Document ID: SEC-2013-1577-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: C2 Options Exchange, Inc.
Posted Date: 2013-09-09T04:00Z

[Federal Register Volume 78, Number 174 (Monday, September 9, 2013)]
[Notices]
[Pages 55128-55130]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-21814]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70301; File No. SR-C2-2013-032]

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

September 3, 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 August 21, 2013, C2 Options Exchange, Incorporated filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared by the self-regulatory organization. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    C2 Options Exchange, Incorporated (the ``Exchange'' or ``C2'') 
proposes to amend the Options Regulatory Fee. 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 has reevaluated the current amount of the Options 
Regulatory Fee (``ORF'') in light of better than expected trading 
volume so far in 2013 among other factors. In order to try to ensure 
that revenue collected from the ORF, in combination with other 
regulatory fees and fines, does not exceed the Exchange's total 
regulatory costs, the Exchange proposes to reduce the ORF from $.002 
per contract to zero. The proposed fee change would be operative on 
September 1, 2013. The Exchange intends to reevaluate the amount of the 
ORF again in connection with its annual budget review.
    The ORF is assessed by the Exchange to each Permit Holder for all 
options transactions executed or cleared by the Permit Holder that are 
cleared by The Options Clearing Corporation (``OCC'') in the customer 
range (i.e., transactions that clear in a customer account at OCC) 
regardless of the marketplace of execution. In other words, the 
Exchange imposes the ORF on all customer-range transactions executed by 
a Permit Holder, even if the transactions do not take place on the 
Exchange.\3\ The ORF also is charged for transactions that are not 
executed by a Permit Holder but are ultimately cleared by a Permit 
Holder.

[[Page 55129]]

In the case where a Permit Holder executes a transaction and a 
different Permit Holder clears the transaction, the ORF is assessed to 
the Permit Holder who executed the transaction. In the case where a 
non-Permit Holder executes a transaction and a Permit Holder clears the 
transaction, the ORF is assessed to the Permit Holder who clears the 
transaction. The ORF is collected indirectly from Permit Holders 
through their clearing firms by OCC on behalf of the Exchange.
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    \3\ Exchange rules require each Permit Holder to record the 
appropriate account origin code on all orders at the time of entry 
in order to allow the Exchange to properly prioritize and route 
orders and assess transaction fees pursuant to the rules of the 
Exchange and report resulting transactions to the OCC. C2 order 
origin codes are defined in C2 Regulatory Circular RG13-015. The 
Exchange represents that it has surveillances in place to verify 
that Trading Permit Holders mark orders with the correct account 
origin code.
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    The ORF is designed to recover a material portion of the costs to 
the Exchange of the supervision and regulation of Permit Holder 
customer options business, including performing routine surveillances, 
investigations, examinations, financial monitoring, as well as policy, 
rulemaking, interpretive and enforcement activities. The Exchange 
believes that revenue generated from the ORF, when combined with all of 
the Exchange's other regulatory fees and fines, will cover a material 
portion, but not all, of the Exchange's regulatory costs. The Exchange 
notes that its regulatory responsibilities with respect to Permit 
Holder compliance with options sales practice rules have largely been 
allocated to FINRA under a 17d-2 agreement. The ORF is not designed to 
cover the cost of that options sales practice regulation.
    The Exchange will continue to monitor the amount of revenue 
collected from regulatory fees and fines to ensure that it does not 
exceed the Exchange's total regulatory costs and to ensure the Exchange 
is meeting its revenue benchmarks. The Exchange may make other 
adjustments to the ORF in the future as necessary. The Exchange 
notifies Permit Holders of adjustments to the ORF via regulatory 
circular.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\4\ Specifically, the 
Exchange believes the proposed rule change is consistent with Section 
6(b)(4) of the Act,\5\ which provides that Exchange rules may provide 
for the equitable allocation of reasonable dues, fees, and other 
charges among its Permit Holders and other persons using its 
facilities. Additionally, the Exchange believes the proposed rule 
change is consistent with the Section 6(b)(5) \6\ requirement that the 
rules of an exchange not be designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4).
    \6\ Id. [sic]
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    The Exchange believes the proposed ORF reduction is reasonable in 
that it would help the Exchange try to ensure that revenue collected 
from the ORF, in combination with other regulatory fees and fines, does 
not exceed the Exchange's total regulatory costs in light of better 
than expected trading volume so far in 2013 and other factors.
    The Exchange believes the ORF is equitable and not unfairly 
discriminatory in that it is charged to all Permit Holders on all their 
transactions that clear in the customer range at the OCC. Moreover, the 
Exchange believes the ORF ensures fairness by assessing higher fees to 
those Permit Holders that require more Exchange regulatory services 
based on the amount of customer options business they conduct. 
Regulating customer trading activity is much more labor intensive and 
requires greater expenditure of human and technical resources than 
regulating non-customer trading activity, which tends to be more 
automated and less labor-intensive. As a result, the costs associated 
with administering the customer component of the Exchange's overall 
regulatory program are materially higher than the costs associated with 
administering the non-customer component (e.g., Permit Holder 
proprietary transactions) of its regulatory program.\7\
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    \7\ If the Exchange changes its method of funding regulation or 
if circumstances otherwise change in the future, the Exchange may 
decide to modify the ORF or assess a separate regulatory fee on 
Permit Holder proprietary transactions if the Exchange deems it 
advisable.
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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 that is not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change is not 
designed to address any competitive issues. Rather, the proposed rule 
change is designed to help the Exchange to adequately fund its 
regulatory activities while seeking to ensure that total regulatory 
revenues do not exceed total regulatory costs.

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 \8\ and paragraph (f) of Rule 19b-4 \9\ 
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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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f).
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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-C2-2013-032 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-C2-2013-032. 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

[[Page 55130]]

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; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make publicly available. All 
submissions should refer to File Number SR-C2-2013-032 and should be 
submitted on or before September 30, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-21814 Filed 9-6-13; 8:45 am]
BILLING CODE 8011-01-P