[Federal Register Volume 81, Number 14 (Friday, January 22, 2016)]
[Notices]
[Pages 3850-3853]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01199]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76920; File No. SR-OC-2015-03]


Self-Regulatory Organizations; OneChicago, LLC; Notice of Filing 
of Proposed Rule Change Relating to the Summary Imposition of Fines

January 15, 2016.
    Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ notice is hereby given that on December 30, 2015, 
OneChicago, LLC (``OneChicago,'' ``OCX,'' or the ``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 the self-regulatory organization. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons. OneChicago has also filed 
this rule change with the Commodity Futures Trading Commission 
(``CFTC''). OneChicago filed a written certification with the CFTC 
under Section 5c(c) of the Commodity Exchange Act (``CEA'') on December 
29, 2015.
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    \1\ 15 U.S.C. 78s(b)(7).
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I. Self-Regulatory Organization's Description of the Proposed Rule 
Change

    OneChicago is proposing to amend OCX Rule 717 (Summary Imposition 
of Fines) and concurrently issue Notice to Members (``NTM'') 2015-48. 
OCX Rule 717 lays out OneChicago's summary fine procedure. 
Specifically, OCX Rule 717 lists the violations for which the Exchange 
may impose summary fines, as well as the process the Exchange must 
follow to impose such fines. OneChicago proposes to amend Rule 717 to 
add several rule violations to the list of items for which the Exchange 
may impose summary fines. In addition to adding several rule violations 
for which the Exchange may impose summary fines, OCX is also proposing 
to add a summary fine schedule for each rule violation. The summary 
fine schedule informs market participants of the fines for each rule 
violation based on the number of offenses within a rolling twelve month 
period. OCX developed this summary fine schedule with input from the 
CFTC staff, and many of the summary fines are in line with summary 
fines for similar violations at other security futures exchanges.\2\ 
OneChicago is also making minor technical changes to OCX Rule 717 to 
support the foregoing amendments to the rule.
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    \2\ See, e.g., CFE Rule 714(f).
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    OneChicago is concurrently issuing NTM 2015-48. The NTM informs 
market participants that OneChicago is amending OCX Rule 717. 
Additionally, the NTM lists the violations for which summary fines may 
be imposed. Then, in order to provide market participants with more 
clarity regarding the rule violations, guidance is provided regarding 
what activity or omission the Exchange would consider to constitute a 
violation of the listed rules.
    Finally, OneChicago is also amending OCX Rule 705 (Review of 
Investigative Reports). OCX Rule 705 describes the process by which the 
OneChicago Chief Regulatory Officer (``CRO'') will review investigation 
reports conducted by the Compliance Department. OneChicago proposes to 
amend OCX Rule 705 to allow the CRO to authorize the summary imposition 
of fines as a result of an investigation.
    The text of the proposed rule change is attached as Exhibit 4 to 
the filing submitted by the Exchange but is not attached to the 
published notice of the filing.

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

    In its filing with the Commission, OneChicago 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 self-regulatory organization 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
OCX Rule 717 (Summary Imposition of Fines)
    OCX Rule 717 lays out the Exchange's summary fine authority. 
Currently, the Rule describes that the Chief Regulatory Officer may 
summarily impose a fine against a Member for failing (i) to make timely 
payments of original or variation margin, options premiums, fees, cost, 
charges or fines to the Exchange or the Clearinghouse; (ii) to make 
timely and accurate submissions to the Exchange of notices, reports or 
other information required by the Rules of the Exchange; and (iii) to 
keep any books and records required by the Rules of the Exchange.
    Additionally, in its current form, the Rule describes what 
requirements the Exchange must follow when issuing a summary fine 
pursuant to Rule 717. The Exchange must provide notice of any summary 
fine imposed, and the notice must contain the violations of the Rules 
of the Exchange for which the fine was imposed, the violation date, and 
the amount of the fine. Furthermore, the Rule describes the 
requirements for the Member or Access Person to pay the fine or to 
appeal the fine pursuant to OCX Rule 716. Finally, Rule 717 then sets 
the maximum fine for each violation at $5,000, and explains that the 
summary imposition of fines does not preclude the Exchange from 
bringing any other action against the fined market participant.
    OneChicago is now proposing to make certain amendments to this Rule 
717. Namely, OCX is proposing to add to Rule 717 a list of items for 
which summary fines may be imposed. The items added generally relate to 
violations of reporting, audit trail, recordkeeping, and other Exchange 
Rules. The list of items which OneChicago proposes to add to Rule 717 
and their associated proposed summary fines as described below:
     Failure to make timely payments of fees, costs, or charges 
to the Exchange or Clearinghouse. The proposed summary fines for this 
rule violation are a warning letter for the first offense, $1,000 fine 
for the second offense, $2,500 fine for the third offense, and $5,000 
for all subsequent offenses within a rolling twelve month period.
     Failure to make timely and accurate submissions to the 
Exchange of notices, reports or other information required by the Rules 
of the Exchange. The proposed summary fines for this rule

[[Page 3851]]

violation are a warning letter for the first offense, $2,500 fine for 
the second offense, $5,000 fine for the third offense, and the 
commencement of disciplinary proceedings for all subsequent offenses, 
within a rolling twelve month period. The proposed summary fines for 
this rule violation are elevated because failure to submit timely and 
accurate reports to the Exchange impairs the Exchange's ability to 
carry out its self-regulatory obligations.
     Failure to maintain front-end audit trail information for 
all electronic orders entered into the OneChicago System, including 
order modifications and cancellations. The proposed summary fines for 
this rule violation are a warning letter for the first offense, $1,000 
fine for the second offense, $2,500 fine for the third offense, and the 
commencement of disciplinary proceedings for all subsequent offenses 
within a rolling twelve month period.
     Failure to keep any books and records required by the 
Rules of the Exchange. The proposed summary fines for this rule 
violation are a warning letter for the first offense, $1,000 fine for 
the second offense, $2,500 fine for the third offense, and the 
commencement of disciplinary proceedings for all subsequent offenses 
within a rolling twelve month period.
     Failure to comply with order form preparation and 
recordkeeping requirements relating to orders which cannot be 
immediately entered into the OneChicago System. The proposed summary 
fines for this rule violation are a warning letter for the first 
offense, $1,000 fine for the second offense, $2,500 fine for the third 
offense, and the commencement of disciplinary proceedings for all 
subsequent offenses within a rolling twelve month period.
     Failure to comply with exposure requirements related to 
pre-execution discussions. The proposed summary fines for this rule 
violation are a warning letter for the first offense, $10,000 fine for 
the second offense, and a $15,000 fine for all subsequent offenses 
within a rolling twelve month period. The proposed summary fines for 
this rule violation are elevated because pre-arranged trading in 
violation of an exchange's pre-execution discussion policy presents the 
potential for fraudulent or manipulative behavior on an exchange.
     Failure to comply with Exchange of Future for Physical 
transaction reporting requirements. The proposed summary fines for this 
rule violation are a warning letter for the first offense, $7,500 fine 
for the second offense, $15,000 fine for the third offense, and the 
commencement of disciplinary proceedings for all subsequent offenses 
within a rolling twelve month period. The proposed summary fines for 
this rule violation are elevated because EFPs are bilateral 
transactions, the price of which remains unknown to the marketplace 
until the trade is reported by the parties to the transaction.
     Failure to identify correct account designation in order 
entry into the OneChicago System. The proposed summary fines for this 
rule violation are a warning letter for the first offense, $1,000 fine 
for the second offense, $2,500 fine for the third offense, and the 
commencement of disciplinary proceedings for all subsequent offenses 
within a rolling twelve month period.
     Failure to comply with order marking requirement for 
Exchange of Future for Physical transactions or block trades. The 
proposed summary fines for this rule violation are a warning letter for 
the first offense, $1,000 fine for the second offense, $2,500 fine for 
the third offense, and the commencement of disciplinary proceedings for 
all subsequent offenses within a rolling twelve month period.
     Failure to comply with block trade reporting requirements. 
The proposed summary fines for this rule violation are a warning letter 
for the first offense, $7,500 fine for the second offense, $15,000 fine 
for the third offense, and the commencement of disciplinary proceedings 
for all subsequent offenses within a rolling twelve month period. The 
proposed summary fines for this rule violation are elevated because 
block trades are bilateral transactions, the price of which remains 
unknown to the marketplace until the trade is reported by the parties 
to the transaction.
     Failure to comply with the prohibition on netting down 
concurrent long and short positions during the last five days of 
trading. The proposed summary fines for this rule violation are a 
warning letter for the first offense, $2,500 fine for the second 
offense, $5,000 fine for the third offense, and the commencement of 
disciplinary proceedings for all subsequent offenses within a rolling 
twelve month period. The proposed summary fines for this rule violation 
are elevated because netting down concurrent long and short positions 
during expiry week may cause a change in open interest in a particular 
product with no commensurate trading activity.
     Failure to identify correct account type in order entry 
into the OneChicago System. The proposed summary fines for this rule 
violation are a warning letter for the first offense, $1,000 fine for 
the second offense, $2,500 fine for the third offense, and the 
commencement of disciplinary proceedings for all subsequent offenses 
within a rolling twelve month period.
     Failure to timely correct an error in the handling of an 
order via transfer. The proposed summary fines for this rule violation 
are a warning letter for the first offense, $1,000 fine for the second 
offense, $2,500 fine for the third offense, and the commencement of 
disciplinary proceedings for all subsequent offenses within a rolling 
twelve month period.
     Failure to comply with reporting requirements for 
reportable positions. The proposed summary fines for this rule 
violation are a warning letter for the first offense, $2,500 fine for 
the second offense, $5,000 fine for the third offense, and the 
commencement of disciplinary proceedings for all subsequent offenses 
within a rolling twelve month period. The proposed summary fines for 
this rule violation are elevated because failure to report large trader 
positions impairs the Exchange's ability to carry out its self-
regulatory obligations.
     Failure to submit ownership and control reports. The 
proposed summary fines for this rule violation are a warning letter for 
the first offense, $2,500 fine for the second offense, $5,000 fine for 
the third offense, and the commencement of disciplinary proceedings for 
all subsequent offenses within a rolling twelve month period. The 
proposed summary fines for this rule violation are elevated because 
failure to report ownership and control reports impairs the Exchange's 
ability to carry out its self-regulatory obligations.
    Additionally, Rule 717 is being amended to increase the maximum 
summary fine from $5,000 to $15,000. This change is being made to 
accommodate OCX's proposed summary fine schedule, which contains 
varying levels of fines ranging from $1,000 to $15,000. The level of 
fines for each rule violation generally depend upon the severity of the 
rule violation and the potential harm to customers, other market 
participants, or the marketplace itself.
    In addition to the above, OCX is proposing to make several other 
changes to OCX Rule 717. First, OCX is proposing to add that the CRO 
may consider the severity of a rule violation in determining whether to 
impose a summary fine for that violation. OCX is making this change to 
grant the Exchange flexibility in addressing rule violations based on 
the severity of the violation. As is more fully explained in OCX Rule 
705, the CRO reserves the right to determine whether an investigation 
should be closed with no further action, by issuing a warning

[[Page 3852]]

letter, by imposing summary fines, or by commencing disciplinary 
proceedings.
    Rule 717 is also being amended to clarify that OCX may impose 
summary fines against a Clearing Member, Exchange Member, or Access 
Person. Finally, OCX is proposing to remove certain items from OCX Rule 
717(a)(i). Currently, that subparagraph allows the CRO to impose 
summary fines for a failure to make timely payments of original or 
variation margin, options premiums, fees, costs, charges or fines. OCX 
is proposing to remove original or variation margin and options 
premiums from this list of items because they are not relevant to OCX. 
OCX is also removing fines from this list because summary fines would 
not be an effective deterrent for a market participant that has failed 
to make timely payment of fines already imposed by the Exchange.
NTM 2015-48
    In addition to amending Rule 717, OCX is proposing to concurrently 
issue NTM 2015-48, which provides notice to OneChicago's market 
participants of the planned amendments to Rule 717, and provides 
guidance regarding several of the violations included in the summary 
fine schedule. The NTM provides guidance by explaining what may 
constitute a rule violation that may be subject to the imposition of 
summary fines.
OCX Rule 705 (Review of Investigative Reports)
    OCX Rule 705 describes the process by which the CRO reviews the 
Compliance Department's investigative reports in order to determine 
whether a reasonable basis exists to believe that a violation within 
the Exchange's jurisdiction has occurred or is about to occur. The Rule 
then lays out various dispositions the CRO may authorize, including the 
commencement of disciplinary proceedings, the informal disposition of 
the investigation, or the closing of the investigation with no further 
action. OneChicago now proposes to add the summary imposition of fines 
to the list of dispositions which the CRO may authorize as a result of 
an investigation.
    By way of background, OCX Rule 717 itself does not limit the 
summary imposition of fines to the conclusion of an investigation. The 
CRO may authorize summary fines in the absence of an investigation 
report if a Rule violation is detected. OCX is now clarifying in Rule 
705 that the summary imposition of fines is one of the several 
dispositions the CRO may authorize upon the Compliance Department's 
completion of an investigation.
2. Statutory Basis
    OneChicago believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\3\ in general, and furthers the 
objectives of Section 6(b)(5) \4\ and 6(b)(7) \5\ in particular in that 
it is designed:
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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(5).
    \5\ 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 market 
participants.
    The Exchange believes that the proposed rule change will strengthen 
its ability to carry out its responsibilities as a self-regulatory 
organization. Summary fines provide an efficient an effective way for a 
self-regulatory organization to penalize rule violations without 
requiring the commencement of disciplinary proceedings. The broad 
authority to impose summary fines allows the Exchange to discipline its 
market participants, and provides a deterrent from futures violations.
    Furthermore, the Exchange believes that the proposed summary fine 
schedule is fair and reasonable in light of each rule violation. OCX 
has structured its proposed summary fine schedule such that routine or 
clerical violations warrant lower summary fines, whereas more serious 
violations, such as the failure to comply with the Exchange's pre-
execution discussion policy, warrant higher summary fines.
    Finally, the Exchange believes that the proposed rule change and 
associated NTM are equitable and not unfairly discriminatory because 
they would apply equally to all market participants that are subject to 
the applicable requirements of each Rule.

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

    OneChicago does not believe that the rule change and associated NTM 
will impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act, in that the rule change and 
associated NTM enhances OneChicago's ability to deter and discipline 
certain rule violations.
    OneChicago further notes that the proposed summary fine schedule is 
consistent with fine schedules established by other domestic futures 
exchanges. The proposed summary fine schedule distinguishes the 
severity of rule violations by imposing varying levels of fines for 
different violations. Specifically, those violations that are generally 
perceived as more clerical in nature are subject to lower summary fines 
than those violations that may involve harm to the marketplace.

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 and NTM will become operative on January 
14, 2016.
    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.\6\
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    \6\ 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-OC-2015-03 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-OC-2015-03. 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/

[[Page 3853]]

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-OC-
2015-03, and should be submitted on or before February 12, 2016.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(73).

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-01199 Filed 1-21-16; 8:45 am]
BILLING CODE 8011-01-P