[Federal Register Volume 79, Number 246 (Tuesday, December 23, 2014)]
[Notices]
[Pages 77079-77081]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-29965]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73863; File No. SR-FINRA-2014-051]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to In Concert Reporting of Options
Positions
December 17, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 11, 2014, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by FINRA. FINRA has designated
the proposed rule change as constituting a ``non-controversial'' rule
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which
renders the proposal effective upon receipt of this filing by the
Commission. 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.
\3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend Rule 2360(b)(5) regarding reporting of
options positions to codify an existing requirement that the reporting
rules apply to all accounts acting in concert, consistent with the
application of the reporting rules of the options exchanges.
Below is the text of the proposed rule change. Proposed new
language is in italics; proposed deletions are in brackets.
* * * * *
2000. DUTIES AND CONFLICTS
* * * * *
2300. SPECIAL PRODUCTS
* * * * *
2360. Options
(a) No Change.
(b) Requirements
(1) through (4) No Change.
(5) Reporting of Options Positions
(A)(i)a. Conventional Options
Each member shall file or cause to be filed with FINRA a report
with respect to each account in which the member has an interest, each
account of a partner, officer, director or employee of such member, and
each customer, non-member broker, or non-member dealer account, which,
acting alone or in concert, has established an aggregate position of
200 or more option contracts (whether long or short) of the put class
and the call class on the same side of the market covering the same
underlying security or index, combining for purposes of this
subparagraph long positions in put options with short positions in call
options and short
[[Page 77080]]
positions in put options with long positions in call options, provided,
however, that such reporting with respect to positions in conventional
index options shall apply only to an option that is based on an index
that underlies, or is substantially similar to an index that underlies,
a standardized index option.
b. Standardized Options
Each member that conducts a business in standardized options but is
not a member of the options exchange upon which the standardized
options are listed and traded shall file or cause to be filed with
FINRA a report with respect to each account in which the member has an
interest, each account of a partner, officer, director or employee of
such member, and each customer, non-member broker, or non-member dealer
account, which, acting alone or in concert, has established an
aggregate position of 200 or more option contracts (whether long or
short) of the put class and the call class on the same side of the
market covering the same underlying security or index, combining for
purposes of this subparagraph long positions in put options with short
positions in call options and short positions in put options with long
positions in call options.
(ii) No Change.
(B) No Change.
(6) through (24) No Change.
(c) No Change.
Supplementary Material: ----------
.01 through .03 No Change.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA 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. FINRA 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
FINRA Rule 2360(b)(5) requires that members file, or cause to be
filed, reports for each account that has an aggregate position of 200
or more options contracts (whether long or short) on the same side of
the market covering the same underlying security or index. These
reports are referred to as Large Options Position Reports (``LOPRs'').
All LOPRs are filed electronically and The Options Clearing Corporation
(``OCC'') currently hosts and maintains the LOPR reporting system.
FINRA Rule 2360(b)(5)(A)(i)a. sets forth the requirements for the LOPR
for conventional options.\4\ FINRA Rule 2360(b)(5)(A)(i)b. sets forth
the requirements for the LOPR for standardized options by members that
are not members of the options exchange upon which the standardized
options are listed (so called ``access members'').\5\ Among other
things, the LOPRs allow FINRA to confirm that firms have not exceeded
the options position limits set forth in FINRA Rule 2360(b)(3).\6\ The
position limit requirements are uniform across the options exchanges
and FINRA.\7\
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\4\ FINRA Rule 2360(b)(5)(A)(i)a. provides that the reporting
requirement for conventional index options only applies to an option
that is based on an index that underlies, or is substantially
similar to an index that underlies, a standardized index option. As
a result, conventional index options based on customized indexes are
not required to be reported. See Notice to Members 07-03 (January
2007); and see also Securities Exchange Act Release No. 54755
(November 15, 2006), 71 FR 67675 (November 22, 2006) (Order
Approving File No. SR-NASD-2006-007).
\5\ As noted below, the reporting rules are meant to be uniform
across the industry and thus FINRA's rules only require access
members to report standardized options positions to FINRA. If a firm
is a member of the options exchange on which the standardized option
trades, then the firm would report the LOPR to the exchange of which
is a member.
\6\ FINRA Rule 2360(b)(3)(A) imposes a ceiling or position limit
on the number of conventional and standardized equity options
contracts in each class on the same side of the market (i.e.,
aggregating long calls and short puts or long puts and short calls)
that can be held or written by a firm, a person associated with a
firm, or a customer acting alone or in concert with others.
\7\ See, e.g., CBOE Rule 4.11, ISE Rule 412 and NYSE Arca
Options Rule 6.8. The standards for the calculation of position
limits for a particular underlying security are the same across the
options exchanges.
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The position limit rules require that all accounts acting in
concert, by the same individual or entity, must be aggregated to ensure
position limit compliance. Accordingly, the position report should also
be based on when accounts acting in concert exceeds the 200 contract
threshold. This would ensure the report is accurately capturing the
entire position to monitor for position limit purposes. The options
exchanges and FINRA acting through the Intermarket Surveillance Group
(the ``ISG'') outlined this requirement in a May 1, 1991 Notice.\8\ In
addition, the LOPR Frequently Asked Questions (``FAQs'') maintained on
the OCC's site that are updated by the ISG members, including FINRA,
outline the requirement that the ``[m]embers must report any account or
accounts acting ``in concert'' that hold over 200 contracts on either
the long call/short put (bullish) or the short call/long put (bearish)
side of the market.'' \9\ Like the position limit rules, the reporting
rules and requirements are meant to be uniform across the industry.
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\8\ See ISG Important Notice, Large Options Position Report
(LOPR)/Mandatory Automated Reporting Requirement Notice dated May 1,
1991 (``ISG Notice'').
\9\ See Large Options Positions Reporting (LOPR) Frequently
Asked Questions (FAQs), FAQ #24 available at http://www.optionsclearing.com/components/docs/clearing/industry-services/lopr/lopr_faqs.pdf.
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Certain options exchanges rules are explicit about the requirement
to report a position whether acting alone or in concert,\10\ while
FINRA and other options exchanges rules have by interpretation and
relying on the ISG Notice and LOPR FAQs required firms to report such
information. FINRA proposes to amend Rule 2360(b)(5)(A)(i)a. and b.\11\
to codify the existing requirement that members must report each
account in which the member has an interest, each account of a partner,
officer, director or employee of such member, and each customer, non-
member broker, or non-member dealer account which, acting alone or in
concert, has established an aggregate position of 200 or more option
contracts. FINRA believes that firms are already complying with this
requirement as it has been a stated FINRA interpretation since May
1991. FINRA believes that harmonizing its rule with those options
exchanges rules that are explicit about the in concert requirement will
clarify firms reporting requirements and ensure continued consistency
in monitoring for position limits.
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\10\ See BATS Rule 18.10(a), CBOE Rule 4.13(a), NYSE Arca Rule
6.6(a), and NASDAQ OMX PHLX Rule 1003(a).
\11\ FINRA proposes to harmonize the reporting provision with
the options exchanges for standardized options and clarify the
requirement for conventional options to similarly ensure the report
is accurately capturing the entire position to monitor for position
limit purposes.
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FINRA has filed the proposed rule change for immediate
effectiveness and has requested that the SEC waive the requirement that
the proposed rule change not become operative for 30 days after the
date of the filing, so FINRA can implement the proposed rule change
immediately.
[[Page 77081]]
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\12\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. FINRA believes that clarifying that members must
report options position reports for accounts of members, each account
of a partner, officer, director or employee of such member, and each
customer, non-member broker, or non-member dealer acting alone or in
concert with others is necessary to fully and effectively monitor
compliance with the position limit requirements, which are based on
similar standards. In addition, FINRA believes that the proposed rule
change will promote consistent regulation by harmonizing FINRA's rules
with those of the options exchanges.
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\12\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. FINRA believes that clarifying
that members must report options position reports for accounts of
members, each account of a partner, officer, director or employee of
such member, and each customer, non-member broker, or non-member dealer
acting alone or in concert with others is necessary to fully and
effectively monitor compliance with the position limit requirements.
This proposed rule change reflects existing FINRA and ISG
interpretation, which has been express since 1991 and is widely
understood by firms. In addition, FINRA believes that the proposed rule
change will promote consistent regulation by harmonizing FINRA's rules
with those of the options exchanges and thus will impose no burden on
members since such reports are already being filed.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative 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
subparagraph (f)(6) of Rule 19b-4 thereunder.\14\
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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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 shall institute proceedings to
determine whether the proposed rule should be approved or 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-FINRA-2014-051 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2014-051. 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
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of FINRA. 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-FINRA-2014-051 and should be
submitted on or before January 13, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-29965 Filed 12-22-14; 8:45 am]
BILLING CODE 8011-01-P