[Federal Register Volume 83, Number 204 (Monday, October 22, 2018)]
[Notices]
[Pages 53336-53337]
[FR Doc No: 2018-22908]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84437; File No. SR-CBOE-2018-060]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Order
Approving a Proposed Rule Change To Amend Exchange Rule 6.49A, Transfer
of Positions

October 16, 2018.

I. Introduction

    On August 16, 2018, the Cboe Exchange, Inc. (the ``Exchange'' or
``Cboe'') filed with the Securities and Exchange Commission (the
``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposal to amend Rule 6.49A (Transfer of Positions). The proposed rule
change was published for comment in the Federal Register on September
4, 2018.\3\ The Commission did not receive any comment letters on the
proposed rule change. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 83968 (August 28,
2018), 83 FR 44938 (September 4, 2018) (``Notice'').
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II. Description of the Proposed Rule Change

    Cboe Rule 6.49 generally requires a Trading Permit Holder (``TPH'')
to effect transactions in listed options on an exchange.\4\
Notwithstanding that provision, Cboe Rule 6.49A permits certain types
of transfers involving a TPH's positions to be effected off the
floor.\5\ In addition, Cboe Rule 6.49A provides a procedure for an
``on-floor'' transfer of positions.\6\ As described in more detail in
the Notice,\7\ the Exchange proposes to amend Rule 6.49A to eliminate
the on-floor position transfer process,\8\ amend the criteria and
procedures related to off-floor position transfers, amend the exemption
provision, and make other non-substantive changes.
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    \4\ See Cboe Rule 6.49(a).
    \5\ See Cboe Rule 6.49A(a).
    \6\ See Cboe Rule 6.49A(b)-(c).
    \7\ See Notice, supra note 3.
    \8\ The Exchange represents that it no longer wants to make
available the on-floor transfers of positions because it is
administratively burdensome on the Exchange, used by TPHs on a
limited basis, and no longer serves the uses for which it was
originally adopted. Id. at 44938.
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    With respect to off-floor transfers, Cboe Rule 6.49A(a) currently
sets forth specific events under which off-floor transfers are
permitted. The Exchange proposes to delineate several additional events
and add them to the list of permitted off-floor transfers in proposed
Rule 6.49A.\9\ For example, the additional events address correcting
bona fide errors in trade recording, consolidating accounts without a
chance in beneficial ownership, and transfers by operation of law.\10\
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    \9\ Id. at 44939. The proposed amendments to Rule 6.49A(a) also
add clarification that Rule 6.49A does not apply to products other
than options listed on the Exchange consistent with the Exchange's
other trading rules, a TPH must be on one side of the transfer, and
that positions a TPH are transferring or receiving are held in the
account of the Clearing Trading Permit Holder. Id.
    \10\ See proposed Cboe Rule 6.74A(a).
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    In addition, proposed Rule 6.49A(b) codifies prior Exchange
guidance regarding certain restrictions on permissible off-floor
transfers related to the netting of open positions and to margin and
haircut treatment.\11\ Among other things, proposed Rule 6.49A(b)(2)
will only permit netting for off-floor transfers between separate
exchange-specific Market Maker accounts in the limited circumstances
set forth in the Rule.\12\
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    \11\ See proposed Cboe Rule 6.74A(b).
    \12\ See proposed Cboe Rule 6.74A(b)(2). See also Notice, supra
note 3, at 44939-40. In such instances, all Market Maker positions
in the exchange-specific accounts for the multiply listed class may
be automatically transferred on their trade date into one universal
Market Maker account at the Clearing Corporation. See id.
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    Further, proposed Rule 6.49A(d) will require a TPH and its Clearing
Trading Permit Holder (to the extent the TPH is not self-clearing) to
submit written notice to the Exchange prior to effecting an off-floor
transfer from or to the account of a TPH(s).\13\ Proposed Rule 6.49A(e)
will require that each TPH and Clearing Trading Permit Holder that is a
party to an off-floor transfer must make and retain records of the
information provided in the written notice, as well as information on
the Exchange-listed options that are ultimately transferred, the
transfer date, transfer price, and any other information the Exchange
may request.\14\
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    \13\ See proposed Cboe Rule 6.74A(d).
    \14\ See proposed Cboe Rule 6.74A(e).
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    In addition, the Exchange is clarifying and updating Proposed Rule
6.49A(f), which allows the Exchange to grant an exemption from Rule
6.49(a) in cases where allowing an off-floor transfer would be
necessary or appropriate for the maintenance of a fair and orderly
market and the protection of investors and is in the public
interest.\15\
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    \15\ See proposed Cboe Rule 6.74A(f).
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    Finally, the Exchange is adding new proposed Rule 6.49A(g) to state
that the off-floor position transfer process described in the Rule is
``intended to facilitate non-routine, non-recurring movements of
positions'' and is ``not to be used repeatedly or routinely in
circumvention of the normal auction market process.'' \16\
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    \16\ See proposed Cboe Rule 6.74A(g). In addition, proposed Cboe
Rule 6.74A(h) is being added to clarify that the off-floor transfer
procedure is only applicable to positions in options listed on the
Exchange, and that off-floor transfers of positions in Exchange-
listed options may be subject to applicable laws, rules and
regulations, including rules of other self-regulatory organizations.
See proposed Cboe Rule 6.74A(h).
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act,\17\ and the
rules and regulations thereunder applicable to a national securities
exchange.\18\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\19\ which
requires, among other things, that the rules of a national securities
exchange be designed 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 that the
rules are not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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    \17\ 15 U.S.C. 78f.
    \18\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
    \19\ 15 U.S.C. 78f(b)(5).
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    The proposed rule change is designed to remove impediments to and
perfect the mechanism of a free and open market and a national market
system by providing a mechanism to permit off-floor position transfers
in specified, limited, and narrowly-tailored circumstances. Thus, Rule
6.49A makes clear that off-floor positions transfers are not to be used
repeatedly or routinely in circumvention of the normal auction market
process.\20\ While the amended Rule will continue to allow the Exchange
to grant an exemption from Cboe Rule 6.49(a), the revised rule text
makes it clear that exemptions may only be granted on rare occasions
when necessary or appropriate for the maintenance of a fair and orderly
market and the protection of investors and where the exemption is in
the public interest, including due to unusual or extraordinary
circumstances.
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    \20\ See proposed Cboe Rule 6.49A(g).
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    The Commission further notes that the proposal adds transparency to
the off-floor transfer process by codifying certain long-standing Cboe
guidance

regarding when off-floor transfers are permissible, whether netting is
permitted, and the transfer price of an off-floor transfer. The
Commission believes that those additional provisions are designed to
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
In addition, the Commission believes that the requirement for the
parties to provide written notice to the Exchange and maintain detailed
records of each transfer will ensure that the Exchange is made aware of
off-floor transfers and is able to review them for compliance with
applicable rules.
    With respect to the elimination of the on-floor transfer package
procedure, the Commission notes that TPHs will continue to be able to
transact on the Exchange using the regular auction market process.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\21\ that the proposed rule change (SR-CBOE-2018-060) be, and
hereby is, approved.
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    \21\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22908 Filed 10-19-18; 8:45 am]
 BILLING CODE 8011-01-P