Document ID: SEC-2007-0887-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: OneChicago, LLC
Posted Date: 2007-07-02T04:00Z

[Federal Register: July 2, 2007 (Volume 72, Number 126)]
[Notices]               
[Page 36091-36092]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02jy07-104]                         

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SECURITIES AND EXCHANGE COMMISISON

[Release No. 34-55964; File No. SR-OC-2007-01]

 
Self-Regulatory Organizations; OneChicago, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change Relating to 
Nullification Policy for Error Trades and Mistrades

June 26, 2007.
    Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-7 under the Act,\2\ notice is hereby given 
that on June 4, 2007 OneChicago, LLC (``OneChicago'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change described in Items I, II, and III below, which 
Items have been substantially prepared by the Exchange. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons. OneChicago also has filed the proposed 
rule change with the Commodity Futures Trading Commission (``CFTC'').
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    \1\ 15 U.S.C. 78s(b)(7).
    \2\ 17 CFR 240.19b-7.
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    OneChicago filed a written certification with the CFTC under 
Section 5c(c) of the Commodity Exchange Act \3\ on June 1, 2007.
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    \3\ 7 U.S.C. 7a-2(c).
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I. Self-Regulatory Organization's Description of the Proposed Rule 
Change

    OneChicago is proposing to amend its Error Trade Nullification 
Policy (``Error Trade Policy'').

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
    OneChicago is proposing to amend its Error Trade Policy. The 
proposed rule change would make substantive changes to update and 
clarify the Error Trade Policy based on the Exchange's experience and 
make other non-substantive, conforming, and stylistic changes. Among 
others, the proposed rule change would amend the ``no bust'' range, add 
the term ``Questioned Trade'', permit trades within the ``no bust'' 
range to be busted or adjusted if there were an Exchange system 
failure, require traders or customers with a contingency trade 
triggered by a trade that is questioned to call the OneChicago 
Operations Management (``OOM'') Help Desk within five minutes of 
notification of a questioned trade, and permit the parties to make 
restitution by making a reasonable cash payment to compensate for any 
losses or costs directly incurred as a result of the error.
    The proposed rule change would set the ``no bust'' range for trades 
that are questioned (``Questioned Trades'') at fixed amounts. 
Currently, the ``no bust'' range is tiered as follows: if the 
reasonable market price is less than or equal to $10, the ``no bust'' 
range is 10% above or below the reasonable market price; if the 
reasonable market price is between $10 and $100, the ``no bust'' range 
is 5% above or below the reasonable market price; and, lastly, if the 
reasonable market price is higher than $100, the ``no bust'' range is 
3% above or below the reasonable market price. Under the proposed rule 
change, the ``no bust'' range will also be tiered and based on the 
reasonable market price as set by the OOM. The new ``no bust'' range 
would be as follows: if the reasonable market price were less than $25, 
the ``no bust'' range would include any price that is no greater than 
$0.50 from the reasonable market price; if the reasonable market price 
were equal to or higher than $25 but less than $100, the ``no bust 
range'' would be any price that is no greater than $1.00 from the 
reasonable market price; and for reasonable market prices at or above 
$100, the no bust range would be any price that is within one percent 
of the reasonable market price.
    The proposed rule change would also add language that would clarify 
that the Exchange may bust a trade outside the ``no bust'' range or 
require that a price adjustment be made. If OOM determines that a price 
adjustment is appropriate, the proposed rule change would permit OOM to 
set or allow a price adjustment at or near the reasonable price range 
plus (in the case of a buy-side error) or minus (in the case of sell-
side error) an amount up to and including the relevant ``no bust'' 
range for the contract. Under the proposed rule change, an OOM directed 
price adjustment would either be made by having the OOM Help Desk 
cancel (bust) the original trade and reenter it at the adjusted price 
or by having the members on either side of the trade make a cash-
payment directly between them. Additional language would be added to 
make it clear that members are responsible to and for their respective 
customers and that in no event should participants to an error trade 
take action to adjust the price or make cash payment without the 
knowledge and approval of OOM.
    The proposed rule change would eliminate the requirement that OOM 
may only provide assistance to Registered Trading Privilege Holders 
(``RTPH'') for error trades. The Exchange believes it is appropriate to 
permit OOM to provide assistance to RTPHs and other persons.
    Currently, if a Questioned Trade is inside the no bust range, the 
trade will not be busted. The proposed rule change would permit a 
Questioned Trade within the no bust range to be busted if there were an 
Exchange system failure. The proposed rule change would also add new 
language that would emphasize to the parties of a Questioned Trade that 
they should not assume that a trade would be busted or not busted until 
the OOM makes a final decision.
    The contingency portion of the Error Trade Policy would be amended 
to place a time limit on requests by traders to bust or adjust a 
contingent trade triggered by a Questioned Trade. Under the proposed 
rule change, the traders or customers on either side of a contingent 
trade would be required to call the OOM Help Desk no later than 5 
minutes after the OOM initially notified the market that the triggering 
trade was in question. The proposed amendment to the contingency 
provision would also permit adjusting the price of the trade.
    The proposed rule change would also add language that would make it 
clear that the party responsible for a mistrade would be required to 
report to the OOM Help Desk the details of any transactions conducted 
pursuant to Part A or B of the Error Trade Policy that occurred outside 
of the OneChicago system.

[[Page 36092]]

    The proposed amendments to Part B.1 of the Error Trade Policy, 
(trades not brought to the attention of OOM within eight minutes or 
within five minutes for contingency trades), would permit restitution 
in the form of a reasonable cash payment, if the parties agreed to do 
so in order to compensate for any losses or costs directly incurred as 
a result of the error. Under the proposed rule change, the parties to 
the trade could also agree to retain the trade but make reasonable cash 
payment to compensate for any losses or costs caused by the error. The 
proposed rule change would also add new language to this Part clearly 
stating that in no event should participants take action to adjust the 
price or make cash payment without the knowledge of OOM.
    Part B.2 of the Error Trade Policy dealing with arbitration of 
disputes would be amended to require that a written notice of 
arbitration claim be given to the National Futures Association in 
addition to the OOM Help Desk. The proposed rule change would delete 
portions of Part B.2 requiring the owner of the account on the other 
side of an error to be a RTPH or subject to OOM's jurisdiction to bring 
an arbitration claim and limiting the recovery under arbitration to the 
difference between the error trade price and the true market price for 
the relevant contract immediately before the error trade occurred.
    Part C of the current Error Trade Policy dealing with voluntary 
adjustment of trade price for those trades outside the ``no bust'' 
range reported within eight minutes would be deleted and the current 
Part D, Schedule of Administrative Fees, would be renumbered to be Part 
C. Since the proposed rule change would permit the OOM to direct the 
traders to make a price adjustment, this provision is no longer 
necessary. Therefore, the parties may no longer independently decide to 
keep and adjust trades that are reported within eight minutes of when 
the trade occurred or within five minutes of when the trade was 
questioned for contingency trades and outside of the ``no bust'' range. 
This adjustment must be made by the Exchange.
    The Schedule of Administrative fees would be amended to make 
administrative fees permissive rather than mandatory. Under the 
proposed rule change, if OneChicago adopts an administration fee 
schedule, the party responsible for the Questioned Trade would be 
required to pay a fee in accordance with the fee schedule. The proposed 
rule change would also add two new provisions, Part D, which would 
permit the Exchange to bust any trades affected by a system failure or 
partial failure whether or not the trades occurred within the ``no 
bust'' range and Part E, which would permit the Exchange to bust or 
adjust any trades that are in violation of OneChicago rules.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \4\ in general and Section 6(b)(5) of the 
Act \5\ in particular in that it is 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.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    OneChicago 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.

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 foregoing proposed rule change has become effective pursuant to 
Section 19(b)(7) of the Act.\6\ Within 60 days of the date of 
effectiveness of the proposed rule change, the Commission, after 
consultation with the CFTC, may summarily abrogate the proposed rule 
change and require that the proposed rule change be refiled in 
accordance with the provisions of Section 19(b)(1) of the Act.\7\
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    \6\ 15 U.S.C. 78s(b)(7).
    \7\ 15 U.S.C. 78s(b)(1).
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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 e-mail to rule-comments@sec.gov. Please include 

File Number SR-OC-2007-01 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-OC-2007-01. This file 
number should be included on the subject line if e-mail 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 inspection and 
copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of OneChicago. 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-OC-2007-01 and should be submitted on or before July 23, 
2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(73).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-12743 Filed 6-29-07; 8:45 am]

BILLING CODE 8010-01-P