[Federal Register Volume 79, Number 112 (Wednesday, June 11, 2014)]
[Notices]
[Pages 33614-33618]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-13555]
[[Page 33614]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72325; File No. SR-CBOE-2014-048]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of a Proposed Rule Change Relating to
the Give Up of a Clearing Trading Permit Holder
June 5, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on May 23, 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, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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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 the
Substance of the Proposed Rule Change
The Exchange proposes to amend its rules governing the give up of a
Clearing Trading Permit Holder by a Trading Permit Holder on Exchange
Transactions. The text of the proposed rule change is 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
The Exchange proposes to augment its requirements in CBOE Rules
6.21 and 6.50 related to the give up of a Clearing Trading Permit
Holder (``CTPH'') by a Trading Permit Holder (``TPH'') on Exchange
transactions. By way of background, to enter transactions on the
Exchange, a TPH must either be a CTPH or must have a CTPH agree to
accept financial responsibility for all of its transactions.
Additionally, Rule 6.21 currently provides that when a TPH executes a
transaction on the Exchange, it must give up the name of the CTPH (the
``Give Up'') through which the transaction will be cleared (i.e.,
``give up''). Rule 6.50 provides that every CTPH will be responsible
for the clearance of Exchange transactions of each TPH that gives up
the CTPH's name pursuant to a Letter of Authorization, Letter of
Guarantee, or other authorization given by the CTPH to the executing
TPH. In a recent review of its rules relating to the give up of CTPHs
by TPHs, the Exchange determined that it would be beneficial to further
address and provide additional detail in its rules regarding the give
up process.
Designated Give Ups and Guarantors
The Exchange seeks to amend Rule 6.21 to provide that a TPH may
only give up a ``Designated Give Up'' or its ``Guarantor.'' The
Exchange proposes to introduce and define the term ``Designated Give
Up.'' For purposes of Rule 6.21, a ``Designated Give Up,'' is any CTPH
that a TPH (other than a Market-Maker \3\) identifies to the Exchange,
in writing, as a CTPH that the TPH would like to have the ability to
give up. To designate a ``Designated Give Up'' a TPH must submit
written notification, in a form and manner determined by the Exchange,
to the Registration Services Department (``RSD''). Specifically, the
Exchange anticipates using a standardized form (``Notification Form'')
that a TPH would need to complete and submit to the RSD. A copy of the
proposed Notification Form is included with this filing in Exhibit 3.
Similarly, should a TPH no longer want the ability to give up a
particular Designated Give Up, it must submit written notification, in
a form and manner determined by the Exchange, to the RSD. The Exchange
notes that a TPH may designate any CTPH as a Designated Give Up.
Additionally, there is no minimum or maximum number of Designated Give
Ups that a TPH must identify. The Exchange shall notify a CTPH, in
writing and as soon as practicable, of each TPH that has identified it
as a Designated Give Up. The Exchange however, will not accept any
instructions, and not give effect to any previous instructions, from a
CTPH not to permit a TPH to designate the CTPH as a Designated Give Up.
The Exchange notes that there is no subjective evaluation of a TPH's
list of proposed Designated Give Ups by the Exchange. Rather, the
Exchange intends to process each list as submitted and ensure that the
Clearing Trading Permit Holders identified as Designated Give Ups are
in fact current Clearing Trading Permit Holders, as well as confirm
that the Notification Forms are complete (e.g., contains appropriate
signatures) and the OCC numbers listed for each Clearing Trading Permit
Holder are accurate.
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\3\ For purposes of this rule, references to ``Market-Maker''
shall refer to Trading Permit Holders acting in the capacity of a
Market-Maker and shall include all Exchange Market-Maker capacities
(e.g., Designated Primary Market-Makers and Lead Market-Makers).
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The Exchange also proposes to define the term ``Guarantor'' in the
proposed rule text. For purposes of Rule 6.21, a ``Guarantor'' shall
refer to a CTPH that has issued a Letter of Guarantee or Letter of
Authorization for the executing TPH under the Rules of the Exchange \4\
that is in effect at the time of the execution of the applicable trade.
An executing TPH may give up its Guarantor without having to first
designate it to the Exchange as a ``Designated Give Up.'' The Exchange
also notes that CBOE Rule 8.5 provides that a Letter of Guarantee is
required to be issued and filed with the Exchange by each CTPH that a
Market-Maker desires to clear transactions through. Accordingly, a
Market-Maker shall only be enabled to give up a Guarantor of the
Market-Maker pursuant to CBOE Rule 8.5 and will not identify any
Designated Give Ups.
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\4\ See e.g., CBOE Rule 3.28, CBOE Rule 6.72, CBOE Rule 8.5.
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As noted above, the proposed rule change seeks to provide that a
TPH may give up only (i) the name of a CTPH that has previously been
identified and processed by the Exchange as a Designated Give Up for
that TPH, if not a Market-Maker or (ii) its Guarantor. This limitation
shall be enforced by the Exchange's trading systems. Specifically, the
Exchange will configure its trading systems to only accept orders from
a TPH which identify a Designated Give Up or
[[Page 33615]]
Guarantor for that TPH and will reject any order entered by a TPH which
designates a Give Up that is not at the time a Designated Give Up or
Guarantor of the TPH. The Exchange notes that it will notify a TPH in
writing when an identified Designated Give Up becomes ``effective''
(i.e., when a CTPH that has been identified by the TPH as a Designated
Give Up has been enabled by the Exchange's trading systems to be given
up). A Guarantor for a TPH shall be enabled to be given up for that TPH
without any further action by the TPH (i.e., submitting its name as a
Designated Give Up on the Notification Form). The Exchange notes that
this configuration (i.e., the trading system accepting only orders
which identify a Designated Give Up or Guarantor) is intended to help
reduce ``keypunch errors'' and prevent TPHs from mistakenly giving up
the name of a CTPH that it had no intention of ever using as a Give Up.
Acceptance of a Trade
The Exchange next proposes to permit a Designated Give Up and a
Guarantor to, in certain circumstances, determine not to accept a trade
on which its name was given up. If a Designated Give Up or Guarantor
determines not to accept a trade, it may reject the trade in accordance
with the procedures described more fully below.
A Designated Give Up may determine to not accept a trade on which
its name was given up so long as it believes in good faith that it has
a valid reason not to accept the trade. Examples of valid reasons may
be that the Designated Give Up does not have a customer for that
particular trade or that another CTPH agrees to be the Give Up on the
trade and has notified the Exchange and executing TPH in writing of its
intent to accept the trade. If a Designated Give Up determines to not
accept (and thereby reject) a trade on which its name was given up, the
executing TPH's Guarantor or another CTPH that agrees to be the Give Up
on the trade shall become the Give Up. Next, the Exchange proposes to
provide that a Guarantor may not accept (and thereby reject) a non-
Market-Maker trade on which its name was given up only if another CTPH
agrees to be the Give Up on the trade and has notified the Exchange and
executing TPH in writing of its intent to accept the trade. The
Exchange notes that only a Designated Give Up or Guarantor whose name
was initially given up on a trade is permitted to not accept the trade,
subject to the conditions noted above (i.e., the CTPH or Guarantor that
becomes the Give Up on a rejected trade may not also reject the trade).
Rejection of a Trade
The Exchange has incorporated into proposed Rule 6.21 procedures
that must be followed in order for a Designated Give Up to reject a
trade. A trade may only be rejected on (i) the trade date or (ii) the
business day following the trade date (``T+1'') (except that
transactions in expiring options series may not be rejected on T+1).
Rejection on Trade Date
If a Designated Give Up decides to reject a trade on the trade
date, it must first notify, in writing, the executing TPH or its
designated agent, as soon as possible and attempt to resolve the
disputed give up. This requirement puts the executing TPH on notice
that the Give Up on the trade may be changed and provides the executing
TPH and Designated Give Up an opportunity to resolve the dispute in a
manner agreeable to each party. The Exchange notes that a Designated
Give Up may request from the Exchange the contact information of the
executing TPH or its designated agent for any trade it wishes to
reject.
Following notification to the executing TPH on the trade date, a
Designated Give Up may request the ability from the Exchange to change
the Give Up on the trade. This request must be made by completing and
submitting a standardized form (``Give Up Change Form'') to the
Exchange. A copy of the proposed Give Up Change Form is included with
this filing in Exhibit 3. So long as the Exchange is able to process
the request prior to the trade input cutoff time established by the
Clearing Corporation (or fifteen minutes thereafter, so long as the
Exchange receives and is able to process a request to extend its time
of final trade submission to the Clearing Corporation) (``Trade Date
Cutoff Time''), the Exchange will provide the Designated Give Up the
ability to make the change to the Give Up on the trade to either (1)
another CTPH or (2) the executing TPH's Guarantor.
A Designated Give Up may change the Give Up to another CTPH (``New
CTPH'') (i.e., a CTPH that is not the executing TPH's Guarantor) only
if that CTPH has agreed to be the give up on the trade and has first
notified the Exchange and the executing TPH in writing of its intent to
accept the trade. To notify the Exchange, the New CTPH must complete
and submit a standardized form (i.e., the Give-Up Change Form for
Accepting Clearing Trading Permit Holders) to the Exchange. A copy of
the proposed Give-Up Change Form for Accepting Clearing Trading Permit
Holders is included with this filing in Exhibit 3. The Exchange notes
that any CTPH may agree to accept a trade from the Designated Give Up
that is rejecting the trade (i.e., the New CTPH does not have to
already be a Designated Give Up of the executing TPH). The Exchange
also notes that a New CTPH that has agreed to accept a trade and become
the Give Up cannot later reject the trade. Requiring the New CTPH to
provide notice to the Exchange of its intent to accept the trade and
prohibiting the New CTPH from later rejecting the trade provides
finality to the trade and ensures that the trade is not repeatedly
reassigned from one CTPH to another.
The Exchange also seeks to provide that a Designated Give Up may
alternatively change the Give Up to the executing TPH's Guarantor. The
Guarantor does not need to notify the Exchange of its intent to accept
the trade nor does it need to submit any notification or form. The
Designated Give Up however, must first provide written notice to the
Guarantor that it will be making this change. A Guarantor that becomes
the Give Up on a trade as a result of the Designated Give Up rejecting
the trade is prohibited from not accepting the trade/rejecting the
trade. This prohibition provides finality to the trade and ensures that
the trade is not repeatedly reassigned from one CTPH to another.
A Guarantor may also reject a non-Market-Maker trade for which its
name was the initial given up by a TPH, but only if another CTPH has
first agreed to be the Give Up on the trade and has notified the
Exchange and executing TPH in writing of its intent to accept the
trade. If a Guarantor of a TPH decides to reject a trade on the trade
date, it must follow the same procedures to change the Give Up as would
be followed by a Designated Give Up. The ability to make any changes,
either by the Designated Give Up or Guarantor, to the Give Up pursuant
to this procedure will end at the Trade Date Cutoff Time.
Finally, once the Give Up has been changed, the Designated Give Up
or Guarantor making the change must immediately thereafter notify the
Exchange, the parties to the trade and the New CTPH of the change in
writing.
Rejection on T+1
The Exchange next acknowledges that some clearing firms may not
reconcile their trades until after the Trade Date Cutoff Time. A
clearing firm therefore, may not realize that a valid reason exists to
not accept a particular trade until
[[Page 33616]]
after the close of the trading day or until the following morning.
Accordingly, the Exchange seeks to establish a procedure for a
Designated Give Up or Guarantor of a TPH that is not a Market-Maker to
reject a trade on the following trade day (``T+1''). The Exchange notes
that a separate procedure must be established for T+1 changes because
to effectively change the Give Up on a trade on T+1, an offsetting
reversal has to occur (as opposed to merely identifying a different
CTPH on the trade). More specifically, a buy side must be entered by
one CTPH and the sell side must be entered by the other CTPH in order
to effect the moving of the position from one CTPH to another.
A Designed [sic] Give Up that wishes to reject a trade on T+1 must
first notify the executing TPH, in writing, to try to attempt and
resolve the dispute. Following notification to the TPH, a Designated
Give Up may contact the Exchange and request the ability to enter trade
records into the Exchange's trading system on behalf of itself and
either the New CTPH or the executing TPH's Guarantor, which would
effect a transfer of the trade to the new Give Up. So long as the
Exchange is able to process the request prior to 12:00 p.m. (CT) on T+1
(``T+1 Cutoff Time''), the Exchange shall provide the Designated Give
Up the ability to do so. The request must be made in writing using a
standardized form (i.e., the Give Up Change Form) from the Exchange. In
the event a New CTPH will be accepting the trade as the Give Up, the
New CTPH must also complete and submit the CBOE Give-Up Change Form for
Accepting Clearing Trading Permit Holders. A Guarantor that becomes the
new Give Up on T+1 does not need to notify the Exchange of its intent
to accept the trade nor does it need to submit any notification or
form. The Designated Give Up however, must first provide written notice
to the Guarantor that it will be making this change on T+1.
An executing TPH's Guarantor that was the initial Give Up on a
trade may also reject the trade on T+1, but may only change the Give Up
to another CTPH that has first agreed to be the Give Up on the trade
and has notified the Exchange (by submitting the Give Up Change Form)
and executing TPH in writing of its intent to accept the trade. If a
Guarantor of a TPH decides to reject a non-Market-Maker trade on T+1,
it must follow the same procedures outlined in subparagraph (f)(iii).
The Exchange again notes that only a Guarantor whose name was initially
given up is permitted to reject a trade (i.e., a Guarantor cannot
reject a trade on T+1 for which it has become the give up as a result
of a Designated Give Up not accepting the trade).
The ability for either a Designated Give Up or Guarantor to make
these changes shall end at the T+1 Cutoff Time. The Exchange notes that
that the T+1 Cutoff Time is 12:00 p.m. (CT) to provide finality and
certainty as to which CTPH will be the CTPH for the trade.
Once the change to the Give Up has been made, the Designated Give
Up or Guarantor making the change must immediately thereafter notify
the Exchange, the parties to the trade and the New CTPH of the change
in writing. The Exchange notes that the T+1 procedure is not applicable
to trades in expiring options series that take place on the last
trading day prior to their expiration. Rather, a Designated Give Up and
Guarantor may only reject these transactions on the trade date until
the Trade Date Cutoff Time in accordance with the trade date procedures
described above.
As discussed above, the Exchange is allowing TPHs that are not
Market-Makers to identify any CTPH as a Designated Give Up. Also as
discussed, the Exchange has determined not to take instructions from a
CTPH not to permit a particular TPH from giving up their name so that
the Exchange will not be placed in the position of arbiter between a
CTPH, a TPH and a customer. The Exchange recognizes, however, that TPHs
should not be given the ability to give up any CTPH without also
providing a method of recourse to those CTPHs which, for the prescribed
reasons discussed above, should not be obligated to clear certain
trades for which they are given up. The Exchange accordingly is seeking
to provide Designated Give Ups and Guarantors the ability to, where
appropriate, reject a trade. Ultimately, however, the trade must clear
with a clearing firm and there must be finality to the trade. The
Exchange believes that the executing TPH's Guarantor, absent a CTPH
that agrees to accept the trade, should become the Give Up on any trade
which a Designated Give Up determines to reject in accordance with
these proposed rule provisions, because the Guarantor, by virtue of
having issued a Letter of Guarantee or Authorization, has already
accepted financial responsibility for all Exchange transactions made by
the executing TPH. The Exchange however, does not want to prevent a
CTPH that agrees to accept the trade from being able to do so, and
accordingly, the Exchange also provides that a New CTPH may become the
Give Up on a trade in accordance with the procedure discussed above.
Other Give Up Changes
The Exchange seeks to codify in its proposed rule three scenarios
in which a Give Up on a transaction may be changed without Exchange
involvement. First, if an executing TPH has the ability through an
Exchange system to do so, it may change the Give Up on a trade to
another Designated Give Up or its Guarantor. The Exchange notes that
TPHs often make these changes when, for example, there was a keypunch
error (i.e. an error that involves the erroneous entry of an intended
clearing firm's OCC clearing number). The ability of the executing TPH
to make any such change will end at the Trade Date Cutoff Time.\5\
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\5\ After that time, the TPH will no longer have the ability to
make this type of change as the trade will have been submitted to
OCC.
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Next, the proposed rule provides that, if a Designated Give Up has
the ability to do so, it may change the Give Up on a transaction for
which it was given up to (i) another CTPH affiliated with the
Designated Give Up or (ii) a CTPH for which the Designated Give Up is a
back office agent. The ability to make such a change will end at the
Trade Date Cutoff Time. The procedures in proposed subparagraph (f) of
Rule 6.21 that were previously described will not apply in these
instances. The Exchange notes that often CTPHs themselves have the
ability to change a Give Up on a trade for which it was given up to
another CTPH affiliate or CTPH for which the Designated Give Up is a
back office agent. Therefore, Exchange involvement in these instances
is not necessary.
Lastly, the proposed rule provides that if both a Designated Give
Up and a CTPH have the ability through an Exchange system to do so, the
Designated Give Up and CTPH may each enter trade records into the
Exchange's systems on T+1 that would effect a transfer of the trade in
a non-expired option series from that Designated Give Up to that CTPH.
Likewise, if a Guarantor of a TPH trade that is not a Market-Maker
trade and a CTPH have the ability through an Exchange system to do so,
the Guarantor and CTPH may each enter trade records into the Exchange's
systems on T+1 that would effect a transfer of the trade in a non-
expired option series from that Guarantor to that CTPH. The Designated
Give Up or Guarantor shall not make any such change after the T+1
Cutoff Time. The Exchange notes that a Designated Give Up (or
Guarantor) must notify, in writing, the Exchange and all
[[Page 33617]]
the parties to the trade, of any such change made pursuant to this
provision. This notification alerts the parties and the Exchange that a
change to the Give Up has been made. Finally, the Designated Give Up
(or Guarantor) will be responsible for monitoring the trade and
ensuring that the other CTPH has entered its side of the transaction
timely and correctly. If either a Designated Give Up (or Guarantor) or
CTPH cannot themselves enter trade records into the Exchange's systems
to effect a transfer of the trade from one to the other, the Designated
Give Up (or Guarantor) may request the ability from the Exchange to
enter both sides of the transaction in accordance with this amended
Rule 6.21 and pursuant to the procedures set forth in subparagraph
(f)(iii) of that Rule.
Responsibility
For purposes of the Rules of the Exchange, a CTPH will be
financially responsible for all trades for which it is the Give Up at
the Applicable Cutoff Time (for purposes of the proposed rule, the
``Applicable Cutoff Time'' shall refer to the T+1 Cutoff Time for non-
expiring option series and to the Trade Date Cutoff Time for expiring
option series). The Exchange notes however, that nothing in the
proposed rule shall preclude a different party from being responsible
for the trade outside of the Rules of the Exchange pursuant to OCC
Rules, any agreement between the applicable parties, other applicable
rules and regulations, arbitration, court proceedings or otherwise.
Moreover, in processing a request to provide a Designated Give Up the
ability to change a Give Up on a trade, the Exchange will not consider
or validate whether the Designated Give Up has satisfied the
requirements of this Rule in relation to having a good faith belief
that it has a valid reason not to accept a trade or having notified the
executing TPH and attempting to resolve the disputed Give Up prior to
changing the Give Up. Rather, upon request, the Exchange shall always
provide a Designated Give Up or Guarantor the ability to change the
give up or to reject a trade pursuant to the proposed rule so long as
the Designated Give Up or Guarantor, and New CTPH if applicable, have
provided a completed Give Up Change Forms within the prescribed time
period. The Exchange notes that given the inherent time constraints in
making a change to a Give Up on a transaction, the Exchange would not
be able to adequately consider the above-mentioned requirements and
make a determination within the prescribed period of time. Rather, the
Exchange will examine trades for which a Give Up was changed pursuant
to subparagraphs (e) and (f) after the fact to ensure that requirements
set forth in amended Rule 6.21 were complied with. Particularly, the
Exchange notes that the Give Up Change Forms that Designated Give Ups,
Guarantors and New CTPHs must submit, will help to ensure that the
Exchange obtains, in an uniform format, the information that it needs
to monitor and regulate this rule and these give up changes in
particular. This information, for example, will better allow the
Exchange to determine whether the Designated Give Up had a valid reason
to reject the trade, as well as assist the Exchange in cross checking
and confirming that what the Designated Give Up or Guarantor said it
was going to do is what it actually did (e.g., check that the New CTPH
identified in the Give Up Change Form was the CTPH that actually was
identified on the trade as the Give Up). Additionally, the proposed
rule does not preclude these factors from being considered in a
different forum (e.g., court or arbitration) nor does it preclude any
CTPH that violates any provision of amended Rule 6.21 rule from being
subject to discipline in accordance with Exchange rules.
Finally, the Exchange proposes to eliminate language in Rule 6.50
that addresses the financial responsibility of transactions clearing
through CTPHs. Financial responsibility is now addressed and clarified
in amended Rule 6.21, and as such, the Exchange believes this language
in Rule 6.50 is unnecessary.
The Exchange proposes to announce the implementation date of the
proposed rule change in a Regulatory Circular, to be published no later
than thirty (30) days following Commission approval. The implementation
date will be no later than ninety (90) days following publication of
the Regulatory Circular. The Exchange notes this additional time gives
TPHs time to provide their lists of all CTPHs that they would like to
designate as ``Designated Give Ups'' and gives the Exchange time to
process those lists and configure its system accordingly.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\6\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \7\ 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 facilitation
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \8\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
\8\ Id.
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First, detailing in the rules how TPHs will give up CTPHs and how
CTPHs may ``reject'' a trade provides transparency and operational
certainty. The Exchange believes additional transparency removes a
potential impediment to, and will contribute to perfecting, the
mechanism for a free and open market and a national market system, and,
in general, will protect investors and the public interest. Moreover,
the Exchange notes that amended Rule 6.21 requires standardized forms
to be used in the designation of Designated Give Ups to ensure a
seamless administration of the Rule. The Rule also requires that CTPHs
submit standardized forms when requesting the ability to reject a trade
and that all notifications relating to a change in Give Up are in
writing. These requirements will aid the Exchange's efforts to monitor
and regulate Trading Permit Holders and Clearing Trading Permit Holders
as they relate to amended Rule 6.21 and changes in give ups, thereby
protecting investors and the public interest.
Additionally, the Exchange notes that in evaluating its give up
rule provisions, it solicited feedback from a variety of market
participants. The Exchange believes that its proposed give up rule
strikes the right balance between the various views and interests
across the industry. For example, although the rule allows TPHs that
are not Market-Makers to identify any CTPH as a Designated Give Up, it
also provides that CTPHs will receive notice of any TPH that has
designated it as a Designated Give Up and provides for a procedure for
a CTPH to ``reject'' a trade in accordance with the Rules, both on the
trade date and T+1. The Exchange recognizes that TPHs should not be
given the ability to
[[Page 33618]]
give up any CTPH without also providing a method of recourse to those
CTPHs which, for the prescribed reasons discussed above, should not be
obligated to clear certain trades for which they are given up. The
Exchange believes that providing Designated Give Ups the ability to
reject a trade within a reasonable amount of time is consistent with
the Act as, pursuant to the proposed rule, the Designated Give Ups may
only do so if they have a valid reason and because ultimately, the
trade can always be assigned to the Guarantor of the executing TPH. A
trade must clear with a clearing firm and there must be finality to the
trade. The Exchange believes that the executing TPH's Guarantor, absent
a CTPH that agrees to accept the trade, should become the Give Up on
any trade which a Designated Give Up determines to reject in accordance
with the proposed rule provisions, because the Guarantor, by virtue of
having issued a Letter of Guarantee or Authorization, has already
accepted financial responsibility for all Exchange transactions made by
the executing TPH. Therefore, amended Rule 6.21 is reasonable and
provides certainty that a CTPH will always be responsible for a trade,
which protects investors and the public interest.
Lastly, the Exchange notes that amended Rule 6.21 does not preclude
a different party than the party given up from being responsible for
the trade outside of the Rules of the Exchange pursuant to OCC Rules,
any agreement between the applicable parties, other applicable rules
and regulations, arbitration, court proceedings or otherwise. The
Exchange acknowledges that it will not consider whether the Designated
Give Up has satisfied the requirements of this Rule in relation to
having a good faith belief that it has a valid reason not to accept a
trade or having notified the executing TPH and attempting to resolve
the disputed Give Up prior to changing the Give Up, due to inherent
time restrictions. However, the Exchange believes investor and public
interest are still protected as the Exchange will still examine trades
for which a Give Up was changed pursuant to subparagraphs (e) and (f)
of amended Rule 6.21 after the fact to ensure that the requirements set
forth in the Rule were complied with. As noted above, the use of
standardized forms and the requirement that certain notices be in
writing will assist monitoring any give up changes and enforcing
amended Rule 6.21. Finally, the Exchange notes that the Rule does not
preclude these factors from being considered in a different forum
(e.g., court or arbitration) nor does it preclude any TPH or CTPH that
violates any provision of amended Rule 6.21 from being subject to
discipline by the Exchange.
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 Act. The Exchange does not believe
that the proposed rule change will impose an unnecessary burden on
intramarket competition because it will apply equally to all similarly
situated Trading Permit Holders. The Exchange also notes that, should
the proposed changes make CBOE more attractive for trading, market
participants trading on other exchanges can always elect to become TPHs
on CBOE to take advantage of the trading opportunities.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has not solicited nor received comments on the version
of the proposed rule change submitted in this rule filing. As further
described in Item 1 [sic] above, the Exchange has solicited feedback
from a variety of market participants regarding the general subject of
this rule filing.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. By order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CBOE-2014-048 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-2014-048. 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 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-2014-048, and should be
submitted on or before July 2, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-13555 Filed 6-10-14; 8:45 am]
BILLING CODE 8011-01-P