Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify Rule 6.78-O and Adopt New Rules Related Thereto and Delete Paragraph (d) to Rule 6.69-O, 54727-54736 [2022-19227]
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Federal Register / Vol. 87, No. 172 / Wednesday, September 7, 2022 / Notices
the transfer procedure(s) may be utilized
by any ATP Holder and the rule would
apply uniformly to all ATP Holders. Use
of each off-floor transfer procedure is
voluntary and all ATP Holders may use
each such procedure to transfer
positions as long as the criteria in the
proposed rule are satisfied.
The Exchange does not believe the
proposed rule change will impose an
undue burden on inter-market
competition. As indicated above, it is
intended to provide an additional
clearly delineated and limited
circumstance in which options
positions can be transferred off an
exchange (as well as to set forth the
general prohibition against such
transfers). Additionally, as discussed
above, the proposed rule change is
substantively identical to the rules of
other options exchanges and would
allow the Exchange to compete on equal
footing. Moreover, the Exchange
believes having similar rules related to
off-floor position transfers to those of
other options exchanges will reduce the
administrative burden on market
participants of determining whether
their transfers comply with multiple
sets of rules.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 43 and Rule
19b–4(f)(6) thereunder.44 Because the
proposed rule change does not: (i)
significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.45
43 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
45 15 U.S.C. 78s(b)(3)(A)(iii). Rule 19b–4(f)(6)(iii)
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
44 17
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At any time within 60 days of the
filing of such 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
under Section 19(b)(2)(B) of the Act 46 to
determine whether the proposed rule
change should be approved or
disapproved.
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–NYSEAMER–2022–36 and
should be submitted on or before
September 28, 2022.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.47
J. Matthew DeLesDernier,
Deputy Secretary.
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–
NYSEAMER–2022–36 on the subject
line.
SECURITIES AND EXCHANGE
COMMISSION
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–NYSEAMER–2022–36. 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
[FR Doc. 2022–19226 Filed 9–6–22; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–95644; File No. SR–
NYSEARCA–2022–55]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Modify Rule 6.78–O
and Adopt New Rules Related Thereto
and Delete Paragraph (d) to Rule
6.69–O
August 31, 2022.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on August
23, 2022, NYSE Arca, Inc. (‘‘NYSE
Arca’’ or the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II,
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to modify
Rule 6.78–O and to adopt new rules
related thereto regarding certain
position transfers, including off-floor
transfers. The Exchange also proposes to
delete paragraph (d) to Rule 6.69–O
(Reporting Duties). The proposed rule
change is available on the Exchange’s
47 17
Commission. The Commission notes that the
Exchange satisfied this requirement.
46 15 U.S.C. 78s(b)(2)(B).
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CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 87, No. 172 / Wednesday, September 7, 2022 / Notices
website at www.nyse.com, at the
principal office of the Exchange, 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
self-regulatory organization 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 those 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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The purpose of this rule change is to
modify Rule 6.78–O and to adopt new
rules related thereto regarding certain
position transfers, including off-floor
transfers as described herein. As
discussed herein, the proposed rules are
substantively identical to rules on other
options exchanges and would align the
Exchanges rules with that of its
competitors, thus reducing market
participants’ administrative burden of
determining whether their transfers
comply with multiple sets of options
exchange rules.4 The Exchange also
proposes to delete paragraph (d) to Rule
6.69–O (Reporting Duties) for reason set
forth below.
Rule 6.78–O sets forth the general rule
that transactions of option contracts
listed on the Exchange for a premium in
excess of $1.00 must be effected on the
floor of the Exchange or on another
exchange.5 Notwithstanding this
prohibition, the Exchange permits
certain types of position transfers to be
effected off the floor.6 In addition, Rule
6.78–O(e) sets forth a procedure for an
4 See, e.g., Cboe Options Exchange, Inc. (‘‘Cboe’’)
Rule 5.12 (Transactions Off the Exchange); Cboe
Rule 6.7 (Off-Floor Transfer of Positions); Cboe Rule
6.8 (Off-Floor RWA Transfers); and NYSE Arca Rule
6.78A–O (In-Kind Exchange of Options Positions
and ETF Shares and UIT Units) and Cboe Rule 6.9
(same).
5 See Rule 6.78–O(a)–(b). Rule 6.78–O(c) requires
that OTP Holders or OTP Firms that effect off-floor
transfers keep records of such transactions.
6 See Rule 6.78–O(d)(1) (setting forth specific
events under which off-floor transfers are
permitted). The Exchange notes that new Rule
6.78A–O will address enumerated exceptions to the
general prohibition against off-floor transfers (as set
forth in proposed Rule 6.78–O).
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‘‘on-floor’’ transfer of positions and Rule
6.78–O(f) authorizes the Exchange’s
Chief Executive Officer to grant
exemptions to (e) of the Rule.
The Exchange proposes to delete
current Rule 6.78–O in its entirety and
replace it with proposed Rules 6.78–O
and 6.78A–O, the text of which rules are
substantively identical to Cboe Options
Exchange, Inc. (‘‘Cboe’’) Rules 5.12
(Transactions Off the Exchange) and
Rule 6.7 (Off-Floor Transfer of
Positions). As such, the proposed rules
would align Exchange rules with those
of its competitors.7 The Exchange
believes having similar rules related to
off-floor transfer positions to those of
other options exchanges would reduce
the administrative burden on market
participants of determining whether
their off-floor transfers comply with
multiple sets of rules. The proposed
Rules would apply to all Exchange rules
and, as such, the Exchange is not
proposing to carry forward current
Commentary .03, which specifies
Exchange rules to which it applies.8
Proposed Rule 6.78–O: Transactions Off
the Exchange
Proposed Rule 6.78–O(a) provides
that except as otherwise provided by
this proposed Rule, no OTP Holders or
OTP Firm 9 acting as principal or agent
may effect transactions in any class of
option contracts listed on the Exchange
for a premium in excess of $1.00 other
than (1) on the Exchange, (2) on another
exchange on which such option
contracts are listed and traded, or (3) in
the over-the-counter market if the stock
underlying the option class, or in the
case of an index option, if all the
component stocks of an index
underlying the option class, was a
National Market System security under
SEC Rule 600 at the time the Exchange
commenced trading in that option class,
unless that OTP Holder or OTP Firm has
first attempted to execute the
transaction on the floor of the Exchange
and has reasonably ascertained that it
may be executed at a better price off the
floor.10 Proposed Rule 6.78–O(a) is
substantially the same as current Rule
6.78–O(a) and (b), regarding off-floor
transfer requirements for an OTP Holder
or OTP Firm acting as principal or
agent, respectively, except that it
updates references to SEC rules.11
Proposed Rule 6.78–O(a)(1)–(3), insofar
as it clarifies the securities to which the
proposed Rule applies, obviates the
need for current Commentary .01 to
Rule 6.78–O.12
Proposed Rule 6.78–O(b) provides
that, notwithstanding the provisions of
paragraph (a) of this proposed Rule, an
OTP Holder or OTP Firm acting as agent
may execute a customer’s order off the
Exchange floor with any other person
(except when such OTP Holder or OTP
Firm also is acting as agent for such
other person in such transaction) for the
purchase or sale of an option contract
listed on the Exchange.13
Proposed Rule 6.78–O(c) provides
that for each transaction in which an
OTP Holder or OTP Firm acting as
principal or agent executes any
purchase or sale of an option contract
listed on the Exchange other than on the
Exchange or on another exchange on
which such option contracts are listed
and traded, a record of such transaction
shall be maintained by such OTP Holder
or OTP Firm and shall be available for
inspection by the Exchange for a period
of one year. Such record shall include
the circumstances under which the
transaction was executed in conformity
with this Rule.14
10 See
Cboe Rule 5.12(a).
Rules 6.78–O(a) and (b) (setting forth the
requirements for OTP Holders or OTP Firms acting
for their own account or as agent, respectively, to
effect off-board transactions (or off a participating
exchange) ‘‘involving any purchase or sale of an
option for a premium in excess of $1.00 covering
the same underlying security and having the same
exercise price and expiration date as a series of
options currently open for trading on the
Exchange,’’ including ensuring such transactions
could not be executed at a better price on an
exchange).
12 See Rule 6.78–O, Commentary .01 (providing
that ‘‘[p]aragraphs (a) and (b) above shall not apply
to option transactions executed (i) on the Exchange,
(ii) on another exchange, or (iii) through the
facilities of NASDAQ, if the security underlying the
option class was a National Market System (‘NMS’)
Tier 1 security under Securities and Exchange
Commission Rule 11Aa2–1(b)(1) at the time the
Exchange commenced trading in that option class’’).
13 See Cboe Rule 5.12(b).
14 See Cboe Rule 5.12(c). Proposed Rule 6.78–O(c)
is substantially the same as current Rule 6.78–O(c)
regarding recording-keeping requirements for OTP
Holders or OTP Firms effecting off-floor transfers.
11 See
7 See, e.g., Cboe Rule 5.12 (Transactions Off the
Exchange) and Rule 6.7 (Off-Floor Transfer of
Positions).
8 See Rule 6.78–O, Commentary .03 (providing
that ‘‘[t]o the extent applicable, all other Exchange
rules, including Rule 6.49–O, Solicited
Transactions, will apply to the transfer procedure
set forth in subsections (d) through (f). The
following Rules do not apply to transfer procedures:
6.71–O (Meaning of Premium Bids and Offers);
6.74–O (Bids and Offers in Relation to Units of
Trading); 6.75–O (Priority of Bids and Offers); 6.76–
O (Priority of Split Price Transactions); and 6.47–
O (‘‘Crossing’’ Orders and Stock/Option, SSF/
Option Orders)’’).
9 An ‘‘OTP Holder’’ is a natural person, in good
standing, who has been issued an OTP, or has been
named as a Nominee. See Rule 1.1. An ‘‘OTP Firm’’
is a sole proprietorship, partnership, corporation,
limited liability company or other organization in
good standing who holds an OTP or upon whom
an individual OTP Holder has conferred trading
privileges on the Exchange’s Trading Facilities
pursuant to and in compliance with Exchange rules.
See id.
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Federal Register / Vol. 87, No. 172 / Wednesday, September 7, 2022 / Notices
Proposed Rule 6.78–O(d) provides
that no rule, stated policy, or practice of
the Exchange may prohibit or condition,
or be construed to prohibit or condition,
or otherwise limit, directly or indirectly,
the ability of any OTP Holder or OTP
Firm acting as agent to effect any
transaction otherwise than on the
Exchange with another person (except
when such OTP Holder or OTP Firm
also is acting as agent for such other
person in such transaction) in any
equity security listed on the Exchange
or to which unlisted trading privileges
on the Exchange have been extended.15
Proposed Rule 6.78–O(e) provides
that no rule, stated policy, or practice of
the Exchange may prohibit or condition,
or be construed to prohibit, condition,
or otherwise limit, directly or indirectly,
the ability of any OTP Holder or OTP
Firm to effect any transaction otherwise
than on the Exchange in any reported
security listed and registered on the
Exchange or as to which unlisted
trading privileges on the Exchange have
been extended (other than a put option
or call option issued by Options
Clearing Corporates or OCC) which is
not a covered security.16
Proposed Rule 6.78A–O: Off-Floor
Transfer of Positions
Rule 6.78–O specifies the
circumstances under which OTP Holder
and OTP Firms may effect transfers of
positions, both on and off the trading
floor, notwithstanding the general
prohibition against off-floor transfers
(discussed above).17 The Exchange
proposes to adopt new Rule 6.78A–O,
titled ‘‘Off-Floor Transfer of Positions,’’
which would set forth the permissible
reasons for and procedures related to
off-floor position transfers, but would
not include the provisions related to onfloor position transfers. Proposed Rule
6.78A–O is substantively identical to
the rules of other option exchanges
regarding permissible off-floor transfers
of options positions and would align
Exchange rules with those of its
competitors.18
15 See
Cboe Rule 5.12(d).
Cboe Rule 5.12(e). The ‘‘Options Clearing
Corporation’’ or ‘‘OCC’’ refers to The Options
Clearing Corporation, a subsidiary of the
Participating Exchanges. See Rule 900.2NY(55). The
term ‘‘Participating Exchanges’’ refers to any
national securities exchange that has qualified for
participation in the OCC pursuant to the provisions
of the Rules of the Options Clearing Corporation.
See Rule 900.2NY(61).
17 See Rule 6.78–O(d) (which enumerates
circumstances under which off-floor position
transfers may occur) and Rule 6.78–O(e) and (f)
(which sets forth the procedure or permissible
positions transfers on the floor of the exchange or
on another options exchange).
18 See Cboe Rule 6.7 (Off-Floor Transfer of
Positions). See also Nasdaq ISE, LLC (‘‘ISE’’)
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16 See
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First, the on-floor position transfer
procedure set forth in Rule 6.78–O(e)
and (f) was designed to help OTP
Holders and OTP Firms with a need to
transfer positions in bulk as part of a
sale or disposition of all or substantially
all of its assets or options positions to
obtain the best possible price for the
positions while also ensuring that other
OTP Holders and OTP Firms had an
adequate opportunity to make bids and
offers on the positions being
transferred.19 In addition, the ‘‘on-floor’’
position transfer procedure could be
used by OTP Holders and OTP Firms
that, for reasons other than a forced
liquidation, such as an extended
vacation, wished to liquidate their
entire, or nearly their entire, open
positions in a single set of transactions,
subject to certain restrictions.20
Currently, because OTP Holders have
been largely consolidated in the hands
of firms rather than individuals, such
transfers are, for the most part
unnecessary; if an individual takes an
extended vacation, another member of
the firm handles the firm’s book.
Accordingly, the Exchange believes that
the on-floor transfer of positions
procedure no longer serves the uses for
which it was originally adopted.
Moreover, the process—which is only
used on a limited basis—is nonetheless
administratively burdensome on the
Exchange. Further, other options
exchange with a trading floor and a
transfer of positions rule do not offer an
on-floor transfer procedure.21
Current Rule 6.78–O(d) lists the
circumstances in which OTP Holders or
OTP Firms may transfer their positions
off the floor. The circumstances
currently listed include: (i) the
dissolution of a joint account in which
the remaining OTP Holder or OTP Firm
assumes the positions of the joint
account; (ii) the dissolution of a
Options 6, Section 5 (Transfer of Positions); Miami
Options Exchange (‘‘MIAX’’) Rule 1326 (Transfer of
Positions). As noted below, regarding the
‘‘presidential’’ exemption, Cboe Rule 6.7(f) does not
explicitly include the Chief Executive Office, which
reference is included in ISE Options 6, Section 5(f);
MIAX Rule 1326(f).
19 See Rule 6.78–O(e)(1).
20 See Rule 6.78–O, Commentary .04. Among
other restrictions, repeated and frequent use of the
on-floor procedure in Rule 6.78–O by an OTP
Holder/OTP Firm is not permitted. The Exchange
proposes to include text from current Commentary
.04 that provides that the on-floor transfer
procedure is not to be used repeatedly or routinely
in circumvention of the normal auction market
process in proposed Rule 6.78A–O, as that
provision applies to both the current on-floor and
off-floor position transfer procedures. See proposed
Rule 6.78A–O(g) (discussed herein).
21 See, e.g., Cboe Rule 5.12 (Transactions Off the
Exchange) and Rule 6.7 (Off-Floor Transfer of
Positions); ISE Options 6, Section 5 (Transfer of
Positions).
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54729
corporation or partnership in which a
former nominee of the corporation or
partnership assumes the positions; (iii)
positions transferred as part of an OTP
Holder’s or OTP Firm’s capital
contribution to a new joint account,
partnership, or corporation; (iv) the
donation of positions to a not-for-profit
corporation; (v) the transfer of positions
to a minor under the Uniform Gifts to
Minors Act; (vi) a merger or acquisition
resulting in continuity of ownership or
management; or (vii) consolidation of
accounts within an OTP Holder or OTP
Firm (the ‘‘current Exchange-permitted
off-floor transfers’’). As set forth below,
the Exchange proposes to carry forward
the current Exchange-permitted off-floor
transfers into proposed Rule 6.78A–O
and to add three new permissible
circumstances.22
Proposed Rule 6.78A–O(a) would
provide that, notwithstanding proposed
Rule 6.78–O (described above), existing
positions in options listed on the
Exchange of an OTP Holder or OTP
Firm, or non-OTP Holder or OTP Firm,
that are to be transferred on, from, or to
the books of a Clearing Member 23 may
be transferred off the Exchange (an ‘‘offfloor transfer) if the transfer involves
one or more of the events listed in
proposed Rule 6.78–O(a)(1)–(10).24 The
proposed Rule makes clear that Rule
6.78A–O does not apply to products
other than options listed on the
Exchange, consistent with the
Exchange’s other trading rules.25 It also
clarifies that an OTP Holder or OTP
Firm or Clearing Member must be on at
least one side of the off-floor transfer.
The proposed rule change also clarifies
that transferred positions must be on,
from, or to the books of a Clearing
Member. The proposed rule change also
22 See proposed Rule 6.78A–O(a). Because
proposed Rule 6.78A–O (Off-Floor Transfer of
Positions) would replace current Rule 6.78A–O (InKind Exchange of Options Positions and ETF
Shares and UIT Units), the Exchange proposes the
non-substantive conforming change to re-number
current Rule 6.78A–O as Rule 6.78C–O. The
Exchange is not making any substantive changes to
the text of proposed Rule 6.78C–O and believes the
proposed change would add clarity, transparency
and internal consistent to Exchange rules making
them easier to navigate and comprehend.
23 A ‘‘Clearing Member’’ refers to an OTP Firm or
OTP Holder that has been admitted to membership
in the OCC pursuant to the provisions of the Rules
of the OCC. See Rule 1.1.
24 It is possible for positions transfers to occur
between two Non-OTP Holders or OTP Firms. For
example, one Non-OTP Holder may transfer
positions on the books of a Clearing Member to
another Non-OTP Holder pursuant to the proposed
rule.
25 Proposed paragraph (h) to Rule 6.78A–O 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 6.78A–O.
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Federal Register / Vol. 87, No. 172 / Wednesday, September 7, 2022 / Notices
clarifies that existing positions of an
OTP Holder or OTP Firm or a non-OTP
Holder or OTP Firm may be subject to
an off-floor transfer, except under
specified circumstances in which a
transfer may only be effected for
positions of an OTP Holder or OTP
Firm.26 As such the proposed changes,
in addition to aligning with the rules of
another options exchange (i.e., Cboe
Rule 6.7), would add clarity and
transparency to Exchange rules.
The Exchange notes that 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.27 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.
Proposed Rule 6.78A–O(a)(1)–(10)
carries over the seven current Exchangepermitted off-floor transfers and adds
three more such permissible off-floor
transfers as follows:
• Proposed Rule 6.78A–O(a)(1)
permits an off-floor transfer to occur if
it 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.28
• Proposed Rule 6.78A–O(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 29)
provided the accounts are not in
separate aggregation units or otherwise
subject to information barrier or account
segregation requirements.30 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
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26 See
proposed Rule 6.78A–O(a)(5) and (7).
proposed Rule 6.78A–O(h).
28 See Cboe Rule 6.7(a)(1).
29 A ‘‘Person’’ refers to a natural person,
corporation, partnership, association, joint stock
company, trust, fund, or any organized group of
persons whether incorporated or not. See Rule 1.1.
The proposed transfers may only occur between the
same individual or legal entity.
30 See Cboe Rule 6.7(a)(2).
27 See
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accounts are otherwise required to be
maintained separately.31 The Exchange
is not proposing to carry forward
current Commentary .02 as this
information contained therein is
obviated by proposed Rule 6.78A–
O(a)(2).32
• Proposed Rule 6.78A–O(a)(10)
permits an off-floor transfer if it is a
transfer of positions through operation
of law from death, bankruptcy, or
otherwise.33 This proposed 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.34
The Exchange notes that proposed
6.78A–O(a)(3)–(9) carry forward the
current Exchange-permitted off-floor
transfer circumstances set forth in Rule
6.78–O(d)(1)(i)–(vii), without
substantive differences.35 The Exchange
believes the new events set forth in
proposed Rule 6.78A–O have similar
purposes as the (now carried forward)
current Exchange-permitted off-floor
transfers set forth in current Rule 6.78–
O(d)(1), 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.36 As
noted above, the proposed rule change
is consistent with rules of other selfregulatory organizations.
Proposed Rule 6.78A–O(b) sets forth
certain restrictions on permissible offfloor transfers relating to netting of open
31 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.
32 See Commentary .02 to Rule 6.78–O (providing
that ‘‘[a]cquisitions and dissolutions in which all or
substantially all of the assets of one OTP Holder or
OTP Firm are acquired by another or, where there
remains no continuity of ownership or management
are examples of situations that normally would be
required to be subjected to the transfer process set
forth in subsections (e) and (f). This list is not meant
to be exhaustive, however, and there may be other
situations in which there is a discontinuation of
ownership or management of the positions that may
require that the positions be brought to the floor for
transfer. Questions on whether a transfer should be
brought to the floor may be directed to the
Exchange’s Options Surveillance Department’’).
33 See Cboe Rule 6.7(a)(10). This proposed
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. See, e.g.,
proposed Rule 6.78A–O(a)(6) and (9), respectively.
34 See, e.g., proposed Rule 6.78A–O(a)(6) and (9),
respectively.
35 See Cboe Rule 6.7(a)(3)–(9).
36 See Rule 6.78A–O(g).
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positions and to margin and haircut
treatment, unless otherwise permitted
by proposed paragraph (f) (described
below). Proposed Rule 6.78A–O(b) is
designed to align and harmonize Rule
6.78A–O(b) with the rules of other
options exchanges relating to off-floor
transfers.37 As proposed, no position
may net against another position
(‘‘netting’’), and no position transfer
may result in preferential margin or
haircut treatment. Netting occurs when
long positions and short positions in the
same series ‘‘offset’’ against each other,
leaving no position, or a reduced
position. For example, if an OTP Holder
or OTP Firm 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 offfloor transfer is permitted pursuant to
one of the permissible events listed in
proposed Rule 6.78A–O(a)(1)–(10), the
OTP Holder or OTP Firm could not
transfer the offsetting series, as they
would net against each other and close
the positions.
Proposed Rule 6.78A–O(c) provides
that 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 may be
effected is either: (1) the original trade
prices of the positions that appear on
the books of the trading Clearing
Member, in which case the records of
the off-floor transfer must indicate the
original trade dates for the positions;
provided, transfers to correct bona fide
errors pursuant to proposed
subparagraph (a)(1) must be transferred
at the correct original trade prices; (2)
mark-to-market prices of the positions at
the close of trading on the transfer date;
(3) mark-to-market prices of the
positions at the close of trading on the
trade date prior to the transfer date; 38 or
(4) the then-current market price of the
positions at the time the transfer is
effected. Proposed Rule 6.78A–O(c)
provides market participants that effect
off-floor transfers 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 the
transaction, those off-floor transfers
would occur at the original transaction
price, as the purpose of the transfer is
37 See,
e.g., Cboe Rule 6.7(b).
example, for a transfer that occurs on a
Tuesday, the transfer price may be based on the
closing market price on Monday.
38 For
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to create the originally intended result
of the transaction.
Proposed Rule 6.78A–O(d) requires an
OTP Holder or OTP Firm and its
Clearing Member(s) (to the extent the
OTP Holder or OTP Firm is not selfclearing) to submit to the Exchange, in
a manner determined by the Exchange,
written notice prior to effecting an offfloor transfer from or to the account(s)
of an OTP Holder or OTP Firm(s).39 Per
proposed Rule 6.78–O(d)(1), the
proposed notice must indicate: the
Exchange-listed options positions to be
transferred; the nature of the
transaction; the enumerated provision(s)
under proposed Rule 6.78A–O(a)
pursuant to which the positions are
being transferred; the name of the
counterparty(ies); the anticipated
transfer date; the method for
determining the transfer price; and any
other information requested by the
Exchange. The proposed notice is
designed to ensure that the Exchange is
made aware of all transfers so that the
Exchange can monitor and review such
transfers (including the records that
must be retained pursuant to proposed
Rule 6.78A–O(e) (described below) to
determine whether they are effected in
accordance with the Exchange rules.
Additionally, the Exchange believes that
requiring notice from the OTP Holder or
OTP Firm(s) and its Clearing Member(s)
would ensure that both parties are in
agreement with respect to the terms of
the transfer. In light of the notice
requirement contained in proposed Rule
6.78A–O (d), the Exchange proposes to
make a conforming change by deleting
paragraph (d) to Rule 6.69–O, which
similarly requires OTP Holders and OTP
Firms to report to the Exchange any offfloor transactions, and to hold
paragraph (d) as Reserved.40
Per proposed Rule 6.78A–O(d)(2),
however, receipt of prior notice of an
off-floor transfer would not constitute a
determination by the Exchange that
such transfer was effected or reported in
39 This notice provision applies only to transfers
involving an OTP Holder’s or OTP Firm’s positions
and not to positions of non-OTP Holders or nonOTP Firms, as the latter parties are not subject to
Exchange rules. In addition, no notice would be
required to effect transfers to correct bona fide
errors pursuant to proposed subparagraph (a)(1) or
transfers of positions from one account to another
where no change in ownership is involved pursuant
to proposed paragraph (a)(2) of Rule 6.78A–O.
40 See Rule 6.69–O(d) (providing that ‘‘[f]or each
transaction in which an OTP Holder or OTP Firm
participates off-board (off a participating Exchange)
in any option pertaining to an underlying security
which is currently approved for Exchange options
transactions, such OTP Holder or OTP Firm shall
report the transaction to the Exchange in a form and
manner prescribed by the Exchange. (With the
identity of participants removed, such transaction
may be made public by the Exchange.)’’).
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conformity with the requirements of
proposed Rule 6.78A–O. As such,
notwithstanding submission of written
notice to the Exchange, OTP Holder or
OTP Firm and Clearing Members that
effect off-floor transfers that do not
conform to the requirements of the
proposed Rule would be subject to
appropriate disciplinary action in
accordance with the Exchange rules.
Similarly, proposed Rule 6.78A–O(e)
requires that each party to an off-floor
transfer generate and retain records of
the information provided in the written
notice to the Exchange (pursuant to
proposed subparagraph (d)(1)), as well
as information regarding 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 OTP
Holder or OTP Firm or Clearing Member
to provide.
Proposed 6.78A–O(f) provides
exemptions to the prohibition against
off-floor transfers, as approved by the
Exchange’s President or Chief Executive
Officer (or his or her designee(s)).41
Specifically, this provision is in
addition to the exemptions (to Rule
6.78–O) set forth in proposed Rule
6.78A–O(a)(1)–(10). The Exchange
proposes that the Exchange President or
Chief Executive Officer (or his or her
designee(s)) may grant an exemption
from the requirement of this proposed
Rule, on his or her own motion or upon
application of the OTP Holder or OTP
Firm (with respect to the OTP Holder or
OTP Firm’s positions) or a Clearing
Member (with respect to positions
carried and cleared by the Clearing
Members). The President, the Chief
Executive Officer, or his or her
designee(s), may permit an off-floor
transfer if necessary or appropriate for
the maintenance of a fair and orderly
market and the protection of investors
and is in the public interest, including
due to unusual or extraordinary
circumstances. For example, an
exemption may be granted if the market
value of the Person’s positions would be
compromised by having to comply with
41 See ISE Options 6, Section 5(f); MIAX Rule
1326(f). The Exchange notes that, unlike the rules
of ISE and MIAX, which refer to ‘‘senior level
designees,’’ the Exchange proposes to instead
reference ‘‘designees,’’ which omits the potentially
ambiguous ‘‘senior’’ qualifier. The Exchange
believes this distinction does not alter the or
impede the authority granted in the proposed
provision and is consistent with other Exchange
rules that provide for delegated authority. See, e.g.,
Rule 6.87–O(k)(3)(A) (proving that the appeals
panel to review Obvious Errors or Catastrophic
Errors be comprised, in part of, the Exchange Chief
Regulatory Officer (‘‘CRO’’), or a designee of the
CRO).
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54731
the requirement to trade on the
Exchange pursuant to the normal
auction process or when, in the
judgment of the President, the Chief
Executive Officer, or his or her
designee(s), market conditions make
trading on the Exchange impractical.
The Exchange proposes to state that
the off-floor transfer procedure set forth
in Rule 6.78A–O is intended to facilitate
non-routine, nonrecurring movements
of positions, except for transfers
between accounts of the same Person
pursuant to proposed subparagraph
(a)(2), and is not to be used repeatedly
or routinely in circumvention of the
normal auction market process.42
Lastly, proposed paragraph (h)
provides that the off-floor transfer
procedure set forth in proposed Rule
6.78A–O is only applicable to positions
in options listed on the Exchange; that
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; and that
off-floor transfers of non-Exchange
listed options and other financial
instruments are not governed by this
proposed Rule 6.78A–O.
Proposed Rule 6.78B–O: Off-Floor RWA
Transfers
The Exchange proposes to adopt Rule
6.78B–O titled ‘‘Off-Floor RWA
Transfers,’’ to facilitate the reduction of
risk-weighted assets (‘‘RWA’’)
attributable to open options positions.
This proposal is substantively identical
to rules on other options exchanges and
would align the Exchanges rules with
that of its competitors.43
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.44 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
reductions under the Net Capital
Rules.45
42 See
proposed Rule 6.78A–O(g).
e.g., Cboe Rule 6.8 (Off-Floor RWA
Transfers); ISE Options 6, Section 6 (Off-Exchange
RWA Transfers).
44 17 CFR 240.15c3–1.
45 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
43 See,
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Subject to certain exceptions, Clearing
Members are subject to the Net Capital
Rules.46 However, a subset of Clearing
Members 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.47 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.48
Generally, these rules, among other
things, impose higher minimum capital
and higher asset risk weights than were
previously mandated for Clearing
Members 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.49 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, Clearing Members
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.
The Exchange is concerned with the
ability of Market Makers to provide
liquidity in their appointed classes. The
Exchange believes that permitting
market participants to efficiently
transfer existing options positions
through an off-floor transfer process
would likely have a beneficial effect on
continued liquidity in the options
market without adversely affecting
market quality. Liquidity in the listed
allowed to offset another position’s loss at the same
valuation point (e.g., vertical spreads).
46 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.
47 H.R. 4173 (amending section 3(a) of the Act)
(15 U.S.C. 78c(a))).
48 12 CFR 50; 79 FR 61440 (Liquidity Coverage
Ratio: Liquidity Risk Measurement Standards).
49 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.
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options market is critically important.
The Exchange believes that 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 and
thereby increase liquidity in the listed
options market. The Exchange currently
has no mechanism that firms may use to
transfer positions between clearing
accounts without having to effect a
transaction with another party and close
a position.
Proposed Rule 6.78B–O provides that,
notwithstanding Rule 6.78–O (described
above), existing positions in options
listed on the Exchange of an OTP
Holder or OTP Firm or non-OTP Holder
or OTP Firm (including an affiliate of an
OTP Holder or OTP Firm) may be
transferred on, from, or to the books of
a Clearing Member off the Exchange if
the transfer establishes a net reduction
of RWA attributable to those options
positions (an ‘‘RWA Transfer’’).
Proposed paragraph (a) to Rule 997.2NY
provides examples of two transfers that
would be deemed to establish a net
reduction of RWA, and thus qualify as
a permissible RWA Transfer:
• A transfer of options positions from
Clearing Member A to Clearing Member
B that net (offset) with positions held at
Clearing Member B, and thus closes all
or part of those positions (as
demonstrated in the example below); 50
and
• A transfer of options positions from
a bank-affiliated Clearing Member to a
non-bank-affiliated Clearing Member.51
These transfers would not result in a
change in ownership, as they must
occur between accounts of the same
‘‘Person,’’ as defined in Rule 1.1, per
proposed Rule 6.78B–O(e).52 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
50 This transfer would establish a net reduction of
RWA attributable to the transferring Person,
because there would be fewer open positions and
thus fewer assets subject to Net Capital Rules.
51 This transfer would establish a net reduction of
RWA attributable to the transferring Person,
because the non-bank-affiliated Clearing Member
would not be subject to Net Capital Rules, as
described above.
52 See supra note 29 (defining Person).
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a different account for personal
financial reasons.
For example, Market Maker A clears
transactions on the Exchange into an
account it has with Clearing Member X,
which is affiliated with a U.S-bank
holding company. Market Maker A
opens a clearing account with Clearing
Member Y, which is not affiliated with
a U.S.-bank holding company. Clearing
Member 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 Clearing Member X
clearing account and determines it must
reduce its open positions to satisfy
Clearing Member X’s requirements by
the end of August. It determines that
transferring out 1,000 short calls in class
ABC will sufficiently reduce the RWA
capital requirements in the account with
Clearing Member 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
1,000 short calls in class ABC to its
clearing account with Clearing Member
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.
An OTP Holder or OTP Firm must
‘‘give up’’ a Clearing Member for each
transaction it effects on the Exchange,
which identifies the Clearing Member
through which the transaction will
clear.53 An OTP Holder or OTP Firm
that has the ability to change the give up
for a transaction within a specified
period of time.54 Additionally, an OTP
Holder or OTP Firm may change the
Clearing Member for a specific
transaction.55 The transfer of positions
from an account with one clearing firm
53 See Rule 6.15–O (Authorizing Give Up of a
Clearing Member) (providing process for an OTP
Holder or OTP Firm (other than a Market Maker)
to indicate each of its transactions any OCC number
of a Clearing Member through which a transaction
will be cleared (i.e., the give up), subject to the
criteria set forth in the rule).
54 See Rule 6.15–O(g)(1) (providing that, ‘‘[i]f the
executing OTP Holder or OTP Firm has the ability
through an Exchange system to do so, the OTP
Holder or OTP Firm may change the give up on the
trade to another Clearing Member for whom they
are an Authorized OTP or to its Guarantor,’’ which
ability ‘‘will end at the Trade Date Cutoff Time.’’).
55 The Clearing Member Trade Assignment
(‘‘CMTA’’) process at 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.
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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 a different time and in
a different manner.56
In the above example, if Market Maker
A had initially given up Clearing
Member Y rather than Clearing Member
X on the transactions that resulted in
the 1,000 long calls in class ABC, or had
changed the give-up or CMTA to
Clearing Member Y pursuant to Rule
6.15–O 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.
Proposed paragraph (b) to Rule 6.78B–
O provides that RWA Transfers may
occur on a routine, recurring basis. 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. Additionally, proposed
paragraph (f) to Rule 6.78B–O provides
that no prior written notice to the
Exchange 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 such requirement
may interfere with the ability of OTP
Holders or OTP Firms to comply with
any Clearing Member restrictions
describe above, and may be burdensome
to provide notice for these routine
transfers.
Proposed Rule 6.78B–O(c) provides
that RWA Transfers may result in the
netting of positions. 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. Firms may
maintain different clearing accounts for
a variety of reasons, such as the
structure of their businesses, the manner
56 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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in which they trade, their risk
management procedures, and for capital
purposes. While there are times when a
firm may not want to close out open
positions to reduce RWA, there are
other times when a firm may determine
it is appropriate to close out positions
to accomplish a reduction in RWA.
In the example above, suppose after
making the RWA Transfer described
above, Market Maker A effects a
transaction on September 25 that results
in 1,000 long calls in class ABC, which
clears into its account with Clearing
Member X. If Market Maker A had not
effected its RWA Transfer in August, the
1,000 long calls would have offset
against the 1,000 short calls, eliminating
both positions and thus any RWA
capital requirements associated with
them. At the end of August, Market
Maker A did not want to close out the
1,000 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 1,000 short calls from its
account with Clearing Member Y to its
account with Clearing Member X (or
vice versa), which results in elimination
of those positions (and a reduction in
RWA associated with them). As noted
above, such netting would have
occurred if Market Maker A cleared the
September transaction directly into its
account with Clearing Member 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 RWA
capital requirements when necessary.
Proposed Rule 6.78B–O(d) provides
that RWA Transfers may not result in
preferential margin or haircut treatment.
Finally, per proposed Rule 6.78B–O(g),
RWA Transfers may only be effected for
options listed on the Exchange, as
transfers of non-Exchange listed options
and other financial instruments are not
governed by proposed Rule 6.78B–O,
and such transfers will be subject to
applicable laws, rules, and regulations,
including rules of other self-regulatory
organizations (including OCC).57
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,58 in general, and furthers the
57 All RWA Transfers will be subject to all
recordkeeping requirements applicable to OTP
Holders or OTP Firms and Clearing Members under
the Act, such as Rule 17a–3 and 17a–4.
58 15 U.S.C. 78f(b).
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objectives of Section 6(b)(5) of the Act,59
in particular, because it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest and
because it is not designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers.
As a general matter, the proposed rules
are substantively identical to rules on
other options exchanges and would
align the Exchanges rules with that of its
competitors. As such, this proposal
would benefit investors by reducing the
administrative burden of determining
whether their off-floor transfers comply
with multiple sets of options exchange
rules.
Proposed Rule 6.78–O: Transactions Off
the Exchange
In particular, the Exchange believes
proposed Rule 6.78–O is consistent with
the Act, because it adopts and
streamlines text that is substantially
similar to the current rule, with updated
reference to SEC rules and that also
aligns Exchange rules with those of its
competitors. In addition, as noted
herein, proposed Rule 6.78–O is
substantively identical to the rules of at
least one other options exchange and
would therefore allow the Exchange to
compete on equal footing. Moreover,
proposed Rule 6.78–O is consistent with
the Act, because it adopts provisions in
the Rules specifically required by Rules
19c–1 and 19c–3 under the Act, setting
forth the Exchange’s general prohibition
against off-floor transfers.
Proposed Rule 6.78A–O: Off-Floor
Transfer of Positions
Proposed Rule 6.78A–O adopts and
streamlines text that is substantially
similar to the current rule, with
additional permissible off-floor transfers
that align with permissible transfers on
other options exchanges. The Exchange
believes that permitting off-floor
transfers in very limited circumstances
would allow OTP Holders or OTP Firms
to accomplish certain goals efficiently.
Proposed Rule 6.78A–O is also
substantively identical to the rules of
other options exchanges and, consistent
with those rules, the proposed rule
permits non-recurring off-floor transfers
59 15
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in situations involving dissolutions of
entities or accounts, for purposes of
donations, mergers or by operation of
law. As noted above for example, an
OTP Holder or OTP Firm that is
undergoing a structural change and a
one-time movement of positions may
require a transfer of positions or an OTP
Holder or OTP Firm that is leaving a
firm that will no longer be in business
may require a transfer of positions to
another firm. Also, an OTP Holder or
OTP Firm 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 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 the
proposed rule will be adopted.
Accordingly, such activity should not be
permitted under the proposed rule.
The proposed rule change would
provide market participants that
experience these limited, 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 would
provide 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 which
requires notice and maintenance of
records would ensure the Exchange is
able to review off-floor transfers for
compliance with the Exchange 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. In
addition, the Exchange believes the
conforming change to delete paragraph
(d) to Rule 6.69–O in light of the
comparable notice requirement in
proposed Rule 6.78A–O(d) would
reduce redundancy, add clarity,
transparency and internal consistent to
Exchange rules.
Similar to the rules of other options
exchanges, the Exchange would permit
a presidential exemption.60 The
Exchange believes that this exemption is
consistent with the Act because the
Exchange’s Chief Executive Officer or
60 See
ISE Options 6, Section 5(f); MIAX Rule
1326(f). See also Cboe Rule 6.8(f).
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President (or his or her designee(s))
would consider an exemption in very
limited circumstances (i.e., to facilitate
non-routine, nonrecurring movements
of positions not designed to circumvent
the normal auction market process).
Proposed Rule 6.78–OA(f) specifically
provides that the Exchange’s Chief
Executive Officer or President (or his or
her designee(s)) may in his or her
judgment allow an off-floor transfer if it
is necessary or appropriate for the
maintenance of a fair and orderly
market and the protection of investors
and is in the public interest, including
due to unusual or extraordinary
circumstances such as the market value
of the Person’s positions will be
comprised by having to comply with the
requirement to trade on the Exchange
pursuant to the normal auction process
or, when in the judgment of the
President, Chief Executive Officer, or
his or her designee(s), market conditions
make trading on the Exchange
impractical. These standards within
paragraph (f) of the proposed rule are
intended to provide guidance
concerning the use of this exemption to
the benefit of investors and the
investing public for the maintenance of
a fair and orderly market and the
protection of investors and is in the
public interest.
Finally, the Exchange notes that the
proposed non-substantive conforming
change to update current Rule 6.78A–O
to 6.78C–O (In-Kind Exchange of
Options Positions and ETF Shares and
UIT Units) would benefit investors and
the investing public because it would
add clarity, transparency and internal
consistency to Exchange rules making
them easier to navigate and
comprehend.61
The Exchange believes having similar
rules related to off-floor transfer
positions to those of other options
exchanges would reduce the
administrative burden on market
participants of determining whether
their off-floor transfers comply with
multiple sets of rules.
Proposed Rule 6.78B–O: Off-Floor RWA
Transfers
The Exchange believes proposed Rule
6.78B–O to permit RWA Transfers,
which is substantially the same as the
rules of other options markets, would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system by
providing liquidity in the listed options
market. The Exchange believes
61 See supra note 22 (regarding conforming
change to renumber current Rule 6.78A–O to
proposed Rule 6.78C–O).
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providing market participants with an
efficient process to reduce RWA 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 proposal to permit RWA
Transfers to occur on a routine,
recurring basis and result in netting,
also provides market participants with
sufficient flexibility to reduce RWA
capital requirements at times necessary
to comply with requirements imposed
on them by clearing firms. This would
permit market participants to respond to
then-current market conditions,
including volatility and increased
volume, by reducing the RWA 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
would 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
(without any required prior written
notice) would provide market
participants with the ability to respond
to these conditions whenever they
occur. Permitting such transfers on a
routine, recurring basis will provide
market participants with the flexibility
to comply with applicable 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 on exchanges, including
price transparency, potential price
improvement, and a clearing guarantee.
However, the Exchange believes it is
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appropriate to permit RWA Transfers to
occur off the Exchange, as these benefits
are inapplicable to RWA Transfers
which are narrow in scope and are
intended to achieve a limited beneficial
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
RWA 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 RWA 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 a
Clearing Member, and the positions will
continue to be subject to OCC rules, as
they will continue to be held in an
account with a 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 OTP Holders/Firms
and non-OTP Holders/Firms with open
positions in options listed on the
Exchange may use the proposed offfloor transfer process to reduce the RWA
capital requirements of Clearing
Members. Finally, this proposed rule
change would align Exchange rules with
those of other options exchanges,
thereby allowing the Exchange to
compete on equal footing.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange believes that the
proposal will not impose any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of Section 6(b)(8) of the Act.62
The proposed rules are not intended to
be a competitive trading tools, but rather
to set forth the general prohibition
against off-floor transactions and to
facilitate certain off-floor transactions in
limited circumstances that meet the
enumerated criteria.
The Exchange does not believe the
proposed rule change regarding off-floor
position transfers set forth in the
proposed rules would impose an undue
62 15
U.S.C. 78f(b)(8).
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54735
burden on intra-market competition as
the transfer procedure(s) may be utilized
by any OTP Holders/Firms and the rule
will apply uniformly to all OTP Holders
or OTP Firms. Use of each off-floor
transfer procedure is voluntary, and all
OTP Holders or OTP Firms may use
each such procedure to transfer
positions as long as the criteria in the
proposed rule are satisfied.
The Exchange does not believe the
proposed rule change will impose an
undue burden on inter-market
competition. As indicated above, it is
intended to provide an additional
clearly delineated and limited
circumstance in which options
positions can be transferred off an
exchange (as well as to set forth the
general prohibition against such
transfers). Additionally, as discussed
above, the proposed rule change is
substantively identical to the rules of
other options exchanges and would
allow the Exchange to compete on equal
footing. Moreover, the Exchange
believes having similar rules related to
off-floor position transfers to those of
other options exchanges will reduce the
administrative burden on market
participants of determining whether
their transfers comply with multiple
sets of rules.
Finally, the Exchange notes that the
proposed non-substantive conforming
change to update current Rule 6.78A–O
to 6.78C–O (In-Kind Exchange of
Options Positions and ETF Shares and
UIT Units) would benefit investors and
the investing public because it would
add clarity, transparency and internal
consistency to Exchange rules making
them easier to navigate and
comprehend.63
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.66
At any time within 60 days of the
filing of such 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
under Section 19(b)(2)(B) of the Act 67 to
determine whether the proposed rule
change should be approved or
disapproved.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
• 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–NYSEARCA–2022–55. 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
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 64 and Rule
19b–4(f)(6) thereunder.65 Because the
proposed rule change does not: (i)
significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
63 See supra note 22 (regarding conforming
change to renumber current Rule 6.78A–O to
proposed Rule 6.78C–O).
64 15 U.S.C. 78s(b)(3)(A)(iii).
65 17 CFR 240.19b–4(f)(6).
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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–
NYSEARCA–2022–55 on the subject
line.
Paper Comments
66 15 U.S.C. 78s(b)(3)(A)(iii). Rule 19b–4(f)(6)(iii)
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 Commission notes that the
Exchange satisfied this requirement.
67 15 U.S.C. 78s(b)(2)(B).
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Federal Register / Vol. 87, No. 172 / Wednesday, September 7, 2022 / Notices
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–NYSEARCA–2022–55 and
should be submitted on or before
September 28, 2022.
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B)
and (10) and 17 CFR 200.402(a)(3),
(a)(5), (a)(6), (a)(7), (a)(8), (a)(9)(ii) and
(a)(10), permit consideration of the
scheduled matters at the closed meeting.
The subject matter of the closed
meeting will consist of the following
topics:
Institution and settlement of
injunctive actions;
Institution and settlement of
administrative proceedings;
Resolution of litigation claims; and
Other matters relating to examinations
and enforcement proceedings.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting agenda items that
may consist of adjudicatory,
examination, litigation, or regulatory
matters.
CONTACT PERSON FOR MORE INFORMATION:
For further information; please contact
Vanessa A. Countryman from the Office
of the Secretary at (202) 551–5400.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.68
J. Matthew DeLesDernier,
Deputy Secretary.
Dated: September 1, 2022.
Vanessa A. Countryman,
Secretary.
(Authority: 5 U.S.C. 552b.)
[FR Doc. 2022–19345 Filed 9–2–22; 11:15 am]
BILLING CODE 8011–01–P
[FR Doc. 2022–19227 Filed 9–6–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–95651; File No. 10–239]
Sunshine Act Meetings
2:00 p.m. on Thursday,
September 8, 2022.
PLACE: The meeting will be held via
remote means and/or at the
Commission’s headquarters, 100 F
Street NE, Washington, DC 20549.
STATUS: This meeting will be closed to
the public.
MATTERS TO BE CONSIDERED:
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the closed meeting. Certain
staff members who have an interest in
the matters also may be present.
In the event that the time, date, or
location of this meeting changes, an
announcement of the change, along with
the new time, date, and/or place of the
meeting will be posted on the
Commission’s website at https://
www.sec.gov.
lotter on DSK11XQN23PROD with NOTICES1
TIME AND DATE:
In the Matter of the Application of 24X
National Exchange LLC for
Registration as a National Securities
Exchange; Order Instituting
Proceedings To Determine Whether To
Grant or Deny an Application for
Registration as a National Securities
Exchange Under Section 6 of the
Securities Exchange Act of 1934
September 1, 2022.
I. Introduction
On March 25, 2022, 24X National
Exchange LLC (‘‘24X’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) a Form 1
application under the Securities
Exchange Act of 1934 (‘‘Act’’), seeking
registration as a national securities
exchange under Section 6 of the Act.1
Notice of the application was published
for comment in the Federal Register on
June 6, 2022.2 The Commission received
1 15
U.S.C. 78f.
Securities Exchange Act Release No. 95007
(May 31, 2022), 87 FR 34333 (‘‘Notice’’).
2 See
68 17
CFR 200.30–3(a)(12).
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three comments on the application.3 As
discussed further below, the
commenters stated that 24X’s
application does not include sufficient
information about several aspects of its
proposed operation.4 One commenter
stated that the application ‘‘does not
meet the legal and administrative
requirements’’ under the Act.5 Another
commenter questioned whether ‘‘24X
has the necessary structure and checks
in place to protect investors and ensure
a fair and orderly market’’ and stated
that certain elements of 24X’s proposal
were not sufficiently described and that
additional information was required to
evaluate the proposal.6 This commenter
stated that 24X ‘‘contemplates trading
concepts that have not been tested
within the U.S. equities markets’’ and
that the application raises a number of
questions ‘‘including how its new
exchange will interact with the current
trading ecosystem.’’ 7 Another
commenter stated that the 24X Form 1
should not be approved because the
regulatory infrastructure necessary to
support its proposed trading system
does not yet exist.8
Section 19(a)(1) of the Act 9 requires
the Commission, within ninety days of
the date of publication of notice of an
application for registration as a national
securities exchange, or such longer
period as to which the applicant
consents, to, by order, grant such
registration 10 or institute proceedings to
determine whether such registration
should be denied.11 This order is
instituting proceedings under Section
19(a)(1)(B) of the Act 12 to determine
whether 24X’s application for
registration as a national securities
exchange should be granted or denied,
and provides notice of the grounds for
denial under consideration by the
Commission, as set forth below.
3 See letters from Brian Hyndman, President and
Chief Executive Officer, Blue Ocean ATS, LLC,
dated July 21, 2022 (‘‘Blue Ocean Letter’’); Eun Ah
Choi, Senior Vice President, The Nasdaq Stock
Market LLC, dated July 21, 2022 (‘‘Nasdaq Letter’’);
and Hope Jarkowski, General Counsel, NYSE
Group, dated July 29, 2022 (‘‘NYSE Letter’’) to
Vanessa A. Countryman, Secretary, Commission.
The public comment file for 24X’s Form 1
application (File No. 10–239) is available on the
Commission’s website at: https://www.sec.gov/
comments/10-239/10-239.htm.
4 See Blue Ocean Letter at 2–6, Nasdaq Letter at
2–5 and NYSE Letter at 2–4.
5 See Blue Ocean Letter at 6.
6 See Nasdaq Letter at 5.
7 Id.
8 See NYSE Letter at 4.
9 15 U.S.C. 78s(a)(1).
10 15 U.S.C. 78s(a)(1)(A).
11 15 U.S.C. 78a(a)(1)(B).
12 15 U.S.C. 78s(a)(1)(B).
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]]>Agencies
[Federal Register Volume 87, Number 172 (Wednesday, September 7, 2022)]
[Notices]
[Pages 54727-54736]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-19227]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95644; File No. SR-NYSEARCA-2022-55]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Modify Rule
6.78-O and Adopt New Rules Related Thereto and Delete Paragraph (d) to
Rule 6.69-O
August 31, 2022.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on August 23, 2022, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and
II, below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to modify Rule 6.78-O and to adopt new rules
related thereto regarding certain position transfers, including off-
floor transfers. The Exchange also proposes to delete paragraph (d) to
Rule 6.69-O (Reporting Duties). The proposed rule change is available
on the Exchange's
[[Page 54728]]
website at www.nyse.com, at the principal office of the Exchange, 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 self-regulatory organization
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 those 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 parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this rule change is to modify Rule 6.78-O and to
adopt new rules related thereto regarding certain position transfers,
including off-floor transfers as described herein. As discussed herein,
the proposed rules are substantively identical to rules on other
options exchanges and would align the Exchanges rules with that of its
competitors, thus reducing market participants' administrative burden
of determining whether their transfers comply with multiple sets of
options exchange rules.\4\ The Exchange also proposes to delete
paragraph (d) to Rule 6.69-O (Reporting Duties) for reason set forth
below.
---------------------------------------------------------------------------
\4\ See, e.g., Cboe Options Exchange, Inc. (``Cboe'') Rule 5.12
(Transactions Off the Exchange); Cboe Rule 6.7 (Off-Floor Transfer
of Positions); Cboe Rule 6.8 (Off-Floor RWA Transfers); and NYSE
Arca Rule 6.78A-O (In-Kind Exchange of Options Positions and ETF
Shares and UIT Units) and Cboe Rule 6.9 (same).
---------------------------------------------------------------------------
Rule 6.78-O sets forth the general rule that transactions of option
contracts listed on the Exchange for a premium in excess of $1.00 must
be effected on the floor of the Exchange or on another exchange.\5\
Notwithstanding this prohibition, the Exchange permits certain types of
position transfers to be effected off the floor.\6\ In addition, Rule
6.78-O(e) sets forth a procedure for an ``on-floor'' transfer of
positions and Rule 6.78-O(f) authorizes the Exchange's Chief Executive
Officer to grant exemptions to (e) of the Rule.
---------------------------------------------------------------------------
\5\ See Rule 6.78-O(a)-(b). Rule 6.78-O(c) requires that OTP
Holders or OTP Firms that effect off-floor transfers keep records of
such transactions.
\6\ See Rule 6.78-O(d)(1) (setting forth specific events under
which off-floor transfers are permitted). The Exchange notes that
new Rule 6.78A-O will address enumerated exceptions to the general
prohibition against off-floor transfers (as set forth in proposed
Rule 6.78-O).
---------------------------------------------------------------------------
The Exchange proposes to delete current Rule 6.78-O in its entirety
and replace it with proposed Rules 6.78-O and 6.78A-O, the text of
which rules are substantively identical to Cboe Options Exchange, Inc.
(``Cboe'') Rules 5.12 (Transactions Off the Exchange) and Rule 6.7
(Off-Floor Transfer of Positions). As such, the proposed rules would
align Exchange rules with those of its competitors.\7\ The Exchange
believes having similar rules related to off-floor transfer positions
to those of other options exchanges would reduce the administrative
burden on market participants of determining whether their off-floor
transfers comply with multiple sets of rules. The proposed Rules would
apply to all Exchange rules and, as such, the Exchange is not proposing
to carry forward current Commentary .03, which specifies Exchange rules
to which it applies.\8\
---------------------------------------------------------------------------
\7\ See, e.g., Cboe Rule 5.12 (Transactions Off the Exchange)
and Rule 6.7 (Off-Floor Transfer of Positions).
\8\ See Rule 6.78-O, Commentary .03 (providing that ``[t]o the
extent applicable, all other Exchange rules, including Rule 6.49-O,
Solicited Transactions, will apply to the transfer procedure set
forth in subsections (d) through (f). The following Rules do not
apply to transfer procedures: 6.71-O (Meaning of Premium Bids and
Offers); 6.74-O (Bids and Offers in Relation to Units of Trading);
6.75-O (Priority of Bids and Offers); 6.76-O (Priority of Split
Price Transactions); and 6.47-O (``Crossing'' Orders and Stock/
Option, SSF/Option Orders)'').
---------------------------------------------------------------------------
Proposed Rule 6.78-O: Transactions Off the Exchange
Proposed Rule 6.78-O(a) provides that except as otherwise provided
by this proposed Rule, no OTP Holders or OTP Firm \9\ acting as
principal or agent may effect transactions in any class of option
contracts listed on the Exchange for a premium in excess of $1.00 other
than (1) on the Exchange, (2) on another exchange on which such option
contracts are listed and traded, or (3) in the over-the-counter market
if the stock underlying the option class, or in the case of an index
option, if all the component stocks of an index underlying the option
class, was a National Market System security under SEC Rule 600 at the
time the Exchange commenced trading in that option class, unless that
OTP Holder or OTP Firm has first attempted to execute the transaction
on the floor of the Exchange and has reasonably ascertained that it may
be executed at a better price off the floor.\10\ Proposed Rule 6.78-
O(a) is substantially the same as current Rule 6.78-O(a) and (b),
regarding off-floor transfer requirements for an OTP Holder or OTP Firm
acting as principal or agent, respectively, except that it updates
references to SEC rules.\11\ Proposed Rule 6.78-O(a)(1)-(3), insofar as
it clarifies the securities to which the proposed Rule applies,
obviates the need for current Commentary .01 to Rule 6.78-O.\12\
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\9\ An ``OTP Holder'' is a natural person, in good standing, who
has been issued an OTP, or has been named as a Nominee. See Rule
1.1. An ``OTP Firm'' is a sole proprietorship, partnership,
corporation, limited liability company or other organization in good
standing who holds an OTP or upon whom an individual OTP Holder has
conferred trading privileges on the Exchange's Trading Facilities
pursuant to and in compliance with Exchange rules. See id.
\10\ See Cboe Rule 5.12(a).
\11\ See Rules 6.78-O(a) and (b) (setting forth the requirements
for OTP Holders or OTP Firms acting for their own account or as
agent, respectively, to effect off-board transactions (or off a
participating exchange) ``involving any purchase or sale of an
option for a premium in excess of $1.00 covering the same underlying
security and having the same exercise price and expiration date as a
series of options currently open for trading on the Exchange,''
including ensuring such transactions could not be executed at a
better price on an exchange).
\12\ See Rule 6.78-O, Commentary .01 (providing that
``[p]aragraphs (a) and (b) above shall not apply to option
transactions executed (i) on the Exchange, (ii) on another exchange,
or (iii) through the facilities of NASDAQ, if the security
underlying the option class was a National Market System (`NMS')
Tier 1 security under Securities and Exchange Commission Rule 11Aa2-
1(b)(1) at the time the Exchange commenced trading in that option
class'').
---------------------------------------------------------------------------
Proposed Rule 6.78-O(b) provides that, notwithstanding the
provisions of paragraph (a) of this proposed Rule, an OTP Holder or OTP
Firm acting as agent may execute a customer's order off the Exchange
floor with any other person (except when such OTP Holder or OTP Firm
also is acting as agent for such other person in such transaction) for
the purchase or sale of an option contract listed on the Exchange.\13\
---------------------------------------------------------------------------
\13\ See Cboe Rule 5.12(b).
---------------------------------------------------------------------------
Proposed Rule 6.78-O(c) provides that for each transaction in which
an OTP Holder or OTP Firm acting as principal or agent executes any
purchase or sale of an option contract listed on the Exchange other
than on the Exchange or on another exchange on which such option
contracts are listed and traded, a record of such transaction shall be
maintained by such OTP Holder or OTP Firm and shall be available for
inspection by the Exchange for a period of one year. Such record shall
include the circumstances under which the transaction was executed in
conformity with this Rule.\14\
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\14\ See Cboe Rule 5.12(c). Proposed Rule 6.78-O(c) is
substantially the same as current Rule 6.78-O(c) regarding
recording-keeping requirements for OTP Holders or OTP Firms
effecting off-floor transfers.
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[[Page 54729]]
Proposed Rule 6.78-O(d) provides that no rule, stated policy, or
practice of the Exchange may prohibit or condition, or be construed to
prohibit or condition, or otherwise limit, directly or indirectly, the
ability of any OTP Holder or OTP Firm acting as agent to effect any
transaction otherwise than on the Exchange with another person (except
when such OTP Holder or OTP Firm also is acting as agent for such other
person in such transaction) in any equity security listed on the
Exchange or to which unlisted trading privileges on the Exchange have
been extended.\15\
---------------------------------------------------------------------------
\15\ See Cboe Rule 5.12(d).
---------------------------------------------------------------------------
Proposed Rule 6.78-O(e) provides that no rule, stated policy, or
practice of the Exchange may prohibit or condition, or be construed to
prohibit, condition, or otherwise limit, directly or indirectly, the
ability of any OTP Holder or OTP Firm to effect any transaction
otherwise than on the Exchange in any reported security listed and
registered on the Exchange or as to which unlisted trading privileges
on the Exchange have been extended (other than a put option or call
option issued by Options Clearing Corporates or OCC) which is not a
covered security.\16\
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\16\ See Cboe Rule 5.12(e). The ``Options Clearing Corporation''
or ``OCC'' refers to The Options Clearing Corporation, a subsidiary
of the Participating Exchanges. See Rule 900.2NY(55). The term
``Participating Exchanges'' refers to any national securities
exchange that has qualified for participation in the OCC pursuant to
the provisions of the Rules of the Options Clearing Corporation. See
Rule 900.2NY(61).
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Proposed Rule 6.78A-O: Off-Floor Transfer of Positions
Rule 6.78-O specifies the circumstances under which OTP Holder and
OTP Firms may effect transfers of positions, both on and off the
trading floor, notwithstanding the general prohibition against off-
floor transfers (discussed above).\17\ The Exchange proposes to adopt
new Rule 6.78A-O, titled ``Off-Floor Transfer of Positions,'' which
would set forth the permissible reasons for and procedures related to
off-floor position transfers, but would not include the provisions
related to on-floor position transfers. Proposed Rule 6.78A-O is
substantively identical to the rules of other option exchanges
regarding permissible off-floor transfers of options positions and
would align Exchange rules with those of its competitors.\18\
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\17\ See Rule 6.78-O(d) (which enumerates circumstances under
which off-floor position transfers may occur) and Rule 6.78-O(e) and
(f) (which sets forth the procedure or permissible positions
transfers on the floor of the exchange or on another options
exchange).
\18\ See Cboe Rule 6.7 (Off-Floor Transfer of Positions). See
also Nasdaq ISE, LLC (``ISE'') Options 6, Section 5 (Transfer of
Positions); Miami Options Exchange (``MIAX'') Rule 1326 (Transfer of
Positions). As noted below, regarding the ``presidential''
exemption, Cboe Rule 6.7(f) does not explicitly include the Chief
Executive Office, which reference is included in ISE Options 6,
Section 5(f); MIAX Rule 1326(f).
---------------------------------------------------------------------------
First, the on-floor position transfer procedure set forth in Rule
6.78-O(e) and (f) was designed to help OTP Holders and OTP Firms with a
need to transfer positions in bulk as part of a sale or disposition of
all or substantially all of its assets or options positions to obtain
the best possible price for the positions while also ensuring that
other OTP Holders and OTP Firms had an adequate opportunity to make
bids and offers on the positions being transferred.\19\ In addition,
the ``on-floor'' position transfer procedure could be used by OTP
Holders and OTP Firms that, for reasons other than a forced
liquidation, such as an extended vacation, wished to liquidate their
entire, or nearly their entire, open positions in a single set of
transactions, subject to certain restrictions.\20\ Currently, because
OTP Holders have been largely consolidated in the hands of firms rather
than individuals, such transfers are, for the most part unnecessary; if
an individual takes an extended vacation, another member of the firm
handles the firm's book. Accordingly, the Exchange believes that the
on-floor transfer of positions procedure no longer serves the uses for
which it was originally adopted. Moreover, the process--which is only
used on a limited basis--is nonetheless administratively burdensome on
the Exchange. Further, other options exchange with a trading floor and
a transfer of positions rule do not offer an on-floor transfer
procedure.\21\
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\19\ See Rule 6.78-O(e)(1).
\20\ See Rule 6.78-O, Commentary .04. Among other restrictions,
repeated and frequent use of the on-floor procedure in Rule 6.78-O
by an OTP Holder/OTP Firm is not permitted. The Exchange proposes to
include text from current Commentary .04 that provides that the on-
floor transfer procedure is not to be used repeatedly or routinely
in circumvention of the normal auction market process in proposed
Rule 6.78A-O, as that provision applies to both the current on-floor
and off-floor position transfer procedures. See proposed Rule 6.78A-
O(g) (discussed herein).
\21\ See, e.g., Cboe Rule 5.12 (Transactions Off the Exchange)
and Rule 6.7 (Off-Floor Transfer of Positions); ISE Options 6,
Section 5 (Transfer of Positions).
---------------------------------------------------------------------------
Current Rule 6.78-O(d) lists the circumstances in which OTP Holders
or OTP Firms may transfer their positions off the floor. The
circumstances currently listed include: (i) the dissolution of a joint
account in which the remaining OTP Holder or OTP Firm assumes the
positions of the joint account; (ii) the dissolution of a corporation
or partnership in which a former nominee of the corporation or
partnership assumes the positions; (iii) positions transferred as part
of an OTP Holder's or OTP Firm's capital contribution to a new joint
account, partnership, or corporation; (iv) the donation of positions to
a not-for-profit corporation; (v) the transfer of positions to a minor
under the Uniform Gifts to Minors Act; (vi) a merger or acquisition
resulting in continuity of ownership or management; or (vii)
consolidation of accounts within an OTP Holder or OTP Firm (the
``current Exchange-permitted off-floor transfers''). As set forth
below, the Exchange proposes to carry forward the current Exchange-
permitted off-floor transfers into proposed Rule 6.78A-O and to add
three new permissible circumstances.\22\
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\22\ See proposed Rule 6.78A-O(a). Because proposed Rule 6.78A-O
(Off-Floor Transfer of Positions) would replace current Rule 6.78A-O
(In-Kind Exchange of Options Positions and ETF Shares and UIT
Units), the Exchange proposes the non-substantive conforming change
to re-number current Rule 6.78A-O as Rule 6.78C-O. The Exchange is
not making any substantive changes to the text of proposed Rule
6.78C-O and believes the proposed change would add clarity,
transparency and internal consistent to Exchange rules making them
easier to navigate and comprehend.
---------------------------------------------------------------------------
Proposed Rule 6.78A-O(a) would provide that, notwithstanding
proposed Rule 6.78-O (described above), existing positions in options
listed on the Exchange of an OTP Holder or OTP Firm, or non-OTP Holder
or OTP Firm, that are to be transferred on, from, or to the books of a
Clearing Member \23\ may be transferred off the Exchange (an ``off-
floor transfer) if the transfer involves one or more of the events
listed in proposed Rule 6.78-O(a)(1)-(10).\24\ The proposed Rule makes
clear that Rule 6.78A-O does not apply to products other than options
listed on the Exchange, consistent with the Exchange's other trading
rules.\25\ It also clarifies that an OTP Holder or OTP Firm or Clearing
Member must be on at least one side of the off-floor transfer. The
proposed rule change also clarifies that transferred positions must be
on, from, or to the books of a Clearing Member. The proposed rule
change also
[[Page 54730]]
clarifies that existing positions of an OTP Holder or OTP Firm or a
non-OTP Holder or OTP Firm may be subject to an off-floor transfer,
except under specified circumstances in which a transfer may only be
effected for positions of an OTP Holder or OTP Firm.\26\ As such the
proposed changes, in addition to aligning with the rules of another
options exchange (i.e., Cboe Rule 6.7), would add clarity and
transparency to Exchange rules.
---------------------------------------------------------------------------
\23\ A ``Clearing Member'' refers to an OTP Firm or OTP Holder
that has been admitted to membership in the OCC pursuant to the
provisions of the Rules of the OCC. See Rule 1.1.
\24\ It is possible for positions transfers to occur between two
Non-OTP Holders or OTP Firms. For example, one Non-OTP Holder may
transfer positions on the books of a Clearing Member to another Non-
OTP Holder pursuant to the proposed rule.
\25\ Proposed paragraph (h) to Rule 6.78A-O 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 6.78A-O.
\26\ See proposed Rule 6.78A-O(a)(5) and (7).
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The Exchange notes that 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.\27\ 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.
---------------------------------------------------------------------------
\27\ See proposed Rule 6.78A-O(h).
---------------------------------------------------------------------------
Proposed Rule 6.78A-O(a)(1)-(10) carries over the seven current
Exchange-permitted off-floor transfers and adds three more such
permissible off-floor transfers as follows:
Proposed Rule 6.78A-O(a)(1) permits an off-floor transfer
to occur if it 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.\28\
---------------------------------------------------------------------------
\28\ See Cboe Rule 6.7(a)(1).
---------------------------------------------------------------------------
Proposed Rule 6.78A-O(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 \29\) provided the accounts are not in separate
aggregation units or otherwise subject to information barrier or
account segregation requirements.\30\ 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.\31\ The Exchange is not proposing to carry
forward current Commentary .02 as this information contained therein is
obviated by proposed Rule 6.78A-O(a)(2).\32\
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\29\ A ``Person'' refers to a natural person, corporation,
partnership, association, joint stock company, trust, fund, or any
organized group of persons whether incorporated or not. See Rule
1.1. The proposed transfers may only occur between the same
individual or legal entity.
\30\ See Cboe Rule 6.7(a)(2).
\31\ 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.
\32\ See Commentary .02 to Rule 6.78-O (providing that
``[a]cquisitions and dissolutions in which all or substantially all
of the assets of one OTP Holder or OTP Firm are acquired by another
or, where there remains no continuity of ownership or management are
examples of situations that normally would be required to be
subjected to the transfer process set forth in subsections (e) and
(f). This list is not meant to be exhaustive, however, and there may
be other situations in which there is a discontinuation of ownership
or management of the positions that may require that the positions
be brought to the floor for transfer. Questions on whether a
transfer should be brought to the floor may be directed to the
Exchange's Options Surveillance Department'').
---------------------------------------------------------------------------
Proposed Rule 6.78A-O(a)(10) permits an off-floor transfer
if it is a transfer of positions through operation of law from death,
bankruptcy, or otherwise.\33\ This proposed 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.\34\
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\33\ See Cboe Rule 6.7(a)(10). This proposed 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. See, e.g., proposed Rule 6.78A-O(a)(6)
and (9), respectively.
\34\ See, e.g., proposed Rule 6.78A-O(a)(6) and (9),
respectively.
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The Exchange notes that proposed 6.78A-O(a)(3)-(9) carry forward
the current Exchange-permitted off-floor transfer circumstances set
forth in Rule 6.78-O(d)(1)(i)-(vii), without substantive
differences.\35\ The Exchange believes the new events set forth in
proposed Rule 6.78A-O have similar purposes as the (now carried
forward) current Exchange-permitted off-floor transfers set forth in
current Rule 6.78-O(d)(1), 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.\36\ As noted
above, the proposed rule change is consistent with rules of other self-
regulatory organizations.
---------------------------------------------------------------------------
\35\ See Cboe Rule 6.7(a)(3)-(9).
\36\ See Rule 6.78A-O(g).
---------------------------------------------------------------------------
Proposed Rule 6.78A-O(b) sets forth certain restrictions on
permissible off-floor transfers relating to netting of open positions
and to margin and haircut treatment, unless otherwise permitted by
proposed paragraph (f) (described below). Proposed Rule 6.78A-O(b) is
designed to align and harmonize Rule 6.78A-O(b) with the rules of other
options exchanges relating to off-floor transfers.\37\ As proposed, no
position may net against another position (``netting''), and no
position transfer may result in preferential margin or haircut
treatment. Netting occurs when long positions and short positions in
the same series ``offset'' against each other, leaving no position, or
a reduced position. For example, if an OTP Holder or OTP Firm 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 off-
floor transfer is permitted pursuant to one of the permissible events
listed in proposed Rule 6.78A-O(a)(1)-(10), the OTP Holder or OTP Firm
could not transfer the offsetting series, as they would net against
each other and close the positions.
---------------------------------------------------------------------------
\37\ See, e.g., Cboe Rule 6.7(b).
---------------------------------------------------------------------------
Proposed Rule 6.78A-O(c) provides that 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 may be
effected is either: (1) the original trade prices of the positions that
appear on the books of the trading Clearing Member, in which case the
records of the off-floor transfer must indicate the original trade
dates for the positions; provided, transfers to correct bona fide
errors pursuant to proposed subparagraph (a)(1) must be transferred at
the correct original trade prices; (2) mark-to-market prices of the
positions at the close of trading on the transfer date; (3) mark-to-
market prices of the positions at the close of trading on the trade
date prior to the transfer date; \38\ or (4) the then-current market
price of the positions at the time the transfer is effected. Proposed
Rule 6.78A-O(c) provides market participants that effect off-floor
transfers 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 the
transaction, those off-floor transfers would occur at the original
transaction price, as the purpose of the transfer is
[[Page 54731]]
to create the originally intended result of the transaction.
---------------------------------------------------------------------------
\38\ For example, for a transfer that occurs on a Tuesday, the
transfer price may be based on the closing market price on Monday.
---------------------------------------------------------------------------
Proposed Rule 6.78A-O(d) requires an OTP Holder or OTP Firm and its
Clearing Member(s) (to the extent the OTP Holder or OTP Firm 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(s) of an OTP Holder or OTP Firm(s).\39\ Per proposed
Rule 6.78-O(d)(1), the proposed notice must indicate: the Exchange-
listed options positions to be transferred; the nature of the
transaction; the enumerated provision(s) under proposed Rule 6.78A-O(a)
pursuant to which the positions are being transferred; the name of the
counterparty(ies); the anticipated transfer date; the method for
determining the transfer price; and any other information requested by
the Exchange. The proposed notice is designed to ensure that the
Exchange is made aware of all transfers so that the Exchange can
monitor and review such transfers (including the records that must be
retained pursuant to proposed Rule 6.78A-O(e) (described below) to
determine whether they are effected in accordance with the Exchange
rules. Additionally, the Exchange believes that requiring notice from
the OTP Holder or OTP Firm(s) and its Clearing Member(s) would ensure
that both parties are in agreement with respect to the terms of the
transfer. In light of the notice requirement contained in proposed Rule
6.78A-O (d), the Exchange proposes to make a conforming change by
deleting paragraph (d) to Rule 6.69-O, which similarly requires OTP
Holders and OTP Firms to report to the Exchange any off-floor
transactions, and to hold paragraph (d) as Reserved.\40\
---------------------------------------------------------------------------
\39\ This notice provision applies only to transfers involving
an OTP Holder's or OTP Firm's positions and not to positions of non-
OTP Holders or non-OTP Firms, as the latter parties are not subject
to Exchange rules. In addition, no notice would be required to
effect transfers to correct bona fide errors pursuant to proposed
subparagraph (a)(1) or transfers of positions from one account to
another where no change in ownership is involved pursuant to
proposed paragraph (a)(2) of Rule 6.78A-O.
\40\ See Rule 6.69-O(d) (providing that ``[f]or each transaction
in which an OTP Holder or OTP Firm participates off-board (off a
participating Exchange) in any option pertaining to an underlying
security which is currently approved for Exchange options
transactions, such OTP Holder or OTP Firm shall report the
transaction to the Exchange in a form and manner prescribed by the
Exchange. (With the identity of participants removed, such
transaction may be made public by the Exchange.)'').
---------------------------------------------------------------------------
Per proposed Rule 6.78A-O(d)(2), however, receipt of prior notice
of an off-floor transfer would not constitute a determination by the
Exchange that such transfer was effected or reported in conformity with
the requirements of proposed Rule 6.78A-O. As such, notwithstanding
submission of written notice to the Exchange, OTP Holder or OTP Firm
and Clearing Members that effect off-floor transfers that do not
conform to the requirements of the proposed Rule would be subject to
appropriate disciplinary action in accordance with the Exchange rules.
Similarly, proposed Rule 6.78A-O(e) requires that each party to an
off-floor transfer generate and retain records of the information
provided in the written notice to the Exchange (pursuant to proposed
subparagraph (d)(1)), as well as information regarding 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 OTP Holder or OTP Firm or Clearing Member to provide.
Proposed 6.78A-O(f) provides exemptions to the prohibition against
off-floor transfers, as approved by the Exchange's President or Chief
Executive Officer (or his or her designee(s)).\41\ Specifically, this
provision is in addition to the exemptions (to Rule 6.78-O) set forth
in proposed Rule 6.78A-O(a)(1)-(10). The Exchange proposes that the
Exchange President or Chief Executive Officer (or his or her
designee(s)) may grant an exemption from the requirement of this
proposed Rule, on his or her own motion or upon application of the OTP
Holder or OTP Firm (with respect to the OTP Holder or OTP Firm's
positions) or a Clearing Member (with respect to positions carried and
cleared by the Clearing Members). The President, the Chief Executive
Officer, or his or her designee(s), may permit an off-floor transfer if
necessary or appropriate for the maintenance of a fair and orderly
market and the protection of investors and is in the public interest,
including due to unusual or extraordinary circumstances. For example,
an exemption may be granted if the market value of the Person's
positions would be compromised by having to comply with the requirement
to trade on the Exchange pursuant to the normal auction process or
when, in the judgment of the President, the Chief Executive Officer, or
his or her designee(s), market conditions make trading on the Exchange
impractical.
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\41\ See ISE Options 6, Section 5(f); MIAX Rule 1326(f). The
Exchange notes that, unlike the rules of ISE and MIAX, which refer
to ``senior level designees,'' the Exchange proposes to instead
reference ``designees,'' which omits the potentially ambiguous
``senior'' qualifier. The Exchange believes this distinction does
not alter the or impede the authority granted in the proposed
provision and is consistent with other Exchange rules that provide
for delegated authority. See, e.g., Rule 6.87-O(k)(3)(A) (proving
that the appeals panel to review Obvious Errors or Catastrophic
Errors be comprised, in part of, the Exchange Chief Regulatory
Officer (``CRO''), or a designee of the CRO).
---------------------------------------------------------------------------
The Exchange proposes to state that the off-floor transfer
procedure set forth in Rule 6.78A-O is intended to facilitate non-
routine, nonrecurring movements of positions, except for transfers
between accounts of the same Person pursuant to proposed subparagraph
(a)(2), and is not to be used repeatedly or routinely in circumvention
of the normal auction market process.\42\
---------------------------------------------------------------------------
\42\ See proposed Rule 6.78A-O(g).
---------------------------------------------------------------------------
Lastly, proposed paragraph (h) provides that the off-floor transfer
procedure set forth in proposed Rule 6.78A-O is only applicable to
positions in options listed on the Exchange; that 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; and that off-floor transfers of non-Exchange
listed options and other financial instruments are not governed by this
proposed Rule 6.78A-O.
Proposed Rule 6.78B-O: Off-Floor RWA Transfers
The Exchange proposes to adopt Rule 6.78B-O titled ``Off-Floor RWA
Transfers,'' to facilitate the reduction of risk-weighted assets
(``RWA'') attributable to open options positions. This proposal is
substantively identical to rules on other options exchanges and would
align the Exchanges rules with that of its competitors.\43\
---------------------------------------------------------------------------
\43\ See, e.g., Cboe Rule 6.8 (Off-Floor RWA Transfers); ISE
Options 6, Section 6 (Off-Exchange RWA Transfers).
---------------------------------------------------------------------------
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.\44\ 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.\45\
---------------------------------------------------------------------------
\44\ 17 CFR 240.15c3-1.
\45\ 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).
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[[Page 54732]]
Subject to certain exceptions, Clearing Members are subject to the
Net Capital Rules.\46\ However, a subset of Clearing Members 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.\47\ 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.\48\ Generally, these rules, among other
things, impose higher minimum capital and higher asset risk weights
than were previously mandated for Clearing Members 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.\49\ 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, Clearing Members 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.
---------------------------------------------------------------------------
\46\ 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.
\47\ H.R. 4173 (amending section 3(a) of the Act) (15 U.S.C.
78c(a))).
\48\ 12 CFR 50; 79 FR 61440 (Liquidity Coverage Ratio: Liquidity
Risk Measurement Standards).
\49\ 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.
---------------------------------------------------------------------------
The Exchange is concerned with the ability of Market Makers to
provide liquidity in their appointed classes. The Exchange believes
that permitting market participants to efficiently transfer existing
options positions through an off-floor transfer process 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. The Exchange believes that 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 and thereby increase liquidity in
the listed options market. The Exchange currently has no mechanism that
firms may use to transfer positions between clearing accounts without
having to effect a transaction with another party and close a position.
Proposed Rule 6.78B-O provides that, notwithstanding Rule 6.78-O
(described above), existing positions in options listed on the Exchange
of an OTP Holder or OTP Firm or non-OTP Holder or OTP Firm (including
an affiliate of an OTP Holder or OTP Firm) may be transferred on, from,
or to the books of a Clearing Member off the Exchange if the transfer
establishes a net reduction of RWA attributable to those options
positions (an ``RWA Transfer''). Proposed paragraph (a) to Rule 997.2NY
provides examples of two transfers that would be deemed to establish a
net reduction of RWA, and thus qualify as a permissible RWA Transfer:
A transfer of options positions from Clearing Member A to
Clearing Member B that net (offset) with positions held at Clearing
Member B, and thus closes all or part of those positions (as
demonstrated in the example below); \50\ and
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\50\ This transfer would establish a net reduction of RWA
attributable to the transferring Person, because there would be
fewer open positions and thus fewer assets subject to Net Capital
Rules.
---------------------------------------------------------------------------
A transfer of options positions from a bank-affiliated
Clearing Member to a non-bank-affiliated Clearing Member.\51\
---------------------------------------------------------------------------
\51\ This transfer would establish a net reduction of RWA
attributable to the transferring Person, because the non-bank-
affiliated Clearing Member would not be subject to Net Capital
Rules, as described above.
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These transfers would not result in a change in ownership, as they
must occur between accounts of the same ``Person,'' as defined in Rule
1.1, per proposed Rule 6.78B-O(e).\52\ 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.
---------------------------------------------------------------------------
\52\ See supra note 29 (defining Person).
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For example, Market Maker A clears transactions on the Exchange
into an account it has with Clearing Member X, which is affiliated with
a U.S-bank holding company. Market Maker A opens a clearing account
with Clearing Member Y, which is not affiliated with a U.S.-bank
holding company. Clearing Member 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 Clearing Member X clearing account and determines it
must reduce its open positions to satisfy Clearing Member X's
requirements by the end of August. It determines that transferring out
1,000 short calls in class ABC will sufficiently reduce the RWA capital
requirements in the account with Clearing Member 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 1,000 short calls
in class ABC to its clearing account with Clearing Member 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.
An OTP Holder or OTP Firm must ``give up'' a Clearing Member for
each transaction it effects on the Exchange, which identifies the
Clearing Member through which the transaction will clear.\53\ An OTP
Holder or OTP Firm that has the ability to change the give up for a
transaction within a specified period of time.\54\ Additionally, an OTP
Holder or OTP Firm may change the Clearing Member for a specific
transaction.\55\ The transfer of positions from an account with one
clearing firm
[[Page 54733]]
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 a different time and
in a different manner.\56\
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\53\ See Rule 6.15-O (Authorizing Give Up of a Clearing Member)
(providing process for an OTP Holder or OTP Firm (other than a
Market Maker) to indicate each of its transactions any OCC number of
a Clearing Member through which a transaction will be cleared (i.e.,
the give up), subject to the criteria set forth in the rule).
\54\ See Rule 6.15-O(g)(1) (providing that, ``[i]f the executing
OTP Holder or OTP Firm has the ability through an Exchange system to
do so, the OTP Holder or OTP Firm may change the give up on the
trade to another Clearing Member for whom they are an Authorized OTP
or to its Guarantor,'' which ability ``will end at the Trade Date
Cutoff Time.'').
\55\ The Clearing Member Trade Assignment (``CMTA'') process at
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.
\56\ 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.
---------------------------------------------------------------------------
In the above example, if Market Maker A had initially given up
Clearing Member Y rather than Clearing Member X on the transactions
that resulted in the 1,000 long calls in class ABC, or had changed the
give-up or CMTA to Clearing Member Y pursuant to Rule 6.15-O 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.
Proposed paragraph (b) to Rule 6.78B-O provides that RWA Transfers
may occur on a routine, recurring basis. 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.
Additionally, proposed paragraph (f) to Rule 6.78B-O provides that no
prior written notice to the Exchange 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 such requirement
may interfere with the ability of OTP Holders or OTP Firms to comply
with any Clearing Member restrictions describe above, and may be
burdensome to provide notice for these routine transfers.
Proposed Rule 6.78B-O(c) provides that RWA Transfers may result in
the netting of positions. 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.
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.
While there are times when a firm may not want to close out open
positions to reduce RWA, there are other times when a firm may
determine it is appropriate to close out positions to accomplish a
reduction in RWA.
In the example above, suppose after making the RWA Transfer
described above, Market Maker A effects a transaction on September 25
that results in 1,000 long calls in class ABC, which clears into its
account with Clearing Member X. If Market Maker A had not effected its
RWA Transfer in August, the 1,000 long calls would have offset against
the 1,000 short calls, eliminating both positions and thus any RWA
capital requirements associated with them. At the end of August, Market
Maker A did not want to close out the 1,000 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 1,000 short calls from its account with
Clearing Member Y to its account with Clearing Member X (or vice
versa), which results in elimination of those positions (and a
reduction in RWA associated with them). As noted above, such netting
would have occurred if Market Maker A cleared the September transaction
directly into its account with Clearing Member 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 RWA capital requirements when
necessary.
Proposed Rule 6.78B-O(d) provides that RWA Transfers may not result
in preferential margin or haircut treatment. Finally, per proposed Rule
6.78B-O(g), RWA Transfers may only be effected for options listed on
the Exchange, as transfers of non-Exchange listed options and other
financial instruments are not governed by proposed Rule 6.78B-O, and
such transfers will be subject to applicable laws, rules, and
regulations, including rules of other self-regulatory organizations
(including OCC).\57\
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\57\ All RWA Transfers will be subject to all recordkeeping
requirements applicable to OTP Holders or OTP Firms and Clearing
Members under the Act, such as Rule 17a-3 and 17a-4.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\58\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\59\ in particular, because it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest and because it is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. As a general matter, the proposed rules are
substantively identical to rules on other options exchanges and would
align the Exchanges rules with that of its competitors. As such, this
proposal would benefit investors by reducing the administrative burden
of determining whether their off-floor transfers comply with multiple
sets of options exchange rules.
---------------------------------------------------------------------------
\58\ 15 U.S.C. 78f(b).
\59\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Proposed Rule 6.78-O: Transactions Off the Exchange
In particular, the Exchange believes proposed Rule 6.78-O is
consistent with the Act, because it adopts and streamlines text that is
substantially similar to the current rule, with updated reference to
SEC rules and that also aligns Exchange rules with those of its
competitors. In addition, as noted herein, proposed Rule 6.78-O is
substantively identical to the rules of at least one other options
exchange and would therefore allow the Exchange to compete on equal
footing. Moreover, proposed Rule 6.78-O is consistent with the Act,
because it adopts provisions in the Rules specifically required by
Rules 19c-1 and 19c-3 under the Act, setting forth the Exchange's
general prohibition against off-floor transfers.
Proposed Rule 6.78A-O: Off-Floor Transfer of Positions
Proposed Rule 6.78A-O adopts and streamlines text that is
substantially similar to the current rule, with additional permissible
off-floor transfers that align with permissible transfers on other
options exchanges. The Exchange believes that permitting off-floor
transfers in very limited circumstances would allow OTP Holders or OTP
Firms to accomplish certain goals efficiently. Proposed Rule 6.78A-O is
also substantively identical to the rules of other options exchanges
and, consistent with those rules, the proposed rule permits non-
recurring off-floor transfers
[[Page 54734]]
in situations involving dissolutions of entities or accounts, for
purposes of donations, mergers or by operation of law. As noted above
for example, an OTP Holder or OTP Firm that is undergoing a structural
change and a one-time movement of positions may require a transfer of
positions or an OTP Holder or OTP Firm that is leaving a firm that will
no longer be in business may require a transfer of positions to another
firm. Also, an OTP Holder or OTP Firm 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 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 the proposed rule will be adopted. Accordingly, such
activity should not be permitted under the proposed rule.
The proposed rule change would provide market participants that
experience these limited, 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
would provide 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 which requires notice and maintenance of
records would ensure the Exchange is able to review off-floor transfers
for compliance with the Exchange 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.
In addition, the Exchange believes the conforming change to delete
paragraph (d) to Rule 6.69-O in light of the comparable notice
requirement in proposed Rule 6.78A-O(d) would reduce redundancy, add
clarity, transparency and internal consistent to Exchange rules.
Similar to the rules of other options exchanges, the Exchange would
permit a presidential exemption.\60\ The Exchange believes that this
exemption is consistent with the Act because the Exchange's Chief
Executive Officer or President (or his or her designee(s)) would
consider an exemption in very limited circumstances (i.e., to
facilitate non-routine, nonrecurring movements of positions not
designed to circumvent the normal auction market process). Proposed
Rule 6.78-OA(f) specifically provides that the Exchange's Chief
Executive Officer or President (or his or her designee(s)) may in his
or her judgment allow an off-floor transfer if it is necessary or
appropriate for the maintenance of a fair and orderly market and the
protection of investors and is in the public interest, including due to
unusual or extraordinary circumstances such as the market value of the
Person's positions will be comprised by having to comply with the
requirement to trade on the Exchange pursuant to the normal auction
process or, when in the judgment of the President, Chief Executive
Officer, or his or her designee(s), market conditions make trading on
the Exchange impractical. These standards within paragraph (f) of the
proposed rule are intended to provide guidance concerning the use of
this exemption to the benefit of investors and the investing public for
the maintenance of a fair and orderly market and the protection of
investors and is in the public interest.
---------------------------------------------------------------------------
\60\ See ISE Options 6, Section 5(f); MIAX Rule 1326(f). See
also Cboe Rule 6.8(f).
---------------------------------------------------------------------------
Finally, the Exchange notes that the proposed non-substantive
conforming change to update current Rule 6.78A-O to 6.78C-O (In-Kind
Exchange of Options Positions and ETF Shares and UIT Units) would
benefit investors and the investing public because it would add
clarity, transparency and internal consistency to Exchange rules making
them easier to navigate and comprehend.\61\
---------------------------------------------------------------------------
\61\ See supra note 22 (regarding conforming change to renumber
current Rule 6.78A-O to proposed Rule 6.78C-O).
---------------------------------------------------------------------------
The Exchange believes having similar rules related to off-floor
transfer positions to those of other options exchanges would reduce the
administrative burden on market participants of determining whether
their off-floor transfers comply with multiple sets of rules.
Proposed Rule 6.78B-O: Off-Floor RWA Transfers
The Exchange believes proposed Rule 6.78B-O to permit RWA
Transfers, which is substantially the same as the rules of other
options markets, would remove impediments to and perfect the mechanism
of a free and open market and a national market system by providing
liquidity in the listed options market. The Exchange believes providing
market participants with an efficient process to reduce RWA 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 proposal to permit RWA Transfers to occur on a routine,
recurring basis and result in netting, also provides market
participants with sufficient flexibility to reduce RWA capital
requirements at times necessary to comply with requirements imposed on
them by clearing firms. This would permit market participants to
respond to then-current market conditions, including volatility and
increased volume, by reducing the RWA 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
would 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 (without any required prior
written notice) would provide market participants with the ability to
respond to these conditions whenever they occur. Permitting such
transfers on a routine, recurring basis will provide market
participants with the flexibility to comply with applicable
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 on exchanges, including price transparency, potential
price improvement, and a clearing guarantee. However, the Exchange
believes it is
[[Page 54735]]
appropriate to permit RWA Transfers to occur off the Exchange, as these
benefits are inapplicable to RWA Transfers which are narrow in scope
and are intended to achieve a limited beneficial 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 RWA 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
RWA 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 a Clearing
Member, and the positions will continue to be subject to OCC rules, as
they will continue to be held in an account with a 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 OTP Holders/
Firms and non-OTP Holders/Firms with open positions in options listed
on the Exchange may use the proposed off-floor transfer process to
reduce the RWA capital requirements of Clearing Members. Finally, this
proposed rule change would align Exchange rules with those of other
options exchanges, thereby allowing the Exchange to compete on equal
footing.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposal will not impose any burden
on competition that is not necessary or appropriate in furtherance of
the purposes of Section 6(b)(8) of the Act.\62\ The proposed rules are
not intended to be a competitive trading tools, but rather to set forth
the general prohibition against off-floor transactions and to
facilitate certain off-floor transactions in limited circumstances that
meet the enumerated criteria.
---------------------------------------------------------------------------
\62\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
The Exchange does not believe the proposed rule change regarding
off-floor position transfers set forth in the proposed rules would
impose an undue burden on intra-market competition as the transfer
procedure(s) may be utilized by any OTP Holders/Firms and the rule will
apply uniformly to all OTP Holders or OTP Firms. Use of each off-floor
transfer procedure is voluntary, and all OTP Holders or OTP Firms may
use each such procedure to transfer positions as long as the criteria
in the proposed rule are satisfied.
The Exchange does not believe the proposed rule change will impose
an undue burden on inter-market competition. As indicated above, it is
intended to provide an additional clearly delineated and limited
circumstance in which options positions can be transferred off an
exchange (as well as to set forth the general prohibition against such
transfers). Additionally, as discussed above, the proposed rule change
is substantively identical to the rules of other options exchanges and
would allow the Exchange to compete on equal footing. Moreover, the
Exchange believes having similar rules related to off-floor position
transfers to those of other options exchanges will reduce the
administrative burden on market participants of determining whether
their transfers comply with multiple sets of rules.
Finally, the Exchange notes that the proposed non-substantive
conforming change to update current Rule 6.78A-O to 6.78C-O (In-Kind
Exchange of Options Positions and ETF Shares and UIT Units) would
benefit investors and the investing public because it would add
clarity, transparency and internal consistency to Exchange rules making
them easier to navigate and comprehend.\63\
---------------------------------------------------------------------------
\63\ See supra note 22 (regarding conforming change to renumber
current Rule 6.78A-O to proposed Rule 6.78C-O).
---------------------------------------------------------------------------
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \64\ and Rule 19b-4(f)(6) thereunder.\65\
Because the proposed rule change does not: (i) significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\66\
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\64\ 15 U.S.C. 78s(b)(3)(A)(iii).
\65\ 17 CFR 240.19b-4(f)(6).
\66\ 15 U.S.C. 78s(b)(3)(A)(iii). Rule 19b-4(f)(6)(iii) 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
Commission notes that the Exchange satisfied this requirement.
---------------------------------------------------------------------------
At any time within 60 days of the filing of such 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 under
Section 19(b)(2)(B) of the Act \67\ to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------
\67\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
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-NYSEARCA-2022-55 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-NYSEARCA-2022-55. 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
[[Page 54736]]
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-
NYSEARCA-2022-55 and should be submitted on or before September 28,
2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\68\
---------------------------------------------------------------------------
\68\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19227 Filed 9-6-22; 8:45 am]
BILLING CODE 8011-01-P
