Document ID: SEC-2022-1178-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2022-09-07T04:00Z

[Federal Register Volume 87, Number 172 (Wednesday, September 7, 2022)]
[Notices]
[Pages 54727-54736]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-19227]

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

[[Page 54728]]

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

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[[Page 54729]]

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

[[Page 54730]]

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.
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    \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).
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    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.
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    \27\ See proposed Rule 6.78A-O(h).
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    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\
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    \28\ See Cboe Rule 6.7(a)(1).
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     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\
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    \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'').
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     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\
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    \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.
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    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.
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    \35\ See Cboe Rule 6.7(a)(3)-(9).
    \36\ See Rule 6.78A-O(g).
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    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.
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    \37\ See, e.g., Cboe Rule 6.7(b).
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    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

[[Page 54731]]

to create the originally intended result of the transaction.
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    \38\ For example, for a transfer that occurs on a Tuesday, the 
transfer price may be based on the closing market price on Monday.
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    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\
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    \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.)'').
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    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).

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[[Page 54732]]

    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.
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    \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

[[Page 54733]]

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\
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    \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

[[Page 54734]]

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

[[Page 54735]]

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\
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    \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.
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    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.
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    \67\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-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

[[Page 54736]]

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\
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    \68\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19227 Filed 9-6-22; 8:45 am]
BILLING CODE 8011-01-P