[Federal Register Volume 75, Number 216 (Tuesday, November 9, 2010)]
[Notices]
[Pages 68844-68846]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-28246]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63238; File No. SR-C2-2010-008]
Self-Regulatory Organizations; C2 Options Exchange, Incorporated;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
to Update Rules Based on Chicago Board Options Exchange, Inc. Rules and
Recent Chicago Board Options Exchange, Inc. Rule Filings
November 3, 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 October 29, 2010, C2 Options Exchange, Incorporated (the
``Exchange'' or ``C2'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change as described
in Items I and II 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.
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\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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
C2 proposes to update its rules based on Chicago Board Options
Exchange, Inc. (``CBOE'') rules and recent CBOE rule filings. The text
of the proposed rule change is available on the Exchange's Web site
(http://www.cboe.org/legal/crclc2rulefiling.aspx), at the Exchange's
Office of the Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
In 2009, C2 was registered as a national securities exchange under
Section 6 of the Exchange Act.\5\ C2 is anticipated to launch on
October 29, 2010. The purpose of this filing is to update the C2 rules
based on rules and recent rule filings of CBOE.
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\5\ See Exchange Act Release No. 61152 (Dec. 10, 2009), 74 FR
66699 (Dec. 16, 2009).
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First, C2 proposes to delete the definition of ``Short Term
Option'' from Rule 1.1. The definition is not used elsewhere in the C2
Rules and is superfluous and unnecessary. The Exchange notes that CBOE
Chapter V (specifically Rule 5.5(d)), which is incorporated by
reference into Chapter V of the C2 Rules, defines ``Short Term Option
Series.''
Second, C2 proposes to adopt Rule 3.13, Educational Classes, which
would require Trading Permit Holders (``TPHs'') and persons associated
with TPHs to attend such educational classes as C2 may require from
time to time. The proposed rule would also provide that failure to
attend C2 mandated continuing educational classes may subject TPHs and
associated persons to sanctions under the Exchange's Minor Rule
Violation Plan. Any action taken by the Exchange would not preclude
further disciplinary action under C2 Rules. Proposed C2 Rule 3.13 is
similar to existing CBOE Rule 6.20(e).
Third, C2 proposes to add Rule 6.17, Price Check Parameters. Under
the proposed rule, C2 would not automatically execute eligible orders
[[Page 68845]]
that are marketable if (1) the width between the national best bid and
national best offer is not within an acceptable price range (as
determined by the Exchange on a series by series basis for market
orders and/or marketable limit orders and announced to TPHs via
Regulatory Circular), or (2) the execution would follow an initial
partial execution on the Exchange and would be at a subsequent price
that is not within an acceptable tick distance from the initial
execution (as determined by the Exchange on a series by series and
premium basis for market orders and/or marketable limit orders and
announced to TPHs via Regulatory Circular).
For purposes of the proposed rule, an ``acceptable price range''
(``APR'') shall be determined by the Exchange on a class-by-class basis
and shall be no less than: $0.375 between the bid and offer for each
option contract for which the bid is less than $2, $0.60 where the bid
is at least $2 but does not exceed $5, $0.75 where the bid is more than
$5 but does not exceed $10, $1.20 where the bid is more than $10 but
does not exceed $20, and $1.50 where the bid is more than $20. An
``acceptable tick distance'' (``ATD'') shall be no less than 2 minimum
increment ticks. Under the proposed rule, the senior official in the C2
Help Desk may grant intra-day relief by widening the APR and ATD for
one or more option series. Notification of intra-day relief will be
announced via electronic message to TPHs that request to receive such
messages. If an execution is suspended because the APR has not been
met, the order will be cancelled. If an execution is suspended because
executing the remaining portion of an order would exceed the ATD, then
such remaining portion will be cancelled.
Proposed Rule 6.17 is similar to existing CBOE Rule 6.13(b)(vi),
except that provisions in the CBOE rule related to the handling of
orders in open outcry have not been incorporated.
Fourth, C2 proposes to adopt Rule 6.37, Reporting of Trade
Information, to require TPHs to file with the Exchange trade
information in such form as may be prescribed by the Exchange covering
each Exchange transaction during each business day in order to allow
the Exchange to properly match and clear trades. The trade information
shall show for each transaction (1) The identity of the Clearing
Participant, (2) the underlying security, (3) the exercise price, (4)
the expiration month, (5) the number of option contracts, (6) the
premium per unit, (7) the identity of the executing broker representing
the Clearing Participants, (8) whether a purchase or a writing
transaction, (9) except for a transaction executed by or for a Market-
Maker, whether an opening or closing transaction, (10) the identity of
the account of the Clearing Participant in which the transaction was
effected, (11) the time of purchase or sale, (12) whether a put or
call, and (13) such other information as may be required by the
Exchange. Proposed Rule 6.37 is similar to existing CBOE Rule 6.51(d),
except that trade information in the CBOE rule related to the reporting
of open outcry transactions has not been incorporated.
Fifth, C2 proposes to amend Rule 6.51, Automated Improvement
Mechanism (``AIM''), to extend until July 18, 2011 the Pilot Period
during which there will be no minimum size requirement for orders to be
eligible for the AIM auction. This proposed amendment to extend the
pilot program is based on a recent CBOE rule filing.\6\
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\6\ See Securities Exchange Act Release No. 34-62-522 (July 16,
2010), 75 FR 43596 (July 26, 2010) (SR-CBOE-2010-067).
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Lastly, C2 also proposes to amend Chapter 24, Index Options.
Chapter 24 of the C2 rules incorporates by reference CBOE Chapter XXIV,
with the exception of certain specified rules contained in CBOE Chapter
XXIV. C2 proposes to amend the list of excepted rules in two respects.
We are inserting a reference to provide that CBOE Rule 24.15, Automatic
Execution of Index Options, does not apply to C2. CBOE Rule 24.15
addresses the applicability of certain CBOE automatic execution rules
to index options. The rules are inapplicable to the operations of C2,
and thus the rule itself should not apply to C2. We are also deleting a
reference to CBOE Rule 24.16, Nullification and Adjustment of
Transactions in Index Options, Options on ETFs, and Options on HOLDRS,
because that rule has been deleted from the CBOE rules and thus the
cross-reference is outdated and no longer necessary.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') \7\ and the rules and
regulations thereunder and, in particular, the requirements of Section
6(b) of the Act.\8\ Specifically, the Exchange believes the proposed
rule change is consistent with the Section 6(b)(5) \9\ requirements
that the rules of an exchange be designed to promote just and equitable
principles of trade, to prevent fraudulent and manipulative acts, to
remove impediments to and to perfect the mechanism for a free and open
market and a national market system, and, in general, to protect
investors and the public interest. Updating the C2 rules to keep them
in line with those of CBOE (as relevant) provides for consistency in
rules.
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\7\ 15 U.S.C. 78s(b)(1).
\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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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
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
Because the foregoing proposed rule change: (1) Does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) by its terms does not become operative for 30 days after the
date of this filing, or such shorter time as the Commission may
designate if consistent with the protection of investors and the public
interest, the proposed rule change has become effective pursuant to
Section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6)
thereunder.\11\
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to provide the Commission
with written notice of its intent to file the proposed rule change,
along with a brief description and text of 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. C2 has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of filing. However,
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter
time if such action is consistent with the protection of investors and
the public interest. The Exchange requests that the Commission waive
the 30-day operative delay, as specified in Rule 19b-4(f)(6)(iii),\12\
which would make the rule change effective and operative upon filing.
The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the
[[Page 68846]]
public interest.\13\ The Commission notes that the proposal is designed
to conform C2's rules to the rules of the CBOE, and does not raise any
new regulatory issues. For these reasons, the Commission designates the
proposed rule change as operative upon filing.
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\12\ 17 CFR 240.19b-4(f)(6)(iii).
\13\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend 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.
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-C2-2010-008 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-C2-2010-008. 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, 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 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 available publicly. All
submissions should refer to File Number SR-C2-2010-008 and should be
submitted on or before November 30, 2010 in the Federal Register.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-28246 Filed 11-8-10; 8:45 am]
BILLING CODE 8011-01-P