Document ID: SEC-2010-1715-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: C2 Options Exchange, Inc
Posted Date: 2010-11-09T05:00Z

[Federal Register: November 9, 2010 (Volume 75, Number 216)]
[Notices]               
[Page 68844-68846]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09no10-96]                         

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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 rule-comments@sec.gov. 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