Document ID: SEC-2018-1637-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2018-10-22T04:00Z

[Federal Register Volume 83, Number 204 (Monday, October 22, 2018)]
[Notices]
[Pages 53336-53337]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22908]

[[Page 53336]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84437; File No. SR-CBOE-2018-060]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Order 
Approving a Proposed Rule Change To Amend Exchange Rule 6.49A, Transfer 
of Positions

October 16, 2018.

I. Introduction

    On August 16, 2018, the Cboe Exchange, Inc. (the ``Exchange'' or 
``Cboe'') filed with the Securities and Exchange Commission (the 
``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposal to amend Rule 6.49A (Transfer of Positions). The proposed rule 
change was published for comment in the Federal Register on September 
4, 2018.\3\ The Commission did not receive any comment letters on the 
proposed rule change. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 83968 (August 28, 
2018), 83 FR 44938 (September 4, 2018) (``Notice'').
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II. Description of the Proposed Rule Change

    Cboe Rule 6.49 generally requires a Trading Permit Holder (``TPH'') 
to effect transactions in listed options on an exchange.\4\ 
Notwithstanding that provision, Cboe Rule 6.49A permits certain types 
of transfers involving a TPH's positions to be effected off the 
floor.\5\ In addition, Cboe Rule 6.49A provides a procedure for an 
``on-floor'' transfer of positions.\6\ As described in more detail in 
the Notice,\7\ the Exchange proposes to amend Rule 6.49A to eliminate 
the on-floor position transfer process,\8\ amend the criteria and 
procedures related to off-floor position transfers, amend the exemption 
provision, and make other non-substantive changes.
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    \4\ See Cboe Rule 6.49(a).
    \5\ See Cboe Rule 6.49A(a).
    \6\ See Cboe Rule 6.49A(b)-(c).
    \7\ See Notice, supra note 3.
    \8\ The Exchange represents that it no longer wants to make 
available the on-floor transfers of positions because it is 
administratively burdensome on the Exchange, used by TPHs on a 
limited basis, and no longer serves the uses for which it was 
originally adopted. Id. at 44938.
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    With respect to off-floor transfers, Cboe Rule 6.49A(a) currently 
sets forth specific events under which off-floor transfers are 
permitted. The Exchange proposes to delineate several additional events 
and add them to the list of permitted off-floor transfers in proposed 
Rule 6.49A.\9\ For example, the additional events address correcting 
bona fide errors in trade recording, consolidating accounts without a 
chance in beneficial ownership, and transfers by operation of law.\10\
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    \9\ Id. at 44939. The proposed amendments to Rule 6.49A(a) also 
add clarification that Rule 6.49A does not apply to products other 
than options listed on the Exchange consistent with the Exchange's 
other trading rules, a TPH must be on one side of the transfer, and 
that positions a TPH are transferring or receiving are held in the 
account of the Clearing Trading Permit Holder. Id.
    \10\ See proposed Cboe Rule 6.74A(a).
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    In addition, proposed Rule 6.49A(b) codifies prior Exchange 
guidance regarding certain restrictions on permissible off-floor 
transfers related to the netting of open positions and to margin and 
haircut treatment.\11\ Among other things, proposed Rule 6.49A(b)(2) 
will only permit netting for off-floor transfers between separate 
exchange-specific Market Maker accounts in the limited circumstances 
set forth in the Rule.\12\
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    \11\ See proposed Cboe Rule 6.74A(b).
    \12\ See proposed Cboe Rule 6.74A(b)(2). See also Notice, supra 
note 3, at 44939-40. In such instances, all Market Maker positions 
in the exchange-specific accounts for the multiply listed class may 
be automatically transferred on their trade date into one universal 
Market Maker account at the Clearing Corporation. See id.
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    Further, proposed Rule 6.49A(d) will require a TPH and its Clearing 
Trading Permit Holder (to the extent the TPH is not self-clearing) to 
submit written notice to the Exchange prior to effecting an off-floor 
transfer from or to the account of a TPH(s).\13\ Proposed Rule 6.49A(e) 
will require that each TPH and Clearing Trading Permit Holder that is a 
party to an off-floor transfer must make and retain records of the 
information provided in the written notice, as well as information on 
the Exchange-listed options that are ultimately transferred, the 
transfer date, transfer price, and any other information the Exchange 
may request.\14\
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    \13\ See proposed Cboe Rule 6.74A(d).
    \14\ See proposed Cboe Rule 6.74A(e).
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    In addition, the Exchange is clarifying and updating Proposed Rule 
6.49A(f), which allows the Exchange to grant an exemption from Rule 
6.49(a) in cases where allowing an off-floor transfer would be 
necessary or appropriate for the maintenance of a fair and orderly 
market and the protection of investors and is in the public 
interest.\15\
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    \15\ See proposed Cboe Rule 6.74A(f).
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    Finally, the Exchange is adding new proposed Rule 6.49A(g) to state 
that the off-floor position transfer process described in the Rule is 
``intended to facilitate non-routine, non-recurring movements of 
positions'' and is ``not to be used repeatedly or routinely in 
circumvention of the normal auction market process.'' \16\
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    \16\ See proposed Cboe Rule 6.74A(g). In addition, proposed Cboe 
Rule 6.74A(h) is being added to clarify that the off-floor transfer 
procedure is only applicable to positions in options listed on the 
Exchange, and that off-floor transfers of positions in Exchange-
listed options may be subject to applicable laws, rules and 
regulations, including rules of other self-regulatory organizations. 
See proposed Cboe Rule 6.74A(h).
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act,\17\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.\18\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\19\ which 
requires, among other things, that the rules of a national securities 
exchange be designed 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 and that the 
rules are not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \17\ 15 U.S.C. 78f.
    \18\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \19\ 15 U.S.C. 78f(b)(5).
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    The proposed rule change is designed to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system by providing a mechanism to permit off-floor position transfers 
in specified, limited, and narrowly-tailored circumstances. Thus, Rule 
6.49A makes clear that off-floor positions transfers are not to be used 
repeatedly or routinely in circumvention of the normal auction market 
process.\20\ While the amended Rule will continue to allow the Exchange 
to grant an exemption from Cboe Rule 6.49(a), the revised rule text 
makes it clear that exemptions may only be granted on rare occasions 
when necessary or appropriate for the maintenance of a fair and orderly 
market and the protection of investors and where the exemption is in 
the public interest, including due to unusual or extraordinary 
circumstances.
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    \20\ See proposed Cboe Rule 6.49A(g).
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    The Commission further notes that the proposal adds transparency to 
the off-floor transfer process by codifying certain long-standing Cboe 
guidance

[[Page 53337]]

regarding when off-floor transfers are permissible, whether netting is 
permitted, and the transfer price of an off-floor transfer. The 
Commission believes that those additional provisions are designed to 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
In addition, the Commission believes that the requirement for the 
parties to provide written notice to the Exchange and maintain detailed 
records of each transfer will ensure that the Exchange is made aware of 
off-floor transfers and is able to review them for compliance with 
applicable rules.
    With respect to the elimination of the on-floor transfer package 
procedure, the Commission notes that TPHs will continue to be able to 
transact on the Exchange using the regular auction market process.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule change (SR-CBOE-2018-060) be, and 
hereby is, approved.
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    \21\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22908 Filed 10-19-18; 8:45 am]
 BILLING CODE 8011-01-P