Notice2023-08978
Self-Regulatory Organizations; Cboe Futures Exchange, LLC; Notice of a Filing of a Proposed Rule Change Regarding Reporting Requirements for Exchange of Contract for Related Position Transactions and Block Trades
Primary source
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Published
April 28, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 82 (Friday, April 28, 2023)</title>
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[Federal Register Volume 88, Number 82 (Friday, April 28, 2023)]
[Notices]
[Pages 26371-26373]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-08978]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97358; File No. SR-CFE-2023-002]
Self-Regulatory Organizations; Cboe Futures Exchange, LLC; Notice
of a Filing of a Proposed Rule Change Regarding Reporting Requirements
for Exchange of Contract for Related Position Transactions and Block
Trades
April 24, 2023.
Pursuant to section 19(b)(7) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on April 14, 2023 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
April 14, 2023.
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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 streamline the process to report an
Exchange of Contract for Related Position (``ECRP'') transaction \3\ or
Block Trade \4\ when both parties to the transaction are utilizing the
same Authorized Reporter to report the transaction to the Exchange. 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.
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\3\ 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.
\4\ 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.
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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, Proposed Rule Change
1. Purpose
CFE Rule 414 (Exchange of Contract for Related Position) includes
provisions that govern the execution of ECRP transactions in CFE
products, and CFE Rule 415 (Block Trades) includes provisions that
govern the execution of Block Trades in CFE products. Rule 414(i) and
Rule 415(f) require each CFE Trading Privilege Holder (``TPH'') that
desires to execute ECRP transactions and Block Trades in CFE products
to designate at least one Authorized Reporter that is pre-authorized by
a CFE Clearing Member to report ECRP
[[Page 26372]]
transactions and Block Trades to the Exchange on behalf of the TPH.
Rule 414(l) and Rule 415(i) describe the process that Authorized
Reporters must use to notify the Exchange of ECRP transactions and
Block Trades. The current notification process includes three steps.
First, the Authorized Reporter that is the initiator of a notification
of an ECRP transaction or Block Trade enters information regarding the
transaction into the CFE System. Second, the Authorized Reporter that
is the initiator of the notification of the ECRP transaction or Block
Trade provides a reference ID generated for the transaction by the CFE
System to the Authorized Reporter for the contra side of the
transaction. Third, the Authorized Reporter for the contra side of the
ECRP transaction or Block Trade accepts the notification to the
Exchange of the transaction as entered by the initiating Authorized
Reporter and enters contra side information for the transaction.
As a result, an Authorized Reporter that is reporting an ECRP
transaction or Block Trade to the Exchange on behalf of both parties to
the transaction must go through these three steps in order to report
the transaction to the Exchange. In practice, this means that the
Authorized Reporter must enter information for one side of the
transaction on one screen within a Block/ECRP reporting tool that is a
component of the CFE System, receive an email with a reference ID for
the transaction generated by the CFE System, and then use the reference
ID to separately enter information for the other side of the
transaction on another screen within the Block/ECRP reporting tool.
CFE is proposing to amend Rule 414(l) and Rule 415(i) to allow an
Authorized Reporter that is reporting an ECRP transaction or Block
Trade to the Exchange on behalf of both parties to the transaction to
report the transaction in one step. In practice, this would mean that
the Authorized Reporter may enter at one time all of the required
information for both sides of the transaction on one screen within the
Block/ECRP reporting tool. The Authorized Reporter would no longer need
to receive an email with a reference ID for the transaction or to go to
another screen within the Block/ECRP reporting tool to enter the
information for the contra side of the transaction. The proposed rule
change does not change the information that is required to be reported
to the Exchange relating to ECRP transactions and Block Trades.
The proposed rule change revises Rule 414 and Rule 415 in the
following manner in order to allow an Authorized Reporter that is
reporting an ECRP transaction or Block Trade to the Exchange on behalf
of both parties to the transaction to do so in one step.
The proposed rule change proposes to split both Rule 414(l) and
Rule 415(i) into two primary subsections. The first subsection in both
proposed new Rule 414(l)(i) and proposed new Rule 415(i)(i) describes
the current reporting process that would continue to apply when the
parties to an ECRP transaction or Block Trade are using different
Authorized Reporters to report the transaction to the Exchange. The
second subsection in both proposed new Rule 414(l)(ii) and proposed new
Rule 415(i)(ii) provides that if the parties to an ECRP transaction or
Block Trade are each utilizing the same Authorized Reporter to notify
the Exchange of the terms of the transaction, the Authorized Reporter
is able to enter all of the required information regarding both sides
of the transaction into the CFE System and to fully report the
transaction to the Exchange.
Similarly, the proposed rule change proposes to revise Rule 414(m)
and Rule 415(j) to provide for two alternative ways in which an ECRP
transaction or Block Trade would be deemed to have been fully reported
to the Exchange for timing purposes in connection with measuring
adherence to permissible reporting period and reporting deadline
provisions within Rule 414 and Rule 415. Proposed New Rule 414(m)(i)
and proposed new Rule 415(j)(i) retain the current provision that an
ECRP transaction or Block Trade shall be deemed to have been fully
reported to the Exchange when the full report of the transaction has
been received by the CFE System matching engine following notification
to the CFE System of required information relating to the transaction
by the initiating Authorized Reporter and acceptance and notification
to the CFE System of required information relating to the transaction
by the contra side Authorized Reporter. Proposed new Rule 414(m)(ii)
and proposed new Rule 415(j)(ii) provide that an ECRP transaction or
Block Trade shall be deemed to have been fully reported to the Exchange
when the full report of the transaction has been received by the CFE
System matching engine following notification to the CFE System of
required information relating to the transaction by a single Authorized
Reporter for both parties to the transaction.
The proposed rule change also includes some non-substantive
proposed wording and organizational changes to Rule 414(l), Rule
414(m), Rule 415(i), and Rule 415(j). For example, the Exchange
proposes to include revised lead-in language in Rule 414(l) and Rule
415(i) indicating that the CFE System includes a mechanism, in a form
and manner provided by the Exchange, for Authorized Reporters to enter
required information regarding an ECRP transaction or Block Trade, as
applicable. As proposed to be revised, Rules 414(l) and Rule 415(i)
then include in separate subsections, as further described above, the
reporting provisions relating to the scenario in which both parties to
an ECRP transaction or Block Trade, as applicable, are utilizing the
same Authorized Reporter and the reporting provisions relating to the
scenario in which the parties to an ECRP transaction or Block Trade are
not utilizing the same Authorized Reporter. As another example, the
Exchange proposes to change the organization of Rule 414(l) and Rule
415(i) by breaking out the provisions into additional subparagraphs
with new numbering and lettering for those subparagraphs.
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:
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(1).
\7\ 15 U.S.C. 78f(b)(5).
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<bullet> to contribute to the ability of 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 foster cooperation and coordination with persons
engaged in regulating, clearing, settling, processing information with
respect to, and facilitating transactions in securities,
<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 Exchange believes that the proposed rule change contributes to
the Exchange's ability to enforce compliance by its TPHs and persons
associated with its TPHs with the
[[Page 26373]]
provisions of the rules of the Exchange and to carry out the Exchange's
responsibilities as a self-regulatory organization in that the proposed
rule change facilitates the collection of trade information that the
Exchange may utilize in reviewing whether ECRP transactions and Block
Trades comply with Exchange rules.
Additionally, the proposed rule change proposes to make clear to
TPHs the reporting process for the submission of required information
regarding an ECRP transaction or Block Trade when an Authorized
Reporter is reporting the transaction to the Exchange on behalf of both
parties to the transaction by describing that process in CFE's rules.
The proposed rule change also contributes to facilitating compliance
with CFE rules by making it easier for Authorized Reporters to provide
information to the Exchange regarding ECRP transactions and Block
Trades when an Authorized Reporter is reporting both sides of the
transaction. Similarly, the proposed rule change improves the
functioning of the reporting mechanism for ECRP transactions and Block
Trades and thus CFE's market by making the process to report these
types of transactions more efficient where the Authorized Reporter is
reporting both sides of the transaction. The proposed rule change does
not substantively change the existing reporting requirements for ECRP
transactions or Block Trades and instead serves to simplify the
reporting process in the scenario in which both parties to an ECRP
transaction or Block Trade, as applicable, are utilizing the same
Authorized Reporter.
B. Self-Regulatory Organization's Statement on Burden on Competition
CFE does not believe that the proposed rule changes 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 amendments 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 contributes
to the Exchange's ability to enforce compliance with its rules and to
carry out its responsibilities as a self-regulatory organization by
contributing to the Exchange's ability to obtain trade information that
it may utilize in reviewing whether ECRP transactions and Block Trades
comply with Rule 414 and 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 April 28, 2023.
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\
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\8\ 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
<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#ddafa8b1b8f0beb2b0b0b8b3a9ae9daeb8bef3bab2ab"><span class="__cf_email__" data-cfemail="eb999e878ec6888486868e859f98ab988e88c58c849d">[email protected]</span></a>. Please include
File Number SR-CFE-2023-002 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-2023-002. 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. Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to File Number SR-CFE-2023-002, and should be submitted on
or before May 19, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(73).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-08978 Filed 4-27-23; 8:45 am]
BILLING CODE 8011-01-P
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