of guarantee or
authorization on file with the Exchange,
the Exchange will be permitted to
prevent access and connectivity to the
Exchange by that Trading Permit
Holder. If a TPH has a letter of guarantee
or authorization that is revoked or
invalidated (as discussed below), that
TPH’s orders and quotes will be rejected
after the revocation or invalidation after
the revocation or invalidation becomes
effective unless and until the TPH has
another effective letter of guarantee or
authorization in place and on file with
the Exchange. This means that a TPH
without an effective letter of guarantee
or authorization will not be able to
continue to trade on the Exchange.
Under new paragraph (c) of the rule,
letters of guarantee and authorization
filed with the Exchange will remain in
effect until a written notice of
4 Currently, The Options Clearing Corporation
(‘‘OCC’’) is the only Clearing Corporation of CBOE.
See Notice, supra note 3, at 76320, n.5.
5 Currently, the rule governs only letters of
guarantee. Rule 6.72 will continue to govern Letters
of Authorization for Floor Brokers and Rule 8.5 will
continue to govern Letters of Guarantee for MarketMakers.
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revocation has been filed with the TPH
Department and the revocation becomes
effective or the letter of guarantee or
authorization otherwise becomes
invalid pursuant to Exchange rules. A
written notice of revocation will become
effective as soon as the Exchange is able
to process the revocation. A revocation
will in no way relieve a Clearing TPH
of responsibility for transactions
guaranteed prior to the effectiveness of
the revocation.
Under new paragraph (d) of the rule,
if the OCC restricts the activities of a
Clearing TPH or suspends a Clearing
TPH as a Clearing Member of the OCC,
the Exchange will be permitted to give
effect to the restriction or suspension.
For example, if the OCC restricts
transactions cleared by a Clearing TPH
to ‘‘closing only’’ transactions, the
Exchange similarly will be able to
restrict transactions on the Exchange for
clearance by that Clearing TPH as a
Clearing Member of the OCC to ‘‘closing
only’’ transactions; if the OCC suspends
a Clearing TPH, the Exchange similarly
will be able to prevent access and
connectivity to the Exchange by the
suspended Clearing TPH.
Under new paragraph (e) of the rule,
if a Clearing TPH’s status as a Clearing
Member of the OCC is terminated or if
a Clearing TPH’s status as a CBOE TPH
is terminated, all letters of guarantee
and authorization on file with the
Exchange from that Clearing TPH will
no longer be valid, effective as of the
time the Exchange processes the
invalidation of those letters. Similarly,
under new paragraph (f) of the rule, if
a Clearing TPH has been suspended as
a Clearing Member of the OCC or as a
CBOE TPH, all existing letters of
guarantee and authorization from that
Clearing TPH will be invalid during the
period of the suspension, effective as
soon as the Exchange processes the
invalidation of those letters.6 New
paragraph (g) of the rule provides that
the invalidation of a letter of guarantee
or authorization will in no way relieve
the Clearing TPH that issued the letter
of guarantee or authorization of
responsibility from transactions
guaranteed prior to the effectiveness of
the invalidation.
Lastly, under the terms of new
paragraph (h) of the rule, if a TPH does
not have a required letter of guarantee
or authorization for period of ninety
consecutive days, its trading permit(s)
and status as a TPH shall automatically
terminate.
Changes to Rule 6.72 (Letters of
Authorization). The Exchange proposes
to amend CBOE Rule 6.72 to provide
that a letter of authorization previously
filed with the Exchange will remain
effective until a written notice of
revocation has been filed with the TPH
Department and the revocation becomes
effective or until such time that the
letter of authorization otherwise
becomes invalid under CBOE’s rules. In
the event a written notice of revocation
is provided, the Exchange is proposing
to provide that the revocation shall
become effective as soon as the
Exchange is able to process it.7 The
Exchange also proposes to eliminate a
provision that allows a Clearing TPH to
request that the Exchange post notice of
the revocation.
The Exchange also proposes to add an
internal cross reference, which provides
that letters of authorization issued for
Floor Brokers under Rule 6.72 will be
subject to Rule 3.28.8 The effects of this
addition would:
• Allow CBOE to prevent access to its
marketplace if a Floor Broker TPH does
not have an effective letter of
authorization on file with the Exchange;
• Allow CBOE to take action
necessary to give effect to actions by the
Clearing Corporation, such as restricting
the activities of a Clearing TPH or
suspending a Clearing TPH;
• Allow CBOE to invalidate a Floor
Broker’s letter of authorization if it was
issued by a Clearing TPH whose
Clearing TPH status as a Clearing
Member of the OCC is terminated or if
a Clearing TPH’s status as a CBOE TPH
is terminated effective as soon as the
Exchange is able to process the
invalidation of the letter of
authorization;
• Allow CBOE to invalidate a Floor
Broker’s letter of authorization, if it was
issued by a Clearing TPH who has been
suspended as a Clearing Member of the
OCC or as a CBOE TPH, during the
period of the suspension effective as
soon as the Exchange is able to process
the invalidation of the letter of
authorization;
• Provide that the invalidation of a
letter of authorization shall in no way
relieve the Clearing TPH that issued the
letter of authorization of responsibility
from transactions guaranteed prior to
the effectiveness of the invalidation; and
• Automatically terminate the trading
permit(s) and TPH status of a Floor
Broker if the Floor Broker does not have
a required letter of guarantee or
6 The Exchange states that it will endeavor to
process revocations and invalidations under
proposed Rules 3.28(c) and 3.28(f) in a timely
manner. See Notice, supra note 3, at 76321.
7 Currently, the rule sets forth a specific time
period for the effectiveness revocations.
8 Previously, letters of authorization issued to
Floor Brokers were governed only by Rule 6.72.
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authorization in place for ninety
consecutive days.
Changes to Rule 8.5 (Letters of
Guarantee). The Exchange proposes to
amend CBOE Rule 8.5 to provide that a
letter of guarantee previously filed with
the Exchange will remain effective until
a written notice or revocation has been
filed with the TPH Department and the
revocation becomes effective or until
such time that the letter of guarantee
otherwise becomes invalid under
CBOE’s rules. In the event a written
notice of revocation is provided, the
Exchange is proposing to provide that
the revocation shall become effective as
soon as the Exchange is able to process
it.9 The Exchange also proposes to
eliminate a provision that allows a
Clearing TPH to request that the
Exchange post notice of the revocation.
Additionally, the Exchange proposes
to add an internal cross-reference,
which provides that letters of guarantee
issued for Market-Makers under Rule
8.5 will be subject to Rule 3.28.10 The
effects of this addition would:
• Allow CBOE to prevent access to its
marketplace if a Market-Maker TPH
does not have an effective letter of
guarantee on file with the Exchange;
• Allow CBOE to take action
necessary to give effect to actions by the
Clearing Corporation, such as restricting
the activities of a Clearing TPH or
suspending a Clearing TPH;
• Allow CBOE to invalidate a MarketMaker’s letter of guarantee if it was
issued by a Clearing TPH whose
Clearing TPH status as a Clearing
Member of the OCC is terminated or if
a Clearing TPH’s status as a CBOE TPH
is terminated effective as soon as the
Exchange is able to process the
invalidation of the letter of guarantee;
• Allow CBOE to invalidate a MarketMaker’s letter of guarantee, if it was
issued by a Clearing TPH who has been
suspended as a Clearing Member of the
OCC or as a CBOE TPH, during the
period of the suspension effective as
soon as the Exchange is able to process
the invalidation of the letter of
guarantee;
• Provide that the invalidation of a
letter of guarantee shall in no way
relieve the Clearing Trading Holder that
issued the letter of guarantee of
responsibility from transactions
guaranteed prior to the effectiveness of
the invalidation; and
• Automatically terminate the trading
permit(s) and TPH status of a MarketMaker if the Market-Maker does not
9 Currently, the rule sets forth a specific time
period for the effectiveness revocations.
10 Previously, letters of authorization issued to
Market Makers were governed only by Rule 8.5.
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have a required letter of guarantee or
authorization in place for ninety
consecutive days.
Further, the Exchange proposes to
delete Interpretations and Policies .01,
.02 and .04 from Rule 8.5 because it
states that they are obsolete.11
Changes to Rules 24A.15 and 24B.13
(Letters of Guarantee or Authorization).
The Exchange proposes to amend Rules
24A.15 and 24B.13, which relate to
FLEX options, by deleting a provision in
each rule relating to OCC approval of
letters of guarantee that are being
amended to include FLEX option
transactions. According to the
Exchange, that provision is obsolete
because the OCC is no longer involved
in approving CBOE letters of
guarantee.12
Additionally, the Exchange proposes
to add an internal cross-reference,
which provides that letters of guarantee
or authorization issued for FLEX
Market-Makers and Floor Brokers under
Rules 24A.15 and 24B.13 will be subject
to Rule 3.28.13 The effects of this
addition would:
• Allow CBOE to prevent access to its
marketplace if a FLEX Market-Maker or
Floor Broker TPH does not have an
effective letter of guarantee or
authorization on file with the Exchange;
• Allow CBOE to take action
necessary to give effect to actions by the
Clearing Corporation, such as restricting
the activities of a Clearing TPH or
suspending a Clearing TPH;
• Allow CBOE to invalidate a FLEX
Market-Maker or Floor Broker TPH’s
letter of guarantee or authorization if it
was issued by a Clearing TPH whose
Clearing TPH status as a Clearing
Member of the OCC is terminated or if
a Clearing TPH’s status as a CBOE TPH
is terminated effective as soon as the
Exchange is able to process the
invalidation of the letter of guarantee or
authorization;
• Allow CBOE to invalidate a FLEX
Market-Maker or Floor Broker TPH’s
letter of guarantee or authorization, if it
was issued by a Clearing TPH who has
been suspended as a Clearing Member
of the OCC or as a CBOE TPH, during
the period of the suspension effective as
soon as the Exchange is able to process
the invalidation of the letter of
guarantee or authorization;
11 The Exchange states that it no longer trades the
product referenced in .01, and .02 and .04 are
obsolete because the OCC is no longer involved in
approving CBOE letters of guarantee. See Notice,
supra note 3, at 76322.
12 See id.
13 Previously, letters of authorization issued to
FLEX Market-Makers or Floor Brokers were only
governed by Rules 24A.15 and 24B.15.
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11251
• Provide that the invalidation of a
letter of guarantee or authorization shall
in no way relieve the Clearing Trading
Holder that issued the letter of
guarantee or authorization of
responsibility from transactions
guaranteed prior to the effectiveness of
the invalidation; and
• Automatically terminate the trading
permit(s) and TPH status of a FLEX
Market-Maker or Floor Broker if the
FLEX Market-Maker or Floor Broker
does not have a required letter of
guarantee or authorization in place for
ninety consecutive days.
Changes to Rules 26.11 (MarketMakers) and 26.13 (Floor Broker
Financial Requirements). CBOE Rules
26.11 and 26.13 relate to market basket
contracts, which the Exchange does not
currently list for trading. The Exchange
proposes to amend those rules by
deleting a provision in each rule relating
to OCC approval of letters of guarantee
that are amended to include market
basket transactions.14
Additionally, the Exchange proposes
to add an internal cross-reference,
which provides that letters of guarantee
or authorization issued for MarketMakers in market basket contracts, and
letters of authorization issued for Floor
Brokers in market basket contracts,
under Rules 26.11 and 26.13,
respectively, will be subject to Rule
3.28.15 The effects of this addition
would:
• Allow CBOE to prevent access to its
marketplace if a Market-Maker or Floor
Broker TPH in market basket contracts
does not have an effective letter of
guarantee or authorization on file with
the Exchange;
• Allow CBOE to take action
necessary to give effect to actions by the
Clearing Corporation, such as restricting
the activities of a Clearing TPH or
suspending a Clearing TPH;
• Allow CBOE to invalidate a market
basket Market-Maker or Floor Broker
TPH’s letter of guarantee or
authorization if it was issued by a
Clearing TPH whose Clearing TPH
status as a Clearing Member of the OCC
is terminated or if a Clearing TPH’s
status as a CBOE TPH is terminated
effective as soon as the Exchange is able
to process the invalidation of the letter
of guarantee or authorization;
• Allow CBOE to invalidate a market
basket Market-Maker or Floor Broker
14 The Exchange states that provision is obsolete
because the OCC is no longer involved in approving
CBOE letters of guarantee. See Notice, supra note
3, at 76323.
15 Those letters of guarantee or authorization
issued to Market-Makers and Floor Brokers in
market basket contracts previously were governed
only by Rules 26.11 and 26.13.
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TPH’s letter of guarantee or
authorization, if it was issued by a
Clearing TPH who has been suspended
as a Clearing Member of the OCC or as
a CBOE TPH, during the period of the
suspension effective as soon as the
Exchange is able to process the
invalidation of the letter of guarantee or
authorization;
• Provide that the invalidation of a
letter of guarantee or authorization shall
in no way relieve the Clearing Trading
Holder that issued the letter of
guarantee or authorization of
responsibility from transactions
guaranteed prior to the effectiveness of
the invalidation; and
• Automatically terminate the trading
permit(s) and TPH status of a MarketMaker or Floor Broker in market basket
contracts if the Market-Maker or Floor
Broker in market basket contracts does
not have a required letter of guarantee
or authorization in place for ninety
consecutive days.
the denial of membership to any person
seeking membership therein and the
prohibition or limitation by an exchange
of any person with respect to access to
services offered by the exchange. Under
the proposed rule change, a TPH
without an effective letter of guarantee
or authorization will not be able to
continue to trade on the Exchange and,
if a TPH does not have a required letter
of guarantee or authorization in place
for ninety consecutive days, the permit
of the TPH is automatically terminated.
The Commission believes that it is
appropriate to prohibit a TPH from
trading on CBOE without a financial
guarantee, and the 90-day period
provides the TPH adequate time to cure
its deficiency. The Commission notes
that CBOE stated that the automatic
termination provision does not prohibit
or limit a previously terminated TPH
from applying again to become a TPH
once the TPH acquires the required
letter of guarantee or authorization.19
II. Discussion and Commission’s
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange.16 In particular, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,17 which requires,
among other things, that the Exchange’s
rules be designed to prevent fraudulent
and manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
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. The Exchange’s proposal
will remove impediments to and to
perfect the mechanism for a free and
open market and, in general, protect
investors by requiring that a TPH have
an effective and unrestricted letter of
guarantee, which will help prevent the
execution of trades on CBOE that
ultimately may not be able to be cleared
and settled.
The Commission also finds that the
proposed rule change is also consistent
with the Section 6(b)(7) of the Act,18
which requires that the rules of an
exchange provide a fair procedure for
III. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,20 that the
proposed rule change (SR–CBOE–2012–
124) be, and it hereby is, approved.
16 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).
17 15 U.S.C. 78f(b)(5).
18 15 U.S.C. 78f(b)(7).
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–03428 Filed 2–14–13; 8:45 am]
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to amend its
Fees Schedule. The text of the proposed
rule change [sic] available on the
Exchange’s Web site (https://
www.c2exchange.com/Legal/), at the
Exchange’s Office of the Secretary, and
at the Commission.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68897; File No. SR–C2–
2013–007]
Self-Regulatory Organizations; C2
Options Exchange, Incorporated;
Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend the Fees Schedule
February 11, 2013.
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 February
1, 2013, C2 Options Exchange,
Incorporated (the ‘‘Exchange’’ or ‘‘C2’’)
filed with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
19 See
Notice, supra note 3, at 76324.
U.S.C. 78s(b)(2).
21 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
The Exchange proposes to amend its
Fees Schedule. First, to correspond with
other changes to equity options fees that
the Exchange has proposed to take effect
on February 1, 2013,3 C2 proposes to
state that for all complex order
transactions in equity options classes,
all components of such transactions
(including simple, non-complex orders
and/or quotes that execute against a
complex order) will be assessed no fee
(or rebate). In SR–C2–2013–004, the
Exchange proposes to adopt equity
options transaction fees that are based,
in part, on the C2 BBO Market Width.
Because it would be difficult to
determine the C2 BBO Market Width for
spread transactions (which involve
complex orders), the Exchange is still in
the process of determining how to
assess fees for such transactions. As
such, C2 proposes, until making such
determination, to assess no fees (or
rebates) for all complex order
transactions. The Exchange does not
anticipate receiving many complex
20 15
PO 00000
Frm 00120
Fmt 4703
Sfmt 4703
3 See SR–C2–2013–004, available for viewing at
https://www.c2exchange.com/Legal/
RuleFilings.aspx.
E:\FR\FM\15FEN1.SGM
15FEN1
]]>Agencies
[Federal Register Volume 78, Number 32 (Friday, February 15, 2013)]
[Notices]
[Pages 11249-11252]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-03428]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68879; File No. SR-CBOE-2012-124]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Order Approving a Proposed Rule Change To Amend Various
CBOE Rules Governing Letters of Guarantee and Authorization
February 8, 2013.
On December 14, 2012, the Chicago Board Options Exchange,
Incorporated (``Exchange'' or ``CBOE'') filed with the Securities and
Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend various CBOE Rules
governing letters of guarantee and authorization. The proposed rule
change was published for comment in the Federal Register on December
27, 2012.\3\ The Commission did not receive any comment letters on the
proposal. This order approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 68487 (December 20,
2012), 77 FR 76320
(``Notice'').
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I. Description of the Proposal
As further described below, each Trading Permit Holder (``TPH'')
that has trading functions on CBOE currently is required to submit to
CBOE a letter of guarantee or authorization for its trading activities
on CBOE from a Clearing Trading Permit Holder (``Clearing TPH'').
Typically, by a letter of guarantee, the Clearing TPH guarantees any
trades made its TPH customer and, by a letter of authorization, a
Clearing TPH accepts financial responsibility for all transactions on
CBOE made by a guaranteed Floor Broker.
The purpose of the proposal is to amend various CBOE rules
governing letters of guarantee and authorization to:
Give CBOE the ability to prevent access to its marketplace
if a TPH does not have an effective letter of guarantee or
authorization on file with the Exchange;
Provide that any written revocation of a letter of
guarantee or authorization will be given effect as quickly as CBOE can
process it;
Give CBOE the ability to take any action necessary to give
effect to actions
[[Page 11250]]
by the Clearing Corporation,\4\ such as restricting the activities of a
Clearing TPH or suspending a Clearing TPH;
---------------------------------------------------------------------------
\4\ Currently, The Options Clearing Corporation (``OCC'') is the
only Clearing Corporation of CBOE. See Notice, supra note 3, at
76320, n.5.
---------------------------------------------------------------------------
Automatically terminate the trading permit(s) and TPH
status of a TPH if the TPH does not have a required letter of guarantee
or authorization in place for ninety consecutive days;
Delete obsolete and outdated rule text; and
Make technical, non-substantive rule text changes.
Generally, these substantive changes are designed to ensure that
TPHs who engage in trading activities always have a valid letter of
guarantee or authorization from a Clearing TPH.
Changes to Rule 3.28 (Letters of Guarantee). The Exchange proposes
to amend CBOE Rule 3.28 so that it will govern both letters of
guarantee and authorization.\5\ The Exchange proposes to add new
paragraphs (b) through (g) to expressly provide CBOE with remedial
powers in the event the OCC restricts or suspends a Clearing TPH. The
Exchange also proposes to add new paragraph (h) to Rule 3.28 to govern
the termination of TPH status when a TPH is without a required letter
of guarantee or authorization for a period of ninety consecutive days.
---------------------------------------------------------------------------
\5\ Currently, the rule governs only letters of guarantee. Rule
6.72 will continue to govern Letters of Authorization for Floor
Brokers and Rule 8.5 will continue to govern Letters of Guarantee
for Market-Makers.
---------------------------------------------------------------------------
Under new paragraph (b) of the rule, a TPH may not engage in any
trading activities on the Exchange if an effective letter of guarantee
or authorization required to engage in those activities is not on file
with the Exchange. If a Trading Permit Holder does not have an
effective letter of guarantee or authorization on file with the
Exchange, the Exchange will be permitted to prevent access and
connectivity to the Exchange by that Trading Permit Holder. If a TPH
has a letter of guarantee or authorization that is revoked or
invalidated (as discussed below), that TPH's orders and quotes will be
rejected after the revocation or invalidation after the revocation or
invalidation becomes effective unless and until the TPH has another
effective letter of guarantee or authorization in place and on file
with the Exchange. This means that a TPH without an effective letter of
guarantee or authorization will not be able to continue to trade on the
Exchange.
Under new paragraph (c) of the rule, letters of guarantee and
authorization filed with the Exchange will remain in effect until a
written notice of revocation has been filed with the TPH Department and
the revocation becomes effective or the letter of guarantee or
authorization otherwise becomes invalid pursuant to Exchange rules. A
written notice of revocation will become effective as soon as the
Exchange is able to process the revocation. A revocation will in no way
relieve a Clearing TPH of responsibility for transactions guaranteed
prior to the effectiveness of the revocation.
Under new paragraph (d) of the rule, if the OCC restricts the
activities of a Clearing TPH or suspends a Clearing TPH as a Clearing
Member of the OCC, the Exchange will be permitted to give effect to the
restriction or suspension. For example, if the OCC restricts
transactions cleared by a Clearing TPH to ``closing only''
transactions, the Exchange similarly will be able to restrict
transactions on the Exchange for clearance by that Clearing TPH as a
Clearing Member of the OCC to ``closing only'' transactions; if the OCC
suspends a Clearing TPH, the Exchange similarly will be able to prevent
access and connectivity to the Exchange by the suspended Clearing TPH.
Under new paragraph (e) of the rule, if a Clearing TPH's status as
a Clearing Member of the OCC is terminated or if a Clearing TPH's
status as a CBOE TPH is terminated, all letters of guarantee and
authorization on file with the Exchange from that Clearing TPH will no
longer be valid, effective as of the time the Exchange processes the
invalidation of those letters. Similarly, under new paragraph (f) of
the rule, if a Clearing TPH has been suspended as a Clearing Member of
the OCC or as a CBOE TPH, all existing letters of guarantee and
authorization from that Clearing TPH will be invalid during the period
of the suspension, effective as soon as the Exchange processes the
invalidation of those letters.\6\ New paragraph (g) of the rule
provides that the invalidation of a letter of guarantee or
authorization will in no way relieve the Clearing TPH that issued the
letter of guarantee or authorization of responsibility from
transactions guaranteed prior to the effectiveness of the invalidation.
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\6\ The Exchange states that it will endeavor to process
revocations and invalidations under proposed Rules 3.28(c) and
3.28(f) in a timely manner. See Notice, supra note 3, at 76321.
---------------------------------------------------------------------------
Lastly, under the terms of new paragraph (h) of the rule, if a TPH
does not have a required letter of guarantee or authorization for
period of ninety consecutive days, its trading permit(s) and status as
a TPH shall automatically terminate.
Changes to Rule 6.72 (Letters of Authorization). The Exchange
proposes to amend CBOE Rule 6.72 to provide that a letter of
authorization previously filed with the Exchange will remain effective
until a written notice of revocation has been filed with the TPH
Department and the revocation becomes effective or until such time that
the letter of authorization otherwise becomes invalid under CBOE's
rules. In the event a written notice of revocation is provided, the
Exchange is proposing to provide that the revocation shall become
effective as soon as the Exchange is able to process it.\7\ The
Exchange also proposes to eliminate a provision that allows a Clearing
TPH to request that the Exchange post notice of the revocation.
---------------------------------------------------------------------------
\7\ Currently, the rule sets forth a specific time period for
the effectiveness revocations.
---------------------------------------------------------------------------
The Exchange also proposes to add an internal cross reference,
which provides that letters of authorization issued for Floor Brokers
under Rule 6.72 will be subject to Rule 3.28.\8\ The effects of this
addition would:
---------------------------------------------------------------------------
\8\ Previously, letters of authorization issued to Floor Brokers
were governed only by Rule 6.72.
---------------------------------------------------------------------------
Allow CBOE to prevent access to its marketplace if a Floor
Broker TPH does not have an effective letter of authorization on file
with the Exchange;
Allow CBOE to take action necessary to give effect to
actions by the Clearing Corporation, such as restricting the activities
of a Clearing TPH or suspending a Clearing TPH;
Allow CBOE to invalidate a Floor Broker's letter of
authorization if it was issued by a Clearing TPH whose Clearing TPH
status as a Clearing Member of the OCC is terminated or if a Clearing
TPH's status as a CBOE TPH is terminated effective as soon as the
Exchange is able to process the invalidation of the letter of
authorization;
Allow CBOE to invalidate a Floor Broker's letter of
authorization, if it was issued by a Clearing TPH who has been
suspended as a Clearing Member of the OCC or as a CBOE TPH, during the
period of the suspension effective as soon as the Exchange is able to
process the invalidation of the letter of authorization;
Provide that the invalidation of a letter of authorization
shall in no way relieve the Clearing TPH that issued the letter of
authorization of responsibility from transactions guaranteed prior to
the effectiveness of the invalidation; and
Automatically terminate the trading permit(s) and TPH
status of a Floor Broker if the Floor Broker does not have a required
letter of guarantee or
[[Page 11251]]
authorization in place for ninety consecutive days.
Changes to Rule 8.5 (Letters of Guarantee). The Exchange proposes
to amend CBOE Rule 8.5 to provide that a letter of guarantee previously
filed with the Exchange will remain effective until a written notice or
revocation has been filed with the TPH Department and the revocation
becomes effective or until such time that the letter of guarantee
otherwise becomes invalid under CBOE's rules. In the event a written
notice of revocation is provided, the Exchange is proposing to provide
that the revocation shall become effective as soon as the Exchange is
able to process it.\9\ The Exchange also proposes to eliminate a
provision that allows a Clearing TPH to request that the Exchange post
notice of the revocation.
---------------------------------------------------------------------------
\9\ Currently, the rule sets forth a specific time period for
the effectiveness revocations.
---------------------------------------------------------------------------
Additionally, the Exchange proposes to add an internal cross-
reference, which provides that letters of guarantee issued for Market-
Makers under Rule 8.5 will be subject to Rule 3.28.\10\ The effects of
this addition would:
---------------------------------------------------------------------------
\10\ Previously, letters of authorization issued to Market
Makers were governed only by Rule 8.5.
---------------------------------------------------------------------------
Allow CBOE to prevent access to its marketplace if a
Market-Maker TPH does not have an effective letter of guarantee on file
with the Exchange;
Allow CBOE to take action necessary to give effect to
actions by the Clearing Corporation, such as restricting the activities
of a Clearing TPH or suspending a Clearing TPH;
Allow CBOE to invalidate a Market-Maker's letter of
guarantee if it was issued by a Clearing TPH whose Clearing TPH status
as a Clearing Member of the OCC is terminated or if a Clearing TPH's
status as a CBOE TPH is terminated effective as soon as the Exchange is
able to process the invalidation of the letter of guarantee;
Allow CBOE to invalidate a Market-Maker's letter of
guarantee, if it was issued by a Clearing TPH who has been suspended as
a Clearing Member of the OCC or as a CBOE TPH, during the period of the
suspension effective as soon as the Exchange is able to process the
invalidation of the letter of guarantee;
Provide that the invalidation of a letter of guarantee
shall in no way relieve the Clearing Trading Holder that issued the
letter of guarantee of responsibility from transactions guaranteed
prior to the effectiveness of the invalidation; and
Automatically terminate the trading permit(s) and TPH
status of a Market-Maker if the Market-Maker does not have a required
letter of guarantee or authorization in place for ninety consecutive
days.
Further, the Exchange proposes to delete Interpretations and Policies
.01, .02 and .04 from Rule 8.5 because it states that they are
obsolete.\11\
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\11\ The Exchange states that it no longer trades the product
referenced in .01, and .02 and .04 are obsolete because the OCC is
no longer involved in approving CBOE letters of guarantee. See
Notice, supra note 3, at 76322.
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Changes to Rules 24A.15 and 24B.13 (Letters of Guarantee or
Authorization). The Exchange proposes to amend Rules 24A.15 and 24B.13,
which relate to FLEX options, by deleting a provision in each rule
relating to OCC approval of letters of guarantee that are being amended
to include FLEX option transactions. According to the Exchange, that
provision is obsolete because the OCC is no longer involved in
approving CBOE letters of guarantee.\12\
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\12\ See id.
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Additionally, the Exchange proposes to add an internal cross-
reference, which provides that letters of guarantee or authorization
issued for FLEX Market-Makers and Floor Brokers under Rules 24A.15 and
24B.13 will be subject to Rule 3.28.\13\ The effects of this addition
would:
---------------------------------------------------------------------------
\13\ Previously, letters of authorization issued to FLEX Market-
Makers or Floor Brokers were only governed by Rules 24A.15 and
24B.15.
---------------------------------------------------------------------------
Allow CBOE to prevent access to its marketplace if a FLEX
Market-Maker or Floor Broker TPH does not have an effective letter of
guarantee or authorization on file with the Exchange;
Allow CBOE to take action necessary to give effect to
actions by the Clearing Corporation, such as restricting the activities
of a Clearing TPH or suspending a Clearing TPH;
Allow CBOE to invalidate a FLEX Market-Maker or Floor
Broker TPH's letter of guarantee or authorization if it was issued by a
Clearing TPH whose Clearing TPH status as a Clearing Member of the OCC
is terminated or if a Clearing TPH's status as a CBOE TPH is terminated
effective as soon as the Exchange is able to process the invalidation
of the letter of guarantee or authorization;
Allow CBOE to invalidate a FLEX Market-Maker or Floor
Broker TPH's letter of guarantee or authorization, if it was issued by
a Clearing TPH who has been suspended as a Clearing Member of the OCC
or as a CBOE TPH, during the period of the suspension effective as soon
as the Exchange is able to process the invalidation of the letter of
guarantee or authorization;
Provide that the invalidation of a letter of guarantee or
authorization shall in no way relieve the Clearing Trading Holder that
issued the letter of guarantee or authorization of responsibility from
transactions guaranteed prior to the effectiveness of the invalidation;
and
Automatically terminate the trading permit(s) and TPH
status of a FLEX Market-Maker or Floor Broker if the FLEX Market-Maker
or Floor Broker does not have a required letter of guarantee or
authorization in place for ninety consecutive days.
Changes to Rules 26.11 (Market-Makers) and 26.13 (Floor Broker
Financial Requirements). CBOE Rules 26.11 and 26.13 relate to market
basket contracts, which the Exchange does not currently list for
trading. The Exchange proposes to amend those rules by deleting a
provision in each rule relating to OCC approval of letters of guarantee
that are amended to include market basket transactions.\14\
---------------------------------------------------------------------------
\14\ The Exchange states that provision is obsolete because the
OCC is no longer involved in approving CBOE letters of guarantee.
See Notice, supra note 3, at 76323.
---------------------------------------------------------------------------
Additionally, the Exchange proposes to add an internal cross-
reference, which provides that letters of guarantee or authorization
issued for Market-Makers in market basket contracts, and letters of
authorization issued for Floor Brokers in market basket contracts,
under Rules 26.11 and 26.13, respectively, will be subject to Rule
3.28.\15\ The effects of this addition would:
---------------------------------------------------------------------------
\15\ Those letters of guarantee or authorization issued to
Market-Makers and Floor Brokers in market basket contracts
previously were governed only by Rules 26.11 and 26.13.
---------------------------------------------------------------------------
Allow CBOE to prevent access to its marketplace if a
Market-Maker or Floor Broker TPH in market basket contracts does not
have an effective letter of guarantee or authorization on file with the
Exchange;
Allow CBOE to take action necessary to give effect to
actions by the Clearing Corporation, such as restricting the activities
of a Clearing TPH or suspending a Clearing TPH;
Allow CBOE to invalidate a market basket Market-Maker or
Floor Broker TPH's letter of guarantee or authorization if it was
issued by a Clearing TPH whose Clearing TPH status as a Clearing Member
of the OCC is terminated or if a Clearing TPH's status as a CBOE TPH is
terminated effective as soon as the Exchange is able to process the
invalidation of the letter of guarantee or authorization;
Allow CBOE to invalidate a market basket Market-Maker or
Floor Broker
[[Page 11252]]
TPH's letter of guarantee or authorization, if it was issued by a
Clearing TPH who has been suspended as a Clearing Member of the OCC or
as a CBOE TPH, during the period of the suspension effective as soon as
the Exchange is able to process the invalidation of the letter of
guarantee or authorization;
Provide that the invalidation of a letter of guarantee or
authorization shall in no way relieve the Clearing Trading Holder that
issued the letter of guarantee or authorization of responsibility from
transactions guaranteed prior to the effectiveness of the invalidation;
and
Automatically terminate the trading permit(s) and TPH
status of a Market-Maker or Floor Broker in market basket contracts if
the Market-Maker or Floor Broker in market basket contracts does not
have a required letter of guarantee or authorization in place for
ninety consecutive days.
II. Discussion and Commission's Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\16\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\17\ which
requires, among other things, that the Exchange's rules be designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in 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. The Exchange's proposal will
remove impediments to and to perfect the mechanism for a free and open
market and, in general, protect investors by requiring that a TPH have
an effective and unrestricted letter of guarantee, which will help
prevent the execution of trades on CBOE that ultimately may not be able
to be cleared and settled.
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\16\ 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).
\17\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission also finds that the proposed rule change is also
consistent with the Section 6(b)(7) of the Act,\18\ which requires that
the rules of an exchange provide a fair procedure for the denial of
membership to any person seeking membership therein and the prohibition
or limitation by an exchange of any person with respect to access to
services offered by the exchange. Under the proposed rule change, a TPH
without an effective letter of guarantee or authorization will not be
able to continue to trade on the Exchange and, if a TPH does not have a
required letter of guarantee or authorization in place for ninety
consecutive days, the permit of the TPH is automatically terminated.
The Commission believes that it is appropriate to prohibit a TPH from
trading on CBOE without a financial guarantee, and the 90-day period
provides the TPH adequate time to cure its deficiency. The Commission
notes that CBOE stated that the automatic termination provision does
not prohibit or limit a previously terminated TPH from applying again
to become a TPH once the TPH acquires the required letter of guarantee
or authorization.\19\
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78f(b)(7).
\19\ See Notice, supra note 3, at 76324.
---------------------------------------------------------------------------
III. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\20\ that the proposed rule change (SR-CBOE-2012-124) be, and it
hereby is, approved.
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\20\ 15 U.S.C. 78s(b)(2).
\21\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-03428 Filed 2-14-13; 8:45 am]
BILLING CODE 8011-01-P
