Document ID: SEC-2013-0655-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: C2 Options Exchange, Inc.
Posted Date: 2013-04-08T04:00Z

[Federal Register Volume 78, Number 67 (Monday, April 8, 2013)]
[Notices]
[Pages 20961-20967]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-08089]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69268; File No. SR-C2-2013-017]

Self-Regulatory Organizations; C2 Options Exchange, Incorporated; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
to Amend the Fees Schedule

April 2, 2013.
    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 March 26, 2013, 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, II, and III below, which Items have been prepared by the 
Exchange. \3\ 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\ The Commission notes that the Exchange initially filed this 
proposed rule change as SR-C2-2013-015 on March 18, 2013, withdrew 
that filing on March 26, 2013, and re-filed the proposed rule change 
as SR-C2-2013-017 on March 26, 2013.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend its Fees Schedule. The text of the 
proposed rule change is available on the Exchange's Web site (http://www.c2exchange.com/Legal/), 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 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange intends to commence the listing and trading of option 
contracts overlying 10 shares of a security (``Mini-options,'' or 
``Minis'').\4\ Because the regular per-contract unit of trading for the 
five options classes (SPY, AAPL, GLD, GOOG, and AMZN) on which the 
Exchange has proposed listing Minis is 100 shares, a Mini effectively 
functions as 1/10 of a regular options contract (generally speaking). 
The Exchange hereby proposes to adopt fees for the trading of Minis 
(all fees referenced herein are per-contract unless otherwise stated).
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    \4\ See Securities Exchange Act Release No. 68656 (January 15, 
2013), 78 FR 4526 (January 22, 2013) (SR-CBOE-2013-001), in which 
the Chicago Board Options Exchange, Inc. (``CBOE'') proposed to list 
Mini Options on SPDR S&P 500 (``SPY''), Apple, Inc. (``AAPL''), SPDR 
Gold Trust (``GLD''), Google Inc. (``GOOG'') and Amazon.com Inc. 
(``AMZN'') (together, the ``Mini Classes''). SPY and GLD are 
Exchange-Traded Funds (``ETFs'') and AAPL, AMZN and GOOG are equity 
options. Chapter 5 to the C2 Rulebook provides that the rules 
contained in CBOE Chapter V, as such rules may be in effect from 
time to time, shall apply to C2 and that C2 participants shall 
comply with CBOE Rule Chapter 5 as if such rules were part of the C2 
Rules. Accordingly, when CBOE amended Rule 5.5 to provide for the 
trading of mini-options, that filing resulted in a simultaneous 
change to identical C2 rules. SR-C2-2013-014 expounds on the listing 
and trading of Minis on C2.
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    Minis have a smaller exercise and assignment value due to the 
reduced number of shares they deliver as compared to standard option 
contracts. As such, the Exchange is proposing generally lower per 
contract fees as compared to standard option contracts, with some 
exceptions to be fully described below. Despite the smaller exercise 
and assignment value of a Mini, the cost to the Exchange to process 
quotes and orders in Minis, perform regulatory surveillance and retain 
quotes and orders for archival purposes

[[Page 20962]]

is the same as a for a standard contract. This leaves the Exchange in a 
position of trying to strike the right balance of fees applicable to 
Minis--too low and the costs of processing Mini quotes and orders will 
necessarily cause the Exchange to either raise fees for everyone or 
only for participants trading Minis; too high and participants may be 
deterred from trading Minis, leaving the Exchange less able to recoup 
costs associated with development of the product, which is designed to 
offer investors a way to take less risk in high dollar securities. The 
Exchange, therefore, believes that adopting fees for Minis that are in 
some cases lower than fees for standard contracts, and in other cases 
the same as for standard contracts, is appropriate, not unreasonable, 
not unfairly discriminatory and not burdensome on competition between 
participants, or between the Exchange and other exchanges in the listed 
options marketplace.
    The Exchange proposes to adopt a set of fees for simple, non-
complex orders in all multiply-listed index and ETF mini-options 
classes. The Exchange proposes a Public Customer Mini Maker rebate of 
$0.04, which is slightly more than 1/10th the $0.37 rebate for 
standard-sized Public Customer simple, non-complex Maker orders in all 
multiply-listed index and ETF options classes. The Exchange does not 
wish to apply sub-penny transaction fees for multiply-listed index and 
ETF mini options, and the slight increase over 1/10th the rebate for 
standard-sized Public Customer simple, non-complex Maker orders in all 
multiply-listed index and ETF options classes is intended to 
incentivize Public Customers to send simple, non-complex orders in all 
multiply-listed index and ETF mini-options classes to the Exchange. The 
Exchange proposes a Public Customer Mini Taker fee of $0.04, which is 
slightly less than 1/10th the $0.44 fee for standard-sized Public 
Customer simple, non-complex Taker orders in all multiply-listed index 
and ETF options classes. The slight decrease below 1/10th the fee for 
standard-sized Public Customer simple, non-complex Taker orders in all 
multiply-listed index and ETF options classes is intended to 
incentivize Public Customers to send simple, non-complex orders in all 
multiply-listed index and ETF mini-options classes to the Exchange.
    The Exchange proposes to adopt a C2 Market-Maker Maker rebate of 
$0.04 for simple, non-complex orders in all multiply-listed index and 
ETF mini-options classes, which is 1/10th the amount of the rebate for 
standard-sized C2 Market-Maker simple, non-complex Maker orders in all 
multiply-listed index and ETF options classes. The Exchange proposes a 
C2 Market-Maker Mini Taker fee of $0.05 for simple, non-complex orders 
in all multiply-listed index and ETF mini-options classes, which is 
slightly more than 1/10th the $0.45 fee for standard-sized C2 Market-
Maker simple, non-complex Taker orders in all multiply-listed index and 
ETF options classes. As noted earlier, the cost to the Exchange to 
process quotes, orders and trades in Minis is the same as for standard 
options, and therefore, in some situations, the Exchange must assess a 
Minis fee of more than 1/10th the amount assessed for standard options 
transactions.
    The Exchange proposes to adopt a Maker rebate of $0.03 for simple, 
non-complex orders in all multiply-listed index and ETF mini-options 
classes from all other origins (Professional Customer, Firm, Broker/
Dealer, non-C2 Market-Maker, JBO, etc.), which is slightly less than 1/
10th the amount of the rebate for standard-sized simple, non-complex 
Maker orders in all multiply-listed index and ETF options classes from 
all other origins. As noted earlier, the cost to the Exchange to 
process quotes, orders and trades in Minis is the same as for standard 
options, and therefore, in some situations, the Exchange cannot provide 
a Minis rebate of equal to or greater than 1/10th the amount provided 
for standard options transactions. The Exchange proposes a Taker fee of 
$0.04 for simple, non-complex orders in all multiply-listed index and 
ETF mini-options classes from all other origins, which is slightly less 
than 1/10th the $0.45 fee for standard-sized simple, non-complex Taker 
orders in all multiply-listed index and ETF options classes from all 
other origins. The Exchange offers this slightly-lower-than-1/10th fee 
in order to prevent the Exchange from having a difference of more than 
$0.01 between the rebate offered and fee assessed for simple, non-
complex orders in all multiply-listed index and ETF mini-options 
classes from all other origins.
    On February 1, 2013, the Exchange instituted a new fee structure 
for simple, non-complex orders in equity options classes that is based 
on the following formula: \5\
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    \5\ See Securities Exchange Act Release No. 68792 (January 31, 
2013), 78 FR 8621 (February 6, 2013) (SR-C2-2013-004). For details 
on this new structure, see C2 Fees Schedule, Section 1B.
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    Fee = (C2 BBO Market Width at time of execution) x (Market 
Participant Rate) x 50.
    This new structure has a maximum fee of $0.85 per contract. Because 
a Mini effectively functions as 1/10th of a standard options contract, 
the Exchange proposes to state that, for mini-options, the multiplier 
in the above formula will be 5 instead of 50, and the maximum fee will 
be $0.085.
    In conjunction with this new fee structure, the Exchange also 
instituted a Public Customer Taker rebate for simple, non-complex 
orders in equity options classes that is based on the following 
formula: Rebate = (C2 BBO Market Width at time of execution) x (Order 
Size Multiplier) x 50
    This new structure has a maximum rebate of $0.75 per contract. 
Because a Mini effectively functions as 1/10th of a standard options 
contract, the Exchange proposes to state that, for mini-options, the 
multiplier in the above formula will be 5 instead of 50, and the 
maximum rebate will be $0.075.
    The Exchange proposes to adopt a set of fees for complex orders in 
all multiply-listed index and ETF mini-options classes. The Exchange 
proposes a Public Customer rebate (for both Makers and Takers) for such 
orders of $0.03, which is slightly less than 1/10th the amount of the 
rebate for standard-sized complex Public Customer orders in all 
multiply-listed index and ETF options classes. As noted earlier, the 
cost to the Exchange to process quotes, orders and trades in Minis is 
the same as for standard options, and therefore, in some situations, 
the Exchange cannot provide a Minis rebate of equal to or greater than 
1/10th the amount provided for standard options transactions. As with 
standard-sized complex Public Customer orders in all multiply-listed 
index and ETF options classes, no Maker or Taker fee or rebate will 
apply to Public Customer Mini orders that trade with other Public 
Customer Mini orders.
    The Exchange proposes to adopt a Maker fee of $0.01 for C2 Market-
Maker complex orders in all multiply-listed index and ETF mini-options 
classes and of $0.02 for complex orders in all multiply-listed index 
and ETF mini-options classes from all other origins (except Public 
Customers, who will be provided the rebate described above). These 
amounts are exactly 1/10th the amounts of their respective 
corresponding fees for standard-sized complex orders in all multiply-
listed index and ETF options classes. The Exchange proposes to adopt a 
Taker fee of $0.03 for complex orders in all multiply-listed index and 
ETF mini-options classes from C2 Market-Makers and all other origins 
(except Public Customers, who will be provided the

[[Page 20963]]

rebate described above). This amount is slightly less than 1/10rh [sic] 
the corresponding fees for standard-sized complex orders in all 
multiply-listed index and ETF options classes, but is being utilized in 
order to maintain whole-penny fee rates and encourage trading of 
complex orders in all multiply-listed index and ETF mini-options 
classes.
    As with orders (both simple and complex) in all standard-sized 
multiply-listed index and ETF options classes, the Exchange proposes to 
assess no fee (and provide no rebate) for orders in all multiply-listed 
index and ETF mini-options classes that are Trades on the Open.
    The Exchange proposes to not establish a separate set of Mini fees 
for complex order transactions in equity options. Instead, Minis will 
be encompassed within the current statement on the Exchange's Fees 
Schedule that for all complex order transactions in equity options 
classes, all components of such transactions (including simple, non-
complex orders and/or quotes that execute against a complex order) will 
be assessed no fee (or rebate).
    In order to comply with the Options Order Protection and Locked/
Crossed Market Plan (the ``Linkage Plan''), the Exchange uses various 
means of accessing better priced interest located on other exchanges 
and assesses fees associated with the execution of orders routed to 
other exchanges.\6\ For Public Customers, these fees involve, in some 
circumstances, the passing-through of the actual transaction fee 
assessed by the exchange(s) to which the order was routed, while in 
others, and for non-Customers, a set amount is assessed. These fees are 
designed to help recover the Exchange's costs in routing orders to 
other exchanges. The Exchange believes that the Options Clearing 
Corporation (``OCC'') and broker-dealers will be assessing the same 
charges for Minis as are assessed to standard options. Further, the 
Exchange's costs for routing Minis through to other exchanges will be 
the same as the Exchange's costs for routing standard options to other 
exchanges. As such, the Exchange intends apply to Mini options the same 
Linkage Fees structure as applies to standard options. The Exchange 
notes that participants can avoid the Linkage Fees in several ways. 
First, they can simply route to the exchange with the best priced 
interest. The Exchange, in recognition of the fact that markets can 
move while orders are in flight, also offers participants the ability 
to utilize order types that do not route to other exchanges. 
Specifically, the Immediate-or-Cancel Order (``IOC Order'') is one such 
order that would never route to another exchange. For all these 
reasons, the Exchange believes it is reasonable to apply to Mini 
options the same Linkage Fees structure as applies to standard options.
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    \6\ See C2 Fees Schedule, Section 2.
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    Currently, the Exchange assesses a $0.002 per contract Options 
Regulatory Fee (``ORF'').\7\ The Exchange is proposing to charge the 
same rate for transactions in Mini options, $0.002 per contract, since, 
as noted, the costs to the Exchange to process quotes, orders, trades 
and the necessary regulatory surveillance programs and procedures in 
Minis are the same as for standard option contracts. As such, the 
Exchange feels that it is appropriate to charge the ORF at the same 
rate as the standard option contract. The Exchange also assesses a Firm 
Designated Examining Authority Fee (the ``DEA Fee'') of $0.40 per 
$1,000 of gross revenue.\8\ Any revenue that comes from Mini trading 
would count towards the DEA Fee (as does other revenue).
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    \7\ See C2 Fees Schedule, Section 8E.
    \8\ See C2 Fees Schedule, Section 8A.
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    Similarly, because, as noted, the costs to the Exchange to process 
quotes, orders, trades and the necessary regulatory surveillance 
programs and procedures in Minis are the same as for standard option 
contracts, the Exchange will assess to Mini transactions the same PULSe 
Workstation Away-Market Routing, Away-Market Routing Intermediary, and 
C2 Routing fees (the ``PULSe Workstation Fees'') \9\ as are assessed to 
standard options transactions.
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    \9\ See C2 Fees Schedule, Section 11A.
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    When the Exchange amended its Fees Schedule to institute a new fee 
structure for simple, non-complex orders in equity options classes,\10\ 
this new fee structure was placed in Section 1B of the Fees Schedule, 
and the fees that had previously been listed in Section 1B became 
listed in Section 1C. However, the Exchange unintentionally failed to 
update some of the references in Section 1C to reflect that re-
numbering. As such, two places in Section 1C reference ``this Section 
1B'' even though that is now Section 1C. The Exchange hereby proposes 
to amend those references so that they accurately refer to ``this 
Section 1C''.
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    \10\ See Securities Exchange Act Release No. 68792 (January 31, 
2013), 78 FR 8621 (February 6, 2013) (SR-C2-2013-004). For details 
on this new structure, see C2 Fees Schedule, Section 1B.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\11\ Specifically, the Exchange believes the proposed rule change 
is consistent with Section 6(b)(4) of the Act,\12\ which requires that 
Exchange rules provide for the equitable allocation of reasonable dues, 
fees, and other charges among its Trading Permit Holders and other 
persons using its facilities.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that its proposal to assess a Public Customer 
Maker rebate of $0.04 for simple, non-complex orders in all multiply-
listed index and ETF mini-options classes is reasonable because this 
provides Public Customer Makers with a rebate for such transactions 
(instead of having to pay a fee). The Exchange believes this rebate is 
equitable and not unfairly discriminatory because it is slightly more 
than 1/10th the $0.37 rebate for standard-sized Public Customer simple, 
non-complex Maker orders in all multiply-listed index and ETF options 
classes. The Exchange does not wish to apply sub-penny transaction fees 
for multiply-listed index and ETF mini options, and the slight increase 
over 1/10th the rebate for standard-sized Public Customer simple, non-
complex Maker orders in all multiply-listed index and ETF options 
classes is intended to incentivize Public Customers to send simple, 
non-complex orders in all multiply-listed index and ETF mini-options 
classes to the Exchange. The Exchange believes that its proposal to 
assess a Public Customer Mini Taker fee of $0.04 is reasonable, 
equitable and not unfairly discriminatory because it is slightly less 
than 1/10th the $0.44 fee for standard-sized Public Customer simple, 
non-complex Taker orders in all multiply-listed index and ETF options 
classes. The slight decrease below 1/10th the fee for standard-sized 
Public Customer simple, non-complex Taker orders in all multiply-listed 
index and ETF options classes is intended to incentivize Public 
Customers to send simple, non-complex orders in all multiply-listed 
index and ETF mini-options classes to the Exchange.
    The Exchange believes that its proposal to adopt a C2 Market-Maker 
Maker rebate of $0.04 for simple, non-complex orders in all multiply-
listed index and ETF mini-options classes is

[[Page 20964]]

reasonable because it is 1/10th the amount of the rebate for standard-
sized C2 Market-Maker simple, non-complex Maker orders in all multiply-
listed index and ETF options classes. The Exchange believes that its 
proposal to adopt a C2 Market-Maker Mini Taker fee of $0.05 for simple, 
non-complex orders in all multiply-listed index and ETF mini-options 
classes is reasonable, equitable and not unfairly discriminatory. While 
it is slightly more than 1/10th the $0.45 fee for standard-sized C2 
Market-Maker simple, non-complex Taker orders in all multiply-listed 
index and ETF options classes, as noted earlier, the cost to the 
Exchange to process quotes, orders and trades in Minis is the same as 
for standard options, and therefore, in some situations, the Exchange 
must assess a Minis fee of more than 1/10th the amount assessed for 
standard options transactions. Further, the Exchange does not desire to 
assess sub-penny transaction fees for simple, non-complex orders in all 
multiply-listed index and ETF mini-options classes, and this amount 
allows the Exchange to assess a Taker fee that is $0.01 more than the 
Maker rebate for simple, non-complex C2 Market-Maker orders in all 
multiply-listed index and ETF mini-options classes, and such a 
difference is necessary for reasons of economic viability. The Exchange 
believes that it is equitable and not unfairly discriminatory to assess 
a higher Taker fee for simple, non-complex C2 Market-Maker orders in 
all multiply-listed index and ETF mini-options classes than for 
corresponding Taker orders in those classes that come from all other 
origins (except Public Customers) because the Exchange is also 
providing a higher Maker rebate to C2 Market-Makers for such orders.
    The Exchange believes that its proposal to adopt a Maker rebate of 
$0.03 for simple, non-complex orders in all multiply-listed index and 
ETF mini-options classes from all other origins (Professional Customer, 
Firm, Broker/Dealer, non-C2 Market-Maker, JBO, etc.) is reasonable, 
equitable and not unfairly discriminatory. While this amount is 
slightly less than 1/10th the amount of the rebate for standard-sized 
simple, non-complex Maker orders in all multiply-listed index and ETF 
options classes from all other origins, as noted earlier, the cost to 
the Exchange to process quotes, orders and trades in Minis is the same 
as for standard options, and therefore, in some situations, the 
Exchange cannot provide a Minis rebate of equal to or greater than 1/
10th the amount provided for standard options transactions. The 
Exchange believes that its proposal to adopt a Taker fee of $0.04 for 
simple, non-complex orders in all multiply-listed index and ETF mini-
options classes from all other origins is reasonable, equitable and not 
unfairly discriminatory because it is slightly less than 1/10th the 
$0.45 fee for standard-sized simple, non-complex Taker orders in all 
multiply-listed index and ETF options classes from all other origins. 
The Exchange offers this slightly-lower-than-1/10th fee in order to 
prevent the Exchange from having a difference of more than $0.01 
between the rebate offered and fee assessed for simple, non-complex 
orders in all multiply-listed index and ETF mini-options classes from 
all other origins. Further, the offering of a Maker rebate that is 
slightly lower than 1/10th that offered for standard options is offset 
by the fact that the Exchange is offering a fee of slightly lower than 
1/10th that assessed for standard options.
    The Exchange believes that it is equitable and not unfairly 
discriminatory to offer a fee and rebate structure for simple, non-
complex Public Customer orders in all multiply-listed index and ETF 
mini-options classes that does not include a difference between the 
Maker rebate and Taker fee (as opposed to simple, non-complex orders 
from C2 Market-Makers and all other origins in all multiply-listed 
index and ETF mini-options classes) because this is intended to 
incentivize Public Customers to send simple, non-complex orders in all 
multiply-listed index and ETF mini-options classes to the Exchange. 
This is beneficial to all other participants on the Exchange who 
generally seek to trade with Public Customer order flow and who benefit 
from the increased volume and trading opportunities. Further, the 
options marketplace has a history of offering preferential pricing to 
Customers. The Exchange believes that it is equitable and not unfairly 
discriminatory to assess to C2 Market-Makers a higher Taker fee for 
simple, non-complex orders in all multiply-listed index and ETF mini-
options classes than that assessed to all other market participants 
because the Exchange is also offering a higher Maker rebate to C2 
Market-Makers for such orders than is being offered to orders from all 
other origins (except Public Customers), and because this allows the 
Exchange to maintain a $.01 difference between the C2 Market-Maker 
Taker fee and Maker rebate (the same difference as is being maintained 
between the Taker fee and Maker rebate for orders from all other 
origins (except Public Customers)).
    The Exchange believes that it is reasonable to assess no fees for 
Mini Trades on the Open because this will allow all market participants 
to avoid paying fees for such trades. The Exchange believes that this 
is equitable and not unfairly discriminatory because it will apply to 
all market participants, and because the Exchange currently does not 
assess fees for Trades on the Open for standard options.
    The Exchange believes that the proposed Mini fee and rebate 
structure (including maximum fees and rebates) for simple, non-complex 
orders in equity options classes is reasonable, equitable and not 
unfairly discriminatory because the proposed amounts are all 1/10th the 
amounts of the fees and rebates (including maximum fees and rebates) 
for simple, non-complex orders in standard-sized equity options 
classes.
    The Exchange believes that its proposal to set a Public Customer 
rebate (for both Makers and Takers) for complex orders in all multiply-
listed index and ETF mini-options classes of $0.03 is reasonable, 
equitable and not unfairly discriminatory. This amount is slightly less 
than 1/10th the amount of the rebate for standard-sized complex Public 
Customer orders in all multiply-listed index and ETF options classes. 
Nonetheless, this is still a rebate (as opposed to a fee). Further, as 
noted earlier, the cost to the Exchange to process quotes, orders and 
trades in Minis is the same as for standard options, and therefore, in 
some situations, the Exchange cannot provide a Minis rebate of equal to 
or greater than 1/10th the amount provided for standard options 
transactions. The Exchange believes that applying the statement that no 
Maker or Taker fee or rebate will apply to Public Customer Mini orders 
that trade with other Public Customer complex orders in all multiply-
listed index and ETF options classes to Minis is reasonable because it 
would not be economically viable to give a rebate to both sides of an 
order or to give to one side of an order if the other side was not 
assessed a fee. This is equitable and not unfairly discriminatory 
because this statement applies to Public Customer complex orders in all 
multiply-listed index and ETF standard-sized options classes.
    The Exchange believes the proposal to adopt a Maker fee of $0.01 
for C2 Market-Maker complex orders in all multiply-listed index and ETF 
mini-options classes and of $0.02 for complex orders in all multiply-
listed index and ETF mini-options classes from all other

[[Page 20965]]

origins is reasonable, equitable and not unfairly discriminatory. These 
amounts are exactly 1/10th the amounts of their respective 
corresponding fees for standard-sized complex orders in all multiply-
listed index and ETF options classes. The Exchange believes the 
proposal to adopt a Taker fee of $0.03 for complex orders in all 
multiply-listed index and ETF mini-options classes from C2 Market-
Makers and all other origins is reasonable, equitable and not unfairly 
discriminatory. This amount is slightly less than 1/10th the 
corresponding fees for standard-sized complex orders in all multiply-
listed index and ETF options classes and is intended to encourage 
trading of complex orders in all multiply-listed index and ETF mini-
options classes.
    The Exchange believes that it is equitable and not unfairly 
discriminatory to offer rebates for both Maker and Taker complex Public 
Customer orders in all multiply-listed index and ETF mini-options 
classes (as opposed to complex orders from C2 Market-Makers and all 
other origins in all multiply-listed index and ETF mini-options 
classes) because this is intended to incentivize Public Customers to 
send complex orders in all multiply-listed index and ETF mini-options 
classes to the Exchange. This is beneficial to all other participants 
on the Exchange who generally seek to trade with Public Customer order 
flow and who benefit from the increased volume and trading 
opportunities. Further, the options marketplace has a history of 
offering preferential pricing to Customers. The Exchange believes that 
it is equitable and not unfairly discriminatory to assess to C2 Market-
Makers a lower Maker fee for complex orders in all multiply-listed 
index and ETF mini-options classes than that assessed to all other 
market participants (excluding Public Customers) because C2 Market-
Makers take on obligations, such as quoting obligations, that other 
market participants do not need to take on.
    The Exchange believes that its proposal to encompass Minis within 
the current statement on the Exchange's Fees Schedule that for all 
complex order transactions in equity options classes, all components of 
such transactions (including simple, non-complex orders and/or quotes 
that execute against a complex order) will be assessed no fee (or 
rebate) is reasonable because it will allow market participants trading 
complex Mini equity options to avoid paying a fee for doing so. The 
Exchange believes this is equitable and not unfairly discriminatory 
because it applies to all market participants, and because this 
statement currently applies to standard-sized complex equity options.
    The Exchange believes that it is equitable and not unfairly 
discriminatory to offer different fee and rebate structures for simple 
and complex orders in Mini classes because the nature, incentives and 
economics of trading for simple and complex orders can be very 
different. Further, the Exchange currently offers different fee and 
rebate structures for simple and complex orders in standard-sized 
options classes,\13\ and the International Securities Exchange, LLC 
(``ISE'') proposes to assess different fees and rebates for simple and 
complex orders in Mini options.\14\ The Exchange believes that it is 
equitable and not unfairly discriminatory to offer different fee and 
rebate structures for multiply-listed index and ETF options and for 
multiply-listed equity options because the nature, incentives and 
economics of trading of index and ETF options and equity options can be 
very different. Further, the Exchange currently offers different fee 
and rebate structures for index and ETF options and equity options,\15\ 
as does the Chicago Board Options Exchange, Incorporated 
(``CBOE'').\16\
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    \13\ See C2 Fees Schedule, Section 1.
    \14\ See SR-ISE-2013-24, available at http://www.ise.com/assets/
documents/OptionsExchange/legal/proposed_rule_changes/2013/SR-ISE-
2013-24$Proposed_Rule_Change_to_Establish_Fees_and_Rebates_
for_Mini_Options$20130314.pdf.
    \15\ See C2 Fees Schedule, Section 1.
    \16\ See CBOE Fees Schedule, page 1.
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    The Exchange believes that subjecting Minis to the same amounts as 
standard options for purposes of PULSe Workstation Fees is reasonable 
because the costs of operating and maintaining the PULSe Workstations 
for Mini transactions are the same as for standard options 
transactions. This is equitable and not unfairly discriminatory because 
the same fee amounts will be assessed for Minis as for standard 
options, and because such fees will apply to all Mini transactions.
    The Exchange believes that its proposal to treat Mini options the 
same as standard options for purposes of the Linkage Fees is 
reasonable, equitable and not unfairly discriminatory for the following 
reasons. The Linkage Fees are designed to help recover the Exchange's 
costs in routing orders to other exchanges. The Exchange believes that 
the OCC and broker-dealers will be assessing the same charges for Minis 
as are assessed to standard options. Further, the Exchange's costs for 
routing Minis through to other exchanges will be the same as the 
Exchange's costs for routing standard options to other exchanges. As 
such, the Exchange believes that it makes sense apply to Mini options 
the same Linkage Fees structure as applies to standard options. The 
Exchange notes that participants can avoid the Linkage Fees in several 
ways. First, they can simply route to the exchange with the best priced 
interest. The Exchange, in recognition of the fact that markets can 
move while orders are in flight, also offers participants the ability 
to utilize order types that do not route to other exchanges. 
Specifically, the IOC Order is one such order that would never route to 
another exchange. For all these reasons, the Exchange believes it is 
reasonable and equitable to apply to Mini options the same Linkage Fees 
structure as applies to standard options. Further, the Exchange 
believes that it is equitable and not unfairly discriminatory to treat 
Mini options the same as standard options for purposes of the Linkage 
Fees for that tautological reason; Mini options will be treated the 
same as standard options for the purposes of Linkage Fees. Finally, 
since the Linkage Fees will apply to all participants in Minis as they 
apply for standard options, and because such Linkage Fees have not 
previously been found to be unreasonable, inequitable or unfairly 
discriminatory, the Exchange believes this to be the case for Minis as 
well.
    The Exchange believes that the proposal to assess the same ORF 
amount to Minis as are assessed to standard options is reasonable 
because, as noted, the costs to the Exchange to process quotes, orders, 
trades and the necessary regulatory surveillance programs and 
procedures in Minis are the same as for standard option contracts. As 
such, the Exchange feels that it is appropriate to charge the ORF at 
the same rate as the standard option contract. Further, the Exchange 
notes that the cost to perform surveillance to ensure compliance with 
various Exchange and industry-wide rules is no different for a Mini 
option than it is for a standard option contract. Reducing the ORF for 
Mini options could result in a higher ORF for standard options. As 
such, the Exchange currently believes that the appropriate approach is 
to treat both Minis and standard options the same with respect to the 
amount of the ORF that is being charged. The proposed ORF for Minis is 
equitable and not unfairly discriminatory because the same ORF amount 
is currently assessed to standard options. Further, all Minis will be 
assessed the ORF. The Exchange believes that it is reasonable, 
equitable and not unfairly discriminatory to count

[[Page 20966]]

revenue from Mini trading towards the DEA Fee because revenue from Mini 
trading is revenue, and other revenue counts towards the DEA Fee. The 
Exchange also believes that this is equitable and not unfairly 
discriminatory because it will apply to all market participants to whom 
the DEA Fee apply.
    The Exchange believes that the proposed change to correct the 
references in Section 1C of the Fees Schedule is consistent with the 
Section 6(b)(5) \17\ 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. Correcting 
the references prevents confusion, thereby removing impediments to and 
perfecting the mechanism of a free and open market and a national 
market system, and, in general, protecting investors and the public 
interest.
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    \17\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The Exchange 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. The proposed change designed 
to provide greater specificity and precision within the Fee Schedule 
with respect to the fees applicable to Minis.
    The Exchange believes that adopting fees for Minis that are in some 
cases lower than for standard contracts, but in other cases the same as 
for standard contracts, strikes the appropriate balance between fees 
applicable to standard contracts versus fees applicable to Minis, and 
will not impose a burden on competition among various market 
participants on the Exchange not necessary or appropriate in 
furtherance of the purposes of the Act. To the extent that the Exchange 
proposes assessing different fee amounts to different Exchange market 
participants, the Exchange believes that such differing assessments 
will not impose an unnecessary burden on intramarket competition due to 
the different natures of such market participants and different 
obligations imposed on such market participants (as described above). 
Further, in the cases in which some market participants are assessed 
lower fee amounts than others, the Exchange often does so with the 
intention of attracting greater trading from those market participants, 
and the increased volume and trading opportunities benefits all market 
participants.
    The Exchange believes that the proposed fees structure for Mini 
options will not impose an unnecessary burden on intermarket 
competition. The Exchange believes that its proposed fees structure for 
Minis is competitive with those being offered by other exchanges. As 
such, the Exchange believes that the proposed fees structure for Minis 
will increase intermarket competition, which benefits all market 
participants. To the extent that market participants on other exchanges 
may be attracted to trade on C2 by the proposed fees structure for Mini 
options, they are always welcome to become market participants on C2.
    As Minis are a new product being introduced into the listed options 
marketplace, the Exchange is unable at this time to absolutely 
determine the impact that the fees and rebates proposed herein will 
have on trading in Minis. That said, however, the Exchange believes 
that the rates proposed for Minis would not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
    Finally, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues. In such an environment, the Exchange must continually 
review, and consider adjusting, its fees and credits to remain 
competitive with other exchanges. For the reasons described above, the 
Exchange believes that the proposed rule change reflects this 
competitive environment.

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 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \18\ and paragraph (f) of Rule 19b-4 \19\ 
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.
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR [sic] 240.19b-4(f).
---------------------------------------------------------------------------

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-C2-2013-017 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-C2-2013-017. 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 such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change;

[[Page 20967]]

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-
2013-017, and should be submitted on or before April 29, 2013.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08089 Filed 4-5-13; 8:45 am]
BILLING CODE 8011-01-P