
[Federal Register Volume 81, Number 224 (Monday, November 21, 2016)]
[Notices]
[Pages 83313-83319]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-27895]



[[Page 83313]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79315; File No. SR-C2-2016-021]


Self-Regulatory Organizations; C2 Options Exchange, Incorporated; 
Notice of Filing of a Proposed Rule Change Relating to Opening of 
Series for Trading on the Exchange

November 15, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 4, 2016, C2 Options Exchange, Incorporated (``Exchange'' or 
``C2'') filed with the Securities and Exchange Commission 
(``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

    C2 proposes to amend its rules related to the opening of series for 
trading on the Exchange. 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'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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    C2 proposes to amend its rules related to the opening of series for 
trading on the Exchange. Rule 6.11 describes the process the automated 
trading system used by the Exchange for the trading of options 
contracts (the ``System'') uses to open series on the Exchange each 
trading day. The Exchange may also use this same process for closing 
series or opening series after a trading halt. The Exchange proposes to 
make various changes to this rule to reorganize and simplify the rule 
as well as make other changes to the opening procedures in order to 
reflect current System functionality.
Opening (and Sometimes Closing) Procedures
    The Exchange proposes to amend Rule 6.11 by reorganizing the 
provisions of the rule to describe the opening (and sometimes closing) 
procedures in a more sequential manner, clarifying the timing of each 
stage of the process and enhancing or modifying the description of 
certain provisions within the rule. The System generally processes the 
opening of each series as follows:
    (1) Pre-Opening Period: During the pre-opening period, the System 
will accept orders and quotes and disseminate messages that contain 
information based on resting orders and quotes in the book, which may 
include the expected opening price (``EOP''), expected opening size 
(``EOS''), any reason why a series may not open and imbalance 
information, including the size and side of an imbalance (``expected 
opening information'' or ``EOIs'').
    (2) Initiation of the Opening Rotation: At this time, the System 
initiates the opening rotation procedure and distributes a rotation 
notice to market participants.
    (3) Opening Rotation Period: During the opening rotation period, 
the System matches and executes orders and quotes against each other in 
order to establish an opening Exchange best bid and offer (``BBO'') and 
trade price for each series while continuing to disseminate expected 
opening information.
    (4) Opening of Trading: At this time, the System opens series for 
trading, subject to the satisfaction of certain conditions.

The proposed rule change more clearly organizes the provisions of Rule 
6.11 in this order and makes the additional following changes.
Pre-Opening Period
    Rule 6.11(a) currently provides for a period of time before the 
opening of trading in the underlying security or, in the case of index 
options, prior to 8:30 a.m.\3\ (as determined by the Exchange on a 
class-by-class basis), the System will accept orders and quotes (the 
System will not accept certain orders during the pre-opening period, as 
discussed below). The times specified in the current rule are not the 
times at which series open for trading, but rather the times at which 
the System initiates opening rotations, which is described later in the 
rule (see description of proposed paragraph (b)(1) below). The Exchange 
proposes to amend Rule 6.11(a) to provide the pre-opening period begins 
no later than 15 minutes prior to the expected initiation of an opening 
rotation (the Exchange determines the specific time at which the pre-
opening period will begin).\4\ The Exchange believes it is repetitive 
to include a description of the time at which series open in this 
paragraph. The proposed rule change adds the pre-opening period will 
begin no earlier than 2:00 a.m. to provide additional information 
regarding when the Exchange may begin the pre-opening period. 
Additionally, the System begins the pre-opening period at the same time 
for each class within each type of option (equity, index and exchange-
traded products (``ETP'')), so the proposed rule change deletes the 
provision of the rule that says the Exchange will determine the time on 
a class-by-class basis. The Exchange believes indicating a minimum and 
maximum time for the pre-opening period provides Trading Permit Holders 
with more specific information regarding the timeframe of the pre-
opening period.
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    \3\ All times are central time.
    \4\ Currently, the pre-opening period begins at approximately 
6:30 a.m.
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    The proposed rule change amends Rule 6.11(a)(1) by deleting the 
provision that indicates the Exchange will designate eligible order 
size, order type and order origin code as order terms for which the 
Exchange may designate eligibility for submission during the pre-
opening period on a class-by-class basis. The Exchange currently does 
not, and does not intend to, restrict the size or origin code of orders 
that may be submitted during the pre-opening period, so this provision 
is no longer necessary. Additionally, the System currently accepts all 
quotes and all order types during the pre-opening period except for 
immediate-or-cancel, fill-or-fill [sic], intermarket sweep orders, and 
Market-Maker trade prevention orders, as acceptance of those order 
types during the pre-opening period would be inconsistent with their 
terms.\5\ The proposed rule

[[Page 83314]]

change lists these few exceptions in the rule. As discussed below, not 
all of these orders may participate in the opening rotation.
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    \5\ See Rule 6.10 for definitions of these order types. For 
example, an immediate-or-cancel order is intended to execute 
immediately once represented on the Exchange or be cancelled. As 
there is no trading during the pre-opening period, an immediate-or-
cancel order submitted during the pre-opening period would never 
execute and always be cancelled; thus, the Exchange determined to 
not permit this order type during the pre-opening period. Rule 
6.10(c)(7) defines opening rotation orders, and the proposed rule 
change amends this definition to include limit orders (as well as to 
make another nonsubstantive change). The Exchange does not believe 
it is necessary to restrict limit orders from being entered to 
participate in the opening rotation, as they will execute during the 
opening rotation pursuant to the opening procedures in the same 
manner as market orders.
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    The proposed rule change proposes to amend Rule 6.11(a)(2) in 
several ways. First, the proposed rule change amends the description of 
when the System begins disseminating expected opening information. 
Currently, the rule states, at specified intervals of time determined 
by the Exchange, the System will disseminate information about resting 
orders in the book that remain from the prior business day and orders 
and quotes submitted before the opening, which may include the EOP and 
EOS. The Exchange proposes to revise this provision to state beginning 
at a time (determined by the Exchange) no earlier than three hours 
prior to the expected initiation of an opening rotation for a series, 
the System disseminates EOIs to all market participants that have 
elected to receive them at regular intervals of time (the length of 
which is determined by the Exchange) or less frequently if there are no 
updates to the opening information since the previously disseminated 
EOI. This revised rule text clarifies the time at which the System will 
begin disseminating expected opening information, which may be 
different (and generally later) than the beginning of the pre-opening 
period, as the Exchange believes recipients generally want to receive 
EOIs closer to the opening of trading.\6\ Additionally, this proposed 
rule change indicates EOIs are generally sent out regularly, but if 
there have been no changes (for example, the EOS and EOP have not 
changed because there are no new orders or quotes), then the System 
does not disseminate a duplicate message to users at the next regular 
interval time.
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    \6\ Currently, the System begins disseminating EOIs at 
approximately 7:30 a.m. The System disseminates EOIs at 30-second 
intervals during the pre-open period and 1-second intervals during 
the opening rotation period (see discussion below for additional 
information regarding the dissemination of EOIs during the opening 
rotation). See Regulatory Circular RG15-039.
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    Second, the proposed rule change also amends Rule 6.11(a)(2) to 
more specifically describe the information regarding the expected 
opening of a series that the System disseminates. Currently, 
subparagraph (a)(2) provides the System will disseminate information 
about resting orders in the book that remain from the prior business 
day and any orders and quotes submitted before the opening, including 
the expected opening price and size. The Exchange proposes to simplify 
this provision by stating that the expected opening information will be 
based on resting orders in the book (which includes orders remaining 
from the prior trading day and orders entered during the pre-opening 
period) and quotes submitted prior to the opening of trading. 
Additionally, in addition to the EOP and EOS, these messages may 
include additional information based on the circumstances, such as a 
description of the reason why a series may not or did not open (e.g., 
no quote or opening trade) and imbalance information, including the 
size and side of the imbalance (see discussion below regarding opening 
conditions), which reasons are described in current Rule 6.11(e) and 
proposed Rule 6.11(d). The Exchange proposes to add a definition of 
EOIs, which may include not only the EOP and EOS but also these other 
types of information. The Exchange proposes to incorporate this 
definition in other parts of the rule (as further discussed below).
    Third, the proposed rule change amends the provision about what the 
EOP is and when it is calculated. Currently, Rule 6.11(a)(2) states the 
EOP is the price at which the greatest number of orders and quotes in 
the book are expected to trade and an EOP may only be calculated if (a) 
there are market orders in the book, or the book is crossed or locked 
and (b) at least one quote is present. The proposed rule change revises 
this language to state the EOP is the price at which any opening trade 
is expected to execute. The EOS is the size of any expected opening 
trade. As further discussed below, the definition of opening price is 
included in proposed paragraph (c), so the proposed rule change deletes 
that definition from paragraph (a)(2) and only includes the definition 
in proposed paragraph (c), as the Exchange believes it is less 
confusing to include the opening price definition in the rules only one 
time. Additionally, the proposed rule change deletes the language the 
EOP may only be calculated if there are market orders in the book or 
the book is crossed. Because the EOP is a price of an expected opening 
trade, it is only possible to have a trade if there are market orders 
or a locked or crossed market, so the Exchange believes this language 
is unnecessary. Further, the proposed rule change states the System 
will only disseminate EOP and EOS messages if the width between the 
highest quote bid and lowest quote offer on the Exchange or 
disseminated by other exchanges is no wider than the OEPW range (as 
defined below).\7\ As discussed below, the Exchange's opening quote 
width must be no wider than OEPW range for a series to open, and this 
revised language is consistent with that opening condition.
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    \7\ Because this proposed language implies there must be a 
quote, the proposed rule change also deletes the language that the 
EOP may only be calculated if at least one quote is present, as it 
would be duplicative.
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Opening Rotation Initiation and Notice
    Rule 6.11(b) currently provides, unless unusual circumstances 
exist, at a randomly selected time within a number of seconds after the 
opening trade and/or the opening quote is disseminated in the market 
for the underlying security \8\ (or after 8:30 a.m. for index options), 
the System initiates the opening rotation procedure and sends a notice 
(``Rotation Notice'') to Participants. It further provides the Rotation 
Notice will be sent following the opening trade or opening quote or 
which occurs first (as determined by the Exchange on a class-by-class 
basis). The Exchange proposes to amend Rule 6.11(b) to provide in 
proposed subparagraph (1) the System initiates the opening rotation 
procedure on a class-by-class basis:
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    \8\ The ``market for the underlying security'' is currently the 
primary listing market, the primary volume market (defined as the 
market with the most liquidity in that underlying security for the 
previous two calendar months) or the first market to open the 
underlying security. The Exchange does not designate the primary 
volume market as the market for the underlying security for any 
class, and thus the proposed rule change deletes that option. The 
proposed rule change also changes the term ``market'' to 
``exchange,'' as the primary listing market or first market to open 
is a national securities exchange. The proposed rule change 
clarifies the Exchange determines on a class-by-class basis which 
market is the market for the underlying security.
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     With respect to equity and ETP options, after the opening 
trade or the opening quote is disseminated in the market for the 
underlying security, or at 8:30 for classes determined by the Exchange 
(including over-the-counter equity classes); or
     with respect to index options, at 8:30 a.m., or at the 
later of 8:30 a.m. and the time the Exchange receives a disseminated 
index value for classes determined by the Exchange.


[[Page 83315]]


The proposed rule change also deletes the phrase regarding the 
initiation of the opening rotation procedure at a randomly selected 
time within a number of seconds after the triggering event.
    The Exchange believes this proposed change more accurately 
describes the timing at which the System initiates the opening rotation 
procedure for each type of option, which generally occurs immediately 
after the triggering event rather than a randomly selected number of 
seconds after the event. The proposed rule change provides, while the 
dissemination of the opening trade or quote in the market for the 
underlying security is generally the trigger to initiate the opening 
rotation for an equity or ETP class, the Exchange may determine to open 
certain equity and ETP classes at 8:30 a.m. instead if it does not have 
access to underlying information for those classes. The Exchange does 
not receive underlying information regarding the opening of certain 
equities.\9\ The proposed rule change provides the Exchange with the 
necessary flexibility to ensure it can open trading in options 
overlying these equities in such circumstances. Similarly, the proposed 
rule change provides the Exchange with flexibility to open certain 
index options at the later of 8:30 a.m. and the time the Exchange 
receives a disseminated index value, in addition to at 8:30 a.m., to 
address circumstances in which this may be a more useful opening 
trigger.
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    \9\ For example, with respect to pink sheet stocks, the Exchange 
does not receive underlying information from the over-the-counter 
market (``OTC'') and believes it is in the interest of a fair and 
orderly market to initiate the opening rotation at 8:30 for those 
stocks rather than take additional time to confirm the OTC market 
for those stocks opened.
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    In addition, the Exchange proposes to amend current Rule 
6.11(b)(1), which is proposed Rule 6.11(b)(2), to state the System 
notifies market participants of the opening rotation initiation upon 
initiating the opening rotation procedure (defined as the ``Rotation 
Notice'') rather than following the opening trade or quote. The 
initiation of the opening rotation for a series triggers the 
dissemination of the notice, so the Exchange believes this proposed 
change more accurately and simply describes when market participants 
will receive the rotation notice.
Opening Rotation Period
    Current Rule 6.11(c) provides after the rotation notice is sent, 
the System will enter into a rotation period, during which the opening 
price will be established for each series. During the rotation 
period,\10\ the System will continue to calculate and provide the EOP 
and EOS given the current resting orders and quotes. The System will 
process the series of a class in a random order, and the series will 
begin opening after a period following the rotation notice, which 
period will not exceed 60 seconds and will be established on a class-
by-class basis.
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    \10\ Under the proposed rule change, rotation period is no 
longer a defined term. The proposed rule change, therefore, makes 
references to the term rotation period throughout Rule 6.11 lower-
cased.
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    The proposed rule change reorganizes paragraph (c) to describe when 
the opening rotation period begins (which is after the System initiates 
the opening rotation procedure and sends the rotation notice) (proposed 
introduction to paragraph (c)), what happens during the period 
(proposed subparagraph (c)(1)), the handling of EOIs during the period 
(proposed subparagraph (c)(2)), and when the period ends (proposed 
subparagraph (c)(3)). The Exchange believes this will more clearly 
describe for investors the opening rotation process.
    The proposed rule change adds detail regarding what occurs during 
the opening rotation period. Specifically, while the rules currently 
state the System establishes the opening trade price for a series 
during the opening rotation period, the proposed rule change adds 
proposed subparagraph (c)(1), which states the System does this (as 
well as establish the opening BBO) by matching and executing resting 
orders and quotes against each other. The proposed rule change moves 
the definition of opening trade price to proposed subparagraph 
(c)(1)(A) from current subparagraph (g)(1) (which references the 
``single clearing price'' at which orders and quotes are matched at the 
open) so the rules include discussions of the opening trade price in a 
single location within the rules. The proposed rule change amends the 
definition of the opening trade price of a series to be the ``market-
clearing'' price, which is the single price at which the largest number 
of contracts in the book can execute, leaving bids and offers that 
cannot trade with each other. The Exchange believes it is more 
appropriate to clear the largest size from the book at the open, even 
if that size is comprised of a smaller number of orders and quotes (as 
stated in proposed Rule 6.11(a)(2)). The EOS is the size of any 
expected opening trade. This is consistent with the change to the 
definition of EOP, as discussed above. The proposed rule change adds if 
there are multiple prices at which the same number of contracts would 
clear, the System uses the price at or nearest to the midpoint of the 
range consisting of the higher of the opening NBB and widest bid point 
of the OEPW range, and the lower of the opening NBO and widest offer 
point of the OEPW range.
    The proposed rule change also adds proposed paragraph (c)(1)(B), 
which states all orders (except complex orders) and quotes in a series 
in the book prior to the opening rotation period participate in the 
opening rotation for a series. Contingency orders that participate in 
the opening rotation may execute during the opening rotation period 
only if their contingencies are triggered. The proposed rule change 
also notes complex orders do not participate in the opening rotation. 
While the System accepts those orders prior to the open, the Exchange 
believes it would complicate the opening rotation if they participated 
in the opening rotation and attempted to execute against the leg 
markets. Because proposed subparagraph (c)(1)(B) describes the matching 
process that occurs during the opening rotation period, the proposed 
rule change moves the rule provision regarding the priority order of 
orders and quotes during this matching process from current 
subparagraph (g)(1) to proposed subparagraph (c)(1)(C).\11\
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    \11\ The System prioritizes orders in the following order: (1) 
Market orders, (2) limit orders and quotes whose prices are better 
than the opening price, and (3) resting orders and quotes at the 
opening price. The proposed rule change also notes contingency 
orders are prioritized as set forth in Rule 6.12(c).
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    The proposed rule change also revises the language regarding the 
messages disseminated during the opening rotation period to provide the 
System will continue to disseminate EOIs (not just the EOP and EOS). 
This proposed revision is consistent with the proposed language 
described above regarding dissemination of EOIs during the pre-opening 
period (and incorporates the proposed definition of EOIs). The proposed 
rule change provides the Exchange with the authority to determine a 
shorter interval length for the dissemination of EOIs during the 
opening rotation period than during the pre-opening period, as the 
Exchange believes market participants may want to receive these 
messages more frequently closer to the opening. This flexibility is 
intended to ensure the Exchange may disseminate these messages to 
market participants as frequently as it deems necessary to ensure a 
fair and orderly opening.
    Proposed subparagraph (c)(3) updates the description of the length 
of the opening rotation period and how the System processes series to 
open

[[Page 83316]]

following the opening rotation period. Current subparagraph (c)(2) 
states the System will process the series of a class in a random order 
and the series will begin opening after a period following the Rotation 
Notice, which period may not exceed sixty seconds and will be 
established on a class-by-class basis by the Exchange. Proposed 
subparagraph (c)(3) states after a period of time determined by the 
Exchange for all classes, the System opens series of a class in a 
random order, staggered over regular intervals of time (the Exchange 
determines the length and number of these intervals for all 
classes).\12\ Subject to satisfaction of opening conditions described 
below (in proposed paragraph (d)), the opening rotation period 
(including these intervals) may not exceed 60 seconds. The Exchange 
believes this change more clearly and accurately describes how the 
System opens series for trading, which it does randomly as set forth in 
the current rule but in a staggered manner over regular intervals. 
These intervals are intended to manage the number of series that will 
open during a short time period to ensure a fair and orderly opening.
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    \12\ Currently, the Exchange has set the period of time that 
must pass before the System begins processing series to open at one 
second, and the Exchange has set the number of intervals to one and 
the length of the intervals to one second. As a result, the opening 
rotation period currently lasts one to two seconds (the proposed 
rule change clarifies that the various time periods and intervals 
combine to form the opening rotation period). See Regulatory 
Circular RG11-008. In other words, after one second, the System 
randomly selects a group of series to open; and after the one-second 
interval, the System opens the remaining group of series.
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Opening Quote and Trade Price
    The proposed rule change deletes the language in current paragraph 
(d) stating as the opening price is determined by series, the System 
will disseminate through OPRA the opening quote and the opening trade 
price, if any. The System disseminates all quote and trade price 
information to OPRA once a series opens pursuant to the OPRA plan, 
including opening quote and trade price information, so the Exchange 
believes it is unnecessary to include this provision specifically in 
the opening rule.
Opening Conditions
    Current Rule 6.11(e) provides the System will not open a series if 
one of the following conditions is met:
    (1) There is no quote present in the series;
    (2) the opening price is not within an acceptable range (as 
determined by the Exchange) compared to the lowest quote offer and the 
highest quote bid;
    (3) the opening trade would be at a price that is not the national 
best bid or offer; or
    (4) the opening trade would leave a market order imbalance (i.e., 
there are more market orders to buy or to sell for the particular 
series than can be satisfied by the limit order, quotes and market 
orders on the opposite side); however, in series that will open at a 
minimum price increment, the System will open even if a sell market 
order imbalance exists.
    Current paragraph (f) describes what happens when each of these 
conditions is present:
    (1) If the condition in paragraph (e)(1) is present (i.e., there is 
no quote), the System will check to see if there is an NBBO quote on 
another market that falls within the acceptable opening range. If such 
an NBBO quote is present, the series will open and expose the 
marketable order(s) at the NBBO price. If such an NBBO quote is not 
present, the System will not open the series and will send a 
notification to Participants indicating the reason.
    (2) If the condition in paragraph (e)(2) is present (i.e., the 
opening price is not within an acceptable range), the System will match 
orders and quotes to the extent possible at a single clearing price 
within the acceptable range, then expose the remaining marketable 
order(s) at the widest price point within the acceptable opening range 
or the NBBO price, whichever is better.
    (3) If the condition in paragraph (e)(3) is present (i.e., the 
opening trade would not be at the NBBO), the System will match orders 
and quotes to the extent possible at a single clearing price within the 
acceptable opening range or the NBBO price, whichever is better, then 
expose the remaining marketable order(s) at the NBBO price.
    (4) If the condition in paragraph (e)(4) is present (i.e., the 
opening trade would leave market order imbalance), the System will 
match orders and quotes to the extent possible at a single clearing 
price, then expose the remaining marketable order(s) at the widest 
price point within the acceptable opening range or the NBBO price, 
whichever is better.
    The proposed rule change amends the opening conditions to provide 
in proposed paragraph (d) as follows: \13\
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    \13\ The proposed rule change combines the exceptions in current 
paragraph (f) with the applicable opening conditions in current 
paragraph (e) into single proposed paragraph (d) for ease of review.
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    (1) If there are no quotes on the Exchange or disseminated from at 
least one away exchange present in the series, the System does not open 
the series. There are no exceptions to this opening condition. The 
Exchange generally requires an opening quote to ensure there will be 
liquidity in a series when it opens;
    (2) if the width between the best quote bid and best quote offer, 
which may consist of Market-Makers quotes or bids and offers 
disseminated from an away exchange (for purposes of proposed paragraph 
(d), the ``opening quote''), is wider than an acceptable opening price 
range (as determined by the Exchange on a class-by-class and premium 
basis) (the ``Opening Exchange Prescribed Width range'' or ``OEPW 
range'') \14\ and there are orders or quotes marketable against each 
other or that lock or cross the OEPW range, the System does not open 
the series. However, if the opening quote width is no wider than the 
intraday acceptable price range for the series (``IEPW range'') \15\ 
and there are no orders or quotes marketable against each other or that 
lock or cross the OEPW range, the System opens the series. If the 
opening quote width is wider than the IEPW range, the System does not 
open the series. If the opening quote for a series consists solely of 
bids and offers disseminated from an away exchange(s), the System opens 
the series by matching orders and quotes to the extent they can trade 
and reports the opening trade, if any, at the opening trade price. The 
System then exposes any remaining marketable buy (sell) orders at the 
widest offer (bid) point of the OEPW range or NBO (NBB), whichever is 
lower (higher). The proposed rule change only makes nonsubstantive, 
simplifying changes to the exception to this opening condition. Because 
the proposed definition of opening quote width includes bids and offers 
from away exchanges, opening quote width incorporates those bids and 
offers. If there are no Market-Maker quotes on C2 but other exchanges 
have disseminated bids and offers in a series, those away quotes 
constitute the NBBO for the series. Thus, the proposed rule change 
clarifies the System will open a series if the opening quote width, 
which is comprised of the best quotes on C2 and other exchanges 
(essentially, the

[[Page 83317]]

NBBO) is no wider than the OEPW range. The OEPW range is a price 
protection measure intended to prevent orders from executing at extreme 
prices on the open. If that market is no wider than the OEPW range, the 
Exchange believes it is appropriate to open a series under these 
circumstances and provide marketable orders on the Exchange with the 
opportunity to execute at the NBBO. If the opening quote width is no 
wider than the OEPW range, then the Exchange believes the risk of 
execution at an extreme risk is not present. With respect to the 
exception to this opening condition, if the best market (whether the 
Exchange or national market) would satisfy the price check parameter 
the Exchange uses for intraday trading, and there are no orders that 
can execute on the open, then there is no risk that an order will 
execute at an extreme price on the open. Because the risk that the OEPW 
range is intended to address is not present in this situation, the 
Exchange believes it is appropriate to open a series given these 
conditions. Other proposed changes make the language (e.g., language 
regarding matching orders and quotes and reporting the opening trade, 
and regarding the opening price being that which clears the largest 
number of contracts) in this paragraph consistent with language used in 
the other opening conditions and exceptions in proposed paragraph 
(d).\16\
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    \14\ Current OEPW settings are set forth in Regulatory Circular 
RG14-020. The acceptable price range is determined by taking the 
midpoint of the highest quote bid and lowest quote offer plus/minus 
half of the designated OEPW. The rules currently permit C2 to set 
the OEPW on a class-by-class basis. The proposed rule change also 
clarifies the Exchange may set the OEPW on a premium basis; as 
options with higher premiums may have wider spreads, the Exchange 
believes it is appropriate to have OEPW settings to reflect that. 
This is consistent with the Exchange's authority to set the IEPW 
pursuant to Rule 6.17(a).
    \15\ See Rule 6.17(a).
    \16\ Regulatory Circular RG14-020 sets forth the current OEPW 
range. This is the term with which Participants are familiar for the 
acceptable opening, and the Exchange believes it will be beneficial 
for investors if the rules refer to the same term.
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    (3) if the opening trade price would be outside the OEPW range or 
the NBBO, the System opens the series by matching orders and quotes to 
the extent they can trade and reports the opening trade, if any, at an 
opening trade price not outside either the OEPW range or NBBO. The 
System then exposes any remaining marketable buy (sell) orders at the 
widest offer (bid) point of the OEPW range or NBO (NBB), whichever is 
lower (higher). The Exchange believes using the term OEPW range with 
respect to the acceptable range for opening price in the rules is a 
more accurate description of the appropriate range for opening prices 
(as this is the term used in circulars and among Participants). The 
OEPW range is used as a price protection measure. Additionally, the 
proposed rule change clarifies that a series will open if the opening 
trade price is at the widest part of the OEPW range (it will expose 
orders if it is outside the OEPW range). The proposed rule change makes 
nonsubstantive, simplifying changes to this opening condition and 
clarifies that the opening trade price must be something not outside 
the OEPW range or the NBBO (including the ends of the applicable 
range). Other proposed changes make the language in this paragraph 
consistent with language used in the other conditions in proposed 
paragraphs (d);
    (4) if the opening trade would leave a market order imbalance, 
which means there are more market orders to buy or to sell for the 
particular series than can be satisfied by the orders and quotes on the 
opposite side, the System opens the series by matching orders and 
quotes to the extent they can trade and reports the opening trade, if 
any, at the opening trade price. The System then exposes any remaining 
marketable buy (sell) orders at the widest offer (bid) point of the 
OEPW range or NBO (NBB), whichever is lower (higher). The proposed rule 
change deletes language stating a series will open at a minimum price 
increment even if there is a sell market order imbalance. Because the 
System will open by matching orders and quotes, then exposing remaining 
orders, when there is a market order imbalance for any series, 
including those that will open at a minimum price increment as the rule 
currently states, there is no reason to highlight this situation in the 
rule. The proposed rule change also makes nonsubstantive, simplifying 
changes to this provision. Other proposed changes make the language in 
this paragraph consistent with language used in the other conditions in 
proposed paragraph (d); or
    (5) if the opening quote bid (offer) or the NBB (NBO) crosses the 
opening quote offer (bid) or the NBO (NBB) by more than an amount 
determined by the Exchange on a class-by-class and premium basis, the 
System does not open the series.\17\ The System currently does not open 
a series if this condition exists to prevent executions at extreme 
prices, and the Exchange proposes to codify this condition in the rules 
so that market participants are aware of all circumstances under which 
a series may not open. There are no exceptions to this opening 
condition. If the opening quote bid (offer) or NBO (NBO) crosses the 
opening quote offer (bid) or NBO (NBB) by no more than the specified 
amount, the System will open the series by matching orders and quotes 
to the extent they can trade and report the opening trade, if any, at 
the opening trade price. The System then exposes any remaining 
marketable buy (sell) orders at the widest offer (bid) point of the 
OEPW range or NBO (NBB), whichever is lower (higher). If the best away 
market bid and offer are inverted by no more than the specified amount, 
there is a marketable order on each side of the series, and the System 
opens the series, the System will expose the order on the side with the 
larger size and route for execution the order on the side with the 
smaller size to an away exchange that is at the NBBO. Only one order in 
a series may be exposed in a HAL auction, so this provision is 
consistent with this limitation and is intended to address the 
situation in which there may be a marketable order on each side of the 
market so that both orders have a possibility for execution. This 
exception is consistent with the other exceptions in proposed paragraph 
(d) as well as with current System functionality.
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    \17\ Currently, this amount is $0.25 for options with prices 
less than $3.00 and $0.50 for options with prices of $3.00 or more. 
See Regulatory Circular RG10-005.

Generally, the purpose of these opening conditions and exceptions is to 
ensure that series open in a fair and orderly manner and at prices 
consistent with the current market conditions for the series and not at 
extreme prices, while taking into consideration the markets of other 
exchanges that may be better than the Exchange's at the open. The 
exceptions provide the opportunity for orders to execute through a HAL 
auction or at an away exchange when that is the case.
    The proposed rule change moves provisions related to the exposure 
of orders at the open from current subparagraph (g)(2) and 
Interpretation and Policy .04 to proposed paragraph (d) to eliminate 
duplicative language and to include all provisions regarding the 
opening exposure process are including in the same place within the 
rules.\18\ The proposed rule change deletes the provision regarding the 
matching period of the HAL openings. The Exchange no longer uses 
matching period and just uses the exposure period, which may not exceed 
1.5 seconds. There is no allocation period for the HAL exposure process 
described in Rule 6.18, and the Exchange does not believe it is 
necessary to include one for HAL on the openings. As provided in 
current Interpretation and Policy .04

[[Page 83318]]

and proposed paragraph (d), the exposure process will be conducted via 
HAL pursuant to Rule 6.18 for an exposure period designated by the 
Exchange for a class (which period of time will not exceed 1.5 
seconds), so the Exchange believes the process for HAL on the openings 
should be consistent with the standard HAL process.\19\
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    \18\ Proposed paragraph (d) states the acceptable tick distance 
the Exchange may set to prevent execution of orders following 
exposure on the opening priced ``too far away'' from the exposure 
price will be determined on a class-by-class and premium basis 
rather than series-by-series and premium basis, as current paragraph 
(g)(2) and Interpretation and Policy .04 state. The Exchange sets 
this amount by class rather than by series and proposes to reflect 
that in the rules.
    \19\ The proposed rule change deletes from current paragraph 
(g)(2) and Interpretation and Policy .04 the provision stating the 
size of a response may not exceed the size of the exposed order. 
This language is included in Rule 6.18(b) and applies to all 
exposures via HAL. Because proposed Rule 6.11(d) provides exposures 
under that paragraph will occur pursuant to Rule 6.18, it is not 
necessary (and duplicative) to include this language in Rule 6.11.
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    The Exchange also proposes to add to paragraph (d) if the System 
does not open a series pursuant paragraphs (d), notwithstanding 
proposed paragraph (c) (which states the opening rotation period may 
not last more than 60 seconds), the opening rotation period continues 
(including the dissemination of EOIs, which is consistent with language 
the Exchange proposes to delete regarding the notifications sent to 
market participants if one of the opening conditions is present) until 
the condition causing the delay is satisfied or the Exchange otherwise 
determines it is necessary to open a series in accordance with proposed 
paragraph (e). This is currently how the System operates, and the 
Exchange believes it will benefit investors to explicitly state this in 
the rules, particularly because, under these circumstances, the opening 
rotation period will last longer than the standard length of time 
determined by the Exchange. The Exchange believes it is important for 
Participants to continue to receive EOIs, particularly those describing 
why a series is not open, so they have close to real-time information 
regarding the potential opening of a series.\20\
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    \20\ Current Rule 6.11(j) and proposed Rule 6.11(g) provides the 
opening procedures described in the rule may also be used after the 
close of a trading session for series that open pursuant to Rule 
6.11. The proposed rule change makes nonsubstantive changes to 
proposed paragraph (g) to more clearly and simply state the 
potential applicability of the opening procedures to a closing 
rotation for series that open pursuant to Rule 6.11 and to include 
additional detail regarding the notification to Participants 
regarding the decision to conduct a closing rotation.
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Other Changes
    The proposed rule change amends Rule 6.11 as follows:
     Current Rule 6.11 provides in various places the Help Desk 
may deviate from the opening procedures, including paragraphs (b)(2) 
and (h). The Exchange believes it is simpler to have one single rule 
provision within Rule 6.11 that applies to the entire rule stating the 
Help Desk may determine whether to modify the opening procedures when 
they deem necessary. The Exchange proposes to delete these references 
and combine them into current paragraph (h) and proposed paragraph (e). 
The proposed rule change lists examples of actions the Help Desk has 
flexibility to take when necessary in the interests of commencing or 
maintaining a fair and orderly market (some of which are listed 
throughout current Rule 6.11), in the event of unusual market 
conditions or in the public interest, including delaying or compelling 
the opening of any series in any options class and modifying timers or 
settings described in Rule 6.11. The proposed rule change adds the 
Exchange will make and maintain records to document all determinations 
to deviate from the standard manner of the opening procedure, and 
periodically review these determinations for consistency with the 
interests of a fair and orderly market.
     The proposed rule change also amends current Rule 6.11(i) 
and proposed Rule 6.11(f) to indicate the procedure described in Rule 
6.11 may be used to reopen a series, in addition to a class, after a 
trading halt. This proposed changes addresses a potential situation in 
which only certain series are subjected to halt. As series open on an 
individual basis, the Exchange does not believe this to be a 
significant change. The proposed rule change also adds detail regarding 
notice of use of this opening procedure following a trading halt and 
clarifies the procedure would be the same, however, based on then-
existing facts and circumstances, there may be no pre-opening period or 
a shorter pre-opening period than the regular pre-opening period. 
Specifically, proposed paragraph (f) states the Exchange will announce 
the reopening of a class or series after a trading halt as soon as 
practicable via electronic message to Participants that request to 
receive such messages.\21\ C2 believes it is in investors' best 
interests to reopen a class or series as soon as possible after a 
trading halt, which may make advance notice in certain situations 
impractical. The proposed rule change provides the Exchange with the 
ability to re-open as quickly as possible following a halt.
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    \21\ The proposed rule change also notes the Exchange may reopen 
a class after a trading halt as otherwise set forth in the Rules, 
including Rules 6.32.
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     The Exchange proposes to amend Interpretation and Policy 
.01, which states the Exchange may determine on a class-by-class basis 
which electronic algorithm from Rule 6.12 applies to the class during 
rotations. The proposed rule change makes the electronic algorithm that 
applies to a class intraday the algorithm that applies to a class 
during rotations, but still leaves the Exchange with the same 
flexibility to apply a different algorithm to a class during rotations 
if it deems necessary or appropriate. This proposed change merely makes 
the intraday algorithm the default opening algorithm for a class. The 
Exchange believes it is important to maintain this flexibility so that 
it can facilitate a robust opening with sufficient liquidity in all 
classes.
     The Exchange proposes to amend Interpretation and Policy 
.02, which states all pronouncements regarding determinations by the 
Exchange pursuant to Rule 6.11 and the Interpretations and Policies 
thereunder will be announced to Participants via Regulatory Circular. 
In addition to nonsubstantive changes to make the language more plain 
English, the proposed rule change adds determinations will be made via 
Regulatory Circular with appropriate advanced notice to ensure Trading 
Permit Holders are aware of these determinations and have sufficient 
time to make any necessary changes in response to the determinations. 
The proposed rule change also adds notice of determinations may be made 
as otherwise provided, as other parts of Rule 6.11 state certain 
notifications will be made in a different manner (for example, via 
electronic message).
    The proposed rule change makes numerous nonsubstantive and clerical 
changes throughout Rule 6.11 (including its Interpretations and 
Policies), including adding or amending headings and defined terms, 
updating cross-references, adding introductory and clarifying language, 
using consistent language and punctuation, replacing terms such as 
``option series'' with series (all series listed for trading on the 
Exchange are for options, making it unnecessary to include ``option''), 
and using more plain English.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Act and the rules and regulations thereunder applicable to the Exchange 
and, in particular, the requirements of Section 6(b) of the Act.\22\ 
Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \23\ requirements that the rules of 
an exchange be designed to prevent fraudulent and manipulative acts and

[[Page 83319]]

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) \24\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \22\ 15 U.S.C. 78f(b).
    \23\ 15 U.S.C. 78f(b)(5).
    \24\ Id.
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    In particular, the proposed rule change enhances the description of 
the opening procedures in the rules to reflect how the System opens 
series, which perfects the mechanism of a free and open market and 
ultimately protects investors. The Exchange believes the proposed rule 
changes to reorganize and enhance the description of the opening (and 
sometimes) closing procedures will benefit investors, because the rule 
as amended more accurately and clearly describes how the System opens 
series on the Exchange. Thus, investors will have a better 
understanding of how their quotes and orders will be handled during 
opening rotations if they elect to submit quotes and orders during the 
pre-opening period or if they have orders resting on the book from the 
prior trading day. Similarly, the Exchange believes the deletion of 
duplicative provisions from Rule 6.11 will benefit investors by 
eliminating potential confusion about the applicability of those 
provisions. The nonsubstantive and clerical changes will create more 
consistency and clarity throughout and otherwise simplify the rule. 
Further, the Exchange believes the additional information regarding 
notification of the use of the opening procedure following a trading 
halt will clarify for Participants when and how they will know from the 
Exchange such use is occurring.
    The revised opening conditions are intended to promote just and 
equitable principles of trade, as they ensure that series open in a 
fair and orderly market with sufficient liquidity in the series and 
opportunities for execution at prices that are consistent with then-
current market conditions rather than potentially extreme prices. These 
proposed changes ensure that market participants are aware of all 
circumstances under which the System may not open a series.

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. The opening procedures as 
revised by the proposed rule change will still apply to all market 
participants in the same manner as they do today. The proposed rule 
change more accurately describes the opening procedures that are 
currently in place on the Exchange, which procedures are designed to 
open series on the Exchange in a fair and orderly manner. These changes 
have no impact on competition. The purposes of the opening conditions 
are to ensure there is sufficient liquidity in a series when it opens 
and the series opens at prices consistent with the current market 
conditions (at the Exchange and other exchanges) rather than extreme 
prices that could result in unfavorable executions to market 
participants. The nonsubstantive changes and clerical changes have no 
impact on competition, as they are intended to eliminate confusion 
within and simplify the rules.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-C2-2016-021 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-C2-2016-021. 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-C2-2016-021, and should be 
submitted on or before December 12, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
Brent J. Fields,
Secretary.
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    \25\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-27895 Filed 11-18-16; 8:45 am]
 BILLING CODE 8011-01-P


