[Federal Register Volume 79, Number 86 (Monday, May 5, 2014)]
[Notices]
[Pages 25631-25633]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-10171]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72042; File No. SR-CFE-2014-001]


Self-Regulatory Organizations; CBOE Futures Exchange, LLC; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Adopt and Amend Certain Customer Protection and Financial Rules

April 29, 2014.
    Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on April 11, 2014, 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 April 11, 2014.
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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 adopt and amend certain customer 
protection and financial rules that are applicable 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 rule amendments included as part of this rule 
change relate generally to amending CFE Rules to incorporate new and 
amended CFTC regulations concerning customer protection and the 
financial surveillance of futures commission merchants (``FCMs''). The 
text of the proposed rule change is attached as Exhibit 4.\3\
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    \3\ The Commission notes that the Exhibit 4 is attached to the 
filing, but is not attached to the publication of this notice.
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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 rules (i) to incorporate the final 
regulations adopted by the CFTC under the caption Enhancing Protections 
Afforded Customers and Customer Funds Held by Futures Commission 
Merchants and Derivatives Clearing Organizations (``CFTC Rulemaking'') 
\4\ and (ii) to enhance the financial surveillance of FCMs that are 
Trading Privilege Holders (``TPHs''). 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 is making 
these rule amendments in conjunction with other rule amendments being 
made by CFE consistent with the CFTC Rulemaking that are not required 
to be submitted to the Commission pursuant to Section 19(b)(7) of the 
Act \5\ and thus are not included as part of this rule change.
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    \4\ 78 FR 68506 (Nov. 14, 2013).
    \5\ 15 U.S.C. 78s(b)(7).
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    CFE has incorporated into Appendix to Chapter 5 of its Rulebook 
certain CFTC regulations relating to customer protection, 
recordkeeping, and reporting and has provided that a violation of any 
of those regulations shall be deemed a violation of a specific CFE 
Rule. With the exception of the amendments to CFE Rule 503A, all other 
amendments to CFE Rules contained in this filing are proposed to change 
the CFE Rules in the Appendix to Chapter 5 of the CFE Rulebook to make 
their language consistent with the language in the CFTC regulations 
that was amended by the CFTC Rulemaking.
    CFE already requires that its FCMs that are TPHs comply with all 
CFTC regulations. For example, CFE Rule 604 prohibits TPHs and their 
Related Parties from engaging in conduct in violation of Applicable Law 
(which includes, among other things, the CEA \6\ and CFTC regulations). 
CFE Rule 505 specifically requires TPHs to comply with CFTC regulations 
relating to the treatment of customer funds and the maintenance of 
related books and records. CFE Rule 518 specifically requires TPHs to 
comply with CFTC regulations relating to minimum financial 
requirements, financial reporting requirements, and protection of 
customer funds that are set forth in the Appendix to Chapter 5 of the 
CFE Rulebook. The purpose of these proposed rule amendments is to make 
the CFTC regulations that were added or amended by the CFTC Rulemaking 
even more explicit.
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    \6\ 7 U.S.C. 1 et seq.
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Risk Management Program for FCMs
    CFE is proposing to add to its Rules new Rule 520 (and renumber all 
subsequent Rules in the Chapter) to require that FCMs comply with the 
risk management requirements set forth in CFTC Regulation 1.11: Risk 
Management Program for futures commission merchants.\7\ As a result of 
the CFTC Rulemaking, CFTC Regulation 1.52(b)(2) requires that all self-
regulatory organizations (``SROs'') (defined as designated contract 
markets and registered futures associations in CFTC Regulation 
1.52(a)(2)) adopt rules prescribing risk management requirements for 
FCM member registrants that are at least as stringent as the 
requirements contained in CFTC Regulation 1.11.\8\ CFTC Regulation 1.11 
imposes, among other things, both recordkeeping and reporting 
requirements on FCMs. Specifically, FCMs must maintain their risk 
management policies and procedures, all written approvals, and all 
records and reports required under the Regulation.\9\ In addition, FCMs 
must furnish a copy of their risk management policies and procedures to 
the CFTC and its designated SRO upon application for registration and 
thereafter upon request, as well as furnish copies of Risk Exposure 
Reports

[[Page 25632]]

to the CFTC.\10\ Although all FCMs that are TPHs must already comply 
with all CFTC Regulations, new CFE Rule 520 is proposed specifically to 
follow the CFTC Rulemaking's directive with respect to CFTC Regulation 
1.11.
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    \7\ 17 CFR 1.11.
    \8\ 17 CFR 1.52.
    \9\ 17 CFR 1.11(c)(2), (h).
    \10\ 17 CFR 1.11(c)(4), (e)(2)(ii).
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Recordkeeping
    The recordkeeping amendments proposed to be included in the 
Appendix to Chapter 5 of the CFE Rulebook would impose requirements 
that generally already exist under CFE Rules 505, 518, and 604, which, 
as discussed, require adherence to CFTC regulations. The amendments to 
certain CFTC regulations by the CFTC Rulemaking will now be 
specifically incorporated into CFE's rules. In particular, CFE is 
proposing to amend CFE Rule 521 which incorporates into CFE's Rulebook 
CFTC Regulation 1.18 (Minimum Financial Requirements for Futures 
Commission Merchants and Introducing Brokers),\11\ CFE Rule 523 which 
incorporates into CFE's Rulebook CFTC Regulation 1.20 (Futures Customer 
Funds to be Segregated and Separately Accounted for),\12\ CFE Rule 526 
which incorporates into CFE's Rulebook CFTC Regulation 1.23 (Interest 
of Futures Commission Merchants in Segregated Futures Customer Funds; 
Additions and Withdrawals),\13\ CFE Rule 528 which incorporates into 
CFE's Rulebook CFTC Regulation 1.25 (Investment of Customer Funds),\14\ 
CFE Rule 529 which incorporates into CFE's Rulebook CFTC Regulation 
1.26 (Deposit of Instruments Purchased with Futures Customer 
Funds),\15\ and CFE Rule 535 which incorporates into CFE's Rulebook 
CFTC Regulation 1.32 (Reporting of Segregated Account Computation and 
Details Regarding the Holding of Futures Customer Funds).\16\
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    \11\ 17 CFR 1.18.
    \12\ 17 CFR 1.20.
    \13\ 17 CFR 1.23.
    \14\ 17 CFR 1.25.
    \15\ 17 CFR 1.26.
    \16\ 17 CFR 1.32. CFE notes that certain of these amendments 
relate to both recordkeeping and reporting (discussed in the next 
section) but is only including discussion of them in this section to 
avoid duplicative mention.
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Reporting
    As CFE is proposing to do with various recordkeeping requirements, 
CFE is also proposing to specifically incorporate into the Appendix to 
Chapter 5 of its Rulebook the CFTC Rulemaking's amendments to CFTC 
regulations relating to reporting. Like with the foregoing amended 
recordkeeping requirements, the reporting amendments to this regulation 
would impose requirements that generally already exist under CFE Rules 
505, 518, and 604, which, as discussed, require adherence to CFTC 
regulations. These amendments by the CFTC Rulemaking will now be 
specifically incorporated into CFE's rules. In particular, CFE is 
proposing to amend CFE Rule 519 which incorporates into CFE's Rulebook 
CFTC Regulation 1.10 (Financial Reports of Futures Commission Merchants 
and Introducing Brokers) \17\ and CFE Rule 520 which incorporates into 
CFE's Rulebook CFTC Regulation 1.12 (Maintenance of Minimum Financial 
Requirements by Futures Commission Merchants and Introducing 
Brokers).\18\
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    \17\ 17 CFR 1.10.
    \18\ 17 CFR 1.12.
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    In addition to the foregoing amendments that incorporate the CFTC 
Rulemaking, CFE is proposing amendments to CFE Rule 503A, which relate 
to reporting obligations on FCMs and are not related to the CFTC 
Rulemaking. CFE Rule 503A, which presently imposes reporting 
obligations on FCMs that are TPHs, is proposed to be amended to require 
these FCMs to file financial documentation with CFE in addition to the 
documentation the Rule already requires. First, each TPH that is an FCM 
would be required, in a form and manner prescribed by the Exchange, to 
concurrently file with the Exchange all FOCUS Report Part III 
submissions as well as any attachments or related submissions to all 
Form 1-FR-FCM, Form 1-FR-IB, or FOCUS Report Part II, Part IIA or Part 
II CSE and Part III submissions. Second, each TPH that is an FCM would 
be required, in a form and manner prescribed by the Exchange, to 
concurrently file with the Exchange a copy of any daily Statement of 
Segregation Requirements and Funds in Segregation for Customers Trading 
on U.S. Commodity Exchanges filed with the CFTC pursuant to CFTC 
Regulation 1.32. Third, each TPH that is an FCM would be required, in a 
form and manner prescribed by the Exchange, to concurrently file with 
the Exchange a copy of any daily net capital filings submitted by the 
TPH to its Designated Self-Regulatory Organization. Fourth, each TPH 
that is an FCM would be required, in a form and manner prescribed by 
the Exchange, to concurrently file with the Exchange a copy of any 
notice that is filed with the CFTC pursuant to CFTC Regulation 1.23. 
The receipt of this information will enhance CFE's financial 
surveillance of FCMs.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\19\ in general, and furthers the 
objectives of Section 6(b)(5) \20\ in particular in that it is 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 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.
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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
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    The addition of new CFE Rule 520, which requires FCMs to establish 
risk management programs that comply with CFTC Regulation 1.11, will 
enhance CFE's ability to protect investors and the public interest and 
to enforce CFE Rules that prohibit fraudulent and manipulative acts and 
conduct inconsistent with just and equitable principles of trade. By 
specifically requiring that FCMs that are TPHs establish risk 
management programs that comply with CFTC Regulation 1.11, CFE further 
protects FCM customers.
    The recordkeeping amendments to CFE Rules 521, 523, 526, 528, 529, 
and 535 and the reporting amendments to CFE Rules 503A, 519, and 520 
will also enhance CFE's ability to protect investors and the public 
interest and to enforce CFE Rules that prohibit fraudulent and 
manipulative acts and conduct inconsistent with just and equitable 
principles of trade. These recordkeeping requirements are designed to 
ensure that TPHs maintain records that enable CFE and/or other 
regulators to investigate whether TPHs are complying with applicable 
rules and regulations by requiring the maintenance of information that 
may be reviewed to determine whether or not a TPH is complying with 
applicable regulatory requirements. Similarly, these reporting 
requirements are designed to enable CFE to receive and request 
information that allows CFE to monitor for compliance with rules and 
regulations, to investigate for noncompliance when appropriate, and to 
conduct financial monitoring with regard to TPHs that are FCMs.

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

[[Page 25633]]

purposes of the Act, in that the rule change makes enhancements to 
CFE's financial surveillance of FCMs and requires TPHs to comply with 
the amendments set forth in the CFTC Rulemaking. The Exchange believes 
that the proposed rule change is equitable and not unfairly 
discriminatory because all of the amended Rules would apply equally to 
all TPHs that are subject to the applicable requirements, and the 
Amendment is expressly consistent with the CFTC Rulemaking.

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 April 28, 2014.
    At any time within 60 days of 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.\21\
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    \21\ 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 [email protected]. Please include 
File Number SR-CFE-2014-001 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-2014-001. 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-2014-001, 
and should be submitted on or before May 27, 2014.
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    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-10171 Filed 5-2-14; 8:45 am]
BILLING CODE 8011-01-P