Document ID: SEC-2020-1197-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2020-07-29T04:00Z

[Federal Register Volume 85, Number 146 (Wednesday, July 29, 2020)]
[Notices]
[Pages 45709-45711]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-16371]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89389; File No. SR-CBOE-2020-067]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 6.7 Concerning Off-Floor Transfers

July 23, 2020.
    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 July 17, 2020, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe 
Options'') 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 Exchange. The Exchange 
filed the proposal as a ``non-controversial'' proposed rule change 
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ 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\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 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

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend Rule 6.7. The text of the proposed rule change is provided 
below.

(additions are italicized; deletions are [bracketed])
* * * * *
    Rules of Cboe Exchange, Inc.
* * * * *

Rule 6.7. Off-Floor Transfers of Positions

    (a)-(c) No change.
    (d) Prior Written Notice. A Trading Permit Holder(s) and its 
Clearing Trading Permit Holder(s) (to the extent that the Trading 
Permit Holder is not self-clearing) must 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 a Trading Permit 
Holder(s), except that notification is not required for transfers [to 
correct errors]effected pursuant to subparagraph (a)(1) or (a)(2) of 
this Rule.
    (1) The notice must indicate (A) the Exchange-listed options 
positions to be transferred, (B) the nature of the transaction, (C) the 
enumerated provision(s) under paragraph (a) pursuant to which the 
positions are being transferred, (D) the name of the counterparty(ies), 
(E) the anticipated transfer date, (F) the method for determining the 
transfer price under paragraph [(d) below](c) above, and (G) any other 
information requested by the Exchange.
* * * * *
    (g) Routine, Recurring Transfers. The off-floor transfer procedure 
set forth in this Rule is intended to facilitate non-routine, non-
recurring movements of positions[. The off-floor transfer procedure] 
and is not to be used repeatedly or routinely[ in circumvention of the 
normal auction market process], except for transfers between accounts 
of the same Person pursuant to subparagraph (a)(2). The off-floor 
transfer procedure may not be used in circumvention of the normal 
auction process.
* * * * *
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, 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 Exchange 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. The Exchange 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
    Rule 6.7 describes exceptions to the prohibition against off-floor 
transactions set forth in Rule 5.12, subject to certain conditions. The 
exception in Rule 6.7(a)(2) provides that off-floor transfers of 
positions are permissible if from one account to another account where 
no change in ownership is involved (i.e., accounts of the same 
Person),\5\ provided the accounts are not in separate aggregation units 
or otherwise subject to information barrier or account segregation 
requirements. These transfers are subject to, among other things, the 
requirement to submit prior written notice of the transfers to the 
Exchange pursuant to paragraph (d) and

[[Page 45710]]

the restriction on effecting these transfers repeatedly or routinely.
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    \5\ Rule 1.1 defines ``Person'' as an individual, partnership 
(general or limited), joint stock company, corporation, limited 
liability company, trust, or unincorporated organization, or any 
governmental entity or agency or political subdivision thereof.
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    The proposed rule change excepts off-floor position transfers 
effected pursuant to Rule 6.7(a)(2) from the prior written notice 
requirement in paragraph (d) and from repeated, recurring use 
restriction in paragraph (g). Off-floor position transfers pursuant to 
Rule 6.7(a)(2) do not involve a change in ownership. In other words, 
such transfers may only occur between the same individual or legal 
entity. These types of transfers are merely transfers of positions from 
one account to another, both of which accounts are attributable to the 
same individual or legal entity, and thus the transferred option 
positions will continue to be attributable to the same Person. A market 
participant effecting an off-floor position transfer pursuant to Rule 
6.7(a)(2) 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.
    Because there is no change in ownership of positions transferred 
pursuant to Rule 6.7(a)(2), the Exchange believes it is appropriate to 
permit them to occur as routinely and repeatedly as a market 
participant would like. These transfers will continue to be subject to 
the prohibition on netting set forth in Rule 6.7(b), and thus may not 
result in the closing of any positions. While the off-floor position 
transfers permitted by Rule 6.7 were intended to accommodate non-
routine and non-recurring transfers, the Exchange believes permitting 
routine, recurring off-floor position transfers that do not result in a 
change in ownership or reduction in open interest is consistent with 
the purpose of not being used to circumvent the normal auction purpose. 
Additionally, given that these transfers may occur on a regular basis 
in accordance with a market participants' business needs and 
procedures, the Exchange believes prior written notice would be onerous 
and would not serve any purpose given the lack of change in ownership 
and in open interest. The Exchange believes this will provide market 
participants with additional flexibility to structure their option 
position accounts as they believe is appropriate and move their 
positions between accounts as they deem necessary and appropriate for 
their business and trading needs, including for risk management 
purposes.
    The proposed rule change also corrects an erroneous cross-reference 
in Rule 6.7(d)(1), as the method for determining the transfer price is 
in paragraph (c) rather than paragraph (d) of Rule 6.7.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\6\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \7\ requirements that the rules of an exchange be 
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. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \8\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
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    In particular, the Exchange believes the proposed rule change will 
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 because it will provide market 
participants with a more efficient process to transfer open positions 
between their own accounts in accordance with their own business and 
trading needs, including to respond to then-current market conditions. 
Because these transfers would not result in a change in ownership or a 
reduction in open interest, the Exchange believes the proposed rule 
change remains consistent with the purpose of Rule 6.7, which was to 
prohibit use of the off-floor transfer procedure in circumvention of 
the normal auction process, as the normal auction process involves the 
opening or closing of positions through a transaction among multiple 
market participants. Market participants may maintain different 
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. Given that these transfers may 
occur on a regular basis in accordance with a market participants' 
business needs and procedures, the Exchange believes prior written 
notice would be onerous and would not serve any purpose given the lack 
of change in ownership and in open interest. Therefore, the proposed 
rule change will benefit investors by permitting market participants to 
manage the open positions in their accounts in a manner consistent with 
their businesses.
    The Exchange recognizes the numerous benefits of executing options 
transactions on an exchange, including price transparency, potential 
price improvement, and a clearing guarantee. However, the Exchange 
believes it is appropriate to permit position transfers among accounts 
of the same individual or legal entity where there is no impact on open 
interest to occur off the exchange, as these benefits are inapplicable 
to those transfers. These transfers have a narrow scope and are 
intended to permit market participants to achieve their own business 
needs. These transfers are not intended to be a competitive trading 
tool. There is no need for price discovery or improvement, as the 
transfer merely moves positions to different accounts for the same 
Person and does not open or close any positions. These transfers will 
result in no change in ownership. The transactions that resulted in the 
open positions to be transferred pursuant to Rule 6.7(a)(2) were 
already guaranteed by a clearing member of The Options Clearing 
Corporation (``OCC''), and the positions may not be closed pursuant to 
the transfer and will continue to be subject to OCC rules, as they will 
continue to be held in an account with an OCC clearing member.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
not intended to address competitive issues. The Exchange does not 
believe that the proposed rule change will impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because the proposed rule change 
will apply to all market participants in the same manner. All market 
participants will be able to effect off-floor position transfers 
pursuant to Rule 6.7(a)(2) on a recurring or routine basis without 
providing the Exchange with notice of such transfers. The Exchange does 
not

[[Page 45711]]

believe the proposed rule change will impose any burden on intermarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because it relates solely to the notice required 
for off-floor transfers that may occur today, and the frequency with 
which those transfers may occur. These transfers will continue to not 
result in a change in ownership or netting, and thus will have no 
impact on outstanding option positions.

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

    The Exchange neither solicited nor received comments on 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 \9\ and Rule 19b-4(f)(6) thereunder.\10\ 
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 \11\ and Rule 19b-4(f)(6) \12\ 
thereunder.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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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 will institute proceedings to 
determine whether the proposed rule change 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-CBOE-2020-067 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-CBOE-2020-067. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change; 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-CBOE-2020-067 and should be 
submitted on or before August 19, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
J. Matthew DeLesDernier,
Assistant Secretary.

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    \13\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2020-16371 Filed 7-28-20; 8:45 am]
BILLING CODE 8011-01-P