[Federal Register Volume 79, Number 69 (Thursday, April 10, 2014)]
[Notices]
[Pages 19950-19953]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-07994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71880; File No. SR-CBOE-2014-036]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to the End of Trading on CBSX
April 4, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the '' Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is
hereby given that, on April 1, 2014, Chicago Board Options Exchange,
Incorporated (the ``Exchange'' or ``CBOE'') 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 Exchange. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CBOE proposes to amend Rule 51.2 to permit CBOE to end trading on
the CBOE Stock Exchange, LLC (``CBSX'') as of the close of business on
April 30, 2014 (the ``Closing Date''). The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
CBSX, of which CBOE is a partial owner, is regulated as a stock
trading facility of the Exchange under Section 3(a)(2) of the Exchange
Act.\3\ Section 9.15 of the Third Amended and Restated Operating
Agreement of CBOE Stock Exchange, LLC, dated as of December 30, 2011
between CBOE and the other owners (``Non-CBOE Owners'') of CBSX
(``Operating Agreement''), requires the prior affirmative vote of
CBOE,\4\ as well as the affirmative vote by each of the CBSX Board and
a Super Majority of the Owners of CBSX,\5\ prior to CBSX: (i)
Materially changing CBSX's business model; or (ii) changing the status
of or registration of CBSX as a facility of CBOE. Each of CBOE, the
Board, and a Super Majority of Owners has affirmatively approved the
ending of CBSX trading operations and ceasing to operate CBSX as a
facility of the Exchange. This rule filing is not proposing any change
to the ownership structure of CBSX. The proposed rule change is
intended to further the Exchange's strategic goal to focus its
resources on other business opportunities while fulfilling its
regulatory obligations under the Exchange Act. CBSX's Trading Permit
[[Page 19951]]
Holders (``TPHs'') will continue to be able to execute transactions in
stocks on other stock-trading venues.
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\3\ In 2007, the Commission approved the establishment of CBSX
as a facility of the Exchange. See Securities Exchange Act Release
No. 55389 (March 2, 2007), 72 FR 10575 (March 8, 2007).
\4\ CBOE's prior affirmative vote is required so that CBOE will
have the opportunity to determine, in advance of action taken by the
CBSX Board of Directors (``Board'') or the Non-CBOE Owners, whether
a proposed action, transaction, or aspect of an action or
transaction requiring a Super Majority of the Owners (as defined
below) would interfere with the performance of CBOE's regulatory
functions, its responsibilities under the Exchange Act or as
specifically required by the SEC (``Regulatory Requirements'').
\5\ Section 2.1(a)(26) of the Operating Agreement generally
defines ``Super Majority of the Owners'' to mean, subject to the
prior affirmative vote of CBOE as to its Regulatory Requirements,
the affirmative vote of both: (i) All of the Owners of the Series A
voting shares at the time (currently CBOE), and (ii) Owners of
Series B voting shares representing at least a 20% interest in CBSX.
While not material to a Super Majority, the Exchange notes that CBSX
also has Series C non-voting restricted shares for Management
Owners.
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Within seven days of filing the proposed rule change, the Exchange
will inform all CBSX TPHs by Regulatory Circular that CBSX will end
trading operations as of the close of business on the Closing Date. The
Regulatory Circular will also inform all TPHs that the Exchange will
terminate the TPH status of any remaining CBSX TPHs on August 7,
2014,\6\ although CBSX TPHs may voluntarily terminate their TPH status
prior to that date.\7\ Once the proposed rule change is operative, CBSX
will no longer accept new TPH applications or further consider any
pending TPH applications.
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\6\ All CBSX TPHs are required to become members of a national
securities association (i.e., the Financial Industry Regulatory
Authority (FINRA)) on or before August 7, 2014. See Securities
Exchange Act Release No. 71513 (February 7, 2014), 79 FR 8771
(February 13, 2014) (SR-CBOE-2013-100) (order approving proposed
rule change relating to CBSX TPH eligibility).
\7\ As of April 1, 2014, there are seven CBSX TPHs that are not
members of another SRO (as defined below) (``CBSX-only TPHs''). None
of the CBSX-only TPHs effect trades, nor have they effected trades
in recent months, on CBSX.
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CBOE will continue to act as designated examining authority
(``DEA'') for each CBSX TPH, for which CBOE is DEA, until the
Securities and Exchange Commission (the ``Commission'') selects another
self-regulatory organization (``SRO'') to perform that function or
until August 7, 2014, whichever occurs first.\8\ Moreover, all CBOE
rules applicable to CBSX (``CBSX Rules'') \9\ will remain in effect
after the Closing Date, so that CBOE will retain disciplinary
jurisdiction over all CBSX TPHs and persons associated with CBSX TPHs
with respect to all matters that occurred on or before the Closing
Date, pursuant to CBOE Rules 17.1 and 50.2.\10\ CBOE Rule 17.1
generally provides that a TPH or a person associated with a TPH shall
continue to be subject to the disciplinary jurisdiction of the Exchange
following such person's termination as a TPH or person associated with
a TPH with respect to matters that occurred prior to such termination
or with respect to the failure to honor an arbitration award pursuant
to Chapter XVIII of CBOE Rules; provided that written notice of the
commencement of an inquiry into such matter is given by the Exchange to
such former TPH or former person associated with a TPH within one year
of termination of TPH or person associated with a TPH status. Such
notice requirement does not apply to a TPH or person associated with a
TPH who at any time after a termination subjects himself to the
disciplinary jurisdiction of the Exchange by becoming a TPH or person
associated with a TPH. CBOE Rule 50.2 (and CBSX Appendix A)
incorporates by reference the application of CBOE Rule 17.1 to CBSX
TPHs and persons associated with CBSX TPHs.
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\8\ The Exchange also represents that it will move to amend or
cancel its participation in any existing Exchange Act Rule 17d-2
Plans for Allocation of Regulatory Responsibilities regarding CBSX
as appropriate in connection with the conclusion of all open matters
relating to the Exchange's regulation of CBSX.
\9\ See CBOE Rules Chapter L-LIV (including Appendix A).
\10\ Because all CBSX Rules will remain in effect after the
close of business on the Closing Date, CBOE Rule 50.6, which limits
the liability of CBSX under the same terms and conditions as CBOE
Rules 2.24, 6.7 and 6.7A limits the liability of CBOE, will also
remain in effect.
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CBSX, CBOE and each of the Non-CBOE Owners will each continue to be
required to maintain books and records as required under the Operating
Agreement.\11\ Also, pursuant to Section 5.7 of the Operating
Agreement, CBSX, and to the extent that it relates to CBSX, each Owner,
agrees to comply with the federal securities laws and the rules and
regulations thereunder; to cooperate with the Commission and CBOE
pursuant to their regulatory authority and the provisions of the
Operating Agreement; and to engage in conduct that fosters and does not
interfere with the CBSX's and CBOE's ability 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.
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\11\ Section 6.15(a) of the Operating Agreement states that CBOE
and each of the Non-CBOE Owners acknowledge that to the extent the
following are related to the CBSX trading platform for securities
other than options, the books, records, premises, officers,
directors, agents and employees of each of the Non-CBOE Owners shall
be deemed to be the books, records, premises, officers, directors,
agents, and employees of CBOE for the purpose of and subject to
oversight pursuant to the Exchange Act. Section 6.15(b) provides
that the books, records, premises, officers, directors, agents, and
employees of CBSX, to the extent related to its activities as a
stock trading facility of CBOE, shall be deemed to be the books,
records, premises, officers, directors, agents, and employees of
CBOE for the purpose of and subject to oversight pursuant to the
Exchange Act. Section 6.15(c) provides that CBSX and its Owners and
their respective officers, directors, agents, and employees
irrevocably submit to the jurisdiction of the U.S. federal courts,
the Commission, and CBOE for the purposes of any suit, action or
proceeding pursuant to U.S. federal securities laws or the rules or
regulations thereunder, commenced or initiated by the SEC arising
out of, or relating to, CBSX in its capacity as a stock trading
facility of CBOE (and shall be deemed to agree that CBSX may serve
as the U.S. agent for purposes of service of process in such suit,
action or proceeding), and waive, and agree not to assert by way of
motion, as a defense or otherwise in any such suit, action or
proceeding, any claims that they are not personally subject to the
jurisdiction of the Commission, that the suit, action or proceeding
is an inconvenient forum or that the venue of the suit, action or
proceeding is improper, or that the subject matter thereof may not
be enforced in or by such courts or agency. Section 6.15(c) further
provides that for so long as CBSX is a facility of CBOE and to the
extent related to CBSX's activities as a stock trading facility, the
provisions of paragraph (c) shall not apply to CBOE and its
respective officers, directors, agents and employees. Finally,
Section 6.15(d) provides that, with respect to Section 6.15, CBSX
and each of its Owners shall take such action as is necessary,
unless otherwise provided for by law, written statement of policy,
individual contract or otherwise, to ensure that their officers,
directors, agents, and employees consent in writing to the
applicability of this provision with respect to CBSX-related
activities.
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The Exchange represents that it will retain its status as SRO to
the CBSX facility under Section 1.7 of the Operating Agreement for as
long as CBSX is a facility under the Exchange Act. The Exchange further
represents that there will be adequate funding to carry out regulatory
obligations related to CBSX until it ceases to be a facility of CBOE.
Lastly, under the proposed rule change, CBOE will not be able to begin
trading in securities other than options without first filing a
proposed rule change with the Commission pursuant to Rule 19b-4 under
the Exchange Act.\12\
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\12\ 17 CFR 240.19b-4.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Exchange Act and the rules and regulations thereunder applicable to
the Exchange and, in particular, the requirements of Section 6(b) of
the Exchange Act.\13\ Specifically, the Exchange believes the proposed
rule change is consistent with the Section 6(b)(5) \14\ requirements
that the rules of an exchange be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest. Additionally, the Exchange
believes the proposed rule change is consistent with
[[Page 19952]]
the Section 6(b)(5) \15\ requirement that the rules of an exchange not
be designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
\15\ Id.
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In particular, the proposed rule change will allow CBOE to focus
its resources on business opportunities other than stock trading on
CBSX and to fulfill its regulatory obligations under the Exchange Act.
Current CBSX TPHs will continue to be able to send stock trades to
other stock trading venues, which include other national securities
exchanges, alternative trading systems, and the over-the-counter market
generally. Under the proposal, in addition to this filing, TPHs will
receive prior written notice by Regulatory Circular of CBSX's intention
to cease trading operations so that the TPHs will have time to route
their future stock transactions to other markets.\16\ Moreover, all
CBSX TPHs will receive prior notice that CBOE will terminate their TPH
status in CBSX as of August 7, 2014, unless the TPH voluntarily
terminates its TPH status prior to such date.\17\ CBOE will remain DEA
of each CBSX TPH for which it currently performs that function until
the Commission selects another SRO to perform that function or until
August 7, 2014, whichever comes first. The proposed rule change is
therefore consistent with the requirements of Section 6(b)(5) of the
Exchange Act, that rules of an exchange be designed to facilitate
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.
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\16\ The Exchange notes that CBSX has already made CBSX TPHs
aware of its intention to shut down via an Information Circular
issued in February 2014. See Information Circular IC14-011.
\17\ See note 6, supra.
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The Exchange believes further that the proposed rule change
promotes the protection of investors and the public interest, in that
it is intended to permit the CBOE to devote its resources more fully to
other business opportunities, while fulfilling its regulatory
obligations under the Exchange Act. Moreover, because all CBSX Rules
will remain in effect after the close of business on the Closing Date,
CBOE will retain disciplinary jurisdiction over all CBSX TPHs and
persons associated with CBSX TPHs with respect to all matters that
occurred through the Closing Date, pursuant to CBOE Rules 17.1 and
50.2. CBSX, CBOE and each of the Non-CBOE Owners will also each
continue to be required to maintain books and records as required under
the Operating Agreement. The Exchange therefore also believes the
proposed rule change is consistent with Section 6(b)(1) of the Exchange
Act,\18\ which provides that the Exchange be organized and have the
capacity to be able to carry out the purposes of the Exchange Act and
to enforce compliance by the Exchange's TPHs and persons associated
with its TPHs with the Exchange Act, the rules and regulations
thereunder, and the rules of the Exchange.
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\18\ 15 U.S.C. 78f(b)(1).
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The Exchange is not proposing any change to the ownership structure
of CBSX via this rule filing, nor to CBOE's obligations to supervise
trading on CBSX or to supervise CBSX TPHs in general, as long as they
remain CBSX TPHs. The proposal therefore protects and maintains the
integrity of the self-regulatory function of CBOE with respect to CBSX
as a facility of CBOE.
B. Self-Regulatory Organization's Statement on Burden on Competition
CBOE does not believe that the proposed rule change will impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Exchange Act. The closing of the
CBSX stock trading facility as of the close of business on the Closing
Date will result in one fewer stock trading facilities. However, there
are numerous stock exchanges and trading platforms on which market
participants may trade equities. CBSX currently has less than 0.1% of
market share among national stock exchanges. In light of the low
trading volume on CBSX and the ability of CBSX TPHs to trade equity
securities on a large number of other trading venues, CBOE does not
believe that ceasing trading on CBSX will unduly burden competition in
equities trading.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not:
A. Significantly affect the protection of investors or the public
interest;
B. impose any significant burden on competition; and
C. become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to Section 19(b)(3)(A) of the Exchange Act
\19\ and Rule 19b-4(f)(6) \20\ thereunder.\21\ At any time within 60
days of the filing of the proposed rule change, the Commission
summarily may temporarily suspend such rule change if it appears to the
Commission that such action is necessary or appropriate in the public
interest, for the protection of investors, or otherwise in furtherance
of the purposes of the Act. If the Commission takes such action, the
Commission will institute proceedings to determine whether the proposed
rule change should be approved or disapproved.
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\19\ 15 U.S.C. 78s(b)(3)(A).
\20\ 17 CFR 240.19b-4(f)(6).
\21\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and text of 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 deems this requirement to have been met.
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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 (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CBOE-2014-036 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2014-036. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://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
[[Page 19953]]
public in accordance with the provisions of 5 U.S.C. 552, will be
available for Web site viewing and printing in the Commission's Public
Reference Room, 100 F Street NE., Washington, DC 20549, on official
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of
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; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-CBOE-2014-036 and should be submitted on or before May
1, 2014.
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\22\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-07994 Filed 4-9-14; 8:45 am]
BILLING CODE 8011-01-P