Notice2021-25477
Self-Regulatory Organizations; Cboe Futures Exchange, LLC; Notice of a Filing of a Proposed Rule Change Regarding Block Trade Recordkeeping Requirements
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 23, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 86 Issue 223 (Tuesday, November 23, 2021)</title>
</head>
<body><pre>
[Federal Register Volume 86, Number 223 (Tuesday, November 23, 2021)]
[Notices]
[Pages 66611-66613]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-25477]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93601; File No. SR-CFE-2021-009]
Self-Regulatory Organizations; Cboe Futures Exchange, LLC; Notice
of a Filing of a Proposed Rule Change Regarding Block Trade
Recordkeeping Requirements
November 17, 2021.
Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on November 10, 2021 Cboe
Futures Exchange, LLC (``CFE'' or ``Exchange'') filed with the
Securities and Exchange Commission (``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 10, 2021.
---------------------------------------------------------------------------
\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 update the recordkeeping requirements
applicable to Block Trades. The scope of this filing is limited solely
to the application of the proposed rule change 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
CFE Rule 415 (Block Trades) governs Block Trades in CFE
products.\3\ Rule 415(e) currently requires each CFE Trading Privilege
Holder (``TPH'') that is a party to a Block Trade to record certain
details regarding the transaction on an order ticket. Those details
include (i) the Contract (including the expiration); (ii) the number of
contracts traded; (iii) the price of execution or premium; (iv) the
time of execution (i.e., the time at which the parties agreed to the
Block Trade); (v) the arrangement time, if any (i.e., the time at which
the parties agreed to enter into the Block Trade at a later time); (vi)
the identity of the counterparty; (vii) that the transaction is a Block
Trade; (viii) if applicable, the account number of the customer for
which the Block Trade was executed; and (ix) if applicable, the
expiration, strike price, and type of option (put or call) in the case
of an option.
---------------------------------------------------------------------------
\3\ A Block Trade is a large transaction in a Contract listed on
CFE that is negotiated off of CFE's trading facility and is then
reported to CFE which meets the parameters for a Block Trade under
CFE's rules.
---------------------------------------------------------------------------
The proposed rule change proposes to revise Rule 415(e) to limit
the application of the Block Trade order ticket requirement to any TPH
that acts as an agent for a Block Trade and to no longer apply that
requirement to any TPH that is a party to a Block Trade in a principal
capacity and not acting in the capacity as an agent. The proposed rule
change also proposes to add a requirement to Rule 415(e) that each TPH
involved in any Block Trade either maintain records evidencing
compliance with the criteria set forth in Rule 415 or be able to obtain
those records from its customer involved in the Block Trade. Finally,
consistent with these changes, the proposed rule change proposes to
revise a current cross-reference in Rule 415(e) to an order ticket in
this context by referring to the order ticket as ``any required order
ticket'' instead of the current description of ``the order ticket
referred to in the preceding sentence.''
These proposed rule amendments are consistent with comparable
provisions included in CFE Rule 414 (Exchange of Contract for Related
Position), which governs exchange of contract for related position
(``ECRP'') transactions involving CFE products.\4\ In particular, Rule
414(g) includes a similar provision to the provision in Rule 415(e)
regarding the details of an ECRP transaction that must be recorded on
an order ticket and that provision of Rule 414(g) is applicable solely
to any TPH that acts as an agent for an ECRP transaction. Similarly,
the new requirement that the proposed rule change is proposing to add
to Rule 415(e) regarding the maintenance of records evidencing
compliance with Rule 415 is the same requirement that is included in
the first sentence of Rule 414(h) related to ECRP transactions.
Accordingly, the proposed rule change proposes to align the order
ticket requirement appliable to Block Trades with the corresponding
order ticket requirement applicable to ECRP transactions. Additionally,
the proposed rule change proposes to make clear that any TPH involved
in a Block Trade must maintain records of the Block Trade evidencing
compliance with the criteria in Rule 415 or be able to obtain those
records from its customer involved in the Block Trade.
---------------------------------------------------------------------------
\4\ An ECRP transaction consists of a transaction in a Contract
listed on CFE and a transaction in a related position that is
negotiated off of CFE's trading facility and is then reported to CFE
which meets the parameters for an ECRP transaction under CFE's
rules. The related position must have a high degree of price
correlation to the underlying of the Contract transaction so that
the Contract transaction would serve as an appropriate hedge for the
related position. In every ECRP transaction, one party is the buyer
of (or the holder of the long market exposure associated with) the
related position and the seller of the corresponding Contract and
the other party is the seller of (or the holder of the short market
exposure associated with) the related position and the buyer of the
corresponding Contract.
---------------------------------------------------------------------------
Block Trades and ECRP transactions are the two primary types of
off-exchange transactions that are permitted under CFE rules. Given the
similarities between these two types of transactions, Block Trades and
ECRP transactions are subject to similar recordkeeping and reporting
requirements. Accordingly, CFE believes that it is appropriate to align
the order ticket requirement
[[Page 66612]]
appliable to Block Trades under Rule 415 with the corresponding order
ticket requirement applicable to ECRP transactions under Rule 414 and
that doing so will make it easier for TPHs to comply with the
Exchange's recordkeeping requirements.
The Exchange also notes that it separately receives the information
that a TPH party to a Block Trade in a principal capacity is currently
required to record on an order ticket. Therefore, the Exchange will
still receive this information following the implementation of the
proposed rule change. Also, unlike with an order ticket which a TPH
creates and maintains in its own records, the Exchange receives this
information directly through the reporting process to the Exchange for
a Block Trade and thus this information becomes part of the Exchange's
records. Specifically, Rule 415(h) requires that the notification to
the Exchange of a Block Trade shall include (i) whether the Block Trade
is a single leg transaction, a transaction in a spread, or a
transaction in a strip; (ii) the Contract identifier (or product and
contract expiration for a future or product, expiration, strike price,
and type of option (put or call) in the case of an option), price (or
premium for an option) and quantity of the Block Trade and whether the
Block Trade is buy or sell; (iii) the time of execution (i.e., the time
at which the parties agreed to the transaction); (iv) the arrangement
time, if any (i.e., the time at which the parties agreed to enter into
the transaction at a later time); (v) Order Entry Operator ID; (vi)
executing firm ID (``EFID''); (vii) account; (viii) Clearing
Corporation origin code; (ix) Customer Type Indicator code; and (x) any
other information required by the Exchange. Additionally, among the
other information that the Exchange requires be included as part of the
notification to the Exchange of a Block Trade under Rule 415(h)(x) is
the identity of the counterparty.
In addition, the proposed rule change recognizes that the use of an
order ticket is more applicable with respect to an agent involved in a
transaction than with respect to a principal involved in a transaction,
while at the same time still requiring that any TPH involved in a Block
Trade (whether that TPH is an agent or principal) maintain appropriate
records relating to the Block Trade. The primary purpose of an order
ticket is to record the information regarding an order that a customer
communicates to a broker. An order ticket records the authorization
that a customer has provided to a broker with respect to an order
placed with the broker on behalf of that customer. Because a principal
is trading on behalf of itself and not on behalf of a customer, there
is not the same need for the TPH entering into a Block Trade as
principal to record information on an order ticket regarding a
transaction that the TPH desires to effectuate on behalf of itself.
This is the case because there is not another party involved in the
transaction on whose behalf the principal is acting and thus it is not
necessary to record an authorization from that party with respect to an
order from that party. Consequently, it is not common practice for TPHs
trading as principal to utilize order tickets. The proposed rule change
recognizes that this is the case and that there is not the same need
for an order ticket when a TPH is acting as principal that exists when
a TPH is acting as an agent.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\5\ in general, and furthers the
objectives of Sections 6(b)(1) \6\ and 6(b)(5) \7\ in particular, in
that it is designed:
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(1).
\7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
<bullet> 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,
<bullet> to prevent fraudulent and manipulative acts and practices,
<bullet> to promote just and equitable principles of trade,
<bullet> to remove impediments to and perfect the mechanism of a
free and open market and a national market system,
<bullet> and in general, to protect investors and the public
interest.
The proposed rule change proposes to set forth and make clear to
TPHs within CFE rules the recordkeeping requirements that apply with
regard to Block Trades. The proposed rule change proposes to align the
order ticket requirement appliable to Block Trades under Rule 415 with
the corresponding order ticket requirement applicable to ECRP
transactions under Rule 414. The Exchange believes that aligning these
requirements is appropriate given the similarities between Block Trades
and ECRP transactions, which are the two primary types of off-exchange
transactions that are permitted under CFE rules and which are subject
to similar recordkeeping and reporting requirements. Additionally, the
proposed rule change recognizes that the use of an order ticket is more
applicable with respect to an agent involved in a transaction than with
respect to a principal involved in a transaction in that the primary
purpose of an order ticket is to record the information regarding an
order that a customer communicates to a broker and that the need to
record a customer's authorization with respect to an order does not
exist when a TPH is trading as principal on behalf of itself. The
Exchange believes that clearly setting forth Block Trade recordkeeping
requirements in CFE rules, aligning the recordkeeping requirements for
Block Trades and ECRP transactions with regard to order tickets, and
applying the Block Trade order ticket requirement to agents and not to
principals in recognition that order tickets are more directed to use
with customer orders will make it easier for TPHs to comply with these
requirements. Accordingly, the Exchange believes that the proposed rule
change will contribute to furthering compliance with Exchange rules.
The Exchange separately receives the information that a TPH party
to a Block Trade in a principal capacity is currently required to
record on an order ticket when a Block Trade is reported to CFE.
Therefore, the Exchange will still receive this information following
the implementation of the proposed rule change.
The Exchange also believes that the proposed rule change will
further the Exchange's ability to carry out its responsibilities as a
self-regulatory organization in that it will contribute to enhancing
the Exchange's ability to obtain trade information that it may utilize
in reviewing whether Block Trades comply with Rule 415 by requiring
that each TPH involved in any Block Trade either maintain records
evidencing compliance with the criteria set forth in Rule 415 or be
able to obtain those records from its customer involved in the Block
Trade.
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. Specifically, the Exchange believes that the
proposed rule change will not burden intra-market competition because
the proposed rule updates will apply equally to all TPHs. The Exchange
also believes that the proposed rule change will not burden inter-
market competition because the proposed rule change is designed to
further the Exchange's ability to carry out its responsibilities as a
self-regulatory
[[Page 66613]]
organization in that it will contribute to enhancing the Exchange's
ability to obtain trade information that it may utilize in reviewing
whether Block Trades comply with Rule 415.
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 24,
2021. 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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#c5b7b0a9a0e8a6aaa8a8a0abb1b685b6a0a6eba2aab3"><span class="__cf_email__" data-cfemail="493b3c252c642a2624242c273d3a093a2c2a672e263f">[email protected]</span></a>. Please include
File Number SR-CFE-2021-009 on the subject line.
Paper Comments
<bullet> 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-2021-009. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 the 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-2021-009, and should be submitted on
or before December 14, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
---------------------------------------------------------------------------
\9\ 17 CFR 200.30-3(a)(73).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25477 Filed 11-22-21; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on November 23, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.