Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend Exchange Rule 6.49A, Transfer of Positions, 44938-44942 [2018-19060]
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Federal Register / Vol. 83, No. 171 / Tuesday, September 4, 2018 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83968; File No. SR–CBOE–
2018–060]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing of a
Proposed Rule Change To Amend
Exchange Rule 6.49A, Transfer of
Positions
August 28, 2018.
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 August
16, 2018, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
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
The Exchange proposes to amend
Rule 6.49A to delete the provisions
related to on-floor position transfers,
amend the permissible reasons for and
procedures related to off-floor position
transfers, and make other
nonsubstantive changes.
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/CBOELegal
RegulatoryHome.aspx), at the
Exchange’s Office of the Secretary, and
at the Commission’s Public Reference
Room.
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 6.49A to delete the provisions
related to on-floor position transfers,
amend the permissible reasons for and
procedures related to off-floor position
transfers, and make other
nonsubstantive changes. Rule 6.49A
specifies the circumstances under
which Trading Permit Holders may
effect transfers of positions, both on and
off the trading floor, notwithstanding
the prohibition in Rule 6.49(a).3
On-Floor Transfers
Rule 6.49A(a)(2) permits certain
position transfers to occur on the floor
of the exchange or on another options
exchange. The procedures for such onfloor position transfers are set forth in
Rule 6.49A(b) and (c), as well as
Interpretations and Policies .01 through
.03. The Exchange no longer wants to
make available on-floor transfers of
positions, so the proposed rule change
deletes paragraphs (a)(2), (b), and (c),
and Interpretations and Policies .01
through .03 4 from Rule 6.49A. The onfloor position transfer procedure is
administratively burdensome on the
Exchange, and is currently used by
Trading Permit Holders on a limited
basis. As the Exchange noted when the
rule was adopted, the Exchange’s ‘‘onfloor’’ procedure was intended to help
ensure that Trading Permit Holders with
a need to transfer positions in bulk as
part of a sale or disposition of all or
substantially all of a Trading Permit
Holder’s assets or options positions
were able to get the best possible price
for the positions while also ensuring
that other Trading Permit Holders have
an adequate opportunity to make bids
and offers on the positions that are
being transferred.5 In addition, the
Exchange noted the ‘‘on-floor’’ position
3 Paragraph (a) of Rule 6.49 (Transactions Off the
Exchange) generally requires transactions of option
contracts listed on the Exchange for a premium in
excess of $1.00 to be effected on the floor of the
Exchange or on another exchange.
4 The Exchange proposes to move the provision
in Interpretation and Policy .03 that states the onfloor transfer procedure is not to be used repeatedly
or routinely in circumvention of the normal auction
market process to proposed paragraph (g), as that
provision applies to both the current on-floor and
off-floor position transfer procedures.
5 See Exchange Act Release No. 36647 (December
28, 1995), 61 FR 566 (January 8, 1996) (Order
Approving and Notice of Filing and Order Granting
Accelerated Approval of Amendments No. 1 and 2
to a Proposed Rule Change Relating to the Transfer
of Positions on the Floor of the Exchange in Cases
of Dissolution and other Situations) (SR–CBOE–95–
36).
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transfer procedure could be used by
Market-Makers that, for reasons other
than a forced liquidation, such as an
extended vacation, wished to liquidate
their entire, or nearly their entire, open
positions in a single set of transactions,
subject to certain restrictions.6
For example, the Exchange’s on-floor
transfer of positions rule was also
intended to address the common
situation in which a Designated Primary
Market-Maker (‘‘DPM’’) sold its business
or in which a Market-Maker, for reasons
other than a forced liquidation, such as
an extended vacation, wished to
liquidate its entire, or nearly entire,
position in a single set of transactions.7
Currently, because DPMs have been
largely consolidated in the hands of
firms rather than individuals, such
transfers are, for the most part
unnecessary; if an individual takes an
extended vacation, another member of
the firm handles the firm’s book.
Accordingly, the Exchange believes that
the on-floor transfer of positions
procedure no longer serves the uses for
which is was originally adopted. The
Exchange also notes that at least one
other options exchange with a trading
floor and a transfer of positions rule
does not offer an on-floor transfer
procedure.8
Off-Floor Position Transfers
Current Rule 6.49A(a)(1) lists the
circumstances in which Trading Permit
Holders may transfer their positions off
the floor. The circumstances currently
listed include: (i) The dissolution of a
joint account in which the remaining
Trading Permit Holder assumes the
positions of the joint account; (ii) the
dissolution of a corporation or
partnership in which a former nominee
of the corporation or partnership
assumes the positions; (iii) positions
transferred as part of a Trading Permit
Holder’s capital contribution to a new
joint account, partnership, or
corporation; (iv) the donation of
positions to a not-for-profit corporation;
(v) the transfer of positions to a minor
under the Uniform Gifts to Minor law;
and (vi) a merger or acquisition where
continuity of ownership or management
results.9
6 Id. Among other restrictions, repeated and
frequent use of the on-floor procedure in Rule
6.49A by a TPH is not permitted.
7 Id.
8 See, e.g., Nasdaq OMX PHLX LLC (‘‘Phlx’’)
1058.
9 The Exchange notes that other options
exchanges have adopted off-floor position transfer
procedures based on, and substantially similar to,
the Exchange’s procedure in Rule 6.49A(a)(1). See,
e.g., Nasdaq OMX PHLX LLC (‘‘Phlx’’) Rule 1058;
and NYSE Arca, Inc. (‘‘Arca’’) Rule 6.78–O(d).
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The Exchange proposes to add
clarifying language to the first sentence
of Rule 6.49A(a) to state that existing
positions in options listed on the
Exchange of a Trading Permit Holder or
of a Non-Trading Permit Holder that are
to be transferred on, from, or to the
books of a Clearing Trading Permit
Holder may be transferred off the
Exchange (an ‘‘off-floor transfer’’) if the
off-floor transfer involves one of the
events listed in the Rule.10 The
proposed rule change clarifies that Rule
6.49A does not apply to products other
than options listed on the Exchange,
consistent with the Exchange’s other
trading rules.11 It also clarifies that a
Trading Permit Holder must be on one
side of the transfer. The proposed rule
change also clarifies that positions a
Trading Permit Holder is transferring or
receiving are held in the account of a
Clearing Trading Permit Holder. This
language is consistent with how offfloor transfers are currently effected.
The proposed rule change also clarifies
that both Trading Permit Holders and
non-Trading Permit Holders may effect
off-floor transfers, except under
specified circumstances in which only a
Trading Permit Holder may effect an offfloor transfer.12
The Exchange notes off-floor transfers
of positions in Exchange-listed options
may also be subject to applicable laws,
rules, and regulations, including rules of
other self-regulatory organizations.13
Except as explicitly provided in the
proposed rule text, the proposed rule
change is not intended to exempt offfloor position transfers from any other
applicable rules or regulations, and
proposed paragraph (h) makes this clear
in the rule.
The proposed rule change adds four
events where an off-floor transfer would
be permitted to occur.
• Proposed subparagraph (a)(1)
permits an off-floor transfer to occur if
it, pursuant to Rule 4.6 or 4.22, is an
adjustment or transfer in connection
with the correction of a bona fide error
in the recording of a transaction or the
transferring of a position to another
account, provided that the original trade
documentation confirms the error. This
10 It is possible for positions transfers to occur
between two Non-Trading Permit Holders. For
example, one Non-Trading Permit Holder may
transfer positions on the books of a Clearing
Trading Permit Holder to another Non-Trading
Permit Holder pursuant to the proposed rule.
11 Proposed paragraph (h) also clarifies that the
off-floor transfer procedure only applies to
positions in options listed on the Exchange, and
that transfers of non-Exchange-listed options and
other financial instruments are not governed by
Rule 6.49A.
12 See proposed subparagraphs (a)(5) and (7).
13 See proposed paragraph (h).
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proposed rule change codifies previous,
long-standing Exchange guidance
regarding what off-floor transfers are
permissible and will permit transactions
to be properly recorded in the originally
intended accounts.14
• Proposed subparagraph (a)(2)
permits an off-floor transfer if it is a
transfer of positions from one account to
another account where there is no
change in ownership involved (i.e., the
accounts are for the same Person 15),
provided the accounts are not in
separate aggregation units or otherwise
subject to information barrier or account
segregation requirements.16 The
proposed rule change provides market
participants with flexibility to maintain
positions in accounts used for the same
trading purpose in a manner consistent
with their businesses. Such transfers are
not intended to be transactions among
different market participants, as there
would be no change in ownership
permitted under the provision, and
would also not permit transfers among
different trading units for which
accounts are otherwise required to be
maintained separately.17
• Proposed subparagraph (a)(3)
similarly permits an off-floor transfer if
it is a consolidation of accounts 18 where
no change in ownership is involved.
This proposed rule change is similar to
rules of other options exchanges.19
• Proposed subparagraph (a)(10)
permits an off-floor transfer if it is a
transfer of positions through operation
of law from death, bankruptcy, or
otherwise.20 This provision is consistent
with applicable laws, rules, and
regulations that legally require transfers
in certain circumstances. This proposed
rule change is consistent with the
14 See Cboe Options Regulatory Circular RG03–
62. Note Rule 4.22 was not referenced in that
circular, as it did not exist at that time. However,
it contains similar language regarding corrections of
errors as Rule 4.6, and therefore the Exchange
believes it is appropriate to include in the proposed
rule change. The proposed rule change is also
similar to Cboe Futures Exchange, LLC (‘‘CFE’’)
Rule 420(a)(i).
15 Rule 1.1(ff) defines ‘‘Person’’ as an individual,
partnership (general or limited), joint stock
company, corporation, limited liability company,
trust or unincorporated organization, or any
governmental entity or agency or political
subdivision thereof.
16 The proposed rule change is similar to CFE
Rule 420(a)(ii).
17 Various rules (for example, Regulation SHO in
certain circumstances) require accounts to be
maintained separately, and the proposed rule
change is consistent with those rules.
18 This refers to the consolidation of entire
accounts (e.g., combining two separate accounts
(including the positions in each account into a
single account)).
19 See, e.g., Phlx Rule 1058(a)(7); and Arca Rule
6.78–O(d)(1)(vii).
20 The proposed rule change is similar to CFE
Rule 420(a)(iii).
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44939
purposes of other circumstances in the
current rule, such as the transfer of
positions to a minor or dissolution of a
corporation.
The Exchange believes these proposed
events have similar purposes as those in
the current rule, which is to permit
market participants to move positions
from one account to another and to
permit transfers upon the occurrence of
significant, non-recurring events.21 As
noted above, the proposed rule change
is consistent with current Exchange
guidance or rules of other self-regulatory
organizations.
The proposed rule change renumbers
current subparagraphs (a)(1)(i) through
(v) to be proposed subparagraphs (a)(5)
through (9) and moves current
subparagraph (a)(1)(vi) to proposed
subparagraph (a)(4), with
nonsubstantive changes. These
permissible circumstances for off-floor
transfers are consistent with the rules of
other options exchanges.22
Proposed paragraph (b) codifies
Exchange guidance regarding certain
restrictions on permissible off-floor
transfers related to netting of open
positions and to margin and haircut
treatment. Proposed subparagraph (b)(1)
states, unless otherwise permitted by
Rule 6.49A, when effecting an off-floor
transfer pursuant to paragraph (a), no
position may net against another
position (‘‘netting’’), and no position
transfer may result in preferential
margin or haircut treatment.23 Netting
occurs when long positions and short
positions in the same series ‘‘offset’’
against each other, leaving no or a
reduced position. For example, if a
Trading Permit Holder wanted to
transfer 100 long calls to another
account that contained short calls of the
same options series as well as other
positions, even if the transfer is
permitted pursuant to one of the 10
permissible events listed in the Rule,
the Trading Permit Holder could not
transfer the offsetting series, as they
would net against each other and close
the positions.
However, netting is permitted for offfloor transfers on behalf of a MarketMaker account for transactions in
multiply listed options series on
different options exchanges, but only if
the Market-Maker nominees are trading
21 See
proposed paragraph (g).
e.g., Phlx Rule 1058(a)(1) through (6); and
Arca Rule 6.78–O(d)(1)(i) through (vi).
23 See Cboe Options Regulatory Circular RG03–
62. For example, positions may not transfer from a
customer, joint back office, or firm account to a
Market-Maker account. However, positions may
transfer from a Market-Maker account to a
customer, joint back office, or firm account
(assuming no netting of positions occurs).
22 See,
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for the same Trading Permit Holder
organization, and the options
transactions on the different options
exchanges clear into separate exchangespecific accounts because they cannot
easily clear into the same Market-Maker
account at the Clearing Corporation. In
such instances, all Market-Maker
positions in the exchange-specific
accounts for the multiply listed class
would be automatically transferred on
their trade date into one central MarketMaker account (commonly referred to as
a ‘‘universal account’’) at the Clearing
Corporation.24 Positions cleared into a
universal account would automatically
net against each other. Options
exchanges permit different naming
conventions with respect to MarketMaker account acronyms (for example,
lettering versus numbering and number
of characters), which are used for
accounts at the Clearing Corporation. A
Market-Maker may have a nominee with
an appointment in class XYZ on Cboe
Options, and have another nominee
with an appointment in class XYZ on
Phlx, but due to account acronym
naming conventions, those nominees
may need to clear their transactions into
separate accounts (one for Cboe Options
transactions and another for Phlx
transactions) at the Clearing Corporation
rather into a universal account (in
which account the positions may net).
The proposed rule change permits offfloor transfers from these separate
exchange-specific accounts into the
Market-Maker’s universal account in
this circumstance to achieve this
purpose.
Proposed paragraph (c) states the
transfer price, to the extent it is
consistent with applicable laws, rules,
and regulations, including rules of other
self-regulatory organizations, and tax
and accounting rules and regulations, at
which an off-floor transfer is effected
may be:
(1) The original trade prices of the
positions that appear on the books of the
trading Clearing Trading Permit Holder,
in which case the records of the transfer
must indicate the original trade dates for
the positions; 25 provided, transfers to
correct errors bona fide errors pursuant
to proposed subparagraph (a)(1) must be
transferred at the correct original trade
prices;
(2) mark-to-market prices of the
positions at the close of trading on the
transfer date;
24 Id.
25 Phlx Rule 1058(c) requires position transfers to
occur at the same prices that appear on the books
of the transferring member.
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(3) mark-to-market prices of the
positions at the close of trading on the
trade date prior to the transfer date; 26 or
(4) the then-current market price of
the positions at the time the off-floor
transfer is effected.27
This proposed rule change provides
market participants that effect off-floor
transactions with flexibility to select a
transfer price based on the
circumstances of the transfer and their
business. However, for corrections of
bona fide errors, because those transfers
are necessary to correct processing
errors that occurred at the time of
transaction, those transfers would occur
at the original transaction price, as the
purpose of the transfer is to create the
originally intended result of the
transaction.
Proposed paragraph (d) requires a
Trading Permit Holder and its Clearing
Trading Permit Holder (to the extent
that the Trading Permit Holder is not
self-clearing) to submit to the Exchange,
in a manner determined by the
Exchange, written notice prior to
effecting an off-floor transfer from or to
the account of a Trading Permit
Holder(s).28 The notice must indicate:
• The Exchange-listed options
positions to be transferred;
• the nature of the transaction;
• the enumerated provision(s) under
proposed paragraph (a) pursuant to
which the positions are being
transferred;
• the name of the counterparty(ies);
• the anticipated transfer date;
• the method for determined the
transfer price; and
• any other information requested by
the Exchange.
The proposed notice will ensure the
Exchange is aware of all off-floor
transfers so that it can monitor and
review them (including the records that
must be retained pursuant to proposed
paragraph (e)) to determine whether
they are effected in accordance with the
Rules. Additionally, requiring notice
from the Trading Permit Holder(s) and
its Clearing Trading Permit Holder(s)
will ensure both parties are in
agreement with respect to the terms of
the off-floor transfer. The proposed rule
change is similar to rules of other
26 For example, for a transfer that occurs on a
Tuesday, the transfer price may be based on the
closing market price on Monday.
27 The proposed rule change is similar to CFE
Rule 420(c).
28 This notice provision applies only to transfers
involving a Trading Permit Holder’s positions and
not to positions of Non-Trading Permit Holder
parties, as they are not subject to the Rules. In
addition, no notice would be required to effect offfloor transfers to correct bona fide errors pursuant
to proposed subparagraph (a)(1).
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options exchanges.29 As noted in
proposed subparagraph (d)(2), receipt of
notice of an off-floor transfer does not
constitute a determination by the
Exchange that the off-floor transfer was
effected or reported in conformity with
the requirements of Rule 6.49A.
Notwithstanding submission of written
notice to the Exchange, Trading Permit
Holders and Clearing Trading Permit
Holders that effect off-floor transfers
that do not conform to the requirements
of Rule 6.49A will be subject to
appropriate disciplinary action in
accordance with the Rules.
Similarly, proposed paragraph (e)
requires each Trading Permit Holder
and each Clearing Trading Permit
Holder that is a party to an off-floor
transfer must make and retain records of
the information provided in the written
notice to the Exchange pursuant to
proposed subparagraph (d)(1), as well as
information on the actual Exchangelisted options that are ultimately
transferred, the actual transfer date, and
the actual transfer price (and the
original trade dates, if applicable), and
any other information the Exchange may
request the Trading Permit Holder or
Clearing Trading Permit Holder provide.
The proposed rule change is similar to
rules of other options exchanges.30
The proposed rule change moves
current paragraph (d) regarding other
exemptions to proposed paragraph (f).
The exemptions permitted by this
paragraph are those approved by the
Exchange’s president.31 The proposed
rule change permits the President or a
designee to grant an exemption to the
Rule 6.49(a) prohibition if, in his or her
judgment, allowing the off-floor transfer
is necessary or appropriate for the
maintenance of a fair and orderly
market and the protection of investors
and is in the public interest, including
due to unusual or extraordinary
circumstances such as the market value
of the Person’s positions will be
comprised by having to comply with the
requirement to trade on the Exchange
pursuant to the normal auction process
or, when in the judgment of President
or his or her designee, market
conditions make trading on the
Exchange impractical. The proposed
rule change updates language consistent
with the change to only permit off-floor
transfers. Additionally, the additional
circumstances in which the President or
29 See, e.g., Phlx Rule 1058(b) and (c); and Arca
Rule 6.78–O(d)(2).
30 See, e.g., Phlx Rule 1058(c); and Arca Rule
6.78–O(c).
31 Similar to the rules of other exchanges, the
proposed rule change also lets a designee of the
Exchange president grant an exemption. See, e.g.,
Arca Rule 6.78–O(f).
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a designee may grant an exemption are
similar to those that the President or a
designee may consider when taking
action under emergency conditions
pursuant to Rule 6.17.
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.32 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 33 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and 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.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 34 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange believes that permitting
the off-floor transfers in very limited
circumstances such as where there is no
change in beneficial ownership, to
contribute to a non-profit corporation, to
transfer to a minor or a transfer by
operation of law is reasonable to allow
a TPH to accomplish certain goals
efficiently. The rule permits off-floor
transfers in situations involving
dissolutions of entities or accounts, for
purposes of donations, mergers or by
operation of law. For example, a TPH
that is undergoing a structural change
and a one-time movement of positions
may require a transfer of positions or a
TPH that is leaving a firm that will no
longer be in business may require a
transfer of positions to another firm.
Also, a TPH may require a transfer of
positions to make a capital contribution.
The above-referenced circumstances are
non-recurring situations where the
transferor continues to maintain some
ownership interest or manage the
positions transferred. By contrast,
repeated or routine off-floor transfers
between entities or accounts—even if
there is no change in beneficial
ownership as a result of the transfer—
32 15
33 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
34 Id.
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is inconsistent with the purposes for
which Rule 6.49A was adopted.
Accordingly, the Exchange believes that
such activity should not be permitted
under the rules and thus, seeks to adopt
language in proposed paragraph (e) to
Rule 6.49A that the transfer of positions
procedures set forth in Rule 6.49A are
intended to facilitate non-recurring
movements of positions.
The Exchange believes that the
proposed rule change to eliminate the
on-floor position transfer procedure
promotes just and equitable principles
of trade, helps remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and promotes efficient
administration of the Exchange, as it
eliminates a complex procedure that is
of limited use to Trading Permit Holders
today but still imposes an
administrative burden on the Exchange.
The Exchange believes the proposed
rule change benefits investors, as it adds
transparency to the Rules by codifying
certain long-standing guidance
regarding what types of off-floor
transfers are permissible. The purpose
of the additional circumstances in
which market participants may conduct
off-floor transfers is consistent with the
purpose of the circumstances currently
permitted in Rule 6.49A. Therefore, the
proposed rule change will provide
market participants that experience
these limited, non-recurring events with
an efficient and effective means to
transfer positions in these situations. It
also permits presidential exemptions
when they are necessary or appropriate
for the maintenance of a fair and orderly
market and the protection of investors
and are in the public interest. The
Exchange believes the proposed rule
change regarding permissible transfer
prices provides market participants with
flexibility to determine the price
appropriate for their business, which
maintain cost bases in accordance with
normal accounting practices and
removes impediments to a free and open
market.
The proposed rule change requiring
notice and maintenance of records will
ensure the Exchange is able to review
off-floor transfers for compliance with
the Rules, which prevents fraudulent
and manipulative acts and practices.
The requirement to retain records is
consistent with the requirements of Rule
17a–3 and 17a–4 under the Act.
As discussed above, the proposed rule
change is similar to rules of other
options exchanges, and thus further
removes impediments to and perfects
the mechanism of a free and open
market.
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange 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 does not believe the proposed
rule change will impose any burden on
intramarket competition, as the
amended off-floor transfer procedure
will apply to all Trading Permit Holders
in the same manner. Use of the off-floor
transfer procedure is voluntary, and all
Trading Permit Holders may use the
procedure to transfer position off the
floor as long as the criteria in the
proposed rule are satisfied. The current
on-floor position transfer procedure is of
limited use to Trading Permit Holders
today but still imposes an
administrative burden on the Exchange.
The proposed elimination of the onfloor position transfer promotes efficient
administration of the Exchange, as it
eliminates this complex procedure that
is limited in application. Market
participants will still be able to effect
transactions on the Exchange pursuant
to the normal auction process if an offfloor transfer is not permissible.
The proposed rule change also
provides market participants that
experience the limited permissible, nonrecurring events with an efficient and
effective means to transfer positions in
these situations. The Exchange believes
the proposed rule change regarding
permissible transfer prices provides
market participants with flexibility to
determine the price appropriate for their
business, which determine prices in
accordance with normal accounting
practices and removes impediments to a
free and open market. The Exchange
does not believe the proposed notice
and record requirements are unduly
burdensome to market participants, as
they are similar to requirements in the
rules of other options exchanges, as
discussed above. The Exchange believes
these are reasonable requirements that
will ensure the Exchange is aware of all
off-floor transfers so that it can monitor
and review them to determine whether
they are effected in accordance with the
Rules.
The Exchange does not believe the
proposed rule change will impose any
burden on intermarket competition. The
proposed off-floor position transfer
procedure is not intended to be a
competitive trading tool. The Exchange
does not believe the proposed changes
to the off-floor position transfer
procedure are material, as they codify
certain longstanding guidance and
clarify the procedure. This procedure is
E:\FR\FM\04SEN1.SGM
04SEN1
44942
Federal Register / Vol. 83, No. 171 / Tuesday, September 4, 2018 / Notices
of limited application during unique
circumstances. Additionally, as
discussed above, the proposed rule
change in part is similar to rules of other
options exchanges. The Exchange
believes having similar rules related to
off-floor transfer positions to those of
other options exchanges will reduce the
administrative burden on market
participants of determining whether
their off-floor transfers comply with
multiple sets of rules.
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 written 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:
sradovich on DSK3GMQ082PROD with NOTICES
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–2018–060 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CBOE–2018–060. 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
VerDate Sep<11>2014
17:54 Aug 31, 2018
Jkt 244001
internet website (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 website 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CBOE–2018–060 and
should be submitted on or before
September 25, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–19060 Filed 8–31–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83973; File No. SR–FICC–
2017–021]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Order
Approving a Proposed Rule Change,
as Modified by Amendment No. 1, To
Adopt a Recovery & Wind-Down Plan
and Related Rules
August 28, 2018.
On December 18, 2017, Fixed Income
Clearing Corporation (‘‘FICC’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) proposed
rule change SR–FICC–2017–021
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder 2 to
adopt a recovery and wind-down plan
35 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00086
Fmt 4703
Sfmt 4703
and related rules.3 The proposed rule
change was published for comment in
the Federal Register on January 8,
2018.4 On February 8, 2018, the
Commission designated a longer period
within which to approve, disapprove, or
institute proceedings to determine
whether to approve or disapprove the
proposed rule change.5 On March 20,
2018, the Commission instituted
proceedings to determine whether to
approve or disapprove the proposed
rule change.6 On June 25, 2018, the
3 On December 18, 2017, FICC filed the proposed
rule change as advance notice SR–FICC–2017–805
with the Commission pursuant to Section 806(e)(1)
of Title VIII of the Dodd-Frank Wall Street Reform
and Consumer Protection Act entitled the Payment,
Clearing, and Settlement Supervision Act of 2010
(‘‘Clearing Supervision Act’’) and Rule 19b–
4(n)(1)(i) of the Act (‘‘Advance Notice’’). 12 U.S.C.
5465(e)(1) and 17 CFR 240.19b–4(n)(1)(i),
respectively. The Advance Notice was published for
comment in the Federal Register on January 30,
2018. In that publication, the Commission also
extended the review period of the Advance Notice
for an additional 60 days, pursuant to Section
806(e)(1)(H) of the Clearing Supervision Act. 12
U.S.C. 5465(e)(1)(H); Securities Exchange Act
Release No. 82580 (January 24, 2018), 83 FR 4341
(January 30, 2018) (SR–FICC–2017–805). On April
10, 2018, the Commission required additional
information from FICC pursuant to Section
806(e)(1)(D) of the Clearing Supervision Act, which
tolled the Commission’s period of review of the
Advance Notice until 60 days from the date the
information required by the Commission was
received by the Commission. 12 U.S.C.
5465(e)(1)(D); see 12 U.S.C. 5465(e)(1)(E)(ii) and
(G)(ii); see Memorandum from the Office of
Clearance and Settlement Supervision, Division of
Trading and Markets, titled ‘‘Commission’s Request
for Additional Information,’’ available at https://
www.sec.gov/rules/sro/ficc-an.htm. On June 28,
2018, FICC filed Amendment No. 1 to the Advance
Notice to amend and replace in its entirety the
Advance Notice as originally filed on December 18,
2017. Securities Exchange Act Release No. 83744
(July 31, 2018), 83 FR 38413 (August 6, 2018) (SR–
FICC–2017–805). FICC submitted a courtesy copy of
Amendment No. 1 to the Advance Notice through
the Commission’s electronic public comment letter
mechanism. Accordingly, Amendment No. 1 to the
Advance Notice has been publicly available on the
Commission’s website at https://www.sec.gov/rules/
sro/ficc-an.htm since June 29, 2018. On July 6,
2018, the Commission received a response to its
request for additional information in consideration
of the Advance Notice, which, in turn, added a
further 60-days to the review period pursuant to
Section 806(e)(1)(E) and (G) of the Clearing
Supervision Act. 12 U.S.C. 5465(e)(1)(E) and (G);
see Memorandum from the Office of Clearance and
Settlement Supervision, Division of Trading and
Markets, titled ‘‘Response to the Commission’s
Request for Additional Information,’’ available at
https://www.sec.gov/rules/sro/ficc-an.htm. The
Commission did not receive any comments. The
proposal, as set forth in both the Advance Notice
and the proposed rule change, each as modified by
Amendment No. 1, shall not take effect until all
required regulatory actions are completed.
4 Securities Exchange Act Release No. 82431
(January 2, 2018), 83 FR 871 (January 8, 2018) (SR–
FICC–2017–021).
5 Securities Exchange Act Release No. 82669
(February 8, 2018), 83 FR 6653 (February 14, 2018)
(SR–DTC–2017–021, SR–FICC–2017–021, SR–
NSCC–2017–017).
6 Securities Exchange Act Release No. 82913
(March 20, 2018), 83 FR 12997 (March 26, 2018)
(SR–FICC–2017–021).
E:\FR\FM\04SEN1.SGM
04SEN1
]]>Agencies
[Federal Register Volume 83, Number 171 (Tuesday, September 4, 2018)]
[Notices]
[Pages 44938-44942]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-19060]
[[Page 44938]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83968; File No. SR-CBOE-2018-060]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Amend Exchange Rule 6.49A, Transfer
of Positions
August 28, 2018.
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 August 16, 2018, Cboe Exchange, Inc. (the ``Exchange'' or
``Cboe Options'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the Exchange. 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
The Exchange proposes to amend Rule 6.49A to delete the provisions
related to on-floor position transfers, amend the permissible reasons
for and procedures related to off-floor position transfers, and make
other nonsubstantive changes.
The text of the proposed rule change is also available on the
Exchange's website (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 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
The Exchange proposes to amend Rule 6.49A to delete the provisions
related to on-floor position transfers, amend the permissible reasons
for and procedures related to off-floor position transfers, and make
other nonsubstantive changes. Rule 6.49A specifies the circumstances
under which Trading Permit Holders may effect transfers of positions,
both on and off the trading floor, notwithstanding the prohibition in
Rule 6.49(a).\3\
---------------------------------------------------------------------------
\3\ Paragraph (a) of Rule 6.49 (Transactions Off the Exchange)
generally requires transactions of option contracts listed on the
Exchange for a premium in excess of $1.00 to be effected on the
floor of the Exchange or on another exchange.
---------------------------------------------------------------------------
On-Floor Transfers
Rule 6.49A(a)(2) permits certain position transfers to occur on the
floor of the exchange or on another options exchange. The procedures
for such on-floor position transfers are set forth in Rule 6.49A(b) and
(c), as well as Interpretations and Policies .01 through .03. The
Exchange no longer wants to make available on-floor transfers of
positions, so the proposed rule change deletes paragraphs (a)(2), (b),
and (c), and Interpretations and Policies .01 through .03 \4\ from Rule
6.49A. The on-floor position transfer procedure is administratively
burdensome on the Exchange, and is currently used by Trading Permit
Holders on a limited basis. As the Exchange noted when the rule was
adopted, the Exchange's ``on-floor'' procedure was intended to help
ensure that Trading Permit Holders with a need to transfer positions in
bulk as part of a sale or disposition of all or substantially all of a
Trading Permit Holder's assets or options positions were able to get
the best possible price for the positions while also ensuring that
other Trading Permit Holders have an adequate opportunity to make bids
and offers on the positions that are being transferred.\5\ In addition,
the Exchange noted the ``on-floor'' position transfer procedure could
be used by Market-Makers that, for reasons other than a forced
liquidation, such as an extended vacation, wished to liquidate their
entire, or nearly their entire, open positions in a single set of
transactions, subject to certain restrictions.\6\
---------------------------------------------------------------------------
\4\ The Exchange proposes to move the provision in
Interpretation and Policy .03 that states the on-floor transfer
procedure is not to be used repeatedly or routinely in circumvention
of the normal auction market process to proposed paragraph (g), as
that provision applies to both the current on-floor and off-floor
position transfer procedures.
\5\ See Exchange Act Release No. 36647 (December 28, 1995), 61
FR 566 (January 8, 1996) (Order Approving and Notice of Filing and
Order Granting Accelerated Approval of Amendments No. 1 and 2 to a
Proposed Rule Change Relating to the Transfer of Positions on the
Floor of the Exchange in Cases of Dissolution and other Situations)
(SR-CBOE-95-36).
\6\ Id. Among other restrictions, repeated and frequent use of
the on-floor procedure in Rule 6.49A by a TPH is not permitted.
---------------------------------------------------------------------------
For example, the Exchange's on-floor transfer of positions rule was
also intended to address the common situation in which a Designated
Primary Market-Maker (``DPM'') sold its business or in which a Market-
Maker, for reasons other than a forced liquidation, such as an extended
vacation, wished to liquidate its entire, or nearly entire, position in
a single set of transactions.\7\ Currently, because DPMs have been
largely consolidated in the hands of firms rather than individuals,
such transfers are, for the most part unnecessary; if an individual
takes an extended vacation, another member of the firm handles the
firm's book. Accordingly, the Exchange believes that the on-floor
transfer of positions procedure no longer serves the uses for which is
was originally adopted. The Exchange also notes that at least one other
options exchange with a trading floor and a transfer of positions rule
does not offer an on-floor transfer procedure.\8\
---------------------------------------------------------------------------
\7\ Id.
\8\ See, e.g., Nasdaq OMX PHLX LLC (``Phlx'') 1058.
---------------------------------------------------------------------------
Off-Floor Position Transfers
Current Rule 6.49A(a)(1) lists the circumstances in which Trading
Permit Holders may transfer their positions off the floor. The
circumstances currently listed include: (i) The dissolution of a joint
account in which the remaining Trading Permit Holder assumes the
positions of the joint account; (ii) the dissolution of a corporation
or partnership in which a former nominee of the corporation or
partnership assumes the positions; (iii) positions transferred as part
of a Trading Permit Holder's capital contribution to a new joint
account, partnership, or corporation; (iv) the donation of positions to
a not-for-profit corporation; (v) the transfer of positions to a minor
under the Uniform Gifts to Minor law; and (vi) a merger or acquisition
where continuity of ownership or management results.\9\
---------------------------------------------------------------------------
\9\ The Exchange notes that other options exchanges have adopted
off-floor position transfer procedures based on, and substantially
similar to, the Exchange's procedure in Rule 6.49A(a)(1). See, e.g.,
Nasdaq OMX PHLX LLC (``Phlx'') Rule 1058; and NYSE Arca, Inc.
(``Arca'') Rule 6.78-O(d).
---------------------------------------------------------------------------
[[Page 44939]]
The Exchange proposes to add clarifying language to the first
sentence of Rule 6.49A(a) to state that existing positions in options
listed on the Exchange of a Trading Permit Holder or of a Non-Trading
Permit Holder that are to be transferred on, from, or to the books of a
Clearing Trading Permit Holder may be transferred off the Exchange (an
``off-floor transfer'') if the off-floor transfer involves one of the
events listed in the Rule.\10\ The proposed rule change clarifies that
Rule 6.49A does not apply to products other than options listed on the
Exchange, consistent with the Exchange's other trading rules.\11\ It
also clarifies that a Trading Permit Holder must be on one side of the
transfer. The proposed rule change also clarifies that positions a
Trading Permit Holder is transferring or receiving are held in the
account of a Clearing Trading Permit Holder. This language is
consistent with how off-floor transfers are currently effected. The
proposed rule change also clarifies that both Trading Permit Holders
and non-Trading Permit Holders may effect off-floor transfers, except
under specified circumstances in which only a Trading Permit Holder may
effect an off-floor transfer.\12\
---------------------------------------------------------------------------
\10\ It is possible for positions transfers to occur between two
Non-Trading Permit Holders. For example, one Non-Trading Permit
Holder may transfer positions on the books of a Clearing Trading
Permit Holder to another Non-Trading Permit Holder pursuant to the
proposed rule.
\11\ Proposed paragraph (h) also clarifies that the off-floor
transfer procedure only applies to positions in options listed on
the Exchange, and that transfers of non-Exchange-listed options and
other financial instruments are not governed by Rule 6.49A.
\12\ See proposed subparagraphs (a)(5) and (7).
---------------------------------------------------------------------------
The Exchange notes off-floor transfers of positions in Exchange-
listed options may also be subject to applicable laws, rules, and
regulations, including rules of other self-regulatory
organizations.\13\ Except as explicitly provided in the proposed rule
text, the proposed rule change is not intended to exempt off-floor
position transfers from any other applicable rules or regulations, and
proposed paragraph (h) makes this clear in the rule.
---------------------------------------------------------------------------
\13\ See proposed paragraph (h).
---------------------------------------------------------------------------
The proposed rule change adds four events where an off-floor
transfer would be permitted to occur.
Proposed subparagraph (a)(1) permits an off-floor transfer
to occur if it, pursuant to Rule 4.6 or 4.22, is an adjustment or
transfer in connection with the correction of a bona fide error in the
recording of a transaction or the transferring of a position to another
account, provided that the original trade documentation confirms the
error. This proposed rule change codifies previous, long-standing
Exchange guidance regarding what off-floor transfers are permissible
and will permit transactions to be properly recorded in the originally
intended accounts.\14\
---------------------------------------------------------------------------
\14\ See Cboe Options Regulatory Circular RG03-62. Note Rule
4.22 was not referenced in that circular, as it did not exist at
that time. However, it contains similar language regarding
corrections of errors as Rule 4.6, and therefore the Exchange
believes it is appropriate to include in the proposed rule change.
The proposed rule change is also similar to Cboe Futures Exchange,
LLC (``CFE'') Rule 420(a)(i).
---------------------------------------------------------------------------
Proposed subparagraph (a)(2) permits an off-floor transfer
if it is a transfer of positions from one account to another account
where there is no change in ownership involved (i.e., the accounts are
for the same Person \15\), provided the accounts are not in separate
aggregation units or otherwise subject to information barrier or
account segregation requirements.\16\ The proposed rule change provides
market participants with flexibility to maintain positions in accounts
used for the same trading purpose in a manner consistent with their
businesses. Such transfers are not intended to be transactions among
different market participants, as there would be no change in ownership
permitted under the provision, and would also not permit transfers
among different trading units for which accounts are otherwise required
to be maintained separately.\17\
---------------------------------------------------------------------------
\15\ Rule 1.1(ff) defines ``Person'' as an individual,
partnership (general or limited), joint stock company, corporation,
limited liability company, trust or unincorporated organization, or
any governmental entity or agency or political subdivision thereof.
\16\ The proposed rule change is similar to CFE Rule 420(a)(ii).
\17\ Various rules (for example, Regulation SHO in certain
circumstances) require accounts to be maintained separately, and the
proposed rule change is consistent with those rules.
---------------------------------------------------------------------------
Proposed subparagraph (a)(3) similarly permits an off-
floor transfer if it is a consolidation of accounts \18\ where no
change in ownership is involved. This proposed rule change is similar
to rules of other options exchanges.\19\
---------------------------------------------------------------------------
\18\ This refers to the consolidation of entire accounts (e.g.,
combining two separate accounts (including the positions in each
account into a single account)).
\19\ See, e.g., Phlx Rule 1058(a)(7); and Arca Rule 6.78-
O(d)(1)(vii).
---------------------------------------------------------------------------
Proposed subparagraph (a)(10) permits an off-floor
transfer if it is a transfer of positions through operation of law from
death, bankruptcy, or otherwise.\20\ This provision is consistent with
applicable laws, rules, and regulations that legally require transfers
in certain circumstances. This proposed rule change is consistent with
the purposes of other circumstances in the current rule, such as the
transfer of positions to a minor or dissolution of a corporation.
---------------------------------------------------------------------------
\20\ The proposed rule change is similar to CFE Rule
420(a)(iii).
---------------------------------------------------------------------------
The Exchange believes these proposed events have similar purposes
as those in the current rule, which is to permit market participants to
move positions from one account to another and to permit transfers upon
the occurrence of significant, non-recurring events.\21\ As noted
above, the proposed rule change is consistent with current Exchange
guidance or rules of other self-regulatory organizations.
---------------------------------------------------------------------------
\21\ See proposed paragraph (g).
---------------------------------------------------------------------------
The proposed rule change renumbers current subparagraphs (a)(1)(i)
through (v) to be proposed subparagraphs (a)(5) through (9) and moves
current subparagraph (a)(1)(vi) to proposed subparagraph (a)(4), with
nonsubstantive changes. These permissible circumstances for off-floor
transfers are consistent with the rules of other options exchanges.\22\
---------------------------------------------------------------------------
\22\ See, e.g., Phlx Rule 1058(a)(1) through (6); and Arca Rule
6.78-O(d)(1)(i) through (vi).
---------------------------------------------------------------------------
Proposed paragraph (b) codifies Exchange guidance regarding certain
restrictions on permissible off-floor transfers related to netting of
open positions and to margin and haircut treatment. Proposed
subparagraph (b)(1) states, unless otherwise permitted by Rule 6.49A,
when effecting an off-floor transfer pursuant to paragraph (a), no
position may net against another position (``netting''), and no
position transfer may result in preferential margin or haircut
treatment.\23\ Netting occurs when long positions and short positions
in the same series ``offset'' against each other, leaving no or a
reduced position. For example, if a Trading Permit Holder wanted to
transfer 100 long calls to another account that contained short calls
of the same options series as well as other positions, even if the
transfer is permitted pursuant to one of the 10 permissible events
listed in the Rule, the Trading Permit Holder could not transfer the
offsetting series, as they would net against each other and close the
positions.
---------------------------------------------------------------------------
\23\ See Cboe Options Regulatory Circular RG03-62. For example,
positions may not transfer from a customer, joint back office, or
firm account to a Market-Maker account. However, positions may
transfer from a Market-Maker account to a customer, joint back
office, or firm account (assuming no netting of positions occurs).
---------------------------------------------------------------------------
However, netting is permitted for off-floor transfers on behalf of
a Market-Maker account for transactions in multiply listed options
series on different options exchanges, but only if the Market-Maker
nominees are trading
[[Page 44940]]
for the same Trading Permit Holder organization, and the options
transactions on the different options exchanges clear into separate
exchange-specific accounts because they cannot easily clear into the
same Market-Maker account at the Clearing Corporation. In such
instances, all Market-Maker positions in the exchange-specific accounts
for the multiply listed class would be automatically transferred on
their trade date into one central Market-Maker account (commonly
referred to as a ``universal account'') at the Clearing
Corporation.\24\ Positions cleared into a universal account would
automatically net against each other. Options exchanges permit
different naming conventions with respect to Market-Maker account
acronyms (for example, lettering versus numbering and number of
characters), which are used for accounts at the Clearing Corporation. A
Market-Maker may have a nominee with an appointment in class XYZ on
Cboe Options, and have another nominee with an appointment in class XYZ
on Phlx, but due to account acronym naming conventions, those nominees
may need to clear their transactions into separate accounts (one for
Cboe Options transactions and another for Phlx transactions) at the
Clearing Corporation rather into a universal account (in which account
the positions may net). The proposed rule change permits off-floor
transfers from these separate exchange-specific accounts into the
Market-Maker's universal account in this circumstance to achieve this
purpose.
---------------------------------------------------------------------------
\24\ Id.
---------------------------------------------------------------------------
Proposed paragraph (c) states the transfer price, to the extent it
is consistent with applicable laws, rules, and regulations, including
rules of other self-regulatory organizations, and tax and accounting
rules and regulations, at which an off-floor transfer is effected may
be:
(1) The original trade prices of the positions that appear on the
books of the trading Clearing Trading Permit Holder, in which case the
records of the transfer must indicate the original trade dates for the
positions; \25\ provided, transfers to correct errors bona fide errors
pursuant to proposed subparagraph (a)(1) must be transferred at the
correct original trade prices;
---------------------------------------------------------------------------
\25\ Phlx Rule 1058(c) requires position transfers to occur at
the same prices that appear on the books of the transferring member.
---------------------------------------------------------------------------
(2) mark-to-market prices of the positions at the close of trading
on the transfer date;
(3) mark-to-market prices of the positions at the close of trading
on the trade date prior to the transfer date; \26\ or
---------------------------------------------------------------------------
\26\ For example, for a transfer that occurs on a Tuesday, the
transfer price may be based on the closing market price on Monday.
---------------------------------------------------------------------------
(4) the then-current market price of the positions at the time the
off-floor transfer is effected.\27\
---------------------------------------------------------------------------
\27\ The proposed rule change is similar to CFE Rule 420(c).
---------------------------------------------------------------------------
This proposed rule change provides market participants that effect
off-floor transactions with flexibility to select a transfer price
based on the circumstances of the transfer and their business. However,
for corrections of bona fide errors, because those transfers are
necessary to correct processing errors that occurred at the time of
transaction, those transfers would occur at the original transaction
price, as the purpose of the transfer is to create the originally
intended result of the transaction.
Proposed paragraph (d) requires a Trading Permit Holder and its
Clearing Trading Permit Holder (to the extent that the Trading Permit
Holder is not self-clearing) to submit to the Exchange, in a manner
determined by the Exchange, written notice prior to effecting an off-
floor transfer from or to the account of a Trading Permit
Holder(s).\28\ The notice must indicate:
---------------------------------------------------------------------------
\28\ This notice provision applies only to transfers involving a
Trading Permit Holder's positions and not to positions of Non-
Trading Permit Holder parties, as they are not subject to the Rules.
In addition, no notice would be required to effect off-floor
transfers to correct bona fide errors pursuant to proposed
subparagraph (a)(1).
---------------------------------------------------------------------------
The Exchange-listed options positions to be transferred;
the nature of the transaction;
the enumerated provision(s) under proposed paragraph (a)
pursuant to which the positions are being transferred;
the name of the counterparty(ies);
the anticipated transfer date;
the method for determined the transfer price; and
any other information requested by the Exchange.
The proposed notice will ensure the Exchange is aware of all off-
floor transfers so that it can monitor and review them (including the
records that must be retained pursuant to proposed paragraph (e)) to
determine whether they are effected in accordance with the Rules.
Additionally, requiring notice from the Trading Permit Holder(s) and
its Clearing Trading Permit Holder(s) will ensure both parties are in
agreement with respect to the terms of the off-floor transfer. The
proposed rule change is similar to rules of other options
exchanges.\29\ As noted in proposed subparagraph (d)(2), receipt of
notice of an off-floor transfer does not constitute a determination by
the Exchange that the off-floor transfer was effected or reported in
conformity with the requirements of Rule 6.49A. Notwithstanding
submission of written notice to the Exchange, Trading Permit Holders
and Clearing Trading Permit Holders that effect off-floor transfers
that do not conform to the requirements of Rule 6.49A will be subject
to appropriate disciplinary action in accordance with the Rules.
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\29\ See, e.g., Phlx Rule 1058(b) and (c); and Arca Rule 6.78-
O(d)(2).
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Similarly, proposed paragraph (e) requires each Trading Permit
Holder and each Clearing Trading Permit Holder that is a party to an
off-floor transfer must make and retain records of the information
provided in the written notice to the Exchange pursuant to proposed
subparagraph (d)(1), as well as information on the actual Exchange-
listed options that are ultimately transferred, the actual transfer
date, and the actual transfer price (and the original trade dates, if
applicable), and any other information the Exchange may request the
Trading Permit Holder or Clearing Trading Permit Holder provide. The
proposed rule change is similar to rules of other options
exchanges.\30\
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\30\ See, e.g., Phlx Rule 1058(c); and Arca Rule 6.78-O(c).
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The proposed rule change moves current paragraph (d) regarding
other exemptions to proposed paragraph (f). The exemptions permitted by
this paragraph are those approved by the Exchange's president.\31\ The
proposed rule change permits the President or a designee to grant an
exemption to the Rule 6.49(a) prohibition if, in his or her judgment,
allowing the off-floor transfer is necessary or appropriate for the
maintenance of a fair and orderly market and the protection of
investors and is in the public interest, including due to unusual or
extraordinary circumstances such as the market value of the Person's
positions will be comprised by having to comply with the requirement to
trade on the Exchange pursuant to the normal auction process or, when
in the judgment of President or his or her designee, market conditions
make trading on the Exchange impractical. The proposed rule change
updates language consistent with the change to only permit off-floor
transfers. Additionally, the additional circumstances in which the
President or
[[Page 44941]]
a designee may grant an exemption are similar to those that the
President or a designee may consider when taking action under emergency
conditions pursuant to Rule 6.17.
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\31\ Similar to the rules of other exchanges, the proposed rule
change also lets a designee of the Exchange president grant an
exemption. See, e.g., Arca Rule 6.78-O(f).
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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.\32\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \33\ requirements that the rules
of an exchange be designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
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.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \34\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\32\ 15 U.S.C. 78f(b).
\33\ 15 U.S.C. 78f(b)(5).
\34\ Id.
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The Exchange believes that permitting the off-floor transfers in
very limited circumstances such as where there is no change in
beneficial ownership, to contribute to a non-profit corporation, to
transfer to a minor or a transfer by operation of law is reasonable to
allow a TPH to accomplish certain goals efficiently. The rule permits
off-floor transfers in situations involving dissolutions of entities or
accounts, for purposes of donations, mergers or by operation of law.
For example, a TPH that is undergoing a structural change and a one-
time movement of positions may require a transfer of positions or a TPH
that is leaving a firm that will no longer be in business may require a
transfer of positions to another firm. Also, a TPH may require a
transfer of positions to make a capital contribution. The above-
referenced circumstances are non-recurring situations where the
transferor continues to maintain some ownership interest or manage the
positions transferred. By contrast, repeated or routine off-floor
transfers between entities or accounts--even if there is no change in
beneficial ownership as a result of the transfer--is inconsistent with
the purposes for which Rule 6.49A was adopted. Accordingly, the
Exchange believes that such activity should not be permitted under the
rules and thus, seeks to adopt language in proposed paragraph (e) to
Rule 6.49A that the transfer of positions procedures set forth in Rule
6.49A are intended to facilitate non-recurring movements of positions.
The Exchange believes that the proposed rule change to eliminate
the on-floor position transfer procedure promotes just and equitable
principles of trade, helps remove impediments to and perfect the
mechanism of a free and open market and a national market system, and
promotes efficient administration of the Exchange, as it eliminates a
complex procedure that is of limited use to Trading Permit Holders
today but still imposes an administrative burden on the Exchange.
The Exchange believes the proposed rule change benefits investors,
as it adds transparency to the Rules by codifying certain long-standing
guidance regarding what types of off-floor transfers are permissible.
The purpose of the additional circumstances in which market
participants may conduct off-floor transfers is consistent with the
purpose of the circumstances currently permitted in Rule 6.49A.
Therefore, the proposed rule change will provide market participants
that experience these limited, non-recurring events with an efficient
and effective means to transfer positions in these situations. It also
permits presidential exemptions when they are necessary or appropriate
for the maintenance of a fair and orderly market and the protection of
investors and are in the public interest. The Exchange believes the
proposed rule change regarding permissible transfer prices provides
market participants with flexibility to determine the price appropriate
for their business, which maintain cost bases in accordance with normal
accounting practices and removes impediments to a free and open market.
The proposed rule change requiring notice and maintenance of
records will ensure the Exchange is able to review off-floor transfers
for compliance with the Rules, which prevents fraudulent and
manipulative acts and practices. The requirement to retain records is
consistent with the requirements of Rule 17a-3 and 17a-4 under the Act.
As discussed above, the proposed rule change is similar to rules of
other options exchanges, and thus further removes impediments to and
perfects the mechanism of a free and open market.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange 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 does not
believe the proposed rule change will impose any burden on intramarket
competition, as the amended off-floor transfer procedure will apply to
all Trading Permit Holders in the same manner. Use of the off-floor
transfer procedure is voluntary, and all Trading Permit Holders may use
the procedure to transfer position off the floor as long as the
criteria in the proposed rule are satisfied. The current on-floor
position transfer procedure is of limited use to Trading Permit Holders
today but still imposes an administrative burden on the Exchange. The
proposed elimination of the on-floor position transfer promotes
efficient administration of the Exchange, as it eliminates this complex
procedure that is limited in application. Market participants will
still be able to effect transactions on the Exchange pursuant to the
normal auction process if an off-floor transfer is not permissible.
The proposed rule change also provides market participants that
experience the limited permissible, non-recurring events with an
efficient and effective means to transfer positions in these
situations. The Exchange believes the proposed rule change regarding
permissible transfer prices provides market participants with
flexibility to determine the price appropriate for their business,
which determine prices in accordance with normal accounting practices
and removes impediments to a free and open market. The Exchange does
not believe the proposed notice and record requirements are unduly
burdensome to market participants, as they are similar to requirements
in the rules of other options exchanges, as discussed above. The
Exchange believes these are reasonable requirements that will ensure
the Exchange is aware of all off-floor transfers so that it can monitor
and review them to determine whether they are effected in accordance
with the Rules.
The Exchange does not believe the proposed rule change will impose
any burden on intermarket competition. The proposed off-floor position
transfer procedure is not intended to be a competitive trading tool.
The Exchange does not believe the proposed changes to the off-floor
position transfer procedure are material, as they codify certain
longstanding guidance and clarify the procedure. This procedure is
[[Page 44942]]
of limited application during unique circumstances. Additionally, as
discussed above, the proposed rule change in part is similar to rules
of other options exchanges. The Exchange believes having similar rules
related to off-floor transfer positions to those of other options
exchanges will reduce the administrative burden on market participants
of determining whether their off-floor transfers comply with multiple
sets of rules.
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 written 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 [email protected]. Please include
File Number SR-CBOE-2018-060 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2018-060. 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 website (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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CBOE-2018-060 and should be submitted on
or before September 25, 2018.
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\35\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-19060 Filed 8-31-18; 8:45 am]
BILLING CODE 8011-01-P
