Citation: "79 FR 36351"
Document Number: "Release No. 34-72441; File No. SR-OC-2014-02"
June 20, 2014.
Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 (the "Act") /1/ , notice is hereby given that on
FOOTNOTE 1 15 U.S.C. 78s(b)(7). END FOOTNOTE
FOOTNOTE 2 7 U.S.C. 7a-2(c). END FOOTNOTE
OneChicago is proposing to file with the
Rule Changes Relating to Reporting
During the Review Period, OneChicago issued one NTM interpreting OCX's reporting requirements. NTM 2012-13, which was filed with the CFTC on
Market participants trading bilateral EFPs in accordance with OCX Rule 416 or bilateral blocks in accordance with OCX Rule 417 must report their trade to the Exchange without delay. The requirement that bilateral block trades be reported without delay is codified in OCX Rule 417(c). NTM 2012-13 clarifies the term "without delay" with regard to the reporting of a block trade, and also extends the "without delay" reporting requirement to EFPs.
In order for trade prices to accurately reflect current market conditions, OneChicago requires market participants trading blocks and EFPs bilaterally to report their block and EFP trades to the Exchange without delay. NTM 2012-13 provides guidance by interpreting the term "without delay." NTM 2012-13 provides that the term "without delay" means that a bilateral block trade or EFP trade must be reported to the Exchange within five minutes of the deal being completed.
The NTM notes that the five minute requirement exists during normal market conditions. There may be extenuating circumstances in which it is not possible for, or reasonable to expect, a market participant to report a trade or series of trades within five minutes. For example, firms may require additional time to report a trade when reporting multiple fills simultaneously. Furthermore, since OneChicago's Block and EFP Trading System ("OCX.BETS") requires that one party post and the other party accept a trade, the NTM explains that the posting party must post the trade within five minutes, and the accepting party then has five minutes from the time of posting to accept the trade.
Rule Changes Relating to Sales Practices
During the Review Period OCX made three filings related to Sales Practices. Two of those filings, NTM 2012-14 and NTM 2013-09, relate to the requirement that an executing firm fully disclose the price of EFP trades to its customer. These two filings apply to all EFPs executed on OneChicago, regardless whether executed bilaterally or electronically. The other filing, NTM 2013-12, relates to the requirement that a firm engaging in a payment for order flow arrangement disclose the existence of such an arrangement to its customers.
FOOTNOTE 3 OCX issued NTM 2012-14 to provide guidance to its market participants because uncertainty had developed regarding the permissibility of markups and markdowns in EFP trades. Markups (and by extension markdowns) are generally permissible in the securities industry. See NASD IM-2440-1; Securities Exchange Act Release No. 3574 (
NTM 2012-14 imposes the requirement that a firm executing EFPs for a customer provide the original stock price that the executing firm received on the trade. This requirement allows EFP customers to be fully informed as to amounts they are being charged by the executing firm for transacting an EFP. Pursuant to NTM 2012-14, if an EFP executing firm is able to execute the EFP for
The NTM goes on to allow member firms facilitating EFP trades to execute the stock leg of the transaction as principal, provided that the member firm can demonstrate that the stock leg was passed through to the customer who traded the EFP.
Rule Changes Effectuating OneChicago's Obligation To Enforce the Securities Laws
During the Review Period, OneChicago filed several rule changes relating to its obligation to enforce the securities laws. OCX Rule 701 provides the Exchange authority to enforce Exchange Rules and Applicable Law, which the OCX Rulebook defines as "the CEA, [CFTC] Regulations, the [Securities] Exchange Act [of 1934], Exchange Act Regulations and margin rules adopted by the
FOOTNOTE 4 OCX Rule 104. END FOOTNOTE
FOOTNOTE 5 77 FR 36612 (
FOOTNOTE 6 Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124
Rule 701 generally grants the Exchange jurisdiction to enforce its rules as well as Applicable Law. The Rule specifically permits Exchange staff to carry out investigations and requires market participants to comply with those investigations. Rule 701(d) in particular allows market participants to be represented by counsel during any OCX inquiry, investigation, or disciplinary proceeding. OneChicago proposes to amend Rule 701 by prohibiting market participants from choosing counsel that may have a conflict of interest. Specifically, the rule provides that "counsel may not be a member of the Board [of Directors of OneChicago] or disciplinary panel, any employee of the exchange or any person substantially related to the underlying investigation such as a material witness or respondent."
OCX Rule 712(a) allows respondents in a disciplinary hearing commenced by OneChicago to "review all books, records, documents, papers, transcripts of testimony and other tangible evidence in the possession or under the control of the Exchange that the Department will use to support the allegations and proposed sanctions in the notice of charges or which the chairman of the
OCX Rule 713 generally outlines the procedure OneChicago staff must follow in conducting a disciplinary proceeding. OCX Rule 713(g) allows for the recording or transcription of any hearing conducted in connection with a disciplinary proceeding. OneChicago is proposing to amend Rule 713(g) to state that such recordings will become part of the record of the proceedings.
OCX Rule 714 describes the process by which the
OCX Rule 715 grants OneChicago authority to impose sanctions on a respondent after notice and opportunity for a hearing in accordance with the OCX Rulebook. Rule 715 lists the type of sanctions that the Exchange may impose on a respondent. OneChicago is proposing to add subparagraph (c) to OCX Rule 715 in order to clarify that any sanction imposed by the Exchange against a respondent must be sufficient to deter recidivism and must take into account the respondent's disciplinary history.
OCX Rule 716 allows a respondent to appeal from a Disciplinary Panel Decision. Rule 716(i) requires the
In addition to modifying OCX Rule 307, the amendment adds a disclaimer to the cover page of the OCX Rulebook. That disclaimer mirrors the language of the amendment to OCX Rule 307(a). The purpose of this amendment is to make clear the scope of OCX's jurisdiction to market participants upon first accessing the OCX Rulebook.
The foregoing amendments were prepared and filed in consultation and in unison with other Designated Contract Markets registered with the CFTC. Additionally, the language of the above rule changes was approved by the CFTC prior to filing.
OCX Rule 127 defines the
The rule filings and NTMs are attached as Exhibit 4 to the filing submitted by the Exchange but are not attached to the published notice of the filing.
In its filing with the Commission, OneChicago included statements concerning the purpose of and basis for the proposed rule changes and discussed any comments it received on the proposed rule changes. 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.
The purpose of OneChicago's filing is to update the OCX Rulebook to account for various filings OneChicago has previously made with the CFTC, but has not made concurrently with the
2. Statutory Basis
OneChicago believes that the proposed rule change is consistent with Section 6(b) of the Act, /7/ in general, and furthers the objectives of Section 6(b)(5) of the Act, /8/ in particular, in that it is designed to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and remove impediments to and perfect the mechanism of a free and open market and national market system. OneChicago believes that clarifying its reporting requirements helps foster regulatory certainty for its market participants who trade bilateral blocks and EFPs. Furthermore, requiring certain disclosures be made by firms trading on behalf of customers helps ensure a free and open market in which customers are made fully aware of transactions executed by executing firms on their behalf. Finally, the changes to OCX's disciplinary process will allow the Exchange to more effectively regulate trading activity.
FOOTNOTE 7 15 U.S.C. 78f(b). END FOOTNOTE
FOOTNOTE 8 15 U.S.C. 78(f)(b)(5). END FOOTNOTE
OneChicago does not believe that the rule changes will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that the proposed rule changes are equitable and not unfairly discriminatory because they merely clarify the obligations of parties that transact EFPs, enhance customer protection through disclosure, apply to all market participants equally, and strengthen OCX's disciplinary process to ensure that trading activity and the disciplinary processes on the Exchange remains fair, equitable, and competitive.
Comments on the OneChicago proposed rule change have not been solicited and none have been received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
OneChicago filed the proposed rule changes with the CFTC between
FOOTNOTE 9 Section 19(b)(7)(B) of the Act provides that a proposed rule change filed with the
At any time within 60 days of the date of effectiveness /10/ 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. /11/
FOOTNOTE 10 Section 19(b)(7)(C) of the Act provides, inter alia, that "[a]ny proposed rule change of a self-regulatory organization that has taken effect pursuant to [Section 19(b)(7)(B) of the Act] may be enforced by such self-regulatory organization to the extent such rule is not inconsistent with the provisions of this title, the rules and regulations thereunder, and applicable Federal law." END FOOTNOTE
FOOTNOTE 11 15 U.S.C. 78s(b)(1). END FOOTNOTE
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:
* Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
* Send an email to email@example.com. Please include File Number SR-OC-2014-02 on the subject line.
* Send paper comments in triplicate to Secretary,
All submissions should refer to File Number SR-OC-2014-02. 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/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
For the Commission, by the
FOOTNOTE 12 17 CFR 200.30-3(a)(12). END FOOTNOTE
Kevin M. O'Neill,
[FR Doc. 2014-14940 Filed 6-25-14;
BILLING CODE 8011-01-P
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