[Federal Register Volume 79, Number 211 (Friday, October 31, 2014)]
[Notices]
[Pages 64846-64849]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-25880]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73439; File No. SR-CBOE-2014-082]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to the CBOE Trade Match System
October 27, 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 October 24, 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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[[Page 64847]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt a new rule related to its existing
CBOE Trade Match System functionality. 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 is proposing to adopt new Rule 6.67 related to its
existing CBOE Trade Match System (``CTM'') functionality. CTM is a
systems user interface provided by the Exchange in which authorized
Trading Permit Holders (``TPHs'') may receive copies of trade records
and add and/or update their trade records. Although references to CTM
exist within Regulatory and Information Circulars, as well as technical
specifications, the functionality is not currently described in
Exchange rules. The Exchange believes it would be beneficial to address
and provide further detail in its rules regarding the CTM functionality
and permitted uses.
Exchange rules currently contemplate post trade modifications.\3\
Such modifications may be effected via the CTM system. A rule
explicitly detailing the modification process and defining what
permitted modifications are allowed however does not currently exist in
the Exchange's rules. The Exchange believes it would be useful to
explicitly reference within the rule text the term ``CTM'' and codify
what post trade modifications via CTM are permitted to reduce confusion
and add additional transparency to the rules regarding CBOE's systems.
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\3\ See, e.g., CBOE Rule 6.61 which provides that a Trading
Permit Holder ``shall be obligated to reconcile all unmatched trades
. . . and to report all reconciliations and corrections to the
Exchange or the Clearing Trading Permit Holder responsible for
submission to the Exchange.''
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First, the Exchange proposes to explicitly reference and describe
``CTM.'' Specifically, CTM is a system in which authorized TPHs may
enter and report transactions that have been effected on the Exchange
in accordance with Exchange rules (e.g., Cabinet Trades \4\ or other
trades that have been transacted on the Exchange in accordance with
Exchange rules, but were not processed through the Hybrid System \5\)
or to correct bona fide errors (e.g., a situation in which a
transaction was reported using the wrong strike). Documentation
requirements related to changes made through the use of CTM will be
announced via a Regulatory Circular.
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\4\ See CBOE Rule 6.54.
\5\ For example, a TPH may not have been able to enter its side
of a transaction due to a system issue with the trade match record
entry process.
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By way of background, CBOE Rule 6.51 requires that for all
transactions made on the Exchange, TPHs must file with the Exchange
certain trade information \6\ in order to allow the Exchange to
properly match and clear trades. This information is used to provide
the comparison of the two sides (i.e., buy and sell) of a transaction.
When the two sides match, the trade is successfully compared and will
move on to the Options Clearing Corporation (``OCC'') for clearance.
For trades that do not match (i.e., trade information from each side do
not match) TPHs and their respective representatives must make
reasonable efforts to resolve unmatched trades on trade day.\7\ The
Exchange notes that unmatched trades may be a result of software
problems or systemic problems that cause incorrect information to be
filed or a result of other errors such as ``key punch'' errors which
result from manual data entry (i.e., trade information outside the
written order instructions may have been mistakenly keyed in during
user input). The Exchange notes that CTM may be used by TPHs to change
certain fields on a trade record for which it has authority to correct,
in order to update a trade record or correct an unmatched field to
resolve an out-trade. The Exchange proposes to codify what post trade
modifications via CTM are permitted and further specify which changes
will require notification to the Exchange.
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\6\ See CBOE Rule 6.51(d).
\7\ See CBOE Rule 6.61. See also, CBOE Rule 6.60. On each
business day the Exchange shall match the trade information
submitted by TPHs on that day and issue Unmatched Trade Reports to
each Clearing Trading Permit Holder, (``CTPH'') which contains a
list of such CTPH's trades for that day which the Exchange did not
receive matching trade data from another CTPH (called ``unmatched
trades''). Upon receipt of an Unmatched Trade Report, a TPH must
reconcile all unmatched trades and report all reconciliations and
corrections to the Exchange or the CTPH responsible for submission
to the Exchange.
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The Exchange first seeks to specify which fields may be changed by
TPHs through the use of CTM without notice to the Exchange. Those
fields are: (1) Executing Firm and Contra Firm; (2) Executing Broker
and Contra Broker; (3) CMTA; \8\ (4) Market-Maker Account and Sub
Account; (5) Customer ID; (6) Position Effect (open/close); (7)
Optional Data and/or (8) Origin Code (provided the change is not from a
customer origin code to any other origin code). The Exchange notes that
the information contained in these fields does not affect the terms of
a contract or the Consolidated Tape. Rather, the Exchange views these
changes to be non-critical backoffice changes and as such, the Exchange
does not believe it needs notice from the TPH making the change. The
Exchange also notes that such changes would be captured in the
Exchange's audit trail.
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\8\ Under a Clearing Member Trade Agreement (``CMTA''), an
Options Clearing Corporation (``OCC'') clearing member (``carrying
clearing member'') authorizes another clearing member (``executing
clearing member'') to give up the name of the carrying clearing
member with respect to any trade executed on a specific exchange
(i.e., the re-assignment of a trade to a different Clearing firm
occurs post-trade at the OCC).
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Next, the Exchange proposes to specify which fields may be changed
by TPHs through the use of CTM that require TPHs to give notice to the
Exchange in a form and manner determined by the Exchange. Specifically,
those fields are: (1) Series; (2) Quantity; (3) Buy or Sell; (4)
Premium Price and/or (5) Origin Code (if changing origin code from
customer (C) to any other origin code). The Exchange notes that these
fields, with the exception of origin code, do change the terms of the
contract and additionally affect the Consolidated Tape. As such, the
Exchange proposes to require notice and further documentation as to why
such a change is being made in order to monitor such changes, as well
as take the necessary steps to ensure that any such changes are
properly reflected in the Consolidated Tape. As to changes from a
Customer (C) origin code to any other origin code, the Exchange notes
that while such change does not affect the Consolidated Tape or terms
of a
[[Page 64848]]
contract, such changes may affect other substantive aspects of how a
trade was processed, including whether a trade should have been given
order priority. Accordingly, the Exchange believes that TPHs making
changes to these fields should be required to provide to the Exchange
notice and documentation relating to the change. The Exchange proposes
to require that notification of the change be made as soon as
practicable, but no later than fifteen (15) minutes after the change
has been made. The Exchange notes that it will not be authorizing any
changes prior to the TPH making changes to any of the above-mentioned
fields (i.e., the Exchange will not expressly indicate whether or not a
change identified in a TPH's notice is in conformity with Exchange
rules prior to the change being made). Rather, due to inherent time
constraints, such changes will be reviewed by Exchange personnel after
the fact, and a TPH that is found to have made an improper modification
may be subject to appropriate disciplinary action in accordance with
the Rules of the Exchange as described more fully below.
The Exchange lastly proposes to adopt Interpretation and Policy .01
to provide that any action taken by the Exchange pursuant to proposed
Rule 6.67(b) and (c) does not constitute a determination by the
Exchange that the transaction was effected in conformity with Exchange
Rules.\9\ As noted above, any improper change made through CTM shall be
processed and given effect, but the TPH may be subject to appropriate
disciplinary action in accordance with Exchange rules. Additionally,
the Exchange notes that nothing in proposed Rule 6.67 is intended to
define or limit the ability of the Exchange to sanction or take other
remedial action pursuant to other Exchange rules for rule violations or
other activity for which remedial measures may be proposed. The
Exchange notes that given the inherent time constraints in making
various changes to exchange transactions, the Exchange would not be
able to adequately consider the above-mentioned requirements and make a
determination within the time required as to whether a change was
improper or not. As such the Exchange will not prevent any changes from
being processed and given effect, but will review such changes after
the fact to ensure compliance with Exchange rules.
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\9\ For example, if the Exchange provides a TPH the ability to
make a change via CTM, such action should not be construed as a
determination by the Exchange that the transaction proposed is in
conformity with Exchange Rules.
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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.\10\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \11\ 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 the
Section 6(b)(5) \12\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
\12\ Id.
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The Exchange views CTM as an important tool that allows TPHs to
receive copies of trade records and add and/or update trade records.
Specifically, as described above, Exchange rules contemplate post trade
modifications and also require that TPHs resolve unmatched trades. The
Exchange believes CTM provides TPHs an effective mechanism to make such
changes and reconcile out-trades due to bona fide errors, thereby
removing impediments to and perfecting the mechanism of a free and open
market and a national market system, and protecting investors and the
public interest. Additionally, CTM provides a mechanism to enter trade
records for trades effected on the Exchange in accordance with Exchange
rules, but that were not processed through the Hybrid System and would
otherwise be processed outside of CBOE's systems.
The Exchange also believes that clearly defining in the rules
existing system functionality (i.e., CTM) provides additional
transparency in the rules and provides market participants an
additional avenue to easily understand the system and processes CBOE
offers. The Exchange believes additional transparency removes a
potential impediment to and perfecting the mechanism for a free and
open market and a national market system, and, in general, protecting
investors and the public interest. Additionally, the Exchange believes
that requiring certain changes made through the CTM system allows the
Exchange to receive from TPHs information in a uniform format, which
aids the Exchange's efforts to monitor and regulate CBOE's markets and
TPHs and helps prevent fraudulent and manipulative practices.
Finally, the Exchange believes that the proposed rule changes are
designed to not permit unfair discrimination among market participants.
For example all TPHs may request access to CTM. Additionally, all TPHs
will be subject to the same limitations as to the permitted uses of CTM
functionality.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes that
proposed Rule 6.67 will promote competition by making the CTM
functionality more understandable to users and the general public. The
Exchange believes that by better explaining its CTM functionality to
TPHs and codifying the permitted uses of CTM, TPHs will better
understand the Exchange's systems. The Exchange believes that
additional clarity and transparency in the Rules will make it easier
for market participants to compete with one another on equal footing in
the markets and ultimately benefits all investors.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange neither solicited nor received written comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
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 Act \13\ and
Rule 19b-4(f)(6) \14\ thereunder. At any time within 60 days
[[Page 64849]]
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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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 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 (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CBOE-2014-082 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-2014-082. 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-CBOE-2014-082,
and should be submitted on or before November 21, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
Kevin M. O'Neill,
Deputy Secretary.
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\15\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2014-25880 Filed 10-30-14; 8:45 am]
BILLING CODE 8011-01-P