Document ID: SEC-2014-2156-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2014-12-23T05:00Z

[Federal Register Volume 79, Number 246 (Tuesday, December 23, 2014)]
[Notices]
[Pages 77079-77081]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-29965]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73863; File No. SR-FINRA-2014-051]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to In Concert Reporting of Options 
Positions

December 17, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 11, 2014, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by FINRA. FINRA has designated 
the proposed rule change as constituting a ``non-controversial'' rule 
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which 
renders the proposal effective upon receipt of this filing by the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend Rule 2360(b)(5) regarding reporting of 
options positions to codify an existing requirement that the reporting 
rules apply to all accounts acting in concert, consistent with the 
application of the reporting rules of the options exchanges.
    Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *
2000. DUTIES AND CONFLICTS
* * * * *
2300. SPECIAL PRODUCTS
* * * * *
2360. Options
    (a) No Change.
    (b) Requirements
    (1) through (4) No Change.
    (5) Reporting of Options Positions
(A)(i)a. Conventional Options
    Each member shall file or cause to be filed with FINRA a report 
with respect to each account in which the member has an interest, each 
account of a partner, officer, director or employee of such member, and 
each customer, non-member broker, or non-member dealer account, which, 
acting alone or in concert, has established an aggregate position of 
200 or more option contracts (whether long or short) of the put class 
and the call class on the same side of the market covering the same 
underlying security or index, combining for purposes of this 
subparagraph long positions in put options with short positions in call 
options and short

[[Page 77080]]

positions in put options with long positions in call options, provided, 
however, that such reporting with respect to positions in conventional 
index options shall apply only to an option that is based on an index 
that underlies, or is substantially similar to an index that underlies, 
a standardized index option.
b. Standardized Options
    Each member that conducts a business in standardized options but is 
not a member of the options exchange upon which the standardized 
options are listed and traded shall file or cause to be filed with 
FINRA a report with respect to each account in which the member has an 
interest, each account of a partner, officer, director or employee of 
such member, and each customer, non-member broker, or non-member dealer 
account, which, acting alone or in concert, has established an 
aggregate position of 200 or more option contracts (whether long or 
short) of the put class and the call class on the same side of the 
market covering the same underlying security or index, combining for 
purposes of this subparagraph long positions in put options with short 
positions in call options and short positions in put options with long 
positions in call options.
    (ii) No Change.
    (B) No Change.
    (6) through (24) No Change.
    (c) No Change.
       Supplementary Material: ----------
    .01 through .03 No Change.
* * * * *

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

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

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

1. Purpose
    FINRA Rule 2360(b)(5) requires that members file, or cause to be 
filed, reports for each account that has an aggregate position of 200 
or more options contracts (whether long or short) on the same side of 
the market covering the same underlying security or index. These 
reports are referred to as Large Options Position Reports (``LOPRs''). 
All LOPRs are filed electronically and The Options Clearing Corporation 
(``OCC'') currently hosts and maintains the LOPR reporting system. 
FINRA Rule 2360(b)(5)(A)(i)a. sets forth the requirements for the LOPR 
for conventional options.\4\ FINRA Rule 2360(b)(5)(A)(i)b. sets forth 
the requirements for the LOPR for standardized options by members that 
are not members of the options exchange upon which the standardized 
options are listed (so called ``access members'').\5\ Among other 
things, the LOPRs allow FINRA to confirm that firms have not exceeded 
the options position limits set forth in FINRA Rule 2360(b)(3).\6\ The 
position limit requirements are uniform across the options exchanges 
and FINRA.\7\
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    \4\ FINRA Rule 2360(b)(5)(A)(i)a. provides that the reporting 
requirement for conventional index options only applies to an option 
that is based on an index that underlies, or is substantially 
similar to an index that underlies, a standardized index option. As 
a result, conventional index options based on customized indexes are 
not required to be reported. See Notice to Members 07-03 (January 
2007); and see also Securities Exchange Act Release No. 54755 
(November 15, 2006), 71 FR 67675 (November 22, 2006) (Order 
Approving File No. SR-NASD-2006-007).
    \5\ As noted below, the reporting rules are meant to be uniform 
across the industry and thus FINRA's rules only require access 
members to report standardized options positions to FINRA. If a firm 
is a member of the options exchange on which the standardized option 
trades, then the firm would report the LOPR to the exchange of which 
is a member.
    \6\ FINRA Rule 2360(b)(3)(A) imposes a ceiling or position limit 
on the number of conventional and standardized equity options 
contracts in each class on the same side of the market (i.e., 
aggregating long calls and short puts or long puts and short calls) 
that can be held or written by a firm, a person associated with a 
firm, or a customer acting alone or in concert with others.
    \7\ See, e.g., CBOE Rule 4.11, ISE Rule 412 and NYSE Arca 
Options Rule 6.8. The standards for the calculation of position 
limits for a particular underlying security are the same across the 
options exchanges.
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    The position limit rules require that all accounts acting in 
concert, by the same individual or entity, must be aggregated to ensure 
position limit compliance. Accordingly, the position report should also 
be based on when accounts acting in concert exceeds the 200 contract 
threshold. This would ensure the report is accurately capturing the 
entire position to monitor for position limit purposes. The options 
exchanges and FINRA acting through the Intermarket Surveillance Group 
(the ``ISG'') outlined this requirement in a May 1, 1991 Notice.\8\ In 
addition, the LOPR Frequently Asked Questions (``FAQs'') maintained on 
the OCC's site that are updated by the ISG members, including FINRA, 
outline the requirement that the ``[m]embers must report any account or 
accounts acting ``in concert'' that hold over 200 contracts on either 
the long call/short put (bullish) or the short call/long put (bearish) 
side of the market.'' \9\ Like the position limit rules, the reporting 
rules and requirements are meant to be uniform across the industry.
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    \8\ See ISG Important Notice, Large Options Position Report 
(LOPR)/Mandatory Automated Reporting Requirement Notice dated May 1, 
1991 (``ISG Notice'').
    \9\ See Large Options Positions Reporting (LOPR) Frequently 
Asked Questions (FAQs), FAQ #24 available at http://www.optionsclearing.com/components/docs/clearing/industry-services/lopr/lopr_faqs.pdf.
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    Certain options exchanges rules are explicit about the requirement 
to report a position whether acting alone or in concert,\10\ while 
FINRA and other options exchanges rules have by interpretation and 
relying on the ISG Notice and LOPR FAQs required firms to report such 
information. FINRA proposes to amend Rule 2360(b)(5)(A)(i)a. and b.\11\ 
to codify the existing requirement that members must report each 
account in which the member has an interest, each account of a partner, 
officer, director or employee of such member, and each customer, non-
member broker, or non-member dealer account which, acting alone or in 
concert, has established an aggregate position of 200 or more option 
contracts. FINRA believes that firms are already complying with this 
requirement as it has been a stated FINRA interpretation since May 
1991. FINRA believes that harmonizing its rule with those options 
exchanges rules that are explicit about the in concert requirement will 
clarify firms reporting requirements and ensure continued consistency 
in monitoring for position limits.
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    \10\ See BATS Rule 18.10(a), CBOE Rule 4.13(a), NYSE Arca Rule 
6.6(a), and NASDAQ OMX PHLX Rule 1003(a).
    \11\ FINRA proposes to harmonize the reporting provision with 
the options exchanges for standardized options and clarify the 
requirement for conventional options to similarly ensure the report 
is accurately capturing the entire position to monitor for position 
limit purposes.
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    FINRA has filed the proposed rule change for immediate 
effectiveness and has requested that the SEC waive the requirement that 
the proposed rule change not become operative for 30 days after the 
date of the filing, so FINRA can implement the proposed rule change 
immediately.

[[Page 77081]]

2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\12\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. FINRA believes that clarifying that members must 
report options position reports for accounts of members, each account 
of a partner, officer, director or employee of such member, and each 
customer, non-member broker, or non-member dealer acting alone or in 
concert with others is necessary to fully and effectively monitor 
compliance with the position limit requirements, which are based on 
similar standards. In addition, FINRA believes that the proposed rule 
change will promote consistent regulation by harmonizing FINRA's rules 
with those of the options exchanges.
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    \12\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. FINRA believes that clarifying 
that members must report options position reports for accounts of 
members, each account of a partner, officer, director or employee of 
such member, and each customer, non-member broker, or non-member dealer 
acting alone or in concert with others is necessary to fully and 
effectively monitor compliance with the position limit requirements. 
This proposed rule change reflects existing FINRA and ISG 
interpretation, which has been express since 1991 and is widely 
understood by firms. In addition, FINRA believes that the proposed rule 
change will promote consistent regulation by harmonizing FINRA's rules 
with those of the options exchanges and thus will impose no burden on 
members since such reports are already being filed.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \13\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2014-051 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2014-051. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of FINRA. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-FINRA-2014-051 and should be 
submitted on or before January 13, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-29965 Filed 12-22-14; 8:45 am]
BILLING CODE 8011-01-P