
[Federal Register Volume 76, Number 217 (Wednesday, November 9, 2011)]
[Notices]
[Pages 69783-69786]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-29036]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65681; File No. SR-C2-2011-031]


Self-Regulatory Organizations; C2 Options Exchange, Incorporated; 
Notice of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, 
Concerning Industry Directors and the Nomination of Representative 
Directors

November 3, 2011.
    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 21, 2011, the C2 Options Exchange, Incorporated 
(``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. On November 1, 2011, the Exchange submitted a technical 
amendment (``Amendment No. 1'') to the proposed rule change.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ As provided in the instructions to Form 19b-4, the Exchange 
noted in Item 2 of its filing that it needed to obtain, but had not 
yet obtained, formal approval from its Board of Directors for the 
Bylaw, Certificate of Incorporation, and Voting Agreement changes 
set forth in this proposed rule change. The Exchange also noted that 
it needed to obtain, but had not yet obtained, approval from CBOE 
Holdings, the Exchange's sole stockholder, of the changes to the 
Certificate of Incorporation and Voting Agreement. The Exchange 
stated that once these approvals were obtained, it would file a 
technical amendment to this proposed rule change to reflect these 
approvals. Amendment No. 1 reflected that the requisite approvals 
were obtained on November 1, 2011, and represented that no further 
action in connection with this proposed rule change was required. In 
addition, Amendment No. 1 contained the Exchange's consent to an 
extension of time for Commission consideration of this proposed rule 
change for an additional thirty-five days after November 1, 2011 
(the filing date of this amendment).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to: (i) Amend its Bylaws to eliminate the 
requirement that at least 30% of the members of the Board of Directors 
must be Industry Directors; (ii) amend its Bylaws relating to its 
Advisory Board; (iii) amend its Bylaws relating to the nomination of 
Representative Directors; and (iv) make conforming changes to the C2 
Certificate of Incorporation and the Voting Agreement between C2 and 
CBOE Holdings, Inc. (``CBOE Holdings''). The text of the proposed 
amendments to C2's Bylaws, C2's Certificate of Incorporation and the 
Voting Agreement are available on the Exchange's Web site (http://www.cboe.org/legal), at the Exchange's Office of the Secretary and at 
the Commission.

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

[[Page 69784]]

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
    The purpose of this proposed rule change is to (i) Amend C2's 
Bylaws to eliminate the requirement that at least 30% of the members of 
the Board of Directors must be Industry Directors; (ii) amend C2's 
Bylaws relating to its Advisory Board; (iii) amend C2's Bylaws relating 
to the nomination of Representative Directors; and (iv) make conforming 
changes to C2's Certificate of Incorporation and the Voting Agreement 
between C2 and CBOE Holdings.
(1) Elimination of 30% Industry Director Requirement
    Based on the Exchange's experience since its launch in October 
2010, the Exchange believes that it is no longer necessary that its 
Bylaws contain a requirement that its Board of Directors be composed of 
at least 30% Industry Directors. The Exchange believes that eliminating 
the requirement that at least 30% of its Board be composed of Industry 
Directors as defined in the Bylaws provides it with appropriate 
flexibility as it evaluates the structure and composition of its Board 
in the future. The Exchange notes that it has not made a determination 
as to whether it will reduce (or eliminate) the number of directors on 
its Board who qualify as an Industry Director as defined in the Bylaws. 
Even if the number of individuals who would technically qualify as 
Industry Directors on the Board of Directors is reduced, the Exchange 
recognizes the importance of having directors who have industry 
expertise and knowledge (whether those directors are Industry Directors 
or Non-Industry Directors). Additionally, no matter what the 
composition of its Board is, the Exchange intends to maintain the fair 
representation of its Trading Permit Holders in the selection of its 
directors and administration of its affairs consistent with Section 
6(b)(3) of the Securities Exchange Act of 1934, as amended (``Act''), 
as further described below.
    In the event the Exchange determines in the future to reduce the 
number of directors on its Board who would qualify as an Industry 
Director, the Exchange believes that a Board composed of all or nearly 
all Non-Industry Directors would be consistent with the Act, including 
Section 6(b)(3) of the Act relating to the fair representation of C2 
Trading Permit Holders in the selection of directors and the 
administration of the Exchange.\4\ The Exchanges also notes that in 
such a case, at all times at least 20% of the directors serving on the 
Board shall be Representative Directors nominated (or otherwise 
selected through the petition process) by the Representative Director 
Nominating Body as provided in Section 3.2 of the Bylaws. Under Section 
3.2, the Representative Director Nominating Body provides a mechanism 
for Trading Permit Holders to provide input with respect to the 
nominees for Representative Directors and also allows for Trading 
Permit Holders to nominate alternative candidates by petition.
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    \4\ See, e.g., Securities Exchange Act Release No. 48946 
(December 17, 2003), 68 FR 74678 (December 24, 2003) (approving SR-
NYSE-2003-34).
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    In connection with the proposed elimination of the requirement that 
at least 30% of the Board shall be composed of Industry Directors, C2 
also proposes to amend Section 4.4 of its Bylaws relating to the 
composition of the Nominating and Governance Committee. Specifically, 
C2 proposes to delete the clause that states that the Nominating and 
Governance Committee shall consist of both Industry and Non-Industry 
Directors, given that at some point in the future the Board may not 
have Industry Directors serving on it.
(2) Amendments Relating to the Advisory Board
    Recently, C2 amended its Bylaws to provide for the establishment of 
an Advisory Board which shall advise the Office of the Chairman 
regarding matters of interest to Trading Permit Holders. C2 now 
proposes to amend Section 6.1 of the Bylaws to clarify that the 
Exchange ``will'' (as opposed to ``may'') have an Advisory Board, which 
shall advise the Board of Directors in addition to the Office of the 
Chairman regarding matters that impact Trading Permit Holders. C2 also 
proposes to amend Section 6.1 of its Bylaws to expressly provide that 
at least two members of the Advisory Board shall be Trading Permit 
Holders or persons associated with Trading Permit Holders. C2 notes 
that the Advisory Board provides a mechanism for Trading Permit Holders 
to provide industry feedback to C2's Chairman and CEO, Executive Vice 
Chairman, President and Lead Director, all of whom are members of the 
Advisory Board, consistent with Section 6(b)(3) of the Act.
(3) Nomination of Representative Directors
    The Exchange Bylaws will continue to require that at least 20% of 
C2's directors must be Representative Directors. However, the Exchange 
proposes to amend its Bylaws in a number of respects with regard to the 
nomination process for the Representative Directors. Currently, as 
described in Section 3.2 of the Bylaws, the Representative Directors 
are nominated (or otherwise selected through a petition process) by the 
Industry-Director Subcommittee of the C2 Nominating and Governance 
Committee. The Industry-Director Subcommittee is composed of all of the 
Industry Directors serving on the Nominating and Governance Committee. 
C2 Trading Permit Holders may nominate alternative Representative 
Director candidates to those nominated by the Industry Director 
Subcommittee, in which case a Run-off Election is held in which C2's 
Trading Permit Holders vote to determine which candidates will be 
elected to the C2 Board of Directors to serve as Representative 
Directors.
    Because it is possible that at some point in the future C2's Board 
may not have Industry Directors as defined in the Bylaws serving on it, 
C2 proposes to amend its Bylaws to eliminate the requirement in Section 
3.2 that the Representative Directors must be Industry Directors. In 
addition, C2 proposes to incorporate into the Bylaws the concept of a 
Representative Director Nominating Body which shall mean the current 
Industry-Director Subcommittee of the Nominating and Governance 
Committee if there are at least two Industry Directors on the 
Nominating and Governance Committee. If the Nominating and Governance 
Committee has less than two Industry Directors as defined in the 
Bylaws, then the Representative Director Nominating Body shall mean the 
Trading Permit Holders Subcommittee of the Advisory Board.\5\ The 
Representative Director Nominating Body will nominate the 
Representative Directors in accordance with the provisions of Section 
3.2 of the Bylaws. In that regard, it will perform the functions 
currently performed by the Industry-Director Subcommittee.
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    \5\ See proposed new Bylaw definition 1.1(k) and the proposed 
changes to Sections 4.4 and 6.1 of the Bylaws.

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[[Page 69785]]

    In addition, C2 proposes to amend Section 3.2 of the Bylaws with 
regard to the time period by which the Representative Director nominees 
are announced via circular to the Trading Permit Holders, the deadline 
for Trading Permit Holders to nominate alternative candidates via 
petition, and the timing of any Run-Off Election. Presently, Section 
3.2 of the Bylaws provides that the Industry-Director Subcommittee 
shall issue a circular announcing its Representative Director nominees 
not later than January 15th, or the first business day thereafter if 
the 15th is not a business day. Trading Permit Holders may nominate 
alternative candidates for the Representative Director positions by 
petition, which petition needs to be filed with the Secretary of the 
Exchange not later than 5 p.m. on the Monday preceding the first Friday 
in February (or the first business day thereafter in the event that 
Monday occurs on a holiday). If one or more valid petitions are 
received, a Run-Off Election is held at least 20 days prior to the 
mailing of any notice of the annual meeting.
    C2 believes that it would be useful and appropriate to modify these 
deadlines in order to provide the Exchange, the Nominating and 
Governance Committee and the Representative Director Nominating Body 
with additional flexibility. The Exchange proposes to amend Section 3.2 
to provide that:

     The Representative Director Nominating Body shall issue 
a circular to the Trading Permit Holders identifying the 
Representative Director nominees not earlier than December 1st and 
not later than January 15th, or the first business day thereafter if 
January 15th is not a business day;
     Trading Permit Holders may nominate alternative 
candidates for election to the Representative Director positions to 
be elected in a given year by submitting a petition to the Secretary 
not later than 5 p.m. (Chicago time) on the 10th business day 
following the issuance of the circular to the Trading Permit Holders 
identifying the Representative Director nominees selected by the 
Representative Director Nominating Body (``Petition Deadline''). The 
Exchange believes that 10 business days is a reasonable and 
sufficient amount of time for Trading Permit Holders to obtain a 
petition signed by individuals representing not more than 10% of the 
total outstanding Trading Permits at that time to nominate by 
petition alternative candidates for election to the Representative 
Director positions. C2 notes that 10 business days is consistent 
with the minimum time period that was effective in 2010 and that 
would be available in 2011 under the existing Bylaws for the 
nomination of alternative candidates by petition; and
     The Run-off Election will be held not more than 45 days 
after the Petition Deadline.

    As noted, the Exchange believes that modifying these deadlines as 
proposed will provide the Exchange with additional flexibility and 
enable the Exchange to complete the process for determining its 
nominees at an earlier point in time without changing the time period. 
Modifying these deadlines also will assist in synchronizing C2's 
nomination process with the nomination process for C2's parent company, 
CBOE Holdings. In addition to the above changes, C2 proposes to replace 
all references to the Industry-Director Subcommittee in the Bylaws with 
the term Representative Director Nominating Body.
    Finally, C2 proposes to amend Section 2.2 of its Bylaws relating to 
the timing of its annual meeting to clarify that in no event shall the 
annual meeting date each year be prior to the completion of the process 
for the nomination of the Representative Directors for that annual 
meeting as set forth in Sections 3.1 and 3.2.
    C2 is not proposing to amend any other provisions with regard to 
the timing and process for the nomination of the Representative 
Directors.
(4) Amendment to Certificate of Incorporation and Voting Agreement
    C2 also proposes to make conforming changes to its Certificate of 
Incorporation and the Voting Agreement between it and its parent 
company, CBOE Holdings. Specifically, C2 proposes to amend its 
Certificate of Incorporation and the Voting Agreement to replace the 
references to the Industry-Director Subcommittee with the term 
Representative Director Nominating Body. It also proposes to make non-
substantive changes to the Voting Agreement.
2. Statutory Basis
    For the reasons set forth above, C2 believes that this filing is 
consistent with Section 6(b) of the Act,\6\ in general, and furthers 
the objectives of Section 6(b)(1) of the Act \7\ and Section 6(b)(5) of 
the Act \8\ in particular, in that (i) it enables C2 to be so organized 
as to have the capacity to be able to carry out the purposes of the Act 
and to comply, and to enforce compliance by its Trading Permit Holders 
and persons associated with its Trading Permit Holders, with the 
provisions of the Act, the rules and regulations thereunder, and the 
rules of C2 and (ii) to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of, a free and open market 
and, in general, to protect investors and the public interest. 
Specifically, C2 believes that the proposed changes will improve and 
add greater flexibility to C2's governance structure (i) by eliminating 
the requirement that the Board of Directors shall be composed of at 
least 30% Industry Directors as defined in the Bylaws; (ii) by 
modifying the process for the nomination of Representative Directors, 
including granting the Trading Permit Holders and persons associated 
with Trading Permit Holders on the Advisory Board the authority to 
nominate the Representative Directors in those instances in which the 
Nominating and Governance Committee has less than two Industry 
Directors; (iii) by amending the Bylaws to provide that the Exchange 
will establish an Advisory Board, which C2 views as a useful vehicle 
for the Board to receive input from the perspective of Trading Permit 
Holders and with respect to matters of interest to Trading Permit 
Holders; and (iv) by modifying the deadlines relating to the nomination 
of the Representative Directors, which C2 believes will provide it, the 
Nominating and Governance Committee and the Representative Director 
Nominating Body with additional flexibility with respect to the timing 
of the nomination process so that the Exchange is not locked into 
specific dates that may not work well during a particular year. 
Additionally, C2 believes that this filing is consistent with Section 
6(b)(3) of the Act in that C2's Bylaws will continue to provide for the 
fair representation of C2 Trading Permit Holders in the selection of 
directors and the administration of the Exchange.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(1).
    \8\ 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

    The Exchange neither solicited nor received comments on the 
proposal.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to

[[Page 69786]]

90 days of such date if it finds such longer period to be appropriate 
and publishes its reasons for so finding or (ii) as to which the self-
regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.
    As reflected in Amendment No. 1, the Exchange has consented to an 
extension of time for Commission consideration of this proposal for an 
additional thirty-five days after the filing of Amendment No. 1.\9\
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    \9\ Amendment No. 1 was filed on November 1, 2011. See supra 
note 3 (describing Amendment No. 1).
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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-C2-2011-031 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-C2-2011-031. 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 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 offices 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-C2-2011-031, and should be submitted on or before 
November 30, 2011.

    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. 2011-29036 Filed 11-8-11; 8:45 am]
BILLING CODE 8011-01-P


