Document ID: SEC-2015-0919-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: CBOE Futures Exchange, LLC
Posted Date: 2015-05-28T04:00Z

[Federal Register Volume 80, Number 102 (Thursday, May 28, 2015)]
[Notices]
[Pages 30503-30505]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-12831]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75025; File No. SR-CFE-2015-004]

Self-Regulatory Organizations; CBOE Futures Exchange, LLC; Notice 
of Filing of a Proposed Rule Change Regarding Audit Trail Retention 
Requirements

May 21, 2015.
    Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 8, 2015 CBOE Futures 
Exchange, LLC (``CFE'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') the proposed rule 
change described in Items I, II, and III below, which Items have been 
prepared by CFE. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons. CFE also 
has filed this proposed rule change with the Commodity Futures Trading 
Commission (``CFTC''). CFE filed a written certification with the CFTC 
under Section 5c(c) of the Commodity Exchange Act (``CEA'') \2\ on May 
8, 2015.
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    \1\ 15 U.S.C. 78s(b)(7).
    \2\ 7 U.S.C. 7a-2(c).
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I. Self-Regulatory Organization's Description of the Proposed Rule 
Change

    The Exchange proposes to amend its rules related to audit trail 
retention requirements. The scope of this filing is limited solely to 
the application of the rule amendments to security futures traded on 
CFE. The only security futures currently traded on CFE are traded under 
Chapter 16 of CFE's Rulebook which is applicable to Individual Stock 
Based and Exchange-Traded Fund Based Volatility Index security futures. 
The text of the proposed rule change is attached as Exhibit 4 to the 
filing but is not attached to the publication of this notice.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, CFE 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. CFE 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 the proposed CFE rule amendments included as part of 
this rule change is to amend CFE's requirements regarding the 
maintenance of front-end audit trail information under CFE Rule 403 
(Order Entry). The rule amendments included as part of this rule change 
are to apply to all products traded on CFE, including both non-security 
futures and security futures.
    CFE Rule 403(c) currently requires every CFE Trading Privilege 
Holder (``TPH'') to maintain front-end audit trail information for all 
electronic orders entered into CFE's trading system, including order 
modifications and cancellations. The amendments provide that only CFE 
clearing members \3\ and

[[Page 30504]]

TPHs that are futures commission merchants (``FCMs'') or introducing 
brokers (``IBs'') are required by Rule 403(c) to maintain front-end 
audit trail information for all electronic orders as well as quotes 
entered by that party into CFE's trading system, including all related 
modifications and cancellations. In addition, the amendments provide 
that each CFE clearing member must also maintain, or cause to be 
maintained, front-end audit trail information for all electronic orders 
and quotes entered into CFE's trading system by any TPH for which the 
clearing member is identified in the order or quote submission as the 
clearing member for the execution of the order or quote, including all 
related modifications and cancellations. Because the first amended 
sentence of Rule 403(c) requires each CFE clearing member to maintain 
audit trail information entered by that party and the second amended 
sentence of Rule 403(c) requires each CFE clearing member to maintain 
audit trail information where the clearing member has been identified 
as the clearing member for the execution, there is the potential for 
some limited overlap in the information CFE clearing members must 
maintain under these two provisions. In addition, the amendments make 
clear that each TPH is still obligated to comply with the provisions of 
CFTC Regulation 1.35 \4\ as applicable to that TPH notwithstanding any 
of the provisions of Rule 403(c). Among other things, CFTC Regulation 
1.35 provides requirements relating to records that FCMs, IBs, and 
members of a designated contract market (``DCM'') must retain. Lastly, 
the amendments change the title of Rule 403 from ``Order Entry'' to 
``Order Entry and Maintenance of Front-End Audit Trail Information'' to 
provide greater clarity as to the requirements covered by the Rule.
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    \3\ CFE Rule 121 defines ``Clearing Member'' to mean a member of 
The Options Clearing Corporation (``OCC'') that is a CFE TPH and 
that is authorized under OCC Rules to clear trades in any or all CFE 
contracts.
    \4\ 17 CFR 1.35.
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    Front-end audit trail information is a chronological record that 
provides documentary evidence of the transactions effected on CFE's 
trading system. The CFTC's DCM Core Principle 10 (Trade Information) 
\5\ and the CFTC's related regulations codified in CFTC Regulations 
38.551-553 \6\ require that a DCM maintain an audit trail program in 
order to prevent and detect customer and market abuse.
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    \5\ 17 CFR 38.550.
    \6\ 17 CFR 38.551-553.
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    CFE is proposing these amendments for the following reasons. First, 
when CFE initially established its audit trail program and set forth 
CFE Rule 403, CFE provided that each TPH was required to maintain 
front-end audit trail information sufficient to allow CFE to conduct an 
annual audit trail exam of that TPH, a requirement that went above and 
beyond what the CFTC requires. The CFTC permits CFE to require clearing 
members to retain this information for purposes of audit trail exams 
and to conduct audit trail exams of clearing members in lieu of 
conducting them of a clearing member's TPH customers. Since Rule 403's 
inception, there is now an efficient format and mechanism for CFE 
clearing members to obtain CFE audit trail data for their TPH 
customers, whereas there was no such format and mechanism when CFE 
established its current requirements related to the maintenance of 
front-end audit trail information. Second, it is more efficient for CFE 
to collect audit trail data from its clearing members than all of its 
TPHs for audit trail reviews and doing so will enhance the 
effectiveness of CFE's regulatory program. CFE clearing members now 
have a standardized method for maintaining and submitting audit trail 
data of their TPHs, and CFE will be able to access all of the same 
audit trail information CFE currently can access under Rule 403's 
current language. Finally, other futures exchanges currently have 
similar requirements in place.\7\
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    \7\ See CME Rule 536.B.2 (``Clearing members guaranteeing a 
connection to Globex are responsible for maintaining or causing to 
be maintained the electronic audit trail for such systems.''); ICE 
Futures U.S. Rule 27.12A (``Each Clearing Member connecting to the 
ETS [ICE electronic trading system] by Direct Access is responsible 
for (1) maintaining or causing to be maintained . . . the audit 
trail for all orders submitted to the Exchange through its Direct 
Access connection and any Order Routing system. . . .'').
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\8\ in general, and furthers the 
objectives of Sections 6(b)(5) \9\ and 6(b)(7) \10\ in particular in 
that it is designed:
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(7).
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     To promote just and equitable principles of trade,
     to foster cooperation and coordination with persons 
engaged in facilitating transactions in securities, and
     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.
    The Exchange believes that the proposed rule change would 
strengthen and make more efficient and effective CFE's administration 
of its audit trail program which will contribute to preventing and 
detecting customer and market abuse. The change provides that only CFE 
clearing members and TPHs that are FCMs or IBs, rather than all TPHs, 
are required to maintain front-end audit trail information for all 
electronic orders as well as quotes entered into CFE's trading system, 
including all related modifications and cancellations. In addition, the 
change provides that CFE clearing members must also maintain, or cause 
to be maintained, this information for their TPH customers. This 
proposed rule change promotes efficiencies because CFE clearing members 
now have available an efficient format and mechanism to obtain CFE 
audit trail data for their TPH customers. In addition, it is more 
efficient for CFE to collect audit trail data from its clearing members 
than all of its TPHs for audit trail reviews and doing so will enhance 
the effectiveness of CFE's regulatory program. Finally, this proposed 
rule change is consistent with the requirements of other futures 
exchanges. In summary, CFE is requiring the same audit information to 
be maintained and is simply changing who is required to keep it.

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

    CFE does not believe that the proposed rule change will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act, in that the rule change will enhance CFE's 
ability to carry out its responsibilities as a self-regulatory 
organization. The Exchange believes that the proposed rule change is 
equitable and not unfairly discriminatory because the amendments 
regarding the maintenance of front-end audit trail information apply 
equally to all parties that are subject to the applicable requirements.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    The proposed rule change will become effective on or after May 22, 
2015, on a date to be announced by the Exchange through the issuance of 
a circular. At any time within 60 days of

[[Page 30505]]

the date of effectiveness of the proposed rule change, the Commission, 
after consultation with the CFTC, may summarily abrogate the proposed 
rule change and require that the proposed rule change be refiled in 
accordance with the provisions of Section 19(b)(1) of the Act.\11\
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    \11\ 15 U.S.C. 78s(b)(1).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CFE-2015-004 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-CFE-2015-004. 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 offices 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-CFE-2015-004, 
and should be submitted on or before June 18, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(73).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-12831 Filed 5-27-15; 8:45 am]
 BILLING CODE 8011-01-P