
[Federal Register Volume 79, Number 214 (Wednesday, November 5, 2014)]
[Notices]
[Pages 65749-65751]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-26347]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73488; File No. SR-C2-2014-020]


Self-Regulatory Organizations; C2 Options Exchange, Incorporated; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to the Automatic Handling Process in No-Bid Series

October 31, 2014.
    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 22, 2014, 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 regarding its automatic 
order handling process. The text of the proposed rule change is 
available on the Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.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 
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 proposes to amend its rules regarding its automatic 
order handling process. The proposed rule change seeks to modify 
subparagraph (h) to Rule 6.12, which sets forth how the C2 System (the 
``System'') \3\ handles market orders to sell in option series for 
which the national best bid in the series is zero (``no-bid 
series'').\4\ Currently, if the System receives during the trading day 
or has resting in the electronic book (the ``Book'') \5\ after the 
opening of trading a market order to sell in a no-bid series, it 
handles the order as follows:
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    \3\ The System is the automated trading system used by the 
Exchange for the trading of options contracts.
    \4\ The Exchange notes that, for singly listed series, the 
national best bid is equivalent to the Exchange's best bid and the 
national best offer is equivalent to the Exchange's best offer.
    \5\ For example, the Exchange receives a market order to sell 
prior to the opening of a series and the series opens with a sell 
market order imbalance pursuant to Rule 6.11(e)(4). When the series 
opens the market order to sell, which was resting in the book prior 
to the opening of the series, will be routed according to the no-bid 
procedures in Rule 6.12.
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     If the Exchange best offer in that series is less than or 
equal to $0.30, then the System will consider, for the remainder of the 
trading day, the market order as a limit order to sell with a limit 
price equal to the minimum trading increment applicable to the series 
and enter the order into the Book behind limit orders to sell at the 
minimum increment that are already resting in the Book.
     If the Exchange best offer in that series is greater than 
$0.30, then the market order will be cancelled.
    Based on experience since the implementation of this parameter, the 
Exchange now proposes to change the parameter from $0.30 to $0.50. The 
Exchange believes that the automatic handling of market orders to sell 
in no-bid series if the Exchange best offer is less than or equal to 
$0.50 would reduce the number of orders that are automatically 
cancelled. Additionally, the $0.50 threshold serves as a protection 
feature for investors in certain situations, such as when a series is 
no-bid because the last bid traded just prior to the entry of the 
market order to sell. The purpose of this threshold is to limit the 
automatic booking of market orders to sell at minimum increments to 
only those for true zero-bid options, as options in no-bid series with 
an offer of more than $0.50 are less likely to be worthless.
    For example, if the CBOE Hybrid System receives a market order to 
sell in a no-bid series with a minimum increment of $0.01 and the 
Exchange best offer is $0.01, the System will consider, for the 
remainder of the trading day, the order as a limit order with a price 
of $0.01 and submit it to the Book behind other limit orders to sell at 
the minimum increment that are already resting in the Book. At that 
point, even if the series is no-bid because, for example, the last bid 
just traded and the limit order trades at $0.01, the next bid entered 
after the trade would not be higher than $0.01.\6\
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    \6\ If the order does not execute during the trading day as a 
limit order and remains outstanding after the close of trading 
(i.e., a GTC order), the System at that time will no longer consider 
the order as a limit order and will again handle the order as a 
market order to sell after the close of trading. The market order 
will stay on the Book until the opening of the next trading day (or 
until cancelled), at which point it may execute during the open or, 
if it remains unexecuted after the opening of trading, it will 
either execute with the best bid at the time or, if the series is 
still no-bid, again be handled pursuant to proposed Rule 6.12(h).
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    However, if the System receives a market order to sell in a no-bid 
series with a minimum increment of $0.01 and the Exchange best offer is 
$1.20 (because, for example, the last bid of $1.00 just traded and a 
new bid has not yet populated the Exchange's quote), the System will 
instead cancel the order. It would be unfair to the entering firm to 
let its market order trade as a limit order for $0.01 because, for 
example, the firm submitted the order during the brief time when there 
were no disseminated bids in a series trading significantly higher than 
the minimum increment.
    The Exchange believes the threshold of $0.50 is reasonable. The 
Exchange notes that this threshold is less than the current acceptable 
price range (``APR'') parameter for series with a bid price of less 
than $100.00.\7\ Pursuant to the price check provision in Rule 6.17 \8\ 
the

[[Page 65750]]

System will not automatically execute a marketable order if the width 
between the national best bid and national best offer is not within the 
APR, which the Exchange has currently set at $10.00 for any bid price 
between $0.00 and $100. Instead, the System will cancel the order. 
Notwithstanding this provision, proposed Rule 6.12(h), as amended, 
would allow for the potential execution of market orders to sell in no-
bid series with offers less than $0.50 as limit orders at the price of 
a minimum increment. If the threshold in proposed Rule 6.12(h) were 
higher, the risk of having a market order trade at a minimum increment 
in a series that is not truly no-bid would increase.
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    \7\ The acceptable APR parameter is determined by the Exchange 
on a class-by-class basis. See Rule 6.17 and C2 Regulatory Circular 
RG14-020 (Operational System Settings--APR and OEPW).
    \8\ Rule 6.17 also provides that the System will not 
automatically execute eligible orders that are marketable if the 
execution would follow an initial partial execution on the Exchange 
and would be at a subsequent price that is not within an acceptable 
tick distance from the initial execution. The APR for purposes of 
Rule 6.17 is determined by the Exchange on a class-by-class basis 
and may not be less than $0.375 between the bid and offer for each 
option contract for which the bid is less than $2, $0.60 where the 
bid is at least $2 but does not exceed $5, $0.75 where the bid is 
more than $5 but does not exceed $10, $1.20 where the bid is more 
than $10 but does not exceed $20, and $1.50 where the bid is more 
than $20. An ``acceptable tick distance'' shall be no less than two 
minimum increments.
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    After the rule change is effective, the Exchange will announce the 
implementation date of the proposed rule change in a Regulatory 
Circular to be published no later than 90 days following the effective 
date. The implementation date will be no later than 180 days following 
the effective date and at least two weeks after the publication of the 
above 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.\9\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \10\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, 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. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \11\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ Id.
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    In particular, the Exchange believes that the automated handling of 
market orders to sell in no-bid series if the Exchange best offer is 
$0.50 or less assists with the maintenance of fair and orderly markets 
and protects investors and the public interest because it provides for 
automated handling of these orders, ultimately resulting in more 
efficient executions of these orders. The Exchange believes that the 
$0.50 threshold also protects investors and assists with the 
maintenance of fair and orderly markets by preventing executions of 
market orders to sell in no-bid series with higher offers at 
potentially extreme prices in series that are not truly no-bid. The 
Exchange believes this threshold appropriately reflects the interests 
of investors, as options in no-bid series with offers higher than $0.50 
are less likely to be worthless, and cancelling the orders will prevent 
the execution of these orders at unfavorable prices. The Exchange also 
believes that the $0.50 threshold promotes fair and orderly markets 
because market orders to sell in no-bid series with offers of $0.50 or 
less are likely to be individuals seeking to close out a worthless 
position for which automatic handling 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 that is not necessary or appropriate in 
furtherance of the purposes of the Act. More specifically, the Exchange 
does not believe that the proposed rule changes will impose any burden 
on intramarket competition because it will be applicable to all TPHs 
trading on the Exchange trading floor. In addition, the Exchange does 
not believe the proposed changes will impose any intermarket burden 
because the Exchange will operate in a similar manner only with a more 
applicable no-bid series threshold.

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:
    (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, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \12\ and 
Rule 19b-4(f)(6) \13\ 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. If the Commission takes such action, the 
Commission will institute proceedings to determine whether the proposed 
rule change should be approved or disapproved.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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-C2-2014-020 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-C2-2014-020. 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

[[Page 65751]]

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-C2-2014-020 and should be 
submitted on or before November 26, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-26347 Filed 11-4-14; 8:45 am]
BILLING CODE 8011-01-P


