568 Federal Register / Vol. 80, No. 3 / Tuesday, January 6, 2015 / Notices 

14 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3An EFP is a transaction between two parties in 

which a futures contract on a commodity or 

security is exchanged for the actual physical good. 

4A block trade is a trade involving a large number 

of shares being traded at an arranged price between 

parties, outside of the open markets, in order to 

lessen the impact of such a large trade being made 

public. 

5Cleared Contracts and Commencement Time are 

defined terms set forth in Article 1, Section 1 of 

OCC’s By-Laws. 

6See OCC’s By-Laws Article VI, Section 5. In a 

practical sense, however, most trades are novated 

upon proper submission to OCC for clearing since 

OCC’s By-Laws, with limited exception, do not 

permit OCC to reject any confirmed trade due to the 

failure of the purchasing clearing member to pay 

any amount due to OCC at or before the settlement 

time. See also Securities Exchange Act Release No. 

65990 (December 16, 2011), 76 FR 79731 (December 

22, 2011) (SR–OCC–2011–17). 

7 Id. 

8See Securities Exchange Act Release No. 44727 

(August 20, 2001), 66 FR 45351 (August 28, 2001) 

(SR–OCC–2001–07). 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of 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; 

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– 

NYSEMKT–2014–107, and should be 

submitted on or before January 27, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Brent J. Fields, 

Secretary. 

[FR Doc. 2014–30900 Filed 1–5–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 73961; File No. SR–OCC– 

2014–23] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of a Proposed Rule Change 

To Clarify That OCC Would Not Treat 

a Futures Transaction That Is an 

Exchange-for-Physical or Block Trade 

as a Non-Competitively Executed 

Trade If the Exchange on Which Such 

Trade Is Executed has Provided OCC 

With Representations That it Has 

Policies or Procedures Requiring That 

Such Trades Be Executed at 

Reasonable Prices and That Such 

Price Is Validated by the Exchange 

December 30, 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 

19, 2014, The Options Clearing 

Corporation (‘‘OCC’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II and III 

below, which Items have been prepared 

by OCC. The Commission is publishing 

this notice to solicit comments on the 

proposed rule change from interested 

persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

OCC proposes to amend its Rules to 

permit OCC to add an interpretation and 

policy clarifying that OCC would not 

treat a futures transaction that is an 

exchange-for-physical or block trade as 

a non-competitively executed trade, and 

therefore subject to delayed acceptance 

for clearing, if the exchange on which 

such trade is executed has provided 

OCC with representations satisfactory to 

OCC that it has policies and procedures 

requiring such trades to be executed at 

reasonable prices and that such prices 

are validated by the exchange. 

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, 

OCC 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. OCC has prepared 

summaries, set forth in sections (A), (B), 

and (C) below, of the most significant 

aspects of these statements. 

(A) Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

1. Purpose 

OCC is proposing to modify its ByLaws to add an interpretation and 

policy to Section 7 of Article XII of the 

By-Laws to clarify that OCC would not 

treat a futures transaction that is an 

exchange-for-physical (‘‘EFP’’) 3 or block 

trade 4 as a non-competitively executed 

trade, and therefore subject to delayed 

novation, if the exchange on which the 

futures EFP or block trade is executed 

has provided OCC with representations 

that it has rules, policies or procedures 

requiring that such trades be executed at 

reasonable prices and that such prices 

are validated by the exchange. 

Background 

Under OCC’s By-Laws, the novation 

of confirmed trades (i.e., transactions in 

options, futures, or other ‘‘cleared 

contracts’’ effected through an exchange 

and submitted to OCC for clearing) 

occurs at the ‘‘commencement time’’ for 

such transactions.5 The 

‘‘commencement time’’ for most 

confirmed trades is when daily position 

reports are made available to clearing 

members.6 However, transactions in 

certain cleared products and certain 

types of transactions, including noncompetitively executed EFP and block 

trades, have delayed commencement 

times that are tailored to address risks 

specific to such products or 

transactions,7 such as the risks 

presented by off-market transactions. 

When OCC began clearing EFP and 

block transactions, it established that 

the commencement time for such 

transactions is expressly conditioned 

upon the receipt by OCC of variation 

payments due from purchasing and 

selling clearing members because EFP 

and block trades could be executed 

away from the market and be executed 

at other than market prices. These 

factors were viewed as creating 

heightened exposure to OCC if a 

clearing member defaults on a trade 

executed at an off-market price and, as 

a result, Article XII, Section 7 of OCC’s 

By-Laws establishes that the 

commencement time for a futures 

transaction that is identified as an EFP 

or block trade is the time of the first 

variation payment after the trade is 

reported to OCC (typically 9:00 a.m. 

Central Time the following business 

day).8 OCC delays its novation of these 

non-competitively executed futures 

trades because OCC is bound to pay the 

first variation settlement amount to the 

counterparty once novation has 

occurred, and if the agreed-upon price 

at which the trade is entered differs 

from the competitive market price, there 

is an increased likelihood that OCC may 

experience a loss if it is required to 

close out a defaulting purchaser’s 

position. Accordingly, OCC does not 

novate, and thereby become a 

counterparty to, a non-competitively 

executed trade if OCC fails to receive 

the first variation payment when due. 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 3 / Tuesday, January 6, 2015 / Notices 569 

9See 17 CFR 1.73. Specifically, Regulation 1.73 

requires FCMs to: (1) Establish risk-based limits in 

the proprietary account and in each customer 

account based on position size, order size, margin 

requirements, or similar factors; (2) screen orders 

for compliance with the risk-based limits; and (3) 

monitor for adherence to the risk based limits intraday and overnight. 

10Specifically, the CFTC has proposed 

regulations requiring Designated Contract Markets 

(i.e., futures exchanges) to determine whether or not 

the price of a block trade is fair and reasonable 

considering: (1) The size of the block trade, (2) the 

price and size of other block trades in any relevant 

markets at the applicable time, and (3) the 

circumstances of the market or the parties to the 

block trade. See proposed CFTC Regulation 38.503. 

75 FR 80572, 80592. See also proposed Appendix 

B of part 38 of the CFTC’s proposed regulations 

concerning Core Principle 9. 75 FR 80572, 80630. 

The CFTC has also proposed to adopt similar 

regulations concerning EFP trades. See proposed 

CFTC Regulation 38.505. 75 FR 80572, 80593. 

11For example, OneChicago LLC (‘‘OCX’’) Rule 

417 governs Block Trades executed on OCX and 

provides that such trades be executed on a 

designated trading platform that will automatically 

verify that Block Trades were executed at 

competitive prices by price verification software for 

price reasonableness. 12 15 U.S.C. 78q–1(b)(3)(F). 

EFP and Block Trades Subject to Price 

Checks 

In the time since OCC adopted Article 

XII, Section 7 of its By-Laws, the 

Commodity Futures Trading 

Commission (‘‘CFTC’’) has adopted 

Regulation 1.73, which requires clearing 

futures commission merchants 

(‘‘FCMs’’) to establish certain risk 

controls, including risk based limits for 

bilaterally executed transactions and for 

block trades.9 In light of this 

requirement and other proposed 

regulatory developments that may affect 

EFP and block trades in futures,10

certain exchanges that permit such 

transactions have requested that OCC 

review its By-Laws regarding delayed 

novation of futures EFP and block trades 

(hereinafter, ‘‘Block Trades’’). 

Specifically, such exchanges have 

implemented rules, supported by 

policies and procedures, which require 

their market participants to execute 

Block Trades at reasonable prices that 

are verified by the exchange. These 

rules, policies and procedures leverage 

risk controls implemented by FCMs, as 

applicable. These exchanges have 

inquired as to whether Block Trades 

continue to present the same risk to 

OCC as they did before such rules, 

policies or procedures were in place. 

OCC reviewed its practices with respect 

to delayed novation of Block Trades and 

determined that it will novate Block 

Trades when daily position reports are 

made available provided that the 

exchange that submitted such Block 

Trades to OCC represents to OCC that 

the exchange has in place rules, policies 

and procedures to verify the 

reasonableness of the price of Block 

Trades it submits to OCC for clearance 

and settlement, and that such price is 

validated by the exchange. 

OCC has determined that Block 

Trades that are subject to price 

reasonability checks do not present the 

same settlement risks discussed above 

in relation to non-competitively 

executed Block Trades. Specifically, 

should a clearing member that executed 

a reasonably priced Block Trades fail to 

pay its first variation payment to OCC 

in respect such trade, OCC expects to 

liquidate the futures positions at the 

prevailing market price and likely 

obtain sufficient funds, or have 

sufficient funds in its clearing fund, to 

pay, or reimburse itself for, the first 

variation settlement to the counterparty 

to the trade. This is the same risk 

management methodology OCC uses for 

all other competitively executed trades 

in cleared contracts that OCC accepts for 

clearance and settlement on a daily 

basis. Accordingly, OCC proposes to 

exclude Block Trades from the delayed 

novation provisions of Article XII, 

Section 7 by adding an interpretation 

and policy thereto that provides for the 

treatment of Block Trades as 

competitively executed trades provided 

that the Block Trades are reported by an 

exchange that represents to OCC that it 

performs a price reasonableness check 

on the trade, and that such price is 

validated by the exchange. 

Verification of Exchange Rules, Policies 

and Procedures Related to Price 

Reasonableness 

Before permitting an exchange to 

submit Block Trades that will not be 

subject to delayed novation, OCC will 

require an exchange to provide OCC 

with a certification that the exchange 

has rules, policies or procedures as they 

relate to verifying the reasonableness of 

the price of the Block Trade. 

Specifically, OCC will require an 

exchange to certify that its rules, 

policies or procedures provide that the 

price at which a Block Trade is executed 

must be fair and reasonable in light of: 

(i) The size of the Block Trade; (ii) the 

prices and sizes of other transactions in 

the same contract at the relevant time; 

and (iii) the prices and sizes of 

transactions in other relevant markets, 

including, without limitation, the 

underlying cash market or related 

futures markets, at the relevant time.11

An exchange will also have to certify 

that its rules, policies or procedures 

require one or both parties to a Block 

Trade to report the trade details of the 

Block Trade to the exchange within a 

reasonable period of time (i.e., within 10 

minutes of the time of execution or, if 

the Block Trade is executed outside of 

regular trading hours, within 15 minutes 

of the commencement of trading on the 

next business day). OCC believes that it 

is appropriate to rely on price 

reasonableness checks performed by 

exchanges trading futures because they 

are self-regulatory organizations subject 

to regulatory oversight, including 

routine examinations. Moreover, OCC 

will presume that all Block Trades 

submitted by an exchange that 

represents that it has price 

reasonableness rules, policies or 

procedures in place will submit to OCC 

Block Trades that have undergone a 

price reasonableness check. 

In addition to exchanges 

implementing rules, policies or 

procedures regarding the price 

reasonableness checks for Block Trades, 

exchanges are able to use existing 

authority to notify OCC to disregard, 

pursuant to Article VI, Section 7(c) of 

OCC’s By-Laws, any Block Trade 

submitted to OCC that was executed at 

an unreasonable price, since such a 

trade could not be properly cleared 

under the proposed interpretation but 

instead would fall within the noncompetitively executed category and 

therefore be subject to delayed novation. 

Such a notification would be delivered 

to OCC along with other trades ‘‘busted’’ 

by an exchange and in accordance with 

an operational process that currently 

occurs every day before daily position 

reports are distributed. OCC believes 

that this measure appropriately protects 

OCC in the event OCC receives a Block 

Trade at an unreasonable price. 

Moreover, OCC and the exchanges 

maintain an informal ongoing dialogue 

about operational matters, which OCC 

will use to confirm the continued 

application of price reasonableness 

controls. 

2. Statutory Basis 

OCC believes that the proposed rule 

change is consistent with Section 

17A(b)(3)(F) of the Act,12 because the 

proposed rule change will ensure that 

the rules of OCC are designed to 

promote the prompt and accurate 

clearance and settlement of securities 

transactions as well as remove 

impediments to and perfect the 

mechanism of a national system for the 

prompt and accurate clearance and 

settlement of securities transactions. As 

described above, the proposed rule 

change implements an Interpretation 

and Policy that sets forth the specific 

criteria that must be met by a futures 

exchange before OCC would consider a 

Block Trade submitted to OCC by such 


tkelley on DSK3SPTVN1PROD with NOTICES
570 Federal Register / Vol. 80, No. 3 / Tuesday, January 6, 2015 / Notices 

13 15 U.S.C. 78q–1(b)(3)(I). 

14 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

exchange to not be subject to the 

delayed novation time set forth in 

Article XII, Section 7 of OCC’s By-Laws. 

The proposed rule change therefore 

ensures that OCC’s rules explain the 

time at which OCC would novate Block 

Trades and thereby promotes the 

prompt and accurate clearance and 

settlement of securities transactions. In 

addition, as a result of OCC novating 

certain Block Trades at commencement 

time, the proposed rule change removes 

impediments to and perfects the 

mechanisms of a national system for the 

prompt and accurate clearance and 

settlement of securities transactions 

because the time at which OCC novates 

trades submitted by exchanges for 

clearance and settlement will be more 

uniform across different product types. 

The proposed rule change is not 

inconsistent with the existing rules of 

OCC, including any other rules 

proposed to be amended. 

(B) Clearing Agency’s Statement on 

Burden on Competition 

OCC does not believe that the 

proposed rule change would impose any 

burden on competition.13 The proposed 

rule change will provide that Block 

Trades executed at reasonable prices 

will not be subject to delayed novation 

by OCC. The proposed rule change 

would not unfairly inhibit access to 

OCC’s services or disadvantage or favor 

any particular user in relationship to 

another user because the proposed rule 

change would be applied uniformly to 

all Block Trade transactions, regardless 

of the identity of the clearing member 

for whose account the trade was 

reported and the exchange through 

which the trade is reported to OCC. 

Moreover, the proposed interpretation 

to Article XII, Section 7 will apply 

uniformly to all futures exchanges that 

submit trades to OCC for clearance and 

settlement. 

For the foregoing reasons, OCC 

believes that the proposed rule change 

is in the public interest, would be 

consistent with the requirements of the 

Act applicable to clearing agencies, and 

would not impose a burden on 

competition. 

(C) Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants, or Others 

Written comments on the proposed 

rule change were not and are not 

intended to be solicited with respect to 

the proposed rule change and none have 

been received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

the proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

OCC–2014–23 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–OCC–2014–23. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549 on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of OCC and on OCC’s Web site at 

http://www.theocc.com/components/

docs/legal/rules_and_bylaws/sr_occ_14_

23.pdf. 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–OCC–2014–23 and should 

be submitted on or before January 27, 

2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Brent J. Fields, 

Secretary. 

[FR Doc. 2014–30897 Filed 1–5–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73962; File No. SR–NYSE– 

2014–67] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Amending the 

Bylaws of the Exchange’s Ultimate 

Parent Company, Intercontinental 

Exchange, Inc., To Designate Its Chief 

Strategic Officer, Chief Technology 

Officer and General Counsel as 

‘‘Senior Officers’’ of ICE 

December 30, 2014. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that, on December 

22, 2014, New York Stock Exchange 

LLC (‘‘NYSE’’ 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of the Substance 

of the Proposed Rule Change 

The Exchange proposes to amend the 

Bylaws (the ‘‘ICE Bylaws’’) of the 

Exchange’s ultimate parent company, 

Intercontinental Exchange, Inc. (‘‘ICE’’), 

to designate its Chief Strategic Officer, 

Chief Technology Officer and General 


tkelley on DSK3SPTVN1PROD with NOTICES