[Federal Register Volume 84, Number 128 (Wednesday, July 3, 2019)]
[Notices]
[Pages 31956-31959]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-14166]


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SECURITIES AND EXCHANGE COMMISSION

[Release No 34-86226; File No. SR-CFE-2019-001]


Self-Regulatory Organizations; Cboe Futures Exchange, LLC; Notice 
of a Filing of a Proposed Rule Change Regarding Trading Conduct

June 27, 2019.
    Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on June 18, 2019 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 June 
18, 2019.
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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 update, clarify, and amend certain CFE 
rule provisions primarily relating to trading conduct as well as to the 
use of Order

[[Page 31957]]

Entry Operator IDs (``OEO IDs''), to Market Participant records 
regarding activities in a reference market, and to Clearing Member 
requirements with regard to customer records concerning Exchange of 
Contract for Related Position (``ECRP'') transactions and Block Trades. 
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 changes update, clarify, and amend certain CFE 
rule provisions primarily relating to trading conduct as well as to the 
use of OEO IDs, to Market Participant records regarding activities in a 
reference market, and to Clearing Member requirements with regard to 
customer records concerning ECRP transactions and Block Trades.
    First, CFE is proposing to clarify when an OEO ID must be used for 
a front-end trading system utilized by a natural person under CFE Rule 
303A (Order Entry Operator ID) which governs the use of OEO IDs in 
connection with the submission of orders to CFE's trading system. 
Specifically, CFE is proposing to amend Rule 303A to clarify that if a 
natural person utilizes a front-end trading system with automated 
functionality (such as spreading functionality) and the use of that 
functionality is ancillary to the natural person's manual trading, an 
OEO ID is not required to be used for that front-end trading system. In 
that event, the natural person's OEO ID may be used for the submission 
of orders originating from that front-end trading system. If, however, 
the automated functionality of the front-end trading system generates a 
majority of the natural person's orders, that front-end trading system 
will be treated as an Automated Trading System for purposes of Rule 
303A and an OEO ID for the front-end trading system must be included in 
each order generated by the front-end trading system in order to 
differentiate those orders from manual orders submitted by the natural 
person. CFE believes that this clarification will enhance CFE's rule 
provisions regarding OEO IDs by providing more explicit guidance with 
respect to when an OEO ID must be used for a front-end trading system 
utilized by a natural person.
    Second, CFE is proposing to amend CFE Rule 308(d) to add CFE Rule 
501(c) as a rule that is applicable to Market Participants to the same 
extent that it is applicable to CFE Trading Privilege Holders 
(``TPHs''). Rule 501(c) provides that if a contract listed on the 
Exchange is settled by reference to the price of a contract or 
commodity traded in another venue, including a price or index derived 
from prices on another designated contract market (``DCM''), TPHs are 
required to make available to the Exchange upon request in a form and 
manner prescribed by the Exchange and within the time frame designated 
by the Exchange information and their books and records regarding their 
activities in the reference market. The term ``Market Participant'' is 
a new defined term that CFE is implementing under CFE rules which means 
any Person subject to CFE Rule 308(c). Rule 308(c) provides that any 
Person initiating or executing a transaction on or subject to the Rules 
of the Exchange directly or through an intermediary, and any Person for 
whose benefit such a transaction has been initiated or executed, 
expressly consents to the jurisdiction of the Exchange and agrees to be 
bound by and comply with the Rules of the Exchange in relation to such 
transactions, including, but not limited to, rules requiring 
cooperation and participation in investigatory and disciplinary 
processes. CFE believes that making Rule 501(c) applicable to Market 
Participants will enhance CFE's ability to conduct regulatory 
investigations in relation to CFE's market that may involve activities 
by a Market Participant in a reference market.
    Third, CFE is proposing to revise CFE Rule 414 (Exchange of 
Contract for Related Position) and CFE Rule 415 (Block Trades) to 
clarify certain recordkeeping and reporting requirements relating to 
ECRP transactions and Block Trades, respectively. Specifically, the 
Exchange is proposing to amend Rules 414(h) and 415(e) to clarify that 
each clearing member carrying a customer account for which an ECRP 
transaction or Block Trade is executed shall be responsible for 
obtaining and submitting to CFE in a timely and complete manner the 
records of its customer regarding the ECRP transactions or Block 
Trades, as applicable.
    Fourth, CFE is proposing to amend CFE Rule 601 (Fraudulent Acts), 
CFE Rule 602 (Fictitious Transactions), CFE Rule 603 (Market 
Manipulation), CFE Rule 604 (Adherence to Law), CFE Rule 610 (Priority 
of Customers' Orders), CFE Rule 611 (Trading Against Customers' 
Orders), CFE Rule 612 (Withholding Orders), CFE Rule 613 (Disclosing 
Orders), CFE Rule 614 (Pre-Arranged Trades), CFE Rule 617 (Money 
Passes), CFE Rule 618 (Accommodation Trading), CFE Rule 619 (Front-
Running), and CFE Rule 620 (Disruptive Practices) to specifically 
reference in those rules that they are applicable to Market 
Participants. CFE is proposing to revise the above-referenced rules to 
provide that they apply to Market Participants, consistent with the 
existing provisions of CFE Rule 308(d) which already provide that any 
Person subject to Rule 308(c) that is not a TPH or a Related Party of a 
TPH is bound by and required to comply with the above-referenced rules 
to the same extent that a TPH or Related Party is bound by and required 
to comply with those rules.
    Fifth, CFE is proposing to amend Rule 601, Rule 603, Rule 619 as 
well as Policy and Procedure XVIII of the Policies and Procedures 
Section of the CFE Rulebook relating to Rule 620 to make clear that 
provisions of those rules prohibiting fraudulent acts, market 
manipulation, front-running, and disruptive practices in any contract 
traded on CFE also apply with respect to any commodity, security, 
index, or benchmark that underlies any CFE contract, regardless of the 
exchange on or market in which the underlying is transacted, when that 
activity has an impact upon or nexus in relation to a CFE contract. 
Fraudulent acts, market manipulation, front-running, and disruptive 
practices in the underlying for a CFE contract can also impact the 
market in the CFE contract or improperly benefit a Person holding that 
CFE contract. Accordingly, consistent with similar rules on other DCMs 
which encompass activity in the underlying cash market and underlying

[[Page 31958]]

commodities or securities,\3\ it is important that CFE be able to bring 
disciplinary action for such activity by those subject to CFE 
disciplinary jurisdiction under CFE Rule 308 if warranted under the 
circumstances. In particular:
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    \3\ See, e.g., Chicago Mercantile Exchange Inc. Rule 432H, The 
Board of Trade of the City of Chicago, Inc. Rule 432H, New York 
Mercantile Exchange, Inc. Rule 432H, and Commodity Exchange, Inc. 
Rule 432H.
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     CFE is proposing to amend Rule 601 to make clear that 
fraudulent acts and attempted fraudulent acts encompassed by Rule 601 
may be committed in connection with or related to any CFE contract, 
either directly through activity in the market for that CFE contract, 
or indirectly through activity in the market of any commodity, 
security, index, or benchmark underlying that CFE contract, regardless 
of the exchange on or market in which the underlying is transacted.
     CFE is proposing to amend Rule 603 to make clear that no 
TPH, Related Party, or Market Participant shall (i) manipulate, or 
attempt to manipulate, the price of any CFE contract, either directly 
by engaging in activity in the market for that contract, or indirectly 
by engaging in activity in the market of any commodity, security, 
index, or benchmark underlying that contract, regardless of the 
exchange on or market in which the underlying is transacted; (ii) 
purchase or sell, or offer to purchase or sell, any CFE contract, or 
any commodity, security, index, or benchmark that underlies any CFE 
contract, regardless of the exchange on or market in which the 
underlying is transacted, for the purpose of creating a condition in 
which prices of the contract do not or will not reflect fair market 
values; or (iii) intentionally or recklessly use or employ, or attempt 
to use or employ, any manipulative device, scheme, or artifice to 
defraud, relating to any CFE contract either directly by engaging in 
activity in the market for that contract, or indirectly by engaging in 
activity in the market of any commodity, security, index, or benchmark 
underlying that contract, regardless of the exchange on or market in 
which the underlying is transacted. The rules of other DCMs \4\ and 
CFTC Regulation 180.1 \5\ also include a prohibition on the employment, 
or attempted employment, of manipulative and deceptive devices.
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    \4\ See, e.g., ICE Futures U.S., Inc. Rule 4.02(d) and the rules 
cited in footnote 3 above.
    \5\ 17 CFR 180.1.
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     CFE is proposing to amend Rule 619 to make clear that no 
TPH, Related Party, or Market Participant shall take a position in a 
CFE contract based upon non-public information regarding an impending 
transaction by another person in the same or a related CFE contract, or 
in any commodity, security, index, or benchmark underlying that CFE 
contract regardless of the exchange on or market in which the 
underlying is transacted, subject to certain existing exceptions 
enumerated in Rule 619. These existing enumerated exceptions include 
activity permitted under CFE Rule 407 (Crossing Trades), Rule 414, Rule 
415, and Rule 611 or under any policies and procedures for pre-
execution discussions from time to time adopted by the Exchange.
     CFE is proposing to amend Policy and Procedure XVIII to 
make clear that prohibited activity under Rule 620 may occur directly 
or indirectly. In particular, prohibited activity encompassed by Rule 
620 in relation to any CFE contract may occur directly through any 
trading, practice, or conduct in the market for that contract that is 
prohibited by Rule 620. Additionally, the proposed rule change makes 
clear that prohibited activity encompassed by Rule 620 in relation to 
any CFE contract may also occur indirectly through any trading, 
practice, or conduct in the market of any commodity, security, index, 
or benchmark underlying that contract, regardless of the exchange on or 
market in which the underlying is transacted, that would be prohibited 
by Rule 620 if it were done in that contract and that has an impact in 
relation to that contract or the market in that contract.
    Sixth, the Exchange proposes to amend Rule 610 to delete 
superfluous references to the qualifier that actions in violation of 
Rule 610 must be ``knowingly'' committed. Rule 610 describes various 
circumstances under which priority must be given to customer orders. 
Rule 610(d) already provides for more detailed safe harbors from those 
provisions making this qualifier unnecessary. In particular, Rule 
610(a) currently prohibits knowingly buying (selling) a contract for a 
personal or proprietary account when holding an order to buy (sell) the 
same contract for any other person at the same price or at the market 
price. Rule 610(b) also currently prohibits knowingly executing a 
discretionary order for an immediate family member or for a personal or 
proprietary account when holding a customer market order for the same 
contract open as to time and price. The qualifier that these 
prohibitions be knowingly committed is already addressed by the safe 
harbors under Rule 610(d) that there is not a violation of these 
prohibitions when appropriate ``firewall'' or separation of function 
procedures are in place or an individual has no direct knowledge of the 
other relevant order.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\6\ in general, and furthers the 
objectives of Sections 6(b)(1) \7\ and 6(b)(5) \8\ in particular, in 
that it is designed:
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(1).
    \8\ 15 U.S.C. 78f(b)(5).
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     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.
    The Exchange believes that the proposed rule change would 
strengthen CFE's ability to carry out its responsibilities as a self-
regulatory organization by providing further clarity and guidance with 
regard to provisions of the Exchange's rules that relate to trading 
conduct by TPHs, their related parties, and Market Participants. In 
particular, the proposed rule change would update, clarify, and augment 
CFE rules that prohibit abusive trading practices on CFE's market by 
TPHs, their related parties, and Market Participants, including CFE 
rules that address fraudulent acts, fictitious transactions, market 
manipulation, adherence to law, priority of customer orders, trading 
ahead of customer orders, withholding orders, disclosing orders, pre-
arranged trades, simultaneous buying and selling orders, money passes, 
accommodation trading, front-running, and disruptive practices.
    The proposed rule change would also clarify the application of CFE 
requirements relating to the use of OEO IDs when a natural person 
utilizes a front-end trading system with automated functionality, which 
would contribute to the accuracy of CFE's audit trail. Additionally, 
the proposed rule change would contribute to CFE's ability to obtain 
information in connection with the regulation of CFE's market by 
requiring clearing members carrying customer accounts to obtain and 
submit to CFE customer records

[[Page 31959]]

regarding ECRP transactions and Block Trades by providing that Market 
Participants are required to make available to CFE upon request 
information and their books and records regarding their activities in a 
reference market.

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 enhance 
CFE's ability to carry out its responsibilities as a self-regulatory 
organization. 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 TPHs, 
their related parties, and 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 July 2, 2019. 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.\9\
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    \9\ 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
     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CFE-2019-001 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-2019-001. 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-2019-001, and should be submitted on 
or before July 24, 2019.

For the Commission, by the Division of Trading and Markets, pursuant 
to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(73).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-14166 Filed 7-2-19; 8:45 am]
BILLING CODE 8011-01-P


