Self-Regulatory Organizations; OneChicago, LLC; Notice of Filing of Proposed Rule Change Relating to the Summary Imposition of Fines, 3850-3853 [2016-01199]

Download as PDF 3850 Federal Register / Vol. 81, No. 14 / Friday, January 22, 2016 / Notices affiliates), in connection with assets attributable to Contracts affected by the proposed Substitutions, at a higher rate than they had received from the Existing Fund, its adviser or underwriter (or their affiliates), including without limitation 12b-1 fees, shareholder service, administrative or other service fees, revenue sharing, or other arrangements. For the Commission, by the Division of Investment Management, under delegated authority. Robert W. Errett, Deputy Secretary. [FR Doc. 2016–01230 Filed 1–21–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–76920; File No. SR–OC– 2015–03] Self-Regulatory Organizations; OneChicago, LLC; Notice of Filing of Proposed Rule Change Relating to the Summary Imposition of Fines January 15, 2016. mstockstill on DSK4VPTVN1PROD with NOTICES Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 notice is hereby given that on December 30, 2015, OneChicago, LLC (‘‘OneChicago,’’ ‘‘OCX,’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change described in Items I, II, and III below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. OneChicago has also filed this rule change with the Commodity Futures Trading Commission (‘‘CFTC’’). OneChicago filed a written certification with the CFTC under Section 5c(c) of the Commodity Exchange Act (‘‘CEA’’) on December 29, 2015. I. Self-Regulatory Organization’s Description of the Proposed Rule Change OneChicago is proposing to amend OCX Rule 717 (Summary Imposition of Fines) and concurrently issue Notice to Members (‘‘NTM’’) 2015–48. OCX Rule 717 lays out OneChicago’s summary fine procedure. Specifically, OCX Rule 717 lists the violations for which the Exchange may impose summary fines, as well as the process the Exchange must follow to impose such fines. OneChicago proposes to amend Rule 717 to add several rule violations to the 1 15 U.S.C. 78s(b)(7). VerDate Sep<11>2014 16:59 Jan 21, 2016 list of items for which the Exchange may impose summary fines. In addition to adding several rule violations for which the Exchange may impose summary fines, OCX is also proposing to add a summary fine schedule for each rule violation. The summary fine schedule informs market participants of the fines for each rule violation based on the number of offenses within a rolling twelve month period. OCX developed this summary fine schedule with input from the CFTC staff, and many of the summary fines are in line with summary fines for similar violations at other security futures exchanges.2 OneChicago is also making minor technical changes to OCX Rule 717 to support the foregoing amendments to the rule. OneChicago is concurrently issuing NTM 2015–48. The NTM informs market participants that OneChicago is amending OCX Rule 717. Additionally, the NTM lists the violations for which summary fines may be imposed. Then, in order to provide market participants with more clarity regarding the rule violations, guidance is provided regarding what activity or omission the Exchange would consider to constitute a violation of the listed rules. Finally, OneChicago is also amending OCX Rule 705 (Review of Investigative Reports). OCX Rule 705 describes the process by which the OneChicago Chief Regulatory Officer (‘‘CRO’’) will review investigation reports conducted by the Compliance Department. OneChicago proposes to amend OCX Rule 705 to allow the CRO to authorize the summary imposition of fines as a result of an investigation. The text of the proposed rule change is attached as Exhibit 4 to the filing submitted by the Exchange but is not attached to the published notice of the filing. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, OneChicago included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. 2 See, Jkt 238001 PO 00000 e.g., CFE Rule 714(f). Frm 00075 Fmt 4703 Sfmt 4703 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose OCX Rule 717 (Summary Imposition of Fines) OCX Rule 717 lays out the Exchange’s summary fine authority. Currently, the Rule describes that the Chief Regulatory Officer may summarily impose a fine against a Member for failing (i) to make timely payments of original or variation margin, options premiums, fees, cost, charges or fines to the Exchange or the Clearinghouse; (ii) to make timely and accurate submissions to the Exchange of notices, reports or other information required by the Rules of the Exchange; and (iii) to keep any books and records required by the Rules of the Exchange. Additionally, in its current form, the Rule describes what requirements the Exchange must follow when issuing a summary fine pursuant to Rule 717. The Exchange must provide notice of any summary fine imposed, and the notice must contain the violations of the Rules of the Exchange for which the fine was imposed, the violation date, and the amount of the fine. Furthermore, the Rule describes the requirements for the Member or Access Person to pay the fine or to appeal the fine pursuant to OCX Rule 716. Finally, Rule 717 then sets the maximum fine for each violation at $5,000, and explains that the summary imposition of fines does not preclude the Exchange from bringing any other action against the fined market participant. OneChicago is now proposing to make certain amendments to this Rule 717. Namely, OCX is proposing to add to Rule 717 a list of items for which summary fines may be imposed. The items added generally relate to violations of reporting, audit trail, recordkeeping, and other Exchange Rules. The list of items which OneChicago proposes to add to Rule 717 and their associated proposed summary fines as described below: • Failure to make timely payments of fees, costs, or charges to the Exchange or Clearinghouse. The proposed summary fines for this rule violation are a warning letter for the first offense, $1,000 fine for the second offense, $2,500 fine for the third offense, and $5,000 for all subsequent offenses within a rolling twelve month period. • Failure to make timely and accurate submissions to the Exchange of notices, reports or other information required by the Rules of the Exchange. The proposed summary fines for this rule E:\FR\FM\22JAN1.SGM 22JAN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 81, No. 14 / Friday, January 22, 2016 / Notices violation are a warning letter for the first offense, $2,500 fine for the second offense, $5,000 fine for the third offense, and the commencement of disciplinary proceedings for all subsequent offenses, within a rolling twelve month period. The proposed summary fines for this rule violation are elevated because failure to submit timely and accurate reports to the Exchange impairs the Exchange’s ability to carry out its selfregulatory obligations. • Failure to maintain front-end audit trail information for all electronic orders entered into the OneChicago System, including order modifications and cancellations. The proposed summary fines for this rule violation are a warning letter for the first offense, $1,000 fine for the second offense, $2,500 fine for the third offense, and the commencement of disciplinary proceedings for all subsequent offenses within a rolling twelve month period. • Failure to keep any books and records required by the Rules of the Exchange. The proposed summary fines for this rule violation are a warning letter for the first offense, $1,000 fine for the second offense, $2,500 fine for the third offense, and the commencement of disciplinary proceedings for all subsequent offenses within a rolling twelve month period. • Failure to comply with order form preparation and recordkeeping requirements relating to orders which cannot be immediately entered into the OneChicago System. The proposed summary fines for this rule violation are a warning letter for the first offense, $1,000 fine for the second offense, $2,500 fine for the third offense, and the commencement of disciplinary proceedings for all subsequent offenses within a rolling twelve month period. • Failure to comply with exposure requirements related to pre-execution discussions. The proposed summary fines for this rule violation are a warning letter for the first offense, $10,000 fine for the second offense, and a $15,000 fine for all subsequent offenses within a rolling twelve month period. The proposed summary fines for this rule violation are elevated because pre-arranged trading in violation of an exchange’s pre-execution discussion policy presents the potential for fraudulent or manipulative behavior on an exchange. • Failure to comply with Exchange of Future for Physical transaction reporting requirements. The proposed summary fines for this rule violation are a warning letter for the first offense, $7,500 fine for the second offense, $15,000 fine for the third offense, and the commencement of disciplinary VerDate Sep<11>2014 16:59 Jan 21, 2016 Jkt 238001 proceedings for all subsequent offenses within a rolling twelve month period. The proposed summary fines for this rule violation are elevated because EFPs are bilateral transactions, the price of which remains unknown to the marketplace until the trade is reported by the parties to the transaction. • Failure to identify correct account designation in order entry into the OneChicago System. The proposed summary fines for this rule violation are a warning letter for the first offense, $1,000 fine for the second offense, $2,500 fine for the third offense, and the commencement of disciplinary proceedings for all subsequent offenses within a rolling twelve month period. • Failure to comply with order marking requirement for Exchange of Future for Physical transactions or block trades. The proposed summary fines for this rule violation are a warning letter for the first offense, $1,000 fine for the second offense, $2,500 fine for the third offense, and the commencement of disciplinary proceedings for all subsequent offenses within a rolling twelve month period. • Failure to comply with block trade reporting requirements. The proposed summary fines for this rule violation are a warning letter for the first offense, $7,500 fine for the second offense, $15,000 fine for the third offense, and the commencement of disciplinary proceedings for all subsequent offenses within a rolling twelve month period. The proposed summary fines for this rule violation are elevated because block trades are bilateral transactions, the price of which remains unknown to the marketplace until the trade is reported by the parties to the transaction. • Failure to comply with the prohibition on netting down concurrent long and short positions during the last five days of trading. The proposed summary fines for this rule violation are a warning letter for the first offense, $2,500 fine for the second offense, $5,000 fine for the third offense, and the commencement of disciplinary proceedings for all subsequent offenses within a rolling twelve month period. The proposed summary fines for this rule violation are elevated because netting down concurrent long and short positions during expiry week may cause a change in open interest in a particular product with no commensurate trading activity. • Failure to identify correct account type in order entry into the OneChicago System. The proposed summary fines for this rule violation are a warning letter for the first offense, $1,000 fine for the second offense, $2,500 fine for the third offense, and the commencement of PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 3851 disciplinary proceedings for all subsequent offenses within a rolling twelve month period. • Failure to timely correct an error in the handling of an order via transfer. The proposed summary fines for this rule violation are a warning letter for the first offense, $1,000 fine for the second offense, $2,500 fine for the third offense, and the commencement of disciplinary proceedings for all subsequent offenses within a rolling twelve month period. • Failure to comply with reporting requirements for reportable positions. The proposed summary fines for this rule violation are a warning letter for the first offense, $2,500 fine for the second offense, $5,000 fine for the third offense, and the commencement of disciplinary proceedings for all subsequent offenses within a rolling twelve month period. The proposed summary fines for this rule violation are elevated because failure to report large trader positions impairs the Exchange’s ability to carry out its self-regulatory obligations. • Failure to submit ownership and control reports. The proposed summary fines for this rule violation are a warning letter for the first offense, $2,500 fine for the second offense, $5,000 fine for the third offense, and the commencement of disciplinary proceedings for all subsequent offenses within a rolling twelve month period. The proposed summary fines for this rule violation are elevated because failure to report ownership and control reports impairs the Exchange’s ability to carry out its self-regulatory obligations. Additionally, Rule 717 is being amended to increase the maximum summary fine from $5,000 to $15,000. This change is being made to accommodate OCX’s proposed summary fine schedule, which contains varying levels of fines ranging from $1,000 to $15,000. The level of fines for each rule violation generally depend upon the severity of the rule violation and the potential harm to customers, other market participants, or the marketplace itself. In addition to the above, OCX is proposing to make several other changes to OCX Rule 717. First, OCX is proposing to add that the CRO may consider the severity of a rule violation in determining whether to impose a summary fine for that violation. OCX is making this change to grant the Exchange flexibility in addressing rule violations based on the severity of the violation. As is more fully explained in OCX Rule 705, the CRO reserves the right to determine whether an investigation should be closed with no further action, by issuing a warning E:\FR\FM\22JAN1.SGM 22JAN1 3852 Federal Register / Vol. 81, No. 14 / Friday, January 22, 2016 / Notices letter, by imposing summary fines, or by commencing disciplinary proceedings. Rule 717 is also being amended to clarify that OCX may impose summary fines against a Clearing Member, Exchange Member, or Access Person. Finally, OCX is proposing to remove certain items from OCX Rule 717(a)(i). Currently, that subparagraph allows the CRO to impose summary fines for a failure to make timely payments of original or variation margin, options premiums, fees, costs, charges or fines. OCX is proposing to remove original or variation margin and options premiums from this list of items because they are not relevant to OCX. OCX is also removing fines from this list because summary fines would not be an effective deterrent for a market participant that has failed to make timely payment of fines already imposed by the Exchange. mstockstill on DSK4VPTVN1PROD with NOTICES NTM 2015–48 In addition to amending Rule 717, OCX is proposing to concurrently issue NTM 2015–48, which provides notice to OneChicago’s market participants of the planned amendments to Rule 717, and provides guidance regarding several of the violations included in the summary fine schedule. The NTM provides guidance by explaining what may constitute a rule violation that may be subject to the imposition of summary fines. OCX Rule 705 (Review of Investigative Reports) OCX Rule 705 describes the process by which the CRO reviews the Compliance Department’s investigative reports in order to determine whether a reasonable basis exists to believe that a violation within the Exchange’s jurisdiction has occurred or is about to occur. The Rule then lays out various dispositions the CRO may authorize, including the commencement of disciplinary proceedings, the informal disposition of the investigation, or the closing of the investigation with no further action. OneChicago now proposes to add the summary imposition of fines to the list of dispositions which the CRO may authorize as a result of an investigation. By way of background, OCX Rule 717 itself does not limit the summary imposition of fines to the conclusion of an investigation. The CRO may authorize summary fines in the absence of an investigation report if a Rule violation is detected. OCX is now clarifying in Rule 705 that the summary imposition of fines is one of the several dispositions the CRO may authorize upon the Compliance Department’s completion of an investigation. VerDate Sep<11>2014 16:59 Jan 21, 2016 Jkt 238001 2. Statutory Basis OneChicago believes that the proposed rule change is consistent with Section 6(b) of the Act,3 in general, and furthers the objectives of Section 6(b)(5) 4 and 6(b)(7) 5 in particular in that it is designed: • To prevent fraudulent and manipulative acts and practices, • to promote just and equitable principles of trade, • to foster cooperation and coordination with persons engaged in facilitating transactions in securities, • to remove impediments to and perfect the mechanism of a free and open market and a national market system, and in general, to protect investors and the public interest, and • to provide a fair procedure for the disciplining of market participants. The Exchange believes that the proposed rule change will strengthen its ability to carry out its responsibilities as a self-regulatory organization. Summary fines provide an efficient an effective way for a self-regulatory organization to penalize rule violations without requiring the commencement of disciplinary proceedings. The broad authority to impose summary fines allows the Exchange to discipline its market participants, and provides a deterrent from futures violations. Furthermore, the Exchange believes that the proposed summary fine schedule is fair and reasonable in light of each rule violation. OCX has structured its proposed summary fine schedule such that routine or clerical violations warrant lower summary fines, whereas more serious violations, such as the failure to comply with the Exchange’s pre-execution discussion policy, warrant higher summary fines. Finally, the Exchange believes that the proposed rule change and associated NTM are equitable and not unfairly discriminatory because they would apply equally to all market participants that are subject to the applicable requirements of each Rule. B. Self-Regulatory Organization’s Statement on Burden on Competition OneChicago does not believe that the rule change and associated NTM will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act, in that the rule change and associated NTM enhances OneChicago’s ability to deter and discipline certain rule violations. OneChicago further notes that the proposed summary fine schedule is 3 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 5 15 U.S.C. 78f(b)(7). consistent with fine schedules established by other domestic futures exchanges. The proposed summary fine schedule distinguishes the severity of rule violations by imposing varying levels of fines for different violations. Specifically, those violations that are generally perceived as more clerical in nature are subject to lower summary fines than those violations that may involve harm to the marketplace. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The proposed rule change and NTM will become operative on January 14, 2016. At any time within 60 days of the date of effectiveness of the proposed rule change, the Commission, after consultation with the CFTC, may summarily abrogate the proposed rule change and require that the proposed rule change be refiled in accordance with the provisions of Section 19(b)(1) of the Act.6 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– OC–2015–03 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–OC–2015–03. 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/ 4 15 PO 00000 Frm 00077 Fmt 4703 6 15 Sfmt 4703 E:\FR\FM\22JAN1.SGM U.S.C. 78s(b)(1). 22JAN1 Federal Register / Vol. 81, No. 14 / Friday, January 22, 2016 / Notices rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal offices of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–OC– 2015–03, and should be submitted on or before February 12, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 Robert W. Errett, Deputy Secretary. [FR Doc. 2016–01199 Filed 1–21–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. IC–31959; File No. 812–14473] Leaning Pine II, L.L.C.; Notice of Application January 15, 2016. Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of application for an order under section 6(c) of the Investment Company Act of 1940 (the ‘‘Act’’) for an exemption from all provisions of the Act and all rules and regulations thereunder. AGENCY: Applicant requests an order for an exemption from all provisions of the Act and all rules and regulations thereunder, as Applicant is essentially a closely-held private investment company formed for a limited purpose. APPLICANT: Leaning Pine II, L.L.C. (‘‘Applicant’’). mstockstill on DSK4VPTVN1PROD with NOTICES SUMMARY OF APPLICATION: 7 17 CFR 200.30–3(a)(73). VerDate Sep<11>2014 16:59 Jan 21, 2016 Jkt 238001 The application was filed on May 26, 2015 and amended on October 22, 2015 and January 13, 2016. HEARING OR NOTIFICATION OF HEARING: An order granting the requested relief will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission’s Secretary and serving applicant with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on February 9, 2016, and should be accompanied by proof of service on applicant, in the form of an affidavit or, for lawyers, a certificate of service. Hearing requests should state the nature of the writer’s interest, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by writing to the Commission’s Secretary. ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F St. NE., Washington, DC 20549–1090. Applicant: Leaning Pine II, L.L.C., 315 E. Commerce Street, Suite 300, San Antonio, TX 78205. FOR FURTHER INFORMATION CONTACT: Vanessa M. Meeks, Senior Counsel, or Melissa R. Harke, Branch Chief, at (202) 551–6825 (Chief Counsel’s Office, Division of Investment Management). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained via the Commission’s Web site by searching for the file number, or for an applicant using the Company name box, at https://www.sec. gov/search/search.htm or by calling (202) 551–8090. FILING DATES: Applicant’s Representations 1. Applicant is a newly-formed Texas limited liability company. Applicant will be capitalized with assets of individual members of the Hixon family (the ‘‘Family’’) and other Family Members (as defined below) so that it may serve as a non-charitable endowment for Hobo Lake Club Incorporated (‘‘Hobo Lake Club’’), a non-profit corporation organized by the Family, which owns a lakeside property and lodge in Plum Lake, Vilas County, Wisconsin and operates as a recreation club for its members. The land held by Hobo Lake Club was first acquired by members of the Family approximately 100 years ago. As a non-profit corporation, Hobo Lake Club does not have ‘‘owners’’ in the common sense, but instead has ‘‘members.’’ Under Hobo Lake Club’s bylaws, members are limited to lineal descendants of Joseph M. Hixon and Irene C. Hixon. PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 3853 2. As used herein, ‘‘Family Members’’ refers to (i) the descendants (including adopted descendants) of Joseph M. Hixon (deceased) and Irene C. Hixon (deceased); (ii) spouses and formerspouses of any individuals described in clause (i) above; (iii) one descendant of a former spouse who will be admitted as a member of Applicant upon the effectiveness of the Shareholder Agreement (as defined below) and his descendants (including adopted descendants); and (iv) trusts, partnerships and other entities established for the exclusive benefit of, or exclusively owned by, any individuals described in clause (i), (ii) or (iii) above. 3. Applicant anticipates that upon its capitalization Applicant will have approximately 120 members, all of whom will be Family Members. These approximately 120 members will include several trusts for the benefit of individuals who are also members individually. Applicant will be capitalized exclusively by the contribution of a portion of dividend proceeds payable to various Family Members by Hixon Properties Incorporated (‘‘Hixon Properties’’), a private company that owns and invests primarily in real estate and related ventures that is controlled by Family Members, such dividend proceeds to be contributed to Applicant pursuant to an agreement (the ‘‘Shareholder Agreement’’) among Applicant, Hixon Properties and Applicant’s members. 4. Membership interests in Applicant (‘‘Interests’’) have not been and will not be offered or sold to the public. Applicant’s operating agreement (the ‘‘LLC Agreement’’) includes a restriction on transfers that prohibits members from transferring Interests to anyone other than Family Members. As a result of this restriction on transfers, no trading market will exist for the Interests. Additionally, any new member (i.e. other than by transfer) is also required to be a shareholder of Hixon Properties, whose shares are subject to transfer restrictions similar to those in the LLC Agreement (and applicant will further prohibit admittance of non-Family Members other than upon a transfer of shares of Hixon Properties subject to the Shareholder Agreement by a Member of Applicant to a non-Family Member). 5. Under the LLC Agreement, Applicant’s purpose is to serve as a source of funding for Hobo Lake Club, and Applicant is expressly authorized to make distributions to Hobo Lake Club for the operations, maintenance and improvement of Hobo Lake Club’s properties. Applicant is not intended to E:\FR\FM\22JAN1.SGM 22JAN1

Agencies

[Federal Register Volume 81, Number 14 (Friday, January 22, 2016)]
[Notices]
[Pages 3850-3853]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01199]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76920; File No. SR-OC-2015-03]


Self-Regulatory Organizations; OneChicago, LLC; Notice of Filing 
of Proposed Rule Change Relating to the Summary Imposition of Fines

January 15, 2016.
    Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ notice is hereby given that on December 30, 2015, 
OneChicago, LLC (``OneChicago,'' ``OCX,'' or the ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change described in Items I, II, and III below, which 
Items have been prepared by the self-regulatory organization. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons. OneChicago has also filed 
this rule change with the Commodity Futures Trading Commission 
(``CFTC''). OneChicago filed a written certification with the CFTC 
under Section 5c(c) of the Commodity Exchange Act (``CEA'') on December 
29, 2015.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(7).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Description of the Proposed Rule 
Change

    OneChicago is proposing to amend OCX Rule 717 (Summary Imposition 
of Fines) and concurrently issue Notice to Members (``NTM'') 2015-48. 
OCX Rule 717 lays out OneChicago's summary fine procedure. 
Specifically, OCX Rule 717 lists the violations for which the Exchange 
may impose summary fines, as well as the process the Exchange must 
follow to impose such fines. OneChicago proposes to amend Rule 717 to 
add several rule violations to the list of items for which the Exchange 
may impose summary fines. In addition to adding several rule violations 
for which the Exchange may impose summary fines, OCX is also proposing 
to add a summary fine schedule for each rule violation. The summary 
fine schedule informs market participants of the fines for each rule 
violation based on the number of offenses within a rolling twelve month 
period. OCX developed this summary fine schedule with input from the 
CFTC staff, and many of the summary fines are in line with summary 
fines for similar violations at other security futures exchanges.\2\ 
OneChicago is also making minor technical changes to OCX Rule 717 to 
support the foregoing amendments to the rule.
---------------------------------------------------------------------------

    \2\ See, e.g., CFE Rule 714(f).
---------------------------------------------------------------------------

    OneChicago is concurrently issuing NTM 2015-48. The NTM informs 
market participants that OneChicago is amending OCX Rule 717. 
Additionally, the NTM lists the violations for which summary fines may 
be imposed. Then, in order to provide market participants with more 
clarity regarding the rule violations, guidance is provided regarding 
what activity or omission the Exchange would consider to constitute a 
violation of the listed rules.
    Finally, OneChicago is also amending OCX Rule 705 (Review of 
Investigative Reports). OCX Rule 705 describes the process by which the 
OneChicago Chief Regulatory Officer (``CRO'') will review investigation 
reports conducted by the Compliance Department. OneChicago proposes to 
amend OCX Rule 705 to allow the CRO to authorize the summary imposition 
of fines as a result of an investigation.
    The text of the proposed rule change is attached as Exhibit 4 to 
the filing submitted by the Exchange but is not attached to the 
published notice of the filing.

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

    In its filing with the Commission, OneChicago included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The self-regulatory organization has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

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

1. Purpose
OCX Rule 717 (Summary Imposition of Fines)
    OCX Rule 717 lays out the Exchange's summary fine authority. 
Currently, the Rule describes that the Chief Regulatory Officer may 
summarily impose a fine against a Member for failing (i) to make timely 
payments of original or variation margin, options premiums, fees, cost, 
charges or fines to the Exchange or the Clearinghouse; (ii) to make 
timely and accurate submissions to the Exchange of notices, reports or 
other information required by the Rules of the Exchange; and (iii) to 
keep any books and records required by the Rules of the Exchange.
    Additionally, in its current form, the Rule describes what 
requirements the Exchange must follow when issuing a summary fine 
pursuant to Rule 717. The Exchange must provide notice of any summary 
fine imposed, and the notice must contain the violations of the Rules 
of the Exchange for which the fine was imposed, the violation date, and 
the amount of the fine. Furthermore, the Rule describes the 
requirements for the Member or Access Person to pay the fine or to 
appeal the fine pursuant to OCX Rule 716. Finally, Rule 717 then sets 
the maximum fine for each violation at $5,000, and explains that the 
summary imposition of fines does not preclude the Exchange from 
bringing any other action against the fined market participant.
    OneChicago is now proposing to make certain amendments to this Rule 
717. Namely, OCX is proposing to add to Rule 717 a list of items for 
which summary fines may be imposed. The items added generally relate to 
violations of reporting, audit trail, recordkeeping, and other Exchange 
Rules. The list of items which OneChicago proposes to add to Rule 717 
and their associated proposed summary fines as described below:
     Failure to make timely payments of fees, costs, or charges 
to the Exchange or Clearinghouse. The proposed summary fines for this 
rule violation are a warning letter for the first offense, $1,000 fine 
for the second offense, $2,500 fine for the third offense, and $5,000 
for all subsequent offenses within a rolling twelve month period.
     Failure to make timely and accurate submissions to the 
Exchange of notices, reports or other information required by the Rules 
of the Exchange. The proposed summary fines for this rule

[[Page 3851]]

violation are a warning letter for the first offense, $2,500 fine for 
the second offense, $5,000 fine for the third offense, and the 
commencement of disciplinary proceedings for all subsequent offenses, 
within a rolling twelve month period. The proposed summary fines for 
this rule violation are elevated because failure to submit timely and 
accurate reports to the Exchange impairs the Exchange's ability to 
carry out its self-regulatory obligations.
     Failure to maintain front-end audit trail information for 
all electronic orders entered into the OneChicago System, including 
order modifications and cancellations. The proposed summary fines for 
this rule violation are a warning letter for the first offense, $1,000 
fine for the second offense, $2,500 fine for the third offense, and the 
commencement of disciplinary proceedings for all subsequent offenses 
within a rolling twelve month period.
     Failure to keep any books and records required by the 
Rules of the Exchange. The proposed summary fines for this rule 
violation are a warning letter for the first offense, $1,000 fine for 
the second offense, $2,500 fine for the third offense, and the 
commencement of disciplinary proceedings for all subsequent offenses 
within a rolling twelve month period.
     Failure to comply with order form preparation and 
recordkeeping requirements relating to orders which cannot be 
immediately entered into the OneChicago System. The proposed summary 
fines for this rule violation are a warning letter for the first 
offense, $1,000 fine for the second offense, $2,500 fine for the third 
offense, and the commencement of disciplinary proceedings for all 
subsequent offenses within a rolling twelve month period.
     Failure to comply with exposure requirements related to 
pre-execution discussions. The proposed summary fines for this rule 
violation are a warning letter for the first offense, $10,000 fine for 
the second offense, and a $15,000 fine for all subsequent offenses 
within a rolling twelve month period. The proposed summary fines for 
this rule violation are elevated because pre-arranged trading in 
violation of an exchange's pre-execution discussion policy presents the 
potential for fraudulent or manipulative behavior on an exchange.
     Failure to comply with Exchange of Future for Physical 
transaction reporting requirements. The proposed summary fines for this 
rule violation are a warning letter for the first offense, $7,500 fine 
for the second offense, $15,000 fine for the third offense, and the 
commencement of disciplinary proceedings for all subsequent offenses 
within a rolling twelve month period. The proposed summary fines for 
this rule violation are elevated because EFPs are bilateral 
transactions, the price of which remains unknown to the marketplace 
until the trade is reported by the parties to the transaction.
     Failure to identify correct account designation in order 
entry into the OneChicago System. The proposed summary fines for this 
rule violation are a warning letter for the first offense, $1,000 fine 
for the second offense, $2,500 fine for the third offense, and the 
commencement of disciplinary proceedings for all subsequent offenses 
within a rolling twelve month period.
     Failure to comply with order marking requirement for 
Exchange of Future for Physical transactions or block trades. The 
proposed summary fines for this rule violation are a warning letter for 
the first offense, $1,000 fine for the second offense, $2,500 fine for 
the third offense, and the commencement of disciplinary proceedings for 
all subsequent offenses within a rolling twelve month period.
     Failure to comply with block trade reporting requirements. 
The proposed summary fines for this rule violation are a warning letter 
for the first offense, $7,500 fine for the second offense, $15,000 fine 
for the third offense, and the commencement of disciplinary proceedings 
for all subsequent offenses within a rolling twelve month period. The 
proposed summary fines for this rule violation are elevated because 
block trades are bilateral transactions, the price of which remains 
unknown to the marketplace until the trade is reported by the parties 
to the transaction.
     Failure to comply with the prohibition on netting down 
concurrent long and short positions during the last five days of 
trading. The proposed summary fines for this rule violation are a 
warning letter for the first offense, $2,500 fine for the second 
offense, $5,000 fine for the third offense, and the commencement of 
disciplinary proceedings for all subsequent offenses within a rolling 
twelve month period. The proposed summary fines for this rule violation 
are elevated because netting down concurrent long and short positions 
during expiry week may cause a change in open interest in a particular 
product with no commensurate trading activity.
     Failure to identify correct account type in order entry 
into the OneChicago System. The proposed summary fines for this rule 
violation are a warning letter for the first offense, $1,000 fine for 
the second offense, $2,500 fine for the third offense, and the 
commencement of disciplinary proceedings for all subsequent offenses 
within a rolling twelve month period.
     Failure to timely correct an error in the handling of an 
order via transfer. The proposed summary fines for this rule violation 
are a warning letter for the first offense, $1,000 fine for the second 
offense, $2,500 fine for the third offense, and the commencement of 
disciplinary proceedings for all subsequent offenses within a rolling 
twelve month period.
     Failure to comply with reporting requirements for 
reportable positions. The proposed summary fines for this rule 
violation are a warning letter for the first offense, $2,500 fine for 
the second offense, $5,000 fine for the third offense, and the 
commencement of disciplinary proceedings for all subsequent offenses 
within a rolling twelve month period. The proposed summary fines for 
this rule violation are elevated because failure to report large trader 
positions impairs the Exchange's ability to carry out its self-
regulatory obligations.
     Failure to submit ownership and control reports. The 
proposed summary fines for this rule violation are a warning letter for 
the first offense, $2,500 fine for the second offense, $5,000 fine for 
the third offense, and the commencement of disciplinary proceedings for 
all subsequent offenses within a rolling twelve month period. The 
proposed summary fines for this rule violation are elevated because 
failure to report ownership and control reports impairs the Exchange's 
ability to carry out its self-regulatory obligations.
    Additionally, Rule 717 is being amended to increase the maximum 
summary fine from $5,000 to $15,000. This change is being made to 
accommodate OCX's proposed summary fine schedule, which contains 
varying levels of fines ranging from $1,000 to $15,000. The level of 
fines for each rule violation generally depend upon the severity of the 
rule violation and the potential harm to customers, other market 
participants, or the marketplace itself.
    In addition to the above, OCX is proposing to make several other 
changes to OCX Rule 717. First, OCX is proposing to add that the CRO 
may consider the severity of a rule violation in determining whether to 
impose a summary fine for that violation. OCX is making this change to 
grant the Exchange flexibility in addressing rule violations based on 
the severity of the violation. As is more fully explained in OCX Rule 
705, the CRO reserves the right to determine whether an investigation 
should be closed with no further action, by issuing a warning

[[Page 3852]]

letter, by imposing summary fines, or by commencing disciplinary 
proceedings.
    Rule 717 is also being amended to clarify that OCX may impose 
summary fines against a Clearing Member, Exchange Member, or Access 
Person. Finally, OCX is proposing to remove certain items from OCX Rule 
717(a)(i). Currently, that subparagraph allows the CRO to impose 
summary fines for a failure to make timely payments of original or 
variation margin, options premiums, fees, costs, charges or fines. OCX 
is proposing to remove original or variation margin and options 
premiums from this list of items because they are not relevant to OCX. 
OCX is also removing fines from this list because summary fines would 
not be an effective deterrent for a market participant that has failed 
to make timely payment of fines already imposed by the Exchange.
NTM 2015-48
    In addition to amending Rule 717, OCX is proposing to concurrently 
issue NTM 2015-48, which provides notice to OneChicago's market 
participants of the planned amendments to Rule 717, and provides 
guidance regarding several of the violations included in the summary 
fine schedule. The NTM provides guidance by explaining what may 
constitute a rule violation that may be subject to the imposition of 
summary fines.
OCX Rule 705 (Review of Investigative Reports)
    OCX Rule 705 describes the process by which the CRO reviews the 
Compliance Department's investigative reports in order to determine 
whether a reasonable basis exists to believe that a violation within 
the Exchange's jurisdiction has occurred or is about to occur. The Rule 
then lays out various dispositions the CRO may authorize, including the 
commencement of disciplinary proceedings, the informal disposition of 
the investigation, or the closing of the investigation with no further 
action. OneChicago now proposes to add the summary imposition of fines 
to the list of dispositions which the CRO may authorize as a result of 
an investigation.
    By way of background, OCX Rule 717 itself does not limit the 
summary imposition of fines to the conclusion of an investigation. The 
CRO may authorize summary fines in the absence of an investigation 
report if a Rule violation is detected. OCX is now clarifying in Rule 
705 that the summary imposition of fines is one of the several 
dispositions the CRO may authorize upon the Compliance Department's 
completion of an investigation.
2. Statutory Basis
    OneChicago believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\3\ in general, and furthers the 
objectives of Section 6(b)(5) \4\ and 6(b)(7) \5\ in particular in that 
it is designed:
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(5).
    \5\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

     To prevent fraudulent and manipulative acts and practices,
     to promote just and equitable principles of trade,
     to foster cooperation and coordination with persons 
engaged in facilitating transactions in securities,
     to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and in general, to 
protect investors and the public interest, and
     to provide a fair procedure for the disciplining of market 
participants.
    The Exchange believes that the proposed rule change will strengthen 
its ability to carry out its responsibilities as a self-regulatory 
organization. Summary fines provide an efficient an effective way for a 
self-regulatory organization to penalize rule violations without 
requiring the commencement of disciplinary proceedings. The broad 
authority to impose summary fines allows the Exchange to discipline its 
market participants, and provides a deterrent from futures violations.
    Furthermore, the Exchange believes that the proposed summary fine 
schedule is fair and reasonable in light of each rule violation. OCX 
has structured its proposed summary fine schedule such that routine or 
clerical violations warrant lower summary fines, whereas more serious 
violations, such as the failure to comply with the Exchange's pre-
execution discussion policy, warrant higher summary fines.
    Finally, the Exchange believes that the proposed rule change and 
associated NTM are equitable and not unfairly discriminatory because 
they would apply equally to all market participants that are subject to 
the applicable requirements of each Rule.

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

    OneChicago does not believe that the rule change and associated NTM 
will impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act, in that the rule change and 
associated NTM enhances OneChicago's ability to deter and discipline 
certain rule violations.
    OneChicago further notes that the proposed summary fine schedule is 
consistent with fine schedules established by other domestic futures 
exchanges. The proposed summary fine schedule distinguishes the 
severity of rule violations by imposing varying levels of fines for 
different violations. Specifically, those violations that are generally 
perceived as more clerical in nature are subject to lower summary fines 
than those violations that may involve harm to the marketplace.

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

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

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

    The proposed rule change and NTM will become operative on January 
14, 2016.
    At any time within 60 days of the date of effectiveness of the 
proposed rule change, the Commission, after consultation with the CFTC, 
may summarily abrogate the proposed rule change and require that the 
proposed rule change be refiled in accordance with the provisions of 
Section 19(b)(1) of the Act.\6\
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

 IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-OC-2015-03 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-OC-2015-03. 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/

[[Page 3853]]

rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for Web site 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street NE., Washington, DC 20549, on official business days between the 
hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be 
available for inspection and copying at the principal offices of the 
Exchange. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-OC-
2015-03, and should be submitted on or before February 12, 2016.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
---------------------------------------------------------------------------

    \7\ 17 CFR 200.30-3(a)(73).

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-01199 Filed 1-21-16; 8:45 am]
BILLING CODE 8011-01-P
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