
[Federal Register Volume 77, Number 133 (Wednesday, July 11, 2012)]
[Notices]
[Pages 40928-40929]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-16881]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67357; File No. SR-C2-2012-011]


Self-Regulatory Organizations; C2 Options Exchange, Incorporated; 
Order Granting Approval of Proposed Rule Change To Implement a Disaster 
Recovery Facility

 July 5, 2012.

I. Introduction

    On May 14, 2012, C2 Options Exchange, Incorporated (``Exchange'' or 
``C2'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to implement a disaster recovery facility 
(``DRF''). The proposed rule change was published for comment in the 
Federal Register on May 23, 2012.\3\ The Commission received no 
comments on the proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 67008 (May 17, 
2012), 77 FR 30571 (May 23, 2012) (``Notice'').
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II. Description of the Proposal

    As set forth in proposed Exchange Rule 6.45 and the Notice, C2 has 
proposed to operate a DRF and adopt a rule governing its use.\4\ The 
DRF is designed to allow the Exchange to continue to operate a 
marketplace for trading its exclusively-listed options (``ELOs'') \5\ 
in the event that its main trading system becomes inoperable or 
otherwise unavailable due to a disaster or other unusual 
circumstance.\6\ The DRF would provide a venue for investors to open 
and close positions in ELOs traded on C2 (e.g., SPXPM) in the event 
that the main C2 system became inoperable.\7\ To operate the DRF, the 
Exchange would use hardware located in the Chicago Board Options 
Exchange, Incorporated (``CBOE'') building in Chicago, Illinois.\8\ 
C2's main trading engine is located on the East Coast, thus there would 
be geographic diversity between the DRF and the main C2 trading 
system.\9\ The Exchange has represented that the DRF would have the 
necessary systems capacity to handle trading in the event that use of 
the DRF becomes necessary.\10\
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    \4\ See C2 Rule 6.45.
    \5\ An ELO is an option that trades exclusively on C2 because C2 
has an exclusive license to list and trade such option, or has 
proprietary rights in the interest underlying the option. When C2 
filed this proposed rule change, it only listed and traded one ELO: 
SPXPM, which are Standard & Poor's 500 Index options with third-
Friday-of-the-month expiration dates for which the exercise 
settlement value is based on the index value derived from the 
closing prices of component securities. See Notice, supra note 3, 77 
FR at 30571.
    \6\ See Notice, supra note 3, 77 FR at 30571; proposed C2 Rule 
6.45(a).
    \7\ See Notice, supra note 3, 77 FR at 30571.
    \8\ See id.
    \9\ See id.
    \10\ See id.
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    All C2 Trading Permit Holders (``TPH''),\11\ including those that 
may not also be a CBOE TPH, would have access to the DRF.\12\ Each TPH 
would be required, as instructed by the Exchange, to take appropriate 
actions in order to be able to trade options through the DRF, which 
actions would include completion of an Exchange certification process 
to ensure that TPHs are prepared to migrate to the DRF if and when 
necessary.\13\ The Exchange has represented that it would continuously 
maintain the DRF so that it would always be available for use if 
needed.\14\ The Exchange has represented further it has written 
supervisory procedures in place that would cover activation and use of 
the DRF, which would help ensure an efficient transition to the 
DRF.\15\
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    \11\ See C2 Rule 1.1 (defining ``Trading Permit Holder'').
    \12\ See Notice, supra note 3, 77 FR at 30571.
    \13\ See C2 Rule 6.45(d).
    \14\ See Notice, supra note 3, 77 FR at 30571.
    \15\ See id.
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    As soon as practicable after an event that rendered the main C2 
system inoperable or otherwise unavailable, but prior to commencing 
trading on the DRF, the Exchange would announce publicly the option 
classes that would be available for trading on the DRF.\16\ C2 has 
represented that trading on the DRF would be identical to trading on 
the Exchange.\17\ For example, all trading and non-trading rules of the 
Exchange, including its fee schedule, would continue to apply to option 
classes traded on the DRF.\18\ Quote and trade information also would 
continue to be reported to the Options Price Reporting Authority 
(``OPRA'') in the same manner as for regular trading on C2.\19\ Trading 
would transition back to the main C2 system as soon as it becomes 
operational.
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    \16\ See C2 Rule 6.45(b).
    \17\ See Notice, supra note 3, 77 FR at 30571.
    \18\ See C2 Rule 6.45(c).
    \19\ The Exchange represented that any ELO traded on the DRF 
would continue to reflect C2 as the exchange venue on the public 
tape. See Email from Angelo Evangelou, CBOE, to Commission staff 
dated February 7, 2012. In addition, the Exchange has represented 
that if C2 shuts down its main trading system during trading hours 
and subsequently migrates to the DRF, the regulatory data for the 
portion of the day that the main trading system was operating would 
be backed-up and available remotely. See Email from Angelo 
Evangelou, CBOE, to Commission staff dated July 3, 2012.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\20\ Specifically, the Commission finds that the proposal is 
consistent with Section 6(b)(1) of the Act,\21\ which requires that an 
exchange be organized and have the capacity to be able to carry out the 
purposes of the Act and to comply, and to enforce compliance by its 
members and persons associated with its members, with the provisions of 
the Act, the rules and regulations thereunder, and the rules of the 
Exchange. The Commission believes that proposed Exchange Rule 6.45 
provides a business continuity plan that is reasonably designed to 
allow the Exchange to continue trading its ELOs in the event that a 
disaster or other unusual circumstance renders the main C2 systems 
inoperable for continued trading. Specifically with respect to ELOs, 
continued trading on the DRF following a disruption that affects C2's 
main trading systems will provide market participants and investors 
with continued access to a marketplace to open, close, and trade 
positions in C2's ELOs. In the absence of adequate DRF facilities and 
procedures, market participants could be adversely affected by an 
inability to transact in such ELOs.
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    \20\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \21\ 15 U.S.C. 78f(b)(1).
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    The Commission notes that the details of the Exchange's proposal 
are consistent with the key elements set forth in the 2003 Policy 
Statement on Business Continuity Planning for Trading Markets, which 
directed SRO trading markets and electronic communication networks to 
take steps to develop procedures to minimize the potential disruption 
and market impact that could result from an event that interrupts the 
ability of market participants to utilize their trading systems.\22\ 
Among other things, C2's proposal provides for geographic diversity 
between the DRF and C2's main trading system; references the written 
supervisory procedures to govern the operation of the DRF;

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establishes a process to ensure that TPHs will be ready to trade on the 
DRF if and when necessary; and contemplates public notice when a 
transition to trading on the DRF becomes necessary.\23\ Accordingly, 
the Commission believes that C2's DRF should enable C2 to continue to 
offer a marketplace for trading its ELOs promptly after an event that 
disables C2's main trading system in a manner that is designed to 
minimize potential disruption and market impact.
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    \22\ See Securities Exchange Act Release No. 48545 (September 
25, 2003), 68 FR 56656 (October 1, 2003) (File No. S7-17-03) 
(Business Continuity Planning for Trading Markets) (``Policy 
Statement'').
    \23\ See Policy Statement, supra note 22, 68 FR at 56658.
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    In addition, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\24\ which requires, among 
other things, that the rules of a national securities exchange be 
designed to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
Specifically, the Commission finds the proposed rule change is 
reasonably designed to facilitate transactions by providing market 
participants with the necessary disclosure to understand the Exchange's 
operational capabilities and plans with respect to its ELOs in the 
event of a disruption to C2's main trading systems.
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    \24\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\25\ that the proposed rule change (SR-C2-2012-011) be, and it 
hereby is, approved.
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    \25\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-16881 Filed 7-10-12; 8:45 am]
BILLING CODE 8011-01-P


