
[Federal Register Volume 80, Number 242 (Thursday, December 17, 2015)]
[Notices]
[Pages 78793-78794]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-31681]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76621; File No. SR-C2-2015-025]


Self-Regulatory Organizations; C2 Options Exchange, Incorporated; 
Order Granting Approval of a Proposed Rule Change Relating to Complex 
Orders as Modified by Amendment No. 1

December 11, 2015.

I. Introduction

    On October 13, 2015, C2 Options Exchange, Incorporated (the 
``Exchange'' or ``C2'') filed with the Securities and Exchange 
Commission (the ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and 
Rule 19b-4 thereunder,\2\ a proposed rule change to: (1) Amend the rule 
provisions regarding the initiation of a complex order auction 
(``COA''), (2) add rule provisions regarding the impact of certain 
incoming orders and changes in the leg markets on an ongoing COA, and 
(3) amend the rule provision related to the size of COA responses. On 
October 26, 2015, the Exchange submitted Amendment No. 1 to the 
proposed rule change. The proposed rule change, as modified by 
Amendment No. 1, was published for comment in the Federal Register on 
November 2, 2015.\3\ The Commission received no comments on the 
proposal. This order grants approval of the proposed rule change, as 
modified by Amendment No. 1.
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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.76274 (October 27, 
2015), 80 FR 67446 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to amend C2 Rule 6.13 and Interpretation and 
Policy .02 regarding the initiation of a COA. Currently, C2 
Participants must affirmatively request that their incoming COA-
eligible orders be COA'd.\4\ The Exchange proposes to amend C2 Rule 
6.13(c)(2) to provide that COA-eligible orders be COA'd by default.\5\ 
Under the proposed rule, Participants would be permitted to request 
that a COA-eligible order not COA (referred to as a ``do-not-COA'' 
request) on an order-by-order basis.\6\ The Exchange believes that 
allowing Participants to make a ``do-not-COA'' request on an order-by-
order basis will better allow them to make decisions regarding the 
handling of their orders based on market conditions at the time they 
submit their orders. An order with a ``do-not-COA'' request, however, 
may still be COA'd after it has rested on the Complex Order Book 
(``COB'') pursuant to Interpretation and Policy .02.\7\
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    \4\ See Notice, supra note 3, at 67446. The Exchange represents 
that all Participants have requested that all of their COA-eligible 
orders process through COA upon entry into the System.
    \5\ Id.
    \6\ Id. In light of this proposed change, the Exchange proposes 
to delete the language in Interpretation and Policy .02(a) that 
indicates Participants may request that complex orders be processed 
by COA on a class-by-class basis, as it is no longer necessary. Id.
    \7\ Id.
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    The Exchange notes that an order with a ``do-not-COA'' request will 
still have execution opportunities. The Exchange explains that a ``do-
not-COA'' order may execute automatically upon entry into the System 
against the leg markets or complex orders on the COB to the extent 
marketable (in accordance with allocation rules set forth in Rule 
6.13).\8\ Further, the Exchange notes that an order on the opposite 
side of, and marketable against, a COA-eligible order may trade against 
the COA-eligible order if the System receives the order while a COA is 
ongoing.\9\
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    \8\ Id. at 67447.
    \9\ Id.
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    Second, the Exchange proposes to add subparagraphs (c)(8)(D) and 
(E) to C2 Rule 6.13 to describe additional circumstances that will 
cause a COA to end early.\10\ Proposed subparagraph (c)(8)(D) will 
provide that if an order with a ``do-not-COA'' request or an order that 
is not COA-eligible is received prior to the expiration of the Response 
Time Interval for the original COA and is on the same side of the

[[Page 78794]]

market and at a price better than or equal to the starting price, then 
the original COA will end.\11\ Proposed subparagraph (c)(8)(E) will 
provide that if the leg markets were not marketable against a COA-
eligible order when the order entered the System (and thus prior to the 
initiation of a COA) but became marketable with the COA-eligible order 
prior to the expiration of the Response Time Interval, it will cause 
the COA to end.\12\ The Exchange believes that these provisions prevent 
an order that was entered after the initiation of a COA from trading 
ahead of an order with the same price that may have executed or entered 
the COB if it did not COA.\13\ Similarly, the Exchange believes it is 
fair for a COA-eligible order that was entered at a better price than 
an order that was resting in the COB prior to initiation of the COA to 
execute against leg markets that become marketable against the COA-
eligible order and resting order during the COA, because the 
Participant who entered the COA-eligible order was willing to pay a 
better price than that of the resting order.\14\
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    \10\ Id. The proposed rule change makes corresponding changes to 
the heading and introductory paragraph of subparagraph (c)(8). Id.
    \11\ Id.
    \12\ Id. at 67447-8.
    \13\ Id. at 67449.
    \14\ Id.
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    Third, the Exchange proposes to amend subparagraph (c)(3)(A) of C2 
Rule 6.13 to delete the provision that states that RFR responses are 
limited to the size of the COA-eligible order for allocation 
purposes.\15\ The Exchange explains that it is proposing this change 
because if the allocation algorithm for complex orders in a class is 
pro-rata, the System is unable to block RFR responses that are larger 
than the size of the COA-eligible order.\16\ The Exchange notes the 
pursuant to C2 Rule 6.13(c)(7), RFR responses are firm with respect to 
the COA-eligible order for which the responses are submitted, provided 
that responses that exceed the size of a COA-eligible order are also 
eligible to trade with other incoming COA-eligible orders that are 
received during the Response Time Interval.\17\
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    \15\ Id. at 67448.
    \16\ Id. The Exchange represents that this proposed rule change 
will result in the rule regarding RFR responses more accurately 
reflecting current System functionality. Id.
    \17\ Id.
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    Finally, the Exchange proposes to make technical and other 
nonsubstantive changes, which are described in the Notice.\18\
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    \18\ Id.
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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.\19\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\20\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, 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.
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    \19\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \20\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that it is reasonable for C2 to require 
that incoming two-legged COA-eligible orders be COA'd by default unless 
a Participant requests, on an order-by-order basis, that such orders 
not COA. The Commission notes that, should a Participant not wish its 
orders to be COA'd, the proposed rule will allow the Participant to 
request that its orders not be COA'd on an order-by-order basis. In 
addition, the Commission notes that the rules of another options 
exchange provide that certain complex orders be routed to a complex 
order auction unless a member designates that such orders not initiate 
a complex order auction on that exchange.\21\
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    \21\ See NASDAQ OMX PHLX LLC (``PHLX'') Rule 1080, Commentary 
.07(a)(viii) and (e) (describing the complex order live auction 
(``COLA'') process and ``do not auction'' orders).
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    The Commission also believes that it is reasonable for the Exchange 
to add new provisions regarding how incoming orders with ``do-not-COA'' 
requests or that are not COA-eligible, as well as how changes in the 
leg markets, may impact ongoing COAs. Such additions enhance the 
description of current COA functionality and the circumstances that may 
cause a COA to end early to help ensure investors understand how ``do-
not-COA'' orders may impact a COA. As noted above, these rules provide 
that if entry of a ``do-not-COA'' order causes a COA to end, any 
executions that occur following the COA will occur in accordance with 
allocation principles in place, subject to an exception that the 
original COA-eligible order will receive time priority.
    Finally, the Commission believes it is reasonable for C2 to delete 
the provision in its Rules limiting the size of RFR responses to the 
size of the COA-eligible order. The Commission notes that other options 
exchanges do not limit the size of responses to the auctioned order 
sized.\22\
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    \22\ See id. and NYSE MKT Rule 6.80NY(e).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-C2-2015-025), as modified by 
Amendment No. 1, be, and it hereby is, approved.
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    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-31681 Filed 12-16-15; 8:45 am]
 BILLING CODE 8011-01-P


