
[Federal Register Volume 77, Number 247 (Wednesday, December 26, 2012)]
[Notices]
[Pages 76131-76132]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-31018]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68479; File No. SR-C2-2012-040]


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

December 19, 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 December 7, 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 the 
Substance of the Proposed Rule Change

    C2 Options Exchange, Incorporated (the ``Exchange'' or ``C2'') 
proposes to amend its Options Regulatory Fee. 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 Exchange has reevaluated the current amount of the Options 
Regulatory Fee (``ORF'') in connection with its annual budget review. 
In light of increased regulatory costs and expected volume levels for 
2013, the Exchange proposes to increase the ORF from $.0015 per 
contract to $.002 per contract. The Exchange is amending the ORF due to 
substantial increases in resources devoted to regulatory services, 
including the recent hiring of many new employees, increased office 
space and regulatory systems enhancements. These increased regulatory 
costs coincide with a decrease in industry transaction volume. The 
proposed fee would be operative on January 2, 2013.
    The ORF is assessed by the Exchange to each Permit Holder for all 
options transactions executed or cleared by the Permit Holder that are 
cleared by The Options Clearing Corporation (``OCC'') in the customer 
range, i.e., transactions that clear in a customer account at OCC, 
regardless of the marketplace of execution. In other words, the 
Exchange imposes the ORF on all customer-range transactions executed by 
a Permit Holder, even if the transactions do not take place on the 
Exchange.\3\ The ORF also is charged for transactions that are not 
executed by a Permit Holder but are ultimately cleared by a Permit 
Holder. In the case where a Permit Holder executes a transaction and a 
different Permit Holder clears the transaction, the ORF is assessed to 
the Permit Holder who executed the transaction. In the case where a 
non-Permit Holder executes a transaction and a Permit Holder clears the 
transaction, the ORF is assessed to the Permit Holder who clears the 
transaction. The ORF is collected indirectly from Permit Holders 
through their clearing firms by OCC on behalf of the Exchange.
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    \3\ Exchange rules require each Permit Holder to record the 
appropriate account origin code on all orders at the time of entry 
in order to allow the Exchange to properly prioritize and route 
orders and assess transaction fees pursuant to the rules of the 
Exchange and report resulting transactions to the OCC. C2 order 
origin codes are defined in C2 Regulatory Circular RG10-4. The 
Exchange represents that it has surveillances in place to verify 
that Permit Holders mark orders with the correct account origin 
code.
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    The ORF is designed to recover a material portion of the costs to 
the Exchange of the supervision and regulation of Permit Holder 
customer options business, including performing routine surveillances, 
investigations, as well as policy, rulemaking, interpretive and 
enforcement activities. The Exchange believes that revenue generated 
from the ORF, when combined with all of the Exchange's other regulatory 
fees and fines, will cover a material portion, but not all, of the 
Exchange's regulatory costs. The Exchange notes that its regulatory 
responsibilities with respect to Permit Holder compliance with options 
sales practice rules have been allocated to FINRA under a 17d-2 
agreement. The ORF is not designed to cover the cost of options sales 
practice regulation.
    The Exchange will continue to monitor the amount of revenue 
collected from the ORF to ensure that it, in combination with its other 
regulatory fees and fines, does not exceed the Exchange's total 
regulatory costs. If the Exchange determines regulatory revenues exceed 
regulatory costs, the Exchange will adjust the ORF by submitting a fee 
change filing to the Commission. The Exchange notifies Permit Holders 
of adjustments to the ORF via regulatory circular.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\4\ Specifically, the 
Exchange believes the proposed rule change is consistent with Section 
6(b)(4) of the Act5, which provides that Exchange rules may provide for 
the equitable allocation of reasonable dues, fees, and other charges 
among its Permit Holders and other persons using its facilities. The 
Exchange believes the proposed fee change is reasonable because 
industry transaction volume has declined while the Exchange's 
regulatory expenses have increased. The Exchange is amending the ORF 
due to substantial increases in resources devoted to regulatory 
services, including the recent hiring of many new employees, increased 
office space and regulatory systems enhancements. The proposed ORF 
increase would help to offset these increased regulatory expenses but 
does not result in total regulatory revenue exceeding total regulatory 
costs.
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    \4\ 15 U.S.C. 78f(b).
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    The Exchange believes the ORF is equitable and not unfairly 
discriminatory because it is objectively allocated to Permit Holders in 
that it is

[[Page 76132]]

charged to all Permit Holders on all their transactions that clear as 
customer at the OCC. Moreover, the Exchange believes the ORF ensures 
fairness by assessing higher fees to those Permit Holders that require 
more Exchange regulatory services based on the amount of customer 
options business they conduct. Regulating customer trading activity is 
much more labor intensive and requires greater expenditure of human and 
technical resources than regulating non-customer trading activity, 
which tends to be more automated and less labor-intensive. As a result, 
the costs associated with administering the customer component of the 
Exchange's overall regulatory program are materially higher than the 
costs associated with administering the non-customer component (e.g., 
Permit Holder proprietary transactions) of its regulatory program.\6\
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    \6\ If the Exchange changes its method of funding regulation or 
if circumstances otherwise change in the future, the Exchange may 
decide to modify the ORF or assess a separate regulatory fee on 
Permit Holder proprietary transactions if the Exchange deems it 
advisable. See email from Jaime Galvan, Senior Attorney, C2, to 
Johnna Dumler, Special Counsel, Commission, dated December 18, 2012.
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    The ORF is designed to recover a material portion of the costs of 
supervising and regulating Permit Holder customer options business 
including performing routine surveillances, investigations, 
examinations, financial monitoring, and policy, rulemaking, 
interpretive, and enforcement activities. The Exchange will continue to 
monitor the amount of revenue collected from the ORF to ensure that it, 
in combination with its other regulatory fees and fines, does not 
exceed the Exchange's total regulatory costs. If the Exchange 
determines regulatory revenues exceed regulatory costs, the Exchange 
will adjust the ORF by submitting a fee change filing to the 
Commission. The Exchange notifies Permit Holders of adjustments to the 
ORF via regulatory circular.

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 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 
proposed rule change.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)\7\ of the Act and paragraph (f) of Rule 19b-4\8\ 
thereunder. At any time within 60 days of the filing of the 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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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 C.F.R. 240.19b-4(f).
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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-C2-2012-040 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-C2-2012-040. 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 NW., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such 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-C2-2012-040, and should be 
submitted on or before January 16, 2013.

For the Commission, by the Division of Trading and Markets, pursuant 
to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-31018 Filed 12-21-12; 4:15 pm]
BILLING CODE 8011-01-P


