Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change Relating to Supervision, 169-173 [2013-31366]
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Federal Register / Vol. 79, No. 1 / Thursday, January 2, 2014 / Notices
169
2013–59 and should be submitted on or
before January 23, 2014.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has neither solicited
nor received comments on the proposed
rule change.
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
to determine whether the proposed rule
should be approved or disapproved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.25
Lynn Powalski,
Deputy Secretary.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change
does not (i) significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 22 and Rule 19b–4(f)(6)
thereunder.23
The Exchange has asked the
Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Exchange stated that waiver
of this requirement will promote fair
competition among the exchanges by
allowing the Exchange to adopt the
proposed rule changes
contemporaneously with other
exchanges. The Exchange also stated
that the proposal will allow the
Exchange to offer a more efficient STO
Program that is harmonized internally
and externally with the OLPP, and to
meet customer demand for a greater
number of STO classes and strike price
intervals, in the same manner as other
exchanges. The Commission believes
that waiving the 30-day operative delay
is consistent with the protection of
investors and the public interest
because it will allow the Exchange to
remain competitive with other
exchanges. Therefore, the Commission
designates the proposed rule change to
be operative upon filing.24
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
IV. Solicitation of Comments
[FR Doc. 2013–31370 Filed 12–31–13; 8:45 am]
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:
BILLING CODE 8011–01–P
Electronic Comments
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of a
Proposed Rule Change Relating to
Supervision
22 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). As required under Rule
19b–4(f)(6)(iii), the Exchange provided the
Commission with written notice of its intent to file
the proposed rule change, along with a brief
description and the text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission.
24 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BOX–2013–59 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–BOX–2013–59. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
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–BOX–
PO 00000
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–71190; File No. SR–CBOE–
2013–126]
December 26, 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 December
18, 2013, Chicago Board Options
Exchange, Incorporated (the ‘‘Exchange’’
or ‘‘CBOE’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
substantially prepared by the Exchange.
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 Substance of
the Proposed Rule Change
CBOE proposes to adopt a rule
requiring each Trading Permit Holder
(‘‘TPH’’) to establish and maintain a
system of supervision and written
supervisory procedures. The text of the
proposed rule change is available on the
Exchange’s Web site at https://
www.cboe.com/AboutCBOE/
CBOELegalRegulatoryHome.aspx, at the
Exchange’s Office of the Secretary, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
25 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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
Effective and comprehensive
compliance policies and procedures and
supervisory systems are critical to
investor protection and market integrity;
therefore, the Exchange proposes to
adopt Rule 4.24 that would require its
TPHs to establish and maintain a system
to supervise each of their business
activities and the activities of their
associated persons.3 As more fully
described below, the proposed rule
would also require TPHs to: (1)
establish, maintain, and enforce written
supervisory procedures; (2) inspect
every office or location of the TPH at
least once every three calendar years;
and (3) conduct an annual review and
submit to the Exchange on an annual
basis a written report on the TPH’s
supervision and compliance efforts
during the preceding year.
The Exchange does not currently have
a comprehensive rule that directly
addresses the obligation of every TPH to
properly supervise its business and
employees. The proposed rule would
impose a more definitive supervision
requirement on TPHs than is currently
contained in the Exchange’s rules, and
would cover all business activities of a
TPH.4
Currently, the only supervision
obligations that are expressly codified in
CBOE Rules are found in Rule 4.2—
Adherence to Law and Rule 9.8—
Supervision of Accounts. Rule 4.2 reads
as follows:
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No Trading Permit Holder shall engage in
conduct in violation of the Securities
Exchange Act of 1934, as amended, rules or
regulations thereunder, the Bylaws or the
Rules of the Exchange, or the Rules of the
Clearing Corporation insofar as they relate to
the reporting or clearance of any Exchange
3 Article 1, Section 1.1(f) of the Exchange’s
Bylaws defines ‘‘Trading Permit Holder’’ to mean
‘‘any individual, corporation, partnership, limited
liability company or other entity authorized by the
Rules that holds a Trading Permit.’’ The proposed
rule would also apply to CBOE Stock Exchange
(‘‘CBSX’’) Trading Permit Holders. CBSX is CBOE’s
stock trading facility.
4 The proposed rule is modeled after similar rules
of other self-regulatory organizations (‘‘SROs’’), i.e.,
PHLX Rule 748, NASD Rule 3010, FINRA Rule
3130, NYSE Amex Rule 320, NYSE Rule 342, and
NYSE Arca Rule 11.18.
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transaction, or any written interpretation
thereof. Every Trading Permit Holder shall so
supervise persons associated with the
Trading Permit Holder as to assure
compliance therewith.
While it requires a TPH to supervise
persons associated with the TPH, Rule
4.2 does not expressly require a system
of supervision, or written procedures
covering each line of business to be
established and maintained The
proposed rule would clearly place
responsibility on TPHs to establish and
maintain a formal plan of supervision
that covers each of its business activities
and associated persons.
CBOE Rule 9.8, a component of
Chapter 9—Doing Business with the
Public, is applicable only to TPHs
conducting non-TPH customer business
in options. The proposed rule would
mirror many of the requirements in Rule
9.8, in that Rule 9.8 requires TPHs to:
(1) establish, maintain, and enforce
written supervisory procedures; (2)
conduct office inspections; and (3)
conduct an annual review and submit to
the Exchange an annual written report
on the TPH’s supervision and
compliance efforts during the preceding
year. However, the proposed rule would
not be limited to supervision of
activities related only to TPHs
conducting non-TPH customer business
in options. Therefore, the proposed rule
would provide greater utility for
enforcing TPH obligations for other
business areas such as proprietary
trading.
The Exchange believes the proposed
rule would clarify: (1) the responsibility
of the TPH for the acts of its associated
persons; and (2) the requirement of each
TPH to supervise those associated
persons for which it is responsible.
Proposed Rule 4.24(a) would generally
establish each TPH’s responsibility for
the supervision and control of the TPH.
The proposed rule would also require
that each associated person, in addition
to each office, location, department,
business activity, trading system, and
internal surveillance system of a TPH,
be under the supervision and control of
an appropriately qualified supervisor as
described in proposed Rule 4.24(c).5
Proposed Rule 4.24(b) would provide
for the designation of a general partner
or principal executive officer to assume
overall authority and responsibility for
the supervisory system of the TPH. This
designee would then be responsible for:
(1) Delegating to qualified principals
responsibility and authority for
5 Proposed Rule 4.24(a) is modeled after PHLX
Rule 748(a), NYSE MKT Rule 320(b), NYSE Rule
342(a), NYSE Arca Rule 11.18(b) and NASD Rule
3010(a).
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supervision and control of each office,
location, department, business activity,
trading system, and internal
surveillance system, as well as
providing for appropriate written
procedures of supervision and control;
and (2) establishing a separate system of
follow-up and review to determine that
the delegated responsibility and
authority is properly exercised.6
Proposed Rules 4.24(c) and (d) would
provide for the qualifications of
supervisors and the standards of
supervision, respectively. Under
proposed paragraph (c), TPHs would
have to make reasonable efforts to
determine that those persons with
supervisory control, as described in
proposed Rules 4.24(a) and (b), are
qualified by virtue of experience or
training to carry out their assigned
responsibilities. This paragraph would
also require supervisors to meet the
Exchange’s qualification requirements
for supervisors, including completion of
the appropriate examinations.7 For
example, CBOE Rule 3.6A—
Qualification and Registration of
Trading Permit Holders and Associated
Persons sets forth required examinations
for associated persons engaged in the
securities business of a TPH. Proposed
paragraph (d) would require that any
person with supervisory control, as
described in proposed Rules 4.24(a) and
(b), reasonably discharge his or her
duties and obligations in connection
with such supervision and control in
order to prevent and detect violations of
applicable securities laws and
regulations and applicable Exchange
rules.8
Proposed Rule 4.24(e) would require
each TPH to establish, maintain, and
enforce written supervisory procedures,
and a system for applying such
procedures, to supervise each of its
business activities and the activities of
its associated persons that are
reasonably designed to achieve
compliance with applicable securities
laws and regulations as well as
applicable Exchange rules. The
proposed rule would also require that
the written supervisory procedures be
amended as changes occur to a TPH’s
personnel or supervisory procedures
and within a reasonable time after
changes occur in applicable securities
laws and regulations and the rules of the
Exchange. Additionally, the proposed
6 Proposed Rule 4.24(b) is modeled after PHLX
Rule 748(b), NYSE MKT Rule 320(c), NYSE Rule
342(b) and NASD Rule 3010(a).
7 Proposed Rule 4.24(c) is modeled after NASD
Rule 3010(a)(6) and PHLX Rule 748(c).
8 Proposed Rule 4.24(d) is modeled after PHLX
Rule 748(d), NYSE MKT Rule 320(b) and NYSE
Rule 342(a).
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rule would require TPHs to maintain a
record of the name, title, registration
status and location of all supervisory
personnel required by the proposed
rule, the dates for which supervisory
designations were or are effective, and
the responsibilities of the supervisory
personnel as these relate to the types of
business the TPH engages in, and
applicable securities laws and
regulations, including applicable
Exchange rules. TPHs would be
required to preserve such record for a
period of not less than three years, the
first two in an easily accessible place.
Lastly, the proposed rule would require
a copy of the written supervisory
procedures to be kept and maintained at
each location where supervisory
activities are conducted on behalf of the
TPH.9
Proposed Rule 4.24(f) would require
that each TPH perform inspections of
every office or location of the TPH at
least once every three calendar years.
An inspection could not be conducted
by any person within that office or
location who has supervisory
responsibilities or by any individual
who is directly or indirectly supervised
by such person(s). This provision is
intended to help ensure that all activity
of an office or location is monitored for
compliance with applicable regulatory
requirements by persons who do not
have a personal interest in such activity.
The proposed rule would require the
examination schedule and an
explanation of the factors considered in
determining the frequency of the
examinations in the cycle to be set forth
in the TPH’s written supervisory
procedures. When establishing the
inspection cycle, the TPH would be
required to consider the nature and
complexity of the securities activities
for which the office or location is
responsible, the volume of business
done, and the number of associated
persons at each office or location. For
each inspection, the TPH would be
required to retain a written record of the
dates upon which each inspection is
conducted, the participants involved,
and the results thereof.10
As noted above, effective and
comprehensive compliance policies and
procedures and supervisory systems are
key to investor protection and market
integrity. Therefore, it is essential that
TPHs put adequate emphasis on the
importance of compliance throughout
the firm. To promote regular discussion
and review of its supervisory system,
proposed Rule 4.24(g) would require
each TPH to conduct an annual review
and submit to the Exchange on an
annual basis a written report on the
TPH’s supervisory system.
Paragraph (g)(1) of proposed Rule 4.24
would require that each TPH conduct
annual meetings or interviews with all
associated persons to discuss
compliance matters relevant to their
activities. The TPH would be required
to maintain a written record of the dates
the meetings or interviews were held,
who was present at each meeting or
interview, and the results thereof.11
Proposed Rule 4.24(g)(2) would
require TPHs to prepare a written report
on the firm’s supervision and
compliance efforts during the preceding
year and on the adequacy of the firm’s
ongoing compliance processes and
procedures. TPHs would be required to
submit such report to the Exchange by
April 1 of each year. The proposed Rule
would require that the report include
four elements: (1) a tabulation of
customer complaints (including
arbitrations and civil actions) and
internal investigations, if any; (2)
identification and analysis of significant
compliance problems, plans for future
systems or procedures to prevent and
detect violations and problems, and an
assessment of the preceding year’s
efforts of this nature; (3) discussion of
the preceding year’s compliance efforts,
new procedures, educational programs,
etc. in the areas of antifraud and trading
practices, books and records, finance
and operations, supervision, internal
controls, and anti-money laundering;
and (4) a certification signed by the
TPH’s Chief Executive Officer (‘‘CEO’’)
or equivalent officer.12
The certification signed by the TPH’s
CEO (or equivalent officer) would be
required to include four components,
the last three of which would be
intended to foster regular and
significant interaction between senior
management and the Chief Compliance
Officer (‘‘CCO’’) regarding the TPH’s
comprehensive compliance program:
The first component relates to
requirements found in paragraph (e) of
the proposed rule.13 Specifically, the
CEO (or equivalent officer) would be
required to certify that the TPH has in
place processes to: (1) establish and
maintain policies and procedures
reasonably designed to achieve
compliance with applicable Exchange
9 Proposed Rule 4.24(e) is modeled after PHLX
Rule 748(h) and NASD Rule 3010(b)(1), (3) and (4).
10 Proposed Rule 4.24(f) is modeled after PHLX
Rule 748(g) and NASD Rules 3010(c)(1)(B) and
(c)(3).
11 Proposed Rule 4.24(g)(1) is modeled after PHLX
Rule 748(e)(1).
12 Proposed Rule 4.24(g)(2) is modeled after CBOE
Rule 9.8(g)(1)–(5).
13 See Proposed Rule 4.24(g)(2)(D)(i).
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171
rules and federal securities laws and
regulations; (2) modify such policies
and procedures as business, regulatory
and legislative changes and events
dictate; and (3) test the effectiveness of
such policies and procedures on a
periodic basis.14
The second component would require
the CEO (or equivalent officer) to certify
that he or she conducted one or more
meetings with the firm’s CCO during the
preceding 12 months in which they
discussed and reviewed the matters
described in the certification, including
the TPH’s prior compliance efforts.15
The CEO (or equivalent officer) and
CCO would also be required to identify
and address any significant compliance
problems or plans for emerging business
areas.16
The third component of the
certification would require the CEO (or
equivalent officer) to certify that he or
she reviewed a report evidencing the
processes covered in the first
component of the certification.17 This
report would also be reviewed by the
CCO and such other officers as the TPH
deems necessary in order for the CEO to
make the required certification. Further,
the CEO would be required to certify
that the report was submitted to the
TPH’s board of directors or audit
committee by April 1st of each year. If
a TPH does not utilize these types of
governing bodies in the conduct of its
business, the TPH would be required to
have the report reviewed by any
governing body or committee that serves
a similar function in lieu of a board of
directors or audit committee.18
The fourth component of the
certification 19 would require the CEO
(or equivalent officer) to certify that he
or she consulted with the CCO and
other officers referenced in proposed
Rule 4.24(g)(2)(D)(iii) and other such
employees, outside consultants, lawyers
and accountants, to the extent he or she
deems appropriate, in order to attest to
the statements made in the
certification.20
Finally, proposed paragraph (g)(3)
would deem any TPH to have met the
requirements of proposed Rules
4.24(g)(1) and (2) if the TPH specifically
includes its options compliance
14 Proposed Rule 4.24(g)(2)(D)(i) is modeled after
FINRA Rule 3130(c)(1) and CBOE Rule 9.8(g)(5)(i).
15 See Proposed Rule 4.24(g)(2)(D)(ii).
16 Proposed Rule 4.24(g)(2)(D)(ii) is modeled after
FINRA Rule 3130(c)(2) and CBOE Rule 9.8(g)(5)(ii).
17 See Proposed Rule 4.24(g)(2)(D)(iii).
18 Proposed Rule 4.24(g)(2)(D)(iii) is modeled
after FINRA Rule 3130(c)(3) and CBOE Rule
9.8(g)(5)(iii).
19 See Proposed Rule 4.24(g)(2)(D)(iv).
20 Proposed Rule 4.24(g)(2)(D)(iv) is modeled after
FINRA Rule 3130(c)(4) and CBOE Rule 9.8(g)(5)(iv).
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program within an annual compliance
review and written report that complies
with substantially similar requirements
of the Financial Industry Regulatory
Authority, Inc. or any other SRO.21 In
that case, the TPH would still be
required to submit a copy of such
written report to the Exchange by April
1 of each year.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the Act
and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.22 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) of the Act,23 which requires that
the rules of an exchange be designed to,
among other things, prevent fraudulent
and manipulative acts and practices, to
promote just and equitable principles of
trade, and, in general, to protect
investors and the public interest.
Compliance with applicable Exchange
rules and federal securities laws is the
bedrock of investor protection and
market integrity. Therefore it is critical
that TPHs employ comprehensive and
effective compliance policies and
procedures. The Exchange believes the
proposed rule change would help
promote just and equitable principles of
trade and protect investors and the
public interest by upgrading and
strengthening the Exchange’s rules
pertaining to supervisory obligations of
its TPHs.
TPHs are on the front line of defense
against fraudulent and manipulative
acts and practices. TPHs are in the
unique position to identify potential
rule violations or other inappropriate
activity and correct it before
intervention by the exchanges or the
Commission. The Exchange believes a
comprehensive supervision rule such as
proposed Rule 4.24 should help to
prevent fraudulent and manipulative
acts and practices consistent with
Section 6(b)(5) of the Act.
The Exchange believes that the
proposed rule change should strengthen
the Exchange’s ability to examine TPHs
for compliance with supervisory
requirements by compelling that written
supervisory procedures be maintained.
Written supervisory procedures should
provide TPHs and their supervisory
personnel with a clear understanding of
their supervisory responsibilities thus
helping to ensure that those
21 Proposed Rule 4.24(g)(3) is modeled after CBOE
Rule 9.8(g)(5).
22 15 U.S.C. 78f(b).
23 15 U.S.C. 78f(b)(5).
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responsibilities are carried out
effectively and efficiently. The
Exchange also believes the proposal to
require inspections of offices or other
locations of TPHs would help
strengthen the ability of TPHs to carry
out their compliance and surveillance
functions. By requiring written
supervisory procedures and inspections
that are reasonably designed to prevent
and detect violations of applicable
securities laws and regulations, as well
as Exchange rules, the proposed rule
would help to ensure that TPHs have
the necessary processes in place to
identify potential rule violations or
inappropriate activity.
Furthermore, the Exchange believes
the proposed requirements for an
annual certification and written report
would enhance focus on a TPH’s
compliance and supervision systems by
promoting a dialogue throughout the
TPH of its compliance efforts and
procedures, thereby decreasing the
likelihood of fraudulent and
manipulative acts and practices and
increasing investor protection.
Lastly, the Exchange believes the
proposed rule change furthers the
objectives of Section 6(b)(1) 24 of the
Act, which provides that the Exchange
must be organized and have the capacity
to be able to carry out the purposes of
the Act and to enforce compliance by
the Exchange’s TPHs and persons
associated with its TPHs with the Act,
the rules and regulations thereunder,
and the rules of the Exchange. Requiring
comprehensive supervision by TPHs
and their associated persons of their
activities should promote the
Exchange’s ability to enforce
compliance by TPHs and their
associated persons with the Act and the
regulations thereunder.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
CBOE does not believe that the
proposed rule change will impose any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes the proposed rule
change would upgrade and strengthen
the Exchange’s rules pertaining to
supervisory obligations of its TPHs. As
noted below, the proposed rule change
is based on similar rules of other SROs.
24 15
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will:
A. by order approve or disapprove
such proposed rule change, or
B. institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2013–126 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–CBOE–2013–126. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
E:\FR\FM\02JAN1.SGM
02JAN1
Federal Register / Vol. 79, No. 1 / Thursday, January 2, 2014 / Notices
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–CBOE–
2013–126 and should be submitted on
or before January 23, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.25
Lynn M. Powalski,
Deputy Secretary.
[FR Doc. 2013–31366 Filed 12–31–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–71193; File No. SR–
NASDAQ–2013–155]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing of Proposed Rule Change to List
and Trade Shares of the
AdvisorShares YieldPro ETF
December 26, 2013.
maindgalligan on DSK5TPTVN1PROD with NOTICES
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
13, 2013, The NASDAQ Stock Market
LLC (‘‘Nasdaq’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in in
Items I, II, and III below, which Items
have been prepared by Nasdaq. 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
Nasdaq proposes to list and trade the
shares of the AdvisorShares YieldPro
ETF (the ‘‘Fund’’) of the AdvisorShares
Trust (the ‘‘Trust’’) under Nasdaq Rule
25 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Mar<15>2010
17:20 Dec 31, 2013
Jkt 232001
5735 (‘‘Managed Fund Shares’’).3 The
shares of the Fund are collectively
referred to herein as the ‘‘Shares.’’
The text of the proposed rule change
is available at https://
nasdaq.cchwallstreet.com/, at Nasdaq’s
principal office, 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,
Nasdaq included statements concerning
the purpose of, and basis for, the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below.
Nasdaq has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to list and
trade the Shares of the Fund under
Nasdaq Rule 5735, which governs the
listing and trading of Managed Fund
Shares 4 on the Exchange. The Fund will
be an actively managed exchange-traded
fund (‘‘ETF’’). The Shares will be
offered by the Trust, which was
established as a Delaware statutory trust
3 The Commission approved Nasdaq Rule 5735 in
Securities Exchange Act Release No. 57962 (June
13, 2008), 73 FR 35175 (June 20, 2008) (SR–
NASDAQ–2008–039). There are already multiple
actively-managed funds listed on the Exchange; see
Securities Exchange Act Release No. 66175
(February 29, 2012), 77 FR 13379 (March 6, 2012)
(SR–NASDAQ–2012–004) (order approving listing
and trading of WisdomTree Emerging Markets
Corporate Bond Fund). Additionally, the
Commission has previously approved the listing
and trading of a number of actively-managed
WisdomTree funds on NYSE Arca, Inc. pursuant to
Rule 8.600 of that exchange. See, e.g., Securities
Exchange Act Release No. 64643 (June 10, 2011), 76
FR 35062 (June 15, 2011) (SR–NYSEArca–2011–21)
(order approving listing and trading of WisdomTree
Global Real Return Fund). The Exchange believes
the proposed rule change raises no significant
issues not previously addressed in those prior
Commission orders.
4 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (15 U.S.C. 80a-1)(the ‘‘1940 Act’’) organized as
an open-end investment company or similar entity
that invests in a portfolio of securities selected by
its investment adviser consistent with its
investment objectives and policies. In contrast, an
open-end investment company that issues Index
Fund Shares, listed and traded on the Exchange
under Nasdaq Rule 5705, seeks to provide
investment results that correspond generally to the
price and yield performance of a specific foreign or
domestic stock index, fixed income securities index
or combination thereof.
PO 00000
Frm 00082
Fmt 4703
Sfmt 4703
173
on July 30, 2007.5 The Trust is
registered with the Commission as an
investment company and has filed a
registration statement on Form N–1A
(‘‘Registration Statement’’) with the
Commission.6 The Fund is a series of
the Trust.
AdvisorShares Investments, LLC will
be the investment adviser (‘‘Adviser’’) to
the Fund. The Elements Financial
Group, LLC will be the investment subadviser (‘‘Sub-Adviser’’) to the Fund.
Foreside Fund Services, LLC (the
‘‘Distributor’’) will be the principal
underwriter and distributor of the
Fund’s Shares. The Bank of New York
Mellon (‘‘BNY Mellon’’) will act as the
administrator, accounting agent,
custodian (‘‘Custodian’’) and transfer
agent to the Fund.
Paragraph (g) of Rule 5735 provides
that if the investment adviser to the
investment company issuing Managed
Fund Shares is affiliated with a brokerdealer, such investment adviser shall
erect a ‘‘fire wall’’ between the
investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio.7 In addition,
5 The Commission has issued an order granting
certain exemptive relief to the Trust under the 1940
Act (the ‘‘Exemptive Order’’). See Investment
Company Act Release No. 28822 (July 20, 2009)
(File No. 812–13677). In compliance with Nasdaq
Rule 5735(b)(5), which applies to Managed Fund
Shares based on an international or global portfolio,
the Trust’s application for exemptive relief under
the 1940 Act states that the Fund will comply with
the federal securities laws in accepting securities
for deposits and satisfying redemptions with
redemption securities, including that the securities
accepted for deposits and the securities used to
satisfy redemption requests are sold in transactions
that would be exempt from registration under the
Securities Act of 1933 (15 U.S.C. 77a).
6 See Registration Statement on Form N–1A for
the Trust, dated August 7, 2013 (File Nos. 333–
157876 and 811–22110). The descriptions of the
Fund and the Shares contained herein are based, in
part, on information in the Registration Statement.
7 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
result, the Adviser and its related personnel are
subject to the provisions of Rule 204A–1 under the
Advisers Act relating to codes of ethics. This Rule
requires investment advisers to adopt a code of
ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with
other applicable securities laws. Accordingly,
procedures designed to prevent the communication
and misuse of non-public information by an
investment adviser must be consistent with Rule
204A–1 under the Advisers Act. In addition, Rule
206(4)–7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment
advice to clients unless such investment adviser has
(i) adopted and implemented written policies and
procedures reasonably designed to prevent
violation, by the investment adviser and its
supervised persons, of the Advisers Act and the
Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review
E:\FR\FM\02JAN1.SGM
Continued
02JAN1
]]>Agencies
[Federal Register Volume 79, Number 1 (Thursday, January 2, 2014)]
[Notices]
[Pages 169-173]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-31366]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71190; File No. SR-CBOE-2013-126]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of a Proposed Rule Change Relating to
Supervision
December 26, 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 December 18, 2013, Chicago Board Options Exchange, Incorporated
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change as described
in Items I, II, and III below, which Items have been substantially
prepared by the Exchange. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CBOE proposes to adopt a rule requiring each Trading Permit Holder
(``TPH'') to establish and maintain a system of supervision and written
supervisory procedures. The text of the proposed rule change is
available on the Exchange's Web site at https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx, at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the
[[Page 170]]
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
Effective and comprehensive compliance policies and procedures and
supervisory systems are critical to investor protection and market
integrity; therefore, the Exchange proposes to adopt Rule 4.24 that
would require its TPHs to establish and maintain a system to supervise
each of their business activities and the activities of their
associated persons.\3\ As more fully described below, the proposed rule
would also require TPHs to: (1) establish, maintain, and enforce
written supervisory procedures; (2) inspect every office or location of
the TPH at least once every three calendar years; and (3) conduct an
annual review and submit to the Exchange on an annual basis a written
report on the TPH's supervision and compliance efforts during the
preceding year.
---------------------------------------------------------------------------
\3\ Article 1, Section 1.1(f) of the Exchange's Bylaws defines
``Trading Permit Holder'' to mean ``any individual, corporation,
partnership, limited liability company or other entity authorized by
the Rules that holds a Trading Permit.'' The proposed rule would
also apply to CBOE Stock Exchange (``CBSX'') Trading Permit Holders.
CBSX is CBOE's stock trading facility.
---------------------------------------------------------------------------
The Exchange does not currently have a comprehensive rule that
directly addresses the obligation of every TPH to properly supervise
its business and employees. The proposed rule would impose a more
definitive supervision requirement on TPHs than is currently contained
in the Exchange's rules, and would cover all business activities of a
TPH.\4\
---------------------------------------------------------------------------
\4\ The proposed rule is modeled after similar rules of other
self-regulatory organizations (``SROs''), i.e., PHLX Rule 748, NASD
Rule 3010, FINRA Rule 3130, NYSE Amex Rule 320, NYSE Rule 342, and
NYSE Arca Rule 11.18.
---------------------------------------------------------------------------
Currently, the only supervision obligations that are expressly
codified in CBOE Rules are found in Rule 4.2--Adherence to Law and Rule
9.8--Supervision of Accounts. Rule 4.2 reads as follows:
No Trading Permit Holder shall engage in conduct in violation of
the Securities Exchange Act of 1934, as amended, rules or
regulations thereunder, the Bylaws or the Rules of the Exchange, or
the Rules of the Clearing Corporation insofar as they relate to the
reporting or clearance of any Exchange transaction, or any written
interpretation thereof. Every Trading Permit Holder shall so
supervise persons associated with the Trading Permit Holder as to
assure compliance therewith.
While it requires a TPH to supervise persons associated with the
TPH, Rule 4.2 does not expressly require a system of supervision, or
written procedures covering each line of business to be established and
maintained The proposed rule would clearly place responsibility on TPHs
to establish and maintain a formal plan of supervision that covers each
of its business activities and associated persons.
CBOE Rule 9.8, a component of Chapter 9--Doing Business with the
Public, is applicable only to TPHs conducting non-TPH customer business
in options. The proposed rule would mirror many of the requirements in
Rule 9.8, in that Rule 9.8 requires TPHs to: (1) establish, maintain,
and enforce written supervisory procedures; (2) conduct office
inspections; and (3) conduct an annual review and submit to the
Exchange an annual written report on the TPH's supervision and
compliance efforts during the preceding year. However, the proposed
rule would not be limited to supervision of activities related only to
TPHs conducting non-TPH customer business in options. Therefore, the
proposed rule would provide greater utility for enforcing TPH
obligations for other business areas such as proprietary trading.
The Exchange believes the proposed rule would clarify: (1) the
responsibility of the TPH for the acts of its associated persons; and
(2) the requirement of each TPH to supervise those associated persons
for which it is responsible. Proposed Rule 4.24(a) would generally
establish each TPH's responsibility for the supervision and control of
the TPH. The proposed rule would also require that each associated
person, in addition to each office, location, department, business
activity, trading system, and internal surveillance system of a TPH, be
under the supervision and control of an appropriately qualified
supervisor as described in proposed Rule 4.24(c).\5\
---------------------------------------------------------------------------
\5\ Proposed Rule 4.24(a) is modeled after PHLX Rule 748(a),
NYSE MKT Rule 320(b), NYSE Rule 342(a), NYSE Arca Rule 11.18(b) and
NASD Rule 3010(a).
---------------------------------------------------------------------------
Proposed Rule 4.24(b) would provide for the designation of a
general partner or principal executive officer to assume overall
authority and responsibility for the supervisory system of the TPH.
This designee would then be responsible for: (1) Delegating to
qualified principals responsibility and authority for supervision and
control of each office, location, department, business activity,
trading system, and internal surveillance system, as well as providing
for appropriate written procedures of supervision and control; and (2)
establishing a separate system of follow-up and review to determine
that the delegated responsibility and authority is properly
exercised.\6\
---------------------------------------------------------------------------
\6\ Proposed Rule 4.24(b) is modeled after PHLX Rule 748(b),
NYSE MKT Rule 320(c), NYSE Rule 342(b) and NASD Rule 3010(a).
---------------------------------------------------------------------------
Proposed Rules 4.24(c) and (d) would provide for the qualifications
of supervisors and the standards of supervision, respectively. Under
proposed paragraph (c), TPHs would have to make reasonable efforts to
determine that those persons with supervisory control, as described in
proposed Rules 4.24(a) and (b), are qualified by virtue of experience
or training to carry out their assigned responsibilities. This
paragraph would also require supervisors to meet the Exchange's
qualification requirements for supervisors, including completion of the
appropriate examinations.\7\ For example, CBOE Rule 3.6A--Qualification
and Registration of Trading Permit Holders and Associated Persons sets
forth required examinations for associated persons engaged in the
securities business of a TPH. Proposed paragraph (d) would require that
any person with supervisory control, as described in proposed Rules
4.24(a) and (b), reasonably discharge his or her duties and obligations
in connection with such supervision and control in order to prevent and
detect violations of applicable securities laws and regulations and
applicable Exchange rules.\8\
---------------------------------------------------------------------------
\7\ Proposed Rule 4.24(c) is modeled after NASD Rule 3010(a)(6)
and PHLX Rule 748(c).
\8\ Proposed Rule 4.24(d) is modeled after PHLX Rule 748(d),
NYSE MKT Rule 320(b) and NYSE Rule 342(a).
---------------------------------------------------------------------------
Proposed Rule 4.24(e) would require each TPH to establish,
maintain, and enforce written supervisory procedures, and a system for
applying such procedures, to supervise each of its business activities
and the activities of its associated persons that are reasonably
designed to achieve compliance with applicable securities laws and
regulations as well as applicable Exchange rules. The proposed rule
would also require that the written supervisory procedures be amended
as changes occur to a TPH's personnel or supervisory procedures and
within a reasonable time after changes occur in applicable securities
laws and regulations and the rules of the Exchange. Additionally, the
proposed
[[Page 171]]
rule would require TPHs to maintain a record of the name, title,
registration status and location of all supervisory personnel required
by the proposed rule, the dates for which supervisory designations were
or are effective, and the responsibilities of the supervisory personnel
as these relate to the types of business the TPH engages in, and
applicable securities laws and regulations, including applicable
Exchange rules. TPHs would be required to preserve such record for a
period of not less than three years, the first two in an easily
accessible place. Lastly, the proposed rule would require a copy of the
written supervisory procedures to be kept and maintained at each
location where supervisory activities are conducted on behalf of the
TPH.\9\
---------------------------------------------------------------------------
\9\ Proposed Rule 4.24(e) is modeled after PHLX Rule 748(h) and
NASD Rule 3010(b)(1), (3) and (4).
---------------------------------------------------------------------------
Proposed Rule 4.24(f) would require that each TPH perform
inspections of every office or location of the TPH at least once every
three calendar years. An inspection could not be conducted by any
person within that office or location who has supervisory
responsibilities or by any individual who is directly or indirectly
supervised by such person(s). This provision is intended to help ensure
that all activity of an office or location is monitored for compliance
with applicable regulatory requirements by persons who do not have a
personal interest in such activity. The proposed rule would require the
examination schedule and an explanation of the factors considered in
determining the frequency of the examinations in the cycle to be set
forth in the TPH's written supervisory procedures. When establishing
the inspection cycle, the TPH would be required to consider the nature
and complexity of the securities activities for which the office or
location is responsible, the volume of business done, and the number of
associated persons at each office or location. For each inspection, the
TPH would be required to retain a written record of the dates upon
which each inspection is conducted, the participants involved, and the
results thereof.\10\
---------------------------------------------------------------------------
\10\ Proposed Rule 4.24(f) is modeled after PHLX Rule 748(g) and
NASD Rules 3010(c)(1)(B) and (c)(3).
---------------------------------------------------------------------------
As noted above, effective and comprehensive compliance policies and
procedures and supervisory systems are key to investor protection and
market integrity. Therefore, it is essential that TPHs put adequate
emphasis on the importance of compliance throughout the firm. To
promote regular discussion and review of its supervisory system,
proposed Rule 4.24(g) would require each TPH to conduct an annual
review and submit to the Exchange on an annual basis a written report
on the TPH's supervisory system.
Paragraph (g)(1) of proposed Rule 4.24 would require that each TPH
conduct annual meetings or interviews with all associated persons to
discuss compliance matters relevant to their activities. The TPH would
be required to maintain a written record of the dates the meetings or
interviews were held, who was present at each meeting or interview, and
the results thereof.\11\
---------------------------------------------------------------------------
\11\ Proposed Rule 4.24(g)(1) is modeled after PHLX Rule
748(e)(1).
---------------------------------------------------------------------------
Proposed Rule 4.24(g)(2) would require TPHs to prepare a written
report on the firm's supervision and compliance efforts during the
preceding year and on the adequacy of the firm's ongoing compliance
processes and procedures. TPHs would be required to submit such report
to the Exchange by April 1 of each year. The proposed Rule would
require that the report include four elements: (1) a tabulation of
customer complaints (including arbitrations and civil actions) and
internal investigations, if any; (2) identification and analysis of
significant compliance problems, plans for future systems or procedures
to prevent and detect violations and problems, and an assessment of the
preceding year's efforts of this nature; (3) discussion of the
preceding year's compliance efforts, new procedures, educational
programs, etc. in the areas of antifraud and trading practices, books
and records, finance and operations, supervision, internal controls,
and anti-money laundering; and (4) a certification signed by the TPH's
Chief Executive Officer (``CEO'') or equivalent officer.\12\
---------------------------------------------------------------------------
\12\ Proposed Rule 4.24(g)(2) is modeled after CBOE Rule
9.8(g)(1)-(5).
---------------------------------------------------------------------------
The certification signed by the TPH's CEO (or equivalent officer)
would be required to include four components, the last three of which
would be intended to foster regular and significant interaction between
senior management and the Chief Compliance Officer (``CCO'') regarding
the TPH's comprehensive compliance program:
The first component relates to requirements found in paragraph (e)
of the proposed rule.\13\ Specifically, the CEO (or equivalent officer)
would be required to certify that the TPH has in place processes to:
(1) establish and maintain policies and procedures reasonably designed
to achieve compliance with applicable Exchange rules and federal
securities laws and regulations; (2) modify such policies and
procedures as business, regulatory and legislative changes and events
dictate; and (3) test the effectiveness of such policies and procedures
on a periodic basis.\14\
---------------------------------------------------------------------------
\13\ See Proposed Rule 4.24(g)(2)(D)(i).
\14\ Proposed Rule 4.24(g)(2)(D)(i) is modeled after FINRA Rule
3130(c)(1) and CBOE Rule 9.8(g)(5)(i).
---------------------------------------------------------------------------
The second component would require the CEO (or equivalent officer)
to certify that he or she conducted one or more meetings with the
firm's CCO during the preceding 12 months in which they discussed and
reviewed the matters described in the certification, including the
TPH's prior compliance efforts.\15\ The CEO (or equivalent officer) and
CCO would also be required to identify and address any significant
compliance problems or plans for emerging business areas.\16\
---------------------------------------------------------------------------
\15\ See Proposed Rule 4.24(g)(2)(D)(ii).
\16\ Proposed Rule 4.24(g)(2)(D)(ii) is modeled after FINRA Rule
3130(c)(2) and CBOE Rule 9.8(g)(5)(ii).
---------------------------------------------------------------------------
The third component of the certification would require the CEO (or
equivalent officer) to certify that he or she reviewed a report
evidencing the processes covered in the first component of the
certification.\17\ This report would also be reviewed by the CCO and
such other officers as the TPH deems necessary in order for the CEO to
make the required certification. Further, the CEO would be required to
certify that the report was submitted to the TPH's board of directors
or audit committee by April 1st of each year. If a TPH does not utilize
these types of governing bodies in the conduct of its business, the TPH
would be required to have the report reviewed by any governing body or
committee that serves a similar function in lieu of a board of
directors or audit committee.\18\
---------------------------------------------------------------------------
\17\ See Proposed Rule 4.24(g)(2)(D)(iii).
\18\ Proposed Rule 4.24(g)(2)(D)(iii) is modeled after FINRA
Rule 3130(c)(3) and CBOE Rule 9.8(g)(5)(iii).
---------------------------------------------------------------------------
The fourth component of the certification \19\ would require the
CEO (or equivalent officer) to certify that he or she consulted with
the CCO and other officers referenced in proposed Rule
4.24(g)(2)(D)(iii) and other such employees, outside consultants,
lawyers and accountants, to the extent he or she deems appropriate, in
order to attest to the statements made in the certification.\20\
---------------------------------------------------------------------------
\19\ See Proposed Rule 4.24(g)(2)(D)(iv).
\20\ Proposed Rule 4.24(g)(2)(D)(iv) is modeled after FINRA Rule
3130(c)(4) and CBOE Rule 9.8(g)(5)(iv).
---------------------------------------------------------------------------
Finally, proposed paragraph (g)(3) would deem any TPH to have met
the requirements of proposed Rules 4.24(g)(1) and (2) if the TPH
specifically includes its options compliance
[[Page 172]]
program within an annual compliance review and written report that
complies with substantially similar requirements of the Financial
Industry Regulatory Authority, Inc. or any other SRO.\21\ In that case,
the TPH would still be required to submit a copy of such written report
to the Exchange by April 1 of each year.
---------------------------------------------------------------------------
\21\ Proposed Rule 4.24(g)(3) is modeled after CBOE Rule
9.8(g)(5).
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\22\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) of the Act,\23\ which requires
that the rules of an exchange be designed to, among other things,
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, and, in general, to protect
investors and the public interest.
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78f(b).
\23\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Compliance with applicable Exchange rules and federal securities
laws is the bedrock of investor protection and market integrity.
Therefore it is critical that TPHs employ comprehensive and effective
compliance policies and procedures. The Exchange believes the proposed
rule change would help promote just and equitable principles of trade
and protect investors and the public interest by upgrading and
strengthening the Exchange's rules pertaining to supervisory
obligations of its TPHs.
TPHs are on the front line of defense against fraudulent and
manipulative acts and practices. TPHs are in the unique position to
identify potential rule violations or other inappropriate activity and
correct it before intervention by the exchanges or the Commission. The
Exchange believes a comprehensive supervision rule such as proposed
Rule 4.24 should help to prevent fraudulent and manipulative acts and
practices consistent with Section 6(b)(5) of the Act.
The Exchange believes that the proposed rule change should
strengthen the Exchange's ability to examine TPHs for compliance with
supervisory requirements by compelling that written supervisory
procedures be maintained. Written supervisory procedures should provide
TPHs and their supervisory personnel with a clear understanding of
their supervisory responsibilities thus helping to ensure that those
responsibilities are carried out effectively and efficiently. The
Exchange also believes the proposal to require inspections of offices
or other locations of TPHs would help strengthen the ability of TPHs to
carry out their compliance and surveillance functions. By requiring
written supervisory procedures and inspections that are reasonably
designed to prevent and detect violations of applicable securities laws
and regulations, as well as Exchange rules, the proposed rule would
help to ensure that TPHs have the necessary processes in place to
identify potential rule violations or inappropriate activity.
Furthermore, the Exchange believes the proposed requirements for an
annual certification and written report would enhance focus on a TPH's
compliance and supervision systems by promoting a dialogue throughout
the TPH of its compliance efforts and procedures, thereby decreasing
the likelihood of fraudulent and manipulative acts and practices and
increasing investor protection.
Lastly, the Exchange believes the proposed rule change furthers the
objectives of Section 6(b)(1) \24\ of the Act, which provides that the
Exchange must be organized and have the capacity to be able to carry
out the purposes of the Act and to enforce compliance by the Exchange's
TPHs and persons associated with its TPHs with the Act, the rules and
regulations thereunder, and the rules of the Exchange. Requiring
comprehensive supervision by TPHs and their associated persons of their
activities should promote the Exchange's ability to enforce compliance
by TPHs and their associated persons with the Act and the regulations
thereunder.
---------------------------------------------------------------------------
\24\ 15 U.S.C. 78(f)(b)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition
CBOE does not believe that the proposed rule change will impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange believes the
proposed rule change would upgrade and strengthen the Exchange's rules
pertaining to supervisory obligations of its TPHs. As noted below, the
proposed rule change is based on similar rules of other SROs.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. by order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-CBOE-2013-126 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-CBOE-2013-126. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the
[[Page 173]]
public in accordance with the provisions of 5 U.S.C. 552, will be
available for Web site viewing and printing in the Commission's Public
Reference Room, 100 F Street NE., Washington, DC 20549 on official
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of
the filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-CBOE-2013-126 and should be submitted on or before
January 23, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
Lynn M. Powalski,
Deputy Secretary.
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\25\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2013-31366 Filed 12-31-13; 8:45 am]
BILLING CODE 8011-01-P
