Document ID: SEC-2019-1155-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2019-08-14T04:00Z

[Federal Register Volume 84, Number 157 (Wednesday, August 14, 2019)]
[Notices]
[Pages 40460-40464]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17383]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86603; File No. SR-CBOE-2019-044]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change Relating To Adopt Rule 6.49B, Off-
Floor RWA Transfers

August 8, 2019.
    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 August 6, 2019, 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, 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 Substance 
of the Proposed Rule Change

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to adopt Rule 6.49B. The text of the proposed rule change is provided 
in Exhibit 5.
    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
    The Exchange proposes to adopt Rule 6.49B to add an exception to 
the prohibition in Rule 6.49(a) against off-floor position transfers. 
Rule 6.49(a) generally requires transactions of option contracts listed 
on the Exchange for a premium in excess of $1.00 to be effected on the 
floor of the Exchange or on another exchange. Rule 6.49A(a) specifies 
the current circumstances \3\ under which Trading Permit Holders may 
effect transfers of positions off the trading floor, notwithstanding 
the prohibition in Rule 6.49(a).\4\
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    \3\ The circumstances currently listed include: (1) The 
dissolution of a joint account in which the remaining Trading Permit 
Holder assumes the positions of the joint account; (2) the 
dissolution of a corporation or partnership in which a former 
nominee of the corporation or partnership assumes the positions; (3) 
positions transferred as part of a Trading Permit Holder's capital 
contribution to a new joint account, partnership, or corporation; 
(4) the donation of positions to a not-for-profit corporation; (5) 
the transfer of positions to a minor under the Uniform Gifts to 
Minor law; and (6) a merger or acquisition where continuity of 
ownership or management results.
    \4\ See SR-CBOE-2019-035, which proposes to amend Rule 6.49A and 
is currently pending with the Securities and Exchange Commission 
(the ``Commission''). The Exchange notes the proposed rule change in 
this rule filing was initially included in SR-CBOE-2019-3035 [sic]; 
pursuant to Amendment No. 1 to that rule filing, submitted on August 
6, 2019, the proposed rule change in this filing was deleted. The 
Exchange proposes a virtually identical change in this rule filing.
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    Proposed Rule 6.49B is intended to facilitate the reduction of 
risk-weighted assets (``RWA'') attributable to open options positions 
and make other conforming changes. SEC Rule 15c3-1 (Net Capital 
Requirements for Brokers or Dealers) (``Net Capital Rules'') requires 
registered broker-dealers, unless otherwise excepted, to maintain 
certain specified minimum levels of capital.\5\ The Net Capital Rules 
are designed to protect securities customers, counterparties, and 
creditors by requiring that broker-dealers have sufficient liquid 
resources on hand, at all times, to meet their financial obligations. 
Notably, hedged positions, including offsetting futures and options 
contract positions, result in certain net capital requirement 
reductions under the Net Capital Rules.\6\
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    \5\ 17 CFR 240.15c3-1.
    \6\ In addition, the Net Capital Rules permit various offsets 
under which a percentage of an option position's gain at any one 
valuation point is allowed to offset another position's loss at the 
same valuation point (e.g. vertical spreads).
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    Subject to certain exceptions, Clearing Trading Permit Holders 
(``CTPHs'') \7\ are subject to the Net Capital Rules.\8\ However, a 
subset of CTPHs are subsidiaries of U.S. bank holding companies, which, 
due to their affiliations with their parent U.S.-bank holding 
companies, must comply with additional bank regulatory capital 
requirements pursuant to rulemaking required under the Dodd-Frank Wall 
Street Reform and Consumer Protection Act.\9\ Pursuant to this mandate, 
the Board of Governors of the Federal Reserve System, the Office of the 
Comptroller of the Currency, and the

[[Page 40461]]

Federal Deposit Insurance Corporation have approved a regulatory 
capital framework for subsidiaries of U.S. bank holding company 
clearing firms.\10\ Generally, these rules, among other things, impose 
higher minimum capital and higher asset risk weights than were 
previously mandated for CTPHs that are subsidiaries of U.S. bank 
holding companies under the Net Capital Rules. Furthermore, the new 
rules do not fully permit deductions for hedged securities or 
offsetting options positions.\11\ Rather, capital charges under these 
standards are, in large part, based on the aggregate notional value of 
short positions regardless of offsets. As a result, in general, CTPHs 
that are subsidiaries of U.S. bank holding companies must hold 
substantially more bank regulatory capital than would otherwise be 
required under the Net Capital Rules.
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    \7\ All CTPHs must also be clearing members of The Options 
Clearing Corporation (``OCC'').
    \8\ Assuming the Commission approves the proposed rule change, 
in the event federal regulators modify bank capital requirements in 
the future, the Exchange will reevaluate the proposed rule change at 
that time to determine whether any corresponding changes to the 
proposed rule are appropriate.
    \9\ H.R. 4173 (amending section 3(a) of the Securities Exchange 
Act of 1934 (the ``Act'') (15 U.S.C. 78c(a))).
    \10\ 12 CFR 50; 79 FR 61440 (Liquidity Coverage Ratio: Liquidity 
Risk Measurement Standards).
    \11\ Many options strategies, including relatively simple 
strategies often used by retail customers and more sophisticated 
strategies used by broker-dealers, are risk-limited strategies or 
options spread strategies that employ offsets or hedges to achieve 
certain investment outcomes. Such strategies typically involve the 
purchase and sale of multiple options (and may be coupled with 
purchases or sales of the underlying securities), executed 
simultaneously as part of the same strategy. In many cases, the 
potential market exposure of these strategies is limited and 
defined. While regulatory capital requirements have historically 
reflected the risk-limited nature of carrying offsetting positions, 
these positions may now be subject to higher regulatory capital 
requirements.
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    The Exchange believes these higher regulatory capital requirements 
may impact liquidity in the listed options market by limiting the 
amount of capital CTPHs can allocate to their clients' transactions. 
Specifically, the rules may cause CTPHs to impose stricter position 
limits on their client clearing members. These stricter position limits 
may impact the liquidity market participants may provide, including 
liquidity Market-Makers may provide in their appointed classes. This 
impact may be compounded when a CTPH has multiple client accounts, each 
having largely risk-neutral portfolio holdings.\12\ The Exchange 
believes that permitting market participants to efficiently transfer 
existing options positions through an off-floor transfer process may 
assist CTPHs and TPHs to address bank regulatory capital requirements 
and would likely have a beneficial effect on continued liquidity in the 
options market without adversely affecting market quality.
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    \12\ A number of TPHs, including Market-Makers, have informed 
the Exchange that the heightened bank regulatory requirements could 
impact their ability to provide consistent liquidity in the market 
unless they are able to efficiently transfer their open positions 
out of clearing accounts of U.S.-bank affiliated clearing firms.
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    Liquidity in the listed options market is critically important. 
However, bank capital regulations that govern bank-affiliated clearing 
firms are negatively impacting the ability of Trading Permit Holders, 
including Market-Makers, that clear options transactions through bank-
affiliated clearing firms to provide liquidity. In order to mitigate 
the potential negative effects of these additional bank regulatory 
capital requirements, the proposed rule change provides market 
participants with an efficient mechanism to transfer their open options 
positions from one clearing account to another clearing account. The 
Exchange believes the proposed rule change will increase liquidity in 
the listed options market and promote more efficient capital deployment 
in light of bank regulatory capital requirements.
    The Exchange has previously adopted Rules 6.56 and 6.57 to provide 
Trading Permit Holders with tools to reduce RWA attributable to their 
open positions in S&P 500 options (``SPX options''). However, the 
procedures in those rules involve transactions that must occur on the 
Exchange's trading floor to close open positions. Therefore, a market 
participant must find a counterparty and be willing to close positions 
to use either of these tools. As a result, these procedures are less 
efficient, less flexible, and more burdensome means to reduce RWA 
attributable to open options positions than an off-floor transfer of 
such positions. Additionally, these tools are currently limited to SPX 
options, due to the large notional size of those options, which 
compounds the negative impact of bank capital requirements, and Rule 
6.57 is limited to Market-Makers (Rule 6.56 is available to all Trading 
Permit Holders). However, bank capital requirements apply to positions 
in all listed options, and may impact all client clearing members of 
clearing firms affiliated with U.S.-bank holding companies, and 
clearing firms may request that Market-Makers and non-Market-Makers 
reduce positions in listed options in addition to SPX. There is 
currently no mechanism firms may use to transfer positions between 
clearing accounts without having to effect a transaction with another 
party and close a position.
    Rule 6.49A(a), as noted above, permits positions to be transferred 
off the floor of the Exchange in specified limited circumstances. If a 
Trading Permit Holder wanted to transfer open positions from a clearing 
account it has with one a bank-affiliated clearing firm to a clearing 
account it has with a non-bank-affiliated clearing firm, for example, 
such a transfer would result in no change in ownership. However, the 
currently permissible off-floor position transfers are non-routine, 
non-recurring movements of positions, which do not permit use of the 
off-floor transfer procedure to be used repeatedly or routinely in 
circumvention of the normal auction market process. To comply with 
clearing firms' position limits they may impose on market participants' 
because they need to limit capital they may allocate for those market 
participants' transactions, market participants may need to regularly 
reduce open positions or limit additional positions in their accounts 
with such clearing firms' to accommodate bank capital requirements. 
Rule 6.49A does not permit regular transfers of positions between 
accounts at different clearing firms.
    Proposed Rule 6.49B is intended to provide market participants with 
an additional tool they may use to address the issues raised by bank 
capital requirements for positions in all listed options in an 
efficient manner that provides market participants with flexibility to 
do so in accordance with their businesses and risk management 
practices. Proposed Rule 6.49B provides that notwithstanding Rule 6.49, 
existing positions in options listed on the Exchange of a Trading 
Permit Holder or non-Trading Permit Holder (including an affiliate of a 
Trading Permit Holder) may be transferred on, from, or to the books of 
a CTPH off the Exchange if the transfer establishes a net reduction of 
RWA attributable to those options positions (an ``RWA Transfer''). 
Proposed paragraph (a) adds examples of two transfers that would be 
deemed to establish a net reduction of RWA, and thus qualify as a 
permissible RWA Transfer:
     A transfer of options positions from Clearing Corporation 
member A to Clearing Corporation member B that net (offset) with 
positions held at Clearing Corporation member B, and thus closes all or 
part of those positions (as demonstrated in the example below); \13\ 
and
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    \13\ This transfer would establish a net reduction of RWA 
attributable to the transferring Person, because there would be 
fewer open positions and thus fewer assets subject to Net Capital 
Rules.
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     A transfer of options positions from a bank-affiliated 
Clearing Corporation member to a non-bank-affiliated Clearing 
Corporation member.\14\
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    \14\ This transfer would establish a net reduction of RWA 
attributable to the transferring Person, because the non-bank-
affiliated Clearing Corporation member would not be subject to Net 
Capital Rules, as described above.

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[[Page 40462]]

    These transfers will not result in a change in ownership, as they 
must occur between accounts of the same Person.\15\ 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. In other words, RWA transfers may only 
occur between the same individual or legal entity. These are merely 
transfers from one clearing account to another, both of which are 
attributable to the same individual or legal entity. A market 
participant effecting an RWA Transfer 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.
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    \15\ See proposed paragraph (e).
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    For example, Market-Maker A clears transactions on the Exchange 
into an account it has with CTPH X, which is affiliated with a U.S-bank 
holding company. Market-Maker A opens a clearing account with CTPH Y, 
which is not affiliated with a U.S.-bank holding company. CTPH X has 
informed Market-Maker A that its open positions may not exceed a 
certain amount at the end of a calendar month, or it will be subject to 
restrictions on new positions it may open the following month. On 
August 28, Market-Maker A reviews the open positions in its CTPH X 
clearing account and determines it must reduce its open positions to 
satisfy CTPH X's requirements by the end of August. It determines that 
transferring out 1000 short calls in class ABC will sufficiently reduce 
the RWA capital requirements in the account with CTPH X to avoid 
additional position limits in September. Market-Maker A wants to retain 
the positions in accordance with its risk profile. Pursuant to the 
proposed rule change, on August 31, Market-Maker A transfers 1000 short 
calls in class ABC to its clearing account with CTPH Y. As a result, 
Market-Maker A can continue to provide the same level of liquidity in 
class ABC during September as it did in previous months.
    A Trading Permit Holder must give up a CTPH for each transaction it 
effects on the Exchange, which identifies the CTPH through which the 
transaction will clear.\16\ A Trading Permit Holder may change the give 
up for a transaction within a specified period of time.\17\ 
Additionally, a Trading Permit Holder may also change the CMTA \18\ for 
a specific transaction.\19\ The transfer of positions from an account 
with one clearing firm to the account of another clearing firm pursuant 
to the proposed rule change has a similar result as changing a give up 
or CMTA, as it results in a position that resulted from a transaction 
moving from the account of one clearing firm to another, just at a 
different time and in a different manner.\20\ In the above example, if 
Market-Maker A had initially given up CTPH Y rather than CTPH X on the 
transactions that resulted in the 1000 long calls in class ABC, or had 
changed the give-up or CMTA to CTPH Y pursuant to Rules 6.21 or 6.67, 
the ultimate result would have been the same. There are a variety of 
reasons why firms give up or CMTA transactions to certain clearing 
firms (and not to non-bank affiliate clearing firms) at the time of a 
transaction, and the proposed rule change provides firms with a 
mechanism to achieve the same result at a later time.
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    \16\ See Rule 6.21.
    \17\ See Rule 6.21(e).
    \18\ The Clearing Member Trade Assignment (``CMTA'') process at 
the Options Clearing Corporation (``OCC'') facilitates the transfer 
of option trades/positions from one OCC clearing member to another 
in an automated fashion. Changing a CMTA for a specific transaction 
would allocate the trade to a different OCC clearing member than the 
one initially identified on the trade.
    \19\ See Rule 6.67(a).
    \20\ The transferred positions will continue to be subject to 
OCC rules, as they will continue to be held in an account of an OCC 
member.
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    Proposed paragraph (b) states RWA Transfers may occur on a routine, 
recurring basis. As noted in the example above, clearing firms may 
impose restrictions on the amount of open positions. Permitting 
transfers on a routine, recurring basis will provide market 
participants with the flexibility to comply with these restrictions 
when necessary to avoid position limits on future options activity. 
Additionally, proposed paragraph (f) provides that no prior written 
notice to the Exchange is required for RWA Transfers. Because of the 
potential routine basis on which RWA Transfers may occur, and because 
of the need for flexibility to comply with the restrictions described 
above, the Exchange believes it may interfere with the ability of 
investors firms to comply with any CTPH restrictions describe above, 
and may be burdensome to provide notice for these routine transfers.
    Proposed paragraph (c) states RWA Transfers may result in the 
netting of positions. Netting is generally prohibited for off-floor 
transfers.\21\ Netting occurs when long positions and short positions 
in the same series ``offset'' against each other, leaving no or a 
reduced position. For example, if there were 100 long calls in one 
account, and 100 short calls of the same option series were added to 
that account, the positions would offset, leaving no open positions. 
Currently, the Exchange permits off-floor transfers on behalf of a 
Market-Maker account for transactions in multiply listed options series 
on different exchanges, but only if the Market-Maker nominees are 
trading for the same Trading Permit Holder organization, and the 
options transactions on the different options exchanges clear into 
separate exchange-specific accounts because they cannot easily clear 
into the same Market-Maker account at OCC. In such instances, all 
Market-Maker positions in the exchange-specific accounts for the 
multiply listed class would be automatically transferred on their trade 
date into one central Market-Maker account (commonly referred to as a 
``universal account'') at the Clearing Corporation.\22\ Positions 
cleared into a universal account would automatically net against each 
other.
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    \21\ See Cboe Options Regulatory Circular RG03-62 (July 24, 
2003).
    \22\ Id.
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    While RWA Transfers are not occurring because of limitations 
related to trading on different exchanges, similar reasoning for the 
above exception applies to why netting should be permissible for the 
limited purpose of reducing RWA. Firms may maintain different clearing 
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. If a Market-Maker clears all 
transactions into a universal account, offsetting positions would 
automatically net. However, if a Market-Maker has multiple accounts 
into which its transactions cleared, they would not automatically net. 
While there are times when a firm may not want to close out open 
positions to reduce RWA, there are other times when a firm may 
determine it is appropriate to close out positions to accomplish a 
reduction in RWA.
    In the example above, suppose after making the RWA Transfer 
described above, Market-Maker A effects a transaction on September 25 
that results in 1000 long calls in class ABC, which clears into its 
account with CTPH X. If Market-Maker A had not effected its RWA 
Transfer in August, the 1000 long calls would have offset against the 
1000

[[Page 40463]]

short calls, eliminating both positions and thus any RWA capital 
requirements associated with them. At the end of August, Market-Maker A 
did not want to close out the 1000 short calls when it made its RWA 
Transfer. However, given changed circumstances in September, Market-
Maker A has determined it no longer wants to hold those positions. The 
proposed rule change would permit Market-Maker A to effect an RWA 
Transfer of the 1000 short calls from its account with CTPH Y to its 
account with CTPH X (or vice versa), which results in elimination of 
those positions (and a reduction in RWA associated with them). As noted 
above, such netting would have occurred if Market-Maker A cleared the 
September transaction directly into its account with CTPH Y, or had not 
effected an RWA Transfer in August. Netting provides market 
participants with appropriate flexibility to conduct their businesses 
as they see fit while having the ability to reduce RWA capital 
requirements when necessary.
    As is true for all other off-floor transfers permitted under Rule 
6.49A, RWA Transfers may not result in preferential margin or haircut 
treatment.\23\ Additionally, RWA Transfers may only be effected for 
options listed on the Exchange and will be subject to applicable laws, 
rules, and regulations, including rules of other self-regulatory 
organizations (including OCC).\24\
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    \23\ See proposed paragraph (d); see also id.
    \24\ See proposed introductory paragraph and proposed paragraph 
(g). Transfers of non-Exchange listed options and other financial 
instruments are not governed by proposed Rule 6.49B. Any RWA 
transfers will be subject to all applicable recordkeeping 
requirements applicable to TPHs and CTPHs under the Securities 
Exchange Act of 1934, and the rules and regulations thereunder (the 
``Act''), such as Rule 17a-3 and 17a-4.
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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.\25\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \26\ 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) \27\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(5).
    \27\ Id.
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    In particular, The Exchange believes the proposed rule change to 
permit RWA Transfers will remove impediments to and perfect the 
mechanism of a free and open market and a national market system by 
potentially mitigating the effects bank capital requirements may have 
on liquidity in the listed options market. As described above, bank 
capital requirements may impact capital available for options market 
liquidity providers, for example due to CTPHs' imposition of stricter 
position limits on firms that clear options transactions with them. The 
Exchange believes providing market participants with an efficient 
process to reduce RWA capital requirements attributable to open 
positions in clearing accounts with U.S. bank-affiliated clearing firms 
may contribute to additional liquidity in the listed options market, 
which, in general, protects investors and the public interest.
    The proposed rule change, in particular the proposed changes to 
permit RWA transfers to occur on a routine, recurring basis and result 
in netting, also provides market participants with sufficient 
flexibility to reduce RWA capital requirements at times necessary to 
comply with requirements imposed on them by clearing firms. This will 
permit market participants respond to then-current market conditions, 
including volatility and increased volume, by reducing the RWA capital 
requirements associated with any new positions they may open while 
those conditions exist. Given the additional capital that may become 
available to market participants as a result of the RWA Transfers, 
market participants will be able to continue to provide liquidity to 
the market, even during periods of increased volume and volatility, 
which liquidity ultimately benefits investors. It is not possible for 
market participants to predict what market conditions will exist at a 
specific time, and when volatility will occur. The proposed rule change 
to permit routine, recurring RWA Transfers (and to not provide prior 
written notice) will provide market participants with the ability to 
respond to these conditions whenever they occur. Additionally, since 
firms may be subject to restrictions on positions imposed by their 
clearing firms, permitting transfers on a routine, recurring basis will 
provide market participants with the flexibility to comply with these 
restrictions when necessary to avoid position limits on future options 
activity. In addition, with respect to netting, as discussed above, 
firms may maintain different clearing 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. 
Netting may otherwise occur with respect to a firm's positions if it 
structured its clearing accounts differently, such as by using a 
universal account. Therefore, the proposed rule change will permit 
netting while allowing firms to continue to maintain different clearing 
accounts in a manner consistent with their businesses.
    The Exchange recognizes the numerous benefits of executing options 
transactions occur on an exchanges, including price transparency, 
potential price improvement, and a clearing guarantee. However, the 
Exchange believes it is appropriate to permit RWA Transfers to occur 
off the exchange, as these benefits are inapplicable to RWA Transfers. 
RWA Transfers have a narrow scope and are intended to achieve a 
limited, benefit purpose. RWA Transfers are not intended to be a 
competitive trading tool. There is no need for price discovery or 
improvement, as the purpose of the transfer is to reduce RWA asset 
capital requirements attributable to a market participants' positions. 
Unlike trades on an exchange, the price at which an RWA Transfers 
occurs is immaterial--the resulting reduction in RWA is the critical 
part of the transfer. RWA Transfers will result in no change in 
ownership, and thus they do not constitute trades with a counterparty 
(and thus eliminating the need for a counterparty guarantee). The 
transactions that resulted in the open positions to be transferred as 
an RWA Transfer were already guaranteed by an OCC clearing member, and 
the positions will continue to be subject to OCC rules, as they will 
continue to be held in an account with an OCC clearing member. The 
narrow scope of the proposed rule change and the limited, beneficial 
purpose of RWA Transfers make allowing RWA Transfers to occur off the 
floor appropriate and important to support the provision of liquidity 
in the listed options market.
    The proposed rule change does not unfairly discriminate against 
market

[[Page 40464]]

participants, as all Trading Permit Holders and non-Trading Permit 
Holders with open positions in options listed on the Exchange may use 
the proposed off-floor transfer process to reduce the RWA capital 
requirements of CTPHs.

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 purpose of the proposed 
rule change to permit RWA Transfers is to alleviate the negative impact 
of bank capital requirements on options market liquidity providers. 
This process is not intended to be a competitive trading tool. 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, as use of the proposed 
process is voluntary. All Trading Permit Holders and non-Trading Permit 
Holders with open positions in options listed on the Exchange may use 
the proposed off-floor transfer process to reduce the RWA capital 
requirements attributable to those positions. The Exchange does not 
believe that 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. RWA Transfers have a limited 
purpose, which is to reduce RWA attributable to open positions in 
listed options in order to free up capital. Cboe Options believes the 
proposed rule change may relieve the burden on liquidity providers in 
the options market by reducing the RWA attributable to their open 
positions. As a result, market participants may be able to increase 
liquidity they provide to the market, which liquidity benefits all 
market participants.

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

    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-2019-044 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-2019-044. 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CBOE-2019-044 and should be submitted on 
or before September 4, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17383 Filed 8-13-19; 8:45 am]
BILLING CODE 8011-01-P