
[Federal Register Volume 77, Number 5 (Monday, January 9, 2012)]
[Notices]
[Pages 1098-1099]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-93]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66075; File No. SR-C2-2011-042]


Self-Regulatory Organizations; C2 Options Exchange, Incorporated; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Related to the Exchange's Automated Improvement Mechanisms

December 30, 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 December 22, 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, II, and III below, which Items have been prepared by the 
Exchange. The Exchange has designated 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

    The Exchange proposes to amend C2 Rules 6.51, Automated Improvement 
Mechanism. The text of the proposed rule change is available on the 
Exchange's Web site (http://www.c2exchange.com/Legal/RuleFilings.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 the 
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 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 the proposed rule change is to amend C2 Rule 6.51 to 
eliminate the requirement that there be at least three market-makers 
quoting in the relevant series in order for an Auction to commence.
    This proposed rule change is based on the current rules of the 
Boston Options Exchange Group, LLC (``BOX'') \5\ and the International 
Securities Exchange, LLC (``ISE'') \6\ relating to the Price 
Improvement Period (``PIP'') and Price Improvement Mechanism (``PIM''), 
respectively, which are automated price improvement mechanisms similar 
to AIM.\7\
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    \5\ See BOX Rules Chapter V, Section 18.
    \6\ See ISE Rule 723.
    \7\ AIM, PIP and PIM have certain characteristics in common with 
each other. All three mechanisms (a) Provide for the opportunity for 
customer price improvement, (b) have certain periods where the 
initial orders are exposed for potential price improvement, (c) have 
certain guidelines regarding the types of orders that may be 
eligible for price improvement, and (d) have certain defined rules 
related to the allocation of trades within price improvement 
auctions, although there are differences in the way orders are 
allocated.
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    AIM allows a TPH to submit an Agency Order along with a contra-side 
second order (a principal order or a solicited order for the same size 
as the Agency Order) into an Auction where other participants could 
compete with the Initiating TPH's second order to execute against the 
Agency Order, which guarantees that the Agency Order will receive an 
execution. Once an Auction commences, the Initiating TPH cannot cancel 
it.\8\
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    \8\ See C2 Rule 6.51(b)(1)(A).
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    C2 Rule 6.51(a)(4) currently requires that there be at least three 
market-makers quoting in the relevant series for an Auction to 
commence. The Exchange is proposing to eliminate this requirement. The 
Exchange does not believe that customer orders should be denied the 
benefits of AIM simply because there may be less than three market-
makers quoting in a relevant options class at a specific point in time. 
Any concern regarding an Auction starting with a lower number of 
market-makers quoting in a relevant series is offset by the broad 
participation and competition that would be present once an Auction 
commenced.
    In support of this proposal, the Exchange notes that both PIP \9\ 
and PIM \10\ permit auctions to commence without the condition that 
there be a minimum number of market-makers quoting in the particular 
series. Further, like PIP and PIM, responding to C2 AIM auctions is 
open to all permit holders. The Exchange believes that AIM, and in turn 
the customers that benefit from AIM, would be disadvantaged if the 
three market-maker requirement remained as a condition to start an 
Auction because this requirement potentially reduces the number of 
Auctions and, as a result, opportunities for price improvement. Because 
BOX and ISE are currently able to offer their customers price 
improvement without a minimum quoter requirement in PIP and PIM, 
respectively, the Exchange believes it is important for competitive 
purposes that it be able to offer the same opportunities for price 
improvement on C2 through AIM.
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    \9\ See supra note 5; see also Securities Exchange Act Release 
No. 34-58999 (November 21, 2008), 73 FR 72536 (November 28, 2008) 
(SR-BSE-2008-54) (order approving proposed rule change to eliminate 
requirement that there be at least three market-makers quoting in 
the relevant series for an auction to commence).
    \10\ See supra note 6; see also Securities Exchange Act Release 
No. 34-58710 (October 1, 2008), 73 FR 59008 (October 8, 2008) (SR-
ISE-2008-63) (order approving proposed rule change to eliminate 
requirement that there be at least three market-makers quoting in 
the relevant series for an auction to commence).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (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

[[Page 1099]]

open market and a national market system, and, in general, to protect 
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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    In particular, the Exchange believes this proposed rule change is a 
reasonable modification designed to provide additional flexibility for 
TPHs to obtain executions on behalf of their customers while continuing 
to provide meaningful, competitive Auctions. The Exchange also believes 
that that proposed rule change will ultimately enhance competition in 
the AIM Auctions and provide customers with additional opportunities 
for price improvement. The rule change is consistent with changes made 
by other exchanges and it serves to remove impediments to and to 
perfect the mechanism for a free and open market and a national market 
system by allowing more price improvement auctions to occur on C2.

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.

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

    Because the foregoing 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, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) 
thereunder.\15\ 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.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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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-C2-2011-042 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-C2-2011-042. 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-C2-2011-042, and should be submitted on or before 
January 30, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-93 Filed 1-6-12; 8:45 am]
BILLING CODE 8011-01-P


