
[Federal Register Volume 77, Number 137 (Tuesday, July 17, 2012)]
[Notices]
[Pages 42038-42040]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-17347]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67409; File No. SR-C2-2012-022]


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

July 11, 2012.
    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 July 5, 2012, 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, II, and III below, which Items have been prepared by the 
Exchange. 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

    The Exchange proposes to amend its Rules relating to continuous 
quotes. 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.

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 purpose of the proposed rule change is to amend Rule 8.5, 
``Obligations of Market-Makers,'' to reduce to 90% the percentage of 
time for which a Market-Maker is required to provide quotes in an 
appointed option class. The proposed rule change is comparable to the 
rules of other options exchanges applicable to equivalent market 
participants.\3\
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    \3\ The continuous quoting obligations for NASDAQ Options Market 
(``NOM'') market-makers and NASDAQ OMX PHLX LLC (``PHLX'') streaming 
quote trades (``SQTs'') and remote SQTs (``RSQTs) are generally as 
follows: (1) NOM Chapter VII, Section 6(d)--market-makers must enter 
continuous bids and offers in at least 60% of the series in options 
in which the market-maker is registered for 90% of the trading day 
(as a percentage of the total number of minutes in such trading day) 
or such higher percentage as NASDAQ may announce in advance; and (2) 
PHLX Rule 1014(b)(ii)(D)(1)--SQTs and RSQTs must quote two-sided 
markets in 60% of series of the options in which they are assigned 
for at least 90% of the trading day (as a percentage of the total 
number of minutes in such trading day).
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    Rule 8.5(a)(1) provides that during trading hours, a Market-Maker 
must maintain a continuous two-sided market in 60% of the non-adjusted 
option series \4\ of each registered class that have a time to 
expiration of less than nine months. For purposes of that obligation, 
``continuous'' means 99% of the time. The rule also provides that if a 
technical failure or limitation of the Exchange's system prevents a 
Market-Maker from maintaining, or from communicating to the Exchange, 
timely and accurate quotes in a series, the duration of such failure 
will not be considered in determining whether that Market-Maker

[[Page 42039]]

has satisfied the 99% quoting standard with respect to that series. The 
Exchange may consider other exceptions to this obligation based on 
demonstrated legal or regulatory requirements or other mitigating 
circumstances. The Exchange proposes to amend the continuous quoting 
obligation for Market-Makers from 99% to 90% of the time. The rule will 
still provide for automatic exceptions for technical failures or system 
limitations and discretionary exceptions based on demonstrated legal or 
regulatory requirements or other mitigating circumstances.
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    \4\ The rule defines an ``adjusted option series'' as an option 
series wherein, as a result of a corporate action by the issuer of 
the underlying security, one option contract in the series 
represents the delivery of other than 100 shares of underlying stock 
or Units.
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    The Exchange does not believe that the proposed rule change would 
adversely affect the quality of the Exchange's market or lead to a 
material decrease in liquidity. Rather, the Exchange believes that its 
current market structure with its high rate of participation by Market-
Makers permits the lowering of the quoting time obligation without fear 
of losing liquidity. The Exchange Rules impose a number of other 
obligations on Market-Makers that will continue to ensure that they 
create and maintain a fair and orderly market in the option classes to 
which they are assigned. In particular, the proposed rule change does 
not change a Market-Maker's obligation to provide continuous quotes in 
60% of each allocated class. In addition, the proposed rule change 
would not excuse a Market-Maker from its obligation to submit a single 
quote or maintain continuous quotes in one or more series of a class to 
which the Market-Maker is appointed when called upon by an Exchange 
official if, in the judgment of such official, it is necessary to do so 
in the interest of maintaining a fair and orderly market.\5\
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    \5\ See Rule 8.5(d).
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    In support of this proposal, the Exchange notes that other 
competing options exchanges impose continuous quoting obligations on 
their market participants that have equivalent rights and obligations 
as Market-Makers that are comparable to the obligations proposed in 
this filing:

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                                                              Percent
                                          Percent time         series                    Classes
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C2 (current rule)..................  99 of the time........         60  Class-by-class.
NOM................................  90 of a trading day...         60  All classes collectively.
PHLX (SQTs and RSQTs)..............  90 of the trading day.         60  All classes collectively.
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    As the above table shows, upon effectiveness of the propose rule 
change, Market-Makers will be required to provide continuous quotes for 
the same amount of time in the same percentage of series as market-
makers at these other exchanges. Additionally, the Exchange notes that 
C2's quoting obligation is more restrictive than that of other 
exchanges, because it applies its continuous quoting obligation on a 
class-by-class basis, whereas the other exchanges apply their quoting 
obligations to all classes collectively. As a result, C2's rules ensure 
that Market-Makers provide liquidity in a significant number of series 
in each class in which they are quoting, whereas the other exchanges' 
rules could result in reduced or no liquidity in certain classes.\6\
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    \6\ For example, consider a Market-Maker with 10 appointed 
classes, each of which has 50 series, for a total of 500 series, 
quoting in each class during a regular 390-minute trading day. 
Market-Makers at each of C2, NOM and PHLX would be required to quote 
in at least 300 series for 90% of the trading day (351 minutes). 
However, C2 would require Market-Makers to quote in at least 30 
series in each class; while market-makers at NOM and PHLX could 
satisfy their quoting obligations by quoting in, for example, 40 
series in each of 6 classes and only 15 series in each of 4 classes, 
or 50 series in each of 6 classes and no series in the other 4 
classes.
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    The Exchange believes that the benefit to Market-Makers of the 
slightly reduced quoting obligation (which still results in similar 
quoting times as other exchanges as shown above) is offset by their 
continued responsibility to provide minimum liquidity in each appointed 
class in which they are quoting (a more restrictive standard than the 
other exchanges discussed in this filing) and to quote upon request, as 
discussed above. The Exchange also believes this proposal will make the 
quoting time requirements of Market-Makers more comparable to those at 
other options exchanges and is therefore essential for competitive 
purposes. C2 believes it is disadvantageous to C2 Market-Makers if they 
are subject to stricter timing requirements with respect to their 
continuous quoting obligations than market-makers at other options 
exchanges.
    The proposed rule change also amends Rule 8.13(d) to clarify that 
Preferred Market-Makers \7\ must continue to provide continuous quotes 
in at least 90% of the non-adjusted option series of each class for 
which it receives Preferred Market-Maker orders for 99% of the time. 
Additionally, the proposed rule change adds a provision to Rule 8.13(d) 
that says if a technical failure or limitation of the Exchange's system 
prevents a Preferred Market-Maker from maintaining, or from 
communicating to the Exchange, timely and accurate quotes in a series, 
the duration of such failure will not be considered in determining 
whether that Preferred Market-Maker has satisfied the 99% quoting 
standard with respect to that series, and that the Exchange may 
consider other exceptions to this obligation based on demonstrated 
legal or regulatory requirements or other mitigating circumstances. 
This proposal is merely a clarification of the current requirement for 
Preferred Market-Makers, which is currently not specified in the 
definition of ``continuous'' in Rule 8.13(d).
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    \7\ Rule 8.13(a) provides that the Exchange may allow, on a 
class-by-class basis, for the receipt of marketable orders, through 
the Exchange's system when the Exchange's disseminated quote is the 
national best bid or offer, that carry a designation from the member 
transmitting the order that specifies a Market-Maker in that class 
as the ``Preferred Market-Maker'' for that order. The Exchange 
currently has no Preferred Market-Makers.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\8\ Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \9\ 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.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes this proposed rule change 
promotes just and equitable principles of trade because it reduces 
burdens and unnecessary restrictiveness on Market-Makers. The Exchange 
still imposes many obligations on Market-Makers to maintain a fair and 
orderly market in

[[Page 42040]]

their appointed classes, which the Exchange believes eliminates the 
risk of a material decrease in liquidity. While the time during which 
Market-Makers must provide continuous quotes will be slightly reduced, 
Market-Makers will still be obligated to provide continuous electronic 
quotes for a significant part of the trading day in 60% of series of 
each appointed class. Additionally, all Market-Makers will continue to 
be obligated to quote the series when requested by an Exchange 
official, or if the need otherwise arises. Accordingly, the proposal 
supports the quality of C2's market by helping to ensure that Market-
Makers will continue to be obligated to quote in series when necessary.
    The proposed rule change also will allow the Exchange to require 
its Market-Makers to provide continuous quotes in their appointed 
classes for a portion of the trading day that is the same as that of 
market-makers at other exchanges, which the Exchange believes will help 
remove impediments to and promote a free and open market.
    Finally, the proposed rule change to Rule 8.13(d) protects 
investors and the public interest by clarifying in the Rules the 
continuous quoting obligations of Preferred Market-Makers.
    For the foregoing reasons, the Exchange believes that the balance 
between the benefits provided to Market-Makers and the obligations 
imposed upon Market-Makers by the proposed rule change is appropriate.

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. In this regard and as indicated above, the 
Exchange notes that the proposed rule change is comparable to current 
rules at competing options exchanges related to market-maker continuous 
quoting obligations \10\ and will ensure fair competition among the 
options exchanges with respect to these obligations.
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    \10\ See supra note 3.
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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

    Because the foregoing proposed rule change does not:
    A. Significantly affect the protection of investors or the public 
interest;
    B. Impose any significant burden on competition; and
    C. Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate,

it has become effective pursuant to Section 19(b)(3)(A) \11\ of the Act 
and Rule 19b-4(f)(6) \12\ thereunder.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).

    At any time within 60 days of the filing of this 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 Number SR-C2-2012-022 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-C2-2012-022. 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 
10:00 a.m. and 3:00 p.m. Copies of the 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 available publicly. All 
submissions should refer to File Number SR-C2-2012-022 and should be 
submitted on or before August 7, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-17347 Filed 7-16-12; 8:45 am]
BILLING CODE 8011-01-P


