
[Federal Register Volume 76, Number 211 (Tuesday, November 1, 2011)]
[Notices]
[Pages 67510-67512]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-28227]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65630; File No. SR-C2-2011-030]


 Self-Regulatory Organizations; C2 Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Close Trading at 3 p.m. Chicago Time on the 
Last Day of Trading of Expiring P.M.-Settled S&P 500 Options

October 26, 2011.
    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 October 17, 2011, the 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 the 
Substance of the Proposed Rule Change

    Prior to the commencement of the listing and trading on C2 of 
Standard & Poor's 500 Index (``S&P 500'') options with third-Friday-of-
the-month (``Expiration Friday'') expiration dates for which the 
exercise settlement value will be based on the index value derived from 
the closing prices of component securities (``PM-settled''),\5\ the 
Exchange proposes to close trading at 3 p.m. Chicago time (all times 
referenced herein to be Chicago time) on the last day of trading of 
expiring P.M.-settled S&P 500 options. Non-expiring P.M.-settled S&P 
500 options will continue to trade until 3:15 p.m. The text of the 
proposed rule change is available on the Exchange's Web site (http://www.cboe.org/legal), at the Exchange's Office of the Secretary, and at 
the Commission.
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    \5\ Listing and trading of P.M.-settled S&P 500 options has 
already commenced, but the Exchange intends to have this change in 
place prior to the first Expiration Friday for such products. See 
email from Jeff Dritz, Attorney, C2, to Sara Hawkins, Special 
Counsel, Division of Trading and Markets, Commission on October 20, 
2011.
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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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On September 2, 2011, the Commission approved a rule change filed 
by the Exchange to permit, on a pilot basis, the listing and trading on 
C2 of PM-settled S&P 500 options.\6\ The Exchange now proposes, prior 
to the commencement of trading of such products, to close trading at 3 
p.m. on the last day of trading of expiring P.M.-settled S&P 500 
options. Non-expiring P.M.-settled S&P 500 options will continue to 
trade until 3:15 p.m.
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    \6\ See Securities Exchange Act Release No. 34-65256 (September 
2, 2011), 76 FR 55969 (September 9, 2011) (SR-C2-2011-008).
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    The S&P 500 is a capitalization-weighted index of 500 stocks from a 
broad range of industries. The component stocks are weighted according 
to the total market value of their outstanding shares. The impact of a 
component's price change is proportional to the issue's total market 
share value, which is the share price times the number of shares 
outstanding. These are summed for all 500 stocks and divided by a 
predetermined base value. The base value for the S&P 500 is adjusted to 
reflect changes in capitalization resulting from, among

[[Page 67511]]

other things, mergers, acquisitions, stock rights, and 
substitutions.\7\
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    \7\ See supra note 6.
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    PM-settled S&P 500 options will have a $100 multiplier, and the 
minimum trading increment would be $0.05 for options trading below 
$3.00 and $0.10 for all other series. Strike price intervals will be 
set no less than 5 points apart. Expiration processing would occur on 
Saturday following the Expiration Friday. The product will have 
European-style exercise, and because it is based on the S&P 500 index, 
there will be no position limits.\8\
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    \8\ See supra note 6.
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    PM-settled S&P 500 options will be priced in the market based on 
corresponding futures values. The primary listing markets for the 
component securities that comprise the S&P 500 close trading in those 
securities at 3 p.m. The primary listing exchanges for the component 
securities disseminate an official closing price of the component 
securities, which is used by S&P to calculate the exercise settlement 
value of the S&P 500. C2 believes that, under normal trading 
circumstances, the primary listing markets have sufficient bandwidth to 
prevent any data queuing that would cause any trades that are executed 
prior to the closing time from being reported after 3 p.m. Despite the 
fact that the exercise settlement value will be fixed at or soon after 
3 p.m., trading in expiring PM-settled S&P 500 options would continue, 
under current rules, for an additional fifteen minutes until 3:15 p.m. 
and will not be priced on corresponding futures values, but rather the 
known cash value. At the same time, the prices of non-expiring PM-
settled S&P 500 options series will continue to move and be priced in 
response to changes in corresponding futures prices.
    A potential pricing divergence could occur between 3 and 3:15 p.m. 
on the final trading day in expiring PM-settled S&P 500 options (e.g., 
switch from pricing off of futures to cash). Further, in a wholly 
electronic marketplace, the switch from pricing off of futures to cash 
can be a difficult and risky switchover for liquidity providers. As a 
result, without closing expiring contracts at 3 p.m., it is foreseeable 
that market-makers would react by widening spreads in order compensate 
for the additional risk. Therefore, the Exchange believes that, in 
order to mitigate potential investor confusion and the potential for 
increased costs to investors, it is appropriate to cease trading in 
expiring PM-settled S&P 500 options contracts at 3 p.m. The Exchange 
does not believe that the proposed change will impact volatility on the 
underlying cash market at the close on Expiration Friday.
    The proposed change is identical in nature to two effective rule 
changes filed by Chicago Board Options Exchange, Incorporated 
(``CBOE'').\9\ In those filings, CBOE changed the close of trading 
hours from 3:15 p.m. to 3 p.m. on the last day of trading in expiring 
End-of-Week (``EOW''), End-of-Month (``EOM'') and Quarterly Index 
(``QIX'') Expirations.\10\ In the current situation, the Exchange 
merely proposes to apply the precedent established regarding those PM-
settled products to expiring PM-settled S&P 500 options contracts.
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    \9\ See Securities Exchange Act Release No. 34-64243 (April 7, 
2011), 75 FR 20771 (April 13, 2011) (SR-CBOE-2011-038) and 
Securities Exchange Act Release No. 34-59676 (April 1, 2009), 74 FR 
16018 (April 8, 2009) (SR-CBOE-2009-020).
    \10\ See supra note 9.
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    Given the fact that the Commission approved the listing and trading 
of PM-settled S&P 500 options on a pilot basis and that such pilot 
program is scheduled to end on November 2, 2012, the rule change 
proposed herein would also terminate on November 2, 2012 (unless the 
pilot period for the listing and trading of PM-settled S&P 500 options 
were to be extended or the program made permanent).
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act \11\ and the rules and regulations thereunder and, in 
particular, the requirements of Section 6(b) of the Act.\12\ 
Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \13\ 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. Preventing continued trading on a product after 
the exercise settlement value has been fixed eliminates potential 
confusion and thereby protects investors and the public interest.
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    \11\ 15 U.S.C. 78s(b)(1).
    \12\ 15 U.S.C. 78f(b).
    \13\ 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 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 if consistent with the protection of 
investors and the public interest, provided that the self-regulatory 
organization has given the Commission written notice of its intent to 
file 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,\14\ the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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    \14\ The Exchange has satisfied this requirement.
    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of such 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 email to rule-comments@sec.gov. Please include 
File No. SR-C2-2011-030 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission,

[[Page 67512]]

100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File No. SR-C2-2011-030. 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 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the C2. 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 No. SR-C2-2011-030 and should be 
submitted on or before November 22, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-28227 Filed 10-31-11; 8:45 am]
BILLING CODE 8011-01-P


