[Federal Register Volume 84, Number 190 (Tuesday, October 1, 2019)]
[Notices]
[Page 52149]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-21244]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87107; File No. SR-CBOE-2019-044]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Order 
Approving a Proposed Rule Change To Adopt Rule 6.49B, Off-Floor RWA 
Transfers

September 25, 2019.

I. Introduction

    On August 6, 2019, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe 
Options'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposal to adopt Cboe Rule 6.49B to add an exception to the general 
prohibition against off-floor position transfers. The proposed rule 
change was published for comment in the Federal Register on August 14, 
2019.\3\ The Commission received two comment letters on the 
proposal.\4\ This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 86603 (August 8, 
2019), 84 FR 40460 (``Notice'').
    \4\ See Letters from Andrew Stevens, General Counsel, IMC 
Chicago, LLC, to Vanessa Countryman, Secretary, Commission, dated 
September 4, 2019, available at https://www.sec.gov/comments/sr-cboe-2019-044/srcboe2019044-6072179-191467.pdf (``IMC Letter''), and 
Gerald D. O'Connell, Compliance Coordinator, Susquehanna 
International Group, LLP (``SIG''), to Brent J. Fields, Secretary, 
Commission, dated August 19, 2019, available at https://www.sec.gov/comments/sr-cboe-2019-035/srcboe2019035-5985436-190350.pdf (``SIG 
Letter'').
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II. Description of the Proposed Rule Change

    Cboe Rule 6.49(a) generally requires transactions of option 
contracts listed on the Exchange for a premium in excess of $1.00 to be 
effected on the Exchange or on another exchange. Notwithstanding the 
prohibition set forth in Rule 6.49(a), Cboe Rule 6.49A(a) specifies 
several circumstances under which Trading Permit Holders (``TPHs'') may 
effect transfers of positions off exchange.
    The Exchange proposes to adopt new Cboe Rule 6.49B to add an 
additional exception to the prohibition in Rule 6.49(a). Rule 6.49B 
provides that notwithstanding Rule 6.49, existing positions in options 
of a TPH or non-TPH (including an affiliate of a TPH) that are listed 
on the Exchange may be transferred on, from, or to the books of a 
Clearing Trading Permit Holder off the Exchange if the transfer 
establishes a net reduction of RWA attributable to those options 
positions (an ``RWA Transfer'').\5\
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    \5\ See proposed Rule 6.49B.
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    An RWA transfer could not result in a change in ownership, as it 
must occur between accounts of the same Person.\6\ Further, RWA 
Transfers may occur on a routine, recurring basis \7\ and may result in 
the netting of positions.\8\ However, RWA Transfers may not result in 
preferential margin or haircut treatment.\9\
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    \6\ See proposed Rule 6.49B(e). Cboe 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 Exchange represents that any RWA 
Transfers will be subject to all applicable recordkeeping 
requirements applicable to TPHs and Clearing Trading Permit Holders 
under the Act. See Notice, supra note 3, at 40463 n.24.
    \7\ See proposed Rule 6.49B(b).
    \8\ See proposed Rule 6.49B(c).
    \9\ See proposed Rule 6.49B(d).
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act,\10\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.\11\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\12\ which 
requires, among other things, that the rules of a national securities 
exchange be designed 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 that the 
rules are not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \10\ 15 U.S.C. 78f.
    \11\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that two comment letters received from options 
market makers support the proposal.\13\ One believed that the proposed 
rule will allow for ``[m]ore efficient capital management'' that would 
facilitate the ability of options market makers ``to provide additional 
liquidity in the listed options market.'' \14\
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    \13\ See supra note 4. One commenter noted that the proposal 
``provides proper justifications for fewer restrictions'' on 
transfers involving no material change of beneficial ownership. See 
SIG Letter, supra note 4, at 2. The other commenter stated that 
permitting RWA Transfers ``allows options market makers to 
recognize, in a more economically rational way, the risk reducing 
benefits of a balanced derivative portfolio--to the benefit of 
investors generally.'' See IMC Letter, supra note 4, at 2.
    \14\ See IMC Letter, supra note 4, at 2.
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    The Commission believes that proposed Rule 6.49B should provide 
market makers with the flexibility to reduce RWA exposure by moving 
their positions between accounts.\15\ To the extent they do so and are 
able to net positions as a result, it should facilitate the ability of 
Clearing Trading Permit Holders to provide capital to clear trades, 
which should facilitate liquidity provision in support of fair and 
orderly markets and to the benefit of investors.\16\
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    \15\ See, e.g., Notice, supra note 3, at 40462 (``These are 
merely transfers from one clearing account to another, both of which 
are attributable to the same individual or legal entity. A market 
participant effecting an RWA Transfer 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.''). The Exchange 
also compared Rule 6.49B as having a ``similar result as changing a 
give up or CMTA . . . just at a different time.'' See id.
    \16\ The Commission notes that, as is true for all other off-
floor transfers permitted under Rule 6.49A, RWA Transfers may not 
result in preferential margin or haircut treatment. See proposed 
Rule 6.49B(d).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\17\ that the proposed rule change (SR-CBOE-2019-044) be, and 
hereby is, approved.
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    \17\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-21244 Filed 9-30-19; 8:45 am]
 BILLING CODE 8011-01-P