[Federal Register Volume 79, Number 205 (Thursday, October 23, 2014)]
[Notices]
[Pages 63453-63456]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-25201]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73385; File No. SR-CFE-2014-003]


Self-Regulatory Organizations; CBOE Futures Exchange, LLC; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change 
Regarding Exchange of Contract for Related Position Transactions and 
Minor Rule Violations

October 17, 2014.
    Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 1, 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 October 1, 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 amend two rules related to Exchange of 
Contract for Related Position (``ECRP'') transactions and minor rule 
violations, respectively. 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: (i) CFE Rule 414 (Exchange of Contract 
for Related Position) to clarify that any parties to or Authorized 
Reporters for an ECRP transaction are obligated to comply with the 
requirements set forth in Rule 414; and (ii) CFE Rule 714 (Imposition 
of Fines for Minor Rule Violations), referred to herein sometimes as 
``Minor Rule Violation Rule,'' to add new categories of rules for which 
the Exchange may impose summary fines for violations of the applicable 
rule(s) as well as to clarify the application of minor rule violation 
categories that contain more than one CFE Rule subsection. 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

[[Page 63454]]

rule amendments in conjunction with other rule amendments to CFE Rule 
714 that are not required to be submitted to the Commission pursuant to 
Section 19(b)(7) of the Act \3\ and thus are not included as part of 
this rule change.
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    \3\ 15 U.S.C. 78s(b)(7).
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ECRP Transactions
    CFE is proposing to amend CFE Rule 414 (Exchange of Contract for 
Related Position) to clarify the obligations and responsibilities of 
parties to and Authorized Reporters for ECRP transactions. Rule 414(h) 
currently provides that each Trading Privilege Holder (``TPH'') that 
executes an ECRP transaction must designate at least one Authorized 
Reporter, which reports the ECRP transaction to the Exchange. The 
Amendment clarifies that both the parties to and Authorized Reporters 
for an ECRP transaction are obligated to comply with the requirements 
set forth in Rule 414, and any of these parties or Authorized Reporters 
may be held responsible by the Exchange for noncompliance with those 
requirements.
Minor Rule Violation Rule
    CFE is proposing to amend CFE Rule 714 (Imposition of Fines for 
Minor Rule Violations) to add new categories of rules for which the 
Exchange may impose summary fines for violations of the applicable 
rule(s). Rule 714(f) currently provides for ten categories of Exchange 
rule violations that are considered minor rule violations for purposes 
of Rule 714 and corresponding summary fine schedules. The proposed CFE 
rule amendment would (i) identify nine new categories of rules for 
which the Exchange may impose summary fines for violations of the 
applicable rule(s), (ii) enumerates the specific rule(s) within each 
category, and (iii) sets forth a summary fine schedule for violations 
of the rule(s) within each category.\4\ Below are general descriptions 
of areas covered by the nine categories:
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    \4\ The proposed number of offenses leading up to a CFE Business 
Conduct Committee referral and the proposed fine amounts vary 
depending on the nature of the underlying violative conduct. This is 
because CFE regards violations of certain rule provisions under the 
Minor Rule Violation Rule to be more serious relative to violations 
of other rule provisions under the Minor Rule Violation Rule.

 Account Designation in Orders
 Order Form Preparation and Recordkeeping for Orders Which 
Cannot Be Immediately Entered into the CBOE System
 Notification Provisions for Position Accountability
 Reporting Requirements for Reportable Positions
 Exchange of Contract for Related Position Transaction Order 
Marking and Reporting Requirements
 Block Trade Order Marking and Reporting Requirements
 Provision of Books and Records

    The Exchange will have the ability to impose fines for the new 
violation types covered in the Minor Rule Violation Rule both for 
matters that are currently pending for which a statement of charges has 
not yet been issued under CFE Rule 704(b) (Charges) and for future 
matters. Subsection (c) of the Minor Rule Violation Rule currently 
provides that any Person against whom a fine is imposed pursuant to the 
Minor Rule Violation Rule may contest the determination in accordance 
with the procedure described in that subsection, which includes the 
ability to have the fine reviewed by a Business Conduct Committee 
Panel. The Exchange believes that these violations are suitable for 
incorporation into the Exchange's Minor Rule Violation Rule because 
they are generally technical in nature. Further, CFE will be able to 
carry out its regulatory responsibility more quickly and efficiently by 
incorporating these violations into its Minor Rule Violation Rule. CFE 
may, whenever it determines that any violation of a rule covered in the 
Minor Rule Violation Rule is intentional, egregious or otherwise not 
minor in nature, proceed under the Exchange's formal disciplinary 
rules.\5\
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    \5\ See CFE Rule 714(d).
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    CFE is proposing to make the following modifications to CFE Rule 
714 with the number of offenses being calculated on a rolling twelve 
(12) month period (with the exception of the first category discussed 
below where the number of offenses will be calculated on a rolling 
twenty-four (24) month period):
Account Designation in Orders
    CFE is proposing to modify its Minor Rule Violation Rule to cover 
violations of requirements for Account Designation in Orders. 
Specifically, the Exchange is proposing to modify the Minor Rule 
Violation Rule to add CFE Rule 403(a)(viii), which requires that each 
Order must contain information about account designation. A first 
offense will result in the issuance of a letter of caution. The second 
offense will be subject to a $2,500 fine. The third offense will be 
subject to a $10,000 fine. Subsequent offenses will be referred to 
CFE's Business Conduct Committee.
Order Form Preparation and Recordkeeping for Orders Which Cannot Be 
Immediately Entered Into the CBOE System
    CFE is proposing to modify its Minor Rule Violation Rule to cover 
violations of requirements for Order Form Preparation and Recordkeeping 
for Orders Which Cannot Be Immediately Entered into the CBOE System 
(i.e., CFE's trading system). Specifically, the Exchange is proposing 
to modify the Minor Rule Violation Rule to add CFE Rule 403(b), which 
sets forth preparation and recordkeeping requirements relating to 
orders which cannot be immediately entered into the CBOE System. A 
first offense will result in the issuance of a letter of caution. The 
second offense will be subject to a $2,500 fine. The third offense will 
be subject to a $10,000 fine. Subsequent offenses will be referred to 
CFE's Business Conduct Committee.
Notification Provisions for Position Accountability
    CFE is proposing to modify its Minor Rule Violation Rule to cover 
violations of requirements for Notification Provisions for Position 
Accountability.
    First, the Exchange is proposing to modify the Minor Rule Violation 
Rule to add CFE Rule 412A(c), which provides notification requirements 
for all-expirations-combined position accountability levels. A first 
offense will result in the issuance of a letter of caution. The second 
offense will be subject to a $7,500 fine. The third offense will be 
subject to a $15,000 fine. Subsequent offenses will be referred to 
CFE's Business Conduct Committee.
    Second, the Exchange is proposing to modify the Minor Rule 
Violation Rule to add CFE Rule 412A(d), which provides notification 
requirements for position accountability levels for expiring contracts. 
A first offense will result in the issuance of a letter of caution. The 
second offense will be subject to a $7,500 fine. The third offense will 
be subject to a $15,000 fine. Subsequent offenses will be referred to 
CFE's Business Conduct Committee.
    At the present time, the security futures listed for trading on CFE 
are all subject to position limits instead of position accountability. 
However, it is possible that CFE could amend its rules in the future to 
apply position accountability instead of position limits to one or more 
security futures.
Reporting Requirements for Reportable Positions
    CFE is proposing to modify its Minor Rule Violation Rule to cover 
violations

[[Page 63455]]

of Reporting Requirements for Reportable Positions.
    First, the Exchange is proposing to modify the Minor Rule Violation 
Rule to add CFE Rule 412B(a), which requires TPHs to report to the 
Exchange reportable positions and related information relating to 
Exchange Contracts that TPHs are required to report to the CFTC 
pursuant to CFTC regulations. A first offense will result in the 
issuance of a letter of caution. The second offense will be subject to 
a $7,500 fine. The third offense will be subject to a $15,000 fine. 
Subsequent offenses will be referred to CFE's Business Conduct 
Committee.
    Second, the Exchange is proposing to modify the Minor Rule 
Violation Rule to add CFE Rule 412B(b), which requires any Person that 
is not a TPH and that is required to report to the CFTC pursuant to 
CFTC regulations reportable positions and related information relating 
to Exchange Contracts to report the foregoing reportable positions and 
related information to the Exchange. A first offense will result in the 
issuance of a letter of caution. The second offense will be subject to 
a $7,500 fine. The third offense will be subject to a $15,000 fine. 
Subsequent offenses will be referred to CFE's Business Conduct 
Committee.
Exchange of Contract for Related Position Transaction Order Marking and 
Reporting Requirements
    CFE is proposing to modify its Minor Rule Violation Rule to cover 
violations of ECRP Order Marking and Transaction Reporting 
Requirements.
    First, the Exchange is proposing to modify the Minor Rule Violation 
Rule to add CFE Rule 414(f), which requires every TPH that handles, 
executes, clears, or carries ECRP transactions or positions to identify 
and mark as such by appropriate symbol or designation all ECRP 
transactions or positions and all orders, records, and memoranda 
pertaining thereto. A first offense will be subject to a $2,500 fine. 
The second offense will be subject to a $10,000 fine. Subsequent 
offenses will be referred to CFE's Business Conduct Committee.
    Second, the Exchange is proposing to modify the Minor Rule 
Violation Rule to add CFE Rule 414(i), which sets forth notification 
requirements for a party that executes an ECRP transaction. A first 
offense will result in the issuance of a letter of caution. The second 
offense will be subject to a $7,500 fine. The third offense will be 
subject to a $15,000 fine. Subsequent offenses will be referred to 
CFE's Business Conduct Committee.
    Third, the Exchange is proposing to modify the Minor Rule Violation 
Rule to add CFE Rule 414(j), which requires a party that executes an 
ECRP transaction to include certain information when notifying the 
Exchange of an ECRP transaction. A first offense will result in the 
issuance of a letter of caution. The second offense will be subject to 
a $7,500 fine. The third offense will be subject to a $15,000 fine. 
Subsequent offenses will be referred to CFE's Business Conduct 
Committee.
Block Trade Order Marking and Reporting Requirements
    CFE is proposing to modify its Minor Rule Violation Rule to cover 
violations of Block Trade Order Marking and Reporting Requirements.
    First, the Exchange is proposing to modify the Minor Rule Violation 
Rule to add CFE Rule 415(a)(i)(A), which requires that each buy or sell 
order underlying a Block Trade must state explicitly that it is to be, 
or may be, executed by means of a Block Trade. A first offense will be 
subject to a $2,500 fine. The second offense will be subject to a 
$10,000 fine. Subsequent offenses will be referred to CFE's Business 
Conduct Committee.
    Second, the Exchange is proposing to modify the Minor Rule 
Violation Rule to add CFE Rule 415(g), which sets forth notification 
requirements for a party to a Block Trade. A first offense will result 
in the issuance of a letter of caution. The second offense will be 
subject to a $7,500 fine. The third offense will be subject to a 
$15,000 fine. Subsequent offenses will be referred to CFE's Business 
Conduct Committee.
    Third, the Exchange is proposing to modify the Minor Rule Violation 
Rule to add CFE Rule 415(h), which requires a party to a Block Trade to 
include certain information when notifying the Exchange of a Block 
Trade. A first offense will result in the issuance of a letter of 
caution. The second offense will be subject to a $7,500 fine. The third 
offense will be subject to a $15,000 fine. Subsequent offenses will be 
referred to CFE's Business Conduct Committee.
Provision of Books and Records
    CFE is proposing to modify its Minor Rule Violation Rule to cover 
violations of requirements for Provision of Books and Records. 
Specifically, the Exchange is proposing to modify the Minor Rule 
Violation Rule to add both CFE Rule 502, which sets forth CFE's general 
inspection, delivery, and retention requirements for books and records, 
as well as other CFE rules allowing CFE to request books and records in 
specific circumstances. For each business day late past the due date of 
the Exchange's request for books and records up until 15 business days 
late, the TPH will be subject to a $1,000 per business day. After 15 
business days late, the TPH will be referred to CFE's Business Conduct 
Committee.
Clarification
    CFE is proposing to modify CFE Rule 714(e) to clarify how the 
Exchange will apply minor rule violation categories listed that contain 
more than one Rule subsection. For these categories, the applicable 
fine schedule will apply separately with respect to violations of each 
of those Rule subsections. Therefore, if conduct violates only one of 
those Rule subsections, it would be considered an offense with respect 
to that subsection but not with respect to the other Rule subsection(s) 
to which the fine schedule also applies. For example, if the same fine 
schedule applies to Rule subsection (a) and Rule subsection (b) and 
conduct violates only Rule subsection (a) for the first time in a 
twelve-month rolling period, that conduct would be considered a first 
offense under the schedule with respect to Rule subsection (a). A later 
violation in that period of Rule subsection (b) would be considered a 
first offense under the schedule with respect to Rule subsection (b). 
If conduct violates more than one of those Rule subsections for the 
first time in a twelve-month rolling period, it would be considered an 
offense with respect to each of those subsections. For example, if the 
same fine schedule applies to Rule subsection (a) and Rule subsection 
(b) and the same conduct violates both Rule subsection (a) and Rule 
subsection (b) for the first time in a twelve-month rolling period, 
that would be considered a first offense under the schedule with 
respect to Rule subsection (a) and a first offense under the schedule 
with respect to Rule subsection (b). If the first offense is to receive 
a fine under the schedule, that fine amount would be assessed twice, 
once in relation to Rule subsection (a) and also once in relation to 
Rule subsection (b). Each Rule subsection listed in the Minor Rule 
Violation Rule is intended to address a different type of misconduct.
    CFE is also making technical, non-substantive changes to Rule 714 
that pertain solely to formatting.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with

[[Page 63456]]

Section 6(b) of the Act,\6\ in general, and furthers the objectives of 
Sections 6(b)(5) \7\ and 6(b)(7) \8\ in particular in that it is 
designed:
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ 15 U.S.C. 78f(b)(7).
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     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,
     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
     to provide a fair procedure for the disciplining of 
members.
    The Exchange believes that the proposed rule change will strengthen 
its ability to carry out its responsibilities as a self-regulatory 
organization by clarifying that CFE may hold any parties to and 
Authorized Reporters for an ECRP transaction responsible for compliance 
with the related rule depending on the facts and circumstances and by 
adding violations to its Minor Rule Violation Rule. CFE also believes 
that the additions to the Minor Rule Violation Rule will serve as an 
effective deterrent to future violative conduct and as an effective and 
efficient means of disciplining for infractions that do not warrant a 
regular disciplinary proceeding. CFE additionally believes that these 
additions will promote consistent application of sanctions by the 
Exchange for minor rule violations, establish a fair procedure for the 
disciplining of TPHs for minor rule violations and reinforce its 
surveillance and enforcement functions.

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 makes enhancements to 
CFE's ability to deter and discipline certain infractions. The Exchange 
believes that the proposed rule change is equitable and not unfairly 
discriminatory because the clarification of compliance responsibilities 
with respect to ECRP transactions and all of the additions to the Minor 
Rule Violation Rule would 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 October 16, 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.\9\
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    \9\ 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-2014-003 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-2014-003. 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-2014-003, 
and should be submitted on or before November 13, 2014.
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    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-25201 Filed 10-22-14; 8:45 am]
BILLING CODE 8011-01-P