Document ID: SEC-2014-1171-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2014-07-14T04:00Z

[Federal Register Volume 79, Number 134 (Monday, July 14, 2014)]
[Notices]
[Pages 40822-40824]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-16364]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72555; File No. SR-CBOE-2014-056]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to Application Procedures for Trading 
Permit Holders and Associated Persons of Trading Permit Holders

July 8, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on July 2, 2014, Chicago Board Options Exchange, Incorporated (the 
``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
---------------------------------------------------------------------------

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

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its rule regarding application 
procedures for Trading Permit Holders and associated persons of Trading 
Permit Holders. The text of the proposed rule change is available on 
the Exchange's Web site (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
    The purpose of this filing is to make certain amendments to Rule 
3.9 (Application Procedures and Approval or Disapproval), which rule 
governs the application process for individuals or organizations which 
desire to become a Trading Permit Holder (``TPH''), desire to act in 
one or more of the trading functions set forth in Rules 3.2 and 3.3, is 
an associated person required to be approved by the Exchange pursuant 
to Rule 3.6(b), and applications to change the Clearing Trading Permit 
Holder that guarantees the TPH's Exchange transactions. Specifically, 
the Exchange seeks to: (i) Correct a typographical error in 
subparagraph (a) of Rule 3.9; (ii) eliminate subparagraph (b) of Rule 
3.9 in its entirety; (iii) amend current subparagraph (i) of Rule 3.9 
and, (iiv) [sic] eliminate current Interpretation and Policy. 01 of 
Rule 3.9 in its entirety.
    First, the Exchange seeks to amend subparagraph (a) of Rule 3.9 to 
correct an inaccurate rule reference. Particularly, Rule 3.9(a) 
requires, among other things, that an individual or organization that 
desires to act in one or more of the trading functions set forth in 
Rule 3.2(b) or Rule 3.3(c) must submit an application to the TPH 
Department. The Exchange notes that currently Rule 3.3 (Qualifications 
of TPH Organizations) consists only of subparagraphs (a) and (b) (i.e., 
Rule 3.3(c) does not exist). The trading functions that an organization 
may be approved to engage in are enumerated in subparagraph (b) of Rule 
3.9, not subparagraph (c). Accordingly, the Exchange seeks to replace 
the reference to ``Rule 3.3(c)'' with ``Rule 3.3(b)'' to reflect the 
correct rule reference.
    Next the Exchange seeks to eliminate subparagraph (b) of Rule 3.9 
in its entirety. Rule 3.9(b) currently provides that the Exchange will 
establish for any application required under Rule 3.9 a submission 
deadline of up to 90 days prior to the date that an application will be 
considered for approval. Additionally, Rule 3.9(b) requires that the 
submission deadline be published in a regulatory circular and that an 
application must be submitted to the TPH Department in accordance with 
the applicable submission deadline in order to be eligible for 
consideration. The Exchange, in practice, no longer has a submission 
deadline for applications required under Rule 3.9 and accordingly, 
there is also no current deadline published in a regulatory

[[Page 40823]]

circular. Currently, applications submitted pursuant to Rule 3.9(a) are 
accepted and considered on a rolling basis. The Exchange believes that 
the absence of a submission deadline has not and will not disadvantage 
any applicant. Rather, the absence of strict application deadlines 
allows the Exchange to process applications as they are submitted 
instead of delaying the speed with which an application can become 
effective based upon an arbitrary and unnecessary deadline. The 
Exchange seeks to conform its rules to reflect its current process and 
reduce confusion regarding the application and approval process.
    The Exchange also seeks to amend current subparagraph (i) of Rule 
3.9. Currently, subparagraph (i) provides that upon completion of the 
application process, the Exchange shall determine whether to approve or 
disapprove the application, unless there is just cause for delay. The 
Exchange proposes to specifically provide that upon completion of the 
application process, the Exchange will determine to approve or 
disapprove the application within 90 days, unless there is just cause 
for delay. Explicitly providing a deadline for which the Exchange must 
act upon a completed application further assures market participants 
that their applications submitted pursuant to Rule 3.9 will be 
considered in a timely fashion and acted upon without any arbitrary 
delay. The Exchange notes however, that this rule change is not 
intended to limit the Exchange's ability to table consideration of an 
application in accordance with Rule 3.9 \3\ including in order to 
obtain additional information concerning an applicant or when an 
applicant is subject to an investigation being conducted by a self-
regulatory organization or government agency involving the applicant's 
fitness to become a TPH.
---------------------------------------------------------------------------

    \3\ See e.g., current CBOE Rule 3.9(e), Rule 3.9(g), Rule 
3.9(h), and Rule 3.9(i).
---------------------------------------------------------------------------

    Lastly, the Exchange seeks to eliminate current Interpretation and 
Policy .01 of Rule 3.9 from its rules (``Rule 3.9.01). Rule 3.9.01 
currently requires that a TPH that submits an application to change the 
Clearing Trading Permit Holder (``CTPH'') that guarantees the TPH's 
Exchange transactions must also submit to the TPH Department a 
financial statement in a form prescribed by the Exchange which sets 
forth the TPH's assets and liabilities. Rule 3.9.01 also provides that 
the TPH Department will provide a copy of this financial statement to 
the new CTPH designated in the application. Historically, TPHs that 
have submitted an application to change CTPHs have not provided to the 
TPH Department along with the application a financial statement setting 
forth their assets and liabilities. The Exchange notes that generally 
the CTPH designated on an application has already conducted its own 
financial review of the TPH prior to agreeing to become the new CTPH 
that guarantees that TPH's Exchange transactions. The Exchange also 
notes, that as part of the initial application process to become a TPH, 
an applicant must submit a financial statement to the TPH Department. 
Additionally, the Exchange notes that it has a continuing ability to 
request a financial statement from a TPH pursuant to Exchange rules.\4\ 
Requiring that TPHs provide to the Exchange a financial statement for 
purposes of passing it on to the new CTPH is therefore unnecessary and 
redundant. Accordingly, the Exchange seeks to eliminate Interpretation 
and Policy .01 from Rule 3.9 in its entirety. By doing so, the Exchange 
will confirm [sic] its rules to current practice and reduce confusion 
among TPHs regarding whether or not a financial statement needs to be 
provided to the Exchange in conjunction with an application to change a 
CTPH.
---------------------------------------------------------------------------

    \4\ See e.g., CBOE Rule 3.7(v).
---------------------------------------------------------------------------

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.\5\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \6\ 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) \7\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes amending Rule 3.9(a) to 
replace an inaccurate rule reference with the correct rule reference 
will eliminate possible investor confusion, thereby removing 
impediments to and perfecting the mechanism of a free and open market 
and a national market system.
    Additionally, the Exchange believes that the proposed rule change 
to eliminate the requirement for a submission deadline for applications 
required under Rule 3.9 reduces the burden on applicants to adhere to 
an unnecessary and arbitrary strict submission deadline. The Exchange 
also believes it would be beneficial to market participants to 
eliminate Rule 3.9(b) as Rule 3.9 would then more accurately reflect 
the current practices of the Exchange. More specifically, the 
elimination of Rule 3.9(b) will reduce investor confusion regarding the 
application and approval process, thereby removing impediments to and 
perfecting the mechanism of a free and open market and a national 
market system. The Exchange also notes that the proposed rule change 
does not result in unfair discrimination, as it applies to all 
individuals and organizations that are required to submit an 
application pursuant to Rule 3.9.
    The Exchange also believes that the proposed rule change to require 
the Exchange to determine whether to approve or disapprove an 
application within 90 days of the completion of application process 
unless there is just cause for delay benefits market participants. 
Particularly, the proposed change ensures that applications submitted 
pursuant to Rule 3.9 will be considered in a timely manner and acted 
upon without any arbitrary delay, which further provides a fair 
procedure for the consideration of certain applications. The proposed 
rule change also does not result in unfair discrimination, as it 
applies to all TPHs that submit an application pursuant to Rule 3.9.
    Finally, the Exchange believes it is no longer necessary for TPHs 
to provide their financial statements in conjunction with an 
application to change CTPHs because clearing firms now obtain financial 
information directly from TPHs as part of their due diligence prior to 
even agreeing to become the new CTPH for that TPH. As the CTPHs already 
have this information, requiring the financial information from the TPH 
to pass it along to the CTPH is redundant and unnecessary. Therefore, 
Rule 3.9.01 should be eliminated. Finally, the Exchange notes that the 
proposed rule change does not result in

[[Page 40824]]

unfair discrimination, as it applies to all TPHs that submit an 
application to change a CTPH.

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

    CBOE 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 Exchange does not believe 
that the proposed rule change imposes any burden on intramarket 
competition because it applies to all Trading Permit Holders. The 
Exchange does not believe that the proposed rule change will impose any 
burden on intermarket competition as it is merely attempting to make 
changes to its rules to eliminate practices that are no longer 
necessary or relevant. The Exchange notes that, to the extent that the 
proposed changes make CBOE more attractive for trading, market 
participants trading on other exchanges are welcome to become TPHs and 
trade at CBOE if they determine that this proposed rule change has made 
CBOE more attractive or favorable.

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

    Because the foregoing proposed rule change does not:
    A. Sgnificantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. 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 \8\ and 
Rule 19b-4(f)(6) \9\ thereunder. 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.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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-2014-056 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-2014-056. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of 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-2014-056 and should be 
submitted on or before August 4, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-16364 Filed 7-11-14; 8:45 am]
BILLING CODE 8011-01-P