[Federal Register Volume 87, Number 172 (Wednesday, September 7, 2022)]
[Notices]
[Pages 54727-54736]
[FR Doc No: 2022-19227]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95644; File No. SR-NYSEARCA-2022-55]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Modify Rule
6.78-O and Adopt New Rules Related Thereto and Delete Paragraph (d) to
Rule 6.69-O

August 31, 2022.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on August 23, 2022, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') 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 self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to modify Rule 6.78-O and to adopt new rules
related thereto regarding certain position transfers, including off-
floor transfers. The Exchange also proposes to delete paragraph (d) to
Rule 6.69-O (Reporting Duties). The proposed rule change is available
on the Exchange's

website at www.nyse.com, at the principal office of the Exchange, 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 self-regulatory organization
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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this rule change is to modify Rule 6.78-O and to
adopt new rules related thereto regarding certain position transfers,
including off-floor transfers as described herein. As discussed herein,
the proposed rules are substantively identical to rules on other
options exchanges and would align the Exchanges rules with that of its
competitors, thus reducing market participants' administrative burden
of determining whether their transfers comply with multiple sets of
options exchange rules.\4\ The Exchange also proposes to delete
paragraph (d) to Rule 6.69-O (Reporting Duties) for reason set forth
below.
---------------------------------------------------------------------------

    \4\ See, e.g., Cboe Options Exchange, Inc. (``Cboe'') Rule 5.12
(Transactions Off the Exchange); Cboe Rule 6.7 (Off-Floor Transfer
of Positions); Cboe Rule 6.8 (Off-Floor RWA Transfers); and NYSE
Arca Rule 6.78A-O (In-Kind Exchange of Options Positions and ETF
Shares and UIT Units) and Cboe Rule 6.9 (same).
---------------------------------------------------------------------------

    Rule 6.78-O sets forth the general rule that transactions of option
contracts listed on the Exchange for a premium in excess of $1.00 must
be effected on the floor of the Exchange or on another exchange.\5\
Notwithstanding this prohibition, the Exchange permits certain types of
position transfers to be effected off the floor.\6\ In addition, Rule
6.78-O(e) sets forth a procedure for an ``on-floor'' transfer of
positions and Rule 6.78-O(f) authorizes the Exchange's Chief Executive
Officer to grant exemptions to (e) of the Rule.
---------------------------------------------------------------------------

    \5\ See Rule 6.78-O(a)-(b). Rule 6.78-O(c) requires that OTP
Holders or OTP Firms that effect off-floor transfers keep records of
such transactions.
    \6\ See Rule 6.78-O(d)(1) (setting forth specific events under
which off-floor transfers are permitted). The Exchange notes that
new Rule 6.78A-O will address enumerated exceptions to the general
prohibition against off-floor transfers (as set forth in proposed
Rule 6.78-O).
---------------------------------------------------------------------------

    The Exchange proposes to delete current Rule 6.78-O in its entirety
and replace it with proposed Rules 6.78-O and 6.78A-O, the text of
which rules are substantively identical to Cboe Options Exchange, Inc.
(``Cboe'') Rules 5.12 (Transactions Off the Exchange) and Rule 6.7
(Off-Floor Transfer of Positions). As such, the proposed rules would
align Exchange rules with those of its competitors.\7\ The Exchange
believes having similar rules related to off-floor transfer positions
to those of other options exchanges would reduce the administrative
burden on market participants of determining whether their off-floor
transfers comply with multiple sets of rules. The proposed Rules would
apply to all Exchange rules and, as such, the Exchange is not proposing
to carry forward current Commentary .03, which specifies Exchange rules
to which it applies.\8\
---------------------------------------------------------------------------

    \7\ See, e.g., Cboe Rule 5.12 (Transactions Off the Exchange)
and Rule 6.7 (Off-Floor Transfer of Positions).
    \8\ See Rule 6.78-O, Commentary .03 (providing that ``[t]o the
extent applicable, all other Exchange rules, including Rule 6.49-O,
Solicited Transactions, will apply to the transfer procedure set
forth in subsections (d) through (f). The following Rules do not
apply to transfer procedures: 6.71-O (Meaning of Premium Bids and
Offers); 6.74-O (Bids and Offers in Relation to Units of Trading);
6.75-O (Priority of Bids and Offers); 6.76-O (Priority of Split
Price Transactions); and 6.47-O (``Crossing'' Orders and Stock/
Option, SSF/Option Orders)'').
---------------------------------------------------------------------------

Proposed Rule 6.78-O: Transactions Off the Exchange
    Proposed Rule 6.78-O(a) provides that except as otherwise provided
by this proposed Rule, no OTP Holders or OTP Firm \9\ acting as
principal or agent may effect transactions in any class of option
contracts listed on the Exchange for a premium in excess of $1.00 other
than (1) on the Exchange, (2) on another exchange on which such option
contracts are listed and traded, or (3) in the over-the-counter market
if the stock underlying the option class, or in the case of an index
option, if all the component stocks of an index underlying the option
class, was a National Market System security under SEC Rule 600 at the
time the Exchange commenced trading in that option class, unless that
OTP Holder or OTP Firm has first attempted to execute the transaction
on the floor of the Exchange and has reasonably ascertained that it may
be executed at a better price off the floor.\10\ Proposed Rule 6.78-
O(a) is substantially the same as current Rule 6.78-O(a) and (b),
regarding off-floor transfer requirements for an OTP Holder or OTP Firm
acting as principal or agent, respectively, except that it updates
references to SEC rules.\11\ Proposed Rule 6.78-O(a)(1)-(3), insofar as
it clarifies the securities to which the proposed Rule applies,
obviates the need for current Commentary .01 to Rule 6.78-O.\12\
---------------------------------------------------------------------------

    \9\ An ``OTP Holder'' is a natural person, in good standing, who
has been issued an OTP, or has been named as a Nominee. See Rule
1.1. An ``OTP Firm'' is a sole proprietorship, partnership,
corporation, limited liability company or other organization in good
standing who holds an OTP or upon whom an individual OTP Holder has
conferred trading privileges on the Exchange's Trading Facilities
pursuant to and in compliance with Exchange rules. See id.
    \10\ See Cboe Rule 5.12(a).
    \11\ See Rules 6.78-O(a) and (b) (setting forth the requirements
for OTP Holders or OTP Firms acting for their own account or as
agent, respectively, to effect off-board transactions (or off a
participating exchange) ``involving any purchase or sale of an
option for a premium in excess of $1.00 covering the same underlying
security and having the same exercise price and expiration date as a
series of options currently open for trading on the Exchange,''
including ensuring such transactions could not be executed at a
better price on an exchange).
    \12\ See Rule 6.78-O, Commentary .01 (providing that
``[p]aragraphs (a) and (b) above shall not apply to option
transactions executed (i) on the Exchange, (ii) on another exchange,
or (iii) through the facilities of NASDAQ, if the security
underlying the option class was a National Market System (`NMS')
Tier 1 security under Securities and Exchange Commission Rule 11Aa2-
1(b)(1) at the time the Exchange commenced trading in that option
class'').
---------------------------------------------------------------------------

    Proposed Rule 6.78-O(b) provides that, notwithstanding the
provisions of paragraph (a) of this proposed Rule, an OTP Holder or OTP
Firm acting as agent may execute a customer's order off the Exchange
floor with any other person (except when such OTP Holder or OTP Firm
also is acting as agent for such other person in such transaction) for
the purchase or sale of an option contract listed on the Exchange.\13\
---------------------------------------------------------------------------

    \13\ See Cboe Rule 5.12(b).
---------------------------------------------------------------------------

    Proposed Rule 6.78-O(c) provides that for each transaction in which
an OTP Holder or OTP Firm acting as principal or agent executes any
purchase or sale of an option contract listed on the Exchange other
than on the Exchange or on another exchange on which such option
contracts are listed and traded, a record of such transaction shall be
maintained by such OTP Holder or OTP Firm and shall be available for
inspection by the Exchange for a period of one year. Such record shall
include the circumstances under which the transaction was executed in
conformity with this Rule.\14\
---------------------------------------------------------------------------

    \14\ See Cboe Rule 5.12(c). Proposed Rule 6.78-O(c) is
substantially the same as current Rule 6.78-O(c) regarding
recording-keeping requirements for OTP Holders or OTP Firms
effecting off-floor transfers.

---------------------------------------------------------------------------

    Proposed Rule 6.78-O(d) provides that no rule, stated policy, or
practice of the Exchange may prohibit or condition, or be construed to
prohibit or condition, or otherwise limit, directly or indirectly, the
ability of any OTP Holder or OTP Firm acting as agent to effect any
transaction otherwise than on the Exchange with another person (except
when such OTP Holder or OTP Firm also is acting as agent for such other
person in such transaction) in any equity security listed on the
Exchange or to which unlisted trading privileges on the Exchange have
been extended.\15\
---------------------------------------------------------------------------

    \15\ See Cboe Rule 5.12(d).
---------------------------------------------------------------------------

    Proposed Rule 6.78-O(e) provides that no rule, stated policy, or
practice of the Exchange may prohibit or condition, or be construed to
prohibit, condition, or otherwise limit, directly or indirectly, the
ability of any OTP Holder or OTP Firm to effect any transaction
otherwise than on the Exchange in any reported security listed and
registered on the Exchange or as to which unlisted trading privileges
on the Exchange have been extended (other than a put option or call
option issued by Options Clearing Corporates or OCC) which is not a
covered security.\16\
---------------------------------------------------------------------------

    \16\ See Cboe Rule 5.12(e). The ``Options Clearing Corporation''
or ``OCC'' refers to The Options Clearing Corporation, a subsidiary
of the Participating Exchanges. See Rule 900.2NY(55). The term
``Participating Exchanges'' refers to any national securities
exchange that has qualified for participation in the OCC pursuant to
the provisions of the Rules of the Options Clearing Corporation. See
Rule 900.2NY(61).
---------------------------------------------------------------------------

Proposed Rule 6.78A-O: Off-Floor Transfer of Positions
    Rule 6.78-O specifies the circumstances under which OTP Holder and
OTP Firms may effect transfers of positions, both on and off the
trading floor, notwithstanding the general prohibition against off-
floor transfers (discussed above).\17\ The Exchange proposes to adopt
new Rule 6.78A-O, titled ``Off-Floor Transfer of Positions,'' which
would set forth the permissible reasons for and procedures related to
off-floor position transfers, but would not include the provisions
related to on-floor position transfers. Proposed Rule 6.78A-O is
substantively identical to the rules of other option exchanges
regarding permissible off-floor transfers of options positions and
would align Exchange rules with those of its competitors.\18\
---------------------------------------------------------------------------

    \17\ See Rule 6.78-O(d) (which enumerates circumstances under
which off-floor position transfers may occur) and Rule 6.78-O(e) and
(f) (which sets forth the procedure or permissible positions
transfers on the floor of the exchange or on another options
exchange).
    \18\ See Cboe Rule 6.7 (Off-Floor Transfer of Positions). See
also Nasdaq ISE, LLC (``ISE'') Options 6, Section 5 (Transfer of
Positions); Miami Options Exchange (``MIAX'') Rule 1326 (Transfer of
Positions). As noted below, regarding the ``presidential''
exemption, Cboe Rule 6.7(f) does not explicitly include the Chief
Executive Office, which reference is included in ISE Options 6,
Section 5(f); MIAX Rule 1326(f).
---------------------------------------------------------------------------

    First, the on-floor position transfer procedure set forth in Rule
6.78-O(e) and (f) was designed to help OTP Holders and OTP Firms with a
need to transfer positions in bulk as part of a sale or disposition of
all or substantially all of its assets or options positions to obtain
the best possible price for the positions while also ensuring that
other OTP Holders and OTP Firms had an adequate opportunity to make
bids and offers on the positions being transferred.\19\ In addition,
the ``on-floor'' position transfer procedure could be used by OTP
Holders and OTP Firms that, for reasons other than a forced
liquidation, such as an extended vacation, wished to liquidate their
entire, or nearly their entire, open positions in a single set of
transactions, subject to certain restrictions.\20\ Currently, because
OTP Holders have been largely consolidated in the hands of firms rather
than individuals, such transfers are, for the most part unnecessary; if
an individual takes an extended vacation, another member of the firm
handles the firm's book. Accordingly, the Exchange believes that the
on-floor transfer of positions procedure no longer serves the uses for
which it was originally adopted. Moreover, the process--which is only
used on a limited basis--is nonetheless administratively burdensome on
the Exchange. Further, other options exchange with a trading floor and
a transfer of positions rule do not offer an on-floor transfer
procedure.\21\
---------------------------------------------------------------------------

    \19\ See Rule 6.78-O(e)(1).
    \20\ See Rule 6.78-O, Commentary .04. Among other restrictions,
repeated and frequent use of the on-floor procedure in Rule 6.78-O
by an OTP Holder/OTP Firm is not permitted. The Exchange proposes to
include text from current Commentary .04 that provides that the on-
floor transfer procedure is not to be used repeatedly or routinely
in circumvention of the normal auction market process in proposed
Rule 6.78A-O, as that provision applies to both the current on-floor
and off-floor position transfer procedures. See proposed Rule 6.78A-
O(g) (discussed herein).
    \21\ See, e.g., Cboe Rule 5.12 (Transactions Off the Exchange)
and Rule 6.7 (Off-Floor Transfer of Positions); ISE Options 6,
Section 5 (Transfer of Positions).
---------------------------------------------------------------------------

    Current Rule 6.78-O(d) lists the circumstances in which OTP Holders
or OTP Firms may transfer their positions off the floor. The
circumstances currently listed include: (i) the dissolution of a joint
account in which the remaining OTP Holder or OTP Firm assumes the
positions of the joint account; (ii) the dissolution of a corporation
or partnership in which a former nominee of the corporation or
partnership assumes the positions; (iii) positions transferred as part
of an OTP Holder's or OTP Firm's capital contribution to a new joint
account, partnership, or corporation; (iv) the donation of positions to
a not-for-profit corporation; (v) the transfer of positions to a minor
under the Uniform Gifts to Minors Act; (vi) a merger or acquisition
resulting in continuity of ownership or management; or (vii)
consolidation of accounts within an OTP Holder or OTP Firm (the
``current Exchange-permitted off-floor transfers''). As set forth
below, the Exchange proposes to carry forward the current Exchange-
permitted off-floor transfers into proposed Rule 6.78A-O and to add
three new permissible circumstances.\22\
---------------------------------------------------------------------------

    \22\ See proposed Rule 6.78A-O(a). Because proposed Rule 6.78A-O
(Off-Floor Transfer of Positions) would replace current Rule 6.78A-O
(In-Kind Exchange of Options Positions and ETF Shares and UIT
Units), the Exchange proposes the non-substantive conforming change
to re-number current Rule 6.78A-O as Rule 6.78C-O. The Exchange is
not making any substantive changes to the text of proposed Rule
6.78C-O and believes the proposed change would add clarity,
transparency and internal consistent to Exchange rules making them
easier to navigate and comprehend.
---------------------------------------------------------------------------

    Proposed Rule 6.78A-O(a) would provide that, notwithstanding
proposed Rule 6.78-O (described above), existing positions in options
listed on the Exchange of an OTP Holder or OTP Firm, or non-OTP Holder
or OTP Firm, that are to be transferred on, from, or to the books of a
Clearing Member \23\ may be transferred off the Exchange (an ``off-
floor transfer) if the transfer involves one or more of the events
listed in proposed Rule 6.78-O(a)(1)-(10).\24\ The proposed Rule makes
clear that Rule 6.78A-O does not apply to products other than options
listed on the Exchange, consistent with the Exchange's other trading
rules.\25\ It also clarifies that an OTP Holder or OTP Firm or Clearing
Member must be on at least one side of the off-floor transfer. The
proposed rule change also clarifies that transferred positions must be
on, from, or to the books of a Clearing Member. The proposed rule
change also

clarifies that existing positions of an OTP Holder or OTP Firm or a
non-OTP Holder or OTP Firm may be subject to an off-floor transfer,
except under specified circumstances in which a transfer may only be
effected for positions of an OTP Holder or OTP Firm.\26\ As such the
proposed changes, in addition to aligning with the rules of another
options exchange (i.e., Cboe Rule 6.7), would add clarity and
transparency to Exchange rules.
---------------------------------------------------------------------------

    \23\ A ``Clearing Member'' refers to an OTP Firm or OTP Holder
that has been admitted to membership in the OCC pursuant to the
provisions of the Rules of the OCC. See Rule 1.1.
    \24\ It is possible for positions transfers to occur between two
Non-OTP Holders or OTP Firms. For example, one Non-OTP Holder may
transfer positions on the books of a Clearing Member to another Non-
OTP Holder pursuant to the proposed rule.
    \25\ Proposed paragraph (h) to Rule 6.78A-O also clarifies that
the off-floor transfer procedure only applies to positions in
options listed on the Exchange, and that transfers of non-Exchange-
listed options and other financial instruments are not governed by
Rule 6.78A-O.
    \26\ See proposed Rule 6.78A-O(a)(5) and (7).
---------------------------------------------------------------------------

    The Exchange notes that off-floor transfers of positions in
Exchange-listed options may also be subject to applicable laws, rules,
and regulations, including rules of other self-regulatory
organizations.\27\ Except as explicitly provided in the proposed rule
text, the proposed rule change is not intended to exempt off-floor
position transfers from any other applicable rules or regulations, and
proposed paragraph (h) makes this clear in the rule.
---------------------------------------------------------------------------

    \27\ See proposed Rule 6.78A-O(h).
---------------------------------------------------------------------------

    Proposed Rule 6.78A-O(a)(1)-(10) carries over the seven current
Exchange-permitted off-floor transfers and adds three more such
permissible off-floor transfers as follows:
     Proposed Rule 6.78A-O(a)(1) permits an off-floor transfer
to occur if it is an adjustment or transfer in connection with the
correction of a bona fide error in the recording of a transaction or
the transferring of a position to another account, provided that the
original trade documentation confirms the error.\28\
---------------------------------------------------------------------------

    \28\ See Cboe Rule 6.7(a)(1).
---------------------------------------------------------------------------

     Proposed Rule 6.78A-O(a)(2) permits an off-floor transfer
if it is a transfer of positions from one account to another account
where there is no change in ownership involved (i.e., the accounts are
for the same Person \29\) provided the accounts are not in separate
aggregation units or otherwise subject to information barrier or
account segregation requirements.\30\ The proposed rule change provides
market participants with flexibility to maintain positions in accounts
used for the same trading purpose in a manner consistent with their
businesses. Such transfers are not intended to be transactions among
different market participants, as there would be no change in ownership
permitted under the provision, and would also not permit transfers
among different trading units for which accounts are otherwise required
to be maintained separately.\31\ The Exchange is not proposing to carry
forward current Commentary .02 as this information contained therein is
obviated by proposed Rule 6.78A-O(a)(2).\32\
---------------------------------------------------------------------------

    \29\ A ``Person'' refers to a natural person, corporation,
partnership, association, joint stock company, trust, fund, or any
organized group of persons whether incorporated or not. See Rule
1.1. The proposed transfers may only occur between the same
individual or legal entity.
    \30\ See Cboe Rule 6.7(a)(2).
    \31\ Various rules (for example, Regulation SHO in certain
circumstances) require accounts to be maintained separately, and the
proposed rule change is consistent with those rules.
    \32\ See Commentary .02 to Rule 6.78-O (providing that
``[a]cquisitions and dissolutions in which all or substantially all
of the assets of one OTP Holder or OTP Firm are acquired by another
or, where there remains no continuity of ownership or management are
examples of situations that normally would be required to be
subjected to the transfer process set forth in subsections (e) and
(f). This list is not meant to be exhaustive, however, and there may
be other situations in which there is a discontinuation of ownership
or management of the positions that may require that the positions
be brought to the floor for transfer. Questions on whether a
transfer should be brought to the floor may be directed to the
Exchange's Options Surveillance Department'').
---------------------------------------------------------------------------

     Proposed Rule 6.78A-O(a)(10) permits an off-floor transfer
if it is a transfer of positions through operation of law from death,
bankruptcy, or otherwise.\33\ This proposed provision is consistent
with applicable laws, rules, and regulations that legally require
transfers in certain circumstances. This proposed rule change is
consistent with the purposes of other circumstances in the current
rule, such as the transfer of positions to a minor or dissolution of a
corporation.\34\
---------------------------------------------------------------------------

    \33\ See Cboe Rule 6.7(a)(10). This proposed provision is
consistent with applicable laws, rules, and regulations that legally
require transfers in certain circumstances. This proposed rule
change is consistent with the purposes of other circumstances in the
current rule, such as the transfer of positions to a minor or
dissolution of a corporation. See, e.g., proposed Rule 6.78A-O(a)(6)
and (9), respectively.
    \34\ See, e.g., proposed Rule 6.78A-O(a)(6) and (9),
respectively.
---------------------------------------------------------------------------

    The Exchange notes that proposed 6.78A-O(a)(3)-(9) carry forward
the current Exchange-permitted off-floor transfer circumstances set
forth in Rule 6.78-O(d)(1)(i)-(vii), without substantive
differences.\35\ The Exchange believes the new events set forth in
proposed Rule 6.78A-O have similar purposes as the (now carried
forward) current Exchange-permitted off-floor transfers set forth in
current Rule 6.78-O(d)(1), which is to permit market participants to
move positions from one account to another and to permit transfers upon
the occurrence of significant, non-recurring events.\36\ As noted
above, the proposed rule change is consistent with rules of other self-
regulatory organizations.
---------------------------------------------------------------------------

    \35\ See Cboe Rule 6.7(a)(3)-(9).
    \36\ See Rule 6.78A-O(g).
---------------------------------------------------------------------------

    Proposed Rule 6.78A-O(b) sets forth certain restrictions on
permissible off-floor transfers relating to netting of open positions
and to margin and haircut treatment, unless otherwise permitted by
proposed paragraph (f) (described below). Proposed Rule 6.78A-O(b) is
designed to align and harmonize Rule 6.78A-O(b) with the rules of other
options exchanges relating to off-floor transfers.\37\ As proposed, no
position may net against another position (``netting''), and no
position transfer may result in preferential margin or haircut
treatment. Netting occurs when long positions and short positions in
the same series ``offset'' against each other, leaving no position, or
a reduced position. For example, if an OTP Holder or OTP Firm wanted to
transfer 100 long calls to another account that contained short calls
of the same options series as well as other positions, even if the off-
floor transfer is permitted pursuant to one of the permissible events
listed in proposed Rule 6.78A-O(a)(1)-(10), the OTP Holder or OTP Firm
could not transfer the offsetting series, as they would net against
each other and close the positions.
---------------------------------------------------------------------------

    \37\ See, e.g., Cboe Rule 6.7(b).
---------------------------------------------------------------------------

    Proposed Rule 6.78A-O(c) provides that the transfer price, to the
extent it is consistent with applicable laws, rules, and regulations,
including rules of other self-regulatory organizations, and tax and
accounting rules and regulations, at which an off-floor transfer may be
effected is either: (1) the original trade prices of the positions that
appear on the books of the trading Clearing Member, in which case the
records of the off-floor transfer must indicate the original trade
dates for the positions; provided, transfers to correct bona fide
errors pursuant to proposed subparagraph (a)(1) must be transferred at
the correct original trade prices; (2) mark-to-market prices of the
positions at the close of trading on the transfer date; (3) mark-to-
market prices of the positions at the close of trading on the trade
date prior to the transfer date; \38\ or (4) the then-current market
price of the positions at the time the transfer is effected. Proposed
Rule 6.78A-O(c) provides market participants that effect off-floor
transfers with flexibility to select a transfer price based on the
circumstances of the transfer and their business. However, for
corrections of bona fide errors, because those transfers are necessary
to correct processing errors that occurred at the time of the
transaction, those off-floor transfers would occur at the original
transaction price, as the purpose of the transfer is

to create the originally intended result of the transaction.
---------------------------------------------------------------------------

    \38\ For example, for a transfer that occurs on a Tuesday, the
transfer price may be based on the closing market price on Monday.
---------------------------------------------------------------------------

    Proposed Rule 6.78A-O(d) requires an OTP Holder or OTP Firm and its
Clearing Member(s) (to the extent the OTP Holder or OTP Firm is not
self-clearing) to submit to the Exchange, in a manner determined by the
Exchange, written notice prior to effecting an off-floor transfer from
or to the account(s) of an OTP Holder or OTP Firm(s).\39\ Per proposed
Rule 6.78-O(d)(1), the proposed notice must indicate: the Exchange-
listed options positions to be transferred; the nature of the
transaction; the enumerated provision(s) under proposed Rule 6.78A-O(a)
pursuant to which the positions are being transferred; the name of the
counterparty(ies); the anticipated transfer date; the method for
determining the transfer price; and any other information requested by
the Exchange. The proposed notice is designed to ensure that the
Exchange is made aware of all transfers so that the Exchange can
monitor and review such transfers (including the records that must be
retained pursuant to proposed Rule 6.78A-O(e) (described below) to
determine whether they are effected in accordance with the Exchange
rules. Additionally, the Exchange believes that requiring notice from
the OTP Holder or OTP Firm(s) and its Clearing Member(s) would ensure
that both parties are in agreement with respect to the terms of the
transfer. In light of the notice requirement contained in proposed Rule
6.78A-O (d), the Exchange proposes to make a conforming change by
deleting paragraph (d) to Rule 6.69-O, which similarly requires OTP
Holders and OTP Firms to report to the Exchange any off-floor
transactions, and to hold paragraph (d) as Reserved.\40\
---------------------------------------------------------------------------

    \39\ This notice provision applies only to transfers involving
an OTP Holder's or OTP Firm's positions and not to positions of non-
OTP Holders or non-OTP Firms, as the latter parties are not subject
to Exchange rules. In addition, no notice would be required to
effect transfers to correct bona fide errors pursuant to proposed
subparagraph (a)(1) or transfers of positions from one account to
another where no change in ownership is involved pursuant to
proposed paragraph (a)(2) of Rule 6.78A-O.
    \40\ See Rule 6.69-O(d) (providing that ``[f]or each transaction
in which an OTP Holder or OTP Firm participates off-board (off a
participating Exchange) in any option pertaining to an underlying
security which is currently approved for Exchange options
transactions, such OTP Holder or OTP Firm shall report the
transaction to the Exchange in a form and manner prescribed by the
Exchange. (With the identity of participants removed, such
transaction may be made public by the Exchange.)'').
---------------------------------------------------------------------------

    Per proposed Rule 6.78A-O(d)(2), however, receipt of prior notice
of an off-floor transfer would not constitute a determination by the
Exchange that such transfer was effected or reported in conformity with
the requirements of proposed Rule 6.78A-O. As such, notwithstanding
submission of written notice to the Exchange, OTP Holder or OTP Firm
and Clearing Members that effect off-floor transfers that do not
conform to the requirements of the proposed Rule would be subject to
appropriate disciplinary action in accordance with the Exchange rules.
    Similarly, proposed Rule 6.78A-O(e) requires that each party to an
off-floor transfer generate and retain records of the information
provided in the written notice to the Exchange (pursuant to proposed
subparagraph (d)(1)), as well as information regarding the actual
Exchange-listed options that are ultimately transferred, the actual
transfer date, and the actual transfer price (and the original trade
dates, if applicable), and any other information the Exchange may
request the OTP Holder or OTP Firm or Clearing Member to provide.
    Proposed 6.78A-O(f) provides exemptions to the prohibition against
off-floor transfers, as approved by the Exchange's President or Chief
Executive Officer (or his or her designee(s)).\41\ Specifically, this
provision is in addition to the exemptions (to Rule 6.78-O) set forth
in proposed Rule 6.78A-O(a)(1)-(10). The Exchange proposes that the
Exchange President or Chief Executive Officer (or his or her
designee(s)) may grant an exemption from the requirement of this
proposed Rule, on his or her own motion or upon application of the OTP
Holder or OTP Firm (with respect to the OTP Holder or OTP Firm's
positions) or a Clearing Member (with respect to positions carried and
cleared by the Clearing Members). The President, the Chief Executive
Officer, or his or her designee(s), may permit an off-floor transfer if
necessary or appropriate for the maintenance of a fair and orderly
market and the protection of investors and is in the public interest,
including due to unusual or extraordinary circumstances. For example,
an exemption may be granted if the market value of the Person's
positions would be compromised by having to comply with the requirement
to trade on the Exchange pursuant to the normal auction process or
when, in the judgment of the President, the Chief Executive Officer, or
his or her designee(s), market conditions make trading on the Exchange
impractical.
---------------------------------------------------------------------------

    \41\ See ISE Options 6, Section 5(f); MIAX Rule 1326(f). The
Exchange notes that, unlike the rules of ISE and MIAX, which refer
to ``senior level designees,'' the Exchange proposes to instead
reference ``designees,'' which omits the potentially ambiguous
``senior'' qualifier. The Exchange believes this distinction does
not alter the or impede the authority granted in the proposed
provision and is consistent with other Exchange rules that provide
for delegated authority. See, e.g., Rule 6.87-O(k)(3)(A) (proving
that the appeals panel to review Obvious Errors or Catastrophic
Errors be comprised, in part of, the Exchange Chief Regulatory
Officer (``CRO''), or a designee of the CRO).
---------------------------------------------------------------------------

    The Exchange proposes to state that the off-floor transfer
procedure set forth in Rule 6.78A-O is intended to facilitate non-
routine, nonrecurring movements of positions, except for transfers
between accounts of the same Person pursuant to proposed subparagraph
(a)(2), and is not to be used repeatedly or routinely in circumvention
of the normal auction market process.\42\
---------------------------------------------------------------------------

    \42\ See proposed Rule 6.78A-O(g).
---------------------------------------------------------------------------

    Lastly, proposed paragraph (h) provides that the off-floor transfer
procedure set forth in proposed Rule 6.78A-O is only applicable to
positions in options listed on the Exchange; that off-floor transfers
of positions in Exchange-listed options may also be subject to
applicable laws, rules, and regulations, including rules of other self-
regulatory organizations; and that off-floor transfers of non-Exchange
listed options and other financial instruments are not governed by this
proposed Rule 6.78A-O.
Proposed Rule 6.78B-O: Off-Floor RWA Transfers
    The Exchange proposes to adopt Rule 6.78B-O titled ``Off-Floor RWA
Transfers,'' to facilitate the reduction of risk-weighted assets
(``RWA'') attributable to open options positions. This proposal is
substantively identical to rules on other options exchanges and would
align the Exchanges rules with that of its competitors.\43\
---------------------------------------------------------------------------

    \43\ See, e.g., Cboe Rule 6.8 (Off-Floor RWA Transfers); ISE
Options 6, Section 6 (Off-Exchange RWA Transfers).
---------------------------------------------------------------------------

    SEC Rule 15c3-1 (Net Capital Requirements for Brokers or Dealers)
(``Net Capital Rules'') requires registered broker-dealers, unless
otherwise excepted, to maintain certain specified minimum levels of
capital.\44\ The Net Capital Rules are designed to protect securities
customers, counterparties, and creditors by requiring that broker-
dealers have sufficient liquid resources on hand, at all times, to meet
their financial obligations. Notably, hedged positions, including
offsetting futures and options contract positions, result in certain
net capital requirement reductions under the Net Capital Rules.\45\
---------------------------------------------------------------------------

    \44\ 17 CFR 240.15c3-1.
    \45\ In addition, the Net Capital Rules permit various offsets
under which a percentage of an option position's gain at any one
valuation point is allowed to offset another position's loss at the
same valuation point (e.g., vertical spreads).

---------------------------------------------------------------------------

    Subject to certain exceptions, Clearing Members are subject to the
Net Capital Rules.\46\ However, a subset of Clearing Members are
subsidiaries of U.S. bank holding companies, which, due to their
affiliations with their parent U.S.-bank holding companies, must comply
with additional bank regulatory capital requirements pursuant to
rulemaking required under the Dodd-Frank Wall Street Reform and
Consumer Protection Act.\47\ Pursuant to this mandate, the Board of
Governors of the Federal Reserve System, the Office of the Comptroller
of the Currency, and the Federal Deposit Insurance Corporation have
approved a regulatory capital framework for subsidiaries of U.S. bank
holding company clearing firms.\48\ Generally, these rules, among other
things, impose higher minimum capital and higher asset risk weights
than were previously mandated for Clearing Members that are
subsidiaries of U.S. bank holding companies under the Net Capital
Rules. Furthermore, the new rules do not fully permit deductions for
hedged securities or offsetting options positions.\49\ Rather, capital
charges under these standards are, in large part, based on the
aggregate notional value of short positions regardless of offsets. As a
result, in general, Clearing Members that are subsidiaries of U.S. bank
holding companies must hold substantially more bank regulatory capital
than would otherwise be required under the Net Capital Rules.
---------------------------------------------------------------------------

    \46\ In the event federal regulators modify bank capital
requirements in the future, the Exchange will reevaluate the
proposed rule change at that time to determine whether any
corresponding changes to the proposed rule are appropriate.
    \47\ H.R. 4173 (amending section 3(a) of the Act) (15 U.S.C.
78c(a))).
    \48\ 12 CFR 50; 79 FR 61440 (Liquidity Coverage Ratio: Liquidity
Risk Measurement Standards).
    \49\ Many options strategies, including relatively simple
strategies often used by retail customers and more sophisticated
strategies used by broker-dealers, are risk limited strategies or
options spread strategies that employ offsets or hedges to achieve
certain investment outcomes. Such strategies typically involve the
purchase and sale of multiple options (and may be coupled with
purchases or sales of the underlying securities), executed
simultaneously as part of the same strategy. In many cases, the
potential market exposure of these strategies is limited and
defined.
---------------------------------------------------------------------------

    The Exchange is concerned with the ability of Market Makers to
provide liquidity in their appointed classes. The Exchange believes
that permitting market participants to efficiently transfer existing
options positions through an off-floor transfer process would likely
have a beneficial effect on continued liquidity in the options market
without adversely affecting market quality. Liquidity in the listed
options market is critically important. The Exchange believes that the
proposed rule change provides market participants with an efficient
mechanism to transfer their open options positions from one clearing
account to another clearing account and thereby increase liquidity in
the listed options market. The Exchange currently has no mechanism that
firms may use to transfer positions between clearing accounts without
having to effect a transaction with another party and close a position.
    Proposed Rule 6.78B-O provides that, notwithstanding Rule 6.78-O
(described above), existing positions in options listed on the Exchange
of an OTP Holder or OTP Firm or non-OTP Holder or OTP Firm (including
an affiliate of an OTP Holder or OTP Firm) may be transferred on, from,
or to the books of a Clearing Member off the Exchange if the transfer
establishes a net reduction of RWA attributable to those options
positions (an ``RWA Transfer''). Proposed paragraph (a) to Rule 997.2NY
provides examples of two transfers that would be deemed to establish a
net reduction of RWA, and thus qualify as a permissible RWA Transfer:
     A transfer of options positions from Clearing Member A to
Clearing Member B that net (offset) with positions held at Clearing
Member B, and thus closes all or part of those positions (as
demonstrated in the example below); \50\ and
---------------------------------------------------------------------------

    \50\ This transfer would establish a net reduction of RWA
attributable to the transferring Person, because there would be
fewer open positions and thus fewer assets subject to Net Capital
Rules.
---------------------------------------------------------------------------

     A transfer of options positions from a bank-affiliated
Clearing Member to a non-bank-affiliated Clearing Member.\51\
---------------------------------------------------------------------------

    \51\ This transfer would establish a net reduction of RWA
attributable to the transferring Person, because the non-bank-
affiliated Clearing Member would not be subject to Net Capital
Rules, as described above.
---------------------------------------------------------------------------

    These transfers would not result in a change in ownership, as they
must occur between accounts of the same ``Person,'' as defined in Rule
1.1, per proposed Rule 6.78B-O(e).\52\ In other words, RWA Transfers
may only occur between the same individual or legal entity. These are
merely transfers from one clearing account to another, both of which
are attributable to the same individual or legal entity. A market
participant effecting an RWA Transfer is analogous to an individual
transferring funds from a checking account to a savings account, or
from an account at one bank to an account at another bank--the money
still belongs to the same person, who is just holding it in a different
account for personal financial reasons.
---------------------------------------------------------------------------

    \52\ See supra note 29 (defining Person).
---------------------------------------------------------------------------

    For example, Market Maker A clears transactions on the Exchange
into an account it has with Clearing Member X, which is affiliated with
a U.S-bank holding company. Market Maker A opens a clearing account
with Clearing Member Y, which is not affiliated with a U.S.-bank
holding company. Clearing Member X has informed Market Maker A that its
open positions may not exceed a certain amount at the end of a calendar
month, or it will be subject to restrictions on new positions it may
open the following month. On August 28, Market Maker A reviews the open
positions in its Clearing Member X clearing account and determines it
must reduce its open positions to satisfy Clearing Member X's
requirements by the end of August. It determines that transferring out
1,000 short calls in class ABC will sufficiently reduce the RWA capital
requirements in the account with Clearing Member X to avoid additional
position limits in September. Market Maker A wants to retain the
positions in accordance with its risk profile. Pursuant to the proposed
rule change, on August 31, Market Maker A transfers 1,000 short calls
in class ABC to its clearing account with Clearing Member Y. As a
result, Market Maker A can continue to provide the same level of
liquidity in class ABC during September as it did in previous months.
    An OTP Holder or OTP Firm must ``give up'' a Clearing Member for
each transaction it effects on the Exchange, which identifies the
Clearing Member through which the transaction will clear.\53\ An OTP
Holder or OTP Firm that has the ability to change the give up for a
transaction within a specified period of time.\54\ Additionally, an OTP
Holder or OTP Firm may change the Clearing Member for a specific
transaction.\55\ The transfer of positions from an account with one
clearing firm

to the account of another clearing firm pursuant to the proposed rule
change has a similar result as changing a give up or CMTA, as it
results in a position that resulted from a transaction moving from the
account of one clearing firm to another, just at a different time and
in a different manner.\56\
---------------------------------------------------------------------------

    \53\ See Rule 6.15-O (Authorizing Give Up of a Clearing Member)
(providing process for an OTP Holder or OTP Firm (other than a
Market Maker) to indicate each of its transactions any OCC number of
a Clearing Member through which a transaction will be cleared (i.e.,
the give up), subject to the criteria set forth in the rule).
    \54\ See Rule 6.15-O(g)(1) (providing that, ``[i]f the executing
OTP Holder or OTP Firm has the ability through an Exchange system to
do so, the OTP Holder or OTP Firm may change the give up on the
trade to another Clearing Member for whom they are an Authorized OTP
or to its Guarantor,'' which ability ``will end at the Trade Date
Cutoff Time.'').
    \55\ The Clearing Member Trade Assignment (``CMTA'') process at
OCC facilitates the transfer of option trades/positions from one OCC
clearing member to another in an automated fashion. Changing a CMTA
for a specific transaction would allocate the trade to a different
OCC clearing member than the one initially identified on the trade.
    \56\ The transferred positions will continue to be subject to
OCC rules, as they will continue to be held in an account of an OCC
member.
---------------------------------------------------------------------------

    In the above example, if Market Maker A had initially given up
Clearing Member Y rather than Clearing Member X on the transactions
that resulted in the 1,000 long calls in class ABC, or had changed the
give-up or CMTA to Clearing Member Y pursuant to Rule 6.15-O the
ultimate result would have been the same. There are a variety of
reasons why firms give up or CMTA transactions to certain clearing
firms (and not to non-bank affiliate clearing firms) at the time of a
transaction, and the proposed rule change provides firms with a
mechanism to achieve the same result at a later time.
    Proposed paragraph (b) to Rule 6.78B-O provides that RWA Transfers
may occur on a routine, recurring basis. As noted in the example above,
clearing firms may impose restrictions on the amount of open positions.
Permitting transfers on a routine, recurring basis will provide market
participants with the flexibility to comply with these restrictions
when necessary to avoid position limits on future options activity.
Additionally, proposed paragraph (f) to Rule 6.78B-O provides that no
prior written notice to the Exchange is required for RWA Transfers.
Because of the potential routine basis on which RWA Transfers may
occur, and because of the need for flexibility to comply with the
restrictions described above, the Exchange believes such requirement
may interfere with the ability of OTP Holders or OTP Firms to comply
with any Clearing Member restrictions describe above, and may be
burdensome to provide notice for these routine transfers.
    Proposed Rule 6.78B-O(c) provides that RWA Transfers may result in
the netting of positions. Netting occurs when long positions and short
positions in the same series ``offset'' against each other, leaving no
or a reduced position. For example, if there were 100 long calls in one
account, and 100 short calls of the same option series were added to
that account, the positions would offset, leaving no open positions.
Firms may maintain different clearing accounts for a variety of
reasons, such as the structure of their businesses, the manner in which
they trade, their risk management procedures, and for capital purposes.
While there are times when a firm may not want to close out open
positions to reduce RWA, there are other times when a firm may
determine it is appropriate to close out positions to accomplish a
reduction in RWA.
    In the example above, suppose after making the RWA Transfer
described above, Market Maker A effects a transaction on September 25
that results in 1,000 long calls in class ABC, which clears into its
account with Clearing Member X. If Market Maker A had not effected its
RWA Transfer in August, the 1,000 long calls would have offset against
the 1,000 short calls, eliminating both positions and thus any RWA
capital requirements associated with them. At the end of August, Market
Maker A did not want to close out the 1,000 short calls when it made
its RWA Transfer. However, given changed circumstances in September,
Market Maker A has determined it no longer wants to hold those
positions. The proposed rule change would permit Market Maker A to
effect an RWA Transfer of the 1,000 short calls from its account with
Clearing Member Y to its account with Clearing Member X (or vice
versa), which results in elimination of those positions (and a
reduction in RWA associated with them). As noted above, such netting
would have occurred if Market Maker A cleared the September transaction
directly into its account with Clearing Member Y, or had not effected
an RWA Transfer in August. Netting provides market participants with
appropriate flexibility to conduct their businesses as they see fit
while having the ability to reduce RWA capital requirements when
necessary.
    Proposed Rule 6.78B-O(d) provides that RWA Transfers may not result
in preferential margin or haircut treatment. Finally, per proposed Rule
6.78B-O(g), RWA Transfers may only be effected for options listed on
the Exchange, as transfers of non-Exchange listed options and other
financial instruments are not governed by proposed Rule 6.78B-O, and
such transfers will be subject to applicable laws, rules, and
regulations, including rules of other self-regulatory organizations
(including OCC).\57\
---------------------------------------------------------------------------

    \57\ All RWA Transfers will be subject to all recordkeeping
requirements applicable to OTP Holders or OTP Firms and Clearing
Members under the Act, such as Rule 17a-3 and 17a-4.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\58\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\59\ in particular, because 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 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 and because it is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. As a general matter, the proposed rules are
substantively identical to rules on other options exchanges and would
align the Exchanges rules with that of its competitors. As such, this
proposal would benefit investors by reducing the administrative burden
of determining whether their off-floor transfers comply with multiple
sets of options exchange rules.
---------------------------------------------------------------------------

    \58\ 15 U.S.C. 78f(b).
    \59\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Proposed Rule 6.78-O: Transactions Off the Exchange
    In particular, the Exchange believes proposed Rule 6.78-O is
consistent with the Act, because it adopts and streamlines text that is
substantially similar to the current rule, with updated reference to
SEC rules and that also aligns Exchange rules with those of its
competitors. In addition, as noted herein, proposed Rule 6.78-O is
substantively identical to the rules of at least one other options
exchange and would therefore allow the Exchange to compete on equal
footing. Moreover, proposed Rule 6.78-O is consistent with the Act,
because it adopts provisions in the Rules specifically required by
Rules 19c-1 and 19c-3 under the Act, setting forth the Exchange's
general prohibition against off-floor transfers.
Proposed Rule 6.78A-O: Off-Floor Transfer of Positions
    Proposed Rule 6.78A-O adopts and streamlines text that is
substantially similar to the current rule, with additional permissible
off-floor transfers that align with permissible transfers on other
options exchanges. The Exchange believes that permitting off-floor
transfers in very limited circumstances would allow OTP Holders or OTP
Firms to accomplish certain goals efficiently. Proposed Rule 6.78A-O is
also substantively identical to the rules of other options exchanges
and, consistent with those rules, the proposed rule permits non-
recurring off-floor transfers

in situations involving dissolutions of entities or accounts, for
purposes of donations, mergers or by operation of law. As noted above
for example, an OTP Holder or OTP Firm that is undergoing a structural
change and a one-time movement of positions may require a transfer of
positions or an OTP Holder or OTP Firm that is leaving a firm that will
no longer be in business may require a transfer of positions to another
firm. Also, an OTP Holder or OTP Firm may require a transfer of
positions to make a capital contribution. The above-referenced
circumstances are non-recurring situations where the transferor
continues to maintain some ownership interest or manage the positions
transferred. By contrast, repeated or routine transfers between
entities or accounts--even if there is no change in beneficial
ownership as a result of the transfer--is inconsistent with the
purposes for which the proposed rule will be adopted. Accordingly, such
activity should not be permitted under the proposed rule.
    The proposed rule change would provide market participants that
experience these limited, non-recurring events with an efficient and
effective means to transfer positions in these situations. The Exchange
believes the proposed rule change regarding permissible transfer prices
would provide market participants with flexibility to determine the
price appropriate for their business, which maintain cost bases in
accordance with normal accounting practices and removes impediments to
a free and open market.
    The proposed rule change which requires notice and maintenance of
records would ensure the Exchange is able to review off-floor transfers
for compliance with the Exchange rules, which prevents fraudulent and
manipulative acts and practices. The requirement to retain records is
consistent with the requirements of Rule 17a-3 and 17a-4 under the Act.
In addition, the Exchange believes the conforming change to delete
paragraph (d) to Rule 6.69-O in light of the comparable notice
requirement in proposed Rule 6.78A-O(d) would reduce redundancy, add
clarity, transparency and internal consistent to Exchange rules.
    Similar to the rules of other options exchanges, the Exchange would
permit a presidential exemption.\60\ The Exchange believes that this
exemption is consistent with the Act because the Exchange's Chief
Executive Officer or President (or his or her designee(s)) would
consider an exemption in very limited circumstances (i.e., to
facilitate non-routine, nonrecurring movements of positions not
designed to circumvent the normal auction market process). Proposed
Rule 6.78-OA(f) specifically provides that the Exchange's Chief
Executive Officer or President (or his or her designee(s)) may in his
or her judgment allow an off-floor transfer if it is necessary or
appropriate for the maintenance of a fair and orderly market and the
protection of investors and is in the public interest, including due to
unusual or extraordinary circumstances such as the market value of the
Person's positions will be comprised by having to comply with the
requirement to trade on the Exchange pursuant to the normal auction
process or, when in the judgment of the President, Chief Executive
Officer, or his or her designee(s), market conditions make trading on
the Exchange impractical. These standards within paragraph (f) of the
proposed rule are intended to provide guidance concerning the use of
this exemption to the benefit of investors and the investing public for
the maintenance of a fair and orderly market and the protection of
investors and is in the public interest.
---------------------------------------------------------------------------

    \60\ See ISE Options 6, Section 5(f); MIAX Rule 1326(f). See
also Cboe Rule 6.8(f).
---------------------------------------------------------------------------

    Finally, the Exchange notes that the proposed non-substantive
conforming change to update current Rule 6.78A-O to 6.78C-O (In-Kind
Exchange of Options Positions and ETF Shares and UIT Units) would
benefit investors and the investing public because it would add
clarity, transparency and internal consistency to Exchange rules making
them easier to navigate and comprehend.\61\
---------------------------------------------------------------------------

    \61\ See supra note 22 (regarding conforming change to renumber
current Rule 6.78A-O to proposed Rule 6.78C-O).
---------------------------------------------------------------------------

    The Exchange believes having similar rules related to off-floor
transfer positions to those of other options exchanges would reduce the
administrative burden on market participants of determining whether
their off-floor transfers comply with multiple sets of rules.
Proposed Rule 6.78B-O: Off-Floor RWA Transfers
    The Exchange believes proposed Rule 6.78B-O to permit RWA
Transfers, which is substantially the same as the rules of other
options markets, would remove impediments to and perfect the mechanism
of a free and open market and a national market system by providing
liquidity in the listed options market. The Exchange believes providing
market participants with an efficient process to reduce RWA capital
requirements attributable to open positions in clearing accounts with
U.S. bank-affiliated clearing firms may contribute to additional
liquidity in the listed options market, which, in general, protects
investors and the public interest.
    The proposal to permit RWA Transfers to occur on a routine,
recurring basis and result in netting, also provides market
participants with sufficient flexibility to reduce RWA capital
requirements at times necessary to comply with requirements imposed on
them by clearing firms. This would permit market participants to
respond to then-current market conditions, including volatility and
increased volume, by reducing the RWA capital requirements associated
with any new positions they may open while those conditions exist.
Given the additional capital that may become available to market
participants as a result of the RWA Transfers, market participants
would be able to continue to provide liquidity to the market, even
during periods of increased volume and volatility, which liquidity
ultimately benefits investors. It is not possible for market
participants to predict what market conditions will exist at a specific
time, and when volatility will occur. The proposed rule change to
permit routine, recurring RWA Transfers (without any required prior
written notice) would provide market participants with the ability to
respond to these conditions whenever they occur. Permitting such
transfers on a routine, recurring basis will provide market
participants with the flexibility to comply with applicable
restrictions when necessary to avoid position limits on future options
activity. In addition, with respect to netting, as discussed above,
firms may maintain different clearing accounts for a variety of
reasons, such as the structure of their businesses, the manner in which
they trade, their risk management procedures, and for capital purposes.
Netting may otherwise occur with respect to a firm's positions if it
structured its clearing accounts differently, such as by using a
universal account. Therefore, the proposed rule change will permit
netting while allowing firms to continue to maintain different clearing
accounts in a manner consistent with their businesses.
    The Exchange recognizes the numerous benefits of executing options
transactions on exchanges, including price transparency, potential
price improvement, and a clearing guarantee. However, the Exchange
believes it is

appropriate to permit RWA Transfers to occur off the Exchange, as these
benefits are inapplicable to RWA Transfers which are narrow in scope
and are intended to achieve a limited beneficial purpose. RWA Transfers
are not intended to be a competitive trading tool. There is no need for
price discovery or improvement, as the purpose of the transfer is to
reduce RWA asset capital requirements attributable to a market
participants' positions. Unlike trades on an exchange, the price at
which an RWA Transfers occurs is immaterial--the resulting reduction in
RWA is the critical part of the transfer. RWA Transfers will result in
no change in ownership, and thus they do not constitute trades with a
counterparty (and thus eliminating the need for a counterparty
guarantee). The transactions that resulted in the open positions to be
transferred as an RWA Transfer were already guaranteed by a Clearing
Member, and the positions will continue to be subject to OCC rules, as
they will continue to be held in an account with a Clearing Member. The
narrow scope of the proposed rule change and the limited, beneficial
purpose of RWA Transfers make allowing RWA Transfers to occur off the
floor appropriate and important to support the provision of liquidity
in the listed options market. The proposed rule change does not
unfairly discriminate against market participants, as all OTP Holders/
Firms and non-OTP Holders/Firms with open positions in options listed
on the Exchange may use the proposed off-floor transfer process to
reduce the RWA capital requirements of Clearing Members. Finally, this
proposed rule change would align Exchange rules with those of other
options exchanges, thereby allowing the Exchange to compete on equal
footing.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposal will not impose any burden
on competition that is not necessary or appropriate in furtherance of
the purposes of Section 6(b)(8) of the Act.\62\ The proposed rules are
not intended to be a competitive trading tools, but rather to set forth
the general prohibition against off-floor transactions and to
facilitate certain off-floor transactions in limited circumstances that
meet the enumerated criteria.
---------------------------------------------------------------------------

    \62\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    The Exchange does not believe the proposed rule change regarding
off-floor position transfers set forth in the proposed rules would
impose an undue burden on intra-market competition as the transfer
procedure(s) may be utilized by any OTP Holders/Firms and the rule will
apply uniformly to all OTP Holders or OTP Firms. Use of each off-floor
transfer procedure is voluntary, and all OTP Holders or OTP Firms may
use each such procedure to transfer positions as long as the criteria
in the proposed rule are satisfied.
    The Exchange does not believe the proposed rule change will impose
an undue burden on inter-market competition. As indicated above, it is
intended to provide an additional clearly delineated and limited
circumstance in which options positions can be transferred off an
exchange (as well as to set forth the general prohibition against such
transfers). Additionally, as discussed above, the proposed rule change
is substantively identical to the rules of other options exchanges and
would allow the Exchange to compete on equal footing. Moreover, the
Exchange believes having similar rules related to off-floor position
transfers to those of other options exchanges will reduce the
administrative burden on market participants of determining whether
their transfers comply with multiple sets of rules.
    Finally, the Exchange notes that the proposed non-substantive
conforming change to update current Rule 6.78A-O to 6.78C-O (In-Kind
Exchange of Options Positions and ETF Shares and UIT Units) would
benefit investors and the investing public because it would add
clarity, transparency and internal consistency to Exchange rules making
them easier to navigate and comprehend.\63\
---------------------------------------------------------------------------

    \63\ See supra note 22 (regarding conforming change to renumber
current Rule 6.78A-O to proposed Rule 6.78C-O).
---------------------------------------------------------------------------

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 Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \64\ and Rule 19b-4(f)(6) thereunder.\65\
Because the 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 prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\66\
---------------------------------------------------------------------------

    \64\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \65\ 17 CFR 240.19b-4(f)(6).
    \66\ 15 U.S.C. 78s(b)(3)(A)(iii). Rule 19b-4(f)(6)(iii) 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
Commission notes that the Exchange satisfied this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such 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 under
Section 19(b)(2)(B) of the Act \67\ to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \67\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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-NYSEARCA-2022-55 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-NYSEARCA-2022-55. 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 website (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 website 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. Persons submitting comments are cautioned that we do
not redact or edit personal identifying information from comment
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
NYSEARCA-2022-55 and should be submitted on or before September 28,
2022.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\68\
---------------------------------------------------------------------------

    \68\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19227 Filed 9-6-22; 8:45 am]
BILLING CODE 8011-01-P