[Federal Register Volume 86, Number 223 (Tuesday, November 23, 2021)]
[Notices]
[Pages 66611-66613]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25477]


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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.
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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 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.
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    \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.
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    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.
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    \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.
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    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:
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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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     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 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\
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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

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CFE-2021-009 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-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 (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 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\
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    \9\ 17 CFR 200.30-3(a)(73).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25477 Filed 11-22-21; 8:45 am]
BILLING CODE 8011-01-P


