46554 Federal Register / Vol. 82, No. 192 / Thursday, October 5, 2017 / Notices 

9 17 CFR 240.19b–4(f)(6). As required under Rule 

19b–4(f)(6)(iii), the Exchange provided the 

Commission with written notice of its intent to file 

the proposed rule change, along with a brief 

description and the 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. 

10 17 CFR 240.19b–4(f)(6). 

11 17 CFR 240.19b–4(f)(6)(iii). 

12For purposes only of waiving the 30-day 

operative delay, the Commission has considered the 

proposed rule’s impact on efficiency, competition, 

and capital formation. See 15 U.S.C. 78c(f). 

13 17 CFR 200.30–3(a)(12). 

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). 

the implementation date for such 

amendments be extended. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing proposed rule 

change 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, it has 

become effective pursuant to Section 

19(b)(3)(A) of the Act and Rule 19b– 

4(f)(6) thereunder.9

A proposed rule change filed 

pursuant to Rule 19b–4(f)(6) under the 

Act 10 normally does not become 

operative for 30 days after the date of its 

filing. However, Rule 19b–4(f)(6)(iii) 11

permits the Commission to designate a 

shorter time if such action is consistent 

with the protection of investors and the 

public interest. The Exchange has asked 

the Commission to waive the 30-day 

operative delay so that the proposal may 

become operative immediately upon 

filing. The Commission notes that 

waiver of the operative delay will allow 

the Exchange to immediately extend the 

implementation date of the Proposed 

Rule Change, and avoid the potential 

confusion and disruption that could 

result if the extension did not become 

operative until after October 1, 2017. 

The Commission believes that waiver of 

the 30-day operative delay is consistent 

with the protection of investors and the 

public interest. Therefore, the 

Commission hereby waives the 30-day 

operative delay and designates the 

proposal operative upon filing.12

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. If the 

Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

change should be approved or 

disapproved. 

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– 

NYSEArca–2017–115 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–NYSEArca–2017–115. 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 

available publicly. All submissions 

should refer to File Number SR– 

NYSEArca–2017–115 and should be 

submitted on or before October 26, 

2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–21410 Filed 10–4–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81768; File No. SR–C2– 

2017–025] 

Self-Regulatory Organizations; C2 

Options Exchange, Incorporated; 

Notice of Filing and Immediate 

Effectiveness of a Proposed Rule 

Change To Amend Rule 6.45 Relating 

to Disaster Recovery 

September 29, 2017. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on 

September 20, 2017, C2 Options 

Exchange, Incorporated (‘‘Exchange’’ or 

‘‘C2’’) filed with the Securities and 

Exchange Commission (‘‘SEC’’ or 

‘‘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 ‘‘noncontroversial’’ 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

Rule 6.45 relating to disaster recovery. 

The text of the proposed rule change is 

also available on the Exchange’s Web 

site (http://www.cboe.com/AboutCBOE/ 

CBOELegalRegulatoryHome.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 

Exchange included statements 

concerning the purpose of and basis for 


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5See Securities Exchange Act Release No. 67357 

(July 5, 2012), 77 FR 40928 (July 11, 2012) (Order 

Granting Approval of Proposed Rule Change to 

Implement a Disaster Recovery Facility) (SR–C2– 

2012–011). C2 notes it no longer has any 

exclusively listed option products. 

6See Securities Exchange Act Release No. 76300 

(October 4, 2015), 80 FR 68343 (October 28, 2015) 

(Notice of Filing and Immediate Effectiveness of a 

Proposed Rule Change Amending Rule 6.45 

Relating to Disaster Recovery) (SR–C2–2015–030); 

see also Securities Exchange Act Release Nos. 

73639 (November 19, 2014), 79 FR at 72252 

(December 5, 2014) (Regulation Systems 

Compliance and Integrity) (File No. S7–01–13); 

27445 (November 16, 1989), 54 FR 48703 

(November 24, 1989) (Automated Systems of SelfRegulatory Organizations) (File No. S7–29–89); 

29185 (May 9, 1991), 56 FR 22490 (May 15, 1991) 

(Automated Systems of Self-Regulatory 

Organizations) (File No. S7–12–91). 

7Under Rule 6.45(b)(iv)(A), C2 shall designate 

those Permit Holders that C2 reasonably determines 

are, taken as a whole, the minimum necessary for 

the maintenance of fair and orderly markets in the 

event of the activation of C2’s business continuity 

and disaster recovery plans (‘‘Designated BCP/DR 

Participants’’). Designated BCP/DR Participants will 

include all C2 Market-Makers and all C2 Permit 

Holders connected to the C2 primary data center 

and transacting non-Participant customer business, 

unless a C2 Permit Holder, other than a C2 MarketMaker, can demonstrate ready access to the backup data center through another C2 Permit Holder 

that is a designated participant. As further 

discussed below, temporary requirements may be 

imposed on C2 Market-Makers during use of the 

back-up data center. 

8Currently, under Rule 8.17(a)(i), for example, 

DPMs must provide continuous quotes in at least 

the lesser of 99% of the non-adjusted option series 

(as defined in Rule 8.5(a)(1)) or 100% of the nonadjusted option series minus one call-put pair with 

the term ‘‘call-put pair’’ referring to one call and 

one put that cover the same underlying instrument 

and have the same expiration date and exercise 

price, and assure that its disseminated market 

quotations are accurate. This obligation does not 

apply to intra-day add-on series on the day during 

which such series are added for trading. For 

purposes of Rule 8.17(a)(1), ‘‘continuous’’ means 

90% of the time. If a technical failure or limitation 

of the System prevents a DPM from maintaining, or 

from communicating to C2, timely and accurate 

quotes in a series, the duration of such failure shall 

not be considered in determining whether that DPM 

has satisfied the 90% quoting standard with respect 

to the series. C2 may consider other exceptions to 

this obligation based on demonstrated legal or 

regulatory requirements or other mitigating 

circumstances. Compliance with this quoting 

obligation applies to all of a DPM’s allocated classes 

collectively. C2 will determine compliance by a 

DPM with this quoting obligation on a monthly 

basis. However, determining compliance with this 

obligation on a monthly basis does not relieve a 

DPM from meeting this obligation on a daily basis, 

nor does it prohibit C2 from taking disciplinary 

action against DPM for failing to meet this 

obligation each trading day. See Rule 8.17(a)(1). 

Accordingly, under proposed Rule 6.45(b)(iv)(B), 

during use of the back-up data center, C2 could 

require that Market-Makers in AAPL provide 

continuous electronic quotes in up to 99% of the 

non-adjusted option series or 100% of the nonadjusted option serious minus one call-put pair. 

9 In accordance with Rule 1001(a)(2)(v) of 

Regulation SCI, C2 maintains written policies and 

procedures reasonably designed to ensure that its 

trading systems (including with respect to both C2’s 

primary and back-up data center trading systems), 

have levels of capacity, integrity, resiliency, 

availability, and security adequate to maintain C2’s 

operational capability and promote the 

maintenance of fair and orderly markets, including, 

but not limited to business continuity and disaster 

recovery plans that are reasonably designed to 

achieve next two-hour resumption of its critical SCI 

systems, as defined in Rule 1000 of Regulation SCI. 

See Securities Exchange Act Release No. 73639 

(November 19, 2014), 79 FR 72252 (December 5, 

2014) (Regulation Systems Compliance and 

Integrity) (File No. S7–01–13). Notably, C2 employs 

business continuity and disaster recovery standards 

reasonably designed to achieve two-hour 

resumption of all trading systems that are essential 

to conducting business on C2 and which C2 

believes are reasonably designed to support 

resumption in a significantly shorter amount of 

time, including, but not limited to with respect to 

those systems that are essential to the trading of 

proprietary products and products exclusively 

licensed for trading on the Exchange. 

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 

Exchange 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 the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Background 

C2 adopted Rule 6.45 in 2012 for the 

limited purpose of providing alternative 

means of operation in the event C2’s 

trading system became inoperable or 

otherwise unavailable for use due to a 

disaster or other unusual circumstance. 

In particular, Rule 6.45, as originally 

adopted, was intended to allow C2 to 

operate a ‘‘Disaster Recovery Facility’’ 

(‘‘DRF’’) to continue to trade exclusively 

listed option classes until C2’s main 

trading system was again available.5 C2 

utilizes hardware located in the Chicago 

Board Options Exchange, Incorporated 

(‘‘CBOE’’) building in Chicago, IL, for 

the purposes of operating the DRF. C2’s 

main trading engine is located on the 

East coast. 

In 2015, Rule 6.45 was amended to 

add greater detail to C2’s disaster 

recovery rules and harmonize the 

disaster recovery rules with newly 

implemented disaster recovery-related 

regulatory imperatives of Regulation 

Systems Compliance and Integrity 

(‘‘Regulation SCI’’), which superseded 

and replaced the SEC’s voluntary 

Automation Review Policy.6 In doing 

so, C2 made certain changes to Rule 

6.45 to provide additional details 

regarding the Exchange’s back-up 

trading systems, business continuity 

and disaster recovery plans, and testing 

and update its disaster recovery rules to 

ensure consistency with Regulation SCI. 

C2 now proposes to make additional 

changes to its disaster recovery rules to 

provide C2 the authority to take 

additional steps necessary to preserve 

the C2’s ability to conduct business in 

the event that C2’s primary and/or backup data center(s) become inoperable or 

otherwise unavailable for use due to a 

significant systems failure, disaster or 

other unusual circumstances and make 

clear in the Rules the intermediary steps 

that C2 may take to disable certain 

systems and users’ connectivity while 

continuing to operate its primary data 

center. C2 believes this authority serves 

the interests of all investors and the 

general public, because it helps C2 

ensure its continuous operation and 

ability to maintain fair and orderly 

markets in the event of a significant 

systems failure or other unusual 

circumstance. 

Proposal 

C2 proposes to amend Rule 6.45 

relating to disaster recovery. 

Specifically, the Exchange proposes to 

make changes to Rule 6.45 to: (1) Allow 

C2 to establish certain additional 

temporary requirements applicable to 

particular Designated BCP/DR 

Participants 7 during use of the back-up 

data center; (2) permit C2 to deactivate 

certain nonessential systems and 

systems functionalities in response to 

limited systems disruptions or 

malfunctions, security intrusions, 

systems compliance issues, or other 

unusual circumstances; and (3) permit 

C2 to restrict access of a Permit Holder 

or associated person to the System if 

such access poses a significant threat to 

C2’s ability to operate systems essential 

to maintain a fair and orderly market. 

C2 proposes to add new Rule 

6.45(b)(iv)(B) (Alternative BCP/DR 

Participant Obligations), which would 

provide that during the use of the backup data center, C2 may, if necessary for 

the maintenance of fair and orderly 

markets, establish heightened quoting 

obligations for Designated BCP/DR 

Participants in a class in which the 

Designated BCP/DR Participant is 

already an appointed Market-Maker up 

to the standards specified for Designated 

Primary Market-Makers (‘‘DPMs’’) in 

Rule 8.17(a) 8 and/or disallow the ability 

to deselect an appointment intraday in 

a class in which the Designated BCP/DR 

Participant is already an appointed 

Market-Maker.9 Proposed Rule 

6.45(b)(iv)(B) would also provide that 

C2 would notify market participants of 

any such additional temporary 

requirements prior to implementation in 

a reasonable manner as determined by 


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10C2 would make these notifications on the 

Systems Notification page on C2’s Web site, via an 

Exchange-used messaging service, and/or other 

reasonable notification mechanisms. 

11See, e.g., Rules 6.10, 6.11, 6.13, 6.14, 6.17, 6.18, 

6.51, and 6.52. 

12See generally Rule 6.51. 

13See generally Rule 6.52. 

14For example, if the creation of a certain 

complex order product (e.g., the October/November 

calendar spread in class XYZ) were to cause 

significant trading disruptions in an entire class 

(e.g., trading in all of XYZ), C2 might determine to 

turn off calendar spreads or complex orders in 

general in the class in order to help ensure that 

regular trading (i.e., trading of simple orders) in the 

class remained available. 

15See C2 Regulatory Circular RG15–036 RG (Send 

Word Now Smart Notification Services); see also C2 

Regulatory Circular RG15–037. 

16 In such cases, C2 would make efforts to contact 

the affected Permit Holder immediately before or 

contemporaneously with the restriction of access to 

the system to the extent possible while protecting 

C2’s ability to operate systems essential to the 

maintenance of fair and orderly markets. 

17 In determining whether a Permit Holder’s 

access threatens C2’s ability to operate systems 

essential to the maintenance of fair and orderly 

markets and/or determining that lifting the 

restriction no longer poses a threat to C2’s ability 

to operate systems essential to conducting business 

or continuing to maintain a fair and orderly market 

on the Exchange or to investors, a designee of the 

President of C2 would only be charged with making 

such determinations in the President of C2’s 

absence. In such cases, the designee would be a 

senior executive (i.e. Vice President or above) of C2. 

18 15 U.S.C. 78f(b). 

19 15 U.S.C. 78f(b)(5). 

20 Id. 

C2.10 C2 believes this extended 

authority would afford C2 with 

necessary flexibility to address 

unexpected contingencies that may arise 

if a disaster or other unusual 

circumstances occur, causing C2 to use 

the back-up data center and help ensure 

that C2 operates a fair and orderly 

market in the event of a market 

emergency. C2 also proposes nonsubstantive changes to the lettering in 

paragraph (b)(iv) to accommodate the 

addition of new Rule 6.45(b)(iv)(B). 

Accordingly, current Rule 6.45(b)(iv)(B) 

would become Rule 6.45(b)(iv)(C), and 

current Rule 6.45(b)(iv)(C) would 

become Rule 6.45(b)(iv)(D). 

C2 also proposes to add Rule 6.45(c) 

(Deactivation of Certain Systems), 

which would provide that in the event 

of a systems disruption or malfunction, 

security intrusion, systems compliance 

issue, or other unusual circumstances, 

C2 may, in accordance with the Rules or 

if necessary to maintain fair and orderly 

markets or to protect investors, 

temporarily deactivate certain systems 

or systems functionalities that are not 

essential to conducting business on C2. 

Many of the systems and systems 

functionalities described in the Rules 

are provided optionally by C2 to 

enhance participants’ trading 

experience, but are not required to be 

active under the Rules and are not 

necessary for C2 to conduct business.11

As is described in the Rules, many of 

the C2’s systems functionalities may be 

made available (or unavailable) by C2 

on a class-by-class basis. Such systems 

and systems functionalities that are nonessential to conducting business on C2 

include, but are not limited to, the 

Automated Improvement Mechanism 

(AIM) 12 and the Solicitation Auction 

Mechanism (SAM).13

In addition, the activation of other 

functionalities may not be described by 

the Rule, but could be suspended 

temporarily (e.g., until the earlier of the 

end of a trading session or until systems 

disruptions could be remedied) if 

disruption or malfunction of that 

functionality were to interfere with the 

C2’s ability to conduct business in a fair 

and orderly manner. For example, if a 

certain order type were to cause a wider 

system malfunction or a certain 

complex order product could not be 

created without triggering widespread 

systems issues,14 C2 might announce, 

via its systems status page or otherwise, 

the suspension of the availability of that 

order type or complex product. If such 

an event impacts a non-essential system 

or system functionality, C2 may deem it 

necessary to maintain fair and orderly 

markets to deactivate that system or 

functionality until any issues are 

resolved to prevent any potential harm 

to investors. Proposed Rule 6.45(c) 

would also provide that C2 would notify 

market participants of any such 

deactivation, and subsequent 

reactivation, promptly and in a 

reasonable manner determined by the 

Exchange. C2 may make these 

notifications on the Systems 

Notification page on C2’s Web site, via 

an Exchange-used messaging service 

such as SendWordNow,15 Regulatory 

Circular, and/or other reasonable 

notification mechanisms. 

Finally, C2 proposes Rule 6.45(d) 

(Connectivity Restriction), which would 

permit C2 to temporarily restrict a 

Permit Holder’s or associated person’s 

access to the trading system if it is 

determined by the President (or seniorlevel designee) of C2, that because of a 

systems issue, such access threatens 

C2’s ability to operate systems essential 

to the maintenance of fair and orderly 

markets.16 Such access would remain 

restricted until the end of the trading 

session or an earlier time if the 

President (or senior-level designee) of 

C2, in consultation with the affected 

Permit Holder(s), determines that lifting 

the restriction no longer poses a threat 

to C2’s ability to operate systems 

essential to conducting business or 

continuing to maintain a fair and 

orderly market on C2 or to investors.17

In the current electronic trading 

environment, if a Permit Holder’s 

systems malfunctions or is 

compromised, it could disrupt C2’s 

systems or market or harm other 

investors. For example, software 

malfunctions may pose a risk to C2’s 

systems, investors, and the general 

public without proper risk controls. 

Proposed Rule 6.45(d) would simply 

give C2 the authority to activate 

additional risk controls to stem the 

access of a Permit Holder that has 

experienced a systems disruption or 

malfunction, which poses undue risk to 

C2. 

2. Statutory Basis 

C2 believes the proposed rule change 

is consistent with the Act and the rules 

and regulations thereunder applicable to 

C2 and, in particular, the requirements 

of Section 6(b) of the Act.18 Specifically, 

C2 believes the proposed rule change is 

consistent with the Section 6(b)(5) 19

requirements that the rules of an 

exchange be 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. 

Additionally, C2 believes the proposed 

rule change is consistent with the 

Section 6(b)(5) 20 requirement that the 

rules of an exchange not be designed to 

permit unfair discrimination between 

customers, issuers, brokers, or dealers. 

The proposed rule change is designed 

to promote C2’s ability to ensure the 

continued operation of a fair and 

orderly market in the event of a systems 

failure, disaster, or other unusual 

circumstances that might threaten the 

ability to conduct business on C2. C2 

recognizes that switching operations to 

the back-up data center may occur in 

times of uncertainty or great volatility in 

the markets. It is at these times that the 

investors may have the greatest need for 

viable, trustworthy marketplaces. The 

proposed rule change seeks to ensure 

that such a marketplace will exist when 

most needed, and thus, C2 believes that 

the proposed rule protects investors in 

the most fundamental sense. 


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21See, e.g., Rules 6.34 (Participant Electronic 

Connectivity) and 6.48 (Technical Disconnect). 

Under Rule 6.34(b), C2 may limit the number of 

messages sent by Participants accessing C2 

electronically in order to protect the integrity of the 

System. In addition, C2 may impose restrictions on 

the use of a computer connected through an 

application programming interface (‘‘API’’) if it 

believes such restrictions are necessary to ensure 

the proper performance of the system. Any such 

restrictions shall be objectively determined and 

submitted to the Commission for approval pursuant 

to a rule change filing under Section 19(b) of the 

Exchange Act. Under Rule 6.48(a), when a CBOE 

Application Server (‘‘CAS’’) loses communication 

with a Client Application such that a CAS does not 

receive an appropriate response to a Heartbeat 

Request within ‘‘x’’ period of time, the Technical 

Disconnect Mechanism will automatically logoff the 

Permit Holder’s affected Client Application and 

automatically cancel all the Permit Holder’s MarketMaker quotes, if applicable, and open orders with 

a time-in-force of ‘‘day’’ resting in the Book (‘‘day 

orders’’), if the Permit Holder enables that optional 

service, posted through the affected Client 

Application. 

22 15 U.S.C. 78f(b)(7). 

23 15 U.S.C. 78s(b)(3)(A). 

24 17 CFR 240.19b–4(f)(6). 

In particular, C2 believes that 

proposed Rule 6.45(b)(iv)(B) allowing 

C2, during the use of the back-up data 

center to (1) establish heightened 

quoting obligations for Designated BCP/ 

DR Participants in a class in which the 

Designated BCP/DR Participant is 

already an appointed Market-Maker up 

to the standards specified for DPMs 

specified in Rule 8.17(a) and/or (2) 

disallow the ability to deselect an 

appointment intraday in a class in 

which the Designated BCP/DR 

Participant is already an appointed 

Market-Maker would help ensure the 

maintenance of a fair and orderly 

market in the event of a disaster, which 

is in the interests of all market 

participants, investors, and the general 

public. C2 believes that adopting rules 

that help ensure that markets are open 

and available during times of turmoil 

and emergency is an important goal 

consistent with the Act. C2 also believes 

that deactivation of certain systems in 

proposed Rule 6.45(c), whether by rule 

or otherwise, in order to ensure that C2 

is able to provide a fair and orderly 

market in the face of systems 

disruptions and malfunction is in the 

best interests of market participants, 

investors, and the general public. 

Similarly, C2 believes that the 

proposed connectivity restriction in 

proposed Rule 6.45(d) would help 

ensure that C2 remains open and 

available to all market participants. C2 

notes that other connectivity restrictions 

are already in place on the Exchange.21

Furthermore, C2 believes that proposed 

Rule 6.45(d) is consistent with Section 

6(b)(7) 22 of the Act, which requires C2 

to adopt rules that provide a fair 

procedure for the disciplining of 

members and persons associated with 

members, the denial of membership to 

any person seeking membership therein, 

the barring of any person from becoming 

associated with a member thereof, and 

the prohibition or limitation by the 

exchange of any person with respect to 

access to services offered by the 

exchange or a member thereof. C2 notes 

that proposed Rule 6.45(d) is not aimed 

at denying access to a particular Permit 

Holder, but rather making sure that C2 

remains accessible to all other Permit 

Holders that do not threaten C2’s ability 

to conduct normal business operations. 

C2 notes that as soon as the President 

of C2 (or designee), working with the 

Permit Holder organization that poses a 

threat to C2, were able to confirm that 

the Permit Holder organization no 

longer posed such a threat, access to C2 

would be restored to that Permit Holder. 

C2 believes that this is a fair result and 

is in the best interests of all market 

participants, investors, and the general 

public. 

C2 also believes that the proposed 

rule change promotes just and equitable 

principles of trade by adding detail and 

clarity to the Rules. The proposed rule 

change seeks to provide additional 

clarity to C2’s disaster recovery rules, 

putting all market participants on notice 

as to how C2 will function in case of 

significant systems disruption or other 

disaster situation. C2 is continuously 

updating the Rules to provide additional 

detail, clarity, and transparency 

regarding its operations and trading 

systems and regulatory authority. C2 

believes that the adoption of detailed, 

clear, and transparent rules reduces 

burdens on competition and promotes 

just and equitable principles of trade. C2 

also believes that adding greater detail 

to the Rules regarding C2’s ability to 

ensure the continuous operation of the 

market and preserve the ability to 

conduct business on C2 will increase 

confidence in the markets and 

encourage wider participation in the 

markets and greater investment. 

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 that is not necessary or 

appropriate in furtherance of the 

purposes of the Act. Rather, the 

proposed rule change will help ensure 

that competitive markets remain 

operative in the event of a systems 

failure or other disaster event. C2 notes 

that the proposed rule change is 

designed to provide C2 with authority to 

require market participants to 

participate in, and provide necessary 

liquidity to, the market to ensure that C2 

functions in a fair and orderly manner 

in the event of a significant systems 

failure, disaster, or other unusual 

circumstances. Accordingly, C2 believes 

that the proposed rule change is 

designed to ensure fair and competitive 

markets at time when they may be most 

needed. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

C2 neither solicited nor received 

written comments on the proposed rule 

change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing proposed rule 

change does not: 

A. Significantly affect the protection 

of investors or the public interest; 

B. impose any significant burden on 

competition; and 

C. become operative for 30 days from 

the date on which it was filed, or such 

shorter time as the Commission may 

designate, it has become effective 

pursuant to Section 19(b)(3)(A) of the 

Act 23 and Rule 19b–4(f)(6) 24

thereunder. 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. If the 

Commission takes such action, the 

Commission will institute proceedings 

to determine whether the proposed rule 

change should be approved or 

disapproved. 

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– 

C2–2017–025 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 


ethrower on DSK3G9T082PROD with NOTICES
46558 Federal Register / Vol. 82, No. 192 / Thursday, October 5, 2017 / Notices 

25 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 81439 

(August 18, 2017), 82 FR 40176 (August 24, 2017) 

(SR–NSCC–2017–015) (‘‘Notice’’). 4Available at http://www.dtcc.com/en/legal/ 

rules-and-procedures. 5A Member’s Required Deposit is the daily 

margin deposit that Members are required to make 

to NSCC’s clearing fund (‘‘Clearing Fund’’). 

Additional information on Required Deposits and 

the Clearing Fund can be found in NSCC’s Rules. 

Id. 6Notice, 82 FR at 40176. 

7When NSCC restricts a Member’s access to 

services generally, NSCC is said to have ‘‘ceased to 

act’’ for the Member. Rule 46 (Restrictions on 

Access to Services) of the Rules sets out the 

circumstances under which NSCC may cease to act 

for a Member and the types of actions that NSCC 

may take. Rules, supra note 4. 

8Notice, 82 FR at 40176. 

9The Settlement Date refers to the standard 

settlement cycle, as set by the U.S. Securities and 

Exchange Commission, which is T+2. See Securities 

Exchange Act Release No. 80295 (March 22, 2017), 

82 FR 15564 (March 29, 2017). 

10Notice, 82 FR at 40176. 

11The CRRM is a tool to help measure the credit 

risk that Members pose to NSCC. See Securities 

Exchange Act Release No. 80734 (May 19, 2017), 82 

FR 24177 (May 25, 2017) (SR–FICC–2017–006). The 

CRRM produces a rating based on a scale from 1 

(the strongest) to 7 (the weakest). Id. Members that 

fall within the weakest three rating categories (i.e., 

5, 6, and 7) are placed on NSCC’s ‘‘Watch List’’ and 

may be subject to enhanced surveillance or 

additional margin charges. Id. The CRRM considers 

factors that are designed to collectively reflect the 

financial and operational condition of a Member. 

Id. These factors include (i) quantitative factors, 

such as capital, assets, earnings, and liquidity; and 

(ii) qualitative factors, such as management quality, 

market position/environment, and capital and 

liquidity risk management. Id. 

12Notice, 82 FR at 40176. 

13 Id. 

14 Id. 

15 Id. 

16 Id. 

17 Id. 

18 Id. 

19 Id. 

All submissions should refer to File 

Number SR–C2–2017–025. 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 

available publicly. All submissions 

should refer to File Number SR–C2– 

2017–025, and should be submitted on 

or before October 26, 2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.25

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–21405 Filed 10–4–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81774; File No. SR–NSCC– 

2017–015] 

Self-Regulatory Organizations; 

National Securities Clearing 

Corporation; Order Approving 

Proposed Rule Change To Amend and 

Clarify a Margin Charge Relating to 

CNS Fails Positions 

September 29, 2017. 

On August 11, 2017, National 

Securities Clearing Corporation 

(‘‘NSCC’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

proposed rule change SR–NSCC–2017– 

015, pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder.2

The proposed rule change was 

published for comment in the Federal 

Register on August 24, 2017.3 The 

Commission did not receive any 

comment letters on the proposed rule 

change. For the reasons discussed 

below, the Commission is granting 

approval of the proposed rule change. 

I. Description of the Proposed Rule 

Change 

NSCC proposed to change its Rules & 

Procedures (‘‘Rules’’) 4 to (1) amend an 

existing fails charge (‘‘CNS Fails 

Charge’’) that applies to each NSCC 

member (‘‘Member’’) as part of each 

Member’s required deposit (‘‘Required 

Deposit’’) 5 to the NSCC Clearing Fund; 

and (2) clarify NSCC’s current practices 

with respect to the assessment and 

collection of the CNS Fails Charge.6

A. The Required Deposit and the CNS 

Fails Charge 

NSCC collects Required Deposits from 

all Members in order to mitigate 

potential losses to NSCC associated with 

the liquidation of a Member’s portfolio, 

if NSCC ceases to act for such Member.7

In order to calculate each Member’s 

Required Deposit, NSCC uses a riskbased margin methodology comprised of 

a number of risk-based component 

charges, including the CNS Fails 

Charge.8

NSCC currently calculates and 

collects the CNS Fails Charge from 

Members with positions that did not 

settle on the applicable settlement date 

(‘‘Settlement Date’’) 9 (‘‘CNS Fails 

Positions’’).10 According to NSCC, 

NSCC imposes the CNS Fails Charge 

based on the Member’s credit rating, as 

derived from NSCC’s internal credit risk 

analysis (i.e., the Credit Risk Rating 

Matrix or ‘‘CRRM’’),11 in order to reflect 

the potential increase in credit risk from 

Members with a higher risk of default.12

NSCC is exposed to credit and market 

risks when a Member does not satisfy its 

obligation to either pay its net 

settlement proceeds or deliver its 

securities due by the applicable 

Settlement Date.13 Such exposures 

generally increase when the Member’s 

risk of default increases, as reflected by 

the Member’s credit rating derived from 

the CRRM.14 Therefore, NSCC asserts 

that to reduce NSCC’s credit risk 

exposures and to incentivize Members 

to satisfy their obligations relating to 

their outstanding trades on Settlement 

Date, NSCC collects the CNS Fails 

Charge as part of each Member’s 

Required Deposit.15

This proposed rule change would 

amend the Rules regarding the CNS 

Fails Charge. Specifically, the proposed 

rule change would amend the Rules to 

add transparency and clarify NSCC’s 

current practices with respect to the 

assessment and collection of this 

existing daily margin charge.16

B. Calculation of the CNS Fails Charge 

Currently, for a Member with CNS 

Fails Positions, the CNS Fails Charge is 

calculated by multiplying the current 

market value of such Member’s 

aggregate CNS Fails Positions by a 

percentage determined by the Member’s 

CRRM rating.17 For a Member that is 

rated 1 through 4 on the CRRM, the CNS 

Fails Charge is 5 percent of the 

Member’s aggregate CNS Fails 

Positions.18 For a Member that is rated 

5 or 6 on the CRRM, the CNS Fails 

Charge is 10 percent of the Member’s 

aggregate CNS Fails Positions.19 For a 


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