Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Delete Rules That Are No Longer Necessary in the Review of Large Positions in Broad-Based Index Options, 10558-10561 [2019-05354]

Download as PDF 10558 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Notices SECURITIES AND EXCHANGE COMMISSION Proposed Collection; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736 amozie on DSK9F9SC42PROD with NOTICES Extension: Form N–8F, SEC File No. 270–136, OMB Control No. 3235–0157 Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (the ‘‘Commission’’) is soliciting comments on the collection of information summarized below. The Commission plans to submit this existing collection of information to the Office of Management and Budget for extension and approval. Form N–8F (17 CFR 274.218) is the form prescribed for use by registered investment companies in certain circumstances to request orders of the Commission declaring that the registration of that investment company cease to be in effect. The form requests information about: (i) The investment company’s identity, (ii) the investment company’s distributions, (iii) the investment company’s assets and liabilities, (iv) the events leading to the request to deregister, and (v) the conclusion of the investment company’s business. The information is needed by the Commission to determine whether an order of deregistration is appropriate. The Form takes approximately 5.2 hours on average to complete. It is estimated that approximately 135 investment companies file Form N–8F annually, so the total annual burden for the form is estimated to be approximately 702 hours. The estimate of average burden hours is made solely for the purposes of the Paperwork Reduction Act and is not derived from a comprehensive or even a representative survey or study. The collection of information on Form N–8F is not mandatory. The information provided on Form N–8F is not kept confidential. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently-valid OMB control number. Written comments are requested on: (i) Whether the collections of information are necessary for the proper performance of the functions of the Commission, including whether the information has practical utility; (ii) the accuracy of the Commission’s estimate VerDate Sep<11>2014 18:27 Mar 20, 2019 Jkt 247001 of the burdens of the collection of information; (iii) ways to enhance the quality, utility, and clarity of the information collected; and (iv) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted in writing within 60 days of this publication. Please direct your written comments to Charles Riddle, Acting Director/Chief Information Officer, Securities and Exchange Commission, C/O Candace Kenner, 100 F Street NE, Washington, DC 20549; or send an email to: PRA_ Mailbox@sec.gov. Dated: March 15, 2019. Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2019–05340 Filed 3–20–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–85328; File No. SR–CBOE– 2019–014] Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Delete Rules That Are No Longer Necessary in the Review of Large Positions in Broad-Based Index Options March 15, 2019. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on March 4, 2019, Cboe Exchange, Inc. (the ‘‘Exchange’’ or ‘‘Cboe Options’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b–4(f)(6) thereunder. 4 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). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b–4(f)(6). 2 17 PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Cboe Exchange, Inc. (the ‘‘Exchange’’ or ‘‘Cboe Options’’) proposes to delete rules that are no longer necessary in the review of large positions in broad-based index options. The text of the proposed rule change is provided in Exhibit 5. The text of the proposed rule change is also available on the Exchange’s website (https://www.cboe.com/ AboutCBOE/CBOELegalRegulatory Home.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 purpose of this rule change is to delete rules that are no longer necessary in the review of large positions in broadbased index options. Specifically, the Exchange proposes to delete Interpretations and Policies .03 (Reporting Requirement) and .04 (Margin and Clearing Firm Requirements) to Rule 24.4. Currently, Interpretation and Policy .03 to Rule 24.4 requires a TPH or TPH organization that maintains a broad-based index option position on the same side of the market in excess of 100,000 contracts for OEX, XEO, NDX, RUT, VIX, VXN, VXD, VXST, S&P 500 Dividend Index, SPX, Cboe S&P 500 a.m./PM Basis, Cboe S&P 500 Three-Month Realized Variance or Cboe S&P 500 Three-Month Realized Volatility and 1 million contracts for BXM (1/10th value) and DJX, for its own account or for the account of a customer, to report information to the Exchange as to whether and how the positions are hedged. Interpretation and Policy .04 to Rule 24.4 currently allows the Exchange to determine whether additional margin is warranted in light of the risks associated with under- E:\FR\FM\21MRN1.SGM 21MRN1 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Notices amozie on DSK9F9SC42PROD with NOTICES hedged options position on the broadbased index products listed in Interpretation and Policy .03 to Rule 24.4. The Exchange believes that the Large Option Position Reporting (‘‘LOPR’’) system hosted by the Options Clearing Corporation (‘‘OCC’’) currently functions as a centralized system and streamlined process for all market participants industry-wide to report large options positions, including those in broad-based index options. This system allows TPHs and TPH organizations to submit their required LOPR files in compliance with Rule 4.13(a), which requires all TPHs to report to the Exchange aggregate long or short positions on the same side of the market of 200 or more contracts of any single class of option contracts. Essentially, OCC through the LOPR system acts as a centralized service provider for TPH compliance with position reporting requirements by collecting data from each TPH or TPH organization, consolidating the information, and ultimately providing detailed listings of each TPH’s or TPH organization’s report to the Exchange.5 Though Rule 24.4(a) (Position Limits for Broad-Based Index Options) provides that there shall be no position limits for broad-based index option contracts on Cboe S&P 500 a.m./PM Basis, Cboe S&P 500 Three-Month Realized Variance, Cboe S&P 500 Three-Month Realized Volatility and on the BXM (1/10th value), DJX, OEX, XEO, NDX, RUT, VIX, VXN, VXD, VXST, S&P 500 Dividend Index, and SPX classes, Rule 4.13(a) still requires all TPHs to file a LOPR, which includes reporting on all options contracts dealt in on the Exchange. As stated, the Exchange currently receives 6 a TPH’s or TPH organization’s LOPR submissions through OCC and its centralized LOPR submission system. The Exchange notes that OCC’s administration of the LOPR submissions to the Exchange will enable the Exchange to better allocate its surveillance resources, focusing on enhanced surveillance of trading to detect potential manipulation and 5 See Securities Exchange Act Release No. 79930 (February 2, 2017), 82 FR 9807 (February 8, 2017) (Notice of Filing and Order Approving and Declaring Effective an Amendment to the Plan for the Allocation of Regulatory Responsibilities Among Participating Organizations Concerning Options-Related Market Surveillance) (4–551) (Approving a multi-party 17d–2 agreement whereby member firms are allocated to the Exchange and other SROs for review for compliance with LOPR reporting requirements). 6 The Exchange itself, as well as Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’), acting as its agent pursuant to a regulatory services agreement (‘‘RSA’’), receive and review LOPR submissions. VerDate Sep<11>2014 18:27 Mar 20, 2019 Jkt 247001 larger, risky positions, rather than focusing on enforcement of requirements under Interpretation and Policy .03 to Rule 24.4. The Exchange believes that its enhanced surveillance will allow it to effectively assess LOPR submissions received through OCC and promptly respond to market concerns at an early stage. Additionally, under current Rule 15.1 (Maintenance, Retention and Furnishing of Books, Records and Other Information), TPHs are required to make available to the Exchange such books, records or other information as may be called for under the Rules or as may be requested in connection with an investigation by the Exchange.7 The Exchange believes the aforementioned processes and procedures eliminate the need for the Exchange to receive essentially duplicative position and hedge documentation for broad-based index options separately from a TPH or TPH organization in accordance with the current Interpretation and Policy .03 to Rule 24.4. Under the current LOPR information gathering and reporting regime and Rule 15.1, such efforts by the Exchange are duplicative and unduly burdensome for TPHs, TPH organizations, and the Exchange. The Exchange thus believes that the proposed rule change will remove duplicative and burdensome procedures. The Exchange notes that it has found no occasion necessary to impose additional margin requirements pursuant to the current Interpretation and Policy .04 to Rule 24.4, as a result of the reporting and review process in connection with Interpretation and Policy .03 to Rule 24.4. The Exchange has found that unhedged or underhedged large option positions have generally not been identified. The Exchange believes this eliminates the need for the receipt of information and documentation from TPHs or TPH organizations as to whether and how their broad-based index option positions are hedged under Interpretation and Policy .03 to Rule 24.4, and any need for the Exchange to raise additional margin in light of under-hedged positions under Interpretation and Policy .04 to Rule 24.4. Further, under Rule 12.10 (Margin Required Is Minimum) the Exchange currently may impose higher margin requirements when it deems such higher margin requirements to be advisable. As a result, the Exchange believes that the proposed rule changes 7 The Exchange notes that ‘‘in connection with an investigation’’ broadly encompasses any request made by the Exchange for information which may lead to the initiation of a formal investigation. PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 10559 will serve to benefit investors by removing duplicative and burdensome procedures. Additionally, the Exchange believes that risk review and controls, including hedge strategy implementation and assessment of credit and margin, are most efficient and effective at the TPH level. Currently, the Exchange understands TPHs and TPH organizations generally have their own internal risk management processes and procedures in place for reviewing, identifying and controlling risk of large option positions, including hedges for those positions. Moreover, under Rule 15.8A (Risk Analysis of Portfolio Margin Accounts), TPH organizations that maintain any portfolio margin accounts for customers are currently required to establish and maintain a comprehensive written risk analysis methodology for assessing and monitoring the potential risk to the TPH organization’s capital over a specified range of possible market movements of positions maintained in such accounts. Specifically, Rule 15.8A(c) requires a TPH organization that maintains any portfolio margin accounts for customers to incorporate specific and thorough procedures and guidelines into its written risk methodology for monitoring credit risk exposure to the TPH organization on both an intra-day and end of day basis, managing the impact of credit extension on the TPH organization’s overall risk exposure, the appropriate response by management when limits on credit extensions have been exceeded, determining the need to collect additional margin, and so on. The Exchange believes that the rules described above pursuant to which it can receive information from TPHs regarding hedges of their positions in broad-based index options are less burdensome and more efficient than the process used pursuant to Interpretations and Policies .03 and .04 of Rule 24.4, making those rule provisions redundant and no longer necessary. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the ‘‘Act’’) and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.8 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 9 requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and 8 15 9 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). E:\FR\FM\21MRN1.SGM 21MRN1 amozie on DSK9F9SC42PROD with NOTICES 10560 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Notices 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) 10 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. In particular, the Exchange believes that removing the duplicative and burdensome processes in connection with Interpretations and Policies .03 and .04 to Rule 24.4 will serve 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 benefit investors. Specifically, the Exchange believes that the receipt of LOPR reports from OCC and other Exchange Rules provide it with a more efficient means to receive the same information as it receives, and take the same action it may take, pursuant to Rule 24.4, Interpretations and Policies .03 and .04. As stated, the Exchange believes that its receipt of LOPR submissions through OCC will allow for it to allocate enhanced surveillance resources to assessing the LOPR submissions and detecting and deterring any concerning market behavior or trading abuses at an early stage, thereby protecting investors by removing impediments to and perfecting the mechanism of a free and open market and national market system. The Exchange further believes that removing the reporting requirement under Interpretation and Policy .03 to Rule 24.4 will benefit investors by removing a duplicative and thus unnecessary reporting and documentation step. The Exchange also believes the proposed rule change is consistent with Section 6(b)(1) of the Act,11 which provides that the Exchange be organized and have the capacity to be able to carry out the purposes of the Act and to enforce compliance by the Exchange’s Trading Permit Holders and persons associated with its Trading Permit Holders with the Act, the rules and 10 Id. 11 15 U.S.C. 78f(b)(1). VerDate Sep<11>2014 18:27 Mar 20, 2019 Jkt 247001 regulations thereunder, and the rules of the Exchange. In particular, the Exchange currently has the capacity under other Exchange Rules to be able to enforce compliance by TPH and TPH organizations related to submission of appropriate hedge information and imposing sufficient margin on large broad-based-index options positions. The Exchange believes that removing redundant and unnecessary rules will allow for the Exchange to be organized and better able to carry out the purposes of the Act and enforce compliance. investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. 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. In particular, the proposed rule changes are not intended to address competitive issues but rather are concerned with facilitating less burdensome and more efficient regulatory compliance. The Exchange believes the proposed rule changes reduces reporting burdens on all market participants equally. Electronic Comments C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days after the date of the filing, or such shorter time as the Commission may designate, it has become effective pursuant to 19(b)(3)(A) of the Act 12 and Rule 19b–4(f)(6) 13 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of 12 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 13 17 PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 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: • 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–2019–014 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–2019–014. 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–2019–014 and E:\FR\FM\21MRN1.SGM 21MRN1 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Notices should be submitted on or before April 11, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2019–05354 Filed 3–20–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Proposed Collection; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736 amozie on DSK9F9SC42PROD with NOTICES Extension: Order Granting Conditional Exemptions under the Securities Exchange Act of 1934 in Connection with Portfolio Margining of Swaps and Security-Based Swaps, SEC File No. S7–13–12, OMB Control No. 3235–0698 Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (‘‘PRA’’) (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (‘‘Commission’’) is soliciting comments on the existing collection of information provided for in the Order Granting Conditional Exemptions Under the Securities Exchange Act of 1934 (‘‘Exchange Act’’) in Connection with Portfolio Margining of Swaps and Security-Based Swaps, Exchange Act Release No. 68433 (Dec. 14, 2012), 77 FR 75211 (Dec. 19, 2012) (‘‘Order’’). The Commission plans to submit this existing collection of information to the Office of Management and Budget (‘‘OMB’’) for extension and approval. On December 14, 2012, the Commission found it necessary or appropriate in the public interest and consistent with the protection of investors to grant the conditional exemptions discussed in the Order. Among other things, the Order requires dually-registered broker-dealer and futures commission merchants (‘‘BD/ FCMs’’) that elect to offer a program to commingle and portfolio margin customer positions in credit default swaps (‘‘CDS’’) in customer accounts maintained in accordance with Section 4d(f) of the Commodity Exchange Act (‘‘CEA’’) and rules thereunder, to obtain certain agreements and opinions from its customers regarding the applicable regulatory regime, and to make certain disclosures to its customers before 14 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 18:27 Mar 20, 2019 Jkt 247001 receiving any money, securities, or property of a customer to margin, guarantee, or secure positions consisting of cleared CDS, which include both swaps and security-based swaps, under a program to commingle and portfolio margin CDS. The Order also requires BD/FCMs that elect to offer a program to commingle and portfolio margin CDS positions in customer accounts maintained in accordance with Section 4d(f) of the CEA and rules thereunder, to maintain minimum margin levels using a margin methodology approved by the Commission or the Commission staff. The Commission estimates that 35 firms may seek to avail themselves of the conditional exemptive relief provided by the Order and therefore would be subject to the information collection. The Commission bases this estimate on the total number of entities that are dually registered as brokerdealers and futures commission merchants. The Commission estimates that the aggregate annual time burden for all of the 35 respondents is approximately 22,517 hours calculated as follows: (a) Based on information that the Commission receives on a monthly basis, the Commission estimates that each respondent will have, on average, 34 non-affiliate credit default swap customers. The Commission further estimates for each such customer, a respondent will spend approximately 20 hours developing a non-conforming subordination agreement under paragraph IV(b)(1)(ii) of the Order. The Commission therefore estimates that the burden associated with entering into non-conforming subordination agreements with non-affiliate cleared credit default swap customers under paragraph IV(b)(1)(ii) of the Order will impose an initial, one-time average burden of 680 hours (34 non-affiliate customers times 20 hours per customer) per respondent and an aggregate burden of 23,800 hours for all 35 respondents (680 × 35). This burden is a third-party disclosure burden. (b) The Commission estimates that each respondent will have, on average, 11 affiliate credit default swap customers and that for each such customer, a respondent will spend approximately 20 hours developing a non-conforming subordination agreement under paragraph IV(b)(2)(ii) of the Order. The Commission therefore estimates that the burden associated with entering into non-conforming subordination agreements with affiliate cleared credit default swap customers under paragraph IV(b)(2)(ii) of the Order will impose an initial, one-time burden PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 10561 of 220 hours per respondent (11 affiliate customers times 20 hours per customer) and an aggregate burden of 7,700 hours for all 35 respondents (220 × 35) . This burden is a third-party disclosure burden. (c) The Commission estimates that for each affiliate cleared credit default swap customer a respondent will spend approximately 2 hours developing and reviewing the required opinion of counsel under paragraph IV(b)(2)(iii) of the Order. The Commission therefore estimates that the burden associated with obtaining opinions of counsel from affiliate cleared credit default swap customers under paragraph IV(b)(2)(iii) of the Order will impose an initial, onetime burden of 22 hours per respondent (11 affiliate customers times 2 hours per customer) and an aggregate burden for all 35 respondents of 770 hours (22 × 35). This burden is a third-party disclosure burden. (d) The Commission estimates that the burden associated with seeking the Commission’s approval of margin methodologies under paragraph IV(b)(3) of the Order will impose an initial, onetime burden of 1,000 hours per respondent and an aggregate burden for all 35 respondents of 35,000 hours (1,000 × 35) . This burden is a reporting burden. (e) The Commission estimates that the burden associated with disclosing information to customers under paragraph IV(b)(6) of the Order will impose an initial, one-time burden of 8 hours per respondent and an aggregate burden for all 35 respondents of 280 hours (8 × 35). This burden is a thirdparty disclosure burden. The total aggregate one-time burden for all 35 respondents is thus 67,550 hours (32,550 third party disclosure + 35,000 reporting). Amortized over three years, the aggregate burden per year is approximately 22,517 hours. The Commission estimates that each respondent will incur a one-time cost of $8,000 in outside legal counsel expenses in connection with obtaining opinions of counsel from affiliate cleared credit default swap customers under paragraph IV(b)(2)(iii) of the Order, calculated as follows: (20 hours to obtain opinions of counsel from affiliate cleared credit default swap customers under paragraph IV(b)(2)(iii) of the Order) × ($400 per hour for outside legal counsel) = $8,000. The one-time aggregate burden for all 35 respondents is thus $280,000 (8,000 × 35), or approximately $93,333 per year when amortized over three years. Written comments are invited on: (a) Whether the proposed collection of information is necessary for the proper E:\FR\FM\21MRN1.SGM 21MRN1

Agencies

[Federal Register Volume 84, Number 55 (Thursday, March 21, 2019)]
[Notices]
[Pages 10558-10561]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05354]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85328; File No. SR-CBOE-2019-014]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Delete 
Rules That Are No Longer Necessary in the Review of Large Positions in 
Broad-Based Index Options

March 15, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 4, 2019, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe 
Options'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The Exchange 
filed the proposal as a ``non-controversial'' proposed rule change 
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder. \4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to delete rules that are no longer necessary in the review of large 
positions in broad-based index options. The text of the proposed rule 
change is provided in Exhibit 5.
    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 purpose of this rule change is to delete rules that are no 
longer necessary in the review of large positions in broad-based index 
options. Specifically, the Exchange proposes to delete Interpretations 
and Policies .03 (Reporting Requirement) and .04 (Margin and Clearing 
Firm Requirements) to Rule 24.4. Currently, Interpretation and Policy 
.03 to Rule 24.4 requires a TPH or TPH organization that maintains a 
broad-based index option position on the same side of the market in 
excess of 100,000 contracts for OEX, XEO, NDX, RUT, VIX, VXN, VXD, 
VXST, S&P 500 Dividend Index, SPX, Cboe S&P 500 a.m./PM Basis, Cboe S&P 
500 Three-Month Realized Variance or Cboe S&P 500 Three-Month Realized 
Volatility and 1 million contracts for BXM (1/10th value) and DJX, for 
its own account or for the account of a customer, to report information 
to the Exchange as to whether and how the positions are hedged. 
Interpretation and Policy .04 to Rule 24.4 currently allows the 
Exchange to determine whether additional margin is warranted in light 
of the risks associated with under-

[[Page 10559]]

hedged options position on the broad-based index products listed in 
Interpretation and Policy .03 to Rule 24.4.
    The Exchange believes that the Large Option Position Reporting 
(``LOPR'') system hosted by the Options Clearing Corporation (``OCC'') 
currently functions as a centralized system and streamlined process for 
all market participants industry-wide to report large options 
positions, including those in broad-based index options. This system 
allows TPHs and TPH organizations to submit their required LOPR files 
in compliance with Rule 4.13(a), which requires all TPHs to report to 
the Exchange aggregate long or short positions on the same side of the 
market of 200 or more contracts of any single class of option 
contracts. Essentially, OCC through the LOPR system acts as a 
centralized service provider for TPH compliance with position reporting 
requirements by collecting data from each TPH or TPH organization, 
consolidating the information, and ultimately providing detailed 
listings of each TPH's or TPH organization's report to the Exchange.\5\ 
Though Rule 24.4(a) (Position Limits for Broad-Based Index Options) 
provides that there shall be no position limits for broad-based index 
option contracts on Cboe S&P 500 a.m./PM Basis, Cboe S&P 500 Three-
Month Realized Variance, Cboe S&P 500 Three-Month Realized Volatility 
and on the BXM (1/10th value), DJX, OEX, XEO, NDX, RUT, VIX, VXN, VXD, 
VXST, S&P 500 Dividend Index, and SPX classes, Rule 4.13(a) still 
requires all TPHs to file a LOPR, which includes reporting on all 
options contracts dealt in on the Exchange. As stated, the Exchange 
currently receives \6\ a TPH's or TPH organization's LOPR submissions 
through OCC and its centralized LOPR submission system. The Exchange 
notes that OCC's administration of the LOPR submissions to the Exchange 
will enable the Exchange to better allocate its surveillance resources, 
focusing on enhanced surveillance of trading to detect potential 
manipulation and larger, risky positions, rather than focusing on 
enforcement of requirements under Interpretation and Policy .03 to Rule 
24.4. The Exchange believes that its enhanced surveillance will allow 
it to effectively assess LOPR submissions received through OCC and 
promptly respond to market concerns at an early stage. Additionally, 
under current Rule 15.1 (Maintenance, Retention and Furnishing of 
Books, Records and Other Information), TPHs are required to make 
available to the Exchange such books, records or other information as 
may be called for under the Rules or as may be requested in connection 
with an investigation by the Exchange.\7\ The Exchange believes the 
aforementioned processes and procedures eliminate the need for the 
Exchange to receive essentially duplicative position and hedge 
documentation for broad-based index options separately from a TPH or 
TPH organization in accordance with the current Interpretation and 
Policy .03 to Rule 24.4. Under the current LOPR information gathering 
and reporting regime and Rule 15.1, such efforts by the Exchange are 
duplicative and unduly burdensome for TPHs, TPH organizations, and the 
Exchange. The Exchange thus believes that the proposed rule change will 
remove duplicative and burdensome procedures.
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    \5\ See Securities Exchange Act Release No. 79930 (February 2, 
2017), 82 FR 9807 (February 8, 2017) (Notice of Filing and Order 
Approving and Declaring Effective an Amendment to the Plan for the 
Allocation of Regulatory Responsibilities Among Participating 
Organizations Concerning Options-Related Market Surveillance) (4-
551) (Approving a multi-party 17d-2 agreement whereby member firms 
are allocated to the Exchange and other SROs for review for 
compliance with LOPR reporting requirements).
    \6\ The Exchange itself, as well as Financial Industry 
Regulatory Authority, Inc. (``FINRA''), acting as its agent pursuant 
to a regulatory services agreement (``RSA''), receive and review 
LOPR submissions.
    \7\ The Exchange notes that ``in connection with an 
investigation'' broadly encompasses any request made by the Exchange 
for information which may lead to the initiation of a formal 
investigation.
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    The Exchange notes that it has found no occasion necessary to 
impose additional margin requirements pursuant to the current 
Interpretation and Policy .04 to Rule 24.4, as a result of the 
reporting and review process in connection with Interpretation and 
Policy .03 to Rule 24.4. The Exchange has found that unhedged or under-
hedged large option positions have generally not been identified. The 
Exchange believes this eliminates the need for the receipt of 
information and documentation from TPHs or TPH organizations as to 
whether and how their broad-based index option positions are hedged 
under Interpretation and Policy .03 to Rule 24.4, and any need for the 
Exchange to raise additional margin in light of under-hedged positions 
under Interpretation and Policy .04 to Rule 24.4. Further, under Rule 
12.10 (Margin Required Is Minimum) the Exchange currently may impose 
higher margin requirements when it deems such higher margin 
requirements to be advisable. As a result, the Exchange believes that 
the proposed rule changes will serve to benefit investors by removing 
duplicative and burdensome procedures.
    Additionally, the Exchange believes that risk review and controls, 
including hedge strategy implementation and assessment of credit and 
margin, are most efficient and effective at the TPH level. Currently, 
the Exchange understands TPHs and TPH organizations generally have 
their own internal risk management processes and procedures in place 
for reviewing, identifying and controlling risk of large option 
positions, including hedges for those positions. Moreover, under Rule 
15.8A (Risk Analysis of Portfolio Margin Accounts), TPH organizations 
that maintain any portfolio margin accounts for customers are currently 
required to establish and maintain a comprehensive written risk 
analysis methodology for assessing and monitoring the potential risk to 
the TPH organization's capital over a specified range of possible 
market movements of positions maintained in such accounts. 
Specifically, Rule 15.8A(c) requires a TPH organization that maintains 
any portfolio margin accounts for customers to incorporate specific and 
thorough procedures and guidelines into its written risk methodology 
for monitoring credit risk exposure to the TPH organization on both an 
intra-day and end of day basis, managing the impact of credit extension 
on the TPH organization's overall risk exposure, the appropriate 
response by management when limits on credit extensions have been 
exceeded, determining the need to collect additional margin, and so on. 
The Exchange believes that the rules described above pursuant to which 
it can receive information from TPHs regarding hedges of their 
positions in broad-based index options are less burdensome and more 
efficient than the process used pursuant to Interpretations and 
Policies .03 and .04 of Rule 24.4, making those rule provisions 
redundant and no longer necessary.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and

[[Page 10560]]

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) \10\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
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    In particular, the Exchange believes that removing the duplicative 
and burdensome processes in connection with Interpretations and 
Policies .03 and .04 to Rule 24.4 will serve 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 benefit 
investors. Specifically, the Exchange believes that the receipt of LOPR 
reports from OCC and other Exchange Rules provide it with a more 
efficient means to receive the same information as it receives, and 
take the same action it may take, pursuant to Rule 24.4, 
Interpretations and Policies .03 and .04. As stated, the Exchange 
believes that its receipt of LOPR submissions through OCC will allow 
for it to allocate enhanced surveillance resources to assessing the 
LOPR submissions and detecting and deterring any concerning market 
behavior or trading abuses at an early stage, thereby protecting 
investors by removing impediments to and perfecting the mechanism of a 
free and open market and national market system. The Exchange further 
believes that removing the reporting requirement under Interpretation 
and Policy .03 to Rule 24.4 will benefit investors by removing a 
duplicative and thus unnecessary reporting and documentation step.
    The Exchange also believes the proposed rule change is consistent 
with Section 6(b)(1) of the Act,\11\ which provides that the Exchange 
be organized and have the capacity to be able to carry out the purposes 
of the Act and to enforce compliance by the Exchange's Trading Permit 
Holders and persons associated with its Trading Permit Holders with the 
Act, the rules and regulations thereunder, and the rules of the 
Exchange.
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    \11\ 15 U.S.C. 78f(b)(1).
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    In particular, the Exchange currently has the capacity under other 
Exchange Rules to be able to enforce compliance by TPH and TPH 
organizations related to submission of appropriate hedge information 
and imposing sufficient margin on large broad-based-index options 
positions. The Exchange believes that removing redundant and 
unnecessary rules will allow for the Exchange to be organized and 
better able to carry out the purposes of the Act and enforce 
compliance.

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. In particular, the proposed 
rule changes are not intended to address competitive issues but rather 
are concerned with facilitating less burdensome and more efficient 
regulatory compliance. The Exchange believes the proposed rule changes 
reduces reporting burdens on all market participants equally.

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

    The Exchange neither solicited nor received comments on the 
proposed rule change.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(6) \13\ 
thereunder.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2019-014 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-2019-014. 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-2019-014 and

[[Page 10561]]

should be submitted on or before April 11, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05354 Filed 3-20-19; 8:45 am]
BILLING CODE 8011-01-P
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