Document ID: SEC-2014-0971-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2014-06-11T04:00Z

[Federal Register Volume 79, Number 112 (Wednesday, June 11, 2014)]
[Notices]
[Pages 33614-33618]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-13555]

[[Page 33614]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72325; File No. SR-CBOE-2014-048]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change Relating to 
the Give Up of a Clearing Trading Permit Holder

June 5, 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 May 23, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend its rules governing the give up of a 
Clearing Trading Permit Holder by a Trading Permit Holder on Exchange 
Transactions. 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 Exchange proposes to augment its requirements in CBOE Rules 
6.21 and 6.50 related to the give up of a Clearing Trading Permit 
Holder (``CTPH'') by a Trading Permit Holder (``TPH'') on Exchange 
transactions. By way of background, to enter transactions on the 
Exchange, a TPH must either be a CTPH or must have a CTPH agree to 
accept financial responsibility for all of its transactions. 
Additionally, Rule 6.21 currently provides that when a TPH executes a 
transaction on the Exchange, it must give up the name of the CTPH (the 
``Give Up'') through which the transaction will be cleared (i.e., 
``give up''). Rule 6.50 provides that every CTPH will be responsible 
for the clearance of Exchange transactions of each TPH that gives up 
the CTPH's name pursuant to a Letter of Authorization, Letter of 
Guarantee, or other authorization given by the CTPH to the executing 
TPH. In a recent review of its rules relating to the give up of CTPHs 
by TPHs, the Exchange determined that it would be beneficial to further 
address and provide additional detail in its rules regarding the give 
up process.
Designated Give Ups and Guarantors
    The Exchange seeks to amend Rule 6.21 to provide that a TPH may 
only give up a ``Designated Give Up'' or its ``Guarantor.'' The 
Exchange proposes to introduce and define the term ``Designated Give 
Up.'' For purposes of Rule 6.21, a ``Designated Give Up,'' is any CTPH 
that a TPH (other than a Market-Maker \3\) identifies to the Exchange, 
in writing, as a CTPH that the TPH would like to have the ability to 
give up. To designate a ``Designated Give Up'' a TPH must submit 
written notification, in a form and manner determined by the Exchange, 
to the Registration Services Department (``RSD''). Specifically, the 
Exchange anticipates using a standardized form (``Notification Form'') 
that a TPH would need to complete and submit to the RSD. A copy of the 
proposed Notification Form is included with this filing in Exhibit 3. 
Similarly, should a TPH no longer want the ability to give up a 
particular Designated Give Up, it must submit written notification, in 
a form and manner determined by the Exchange, to the RSD. The Exchange 
notes that a TPH may designate any CTPH as a Designated Give Up. 
Additionally, there is no minimum or maximum number of Designated Give 
Ups that a TPH must identify. The Exchange shall notify a CTPH, in 
writing and as soon as practicable, of each TPH that has identified it 
as a Designated Give Up. The Exchange however, will not accept any 
instructions, and not give effect to any previous instructions, from a 
CTPH not to permit a TPH to designate the CTPH as a Designated Give Up. 
The Exchange notes that there is no subjective evaluation of a TPH's 
list of proposed Designated Give Ups by the Exchange. Rather, the 
Exchange intends to process each list as submitted and ensure that the 
Clearing Trading Permit Holders identified as Designated Give Ups are 
in fact current Clearing Trading Permit Holders, as well as confirm 
that the Notification Forms are complete (e.g., contains appropriate 
signatures) and the OCC numbers listed for each Clearing Trading Permit 
Holder are accurate.
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    \3\ For purposes of this rule, references to ``Market-Maker'' 
shall refer to Trading Permit Holders acting in the capacity of a 
Market-Maker and shall include all Exchange Market-Maker capacities 
(e.g., Designated Primary Market-Makers and Lead Market-Makers).
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    The Exchange also proposes to define the term ``Guarantor'' in the 
proposed rule text. For purposes of Rule 6.21, a ``Guarantor'' shall 
refer to a CTPH that has issued a Letter of Guarantee or Letter of 
Authorization for the executing TPH under the Rules of the Exchange \4\ 
that is in effect at the time of the execution of the applicable trade. 
An executing TPH may give up its Guarantor without having to first 
designate it to the Exchange as a ``Designated Give Up.'' The Exchange 
also notes that CBOE Rule 8.5 provides that a Letter of Guarantee is 
required to be issued and filed with the Exchange by each CTPH that a 
Market-Maker desires to clear transactions through. Accordingly, a 
Market-Maker shall only be enabled to give up a Guarantor of the 
Market-Maker pursuant to CBOE Rule 8.5 and will not identify any 
Designated Give Ups.
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    \4\ See e.g., CBOE Rule 3.28, CBOE Rule 6.72, CBOE Rule 8.5.
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    As noted above, the proposed rule change seeks to provide that a 
TPH may give up only (i) the name of a CTPH that has previously been 
identified and processed by the Exchange as a Designated Give Up for 
that TPH, if not a Market-Maker or (ii) its Guarantor. This limitation 
shall be enforced by the Exchange's trading systems. Specifically, the 
Exchange will configure its trading systems to only accept orders from 
a TPH which identify a Designated Give Up or

[[Page 33615]]

Guarantor for that TPH and will reject any order entered by a TPH which 
designates a Give Up that is not at the time a Designated Give Up or 
Guarantor of the TPH. The Exchange notes that it will notify a TPH in 
writing when an identified Designated Give Up becomes ``effective'' 
(i.e., when a CTPH that has been identified by the TPH as a Designated 
Give Up has been enabled by the Exchange's trading systems to be given 
up). A Guarantor for a TPH shall be enabled to be given up for that TPH 
without any further action by the TPH (i.e., submitting its name as a 
Designated Give Up on the Notification Form). The Exchange notes that 
this configuration (i.e., the trading system accepting only orders 
which identify a Designated Give Up or Guarantor) is intended to help 
reduce ``keypunch errors'' and prevent TPHs from mistakenly giving up 
the name of a CTPH that it had no intention of ever using as a Give Up.
Acceptance of a Trade
    The Exchange next proposes to permit a Designated Give Up and a 
Guarantor to, in certain circumstances, determine not to accept a trade 
on which its name was given up. If a Designated Give Up or Guarantor 
determines not to accept a trade, it may reject the trade in accordance 
with the procedures described more fully below.
    A Designated Give Up may determine to not accept a trade on which 
its name was given up so long as it believes in good faith that it has 
a valid reason not to accept the trade. Examples of valid reasons may 
be that the Designated Give Up does not have a customer for that 
particular trade or that another CTPH agrees to be the Give Up on the 
trade and has notified the Exchange and executing TPH in writing of its 
intent to accept the trade. If a Designated Give Up determines to not 
accept (and thereby reject) a trade on which its name was given up, the 
executing TPH's Guarantor or another CTPH that agrees to be the Give Up 
on the trade shall become the Give Up. Next, the Exchange proposes to 
provide that a Guarantor may not accept (and thereby reject) a non-
Market-Maker trade on which its name was given up only if another CTPH 
agrees to be the Give Up on the trade and has notified the Exchange and 
executing TPH in writing of its intent to accept the trade. The 
Exchange notes that only a Designated Give Up or Guarantor whose name 
was initially given up on a trade is permitted to not accept the trade, 
subject to the conditions noted above (i.e., the CTPH or Guarantor that 
becomes the Give Up on a rejected trade may not also reject the trade).
Rejection of a Trade
    The Exchange has incorporated into proposed Rule 6.21 procedures 
that must be followed in order for a Designated Give Up to reject a 
trade. A trade may only be rejected on (i) the trade date or (ii) the 
business day following the trade date (``T+1'') (except that 
transactions in expiring options series may not be rejected on T+1).
Rejection on Trade Date
    If a Designated Give Up decides to reject a trade on the trade 
date, it must first notify, in writing, the executing TPH or its 
designated agent, as soon as possible and attempt to resolve the 
disputed give up. This requirement puts the executing TPH on notice 
that the Give Up on the trade may be changed and provides the executing 
TPH and Designated Give Up an opportunity to resolve the dispute in a 
manner agreeable to each party. The Exchange notes that a Designated 
Give Up may request from the Exchange the contact information of the 
executing TPH or its designated agent for any trade it wishes to 
reject.
    Following notification to the executing TPH on the trade date, a 
Designated Give Up may request the ability from the Exchange to change 
the Give Up on the trade. This request must be made by completing and 
submitting a standardized form (``Give Up Change Form'') to the 
Exchange. A copy of the proposed Give Up Change Form is included with 
this filing in Exhibit 3. So long as the Exchange is able to process 
the request prior to the trade input cutoff time established by the 
Clearing Corporation (or fifteen minutes thereafter, so long as the 
Exchange receives and is able to process a request to extend its time 
of final trade submission to the Clearing Corporation) (``Trade Date 
Cutoff Time''), the Exchange will provide the Designated Give Up the 
ability to make the change to the Give Up on the trade to either (1) 
another CTPH or (2) the executing TPH's Guarantor.
    A Designated Give Up may change the Give Up to another CTPH (``New 
CTPH'') (i.e., a CTPH that is not the executing TPH's Guarantor) only 
if that CTPH has agreed to be the give up on the trade and has first 
notified the Exchange and the executing TPH in writing of its intent to 
accept the trade. To notify the Exchange, the New CTPH must complete 
and submit a standardized form (i.e., the Give-Up Change Form for 
Accepting Clearing Trading Permit Holders) to the Exchange. A copy of 
the proposed Give-Up Change Form for Accepting Clearing Trading Permit 
Holders is included with this filing in Exhibit 3. The Exchange notes 
that any CTPH may agree to accept a trade from the Designated Give Up 
that is rejecting the trade (i.e., the New CTPH does not have to 
already be a Designated Give Up of the executing TPH). The Exchange 
also notes that a New CTPH that has agreed to accept a trade and become 
the Give Up cannot later reject the trade. Requiring the New CTPH to 
provide notice to the Exchange of its intent to accept the trade and 
prohibiting the New CTPH from later rejecting the trade provides 
finality to the trade and ensures that the trade is not repeatedly 
reassigned from one CTPH to another.
    The Exchange also seeks to provide that a Designated Give Up may 
alternatively change the Give Up to the executing TPH's Guarantor. The 
Guarantor does not need to notify the Exchange of its intent to accept 
the trade nor does it need to submit any notification or form. The 
Designated Give Up however, must first provide written notice to the 
Guarantor that it will be making this change. A Guarantor that becomes 
the Give Up on a trade as a result of the Designated Give Up rejecting 
the trade is prohibited from not accepting the trade/rejecting the 
trade. This prohibition provides finality to the trade and ensures that 
the trade is not repeatedly reassigned from one CTPH to another.
    A Guarantor may also reject a non-Market-Maker trade for which its 
name was the initial given up by a TPH, but only if another CTPH has 
first agreed to be the Give Up on the trade and has notified the 
Exchange and executing TPH in writing of its intent to accept the 
trade. If a Guarantor of a TPH decides to reject a trade on the trade 
date, it must follow the same procedures to change the Give Up as would 
be followed by a Designated Give Up. The ability to make any changes, 
either by the Designated Give Up or Guarantor, to the Give Up pursuant 
to this procedure will end at the Trade Date Cutoff Time.
    Finally, once the Give Up has been changed, the Designated Give Up 
or Guarantor making the change must immediately thereafter notify the 
Exchange, the parties to the trade and the New CTPH of the change in 
writing.
Rejection on T+1
    The Exchange next acknowledges that some clearing firms may not 
reconcile their trades until after the Trade Date Cutoff Time. A 
clearing firm therefore, may not realize that a valid reason exists to 
not accept a particular trade until

[[Page 33616]]

after the close of the trading day or until the following morning. 
Accordingly, the Exchange seeks to establish a procedure for a 
Designated Give Up or Guarantor of a TPH that is not a Market-Maker to 
reject a trade on the following trade day (``T+1''). The Exchange notes 
that a separate procedure must be established for T+1 changes because 
to effectively change the Give Up on a trade on T+1, an offsetting 
reversal has to occur (as opposed to merely identifying a different 
CTPH on the trade). More specifically, a buy side must be entered by 
one CTPH and the sell side must be entered by the other CTPH in order 
to effect the moving of the position from one CTPH to another.
    A Designed [sic] Give Up that wishes to reject a trade on T+1 must 
first notify the executing TPH, in writing, to try to attempt and 
resolve the dispute. Following notification to the TPH, a Designated 
Give Up may contact the Exchange and request the ability to enter trade 
records into the Exchange's trading system on behalf of itself and 
either the New CTPH or the executing TPH's Guarantor, which would 
effect a transfer of the trade to the new Give Up. So long as the 
Exchange is able to process the request prior to 12:00 p.m. (CT) on T+1 
(``T+1 Cutoff Time''), the Exchange shall provide the Designated Give 
Up the ability to do so. The request must be made in writing using a 
standardized form (i.e., the Give Up Change Form) from the Exchange. In 
the event a New CTPH will be accepting the trade as the Give Up, the 
New CTPH must also complete and submit the CBOE Give-Up Change Form for 
Accepting Clearing Trading Permit Holders. A Guarantor that becomes the 
new Give Up on T+1 does not need to notify the Exchange of its intent 
to accept the trade nor does it need to submit any notification or 
form. The Designated Give Up however, must first provide written notice 
to the Guarantor that it will be making this change on T+1.
    An executing TPH's Guarantor that was the initial Give Up on a 
trade may also reject the trade on T+1, but may only change the Give Up 
to another CTPH that has first agreed to be the Give Up on the trade 
and has notified the Exchange (by submitting the Give Up Change Form) 
and executing TPH in writing of its intent to accept the trade. If a 
Guarantor of a TPH decides to reject a non-Market-Maker trade on T+1, 
it must follow the same procedures outlined in subparagraph (f)(iii). 
The Exchange again notes that only a Guarantor whose name was initially 
given up is permitted to reject a trade (i.e., a Guarantor cannot 
reject a trade on T+1 for which it has become the give up as a result 
of a Designated Give Up not accepting the trade).
    The ability for either a Designated Give Up or Guarantor to make 
these changes shall end at the T+1 Cutoff Time. The Exchange notes that 
that the T+1 Cutoff Time is 12:00 p.m. (CT) to provide finality and 
certainty as to which CTPH will be the CTPH for the trade.
    Once the change to the Give Up has been made, the Designated Give 
Up or Guarantor making the change must immediately thereafter notify 
the Exchange, the parties to the trade and the New CTPH of the change 
in writing. The Exchange notes that the T+1 procedure is not applicable 
to trades in expiring options series that take place on the last 
trading day prior to their expiration. Rather, a Designated Give Up and 
Guarantor may only reject these transactions on the trade date until 
the Trade Date Cutoff Time in accordance with the trade date procedures 
described above.
    As discussed above, the Exchange is allowing TPHs that are not 
Market-Makers to identify any CTPH as a Designated Give Up. Also as 
discussed, the Exchange has determined not to take instructions from a 
CTPH not to permit a particular TPH from giving up their name so that 
the Exchange will not be placed in the position of arbiter between a 
CTPH, a TPH and a customer. The Exchange recognizes, however, that TPHs 
should not be given the ability to give up any CTPH without also 
providing a method of recourse to those CTPHs which, for the prescribed 
reasons discussed above, should not be obligated to clear certain 
trades for which they are given up. The Exchange accordingly is seeking 
to provide Designated Give Ups and Guarantors the ability to, where 
appropriate, reject a trade. Ultimately, however, the trade must clear 
with a clearing firm and there must be finality to the trade. The 
Exchange believes that the executing TPH's Guarantor, absent a CTPH 
that agrees to accept the trade, should become the Give Up on any trade 
which a Designated Give Up determines to reject in accordance with 
these proposed rule provisions, because the Guarantor, by virtue of 
having issued a Letter of Guarantee or Authorization, has already 
accepted financial responsibility for all Exchange transactions made by 
the executing TPH. The Exchange however, does not want to prevent a 
CTPH that agrees to accept the trade from being able to do so, and 
accordingly, the Exchange also provides that a New CTPH may become the 
Give Up on a trade in accordance with the procedure discussed above.
Other Give Up Changes
    The Exchange seeks to codify in its proposed rule three scenarios 
in which a Give Up on a transaction may be changed without Exchange 
involvement. First, if an executing TPH has the ability through an 
Exchange system to do so, it may change the Give Up on a trade to 
another Designated Give Up or its Guarantor. The Exchange notes that 
TPHs often make these changes when, for example, there was a keypunch 
error (i.e. an error that involves the erroneous entry of an intended 
clearing firm's OCC clearing number). The ability of the executing TPH 
to make any such change will end at the Trade Date Cutoff Time.\5\
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    \5\ After that time, the TPH will no longer have the ability to 
make this type of change as the trade will have been submitted to 
OCC.
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    Next, the proposed rule provides that, if a Designated Give Up has 
the ability to do so, it may change the Give Up on a transaction for 
which it was given up to (i) another CTPH affiliated with the 
Designated Give Up or (ii) a CTPH for which the Designated Give Up is a 
back office agent. The ability to make such a change will end at the 
Trade Date Cutoff Time. The procedures in proposed subparagraph (f) of 
Rule 6.21 that were previously described will not apply in these 
instances. The Exchange notes that often CTPHs themselves have the 
ability to change a Give Up on a trade for which it was given up to 
another CTPH affiliate or CTPH for which the Designated Give Up is a 
back office agent. Therefore, Exchange involvement in these instances 
is not necessary.
    Lastly, the proposed rule provides that if both a Designated Give 
Up and a CTPH have the ability through an Exchange system to do so, the 
Designated Give Up and CTPH may each enter trade records into the 
Exchange's systems on T+1 that would effect a transfer of the trade in 
a non-expired option series from that Designated Give Up to that CTPH. 
Likewise, if a Guarantor of a TPH trade that is not a Market-Maker 
trade and a CTPH have the ability through an Exchange system to do so, 
the Guarantor and CTPH may each enter trade records into the Exchange's 
systems on T+1 that would effect a transfer of the trade in a non-
expired option series from that Guarantor to that CTPH. The Designated 
Give Up or Guarantor shall not make any such change after the T+1 
Cutoff Time. The Exchange notes that a Designated Give Up (or 
Guarantor) must notify, in writing, the Exchange and all

[[Page 33617]]

the parties to the trade, of any such change made pursuant to this 
provision. This notification alerts the parties and the Exchange that a 
change to the Give Up has been made. Finally, the Designated Give Up 
(or Guarantor) will be responsible for monitoring the trade and 
ensuring that the other CTPH has entered its side of the transaction 
timely and correctly. If either a Designated Give Up (or Guarantor) or 
CTPH cannot themselves enter trade records into the Exchange's systems 
to effect a transfer of the trade from one to the other, the Designated 
Give Up (or Guarantor) may request the ability from the Exchange to 
enter both sides of the transaction in accordance with this amended 
Rule 6.21 and pursuant to the procedures set forth in subparagraph 
(f)(iii) of that Rule.
Responsibility
    For purposes of the Rules of the Exchange, a CTPH will be 
financially responsible for all trades for which it is the Give Up at 
the Applicable Cutoff Time (for purposes of the proposed rule, the 
``Applicable Cutoff Time'' shall refer to the T+1 Cutoff Time for non-
expiring option series and to the Trade Date Cutoff Time for expiring 
option series). The Exchange notes however, that nothing in the 
proposed rule shall preclude a different party from being responsible 
for the trade outside of the Rules of the Exchange pursuant to OCC 
Rules, any agreement between the applicable parties, other applicable 
rules and regulations, arbitration, court proceedings or otherwise. 
Moreover, in processing a request to provide a Designated Give Up the 
ability to change a Give Up on a trade, the Exchange will not consider 
or validate whether the Designated Give Up has satisfied the 
requirements of this Rule in relation to having a good faith belief 
that it has a valid reason not to accept a trade or having notified the 
executing TPH and attempting to resolve the disputed Give Up prior to 
changing the Give Up. Rather, upon request, the Exchange shall always 
provide a Designated Give Up or Guarantor the ability to change the 
give up or to reject a trade pursuant to the proposed rule so long as 
the Designated Give Up or Guarantor, and New CTPH if applicable, have 
provided a completed Give Up Change Forms within the prescribed time 
period. The Exchange notes that given the inherent time constraints in 
making a change to a Give Up on a transaction, the Exchange would not 
be able to adequately consider the above-mentioned requirements and 
make a determination within the prescribed period of time. Rather, the 
Exchange will examine trades for which a Give Up was changed pursuant 
to subparagraphs (e) and (f) after the fact to ensure that requirements 
set forth in amended Rule 6.21 were complied with. Particularly, the 
Exchange notes that the Give Up Change Forms that Designated Give Ups, 
Guarantors and New CTPHs must submit, will help to ensure that the 
Exchange obtains, in an uniform format, the information that it needs 
to monitor and regulate this rule and these give up changes in 
particular. This information, for example, will better allow the 
Exchange to determine whether the Designated Give Up had a valid reason 
to reject the trade, as well as assist the Exchange in cross checking 
and confirming that what the Designated Give Up or Guarantor said it 
was going to do is what it actually did (e.g., check that the New CTPH 
identified in the Give Up Change Form was the CTPH that actually was 
identified on the trade as the Give Up). Additionally, the proposed 
rule does not preclude these factors from being considered in a 
different forum (e.g., court or arbitration) nor does it preclude any 
CTPH that violates any provision of amended Rule 6.21 rule from being 
subject to discipline in accordance with Exchange rules.
    Finally, the Exchange proposes to eliminate language in Rule 6.50 
that addresses the financial responsibility of transactions clearing 
through CTPHs. Financial responsibility is now addressed and clarified 
in amended Rule 6.21, and as such, the Exchange believes this language 
in Rule 6.50 is unnecessary.
    The Exchange proposes to announce the implementation date of the 
proposed rule change in a Regulatory Circular, to be published no later 
than thirty (30) days following Commission approval. The implementation 
date will be no later than ninety (90) days following publication of 
the Regulatory Circular. The Exchange notes this additional time gives 
TPHs time to provide their lists of all CTPHs that they would like to 
designate as ``Designated Give Ups'' and gives the Exchange time to 
process those lists and configure its system accordingly.
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 facilitation 
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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    First, detailing in the rules how TPHs will give up CTPHs and how 
CTPHs may ``reject'' a trade provides transparency and operational 
certainty. The Exchange believes additional transparency removes a 
potential impediment to, and will contribute to perfecting, the 
mechanism for a free and open market and a national market system, and, 
in general, will protect investors and the public interest. Moreover, 
the Exchange notes that amended Rule 6.21 requires standardized forms 
to be used in the designation of Designated Give Ups to ensure a 
seamless administration of the Rule. The Rule also requires that CTPHs 
submit standardized forms when requesting the ability to reject a trade 
and that all notifications relating to a change in Give Up are in 
writing. These requirements will aid the Exchange's efforts to monitor 
and regulate Trading Permit Holders and Clearing Trading Permit Holders 
as they relate to amended Rule 6.21 and changes in give ups, thereby 
protecting investors and the public interest.
    Additionally, the Exchange notes that in evaluating its give up 
rule provisions, it solicited feedback from a variety of market 
participants. The Exchange believes that its proposed give up rule 
strikes the right balance between the various views and interests 
across the industry. For example, although the rule allows TPHs that 
are not Market-Makers to identify any CTPH as a Designated Give Up, it 
also provides that CTPHs will receive notice of any TPH that has 
designated it as a Designated Give Up and provides for a procedure for 
a CTPH to ``reject'' a trade in accordance with the Rules, both on the 
trade date and T+1. The Exchange recognizes that TPHs should not be 
given the ability to

[[Page 33618]]

give up any CTPH without also providing a method of recourse to those 
CTPHs which, for the prescribed reasons discussed above, should not be 
obligated to clear certain trades for which they are given up. The 
Exchange believes that providing Designated Give Ups the ability to 
reject a trade within a reasonable amount of time is consistent with 
the Act as, pursuant to the proposed rule, the Designated Give Ups may 
only do so if they have a valid reason and because ultimately, the 
trade can always be assigned to the Guarantor of the executing TPH. A 
trade must clear with a clearing firm and there must be finality to the 
trade. The Exchange believes that the executing TPH's Guarantor, absent 
a CTPH that agrees to accept the trade, should become the Give Up on 
any trade which a Designated Give Up determines to reject in accordance 
with the proposed rule provisions, because the Guarantor, by virtue of 
having issued a Letter of Guarantee or Authorization, has already 
accepted financial responsibility for all Exchange transactions made by 
the executing TPH. Therefore, amended Rule 6.21 is reasonable and 
provides certainty that a CTPH will always be responsible for a trade, 
which protects investors and the public interest.
    Lastly, the Exchange notes that amended Rule 6.21 does not preclude 
a different party than the party given up from being responsible for 
the trade outside of the Rules of the Exchange pursuant to OCC Rules, 
any agreement between the applicable parties, other applicable rules 
and regulations, arbitration, court proceedings or otherwise. The 
Exchange acknowledges that it will not consider whether the Designated 
Give Up has satisfied the requirements of this Rule in relation to 
having a good faith belief that it has a valid reason not to accept a 
trade or having notified the executing TPH and attempting to resolve 
the disputed Give Up prior to changing the Give Up, due to inherent 
time restrictions. However, the Exchange believes investor and public 
interest are still protected as the Exchange will still examine trades 
for which a Give Up was changed pursuant to subparagraphs (e) and (f) 
of amended Rule 6.21 after the fact to ensure that the requirements set 
forth in the Rule were complied with. As noted above, the use of 
standardized forms and the requirement that certain notices be in 
writing will assist monitoring any give up changes and enforcing 
amended Rule 6.21. Finally, the Exchange notes that the Rule does not 
preclude these factors from being considered in a different forum 
(e.g., court or arbitration) nor does it preclude any TPH or CTPH that 
violates any provision of amended Rule 6.21 from being subject to 
discipline by the Exchange.

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 will impose an unnecessary burden on 
intramarket competition because it will apply equally to all similarly 
situated Trading Permit Holders. The Exchange also notes that, should 
the proposed changes make CBOE more attractive for trading, market 
participants trading on other exchanges can always elect to become TPHs 
on CBOE to take advantage of the trading opportunities.

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

    The Exchange has not solicited nor received comments on the version 
of the proposed rule change submitted in this rule filing. As further 
described in Item 1 [sic] above, the Exchange has solicited feedback 
from a variety of market participants regarding the general subject of 
this rule filing.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be 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-2014-048 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-2014-048. 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 such 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-2014-048, and should be 
submitted on or before July 2, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-13555 Filed 6-10-14; 8:45 am]
BILLING CODE 8011-01-P