82 FR 29953 - Self-Regulatory Organizations; OneChicago, LLC; Notice of Filing of Proposed Rule Change To Implement Four Decimal Pricing for Outright Transactions in Single Stock Futures

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 125 (June 30, 2017)

Page Range		29953-29956
FR Document		2017-13707

Federal Register, Volume 82 Issue 125 (Friday, June 30, 2017)

[Federal Register Volume 82, Number 125 (Friday, June 30, 2017)]
[Notices]
[Pages 29953-29956]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2017-13707]

[[Page 29953]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81022; File No. SR-OC-2017-02]

Self-Regulatory Organizations; OneChicago, LLC; Notice of Filing
of Proposed Rule Change To Implement Four Decimal Pricing for Outright
Transactions in Single Stock Futures

June 26, 2017.
Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934
(the ``Act'')\1\, notice is hereby given that on June 16, 2017,
OneChicago, LLC (``OneChicago'' or the ``Exchange'') filed with the
Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change described in Items I and II below, which Items
have been prepared by the self-regulatory organization. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons. OneChicago has also filed this rule
change with the Commodity Futures Trading Commission (``CFTC'').
OneChicago filed a written certification with the CFTC under Section
5c(c) of the Commodity Exchange Act (``CEA'') on June 16, 2017.
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\1\ 15 U.S.C. 78s(b)(7).
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I. Self-Regulatory Organization's Description of the Proposed Rule
Change

OneChicago is proposing to amend OneChicago Rule 902 (Contract
Specifications) to decrease the minimum price increment for outright
Single Stock Futures (``SSFs'')\2\ quotes and trades from $0.01 to
$0.0001 per share, which results in a minimum price fluctuation of
$0.01 per contract. OneChicago is proposing this change to permit
market participants to more precisely price the interest rate component
of SSFs. Unlike their underlying securities, which are typically priced
directly by the value of the security itself, SSF prices are derived by
adding an interest rate component to the price of the underlying
security. As described in more detail below, interest rates are
commonly quoted in basis points (``bps''), and the forward value of
SSFs must accurately reflect these interest rates. As such, OneChicago
believes that four decimal quoting and trading may assist market
participants in pricing SSFs with the precision necessary to reflect
the actual value of the interest rate component of the contract.
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\2\ An ``outright'' SSF trade is a non-block, non-EFP, non-
spread trade.
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The minimum price fluctuation is set forth in OneChicago Rule 902,
which provides general contract specifications for all OneChicago SSFs.
Because the minimum price increment for blocks, EFPs, and spread
transactions was already set at $0.0001, upon amending OneChicago Rule
902(e), all SSF trade types, including outright trades, will quote and
trade with minimum fluctuations of $0.0001 (i.e., one basis point per
dollar).
Further, as currently drafted, OneChicago Rule 902(e) provides that
the Exchange may amend the minimum price fluctuation for SSFs without
amending the text of the rule itself. Specifically, the clause ``or as
otherwise stated by the Exchange'' effectively permits the Exchange to
set a minimum price fluctuation by notice or other means. OneChicago is
now proposing to amend OneChicago Rule 902(e) to delete this clause,
thereby providing certainty to market participants that the minimum
price fluctuation is stated solely in OneChicago Rule 902, and will not
be amended other than through the rule change process.
The text of the proposed rule change is attached as Exhibit 4 to
the filing submitted by the Exchange but is not attached to the
published notice of the filing.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, OneChicago 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. The self-regulatory organization has prepared a summary
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
OneChicago is proposing to amend OneChicago Rule 902 (Contract
Specifications) to decrease the minimum fluctuation for outright SSF
quotes and trades from $0.01 to $0.0001 per share effective July 10,
2017.\3\ Previously, the minimum price fluctuation for each contract
was located in the OneChicago Rule 905 supplement. In 2011, OneChicago
amended the pricing of block and EFP transactions in OneChicago Rule
905 to permit four decimal point trade prices.\4\ In 2015, OneChicago
similarly amended OneChicago Rule 905 to permit quoting and trading of
spread transactions in four decimal places as well.\5\ This expansion
allowed these trades to be more precisely priced because, as described
in detail below, the interest rate component of SSFs is expressed in
basis points, and four decimal pricing would permit market participants
to quote or trade at prices that translate to their desired basis point
level.
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\3\ OneChicago's outright SSFs are currently quoted and traded
in two decimal places, and are therefore settled on a per-contract
basis with a minimum price fluctuation of $1.00 due to the 100 share
per-contract multiplier. The Commission notes that the proposed rule
change has become effective on June 16, 2017 and will be implemented
on July 10, 2017.
\4\ See Securities Exchange Act Release No. 65053 (August 8,
2011) (SR-OC-2011-01).
\5\ See Securities Exchange Act Release No. 75464 (July 16,
2015) (SR-OC-2015-02).
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This change will harmonize the pricing of all OneChicago trade
types to four decimal places, and permit the same level of precision in
central limit order book (``CLOB'') outright trades as is currently
available for block trades. This change may also remove a potential
barrier to entry to OneChicago's competitive marketplace, and could
encourage market participants to transition away from the block
marketplace and to the CLOB.
OneChicago acknowledges that sub-penny pricing is currently
prohibited in NMS securities.\6\ Although SSFs are not NMS securities,
OneChicago believes it is warranted to discuss why four decimal pricing
is appropriate in the SSF market, as well as why certain concerns
highlighted by the rule's sub-penny prohibition would not apply to the
SSFs listed by OneChicago.\7\
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\6\ 17 CFR 242.612.
\7\ OneChicago notes that equity options, like SSFs, also have a
multiplier of 100 underlying shares, but are currently only quoted
and traded in two decimal places. OneChicago believes it is
appropriate to distinguish SSFs from equity options with regard to
decimal quoting and trading. In OneChicago's view, unlike equity
options, which are primarily used for hedging or speculating, the
primary uses of SSFs are to (1) refinance equity positions by
replacing them with positions in SSFs at more favorable interest
rates, (2) loan or borrow securities, or (3) loan or borrow cash
with securities as collateral. In each case, the ability for the SSF
trade price to precisely target the desired interest rate of the
transaction is a necessary component. Accordingly, providing for
four decimal quoting and trading supports the key uses of SSFs.
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Interest Rate Component of SSFs
Unlike securities--which are assets--SSFs are contingent
liabilities that represent the forward value of the underlying
security. The primary

[[Page 29954]]

difference in pricing between securities and the SSFs that overlay them
is the interest rate component of the forward contract. The interest
rate of an SSF represents the cost for an individual to hold the
underlying equity--or in other words, the cost of carry. Interest rates
are described in basis points, which are hundredths of one percentage
point. For example, an interest rate of 1.25% can also be expressed as
125 basis points. Interest rates are relative, not static, values.
Consequently, 125 basis points can represent a different dollar value
depending on the notional amount the interest rate is applied to. Four
decimal pricing is a necessary step towards allowing SSFs to be priced
in the dollar value that translates to the desired basis point
equivalent.
Since a trade in an SSF is not the purchase of an asset, but
instead allows the individual to carry a position to a future time, the
most accurate way to price the interest rate of the trade is in basis
points. In order to trade in basis points, market participants need the
ability to price trades to the fourth numerical decimal point.\8\ The
decimal pricing expressed in dollars and cents can simply be viewed as
a translation tool to permit market participants to trade at their
desired level of basis points.
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\8\ OneChicago notes that the greater number of numerical
decimal places available in a trade price, the more precisely the
basis point rate of a trade may be targeted. OneChicago believes
that four decimal point pricing is currently sufficient to provide
interest rate precision, while also avoiding increased complexity
that may be associated with five or six (or greater) decimal point
pricing. Due to the 100 share multiplier, per-share trade prices in
four decimals would permit contract settlement in two decimal
places.
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OneChicago believes that two decimal pricing is not sufficient to
translate a dollar value to an interest rate with precision. For
example, an SSF bid-ask spread of $4.01 by $4.02 on a $4.00 underlying
stock with sixty-four days left until expiration would represent a
1.40% (140 bps) difference between the best bid and best ask.
Specifically, the bid at $4.01 translates to a 1.41% (141 bps) interest
rate, whereas the offer at $4.02 translates to a 2.81% (281 bps)
interest rate.\9\ A market participant desiring to enter into a long
position in the SSF at any interest rate between 140 bps and 281 bps
would be prohibited from doing so by two decimal pricing, even if the
seller was also willing to enter into a short position at that level.
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\9\ As an ancillary matter, OneChicago notes that the Exchange
trading platform does not support market orders partly to protect
market participants from inadvertently crossing these large interest
rate spreads and executing at an unexpected or undesired interest
rate. Limit orders are the only order type that allow participants
to precisely target an interest rate with their order price.
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Although SSF trade prices are represented in dollar values, they
also encompass interest rate and time until expiration. By using the
trade price and time until expiration, market participants can
determine the corresponding interest rate of the trade. Likewise, if a
market participant is seeking a particular interest rate, that market
participant can calculate the trade price by taking into account the
desired interest rate and days until expiry. This is distinguished from
trading in the underlying securities where the trade price directly
represents the value of the asset itself. Accordingly, when market
participants trade an SSF, they are calculating the futures trade price
by considering not only the stock price, but also the days left to
expiry and the prevailing interest rate.\10\
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\10\ Interest rates are typically expressed in five decimal
places (or alternatively, in basis points out to three decimal
places). See e.g., ICE Libor Historical Rates, available at https://www.theice.com/marketdata/reports/170.
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Concerns Raised by Reg NMS
OneChicago has considered whether permitting market participants to
quote and trade SSFs in up to four decimals will impose any burdens on
or otherwise negatively impact the SSF marketplace.\11\ OneChicago does
not believe that permitting quoting and trading SSFs in up to four
decimals will cause market participants to step ahead of each other's
limit orders for nominal amounts, and thereby cause resting limit
orders to lose their execution priority in the CLOB. Since $0.0001 in
an SSF trade price may represent varying notional amounts depending on
the trade price, quantity, and days left until expiry, OneChicago does
not believe it is appropriate to prohibit four decimal pricing based on
such a concern.\12\ This is especially true in a low interest rate
environment where market participants need to tailor their SSF trade
prices with accuracy such that the resulting interest rate is in line
with their expectations.
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\11\ Rule 612 of Regulation NMS, 17 CFR 242.612, prohibits
national securities exchanges from accepting or ranking orders in
any NMS security priced greater than $1.00 per share in an increment
smaller than $0.01. By prohibiting sub-penny pricing, Regulation NMS
sought to prevent market participants from stepping ahead of each
other for a nominal or infinitesimally small amount, thereby
discouraging the use of limit orders, and also to prevent
overburdening market participants' systems due to increased
messaging traffic resulting from sub penny orders. Although SSFs are
not NMS securities, OneChicago has considered the prohibition on
sub-penny pricing in NMS securities, and has concluded that the
concerns raised by sub-penny pricing are not applicable to SSFs and
unnecessary to impose on the SSF market.
\12\ The average trade quantity on the CLOB is 5 contracts.
Accordingly, the fourth decimal place would represent, on average, a
$0.05 difference in trade value, which may translate to a meaningful
interest rate, depending on the trade price and time until
expiration. On a typical CLOB trade, the fourth decimal place may
represent 0.1 to 3 bps in interest. By way of example, a 5 contract
trade at a futures trade price of $13.9835 results in a notional
value of $6991.75. Without the third and fourth decimal places (a
futures trade price of $13.98), the notional value would be
$6990.00, a difference of $1.75.
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Additionally, unlike the equity markets in which hundreds of trades
occur every second, OneChicago's markets are strictly governed to limit
order frequency. The overwhelming majority of volume executed on the
exchange occurs through the use of manual front-end systems, whereby
the individual trader fills out each order ticket with the relevant
order parameters. Further, even market participants trading
programmatically (and who are not market-makers) are limited to a
maximum of ten orders per second across all products, which minimizes
the potential that any one market participant would repeatedly enter
and modify orders in one particular product.
Accordingly, OneChicago believes that it is unlikely that limit
orders will be frequently stepped ahead of due to the low messaging
quantity threshold permitted by the Exchange. OneChicago notes on this
topic that if a limit order loses execution priority to another limit
order priced exactly $0.0001 above (in the case of a buy order) or
$0.0001 below (in the case of a sell order) the resting order, this
loss of priority typically would not have occurred for a nominal
amount.\13\ As described above, the fourth decimal place of an SSF
trade can represent a different dollar value depending on the price of
the underlying security and the days left until expiry of the futures
contract. Accordingly, the Exchange believes that in most instances,
the new limit order would have provided actual interest rate
improvement over the resting order. In fact, the Exchange predicts that
this rule change will encourage the entry of more competitive orders
due to increased participation by both retail investors and market
makers.\14\
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\13\ As described in footnote 12, $0.05 may represent a spectrum
of interest rates, depending on the futures trade price and days
remaining until expiry.
\14\ OneChicago notes that its spread marketplace has been
trading on a centralized order book in four decimal places since
July 20, 2015. Since that time, OneChicago has not observed any
instance in which a limit order for a spread transaction was stepped
ahead of.
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Furthermore, OneChicago does not anticipate any capacity burden
generated as a result of permitting four

[[Page 29955]]

decimal quoting and trading, as OneChicago does not expect its
messaging traffic to increase as a result of this change. Therefore,
the Exchange does not believe quote submission or market data receipt
will be impacted in any anyway. Moreover, four decimal pricing is
currently commonplace in the futures industry outside of SSFs.\15\
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\15\ Many futures products tied to interest rates trade in
greater than two decimals. Although the per-contract notional value
in these products are usually larger than the typical outright SSF
notional value, OneChicago believes the need for interest rate
precision is consistent across all of these products.
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Impact on Retail Investors
OneChicago believes that the primary beneficiaries of this rule
change will be retail investors. OneChicago's SSFs offer retail
investors an alternative to financing their equity securities positions
via margin loan from their brokers, and offer these investors the
ability to acquire synthetic exposure to equity securities at
competitive financing rates. OneChicago believes the lack of four
decimal pricing for outright trades has hampered the ability of the
Exchange's market makers to make competitive markets which would allow
retail investors to transact at competitive financing rates. With four
decimal pricing in the CLOB for outright trades, OneChicago anticipates
that new market makers will enter the marketplace and make more
competitive markets, increasing trading activity on the CLOB.
Further, as stated above, this rule change will encourage market
participants to transact in OneChicago's CLOB, rather than in the block
marketplace, thereby increasing competition in trading and quoting
these products. Currently, block trades, which are privately negotiated
transactions available only to eligible contract participants, as that
term is defined in section 1a(18) of the CEA,\16\ are already priced in
four decimals. This change will place retail investors, who may not
access the block marketplace, on equal footing with these more
sophisticated participants by permitting them to price their SSF trades
in up to four decimals. As a result of this bifurcated structure in
which sophisticated parties can transact blocks in four decimals, but
retail investors may not, retail investors are at a disadvantage as
they receive less competitive interest rates on their CLOB trades.\17\
In addition to permitting retail investors to trade in four decimals,
OneChicago anticipates this rule change will cause sophisticated
participants who can already transact in four decimal places in the
block marketplace to begin to transition their activity to the CLOB. By
aggregating and concentrating more SSF activity in the CLOB, OneChicago
expects that all market participants will transact at more competitive
levels than those present today.
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\16\ 7 U.S.C. 1a(18).
\17\ Although block trades typically have greater trade
quantities than outright trades, block trades may trade in minimum
quantities as low as five contracts for OneChicago's NoDivRisk
products. Currently, participants in the block marketplace receive
more favorable interest rates than those in the outright CLOB
marketplace due to (1) the ability to pre-hedge block trades, and
(2) four decimal pricing, which is currently available in blocks but
not for outright trades.
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Monitoring of Four Decimal Trading
As stated above, OneChicago does not anticipate that the transition
of outright SSF trading to four decimals will harm or disadvantage any
market participant. Nonetheless, in order to address any concerns
related to stepping ahead, the Exchange plans to monitor its trading
activity to determine whether permitting outright SSFs to trade in up
to four decimal places has caused any harm to investors or
deterioration in market quality. OneChicago plans to monitor this in
two ways. First, the Exchange plans to monitor its trading directly for
any incidence of stepping ahead. To do so, the Exchange will implement
surveillance procedures that identify instances in which a market
participant uses the third or fourth decimal place to step ahead of
limit orders on the CLOB. OneChicago will review such activity and
determine whether there is a pattern or practice of conduct not in line
with just and equitable principles of trade. Second, OneChicago will,
on a periodic basis, assess its market quality by looking to various
factors such as spreads, market depth, and number and diversity of
market participants. Using this two-pronged approached, the Exchange
can determine whether permitting quoting and trading of SSFs in up to
four decimals has promoted market quality, while ensuring market
integrity. If OneChicago makes the determination that four decimal
pricing has harmed either market quality or integrity, the Exchange
will amend OneChicago Rule 902 to return to two decimal pricing. In
order to provide its market participants with sufficient notice
regarding this this [sic] change, OneChicago plans to distribute a
Notice to Members before implementing the change to permit its market
participants to make any necessary technology or operational changes,
which OneChicago anticipates will be minimal.
2. Statutory Basis
OneChicago believes that the proposed rule change is consistent
with Section 6(b) of the Act,\18\ in general, and furthers the
objectives of Section 6(b)(5) \19\ in particular. The proposed rule
change furthers the objectives of Section 6(b)(5) because it is
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, 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; and is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is equitable
and not unfairly discriminatory because it would apply equally to all
market participants. The ability to trade outright transactions in up
to four decimal places will not be limited to any class of market
participant, and all market participants are eligible to trade on
OneChicago's CLOB. The requirements to trade on the CLOB are no more
restrictive than the requirements to trade block, EFP, or spread
transactions. Permitting outright transactions to trade in up to four
decimal allows all OneChicago participants to trade in the same way,
thereby promoting just and equitable principles of trade.
OneChicago has considered whether permitting SSFs to quote and
trade in up to four decimal places could permit manipulation or other
violative activity in either the underlying equity or SSF, and has
determined that no such concern exists. Four decimal pricing for SSFs
would not present any new methods for market participants to engage in
behavior that may be violative of Exchange Rules or any applicable law.
Further, as currently drafted, OneChicago Rule 902(e) provides that
the Exchange may amend the minimum price fluctuation for SSFs without
amending the text of the rule itself. Specifically, the clause ``or as
otherwise stated by the Exchange'' effectively permits the Exchange to
set a minimum price fluctuation by notice or other means. OneChicago is
now proposing to amend OneChicago Rule 902(e) to delete

[[Page 29956]]

this clause, thereby providing certainty to market participants that
the minimum price fluctuation is stated solely in OneChicago Rule 902,
and will not be amended other than through the rule change process.
OneChicago believes that its existing surveillance systems and capacity
is sufficient to monitor and review trading activity for any violative
trading in the SSF market.

B. Self-Regulatory Organization's Statement on Burden on Competition

OneChicago does not believe that the rule change will impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act, in that the rule change simply allows an
additional type of transaction to be priced in up to four decimal
places. This change will allow all market participants to more
precisely price the interest rate component of their outright
transactions. By pricing futures trades more precisely, market
participants will be able to submit more competitive bids and offers on
the Exchange. Further, as described above, OneChicago believes this
rule change will increase competition in that it will allow all market
participants to transact at four decimal places, and not just
sophisticated parties who qualify as eligible contract 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 has become effective on June 16, 2017 and
will be implemented on July 10, 2017.
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.\20\
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\20\ 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-OC-2017-02 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-OC-2017-02. 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 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; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make publicly available. All
submissions should refer to File Number SR-OC-2017-02 and should be
submitted on or before July 21, 2017.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-13707 Filed 6-29-17; 8:45 am]
BILLING CODE 8011-01-P

Federal Register / Vol. 82, No. 125 / Friday, June 30, 2017 / Notices 29955

decimal quoting and trading, as investors to trade in four decimals, 2. Statutory Basis
OneChicago does not expect its OneChicago anticipates this rule change OneChicago believes that the
messaging traffic to increase as a result will cause sophisticated participants proposed rule change is consistent with
of this change. Therefore, the Exchange who can already transact in four Section 6(b) of the Act,18 in general, and
does not believe quote submission or decimal places in the block marketplace furthers the objectives of Section
market data receipt will be impacted in to begin to transition their activity to the
6(b)(5) 19 in particular. The proposed
any anyway. Moreover, four decimal CLOB. By aggregating and concentrating
rule change furthers the objectives of
pricing is currently commonplace in the more SSF activity in the CLOB,
Section 6(b)(5) because it is designed to
futures industry outside of SSFs.15 OneChicago expects that all market
prevent fraudulent and manipulative
participants will transact at more
Impact on Retail Investors acts and practices, to promote just and
competitive levels than those present
OneChicago believes that the primary equitable principles of trade, to foster
today.
beneficiaries of this rule change will be cooperation and coordination with
retail investors. OneChicago’s SSFs offer Monitoring of Four Decimal Trading persons engaged in regulating, clearing,
retail investors an alternative to As stated above, OneChicago does not settling, processing information with
financing their equity securities anticipate that the transition of outright respect to, and facilitating transactions
positions via margin loan from their SSF trading to four decimals will harm in securities, to remove impediments to
brokers, and offer these investors the or disadvantage any market participant. and perfect the mechanism of a free and
ability to acquire synthetic exposure to Nonetheless, in order to address any open market and a national market
equity securities at competitive concerns related to stepping ahead, the system, and, in general, to protect
financing rates. OneChicago believes the Exchange plans to monitor its trading investors and the public interest; and is
lack of four decimal pricing for outright activity to determine whether not designed to permit unfair
trades has hampered the ability of the permitting outright SSFs to trade in up discrimination between customers,
Exchange’s market makers to make to four decimal places has caused any issuers, brokers, or dealers.
competitive markets which would allow harm to investors or deterioration in The Exchange believes that the
retail investors to transact at market quality. OneChicago plans to proposed rule change is equitable and
competitive financing rates. With four monitor this in two ways. First, the not unfairly discriminatory because it
decimal pricing in the CLOB for outright Exchange plans to monitor its trading would apply equally to all market
trades, OneChicago anticipates that new directly for any incidence of stepping participants. The ability to trade
market makers will enter the ahead. To do so, the Exchange will outright transactions in up to four
marketplace and make more competitive implement surveillance procedures that decimal places will not be limited to
markets, increasing trading activity on identify instances in which a market any class of market participant, and all
the CLOB. participant uses the third or fourth market participants are eligible to trade
Further, as stated above, this rule decimal place to step ahead of limit on OneChicago’s CLOB. The
change will encourage market orders on the CLOB. OneChicago will requirements to trade on the CLOB are
participants to transact in OneChicago’s review such activity and determine no more restrictive than the
CLOB, rather than in the block whether there is a pattern or practice of requirements to trade block, EFP, or
marketplace, thereby increasing conduct not in line with just and spread transactions. Permitting outright
competition in trading and quoting equitable principles of trade. Second, transactions to trade in up to four
these products. Currently, block trades, OneChicago will, on a periodic basis, decimal allows all OneChicago
which are privately negotiated assess its market quality by looking to participants to trade in the same way,
transactions available only to eligible various factors such as spreads, market thereby promoting just and equitable
contract participants, as that term is depth, and number and diversity of principles of trade.
defined in section 1a(18) of the CEA,16 market participants. Using this two- OneChicago has considered whether
are already priced in four decimals. This pronged approached, the Exchange can permitting SSFs to quote and trade in
change will place retail investors, who determine whether permitting quoting up to four decimal places could permit
may not access the block marketplace, and trading of SSFs in up to four manipulation or other violative activity
on equal footing with these more decimals has promoted market quality, in either the underlying equity or SSF,
sophisticated participants by permitting while ensuring market integrity. If and has determined that no such
them to price their SSF trades in up to OneChicago makes the determination concern exists. Four decimal pricing for
four decimals. As a result of this that four decimal pricing has harmed SSFs would not present any new
bifurcated structure in which either market quality or integrity, the methods for market participants to
sophisticated parties can transact blocks Exchange will amend OneChicago Rule engage in behavior that may be violative
in four decimals, but retail investors 902 to return to two decimal pricing. In of Exchange Rules or any applicable
may not, retail investors are at a order to provide its market participants law.
disadvantage as they receive less with sufficient notice regarding this this Further, as currently drafted,
competitive interest rates on their CLOB [sic] change, OneChicago plans to OneChicago Rule 902(e) provides that
trades.17 In addition to permitting retail distribute a Notice to Members before the Exchange may amend the minimum
implementing the change to permit its price fluctuation for SSFs without
15 Many futures products tied to interest rates
market participants to make any amending the text of the rule itself.
trade in greater than two decimals. Although the necessary technology or operational
per-contract notional value in these products are
Specifically, the clause ‘‘or as otherwise
changes, which OneChicago anticipates stated by the Exchange’’ effectively
mstockstill on DSK30JT082PROD with NOTICES

usually larger than the typical outright SSF notional
value, OneChicago believes the need for interest will be minimal. permits the Exchange to set a minimum
rate precision is consistent across all of these price fluctuation by notice or other
products. Currently, participants in the block marketplace
16 7 U.S.C. 1a(18).
means. OneChicago is now proposing to
receive more favorable interest rates than those in
17 Although block trades typically have greater the outright CLOB marketplace due to (1) the ability
amend OneChicago Rule 902(e) to delete
trade quantities than outright trades, block trades to pre-hedge block trades, and (2) four decimal
18 15 U.S.C. 78f(b).
may trade in minimum quantities as low as five pricing, which is currently available in blocks but
contracts for OneChicago’s NoDivRisk products. not for outright trades. 19 15 U.S.C. 78f(b)(5).

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29956 Federal Register / Vol. 82, No. 125 / Friday, June 30, 2017 / Notices

this clause, thereby providing certainty Electronic Comments SECURITIES AND EXCHANGE
to market participants that the COMMISSION
minimum price fluctuation is stated • Use the Commission’s Internet
comment form (http://www.sec.gov/ [Release No. 34–81018; File No. SR–FINRA–
solely in OneChicago Rule 902, and will 2017–023]
not be amended other than through the rules/sro.shtml); or
rule change process. OneChicago • Send an email to rule-comments@ Self-Regulatory Organizations;
believes that its existing surveillance sec.gov. Please include File Number SR– Financial Industry Regulatory
systems and capacity is sufficient to OC–2017–02 on the subject line. Authority, Inc.; Notice of Filing and
monitor and review trading activity for Immediate Effectiveness of Proposed
any violative trading in the SSF market. Paper Comments
Rule Change Relating to Reporting of
B. Self-Regulatory Organization’s • Send paper comments in triplicate Certain ATS Transactions in U.S.
Statement on Burden on Competition to Secretary, Securities and Exchange Treasury Securities
OneChicago does not believe that the Commission, 100 F Street NE., June 26, 2017.
rule change will impose any burden on Washington, DC 20549–1090. Pursuant to Section 19(b)(1) of the
competition not necessary or All submissions should refer to File Securities Exchange Act of 1934
appropriate in furtherance of the Number SR–OC–2017–02. This file (‘‘Act’’) 1 and Rule 19b–4 thereunder,2
purposes of the Act, in that the rule number should be included on the notice is hereby given that on June 23,
change simply allows an additional type subject line if email is used. To help the 2017, Financial Industry Regulatory
of transaction to be priced in up to four Authority, Inc. (‘‘FINRA’’) filed with the
Commission process and review your
decimal places. This change will allow Securities and Exchange Commission
comments more efficiently, please use
all market participants to more precisely (‘‘Commission’’) the proposed rule
price the interest rate component of only one method. The Commission will
change as described in Items I and II
their outright transactions. By pricing post all comments on the Commission’s below, which Items have been prepared
futures trades more precisely, market Internet Web site (http://www.sec.gov/ by FINRA. FINRA has designated the
participants will be able to submit more rules/sro.shtml). Copies of the proposed rule change as constituting a
competitive bids and offers on the submission, all subsequent ‘‘non-controversial’’ rule change under
Exchange. Further, as described above, amendments, all written statements paragraph (f)(6) of Rule 19b–4 under the
OneChicago believes this rule change with respect to the proposed rule Act,3 which renders the proposal
will increase competition in that it will change that are filed with the effective upon receipt of this filing by
allow all market participants to transact Commission, and all written the Commission. The Commission is
at four decimal places, and not just communications relating to the publishing this notice to solicit
sophisticated parties who qualify as proposed rule change between the comments on the proposed rule change
eligible contract participants. Commission and any person, other than from interested persons.
those that may be withheld from the
C. Self-Regulatory Organization’s I. Self-Regulatory Organization’s
Statement on Comments on the public in accordance with the
Statement of the Terms of Substance of
Proposed Rule Change Received From provisions of 5 U.S.C. 552, will be the Proposed Rule Change
Members, Participants, or Others available for Web site viewing and
printing in the Commission’s Public FINRA is proposing to amend FINRA
No written comments were solicited Reference Room, 100 F Street NE., Rule 6730 (Transaction Reporting) to
or received with respect to the proposed provide a temporary exception to permit
Washington, DC 20549 on official
rule change. member alternative trading systems
business days between the hours of
(‘‘ATSs’’) and member subscribers to
III. Date of Effectiveness of the 10:00 a.m. and 3:00 p.m. Copies of the
report aggregate trade information to
Proposed Rule Change and Timing for filing also will be available for
TRACE for certain transactions in U.S.
Commission Action inspection and copying at the principal Treasury Securities.
The proposed rule change has become office of the Exchange. All comments The text of the proposed rule change
effective on June 16, 2017 and will be received will be posted without change; is available on FINRA’s Web site at
implemented on July 10, 2017. the Commission does not edit personal http://www.finra.org, at the principal
At any time within 60 days of the date identifying information from office of FINRA and at the
of effectiveness of the proposed rule submissions. You should submit only Commission’s Public Reference Room.
change, the Commission, after information that you wish to make
consultation with the CFTC, may publicly available. All submissions II. Self-Regulatory Organization’s
summarily abrogate the proposed rule Statement of the Purpose of, and
should refer to File Number SR–OC–
change and require that the proposed Statutory Basis for, the Proposed Rule
2017–02 and should be submitted on or
rule change be refiled in accordance Change
before July 21, 2017.
with the provisions of Section 19(b)(1) In its filing with the Commission,
of the Act.20 For the Commission, by the Division of
FINRA included statements concerning
Trading and Markets, pursuant to delegated
the purpose of and basis for the
IV. Solicitation of Comments authority.21
proposed rule change and discussed any
Interested persons are invited to Robert W. Errett, comments it received on the proposed
submit written data, views, and
mstockstill on DSK30JT082PROD with NOTICES

Deputy Secretary. rule change. The text of these statements
arguments concerning the foregoing, [FR Doc. 2017–13707 Filed 6–29–17; 8:45 am] may be examined at the places specified
including whether the proposed rule BILLING CODE 8011–01–P in Item IV below. FINRA has prepared
change is consistent with the Act. summaries, set forth in sections A, B,
Comments may be submitted by any of
the following methods: 1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
20 15 U.S.C. 78s(b)(1). 21 17 CFR 200.30–3(a)(12). 3 17 CFR 240.19b–4(f)(6).

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Document Created: 2017-06-30 06:01:39
Document Modified: 2017-06-30 06:01:39

Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		82 FR 29953