[Federal Register Volume 85, Number 158 (Friday, August 14, 2020)]
[Notices]
[Pages 49703-49706]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-17757]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89516; File No. SR-C2-2020-009]
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rule 6.61 Concerning Off-Floor Transfers
August 10, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on July 29, 2020, Cboe C2 Exchange, Inc. (the ``Exchange'' or
``C2'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Exchange
filed the
[[Page 49704]]
proposal as a ``non-controversial'' proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6)
thereunder.\4\ The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2'') proposes to
amend Rule 6.61. The text of the proposed rule change is provided
below. (additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe C2 Exchange, Inc.
* * * * *
Rule 6.61. Off-Floor Transfers of Positions
(a)-(c) No change.
(d) Prior Written Notice. A Trading Permit Holder(s) and its
Clearing Trading Permit Holder(s) (to the extent that the Trading
Permit Holder is not self-clearing) must submit to the Exchange, in a
manner determined by the Exchange, written notice prior to effecting an
off-floor transfer from or to the account(s) of a Trading Permit
Holder(s), except that notification is not required for transfers [to
correct errors]effected pursuant to subparagraph (a)(1) or (a)(2) of
this Rule.
* * * * *
(g) Routine, Recurring Transfers. The off-floor transfer procedure
set forth in this Rule is intended to facilitate non-routine, non-
recurring movements of positions[. The off-floor transfer procedure]
and is not to be used repeatedly or routinely[ in circumvention of the
normal auction market process], except for transfers between accounts
of the same person pursuant to subparagraph (a)(2). The off-floor
transfer procedure may not be used in circumvention of the normal
auction process.
* * * * *
The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/options/regulation/rule_filings/ctwo/), 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
Rule 6.61 describes exceptions to the prohibition against off-floor
transactions set forth in Rule 6.60, subject to certain conditions. The
exception in Rule 6.61(a)(2) provides that off-floor transfers of
positions are permissible if from one account to another account where
no change in ownership is involved (i.e., accounts of the same
person),\5\ provided the accounts are not in separate aggregation units
or otherwise subject to information barrier or account segregation
requirements. These transfers are subject to, among other things, the
requirement to submit prior written notice of the transfers to the
Exchange pursuant to paragraph (d) and the restriction on effecting
these transfers repeatedly or routinely.
---------------------------------------------------------------------------
\5\ 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.
---------------------------------------------------------------------------
The proposed rule change excepts off-floor position transfers
effected pursuant to Rule 6.61(a)(2) from the prior written notice
requirement in paragraph (d) and from repeated, recurring use
restriction in paragraph (g). Off-floor position transfers pursuant to
Rule 6.61(a)(2) do not involve a change in ownership. In other words,
such transfers may only occur between the same individual or legal
entity. These types of transfers are merely transfers of positions from
one account to another, both of which accounts are attributable to the
same individual or legal entity, and thus the transferred option
positions will continue to be attributable to the same person. A market
participant effecting an off-floor position transfer pursuant to Rule
6.61(a)(2) 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.
Because there is no change in ownership of positions transferred
pursuant to Rule 6.61(a)(2), the Exchange believes it is appropriate to
permit them to occur as routinely and repeatedly as a market
participant would like. These transfers will continue to be subject to
the prohibition on netting set forth in Rule 6.61(b), and thus may not
result in the closing of any positions. While the off-floor position
transfers permitted by Rule 6.61 were intended to accommodate non-
routine and non-recurring transfers, the Exchange believes permitting
routine, recurring off-floor position transfers that do not result in a
change in ownership or reduction in open interest is consistent with
the purpose of not being used to circumvent the normal auction purpose.
Additionally, given that these transfers may occur on a regular basis
in accordance with a market participants' business needs and
procedures, the Exchange believes prior written notice would be onerous
and would not serve any purpose given the lack of change in ownership
and in open interest. The Exchange believes this will provide market
participants with additional flexibility to structure their option
position accounts as they believe is appropriate and move their
positions between accounts as they deem necessary and appropriate for
their business and trading needs, including for risk management
purposes.
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 facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and
[[Page 49705]]
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.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
\8\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes the proposed rule change will
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 because it will provide market
participants with a more efficient process to transfer open positions
between their own accounts in accordance with their own business and
trading needs, including to respond to then-current market conditions.
Because these transfers would not result in a change in ownership or a
reduction in open interest, the Exchange believes the proposed rule
change remains consistent with the purpose of Rule 6.61, which was to
prohibit use of the off-floor transfer procedure in circumvention of
the normal auction process, as the normal auction process involves the
opening or closing of positions through a transaction among multiple
market participants. Market participants may maintain different
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. Given that these transfers may
occur on a regular basis in accordance with a market participants'
business needs and procedures, the Exchange believes prior written
notice would be onerous and would not serve any purpose given the lack
of change in ownership and in open interest. Therefore, the proposed
rule change will benefit investors by permitting market participants to
manage the open positions in their accounts in a manner consistent with
their businesses.
The Exchange recognizes the numerous benefits of executing options
transactions on an exchange, including price transparency, potential
price improvement, and a clearing guarantee. However, the Exchange
believes it is appropriate to permit position transfers among accounts
of the same individual or legal entity where there is no impact on open
interest to occur off the exchange, as these benefits are inapplicable
to those transfers. These transfers have a narrow scope and are
intended to permit market participants to achieve their own business
needs. These transfers are not intended to be a competitive trading
tool. There is no need for price discovery or improvement, as the
transfer merely moves positions to different accounts for the same
person and does not open or close any positions. These transfers will
result in no change in ownership. The transactions that resulted in the
open positions to be transferred pursuant to Rule 6.61(a)(2) were
already guaranteed by a clearing member of The Options Clearing
Corporation (``OCC''), and the positions may not be closed pursuant to
the transfer and will continue to be subject to OCC rules, as they will
continue to be held in an account with an OCC clearing member.
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 proposed rule change is
not intended to address competitive issues. 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 because the proposed rule change
will apply to all market participants in the same manner. All market
participants will be able to effect off-floor position transfers
pursuant to Rule 6.61(a)(2) on a recurring or routine basis without
providing the Exchange with notice of such transfers. The Exchange does
not believe 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 because it relates solely to the
notice required for off-floor transfers that may occur today, and the
frequency with which those transfers may occur. These transfers will
continue to not result in a change in ownership or netting, and thus
will have no impact on outstanding option positions.
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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \9\ and Rule 19b-4(f)(6) thereunder.\10\
Because the foregoing proposed rule change does not: (i) Significantly
affect the protection of investors or the public interest; (ii) impose
any significant burden on competition; and (iii) become operative for
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, it has become effective pursuant to
Section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) \12\
thereunder.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78s(b)(3)(A)(iii).
\10\ 17 CFR 240.19b-4(f)(6).
\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
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 [email protected]. Please include
File Number SR-C2-2020-009 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-C2-2020-009. 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
[[Page 49706]]
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; 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-C2-2020-009 and should be
submitted on or before September 4, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
---------------------------------------------------------------------------
\13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-17757 Filed 8-13-20; 8:45 am]
BILLING CODE 8011-01-P