Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend Rule 6.49A Concerning Off-Floor Position Transfers Including RWA Transfers, 35438-35446 [2019-15561]
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Federal Register / Vol. 84, No. 141 / Tuesday, July 23, 2019 / Notices
proposed rule change would allow the
Exchange to remove an order type that
no Member uses today, and eliminate
unnecessary and inaccurate references
to AONs within its opening rule,
thereby making clear the order types
available for trading on the Exchange
and reducing potential confusion.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
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 from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 12 and
subparagraph (f)(6) of Rule 19b–4
thereunder.13
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:
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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–
ISE–2019–20 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–ISE–2019–20. 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–ISE–2019–20 and should be
submitted on or before August 13, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–15563 Filed 7–22–19; 8:45 am]
BILLING CODE 8011–01–P
12 15
U.S.C. 78s(b)(3)(A)(iii).
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
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86400; File No. SR–CBOE–
2019–035]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing of a
Proposed Rule Change To Amend Rule
6.49A Concerning Off-Floor Position
Transfers Including RWA Transfers
July 17, 2019.
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 July 3,
2019, 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
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to amend
Rule 6.49A. 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/CBOELegal
RegulatoryHome.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.
1 15
14 17
CFR 200.30–3(a)(12).
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2 17
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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 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 off the
trading floor, notwithstanding the
prohibition in Rule 6.49(a).3
Current Rule 6.49A(a) lists the
circumstances in which Trading Permit
Holders may transfer their positions off
the floor. The circumstances currently
listed include: (1) The dissolution of a
joint account in which the remaining
Trading Permit Holder assumes the
positions of the joint account; (2) the
dissolution of a corporation or
partnership in which a former nominee
of the corporation or partnership
assumes the positions; (3) positions
transferred as part of a Trading Permit
Holder’s capital contribution to a new
joint account, partnership, or
corporation; (4) the donation of
positions to a not-for-profit corporation;
(5) the transfer of positions to a minor
under the Uniform Gifts to Minor law;
and (6i) a merger or acquisition where
continuity of ownership or management
results.4
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 (‘‘CTPH’’) may be transferred off
the Exchange (an ‘‘off-floor transfer’’) if
the off-floor transfer involves one of the
events listed in the Rule.5 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.6 It also clarifies that a
Trading Permit Holder or CTPH must be
on at least one side of the transfer. The
proposed rule change also clarifies that
transferred positions must be on, from,
or to the books of a CTPH. This language
is consistent with how off-floor transfers
are currently effected. The proposed
rule change also clarifies that existing
positions of a Trading Permit Holder or
a non-Trading Permit Holder may be
subject to an off-floor transfer, except
under specified circumstances in which
a transfer may only be effected for
positions of a Trading Permit Holder
may.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.8
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
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.9
• 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 10),
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6 Proposed
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 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).
5 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 CTPH to another
Non-Trading Permit Holder pursuant to the
proposed rule.
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paragraph (h) also clarifies that the offfloor 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.
7 See proposed subparagraphs (a)(5) and (7).
8 See proposed paragraph (h).
9 See Cboe Options Regulatory Circular RG03–62
(July 24, 2003). 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).
10 Rule 1.1 defines ‘‘Person’’ as an individual,
partnership (general or limited), joint stock
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35439
provided the accounts are not in
separate aggregation units or otherwise
subject to information barrier or account
segregation requirements.11 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.12
• Proposed subparagraph (a)(3)
similarly permits an off-floor transfer if
it is a consolidation of accounts 13 where
no change in ownership is involved.
This proposed rule change is similar to
rules of other options exchanges.14
• 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.15 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.
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.16 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) through (5)
to be proposed subparagraphs (a)(5)
through (9) and moves current
subparagraph (a)(6) to proposed
company, corporation, limited liability company,
trust or unincorporated organization, or any
governmental entity or agency or political
subdivision thereof.
11 The proposed rule change is similar to CFE
Rule 420(a)(ii).
12 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.
13 This refers to the consolidation of entire
accounts (e.g., combining two separate accounts
(including the positions in each account into a
single account)).
14 See, e.g., Phlx Rule 1058(a)(7); and Arca Rule
6.78–O(d)(1)(vii).
15 The proposed rule change is similar to CFE
Rule 420(a)(iii).
16 See proposed paragraph (g).
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subparagraph (a)(4), with
nonsubstantive changes. These
permissible circumstances for off-floor
transfers are consistent with the rules of
other options exchanges.17
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 paragraph (b)
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.18 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, the Exchange notes that a
Market Maker’s utilization of a Clearing
Corporation Universal Market-Maker
Subaccount would not be viewed as
netting. A ‘‘Universal Market-Maker
Subaccount’’ is an automated services
provided by the Clearing Corporation
whereby the Clearing Corporation
directs transactions into a ‘‘universal’’
market maker subaccount for a
designated market maker or designated
group of market makers that trade across
multiple options exchanges. This
service was created by the Clearing
Corporation to assist market making
firms that may have employees (or
units) that trade across multiple
exchanges, with each exchange
identifying such employees (or units)
with a different acronym(s). The
Clearing Corporation’s Universal Market
Maker Subaccount service ensures that
all trades entered into by a marketmaking firm are automatically directed
to a specific subaccount of its clearing
firm at the Clearing Corporation for
position and margin processing
17 See, e.g., Phlx Rule 1058(a)(1) through (6); and
Arca Rule 6.78–O(d)(1)(i) through (vi).
18 See Cboe Options Regulatory Circular RG03–62
(July 24, 2003). 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).
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purposes.19 Under this process,
positions cleared into a Universal
Market Maker Subaccount would
automatically net against each other.
Universal Market Maker Subaccounts
are generally used because options
exchanges traditionally utilized
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
if it did not utilize a Universal Market
Maker Subaccount (in which account
the positions may net). The proposed
rule change would not view the use of
a Universal Market Maker Subaccount
in this circumstance as netting that
would not be permitted.20
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 CTPH, in which case the records
of the transfer must indicate the original
trade dates for the positions; 21
provided, transfers to correct errors
bona fide errors pursuant to proposed
subparagraph (a)(1) must be transferred
at the correct original trade prices;
19 See, e.g., Securities Exchange Act Release
73577 (November 12, 2014) (SR–OCC–2014–20); see
also Cboe Options Regulatory Circular RG03–62
(July 24, 2003) (which discusses the Clearing
Corporation’s automated process prior to it being
formally titled the ‘‘Universal Market Maker
Subaccount’’ program).
20 Additionally, if a Market-Maker makes an
internal book-entry to reflect a ‘‘transfer’’ of
positions within the same account (for example, if
a Market-Maker attributes positions within a single
account to specific individual traders for its own
records, and makes another internal book-entry to
‘‘transfer’’ the positions attributed to one individual
to another within the same account, but does not
transfer the positions out of the account), the
Exchange does not view this as a transfer prohibited
by Rule 6.49 or Rule 6.49A. The Exchange notes
that, with these book-entry transfers, there can be
no netting of positions within the same account.
21 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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(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; 22 or
(4) the then-current market price of
the positions at the time the off-floor
transfer is effected.23
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 CTPH (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).24 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 CTPH(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
22 For example, for a transfer that occurs on a
Tuesday, the transfer price may be based on the
closing market price on Monday.
23 The proposed rule change is similar to CFE
Rule 420(c).
24 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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Federal Register / Vol. 84, No. 141 / Tuesday, July 23, 2019 / Notices
options exchanges.25 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 CTPHs 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 CTPH that is a party to an offfloor 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 CTPH provide. The
proposed rule change is similar to rules
of other options exchanges.26
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 or a designee. The
proposed rule change changes the term
Transferor to Trading Permit Holder or
CTPH, as a Trading Permit Holder’s or
CTPH’s positions will be involved in
any off-floor transfer (as set forth in
proposed paragraph (a)).
Proposed paragraph (i) is intended to
facilitate the reduction of risk-weighted
assets attributable to open options
positions and make other conforming
changes. SEC Rule 15c3–1 (Net Capital
Requirements for Brokers or Dealers)
(‘‘Net Capital Rules’’) requires registered
broker-dealers, unless otherwise
excepted, to maintain certain specified
minimum levels of capital.27 The Net
Capital Rules are designed to protect
securities customers, counterparties,
and creditors by requiring that brokerdealers have sufficient liquid resources
on hand, at all times, to meet their
financial obligations. Notably, hedged
positions, including offsetting futures
and options contract positions, result in
certain net capital requirement
25 See,
e.g., Phlx Rule 1058(b) and (c); and Arca
Rule 6.78–O(d)(2).
26 See, e.g., Phlx Rule 1058(c); and Arca Rule
6.78–O(c).
27 17 CFR 240.15c3–1.
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reductions under the Net Capital
Rules.28
Subject to certain exceptions,
CTPHs 29 are subject to the Net Capital
Rules.30 However, a subset of CTPHs are
subsidiaries of U.S. bank holding
companies, which, due to their
affiliations with their parent U.S.-bank
holding companies, must comply with
additional bank regulatory capital
requirements pursuant to rulemaking
required under the Dodd-Frank Wall
Street Reform and Consumer Protection
Act.31 Pursuant to this mandate, the
Board of Governors of the Federal
Reserve System, the Office of the
Comptroller of the Currency, and the
Federal Deposit Insurance Corporation
have approved a regulatory capital
framework for subsidiaries of U.S. bank
holding company clearing firms.32
Generally, these rules, among other
things, impose higher minimum capital
and higher asset risk weights than were
previously mandated for CTPHs that are
subsidiaries of U.S. bank holding
companies under the Net Capital Rules.
Furthermore, the new rules do not fully
permit deductions for hedged securities
or offsetting options positions.33 Rather,
capital charges under these standards
are, in large part, based on the aggregate
notional value of short positions
regardless of offsets. As a result, in
general, CTPHs that are subsidiaries of
U.S. bank holding companies must hold
substantially more bank regulatory
28 In addition, the Net Capital Rules permit
various offsets under which a percentage of an
option position’s gain at any one valuation point is
allowed to offset another position’s loss at the same
valuation point (e.g., vertical spreads).
29 All CTPHs must also be clearing members of
The Options Clearing Corporation (‘‘OCC’’).
30 Assuming the Commission approves the
proposed rule change, in the event federal
regulators modify bank capital requirements in the
future, the Exchange will reevaluate the proposed
rule change at that time to determine whether any
corresponding changes to the proposed rule are
appropriate.
31 H.R. 4173 (amending section 3(a) of the
Securities Exchange Act of 1934 (the ‘‘Act’’) (15
U.S.C. 78c(a))).
32 12 CFR 50; 79 FR 61440 (Liquidity Coverage
Ratio: Liquidity Risk Measurement Standards).
33 Many options strategies, including relatively
simple strategies often used by retail customers and
more sophisticated strategies used by brokerdealers, are risk-limited strategies or options spread
strategies that employ offsets or hedges to achieve
certain investment outcomes. Such strategies
typically involve the purchase and sale of multiple
options (and may be coupled with purchases or
sales of the underlying securities), executed
simultaneously as part of the same strategy. In
many cases, the potential market exposure of these
strategies is limited and defined. While regulatory
capital requirements have historically reflected the
risk-limited nature of carrying offsetting positions,
these positions may now be subject to higher
regulatory capital requirements.
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35441
capital than would otherwise be
required under the Net Capital Rules.
The Exchange believes these higher
regulatory capital requirements may
impact liquidity in the listed options
market by limiting the amount of capital
CTPHs can allocate to their clients’
transactions. Specifically, the rules may
cause CTPHs to impose stricter position
limits on their client clearing members.
These stricter position limits may
impact the liquidity market participants
may provide, including liquidity
Market-Makers may provide in their
appointed classes. This impact may be
compounded when a CTPH has
multiple client accounts, each having
largely risk-neutral portfolio holdings.34
The Exchange believes that permitting
market participants to efficiently
transfer existing options positions
through an off-floor transfer process
may assist CTPHs and TPHs to address
bank regulatory capital requirements
and would likely have a beneficial effect
on continued liquidity in the options
market without adversely affecting
market quality.
Liquidity in the listed options market
is critically important. However, bank
capital regulations that govern bankaffiliated clearing firms are negatively
impacting the ability of Trading Permit
Holders, including Market-Makers, that
clear options transactions through bankaffiliated clearing firms to provide
liquidity. In order to mitigate the
potential negative effects of these
additional bank regulatory capital
requirements, the proposed rule change
provides market participants with an
efficient mechanism to transfer their
open options positions from one
clearing account to another clearing
account. The Exchange believes the
proposed rule change will increase
liquidity in the listed options market
and promote more efficient capital
deployment in light of bank regulatory
capital requirements.
The Exchange has previously adopted
Rules 6.56 and 6.57 to provide Trading
Permit Holders with tools to reduce
risk-weighted assets attributable to their
open positions in S&P 500 options
(‘‘SPX options’’). However, the
procedures in those rules involve
transactions that must occur on the
Exchange’s trading floor to close open
positions. Therefore, a market
participant must find a counterparty
and be willing to close positions to use
34 A number of TPHs, including Market-Makers,
have informed the Exchange that the heightened
bank regulatory requirements could impact their
ability to provide consistent liquidity in the market
unless they are able to efficiently transfer their open
positions out of clearing accounts of U.S.-bank
affiliated clearing firms.
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either of these tools. As a result, these
procedures are less efficient, less
flexible, and more burdensome means to
reduce risk-weighted assets attributable
to open options positions than an offfloor transfer of such positions.
Additionally, these tools are currently
limited to SPX options, due to the large
notional size of those options, which
compounds the negative impact of bank
capital requirements, and Rule 6.57 is
limited to Market-Makers (Rule 6.56 is
available to all Trading Permit Holders).
However, bank capital requirements
apply to positions in all listed options,
and may impact all client clearing
members of clearing firms affiliated
with U.S.-bank holding companies, and
clearing firms may request that MarketMakers and non-Market-Makers reduce
positions in listed options in addition to
SPX. There is currently no mechanism
firms may use to transfer positions
between clearing accounts without
having to effect a transaction with
another party and close a position.
Rule 6.49A(a), currently and as
proposed, permits positions to be
transferred off the floor of the Exchange
in specified limited circumstances,
including a transfer of positions from
one account to another account where
no change in ownership is involved,
provided the accounts are not in
separate aggregation units or otherwise
subject to information barrier or account
segregation requirements.35 If a Trading
Permit Holder wanted to transfer open
positions from a clearing account it has
with one a bank-affiliated clearing firm
to a clearing account it has with a nonbank-affiliated clearing firm, for
example, such a transfer would result in
no change in ownership. However,
paragraph (g) restricts transfers pursuant
to that provision to non-routine, nonrecurring movements of positions, and
does not permit use of the off-floor
transfer procedure to be used repeatedly
or routinely in circumvention of the
normal auction market process. To
comply with clearing firms’ position
limits they may impose on market
participants’ because they need to limit
capital they may allocate for those
market participants’ transactions,
market participants may need to
regularly reduce open positions or limit
additional positions in their accounts
with such clearing firms’ to
accommodate bank capital
requirements. Rule 6.49A does not
permit regular transfers of positions
between accounts at different clearing
firms.
Proposed Rule 6.49A(i) is intended to
provide market participants with an
35 Rule
6.49A(a)(2).
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additional tool they may use to address
the issues raised by bank capital
requirements for positions in all listed
options in an efficient manner that
provides market participants with
flexibility to do so in accordance with
their businesses and risk management
practices. Proposed paragraph (i)
provides that notwithstanding
paragraphs (a), (b) (which prohibits offfloor position transfers to result in
netting), and (g) (which prohibits
recurring, regular transfers), existing
positions in options listed on the
Exchange of a Trading Permit Holder or
non-Trading Permit Holder (including
an affiliate of a Trading Permit Holder)
may be transferred on, from, or to the
books of a CTPH off the Exchange if the
transfer establishes a net reduction of
risk-weighted assets attributable to those
options positions (an ‘‘RWA
Transfer’’).36 The proposed rule adds
examples of two transfers that would be
deemed to establish a net reduction of
risk-weighted assets, and thus qualify as
a permissible RWA Transfer:
• A transfer of options positions from
Clearing Corporation member A to
Clearing Corporation member B that net
(offset) with positions held at Clearing
Corporation member B, and thus closes
all or part of those positions (as
demonstrated in the example below); 37
and
• A transfer of options positions from
a bank-affiliated Clearing Corporation
member to a non-bank-affiliated
Clearing Corporation member.38
These transfers will not result in a
change in ownership, as they must
occur between accounts of the same
Person.39 Rule 1.1 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. In other
words, RWA transfers may only occur
between the same individual or legal
entity. These are merely transfers from
one clearing account to another, both of
which are attributable to the same
individual or legal entity. A market
participant effecting an RWA Transfer is
analogous to an individual transferring
36 The proposed rule change makes conforming
changes to paragraph (g).
37 This transfer would establish a net reduction of
risk-weighted assets attributable to the transferring
Person, because there would be fewer open
positions and thus fewer assets subject to Net
Capital Rules.
38 This transfer would establish a net reduction of
risk-weighted assets attributable to the transferring
Person, because the non-bank-affiliated Clearing
Corporation member would not be subject to Net
Capital Rules, as described above.
39 See proposed Rule 6.49A(b)(3)(D).
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funds from a checking account to a
savings account, or from an account at
one bank to an account at another
bank—the money still belongs to the
same person, who is just holding it in
a different account for personal
financial reasons.
For example, Market-Maker A clears
transactions on the Exchange into an
account it has with CTPH X, which is
affiliated with a U.S-bank holding
company. Market-Maker A opens a
clearing account with CTPH Y, which is
not affiliated with a U.S.-bank holding
company. CTPH X has informed MarketMaker A that its open positions may not
exceed a certain amount at the end of
a calendar month, or it will be subject
to restrictions on new positions it may
open the following month. On August
28, Market-Maker A reviews the open
positions in its CTPH X clearing account
and determines it must reduce its open
positions to satisfy CTPH X’s
requirements by the end of August. It
determines that transferring out 1000
short calls in class ABC will sufficiently
reduce the risk-weighted asset capital
requirements in the account with CTPH
X to avoid additional position limits in
September. Market-Maker A wants to
retain the positions in accordance with
its risk profile. Pursuant to the proposed
rule change, on August 31, MarketMaker A transfers 1000 short calls in
class ABC to its clearing account with
CTPH Y. As a result, Market-Maker A
can continue to provide the same level
of liquidity in class ABC during
September as it did in previous months.
A Trading Permit Holder must give up
a CTPH for each transaction it effects on
the Exchange, which identifies the
CTPH through which the transaction
will clear.40 A Trading Permit Holder
may change the give up for a transaction
within a specified period of time.41
Additionally, a Trading Permit Holder
may also change the CMTA 42 for a
specific transaction.43 The transfer of
positions from an account with one
clearing firm to the account of another
clearing firm pursuant to the proposed
rule change has a similar result as
changing a give up or CMTA, as it
results in a position that resulted from
a transaction moving from the account
of one clearing firm to another, just at
40 See
Rule 6.21.
Rule 6.21(f).
42 The Clearing Member Trade Assignment
(‘‘CMTA’’) process at the Options Clearing
Corporation (‘‘OCC’’) facilitates the transfer of
option trades/positions from one OCC clearing
member to another in an automated fashion.
Changing a CMTA for a specific transaction would
allocate the trade to a different OCC clearing
member than the one initially identified on the
trade.
43 See Rule 6.67(a).
41 See
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a different time and in a different
manner.44 In the above example, if
Market-Maker A had initially given up
CTPH Y rather than CTPH X on the
transactions that resulted in the 1000
long calls in class ABC, or had changed
the give-up or CMTA to CTPH Y
pursuant to Rules 6.21 or 6.67, the
ultimate result would have been the
same. There are a variety of reasons why
firms give up or CMTA transactions to
certain clearing firms (and not to nonbank affiliate clearing firms) at the time
of a transaction, and the proposed rule
change provides firms with a
mechanism to achieve the same result at
a later time.
The proposed rule change states RWA
Transfers may occur on a routine,
recurring basis.45 As noted in the
example above, clearing firms may
impose restrictions on the amount of
open positions. Permitting transfers on
a routine, recurring basis will provide
market participants with the flexibility
to comply with these restrictions when
necessary to avoid position limits on
future options activity.46 Additionally,
the proposed rule change provides no
prior written notice pursuant to
paragraph (d) is required for RWA
Transfers. Because of the potential
routine basis on which RWA Transfers
may occur, and because of the need for
flexibility to comply with the
restrictions described above, the
Exchange believes it may interfere with
the ability of investors firms to comply
with any CTPH restrictions describe
above, and may be burdensome to
provide notice for these routine
transfers.47
The proposed rule change states RWA
Transfers may result in the netting of
positions.48 Netting is generally
prohibited for off-floor transfers.49
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
there were 100 long calls in one
account, and 100 short calls of the same
option series were added to that
account, the positions would offset,
leaving no open positions. As discussed
above, the proposed rule change adds
44 The transferred positions will continue to be
subject to OCC rules, as they will continue to be
held in an account of an OCC member.
45 See proposed Rule 6.49A(b)(3)(A).
46 The proposed rule change adds to proposed
paragraph (g) that proposed paragraph (i) is an
exception to the prohibition on regular, recurring
off-floor transfers.
47 The proposed rule change adds to proposed
paragraph (d) that proposed paragraph (i) is an
exception to the requirement to provide prior
written notice.
48 See proposed Rule 6.49A(b)(3)(B).
49 See proposed Rule 6.49A(b)(1).
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another exception to this prohibition in
Rule 6.49A, which permits off-floor
transfers on behalf of a Market-Maker
account for transactions in multiply
listed options series on different
exchanges, but only if the Market-Maker
nominees are trading 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 OCC. 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.50 Positions cleared into a
universal account would automatically
net against each other.
While RWA Transfers are not
occurring because of limitations related
to trading on different exchanges,
similar reasoning for the above
exception applies to why netting should
be permissible for the limited purpose
of reducing risk-weighted assets. Firms
may maintain different clearing
accounts for a variety of reasons, such
as the structure of their businesses, the
manner in which they trade, their risk
management procedures, and for capital
purposes. If a Market-Maker clears all
transactions into a universal account,
offsetting positions would automatically
net. However, if a Market-Maker has
multiple accounts into which its
transactions cleared, they would not
automatically net. While there are times
when a firm may not want to close out
open positions to reduce risk-weighted
assets, there are other times when a firm
may determine it is appropriate to close
out positions to accomplish a reduction
in risk-weighted assets.
In the example above, suppose after
making the RWA Transfer described
above, Market-Maker A effects a
transaction on September 25 that results
in 1000 long calls in class ABC, which
clears into its account with CTPH X. If
Market-Maker A had not effected its
RWA Transfer in August, the 1000 long
calls would have offset against the 1000
short calls, eliminating both positions
and thus any risk-weighted asset capital
requirements associated with them. At
the end of August, Market-Maker A did
not want to close out the 1000 short
calls when it made its RWA Transfer.
However, given changed circumstances
in September, Market-Maker A has
determined it no longer wants to hold
those positions. The proposed rule
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Frm 00075
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35443
change would permit Market-Maker A
to effect an RWA Transfer of the 1000
short calls from its account with CTPH
Y to its account with CTPH X (or vice
versa), which results in elimination of
those positions (and a reduction in riskweighted assets associated with them).
As noted above, such netting would
have occurred if Market-Maker A
cleared the September transaction
directly into its account with CTPH Y,
or had not effected an RWA Transfer in
August. Netting provides market
participants with appropriate flexibility
to conduct their businesses as they see
fit while having the ability to reduce
risk-weighted asset capital requirements
when necessary.51
As is true for all other off-floor
transfers that are or will be permitted
under proposed Rule 6.49A, RWA
Transfers may not result in preferential
margin or haircut treatment.52
Additionally, RWA Transfers may only
be effected for options listed on the
Exchange and will be subject to
applicable laws, rules, and regulations,
including rules of other self-regulatory
organizations (including OCC).53 RWA
Transfers will also be subject to the
other requirements in Rule 6.49A,
including the permitted transfer prices
in proposed paragraph (c), and the
notice and record requirements in
proposed paragraphs (d) and (e).
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.54 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 55 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,
51 The proposed rule change adds to paragraph (b)
that proposed (i) is an exception to the prohibition
on netting. Proposed (i) makes clear that RWA
Transfers, like all other permissible off-floor
position transfers, may not result in preferential
margin or haircut treatment.
52 See proposed Rule 6.49A(i)(C) and current Rule
6.49A(b)(1). 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.
53 See Rule 6.49A(h). Transfers of non-Exchange
listed options and other financial instruments are
not governed by Rule 6.49A currently or as
proposed to be amended.
54 15 U.S.C. 78f(b).
55 15 U.S.C. 78f(b)(5).
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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) 56 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—
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 the proposed
rule change to permit RWA Transfers
will remove impediments to and perfect
the mechanism of a free and open
market and a national market system by
potentially mitigating the effects bank
capital requirements may have on
liquidity in the listed options market.
As described above, bank capital
requirements may impact capital
available for options market liquidity
providers, for example due to CTPHs’
imposition of stricter position limits on
firms that clear options transactions
with them. The Exchange believes
56 Id.
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providing market participants with an
efficient process to reduce risk-weighted
asset capital requirements attributable to
open positions in clearing accounts with
U.S. bank-affiliated clearing firms may
contribute to additional liquidity in the
listed options market, which, in general,
protects investors and the public
interest.
The proposed rule change, in
particular the proposed changes to
permit RWA transfers to occur on a
routine, recurring basis and result in
netting, also provides market
participants with sufficient flexibility to
reduce risk-weighted asset capital
requirements at times necessary to
comply with requirements imposed on
them by clearing firms. This will permit
market participants respond to thencurrent market conditions, including
volatility and increased volume, by
reducing the risk-weighted asset capital
requirements associated with any new
positions they may open while those
conditions exist. Given the additional
capital that may become available to
market participants as a result of the
RWA Transfers, market participants will
be able to continue to provide liquidity
to the market, even during periods of
increased volume and volatility, which
liquidity ultimately benefits investors. It
is not possible for market participants to
predict what market conditions will
exist at a specific time, and when
volatility will occur. The proposed rule
change to permit routine, recurring
RWA Transfers (and to not provide prior
written notice) will provide market
participants with the ability to respond
to these conditions whenever they
occur. Additionally, since firms may be
subject to restrictions on positions
imposed by their clearing firms,
permitting transfers on a routine,
recurring basis will provide market
participants with the flexibility to
comply with these restrictions when
necessary to avoid position limits on
future options activity. In addition, with
respect to netting, as discussed above,
firms may maintain different clearing
accounts for a variety of reasons, such
as the structure of their businesses, the
manner in which they trade, their risk
management procedures, and for capital
purposes. Netting may otherwise occur
with respect to a firm’s positions if it
structured its clearing accounts
differently, such as by using a universal
account. Therefore, the proposed rule
change will permit netting while
allowing firms to continue to maintain
different clearing accounts in a manner
consistent with their businesses.
The Exchange recognizes the
numerous benefits of executing options
transactions occur on an exchanges,
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including price transparency, potential
price improvement, and a clearing
guarantee. However, the Exchange
believes it is appropriate to permit RWA
Transfers to occur off the exchange, as
these benefits are inapplicable to RWA
Transfers. RWA Transfers have a narrow
scope and are intended to achieve a
limited, benefit purpose. RWA Transfers
are not intended to be a competitive
trading tool. There is no need for price
discovery or improvement, as the
purpose of the transfer is to reduce riskweighted asset capital requirements
attributable to a market participants’
positions. Unlike trades on an exchange,
the price at which an RWA Transfers
occurs is immaterial—the resulting
reduction in risk-weighted assets is the
critical part of the transfer. RWA
Transfers will result in no change in
ownership, and thus they do not
constitute trades with a counterparty
(and thus eliminating the need for a
counterparty guarantee). The
transactions that resulted in the open
positions to be transferred as an RWA
Transfer were already guaranteed by an
OCC clearing member, and the positions
will continue to be subject to OCC rules,
as they will continue to be held in an
account with an OCC clearing member.
The narrow scope of the proposed rule
change and the limited, beneficial
purpose of RWA Transfers make
allowing RWA Transfers to occur off the
floor appropriate and important to
support the provision of liquidity in the
listed options market.
The proposed rule change does not
unfairly discriminate against market
participants, as all Trading Permit
Holders and non-Trading Permit
Holders with open positions in options
listed on the Exchange may use the
proposed off-floor transfer process to
reduce the risk-weighted asset capital
requirements of CTPHs.
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
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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. 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
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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
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.
The purpose of the proposed rule
change to permit RWA Transfers is to
alleviate the negative impact of bank
capital requirements on options market
liquidity providers. This process is not
intended to be a competitive trading
tool. Use of the proposed process is
voluntary, and all Trading Permit
Holders and non-Trading Permit
Holders with open positions in options
listed on the Exchange may use the
proposed off-floor transfer process to
reduce the risk-weighted asset capital
requirements attributable to those
positions. RWA Transfers have a limited
purpose, which is to reduce riskweighted assets attributable to open
positions in listed options in order to
free up capital. Cboe Options believes
the proposed rule change may relieve
the burden on liquidity providers in the
options market by reducing the riskweighted assets attributable to their
open positions. As a result, market
participants may be able to increase
liquidity they provide to the market,
which liquidity benefits all market
participants.
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
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35445
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will:
A. By order approve or disapprove
such proposed rule change, or
B. institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2019–035 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–2019–035. 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
E:\FR\FM\23JYN1.SGM
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Federal Register / Vol. 84, No. 141 / Tuesday, July 23, 2019 / Notices
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CBOE–2019–035 and
should be submitted on or before
August 13, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.57
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–15561 Filed 7–22–19; 8:45 am]
BILLING CODE 8011–01–P
presentation on the work of the Office
of Minority and Women Inclusion;
subcommittee reports; and a nonpublic
administrative work session during
lunch.
CONTACT PERSON FOR MORE INFORMATION:
For further information and to ascertain
what, if any, matters have been added,
deleted or postponed; please contact
Vanessa A. Countryman from the Office
of the Secretary at (202) 551–5400.
Dated: July 18, 2019.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2019–15674 Filed 7–19–19; 11:15 am]
SECURITIES AND EXCHANGE
COMMISSION
BILLING CODE 8011–01–P
Sunshine Act Meetings
SECURITIES AND EXCHANGE
COMMISSION
Notice is hereby given,
pursuant to the provisions of the
Government in Sunshine Act, Public
Law 94–409, that the Securities and
Exchange Commission Investor
Advisory Committee will hold a
meeting on Thursday, July 25, 2019 at
9:00 a.m. (ET).
PLACE: The meeting will be held in
Multi-Purpose Room LL–006 at the
Commission’s headquarters, 100 F
Street NE, Washington, DC 20549.
STATUS: This meeting will begin at 9:00
a.m. (ET) and will be open to the public.
Seating will be on a first-come, firstserved basis. Doors will open at 8:30
a.m. Visitors will be subject to security
checks. The meeting will be webcast on
the Commission’s website at
www.sec.gov.
MATTERS TO BE CONSIDERED: On July 3,
2019, the Commission issued notice of
the Committee meeting (Release No. 33–
10658), indicating that the meeting is
open to the public (except during that
portion of the meeting reserved for an
administrative work session during
lunch), and inviting the public to
submit written comments to the
Committee. This Sunshine Act notice is
being issued because a quorum of the
Commission may attend the meeting.
The agenda for the meeting includes:
Welcome remarks; a discussion
regarding regulation in areas with
limited completion, a discussion
regarding trends in investment research
(which may include a recommendation
from the Market Structure
subcommittee); a discussion regarding
the proxy process (which may include
a recommendation from the Investor as
Owner subcommittee); a presentation on
the work of the Office of the Advocate
for Small Business Capital Formation; a
jspears on DSK30JT082PROD with NOTICES
TIME AND DATE:
[Release No. 34–86399; File No. SR–
NASDAQ–2019–054]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend the
Generic Listing Standards for Fixed
Income Securities Included in the
Portfolio of a Series of Managed Fund
Shares
July 17, 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 July 3,
2019, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) 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 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
Nasdaq Rule 5735(b)(1)(B)(v) relating to
generic listing standards applicable to
fixed income securities included in the
portfolio of a series of Managed Fund
Shares listed on the Exchange.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaq.cchwallstreet.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
1 15
57 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
16:43 Jul 22, 2019
2 17
Jkt 247001
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00078
Fmt 4703
Sfmt 4703
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
Nasdaq Rule 5735(b)(1), which sets forth
generic listing standards for the listing
and trading of Managed Fund Shares.3
Nasdaq Rule 5735(b)(1)(B) sets forth
generic listing standards applicable to
fixed income securities included in the
portfolio of a series of Managed Fund
Shares listed on the Exchange.4 Nasdaq
Rule 5735(b)(1)(B)(v) provides that nonagency, non-GSE and privately-issued
mortgage related and other asset-backed
securities (‘‘ABS’’ and, collectively,
‘‘non-agency ABS’’) components of a
portfolio shall not account, in the
aggregate, for more than 20% of the
weight of the fixed income portion of
the portfolio. Nasdaq proposes to amend
Nasdaq Rule 5735(b)(1)(B)(v) by deleting
the words ‘‘fixed income portion’’ to
provide that such 20% limitation would
apply to the entire portfolio rather than
to only the fixed income portion of the
3 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (15 U.S.C. 80a–1) (the ‘‘1940 Act’’) organized
as an open-end management investment company
or similar entity that invests in a portfolio of
securities selected by its investment adviser
consistent with its investment objectives and
policies. In contrast, an open-end management
investment company that issues Index Fund Shares
that may be listed and traded on the Exchange
under Nasdaq Rule 5705(b) seeks to provide
investment results that correspond generally to the
performance of a specific foreign or domestic stock
index, fixed income securities index or combination
thereof.
4 Nasdaq Rule 5735(b)(1)(B) provides that fixed
income securities are debt securities that are notes,
bonds, debentures, or evidence of indebtedness that
include, but are not limited to, U.S. Department of
Treasury securities (‘‘Treasury Securities’’),
government-sponsored entity securities (‘‘GSE
Securities’’), municipal securities, trust preferred
securities, supranational debt and debt of a foreign
country or a subdivision thereof, investment grade
and high yield corporate debt, bank loans, mortgage
and asset backed securities, and commercial paper.
E:\FR\FM\23JYN1.SGM
23JYN1
]]>Agencies
[Federal Register Volume 84, Number 141 (Tuesday, July 23, 2019)]
[Notices]
[Pages 35438-35446]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15561]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86400; File No. SR-CBOE-2019-035]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Amend Rule 6.49A Concerning Off-
Floor Position Transfers Including RWA Transfers
July 17, 2019.
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 July 3, 2019, 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
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend Rule 6.49A. 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.
[[Page 35439]]
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 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 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.
---------------------------------------------------------------------------
Current Rule 6.49A(a) lists the circumstances in which Trading
Permit Holders may transfer their positions off the floor. The
circumstances currently listed include: (1) The dissolution of a joint
account in which the remaining Trading Permit Holder assumes the
positions of the joint account; (2) the dissolution of a corporation or
partnership in which a former nominee of the corporation or partnership
assumes the positions; (3) positions transferred as part of a Trading
Permit Holder's capital contribution to a new joint account,
partnership, or corporation; (4) the donation of positions to a not-
for-profit corporation; (5) the transfer of positions to a minor under
the Uniform Gifts to Minor law; and (6i) a merger or acquisition where
continuity of ownership or management results.\4\
---------------------------------------------------------------------------
\4\ 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).
---------------------------------------------------------------------------
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 (``CTPH'') may be transferred off the
Exchange (an ``off-floor transfer'') if the off-floor transfer involves
one of the events listed in the Rule.\5\ 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.\6\ It also clarifies that a Trading Permit Holder or CTPH must
be on at least one side of the transfer. The proposed rule change also
clarifies that transferred positions must be on, from, or to the books
of a CTPH. This language is consistent with how off-floor transfers are
currently effected. The proposed rule change also clarifies that
existing positions of a Trading Permit Holder or a non-Trading Permit
Holder may be subject to an off-floor transfer, except under specified
circumstances in which a transfer may only be effected for positions of
a Trading Permit Holder may.\7\
---------------------------------------------------------------------------
\5\ 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 CTPH to another Non-
Trading Permit Holder pursuant to the proposed rule.
\6\ 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.
\7\ 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.\8\
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.
---------------------------------------------------------------------------
\8\ 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.\9\
---------------------------------------------------------------------------
\9\ See Cboe Options Regulatory Circular RG03-62 (July 24,
2003). 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 \10\), provided the accounts are not in separate
aggregation units or otherwise subject to information barrier or
account segregation requirements.\11\ 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.\12\
---------------------------------------------------------------------------
\10\ Rule 1.1 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.
\11\ The proposed rule change is similar to CFE Rule 420(a)(ii).
\12\ 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 \13\ where no
change in ownership is involved. This proposed rule change is similar
to rules of other options exchanges.\14\
---------------------------------------------------------------------------
\13\ This refers to the consolidation of entire accounts (e.g.,
combining two separate accounts (including the positions in each
account into a single account)).
\14\ 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.\15\ 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.
---------------------------------------------------------------------------
\15\ 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.\16\ As noted
above, the proposed rule change is consistent with current Exchange
guidance or rules of other self-regulatory organizations.
---------------------------------------------------------------------------
\16\ See proposed paragraph (g).
---------------------------------------------------------------------------
The proposed rule change renumbers current subparagraphs (a)(1)
through (5) to be proposed subparagraphs (a)(5) through (9) and moves
current subparagraph (a)(6) to proposed
[[Page 35440]]
subparagraph (a)(4), with nonsubstantive changes. These permissible
circumstances for off-floor transfers are consistent with the rules of
other options exchanges.\17\
---------------------------------------------------------------------------
\17\ 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 paragraph
(b) 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.\18\ 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.
---------------------------------------------------------------------------
\18\ See Cboe Options Regulatory Circular RG03-62 (July 24,
2003). 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, the Exchange notes that a Market Maker's utilization of a
Clearing Corporation Universal Market-Maker Subaccount would not be
viewed as netting. A ``Universal Market-Maker Subaccount'' is an
automated services provided by the Clearing Corporation whereby the
Clearing Corporation directs transactions into a ``universal'' market
maker subaccount for a designated market maker or designated group of
market makers that trade across multiple options exchanges. This
service was created by the Clearing Corporation to assist market making
firms that may have employees (or units) that trade across multiple
exchanges, with each exchange identifying such employees (or units)
with a different acronym(s). The Clearing Corporation's Universal
Market Maker Subaccount service ensures that all trades entered into by
a market-making firm are automatically directed to a specific
subaccount of its clearing firm at the Clearing Corporation for
position and margin processing purposes.\19\ Under this process,
positions cleared into a Universal Market Maker Subaccount would
automatically net against each other. Universal Market Maker
Subaccounts are generally used because options exchanges traditionally
utilized 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 if it did not utilize a Universal Market Maker
Subaccount (in which account the positions may net). The proposed rule
change would not view the use of a Universal Market Maker Subaccount in
this circumstance as netting that would not be permitted.\20\
---------------------------------------------------------------------------
\19\ See, e.g., Securities Exchange Act Release 73577 (November
12, 2014) (SR-OCC-2014-20); see also Cboe Options Regulatory
Circular RG03-62 (July 24, 2003) (which discusses the Clearing
Corporation's automated process prior to it being formally titled
the ``Universal Market Maker Subaccount'' program).
\20\ Additionally, if a Market-Maker makes an internal book-
entry to reflect a ``transfer'' of positions within the same account
(for example, if a Market-Maker attributes positions within a single
account to specific individual traders for its own records, and
makes another internal book-entry to ``transfer'' the positions
attributed to one individual to another within the same account, but
does not transfer the positions out of the account), the Exchange
does not view this as a transfer prohibited by Rule 6.49 or Rule
6.49A. The Exchange notes that, with these book-entry transfers,
there can be no netting of positions within the same account.
---------------------------------------------------------------------------
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 CTPH, in which case the records of the transfer
must indicate the original trade dates for the positions; \21\
provided, transfers to correct errors bona fide errors pursuant to
proposed subparagraph (a)(1) must be transferred at the correct
original trade prices;
---------------------------------------------------------------------------
\21\ 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; \22\ or
---------------------------------------------------------------------------
\22\ 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.\23\
---------------------------------------------------------------------------
\23\ 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
CTPH (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).\24\ The notice must
indicate:
---------------------------------------------------------------------------
\24\ 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 CTPH(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
[[Page 35441]]
options exchanges.\25\ 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 CTPHs 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.
---------------------------------------------------------------------------
\25\ See, e.g., Phlx Rule 1058(b) and (c); and Arca Rule 6.78-
O(d)(2).
---------------------------------------------------------------------------
Similarly, proposed paragraph (e) requires each Trading Permit
Holder and each CTPH 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 CTPH
provide. The proposed rule change is similar to rules of other options
exchanges.\26\
---------------------------------------------------------------------------
\26\ See, e.g., Phlx Rule 1058(c); and Arca Rule 6.78-O(c).
---------------------------------------------------------------------------
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 or a
designee. The proposed rule change changes the term Transferor to
Trading Permit Holder or CTPH, as a Trading Permit Holder's or CTPH's
positions will be involved in any off-floor transfer (as set forth in
proposed paragraph (a)).
Proposed paragraph (i) is intended to facilitate the reduction of
risk-weighted assets attributable to open options positions and make
other conforming changes. SEC Rule 15c3-1 (Net Capital Requirements for
Brokers or Dealers) (``Net Capital Rules'') requires registered broker-
dealers, unless otherwise excepted, to maintain certain specified
minimum levels of capital.\27\ The Net Capital Rules are designed to
protect securities customers, counterparties, and creditors by
requiring that broker-dealers have sufficient liquid resources on hand,
at all times, to meet their financial obligations. Notably, hedged
positions, including offsetting futures and options contract positions,
result in certain net capital requirement reductions under the Net
Capital Rules.\28\
---------------------------------------------------------------------------
\27\ 17 CFR 240.15c3-1.
\28\ In addition, the Net Capital Rules permit various offsets
under which a percentage of an option position's gain at any one
valuation point is allowed to offset another position's loss at the
same valuation point (e.g., vertical spreads).
---------------------------------------------------------------------------
Subject to certain exceptions, CTPHs \29\ are subject to the Net
Capital Rules.\30\ However, a subset of CTPHs are subsidiaries of U.S.
bank holding companies, which, due to their affiliations with their
parent U.S.-bank holding companies, must comply with additional bank
regulatory capital requirements pursuant to rulemaking required under
the Dodd-Frank Wall Street Reform and Consumer Protection Act.\31\
Pursuant to this mandate, the Board of Governors of the Federal Reserve
System, the Office of the Comptroller of the Currency, and the Federal
Deposit Insurance Corporation have approved a regulatory capital
framework for subsidiaries of U.S. bank holding company clearing
firms.\32\ Generally, these rules, among other things, impose higher
minimum capital and higher asset risk weights than were previously
mandated for CTPHs that are subsidiaries of U.S. bank holding companies
under the Net Capital Rules. Furthermore, the new rules do not fully
permit deductions for hedged securities or offsetting options
positions.\33\ Rather, capital charges under these standards are, in
large part, based on the aggregate notional value of short positions
regardless of offsets. As a result, in general, CTPHs that are
subsidiaries of U.S. bank holding companies must hold substantially
more bank regulatory capital than would otherwise be required under the
Net Capital Rules.
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\29\ All CTPHs must also be clearing members of The Options
Clearing Corporation (``OCC'').
\30\ Assuming the Commission approves the proposed rule change,
in the event federal regulators modify bank capital requirements in
the future, the Exchange will reevaluate the proposed rule change at
that time to determine whether any corresponding changes to the
proposed rule are appropriate.
\31\ H.R. 4173 (amending section 3(a) of the Securities Exchange
Act of 1934 (the ``Act'') (15 U.S.C. 78c(a))).
\32\ 12 CFR 50; 79 FR 61440 (Liquidity Coverage Ratio: Liquidity
Risk Measurement Standards).
\33\ Many options strategies, including relatively simple
strategies often used by retail customers and more sophisticated
strategies used by broker-dealers, are risk-limited strategies or
options spread strategies that employ offsets or hedges to achieve
certain investment outcomes. Such strategies typically involve the
purchase and sale of multiple options (and may be coupled with
purchases or sales of the underlying securities), executed
simultaneously as part of the same strategy. In many cases, the
potential market exposure of these strategies is limited and
defined. While regulatory capital requirements have historically
reflected the risk-limited nature of carrying offsetting positions,
these positions may now be subject to higher regulatory capital
requirements.
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The Exchange believes these higher regulatory capital requirements
may impact liquidity in the listed options market by limiting the
amount of capital CTPHs can allocate to their clients' transactions.
Specifically, the rules may cause CTPHs to impose stricter position
limits on their client clearing members. These stricter position limits
may impact the liquidity market participants may provide, including
liquidity Market-Makers may provide in their appointed classes. This
impact may be compounded when a CTPH has multiple client accounts, each
having largely risk-neutral portfolio holdings.\34\ The Exchange
believes that permitting market participants to efficiently transfer
existing options positions through an off-floor transfer process may
assist CTPHs and TPHs to address bank regulatory capital requirements
and would likely have a beneficial effect on continued liquidity in the
options market without adversely affecting market quality.
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\34\ A number of TPHs, including Market-Makers, have informed
the Exchange that the heightened bank regulatory requirements could
impact their ability to provide consistent liquidity in the market
unless they are able to efficiently transfer their open positions
out of clearing accounts of U.S.-bank affiliated clearing firms.
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Liquidity in the listed options market is critically important.
However, bank capital regulations that govern bank-affiliated clearing
firms are negatively impacting the ability of Trading Permit Holders,
including Market-Makers, that clear options transactions through bank-
affiliated clearing firms to provide liquidity. In order to mitigate
the potential negative effects of these additional bank regulatory
capital requirements, the proposed rule change provides market
participants with an efficient mechanism to transfer their open options
positions from one clearing account to another clearing account. The
Exchange believes the proposed rule change will increase liquidity in
the listed options market and promote more efficient capital deployment
in light of bank regulatory capital requirements.
The Exchange has previously adopted Rules 6.56 and 6.57 to provide
Trading Permit Holders with tools to reduce risk-weighted assets
attributable to their open positions in S&P 500 options (``SPX
options''). However, the procedures in those rules involve transactions
that must occur on the Exchange's trading floor to close open
positions. Therefore, a market participant must find a counterparty and
be willing to close positions to use
[[Page 35442]]
either of these tools. As a result, these procedures are less
efficient, less flexible, and more burdensome means to reduce risk-
weighted assets attributable to open options positions than an off-
floor transfer of such positions. Additionally, these tools are
currently limited to SPX options, due to the large notional size of
those options, which compounds the negative impact of bank capital
requirements, and Rule 6.57 is limited to Market-Makers (Rule 6.56 is
available to all Trading Permit Holders). However, bank capital
requirements apply to positions in all listed options, and may impact
all client clearing members of clearing firms affiliated with U.S.-bank
holding companies, and clearing firms may request that Market-Makers
and non-Market-Makers reduce positions in listed options in addition to
SPX. There is currently no mechanism firms may use to transfer
positions between clearing accounts without having to effect a
transaction with another party and close a position.
Rule 6.49A(a), currently and as proposed, permits positions to be
transferred off the floor of the Exchange in specified limited
circumstances, including a transfer of positions from one account to
another account where no change in ownership is involved, provided the
accounts are not in separate aggregation units or otherwise subject to
information barrier or account segregation requirements.\35\ If a
Trading Permit Holder wanted to transfer open positions from a clearing
account it has with one a bank-affiliated clearing firm to a clearing
account it has with a non-bank-affiliated clearing firm, for example,
such a transfer would result in no change in ownership. However,
paragraph (g) restricts transfers pursuant to that provision to non-
routine, non-recurring movements of positions, and does not permit use
of the off-floor transfer procedure to be used repeatedly or routinely
in circumvention of the normal auction market process. To comply with
clearing firms' position limits they may impose on market participants'
because they need to limit capital they may allocate for those market
participants' transactions, market participants may need to regularly
reduce open positions or limit additional positions in their accounts
with such clearing firms' to accommodate bank capital requirements.
Rule 6.49A does not permit regular transfers of positions between
accounts at different clearing firms.
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\35\ Rule 6.49A(a)(2).
---------------------------------------------------------------------------
Proposed Rule 6.49A(i) is intended to provide market participants
with an additional tool they may use to address the issues raised by
bank capital requirements for positions in all listed options in an
efficient manner that provides market participants with flexibility to
do so in accordance with their businesses and risk management
practices. Proposed paragraph (i) provides that notwithstanding
paragraphs (a), (b) (which prohibits off-floor position transfers to
result in netting), and (g) (which prohibits recurring, regular
transfers), existing positions in options listed on the Exchange of a
Trading Permit Holder or non-Trading Permit Holder (including an
affiliate of a Trading Permit Holder) may be transferred on, from, or
to the books of a CTPH off the Exchange if the transfer establishes a
net reduction of risk-weighted assets attributable to those options
positions (an ``RWA Transfer'').\36\ The proposed rule adds examples of
two transfers that would be deemed to establish a net reduction of
risk-weighted assets, and thus qualify as a permissible RWA Transfer:
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\36\ The proposed rule change makes conforming changes to
paragraph (g).
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A transfer of options positions from Clearing Corporation
member A to Clearing Corporation member B that net (offset) with
positions held at Clearing Corporation member B, and thus closes all or
part of those positions (as demonstrated in the example below); \37\
and
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\37\ This transfer would establish a net reduction of risk-
weighted assets attributable to the transferring Person, because
there would be fewer open positions and thus fewer assets subject to
Net Capital Rules.
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A transfer of options positions from a bank-affiliated
Clearing Corporation member to a non-bank-affiliated Clearing
Corporation member.\38\
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\38\ This transfer would establish a net reduction of risk-
weighted assets attributable to the transferring Person, because the
non-bank-affiliated Clearing Corporation member would not be subject
to Net Capital Rules, as described above.
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These transfers will not result in a change in ownership, as they
must occur between accounts of the same Person.\39\ Rule 1.1 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. In other words, RWA transfers may only
occur between the same individual or legal entity. These are merely
transfers from one clearing account to another, both of which are
attributable to the same individual or legal entity. A market
participant effecting an RWA Transfer is analogous to an individual
transferring funds from a checking account to a savings account, or
from an account at one bank to an account at another bank--the money
still belongs to the same person, who is just holding it in a different
account for personal financial reasons.
---------------------------------------------------------------------------
\39\ See proposed Rule 6.49A(b)(3)(D).
---------------------------------------------------------------------------
For example, Market-Maker A clears transactions on the Exchange
into an account it has with CTPH X, which is affiliated with a U.S-bank
holding company. Market-Maker A opens a clearing account with CTPH Y,
which is not affiliated with a U.S.-bank holding company. CTPH X has
informed Market-Maker A that its open positions may not exceed a
certain amount at the end of a calendar month, or it will be subject to
restrictions on new positions it may open the following month. On
August 28, Market-Maker A reviews the open positions in its CTPH X
clearing account and determines it must reduce its open positions to
satisfy CTPH X's requirements by the end of August. It determines that
transferring out 1000 short calls in class ABC will sufficiently reduce
the risk-weighted asset capital requirements in the account with CTPH X
to avoid additional position limits in September. Market-Maker A wants
to retain the positions in accordance with its risk profile. Pursuant
to the proposed rule change, on August 31, Market-Maker A transfers
1000 short calls in class ABC to its clearing account with CTPH Y. As a
result, Market-Maker A can continue to provide the same level of
liquidity in class ABC during September as it did in previous months.
A Trading Permit Holder must give up a CTPH for each transaction it
effects on the Exchange, which identifies the CTPH through which the
transaction will clear.\40\ A Trading Permit Holder may change the give
up for a transaction within a specified period of time.\41\
Additionally, a Trading Permit Holder may also change the CMTA \42\ for
a specific transaction.\43\ The transfer of positions from an account
with one clearing firm to the account of another clearing firm pursuant
to the proposed rule change has a similar result as changing a give up
or CMTA, as it results in a position that resulted from a transaction
moving from the account of one clearing firm to another, just at
[[Page 35443]]
a different time and in a different manner.\44\ In the above example,
if Market-Maker A had initially given up CTPH Y rather than CTPH X on
the transactions that resulted in the 1000 long calls in class ABC, or
had changed the give-up or CMTA to CTPH Y pursuant to Rules 6.21 or
6.67, the ultimate result would have been the same. There are a variety
of reasons why firms give up or CMTA transactions to certain clearing
firms (and not to non-bank affiliate clearing firms) at the time of a
transaction, and the proposed rule change provides firms with a
mechanism to achieve the same result at a later time.
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\40\ See Rule 6.21.
\41\ See Rule 6.21(f).
\42\ The Clearing Member Trade Assignment (``CMTA'') process at
the Options Clearing Corporation (``OCC'') facilitates the transfer
of option trades/positions from one OCC clearing member to another
in an automated fashion. Changing a CMTA for a specific transaction
would allocate the trade to a different OCC clearing member than the
one initially identified on the trade.
\43\ See Rule 6.67(a).
\44\ The transferred positions will continue to be subject to
OCC rules, as they will continue to be held in an account of an OCC
member.
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The proposed rule change states RWA Transfers may occur on a
routine, recurring basis.\45\ As noted in the example above, clearing
firms may impose restrictions on the amount of open positions.
Permitting transfers on a routine, recurring basis will provide market
participants with the flexibility to comply with these restrictions
when necessary to avoid position limits on future options activity.\46\
Additionally, the proposed rule change provides no prior written notice
pursuant to paragraph (d) is required for RWA Transfers. Because of the
potential routine basis on which RWA Transfers may occur, and because
of the need for flexibility to comply with the restrictions described
above, the Exchange believes it may interfere with the ability of
investors firms to comply with any CTPH restrictions describe above,
and may be burdensome to provide notice for these routine
transfers.\47\
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\45\ See proposed Rule 6.49A(b)(3)(A).
\46\ The proposed rule change adds to proposed paragraph (g)
that proposed paragraph (i) is an exception to the prohibition on
regular, recurring off-floor transfers.
\47\ The proposed rule change adds to proposed paragraph (d)
that proposed paragraph (i) is an exception to the requirement to
provide prior written notice.
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The proposed rule change states RWA Transfers may result in the
netting of positions.\48\ Netting is generally prohibited for off-floor
transfers.\49\ 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 there were 100 long calls in one
account, and 100 short calls of the same option series were added to
that account, the positions would offset, leaving no open positions. As
discussed above, the proposed rule change adds another exception to
this prohibition in Rule 6.49A, which permits off-floor transfers on
behalf of a Market-Maker account for transactions in multiply listed
options series on different exchanges, but only if the Market-Maker
nominees are trading 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 OCC. 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.\50\ Positions
cleared into a universal account would automatically net against each
other.
---------------------------------------------------------------------------
\48\ See proposed Rule 6.49A(b)(3)(B).
\49\ See proposed Rule 6.49A(b)(1).
\50\ Id.
---------------------------------------------------------------------------
While RWA Transfers are not occurring because of limitations
related to trading on different exchanges, similar reasoning for the
above exception applies to why netting should be permissible for the
limited purpose of reducing risk-weighted assets. Firms may maintain
different clearing accounts for a variety of reasons, such as the
structure of their businesses, the manner in which they trade, their
risk management procedures, and for capital purposes. If a Market-Maker
clears all transactions into a universal account, offsetting positions
would automatically net. However, if a Market-Maker has multiple
accounts into which its transactions cleared, they would not
automatically net. While there are times when a firm may not want to
close out open positions to reduce risk-weighted assets, there are
other times when a firm may determine it is appropriate to close out
positions to accomplish a reduction in risk-weighted assets.
In the example above, suppose after making the RWA Transfer
described above, Market-Maker A effects a transaction on September 25
that results in 1000 long calls in class ABC, which clears into its
account with CTPH X. If Market-Maker A had not effected its RWA
Transfer in August, the 1000 long calls would have offset against the
1000 short calls, eliminating both positions and thus any risk-weighted
asset capital requirements associated with them. At the end of August,
Market-Maker A did not want to close out the 1000 short calls when it
made its RWA Transfer. However, given changed circumstances in
September, Market-Maker A has determined it no longer wants to hold
those positions. The proposed rule change would permit Market-Maker A
to effect an RWA Transfer of the 1000 short calls from its account with
CTPH Y to its account with CTPH X (or vice versa), which results in
elimination of those positions (and a reduction in risk-weighted assets
associated with them). As noted above, such netting would have occurred
if Market-Maker A cleared the September transaction directly into its
account with CTPH Y, or had not effected an RWA Transfer in August.
Netting provides market participants with appropriate flexibility to
conduct their businesses as they see fit while having the ability to
reduce risk-weighted asset capital requirements when necessary.\51\
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\51\ The proposed rule change adds to paragraph (b) that
proposed (i) is an exception to the prohibition on netting. Proposed
(i) makes clear that RWA Transfers, like all other permissible off-
floor position transfers, may not result in preferential margin or
haircut treatment.
---------------------------------------------------------------------------
As is true for all other off-floor transfers that are or will be
permitted under proposed Rule 6.49A, RWA Transfers may not result in
preferential margin or haircut treatment.\52\ Additionally, RWA
Transfers may only be effected for options listed on the Exchange and
will be subject to applicable laws, rules, and regulations, including
rules of other self-regulatory organizations (including OCC).\53\ RWA
Transfers will also be subject to the other requirements in Rule 6.49A,
including the permitted transfer prices in proposed paragraph (c), and
the notice and record requirements in proposed paragraphs (d) and (e).
---------------------------------------------------------------------------
\52\ See proposed Rule 6.49A(i)(C) and current Rule 6.49A(b)(1).
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.
\53\ See Rule 6.49A(h). Transfers of non-Exchange listed options
and other financial instruments are not governed by Rule 6.49A
currently or as proposed to be amended.
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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.\54\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \55\ 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,
[[Page 35444]]
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) \56\ requirement that the rules
of an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\54\ 15 U.S.C. 78f(b).
\55\ 15 U.S.C. 78f(b)(5).
\56\ Id.
---------------------------------------------------------------------------
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 the proposed rule change to permit RWA
Transfers will remove impediments to and perfect the mechanism of a
free and open market and a national market system by potentially
mitigating the effects bank capital requirements may have on liquidity
in the listed options market. As described above, bank capital
requirements may impact capital available for options market liquidity
providers, for example due to CTPHs' imposition of stricter position
limits on firms that clear options transactions with them. The Exchange
believes providing market participants with an efficient process to
reduce risk-weighted asset capital requirements attributable to open
positions in clearing accounts with U.S. bank-affiliated clearing firms
may contribute to additional liquidity in the listed options market,
which, in general, protects investors and the public interest.
The proposed rule change, in particular the proposed changes to
permit RWA transfers to occur on a routine, recurring basis and result
in netting, also provides market participants with sufficient
flexibility to reduce risk-weighted asset capital requirements at times
necessary to comply with requirements imposed on them by clearing
firms. This will permit market participants respond to then-current
market conditions, including volatility and increased volume, by
reducing the risk-weighted asset capital requirements associated with
any new positions they may open while those conditions exist. Given the
additional capital that may become available to market participants as
a result of the RWA Transfers, market participants will be able to
continue to provide liquidity to the market, even during periods of
increased volume and volatility, which liquidity ultimately benefits
investors. It is not possible for market participants to predict what
market conditions will exist at a specific time, and when volatility
will occur. The proposed rule change to permit routine, recurring RWA
Transfers (and to not provide prior written notice) will provide market
participants with the ability to respond to these conditions whenever
they occur. Additionally, since firms may be subject to restrictions on
positions imposed by their clearing firms, permitting transfers on a
routine, recurring basis will provide market participants with the
flexibility to comply with these restrictions when necessary to avoid
position limits on future options activity. In addition, with respect
to netting, as discussed above, firms may maintain different clearing
accounts for a variety of reasons, such as the structure of their
businesses, the manner in which they trade, their risk management
procedures, and for capital purposes. Netting may otherwise occur with
respect to a firm's positions if it structured its clearing accounts
differently, such as by using a universal account. Therefore, the
proposed rule change will permit netting while allowing firms to
continue to maintain different clearing accounts in a manner consistent
with their businesses.
The Exchange recognizes the numerous benefits of executing options
transactions occur on an exchanges, including price transparency,
potential price improvement, and a clearing guarantee. However, the
Exchange believes it is appropriate to permit RWA Transfers to occur
off the exchange, as these benefits are inapplicable to RWA Transfers.
RWA Transfers have a narrow scope and are intended to achieve a
limited, benefit purpose. RWA Transfers are not intended to be a
competitive trading tool. There is no need for price discovery or
improvement, as the purpose of the transfer is to reduce risk-weighted
asset capital requirements attributable to a market participants'
positions. Unlike trades on an exchange, the price at which an RWA
Transfers occurs is immaterial--the resulting reduction in risk-
weighted assets is the critical part of the transfer. RWA Transfers
will result in no change in ownership, and thus they do not constitute
trades with a counterparty (and thus eliminating the need for a
counterparty guarantee). The transactions that resulted in the open
positions to be transferred as an RWA Transfer were already guaranteed
by an OCC clearing member, and the positions will continue to be
subject to OCC rules, as they will continue to be held in an account
with an OCC clearing member. The narrow scope of the proposed rule
change and the limited, beneficial purpose of RWA Transfers make
allowing RWA Transfers to occur off the floor appropriate and important
to support the provision of liquidity in the listed options market.
The proposed rule change does not unfairly discriminate against
market participants, as all Trading Permit Holders and non-Trading
Permit Holders with open positions in options listed on the Exchange
may use the proposed off-floor transfer process to reduce the risk-
weighted asset capital requirements of CTPHs.
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
[[Page 35445]]
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. 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 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.
The purpose of the proposed rule change to permit RWA Transfers is
to alleviate the negative impact of bank capital requirements on
options market liquidity providers. This process is not intended to be
a competitive trading tool. Use of the proposed process is voluntary,
and all Trading Permit Holders and non-Trading Permit Holders with open
positions in options listed on the Exchange may use the proposed off-
floor transfer process to reduce the risk-weighted asset capital
requirements attributable to those positions. RWA Transfers have a
limited purpose, which is to reduce risk-weighted assets attributable
to open positions in listed options in order to free up capital. Cboe
Options believes the proposed rule change may relieve the burden on
liquidity providers in the options market by reducing the risk-weighted
assets attributable to their open positions. As a result, market
participants may be able to increase liquidity they provide to the
market, which liquidity benefits all market participants.
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-2019-035 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-2019-035. 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
[[Page 35446]]
comment submissions. You should submit only information that you wish
to make available publicly. All submissions should refer to File Number
SR-CBOE-2019-035 and should be submitted on or before August 13, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\57\
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\57\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-15561 Filed 7-22-19; 8:45 am]
BILLING CODE 8011-01-P
