[Federal Register Volume 75, Number 86 (Wednesday, May 5, 2010)]
[Notices]
[Pages 24771-24772]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-10459]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61987; File No. SR-C2-2010-001]
Self-Regulatory Organizations; C2 Options Exchange, Incorporated;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Adopt Certain Order Routing and Market-Maker Rules
April 27, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on April 23, 2010, C2 Options Exchange, Incorporated (``Exchange''
or ``C2'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Exchange filed the proposal as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A)(iii) of the Act\3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt a rule relating to order routing to
other exchanges and to adopt preferred market-maker rules. The text of
the proposed rule change is available on the Exchange's Web site
(http://www.cboe.org/Legal), at the Exchange's Office of the Secretary
and at the Commission.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, C2 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 those statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
C2 was recently registered as a national securities exchange under
Section 6 of the Exchange Act.\5\ When operational, C2 will operate an
all-electronic marketplace for the trading of listed options. It will
not maintain a physical trading floor. C2 is filing this proposed rule
change in order to add a linkage order routing rule. The rule is
identical to a rule adopted by the Chicago Board Options Exchange,
Incorporated (``CBOE'') as part of the transition to the new
intermarket linkage plan (the Options Order Protection and Locked/
Crossed Market Plan). Under the new linkage, exchanges ensure order
protection by routing orders to other markets through broker-dealers.
The proposed rule adopts certain guidelines that would be applicable to
any routing services provided by C2 through a broker-dealer. Routing
services would be available to C2 permit holders only and are optional.
Permit holders that do not want orders routed can use the Immediate or
Cancel designation to avoid routing.
---------------------------------------------------------------------------
\5\ See Exchange Act Release No. 61152 (Dec. 10, 2009), 74 FR
66699 (Dec. 16, 2009).
---------------------------------------------------------------------------
As proposed, routing services will only be provided by routing
brokers that are not affiliated with the Exchange. Further, the
Exchange may not use a routing broker for which the Exchange or any
affiliate of the Exchange is the designated examining authority. For
each routing broker used by the Exchange, an agreement will be in place
between the Exchange and the routing broker that will, among other
things, restrict the use of any confidential and proprietary
information that the routing broker receives to legitimate business
purposes necessary for routing orders at the direction of the Exchange.
The rule further requires the Exchange to provide routing services
in compliance with the Securities Exchange Act of 1934 and the rules
thereunder, including, but not limited to, the requirements in Section
6(b)(4) and (5) of the Act that the rules of a national securities
exchange provide for the equitable allocation of reasonable dues, fees,
and other charges among its members and issuers and other persons using
its facilities, and not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers. The rule also requires
the Exchange to establish and maintain procedures and internal controls
reasonably designed to adequately restrict the flow of confidential and
proprietary information between the Exchange and the routing broker,
and any other entity, including any affiliate of the routing broker,
and, if the routing broker or any of its affiliates engages in any
other business activities other than providing routing services to the
Exchange, between the segment of the routing broker or affiliate that
provides the other business activities and the segment of the routing
broker that provides the routing services.
Under the proposed rule, the Exchange will determine the logic that
provides when, how, and where orders are routed away to other
exchanges. Further, the routing broker cannot change the terms of an
order or the routing instructions, nor does the routing broker have any
discretion about where to route an order. Lastly, the rule provides
that any bid or offer entered on the Exchange routed to another
exchange via a routing broker that results in an execution shall be
binding on the member that entered such bid/offer.
The filing also proposes to adopt a Preferred Market-Maker rule and
a participation entitlement for Preferred Market-Makers (PMMs). The
proposed additions are virtually identical to rules governing the PMM
program on CBOE. A PMM program allows order senders to designate a
preferred Market-Maker for orders sent to the Exchange. If the PMM
meets certain requirements at the time the order is received, the PMM
is entitled to an enhanced participation on the trade (a participation
entitlement). Adopting a PMM program will provide C2 with greater
flexibility in attracting dedicated liquidity providers.
Proposed Rule 8.13 provides that the Exchange may allow, on a
class-by-class basis, for the receipt orders that carry a designation
specifying a Market-Maker in that class as the ``Preferred Market-
Maker'' for that order. The PMM will receive a participation
entitlement for such order if the following provisions are met: (i) The
PMM is registered in the relevant option class; and (ii) the PMM is
quoting at the best bid/offer on the Exchange. The participation
entitlement shall be 40% when there are two or more Market-Makers also
quoting at the
[[Page 24772]]
NBBO on the Exchange, and 50% when there is only one other Market-Maker
quoting at the NBBO on the Exchange. In addition: (i) A PMM may not be
allocated a total quantity greater than the quantity that the PMM is
quoting at the best bid/offer on the Exchange; (ii) the participation
entitlement rate is based on the number of contracts remaining after
all public customer orders in the book at the best bid/offer on the
Exchange have been satisfied; and (iii) if a Preferred Market-Maker
receives a PMM participation entitlement, then no other participation
entitlements shall apply to such order.
PMMs will be subject to heightened quoting requirements. More
specifically, PMMs must comply with the quoting obligations applicable
under Exchange rules and must provide continuous electronic quotes in
at least 90% of the series of each class for which it receives
Preferred Market-Maker orders.\6\
---------------------------------------------------------------------------
\6\ Under Rule 8.5(a)(1), C2 Market-Makers must maintain a
continuous (99% of the time) two-sided market in 60% of the series
of each registered class that have time to expiration of less than
nine months.
---------------------------------------------------------------------------
Proposed Rule 8.13 also allows the Exchange to implement a PMM
program for complex orders. The program is substantially similar to the
program for straight orders and is identical to the program in place
for CBOE.
Corresponding changes to Rule 6.12 are also proposed to ensure that
the order execution and priority rule contemplates a participation
entitlement for PMMs.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Exchange Act in general and furthers the objectives
of Section 6(b)(5) in particular in that, by making the linkage process
more efficient and ensuring certain safeguards are in place when
routing firms are used, it should promote just and equitable principles
of trade, serve to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and protect
investors and the public interest. Moreover, the Exchange believes that
adopting these rules will facilitate the trading of options in a
national market system by establishing more transparent routing
guidelines, and will facilitate the ability of preferred Market-Makers
to provide deeper liquidity.
B. Self-Regulatory Organization's Statement on Burden on Competition
C2 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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposal.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing rule does not (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate if consistent with the protection of investors
and the public interest, provided that the self-regulatory organization
has given the Commission written notice of its intent to file the
proposed rule change at least five business days prior to the date of
filing of the proposed rule change or such shorter time as designated
by the Commission, the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act \7\ and Rule 19b-4(f)(6)
thereunder.\8\ At any time within 60 days of the filing of such
proposed rule change, the Commission may summarily abrogate such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78s(b)(3)(A).
\8\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
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 e-mail to [email protected]. Please include
File Number SR-C2-2010-001 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-C2-2010-001. This file
number should be included on the subject line if e-mail 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,\9\ 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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of C2. 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 available publicly. All
submissions should refer to File Number SR-C2-2010-001 and should be
submitted on or before May 26, 2010.
---------------------------------------------------------------------------
\9\ The text of the proposed rule change is available on the
Commission's Web site at http://www.sec.gov/rules/sro.shtml.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
---------------------------------------------------------------------------
\10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-10459 Filed 5-4-10; 8:45 am]
BILLING CODE 8010-01-P