[Federal Register Volume 83, Number 222 (Friday, November 16, 2018)]
[Notices]
[Pages 57780-57782]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-24983]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84561; File No. SR-CFE-2018-003]


Self-Regulatory Organizations; Cboe Futures Exchange, LLC; Notice 
of a Filing of a Proposed Rule Change Regarding Block Trade and 
Exchange of Contract for Related Position Reporting Provisions

November 9, 2018.
    Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on November 2, 2018 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 November 2, 2018.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(7).
    \2\ 7 U.S.C. 7a-2(c).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Description of the Proposed Rule 
Change

    The Exchange proposes to amend reporting provisions under CFE Rules 
414, 415, and 714 relating to Block Trades and Exchange of Contract for 
Related Position (``ECRP'') transactions. The scope of this filing is 
limited solely to the application of the proposed rule amendments to 
security futures that may be traded on CFE. Although no security 
futures are currently listed for trading on CFE, CFE may list security 
futures for trading in the future. 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 proposed rule change revises the criteria for who can act as an 
Authorized Reporter for Exchange of Contract for Related Position 
(``ECRP'') transactions and Block Trades and to allow for the 
assessment of summary fines for violations of two comparable ECRP and 
Block Trade reporting provisions.
    The first two changes provided for in the proposed rule change 
relate to who can act as an Authorized Reporter for ECRP transactions 
and Block Trades. CFE Rule 414 (Exchange of Contract for Related 
Position) governs ECRP transactions and CFE Rule 415 (Block Trades) 
governs Block Trades. Rule 414(i) and Rule 415(f) provide that each CFE 
Trading Privilege Holder (``TPH'') executing an ECRP transaction or 
Block Trade, as applicable, must have at least one designated 
individual that is either a TPH or a Related Party \3\ of a TPH and 
that is pre-authorized by a Clearing Member to report ECRP transactions 
and Block Trades on behalf of the TPH. An individual designated for 
this purpose is referred to as an Authorized Reporter. CFE is proposing 
to amend Rule 414(i) and Rule 415(f) to remove the requirement that an 
Authorized Reporter must be a TPH or a Related Party of a TPH. CFE is 
also proposing to amend Rule 414(i) and Rule 415(f) to make clear that, 
to the extent required by applicable law, an Authorized Reporter must 
be registered or otherwise permitted by the appropriate regulatory body 
or bodies to act in the capacity of an Authorized Reporter and to 
conduct related activities.
---------------------------------------------------------------------------

    \3\ Chapter 1 of CFE's Rulebook provides that: The term 
``Related Party'' means, with respect to any TPH: Any partner, 
director, officer, branch manager, employee or agent of such TPH (or 
any Person occupying a similar status or performing similar 
functions); any Person directly or indirectly Controlling, 
Controlled by, or under common Control with, such TPH; or any 
Authorized Trader of such TPH.
---------------------------------------------------------------------------

    CFE understands from TPHs that there are service providers that 
perform reporting functions that are similar to ECRP transaction and 
Block Trade reporting and that there are TPHs that would like to 
utilize individuals from these service providers (who are not either a 
TPH or a Related Party of a TPH) to act as an Authorized Reporter for 
ECRP transactions and Block Trades

[[Page 57781]]

involving CFE products. CFE also understands that these TPHs would find 
it easier to utilize individuals from these service providers to report 
ECRP transactions and Block Trades, such as because these TPHs already 
utilize these service providers to perform similar functions in other 
markets. Additionally, CFE understands that some TPHs that are active 
market participants find the requirement that an Authorized Reporter 
must be a TPH or a Related Party of a TPH to be cumbersome because the 
practical effect of this requirement is that those TPHs are doing their 
own ECRP transaction and Block Trade reporting. As a result, these TPHs 
need to take time away from their trading activities in order to go 
through the administrative steps to complete the reporting process. The 
proposed rule change will allow these TPHs to outsource this reporting 
to service providers and to focus on providing liquidity into the 
market which inures to the benefit of all market participants.
    Accordingly, CFE believes that the elimination of the requirement 
that an Authorized Reporter be a TPH or Related Party of a TPH will 
improve the efficiency of CFE's reporting mechanism for ECRP 
transactions and Block Trades and of CFE's market while still 
maintaining the key elements of the current ECRP transaction and Block 
Trade reporting provisions under Rule 414 and Rule 415. Among these 
elements are that an Authorized Reporter for a TPH will still need to 
be designated to act in that capacity by the TPH and will still need to 
be pre-authorized by a Clearing Member for the TPH to act in that 
capacity. In providing a pre-authorization for an Authorized Reporter, 
a Clearing Member will also still need to accept responsibility for all 
ECRP transactions and Block Trades reported to the Exchange by that 
Authorized Reporter on behalf of the applicable TPH. Additionally, Rule 
414(i) and Rule 415(f) will continue to provide that both the parties 
to and Authorized Reporters for an ECRP transaction or Block Trade, as 
applicable, are obligated to comply with the requirements of Rule 414 
and Rule 415, as applicable. Similarly, Rule 414(i) and Rule 415(f) 
will continue to provide that any of these parties or Authorized 
Reporters may be held responsible by the Exchange for noncompliance 
with those requirements.
    Additionally, the proposed rule change makes clear that, to the 
extent required by applicable law, an Authorized Reporter must be 
registered or otherwise permitted by the appropriate regulatory body or 
bodies to act in the capacity of an Authorized Reporter and to conduct 
related activities. For example, an Authorized Reporter may be required 
to be registered with the CFTC through the National Futures Association 
as an Introducing Broker in order to act as an Authorized Reporter and 
to conduct related activities.
    In implementing the proposed rule change, CFE will require an 
Authorized Reporter that is not a TPH or Related Party of a TPH to 
execute the form used to designate that party as an Authorized 
Reporter. CFE will also require the Authorized Reporter to agree in the 
form to abide by CFE rules applicable to Block Trades and ECRPs, to be 
subject to the jurisdiction of the Exchange with respect to compliance 
with those provisions, and to acknowledge in the form that the 
Authorized Reporter must be registered or otherwise permitted by the 
appropriate regulatory body or bodies to act in the capacity of an 
Authorized Reporter and to conduct related activities if and to the 
extent required by applicable law.
    The second two changes provided for in the proposed rule change 
revise CFE Rule 714 (Imposition of Fines for Minor Rule Violations) to 
include violations of Rule 414(j) and Rule 415(g) within the list of 
minor rule violations for which the Exchange may impose summary fines. 
Rule 414(j) and Rule 415(g) provide that each party to an ECRP 
transaction or Block Trade, as applicable, is obligated to have an 
Authorized Reporter notify the Exchange of the terms of the transaction 
after the transaction is agreed upon and that this notification must be 
made within a Permissible Reporting Period by no later than the 
Reporting Deadline (as further defined by Rule 414 and Rule 415, as 
applicable). Rule 714(f)(x) already provides for a summary fine 
schedule for violations of two other provisions of Rule 414 with 
reporting requirements applicable to ECRP transactions, and the 
proposed rule change makes this summary fine schedule also applicable 
to violations of Rule 414(j). Similarly, Rule 714(f)(xiv) already 
provides for a summary fine schedule for violations of two other 
provisions of Rule 415 with reporting requirements applicable to Block 
Trades, and the proposed rule change makes this summary fine schedule 
also applicable to violations of Rule 415(g).
    The Exchange believes that the proposed rule change will benefit 
CFE market participants by allowing TPHs to focus on trading and 
providing liquidity to CFE's market by allowing them to utilize third 
party service providers to perform the administrative functions of 
reporting Block Trades and ECRPs. This reporting process involves 
logging into a portal to CFE's systems, inputting information, and 
providing to or receiving from the other party a reference ID. Allowing 
TPHs to focus on trading and providing liquidity in turn inures to the 
benefit of CFE's market. Additionally, including violations of 
additional Block Trade and ECRP reporting requirements under CFE's 
minor rule violation rule is consistent with the current inclusion of 
similar Block Trade and ECRP reporting requirements under the rule and 
improves the efficiency of CFE's disciplinary process.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\4\ in general, and furthers the 
objectives of Sections 6(b)(1),\5\ 6(b)(5),\6\ and 6(b)(7) \7\ in 
particular, in that it is designed:
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(1).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

     To enable the Exchange to enforce compliance by its TPHs 
and persons associated with its TPHs with the provisions of the rules 
of the Exchange,
     to prevent fraudulent and manipulative acts and practices,
     to promote just and equitable principles of trade,
     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 TPHs 
and persons associated with TPHs.
    The Exchange believes that the proposed rule change will improve 
the efficiency and functioning of the reporting mechanism for ECRP 
transactions and Block Trades and thus CFE's market by providing TPHs 
with greater flexibility as to who can act as an Authorized Reporter 
for these transactions. Also, CFE believes that the application of 
summary fine schedules for violations of Rule 414(j) and Rule 415(g) 
will provide motivation and incentive for TPHs and Authorized Reporters 
to comply with the ECRP transaction and Block Trade reporting 
requirements under those provisions in order to avoid summary fines and 
provides an effective and efficient means of disciplining for reporting 
infractions that do not warrant a regular disciplinary proceeding.

[[Page 57782]]

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 proposed rule change will improve 
the efficiency and functioning of the reporting mechanism for ECRP 
transactions and Block Trades and thus CFE's market. The Exchange 
believes that the proposed rule change is equitable and not unfairly 
discriminatory in that the rule amendments included in the proposed 
rule change would apply equally to all CFE market participants.

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 operative on November 19, 
2018. 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.\8\
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

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-2018-003 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-2018-003. 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 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 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 such filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CFE-2018-003, and should be submitted on 
or before December 7, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(73).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-24983 Filed 11-15-18; 8:45 am]
 BILLING CODE 8011-01-P