[Federal Register Volume 79, Number 86 (Monday, May 5, 2014)]
[Notices]
[Pages 25631-25633]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-10171]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72042; File No. SR-CFE-2014-001]
Self-Regulatory Organizations; CBOE Futures Exchange, LLC; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Adopt and Amend Certain Customer Protection and Financial Rules
April 29, 2014.
Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on April 11, 2014, CBOE
Futures Exchange, LLC (``CFE'' or ``Exchange'') filed with the
Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change described in Items I, II, and III below, which
Items have been prepared by CFE. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons. CFE also has filed this proposed rule change with the
Commodity Futures Trading Commission (``CFTC''). CFE filed a written
certification with the CFTC under Section 5c(c) of the Commodity
Exchange Act (``CEA'') \2\ on April 11, 2014.
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\1\ 15 U.S.C. 78s(b)(7).
\2\ 7 U.S.C. 7a-2(c).
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I. Self-Regulatory Organization's Description of the Proposed Rule
Change
The Exchange proposes to adopt and amend certain customer
protection and financial rules that are applicable to security futures
traded on CFE. The only security futures currently traded on CFE are
traded under Chapter 16 of CFE's Rulebook which is applicable to
Individual Stock Based and Exchange-Traded Fund Based Volatility Index
security futures. The rule amendments included as part of this rule
change relate generally to amending CFE Rules to incorporate new and
amended CFTC regulations concerning customer protection and the
financial surveillance of futures commission merchants (``FCMs''). The
text of the proposed rule change is attached as Exhibit 4.\3\
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\3\ The Commission notes that the Exhibit 4 is attached to the
filing, but is not attached to the publication of this notice.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, CFE 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. CFE has prepared summaries, set forth in Sections A, B,
and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed CFE rule amendments included as part of
this rule change is to amend CFE rules (i) to incorporate the final
regulations adopted by the CFTC under the caption Enhancing Protections
Afforded Customers and Customer Funds Held by Futures Commission
Merchants and Derivatives Clearing Organizations (``CFTC Rulemaking'')
\4\ and (ii) to enhance the financial surveillance of FCMs that are
Trading Privilege Holders (``TPHs''). The rule amendments included as
part of this rule change are to apply to all products traded on CFE,
including both non-security futures and security futures. CFE is making
these rule amendments in conjunction with other rule amendments being
made by CFE consistent with the CFTC Rulemaking that are not required
to be submitted to the Commission pursuant to Section 19(b)(7) of the
Act \5\ and thus are not included as part of this rule change.
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\4\ 78 FR 68506 (Nov. 14, 2013).
\5\ 15 U.S.C. 78s(b)(7).
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CFE has incorporated into Appendix to Chapter 5 of its Rulebook
certain CFTC regulations relating to customer protection,
recordkeeping, and reporting and has provided that a violation of any
of those regulations shall be deemed a violation of a specific CFE
Rule. With the exception of the amendments to CFE Rule 503A, all other
amendments to CFE Rules contained in this filing are proposed to change
the CFE Rules in the Appendix to Chapter 5 of the CFE Rulebook to make
their language consistent with the language in the CFTC regulations
that was amended by the CFTC Rulemaking.
CFE already requires that its FCMs that are TPHs comply with all
CFTC regulations. For example, CFE Rule 604 prohibits TPHs and their
Related Parties from engaging in conduct in violation of Applicable Law
(which includes, among other things, the CEA \6\ and CFTC regulations).
CFE Rule 505 specifically requires TPHs to comply with CFTC regulations
relating to the treatment of customer funds and the maintenance of
related books and records. CFE Rule 518 specifically requires TPHs to
comply with CFTC regulations relating to minimum financial
requirements, financial reporting requirements, and protection of
customer funds that are set forth in the Appendix to Chapter 5 of the
CFE Rulebook. The purpose of these proposed rule amendments is to make
the CFTC regulations that were added or amended by the CFTC Rulemaking
even more explicit.
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\6\ 7 U.S.C. 1 et seq.
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Risk Management Program for FCMs
CFE is proposing to add to its Rules new Rule 520 (and renumber all
subsequent Rules in the Chapter) to require that FCMs comply with the
risk management requirements set forth in CFTC Regulation 1.11: Risk
Management Program for futures commission merchants.\7\ As a result of
the CFTC Rulemaking, CFTC Regulation 1.52(b)(2) requires that all self-
regulatory organizations (``SROs'') (defined as designated contract
markets and registered futures associations in CFTC Regulation
1.52(a)(2)) adopt rules prescribing risk management requirements for
FCM member registrants that are at least as stringent as the
requirements contained in CFTC Regulation 1.11.\8\ CFTC Regulation 1.11
imposes, among other things, both recordkeeping and reporting
requirements on FCMs. Specifically, FCMs must maintain their risk
management policies and procedures, all written approvals, and all
records and reports required under the Regulation.\9\ In addition, FCMs
must furnish a copy of their risk management policies and procedures to
the CFTC and its designated SRO upon application for registration and
thereafter upon request, as well as furnish copies of Risk Exposure
Reports
[[Page 25632]]
to the CFTC.\10\ Although all FCMs that are TPHs must already comply
with all CFTC Regulations, new CFE Rule 520 is proposed specifically to
follow the CFTC Rulemaking's directive with respect to CFTC Regulation
1.11.
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\7\ 17 CFR 1.11.
\8\ 17 CFR 1.52.
\9\ 17 CFR 1.11(c)(2), (h).
\10\ 17 CFR 1.11(c)(4), (e)(2)(ii).
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Recordkeeping
The recordkeeping amendments proposed to be included in the
Appendix to Chapter 5 of the CFE Rulebook would impose requirements
that generally already exist under CFE Rules 505, 518, and 604, which,
as discussed, require adherence to CFTC regulations. The amendments to
certain CFTC regulations by the CFTC Rulemaking will now be
specifically incorporated into CFE's rules. In particular, CFE is
proposing to amend CFE Rule 521 which incorporates into CFE's Rulebook
CFTC Regulation 1.18 (Minimum Financial Requirements for Futures
Commission Merchants and Introducing Brokers),\11\ CFE Rule 523 which
incorporates into CFE's Rulebook CFTC Regulation 1.20 (Futures Customer
Funds to be Segregated and Separately Accounted for),\12\ CFE Rule 526
which incorporates into CFE's Rulebook CFTC Regulation 1.23 (Interest
of Futures Commission Merchants in Segregated Futures Customer Funds;
Additions and Withdrawals),\13\ CFE Rule 528 which incorporates into
CFE's Rulebook CFTC Regulation 1.25 (Investment of Customer Funds),\14\
CFE Rule 529 which incorporates into CFE's Rulebook CFTC Regulation
1.26 (Deposit of Instruments Purchased with Futures Customer
Funds),\15\ and CFE Rule 535 which incorporates into CFE's Rulebook
CFTC Regulation 1.32 (Reporting of Segregated Account Computation and
Details Regarding the Holding of Futures Customer Funds).\16\
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\11\ 17 CFR 1.18.
\12\ 17 CFR 1.20.
\13\ 17 CFR 1.23.
\14\ 17 CFR 1.25.
\15\ 17 CFR 1.26.
\16\ 17 CFR 1.32. CFE notes that certain of these amendments
relate to both recordkeeping and reporting (discussed in the next
section) but is only including discussion of them in this section to
avoid duplicative mention.
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Reporting
As CFE is proposing to do with various recordkeeping requirements,
CFE is also proposing to specifically incorporate into the Appendix to
Chapter 5 of its Rulebook the CFTC Rulemaking's amendments to CFTC
regulations relating to reporting. Like with the foregoing amended
recordkeeping requirements, the reporting amendments to this regulation
would impose requirements that generally already exist under CFE Rules
505, 518, and 604, which, as discussed, require adherence to CFTC
regulations. These amendments by the CFTC Rulemaking will now be
specifically incorporated into CFE's rules. In particular, CFE is
proposing to amend CFE Rule 519 which incorporates into CFE's Rulebook
CFTC Regulation 1.10 (Financial Reports of Futures Commission Merchants
and Introducing Brokers) \17\ and CFE Rule 520 which incorporates into
CFE's Rulebook CFTC Regulation 1.12 (Maintenance of Minimum Financial
Requirements by Futures Commission Merchants and Introducing
Brokers).\18\
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\17\ 17 CFR 1.10.
\18\ 17 CFR 1.12.
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In addition to the foregoing amendments that incorporate the CFTC
Rulemaking, CFE is proposing amendments to CFE Rule 503A, which relate
to reporting obligations on FCMs and are not related to the CFTC
Rulemaking. CFE Rule 503A, which presently imposes reporting
obligations on FCMs that are TPHs, is proposed to be amended to require
these FCMs to file financial documentation with CFE in addition to the
documentation the Rule already requires. First, each TPH that is an FCM
would be required, in a form and manner prescribed by the Exchange, to
concurrently file with the Exchange all FOCUS Report Part III
submissions as well as any attachments or related submissions to all
Form 1-FR-FCM, Form 1-FR-IB, or FOCUS Report Part II, Part IIA or Part
II CSE and Part III submissions. Second, each TPH that is an FCM would
be required, in a form and manner prescribed by the Exchange, to
concurrently file with the Exchange a copy of any daily Statement of
Segregation Requirements and Funds in Segregation for Customers Trading
on U.S. Commodity Exchanges filed with the CFTC pursuant to CFTC
Regulation 1.32. Third, each TPH that is an FCM would be required, in a
form and manner prescribed by the Exchange, to concurrently file with
the Exchange a copy of any daily net capital filings submitted by the
TPH to its Designated Self-Regulatory Organization. Fourth, each TPH
that is an FCM would be required, in a form and manner prescribed by
the Exchange, to concurrently file with the Exchange a copy of any
notice that is filed with the CFTC pursuant to CFTC Regulation 1.23.
The receipt of this information will enhance CFE's financial
surveillance of FCMs.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\19\ in general, and furthers the
objectives of Section 6(b)(5) \20\ in particular in that 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 facilitating transactions in
securities, and 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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\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(5).
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The addition of new CFE Rule 520, which requires FCMs to establish
risk management programs that comply with CFTC Regulation 1.11, will
enhance CFE's ability to protect investors and the public interest and
to enforce CFE Rules that prohibit fraudulent and manipulative acts and
conduct inconsistent with just and equitable principles of trade. By
specifically requiring that FCMs that are TPHs establish risk
management programs that comply with CFTC Regulation 1.11, CFE further
protects FCM customers.
The recordkeeping amendments to CFE Rules 521, 523, 526, 528, 529,
and 535 and the reporting amendments to CFE Rules 503A, 519, and 520
will also enhance CFE's ability to protect investors and the public
interest and to enforce CFE Rules that prohibit fraudulent and
manipulative acts and conduct inconsistent with just and equitable
principles of trade. These recordkeeping requirements are designed to
ensure that TPHs maintain records that enable CFE and/or other
regulators to investigate whether TPHs are complying with applicable
rules and regulations by requiring the maintenance of information that
may be reviewed to determine whether or not a TPH is complying with
applicable regulatory requirements. Similarly, these reporting
requirements are designed to enable CFE to receive and request
information that allows CFE to monitor for compliance with rules and
regulations, to investigate for noncompliance when appropriate, and to
conduct financial monitoring with regard to TPHs that are FCMs.
B. Self-Regulatory Organization's Statement on Burden on Competition
CFE does not believe that the proposed rule change will impose any
burden on competition not necessary or appropriate in furtherance of
the
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purposes of the Act, in that the rule change makes enhancements to
CFE's financial surveillance of FCMs and requires TPHs to comply with
the amendments set forth in the CFTC Rulemaking. The Exchange believes
that the proposed rule change is equitable and not unfairly
discriminatory because all of the amended Rules would apply equally to
all TPHs that are subject to the applicable requirements, and the
Amendment is expressly consistent with the CFTC Rulemaking.
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 proposed rule change will become effective on April 28, 2014.
At any time within 60 days of the date of effectiveness of the
proposed rule change, the Commission, after consultation with the CFTC,
may summarily abrogate the proposed rule change and require that the
proposed rule change be refiled in accordance with the provisions of
Section 19(b)(1) of the Act.\21\
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\21\ 15 U.S.C. 78s(b)(1).
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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-CFE-2014-001 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-CFE-2014-001. 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 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 such filing also will be available
for inspection and copying at the principal offices 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-CFE-2014-001,
and should be submitted on or before May 27, 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. 2014-10171 Filed 5-2-14; 8:45 am]
BILLING CODE 8011-01-P